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-fomc-corpus,1988,"Mr. Chairman, our forecast at the Bank is one that I think is close to the other side of Mike's coin. We do not have a significant increase in interest rates built into our forecast; we have a bit of an upward drift. But for that reason and for others, it's a forecast that ends up, on balance, with a phenomenal GNP growth rate--a percentage point and a half or so above what's in the Greenbook. And because of where we are relative to potential, a good part of that excess shows through in terms of higher inflation. Indeed, by the end of the forecast period, our forecast would have a very significantly higher inflation rate than what's in the Greenbook. That is not a testimony to any one forecast, but I think it's very vivid testimony to how much of a razor's edge we are on, in terms of what does or does not happen in the economy. I don't have a great deal of conviction per se about any one forecast, but I must say my instincts continue to be very similar to Bob Parry's. I'll just briefly share [some comments] with the Committee, Mr. Chairman, partly because this is such a very difficult period to read. In the first two weeks of September, we talked to a couple of dozen firms to try to get a more systematic anecdotal appreciation of what's going on. Now, a systematic approach to anecdotal reports is in no way a survey for purposes of OMB or anybody else.",298
-fomc-corpus,1988,Can't be or you'd get in trouble.,8
-fomc-corpus,1988,"With that in mind, I'd like to touch on just a couple of the highlights. The firms that we talked to included about a dozen or so very prominent manufacturing firms with headquarters in the Second District, some smaller manufacturing firms, and some very prominent retail firms. As of right now, what comes through is that the export sector is literally still booming. Export sales were very strong indeed, with increases in volume terms typically well into double digits. There was only one case where that was not true, and that particular firm didn't seem very concerned about it because they have a very large backlog of orders--orders that haven't even formally been booked yet for jet engines that are ultimately destined for overseas markets. On the question of the current level of the dollar, none of the firms expressed any concern about the current level. Indeed, the impression was that even at current exchange rates, U.S. firms were quite competitive except in apparel and clothing categories. There were two small firms that did say that a yen/dollar of 140 was kind of a threshhold for them. But generally speaking, there was no concern expressed in terms of current exchange rates and the ability of this strong export performance to continue. But perhaps even more interesting is that we see here for the first time, in anecdotal terms, a number of clear cases of capital goods shifting away from foreign suppliers to U.S. suppliers. I don't want to suggest that that was the universal pattern, but of the major firms, about an equal number reported that positive shifting was taking place. None said it was getting worse, with the exception of one company that was doing more sourcing from Mexico--which in some ways is a good thing, of course. In addition, quite apart from capital goods, there were also a number of firms--and we haven't heard this for a long time either--that were also reporting gains in domestic market shares in general, relative to imports. In other words, they are actually now displacing imports in the domestic marketplace. Again, the major exception to that is all of the clothing and textile firms--apparel-related things. That area is still lousy throughout, both at production and retail levels. But in other areas there are some distinct changes. In terms of domestic sales performance, with only one or two exceptions, these firms reported current trends I think that were really quite strong, often in double digits. On the output, wage, and capacity side--again, none of this is very scientific and I don't want to put the wrong cast on it. But it's really interesting because about half of the big firms--and these are the manufacturers, of course--reported no capacity constraints to speak of or nothing they couldn't cope with. Whereas another half reported some problems--and these were typically in the areas that we would expect. When it got to the particular question of input problems, in terms of price, delivery delays, etc., again it was about half-and-half. About half did report that they were having input problems defined either as rapidly rising prices or delivery lags. Those patterns were clear in steel, plastics, computer chips, aluminum, paper, and surprisingly, in some Japanese component parts. But the other side of it is that about half of them didn't report particular problems of that nature. On the labor question--and this is very interesting--the responses broke almost straight down the line based on size. The large firms did not report any particular problems in terms of labor shortages; the small firms did. The same was more or less true in terms of wages in general. The overall impression that I get, not just from this but from listening to our directors and others, is that there is some upward movement on the wage side but it's not significant yet. That's defined in terms of maybe a 1/2 percentage point type of thing. But the conclusion that I draw from all this impressionistic data is consistent or compatible at least with my own thoughts and instincts--that the risks are rather asymmetric in the direction of greater pressures on domestic output and resources, at least over the near term. On the other hand, it may also be consistent with the view that while the inflation genie isn't perhaps out of the bottle, it's by no means clear that the cork is firmly in place.",855
-fomc-corpus,1988,Governor Seger.,4
-fomc-corpus,1988,"The most intriguing information I've had since the last meeting didn't come from an economist or businessman but from a psychiatrist who happened to be sitting next to me on an airplane coming back from Boston. He was writing madly and I could see the word depression, so I thought he was one of the crackpots who writes the doom-and-gloom books about the end of the economic world. After a few minutes we got to talking, and I discovered that he is a psychiatrist specializing in depression. But the useful information to me was that as he counsels people, one of the first things he asks them is for information about their spending habits, particularly the spending that they do using little pieces of plastic. And what he's discovered is that this is one of the early signs of depression--that people go out on these big spending sprees. They buy cars--no, seriously--that they can't afford.",179
-fomc-corpus,1988,I know; I've done that!,7
-fomc-corpus,1988,"I'm not smart enough to make this up. They buy cars they can't afford, do all this spending, and run their cards right up to the limits--and this is just before they go over the edge. So we decided that based on what he saw and what I had seen in the statistics that there are a lot of psychos running around.",69
-fomc-corpus,1988,Another problem for the Federal Reserve.,7
-fomc-corpus,1988,Another problem for him; he can [profit?] from that.,14
-fomc-corpus,1988,"Yes, that's right, he's doing okay. In that con-nection, though, anyone I speak with other than him suggests that consumers as a whole aren't on a big spending spree. So I guess my view of the economy is a little less optimistic than the staff's. Also, on the housing side, some of the realtors I've spoken with suggest, first of all, that the recent increases in mortgage rates haven't all been felt; and, secondly, that consumers are beginning to react to the high prices on new homes. Also, in certain parts of the country, like Mr. Parry's enlightened California, there are these tremendous restrictions on growth; and it's very difficult to get lots on which to build houses despite the whining about the housing shortages. So I think that our forecast on housing starts might be a touch high. Finally, as I think I hinted in my discussion with Mike Prell and Ted Truman, I'm a little less certain that we're going to get the export improvement that we are forecasting. I would certainly like to see it because, while certainly some companies are still competitive at existing exchange rates and in [scenarios] that involve a slightly cheaper dollar, I don't think everybody is. And that concerns me. So those are the three areas where I guess I differ from the staff. Thank you.",265
-fomc-corpus,1988,President Black.,3
-fomc-corpus,1988,"Mr. Chairman, I think every point I wanted to make has been made by someone--but some by one person and some by another. Let me just summarize briefly. We agree very closely with what the staff has suggested in the Greenbook. We see the same signs of moderation, partly because of the employment figures and other national figures, and also because of the grass-roots reports that we've getting from our directors, particularly in textiles and furniture. But I'm glad to see this, because I thought the economy was growing way, way too fast and the risks were all on the upside. This suggests that maybe they're less on the upside now than they were before. But like most of those who have spoken, I still think that the risks definitely are skewed more towards the upside and that there's a danger that the economy might overheat. These figures showing moderation have been around for only a month or two at most, and apart from housing, there are no real large parts of the GNP accounts or significant sectors that show any signs of a great or sustained weakness. And then, if you look at the figures in section II of the Greenbook, they show that there is some upward pressure on both wages and prices. Mike has just reported that the figures on the implicit price deflator and the fixed-weight deflator for the second quarter were worse than we thought they were, based on the initial reports. So in short, while I feel a little bit better than I did before, because there are some signs of slowing, I don't think we're out of the woods yet. And I would think that the staff's prognostication that somewhere down the line we'll need to tighten further is probably still right, although now might not be the time to do that.",353
-fomc-corpus,1988,President Stern.,3
-fomc-corpus,1988,"There's very little new to report on the District economy. I'll try to dispense with that very quickly. As I've commented before, most of the District economy is and remains very strong. The obvious exception is the areas affected adversely by the drought; otherwise, the economy in the District is in good shape. As far as the national outlook is concerned, I find myself in substantial agreement with the Greenbook forecast. I don't know how much of a further rise in interest rates might be required to stem building inflationary pressures, perhaps not very much, but I think the Greenbook does appropriately identify where the risks are. As I look at the latest statistics, I think they do suggest some slowing in the pace of expansion in the last month or two--a slowing that, as several people have already commented, is welcomed, in my judgment. But I find that there's maybe a little tendency to exaggerate this. Even though I wouldn't try to construe the August labor market report as very strong, it's still a 200,000 increase in payroll employment--2-1/2 million workers at an annual rate--which is not a trivial increase in employment at all, especially given the tightness in labor markets that already exists. And, as I already suggested, inventory/sales ratios look, if anything, on the low side to me. So I think we may see more strength, at least in the near term, coming out of inventories than the Greenbook forecast anticipates.",296
-fomc-corpus,1988,President Boehne.,5
-fomc-corpus,1988,"The region continues as it has been: It's operating at high levels, although there is some moderation; labor markets are very tight; and, wage rates are higher than the nation as a whole. As far as the national economy, I subscribe to the view that the economy is moderating, but that more moderation is needed and additional restraint is probably also needed. While the risks are on the side of too much demand, I think we need at this point to keep a very open mind and shouldn't rush to judgment on it for the reasons that were articulated nicely by Mike Prell. I'd like to watch the economy closely and be prepared to tighten if necessary. But I wouldn't rush into it at the moment, just because I have enough doubts to think that a little patience is in order.",157
-fomc-corpus,1988,President Morris.,3
-fomc-corpus,1988,"Mr. Chairman, we in Boston agree very strongly with the staff's long-term conviction that the economy is so strong--its strength stemming from net exports and capital goods--that the job of the Federal Reserve would be to try to keep this economy from going beyond capacity levels and generating a new inflationary cycle. And we agree that substantial increases in interest rates are likely to be required to produce that. We're seeing a little evidence of a slowdown recently, but this is the kind of flow that you often get in a very strong economy. I don't think we ought to get it in our minds that we've reached a level of growth which from now on is going to be compatible with price stability. I think it's a very short-term phenomenon we're talking about. And I think our financial markets have been impacted in the last couple of months by a very special factor--a nonsustainable special factor--which is that private foreign capital inflows have been coming into this country at rates substantially in excess of the amount of our foreign account deficit. Of course, the counterpart of that is very large sales on the part of central banks, including ourselves. This I think has greatly strengthened our bond market; but it's not a factor that we can count on being sustained for very long. We've seen foreign exchange markets in the past couple of years turn on a dime. And I suspect that sometime in the next few months the appetite of private foreign investors for U.S. assets is not going to continue to grow at the present rate. And when that happens, you're going to see many long-term bonds go up by 50 basis points, and perhaps more, overnight. I think we're living in a special financial world here which is not sustainable. Could I comment about the meeting schedule for next year since I can do so in an objective manner since I won't be here? You know we--",372
-fomc-corpus,1988,In a way in which you will choose now to comment.,12
-fomc-corpus,1988,"We set up this eight-meeting schedule at the time we went to targeting the monetary aggregates. And the idea was that, since we're controlling M1 and presumably not paying attention to anything else, why do we have to meet every month? It seems to me that the Committee would be well advised to go back to a once-a-month schedule because we're in an environment in which I don't feel comfortable that we're not having another meeting until November 1st. It's such a rapidly changing world that we live in that I think an eight-meeting schedule is too few. It's true that we can handle problems in conference calls, but that doesn't quite substitute, in my mind, for the discipline of gathering around this table. I know the staff won't like it because it increases their work load, and a lot of the presidents won't like it because of travel requirements. But I don't think those considerations should be paramount. And I would strongly advise you to at least think about going back to the once-a-month schedule because it seems to me that the volatility of the world we live in isn't well suited to this Committee meeting every five or six weeks. As far as the New England economy is concerned, we're continuing to grow at about half the rate of the national economy, simply because of the shortage of labor. The only state in New England which is growing as fast as the national economy is Maine, which has a very high unemployment rate of 4 percent. And it's the only surplus labor area in New England, so manufacturing industries are tending to push farther and farther north into Maine and threaten our little enclave at Lewiston, Maine. That's a very low-wage RCPC; it has the lowest unit labor costs of any check processing center in the country, and my successor may not have that distinction for very much longer.",362
-fomc-corpus,1988,I think you can tranship them to Dallas.,10
-fomc-corpus,1988,President Melzer.,4
-fomc-corpus,1988,"I want to make a couple of comments on projections based on a money-driven model and just what that looks like. Essentially, I'd say the projections are very similar to those of the Board's staff. There are some differences between the second half of this year and next year, but I would characterize the pattern as one in which inflationary pressures are contained, but not significantly reduced, over that 18-month period. The projections I'm talking about are based on an assumption of 4 to 6 percent M1 growth. And I guess the conclusion that I reached from looking at that--and obviously, this is the model output and then, just as the Board staff does, some subjective judgments are made--was that I'd be much more concerned about, say, money growth in June and July of 9 percent, than I would be about August of less than 1 percent. I think the general pattern is such that the same conclusion comes out in this sort of model--that the risks are more on the upside than the downside. As far as the District goes, the report is essentially the same as last month. We're still showing weakness relative to the rest of the economy and in some areas, particularly in industries like textiles and apparel, there are employment declines.",253
-fomc-corpus,1988,President Guffey.,5
-fomc-corpus,1988,"Thank you, Mr. Chairman. With respect to the Tenth District, there is not a great change from last time. To summarize, we are still trailing the growth rate of the national economy. But in all areas, including energy and agriculture, there is some improvement--to be sure, improvement from a very low base. Manu-facturing is doing very well; retail sales have been holding up but not very vigorous. By and large, the Tenth District is continuing on a trend to recovery, but a bit slower than the national rate. With regard to the national economy and the projection con-tained in the Greenbook, we would be very close to that except that the pattern we have is a bit different. If I understand the Greenbook forecast, the drought effect has largely run its course by the end of the year, whereas we would find the effect to be fairly even in each of the four quarters from the second quarter of 1988 to the second quarter of 1989. Notwithstanding that minor difference, it still seems to me that we are projecting a very vigorous growth well into 1989. And, given the comments around the table and what we hear in the Tenth District with respect to wage and price increases not really showing up yet, it is still a matter of major concern that, on the national level, we're putting considerable pressure on our resources. I guess my view is that there is going to have to be some greater restraint in the future in order to get the kind of pattern over the longer term that we'd like to have. I would also like to add, if I may, that I happen to agree with Frank Morris--as painful as it is personally because of the travel--that going back to a monthly meeting schedule makes a lot of sense, given the way we're operating at the moment.",371
-fomc-corpus,1988,President Hoskins.,4
-fomc-corpus,1988,"The District overall remains pretty strong, particularly in manufacturing. We have some slow delivery times in particular industries, and we have some price increases coming across, but nothing that startling at this point, particularly in the capital goods area. Wage demands on the manufacturing side have remained moderate, but we're concerned that because of the strength in the service wage component--they're in the same labor markets--that in fact, they'll begin influencing each other and then we'll see sharper wage increases across the board than we're currently seeing. Retail sales ex-autos have been flat and construction has been rather lackluster. As you know well, our directors have felt very strongly about the strength of the economy, except that at the last go-around they were not quite as adamant, as you probably noticed; I saw some deterioration in their concerns about inflation. Nevertheless, there's still great strength in the District. As far as the national economic outlook, I guess I really don't have much reason to disagree with Mike's projections. However, if I were to estimate an error on it, I would say the error is probably going to be on the upside in terms of strength and inflationary pressures rather than on the downside. We've seen the inflation rate move up a 1/2 percent or so each year. And, as you know, that is the wrong direction from my perspective. I think we ought to gear policy to that long-term objective, which implies we'd probably have to face more tightening--perhaps more than the staff has in place.",303
-fomc-corpus,1988,Governor Angell.,4
-fomc-corpus,1988,"I'm very pleased with the present state of monetary policy and conditions in the economy. That doesn't mean I like the 4 percent rate of inflation. I just didn't believe that we could make the exchange rate adjustments that were so necessary to make--[along with] the rebound of oil prices from those lows and some rebound in wage rates from what I would call somewhat unsustainably low nominal rates--without having some temporary bounceback in the rate of inflation. I have no reason to think that the staff's real economy forecast is not within the range of that which is likely. I would tend probably to have a slightly higher net export figure, Ted--closer to what you had in the June Greenbook than those that you have in today--but there's not enough there to argue much about. I think if anything is different, consumer spending might be slightly softer, but it's very difficult to predict. The pleasing aspect of policy at this point in September 1988 is that, as far as I can see, we've returned the growth of the monetary aggregates to the pace that was occurring in 1987--and I thought the rate we had in 1987 was appropriate to provide a soft landing for the dollar. And it's very encouraging to me to see that, after the monetary aggregates responded to the somewhat easier stance we maintained during the fall and winter, the aggregates have responded the way they have to our attempts to be serious about not letting M2 rise above the top of the target at the first of the year, even though we had a somewhat distorted base level. And now it looks as if M2 is going to end the year in the fourth quarter below the midpoint and could very well be as low as 4-1/2 to 5 percent at the end of the year. Don Kohn shakes his head a little bit at that. I think we have to keep in mind the time lag between interest rate changes and response in those monetary aggregates. In June, as you may remember, I talked a little bit about the hint of changing commodity prices, and I think I was kind of reading tea leaves at that point. But we've had further evidence that the monetary restraint in place is having an impact on commodity prices--and even though we've had, it seems to me, a peaking of commodity price rises earlier in the year, the drought gave us a kind of a double-peak effect. But the commodity price picture does look much improved. I believe that the fight against inflation is a long one and one that we must sustain over a long period of time; and I would be willing, of course, to accept very low growth rates in the monetary aggregates, but I would really suggest that zero may not be desirable.",551
-fomc-corpus,1988,"Governor Heller. MR.HELLER. Thank you. Let me take a little bit longer perspective on the current situation. In 1986, we had 15-1/2 percent M1 growth and almost 10 percent M2 growth and that, I think, is reflected to some extent in some inflationary bulge, which is now working its way through the economy from producer prices slowly down to consumer prices. By the way, I think that lag is exactly what the textbooks tell us it is--18 months or thereabouts, counting from the 1986 area to slightly over the middle of 1988, with some variance around it. Then, following what Governor Angell just said, in 1987 we saw a very substantial slowdown in monetary growth and I think that slowdown is starting to make itself felt in the real economy, which we are observing right now. As I think many people pointed out, there is some moderation in the economic growth picture in the Greenbook forecast. There's more of that weakening, especially in the coming year. Personal consumption next year is forecast to be 1-1/2 percent; residential construction is negative; and there isn't one single sector which is growing above the 2-1/2 percent growth rate that was described as optimal--except for domestic investment and exports. And I think it's absolutely essential, if we worry about growth constraint, that we keep domestic investment growing at a solid rate. It is somewhat disconcerting, however, that even the growth rate in that sector is forecast to be cut in half for the coming year. So, what we're about to do here is kill the goose that lays the golden eggs. We can't talk about a growth constraint being relevant for policy when the one factor that can ease that growth constraint, which is domestic investment, is being cut and restrained. I also agree that exports have to be maintained. I'm happy to see the higher export growth rates. The current level of the dollar, I think, is entirely appropriate. We're below purchasing power parity; therefore, we do have a competitive advantage and we can make further inroads into foreign markets. The scenario that was outlined by Mike Prell in response to Governor Kelley's questions is the really scary one--the black box, the Pandora's box, that the new President would have to face if growth falters, if we have the higher interest rates that we're talking about, and if the tax revenues are not coming in. So I see the downside risks as a very unpalatable combination of factors indeed. The upside risks I see as rather minimal, because of the items that Governor Angell has outlined already. In my view, we're seeing essentially a moving through the economy of that inflationary bulge. If you look at the beginning of that process, you'll see very positive signs--the commodity prices being maintained, the flattening of the yield curve, and also the strong dollar in international markets. All are good portents of rather subdued inflationary expectations. So, basically I like the economy the way it is running right now. I think we're exactly on the right track and I would like to do everything possible to keep it moving that way.",645
-fomc-corpus,1988,Governor Kelley.,3
-fomc-corpus,1988,"I wanted to very briefly express something very similar to what Governor Heller just expressed, and I won't repeat it. I'll simply say I'm coming from the same place that he is. I had expressed before my concern about what could happen in the 1989-90 time scenario. If the black box kind of thing begins to happen and we slide over into a recession before we have a chance to adjust further the fiscal/monetary mix and the trade/consumption mix and so forth, I'll continue to have those concerns. I have a very low level of enthusiasm for running a high risk of inducing a recession in the near future. Hopefully, we do have some slowing going on and to quote Ed Boehne from a few minutes ago, I think that this is not a time to rush to judgment. So I would prefer to watch and wait a little bit and see how things go.",180
-fomc-corpus,1988,Governor Johnson.,3
-fomc-corpus,1988,I really don't want to add much to any of that. I think everything has been said. We've seen recently some signs of slowing as everyone has pointed out. That seems to have had a moderating effect in the financial markets and I don't know whether that's going to continue or not. All I know is that it looks pretty good right now and certainly doesn't lend any weight to overreacting. So I support what others have said.,87
-fomc-corpus,1988,"Governor LaWare, do you have any comments you'd like to make?",14
-fomc-corpus,1988,No.,2
-fomc-corpus,1988,"Why don't we, then, go to relevant policy decisions.",12
-fomc-corpus,1988,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1988,Thank you. With that we'll take our usual break.,11
-fomc-corpus,1988,Are there going to be questions?,7
-fomc-corpus,1988,"I'm sorry. I thought we might do questions after the break. We can do questions now, if you like.",23
-fomc-corpus,1988,"Don, we have in the Bluebook, the M2 and other forecasted growth rates. What happens in 1989 quarter 1 and quarter 2 with, let's say, alternative ""B"" and what would happen in quarter 1, quarter 2, and maybe in quarter 3 if you put in the staff's interest rate forecast?",71
-fomc-corpus,1988,I can answer the second one more easily because I have a table in front of me.,18
-fomc-corpus,1988,"Okay, that's fine; that's the most important.",10
-fomc-corpus,1988,We have about 3-3/4 percent growth of M2 over the year 1989 consistent with the staff's interest rate and GNP forecast.,32
-fomc-corpus,1988,1989 over 1988?,7
-fomc-corpus,1988,Q4 1988 to Q4 1989.,12
-fomc-corpus,1988,Okay.,2
-fomc-corpus,1988,And that embodies slightly lower growth rates in the first half of the year than in the second--on the order of 2-1/2 percent in the first two quarters--and that's because we've assumed that interest rates continue to rise through the first half of the year. And then things level out.,61
-fomc-corpus,1988,So that means you need almost a 5 percent growth rate in the second half of the year to get 3.7?,26
-fomc-corpus,1988,"That's correct. Now, let's suppose interest rates were flat. I don't have a direct table here, but I do have a sense from our model simulations that to those 2-1/2, 3 percent growth rates for the first half of 1989, I would probably add about 1-1/2 to 2 percent per quarter if interest rates were kept flat. So I would have more like 4 to 5 percent.",91
-fomc-corpus,1988,"Okay, so the 2.8 percent rate that you have for quarter 4 would tend to rebound in quarter 1.",26
-fomc-corpus,1988,It should.,3
-fomc-corpus,1988,If we did not have other increases.,8
-fomc-corpus,1988,Absolutely--with the increase in interest rates through August.,11
-fomc-corpus,1988,And it could rebound to 4 or 4-1/2?,15
-fomc-corpus,1988,"Yes, in the first half; and I would expect it to rebound further in the second half as--",21
-fomc-corpus,1988,Thank you. That's very helpful.,7
-fomc-corpus,1988,"Any other questions for Mr. Kohn? If not, we'll have a recess.",17
-fomc-corpus,1988,"Following up on Peter Sternlight's remarks about the borrowing requirements, I think that policy generally over the intermeeting period has required very little in the way of adjustment. In fact, it's very rare that the outlook seems to change so little over so short a period. One thing that worries me about the current economy is that it is vaguely reminiscent of a sag that occurred in 1976--which everyone assumed was the beginning of a decline, and it was a pause which sort of disappeared. That was a bit more in the way of a real slowdown. And I think we've got to be a little careful that we're not looking at a false dawn. Export orders, unfilled orders are still very high. I see no evidence of any deterioration, even though there's been some slowdown in actual deliveries over the last three months. Capital goods markets remain quite strong. The order structure, appropriations, does not seem to be deteriorating. It is true that there is some marginal weakening on the edges in a lot of different areas--the textile-apparel complex, I think, being the most obvious and the most important so far as size is concerned. I think the crucial issue, which bothers me about the presumption that we would be in any way accumulating a softening from here, is that the inventory situation has actually softened some. And I suspect that's in part the cause of some of the overheating or preceived overheating being offset. I'm a little concerned about the numbers, because whenever you get this high in operating rates, seasonal adjustments for July and August often tend to be a problem. The classic case is the steel industry, which normally shuts down for a couple of weeks as an ordinary seasonal, but in times of peak demand, such as now, it doesn't shut down. Then what you get is a seasonally adjusted sharp rise, unless somebody has the good sense to cut it. And it comes right back down. I think that's a part of the surge that appeared to be a real acceleration in June and July and an easing in August. I suspect--at least looking at the initial claims figures which I think are really relevant to this situation--that basically, the economy probably continues firm, although not as aggressive as I think some of us feared somewhat a little earlier in the summer and in the late spring. Corporate profit figures look quite good. The report this morning was showing that profits continue to move forward in a reasonably good fashion and that usually is a precursor of underlying capital investment--domestic capital investment--being supported. So, in general, I think it is very difficult to visualize any really significant change in the outlook. I think we're neither accelerating nor decelerating. As a consequence, I must say I would feel comfortable with just taking the last directive, changing the dates and a couple of numbers, and going with it. It is essentially a no-change scenario, asymmetric towards tightness, which I think is probably right. My only suspicion is that we're not going to see anything that will require moving in a tightening direction in the intermeeting period. But I find the possibilities of easing just about as remote as I think they can get. I see no particular problem in continuing to be concerned about acceleration but I think that, unless and until we actually see the events as they emerge--until we get some evidence that this is in fact the type of pause which, frankly, I think it's likely to be--it would be premature at this stage to tighten further. Governor Angell.",701
-fomc-corpus,1988,"Mr. Chairman, I can certainly go with your suggestion. I, too, believe that we're more likely in the intermeeting period to need to tighten than we are to ease, but I would not take that to mean that there's not some circumstances in which we might be surprised. If there's a 60 percent chance that we would not need to make any move at all, and a 30 percent chance we might need to tighten, I think there are some circumstances that might develop--, that conditions might change in an economy with certain kinds of financial bankruptcies occurring and certain kinds of uncertainties. But I can--",123
-fomc-corpus,1988,"If you're saying 60, 30, 10, I buy that.",16
-fomc-corpus,1988,Okay.,2
-fomc-corpus,1988,President Parry.,4
-fomc-corpus,1988,"If that's in the form of a motion, I certainly would second it, particularly with the asymmetric language. I would point out, though, that I really do doubt that we're going to be lucky enough to get through more than a meeting or two without further tightening. I think there are pressures on the underlying rate of inflation that are likely to intensify. And I think that some of the potentially favorable developments associated with the price of oil and the rising dollar--as far as inflation is concerned--could easily be reversed. At this time, given the uncertainties, it seems to me that alternative ""B"" is probably the appropriate path. But given my concerns, I would very much favor the asymmetric language that was incorporated in the previous directive.",148
-fomc-corpus,1988,President Boehne.,5
-fomc-corpus,1988,Second the Chairman's suggestion.,6
-fomc-corpus,1988,Third.,2
-fomc-corpus,1988,Third.,2
-fomc-corpus,1988,President Forrestal.,4
-fomc-corpus,1988,"Mr. Chairman, as I had tried to suggest in my earlier comments, I think the risks continue to be on the upside in the economy. I think we should not be lulled by this softening at the fringe, as you put it. So I would very strongly support your recommendation, particularly with respect to the asymmetric language. I think that we do have a period in which we can pause and take stock of what's been happening. And particularly with respect to the dollar, I think if we were to initiate additional tightening moves at this time we might get another increase in the dollar, with the danger of a ratcheting upward of rates around the world that would not be appropriate at this time. So I would strongly support your recommendation.",149
-fomc-corpus,1988,President Morris.,3
-fomc-corpus,1988,"Mr. Chairman, I agree with Mr. Parry that the Committee is going to have to be taking other moves toward tightening in the not-too-distant future, but the timing is not right for the moment. And I would agree with your position.",51
-fomc-corpus,1988,President Black.,3
-fomc-corpus,1988,"Mr. Chairman, I agree with your position too. The only thing I would add to it is that these rates of inflation projected by the Board's staff, as indexed by the fixed-weight deflator, are way too high. So, I wouldn't be completely satisfied with that outlook, although that may be the most it's reasonable to expect. I would go right down the line with you on it.",80
-fomc-corpus,1988,President Keehn.,4
-fomc-corpus,1988,"Mr. Chairman, I also agree with your recommendation. I would add only one thing to it in terms of the operations of the Desk. If what we're doing would suggest a federal funds rate of, say 8-1/8, I'd certainly be more comfortable with a slightly higher rate than I would with a lower rate.",66
-fomc-corpus,1988,Further comments?,3
-fomc-corpus,1988,I'll join.,3
-fomc-corpus,1988,Vice Chairman.,3
-fomc-corpus,1988,"I, too, agree with the prescription you've put on the table. I guess I would be more in the Bob Parry camp in terms of what I think the likely pressure points are going to be in the intermeeting period. If I could, I'd just like to add a quick comment on the point Governor Kelley and Governor Heller made about the dangers of a recession-induced rise in the budget deficit in the intermediate term. That really is pretty ugly in terms of a setting, not just for monetary policy, but more generally. But I think that of the things that could produce that result, one of them clearly is a rise in the inflation rate in the shorter term. If added inflationary pressure does begin to show through more than it has to date, to be certain that is a recession in the making. So if we're really concerned about a recession-induced rise in the budget deficit, that's just double reason why we should be especially sensitive about any further upward movement in the inflation rate.",198
-fomc-corpus,1988,"I think we're still ahead of the curve. And that's extraordinary, if we can hold that.",19
-fomc-corpus,1988,Except that the fixed-weight did hit 5 percent last quarter.,13
-fomc-corpus,1988,"Well, I'm a little suspicious of that. Until I disaggregate it, I don't know what to make of it, because all the other price indicators don't capture that number. Further comments? President Hoskins.",42
-fomc-corpus,1988,"I think if we're serious about the inflation objectives, over time we're going to have to face further tightening. That's what I suspect right now. There's been a flattening in the yield curve; there's been some improvement in commodity prices; and, I think that needs to be recognized. But if I push forward, it looks to me like we've got more to do. I am encouraged by the moderation in the aggregates relative to the past trend that Governors Angell and Heller raised. I'd have a lot more comfort I guess if, when we did see the signs of inflation picking up, we could move aggressively. But, I think, given the sentiment of the Committee, I can certainly accept your recommendation.",141
-fomc-corpus,1988,President Melzer.,4
-fomc-corpus,1988,I'm in agreement with that proposal.,7
-fomc-corpus,1988,President Boykin.,4
-fomc-corpus,1988,I would just express agreement.,6
-fomc-corpus,1988,Governor Kelley.,3
-fomc-corpus,1988,Include me in.,4
-fomc-corpus,1988,Governor Seger.,4
-fomc-corpus,1988,"You can include me, too. I just want to mention one other thing that I haven't heard commented about this morning, and that is the risk to the thrift industry. That industry is already very weak, with many institutions on their backs. And a further significant upward movement in interest rates, as the Board staff presentation yesterday showed us, would add significantly to the number of insolvent institutions around. So I think that's just another good reason for sitting tight. Thank you.",94
-fomc-corpus,1988,Governor Heller.,4
-fomc-corpus,1988,I agree with your recommendation.,6
-fomc-corpus,1988,Governor Johnson.,3
-fomc-corpus,1988,"I agree with the recommendation. I'll just add a response to what Don was saying earlier about the financial markets and some of the caveats that go with it. I think that's right. I think to some extent that the good behavior of financial markets has a lot to do with the credibility that we've established with our actions. And I think that if there are signs of market wavering--thinking that we are not credible on policy--then it'll show up and that's the time when we should consider further actions. But I think now the signs look good, and we don't want to lose that credibility we've established with the financial markets. I think clearly this is the right type of policy for now.",138
-fomc-corpus,1988,President Stern.,3
-fomc-corpus,1988,I support the recommendation.,5
-fomc-corpus,1988,"Governor LaWare, you have any comments?",9
-fomc-corpus,1988,"I do, too. No comments.",8
-fomc-corpus,1988,Call the roll.,4
-fomc-corpus,1988,"Keep us [unintelligible], right?",10
-fomc-corpus,1988,"Play your cards right, you can set an all-time record here.",14
-fomc-corpus,1988,That's where we can get a free lunch.,9
-fomc-corpus,1988,The sandwiches aren't made yet.,6
-fomc-corpus,1988,"We had doughnuts, I know that.",9
-fomc-corpus,1988,"Technically, we have produced the following operational paragraph.",11
-fomc-corpus,1988,"The operational paragraph would read: ""In the implementation of policy for the immediate future, the Committee seeks to maintain the existing degree of pressure on reserve positions. Taking account of indications of inflationary pressures, the strength of the business expansion, the behavior of the monetary aggregates, and developments in foreign exchange and domestic financial markets, somewhat greater reserve restraint would or slightly lesser reserve restraint might be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with growth of M2 and M3 over the period from August through December at annual rates of about 3 and 5 percent, respectively. The Chairman may call for Committee consultation if it appears to the Manager for Domestic Operations that reserve conditions during the period before the next meeting are likely to be associated with a federal funds rate persistently outside a range of 6 to 10 percent.""",170
-fomc-corpus,1988,"Does anyone have any comments on that particular reading? If not, can I have a vote?",19
-fomc-corpus,1988,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Black Yes President Forrestal Yes Governor Heller Yes President Hoskins Yes Governor Johnson Yes Governor Kelley Yes Governor LaWare Yes President Parry Yes Governor Seger Yes,47
-fomc-corpus,1988,"I'm going to confirm that the next meeting is November 1st and, well, is this a record?",22
-fomc-corpus,1988,"Frank Morris would know. Can you judge in terms of the time, Frank? I can't remember any better than quarter of 12.",27
-fomc-corpus,1988,"No, that has to be a record. Even with Bill Martin.",14
-fomc-corpus,1988,"In fact, we've always--",6
-fomc-corpus,1988,No matter what.,4
-fomc-corpus,1988,No matter what.,4
-fomc-corpus,1988,"We have a few topics on the agenda for luncheon, which I guess will be around 12:30. Let's recess until 12:30.",30
-fomc-corpus,1988,We'll take it!,4
-fomc-corpus,1988,"Good morning, everyone. Shall we start off by approving the minutes of the meeting of September 20th? Is there a motion?",27
-fomc-corpus,1988,So move.,3
-fomc-corpus,1988,Second.,2
-fomc-corpus,1988,"Without objection. We have before us a proposal for a change to a calendar-year basis for terms of presidents as members of the Committee. You may remember that the Vice Chairman raised this issue a meeting or so earlier and we postponed it until this meeting. I thought it might be worthwhile to go over it at this time. Vice Chairman, would you like to repeat your proposal of that time?",78
-fomc-corpus,1988,"I think of the issue as quasi-housekeeping but with some substance. The point I raised, of course, was that under current arrangements the four rotating Reserve Bank presidents on the Committee who are responsible for the vote to establish the targets for each calendar year at the February meeting rotate off the Committee a couple of weeks later. It seemed to me that as a matter of good procedure there was something to be said for changing those dates so that the four rotating Reserve Bank presidents who vote for the annual targets remain on the Committee throughout the calendar year [to which those targets apply]. The Committee's General Counsel [Mr. Bradfield] has advised that he thinks that such a change can be made within the framework of the statute, and it seems to me, Mr. Chairman, that simply as a quasi-housekeeping matter--or to put it differently, a matter of good procedure--that there is some logic to trying to structure things to have that consistency over the calendar year and with the establishment of the annual targets.",202
-fomc-corpus,1988,"You stipulated at the time, if I remember, that the members who vote for the ranges should be responsible for implementing them.",25
-fomc-corpus,1988,"Well, that is the argument.",7
-fomc-corpus,1988,"I think it can be stated a bit more firmly in the sense that you can't really ask individuals to implement a policy with which they are in disagreement. So, it's a little more than strictly to simplify the structure. It's an eminently sensible motion, and I am wondering what other members of the Committee have to say on this issue.",67
-fomc-corpus,1988,"I don't think this is a very important issue, so what I'm about to say should be kept in that context. I don't think it makes much difference one way or the other. I think the reasons that have just been expressed are logical and have some merit. But the argument on the other side is that permanent members constitute two-thirds of the FOMC. I've always thought of the FOMC as a continuing body. The press tends to make an issue, whenever we have this rotation, that the Committee is going to change or is not going to change, but it seems to me it really has not. Our deliberations have tended to be collegial, and there has been something permanent about the monetary policy of the Federal Reserve. If you have a change from the Philadelphia District to the Richmond District on the FOMC, that in itself should not lead to expectations that there might be a significant change in policy. There is more stability to the Federal Reserve than that, and even though not all of us vote, we do all participate in these decisions. While the vote is clearly important and of legal significance, it has always seemed to me that the collegial spirit of the discussion has been more important, and 99.999 percent of the meetings that I've ever been a part of [have been of this nature]. I think this kind of change tends to emphasize the individual members of the Committee over the Committee as a whole, and the System as a whole, and the collegial spirit. While I don't think this is a very big issue, on the whole I would prefer not to make a change.",324
-fomc-corpus,1988,"Mr. Chairman, Ed Boehne has expressed my views very, very well. I would put it perhaps just a little differently. It seems to me that the actions on the Humphrey-Hawkins targets are basically actions of the Committee itself, and the change in rotation shouldn't affect the ability of the Committee to carry out the targets. I think that the voting members who come on after March 1st are in a sense obliged, really, to accept and to enforce if you will the targets that have been established by the Committee. But, like Ed, I don't think that this is a very big issue. Were it the will of the Committee, I certainly wouldn't object. I say that as one who would be affected by the change in the sense that my term would end ordinarily on March 1st. As I understand it, if we adopt this change, my term would end earlier, but it's not all that significant as far as I'm concerned. On the legal issue, our counsel also looked at it and agreed with the views expressed by Mr. Bradfield.",216
-fomc-corpus,1988,President Hoskins.,4
-fomc-corpus,1988,"I support the change for two reasons. One, I came on at the time when targets had already been established, and while I didn't have major disagreements with the targets I feel that I [didn't have] much infuence over them. Now, that's a small point. The larger point is one to which you alluded. There's a sense of accountability that gets attached to the targets when you do it. I think people will feel more responsible, and the public will have a much better record [by which] to measure people and their performance. So, there's some accountability with this proposed change that I would support.",125
-fomc-corpus,1988,Governor Seger.,4
-fomc-corpus,1988,"I want to make a different point, because I don't know how presidents feel, not being a president. But I can tell you, if this were done right now, the media would pick this up and say the Governors are trying to get rid of Bob Forrestal because he's a ""meanie"" from Atlanta. And we're changing this arrangement to get rid of certain people. I can just see it.",81
-fomc-corpus,1988,"It's true, too!",5
-fomc-corpus,1988,I didn't say whether that was true or not.,10
-fomc-corpus,1988,I think you take it the wrong way. It's the other three of us!,16
-fomc-corpus,1988,"Seriously, the media would just love to pick up this us-versus-them routine, and while I haven't seen the us-versus-them at work [on the Committee], this would be something else that they would seize on--on top of whatever other considerations there might be. So I'm sure you can't keep this quiet.",66
-fomc-corpus,1988,President Keehn.,4
-fomc-corpus,1988,"I think Ed and Bob make a very good point, but nonetheless I come down in favor of the change. I wasn't aware of the background of the March 1st vote until I read the memorandum. I always thought it was a very awkward date coming in the middle of the Humphrey-Hawkins testimony. I just feel there's a little bit of confusion there for the reasons that we've said: namely, that by setting the ranges we have some accountability for them. I think for the rotation to be on that basis, it will be a cleaner way to do it, and I'd be in favor of the change.",124
-fomc-corpus,1988,"I support the change as well. If the change were announced, say, at the end of the year and the reasons explained, I don't think there would be much press pressure to it. The other thing is that it probably would be wise to emphasize one of the points that Ed has made--that the FOMC is a continuing body. But it does make some sense. If we were starting off today having no precedent, we clearly would probably opt for something more like what you are proposing than what we have. So I would support it.",110
-fomc-corpus,1988,That I am sure is correct. President Guffey.,12
-fomc-corpus,1988,"I, Mr. Chairman, would also support the change on the basis of the continuity and accountability issues already discussed.",23
-fomc-corpus,1988,President Melzer.,4
-fomc-corpus,1988,I would favor it as well. I don't have anything to add to the comments that have been made.,21
-fomc-corpus,1988,"Anybody else who's got views on this? Let me say that this is not something that we should bring to a vote and get a count. Unless we are unanimous, I don't see how we can move forward on this in an appropriate fashion. So I really want to put it to those who feel uncomfortable with it: Is your degree of discomfort at a level where you think it is inappropriate for us to do this? Or is it marginal? I do think that unless we do it by acclamation, it's an inappropriate action to be taking at this stage.",111
-fomc-corpus,1988,"Well, I certainly would not object, Mr. Chairman. I just wanted to make the point, as Ed did, that this is a continuing body. We need to stress the collegial atmosphere of this group and the fact that actions taken are actions taken by the Committee. But I have no objection and I would certainly join--",66
-fomc-corpus,1988,Suppose that in the public statement made with respect to this that that particular point is emphasized.,19
-fomc-corpus,1988,I would agree to that.,6
-fomc-corpus,1988,Would that solve your problem?,6
-fomc-corpus,1988,Sure.,2
-fomc-corpus,1988,Looking at me?,4
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,"Well, I have a higher level of discomfort for the change. If it comes down to 18 people around the table who want to do it, I'm not going to stand in the way. But if I were going to do it, I would not make it effective at the end of this year. I would do it down the road, to get away from the point that Martha makes. There is, unfortunately, this business in the press about presidents versus governors--which is a lot of nonsense, but it's there. In that context--that's not my main reason--but I think that it is supportive to my concern. If I were going to do it, I would make it effective a year from now, or something, just to get away from any immediate concern about policy.",158
-fomc-corpus,1988,"There is a way you can do that, of course, and that is make it effective a year from now and just mention it almost in passing in your testimony in February that beginning next year we're going to have this procedural change. I don't think it matters all that much in terms of--",58
-fomc-corpus,1988,"The other thing is, if we made it effective this year, we'd have to go back to all of our Boards of Directors and get them to change those resolutions of elections because I think it says in there that the terms run from March 1st to February 28th, or whatever it is. It might be better to do it on a pro forma basis rather than go back and change the terms that are already in existence.",87
-fomc-corpus,1988,That strikes me as not a bad way to come at this. Would you amend your resolution to do that?,22
-fomc-corpus,1988,Sure.,2
-fomc-corpus,1988,"If there are no objections then, I would presume it's the will of this Committee that the change occur not on January 1st, 1989, but on January 1st, 1990, and without objection I will assume that that is the will of the Committee.",57
-fomc-corpus,1988,"So, in effect, we're making this new term beginning next March run until December 31.",19
-fomc-corpus,1988,Right.,2
-fomc-corpus,1988,"That is correct, yes.",6
-fomc-corpus,1988,Which seems to me is the appropriate way to do,10
-fomc-corpus,1988,What the Committee is doing is amending its Rules of Organization.,13
-fomc-corpus,1988,"In effect, yes. The next item on the agenda is an interesting analytical work which will be evaluated by Richard Porter and later by Don Kohn who wants to, as usual, have the last say on this issue.",44
-fomc-corpus,1988,[Statement--see Appendix.],6
-fomc-corpus,1988,[Statement--see Appendix.],6
-fomc-corpus,1988,Any questions for Messrs. Porter and Kohn?,11
-fomc-corpus,1988,"I don't have a question, I have a comment. I commend the staff on the research. It is cast in very familiar terms for me, and therefore I'm quite comfortable with it. I see lots of P's, Q's, and M's, and V's. I think it couches the debate, or the analysis, in the appropriate form for the long term, which is price stability. If we simply look at our long-term targets that we internally set for next year, 3 to 7 percent, we can be at zero percent inflation with this approach by 1993 by moving targets down by one percentage point each year. To make the test a little better, you took a look at actual M2?",146
-fomc-corpus,1988,True.,2
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,"And the forecast didn't have that. So what you tried to do is to make the test a little clearer. You used the midpoints of the target range, since that's the information the Committee had at the time, and it hardly did any damage to your results. The root mean square goes up because of 1987.",65
-fomc-corpus,1988,"I have a question about the approach. It's a single-equation approach, and there is an assumption therefore that money is exogenous. Yet, we know that throughout this period for which you got your statistical results that at times money was endogenous--that you were reacting to what was happening to prices. It seems to me that that is a point which has some bearing on the usefulness [of these results]. The second point is that for some of these [periods] velocity is more stable. If you look at Chart II, it looks to me that if you were at different points of history, you might have concluded as you drew a line most recently that you were going off the long-run velocity line. We know that potential real GNP changes over time. I don't know how much that would lead us astray, but it seems to me that assumptions about both of those being unchanged over time are potentially dangerous with respect to--",187
-fomc-corpus,1988,"Well, it is true that M2 has an endogenous component over time. It is strictly one equation, but one period ahead forecasts are okay with a lag. So, clearly, over some period of time the FOMC could potentially control M2 to a pretty good approximation.",56
-fomc-corpus,1988,Sure.,2
-fomc-corpus,1988,And if this equation seems to have worked in a variety of periods--I guess that's what President Hoskins said--maybe the approach would work in other situations. But that is a weakness of the approach and you're--,43
-fomc-corpus,1988,"Can I propose that the endogeneity is a short-term issue if one can demonstrate--and indeed the data do demonstrate--that carrying these out another 50 years that in fact M2 velocity is trendless or without any really perceptible change [in trend]. Once you have stipulated that, the endogeneity problem disappears over the long run because clearly the trend of velocity can not be a function of anything other than structural aspects of the financial system over the long run. If that's the case, then the issue of the two-year or three-year or five-year projections ceases to have that mathematical property. While I certainly would agree that in the short run there is a great deal of endogeneity in it, I would suspect that that property decays very rapidly and probably is even insignificant over two- and three-year horizons.",164
-fomc-corpus,1988,"We ought to be clear in response to President Parry's second question that when the staff made those one-, two-, or three-year ahead projections, we assumed we didn't know anything about velocity except what had occurred up to that time. So all those projections were made with the average velocity up to that period; and implicitly it was assumed that velocity would remain stable. But it turns out that the projections are pretty good--amazingly good in my view--on that assumption that the dynamics of the model apparently capture some of the changes in velocity. The question really is, if we [unintelligible] the so-called Lucas critique and started targeting P*, would people change their behavior? If I can reinterpret the Chairman's point, if we can show the behavior hasn't changed over many different monetary policy regimes stretching back into the early part of the 20th century, it is probably a pretty good bet that something pretty fundamental is going on there. You could change the regime without changing something fundamental in the way people handle their liquid assets.",208
-fomc-corpus,1988,"What about potential real GNP? That can change for other reasons, and it does change for reasons that sometimes are very difficult to anticipate.",28
-fomc-corpus,1988,Right. We did estimates using various ways of looking at that. Most of the results are in the Board [staff study].,25
-fomc-corpus,1988,I see.,3
-fomc-corpus,1988,"When we have used other measures of potential GNP, P* is not that sensitive to that unless those changes are much larger than the kinds of changes that we have experienced in the past.",38
-fomc-corpus,1988,Governor Seger.,4
-fomc-corpus,1988,"I just have a question; I hope it's a fair one. What if you had done this project 40 years ago, and ran it and established your equations, and so forth, would that have given us good guidance going forward?",47
-fomc-corpus,1988,"The only way I can answer that is to refer you to Exhibit 5, because this exhibit in effect reports on the experiment you just proposed. That is, suppose the equation was fitted up to a certain point, say 1980, and then projected, and then '81 is a slightly [unintelligible].",65
-fomc-corpus,1988,"This chart here fits up to the end of one year, and then forecasts it three years on the bottom.",22
-fomc-corpus,1988,Right. So that this [unintelligible].,11
-fomc-corpus,1988,"So this relationship would pick that up? Because often I see econometric models that cheat. They have the advantage of what has happened, and they go back and say, well, this really would have worked. Whereas in fact if you had done it earlier, it wouldn't have worked. But this doesn't--",61
-fomc-corpus,1988,"This isn't subject to that other than the fact that these forecasts do embody the M2 revisions made after the period. But other than that, those estimates of real GNP might have been slightly different at the time but that varies, and possibly there's nothing there at all. I think that would be very slight. Otherwise, the parameters and the assumptions about what long-run velocity was could have been known at the time.",83
-fomc-corpus,1988,Thank you.,3
-fomc-corpus,1988,President Hoskins.,4
-fomc-corpus,1988,"Just a follow-up comment on the comments you made in that I have a concern about it and that is we haven't really formally and aggressively targeted M2 so that the market believed it. In that sense, over time you can say we had lots of different structural regimes and all that, but we never tested Goodhart's law. We never said this is what we're going to do, and I have concerns that once we tell the market that this is what we're going to do, would M2 function as it has in the past? That's a concern I have.",113
-fomc-corpus,1988,"What he means is, if you take it out far enough, you could probably wash all that out. But the point I'm just making about this is that some people think it is a shorter period of time to [get full] adjustment and smoothness, but I have to think that in the short run it could be a very, very tumultuous situation. This is very good in terms of the long-run picture, but in the long run, we're all dead.",94
-fomc-corpus,1988,"Well, Lee, I think the issue you are raising does wash out over a three-year horizon, because so long as it's a type of trend like the one we are going through now--I mean, are we targeting M2? In a certain sense, we are or we are not, depending on how rigidly--",65
-fomc-corpus,1988,I agree.,3
-fomc-corpus,1988,The question of rigidity.,5
-fomc-corpus,1988,"But if the markets see something in our directive, six variables that we're looking at, one of which happens to be M2 and which we're not as aggressively targeting as we perhaps targeted the Ms in the early '80s, would we get the same result over time? I don't know the answer. If we move forward with four or five things that we have listed in the directive as important to us, the market would say that M2 is one of them. And you may not get that effect, but I have no way of knowing.",109
-fomc-corpus,1988,Vice Chairman.,3
-fomc-corpus,1988,"Well, it seems to me that this approach, in contrast to what I will call a naive monetarist model, does say something that is both very intuitive and very important. What it says is that some given M2 target has different inflationary implications depending upon the amount of slack in the economy, and that is both important and intuitive. What's good about this is that it does confirm that intuitive notion in a fairly robust way, to use your term. In that sense, it has a great deal of appeal, and it also says something I think rather compelling about what's wrong with the naive monetarist perception of things. Now having said that, I guess my judgment as to its utility in a policy context is somewhere along the following lines: I would not be willing to go so far as to adopt what I think you're calling a rigid M2 targeting approach simply on the basis of what we see here. On the other hand, I do think that it can be useful to the Committee internally in terms of trying to frame our thinking more systematically as to what might constitute reasonable targets over time. In that sense, it has some real utility because I'm not ready to jump on the M2 bandwagon to the exclusion of everything else, which will come as no surprise to you.",257
-fomc-corpus,1988,It will come as no surprise to you that I agree with what you just said about [unintelligible] explanation. Governor Angell.,29
-fomc-corpus,1988,"Well, I'm delighted of course to see this impetus to the monetary aggregates because certainly I think all of us have known that our job in regard to long-run price stability has to be related to what we do in regard to facilitating money and avoiding getting too much money in the system. The record of this year is of having M2 clearly appear to be running against our upper limits in the first quarter and our taking offsetting actions, and it seems to me that that was indeed appropriate. We now have M2 below 5 percent on an annual growth rate basis over a 24-month period for the first time, I think, since 1962. And it seems to me that this does bolster that [unintelligible] and that view. I would caution, however, that what I think Manley Johnson has been suggesting in regard to the short run, and that is if we make short-run mistakes and get the economy in a severe recession the problem with that is that you end up then not behaving well in regard to monetary aggregates. So, I think this is indeed a very extraordinary development which bolsters those of us who want to see M2 raised [in importance]. We just need one more step and that is to be sure to use commodity prices as some signal as to when to tighten the screws.",265
-fomc-corpus,1988,President Black.,3
-fomc-corpus,1988,"Well, Mr. Chairman, I guess like you are not surprised by what Jerry Corrigan said, you probably won't be surprised by what I say either. I like this paper very much because I think it has very important implications about how we ought to conduct our long-run policy. The main thing the evidence says to me is the same thing I think it said to all of you--namely, that we can control prices over the long run by controlling M2. It also suggests that there has not been in the last 30 years or so enough of a permanent shift in demand for money that that would have been troublesome. Now, of course, it does point out that we might have shifts in money over time for which we'd have to allow, but I don't think that really negates the basic conclusion that we can control the price level over the long run while targeting the M2. The idea of controlling inflation in this manner obviously is not a new one, but the evidence given in this paper I think makes it pretty dramatic and gives it added support. I think all of this really raises some fundamental questions about our current long-run strategy. Obtaining long-run price stability is clearly one of the preeminent goals of monetary policy; I would say it is the goal of monetary policy. We frequently state this in our public statements, and yet there's nothing really in our current set of procedures that ensures that we are really going to target M2 or any other aggregate over the long run. It's true that we announce that we have targets for these aggregates, but we don't hit those targets a lot of time. And we allow base drift to come in, and so there's no assurance in our present procedures that M2 is going to grow at a rate that will be compatible over the long run with price stability--over 2, 3, 4, 5 years, or whatever you want to target on. I've been dissatisfied with this procedure for a long time, and I think there are some other members who have been somewhat uncomfortable with it, too. The staff paper provides impressive evidence that we really can control price stability in the long run by controlling M2, if we just change our procedures to ensure that we keep our long-run M2 [unintelligible]. And I'd like to make one further observation about section 6 of the staff paper which explores the long-run dynamic characteristics of the price gap equation. The analysis in this section suggests that if we fix the M2 growth at a constant rate, the price level [fluctuation] would remain pretty wide around the equilibrium level for many years before stabilizing the--",531
-fomc-corpus,1988,100 years.,3
-fomc-corpus,1988,"Yes, that's right! And this is very discouraging more so to me than to you, Manley, because I'm an old man. I'm going to be on a fixed income in four years. We have to wait until our grandchildren to see this price stability.",53
-fomc-corpus,1988,Our great grandchildren!,4
-fomc-corpus,1988,"Yes, our great grandchildren. I haven't even gotten my first grandchild yet, but do have one coming in January in case any of you are interested! I think it needs to be emphasized that this particular analysis deals only with the special case where there is a stable rate of growth in the money supply. I think it's reasonable to suppose that we could have some kind of reactive mechanism that would bring this under better control and damp these oscillations. We had one of a sort when we were targeting nonborrowed reserves. If there was an overshoot in the aggregates [under that sort of targeting] we made the banks borrow half of that overshoot. And that was an automatic mechanism. There are others that obviously could be used. I would also draw the opposite conclusion from the Lucas critique on this and say that intuitively I think if you had a stable rate of growth in money supply over this 30 years, that you would not have changed the structure of the models. So, if you targeted a stable rate of growth after that you would have had less in the way of oscillations this produced because these are two very different regimes and that is the issue to which I think the Lucas critique was addressed. I've said too much, Mr. Chairman, but I surely like what the staff is doing. I would not go quite so far as one of my colleagues and say the first eight pages represent the best work the staff has ever done because I think it has done a lot of other awfully good work, too.",306
-fomc-corpus,1988,Should we suggest a name for your grandchild? M2 or Base?,15
-fomc-corpus,1988,There's a problem with that!,6
-fomc-corpus,1988,President Stern.,3
-fomc-corpus,1988,"Well, like many, I guess I found this to be a valuable and stimulating paper. In a way it formalizes a bit some of the back of the envelope kinds of calculations that a lot of us go through from time to time. But a reservation that I do have about it all is that this is a rather specialized model with lots of special restrictions in it at least implicitly. If one runs some more general models and tries to identify a significant impact of M2 on prices, it can be very, very hard to find that. And so I'm a little at a loss at this stage to know exactly what to make of these results in a policy sense or in a more general sense. I have some sympathy with them and I would like to think that M2 is important and significant and can be a valuable guide; but I must say I think we may have here only the tip of the iceberg as far as some of the evidence that we ought to be considering is concerned.",197
-fomc-corpus,1988,"But there is a simple relationship here which is algebraically necessary once you stipulate that velocity is trendless. If velocity is trendless, then it is an algebraic necessity that the price level be proportional to unit money supply. And that's a [link] which can only be broken if we can argue that velocity has no constancy to it. All the rest of this is just interesting additions, but the essential tie between prices and M2 is defined by that relationship. If the remarkably stable trend in M2 velocity since the turn of the century, and maybe earlier, is an accident, then I think one can argue that the relationship between M2 and the price level is an accident. But if you can't argue that, you're required to stipulate that unit money supply is governing the level of prices over the longer run.",166
-fomc-corpus,1988,"Yes, I would accept that as far as the longer run is concerned.",15
-fomc-corpus,1988,But I don't think much more is being made of this. It's very interesting that the R squares rise significantly as they do over the long run because in most models it's in exactly the reverse order. President Morris.,42
-fomc-corpus,1988,"Well, Mr. Chairman, most things have already been said, and I certainly agree and I think most economists agree that in the long run the price level is a function of the long-run rate of growth in the money supply. I think for that reason it would be useful every six months for this Committee to take another look at the last chart [in the staff study]. On the other hand, if you look at chart 2, exhibit 2, you see that in the third month M2 velocity is extremely unfavorable and therefore we've got to think in terms of the long-run trend of M2 while at the same time recognizing that any rigid targeting of M2 is not going to produce a desirable outcome with respect to nominal GNP. So, I think it has a value but not a value in setting monetary policy in the short run.",170
-fomc-corpus,1988,"I think the real value [occurs] when we get to a position where policy has to be eased and we want to induce as a consequence an acceleration [in the growth] of the monetary aggregates. If we had out there what a noninflationary level of M2 should be, say, three years out, I think it would give us a little better insight as to what our M2 range should be in a period of ease. In other words, when do we get into dangerous levels [of inflation] where the degree of retrenchment to get back to a stationary noninflationary environment [is substantial, we can better gauge] what would be the consequences of various different types of policies we [might] implement at that time.",152
-fomc-corpus,1988,"I just wonder, though, whether it's safe to say in retrospect, [given] the very large rate of growth in M2 since 1986, that a much tighter policy would have been desirable in 1986. I don't have that sense. I think that in certain contexts that may well be true, but it seems to me that this exhibit 2 dominates, and I'd hate to see us think if we had had a slow rate of growth in M2 for a couple of years that this would give us the feeling that we can be a little looser now because we don't have to worry about inflation in 1989. I think that would be a completely wrong--",137
-fomc-corpus,1988,"But, Frank, the model doesn't say that.",10
-fomc-corpus,1988,"I know, I know.",6
-fomc-corpus,1988,The model says the gap is still the other way.,11
-fomc-corpus,1988,"I'm just saying that it's very tough to tighten monetary policy, and I wonder whether just occasionally the model may not give us a rationale for not doing what we ought to be doing; that's the only concern I have. Two years of slow M2 growth I think should not under this set of conditions lead us to conclude that we need to be a little less alert to inflation than we otherwise would be; I think that would be a wrong conclusion. I'm not saying you are drawing that [conclusion], but I think there's a danger in being tougher. I remember back in 1975 we had this slow rate of growth of M1 and this was the [period when] monetarism was [gaining prominence]; the broader aggregates were growing very rapidly; M1 was not. And this Committee took a little comfort from the fact that M1 was growing fairly modestly and that comfort turned out to be costly. So I just wonder whether in the short run such a model might lead us as much to error as to success.",207
-fomc-corpus,1988,President Parry.,4
-fomc-corpus,1988,"The example you cited about how [the model may] be useful in the long run really depends upon the actual coefficients that are estimated. In effect, that's how you determine at what rate M2 should grow to get the growth and prices that you find acceptable. The only point I was trying to make--I think this is a correct statistical point--is that to the extent that money is not exogenous, those statistical results can be biased. I don't know if that is a major factor. I don't think you ought to assume that those coefficients are unbiased coefficients because the model starts out with an assumption of the exogeneity which is not there. This may not be a big factor, but I think it is a factor.",145
-fomc-corpus,1988,All the coefficients do is give you the dynamic path by which you reach the long-run [unintelligible].,23
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,President Melzer.,4
-fomc-corpus,1988,I had a question that I guess would follow what Gary Stern was saying. Some of the work done prior to the early 1980's would have indicated greater explanatory powers in some of the narrower aggregates. I gather they are not candidates for this type of approach because of the instability in their velocity over time. Is that the assumption?,67
-fomc-corpus,1988,"Well, that's what made M2 attractive from this perspective. In theory there's no reason why you couldn't specify a long-run path for M1 velocity and feed that into the model in terms of its long-run path. I think it [would have] been more effective [before] deregulation. It's not clear to me that M2 hasn't, but M1 certainly has. and that path is certainly not flat. So it loses this with the simplicity or elegance perhaps of this model. But in theory if you knew the long-run path for M1 velocity, there is no reason why you couldn't put that in for P* over time.",128
-fomc-corpus,1988,We ran the base and M1 and we didn't get the kind of result that they got with that model.,22
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,"Any further questions or comments on this before we go further? If not, I'll call on Mr. Cross. Thank you very much, Mr. Porter.",31
-fomc-corpus,1988,[Statement--see Appendix.],6
-fomc-corpus,1988,Questions for Mr. Cross?,6
-fomc-corpus,1988,Can I make a comment?,6
-fomc-corpus,1988,Sure.,2
-fomc-corpus,1988,"You know the dollar is falling, and it's now [blamed] on the weak U.S. economy. Late last year, the dollar was falling and it was blamed on the strong U.S. economy because it meant that more imports were being sucked into the country and therefore the dollar had to go down. I'm getting a little confused, not by what Mr. Cross was saying but by the way the world is reacting. One day undoubtedly the dollar will be falling, and we will be called upon to tighten policy which undoubtedly will send the economy a little bit further down, and presumably the dollar will go up.",123
-fomc-corpus,1988,But not necessarily.,4
-fomc-corpus,1988,I don't think the expectation in the market is that the economy is very weak. I think that they had been expecting and thinking that it was growing a lot more robustly and that that was going to lead to higher interest rates and was yielding some upward pressure on the dollar. That was the prevailing attitude in which the various statistical releases [came out] all suggesting that the growth is not so robust. And so they are reassessing that.,88
-fomc-corpus,1988,It's probably the differential between the two larger--,9
-fomc-corpus,1988,"Different things prevail in these markets at different times, but that seems to be a very important factor.",20
-fomc-corpus,1988,"Probably it's the differential between the two that counts, right?",12
-fomc-corpus,1988,"That's right, as much of this is based on what they had been expecting.",16
-fomc-corpus,1988,President Hoskins.,4
-fomc-corpus,1988,"My concern is not a new one to this Committee, but I think it has been portrayed rather well in this last month. We have been in on both sides of the market which gives an impression that we know what the right exchange rate is. I don't feel comfortable that I know what the right exchange rate is, and I'm not sure anyone around this table does. If Peter Sternlight were to go in on both sides of the market we might have trouble with that, although he does that on occasion when we ask him to. I think we run the risk of setting up the public and ourselves for a nice fall in the dollar simply based on expectations. If the belief is we're going to stabilize the dollar until the election is over with and [unintelligible] tell you about market reaction after the election. My concern is broader than just that particular issue. It's that by doing this I think we continue to confuse the public as to what our policy is all about and divert attention from our long-term objective of stable prices. And secondly, I think we run the risk of confusing ourselves as to our abilities to influence exchange rates in an inappropriate fashion.",231
-fomc-corpus,1988,"Well, as you know, we've been trying to introduce some stability, and I think it's understandable in a period when the dollar is falling about 10 percent that we could be on both sides of [the market with] that sort of exchange rate movements. It's not surprising in a number of European countries [to see intervention on] opposite sides of the exchange markets within a matter of [unintelligible]. We attempt this, it seems to me, not to try to say with a great degree of precision what is the right exchange rate but to say that we are trying to introduce a greater measure of stability. I think if you look back over the period since the Louvre Accord, there has been somewhat more stability in these exchange rates. And it is of some value, some importance, when you think of the problems that arise if, for example, the dollar should start to fall very rapidly against the yen and trigger responses by all of the present holders of the dollars to try to protect themselves. We have to walk this narrow line between trying to encourage a certain degree of stability and to keep the financing for this deficit occurring until we can move further toward other financing. It seems to me that's the basic policy.",243
-fomc-corpus,1988,"I think the international understandings--whether the authorities will consider intervention--in fact are part of the framework for international economic cooperation that is designed to deal with common international problems. And there is a considerable [range of] views about how large those problems are and what the price [unintelligible] to be and how effective some various [approaches] are in doing so. But as the major industrial countries [unintelligible] of the growth-driven process try to deal with large imbalances [unintelligible] this process of intervention that we've been involved in will be as noticed as [unintelligible] to the exchange rates over the various parts of that. But the price to this Committee seems to be the more risky case in saying you don't know better, or if you don't know then you can't concentrate or think about it, is the risk that comes along with the accusations of [benign neglect] about U.S. policy in the past. And you're just watchful. In fact, you'd probably argue that if we are going to solve our financial problems, we're going to have to do so on our own.",230
-fomc-corpus,1988,Governor Seger.,4
-fomc-corpus,1988,I just want to make sure I heard you right. This is the first time I believe I've heard the election introduced into this analysis of what's going on.,31
-fomc-corpus,1988,"Well, not really. I think I said earlier that as we moved up toward the election there has been a feeling on the part of a lot of people in the market that the authorities would be particularly careful not to let exchange rates change very wildly, and they succeeded in doing that.",57
-fomc-corpus,1988,"But I haven't heard us discuss that here in terms of what, in fact, it would be.",20
-fomc-corpus,1988,All I'm suggesting is that that is what is in the market.,13
-fomc-corpus,1988,Okay.,2
-fomc-corpus,1988,That's not our fault.,5
-fomc-corpus,1988,I'm a reporter.,4
-fomc-corpus,1988,"Yes, but I'm just saying that this is the first time I've heard this even.",17
-fomc-corpus,1988,It certainly has been a factor in the foreign exchange market for some time.,15
-fomc-corpus,1988,It works.,3
-fomc-corpus,1988,That they expect some tremendous change after the November.,10
-fomc-corpus,1988,"Well, it's not so much necessarily that they expect a change after November 8th.",18
-fomc-corpus,1988,"Well, that's the day of the election.",9
-fomc-corpus,1988,But I do think that there has been a large gut feeling in the market for months that authorities would go to rather extraordinary lengths to prevent the dollar from falling on its face.,35
-fomc-corpus,1988,Thank you.,3
-fomc-corpus,1988,Governor Johnson.,3
-fomc-corpus,1988,"I was just going to make a comment on what Governor Heller said earlier. It's interesting that last year we had the weakness in the dollar, and it appears we had a strong economic situation, stronger than some people saw at the time. I think that led to feelings that the trade deficit wasn't going to improve--imports were going to be strong--and that policy was going to be geared toward further dollar depreciation to the point of protectionist pressures. So, there was a definite fear, I think, in the market of an orchestrated decline in the dollar and that tended to feed on itself. But this year we have seen something different. The deficit has improved, and the dollar started turning about the time we started seeing trade improvement. And it has improved consistently up to recently. On top of that were the expectations of rising interest rates because the economy remained strong and everybody anticipated a tightening monetary policy action. Now, you've got a bit of a different perception. I think the markets see the economy as not as strong as expected earlier and believe that rates may not have to go as high as anticipated earlier and that's taking the pressures off the exchange market. And I think they've seen some slowing in the trade improvement. It may be just an aberration, but all of that I think is sort of leading up to a weaker trend in the dollar. I don't know where that takes you exactly, but that is how I would characterize the way things have developed.",292
-fomc-corpus,1988,"You know, a stronger economy or a weaker economy can lead to all kinds of other things which sometimes lead to strengthening and sometimes to weakness.",28
-fomc-corpus,1988,"There may be some of that [unintelligible] feeling, but there also was a strong feeling that aside from that we'd do anything necessary, or the perception was that we want to maintain dollar stability. It also was a perception that the central bank might be a source of the political cycle, too. I don't know how you weigh those two out. And they could balance each other.",79
-fomc-corpus,1988,I think the only thing I meant to say was that we shouldn't overdo it. It's all that Mr. Cross and Mr. Truman were saying earlier also in response to Lee Hoskins. I really agree with the way you present the case. We shouldn't overdo it as far as the strength of the economy and the dollar are concerned. And I think one very important factor in the current dollar slide clearly was the disappointing trade numbers released a month ago. I'm not sure whether the slide started on that day or roughly a week or--. I think it started a day or two earlier because there were some reports that the numbers were going to be bad.,131
-fomc-corpus,1988,"Well, I think it's a combination of the perception of things; they're all intertwined, with the perceived relatively weaker situation in the economy and the trade numbers are alll tied up together. Although it's hard for me to--. What do the models show when you have a relatively weaker economic situation? I thought you'd get more on the import side than you'd lose on the export side.",76
-fomc-corpus,1988,"You do, but both arguments are indivisible, when put that way in terms of economics. It is true that if the economy is weaker, interest rates go down or may go down and lower the attractiveness of the dollar. But it also is true that if the economy is weaker, then the economy can absorb more aggregate demand [stemming from a] depreciation. So if it were economists who were trading [in the exchange markets], let me put it that way, then [unintelligible] and it may not even be convincing or have anything to do with what we're doing. But at the same time, it would tend to be a motivating force in correcting the trade balance.",137
-fomc-corpus,1988,President Morris.,3
-fomc-corpus,1988,"Mr. Chairman, I expected the decline in the dollar after the [unintelligible] Treasury issued in the past three months which suggested the improvement in our trade position was fizzling out. We've really been stagnating with respect to any improvement in our trade position in the last three months. Furthermore, we've had an exchange rate in the third quarter which produced a net decline in import prices. Even if you take out the decline in oil prices you have a decline in import prices. Now, I don't see how we're going to make much further progress on the trade deficit unless we have a further decline in the dollar. I think we should intervene to make sure that it's an orderly decline. But it seems to me the evidence is pretty strong that with exchange rates at their third-quarter level we are not going to make much progress in reducing the trade deficit.",171
-fomc-corpus,1988,How does that fit into your view about inflation?,10
-fomc-corpus,1988,"It accentuates it. That's one of the reasons why I have to classify the staff inflation forecast as the best possible scenario. I think the inflation rate in 1989 has got to be higher, but I was going to talk about that later.",51
-fomc-corpus,1988,President Keehn.,4
-fomc-corpus,1988,"Sam, given the dollar-yen pressure we're experiencing and [unintelligible], are there any changes in the attitudes of the Japanese [investors] over the dollar as an overall issue?",39
-fomc-corpus,1988,"Well, as the dollar has tended to slide against the yen, we've been hearing more reports of hedging. As they get less confident they tend to hedge more; that's the form it takes, but it has the same exchange rate effect.",48
-fomc-corpus,1988,But also there are comments you get from [unintelligible] that suggest that at least in the market there has been a somewhat marked shift in diversifying assets without [unintelligible] at this point.,44
-fomc-corpus,1988,"We get reports on this. And certainly during some periods this year when the exchange rates appeared to be relatively safe and stable, there was a tendency to shift into the high interest rate currencies by Japanese investors--into the Australian, Canadian, sterling currencies--",50
-fomc-corpus,1988,"I was talking with a visitor from about countries diversifying their reserve assets, and he said that keeps asking why they keep all their reserves in dollars. So we are beginning to hear the kinds of things we heard in 1978-1979.",50
-fomc-corpus,1988,It's precisely for those reasons that you've got a mess in these circumstances and huge balances out there that have got to be financed. [Unintelligible.],31
-fomc-corpus,1988,President Melzer.,4
-fomc-corpus,1988,"Sam, I wanted to try to get an idea. You mentioned the negative sentiment. Is that backed up at this point by large speculation or not? In other words, I would think if there is this expectation out there that you've described about trying to hold things stable until the election that shorts would be covered rather quickly and we could be in the situation where despite the decline we've had, or maybe because of it, that there is not a big short bid in the market. Do you have any sense of that?",103
-fomc-corpus,1988,"It's very hard to be very precise. You hear what one person says; then you hear three other people. But certainly there is this prevailing concern that as we look forward a few months there are those big problems, and we are going to have a new Adminis-tration. That in itself brings a little uncertainty to the situation. Are they going to be able to and will they take actions to deal with these problems? So as you look ahead a few months this is very much on their minds.",101
-fomc-corpus,1988,So there's a good deal of short-term vulnerablity?,12
-fomc-corpus,1988,I assume that they are acting on the basis of that concern. But it's hard to have any precise numbers.,22
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,President Black.,3
-fomc-corpus,1988,"Mr. Chairman, I have a lot of sympathy with the view that Lee Hoskins expressed. I have had some reservations about these swaps ever since we entered into them. It's not that I'm all that opposed to smoothing operations but I felt that they might delay our dealing with some fundamental problems by covering them up for a while. I think it is important to note that foreign affairs are basically an Administration function and the Treasury has primacy in this area. And even if we philosophically don't agree with the kind of intervention we've done--and I think we pretty well [have expressed that] disagreement--we would have to yield to the Treasury on this, just as monetary policy is a function that Congress has delegated the Federal Reserve and the Treasury shouldn't be telling us what to do in those areas.",158
-fomc-corpus,1988,"Any further questions for Mr. Cross? If not, can I have a motion to ratify the transactions since the September meeting?",26
-fomc-corpus,1988,I'll move it.,4
-fomc-corpus,1988,Second.,2
-fomc-corpus,1988,Without objection. I also need a motion to approve one-year extensions of the swap line agreements.,19
-fomc-corpus,1988,So moved.,3
-fomc-corpus,1988,Second.,2
-fomc-corpus,1988,Without objection. I think it would be useful to have Ted Truman bring us up to date on the Mexican situation.,23
-fomc-corpus,1988,"Thank you, Mr. Chairman. I'll try to be brief. Basically, I have three points. The first is about developments in the last two weeks or so. Over the 11 business days since the announcement of the willingness of the Federal Reserve and the Treasury to develop a short-term bridge loan for Mexico's economic policies, Now, that compares with over the previous two weeks. In the first week, in fact, oil prices remained relatively firm, and short-term interest rates were pushed up by 200 basis points to 45-1/2 percent. Last week oil prices eased, interest rates were left unchanged, and so indeed and I guess we would not be surprised if interest rates rose after today's auction. The second point has to do with where we stand on the documentation for this proposed bridge loan. It is assumed in our review with the Bank of Mexico and the Mexican government that it will involve, as we now envisage the situation, a new special System swap arrangement for $1-1/4 billion on which various amounts would be drawn successively. I would describe successive [drawings] as bridging to various IMF drawings in advance of payments for oil for the strategic petroleum reserve and World Bank loans. Those drawings would [not] be made until the sources of repayment were reasonably assured. And each would go on to--, be made on a new swap line with the Exchange Stabilization Fund of the same size. The remaining $1 billion of the arrangement would use the existing Federal Reserve and ESF swap lines and We expect to have the technical details fully agreed in a couple of weeks at which time we would ask the Committee for its formal concurrence of those arrangements. The last point would be that Normand Bernard sent out to the Committee a paper by Ives Maroni on Mexico's economic situation and prospects. I hope it was informative, and I'd be glad to respond to any questions.",381
-fomc-corpus,1988,"I just want to point out that I will be soliciting by telegram your views on the agreement--in a couple of weeks, Ted, did you say?",32
-fomc-corpus,1988,"Well, I'm trying to be optimistic about it. It's a guess. The General Counsel is nodding 'yes' and he's--",26
-fomc-corpus,1988,"Yes, I will be soliciting your views immediately upon completion of the negotiations, whenever that may turn out to be the case. Questions for Mr. Truman?",32
-fomc-corpus,1988,"This is just a fundamental question. The day that this bridge loan was announced in the newspaper, I happened to have breakfast with a Congressman from the House Banking Committee and he said, ""What in the world is the Federal Reserve doing in that? Why would they be involved with the bridge loan?"" And I didn't know how to answer, I'll be honest with you. And then, secondly, there were a couple of articles in the newspaper shortly thereafter that indicated the conditions surrounding this loan were so much different from the bridge loans in the past. I would like comments on both of those.",117
-fomc-corpus,1988,"On the first point, there was some activity in advance; and we, the Federal Reserve, have had a swap line with the Bank of Mexico since 1967. In fact, over that 20-year period the Bank of Mexico frequently has turned to us for short-term bridges and swap drawings, whatever you want to call them. The reasons for that swap line have something to do with the financial, political, and economic interaction between our two countries.",91
-fomc-corpus,1988,"Well, I guess he thought the Treasury would be involved; I don't think he thought it was inappropriate for the country.",24
-fomc-corpus,1988,"No. Well, traditionally the swap network was a Federal Reserve operation. It is true that the Treasury has a swap line too, but in every case going back at least as long as I've been here these operations have been joint and/or the Federal Reserve has has been in there alone in some smaller, less dramatic circumstances, We have increased the swap line to show support, to allow them to borrow over an election period, whatever it might be, to provide some degree of financial support. On the second point, I think it's particularly difficult to generalize about bridge loans. At the broadest level, this operation is not any different from any of the other ones that we've been involved in over the last six years. We have identified a means of repayment of our swap; and once that's identified, we are reasonably sure that we are going to get repaid. The issue which I think is found in the press was more in the context of loans that Mexico may receive from the World Bank than a full-fledged IMF program. That issue really turns on a judgment as to how serious Mexico's current economic problems are, which I would argue in turn depends on one's forecast for oil prices. If oil prices go down a lot, Mexico is going to have to take another strong dose of adjustment to another terms-of-trade shock. And that necessarily is going to involve a full-fledged IMF program. If oil prices stay where they are or go up some from where they are, it's less clear that they will need the kind of international financial support that is associated with IMF programs, and they more appropriately can look to further longer-term, development-oriented financing that comes out of World Bank loans. So, it's a question of how you see Mexico and its economic situation with regard to the extent to which the particular financing or bridging is oriented more toward the Fund or more toward the World Bank.",374
-fomc-corpus,1988,Thank you.,3
-fomc-corpus,1988,"The term ""bridge loan"" has taken on connota-tions that it didn't use to have.",20
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,It seems to me it ought to be a term that we avoid because it now means in the financial press highly speculative loans undertaken in connection with leveraged buyouts.,32
-fomc-corpus,1988,"Well, maybe this is what we're talking about!",10
-fomc-corpus,1988,"It doesn't look too great, like the economy certainly--",11
-fomc-corpus,1988,Certainly not too great any more.,7
-fomc-corpus,1988,"Real estate gets it, too.",7
-fomc-corpus,1988,"Mr. Chairman, I hope President Morris isn't suggesting that we buy Mexico.",15
-fomc-corpus,1988,We've bought it!,4
-fomc-corpus,1988,"Ted, in the memorandum there's a discussion of capital movements. Has there been any change in that situation? Has there been more capital flight in the last few days?",33
-fomc-corpus,1988,"I think it probably has been less. Capital flight is very difficult to identify even ex post, much less while it's going on. As far as we can tell, some private sector entities in Mexico have various kinds of arrangements by which as of certain dates they can obtain dollars from the Bank of Mexico and they have the option to do so. And they have opted in the last couple of weeks, especially last week. to make use of those options. In a number of cases they have been using them either to go out and retire some of their own debt at a discount, which you may want to call capital flight, or to invest in something, or to buy Mexican public-sector international debt which they are using themselves for their participation in some of the privatization efforts that have been going on in association with this general effort. Those are part of the debt-equity swap--if you want to put it that way--mechanism. And as far as we can tell, most of the [official] sales of dollars over this period--the last week--seem to be associated with those kinds of operations rather than a sort of a run on the peso. The general financial market conditions have been quite calm. That has been confirmed by and the Treasury attache. Nevertheless,",256
-fomc-corpus,1988,"The other thing about Mexico, as I suppose everybody is aware, is that there has been a series of advertisements placed in major newspapers by a committee, I forget what they call themselves, which in effect forecasts civil disobedience, civil disorder in Mexico following, or at the time of, the inauguration of the new president on December 1st. I don't know how widespread those have been circulated, but I've had a lot of questions from people including my directors about that situation and its effect on the bridge loan and the repayment of the bridge loan and the World Bank loan. I don't know, Ted, whether this is giving pause for any concern in Mexico or not.",134
-fomc-corpus,1988,"Well, I've seen it.",6
-fomc-corpus,1988,It's essentially a pretty destabilizing kind of--.,10
-fomc-corpus,1988,"I think the answer is that one can't completely tell, and I'm not sure exactly how that would modify our behavior under that. You were speaking of the behavior of the U.S. government in general. The behavior under these circumstances--, all I can say is that what I have read and picked up in the last month or so suggests that (a) there was certainly a high level of uncertainty; clearly, that was one of the things, along with declining oil prices, contributing to the problems that they first approached us on. But (b) my sense is that the efforts to, or the probability attached to, sort of destabilization has lessened somewhat. Basically, I'm basing that on an assessment that the [unintelligible] has said the immediate candidate for president seems to be having difficulty organizing a coalition because essentially his opposition has combined a group on the left and a group on the right against a [unintelligible] center treaty faction. And despite his efforts and obvious popular appeal, the efforts can carry through the kinds of demonstrations that were held during the summer [and] immediately after that seemed to have died down somewhat. That's not to say that I wouldn't expect some attempt to disrupt or show dissatisfaction at the time of the inauguration on the 1st of December. In fact, I would be flabbergasted if that did not happen, but I don't think anybody feels that this is life threatening, if I can put it that way, at this stage.",300
-fomc-corpus,1988,President Hoskins.,4
-fomc-corpus,1988,"I have a longer-term concern with this arrange-ment other than just the current bridge loan, although I have some concerns about that. The Fed has swap lines with what, the G-10, BIS, Switzerland, and Mexico.",47
-fomc-corpus,1988,And Denmark.,3
-fomc-corpus,1988,"Denmark. Okay. Then, I would say there probably are two outliers in that group--Mexico being a clear one. The concern I have over time is that we're going in on these arrange-ments with an Administration--whether it's this one or the next one down the road--that is, through Treasury. And it seems to me that over time, given I think what the paper pointed out that Mexico needs $3 to $5 billion per year for the next several years, with the drying up of private resources I think we could expect more of this kind of activity. The concern is that we would be subject to being viewed as perhaps circumventing Congress by working more closely with Administrations down the road on this kind of activity. In that sense, I don't think it's appropriate to continue those kinds of relationships because I think it risks the political independence of this body to some extent. That's my longer-term concern. As for the shorter ones, I'll wait until I see what you are going to put in your telegram.",206
-fomc-corpus,1988,"Any further questions for Mr. Truman? If not, let's move on to the Domestic Desk. Mr. Sternlight.",24
-fomc-corpus,1988,[Statement--see Appendix.],6
-fomc-corpus,1988,Governor Johnson.,3
-fomc-corpus,1988,"I think all those criteria for primary dealer-ships sound good except for two that Mr. Sternlight mentioned--the number limitation and the geographical. I assume that's just politi-cal reasoning on your part, but I can't see any other reason why you have those. Maybe that's the right thing to do but that seems to invite criticism from parties that are perfectly qualified except for the fact that you've hit the number limit and the fact that they may be concentrated in some geographical region. I'm not sure why you'd argue you are excluding by the limit basis.",108
-fomc-corpus,1988,"I don't think it's a question of excluding any particular firms from a particular country that meet our criteria. I think the political concerns that arose probably sharpened our sensitivity to the issue, but I think speaking from my own view of it anyway I do have a concern at least about the rapidity of the growth in representation from some particular corners of the globe.",71
-fomc-corpus,1988,"But I'm saying if you can insure these other criteria, which I think are good criteria, why would you use those other factors? If they are perfectly qualified by those criteria, why would you impose these quotas?",42
-fomc-corpus,1988,"Just because I have a concern about the relatively aggressive pace of entry, and this is a way of slowing down that relatively aggressive pace of entry from a particular foreign sector in my mind.",37
-fomc-corpus,1988,"Let me respond to that, Manley.",9
-fomc-corpus,1988,Sure.,2
-fomc-corpus,1988,"I think, first of all, the two things shouldn't be written together. To some extent, the flexible limit of 50 is a straight-forward business decision in terms of how many people the Desk can with some efficiency do business with. There's simply no need from a straight-forward business point of view for a group even as large as 50. So, to some extent the 50, flexible 50 if you will, is dictated on straight-forward business grounds rather than any other grounds.",98
-fomc-corpus,1988,It seems like a way to do that would be just to tighten your criteria further.,17
-fomc-corpus,1988,"Now, the problem is that you will have situations, I think, in which unless you had some notion of some kind of a cap where there is no conceivable set of criteria that wouldn't end up looking overtly discriminatory toward somebody. I don't see how you can get from here to there. And this point on geographic concentration is not new. We have articulated that in various [unintelligible] or another some time ago. And what we're really trying to say, at least what I'm trying to say, is that we have a situation right now where in round numbers 15 percent of the market is in effect controlled by foreign firms. I have no problem with that. In other words, I do think that there is a special point--I don't know where it is and I hope we never get to the point where we have to worry seriously about it--but I think there is a threshold point in the market for U.S. government securities within which one would have problems in substance And I think that all we're trying to do is to send a signal that says conditions could arise in which we might well conclude that enough is enough. As I just said, I don't think we're anywhere near that, but having that principle established is I think a very cautious approach. But it's one that we should do because again I can't think of a series of criteria that could be administered even-handedly that could in and of themselves guarantee that that condition might not arise in the future.",295
-fomc-corpus,1988,"But your 1 percent market limit must limit it to some extent, even to less than 50.",21
-fomc-corpus,1988,"Well, that may have a very similar impact.",10
-fomc-corpus,1988,That's what I was getting at.,7
-fomc-corpus,1988,Do you have an idea where that--,8
-fomc-corpus,1988,"Right now we have 46 on the list including a couple that would be just on the edge of 1 percent. But they meet it, and over the past few years there has tended to be some giving of ground by firms that had the biggest share. Theoretically, you could have 99 firms doing 1 percent. It won't work that way, but it might work out that it would be very hard to get over 1 percent.",91
-fomc-corpus,1988,But I'm saying that's the maximum number you can have.,11
-fomc-corpus,1988,"You still have to worry about acquisitions, though.",10
-fomc-corpus,1988,"Well, that's different.",5
-fomc-corpus,1988,The last two firms would meet all these tests?,10
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,What's the biggest share?,5
-fomc-corpus,1988,I guess about 8 or 9 percent.,10
-fomc-corpus,1988,"Any further questions for Mr. Sternlight? If not, can I have a motion to ratify the transactions since the September meeting?",27
-fomc-corpus,1988,So move.,3
-fomc-corpus,1988,So move.,3
-fomc-corpus,1988,"Without objection. Also, we need a motion to increase the Desk's intermeeting leeway as requested by Mr. Sternlight.",26
-fomc-corpus,1988,I'll move.,3
-fomc-corpus,1988,Second?,2
-fomc-corpus,1988,Second.,2
-fomc-corpus,1988,Without objection. We'll now move on to the economic situation. Mr. Prell and Mr. Truman.,21
-fomc-corpus,1988,[Statement--see Appendix.],6
-fomc-corpus,1988,[Statement--see Appendix.],6
-fomc-corpus,1988,Questions for either gentleman?,5
-fomc-corpus,1988,"I just have one question that bothers me a little. Those were good explanations, but one basic thing bothers me about the Greenbook forecast. I've mentioned it before. I'll refer to it again. What bothers me is the fact that we put short-term rates up about 1-1/2 percent--the federal funds rate. Yet long-rates are lower today than when we started that tightening move. The Greenbook assumes sort of a parallel shift in rates. And yet the economic data that we've seen, even though I think close to the Greenbook forecast, are definitely slower than what I would have anticipated at this level of interest rates, especially long rates. I'm having trouble accounting for that. How would you reconcile that kind of situation--the fact that your interest rate forecast had one thing in it and yet the economic performance has been even more modest than you may have anticipated because you would have assumed the higher level of long rates and maybe even a higher level of short rates? I have a lot of trouble reconciling this.",208
-fomc-corpus,1988,"We wouldn't have expected the lower long rates that we've had to have any significant influence on recent economic performance. So, I wouldn't want to connect those things quite the way I think you were suggesting. It does appear to us that the decline in long rates reflects some reduced concerns about how robust aggregate demand will be and thus what the future pressures will be in credit markets. Our assumption is that if things unfold as we are suggesting they will, there will be an element of surprise for the market. They will, therefore, tend to raise their expectations somewhat about the future course of interest rates. And with such expectations, we will get somewhat parallel increases in long rates as short rates move up. We have trimmed a small fraction off our long-rate increase over the coming year, in part expecting that the better price performance will be extrapolated to some degree. But basically we don't perceive that the real rate movements that have been implied by the recent nominal rate behavior are going to be imposing sufficient restraint over the coming year to keep the economy in check in the way that the markets may now be anticipating.",217
-fomc-corpus,1988,"I guess what you still haven't quite dealt with--I'm trying to look backwards at where we've come. I agree that all those things could happen going forward; that's just prospective; it's something we don't know about. But looking backwards we haven't had a move upward; as a matter of fact we've had a slight move down-ward in long rates at the same time the funds rate moved up. You say that the long-rate effect may involve a longer lag than I'm giving credit for, but what's going to be the effect of that?",106
-fomc-corpus,1988,"Well, we don't expect housing to be as weak over the next quarter as we previously thought it would be. But that's going to be the most visible effect.",32
-fomc-corpus,1988,"Now, you're getting into something. I think you're saying that because the yield curve has flattened out and long rates haven't gone up that that's going to have a longer stimulus with a lag?",37
-fomc-corpus,1988,We think it will in the housing area and nominal rates may have some greater role there than they might in some other areas as opposed to real rates alone. That's a possibility.,35
-fomc-corpus,1988,So you're saying real rates have actually fallen on the long end?,13
-fomc-corpus,1988,"Well, I think it's debatable what's happened to real rates. We don't think real rates have changed a great deal basically, even over a lengthier period of time than the last few months. We don't see that there has been a tremendous movement in real rates.",53
-fomc-corpus,1988,"So you'd have to agree though that if that's the case, there has been some decline in inflationary expectations.",22
-fomc-corpus,1988,Indeed.,2
-fomc-corpus,1988,And you're just saying it's temporary and ill conceived?,10
-fomc-corpus,1988,"No, not necessarily. What the norm is in the market here is hard to assess, but I guess we may be a bit less optimistic about what would happen with inflation if we maintained current levels of resource utilization in some markets. There is also a considerable view in the market that we're going to have a recession in 1989-1990, that we will see rates coming down significantly. Many of those people don't anticipate that it will occur with a further rate increase but just somehow will happen spontaneously. Others think that small temporary further rate increases will trigger this. Our view is that there is more underlying strength in the economy and that a small, further increase in rates would not have the effect of tipping the economy into recession. It's a very difficult process of figuring out what various segments of the market population are thinking, and what they're thinking we will do, which is another element that affects the term structure. If we devote more attention to the term structure and if that's our policy-making [tool], this would go back to the Lucas critique. It changes the structure of expectations formation of the markets to mean that the term structure has different implications in terms of reflecting market expectations of the economy than it did previously. So, we're in a very difficult expectations assessment.",252
-fomc-corpus,1988,"I agree that all those expectations are quite [unintelligible], but we've had almost a year in which those long rates have had a chance to wash out or adjust expectations and they really have held.",41
-fomc-corpus,1988,"But if you look at a very long period though, you would see that long rates are [quite close to] cyclical lows, [while] short rates have moved up relative to their cyclical lows. I think there is this recent phenomenon which probably has been exacerbated--maybe more in my view than in Peter's and Don's--by questions about Treasury bond authority and the flight to quality from the recent LBO developments that may have proved somewhat more depressing for the Treasury bond rates than otherwise would have been the case.",106
-fomc-corpus,1988,"That may have occurred earlier; I don't know about now. The tax bill is passed. I think that's [not affecting the long] end of the yield curve now. Anyway, I don't want to address too much of this. It's just that we've had this event over the last year and clearly it either has to be a decline in inflationary expectations or a decline in the real rate of interest. And since we don't think it's the decline in the real rate since we've been tighter, then it has to be a change in inflationary expectations. I know that can all change going forward, but at least I think you have to say at this point that's what the market thinks.",136
-fomc-corpus,1988,President Morris.,3
-fomc-corpus,1988,"Well, Mr. Chairman, as I said earlier I think the inflation projections look much too optimistic. I would use them as a best case projection. There are a lot of very optimistic assumptions embodied in the projections. One is what will happen to unit labor costs--because it has been in a rising trend since the middle of 1987. The projection assumes that they will level out at 4 percent throughout 1989. I would think this would certainly be the best case projection. I can't imagine anyone coming up with a lower number. I would say that more probably we will continue to see some continued rise in unit labor costs.",128
-fomc-corpus,1988,Is that productivity or compensation?,6
-fomc-corpus,1988,Compensation.,3
-fomc-corpus,1988,"You don't mean unit labor costs, you mean--",10
-fomc-corpus,1988,He means unit labor costs.,6
-fomc-corpus,1988,I mean labor costs.,5
-fomc-corpus,1988,4 percent all through compensation?,6
-fomc-corpus,1988,That's what the projection shows through 1989 and leveling off around 4 percent unit labor costs.,20
-fomc-corpus,1988,With productivity up .8?,6
-fomc-corpus,1988,"Yes. And I hope that's the outcome, but I think in the seventh year of an expansion with very tight labor markets and growing tighter that could well be off on the low side.",37
-fomc-corpus,1988,"I think you have to explain why the tightened labor markets to date haven't had any really measurable effect on the acceleration of wage patterns. That third-quarter unemployment cost index was something of a surprise, a deviation from historic experience. How do you explain that?",50
-fomc-corpus,1988,"I really don't know. I think we've been blessed in this situation with the remarkable behavior in wages. I think you can attribute some of it to the decline in organized labor, some to concern about being competitive with foreigners which we didn't have in the 1970s. But I'm not confident that it's going to continue.",64
-fomc-corpus,1988,"This is supposed to be questions from you to our colleagues. I don't know why I'm asking you, Frank.",22
-fomc-corpus,1988,"No, it's all right. I would like to think that it will level out at 4 percent. But I think that the odds are that it's going to start to get higher. I think we're more vulnerable next year since I believe that the dollar has started another leg down. The value of the dollar is likely to average significantly lower next year than this year, and therefore import prices are likely to rise more in 1989 than they did in 1988. And the third thing is that they are projecting lower oil prices and they may well be right. I wouldn't know how to forecast oil prices, but I think there is a possibility they may not be as low as they are talking about.",141
-fomc-corpus,1988,"President Morris, can I just clarify? We're not projecting lower oil prices but we are no longer projecting an updrift in oil prices. We're essentially saying they aren't going anywhere from the current level.",40
-fomc-corpus,1988,"Okay. The fact, nevertheless, is it reflects back from the projection for greater growth.",18
-fomc-corpus,1988,Relative to greater--,4
-fomc-corpus,1988,"And you're also forecasting, I take it, a normal agricultural year which again I hope turns out to be the case. But if we have a second bad crop year, then I think we can see some very big increase [in food prices]. I'd prefer to [be optimistic] on this but two [poor crop] years back to back could mean very big food price increases. Now, that's more reason why I look upon this as the best case projection because everything has to go right to keep the inflation rate down in the range that we're talking about. I haven't been accustomed to everything turning out right that often. So, it seems to me it's important if we're thinking about monetary policy for next year to hope that we get this result but have in the back of our minds that maybe the ""best case"" projection is not going to be the one that's realized.",173
-fomc-corpus,1988,Can I suggest we stay with questions so we can break after the questions and come back for general comments after that? President Parry.,27
-fomc-corpus,1988,"Mike, the level of nonfarm business investment in inventories has been averaging about $31, $32 billion for the last two quarters. You've got quite a pickup in the fourth quarter--that means a source of strength in the fourth quarter--and then it remains at that high level throughout most of 1989. The level at around $40 billion is just a little bit high traditionally. You commented that you thought inventories were lean. Could you talk about that a little bit because clearly it could be a source of weakness if it doesn't contain those.",110
-fomc-corpus,1988,"Well, we do have a pickup in the fourth quarter which is largely the expectation that automobile stocks will increase somewhat with these higher assemblies. Looking ahead, we're expecting to see some moderate accumulation in manufacturing and where inventories still look to be on hold very little. We would expect to see some significant accumulation, not very large though, in the trade sector. This, given the scale of the economy now, is not a tremendously high rate of inventory accumulation and it doesn't really result in any substantial change in inventory-sales relationships. So we think this is easily consistent with the kind of overall growth and final demand we have, so long as it's perceived to be in an environment of sustained growth and businessmen don't begin to get as comforted by it. So certainly there's always a risk on the inventory side from our current assessment where some bumping could go on, but it doesn't look like a very aggressive forecast and there are quite a few forecasts out there that would be higher and others that would be about $20 to $22 billion.",204
-fomc-corpus,1988,Governor Seger.,4
-fomc-corpus,1988,"Just two quick questions. On the assumption about where we'll have to put interest rates over next year, you said plus one percent on fed funds between now and the end of next year, is that right?",41
-fomc-corpus,1988,Early next year. Yes.,6
-fomc-corpus,1988,"Okay, how about the long rate?",8
-fomc-corpus,1988,We have them going up about the same amount.,10
-fomc-corpus,1988,"Also the same, whether it's long governments or mortgages?",11
-fomc-corpus,1988,"The events of recent days have pushed the Treasury bond rate to its current low, but if that rate is representative of the lower constellation of all rates or what's happened to other dealers on that track--and that I guess is what Governor Johnson was referring to--we have an essentially parallel movement of the rates.",61
-fomc-corpus,1988,"Run this by me again. I think I asked this question last time; I'm getting more dense by the minute. What are the underlying demand forces now that we're really trying to dampen, knock in the head?",43
-fomc-corpus,1988,"Well, we still think that business fixed investment, has a certain head of steam--not quite as [much] as earlier this year but still providing some forward thrust. On the assumption that we will continue to see a softer dollar than we've seen earlier this year, we see some stimulus to domestic production from the trade side. A basic point that I was trying to make was that there's no reason for an economy to gravitate to rates below normal in essence unless something is there to restrain it. And while we see fiscal policy as mildly restrictive, it is not a big powerful force as you look out at the year ahead. We don't see the inventory situation as being one that suggests there is going to be a retrenchment in orders and production imminently. And so in this kind of environment, unless we assume that there was still some monetary restraint at work going out over the next few quarters to further damp things down, the tendency would be for the economy to tend to grow at or above potential. And in this projection, if you want to turn the inflation trend back down again, you need to tip below that for a while and open up a little more slack in the economy. All of that is conditioned on some assessment of what this level of resource utilization means for inflation pressures. Basically, a crude reading of the experience over the past year would be that as capacity utilization rates have risen to their recent range and unemployment dropped below 6 and toward 5-1/2 percent, there was a general acceleration in wages and prices. Basically, we're saying you've got to try to reverse that if you really do want by 1990 to be moving back down on the basic inflation rate trend.",342
-fomc-corpus,1988,I guess I just have a slightly different view of life in the streets. Thank you.,18
-fomc-corpus,1988,Governor Angell.,4
-fomc-corpus,1988,"Mike, would you go back and reread that sentence where you said something to the effect that we've stretched out the acceleration of inflation. It's back close to the very beginning. You think we've stretched out the period of acceleration of inflation.",47
-fomc-corpus,1988,"No, I talked about interest rates and I said--",11
-fomc-corpus,1988,"No, no, I'm talking about stretched out--",10
-fomc-corpus,1988,I don't remember such a sentence. But we have a somewhat lower rate of inflation in the near term overall because of the change in energy prices.,29
-fomc-corpus,1988,"Well, that's why I didn't understand why you would have said [what you did] when the Greenbook clearly shows--would you read it please?",30
-fomc-corpus,1988,"I'm sorry, would you repeat it, please?",10
-fomc-corpus,1988,"Did you find it, Ted?",7
-fomc-corpus,1988,"Well, I have a sentence here that says because energy prices will be damping inflation in the short run, we built a more gradual interest rate increase into our current forecast.",34
-fomc-corpus,1988,"No, you were talking about price increases. I'll go back and read through it.",17
-fomc-corpus,1988,You're welcome to. I'm not--,7
-fomc-corpus,1988,Do you agree that you said that you stretched out the rate of inflation in your forecast?,18
-fomc-corpus,1988,"I didn't say that, but the fact is that our inflation rate is lower than it was previously.",20
-fomc-corpus,1988,"Yes, that's what I saw in the Greenbook and that's why you have the rate of inflation going down in the Greenbook. In 1989 the fixed weight inflation index was down to 4.2 from 4.5 percent in 1988, which is lower by 3/10ths of a percentage point. And the CPI fourth quarter over fourth quarter is 4.3 percent in 1989 versus 4.4 percent in 1988, and that's why I was surprised to hear you say that you've stretched out the acceleration of inflation.",115
-fomc-corpus,1988,"I'm surprised, too. Certainly, the fact is that because of the energy price change we have a lower rate of inflation in this forecast than we did previously. What I suggested was if you stripped away that energy price effect, which presumably will be largely transitory [though] it could develop some momentum as it feeds through, but if it does it would serve to lower wages and so on. But if you look excluding energy, prices rise more rapidly next year than this year. And so in that sense, and looking at the compensation numbers as was noted earlier, there is a sense of a slight upward trend going through 1989 with a slight tightening and the economy growing at a slower pace.",140
-fomc-corpus,1988,"Even though your numbers show inflation going down, you said it's going up, that's all.",18
-fomc-corpus,1988,What about 1990?,6
-fomc-corpus,1988,It changes and there's two rarts of the sentence.,11
-fomc-corpus,1988,Maybe you can help solve the problem by telling us what 1990 looks like; that way he'll have a trend.,24
-fomc-corpus,1988,"Well, for 1990 one needs to make some policy conjectures and so on. We will present 1990 next time and basically we would at this point expect to show a forecast with rather slow growth in 1990, possibly some slight further edging up in unemployment. [unintelligible] utilization, and some indication of a downward movement in excluding energy prices and compensation. So, we're looking toward 1990 really in our thinking here about the interest rate path at this point of projecting.",102
-fomc-corpus,1988,"Mr. Truman, the oil projection is a very important part of this whole forecast and I heard you as you were going through your conjectures about OPEC talking about I think three different levels of projections and prices. Could you replay that for me just so I'm sure I understand what you said.",59
-fomc-corpus,1988,"Yes. First, let me say this is an area where we feel so nervous we call it an assumption and try to have some rationale behind the assumption. The assumption that they'll stay around the current level or maybe rebound after [the OPEC meeting to] $13 a barrel is based upon an assumption that they will be able to restrain production of crude petroleum to slightly under 20 million barrels per day.",82
-fomc-corpus,1988,From the 21 million?,6
-fomc-corpus,1988,"From the current 21 million plus that they're at now. If indeed they fail to do that, and say they were at or above 21 plus, then you could have a drop in oil prices down below $10 a barrel, roughly that order of magnitude.",53
-fomc-corpus,1988,Can we get started? Who would like to open up on Committee discussion?,15
-fomc-corpus,1988,"Well, I think there is an element of Santa Claus in the outlook, but I don't think that's something that we ought to snicker at. Some of it is luck, but some of it is our own doing. We did anticipate an economy that was overheating. We took a series of gradual steps over a period of months. And I think that we ought not to be all that unhappy that it's bringing forth the results that we set out to achieve. So, while I think we have to be watchful and maybe a little skeptical, I don't think that just because something is falling our way that we ought to say that it isn't a realistic outlook. I'm reasonably pleased with the outlook. My own sense is that the risks are still on the side of inflation, but I think that there's nothing in the immediate scene that would require us to take any significant action. So I'm prepared to say hello to Santa Claus a little early.",186
-fomc-corpus,1988,President Parry.,4
-fomc-corpus,1988,"Mr. Chairman, growth in the Twelfth District has slowed somewhat but we think the outlook is rather optimistic. The slowing really appears to reflect the tightening of labor markets and the lack of unused resources rather than just weakness in demand. To offset these impediments to expansion, we're beginning to see that some employment growth is shifting through areas of the District which have characteristically been weaker. For example, Boeing is opening up a plant in Spokane in eastern Washington where there is a lot of labor available, and it has been traditionally weak. We've seen, for example, that Carnation is going to open its largest production plant in Bakersfield. As you know, Bakersfield is about 110 miles north of L.A. and costs are quite a bit lower there. So, that does seem to be going on a bit. As far as durable goods manufacturing is concerned, it remains strong because of the dominance of aircraft and electronics industries. And you perhaps saw the article today in the paper about Boeing indicating the strength of their sales and profits. We are also seeing the shortages that have been characteristic of the wood products and paper industries fading a bit. This probably is a result of the fact that housing has weakened a bit, at least new housing. And the generally slower pace of the economy may be having some impact on packaging. Prospects for agriculture in the District--and I'll just underline the point that it is the single largest industry in the District--prospects there depend very importantly on rainfall this winter. We have had two years of drought, but it really hasn't affected agriculture. Most of our agriculture in the District, especially in California, depends on irrigation; but if we have a third straight year of drought this winter it would cause problems. Also in 1988 the District continued to excel in the production of championship professional sports teams!",367
-fomc-corpus,1988,I think you've got a surplus with inventory adjustment!,10
-fomc-corpus,1988,"With regard to the national economy, I would agree that [some} slowing of economic growth may be underway. After we abstract from the effects of the drought, our forecast is that growth will average about 2 percent next year with the slowing in growth centered in the areas that have been mentioned in the Greenbook forecast: net exports, business spending on plant and equipment, and consumer spending on durables. And although inflation certainly could be less next year, I think the underlying rate of inflation probably will not improve. And it seems to me, therefore, that further tightening action may be required sometime in 1989.",124
-fomc-corpus,1988,President Keehn.,4
-fomc-corpus,1988,"Well, our outlook is broadly, in the national context, very consistent with the Board's forecast; certainly in a numerical sense that would be true, but it is perhaps a little bit different in tone. From many indicators certainly, it would appear that we are experiencing some moderation in the growth rate, albeit from very high levels. I think really the major question is whether or not this moderation is and will continue to flow through to prices. And on this front there are just a couple of what I would view as signs, and therefore the second part of the question would be do we need to take additional steps at this point to accelerate the process. We'll talk about that later. With regard to the District and consistent with the overall economy, manufacturing activity in our District as we measure it does seem to be moderating. On the price front, contacts within the District and certainly our directors suggest that there is a discernible leveling in price trends with regard to certain raw materials and commodities. The paper industry for example where there have been very significant increases in pulp prices, weight paper, and [unintelligible] prices seem to be hitting a peak. Indeed, expects to see something of a decline in those prices over the next five or six months. Aluminum prices are down; even steel is showing some signs of leveling. And there are many products that have been in very short supply where the backlogs have been filling up with these distinct signs of easing. A comment about housing: We would expect 1989 to be not unlike 1988 with regard to housing starts, say 1.4 or 1.45 million. But in the past, production and housing starts have been attributable to interest rates. who are very close to this industry, are suggesting that in fact we may be getting into an environment of some market saturation and that if new home sales don't continue at a fairly high level, we could see a buildup of inventory of unsold homes. If this is true, if we're getting into some market saturation with regard to housing, I've always had a question on the auto side of how far we can continue with these very big auto years. And then we could also get some market saturation in that sector. Finally, a comment on the agricultural sector: I hate to mention it, but I'm going to say just one thing about aflatoxin, which is an issue that has been very badly we think blown out of proportion; it's really not as big an issue as you might expect from reading the press. But the FDA's standards of aflatoxin were really very, very tight. It's one of these issues where you have to eat a ton of corn flakes forever before you get into trouble. Those standards have been reduced a bit, but when this first hit the exchanges corn prices took a big dive; and beans, in sympathy, also went down. They've come back and I think the markets are looking through this as kind of a non-issue. From a [statistically] measurable perspective, we would expect that the aflatoxin effect would have stopped, but admittedly [the price of corn] is down because the drought would only have an effect of, say, 5 to 10 percent. Given this year's drought, the early anticipation is that the next year's planting will be very heavy. And of course we're a million miles away from that event. But the expectation is that the acreage will be up by about 35 million acres, some 12 to 14 percent. And if we get some reasonable growing season [weather], production could be pretty heavy. Meanwhile, land values are continuing to increase--3 percent in this most recent quarter and 4 percent over the year. So, I must say net at least in our District, the agricultural sector has come through much better than one might have expected given the kind of circumstances that we were dealing with. I think from a national perspective as well as from the District's, things are in pretty good balance. And I would agree that no doubt some of the moderation that we are experiencing is a reflection of the monetary policy actions that we've taken so far.",830
-fomc-corpus,1988,President Forrestal.,4
-fomc-corpus,1988,"Thank you, Mr. Chairman. With respect to the District not very much has changed since the last meeting and so I won't spend very much time on that. I will observe that the Sixth District economic activity continues somewhat sluggish on average, and this reflects in part at least the softening seen in the national economy. Weaknesses are basically in apparel, which has weakened somewhat since out last meeting. That's also having an effect on textile output as you would expect. Retail sales are fairly sluggish throughout the District with some exceptions in some of the larger metropolitan areas. But the retailers are expecting some pickup and their strategy seems to be to have pretty heavy discounts and promotions at the holiday season. Housing is also soft. All of these weaknesses are leading to some uptick in the unemployment rate generally around the District. We're getting fairly good strength in automobile sales where inventories have been very low. I spoke to a Chevrolet dealer yesterday, and he said that as of the middle of September he had no 1988 cars at all, absolutely none. And he's looking for a good 1989. The service sector continues to be strong in the Sixth District, and agriculture in spite of the drought has picked up and the prospects for farm income have improved considerably because we've had some late rain which has brought yields on several crops to above average levels. And these prices, of course, are helping farmers. Two other things that I would mention: In going around the District and talking to business people, bankers, and our directors, we see very little evidence of price increases. There are some price increases coming for raw materials, but apparently many industries are not able--at this point at least in our District--to pass these through. We keep asking about wage pressures and, in spite of some labor shortages, we don't see very much in the way of evidence of increased wages either in the services sector or in organized industries. On the national economy, our forecast is a bit stronger than the one shown in the Greenbook. I think this is partly because we have not assumed that further restraint is put in place in 1989, as the Greenbook obviously has. As a result of that, we also see higher inflation, and I would tend to agree with Frank Morris that the [Greenbook] inflation forecast is probably the best that one could come up with. On the real economy side, we think consumer expenditures are going to be somewhat stronger. We also think that the improvement in net exports is going to be somewhat smaller than the Board staff is forecasting. Now, I think that Mike Prell put his finger on something that has been very apparent to me over the past several months and that is there seems to be a psychological mindset on the part of many people that 5 percent inflation is an acceptable level for prices. I think associated with that is the feeling that is perhaps growing that the Federal Reserve in fact is satisfied and content with that level of inflation. Now, I have a concern certainly about that, but I have a further concern that this LBO activity that we've seen recently--and all of us I suppose are concerned about this greater leverage throughout the economy--I hope is not being driven by assumptions that inflation will ease this debt burden in the future. There have been people saying to me that they think the Federal Reserve is going to have a very inflexible kind of policy because we can't afford to allow a recession to appear in the economy. We've had the thrift industry problem; we've had the LDC problem; the deficit problem; and now we overlay this LBO situation. And I think there is a feeling in the market that maybe the Fed's hands are tied and we have to maintain an inflation rate to keep [the economy] from moving into a recession. I hope that that's not true and I hope that somehow we can get the message across that we are not content to allow inflation to remain at its present level. We'll get into the monetary prescription in just a moment. I'm not arguing for a tightening of policy now, but I think in some ways we need to construct, however we can, the mechanism to get the word out that we are not going to be in the business of perpetuating inflation for the LBOs or other reasons.",852
-fomc-corpus,1988,President Stern.,3
-fomc-corpus,1988,"With regard to the national economy and the Greenbook forecast and the [unintelligible] that are underlying that, it seems to me that the risk of falling considerably short of what's in the Greenbook is low. And I think Mike Prell outlined a number of points with which I agree that account for that. Orders backlogs remain substantial; inventories remain relatively low. I do think there will be further improvement over time in the trade situation. And I would add to that that I don't know how much fiscal restraint is assumed in the Greenbook, but I must say I'm a little concerned about the course of fiscal policy and the [impact of] Gramm-Rudman and so forth as we go forward. So, as I look at that particular forecast I don't see a lot of conditional downside risk aside from the possibility of some exogenous shock. I don't know if the economy is going to do a lot better than that; I'm not saying that, but I don't see that there's a lot of risk in it. I think that kind of forecast as several people have commented is welcome, in part because I think we are in for a period of rather modest growth in the labor force because of demographics and other factors. We probably shouldn't get too enthusiastic about what we might do on the productivity side, and so I think that does limit things from the production or supply side of the equation. As far as the District economy is concerned in this environment, the District economy continues to perform very well. There are a few pockets where the drought has had a significant and adverse effect on agriculture. But as I've commented before, in the large diversified metropolitan areas, the District economy has been quite strong for some time. And one thing that's now very, very clear as far as much of the rest of the rural part of the District is concerned, is that the paper and forest products industry and the mining industry are sufficiently large and are expanding sufficiently strongly that they are taking the rest of the rural economy up with them. And so in this District at least a substantial economic expansion is continuing.",416
-fomc-corpus,1988,President Boykin.,4
-fomc-corpus,1988,"In the Eleventh District, Mr. Chairman, things are pretty much as they were in September. We are continuing to see some modest growth. Manufacturing is leading the improvement that we have. The unemployment rates in our three states have been moving downward but only Texas is making any progress compared to the national rate in closing the gap. In Texas we've got unemployment of 6.8 percent; in New Mexico it's 8-1/2 percent; in Louisiana it's 10 percent. The lower oil prices are a real source of concern and could undermine the modest recovery that we've been experiencing. I think further declines would probably cause us to look for zero growth in 1989 compared with the 1-1/2 percent or so rate of growth that we've been forecasting over the last several months. Other sources of concern for us include a noticeable slowdown of orders in the electronics industry. And there continue to be a few pockets on the foreign side and [some] that tend to be drought-related. Of course, we continue to worry about and try to deal with the financial situa-tion in our District, both on the thrift side and the banking side.",232
-fomc-corpus,1988,President Melzer.,4
-fomc-corpus,1988,"In our District, I've been reporting the last couple of times on a relative gap in employment growth vis-a-vis the national averages which has been somewhat surprising because our District is tracking [the national economy] pretty well. In fact, in the second quarter we had the largest gap ever in the 30 years that this number has been looked at. That trend seems to be perhaps reversing itself now, and we did have modest manufacturing employment growth and relatively flat nonag employment in the recent period. In manufacturing, the areas where growth was noted are electrical equipment, nonelectric machinery, and chemicals. In any case, in looking at this peculiar behavior, because as Bob Forrestal has been reporting and I have as well our activity really doesn't seem to be as strong as the national averages, we tried to figure out what was going on and some of it may be explained by a greater concentration in manufacturing in the District than nationally and services have been growing more rapidly nationally. And secondly, there may be some seasonal adjustment problems. But basically we haven't been able to explain or understand this fully. Reflecting some of the comments that others have made, the agricultural picture is a lot rosier than might have been anticipated at one time. Corn crops came in better than expected; soybeans were higher than last year; the cotton crop was a 25-year record; the rice crop was good; the tobacco crop was the best in 4 years, so I'd say that generally the picture there is pretty rosy in the District. Finally, in terms of credit demand bank lending has been relatively sluggish although we've noted a pickup in the third quarter. Growth in commercial lending both in the most recent three-month period and over the year as a whole has been about 11 percent, and that's quite a shift on the commercial lending side over the last year.",366
-fomc-corpus,1988,President Guffey.,5
-fomc-corpus,1988,"Thank you, Mr. Chairman. With respect to the national economy we would agree with the Greenbook on growth in 1988. For 1989 we project a bit slower growth than the Greenbook, and that's without the assumption that interest rates would rise in 1989. I guess you could conclude, therefore, that we are [projecting] more than just modestly slower growth than the Greenbook. Nonetheless, it's so close that it has no real relevance for this purpose. With regard to the District economy, in the agricultural sector as already has been noted the picture is very bright; it has almost turned upside down from what we were looking at earlier in the year. The net farm income for the nation, for example, will be as great as it was last year and last year was a record. Having said that, there are some pockets within the District where the drought has had a substantial impact, particularly northern Missouri, northeastern Kansas, and on up into Si's area. On the other hand, agricultural farmland sales have picked up rather dramatically because of the liquidity that seems to be in that area. And prices have begun to accelerate in those sales. With regard to the manufacturing sector, it's roughly flat. Retail sales are flat. It's interesting that we also have found little evidence of price increases showing up in the District. However, without exception when you talk with business people in the District, inflation is still on their minds. There's an interesting activity going on in the energy sector because of the drop in the [price of] oil. OPEC oil prices have created the uncertainty that quite likely will almost close down the new exploration activity within our District. It's a fairly sizable part of the economy and largely will affect Oklahoma, Colorado, and Wyoming. Those are the areas that were depressed earlier because of agriculture and energy and it won't help their outlook. There is no new information with respect to commercial construction which is a problem in Denver, Oklahoma City, and Tulsa. It's going to take a long time to work its way out. Overall, I think the Tenth District will continue to trail the national recovery.",426
-fomc-corpus,1988,Governor Seger.,4
-fomc-corpus,1988,"I read the Beigebook this time with great interest and all the comments about signs of slowing business. I certainly agree with that. I also think it will slow next year even without additional tightening. I have been checking a great deal with all kinds of firms that actually deal with consumers, and the story is consistent that consumers need tremendous inducements to buy, a lot of coaxing; competition is fierce all over. Also, if you look at the inventories expressed as inventories-to-sales ratios and do it in constant dollar terms--I'm thinking of the chart that I get from Goldman-Sachs all the time--it shows inventories are not in quite such good shape as I think we're assuming they are. Also, if the sales part of the ratio weakens much, then what look like acceptable ratios can quickly become a touch high. Also, with regard to business spending .on equipment, I'm again hearing more and more decision makers comment on the uncertainties they have over future tax policy as we hear more and more talk about fixing the deficit and I think that that in and of itself is going to put a damper on this kind of activity. Also, questions [they have] about sales prospects in their own businesses I think will tend to support that sluggishness. On the housing side, I agree that sales of existing homes have been strong, but I also know that many realtors have been out beating the bushes telling their customers to buy now because home prices are going to rise and buy now because mortgage rates are going up. And I think that there's some of that in these good results for the last three or four months. Also, I'd just like to take a minute to report on an interesting meeting I had yesterday with some Fortune 500 kinds of business people. They had an interesting main topic of conversation, because they chose the subject of corporate takeovers. That was their big interest, and I guess I shouldn't be surprised that one of the interesting things that came up was the notion that there are almost con-man types who are out running around and will actually go and approach management at very big companies and tell them if they go for one of these deals we will guarantee you so many millions of dollars, etc. And so these people are actually trying to play, I guess I'd almost call it matchmaker, before there is any action of another type taking place. But there is great concern and the more thoughtful ones I believe were also talking about these two recent heavily publicized deals and saying that, sure, the debt can probably be serviced but that would mean that the cash that they thought they were going to have for R&D expenditures, privatization, etc., would be drained off from those good projects and would have to be used for debt service. I think they were quite concerned about that. The second big topic of conversation was this new National Economic Commission and they were very eager I'd say for that group to get its deliberations done and announce the results on December 15th. And I think their expectation is very high, in fact so high that afterwards a fellow who works for and has been attending these NEC meetings with him came up to me and said ""I just want to warn you, don't be too optimistic because first of all they're not going to have the report by December 15th; secondly, there's no guarantee they'll even agree among themselves on how to do it."" And, therefore, he thought that there might be some disappointment with the results. And then finally, some of them did express some concern about the outlook for next year and whether or not the economy would make it through a seventh year of recovery. But overall it was very, very illuminating.",736
-fomc-corpus,1988,President Hoskins.,4
-fomc-corpus,1988,"Given the national slowdown that we've been hearing about and also the third-quarter numbers, we tortured the anecdotal data as best we could and failed to confirm any reasonable slowing in the District. The best we could find was a steel company that had gone off allocations to customers. In other words, it was back to price and bargaining at that time.",69
-fomc-corpus,1988,Did you talk to your retailers?,7
-fomc-corpus,1988,Pardon me?,4
-fomc-corpus,1988,Did you talk to your retailers?,7
-fomc-corpus,1988,"Yes, I'm on manufacturing right now.",8
-fomc-corpus,1988,"Oh, okay.",4
-fomc-corpus,1988,I'll go to retail.,5
-fomc-corpus,1988,Okay.,2
-fomc-corpus,1988,"Steel production in the State of Ohio is up about 9 percent in the last three months over a year ago. Manufacturers are optimistic. In terms of new orders they're still really quite strong. Again, the District may not be typical of the nation as a whole. Inventories are relatively low and the orders are strong. In terms of hiring plans, there has been a survey that was completed recently within the District. We have 19 out of 25 of the larger cities where we expect increases in employment. Four cities that are strongest are the four largest, Cincinnati, Columbus, Pittsburgh, and Cleveland. Retail sales [are up] probably about 5 percent over a year ago, but inflation in the 3 to 4 or 5 percent range leaves a very small real gain. But that's not much different from the way it has been the whole time. So, really not much has changed in the District from what I've been reporting in the past even though we increased our efforts to try to ferret it out where we might be anticipating a slowdown. In terms of the national economy the only thing we might have to add is that we do have a panel of Fourth-District economists that meets quarterly. Their only disagreement with the Board forecast would be on the implicit price deflator. They are about 4 percent higher than the Greenbook for 1989. But again these are primarily manufacturing-based people who are looking at fairly optimistic sales projections.",291
-fomc-corpus,1988,Governor Angell.,4
-fomc-corpus,1988,"I think I see an outlook that's every bit as strong as the staff would see it. I don't have the slightest idea what interest rates might prevail over the period ahead, but it does seem to me that the economy shows a lot of resilience and a lot of signs of continued increase. And it doesn't show any signs that the recent slowdown in money growth is being translated into anything which would be an expansion-ending event. It seems to me that our economy has changed rather dramatically in the '80s from the '70s, that we are in a much more flexible wage-price arena than we had been in before. Otherwise, it just wouldn't be true that we could have the kind of exchange rate adjustments of the dollar that we had and the kind of monetary growth paths that we had in 1985 and 1986 without it showing through into much higher rates of inflation than the year-over-year 4.1 percent that I think we're now seeing in CPI. And it seems to me that that shows us that the environment has changed globally and that that has tremendous impact domestically. But we've had a lot of industries that have suffered rather severe shakeouts. And people's memory gets to be long and so we have more attention in industrial America and in rural farm America concentrating on cost efficiencies than we did before. And now given the present level of commodity prices, the present level of finished goods producer prices, crude industrial prices--those prices, it seems to me with this emphasis upon cost efficiency, provide ample profit margins to give us the kind of capital investment and the kind of continued expansion that I think we find is desirable for the economy. Now, even though some commodity prices may have shown some response to the slower money growth, we haven't been having commodity prices that just do not show that. And it seems to me that the back hasn't been broken in terms of this price cycle so that we can suggest the commodity price deflation such as began in 1984 and 1985 would reach the proportions that it did in, say, 1986. Now, I would agree that the one exception to that is oil, but there again in percentage terms we're not looking at the same kind of reductions they were looking at in that period. And I would agree with Roger that the areas of U.S. oil industry that have such difficulty finding oil resources, and where the output of oil is so low, are indeed going to experience some dramatic curtailment. But I believe that will be more than offset by the [expansion] under way in agriculture. Just the release of all these acres from the acreage control [program] means demand for more machinery; it means demand for more fuel; it means demand for more fertilizer. So, we already have under way a large acreage expansion of the agricultural industry which I think probably by itself offsets what's happening in oil. Now, it just seems to me that a foreign exchange movement of the dollar [associated with] decided weaknesses would undoubtedly cause commodity prices to at least remain at these very, very high levels if not to accelerate. And so it seems to me that the economy does have ample strength.",630
-fomc-corpus,1988,Vice Chairman.,3
-fomc-corpus,1988,"In terms of the national economy, our guesstimate for the next five quarters really is not materially different from the outlook contained in the Greenbook, although there are some differences in individual sectors. The big difference that we continue to have is on the inflation side in that by the end of 1989 our inflation forecast is about 1-1/4 points higher than the Greenbook forecast. Now, analytically there are two factors that account for that. One is that we have a higher oil price--we have an effective oil price of $15 whereas I think Mike has $13 for the year as a whole. And that's about 4/10ths of a percent in our arithmetic; I don't know what it would be in yours. But the big, big difference is in the fact that we have the unemployment rate drifting down and you've got it drifting up. From where we are, in terms of labor markets, the difference in the algebraic sign makes quite a difference. Indeed, if you look through the numbers, by the end of next year with essentially the same productivity numbers we end up with compensation rates and inflation rates that are in underlying terms 8 to 9/10ths of a percent faster than what is in the Greenbook. I don't know what to make of that. Our year-end unemployment rate is 5.1 percent; the [Greenbook] staff's is 5.6 percent. One would like to think that a half point couldn't make that much difference, but I think it's quite conceivable that it could. Indeed, I think I could even make a case that it could be worse than that. In terms of the question you raised earlier, Mr. Chairman, about why hasn't more shown through on the wage side given where we are right now, we were looking at some numbers that really fascinated me yesterday. I'm sure, Mike, that you look at these: I've just never seen them before. But the breakdown it shows for the collective bargaining agreements was--for example, in 1988 if I remember these numbers correctly--that for still 40 percent of individuals covered by agreements reached in 1988, the agreement provided for some kind of a lump sum payment in lieu of, or partially in lieu of, a wage increase. And even more astonishingly, 20 percent of the population in 1988 still had no wage increase, but a wage reduction. In both cases--if my memory is correct on the numbers, but I think it's close enough--those numbers of 40 percent and 20 percent respectively are down significantly from where they were in 1984, 1985, and 1986. But I found it surprising they were still as large as they are. And I think that in a symbolic way that is part of the answer to your question as to why we don't see more pressure than we've already seen on the wage side. Now, how much further that kind of thing could work in our system, I don't know. I personally think that the point Frank Morris made about foreign competition is a very big part of it. And maybe we'll get lucky in 1989 as well. But I would agree with Frank that any way I would cut it that the risks are distinctly on the side of an inflation outcome that is somewhere north of the numbers that are in the Greenbook. As far as the economy itself is concerned, again the anecdotal comments that we're picking up from directors and others are broadly consistent with the commentary around the table--that things have slowed down a bit from the almost breakneck pace of the late spring and summer. But the economy nevertheless is still being characterized as very solid looking into the future. I think we are still getting anecdotal comments to the effect that export performance outlook still looks good, although I must say in looking at the economic forecast the one place where I still am a little bit nervous on the downside is in terms of net exports. We've got a slower improvement which is understandable, but I don't think that's by any means baked in the cake. But all in all, I think that we're pretty lucky in one sense to be where we are. And, Mr. Boehne, I think that one can look at all of this and easily envision things that could have been a lot, lot more difficult.",872
-fomc-corpus,1988,Governor LaWare.,4
-fomc-corpus,1988,"I guess I share the feeling of several of you that inflation is more likely to create a need for further tightening as we go forward rather than the other way around. But I don't think that the decision is going to be any easier when we finally have to take it. I think it's going to be more difficult because of the increasing elements of fragility in our financial system, which would react very badly to anything that threw us into any kind of recession. These leveraged buyouts and takeover loans are so delicately balanced, in terms of cash flow on certain assumptions about revenue flows and interest rate levels and the ability to dispose of assets in order to get debt back down to manageable levels, that if there's any hesitation in the economy or any significant downturn in the economy, those could be thrown into very bad straits. And I don't think that's going to get any better as it goes along, nor is the thrift crisis going to be less sensitive to that kind of thing. I don't think there's enough evidence to move in a tighter direction at the moment, but it's going to be a tough decision to make if and when we have to make it because of these other elements. The second thing that worries me is whether we are able to control or manage the decline of the dollar by nominal intervention in the foreign exchange markets. If these markets ever become persuaded that intervention isn't going to do the job, and there is a real flight from dollar-denominated assets, particularly securities, it seems to me that either we're going to have to begin consciously to defend the dollar with interest rates or it's going to get automatically defended because the financing of our deficit is going to be thrown back into domestic markets that will drive interest rates up in any case. Those are the two things that worry me most about the current situation, and yet I'm not persuaded that we should significantly change our course at this stage of the game.",378
-fomc-corpus,1988,Anyone who would like to--,6
-fomc-corpus,1988,"Can I just make a couple of remarks? I'm not sure where we're going from here. Like everyone else, I think things look pretty good at the moment; whether it's good fortune or our good sense, it's hard to tell, but I'll take either one. The situation does look fairly good at the moment, but where we're headed and what we'll be faced with is a little difficult to tell. I guess I'm a little more optimistic about the future--just on the basis of how well we have done in keeping domestic demand relatively modest. Whether that's going to be enough, I don't know. If foreign demand surges while we're so internationally competitive, we could put more stress on the manufacturing sector, but that's not evident. Domestic demand abroad has at least been reasonably good, but if both Germany and Japan take some modest tightening action--Germany perhaps more than Japan--I don't see demand for our exports being out of control by any means. And there's some evidence on the trade side of a slowing of exports, so I don't see that source overtaxing our capacity. Growth of our gross domestic purchases, which is I guess the broadest measure of domestic demand, has been very modest--around 1-1/2 percent. The other measures which are a little narrower, have been higher but they've been trending down. And this paper that was presented today, and the comments about the loan situation, how much growth can you get out of that kind of a M2 picture? You can't get a lot. There's only so much, even if you make some fairly optimistic assumptions about the kind of velocity growth you could get from M2, which has a long-term zero trend. You can't get some sort of disaster out of that, and so I see the long run looking fairly good. That may mean that pressures surface later to some extent, and if that happens we'll have to move. Right now, things look pretty good.",386
-fomc-corpus,1988,President Black.,3
-fomc-corpus,1988,"There have been very few changes in the Greenbook projections this time from last time, and we agree pretty broadly with that and think they are pretty closely on target. It seems clear that there has been a slowing in real activity--or there was in the third quarter--and I think it's reasonable to suppose that, on a drought-adjusted basis, the economy will grow more slowly next year than it has this year. At the same time, I think the risks are on the upside but I think they've got a pretty good forecast. I wouldn't be quite as sure about the risks on the upside as Frank Morris, but I'd be more or less about where Ed Boehne came out on both the level of output and prices.",146
-fomc-corpus,1988,Governor Heller.,4
-fomc-corpus,1988,"Well, it's getting pretty late, and I really have nothing to add, so I'll pass. Thank you.",22
-fomc-corpus,1988,Governor Kelley.,3
-fomc-corpus,1988,"Well, I don't have anything to add either, but I will! I hear a lot of consensus around the table as to where we are now, and a lot of well-taken warnings as to what could occur in the future. And those warnings seem to be cutting in a variety of different ways. What that tells me is that we simply must do what we'll do anyway, and that is be very watchful. But it's a little bit too early at this point to reach any strong convictions as to what should be done, or which way things are going. Now, like Peter Sternlight earlier in the morning when he was giving his report, I thought it was a good theme for the day and that is ""steady as she goes.""",149
-fomc-corpus,1988,"President Morris, you're the last one. I guess you think you've said enough, is that right?",20
-fomc-corpus,1988,I guess that's right. Yes.,7
-fomc-corpus,1988,Why don't we now move on to staff comments on monetary policy and the directive? Mr. Kohn.,21
-fomc-corpus,1988,[Statement--see Appendix.],6
-fomc-corpus,1988,"I must say, listening to this, it doesn't sound all that different from our last meeting. Questions for Mr. Kohn?",26
-fomc-corpus,1988,"Don, how long do you think that that slowdown in Ml and also to an extent in M2 can be sustained without really having an impact on the real side? You talked a bit about velocity, but if you're looking at M1, we're really looking at zero growth out for the period that you're talking about.",63
-fomc-corpus,1988,"Right. I think we could have very sluggish growth for M1 for some time to come. Part of this is the demand deposit phenomenon. We expect extremely weak demand deposits over the next couple of months as firms catch up on compensating balances. It really has practically nothing to do with their transactions and their spending, but rather with how they compensate banks for the services they get. In addition, we have a very steep deposit yield curve that I would expect to narrow only gradually, even if rates remain where they are--to abstract from any further increase in rates. And that will continue to induce both savings-type balances and other checkable deposits and NOW accounts to move into time deposits. So, I think we could have extremely sluggish growth in M1 for some time to come without necessarily having any implications for the economy. Think about demand deposits: We have a lower level of demand deposits now than we had two years ago, and in the meantime we've had 7 percent nominal GNP growth. It just doesn't seem to have very much effect.",209
-fomc-corpus,1988,"You can argue the other way around, too. You can stretch a rubber band only so far, or you're taking up the slack that really exists there.",31
-fomc-corpus,1988,"In the rubber band analogy--, in the NOW accounts, there's still quite a bit that is savings motivated, and I think a lot of that can move out. As for M2, which you also asked about, it depends really on the underlying forces in the economy. If you had an economy that wasn't showing the kind of strength that's really implicit in this staff forecast, and interest rates were flat, I'd expect income to keep growing, say, along a 6 percent path. Then M2 growth rates would have to rise toward that, but very gradually, and perhaps we wouldn't reach a 6 percent rate of growth consistent with that very nice kind of outlook until the latter part of next year. But there's enough elasticity in that rubber band, I believe, to support considerable output growth without that much M2 growth or M1 growth.",169
-fomc-corpus,1988,"How about the takeover activity, how does that affect the--",12
-fomc-corpus,1988,"I think the principal effects there would be on M3--there's a little effect on M2--because it will be financed largely through the banks who will be issuing a lot of managed liabilities and that will find its way into M3. We've built that into our forecast. That's one of the reasons why we have the strong M3 toward the end of this year in the Bluebook. There's a small effect on M2. For one thing, some of the managed liabilities they will issue will be the stuff that will end up in M2--overnight Eurodollars, for example. For another, you have the possibility that with a huge volume of takeover activity the people selling the shares may take a while to figure out what they want to do with the proceeds, and they might park that in M2 temporarily. In the past, we haven't really found a noticeable effect from that, but I'm not ruling that out with the huge volume that could happen this time. But I'd expect the effects on M2 to be very small.",209
-fomc-corpus,1988,Thanks.,2
-fomc-corpus,1988,Governor Johnson.,3
-fomc-corpus,1988,"I want to follow up on your comment about oil prices. I agree with a lot of what you said about that, but with that kind of increase in real disposable income, it might have an effect on demand that you wouldn't necessarily want to validate fully. However, that still may mean that nominal rates would fall, even though you're saying that you wouldn't let real interest rates come down as much.",79
-fomc-corpus,1988,"I'm not sure exactly what would happen to nominal rates. That's why I tried to word it carefully to be vague, because I've thought about that. And it's not clear because I think it's important that real interest rates not fall in this circumstance. Nominal rates I can't tell you about, because I don't know quite what's going to happen to inflation expectations.",70
-fomc-corpus,1988,"Well, that's what I'm thinking, but if there were a real plunge in prices from this level, and they seem to be viewed as more permanent than this [unintelligible].",37
-fomc-corpus,1988,"If inflation expectations really did come down and the Federal Reserve was seen as validating those lower inflation rates so that the expectations are right, then I don't see happening what I think occurred in 1986 when the bond market kind of got carried away with the oil price decline, in effect reducing real interest rates. It was very hard to determine at the time and it depends on whose expectations we're talking about. As a consequence, we got very strong growth in the economy partly as a consequence of that and the decline in the dollar that went along with it. We got very strong growth in the economy in the subsequent two years. I don't see that happening right now, but I think it's something that we ought to think about as--",145
-fomc-corpus,1988,"But, Don, real GNP was negative in the second quarter of 1987.",18
-fomc-corpus,1988,"That's in the second quarter. I think with the lags in the system, Governor Angell, that the real effects were out after the [second quarter.]",32
-fomc-corpus,1988,"Yes, I'm just saying, though, I agree if we didn't appear to be trying to accommodate every bit of it you could expect that that still may mean that you would accommodate some of it.",39
-fomc-corpus,1988,"You could have lower nominal interest rates. And all I was arguing for was a very cautious approach to that, if that's the way things--. I would drag my feet.",35
-fomc-corpus,1988,"Any other questions for Don? Why don't we start the Committee discussion? Let me start off. I think the crucial question we have to ask ourselves is: To what extent has this been luck or successful policy? It's probably a bit of both; I don't think we can segregate the two effects, as Ed pointed out earlier. But what is important here, as I see it, is that to the extent policy has been the source of this slowing, then it's very crucial that we not be perceived as weakening prematurely. As best I can judge, it's extraordinarily difficult to manage a gradual unwinding of the economy from the types of imbalances we currently have. There is very little evidence [currently] of the type of sharp expansions, construction booms, or inventory accumulations that are capable of reversing very quickly. And so long as those types of dangers are not there, it's very difficult to imagine--from where we stand--the types of developments that would bring the economy down quickly from here. If this is true, it is in a sense saying that what we're going through is a pause, and that the slowing is likely to diminish rather quickly. I think that what we're probably in the process of seeing is that the slowing of the spring and early summer is probably coming to an end because we still have very high [delivery] backlogs. We still have momentum in the system, and we still have some very strong numbers in the capital investment area. What has not been mentioned today is the reading on second-quarter capital appropriations, which I found rather impressively strong especially following what probably is a statistical weakness in the first-quarter data. In any event, as I have listened to the discussion today, everyone seems to be generally satisfied that we are in relative balance and that no significant policy action seems to be desired. I would conclude from that that we probably ought to stay precisely where we are--meaning the same directive as the last time, with asymmetric language towards firming. If for no other reason, if the Fed has been perceived of as being a restrainer of inflation, a restrainer of imbalances, there are probably far greater risks in just the psychology of perception if we go from asymmetric to symmetric language. Even though it will not be released for a number of weeks, the markets will read a symmetric directive as though we are in the first stage of backing off. That statement is not a forecast of the direction of the next significant monetary policy action or a prediction that the markets would probably read far more into a symmetric directive than we would anticipate, but I would hope that we could stay pretty much with the language we adopted the last time. My suspicion is that, as we come out of this slowing, we will probably find the staff's forecast to be relatively close to the mark. I might add parenthetically that there's a strong first-quarter GNP in the staff's forecast, which I believe is wholly the result of expected statistical adjustments to the GNP data to show a liquidation of farm inventories in the fourth quarter and a sharp increase in the first quarter. And no farmer in the country will recognize those numbers. Governor Heller.",632
-fomc-corpus,1988,I can certainly support that suggestion. You didn't say anything about the federal funds rate associated with it. I would hope that would be back into the middle of the range that we had anticipated for the federal funds rate when we approved the last directive.,49
-fomc-corpus,1988,"I would think--based on Mr. Kohn's remarks--that the current funds rate is perceived as being somewhat abnormal, if that's not an exaggeration with your insights.",35
-fomc-corpus,1988,Thanks.,2
-fomc-corpus,1988,President Melzer.,4
-fomc-corpus,1988,You support borrowing of $600 million?,8
-fomc-corpus,1988,"Yes, it's essentially--",5
-fomc-corpus,1988,"Well, that's the question I think. Well, I think what he's saying--",16
-fomc-corpus,1988,"What I'm really saying is supporting the funds rate at somewhere, well at about 1/8th.",21
-fomc-corpus,1988,That seems to raise a lot of issues.,9
-fomc-corpus,1988,"Well, it's been the day to do things.",10
-fomc-corpus,1988,The Desk will endeavor to implement--if everyone is agreeing--policy in the manner in which it has been recently implemented.,24
-fomc-corpus,1988,You mean $600 million is the borrowing target?,10
-fomc-corpus,1988,$600 million is the borrowing target.,8
-fomc-corpus,1988,Okay.,2
-fomc-corpus,1988,That's the decoded part of it!,7
-fomc-corpus,1988,President Melzer.,4
-fomc-corpus,1988,"I'm in agreement with what you suggested, although I wanted to register a mild note of concern. I have been surprised at the extent to which money and credit have flattened out since July and August. I think it's a coincidence largely that it happened to be around the time of the discount rate increase; but then again, because of all the fragilities out there, perhaps the increase had quite an expectational impact. I'm sure it also reflects some of the lags of what we've been doing; but if you look over the most recent three months or so, the thrust of policy as reflected by the monetary base, that growth has been relatively slow, and reserves have actually been shrinking. I don't think it's time right now to do anything about that, particularly with the dollar under pressure, but it does concern me because I don't think by any stretch of the imagination that we have whipped the inflationary pressures that we've seen. If we get way out of position, if you will, in the short run in policy--and subsequently we're forced to reverse policy very sharply for short-term reasons, it's going to make the long-term battle a lot more difficult to win. So, that's just a note of concern. I would support what you said.",247
-fomc-corpus,1988,I don't think anyone would disagree with the way you put it. President Morris.,16
-fomc-corpus,1988,"Well, Mr. Chairman, I support your position despite my longer-term concerns. I think at the present juncture there's no basis for changing monetary policy.",31
-fomc-corpus,1988,President Keehn.,4
-fomc-corpus,1988,"Mr. Chairman, I also would be in agreement with what you recommend. I might have come prepared to argue for shifting language to symmetric, but I don't feel strongly about it. But I do have a question about the borrowing level. The $600 million--, we have been through a period where the borrowing level has been at $600 million with a significant seasonal component. I meant to ask Peter about this earlier. I have a feeling that at this time each year as the level of seasonal borrowing comes down, the level of adjustment borrowing builds up. But there's a possibility that this shift in composition of borrowing may have caused the federal funds rate, for this and other reasons, to be a little bit higher than our anticipation. And if this is the case then maybe we need to think about a precise borrowing number.",164
-fomc-corpus,1988,"We have been thinking about that a great deal and doing a lot of testing. I don't know whether or not we've come up with a final conclusion on this, but that's an issue which is absorbing a good deal of time for Mr. Kohn and his colleagues.",53
-fomc-corpus,1988,"But on the anticipation that $600 million is consistent with 1/8th or 1/4th, that's what I would favor.",29
-fomc-corpus,1988,President Boehne.,5
-fomc-corpus,1988,I agree with your recommendation.,6
-fomc-corpus,1988,President Black.,3
-fomc-corpus,1988,"Mr. Chairman, I agree with your recommendation, too. I'm very sympathetic to what Tom Melzer has said, though. We can probably explain the weakness in the aggregates, and the early increases in short-term rates up to this point, but next meeting I will be in favor of a symmetric directive if the weakness in money continues for another month. For now, I would agree completely with what you recommended.",82
-fomc-corpus,1988,President Forrestal.,4
-fomc-corpus,1988,"Mr. Chairman, I think we're going to have to make a move fairly soon, but I don't think this is the time to do it. I think the risk is still on the upside. So, I would agree with your prescription. And I think it's very, very important that we maintain the asymmetric directive.",63
-fomc-corpus,1988,President Hoskins.,4
-fomc-corpus,1988,"Well, I guess my views haven't changed much. Although I do have concerns about what Governor Johnson discussed, some flattening of the yield curve, I think that does provide some information. Also, no growth in M1 and very low growth rates of M2 cause me some difficulty. We ran the Rasche model and we got, using Board staff assumptions, 6.6 percent growth in the monetary base in 1988 and 5.4 percent in 1989. That gives me some degree of comfort that the policy path would not be abrupt. Given where the staff has M2 growth near year end, and given that I think that would probably be an appropriate growth rate to see in 1989, I certainly can live with your proposal.",153
-fomc-corpus,1988,Governor Angell.,4
-fomc-corpus,1988,"I'm very sympathetic with Tom Melzer and Bob Black, and with Lee Hoskins's questions about money growth. I think the 2-1/2 percent growth rate of M2 from September to December in alternative ""B"" is just fine. I would be somewhat uneasy if we were to get lower growth than that. I would not like to see those growth rates get down close to zero over a period of time because I believe that would cause some bounce-back. If that low growth were to be the case, then I think we really ought to talk about it before the next meeting; that is, I think we ought to have a conference call. On the other hand, if the aggregates begin to snap back faster than the staff is projecting, then I would want to be very alert to a possibility of tightening because I think where we are is just fine. Now, I have to admit that what I'm saying is really consistent with symmetric language, not asymmetric. And my caution would be that we use the appropriate language here; that is, I would like the market to learn that when we say we're asymmetric that we have a feeling that things are going to change. I don't think that's the case here, and so I would slightly prefer--not enough to vote against an asymmetric directive--but I would slightly prefer to have it be symmetric. Also, I think that when this directive is announced in December, if we haven't changed policy then the fact that we were symmetric won't even be noticed. On the other hand, if we have tightened, nobody is going to care what we were at this point; and, in the unlikely event that we have to ease, we would look a little smarter. So I think there's a fair case for symmetric language.",352
-fomc-corpus,1988,Governor Seger.,4
-fomc-corpus,1988,"Yes, I'm certainly willing to stick with alternative ""B"". I would note that my remarks about signs of less robust business growth and the performance of monetary aggregates have been pointed out by some others as well. I don't think anyone has mentioned that there are financial market participants who thought, as of a couple of weeks ago, that we had tightened monetary policy somewhat when they saw the federal funds rate creep up to 8-1/4 percent or above. So I think I can vote for alternative ""B"" but I feel fairly strongly that there should be symmetric language rather than asymmetric. And if the $600 million borrowing target were to mean a federal funds rate of 9-1/2 percent, then I would have a problem with that.",150
-fomc-corpus,1988,"Some of the rest of us might, too.",10
-fomc-corpus,1988,I wasn't sure.,4
-fomc-corpus,1988,President Stern.,3
-fomc-corpus,1988,I support your recommendation and would only add that I think Governor Angell makes some valid points about the value of the language in the directive. But it does seem to me that asymmetric language remains appropriate at this juncture as I gauge the risks.,49
-fomc-corpus,1988,President Boykin.,4
-fomc-corpus,1988,"I would agree with your policy prescription, Mr. Chairman.",12
-fomc-corpus,1988,Governor Johnson.,3
-fomc-corpus,1988,"I also support this directive. I think I can support the directive as long as over the next intermeeting period we're not likely to be confronted with any possibility of easing. And I think that's probably a very good possibility. But I do have a little sensitivity to what Tom Melzer said, because I don't think the probability really is zero that some unforeseen event might surface; and I think we may be living a little close to the edge, although part of it may be statistical aberrations. The Chairman pointed out that the farm situation is subtracting from fourth-quarter GNP and adding to first-quarter 1989 GNP; I think estimates are for about minus 1-1/4 percent or something like that from the fourth-quarter growth rate. And given the third-quarter starting point, the economy must grow a lot over the next three months to exceed the third-quarter's midpoint. And I'm concerned that we might find ourselves, at least statistically, in a situation that would not lead us to change policy but certainly could create some perception problems. Statistically, we could end up with a flat or slightly negative quarter in the fourth quarter with the drought adjustment; but I don't think that result will be anything fundamental and will be made up in the first quarter. I'm comfortable with asymmetric language, but I think if we found ourselves in a situation where there was a need to ease--even if it were only a slight easing--it would be uncomfortable given that language. So maybe we ought to consider that possibilty seriously, if things don't change by the time of our next meeting. But I can live with asymmetric now.",324
-fomc-corpus,1988,Governor Kelley.,3
-fomc-corpus,1988,"Mr. Chairman, I support your recommendation, but I am sympathetic with those who expressed some interest in going to symmetric language both on the basis of what might be happening in the economy and also watching very carefully what happens to the aggregates in the upcoming period. But for now, I fully support your recommendation.",61
-fomc-corpus,1988,Vice Chairman.,3
-fomc-corpus,1988,I support your recommendation.,5
-fomc-corpus,1988,President Parry.,4
-fomc-corpus,1988,"Mr. Chairman, I support your recommendation, particulary the asymmetric language. One point I'd make is that I have a greater emphasis on hitting the $600 million borrowings target. It seems to me it's not really necessary to worry about a federal funds rate which differs by an 1/8th or 1/4th from what statistical relationships would seem to indicate between borrowings and the funds rate.",83
-fomc-corpus,1988,President Guffey.,5
-fomc-corpus,1988,"I support your recommendation, Mr. Chairman. I came in with some feeling of moving to a symmetric directive, but I have no quarrel with keeping it asymmetric for this time.",36
-fomc-corpus,1988,"Governor LaWare, do you want to--",9
-fomc-corpus,1988,I agree and support the asymmetric language.,8
-fomc-corpus,1988,"As I hear it, we have a significant concentration on repeating the directive of the last meeting. I ask the Assistant Secretary to read it again.",29
-fomc-corpus,1988,"In the implementation of policy for the immediate future, the Committee seeks to maintain the existing degree of pressure on reserve positions. Taking account of indications of inflationary pressures, the strength of the business expansion, the behavior of the monetary aggregates, and developments in foreign exchange and domestic financial markets, somewhat greater reserve restraint would or slightly lesser reserve restraint might be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with growth of M2 and M3 over the period from September through December at annual rates of about 2-1/2 and 6 percent, respectively. The Chairman may call for Committee consultation if it appears to the Manager for Domestic Operations that reserve conditions during the period before the next meeting are likely to be associated with a federal funds rate persistently outside a range of 6 to 10 percent.",167
-fomc-corpus,1988,Call the roll.,4
-fomc-corpus,1988,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Black Yes President Forrestal Yes Governor Heller Yes President Hoskins Yes Governor Johnson Yes Governor Kelley Yes Governor LaWare Yes President Parry Yes Governor Seger I'm torn.,49
-fomc-corpus,1988,Abstain.,4
-fomc-corpus,1988,"Yes, can I abstain? No, last time I went along with it and the asymmetric language even though I didn't want the asymmetric. So, this time I'm willing to go along except that I have such a problem with the asymmetric. I think I will dissent, since I can't vote 50-50.",63
-fomc-corpus,1988,"Our next meeting date is scheduled for December 13 and 14.  It will not be known for a few days at least whether or not the 13th will be necessary. So, I request that you hold the 13th open until you hear specifically whether or not that date will be necessary. The evening of the 13th we will have an FOMC dinner in which we will give our best to our longest-serving member, Frank Morris, who has attended his last meeting today. Frank has served for more than 20 years, during which there were 210 regularly scheduled meetings, and it appears that he missed only one meeting. I think that's an extra-ordinary record. No question we are all going to miss you, Frank, but we will get a chance hopefully to see you at dinner on the 13th.  If there are no further items of business, the meeting officially is adjourned, and lunch is served.",193
-fomc-corpus,1988,Would somebody like to move the minutes to get started?,11
-fomc-corpus,1988,I'll do it.,4
-fomc-corpus,1988,Second?,2
-fomc-corpus,1988,Second.,2
-fomc-corpus,1988,"Without objection they are approved. Mr. Cross, would you bring us up to date on foreign currency operations?",22
-fomc-corpus,1988,[Statement--see Appendix.],6
-fomc-corpus,1988,Any questions for Mr. Cross?,7
-fomc-corpus,1988,Could you elaborate on your comments about the German mark--the view that the mark is too weak?,20
-fomc-corpus,1988,I didn't say that I thought it was too weak.,11
-fomc-corpus,1988,"I know. The Chairman thinks it's too weak, but it's at the top of the snake, is it not?",23
-fomc-corpus,1988,"The mark has weakened some during the course of this year on a weighted-average basis. At the same time, the German current account balance has been strengthening, their trade balance has been strengthening. Now with us, our trade balance has been improving, Mr. Chairman. There is a European entry factor or element to this, and the Germans have been increasing their trade balance with a number of their European partners, both in the EMS and outside the EMS. So, their concern has been that the mark not appear to be too weak during the period when they see the trade balance strengthening.",116
-fomc-corpus,1988,"Sam, it was reported this morning that perhaps the market is looking for a trade number of around $10 to $11 billion. Is that your assessment of what they are looking for?",37
-fomc-corpus,1988,"Well, we have heard numbers anywhere from $8-1/2 to $12-1/2 billion. Now, it gets a little confusing because there are two bases for calculating it these days, and we are not always sure people are talking in the same terms. The general view seems to be that the trade deficit will be around $10 billion this time. But there are some--",79
-fomc-corpus,1988,That's with seasonal adjustment?,5
-fomc-corpus,1988,"That's CIF, yes.",5
-fomc-corpus,1988,"CIF, with seasonal adjustment?",7
-fomc-corpus,1988,"Yes, CIF and seasonally adjusted.",8
-fomc-corpus,1988,"So, with anything above $10 billion, you'd expect some pressures on the dollar?",17
-fomc-corpus,1988,"Well, I wouldn't jump to any big conclusions because we've had other occasions when the number came in very well and the dollar moved down. I believe the market has seen that it's possible to get hurt by shorting the dollar too much. And I think the trade figures are certainly hanging over the market in an important way. So I think a lot of participants are not anxious to do too much until then. It could be that a good trade figure would provide a little more support, but it's not a sure thing.",103
-fomc-corpus,1988,Governor Seger.,4
-fomc-corpus,1988,"If this is too silly a question, tell me and I will retract it. How do you decide, when you intervene, whether to really come in like ""gangbusters"" or to make sort of an anemic effort? In your comments, it sounded to me as if you said that earlier in the month market participants were disappointed with our intervention--I'm paraphrasing--because it looked as if we were just trying to let the dollar down easily and we weren't really trying to hold it up. Did we really intend that?",106
-fomc-corpus,1988,"That was not our intention and indeed when I got asked, at the press conference when we released this quarterly report, whether we were just trying to smooth the dollar, I said we weren't. We are trying to do more than that.",47
-fomc-corpus,1988,"So, why didn't we go in and really hit it then?",13
-fomc-corpus,1988,"Well, for one thing, unless you're really going to intervene in very, very large amounts it's not always crystal clear just what the reaction is going to be to an expenditure of 'X' amount of dollars. But also we have to work this out very closely with our colleagues in the Treasury who may or may not feel that it is a good idea to intervene very strongly at a particular time. And, also, not in the precise amounts always, but we do try to coordinate our efforts with the other central banks so that we all give the same kind of message. There were occasions in this period when a number of people in the market thought that our efforts were not big enough really to smack the exchange rate in a decisive way. I do think that over a period of several weeks as we continued to do this that the cumulative effect of this became more noticeable and more important.",176
-fomc-corpus,1988,Thank you.,3
-fomc-corpus,1988,"Any other questions for Mr. Cross? If not, would somebody like to move to ratify the transactions since the November meeting?",26
-fomc-corpus,1988,So moved.,3
-fomc-corpus,1988,Second.,2
-fomc-corpus,1988,Without objection. Mr. Sternlight.,8
-fomc-corpus,1988,[Statement--see Appendix.],6
-fomc-corpus,1988,Questions for Mr. Sternlight?,7
-fomc-corpus,1988,"Peter, what's in the market in terms of the confusion over borrowings? How are people interpreting policy right now, and how importantly do borrowings figure into that?",33
-fomc-corpus,1988,"Well, I think there was a realization as we went through November that we must have made some allowance for what the market also perceived as a change in the relationship between federal funds and borrowings. In fact, on the very day the Committee was having that conference call--November 22--I happened to read one of the market letters, and the writer assumed that we were probably using something like $400 million rather than $600 million, so that particular analyst happened to hit it right on the head. The further source of confusion or uncertainty was the spikes in borrowing from some of these technical problems. The market has an idea that those have been a factor. I don't think they know the precise dimensions of it, but they generally have become aware of the problems in the wire mechanisms and in fact are aware that a particular bank was unable to move its funds out, and the ones who were supposed to get funds know very well that there were problems and hangups from that.",195
-fomc-corpus,1988,"Peter, I'm unclear how you decide how much to adjust in terms of borrowings versus how much to accept in terms of the rise in the federal funds rate on a daily basis. One thing we could do is maybe have Don Kohn arrange for borrowings to hold a range for the funds rate. But it's not clear to me when you decide to accept a funds rate and when you decide not to accept it.",83
-fomc-corpus,1988,"Well, we generally speak of an expectation of a funds rate that would prevail given a certain level of borrowing. And I think right along we've felt that there is some degree of flexibility of--oh, I don't know--at least 1/8th percentage point on either side of whatever is the central point. And certainly for a given day it's even more room than that. It's more the persistent deviations that would be a problem. As the deviations build up to be greater than 1/8th or 1/4th percentage point and more persistent, then I think it creates the kind of problem that led to the discussion held on November 22 where it was felt that maybe a discrete adjustment of the borrowing level was in order. I don't know if I have the precise formula. It is something that's talked about daily and in discussions that people at the Desk would have with Don {Kohn] and his associates.",186
-fomc-corpus,1988,"Peter, is it fair to say that most differences have been resolved in favor of the federal funds rate?",21
-fomc-corpus,1988,"Well, we came through periods in this recent intermeeting interval where the deviations got to be sufficient so that the concern about the funds rate moving too far did become a constraint. I think I can say that in the period just since the November conference call, there was a fair amount of flexibility given to letting the funds rate move. We started out saying at that November call that we expected funds to be around 8-3/8 percent, and it seems to me it was largely market expectations that brought the rate up to 8-1/2 and 8-5/8 percent on a number of days. We were putting in reserves at that time, but we were doing it mainly with an eye to the reserve needs and not with such extraordinary intensity that getting funds back down to 8-3/8 percent was an overriding objective. I think we were allowing some flexibility in the funds rate that emerged in that period in the context of the information that had come along in the market and given the asymmetric directive and all.",208
-fomc-corpus,1988,"Yes, I was on the [morning conference] call this time, and I think that's an excellent description of what you did. I was really referring to the longer run. It seems to me that in the past most of them have been resolved in favor of the federal funds rate. Not all certainly, but I think that's what it has usually yielded.",72
-fomc-corpus,1988,"Peter, you commented on the 30-year [unintelligible]. Is there an expectation that we will do more, or [what] is the market reaction to what we've done so far?",40
-fomc-corpus,1988,"I think the market expects that probably we'll be exercising more restraint over the near term. Many people would expect to see by year-end, [unintelligible] or maybe going into early next year, that funds would push higher, that there would be additional restraint exercised against the strength of the economy.",61
-fomc-corpus,1988,"That's an interesting question of whether you combine the premium on the [forward] markets of the federal funds rate with the shape of the yield [curve for] bonds. And I think that the markets certainly are looking at (1) the forward market and the funds rate, and (2) the spreads between the funds rate and the bill rate and CD rates. I think you can clearly see that implicit in the short end of the market is the expectation that the funds rate will be higher over the next 30, 60 days. Any further questions for Peter? If not, would somebody move to ratify his actions since the last meeting?",129
-fomc-corpus,1988,So moved.,3
-fomc-corpus,1988,So moved.,3
-fomc-corpus,1988,"Without objection. Before we get involved with the borrowing and funds rate relationship and its--, I guess this naturally brings us to Don Kohn and the most recent [unintelligible]. The larger [unintelligible] the less we know.",51
-fomc-corpus,1988,"That's probably right. Actually they were overwrought, right?",12
-fomc-corpus,1988,They were thrilled.,4
-fomc-corpus,1988,"[Unintelligible]. We are not Mozart, we recognize that. I have only a little to add to the memos we've already seen and to the comments Peter already has made in today's discussion. [Statement--see Appendix.]",47
-fomc-corpus,1988,Questions for Mr. Kohn?,7
-fomc-corpus,1988,"I think you're right. I mean, that was a well done explanation. And as you pointed out, what resulted was probably not much different, but I think that's because of the flexibility that was pursued by the Desk. I really would hate to think of what the result would have been if you had actually tried systematically to produce that borrowing target. This is just more evidence in my opinion of the need for flexibility and sensitivity toward the funds rate in situations like this. Since I've been here, there have been, in my opinion, more periods of instability in the borrowing function than of stability. And so I'm not at all against this procedure as long as it's flexible. But trying to blindly pursue that problem target is very hazardous.",145
-fomc-corpus,1988,Governor Heller.,4
-fomc-corpus,1988,"Well, on previous occasions I've said that I was always amazed that $100 million changes could move the economy around like a [unintelligible]. I think the current [unintelligible] shows that it is very difficult to have a stable relationship between something that small and something that large. It's sort of like having a big pyramid standing exactly on its tip. Making minute adjustments at the bottom can balance the pyramid, but it's not at all clear that that will always avoid major movement of the pyramid either. In any case, like Mr. Johnson said, as soon as we see some instability there, we are ready to abandon the operating procedures that we have, and we immediately go back to federal funds targeting. I sent around a paper from the OECD and last week [at the OECD meeting] there was a topic of discussion indicating that virtually every single country represented around the table had an operating procedure that was focusing on a federal funds rate equivalent. On the other hand, a number of the countries typically used a monetary growth range for various aggregates as medium-term targets. And, on balance, I think that is probably as good a combination as one can get. You know, use the fed funds operating target itself and then have a medium range monetary growth objective in mind and steer the federal funds rate in order to attain that target. That allows for deviations like those specified in Don Kohn's paper. That's a very good paper, a very thorough discussion. These velocity changes that we can assess and predict with pretty good accuracy [unintelligible] might be amazed in that respect [unintelligible] take that into account. As a result, I think we could have a very consistent package that would allow us to attain the targets with a higher degree of precision than the borrowing target procedure allows us. What I would do with borrowings is use it as an indicator variable, a variable to watch along with the others. Then you would get the market signals, the market feedback, that you could still take into account and incorporate along with the other things that we are watching, but you would do so in a systematic and explicit fashion. Thank you.",434
-fomc-corpus,1988,Further comments? Governor Seger.,7
-fomc-corpus,1988,"I just have a question. How bad does the relationship have to get, or how unreliable, before we should drop this approach?",26
-fomc-corpus,1988,I don't know.,4
-fomc-corpus,1988,"So, as Manley Johnson indicates, it seems that the rule has been that the relationship hasn't been super terrific rather than that being the exception over the last four years or so.",36
-fomc-corpus,1988,"That's a question the Committee has to answer. I would say that we tend to focus on the shifts; that's when the issue is brought to the attention of the Committee and when the discussions occur. It's not clear to me that we don't have long periods in which the relationship is sufficiently on track to get approximately the money market conditions that the Committee thought it was getting when it specified the borrowing objective. There have been periodic shifts to be sure. I can't answer for the Committee what its range of tolerance is. I think I tried to indicate in my closing remarks that I thought that by treating both the money market conditions and the borrowing flexibly, we had gotten through what could have been a very difficult period without having to key very firmly on specific federal funds rates and getting locked into narrow federal funds targeting so that we retain the basic borrowing objective. But at the same time, Mr. Sternlight was sensitive to the potential for the funds rate getting way out of whack with what the Committee expected. So, some sort of compromise was worked out that in my view worked out pretty well in the end.",220
-fomc-corpus,1988,"If you were a robot and you just had pushed for the $600 million and kept going until you got it, what would your guess be as to where the federal funds rate might have gone?",39
-fomc-corpus,1988,"[Unintelligible]. We have in the Bluebook an indication that under alternative ""C,"" $600 million, that the funds rate would be getting up toward 9 percent.",37
-fomc-corpus,1988,You don't think you'd go over that?,8
-fomc-corpus,1988,"That's after an end-of-year adjustment as well? I mean, it could even be higher in the short term?",23
-fomc-corpus,1988,"It could be higher over short periods of time, that's right. I think it would settle down.",20
-fomc-corpus,1988,Thank you.,3
-fomc-corpus,1988,President Black.,3
-fomc-corpus,1988,"Mr. Chairman, as I've indicated a lot of times, what I hope we are going to move to eventually is some kind of reserve targets and make the necessary institutional changes so they'll work. I think it's important in the interim that we recognize that this borrowed reserve target is not a reserve target in the usual sense. The real instrument under current procedures, as I perceive it, is the federal funds rate because this is what determines the demand for money and consequently the rate of growth in the aggregates. And the borrowing is simply the device that we use to try to control the federal funds rate. I think it has confused us, and it has confused the markets on occasion. I remember that Manley and I were arguing this back at the March meeting I think it was. I would favor adopting, if we could get a consensus, a wider range for the federal funds rate and dropping the borrowing target. I would then give the Desk, in consultation with you [Chairman Greenspan], enough freedom to move anywhere within this half percentage point limit [for the federal funds rate] that seems consistent with the directive. I still favor that. I think this [recent intermeeting] period illustrated that. I think Peter Sternlight handled it beautifully the way he jumped back from one and then the other. I do think most of the time we have resolved it in favor of the federal funds rate where there were differences. And I think that's the more important of the two.",293
-fomc-corpus,1988,President Hoskins.,4
-fomc-corpus,1988,"The disturbances or shifts seem to be larger in terms of magnitude more recently, which naturally raises concern about what do I look for going forward. And during the time period in which we were setting policy, I think my concerns were the same as President Black's--that we were confusing the public as to what we were about, and certainly if we were to keep talking about reserve restraint as opposed to fed funds rates. Somehow, I think it might be clearer if we did one or the other. The flexibility, it seems to me, simply gives a perception, at least in my mind and perhaps for some others, that we are doing nothing but following market rates up and not making policy directly. That is, we simply support whatever the market believes rates ought to be. So, I guess in that sense I'd be happy to cut it one way or the other or to have a more formal agreement on what we are doing with a range for borrowings. But if it turns out that the funds rate is what we ought to use, and if it has a wider band, I can support that position.",221
-fomc-corpus,1988,President Boehne.,5
-fomc-corpus,1988,"Well, I think we need to step back from just the narrow issue of this procedure or that procedure and ask the broader question about policy itself. And I think in the last several years that policy has generally been good. If you compare what has happened in the last several years and went back over the last 20 years or so, I think in general we have done most of what should have been done in this particular cycle. And I think that that is borne out by the life of the cycle and the fairly good control we've had over inflation. Now, the issue is, has this procedure been helpful to us in achieving that goal? Have we achieved good policy in spite of this procedure? My own sense is that this procedure has been helpful in guiding us toward better policy. No procedure is perfect. And I think we've found that, whatever procedure we've used, there are always times when you have to override it. And Manley Johnson's point is correct that at some point we have to override it so much that maybe we ought to look around. But on the whole, looking at the broad picture, I think that this procedure has served us well and has made for better policy.",238
-fomc-corpus,1988,"Actually, I'm not suggesting that I would disapprove of the way the Desk has managed lately. I think it was handled with sensitivity--with a sensitivity that I wouldn't mind seeing [in the future]. I mean, my concern has always been with a strict borrowing target.",54
-fomc-corpus,1988,President Melzer.,4
-fomc-corpus,1988,"I also think that operations were handled very well in this period. But I have the general sense that we are moving closer to a funds rate targeting regime, and I agree with the comments about the confusion that that can create internally and externally. I think in general--and I believe for reasons that Ed Boehne was implying without saying--that it has helped us to define our business, if you will, as being reserves and not interest rates [even though we] characterize changes in policy as changes in the degree of reserve restraint as opposed to changes in a target for a market interest rate. I think that's helpful in deflecting political pressures and so forth, but if we continue to move closer in a sense to a funds rate target I feel we ought to be explicit about that. But if we did, I personally would feel very strongly about having a different proviso than we have right now. In effect, the borrowed reserves regime is targeting the funds rate, and then we have a proviso based on the funds rate that really can never be operative. So, were we to go explicitly to that, I'd like to see, if we had had at times in the past some kind of proviso based on the reserve base, whether that would have given us the kind of balance I think we are looking for in the directive. I guess, finally, I might ask just a rhetorical question, and this is part of the confusion: How are we going to describe what's happened in this intermeeting period where in my mind the degree of reserve restraint has been measured by the borrowings target that has been set? In effect, we are saying we really increased the degree of reserve restraint at the same time that the borrowings target has come down. I think that puts the confusion in perspective. If you describe the degree of reserve restraint in terms of what balances the funds rate, that's one thing. But in my mind that's not really what ""degree of reserve restraint"" meant. Why don't I just leave it at that? I'm not sure that's easily answerable, and I think I know how we can do it.",425
-fomc-corpus,1988,"We, of course, added or suggested the addition of a paragraph to the policy record describing the November 22 meeting, which attempts to reconcile those two things.",32
-fomc-corpus,1988,President Forrestal.,4
-fomc-corpus,1988,"Well, Mr. Chairman, it seems to me this was a very good and a very enlightening paper and one of the things that it sought to do is to uncover reasons for the lack of borrowing and I think all of those given were very plausible. One other occurred to me and that is that we have not changed the discount rate very often recently and there may be a perception in the market that our failure to move very often on the discount rate will in effect increase the spread between the discount rate and the federal funds rate as we go forward and therefore produce a greater hesitancy on the part of banks to borrow at the discount window. Whatever the reason, we have this shortfall. As I've thought about this, it strikes me that we are in effect targeting the federal funds rate; we are really doing that. And I think I understand all of the reasons why we don't want to admit that we are targeting the funds rate. But since the periods of instability seem to be greater than the periods of stability, I wonder if the time hasn't come to really examine this procedure and perhaps just confirm what we are really doing and that is targeting that rate. I wouldn't do it now because I think we are in a period where we had some confusion in the market due to computer failures and we are at the end of the year. So, I think we need to have a little more evidence as to whether or not this relationship will come back to a more acceptable level. But I think the time really has come for us perhaps to think very seriously about going to a pure funds targeting, not the 1/8 percentage point degree of precision that was attempted before but some range of federal funds rate targeting. Now, I agree with what's been said about our policy having been pretty good over the last couple of years following the current procedure, but I think the policy results have been obtained basically because of the flexibility exercised by the Desk rather than because of the procedure itself. So, rather than continue to produce memos about this, talk about it all the time, I think maybe the time has come to examine it very carefully and make a decision in the early part of 1989.",437
-fomc-corpus,1988,Governor Angell.,4
-fomc-corpus,1988,"Well, it's been an interesting discussion over the years, and I've always said that you are analytically correct and it's good to have you and Don agreeing on that. But there's a very important point that I think we have to keep in mind, and there's a very important reason that we do not want to target the federal funds rate explicitly. The discount rate is now an announcement instrument. And if we explicitly choose a federal funds target and we change that by 25 basis points, or change it by 12-1/2 basis points or 50 basis points, then that part of open market operations becomes an announcement target just like the discount rate is. And I believe it's [unintelligible] to have two kinds of instruments, one instrument that we use that's subtle, that's not quickly understood and has the camouflage of market forces at work, and another policy instrument that's very clear and has an announcement effect. So, I would never favor going to explicit federal funds targeting even though that is a way to accomplish exactly what we wish to accomplish. It carries an announcement effect with it that I would not prefer. What I would prefer doing, Don, is to examine quite a few options other than the existing options to accomplish the same kind of program and maybe some that might be able to accomplish it with some more regularity. I've talked from time to time with you about a total reserves [target] and a scheduled total reserves which could give you whatever elasticity you choose. A variant that we sometimes refer to as the [unintelligible] would in a sense give you a total reserve [target] with a cap on it on both sides. But I think there are other ways we might explore without going to explicit federal funds targeting.",350
-fomc-corpus,1988,"Wayne, wouldn't a lot of that announcement effect be lost since this wouldn't be released until Friday following the next Federal Open Market Committee meeting?",28
-fomc-corpus,1988,"Well, if we were to give the Desk, let's say, an explicit 8-5/8 percent funds rate to shoot for within a specified range, once you change that rate it's going to be known immediately in the market--as it was previously when explicit funds rate targeting was used.",59
-fomc-corpus,1988,"Well, one fact I want to throw on the table with respect to this is that with very rare exceptions I don't recall the Desk operating on both sides of the market during one maintenance period. In other words, if you're going to focus on an explicit funds rate with an announcement effect, you're going to have to be in there generally not just once a day on one side throughout the whole maintenance period but you're going to have play it on both sides. And I think that gives a different statistic than 8-5/8. I think that if you're forced to stay on one side you can't, even if you wanted to, calibrate a funds rate target exactly.",134
-fomc-corpus,1988,"Are you suggesting you can have an explicit federal funds target--and nothing else--and that's the instruction in the directive, and not have the market perceive precisely that we have a fed funds target, and the market wouldn't know when we have a 25 basis point change?",54
-fomc-corpus,1988,I think it makes a difference how the Desk endeavors to calibrate that particular fed funds rate. Am I correct that we used to be in the market more than once a day and we used to be in on both sides?,45
-fomc-corpus,1988,On occasion.,3
-fomc-corpus,1988,"Well, I don't know that we were in on both sides in a single day, but certainly we had multiple entries on given days when we were targeting the funds rate.",34
-fomc-corpus,1988,"Well, in the same week.",7
-fomc-corpus,1988,But we were focusing on [unintelligible] in the early 1970s.,19
-fomc-corpus,1988,"So, I think even though it's certainly the case that we are moving toward a federal funds target, we are still quite a long way from that procedure because most of the actual activity is determined by the borrowing requirement. I grant you that you could get the effect you're talking about but I'm not sure that it--",62
-fomc-corpus,1988,"Well, I'm saying that I prefer to have some arrangement to keep us from having explicit fed funds targets become apparent to the market and having some announcement effect whenever we change a fed funds target.",38
-fomc-corpus,1988,I certainly wouldn't favor targeting a particular federal funds rate. I might want a band for the reason that Wayne has indicated. But I would just note that the band associated with the borrowing target did not necessitate a borrowing target as long as we had the band.,52
-fomc-corpus,1988,What I'd like to see are some alternatives. I'd like to have Don present us with some alternatives that give us means of accomplishing what we wish to accomplish in ways that might to some extent be more explainable between meetings without having to use exceptions quite as much.,52
-fomc-corpus,1988,"You know, when we were under the borrowed--nonborrowed reserve targeting procedure, we made banks borrow half of any shortfall. There was an automatic corrective mechanism there, and we made ad hoc adjustments every now and then as needed, and I'd like to preserve that right. That's the kind of direction I would like.",65
-fomc-corpus,1988,"Of course, you're getting a 45-degree slope [unintelligible] function in there. We do that in part.",26
-fomc-corpus,1988,I'm not sure.,4
-fomc-corpus,1988,You're observing part of the variance in the funds rate and part of the variance in total reserves.,19
-fomc-corpus,1988,"Yes, if the money supply spurted, we made banks in effect borrow half of the additional reserves that they needed. And that was an automatic brake on that.",34
-fomc-corpus,1988,"Yes, and we could have whatever elasticity in that function we choose to have.",16
-fomc-corpus,1988,"Well, that would appeal to me a whole lot more than what we have now, but there's not going to be a consensus on that at this point. I hope some day there will [unintelligible].",43
-fomc-corpus,1988,President Parry.,4
-fomc-corpus,1988,"If we want to abandon the current operating procedures it shouldn't be on the basis that you're confusing the market because I think the market has pretty well got it straight. Analytically, we are on a modified or flexible federal funds rate approach, and the market knows that. So, it seems to me that the discussion ought to revolve around what is the best procedure; that is, whether or not something more rigid as far as fed funds targeting is appropriate--which I wouldn't be very happy about or support--or whether it should be a reserves target. But I think confusion is not the issue.",119
-fomc-corpus,1988,Governor Johnson.,3
-fomc-corpus,1988,"This might be too technical as an option, but what I always thought was a possibility would be--. You know, we have an estimated borrowing function; we go through quite a sophisticated analysis to know the econometric equation that estimates the long-term relationship between the funds rate and borrowings, and it seems to me that could be the basis for establishing some sort of expected funds rate range. It seems to me that we could still set a borrowing target; however, if the funds rate were to start to vary outside the range predicted by this estimated long-term relationship, and we didn't really know why, then we ought to be more sensitive to the funds rate versus trying to hit some borrowing number. That would allow us to pursue a borrowing procedure but be more sensitive to the funds rate when we get outside that expected band. I mean, that's not money we are putting in--what Bob Black was saying--but at least there's some scientific reasoning, or rhyme, as to how we were to set the expected range. And I think that actually that's about what we've been doing.",215
-fomc-corpus,1988,"I was going to say, isn't that what we did?",12
-fomc-corpus,1988,And I think that's okay; I'm not opposed to it.,12
-fomc-corpus,1988,"But if you wanted to formalize that--I mean all your targets--in the directive, wouldn't you squeeze the fed funds rate clause down to 50 basis points or something like that?",38
-fomc-corpus,1988,"Well, I don't know what the variants are.",10
-fomc-corpus,1988,"I was going to say, in terms of the standard deviation of the borrowing equation, the federal funds band is much larger than we've been tolerating. It's more like 3/8ths of a percentage point.",43
-fomc-corpus,1988,Plus or minus?,4
-fomc-corpus,1988,"[$100 million], plus or minus in terms of standard deviations. Is that right, Dave?",19
-fomc-corpus,1988,"Yes, that's $500 [million]. Judgmentally, the Desk can come closer than that, but that doesn't [unintelligible] the equation.",31
-fomc-corpus,1988,"Well, something like that; we ought to at least look at what the standard deviation is and see if that's within our tolerance.",26
-fomc-corpus,1988,One thing we probably can agree on is that we've been doing a pretty darn good job with what we've had; it's just a question of whether we can continue to do it with this procedure.,38
-fomc-corpus,1988,"Well, I agree with those who've observed that we are some significant distance away even now from pure federal funds rate targeting and I guess I would prefer to keep my distance from such targeting. I see a couple of reasons for that. One is to some extent the grass is always greener phenomenon. Every time a problem crops up we'd like to find a better way and I would too. I have a hunch that search is going to turn out to be long and arduous. Equally important, as you know we were pretty much committed to the federal funds rate in the 1970s. I wouldn't attribute all the problems with policy in the 1970s to the federal funds rate target, but I wouldn't say that it was helpful either. Based on that historical experience, I'd be very cautious about going back to something like that. Now, we may find a different way of implementing closer control of the funds rate if that's what we want to do. But again I think despite the problems with the current procedure, the history of the 1970s doesn't make me sanguine about tighter control of the federal funds rate.",225
-fomc-corpus,1988,"But, Gary, isn't that because you had a rigid fed funds target? What we now have is something that is more flexible, and it seems to have worked at least over this period.",38
-fomc-corpus,1988,"I'm not complaining about current procedures, but as I said, it's a long way away from pure targeting of the funds rate.",25
-fomc-corpus,1988,What I was advocating here is not what we had before but a much wider band. I would be totally opposed to going back to what we had before. That and the market--,36
-fomc-corpus,1988,"I guess what I wonder about in that setting is how to adjust the band, not where we are day-to-day within it.",26
-fomc-corpus,1988,"But isn't a risk of what we are doing now that the band implicitly is getting narrower and that we are heading back toward the 1970s? If you did something like what Bob Black wants to do, and maybe Tom Melzer who would tie it probably to the base--",56
-fomc-corpus,1988,"But you know the reality is a point, as long as you move that point enough--that's what Bob is saying. You could have an explicit funds rate target, but if you moved it often enough to deal with the problem--. The whole issue really is whether you're willing to move the funds rate. And I guess Gary is saying that in the 1970s when this body had explicit funds rate targeting, for some reason it wasn't willing to move the funds rate enough. It was always behind. I think the question is, if we went back to that, would we be willing to move the funds rate more often? The only issue really is whether we would or not.",137
-fomc-corpus,1988,"Well, there's a little more than just the willingness of people to do it. It goes to Wayne's point, and that is that a movement in the funds rate has much more than an announcement effect. And our current procedure does allow some flexibility absent an announcement effect.",54
-fomc-corpus,1988,"True, but I tend to agree with Bob Parry: The market knows exactly; they scrutinize the funds rate hourly.",25
-fomc-corpus,1988,"That's true, except if the market were totally logical about it, a half point increase in the discount rate ought to be just equal to a 50 basis point increase in the funds rate, and it isn't.",42
-fomc-corpus,1988,"I can see that there are certain announcement effects that are similar to the announcement effects of a change in the discount rate. I think that's only because a discount rate change is viewed as an intention by the Fed to lock in the funds rate at that level and put a floor under it. So, I think that's why it has that effect--of being considered a Fed decision to make that funds rate a permanent rate and it's not going to be flexible down.",91
-fomc-corpus,1988,Temporarily.,4
-fomc-corpus,1988,Temporarily.,4
-fomc-corpus,1988,"Well, it's not clear to me that the markets know where we are. I think the markets pick out the rate that they think we are at, and then we allow ourselves to move to that rate; that's the way I read what's going on. We figure out where they are; they keep trading the rate in a certain way; and if we don't protest it sufficiently, we finally decide, if nothing bad happens, to let the rate go to where the market sets it. That seems to me to be the way we've been operating, and I don't find that exactly a comfortable way to be setting policy. I think you ought to react to the markets, and you ought to understand what they are trying to tell you.",145
-fomc-corpus,1988,"Well, you can turn that around a little. You go through an intermeeting period, and if things look like they are firming up for good analytic reasons, and if you allow it to firm up a little bit, what's wrong with that? If you didn't, you'd be going back to what we had in the 1970s that Gary referred to.",73
-fomc-corpus,1988,"I don't understand it. We have a conditional directive, and if conditions work out that rates go up, and if the market does it before we do it, so what?",35
-fomc-corpus,1988,Vice Chairman.,3
-fomc-corpus,1988,"Well, I hesitate to put this in these terms, Wayne, but every time I listen to this discussion I think it does to come down to how many angels can we put on the head of a pin.",42
-fomc-corpus,1988,How many can we?,5
-fomc-corpus,1988,Not very many.,4
-fomc-corpus,1988,"But it is a little more complicated than that. Bob Heller, taking your point regarding problems in other countries--I just glanced at this paper--my sense of it is that virtually every central bank in a major country in one way or another is having exactly the same kind of discussions we are having here, because the fact of the matter is that for a variety of reasons there is no mechanism that is wholly satisfactory from all points of view. We see what's happened in other countries in recent years just in terms of disparities and money growth rates versus money targets and so on. I think we are all frustrated and searching for the brass ring, and I don't think it's there. Two or so months ago Ed Boehne put this is a useful context. If I remember, Ed, you suggested that if we thought of a scale of 1 to 10 and on that 10 was a pure money target or reserve target and 1 was a firm, even more firm perhaps than the 1970's version, federal funds rate target, I think that you were suggesting at the time that you thought we were somewhere around 3 on that scale, and I think that's about right as to where we are. Frankly, I too am rather comfortable with that. I continue to have very grave reservations about going from 3 to 2 to 1 on that scale. And I say that from several points of view. There has been some discussion here about the inertia factor; it is simply the inability of this Committee or any committee to move the interest rate target enough. I think there's more to it than that because I at least think there are some major league questions in the economics of the relationship between an interest rate target and money target and other things. And again, I think Gary made a good point; there's a tendency to think, gee, we'll try that and all our problems are going to go away; quite the contrary, they won't. We will have a whole new bushel basket full of problems. And I guess it's partly in that spirit [that we find ourselves] today. Going back to Ed Boehne's comments, I actually think that this procedure has worked pretty darn well. I think it was Governor Johnson who made the point that if anything we probably have gotten a bit more flexible, maybe a lot more flexible, and that's all right with me, too. But the great advantage over and above those that have been cited by Governor Angell, and Ed, and Gary and others about the current procedures is that it has a valuable form of give to it; it breathes; it's not rigid. I think that that character of it is awfully good from a market point of view, and I think it's awfully good from our point of view. I think that in some ways that is what distinguishes it from the extreme form of a federal funds rate target. It's the extreme form only that involves the question of inertia, but I think it inevitably can put you on a slippery slope into a regime of fine tuning that I would find very, very difficult to support. So, I kind of like what we are doing and I think we've got to be flexible when we need to be. I think there is a demonstrated capacity for that flexibility to be brought to bear either with small things, where Peter and Don and Chairman Greenspan do it, or for big things done through the Committee. But I sure wouldn't want to change it very much.",697
-fomc-corpus,1988,"Let me suggest a couple of other things that I think have been involved in the last year which we haven't really raised today. One is the question that I think is implicit in whether we move in incremental fashion or in discontinuous jumps. The other is: How do we know our degree of pressure is right or wrong, and how do we know whether we are moving fast enough? I think that implicitly in coming to grips with those questions--granted that our fundamental purpose is on the inflation front and granted that we have felt inadequate with respect to the money supply targets--we really have been looking essentially at the slope of interest rates. One of the reasons why I guess most members of this Committee have felt comfortable with the degree of incremental tightening that we have been involved with is that essentially we have been stabilizing inflation expectations around a rather narrow range. And there is a very extraordinary value in having that if our basic purpose is to prevent a breakout of inflation on the upside. And I think the fact that we have been looking at a stable long-term interest rate has given us a policy anchor which I suspect is not going to exist indefinitely either into this or the next cycle because I think it is a very special case which has turned out to be exceptionally helpful. I think that has been useful in that it has enabled us to function in a rather systematic way. The thing which concerns me is that in the next cycle that's unlikely to exist. I don't think there's anything involved here other than in part pure luck. I remember that prior to the discount rate increase in 1987, in the summer of that year we did a historical appraisal of the extent to which short-term tightening either moved long-term rates up or down and the pretty convincing historical result was that when short-term rates moved up as a result of Federal Reserve tightening, long-term rates moved up. Now, one can argue that that may well have been largely the expectational factor; that is, if you're moving up incrementally, the next expectation is we will move up more and create a much higher long-term interest rate. But I do think that, in evaluating the current theory, it has turned out rather well; and, I think also our procedure has worked well but I suspect it's more because of the fact that we've had the long-term interest rate anchor. I'm a little concerned that we may overread the usefulness as a generic tool for all times and all places. And I would be inclined to come out more on the side that unless and until we can feel comfortable with the specific procedures that would be involved in reserve targeting or money supply targeting, that we probably are best suited to develop in each cycle and each period something which the concensus of the Committee feels comfortable with as an operational vehicle without taking all that seriously that there's something sacrosanct about the particular function itself.",570
-fomc-corpus,1988,"That is kind of what happened, of course, if you look at it over a sweep of 30 years.",23
-fomc-corpus,1988,"Yes, and I'm not sure that that's wrong. President Guffey.",15
-fomc-corpus,1988,"I don't think I can add anything that hasn't already been said other than to state my own position. I would oppose moving back to a rigid federal funds rate target. I think that what has happened over the last two intermeeting periods particularly has proven the worth of the procedures we've been following. And I'd also note that there is nothing new apparently in that world because this idea of broadening the federal funds range and letting the market move it within that range rather than us was a regime that we followed some 10 or so years ago when we called that area in which the federal funds rate could move on its own a ""zone of indifference."" I don't know whether that was a published term or not, but it was certainly featured in discussions around this table. That zone of indifference would have been set within a federal funds rate range of 2 to 3 percentage points, and no action would be taken so long as the fed funds rate moved within that zone. My recollection, Bob Black may remember, is that the zone of indifference was about one full percentage point. The point is that it has been done before. It wasn't successful then I might add, and that is one of the reasons I would hate to go back to a rigid federal funds target even with that type of caveat.",262
-fomc-corpus,1988,"I'd say we are more rigid than that right now, even with the full borrowing target, even if we'd be within that.",25
-fomc-corpus,1988,President Melzer.,4
-fomc-corpus,1988,"I just had a couple of comments I wanted to add. Jerry said one of them, and that is that the econometrics aren't really there to tie the funds rate to our goals, which I think is a very important point.",46
-fomc-corpus,1988,It's not just the econometrics; the economics worry me.,12
-fomc-corpus,1988,"And secondly, nobody's really said this explicitly, I think Gary alluded to it, but the funds rate is a procyclical target; and that's why I feel rather strongly that if we explicitly use that target, we need some kind of a proviso that is reserve-based.",58
-fomc-corpus,1988,I think we've always had multiple provisos. I just can't see us ever functioning [unintelligible]. President Keehn.,26
-fomc-corpus,1988,"Well, while I completely agree with the procedure as you describe it, the only question I would have is how do we explain to the markets what we are doing. I have in mind your February Humphrey-Hawkins testimony. Are we doing something different that you're going to have to explain in your testimony?",62
-fomc-corpus,1988,"What we are doing is what we've been doing, whether we defined it or not, for at least as long as I've been here. I don't know what difference we have to explain.",37
-fomc-corpus,1988,"Well, I would think in your testimony the aggregate discussion tends to be on the heavy side in terms of ranges and performance relative to the ranges, etc.",31
-fomc-corpus,1988,Not in that sense.,5
-fomc-corpus,1988,I think what we are talking about is a quite different procedure with which I agree. I think we may have a responsibility to explain both to the Congress as well as to the markets that we are doing something a little bit different here.,47
-fomc-corpus,1988,"On the other hand, we've stayed within our [monetary] target ranges which we have defined to the Congress--right in the middle--and it's likely that we don't have anything to explain.",40
-fomc-corpus,1988,"Of course, the explanation isn't difficult.",8
-fomc-corpus,1988,"We are here by accident, Mr. Chairman.",10
-fomc-corpus,1988,President Black.,3
-fomc-corpus,1988,"Mr. Chairman, I'm afraid I have misstated my position pretty badly. I think the excellent memo we had last time demonstrates pretty clearly that there is a good relationship in the long run between M2 and the price level. And I think the price level ought to be our ultimate target. I think that's all we really ought to be targeting on. If we do that, then I think these other things will fall into place about as well as they can. That suggests to me that somehow or other we have to control the supply of money. In the short run, which is what we are talking about here now, our procedures regardless of whether we use a borrowed reserve target or a federal funds rate [range that is] narrower or wider--and I had in mind a wider one--necessitate our being able to estimate the short-run demand for money. I think that's very difficult to do. All I was attempting to say is that I think if you leave out the borrowed reserves stuff and work with the federal funds rate, we'll probably do better in the short run in doing that. But I will not be satisfied until we get to the point that we really pay a lot more attention over the long run to what's happening to M2, or if some other variable is a better predictor of the rate of inflation then that's the way I want to move. I certainly don't have in mind any rigid pegging of the federal funds rate. That to me would be nothing but a modern day version of the real bills doctrine where the market would get everything it wanted in the way of money at the particular rate we chose and all we could do to change that would be to raise the rate or lower it--which means we'll end up with a real bills doctrine, and I'm violently opposed to that. I think that doctrine has long since been discredited. And so the question really is what kind of mechanism in the short run can get us to what I think should be our long-run target or some control over prices over the long run through controlling the rate of growth in some aggregate or some reserve measure. I don't know what the answer is in the short run. We had a memo on that and it doesn't suggest the answer is very easy. But there is the sense in which I offered this recommendation of mine. And I'm afraid I didn't make that very clear.",472
-fomc-corpus,1988,This has been a very unusual and very useful discussion. Does anyone want to add anything or correct anything?,21
-fomc-corpus,1988,"Well, it seems to me that we should leave our present procedure in place until we decide on a better one.",23
-fomc-corpus,1988,"Well, I was about to say that. What struck me about this discussion is something I had not been aware of previously. That is the sense that even though we all have different views of the way the monetary system functions and have various preferences, there is not a strong feeling of unease within the Committee about current procedures. And I guess, ""if it ain't broke don't fix it."" What that means I guess is that we will proceed as best we can and in the spirit of this conversation define our targets and our goals hopefully in the way we have.",112
-fomc-corpus,1988,"Mr. Chairman, with due respect, I think the better way to describe it is that it was broke, it is broke, and we are continually fixing it.",33
-fomc-corpus,1988,But we have a system for fixing it.,9
-fomc-corpus,1988,It's not quite complete yet.,6
-fomc-corpus,1988,"I'm not sure it [unintelligible]. What I was saying [unintelligible] broke. If there is no further discussion on this, I think we can move on to Mike Prell's report on the economic situation.",48
-fomc-corpus,1988,[Statement--see Appendix.],6
-fomc-corpus,1988,It's getting a bit late and I think it probably would be wise for us at this stage to terminate this meeting. There has been a request by several of you to move tomorrow morning's schedule up from 9:30 to 9:00 a.m. Does anyone have any problem with that?,60
-fomc-corpus,1988,What's the snow forecast?,5
-fomc-corpus,1988,"I don't know; let's get a Committee vote. If no one has a problem with it, why don't we reconvene at 9:00 a.m. here tomorrow morning.",36
-fomc-corpus,1988,Ted Truman?,3
-fomc-corpus,1988,"Yes, sir.",4
-fomc-corpus,1988,Do I understand that Larry Promisel's going to do--,12
-fomc-corpus,1988,"No, I'll do it, for whatever it's worth.",11
-fomc-corpus,1988,But you do have it?,6
-fomc-corpus,1988,"Yes, I do have something to read from.",10
-fomc-corpus,1988,"Well, why don't you start us off on that?",11
-fomc-corpus,1988,[Statement--see Appendix.],6
-fomc-corpus,1988,"We have had some softening in new orders for exports, but my recollection is that when we measure the unfilled orders that exports were rising quite substantially, which raises an interesting question as to whether this is just a temporary slowdown followed by a negative acceleration or whether our data are quite wrong.",59
-fomc-corpus,1988,"Well, as you may remember the way we construct the export orders from those series is to use the staff forecast. So if the staff forecast is wrong, then export orders are wrong. Essentially, the division between domestic orders and exports orders is derived from the staff forecast.",54
-fomc-corpus,1988,"Well, that's quite true, but the backlog is in fact independent, and at least the export orders series--which is fully constructed from the National Association of Purchasing Managers survey--is not inconsistent with the pattern of new orders, which sort of suggests that they still have got to be of significant value.",60
-fomc-corpus,1988,"That's why I said that it seems to me that although these data may well be used by those who think there's going to be a stalling--if you want to put it that way--in the adjustment process, it seems to me that it's a little premature to argue that case. I might add that shipments of large aircraft in October were about double last year's, and that is one factor that we are expecting through the forecast horizon to give us some boost to the overall level of exports; that's one area where orders have been strong and they have long delivery-lead times and so in looking out it looks like you're going to have a continued boost to exports as a whole from that source.",138
-fomc-corpus,1988,"Ted, were the September figures on CIF basis revised?",11
-fomc-corpus,1988,"No, they were both revised by about the same amount.",12
-fomc-corpus,1988,What is it for September? I didn't get that somehow.,12
-fomc-corpus,1988,"Well, revised from--",5
-fomc-corpus,1988,$10.5 to $10.6 billion.,11
-fomc-corpus,1988,"$10.6 billion, is what it is now?",12
-fomc-corpus,1988,"$10.67 billion, something like that.",10
-fomc-corpus,1988,$10.67 from $10.46 billion.,11
-fomc-corpus,1988,Thank you.,3
-fomc-corpus,1988,$10.6 billion.,6
-fomc-corpus,1988,"Perhaps it would be best if we first directed questions to Mr. Truman and then go back to the domestic market issues and Mr. Prell. So why don't we just stay with the international side and question Mr. Truman at this stage. Let me raise one question. In the forecast, there is an implication of a fairly significant slowing down in the adjustment process. It's of a dimension which suggests to me that it's got to be a month or two of very poor numbers, which is going to create the usual concerns. I would assume that in that type of an environment that the market will probably be moving the exchange rates down to your forecast. I don't know whether or not that's sort of implicitly assumed in your forecast process, or whether or not your forecasts on the exchange rate have essentially been straight lined down and you calculate it from there, whether you try to get a little more dynamic into it.",180
-fomc-corpus,1988,"The answer to the last part of your question is we find it hard enough to try and come up with ""forecasts"" of an exchange rate that we don't try to put a dynamic in.",39
-fomc-corpus,1988,I don't know why you have difficulty. No one else seems to!,14
-fomc-corpus,1988,"I think there is a risk in that, since in the staff forecast the trade balance improvement essentially levels off in 1989. That is to some extent exaggerated by the impact of the somewhat higher oil prices that come in. So, there's a little bit more improvement ex-oil in the forecast. The market presumably will look through that part of the forecast that we have in the total numbers. But as I think we mentioned in the Greenbook, it does strike me that if you wanted to fine tune things you might feel that this stalling, if you want to put it that way, or partial stalling in process could lead to pressures on the exchange markets in the short run as the markets adjust to that. Factors behind this essentially are two. One is the strength of the dollar this year and the other is the fact that, at least in our forecast, we have a slowing of growth abroad in 1989 which should give us less [impetus?] from that standpoint. In 1990, the forecast gains from essentially the cumulative effects of the relatively small appreciation of the dollar that's in the forecast and a slowdown in U.S. demand.",233
-fomc-corpus,1988,"The reason I raised the issue is that I was looking for some [potential] shock to what is a remarkably smooth econometric forecast in the Greenbook, which of course of necessity has always been good. This strikes me as an area where you can get some destabilization from something cracking in the seams. And I was just curious to get a sense of the order of magnitude at which it would be a problem. In other words, I assume that if anything were to happen, we are looking at, say, a 10 yen adjustment as distinct from the 25 yen.",116
-fomc-corpus,1988,"Well, if I were to guess, I would guess that way. I think it would also depend on what else is going on at the same time. If you have a slowdown in the trade adjustment but progress--whatever that means--or perceptible progress on the budget deficit, that might strengthen the dollar. If the U.S. economy seems to be slowing down a bit, that might also tend to offset some of the effects of an adjustment to somewhat disappointing trade numbers. But I think a lot depends on what else is going on at the same time.",112
-fomc-corpus,1988,Governor Johnson.,3
-fomc-corpus,1988,"One thing that bothered me a little about the forecast when combining the international side with the domestic side is that--I understand the point about the slowing of the trade adjustment and the expectation of some dollar depreciation--but I'm having a little trouble understanding how that's consistent with our interest rate projections in the forecast. We've gotten into this before, but we are talking about a fairly substantial increase in short-term interest rates over the next year or year and a half, and yet there is dollar depreciation. My question would be that I don't see those as quite consistent, unless you're arguing that our foreign counterparts move their interest rates in a parallel fashion. So, I just wonder what kind of assumption you've got in there.",140
-fomc-corpus,1988,"On that particular point, we have an increase in rates abroad, but not on the same order of magnitude--maybe half or a little bit less than half of the increase we have for the U.S. So you do have interest rate differentials moving in favor of the dollar. And as you know, there is I think in this area [a question of?] how much is enough, if you want to put it that way. I think it's a matter on which science doesn't provide us much guidance. One reason why we tended in this forecast to slow the rate of depreciation of the dollar relative to the overall contour that we had in the previous Greenbook was in fact the recognition that somewhat higher rates of interest that occur in this forecast, at least in the short end and the same kind of stuff for the long end, tend to damp the tendency for the dollar to depreciate; the depreciation we would argue would be much larger in the absence of that. We have the effect in the forecast. The question is whether we have it calibrated right. Some would argue, as you know, that a forecast like this for interest rates would bring about even more in the way of stability of the dollar than we have. [unintelligible]",250
-fomc-corpus,1988,"I can understand that scenario if foreign rates were keeping up with U.S. rates, but I guess my next question would be that if that's not the case, then I have some doubts about the exchange rate scenario in the Greenbook. But if it is the case, then I was going to ask what we have built in for foreign demand?",69
-fomc-corpus,1988,"We have a fairly sharp decline in the rate of increase in demand abroad--down to something like 2-1/2 percent from the somewhat over 3 percent rate on average for the G-10 countries this year. That is one factor affecting things the other way. Now, I think you have two scenarios. You have the scenario of 1988 where you had a relative increase in U.S. interest rates on balance through the year and approximate dollar stability. On the other hand, you also had 1987, where you had a relative increase in U.S. interest rates and a fairly sharp dollar decline over the period. So, I don't think science, if I can put it that way, [unintelligible].",149
-fomc-corpus,1988,But I think part of the reason for the 1987 decline was that rates were moving more sharply abroad than they were here.,26
-fomc-corpus,1988,"No, there was a relative increase in U.S. interest rates over that period. But the issue I think really is where the market in some sense expects the equilibrium for the external accounts is, looking out to the long run. I don't think there's a strong--; you have views all over the map, from some saying the current account has to go to zero to ones who say we can live with a current account of $100 billion or so. I guess what has driven the staff forecast for exchange rates for a number of years now has been the view that it's not going to have to be one way or the other--that the current account while not necessarily having to go to zero is not going to be a deficit of $100 billion, which strikes us as a fairly big number to finance, and so forth and so on. And I think then the issue is the tradeoff between how much of that comes through price effects and how much comes through income effects, and to what extent somewhat higher interest rates in this country will work against the sort of underlying forces which are tending to drive some of this adjustment through price effects. The best we can do is to provide some rough thinking on the matter without a lot of precision, because I don't think there's a lot of precision here. Now, what we basically have built into this forecast is a 6 percent decline of the dollar from roughly where it is today at an annual rate. That translates to somewhat less than 4 percent in real terms. That's a relatively modest decline by the standards of recent years. The rationale for the modest decline is the fact that we do have U.S. interest rates moving higher. And it may be that you'll get another 1988 in 1989 as a result of this kind of forecast. At least on our modest equations, or whatever you want to call them, you're going to get a somewhat different outcome on the external account, and that is in fact where the [uncertainty?] is; you might as well call it that, too. I mean there are some forces in the economy also coming from the decline of the dollar; perhaps you would have less impetus in 1989 and also in 1990.",445
-fomc-corpus,1988,President Melzer.,4
-fomc-corpus,1988,"Ted, when you talked about sluggish exports, you didn't mention anything about capacity constraints. My impression from some work one of our people did is that in key export sectors we are still in pretty good shape on the capacity side--electrical machinery, non-electrical. Is that your impression?",58
-fomc-corpus,1988,"Yes, that's certainly our impression of what we have seen. There have been some stories at some point in some areas, but the few areas where there seem to have been capacity constraints seem to have eased off a touch since last spring. I confess we haven't been systematic in collecting information on that, but I've seen some.",64
-fomc-corpus,1988,"I think the steel industry is the only sort of [unintelligible]. I assume that they could ask for a lot more if they had the capacity and orders, real or imagined.",38
-fomc-corpus,1988,Keep their import protection.,5
-fomc-corpus,1988,Yes. President Parry.,6
-fomc-corpus,1988,"Ted, it seems to me that the export numbers really are quite strikingly strong--$65 billion I believe in 1989 and $56 billion in 1990. My impression is that relative to what one would get in a model forecast like the MPS, it's a very strong number; and I was just wondering what kind of things would enter your judgmental forecast to get that kind of strength, particularly given the slowdown in GNP that you're expecting among industrialized nations in 1990.",101
-fomc-corpus,1988,"Well, as I've said, 13 percent rates of growth in value terms are not anything to sneeze about. We don't actually use the MPS model for this kind of relationship, so I'm not quite sure I can articulate--. And that model has for quite a long time tended to give a different picture for the external accounts than used directly in this process. One big issue has to do with how you treat computers, and whether you sort out computers from your equations. We have recently found it necessary in our forecasting to do that and then we sort of independently have to estimate what we think can happen to computers. That is one area where we have trimmed back the forecast relative to where it was a couple of Greenbooks ago. Excluding computers from our model, given the kind of equations that we have, we would have in fact slightly stronger volumes of computer exports [implied] from equations that we are currently using. I mean, that difference--between 8, 8-1/2, or 9--that's the sort of thing, looking at the fourth-quarter changes. We are roughly consistent with that. Some of the slowdown does come from the total--",237
-fomc-corpus,1988,Governor Angell.,4
-fomc-corpus,1988,"I think your response to Governor Johnson's question is really a most interesting one. But as I understood your response to the Chairman earlier, you did not indicate the dynamic of the exchange rate adjustment. And so I presume you believe that if the interest rate increases were to come somewhat earlier and if possibly the economic slowdown that you have in 1990 thereby might occur, that the exchange rate adjustment might possibly be more inclined to occur during the period of slowdown than in a period in which we might have a disinflation or some commodity price deflation scenario. Would you agree that that's one possibility?",119
-fomc-corpus,1988,That certainly is also a defensible scenario: that you will get less exchange rate adjustment in 1989 despite the slowdown in trade adjustment and more in 1990 if it appeared that the economy was itself slowing down and you were having some lessening of price pressures. That's one of the reasons why we end up straight lining it. If you get too fancy--,73
-fomc-corpus,1988,"So if the Committee, as the staff has interpreted it, is very serious in regard to inflation prospects and if that would then cause us to move interest rates somewhat more in the earlier portion of the two-year period, then it would, it seems to me, be possible that the exchange rate adjustment might take place in an environment that would be much different than for an exchange rate adjustment to take place in the current environment in which inflation is such a potential.",91
-fomc-corpus,1988,"Yes, it's possible.",5
-fomc-corpus,1988,Vice Chairman,2
-fomc-corpus,1988,"I'll just take the other side of that for a minute. If you look out at 1990, I think the 'Catch-22' can be even sharper in the following sense. It is not at all difficult to stipulate a set of conditions involving a stable exchange rate at current levels, rather than a modest decline and a combination of relative U.S. and foreign economic growth. That would yield a situation in which the external adjustment not only stops, but it reverses by the end of 1990. I don't necessarily believe that, but if you went through a conventional exercise using conventional, and historical, estimates of the various elasticities, and so on, it's not implausible.",141
-fomc-corpus,1988,That's what the IMF and OECD [unintelligible].,12
-fomc-corpus,1988,"It's not at all implausible to end up with a result in which, as I said, by the second half of 1990 you have the current account and the trade account deficits actually increasing. I have a great deal of difficulty accepting that view for a variety of reasons, but if you really want a Catch-22 to contemplate, that's it.",72
-fomc-corpus,1988,"It's difficult to run these forecasts when you have different assumptions, but based on our conversation over the weekend, we did run a forecast in which nothing changed except the exchange rate path. Now, just as you may ask how do you get the exchange rate change, you can also ask how you get nothing changing but the rate. But for whatever it's worth, what we get on the current account under that scenario would be essentially no change in the current account, essentially flat at about a rate in the $110, $120 billion range. However, we do continue to get improvement, but at a smaller rate, on the trade side. And you essentially are in the situation in which the trade improvement just offsets the deterioration coming from the interaction of the higher deficits themselves and the higher interest rates which tends to deteriorate the current account. So, you get some trade balance movement over that period, but you would not get any current account movement.",188
-fomc-corpus,1988,"I'm a little skeptical that the kind of historic relationships--which we implicitly assume--are going to be valid for 1989 and 1990. And as a result, I look upon that type of scenario with a lot of skepticism. But the fact remains that there are a lot of serious people who look at it as a quite realistic possibility.",70
-fomc-corpus,1988,"Well, as I said--",6
-fomc-corpus,1988,Most of the academics come out exactly [unintelligible].,13
-fomc-corpus,1988,It gets pretty ugly.,5
-fomc-corpus,1988,The question is you have to [unintelligible] to get elsewhere.,16
-fomc-corpus,1988,If they are right.,5
-fomc-corpus,1988,I think it's more likely than not that the trade balance is not really compatible with our inflation goals. It would not surprise me at all if we are left with a fairly large trade deficit by doing the things we need to do to keep inflation down. But that means there's a big structural problem and that's really the case. You have a big savings-investment imbalance worldwide and that's basically it.,78
-fomc-corpus,1988,"I'll put it in its most graphic terms. If Marty Feldstein is right, what would ultimately happen under those circumstances is that even with relatively high [interest rates, there] would be a major and possibly highly disruptive fall out of bed of the exchange rates.",52
-fomc-corpus,1988,"I don't want to focus on the dollar entirely, but the conditions under which you get that--; I don't think just running a large trade deficit is going to do it in and of itself if we maintain a policy that keeps inflation down. But the other side of that is that the trade numbers aren't going to improve either.",64
-fomc-corpus,1988,"Well, maybe we might emphasize one of the basic rationales for much of the forecast, which is this view that we have of the Committee's view about what it wants to do with inflation. Now, it also is true that we've done this with a modest exchange rate change and some degree of continuing progress--as a result of that in the real exchange rate change--in the trade and current accounts, obviously. Now, if you could change that equation a little bit so that you didn't have an exchange rate change, it's also true that in some sense you'd have a more favorable inflation outlook over this period because you wouldn't have quite the kind of [inflationary] pressure coming from the new exchange rate change over the forecast period. In that sense, there is a connection between the two parts of the forecast. Whether we got the balance right either on the domestic side or the domestic-external side I think we need to be humble about. But the exchange rate change in and of itself--the one that's built in here--does bring you, if you want to put it that way, further improvement on the external side and not runaway inflation. So, in that sense you're not bumping capacity constraints. That's partly because the rest of the economy is squeezed to the extent that you allow the external economy adjustment to continue.",265
-fomc-corpus,1988,"Well, it may be possible to have a financeable current account if it's consistent with keeping the inflation rate level. I'm not saying that's not possible, I'm just saying that's a close call. But I don't know anybody that's saying we can get balance in a short period that's consistent with that.",58
-fomc-corpus,1988,"Well, the next stage of financing if we run into trouble and we are [unintelligible] are ""Bush bonds."" You know, we've got a huge capacity to finance with foreign-currency securities. We can finance this deficit almost indefinitely, if we want to create a huge exposure on the exchange account. We haven't even started in that area.",71
-fomc-corpus,1988,"Well, I'm thinking about stable financing. I agree that it's possible. Central banks can finance the whole thing for a long, long time. It's just not consistent with a lot of other stability.",39
-fomc-corpus,1988,That I imagine.,4
-fomc-corpus,1988,"Well, I guess you could look at this forecast that we have and argue that you worry about how much of an adjustment there is in 1989 for various reasons, as the Chairman discussed earlier. But, actually, if you look at the total adjustment on the external side over the period where the trade balance essentially declines by $45 billion and the current account declines by about another $30 billion so that you're down to a $70--$80 billion dollar range for those two by the end of 1990, that I think is not an unattractive situation.",114
-fomc-corpus,1988,I agree with that.,5
-fomc-corpus,1988,"Among other things, you could even argue that at that point the system could self-finance, if you want to put it that way, without needing added inducements. Also, once you get the trade balance down a bit, you don't have this great discrepancy between exports and imports. The growth differentials [unintelligible] but still have it working there, but not on the same order of magnitude as when imports were over three times the size of exports for a while.",97
-fomc-corpus,1988,Any further questions for Ted?,6
-fomc-corpus,1988,What are you assuming on the exchange rate situation with regard to the NICs? You know they haven't necessarily followed the weighted-average G-10 that we [unintelligible].,36
-fomc-corpus,1988,"Well, this year in fact they've done better--or worse if you wanted to put it that way.",21
-fomc-corpus,1988,Starting in 1985?,6
-fomc-corpus,1988,That's right. We are assuming that there will be a continuing depreciation vis-a-vis those currencies but at about half the 4 percent rate in real terms to more like 2 percent in real terms.,40
-fomc-corpus,1988,"And the second question I have is for those people who argue that slowing our economy will help our trade deficit. Have you run a recession through your models to see what that does? If slowing is good, then recession must be terrific, right?",49
-fomc-corpus,1988,Does wonders for the trade account but--,8
-fomc-corpus,1988,"Yes, that's what my question was.",8
-fomc-corpus,1988,--bad for the budget.,6
-fomc-corpus,1988,"No, I'm talking about the trade [unintelligible].",13
-fomc-corpus,1988,It depends on what happens abroad.,7
-fomc-corpus,1988,"Yes, that's true.",5
-fomc-corpus,1988,"Well, I think one can distinguish between running a recession, which doesn't really buy you very much because you come out of the recession [at a lower] level of income and later come back to the same level of income as before, so you've just bought us a lower financial cost of imports during that interval. I would think between that case and essentially the case that's implicit in the forecast here, which is that the slowdown in growth is essentially a device that is consistent with slowing the rate of growth from something like 3/4 to 1 percentage point above what we think is growth potential to something more consistent with growth potential, and in the meantime dipping down below [potential]. That is, I think different, and you get something from essentially that percentage point, or a little bit more, lower growth than what you had with the economy running along at 1/2 percent [higher] growth.",181
-fomc-corpus,1988,"I wasn't talking about comparing recession to what we have now, I'm just saying comparing a slow growth forecast with an honest-to-goodness resession.",29
-fomc-corpus,1988,"Well, an honest-to-goodness recession would help in the short run. But I think when you come out of the recession and you get back to where you start from, it's not clear to me in terms of the external accounts themselves that you really have bought yourself very much. If you want to prolong the recession for an extended period of time, then you might get something.",76
-fomc-corpus,1988,Thank you.,3
-fomc-corpus,1988,Are there any questions for Mr. Prell?,10
-fomc-corpus,1988,Thank you.,3
-fomc-corpus,1988,Not yet.,3
-fomc-corpus,1988,Could I?,3
-fomc-corpus,1988,"Oh, by all means. I thought you were pointing to your colleague.",15
-fomc-corpus,1988,"One thing back on the price of oil and the way it's figuring in, you were saying that you are now looking at a $2 to $2.50 increase in the price of a barrel. At a recent meeting, I guess it was October, we were looking for a decline and it seemed that energy was a fairly significant factor in the inflation outlook--that is, a better outlook for inflation. And now that has kind of come back around to where we've been running $15+ a barrel. As I understand what was said, it doesn't seem to have the same adverse effect on inflation on the upside. Am I misunderstanding something here?",129
-fomc-corpus,1988,"Well, we went down on our oil price assumption for the November meeting. At that point we had consumer energy prices falling about a percentage point from the fourth quarter of this year to the fourth quarter of next year. Now, we have consumer energy prices rising almost 2 percent from fourth quarter to fourth quarter. That largely reverses the change we made last time, puts us back in roughly the same territory as we were in the meeting before last.",90
-fomc-corpus,1988,"But, Mike, you also have some adjustment on the food side, though, that offsets that do you not?",23
-fomc-corpus,1988,We have a little lower food price forecast than we did last time.,14
-fomc-corpus,1988,And that's why the change in oil doesn't then show as much worsening effect this time.,17
-fomc-corpus,1988,The net is a plus on the inflation rate. We just have a very slight slowing fourth quarter to fourth quarter from our last forecast in consumer food price inflation. We got a little bit better performance recently and so the fourth quarter of this year has been knocked down a couple of percentage points on consumer food price inflation.,63
-fomc-corpus,1988,Any further questions? Mr. Melzer.,9
-fomc-corpus,1988,"I was afraid, when Bob was introducing me here, that I had better come up with a question. Mike, you mentioned that in looking at the 1990 forecast you had not attempted to project any potential shocks. The Chairman had mentioned one in terms of the currency shock. If you had to list the likely candidates, what kinds of shocks would you think about in that context?",77
-fomc-corpus,1988,"Well, there are shocks, if you want to call them that, the nonsmoothness that might arise on the real side. For example, on the inventory side of this forecast we have a rather smooth course--a little bit of a rise in inventory-sales ratios, but mild and very smooth. And in essence we have businessmen recognizing fairly promptly this slowing in the pace of sales and tapering down their inventory investment. Historically, things have not normally moved with such precision, though in this cycle we've been impressed with the rapidity of inventory adjustments through production adjust-ments when inventories might have piled up [unintelligible] in that very early stage in 1983, early 1984. So, there may be reason for optimism, plus what seems to be a rather cautious attitude that businessmen have looking ahead at this point. So, that would have to be one possible disturbance. Now, there are things that could happen on the financial side; exchange market developments, bond markets, stock markets that could create gyrations in wealth and cost of funds that make a more irregular path than consumption and other spending and then in turn give rise to inventory problems and so on that gives you a little more irregular path. Then there are those risks that one has to recognize as being associated with this kind of rise in interest rates and decline in profits--that in the nonfinancial sector, business finances could deteriorate. We would expect in this forecast a substantial deterioration in interest coverage. And everyone is mindful of the LBO situation and what that in turn could lead to, if there are firms [that] fall into some problem and lenders who might react to what they see as the emerging risks in lending to nonfinancial customers. That could have some effect beyond what we are anticipating. And of course the thrift industry situation deteriorates substantially in this picture. The earnings will be deeply negative, will be even sizably negative for the currently solvent institutions who have the smaller interest rate gaps. For the insolvent ones, with their larger gaps, this just exacerbates their problems. So, whatever risks there might be of some liquidity problem arising from a wide loss of confidence and [unintelligible] in thrift institutions, it's awfully hard to calibrate what kinds of real side effects there would be to that kind of development.",465
-fomc-corpus,1988,"I'm just following up on what you said there about the thrifts and another possible shock, and this is probably more for Ted, but this interest rate scenario raises questions about the LDCs. How do we see that?",45
-fomc-corpus,1988,"[Unintelligible]. For those countries who have IMF programs, the modification of the compensatory and contingency financing facility, as it's now called, essentially allows them to build an adjustment factor into the size of financing they get from the Fund for rises in interest rates. It does provide more of a cushion in this area than a year or so ago. But the rise in interest rates no doubt will be an excuse used by those who want to take an unorthodox approach to these matters. On the other hand, a number of the representatives of these countries have also argued that they want to make sure that the North gets its house in order so that they can [not?] have it both ways.",142
-fomc-corpus,1988,"Well, what about this recent BA meeting? What did you make of that?",16
-fomc-corpus,1988,"Well, I only know what I read in the newspapers, which suggested that they are exploring various options, none of which struck me as particularly novel in terms of the things that they like to protect, facilities or various [unintelligible].",49
-fomc-corpus,1988,The only things I saw there were things like the headline that they agreed to work in unison this time more than ever in the past and that they [unintelligible].,36
-fomc-corpus,1988,"Well, my understanding of that meeting was that, although it is fair to say that these countries have been comparing notes fairly actively over the last several years, they were even more actively comparing notes [this time]. There is no desire on the part of each country to lock itself into the strategy of the other [unintelligible].",67
-fomc-corpus,1988,"I guess the question is, though, what happens under this scenario. I'm just sort of asking.",20
-fomc-corpus,1988,"Well, on the other side, we have a rise in the trade and current account deficits of the Baker 15 countries, if you want to put it that way, and they were forecast largely because of the rise in interest rates--though in some sense the interest rate rise is not that much different from what we've had before. It has not been changed that much, and the issue is whether those larger deficits can be financed. If they can be financed through official or private channels, then the rise in interest rates in and of itself is not enough, it seems to me, to spark a conflagration. Lots of things could spark a conflagration, and if one occurs there will be a number of suspects, as Sam Cross said.",150
-fomc-corpus,1988,"What I'm trying to draw out of you is a possibility of a shock. If there's some sort of consortium in this situation and either a moratorium or something like that, what could be the interbank market effects of that? That's a potential shock I think we ought to be aware of.",58
-fomc-corpus,1988,"Yes, it would be a shock but I would think that the implications are likely to be less than they were 3 years ago and 6 years ago. Depending on how one classifies Brazil, for example, you have 45 percent of these countries--assuming Brazil has not been paying interest in the sense that the banks have not been taking in income for 2 years now but just now are able to do so. In that sense, you have for the Baker 15 countries about 40 percent of the bank debt of countries that have not been paying service in terms of interest. Taking Brazil out, it's more like 18 percent. But in some sense, the shock of giving up another 25 percent of that or 30 percent of that, if you want to put it that way, leaving just a handful of countries like Columbia and Uruguay etc., I think the shock would be there but it's not going to have a major impact. It's a risk, there's no doubt that it's a risk, but if you're looking for things to change the climate of opinion, as Mike was saying earlier, that certainly is one of the ones that could do so.",233
-fomc-corpus,1988,"Mike, would some of the more recent numbers that you've gotten in the last week or so cause you to revise up the fourth quarter at all? Retail sales and I don't know if you have the business inventory numbers or you will get that later--",49
-fomc-corpus,1988,"We don't have them yet; we get them later this morning. But I think the main pieces of data we've had, which are both very noisy series, are retail sales and the trade figures. As I noted, retail sales were a shade stronger than we anticipated. Ted noted the trade data looked a shade weaker without knowing the prices that go with them and all of that. On balance, it doesn't look like a substantial difference.",86
-fomc-corpus,1988,President Guffey.,5
-fomc-corpus,1988,"Mike, in looking at the staff forecast in the Greenbook, it is difficult to know what you are projecting in terms of interest rate levels and when changes in those would take place. It would make quite a difference, it seems to me, as to what one might think would happen if, as I believe you said yesterday, you are looking at a 2 percent rise over a 12- to 18-month horizon. Do you have in this forecast much of that coming early on, or it is on out?",105
-fomc-corpus,1988,"The rise is pretty steady. But again, it's somewhat the same story as Ted described with the exchange rate. We don't have any particular impressions about what the optimal quarter-by-quarter movement would be nor what would be plausible to assume the Committee would want to do at various stages. But we assume that the movement begins promptly and is significant over the next half-year and fairly steady into early 1990. PARRY. Then it flattens out in 1990?",94
-fomc-corpus,1988,"Then it flattens out. All of the rate increases occur by early 1990. And you can perceive the hint of this in our real forecast in that the most interest-sensitive sector like housing is beginning to level out by the end of the year. Our notion is that we are not trying to drive the unemployment rate up toward 7 or 8 percent in an effort to slow the inflation, that a more modest softening of the economy in terms of resource utilization levels is needed, but our design is that you want to get there fairly promptly so that you begin to turn the corner by 1990. Many different paths could be described; and, as Governor Angell suggested, if you went sooner with large interest rate increases, we presumably would anticipate, all other things equal, a slowing of the economy more quickly and an opening up of that degree of slack that we perceive to be needed.",182
-fomc-corpus,1988,"Just to follow on, Mr. Chairman, I would like to request that the staff, if they are going to build a forecast on projecting interest rate levels in the period ahead, that those be explicitly stated in the Greenbook so that we can have some feel when we run the model or make those judgmental changes, how we might compare with the Greenbook. It would be very helpful if there were explicit indications in the Greenbook of what those assumptions were.",93
-fomc-corpus,1988,"I can understand the advantage of that, but it seems to me the disadvantage is that puts staff in a position of almost telling us what our job is. And I think being that explicit has its disadvantages for the work of this Committee, even though I can understand why it would be helpful to Reserve Banks.",61
-fomc-corpus,1988,"Just on that point, that's why I would be in favor of having alternative forecasts. One with, let's say, the interest rates going up and one with a different policy forecast. So, then you can really tell it apart, and I think that would fulfill what you wanted.",56
-fomc-corpus,1988,"Yes, indeed it would.",6
-fomc-corpus,1988,And I think it would help a lot with making the proper policy judgments you want to make.,19
-fomc-corpus,1988,"As a matter of fact, I think that's the way it used to be done; [an assumption of] no change in policy.",27
-fomc-corpus,1988,"No, not in my decade of memory of this. And I think, Governor Heller, we have attempted on many occasions to present this at the Committee meeting. There are many questions that arise in terms of what should be put in the Greenbook, in part recognizing that this document goes outside of the Federal Reserve. But you know it's up to the Committee and the Chairman to tell us what--",80
-fomc-corpus,1988,"Well, I would think it's a lot less damaging if you've got three different forecasts out there rather than having one, because any outsider can say now that here is the Federal Reserve forecast. Otherwise, he just has the policy options, and he still doesn't know which one is the right one.",58
-fomc-corpus,1988,"Well, if I were on the outside and I got hold of a book which had three forecasts in it and had interest rate numbers projected against it, I wouldn't have any trouble figuring out what the Federal Reserve forecast was.",44
-fomc-corpus,1988,"Well, but not everybody is as smart.",9
-fomc-corpus,1988,"Nobody's that dumb! Let's discuss that internally. There is another issue here: If we started to circulate [a document] with numbers on interest rates on them and it ever got out to the public, the implications of that would be beyond comprehension. This Greenbook is a confidential piece of paper. If this got lost on a train and somebody read it, it would be embarrassing but it would not be damaging, certainly not beyond the immediate FOMC meeting. But I would be very nervous about a piece of paper circulating outside the Federal Reserve with numbers on interest rates on it and ""Federal Reserve Confidential"" stamped on it. That would create problems for us for months on end. But I'd like to address the concern that President Guffey raised, because I think it's quite a legitimate one and I think we'd better address it. But let's see if we can find a way to resolve this question without getting on the edge of circulating pieces of paper outside which--",193
-fomc-corpus,1988,"It could be done orally, Mr. Chairman.",10
-fomc-corpus,1988,"Well, I'm saying that may well be--",9
-fomc-corpus,1988,Staff to staff.,4
-fomc-corpus,1988,"The question really is, is this something you need prior to coming to FOMC meetings?",19
-fomc-corpus,1988,At least--,3
-fomc-corpus,1988,"Let's see if we can come to some solution on it. It is not a simple issue, as we are well aware. President Hoskins.",29
-fomc-corpus,1988,"Well, my comments are really along the lines that have just developed here, which would be a notion of an alternative forecast or two. It's not because there's anything wrong with this forecast; I happen to think it's a very good presentation, particularly looking out to 1990 and trying to address inflation expectations and the rest of the problems that I think all of us are concerned with. So, I would be in favor of some kind of way to look at alternative forecasts. I'd like to know, for example, if you've run the model and you've looked at the 1990 inflation rate under alternative interest rate scenarios. We've got to know what the price might be to get a 1 percent reduction, say, in the inflation rate.",147
-fomc-corpus,1988,"Well, let me be slightly defensive on this, though I probably shouldn't be. We have presented alternative forecasts--",22
-fomc-corpus,1988,I know you have.,5
-fomc-corpus,1988,"--a number of times. And the message is the same every time, and I think you all know it and I communicated it in a rough way yesterday. So, you are not going to get revelations each time we do this. And I have a feeling that the information we've been providing is being somewhat slighted in this discussion. We have on several occasions in the past year presented alternative forecasts, quantified the effects of different interest rate assumptions and so on, and you will [continue to] see the same thing unless our general perception of how the economic system works changes each time we do that. So, there are going to be very rapidly diminishing returns.",132
-fomc-corpus,1988,"I don't think you have any need to be defensive. I think the Committee generally has complimented the staff on doing those. It's just that if you were to put out a new one, like for 1990, I think it might be interesting just to refresh us as to what that would be.",61
-fomc-corpus,1988,"If I may join Mike, one of the problems this time is that this forecast normally would go to 1990 in February and would be done in conjunction with a chart show. We thought we were doing the Committee a favor, if I can put it that way, by adding 1990 in December rather than waiting until February.",67
-fomc-corpus,1988,It's appreciated; it's appreciated.,6
-fomc-corpus,1988,And the task of doing that and combining alternatives with it would be more difficult than otherwise.,18
-fomc-corpus,1988,"Yes, we know.",5
-fomc-corpus,1988,"We would intend when we go to 1990 in February, as we've always have done in the 15 years that I have sat around this table, to have alternatives in the chart show.",39
-fomc-corpus,1988,"Fine. And I don't think any offense should be taken at these comments. I think in general the staff has been very candid about their interest rate projections. At least, we didn't seem to have much trouble ferreting out--",46
-fomc-corpus,1988,"You know, there's also another problem with this. Sure, you can say let's just re-run the model with the lower interest rates--",27
-fomc-corpus,1988,"Yes, that's the second [unintelligible].",11
-fomc-corpus,1988,"The only problem with that is that there is no such thing as re-running the model with one change. The real art of running a model, as I think we are all acutely aware, is what you do with the add-ons, how you play them. This presumption that you've got an econometric structure which is pristine and captures the economy--one that never changes--is terrific for something, but I haven't a clue as to what.",90
-fomc-corpus,1988,"Can I finish up with this one? After that, I'm not sure I should venture back out here again! The model by its nature, and I guess the Greenbook as well, works off of an issue I raised before, which is kind of a [unintelligible] notion or a GNP gap notion. There is an alternative way to look at this where we don't have to say that 2-1/2 percent is the historical real growth, and therefore not an inflationary real growth rate, and therefore anything other than that generates some inflation. We don't seem to be trying to take account, or perhaps we don't have the ability to take account, of changes in expectations about Fed policy or the credibility of Fed policy. So, I'm a little disturbed when we look at resource availability as the only way to get at inflation. I think we don't have a very good handle on that. Some of us might have tightened very aggressively if we believed the actual [full employment] rate was 6 percent, which many people believed a year or two ago. And it looks to me like we might have had a positive supply shock; we've got more labor at the same wage rate than some of us would have anticipated. So, I'm just looking for ways to try to look at it without using the traditional method.",266
-fomc-corpus,1988,"I guess we are questioning your interpretation of this year's events, so there is room for alternative interpretations. Basically, we've seen a substantial acceleration of compensation this year as the unemployment rate fell below 6 percent. Now, we are not taking a rigid view that the NAIRU is 6 percent in this forecast; far from it. But I guess this is an issue that certainly comes to the fore as you look at the experience of the past year. As to alternative years, you're quite correct that fundamentally we are taking a sort of short-run Phillips curve view of the world. One of the reasons that alternative forecasts got presented with diminishing frequency over the last half dozen years or so was the fact that the Committee frequently said that these are not very meaningful because they are based on this kind of wage-price structure, and we will get much better effects because there will be Fed credibility and so on. Now, what we find in actually looking back at the experience of the last several years is that the sort of short-run Phillips curve formulation of expectations built into that works fairly well in explaining the wage-price deceleration we've had without any obvious add-on of credibility. We have experimented, and we are trying to develop an econometric representation of more forward-looking expectations. Most of the rational expectations models have been constructed on very small non-structural models. We have tried to work with what resources we have to build a fuller model that has a more rational expectations sort of sense to it. At this point we really don't have something we can implement. But there's always a proviso you would say in this: that this is how things would turn out if we had the structure right, and if there were credibility effects you could get a bigger payoff for monetary restraint without the real side damage.",356
-fomc-corpus,1988,Governor Seger.,4
-fomc-corpus,1988,"Yes, I need help in the housing area, and this sort of ties into the issue of alternatives. You have housing starts, if I'm on the right line, going from 1.4 million this year to 1.43 then down to 1.36 million in 1990 with a fairly significant amount of monetary tightening built into these numbers. I know when you talked about different scenarios before, you had housing as one of the more interest-sensitive industries and therefore one that would respond most dramatically to tightening. So, when I looked at these, I really wondered if you had enough of a decline; or looking at it another way, I wondered, if interest rates were to stay where they are now, if housing starts would rise?",150
-fomc-corpus,1988,"No, we don't think so. Not certainly from the 1.55 million housing start level we saw in the most recent month's data. We have what we think is a reasonable decline in housing starts given our assumption that mortgage rates will be rising from the current 10-1/2 percent area to something between 11-1/2 and 12 percent by early 1990. This is not an exotic movement in terms of the models that exist. It's not just the mortgage rate that would be working against housing starts in this forecast. By 1990, the slowing of income growth begins to become a significant factor, and so we do have a fairly substantial decline, particularly in the single-family sector. Basically, looking at the demographics and the damage that's already been done in the multifamily area, we think that the single-family side is likely to be hit fairly substantially over this period.",181
-fomc-corpus,1988,"So, you don't think we are vulnerable here then?",11
-fomc-corpus,1988,"Well, there is a substantial range of uncertainty around every number in this forecast.",16
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,This is not a very high number--in the area of 1.35 million starts--that we have in 1990. It's not as low as we saw at the depths of the last housing downturn.,43
-fomc-corpus,1988,I hoped that you remembered that.,7
-fomc-corpus,1988,But you'll recall how high mortgage rates were at that time.,12
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,"So this seems reasonable to us, obviously, or we wouldn't have written it down. But there has to be some confidence interval around it.",28
-fomc-corpus,1988,Thank you.,3
-fomc-corpus,1988,"What would happen in 1990, just taking the opposite view, if mortgage rates rose only 50 basis points while short-term rates were rising 200 basis points?",34
-fomc-corpus,1988,That's a good question.,5
-fomc-corpus,1988,"Well, what would that do to 1990's path?",13
-fomc-corpus,1988,"The question is why does the real rate only rise that much as the short rate is rising. If it is because of an expectational effect wherein the marginal efficiency of investment in a sense shifts, people perceive there is weakness ahead, they pull back, and they don't want to sell bonds to finance investment and housing construction or whatever; you might have in essence the same real outcome for a downward sloping yield structure. So, I guess it really depends what the circumstances are that produce that interest rate environment.",101
-fomc-corpus,1988,"Well, certainly, we wouldn't be in control of those rates. Now, I suppose the manner and the timing in which rate increases might take place might affect [the outcome].",35
-fomc-corpus,1988,"The more you surprise the markets with restraint in the short run as you're suggesting, the greater, I would think, [the probability that] you are going to get some adverse effect on the bond market in the short run. But you're probably more likely to generate in due course more of a downward-sloping yield structure as people's expectations of future economic strength and credit demands are weakened.",76
-fomc-corpus,1988,Thank you.,3
-fomc-corpus,1988,If there are no other questions I think we can start on our Committee roundtable. Ted.,19
-fomc-corpus,1988,"Can I just correct something which I said before--and I'm sure no one on the Committee remembers what I said--but I have now looked at the trade numbers in a little more detail, and I want to correct one thing that I indicated. I think I said that non-agricultural exports had declined between September and October, and looking at the numbers a little more closely, I apparently had not adjusted for the fact that there was a rise in aircraft shipments. And if you include that, non-agricultural exports in fact rose or were essentially unchanged between September and October.",116
-fomc-corpus,1988,Your concept of non-agricultural is now nonag and non-aircraft?,16
-fomc-corpus,1988,"And non-aircraft, right. Also, there is a slight rise in those exports from their average for the third quarter.",25
-fomc-corpus,1988,Would somebody like to start us off on the round robin on the Committee members' positions on the economy?,21
-fomc-corpus,1988,In the absence of anyone else volunteering--,8
-fomc-corpus,1988,"Well, I'm relieved. The silence couldn't go on forever!",12
-fomc-corpus,1988,"Looking at the Atlanta District first, economic activity in our part of the country I think reflects pretty much what's going on in the nation as a whole. Export demand and import substitution are really the driving force in the economy and are supporting many of the basic industries in the District, namely chemicals and paper and steel and so on. In many of these cases, this kind of activity is generating pressure on wages, and it's showing up in the shortage of skilled workers, particularly in the chemical industry. In other industries, as I think the Chairman mentioned earlier, notably steel, the use of labor saving equipment has prevented this kind of pressure from developing. The wage increases that we are hearing about are reported to be in the 4 to 6 percent range, which is substantially higher than we had been hearing before. And I think it's interesting to point out that this kind of increase does not include benefits, some of which are being added to the employee's costs but a lot of it is being assumed by the employer. We are seeing export demand confirmed in other areas where we see industrial warehouses being built at several of the southeastern ports, Savannah for example, and also some places in Florida. We have some weaknesses as I've reported before. We have high apartment vacancy rates and these have resulted in a number of projects being put on hold. Consumer demand has been fairly sluggish and this has led to softness in appliance production. Import competition is still affecting the apparel industry fairly adversely. In general, Mr. Chairman, if we exclude Florida, where growth remains pretty strong, activity in our other states in the District is on average moving at a rate that's somewhat slower than the nation as a whole with Louisiana, of course, continuing to be at the bottom of the list. Looking at the national economy, our outlook is considerably stronger than the one shown in the Greenbook, but basically because we have an unconditional forecast. And going back to the earlier discussion, I would hope that in any consideration of alternatives we might consider an unconditional forecast at least as an alternative. We are a little surprised and we disagree with the Greenbook forecast in terms of consumption expenditures, which we think will be stronger. And also we think that spending on nonresidential structures will not deteriorate quite as much as is indicated in the Greenbook. Those seem to us to be a little more consistent with actual recession or a substantial downturn than with the projections that the Greenbook shows. Putting this together with our forecast and recent economic indicators, it seems to me that the economy is growing too quickly and I don't think we have sufficient monetary restraint in the economy at the moment to avoid an uncontrollable level of inflation.",533
-fomc-corpus,1988,President Parry.,4
-fomc-corpus,1988,"Mr. Chairman, the Twelfth District economy continues to report healthy economic growth with only a few signs of slowing. Manufacturing activity continues strong with particular strength in aluminum production and the aerospace and aircraft industry. However, we have seen some slowing in the lumber and paper industries where there has been some slowing in demand. In general, real estate activity in the District is robust, but there are some notable exceptions in Alaska and Arizona where commercial real estate is particularly weak and also in Utah. On balance, if we look at wage and price pressures, they clearly are upward and seem to have increased slightly in the intermeeting period. An exception to this is the forest products industry where, as I mentioned, some slackening is showing up and it is having an impact on prices that is quite dramatic. However, in general terms labor markets throughout the District are really quite tight. And if you recall, at the last meeting I indicated there even were signs of firms that are trying to locate in areas where there is greater slack--not in the built-up areas of Seattle or San Francisco or Los Angeles. With regard to the national scene, the economy remains at a level above its long-run potential. As a result, there seems to be a significant danger of more rapid inflation later in 1989 and especially in 1990. Our forecast of real growth in 1989 is not greatly different from that of the Greenbook. It seems to me that the implications of both outlooks are the same and that is that no significant slack in the economy will emerge next year and that underlying inflationary problems are going to continue to worsen. If the dollar declines in value, as seems likely, that will mean that actual inflation rates will be subjected to further upward pressures as well. It seems that projected economic growth and inflation in 1990 argue strongly for policy tightening through the end of next year.",377
-fomc-corpus,1988,President Melzer.,4
-fomc-corpus,1988,"I guess this would be the first report in four that I've given where, for the latest three-month period and this one would include the period through October, we've had some gains in nonagricultural employment. But those were quite modest, really, and primarily in the manufacturing sector. In the latest three-month period, manufacturing employment is up about 1.4 percent over the preceding period. In both residential and nonresidential construction on a year-over-year basis year-to-date, activity is down substantially, not quite double-digit in residential and about 13 percent in nonresidential. Christmas sales in major metropolitan areas I would say--and this doesn't include this last weekend--are running a little better than last year. In St. Louis and Memphis, that would mean a nominal gain of about 5 percent. Little Rock, and Louisville actually will have slight to moderate decreases on a year-to-year basis. The general sense is that retail inventories are in good shape and there is not a lot of evidence of unplanned price cutting. There have been price promotions, but they pretty much have been planned so far. Also, in the retail area, while [there is] difficulty finding help, we don't pick up a sense that there have been a lot of wage increases in the retailing area. One other anecdote I might pass on, is a large manufacturer of consumer durables; his general sense is that cost increases may have abated a little on the raw material side. They are very difficult to pass on and are being absorbed in margins. His sense is that basically this will continue to keep a lid on wage pressures in that particular area. And I guess that's the general picture there, although it certainly is not surprising given what we see on a broader basis in that sector.",359
-fomc-corpus,1988,President Boykin.,4
-fomc-corpus,1988,"Mr. Chairman, in the Eleventh District I think we are beginning to see a two-tier economy emerging. I think there is a little more optimism than we've had in the past. Those outside of the real estate construction and banking sectors are participating in a reasonably strong recovery now. Of course, energy is a swing factor, and the apparent stabilization of energy prices--or at least the lesser likelihood of a precipitous decline--bodes well for our part of the country, although from the inflation side people might wonder a little. This dichotomy kind of shows up in manufacturing, where industries related to foreign trade are doing well, while activities related to energy and construction are not doing all that well. Also, on the agricultural side, livestock producers are going to be squeezed somewhat because of the higher drought-related feed costs, yet the farmers with cash crops are doing pretty well. We think that employment growth in our three District states has been about 1-1/2 percent over the last year which is considerably better than the declines that we had in 1986 and 1987. Perceptionwise, anecdotally, and attitudinally, things really are improving. As I've reported earlier, in Houston the improved attitude started I'd say 6 or 7 months ago. It's beginning to filter up from the coast to the Dallas area. We've had some fairly visible announcements made such as GTE relocating their telephone operations into the Dallas area out of Connecticut. They are talking 4,000 to 5,000 jobs and about 1,000,000 square feet of office space; they are going to build a big campus-style facility. A Japanese firm just made an announcement that they are going to build a manufacturing plant. They are talking about 1500 jobs in telecommunications manufacturing out there north of Dallas. Of course, the announcement on the super collider just thrilled everybody. It probably will never happen and won't get funded, but everybody is really happy about it.",398
-fomc-corpus,1988,Not everybody.,3
-fomc-corpus,1988,Everybody that counts.,4
-fomc-corpus,1988,"I assume that it was announced that they only had one state participating, everyone else decided [unintelligible].",23
-fomc-corpus,1988,"That's the way a lot things can go out our way. Also, there's quite a bit of optimism given what appears to be a fairly significant Texas influence coming into the Washington arena with a new Administration.",40
-fomc-corpus,1988,That may not be shared in other states.,9
-fomc-corpus,1988,"Yes, I'm not sure that's going to mean a whole lot, but it's being talked about as good for Texas maybe. On the national side,",29
-fomc-corpus,1988,"You're supposed to be quiet about that, Bob.",10
-fomc-corpus,1988,"Okay, tell all the secrets, right?",9
-fomc-corpus,1988,We noticed.,3
-fomc-corpus,1988,"On the national side, we are pretty much in agreement on the staff forecast. I think there is obviously a chance that the economy will be even stronger than the forecast. We are a little more pessimistic on the inflation side. That being the case, I would be inclined for the reasons that have already been expressed to put in a little more restraint, and I'd be inclined to do it sooner rather than later.",83
-fomc-corpus,1988,President Boehne.,5
-fomc-corpus,1988,"The regional economy continues to operate generally at a high level and the current indicators are positive. There are some pockets with some problems, but generally labor markets remain tight. Manufacturing continues to grow. The retailers seem to be feeling better now than they did several months ago. Loan growth is running well above the national average. There is some slowing in the nonresidential area, and I think there are early indications of some slowing in residential construction. There is some sense that next year at least the growth in the economy will not be as fast. It's hard to sort out whether this is supply constraints or lack of demand. I suspect it's a combination of both. But the outlook is still for a high level of activity. As far as the national economy goes I think it does need some reining in. There are risks on the inflation side. But reaching that conclusion is not a one-way street. There is a whole set of risks that everybody around this table is familiar with--mostly in the financial area, thrifts, LDCs, LBOs, etc., etc. So, while we clearly need to rein the economy in, about the last thing we need is a recession and there is no sure way of reining in an economy without a recession. But even acknowledging all these risks, I don't think that you buy very much by ignoring the inflation side. I think these risks will tend to get larger if we don't deal with inflation. So, I come down on the side of reining in but doing it with some caution.",309
-fomc-corpus,1988,President Keehn.,4
-fomc-corpus,1988,"Mr. Chairman, we see the outlook just slightly differently from some of the comments so far; and again I would say. in the national context, our outlook for next year is a little more modest than the staff forecast. In terms of the District, there are really very few changes to report from the last meeting. Certainly, the District economy has moved along at a good pace. I think everything is very solid and there are no significant soft spots out there. But while the current situation does seem very solid, I must say I find the price inflation outlook to be particularly difficult to assess, and I find this an unusually difficult period. The Greenbook and Mike's presentation yesterday clearly make a case that the economy is moving along very rapidly. I think we've got some big price pressures out there, and I do find some of the data to be compelling. Maybe we do have a somewhat overheated economy on our hands. Alternatively, no one that I've talked to certainly is pessimistic; the attitudes with regard to next year I find very positive. On the other hand, from our director reports and our other contacts, I don't sense a particularly big upsurge as folks look into the next year. There are some constructive signs out there. Capital expenditures, particularly for equipment and machinery, are moving ahead at a very good clip, and many of these expenditures are being directed to industries that are operating at pretty high capacity rates: chemicals, petrochemicals, paper and the like. That ought to relieve some of the capacity constraints in those industries. Also, I'm hearing that some products that have been sold with long lead times or allocations are beginning to ease somewhat. Indeed, orders for communications equipment and electronic components clearly are showing signs of peaking. In autos, inventories as Mike reported yesterday are at higher levels. Therefore, I think it's entirely possible that the production schedules will be reduced for the first quarter of next year. And it's just possible that some of these prices that we have been hearing about are showing signs of some stabilization. An example I would give is a company I talked to that keeps a very good track of its expenditures for materials; this year their expectation is that their material costs will have gone up about 2.3 percent. Next year, they anticipate an increase of about 0.4 percent. They are very careful about [their estimates] and they keep good records. These numbers may not be typical of industry at large, but I think it's entirely possible that the trend is. In my mind the big question is on the labor side. As I go around the District, everybody I've talked to reports a shortage of skilled labor. Labor costs are rising, but this is frequently on the non-wage side as opposed to the wage side. I think firms are continuing to get pretty good work rule changes, and therefore unit labor costs are under reasonable check. In a pricing perspective, the question obviously, which we'll talk about later, is whether we have done enough or should do more. Instinctively, I have the feeling that we've got a very strong economy on our hands. The price pressures are building up. We may see some increases, particularly in the near term. But also as I said I think there are some signs of stabilization. I continue to think that the risks are on the price side and that an upward policy bias will certainly be appropriate. The point I'm making is that I'm not sure just how draconian we need to be at this point to deal with these pressures.",705
-fomc-corpus,1988,President Stern.,3
-fomc-corpus,1988,"I've reported at a number of meetings now about the generally positive, actually quite positive, economic conditions in the District. I've been in a lot of meetings since the last meeting of this Committee and that general tenor certainly continues. In fact, one of the striking things about those series of meetings is a lack of discussion of problems that people are encountering. One exception to that deals with things that I think we are well aware of like excess office space, hotel space, concerns about what people perceive to be some of the excesses on the financial side of the business world. I hear a lot of talk about the shortages of labor, not just skilled but unskilled. But that does not seem to have translated into what I would call generalized acceleration of wages from where they've been running. While you can find people who are talking about having to raise wages 6 or 7 percent, that is by no means typical. And I get the sense that generalized pressures for a variety of reasons just have not built up, and I have not been hearing anything about a generalized acceleration in prices either. As far as the national circumstances are concerned, our model forecast is somewhat stronger than the Greenbook especially going out over time. But that forecast has essentially flat interest rates. And, therefore, I take that forecast in some sense to be consistent with the Greenbook. That is, if you want at some point to start to constrain inflation more than we have and bend it down, it is going to require higher rates. If not, you are likely to get something that our model generates which is somewhat more rapid growth and no discernible progress on the inflation side. I think, as several people have already commented, that the latest batch of national statistics has removed a lot of uncertainty about the state of the economy and suggests that it just has a great deal of momentum to it. Even if we allow for the possibility that these statistics might be revised in the future, the gauges have been very high. And as I've commented before, it seems to me from some work that we've done at our Bank that we've got to start looking toward employment gains that are running more in the neighborhood of 200,000 workers a month or less if we are going to be on a sustainable path and if we are going to bring inflation down further over time. And I suspect that if and when that happens, there is going to be a lot of comment and some concern about whether the economy may be slowing excessively. And I would suggest that that's more like what we need and more sustainable.",511
-fomc-corpus,1988,First Vice President Eisenmenger.,7
-fomc-corpus,1988,"If I could start off with the exception, which would be the New England economy, we've had the tightest labor in the United States during the last two years, and we are beginning to see some of that soften. In the Connecticut area, they have moved operations to the one remaining area which has some soft labor markets--Maine. And as Bob Boykin just mentioned, GTE is going to move to Texas. Our relative wages have moved up rapidly, and I think that's one of the reasons we may still be the hottest labor market in the United States, but the gap between us and the rest of the country is diminishing. What's happening I think is that the tightness is spreading throughout the country; it's not getting any tighter in New England. I would agree with Mike Prell's conditional forecast, which I also think is consistent with Bob Forrestal's and Gary Stern's forecasts, which are unconditional; and what we see if we move toward restraint is more modest growth next year, which would appear to be desirable. The only issue on which we might disagree with the Board staff is that even with that move toward restraint, we are a little more pessimistic about the inflation rate next year. We don't see many indicators yet of price pressures; they aren't creeping up very fast. But the compensation figures are increasing very rapidly; there has been a big uptick in compensation. And that does pass through to prices with not too long a lag.",292
-fomc-corpus,1988,"Bob, is this a recent pattern you are talking about or--",13
-fomc-corpus,1988,"Yes, we are talking about what has happened during this last year, and we are talking about three quarters--",22
-fomc-corpus,1988,"What I'm trying to say, have you seen evidence of any significant acceleration in wages for the last, say, two or three months or is it just--",31
-fomc-corpus,1988,"If you mean unionized wages, no. I was referring here to the figures on the employment cost indexes.",22
-fomc-corpus,1988,These figures apply to the year as a whole?,10
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,Okay.,2
-fomc-corpus,1988,"And then, no matter how you measure it--one two, or three quarters--it appears to be consistently greater this year than it was last year. I guess for the last two years many of us have underestimated the growth rate of the economy. We've always been a little surprised that it has been a little faster than we anticipated. The latest figures suggest we are going to be a little surprised with the fourth quarter so that we always lag behind a little on the real growth that has come through. So, I guess that would tend to bring about a little support for Mike Prell's assumption on a move toward restraint, or else we won't have that slower growth that he has built into this conditional forecast. I sat in this room on the outskirts with a lot of my former research colleagues during the late 1960s and the early 1970s; and in retrospect we saw, year after year, that we ran on the ragged edge of full employment--on occasion a little overfull employment--and then gradually the uptick in prices got imbedded in an inflationary psychology in the economy. And we can only wipe that out at incredible expense in the labor markets in the United States and throughout South America and the world, and once that inflationary psychology gets embedded it's very expensive to get it out. I don't know if we'd ever do it again; the medicine for that is to take some prevention, and this way we don't get the same kind of environment embedded in the economy that we did gradually during the late '60s and '70s.",315
-fomc-corpus,1988,President Black.,3
-fomc-corpus,1988,"Mr. Chairman I've been following these Greenbooks for a long time, and I think really in the last year or so they have been considerably better than they were before then although they have always been good. And I found this one particularly helpful although it does make me darn nervous on the inflation side because it suggests that there's very little room for error. It projects a further tightening of policy over this period and an appreciable rise in interest rates, and this doesn't cause the underlying rate of inflation to diminish very much, and then only well into 1990 when the decline is modest at best. So, it seems to me that the risk of error really is that we are probably going to have more inflation than the staff has in the Greenbook if in fact there is any risk of error in this. Wage pressures, as several people have indicated, are increasing--not rapidly in some cases--but certainly unmistakably; and if consumer prices increase at the rate of 4-1/2 to 5 percent that they are projecting for next year, it seems to me it's almost inevitable that we will begin to see some wage pressures then. So, I would not be surprised, in the absence of some action on our part, to see, rather than declining inflation in 1990, some wage-price spiral feeding on each other. and he expected wage pressures there and elsewhere to be considerably stronger than most people seem to anticipate. Now, on the real side of the economy, my guess is that in the first part of next year anyway despite signs that the rapid upward pace of some of the foreign economies may be slowing to some extent, we are still going to have perhaps a little more restraint in our export demand than the staff has suggested. And with the growth in employment and income that we are having in the domestic economy this suggests to me that probably domestic spending is also going to be stronger than the staff is projecting. So, I think we've got an incipient boom on our hands, but basically I'm in pretty close agreement with the staff in what needs to be done to control that.",420
-fomc-corpus,1988,President Hoskins.,4
-fomc-corpus,1988,"Despite my carping remarks about using Phillips curve analysis, we've tortured the data in a number of ways and come up very close to what Mike does and we have no other way to do it except that. I still am caught with the notion that monetary policy affects nominal variables over time and not real variables. And I guess we can attribute this just to our short-term adjustment process. There's nothing that I can add to what's been said with respect to either Mike's forecast or the strength of the economy overall. The District, as I've been reporting consistently for over a year, is strong and we don't see any noticeable softening. We don't see any breakout, however, either. We have met with a number of small business groups and also with our directors and the stories there are prices increases in terms of product price increases ranging from 3 to 7 percent, maybe a little higher in a few instances. Wage rates--our highest is probably around 6-1/2 percent in services areas in the Columbus market. There is somewhat of a skilled labor shortage; semi-skilled, there's no problem. Manufacturing people can attract the latter without any real upward pressure on wages except for the entry level in manufacturing where there is pressure in the low-skilled jobs. So, it really hasn't changed much; it looks like a fairly robust Fourth District. The only concern that I have relates to the the monetary base. We take the Greenbook forecast and then get an implied growth for the monetary base by using the Rasche model. It has a drop of about 1-1/2 to 2 percentage points from this year's growth rate. I don't know whether that's significant or not any more. I used to think I knew. But it does cause me some concern. So, I'll address that issue in more detail when we get to Don's presentation. Overall, I think the costs of allowing inflation to become embedded in the economy are very high, and I would skew policy and take the risk on the side of being overly tight.",405
-fomc-corpus,1988,President Guffey.,5
-fomc-corpus,1988,"Thank you, Mr. Chairman. There is not a great deal new or different with respect to the regional economy. Agriculture, for example, is very strong. There's a smile on producers' faces simply because the harvest is in and grain commodity prices are high. Along with Bob Boykin, I think the red meat producers probably will be squeezed in the period ahead because of those higher grain prices. Our manufacturing sector is fairly strong, particularly in the export-related types of products. In autos, all of the plants in our District with the exception of one are working a two-shift arrangement. That one produces a car that apparently is not selling, so the workers have simply been given a holiday over Christmas, and just recently that has been extended another four days; so it's the product that they are producing rather than the overall demand for automobiles. One other strong area is the high-tech area along the eastern slope of the Rockies and down into New Mexico. Those high-tech areas that were depressed a couple of years ago have come back and are doing very well. On the weak side, the energy sector in the District and construction, both residential and commercial, are depressed. Retail sales I'm told generally are sluggish. There was a very big day or week after Thanksgiving, which there always is, but rather than continuing on through, sales have dropped off in the major cities in our area. Whether that will come back with an additional weekend to shop before Christmas, our retailers don't know; they are still optimistic. Inventories are in good shape. With regard to the national economy, we are very, very close to the Greenbook forecast, but we didn't build in any restraint which means they are stronger than we would see the economy. But given the comments from directors, businessmen, and others there is a very strong feeling that the Federal Reserve has a role to play and it will play that role in restraining inflation. As a result everybody talks about it. It is a concern and I think that I would come out on the side--even though our region trails the national rate of recovery--of addressing attention more closely to inflation than I would to the level of real output.",434
-fomc-corpus,1988,Governor Angell.,4
-fomc-corpus,1988,"I've been somewhat surprised that the slower money growth hasn't shown through in auction markets, both foreign exchange and particularly in the commodity markets. M2 in the last four weeks over 24 months previously has grown I believe at a 4.7 percent rate which is the slowest growth rate over a 24-month period since 1961. I'm somewhat surprised that that hasn't shown through in auction makets, both foreign exchange and particularly commodity markets. But it seems to me we clearly have had some upward shocks in those commodity prices, some of them due to the more rapid money growth that took place in 1985 and 1986, and I suppose the most recent round based somewhat on a weather-related condition. But the fact of the matter is that commodity prices have plateaued; there have been some ups and some downs but there has not been a retrenchment from those levels that have given ample profit margins to induce we would hope further output. But it would seem to me that the real key question here is whether we maintain a posture in which the profit margins are expected to be obtained by maintaining restraint on costs and getting cost reductions through economic efficiencies by the use of some new capital and new techniques, or whether some of these higher commodity prices that have not yet passed through it seems to me to the entire consumer-price structure are going to be maintained at this level long enough until that takes place. So, it seems to me that given the fact that inventories are not in a position yet where there has been any inventory holding based upon price expectations, at least it doesn't seem to be clear there that we do have extreme vulnerability at this time to foreign exchange rate adjustments that might I think translate immediately into an inability to bring those commodity prices into line as to where they ought to be. I don't mean to put too much emphasis upon gold, and yet it's just somewhat representative of what I think happens here. As you know the price of gold did move down from $500 to $400, but there certainly has been ample evidence that the price would have the tendency to move back to the $420 range. It just seems to me that as the first of the year moves along for us and we get some return of growth in demand deposits, Don, that the opportunity cost changes that are already in place may not be sufficient to give us the further restraint on monetary growth. I'm still going to continue to believe that if we do get that restraint on monetary growth that we will get a better solution than some anticipate. But it's far better for us to be in tune to these problems at this point in time than to wait and get behind the curve.",530
-fomc-corpus,1988,Vice Chairman.,3
-fomc-corpus,1988,"Partly because our meeting cycles are a little out of synch, I don't have a lot to add on the anecdotal side at this point. My own general impressions in terms of the economy are that it is strong. In fact, I think it's too strong. Some of the very recent numbers, especially the labor market numbers, conjure up at least in my mind some of my worst fears as a matter of fact. Insofar as the outlook is concerned, I think it is very illustrative to look at the Board staff's forecast versus the New York staff's forecast because as I've mentioned before by the end of next year those respective forecasts have a difference in the inflation rate of 1.3 percentage points or 1.4 percentage points. That is a very, very dramatic difference. As usual, Mike Prell touched on a critical point concerning that result, or outcome, yesterday when he said that in the process of putting his own forecast together he was continuing to resist the temptation to build into his own price forecast some of the types of behavior or results that might come out of historical experience. And indeed when you look at the New York staff's forecast versus the Board staff's forecast what you have in the Board staff's forecast by the end of next year is a rather distinct negative spread between unit labor costs and the deflator. In the case of the New York forecast, you have a positive spread between unit labor costs and the deflator. At least in an arithmetic way, that is what produces the sharp difference in the net result of inflation at the end of the period. Both have a rather significant further buildup in the rate of increase in compensation per annum. I think in the eyes of the people that do these forecasts in New York, what they essentially or implicitly are saying is that the overall economic conditions, market conditions, and so on are such that you will still maintain at least a small, positive spread between those two variables. My own hunch, if I had to pick a point, which I try to avoid doing, I guess I'd pick a point somewhere between the staff forecast here and the staff forecast in New York. But as I see it, the risks, as I have said before, are really very asymmetric. When I ask myself, what if Mike is right--Mike being collective for the Board staff--I'd say that's pretty good; it's not ideal in that he's got some things in that forecast that give you a little chill, but certainly I'd say ""terrific."" Then I say to myself, what if the New York staff is right? I'd say, holy mackerel, we've really got trouble, big trouble. It's in that sense that I think the risks really are quite asymmetric. Now, like a lot of other people, at this juncture I continue to draw some consolation as we were talking yesterday from what things like the long bond rate are telling us. Again, that's probably one of the reasons why I would be inclined to split the difference between those two forecasts. But I would tend to be pretty cautious even about that. I reminded myself last night, and I think this is illustrated in one of these charts that I guess Don is going to talk about later, if you go back to 1978 and despite the fact that there had been several increases in the discount rate as well as a firming of monetary policy over the course of 1978, by the end of the year we had a federal funds rate in the area of 9-1/2 to 10 percent; one-year Treasury notes at 10.60 percent; and the 30-year bond at 8.80 percent because we had a sharply inverted yield curve. We all know what happened after that. Now, 1988 is not 1978 for a variety of reasons, not the least of which is the energy shock that came in 1979. But at least to me it does illustrate that we have to be cautious in terms of what we read into these things. And again, it just reinforces my view that the risks as I see them at the moment are asymmetric on the side of the inflation rate being higher than the staff forecast.",843
-fomc-corpus,1988,Governor Kelley.,3
-fomc-corpus,1988,"Mr. Chairman, first of all I'd like to report to you that, on behalf of the Board last night at dinner, I congratulated President Hoskins for having achieved his first objective and that is getting alternative ""A"" clear out of the Bluebook.",52
-fomc-corpus,1988,"Everybody wants it back in now, that's the problem!",11
-fomc-corpus,1988,"And he told me that he was working closely with the staff to get back to a three-alternative Bluebook, and they will be ""B,"" ""C"", and ""D""!",37
-fomc-corpus,1988,He has succeeded where many of us who have tried before have failed!,14
-fomc-corpus,1988,"Mr. Chairman, first of all, I certainly concur that the economy is very strong and certainly stronger than I had expected it to be. And I would anticipate being in favor of some further tightening. But I'd like to return for just a second to a point that Ed Boehne made a little earlier, and maybe try to come down a little bit harder on it. That point is that I think we need to try to be sure to maintain a very broad perspective on what is going on in the economy and in our society more broadly and on how best we might be sure to achieve our long-term goal of price stability. Over the foreseeable horizon in the next year or two, I think it's in nobody's interest to allow--that's too strong a word--nobody's interest to have a recession occur. There are a lot of things that need to be straightened out. We all know what they are: the budget deficit, buying our way out of the thrifts, working our way through the Texas banks, chipping away at LDCs. Large money-center banks and maybe some others are going to need to raise some capital for risk-based capital. It's probably not too irrelevant to look forward to the fact that the GATT issue is beginning to accelerate; we had some first shots here recently on that, and if we wind up in an environment of protectionism as that heats up, I think it could be unfortunate. If we are in a bad economy, I think banking structure reform might very well be a victim of that in the Congress. If we have a recession in the next year or two, I think it clearly is going to exacerbate our ability to make progress in just about all of those different areas. We could wind up kicking the deficit sky high which could bring a terrible dilemma, in my view, to the FOMC because I don't know whether such an event would be highly inflationary or deflationary or maybe one then the other successively and both bad. Clearly, it could put both the Administration and the Congress on the defensive across the board on a lot of issues that could be serious. So, in short I can envision a scenario where if the economy were to go south too far too fast, we might wind up spending many more years trying to get to price stability than we would under some alternative scenarios. I would simply like to say that it's my hope that as we do go forward here, we'd be very careful as to how aggressive we get. We don't want to wind up with a Pyrrhic victory.",515
-fomc-corpus,1988,Governor LaWare.,4
-fomc-corpus,1988,"Well, I've always been convinced that inflation is the enemy of the people, and I think the inflationary pressures out there that have been described so eloquently by several of you certainly indicate that some [policy] snugging is necessary. I hope it's not too heretical to say that I think that the markets expect it and that a failure to do some snugging at this point would be sending a very bad signal to the markets. And so I'm encouraged that we ought to do that. Certainly, the economy continues strong. But I've got a metallic taste in my mouth when I start trying to quantify--and this is the difficult part--the implications on these fragile elements in our financial system of a 200 basis point rise in interest rates, or something comparable. Ted has commented that that was not an attractive factor in connection with LDC debt. And whether we like it or not, there are still a lot of the biggest holders of this debt who are under-reserved by any measure of the marketplace. We have these very fragile LBO deals where the cash flow coverage of their debt service is so' tender that anything that might happen to the economy would create a downturn in revenues or an increase in the servicing cost of debt that could crash one or more of these big babies. The ripple effects on investors and on the confidence factors in the economy I think are kind of awesome to contemplate, plus the fact that we are just digging the hole for the thrifts at a much greater and faster rate with this, and nobody has yet come up with the right answer to that one. More recently, we've had the question of real estate overhang, and a higher set of interest rates is obviously going to at least prolong the resolution of that overhang. So, at the risk of sounding like a broken record I think as we apply the brakes here, if that is what we are going to do--snug up--we ought to do it very gently, and as Mike Kelley has said, keep our eye on all of the effects that a snugging has on the economy and be ready to deal with them quickly if we find the thing getting out of control. I think the costs of getting back if we really dump this economy would be terrible.",452
-fomc-corpus,1988,Governor Seger.,4
-fomc-corpus,1988,"I've been sitting here listening, then trying to match the comments with what I read in the Beigebook. Either some weeks have passed or else I just read the Beigebook wrong. But it sounds as though the views expressed were quite different; namely, the views today are much more optimistic than what was presented as those observations. Also, maybe Mr. Hoskins can help me out on this, it seems to me the NABE runs periodic surveys of members, and it seems that roughly half of the members expect a recession some time next year. And most of the remaining respondents expect one in 1990.",124
-fomc-corpus,1988,"I don't have the numbers, but I think the majority expect a recession within the next two years.",20
-fomc-corpus,1988,It was 47 percent next year.,8
-fomc-corpus,1988,"Of course, two-thirds expected one in 1988.",12
-fomc-corpus,1988,We tend to roll those things forward.,8
-fomc-corpus,1988,"But when I read these I'm trying to ask what they know that we don't know or what are they assuming that we are not assuming. Again, in talking with some business economists, I think they are somewhat more pessimistic on the consumer side than our staff forecast. And in the housing area, at least, again I think some of them might be a little more pessimistic. A number are bringing out these stories of real estate problems, even in the Northeast. I think there are some banks in the Northeast that are now actually indicating that they are going to have to take some losses on real estate loans which is quite a change from what people were telling us a few months ago. I think this is also true in some other parts of the country which have been doing extremely well and now are turning around a little bit. I can't imagine that that's an environment in which developers are going to hustle out and start more condo projects and apartment buildings, etc. Also, in the capital spending arena some of the reports that I pick up--computer chips, those sorts of companies--it seems that again the situation has changed dramatically in the last few months. In fact, in some cases they've gone from a shortage of chips to situations with almost an excess. Also, some of the auto economists I know are a little more pessimistic about the inventory situation than I've heard expressed around the table here today. In fact, I heard yesterday that the days-supply for one of the very large auto companies would be a little over a 100 at the end of January. That's high. Also, when you get that kind of inventory situation in autos, you do see them follow through with some production cutbacks. They have used incentives to a tremendous extent as you know, but the ""bang for the buck"" from incentives seems to be petering out. So, if I had to come down on one side or the other, I would think they would fix this through some production changes rather than trying more incentives. Also, in the export area I'm not sure that all the business economists I've spoken with and some other contacts I've made expect the strength in the exports to be as great. They would certainly like to get it, but there is no real confidence that we will continue to make these tremendous advances that we have. Also, in the area of inflation and price stability, etc., one of the things that I think econometric models haven't picked up or haven't captured is the changed situation out in the real world, particularly in manufacturing. I mean the changes that are going on, the emphasis on efficiency, productivity, cost controls, knocking off layers of management, etc., I think that has been going on the last couple of years and I think it is still going on. And frankly when you look at some of these relationships back 10 or 15 years, it was a very different America then. I think we've learned something and I can't imagine that these improved attitudes are just going to suddenly evaporate. Also, I think on the labor side some of those people too would rather be employed at $17 an hour than unemployed at $18.25. Ask your friend with the building trades why so much of the commercial building is being done by non-union workers. Maybe that's had some impact on the fact that unions haven't had those nice settlements that they used to drool over. They, too, may have to pay attention to markets, Bob. This is a shock to union people.",698
-fomc-corpus,1988,I think they have.,5
-fomc-corpus,1988,"But it seems to be going on, and particularly if construction isn't rocketing ahead, I would say that the bargaining power of management might be even stronger now than it was a couple of years ago. And also, looking at some of the sources of the higher prices that we have seen, I'm not sure we are able to control them. For example, looking at copper prices, what are we supposed to do about a strike some place? We are going to go down and pull the people back out? I mean, that has influenced the copper prices. Wayne's farmer friends have certainly suffered from bad weather conditions this year, and that has certainly put upward pressure on prices of agriculture commodities. I don't know what we are supposed to do about it. And also, looking at the prices of some the steel products, it seems to me that they have been influenced by these silly quotas that we've put on the imports of steel. So, maybe we need some help from our pals down the street to fix some of these things. Now, I think the Federal Reserve ought to do its job. And I know Roger Guffey says everyone is looking to us to do it. Maybe we ought to tell them that we can't solve all the problems, though we can do our share certainly. Picking up on one of Governor LaWare's comments, I think the problems in the thrift area are very, very severe. I met Monday with a person who is I think pretty expert on thrifts and he had some very negative things to say about thrifts. He indicated that even building into their cost of funds the existing level of short-term interest rates would do tremendous damage, because it doesn't feed in immediately. You have CDs that have fixed maturities and it takes a while for existing levels to influence those. He's not a crackpot on this subject, so I took his comments rather seriously. And also on the LDCs, I think that that is something that really could give us and the banks that have been involved with those things even bigger headaches. So, I just think it's a very difficult call. My own personal conclusion would be that it's not certain that 1989 and 1990 would be excessively strong even without a 200 basis point advance in interest rates.",455
-fomc-corpus,1988,Governor Johnson.,3
-fomc-corpus,1988,"I'd generally like to associate myself with what Governor LaWare and Governor Kelley said. I think everybody made a lot of useful comments, but they captured a lot of what I wanted to say. I think generally that the economy is reasonably strong, a little stronger than I probably would have expected at this stage as well. But we've all acknowledged that we see some signs of slowing and I think that's probably in the works but at a fairly high level. I think we've done a good job in establishing the credibility of monetary policy during this period. I say that because I think it is illustrated in the way the financial markets have behaved with long-term rates remaining stable or even showing some signs of declining. Commodity prices, while they are at high levels, have plateaued and have trended down some from their peaks if you take them all together. The dollar has been relatively stable except for this one speculative period after the elections, but I think it's still about 5 or 6 percent above where we started the year. So, in general I think we've pursued a credible policy and haven't been behind the curve, although I agree with what John LaWare said--that part of what we see in the financial markets is the credibility that's based on what they expect us to do. And so I think that if you want to maintain the degree of confidence in the financial markets that you see right now, some tightening is probably necessary. I'm not opposed to that, but I think it's very important to consider the speed at which we undertake these tightening actions. We have to do enough to be credible and to appear to be ahead of the situation, but at the same time we've got to be very careful to consider all of those contingencies that were mentioned by John LaWare, Mike Kelley, others here. I happen to have some additional worry about a world-wide ratcheting up of interest rates because I do think Germany is about to move, and I think all of Europe will follow because of the EMS. I think that's already evident out there if you look at the markets and what they are prepared to do. Europe is prepared to ratchet up rates right away. As a matter of fact, one or two countries already have moved up their discount rate. Whether Japan follows or not, I don't know. But we are about to move the world level of interest rates up in general and that obviously is going to have some effect on the LDCs. It's going to feed back on the thrifts here, equity markets, and all of those things. So, taking all these things into consideration, I still think it's probably a necessary move, but we should be very careful about a sledge hammer effect. We need to be careful in the pace, that's all.",551
-fomc-corpus,1988,Governor Heller.,4
-fomc-corpus,1988,"Almost everything has been said, Mr. Chairman. Let me make three points briefly. First of all, I think we've got to continue to make progress on the inflation front. We have seen a 1/2 percent increase in wages and a 3/4 percent increase in total compensation. That is unacceptable and will lead exactly to what Bob Eisenmenger was saying was happening in the 1970s, a continuation of the slow upward creep of inflation. What I find troublesome about tightening policy, in particular, is the ill effect on investment; the staff forecast has a 0 to 1 percent growth in investment for 1990. If we are worried about capacity constraints and things of that sort, certainly we are not going to be building any additional capacity in that environment. What makes me feel a little better about tightening is that I think there is a lot of unexploited potential in the export area. A lot of American manufacturers really are not yet focusing on that at all. And so I'm a bit more optimistic than the staff forecast as far as continuation of export growth is concerned at going exchange rates. A lot of speakers have mentioned that we have to be aware of the fragility in the financial system. I think that's certainly an important point. But I would say that we can't design monetary policy to avoid any difficulties in various sectors. In the first place, we've got to focus on inflation and if something goes wrong then you can address those problems very much in a manner in which we have addressed them in the past--for instance, after the stock market crash last year, through a quick adjustment in policy. So, I'm also in favor of a tightening of policy. But just in case you feel too good about the whole thing and you haven't read Paul Erdman's ""The Crash of 1989"", and you still haven't ordered your Christmas present, if I remember correctly the opening sentence of that book is, ""It was early December 1988; the Federal Reserve Open Market Committee was meeting in Washington and there was a chill in the air."" The rest is history.",421
-fomc-corpus,1988,"Bob, it seems amazingly warm to me.",9
-fomc-corpus,1988,I think that was the sentence.,7
-fomc-corpus,1988,"Didn't he also write a book the ""Crash of 1979""?",14
-fomc-corpus,1988,Please don't [unintelligible] suggest outside this room.,13
-fomc-corpus,1988,I should hope not. Why don't we break at this time and we'll resume with Don.,18
-fomc-corpus,1988,[Statement--see Appendix.],6
-fomc-corpus,1988,"Thank you, Mr. Kohn. Having listened to all of this, certain things seem to be coming forth fairly clearly. One starts off with the quite credible concerns of Governors Kelley and LaWare about the dangers of a recession. I think that we must make certain that we focus policy in a manner which reduces the probability that we will be confronted with that. And that strikes me as a requirement to make certain that imbalances don't emerge in a manner which tilts the economy over. As far as I can see, the only way we can do that with some degree of reasonableness is to move toward a tighter policy at this particular stage. The open question is when and how much. The issue was raised in the Bluebook about the alternative of the discount rate. I must say I have some problems with that largely because the distinction between a discount rate and an open market operation is, or should be, largely the announcement effect. I don't think at this stage that we have any need for an announcement effect. I believe that judging from the structure of the markets that what we are doing is perceived by the markets as being sufficient to constrain inflationary imbalances. The markets may be right or wrong about our actions, but if you look at the extraordinary stability of the long-term rate that's what they believe. And so long as that is the case, I do think that does suppress the possibilities of the wage acceleration that I'm sure would occur otherwise. In any event, what I think we have to say to the market is pretty much what they've been expecting us to say and what they think is the right thing to do. Under those conditions, I don't think it is necessary for us to make a big ""gong"" as would be the case if we fell behind the curve, so to speak. If we found we were off center we would have to hit a gong and say we were back here or there. I don't think that is necessary, and in fact I think it probably would have some secondary negative [unintelligible]. Having said that does not mean that I think we should shrink from open market tightening--because at this stage, maybe at any stage, you really have to ask the question of what happens if you institute a policy and you're wrong. Well, from all the evidence that has been introduced around this table this morning and yesterday, I think that with the contemplated tightening that we've been discussing the risk of tilting this economy over at this stage is exceptionally small. Moving forward and finding that we made a mistake is a possibility, but I think the cost of such a mistake is really much smaller than the cost of doing nothing in the face of what basically is going on. As a consequence, the way I see it and I'd be curious to get responses is that (1) I think that we should tighten and I think at the end of the day, meaning certainly by the time we are back here the next time, we should be up by $200 million in additional borrowing. I would be disinclined, however, to do it immediately if for no other reason than I think we are potentially caught in the ratcheting in the EMS that's in the process of going on as Governor Johnson indicated. I don't think it would be useful for us to be perceived in the markets as trying to ratchet up with them. And we'll get the type of results which I think we unfortunately obtained in the summer of 1987. As a consequence of that, what I would think is a possibility, at least one that I'll throw on the table, is that we move $100 million immediately with asymmetric language, with the understanding that unless something changes the very strong outlook in the period immediately ahead sometime in early January we move another $100 million at the discretion of the Desk with regard to the question of timing and the change in specific data or information. So, I would suggest that as a beginning. I must say that I hope we don't have to go the 200 basis points that's implicit in the staff forecast because I think that's going to create a lot of problems for us. But I don't think there's any difficulty in moving roughly 1/4 to 1/2 a percentage point in here. Clearly, it does move LIBOR, and it will move the prime rate; it will have some negative effect on LDCs and on the S&L cost problems. But in my judgment, the cost of not moving would be far greater. The real decision we are going to have to make relative to these other issues is not this one. If in fact the staff forecast turns out to be relevant to the consideration here, the difficulty that we will have with the secondary effects in the markets will not be the first 100 basis points. It will be the second 100 basis points. And then I think we are going to have some very tough choices to make. Governor Heller.",987
-fomc-corpus,1988,"Thank you, Mr. Chairman. I broadly agree with that strategy as the right strategy. Where I may differ a little is on the tactics. Like you, I find it very encouraging that long-term rates have remained sort of stable. That has certainly been a very good sign. When it comes to choosing between the alternatives ""B"" and ""C,"" I think this time around we see quite a bit of a gap between the alternatives the way they are specified. Usually, they are almost touching each other. This time there is a considerable gap. The way I read it, the federal funds rate associated with ""B"" is about 8.4 -8.5 percent; with ""C"" it's about 8.9 - 9 percent. And so there is that considerable hole in between. I think the right policy is right in between that. I'm very much in agreement with you that where we want to get is to a funds rate of 8.7 - 8.8 percent. Now, as far as the tactics are concerned, I certainly think your--",218
-fomc-corpus,1988,You're going to the metric system. That's an inside Board joke.,13
-fomc-corpus,1988,"Thank you for this--one small step at a time. The discount rate versus tightening by raising the level of borrowing: I think we all agree the announcement effect right now that we are tightening would be stronger with a discount rate move, and I think I would lean toward doing it with a stronger announcement effect just to make it clear, to put the marker out there that says the Fed is tightening. It's not a snugging exercise but a move to stay ahead of the curve. We'd also put ourselves in a position to be ahead of the EMS--I mean, all the European currencies--which we probably will not be perceived as being if we do it in a gradual escalation of the borrowing requirement. It can be read much more that we know the dollar will be coming under pressure and the Fed is reacting to those pressures in the exchange market. If you move with a discount rate right now when clearly there are no pressures, you forestall that kind of a constellation. And finally, the spread between the fed funds rate and the discount rate is very large. It will become larger if we just tighten, and then the market clamor will continue about when the discount move finally is going to happen. So, we won't get over that particular psychological hurdle; we will still have that hanging behind us. So, to sum up, I probably would go with a discount rate increase right now of 50 basis points and then some additional tightening if it's necessary late in the period to come out exactly where you want to come out with the federal funds rate.",310
-fomc-corpus,1988,"Well, you mean, then reduce the borrowings?",11
-fomc-corpus,1988,"Well, I don't know what the borrowings--",10
-fomc-corpus,1988,"Well, I mean, that's the implication.",9
-fomc-corpus,1988,"I'd just do it in rates, right?",9
-fomc-corpus,1988,"You want short rates at 8.9 percent, or something like that?",16
-fomc-corpus,1988,"No, 8.7 to 8.8 percent.",13
-fomc-corpus,1988,"I just wanted to be clear on that. Can I just ask a question about something several people have suggested already and that I agree with? The market expects some tightening, but we don't really have an estimate of what that is. Don may be able to help us with that. And a related second question is, to what extent is a rise in the discount rate expected in the market?",78
-fomc-corpus,1988,"Peter may have another view, but my reading of the structure at the very short-term end of the market is that the market has close to a 1/2 percentage point [increase] in the rate built in. Sometime in the first quarter market participants expect the funds rate to be close to 8-7/8 - 9 percent, or something like that.",77
-fomc-corpus,1988,I would agree with that. I think a discount rate increase had been very imminently expected just after the employment numbers. I think it's still kind of expected. It does not seem to be that much on the edge of the table as it was maybe a week or so ago in the market.,59
-fomc-corpus,1988,Governor Johnson.,3
-fomc-corpus,1988,"I agree completely with the Chairman's scenario. That's the one that I had in mind when I came into the meeting. I think it's certainly worth discussing the discount rate, and maybe I can be convinced, but I still feel the best option is the one the Chairman outlined. In part, I think if you move on the discount rate, you will run the risk of its seeming to be part of a coordinated world-wide upward ratchet in rates about which I have already expressed some concern. But I also have a little concern that if the [new rate] is considered to be sort of the peak [in rates]--I realize that may not be the case for a lot of you--but if it is expected, given the yield curve, that we really have made the final move and the next move will be to lower rates, I think that's going to put some pressure on the dollar. Moreover, I don't think it's a bad idea to leave the discount rate hanging in peoples' mind as a means of support for the dollar. And so, I see the scenario the Chairman painted as the best one.",223
-fomc-corpus,1988,President Melzer.,4
-fomc-corpus,1988,"I saved my policy comments until now, and I discovered at the end of the other discussion that I may be the only one who hasn't commented on policy. My view, basically, is that I'm concerned about inflation. I think it's too high and I think it will probably go somewhat higher in the coming year, so I don't disagree with that view. But I also feel, given the restraint that we've exercised over the last two years in general, that inflation is not going to get away from us. I take some comfort from what's going on with long bond yields, as some people have mentioned. And I think we have to put the inflation in a longer-term perspective in a sense and say that to some extent the seeds for the inflation we are looking at now were sown in 1985 and 1986 when we had 12 - 15 percent growth rates in money. And I think to attempt to wring it out all at once--and this is consistent with some other views that have been expressed here--to try to deal with that too aggressively is just going to take us off the track as I mentioned at the last meeting of really making long-term progress on the inflation front. And if you take a reserve or aggregate base view of what Don was expressing earlier in terms of real interest rates, I think the course we've been on particularly in the last 6 months or in the last 3 months, and particularly where we've had virtually no reserve growth, incremental tightening at least viewed from that perspective could lead to negative reserve growth that is going to hit the economy a lot harder than people may appreciate. So, what I'm saying is that in general I've been quite satisfied with the course we've been on, and I wouldn't advocate substantial additional tightening at this time. I would certainly build into what we are doing what is in effect discounted in the market. In other words, I would definitely support being in a position where our degree of reserve restraint, however defined, would result in a funds rate of somewhere around 8-1/2 to 8-5/8 percent at this time. And I wouldn't object to steps that might lead that modestly higher. But basically I've been satisfied with the degree of restraint and, I think Bob Heller said it right, our primary concern has to be inflation. So, I'm not reacting to what we might set off in this area or that area [of the economy] and we ought to worry about that and that should hold us back. What I really worry about is a very volatile path of policy that in effect makes our long-term job harder. We are coming off a very difficult period. I think every-body here appreciates that in the 1980s and maybe the experience in 1985 and 1986 was sort of the last chapter and that to the extent that we can stay on a relatively steady sustained growth of monetary stimulus, I think that would be most constructive. I'd hate to see actions that would disrupt that. So, implicitly I would not favor a discount rate increase at this time.",615
-fomc-corpus,1988,President Parry.,4
-fomc-corpus,1988,"Mr. Chairman, I think that an increase of $100 million in the borrowing is woefully inadequate. It seems to me that we've spent two days talking about projections for the economy that all come up to the same conclusion; that is, that actual inflation rates stand a good chance of rising next year; that underlying inflationary pressures are building; and that the economy, if anything, has been surprising us on the upside. I think a move of about 1/8 percent in the federal funds rate is just nothing at all. It seems to me that a bare minimum would be alternative ""C"". And I would think as well that the best way to implement that would be something that would be more public in nature and would catch the attention of those in the financial markets. With regard to the point that was made several times before about risks to the financial sector, I think that history would suggest that the risks are quite different from what has been described. It seems to me that the greatest risk is for us to get behind the curve, and I think we are in great danger of getting behind that curve at this point because in that event what will happen is that interest rates are going to go to even higher levels at a later point; and the burden on the financial sector would be even greater than if we were to move in what I would consider to be a convincing way at this point.",281
-fomc-corpus,1988,The suggestion on the table is effectively that [result] by early January--,15
-fomc-corpus,1988,"I think if you had asked me what my recommendation was, I would have said something stronger than ""C"".",22
-fomc-corpus,1988,"Then you want ""C+""?",7
-fomc-corpus,1988,"Well, ""C-""",5
-fomc-corpus,1988,"Alternative ""gong.""",4
-fomc-corpus,1988,"""C-""",2
-fomc-corpus,1988,"That's a ""C-"".",6
-fomc-corpus,1988,What seems appropriate to me would be $300 million or $400 million and an increase in the discount rate. And I think that a bare minimum acceptable to me would be a $200 million increase today.,41
-fomc-corpus,1988,President Forrestal.,4
-fomc-corpus,1988,"Mr. Chairman, I think if we've learned anything this morning, it's that we don't live in a riskless society or riskless world. But I think the central question before us--and it's going to continue to confront us as these risks continue--is whether or not those risks should constrain or inhibit monetary policy. I come out feeling as Governor Heller expressed it earlier that we should not be so constrained in the absence of some emergency which we can deal with at the time. Like you, Mr. Chairman, I think the risks of recession are fairly slight. I think what we are faced with is a very strong economy, one that has not really moderated as much as we had hoped. The economy is growing at a rate above its potential, and I think the job before us is to contain the inflation and to slow this economy down. Now, I think that the danger is that we don't do enough at this time to send the signal to the market and confirm the credibility that we already have. In implementing that kind of strategy, my preference would be for a discount rate increase. But if that is not the action of the Board, then I certainly think we need to move now on open market operations. Moving $100 million now and $100 million in January would be acceptable to me because I don't feel that that time differential will be all that great. But I do think that we need to move in that direction. So, I would support your prescription.",294
-fomc-corpus,1988,President Boehne.,5
-fomc-corpus,1988,"I think your prescription is right on target. I think it appropriately balances what we need to balance. I think that open market operations are much preferable over the discount rate; a discount rate hike would be too much at this point. So, I agree with you. I'd like to just comment on this business of the discount rate and the spread between it and the funds rate. That has been a classic reason given for adjusting the discount rate. But I think, given the technique that we use to operate open market operations with this borrowing, that we simply have to live with ever widening spreads unless we want to raise the discount rate at the same time we want to ease open market operations. I think that sends conflicting signals. To the extent that the widening spread does raise expectations of an increase in the discount rate, I think we ought to do away with that. And it might be well, Mr. Chairman, at an appropriate time either in a speech or at testimony simply to indicate that the spread no longer means what it once did in terms of considerations of whether we change the discount rate or not. In my point of view, the reason you change the discount rate in today's world is that you want an announcement effect either domestically or internationally. And whether the spread is 100 basis points or 500 basis points doesn't seem to me to be terribly relevant.",272
-fomc-corpus,1988,Governor Angell.,4
-fomc-corpus,1988,"I won't use all my arguments about a discount rate increase now because I've already made them to the Board. And the Board members understand my view very well on that. I would comment, Ed, that it seems to me in the environment that we are in now that there is a substantial difference between a discount rate increase and an increase in the federal funds rate through open market operations.",76
-fomc-corpus,1988,I agree with that.,5
-fomc-corpus,1988,"And the difference is that you are indicating you want rates to be higher and one reason to have a higher discount rate is that you would encounter I think increasing difficulty of managing borrowing at the discount window at $600 million, given Don's surveys of where banks' reluctance to come to the window may be. I think that we have a somewhat more stable borrowing target at $300 million or $400 million than I think we would have at $600 million or $700 million. And I would want the discount rate to be high enough not to have to have what I would call a more unpredictable borrowing target. Now, my view is that whatever we do is going to have some announcement effect. We are not going to make a move after this meeting and have everyone say they didn't understand what the Federal Reserve did. By next Tuesday or Wednesday, no one will ask whether we have moved or haven't moved. In this scenario we are talking about, everyone is going to know that we moved. So, there is going to be an announcement effect. And the discount rate is not ringing the gong; the discount rate is a regular procedure that you use when you want to tighten policy, when you want higher interest rates. And those higher rates will be consistent with slower money growth. So, I'm clearly in camp ""C"". Now, I'm in camp ""C"" because I believe very strongly that the chances of our getting into recession are much less by taking the action that needs to be taken to give us some chance to have some scarcity of money which will show up in some commodity prices and in exchange rates and show up to give some expectations. The thrift industry is going to be much [unintelligible] for us to deal with this as the Board dealt with it in 1984, and it's more difficult to deal with it now than in 1984 because the economy is further along. But if we wait until the end of 1989 or the middle of 1989 to get into this and if Jerry's staff is right in their inflation forecast and if inflation gets away from us, that's the recession scenario, that's how you're going to buy the recession. I'm convinced that there's no immediate danger to the real economy at this stage. And I think it's a little more above board and will be clear in everyone's mind as to where we are if we do it in a very solid manner. So, I favor ""C"" and I, of course, would prefer to do it with a discount rate increase rather than doing it with a $600 million borrowing target.",516
-fomc-corpus,1988,Governor LaWare.,4
-fomc-corpus,1988,"I like the scenario that you have outlined. I guess the only part of it that concerns me a little is allowing an historically broader range between the discount rate and the funds rate. It would not bother me to see the funds rate go to 9 percent. So that's 250 basis points. By doing that are we muting the announce-ment potential of future discount rate changes? In other words, are we heralding our ""gong,"" are we wrapping it in swaddling clothes or something like that?",103
-fomc-corpus,1988,Make sure that is recorded for the record!,9
-fomc-corpus,1988,"Not to be too precious about it, let me just suggest that instead of ringing the gong, that in connection with this move we might just ""jingle"" the bell--that's a seasonal pun!--and perhaps not move the discount rate a full half point but rather move it a quarter point, which says something to the marketplace. It says that we are still using the discount rate with some announcement value, but it doesn't ring the gong quite as loudly as a full half point might. But I like the gradual approach to the borrowing target.",108
-fomc-corpus,1988,President Stern.,3
-fomc-corpus,1988,"I agree with those who think that we need some further tightening and that we need it right away. I came in here favoring something between ""B"" and ""C,"" which I interpret to be pretty close to what you've proposed, Mr. Chairman. One way we might approach that--a little elaboration on that--something we used to do would be to just put a range on borrowings, $500 to $600 million. Not only does that have the value of getting us in the direction we want to go, but given the uncertainty between interest rates and borrowings these days, it gives us a little more explicit flexibility it seems to me in terms of how policy is implemented. The only thing I would add to all of that, this is certainly for more serious consideration in February rather than immediately, is that I do think we should keep an eye on the long-term situation. I would admit that I take some comfort in the modest growth we've had in M2 over the last year or two, though I wouldn't bet the farm on it. But in light of that modest growth, I wonder if a 7 percent upper limit on the M2 range in 1989 is really appropriate. And it strikes me to be on the high side given M2's performance in the last year or two.",264
-fomc-corpus,1988,I think we will revisit that at the next meeting.,11
-fomc-corpus,1988,Right.,2
-fomc-corpus,1988,Vice Chairman.,3
-fomc-corpus,1988,"In terms of the Bluebook alternatives I would favor alternative ""C,"" but I certainly would not wildly object to the approach you suggested, Mr. Chairman, which essentially involves sneaking up a little bit on alternative ""C"". There is an interesting question that I think we can now call the ""gong show,"" a variety of both strategic and tactical questions here that arise in the context of a discount rate change. Indeed, I guess if I step back from everything, which one never has the liberty of doing, and I said to myself that I thought it was unlikely that there would be an increase in interest rates in Europe and I made a variety of other assumptions, I could easily talk myself into the view that the absolutely ideal policy would be the combination of a discount rate increase and, say, $500 million in borrowings. That probably would mean that federal funds rates would end up somewhere on the north side of 9 percent rather than the south side of 9 percent. Then, I'd bring myself back a little bit from the ideal and start to superimpose on the way things are in terms of the gong show. And I guess where I would come out is to do alternative ""C,"" but--and this may surprise some people--I probably would leave the discount rate on the bench for at least a moment or two. I worry as does Governor Johnson about the symbolism of getting caught up in what appears to be a worldwide ratcheting up of interest rates especially if there is the appearance that we are in effect getting forced into that posture to stay in lock step with the Germans. What I'm not sure about as a practical matter is whether there is a way to avoid that at this point, since the expectation is widespread in the marketplace that they are going to raise their rates in the very near term anyway. I don't like that at all. And that does influence my thinking in terms of the tactics of the situation. The other thing that keeps rolling around in my mind is the question that Bob Parry raised rather directly and I guess I flirted with in my earlier comments. Suppose that despite the varying degrees of comfort that we draw from long-term interest rates that we are wrong or the markets are wrong or both? What is the kind of thing that will most graphically signal that to us in the near term? And I think there are two [unintelligible] the inflation statistics themselves start to show through. And the second is that, for example, we could get another huge increase in employment in December. Now, Gary was talking before about a 200,000 increase; that sounds high to me. If anything, I think that employment increases may have to be smaller than that. But suppose we get another 350,000 or 400,000 increase in employment right now, which I don't rule out as a possibility. That kind of contingency is another reason why I have a slight preference to keep the discount rate in abeyance at this moment. But I certainly think that at the very least we should get to something as described in the Bluebook as alternative ""C"" and I think as you've described it as quickly as possible.",636
-fomc-corpus,1988,President Hoskins.,4
-fomc-corpus,1988,"Well, as Governor Kelley indicated earlier I have been an advocate of alternative ""D"" on various occasions. We now have alternative ""gong"" which I interpret to be a discount rate move as opposed to ""C"". Not wanting to be the Paul Erdman of this Committee, I do have concerns along the lines Tom Melzer indicated. But I think that Governor Angell's summation on the discount rate is the appropriate one. So, my preference would be to do a discount rate move and adjust the borrowing targets to ensure that rates are where I think the market expects them which is someplace around 9 percent. Your proposal, Mr. Chairman, if I read it correctly if we do $100 million now and are sure of doing $100 million later I think is livable. I have a comment on the riskless society. Bob Forrestal indicated the fact that there are risks every place out there. There's one exception, however, and that's deposit insurance. I had to get that clear. And, secondly, with respect to the point that Bob Parry made, I think that's an accurate observation. I would suggest that if this Committee had acted differently in the late 1970s, we might not have avoided an LDC debt crisis but the magnitudes would have been a lot lower in terms of the outstanding debt, the problem that we are facing right now. I would link that to the current context of the LBOs, that we may be building the same kinds of things right now with respect to LBOs. And I think a signal by this Committee that rates are moving upward and we are concerned would be the appropriate signal to give.",334
-fomc-corpus,1988,President Keehn.,4
-fomc-corpus,1988,"Mr. Chairman, while the risks clearly are on the side of inflation as we've said, not economic growth, it does seem to me as we've gone through the year and particularly starting in the late spring we've been responsive to that concern. And I just don't have quite the feeling that others may have that we've fallen behind the curve on this one. Certainly, at this time I think further tightening is appropriate. And the scenario that you outlined is just right. I would not raise the discount rate now. I would simply raise the borrowing level and initially the fed funds rate to 8-3/4 percent and maybe moving up to 9 percent as we get into the new year would be appropriate. But I'd hold the discount rate for something a little bit more overt than we see now to make that move more appropriate from the point of view of the market.",172
-fomc-corpus,1988,Governor Seger.,4
-fomc-corpus,1988,"I'm on the side of the gentleman from St. Louis, President Melzer.",16
-fomc-corpus,1988,There's no gentleman here!,5
-fomc-corpus,1988,The young boy from St. Louis!,8
-fomc-corpus,1988,He just retracted his comment!,7
-fomc-corpus,1988,I was trying to flatter him. It didn't work.,11
-fomc-corpus,1988,"Stand up, Tommy.",5
-fomc-corpus,1988,"Anyway, I would be opposed to a discount rate hike now. I would remind you of what the announcement effect did in the summer, or actually September, of 1987 when the discount rate was hiked and the idea was that long-rates would decline as a result and short rates would rise. Instead, all rates rose as I recall. And the only thing that didn't rise was Wall Street in October when we had a slight problem with the stock market. Again, their ""gong"" was done in order to sweep up the heavy pile of paper, and the blood on the floor. But anyway I think it would be bad now in that sense. Also, we are right in the middle of the Christmas selling season. And again if you want the announcement effect, I can't think of a worse time unless you really want to cause retail sales to go into a tailspin at a time when for many merchants, a third, 40 percent of their annual sales take place around the Christmas holidays. And, frankly, I just don't think it's needed. The monetary aggregate growth has I think looked pretty good, pretty responsible. Si Keehn said we've had a number of tightening moves since last spring. And I'm not convinced that we've seen all of those impact the economy yet. So, as I said, I'm on Tom Melzer's side.",270
-fomc-corpus,1988,President Black.,3
-fomc-corpus,1988,"That's ""B"" without any change in borrowing?",10
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,"Mr. Chairman, I would favor ""C"". I have never differed with you since you've been here, and I do so with great trepidation today because I have such respect for your judgment. But I think the market has expected a discount rate increase, and I think if we don't get one it might be interpreted as some lessening of our resolve to deal with this problem we see developing. And I think there's also a lot of substance to the point that Governor Angell made that if we are concerned about the lack of a firm relationship between the level of borrowed reserves and the federal funds rate, I think that would be exacerbated by letting that [rate spread widen] still further. But at the same time I want to be reasonable on this, and I can see the merits to what you've said. I can certainly see the merits to what Tom Melzer has said because the aggregates do concern me a great deal. I would not be willing to go this far if I didn't see a sign that they were beginning to move. I would like to bargain with you a little bit on that $100 million and make it a little higher than that. But I don't think it's an important enough difference that I'd want to go to the mat on it or anything of that sort. I'd really like the discount rate to be a part of it.",270
-fomc-corpus,1988,Governor Kelley.,3
-fomc-corpus,1988,"Mr. Chairman, I fully support your suggestion. I would only add that as I have listened to the comments around the table about the gong-ringing possibility, it has been expressed as merely a matter of timing. We may very well indeed need to ring the gong. I don't think we need to do so now, because I think that there is at least some possibility that we may not need to ring it at all. So, I just would like to have that possibility on the table.",99
-fomc-corpus,1988,President Boykin.,4
-fomc-corpus,1988,"Mr. Chairman, my position would be to move on the discount rate. I think that would be the much preferable way to go. If the Board doesn't see it that way, then certainly alternative ""C"". And I'd move pretty fast on the borrowing.",51
-fomc-corpus,1988,President Guffey.,5
-fomc-corpus,1988,"Mr. Chairman, when I came to the meeting I preferred ""B-C"", someplace in between those two. But I have no problem with the proposal that you've laid on the table with the exception of the potential need for the second $100 million sometime early in January. If it becomes evident that that's an appropriate move, then I think the Board should again look at the use of the discount rate at that time rather than today. I'd hold it in abeyance. You may find it helpful in supporting the dollar after the turn of the year. I would not want to do it now because as has already been mentioned at least it's my impression that other rates around the world probably are going to increase, and I wouldn't want us to be a leader in that parade. So, I would hope that we could accept the proposal that you have laid on the table, $100 million now, and a very careful look whether to do the second $100 million or whether to do a discount rate increase sometime in January.",203
-fomc-corpus,1988,"Mr. Chairman, could I ask for some clarification? The $100 million, would you anticipate this would move the federal funds rate to 8-7/8 initially from 8-5/8 percent?",43
-fomc-corpus,1988,The first $100 million?,6
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,I think it's 8-5/8 to 8-3/4 percent; the second $100 million is 8-7/8 to 9 percent.,35
-fomc-corpus,1988,"The Bluebook alternatives are posed in terms of 8-3/8 percent as being alternative ""B,"" is that correct?",26
-fomc-corpus,1988,8-3/8 to 8-1/2 percent.,14
-fomc-corpus,1988,"Okay, so you're adding an 1/8 to that.",13
-fomc-corpus,1988,"Well, adding a 1/4 to that for $100 million and then 1/2 for $200 million.",25
-fomc-corpus,1988,Okay.,2
-fomc-corpus,1988,But be aware too that we are coming into the year-end period and seasonal factors could add on something to that first 1/4.,28
-fomc-corpus,1988,"Well, one more clarification. Your proposal is to.do $100 million now and then take a look at whether we need to do another $100 million?",31
-fomc-corpus,1988,"Let me clarify later. I think we should get around to everybody who wants to talk. Bob Eisenmenger, I don't think you have indicated your preference, if you want to give one. MR. EISENMENGER Well, I think I would prefer to move a little faster than you have proposed, but it's a mild preference. As far as the discount rate is concerned, that is a determination for the Board anyway. They might wish to do it, but not do it immediately--do it toward the end of the year.",110
-fomc-corpus,1988,"I think Roger Guffey has captured as best it can be done the [consensus] as it has been stipulated by the various members of the Committee. I would propose that we go immediately with $100 million and asymmetric language, with the understanding that unless something significant that is not now perceived occurs that we go the second $200 million in January.",71
-fomc-corpus,1988,Second $100 million.,5
-fomc-corpus,1988,"I beg your pardon; I meant to say a second $100 million in January. But should the Board of Governors at any time between now and then decide to move the discount rate, we would then have a telephone conference call to readjust the borrowing requirements to calibrate them in the context of either fully offsetting the $100 million, or the $200 million, or perhaps only one of the [$100 million steps]. This means in effect that it is possible, depending on the telephone conference should it appear that way, that we could go to shy of 9 percent or north of 9 percent on the federal funds rate, as Jerry Corrigan says.",133
-fomc-corpus,1988,"I don't want to nitpick, but would you envision yourself visiting that issue two weeks from now or six weeks from now?",25
-fomc-corpus,1988,I would say three weeks.,6
-fomc-corpus,1988,It would seem to me the Chairman said either then or before then as I heard it.,18
-fomc-corpus,1988,"Yes, the discount rate is reviewed once a week.",11
-fomc-corpus,1988,The Board meets regularly.,5
-fomc-corpus,1988,"No, I meant this second $100 million; I'm sorry.",13
-fomc-corpus,1988,"Oh, okay.",4
-fomc-corpus,1988,"Well, basically it really is the second maintenance period.",11
-fomc-corpus,1988,Two weeks from today?,5
-fomc-corpus,1988,The third or fourth week.,6
-fomc-corpus,1988,Two weeks from today?,5
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,"Well, you can't be that precise. You've got all that year-end churning, and if the year-end churning takes you up to a high level, you might not want to jerk the rate back down.",43
-fomc-corpus,1988,That's a good point because that might be the time.,11
-fomc-corpus,1988,Right.,2
-fomc-corpus,1988,"The point being, if you were asking me if was I contemplating or talking about the end of the intermeeting period, the answer is that I was not. This is an issue which, as I originally stipulated and I think is right, is to be considered sometime early in January. That to me is three weeks from now.",66
-fomc-corpus,1988,And that means that unless something of major significance happens in the economy or financial markets that we will do roughly 50 basis points either through a combination of discount rate or--,34
-fomc-corpus,1988,"Let me be very specific. If nothing material happens, then I think the Desk will automatically add $100 million to the borrowing requirement. If, however, in the period prior to then, or subsequent to then, the Board decides to move the discount rate, we'll have a telephone conference to adjust the borrowing requirement in line with the instructions of the Committee.",71
-fomc-corpus,1988,I think that's a satisfactory solution.,7
-fomc-corpus,1988,The official directive under that would be to go $100 million with asymmetric language. I'm not certain that any further language is required in the directive.,29
-fomc-corpus,1988,"[The operational paragraph would read as follows:] ""In the implementation of policy for the immediate future the Committee seeks to increase somewhat the existing degree of pressure on reserve positions. Taking account of indications of inflationary pressures, the strength of the business expansion, the behavior of the monetary aggregates, and developments in foreign exchange and domestic financial markets, somewhat greater reserve restraint would or slightly lesser reserve restraint might be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with growth of M2 and M3 over the period from November through March at annual rates of about 3 and 6-1/2 percent, respectively. The Chairman may call for Committee consultation if it appears to the Manager for Domestic Operations that reserve conditions during the period before the next meeting are likely to be associated with a federal funds rate persistently outside a range of 6 to 10 percent.""",177
-fomc-corpus,1988,6 to 10? I thought it would be 7 to 11.,16
-fomc-corpus,1988,"Well, it should be 7 to 11.",11
-fomc-corpus,1988,It should be 7 to 11.,9
-fomc-corpus,1988,We are going to be up 50 basis points.,11
-fomc-corpus,1988,We will increase the funds rate up to 50 basis points.,13
-fomc-corpus,1988,6-1/2 to 10-1/2.,13
-fomc-corpus,1988,6-1/2 to 10-1/2.,13
-fomc-corpus,1988,"Well, we've never done that. We've had successive moves.",12
-fomc-corpus,1988,How about 7 to 10?,8
-fomc-corpus,1988,Why narrow the range?,5
-fomc-corpus,1988,"Well, (a) a lot of us thought that would be a good thing to do; (b) it gets us to that midpoint that you want to get to, a midpoint of 8-1/2 percent.",46
-fomc-corpus,1988,"Well then, we are going to have to do that every time we have a move,",18
-fomc-corpus,1988,It isn't worth arguing about this particular issue; this is an inoperative instruction anyway.,17
-fomc-corpus,1988,"Well, I know it, that's why--",9
-fomc-corpus,1988,I certainly don't care.,5
-fomc-corpus,1988,"If we leave it at 6 to 10, we've got the midpoint below where we are now. I'm not sure where we are. Are we at 8-1/2 or 8-5/8? I think we are at 8-5/8.",57
-fomc-corpus,1988,We will go to 7 to 11 now.,11
-fomc-corpus,1988,7 to 11 is okay.,7
-fomc-corpus,1988,7 to 11.,5
-fomc-corpus,1988,It shows the gamble we are taking!,8
-fomc-corpus,1988,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Black Yes President Forrestal Yes Governor Heller Yes President Hoskins Yes Governor Johnson Yes Governor Kelley Yes Governor LaWare Yes President Parry Yes Governor Seger No,47
-fomc-corpus,1988,The next meeting is on February 7th and 8th.   Lunch is served.,19
-fomc-corpus,1989,"I'd like to start by welcoming back Dick Syron, who I understand was here during the tranquil days of 1981 and 1982. I trust his return is an omen.",37
-fomc-corpus,1989,There's no information for forecasting in that.,8
-fomc-corpus,1989,We appreciate that and we thank you.,8
-fomc-corpus,1989,"Thank you, Mr. Chairman.",7
-fomc-corpus,1989,I guess you can't legally at this stage approve the minutes. You weren't there; you never heard them. Somebody else try it.,26
-fomc-corpus,1989,I'll move it.,4
-fomc-corpus,1989,Second.,2
-fomc-corpus,1989,Without objection. We'll start with the report on foreign currency operations. Mr. Cross.,17
-fomc-corpus,1989,[Statement--see Appendix.],6
-fomc-corpus,1989,"Any questions for Mr. Cross? If not, may I have a motion to ratify all transactions undertaken by Mr. Cross since the last meeting?",30
-fomc-corpus,1989,So move.,3
-fomc-corpus,1989,Second.,2
-fomc-corpus,1989,Without objection. We'll move on to domestic open market operations. Mr. Sternlight.,17
-fomc-corpus,1989,[Statement--see Appendix.],6
-fomc-corpus,1989,"Questions for Mr. Sternlight? If not, may I have a motion to ratify his transactions since the December meeting?",25
-fomc-corpus,1989,So move.,3
-fomc-corpus,1989,Without objection. Now we'll move to the chart presentation of Messrs. Prell and Truman.,19
-fomc-corpus,1989,"Thank you, Mr. Chairman. You should all have a packet of charts here with a red title on it. [Statement--see Appendix.]",29
-fomc-corpus,1989,[Statement--see Appendix.],6
-fomc-corpus,1989,"Thank you, gentlemen. Governor Johnson.",8
-fomc-corpus,1989,"Just one question: On this first alternative forecast, what happens in a case where you don't have compensating money growth to try and stay on the base line real GNP forecast and you have an unchanged dollar?",42
-fomc-corpus,1989,"Well, in that case, of course, you would get more current account improvement, a better performance of prices, and a little less--about 1/4 percent per year less--GNP growth.",42
-fomc-corpus,1989,What's the improvement on the price side?,8
-fomc-corpus,1989,"Oh, the difference I think is about 0.2 percent a year for both years, 1989 [and 1990].",28
-fomc-corpus,1989,Governor Heller.,4
-fomc-corpus,1989,"I have a couple of questions. First, you are showing compensation going up rather rapidly in 1990--plus 6 percent--but then you are showing personal consumption expenditures going up only 0.9 percent. What's happening there--the saving rate?",52
-fomc-corpus,1989,"Well, job growth is much slower; thus, you're not generating the nominal income fast enough to offset the more rapid increases in consumer prices.",28
-fomc-corpus,1989,The 6 percent?,5
-fomc-corpus,1989,I'm not sure what the nominal personal income increase is.,11
-fomc-corpus,1989,"No, no. From the charts it looks like compensation is going up 5.7 or 5.8 percent--whatever it is, I don't know.",33
-fomc-corpus,1989,But we have very slow employment growth.,8
-fomc-corpus,1989,You get zero.,4
-fomc-corpus,1989,You get about 5 percent consumer price inflation as well as what's pushing down the overall growth in real disposable income.,23
-fomc-corpus,1989,"The second question was: Foreign prices are falling rather rapidly in the forecast in 1990, and in view of the fact that foreign monetary growth right now is a lot higher than it is in the United States in virtually all countries except Switzerland what's their magic?",52
-fomc-corpus,1989,"I think their magic is that with this slightly higher money growth they have had a lower level of [inflation] on average to begin with more recently--with a few important exceptions like the United Kingdom--and we are projecting a tightening of monetary policy in those countries. Also, for this two-year period, not including 1990, they get some benefit from the depreciation of the dollar that we're assuming in the forecast relative to their present underlying level of inflation. In addition, these, are year-over-year comparisons, and they would be coming off these artificial factors that in 1989 tend to boost the price level up in Germany and Japan. Therefore, the year-over-year comparison exaggerates the decline.",142
-fomc-corpus,1989,"Governor Heller, just to clarify: those figures were compensation for hourly wages. We have total nominal disposable income rising just over 6 percent. If you take off just over 5 percent consumer inflation you're down to about 1 percent income growth in real terms.",53
-fomc-corpus,1989,"Okay. The last question: On chart 18, the next to the last chart, you have a lot faster growth abroad under the unchanged dollar forecast. Presumably that would mean higher U.S. exports, yet the current account gets a lot worse?",51
-fomc-corpus,1989,"Right, because it [unintelligible] it more than exports. There's no doubt about that: [faster] growth abroad does boost the growth of exports in this period. I might add--",41
-fomc-corpus,1989,But the two U.S. growth paths are exactly the same.,13
-fomc-corpus,1989,That's right.,3
-fomc-corpus,1989,"That's right, but that's by assumption. To the extent that you get more exports, the easing of monetary policy required to keep the U.S. growth path on the same line is less; so that's part of this compensated--",45
-fomc-corpus,1989,"No. I'm sorry, I don't get it.",10
-fomc-corpus,1989,To the extent that's correct--that without the dollar's decline there is more growth abroad--that by itself has a partial effect in that it generates more exports.,32
-fomc-corpus,1989,More exports?,3
-fomc-corpus,1989,"Growth [abroad] itself does generate more exports. To the extent that that produces more demand for U.S. goods, the experiment offsets that by having less monetary expansion in the United States to compensate for the exports that would otherwise be there.",49
-fomc-corpus,1989,So imports--,3
-fomc-corpus,1989,"Net exports are falling a lot faster than the current account [unintelligible] U.S. GNP is held on track by offsetting [unintelligible] export increase with the exception of investments due to lower interest rates. But the real [unintelligible] decline of exports [unintelligible] increase of foreign real exports, but raise the GNP level. They measure this from--",84
-fomc-corpus,1989,"Well, in fact, it puts the two factors together, Governor Heller.",16
-fomc-corpus,1989,I'm ready to give up.,6
-fomc-corpus,1989,The growth of exports is lower in this forecast even though income abroad is higher because they gain more on the price side than they lose on the income side.,31
-fomc-corpus,1989,It all goes on the price effects?,8
-fomc-corpus,1989,"Yes. Prices are actually washed out. In fact, probably a better way of thinking of it is that the level of real exports is lower in the alternative than in the base line because that improved price competitiveness has a greater effect on exports than the gain in faster growth abroad.",55
-fomc-corpus,1989,Sorry. I thought I heard you say initially that exports were up.,14
-fomc-corpus,1989,No.,2
-fomc-corpus,1989,Now you're saying exports are [not] up--,10
-fomc-corpus,1989,A partial effect of higher income is to put exports up. A partial effect of a stronger dollar is to put exports down. The net effect is negative for exports.,33
-fomc-corpus,1989,Okay.,2
-fomc-corpus,1989,Sorry for the confusion.,5
-fomc-corpus,1989,"I find it hard to see, but--",9
-fomc-corpus,1989,Governor Angell.,4
-fomc-corpus,1989,"Bob, I think the reason you have trouble with that is the same reason that I have trouble--because there is a basic inconsistency in the whole process, which makes all the results backwards to me. And that is, the faster money growth that you have there should be associated with a higher value of the dollar rather than the opposite. In other words, what we have here is the use of a construct that says in order to keep things the same you grow M2 at a faster rate. And by strange reasoning if you grow M2 at a faster rate you'll have a lower value dollar.",120
-fomc-corpus,1989,"If you looked at the exchange rate implications, as I suggested earlier, of that faster money alternative that I have, that showed--",26
-fomc-corpus,1989,If interest rates are fixed.,6
-fomc-corpus,1989,You have that dollar depreciation.,6
-fomc-corpus,1989,That's why I asked that first question.,8
-fomc-corpus,1989,"So, that makes everything backwards for those of us who had seen that relationship as the [unintelligible] one.",25
-fomc-corpus,1989,That's why I asked my first question about the result if we didn't compensate on the money side.,19
-fomc-corpus,1989,"This is compounding degrees of uncertainty, let's say.",11
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,"Well, it certainly succeeded.",6
-fomc-corpus,1989,"You know, it certainly would help to have this [analysis] sent out a little ahead of time so that we could reflect on it a bit. That's a lot to digest in that short a period of time.",43
-fomc-corpus,1989,Bob.,2
-fomc-corpus,1989,"On a somewhat narrower topic: I agree, Mike, that the nondefense capital goods orders are really good indicators as far as capital spending is concerned. But would it be better perhaps to try to take some of the lumpiness out of aircraft and parts as opposed to excluding it? Because it is an important factor with regard to capital spending. I know it's very lumpy but maybe if you averaged a couple of months you'd get a better picture.",90
-fomc-corpus,1989,"I don't think so, President Parry, because I think the value of this indicator is relatively short run. The lags that one measures in the relation of orders to shipments tend to be a matter of several months. And in the case of aircraft, with the current situation being what it is, the lead times are so long that the placing of orders has no meaningful--",75
-fomc-corpus,1989,So it's not a lumpiness.,7
-fomc-corpus,1989,"That's apart from the fact that there are lots of intermediate goods in there--parts [for example]--and a lot of that goes to exports. It's an even bigger problem there than it is for translating the other orders to business fixed investment. So, there's a great deal of slack for that.",60
-fomc-corpus,1989,"Mike, is the main difference in terms of your deficit assumptions--I forget what chart that was on--",21
-fomc-corpus,1989,Second chart.,3
-fomc-corpus,1989,Second chart. Is that based on the difference in interest rates--primarily that 6.3 percent or whatever the former Administration had been using versus what we are projecting?,35
-fomc-corpus,1989,"That is a good deal of the story. In 1990 that is worth roughly $25 billion of the difference, all other things equal, between the Administration and Greenbook budget assumptions.",38
-fomc-corpus,1989,"One thing that strikes me in looking at this--and to some extent I agree with Bob Black that it's hard to absorb all the implications of these alternative forecasts--but you get the feeling that maybe our economic policy mix is really not what it ought to be. And that sort of puts you in a fog. I think this is a rhetorical question but, is there a way of positioning what we're doing that puts us in a better posture in that regard? Because there are a lot of things that come through in this that we could get blamed for: the [unintelligble] deficits, stalling out of the trade adjustment, you name it. And the politics become very tricky.",138
-fomc-corpus,1989,Greatly. Governor Seger.,7
-fomc-corpus,1989,"Maybe I'm missing something, but as you go through the alternatives is there one that would be comparable to, say, just freezing in place today's policy stance? I don't mean--",35
-fomc-corpus,1989,"If you mean by that the federal funds rate, that is the ""more money"" alternative.",19
-fomc-corpus,1989,"Yes. But I guess that wasn't quite what I was thinking of. And maybe I have the wrong view of what holding today's reserve pressures would do. I sense that that might put a little more upward pressure on rates. But maybe your ""more money"" alternative is going to be the status quo.",60
-fomc-corpus,1989,It was intended to answer the question: What if short-term interest rates don't rise?,17
-fomc-corpus,1989,"Okay, thanks.",4
-fomc-corpus,1989,That's all right. I didn't know whether you were finished or not. President Keehn.,18
-fomc-corpus,1989,"Mike, a question on chart 5 on the consumer durables: Is the decline in the red line solely attributable to a decline in car sales from, say, 10.6 to 10.2 million units, or in fact does the slump of that line also imply some pickup in [unintelligible] of consumer durables?",70
-fomc-corpus,1989,We have non-motor vehicle durable goods increasing 3 percent in 1989 and then flat in 1990.,24
-fomc-corpus,1989,What comprises the end of 1989 number?,10
-fomc-corpus,1989,Within the durables? We have not done a greater level of disaggregation on this.,18
-fomc-corpus,1989,"I guess the question is: With home starts down, does that fit in it?",17
-fomc-corpus,1989,"It fits in to some degree. There is some relationship there, though if you just look historically to the simple econometric relation you find it's pretty loose. In 1988 we had 6 percent growth of durables other than motor vehicles. So that [1989 rate] is a significant slowing. This level of housing activity is still enough to generate some reasonable demand and then there is all the replacement demand for appliances and furnishings and so on. So it wouldn't fall entirely in that type of--",100
-fomc-corpus,1989,One last question: How much of the base line forecast for real growth is accounted for by net exports? Do you know?,25
-fomc-corpus,1989,In 1989 it's a very small part; in dollar terms net exports improve $22 billion and GNP is improving $122 billion--that's roughly 1/2 percent on GNP. In 1990 net exports are accounting for roughly 3/4 of that 1 percent growth.,60
-fomc-corpus,1989,The actual increase is not as much as implied for--,11
-fomc-corpus,1989,I've forgotten: what's the implied dollar depreciation?,9
-fomc-corpus,1989,"Over the entire 8 quarters it's 13 percent in nominal terms, 10 percent in real terms.",21
-fomc-corpus,1989,Most of it in the second [year]?,9
-fomc-corpus,1989,"Well, a little more in the second year because the first quarter is gone.",16
-fomc-corpus,1989,"Mike, given what Ted has said in here and what was said about oil prices in the Greenbook that we got earlier, one always makes point estimates but what's your view of the symmetry of the risks on the inflation side? Particularly, I'm referring to the staff inflation projection and the forecast for compensation in the first and second halves of 1989 given what was [happening] in the last half of 1988.",86
-fomc-corpus,1989,"I must say that in terms of absolute levels these movements in the compensation numbers over 1988 give us some real problems in judging where the takeoff point is. There was an extraordinarily low increase in compensation per hour in the first quarter of the year; whether the fairly sizable numbers in the second half were just offsetting a seasonal adjustment problem we can't say. In essence, we are discounting the level at the end of the year, and we have a very mild acceleration, as we perceive it, in compensation per hour over the forecast period. As I said, we think this is a reasonable forecast. I guess I would see the tail of the distribution being longer on the up side than on the down side at this point. It's hard for us in this kind of economic environment to see a sizable shortfall from this compensation forecast. But one can see a larger range of risks, I think, on the up side. As a best estimate, this is our shot.",196
-fomc-corpus,1989,"Mike, with regard to the slowing in auto sales that you have in here: Is that due principally to a squeeze on income or is it the effects of the age of the stock of vehicles on the road?",42
-fomc-corpus,1989,"Well, a lot of cars have been bought in recent years but that hasn't brought the average age of the stock down to low levels by any means. I'm not sure we totally understand the scrappage rates that we're seeing--whether there really has been an improvement in the quality of automobiles and they last longer or what. I think we have a fairly sizable decline. The automobiles are declining more than light trucks and vans, which we have not yet incorporated in our tables and are now almost half as large as the car sales. So that's something worth recalling. The main factors are the slower income and employment growth. One couldn't point to the interest rate increases we have here as having a tremendous effect on automobile sales. It's more the general atmosphere of confidence and the growth in purchasing power that is behind this decline.",161
-fomc-corpus,1989,"Mike, one of the assumptions you made was that the weather will cooperate and that crop yields will be normal. In the event that didn't happen and we have a drought situation similar to the one we had this year, would 1990's GNP drought adjustment likely be negative?",56
-fomc-corpus,1989,1990's or 1989's?,9
-fomc-corpus,1989,"Well, 1989.",6
-fomc-corpus,1989,"If you had a crop year like 1988 in [1989 or] 1990, all other things equal, it would subtract 0.7 of a percent or so from output and would get you very close to zero. I think the bigger concern--one that we just don't know how to cope with in terms of inserting something in this forecast--is that in many areas, although it's spotty, there seems to be a shortage of soil moisture. The reports about winter wheat are not particularly encouraging. And with inventories of many of these grains and soybeans and so on as low as they are, we can't afford to have anything like the 1988 crop if we're going to stay anywhere near this inflation path. It's likely that we will see much more sizable food price increases than we saw in 1988. So I think it's something that's hard to cope with in monetary policy terms and economic forecasts here. But it is something that one could be concerned about.",197
-fomc-corpus,1989,"Well, we can supply liquidity!",7
-fomc-corpus,1989,That observation seems to have closed down all the discussion. I want to express my appreciation!,18
-fomc-corpus,1989,You want a second or what?,7
-fomc-corpus,1989,I no more believe that than you do. I think maybe I--,14
-fomc-corpus,1989,"Mike, I guess I'm a little surprised at the food inflation in '89 and '90, given normal crops and normal weather, because with the decrease in set-asides ordinarily food price inflation in the year after the drought should be lower than in the year before the drought.",55
-fomc-corpus,1989,The rate of increase?,5
-fomc-corpus,1989,I would have thought that somewhere there should be a downward move in food prices--offsetting the '88 upward move--in order for that historical relationship to hold true.,34
-fomc-corpus,1989,"Well, as you know, we have about a 3-3/4 percent increase in food prices this year and next. And we're looking at, for example,--",34
-fomc-corpus,1989,"I'm sorry, I thought it was 4 percent but maybe I'm wrong.",15
-fomc-corpus,1989,"I'm splitting it more thinly; it's a little below 4 percent. We're talking about consumer prices, excluding energy, rising 5 percent or more. That is a considerable differential and not out of line with that historical pattern to which you referred of the relative movement in these inflation rates. Beside the drought effects there was already in train some tendency toward reduction in cattle herds; and we're likely to see some considerable pressure on meat prices that offsets the relatively small benefits you can get from additional grain supplies, given the very large labor component in most of those food prices.",115
-fomc-corpus,1989,"Well, because of this discussion, I now hope that the rainfall is normal so we can find out who's right. But that's my only reason for wanting normal weather.",33
-fomc-corpus,1989,"Let me put forth the other side of the question. New crop [unintelligible] positions in feed grains and in food grains are well above normal. And built into the price structure at this stage is still subnormal soil moisture. What happens to the forecast, including the cattle cycle effect, if in fact from here on in we get above normal moisture and it brings the forward prices down? Does that make much of a dent in the consumer price structure or is the cattle shortfall already enough to make that a likely occurrence?",107
-fomc-corpus,1989,I think that's largely there and that it would really take some tremendous moves in crop prices to move these overall food price measures around. I think that's evident in what happened last year.,36
-fomc-corpus,1989,"In other words, what we're really looking at is more the unit labor costs in the distribution channels than the feed grains that filter into the cattle-meat cycle.",32
-fomc-corpus,1989,"That's a very large ingredient. I think that's the case. We have an authority here on the subject. John Rosine, do you have anything you want to add?",34
-fomc-corpus,1989,"Well, it certainly would not be enough to drive food price changes down into negative territory. If we had a very good crop year I think we could possibly have a drop in all grain prices but a CPI food price increase, say, on the order of 1 or 2 percent, give or take a little--not enough to affect the overall price outlook very significantly.",75
-fomc-corpus,1989,"So, at most, on your total index it's a couple of tenths?",16
-fomc-corpus,1989,A couple of tenths. And that's essentially what we got in 1988.,17
-fomc-corpus,1989,"I don't want to force the conversation, but has everybody completed their questions? If so, we can move on to Don Kohn--if you're prepared, Don.",33
-fomc-corpus,1989,We are [unintelligible]--,9
-fomc-corpus,1989,My schedule reads differently from what I think the Secretary's schedule shows. [We should] go to our discussions on the economy. I thought that came [before] you.,35
-fomc-corpus,1989,"Well, I'll be happy to get [my report] over with.",14
-fomc-corpus,1989,"No, that would probably confuse us. Who would like to start off? Bob.",17
-fomc-corpus,1989,"Mr. Chairman, the Twelfth District economy remains strong. For example, the District's unemployment rate is below the national average. However, Arizona is slumping because of the construction downturn, which is likely to extend at least through this year. In addition, there are signs of slowing during 1989. For example, labor shortages are slowing [output in] a few industries; I guess the most extreme example of that would be in aircraft manufacturing. Concern about the lack of rainfall is mounting in our District, especially in California. Another year of drought would really seriously hurt the District's agriculture. I think we have a little different situation working in our District. Last year we benefitted from the drought because we had almost all of our agriculture handled through irrigation. But we have had two years of drought and a third would be quite serious because the reservoir levels are so low at the present time--and we're already halfway through our rain year--that it actually could result in reductions of water availability of 25 to 40 percent. So, we're looking rather closely at the water situation, at least in the state of California. The national economy, it seems to me, continues at a level of activity above its sustainable potential. I believe that the recent employment reports indicate upward pressures on wages and that the underlying inflation rate seems likely to continue to build. Moreover, if there is a depreciation of the dollar this year and next, as is incorporated in the Greenbook forecast, that will add to inflationary pressures as well. Our outlook for growth for the two-year period is very similar to that of the Greenbook, although we may have somewhat of a difference in the yearly pattern. In any case, this growth and what I would say is a worsening inflation prospect argue strongly, in my view, for continuing our recent strategy of steadily tightening policy. Thank you.",373
-fomc-corpus,1989,President Black.,3
-fomc-corpus,1989,"Mr. Chairman, our projections for 1990 pretty closely parallel those of the Greenbook. We do expect slightly more growth, but not quite enough to put us in the outlier column as has sometimes happened in the past. And we expect a tad more in the way of an increase in the consumer price index. As Mike Prell suggested very well a while ago, more important than the specifics of the forecast are some of the things that underlie it. And as we read the economy the pressure on U.S. productive resources looks very, very strong to us. This is evident, I think, in most recent statistical data: real personal consumption expenditures ex-automobiles, for example, were very strong; the nonagricultural employment figures for January were very strong; and the theme report that we got on business capital expenditures, which I found extremely helpful this time, seemed to indicate strength. We're getting the same sort of grassroots information from our contacts around the District. To us, one particularly interesting thing this time was a comment of who has been in the department store business says that business is really booming. so it came as something of a surprise to us. Now, if we have this strong demand, as is apparent to us, that naturally is going to put some upward pressure on real interest rates. And any attempt on our part to resist that pressure through monetary policy is going to risk getting inflationary pressures. So we've assumed, like the staff, that our monetary policy will not resist these things; rather we predicated our forecast on the assumption that there will be a significant further increase in short-term interest rates, and specifically some increase in the relatively near future. Now, if we do allow that increase to occur then we think the risks are about equal on both sides. If we don't let that increase occur then we think the risks are on the up side of more inflation than the staff has projected.",386
-fomc-corpus,1989,President Melzer.,4
-fomc-corpus,1989,"Our forecast this time falls within the parameters of the central tendency, which is a little unusual, I think, for us in recent years. We're at the low end on real GNP at 2-1/2 percent and at the high end on the CPI at 5 percent. But we're modestly higher in terms of unemployment at the end of the year. Looking out into 1990, our forecast would be quite similar to what we've seen from the Board's staff with maybe somewhat stronger real growth--at about 1-1/2 percent--and the CPI continuing to be somewhere around 5 percent. So, no declines. Looking out beyond that, even though we didn't do projections, I think we'd expect the CPI to begin coming down. The big difference, however, between our forecast and the Board staff's forecast is that we've assumed Ml growth of somewhere in the 3 to 5 percent area to produce these essentially similar results, whereas the Board staff's forecast I think has Ml growth of zero in 1989 and I'm not sure about 1990. Based on that, I think I'd have to say that we view the risk in the Board staff's forecast to be on the down side in terms of real growth. Using our methodology, if we drove that kind of assumption through [our model] we would definitely have weaker growth--in fact, a recession. In terms of what's going on in the District itself, we have seen some growth in nonag employment for the most recent three-month period and for the year. For a long time I was reporting that our employment was actually declining, so there has been some pickup. But [our growth rate] is still sluggish--about 1-1/2 percent versus 3 to 3-1/2 percent nationally. Manufacturing employment has picked up a little more strongly but it's still slower than the national [average]. Residential construction has shown some strength recently, as has nonresidential construction, particularly in St. Louis commercial office building construction. But on a year-to-year basis that's down quite significantly. Reports on the retailing side indicate, as expected, when we plot [them versus] a year ago that nominal gains were about 6 to 7 percent. I guess that's really all I have to say.",463
-fomc-corpus,1989,President Boykin.,4
-fomc-corpus,1989,"Well, Mr. Chairman, in the Eleventh District I think you have to look at the Louisiana portion by itself because it does seem that Louisiana is continuing to deteriorate, with the unemployment rate there rising to about 10.4 percent in December. If you shift over to Texas and our part of New Mexico you continue to see some improvement; it's modest and slower than the rest of the nation, but at least it's going in the right direction. On a sectoral basis the split is equally pronounced, with the energy and construction industries still pretty weak and manufacturing and services continuing to improve. The energy industry is performing as though the expected price of oil is in the $15 to $16 range rather than the $17 to $19 trading range that we've seen over the last 8 weeks or so. The downturn in our construction activity now seems to be centered on the nonresidential construction. As for agriculture, there is some mention of concern about drought. I guess we did not suffer quite as much last year but we are beginning to have a little concern. Our winter wheat is already hurt and we're hearing fairly pessimistic reports from out in the farm areas. Overall, manufacturing continues to improve. In the first three quarters of last year, most of the gains were centered on the more trade sensitive industries; we've now seen that the less trade sensitive product lines are improving. Retail sales have been improving in both autos and other goods. Overall, we're looking for some strengthening of the regional economy in 1989 relative to 1988. So, that does make us feel a little better. On the national scene, about the only place we really have any difference with what Mike was saying is on inflation. We feel there certainly is a little more inflationary pressure now and in prospect than the staff is seeing.",364
-fomc-corpus,1989,President Keehn.,4
-fomc-corpus,1989,"Mr. Chairman, with regard to the District, things are very much unchanged since my report at the previous meeting and that in itself may be significant. The outlook certainly continues to be positive. No one that we talk to in any way thinks that we're likely to have a recession this year. There are some early comments about the possibility of a recession in 1990 but those are the same kinds of comments that we heard last year about 1989. Alternatively, the general attitude is that we will not experience any particularly rapid acceleration in growth either. I think the inflationary picture continues to be very difficult to assess. The common wisdom is that we are going to see some escalation, particularly on the wage side; yet the reports I get from companies are not necessarily consistent with that common wisdom. The labor market continues to tighten. We are continuing to hear comments about shortages of skilled labor. But despite that, I'm surprised by how favorable the contract settlements continue to be--[increases in] wages and fringe benefits of 3 to 4 percent on an annual basis. And though labor attitudes certainly are hardening, they have at least not yet begun to evidence themselves in significantly higher settlements. The price side of the picture, I suppose as always, is quite uneven. Steel prices have now begun to moderate. At this point many companies report that steel prices are only now back to the prices that they were paying in 1980 and 1981. So, though we've had a big escalation over the last two years, we're now getting back to those levels that we experienced earlier in the 1980s. But nonferrous prices are now beginning to accelerate again, particularly copper, nickel, and to a somewhat lesser extent, aluminum. Chemical prices are moderating following the big increases that we had over the last year or two, but pulp prices are beginning to escalate pretty rapidly. I don't sense any consistent pattern in these materials prices. At one company that I talked to--it isn't a very large company but it tracks these things very carefully--their material price increases for 1988 came in about 2 percent higher than 1987. For 1989 they had been forecasting an increase of .4 percent. They very recently increased that from .4 to 1.3 percent, and that increase is entirely in the nonferrous area. But despite the increase, it is still lower than what they had in 1988. Virtually everybody continues to report very competitive conditions in the marketplace. For finished products there are competitive pressures that really make it difficult to pass price increases along, so there seems to be some continuing pressure there. With regard to the national outlook, our forecast is a bit more modest than the Board staff's but pretty consistent with the central tendency. I think our difference with the Board staff's forecast is partially timing, but a bit of it is also in this nonauto durables area that I asked Mike about. I continue to think that the risks at this point are on the inflation side--continued upward pressure on prices and, I do expect at some point, on wages. As a consequence, as we get into the policy deliberation we're going to continue to need to exert more pressure to deal with that. But having said that, I also have the feeling that, given what we have done so far, we are not necessarily behind the curve in dealing with the inflation problem.",688
-fomc-corpus,1989,President Forrestal.,4
-fomc-corpus,1989,"Mr. Chairman, the Sixth District's economic activity is not very much changed from the last time I reported. We are still showing strength in industrial production, as we have for some time, but in addition we now have some strength in the retail sector. The construction area remains pretty subdued and is weak. The chemical, aluminum, and paper producers are operating at very high rates of utilization, in many cases due to strong export orders. We're expecting a new aluminum plant to open in Georgia and that's rather an exception because most of the other producers we're looking at seem reluctant to add very significantly to capacity. And in some cases, such as in chemicals, they are actually looking for imports to meet strong domestic demands. Paper producers are fairly substantial purchasers of modernizing equipment but are not adding significantly to plant size. While we've seen some price increases announced, particularly for chemicals, paper, and aluminum, it's not clear that they are going to stick because there has been some customer reluctance to accept them. So, we may see a rollback of some of those price increases. On the retail side, sales appear to have remained very strong in January after what turned out to be a surprisingly good Christmas season. Price discounting in the District was less prevalent than last year, particularly in the post-holiday period. And inventories are now quite lean. While retail demand is good and was good during the holiday season, we did have over-expansion in this area and that has led three chains in the Atlanta market to close during the last few months. Office vacancy rates in the District seem to be a little lower than elsewhere in the nation but on the housing side we are seeing weakness both in starts and in sales. That's evident in several cities around the Southeast but especially in Atlanta. Migration has proceeded at a lower pace than earlier in the expansion due to strong labor markets elsewhere in the country; and builders who had been planning for stronger population growth are now having some difficulty. The weakness in demand for lumber resulting from the housing weakness has been offset by stronger export sales that have helped to sustain activity in the lumber industry. We're hearing reports that wage gains are expected to be in the 4 to 6 percent area, and there are going to be some important labor contracts up for renewal this year. And we hear, as most other people do, that the sharp increase in the cost of benefits is putting quite a bit of pressure on costs generally. On the agricultural side, we too are getting very nervous about the water situation. We've had a drought in the Southeast basically for the last four or five years. And, we have not had winter rains as we should have had and that is making farmers and others extremely nervous. This is anecdotal, but I've also heard reports recently about increases in export prices by manufacturers who seem anxious to take advantage of the profit situation rather than to seek to expand market share. I think that's somewhat disturbing and [would concern me] if that were to become a national trend. On the national scene we have very few differences with the Greenbook forecast. We might have some divergence in 1990 but not very much. We continue to think that there is momentum in the economy, that we are operating above our potential, and that the vulnerability is on the inflation side. So, while our inflation forecast for 1989 is roughly the same as the one shown in the Greenbook, my own personal view is that the economy is vulnerable to higher prices rather than to lower.",698
-fomc-corpus,1989,President Stern.,3
-fomc-corpus,1989,"With regard to the District economy, the expansion in the District remains very solid at this point in time. The fourth quarter probably turned out better than many people had expected. Retail sales--these are [reports] from a major retailer--were distinctly stronger in December and in January than we might have expected. And there is, by the way, a major expansion in the paper industry underway in the District in a variety of locations. Looking at the national economy, if I compare our model's forecast to the Greenbook I would have to say that our model's forecast is more favorable in the sense that it has somewhat more rapid economic growth with basically stable rates of inflation--at recent levels--and stable interest rates. Having said that, I think there is a message there that's similar to the Greenbook message: that is, that if you want to get the rate of inflation down it's going to take more than prevailing interest rates to accomplish that--or at least there is a relatively high probability that that's the case. If I look at the data as the Greenbook does on compensation, producer prices, consumer prices, and so on for the last year I think there clearly was a deterioration in the cost and price picture. My concern is that that might well continue. I would admit that to date we have had less inflation than I would have expected, given the growth in the economy and pressures as I perceive them on capacity. But having said that, we still have more inflation than I would like to see.",302
-fomc-corpus,1989,President Boehne.,5
-fomc-corpus,1989,"The middle Atlantic states continue to be characterized by a high level of economic activity. Labor markets are getting tighter. Even in Pennsylvania the rate of unemployment is well under the national rate for the first time in a long, long time; New Jersey and Delaware have been there now for several years. Wage increases tend to be higher than in the nation as a whole, particularly I think at the lower end. The most noticeable area of softening is in the real estate area. As far as the nation is concerned, I think the economy is growing too rapidly. It has more of a head of steam than I thought a couple of months ago and perhaps hoped a couple of months ago. As a result, the vulnerabilities to inflation seem higher to me now than they did just a meeting or so ago. I think this kind of a situation does require a response from us, but that's the topic of tomorrow. As for our forecast, we're within the central tendency although at the upper side of that.",198
-fomc-corpus,1989,Governor Angell.,4
-fomc-corpus,1989,"It seems to me that the most noteworthy development in the U.S. economy has been the slow growth of the money stock--no matter what measure you use--over the last two year's time. Having watched those figures for many, many years it seems rather unusual to have--if you take the staff's forecast through February, for example--the growth rate [of M2] over a two-year period at an annual rate of about 4.3 percent. The growth rate over the last full year was about 4.3 percent and the growth rate over the last half year was about 3 percent. I just have never seen such stable money growth of M2 in years of observing it. I recall that in 1986 there was considerable talk about whether or not the fast money growth was actually going to offset the deflationary experience that we had. I think there were quite a few of us who believed that it would. Maybe it took a while to do it but when it did, it did it with a clear impact upon both exchange rates and commodity prices. This time around it seems to me that the flow of money growth is being reflected in exchange rates much more rapidly, of course, than it is being reflected in commodity prices. It has been a very puzzling experience. As Don and Ted very well know, my own view is that if we continue with growth of the money stock as we are forecasting, the problem we may have in that environment--with regard to exchange rates--is too strong a dollar. But I would think that that dollar strength, in terms of overall economic developments, might provide the slack needed; that might very well be the antidote that is needed. Even though the drought maybe added not so much to the grain prices but somewhat more to the vegetable and fruit prices, it seems to me that the impact of the drought on commodity prices has delayed any turning point signal by commodity prices. It looks to me as if we're now getting a leading signal in commodity prices in that we're finally getting a declining rate of change. I don't mean by that that I think monetary policy ought to be adjusted because, indeed, unless commodity prices come down from the level where they now are I think we're quite likely to build in a much higher rate of inflation in the wage patterns that prevail. The only way to escape that is probably by having some decline in commodity prices. But I guess I'm somewhat encouraged by the trend of substitutes, such as ownership of other currencies or ownership of gold. Frankly, I would feel still better if the price of gold reaches $350 an ounce.",524
-fomc-corpus,1989,President Hoskins.,4
-fomc-corpus,1989,The fourth quarter in the Fourth District really was no surprise at all; it was similar to the rest of the year. It has been a very consistent story throughout the year; our economy didn't slow much during the summer and it didn't slow early in the year. Much like the situation in the unemployment rate there are [unintelligible] for all of them for the first time in a long time. That means service jobs but some on the manufacturing side. In discussions with manufacturers in the District we hear that they are operating at very high levels but are very reluctant to add new capacity. They are willing to run with higher inventories because they are operating at levels that are going to result in more breakdowns. But they are not ready to make the investments yet. The only weakness in the District is in Cincinnati and that was the football team!,169
-fomc-corpus,1989,But look at what it did for the economy.,10
-fomc-corpus,1989,Pardon me?,4
-fomc-corpus,1989,Look at what it did for the economy--all the beer sales!,14
-fomc-corpus,1989,"We don't have much to say regarding the Greenbook forecast, which is very similar to ours, particularly for 1989. In 1990 we have a somewhat lower inflation rate than the Greenbook because we think a change in compensation practices as well as a continuous clearly announced policy with respect to inflation [unintelligible]. As we look at it now, we think that will have some favorable impacts in 1990 and going forward [if we] can do what the Greenbook implies when dealing with interest rates.",105
-fomc-corpus,1989,Vice Chairman.,3
-fomc-corpus,1989,"My general view of the economy, Mr. Chairman, hasn't changed at all from what it has been at recent meetings in that I still think the risks are distinctly asymmetric on the side of too much growth and too much inflation. I still don't see any compelling evidence--as a matter of fact I don't see much evidence at all, at least at this moment--of the much needed moderation in the rate of growth in the domestic economy in particular. In terms of the outlook for 1989, our forecast is very similar to the Greenbook forecast, even in most of the details, insofar as real GNP growth is concerned. Our inflation rate is higher and indeed is a tad outside the central tendency as listed in the charts. [Our forecast for] 1990 is a very different story, which I'll come back to in a minute. But leaving aside 1990, when I look at the situation right now I guess my anxiety level is up a bit. It is up a bit really for two reasons, and they both relate to things that one could say about the economy and so on in public and other forums. For example, I got very used to saying, when asked--and I thought I could say it without my nose growing--that the underlying inflation rate was in the 4 to 4-1/2 percent range. I don't think I can say that anymore without my nose growing. When I look at all of the wage and price data, especially from the fourth quarter, I think we now have to say that the inflation rate is, at best, in the 4-1/2 percent range. But certainly you'd have to drop that 4 to 4-1/2 percent out of that statement to have any credibility, much less--at least by my standards--intellectual honesty with yourself. Indeed, I think the range of the conpensation-type statistics, again with some emphasis on the fourth quarter, are particularly [alarming] in that regard. The other thing that I think we all parroted with some frequency in the recent past is a sense of comfort with respect to the external adjustment process, both in terms of what has happened and what lies out there in the future. And this is where 1990 is looming very large in my thinking. I don't consider that there's any such thing as a true forecast for 1990, with all due respect, Mike. I think we can all go through some arithmetic; and I think of it more as arithmetic than a forecast. But if you look at the arithmetic that was done in New York versus the arithmetic that was done here for 1990 you get a very, very dramatic difference. While we have an economy that's growing at a somewhat stronger rate than the Greenbook, we have the trade account and the current account adjustment process not only stopping but reversing: the trade deficit actually increases and the current account deficit actually increases. Now, in an approximate sense, the arithmetic reasons for that--I emphasize the arithmetic as opposed to the forecasting--are fundamentally due to two things. Our foreign growth assumptions are almost identical. We do have a relatively small difference in the exchange rate: we have the real exchange rate unchanged whereas Ted, I think, has something like an 8 percent real depreciation. But that's not what really drives the thing. The big difference is that in Ted's and Mike's numbers for 1990 they have a very significant slowdown in the U.S. economy. When you look at their numbers versus our numbers, it's not the exchange rate and it's not the foreign growth that really makes the decisive difference in terms of whether that external adjustment process can continue with at least the right algebraic sign in 1990. That to me raises an even larger question, which Tom Melzer touched on a bit when he made reference to policy. And the question is: With anything roughly resembling the kind of exchange rates that are in either of those sets of arithmetic, can you get material progress over the next several years on an external adjustment process without a significant slowing in the rate of growth of the domestic economy? And if you can't, what does that imply in terms of the risks of a significant accident of one kind or another developing over that time frame? I really think that the horns of that dilemma are getting sharper and sharper, because if you think of it in terms of the exchange rate it's quite clear what it seems to imply. But the implications of that implication can be pretty nasty in their own right in terms of domestic interest rates and domestic financial market conditions. You can put it in the context of financing requirements; even with Mike's and Ted's combined 1989-90 current account deficits of $240 billion, we end up 1990 with net external liabilities in balance sheet terms of something like 13 percent of GNP. Those numbers are getting very, very large. So, Mr. Chairman, I don't know the way out of this box but when I think out beyond 1989 in the context of the kinds of issues that I just raised I must say that I'm not as optimistic as others about the inflation outlook. As I said, my anxiety level is getting pretty high.",1049
-fomc-corpus,1989,President Guffey.,5
-fomc-corpus,1989,"Thank you, Mr. Chairman. On the District level, the District economy has continued to improve but at a slow pace--slower, certainly, than the national average. The recoveries in the agricultural and manufacturing sectors continue and the higher oil prices that have fallen out of the late 1988 OPEC agreement have provided some stability to the energy sector. In agriculture we are concerned about another year of drought; a more immediate concern is this cold weather. For those livestock producers that rely upon farm ponds, for example--since they were not replenished during the past year and with the very cold weather those freeze solid--that means there is no water. As a result, some livestock will be sent to market under those conditions, which will accelerate this drawdown on the red meat supplies in the future and push up prices perhaps. With regard to the energy sector, while prices have firmed somewhat, the uncertainty surrounding whether or not OPEC will be able to fulfill the agreement still scares people away from investing substantial sums and putting down new wells or exploring for new reserves. In the manufacturing sector there are two really notable developments. One is in the automobile manufacturing assembly area where all of the plants--and Missouri, for example, would be the second biggest assembly area in the [country] after Michigan--are operating at a full two-shift operation. And there appears to be no slowdown in demand. On the other hand, general aviation concluded 1988 with significant increases in their billings, generally as a result of export demand for general aviation products. The interesting report on construction in the District is that the value of nonresidential construction in the District rose rather sharply in December and was about 33 percent above the year-earlier level. On the other hand, residential construction has fallen slightly and is somewhat below the year-earlier level. By and large the financial economic activity within the District is rather good with the exception of those areas such as Oklahoma that have been depressed; they are still sort of on the bottom with respect not only to employment but also to overhang on nonresidential construction--commercial building, for example. But by and large the District is in pretty good shape and continues to improve. With respect to the outlook for the national economy, adopting the interest rate projections that are used by the staff, we come out virtually identically, with some minor differences. We have consumption a little higher and inventories a bit lower during 1989. But by and large we would be in the middle of the projections for the Committee members as a whole. There is a concern, at least on my part, with respect to prices--that is, inflation in the period coming up. In the services sector, for example, the benefits tacked on to otherwise projected wage increases give a strong indication that the risk is for higher prices rather than lower prices. I'd rather be ahead of the curve than behind the curve. And the increase in interest rates that is incorporated in our outlook as well as in the Board staff's outlook seems to be quite reasonable to me.",616
-fomc-corpus,1989,Governor Heller.,4
-fomc-corpus,1989,"Thank you. I think we should probably look a little at the longer horizon because we have to set up long-run targets. In the outlook projected in the Greenbook, about a year from now you see a very, very [pronounced] weakening of the economy in virtually every single sector except exports, which are still holding up. Growth slows down to the less than 1 percent range, close to a zero rate. The simulations that we've run also show that that holds true as a pattern even if you hold current policy very much constant. I agree with the comments made earlier that we are not behind the curve as far as the financial markets are concerned. We have a very strong dollar; we have some significant commodity prices actually dropping; we have a yield curve that points to low inflationary expectations. So that, combined with the very low monetary growth, which Governor Angell already talked about at great length, makes me think that we're actually looking at a significant slowdown a year from now, or for the horizon that we can still influence--the next quarter or two being in the bag. I have one other observation and that relates to foreign concerns, especially in Europe. There's a lot of concern about our tightening probably too much and the dollar becoming too strong over the immediate period ahead, thereby impairing the external adjustment process that is important for that. Thanks.",273
-fomc-corpus,1989,Governor Johnson.,3
-fomc-corpus,1989,"I have a perspective similar to Governor Heller's. I'm just looking at a lot of different things here. First, on the unit labor cost side, I realize we've had some acceleration this year; but looking at the charts on the handout we're not at the rate that existed at the end of 1986. And then there was a deceleration in 1987 with some fairly strong growth in the rate of unit labor costs. So I don't think there's anything given about an acceleration in unit labor costs. If you look at the pattern, it has been fairly sawtoothed since 1984 on this chart; it doesn't show any sign of any particular direction. Compensation is up because of non-wage compensation but I don't know whether that will continue. Wages are still in pretty good shape, so I don't think there's any accelerating trend on the wage front if non-wage compensation doesn't continue to accelerate. On the employment side, we've had some strong employment numbers. But I went back and looked at some of the previous periods and turning points. The obvious one is in 1984 when growth was very strong in the first half and then the economy slipped down to 2-1/2 percent and then below 2 percent in the second half of the year. We had payroll employment growth averaging over 300,000 all the way through November, even after we hit the turning point; so I'm not sure we're going to get any leading signals out of the employment numbers. And there is something else interesting: over the two-year period in which we averaged about 2-1/2 percent real growth average payroll employment was about 240,000 per month. Now, that doesn't say a whole lot for productivity growth, I admit; but still, I'm not sure what we can read out of the employment growth numbers. There are some other signs of slowing that I see even looking at the charts. We have a much slower pattern of new orders, looking at the charts in the nondefense capital goods area; I know that excludes aircraft, but that's a volatile element we're assuming aside. Vender performance has been improving. Export growth has slowed, thank heaven; it has slowed from a rapid pace, but it certainly has slowed. Surveys of plant and equipment spending for 1989 are lower and that's showing in the numbers; from purchasing managers' reports it certainly looks like things are slowing. And surveys of other outside forecasts that have been made indicate that they're similar to the Greenbook's, with some even a little weaker. But the important thing is that most of them assume lower interest rate patterns even from here. They certainly don't assume the interest rate path that we have built into the Greenbook. The Bluechip forecast, which is sort of a consensus forecast, has a similar pattern of growth in inflation but that forecast actually has the funds rate declining later this year. So, you get a similar path with a totally different set of interest rate assumptions than ours. Other people have pointed out the financial indicators. Real M2 growth and nominal M2 growth are both very modest; real M2 growth is even negative. The yield curve is inverted. Long bonds are quite well behaved; long-bond rates are well below the funds rate, especially on a coupon basis. There are certainly no signs of accelerating inflationary expectations in the financial markets in commodity prices, bonds, or the dollar. One thing that worries me a good bit, too, is the fact that a critical part of the Greenbook forecast is the dollar forecast. That depreciation in the dollar, as I said, [accounts] for three quarters of a percent of the growth rate in 1990 and that's assuming about a 10 or 13 percent dollar depreciation. And that is assumed in spite of the fact that we're assuming about a 1-1/2 percentage point appreciation in short-term interest rates from current levels. Not only that, but the interest rate appreciation we assume is not matched by foreign interest rates. So I see no way, with relative interest rate appreciation in the United States compared to other countries, that you can possibly have a dollar depreciation with that kind of pattern of interest rates. I think if you turn that dollar path around you get a totally different picture out of the Greenbook forecast. It was pointed out in some of the alternatives--if you look at the one that assumes no change in the dollar, and I wouldn't even bet on that with the kind of interest rate path we have built into the Greenbook--that if you don't accelerate money growth to offset the impact on the real sector you get substantially weaker growth and moderation in the inflation rate from these levels. That's a scenario that looks more plausible to me than the one we have built in there. So I would say, trying to take into account those lags and being conscious of some of these other possibilities, that we ought to be very cautious about them.",991
-fomc-corpus,1989,Governor Kelley.,3
-fomc-corpus,1989,"Mr. Chairman, I have some concern about becoming too much of a Johnny one-note in this Committee when I speak but I would like to reiterate my point that we [should] look at monetary policy in a very broad context of the overall picture of the United States--its social and political and indeed international course and the economic mix. I think there are some very major problems in the United States, and indeed in the world, that could be severely exacerbated if we are too aggressive, too fast: S&Ls, LDCs, the budget deficit and what could happen to it under several different kinds of scenarios. And I think that our anti-inflationary efforts, to which we all subscribe, deserve to be considered in that larger context. In the meantime, for now it seems to me that as far as inflation fighting goes there are some pretty good things going on. The dollar is behaving very well; the aggregates continue to be very slow, which is good; everybody, I believe, is pleasantly surprised at the sluggishness of inflation relative to what they might have expected given what they saw going on a few months ago. I'm not necessarily convinced that it's baked in the cake that we won't continue to be pleasantly surprised. In short, I think we very well may need to do more as time goes on and, of course, we should watch that very carefully. But for the moment it seems to me that things are going as well as they could and we should be quite careful not to create more problems than are already out there in the world, perhaps influenced by this body but not directly under the aegis of this body.",331
-fomc-corpus,1989,Governor Seger.,4
-fomc-corpus,1989,"I just want to add a couple of points to those made by Governors Heller and Johnson along the lines that some of the forecasts of people on the outside seem to be somewhat different from ours. The purchasing managers' survey and the Bluechip forecast were mentioned before. This morning I had breakfast with some business economists representing a wide range of companies-- forest products company, a large energy company, two chemical companies, these kinds of outfits--and to a person they don't see the capacity shortages that we all wring our hands over. They also certainly are pleased that their businesses are doing well but they don't sense a [boom] taking place. They are expecting prices of the raw materials that they will purchase this year to increase but at a mere fraction of the increase of last year. And they also are expecting some slowing down. One fellow who couldn't attend, the chief economist of sent me a fax. I mention this because we often mention as an example of a rust belt outfit that shaped up and is now doing well. I'm certainly not going to read the whole fax but let me just read selections. He said business has slowed down and is declining in housing-related construction, with about one-third of models on allocation compared to well over one-half early last year. The allocated models are large machines associated with a worldwide mining boom. Industry is never tooled for these peaks; it would leave too much idle capacity in softer times. It's customary to stretch delivery. Then he says that sales outside the United States are up 33 percent over the last year but that business is beginning to slow down in Europe. Then he talks about materials prices being up less than the PPI and he expects that to continue; suppliers are asking for bigger increases but their target is less than national inflation. Also, I got something from the National Association of Home Builders. They have a forecast of housing starts of 800,000--a figure 800,000 below ours for 1989--and a proportional decline in multifamily versus single-family starts. And they are only assuming an additional 1/2 percentage point increase in long rates, specifically mortgage rates. The third thing that I haven't heard people mention is the impact of the restructuring. It seems to me that I read that General Motors is going to be closing a plant near Boston, so maybe that will help the labor shortage there; that's going to throw about 3,000 people in [the labor pool]. And it takes 6 hamburger flippers to be equivalent [in pay] to one of the jobs of those laid off. Xerox will be laying off 2,000 in Rochester; that ought to help Jerry's area. Also, I haven't heard anybody allude to the thrift mess and the impact that might have on the overall economy. I can't prove it, but I sense that if it isn't handled promptly and smoothly there could be a negative impact. Furthermore, as Mike Kelley suggested, if we tighten too much--if interest rates move still higher--we could also make the mess worse than it now is, taking some of the modestly solvent and profitable thrifts and throwing them over on the other pile. Also, to reiterate, the monetary growth numbers are good; at least as I read them, they are about the best since I've been here. I haven't been able to quantify the impact of higher interest rates on monthly installment loan payments as more and more variable rate loans are used, but I just cannot imagine that it's not going to take place. We now have had enough of a rise in the short rates to which many of these instruments are tied that I would think [the rate adjustments] would start kicking into effect and would produce higher monthly payments. Maybe everyone who signed on to one of these instruments had their monthly incomes advance as fast; if that's the case, they're lucky. But for those who didn't, they aren't represented by in their negotiations. Perhaps they will have to cover their higher payments on these loans by cutting back on something else. So, I guess I'm just not convinced that the forecast in here is in the bag. Thank you.",824
-fomc-corpus,1989,Governor LaWare.,4
-fomc-corpus,1989,"I agree with large parts of what several people have said here. I share the skepticism with regard to how the dollar can depreciate to the extent that it is forecasted to do, given the kind of interest rate scenario that we've adopted. And in that context then one begins to get worried about whether we can continue to make the favorable progress in external adjustments without that trend from the dollar. I agree with most of what Governor Johnson said, but I'm a little more worried in that I think there has been some lag with regard to prices and wages that we're beginning to see bubble up. And I get worried that we may not be staying ahead of the curve anymore in that connection--that we may see some real inflationary pressures emerging from wages and prices that are now beginning to come up as a result of things that have happened before. So, that would argue for the constraint that is argued for here. On the other hand, I'm very concerned about the fact that there are some significant signs of a turndown in parts of this operation. I think that the energy price forecast--and Ted and I have talked about this several times--is a little dicey. That could be higher. I'm concerned about the things that Mike [Kelley] talked about; he and I have sounded kind of like a broken record in the discussions between us over the last several meetings of this group on those issues. The thrifts are not only going to get hit with this interest rate increase but on top of that they are also going to get an increase in their assessment under their insurance operations. So I'm very concerned that in our zeal to try to reverse inflation that we don't unconsciously create stagflation with a very low growth rate or maybe even a negative rate, while at the same time we have these other factors catching up with us and we see some real upward pressure on prices and wages. So I'm with Governor Johnson; I think we ought to be very cautious about what we do at this particular moment in time.",403
-fomc-corpus,1989,President Syron.,4
-fomc-corpus,1989,"Let me start out with the thrift issue. First of all, I think the point is well taken in terms of the effect of rates in the short run on thrifts. Figures I looked at for the savings and loan industry as a whole show about a negative 17 percent gap. So a 50 basis point increase in rates roughly costs them about $1 billion of their capital. One could assume, under current circumstances, that that translates roughly to what has to be done in terms of giving assistance. But I think that there is a difference between the short term and the long term in the sense that it doesn't obviate our need to take steps that prevent inflation from getting further out of hand as time goes on because--and I'm sure the staff has done some work on this--you have the linear function of what it costs the thrifts as rates rise. Also, many of the largest thrift institutions have hedges that are humped in the sense that they may be feeling well protected going out 150 - 200 basis points even when they get into residuals going back, say, for 100 basis points. But these hedges fall off a cliff if one gets into a situation where you get very dramatic increases, or decreases for that matter, in rates. So I think that's something that has to be factored into the equation when you're looking at the thrifts. What I have to say about our view of the real economy is probably quite redundant to what many other people have said. We have very little difference with the Greenbook forecast. We do come out somewhat higher on the inflation side; we come out actually slightly out of the central tendency area on that. That has to do with the impact we expect the rate of growth will have on the unemployment rate. But to be honest, that's probably related in part to our own experience in the region. We do feel that the risks are quite asymmetric--that's the New England pronunciation for asymmetric, I guess--but they're doubly asymmetric in the sense that we may get more inflation and then we think the difficulties of dealing with these issues may be harder if we get into an inflationary situation. But this is to be discussed tomorrow. As far as the region goes, we are seeing some softness, relatively, in New England. Not to contradict what I said before, but I think the reason that we're seeing some softness is because we really had a boom for a long period of time. If you look at Massachusetts for example--and Massachusetts is half of New England--per capita income in the state now is 123 percent of the national average whereas in 1975 it was 103 percent. If you were to adjust for relative costs it really would have been below that. Consistent with that, wages have been rising quite rapidly. When Bob [Boykin] talked about Louisiana [I was reminded of] some work we had done looking at manufacturing cross sectional data on hourly earnings versus the unemployment rate in manufacturing. States that are the highest are all the New England states. Louisiana has to be one of the states that was lowest, consistent with what he was saying. And the local price level, if one wants to assign any real weight to that given the smallness of the sample, shows that prices are rising at about a 6.3 percent overall rate in the greater Boston area. Now, I think it's interesting that southern New England is doing much more poorly--or it's starting to do more poorly--than northern New England, which experienced some of this relative prosperity later on. The only industry that we have right now in southern New England that is doing better than nationally is the construction industry, which happens to come fairly late in the regional business cycle. And we do have a quite soft real estate market. But the lessons--if there are any--that I draw from this for the national economy are that the problems that we have in the region are the result of having grown very, very strongly for a period of time at a pace that was not sustainable. And maybe that influences our view of the approach one should take to policy nationally.",827
-fomc-corpus,1989,I'm certainly glad you didn't pronounce it [unintelligible].,13
-fomc-corpus,1989,I used to until last year.,7
-fomc-corpus,1989,"Let me just add a few things relevant to the meetings of the G-7, which I think relate in part to some of the questions with respect to the international adjustment process. The thing I found rather surprising in the talk among the central bankers, especially the ministers, is what I would call a relatively laid-back attitude on the issue of the international adjustment process slowing down. When the issue of reversal surfaced they clearly thought that that would be a problem but few of them really were concerned about a reversal and none about a slowing down, from which I conclude that there is a fairly considerable willingness on the part of these countries both in their private and public sectors to absorb liabilities against the United States. And I think, as Ted mentioned, that they are sort of delighted with the surpluses and the effect of the claims, especially the buildup of the claims, in an almost mercantilistic power sense. I suspect, however, that a goodly part of that reflects the fact that the dollar instead of going straight down and creating large capital losses has been kicking around over the last year and has essentially been flat. It's a two-way street. And hence, the negative attitude toward holding dollar-denominated obligations I think has faded very dramatically. I think the two upticks in the dollar in the summer and again here have created a really clear change in the fears relative to the adjustment process. It's very obvious that it can't go on indefinitely, but I think it is an important short-term event which suggests to me that the type of crisis that Jerry is worried about is not [likely] in the short term. It's an intermediate problem and one which I think could lull us for a while; but I do think we have to be a little careful about it. Secondly, as Bob Heller mentioned, there is some concern about the impact of the level of interest rates in the world--or more exactly the level of U.S. interest rates and, therefore, the strength of the dollar--because there is a vague laid-backness about the stalling of the adjustment process. But there is a latent fear that it could begin to reverse and I think that would accumulate into a fairly significant set of concerns amongst finance ministers, and to a much lesser extent central bank governors, who have been largely supportive of general strengthening. The process I think is particularly pronounced amongst the I certainly don't get it --clearly they have been foursquare about moving interest rates up very sharply--nor do I get it very much obviously in a number of the central banks. But there's a vague mild division that's beginning to emerge--leaving --between the finance ministers on the one side and the central bank governors on the other with respect to the issue of international monetary tightening. The central bank governors, I think pretty much uniformly, have been very supportive of us; whereas finance ministers, for reasons I don't have to get into, are less enthusiastic about interest rates. But at the moment the issue is really very mild; there are no strong reactions. The only strong reaction I saw in the G-7 meeting was when But the rest of the session was relatively pleasant. So at the moment I would say that one finds a remarkable degree of tranquility in the international outlook as perceived amongst the industrial countries. And I do not get the impression from the governors that they are in an aggressively tightening mode--in other words, after the Germans moved on the Lombard and discount rates. One gets the impression that the sequence that occurred as a consequence of that has slowed down somewhat, at least if you listen to the oral remarks. I don't know how long that is going to last and what it's saying, but one does not get the sense of a continuous process moving. It's getting close to break time and I think we're pretty much on schedule, so I guess there's no reason why we cannot meet as scheduled at 9:30 a.m. tomorrow morning. So, unless anybody has a problem--",792
-fomc-corpus,1989,"Let me start off by requesting that each individual President and Governor try to get a final revised forecast for the Humphrey-Hawkins series to us prior to 3 p.m. on Friday, February 10 if that's at all possible. If there is any difficulty--if there is some slippage, as I suspect is probable--let's try to get them in as quickly as we can. That will save a lot of trouble and work in the process.",93
-fomc-corpus,1989,"Mr. Chairman, has the date of the testimony been set yet?",14
-fomc-corpus,1989,Yes it has. It's the 21st and 22nd. We are now to a point where Mr. Kohn will discuss the longer-run ranges for the aggregates.,35
-fomc-corpus,1989,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1989,Any questions for Mr. Kohn? Lee.,10
-fomc-corpus,1989,"Don, in your discussion about the multi-year problem, which I think you laid out nicely in terms of whether we stick with 3 to 7 percent or go to something else, obviously there are advantages on both sides. One is that we can march down the aggregates--at least the top end--consistently over time to demonstrate to people that we're serious about our policy. But that doesn't fit very well with the interest-sensitivity of M2 these days. You might want to argue that if we get [unintelligible] centering the 1989 target on 2-1/2 percent and going from 1 to 4 percent or on 3-1/2 percent with 1 to 5 percent and then next year having to say that it's going to go back to 3 to 7 percent or something like that--we have to explain that. In that context, if we were to choose to go that way, did the staff consider going to multi-year targeting now instead of in July? We will do 1990, I think, in July. So, if we were to go that route, it might make some sense to put out two sets of targets. If we were going to go to one, would we adjust M2 to reflect the interest-sensitivity?",266
-fomc-corpus,1989,"We did not consider that, President Hoskins. I think there is something to be said for looking out over longer horizons. On the other hand, I remember the Committee discussion of last July in which there was some resistance to setting ranges for the next year because of the uncertainties involved in specifying those ranges even 6 months ahead of time. So I think it cuts both ways. It's really hard to know where you're going to be at the end of 1989 in terms of setting ranges that might be appropriate for 1990, although we've taken our best guess in this forecast.",117
-fomc-corpus,1989,President Black.,3
-fomc-corpus,1989,"Mr. Chairman, Don did such an excellent job of outlining various alternatives and he answered most any question I might have. But I do have one little simple question that I'd like to ask. Do you personally, Don, have more respect for the price projections made by your big model or by your single-equation model that stems from that very excellent memo we got back in November of last year? I guess that tells you which one I have the most respect for.",93
-fomc-corpus,1989,I have to see what's happening at my back here with Mr. Prell. But I actually--,20
-fomc-corpus,1989,When you're winning something--,5
-fomc-corpus,1989,I know where he lives.,6
-fomc-corpus,1989,"I think in terms of the short run--over the next year or two--I would have more confidence in the staff's projections for inflation on the grounds that they take account of certain factors that are important. I think the reason that the P star [P*] model, as we call it, came in with lower inflation rates for the same money growth is that it didn't take account of factors that are important in the year-to-year rates of inflation. In this case I'm thinking of the energy price impact on the early part of 1989 and particularly the assumed dollar depreciation effect on prices in the latter part of 1989 and 1990. Those things clearly aren't taken account of in that P* model in which prices depend solely on money, adjusted for trend velocity and output. So, I would have some confidence in that model as giving some sense of where those money supplies might be taking us over extended periods of time. But if you asked me which inflation forecast I would have most confidence in for 1989 or 1990 I think I would say the staff forecast, given the additional information they bring to that forecasting process.",230
-fomc-corpus,1989,I wouldn't want to--,5
-fomc-corpus,1989,"I would like to underscore that the comparison you were making was not totally accurate in that the base line, or what was presented in the Bluebook, is the staff's judgmental forecast.",38
-fomc-corpus,1989,Right.,2
-fomc-corpus,1989,"We use the large models, in fact a combination of several models, to create all the alternatives from that base line.",24
-fomc-corpus,1989,"Yes, I realize that. I didn't mean to oversimplify. I would have equal confidence for 1989 since they project the same inflation figures that I did; there was very little difference.",40
-fomc-corpus,1989,"The lesson I took from the P* model was that if we had M2 growth like we were talking about--in the 3-1/2 to 5 or 6 percent range or something lower--we would be putting some downward pressure on the inflation rate over time more with strategy II than strategy I. But even the staff's strategy, which doesn't give you much of a payoff in the short run, is putting into place conditions that will provide at least some payoff over the long run. So when we ran that model, even though the results weren't the same, I took a little comfort in that, in my view, it didn't contradict the underlying thrust of the staff forecast.",139
-fomc-corpus,1989,They are pretty close.,5
-fomc-corpus,1989,Governor Angell.,4
-fomc-corpus,1989,"Don, I noticed and was pleased that your long-run strategies really were based on M2, with hardly any discussion of M3 or nonfinancial debt. Have you and your staff given specific thought to dropping the M3 targeting?",46
-fomc-corpus,1989,"We have not. I think in the past the Committee has found it useful to have more than one target given the different kinds of information embodied in the different aggregates. Obviously, [we would] if the Committee were to instruct us that it was their choice to go to one aggregate. But it seems to me that you would lose a little information that you get from the growth of a broader aggregate or credit or debt. I would hesitate to focus so narrowly on any particular aggregate in terms of announcing targets to the public, even though we have keyed our forecasting exercises off either interest rates or the exchange rate or M2 as a target variable.",128
-fomc-corpus,1989,"Mr. Chairman, I think I should stop now; otherwise, it probably wouldn't seem like a question.",21
-fomc-corpus,1989,Already I wonder.,4
-fomc-corpus,1989,President Parry.,4
-fomc-corpus,1989,"Mr. Chairman, at your July testimony I recall a sense of the [Congressional] Committee that they wanted us to narrow the range and also to choose the range where the midpoint was equal to our forecast. How much pressure do you think there is for that and how do you personally feel [about that]?",62
-fomc-corpus,1989,"Well, I think that may have been to a large extent Senator Proxmire. I'll find out in a couple of weeks. On the other hand, acquiescing to that would develop into a very tough request. Rather than even suggesting that we thought they were interested or even that we might try to meet that request, I would just as soon go up there making believe I didn't hear anything and then wait and see what happens.",87
-fomc-corpus,1989,Okay.,2
-fomc-corpus,1989,Governor Seger.,4
-fomc-corpus,1989,I want to make sure I heard right what you were saying about our long-term objective for monetary policy relative to what the Humphrey-Hawkins Act had in mind. Are you suggesting that we're not subject to their--,44
-fomc-corpus,1989,"No, no, not at all.",8
-fomc-corpus,1989,Okay.,2
-fomc-corpus,1989,"In fact, I was trying to use that to reinforce the notion that that's an appropriate long-run objective for the central bank. The Humphrey-Hawkins [language] includes reasonable price stability as one of the objectives of that Act.",47
-fomc-corpus,1989,"But you said it doesn't have it as number one, which is the way I saw the Act also.",21
-fomc-corpus,1989,"Unfortunately, I guess, from that perspective it says that one shouldn't necessarily hit that if it interferes with 3 percent unemployment. But it does list it in any number of places. The whole sentence--",41
-fomc-corpus,1989,"Oh yes, I understand that. But it sounded as though we were departing from what they had in mind, but maybe it's just too early in the morning.",32
-fomc-corpus,1989,But that would be nice.,6
-fomc-corpus,1989,"Oh you really want to be popular! My second question is sort of a variation on my question yesterday about covering a standstill policy. You say that alternative ""I"" here would encompass the Greenbook forecast of further tightening, right?",47
-fomc-corpus,1989,That's correct.,3
-fomc-corpus,1989,"In our list of alternative forecasts, Mike said that we had one that would be a continuation of the existing, or constant--",25
-fomc-corpus,1989,Constant nominal interest rates.,5
-fomc-corpus,1989,"Yes, right.",4
-fomc-corpus,1989,He gave that in his briefing.,7
-fomc-corpus,1989,Okay. Where does that fit into these?,9
-fomc-corpus,1989,"That would require faster money growth than even the strategy III. For example, I think Mike said 7 percentage points more M2 growth by the end of 1991, whereas this has only 3 percentage points more M2 growth by the end of 1991.",55
-fomc-corpus,1989,The number we have here is 3/4 of a percentage point faster in 1989 and 2-1/2 points in 1990 and then another 3-1/2 points in the next year.,46
-fomc-corpus,1989,What velocity assumptions go with that?,7
-fomc-corpus,1989,"No velocity assumptions go with it, but one could calculate velocities roughly from these real GNP and price numbers that we have here. Doing it rapidly in my head it looks like a drift toward declining velocity.",41
-fomc-corpus,1989,"My guess is that velocities would decline over the next year or so as offering rates caught up to the flat market rates, reducing opportunity costs and enhancing the demand for M2. Once that equilibrium was reached then M2 velocity would essentially be unchanged.",49
-fomc-corpus,1989,Right.,2
-fomc-corpus,1989,But it would decline over the--,7
-fomc-corpus,1989,Yes. I guess there would actually be a small velocity increase in 1990-91.,19
-fomc-corpus,1989,It's probably a function of the way the model cycles the offering rates and the market--,17
-fomc-corpus,1989,But a decline in the rate of change--in the growth rate of velocities--right?,18
-fomc-corpus,1989,"Well, basically we've got stable short-term interest rates, so we don't get any meaningful velocity movement one way or the other. And as you look out over time--after you get through the lagged effects of past interest rate changes moving the velocity--as the stable rates are essentially reflected in the deposit rates, you wouldn't expect big movements in velocity.",70
-fomc-corpus,1989,I was just thinking that I would expect the rate of growth maybe to settle down to the zero rate.,21
-fomc-corpus,1989,Right.,2
-fomc-corpus,1989,"Eventually it would end up there, yes. But first there probably would be an increase early this year, given the lagged effects. Then it probably would come off; I'm sure it would. It would have this humped shape as the offering rates caught up with the [market] rates. Possibly you'd find at some point a leveling off.",69
-fomc-corpus,1989,"I still sense, though, that there's an option missing here. You have number ""I,"" which is your base line, which is tightening, right? You have number ""II,"" which is additional tightening.",42
-fomc-corpus,1989,Right.,2
-fomc-corpus,1989,"And you have number ""III,"" which is easing.",11
-fomc-corpus,1989,"Number ""III"" was less money growth.",9
-fomc-corpus,1989,"Well, at least that's what you read.",9
-fomc-corpus,1989,"Excuse me, more money growth. I didn't have a constant interest rate option in here in part because Mike had one in his briefing. I thought rather than replicating the options I would have one that was somewhere in between constant interest rates and the staff's rising interest rate forecast. And that was my option three. It's easier than the staff forecast but it does not keep nominal interest rates unchanged from current levels over the near term, although the movements in rates aren't very large. There still would be some upward movement in rates over the year, but not much.",113
-fomc-corpus,1989,Thank you.,3
-fomc-corpus,1989,President Black.,3
-fomc-corpus,1989,"I was just going to indicate my support for what Governor Angell was saying. But I'm wondering if the Humphrey-Hawkins wording precludes our focusing on one aggregate since it says ""provide for the rate of increase or diminution in aggregates"" or something like that.",54
-fomc-corpus,1989,It says money and credit aggregates.,7
-fomc-corpus,1989,Aggregates.,3
-fomc-corpus,1989,You probably have to have a credit measure of some sort unless you could persuade them that it was built into this. It's in the text.,28
-fomc-corpus,1989,"I guess, then, that you wouldn't have to have M3. I thought maybe you would since it says money and credit. If you had one of each I think you could meet the definition as such. I support it even--",47
-fomc-corpus,1989,Except last July they wanted us to add one. They didn't want us to subtract one last year.,20
-fomc-corpus,1989,"Yes, I know. But I was just thinking about the correct thing to do [according to the Act], not what Congress wanted [in July].",30
-fomc-corpus,1989,You could swap the base for M3.,9
-fomc-corpus,1989,"Yes, well--",4
-fomc-corpus,1989,It could be M2 [unintelligible] and credit.,14
-fomc-corpus,1989,I would favor that.,5
-fomc-corpus,1989,President Hoskins.,4
-fomc-corpus,1989,"Don, I have a question about your earlier statement with respect to the credibility of Federal Reserve policy. You said it was important that we have credibility and that we pursue it; you said that we probably gained some credibility along the way as judged by the financial markets. I guess I have some concerns about not picking a specific objective over time. My concerns are as follows and I'd like you to respond to them. We are asking the markets and the public in general to trust us on two levels now: on the objective and on how we're going to implement it. We have an objective out there someplace called price stability that we may trade off against anything else at any point in time. I think we might be able to increase our credibility to some extent if we could at least pin down the objective and then just ask them to trust us on how we implement it, because we're having trouble with the aggregates or interest rates or commodity prices.",186
-fomc-corpus,1989,"I think we--the Chairman in particular in recent testimonies--put out a very strong statement about our objective and backed it with reasons why price stability is our objective, without necessarily saying [we plan to achieve that] by the year 1993 or something like that. In my view, it's a debatable point. I raised the issue in part to stimulate the debate. There are dangers in putting out various specific objectives--2 percent or 1 percent or even zero, whatever zero is in reality, by 1992 or 1993--because of the problems that arise when you miss it, and so forth. So I think we can continue to make strong statements and back it up with actions. Ultimately, as someone was saying, credibility grows out of the barrel of an open market operation. It's what we do more than what we say--read our actions rather than our lips--that sets scores on credibility. And as we act over time with that in mind I don't think there's a problem--or there's less of a problem.",210
-fomc-corpus,1989,"Just one other comment. I think what Martha was alluding to, if I'm correct, was that we are not paying sufficient attention perhaps to the other parts in the Humphrey-Hawkins Act.",40
-fomc-corpus,1989,"No, I was just picking up on what I thought Don said was in the Humphrey-Hawkins Act. I didn't write Humphrey-Hawkins, but as it was written they put a higher priority on the employment side of things and mentioned price stability. I was just saying from Don's comment that it sounded to me as if we were establishing priorities that were divergent from what Humphrey-Hawkins had. That's all I was saying.",90
-fomc-corpus,1989,I would say we're consistent with it. If we pursue price stability then we will pursue maximum employment. I don't see any inconsistency there.,28
-fomc-corpus,1989,That's the way it happens.,6
-fomc-corpus,1989,May I pick up on the credibility issue? It bothers me to hear over and over again that we somehow or other just have to satisfy the financial markets. I'm very respectful of the financial markets but it's a big country out there and there are a lot more Main Streets than there are Wall Streets. And I think the screaming meemees up there shouldn't be the ones who dictate to us. Establishing credibility is a much broader challenge. We have to convince all sorts of people above and beyond the financial market types even though they are the ones--,109
-fomc-corpus,1989,That was the reason I mentioned financial markets and the public.,12
-fomc-corpus,1989,Right. You should have said the public and financial markets.,12
-fomc-corpus,1989,Right.,2
-fomc-corpus,1989,I'll say it now.,5
-fomc-corpus,1989,You learned your lesson.,5
-fomc-corpus,1989,"Martha, this is the first time I've ever heard anyone here act as if Mr. Greider in The Secrets of the Temple has the right notion.",31
-fomc-corpus,1989,I don't know; I'm not Mr. Greider.,11
-fomc-corpus,1989,"Are there any further questions of Don? If not, I would like to get the tour de table on people's views as to where we should come out. I just marginally prefer staying where we are, mainly, I must say because I'd like us to be able to go down again next year. I like the sequence of going down but I'm not sure it makes all that much difference which of these two we choose. Would somebody like to start off? Governor Johnson.",94
-fomc-corpus,1989,"Yes. I'll start off by saying that I prefer that same option for a couple of reasons. One is that it's still a full percentage point reduction in the midpoint of the range from what we had last year, which I think is a stronger statement than we normally make. Going from a 4 to 8 percent range to a 3 to 7 percent range is a strong statement by historical standards. I realize that M2 growth, certainly if the interest rate scenario that we follow ends us being close to the Greenbook forecast, puts us closer to the bottom of that range. But that interest rate path assumption is an extreme case, in my opinion. And that's allowed for in the 3 to 7 percent range; it still leaves us 1/2 percentage point above the [bottom of the] range, based on our estimates of M2 growth. I think it's possible that we may hit a peak in interest rates at some point this year short of what the staff has forecast. If interest rates stabilize, or even fall because of some weakness in the economy or whatever else we run into, we could see more M2 growth. Certainly that would be offset by the velocity adjustments to that and we would want to be able to allow for that. It seems to me that a 3 to 7 percent range accommodates all those specific concerns. As Don pointed out, the one thing it doesn't seem to accommodate is an even tighter policy than may be allowed for in the Greenbook forecast. In that case, I think we'd see much slower M2 growth. But I think that outcome is very unlikely and 3 to 7 percent or something like that fits clearly into my point of view. I even think that's a pretty strong statement in and of itself: 3 to 7 percent.",362
-fomc-corpus,1989,Governor Heller.,4
-fomc-corpus,1989,"I agree with the Chairman. I think we should consistently, gradually, lower the targets. We shouldn't try to fine tune the long-term ranges. So I'd be in favor of the tentative targets, alternative ""I.""",43
-fomc-corpus,1989,President Parry.,4
-fomc-corpus,1989,"I would support the 3 to 7 percent as well. What would concern me about going to the lower range is if we had to raise it next year. I think that could be confusing to the public and the Congress, especially since the Greenbook forecast--and our forecast as well--is that inflation rates actually could be a bit higher in 1990. So it seems to me that we would maintain an extra degree of flexibility if we were to stay with the 3 to 7 percent range and try to explain after the fact why perhaps it does end up in the lower end of that range.",123
-fomc-corpus,1989,"Yes, that's a good point. Governor Angell.",11
-fomc-corpus,1989,"I also favor the 3 to 7 percent, although I think one could make a case in the other direction. The reason that I would stay at 3 to 7 percent is that it seems to me there is some chance--I don't know whether the probability is 20 percent or what, but there is some chance--that we will encounter a commodity price deflation during 1989 or 1990. If that occurred we might very well have short-term rates of 9-1/2 percent and long-term rates of 8 percent. And I don't know how the monetary aggregates would respond in that environment. Don, do you know what would happen? We would get a slightly faster growth if we had that kind of twist, would we not?",155
-fomc-corpus,1989,"Yes, I think so, right. In 1990 or some time?",16
-fomc-corpus,1989,"Well, I don't know when and I don't know whether; I'm just suggesting that possibility. And it seems to me that it's very important that we not get in the position of having to increase those ranges. I do believe that long-run price stability does require us at some point in time to move down to 2 to 6 percent and maybe eventually to 1 to 5 percent. But I really believe we [should] get there by a slow and progressive, sound, patient stance--not by one which in a sense tries to whipsaw the events. So, I believe there's a great deal of merit in our staying with the 3 to 7 percent. I would remark in regard to M3 that I believe that the 4 percentage point range that we now have provides ample room for the Committee to engage in its monetary policy actions. As far as I'm concerned, having multiple aggregates is simply a way of not being accountable. I can understand why the Federal Reserve at first did not want to be accountable in regard to having too narrow a focus. But I think it's misleading because I don't hear anyone who says that they believe M3 is all that superior to, say, Ml. I do believe that we watch and monitor M1 and I'd prefer just to monitor M3.",260
-fomc-corpus,1989,President Forrestal.,4
-fomc-corpus,1989,"Mr. Chairman, I come out somewhat differently on this issue. I'd like to go back to the credibility argument. It's apparent to me that our credibility is really very good, not only in the financial markets but with the public. I don't know how you measure the public en masse but certainly they are represented by those in the Congress and people in my District who really are giving us high marks for monetary policy. I think it's very important that that credibility be maintained and I think the Chairman's recent testimonies have certainly reinforced our credibility. It's very important that we continue to reaffirm our commitment to price stability over time and that suggests to me that we need to lower the ranges. Granted, we did lower them 1 percentage point with respect to M2 in July. But we have tightened policy since then. It seems to me, given the staff forecast for the growth of M2, that we could run the danger--if we have to tighten further--of being below a range of 3 to 7 percent. In order to have that flexibility my preference actually would be 2 to 6 percent, but that may be a bit extreme in the short run. Just as an aside, it seems to me that using the 1/2 points suggests a degree of precision that I'm not sure we have. So, 2 to 6 percent would be kind of an ultimate preference for me; but I'd be willing to accept what's described as alternative ""II"" in the Bluebook, 2-1/2 to 6-1/2 percent. I think that gives us two very important things: 1) flexibility on the down side given the projected growth of M2; and 2)reinforcement of our commitment to fighting inflation. That really backs up with action what the Chairman said earlier to the Congress. M3 I would leave at 3 to 7 percent, and I agree with Governor Angell that it probably doesn't make that much difference.",397
-fomc-corpus,1989,President Melzer.,4
-fomc-corpus,1989,"I favor the 3 to 7 percent [range for M2]. I have one comment: Don, you pointed out the language in the directive and I just don't know whether it's appropriate for us to be qualifying all the aggregates in the context of the longer-term ranges. I agree with what you said in terms of intermeeting [developments] and how you interpret them. But to some extent, that sort of runs in the other direction. In other words we have put M1 on the bench; and if somebody looks at this cynically, in effect, this language begins to put some of the broader aggregates potentially on the bench. I think we already have the flexibility, should it become necessary, to miss the target ranges--and that would most likely be on the low end this year--and to explain it. So I don't know whether I would add that language there; that is the question I would raise.",186
-fomc-corpus,1989,President Stern.,3
-fomc-corpus,1989,"I think the case for alternative ""II"" is a strong one. Bob Forrestal made part of it: given the staff forecast of M2 and the GNP forecast and so forth, that does get us closer to the center of that particular range. That is, if M2 is going to grow something in the neighborhood of 3-1/2 percent, that range is just more appropriate in its own right. But beyond that, we've had modest growth in M2 in both 1987 and 1988. Against that background, it doesn't seem to me that an upper end of that range as high as 7 percent for 1989 is appropriate. I must say, finally, that as far as considering possible ranges for 1990 and what we might want to do next year, I don't know how that's all going to play out. But I think what we can say with some confidence is that if we're committed to price stability over time we're going to want to see modest growth in M2 again in 1990. I don't expect that we're going to run into difficulty. Therefore, if we move to 2-1/2 to 6-1/2 [unintelligible].",246
-fomc-corpus,1989,President Boehne.,5
-fomc-corpus,1989,"Well, I think on substantive grounds it probably doesn't make a lot of difference whether it's alternative ""I"" or alternative ""II"" or something in between where we would lower the top end or narrow the range. However, for posturing purposes, I favor alternative ""I"" largely because I think it already has made a statement. Manley made that point and I also think alternative ""I"" makes a statement. It gives us room to move down next year, which I think is important for longer-term targeting. It just provides additional flexibility. On the issue of whether we ought to have fewer or more aggregates, we can have too many and have too few. I think we're better off not to limit ourselves to one. We've been doing this now for 13 or 14 years and over that period if we've found out anything it is that what looks good in one period doesn't look so good in another. As long as we can pick and choose internally it's easier, I think, to deal with that than to try to go out and explain why we add one or why we drop one. I think the last 13 or 14 years underscore the wisdom of having a bit of a buffet to choose from.",243
-fomc-corpus,1989,President Black.,3
-fomc-corpus,1989,"Mr. Chairman, I think you put your finger on it when you said the question was really whether we would have to raise the range the next time we look at it. So, I don't feel very strongly about either one of these alternatives. But I do have some preference for alternative ""II"" because I see the basic function of setting these targets as being that of reassuring the public about our anti-inflationary resolve. If we assume we have to have a 4 percentage point spread or something like that in the ranges because of the sensitivity of M2 to declining interest rates or rising interest rates, that suggests to me that what we're really after eventually is a range of about 1/2 to 4-1/2 percent or something like that. And I think we're in a position now that we could take that additional step. The upper part of the alternative ""II"" range would be 6-1/2 percent; and if we could take these figures at face value on M2 that should give us sufficient flexibility, even with a declining rate of growth and a drop in short-term rates in 1990, to still hit this 5 percent rate with some room to spare--and to hit the 6 percent in 1991 with some room to spare. Like Gary Stern, I don't think we would really have to end up raising that but it's not a do or die issue with me. I could go with either one, but I do have that preference because I think we can take a good step now without much risk.",314
-fomc-corpus,1989,President Syron.,4
-fomc-corpus,1989,"I favor 3 to 7 percent because of my personal weighing of the alternative risks. It seems to me, coming back to the credibility issue, that the damage to our credibility if we stay with 3 to 7 percent and come in below the range this year is far less--I shouldn't say far less--it is less than what the cost might be if we were to have to raise the range next year. In either case we would have to explain it. So, I would favor staying with 3 to 7 percent and if we felt that it was possible, given unknown changes of velocity and given what's going on in the financial markets, we might make a comment about the thrift situation in what's said [in the testimony].",149
-fomc-corpus,1989,President Keehn.,4
-fomc-corpus,1989,"Mr. Chairman, for the reasons that I think have been well covered I'd favor the preliminary ranges under alternative ""I."" Having reduced the preliminary ranges as much as we did last July, it seems to me that to reduce them further at this point has a signal effect that may contain more than we intend. And if, as seems likely, we end up in the lower part of the M2 range for the year it seems to me that's an issue you can very well cover in your testimony.",99
-fomc-corpus,1989,President Hoskins.,4
-fomc-corpus,1989,"Yes, I'd like to associate myself with the comments of Gary Stern and Bob Forrestal in terms of their preference for something like 2 to 6 or 2-1/2 to 6-1/2 percent. I am troubled by breaking with tradition; I think tradition is important. We've done a good job in terms of marching the upper end of the M2 range down year after year; I think there's a lot of value to that. But in terms of the substance of policy, given where the staff forecast says we've got to go--and I concur with that forecast--then the range is skewed in the wrong direction. I would be comfortable, I guess, with ""III"" if we were clear in the testimony that we were going to come out at the bottom end of that range. And if we don't come out at the bottom of the range we probably will not have tightened enough.",184
-fomc-corpus,1989,President Guffey.,5
-fomc-corpus,1989,"Thank you, Mr. Chairman. I think credibility is important. I think we've established credibility and it is important to keep it. As I look at what we did in July in projecting for 1989--that is, taking a full percentage point off of both the upper and lower limits--I'm not persuaded that hitting it again at this point another 1/2 percentage point or so as, say, is suggested in alternative ""II"" is either (1) necessary or (2) desirable, given the staff's projections in the Greenbook. Lastly, it seems to me that the opportunity to move down somewhat again next year, given what we hope will happen, is important. And if we take that extra cut now I think it limits somewhat our ability to go down next year given the projection for somewhat greater growth in M2 through 1990. So I would stick with alternative ""I,"" 3 to 7 percent.",189
-fomc-corpus,1989,President Boykin.,4
-fomc-corpus,1989,"Mr. Chairman, my preference would be for alternative ""II,"" primarily for the reason that we feel we would be at the lower part of the [alternative ""I""] range. If we really believe that, it seems to me we ought to establish a range that gets a little more centered. Also, my impression is that there has been less difficulty in explaining overruns than underruns. And, at least the way I look at the long-run strategies--if you look at what happens to inflation and if there is a relationship between money growth and inflation--then it seems to me we aren't really doing very much over the next three years or so where inflation is concerned. The comment was that the rhetoric has been good because [unintelligible] and look at what we do as opposed to what we say. It seems to me that if we also confirm what we say with what we actually do, then that enhances our credibility. Keeping inflation at the current levels, or even at projected levels as we're looking at it through 1991, seems to me almost to create the impression that we're accepting that as the norm. And I have problems with that. So my preference would be to go to alternative ""II.""",245
-fomc-corpus,1989,Governor Kelley.,3
-fomc-corpus,1989,"Mr. Chairman, I favor alternative ""I."" I think that with the 4 percentage point bands we have plenty of room to conduct policy either with number ""I"" or number ""II."" For that reason I wouldn't be upset with ""II;"" but in the interest of longer-term flexibility in the out period, as you suggested early on, I think it makes sense to move this in a more gentle manner. I would also restate what Governor Johnson said early on: if we do alternative ""I"" here we are lowering it by 1 full percentage point, which I think has plenty of message effect for now and leaves us the flexibility we'll need to do more easily what may be necessary as time goes on.",144
-fomc-corpus,1989,Governor Seger.,4
-fomc-corpus,1989,"Now that I know the actual results [for the economy] and also what happened to monetary growth in 1988, I'm willing to support the preliminary ranges, which would be alternative ""I."" For M2, of course, it does remove a full percentage point at both ends of the [1988] range, which in my judgment is a sufficient message to the doubting Thomases. Secondly, I would suggest that we're measuring from a point that is below the midpoint; the actual growth in 1988 came out below the midpoint of the range for last year. And so it seems to me we're picking up a little there, simply in measuring from a lower base. On M3, again, taking a half point off from each end in conjunction with the full point off the M2 range should be sufficient to convince our followers.",169
-fomc-corpus,1989,Governor LaWare.,4
-fomc-corpus,1989,"I support alternative ""I"" for most of the reasons cited. But I can't refrain from making a comment on the credibility issue. I think we miss some of the environment here if we congratulate ourselves too much on the credibility that we presently enjoy and assume that that's because we are seen as fearless inflation fighters. We are seen and applauded for that only so long as nobody else gets hurt in the process of our fighting inflation. If we were to go out there and really beat inflation over the head and in the process increase the unemployment rate or dump the economy in some fashion I think that our credibility would disappear overnight. People would forget that we were inflation fighters and label us as the black knights who have ruined people's lives. So, I like the 3 to 7 percent range because I think it gives enough room for policy alternatives in managing all these different variables in a time when I'm still unconvinced, as I mentioned yesterday, about just what the tea leaves are really saying.",197
-fomc-corpus,1989,Vice Chairman.,3
-fomc-corpus,1989,"I would support the original formulation that you put on the table, Mr. Chairman, with one caveat. In round numbers--and Don you can help me with this--the midpoint of the range for M2 implies an absolute growth of M2 of something like $140 billion. Is it something like that?",63
-fomc-corpus,1989,It must be something like that.,7
-fomc-corpus,1989,"The caveat gets to this thrift industry issue. The great bulk of money that was going to be disintermediated out of the thrifts as a result of the Bush plan was going to be brokered deposits. In fact, in the short run almost all of it would be brokered deposits. If those deposits are all in M2 because they're all under $100,000 but they all come from Wall Street, I think it's quite likely that a very significant fraction of the money that comes out of the thrifts due to the shrinkage of deposits will not find its way back into depositories, or perhaps even into M2 instruments. And I think that somehow or other, Don, we're going to have to try to figure out a way to keep track of that because it does seem to me possible that if you think in terms of the absolute growth of M2 of whatever it is, $140 billion--",185
-fomc-corpus,1989,It's $160 billion or so.,7
-fomc-corpus,1989,Pardon me?,4
-fomc-corpus,1989,$161 billion.,4
-fomc-corpus,1989,"--$161 billion, whatever. It's quite possible, as I think about it, that that phenomenon could have a significant effect on the dollar change that's implied here. I don't know quite what that means but if we saw $30 or $40 or $50 billion that's now in M2 through brokered deposits--",63
-fomc-corpus,1989,That could easily happen.,5
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,Here comes M2a.,6
-fomc-corpus,1989,"I don't like to be difficult, Wayne, but I think we've got to do something.",18
-fomc-corpus,1989,I think what you're suggesting is that in the Humphrey-Hawkins report and in testimony we ought to have a few sentences on exactly that issue.,30
-fomc-corpus,1989,"Yes. But, Don, I think we ought to try to figure out some way that we could try to keep track of that because it's conceivable to me that--",33
-fomc-corpus,1989,"Well, we'll look into this a bit. To the extent that it went into money funds, of course--",22
-fomc-corpus,1989,It's a big part of the implied M2 growth.,11
-fomc-corpus,1989,"Well, a lot of that, I guess, would go into money funds.",16
-fomc-corpus,1989,"Yes, but commercial paper wouldn't be picked up in M2 or T-Bills wouldn't be picked up in M2.",24
-fomc-corpus,1989,"Oh no, no.",5
-fomc-corpus,1989,Some money deposits are and some aren't.,8
-fomc-corpus,1989,"Yes. A good chunk is likely not to go back into depository institutions, there's no question.",20
-fomc-corpus,1989,It's not clear what the preference was for. If they were looking for federally insured deposits then they would have to go back to a depository institution.,30
-fomc-corpus,1989,"Yes, but it kind of--",7
-fomc-corpus,1989,"Well, they are looking at federally insured deposits at a certain rate. It's the equivalent of getting--",20
-fomc-corpus,1989,"That's why this brokered money facet of it, I think, is so important. I'm not sure that it's--",23
-fomc-corpus,1989,What are the alternatives other than money funds?,9
-fomc-corpus,1989,Treasury securities.,4
-fomc-corpus,1989,Government securities.,3
-fomc-corpus,1989,"Commercial paper, T-Bills.",7
-fomc-corpus,1989,Commercial paper.,3
-fomc-corpus,1989,If it's the savings part of M2 it could just as easily go into T-Bills.,19
-fomc-corpus,1989,Right.,2
-fomc-corpus,1989,It doesn't have to go into transaction accounts.,9
-fomc-corpus,1989,"We have made a small allowance for this, indirectly, by presuming that the average offering rates on M2 remain damped. And the average offering rates include, obviously, the brokered deposit offering rates and we factored that through. I doubt that we've captured the full impact, as Jerry has implied, but--",64
-fomc-corpus,1989,"A lot of this stuff is not household money. It's broken up into $100,000 pieces, but it isn't household money; it's hot money.",30
-fomc-corpus,1989,"Well, I think it's amply true what Jerry was saying about those [depositors] who initially come out. But they spend that money buying something else; it moves into the hands of some other people. So you've got to go beyond that and ask: What are they going to do with that? And it might well come back into deposits in some form.",73
-fomc-corpus,1989,"But don't jump to the conclusion that all the $100,000 money is going to go, because with the present spread between $100,000 jumbo CDs and the others it is still lower cost money for institutions who really look at the brick and mortar costs of raising the other kind of CDs. So it's not all going to go in that--",69
-fomc-corpus,1989,"I didn't mean to discombobulate this discussion, Mr. Chairman.",15
-fomc-corpus,1989,"Yes, but I think it's actually an important point.",11
-fomc-corpus,1989,"I think that an adjustment has been made. At least in the quantitative work we did we got a faster growth of M2 just using the model. I don't know the extent of it, but I think there has been an adjustment made to reflect the fact that these deposit rates, in terms of offering rates on M2 instruments, have been very sluggish. I don't know if you quantified the adjustments you made but I think it was in there when you had the 3, 3-1/2--",102
-fomc-corpus,1989,We ran a couple different types of simulations of how these offering rates would behave and they all shaved about 1/2 percentage point or a little more off of our model forecast.,36
-fomc-corpus,1989,Right.,2
-fomc-corpus,1989,And that's the 3-1/2; it is about a half--,16
-fomc-corpus,1989,"No, but Jerry's raising a different point. It's not an issue of what the forecast is; it's what the 3 to 7 percent means and how one interprets it. In fact, one of the elements involved in the forecast is that if we took M2 and grossed it up for the thrift thing it would be higher in the cone. And I think that we are interpreting the 3 to 7 percent to mean the grossing up--making the adjustment for the loss of brokered deposits. In other words, the question is: What is our target? Well, our target is 3 to 7 percent after we add back, I presume, an estimate of brokered deposits. That's what it means.",148
-fomc-corpus,1989,"Mr. Chairman, I would also like to be included among those who prefer a kind of strategy ""II"" with a 3 to 7 percent range. That is, it does seem to me that it's important for us to create expectations that--if conditions unveil as the staff has forecast--we do anticipate staying very close to the bottom of the range.",72
-fomc-corpus,1989,"Well, before we vote, does anybody have any problem with the directive language on pages 20 and 21 in the Bluebook? Very specifically, what is the Committee's view of the alternative at the end of the middle paragraph on page 21?",51
-fomc-corpus,1989,What if you just drop it?,7
-fomc-corpus,1989,You mean the paragraph itself?,6
-fomc-corpus,1989,"Yes. We didn't have a Ml, so--",10
-fomc-corpus,1989,It has been repeated many times.,7
-fomc-corpus,1989,"Yes, repeated many times.",6
-fomc-corpus,1989,"Yes, I think that's a good idea.",9
-fomc-corpus,1989,So just drop it.,5
-fomc-corpus,1989,Anybody have any objection to dropping it?,8
-fomc-corpus,1989,I have no problem dropping the M1 reference but I think the last sentence is still important.,19
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,"Well, we could say ""The behavior of all the monetary aggregates will be evaluated....""",18
-fomc-corpus,1989,"Yes, that's an important sentence.",7
-fomc-corpus,1989,Okay. Why don't we keep the last sentence but drop the--,13
-fomc-corpus,1989,"But do we want to say ""The behavior of all the monetary aggregates will be evaluated in....""",20
-fomc-corpus,1989,Of the aggregates.,4
-fomc-corpus,1989,That's the [unintelligible] language.,10
-fomc-corpus,1989,Plural?,2
-fomc-corpus,1989,Right.,2
-fomc-corpus,1989,The capitalized language.,5
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,"Taking a rough score it appears that there is a significant weighting towards alternative ""I,"" so why don't I officially put that up for a formal vote.",30
-fomc-corpus,1989,"I guess I wonder why we're saying ""establish."" We've never ""established."" Why wouldn't it be appropriate to say that we lowered the ranges?",30
-fomc-corpus,1989,We don't do that?,5
-fomc-corpus,1989,"We don't say we've lowered the ranges, do we? This is the first time that we've really officially lowered the 1989 ranges.",27
-fomc-corpus,1989,"Well, tentatively we had; we just published the 3 to 7 percent. Do you mean officially?",23
-fomc-corpus,1989,"Well, those July ranges were just tentative.",9
-fomc-corpus,1989,"What about ""[The Committee] reaffirmed its decision of last July to lower...""?",17
-fomc-corpus,1989,I like that.,4
-fomc-corpus,1989,That's good.,3
-fomc-corpus,1989,"Reading, starting with the second sentence on page 20: ""In furtherance of these objectives the Committee at this meeting reaffirmed its decision""--actually it wasn't in July it was in late June--so it's ""of late June.""",47
-fomc-corpus,1989,"Well, just ""its decision.""",7
-fomc-corpus,1989,"Or ""its decision to--""",7
-fomc-corpus,1989,"""To lower.""",4
-fomc-corpus,1989,"--""to lower the ranges for growth of M2 and M3 to ranges of 3 to 7 percent and 3-1/2 to 7-1/2 percent, respectively, measured from the fourth quarter of 1988 to the fourth quarter of 1989. The monitoring range for growth of total domestic nonfinancial debt was set at 6-1/2 to 10-1/2 percent for the year."" And on page 21 I take it that the sentence on Ml will be dropped and the paragraph would continue: ""The behavior of the monetary aggregates will continue to be evaluated in the light of movements in their velocities, developments in the economy and financial markets, and the nature of emerging price pressures.""",150
-fomc-corpus,1989,"Okay, call the role.",6
-fomc-corpus,1989,"Point of clarification. In terms of your testimony, if we opt to put in this 3 to 7 percent is it with no caveats? Or is the testimony putting in the table and then [saying we expect to] come out at the bottom of the range?",56
-fomc-corpus,1989,I would prefer not to say that.,8
-fomc-corpus,1989,Say what? I'm just trying to--. I've forgotten what we've done in the past. Do we actually forecast?,23
-fomc-corpus,1989,We've often said that we expect growth in the middle of the ranges.,14
-fomc-corpus,1989,We have said in the middle of the ranges or instead of--,13
-fomc-corpus,1989,"Well, in the past when we put ranges out we have--",13
-fomc-corpus,1989,"Well, one of the problems in forecasting where we expect M2 to be in the range is that it enables somebody to work backwards to what our funds rate projections are. And I'm not sure we want to do that.",44
-fomc-corpus,1989,"Well, let's--",4
-fomc-corpus,1989,Why don't you just spend a little time talking about the potential impact of developments: the savings and loan industry--,22
-fomc-corpus,1989,Yes. I think that would be done in any event. But I think Lee is raising the question as to what we are forecasting in the ranges that we're adopting.,33
-fomc-corpus,1989,"Mr. Chairman, one could remark that we're low at this point in part because of the lagged effects of previous interest rate changes. So that might give you some leverage to get some of that--",40
-fomc-corpus,1989,"Well, I think that in the testimony we will be discussing some of the aspects of where M2 is going. But I don't think we want to be all that specific about where it relates to our forecasts of policy from here forward. Now to the extent that there are lagged effects, Lee, I think that does suggest that we're in the lower end in the beginning no matter what. But I don't want to go much beyond that.",88
-fomc-corpus,1989,You can always say that if it's necessary to take interest rates higher we will end up at the low end or if interest rates stabilize or go lower we'll end up in the upper part.,37
-fomc-corpus,1989,Why say that?,4
-fomc-corpus,1989,"Well, we don't have to say it. But I'm just saying that we could say there's some basis for why we would end up in different places.",30
-fomc-corpus,1989,That explains why you have ranges in the first place.,11
-fomc-corpus,1989,"Having watched the Chairman on [TV] the other night, I'm quite confident that he'll be able to--",21
-fomc-corpus,1989,I'm not worried.,4
-fomc-corpus,1989,I'll mumble my way through!,7
-fomc-corpus,1989,"Mr. Chairman, there's one other phrase that I'd like to call to the Committee's attention--the very last phrase that Norm read--""and the nature of emerging price pressures."" That statement, it seems to me, is a very defensive statement. I would prefer that to read ""and progress toward price level stability.""",64
-fomc-corpus,1989,I think that's an excellent suggestion.,7
-fomc-corpus,1989,"""Progress toward price level stability""?",7
-fomc-corpus,1989,"""And progress toward price level stability.""",7
-fomc-corpus,1989,"Well, since we're discussing it, don't we want to move that further to the front end of that sentence?",22
-fomc-corpus,1989,"No, I think that--",6
-fomc-corpus,1989,I think it has the finishing--,7
-fomc-corpus,1989,"[If it is] first in the operational paragraph, Bob, that may be sufficient. I agree with your sentiments, but in the operational paragraph--",30
-fomc-corpus,1989,"Well, just to make it consistent.",8
-fomc-corpus,1989,"It seems to me that if we do that, which I would favor, then on page 20 that very first sentence should say ""The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability""--we say ""over time."" Why don't we strike ""over time""? Our objective is to foster price stability. And then with what Governor Angell is suggesting that confirms it because here we are setting our objectives. As for that ""over time"" we've been at it a long time.",100
-fomc-corpus,1989,Time is running out!,5
-fomc-corpus,1989,I'd buy that.,4
-fomc-corpus,1989,"I buy that, too.",6
-fomc-corpus,1989,"Really, we prefer--",5
-fomc-corpus,1989,Can we take a formal vote?,7
-fomc-corpus,1989,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Black Yes President Forrestal Yes Governor Heller Yes President Hoskins No Governor Johnson Yes Governor Kelley Yes Governor LaWare Yes President Parry Yes Governor Seger Yes,47
-fomc-corpus,1989,That's an easy one.,5
-fomc-corpus,1989,"Don, will you take up the short-term part?",11
-fomc-corpus,1989,You want me to take you to the coffee break.,11
-fomc-corpus,1989,We could manage to do that.,7
-fomc-corpus,1989,[Statement--see Appendix.],6
-fomc-corpus,1989,"Okay. Thank you, Don. Let's break for coffee and then resume after a short break.",19
-fomc-corpus,1989,I'd like to start off with--,7
-fomc-corpus,1989,Could we ask questions of Don?,7
-fomc-corpus,1989,"Oh, I'm sorry! Certainly.",7
-fomc-corpus,1989,I didn't mean to cut you off. I just wanted--,12
-fomc-corpus,1989,It was unintentional.,6
-fomc-corpus,1989,Carry on.,3
-fomc-corpus,1989,Forget your question?,4
-fomc-corpus,1989,Maybe I should!,4
-fomc-corpus,1989,I hope this is a good one.,8
-fomc-corpus,1989,"Don, you talked about the instability of the borrowing function. You mentioned that normally there's about a $400 million difference per 100 basis point difference--in terms of what's transpiring now versus what historical relationships might have produced. My question is: What is the potential for somehow really getting a surprise? In other words, I think the Desk has dealt very effectively with the kind of instabilities we have had, but what is the prospect of something much more dramatic than that in terms of a change in the propensity to borrow? I wonder because the spread may get to the point where banks figure, what the heck, we haven't had a problem with discipline at the window. Do you worry about that at all?",142
-fomc-corpus,1989,"Well, not in the last six months or so. The borrowing has been so low for wide spreads that for whatever reasons--and we talked about this last time--it is particularly the small banks that are most surprising in the way they are staying out of the window. Whether it's their liquidity, whether they're concerned about the thrift crisis and do not want to be seen at the discount window given concerns about depository institutions, or what, I don't know. But I guess I don't have any expectations at all that that's going to reverse on us with a big rush or that if it began to reverse we wouldn't detect it pretty quickly and be able to take it into account.",134
-fomc-corpus,1989,So you're not overly concerned about that prospect?,9
-fomc-corpus,1989,About a big rush of borrowing at the discount window? No.,13
-fomc-corpus,1989,Governor Seger.,4
-fomc-corpus,1989,"Would it be possible to make the case at this point, given this continued uncertainty about the relationship, that we should engage more directly in targeting fed funds rather than having the flexibility in operations of the Desk?",41
-fomc-corpus,1989,"Well, I would say that that's a decision for the Committee. My proposal was that this flexible approach, which in effect is a blending of the two approaches, continue. The Desk has reacted, I think, when funds have gotten way out of line from Committee expectations. But it hasn't [zeroed] in very closely on a very narrow range for fed funds; it is also paying attention to the borrowing function. But it isn't captive to it if it looks like it's going to push the funds rate way out of whack with what the Committee expects. So, it's an approach that I think has enabled us to have more flexibility than the very narrow focus on the funds rate might allow but at the same time hasn't gotten us too far away for too long from what the Committee expects. Federal funds, as Peter said, have been running the last couple of maintenance periods a bit over 9 percent. I think the last Bluebook said 8-7/8 to 9 percent; we're talking about a difference of 10 or 15 basis points here, maybe. So I don't think that's too far out of line.",226
-fomc-corpus,1989,"Any other questions? Well, why don't I start us off on the current policy recommendation problems. Having looked at the economy for many years, I frankly don't recall an economy that at least on the surface looks more balanced than the one that we have--in other words one which is characterized by very little evidence of excess inventory accumulation. We're not getting big bulges in capacity or construction which would tend [unintelligible]. Order backlogs are relatively high and there's a certain momentum in the economy that is very likely to carry us quite a good way. And I must say to you that it's relatively rare, I think, that the outlook is as favorable as it is at the current moment. One major worrisome issue is clearly the acceleration in wage and salary costs that emerged, really, in the fourth quarter and was partly confirmed in the average hourly earnings index in January. Considering the fact that the intermediate product gains in the wholesale price index, excluding food and fuels, were running .6 or .7 percent but were not passing through into the final goods prices--very largely because unit labor costs as a major part of the markup between intermediate materials and final goods prices were suppressed, and the unit labor costs were suppressed largely because nominal wage and salary rates were soft--it is possible that the last several months' movements in wages are an aberration. But one obviously can't assume that in the context of the unemployment rate and the tightness of the labor market where it is. Nonetheless, we do find some interesting signals that are a little puzzling. I think the economy clearly accelerated through December; but in the last several weeks there were at least some signals that are not consistent with the follow-through that we're looking at. First of all the 408,000 employment increase, judging from the seasonal factors employed in both construction and retailing, is probably closer to about 250,000. If we make that adjustment we may find that perhaps the February or March employment figures will reverse and actually will [seem] weaker than, in fact, they really are. Nonetheless, 250,000 is not a bad increase. It's solid and I think consistent with all of the other elements. And we will be publishing an industrial production index with an increase of about 1/2 percent for January. So, looking on the employment data side the first quarter really looks, if anything, stronger than in the Greenbook. But if you look at the January GNP from the product side it clearly is a good deal weaker: we're not getting anything resembling the income side, which is consistent with the employment side. In other words, the income side in the GNP in the first quarter is much stronger than is confirmed on the product side. And it's not clear just how that is going to be resolved. I've been particularly puzzled by the National Association of Purchasing Managers [NAPM] January survey, which shows a relatively sharp decline in the rate of increase in [coming] quarters. As best I can judge, that is not being picked up in any material I see coming in from the various contacts of the Banks. Nonetheless, that survey has been very reliable in the past and has often been the first indication that we have had that the climate of the economy is changing. I think that's really just too little information to say very much about it. But it cannot be dismissed very readily. Similarly, the insured unemployment data are a little weaker. The figures that came out today showed a further increase--",700
-fomc-corpus,1989,"They didn't come out today, Mr. Chairman.",10
-fomc-corpus,1989,They didn't come out today? That's a forecast? They will come out when?,16
-fomc-corpus,1989,Tomorrow.,2
-fomc-corpus,1989,"Tomorrow, sorry.",4
-fomc-corpus,1989,And they will be weaker.,6
-fomc-corpus,1989,"The ones that are scheduled to come out tomorrow do at least turn around the extraordinary tightness that these data had suggested for much of 1988 through fairly recently. So, we're in a position at this particular stage, temporarily at least, where we're seeing no signs of general overheating in the sense that lead times on materials are actually shortening. And, aside from the wage pressures, which I indicated before are quite worrisome, we're not yet getting any evidence of inventory acceleration or anything that suggests that we're getting close to the peak of an overheated economy that is about to tilt down. My own impression is that we still have a way to go in tightening. I think the evidence is much too premature to suggest--leaving the forecast mechanisms aside and just looking at the current state of affairs--that this cycle of tightening that we've been through is over. But, as Don mentioned, we are running into an odd problem of limits to our policies--specifically, the fact that as our credibility builds up and there is a general expectation that inflation will not emerge despite some of its signs and what we are getting is a nominal long-term rate that hasn't moved, a real long-term rate that probably has moved up only very modestly, and a problem in that, in effect, we are restraining the economy very largely through higher real short-term interest rates. It's very clear that we are restraining inventory accumulation, which is a short-term decision. We obviously are restraining some elements in the capital goods markets. But I'm not sure how much we are restraining (1) the housing mortgage market or (2) the capital goods markets, because the real cost of capital has not gone up that much. In part, that is a reflection of an expectation both with respect to inflation premiums and instability premiums that we will in fact contain inflation. And that's in an odd way unfortunate in that to the extent the markets believe that what we're doing is right it is making it more difficult for us. We are also running into problems with respect to how rapidly we tighten because of the pattern of M2 growth with or without adjustment for the thrift problem. The slowness of M2 is corroborated by exchange rate pressures and the strength in the dollar which, by any measures that we are involved with, should be somewhat less. With the types of trade balances we are getting one would assume the dollar should not be exhibiting the type of strength that it is. What this all suggests is the crucial importance of getting the federal budget deficit down to assist in the process of economic policy--to suppress the effect of demand elements that are involved and to enhance the international adjustment process. This issue of getting the deficit down is becoming increasingly mandatory, as we begin to run into problems where it becomes clear that monetary policy cannot be the sole tool with which we are functioning. I conclude from all of this that the appropriate stance for the next short-term period would be to start off with alternative ""B,"" asymmetric, but with a recognition that, if the pressure on the dollar that is now there stabilizes or falls and if the current mixed signals such as the NAPM survey and the insured unemployment numbers do not indicate early deterioration--in other words, if those signals are reversed which is probably more likely than not--it would be wise for the Desk to be instructed to move [borrowing] up $100 million maybe in a couple of weeks or so. In any event, the period until the next meeting is seven weeks and I think this [outlook] is sufficiently uncertain that I would request that we schedule a telephone conference at the end of this month to review where we are. And it would be helpful, if events are changing in a manner that requires a conference earlier, perhaps not to wait as long as that to do this. But I think we are at a point where--just judging from the analyses that I heard here yesterday--there are enough differences within this Committee with respect to the issue of fact as to what's going on that in a period such as this more frequent consultation is important. I think it is very important for the credibility of this Committee to try to find some consensus as best we can, because even though there's a large bimodal distribution out there I think we're not that far apart. And I think it would be very useful if we could find a means to accommodate each other in such a way that we can have a policy that we all can essentially go along with, though we all may not feel fully comfortable with it. So, I've said my piece, and I throw it out as a potential set of motions which I'd be curious to get reactions to. President Syron.",940
-fomc-corpus,1989,"Mr. Chairman, just a clarifying question if I might?",13
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,"In what you've essentially proposed--alternative B in the Bluebook--the Bluebook notes that under that alternative some of the recent rate increases might in fact slip back; we might see some decline in rates under alternative B. I take it that in the approach you're talking about that you would not want that, absent some signs of weakening in the real economy or some other events in the international markets--",79
-fomc-corpus,1989,Exchange rates.,3
-fomc-corpus,1989,So I can say that under your proposal you would not want to see a decline in rates in the short term?,23
-fomc-corpus,1989,Do you mean the funds rate?,7
-fomc-corpus,1989,"Yes, the funds rate.",6
-fomc-corpus,1989,"No, I would not.",6
-fomc-corpus,1989,Okay.,2
-fomc-corpus,1989,But that's not a commitment to fed funds rate targeting is it?,13
-fomc-corpus,1989,"No, no.",4
-fomc-corpus,1989,He's just saying in the case of inconsistencies between the borrowing level and the funds rate resolve doubts on the side of borrowing.,25
-fomc-corpus,1989,That's essentially correct.,4
-fomc-corpus,1989,Yes. I think the markets would misread a signal of that particular kind.,16
-fomc-corpus,1989,That's my concern.,4
-fomc-corpus,1989,The funds rate would be 9-1/4 percent roughly? What funds rate level would that be?,22
-fomc-corpus,1989,I'm sorry. What?,5
-fomc-corpus,1989,Slipping back from what level?,7
-fomc-corpus,1989,Where we are right now.,6
-fomc-corpus,1989,9-1/4 percent?,7
-fomc-corpus,1989,9-1/8 percent.,7
-fomc-corpus,1989,9 to 9-1/8.,9
-fomc-corpus,1989,I would say probably 9-1/8 percent would be closer. But Governor Heller has the floor.,23
-fomc-corpus,1989,"No, let that discussion finish first. I have no question but--",14
-fomc-corpus,1989,Did we clarify that?,5
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,"I just want to support the same position, basically. I think real rates are already very high. Money growth is slowing and we should be patient to see that through. The one area where I may disagree with you just a little, if I heard you right, is that you were expressing disappointment that investment wasn't slowing faster than it actually is.",69
-fomc-corpus,1989,Capital investment.,3
-fomc-corpus,1989,Capital investment isn't slowing faster.,6
-fomc-corpus,1989,"Well, you know--",5
-fomc-corpus,1989,"Actually, I like to see high capital investment because that fills the additional capacity that will hold down inflation in the future.",24
-fomc-corpus,1989,"Well, there are two ways of looking at it. There's good GNP and bad GNP.",20
-fomc-corpus,1989,"I think that's good GNP and the more of it the better it is. Otherwise, I fully agree with what you said.",26
-fomc-corpus,1989,"Our special theme reports suggested that would be pretty strong, really, if I read that [right]. Is that the way you read it? I was very much encouraged by what that seemed to say.",40
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,And that's good GNP.,6
-fomc-corpus,1989,And that's good GNP.,6
-fomc-corpus,1989,Vice Chairman.,3
-fomc-corpus,1989,"Well, this is a tough one. I think part of this question of Federal Reserve credibility that has been talked about an awful lot here is related, at least as I see it, to what I'd like to call institutional harmony. In the interest of institutional harmony I don't want to rock the boat unduly and I think I can support the spirit of what you've suggested. My druthers would be rather distinctly to firm policy right now. But as I said, for reasons of institutional harmony, I am prepared to try to support the spirit of what you've said. But, for purposes of my conscience if nothing else, let me just elaborate a bit further on my underlying position. As I've said in the past, I try to view the process of making policy here as a matter of balancing risks. That's the only way you can do it. Now, I think it is possible, for example, that the economy could slow down kind of on its own to a path that, even with current policy, would be broadly consistent with Mike's forecast. If it did that I think it would signify that we are lucky as well as good, because in my judgment it would take a clear stroke of luck to produce that result--in the sense that I think the risks are on the other side. The second point that I feel I must emphasize is the following: there has been a great deal of discussion around this table about price stability and moving toward price stability. But as we sit here the algebraic sign on the inflation rate is unambiguous--it's plus. It's not neutral, it's not minus, it's plus. The inflation rate is going up. And Mike's forecast, which is undoubtedly the most rigorous that is available to any of us, is saying that as best they can judge, with current policy the inflation rate is going to go up more. That's what the forecast says. We can all, and we do, have our differences of judgment about it. But that's what it says. Now, I have a bit of trouble reconciling the algebraic sign on the current inflation rate as being plus. Mike's forecast is on the side of rising inflation. I look at the financial variables and my problems get more severe. Take the exchange rate. It seems to me that if you either want or you have a strong dollar, given where we are right now, then something else has to give at some point, because in my judgment the external position that we have and that we have prospectively is unsustainable. If it's not the dollar something else has to give. Now what is that other thing going to be? It's going to be the economy. Indeed as I said yesterday, taking the long view, I have a real question in my mind as to whether we can make sustainable progress on the external adjustment side given any broadly acceptable pattern of exchange rates without a significant and sustained slowdown in the rate of growth in the economy. Now, we don't have to answer that question today; but I think it's out there and it's going to have to be dealt with sooner or later. So the exchange rate, at least as I see it, creates quite a conundrum for us right now. Then I turn to the yield curve. And I, like everybody else, take an enormous amount of comfort from the yield curve and for what it seems to imply about Fed credibility--both on Wall Street and Main Street, in my judgment, Martha. But the crucial question about the yield curve is: What does it tell us prospectively? What does it tell us about the future? And I'm just not sure of that. I've looked at yield curves over a period of time in the United States and in all the other industrial countries and I'm just not sure. But I think the crucial question that arises, whether it's based on experience in the United States or elsewhere, is: Are recessions typically inflation induced? In other words, does the responsive pattern of recession that we've seen here and in other countries presage the recession? Are they inflation induced in that it's the rise in the inflation rate that gives rise to the tightening of monetary policy, etc.? And is that what ultimately trips the economy into recession?",843
-fomc-corpus,1989,Excuse me. There's a significant inventory acceleration accumulation component in it.,14
-fomc-corpus,1989,"That is correct. But the crucial question in my judgment--if that is correct which I think it is--is does the yield curve in any reasonably satisfactory way tell us anything about future inflation? And I think the answer is no it doesn't. The yield curve either in the United States or elsewhere has not been a reliable indicator of future inflation. Indeed, the evidence seems to cut the other way. And if it has not been a reliable indicator of future inflation and most recessions are inflation-induced I am not prepared to bet the mortgage on the signals that the yield curve are giving off right now, even though obviously they are very welcomed, at least as we see them. So, I'm sure the yield curve is telling us a lot of important things. I'm sure we can and should both benefit from [unintelligible] but I don't think it's reliable enough historically or intellectually to give me, at least, enough confidence in terms of [extrapolating] from it to the inflation rate and to other variables. Now, the one variable on the financial side that I do have some confidence in is the money supply, however defined. It is intellectually not easy to look at the pattern of money growth that we have had for basically two years now--I guess it's more than two years--and say to yourself: Is that a pattern of money growth over a long period of time that is likely to be associated with some further dramatic escalation in the inflation rate? I think that is what is giving me some pause. But as I said, Mr. Chairman, overall I can support your position. But my assessment of the risks is that they are a bit asymmetric in that direction; that, I think, is clear.",346
-fomc-corpus,1989,Governor Johnson.,3
-fomc-corpus,1989,"Thanks. I also support what the Chairman said. I'm comfortable with maintaining current policy but in an asymmetric way. I still think the risks potentially are on the up side. I just think that with the existing information there isn't any basis at this time for further tightening. We may have to tighten further but I think we ought to leave that to some sort of discretion, some sort of judgment about how events unfold as time goes on. Based on today I certainly don't see that as necessary, for a lot of the reasons that I said yesterday which I won't go back over again. I do have a view, though, that on the long end of the yield curve--even though the nominal rate has come down--we have had a fairly significant appreciation in long-term real rates. Now, there are different ways to look at that and I don't want to suggest that any one way is better than the other. My general view, though, is that there has been a significant rise in long-term real rates. If you follow the Hoey survey, it suggests that the 10-year bond rate has gone up 2-1/2 percentage points in real terms since mid-1987. And I don't think that's insignificant. It depends on how much stock you put in the Hoey survey; it's just one particular measure. But I think Don made a good point in his briefing that the slowdown in corporate bond issuance is also a pretty good indicator that long-term real rates are not completely neutral in this whole process. People wouldn't be cutting back on corporate bond issuance if they thought their internal rate of return was better than the existing long-term yields. So, I think that's a good point. I don't think there's anything sacred about the yield curve in terms of inflation expectations. I think basically all that says is that the markets are betting that short-term rates in the future are going to be lower than they are today. I think you really have to isolate more on the long bond itself to get some sort of notion of what they're thinking. It doesn't necessarily mean lower inflation expectations; it does mean that they think the short rates are going to be lower in the future for various reasons. Maybe it's just that they think they are not going to keep up with movements in the short rates. It's not the be-all/end-all of the evidence; there's no doubt about that. Putting it all together, I think you're absolutely right, Jerry, about the dollar. Something does eventually have to give if the dollar keeps appreciating. But I think the central point there is that if the dollar does keep appreciating what will ultimately give is the current account and the economy, to some extent. My point is that if the dollar is going to be appreciating I don't see the scenario that's in our Greenbook forecast. You would have a much weaker economic picture under that kind of a scenario than you would under one with dollar depreciation--and totally different implications for the domestic economy and inflation rate. And that certainly leaves you with a worsening current account in exports under those conditions. That's some risk. But that leads me to want to be very cautious at this time. And I think an asymmetric position is probably the best one.",638
-fomc-corpus,1989,President Parry.,4
-fomc-corpus,1989,"Mr. Chairman, I would agree that there are substantial uncertainties associated with economic prospects. But I think there is enough certainty to support alternative C. I believe that the level of economic activity is in excess of the full employment [level] at the present time. I think that a constant level of interest rates, even if it is for the next month or so, would assure that for an even longer period. It seems to me that in that kind of environment we know that inflationary pressures are building. As a result, I would say that we ought to get about our business promptly. It seems to me that it also would be much more difficult to characterize monetary policy as being ahead of the curve if we were to take no action now or, for that matter, over the next month. Thank you.",162
-fomc-corpus,1989,President Keehn.,4
-fomc-corpus,1989,"Mr. Chairman, you very well described what I think is a very complicated and difficult current and prospective situation; and in a broad context I'm in agreement with you. But having said that, at the margin I think I'd have a modest difference. I'm not saying that we are targeting fed funds. Nonetheless, if we have an objective currently of, say, 9 or 9-1/8 percent, I think I'm hearing from Peter and others that there is a market tendency to move higher--I would think 1/4 or 3/8 percentage points in that direction. If there is that kind of tendency in the market I think we ought to support it and move up as those pressures continue to move up. There is general agreement, certainly, that the risks here are on the side of inflation. The magnitude of the risks is something we can argue about, but I think Jerry stated it very well: the risks are on the up side. The underlying rate of the economic expansion is strong, I think, and sustainable; therefore, I wouldn't necessarily do anything that would hurt here but I sure would move up to the extent that we can, consistent with what I think is an underlying tendency. Therefore, I'd probably come down someplace between ""B"" and ""C"" and would be inclined to move a little on the borrowing level now if that would basically support this upward tendency in the fed funds rate.",285
-fomc-corpus,1989,President Forrestal.,4
-fomc-corpus,1989,"Mr. Chairman, I think the point you made about a consensus of the Committee is very important. And for that reason I would entirely support your prescription for the economy over the short term, particularly the asymmetric part. Having said that, my preference would be to move at the present time. I happen to believe this forecast that the staff has come out with. And the inflation projections through 1989 and 1990, in my judgment, represent an unacceptable level of inflation. And achieving that level of inflation implicitly suggests some tightening. What I'm concerned about is that we're going to have to tighten down the road. And that tightening might be more than we would like to have happen to contain inflation. In other words, it seems to me the longer we have this run without taking more decisive action the more difficult our task is going to be in the future. But at the moment I am content to agree with your proposal.",185
-fomc-corpus,1989,Governor Seger.,4
-fomc-corpus,1989,"Yes, I can support your recommendation, sir. I won't tick off all my reasons because most of them have already been stated by someone or another. I would just add one, and that is that if we were to tighten further I think there would be copycat actions coming from other countries. And I'm not sure that that would benefit all the economies in the world long term. Also, with the dollar so strong at the moment and our strenuous efforts to lead it down, it just doesn't seem sensible to be putting further upward pressure on interest rates at this moment. So I would back your alternative, which I believe is ""B.""",127
-fomc-corpus,1989,President Hoskins.,4
-fomc-corpus,1989,"I have to ask myself, as I think everyone else around the table does, where the risks are in this situation. What is it going to cost us two years from now if we make a mistake now? And is the cost greater for being overly easy now relative to being overly tight? I don't see one structural problem--in the Southwest or with the thrifts or internationally--that would be helped by having an inflation rate of 5.7 percent, which I think is the rate for the CPI, excluding energy, that Mike has in his forecast. It seems to me those problems will be made substantially worse. We'll have to move much more aggressively with much higher interest rates. In my view, it would be simply a repeat of policy mistakes that we have made in the past. It seems to me that we could undo the cost of being overly tight now relatively quickly if we needed to. We can't undo the other. It gets built in. It's serious and it's unacceptable--not just in the sense of the current inflation. What we're trying to do is get the maximum output for this economy. There is not a trade-off between real growth and inflation. There isn't. It's [unintelligible] in the very short run. So it just seems to me that we ought to ask ourselves about those risks and then come out on the side, at least from my perspective, of moving away from the approach where the costs are enormous. I think now is the time to move. I'd be in favor of alternative C.",307
-fomc-corpus,1989,President Black.,3
-fomc-corpus,1989,"Mr. Chairman, I'm very close to Jerry Corrigan and very close to Lee Hoskins. A while ago I appeared to be complimenting Don Kohn unduly at the expense of Mike Prell. But I'd like to say that I think that Mike's forecast for the economy--the need for increasing short-term rates--is probably absolutely accurate. And I favor sooner rather than later. But there's always this risk that we could do too much now. As far as this yield curve is concerned, one reason it's the way it is [relates to] an expectation on the part of knowledgeable observers that we probably will do some further tightening fairly soon. So, I clearly come out in favor of ""C."" But there is this matter of institutional harmony that Jerry mentioned a while ago. And given your commitment, Mr. Chairman, to move to this in a couple of weeks or so I can go along with that. I'd rather do it now but I can vote for that.",197
-fomc-corpus,1989,I want to clarify that. Is it a commitment to move in a couple of weeks or to reconsider in a couple of weeks?,26
-fomc-corpus,1989,"No, it's not.",5
-fomc-corpus,1989,"Well, I meant to consider a move depending on what the data say. And if they point in the other direction I wouldn't want to move; I think it is very ""iffy"" right now. I'm less convinced than most of my colleagues in Richmond that this has gotten quite as far away from us as some people think.",65
-fomc-corpus,1989,President Stern.,3
-fomc-corpus,1989,"Well, let me comment a little further about the risks as I see them. I don't see much risk at this point in time, with one caveat, to some further tightening. I personally wouldn't go all the way to ""C,"" but I would be inclined to go to $700 million [borrowing] immediately. The only risk that I can really see of doing that relates to external factors--the issue of external balance. And I think the solution to that ultimately lies with a change in fiscal policy rather than anything that we can do. Beyond that it does seem to me that something between ""B"" and ""C"" is appropriate here and now. As I say, I don't see much risk to the real domestic economy from such a move. While I personally feel that inflation is already excessive and probably will rise, we may be pleasantly surprised here; I'll acknowledge that. But I don't see that an additional small move at this point in time is going to [be harmful]; if anything, it's simply going to help [produce] a pleasant surprise if we're fortunate. And at best it will turn out to have been an appropriate action. I don't place a lot of weight on it but there apparently is some expectation in the market that some further tightening is imminent. And I don't think we want to see rates slide back from where they are now.",272
-fomc-corpus,1989,President Melzer.,4
-fomc-corpus,1989,"Well, first of all, I'd like to make up for that rude question before. I'd like to reiterate the position I stated earlier: first of all, I think inflation is too high; and secondly, I think it's going higher. On the other hand, I don't think it's getting away from us or that it's going to get away from us if we stay on this course of monetary restraint that we've been on. In addition, I feel that the only shot we have at long-term price stability--and I would agree with Lee that that should be our goal in the long term--is if we can get there with a more or less stable real economic performance. In other words, I don't think we're in a situation now where it will be productive in terms of the long-run inflation fight to run too close to the line in terms of a recession. In formulating this view I think that, in a sense, it's all too easy to ignore the narrow monetary indicators; that's not something that gets a lot of discussion around the table. As a result, there's a great temptation for [unintelligible] most recent numbers we see and so forth. Obviously we should be looking at those. But I think at inflection points that can really result in procyclical policy, in easing too long or tightening too long. Having said that, if you look at the reserve base and M1 as well as M2, we've been looking at slow growth rates for two years with further slowing in the last six months or so--and particularly in recent months. In the fourth quarter we had reserve growth that was barely positive; I think the Bluebook showed that in the period from November through January we were actually looking at a negative growth rate of 5 percent. And the Board staff's forecast is assuming 0 percent reserve and M1 growth for all of 1989. Now, in my own view, that kind of policy is very restrictive and I think there's a reasonable likelihood that that will put the economy in a recession in late 1989 or 1990. As I say, the reason I'm concerned about that is that the response in the other direction is going to put us so far off of a sustained path of monetary restraint that it could take us years to get back to the position I think we're in right now. I want to be clear on this. I'm not afraid, in a sense, to take a recession if that's what we have to do. I don't think you ever like to do that, to make that judgment. But obviously if things have gotten out of control, in the end we have to be willing to run that risk for the very reasons Lee said. And it becomes difficult later. But, as I said, I don't think that's where we are. There has been a lot of discussion but it seems that important financial markets don't think that's where we are either. Otherwise, why would the dollar be doing what's it's doing, and gold doing what it's doing, and long Treasuries doing what they're doing? My final point, which is more or less an aside, is that I think the FOMC has done an excellent job in this period in terms of moving early. But I wouldn't necessarily say that we have led the markets. I simply want to point out that if dramatic additional tightening is undertaken at this time, we certainly don't have the fact that the markets are calling for it. The constituencies, if you will, that are represented there are supporting it. In a dramatic move here--and I know that's not really on the table--in effect, we would be really stepping out in front, which I don't think we've done. Obviously, in pursuing a path of tightening there always are going to be constituencies that are against that, as Governor LaWare referred to before. But in this case where investors feel inflation is getting away I just think one is in a better position--if one is responding to pressures either in the foreign exchange markets, presumably backed up by our foreign trading partners, or behavior in long-term securities markets--to move against that background. Obviously, there's the chance of doing that too late and never catching up; I understand that. Anyway, that would lead me to a position where, really, I would support ""C"" as stated--not ""B"" as stated.",876
-fomc-corpus,1989,You woke us up.,5
-fomc-corpus,1989,I figured I would.,5
-fomc-corpus,1989,President Boehne.,5
-fomc-corpus,1989,That was the apology.,5
-fomc-corpus,1989,"Well, the issue is clearly one of weighing the risks of too much versus too little tightening. Reasonable people can differ on that and that's what we're seeing around the table. I don't think any of us can be overly sure, whatever we do, that it is the right thing to do. Therefore, I think it is very relevant to ask the question: What are the implications of whatever we do today if we're wrong? It is possible that we could do the wrong thing today. And it comes down to this: Is it more costly to unwind too much tightening or is it more costly to make up for too little tightening? I think that this Committee has been in existence long enough and that there's a pretty clear historical record, even though this group is much wiser than our forefathers and mothers, that [the answer] is very, very clear. It is more costly to make up for too little tightening. It is relatively easy to lower interest rates. If you lower interest rates you don't cause a lot of unhappiness. Given the uncertainty, and on top of that my assessment of the risks, I would move toward alternative C fairly promptly. I think it's a mistake to let interest rates fall at this point. Temporizing makes sense for institutional harmony for now and I think that's worth something. But I must say that it makes me very uneasy about the future because I think temporizing can be quite costly.",284
-fomc-corpus,1989,Governor Kelley.,3
-fomc-corpus,1989,"Mr. Chairman, I think this has been an excellent discussion; there is a great deal to be said on both sides of these issues. It's not surprising in the light of all the ambiguity out there; I think it's rather what one would expect. As I consider how to come down on this issue, I'd have a great deal of concern if we were doing nothing now--as everyone here would. But I don't think that's the case. For one thing, as I understood our expectations at the last meeting we were expecting the funds rate to settle basically on the shy side of 9 percent. In fact, it has been on the plus side of 9 percent. So, to some extent, you could say that we already may have gotten one extra tranche of tightening than we had expected to get at our last meeting. And I fully support that. I think it was entirely appropriate and was well done. Nevertheless, it has been there. The aggregates are growing very slowly and I think that's entirely appropriate; but I would be concerned if they went very much slower than they are. I think it makes some sense to try to hold them around where they are. The dollar has implications when it goes in both directions but I think the way it's going now it is on the strong side and supports an anti-inflationary stance. Whatever the yield curve may be telling us, it is inverted enough that it is clearly on the anti-inflationary side. So, I think we are moving cautiously and appropriately and I am very comfortable supporting your proposal.",312
-fomc-corpus,1989,President Syron.,4
-fomc-corpus,1989,"I think, as Ed Boehne said very well, that we are in a period of some substantial uncertainty and that one has to weigh the symmetry of the risks. I fully agree with his analysis that it is always easier to loosen later on than it is to tighten later on. The staff forecast, which seems to me as good a forecast as one is going to find any place, does have some worrisome implications in terms of inflation, excluding energy, as one gets out beyond the forecast period. So, in an unconstrained world I would tend to favor an approach somewhere between ""B"" and ""C."" But I do agree strongly that it is important to communicate institutional harmony at this point in time given the number of things that are going on. And I would be comfortable with your position, given that you suggested that there would be a consultation within a matter of a couple of weeks and that there would be no decline, effectively, in market rates in the interim period--that we wouldn't have sent a signal that we were going in the opposite direction when that might have to be reversed within that couple of weeks.",226
-fomc-corpus,1989,That would be a bad mistake.,7
-fomc-corpus,1989,"So, I prefer a ""B-"" but am comfortable with ""B.""",15
-fomc-corpus,1989,President Boykin.,4
-fomc-corpus,1989,"Well, Mr. Chairman, I find myself in the usual dilemma when it comes to this point, given where I live all the time except for a couple of days every seven or eight weeks here in Washington. It's hard for me to rationalize being a little more restrictive or a little tighter, given the risks of what that might do to the Southwest since it seems that most of the problems have been and are still pretty much centered down there. The arguments, I think, have been well stated on both sides of the issue. Intuitively, I would be in favor of moving toward ""C"" now. I'm not so confident of that, though, that a two or three weeks' delay to get us a little better reading on what's going on is that important. But I remain concerned, as I indicated earlier in the meeting, about the level of inflation and what appears to me to be a fairly timid approach to reducing that in a fairly significant way. I just think it's too high. But I would be supportive of the proposition that you put out.",213
-fomc-corpus,1989,"Well, we still have President Guffey.",10
-fomc-corpus,1989,"Thank you, Mr. Chairman. Coming into the meeting this morning I guess I was looking for something between ""B"" and ""C"" on the short run, with some immediate movement toward ""C"" following this meeting. In view of your plea for accommodation, although I'm not a voting member, I could almost interpret your proposal as being a ""B-C"" stance--taking a look at it again in a couple of weeks. And from that standpoint it would be very acceptable to me. I'd just like to lay on the table the way the tightening might take place in the period ahead. I understand that using the discount rate probably doesn't meet with much favor among those who have to vote on it--that is, the Board members--given the comments that have been made the last couple of days. But there is a time beyond which I think we will not be able to move the discount rate and close any gap, if that's a concern to anybody. When I talk about ""B-C,"" a bit of snugging now, I would like to consider that we could deal with a discount rate [increase of] 1/2 percent and not let it all show through--in other words, come to a funds rate level of something like 9-1/4 to 9-3/8 percent. The further you go, if indeed you believe the staff's forecast, you've neutered yourself on using the discount rate as an instrument, I think. And if we're ever going to do it, now would be the time to do it, given the projection that I think most of the people around the table believe.",328
-fomc-corpus,1989,I'm still missing Governors Angell and LaWare. Would either one of you--,16
-fomc-corpus,1989,I've never gone last.,5
-fomc-corpus,1989,I have the view of last time.,8
-fomc-corpus,1989,I've never gone last yet.,6
-fomc-corpus,1989,You want to go last?,6
-fomc-corpus,1989,"I support your recommendation, Mr. Chairman. I am skeptical about the possibility of unwinding some of these other rates simply because we keep the present level of pressure on. I suspect that in two or three weeks when we discuss this again we probably will want to cinch it up a little. But I think that the current suggested approach is a sound one.",72
-fomc-corpus,1989,Governor Angell.,4
-fomc-corpus,1989,"Yes. The staff's forecast, as I understand it, is for a funds rate 150 basis points higher in the fourth quarter of 1989 than in the fourth quarter of 1988. Is that about right?",45
-fomc-corpus,1989,About 150 basis points by a year from now.,11
-fomc-corpus,1989,"A year from now. If that does turn out to be the path that we end up on, it seems to me that it would be somewhat desirable somewhere in there to have a discount rate move. I would not share Roger's enthusiasm for a discount rate move not showing through. I tend to prefer to have discount rate moves really show through the full amount when we do them. So it seems to me that's an alternative that ought to be looked at. I do not favor that now, even though I favored that in November and December; to me it's a question of timing. And I just don't quite understand how matters of weeks are that significant in regard to the long-run impact on inflation. Most of what we know about inflation suggests that it takes quite a while for it to show through. Indeed, if our analysis of commodity prices is correct at all, we really can expect the CPI turning point some 7 to 9 months after we get a turning point in commodity prices. And any turning point in commodity prices at this point is somewhat tentative; it is not in the bag. So, I think we have a period ahead of us that's going to be a period of some travail. I don't know where I'm going to be at the end of the month. I would prefer, Jerry, to tighten when we have some lack of super-strength in the dollar. It seems to me that it would be somewhat more desirable to get our economy, in a nominal GNP sense, to slow down by domestic [factors] rather than to get it done by a lack of improvement of the external [side]. So, I believe it's important that all of us keep something of an open mind as to where we are at the time of the telephone conference call. I know I'm going to. And if the conditions are such that we can make a move at that time--and we're getting closer to impacting the second quarter's money growth rather than the first quarter's money growth--and it would appear that we're not running the risk of driving M2 to zero, then that's the time to do it. I believe it's a long-term patience struggle. It is clear that I am more confident than some that the monetary restraint, if in place, is the real measure. I just do not know when interest rates are high or when they are low; I do feel very confident about our maintaining a 3 percent growth path for M2. And I'll be prepared under those conditions to vote restraint if it appears that is what's necessary to keep M2 growth at the bottom of the range. Thank you. So, my vote is yes for ""B.""",530
-fomc-corpus,1989,"Why don't we vote on that proposal, but let's see if this language is correct.",17
-fomc-corpus,1989,"It reads: In the implementation of policy for the immediate future the Committee seeks to maintain the existing degree of pressure on reserve positions. Taking account of indications of inflationary pressures, the strength of the business expansion, the behavior of the monetary aggregates, and developments in foreign exchange and domestic financial markets, somewhat greater reserve restraint would or slightly lesser reserve restraint might be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with growth of M2 and M3 over the period from December through March at annual rates of about 2 and 3-1/2 percent, respectively. The Chairman may call for Committee consultation if it appears to the Manager for Domestic Operations that reserve conditions during the period before the next meeting are likely to be associated with a federal funds rate persistently outside a range of 7 to 11 percent.",169
-fomc-corpus,1989,"Can I clarify one thing? In the interest of institutional harmony, when we meet in two weeks will a vote be taken?",25
-fomc-corpus,1989,Two? I thought it was the end of the month.,12
-fomc-corpus,1989,"Well, end of the month.",7
-fomc-corpus,1989,The telephone conference will be toward the end of the month. The issue of a vote depends on whether we have to change the directive. If we don't have to change the directive then there isn't a vote. But that's the purpose of the conference call: to develop--,53
-fomc-corpus,1989,"If we say ""maintain"" would that preclude our letting the federal funds rate move up?",20
-fomc-corpus,1989,"Not that I know of, it wouldn't.",9
-fomc-corpus,1989,"I assume that there's an implied management approach by the Desk that goes with ""B."" It's what Don reported on. Now, I don't know what that means. It means being more sensitive to the funds rate but obviously there's some play in it.",49
-fomc-corpus,1989,There has to be some play in it.,9
-fomc-corpus,1989,It doesn't mean any persistent upward pressure. But I think everybody agrees it doesn't mean a decline in rates from the current level.,25
-fomc-corpus,1989,"And ""maintain"" would permit us to raise the borrowing target $100 million?",17
-fomc-corpus,1989,The answer is yes; the instruction to the Desk does permit the Desk to raise the borrowing target to $500 million in that the asymmetric language allows that to occur.,33
-fomc-corpus,1989,"But not until it's discussed at the conference call, right?",12
-fomc-corpus,1989,"No, the conference call is scheduled basically later than that, unless we need to consult earlier.",19
-fomc-corpus,1989,"Look, I don't think we ought to be trying to pin [the Chairman down]. If something happens and the Chairman agrees we ought to have a conference call before the end of the month I think he ought to call one before the end of the month. It seems to me this is asymmetric language and asymmetric language should give the Chair some freedom between now and a conference call.",75
-fomc-corpus,1989,That's what's in there.,5
-fomc-corpus,1989,"I wanted to make sure that we didn't preclude a decision to raise the borrowed reserve target if the data indicated, simply because we said ""maintain"" in here. And the answer is no.",40
-fomc-corpus,1989,No. This language provides for it.,8
-fomc-corpus,1989,Asymmetric language always means that.,7
-fomc-corpus,1989,I just wanted to be sure on that one.,10
-fomc-corpus,1989,Call the roll.,4
-fomc-corpus,1989,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Black Yes President Forrestal Yes Governor Heller Yes President Hoskins No Governor Johnson Yes Governor Kelley Yes Governor LaWare Yes President Parry No Governor Seger Yes,47
-fomc-corpus,1989,"The next regular meeting date is March 28th, but we'll be talking, obviously, before then.",21
-fomc-corpus,1989,[Unintelligible.],6
-fomc-corpus,1989,"I think it goes without saying that we have some outstanding nominations. We're ready to proceed, Mr. Chairman.",22
-fomc-corpus,1989,"I thank you. I think what we need next is the election of staff officers. Norm, would you read the list?",25
-fomc-corpus,1989,"Secretary and Economist, Donald Kohn Assistant Secretary, Normand Bernard Deputy Assistant Secretary, Gary Gillum General Counsel, Virgil Mattingly Deputy General Counsel, Ernest Patrikis Economist, Michael Prell Economist, Edwin Truman Associate Economists from the Board: David Lindsey; Larry Promisel; Charles Siegman; Thomas Simpson; and Lawrence Slifman. Associate Economists from the Federal Reserve Banks: Anatol Balbach, proposed by President Melzer; Richard Davis, proposed by President Corrigan; Thomas Davis, proposed by President Guffey; Alicia Munnell, proposed by President Syron; and Karl Scheld, proposed by President Keehn.",132
-fomc-corpus,1989,Would somebody like to move that?,7
-fomc-corpus,1989,I will.,3
-fomc-corpus,1989,Is there a second?,5
-fomc-corpus,1989,Second.,2
-fomc-corpus,1989,"Without objection, it's so ordered. The next item on the agenda is the selection of a Federal Reserve Bank to execute transactions for the System Open Market Account. Is there a nomination?",36
-fomc-corpus,1989,How about Cleveland?,4
-fomc-corpus,1989,Call again.,3
-fomc-corpus,1989,Is New York okay for a second choice?,9
-fomc-corpus,1989,I'll second that.,4
-fomc-corpus,1989,Without objection. I don't like the way this is going!,12
-fomc-corpus,1989,It sounds all right!,5
-fomc-corpus,1989,"Our Managers for Domestic Open Market Operations and for Foreign Operations are at the moment, as you know, Peter Sternlight and Sam Cross. Would somebody like to move their reappointments?",36
-fomc-corpus,1989,So move.,3
-fomc-corpus,1989,Second.,2
-fomc-corpus,1989,"Without objection. We have the review of--and I assume that they have been mailed out to all of you--the Authorization for Domestic Open Market Operations, the Foreign Currency Authorization, the Foreign Currency Directive, and the Procedural Instructions with Respect to Foreign Currency Operations. Would somebody like to move them individually? Let's do them one at a time. Are there any objections to the Authorization for Domestic Open Market Operations? If not, let us assume that it's so ordered. Sam, would you like to discuss the second issue?",104
-fomc-corpus,1989,"Yes, Mr. Chairman, I would. I would like to raise one point with respect to the Authorization for Foreign Currency Operations. We are currently authorized to maintain [foreign currency] balances up to a total of $12 billion equivalent. Our present holdings, at about $9.4 billion, are well within that limit. But in addition to this formal authorization there are three informal limits which are not contained either in the Authorization, the Directive, or the Procedural Instructions. These [informal understandings] call for us to limit our holdings of German marks to $8 billion equivalent, Japanese yen to $3 billion equivalent, and other currencies as a group to $1 billion equivalent. All of our intervention in recent months has been in marks and we are now about $150 million or a little more above that informal limit for marks. We notified the Committee of that situation by a telex that was sent out on March 15th. But, Mr. Chairman, I would like to propose that the Committee consider eliminating these informal sublimits for the particular currencies so that the $12 billion authorization for foreign currency balances could be used more flexibly. I question whether the informal sublimits currently are a very useful management tool. The particular currencies that we operate in are determined, of course, by market conditions and other factors. And in any event, we would continue to be under a number of limitations--qualitative as well as quantitative limitations--both with the [Foreign Currency] Subcommittee and the Committee. These limits relate to the changes in each currency for a single day and for the intermeeting period as well as changes in the overall balances for a single day in the intermeeting period and so forth. I believe these various limits provide for adequate monitoring and control by the Committee and the Subcommittee without the informal sublimits. Accordingly, I would recommend that the Committee consider eliminating the three informal sublimits. If the Committee did wish to retain those sublimits I would need to request a change in the overall Authorization in order to provide more headroom in the event we need to acquire more marks and yen. So, I recommend the elimination of the three informal sublimits.",436
-fomc-corpus,1989,Would somebody like to move that?,7
-fomc-corpus,1989,I think I would move it.,7
-fomc-corpus,1989,Is there a second?,5
-fomc-corpus,1989,Second.,2
-fomc-corpus,1989,I've just been informed that we don't want a formal vote on this.,14
-fomc-corpus,1989,On the informal limits.,5
-fomc-corpus,1989,"On the informal limits. Let me put it this way: Are there any questions on this issue for Mr. Cross? If not, we'll assume [agreement].",32
-fomc-corpus,1989,"Would there be some notion as to where we might be going in regard to any one currency? That is, would there be any restraint or any notion that there might be some point at which we would acquire more of a particular currency than might be the most advantageous position for our asset holdings?",58
-fomc-corpus,1989,"Obviously, we will want over time to acquire various amounts in particular currencies. But I don't think that this particular arrangement is the way in which we are best able to do that. For example, our holdings of yen have been low and we've been undertaking such measures as we could to raise those holdings both for the System and the Treasury. Indeed, we did acquire some yen during this recent period by buying them from a customer. But I don't think that the informal sublimit is a very useful mechanism for doing this. We have to make decisions and acquire those currencies more or less as conditions permit and as our policies aim us to do. I don't think these limits help very much operationally.",138
-fomc-corpus,1989,So from time to time you would expect to report to the Committee on [individual] currency holdings as compared to what you might think of as some optimum range?,32
-fomc-corpus,1989,"Well, if I went too far in saying what was the optimum that might raise a lot of questions. But we certainly report regularly on the amounts of the individual currencies.",34
-fomc-corpus,1989,"Thank you, Mr. Chairman.",7
-fomc-corpus,1989,"I have a question. Sam, is the $12 billion a big enough kitty for you or do you--?",23
-fomc-corpus,1989,"Well, at the present time we have $9.4 billion and the limit is $12 billion. Looking ahead, say, for the next year it's certainly conceivable that we would need to go above that. I would assume that the Committee would not find it difficult to change the limit at the time, if the conditions arose. Or, it could be changed right now when we are reviewing this at our annual review.",84
-fomc-corpus,1989,But to change the $12 billion would take specific action of the Committee?,15
-fomc-corpus,1989,"[Yes.] That is a formal authorization and that is public. The present authorization is for $12 billion and has been at that level for a couple of years, I guess.",36
-fomc-corpus,1989,You don't see any immediate circumstances that would likely put you in a position where you'd have to ask for a special meeting in order to enlarge that limit?,30
-fomc-corpus,1989,"Well, we have a $2-1/2 billion [leeway]. And, of course, when we intervene we have typically done half of it and the Treasury has done half. So that means a potential [increase in U. S. holdings] of $5 billion worth before we run into a problem. I would assume that if conditions were such that we needed a change in the Authorization, it would not be difficult to propose that and to change it at the time.",97
-fomc-corpus,1989,Okay. I wasn't trying to sell you anything.,10
-fomc-corpus,1989,No. I'd be happy to have any further headroom the Committee wishes to offer. But I can't really make a strong case that it's likely to happen and would require a meeting.,36
-fomc-corpus,1989,"Thank you, Mr. Chairman.",7
-fomc-corpus,1989,"Sam, can you remind us: what is the intermeeting limit?",14
-fomc-corpus,1989,Above $600 million requires the Subcommittee's approval and above $1-1/2 billion requires the Committee's approval.,25
-fomc-corpus,1989,In all currencies?,4
-fomc-corpus,1989,That's in all currencies.,5
-fomc-corpus,1989,"Any further discussion on this subject? I will assume a general consensus in favor of Sam's recommendation. However, we do need a vote on the Procedural Instructions with Respect to Foreign Currency Operations. I'll entertain a motion.",44
-fomc-corpus,1989,So moved.,3
-fomc-corpus,1989,Second.,2
-fomc-corpus,1989,Do all three?,4
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,Let's combine all three: the Foreign Currency Authorization and the Foreign Currency Directive as well as the Procedural Instructions.,22
-fomc-corpus,1989,So moved.,3
-fomc-corpus,1989,Second.,2
-fomc-corpus,1989,Without objection. Next we have to approve the minutes of the Committee meeting of February 7th and 8th.,24
-fomc-corpus,1989,So moved.,3
-fomc-corpus,1989,Second.,2
-fomc-corpus,1989,"Without objection. Mr. Cross, would you now report on foreign currency operations for us?",18
-fomc-corpus,1989,[Statement--see Appendix.],6
-fomc-corpus,1989,Are there questions for Mr. Cross?,8
-fomc-corpus,1989,"Sam, I'm just curious as to why we don't buy yen in the open market. I notice a couple of other central banks have done so. Do we have an agreement with them or--?",39
-fomc-corpus,1989,"Well, the Ministry of Finance in Japan thus far often has intervened itself to resist the decline in the yen. And the U.S. Treasury has not been prepared up to this point to [intervene unless] we have the agreement of the Japanese before anything is done. And the Japanese have not felt that this situation yet warranted intervention. Now, in the past day or two the pressures on the yen have become more substantial. The Finance Minister did make a statement last night--at which point the yen had weakened to above the 133 level--saying something to the effect that they were watching [developments] very carefully at the 133 level, which was taken by the market as a signal that that might be a key point. The rate then moved down a bit below 133 and that's where it is now. I imagine there will be discussions of this--certainly this weekend when the G-7 gets together. But up to this point the Minister of Finance has not wanted to see intervention or to be involved in intervention to resist the decline.",213
-fomc-corpus,1989,"On the general subject of intervention, Sam, do you detect any change in philosophy of the present Administration with respect to intervention? Or are they continuing pretty much in the same vein as the previous Administration?",40
-fomc-corpus,1989,"I don't think there has been any very notable change. The G-7, of course, met in February and they are going to meet again. The general premises within which these activities have been taking place remain more or less the same.",48
-fomc-corpus,1989,Any further questions for Mr. Cross?,8
-fomc-corpus,1989,I just want to make sure I understood your comment about intervening and the Ministry of Finance. Do we have a deal with the Japanese that we will not intervene unless they [agree]? What if we reached the point that it was in our interest to do so and the Ministry of Finance was still balking?,62
-fomc-corpus,1989,"Well, I would hope that it wouldn't come to a point where we were operating at cross purposes with the Japanese. It would be very difficult if we reached the stage where it was as overt as that. These intervention operations obviously work much, much better if all parties are marching together. We have seen many times, both with the Germans and the Japanese, that the market pays a lot more attention when they see that we are uniformly aiming in a certain direction, trying to bring about a certain purpose. It's difficult to be operating in one direction if the central bank or the government on the other side doesn't agree or indeed is opposed to it. So, it's much better to work it out.",138
-fomc-corpus,1989,"Governor Seger, this is one of the [unintelligible] to President Hoskin's comment. This is one of the asymmetries in the international financial system today. Other countries--",40
-fomc-corpus,1989,It was too subtle for me.,7
-fomc-corpus,1989,"Small countries can buy yen or sell yen. But for big countries like the United States and Germany and Japan their actions in this area are guided by different understandings, if you want to put it that way, about when one does it for the reasons that Sam mentioned. If Canada buys yen, or even if the UK buys yen, that's not the same thing as our buying yen or the Bank of Japan buying yen. Now, the other point--",90
-fomc-corpus,1989,But even those [transactions] have not been easily arranged.,12
-fomc-corpus,1989,That's right.,3
-fomc-corpus,1989,With the Canadians or the others it required working it out with the Japanese. But they are a little more amenable to that than if it's going to impact directly on their exchange rate.,37
-fomc-corpus,1989,The other point is that there are certain understandings about the point at which intervention becomes more favorably regarded. But as far as the yen is concerned we're far away from that point.,37
-fomc-corpus,1989,"Just looking at their gigantic trade surplus vis-a-vis our own situation, it seems that at some point we'd have to ask ourselves what is in our interest rather than having the Ministry of Finance decide.",39
-fomc-corpus,1989,"That's becoming increasingly apparent. It is true that up until recently most of the pressures were not in the yen but were in the European currencies. But it is moving more and more in that direction and it is becoming clear that we are getting to the point where there is a need to do something about the movement in the yen as well. That is part of my own concern. And as I say, the pressures of the past few days have been led by the movements of the yen. That's the first time during this recent period of activity where that has been the case; but it is now the case. On the other hand, if you look back to the low points--which were at the beginning of last year--the 1988 low point for the mark was 1.56 and we're now at 1.88 and the low point for the yen was just over 120. So, it's getting closer but not quite as much.",190
-fomc-corpus,1989,Governor Johnson.,3
-fomc-corpus,1989,"I heard what you said, Sam, about Germany but that explanation still doesn't strike me as justifying completely why they have been so reluctant to move. A lot of people seem to be scratching their heads about Germany's behavior relative to inflationary pressures and the fact that they have been sitting back and letting the mark depreciate. I know it has been pretty stable over the intermeeting period in general. But I think the feeling has been: What's going on in Germany compared to their previous behavior?",99
-fomc-corpus,1989,"Well, I think there are various factors. They are divided. There are some in Germany who will say that they could be tightening domestically and not necessarily going through the exchange rate. They are divided. The mark has moved up against some currencies as well as having softened against the dollar. If you look at the mark on a trade-weighted basis you don't get the same picture that you do if you look just at the dollar-mark relationship. The Germans, I think, have a genuine problem with respect to the EMS. Their concern at the moment is that the EMS is fully stretched--in other words, they are at the top of the band and, as it turns out, Denmark is now at the bottom of the band. At those levels they have to intervene fully in order to keep the rates from moving beyond that. There were very, very large amounts of intervention in the Danish currency last week, in fact. They did on one day, which is a lot for a small country. And they did almost the next day. The Germans are concerned that--the mark being weak against the dollar and strong against the EMS--if they intervene on the dollar side it's just going to cause a lot more trouble and lead to serious pressures in flows and political problems and all the rest with the EMS.",261
-fomc-corpus,1989,"But isn't it, though, just the Danish that are down there? The lira--",18
-fomc-corpus,1989,"The Danish are down there but the pressures could move to the others, particularly if the question of whether to reform the EMS currency alignments and so forth arose. It could lead to pressures. The French not too long ago had been under some pressure; they are not at the moment. But--",59
-fomc-corpus,1989,"It just still seems strange, given that nobody paid too much attention when the Italians were way below the band and just hovered there for heaven knows [how long].",33
-fomc-corpus,1989,"Well, but they weren't down at the 6 percent level. They have a wider band.",19
-fomc-corpus,1989,"Well, it was a special arrangement.",8
-fomc-corpus,1989,"Since Italy is not really in the arrangement, they don't have the same obligation to intervene. So they don't have the same problem on the intervention side.",30
-fomc-corpus,1989,Italy has a much broader band.,7
-fomc-corpus,1989,"We talk to the Germans and we make these points, too. But I think you do have to recognize that there are pressures from the EMS angle of it.",32
-fomc-corpus,1989,"One of the problems is that even if they want to move the D-mark [vis-a-vis] the Danish kroner that would raise questions about what else they would do within the EMS. It seems hard to do since there is this strong desire, especially between the Germans and the French, not to do anything for who knows how long. By [their suppressing] all this, it may be like the U.S. attitude toward sterling in the late 1960s.",95
-fomc-corpus,1989,"Not to prolong this, but what's rotten in Denmark?",11
-fomc-corpus,1989,"Well, they have a stagnant economy and they don't want to raise their interest rates. So they are having a lot of capital outflows.",28
-fomc-corpus,1989,I'd like just one follow-up. I raised the issue about the Japanese but I haven't heard what their argument is. What did they tell us? Why don't they want us in?,36
-fomc-corpus,1989,"They are still concerned or have a fear that the dollar-yen relationship is going to move back in the other direction and that it's going to cause problems there. At least that's what they say. Now, I assume that there is an interest from the point of view of their whole economy and their exports and so forth for them to try not to get back into intervention if they can avoid it. But it gets harder and harder to make that case as the rates move. We are still at 133. And the last time we were intervening I think it was close to 137. So the yen is not within any new ranges in that sense.",131
-fomc-corpus,1989,Any further questions for Mr. Cross?,8
-fomc-corpus,1989,"Sam, separate and apart from the central bank attitudes, what's the attitude of the participants in the markets? [Do they see] long-term trends there or is everybody kind of moving day-by-day? What are the basic attitudes?",46
-fomc-corpus,1989,In terms of the dollar outlook? I think they are waiting and I think they are moving--,19
-fomc-corpus,1989,Day-by-day?,4
-fomc-corpus,1989,"--with a short-term focus to see what's going to happen on this. As I said, at the present time these markets are very fickle. They watch one thing for a while and then they watch something else. But right now they are watching very closely the inflation and monetary policy actions in all these countries because there has been so much attention on and concern about whether inflation is growing worldwide. So, that's the main focus of attention right now: what's going to be done about it and what the various players are going to do.",107
-fomc-corpus,1989,"Anything else? If not, would somebody like to move to ratify the transactions of Mr. Cross since the February meeting?",25
-fomc-corpus,1989,So move.,3
-fomc-corpus,1989,Second.,2
-fomc-corpus,1989,Without objection. Mr. Sternlight.,8
-fomc-corpus,1989,[Statement--see Appendix.],6
-fomc-corpus,1989,Questions for Mr. Sternlight?,7
-fomc-corpus,1989,"Peter, I heard you use a term a little earlier that I think I have never heard used before: the indexed level of borrowings.",28
-fomc-corpus,1989,"[That's] borrowing used in the construction of reserve paths, about which we had a good deal of uncertainty. I say uncertainty, but I had a fairly strong suspicion that we were overstating or were using a higher level than was consistent with what banks would actually come to the window for, given the range of the funds rate that we were expecting. During those first few weeks of this intermeeting period we would make adjustments, particularly if it went well into a reserve maintenance period, for what was turning out to be a lower level of borrowing by $200 or $300 million as this period went along. And as that persisted week-after-week the decision was made--we consulted with the staff and the Chairman on it--to make this downward technical adjustment in the level of borrowing used in the path, but we were not expecting that to be accompanied by any change in the range of expected funds rates.",180
-fomc-corpus,1989,"No, I understand that. But it is not formally indexed or linked to any other variables.",19
-fomc-corpus,1989,"No, no.",4
-fomc-corpus,1989,Okay. I thought you had some construct there.,10
-fomc-corpus,1989,I said indexed because it was indexed to a degree of pressure that we expected to be associated with [a certain] range of federal funds trading. It's indexed in that sense.,35
-fomc-corpus,1989,Thanks.,2
-fomc-corpus,1989,"Peter, you may already have answered this indirectly, but in view of the widely recognized problems in the relationship between borrowings and interest rates I wonder if some market participants believe now that we're targeting the funds rate?",42
-fomc-corpus,1989,"I think they certainly realized that we have had problems with it. Periodically I see things suggesting that they think we are getting back more to the use of borrowings but probably not all the way back to where it was, let's say, prior to the stock market crash--which was the time of the major departure.",64
-fomc-corpus,1989,I said rates; you said borrowings.,9
-fomc-corpus,1989,Sorry. Maybe I twisted that around. But they think that we are--,15
-fomc-corpus,1989,Getting back to a rate.,6
-fomc-corpus,1989,Getting back toward use of borrowings.,8
-fomc-corpus,1989,Okay.,2
-fomc-corpus,1989,I think we're getting back toward the borrowings but [not] all the way to what we were pre-October '87.,26
-fomc-corpus,1989,Further questions for Mr. Sternlight?,8
-fomc-corpus,1989,There was an article in the paper about Salomon Brothers taking big hits in their government trading.,19
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,"Given their level of expertise, etc., and what you said about the people in the markets expecting us to tighten further how could they possibly have taken such gigantic loses?",33
-fomc-corpus,1989,"As I understand it, Governor, it was not so much a bad bet on what was going to happen to the general level of rates but rather some sophisticated rate spread movements that they anticipated that just did not pan out as they expected. That's not to say I agree--",54
-fomc-corpus,1989,They probably believed the long-term rates were going to rise.,12
-fomc-corpus,1989,"It's surprising to see as sophisticated a participant as they are coming up on the wrong side on that. I will say that in the past couple of years when, in general, the government securities dealers have had a pretty rough time that firm drew on perhaps a more sophisticated view and a better knowledge [of the market] and has fared better than the pack by a fair margin. I'm really more concerned about a great number of other dealers who seem really unable to hack it with the current degree of competition in the government securities market.",106
-fomc-corpus,1989,The only reason I mentioned Salomon Brothers is that that was the firm that happened to be featured in the news item. But I imagine--,28
-fomc-corpus,1989,"Yes, they did have that big hit from a bad bet on what was going to happen to the shape of the yield curve.",26
-fomc-corpus,1989,Thank you.,3
-fomc-corpus,1989,President Syron.,4
-fomc-corpus,1989,"Peter, how widespread are these exotic--if I can use that term--hedging strategies that Salomon had in place? Are there many other firms that have things that are [that complex]? Obviously, there are varying degrees of complexity, though. Would they have the edge in terms of the complexity of their strategies or are there others that are operating--",71
-fomc-corpus,1989,"No, I think there were many firms that engaged in those strategies, though probably in lesser dollar magnitudes than Salomon Brothers. But I don't think it's at all that unusual to the degree--",39
-fomc-corpus,1989,"Well, it really isn't an exotic hedging strategy; it's an exotic speculative strategy, I think. You really have to distinguish between an exotic speculative strategy and an exotic hedging strategy. There's quite a difference.",42
-fomc-corpus,1989,In a total [unintelligible] it turned out--,13
-fomc-corpus,1989,It may be a [unintelligible] distinction.,12
-fomc-corpus,1989,I don't know that you look [unintelligible].,12
-fomc-corpus,1989,[Unintelligible] on a hedge.,10
-fomc-corpus,1989,"Well, by definition a hedge is a hedge. It just depends [on whether it was] something they thought was a hedge.",26
-fomc-corpus,1989,They may have thought it was a hedge in priority.,11
-fomc-corpus,1989,"But anyone who finds the hedge [unintelligible]. They just have to have more expertise than that. So, I think they were taking a position.",32
-fomc-corpus,1989,Further questions for Mr. Sternlight? Would somebody like to move to ratify the actions of the Desk?,22
-fomc-corpus,1989,So move.,3
-fomc-corpus,1989,Second.,2
-fomc-corpus,1989,"Without objection. Peter, would you like to raise your [leeway question]?",16
-fomc-corpus,1989,"Thank you, Mr. Chairman. In the upcoming intermeeting period, current projections suggest a maximum reserve need on the order of about $7 or $8 billion. The main factors we think will be increased currency in circulation, higher required reserves and, by early May, some rise in Treasury balances at the Fed. While some of this can be met with repurchase agreements, which do not count against leeway, I believe it would be prudent to enlarge the standard $6 billion intermeeting leeway temporarily by $2 billion to $8 billion.",110
-fomc-corpus,1989,Would somebody like to move the leeway?,9
-fomc-corpus,1989,So move.,3
-fomc-corpus,1989,So move.,3
-fomc-corpus,1989,Without objection. We now turn to the economic reports. Messrs. Prell and Truman.,19
-fomc-corpus,1989,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1989,[Statement--see Appendix.],6
-fomc-corpus,1989,Questions for either gentleman?,5
-fomc-corpus,1989,"A couple. One: Just looking at the forecast, which has been revised since last time although it's not dramatically different, you have real GNP slowing significantly by the third quarter of 1989. It averages about 1.2 percent from the third quarter of 1989 through 1990. We have gotten into these arguments before about what potential is but I think everybody agrees that that's well below whatever anybody is thinking of as potential. And that's for a fairly significant period of time. Yet we don't see any improvement on the inflation side. The lags are longer I guess than would show up on here. But exactly what do we expect, ultimately, on the inflation rate from a forecast that has that kind of slack built into it over a prolonged period? Clearly, it's not showing up in the numbers here. When does it show up?",171
-fomc-corpus,1989,"Let me say first that it takes a period of below potential growth in order for some slack to open up in the labor market in particular. But also, we'd expect to have some slack--",38
-fomc-corpus,1989,"I know, but there's a year of that kind of slack. And I just wondered--",18
-fomc-corpus,1989,"But, as you know, in our forecast that only brings the unemployment rate up to about 6 percent. The maybe ""worst case"" interpretation of the events of the last two years is that that's only getting us back to the natural rate--if you want to use that framework for looking at this. We have been implicitly a bit more optimistic in the sense that, as we move up to the 6 percent neighborhood and edge above it by the end of 1990, we are anticipating that we will begin to see some tendency toward moderation in the underlying inflation trend. And thus in 1991, if the unemployment rate remained in the low 6 percent neighborhood, by bringing growth up to, say, the 2 percent range we would anticipate that we would begin to discern a very gradual deceleration of inflation. But it would be measured in fractions of a percent for a year at that level.",183
-fomc-corpus,1989,But if you're just saying that we're moving to the natural rate why would you get below potential growth on that?,22
-fomc-corpus,1989,"Well, to raise the unemployment rate you have to move below potential growth. In recent years it has been very clear that on average the economy had to grow less than 2-1/2 percent in order to produce an upward movement in the unemployment rate.",52
-fomc-corpus,1989,"Yes, I know I'm--",6
-fomc-corpus,1989,Our judgment is based on what we've seen in wage and price behavior. All the anecdotal evidence over the past year or so suggests that in essence we have overshot a level of resource utilization that's consistent with stable inflation.,44
-fomc-corpus,1989,"Again, what happens ultimately? What is the ultimate inflation path that we get out of this scenario?",20
-fomc-corpus,1989,"Well, in 1991 we'd expect to see a fractional decline in the inflation rate barring any exogenous shocks that we obviously can't anticipate at this point.",32
-fomc-corpus,1989,"There is one other point I wanted to ask. I asked this last time but I'll ask it again. I was looking at our forecast compared to the Bluechip consensus. I know what was circulated showed some other forecasts besides the Bluechip one, but those are all contained in the Bluechip so I'm comparing that one with ours. We have very similar forecasts on real GNP and inflation. But once again they expect a decline in short-term interest rates by the second quarter whereas we're saying they need to go a percentage point higher. Any comment on that?",111
-fomc-corpus,1989,"I don't think we're totally outside the spectrum of outside forecasters, but there continues to be some difference of opinion between the staff and that average in terms of how much weakness is likely to occur in aggregate demand as a consequence of the tightening that has occurred already. I noticed in the article in The Wall Street Journal the other day on the difficulties in economic forecasting that one person commented that it appears that the business forecasters keep predicting recession about a year out and then moving it back as it doesn't materialize. In essence, there's a large element of that: a sense that we have had a long expansion; things have gotten tight; and it's more likely than not that we may have a downturn. And they perceive it occurring by the end of this year, in many cases with interest rates moving down along with it. They also tend to have a seemingly relatively rapid disinflation response to that softening--greater than we would anticipate. And that's part of the difference in our views.",197
-fomc-corpus,1989,President Parry.,4
-fomc-corpus,1989,"Ted, considering the strength of the dollar in the past year and your comment that you think the dollar will remain relatively firm in the near term, why wouldn't it be reasonable to expect that any significant improvement in net exports would be delayed to the second half of the year at the earliest and most likely to 1990?",64
-fomc-corpus,1989,I don't think we have much improvement in the second half.,12
-fomc-corpus,1989,"Well, you have improvement over the year going from $103 billion, which of course has been revised. But the change is from $103 to $85 billion; that's not [unintelligible] $18 billion.",45
-fomc-corpus,1989,"Yes, but some of the changes have to do with special factors in the last quarter of 1988 when there was a deterioration, some of which was caused by a surge in oil imports and probably a surge in nonoil imports associated with the buildup in [inventories]. So, you take that out and that's where much of the improvement comes on the trade side in the first half of the year.",81
-fomc-corpus,1989,It's still $13 billion.,6
-fomc-corpus,1989,What?,2
-fomc-corpus,1989,$98 billion to $85 billion is still $13 billion.,13
-fomc-corpus,1989,What I mean is that while there is a small improvement in there most of it is a bounceback from the fourth quarter on the trade side.,29
-fomc-corpus,1989,But when--,3
-fomc-corpus,1989,And there is a small adjustment in the--,9
-fomc-corpus,1989,Wouldn't typical statistical studies lead you to expect an actual deterioration?,13
-fomc-corpus,1989,"No, because we think that there still is some effect in the pipeline from the delayed effects of the dollar decline and we have built some of that in there. So that's consistent with the models and the equations that we use in terms of those effects. And then we add on the special factors like oil and agriculture--to the extent that there's a rebound this year in agricultural exports in real terms, in comparison to the flat performance last year--and that's what gives you some of the improvement.",98
-fomc-corpus,1989,Would you say there's perhaps a greater uncertainty in this area than in some of the other areas of GNP performance?,23
-fomc-corpus,1989,I've always felt there's a lot of uncertainty. That may be because I've been closer to it. But I think that Mike sends me his gospel truth and he's always right.,34
-fomc-corpus,1989,And vice-versa.,5
-fomc-corpus,1989,One of you is making a mistake.,8
-fomc-corpus,1989,"Well, there's a lot of uncertainty on all aspects of the forecast.",14
-fomc-corpus,1989,Thank you.,3
-fomc-corpus,1989,"Doesn't it bother you that implicit in this scenario is an increasing willingness to [acquire] direct claims on the United States? If you extrapolate to what seems to be going on, what turns it? In other words, I assume the long-term rate differential is what basically is driving the models. Are we expecting that the long-term rate differentials will narrow in the next recession or the next month?",82
-fomc-corpus,1989,"That is what it is basically. As you know and others who have looked at it know, the equations for exchange rates just barely qualify as equations in the statistical relationships--",34
-fomc-corpus,1989,They're better than anything else I've seen.,8
-fomc-corpus,1989,"Well, as we get over this peak and the economy softens a bit--this is basically what Governor Johnson was commenting on in terms of the Bluechip forecast--we have U.S. rates coming down in 1990 and coming down relative to rates abroad. No matter what model you put that through, that gives you essentially a differential effect. It could differ with regard to how much you get in the short run on the one side. But the changing effect comes from the change in the influence of the interest rate differential on the exchange rate. In a sense we pushed aside the fact that you get very little improvement in nominal terms over this period. And we are assuming, maybe based in some sense on recent experience, that the market will continue to finance us about--",155
-fomc-corpus,1989,President Syron.,4
-fomc-corpus,1989,"Mike, I just had a question, which I think I know the answer to. Regarding the rate increase that is implicit in the Greenbook forecast: Is that essentially a straight line linear forecast throughout the year?",42
-fomc-corpus,1989,"Well, we wouldn't want to be any fancier than that. We just have a gradual further rise.",21
-fomc-corpus,1989,I guess the second part of the question I'll put off until later. But I'd be interested in speculating if it wasn't a straight line increase whether the potential impact of that was of importance.,38
-fomc-corpus,1989,"I think what we have built into the remainder of this year is not very large. In fact, I will venture to say that it might not be large enough, given the range of possibilities one can see here. But to make distinctions on whether you've gained this increase of roughly a percentage point through a 3/4 point rise over the next three months and a 1/4 point rise thereafter versus 1/4 point and then 3/4 point I think is going well beyond anything that economic science can discriminate between.",107
-fomc-corpus,1989,"The second part of my question relates to the questions Governor Johnson asked. In your model, is it fair to say--and this leads to the risks--that you don't see us getting below the natural rate until somewhere around the second quarter of 1990?",52
-fomc-corpus,1989,"Well, I don't want to speak of models per se here. The models we have been looking at have a longer history of price/wage behavior and would suggest that the natural rate is above 6 percent. However, our interpretation of the errors those models have made recently and of recent evidence leads us to put together a forecast that, if you forced it into that kind of model, would imply a considerably lower natural rate. So, we are in the vicinity of that implicit natural rate by the middle of next year.",104
-fomc-corpus,1989,Governor Heller.,4
-fomc-corpus,1989,If you look at many models in their unadjusted state--just running the pure models whether they're monetarist or [unintelligible]--over a fairly broad spectrum they tend to come up with a negative growth rate in the first half of next year. And then you judgmentally massage the models. The main difference that I can see is whether the conditions that are implied tend to have no recession. How confident are you that the no recession scenario is judgmentally right--that it will prevail over the simple unfettered models?,109
-fomc-corpus,1989,"Well, there's hardly anyone who runs an unfettered model forecast. You're always confronted with the fact that models have imprecisely predicted the recent past and you need to make some corrections in order to move forward in the forecast period. Our models, for example--the quarterly model and the P* model--have tended to underpredict the strength of aggregate demand in the economy over the past year or so. If you immediately eliminated that and had a pure model forecast moving forward it would suggest a sharper weakening than we have in the forecast. But whether that's the most plausible assumption to make is a question. Certainly, we [would] be inclined to make that kind of adjustment. The basic question, though, is whether the outlook contains a significant risk of recession. In this Greenbook we deviated from what we had done the last couple times--just to avoid needless repetition perhaps--but maybe it is useful to state again: we are skirting zero growth here by a small margin in what we've written down. And certainly a small hiccup in the economy in an adverse way could tip this into negative territory. So I would say that with this kind of outlook there is a non-negligible risk of at least a mild downturn in the economy.",252
-fomc-corpus,1989,"Governor Heller, I could add that we do run some what we call St. Louis-style reduced form equations on monetary aggregates and they do show slower nominal income growth than the staff projection for 1989 and 1990. But they showed substantially slower growth, particularly in the M2 equation, in 1988 than we got. And they made huge errors earlier in the decade, in '85 and '86. On the other side, they had much faster GNP growth, say, in--",102
-fomc-corpus,1989,How low do they get there?,7
-fomc-corpus,1989,What?,2
-fomc-corpus,1989,How would you describe the path at the beginning?,10
-fomc-corpus,1989,"In '89, how weak?",7
-fomc-corpus,1989,How weak is it? Let's see. For nominal income growth in 1989 it has about 4 percent.,23
-fomc-corpus,1989,And real?,3
-fomc-corpus,1989,I don't have it broken down; this runs off the nominal model. But running it using the base I have 9 percent or so [nominal]. But they have all been making such huge errors that I would have skepticism about--,47
-fomc-corpus,1989,"Well, the skepticism is whether the errors will average out over the--",14
-fomc-corpus,1989,"At the end of a certain number of decades, right.",12
-fomc-corpus,1989,It sounds like we're somewhere in between those two in our '90 forecast in nominal GNP.,19
-fomc-corpus,1989,"Thanks, Don.",4
-fomc-corpus,1989,President Forrestal.,4
-fomc-corpus,1989,"Mike, I was curious about the real disposable income number that you have in the Greenbook. The second quarter shows considerable weakness. I know the nominal personal income number doesn't change very much. Is there a special factor there?",45
-fomc-corpus,1989,I'm sorry I didn't catch the change that you were referring to.,13
-fomc-corpus,1989,The real personal disposable income in the second quarter of '89 would be quite weak.,17
-fomc-corpus,1989,"Well, there are some special factors boosting the first quarter and some of those, like drought relief payments, won't recur in the second quarter. The growth in the first quarter is also boosted by things like Social Security but that's a level adjustment, so to speak. We are expecting a considerable slowing in employment growth and in hours in the months ahead. And that plays a significant role in the outlook for income growth.",82
-fomc-corpus,1989,"Mike, let me ask you Governor Heller's questions perhaps in a different way. And that is: How would you assess the risks of forecast error with respect to inflation? Do you have a symmetrical risk on either side or are we more likely in your view to exceed it on the up side or the down side?",64
-fomc-corpus,1989,"I think it's fair to say that the recent data--and as I indicated we've raised our forecast of the price indexes for the current quarter--leave us with the impression that the inflation pressures at these levels of resource utilization may be a little greater than we had anticipated. But we haven't made a dramatic change here. We have tried to read through some of the noise in these numbers. And we've only passed through a modest bit of this surprise into the forecast for the next two years. I characterized the situation last time as being one where we think this inflation forecast represents our best point estimate. But if I were to draw the probability distribution, my sense is that the distribution has a longer tail on the up side than on the down side. I could envision a percentage point more inflation more readily than I could envision a percentage point less inflation over the next year or so. That doesn't mean that there's a strong likelihood of that happening; but in that sense I think the risks may be a bit on the up side.",202
-fomc-corpus,1989,"I'd like to just follow up. Since Don raised it, I want to know what base growth you had to get 9 percent nominal.",28
-fomc-corpus,1989,"Actually, I think we have projected about 4-3/4 percent base growth. That model, the base model in particular, has done so poorly that I really shouldn't even have cited it. The errors have been in percentage points.",48
-fomc-corpus,1989,"[There are questions about] the appropriate numerator, I think, on velocity with the base--if you pick up a good chunk of economic activity outside the United States, some of it illegal.",39
-fomc-corpus,1989,Right.,2
-fomc-corpus,1989,A lot of that activity is in the District of Columbia as well.,14
-fomc-corpus,1989,"Yes, but they do use American currency last I heard. President Melzer.",16
-fomc-corpus,1989,"Mike, I wanted to ask if you had any insight into what's going on with short-term business credit--that there's some strength apart from the LBO situation.",32
-fomc-corpus,1989,"I can't slice this too finely; it's very hard to trace that. In the Greenbook we referred to numbers where we've taken away the large corporate merger transactions that we can identify and gotten some additional information there. There are so many corporate restructuring transactions going on that there may be a lot of other things going on in the numbers besides basic financing and capital expenditures and so on. Our reading is that there has been some strength in short-term business credit apart from the RJR/Nabisco and other major merger transactions. And that probably is reflective of the underlying need for funds and the deferral of long-term financing. Some of the long bond issuance that Peter talked about earlier really isn't very long term; much of it has been swapped into floating rate obligations. It just appears that businesses are not anxious to lock in these current long-term borrowing costs which, again, is consistent with the term structure picture and these forecasts of weakening in the economy and lower interest rates down the road.",195
-fomc-corpus,1989,Thank you.,3
-fomc-corpus,1989,Governor Seger.,4
-fomc-corpus,1989,"Maybe you can get rid of some confusion I have. I always thought that the housing industry was very sensitive to credit conditions and interest rate movements, and so forth. I see what has happened to interest rates in the last year and I hear the forecast of another percentage point to be tacked on, yet I see housing starts for the calendar year 1989 actually estimated at a touch above calendar 1988--if I'm on the right line, it's 1-1/2 million versus 1.49 million. And then the following year it's 1.44 million, with the weakest quarter not being any worse than 1.43 million. I guess I just need to have that put together for me. How, with these interest rates, would you think that the home construction will not be any weaker than that?",167
-fomc-corpus,1989,"Well, to date, the effects on housing starts have been negligible. I think housing starts were confounded a bit by the weather that boosted the January figure to such a high level. February is in the area of more than 1-1/2 million. Interest rates have already risen a good bit. We don't have a gigantic further increase in mortgage rates in this forecast, so this kind of decline--given the underlying demographic influences and so on--looks to us to be fairly reasonable. I don't think we are all that far off. Given what other forecasters have been anticipating in terms of interest rate movements, I don't think we're that far off the beaten track on the housing starts outlook. Perhaps we're being a little optimistic. If we had a much larger mortgage rate increase it would obviously make a difference. But it's not very large at this point.",172
-fomc-corpus,1989,"Governor Seger, one other perspective that perhaps I can provide on that: If you take the California market, which represents a fairly significant share--",29
-fomc-corpus,1989,Assume everyone's moving to California--is that it?,11
-fomc-corpus,1989,"No, I said it's a fairly significant share of the total housing market. We have had increases in the prices of single-family homes that have averaged 25 to 30 percent in the Los Angeles and San Francisco markets. I think there are some consumers that look at that on a total return basis and figure out that 11 percent is not such a bad deal if you can count on increases in prices of that magnitude. I think that's had an impact in our state. I don't know if--",99
-fomc-corpus,1989,"Yes, but the others--",6
-fomc-corpus,1989,Mike Kelley wants to speak.,6
-fomc-corpus,1989,That's an interesting issue because the real interest rate there is to be adjusted not by general price levels but by the price of the asset to which it is applied.,32
-fomc-corpus,1989,Right.,2
-fomc-corpus,1989,And there as you're saying--you don't mean in California that it is literally negative at this stage but--,21
-fomc-corpus,1989,"Well, all I know is that the average price in the two markets that constitute most of the area has gone up about 25 to 30 percent in the past year.",35
-fomc-corpus,1989,"Well, that's not the projection.",7
-fomc-corpus,1989,No. And one has to figure out what people are projecting.,13
-fomc-corpus,1989,"I think we've seen in some parts of the Northeast that this doesn't go on forever--that you get an affordability problem after a while because the mortgage payment just is unmanageable. But it is a mixed picture regionally, and that's one of the problems in forecasting housing activity. It clearly has been a problem in the last year. We've had very divergent and changing market conditions. We try to sort through all of that as well.",86
-fomc-corpus,1989,"Consistent with what Bob [Parry] said, you get this responding sort of with a lag. In New England now we're seeing lower housing activity than you might expect, considering other variables, because with the rate of appreciation having declined substantially--it has actually gone negative in real terms--people are buying housing only for shelter. They are not buying it any longer figuring that it is an investment as well. So, at some point it sort of falls off a cliff in a sense, and you get a strong negative reaction to the whole thing.",110
-fomc-corpus,1989,"Well, that's what will tilt the housing market down. If all of a sudden there is a perception that residential property values are easing then all of a sudden, whatever the nominal mortgage rate is, it will grab--",43
-fomc-corpus,1989,That's right.,3
-fomc-corpus,1989,"I might just note one of the surprises recently: we haven't gotten too excited about this yet, but we have been surprised by the firmness in the multifamily sector. And we notice that there has been some downturn in vacancy rates in some locales. We have a sense that there is a very old stock of apartment buildings out there and some demographic pressure. It may be that there is some considerable resilience in the apartment part of the market.",87
-fomc-corpus,1989,"Bob, I assume that the 25 percent increase is a nominal increase in price and that it has the same problem that the national figure has in picking up a significant increase in the average size of homes and improved quality. So, the adjusted price level is not going up anywhere near that level.",59
-fomc-corpus,1989,We do not'collect good data on that. I don't know how much that has changed and how much of a factor that is.,27
-fomc-corpus,1989,"We do know in the national figures that it's very significant. And since California is such a big part, clearly, it's got to be an issue there. President Guffey.",36
-fomc-corpus,1989,"Thank you, Mr. Chairman. Mike, how much of the decline that you're showing in your forecast for 1989 and 1990 from last time is attributed to your assumption of an additional one percentage point increase in interest rates?",47
-fomc-corpus,1989,We haven't really made much of a change from our last projection. Using the model--which I've already indicated is an imperfect predictor of these responses--if you took out the interest rate increase and just held the funds rate stable the model would take off maybe 1/3 of a percent in real growth this year and something over 1/2 a percent next year. That means that we still would have a perceptible weakening in growth and likely some slight edging up in the unemployment rate.,98
-fomc-corpus,1989,"Ted, can I ask a question on the effect of the rise in the oil price in the last couple of weeks on the Saudi Arabian fiscal situation? A couple of weeks ago, as I recall, it looked as though the rapidly deteriorating fiscal situation in Saudi Arabia and the pressures on the oil price would likely come, with the Saudis having to increase their liftings to meet their revenue requirements, which would accelerate the price level decline. Is there any way of making a judgment as to whether the recent runup in spot crude prices has altered the situation in a way in which they need not move the liftings at this point?",127
-fomc-corpus,1989,"Well, it clearly works in that direction, though it all depends a bit on what one thinks the current meeting will produce for the balance of 1989. I have not seen any reports that suggest that the Saudis will step up production because of their fiscal situation or that they do not need to step up their production because prices have moved up. Posted prices have not moved to the same degree as spot prices, although--",85
-fomc-corpus,1989,"Yes, but they are still really selling at spot.",11
-fomc-corpus,1989,"But they have some long-term contracts. It depends on how those contracts are written; that's right. It works in that direction. One of the favorable factors has been the supply disruptions in Qatar; that has tightened the supply side. And in some sense there has been a spillover to the price the Saudis are getting. We have a small step-up in production in the second half of the year built into this. Our guess is that they decided to accept the prices coming down on the assumption that there will be a modest increase--a couple hundred thousand barrels a day--in OPEC production in general in the second half of the year. That's not a big deal. A small increase, on that order of magnitude, is built into what we have and if you parse that out among all the producers--",162
-fomc-corpus,1989,"If there are no further questions for Messrs. Prell or Truman, shall we open our tour de table? Who would like to start? President Boykin.",33
-fomc-corpus,1989,"Well, Mr. Chairman, I really don't have any questions or any real disagreement with the staff forecast. Looking at the District, our recent performance and the near-term prospects for our economy continue to improve. Over the last year and a half the gains in the Dallas District have been concentrated primarily in manufacturing services. More recently, we've seen some gain from the energy sector. The contraction in construction seems to be nearing the bottom. Agriculture remains a bit of a concern, primarily because of the uncertainty of the drought situation. As I've reiterated over the last six months, most of my contacts outside the banking and real estate industries have been sounding increasingly optimistic. I had a group of investment merchant bankers in for a breakfast meeting last week and most of them agreed that the Texas economy and even that of Louisiana, which has been one of the weakest states, are beginning to demonstrate increasing strength. In fact, a few who represent very large companies with considerable capital from both national and international sources are beginning to look upon the region as a ripe opportunity because of the reduced competition coming from the banking sector. On the whole the regional economy is improving but growing slower than the nation. Banking, real estate, and now agriculture are the exceptions to this pattern. Within the District no one is noting price or wage pressures but there have been a few signs over the last two or three months of some shortages of engineers, first in Houston and now in Dallas. Overall, I think we're feeling a little more optimistic down our way than we have for quite some time.",306
-fomc-corpus,1989,President Black.,3
-fomc-corpus,1989,"Mr. Chairman, the Greenbook projections look quite reasonable to us. Until very recently we had thought that they were underestimating the amount of economic growth we would have in the economy. But at this point I guess we think the risk of error is about equal on both sides of that. This change in our view is not the result of what we see in the Greenbook or the Beigebook or what we pick up in the way of anecdotal information. To us those sources suggest--if you allow for some downtick in some of the monthly statistics in February because of that temporary weather-induced burst in January and also allow for the sluggishness recently in automobile sales, which may prove to be temporary--that the economy looks pretty strong. What makes us think that the risks really have shifted is that we have taken, we think, some pretty significant policy moves in recent weeks and months. The federal funds rate is up about 3-1/2 percentage points over a pretty short period of time, and we think these policy actions--particularly the most recent ones--have increased the odds that economic activity will moderate later this year just as the Greenbook projects. And these actions significantly reduce the risk that the economy is going to overheat further. Now, the recent sharp increases in prices at the wholesale level and certainly at the consumer level worry us a great deal as do the indications of upward pressures on wages. And we're deeply concerned about broad increases in prices outside the food and energy area. That suggests that the underlying rate of inflation has risen at least a notch or two in the last several months. On the other hand, the trend rate of growth in M2 has dropped pretty markedly over the last two years and I think that provides us with at least some insurance against a really sharp further acceleration in the underlying rate of inflation for the remainder of 1989. But I would add, perhaps gratuitously, that if we're really going to get inflation down to a zero level I think somewhere down the road we've certainly got to get the aggregates growing at a slower rate than they have grown over most of this two-year period--maybe no slower in 1989, but certainly in a trend sense they have to come down still further if we're going to get to our ultimate goal.",460
-fomc-corpus,1989,President Parry.,4
-fomc-corpus,1989,"Thank you, Mr. Chairman. The Twelfth District economy continues to experience healthy growth with only a few signs of slowing. Agricultural producers are enjoying high product prices and recent rains have lessened the chances of drought in the area rather substantially. We also hear reports from Western department store executives that sales of soft goods have improved in recent weeks. But I must admit that that may be a reflection of improved weather conditions and also the early Easter season. In the few sectors that we do see slowing it appears as though supply constraints explain much of the change. In Section II of the Greenbook there was a reference to the types of problems that the commercial aircraft industry is experiencing and I was thinking that it's rather amazing that Boeing has signed an agreement with Lockheed to borrow up to 670 Atlanta-based workers for as long as six months. Turning to the national economy, the level of activity as indicated in the discussion in the Greenbook remains above its noninflationary potential. Strong growth in employment and tightening labor markets suggest that upward pressures on wages are likely to persist. At the same time, higher short-term interest rates may result in some slowing in the next few quarters. But I must admit that, to me, signs of current slowing are too few to be convincing at this point. Our overall outlook for the economy is really not very different from that of the Greenbook. We also expect the economy to remain above full employment with continuing upward wage pressures for at least the remainder of 1989 and perhaps into 1990. However, we have less strength in our forecast originating in the net export sector, largely as a result of the strength of the dollar that we've experienced during the past year. Thank you.",343
-fomc-corpus,1989,President Stern.,3
-fomc-corpus,1989,"With regard first to the District economy, in general things remain in good shape and there haven't been any major surprises or new developments that are worth reporting, with a couple of exceptions. On the side of real activity the one surprise that I've noticed is that nonresidential construction activity is certainly stronger than I would have expected at this point. Major projects continue to be announced and initiated in the Twin Cities and the way things are shaping up it looks like that's going to keep that sector reasonably strong early into the next decade. Labor markets generally remain tight and sectors that had been expanding are continuing to expand. Having said that, I do have the sense from talking to a variety of business people that the rate of expansion has eased a bit. And it's very clear to me that in the last several months, at least, business people are once again noticing interest rates. Interest rates have become a topic of conversation whereas as recently as perhaps four or five months ago that subject hardly, if ever, came up. But that's now back on the agenda. Another subject where the tone of the anecdotal information seems to have changed is cost increases. In the past a lot of business people would tell you about the cost increases that they were experiencing and the difficulties they were having in passing those cost increases through. They will admit now that they're having less difficulty moving those cost increases through. They hardly, if ever, complain any longer about the difficulty in doing so. As far as the national outlook is concerned, I have little to add. I think there are some signs that we may be approaching a soft landing, at least as far as real growth is concerned. I wouldn't want to exaggerate those signs, given that January was probably boosted by very favorable weather and some backing off in February was almost inevitable. We do run an unfettered model forecast; it's a wholly unfettered [vector] auto-regressive model. And for what that's worth, that does not have a recession in it. It has continued real growth in '89 and '90, and it has that at modest rates. And, at least as far as consumer prices are concerned, it has somewhat more rapid inflation than the Greenbook.",439
-fomc-corpus,1989,President Forrestal.,4
-fomc-corpus,1989,"Mr. Chairman, looking first at the District, I'm glad Boeing is borrowing some of the Lockheed workers; that will be helpful. There are several thousand Eastern [Airlines] people who are available as well. We haven't seen very much of a change in the Sixth District since the last meeting of the Committee. We are continuing to see moderately good growth, although it's somewhat slower paced than the national average. Capital spending plans are quite robust in those industries where capacity pressures are evident and that is certainly the case for industries like paper, chemicals, rubber, and all aspects of the transportation sector. Textile manufacturers are also moving ahead with plans to increase purchases of equipment although in that case it's mostly to modernize their older facilities. We do continue to have reports of shortages of skilled labor and upward [wage] pressures for skilled workers. The markets are not quite as tight for unskilled people but even there we hear sporadic reports of difficulty, particularly in fast-food places and in supermarkets. There is considerable concern among people I talk to about the rising cost of benefits, particularly health benefits, and the impact on total labor costs. In addition to that there's a fear or concern about enactment of a higher minimum wage which would push up wages for higher paid labor as well, given the relative tightness of the labor market. As for prices, on the basis of sporadic reports, the information we're getting is mixed. Increases are mixed for industrial inputs, with a greater upward bias than seen a year ago. And it's rather interesting to me that, in connection with prices as well as some other areas, people talk about a lower level of prices over the last month or so but when they compare their prices to a year ago they are still considerably higher. With regard to the national economy, we don't have very significant differences with the Greenbook forecast. We would have a slightly higher inflation number and a lower unemployment number but those are minor differences; basically we're in agreement. Judging from the Sixth District and from what I see around the nation there is some near-term deceleration in economic expansion, especially if you take into account the fact that we're at full employment and a lot of industries are going full blast and at high capacity. There are two things that continue to disturb me. One is that any slowing that's evident seems to be taken as a sign of real weakness in the economy. I think we've gotten so used to high numbers over the past several years that when the numbers come off even a little people get panicky. On the inflation side the same thing is true. As I've said before, among a lot of people that I've talked to there is kind of an acceptance of inflation at the 5 percent level or even a bit higher. I think that was confirmed when the CPI number the other day came in at .4 percent--which I'm not all that sanguine about--they were relieved that it wasn't at the higher end of the expected range. So in general, I think we have an expectational problem in the economy and in the markets that we really have got to move against. Now, I hope that the economy really is slowing. But as someone said earlier we've been burned on this before. Over the summer I remember a couple of times when we thought there was a slowing and it turned out not to be. So, I'm skeptical that we are really seeing a sufficient slowing to stem the inflationary pressures that are there. And that obviously leads me to a certain conclusion about monetary policy that I'll reserve for the later discussion.",711
-fomc-corpus,1989,President Keehn.,4
-fomc-corpus,1989,"Mr. Chairman, I do find this a particularly difficult period in which to assess the outlook. In his presentation I think Mike made the case, which we would agree with, that there are at least some tentative signs of moderation out there. In a national context we reviewed a number of things in the Greenbook. We think consumer spending, particularly for durables, will be showing some sign of leveling. Growth of exports is certainly short of our expectations, and that would be particularly true for industrial supplies, materials, and capital equipment. The housing numbers are showing some signs of softness; interest rates have had an impact on that. The railroads no longer carry the GNP but nonetheless the year-to-date numbers for rail shipments are certainly lower, particularly for February, than was the case for last year. How much of this is weather-related I think is very tough to tell. January was extraordinarily warm, of course, and February was at least normally cold and the seasonal adjustments may have had an impact on some of these national numbers. In a District context, we're really not seeing very much of this moderation. The employment numbers throughout the District continue to be strong; we don't see any weaknesses emerging there. The manufacturing outlook continues at a pretty high level. The steel business, for example, is strong. And the steel plants in the Midwest are exporting--admittedly from a low base--but nonetheless that's a new market for them. Machine tool orders are up. Railway equipment--an industry that has been absolutely moribund over the last four or five years--is showing some signs of increased orders. So, in a manufacturing context, it's our expectation that activity in the Midwest this year probably will be running ahead of the national numbers. And certainly the other aspects of the Midwestern economy continue to be pretty favorable. On the inflation side I have thought for quite some while that of course the risks really were, on balance, for higher levels of inflation. I think that continues to be the case; but it may just be possible that we're at one of those times when the balance is shifting a little and that as we go into the upcoming period some of the moderating signs will become a bit more specific. The real question--which we'll be talking about a little later--is how much more we need to do in a monetary policy sense, if in fact we need to do more.",479
-fomc-corpus,1989,First Vice President Stone.,5
-fomc-corpus,1989,"Regionally, the labor markets in the Third District have continued to tighten. The unemployment rate this quarter for the three states represented in the District is estimated to be the lowest it has been in 19 years. We'd be happy to borrow some employees from whatever Districts seem to have some available. Businesses are reporting a shortage of labor across an increasing number of categories and that includes skilled and unskilled workers. And we're starting to hear about shortages in the professional area, including engineers. Prices and wages continue to increase at levels above the national average. We also see some early signs for our regional outlook of more moderate growth in the near term, but not a level moderate enough to reduce substantially the pressures on both labor markets and prices. On the national scene, we feel the staff estimates are relatively reasonable. We probably see more risks on the up side, particularly for inflation. That concludes my report.",180
-fomc-corpus,1989,Vice Chairman.,3
-fomc-corpus,1989,"Let me start with a couple of impressionistic or anecdotal comments. My sense is that most people in the business community that I talk to associate themselves with the view that there are these straws in the wind that the economy may be settling down a bit. But I think it's almost universally true that they would tend to be in the soft landing camp in that I have absolutely no suggestions [from them] of any accumulating downturn or anything even remotely resembling recession or remotely indicative of that. There is, I think, especially among major industrial companies, far less conviction today than there was three months ago about the prospective strength of exports. Some of that is exchange-rate related but, seemingly, a lot of it is not simply a reflection of exchange rates; there's a combination of capacity constraints and other considerations as well. But certainly there is less conviction about the near-term strength of exports than has been the case. Even has changed his tune, Alan, quite perceptibly. The anecdotal material on the inflation side is, frankly, a bit sour right now. Virtually all companies--small and large--that we've talked to in the recent past do point to both labor and nonlabor cost pressures. And consistent with Gary's comment [they report] less difficulty in passing costs through. I don't think I would characterize these impressions as symptomatic of a 1979-80 type outburst of inflation. Nevertheless, I think the perception is there that the pressure is greater. One little tiny vignette that's germane: our small business and agricultural advisory committee members were talking last week--and this really shocked all of us, I think--about wage increases as high as 9 and 10 percent. Presumably, because these are small companies these are not wage increases as much as they are increases in hiring rates. In other words, when they lose employees they have to go out into the marketplace and replace them. And I think the thrust of their comment was that, in at least some cases, replacement rates are now 9 or 10 percent above prevailing rates for existing employees. So it's not a wage increase in the usual sense of the term but I think it is symptomatic of quite tight labor markets throughout the District, including most of upstate New York at this point. The other impression that I pick up an awful lot lately--and I think it's just worth repeating--is an almost universal skepticism, bordering on cynicism, about the outlook for budget deficit reduction plans, as they may or may not emerge over the weeks ahead. Again, it doesn't matter whether you're talking to small businesses, big businesses, upstate, or downstate. There really is a growing concern that nothing seems to be happening. Whether the Administration's quiet diplomacy will produce something is another question. But I think it is a matter of increasing concern. As far as the forecasts are concerned, the New York staff forecast for 1989 in terms of GNP, real GNP, and indeed almost all the components of GNP, is virtually identical with the Board staff's forecast. The only major difference we continue to have is on the inflation side. Depending upon which index you look at, our inflation rates are a half--",642
-fomc-corpus,1989,"Jerry, would you speak up a little? We'd like to hear what you're saying.",17
-fomc-corpus,1989,"I'm sorry. The only material difference in our staff forecast versus the Board staff's forecast is on inflation. That has narrowed a bit but we still have inflation rates in 1989--depending upon which index you look at--that are 1/2 to 3/4 of a point above the Board staff's forecast. That still seems to reflect, primarily, a different view on markups. Mike's forecast still has a small negative spread between, say, the deflator and unit labor costs and ours continues to have a small positive spread. But when you add the two of them together it comes out to 3/4 of a point difference on the high side in our forecast. In 1990, for whatever weight one wants to put on a 1990 forecast, there's a fairly sharp difference between the Board staff's forecast and ours. We don't have as much of a slowdown in domestic demand as they do. And we have the external adjustment process essentially flattening out and indeed deteriorating a little. So there's a quite a sharp difference in 1990. I don't put any more weight on those forecasts than Ted Truman does, but to get back to the point the Chairman raised earlier--whether you take the staff's forecast or our forecast for '89 and '90 on the external side--both imply an increase in U.S. net external liabilities in balance sheet terms of about $275 billion for the two years combined. And I must say as an intermediate- or medium-term policy problem I am getting more and more concerned about the implications of anything even resembling that kind of a result for the two years running. With regard to the near-term growth prospects in the economy, my sense of things, Mr. Chairman, is that under the best of circumstances the near-term inflation numbers are going to be bad. And if the economy is simply pausing rather than trending down they could be terrible. So an awful lot does ride on the question of how much weight one should give to these signs, however tentative or firm one may think they are, as to the near-term course of the economy. Just one last point on the price side: Mike and Ted talked a fair bit about oil prices and Governor Angell will probably talk a bit about commodity prices. But one thing I did notice in looking at commodities is that stocks of a very wide range of agricultural and industrial crude materials are at quite low levels right now. I'd simply observe that if we don't get some rain in some parts of the country pretty soon that could further complicate the near-term outlook on the price front.",521
-fomc-corpus,1989,"President Melzer, why don't you start off by telling us about rain in your area?",18
-fomc-corpus,1989,"It's not a problem; we even had a foot of snow three weeks ago. I think Roger might have something to say about that. In terms of the District numbers, the most recent reported activity is very strong both relative to what we've been seeing lately and also compared to the national numbers. In general, the more recent anecdotal information would tend to confirm that. The general sense I get is that orders are growing, albeit at a slower pace, and that there is some weakness in the consumer area but the commercial area is still quite strong. In particular, we're seeing strong manufacturing employment growth and the industries that you see there are transportation, textiles, food products, and chemicals. On the transportation side--just picking up on what Bob Parry said--a fellow from mentioned to us the other day that they have a five-year order backlog in commercial aircraft and I think half of their workforce has about an average of one year's experience on those particular assembly lines. He did go on to say that the order backlog includes options--I think they call them reservations--so that some of that could fall away. On the textile side, where we've seen some strength as well, a textile manufacturer who had just returned from the Far East mentioned that, looking at Korea for example, between what's happened to their currency and wage rates domestically in Korea they're looking at cost increases of 25 percent in manufacturing there. And to a lesser extent that's happening in Hong Kong and Taiwan. So, in particular types of products the United States is much more competitive. In terms of other insights of an anecdotal nature, the general sense I get is that people--whether they are in a commercial business or even in a consumer business--really feel that they are under a great deal of margin pressure. Raw material prices are up a lot, as somebody said, over the last year. I think the increases have slowed down recently. There is some sense of potentially growing wage pressures. And certainly in businesses where they're selling to original equipment manufacturers there is still a great deal of difficulty passing along price increases. But they will try to work both ends of the costs savings, passing along increases where they can. In terms of growth in orders, clearly the sense I got is that [the rate of] growth has slowed down in the last couple of months but orders are still growing. I've heard of no cancellations as yet, but reading between the lines I sense a little anxiety about the possibility of cancellations. In a similar vein on receivables, one consumer products company mentioned that they are really taking a very close look at their receivables, which have been growing; and they noted that now 20 percent of the companies they sell to have been involved in LBOs. So, they view the quality of their receivables as really quite low and they are looking at that carefully. On the national front, my observation would be--just going back a month ago--that our forecast in terms of the result was very close to the Board staff's but it presumed roughly 4 percent M1 growth over the forecast period. Clearly, to the extent that we have very low money growth, people who prepare [our forecast] have become increasingly concerned about whether or not things are going to work that way. In a sense that leads me to a bit of concern, to the extent that in our discussions here we tend to focus on current inputs and whether or not we see weakness and how we try to trade that off against price pressures. In a sense I think there's a trap in that process in that it doesn't really take into account some of the inherent lags in policy. By the time we see the weakness it could be too late; and when we do see the weakness we probably will continue to see price pressure. What do we do then? If you look back to the discount rate increase, to some extent the market in effect demanded that, in my view. I'm not saying we wouldn't have done it anyway, but in a sense I don't think we had a choice because the perceptions out there were basically that we were going to respond to these short-term inputs. So, I think at some point we have to introduce into the dialogue something else to look at that can be a guide. In general, I would just urge that we not ignore what's going on with the aggregates. We all know we set a target on M2 and we know where that stands: it's a little below the lower end of the cone. I'm sure you all recall my proposal for a [monetary] base growth constraint. In the fourth quarter that grew at less than 5 percent, which is what I suggested as a lower bound; this quarter it's probably right around 5 percent. I took a look at reserves and I was interested in what I found there. If you go back to '79 we've only had two quarters over that entire period of negative reserve growth: one was the fourth quarter of '88; the other was the third quarter of '87. And as you know from the Bluebook, we're putting together a second back-to-back quarter of negative reserve growth of fairly substantial proportions. In any case, I just think that as we contemplate policy actions we have to consider not only what's going on in the economy currently but also some gauge of the thrust of our actions and the lagged impacts they are going to have.",1082
-fomc-corpus,1989,President Syron.,4
-fomc-corpus,1989,"Well, maybe it's because I'm sitting next to Bob, but the New England economy sort of performs inversely to Texas. I'm not sure whether there's any causal relationship. Contemporaneous measures of the region's economy are very strong: an unemployment rate of 3.2 percent; personal income still growing at faster than the national level. But if one looks a little beyond that, particularly using anecdotal information from talking to people, there are certainly signs of a number of areas where there are problems. Manufacturing employment has been declining in absolute terms for some substantial period of time. There was some mention of the computer industry on a national basis; that's reflected to an even greater extent in New England. One of largest employers, Digital Equipment Corporation, had a very major decline in its stock price last week that reflected some problems they had in earnings. Consistent with that, we're seeing that wage pressures are still pretty strong at the unskilled end of the labor market. At the skilled end of the labor market pressures seem to be abating somewhat from what has happened in the past. But going beyond that there is a variety of things that I think are going to lead to some further relative slowing in the New England economy. We have serious tax problems in three of the six states that account for about 80 percent of the population and 80 percent of the economic activity in the District. There are incipient problems in the banking sector. Delinquencies have risen. Actually, it's the ultimate in anecdotal information, but in last Sunday's papers we had three pages of ads for single-family houses, which is unusual for us. Granted, they were big ads so they end up taking a lot of space. But interestingly, particularly in the housing area, I think what's driving it is not rates so much as this realization that people are no longer going to buy a house at $600,000 and then two years later turn around and sell it for $800,000. That's what we were talking about before--Bob Parry's point that people are buying shelter. I would maintain that much of what's going on in New England does not really reflect monetary policy or overall constraints in the national economy. It's sort of supply constrained and relative costs have gotten so high in the District; and actually, it's a very small District in terms of its weight nationally. In terms of the national economy, we too don't differ very much--hardly at all--[with the Greenbook forecast]. I have some slight difference with the unemployment path of the staff forecast and agree very much with the tone of the comments that Mike Prell made this morning. However, I find those projections somewhat disconcerting--not in the sense that we don't agree with them but that they imply that we have a very difficult situation before us in that we know inflationary pressures are there. It seems to me there isn't much question about that, regardless of what we do right now. And while there have been some--to be different I'll use the word ""reeds""--in the wind of a possible slowdown, I don't think we've seen any broad signs. We have certainly seen substantial increases in personal income; we don't know how that's going to be reflected later on. There really isn't any convincing evidence of a substantial slowdown, so we are rather dependent on a forecast for that. And the Greenbook forecast--which I'll say again we have very little problem with--shows, even taking out the drought in the second quarter, fairly strong rates of growth. There was discussion about what the natural rate is. I think that we're in a difficult position where if one does believe that the risks are not symmetrical, the risks would lead one to want to be more conservative.",747
-fomc-corpus,1989,President Guffey.,5
-fomc-corpus,1989,"Thank you, Mr. Chairman. With respect to the District economy, it continues to improve albeit at a rate somewhat slower than the national rate of growth. The strength comes largely from the agricultural and manufacturing sectors whereas the weakness is where it has been in the past couple of years--in the energy and construction areas. There is an event that I think is worth noting that somebody spoke of a moment ago, and that's the drought. That will affect portions of the Tenth District, largely an area from about the plains in Kansas to the northeast through Kansas, northern Missouri, and portions of southeastern Iowa and western Illinois. If we do not get rain, some generous spring rains, fairly soon the agricultural situation will be fairly grim. For example, in Kansas about 3/4 of the wheat crop is now estimated to be either poor or very poor, which are two of the lowest categories of estimates of that particular hard winter wheat crop. The one event that was frightening occurred about two weeks ago--and I suspect most of you know this--when there was a dust storm that was created by 50-60 mile per hour winds that actually darkened the sun in midafternoon in Kansas City. In fact, there were some street lights that came on. I happen to be old enough to remember the 1930's dust storms and this was very reminiscent of that. It happened to be [only] one day; nonetheless, if there is no rain through that belt that I just described I think we will have very serious problems. The estimate of food prices, for example, might be way off. Beyond that, there is strength in the manufacturing sector, and I'm thinking primarily of general aviation. Auto production, up until a couple of weeks ago at least, was going full bore with auto plants operating at two full shifts. That would appear to be slowing now; I don't know what's going to happen in the future but there is a very large inventory, as you know, of unsold autos. The energy sector shows little or no improvement. As a matter of fact, it continues to decrease in terms of exploration activity. It has always been thought that a price around $17 a barrel would regenerate the interest in exploration; but the uncertainties about OPEC and what may happen to oil prices simply are keeping those individuals out of that particular activity and the number of active rigs that are drilling continues to decrease. With regard to the national outlook, there is no real difference between the staff forecast and our own for the horizon of the forecast with the exception that we're a bit stronger on both growth and prices. In fact, there is some encouraging evidence that has already been cited with respect to a slowdown. But it isn't very convincing, at least yet. I think we still have to wait for some additional information on that. In our forecast, we'd put the risks on the high side rather than the low side, with rather a bit stronger growth and stronger prices.",593
-fomc-corpus,1989,"The Fourth District really hasn't changed much over the last year and a half that I've been talking to you about it. It's very difficult to pick up any signs that we have a slowing in the area, either through casual observations, talking with people, or trying to ferret through the data. What we did this time was to talk to a few capital goods producers, which includes firms like Westinghouse and Eaton Corp., and several other basic capital goods producers, to try to get a handle on whether or not they see any change in attitudes among the people they supply. And the answer to the question is simply no. Any weakness that you perhaps see in computers or office equipment is being offset, at least in the District, in very traditional capital goods. The most optimistic person was a guy in the capital goods industry who estimates real [growth] for this year at 6 percent, fourth quarter-over-fourth quarter. It's very difficult to find any signs of weakness in that. Now, to some extent I'm a little surprised that we didn't find more price pressures developing than we did. They all expect to be able to move prices up in the coming year but they haven't moved aggressively as of yet generally. Order books are still good and lead times are in most cases lengthening rather than shortening. So the picture for capital goods expenditures--at least what the producers in our District think--is that the outlook for them is quite bright this year, with really very few concerns about a slowing economy. One or two raised a concern about that but they hadn't altered their plans for production. In terms of the Greenbook forecast and the outlook nationally, as usual I am chagrined that, to some extent, again we are pushing back another year any decline we are going to see in the inflation rate. But that has been a continual concern. I haven't seen us making a lot of progress in the last year and a half. I agree very much with the comments made by Tom Melzer that we have done some things that are unusual. One is the growth in total reserves. Maybe Don can talk about that a little later; I don't know exactly what it means. I know that it comes from interest-sensitive asset flows being shifted around. But it seems to me if it's something that we ought not be concerned about at least we should question whether or not there's some significance to it in terms of the outlook. The lag problem is always with us. I presume Mike has built that into the forecast. Now, I have no confidence that any other forecast is better than this one. So, my concerns are the same as his--well, I don't want to speak for him. I view the errors as likely to be on the high side in terms of inflation rather than on the low side. I'll save the rest of it for the policy go-around.",570
-fomc-corpus,1989,Governor Johnson.,3
-fomc-corpus,1989,"I don't really have much to add. We got a rash of weaker indicators for the month of February, where almost across the board all of the data suggested a weakening. But we don't know whether that is weather-related or not because of the strong data for January. There certainly are some signs of slowing. I agree it's too early to assess whether things are significantly slowing or whether this is establishing some sort of trend. Real personal consumption expenditures seem to have been on a modest track for more than just one month and the order books on capital goods seem to have been moving at a moderate pace for several months now. So, I think those are promising signs. But I don't think there are any indications of things going overboard on the weak side. Or, at least if they are starting to slow down quite a bit, we only have one month's observation. It's too early to make any judgment one way or the other on that. I think the inflation news recently has been disappointing; but at the same time we knew these lags were built in. Those forces were set in place long ago and we've got to look forward. So the question is whether we have put in place strong enough policy that, with a lag, we're going to get the results we're looking for. That's the key question. I don't think anyone knows this for sure; but we have moved quite significantly over the last intermeeting period and we will just have to see. Economically, I think we are in an uncertain period.",300
-fomc-corpus,1989,Governor Angell.,4
-fomc-corpus,1989,"My sense is that consumer spending in the United States is rather gradually coming into line with what needs to happen. Maybe some of this is interest-rate induced; maybe some of it is demographics; maybe some of it is actually the impact of higher prices and higher interest rates on budgets. In many ways that looks like a 1 to 2 percent growth rate of consumption, which seems to me is exactly what we would like to see happen. And it seems to me that this happens in an environment that's not very prone to a recession. When I look at inventories and at the factors that ordinarily lead to recession I just do not see the economy going into recession in the foreseeable future, and I guess that would take us through the first quarter of 1990. I recognize it's a narrow path to have this slowdown in consumer spending without overshooting and getting a recession out of it. But it does seem to me that that's still a possibility. Hindsight, it seems to me, would say that some of us who watch commodity prices didn't say as much about it as we should have said, but there is a clear indication that year-over-year rates of change in commodity prices have been moderating. But they have been plateauing in a very, very slow manner. Of course, we had the November-December spike in which the world food situation began to be somewhat more clear to the people that follow it. We saw food and fiber prices [rise] in November and December. We've had a year-over-year increase of 42 percent in the price of wheat; the price of wheat is almost 80 percent of its high, which occurred back in 1974. And that's a price that really is very conducive to increased production worldwide. The weather situation is, of course, a very clear one; and it gets interpreted into those commodity prices very, very rapidly. I suppose some things could go wrong but I guess I'm comforted, Tom, by the 2 percent M2 number. Given the price pressures that are there, I couldn't be more satisfied with any M2 growth that I can think of than what we're getting. I suppose it does run some risk of being that close to the precipice. But I think it would be riskier still if we were going along with growth of M2 at a much more rapid pace.",469
-fomc-corpus,1989,Any other Governors wish to add anything?,8
-fomc-corpus,1989,"I think the general reluctance, Mr. Chairman, is indicative of the fact that we all like where we have been and we don't like where we are going. Maybe Mike Prell said it best when he said we're in danger of overshooting the runway and when you overshoot the runway you tend to get stuck in the mud or something. So, with regard to the general picture of the economy that's unfolding here, I'm not particularly fond of the declining investment activity, which doesn't build additional capacity nor of the export picture not being as good as it could be, although we continue to make progress. I see the export picture mainly as a problem of different regions in the world economy and relative exchange rates rather than our absolute exchange rate levels towards Europe. We are in an approximate balance now or actually are running very, very small surpluses, but [not] toward Japan and Korea; obviously that's where the problems are located. And I'm not sure that exchange rate changes are the right way to go at that particular problem. So it isn't going to be very pleasant. But it's all we've got, right?",222
-fomc-corpus,1989,There's only one economy. Anybody else before coffee?,10
-fomc-corpus,1989,"Sounds better than anything else, right?",8
-fomc-corpus,1989,"Well, why don't we break now.",8
-fomc-corpus,1989,The dollar is up to 133.20 on the yen; the bond market is up over 9/32nds; the stock market is at [unintelligible]. What do they know that we don't?,44
-fomc-corpus,1989,"Plenty of confidence in us, that's all!",10
-fomc-corpus,1989,Which was my opening refrain to Don Kohn.,10
-fomc-corpus,1989,"Well, they're in a lot of trouble! [Statement--see Appendix.]",15
-fomc-corpus,1989,Thank you. Let me quickly ask on Chart 7: I assume that you're not repeating before 1978 because that's when the whole survey started. Or is it because other proxies don't give you as good a correlation with the very present?,48
-fomc-corpus,1989,"Yes, I think it's sort of suspicious too. This chart is plotted from 1978 because that's when the 10-year Hoey survey started. We have done some other experiments using, for example, 1-year rates with 1-year inflation expectations. They tend to get very poor results in the 1960s and somewhat better results in the 1970s and 1980s. They also suggest that there have been changes in the natural real rate, which was a little higher in the 1960s, a little lower in the 1970s and much higher in the 1980s.",126
-fomc-corpus,1989,Any questions?,3
-fomc-corpus,1989,"Just one. On the Hoey survey, was that last survey taken before or after our discount rate [action]?",23
-fomc-corpus,1989,I don't know.,4
-fomc-corpus,1989,It's a February survey number.,6
-fomc-corpus,1989,"Yes, it was the last half of February, but I don't know the exact date. I know it was after that first PPI number and before the second; that I checked on.",38
-fomc-corpus,1989,Okay. That's all I need.,7
-fomc-corpus,1989,"Don, maybe you answered this, but in the cool light of hindsight has the Hoey survey had a reasonable degree of accuracy?",26
-fomc-corpus,1989,"Well, I don't know. I'm not familiar with--",11
-fomc-corpus,1989,It only had one observation in 10 years. You'd have to look back.,17
-fomc-corpus,1989,"Well, on the shorter?",6
-fomc-corpus,1989,"I don't know, President Keehn. I haven't seen a study which tends to do that. Generally, these market expectation studies don't show that the market does a very good job of [predicting] what's going to come. But also, I look at it not as a way to see if the market may in some sense be more accurate than someone else, but rather as giving us some clue as to what's going through people's minds, whether it's accurate or not.",93
-fomc-corpus,1989,"Questions for Don? If not, let's move on to a discussion of policy. I'd like to start off by saying that the [outlook for the] economy is generally uncertain, a view I assume a lot of us share. My own impression is that the odds are that what we're going through now is more likely to be a pause rather than the beginning of a downturn. But the odds are less, I think, than they were in earlier stages in this particular cycle, if for no other reason than that we are at much higher levels of activity and the probabilities that the economy will eventually tip over obviously are linked to how long the expansion has been going on, even if age per se does not necessarily throw us over. But there are signs that orders are a little shabby. Basically, with the dollar very strong and with the money supply growth factor rather modest--even though the odds in my judgment are somewhat better than 50/50 that we will probably have to tighten again before this cycle is over--this strikes me as probably a good time to pause and see what effects our actions to date have. That would lead me to come out for ""B"" asymmetrical towards tightness. Governor Johnson.",242
-fomc-corpus,1989,"I'd just follow up on that, Mr. Chairman. That's pretty much the way I see it. As I said in my statement just before the coffee break, I think there are certainly some signs of slowing but not enough to feel that a clear trend has been established, although I think we have enough observations on new orders and in the real consumption area to suspect that things are at least slowing or moderating. Whether that will be sufficient is certainly not clear at this stage. But, given the fact that we have just recently moved fairly significantly on policy, I think we at least ought to wait a while to see how those lags work out. I think it's probably still true that the risks are somewhat asymmetric, so I can certainly go along with an asymmetric policy position in terms of our pause.",160
-fomc-corpus,1989,Governor Angell.,4
-fomc-corpus,1989,"Mr. Chairman, I agree with your view in regard to a pause, so I would go with alternative B also. I have a slight preference for being symmetric but not for operational reasons. It's simply that I believe if we are symmetric and we need to take that next step--and I think there is at least a 50/50 chance that that's the case--we can do it with symmetric language. But if it happens that we don't need to take that move, we just look a little wiser by hindsight. I don't know whether that impresses anyone or not.",115
-fomc-corpus,1989,President Parry.,4
-fomc-corpus,1989,"Mr. Chairman, I have a request for clarification. In the Bluebook it's stated that alternative B would assume roughly a continuation of 9-3/4 percent [on the funds rate] and that money market rates might tend to decline a bit if that indeed is where we came out. It seems to me in terms of maintaining the existing degree of restraint in financial markets that the market is probably thinking more about 10 percent. Could I interpret support of ""B"" as being an operation which would cause money market rates to remain at roughly their current levels?",113
-fomc-corpus,1989,"I would think so. My own impression is that it's much too soon to allow the markets to get any signals, erroneous or otherwise, that we're backing off. That would strike me as a very inopportune signal.",45
-fomc-corpus,1989,So that could be consistent with a slightly firmer funds rate?,13
-fomc-corpus,1989,I would think so.,5
-fomc-corpus,1989,"Okay. Well, in that case I certainly would favor alternative B and asymmetric language at the present time. However, if further signs of slowing do not become more convincing in the next several weeks, I would certainly recommend that we consider moving to alternative C promptly.",52
-fomc-corpus,1989,President Black.,3
-fomc-corpus,1989,"Mr. Chairman, I favor holding policy steady over the period ahead, for a period of the next few weeks anyway. My hunch is the same as the one that's there [in the forecast] and also the one you made in assuming that some further increase in the funds rate is probably going to be needed later on to keep inflationary pressures and expectations from building up over the months ahead. So, I would want the directive to be asymmetrical. But I think it's also possible that we've done enough, particularly in looking at the behavior of M2 and how that has decelerated. I realize a lot of that stems from how opportunity costs of holding M2 [have changed] just recently; but if you look at the last two years M2 growth is still down to 4.7 percent from many years at a trend rate of about 8.9 percent. That is one whale of a lot of deceleration over that period. That leads me to be more sanguine about what might happen to inflation than I would be in the absence of that decided deceleration in M2. So, I would go with ""B,"" at least until we have more information on the March figures; I'd watch those closely because I may well be wrong on that. Certainly, the current statistics do not reflect anything that would suggest that we ought not tighten more. You've got to look way back at what has been put in train, guess about those lagged effects, and reach the conclusion that now is the time to pause. And that's really where I think the focus ought to be right now.",321
-fomc-corpus,1989,Vice Chairman.,3
-fomc-corpus,1989,"Well, as you know Mr. Chairman, I blow hot and cold on this, to put it mildly. I probably have changed my mind about what is the right thing to do about once every hour for the past two weeks. I clearly think that we've got to maintain a tilt toward firmness; indeed, I think my preference would actually be to come out somewhere between ""B"" and ""C"" right now. Let me just elaborate on two basic reasons as to why that's where my preference lies. The first is, as I've said before, that it seems to me we have a period immediately in front of us just about baked in the cake in which the price statistics are going to tend to be on the bad side. I think that's kind of locked in. By ""bad"" I don't mean anything like those January-February PPI numbers but something in the range of 5 percent or higher. Again, if our forecast and our hunches about soft landings prove to be right then we could get lucky. On the other hand, if our forecast and hunches about soft landings are wrong and we have a pause rather than a slowdown then I think we have real trouble, which is another way of saying that I still think the risks are distinctly asymmetric. I have another concern that reinforces my tilt [preference]. And that is, notwithstanding Don Kohn's Chart 7--which I agree is pretty impressive to look at--I still worry that the changes in the financial system and structure may well have produced a situation in which it takes a higher level of both nominal and real interest rates to get the same degree of restraint that might have been associated with that nice neat relationship in Chart 7. And that leads me to a couple of things. First of all, as we look around right now there is no evidence that I can see of any credit availability problems. There's plenty of credit there. That shouldn't surprise us, given all the structural changes in the financial system and so on. But what it means, of course--and Ted Truman touched on this--is that one way or another restraint has to come through price effects. Price effects either mean the exchange rate--and if they are the exchange rate that complicates immensely that medium-term problem I spoke of earlier this morning--or they have to be one way or another through interest rates. But what I'm not so sure about is how much we know today about the way the interest mechanism itself works. For example, take the consumer sector: it's unambiguously clear that rising interest rates have a net positive impact on personal income even after you take account of floating rate mortgages and home equity loans. Now, that itself doesn't tell you too much; you then have to make a lot of judgments about relative propensities to consume. But it's unambiguous in terms of its cash flow effect on the consumer sector as a whole.",583
-fomc-corpus,1989,But adjustable rate mortgages are only 25 percent of total mortgages.,13
-fomc-corpus,1989,"That's true. That's what they are right now. But on the other hand, the business sector clearly is hurt more in cash flow terms by rising interest rates than it once was. And we get the anomalous effect that at least in cash flow terms the effects of rising interest rates are more of a problem in the place where we need spending activity rather than in the consumer sector where it should go the other way. Just as another illustration of this financial engineering, we're now all familiar with the swap market but we now have emerging markets in interest rate caps, collars, and floors. And this market, which is only a couple of years old, we know to be $300 billion in size and we think it is probably $500 billion in size. This market didn't even exist three years ago! And as a reflection of the way that market has been working in recent months, the open interest in Euro-dollar futures contracts in Chicago is now up to $760 billion. Now, I just don't know myself how all these things interact in terms of the way monetary restraint works itself into the system by interest rate channels. But my hunch is that, if anything, it probably works to slow it down rather than speed it up. And that's the second reason why I have that tilt. Having said that my preference would lie between ""B"" and ""C"" right now, I guess I can go along with your formulation in the spirit of Bob Parry's earlier comments.",294
-fomc-corpus,1989,President Keehn.,4
-fomc-corpus,1989,"Mr. Chairman, I would be in favor of your recommendation, namely, alternative B. But at this point I certainly would continue to favor asymmetric language. Not to go further into the operational aspects of it but, if the market's perception is that the fed funds rate target is, say, 9-3/4 or 9-7/8 percent, it does seem to me that we are in a period in which there may be natural upward pressure on that rate. I wouldn't resist it if the rate were moving up to 9-7/8 or 10 percent, whereas I would resist it if, in fact, the rate began to trend downward. So, I'd have a clear bias toward allowing the rate to go up.",151
-fomc-corpus,1989,President Stern.,3
-fomc-corpus,1989,"Well, Si Keehn and Bob Parry have already pretty much emphasized what I would want to point out. That is, I'm afraid that market participants believe we are targeting the federal funds rate closely at this juncture. So, while I favor ""B"" I think it's important, as we pause in the process of tightening here, that we make sure we pause at the right place and don't give the market a signal that we are in some sense backing off. That's all I would add.",99
-fomc-corpus,1989,Governor Heller.,4
-fomc-corpus,1989,"I think President Black gave my speech; I'm for ""B,"" asymmetric.",15
-fomc-corpus,1989,Both?,2
-fomc-corpus,1989,Governor Kelley.,3
-fomc-corpus,1989,"Thank you, Mr. Chairman. I'm sensing that the theme of this conversation is that it's time for a pause, and I certainly share that. Consequently, I can comfortably support your suggestion. But I would like to repeat what Governor Johnson said a little earlier when we were touching on the matter of lags, and that is: Have we put into place already enough [restraint] that will get us what we want? It's in that sense that at this moment I'm in no hurry to tighten. While I would agree that we certainly don't want to be perceived as backing off in any way--that caveat having been given--I really personally would prefer symmetric language.",134
-fomc-corpus,1989,Governor Seger.,4
-fomc-corpus,1989,"My preference is for no change, which I guess is ""B"" with symmetric language. As has been said by a number of people, we have had a substantial tightening over the last 12 months or so; interest rates have risen rather dramatically. Because of these known lags, much of that tightening has yet to be felt by the economy. Also, as Manley said, there have been some signs of slowing. I personally would argue that there's going to be some more coming, particularly in housing and in the auto industry. I haven't heard it mentioned but I think that the thrift situation is something we should be aware of, if for no other reason than we could easily do something that would make the cost of the bailout quite a bit higher. Also, despite the Brady plan, I don't believe we've solved the third world debt problem; maybe it's coming but I don't think it has been done. Too much additional tightening, I think, could negatively impact those third world nations. Finally, I'm very concerned about the dollar perhaps not performing as Ted and his people think it will--that it will stay strong and that that will prevent this export expansion that we all want which, in turn, will make it even more difficult to narrow our trade deficit. So, for all those reasons I would prefer to sit tight and have symmetrical language.",268
-fomc-corpus,1989,President Forrestal.,4
-fomc-corpus,1989,"Well, Mr. Chairman, I think that a somewhat firmer policy at the moment would be appropriate. My judgment is that we are, in fact, experiencing a pause and not a sustained downturn in the economy. But even if it is not a pause, even if we are seeing some real slowing, I think the risks of recession with a firmer policy are minimal. The Greenbook forecast, with which I agree, is predicated upon some tightening beginning in the second quarter--some tightening from where we are at the moment--and that does not produce a recession in 1990. Moreover, it does not produce any great improvement in the inflation rate. So, not only do I think that we don't need to back off, I think we need to continue our pressure on reserves in order to stay ahead of this inflation curve. We ought to go ahead and do the job now and make a tightening move. I wouldn't do it to any great degree but I think a funds rate around 10 percent, or whatever the equivalent borrowing is, would be appropriate. My preference would be to move now by some small degree.",226
-fomc-corpus,1989,Governor LaWare.,4
-fomc-corpus,1989,"Thank you, Mr. Chairman. I can't remember when I was more concerned about the confusion of the signals that I'm reading or as uncertain about my own conclusions. But I guess I feel that the economy is a lot mushier and that there are more risks inherent in it than most of you around the table do. I'm kind of like the guy who's gone into the saloon to play poker and is willing to check his sixgun at the door and accept the key as the alternative. But I'd like to keep a derringer in my watch pocket. So, I'm in favor of the asymmetric language.",120
-fomc-corpus,1989,"So that's ""B,"" asymmetric?",7
-fomc-corpus,1989,"Yes, sir.",4
-fomc-corpus,1989,President Melzer.,4
-fomc-corpus,1989,"My preference would be for ""B,"" symmetric. I can certainly live with what you suggested, Mr. Chairman. The other point I would make, consistent with what I was saying earlier, is that I'd be a little concerned if we reacted to a single number in the intermeeting period. It may be that the markets force our hand and we have to do that. But I think there's going to come a time when--and I don't know how this will be achieved--there will have to be something else on the table so that when we decide it's right to start moving, the markets aren't sitting there saying, well, where's the Fed. With respect to the M2 ranges, I don't know whether we have confidence over a long period of time that if we stick with the lower end of the ranges that that's going to contain inflationary pressures. I just think at some point we've got to get out of this mode of the expectation that if a bad number comes out, boom, the Fed ought to be there doing something right then. And if we are not, all the markets [unintelligible]. That's a very difficult thing to deal with but it does trouble me. And, in my judgment, just not moving in response to a number won't solve that. But I think we're getting to a point that we ought to be worried about trying to break that.",276
-fomc-corpus,1989,President Hoskins.,4
-fomc-corpus,1989,"We think that more tightening probably is going to have to take place this year. I'm not terribly concerned about the timing, provided that when we do--to reinforce Tom's point again--that we take a very credible action and to some extent lead market expectations at that point. We take those actions and we explain them; we tell them what we're doing. So, I'm comfortable waiting for a while. But I am disturbed. Again, many of us have spoken out about price stability; yet as we look at the forecast, we're starting 1991 with roughly the same rate that we have right now. I think that's a concern.",127
-fomc-corpus,1989,The truth of the matter is that none of us has a clue as to what the price level will be in the fourth quarter of 1990.,30
-fomc-corpus,1989,That's for sure.,4
-fomc-corpus,1989,"The fact that it's in the forecast I don't think [is important]. However, I think the issue that you raise is. But I wouldn't state it as unequivocally as you state it.",39
-fomc-corpus,1989,"Well, I think we have to look into the future since, presumably, the lags are 18 months to 2 years or perhaps longer. And I don't know what else to look at. If that's not our objective then I think we probably ought to talk about it.",56
-fomc-corpus,1989,"No, I think it is our objective. But when you look out in these forecast numbers--. You've done your models and I've done my model; I would hate to go back and have anyone look at our historical forecasts in this area. That's the reason why I think the money supply issue is so crucial. I agree that if we can hold the money supply growth down, just keep it there persistently, I think we'll win this one. President Syron.",93
-fomc-corpus,1989,"I personally would be more comfortable with something closer to ""C"" than ""B"" because I think we are probably going to have to tighten at some point and I would prefer to tighten sooner rather than later. But having said that, I'm comfortable with your suggestion of ""B,"" asymmetrically stated. The point that was made that we certainly wouldn't want ""B"" to be consistent with an easing of market rates--I'm not sure what the exact number is--is an important one. The only other point I would make is that I would not in the immediate period be terribly concerned if M2 continued to grow rather slowly, because I'm not as sanguine that some of these thrift problems, in terms of the deposit outflows, are not going to continue in the immediate period ahead. That's based in part on looking at some data of FSLIC insured thrifts as compared to FDIC insured thrifts.",182
-fomc-corpus,1989,I should hope we would be able to make some thrift-adjusted M2 judgments.,17
-fomc-corpus,1989,Of a very rough sort.,6
-fomc-corpus,1989,I don't know. Here I am complaining about the price forecast and--,14
-fomc-corpus,1989,We can call it M2t.,8
-fomc-corpus,1989,President Boykin.,4
-fomc-corpus,1989,As in M1A?,6
-fomc-corpus,1989,"I would favor alternative B as you suggested. And I would strongly favor asymmetric language. I would do that because I think projections are extremely important right now. I'm not sure that we will know by the time of the next meeting whether we are in the pause or whether we're heading a little differently. And when this policy record becomes public, following the next meeting, I think it could lead to some confusion in terms of our commitment to having inflation in the forefront of our thinking. I think it could send the wrong signal.",104
-fomc-corpus,1989,President Guffey.,5
-fomc-corpus,1989,"Mr. Chairman, I would favor ""B"" and an asymmetric directive. I'd just like to highlight the point that Tom Melzer made, however. We have in the past been fairly quick to act on a single number that has been published, given the background of the tightening that we've done over the last year. And that's 3 percentage points over the last year in the federal funds rate alone--or 2 percentage points over the last 8 or 9 months. I think it is time to pause and see what these numbers really mean. I would like to see a little more accumulation of evidence of this slowing or the lack of slowing before we take any further action. I don't know what that means [in terms of timing] but I think it should be at least a month before we do anything. In my mind that would give us the employment numbers and the next PPI number, I guess. In other words, I need a cumulation of numbers going one way, really, before taking any dramatic action on the asymmetrical language.",211
-fomc-corpus,1989,"Yes, let me say--and I think it deserves to be said--in the event that some number [becomes available] or that something occurs that is significantly out of tune with this conversation we're having, I think it is obligatory that we have a telephone conference and some rethinking and rejudgments of this. First Vice President Stone.",69
-fomc-corpus,1989,"I probably come out where Vice Chairman Corrigan comes out, somewhere between ""B"" and ""C."" But I certainly would be able to live with ""B"" with an asymmetric guideline. I am very sensitive to the points that President Melzer brought up about how we're going to get out of this cycle of reacting to each of the numbers that comes out. One of the ways to get out of that is to be ahead of that; and that's why I'd probably prefer to be between ""B"" and ""C."" But, for all the reasons stated, I think there is some reason to pause at this point and to be a bit more conservative. So, I could support ""B"" with an asymmetric guideline.",144
-fomc-corpus,1989,"It appears as though the critical mass is on ""B"" with asymmetric language. We could insert that into the directive. Let's have it read and we can put in what we need to as we go along.",42
-fomc-corpus,1989,"""In the implementation of policy for the immediate future the Committee seeks to maintain the existing degree of pressure on reserve positions. Taking account of indications of inflationary pressures, the strength of the business expansion, the behavior of the monetary aggregates, and developments in foreign exchange markets, somewhat greater reserve restraint would or slightly lesser reserve restraint might be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with growth of M2 and M3 over the period from March through June at annual rates of about--",102
-fomc-corpus,1989,3 and 5.,5
-fomc-corpus,1989,"--3 and 5 percent, respectively. The Chairman may call for Committee consultation if it appears to the Manager for Domestic Operations that reserve conditions during the period before the next meeting are likely to be associated with a federal funds rate persistently outside a range of 8 to 12 percent.""",58
-fomc-corpus,1989,"Would anyone like to amend that or does anyone have any problem with the language as such? If not, could you poll the Committee?",27
-fomc-corpus,1989,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Guffey Yes Governor Heller Yes Governor Johnson Yes President Keehn Yes Governor Kelley Yes Governor LaWare Yes President Melzer Yes Governor Seger How do I vote for no change with symmetrical?,54
-fomc-corpus,1989,You say yes.,4
-fomc-corpus,1989,"That being the case, I'll say no.",9
-fomc-corpus,1989,[Continuing the roll call for the vote:] President Syron Yes,14
-fomc-corpus,1989,"You would have said yes if he hadn't helped you, Martha?",13
-fomc-corpus,1989,I would have.,4
-fomc-corpus,1989,The next meeting is May 16th.   We will adjourn for lunch.,17
-fomc-corpus,1989,"Good morning, everyone. The first item on the agenda is approval of the minutes. Would somebody like to move the minutes?",25
-fomc-corpus,1989,I will move them.,5
-fomc-corpus,1989,I'll second.,3
-fomc-corpus,1989,"Without objection. Mr. Cross, would you bring us up to snuff on foreign currency operations?",20
-fomc-corpus,1989,[Statement--see Appendix.],6
-fomc-corpus,1989,Any questions for Mr. Cross?,7
-fomc-corpus,1989,"Sam, what is the sentiment in Germany and Japan about intervention? Are they cooperative, are they reluctantly cooperative, or are they more than cooperative? What's the feeling?",33
-fomc-corpus,1989,"Well, it's not easy to give a generalized statement that covers all the situations. The Germans have intervened more or less throughout the period, although not in very large amounts. In part, the Germans tend to have a different attitude, tactically, about what is the best way to intervene and [believe] that the intervention is more effective if done in certain ways. As for the Japanese, views differ because the institutions are divided over there. The Bank of Japan has been much more interested in intervening to stop the decline of the yen than the Ministry of Finance. And the Ministry of Finance calls the tune. In the past several days the Japanese have begun to take a much more active role in the intervention and they have done against the dollar/yen in each of the past two days.",160
-fomc-corpus,1989,"Sam, since our last meeting we have intervened in yen. [Prior to] that time, I think, we didn't do that. Do we have a change in policy?",36
-fomc-corpus,1989,"No, we focus our intervention on what has been happening in the market and where the pressures have developed. This is the first time we've intervened in yen in a long time. But it is because the conditions were such that it seemed to us appropriate to intervene in yen. Before then the yen had not fallen so much. As I said earlier, the yen had risen substantially more than the other currencies. If you look back at the direction in which it has moved, the yen has not been as weak as the other currencies--and still isn't in a sense, if you compare it with where it started off at the time of the Louvre agreement. However, the yen did begin to slip more and we were concerned, looking at it from the other direction, about the rise in the dollar. The Japanese have been concerned about it too. So, we have been intervening as the yen began to slip more in the past three weeks.",188
-fomc-corpus,1989,Is there any discussion amongst the G-7 and your counterparts as to how much we're willing to do in terms of this intervention?,26
-fomc-corpus,1989,"Yes. We talk to them every day, repeatedly. We talk about the activities that we're proposing and we work it out with them. MR. STERN(?). Sam, given this significant increase, are the pressures, looking out a bit, still for a further rise in the dollar? Or are there some ongoing worries about a precipitous decline in the dollar and so forth?",76
-fomc-corpus,1989,"Well, the dollar has been on this very strong upward [course]. As I said earlier, certainly there's no evidence that we have turned the situation around. As the dollar gets higher--and it has gotten above the levels that have been seen before--there is some greater apprehension and nervousness within the market, partly about what the response of the central banks is going to be and whether the market is going to face a movement in the other direction. But so far the pressures have continued to be on the upward side.",105
-fomc-corpus,1989,President Black.,3
-fomc-corpus,1989,"Sam, you mentioned a while ago that the Germans had some differences over the type of intervention. What is their preference on that?",26
-fomc-corpus,1989,"Well, sometimes the Germans have a view that the way to get the market's attention is to and kick it in the teeth very strongly. We get a little nervous about too much of that. I don't want to overstate it because we usually are able to work these differences out and reach an agreement.",61
-fomc-corpus,1989,Governor Johnson.,3
-fomc-corpus,1989,"Sam, you mentioned that one thing that may be driving this is the expected capital gains, given the anticipation that the peak in interest rates is close. You may be right, but I guess one of the things that bothers me a little about that explanation is that the bill market and the bond market have been anticipating a turn of events for a while. That's why long bond rates are below short rates, or the funds rate, right now; and bill rates have drifted down on the expectation of lower rates. I guess my question then is: Are the capital gains already there? They are already taking capital gains; would there be a further advantage that would cause people to rush into bonds at this point?",141
-fomc-corpus,1989,"Well, I think that's true. To some extent the capital gains already have been a factor. In my report I was talking about some of the factors that have been tending to put upward pressure on the dollar. Recently, as statistical reports have come out that suggest that the economy may be a little less robust, you do hear people drawing the conclusion that that makes the long bond an opportunity for some capital gains. But you're right: presumably, if they feel that way they have been acting on that, and that may be a factor that is already discounted to some extent.",114
-fomc-corpus,1989,"Just one more question, please?",7
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,"In your discussions, is there any mention of the rates of monetary growth between the three countries primarily involved in this--that they have monetary growth rates roughly twice ours and that that might have some influence on it?",42
-fomc-corpus,1989,"Obviously, we talk about whatever factors are affecting the directions of the currencies. Certainly, the Germans have been concerned at times about the fact that their money has been growing more rapidly than their targets. That is certainly a factor affecting their situation.",48
-fomc-corpus,1989,But it doesn't lead them to think that perhaps the way to rectify this problem is to slow the monetary growth rather than to intervene?,26
-fomc-corpus,1989,I think they're trying to; I think there are efforts to try to get their own situation under better--,21
-fomc-corpus,1989,"President Hoskins, certainly their action in April to raise interest rates, which Sam reported on, was triggered in part by the continued rapid growth [above] their targets. And certainly the Bank of Japan, while maybe not excessively concerned about monetary growth per se, would be delighted--if I might put it that way--to raise interest rates. What will they do? In both cases, as far as the central bank is concerned, there is a concern about [unintelligible] monetary growth, inflation, and so forth.",107
-fomc-corpus,1989,Since the last meeting the short-term interest rate differential between the dollar and the mark has narrowed by 125 basis points and against the yen by 113 basis points. There has been--,37
-fomc-corpus,1989,But the growth rate of the monetary aggregates has not narrowed.,12
-fomc-corpus,1989,"In fact, it has gone the other way.",10
-fomc-corpus,1989,"Well, I don't know about that.",8
-fomc-corpus,1989,"No, I don't think it has gone the other way. Well, I'm not talking about ours, I'm talking about theirs. I think theirs has so much--",32
-fomc-corpus,1989,But it has relative to theirs. If we have--,11
-fomc-corpus,1989,That's roughly--,3
-fomc-corpus,1989,"Well, if I assume that this manifests itself to a large degree in the interest rates, the interest rate movements have certainly been in that direction: 1-3/4 points is not an insignificant reduction in the margins for a 6-week period.",51
-fomc-corpus,1989,Any further questions for Mr. Cross?,8
-fomc-corpus,1989,"Yes, Mr. Chairman. This may be to Sam or to you, I guess. I don't quite understand the objective of our intervention, particularly to the level that we have intervened over this intermeeting period. I understand that our objective is to moderate the movements. But the pressures are coming not from the speculators, as I understand it, but rather from those who see the dollar as a good investment at the moment. Maybe I didn't understand you totally, Sam, but I thought you said that we are intervening more heavily than the remainder of our G-7 partners and I don't know why we should have that big a burden, given the rest of the environment. My last question is: Who calls the shots on this? Is it the Treasury that believes that intervention at this level is appropriate?",162
-fomc-corpus,1989,"The Treasury has the legal lead on these decisions. We discuss it with them but the ultimate decisions are theirs. I think the issue isn't so much a question of how much each does. The more critical question that you're asking, as I see it, is: Why do we think that intervention can make very much difference when all the various studies we've been involved in suggest otherwise? And what we're partly reflecting are views of the G-7 finance ministers who believe more in intervention than economists and central bankers do. But underneath it all is the very annoying concern as to why the dollar is strengthening in the face of our current account imbalance. You can look at the issue in one of two ways: either 1) that we are intervening for the purpose of trying to stem the rise because ultimately it has to adjust back downward; or 2) why not, because this very large potential capital gain is in process. That has not been the case in the last couple of days. There's something very odd--a puzzlement as to why the markets have moved as strongly as they have. Certainly, if they move from here it will take a lot of explanation. But I don't see it particularly on the surface at this stage. Sam, is that consistent with your judgment?",254
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,"If there are no further questions, Sam, would you mind reintroducing your recommendation so that we can put it in the form of a motion?",30
-fomc-corpus,1989,"I recommend, with respect to the recent activity, that the Committee approve our operations since the last meeting which are just under $1.4 billion equivalent worth of sales of dollars. I would also like to raise with the Committee a point with respect to our foreign currency authorization limit, if I can present that at this time. That limit, which is a public figure, provides that the System can hold foreign currency balances up to a total of $12 billion equivalent. At present we have nearly $11 billion equivalent. As I mentioned earlier, since the Plaza agreement in September of 1985 when we embarked on this practice of a more active intervention role we have bought about $14 billion and we have sold about $14 billion. But the value of our foreign currency balances during that same period has doubled from about $5-1/2 billion to about $11 billion. The reasons they have doubled are really three-fold. One, we have made a profit in that we have sold the dollar when it was relatively high and we have bought the dollar when it was relatively low. About 40 percent of that increase in the value of our foreign currency holdings represents those profits. A second factor is that we have, along with the Treasury, bought yen--not through intervention operations but through some direct transactions between ourselves and the Japanese Ministry of Finance and other bodies. That, too, has added about 40 percent to the increase in the value of these foreign currency balances. The third factor is that we have our balances invested and we continue to earn interest on them; and the remaining roughly 20 percent represents the earnings on our balances. So, we now are getting up much closer to the authorized limit of $12 billion. I would like to propose that the Committee raise the authorized limit from $12 billion to $15 billion in order to provide more headroom so that if circumstances are such that the value of our foreign currency balances increases we will have room to accommodate that within the authorized limit. So my recommendation, Mr. Chairman, is that the Committee raise the limit in the Foreign Currency Authorization from $12 billion to $15 billion.",428
-fomc-corpus,1989,"Mr. Chairman, I would--",7
-fomc-corpus,1989,Hold the questions on this.,6
-fomc-corpus,1989,I was just going to make a motion; maybe you don't want a motion.,16
-fomc-corpus,1989,"Well, not yet.",5
-fomc-corpus,1989,Okay.,2
-fomc-corpus,1989,Let's do this in two separate motions. Let's first have a motion to ratify the transactions since the last meeting.,23
-fomc-corpus,1989,So move.,3
-fomc-corpus,1989,Second.,2
-fomc-corpus,1989,Without objection. Let's have a motion and then discussion on this level issue.,15
-fomc-corpus,1989,"I move it, Mr. Chairman.",8
-fomc-corpus,1989,Is there a second?,5
-fomc-corpus,1989,Second.,2
-fomc-corpus,1989,Is there any discussion on this?,7
-fomc-corpus,1989,Are the balances basically in yen or are they distributed more evenly?,13
-fomc-corpus,1989,"No, they are much more heavily in marks.",10
-fomc-corpus,1989,Marks.,2
-fomc-corpus,1989,We don't have very many yen at the present time.,11
-fomc-corpus,1989,"Mr. Chairman, it seems to me this is an issue in which dogmatic views really aren't that helpful. It seems to me we're going to deal with questions here as a matter of practicality. We are working with the Administration, and I'm somewhat pleased that we have an Administration that's willing to have some kind of exchange rate intervention versus one that says absolutely not. Sam, I would like a little better accounting--that is, I believe for our purposes you ought to keep track of the opportunity costs of those balances and not consider the entire gain to be in a sense out of the blue, because we would have had earnings on U.S. Treasury balances. Is that not correct? MR. CROSS(?). Yes sir.",144
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,"So, it seems to me that the opportunity costs should be subtracted out. Now, I would say that I believe--as some of you know by my no vote last June--that exchange rate intervention ought never to go at cross purposes with monetary policy. I think it's always a mistake because we're going to demonstrate our ineffectiveness in one camp or the other any time we do that. It seems to me that there is some merit in going forward with this move because there are some necessary adjustments in monetary aggregate growth rates that will take place. That would mean, then, that the deutschemark interest rates would tend to move up relative to our own so the relative opportunity cost it seems to me is not unusually high. So, I support the proposal.",152
-fomc-corpus,1989,"This is more of a question than a comment. I view this as follows: If we are going to play this game we need the ammunition and this is just a way of storing the ammunition. If we're going to go from $12 billion to $15 billion, is an increase of $3 billion enough? Would it make sense to go to $18 billion or another number? I ask that because I'm not sensitive enough to know what will be read into increasing the limit from $12 to $15 billion. So, if we're going to raise the limit might we not just raise it enough to last a while? Or do you think that $3 billion will last a while and that it doesn't make any difference whether we raise it once or twice or whatever?",152
-fomc-corpus,1989,"Well, I doubt that this is a very controversial or newsworthy issue; I don't know. It is a matter we report and I don't believe it has gained much attention in the past. I proposed a $3 billion increase on the grounds that that would provide some reasonable comfort and that if circumstances arose where something further were needed then we would have to reconsider the question. If the Committee proposes a higher figure, that's fine with me.",87
-fomc-corpus,1989,"The last time we did this was after the Louvre Accord; we raised it by $3-1/2 billion when we had, in fact, less leeway than we have today. So if you want to look at it in that perspective it gives you quite a lot of leeway [unintelligible] giving your [Foreign Currency] Subcommittee some opportunity to revisit the issue from time-to-time.",83
-fomc-corpus,1989,"It only becomes effective on the one side of intervention: when we're selling dollars, if we're selling any.",21
-fomc-corpus,1989,Unless we should go into debt.,7
-fomc-corpus,1989,"Yes. But I must say that there is some value in having some marbles to play with if we're going to be in this game. And I think the level of reserves that we have, compared to almost anything, is really very modest. But I think the $3 billion I proposed would be adequate; if [the Committee preferred] $5 billion, I would be quite happy to see that.",81
-fomc-corpus,1989,"President Hoskins, then Governor Heller.",9
-fomc-corpus,1989,"At the risk of being dogmatic, the reasons that we--or at least the Chairman--discussed had to do with going along with our counterparts abroad. He also discussed the evidence that in large open economies intervention is not a very effective tool. If the reasons we intervene are really just reasons of cooperation and not of trying to affect the economic outlook it seems to me that we ought to limit that intervention. In other words, I think we ought to limit it and send a signal to our G-7 partners that we're thinking that they need to adjust some of their policies in a more formal way and speed the process along--in terms of making the monetary adjustments that you were talking about, Governor Angell. But if we have this latitude they have less incentive to make those adjustments. So, I think it depends on the reasons that we are intervening. If you believe that it's an effective tool, then sure, go up to $15 billion. If you believe that it is not effective--if you're doing it simply for cooperative purposes and you also want to send a signal to the rest of the G-7 partners to adjust their monetary policy--then I think you should not raise it.",242
-fomc-corpus,1989,Part of that cooperation is with the Treasury.,9
-fomc-corpus,1989,"Well, you can also send the message to the Treasury.",12
-fomc-corpus,1989,"The same message--which would be given to both, I think--is that a lot of us do have skepticism about the value of sterilized intervention over a long course of time. I understand the need to do it and I don't want to be terribly dogmatic. But the proposal for $3 billion makes a lot of sense: [it requires] coming back to the Committee again rather than having a very large increase, which possibly could be interpreted by people--even though they may not pay much attention to it--as saying that this is a change in the fundamental approach that's being taken.",119
-fomc-corpus,1989,Governor Heller.,4
-fomc-corpus,1989,"Thank you. First of all, I think it is a good time for us to accumulate reserves. We are not--well, I don't want to speak about what's going to happen later today--but I certainly wouldn't think that we are ready to ease in a very major fashion at the present time. Neither are the Germans and Japanese ready to tighten. Those policy moves would be counterproductive as far as helping the international adjustment process is concerned, which is still a very major problem confronting the world economy. So, while the basic principle that one shouldn't undo with the right hand what the left hand is doing is certainly valid, I think we have a classic situation here where we have an external problem on the one hand and various domestic problems on the other hand that call for different policies. With intervention you can overcome some of those difficulties and try to reconcile those conflicting goals. But I do have also a very quick question. In the data, Mr. Cross, you have Japanese yen holdings of $1.1 billion; does that include the special transaction with Japan? Is that already in there?",218
-fomc-corpus,1989,"That includes it. That's all we have in yen. We used up our yen balances and have not acquired very much. So, we only have that amount; and a large part of that came from outside purchases, not from intervention.",47
-fomc-corpus,1989,"Okay, thanks.",4
-fomc-corpus,1989,Governor Angell.,4
-fomc-corpus,1989,"Well, I'm very sympathetic with President Hoskins' views and yet at the same time it seems to me that there's no particular disadvantage of having an international trade adjustment process in which United States exports grow more rapidly than our imports grow. I can't see that that's a disadvantage. Consequently, I favor having a bit of a gesture in the foreign exchange market prior to the time in which the needed change in monetary aggregate growth rates will emerge--because I have no doubt that the Bundesbank has a serious problem on its hands in regard to how fast they have been growing the monetary aggregates and that they will have to bring those in check. But it seems to me that it's somewhat to our advantage to have a divergence in these growth rates at this time. I'm convinced that the real moves will take place in terms of interest rates and their conversion into monetary aggregate growth rates. It's in that atmosphere that I don't mind our taking a bigger step.",185
-fomc-corpus,1989,Any further discussion on this issue?,7
-fomc-corpus,1989,"Sorry, I meant to say also that I'm in favor of Ed Boehne's suggestion to give a broader limit.",24
-fomc-corpus,1989,"Does anyone here have a strong view between $15 billion and $18 billion, for example? What's on the table is $15 billion. We have heard a couple of people say they'd like to go higher.",42
-fomc-corpus,1989,And one to stay at S12 billion.,9
-fomc-corpus,1989,Why don't I simply find out by requesting a vote on the--,13
-fomc-corpus,1989,On that $15--,5
-fomc-corpus,1989,"--on the motion on the table, which is the $15 billion. All in favor?",19
-fomc-corpus,1989,"Mr. Chairman, what is the proper way to go for the $18 billion? Should we amend that motion now?",24
-fomc-corpus,1989,"Well, if you would like to.",8
-fomc-corpus,1989,"Okay, I'd like to amend the motion to $18 billion.",13
-fomc-corpus,1989,Is there a second on the amendment? That's what I was worried about.,15
-fomc-corpus,1989,Ed Boehne doesn't even second the amendment.,10
-fomc-corpus,1989,He can't vote.,4
-fomc-corpus,1989,I can't vote. I'm sorry; you hooked up with the wrong guy. Try next year.,19
-fomc-corpus,1989,"I can't now, Bob, but I'd give you--",11
-fomc-corpus,1989,I'll second it for you.,6
-fomc-corpus,1989,That's all right.,4
-fomc-corpus,1989,"All in favor of the amendment to the motion say ""aye.""",13
-fomc-corpus,1989,Aye.,3
-fomc-corpus,1989,Noes? SEVERAL. No.,9
-fomc-corpus,1989,"ion That leaves us with the original motion on the table of $15 billion. All in favor say ""aye."" SEVERAL. Aye.",30
-fomc-corpus,1989,Opposed?,3
-fomc-corpus,1989,No.,2
-fomc-corpus,1989,I counted two noes.,6
-fomc-corpus,1989,"Nevertheless, we got the votes.",7
-fomc-corpus,1989,This is a formal vote so we have to--,10
-fomc-corpus,1989,It will be published.,5
-fomc-corpus,1989,It will be published so let's get a formal count. Why don't you call the role quickly?,19
-fomc-corpus,1989,All right. Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Guffey Yes Governor Heller Yes Governor Johnson Yes President Keehn Yes Governor Kelley Yes Governor LaWare No President Melzer Yes Governor Seger Yes President Syron Yes,51
-fomc-corpus,1989,"I had a brief postscript, Mr. Chairman. I didn't want to confuse the discussion further. I just wanted to say, after Bob Heller's comments, that we're sitting here today discussing this in the context of concern about a strong dollar. I still fear the day will come when we'll be sitting here looking at this question from a very different perspective. I would simply like to add that quickly to the discussion.",84
-fomc-corpus,1989,"Well, Jerry, if you keep saying it, some day you'll be right!",16
-fomc-corpus,1989,"I join in with the Vice Chairman on this issue. If we go a few more months with what's been happening I'll have to start to rethink my view of the world. Let's move on to the next item on the agenda, which is Mr. Sternlight on domestic open market operations.",57
-fomc-corpus,1989,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1989,Questions for Mr. Sternlight?,7
-fomc-corpus,1989,I'd like to ask a question about the primary dealers. How many are Japanese owned?,17
-fomc-corpus,1989,There are 4 major Japanese securities firms that started their own operations in the United States. There are 3 other situations of existing firms that had been domestically owned and have been bought by Japanese banks within the past few years. So there are 7 in all.,54
-fomc-corpus,1989,One keeps hearing that that has changed the market somehow. Is that correct or not?,17
-fomc-corpus,1989,"I think it has been part, and perhaps the most prominent part, of the whole move toward internationalization, but not the entire thing. We have had entrants from other countries as well and some additional new firms who have come in on the U.S. side. In the last 7 years we've had an increase in the number of primary dealers, primarily from foreign entrants but not exclusively. And I would say that the increased number of dealers, along with some slowdown in aggregate activity and just the way the markets have gone in the past few years, has tended to make it much more difficult to run a profitable operation. Last year more than half the dealers showed losses in their government securities operations.",139
-fomc-corpus,1989,"Well, I guess it's just vicious rumor or whatever but one issue is that in Japan information is exchanged a lot among companies. One hears that that may be an issue in the United States. Is that just vicious rumor?",44
-fomc-corpus,1989,"Well, there has been concern about that. There has been an allegation that officialdom in Japan seems to share information with Japanese firms, whether banks or securities firms. The Japanese realize that there is that criticism from the market, and I think they are trying to do things to change what has been their modus operandi. They seem to have a philosophy of not wanting the market to be surprised by new statistical reports or policy changes or whatever. So they apparently have some tradition of sounding out some market sources and word gets around from this kind of thing. That may be what you're referring to. And it is an issue that causes concern amongst U.S. firms operating in Japan.",135
-fomc-corpus,1989,"Peter, I have a question about the mix of outright purchases and repos during a period of heavy seasonal activity. Would a larger volume of outright purchases rather than announced repos perhaps give a better mix so that the market has a better perception of where we are? I just don't understand how you decide that mix.",61
-fomc-corpus,1989,"We had this large need, which in fact turned out to be bigger in the short run than we had thought it was going to be. But because of the way some other longer-term factors were operating, the longer-term need did not look as great as we went through the period. We kind of geared ourselves to doing through outright purchases approximately what looked like the long-term need--although we went somewhat beyond that and we're now in the position of having to do a little draining as we come up to this next reserve period. I would say we determine the mix on the basis of how we think we and the market can best manage those reserve adjustments. We knew we were leaving a lot to be done with repurchase agreements but we've had really good experience in doing heavy amounts of repurchase agreements, particularly if we give the market a few hours advance notice. Announcing to the market at 3:00 p.m. on a previous afternoon that we're going to look for propositions for repurchase agreements the next morning seems to give us very sizable propositions. That has worked well and I think took us, in pretty good shape, through a period like this one with a very heavy, but temporary, reserve need.",242
-fomc-corpus,1989,Governor Heller.,4
-fomc-corpus,1989,"Going back for a second to the primary dealers: In total, how many are foreigners and do you have any idea about their rough market share as far as trading volume is concerned?",36
-fomc-corpus,1989,Thirteen are foreign-owned.,6
-fomc-corpus,1989,Associated or whatever?,4
-fomc-corpus,1989,"Primarily foreign-owned. There would be some others with some partial [foreign-owned] shares. And 7 out of the 13 would be Japanese. This is a rough recollection, but I think the market share of the foreign-owned is in the low 20s--about 21 or 22 percent. So, 13 out of 43 would be about a third of the total; but they tend to be a little smaller, representing about 21 or 22 percent of the market.",102
-fomc-corpus,1989,Further questions for Mr. Sternlight?,8
-fomc-corpus,1989,"Just one, related to the intervention activity. You may have mentioned it and I just missed it but have all the dollar sales had much of an impact on our open market operations?",36
-fomc-corpus,1989,"Well, because we added through our intervention about $1.3 billion to foreign currency holdings, that was a long-term factor putting in reserves. Had that not happened we would have had that much more to be added through domestic Desk operations. I wouldn't say it's an impediment to our operations. We get notified immediately and fold it into our reserve projections. But in a sense, if you will, it is sterilizing the intervention.",87
-fomc-corpus,1989,I guess what I'm asking is: Has that added any uncertainty to the market in terms of what our reserve need is?,24
-fomc-corpus,1989,I think the market tends to take account of it although there may be a bit of a lag in comprehending fully the extent of it from one day to the next. It might be a minor factor adding to their uncertainty.,45
-fomc-corpus,1989,Okay.,2
-fomc-corpus,1989,"Further questions for Mr. Sternlight? If not, would somebody like to move to ratify the actions of the Desk since the March meeting?",29
-fomc-corpus,1989,So move.,3
-fomc-corpus,1989,Second.,2
-fomc-corpus,1989,Without objection. We now move to the staff report on the economy. Mr. Prell.,19
-fomc-corpus,1989,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1989,Questions for Mr. Prell?,7
-fomc-corpus,1989,"I have a question, Mike, that is related to your final comment. In the Greenbook the comment was made that aggregate demand will still have to moderate further to relieve pressures and reverse the current upturn in inflation. And as you indicated, in the Greenbook forecast you've assumed additional restraint. What would be the impact of not implementing that restraint? In terms of an analytic exercise, what would it be costing us in terms of progress with regard to inflation and, for that matter, with regard to growth as well?",104
-fomc-corpus,1989,"With our baseline Greenbook forecast--extending it informally at this point into 1991 and assuming that growth isn't so rapid as to move the unemployment rate back down in that year but that it will stay in the 6 percent or so neighborhood--our expectation would be that in that environment we'd see a fractional decline in inflation in 1991. But the trend would be turning discernibly downward. Using our quarterly model and not doing a particularly elaborate exercise but leveling out rates--or keeping the federal funds rate about where it is now--the result is that, in essence, we eliminate that downturn in inflation in 1991.",128
-fomc-corpus,1989,In 1991?,5
-fomc-corpus,1989,"In 1991. In our current forecast we're talking about, in the greater scheme of things, a rather small further rise in interest rates. But it's enough to make a slight difference in output growth in the near term, building to something a little more noticeable in 1990. And we end up with a lower unemployment rate and eliminate most of that slack that would otherwise emerge.",77
-fomc-corpus,1989,So there's really no improvement in underlying inflation through the forecast period through the end of '91 unless one gets some further restraint?,25
-fomc-corpus,1989,"Yes, I think that's right. And we're reading these numbers very finely. That's probably the predicament that we face, in general, in interpreting the incoming information. If we are on the kind of track that we have projected, I think every meeting here we're going to go through a sort of Chinese water torture in trying to judge whether the latest data are suggesting that we're moving up or moving down. To use these econometric models to come up with some precise notion of whether we will go up a little or down a little on the inflation rate from the current level is probably pushing things. I think the uncertainties are greater than that. But running it through [the model] in a straightforward way, that's the kind of conclusion we get.",147
-fomc-corpus,1989,That's what I thought. Thank you.,8
-fomc-corpus,1989,President Syron.,4
-fomc-corpus,1989,"I have a technical question, Mike, that you raised when you talked about the inventory behavior. In the Greenbook forecast you have a fairly noticeable decline in the change of business inventories over time. I was wondering, looking at traditional relationships between sales and price expectations and that sort of thing, whether that reflects some judgment on your part about structural changes--more just-in-time inventory kinds of patterns on the part of manufacturers? Or, are there other reasons that are more fundamental for the decline in the change of business inventories?",104
-fomc-corpus,1989,"Basically, we need to have a decline in order to see the kind of moderation in final demand that we feel is necessary, in essence, to diminish inflationary pressures. Unless there is a substantial slowing in the rate of inventory accumulation, inventory/ sales ratios are going to move up. With what we have been seeing we're going to get a growing imbalance. In terms of structural changes I'm reasonably impressed by what I read and hear--particularly in the manufacturing sector but in the trade sector as well--about the kind of inventory management changes that have occurred. It's clear that there are efforts underway and that manufacturing firms have been quite successful to date in reducing inventories relative to their shipments. I think they will try to maintain those trends. So in that sense, even a leveling out might imply in some cases some undesired accumulation relative to plans. So, we feel we really need to see a substantial slowing here if we are to avoid an imbalance that will create the need for even bigger production adjustments in the [future].",202
-fomc-corpus,1989,Governor Johnson.,3
-fomc-corpus,1989,"Mike, I can't resist asking this question again that I've been asking every time. I'm not just looking at the Blue Chip forecast but I'm reading the financial markets and what they seem to be saying. They have been giving us a slightly different picture for some time now and I've been asking this question. You have been saying basically that you think the market will come back to the forecast--that the market is probably wrong and that you are sticking to your forecast. I just wondered if you're still willing to say that; it sounds like you're hedging a little more. The Blue Chip forecast has the funds rate peaking this quarter and then going down, but they have about the same GNP forecast. You suggest that the data available recently are showing maybe a slightly weaker case, although what will happen over the next few quarters is uncertain, of course. But I just wondered if you feel any differently about the market's reading of the outlook as compared to the forecast?",192
-fomc-corpus,1989,"Well, I think there is a diversity but the central tendency of the private forecasters, as I read it, is for a softening that is probably at least as great as what we have in this forecast. My sense is that the disinflation payoff that is seen is fractionally greater than what we have. I think many of those people as they look out into 1991 also see the likelihood of a pickup and, in essence, an impatience with any Federal Reserve [forecast] that looks like the possibility of a recession. In a sense, we may have a smoother track in our forecast than some of them. But I think we are, on balance, a little less optimistic about the inflation payoff of the slack that is predicted to emerge, and we're expecting interest rates to have to stay a bit higher.",166
-fomc-corpus,1989,"Yes. As a follow-up to that, I think maybe you're a little less concerned that this slowing relative to the forecast is a permanent feature. You think it might bounce back some and, therefore, you've got this further rise in interest rates built into your assumptions. But--",55
-fomc-corpus,1989,"Indeed, that's really more an end of this year/ early 1990 story. We feel that even if things did slow to a rate somewhat less than we have in the second half--barring some major inventory imbalance or something like that--we probably are not going to continue on a slow enough track to open up the kind of slack in the economy that we still think is necessary in order to really turn the inflation rate down.",87
-fomc-corpus,1989,"I think I know what your answer would be, but let's just assume that the economy is running below your forecast. It seems to me that an additional 75 basis points or so on the funds rate, if you project that against this weaker forecast, puts you in the recession category. Now, I don't know what you think, but it seems like that would clearly tip the economy over; maybe it wouldn't.",82
-fomc-corpus,1989,"We're very close to recession in this forecast in the first part of 1990. So an error of that dimension, so to speak, could make that kind of difference as to the sign--whether we're in slightly positive territory or slightly negative territory. I wouldn't want to suggest that we think we can predict these things with that precision. We have tried to raise the flag repeatedly that we feel this is at least a growth recession. In essence, we have a fine-tuned forecast. Whether policy can be so finely tuned is another matter.",108
-fomc-corpus,1989,"Sure. I'm simply suggesting that if the data continue to come in weaker than the forecast, I think your interest rate scenario would go with a stronger interpretation.",31
-fomc-corpus,1989,Sure.,2
-fomc-corpus,1989,"But that interest rate scenario would be, I think, somewhat tougher to follow.",16
-fomc-corpus,1989,Governor Kelley.,3
-fomc-corpus,1989,"Governor Johnson just covered exactly the points I wanted to raise, Mr. Chairman, so I pass. Thank you.",23
-fomc-corpus,1989,He's a good mind reader. President Stern.,9
-fomc-corpus,1989,Is that what you have in here--a further increase in interest rates of about 65 or 75 basis points late in the year or something?,30
-fomc-corpus,1989,We put the federal funds rate by the end of the year up to or approaching the 10-3/4 percent level.,26
-fomc-corpus,1989,"Mike, what did you say? I didn't hear you. By the end of the year--",19
-fomc-corpus,1989,I said we had the federal funds rate somewhere in the 10-1/2 to 10-3/4 percent range.,27
-fomc-corpus,1989,"Maybe this is better directed to Don but, given that interest rate forecast, what is the growth rate of M2 running at year end?",28
-fomc-corpus,1989,"We have projected about a 4 percent growth of M2 for the year. But we would be running closer, even with that upward nudge in interest rates, to the 5 to 6 percent area in the second half of the year. Part of that is the bounceback from what we see as the shortfall with the taxes. But that additional rise in interest rates, particularly coming later in the year, doesn't have that much effect on M2 for the year 1989.",99
-fomc-corpus,1989,Half a percent more than [unintelligible]?,11
-fomc-corpus,1989,"Probably, yes.",4
-fomc-corpus,1989,May I come back again?,6
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,"Don, could you explain that? From where we are right now on M2, given the prospect of perhaps a 3/4 of a percentage point higher funds rate, it's a little unclear to me how we'll wind up at a substantially higher M2 for the year than we're running now.",59
-fomc-corpus,1989,"I'll actually be covering this in my briefing to some extent, Governor Kelley. But, very briefly, we think we'll get a little extra push as people rebuild what we see as depleted cash balances after the [tax] season. We see that adding about a percentage point, at an annual rate, to the growth over the next quarter or two. We also see most of the interest rate effects gradually drifting behind us. After all, most of it happened by February, right? Those effects should be easing off over the balance of the year, even with this relatively small further increase in interest rates near the end of the year. So, in our view, given the movement of opportunity costs, we'll see M2 pick up and start to run closer to nominal GNP.",154
-fomc-corpus,1989,Am I hearing you say that part of that depends on this 3/4 of a percentage point increase coming late in the year?,27
-fomc-corpus,1989,"Well, it doesn't affect the year that much if it comes in the second half.",17
-fomc-corpus,1989,If it comes late in the year it clearly won't.,11
-fomc-corpus,1989,If it comes in the second half or at year end.,12
-fomc-corpus,1989,"Okay, thank you.",5
-fomc-corpus,1989,"Any further questions for Mr. Prell? If not, we are ready for the roundtable discussion. Who would like to lead off? President Boehne.",33
-fomc-corpus,1989,"There has been some definite slowing in the Philadelphia District. I think the economy there is slower than it is in the nation. Until the last few months that slower rate was mostly due to supply constraints--tight labor markets and that sort of thing. But in the last several months I think there has been a slowing on the demand side as well. Housing is clearly weak; retail sales and manufacturing are flat. Capital spending is slower in the second quarter than it was in the first, although it's mixed by industry. Housing-related petroleum, gas, and electric utilities are still not going very far on new projects whereas chemicals and pharmaceuticals continue to have some expansion projects. The steel industry--at least that part in my District--seems to be feeling a little better than a couple of months ago. I think they feel better now that some of the labor negotiations are behind them. And they feel that they'll get this voluntary restraint package on steel renewed in Congress, so they released some projects that they were holding. On the whole, I think capital spending is definitely slower now than it was three months ago. As for the future in the District, I think the outlook is for flat to slow growth with unemployment rates still on the low side. As far as the nation, I think what's happening is about as good as we could hope for. We ought to be reasonably pleased with what we're seeing on the growth profile. My sense is that the risks between recession and inflation have shifted. Until fairly recently, I was thinking that the risks were clearly on the side of more inflation. I think the risks are more even than they were. The most likely outcome is a period of slow growth with inflation higher than we would like but not accelerating significantly. But if we're wrong, I think we have about as much chance of being wrong on the inflation side as on the too-slow-growth side.",375
-fomc-corpus,1989,President Boykin.,4
-fomc-corpus,1989,"Mr. Chairman, in the Eleventh District our economy continues to grow. Even in Louisiana, where for the first time in quite some time the unemployment rate has slipped down to single digits, it's looking a little better. Growth is getting increasingly closer to the national rate; part of that, of course, is some of the slowing of the U.S. rate. We are seeing more and more signs that we are looking more like other Federal Reserve Districts; we're not quite the outlier that we were. Labor shortages of specific types are cropping up. Engineers, for example, are in very short supply. We're even seeing help wanted signs appearing throughout Dallas. Unemployment rates in many Texas cities are now in the low 5 percent area. Nonetheless, the greatest strain still is centered along the Gulf Coast area--Houston in particular--and in the lower Rio Grande Valley. We still have problems in some of the other areas of the District. Banking and real estate are still dragging us down a little in Dallas, Austin, Shreveport and similar areas. Manufacturing continues to grow above the national rate. And in the services sector employment was matching the national growth. In sum, Mr. Chairman, we feel a little more optimistic about our area. Having been burned as badly as we were, we don't want to overstate that. We are coming from a fairly low figure but people really are feeling better.",282
-fomc-corpus,1989,President Guffey.,5
-fomc-corpus,1989,"Thank you, Mr. Chairman. The Tenth District is continuing to improve but rather slowly. The strong farm income last year has positioned the agricultural sector to withstand probably the impact of the drought, given otherwise good weather throughout most of the crop areas. In Kansas, for example, which is a very large red winter wheat producer, the latest estimates are for production of about 200 million bushels and that's down from about 325 million the year before. That's the latest official forecast. However, in talking with some of the producers and some of the grain people throughout Kansas, their projection is that if they get no further measurable rain in the next couple of weeks they would be very happy with 150 to 180 million bushels. But the interesting aspect of that is that, given the drought conditions in the high plains areas producing red winter wheat--basically Kansas, Colorado, Wyoming and Oklahoma--the total production would be down about 8 percent. But if you look at wheat totally, which includes spring wheat, the total wheat production would be up about 13 percent. As for the rest of the small grains: corn, for example, will be up about 60 percent from last year; beans will be up 27 percent; and oats will be up 100 percent. They are projecting a very strong farm production year given, of course, that the drought doesn't affect it measurably. So, in the agricultural sector things are looking pretty good. That does not mean, however, that spots such as Kansas won't feel the impact of this drought; but the nation as a whole probably will not. As a matter of fact, given those projections, we would see very modest increases in food costs, not unlike what I think the staff has projected--about 3-1/4 percent.",365
-fomc-corpus,1989,Do the crop estimators at this time of the year assume normal rainfall for the rest of the period?,21
-fomc-corpus,1989,"Yes, with the exception of whatever damage has already occurred to the winter wheat crop, which is large in the high plains states as I just mentioned. Ninety percent of that winter wheat crop, by official estimate, is rated poor or very poor as a result. But that's only a part of the wheat production for the nation as a whole.",69
-fomc-corpus,1989,What I'm trying to get at is this: When they estimate 200 million bushels for the winter wheat crop is that on the assumption of normal rainfall from here until harvest?,36
-fomc-corpus,1989,That's correct--some further rainfall.,7
-fomc-corpus,1989,"They don't factor in the rainfall forecasts that they now have in estimating the actual outcome and yield per acre, do they?",24
-fomc-corpus,1989,I guess I don't understand your question.,8
-fomc-corpus,1989,"Well, at the moment, the crop estimators looking at the condition of the crop can judge its outcome either on the basis of an expected rainfall that is normal from mid-May through harvest or they can use the forecasts of rain that they have now developed over the years as a factor in making that judgment. It occurs to me that I don't even know whether there's an official way they do that. They used to do it, as I recall, years and years ago on the average. But I don't know whether they've changed.",105
-fomc-corpus,1989,"Well, I don't think I know that. Maybe Governor Angell does. The fact of the matter is that the 200 million bushel estimate for the state of Kansas is based upon the damage that has already occurred to the wheat. Given further normal rainfall from here until harvest they come out with 200 or 202 million bushels.",69
-fomc-corpus,1989,That's what I mean--the normal rain from here until harvest.,13
-fomc-corpus,1989,Normal--that's right. But you see we're only about 2 or 3 weeks away from the start of the harvest of that crop. That's an early June start in Oklahoma.,36
-fomc-corpus,1989,Does Kansas start in early June?,7
-fomc-corpus,1989,"Kansas will be when, Wayne?",7
-fomc-corpus,1989,"Normally, it will start the first of June but this year it's going to be a little later--probably around the second week in June.",28
-fomc-corpus,1989,"Yes, it starts down in the Panhandle, usually, in June.",15
-fomc-corpus,1989,"Well, actually, they start around the south of Wichita first.",13
-fomc-corpus,1989,They do?,3
-fomc-corpus,1989,"Yes, and it moves in a line to the northwest.",12
-fomc-corpus,1989,"I'm sorry, I didn't mean to [interrupt].",10
-fomc-corpus,1989,"Yes, let me just proceed. In the energy sector there's a bit of an uptick. For example, just in the last month the rig count within the District has moved from 211 to 245. That's still well below year-ago levels, but nonetheless there is some exploration taking place. The manufacturing sector continues to improve and that's largely related to the commercial aircraft and high-tech industries. On the other side, the construction industry--both commercial as well as residential--is very weak. On the national level we have no real difference in our projection for the upcoming period from the staff's forecast. I have a little problem--the question has been raised and there will be further discussion--with respect to the current status of this weakening or not weakening. And it bothers me a little when we talk about another 3/4 or full percentage point increase without some fairly good evidence. I would be not very happy with that.",187
-fomc-corpus,1989,President Black.,3
-fomc-corpus,1989,"At our last meeting, Mr. Chairman, I think Governor LaWare said he thought the economy was probably a little mushier--if I remember his words right--than most people were thinking.",39
-fomc-corpus,1989,Exactly.,2
-fomc-corpus,1989,I understand words like that.,6
-fomc-corpus,1989,That's a technical term!,5
-fomc-corpus,1989,Recognized only by commercial bankers.,7
-fomc-corpus,1989,"Well, I think the national data that have been released subsequently support that, and we see confirmation of that in our District. The Beigebook report showed that consumer spending and manufacturing activity were moderating a good deal in March and April and the comments of our directors at the last couple of meetings have been noticeably less bullish than before. At our meeting last Thursday several of the directors who live in what they like to call the golden crescent, which reaches from Baltimore through Washington and Richmond down to the Tidewater area around Norfolk, said activity actually has slowed up somewhat. And this has been a boom area for some time. So far as the outlook is concerned, I think the Board's staff has made a solid case in the forecast that they have in the Greenbook. And I think Mike made a further solid case by modifying that in the direction that he suggested when he drew on the later numbers. This means essentially a soft landing. Of course, everybody hopes that's what we will have. It has been so long since we've had one that I don't think I would even remember. Like Ed Boehne, up until recently I've been thinking that the risk of error was on the up side and now I think it has become more balanced between the up side and the down side. I do think, however, that it would be premature to conclude that the risk is definitely on the down side at this point. It's still possible that the sluggishness we have seen in the economy could turn out to be temporary. A lot of it comes from the weakness in automobile sales and the incentives there are pretty sizable; so it's quite possible that that will turn around. I remember so many times in the past when we thought we saw signs of weakening and they turned out not to have materialized. For example, in the face of the weak employment reports that we had back in July and August we were really worried about the economy for a while; and then they shot back up in the fall. Don't misunderstand me: I'm not suggesting that there is going to be a reacceleration. As a matter of fact, I think that's unlikely. The only point I mean to make is that I think it's a little premature to conclude that the economy really has turned downward at this point. I would hold off a little on that judgment, although we certainly can make a better case for that now than we could have at the last meeting.",485
-fomc-corpus,1989,President Keehn.,4
-fomc-corpus,1989,"Mr. Chairman, I think there is increasing evidence that the economy is moderating. Mike has gone over all the indicators that I would have suggested would substantiate that. At the outset a couple of months ago we may have been seeing these trends because we wanted to, but at this point I do think they are becoming much more tangible. The question is: Will these moderating trends be sustained? My hunch is that they will and that they can be sustained without further tightening. From a District perspective, though, the moderation that we're seeing nationally is not quite as apparent. Many of the industries in our District are doing pretty well--indeed, very well. The auto industry is a mini exception to that but it's not a dramatic change. They are reducing their forecast for the year; commonly, the sales forecast for cars is 10 million and for trucks 5.1 million. Inventories at the dealers are very high and for the first time in years the dealers are beginning to resist the delivery of new units. Therefore, production is probably going to come down. The second-quarter number looks to be a reduction of about 3 percent. The production risk in autos is clearly on the down side, not on the up side. But as they reduce production it's going to come out of overtime; therefore, the reduction in production will not result in layoffs. But the sales level of, say, that 10 million on cars and 5.1 million on trucks can only be maintained with the incentives that they're running. As I hear it, the incentives are the richest that they have ever offered since they initiated these programs. As a result of this, the steel business, at least in our District, is expected to be down--not anything significant but down certainly from last year, which was very, very heavy. Other parts of the District are doing very well. The demand for industrial machinery is high; chemical products demand continues to be high; construction activity, despite higher rates, also continues to be at much higher levels than the national numbers would suggest; and our employment numbers are continuing to come in quite strong. In the agricultural sector, though, we have a little different outlook than Roger's. At this time of the year it's always uncertain but this year is particularly uncertain. Parts of the District--specifically western Illinois, southern Iowa and southern Wisconsin--are really very dry. As a consequence, the planting this year is slower and is running behind the normal schedule. Also, in Michigan we've had a very cold spring and we've had some frost damage to the fruit crops. There is plenty of time to recover from this before any permanent damage is done, but the next month or so is going to be pretty critical. On the price side, I don't see any particular changes. At least as I see it there is no further deterioration. Some prices--aluminum and steel, for example--are continuing to go up but prices of other products are coming down. For example, there's some weakness on some chemical products. On the labor front, despite very tight labor conditions as I've reported in the past, I continue to be impressed by how well some of the contracts come out. I did talk to a chief executive officer last week of a company that just concluded a very major three-year contract which calls for increases of 3-1/2 percent over the three-year period. So, certainly, those numbers are coming in better than I might have expected. While I see no further price deterioration, on the other hand, there's no improvement either. I think the overall situation is a bit better than at the time of the last meeting. It's too early to be conclusive but the outlook, at least as I see it, is more constructive.",755
-fomc-corpus,1989,President Parry.,4
-fomc-corpus,1989,"Thank you, Mr. Chairman. Recent information from the Twelfth District suggests that the growth may be slowing. Some sectors that have been contributing strength now are limited by capacity or supply constraints. For example, in the forest products industry they are facing severe constraints in obtaining logs, and that has actually resulted in some shutdowns of mills. In the aerospace industry you've heard a great deal about the situation among commercial aircraft producers: orders continue to build but the capacity is slow to respond and, consequently, they're not getting much growth at all. Other indicators throughout the District are suggesting somewhat slower growth even though capacity constraints in those areas are not a factor. As an example, the recent data on employment in California indicate significantly slower job growth during the past two months. In manufacturing, employment growth also has slowed. Construction activity may be slowing in the District but the picture is not all that clear. The weakness is principally centered in Alaska, Arizona, and Utah; we still see rather strong growth, particularly in residential construction, in Seattle, Oregon, and especially California. Anecdotal evidence does suggest that there is increased caution on the part of small businesses, with many of them reporting--at least in the cases that we were told about in Oregon and California--that they are holding off expansion plans and are also in the process of trying to keep inventories at lean levels. Our outlook for the national economy is really fundamentally similar to that of the Greenbook. The slowdown appears to be more convincing now than it looked when we had our last meeting. It also seems as though slow growth could persist for a number of quarters. I would agree, however, that the risks of recession don't seem all that great. Moreover, even with the slowdown, real GNP will remain above its full employment potential with continuing upward wage pressures into next year, as was indicated by Mike Prell. The pace in underlying employment costs and unit labor costs is likely to rise. We do not have much evidence of increases in contract settlements in the Twelfth District but the L.A. school teachers went on strike on Monday. That's the second largest school district, in the United States. They had on the table a 21 percent three-year package and they rejected that and are on strike. And everyone is beginning to speculate about what's going to happen in the aerospace industry. When you're bringing people in from Atlanta and other places and you've got a contract coming up there's not a lot of optimism about what that contract might result in. Thank you.",500
-fomc-corpus,1989,President Forrestal.,4
-fomc-corpus,1989,"Mr. Chairman, the Sixth District seems to be running counter to the rest of the country: at the end of last year we had a slowdown; but now, when the rest of the country is slowing, we seem to have relatively strong economic activity, although obviously it varies from sector to sector. Industrial construction remains pretty healthy and that's being bolstered by declining vacancy rates and some relocations from the northeast part of the country. Some of our key industries like steel and textiles are showing really quite robust health. Even the apparel industry, especially women's clothing, has begun to pick up. The tourism and business travel industries also are doing very well despite the impact of the Eastern Airlines strike in certain areas, particularly south Florida and Atlanta. The transportation sector also is showing increased shipping activity, and activity at our District ports is quite healthy. I was interested to learn that our contacts in south Florida are reporting substantially increased trade with Latin America, both on the import and on the export side. Louisiana is the weak spot--our part of Louisiana anyway, Bob. Oil drilling continues to lag; the number of rigs is down and is still trending lower. Our contacts down there report substantial uncertainty about OPEC plans after June; also, we find that there is a shortage of drilling pipe due to strong replacement and export demands. So that is having an adverse effect as well. On the other other hand, we are getting some good news from Mobile Bay where there has been an expansion of natural gas production. That's working to offset the weaknesses in the other energy sectors in the District. The Mobile gas find, in fact, is the largest in the United States since the discovery of the Prudo Bay fields in Alaska. Agriculture in our area is also reporting a pretty bright outlook. We've had normal rainfall this year. I don't know what the projections are for the future but I think we're looking for relatively good agricultural conditions. The market for farm equipment is also very strong. Retail sales are about the same as in the rest of the country. Automobile sales are especially poor and I might say that for the first time in a long time I am getting telephone calls from people about the economy--unsolicited complaints about the level of automobile activity. They are really crying about terribly distressed conditions, which doesn't seem to follow from the incentive pickup that we've had. So, in general in the District, things are looking pretty good. There isn't a great deal of evidence of a substantial slowdown; in fact, it's fairly robust. Having said that, the people that we talk to, including our directors, are concerned that the evidence of deceleration in the rest of the economy might turn into an outright recession. Also, they are not seeing much relief on the price side and they feel that they're not going to see any relief on the price side in the near future. With respect to the national economy, I was somewhat skeptical about the degree of the slowdown in the economy, but my skepticism has been converted to some degree by the latest data. However, our forecast in Atlanta is somewhat stronger than the Greenbook forecast. Even taking into account the assumptions about policy, we think we're going to have stronger investment and stronger net export growth in 1989 than is shown in the Greenbook. More importantly, as we look out to 1990, we see the expansion continuing at a pace only a bit slower than the present one. Our unemployment rate is lower throughout, although that's probably due to labor force growth, which will slow. Now, I realize that our forecast is an outlier, if you look at not only the Greenbook but the Blue Chip forecast and others. But to me what is suggested by this forecast is that the inflationary momentum is still rooted in the economy and it's rooted rather deeply. So I'm still inclined to think, notwithstanding the recent data, that the risk of recession is relatively low and that the risk of inflation is still relatively high. Just one other anecdotal piece of information: one of our contacts recently discovered that his managers are stockpiling linerboard in inventory in anticipation of price increases. So, I think that this price fear is still there and that the inflationary danger is still there. And I think that is really what should guide policy over the near term.",854
-fomc-corpus,1989,President Melzer.,4
-fomc-corpus,1989,"In the District we continue to see some relative strength in the most recent three-month period that we have numbers for, both in nonagricultural employment and particularly in manufacturing employment. But a lot of that strength was in the early part of the period and some weakness has started to show through in the last couple of months. In autos, which is a big industry in Missouri, both GM and Chrysler have announced four- or five-week shutdowns when they do their retooling in the June-July period as opposed to a normal week or two. Also, a consumer durables manufacturer, an appliance manufacturer, apparently eliminated a third shift some time back and now there is talk of going to a four-day workweek because of softness in that market. Residential construction has been flat, a bit better than nationally. We've had particular weakness in nonresidential construction. There was recently a strike of operating engineers in connection with which 20,000 of 30,000 construction workers in the St. Louis area went out. That strike was settled in about two weeks with total compensation increases of about 2 to 3 percent in salary and benefits. In terms of our broader view, our forecast for the year is very similar to the Board staff's in terms of the outcome, although it is based on 4 percent money growth. We've become increasingly concerned that, with virtually no M1 growth since July of last year, the risks of recession either later this year or early next year are becoming considerably greater. Also, I have the same impression that Manley described before: many of the private forecasters who use interest rate-driven models really have an interest rate scenario of rates coming off in the latter part of this year to achieve the soft landing that's in the Board staff's forecast.",357
-fomc-corpus,1989,President Syron.,4
-fomc-corpus,1989,"First of all, I think the New England economy, like most of the Northeast, is slowing markedly. In the past I think we've seen some slowing for a few months that has largely reflected idiosyncratic kinds of factors of mix; the difference now is that there is some more evidence that the slowing reflects a big system with national kinds of trends. Retail sales are soft really across the board, particularly in the durables area. I don't think it's largely because of interest rates; it's because of excesses of the past. Housing is very soft and we have very, very substantial overhangs, particularly in the condominium market. As a matter of fact, the headline in last Sunday's Boston Globe--I would say it was greatly overdone--in 3/4 inch black type on the business page was the word ""bankruptcy."" It was about a number of developers and others who had gone into bankruptcy, and it was saying that the rate of increase in bankruptcy in the New England District and the cost were now greater than they had been in Dallas. The level is still extremely low. But we have had negative commercial space absorption in the greater Boston area for the first time since--",240
-fomc-corpus,1989,Negative absorption?,3
-fomc-corpus,1989,"Negative absorption of commercial space is where, because of consolidation of firms and cutbacks, less space was rented in the most recent period than in the period before that, leading to an increase in the vacancy rate in the suburban areas.",46
-fomc-corpus,1989,We're familiar with that term.,6
-fomc-corpus,1989,"Really, we have a few [unintelligible]. Our manufacturers have reasonable backlogs but they say their new orders in many cases don't look very good, particularly in defense and in the computer areas that tend to be very defense-dependent. One reason I asked Mike the question earlier about inventories is that some of our manufacturers in the aerospace business--particularly those in the business of supplying parts to jet engine manufacturers--say that, given the backlogs they understand the manufacturers have, they are not seeing as much in orders as they were earlier. The large jet engine manufacturers, particularly General Electric and Pratt and Whitney, seem to be going more to just-in-time types of inventory practices. So, as I say, we think some of these things reflect earlier excesses, a deterioration of our competitive position. Bob [Forrestal] mentioned some expansion in the Southeast of firms based in the Northeast. Some of those are our firms because they decided not to expand [in our region]; generally, when they close the plant here they don't open a new one because of labor costs and other factors. As far as the national economy goes, our view is very similar to that contained in the Greenbook. While I have some sympathy for what people have said, I'm inclined to think that there is more slowing going on than I would have thought a month ago. I find that somewhat heartening in that what we're seeing really is consistent with the Greenbook forecast and what we'd expect, given the rise that we've seen in rates thus far. Looking at the employment numbers, while last month's number was a little low it wasn't enormously below what one might think of as a sustainable rate of growth in employment, especially when one looks at strike-adjusted data. Given where we are in the labor market right now, I think Bob Parry's remarks on that score are very apt. I don't know a great deal about the details, but we're somewhat concerned about what we're seeing in the Bethlehem Steel settlement, though that might be taken care of over time by competitive factors with USX or something. But I think developments in labor markets still indicate that some inflationary pressures are built in there that will take a while to work out.",441
-fomc-corpus,1989,Vice Chairman.,3
-fomc-corpus,1989,"Well, Mr. Chairman, I am encouraged by recent business statistics and recent business developments in that they suggest the kind of adjustment that I thought was needed. It's also true that, broadly speaking, the statistics and the anecdotal comments we get from business people are more or less compatible with each other, which isn't always the case. The one exception to that may be a bit more concern on the anecdotal side about near-term inflationary prospects. But like Ed Boehne, when I look out at the profile over the next six or seven quarters, in some ways I conclude that it is indeed about as good as one could hope for. On the question of risks, I'm still impressed on balance with the resiliency of the economy. Far more often than not the surprises tend to be on the plus side rather than on the negative side. And I guess that's where I would hedge my bets. Having said that the outlook in Mike's forecast in some ways is about as good as one can hope for, I think it's worthwhile to then ask: Where does that leave us? What does it look like out there at the end of 1990--keeping in mind that these point estimates are not worth a darn? Nevertheless, where are we by the end of 1990? Well, even in Mike's forecast the underlying inflation rate is still 5 percent, maybe a shade higher. The external situation is terrible. In the staff forecast the current account deficit in the fourth quarter of 1990 is $135 billion; in our forecast it's more like $155 billion. I would stipulate that if that combination of numbers is anything near right the economy at the end of 1990, if not sooner, will be a good deal more vulnerable in many respects than it is right now. In addition to the kind of recession--financial and other types of things--one thing I'm quite sure of is that the protectionist problem will be a heck of a lot greater if we get out that far and we're still looking at external imbalances of the type that are built into the forecast. Then I start to ask myself the questions: What's going to change that? What might produce a better result than those 1990 point estimates? And I start to go down the list: U.S. fiscal policy, not likely; U.S. monetary policy, well, which way? Do we want to ease monetary policy? That might help stimulate domestic demand a bit but that's going to hurt on the trade side. It might help net exports a little but that will be offset partly in terms of domestic demand. And both are going to be inflationary. So, I don't see much help there. We could tighten U.S. monetary policy, but that's going to make the dollar go up, among other things, and I don't see much help there. If you look to foreigners, there's very little excess capacity abroad for the industrialized countries, so we're not going to see much there. Indeed, while they may tighten monetary policy for domestic price inflation reasons, that in turn is going to restrict the growth in their own domestic demand, which in turn is going to hurt in terms of the adjustment in trade and exports from the U.S. point of view. In short, I don't think you can fix it either way with the exchange rate. And I think there are great risks on both sides of that, especially in a context in which the protectionist problem is likely to get worse, not better. That's a long-winded way of saying that I don't mind at all running the risk prospectively that the economy will slow; indeed, I wouldn't even care if it slowed a bit more than Mike's forecast as long as I do not see signs of a recession, which I do not see right now.",762
-fomc-corpus,1989,Governor Angell.,4
-fomc-corpus,1989,"I agree with those who like what they see in terms of the conditions that are out there right now. It is good news to have consumer spending running at a much lower level and to have more room for the hoped-for capital spending and for exports. It's a little scary to me to see that we're in a place that we'd like to be; it's scary because you ask yourself how we got there. And you say we got there by slowing down. But I don't think we're that good that we can actually pin it down just exactly as to what we might want to have on consumer spending. So, rather than look at the far out [time horizon] I would look at the monetary aggregates at this stage. I think they are our best guide in terms of where we may be in 5 to 6 months. Restraint is indeed the proper course, but it probably ought to be a measured restraint not an increasing restraint. Increasing restraint, if shown by continued deterioration of the growth rates of those monetary aggregates, I think can increase the risks. I don't think that exists now but it could be there in the near future. I just do not recall, Don, seeing any item like checkable deposits year-over-year being negative. I just do not recall the possibility that Ml, if it remains soft for another month, could also be flat for an entire year. I just do not recall M2 declining as much as it has declined and then, in a sense, having the bottom drop out of it in the tax-paying season. All that, it seems to me, would say that there's a high degree of risk in letting those aggregates deteriorate further. And we ought to be mindful of that. We ought to avoid extremism on that which we know about rather than worry so much about that which we do not know about. It seems to me that declining monetary aggregates in the face of an economy that shows some signs of slowing actually could give you a tightening of monetary policy while interest rates appear to be stable. You can have stable interest rates and a tightening of policy in that kind of environment. And I think we need to be cautious in that regard because the long-run inflation problems are indeed great and we need to be able to maintain a posture of slow growth into the future. But the way to do it is not to get caught up in the extremism of letting the monetary aggregates fall out of bed. So that's what I want in terms of caution.",496
-fomc-corpus,1989,President Stern.,3
-fomc-corpus,1989,"I, too, like most of what I see at the moment. To review the District economy briefly: in the rural areas we have had for some time now, and it's continuing, an expansion led by recovery in copper and iron ore mining, specialty mining, strength in the forest products and the pulp paper business--strength limited mainly at the moment by environmental concerns and some shortages of raw materials. The agricultural situation is shaping up in a very positive way, at least at the moment, because moisture in most of the District has been pretty good. And people are optimistic about the upcoming tourist season. With regard to the diversified metropolitan areas, those economies have been strong for a long time and generally remain so. There have been some layoffs in some of the high-tech areas but those economies seem to absorb that pretty readily. There is concern about the pace of automobile sales. That's maybe the one major new element on that side of things. There are also, though, labor shortages; both skilled and unskilled labor has been tight for some time. What I'm picking up now is growing concern about the militancy of both organized and so-called disorganized labor. There is some concern about that translating into further wage pressures; businessmen seem to be divided at the moment as to whether they will be able to pass those wage and cost increases through fully or not. With regard to the national economy, our model forecast differs in many particulars with the Board staff's but the overall picture isn't very different at all. It looks to me like things are unfolding about as well as we could hope for at the moment. Having said that, I do think the risks have changed since we last met. But I wouldn't want to exaggerate that. One of the things we routinely do with our model is calculate the probability of recession, conventionally defined, going out the next 7 or 8 quarters. While that probability has gone up a bit recently it hasn't gone up very much; it's not far from where it has been most of the last two years. So, I take that to mean that things have shifted a bit but not a great deal.",426
-fomc-corpus,1989,President Hoskins.,4
-fomc-corpus,1989,"In terms of the national economy, I'd like to associate myself with Governor Angell's views on the risks with respect to the aggregates. I think policy is tight as judged by the aggregates, perhaps appropriately so right now. I'd also like to emphasize the point he made that even with interest rates being held steady, if the aggregates continue to shrink, [that's a] tightening of policy. That's something that hopefully Don Kohn can relieve our concerns about shortly. I'd like to compliment the staff, Mike's group, for putting right out front in the forecast what I think is realistic and appropriate, and that is that we could have a quarter or two of negative growth. In terms of the District--although I'm a little hesitant to draw conclusions from the District about national economic conditions --we see a rather worrisome trend. It starts with the willingness of management, looking at Bethlehem Steel, to sign off on relatively higher rates of increase for pay--8 percent the first year, a 5 percent average over 50 months, and a 3 percent trigger on cost of living indexes, or COLAs. We called a couple of other steel people. indicated that it was likely they would follow Bethlehem in a similar type contract. Again, they're not at the top level. said they would not do it; they thought it was a bad practice in that it was short-term oriented to avoid the strike but didn't fit in terms of the long-term health of the industry. It's particularly worrisome for us because of our unemployment levels and also the tendency for some manufacturing to follow the steel model. Now, unemployment rates are very low relative to where they have been in both Pennsylvania and Ohio. There is a lot of tightness in the labor market. Looking around the District, we had an Ohio manufacturing index that came out at 4.4 percent for the first quarter. The only softness that we could dig up--and again we focused on capital goods and steel [producers]--was in certain steel products. The stainless strip indicator that one of the companies uses is running about 20 percent below its 5-year average for that same time period, in terms of new orders.",437
-fomc-corpus,1989,Did that ever work out as a good indicator? I remember we discussed that.,16
-fomc-corpus,1989,"I was afraid you were going to ask that. We haven't examined it as thoroughly as we should. It's one of those things that I tend to watch. The answer is that in terms of direction I think it has been all right; in terms of magnitude you can't read much from it. So, it would tell me that the quarter should be softer than it would have been if the indicator were higher; but I don't know whether that's 0.1 percent or 2 whole percentage points. But in March and April that indicator was running 20 percent below the norm. We asked other firms, particularly the capital goods firms, about the impact of rising interest rates and it has been almost nil. They have internally generated funds; they don't see a recession or at least sufficient signs of recession to concern them. They're going ahead with their normal production plans. So, really, the District continues in some sense to be an outlier; relative to what I hear around the table it has been strong with some softening in certain steel products. That's about it.",212
-fomc-corpus,1989,Governor Heller.,4
-fomc-corpus,1989,"Thank you, Mr. Chairman. I don't have much to add on the U.S. economy but let me just call your attention to developments abroad because they do have a significant impact. Overall, I think you can say that after a surprisingly strong 1988 foreign economies are now slowing down as well. In particular, you see a significant weakness in industrial production in our major trading partners where about half the monthly changes now are in the negative range among the 10 leading industrialized countries. At the same time inflation abroad has been higher than expected, which is leading to a tightening of policies by many of our trading partners. And that is partly due to the oil price increases and partly due to the exchange rate deterioration that they have seen in the past. Add to that weakness abroad the rather strong dollar at the present time and I think we will see a significant slowdown in export growth. While last year we were comfortably in the double-digit range as far as real export growth was concerned, it is probably going to slip to something in the 3 to 5 percent range by early next year. So, that means that our strongest single sector in the economy will be a lot weaker than it has been in the past. Combine that with the tight monetary policies and low M growth and I think we'll see a very, very shallow expansion indeed.",268
-fomc-corpus,1989,Governor Johnson.,3
-fomc-corpus,1989,"I'd like to associate myself with those people who generally view the current environment as satisfactory. The evidence clearly is showing a slowing in economic activity. In my opinion it has gone beyond the stage where this might be a temporary situation. I think it is [likely to be] sustained. And I think the slowdown in domestic demand or consumer spending is a desirable feature that we've been looking for. Like Governor Angell, I think getting that excess demand out of the economic system with our policy frees up our capacity for other uses in our export sector and capital goods, which is something we've desired. The inflationary picture looks more promising than we might have expected, although I don't want to make too much of any one month's number. But going beyond just the April CPI, I think the wage patterns are better than what we might have expected, even taking into account the Bethlehem Steel [settlement]. I've seen some reports--as a matter of fact I asked the International Division to report on this because I wanted to know if the VRAs had anything to do with the wage pattern. The report I got back was generally ""no""--that basically this wage settlement involved some catch-up on big productivity increases in the past and some of the very slow wage growth or even give-backs that had been imposed earlier. So I think there are some one-time features in there. The actual change of the wage base, I think, is very small. At least the report I got back was that that was not a discouraging wage negotiation. There are a lot of good signs. The April PPI, of course, was a real positive feature. If you add that one month in, the trend in the PPI, excluding the [volatile] components like food and energy, so far this year is below last year. I think that's an encouraging sign. At the very least you can say that ex-food and energy the underlying producer price growth is not accelerating. It may even be a bit more modest than last year. As others have said, the risk has certainly shifted from being on the up side to being more balanced. I put myself in that camp and maintain more of a neutral position at this point. But I do want to emphasize what Governor Angell and others have said: It would be a risk to perceive a neutral policy, and one that is balanced, as one with a steady funds rate. To me the great success of our actions last year in achieving what we wanted has been our ability to move the funds rate. Some people want to talk about this in terms of the aggregates; but my view is that our willingness to be flexible on interest rates and to move them subject to changing conditions has been the reason we have been able to stay ahead of this process and contain inflationary pressures. That means that we show flexibility with respect to interest rates rather than targeting some interest rate level. And I think that is important to keep in mind. That means that a neutral policy in a weaker situation or a slowing situation is not a steady interest rate, just as steady interest rates weren't the answer when we were restraining policy. We need to keep that in mind because as credit demands start to slow we could easily see maintaining the same level of interest rates as a drain on reserves and ultimately on the monetary aggregates--if you want to look at it from the point of view of the monetary aggregates. Anyway, that's my point of view.",686
-fomc-corpus,1989,Governor LaWare.,4
-fomc-corpus,1989,"As so often happens, Governor Johnson has made most of my speech for me. I would only like to add that I think further tightness may only aggravate some of the problems that we have. In the first place, I don't feel that the wage and price pressures that are already there are going to respond or be damped by higher interest rates. I think the pressures for wage increases were built in a year ago. And some of the price pressures are really not part of a controllable environment because they are related to oil prices or to drought-increased food prices. It doesn't seem to me that further restraint helps those pressures; on the other hand, [additional restraint] may be counterproductive in that it discourages further investment and may result in further price increases because of the higher cost of capital. So I think this is not the time either to ease up on the brakes or to stamp down on them any harder. I agree with your balance concept.",193
-fomc-corpus,1989,Governor Kelley.,3
-fomc-corpus,1989,"Mr. Chairman, I agree with the thrust of most of what I'm hearing said around here. But at the risk of becoming a bit of a Cassandra of the FOMC, which I certainly don't want to do, I think that we're probably getting to the point where it should be on the table for us to keep a weather eye out to the possibility of a substantially worse result than anyone has heretofore addressed. Governor Angell and others have talked about the aggregates and their slowness; that has been going on now for two years with a little hiatus in the winter a year ago when we had the stock market problem. It has probably been more severe most recently than it has at any other time over that period. With that as a background, we now see an economy that is slowing to an extent that I think surprises all of us a little, compared to where we were at the last meeting or even compared to the Greenbook that was written hardly a week ago. How far and how fast can this go? I'm not sure that we can be very confident that we're not beginning to see the first of some downside momentum here. I'm not predicting that; that's not where I am, but I do think that we've reached the point where we need to keep a weather eye out for that. Governor Heller points out that the prospects for exports are getting a little less rosy. It's hard to see housing and construction coming back. I don't think there will be any fiscal stimulus; we may actually get some reduction in the deficit but I certainly wouldn't anticipate any further stimulus from that. I hope that fixed investment will hold up; I will keep my fingers crossed on that one. That puts it all back on the head of the consumer and we all know the consumer can be very fickle. Again, I would emphasize that that's not my forecast and it's certainly not my hope. But I do think that it's worthwhile for us to begin to keep that on the table as a part of the consideration.",402
-fomc-corpus,1989,"Governor Seger, incidentally, had to go up to the Hill to testify on a consumer issue. She should be back by the time we are completed with our coffee break, which starts now.",40
-fomc-corpus,1989,Mr. Kohn.,5
-fomc-corpus,1989,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1989,Questions for Mr. Kohn?,7
-fomc-corpus,1989,"Don, that was an interesting briefing. What did you say in the beginning about the yield curve? I didn't quite hear that.",26
-fomc-corpus,1989,"Looking at the first chart, Governor Johnson, we continue to have this rather mild overall downward slope running from the federal funds rate to the 30-year bond.",32
-fomc-corpus,1989,Is that the dotted line?,6
-fomc-corpus,1989,"Virtually, in the upper panel, that's the cross.",12
-fomc-corpus,1989,"Oh, I see. I'm sorry.",8
-fomc-corpus,1989,That represents the most recent week in each of these charts.,12
-fomc-corpus,1989,Okay. I've got you.,6
-fomc-corpus,1989,"I was interpreting that as not nearly as steep, certainly, as we've come to before past recessions and more indicative of a slight downward slope--well, it is a slight downward slope of the yield curve. Then, in the bottom panel, I was noting the fact that that hump was no longer there, which suggested that the market certainly wasn't expecting the Fed to tighten over the intermediate run. These are all difficult interpretations, given uncertainties about term premiums.",91
-fomc-corpus,1989,Wouldn't you say more that they're expecting some easing?,11
-fomc-corpus,1989,"I was discounting the upward slope in the short end there as being supply-related and term premium-related. Looking at various expected federal funds rates, term federal funds rates and related shifts among 30- 60- and 90-day rates in the short-term market, I do think they are expecting a mild easing over the next several months--not necessarily next week, but sometime in the next couple of months.",83
-fomc-corpus,1989,"Okay. Also, one other thing on these inflation expectations measures: those were April surveys?",18
-fomc-corpus,1989,"That's correct, both the Michigan and the Hoey. The Hoey you see on the next page.",21
-fomc-corpus,1989,So they don't really contain any of the April data?,11
-fomc-corpus,1989,They don't contain the information that became available in May; that's correct.,14
-fomc-corpus,1989,Okay.,2
-fomc-corpus,1989,So that increase from 5.3 to 5.7 percent that you see in April from February in the first column of chart 5 could very well have been reversed in May.,38
-fomc-corpus,1989,"Yes, I see.",5
-fomc-corpus,1989,"The Michigan survey, I believe, had 5 percent in April inflation expectations. That may have dropped in May also; it's hard to tell. But in any case, it remains at a fairly high level.",42
-fomc-corpus,1989,"Okay, thanks.",4
-fomc-corpus,1989,Questions for Mr. Kohn? Governor Angell.,11
-fomc-corpus,1989,"On Chart 11, Don, is the V* your long-run V*?",17
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,If you take the short-run V*--,9
-fomc-corpus,1989,"If you take the short run, then P* is further below P and would be exerting a little more downward pressure on inflation than you see in that bottom panel.",34
-fomc-corpus,1989,I guess I'm surprised that you used the long run rather than the shift adjusted one. From the staff study I thought there was a slight preponderance of evidence on the side of the shift adjusted. Didn't the numbers come out a little more accurate on the shift adjusted?,54
-fomc-corpus,1989,"I think the numbers--well, do you mean adjusted for the shift in the--",17
-fomc-corpus,1989,In the monetary aggregates.,5
-fomc-corpus,1989,In 1983? Is that what you're referring to?,12
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,"But that wasn't adjusted. Yes, the shift adjustment begins in 1983. But the numbers didn't come out better if we lowered the whole V* to the average of the last few years, extracting from that one quarter or two of shift adjustment. I think you were suggesting that we go with the lower V* all along or at least have some 1982 floor.",75
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,That did not prove to be better.,8
-fomc-corpus,1989,"Right, the staff did a statistical test in which they tried the average of velocity since 1982 as opposed to the average since 1955. And, as Don has indicated, the regression analysis suggests no statistically significant difference between the two. So, in this chart we went with the simpler longer-term average.",63
-fomc-corpus,1989,I can give you the results for the quarter.,10
-fomc-corpus,1989,"Okay. Well, I heard the answer.",9
-fomc-corpus,1989,It's curious that running it with the shorter-term velocity I get 3-3/4 percent inflation in 1990 instead of 4-1/4 percent inflation in 1990.,39
-fomc-corpus,1989,"Thank you. The second question, Don, relates to the bounceback in M2 that you're forecasting on Chart A, which seems to me ample, or maybe strong. If it did not turn out that way, or if the second half was by and large a continuation of the 2-3/4 to 3 percent range, would you have a different policy prescription than you do with the present forecast?",83
-fomc-corpus,1989,"I think I'd have to analyze why it wasn't bouncing back. If it wasn't bouncing back because of some special factors that meant that the relationship between opportunity cost and velocity had gone off track--that is, that there had been a shift in money demand--obviously, I would be much less worried. If it wasn't bouncing back because this scale variable, the underlying income growth, was weaker than we're projecting then I think that would be cause for concern. So I'd have to think a little about why it was happening before I could give you a reason. The other reason for it not to bounce back would be an even stronger rise in opportunity cost. That implies even more of a rise in interest rates than the Greenbook forecast has there. I don't think that's what you were thinking.",156
-fomc-corpus,1989,"No, no.",4
-fomc-corpus,1989,"So, I'd have to think carefully about why it wasn't bouncing back--whether the relationship was going off track or the underlying income--",26
-fomc-corpus,1989,"But you really expect this phenomenon to begin to show itself in the next three to four weeks, is that correct?",23
-fomc-corpus,1989,"I expect by the time we get to the middle of June that we would have some sense of things, hopefully, bottoming out in the middle of May. Without getting too tied into week-to-week money projections--",43
-fomc-corpus,1989,"Oh, I understand.",5
-fomc-corpus,1989,"I'm very skeptical of week-to-week money projections, but I'd want some sense of it moving up at least toward the end of May.",27
-fomc-corpus,1989,I would agree with that. Thank you.,9
-fomc-corpus,1989,Governor Seger.,4
-fomc-corpus,1989,"I have three questions. I may have missed the answers. On the technical adjustment of the borrowing target from $500 to $600 million for alternative B, what do you think the fed funds rate would be if you didn't make that adjustment and you stuck with the $500 million that we currently have?",60
-fomc-corpus,1989,I think funds would tend to trade a bit below 9-3/4 percent. Peter?,20
-fomc-corpus,1989,"Yes, I think the rate would be in the area of 9-3/4 or 9-5/8 percent.",27
-fomc-corpus,1989,We're running above $500 million--,7
-fomc-corpus,1989,Sure.,2
-fomc-corpus,1989,"--in the early part of the maintenance period, which is unusual, and partly it's the seasonal borrowing that's rising. In the past I've argued that the seasonal borrowing doesn't affect things very much but I think the level of adjustment borrowing is so low that the increase in seasonal borrowing is showing through more; it's not covered up by the noise in adjustment borrowing.",70
-fomc-corpus,1989,"Do we have an alternative for no change in policy? It seems to me that what we have is: an easing, which is ""A;"" a slight tightening, which is ""B;"" and more tightening, which is ""C.""",47
-fomc-corpus,1989,"Well, I interpreted alternative B as maintaining about the same funds rate level as we've been running over the last intermeeting period. If what you're referencing is what might happen to market rates I agree, as we stated in the Bluebook, that the markets now have an easing built into that. It's quite possible that if the data continue to come in weak the markets will continue to expect an easing and rates may not move very much. But if the data strengthen a little and we don't ease, I think these short-term rates could back up a bit--retracing some, but by no means all, of the decline that occurred over the last intermeeting period. We do have, I think, some sense of a further easing--",146
-fomc-corpus,1989,"But without even looking forward, doesn't the fed funds assumption in alternative B, at least in a relative sense, represent some tightening? I say that because we've already seen, as I read the numbers anyway, quite a significant decline in short-term rates. And if you--",54
-fomc-corpus,1989,It doesn't represent a tightening in the reserves market. It may represent a tightening in other markets. It wasn't intended to represent a tightening in the reserves market.,31
-fomc-corpus,1989,"Martha, you've raised an interesting question about whether the borrowed reserve target or the federal funds rate is the better indicator of policy. Earlier Governor Angell raised the question as to whether the behavior of the aggregates or the federal funds rate was the better target. And I think we all--",57
-fomc-corpus,1989,You want to start that again?,7
-fomc-corpus,1989,"I'm saying there are three ways we can measure it that have been discussed here today, and I like Governor Angell's way best. I like the federal funds rate second best and the borrowed reserves third best. And they are all incompatible with one another. We had a pretty interesting discussion earlier.",59
-fomc-corpus,1989,"I'm sorry; I was up [on the Hill], having had a date with a couple of my Congressmen.",23
-fomc-corpus,1989,"Yes, I know what you were doing.",9
-fomc-corpus,1989,"I think you answered my third question when you talked about what the market impact might be in the future if they, in fact, are expecting an easing. If it doesn't materialize--or I guess even more importantly if they're expecting an easing and then something registers as a slight tightening--I would imagine there would be even more of a market impact.",70
-fomc-corpus,1989,"Peter, please correct me if I'm wrong, but my sense is that the market doesn't have us easing out of that 9-3/4 to 9-7/8 percent range now. But they're looking for signs that it may happen.",50
-fomc-corpus,1989,"I think that's correct. When they talk about their views they don't expect any overt or active policy move toward ease. But what emerges from the rate relationships, as your earlier statement suggested, does seem to imply--looking out over a few months--some slight easing just in the existing market relationships.",59
-fomc-corpus,1989,But that has only been in the last 10 days.,12
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,Before that they did not.,6
-fomc-corpus,1989,That's about right.,4
-fomc-corpus,1989,"Well, as Peter said in his presentation, coming out of the last meeting they expected us to tighten.",21
-fomc-corpus,1989,Right.,2
-fomc-corpus,1989,"When we didn't tighten, short-term rates came down. And then they fell further when they started to--",21
-fomc-corpus,1989,Thank you.,3
-fomc-corpus,1989,Governor Heller.,4
-fomc-corpus,1989,Excuse me for asking the question maybe in a slightly different way from the way it has been asked before. The Greenbook built in a 3/4 percentage point increase in the fed funds rate.,41
-fomc-corpus,1989,That's correct.,3
-fomc-corpus,1989,You're putting in a $100 million technical adjustment in the borrowing.,13
-fomc-corpus,1989,Right.,2
-fomc-corpus,1989,"And yet you are projecting a rather significant turnaround in monetary growth. Would you tell me what brings that about? I don't quite get it. Maybe that's an easier way to answer the question about what caused the very significant drop in the Ms, especially Ml, that we were seeing before and the flatness and more recent drop in M2.",68
-fomc-corpus,1989,"I think there are a couple of things going on. The most fundamental factor was the rise in opportunity costs in interest rates over the period from March of 1988 through February of 1989. That has particular impacts on Ml not only because demand deposits as compensating balances tend to be very, very sensitive to movements in interest rates but also because NOW accounts serving as savings deposits tend to be extremely sensitive to interest rates when time deposit rates adjust and NOW account rates don't. Essentially, NOW account rates have crept up but not very much so we've seen huge growth in time deposits--in the last month we're talking about 25 percent at an annual rate. I think, in part, that's a shifting from NOW accounts. So we've had very, very weak growth in M1 just because of the past tightening in policy and the rate relationships among bank and thrift deposits that have emerged. On top of that, you add the tax situation. I put that chart 10 in there to try to underline my point that this drop in M2, which had a counterpart in Ml, seemed to fall off a cliff after a certain point. And the timing of that drop is tied very, very closely to the timing of the overage in the tax payments and the increase in Treasury balances. We only projected 3 percent M2 growth last time under alternative B; so on top of that rather weak projection, given the increase in interest rates, we had the tax effects, and that's what reduced M2 and M1 as well.",306
-fomc-corpus,1989,"I'm sorry, that still is my question, in a way. Now we're going to increase the fed funds rate more.",24
-fomc-corpus,1989,"No, alternative B is intended to keep the fed funds rate where it has been.",17
-fomc-corpus,1989,The Greenbook--,4
-fomc-corpus,1989,"The increase of borrowing [in the path] is not expected to have an effect on the funds rate. In fact, borrowing has been running above $500 million.",33
-fomc-corpus,1989,"The Greenbook is the same as the ""C"" alternative.",13
-fomc-corpus,1989,"The Greenbook is not tied that specifically to an alternative that really only stretches to the next 6 weeks. In fact, the Greenbook's interest rates, as Mike said, really increase in the second half of the year. In essence, the Greenbook is--",54
-fomc-corpus,1989,We're neutral.,3
-fomc-corpus,1989,"Endogenous, right?",5
-fomc-corpus,1989,We're neutral at this meeting.,6
-fomc-corpus,1989,"Well, the Greenbook is ""B,"" ""B,"" ""C,"" ""C"".",18
-fomc-corpus,1989,What?,2
-fomc-corpus,1989,"The Greenbook doesn't slice it that thinly, but we didn't assume anything in the next few weeks.",21
-fomc-corpus,1989,"Okay, thanks.",4
-fomc-corpus,1989,"But what the Bluebook did assume was that the best measure of the degree of reserve pressure was the federal funds rate, because you've adjusted your borrowing target to influence that rate.",35
-fomc-corpus,1989,"It is the case that we adjusted our borrowing targets last year as borrowing came in weak relative to the targets, in order to keep the funds rate from deviating very, very substantially from what we thought [it would be if the borrowing function had not shifted]. Yes, we are indexing, basically, on the funds rate.",65
-fomc-corpus,1989,"Or even earlier this year, when we had that cut of $200 million in mid-February, we did not consider that an easing but a technical adjustment.",32
-fomc-corpus,1989,All the worrying about viewing the borrowed reserve target flexibly was designed to give preference to the federal funds rate which [unintelligible] was probably given--,32
-fomc-corpus,1989,President Hoskins.,4
-fomc-corpus,1989,"I think you've answered this question but let me put it forth one more time. We usually hear about uncertainties around tax time--the seasonals, for example. And yet the Bluebook seems to read with a degree of certainty that is higher than I would have expected that that was a factor in the slowdown in M2. You've answered part of it by saying you looked at the calendar--",78
-fomc-corpus,1989,"Fundamentally, that's correct. I think there could have been a little slowing in addition to that. I don't want to slice this analysis to oversell my ability to track every dollar or even every billion dollars of M2 or M3, so let's--",52
-fomc-corpus,1989,"Well, the thrust of the question really is the confidence you have in a bounceback.",18
-fomc-corpus,1989,It's our best guess. We think we've analyzed the situation.,12
-fomc-corpus,1989,"Yes, I bet on the Caps too, so--",11
-fomc-corpus,1989,President Melzer.,4
-fomc-corpus,1989,"Don, two questions. One: If you look over the last year or so how good have we been at projecting future M2 growth?",28
-fomc-corpus,1989,"Not too bad, taking into account--",8
-fomc-corpus,1989,You were ready for that!,6
-fomc-corpus,1989,They worked it out at the coffee break!,9
-fomc-corpus,1989,"--taking into account where the interest rates have ended up. There have been some Bluebooks where the actual has come in under, say, alternative B in the Bluebook. I haven't done this for a couple of months but I did look at our projections and the errors we had in 1988. Basically, we had captured the fundamental slowdown in the second half of the year pretty well--not to the last percentage point, but we had the basic structure.",93
-fomc-corpus,1989,"My second question is: As people rebuild their balances, what implications do you think that will have for the real side?",24
-fomc-corpus,1989,"I think it depends on how they do that. The presumption here is that most of the rebuilding comes from redirecting savings flows, perhaps a little asset portfolio shuffling. That wouldn't really affect their spending. It's possible that some people may cut back on their spending temporarily to rebuild their balances. The question [hinges on] what the element of surprise was for you. You could have been surprised by the fact that taxes relative to your income came out higher; but you could have been surprised because your income was a little higher--say, you had more interest receipts or capital gains were higher. It's not clear that that would affect your spending in the same way as other things. So, the effects on spending are very ambiguous, whereas I think the rebuilding of cash is less ambiguous.",158
-fomc-corpus,1989,President Keehn.,4
-fomc-corpus,1989,"I don't have a question but an observation. I find the charts to be very helpful. I wouldn't advise necessarily having you send them out in advance, but I do find having these kinds of charts as you go through your presentation to be a very useful part of the presentation.",55
-fomc-corpus,1989,"Anybody else have any questions on this? If not, why don't I just start off with the round table. As I hear the basic comments on the outlook it strikes me that there is a fairly central tendency in this group's evaluation, which says in a sense that the economy clearly has slowed and probably will stabilize without going into a recession. I think the evidence at this stage is fairly solid on that conclusion but probably needs to be audited with some degree of sensitivity. The crucial pieces of evidence that we have that suggest the economy is not cumulatively going down are the initial claims data and the level of insured unemployment. Both, after having weakened in the period when we got the pickup in the unemployment rate, have since eased off to levels that suggest a period of much stronger employment growth, certainly, than we've seen in the data of the last two or three months. Similarly, we're looking at an industrial price pattern that would not be consistent with an erosion of orders in the materials area. As a consequence, I think we have very little indication that the softening which has been so patent is cumulatively deteriorating, at least at this particular stage. The one element that still seems to be reasonably solidly in place is the inventory situation, which as yet doesn't appear to be creating problems. The increases in inventory investment, I suspect, are to a large extent still in work-in-process; and probably a very substantial part of that work-in-process pattern is in the civilian aircraft area, which is not suggestive of inventory backing up. So, we don't have evidence of what I view as the crucial danger--namely that when you go from tightness to softness that you then just continue on. That evidence at this particular stage is lacking. The one negative, which I must say bothers me as much as it has bothered a number of people around here, is the money supply data. The evidence suggests, as Don points out, that the money supply is coming back rather quickly. And I think that that's the most likely outcome. But if it fails to do so, then I think we'd better be looking very closely for other forms of evidence that may be signaling that the stability in the system which now seems to be in place is in fact lacking. Wages clearly have slowed down. The Bethlehem [Steel] case probably is an aberration. I didn't like the L.A. teachers turning down that contract; that seemed to imply a much more aggressive attitude, which may be a delayed effect of the unemployment rate falling as low as it did and staying as low as it did earlier in the period. So, it's not a clear-cut balance of risks, as I see it. We have moved, as best as I can judge, from a tilt toward inflation being more probable and are now closer to some form of symmetry. I would conclude that probably the sensible thing to do at this stage is to have alternative B symmetrical. I would be careful specifically to watch the money supply more closely than we usually do, although I'm not sure I would recommend that we move it up in the directive. But certainly I think that is crucial to what we are doing and we just need to watch it. I have the impression that even though we didn't have a telephone conference in the last intermeeting period--there was nothing that really happened that deviated substantially from our general expectations as far as policy was concerned--that we ought to have one just on general principles this next time. I'm pretty sure we should have one if for no other reason than to try to get a sense from all of you whether you see any [need for an] alteration in the policy. So I would suggest that we do have a telephone conference just for the purpose of auditing what's going on. Roger, do you have a question?",759
-fomc-corpus,1989,"It's not a question. I just want to follow up on your comments, Mr. Chairman.",19
-fomc-corpus,1989,"Okay, go ahead.",5
-fomc-corpus,1989,"Okay. Sticking with ""B,"" with the $600 million, seems to me to be appropriate. I'm not sure, however, that going to a symmetrical directive at this particular meeting is what I would recommend. It seems to me that the data we are relying on as [indicative of] a slowdown are nothing more than three weeks' to a month's data. To be sure, the aggregates are slow; but the projection by the staff is that the growth of M2 will return to the 6 to 7 percent area within the next 30 days. Given the attention that the markets pay to the directive, it seems to me that a directive very much like that adopted at the last meeting--that is, [with a tilt] toward restraint--would be appropriate this time. It would give us flexibility; if we want to go the other way that's available via a telephone call. I can't remember how it was but it was something like ""somewhat and would"" and ""somewhat and might"" in the language of the directive itself. I would prefer asymmetrical toward restraint as it was last meeting.",225
-fomc-corpus,1989,Governor Angell.,4
-fomc-corpus,1989,"Yes, I wanted to ask a question in regard to the aggregates. I agree with your position. You used the word ""evidence"" --evidence that the money growth is coming back. I don't think we have any evidence yet and--keying on Governor Seger's suggestion--I'm wondering whether we could make that adjustment from the $500 million to $600 million with some discretion on the part of the Chairman as those numbers come in. Would that be a problem, Don?",97
-fomc-corpus,1989,"It's not a problem; it would be a phenomenon. That is, I think you'd have an easing of the funds rate and then you'd have a tightening if you went back to the $600 million. So, it would depend on how you felt about things.",52
-fomc-corpus,1989,"Well, my view on the aggregates is that the problem with the aggregates is right now. If we're ever going to be concerned about the aggregates we should be concerned right now. I don't know whether they are going to come back or not come back; if growth does come back I'm going to feel very comfortable. If they come back as much as you suggest I think I'm probably going to want to restrain them too. But--",86
-fomc-corpus,1989,"Well, that's what we have to worry about. The worst thing we can do right now is to whipsaw. That would really do damage.",30
-fomc-corpus,1989,You think the markets would interpret our staying at $500 million as an easing?,16
-fomc-corpus,1989,I think if you get to $500 million [on borrowing] federal funds would trade noticeably below where they have traded over the last intermeeting period. They averaged 9.83 or 9.84 percent over the last intermeeting period.,49
-fomc-corpus,1989,"But then, Mr. Chairman, let me ask you another question. Do you believe that under a symmetric directive, if the aggregates do not come back, that you would not hesitate to have a conference call or to act?",45
-fomc-corpus,1989,That's correct.,3
-fomc-corpus,1989,Okay; on that basis I agree.,8
-fomc-corpus,1989,"I have a technical question, though, that I need to ask as a follow up on what you said. Going back to the open market operations report and looking at the borrowing, we've been operating under a $500 million [borrowing assumption] for a while and borrowings actually have been running close to $600 million since mid-April. Is that right?",73
-fomc-corpus,1989,They were--,3
-fomc-corpus,1989,"The weekly averages here are $612, $612, $582, and $581 million. What I'm saying is: If we didn't concern ourselves with the borrowing target then, why should we be concerned about it now? We ran at $500 million and didn't worry about it [coming in higher].",60
-fomc-corpus,1989,What is this new deal you're introducing?,8
-fomc-corpus,1989,All right. Just for the record I wanted to make it known.,14
-fomc-corpus,1989,Let the record show. President Forrestal.,9
-fomc-corpus,1989,"Mr. Chairman, I seem to be the only one around the table who is forecasting a stronger economy over the forecast horizon. But I think that things are sufficiently uncertain at the moment that we ought to stay where we are. For that reason I would opt for alternative B, which I too interpret as no change. But I do feel fairly strongly that we would be sending the wrong signal to the market if we went with a symmetric directive. If the economy is in fact at the point where we have been working to get it, then we ought not to move from our position prematurely. And I think a symmetric directive would send that kind of signal to the markets. So, I would much prefer to keep these--",143
-fomc-corpus,1989,It's not published for six weeks.,7
-fomc-corpus,1989,"Right. I understand, but still I think it might have that effect. We need to underline our commitment even in the future to price stability and I think that's what the asymmetric directive has done and will do even six weeks from now.",47
-fomc-corpus,1989,"The other thing I would say on that is that the markets look at the forward position in the federal funds futures market or the position in the Treasury bill market, for example; yet the implicit funds rate that the Treasury bill rate is in fact indicating for 90 days from now is something like 9.3 percent. In other words, what I'm saying is that if we were to stay where we are, symmetric, that is actually tighter than I think the markets perceive us to be going, at least as I read the various--",107
-fomc-corpus,1989,That's what the markets say.,6
-fomc-corpus,1989,"Well, I guess what I'm basically concerned about is that we not move from the position of restraint that we have had. If we have had some success I think we ought not to back off from that on the basis of some data that really have not been confirmed. The data are fairly recent.",59
-fomc-corpus,1989,"It's a question of interpretation. If we moved toward ease and backed off, frankly, I think that would be most premature and probably very counterproductive. I'm not sure what is happening in the market is read that way. If we move that's a different issue. But I don't disagree with the concern that you have. I must say ""hear, hear."" President Keehn.",75
-fomc-corpus,1989,"Mr. Chairman, I'd agree with your analysis of the situation very, very closely. I would support your recommendation without change. It seems to me that it would be appropriate to maintain [the current] policy under alternative B and that this is a time that we could shift toward the symmetric language.",59
-fomc-corpus,1989,President Parry.,4
-fomc-corpus,1989,"I would agree with your recommendation with regard to Bluebook alternative B, but I would very much favor retaining the asymmetric language for the simple reason that I think we ought to impress on the markets our longer-term resolve with regard to inflation. I think symmetric language could be, and probably would be, misinterpreted. I'm afraid that if we went to symmetric language they would think we have a greater tolerance of current rates of inflation than I think we really do. I just don't like the message it communicates at this point.",104
-fomc-corpus,1989,Governor Heller.,4
-fomc-corpus,1989,"I'm a little confused about what current restraint means. Does it mean the fed funds rate or does it mean the money growth that is currently underway or does it mean the borrowing, which it has been suggested should be revised upward? I favor alternative B if it means keeping the fed funds rate at about 9-3/4 percent, with symmetric language. I would not throw in the $100 million more [on borrowing] if it could possibly be interpreted as meaning a move up in the fed funds rate.",102
-fomc-corpus,1989,We don't publish that.,5
-fomc-corpus,1989,"No, but I mean if it could be interpreted by the Desk as leaning toward restraint. Mr. Chairman, you indicated earlier in your remarks that this was the time to watch the Ms carefully. You also said that you didn't want to change the order [in the directive]; but if the order means anything, then I think this is the time to give the aggregates a little more prominence, maybe.",80
-fomc-corpus,1989,"Well, we can do it; and we can do it in the order in the directive itself. What do we knock out if we move the order? What's the--",34
-fomc-corpus,1989,"It goes: inflation, then expansion, then the Ms.",12
-fomc-corpus,1989,Surely we don't want to move it in front of inflationary pressures.,15
-fomc-corpus,1989,How about adding--,4
-fomc-corpus,1989,Intervention.,3
-fomc-corpus,1989,"How about adding ""and in particular the behavior of the monetary aggregates""?",14
-fomc-corpus,1989,That puts it number one.,6
-fomc-corpus,1989,"Well, but you keep the order and then give it some additional emphasis.",15
-fomc-corpus,1989,Would it be satisfactory to you if we put something about the interest of the Committee in monitoring the aggregates in the language prior to the directive ?,28
-fomc-corpus,1989,Sure.,2
-fomc-corpus,1989,I think that's probably the same thing.,8
-fomc-corpus,1989,"But that doesn't get published, right?",8
-fomc-corpus,1989,"Yes, we publish the Policy Record.",8
-fomc-corpus,1989,"Oh, that. Okay.",6
-fomc-corpus,1989,President Boehne.,5
-fomc-corpus,1989,"I find your suggestion, Mr. Chairman, eminently sensible. It reflects what's going on in the economy. And I think the timing on moving to a symmetrical directive is just right. I think our success to date has been that we have stayed ahead of the risk curve. When the risks were heavily on the side of inflation we moved in a series of small steps. And I think staying ahead of the risk curve at this point does mean taking that small step to symmetry; it's quite consistent with what we've done over the past year.",107
-fomc-corpus,1989,Governor LaWare.,4
-fomc-corpus,1989,"Mr. Chairman: ""B;"" $600 million; symmetry.",13
-fomc-corpus,1989,Period. President Syron.,6
-fomc-corpus,1989,"Mr. Chairman, I have a lot of sympathy for your view of staying where we are. The problem we seem to be having is defining just where we are. I think policy has been pretty successful. Where I am, to try to use Governor LaWare's approach, is: ""B;"" $600 million; but asymmetrical.",68
-fomc-corpus,1989,Asymmetrical in which direction?,7
-fomc-corpus,1989,"The way it has been. I would keep it the way it has been, but I think to some extent that asymmetry is muted by moving up the emphasis on the Ms within the directive, because people know what has been happening to the Ms.",50
-fomc-corpus,1989,"Well, I'm hard pressed to find the difference between where I stand and where you stand.",18
-fomc-corpus,1989,"My only point is that I would leave the language on the ""mights"" and ""woulds"" the same.",24
-fomc-corpus,1989,I understand what you're saying. But you would put language [unintelligible] with respect to the Ms.,23
-fomc-corpus,1989,On the Ms.,4
-fomc-corpus,1989,Governor Seger.,4
-fomc-corpus,1989,"I'm for no change and, again, I'm trying to figure out what that is. To me it's either ""B"" with $500 million borrowing or something between ""A"" and ""B"" anyway, with symmetric language. The main reason I feel this way is that, as I read the economic statistics for the last couple of months, I think there are growing signs of some sluggishness or slowing, particularly in housing and auto sales. The first-quarter figures for real GNP are expected to be revised downward, according to the staff's briefing yesterday. The second-quarter [growth rate] is expected to be coming in below 2 percent, which I don't view as particularly strong. Also, we've done quite a bit of tightening over the past year or so but I don't think the tightening moves--particularly those taken at the beginning of this year--have been completely felt by the real economy. I think there's some chance that fiscal policy is going to move at least modestly in the direction of restraint. As for the monetary aggregates, Don Kohn yesterday told me that I can start paying attention to them, so I'm going to; and I think they look sort of weak, both currently and looking forward, based on their growth from the fourth quarter of 1988 to date. Also, I haven't heard a lot of discussion of it, but I'm very impressed with the terrifically strong dollar--the fact that it's at its highest in over two years. I'd like to see some manufacturing survive in this country and, therefore, I would hope that we don't do anything ourselves to make [the dollar] still stronger. Thank you.",327
-fomc-corpus,1989,President Black.,3
-fomc-corpus,1989,"Mr. Chairman, I would favor ""B;"" $600 million; symmetrical language with ""slightly"" and ""might."" I'm not really worried about abandoning that asymmetrical directive because by the time it comes out it will be after our July meeting and you will have testified before the two Congressional Committees. The market, I hope, has the wisdom to look back and [recognize that] when we removed the tilt [the outlook] was very uncertain and that tilt was justifiably removed at that time. It may subsequently have been reversed by whatever actions we take, but I think that a rational market observer--and there are a number of them--would think that was the logical thing for us to have done.",145
-fomc-corpus,1989,"Excuse me, a point of information: Are you suggesting ""slightly"" and ""might"" on the second part or ""somewhat/ would"" and ""slightly/might"" in terms of symmetry?",43
-fomc-corpus,1989,"I was suggesting ""slightly/might"" on both of them.",14
-fomc-corpus,1989,"""Slightly/might"" on both?",9
-fomc-corpus,1989,"Yes. That predisposes us not to move unless we have some evidence that we don't now have. It's a stronger vote to remain where we are than ""somewhat"" and ""would,"" I think. We may be getting into minutia here but--",51
-fomc-corpus,1989,I wish policy were that--,6
-fomc-corpus,1989,"If I were voting I would [accept] ""somewhat"" and ""would;"" I even toyed with the idea of ""somewhat"" and ""might"" and other permutations and combinations of that.",41
-fomc-corpus,1989,"""Slightly/would,"" I suppose.",9
-fomc-corpus,1989,"That's possible, too, but I thought that would drive Don and his associates crazy.",17
-fomc-corpus,1989,That's really symmetric.,4
-fomc-corpus,1989,Governor Kelley.,3
-fomc-corpus,1989,"Mr. Chairman, I strongly support your suggestion. In the light of the surprisingly weakening economy that we see now, I think that is eminently called for. On the borrowings, Governor Johnson noted that we've been running pretty much at $565 million for some time now, so I could support either $500 million with leeway up $65 million or $600 million with leeway down $35 million.",82
-fomc-corpus,1989,You're really broad minded!,5
-fomc-corpus,1989,President Stern.,3
-fomc-corpus,1989,"I support your basic recommendation, Mr. Chairman. It seems to me that this is a good time to go to the symmetric language, both to recognize the change that has occurred in the circumstances but also because I have a hunch that--as a practical matter both for our own internal purposes and from the perspective of market participants--the nuances involved in asymmetry and so forth are not likely to matter a lot. People know the general structure of this directive and they know that they're looking at the same incoming information we're looking at. They know pretty much where we are. And I think this is a good time simply to remove the asymmetry and let the evidence tell the tale.",136
-fomc-corpus,1989,I think it's possible to remove the asymmetry and put it back without danger. I don't think it's possible to ease and then tighten without danger.,29
-fomc-corpus,1989,"Well, Mr. Chairman, we did in January of '88.",14
-fomc-corpus,1989,'87.,3
-fomc-corpus,1989,"No, I think that's correct.",7
-fomc-corpus,1989,"Oh, '88.",5
-fomc-corpus,1989,"Well, we didn't really start to tighten at that particular point; that was the beginning. But it's [unintelligible].",26
-fomc-corpus,1989,I think the markets don't have to worry that one move is necessarily a great--,16
-fomc-corpus,1989,Vice Chairman.,3
-fomc-corpus,1989,"""B;"" $600 million; symmetric. I wouldn't dare try to add to the nuances of this.",20
-fomc-corpus,1989,President Melzer.,4
-fomc-corpus,1989,"This is tough one. I looked back before I came to the meeting; since December, I think, I've been expressing my concern about the aggregates. What I am struck by at this meeting is this sudden shift in the outlook and perceived risks and so forth that even 6 or 8 weeks ago didn't seem to be very apparent. And what I worry about is that if we wait to see signs of recession, given the lags in the impact of monetary policy, it's basically going to be too late. In terms of money, we've talked a lot about the short-term aberrations; but we're really looking at a pattern of monetary restraint that has been very tight for a long period of time. Certainly, the technical aberrations may add to that somewhat; but I don't suspect that's the whole issue. To sit here hoping for a bounceback--I don't know. That to me sort of smacks of looking at current indicators and making the judgment; and I think ultimately we're going to get trapped. Now, I continue to think that the major problem we face is inflation. But I don't think it's going to be any easier to deal with if we destabilize the economy through a monetary policy that's too tight. In fact, I think the response will be such in terms of monetary growth that it will make the long-term problem even tougher. I don't believe in strictly targeting monetary aggregates but I do think in the extreme we've got to observe them, in some sense. And I think we're at an extreme at this time. So, where I come out is that I would favor slightly less pressure on reserve positions. In other words, I wouldn't move all the way to ""A"" but I'd be willing to let, say, 25 basis points show through here. I think that's really quite consistent with the approach we've taken to policy. We haven't been taking a big risk approach such as ""We're going to wait until we're sure that we're at an inflection point and, boom, move it 100 basis points, or whatever."" We have been gradually adjusting. I think the risks of recession as they relate to the inflation problem are really quite significant; and I think we ought to be moving earlier to try to get those aggregates growing again. In terms of market expectations, there's no question that there are risks involved if we move slightly in one direction and then have to reverse. That could create some confusion. But I think we ought to put some weight on the long-term monetary targeting procedure that we go through each year; we could point out that we're falling below the range and we're taking some action to try to get in the lower end, but we intend to run money for a long period of time near the lower end to contain inflationary pressures. So, I think it's doable. I wouldn't view a move like this as an irreversible move that somehow says: ""That's it; we've thrown in the towel on inflation."" I personally think we could deal with that.",594
-fomc-corpus,1989,Governor Johnson.,3
-fomc-corpus,1989,"I have some sympathy for what Tom is saying. However, I certainly support the Chairman's view for symmetric language. My concern is also: Exactly what does no change in policy mean and what do we really mean by symmetry? But I basically support ""B."" Again, I'm not hung up on the borrowing number whatsoever. I would define ""B"" as a 6-3/4 percent funds rate--I mean 9-3/4; I hope that's not a Freudian slip--a 9-3/4 percent funds rate and I would like to be more clearly focused on centering it there rather than letting it edge towards the upper end of that. I am concerned about this neutrality issue; if bill rates and other short-term interest rates stay down over the intermeeting period and don't show a tendency to bounce back toward the funds rate, I certainly would think that trying to remain neutral would imply bringing the funds rate more in line with those rates. I would like to think that symmetric language would mean that the Chairman would have the discretion during the intermeeting period to make some adjustments there. I certainly think that that fits into a symmetric and neutral policy. But for the purposes of listing my position it would be: ""B;"" 6-3/4--rather 9-3/4 percent; and symmetric. I wrote that 6-3/4 percent down for some reason!",285
-fomc-corpus,1989,It is Freudian. President Hoskins.,9
-fomc-corpus,1989,"I don't think I can contribute much to what has been said here already other than to say that the long-term objective ought to remain consistent, and that is to bring down the rate of inflation. The reason I gave Mike Prell's staff credit for putting the notion that we might have a recession into the Greenbook is that if we don't walk up and take a look at one we'll end up always having higher rates of inflation than we anticipated and, therefore, less output and employment than we expect. Given the way we operate policy, I think we have to be prepared to face the possibility that we could slip, at least for a short period of time, into a contraction. Having said all that, I am uncomfortable suggesting that we ought to ease at all. I did dissent on the long-term target; I wanted it centered around 2 to 3 percent. We're slightly below that right now. Don Kohn assures me, however, that we'll be back on target shortly. In fact, if we are, we probably won't have to tighten policy down the road. So, my view would be to accept ""B."" I don't feel strongly about the language because I don't think the market will misinterpret it. The Humphrey-Hawkins report will be in front of them when that language comes out; I don't know what we're going to want to say at that point in time. My bias would be to leave it asymmetric as we have been doing.",293
-fomc-corpus,1989,President Boykin.,4
-fomc-corpus,1989,"Mr. Chairman, I would agree with ""B"" and the $600 million. My preference really would be to remain asymmetric or ""as-symmetric,"" as Mr. Syron says. The [weak] money growth is troublesome; but the forecast is for some rebound and if that holds true, that's fine. But it seems to me that more or less what I'm hearing is the commitment for a conference call before the next meeting, which gives the opportunity to make any slight adjustment if that's wrong. But I would still lean toward ""B,"" asymmetric.",111
-fomc-corpus,1989,"As best I can judge, the critical mass is for ""B,"" symmetric. That is $600 million borrowing but, listening to enough of the people here, I think the Desk is going to have to be sensitive to the issue of whether in fact $600 million really will represent what is essentially a no-change environment. We will try to be cautious on that question.",74
-fomc-corpus,1989,"Mr. Chairman, why don't we change it to $550 million?",14
-fomc-corpus,1989,"Well, because that starts to get to a degree of fine tuning about what these numbers represent, which I think we shouldn't do. I think the numbers should be--",33
-fomc-corpus,1989,I think the Committee's exactly down the middle.,10
-fomc-corpus,1989,"I'm not sure about that, because I have a potential real problem here.",15
-fomc-corpus,1989,With $600 million?,5
-fomc-corpus,1989,No. My definition of unchanged policy from a market perspective is that the market views that policy as the funds rate in the 9-3/4 to 9-7/8 percent area.,40
-fomc-corpus,1989,But that's what the $600--,7
-fomc-corpus,1989,"Yes, but there has been some effort to try to define that at 9-3/4 percent. I promised not to get into the semantics of this but at that point it's more than semantics to me.",43
-fomc-corpus,1989,"The issue is ""unchanged."" Basically, the funds rate has averaged 9-3/4 to 9-7/8 percent and there's a technical question as to whether or not the borrowing target that effectively created that was $600 million or slightly less.",53
-fomc-corpus,1989,That I can--,4
-fomc-corpus,1989,That is what I'm arguing for.,7
-fomc-corpus,1989,That can be dealt with and finessed. But that's not--okay.,16
-fomc-corpus,1989,"That's all I'm saying. I would propose that halfway through the period, or if the data or any other evidence suggest it sooner, we schedule a call. If nothing has changed significantly, the basic purpose of that call will be to review what it is that we all see in the outlook and try to find out whether there's any alteration of the view of this Committee. I think we are in a very sensitive period at this point and we have to be more than attentive to specific evidence that begins to emerge in various areas to see if we can catch any evidence of deviation from what appears at this moment to be a reasonably good path. Yes sir, [Mr. Guffey].",136
-fomc-corpus,1989,Just a point of clarification: Is it implied from what you just stated that there will be no change in policy absent a telephone call?,27
-fomc-corpus,1989,Correct.,2
-fomc-corpus,1989,"""Somewhat/would.""",6
-fomc-corpus,1989,"""Somewhat/would.""",6
-fomc-corpus,1989,"""Somewhat/would""?",6
-fomc-corpus,1989,"It seems to me we have never used ""slightly"" with symmetric [language].",17
-fomc-corpus,1989,"""Somewhat/might.""",6
-fomc-corpus,1989,"So, I suggest that we not introduce that nuance. Let's stay ""somewhat/would"" balanced.",21
-fomc-corpus,1989,Anybody object to that?,5
-fomc-corpus,1989,"It would read: In the implementation of policy for the immediate future the Committee seeks to maintain the existing degree of pressure on reserve positions. Taking account of indications of inflationary pressures, the strength of the business expansion, the behavior of the monetary aggregates, and developments in foreign exchange and domestic financial markets, somewhat greater reserve restraint or somewhat lesser reserve restraint would be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with growth of M2 and M3 over the period from March to June at annual rates of about--",108
-fomc-corpus,1989,1-1/2 and 4.,9
-fomc-corpus,1989,1-1/2 and 4.,9
-fomc-corpus,1989,"--1-1/2 and 4 percent, respectively. The Chairman may call for Committee consultation if it appears to the Manager for Domestic Operations that reserve conditions during the period before the next meeting are likely to be associated with a federal funds rate persistently outside a range of--",56
-fomc-corpus,1989,8 to 12.,5
-fomc-corpus,1989,--8 to 12 percent.,7
-fomc-corpus,1989,6 to 12 percent.,6
-fomc-corpus,1989,[Unintelligible.],6
-fomc-corpus,1989,Call the role.,4
-fomc-corpus,1989,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Guffey Yes Governor Heller Yes Governor Johnson Yes President Keehn Yes Governor Kelley Yes Governor LaWare Yes President Melzer No Governor Seger Yes President Syron Yes,49
-fomc-corpus,1989,Our next meeting is on July 5 and 6.,12
-fomc-corpus,1989,"Good afternoon, everyone. Ed Boehne is in transit. Apparently the train broke down or something unbelievable happened; he's driving in and should be here in about one-half hour. But let's move forward. Would somebody like to move approval of the previous meeting's minutes?",54
-fomc-corpus,1989,I'll move it.,4
-fomc-corpus,1989,Second.,2
-fomc-corpus,1989,"Without objection. Mr. Cross, would you bring us up to date on your operations?",18
-fomc-corpus,1989,[Statement--see Appendix.],6
-fomc-corpus,1989,Are there any questions for Mr. Cross? Lee.,11
-fomc-corpus,1989,"Sam, on the warehousing agreement: When was that done and do we review it regularly at this Committee?",22
-fomc-corpus,1989,"We review it every year. It was reviewed in March of this year and reestablished without change, as has been done for many years--ever since I've been here.",35
-fomc-corpus,1989,There were similar arrangements that we used in the early 1970s.,15
-fomc-corpus,1989,Is that ever questioned by Congress as a way to circumvent the limit that's placed on the [Exchange Stabilization] Fund?,24
-fomc-corpus,1989,To my knowledge Congress has never raised any questions about it. It was established more or less permanently in the late 1970s when the Treasury issued Carter bonds and they wanted to simply [make permanent] that limit and wanted to monetize the Carter bonds; so we held them from that point. It was carefully examined by the Committee at that time and [the decision] was made public; since then we've continued the arrangement. It is reviewed at the March organizational meeting.,94
-fomc-corpus,1989,It's reviewed and voted on?,6
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,Do we have statutory limits?,6
-fomc-corpus,1989,"No, the $5 billion limit is a limit that the FOMC imposed.",17
-fomc-corpus,1989,But Lee is asking--,5
-fomc-corpus,1989,I thought the limit was imposed by Congress.,9
-fomc-corpus,1989,No.,2
-fomc-corpus,1989,"No. I took your comment to mean that a limit is imposed by Congress in that the balance sheet of the ESF is in some sense controlled by Congress. It was last voted on by Congress I think in the 1930s but implicitly also, I guess, when they voted on the SDR [amendment to the IMF Articles].",69
-fomc-corpus,1989,Then why do we have to go through a warehousing arrangement? You could just allow them to increase the Fund.,23
-fomc-corpus,1989,"Because there is a practical limit on the [Fund], which is the size of their balance sheet. They have dollars that were originally acquired at the time gold was--",33
-fomc-corpus,1989,The devaluation of gold in 1933.,10
-fomc-corpus,1989,"The dollar amount was set up in the Exchange Stabilization Fund then; it has been used periodically for a variety of things and they also hold U.S. SDRs. Congress did review this issue in the context of the approval of the SDRs. In the first amendment to the [Articles of] Agreement in the late 1960s, they authorized the ESF to transfer to the Federal Reserve SDR certificates which, in effect, allows them to monetize those SDRs. In that sense, they again reviewed that source of the ESF funding itself. But that's the last time I know of that it was formally reviewed.",125
-fomc-corpus,1989,"The logic in a sense is not too different from what the Treasury and the Central Bank have. Even when the gold flowed into the country then you were allowed to issue those certificates and receive dollars for them. We no longer have the gold flows; we have foreign exchange flows. And this, in a sense, is a similar allowance for the Treasury to monetize these assets and gain the dollars for them.",80
-fomc-corpus,1989,"There's also another implicit issue here: namely, that there's a pro forma 50/50 split. If that split were not there we could do it all and they would not do anything. So, it's merely a question for them of being able to maintain their 50 percent share of the intervention that's involved. So it's not a circumvention of any statute or convention; it's merely the result of the arithmetic of the limits of the ESF plus a desire on the part of the Treasury to maintain the 50/50 split. The only way it can be done is through the warehousing operation. I should say it's one of the ways; there are other ways.",134
-fomc-corpus,1989,"There are other ways they can get Congressional approval for more money for the Fund. I'm not asking anybody to do that, but it seems to me that to some extent we've got something out of whack here. Either the Fund is too small relative to the size of operations we're currently conducting--",58
-fomc-corpus,1989,It isn't the Fund. What this does is to shift the assets in the Fund; it doesn't change the size of the Fund. It allows them to transfer one asset to another asset.,37
-fomc-corpus,1989,"I understand that. Well, let me ask you another question, Sam.",15
-fomc-corpus,1989,"It is true, as the Chairman commented, that until the late 1970s, all the foreign exchange held by the United States--what little we had--was held by the Federal Reserve. So this issue didn't come up in that context. The Treasury didn't get into the holding of foreign exchange balances except with respect to their own lending operations until the late 1970s.",77
-fomc-corpus,1989,"Are they accumulating [unintelligible] now? Sam, is that sufficient?",17
-fomc-corpus,1989,Yes. The dollar has been declining now for several weeks and we're about 8 or 9 percent down from the highs. We still have more than $2 billion availability under the open limit.,39
-fomc-corpus,1989,Do we run into a headroom problem there?,10
-fomc-corpus,1989,Pardon me?,4
-fomc-corpus,1989,"Do we run into a headroom problem there? In other words, has the dollar decline--",19
-fomc-corpus,1989,"No, it's at historical rates.",7
-fomc-corpus,1989,"We value it on the basis at which we have actually made a transaction; so we don't change it when the exchange rates change. That is the only way we can do it because, if we didn't handle it that way, we could inadvertently run out of leeway with nothing happening.",57
-fomc-corpus,1989,"Sam, to what extent did you use banks to execute the orders in such a manner that the market would not have immediately recognized it as a central bank order?",32
-fomc-corpus,1989,"Well, during this period we did most of it in what we call a discreet manner. That is to say, we operated through a bank acting as an agent so that--although the word does get around in some way and people who are following these markets closely can often tell a lot of what's going on--we did not go in openly buying foreign currencies. For the most part we had particular banks operating on our behalf in order not to show the extent to which the central banks were in there. We had gotten to a point where operating visibly was not really working very effectively and we thought it would be better to operate this way. Indeed, it has been much more successful. Remember, the other central banks have done the same thing, following our doing it. The Germans most recently, and the Japanese too, have been operating in a discreet manner.",171
-fomc-corpus,1989,Do you think you were able to buy more cheaply by buying discreetly than if you had bought openly? Did you buy the portfolio--,27
-fomc-corpus,1989,"I think it was a lot more effective because we had reached a point where the market tended to feel that these rates were out of control--well, not out of control but beyond the ranges that the authorities wanted. And when they saw the central bank coming in there they almost took that as a basis [for believing] that the dollar was by definition undervalued. And they tended to hit it quickly. Now, in operating more discreetly we have been able to kind of encourage the dollar down without appearing to try to take on the market in a direct way. Under certain conditions one technique is more appropriate and under other circumstances another way is. We have felt during this period, given the market conditions that we faced, that this was the better way to operate. And I think that has proved to be the case.",165
-fomc-corpus,1989,"Well, Mr. Chairman I would make a comment: I just do not agree that it's appropriate for us to act in ways that are intended to confuse the markets or mislead the markets. I believe that markets work best when all participants have information as to what's going on. I am not a strong believer [in the view] that it made the difference because you did it in a discreet fashion lately. My guess would be that if you had operated discreetly during the previous period and you operated openly during this period you'd have found out that an open way would have worked in a better fashion. I just don't hold that these kinds of moves make that much difference. But even if they did, I do not believe it's appropriate for a government agency in a market society to be acting in such a manner. It's not appropriate for us; I believe it opens up the possibility for the charge of someone privately benefitting from what we do. So, Mr. Chairman, I would register not a dissent from the actions but an indication that if that were to continue I think I would have to object.",219
-fomc-corpus,1989,"Governor Angell, Sam does make a regular report on Desk operations [public] every three months. It's not as if the operations are--",28
-fomc-corpus,1989,Give me a scenario in which private parties--,9
-fomc-corpus,1989,"Well, when we operate in securities transactions at the foreign Desk in what I would call the normal manner that we use at the open market Desk we would be indicating to a group--to more than one participant--what the Fed is doing. And they could all have a chance to participate. When you start choosing one bank to be your agent it seems to me it opens up possibilities.",77
-fomc-corpus,1989,You're saying that that individual bank may choose to--,10
-fomc-corpus,1989,"Well, yes. And we have--",8
-fomc-corpus,1989,"Let me say a couple of things. First, even when we're operating openly we may go to, say, 5 banks out of 100--whatever the number is. So it's not as though we operate in the way the domestic Desk does and broadcast [our operations]; we never do that. We operate with a certain--we go out to do the transaction. Secondly, when we've operated discreetly we have done that with a bank on the understanding that they not reveal this information or talk to other parts of their institution and so forth. Now, obviously the word--",115
-fomc-corpus,1989,"I believe Governor Angell was raising the question as to whether the individual bank trades on that information, which is not available to other participants in the market.",31
-fomc-corpus,1989,"Well, in a sense, a bank can do that any time we are in the market and are trading with a bank. As I say, if we are operating quite openly we might go out and talk to 5 banks or 10 banks. They might choose to join us, and this helps move the market in the direction [we want] if they're convinced that it's going that way. We do move around from one institution to another; we don't use the same one, obviously. Sometimes we might use several at once, but we do it in a way that they are not supposed to go tell all their customers and others that they are operating on behalf of the Fed.",136
-fomc-corpus,1989,I prefer to be operating in markets in which self interest is assumed to be the motivating factor for the parties we're dealing with rather than to be operating under the assumption that someone is going to be behaving in the manner that suits our interests and that might be against their own self interest.,56
-fomc-corpus,1989,Anybody who is operating to suit our interest against their own interest is going to end up in the hardware business or something pretty soon. I don't think any of them do that.,35
-fomc-corpus,1989,"Well, in addition to the possibility of something occurring that would give an impression of being inappropriate--in regard to a favorable opportunity for one bank or one trader--I still would hold that it's always best to let markets know what it is we're doing and to try to buy at the best price. And it seems to me that buying at the best price--",71
-fomc-corpus,1989,We do buy at the best price.,8
-fomc-corpus,1989,"Governor Angell, we're doing it at the best price but within the limit. If you want to take your rule to the limit--if [buying at the best price] was the objective--then we should have been talking up the dollar for weeks and then Sam could have gone in and bought the foreign exchange cheap. The objective was not to minimize the price at which we picked up yen and DM balances; for better or for worse, it was to limit the rise of the dollar. That doesn't necessarily always mean picking up the [best price]; you can't have it both ways.",118
-fomc-corpus,1989,We were trying to influence the market; that doesn't mean we were trying to fool the market. But I don't know that it would follow that we always have to tell everybody in the market every time we operate. That seems to me to be a different matter.,52
-fomc-corpus,1989,"Well, I realize that a bully has more clout at times than does someone who plays according to the rules. But central banks have considerable power. And it seems to me they should operate in an open and clear fashion that gives participants access to information in a timely manner and does not seek to confuse. My view, Mr. Chairman, is that operating as we did tended to disrupt the normal market processes, including the price of gold. And I think it was unnecessary and undesirable. That's all I have to say.",104
-fomc-corpus,1989,"Just a question. It may be more appropriate for you, [Mr. Chairman]. It seems to me, if I've done my numbers right, that we have increased our net exposure some 50 percent in the last couple of months.",47
-fomc-corpus,1989,"Well, we increased it by $10 billion; we had $20 billion and we now have $30 billion.",23
-fomc-corpus,1989,That's about 50 percent. So the question is: Do we have any practical limits to the exposure that we want to take on in terms of U.S. economic policy? Since the warehousing arrangement can be expanded indefinitely--,45
-fomc-corpus,1989,"Implicitly, there are two questions involved in this. They are basically separate ones. One is: Do we have any limits on the amount of those transactions and eventually the net positions we take strictly for the purpose of influencing the market? And two is: Are we aware or do we care about the capital gains and losses that are implicit in that particular action? To date, the amounts of monies involved have been rather modest. One of the problems that you have, no matter what level you're dealing with, is that it's not always the case that maximizing one's capital gain in intervention would involve the same set of tactics that one would employ to influence the market in a certain way. So, those can be two separate basic issues. I don't remember those issues ever coming up or [our positions] ever being of the size where those issues arose. But I would be more inclined to ask Sam whether he knows of any case back in history when there was a concern about the size of our positions.",198
-fomc-corpus,1989,"Well, no. I certainly don't recall any such time. We have always had [some] and, indeed, even though $30 billion is higher than what we've had in the past I suspect the time may come when we will be pleased to have some currencies. But--",55
-fomc-corpus,1989,"Sam, what's the market value of our gold stock?",11
-fomc-corpus,1989,Let's see.,3
-fomc-corpus,1989,"It's about 9 times the $11 billion; so, about $90 billion.",17
-fomc-corpus,1989,It's $90 billion if you use market price.,10
-fomc-corpus,1989,In that sense the same issue as on the foreign currencies is involved--,14
-fomc-corpus,1989,Very similar.,3
-fomc-corpus,1989,One should consider them the same if we raise the issue about an absolute level of foreign currencies. The same logic requires that we question the size of [both].,32
-fomc-corpus,1989,"Oh, but that--",5
-fomc-corpus,1989,I see that differently. I see we are not intervening in gold and in my view muddying up the water; we are intervening in currencies. I'm just wondering: How much would we do?,41
-fomc-corpus,1989,What I'm trying to get at is--you're not raising the question on capital gains?,17
-fomc-corpus,1989,"No, I'm not.",5
-fomc-corpus,1989,"So, you're talking about whether there is a limit as to how much sterilized intervention we would do as a matter of policy.",26
-fomc-corpus,1989,How much are we willing to do?,8
-fomc-corpus,1989,"But that question, it seems to me, involves our relationship with the Treasury as agent and whether we could do anything we wanted to. That's a big legal question and it gets into all kinds of issues; I've asked those questions before too. It's not very clear.",53
-fomc-corpus,1989,It's not clear.,4
-fomc-corpus,1989,"But is there some limit where we will be concerned about it? If we doubled [our exposure] to $60 billion, would that call for being semi-concerned?",35
-fomc-corpus,1989,If we get up to $60 billion the discussion will last twice as long here!,17
-fomc-corpus,1989,"Mr. Chairman, it is fair to say--and maybe this is a flimsy excuse, President Hoskins--that the reason there is a limit in the Authorization is precisely for the concerns that you are raising. I think you realize you're asking for a systematic rather than a routine basis. Historically, the limit was in there because we were concerned about the other side; we were building up exposures historically because we were drawing down--",86
-fomc-corpus,1989,Right.,2
-fomc-corpus,1989,"We were running into debt in periods when it wasn't clear how we were going to bail ourselves out of this process. But it was put into the Authorization--and that was a conscious move on the part of the FOMC at the time--asymmetrically because the exposure was to find out whether we were net long or net short. And it was intended so that the Committee could be concerned about these things. Now, on the Chairman's second question, we have done a staff analysis in a research paper here that was issued recently which does suggest that, at least on the financial risk side of things, our intervention has been profitable. I agree with the Chairman; I don't think that's the major issue here. But that is one of the concerns.",152
-fomc-corpus,1989,"I don't think that was what Lee was saying. He's saying, as a matter of policy, is sterilized intervention something that you want to do and are there limits to that? I don't think he's talking about capital gains.",45
-fomc-corpus,1989,"No, I'm not talking about capital gains.",9
-fomc-corpus,1989,"I think that Lee went into this [issue of] volume. I've never really focused on what the limits are but I think it has been the consensus that we're looking at a dollar bubble that is going to turn down and make the issue moot at some point. If that turns out to be false, I think we had better get involved in a good deal more strategic [discussion] of this with respect to the Treasury, because I think we all feel uncomfortable about this. But at the moment I would say that the issue is probably unnecessary and will eventually disappear from [unintelligible] forecast on what exchange rates are materializing in this group.",130
-fomc-corpus,1989,"Still, the interesting question would be, just hypothetically, if we stated that the Federal Reserve would no longer do any intervention for [unintelligible] what would that mean? I'm not sure it would make any difference.",46
-fomc-corpus,1989,It would make no difference.,6
-fomc-corpus,1989,That's the problem.,4
-fomc-corpus,1989,It might not make any difference; it would depend on what the Treasury's attitude was and what they were able to do about it in part. And that creates all kinds of--,36
-fomc-corpus,1989,I think it will be for their own account presumably to get authorization to hold unlimited amounts of foreign currencies.,21
-fomc-corpus,1989,"Well, or to make some other changes.",9
-fomc-corpus,1989,The worst of all possible worlds would be to give the Treasury the authority to dictate to the Federal Reserve to do it for its own account. Then the Federal Reserve would have no influence over the amount of sterilized intervention that took place. Only the monetary policy operations will offset it.,56
-fomc-corpus,1989,And certainly we don't want to do that.,9
-fomc-corpus,1989,And the next step would be not to use monetary policy operations to offset it.,16
-fomc-corpus,1989,"Of course, Mr. Chairman, my comments had nothing to do with any displeasure whatsoever in regard to the size of the intervention. Even though I'm willing to talk about Mr. Hoskins' point, I fully support our objectives in the sense that I support them as a part of the market stabilization effort as distinguished from a market disruptive effort.",69
-fomc-corpus,1989,Are there any further questions for Mr. Cross? We need a motion to ratify the transactions since the May meeting.,24
-fomc-corpus,1989,Moved.,2
-fomc-corpus,1989,Seconded.,3
-fomc-corpus,1989,"Are there any objections? If not, the motion is passed. Joan Lovett could you bring us up to date on the actions of the Desk?",30
-fomc-corpus,1989,Thank you. [Statement--see Appendix.],9
-fomc-corpus,1989,"Questions for Joan Lovett? If there are no questions, do I have a motion first to ratify her request for a temporary increase from $6 to $8 billion in the intermeeting leeway?",41
-fomc-corpus,1989,So moved.,3
-fomc-corpus,1989,Second.,2
-fomc-corpus,1989,"Any objections? If not, we also need a motion to ratify the actions of the Desk since the May meeting.",24
-fomc-corpus,1989,So move.,3
-fomc-corpus,1989,Second.,2
-fomc-corpus,1989,Without objection. The next item on the agenda is our usual chart show. Messrs. Prell and Truman.,23
-fomc-corpus,1989,"Thank you, Mr. Chairman. Everyone should have found by his seat a copy of this package of charts entitled ""Material for Staff Presentation."" [Statement--see Appendix.]",34
-fomc-corpus,1989,[Statement--see Appendix.],6
-fomc-corpus,1989,Questions for our colleagues? Manley.,8
-fomc-corpus,1989,"I'd like to follow up with a question I keep asking every time. The interest rate assumptions behind this forecast are generally for higher interest rates into 1990--both short and long rates, but more on the short than the long. Still, if you go back to the February FOMC meeting, I think there was an assumption of a pickup in long rates of up to 1 percentage point from about the 9 percent level then prevailing and of about 1-1/2 percentage points on the funds rate. Since that time interest rates appear to have peaked; long rates are down about 75 basis points from where they were then, instead of up. Short rates appear to be peaking out well short of that range. If the economy has slowed more than anticipated--although I'd have to go back and check that--and if the inflation forecast is maybe even a little lower than anticipated back at that point, what has changed? How do you explain that?",195
-fomc-corpus,1989,"In terms of precisely what we were projecting back in February, we did indeed have a rise in short-term rates. We had the federal funds rate moving up to 10-1/2 percent or so. I must say, actually, that the federal funds rate rose more in the first half of the year than we anticipated. At the same time, we had bond yields moving up and approaching 10 percent and on long Treasuries we had some slight movement upward to around 9-1/4 percent in the second quarter of the year. We flirted with that [level]. Clearly, with the recent drop, they dropped below the trajectory we had at that time. We also were not anticipating a dollar on the path that we have seen. My suspicion is that that's an important element in this whole story. Now, we could probably go on for hours trying to dissect what has happened and determine which way causation ran. I personally find appealing the notion that we may have had an autonomous increase in demand for dollars which expressed itself to some degree in depressing bond yields. Be that as it may, the dollar has been on a different path. And as I suggested, we think that has been a significant element in damping inflationary pressures even though there are some lags in the process, looking at the composition of price movements and so on. We think there is something to be said for the argument we presented in the Greenbook dissecting the price measures. On the demand side, I think we have had a surprise on consumer spending. To an extent we were looking earlier at that pattern of household net worth and discounting it a bit. We could see that there was an argument for a higher saving rate. Maybe that indeed is what has happened. We wouldn't have anticipated the stock market being as strong as it is now but the level, as was already suggested, may be driving [unintelligible] and be a drag on consumption. Where we come out now is that we are looking at short-term rates and long-term rates that will be below our expectations. And we think the dollar's higher level will be something of a drag on domestic production growth over the next few quarters and, therefore, something of a depressant on price inflation. We are interpreting this recent decline as having a significant real element, which will help to boost the interest-sensitive sectors of the economy in the months ahead, particularly housing.",487
-fomc-corpus,1989,"On that point: interest rates on the long-end have been trending down for a while, yet the economy hasn't shown any signs of being stimulated by that.",31
-fomc-corpus,1989,"I don't see a declining trend in long-term rates, really. I think they fluctuated in the 9 to 9-1/4 percent range for quite a while and then we had a very sharp drop. I don't think we've had enough time to see the response [to that].",59
-fomc-corpus,1989,"Well, I think there's--",6
-fomc-corpus,1989,"I will admit that the anecdotal evidence does not suggest a tremendous change in the mortgage market and housing demand at this point--or I should say on the home building side. Clearly, there is evidence of a flurry of refinancing activity. And maybe if people are rushing out to refinance they also perceive rates to be more attractive for buying homes. There is naturally a lag in this process and sometimes a tendency to hold back until one thinks rates have gotten as low as they are going to go. So, we would expect to see homebuilding improving in the next couple of months.",116
-fomc-corpus,1989,"Okay. But I think there is some modest downward trend in long rates; if you draw a line through the fluctuations, I think you can see that. The other point, though, is that rates are considerably lower relative to where you were forecasting them and yet you have weaker GNP.",58
-fomc-corpus,1989,"I think it's partly because we have had the weaker GNP. I think the markets were surprised, in part, by how quickly the deceleration in the economy occurred. They became less concerned about an inflationary overshoot and I think that has been a factor; that probably has contributed to some diminution in the inflation premium. At the same time, we think that the real rates will come down.",80
-fomc-corpus,1989,"That's fine. But why haven't those relatively low interest rates had some stimulative effect, with a lag? They have been lower than you forecast for a considerable period of time. I assume what you're saying is that the dollar has offset that.",48
-fomc-corpus,1989,"One way to think about it, Governor Johnson, is that the change of the dollar's forecast--at least over the four quarters of 1989 as now projected--is 12 percent. If you think that somehow the market has changed its assumption by that much, that's considerable; they don't have to even see that. They can see future implications, for both inflation directly and for aggregate demand, that are going to come from a stronger dollar over that period--especially if you go back near the turn of the year, or November-December, when we were still dealing with a situation in which the dollar was quite soggy. And to the extent that the market at that time was projecting, as we were, a continued decline in the dollar--which under the conditions of relatively full employment we were going to have to accommodate, if you want to put it that way, by restraining other elements of demand--that was the strength that was then in the system. The dollar turned around and added to that whole process restraint that wasn't in our forecast; but in some sense, it certainly wasn't in the markets' forecast either. So, you have this key change in expectations, which had [effects on the] performance of the economy and on the outlook.",253
-fomc-corpus,1989,"So going forward, assuming the dollar is not going to appreciate--you even have some depreciation--are you saying, then, that that represents a decline in real interest rates and some stimulus to the economy?",41
-fomc-corpus,1989,"If you look at our housing forecast, particularly this time versus last time, you see a different tilt. To that extent there is some stimulus coming to domestic demand. Since our last forecast, the major change, in a sense, has been that we now have the dollar doing some of the work we formerly thought that interest rates were going to have to do. We've had a shift toward a lower net export contribution to GNP growth than we had previously, which is offset by some contribution from interest-sensitive domestic demand sectors.",104
-fomc-corpus,1989,"Okay, I'm having a little trouble assuming--",9
-fomc-corpus,1989,"This may be evaporating by the minute. Logically, if we're going to go incrementally from forecast to forecast that pushes one back in the other direction. But I don't want to make that much of a small movement. The level adjustment has been considerable in the picture--",55
-fomc-corpus,1989,I think I understand your logic.,7
-fomc-corpus,1989,President Parry.,4
-fomc-corpus,1989,"My question has to do with interest rates as well. The financial projections indicate that interest rates will have changed little through 1990. Then in the Bluebook, there's reference to what the impact might be on other short-term and long-term rates. I assume the projection is with regard to the funds rate. If you had the funds rate in particular remaining at its current level for a couple of quarters, it seems to me that the impact on other short-term interest rates would be quite marked as opposed to the 1/4 point change referred to in the Bluebook--which is over a shorter period I'm sure--and that there could conceivably even be some significant change in long-term rates as well. Is that in the model or in your forecast? I really can't tell.",158
-fomc-corpus,1989,"In our forecast there is some backup, for example, in 3-month bill rates and Treasury bond rates but--",23
-fomc-corpus,1989,Could you tell me how much?,7
-fomc-corpus,1989,"Well, I've written down about 1/4 of a point this quarter. It's not as large as I think you're alluding to.",28
-fomc-corpus,1989,But if you just let the model run for three quarters how much backup do you think you'd get?,20
-fomc-corpus,1989,"Well, I'm not sure I want to let models run on this because, basically, what really has happened, according to our models, is that long-term rates are now where they should be relative to short-term rates given a term structure equation that has its long-term rates determined with a lag by short-term rates. The mystery earlier had been why long-term rates were so high given that we had had the sharp descent of short-term rates. That should have fed through. I don't know that the models capture the forward looking expectations formation that seems to characterize financial market behavior today. I do concede the point that there would be a risk of a bigger backup on this. I was disinclined to be any fancier about this, having made the mistakes in the past that Governor Johnson was so kind to point out again.",164
-fomc-corpus,1989,"I just had to, Mike!",7
-fomc-corpus,1989,If I had asked about this I would have said: Explain to me why your models worked so well so consistently prior to this. This is more like the average [experience].,35
-fomc-corpus,1989,The term structure equation has worked remarkably well over--,10
-fomc-corpus,1989,There is a sense in which the problem is that we were getting [inured] to the outcome replicating the models in a way which we cannot expect them to continue to do. What we're looking at to be explained now is a more average experience than what was to be explained six months ago.,60
-fomc-corpus,1989,"Well, that's just with short-term rates. The relationship between short-term [and long-term] rates is not more traditional.",25
-fomc-corpus,1989,"Well, I think the market is expecting further easing in the funds rate; there's no doubt about it.",21
-fomc-corpus,1989,Okay. All I'm trying to do is figure out the consequences--,13
-fomc-corpus,1989,Indeed.,2
-fomc-corpus,1989,--if you get this level. It seems to me that in the short-term end of the market you'd have a backup of substantial proportions.,28
-fomc-corpus,1989,"I think the market probably has about a 50 basis point decline, and maybe more after today--",20
-fomc-corpus,1989,I'd say much more after today.,7
-fomc-corpus,1989,--built into the funds rate over the next 3 months or so. So the question is what their expectations would be if we didn't ease. Would they continue to expect that ease down the pike? And that's not--,45
-fomc-corpus,1989,"That's what Don has argued in the Bluebook: that because that movement in interest rates isn't going to affect the path of economic activity in the next couple of months that path of economic activity is likely to look soft enough that people will probably still be expecting some further ease--unless they take the view that the Fed is really bent on fighting inflation and taking sizable risks on a soft economy, in which case the bond rate rise, if any, might be negligible. So, I think you get into a very complicated kind of guesswork about expectations against various events in the economic news.",116
-fomc-corpus,1989,But you were saying that the funds rate assumption is what?,12
-fomc-corpus,1989,"I think the market has built in about a half point [decline] over the next 3 months or so. Joan [Lovett] has a different view. The bill rates are way down today; they may be a little more after today. But as of, say, Friday or Monday I think that was a fair statement.",68
-fomc-corpus,1989,But all that's within a month.,7
-fomc-corpus,1989,"No, no. The way I look at it there's [a decline of] about 25 basis points within a month and the other 25 basis points in another month or so.",37
-fomc-corpus,1989,The one-month forward funds rate is closing in on what?,12
-fomc-corpus,1989,I don't have the most recent table with me but a few days ago it was about 9-1/4 percent.,25
-fomc-corpus,1989,Okay.,2
-fomc-corpus,1989,"For those of us who were on planes today, has something been going on in the market today that is significant?",23
-fomc-corpus,1989,"Well, bill rates are down about 15 or 20 basis points--or the 3-month bill rate is, anyhow.",26
-fomc-corpus,1989,And the dollar?,4
-fomc-corpus,1989,The dollar has dropped by 2 percent or so since yesterday.,13
-fomc-corpus,1989,It's 1.8815 in marks and 138.30 in yen.,16
-fomc-corpus,1989,Are they attributing that to what they think we're about to do? What is the explanation?,19
-fomc-corpus,1989,If you look at the bill market they are.,10
-fomc-corpus,1989,That's certainly part of the explanation.,7
-fomc-corpus,1989,"That, interacting with the economy and Friday's reports, right?",13
-fomc-corpus,1989,"They've been looking at purchasing managers' [reports]. I think there has been a cessation of the things that were driving the dollar up--all these political factors, these portfolio things, that have happened. They have tended to focus on other subjects. They have seen some evidence that the economy appears to be easing, or is at least slowing down a little; and building on these expectations about what's happening to interest rates is certainly part of it, I think.",92
-fomc-corpus,1989,"At the risk of beating this too far into the ground I would just say, given our uncertainties, that if the 3-month bill rate were to go up to 8-1/2 percent or a shade higher versus what we have here we wouldn't regard that difference as all that material for the economic outlook. I don't want to hinge everything on a quarter point or so on the 3-month bill rate.",83
-fomc-corpus,1989,Makes sense.,3
-fomc-corpus,1989,Any other questions for our colleagues?,7
-fomc-corpus,1989,"Mike, do you have any inkling as to what's going to happen with the GNP revisions?",20
-fomc-corpus,1989,We really don't have much to go on. Perhaps Dave [Stockton could address that].,18
-fomc-corpus,1989,The data that we've seen to date--the retail sales and inventory data--are not suggesting a large revision in GNP. But what we haven't seen is so much larger than what we have that it probably would be dangerous to make any firm statement at this time.,53
-fomc-corpus,1989,Any guess on the unemployment rate and the figures this Friday?,12
-fomc-corpus,1989,"Our guess at this point is that the unemployment rate will edge up and that we'll have an employment increase of less than 200,000.",28
-fomc-corpus,1989,Governor Angell.,4
-fomc-corpus,1989,"Yes, I want to express appreciation to both Mike and Ted for the chart show. Whether anyone agrees or not, I thought it showed very well the total package of what you're expecting. It was particularly helpful to me to have those alternatives that both of you presented. I found it very helpful.",59
-fomc-corpus,1989,Any further questions?,4
-fomc-corpus,1989,"This question may already have been answered, Mr. Chairman, but regarding the notation in the Bluebook that, given the baseline forecast, you might expect short-term interest rates to tick back up because of overplay by the markets: Is the baseline forecast still consistent with, say, Bluebook alternative B?",61
-fomc-corpus,1989,[Yes.],3
-fomc-corpus,1989,"It is. And that contemplates an uptick some time in the future, and probably the near-term future, of short-term interest rates?",29
-fomc-corpus,1989,"Well, as we were saying to President Parry, a small uptick.",16
-fomc-corpus,1989,A quarter or two up?,6
-fomc-corpus,1989,"Yes, a quarter.",5
-fomc-corpus,1989,This is a quarterly-average number that we have in our forecast. One could even reconcile a bigger movement in the near term of some easing.,28
-fomc-corpus,1989,Thank you very much.,5
-fomc-corpus,1989,"Further questions? If not, would somebody like to start the Committee's discussion? President Parry?",20
-fomc-corpus,1989,"All right, fine. Mr. Chairman, the economy in the West currently is rather surprisingly robust. Although recent monthly employment data for California suggest that the rate of growth is slowing, the California economy will remain at a strong level. Employment growth in Nevada, Washington, and Oregon ranks them among the six fastest growing states in the nation. Outside of Alaska and Arizona real estate markets continue strong. In April, the statewide median home price in California rose above $200,000 for the first time. Home prices also are rising rapidly in Washington and Oregon, but from far lower levels. One curious development comes out of our regular survey of District business leaders. Almost all of those surveyed indicated that they believe that the economy, in general, is slowing and will continue to slow. But when we ask them about their own businesses virtually no one sees any significant slowing in their own businesses, outside the lumber industry. Despite the high level of activity on the West Coast our outlook for the national economy is really quite similar to that of the Greenbook. We believe the economy appears headed for sluggish economic growth but no recession. In fact, we see the possibility of some downside risks for the economy in terms of economic growth. According to our analysis consumption and business-fixed investment have been growing unusually rapidly in the past two years. A reversal of this pattern could mean a weaker economy than now seems likely. Despite slower economic growth the economy remains above its full employment level. Thus, I would agree with the Greenbook's inflation outlook, which shows relatively constant rates of inflation for 1990. Thank you, Mr. Chairman.",321
-fomc-corpus,1989,President Boehne.,5
-fomc-corpus,1989,"I'd say that in the Mid-Atlantic part of the Third District there's a clear change in the tone of the economy. Almost all sectors are flat to down: residential and nonresidential construction are off significantly; manufacturing is flat; retail sales, while up a touch in dollar terms, are clearly down in volume terms; and for the first time since the expansion began employment, as measured by payrolls, is down a little. Having said that, labor markets still remain tight and the unemployment rate is still below that of the nation. Nonetheless, this is the first time we've seen payrolls down. I would say that attitudes in the business community can be characterized as cautiously optimistic, but I do sense a fragility there. I think that the expansion has gone on for so long that people have gotten in the habit of thinking it will continue. Maybe they believe that that is the most likely outcome. But I think we could see a fairly prompt deterioration in those sentiments, at least as expressed by business people in my District. Looking at the national economy we can't help but be influenced by the people who surround us, and I think the outlook nationally is still most likely to be a soft landing. But the chances of a bumpier landing have increased. As far as the Greenbook forecast goes, I think that the downside risk is greater than the upside risk. There is just very widespread softness in the economic indicators. While there is no evidence of a cumulative downturn, when you see widespread softness you begin to ask questions about whether it might be self reinforcing. So, I would say that, yes, the Greenbook outlook is a reasonable one; but my own sense is that the risks on the down side have increased noticeably over the last six weeks.",350
-fomc-corpus,1989,May I ask both you and President Parry whether you sense or know of any marginal inventory backup?,20
-fomc-corpus,1989,"No, I have not sensed that.",8
-fomc-corpus,1989,No.,2
-fomc-corpus,1989,The reason I raise the issue is--,8
-fomc-corpus,1989,"Maybe a little in retailing outside autos, but not much.",13
-fomc-corpus,1989,"In the autos you can see it. But there's just the earliest margin that one senses and I'm curious to know whether or not we pick it up from the data ever so slightly in a couple of other places. I want to know whether or not one senses that as being real, cumulative, or an illusion.",62
-fomc-corpus,1989,"Well, I sense the beginnings of a little hesitation in some planned expansions or equipment purchases. Plans are still going forward but you get just a bit of a feeling that people are beginning to wonder for the first time in a long time whether it is the right decision.",53
-fomc-corpus,1989,President Forrestal.,4
-fomc-corpus,1989,"Mr. Chairman, like much of the rest of the nation, economic activity in the Sixth District has continued to slow somewhat--although I'm getting the sense from people that they don't feel that this slowing is going to continue or, to put it another way, that the deceleration is worsening. The slowing in overall activity basically reflects the balance of very weak construction activity and rather strong growth in international trade. We've seen this translated into rather robust port activity, for example, in the District. As I mentioned last time, it's interesting to note that a lot of this increase in exports and the resultant port activity increases are due to some increase in exports to Latin America. We see the usual continuing sluggishness in housing and auto sales. But this time we took an extra special look at wages and the availability of labor and we still see very little wage pressure, even though in some areas and in some selected industries there is a tight labor market. But wage increases have been remarkably slight. On the inventory question that you raised we don't see much evidence of inventory accumulation in the District--outside of autos, of course. The general tone perhaps coincides with what others have said in that there now seems to be a shift toward some concern about too rapid a deceleration, whereas before in the District people were saying that inflation was a concern. Although I don't think it ever was an acute concern there was more concern about that than about a decline in the economy. I think that has very definitely shifted. And while people will tell you that their own businesses are doing fairly well, there is a cautionary element now that is going to be reflected in business plans in our District at least.",334
-fomc-corpus,1989,President Black.,3
-fomc-corpus,1989,"Mr. Chairman, our projections are very close to those in the Greenbook. We have slightly higher growth in real GNP and a slightly higher inflation rate but the differences here are really minor and not worth mentioning. The overall profile of the forecast is just about the same. More interesting than the projections themselves is the question as to where the risk of error probably lies. If one looks at domestic final demand only, one might conclude that the risk in the case of GNP is definitely on the down side. But, as we all know, the behavior of net exports of goods and services has had a very large impact on our total GNP over the last six years. And the prospects for net exports are something of a wild card in the outlook currently. I think the staff's projected sharp drop in the growth of exports is certainly reasonable, given the strength of the dollar. But the underlying demand abroad is pretty strong in a number of countries and this could buttress our exports for a while, I think, even if the dollar remains relatively strong. On balance, I would say that the risk of error in our forecast and that of the staff's is probably on the down side; but I wouldn't rule out the possibility that the economy could be a little stronger, given this wild card on the export side. When we get to the price issue, I think the risk is about evenly distributed. The staff is expecting that the underlying rate of inflation as measured by the CPI less energy and food will be about 5 percent over the next several quarters. I think a lot of that is going to depend on how strongly these aggregates come back and whether the projection of growth in the aggregates is really going to materialize. On an anecdotal level, at a recent meeting of our board of directors to which we invited our alumni there were more mentions on the part of both groups about how tight labor really is and the virtual impossibility of attracting labor. Now, we have a pretty prosperous District by and large with the exception of a few parts of West Virginia. But still, it was striking that so many were reporting such difficulty in attracting labor. This leads me to think that we may have more wage/price pressures than some people assume or that these pressures may be around a little longer than some are assuming.",462
-fomc-corpus,1989,"Excuse me, Mr. Chairman, could I back up? I neglected to mention our forecast and outlook for the national economy. Our forecast for real GNP is somewhat stronger than the Greenbook's and our forecast for inflation is higher as well. The difference in GNP is almost entirely due to our view of consumer spending; and I gather from what the staff said that perhaps they are a little uneasy about that forecast. We think consumer spending is going to be somewhat higher. If the Greenbook is correct about consumer spending I suspect our forecast would be about the same as theirs.",117
-fomc-corpus,1989,Okay. President Keehn.,6
-fomc-corpus,1989,"Mr. Chairman, with regard to the current situation, at least in a national context, I do think there is a buildup of indicators that suggest fairly specifically that the growth rate is moderating. That's particularly true in the interest-sensitive parts of the economy, notably cars and residential construction. But across a broader spectrum of the current leading indicators I think we do see some tendency for moderation and a trending downward. With regard to the forecast, ours is really very similar to the Board staff's. We have somewhat stronger growth in 1989 and more so in 1990. I doubt it's worth going down sector-by-sector because I think in the main it's a difference in the policy assumption that we use in putting our forecast together. We would expect a more rapid decline in interest rates, particularly short-term rates, than is true of the staff forecast, which accounts for our higher outlook on GNP growth. With regard to the District, what seems to be true in the national level is certainly less true within the District. There are a couple of parts of the District that certainly have peaked and are heading down. Automotive is clearly a part of that, and merchandise sales have been trending down for the last couple of months. But other parts of the District continue to show strength. For example, through May commercial construction contracts were up 1 percent versus a decline for the United States as a whole. That same kind of dichotomy is true for residential construction. We've had a bit of an increase whereas other parts of the country have been down. As a result of that, within the District the demand for building products, specifically gypsum and cement, has been pretty strong. And the demand for business equipment and other categories of industrial equipment continues to be surprisingly vigorous. The steel business has been good though they expect something of a decline in the second half. Nonetheless, the first half has been good enough that for the year as a whole steel in the District will come in pretty well. Employment in the District has shown good gains. We are equal with the national numbers and at this point our unemployment rate for the District as a whole is under the national average; that's the first time that has happened in a while. On the price and inflation side the situation is a bit more mixed but I think, on balance, it's positive. The reports we're getting from our directors as well as other market contacts would suggest some stabilization in raw material prices. Indeed, a couple are coming down; aluminum and copper have been mentioned as prices that are coming down. And with some minor exceptions there are no stand-outs in the raw material category that are showing great big increases. For finished product prices I understand that market pressures continue very intense. For example, in the paper industry they're operating at higher rates. who runs a company in one part of that industry says they are operating at 93 percent. And though they have had price increases over the last 12 months, looking ahead they think they are not going to get any increases at all. And that's quite unusual to be operating at those higher rates and not getting price increases. On the labor side, despite very tight conditions I'm surprised and impressed by how good at least the organized contracts are coming in. People are still getting 3-year contracts and some are quite low. I heard one comment of an increase in costs of 1-1/2 percent per year but that's unusual. The 3 percent continues to be quite common. On the agricultural side, and here I think the situation is very uncertain, the eastern part of the dDstrict has had far too much rain and the western part has not had enough; unfortunately, you can't average that out. We're simply going to have to wait and see how the growing season takes place to determine whether or not we're going to have good yields. But despite that, the demand for agricultural equipment continues to be surprisingly strong. Both tractors and combines are being sold at a higher rate this year than last year. One of the major manufacturers in our District has cancelled a two-week summer shutdown so they can keep up with demand. I think the District doesn't quite reflect the trends we're seeing in terms of the national numbers. But having said that, we lagged the recovery on the way up; and I think it's probably true that we're going to lag this turn on the way down. Pretty shortly some of the moderation trends that we're seeing nationally will show up in the District as well.",891
-fomc-corpus,1989,Thank you. Governor Johnson.,6
-fomc-corpus,1989,"I'm getting a little more concerned about the economic situation since we met last time. Starting on the same day that we made our modest change in borrowing, June 5th, we got a whole series of data that I think have become a little more troubling. On June 5th auto sales came out and were marked down from May over the previous April by about 2/10ths of a million units. Today when we get the report for June I think the numbers will be down again. And auto production schedules have been cut back some since that time. On June 13th we got reports on real retail sales, which were down 7/10ths of a percent; and that was the fourth month in a row of negative real sales. On June 15th industrial production came out and had increased 0 percent. Capacity utilization was marked down. On June 16th we got housing starts, which were down for May by about 2.1 percent. And permits stayed unchanged at a fairly low level. On the 23rd of June we got new orders for durable goods, which were down 4-1/2 percent for May; nondefense capital goods orders were down 8.6 percent for May, and excluding aircraft they were down about 3.2 percent. Real personal consumption, which came out the same day, was down 0.3 percent, and real personal income was down 0.2 percent. On June 28th we got leading indicators, which were down 1.2 percent; they were down in three out of the last four months. Then, most recently, we got the purchasing managers' survey, which showed new orders for June actually negative for the first time in a long time. Vendor performance for June for the first time in a long, long time showed actual faster deliveries, not just a slowing in the rate of increase [of backlogs]. Prices paid were also down below the 0 line, showing an actual decline for the first time. That's a whole string of data. And that's starting to look like a deterioration. These data are all just series of information that are incorporated in the financial markets even more. We have seen it build up over the last several weeks. The yield curve has gotten more negative. Bond rates now are down quite sharply; they closed in on the 8 percent rate for a while and for the 30-year bond they're still around 8.12 percent, or something like that. If you put the fed funds rate on a coupon basis, the yield curve is inverted by almost 2 full percentage points. The markets are clearly expecting lower future rates by a considerable amount. The bill market has even started to discount more sizable moves than I would imagine. Now, maybe it's just a lot of noise lately, but the bill market is down 20 basis points today. Looking at the traditional relationship between rates on bills and fed funds, which builds in a spread of about 3/4 of a point, if you take into account where bills are today the market is discounting almost a full percentage point decline in the funds rate. There may be some noise in there, for sure. But the fact is there's a fairly sizable discounting going on in the markets, based on a string of data like this and a lot of information that's coming through. What worries me about it is that once that psychology starts developing--and the longer the short end of the market is held up--the more future interest rate declines are anticipated. Once you get that psychology in the market investors start postponing investment projects expecting rates to go even lower. Consumers quit financing consumption because they expect to finance consumption at an even lower rate in the future. And this situation starts feeding on itself. The postponement of activity due to expected future declines in rates will continue as long as the short end of the market is being shored up so high above the long end. I think that's one of the risks. Now, if nothing happens what worries me is that markets could become disorderly at some point. A string of data like this and a feeling that the market is not realigning itself on the short end with expectations on the long end at some point could make the stock market vulnerable to flight. That's what I worry about. Whether this will continue is not clear. But I see a very troubling series of trends going on.",888
-fomc-corpus,1989,President Syron.,4
-fomc-corpus,1989,"Mr. Chairman, the New England District that has led the upturn to some extent is certainly way out front in the downturn. In talking to our directors and other people around the District, I'd say in terms of making their own investment decisions and going forward there is some cautious pessimism on their part. Things seem to be fairly soft over a pretty widespread area. Specific industries such as the high-tech and computer industries are quite soft. Some of that may be related to particular mix factors in that part of the industry. In the defense sector, which is very important, current work in process is starting to be reduced and they are really concerned going out. Employment has been growing somewhat more slowly than nationally for a while now. Superimposed on all of this, we do have an overhang in the construction industry and in the housing industry; the result of this is that loan demand has softened a bit and we're starting to get a backlog of property on the market and an expansion of auctions. This combines with the fact that we have in Massachusetts, the largest state in the District, very serious fiscal problems--both state and local. People reading about the fiscal problems continuously has led to a broader pessimism, which has been reflected in retail sales. So, inventories are not a problem at this point in time but people are being really quite cautious. Wages have been well behaved, as you might expect in this environment, though the labor market in the services area--particularly the lower-end services sector--is still quite tight. But it's loosening up a fair bit in production levels. As far as the national economy goes, we would generally agree with the Greenbook as it was presented with a couple of caveats. We have somewhat stronger growth in GNP as a result of somewhat stronger consumption growth--obviously in other parts of the country--with the saving rate not holding up as high as the Greenbook has it. We have some concern about higher inflation because of the uncertainty on our part that wages nationally will remain as well behaved as they have in the past, particularly looking at the tightness in labor markets and what has happened to prices in an overall sense--not just excluding food and energy, but all prices. So, I think it's pretty clear that we're in a very difficult period. We don't see a cumulating downturn in the economy. But I think the risks are at least balanced, with probably some more margin on the softer side of the economy.",496
-fomc-corpus,1989,President Guffey.,5
-fomc-corpus,1989,"Thank you, Mr. Chairman. On the regional side, the Tenth District is continuing to improve. To be sure, it's still lagging the national scene; but given where we started a couple of years ago we're still improving. On the food and agricultural side the outlook is good, notwithstanding all the talk of what has happened in the drought areas. For example, drought has [hit] in Kansas and the northern sector of Missouri and it extends up pretty much across Iowa. But given the additional acreage that has been planted, the outlook for production of agricultural products is really very good in light of the rain that has fallen in a good part of the United States outside of the Tenth District. In wheat specifically, the hard red winter wheat that is principally grown in the Tenth District--in Kansas particularly and in Oklahoma and Texas--that crop to be sure is going to be down considerably because of the drought situation. But overall, it's important to note that the production of wheat on the national level is going to be up about 15 percent above what it was last year. And that's notwithstanding the fact that Kansas, which is one of the biggest producers of the hard red winter wheat, is going to harvest something less than half of the crop harvested just a year ago. Given that kind of an outlook, we would agree with the comments that were made by Mike and others with respect to food prices in the period ahead: that they will be moderate, with about a 4 percent increase over the next year. The energy industry in the Tenth District has not fully participated in the nationwide improvement in exploration and development. Indeed, in Oklahoma the number of rigs fell substantially over June, for example, whereas nationally that count was up. Manufacturing continues to improve, largely in the export-sensitive aircraft and high-tech areas. And construction continues to improve very modestly in the District. It is above the year-ago level; although commercial construction is down somewhat, overall construction is up. On the national level, I recognize that in all of the numbers that have come in, and that have just been recited for our review, there is a softness that appears to be showing through. I would see that as coming close to achieving the objective that we've been striving for, and that is, to bring the overall growth down. However, we would see growth in 1989 and into 1990 somewhat greater than the Greenbook forecast, largely reflecting a bit stronger consumption than the Greenbook forecast incorporates. Overall, the only real evidence of wage [pressures] and concerns that we have been able to uncover in the Tenth District is in the steel settlement that was announced earlier. There's a real concern that a steel producer in the Tenth District who is in the midst of negotiations now will be badly hurt if that type of settlement is imposed upon them. That's all I have, Mr. Chairman.",581
-fomc-corpus,1989,President Melzer.,4
-fomc-corpus,1989,"In terms of the outlook, our money-driven model ends up with a pattern very similar to the Board staff's forecast--in other words, slowing real growth and inflation leveling off over this year-and-a-half period. The main difference is on the real side where we have considerably weaker real growth--roughly 1-1/2 percent for this year as a whole and 1 percent for next year. But in terms of the deflator our numbers are within a tenth or two of what the Board staff has. The only other thing to mention is that our forecast assumes, as does the Board staff forecast, a reacceleration in money growth in the second half of this year and continuing on in the next year. As far as the District is concerned, our numbers show this continuing pattern of slowing that has been mentioned. Non-agricultural employment growth is slower than the national average. It's interesting that even though the unemployment rate is coming down the District rate is still somewhat higher, at around 6.2 percent. But the labor force obviously is growing very slowly. Manufacturing employment, in contrast to the national picture, has really held up with other employment growth. We're not seeing the relative weakness that shows up nationally there. However, there are some industries where there is a slowing or, in fact, declines in employment: in the auto industry employment growth is slow; and there have actually been declines in food processing, electrical machinery, and printing and publishing. The one area of notable weakness is nonresidential construction where in the most recent period for which we have data, the 3-month period ending in May, we have a decline of about 20 percent compared to the prior period. Again, I think we have just gone through this cycle quite a bit later than some other parts of the country in terms of the nonresidential construction. As far as [unintelligible], I don't really detect the same shift in tone as some others have mentioned. Certainly, people will acknowledge that there has been a slowing, but in the contacts I've had I have not picked up this concern about possible cumulative weakness.",426
-fomc-corpus,1989,President Stern.,3
-fomc-corpus,1989,"As best I can judge, the District economy is now performing very similarly to the national economy. That is, the pace of the expansion in general has slowed--allowing, of course, for the usual diversity between economic sectors and particular regions within the District. As this has happened it seems that earlier concerns and reports about inflationary pressures have ebbed at the same time; and this has gone on even though for the most part labor markets remain quite tight and we continue to hear reports of labor shortages. With regard to the national economic outlook, our model generates an interest-rate pattern similar to the Greenbook--that is, essentially flat interest rates from here on out--and somewhat more rapid real growth, especially for 1990. I personally am a little more cautious than that, in part from reading and reviewing many of the same statistics we've all looked at and Governor Johnson summarized. But having said that, I would also add that in many respects it seems to me that things have worked out largely as we might have hoped a few months ago, in the sense that I think it was recognized that we needed a slowing in consumer spending and a slowing in the pace of employment gains if we were to arrest what appeared to be building inflationary pressures and some deterioration in the psychology about the price outlook. So, I think in many ways things have evolved about as well as we might have hoped.",279
-fomc-corpus,1989,President Boykin.,4
-fomc-corpus,1989,"Mr. Chairman, the Eleventh District economy continues to show modest improvement overall. Much as Roger indicated for the Tenth District, we do have to keep in mind that we were coming off a very low growth base of economic activity. Even though we are getting modest improvement we continue to show weakness in construction activity, and I guess that would be expected for us. Single-family housing is the only area of construction that does show some improvement. While the energy sector has shown a little growth in the last few months in response to the higher oil prices, the gains are very small. Drilling and related activity are still below the depressed levels of a year ago. Recent rains have improved the agricultural outlook for this year in some parts of our District. But nonetheless, we still expect farm income to be a little below last year's. We are seeing continuing gains in the manufacturing sector, with nondurable goods showing the greatest strength. The outlook in our area is at best guardedly optimistic as cuts in defense spending, slowing in overall demand nationally, and an inability to expand output in chemicals, petro-chemicals and paper all combine to restrain [the prospects for] growth in coming months. Orders growth has been slowing in several industries. Retail sales, including autos, continue to show year-over-year gains down our way. And Houston continues to be kind of the shining example for us, which is a considerable change over a couple of years ago. Price and wage pressures remain well below the national average in that regard. I am glad to report on the financial side that in the first quarter our District banks just about broke even for the first time in over two years. Nonperforming [loans] and charge-offs continue to move in the right direction; but part of this is a statistical illusion as many of the loans in recapitalized banks are put back to the FDIC. All in all, we think the banking sector is still several quarters away from supporting business expansion. We haven't noticed or detected any real inventory problems in the District. With respect to the national outlook, the Greenbook [forecast presents a reasonable picture of] what we're going to be facing.",433
-fomc-corpus,1989,Governor LaWare.,4
-fomc-corpus,1989,"Mr. Chairman, I'm delighted to see these indicators showing a significant slowdown in the rate of growth. At the same time, I'm skeptical about whether we have seen the full effect of the inflationary pressures that were there in the past. I believe that we are more likely to see at least a quarter more of some upward pressure on prices as the [past pressures] are reflected. But what concerns me most are the consequences of a more severe slowdown that could be triggered by a failure of the expectations that Governor Johnson was touching on a few minutes ago. I think the markets are extremely skittish. The way the stock market, the foreign exchange market, the bond market, and the money markets have been bouncing around makes me nervous because I think that reflects the nervousness of the markets trying to read things into every bit of information that is published and reacting--or overreacting, in my opinion--to things that are not necessarily indicative of what's going on in the big picture. At the same time, as a backdrop to all of that, I think the financial system is rather narrowly balanced. We have these huge amounts of corporate debt, some of which is based on a very skinny coverage of debt service. We have junk bonds being a significant investment in a number of pension funds. A number of banks are supporting the short-term credits involved here. And we have a lot of S&Ls with a lot of that junk paper as well. So a significant turndown in the economy could cause all that to get out of whack and have a ripple effect throughout the whole financial system that I think could be very severe. A lot of that debt is really based on continued growth at current or immediately past levels rather than on the kind of growth that we're talking about, which I suspect may be a disappointment. We also have an LDC debt situation that is more and more unsettled because of political influences. And the banks, if they are encountering very severe profitability problems in other directions, are going to be in a far less competent position to handle the kinds of pressures that may be imposed either because of the adoption of debt reduction plans or because of simple default. We have a real estate market that is increasingly soft in many parts of the country where it was previously very strong. And that is going to be compounded by the overhang of the RTC disposal situation which is X hundreds of billions of dollars. Whichever strategy the RTC adopts--whether it is a quick disposal and [a decision to] dump the overhang on the market temporarily and hope the market will come back, or whether it's hold onto it--the overhang is going to tend to depress those prices. It seems to me that anything that could restore some confidence in the markets might have a desirable effect there, because the banks and the S&Ls are the principal ones who are going to get hurt by that kind of a situation. So, I think that in spite of the risk of not achieving further progress on inflation immediately, the effects of a significant recession--if that's what we've tipped into--could be even greater. I'm not at all satisfied that we even have to be in what is technically a recession in order to have significant changes in business plans and significant consequences in the areas that I'm talking about. I think there are great expectations out there for lower rates, and the disappointment of those expectations could result in an acceleration of the slowdown that could take it out of our hands. Thank you, Mr. Chairman.",700
-fomc-corpus,1989,President Hoskins.,4
-fomc-corpus,1989,"Well, for the second month in a row, I can report that [businesses in] the Fourth District are less optimistic than they have been for the last 18 months. Having said that, overall they are still operating at pretty high levels of utilization of resources. Nevertheless, there has been a slowing in the pace of sales, new orders, and even production. We have things that were on allocation that are not on allocation now. We have some, at least, not accelerating factors. Overall, people in the District that we've talked to still expect the inflation rate to stay between 4 and 5 percent and to be relatively stable in that range. Among those who are less optimistic, it will be no surprise to you to discover steel. Their concerns may have evaporated in the last two days because they were primarily based on the idea that the dollar staying where it was would impact them--being a commodity-oriented business more than some of the others; they had concerns that the second half would be impacted by that level of the dollar. Capital goods also are softening, but for different reasons. There are cutbacks in auto demand and cutbacks in defense spending and those are cutting into machinery fairly significantly. But the backlogs that are in place will carry people in terms of production and shipments pretty much through the remainder of the year. There is one other point in the capital goods area: [Unintelligible] continues to say that the export side has been very good, that the foreign investment boom is going to continue. So they are looking for continued strength through the year in terms of capital goods. Inventories overall are not a problem, but people are saying that apparel is starting to back up as are home building and materials a little. But it is nothing that they are overly concerned about at this point in time. They think there will be very quick adjustments before the situation could get out of hand.",385
-fomc-corpus,1989,When does the steel contract run out?,8
-fomc-corpus,1989,August 31st.,5
-fomc-corpus,1989,The price?,3
-fomc-corpus,1989,"No, the contract.",5
-fomc-corpus,1989,Wage contract?,4
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,"That doesn't occur for USX until 1990, I think. Everybody else is late this year, if I'm not mistaken.",26
-fomc-corpus,1989,National is--,3
-fomc-corpus,1989,National has already done theirs.,6
-fomc-corpus,1989,Bethlehem is--,4
-fomc-corpus,1989,"Everybody has started but USX doesn't have to face it, I think, until 1990 or 1991.",24
-fomc-corpus,1989,What's the strike-hedge buying that the purchasing managers were talking about this year?,17
-fomc-corpus,1989,The strike buying?,4
-fomc-corpus,1989,"As I recall, the purchasing managers were commenting about strike-hedge buying in steel.",18
-fomc-corpus,1989,I'm not sure which--,5
-fomc-corpus,1989,"There have been a couple of negotiations and there is one ongoing, which was referred to earlier. Those may have been what they were looking at--Bethlehem and some others.",35
-fomc-corpus,1989,"Oh no, they weren't referring to Bethlehem or National--well, it may have been National.",19
-fomc-corpus,1989,But I thought National rejected the contract.,8
-fomc-corpus,1989,Inland has been in negotiations but I don't [think] they are a major supplier of the auto companies.,22
-fomc-corpus,1989,"Yes, it could have been National or Inland that they were commenting on.",15
-fomc-corpus,1989,"Actually, I heard those stories some months back as explaining the strength in steel production, even in the latter part of last year. It has been a pretty murky matter as to what was going on and the timing.",44
-fomc-corpus,1989,"In terms of the national outlook, we don't have a quibble, really, with the Board staff's projection. I'm happy to see that we don't have accelerating inflation and I'm not very happy to see that we don't have decelerating inflation. I am concerned that we think we can do more with demand management than we've proven to be able to do in the past through monetary policy. And I continue to think that our long-term objective ought to be to get some more progress on the inflation rate than we're showing in any of the alternative scenarios.",109
-fomc-corpus,1989,Vice Chairman.,3
-fomc-corpus,1989,"Mr. Chairman, I view the staff forecast as basically a reasonable one. My own forecast is probably a bit stronger in real GNP growth terms, as has been the case for a long, long time. We have an inflation rate both this year and next that is still running 1/2 percentage point or more above what is in the staff forecast. I look at the forecast today versus, say, 12 or 6 months ago, and I think there is an important difference in that 12 or 6 months ago I, at least, viewed the situation as being distinctly asymmetric on the side of too much growth and too much accelerating inflation. I would view the staff forecast now as reasonably well balanced. But by definition the forecast that in those circumstances is reasonably well balanced today is one that does have somewhat greater downside risks than it did before. But that's in the nature of things. That to me says that we've either been lucky or good. Now, on the question of lucky or good--",202
-fomc-corpus,1989,Or both.,3
-fomc-corpus,1989,"I was about to say I think where I come out is both. I say that because I am hard pressed to convince myself that the rise in interest rates over the past year or so, going back to March last year, has been decisive in causing the slowdown in spending we have seen, except in housing. In other areas in which we have seen a slowdown I think I can convince myself that the slowdown may have as much, if not more, to do with other things than it does with interest rates. Certainly, I think that's true in autos where saturation alone, coupled with the bunching up of purchases of fleets of automobiles by auto rental agencies and others, is producing some anomalies--as reflected in the widening spread between used car prices and new car prices. In the area of nonresidential construction, I think the slowdown is at least as much, if not more, the result of the excesses that took place earlier, in terms of commercial real estate development and shopping centers and other things. Energy I don't think is interest-rate driven. And the slowdowns that we're seeing in both state and local and in Federal government purchases of goods and services clearly are not interest-rate driven. So, I think there has been a combination of some fortuitous developments, rather than luck, and some good policy that has produced the kind of result that I think many of us wanted to see. Although I agree with much of what John LaWare said about all these financial problems, the only problem is that I could make a case that they are an argument for tighter monetary policy rather than easier policy. Be that as it may, on the anecdotal side there is clearly a sense that one picks up, as several others have talked about, of things having slowed down further--especially in May and June. As I mentioned to you earlier today, Mr. Chairman, periodically we have been talking to a group of firms--we can't call it a survey because OMB would get mad at us, but it has certain characteristics in that direction--and I'd like to share with the Committee several features that came out of our talks with these firms in the period of June 19th to June 23rd. We have done this enough so that it has its own little history to it and we can get a sense of what the dynamics are. First of all, in terms of export orders and export growth the [unintelligible] pattern now is that most of them are still seeing export orders running in a range of 10 to 15 percent increases, which is down from 20 to 25 percent last year. But that seems to be largely a kind of a saturation thing. None of the firms, with the exception of one small manufacturer, said that the exchange rate appreciation that we've had in recent months has yet had any impact on their export orders, although several did say that if the exchange rate stayed above 2 marks or 140 yen that they would expect that to begin to show. But it has not shown to date. They also are suggesting that their backlogs of export orders are still high and rising. I'm not going to go through all of this but just on the question that you specifically raised, Mr. Chairman, the second interesting part is on the inventory side. What we see is that the clear majority of firms, especially the big firms, are reporting inventories as quite normal. But again, in sharp contrast with earlier discussions with these people, we now have something like a third of them expressing a little uneasiness about inventory developments and a couple saying that inventory developments may well prove to require some production slowdowns. Again, it's not precisely [the information] in and of itself; it is that there is a change in the kinds of things that these same firms had been saying to us in the past. The price forecasts are basically, except for certain sensitive commodity price tables of intermediate materials, in the 5 percent range. Capacity investment plans are holding up; there are no major changes. And in some cases these companies are talking about very major investments. The paper company is talking about two new plants coming on stream in the early '90s, and this is big stuff. There is no sign of any retrenchment at all. There is one interesting development. A large chemical company tells us that they are getting ready to build a new plant that won't come on stream until 1991--Mr. Truman, you'll be interested in this--and they went out and hired to assure them that the dollar would come down before they made their decision.",919
-fomc-corpus,1989,Did they get their money back?,7
-fomc-corpus,1989,"They volunteered that. The last thing that I think is very telling is in their anticipated wage bill increases for 1989. And here, there is an unmistakable virtually across-the-board acceleration. About a third of the firms are now talking 3 to 4 percent; they were talking 2 to 3 percent. Another third are at 5 percent; they were talking more 3 to 4 percent. And another third had increases ranging as high as 10 percent, but most of them were within the 5 or 6 or 7 percent range. What should one make of this? I'm not sure. But clearly, there are three or four areas--export orders, inventories, investment, and wages--where [discussions with] this handful of very representative firms do suggest some important changes from what they were telling us a year or two ago. There is one last point I would make at this juncture. I want to say a little more on the inflation issue in the context of the policy discussion tomorrow. If I go to Mr. Truman's chart 17, the external side of our economy still stinks; there's no other way to put it. Nobody else seems to worry about it too much, but I sure do. I don't know what the right exchange rate assumption is, heaven knows. But if you take our forecast--this is a minor thing at the margin--we get back in 1990 to a situation in the United States where domestic demand is growing faster than GNP again. It's not by a lot but that's where we end up. That's not a forecast as much as it is an observation. But if you look at those numbers, you can put whatever margin of error you want around them and they are lousy. That net investment position in 1990 ends up at minus 14 percent of GNP. That is trouble looking for a place to happen; and it's going to come home to roost on us sooner or later. And partly for that reason, that reinforces my own view that I'm quite prepared to accept running some risk of the kind of slow growth that is built into the staff forecast and maybe even growth that is a little slower than that.",445
-fomc-corpus,1989,Governor Angell.,4
-fomc-corpus,1989,"In looking at the current situation, it does seem clear that there has been some change of patterns. Of course, a lot of this is very, very good. Those of us who would like to see the trade balance corrected without a depreciating technique would believe that that's the only way that we're going to get to our primary [objective] of stable prices. We're going to have to have a stable dollar to do that. And certainly the slowdown in consumer spending is an integral part of that success. The only problem is whether anyone believes that you can take consumer spending from a 3 or 3-1/2 percent range and cut it in half and somehow or other just automatically stop there; I think there's some uncertainty about that. I don't know whether Mike will be pleased to note that there is at least one individual on the Committee who is on the other side in regard to the consumer spending issue. Mike, I'm looking for decidedly slower real consumer spending than the Greenbook. And I note that I'm the only one, I guess, who is on that side. You've heard a lot of others on the other side. So, it helps to get you closer to the middle, Mike, for me to take that position. The reason that I believe consumer spending was slow in the second quarter and had slowed below what we had in the first quarter and below what I think the Greenbook says for the second quarter relates to a very logical follow-up of a set of developments. One is that we have had extremely slow money growth over such a long period of time that there is not the kind of liquidity out there to support what has turned out to be inflation in the discretionary consumer spending area. If you only have 10 to 15 percent of consumer income that is discretionary spending, you don't have to [unintelligible] to begin to make a decided difference. When we have reports that we not only have the unexpected estimated income taxes in April but we also seem to think the money stock was showing that, then that seems to go along also with some adjustments in terms of consumer behavior. It wasn't so long ago that during April tax paying times it was somewhat more noted as to how much borrowing might be utilized to facilitate the income tax effect rather than some sense of drawing down money balances. Stop and think about marginal tax rate changes and the lack of deductibility of some interest rates, including the lack of deductibility of borrowing money to pay your income taxes; that causes the after tax interest rate to be decidedly higher than it had been before. It seems to me quite logical, then, that you'd get some differences in this kind of environment in personal household saving rates. And that, together with certain maybe overpublicized demographic factors, it seems to me leads us to a different kind of behavior--which of course is exactly what we've been wanting. So, I don't think we need to grieve too much about getting the exact same results that we were after. We wanted to slow money growth down because we didn't want to revive the liquidity that would be necessary in a sense to accommodate these inflation pressures that I think all of us knew would be forthcoming--given the import price side and the energy price and the other commodity price effects, some of which stemmed from last year's drought. So all in all, it seems to me it's very logical for consumer spending to be low and for it to stay low. Now, when you add to that what's happening to housing, there are enough communities in the United States where the housing market has changed so that the wealth effect of this change in housing must necessarily, it seems to me, show through in regard to spending patterns for consumers. So, I'm bold enough to have consumer spending growth rates only about half of those the staff is projecting. And yet I end up getting, I think to Mike's embarrassment, almost exactly the same real GNP numbers that Mike had.",786
-fomc-corpus,1989,We welcome you.,4
-fomc-corpus,1989,"Oh, you welcome me! Well, [unintelligible] we're both probably wrong, but for different reasons. Nominal GNP, it seems to me, is not going to be able to be as expansionary as has been predicted. I just so believe that the monetary slowdown will show [unintelligible] on nominal GNP. So I tend to be optimistic in that regard; that's why I have [forecast] what I would call a rather nice expansion. But if I'm wrong on that and inflation runs about as Governor LaWare thinks it will, then I don't think there's any room, and I think there are considerably more downside risks. But I'm going to remain somewhat optimistic.",141
-fomc-corpus,1989,Governor Kelley.,3
-fomc-corpus,1989,"Mr. Chairman, we continually and, of course, properly discuss the risks and how they vary--from inflation kicking up as a result of too strong an economy versus making progress on inflation as a result of the slowdown. I find myself very much with Governor LaWare; he really made my speech and I certainly won't repeat it. But one word that I think was in his remarks bears some emphasis, and that's the fragility of this situation. However you assess the risks, it seems to me that the fragility on the down side is quite substantial and should be recognized as an element therein. Another thing that I think was in his remarks that I'd like to emphasize is the consequences of which way these risks fall. If we wind up with a somewhat stronger economy than we think, then inflation will probably carry along for a while and it's hard to say exactly how it will behave. But I don't hear anyone saying that there is any risk of inflation running away from us on the up side. On the other hand, I think the consequences of seeing a downside result could be very severe indeed, in terms of the larger social picture of the country and where we are and what we're trying to do in this country. And I think as we assess the risks, however you come out on where the risks are, it's useful to think in terms of the composition of those risks and the consequences of having the risks fall out in either of the two directions that they could go. So I think it's worthwhile to consider those two aspects: fragility, which seems to me to be wholly on the down side; and the consequences of the result that we might realize in either direction, which also seems to me to be far more severe on the down side, should it work out that way.",355
-fomc-corpus,1989,Governor Seger.,4
-fomc-corpus,1989,"I've been sitting here thinking that I need a new hearing aid because I can't believe the change in the comments today versus the FOMC meeting in May or, for sure, the one in March. Either I needed the new one then and not now, or vice versa. Anyway, as you know, I've been somewhat concerned about the slowing economy for a fair while. So, it is nice to have some other people who are on board with the same concerns. Where I depart from the staff forecast is over the next six months or so, for a couple of reasons. One is that in the auto industry, I think for the first time in three or four months, we're going to find that the auto manufacturers actually have some latitude to adjust production. As they got into the late stages of this model year they were locked in because they had made commitments to suppliers to take X amount of materials and, therefore, they carried through with their production plans; but now they are reaching the end of that run and we're seeing announcements already of extended shutdowns from model changeovers. And this is sort of the first round. Then Chrysler, for example, when it starts up the new models at one of its plants, instead of putting two shifts on is going to put one shift on. I think we're going to see a number of these things. Instead of just holding production constant and trying to ram the sales through the system through the use of these various incentives--which made the dealers very, very unhappy--I think we're going to see more and more production cuts. I realize that the auto industry is no longer as important a share of the U.S. economy as it used to be, but in terms of explaining cyclical wiggles I think it's still rather significant. Therefore, I think over the next two quarters what's going on there may be really rather significant. I got some numbers this morning that I'll just share with you because, on the one hand, they were interesting; on the other hand, they were rather scary to me. Chrysler sent some surveys to their dealerships and what they have discovered is that 60 percent of the people coming into their dealerships were not able to come up with even the downpayment to buy a car. That's sort of scraping the bottom of the barrel, as I see it. One reason, of course, is that used car prices have weakened; and [that hurts] those who, when they had trade-ins, could forget the downpayment. I find the [unintelligible] system working; the others don't necessarily have trade-in difficulty but they just don't have the cash on the barrel head. And this includes, by the way, the opportunities to use cash rebates for downpayments; even with that availability, 60 percent weren't able to get a downpayment together. Also, the number of people actually coming into their showrooms is down about 10 percent from a year ago. And what they call the closure rate is down. So, of the people coming in, the number who actually go through and make a purchase is way down--I don't know by what percentage. Also, 31 percent of their dealers are now losing money versus under 20 percent last year. Those that are still profitable, though, have seen their profits drop to less than half of what they were a year ago. Jerry, you mentioned that tight money hasn't had the impact you might expect; I think you can see it in autos. And it works through the dealers, as the dealers have had to pay 3, 3-1/4, or 3-1/2 percentage points more to inventory this tremendous pile of cars; that's real money to them because they are the ones, as John LaWare knows, who have to pay these financing costs. General Motors doesn't, or Ford doesn't. The dealers have seen these financing costs soar and that has increased their unhappiness with the situation; it has also increased the flow of gripes back to the auto manufacturers. By the way, auto sales picked up in April when these incentives went in but since then, even with the most generous incentives in place--to me these are the most generous incentives since they launched incentives back in '86--sales are viewed by people in the industry as disappointing in both May and in the sneak preview of the figures for June that they had received just before I talked to them. That's one thing that concerns me. The other sector where I'm a little more negative than the staff forecast is in housing; I believe the staff has housing starts hitting bottom this quarter and then starting to percolate up. I would like to think they would turn around that quickly but I'm not really that convinced that they will. Therefore, as I said, my concern is how we are going to make it through the next couple of quarters before we see some of the monetary changes work through, because I think the very slow monetary aggregate growth that we have had is having an impact and, unfortunately, that it is going to continue to have an impact for a while. Thank you very much; I hope we're lucky.",1026
-fomc-corpus,1989,"If there are no further items on this general tour de table, why don't we adjourn until 9:00 a.m. tomorrow morning?",29
-fomc-corpus,1989,We are now up to Mr. Kohn's presentation on the long-term ranges.,17
-fomc-corpus,1989,[Statement--see Appendix.],6
-fomc-corpus,1989,"Quick question, Don: Of the 8 to 10 revisions, is there any systematic directional change in those?",23
-fomc-corpus,1989,"I don't think so. Remember one year we lowered the bottom end of the M2 range; that was in 1988. Other years we have widened the range. I'm sorry, Mr. Chairman, I'm looking for--",45
-fomc-corpus,1989,"Actually, Norm has given me a table.",9
-fomc-corpus,1989,It's the table I'm looking for but am having trouble finding. It's about half and half.,18
-fomc-corpus,1989,That's what I think.,5
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,"So, there are no systematic indications. Other questions for Mr. Kohn?",16
-fomc-corpus,1989,"Don, I need a review; you may have mentioned it but go over it one more time. One of my concerns is that if we are beginning a period of declining interest rates, clearly, we're going to see behavior in velocity symmetric to the increase we've had over the period of rising interest rates; we're going to see a declining velocity growth. Would you review again, just as a rule of thumb, what the lags are on, say, a 100 basis point decline in interest rates? What would that do to M2 growth or to the M2 money demand I guess is the way to put it? What kind of lags are there before they catch up?",136
-fomc-corpus,1989,"Well, the lags can last four or five quarters before the full effect is felt if you just have a one-time decrease. I'd say about 100 basis points at the current level of rates probably would give you, say, about 1 percentage point or something like that over four quarters. Dave? I'm sorry, it would be more like 2 percentage points in the growth rate over a couple of quarters.",83
-fomc-corpus,1989,So 100 basis points would yield 2 percentage points in growth over a couple of quarters?,19
-fomc-corpus,1989,"Yes. In other words, if you did it this quarter, in two quarters you'd have a maximum of about 2 percentage points more growth; and then it tapers off after that. The whole effect--",42
-fomc-corpus,1989,What we really want to know is the change in the level at the end of the cone.,19
-fomc-corpus,1989,"Right. I would say that's probably about 1-3/4 percentage points in four quarters, judging from this table.",25
-fomc-corpus,1989,"One of my concerns is that, given the lags, if we started a sustained period of declines in interest rates--even if we were shooting for 5-1/2 percent or so nominal growth next year--we might end up having to absorb 2 full percentage points or more of extra M2 growth because of the effects on velocity just to hit that nominal target. If that's what you think--",82
-fomc-corpus,1989,"If you think the economy is going to be weaker--that its underlying demands are weaker or that inflation will be coming down faster and therefore interest rates will be lower--then I do think that. We have a 6-1/2 percent growth projected for relatively flat interest rates. There's no question in my mind that if you thought rates would be declining significantly and you wanted to get approximately the same nominal income growth, for the same rates then you'd be threatening the upper end of the 3 to 7 percent range.",105
-fomc-corpus,1989,Which suggests that we may be 9 out of 11 [next February].,16
-fomc-corpus,1989,That's what I was saying.,6
-fomc-corpus,1989,"Further questions for Mr. Kohn? If not, I'd like first to discuss whether this Committee desires merely to reaffirm the 1989 ranges and then go on to discuss the 1990 ranges. I would appreciate it if someone would like to initiate a point of view on the 1989 ranges.",61
-fomc-corpus,1989,I'm in favor of extending the existing ranges.,9
-fomc-corpus,1989,Let me put it to you--,7
-fomc-corpus,1989,"Yes, I would not want to change the '89 ranges.",13
-fomc-corpus,1989,"Let me reverse the question. Is there anyone on the Committee who feels it might be desirable to change the '89 cone? If not, I would entertain a motion to reaffirm it. Do we have one?",42
-fomc-corpus,1989,So move.,3
-fomc-corpus,1989,Second.,2
-fomc-corpus,1989,Second.,2
-fomc-corpus,1989,"Without objection. Let's now move to the more important issue of views on the tentative ranges for 1990, emphasizing the tentative aspects of this and recognizing that our history is not one in which we have been committed irrevocably to whatever it is that we choose at this meeting. President Black.",59
-fomc-corpus,1989,"Mr. Chairman, I think you have taken away the easy part of the problem. The 1990 ranges are really where I suspect we will have most of our differences here. And I think that's the more important part of [our decision]. A lot of this depends on how one views the ranges; there are different ways that one can look at this. To me, the most important thing is that the ranges are our signal to the public, and I hope a reasonable signal, of what we plan to do over the next four to six quarters to achieve the long-run objectives of monetary policy. Accordingly, I think it's very important that the ranges we select for 1990 make it crystal clear to the public that this current apparent softening in final demand is not going to divert us from our objective of trying to restore price stability over the long run. We have made a lot of progress on this and I think we've had excellent monetary policy for a long time now. But we still have the underlying inflation rate at around 5 percent, so we still have some distance to go on that. All of us, obviously, would like to achieve price stability with a minimum of disruption in the economy. But I think price stability really has to be our primary--and I would say our single overriding--long-term goal. I think the greater the public's confidence in our commitment to that end, the less the short-term disruptions are going to be. So, in my mind, it's highly desirable that we reduce the range for M2 further in 1990 to maintain the credibility that we've won over such a long period of time. So, I strongly prefer alternative III. What that means to me, really, is that we want the underlying rate of growth of M2 to come in somewhere around the 4-1/2 percent midpoint of the 2-1/2 percent to 6-1/2 percent range, which would be consistent with what I think we've been trying to do for a long time. Now, I recognize that the staff's baseline forecast for M2 for 1990 is 6-1/2 percent. That means, of course, that a 2-1/2 to 6-1/2 percent range doesn't give us a lot of leeway for error on the up side. But frankly, I wouldn't be unduly concerned if interest rate movements or some other temporary factor did cause us to come in above that, as long as we were reasonably confident that that was temporary and it was something that we could explain to the public. If you'd permit me to add one final point, Mr. Chairman: Every time we go through this exercise, I become more and more convinced that we really need to change our targeting procedures to look at this on a multi-year basis. Several of us have made this point in the past; and I'd like to suggest again that we take a look at that because, given base drift, this seems to me a pretty inefficient way to target on the long-run objectives on which I think we all agree. I would like to see us, if we can agree on that, make some kind of move in that general direction.",645
-fomc-corpus,1989,Governor Angell.,4
-fomc-corpus,1989,"I'm very sympathetic to Bob Black's perspective for the long run. It seems to me that we do want to get those ranges for M2 down to 1 to 5 percent. A 1 to 5 percent range is where we have to be in order to be even close to credibility in regard to price level stability. If we mean that, it just seems to me that's where it has to be. I do believe, however, that we ought not to back up. That is, I want to see us only lower ranges and never raise them. And, with Don's report, I believe that it would be prudent for us for 1990 to keep the 3 to 7 percent range. It seems to me that we will once again have a period in which the expectation will be for rising interest rates, and that's when we ought to go down another leg to 2 to 6 percent. So, Mr. Chairman, I prefer the long-run strategy II, which is very conservative. But I prefer alternative II for 1990, because I'm not willing to go down and then exceed it on the top side. If there's one thing that I feel very strongly about after 3-1/2 years here, it is that whenever we have erred on the extremes on M2 growth, with 9 percent M2 growth and 2 percent M2 growth--even though we may say M2 growth, V2 doesn't give us precision--we have been buying a little lack of stability. So, my preference is alternative II with a commitment to getting to 1 to 5 percent before my term is over.",332
-fomc-corpus,1989,"I can't really quarrel with that. I was just hoping, as I was telling Don before the meeting, that he could come up with as good reasons why we ran over the target as he did in his recent memorandum--which I thought was excellent work--explaining why we ran so low. If he could, then I could be pretty well satisfied with that. He certainly eliminated some of my worries about this unduly slow rate of growth we've had in M2 recently. It has been about 3 percent adjusted.",105
-fomc-corpus,1989,President Parry.,4
-fomc-corpus,1989,"Mr. Chairman, our analysis suggests that M2 and M3 are likely to grow in 1990 at a slightly less rapid rate--5-1/2 to 6 percent--than the Bluebook [forecast]. But even that slower growth would be consistent with not changing the ranges, at least on technical grounds. I do think, though, that it is important that we reduce the ranges because I think it does send a message to the public regarding our resolve gradually to lower the rate of inflation over time. I think the strategy II that was outlined is the one that we ought to be pursuing over the longer term. Therefore, I would support the suggestion of President Black to pursue Bluebook alternative III, which I think would still be at least within the range of what I would expect the growth of the two aggregates to be next year.",170
-fomc-corpus,1989,President Keehn.,4
-fomc-corpus,1989,"Mr. Chairman, given our experience with the aggregates this year, I think it's very difficult to forecast the outcome for the balance of the year, much less for 1990. I think the memo that Don sent out analyzing what has happened so far really was an excellent way of looking at what has happened. But that certainly is after the fact, and it doesn't give me, at least, any real assurance as to how these aggregates are going to perform in the future. But in the interim, it does seem to me that the signal effect of the ranges that we select really is very, very significant. There is an interesting quote in the Bluebook on page 17 which says ""But only alternative III involves a further reduction in all the current money ranges and might seem most in accord with reinforcing the Committee's longer-term commitment to price stability."" I think that is a very significant statement. To say anything else, really, in terms of the choice of the range would be a mistake. Therefore, I would be very strongly in favor of alternative III for 1990. If in fact things work out this year along the lines that Don is suggesting, we do have--as apparently has been the case in the past--the opportunity to change the ranges in February. Clearly, if a change were appropriate at that time, then we would do it. But I think in the interim it would be important to signal our continual commitment to price stability. And I think alternative III accomplishes that.",300
-fomc-corpus,1989,President Syron.,4
-fomc-corpus,1989,"Mr. Chairman, I think that policy has been a mixture of luck and skill and has been remarkably effective. And I think the challenge before us is to continue that process. The comments that have been made on signals are highly appropriate in terms of the point that it's certainly necessary that we lower some of the ranges. But I find that I'm somewhat sympathetic to what Governor Angell said, particularly given that we think it is likely, were we to adopt alternative III, that we subsequently would have to raise the range for M2. With that [being] our suspicion--and it is mine--I would prefer alternative II.",125
-fomc-corpus,1989,President Forrestal.,4
-fomc-corpus,1989,"Mr. Chairman, I would identify myself with those who think that the announcement effects of these ranges are highly important. At the same time, as a technical matter, I think we need to make these ranges as realistic as possible; and given the staff forecast for growth of M2 and M3, I would favor alternative II. I think there are two signal effects that we need to give out now because of the uncertainty of the economic climate. Clearly, we need to send a signal that we are not letting up on our fight for price stability. But on the other hand, given what not only the staff forecast but other forecasts are showing for the economy, I think we also need to send the signal that we are not altogether tolerant of recession. And I think alternative II gives you the best of both possible worlds in that regard. So, I think we'd be better off at this time tentatively adopting alternative II. Then, if the economy turns out to be stronger, we can move to alternative III for M2 in February.",207
-fomc-corpus,1989,"[Since the Chairman is out of the room], you're about to witness the first official act of the Vice Chairman of the FOMC in 25 years. [Secretary's note: Chairman Greenspan returned]. Mr. Chairman, I just told the Committee they were about to observe the first official act of the Vice Chairman of the FOMC in 25 years. I was about to call on Mr. Stern.",84
-fomc-corpus,1989,Why don't you do so?,6
-fomc-corpus,1989,He did it and he did it very well!,10
-fomc-corpus,1989,"But Jerry, that brought the Chairman back very quickly!",11
-fomc-corpus,1989,You say he didn't fumble?,7
-fomc-corpus,1989,"You'll have to speak more quietly next time, Jerry, if you want a longer reign!",18
-fomc-corpus,1989,Mr. Stern.,4
-fomc-corpus,1989,"Thank you, Mr. Vice Chairman. I'm sensitive, as I think everyone is, to the emphasis on the long-run objective of price stability. But from my perspective, I think this is the time to acknowledge our uncertainty about 1990. I think it's possible to oversell this signal effect with regard to the ranges. It's more important, in my mind anyway, where we actually come out rather than what our announcement is as to the particular ranges at this point in time. Where my uncertainty about the outlook and the associated growth in the aggregates for 1990 lead me would be simply to adopt the 1989 ranges for 1990. I find it a little awkward to lower, say, the M3 and debt ranges and maintain M2, as under alternative II, for example. It seems to me that that suggests we know more than we do--that we're in a position where we can lower some ranges and not others. And I find it difficult to go down that path. It just seems to me that at this point in time we don't lose much by simply reestablishing the 1989 ranges for 1990 recognizing, as already has been pointed out, that we're going to get another look, or two looks, at that later this year and in February. I happen to believe that we're certainly going to learn a lot over the next six months about prospects for 1990, and I'd want to use that information.",292
-fomc-corpus,1989,President Boehne.,5
-fomc-corpus,1989,"Well, I don't think this is the time for a real extended philosophical discussion. But simply to say that our objective is price stability greatly oversimplifies what a central bank is all about. It seems to me that what the central bank is all about is sustainable prosperity. Over the longer pull, probably the most important contribution that we can make to that is price stability. But that to me is a means to an end, not an end in itself. So, in terms of sending out signals, I think that our signal ought to be one that says we are trying to have a sustainable prosperity. To go down willy-nilly in a mechanical way just for the sake of sending out a signal that we're committed to long-run price stability covers over a lot of the uncertainty that we see. If I were in your position, Mr. Chairman, in trying to sell some aggregate measurements I think I would want to stress the uncertainty--that we are committed to bringing inflation down but we also don't want to have a recession; we're committed to a soft landing. And in that kind of environment, it seems to me that tentatively adopting the 1989 ranges for 1990 would make sense. From a technical point of view, I would think that as we go through 1990 we're going to be in the alternative I to alternative II range. I don't see that alternative III is terribly realistic. By simply adopting the 1989 ranges at this point we tend to straddle alternative I and alternative II; and we can then make what modifications we want in February to make them more realistic to the economy at that point.",326
-fomc-corpus,1989,President Guffey.,5
-fomc-corpus,1989,"Thank you, Mr. Chairman. I would join those who agree that the announcement effect is important. But because of the uncertainty about where we're going to end up in 1989, adopting the 1989 ranges for 1990 with the opportunity to look at them again in February makes sense to me. That is not exactly alternative II in the sense that alternative II does drop the ranges of both M2 and debt. That doesn't make much sense to me. I would just adopt the current ranges. I do have some sympathy, however, with the proposal of Bob Black that we move to a multi-year targeting procedure to avoid this base-drift problem that likely will occur at the end of this year and into next year.",146
-fomc-corpus,1989,President Melzer.,4
-fomc-corpus,1989,"I think Gary and I were reading off the same sheet of notes. In a long-term sense, I'm in sympathy with alternative III. Eventually, we've got to get those ranges down. But I don't think this is a time right now when we need that announcement effect. In other words, I don't think our credibility in terms of commitment to price stability is in question now. And, as some people have pointed out, there's a risk: If we take [the ranges] down now and go back up we have actually adversely affected our credibility. Secondly, we have some evidence to indicate that it would be hard to hit them; we may be right at the upper end. And I agree with what Gary said: that's where we really hurt ourselves. If we set the range and then don't meet it, I think that could have an adverse effect. In any case, I come out waffling between alternatives II and III, basically. And I think probably the best answer is to acknowledge that uncertainty just by adopting the '89 ranges and refining them in February.",213
-fomc-corpus,1989,Governor Kelley.,3
-fomc-corpus,1989,"Mr. Chairman, I find myself very much down the same track as the last several speakers. There is a high degree of uncertainty here that I think we need to recognize. I certainly appreciate Ed Boehne's point that long-run price stability is a means toward the larger end of sustainable prosperity. In terms of signal effect, I think there are other signals that are important to send to the market and to the economy and the most important may be stability of performance on the part of the Fed. Moderation and balance would be some of the hallmarks of achieving that stability signal. As a consequence of all of those things, I would urge that we maintain the current ranges.",136
-fomc-corpus,1989,Governor Seger.,4
-fomc-corpus,1989,"I would support sticking with the current ranges and carrying them over into next year. I would use the arguments I used last year at this time: that there are uncertainties and that there is no great [harm] in carrying these over because we do have another crack at them. As I think Mike Kelley said, it's better to present the appearance of stability rather than zigging and zagging. However, if we are going to change them, the direction I would go in, frankly, is toward alternative I--for a couple of reasons. One is that I hope we do get some additional M2 growth as interest rates come down. Secondly, talking about base-drift, I went back and looked at this table: in 1987 M2's actual growth was 4.1 percent, which was outside the low end of the range; that was followed by growth last year of 5.2 percent, which was within the range but below the midpoint; and so far this year M2 is growing below a 2 percent annual rate. So, if we look at this over a longer period, it seems to me that there is some point at which maybe we ought to say we should be making up a little of this growth that we haven't achieved in the past and that we did think at the time was a reasonable objective. So, I could go with either carrying the existing ranges forward or alternative I. Thank you.",288
-fomc-corpus,1989,Governor LaWare.,4
-fomc-corpus,1989,I favor carrying over the 1989 ranges because I think we'll need the room.,17
-fomc-corpus,1989,President Boykin.,4
-fomc-corpus,1989,"Mr. Chairman, I would go with alternative III because if we don't do that I think there could almost be an implied reading that we're willing to accept inflation in the 4 to 5 percent range. And I'm not sure that we want to leave that implication. I think we all are having a bit of a sense of foreboding regarding what the economy is actually going to do. But it's still a little anticipatory. I think to reverse what we have set in place over time is probably going to be read as a little more significant than some of the others think. If it becomes necessary early next year to make an adjustment and to move the ranges up, it seems to me that that would be done on the basis of knowledge in fact existing at that time, as opposed to tone and feel and a suspicion at this point. And I could justify an upward move if circumstances, in fact, were there to dictate that.",187
-fomc-corpus,1989,Governor Johnson.,3
-fomc-corpus,1989,"I agree with a lot of the other comments. I favor extending the current [M2] range of 3 to 7 percent for 1990. I find that acceptable, although I do think there is some risk that we may test the upper end of that.",55
-fomc-corpus,1989,That is extending the '89 ranges for all three?,11
-fomc-corpus,1989,Yes. I'm just saying alternative II; I can't remember now what the other two were.,18
-fomc-corpus,1989,Alternative II lowers M3 and debt.,8
-fomc-corpus,1989,Alternative II is what I favor; I can live with that. I agree with Gary that I don't see exactly how we make this twist on M3 and debt but I've never paid any attention to those anyway. I can accept alternative II.,48
-fomc-corpus,1989,But you would take unchanged because you don't care. Is that correct?,14
-fomc-corpus,1989,"That's right; I would take that too. I do agree that in the long run the ranges should come down. I think Governor Angell is right that 1 to 5 percent probably makes sense in the longer run. If you're going to have nominal GNP that's consistent with something like price stability, and if the long-run trend on M2 velocity is around 0, then you want an M2 range that has a nominal GNP associated with price stability and you've got to be in that area somewhere. But I think we're a ways from that. And I think, as Ed Boehne said, one of our major functions is to avoid destabilizing the economy in the process of seeking this goal of price stability. So, for those reasons, the 3 to 7 percent range for '90 makes some sense, even though I think we could find ourselves well above that target if we go through a sustained period of declining interest rates. But I think it's a reasonable target and worth trying to hit. I can't help making one last comment, though, on this whole exercise about monetary aggregates. The way in which we conduct monetary policy, these monetary aggregates are simply passive proxies for what the economy generates through money demand. This is not a money supply process. We are setting interest rates and the economy is reacting to those interest rates and it's demanding money; and that's the way it works. We are not setting any money supply goal and supplying that amount of reserves to make sure [we achieve it]. I'm not saying I disagree with that; I'm simply saying that that's the way it works. And we shouldn't kid ourselves and think that we're supplying levels that are being generated through our policy. I couldn't help that last comment.",347
-fomc-corpus,1989,It is a modern-day version of the real bills doctrine.,12
-fomc-corpus,1989,I'd have to think about that.,7
-fomc-corpus,1989,President Hoskins.,4
-fomc-corpus,1989,"Listening to the discussion, I hear a lot of words about long-term price stability objectives. I could have heard the same thing last year when I sat here. The inflation rate is still up there; it's probably higher than it was last year at this time. If you look at the Board staff's strategies for 1988 through 1991 there's very little difference in the inflation rate. The average is a range of 4.1 to 4.6 percent whether we are tight, easy, or stay the same in terms of the baseline. If you take the Board staff's baseline forecast and try to run it forward to see when we get to price stability, it takes at least a decade to do that under their baseline forecast. Now, if that's the case and that's really what we're looking at, then I think we shouldn't kid ourselves that we're after price stability because we're not. If we follow that path we're after controlling inflation at the current rate. If we're comfortable with that then I think we ought to say that. If we're not then I think we ought to do something more aggressive in terms of moving toward price stability, and that includes [going to] multi-year targeting so that we don't have base drift problems. Otherwise, next year we will be at the same point with a different set of concerns about the short term and pushing off the long term. So, unless we tie our hands somewhat--like a portfolio manager at a bank might by requiring insurance against stock losses to be put in place--we're going to continue to drift with the economy and with the vagaries of international developments. So it seems to me that, at the minimum, we ought to go to alternative III, 2-1/2 to 6-1/2 percent, if the signal is important. The idea that we might have to raise it--really, when you take a look at the half point differential, it's relatively small. It's not likely that the difference between 3 to 7 percent or 2-1/2 to 6-1/2 percent is really going to cause much trouble. But if we put any value on signaling, then we ought to go for 2-1/2 to 6-1/2 percent, because we're likely to miss that 1/2 point mark anyway and it's not a big problem for us. I think this is a very important session for us every year because it's our only chance to look ahead 18 months. And that's what it's all about. That's the range in which policy is going to impact the inflation rate and the economy. If we've been too tight in the past and we've made a mistake and the economy is already heading down--well, that's history. Rushing into the breach now with lower interest rates is only going to produce more inflation down the road for us. So, I think we ought to tie our hands a little with respect to long-term targets and we ought to have tighter targeting. I'm in favor of alternative III.",608
-fomc-corpus,1989,Vice Chairman.,3
-fomc-corpus,1989,"Where I come out is very close to where Gary Stern was--and for the reasons he gave, which are as good as any. That would be the '89 ranges for '90.",38
-fomc-corpus,1989,For all three?,4
-fomc-corpus,1989,"Yes. Having said that, let me just add a comment or two. I have to say that I have become increasingly skeptical, bordering on cynical, about the usefulness or reliability of these money supply measures as targets or indicators of monetary policy, notwithstanding the wonders of P*. In this specific and immediate context I'm not nearly as concerned as I think some are about the slow growth of M whatever over the recent past or, indeed, over several years. I don't want to get into a big discussion of that but I would simply say that one of the reasons I'm not as concerned is that when I look at the very broad measures of credit availability--credit growth, debt growth, and L growth--all of those things are behaving in quite a satisfactory way. In my mind, at least, all this financial innovation does play a significant role in accounting for the abnormal gap between M growth, however measured, and these broader measures of debt or credit or overall liquid assets, including nonbank liquid assets. So I'm just not quite as concerned. Also, let me make a brief point in the context of Mr. Boehne's comment about a means to an end. I ask myself the question in the context of current policy: Is it possible, first, that the rise in the inflation rate has stabilized--that it's not going up anymore? There's a reasonable chance that that's true, but I don't think it's baked in the cake. But even if you assume it is baked in the cake, then the next question I have to ask myself, which is very relevant to this 18-month period, is: What would it take to buy back the acceleration in the inflation rate that we have had over the past 18 months? Forget about long-term price stability for the moment; just ask yourself what it would take to get back to where we were. Is there any plausible set of reasons to believe that we could recapture what we've lost without a fair amount of slack having to develop in the economy?",399
-fomc-corpus,1989,You're saying excluding the oil price effect?,8
-fomc-corpus,1989,"That's right. Maybe there are some things working in that direction; certainly, international competition is one. But history seems fairly compelling on this point: it's awfully hard to see how you can get a deceleration of the inflation rate, even by a percentage point or so, without some slack in the economy. And I think that is another aspect of this goal of price stability. It's nice to talk about it, but I am very skeptical that we can even achieve that intermediate goal of buying back what we've already lost without having to incur some real costs, much less get back to genuine price stability of 1950's vintage or something like that. So, I think Mr. Boehne's point is right on the mark, and we have to be realistic about what is feasible and what is not. Anyway, I can certainly live with the '89 [ranges] for '90.",179
-fomc-corpus,1989,"A lot of issues have been raised here, and I think it's very clear that without exception they are all focusing on some way to eventually bring the inflation rate down significantly below where it is. I think the differences within the Committee are basically tactical rather than strategic. I must admit that I come out in an area which is either alternative II or '89 repeated, largely because--leaving aside the inflationary questions--the credibility on money supply growth is something I don't think we have a problem with. I think President Melzer [stated] it quite correctly; the ability of this institution to hold money supply at the very nominal growth rates of the last two years I think has put us in a position different from the Bundesbank, for example, which has been having a terrible problem of going off the other end. But however one looks at this, at some point we're going to have to confront the issue of inflation stability or price stability; either the markets are going to do it to us or we're going to have to come to grips with that. I don't think we have to in the immediate period; but we may find, when we're reviewing the '90 targets again in February, that that issue is going to be right in front of us and we're not going to be able to duck it terribly much. Well, as I count up the various views, the critical mass is basically to stay with the '89 ranges temporarily as tentative numbers. I don't know whether or not those who are in favor of alternative II feel comfortable with that or not, but it's sort of half-way there. Because of the comments that I heard, I think it would be [appropriate] for somebody to move the continuation of the 1989 ranges for all three variables--the two Ms and debt--for 1990.",363
-fomc-corpus,1989,So move.,3
-fomc-corpus,1989,Second.,2
-fomc-corpus,1989,"Well, let's take a formal vote.",8
-fomc-corpus,1989,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Guffey Yes Governor Johnson Yes President Keehn No Governor Kelley Yes Governor LaWare Yes President Melzer Yes Governor Seger Yes President Syron Yes,45
-fomc-corpus,1989,"Okay. That brings us to the next order of business, which is our standard short-run discussion. Mr. Kohn.",25
-fomc-corpus,1989,[Statement--see Appendix.],6
-fomc-corpus,1989,Questions for Mr. Kohn?,7
-fomc-corpus,1989,You made the point that the markets have built into current rates a quarter point drop in the funds rate rather promptly. A quarter point from what base? Where do you--,34
-fomc-corpus,1989,"I think about 9-1/2 percent. We've said 9-1/2 to 9-5/8 percent, but it's averaged closer to 9-1/2 percent and I think that's about where the markets think it is.",52
-fomc-corpus,1989,Other questions?,3
-fomc-corpus,1989,"Let me just follow up on the one Manley asked earlier. If you were to lower rates 50 basis points, you would expect M2 by the fourth quarter, or by December, to be growing at 8 percent?",46
-fomc-corpus,1989,"That's correct. You can see that in alternative A in the Bluebook. We have 8 percent, actually, from June to September.",28
-fomc-corpus,1989,June to September?,4
-fomc-corpus,1989,"June to September. And that would encompass a strengthening pattern of M2 growth over that period. Consequently, by the time we got to the fourth quarter I think it would be in the 8 percent range or [even] higher.",47
-fomc-corpus,1989,The fourth quarter to December would be what?,9
-fomc-corpus,1989,"Quarter IV to December under alternative A? I don't know. Quarter IV to September is 3.7 percent, so my guess--",27
-fomc-corpus,1989,"Well, it'd probably be about 4-1/2 percent on alternative A to December. Is that about right?",24
-fomc-corpus,1989,"Right, something like that.",6
-fomc-corpus,1989,"No, it's 3-3/4.",10
-fomc-corpus,1989,That's to September; but then to December--,9
-fomc-corpus,1989,If you maintain that you're going to get more kick.,11
-fomc-corpus,1989,Yes. My guess is that it may be closer to 5 percent--closer to the midpoint of the range.,24
-fomc-corpus,1989,"Don, in the Bluebook and in some comments yesterday and today there has been a fair amount of discussion about what the market has built in, in terms of expectations. I don't view this as particularly unusual--that at the time policy is perceived to be on the move for the market to get ahead of itself--or particularly damaging if the expectations are not ratified. Would that be consistent with your view of the past? This isn't particularly unusual is it?",92
-fomc-corpus,1989,"Well, it certainly is not unusual for them to be speculating about a change in monetary policy about the time you folks are sitting in this room meeting. My sense is that the intensity of the speculation and the immediacy and size of the expected rate movement is a little larger than normal. We have had some pretty strong upward sloping yield curves and expectations; one can think back only six months or less about some pretty immediate movements on the other side. I don't have a measure of how intense this is but I have the sense that the expectations are quite firmly held. It's not totally unusual. And they can go both ways with this.",129
-fomc-corpus,1989,"Well, I'd be cautious about the extent to which we let that influence what we do; that's mainly what I'm saying.",24
-fomc-corpus,1989,I think that's right.,5
-fomc-corpus,1989,Any other?,3
-fomc-corpus,1989,I'll just follow up on that. I agree--,10
-fomc-corpus,1989,"No, these are questions, not--",8
-fomc-corpus,1989,"Well, this is a reaction to that. I think it's true that the market is discounting a fairly immediate 25 basis point move. But if you go a little further out--and I agree with what you're saying, Tom--the market is discounting more than a point in the bill market. And I don't--",65
-fomc-corpus,1989,"Well, it's 3/4 of a point, I think.",14
-fomc-corpus,1989,It's not more; probably a mechanical estimate of what the bill rate today is implying is 8.8 percent on the funds rate.,27
-fomc-corpus,1989,"There is normally about a 3/4 point spread, if you just take the average between the Treasury bill rate and the fed funds rate; and the Treasury bill rate now is about 7.75 percent.",43
-fomc-corpus,1989,And I think that [translates to] about 8-3/4 percent; the mechanical translation varies with the level of rates.,28
-fomc-corpus,1989,What is the rate?,5
-fomc-corpus,1989,8.8 percent.,5
-fomc-corpus,1989,8.8 percent.,5
-fomc-corpus,1989,"Okay, I'm sorry.",5
-fomc-corpus,1989,"It varies with the level of rates, Governor Johnson, because you have to make some estimate for a marginal state tax rate--since bills are exempt from state taxes--as well as the coupon equivalent kind of [adjustment].",45
-fomc-corpus,1989,Sure. What I'm saying--,6
-fomc-corpus,1989,And the mechanical translation of 7-3/4 percent [on the bill rate] is about 8-3/4 percent [on the funds rate].,33
-fomc-corpus,1989,"Yes, I think that's about right. I'm saying that's what the bill market has built in. Now, it clearly looks like an overshoot to me of where we want to be; but I'm simply saying that's where the market is.",47
-fomc-corpus,1989,"One sense of where this yield curve is you can see on Chart I of the financial indicators that I have; it's really a minus, as of Friday of last week. But you can see that we have had some upward slopes in yield curves, at least measured this way, that are larger than the downward--",62
-fomc-corpus,1989,Any further questions for Mr. Kohn?,9
-fomc-corpus,1989,"Don, are there any reasons why you may be more or less confident about the path of M2 over the next 6 months than usual?",29
-fomc-corpus,1989,"Well, I'm never very confident; but I must say that the response of M2 in June and over the last couple months was roughly about what we expected. Particularly if I take out the demand deposit component, which has had its own special influences with the compensating balances and whatnot, M2 is running stronger than we projected at the last meeting, and that's consistent with a slightly lower interest rate and a bounceback. The June performance reassures me somewhat that we are on an upward trajectory here and are more likely to come back within that range.",111
-fomc-corpus,1989,"But, Don, there is a possibility that the sucking down of those balances was abnormal in April and May and that there was some bounceback effect. So, it seems to me that there's some uncertainty as to whether or not that 6-1/2 percent [growth] will be maintained.",60
-fomc-corpus,1989,"I agree, certainly. And we have built in a very modest [response]--I think about 1/2 percentage point--just arbitrarily assuming that it would get back in over 6 months into our forecast. On the other hand, as we go forward, even if rates were to stay at this level or something like it, we do have a little more of the influence of the recent decline in market rates coming in. So, we'd expect those two factors together to have a slight downward impact on velocity.",105
-fomc-corpus,1989,Any questions? Governor Seger.,7
-fomc-corpus,1989,"Since some people outside follow the reserve aggregates--I realize we don't target them but they have [dropped] more than we expected, I believe, since last summer--how would you expect them to perform over the rest of this year?",48
-fomc-corpus,1989,"We have the monetary base growing at about 3 percent this year, so we have it bouncing back. Because we have M1 essentially unchanged over the last half of the year, that dominates the reserve aggregates; we have them growing from June to December. But on a Q3 to Q4 basis they are essentially unchanged. And we have currency growing at about a 5 or 6 percent pace. So I think the reserve aggregates would tend to flatten out and the base would tend to grow a little faster, the base being 2/3 or 3/4 currency.",117
-fomc-corpus,1989,But you do think the decline in the reserve aggregates would cease under alternative B?,16
-fomc-corpus,1989,That would be our expectation on the basis that the decline in Ml would cease.,16
-fomc-corpus,1989,Further questions? President Keehn.,7
-fomc-corpus,1989,Questions or--,3
-fomc-corpus,1989,We're still on questions. President Black.,8
-fomc-corpus,1989,"Don, in your chart 9 where you have P above P*, is that a significant difference that would [lead] you to think that that's some indication for us that it might not [unintelligible]?",43
-fomc-corpus,1989,"Well, as noted in the Bluebook long-run strategy section, we have P very slightly above P* here. We would expect this to be roughly consistent with Mike's Greenbook forecast stretching out to 1991, which was a very, very small deceleration of inflation. It was eerily similar to the staff baseline forecast.",67
-fomc-corpus,1989,I like that adverb.,6
-fomc-corpus,1989,"I think in the Bluebook we said ""interestingly;"" I wanted to say ""eerily.""",20
-fomc-corpus,1989,"Anyone else? Don, am I correct in sensing that this particular period seems to have far more anticipation in it than anything in the recent past? It's not only federal funds expectations but the size of the changes in the long end of the bond market. Are we looking at something which is the result, in part at least, of the increasing size of the financial services industry and the extent to which there is a great deal more activity and anticipation and players in the game?",94
-fomc-corpus,1989,"I think there's a trend over time. One of the questions raised was: Does that trend in the activities of, say, pension funds in the stock market--and I assume in the bond market too--add to volatility? Do people tend to move from one side of the ship to the other--",60
-fomc-corpus,1989,The derivative instruments are also crucial to this whole game.,11
-fomc-corpus,1989,"I think that the academic findings are, as we heard at President Guffey's conference last summer, that volatility is greater than can seem to be explained by fundamental factors in the market. Whether this has gotten worse over time, with the pension funds and financial services--that's the question. I think it's more of an open question. We have had other periods--one can think back to a year ago when we were starting to tighten--in which expectations were very strong and the market bond yields moved up from, say, February through March; we were in this 7-1/2 or 7-3/4 percent area in February of 1988 and we were at 9 percent within a couple of months. So I'm not sure that--",153
-fomc-corpus,1989,"Well, at least I remember the bill rate rising really sharply against the funds rate in that period.",20
-fomc-corpus,1989,It did. You've got--,6
-fomc-corpus,1989,Not as much as this.,6
-fomc-corpus,1989,"Well, it closed the spread quite narrowly a couple of times.",13
-fomc-corpus,1989,Which in a sense was implying another 100 basis points.,12
-fomc-corpus,1989,"No, not quite that much; but when we were perceived [as] behind by the market in catching up to inflationary expectations we did get a fairly significant closing of the spread.",37
-fomc-corpus,1989,"I'm not opposing it, I'm--",7
-fomc-corpus,1989,I don't think it ever has been discounted a point over the funds rate.,15
-fomc-corpus,1989,"I do think this movement, say, since late '88 has been unusual. I'm looking at a chart of the bill rate and the funds rate now. We had similar kinds of movements in early '85--this sharp up and down. There are some [periods] like that, but in the last two years, say, the size of the movement is fairly unusual.",76
-fomc-corpus,1989,You could argue that that's related to the speed with which the Fed moves with the market.,18
-fomc-corpus,1989,"True enough. Unless there are other questions, I think we can get to the substantive issue. But it does strike me that what is happening here is that the markets essentially have responded very dramatically to the expectation that the economy is turning and that we will respond, with necessity coming in behind. And in an odd way it has made the urgency of our response somewhat muted because the economy doesn't run off the funds rate; it runs off the long-term bond rate and the bill rate and all of the other related instruments. However, the question that I think confronts us is: How do we respond to what the evidence out there shows? I personally am a little concerned, as I indicated yesterday, about whether [unplanned] inventory accumulation will show up. There's no question that the data per se do not show any inventory backing up. But I've been through too many business cycles in my business career to have remembered making exactly that statement just prior to a slip in final demand which all of a sudden is unearthed and backs up a good deal of inventory. And all of a sudden we find ourselves with some general weakness. I wouldn't be particularly concerned were it not for the fact that, at this stage, I do think the money supply data--even though projected with some optimism to strengthen--are really quite restrained. And if there is one thing the central bank has to take due notice of, it is the Vice Chairman's concerns, which I generally share, that it is required of us to maintain financial aggregates in some acceptable pattern. That's really the reason why we have the cones. The question that confronts us is the issue of how we should move. Frankly, I would be inclined at this stage, with the new marginal calculation made by Don Kohn, to move the borrowing; I guess seasonal borrowing requirements are down by $50 million, which would be the equivalent of 25 basis points on the funds rate. I ask myself: Why not more? And I think more [of a move] is potentially risking the type of problem that Governors LaWare and Johnson raised yesterday. I'm concerned that the worst thing that can happen to us, as far as policy is concerned, is that we are perceived to be easing too fast and in a manner which would open up the possibilities of inflationary expectations. It's hard for me to imagine how we are going to get the long-term bond rate down significantly from here unless the economy eases up quite significantly. But if we are dealing with a situation in which there is a belief that the Fed is opening up the money supply valve and that we're on our way down, I think we are risking the type of instability [we want to avoid]. That really would be quite counterproductive to an endeavor to just come off the pressure we've been imposing because, if we get a major response in inflation expectations, which would drive long-term interest rates higher, rather than soften the weakness in the economy and try to create support, we could inadvertently do precisely the opposite. I can't say to you that I know that, in fact, it would occur that way. But, looking at the way the markets have behaved just in recent days, there is a fragility and an instability out there. And I think the argument that Governor LaWare raised yesterday is one that we should be focused on. I'm not sure I come out exactly where he comes out on policy as a response to that. But the question of not creating instability, I think, is crucial for us. So, I would be reluctant at this stage to try to move all the way to ""A,"" which would be a full $100 million decline in the borrowing requirement, for fear that we might end up doing precisely the reverse of what we would be endeavoring to do--if the Committee decided that it wanted to move somewhat in the direction of ease.",774
-fomc-corpus,1989,How would you feel if we moved 25 basis points and bond rates fell further?,17
-fomc-corpus,1989,You mean the interest rates?,6
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,I would feel quite comfortable. That would suggest to me that the markets' view of the Fed's anti-inflation credibility remained in place.,29
-fomc-corpus,1989,I think that's right. Maybe it would stiffen it; I think that would be the impression.,20
-fomc-corpus,1989,"Well, let me put it to you this way. Were it not the case, and the economy continued to be soft, I think we could probably safely move another notch.",35
-fomc-corpus,1989,Okay. That's what I'm saying.,7
-fomc-corpus,1989,But I wouldn't want to prejudge that.,9
-fomc-corpus,1989,"No, I think that's--",6
-fomc-corpus,1989,"I think it would be dangerous to do so. So, I would like to recommend [borrowing] sort of half-way toward ""A"" with symmetric language, if for no other reason than I can't think of any purpose for using other than symmetrical language.",52
-fomc-corpus,1989,Sorry. Did you say symmetric or--?,9
-fomc-corpus,1989,"Symmetric. In other words, I would initiate at this meeting moving half-way toward ""A,"" meaning a decline of $50 million in the borrowing requirement, which in our new calibration is the equivalent of 25 basis points [on the funds rate], and staying with symmetric language. Vice Chairman.",60
-fomc-corpus,1989,"I can support the formulation that you put on the table, Mr. Chairman. But I do think that the body English on it is important. I completely support your suggestion that we've got to be careful here. Therefore, I think the symmetric language is also important for the reasons that you've stated. In terms of the more cautious approach I would simply add: (1) that it still, as I said earlier, is not clear to me that the inflation rate necessarily has stopped rising--and even if it has, I think we still could get a couple of months of lousy numbers; and (2) as an extension of that, and for external reasons as well, I at least am prepared to run some risk of an economy that is on the slow side for some period. But I think the thrust of your prescription is precisely right.",168
-fomc-corpus,1989,President Forrestal.,4
-fomc-corpus,1989,"Mr. Chairman, to my mind we're in a very, very difficult period at the moment and I think the formulation of policy is more difficult than usual. If you step back a bit and look at our strategy, the strategy that we formulated a year ago was well conceived and I think it has been well executed. I think we have pretty well gotten the results we wanted--that is, in the sense that we have brought the economy down to a more sustainable level of performance. Unfortunately, inflation is still at too high a level. If I believed my own forecast I would be more apt to stay where we are. But I recognize that my forecast for GNP next year is an outlier; and given that outlier position, I have much less confidence in that forecast than I ordinarily would. So, I think your prescription is the right one. I think we have to be careful not to move too quickly and undo inadvertently what we have achieved through the strategy that we developed last year. I would certainly support your formulation, including the symmetric language. But your point about the comments that were made yesterday concerning fragility and the consequences of policy is very, very important, because I think the consequences of moving too quickly and letting inflation move up would be perverse and would achieve exactly the kind of things that we certainly want to avoid. So, I think going slowly the way you suggested is the proper stance for policy at the moment.",288
-fomc-corpus,1989,"President Parry,",4
-fomc-corpus,1989,"Mr. Chairman, I think it's appropriate for us to move very cautiously at this point. It's clear that the current rates of inflation are a problem; and even more of a concern is the fact that underlying inflationary pressures are likely to remain a problem for quite a while, whether you [accept] the forecast of the Greenbook or some of the others that have been talked about around the table. So, it seems to me the biggest mistake would be to move too aggressively and, therefore, I could support the proposition that you put on the table.",111
-fomc-corpus,1989,President Syron.,4
-fomc-corpus,1989,"Mr. Chairman, I have a great deal of sympathy for the policy prescription that you advocated for the following reasons: first, given that our long-term goal is price stability, I'm not all that unhappy about where we are right now; and at least for the next couple of quarters I'm not that unhappy with what the Greenbook forecast has embedded in it in terms of the behavior of rates. Knowing the uncertainties that exist in this world, I think it is very important to move gradually, for the reasons that other people have mentioned, and to adopt an approach or continue an approach in which the Chairman has a fair amount of flexibility. There are things that could happen in the intermeeting period that would substantially change how one would read the economy. So, I very strongly support that.",156
-fomc-corpus,1989,President Guffey.,5
-fomc-corpus,1989,"Thank you, Mr. Chairman. I agree, essentially, with those who have already spoken with respect to your proposal. If I were to believe our own forecast for the quarter immediately ahead, quite likely I would opt for alternative B with symmetric language. Essentially, the question in my mind is whether or not we really have the slowing that was detailed yesterday in the numbers that Governor Johnson cited--whether or not that is going to continue throughout this quarter or whether we will pause and get a reacceleration and therefore an inappropriate further dropping of short-term rates at this point. Then we'd have to turn it back around. But given that uncertainty, your proposal to move cautiously seems to me to be appropriate--symmetric language of the directive and between alternatives A and B. One thing that isn't clear to me, however, is how the borrowing level would be treated. I know there has been an explanation; I guess I just didn't understand. It is dropped by $50 million under your proposal, Mr. Chairman. Given that the seasonal borrowing is roughly $500 million or a bit above and we have been at $600 million as a borrowing level, are we talking about $550 million or are we talking about staying at $600 million?",247
-fomc-corpus,1989,600.,2
-fomc-corpus,1989,What I'm doing is calibrating off what Don Kohn has indicated.,14
-fomc-corpus,1989,It'd be roughly $600 million.,8
-fomc-corpus,1989,"I think they recalibrated the [current level] to $650, so technically, I guess it comes down to $600 million.",28
-fomc-corpus,1989,600?,2
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,You recalibrated the $650 million for what alternative?,12
-fomc-corpus,1989,For alternative B.,4
-fomc-corpus,1989,"For ""B.""",4
-fomc-corpus,1989,"And $550 million for ""A.""",8
-fomc-corpus,1989,"Okay, right.",4
-fomc-corpus,1989,But you expect that to be consistent with [a funds rate of] 9-1/4 to 9-3/8 percent?,29
-fomc-corpus,1989,That's correct.,3
-fomc-corpus,1989,"It doesn't sound like the old formula, but that's okay.",12
-fomc-corpus,1989,"No, Governor Johnson, it isn't because of the--",11
-fomc-corpus,1989,That's all right.,4
-fomc-corpus,1989,It [includes] seasonal and adjustment borrowing--,9
-fomc-corpus,1989,"Yes, okay.",4
-fomc-corpus,1989,"Mr. Chairman, I'd just like to add one other caveat. We do have a fairly important number coming out on Friday--that is, the employment number. Rather than moving to the lower level that you are suggesting before that number comes out, I think I'd wait and take another look before the--",61
-fomc-corpus,1989,"Let me suggest this: If the number turns out to be a major surprise, on the up side perhaps, we would be well advised to have a telephone conference on the basis of that.",38
-fomc-corpus,1989,I would agree; that's very satisfactory.,8
-fomc-corpus,1989,President Keehn.,4
-fomc-corpus,1989,"Mr. Chairman, given the current situation and the accumulation of evidence in the economy, along with the current conditions in the markets, I think the policy prescription that was outlined is just right and I concur with it.",43
-fomc-corpus,1989,Governor Angell.,4
-fomc-corpus,1989,"Yes, I concur with that policy; I believe that a borrowing range associated with a 25 basis point move at this point in time is the most prudent. We really have been very fortunate, it seems to me, that the market has given us so much credibility that long-run rates have moved to where they have moved. And it seems to me that we should have the objective of somehow or other getting at least the soft landing in the housing industry and that's most clearly done with long rates, not with short rates. It just seems to me that fixed mortgage rates need to be in the single-digit area in order for us to have the soft landing. Now, for those who may wonder how this fits with price level stability, I will share with you the commodity price annual rates of change charts that I've been following very, very carefully. As you can see, those smooth rates of change have had a very flat top on them; so I've been hesitant to call what I would say is a forecast of a downturn in the CPI year-over-year rate of change. But unless I'm totally wrong, the CPI year-over-year rates of change between now and October are going to be declining. And it's encompassing that that would permit me to want to--",249
-fomc-corpus,1989,"There's a technical reason for that; the gasoline price we know is coming down and we have that refinery adjustment problem, which the seasonal does not pick up. Mike, what is that worth in the PPI? As I recall, it was not small.",51
-fomc-corpus,1989,"No. We're expecting that to take about 4 cents a gallon off gasoline prices by the September-October period. So there's about a 4 percent decline just from that as well as some weakening in gasoline margins over and above that. Once that's in place, we're expecting CPI prices to be [rising] 0.2 to 0.3 percent for the summer months of July, August, and September. And for the PPI [we expect a] zero to 0.1 percent rise for a few months in late summer, early fall.",113
-fomc-corpus,1989,"I'm aware of those technical changes and that's why I have such a low forecast for the CPI in the second half. But I did want [others] to be aware of the fact that some of that is a one-time deal and will not necessarily follow through. But the work that Peter Von zur Muehlen has been doing--and he will have a working paper for the American Ag-Econ Association and the U.S. Department of Agriculture meeting in Baton Rouge, Florida later this month--has shown that these smooth commodity prices have been very significant in regard to forecasting changes or peaks in the CPI. And that's what I guess I'm staking my reputation on that the CPI will respond.",136
-fomc-corpus,1989,"Be careful, Wayne.",5
-fomc-corpus,1989,The technical data are supporting that.,7
-fomc-corpus,1989,I never stake my reputation without some other help like that!,12
-fomc-corpus,1989,"But, Wayne, this is ex-oil. Would you be forecasting an ex-oil CPI turning point?",22
-fomc-corpus,1989,"No, I don't think--",6
-fomc-corpus,1989,"Well, I think it's reasonable.",7
-fomc-corpus,1989,"Yes, I feel confident that that will take place. But we have to understand that changing the growth of the money stock does show up in these commodity prices. It took a while for those slow money growth rates to show up but now they are showing up. And I think that's encouraging. What we want to avoid, it seems to me, is the risk of too severe a slowdown, which would then be followed by overdoing it in regard to money growth rates on the up side. So, I think caution is the right word. And I expect the markets to be stabilized somewhat by less than maybe the markets expect. And then I think we need to take another look. Now, I would prefer asymmetric language just because--as you know, in March I thought we should have been symmetric and in May I thought we should have been asymmetric--remember, these minutes are released 6 weeks from now. So, I think it's better to have the 6-week release make us sound a little smarter than it does when we're so reluctant to move in a direction on the symmetry that I think is needed. It's not going to show up now, anyway; and if it turns out that we are wrong we will have demonstrated that we didn't make any moves. But I favor your proposal.",258
-fomc-corpus,1989,Governor Seger.,4
-fomc-corpus,1989,"I know your preference is to go between ""A"" and ""B"" but I think I would go all the way to ""A."" First of all, I don't think that a 50 basis point change in the fed funds rate is all that startling. Going upward we went 50 and 75 basis points without even winking or blinking at all. Also, I'm not so sure that all the markets have incorporated only a 25 basis point easing by us. This morning I heard the early financial news on TV and some of the stock market commentators were talking about the impact of expectations of lower interest rates on the stock market. Again, I don't know if these folks are right, but they were building the stock market story on substantial declines in interest rates. Secondly, we heard all these pieces of evidence presented yesterday about the slowing in the economy, and I certainly agree with all those. Frankly, I think that there's going to be much more slowing going forward, regardless of what we do today, because I don't think the actions today are going to impact the economy one way or the other for probably the rest of this year. Earlier we were talking about the importance of announcement effects; probably there are a thousand people in the country who know what we do at the FOMC, and maybe 500 of them know what the ranges are for monetary growth. But there are 500 and some people down at the other end of Constitution Avenue who are going to be following what goes on in the real economy. If the economy weakens even further and they start hearing from the folks at home about rising unemployment rates and so forth, then I'm sure our Chairman here is not going to be the man of the hour when he has to go down there and meet with them--because I think they will wonder why we didn't see what was going on, or if we saw it, why we ignored it and didn't react. So, as I said, I would prefer alternative A.",397
-fomc-corpus,1989,Governor LaWare.,4
-fomc-corpus,1989,"I support your policy recommendation, Mr. Chairman. I don't think we came out too far apart in our conclusion, because I think destabilization in either direction is bad.",34
-fomc-corpus,1989,I said that because you had not commented; it was more omission rather--,15
-fomc-corpus,1989,"So, I certainly support the 25 basis point change in rate and the symmetric language.",18
-fomc-corpus,1989,President Black.,3
-fomc-corpus,1989,"Mr. Chairman, you made my talk for me except that you made it much better than I would have. But, I would like to suggest one thing. It probably won't meet with a lot of acceptance but I'd like to see the monetary aggregates moved up in that list of things that might temper what we're doing in the intermeeting period. Rather than the unemployment and employment figures [to be released] this Friday or inflation figures coming later on, I think this is really the crucial thing. And I think it's important that we do keep [money growth] moving up; it has been very weak for a long time and unless we get to change that, frankly, I think we're going to run into trouble before very long. So I'd like to see that moved up to the first place. But otherwise, I'm right with you on this.",168
-fomc-corpus,1989,President Hoskins.,4
-fomc-corpus,1989,"I'd be very close to Bob Black's position. As I listen to the comments around the table, it seems that there is a view that the economy is softening. Certainly some indicators have [shown] that and some people are arguing that we ought to ease policy on that basis. A one-quarter-ahead forecast for real GNP has an error of plus or minus 2 percentage points around it. If you go out 18 months on inflation you find roughly the same error. The only point I'm trying to make is that we seem to be in the business of fine-tuning; that, I think, has led us into some problems in the past. If one is to support your proposition, I think the reason ought to be to ensure that we get Don Kohn's projected money growth for the second half. While I prefer to stay where we are on the hope and prayer that Don's forecast is accurate, I certainly would be ready to bias [policy] toward alternative A if the aggregates didn't come through. And I'd probably be more aggressive--along the lines of Martha's position.",220
-fomc-corpus,1989,President Melzer.,4
-fomc-corpus,1989,"I agree with what you suggested. I think caution is appropriate for the reasons that Lee expressed before. If we fall into the trap of short-term fine-tuning it could be very disruptive in the long run. So, I think the caution is appropriate and I think the symmetrical language conveys that as best we can.",63
-fomc-corpus,1989,President Stern.,3
-fomc-corpus,1989,I support your prescription.,5
-fomc-corpus,1989,Governor Kelley.,3
-fomc-corpus,1989,"Mr. Chairman, I certainly support your prescription. I would like to suggest when it's in order--now or later--a reordering of the presentation of our list of concerns in the policy directive. Would that be in order now? Or would you prefer to do that later?",56
-fomc-corpus,1989,"Since the issue has been raised late in this go-around, perhaps we ought to complete this and then go back to the question of ordering--unless somebody's vote or view would depend on that [unintelligible]. Governor Johnson.",47
-fomc-corpus,1989,"I agree with the Chairman on his proposal, although my preference probably would have been 50 basis points on the funds rate phased in over two periods, because I do think caution is certainly needed in the immediate period. I think we ought to test how the market absorbs 25 basis points before we consider any further moves. As Don Kohn pointed out, if you go further out, the market clearly has discounted well over 50 basis points in terms of what they expect us to do over a period of time, which is certainly within the period between meetings. So, my preference would have been to plan to take another step based on how the markets developed between here and there. I generally think asymmetric language would be preferable, but I can go with the symmetry. I still want to express a concern, though. I think we always became quite concerned with where we were relative to the markets when we were tightening--when the markets perceived us to be behind on the inflation fight--and we moved fairly aggressively to catch up and even tried to stay ahead at times, which I think was critical to our gaining credibility. I think that problem works in reverse. If we lose the confidence of the markets that we are going to pursue a stable policy and keep up with changes and events, we're going to run the risk on the down side that we were worried about on the up side. I don't think we're there; but I think that problem is simmering out there for us. I don't think we're anywhere near finding ourselves in a situation like this, but the problem I worry about in the back of my head is that the Fed drove interest rates gradually down to 0 in the 1930s and it didn't do a blessed thing to stop the economy's decline. Getting into that kind of a mentality is a risky situation, so I think we need some [asymmetry] both on the down side and the up side. But I can go along with your funds rate.",396
-fomc-corpus,1989,President Boykin.,4
-fomc-corpus,1989,I would concur.,4
-fomc-corpus,1989,President Boehne.,5
-fomc-corpus,1989,"I think your suggestion for a 25 basis point drop in the funds rate is exactly what ought to happen. I would, however, take some issue with the [proposed] symmetry. I would prefer an asymmetrical directive for two reasons: first, I think the risk has shifted and there is more downside risk than there is upside risk in the economy and an asymmetrical directive would underscore that; and secondly, given the string of data that we have had in recent weeks that have been on the bearish side, it's difficult for me to imagine that we would tighten in the next six weeks. It would have to be a very dramatic turnaround in the data, and I think the probabilities of that happening are very, very small. On the other hand, what is most likely is that we will see a continuation of the bearish data and it wouldn't take nearly as convincing a string of information in that direction to warrant a further decline in rates. And when I consider the reasons why we usually have had asymmetrical directives, it seems to me that those two reasons have been high on the list.",218
-fomc-corpus,1989,Can we now get views on the issue of the position of the various elements which affect our directive? At the moment it reads: number (1) inflationary pressures; (2) the strength of the business expansion; (3) the behavior of the monetary aggregates; and (4) developments in foreign exchange and domestic financial markets.,67
-fomc-corpus,1989,"Mr. Chairman, before you go to the go-around I'd like to have reactions to another suggestion, and that is: It seems to me that ""indications of inflationary pressures"" is a defensive posture that was appropriate during the period that we knew we were going to be giving ground on inflation. I would rather have a more positive statement in the wording such as ""progress toward price stability"" rather than ""indications of inflationary pressures.""",89
-fomc-corpus,1989,Sounds like a reasonable suggestion. Does anybody object to that?,12
-fomc-corpus,1989,"I have trouble with it because I really have been concerned that we may be projecting this notion to the public and to the Congress--and I hope you're right with your commodity prices, Wayne--that there's a free lunch, or that we can get from here to there without having to incur some real difficulty in the economy. And I think that's very dangerous.",71
-fomc-corpus,1989,"Let me suggest, then, that we withhold that until perhaps the next meeting when it would be on the table again--unless there's an objection to that--because that's the type of change which I think is an important change and should largely reflect the views in the Committee generally.",56
-fomc-corpus,1989,"Well, Mr. Chairman, the reason I raise it now is because you're about to prepare your Humphrey-Hawkins testimony. And I was thinking in terms of that testimony as well as this directive, which is going to be published six weeks from now. At this point in time the chances of our avoiding too significant a turndown, I think, depend upon our credibility; and I think that stronger language to a price level commitment will help the long-bond market more. That's the reason I raise it now.",105
-fomc-corpus,1989,I don't have any trouble putting some words like that in the Chairman's testimony or even in the body of the directive itself. I don't know; maybe I misunderstood.,33
-fomc-corpus,1989,"Well, I guess I don't understand what you object to in terms of progress toward price stability.",19
-fomc-corpus,1989,"What I object to is that I think we are running a risk of creating an impression in the Congress and elsewhere that we are going to get to price stability in some easy, painless way. I just am very, very skeptical that that is possible. I'm skeptical that we can even get the inflation rate back down to 4 percent without having to incur some hardship.",73
-fomc-corpus,1989,"That's why we do say in the directive, as Norm points out to me, that ""the FOMC seeks monetary and financial conditions that will foster price stability, promote growth,"" etc.",38
-fomc-corpus,1989,We probably should look at these--,7
-fomc-corpus,1989,"Well, can someone think of some other language that somebody doesn't object to?",15
-fomc-corpus,1989,What's your concern?,4
-fomc-corpus,1989,"""Indications of inflationary pressures"" seems like a resistance approach. In other words, if inflation pressures don't get any worse it seems like maybe that's what we're after.",34
-fomc-corpus,1989,Isn't that what we've done?,7
-fomc-corpus,1989,That's exactly what we've done.,6
-fomc-corpus,1989,"My point earlier was if that's how it is, then we ought to start saying that.",18
-fomc-corpus,1989,"What if we say ""taking account of progress in resisting inflationary pressures""?",15
-fomc-corpus,1989,"As opposed to continuing to say ""price stability,"" if [our objective] is really to maintain current rates of inflation then we've got to be honest about it and say that. If not, if we really mean price stability, then we ought to take actions to achieve that.",55
-fomc-corpus,1989,"But I would hold that when you look at the M2 growth path over the last 30 months this is an unprecedented M2 growth path for 30 months in the history of M2. We have never had a 30-month period of growth this low and this stable. And we've got time [lags]. So, it seems to me that we are going to have the burdens and the pain is going to show. You don't get there cheap. I guess I'm somewhat more optimistic in regard to what the record is than you are.",108
-fomc-corpus,1989,I agree with that.,5
-fomc-corpus,1989,"Let me suggest one thing. When we publish any change in words it is going to get really very heavily evaluated at this particular turning point. I feel a certain sympathy for what you're saying, but perhaps what we ought to do is to--",48
-fomc-corpus,1989,I'll be satisfied to do it next meeting.,9
-fomc-corpus,1989,"Yes. Let's think about that, because I hate to make that type of decision which we don't mean to be all that significant but can be read to be rather significant. Let's try some formulations between meetings and perhaps come up with a better set of language. Let's leave this particular discussion strictly to the repositioning, if any, of what it is that we have in the directive with respect to our indicators. President Parry,",85
-fomc-corpus,1989,"I'd like to address the repositioning issue. It seems to me that we still ought to keep some statement about inflation up front. I think we ought to remember why we moved ""behavior of the monetary aggregates"" to where it is. We had a lot of research, conducted by the staff, that indicated that the association between the growth of money and the economy was not sufficiently predictable or stable to rely on it to a great extent for use in terms of operating in financial markets. Without taking another look at whether or not the staff has changed their view on that, why should we move it up? In addition, if we do move it up to number 1, should we stop talking about the way we have been formulating our policy in terms of borrowed reserves?",154
-fomc-corpus,1989,"You want to take it to two, then?",10
-fomc-corpus,1989,I don't want to change it--not until some work is done that would support such a change. I don't understand what has changed in terms of our perception about the usefulness of money as a guide to the economy since all those studies were done.,49
-fomc-corpus,1989,"When the federal funds rate comes down a little and the aggregates continue at the rate they have been going, I think the market will be scared very much by those developments. So, the reason I suggested moving that up a little is that they ought to know that we are concerned that the aggregates not stay that low forever, but rather that they should move up a bit from where they are. The work that Don and his associates did alleviates a lot of my worries about it because that work pretty well suggests to me around 3 percent, which might not be too bad. I don't think that [low growth] ought to go on any longer now; and I'd like the markets to know that if it doesn't begin to move a little we'll have to do something.",154
-fomc-corpus,1989,Are you suggesting that we try to monitor it?,10
-fomc-corpus,1989,I always suggest that.,5
-fomc-corpus,1989,Well--,2
-fomc-corpus,1989,"At this particular point, I have an urgent phone call. I was wondering if we could break for coffee now and come back in a few minutes.",30
-fomc-corpus,1989,Governor Kelley you have the floor.,7
-fomc-corpus,1989,"Thank you, Mr. Chairman. I assume we're proceeding to discuss the ordering of our concerns.",19
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,"I wanted to make a suggestion along that line, if I might. First of all, in the spirit of your comment that anything that goes into these directives that is different from what has been there heretofore is very carefully scrutinized, we should think about it carefully. In that spirit, my suggestion is more in the nature of putting something on the table rather than trying to push for its immediate adoption. I would suggest that we consider reversing the order of the first two of these considerations that appear in lines 63 and 64 of the operational paragraph and give more emphasis to the strength of the economy as opposed to inflationary pressures. This arises out of the notion, discussed here earlier today and before, that in monetary policy price stability is a very important and essential precondition to a larger end--that it's the means toward a larger end of sustainable growth. I think sustainable growth is driven by a wide variety of different factors as well as monetary policy in the interplay of all sorts of things. We carefully tried to assess the risks to our forecast and whether or not the economy might turn out to be stronger or weaker than the forecast. Everybody has slightly different views on that, but it does seem fairly clear and fairly consensual that the risks are for a slower economy than we have seen heretofore. That's not really my point; my point, as I tried to allude to yesterday afternoon, relates to the consequences of events falling out meaningfully on one side or the other of the consensus forecast on the economy. It seems to me that the consequences of the economy being somewhat stronger are not terribly severe. For one thing, it's hard to see the economy being very much stronger than the forecast given the 30 months of aggregate growth history that Governor Angell alluded to earlier and given the nature of the incoming evidence on what's going on in the real economy. It's very difficult for me to see that inflation could get away from us in some way that we couldn't go back and reassess. On the other hand, if events fall out on the weak side, I think that the consequences are very asymmetrical in the sense that they could be much more severe than if they should turn out to be on the strong side. If we could be confident that we could fine-tune this soft landing and have a period of slow growth that would eventually, at some point down the line, begin to gradually turn up, that would be very nice. But we all know we can't necessarily count on being able to do that. And I am very concerned about the nature of the factors that Governor LaWare discussed yesterday afternoon that have to do with the fragility, particularly of the financial structure, at this time. I certainly don't think I need to go back over that; everybody is aware of that. But there are factors out there of very large magnitude, other than monetary policy, that could put us in a situation where we could have a downturn that could feed upon itself with very severe consequences in the larger picture of the economy and the society. Indeed, should we get into a severe recession with ballooning deficits it could turn out to be very counterproductive in making long-term progress toward price stability. So, it seems to me that largely as a result of the asymmetrical consequences of how events might turn out, this might be a time that we should give more priority overtly to what's going on in the economy relative to what's going on strictly in the narrower consideration of inflation. So I would propose for consideration, either now or later Mr. Chairman, that those first two considerations be reversed.",721
-fomc-corpus,1989,"Well, having heard the beginning of this conversation and doing a little arithmetic, there are eleven members of the FOMC at the moment and five various elements, to which you have just added several more. Since whatever we do will be read very closely, I would feel very uncomfortable crafting that language now; I would suggest for the Committee's consideration that in the period immediately ahead Don Kohn contact not only the Committee members but all the other Presidents as well and see if we can lay before the Committee at our next meeting some alternatives which capture the type of issue you and others have raised to see whether in fact we do wish to make changes. I would think it's probably impracticable to try to make changes now, and I would offer as a consideration that we essentially think about this a little more because there's a lot greater sensitivity to this than we would like. And I think a little thought would be useful.",183
-fomc-corpus,1989,"Well, as I indicated early on, I entirely subscribe to that notion; but I did want to get that on the table.",26
-fomc-corpus,1989,Okay.,2
-fomc-corpus,1989,"I would not personally object, Mr. Chairman, if you choose to incorporate the gravamen of what Governor Kelley is saying even in your testimony where you're not as bound--",34
-fomc-corpus,1989,"Well, the testimony is on the 20th and by then I think we will have gotten basically the thrust of this.",25
-fomc-corpus,1989,We can leave these words where they are but try and get some--,14
-fomc-corpus,1989,"I think it would be worthwhile--if there is going to be a table, as there invariably is, on the Committee members' and the Presidents' forecasts--to bolster that a bit by getting some of the characteristics of what the individual views in that table basically are and put them not only into my testimony but in the document as well. If there are no objections to that as a proposal I would like Norm to read us just the operational paragraph, which captures what I believe is the central tendency of the individual members' decisions. We do have a substantive issue on the language, which is not just arbitrary--whether we say the Committee seeks to decrease ""somewhat"" or ""slightly"" the existing degree of pressure. I would say the presumption is slightly, but is there a strong view either way on that question?",166
-fomc-corpus,1989,"Well, the reality of it is clearly ""slightly.""",12
-fomc-corpus,1989,"Well, we ought to be clear on that.",10
-fomc-corpus,1989,[Unintelligible.],6
-fomc-corpus,1989,"I would prefer ""somewhat"" but that would go with a different change.",16
-fomc-corpus,1989,"Why don't you use ""slightly.""",8
-fomc-corpus,1989,"It would read: ""In the implementation of policy for the immediate future the Committee seeks to decrease slightly the existing degree of pressure on reserve positions. Taking account of indications of inflationary pressures, the strength of the business expansion, the behavior of the monetary aggregates, and developments in foreign exchange and domestic financial markets, somewhat greater reserve restraint or somewhat lesser reserve restraint would be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with growth of M2 and M3 over the period from June through September at annual rates of about 7 percent. The Chairman may call for Committee consultation if it appears to the Manager for Domestic Operations that reserve conditions during the period before the next meeting are likely to be associated with a federal funds rate persistently outside a range of 7 to 11 percent.""",162
-fomc-corpus,1989,Would you put that to a vote?,8
-fomc-corpus,1989,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Guffey Yes Governor Johnson Yes President Keehn Yes Governor Kelley Yes Governor LaWare Yes President Melzer Yes Governor Seger No President Syron Yes,45
-fomc-corpus,1989,"I gather that for those who wish to revise their forecast for submission in the Humphrey-Hawkins testimony and report it would be useful to have the revisions, if there are any, by July 12th. That's next Wednesday, I believe.",50
-fomc-corpus,1989,How many did you throw out on both sides to get the central tendency?,15
-fomc-corpus,1989,The ones that I showed throughout that range--,9
-fomc-corpus,1989,Three on each side?,5
-fomc-corpus,1989,We'll have to look at this again and see how the group decision was reached after we've seen the revised numbers.,22
-fomc-corpus,1989,"The next meeting date is scheduled for Tuesday, August 22.",13
-fomc-corpus,1989,Questions for Mr. Cross?,6
-fomc-corpus,1989,"Sam, are we under any particular pressure from the Japanese or the Germans to do anything in terms of monetary policy to relieve pressure on the dollar?",29
-fomc-corpus,1989,"No, if you're speaking of--",7
-fomc-corpus,1989,"Well, it's just a general question. I wondered if they were agitating and--",17
-fomc-corpus,1989,"I haven't heard anything from them. In fact, there has been a remarkable quiescence and lack of the usual discussions. Things are as quiet as I've seen them in a long time. Jerry, have you sensed anything?",45
-fomc-corpus,1989,No.,2
-fomc-corpus,1989,Thank you.,3
-fomc-corpus,1989,All of Europe is on vacation.,7
-fomc-corpus,1989,Like Washington.,3
-fomc-corpus,1989,Governor Angell.,4
-fomc-corpus,1989,"Sam, I'd like to get your personal view concerning two scenarios in regard to the exchange value of the dollar. Over the next six months, if U.S. interest rates remain largely where they are now, what would happen? Alternatively, what would happen if we had a somewhat substantial decline of, say, 100 basis points over the next six months?",71
-fomc-corpus,1989,"Well, of course, the exchange market is influenced by a vast number of factors in addition to interest rates. But I would not differ from the statements in the Bluebook and all that has been presented, which suggest that higher interest rates would tend to add to the pressure on the dollar. But there are many, many other factors involved. It depends, of course, on all of the things going on in other countries. During the last several months, we've seen some fairly substantial changes in the interest rate differentials between the United States and some of the other major countries. And that has not taken away the structure--",124
-fomc-corpus,1989,"I don't quite understand your answer in comparison with what your report said. Your report seemed to indicate that during July and August there seemed to be quite a difference in perception about what direction U.S. interest rates might go. Now, you don't think that would be very significant in the next six months if there was--?",64
-fomc-corpus,1989,"That was certainly a factor during this period, and the pressures on the dollar did change at about the time when there seemed to be a change in the market's perception of U.S. monetary policy. But I think what I said was that there are many, many other factors involved that are also going to affect the pressures. I don't think it is simply a matter of the interest rates.",78
-fomc-corpus,1989,"No, I don't know of anyone who thinks it's simply the interest rates.",15
-fomc-corpus,1989,All I'm saying is that over the past several months we have seen the narrowing of the interest differentials--it has been a couple hundred basis points--and there has continued to be pressure on the dollar despite that.,43
-fomc-corpus,1989,"I think a lot would depend upon why the market thought interest rates were going down. Just to take two contrasting possibilities: If the market really thought that the underlying rate of inflation was coming down, and interest rates were coming down in response to that, that would be one thing. On the other hand, if the market felt the economy was ready to fall out of bed and interest rates were coming down because of that, I think you'd get quite a different [slide]. It really does depend very much on perceptions as to why.",106
-fomc-corpus,1989,I was more interested in the constant interest rate scenario than I was in the falling interest rate scenario. Thank you.,23
-fomc-corpus,1989,"Well, at the present time, the market is [unintelligible] and continues to be reasonably bullish on the dollar; [investors] see the dollar as a good place to be. They compare the dollar with some of the [alternatives] and, as I say, there's relative stability here politically and economically as compared with Japan and elsewhere. Throughout most of this year there has been a tendency for [investors] looking very long term to see the dollar as a good place to be. And there has been some reassessment and shifting of portfolios with a tendency to have a greater share in dollar investments and less concern about hedging against it. So, in that sense I think the market has been pretty bullish on the dollar and continues to be.",154
-fomc-corpus,1989,"Okay, that's the response that I was looking for. In other words, you think that if the perception in the marketplace were that we would have no further interest rate declines, that would tend to be somewhat bullish for the dollar.",46
-fomc-corpus,1989,"Well, that's not quite what I was saying. Given everything that's going on--and not just interest rates--I think there is a firmness and a strong support for the dollar.",36
-fomc-corpus,1989,"Any further questions for Mr. Cross? If not, can I have a motion to ratify the transactions of the Desk since the July meeting?",29
-fomc-corpus,1989,So move.,3
-fomc-corpus,1989,Second.,2
-fomc-corpus,1989,"Without objection. I sent out a memorandum--basically a poll with questions on system foreign currency operations--in response to a discussion, as you may recall, at the previous meeting. I would be most interested in any reaction that anyone had to that. Is there any sentiment to change, alter, rethink, or the like?",66
-fomc-corpus,1989,"Well, I think it was an appropriate request for information. It certainly helped me to understand the history of this development in terms of the swaps and the Exchange Stabilization Fund and our activity over the last--well, I don't know how far back we go.",52
-fomc-corpus,1989,"Well, I think periodically we really ought to review the whole system, largely because our information base continues to change our views about how we affect markets and what the implications are. A general review and updating, I think, is probably desirable just to make certain there are no structural changes that have occurred and, accordingly, altered how we should view the whole process. Well, if there are no further questions on it, we'll just go--",87
-fomc-corpus,1989,"Mr. Chairman, would it be helpful to include in the outline a review of the academic literature on this subject?",23
-fomc-corpus,1989,Probably not.,3
-fomc-corpus,1989,Give us two years.,5
-fomc-corpus,1989,"Yes, Jerry answered your question literally. Having trudged through most of that, the word helpful doesn't immediately strike me as [germane]. We will, however, make a bibliography so that one can go back and see the particular efforts in this whole area over the last decade or so; it's quite extraordinary. If there are no further questions, we'll just proceed further on that and keep you informed of the progress. The next issue on the agenda is the question of the Mexican swap drawing.",99
-fomc-corpus,1989,"Mr. Chairman, we circulated a memo, which I hope was self explanatory, relating to the provision of a certain amount of bridge financing to Mexico in connection with the Mexican agreement in principle with commercial banks on July 23. It's a total amount of $2 billion: a billion dollar's worth would be a multilateral facility of which the U.S. share would be $250 million split equally between the Federal Reserve and the Treasury; the second billion dollar facility would essentially draw upon existing swap lines--our $700 million swap line and the Treasury's $300 million line for the full $1 billion--The other half of it would draw, after the multilateral facility, on disbursements from the Fund and the World Bank. As outlined in the memo, there is a small anticipated shortfall--on the order of $86 million--of the full $1-1/2 billion that would be paid out of Mexico's reserves; or, if they somehow couldn't draw any other monies after the 15th of February, we could [if necessary] obtain repayment from proceeds of sales of oil as we have done in the past. The proposal here is to approve a special swap arrangement for the $125 million--a one-time only arrangement that would be drawn on once and then on repayment would expire. The proposal is also to delegate formal approval of that to the Chairman, and also to delegate to the Chairman the approval of the drawings once they [are requested]. The reason for the lag is that there is a desire to have a certain linkage--I think that was the phrase you used, President Corrigan--between this facility as a whole and the consummation of the term sheet between the Mexicans and the bank advisory committee. So, it is conceivable that that never will happen, in which case we wouldn't want to have this on the record, so to speak. That's why we have suggested this procedure in the first place; normally, when we activate these things, Norm would send out a telegram asking for the Committee's concurrence. We thought it would be just as easy to get your concurrence in advance, assuming none of the terms changed.",433
-fomc-corpus,1989,Any questions for Mr. Truman or Mr. Cross on this issue?,14
-fomc-corpus,1989,"Ted, I guess I don't understand your statement that you prefer not to have it spelled out in the record. I assume this would take a Committee vote?",31
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,"And, therefore, it will be indeed on the record; and it will reveal not only the authorization for the full $700 million [swap drawing] but also this special--",35
-fomc-corpus,1989,"Well, [that would occur] when it was activated. Our intention would be for the Committee to act to delegate this decision to the Chairman. And when he acts and implements the decision, then it would go on the record. But if this whole thing fell apart in the meantime, between now and your next Committee meeting, it would not [go on the record].",74
-fomc-corpus,1989,You ask for a vote now and it's not submitted for the record unless it's activated?,17
-fomc-corpus,1989,That's right. I've been told by the authorities that that's a reasonable procedure to follow.,17
-fomc-corpus,1989,The authorities?,3
-fomc-corpus,1989,"Legal--that is, the General Counsel.",9
-fomc-corpus,1989,Legal.,2
-fomc-corpus,1989,"Well, that offends my sensibilities.",9
-fomc-corpus,1989,I don't understand why we need to make the change in procedure now when we--,16
-fomc-corpus,1989,"We have done this before. We used this same procedure for the same reason in 1982 when we made an arrangement with Mexico; we weren't sure that the conditions would be such as to need this arrangement. If you want to do it the other way, you can approve the swap line [increase] and then explain in the policy record that because the conditions never were met we never [implemented it]. I don't have a strong [view on a] way of doing it. We had done it the other way in the past, and that's why we proposed this arrangement.",115
-fomc-corpus,1989,Okay.,2
-fomc-corpus,1989,"I think there's a certain advantage to doing it the way Ted is suggesting. Even if we put the vote on the record, in a sense, we are not effectively implementing the swap from our point of view; and then if it falls apart, we're sort of hanging out there with--to use your analogy--half a bridge. I think authorizing it and then delegating final approval to the Chairman leaves us in a position where, should the term sheet fail or something like that, then it is never implemented and there is no final action by this Committee. And we don't sit there in a sense having said yes, and a final yes in effect, and then having the thing unravel. It's really a cosmetic request.",144
-fomc-corpus,1989,"Well, Mr. Chairman would it not be possible to have a telephone conference call and do it that way? Then it would be on the record. It just seems to me--",36
-fomc-corpus,1989,"Yes, but I agree with you on this. I'm saying that the vote that we would take this morning would be on the record.",27
-fomc-corpus,1989,Fine.,2
-fomc-corpus,1989,"But the action would be a two-stage action: authorization by the Committee and granting to the Chairman the ability to say that the Committee's action should be implemented because the other party or some third party accomplished a certain action. My sole authority is merely to make a determination on whether the Committee's requirements have been met. If they have not, then the issue is moot.",74
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,And there is no further action required.,8
-fomc-corpus,1989,"That satisfies me, yes.",6
-fomc-corpus,1989,"That is what we intended. The other parties are doing essentially the same thing. The BIS, while it has gotten agreement of all the central banks, is not going to tell the New York Fed that it is in agreement to its part until everything is ready to go. So we're all on the same procedure.",62
-fomc-corpus,1989,"But if we take the vote, the minutes published [after] the next meeting would include the vote, then.",23
-fomc-corpus,1989,"It's up to the Committee what they want to do. If it's never implemented, one might argue that you would not want to publish it. But you do it either way you want.",37
-fomc-corpus,1989,But there is a question; we did take an action. The issue of whether it is implemented or not is really a secondary question. The issue is whether we report the nature of this [decision] in detail and [whether] an official vote was taken. I think it would be appropriate to record that vote. I agree with Governor Angell on this issue.,73
-fomc-corpus,1989,What are the disadvantages to having it show on the record?,12
-fomc-corpus,1989,"Si, this is still an important lever in the overall process. We had a meeting--about 10 days ago, Ted?--when most of the ducks were in a row in terms of this deal being done. But there are about 4 or 5 categories of things that have to be locked up, several of which are very difficult, by August 30th. There will be another meeting--the ""lock-up meeting"" either next week or the day after Labor Day, I'm not sure which yet. What we have said to both parties is that the official bridge will be activated and disbursed only when these other things are done, mainly that all of the detail is agreed to by both parties. I think the issue here is trying to keep as much pressure [as possible] on the process. And I think Ted's suggestion, the Chairman's suggestion, and Governor Angell's are all compatible with that, in that you authorize it but you don't give the impression that it's an absolute done deal. You keep the trump card in the Chairman's pocket. That's the rationale.",220
-fomc-corpus,1989,"Well, the fact that it would only be activated if those things happened, it seems to me, is consistent with what you want. Also, these minutes won't come out for six weeks.",38
-fomc-corpus,1989,They won't come out until after these discussions are all through.,12
-fomc-corpus,1989,Long after your--,4
-fomc-corpus,1989,"Well, unless everything falls apart; that's the only other contingency.",13
-fomc-corpus,1989,"Then we will have looked good not to have disbursed it, anyway.",16
-fomc-corpus,1989,Any further questions on this swap issue?,8
-fomc-corpus,1989,does that just largely give them reserves? I guess it gives them the appearance of more fire power?,20
-fomc-corpus,1989,That's right. There is another feature here--if they get everything done by the first of September they will then announce a bigger number for their reserves on the first of September. I think it's also partly the cosmetics of the number. When we looked at That's how the structure was negotiated in July.,59
-fomc-corpus,1989,"The implication is that flight capital, or reverse flight capital, might ensue if they show higher reserves. So it's a smoke and mirror scheme.",29
-fomc-corpus,1989,[Unintelligible] hold his breath.,10
-fomc-corpus,1989,"You do these [unintelligible]. If there are no further questions, would somebody like to move that action?",24
-fomc-corpus,1989,"Yes, move it.",5
-fomc-corpus,1989,Second.,2
-fomc-corpus,1989,Without objection so ordered. The next item on the agenda is--,13
-fomc-corpus,1989,"Mr. Chairman, for staff purposes could we clarify that the contingency was established--that this was an authorization of the special swap but also concurrence [on the delegation to the Chairman] of the activation? We will let you know when it happens. Otherwise we tend to send out a notice [requesting Committee action]. One of my housekeeping concerns is that this might happen around the Labor Day weekend when people aren't even around. So do we take it that all is encompassed in that action? Is that how people interpret it? Or do you want to have another round?",114
-fomc-corpus,1989,"Maybe the safest thing to do would be for you to phrase the motion as you think it would be appropriate, for technical purposes, in implementing this policy--just to be sure we have it correct.",40
-fomc-corpus,1989,"I think the motion was to authorize the special swap arrangement, with its activation subject to the Chairman's satisfaction that the understandings have been met and to concur in the activation of the two arrangements, again subject to the understandings being met. That would be the easiest.",54
-fomc-corpus,1989,That's essentially what's in the motion.,7
-fomc-corpus,1989,It's in the vote.,5
-fomc-corpus,1989,"Okay. Unless there is any objection, that will be part of the record. Our next item on the agenda is Mr. Sternlight on Desk operations.",31
-fomc-corpus,1989,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1989,"Thank you, Mr. Sternlight. Questions for Mr. Sternlight?",15
-fomc-corpus,1989,"Peter, when does this need to drain reserves end? In other words, how soon would you expect that? Generally, funds have been trading a little below 9 percent. When would you expect them to trade at 9 percent or above? And what have market participants discounted? Normally, they expect the funds rate to be soft when you have that need to drain.",74
-fomc-corpus,1989,"That is a contributing factor. Just on the basis of the reserve outlook, we're very near the end--at least on the latest projections that I've seen, which were as of yesterday when we were nearly done with the prospective draining for this period. There's a small draining job of roughly half a billion or so for the next reserve period, unless things change because of the Mexican developments or foreign exchange developments. Any of those things, and some other factors also, could change our reserve outlook. As for the market people, there are two camps of thought about the funds rate. Some expect to see funds right around 9 percent give or take a small margin; others would be thinking more of 9 to 9-1/8 percent. I don't think there's that much expectation imminently of the Fed wanting to see the funds rate pushed down noticeably further to 8-3/4 percent or something like that. Some see that as something that could come further down the road, but not in the very immediate future. But I must say I have a little question in my mind currently, and we've had this question right along, about gauging the proper relationship of borrowings and funds rates now. It's hard to make a strong case on these things, in any event. But I have a slight doubt at the moment as to whether, with $550 million of borrowing, we really should be expecting funds to be 9 percent or a shade above or more right around 9 percent or maybe even a hair under. A lot depends on just what happens with seasonal borrowing, which has stayed pretty high; it has come off a little but is still pretty darn high.",334
-fomc-corpus,1989,Any further questions?,4
-fomc-corpus,1989,"I just have one, Peter, on the size of the Treasury balances. Does [implementing] that drain when it comes cause ambiguity about the size of our easing move in the marketplace? Have you had any discussions with Treasury about perhaps their changing the variability of their debt issues as opposed to their balances at the Fed? Or is that not really a problem for you?",74
-fomc-corpus,1989,"I don't think it has been a particular problem. They had high balances at the end of June; they were more or less forced to have the high balances because there are big seasonal tax receipts. And they had more than used up the capacity of the banks to hold these note balances; that capacity is around $31 or $32 billion, as I recall. And those balances did come off in July. They have been holding pretty well around their normal Fed balance of $5 billion as a working balance recently.",102
-fomc-corpus,1989,That's not really a problem?,6
-fomc-corpus,1989,It has not really been a great problem.,9
-fomc-corpus,1989,"Well, I think Lee is raising a question, as I assume, that they have the capability of--",21
-fomc-corpus,1989,Issuing debt.,4
-fomc-corpus,1989,"--funding directly out of their cash accounts or borrowing new money. The issue, I gather, is should they be more variable in borrowing new money to smooth out both the tax and loan account and their balances with us? I think the answer to that, as far as monetary policy is concerned, is that I assume it's easier for us to adjust than for the Treasury.",75
-fomc-corpus,1989,I think that's what's--.,6
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,"But [unintelligible], I think, is the issue.",14
-fomc-corpus,1989,That's what [Peter] implied.,7
-fomc-corpus,1989,"Well, we have sometimes had discussions with them about whether it would be useful for them to make greater use of cash management bills that could get them by some of these post-tax date bulges in cash and the like. They traditionally have been reluctant to make much greater use of cash management bills, feeling that that was a relatively costly way to fund the debt. But, that's kind of an ongoing debate that we have with them.",86
-fomc-corpus,1989,"I think there are one or two other points, President Hoskins. One is that I don't think the need to drain [reserves] has really hindered Mr. Sternlight's ability to let the easing show through over June and July. In fact, it may even help a little in the sense that it lets the reserves sit out there a little longer and tends to put downward pressure on the funds rate by waiting to take it out. In some sense it's helpful. The other point is that, to a large extent, our need to drain--although it has been revealed by the decline in the Treasury balance--resulted importantly from the warehousing of the ESF funds and also our own intervention. This sterilization, really, of that part of our balance sheet gave rise to a lot of this need to drain.",166
-fomc-corpus,1989,"Yes, that's certainly true.",6
-fomc-corpus,1989,"Also, the degree of instability that occurs is largely our inability [unintelligible] matter of using cash management bills or allowing the balances to move. Everything is exact, but we can't--. I guess you could argue, though, that the more variables they have to play with the more likely that the forecasts are--",65
-fomc-corpus,1989,Offsetting errors?,4
-fomc-corpus,1989,"Yes, but sometimes they aren't.",7
-fomc-corpus,1989,Compounding.,3
-fomc-corpus,1989,"Any further questions for Peter? If not, would somebody move to ratify the transactions of the domestic Desk since the July meeting?",26
-fomc-corpus,1989,So move. MR.JOHNSON. Second.,11
-fomc-corpus,1989,Without objection. We now move to the general economic evaluation. Messrs. Prell and Truman.,20
-fomc-corpus,1989,[Statement--see Appendix.],6
-fomc-corpus,1989,[Statement--see Appendix.],6
-fomc-corpus,1989,Questions for either gentleman?,5
-fomc-corpus,1989,"Mike, I have a question about a prospective piece of data. The claims data have looked very good so far. My question has to do with the Nynex strike. I happened to talk to the fellow who runs the Nynex in New England and there's an issue about some people--I guess in New York State--who after seven weeks on strike are eligible to file claims. In some other states they may not be eligible to file claims but they may be filing the claims anyway because the company has to send someone into the employment office to dispute the claim or else it ends up counting against the company's experience rating. I'm wondering if that perhaps could have some effect on the claims data that we are going to be seeing over the next period--whether the markets know that and how they are likely to [react].",164
-fomc-corpus,1989,You mean if claims were to go up?,9
-fomc-corpus,1989,Yes. Claims could go up artificially because they would be--,12
-fomc-corpus,1989,"That would almost surely be reported in the BLS weekly release. They do discuss technical reasons as to why claims move as they did. Should that be the case, they almost surely would put it in the press release. And it would probably be in our [unintelligible] and aggregate amount. It certainly would make it clear that--",69
-fomc-corpus,1989,"I must admit you know more about this from your conversations than I do. Larry [Slifman], have you--?",25
-fomc-corpus,1989,"What the Chairman said is correct. There is the issue of whether or not the claim is accepted; then it shows up in the ongoing benefits. But the BLS in most instances knows who's filing the claim, so they can sort of monitor these things since it's an administrative count. And they normally will note it, as the Chairman has said.",69
-fomc-corpus,1989,"I think the more important question is what effect this will have on the employment and hours numbers for August. I suspect there will be considerable [doubt] when we see, on net, a very low employment growth number. But we've also assumed that there isn't a lot of lost output with this [strike]. There will be a few phones that won't have been installed and so on, but the calls are generally going through. So this looks like something that won't have a large GNP effect.",99
-fomc-corpus,1989,"On the payroll numbers themselves, we estimate that during that survey week of the 6th to the 12th of August about 150,000 telecommunications workers were on strike.",36
-fomc-corpus,1989,President Parry.,4
-fomc-corpus,1989,"Ted, a question about net exports: In Part II of the Greenbook there was an interesting discussion of the revision in the export numbers that was done for '86, '87, and '88. Analytically, how do you treat that when you're using a model or you're doing your analytic work since they haven't done a benchmark and you don't know what happened before that?",76
-fomc-corpus,1989,"Well, first the answer is the add factors; we have reestimated our equations in any case. You are right that there is a problem because it creates a gap between '85 and '86 and you have a discontinuity here. In answer to your question about what we would do, we either would try to smooth it or [unintelligible] back. Normally, they take these things back.",82
-fomc-corpus,1989,I know.,3
-fomc-corpus,1989,For some reason they didn't do it this time because they ran out of resources.,16
-fomc-corpus,1989,"So you have a whole year, too.",9
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,Is there a similar problem in inventories because there were big changes there?,14
-fomc-corpus,1989,"I don't know about inventories. It may have been [just] this particular area; what they did essentially was add new information that they collected on these exports and imports of various services that they didn't have [information on] before. They may have felt that they couldn't quite figure out how they wanted to feather it into the past. So, it's more than a correction of past numbers; it was [brand new] information.",85
-fomc-corpus,1989,Could it add a little uncertainty to the forecast?,10
-fomc-corpus,1989,"Yes, we put them right in. We've discussed that here with the Board and to some extent that's good news. It is good news in the sense that the base on which we forecast our exports is that much higher and one might even argue that some of these services, which are education and medical services and travel, are ones that have rather high income elasticities. Therefore, the overall elasticities might be a little boosted by this.",87
-fomc-corpus,1989,They were moved out of consumption right into exports. It wasn't something that had been missed?,18
-fomc-corpus,1989,It was moved out.,5
-fomc-corpus,1989,And formerly it was in domestic consumption?,8
-fomc-corpus,1989,"That's right, I guess. Yes, to some extent, that's right.",15
-fomc-corpus,1989,[Unintelligible] transportation services from domestic to foreign--,13
-fomc-corpus,1989,It's a reallocation.,5
-fomc-corpus,1989,Thank you.,3
-fomc-corpus,1989,President Guffey.,5
-fomc-corpus,1989,"Mike, [some] of the numbers that have been reported going back to the second quarter may be revised up, and there is some speculation that growth in the second quarter might have been as much as a full percentage point faster than you show in the Greenbook. How do you construct your forecast? Do you simply take it out of the third quarter or do you project the third and fourth quarters from that higher base, if indeed it is revised?",90
-fomc-corpus,1989,"We do think there will be an upward revision. As best as we can do the arithmetic--making guesses where we need to about how BEA may interpret some of the data--we think an upward revision of about a point is in store. Basically, our forecast is a [net] change forecast and thus isn't affected by this. That means that the levels of some of these variables--if we were to redo the forecast with the revised second-quarter numbers--would look different. But in terms of the GNP growth path, it wouldn't be a factor.",112
-fomc-corpus,1989,"Well, I gather that's not true for inventories.",10
-fomc-corpus,1989,"It is true for inventories as well. If inventories were revised up, inventory investment throughout the forecast, all other things equal, would be revised up. That means it potentially affects inventory/sales ratios.",40
-fomc-corpus,1989,"That's what I'm getting at. In other words, to the extent that you view the level of inventory/sales ratios as a relevant consideration of inventory investment then, unlike capital investment, the [net] change is not fully appropriate in this context.",49
-fomc-corpus,1989,"To the extent, though, that we digest the incoming information and are aware of whatever surprises there are for BEA in the latest inventory data, for example, that conditions our thinking about whether inventory levels are too high or too low.",47
-fomc-corpus,1989,"Well, let me give you a very specific example: BEA comes in with a major tripling of inventory change in the second quarter. Can you tell me that that does not affect the third-and fourth-quarter inventory changes?",45
-fomc-corpus,1989,"Clearly, if that were the case, under those circumstances we would have to do something that was a combination of a [net] change for all other items and then worry about the level of inventory investment. It turns out, however, that in this instance that's not really the case.",57
-fomc-corpus,1989,That is not the case; I understand that.,10
-fomc-corpus,1989,So it's not a problem this time.,8
-fomc-corpus,1989,"This is an issue that we've debated many times. In fact, recently, we have been debating whether we ought to anticipate changes in BEA's numbers and put down our guess instead of the last BEA number. But there's a long tradition; this problem has been going on for decades here and we have been discussing how one ought to approach this issue.",71
-fomc-corpus,1989,At least two.,4
-fomc-corpus,1989,No one has the guts to do it and the private sectors don't. President Stern.,17
-fomc-corpus,1989,"Mike, you made a passing reference to fiscal policy. What difference, if any, would it make to the forecast if you had CBO's spending number rather than yours? It's about a $36 billion difference but--",44
-fomc-corpus,1989,"Well, a lot of those differences come from policy assumptions. We think it is unlikely that this agreement is going to fall apart entirely; but if it did, then presumably we'd have somewhat stronger aggregate demand over the next year in this forecast and less restraint coming from the fiscal side. Relative to GNP, I don't think that we're talking necessarily about numbers that are night and day differences; but they are potentially of some significance. Let me just add one thing. One of the reasons CBO is higher reflects their assumption that the thrift resolution expenditures in this fiscal year will be lower than the $20 billion that we've built in. That's largely a paper shuffling transaction, as we've interpreted it, so that would be of no effect in--",147
-fomc-corpus,1989,"This is raising an interesting legal question. We are uncertain as to whether we have to spend that money under the statute. They have made a judgment that we won't, and it's not clear that it's that simple. We may find out that we're forced to make that expenditure in the RTC.",57
-fomc-corpus,1989,"Their report suggests that they are aware of some question here, but they've interpreted this as something that can be carried over and will show up as a budget outlay next year.",35
-fomc-corpus,1989,That has not been clearly evaluated has it? It's a very interesting problem.,15
-fomc-corpus,1989,Following up on that: Do we know how much of that authorization has been borrowed already?,18
-fomc-corpus,1989,"Well, I think it's very hard to categorize. Clearly, the Treasury did step up their borrowing when it finally emerged how the compromise was going to come out. They tacked on at the last minute some $5 billion to a cash management [bill]. It was rather explicitly tied to the need for the $20 billion of budget expenditure in this fiscal year. And they have rather promptly added to the regular weekly bills. They might have had to add, anyway. But my impression is that they added somewhat more to that and also to the 2- and 5-year issues that are being sold this week. I think it's planned, though, that some of that $20 billion, if not all, will be spent; my impression is that they're aiming to spend it. That would be coming out on September 30 and would lower cash balances by some $6 or $7 billion--maybe more than that.",184
-fomc-corpus,1989,"Actually, we've only spent something like $1-1/2 billion so far.",17
-fomc-corpus,1989,You have your work cut out for you.,9
-fomc-corpus,1989,"Well, we're behind the curve.",7
-fomc-corpus,1989,I think borrowings may be $5 or $6 billion. Is that where it--,18
-fomc-corpus,1989,"Well, it's not tied dollar for dollar.",9
-fomc-corpus,1989,"Yes, I understand, but I mean relative to what you had expected.",15
-fomc-corpus,1989,"The way we're looking at it, from the Treasury financing standpoint, I'd say they already have come into the market for $6 or $8 billion.",30
-fomc-corpus,1989,Then how much [unintelligible] have they got to run down the cash balance after September 30th?,24
-fomc-corpus,1989,I don't know.,4
-fomc-corpus,1989,I guess the question really is: What's the normalized expected Treasury cash balance from the period through September and is there much leeway to run it much below?,31
-fomc-corpus,1989,"We have in our forecast a $32 billion end-of-the-quarter cash balance, so there's [room].",21
-fomc-corpus,1989,"My impression is that they were going to aim for $20 billion instead of $30 billion, or something like that.",24
-fomc-corpus,1989,"Governor, are you finished?",6
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,President Parry.,4
-fomc-corpus,1989,"There were some changes, I think, in the estimates of productivity. Has that led to any different views about what [potential] growth in the economy might be?",33
-fomc-corpus,1989,"As all of these revised data washed through, the revisions really didn't have much effect on our assessment of trend productivity growth. Our guess about the trend growth in real potential GNP is still close to 2-1/2 percent, maybe 2.6 percent at this point.",57
-fomc-corpus,1989,I just wanted to ask about durable goods orders. Did they come out this morning?,17
-fomc-corpus,1989,"Yes, they came out; I must say that based on the data we have it's a little hard to interpret these things. The overall durable goods orders were down almost 2 percent. Nondefense capital goods orders were up 5 percent and June was revised up to 5 percent from about unchanged. But there are--",65
-fomc-corpus,1989,Ex-aircraft there's a significant decline.,8
-fomc-corpus,1989,"Ex-aircraft it is down 10 percent. But last month was revised up to 6.6 percent. The big swing factors in the last couple of months seem to have been a category called ordinance, ship building, and tanks, which is part of nondefense--",56
-fomc-corpus,1989,Part of [unintelligible] called domestic defense.,12
-fomc-corpus,1989,"So these numbers are pretty murky at this point. It looks like there's a touch of weakness in orders for computers, and that doesn't come as a great surprise in light of the anecdotal evidence about what's going on in that industry. On the whole, though, at this point I'd only venture the guess that this report doesn't suggest a very big departure from what we have been tracking here. Overall, unfilled orders for nondefense capital goods continue to rise substantially month-by-month, really.",99
-fomc-corpus,1989,Do we have any indication of why these numbers have been revised so dramatically over the last two or three months? Is there something going on?,28
-fomc-corpus,1989,The usual.,3
-fomc-corpus,1989,Difficulties and errors.,6
-fomc-corpus,1989,"Well, they are of larger magnitude. Are they orders?",12
-fomc-corpus,1989,"I think it's [mostly] revisions from the ones on the military contracts, which are--",18
-fomc-corpus,1989,"The release indicates that the average revision for new orders is about 2 percentage points, so this constitutes a pretty healthy revision. But this is a series that's very volatile, and on top of that you get these--",43
-fomc-corpus,1989,How do the markets interpret it?,7
-fomc-corpus,1989,"The bond market went down on balance by a very small amount, about [unintelligible].",20
-fomc-corpus,1989,The bond market went up on the initial release of the July numbers; then when they got the revision it went down.,24
-fomc-corpus,1989,The market is going to be handicapped in interpreting this because some of the crucial detail isn't going to be available until the final release of manufacturers' orders and shipments next week.,35
-fomc-corpus,1989,I'd wait 'til the end of the day.,10
-fomc-corpus,1989,It's really difficult to sort through these numbers.,9
-fomc-corpus,1989,"The question of the inflation forecast depends crucially on the [unintelligible] of the average compensation per hour forecast; when all is said and done, everything else pretty much washes out. How comfortable do you feel with the relationship between labor market tightness and the wage forecast? In other words, it's clear that it has been slipping, but how would one characterize it? Is it significant or is the relationship still there but muted? How comfortable do you feel with the [mutual] relationship between labor market tightness on the one hand and the wage forecast in the Greenbook on the other?",121
-fomc-corpus,1989,"We don't perceive this as a simple relationship. Obviously, there is interaction here, and there are price surprises that could affect the inflation expectations that could in turn affect compensation. And then this all cycles around. Basically, it depends on what model you look at as to whether there has been a very big surprise in the behavior of wages. If you refit your models through the recent experience and you capture all the data revisions that have occurred along the way and you select your price expectations variables correctly, you can pretty well capture what has been going on in compensation inflation over the past couple of years--not quarter-by-quarter, but the general drift.",129
-fomc-corpus,1989,"Well, let me put the question slightly differently. Did you say before that you are a percentage point lower than you were two Greenbooks ago?",29
-fomc-corpus,1989,Percentage point lower?,4
-fomc-corpus,1989,In the compensation [forecast]. Did I hear you say that?,13
-fomc-corpus,1989,"No. In fact, there hasn't been much change in our compensation forecast since last fall. We have been projecting pretty much the same compensation increase this year as we have all along.",36
-fomc-corpus,1989,"So, is the structural equation significantly changed? Or, in a sense, are you saying that with all the recent data we can now explain comfortably what has been happening in the last couple of years in the employment forecast?",44
-fomc-corpus,1989,"My feeling is that it depends on which data you look at. There's the compensation per hour series, which has been showing about 5-1/2 percent increases over the past year. There is the employment cost index, which has been showing 4-1/2 percent or a little above that. That number looks rather low against the kind of consumer price inflation we've been having in an environment where we think the unemployment rate is essentially in line with the natural rate--fairly tight labor markets. Judgmentally, we would have expected to see that 12-month change in the ECI creeping up over the past year, and that hasn't occurred. On the other hand, I think the basic tenet of this forecast is that there was an acceleration here. We have not turned down, in terms of this trend; the labor market is remaining tight. It is very difficult, barring some significant price shock, to see why we would go lower on wage inflation. In light of the large increase in consumer prices over the past year, in particular over the past half year, we think there is going to be some pressure--self-inflicted or not--on employers to boost their wage increases a bit to keep their employees whole. And we think we're going to see some slight further upward movement in compensation per hour over the next couple of quarters. Then next year we have the hit from the legislative increases, which accounts for almost all of the further increase in 1990. So I'd say we are comfortable that we have assessed the risks properly and that it's most likely that we're going to see some edging up rather than stability or a downward movement.",331
-fomc-corpus,1989,"Do we have any further evidence as to why the ECI, which has theoretically the same establishment coverage that creates the compensation per hour, [differs]? It can't be a mix factor, solely.",40
-fomc-corpus,1989,"Well, but there could be a mix factor here.",11
-fomc-corpus,1989,That large?,3
-fomc-corpus,1989,I don't think we can fully explain this; we're not entirely comfortable with this.,16
-fomc-corpus,1989,Feel like making a judgment?,6
-fomc-corpus,1989,"There are possibilities. One is, since the compensation per hour series doesn't collect the same kind of direct information on benefits, that it's missing something in that area. We have seen significant revisions in the past as, with a considerable lag, they incorporate that information. But it is a source of some discomfort. Looking at the ECI, I suppose we might feel that there is some upside risk because of the low level of that increase over the past year or so against the kind of consumer price inflation we have had.",103
-fomc-corpus,1989,"Pursuing this a little further: you made the statement that the underlying rate of inflation really doesn't show any progress between now and the end of 1990. I know for the next meeting you will come out with [a forecast for] 1991. Have you taken any preliminary looks? Based upon the assumptions that you use, is there any improvement in the underlying inflation that occurs later?",80
-fomc-corpus,1989,"Well, I must confess that in all likelihood there will be some decline in the inflation rate in 1991 in our forecast by design.",28
-fomc-corpus,1989,By design?,3
-fomc-corpus,1989,Because we are assuming--,5
-fomc-corpus,1989,That's the objective.,4
-fomc-corpus,1989,"--that it is an objective of the Committee to make some progress in that direction, while avoiding recession. The question is what kind of economic environment it will take. If we assume that the dollar continues to appreciate, that argues all the more for our assuming that growth in 1991 will have to remain on the soft side. That will be the kind of forecast we most likely will be presenting; and that's in line with what we presented in our previous simulation, for example, in the Chart Show.",101
-fomc-corpus,1989,Thank you.,3
-fomc-corpus,1989,Governor Seger.,4
-fomc-corpus,1989,"I just have one question about profits. As I've read some of these profit reports the last couple of weeks, basically, it just seems to me that for the second quarter of the year there are a number of very soft stories that came out. Now, maybe they weren't any softer than we expected; I don't know. But I just wondered if in fact there is a significant deterioration showing up, particularly in the high-tech area. That was the one that surprised me the most. And I wonder if the aggregate numbers forecasted here are sufficiently weak to reflect that.",113
-fomc-corpus,1989,"We have a very pronounced drop in the profits share in our forecast. We think it is ongoing at this point; and by the end of 1990 in this forecast, the profit share is historically at a very low level. That's one of the factors in our thinking about the investment outlook. Overall cash flow will be constrained; the current profitability of businesses won't look so great. So we think there is going to tend to be some drag on investments going out through 1990. It's very hard to get a handle on what is happening in the aggregate from the stories about these [unintelligible] on unadjusted earnings and so on. But we think it is weak at this point.",141
-fomc-corpus,1989,"I know you don't like me to look at quarterly numbers, but I'm going to do it anyway. It seems to me on a couple of these quarters looking ahead that you actually show a slight increase in profits--for example, in the fourth quarter of this year. I don't mean as a share of GNP; I'm just looking at the corporate profits with IBA and CCA adjustment.",78
-fomc-corpus,1989,I'd rather not look at the quarter-by-quarter numbers that closely.,13
-fomc-corpus,1989,"Yes, I knew that.",6
-fomc-corpus,1989,"As I look at it, the fourth-quarter number is up less than $1 billion.",18
-fomc-corpus,1989,Right.,2
-fomc-corpus,1989,Right off the top of my head I'm hard pressed to identify all of the factors here that explain that. But I think that is too fine a reading of these numbers.,34
-fomc-corpus,1989,"In the third quarter of next year, also, you have the decline stopping and a bit of a rebound--or more of a rebound than in the fourth quarter of this year.",36
-fomc-corpus,1989,That's right; the fourth quarter is up because unit labor costs are down.,15
-fomc-corpus,1989,"Yes. Gyrations from quarter-to-quarter in the rate of output growth in productivity feeding through here can lead to some bounces. But I think the real story here is that we are projecting a rather weak profits picture. It may be that private analysts have come around more to this view than previously. We felt we were much more pessimistic than most private forecasters previously. I think there is a greater sense now that, in terms of economic profits, there's something going on from the effects of the 1986 tax law on depreciation allowances--that operating economic profits are going to be relatively weak as one looks ahead.",125
-fomc-corpus,1989,"Don't you think, though, that this profits story is tied into the inflation numbers? Many of these higher costs--whether they're wage costs or something else--because of the competitive environment are having to be eaten by the organization. And where it's coming from is out of profits.",55
-fomc-corpus,1989,Indeed.,2
-fomc-corpus,1989,In addition to just the cycle [phase].,9
-fomc-corpus,1989,[Unintelligible].,6
-fomc-corpus,1989,Thank you.,3
-fomc-corpus,1989,Governor Johnson.,3
-fomc-corpus,1989,"Just a couple of things: First, you mentioned that you thought demand was going to be rather buoyant, and I'm having a little trouble with that. I see it picks up somewhat in the second half of the year and I think some of that is auto related--certainly, the third quarter is. Then you have it coming off in durables in the fourth quarter, but nondurables are much stronger relative to the past. What's causing that nondurable consumption [growth]? It has been trending down and all of a sudden it leaps up in the second half.",115
-fomc-corpus,1989,"In the very near term I think it is much affected by the revised retail sales data, which puts it on a distinctly different path than we were on earlier.",32
-fomc-corpus,1989,"But that's a level adjustment. You were talking earlier about unchanged growth rates, and I'm wondering why that would affect the growth rate.",26
-fomc-corpus,1989,It affects the growth rate of consumption in the third quarter because of the level [unintelligible] path and so on.,26
-fomc-corpus,1989,"Okay, I see it.",6
-fomc-corpus,1989,We're at a much higher level and relative--,9
-fomc-corpus,1989,It's jumping all over the place.,7
-fomc-corpus,1989,"In a sense. But beyond that, a month ago when we were looking at this before the GNP revision we were looking at a very steep drop in nondurables in the second quarter. I think I suggested at the time that that looked really peculiar and that we wouldn't be surprised to see a revision. When the GNP numbers came out they eliminated some of that decline; I think it went from minus 6 for nondurables to minus 4. Now, those numbers are going to go up still further. There is still going to be a pattern of about three quarters where we're running at rather weak nondurables expenditures. History suggests, statistically, that this sometimes occurs in the gasoline area when we've had a big run-up in gasoline prices and then you get a reversal as gasoline prices fall. It may be merely a statistical measurement problem. Be that as it may, the trend there just looks to be weaker than one would anticipate over time; so in the second half we do have, in effect, a bit of a catch up. But looking at next year we only have a 1-1/2 percent nondurables increase; this year as a whole we only have something in that vicinity, after the revisions for the second quarter. So, the outlook is for a very modest growth of nondurables.",268
-fomc-corpus,1989,"Yes, thanks.",4
-fomc-corpus,1989,I thought some of the decline in nondurables was accounted for by food.,16
-fomc-corpus,1989,"[Unintelligible] be at something in excess of 3 percent. So this is a fairly buoyant, as we characterized it, demand picture. And it's only in small part an automobile story because, while we get a burst from the third quarter, in the fourth quarter we're expecting a pay-back. So on net over that span it isn't an auto story. In fact, in the GNP forecast the automobile assemblies are taking a fraction off of GNP growth in the third and fourth quarters.",102
-fomc-corpus,1989,"Now, let me ask: What is the difference between gross domestic purchases and just the private domestic final purchases? Is that taking out imports?",28
-fomc-corpus,1989,"You take out the government. Then, with the private domestic final purchases you're getting down to just consumption, residential investment, and business fixed investment.",29
-fomc-corpus,1989,"Okay. Another question I had was on your mention of housing starts and some potential pickup. There have been some really marginal upticks in [starts], but permits have continued to trend down. Even with the Board staff's adjustment, they're still somewhat below starts. I just wondered, with permits continuing on that trend, whether starts would show a turnaround. I know they are both sort of contemporaneous indicators but I would think that starts would adjust to permits, not vice versa.",95
-fomc-corpus,1989,"Well, for the single-family sector, the time differential between the permit and the start is very short. Statistically you cannot find any lead-lag relationship in that data. I think our permits tend to be less volatile from month-to-month.",49
-fomc-corpus,1989,"That's what I meant to say, statistics.",9
-fomc-corpus,1989,"Statistically, [permits] in level terms [don't tend] to be all that far different from the starts story.",25
-fomc-corpus,1989,"No, except that they haven't shown any turnaround.",10
-fomc-corpus,1989,"Indeed. But I think if you look at the new home and existing home sales in June, the housing starts for the last couple of months, the single-family number in July, and the anecdotal evidence in the press and elsewhere regarding builders' attitudes and consumer attitudes, all of these things point to some upturn. And we have a modest upturn in residential construction beginning in this quarter and continuing into the fourth quarter.",85
-fomc-corpus,1989,"Well, that's sort of what I wanted to follow up on, Mike. I can understand what you're saying, looking at the permit trends and realizing that you've got a turnaround in starts and housing investment, but in the broader picture on total investment--even when you take into account some of the revisions on orders--the orders data are very weak. And when you look at the fact that long-term interest rates have been down for quite some time now and have been trending down over a fairly long period--I guess they peaked out last August, about a year ago--",113
-fomc-corpus,1989,There wasn't much change until this March.,8
-fomc-corpus,1989,"There wasn't much change, and they may not have declined much in real terms if you think there was some diminution in long-run inflation expectations.",28
-fomc-corpus,1989,"Right. But there certainly has been no expectation of long rates rising more than expected. They had been trending down gradually, and then more recently declined more, I guess. Yet there is no sign of a pickup in orders or anything that looks like that's having [an effect], forward looking, on investment demand.",62
-fomc-corpus,1989,"Well, I think I differ on that. One, on the structure side, we really have discounted this. If you just wanted to look at the data literally, there has been a considerable upturn in construction contracts in the last several months. We think that's just a sporadic movement that is not likely to be sustained, but actually it has strengthened. On the orders side it depends on how you want to look at the zigs and zags from month-to-month. You can look at the zigs and zags for the past half year or so and say that--",116
-fomc-corpus,1989,The level is about the same.,7
-fomc-corpus,1989,"--for computers it's no better than flat, and maybe has edged off some. But remember, that nominal dollars there--given the price declines--translate into a sizable real increase in expenditures. So one needs to keep that in mind. If you look outside of computers at the non-aircraft, non-computer component, either we have had a persistently strong uptrend or, looking at the zigs and zags in the least optimistic view, one would say it has been rather flat. Somewhere in between is where we come out in interpreting this, particularly in light of the backlogs in that area. So we think there is some further growth ahead.",132
-fomc-corpus,1989,"Regardless of the zigs and zags, if you just look at the current level--even taking today's numbers into account--I remember that the level looked about the same as it was 8 months ago. There has been some volatility month-to-month, but the fact is that the level is roughly unchanged over a half a year.",67
-fomc-corpus,1989,"I don't want to get into a long debate, but let me refer you to the middle panel of the chart on page 16 of Part II of the Greenbook. That is the chart to which I was alluding; that's other nondefense capital goods and the solid line is orders. Last fall it looked like things were falling out of bed. That orders figure turned down. What we've had in the first half of this year is a tremendous increase in producers durable equipment outlays and pretty strong exports of equipment as well. As you can see, the shipments just continued to rise. In the first half of this year we zig-zagged on a flat path. But one could easily do an optical regression here and draw a trend line right through 1987-88 to the current numbers and say the trend is still intact. It's a judgment--",172
-fomc-corpus,1989,"Yes, well--",4
-fomc-corpus,1989,"As I said, the recent evidence has been rather mixed. The anecdotal evidence--the reports that we are hearing from some of the producers of capital goods--doesn't sound all that great. So, I don't want to make the case that this sector is unambiguously robust at this point.",60
-fomc-corpus,1989,"Yes. If you look at it over a long period of time, I think you can run a regression right through the turning points and get a nice upward slope. But the point is that we have to worry about the [turning] points.",50
-fomc-corpus,1989,"Indeed, but I think the history also tells us that one needs to be very careful.",18
-fomc-corpus,1989,"True; and I don't disagree with that. Now, I have one other question, for Ted. You talked about the widening of the current account later on, and that leaves some of the reason for the dollar depreciation assumptions out. With the revisions, the current account and the trade numbers are dramatically down with the deficit. I just wondered: Why doesn't that really work in the opposite direction and support a stronger dollar over the horizon?",86
-fomc-corpus,1989,"Well, presumably, the relatively good trade numbers and the current account revisions certainly have been factors --I would say largely the factors--that underlie the strength of the dollar we have seen so far this year. It's certainly positive in that direction. One might argue that if you want equilibrium, whatever you thought the current account had to get to, the revisions suggest that you need less exchange rate change ultimately to get there. I would accept that. But most of the models have this characteristic, and they may be wrong, that at unchanged exchange rates with approximately a slightly lower growth here [than] abroad you're going to have a widening of the current account. I think the only issue is how much. The models differ and actually ours is modest, I think, by the standards of most of them. And we have goosed up, if you want to put it that way, the thing considerably.",180
-fomc-corpus,1989,"All I'm saying is, if you take that seriously, that we would have hoped the models were predicting 110 on the yen a year ago or so.",31
-fomc-corpus,1989,"I'm quite modest about the nature of the underlying projection of the dollar, and that's one of the reasons why in our presentation Mike and I agreed that we should give you some sense of what difference it makes. I certainly don't mean to suggest it's a sure thing that this degree of deterioration is going to generate that much decline or that adding $15 billion more to it is going to mean that the end is near. I can't give you any assurance. We have the feeling that ultimately maybe it's like the budget deficit: ultimately a somewhat lower percentage of GNP is going to have to be imported. What the time pattern of that will be and how much of it takes the form of pure exchange rate adjustment and other factors as it gets there is up for grabs.",151
-fomc-corpus,1989,"Certainly that number, when it was reported, was noted in the exchange market. And at least during that day it was certainly a supporting factor. They did pay some attention to that.",37
-fomc-corpus,1989,Yes. But I would say that the perceptions created by numbers like that [are one of] the reasons why interest differentials have worked one way and the dollar is going the other way to some extent. It's surprising. I think everybody has been grasping for reasons why the dollar has continued to hold up this well and even strengthened when interest differentials were working against it. And I would venture to say that improvements on the current account both in actuality and prospectively may be a major factor in that; rather than working against the dollar it may be one of the things supporting it.,117
-fomc-corpus,1989,"Well, the fact of the matter is that we knew these [revisions] would come. In fact, the Federal Reserve [unintelligible] instigated this with Commerce Department five years ago to start looking at some of these things. As far as I know there aren't any more in the pipeline. So it's found money and it does change the base, as I said earlier; but I don't think there's any real chance that we're going to revise away a $100 billion current account deficit.",101
-fomc-corpus,1989,"No, all I'm saying is that you may be at a point where people say: Hey, this thing is ultimately financeable now. How the financial burden, if we proceed--",36
-fomc-corpus,1989,"If you put these numbers together, it's financeable but the problem is the level of our debt. You're worried about the base in all these numbers but it comes to something like 40 percent of GNP. That's where the steady state is. And that is a big number. It is as big as any major industrial country has had [except] Australia and Canada. And Australia and Canada have the advantage, I think, basically that their capital intensive exploitation of--",93
-fomc-corpus,1989,"I'm sorry, what's 40 percent of GNP?",11
-fomc-corpus,1989,The current account deficit.,5
-fomc-corpus,1989,"If you play it out, the $100 billion current account deficit as a percent of GNP would, assuming a steady state and making all kinds of assumptions about the growth rates and so forth and so on, you get something like 40 percent of GNP.",53
-fomc-corpus,1989,The debt or--,4
-fomc-corpus,1989,Net external debt as a percent of GNP. Now if you're worried about the base--and that's a big number--my feeling is somehow that probably we're not going to get there.,37
-fomc-corpus,1989,Something can change in the meantime.,7
-fomc-corpus,1989,"Well, the crucial issue was the financing of that.",11
-fomc-corpus,1989,That's right.,3
-fomc-corpus,1989,"Yes, that's what I was alluding to.",10
-fomc-corpus,1989,[Unintelligible.],6
-fomc-corpus,1989,"However big it is, Ted, it's a lot smaller than what people thought it was earlier, I think.",22
-fomc-corpus,1989,"No, I don't think it's very much smaller.",10
-fomc-corpus,1989,"Well, it's smaller. So what I'm saying is that the market people see the financing requirements as less than they did before.",25
-fomc-corpus,1989,"In my judgment, if we have external debt of 40 percent of GNP we're in real trouble.",21
-fomc-corpus,1989,"Well, if you play that scenario out you come up with all kinds of [unintelligible]. But I think it matters what it's being used for, what you're doing with it. There are plenty of countries that finance that quite easily as long as it's going for sustainable private-sector investment.",59
-fomc-corpus,1989,$2 trillion and the interest cost of that--,10
-fomc-corpus,1989,It's transferred.,3
-fomc-corpus,1989,But it's all relative to the return on the investment.,11
-fomc-corpus,1989,We haven't invested--,4
-fomc-corpus,1989,"Well, that's the progress plan--from here to Australia.",12
-fomc-corpus,1989,"Any further questions for our colleagues? If not, who would like to start the Committee discussion?",19
-fomc-corpus,1989,"Thank you, Mr. Chairman. The economy in the Twelfth District continues to grow, although at a slower pace than earlier in the year. Some areas are enjoying robust growth. For example, the state of Washington is experiencing a sharp escalation in housing prices, booming construction, and rapid in-migration. Alaska is recovering at a rate of growth in employment that is twice that expected prior to [unintelligible] growth. District retailers characterize sales as satisfactory and inventories at desired levels. But other areas of the District are exhibiting weaker growth. Arizona remains weak, with construction slumping and defense-related manufacturing facing cutbacks. A rather new development is that growth has slowed in California, with declines in manufacturing and construction employment noted in the last several months. Turning to the national economy, stronger growth now seems to be more likely than it did at our last meeting. Lower interest rates and declines in food and energy prices should produce a pickup in consumption. Moreover, it appears as though the downside risks to inventory accumulations have lessened because of the recent revision of national income statistics. We expect the economy to remain above its high employment level through 1990. Thus, similar to the Greenbook, we expect some further modest increases in wage inflation. And in the absence of any policy changes, we would expect the momentum of the current inflation rate to persist into next year. Thank you.",278
-fomc-corpus,1989,President Forrestal.,4
-fomc-corpus,1989,"Thank you, Mr. Chairman. The signs of deceleration in the Sixth District that I've been reporting recently are now very clearly visible in the economy. Growth seems to be a bit weaker in the District than in the nation as a whole, and this comes after several years of much stronger than national growth and even stronger than sustainable growth. However, many business people, including directors that I've spoken to in recent weeks, report that this deceleration is in line with their expectations; and most report that they don't anticipate further softening. Interestingly, a number of these people--those on the manufacturing and commercial side--also report that they basically are not changing their business plans, particularly their capital investment plans. We may have a little exception in the banking community where their view is tempered by the fact that their loan demand has been very soft over the summer, as contrasted with the rest of the country. The weakness that we are seeing in the District pretty much mirrors what is going on in the rest of the country, and that is that the weakness is in retail sales, automobile sales, and home and office construction. Retailers are reporting poor demand for durables such as appliances and electronics; and the demand for furniture, as you might expect, has moderated significantly because of the slowdown in housing activities. Automobile inventories remain far higher than desired across the District. Auto sales in the Southeast have been far stronger than in the nation for several years. So the slow pace this year--in fact the almost depressed state of that industry--seems to have taken the dealers by surprise. On the production side in autos, GM and Ford have announced that they will idle or reduce production at additional assembly lines in several weeks ahead. The weakness in housing construction and autos has spilled over into the transportation industry where freight volume is down significantly, especially for trucking, and further declines are anticipated. But even in this weaker climate we do have some sources of strength, and that I suppose gives rise to this optimism on the part of people that the deceleration won't go any further. Industrial construction remains quite robust and plant expansions are occurring in the chemical and plastics industry where world demand remains quite strong. Firms that manufacture the equipment used to automate production also report strong orders. However, the outlook for farm income is not very good at all in the District. Heavy rains have affected most crops, with the exception of citrus. And aside from cotton, prices for many crops grown in the region have softened so that farmers in the Southeast are finding themselves marketing reduced output at lower prices. In the energy sector, activity in the oil industry remains at a low level although natural gas exploration is continuing very robust, particularly in the Mobile, Alabama area. Once again, we've paid a lot of attention with our contacts to the wage and price and labor situation. And with very few exceptions they are reporting very moderate wage increases. The demand for labor is not particularly [strong] except at entry levels in some businesses like the fast food market. And prices seem to be moderating at every level. So, it's a mixed situation in the District, as I indicated; there is softening but apparently, according to the contacts, we are at the bottom. Our outlook for the national economy is very close to the one shown in the Greenbook for the rest of the year and also into 1990. However, we show more improvement--although it's slight--in the trade deficit, in part because the dollar in recent months has not been as strong against the currencies of the NICs and Canada as it has been against the European and Japanese currencies. We also have raised our estimates of the unemployment rate a bit higher, although they are a little lower than in the Greenbook. Our forecast for inflation is somewhat higher than the Greenbook's as well. Thank you.",763
-fomc-corpus,1989,President Stern.,3
-fomc-corpus,1989,"Well, Mr. Chairman, there's really little new to report on the District economy at this point. It seems to be performing much like the national economy, as best as I can judge; that is, it's performing reasonably well but it is not uniformly strong at this point. We have had some reports that things in the labor market have changed a bit in the sense that it's a little easier to find and retain workers. On the other hand, there are some signs of growing labor militancy, although in general wages or even broader compensation matters are not the issues; it's really other things having to do with union shops and so forth. I have had a couple of business people mention to me--I presume tongue in cheek--that they would like to see the unemployment rate go up. As far as the national economy is concerned, I think the changes to the Greenbook forecast relative to the view of the last meeting are in the right direction, but they are probably too modest. My own view is that we're going to get somewhat more real growth and somewhat lower inflation than the Greenbook suggested this time. I must admit I've been struck by what I've been hearing about the continued lack of build-up in wage and compensation pressures and by what I've been hearing about materials prices. Clearly, a lot of business people have reported that materials prices have leveled off or have been declining and aren't the problem they were earlier. So, allowing for the possibility, of course, that further data revisions may change what is rather a nice picture, it seems to me that things are going almost unbelievably well.",317
-fomc-corpus,1989,President Keehn.,4
-fomc-corpus,1989,"Mr. Chairman, it seems to me in a national context that the economy, as Gary has just said, is moving along just about on the track that we might have expected. I think the moderating growth trends are there; there are many industries that are certainly operating at lower levels than was the case earlier. Some of the interim data may be coming in a little stronger than we might have expected, or certainly than we expected the last time we met. That may be particularly true on the personal consumption side. But I think, basically, the situation is largely unchanged. In a District context the news is a bit mixed but on balance showing signs of moderation. The steel business, for example, has been weaker but there were some seasonal issues there. Last year the steel industry and most of the major customers operated throughout the summer without taking the normal seasonal shutdowns. This year, though, they have been operating with somewhat normal shutdowns and I think this is having an effect on the numbers. Looking ahead a bit, the auto industry, as Bob [Forrestal] has suggested, [is planning] a very significant production cutback in the fourth quarter. That certainly is going to have a big impact on their numbers as well as those of their suppliers. The heavy truck business is much softer now and some of their main manufacturing suppliers were also scheduling layoffs. The Chicago purchasing managers' report for July reflected a pattern very similar to that in the national report. Alternatively though, I find that the construction business has been surprisingly strong, particularly for commercial and public works. There is a lot of activity going on there. Our numbers in that category are stronger than the national numbers, and I think to a lesser extent the same is true for residential construction. In the agricultural sector, the news is certainly much better now than it was earlier in the summer. We've had reasonably good rainfalls pretty much throughout the District. Production is going to be good. Farm land values are continuing to go up a little more modestly this year than they were going up last year. And in the improved environment, the agricultural picture is much better. Products are moving off the dealers' lots at a pretty good rate. I think the price picture is also good. Prices of some basic materials, which over the last couple of years had shown big increases, are now down. There are some chemical products--zinc and lead--that I think are examples of that; and others are showing smaller increases. The competitive factors remain pretty intense, so finished prices are remaining in pretty good check. So at this point, I think the economy is developing very much in line with our expectations, at least. But I will say our forecast has been a little [unintelligible] than the Board staff's forecast has been. Some of the data are coming in on the positive side but I think the underlying risks are about the same as they have been. On monetary policy some things are working out just about as we'd like to have them.",605
-fomc-corpus,1989,Thank you. President Syron.,7
-fomc-corpus,1989,"Thank you, Mr. Chairman. Well, as far as the national economy goes, I think in many ways it couldn't be much better. But there has been talk about New England and the phrase comes to mind that ""this too shall pass."" I hope it doesn't.",54
-fomc-corpus,1989,It hasn't yet?,4
-fomc-corpus,1989,It has in New England.,6
-fomc-corpus,1989,Oh.,2
-fomc-corpus,1989,"In the First District, I think it's fair to say that overall economic conditions are quite soft and likely to get softer. The unemployment rate is up nearly a percentage point, or a little less, over about 4 months. There have been significant declines in employment, particularly in the high-tech and computer industries and in construction, which is at this point where one might expect.",75
-fomc-corpus,1989,What's the unemployment rate in the District now?,9
-fomc-corpus,1989,"It's about 4-1/2 percent--still significantly below the national average, but that is up 0.8.",26
-fomc-corpus,1989,I understand.,3
-fomc-corpus,1989,"There is only one state in the District which [unintelligible] population, which is Massachusetts; its low point was around 3 percent and it's now 4-1/2 percent. And that's the only significant jump--a monthly jump of around 0.4 of a percentage point. The thrift industry, largely the savings banks, has very serious asset quality problems which are now spreading to commercial banks. Unfortunately, more than one of our larger super regionals has substantially large [non]performing assets and is getting quite bad marks in terms of their asset quality--Bob Boykin is smiling here--which is going to be a problem for us in the future. There is some evidence, particularly in some of the northern states that the problems that people have had in the real estate market are making lenders more cautious now than in other markets, which is starting to have some cumulative effect. This accumulation of bad news, [along with] a rather substantial number of layoffs and a very bad fiscal situation in Massachusetts, has impacted somewhat. I don't know how much value one wants to put on these data, but a survey I saw breaking down consumer confidence by region showed consumer confidence in New England off 22 percent. And that's certainly had an impact on retail sales, which is corroborated by our state sales tax revenues. As one might expect, this has had a favorable effect on wage demands, particularly at the middle and upper levels. But at the entry levels we still have the McDonald's thing--a great deal of money. In talking to manufacturers in the District, I find a really striking divergence in their views and their experience within and outside of New England. There are problems in the computer industry, which you referred to earlier, on a nationwide basis. Some of our firms are dramatically [unintelligible] industries--which is on the front page of The Wall Street Journal--and have experienced the problems much more so. These really are firm-specific, product-cycle, kinds of problems. Even our successful companies, like are suffering with the nation. But other manufacturers report that they are doing reasonably well nationally compared to their really cautious expectations; and they really have expected a fairly soft year. None of the ones that we have talked to expect a recession. They expect a continuation of slow growth, as referred to earlier. Suppliers of commercial aircraft are doing reasonably well and capital goods producers are arguing that their orders are holding up quite well. We look at the volume of exports out of Logan Airport because most of what we produce for export is shipped by air rather than by water, and that has shown a fairly striking decline in the level of exports. But some of that problem is mixed with this product-cycle thing. I think we realize in New England at the intellectual level--but it's a little more difficult at a visceral level--that this is coming off a high but unsustainable level. I may be stretching it a point, but I think there may be a little lesson from the region; the mechanisms are different from the national economy as far as what has happened in New England where we were substantially overheated for some period of time. Unfortunately, we haven't had the experience in New England that we are having nationally, where we seem to be going into a soft landing. It looks to me, as far as the national economy goes, that it's right about where we want it to be. Looking at the data that have come in, we don't see the kinds of imbalances that would lead to a recession. As other people mentioned earlier, the Greenbook revised up growth in GNP in every quarter, I think, compared with the last Greenbook. And employment growth, particularly, is revised up. Using the model that we have, employment is close to the upper end of what we think is consistent with maintaining the current inflation rates and would have no [unintelligible] making substantial progress toward improvement. The Greenbook does have a slight upward movement of the unemployment rate over the next year, but very little really. This could be revised away; things could easily change. We know that the inflation outlook is quite good. Like Gary, I think the information we have would lead us to believe that maybe it will be a little better. But when you exclude food and energy, it doesn't seem to me that we would make an enormous amount of progress. I think we've been quite fortunate on the wage front, given the tight labor markets that we have. There is some concern on the national level about how long this luck is going to hold. It seems to me that policy has worked very successfully so far; we rather like what has been done so far and would be concerned about changing very much from that--I'm getting into the next part. Given the relative tightness in the labor market nationally, one would have to be concerned over the longer haul that surprises might well be more on the up side than on the down side. Thank you, Mr. Chairman.",1000
-fomc-corpus,1989,"So, you think the surprises are more likely to be on the up side than the down side. President Guffey.",25
-fomc-corpus,1989,"Thank you, Mr. Chairman. At the District level, things have not changed greatly. We are still in a growth mode; to be sure it is at somewhat less than the national level, but considering where we started that is still a pretty optimistic report. Farm conditions in the District continue to improve, largely as a result of some crop prices, which had strengthened following the recently released agricultural report that the rebound in crop production this year would not be as large as had been expected. In the energy area, the District's oil drilling activity increased this summer but still remained below year-ago levels due to the continued uncertainty as to price for both natural gas and drilling. Manufacturing in the District is going full out, largely as a result of the aircraft manufacturing--both commercial as well as private aircraft. Manufacturing activity is at a very high level. Auto assemblage is back to being fairly fully employed, in the sense that there had been a shutdown of the GM plant as a result of retooling and some supply constraints but they are back running and are running at full capacity. Construction activity in the District weakened slightly in June and into July; but it is still stronger than it was in the first half of 1989 and is stronger than it was a year ago. On the national level, our forecast is not greatly different than the Greenbook forecast; we feel that the upward revisions are appropriate but may not be enough. Similar to what Gary Stern mentioned earlier, we think that the risk of recession is not great. Indeed, instead of a soft landing, we may be executing a touch and go; we think the last half of this year will be stronger than the Greenbook forecast. As a result, the outlook for inflation as revealed in the Greenbook--certainly through 1990--shows no improvement. And yes indeed, we do read some of [the data to mean] that the rate in the last half of the year could worsen. I understand the comments about constraints on wage increases. I think we can be fooled. We can watch it for a while and all at once it can be out of balance. I sense a greater militancy among the unions, although they are a smaller part of the work force. But they seem to be more willing to go on strike and stay out without compensation. I think the outlook for the latter half of 1989 is stronger than the Greenbook forecast and the outlook for an improvement in prices isn't any better, if as great.",501
-fomc-corpus,1989,President Boykin.,4
-fomc-corpus,1989,"Mr. Chairman, our District economy continues to underperform the nation. We are now estimating that we're doing about two-thirds as well; we had been doing about half as well. This improvement, though, is primarily because of the slowdown in the growth at the national level; on a [regional] level we're doing about the same. Geographically, the mix of growth seems to be a little different. Texas now appears to be growing more slowly than either Louisiana or New Mexico. Within Texas, Houston of course continues to be the bright spot. Having been down there recently, listening to the anecdotal information coming out of Houston, the mood is totally different. One large developer in home building said it was quite refreshing to worry about drainage ditches as opposed to other types of drainage. In the District, manufacturing activity has remained our strongest sector; employment has been growing in that area while it has been declining nationally. Textiles, apparel, plastics, rubber, and wood products have been doing particularly well. Most durable goods products have been sluggish; electronic components have been particularly soft and transportation equipment is a bit of a concern from our standpoint. Our GM plant in Arlington, Texas is going to be down for a while. We wonder about the GM truck assembly plant over in Shreveport. Bell Helicopter remains somewhat in doubt. And of course with the B-2 bomber, General Dynamics as well as LTV have some concerns. Construction remains the softest sector and is showing signs of bottoming out. Agriculture has been hurt by moisture conditions; we either had too much or too little moisture. I'd say all-in-all, our sluggish growth continues from a very low base. And outside of Houston and a few border towns on the Rio Grande Valley there is little or no sense of optimism. Of course, on the financial scene, we have had all of our major bank holding companies with their problems addressed in various fashions. Something good always comes out of something bad; we've had an opportunity to widen our acquaintanceships considerably. We've spent a lot of time meeting folks out of the Cleveland District and out of New York and out of Richmond and out of San Francisco.",433
-fomc-corpus,1989,"Thanks, Bob.",4
-fomc-corpus,1989,Are you talking about cops?,6
-fomc-corpus,1989,"On the national economy, basically we wouldn't have a great deal of difference on the forecast. If we would differ it is that for some reason we have a hard time being quite as optimistic on the national picture. Our guess would be that if we're going to err, it's probably that we are not going to get quite as strong a performance as projected. Of course, the inflation side is still worrisome; indeed [we don't see a] significant improvement for the next year and a half on the inflation front.",103
-fomc-corpus,1989,President Boehne.,5
-fomc-corpus,1989,"I would characterize the Middle Atlantic states as being flat to down a touch. Retail sales are running about even with a year ago; manufacturing is down some. The most serious problems developing are in real estate. And there, I think New Jersey has the biggest problems; they are showing up in the loan portfolios of banks. I think that we have just begun that cycle--[which will] run for a period in the Middle Atlantic region--where we're going to see increasing real estate loan difficulties. On the positive side, in the Delaware banks, which are very large in consumer credit through credit cards, I think the portfolios are better than they were a year ago. The banks there have been quite responsive to regulators' cautions and they do look better. Despite the slower growth rate in the region and the nation, labor markets remain very tight--particularly at the lower end. Our Bank, for example, has made much greater use of temporary help this summer and we are almost grateful that we've been able to get them. That, I think, has as much to do with demand as a shrinking labor force, particularly in the 18-24 year old area. And I think that's going to continue well out into the '90s. As far as the national economy, I think we are doing about as well as we could hope to do. We are achieving the subpar growth with a reasonable risk of recession. It seems to me that that risk, if anything, is a touch less than it was the last time we met. The imbalances that normally lead to recession are not there. On the inflation side, I think that what we have done is to contain the growth of inflation. If you look at the basic rate, I don't think we have rolled it back. Maybe that's all we can hope to achieve with this subpar growth strategy. Whether we can actually reduce the rate remains to be seen. I think our challenge today is to gather up enough strength that we'll leave well enough alone.",402
-fomc-corpus,1989,Governor Angell.,4
-fomc-corpus,1989,"I think it's appropriate that we be somewhat pleased with the outcome of policy over the past few years. I'm sure it is no surprise to many of you that I had some strong disagreements in the first half of 1987 concerning monetary policy; but since that time it seems to me we have really put it together about as well as we might have expected, or better than we might have expected. On that matter [we've met] our highest expectations. Now, I've had a running friendly disagreement with some of our staff over some elements in the composition [of the forecast], but I don't disagree with the major impact of the real output numbers as forecast. I would say, Sam, that I probably should apologize to you for trying to bring you into the argument so to speak. But it seems to me that we should think more in terms of the global economy. And monetary policy, it seems to me, works primarily in the global economy in that perspective. I just do not believe that being the best Phillips curver does you much good in analyzing the global economy, with more flexibility in wages and prices than we would have otherwise. In that context, it seems to me that when Mike Prell said that he expects to bring in the inflation forecast lower for 1991 because he believes that's what we want, I think you're exactly right, Mike. That is what we want. But the way to get lower inflation is not to have the dollar depreciate. And I must admit that even though Ted has been wrong for two years in regard to the exchange rate forecast, I've also been wrong on the foreign exchange rate forecast for two years running. I've been wrong just as Ted has been wrong in forecasting a declining one.",345
-fomc-corpus,1989,How do you know that Ted has been wrong? I can't get it out of him what his forecast is!,22
-fomc-corpus,1989,"It seems to me that if we truly want to have a stable price level the way to get there is not to get into a period of dollar depreciation. I don't understand how we can have a period of interest rate stability and have a dollar depreciation in the forecast. That means, then, that I do expect domestic demand to be somewhat weaker on the consumer side. I believe we have turned the corner on the household saving rate; I believe there is a difference there. But it seems to me that we have to be aware that even though things are working out very well that there is a vulnerability. I think the vulnerable areas in our economy that will tend to show up will be in the problem area of housing. That is, if housing stays at its present rate then it seems to me that the soft landing scenario is fairly accurate. But I think there is some possibility that we may be entering a period in which housing prices nationally are in a much softer position than we realized; and if we have a period of declining housing values, that will show through on consumer spending more than the stock market showed though. So, even though things seem just about right now, we ought to be aware of that vulnerability. I'm very pleased with the staff's understanding of our wanting [lower] inflation. My goodness, 3 percent is not good. But I don't understand why we continue to believe that we can get there with a depreciating dollar scenario.",289
-fomc-corpus,1989,Vice Chairman.,3
-fomc-corpus,1989,"Well, I guess I start out where a lot of other people do but I'm not sure I end up where others do. Certainly, I would agree that if one could take a snapshot of the first half of this year, especially after the revisions are all in, one would be very tempted to declare a victory and go home. One might even be tempted to do that looking at the staff forecast. Obviously, most forecasts that are being talked about are within striking distance of that one. But that forecast is for real GNP growth of 2 percent or so stretching out as far as the eye can see and an underlying inflation forecast of 5 percent or so stretching out as far as the eye can see. Even when Mike gets around to [forecasting] 1991, I think we'll probably still have something that looks like that. When I think about that kind of an outlook I have to say that it's probably as good as we can do. So it doesn't trouble me. But on the other hand, I say to myself: Well, how reasonable is it to think that things can just roll on in that fashion in perpetuity? I guess that's where I get into trouble. I just don't think we can either be that good or that lucky. Indeed, even right now I would say that the risks in the forecast are reasonably well balanced to the symmetric, but I don't draw as much comfort from that as I think some do. There is one risk that could be quite transitory but quite troubling and that is that we might get a spurt in consumer spending in the second half of the year over and above the little spurt that Mike has. I don't think that's at all beyond the realm of possibility. But if that did happen, I think it could really throw some other things out of kilter. On the other side, I can at this point see signs of potential weakness in the economy that are more troubling to me. We've talked about exports a lot. Another area is construction. In part, the closer we are to the reality of the thrift industry liquidations and the tremendous overhang that will produce in real estate markets--not just in the Southeast or Southwest, but nationally--that seems to me more of a concern than it has been in the past. I hear comments around the table and I see in New York City commercial construction going ahead pell mell in a context in which vacancy rates, at least in Manhattan, are now higher than they have been in 25 years. I suspect, Si, that Chicago must be about in the same position by this point, though maybe not quite that bad. In the Northeast, housing prices still are rising like gangbusters. But the stock of unsold new and used homes is rising very rapidly too. And those two things are just obviously incompatible with one another. The irony of it is that in this construction area--whether it's commercial, the thrift overhang, or even residential in the Northeast--the problem ultimately is not that interest rates have been too high; if anything, the problem is that they have been too low. A lot of this construction really is excessive overbuilding, speculation--all the seeds of real problems down the road. Martha, I think, mentioned this corporate cash flow problem. If you look at the profile of corporate cash flow out to late 1990 into early 1991 there is a profound change there in terms of the relative capacity of the corporate sector to finance itself internally versus externally. My hunch is that even the numbers we have don't really yet take account of all the implications of these highly leveraged transactions, which are starting to look worse too. There again, the problem is excesses rather than interest rates being in any sense too high. So, there are a lot of things that bother me in terms of the real economy, even though on balance I would regard the risks as reasonably well balanced in the context of that steady-state 2 percent--except that I don't think it's going to happen. Now, on inflation--and this is where I guess I differ with a lot of the views around the table--I don't see the light at the end of the tunnel. I would agree that the data through the first half of the year are compatible with the notion that the inflation rate probably has stopped rising. But I'm not even sure of that. When I look at the inflation outlook I tend to focus very heavily on the [unintelligible] compensation, the productivity mixes, and what can go wrong there. I think the risks are quite asymmetric there; the risk is that, if anything, the compensation numbers may tend to be on the high side and the productivity numbers on the low side, in a context in which the staff forecast continues to have a negative spread between unit labor costs and the GNP deflator. On wages, just as one example: If you look at the data on collective bargaining agreements where there have been either freezes or declines in wages in the first year or concessions on COLAs and other fringe benefits, there is a huge, huge change in terms of what we've seen in the first half of this year versus what we were seeing in the mid-1980s. In the mid-1980s up through 1987 the percentage of workers that either had frozen wages, declining wages, or givebacks of one kind or another were running [unintelligible]. Based on the first half of this year they are running somewhere in the range of 6 to 10 percent. Now, that too may turn out to be an aberration; but it does say to me that it is premature to declare victory in terms of the wage and compensation situation. So, I'm really in an uncomfortable position, despite the fact that I think the first half looks terrific and the forecast looks great. I think the probabilities are rising that we're not going to get that nice, neat outcome. And it's easier for me today to see some things that might develop--whether it's next year or even 1991--that are quite troubling. But right at this precise moment it looks great.",1227
-fomc-corpus,1989,President Melzer.,4
-fomc-corpus,1989,"Let me start off with the District. The picture there is still a tad weak. We have had nonagricultural employment declines in the most recent quarter of about 1-1/2 percent. That also spreads to manufacturing, which relatively isn't as weak; but still, there was a decline of almost 1 percent. There was particular weakness in the construction employment area and, on the manufacturing side, in textiles and apparel. I just want to pass on a couple of anecdotal comments. One thing that has surprised me with the general weakness in the District and nationally is that when I talk to business people I have not yet, until recently, run into anybody who is terribly alarmed. Yes, things are slower; but generally they are not terribly concerned about recession and that sort of thing. a major manufacturer of consumer durables and for the first time about a week and a half ago he laid out a somewhat different scenario. Of course, demand there has been quite weak for some time. He said the initial response of people was to try to sell their way out of it, in effect, and maybe cut back hours a little. Basically, he doesn't really see that working and he thinks that we're now going to get into a phase of perhaps more layoffs, curtailment of capital expenditures, and so forth, as the difficulties of selling one's way out of it begin to sink in. The other observation he made, which really runs to some extent to this real estate discussion Jerry was describing, is that they have two major [sales] channels: homebuilders, which have really been soft for a while, and then retailers. They are noting particular weakness in both; and in the retailing area, considerably more credit problems are surfacing. And that, of course, will spill back into the shopping centers, which I think is one commercial area that has been notably overbuilt. Another piece of anecdotal information on the homebuilding side: the reports we get would tend to indicate that some of the pickup that's evident in the broader numbers is being seen in the trenches in our area as well. The second quarter was better than the first and July is showing continuing improvement. On the national picture, I would align myself with those who generally are pleased with what's going on in the short run. In that connection, I would not be inclined to overreact to one month's data of somewhat stronger real numbers. I still think, as Jerry pointed out, that we have one heck of a challenge in front of us in terms of bringing inflation down; I don't know exactly how that's going to happen but I do think it's going to take some time. To pick up on another thing that you were saying, Jerry--your observation that you are skeptical as to whether this forecast through 1990 will actually work out--it just seems to me that this slow growth will, in time, begin to wring out some of the excesses that you described. In other words, the pressure is there but it's building up much more slowly than people expect. What I hear from people I talk to is an expectation that we've reached an inflection point, that policy is going to ease, and that somehow the floor is going to be pulled out from under rates and people are going to be looking at rates 100 basis points or more lower than where they are now. I just don't think that's going to happen; and I don't think people have adjusted to that. These pressures are going to build up over time. And I think the challenge we're going to face is one of not overreacting to the process of wringing out some of these excesses, which are going to be reflected in bad credits and the like because of the longer-run inflationary challenge that we still face.",757
-fomc-corpus,1989,First Vice President Monhollon.,8
-fomc-corpus,1989,"The upward revisions in real GNP growth in the Greenbook seem very reasonable to us in view of the recent strength in some of the economic indicators. Also, as has been mentioned, it seems like an almost ideal outcome. The July Greenbook predicted a soft landing and this one predicts even a softer landing; hopefully, it won't turn into a touch and go. As we assess the risks of the situation we think the risk is probably on the down side despite the apparent strength in some sectors of the economy. There are a couple of reasons for this: first, our directors and some of our other business contacts in the District have become more bearish in the last couple of months than they've been for a long time; second, and probably more importantly, monetary policy has been tightened significantly on net over the last 2-1/2 years, even taking into account the recent easing. The funds rate is still about 3 percentage points higher than it was in late 1986 and there has been a sharp reduction in the trend rate of growth in the aggregates. We probably haven't yet seen the full impact of this slower growth in the aggregates on real economic activity. So, while we think that the Greenbook forecast for real GNP is quite reasonable, we think the risk of error is skewed slightly to the down side assuming, as the Greenbook does, no further changes in monetary policy. As far as the inflation picture is concerned, we were of course disappointed that the projections didn't show any significant decline in the net rate of inflation over the forecast period. We think that also is a reasonable forecast. But we think that there is a possibility of a lagged effect of the overall tightening in monetary policy since early 1987, and that it may show up more strongly than is generally expected in the period ahead. Consequently, we think that the quarterly rate of inflation may be slightly lower than the Greenbook has forecast. Thank you.",389
-fomc-corpus,1989,Governor Kelley.,3
-fomc-corpus,1989,"Thank you, Mr. Chairman. I think we have had our usual excellent comments around the table this morning. I have very little to add to those. But it might be useful to take just a minute or two to look at the larger scene, if I may. My sense is that there are a number of very important and very major issues that are at or reaching the stage where there could be some major breakthroughs or major breakdowns, whichever that may turn out to be. The condition of the United States economy is a very, very important factor in every one of them and something that this Committee might well consider when it looks at policy. I will just run through a few of them in no special order. On the domestic side, we now have a bill in the thrift area and we're moving into the resolution stage. We all know it's going to cost an awful lot of money at the best. But it seems to me that the cost could just go completely out of sight if we get into a recession scenario, particularly given some of the other real estate conditions that have been alluded to here this morning. I think we all would probably agree that the fiscal budget deficit requires resolution, and it seems to me that somehow or another we are managing to approach a breakthrough there. I hope it's going to happen; there has been some progress, and it's in the balance right now. But one thing is certain, it seems to me, and that is that if we fall into a recession any resolution in the near term on the fiscal budget just goes into a cocked hat completely. I'm not sure that much has been mentioned here before on this war on drugs. But I think it has now gotten to the point where it has become a national economic issue. Indeed, I think it's tearing into the whole social [fabric] of the country. We're groping for a way to deal with that, but it's going to take money. And that's going to be all new money; it has to come from somewhere. Perhaps even more importantly, it needs to have the focus of our population and of our political leadership. If we get into a recession scenario, that will probably pre-empt almost everything else and the war on drugs might well go onto the back burner--and in the process get worse for however long it takes to get it back on the front burner again. And I think that would be devastating. Internationally, we have the great agony of the situation of the LDC debt. We have managed, hopefully, to get a solution in Mexico--and very quickly I should extend my congratulations to all concerned. But on the situation in the Philippines there's a long way to go. If we fall into a recession scenario I wonder if the banks aren't going to turn out to be even more difficult to deal with than they already have been in those further negotiations. On an even broader conceptual basis, it seems to me that it's fairly clear around the world now that everyone agrees that communism has failed and capitalism is the way to go. We are past the stage where that had to played out but we're entering a new stage that may be even trickier. And that is: How do those communist countries get from where they've been to where they want to go? This country is a model for that and I think that we're going to be called upon to be of some help in various ways. Poland is probably in the lead right now, but there are any number of others trying to get on that track. And I think that it's important that we be able to demonstrate a steadfast strength in our economy as that begins to play out. A bit more specifically, it seems to me that there's an opportunity now at long last to have a really serious disarmament situation develop. We have made some progress on that; conditions seem to be right. But I think that we ought to realize that the USSR is still the same type of country it was before; and if they perceive weakness on the part of the United States, economically or otherwise, or some divergence of our attention, they would be as [unintelligible] as they ever have been. And we might well find ourselves in a situation where excessive defense spending has to keep on rolling. So, for all these reasons I think that we have to be very careful as we assess this economy and try to calibrate it, to the extent that we can do that. We have to be very careful that we don't push our luck too hard because there is a great deal at stake in this era that we're entering into right now. Thank you.",922
-fomc-corpus,1989,President Hoskins.,4
-fomc-corpus,1989,"In terms of the District economy, there is not a lot new to present here. It is still operating at a very high level of economic activity but there are definite signs of some slowdown. Let me give you just a couple of indications of what I mean by slowdown. LTV, for example, now has many fewer flat roll products on allocation and lead times are much shorter. There is a stainless steel [company], Timken, which had all its products on allocation during the spring and just about now has fewer of them and, in fact, is talking about potential layoffs later in the year if demand continues to go in the direction it's going. I would add, however, that they have a contract that expires on September 30. So, I suspect that's a position rather than reality. Westinghouse has very strong demands for the rest of the year for its electric utility industry. There is a small motor company up there that sees decreases in demand. I don't know how you sort this out. Overall, the economy is really quite robust yet, but there are some signs of slowing. The employment rate in Ohio is 5.4 percent; Pennsylvania is, I think, about 4.5 percent. So it's still pretty strong and there are very, very few signs of weakness in any particular sector of the District. In terms of the national economy, we don't have much disagreement with the Greenbook. The only thing that I find a little disturbing is the focus on our short-term outlook for GNP. I continue to be concerned that if we fail to lift our eyes from that focus we will not see our price objectives through it. In fact, we will always move those objectives back in order to assure that we keep the economy going. So, my only concern is that we have no progress on the inflation front in terms of [unintelligible].",376
-fomc-corpus,1989,"The recent revisions of some elements of the lagging data suggest that things certainly have been decelerating as much as would have appeared earlier. I'm comforted by that; it made my vacation a little easier knowing that the situation looked a little better than I had expected. But even taking that into account, all the forward looking data still are pointing toward a further decelerating situation--not that I think it's decelerating at an accelerating rate. As a matter of fact, I think it may even have slowed its pace of decline. But my view is that the forward-looking data still show [a deceleration] except for maybe the growth numbers in M2 recently, which have shown some turnaround. I think that is interesting and positive, yet the reserve aggregates and the base don't really show that kind of turnaround; there's some uptick but not very much at all. So I just wonder how much noise there is in terms of shuffling of accounts in the M2 numbers and the response to the change in opportunity costs from the recent decline in the funds rate. But I am generally encouraged by the situation. We have been seeking moderation in the pace of domestic demand and I think we are seeing that. It's what we want, and I think that over the longer run we're going to see the inflation results. I'm more optimistic that we're going to see that in the intermediate term and not have to wait quite as long as in the Greenbook forecast. But if we're going to see that we're going to have to remain in a fairly restrained monetary policy posture. My major concern, though, is that we still may be in too restrained a posture. The yield curve is still inverted; the commodity prices are starting to shift sides and breaking on the down side; the dollar is continuing to show strength. My basic concern is that as long as the funds rate is the highest rate in town we're going to continue to run into weakness on the expansion side as we continue to absorb money and credit, at least in base terms. Credit aggregates are continuing to decelerate. As I said earlier in my questions, I still don't see any real signs of a pickup in investment on the horizon. I don't see signs of a turnaround; there may be a temporary pause and some slowing of the deceleration. My worry is that that will continue on. I guess the good news is that we have more time to think about that than we did in the past. But we still have to be vigilant on that front.",501
-fomc-corpus,1989,Governor Seger.,4
-fomc-corpus,1989,"I'll warn you that my views were colored by conversations with my brother last week who happens to be in the construction business. I asked him how things were going and he said pretty good. The latest big project he had signed on for was a new bankruptcy court in southern Arizona! Anyway, that aside, I do agree with the comments around the table about the deceleration that is showing; certainly, the Beigebook referred to it and the Presidents here have alluded to it, and a number of individuals I've spoken with suggest the same thing. I have a little difference of opinion about where we're going. I think we are going to see more slowdown, despite the fact that there have been some upward revisions and some surprises in certain of the statistics for the last month. I don't think that establishes a new trend by itself. A couple of things concern me greatly and one is in the housing arena. Again, I realize that starts have shown some uptick the last two months but the real estate markets in more and more parts of the country are weakening. Builder friends tell me that eventually that does show through to new construction. It certainly impacts the attitudes of developers and builders. Also, I'm sorry to be unduly cynical, but I have an awful feeling that when the RTC gets rolling they are not going to make this any better. The markets are already having problems and I think the RTC is going to turn it into a worse disaster and probably create new problems where there weren't problems.",297
-fomc-corpus,1989,"Well, we have a strong oversight over that.",10
-fomc-corpus,1989,"Well, okay. In the auto area, once these new 1990 models come in, if any people can be pulled off the streets into the showrooms to look at the cars, I think they're going to fall flat on the floor when they see the stickers. I understand the adjustments that were made in trying to price the comparable options and accessories. I understand all that technical stuff, but for the average person who walks in all they know is that the bottom line is that they are going to have to write a bigger check to get a car--whether they want air bags or not they get them. And I think that will discourage numerous people. Also, there have been a lot of cars sold in the last 5 or 6 years and there doesn't seem to be any real demand stacked up that has been unfilled. When I read that sales of light trucks are now starting to show some weakness, that gave me some concern because they have been extremely strong. We had some plant closings announced in the area of heavy trucks--Si Keehn alluded to that. One of the major producers of heavy trucks, had a pretty negative report out on what they were experiencing. And I personally believe we're going to see some more of that looking ahead. Even using our own statistics on exports, it looks as if they are not going to be exceptionally strong. I believe we're going to see less strength there because I'm not convinced by Ted that the dollar is going to perform as he thinks. Even though we have the trade deficit reaching its low point in the second quarter of this year and then getting worse, I think it will probably get even worse than what we're showing. Putting this all together, and also adding to it the concerns that Mike Kelley mentioned about the impact of a recession on many of our other problems, I certainly think we ought to be very, very sensitive to what's happening and to balancing these risks between inflation and recession--particularly when the inflation numbers do seem to be looking better. I really believe that there have been some major behavioral changes out there in the real world that are going to help to make the inflation numbers come in even better than we're now talking about. Thank you.",441
-fomc-corpus,1989,"Governor LaWare, do you want to comment?",10
-fomc-corpus,1989,"Yes, I've been sitting here trying to figure out how I could get through this without having to say anything, because of the sense of--",28
-fomc-corpus,1989,Just say you agree with everybody!,7
-fomc-corpus,1989,"Well, that's about right too. There is a sense of frustration that one gets having sat here now for a year in these meetings. We have done so well on so much of this, yet we are still looking at inflation levels which are unacceptable, I think, and that is the principal thing that frustrates me and makes me feel kind of helpless in this process. At the same time, I am convinced that if the only way to really knock inflation down is to have a recession, that's a very unwelcomed alternative option. We talk about a soft landing, but this kind of landing looks more to me like being stuck in the mud. I question whether the very low rate of growth and the relatively high rate of inflation create the kind of environment that encourages the investment in the economy that we need to get out of our trade deficit problems and to generate the kind of growth that we all are anxious to have, with improvement in productivity and so forth. So, I'm at a loss to make that fatal decision as to which are the more important considerations and where the greater risk lies. On balance, I'm more concerned that the risk is greater on the down side than it is on the up side. So, I'm more worried at the moment about an acceleration in the decline of the rate of growth than I am about stimulating further inflationary pressures. But in the context of all that, I am concerned that we can't make any progress on the inflation front, at least during the time horizon that we are looking at here in the Greenbook.",309
-fomc-corpus,1989,I think what you're expressing is the fact that monetary policy can't do everything.,15
-fomc-corpus,1989,"No, we need some help.",7
-fomc-corpus,1989,Why don't we break here and return after coffee.,10
-fomc-corpus,1989,"Like the rest of you, I guess, I'm looking forward to the final word from Don Kohn.",21
-fomc-corpus,1989,I hope you have had enough coffee to keep yourselves awake! [Statement--see Appendix.],18
-fomc-corpus,1989,"Thank you, Don. I suspect that if we weren't at a meeting today we wouldn't think there was any need to do anything, particularly because when one looks at the data what's clearly obvious is that the economy is stuck in the mud or that it has fallen to sleep--I don't know which is the better description. There is a remarkable stability in this system, which has both pluses and minuses, I think. As I see it, at least, on the upward side I think we are running into a saving rate that was going up in the context of rising real income and now is flattening out; and I think we're getting some pickup coming in the consumption area. If there is a follow-through in the housing area--that is, if mortgage rates are low enough to really start to move even marginally any of the housing data--then I think it is clear there is strengthening going on, which is independent of the underlying structure of orders and prices and values. The odds at this stage, as I see them, are probably marginally plus that that will happen rather than not happen. But when you begin to look at the underlying structure of the manufacturing area and the crucial area of capital investment, the evidence is quite mixed. I think we were getting a significant deterioration in the order structure and in the economy when we met last. That has stalled. The pretty much day-by-day evaluation of order books in trying to get a notion of business sentiment with respect to capital appropriations and the like suggests that, after having come down, we have stabilized in recent weeks at a subdued level. But it is showing very little evidence of either moving upward or downward. I don't think it's actually clear at this stage--and it may not be for a number of weeks--whether or not the momentum is going to start up or down. I find it very hard to believe, as I think Jerry has said, that one has a credible forecast of 2 percent real growth, inflation at 5 percent, and everything freezes indefinitely in the future. That is not an equilibrium forecast. Something breaks in that environment; it either accelerates or decelerates. Having gotten the money supply pretty much on track, in an odd way I think policy is probably as good as we can have it at this particular moment. My basic impression is that we are at ""B"" and should be there for a while. I'm torn myself between whether or not we should consider being symmetric or asymmetric toward ease at this point--not that I think it is going to matter as far as what we actually do, because if we get any type of acceleration or deceleration, this Committee will be meeting on the telephone to make some key decisions. How we write the directive, frankly, I don't think matters all that much as far as actuality is concerned. Since we are currently, at least technically, in a symmetric mode I would be marginally in favor of staying in that direction. But I can't honestly say to you that I feel very strongly about that. I do think we have to be careful about this basic softness--and it is soft--in the orders picture; I think it's soft enough that it could start to unwind on the down side. There is no evidence of that; almost anybody I speak to is complaining about the level of orders but nobody is complaining that their businesses are tilting over in a way that is reminiscent of the feedback one gets during a recession. So, I am inclined to stay with ""B"" at this point; and just for technical reasons, I am perhaps supportive of symmetric language but, frankly, I don't think it means all that much. I do think more than any other time in the recent past we are going to have to watch the orders business awfully closely to get a judgment as to which way that is going to evolve. I just don't see any way it can stay where it is. This is just not the type of balance that persists indefinitely in an economy--with inventories in balance and backlogs barely doing anything; inflation at a steady rate but too high; and a stock market which, until the last couple of days, was getting a little speculative. I must say to you that the one thing that really bothers me and has not been discussed in the material here is whether or not we're going to end up with a tranquil economy which the stock market thinks is terrific and then the stock market does us in. Up until a couple of days ago that had been a scenario which I would have put a higher probability on than I would have liked. In any event, I would go for ""B"" with symmetric language; but if there is any concern about whether it should be asymmetric toward ease, I could support asymmetric. I would prefer to keep stable in our position and have ""B"" symmetric. President Guffey.",974
-fomc-corpus,1989,"Mr. Chairman, I agree in that ""B"" would be my preference but I feel a bit more strongly than you do with respect to asymmetric language toward ease. I would oppose asymmetric toward ease. That view simply is based upon some of the comments that I made earlier: that I see the economy a bit stronger than others, perhaps, in the third and fourth quarters. To me, a change in the language now would mean something to the markets and mislead them.",95
-fomc-corpus,1989,That's the argument.,4
-fomc-corpus,1989,"I'm sorry, Roger, I didn't hear the beginning. Where did you come out on the symmetry?",20
-fomc-corpus,1989,I favor symmetrical and would strongly oppose an asymmetrical directive toward easing.,14
-fomc-corpus,1989,President Syron.,4
-fomc-corpus,1989,"I find myself in great sympathy with what the Chairman said. Given the uncertainties that we face, I just don't see a reason to change at this point in time. I also would prefer symmetric language because of concern about the potential market reaction and how the markets would read a change in the language. I don't feel as strongly as President Guffey does about that. Since things aren't going to stay this way forever, and maybe we're going to need something to help us, we should face the issue of where we are going over the longer run, because there's general agreement and a lot of frustration that the inflation rate is at an undesirably high level. Where do we want to go?",138
-fomc-corpus,1989,President Parry.,4
-fomc-corpus,1989,"I would favor ""B"" as well and I also would strongly favor the symmetric language. It seems to me that relative to the previous meeting there are fewer downside risks than we saw at that time. We have had a recent robust growth of the broad aggregates, so I think one can make the case that the risks are symmetrical. I certainly would not prefer asymmetric toward the side of ease.",78
-fomc-corpus,1989,President Keehn.,4
-fomc-corpus,1989,"Mr. Chairman, I agree with your recommendation and your statement. I have a mini preference for asymmetric language because, as we see it, the moderating trends are likely to continue. But I don't feel particularly strongly about it.",46
-fomc-corpus,1989,President Forrestal.,4
-fomc-corpus,1989,"Mr. Chairman, I agree entirely with your prescription. And I, too, would favor symmetrical language. I would like to make two brief comments. There has been a lot of discussion by people around the table this morning about the vulnerabilities in the economy, and I certainly am concerned about those vulnerabilities. But as you pointed out very well, monetary policy certainly can't do everything. I think the way to avoid a recession is to have a period of subdued growth over time. In that way I think we will avoid a recession over the long run. If we were to stimulate the economy at this time, I'm afraid we would not only be sending the wrong signal to the marketplace but we would be having to take action later on against inflation that would be at a much higher level. So, I think we have to be very careful about what kind of message we send to the markets. At this point the credibility of the central bank is even more important than it ordinarily is. So, I strongly recommend the status quo, which is alternative B with symmetric language.",211
-fomc-corpus,1989,"I'm glad you said that. I think we all are in agreement with the general thought that you put forth, but it has never been stated this morning. I think it's important to recognize that the solution to a recession problem is not necessarily easy money. If we were to ease and were to run into an unexpected acceleration in inventory accumulation, at that point I think we would be through. I don't know what we would do at that point, because the moment we try to tighten and prevent special forces from going on, there's just no way to prevent the economy from going sharply lower and really unwinding. It's not self evident at this point that resisting recession presupposes bringing rates down sharply. If any of us believed that, I think we would have heard a lot of ""Let's flood the market"" comments. And I haven't heard any of that around this table. Governor Johnson.",176
-fomc-corpus,1989,"I totally agree with that and my sentiments on policy directly relate to that. The biggest mistake we could make is to get ourselves into a situation where we are over-stimulative with monetary policy and end up aggressively easing. But, I have a slight preference--well, I shouldn't say slight--I have a preference for asymmetric policy toward ease. I agree that alternative B is the right stance for now. I base that mainly on the notion that I still see our policy as relatively tight. The funds rate is still well above other rates. If you look at the movement of other market rates that react to expectations of future funds rates, as Don and Peter and others reported, the market is still anticipating some easing of policy based on the existing data that they have seen, including the recent revisions. Now, those expectations have been postponed, I think, from the immediate future out to one or two months ahead. But those expectations still clearly fall in the intermeeting period. So, my concern is that the market is still poised for some easing rather than a neutral policy. And I think it's basing those expectations on the data [market participants] have seen on the economy and what they think appropriate policy would be. Not that that's always right; obviously, the markets are wrong from time-to-time. But I do think that the markets, including the stock market, are poised for what they expect to be lower future funds rates; and as Don pointed out I think, they are expecting to see that some time during the intermeeting period. We could easily cause the markets to back off. If the data come out suggesting that that's the appropriate policy, that's okay. But I think the stock market and the bond market would be somewhat vulnerable if those expectations are frustrated with no change in the trend in the daily [unintelligible]. So, my concern is that the economy is still gradually winding down and that that requires an asymmetry. There are some slight downside risks and we need to be prepared to be flexible during the intermeeting period, in my opinion, to lean toward an easier policy. By all means I want to stress that I don't think we should be aggressive in that. I think we are not running a neutral policy now, but a relatively tight policy, and that's still going to have lagged effects on the economy. I would like to get us to a neutral position, one where we're not stimulative but we're certainly not restraining the economy at these levels. What we see now looks very good, but I think the trend is still headed down. So, my preference is asymmetry; but if the consensus is for symmetry I certainly wouldn't vote against that.",537
-fomc-corpus,1989,President Boehne.,5
-fomc-corpus,1989,"Alternative B; I prefer symmetry, but could live with asymmetry.",14
-fomc-corpus,1989,Governor Angell.,4
-fomc-corpus,1989,"I would prefer asymmetry toward ease just in recognition that not to ease at all during the intermeeting period would at some point in time mean a rollback to somewhat higher interest rates. I would be somewhat concerned that in that scenario we might very well end up with a housing market that would be adversely affected by those developments. I also think we need to be alert to the fact that M2 growth needs to stay within that cone. That is, we are expecting M2 growth to be within one of those--whether it's A, B, or C--between now and September. I would certainly not want to see that fall out of bed and I have no reason to believe that it will. I also think that the foreign exchange value of the dollar could quite likely come under upward pressure and that exchange rate intervention might not by itself be sufficient to hold that back. I believe it would be undesirable to have another serious leg up on the appreciation of the dollar and go through some of the marks we went through before. That taking place in a period accompanied by falling commodity prices I think would call for ease. Objectively looking at the situation, I think that we're more apt to ease than not; and I don't see any harm in having asymmetric language toward ease, Mr. Chairman, because we're not going to do it unless something would develop that would cause us to want to [ease].",277
-fomc-corpus,1989,Governor LaWare.,4
-fomc-corpus,1989,"I strongly support ""B"" and I would prefer asymmetric language toward ease because I think if we need flexibility during this period it's probably going to be in that direction. So, why not build it into the directive?",43
-fomc-corpus,1989,President Stern.,3
-fomc-corpus,1989,"I too support ""B."" It seems to me at this point that the risks are evenly and rather finely balanced. It wouldn't surprise me if things went awry in one direction or the other, but I'd be hard pressed at this point to express a conviction about which way they might go. Given that, I favor symmetric language. I also favor it for another reason: it seems to me that the modest growth in M2 in recent years, coupled with the performance of the dollar, has served us well. That's the reason why I'm a bit more optimistic about the inflation outlook than some; and I wouldn't want to compromise that at this point. For that reason as well I would favor symmetric language.",140
-fomc-corpus,1989,Governor Kelley.,3
-fomc-corpus,1989,"Mr. Chairman, I favor ""B"" with asymmetric language. I think we're much more likely in the intermeeting period to desire to ease than to tighten and I think the directive should reflect that. Furthermore, even if one assesses the risks as symmetric or close to symmetric, I think the consequences of an error on the down side are far more [severe] than on the up side. So, for both of those reasons I would prefer asymmetric language; but I could support symmetric.",98
-fomc-corpus,1989,President Melzer.,4
-fomc-corpus,1989,"I favor ""B"" with symmetric language. And I interpret ""B"" to mean 9 to 9-1/8 percent on the [funds rate]. Is that correct?",38
-fomc-corpus,1989,Yes. Governor Seger.,6
-fomc-corpus,1989,"I can support ""B"" if it has asymmetric language with the tilt toward some slight ease between meetings, because I do think that the economy is going to move in one direction or the other from where it is now and is slightly [more likely] to go toward the weaker side rather than the stronger. Also, I'm convinced that we don't want the dollar to strengthen a lot more, even though it might produce good inflation consequences. It would be very bad for our export industries and our ability to cut our trade deficit.",104
-fomc-corpus,1989,President Hoskins.,4
-fomc-corpus,1989,"Let me say first that I think monetary policy that always attempts to pre-empt recessions is going to end up biasing toward inflation and lower output over time. I'm afraid that our view around the table often expresses this focus on short-term GNP, which leads us in that direction. Our ability to forecast real GNP one quarter out has an error of plus or minus 2 percentage points, which means that we are already walking on the edge of a recession as it is. Our ability to forecast the inflation rate 18 months out has error terms that are not much different and I think that's where we ought to put our focus. So, I'm comfortable with ""B,"" and I think it should be symmetric. The comfort comes from the slowdown in the rates of growth of the aggregates over the last couple of years, but I have some concerns about their growth rates in the second half. Last February the consensus that I, at least, drew from around this table was that we were supposed to come in at the bottom half of the range even though we didn't explicitly write that down. So, I'll be nervous going forward if we see the aggregates coming in much above fourth-quarter-over-fourth-quarter rates of 3 to 4 percent. One other question for Don Kohn, a side question: If seasonal borrowing is a problem and causes us to change, why don't we think about either eliminating seasonal or at least pricing it instead of subsidizing it?",292
-fomc-corpus,1989,That would be a policy issue for the Board to handle along with the Reserve Banks. We could bring that up. I know there's at least one Governor who has suggested that before.,36
-fomc-corpus,1989,"Oh yes, so do I!",7
-fomc-corpus,1989,Don says they will have a report pretty soon. President Boykin.,14
-fomc-corpus,1989,"""B"" and I would stay symmetric. Although my opinion is that if there's any change it would be toward ease, I'm not so convinced of that that I would want to put it in the directive at this point.",43
-fomc-corpus,1989,First Vice President Monhollon.,8
-fomc-corpus,1989,"I prefer ""B"" with symmetric language.",9
-fomc-corpus,1989,Vice Chairman.,3
-fomc-corpus,1989,"I prefer ""B"" symmetric, as well, although I accept the fact that we will do what we have to do in any event. I'm not terribly worried about that. But I guess I'm just not as confident as the majority of the Committee seems to be about the very near-term outlook. I think there is a possibility--not a likelihood but a possibility--that over the next couple of months the economy could be stronger rather than weaker. And what I really worry about is that therein lies the problem for 1990. That's really why I would prefer to be symmetric.",116
-fomc-corpus,1989,It doesn't matter whether we're symmetric or asymmetric.,9
-fomc-corpus,1989,"Well, I accept that. But of all the ugly things that we could think about that one gets pretty ugly.",23
-fomc-corpus,1989,"That is the worst scenario that we could face, because I think at that point monetary policy becomes impotent. And then we would need other factors working and I'm not sure we would get them.",39
-fomc-corpus,1989,"As I say, I don't think it's the likely case.",12
-fomc-corpus,1989,"No, but it's enough of a worry.",9
-fomc-corpus,1989,It worries me.,4
-fomc-corpus,1989,"But it seems to me, Mr. Chairman, that if we decided to tighten before the policy announcement came out that people would see that we had changed our mind.",33
-fomc-corpus,1989,Oh sure.,3
-fomc-corpus,1989,"Well, I can accept that.",7
-fomc-corpus,1989,I think that's exactly--,5
-fomc-corpus,1989,"Frankly, I would never vote ""no"" over the question of symmetry. That means all we do can be done either way.",27
-fomc-corpus,1989,"Yes. I collected the votes and come out exactly as I expected, marginally asymmetric. So, let's read it as ""B,"" asymmetric.",29
-fomc-corpus,1989,"It would read: In the implementation of policy for the immediate future the Committee seeks to maintain the existing degree of pressure on reserve positions. Taking account of indications of inflationary pressures, the strength of the business expansion, the behavior of the monetary aggregates, and developments in foreign exchange and domestic financial markets, somewhat greater reserve restraint might or somewhat lesser reserve restraint would be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with growth of M2 and M3 over the period from June to September at annual rates of about 9 percent and 6-3/4 percent, respectively. The Chairman may call for Committee consultation if it appears to the Manager for Domestic Operations that reserve conditions during the period before the next meeting are likely to be associated with a federal funds rate persistently outside a range of 7 to 11 percent.",171
-fomc-corpus,1989,"Question: Which is bigger, ""somewhat"" or ""slightly""?",15
-fomc-corpus,1989,"""Somewhat"" is bigger.",7
-fomc-corpus,1989,But that's an historical question.,6
-fomc-corpus,1989,"""Somewhat"" is bigger. Okay then, do we really want to use ""somewhat"" or do we want to use ""slightly""?",30
-fomc-corpus,1989,"""Slightly greater reserve restraint""?",7
-fomc-corpus,1989,"And ""slightly lesser reserve restraint"" on the other side.",13
-fomc-corpus,1989,The way we're going--,5
-fomc-corpus,1989,"""Slightly"" in both cases?",8
-fomc-corpus,1989,"No, asymmetric.",4
-fomc-corpus,1989,"[That is conveyed by] ""might"" being associated with greater reserve restraint and ""would"" being associated with lesser.",24
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,That's a double asymmetric.,5
-fomc-corpus,1989,"Double ""A.""",4
-fomc-corpus,1989,Does anyone have any objections to that?,8
-fomc-corpus,1989,Probably.,2
-fomc-corpus,1989,"There is one issue, however, that we ought to clarify and that's the positioning. We had a discussion the last time on the positioning of the various different variables and it was inconclusive, with the exception of the phraseology with respect to the use of the words ""progress toward price stability"" as a substitute for ""indications of inflationary pressures."" That was the only one that I thought should be raised at this meeting to get a judgment as to how the Committee felt about the choice of words. Why don't we just take a very simple quick vote? Those Committee members who would prefer staying where we are with indications of inflationary pressures please raise your hand. One, two, three, four, five.",143
-fomc-corpus,1989,Will there be a vote on the other language with respect to progress?,14
-fomc-corpus,1989,"Yes, I'd like to hear the language one more time.",12
-fomc-corpus,1989,"Okay, I'm sorry. Norm, why don't you--we're using ""slightly"" presently.",20
-fomc-corpus,1989,"No, the progress toward--",6
-fomc-corpus,1989,Taking account of indications of--,6
-fomc-corpus,1989,That's what we're talking about; that's what we're voting for.,12
-fomc-corpus,1989,"Yes, I know. I wanted to hear it just one more time.",15
-fomc-corpus,1989,"The current language is ""Taking account of indications of inflationary pressures"" and for that the substitute would be ""Taking account of progress toward price stability.""",30
-fomc-corpus,1989,Okay?,2
-fomc-corpus,1989,Okay.,2
-fomc-corpus,1989,"All the members in favor of ""progress toward price stability""? I think I counted seven, which has to be a majority. Well, can we call the roll?",33
-fomc-corpus,1989,"Mr. Chairman, can I make one further suggestion? We had 6-3/4 percent for M3, which sounds excessively precise to me. Can we change that to 7 percent so it's a nice round number?",46
-fomc-corpus,1989,Without objection.,3
-fomc-corpus,1989,"I would appreciate having Norm run through the rest of that sentence, if he would.",17
-fomc-corpus,1989,"Sure, go ahead.",5
-fomc-corpus,1989,"It would read: ""Taking account of progress toward price stability, the strength of the business expansion, the behavior of the monetary aggregates, and developments in foreign exchange and domestic financial markets, slightly greater reserve restraint might or slightly lesser reserve restraint would be acceptable in the intermeeting period.""",56
-fomc-corpus,1989,You can call the roll.,6
-fomc-corpus,1989,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Guffey No Governor Johnson Yes President Keehn Yes Governor Kelley Yes Governor LaWare Yes President Melzer Yes Governor Seger Yes President Syron Yes,45
-fomc-corpus,1989,The next meeting is October 3rd. We will break for lunch.,15
-fomc-corpus,1989,It's a long way off.,6
-fomc-corpus,1989,"Good morning, everyone. Would somebody please move the minutes of August 22?",16
-fomc-corpus,1989,I'll move it.,4
-fomc-corpus,1989,Second.,2
-fomc-corpus,1989,"Without objection. Mr. Cross, you've had a dull few weeks!",14
-fomc-corpus,1989,I'm not even going to report today!,8
-fomc-corpus,1989,That probably means he doesn't want any questions!,9
-fomc-corpus,1989,[Statement--see Appendix.],6
-fomc-corpus,1989,Questions for Mr. Cross?,6
-fomc-corpus,1989,Where are we relative to our ceiling [on holdings of foreign currencies]? Do you anticipate our having to do more in the intermeeting period ahead in terms of raising the [$20 billion] ceiling?,39
-fomc-corpus,1989,"We are at just under $1-1/2 billion below the ceiling. Whether it is going to prove necessary to request a further change in that depends very much on how things develop over the months ahead. But we do have $1-1/2 billion which, if we share 50/50 with the Treasury, means that there could be a substantial amount of intervention--$3 billion worth--before we would come up against the ceiling.",91
-fomc-corpus,1989,Governor Johnson.,3
-fomc-corpus,1989,"Sam, there were a couple of things that I thought didn't come through quite clearly in your report. First of all, the G-7 Communique said it looked like the dollar was out of line with existing fundamentals. I certainly disagree with that, but I guess one could debate that point. But what the Communique also said, specifically in follow-up language, was that the G-7 would consider it counterproductive if the dollar rose above current levels or fell sharply. In terms of exchange rate strategy, my understanding was that there was certainly no implication in there about a concerted attack on the dollar. You mentioned that the strategy was generally to resist upward pressure, but there were times repeatedly when there was a concerted effort to drive the dollar lower and then, as it ratcheted down, to hammer it when it even started to show any upward pressure from lower levels. So, I think it's a bit of a semantic issue to talk about resisting upward pressure when in fact it was a clear strategy to ratchet down the dollar. Even though there were not massive levels of dollars sold, that kind of strategy--especially when we've never participated in Far Eastern markets on a regular basis--in my opinion was just grossly destabilizing. I thought it was a scary event, and I can't see us condoning that sort of a strategy. I think it's potentially very, very dangerous.",279
-fomc-corpus,1989,"Well, the words in the Communique were exactly what you said and exactly what I read in my statement--that a further rise or an excessive decline could adversely affect the prospects. I would say, though, that there is a very, very major difference between going in and hammering the dollar down in falling markets and resisting it when it is rising. We didn't always resist it immediately when it showed any increase; we resisted when it was rising and let the market take it down some. Obviously, the market knew that the G-7 was trying to guide the dollar down some. But the point I was making was that we did recognize and try to take account of, as much as we could, the risks that could follow if we really did go in and hammer the dollar down while it was falling, which we didn't really do.",168
-fomc-corpus,1989,"Well, let me ask a question. Is there any kind of technical agreement within the G-7 on a targeted band on exchange rates now? I'm certainly not aware of any. And if there is, what is it specifically?",46
-fomc-corpus,1989,"So far as I'm aware, there is none.",10
-fomc-corpus,1989,There is no quantitative understanding about ranges?,8
-fomc-corpus,1989,"I am not aware of any target ranges that are in existence. While there were some months and months ago, I don't think those have any relevance at the present time.",34
-fomc-corpus,1989,"Well then, how did you know where you were going?",12
-fomc-corpus,1989,"Well, we were talking every day--",8
-fomc-corpus,1989,What was your objective?,5
-fomc-corpus,1989,Our objective was to curb the dollar's rise and to have it decline some. We did not want it to fall an enormous--,26
-fomc-corpus,1989,But where?,3
-fomc-corpus,1989,"We discuss every day what to do for the following day. It had fallen a little from time to time; it did not fall in massive amounts on any day. We discussed with the others, based on the closing level in New York, say, on Tuesday, what might be a sensible target.",60
-fomc-corpus,1989,"Just put yourself in the position of somebody in the market. If the market concluded that what the Communique meant was that the G-7 wanted a lower dollar, that is [not the same as] resisting [a rise] from current levels. So they're trying to figure out where the fundamentals are; what is the target that goes along with the fundamentals? It sounds like even we don't know. There is not even an understanding about where the dollar ought to be.",94
-fomc-corpus,1989,"There is an understanding that the rise that had occurred was not helpful. And there is an effort to bring about greater stability and to reduce the dollar somewhat. But no one knows that you need to move the dollar down to XYZ point in order to assure that it meets with these longer-term [fundamentals]. So the intention, as far as I'm concerned, was to try to take away some of this upward momentum and to let it ease off somewhat. But, as I say, it hasn't fallen all that much and we haven't driven it down that much. We're now at levels we saw in August--that's less than two months ago--and that we saw earlier in May. I'm sure that if the dollar were to show a further significant rise this approach would change.",154
-fomc-corpus,1989,"Let me answer, Governor Johnson. The best way of defining what was involved is that it was not a range for the dollar, but how much the various governments would be willing to commit. I think the best way of describing the agreement is that there would be moderate intervention and if that intervention knocked the dollar down significantly, which it did, that was fine. But if it did not, there was no agreement to just use unlimited resources to break the market. That was an original proposal which had been shot down. And in a sense, rather than talk in terms of what was the ultimate goal, I think the more appropriate issue as to where the restraints were and what the guidelines were was the degree of resources that were being placed into the markets.",150
-fomc-corpus,1989,"Well, since there was no notion on where the dollar should be but there was a commitment of dollars, what would have happened if the dollar had collapsed and yet you'd only spent a third of your commitment?",41
-fomc-corpus,1989,We would have stopped.,5
-fomc-corpus,1989,You would just keep spending it?,7
-fomc-corpus,1989,No.,2
-fomc-corpus,1989,Where do you stop?,5
-fomc-corpus,1989,But where do you stop?,6
-fomc-corpus,1989,"That's why in various meetings the central banks that were involved in this insisted upon looking at what was going on in the secondary markets--so that any evidence of a cumulative deterioration would have induced a real pull back. It really wasn't country versus country. It was finance ministers against central bank governors. If you're having trouble finding out what the ranges are or what the policy is, [that is because] you're looking at a committee. They tried to get a consistent day-by-day scenario, but as Ted Truman put it, there were too many branches of possibilities. As they went day-by-day, the restraint or the criterion was the amount of resources that were available, not a particular target.",137
-fomc-corpus,1989,"Well, if that's the case, I think it's even more dangerous than I thought it was when I first started this conversation. We spent $400 million and we intervened five times in the market yesterday with the dollar down to around 139 for the yen and 1.87 on the D-mark, and yet we don't know where we're going.",70
-fomc-corpus,1989,We entered in for almost all of that after the dollar had moved up from that 139.,19
-fomc-corpus,1989,"Well, up a fraction.",6
-fomc-corpus,1989,We knew of some points that were particularly sensitive in the market as the dollar got up close to 140 [yen] and we went in again in order to try to keep it from going through the 140 level. We didn't do enough to keep it from going through.,55
-fomc-corpus,1989,"Hearing this description, I think there's a risk that risk premiums are going to continue to grow. With as much uncertainty as there is in here, you can imagine the uncertainty that might be out in the market if we can't even figure out what's going on.",52
-fomc-corpus,1989,That's not quite fair.,5
-fomc-corpus,1989,"You're shooting the messenger here, Governor Johnson! [Laughter].",13
-fomc-corpus,1989,"Well, I realize there is a resistance to a lot of the [intervention] strategy here [among Committee members], but I think we ought to step up that resistance.",35
-fomc-corpus,1989,"I'd like to pursue this conversation along a somewhat different line. If I were in the market and saw this kind of intervention--and the dollar has come down--one of the reasons I might think it would come down is that if governments are going to spend this kind of money, they must have a second act. And the second act might be some understanding as to some basic policy changes. So, my first question is: In these discussions about intervention, is there some kind of understanding that the intervention will be followed up with more fundamental changes in economic policy, whether on the monetary side or the fiscal side?",122
-fomc-corpus,1989,"The answer is ""no.""",6
-fomc-corpus,1989,The market thinks so.,5
-fomc-corpus,1989,"I think the market would think so, because most people probably would agree that intervention, except in rare situations, has a rather temporary influence unless it is followed up with something more fundamental.",37
-fomc-corpus,1989,"Ed, that is true among academicians; it is not true among finance ministers. There is an belief now, particularly among the Japanese, that sterilized intervention can put the exchange rate where they want it.",42
-fomc-corpus,1989,"Well, that leads into my next question; I think you touched on it. Is the United States leading the charge on this or is it more a consortium of finance ministers who are leading the charge and central bankers are acting as their agents? Or is there a lot of enthusiasm on the part of central banks? I'm just trying to understand.",68
-fomc-corpus,1989,"There is no enthusiasm among any of the central bankers. I don't think even the Bank of France is enthusiastic. The two leading prongs are the U.S. Treasury and the Ministry of Finance of Japan. There has been a pulling and tugging on this of rather large dimensions. My impression is that in the event this all fails and the dollar starts to creep back up this intervention effort will be abandoned. What we have to be careful about it is that as it becomes more and more difficult, they will want to increase [the amount of intervention] more and more. What we have been fending off, successfully so far, is pressure that was not too subtly brought forth before the G-7 meeting to bring the central banks into this whole game. In other words, essentially the G-7 would start to control monetary policy. And I think that was fended off pretty abruptly. There was a feeble attempt to put that in the Communique. That was knocked out very quickly before things got moving. Our problem, basically, is that at this stage we could probably as central banks--we could at the Fed--create a really big fuss about this. As you know, legally, the presumption is that the President, through the Secretary of the Treasury, has full control over the issue of intervention policy. It has never really been tested. We have always had a partial voice; in other words, when Messrs. Brady and Mulford started to talk about [a target of] 125 for the yen and 1.75 for the DM, I protested to a point where I suggested that they would pull the system apart. And I got that eliminated. So, they did have targets. The trouble is if we ever tried to get to those targets, we'd have the world's most awful mess on our hands. There is a limit as to what we can do short of confrontation. I don't think it serves either the Fed or the country to try to be actually up front and to bring this operation to an abrupt halt. I think we could do it. In other words, if that were our objective--forgetting all the secondary costs--I have no doubt that we could do it. I just think that it would be far better not to try that and, hopefully, keep this constrained at a level where the damage is minimal. I disagree with Manley on the issue of the secondary effects being scary; on the contrary, I was surprised at how minimal those effects were. Having seen an earlier version of intervention really almost kick over the bond market, I think in the last 10 days we got away with really minor results. I don't think we can depend on that continuing. I think that if we hammer at these markets, something will crack.",557
-fomc-corpus,1989,"In your judgment, what will it take to get a message to our Treasury and the Japanese that--. I guess what I'm saying is: How long is it going to take for them to tire of this?",42
-fomc-corpus,1989,"Well, let me start with the Japanese. It was very clear to me, walking into the G-7 meeting, that He strikes me as a fixed exchange rate man, an interventionist who is willing to expend large resources to create changes. he came over to me just before the G-7 meeting started and said if we can't get the Germans to join us we would like to join you, meaning the United States, in extensive exchange rate intervention. This is a different Japanese Ministry of Finance than ones we have dealt with earlier. With respect to the Treasury, it's basically Mr. Mulford with whom we are dealing and we have had philosophical and other differences with him on this and other issues for quite a while. We do have significant influence in that operation. In other words, it's not without possibilities. I don't know what the end result of this thing will be, but if the dollar all of a sudden starts to strengthen I will try as hard as I can to convince Secretary Brady that this is a futile effort, that the markets are trying to tell us something, and that to fight against it is a rather fruitless task. Whether I will succeed, I don't know. Vice Chairman Corrigan.",242
-fomc-corpus,1989,"A couple of points: first of all, there's absolutely no question that a perception--whether it's reality or not--that the central bank is trying to beat down the dollar is a very, very dangerous thing; we would all agree with that. What may not be agreed to or perhaps understood is the amount of effort that has gone into trying to minimize the kinds of problems that could arise in the current circumstances both with our own Treasury and elsewhere. Maybe that hasn't been pristine pure or perfect in its execution but I think the thrust of the effort has been in that vein. But, again, the real question is the one that Ed Boehne started to ask and the real debate, it seems to me, should be on the threshold question of where we are. Obviously, Governor Johnson says in effect there are no imbalances. That isn't quite what you said but it's--",175
-fomc-corpus,1989,I don't say that. I recognize that there are imbalances. The question is whether they can be financed or not; nobody knows. The market is deciding they can and we are trying to second guess the world economy--,44
-fomc-corpus,1989,"I think that is really where the debate should lie. I don't think it's a question of intervention tactics per se. I think the real issue is the implications over time for where we are and where we are going with regard to the global economy and our national economy. In terms of some of the attitudes that go into this kind of convoluted point we're at, there are very sharp differences of opinion about the implications of the current situation and the outlook for the world economy.",94
-fomc-corpus,1989,"But why should central banks be participating in this exercise? First of all, we've been making statements about price stability now to the point where I think we have almost been a ""johnny-one-note"" on that issue. And people, I think, are starting to believe us. For us to be countering that with this ridiculous approach just doesn't make sense; [it introduces] a potential doubt out there. If central banks continue to participate in this kind of strategy and show even a compromise on it, I think to some extent the markets are going to say this is a joke--in fact, they are balancing the goals of the current account versus price stability. Now, my position is well known in wanting to go gradually on this goal; but I sure don't have any current account goals ahead of our goals on price stability. And I think we'd be announcing to the world that we are at least equally concerned about bringing the international current account into balance as we are about conditions of domestic inflation.",199
-fomc-corpus,1989,I don't think that's the question here.,8
-fomc-corpus,1989,But that is the question.,6
-fomc-corpus,1989,That's the key issue.,5
-fomc-corpus,1989,I agree that is the key issue but the question is: Are those goals compatible in any reasonable sense over even a 5-year period?,28
-fomc-corpus,1989,Can you hold it? Presidents Black and Hoskins wanted to get in here.,16
-fomc-corpus,1989,"Mr. Chairman, most of what I wanted to cover has been covered by various people. I wanted to start off by saying that I think this issue is more important than any of the ones we have on the agenda. Despite the Japanese belief that sterilized intervention can have some permanent lasting effect, I don't really buy that. And I think this does put us into a dangerous position. As Sam indicated a while ago, we can drive the dollar down and the Treasury has a vested interest in that so as not to show a loss on its operations. You could say that we do, too, although I'm sure that that's not anything that would motivate us.",131
-fomc-corpus,1989,That is not the motive of Treasury.,8
-fomc-corpus,1989,"Oh, I know that.",6
-fomc-corpus,1989,"In fact, I just very recently have been arguing that the accumulation that we have to date does raise that issue; and this was before the Shadow Open Market Committee raised the test. They are only now becoming aware of that excess block of reserve currencies--that the foreign currencies that we have are a potential political threat whereas it was perceived that we all of a sudden [could] lose a part of our cash.",82
-fomc-corpus,1989,"Well, the next point I was going to make was that I was sure you were making just that sort of argument and I wanted to commend you for having done that. I do think one issue remains and that is one that Governor Angell and Governor Johnson raised last time: whether this really can fall in our existing directive to counter disorderly conditions. To my mind, it might go a little beyond that. And I realize the [unintelligible] of the constitution is the Treasury [unintelligible] and I think you had to cooperate; I would support that. But I think it does behoove us to continue, as you are doing, to try to educate them that this path is fraught with a lot of dangers. At some point if we continue to get pressure from the Treasury to do this kind of thing I think we ought to at least take a look at the directive and maybe expand it--if we think that's appropriate--beyond disorderly conditions. I wouldn't want to go beyond that myself but maybe the Committee could. I realize you've been on the side of the angels in this and--",226
-fomc-corpus,1989,That is correct.,4
-fomc-corpus,1989,I want to say that there's only one of them on which I have been on the side of.,20
-fomc-corpus,1989,"Well, I was going to commend you but at the same time criticize the fact that we unavoidably and inextricably got drawn into it because of the Treasury's primary status in this thing. I would express the hope that this study we have undertaken could convince some of those who really don't know that much about it.",66
-fomc-corpus,1989,One of the things that I intend to do is to convey the substance of this meeting to Mr. Brady.,22
-fomc-corpus,1989,"As I said, I knew you were on the side of the angels! Others may argue, but Wayne has had very close contact with angels and he says that that is exactly right! If there's anyone here who's equipped to speak for the angels I think he really is.",54
-fomc-corpus,1989,President Hoskins.,4
-fomc-corpus,1989,"Well, I won't go back to my objections to the whole policy because I've done that before. So, let me start someplace else, and that is that in this room it seems to me we have some concerns about whether or not we're going to be hanging together in terms of making decisions down the road. In the spring we had a dissent when we went to $15 billion. Then we went to $18 billion and I guess now we're at $20 billion. It seems to me we had two dissents on the last go-around. So, I think that this issue is one that could divide this Committee and it's not the right issue to be fighting over. The right issue to be fighting over is price stability; and I think most people in the room agree with that. So, my only question to you--and I hope you do convey the feelings to the Treasury if that's really the sticking point because I think it's more important to have good relations on this Committee than it is with the Japanese, and I would cut it that way--how far are we willing to go in spending resources along this line? I'm sorry it's too far for me; but apparently we're not picking a limit. We may go on up and I think that would be bad for this Committee--you'll get bigger and bigger splits.",263
-fomc-corpus,1989,President Parry.,4
-fomc-corpus,1989,"Well, it seems to me that we are pretty well agreed on the efforts to [discourage] intervention. I would say that we only have one factor that we can [use] and that is for you to make our viewpoint known as best you can to the Administration. My concern is that if we were to do something of a confrontational nature we would be forced or required to do things that we wouldn't want to do. I don't understand. If we were to back away, Manley, I don't know--",104
-fomc-corpus,1989,"Let me say, Bob, that if that's the case, I think we're going through a silly exercise in approving limits. What's the FOMC meeting on this issue for? Why do we even care about it? Let's just turn over open market operations on foreign exchange to the Treasury. What are we going through this silly exercise for if we don't have something to say about it?",76
-fomc-corpus,1989,The point is we do.,6
-fomc-corpus,1989,But it is just--,5
-fomc-corpus,1989,"No, that's not fair. We basically have something to say; maybe we've got 40 percent and they've got 60 percent, but it's not zero.",31
-fomc-corpus,1989,"Well, we have an account in which we acquire exchange reserves and we are supposed to have authority over that account. As Bob Black said, we certainly we have a responsibility to serve as agent for the Treasury in their actions on foreign exchange. And the last thing I would want to do is question that authority. We can certainly do what they instruct us to do on their account; I would never resist that. But acquiring exchange reserves on our account when we are totally opposed to the direction of policy that takes implicates us in the policy, I think. Now, I'm not for confrontation either. As a matter of fact, I consider myself to have been simmering a long time on this issue because I've generally been approving these things all along both at the Subcommittee level and at the higher FOMC level. I have never felt that dealing with disorderly conditions or resisting pressures in one direction or another was something worth fighting over. It was worth cooperating and maintaining this whole atmosphere of coordination and cooperation. But when I perceive that we're getting to a point where we are literally taking risks and we are moving in a direction counter to our whole philosophy, it seems to me that we've got to stand up and be counted here. This whole thing runs the risk of implicating us in something when we are out there saying we are standing for price stability. Now, I think we can have a debate here about how fast we want to go toward that goal; but it's going to take even longer if we participate in these kinds of activities. And I just think that at some point we have to give a clear message on what our point of view is on this. Continuing to acquire exchange reserves and exposure on our own account is really risky, especially given what I know about people over there running things at the Treasury. I don't think it's Nick Brady myself. I think you have a green-eyeshade person in David Mulford over there who doesn't know what he's doing. And I think it's very risky to turn over policy to somebody like that. I think Secretary Brady is capable of being brought around on this issue and maybe that's where [we should go]; I know the Chairman has been effective in talking to him before. I wouldn't be making these points if I wasn't worried. I think this strategy that we are pursuing is very risky and it makes us look bad.",472
-fomc-corpus,1989,Mr. Chairman--,4
-fomc-corpus,1989,President Melzer.,4
-fomc-corpus,1989,"I have some of the same concerns and I have raised them, in the fundamental sense, as we had these votes. But I think the Fed is in the fire and this is not the time when you fight the philosophical battle. It almost has to be resolved when you are not in the middle of the program. I guess the way I look at it is that if we were to get our backs up and refuse to participate at this point in time we'd, in effect, be embarrassing the United States in international policy circles. And I can't think of a dumber thing to do in a political sense. Even if we could defend it on price stability grounds, or try to, I think we would be painted with a different brush. [It would raise the question] as to why we have this arm of the U.S. government that has this kind of independence to pull that sort of thing. I think that's quite possible. Beyond that, in terms of market perceptions, I don't share your concern, Manley, about this intervention somehow really undercutting our credibility in a price stability sense. I think it would be far more damaging if the Fed refused to participate here and that became a cause [celebre]. Then market participants would be very concerned because of the split between the Fed and the Treasury and what that might imply in terms of U.S. economic policy.",275
-fomc-corpus,1989,What do we do if this continues?,8
-fomc-corpus,1989,"Well, we have this study going on, but there comes a point where--purely from a financial point of view--looking at our balance sheet, we have more holdings of foreign currencies than is really justifiable in a financial sense. I guess that would define a limit. But I have some hope that if this proves not to work--and given the path the Chairman is taking--that the Treasury will change course. I have some hope that rather than through brinkmanship--",96
-fomc-corpus,1989,"But what if they don't? If they don't, what are you going to do?",17
-fomc-corpus,1989,"As I say, I think there could come a time; but I don't think this is the time.",21
-fomc-corpus,1989,"Manley, I think what we have to try to do is what the Chairman has been trying to do at one level and Sam and Ted [have been trying to do at their levels]. If you really want the worst scenario that we're all so terrified of, I'll tell you how you get it. That would be to advocate this and then have our 40 percent taken away so it's nothing. And then you would have your green eye shade guy running the shop.",93
-fomc-corpus,1989,"I agree with that, but I can't buy the scenario in which that's going to happen in a credible way. Is the Treasury going to go to the Congress and say that somehow we are acting against the national interest of the country?",46
-fomc-corpus,1989,It's not.,3
-fomc-corpus,1989,Absolutely.,2
-fomc-corpus,1989,"No, that's not the scenario.",7
-fomc-corpus,1989,"But how is that going to work, Ted?",10
-fomc-corpus,1989,They have done it on several other issues.,9
-fomc-corpus,1989,I'm just asking: How is that going to be an effective argument?,14
-fomc-corpus,1989,"They did it on debt strategy, so it's clear that the same man who did it to us on the debt strategy could; I don't think there's any doubt that he wouldn't do it on this one. And the trade issue is the gut issue in Congress.",51
-fomc-corpus,1989,"The point is that there is that danger; it raises the specter of what a fight will alter. That is the way this plays out. And if it's precisely that, that could precipitate the collapse in the dollar and the rout in the bond markets and the stock markets. That's what I think we have to be so careful of.",68
-fomc-corpus,1989,"Well, as I said, I think confrontation has its risks too. You have two scenarios: one is that we confront the markets and we can say interest rates are going to be higher than what we forecast because the Fed is going to confront the Treasury. And they are going to resist with interest rates any attempt that the Treasury makes on the dollar. Now, I'm sure that that would throw some heat into the markets.",84
-fomc-corpus,1989,But that's a different debate.,6
-fomc-corpus,1989,But it certainly would [give] comfort on the price side.,13
-fomc-corpus,1989,That's a different debate; that gets to the heart of the question of how do you get from here to there. It seems to me that's a different issue.,32
-fomc-corpus,1989,"I don't understand. Look, the markets have a right to be concerned if the Treasury and the Fed can't coordinate policy. That's what it's all about here.",31
-fomc-corpus,1989,The problem is we don't have any coordinated policy. We've got a lousy fiscal policy and a pretty good monetary policy. That's at the heart of the problem.,31
-fomc-corpus,1989,I don't disagree with that.,6
-fomc-corpus,1989,We have too many policy objectives and only one policy lever.,12
-fomc-corpus,1989,"But I do think there is a risk for us that we're going to be implicated in talking out of one side of our mouth about price stability goals and yet agreeing to constantly flooding the market with dollars trying to get the dollar below where the fundamentals are taking it with relative interest rates. Now, you can argue about relative real interest rates--",67
-fomc-corpus,1989,That is a different issue. The question in terms of the price stability goal is: How do you get from here to there? There are a lot of variables that go into that question of how you get from 4-1/2 percent inflation to 0 inflation.,55
-fomc-corpus,1989,"You can still get there with Treasury pursuing what they have been pursuing, but at much higher interest rates--",21
-fomc-corpus,1989,Well?,2
-fomc-corpus,1989,"--and much lower growth, and even a recession. Maybe that is what we will pursue.",19
-fomc-corpus,1989,That's the debate; that's the right issue: How do you get from here to there?,18
-fomc-corpus,1989,President Syron.,4
-fomc-corpus,1989,"Most of the questions I wanted to asked were already asked by Tom Melzer. But it seems to me that the United States has a strange [institutional] situation. Domestic monetary policy is the role of the independent central bank. International policy is the role--on a 60 percent basis, at least--of the Treasury. Mr. Chairman, I just wanted to ask a question but I think Jerry answered it already: Have you been faced with sort of a Hobson's choice in the sense of being involved in something that I think almost everyone here is skeptical of--sterilized intervention--believing that we were better off over the long course of time maintaining that 40 percent, say, rather than [our] just getting out at this point in time for the reasons Tom Melzer noted? I think an important factor in waiting to see how long we want to remain a player is having some notion of how long this process will go on. It seems to me that it might be useful--I would hope useful from your perspective--when you go back and talk to the other people with whom you have to negotiate to indicate the degree of discomfort that many people have on the issue. But I agree with Tom; I just don't see at this point how we can back out of it. But I think we do need to have some notion of how long this will go on.",279
-fomc-corpus,1989,Or how much.,4
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,Isn't that the question?,6
-fomc-corpus,1989,Part of the problem is that analytically we have been projecting a declining exchange rate for quite a while on the grounds that we've always perceived it as being out of sync and too high. And the failure [of the dollar] to do that has led us to temporize on this issue on the grounds that it would cure itself eventually--in other words that we might have to engage in this [unintelligible] just for the sake of appearances on the grounds that the markets would then take over and that [problem] would disappear. That hasn't happened. And that's what the problem is; and it's still a problem with respect to the forecast.,130
-fomc-corpus,1989,"For coordination purposes I think we've always said--at least I've said all the way along that I'm willing to spend $100 million here and there but not $40 billion, $20 billion of our own. We are beginning to talk about potential impacts on monetary policy and influences that are about to get negative on this Committee.",64
-fomc-corpus,1989,Governor Angell.,4
-fomc-corpus,1989,"It seems to me that the markets are beginning to recognize the Federal Reserve's commitment to price level stability. Mr. Chairman, you've certainly contributed to that and I think other members of the Committee have in regard to the one voice that we have in this area. But we can't have that commitment to price level stability without having a strong dollar. That is, a strong commitment to price level stability [requires appropriate] interest rate differentials and the dollar remaining strong. It just seems to me that we need to understand where our commitment is. And, Mr. Chairman, this discussion seems to indicate a very strong feeling in regard to the direction and the kind of policy we should engage in. But I think one can go so far as to say that the Treasury certainly would be dissatisfied to be without us. That is, the thought that we might pull out of this is indeed some force; and my dissent is in that vein. My dissent is to contribute to an environment in which the Treasury recognizes that it may not wish to go it alone. I agree it's best for us not to get out. But sometimes we have to act like we might get out in order to [achieve our objective]; and it's to your leadership that I entrust that we do it.",253
-fomc-corpus,1989,President Guffey.,5
-fomc-corpus,1989,"Thank you, Mr. Chairman. I guess virtually everything has been said around the table. I don't have too much concern about the actual profits and losses that the System will sustain in terms of a rising dollar. I'm not terribly concerned about the price stability issue in the sense that with sterilized intervention I think for some long period in the future we can go about a price stability objective without much problem. What I am really concerned about, however, is bringing this issue to a confrontational stage outside of the confines of this Committee and the Treasury, because as soon as the public and the market perceive that there's a split I think we have the real possibility of a currency crunch that we will not want to face. We'll have to go together at that time.",151
-fomc-corpus,1989,"As you know, it already showed up on the front page of The Wall Street Journal last Friday.",20
-fomc-corpus,1989,"Yes, I know. I'd like to ask a question: How far can the Treasury go in the sense that they have a stabilization fund that is authorized by Congress? Is there no limit to what--",40
-fomc-corpus,1989,"They can go on forever, Roger, when we keep warehousing their currency.",16
-fomc-corpus,1989,"Well, they still have to get authorization for the Treasury to get dollars for us to warehouse.",19
-fomc-corpus,1989,No.,2
-fomc-corpus,1989,"[They warehouse] foreign currencies with us, so they--",12
-fomc-corpus,1989,So there is a limitation.,6
-fomc-corpus,1989,"The problem there though, Roger, is that you give the Congress a choice. If you really do say you are going to give the Treasury some more money or you are going to balance the budget, which way do you think they're going to go?",50
-fomc-corpus,1989,"Balance the budget, of course, Jerry.",9
-fomc-corpus,1989,President Black.,3
-fomc-corpus,1989,"Mr. Chairman, I just have one comment. I was comforted by your statement that central bankers were lined up almost uniformly against the ministers of finance on that. Do you know how strongly they are arguing their position with their minister of finance counterparts as you are clearly doing in this country?",58
-fomc-corpus,1989,"I'd say [it depends on] who controls this. The Bundesbank controls their exchange rate operation but they are pressured from the other side. I'd say that [unintelligible] was quite strong. The others I would say varied. Actually, has been unfriendly to this heavy intervention.",59
-fomc-corpus,1989,That's good.,3
-fomc-corpus,1989,"And I assume as a consequence he would independently, or in support of--",15
-fomc-corpus,1989,"What about the Canadians? They are not happy about it either, are they?",16
-fomc-corpus,1989,As far as I can tell. That would be my impression but I can't remember any real--,19
-fomc-corpus,1989,There is some. I think the Canadians have some differences of view within the central bank.,18
-fomc-corpus,1989,President Boehne.,5
-fomc-corpus,1989,"I think we have talked about most of the issues. Clearly, you are in an awkward position. Just as one person around the table, I think the worst thing this Committee could do is to leave you hanging, given the awkwardness of where you are. Despite where we are on the fundamental policy issues and the difference with the Treasury, my question is: Given the situation that we are in, how can we be the most helpful to you as a Committee in this very awkward predicament that you find yourself in?",103
-fomc-corpus,1989,"Well, let me find out whether or not the discussions with Messrs. Brady and Mulford on this help or hinder--meaning whether or not the real deep-seated concern of this Committee induces them to be antagonistic or conciliatory. At the moment, I think it is frankly somewhat useful to have some rumbling of a minor nature at this stage because if it ever was to break then I would be concerned what would happen to the markets. But I think professional notions of discontent are not adverse provided they do not, for example, get into an Allen Murray front page article in The Wall Street Journal that the Federal Open Market Committee is revolting against the Treasury on exchange rate policy. And they are prepared to do that because that little thing they put in last Friday was much stronger than the reality of it was. So, that's a story that's sitting there ready to explode.",177
-fomc-corpus,1989,"It probably will be in The Wall Street Journal next Monday, given the minutes to be released this Friday afternoon.",22
-fomc-corpus,1989,It may be.,4
-fomc-corpus,1989,I would think that Manley and Wayne better take a walk.,13
-fomc-corpus,1989,"Well, as a matter of fact, I am going to be out of town. I'm going to be hiding out.",24
-fomc-corpus,1989,And I'll be in Moscow already--,7
-fomc-corpus,1989,Maybe you'll be safe there.,6
-fomc-corpus,1989,"May we all take off that day, Mr. Chairman? I'd really like to take off. Well, Monday is a holiday.",26
-fomc-corpus,1989,"Yes, that's what I mean.",7
-fomc-corpus,1989,Columbus Day.,4
-fomc-corpus,1989,"It'll be in the paper Tuesday, then.",10
-fomc-corpus,1989,Governor Seger.,4
-fomc-corpus,1989,"I just want to say two things, primarily because I've been one of the people concerned about the strong dollar--not because I don't like strong dollars on the face of it--but because I've been concerned about the impact on our manufacturers' ability to produce or to export. But having said that, I don't believe the way to get the dollar down is to bomb it through intervention. I think the best way to do it is to deal with it in a monetary policy way even though the [unintelligible] said we don't believe in that, I do. In terms of Manley's concern over the possible market impact of this bombing effort, I think the reason we haven't seen it yet is that there are many people in the markets--maybe not in New York but in other parts of the markets--who really do think that there will be some monetary policy follow-up to this bombing. And if that does not occur in the next couple of weeks, then I think we're going to get the bond market impact etc., in spades. So you can write that down as woman's intuition speaking. Thank you.",222
-fomc-corpus,1989,I trust that ends our conversation? Does anyone want to make a last comment on this?,18
-fomc-corpus,1989,Can I make the last comment?,7
-fomc-corpus,1989,Okay.,2
-fomc-corpus,1989,You can approve his transactions.,6
-fomc-corpus,1989,"I want to come back to this price stability issue. Obviously, that is the overriding goal for central banks. But I think we have to be a little careful about how we articulate that goal. If we articulate it in a way that creates or reinforces the perception that we can get from here to there in a costless, painless, way I think that can be very, very dangerous. And it's in that context that I worry about large current account deficits. I certainly don't view them as a goal, as I'm sure you know, Manley.",110
-fomc-corpus,1989,"Sure, but--",4
-fomc-corpus,1989,The question--if I can just finish--is whether the presence of current account deficits in excess of $100 billion in perpetuity are compatible with an orderly and relatively painless ability to reach that goal of price stability.,43
-fomc-corpus,1989,"And all I'm saying, Jerry, is that I don't know; I don't think anybody knows. It's a debatable issue. But to try and say beforehand that the dollar has to be at some level that some committee decides--",45
-fomc-corpus,1989,That's a different question.,5
-fomc-corpus,1989,But it's not; it's the same.,8
-fomc-corpus,1989,It's not.,3
-fomc-corpus,1989,A committee is a group of people.,8
-fomc-corpus,1989,"Can I just stop here? This actually is a legitimate discussion, but not for this section. Let's leave this for later this morning and then resurrect it because it really gets into the fundamentals of the monetary policy debate. With some fear and trepidation I request the ratification [of the foreign currency transactions]. Would someone like to--",67
-fomc-corpus,1989,What happens if they are not ratified?,9
-fomc-corpus,1989,"Ted's salary for the next 4,000 years--",12
-fomc-corpus,1989,Is there a motion on it?,7
-fomc-corpus,1989,So moved.,3
-fomc-corpus,1989,Second.,2
-fomc-corpus,1989,"Without objection, hopefully?",5
-fomc-corpus,1989,"Well, since I dissented [before] I don't know how I could--. How do I vote in favor of previous transactions?",27
-fomc-corpus,1989,Just abstain.,4
-fomc-corpus,1989,"Maybe the General Counsel can speak to this, but isn't the issue here that he has done his job within the guidelines and the Committee is ratifying the transactions?",32
-fomc-corpus,1989,I think Sam has done his job very well.,10
-fomc-corpus,1989,That's what you're voting on.,6
-fomc-corpus,1989,Okay.,2
-fomc-corpus,1989,He's done it too well.,6
-fomc-corpus,1989,"What you are saying, then, is that it was the wrong job in your view?",18
-fomc-corpus,1989,"Yes. It was very good in mechanics, but--",11
-fomc-corpus,1989,But it is the wrong job.,7
-fomc-corpus,1989,That's what we--[Laughter],8
-fomc-corpus,1989,"All right. Well, I certainly want to make sure that that is the way it's written and the way it's understood.",24
-fomc-corpus,1989,Virgil [Mattingly] is nodding.,11
-fomc-corpus,1989,"That's all that you'd be doing, Governor.",9
-fomc-corpus,1989,What does the sentence say again--in terms of what we're voting for?,15
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,Approve the transactions that I have already done.,9
-fomc-corpus,1989,"Well, how about the manner in which you conducted the transactions? Really, that's a different statement.",20
-fomc-corpus,1989,"No, it's the matter of the money.",9
-fomc-corpus,1989,It's an obligation we have already passed [on].,10
-fomc-corpus,1989,"Yes, but I voted against that.",8
-fomc-corpus,1989,"Yes, but he does [operate under] certain procedures in the Authorization and Directive and the question is whether he followed the guidelines and procedures.",28
-fomc-corpus,1989,But I abstained on the warehousing [vote] as well.,14
-fomc-corpus,1989,I understand that.,4
-fomc-corpus,1989,That's a different issue in my opinion.,8
-fomc-corpus,1989,The issue is whether the transactions have been carried out consistent with the Authorization and the Directive; it's the same thing as for the domestic operations.,28
-fomc-corpus,1989,It's the same as the vote of directors of a bank ratifying loans made by the bank. The loans are [already] made.,27
-fomc-corpus,1989,"Okay, here's what I'm going to do. I'm going to vote on the affirmative on this one because this has only to do with what has taken place. I dissented in regard to the Authorization, which was a proper dissent. So, I'm going to make that distinction, Manley. You do what you think.",64
-fomc-corpus,1989,I'm still trying to understand what this is all about.,11
-fomc-corpus,1989,"Well, in other words what we're doing now is saying that we did transactions. [The question is whether] they were authorized. In other words, are they approved?",34
-fomc-corpus,1989,The guidelines [that] the Committee has passed by majority vote--,13
-fomc-corpus,1989,The Committee passed by majority--in other words it is ratifying.,14
-fomc-corpus,1989,"Okay, is that the way it reads?",9
-fomc-corpus,1989,My understanding is did I act within the authority authorized and provided for by the Committee even though I recognized that certain people didn't agree or did not favor the way that was--,34
-fomc-corpus,1989,I think that's the reading.,6
-fomc-corpus,1989,"As long as that's the way it reads, I agree that there is no problem.",17
-fomc-corpus,1989,"The analogy, I think, is that any time someone dissented on monetary policy grounds they would have to dissent on Mr. Sternlight's operations.",30
-fomc-corpus,1989,"It says ""ratified.""",6
-fomc-corpus,1989,That's true.,3
-fomc-corpus,1989,"Okay, then you're fine. ""Ratified"" is the word that is used in the minutes.",20
-fomc-corpus,1989,Okay.,2
-fomc-corpus,1989,I'm not quite sure what it means; maybe we can get the lawyers to write us a memo.,20
-fomc-corpus,1989,I'm not asking.,4
-fomc-corpus,1989,I agree that there have been no objections. Mr. Sternlight.,14
-fomc-corpus,1989,Thank you. This is going to be an anti-climax! [Statement--see Appendix.],19
-fomc-corpus,1989,Questions for Mr. Sternlight? President Parry.,11
-fomc-corpus,1989,You said that you think the markets are anticipating further easing of some magnitude in the near term?,19
-fomc-corpus,1989,"Of modest magnitude. I think there is an expectation, on balance, that the greater likelihood is for some easing down the road. If I drew up a central point consensus, something within a few months would probably capture it.",45
-fomc-corpus,1989,I bring this up because the Bluebook seemed to say the opposite--that [the market] does not now appear to be anticipating any near-term change of policy. I think it has implications for what might happen to market rates relative to the choices we make. So I just want to--,58
-fomc-corpus,1989,"My judgment would be, President Parry, that if the market had to bet whether policy would go one way or another they'd bet that policy would more likely be eased than tightened. If you look at the term fed funds markets and fed funds futures and things like that, they don't really have much ease built in there. On the other hand, surveys such as the money market services survey do show a little downtick by the end of the year of maybe a quarter of a point. So it's a little; I don't think they have much built in there. It's essentially flat with maybe some bias towards ease before the end of the year.",129
-fomc-corpus,1989,"Peter, do you think that bias is based on domestic considerations or foreign exchange issues?",17
-fomc-corpus,1989,"I think it's a mixture of both, President Forrestal. Those who have that expectation anticipate seeing a bit more softness in business. But they think the foreign exchange factor certainly would be working that way too.",41
-fomc-corpus,1989,President Keehn.,4
-fomc-corpus,1989,"I have a question not with regard to Peter's report on the operations but on the seasonal borrowing program. We basically hear about the borrowing within [unintelligible] rather high. And I'm not sure that fundamental underlying conditions are that different. It's easy to believe that people are perhaps using it, hopefully, advantageously. I just raise the question: Are we going to take a look at the use of the seasonal program before we get into next year?",92
-fomc-corpus,1989,We could certainly do that. That request has been made elsewhere in the System. Governor Angell has asked that same question. The seasonal borrowing is about what it was last year. So this is really the second year--,44
-fomc-corpus,1989,"At this point, Don, or--",8
-fomc-corpus,1989,"Seasonal credit is a little higher than it was, but the spread is a little wider than it was. For the October 5th period last year seasonal borrowing was $433 million; I don't know what will come out this year.",48
-fomc-corpus,1989,"Well, I think you're right. It seems to me it complicated the operation of the Desk on the way up and it's likely to complicate it on the way down. If people are using it for different reasons [other than] seasonal borrowings, I think it makes sense to take a look at it.",62
-fomc-corpus,1989,Any other questions for Mr. Sternlight at this time?,12
-fomc-corpus,1989,Just a minor one. Would we have done outright purchases if we hadn't had the intervention?,18
-fomc-corpus,1989,"Oh, I think it's likely. The foreign exchange intervention wasn't adding as much as at some earlier points in the year but it was still adding fairly substantially. So, without that factor, we would have had to be doing some outrights as currency in circulation was increasing.",54
-fomc-corpus,1989,Would that cause you any concern?,7
-fomc-corpus,1989,"I wouldn't say it was a problem at all in our execution of operations. As a mechanical factor, we're amply well informed about the extent of the foreign exchange intervention and we just fold that in as a reserve factor in our planning of operations.",49
-fomc-corpus,1989,I just meant the substitution of the currency in the portfolio for coupons and bills.,16
-fomc-corpus,1989,"No, I wouldn't say it's any problem in that way.",12
-fomc-corpus,1989,Can I have a motion to ratify the transactions of the Desk since the last meeting?,18
-fomc-corpus,1989,So move.,3
-fomc-corpus,1989,Second.,2
-fomc-corpus,1989,"Without objection. Mr. Prell, would you bring us up to date on the economic situation?",20
-fomc-corpus,1989,"I'll try, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1989,Questions for Mr. Prell? Governor Johnson.,10
-fomc-corpus,1989,"You mentioned that you expect some stimulus to the housing market but you are forecasting weakness in investment. Earlier, in previous FOMC meetings, you had said that declines in long-term interest rates stimulated investment in the housing market. Yet this hasn't seemed to occur. How long do you expect the lags to be after a decline in long-term interest rates before you see something in the investment in housing? You mentioned that the level of houses for sale was revised up. But I don't see any pickup in housing. And nondefense capital goods orders, excluding aircraft, seem to be at a lower level in the third quarter than the second quarter. I just see nothing out there that points to a pickup in capital spending and yet we have had this decline in interest rates.",154
-fomc-corpus,1989,"I don't think we expect to see any dramatic interest rate effect in the trend of capital goods outlays. The lags there are too long. The [interest] elasticity is too low. We didn't really think that was going to move that series around very much. It's true that the orders trend, as I suggested, has not been especially strong of late. If you start dissecting the data and you take account of declining computer prices and so on, I think there is a sound case for expecting relatively moderate growth in real equipment outlays. And that's what we have in the forecast. We don't have an acceleration; we have a deceleration in the forecast.",133
-fomc-corpus,1989,"Okay, I agree with that, I think. But what you're saying, though, is that this decline in long-term interest rates hasn't had a stimulative effect on this.",35
-fomc-corpus,1989,"I don't think it has had a large effect, no. We haven't had a large enough change in interest rate levels to greatly alter businessmen's assessment of the profitability of investment over the long run. On the housing side, we have lowered our third-quarter forecast for real construction outlays. We were disappointed by the August housing starts. While the average in the past couple of months has been up a bit, it hasn't been dramatic by any means. A lot of that weakness has been in the multifamily sector; that's a very volatile number. But the single-family starts in August also were a shade on the weak side. What we think is happening, though, is that we see some pickup in housing demand as manifested in existing home sales. And in new homes sales, the information from surveys about consumers' perceptions of home buying conditions has moved in a favorable direction with the decline in interest rates. We're expecting a modest boost to overall economic activity in the near term, this quarter, from residential construction. But that's a small sector. And despite the secondary effects that it can have on consumer expenditures and so forth we don't think it's going to provide a tremendous thrust to the economy. We do look for a positive number, though, in the fourth quarter.",250
-fomc-corpus,1989,I want to follow up on one last thing that I was talking about yesterday in the Board room when we were discussing [unintelligible] and I still want to try to understand this. You indicated then at the beginning of your presentation the need for some slack to get inflation down further in the economy. But I'm still trying to understand conceptually how that works to some degree. If monetary policy maintains nominal demand at potential output or at the full employment unemployment rate--say it maintained nominal demand consistent with potential output growth--is the need for slack because of the rigidities in the system? Does the adjustment process cause you to get more inflation mix than a real mix temporarily?,136
-fomc-corpus,1989,"I think that's the case. If you had super rational people who perceive that all of a sudden monetary policy was on a track that was going to hold nominal aggregate demand expansion in line with the trend rate of real output growth, then expectations would change and wage bargaining would revolve around that kind of expectation. You could have an instantaneous downward adjustment in the rate of inflation without any significant cost in real output. Of course, there are contracts and other impediments so that even if expectations adjusted dramatically--",98
-fomc-corpus,1989,"Okay. I want to understand what you're saying, though. Is it that even if we bring nominal demand in line with potential output, that actual output has to slow for a while relative to potential because of the contracts [and other] rigidities in the system? Okay, that's the--",58
-fomc-corpus,1989,I think you'd have a hard task to bring nominal aggregate demand expansion down immediately to that noninflationary level. I can't envision that happening without an enormous jolt to the system.,37
-fomc-corpus,1989,"Yes, well I can't either. But I'm still trying to get--",14
-fomc-corpus,1989,But if there were no inflexibility in the form of contracts and so on and if you had absolute credibility--if you could announce today that you are pulling on to this track and everyone believed you--then presumably everything would flow through and real effects would be minimal.,54
-fomc-corpus,1989,"Everybody understands that we have nominal demand that is greater than that; that's why we have 4 or 5 percent inflation in the market. But if you were to work nominal demand down gradually in line with potential output and you maintained it there, I guess I would have a little trouble understanding why you would necessarily have any inflationary experience.",68
-fomc-corpus,1989,"Well, I think you put your finger on the appropriate facets of the system here that impede that kind of frictionless movement toward lower inflation.",28
-fomc-corpus,1989,"As I say, if you were to lower nominal demand--just lower it, even if it's currently above potential output--why doesn't that lead to some slowing in the inflation rate even though the real economy might be slowing but still not performing relative to potential?",51
-fomc-corpus,1989,"At this point we feel the economy is, in a sense, overemployed. In that kind of situation the competition for resources tends to put upward pressure on wages and prices. And until we develop a bit more slack, we think that's the direction in which things are going to tend to drift. We've been generous, in a sense, relative to what the models would tell us. We have not really taken a hard view that we're below the natural rate and that there are tremendous acceleration forces here. We have rather modest acceleration in the forecast. But the historical evidence is reasonably compelling that in the short run there is this kind of trade-off and you don't get the frictional movement to lower inflation rates without any output loss.",145
-fomc-corpus,1989,"Well, I think the historical record does show that if you reduce nominal demand there is a mixed effect--that you get a little of both.",29
-fomc-corpus,1989,"Right, precisely.",4
-fomc-corpus,1989,"The more flexible the markets are, the better the mix.",12
-fomc-corpus,1989,"Well, that's why we are being reasonably optimistic. We think perhaps there is some greater flexibility. We think there is also some residuum of fear here about loss of employment and so forth that may not have existed in earlier years, but that workers are aware of because of the turmoil in the '80s and the exposure to international trade,",68
-fomc-corpus,1989,"I'm just saying that, given all that, it's still not clear to me why the economy can't grow around its potential rate while you're restraining demand even though the mix does [unintelligible]. I think that's a central debate.",47
-fomc-corpus,1989,"Sure. This is not something we feel we know absolutely. But we're hard pressed to explain what we have been observing without some sense that, as the economy got tighter, that exerted some inflationary pressure. You could play some games here in guessing what inflation expectations were at various times during the last several years and make that consistent with the pressures in the labor market in terms of the unemployment rate level not having been a substantial explanatory factor. But it looks to us that, as we got down into the 5 to 6 percent unemployment rate range, there was some pressure on wages and prices.",120
-fomc-corpus,1989,I don't disagree.,4
-fomc-corpus,1989,"So the question is: How do you unwind that? If you could bring about a sudden powerful expectational change, that might help to minimize the need for any loss of output in order to move the inflation rate back down. But otherwise we think there are going to be some frictional costs here.",60
-fomc-corpus,1989,President Parry.,4
-fomc-corpus,1989,"I'd like to ask two questions related to the near-term strength of the economy. Based upon the statistics that we now have for the third quarter, do you think there is much of a chance that the actual growth rate was in the 3+ percent area? And related to that, you have a very substantial decline in nonfarm inventories. Is that just what is happening as a result of aircraft? I see aircraft exports are up and are very strong.",91
-fomc-corpus,1989,"You're talking about the fourth quarter, right?",9
-fomc-corpus,1989,"Third and fourth, [unintelligible] inventories.",12
-fomc-corpus,1989,"Yes, the fourth-quarter inventory picture is muddled by the aircraft deliveries and gyrations in oil inventories that we inferred will occur because of a surge in oil imports recently. So there are those technical considerations. Basically, we have underlying that a rather moderate rate of inventory accumulation. On third-quarter growth, 3 percent or 3-1/2 percent is certainly within our confidence interval. At this point, looking at the labor input, a number in the two's looks like a better guess. But I know there are others who have looked at the data and come up with higher numbers. This is our best guess at this point with a lot of data missing.",134
-fomc-corpus,1989,"If there are no further questions, I think it's time for us to do a tour de table. Who would like to start?",26
-fomc-corpus,1989,"I'll start it, Mr. Chairman. Let me say at the outset that I'm very pleased that the staff has extended the forecast through 1991; I think that does give a longer-term and more strategic focus on policy. With respect to the national economy, Mr. Chairman, we think that the Greenbook is about right for the next few quarters in terms of real GNP. We don't have any basic disagreements there. Also, our outlook for inflation is a little closer now to the Board staff's than it was at the last meeting. We've seen some improvements. Having said that, I think that we've been helped, obviously, by some special factors along the way, and I'm not sure that those are going to continue indefinitely. But more importantly--and perhaps where we might have some slight disagreement with the staff--is that we think the unemployment number may be a little lower than the Board staff's number; and that suggests to me that pressure on wages, as Mike has indicated, might begin to appear. We've had good numbers, as we've been observing, right along. These compensation gains have been smaller than we might have anticipated. But I do sense that there may be some deterioration in labor costs. We've had an increase in strike activity in 1989, which perhaps suggests a bit more militancy on the part of unions. Also, as the fear of recession begins to wane, there may be more of a tendency on the part of business to accommodate some of the labor demands that I think might come along. I put that together with what I see in our own District with respect to the labor situation--I think things are tight--and that's where I see the pressure. That all suggests to me that it's going to be difficult to make much progress on inflation this year. Our forecast would suggest that some further tightening along the road is going to be necessary if we are going to get the inflation rate down lower. Turning to the District, things have turned around a little; deceleration of economic activity has about come to an end and there's much more optimism among people generally. In other words, the concern about recession has abated. Construction activity remains particularly soft--both residential and office building activity. We do have some better activity on the industrial construction side, which is stronger in our District than anywhere else in the nation. And on the housing and real estate situation generally, we're hearing quite a lot of concern expressed about properties being put on the market as a result of the thrift insolvencies. People are afraid that as these institutions come on the market there's going to be an overhang, which will affect the market adversely. Automobile inventories remain a significant problem in our District. They are much higher than in the rest of the nation even though recent auto sales have been better. There is an interesting development in the textile area. The textile producers have been doing very, very well in terms of their sales but they are very concerned about imports, which are up about 11 percent from a year ago. Domestic demand for their goods has offset the danger of the imports but they're afraid that as domestic demand begins to slacken off, as they think it might, the imports will begin to affect them adversely. And I think this is significant because they have been very, very aggressive, as you know, in lobbying for protectionist legislation. I can't help but note that Representative Jenkins from the State of Georgia has assumed a higher profile in the Congress; he has been the one leading the charge for protectionism for the textile industry. So that's a bit worrisome, I think. I have just one other observation and that is that oil exploration and production in Louisiana are picking up; the number of offshore rigs has been increasing since April and that reverses a decline earlier in the year. Natural gas is also doing well. In agriculture the picture is mixed because there apparently has been either too much rain or too little. In our case, recent heavy rains have been a negative factor in many areas of the Southeast. But in general, Mr. Chairman, things are looking better in the Southeast on average than they did at the time of the last FOMC meeting.",836
-fomc-corpus,1989,President Parry.,4
-fomc-corpus,1989,"Thank you, Mr. Chairman. I think the tone of my report is probably going to be a little different from some others. The economy in the West currently is expanding at a healthy pace, and growth actually appears to have strengthened a little since our last meeting. Improvements in trade and service activity account for much of the recent strength we've seen. Apparel sales are reported to be strong and, of course, toward the end of the quarter there were quite strong sales of autos. We've seen good growth in tourism activity throughout the entire area. Construction, both residential and nonresidential, and real estate activity are strong in California, Nevada, Washington, Oregon, Hawaii, and much of Idaho, although some slowing in home sales recently has appeared in southern California. Reports of weakness are focused, as they have been for the last several meetings, in Arizona and are associated primarily with construction. The Northwest is actually booming. I don't think there's any word that would be more appropriate. California-style bidding wars on single-family homes have become common in the Puget Sound area. Manufacturing firms throughout the Northwest plan to expand employment facilities and equipment. Now, in two hours the contract at Boeing will expire; 43,000 workers in Seattle and I think 12,000 in Wichita and 1,700 in Portland are covered by that union. But the chances look less than 50 percent that there will be a strike; it requires a two-thirds vote. At this point, if there is not a strike, I would assume that that strength would continue for the foreseeable future.",313
-fomc-corpus,1989,Are they voting today?,5
-fomc-corpus,1989,"I don't know if they vote today, but the expiration of the contract occurs today at 10:00.",22
-fomc-corpus,1989,I heard something about their voting.,7
-fomc-corpus,1989,"That could be, but it does require a two-thirds vote for a strike. At the national level, the economy--to us at least--appears stronger than at the time of the last meeting. We've revised our estimates of third-quarter growth and now expect an increase of around 3 percent, which is somewhat different from that in the Greenbook. Also, I wouldn't be surprised to see stronger growth in final demand than projected in the Greenbook, especially in 1990. Quite frankly, looking at a lot of private forecasts, I see more centered in the area of 2 to 2-1/2 percent than I do under 2 percent at this point. If the growth does not slow as rapidly as projected in the Greenbook, then it seems clear that upward pressures on underlying inflation will persist.",165
-fomc-corpus,1989,President Syron.,4
-fomc-corpus,1989,"Mr. Chairman, on this give and take, the New England economy is far from booming. The slowdown that we are in the midst of continues. It's not cataclysmic but it does seem steady. Interestingly, the earlier declines in the southern New England states--the big states such as Massachusetts and Connecticut--have now spread to the three northern New England states. There are a variety of factors: a quite poor tourism season, absolute declines of employment of a substantial magnitude, particularly in the construction area and also in manufacturing. In the case of manufacturing, I think that's a bit of a spillover from the slowdown in manufacturing in Connecticut and Massachusetts. In the case of construction, it just reflects overbuilding and a lot of excess second homes on the market. With respect to our manufacturers with whom we have contact, we get an interesting pattern. We tried to separate out what they tell us about the national economy from the regional economy and we get a very distinct difference in responses. With respect to the regional economy, everyone is really quite pessimistic; but in talking about the national economy, while no one is what we would call euphoric or expects a runaway boom, the general response we're getting is that they expect a rather moderate and steady [growth], with some adjustment to the capital spending levels, but not a great one. There is not a great concern about inventories on their part. In retail activity within the District we see some significant problems, with the beginning of some inventory problems there. Labor markets are generally mixed. The agreements and settlements that have been reached generally have been well behaved although there are still substantial pressures at the low end of the labor market. At the higher end of the labor market things really have been softening quite a lot. As far as the national economy goes, we have been generally comfortable with the Greenbook forecast with two caveats: (1) the Greenbook does have the saving rate declining, but we question whether it might possibly decline even more and consumption come up somewhat more; and (2) we have a concern about the pattern of wages. This is reflected in other things that have been said: whether in the employment cost index, particularly when one starts to disaggregate and look at what is unionized and what is nonunionized, there really is a dramatic change in that decomposition over time; and whether in the future, particularly if the national economy remains relatively robust, we might not have the kind of good behavior we've had in that area. Overall, we think the risks are about evenly balanced between the economy growing too fast or starting to slow too much, although we don't see any signs really of cumulative softness. I will finish by saying, as you indicated earlier when we were discussing the foreign currency issue, that before very long we're going to be in a situation where we have to decide as far as inflation goes just what we want to accomplish and in what kind of time period--what constraints we feel are on us and how the mechanisms work. Thank you, Mr. Chairman.",610
-fomc-corpus,1989,President Black.,3
-fomc-corpus,1989,"Mr. Chairman, I find myself in a little different position from the first three speakers. We really haven't changed our view of the economic outlook very much from what we had last time. The Greenbook projections seem reasonable to us; the staff always does a good job. I don't think I will ever understand how Mike Prell is able to answer so many questions so well! But since there is some onus on us to say how we differ, I would say that our best guess is that the downside risk is a little greater at this point than the upside risk, for a couple of reasons. First of all, I don't think we have yet seen the full effects of all the tightening that we have undertaken over the last year and a half. Secondly, a lot of the improvement that the Greenbook projects is based on the external sector and that, in turn, has an underlying assumption that the dollar is going to continue to depreciate at a rather steady rate. That's certainly a plausible position, but I think one can make some case that there is certainly more than a small possibility that the dollar just may not decline for reasons that we don't well understand. I don't think we fully understand why it was strong before we started intervening; it may well be that that strength is going to resume, particularly after we are out of the market. If that were to be the case, then real net exports and real GNP might come in a bit weaker than what the staff is projecting. On the inflation side, I found the staff's efforts to estimate the magnitude of the effects of the projected depreciation of the dollar extremely helpful but rather disturbing, because even with these alternative projections we didn't show much progress on inflation through 1991. But again, we find ourselves in a rather unique position in that we think inflation may do better than the staff thinks. I feel rather uncomfortable with that because I remember--",381
-fomc-corpus,1989,I assume by that you mean down?,8
-fomc-corpus,1989,"We think we will have less inflation than they projected. The reason I feel uncomfortable with that is that over time I think most of our System policy errors have been made by having been too easy rather than by having been too tight. And the outlook is dependent to a large extent on what I think is an unusually high degree of credibility that policy now enjoys. My feeling is that we probably have a higher degree of credibility now than we have ever had. And I think your statement in response to the Neal resolution did a lot to strengthen that. So, I'm a bit more optimistic on this than I have been. But I hope that doesn't translate into the wrong kind of policy for the Committee because I'm not ready at this point to relinquish the reins and say that we have this battle won, by any means.",162
-fomc-corpus,1989,President Stern.,3
-fomc-corpus,1989,"My views have been deviating a bit from the Greenbook in recent months and the deviation has grown. In terms of the economy, looking at the latest statistics and our own internal forecast and talking to business people around the District and elsewhere, I'm somewhat more optimistic about the outlook for real growth going forward. It looks to me like the economy, all things considered, is in remarkably good shape. And I expect that's going to continue. On the price side, too, I'm more optimistic in the sense that I think we have an opportunity to make more progress against inflation than the Greenbook envisions. I say that in part because of the course of monetary policy over the last 2-1/2 years, but also in part because business people I talk to are clearly reporting an abatement of inflationary pressures. That has been going on for several months despite the fact that there are many tight labor markets in our District; that doesn't seem to have been translated into wage pressures. I can only presume that concern about job security and the well known international environment--where foreign competition has been so very important--have served as restraining influences. I must say, having given that optimistic assessment, that I hate to go back to an old and somewhat unhappy topic but I do think this is all jeopardized by the course of the dollar, should it continue to decline. I think that would back up very quickly into deterioration in the inflationary situation and outlook and, ultimately, into the growth outlook as well. So I think there are some very serious risks there.",313
-fomc-corpus,1989,President Boehne.,5
-fomc-corpus,1989,"Well, I think the bearishness in New England is contagious; it's moving down the Atlantic coast. There clearly has been a shift in sentiment in my District away from one of optimism toward more concern about the economy. That is particularly true in the real estate business. Residential construction is very soft and, looking out over the next several years, it's likely not to strengthen a great deal. Just looking at the underlying demographics, I wouldn't be surprised, for example, if a good year for housing starts might be two-thirds of what we have been used to in recent years. There is some pessimism in the manufacturing area, partly because of what has been happening to the dollar. The retailers are very cautious on inventories: inventories aren't going anywhere; they are essentially flat. People in capital spending still have fairly good back orders and I think are feeling good. Nonresidential construction is quite weak in New Jersey and Delaware: Pennsylvania tends to lag those states and we're going through an office building boom which I think will leave us in a glut position. I think we clearly are in a slowing position. With the national economy perhaps growing 2 to 2-1/2 percent this year, I would guess measured GNP in our District would be about flat. The unemployment rate, which has been well under the national average and still is under the national average, is nonetheless rising. It's still tight at the entry level and that, too, I think will carry forward given the demographics. But it is beginning to loosen up further up the ladder. As far as the national economy goes, I think there is this dichotomy between what I'm seeing in my District and the national economy. It seems to me that the Greenbook is about right. One point, however, is that the change in the composition of demand, as shown in the Greenbook, does seem to have some implications for risks. Essentially, what we have is a move away from exports and a move away from capital spending in that we're counting on consumption and, to some extent, housing. I have some doubts about housing picking up and that leaves consumption. So it seems to me that we could end up with significantly less growth and perhaps even more growth. But my sense here is that the change in the nature of the composition probably leads us to a slightly greater risk on the down side going out into 1990, given the mix of output that we have had over the last year.",490
-fomc-corpus,1989,President Keehn.,4
-fomc-corpus,1989,"Mr. Chairman, the overall situation, particularly as it relates to the Midwest, is largely consistent with a pattern that has been developing over the past several months--namely, moderation in many sectors. It is not in any way a sense of deterioration, but a tendency [for activity] to come down toward a level more consistent with our forecast. This moderation is particularly true in the heavy manufacturing part of our economy. For example: orders for the large trucks, Class A trucks, have slowed very considerably; orders for heavy construction equipment are down substantially; and some categories of machine tools are also off. Offsetting this, construction activity in the District continues to be pretty strong, stronger than the national numbers. Certainly, the automotive sector is difficult to read. I agree with Mike's categorization; I think the strong sales level in August that was carried over in September is largely for the 1989 [models] and is in anticipation of the substantial price increases for 1990 cars. Also, there are very heavy incentives on the 1989 models. As a consequence, dealers are selling out of their inventories and the order level from the dealers to the manufacturers I'm told recently has all but collapsed. As a consequence, the auto production schedules have been reduced substantially in the fourth quarter and the reductions planned for the first quarter of next year are even more substantial than that. So, anybody who is dealing with the auto sector is beginning to take on a fairly bearish tone. In the agricultural area, the news is good. The harvest has started and we are anticipating good production on both corn and soybeans--not record crops, but substantially higher than last year. And our expectation is that, within the District, the USDA estimates of production are probably a little on the low side. On the price front, it's hard to get a good sense of where prices are going, at least from the reports I get. The Chicago purchasing managers' index came out earlier this week and the price component of that was at 50. I think that's reflective of the comments that I hear: some prices are up and some prices are down, but there's no decided trend one way or the other. On the wage front also there is no change. The settlements, in my view at least, continue to be quite constructive and not indicative of the wage pressures that you might expect. On net, I think the economy is moving along on a constructive but moderating trend. Not unlike the Greenbook, I think the outlook for the balance of this year and, indeed, the early part of next year is assured, but I'm beginning to get concerned as to what a continuation of our current policy may mean as we get further out into next year.",547
-fomc-corpus,1989,President Boykin.,4
-fomc-corpus,1989,"Mr. Chairman, on the national picture our view would be pretty well along the lines of the Greenbook. We would not find anything about which we would have serious disagreement. As several others have pointed out, the forecast of inflation running through 1991 remains quite troublesome--certainly to me. Looking at our District, it's very difficult to come up with adjectives to characterize what is going on. If I were an optimist I'd say we were having modest growth. If I were a pessimist I'd say it has turned very sluggish. Not knowing which I am, I'll try to describe a few of the elements. Where we had had some strength in manufacturing, those gains are slowing. The slowdown in electronics seems to be in line with expectations. In petrochemicals, inventories have been building and prices have been soft, with a result that several plant expansions either have been delayed or canceled. Retail sales have shown modest improvement with the exception of auto sales, which had been stronger and now are showing declines in many areas. Two of our weakest sectors, energy and construction, have begun to show small gains; but residential construction continues weak as does agriculture--both cattle and crops. The statistical data continue to show what I would say is modest growth. We have had rather extensive discussions over the last couple of weeks with various businessmen and others in our District. The attitude has changed, even in Houston. Growth seems to have leveled off there as it has [in Southern Texas]; and they were two particularly strong areas. The way that they are characterizing the situation is that they think our economy either has stalled or is shortly headed for a stall.",330
-fomc-corpus,1989,Is that because,3
-fomc-corpus,1989,That could be a factor!,6
-fomc-corpus,1989,He's back.,3
-fomc-corpus,1989,I thought he supported all expenditures that went into that area.,12
-fomc-corpus,1989,"Well, I'm talking about",5
-fomc-corpus,1989,"Oh, excuse me.",5
-fomc-corpus,1989,"Well, a considerable difference--",6
-fomc-corpus,1989,Approximately the same magnitude.,5
-fomc-corpus,1989,President Guffey.,5
-fomc-corpus,1989,"The Tenth District economic conditions continue to improve slowly; I think they trail the national improvement. Nonetheless, improvement does show in retail sales, which were up over a year ago with inventories, we're told, well in line. With respect to [agriculture], the good news is that the drought has been broken, although crop estimates for the spring-planted crops are a fourth to a third below what would be an average crop. The bad news is that the rains have been so excessive that [farmers] are going to have a hard time getting the milo bean and corn out of their fields. As a result, I'm not sure what their conditions will be. But farm land values have continued to increase; in our last quarterly survey they were up over the three categories, roughly 2 percent over the quarter before, and that's eight consecutive quarters in which those land values have improved. The OPEC agreement to raise its production ceilings had very little effect on oil prices, but the drilling activity has increased modestly most recently. The rig count is about 259 in the District, about 5 percent below a year ago; but it is improving on a month-to-month basis. Most of that exploration is for gas; they have found a big gas field over in eastern Oklahoma and Texas which is being exploited apparently by some of our drillers who are going south and going to help your economy, Bob. Construction activity has been mixed, to be sure; nonresidential construction has increased from our last meeting here, whereas residential construction has fallen off. With regard to my view of the national economy, I would accept readily the Greenbook forecast; I think it's appropriate. There are some within our own Bank who believe that forecast is a little stronger than they would project. But my own view is that it's about on track; given the underlying assumptions, I think it's a good forecast and one we ought to be happy with.",386
-fomc-corpus,1989,President Hoskins.,4
-fomc-corpus,1989,"The District hasn't changed much since I reported last time. We are continuing to have very high operating levels across almost all industries. We specifically targeted capital expenditures this time to see if the presumed slowdown was occurring and at least from the anecdotal [evidence] the answer to that is yes. Most of the firms we surveyed have orders to carry them through next year but there is a clear slowing in the order books for producers. We still have a couple of geographic areas in the District that are really quite strong. The Columbus area is one of them. We are seeing wage pressures there. Service-type industries will be looking at 6 percent increases in wages. But overall, we haven't seen a major change. Just to put it in perspective, Ohio is at about 4.8 percent unemployment and I believe Pennsylvania is around 4.3 percent. So, we've got pretty robust economies but they're not expanding at rapid rates. And I think both [unintelligible]. In terms of the Greenbook, we have very little disagreement with respect to the longer-term outlook for real growth. Of course I'm disappointed, as everyone else is, with respect to the inflation prospects. In light of the discussion this morning and the alternatives shown in the price forecast, we seem to be working against ourselves. When we tried to bring down the dollar it cost us a half a point out there in 1991, if I read the chart right. So it seems to me that that's an issue that we have to grapple with at some point along the way. I'm not sure I'm ready to grapple with it today after this morning's discussion, however. That's all I have to say.",335
-fomc-corpus,1989,President Melzer.,4
-fomc-corpus,1989,"The pattern in our District is the same as I've been reporting. We have had sluggish employment growth all year both in nonagricultural payrolls and in manufacturing, and that pattern continued in the most recent period. The only manufacturing sector that showed any growth was chemicals. There was particular weakness in electrical equipment: Whirlpool laid off 850 in Portsmith, Arkansas; GE has announced layoffs of about 800 coming up in Louisville; [unintelligible]. Having said all that, though, I think we also have had very slow labor force growth. Unemployment rates are still relatively low; St. Louis just published an unemployment rate of 5 percent, its lowest in a number of years. And there has been a pickup recently in nonresidential and residential construction contracts. Even at GE, for example, the feeling is that this process isn't cumulative; they see a bottoming out here. I think they feel that with these announced layoffs their production will be in line with demand. They see next year as being relatively flat but they don't see a continuing deterioration. One final thought--which I mentioned last time and it continues to be the case--is that I've been traveling around the District a little and it's very hard to find businessmen who are worried about the economic situation. Nobody grabs you by the lapels and says: ""This thing is going south and you better do something about it.""",280
-fomc-corpus,1989,Governor Johnson.,3
-fomc-corpus,1989,"On the real economy, growth seems to be continuing at a fairly modest rate as compared to what looked like a slippage earlier. So, as far as the economy's performance, there is some inertia there that is satisfying, I think. I don't see it much different than the Greenbook has in terms of the pattern that may be developing. Did you say, Mike, that manufacturing inventories were coming out this morning?",84
-fomc-corpus,1989,"Right, and they were up $12 billion at an annual rate.",14
-fomc-corpus,1989,As opposed to a stronger--,6
-fomc-corpus,1989,It was $50 billion in July.,8
-fomc-corpus,1989,And that is a good sign.,7
-fomc-corpus,1989,And the inventory/sales ratio went from 1.64 to 1.56.,18
-fomc-corpus,1989,You're ahead of me on that; I don't have those numbers.,13
-fomc-corpus,1989,"Well, that's a good sign in that the bulge in inventories in July did not carry forward.",20
-fomc-corpus,1989,A good part of that is a big increase in auto shipments and sales.,15
-fomc-corpus,1989,"Right, but there was some uptick even ex autos, if I remember, before July.",19
-fomc-corpus,1989,"Right, there was a pretty broad--",8
-fomc-corpus,1989,I was referring to the sales.,7
-fomc-corpus,1989,"Yes. In spite of all that, I still see it like the Greenbook forecast--some winding down in the economy. I don't see any signs of acceleration, taking all the regions on balance; I still see some gradual slowing going on. So, I perceive a little more downside risk than upside risk. But I want to associate myself with Gary Stern and others who earlier indicated a little optimism on the inflation front--that inflation seems to be looking better and it seems to go beyond just the food and energy components. But as even Mike Prell said, a lot of the ex food and energy improvement seems to be associated with the dollar, to some extent. I'd be quite alarmed if we continue to contaminate the environment we have for improvement with a drop in the dollar. I'm not saying we ought to be targeting the dollar, but given the fact that we are at high capacity levels, we don't have a lot of fudge room there unless the economy were to slow further and we could absorb some decline in the dollar. So, that is a big, big worry. And even though I think the risks are still toward the down side, the current environment is not very promising for any flexibility on policy.",243
-fomc-corpus,1989,Governor Angell.,4
-fomc-corpus,1989,"It seems to me that the picture is a mixed picture. I'm somewhat on the optimistic side, as are Gary Stern and Manley Johnson, in regard to the output-price tradeoff. It seems to me that in the second half we are in a 2-3/4 percent inflation mode as compared to 6 percent in the first half. I would agree that neither one of those was sustainable. That is, I think we had accidental factors giving us too high inflation numbers in the first half and we are getting some benefits in the second half that are not sustainable. But I would tend to expect inflation in 1990 to be within the 3 percent range. I don't call that good at all. My goodness, we are two years delayed in terms of being at 3 percent and I think we do need to make more progress. But I think our ability to make progress on the inflation front can best be done by not creating recession-like conditions. And I'm optimistic that that will not occur. M2's growth over 26 weeks is now back up to 4-1/2 percent, which seems to me to mean that we have made some progress in that regard. Commodity prices continue to soften, but I think it's a rather moderate softening and not a precipitous one. It seems to be a softening that reflects the monetary scarcity that occurred earlier; and I think that needs to be watched rather carefully as I think money growth needs to be watched. But I do believe there's a different tone around in regard to how one can profit by engaging in various economic activities. I think profit prospects or speculative gains by holding land or real estate or any investments are probably being diminished somewhat. And it doesn't seem to me that this is going to lead to a sustainable level of investment activity in many of these areas. I am as bullish as the staff is in regard to exports. In fact, I have exports slightly higher with a stable exchange rate, whereas the staff is calling for exports to decrease dramatically--well, I'd call down to 5 percent somewhat of a dramatic decrease. I believe that we have had the benefit of having American manufacturers compete in the world markets right here in the United States; I think they are getting better and I think there is motivation to hold costs in check. So, I think it's an optimistic outlook; but there are some areas, like the airline business, that are showing some signs of change. So it looks sustainable.",495
-fomc-corpus,1989,Governor Kelley.,3
-fomc-corpus,1989,"Mr. Chairman, I have adopted a self-imposed task of delivering jeremiads from time-to-time about things that are going on that are somewhat outside the economy and present a backdrop against which we need to apply policy. I'm not going to repeat that this morning, but I would just like to get on the table the fact that there are a host of very important challenges and problems in the economy that are very urgent and on which, in many cases, we seem to have an opportunity to make some substantial progress. They are not economic in many cases; but in virtually every case they are substantially impacted by economic events and economic conditions. As I look at the economy, I'm close to where I think Governor Johnson and President Black and others are in that it's hard for me to see where meaningful strength can come from and relatively easy to see where weakness can come from. And that gives me some pause. I would suggest that we ought to be rather sensitive to emerging weakness and be quite careful that we don't induce something through policy that would turn out to be counterproductive to society in a larger sense.",220
-fomc-corpus,1989,Jeremiah Corrigan!,6
-fomc-corpus,1989,"Well, in terms of the near-term outlook I'd be in the moderate but steady camp that somebody--I guess Dick Syron--mentioned. As I said to you this morning, there is some evidence of a lessening in prices for some raw materials and intermediate goods and even some evidence of modest improvement in availability of deliveries. But all-in-all as I look at the current situation, my bottom line is that I fear it will be weaker and my instinct is that it will be stronger. Therefore, I think it's about balanced. But let me take up a further [unintelligible] in terms of the intermediate-term outlook. The staff has taken the forecast in the Greenbook through the end of 1991 and I think what the staff is saying is very, very revealing. You may not like it, but I think it is probably the most exhaustive and professional insight that you can get. What does it say? It says: 2 percent growth for three years running; the unemployment rate rising to 6 percent; the saving rate falling again to 5 percent; the CPI with or without food or energy stuck in the 4 to 4-1/2 percent range; compensation per man hour stuck at 5 percent; the fiscal deficit still over $100 billion; and the trade and current account deficits at the end of 1991, even with some depreciation, still around $100 billion. Net external liabilities at the end of '91 are going to be $1 trillion and portfolio net income flows are going to be minus $50-odd billion. It seems to me that what you get out of that is an intermediate-term outlook that I consider to be in some ways as good as you can expect but in other ways very, very risky and dangerous. It tells me, as we all know, that we have an absolutely lousy policy mix in this country. It tells me that there are great risks of a renewal of protectionist attitudes in this country. It tells me that there are risks even in terms of the ability of this country to provide leadership. And it certainly tells me that there are very grave risks in the economic outlook in terms of growth, inflation, and the exchange rate. I think the exchange rate risk over time is clearly on the down side. That's one of the reasons why, though I may not agree with the analysis, I certainly agree with the stated concerns about the dangers of beating up on the dollar. But I don't consider this three-year outlook anything but trouble looking for a place to happen somehow or other.",514
-fomc-corpus,1989,Governor Seger.,4
-fomc-corpus,1989,"I can't worry about where we're going in two years because I don't think most of us can forecast even two quarters ahead let alone two years ahead. Looking a couple of quarters ahead, though, I do think that the slowing that we have seen is going to continue. What concerns me greatly is the weakness that I see in various manufacturing areas. And the weakness in manufacturing, I think, is more serious than the overall weakness. The Purchasing Managers' Survey for the last five months or so has indicated this slowing; I have other sources of information as well. Just to repeat a couple of things that Si Keehn said about the auto industry: using the current production schedules for the fourth quarter this will be the weakest fourth quarter since 1982 and you may remember that 1982 was not exactly a hot year for autos. Even if you pick up the transplants which, of course, have become very big and very important over this last seven years, it still will be the slowest fourth-quarter production since 1982. Frankly, one of the reasons two or three of the auto manufacturers have announced incentives for their 1990 models even before they are readily available is that they are so nervous about the weak demand. In some cases, they do not have enough orders even to start their plants running to produce the 1990 models. So, I think the people who looked at the August auto sales numbers and read them as a sign of strength got the wrong message. It was end-of-year close-outs that they really pushed. It's just about 180 [degrees] away from a strong story; it's a weak story. Also, if interest rates actually perform as the Greenbook assumes--if short-term rates are basically flat during the year ahead and long rates rise slightly--I'd be very hard pressed to expect housing to improve. Maybe I'm missing something and maybe consumers are interested in buying more, but the builders--at least in the builders' survey that I read--are feeling rather negative. That's particularly true in parts of the country that have been alluded to here earlier. The export situation really has to be watched. I think the strong dollar that we have seen over much of the year, until the [unintelligible] began recently, has had an impact on export growth; I believe it's going to have an additional impact because there are long lags involved here. Also, there has been a rather significant deterioration in profits going on. The IBM announcement a couple days ago of disappointing earnings in the third quarter and expectations of disappointing earnings for the full year, I think, is a great concern. They have announced that they will offer early retirement to some more people, which is not exactly very IBM-like. If you read the press release carefully, it mentions that the strong dollar was one of the things contributing to their deteriorating profits because of the translation problem--the profits that they are earning abroad and then bringing back into their consolidated earnings report for this country. It's my personal observation that when a company experiences profit deterioration, that eventually impacts on its willingness and ability to expand and even to modernize dramatically. So, I'm probably a touch more concerned than the average around the table. And if the stance of monetary policy is what we're assuming in the Greenbook, then I think I would be a lot more nervous than the average here. Thank you.",677
-fomc-corpus,1989,Governor LaWare.,4
-fomc-corpus,1989,"Well, I'm kind of sorry I didn't get in ahead of President Corrigan because he summed up so perfectly my own views of what some of the risk factors are in the near future--accidents looking for a place to happen. I'm very concerned about the fact that the outlook is for sluggishness with no real progress on any of our major problems. It seems to me that the greatest fragility in what we see going on right now is the possible effects of the dollar's behavior. While I understand that solving the current account crisis and the trade crisis is a necessary part of our planning, or hopeful planning, it seems to me that it is not going to get solved all by itself just by driving the value of the dollar down. The dollar is behaving right now like a strong swimmer. But sooner or later, even the strongest swimmer is going to go the bottom if you push his head under water again every time he comes to the surface. And I worry that any kind of a free fall in the dollar in the near future could drive people away from dollar-denominated securities and reverse this interest rate structure very dramatically by forcing the financing of our deficits back into our own markets. And that would rob us of the monetary policy flexibility that we need in order to keep some sort of an even keel through this perilous period. So I'm worried, and that's the issue that I have come to focus on--worried and frustrated, I guess, sums it up.",293
-fomc-corpus,1989,I wish I had said all that. That's good.,11
-fomc-corpus,1989,I suspect this may be an appropriate time to break for coffee.,13
-fomc-corpus,1989,Mr. Kohn.,5
-fomc-corpus,1989,[Statement--see Appendix.],6
-fomc-corpus,1989,Questions for Mr. Kohn?,7
-fomc-corpus,1989,"Don, on your longer-term projections, I don't know what you're projecting for 1991. The Greenbook tells us we will have 4 percent inflation or so in '89, '90 and '91. So, given the forecast for inflation, it seems to me that we're implying somewhat higher than a P* kind of M2 growth. In other words, don't I have to see some 2-1/2 or some 3 percents, on average, over time to--",100
-fomc-corpus,1989,"Well, eventually you would have to see that. You would have to see 3s [in M2 growth] to imply price stability; this is in line with Governor Johnson's question earlier. If you look at the financial indicators that were distributed--the last chart, chart 9 has the P*--we are assuming 6 percent M2 growth in 1990, about in line with nominal GNP, and a small decline in velocity. In 1991 we have 5 percent, a bit lower than nominal GNP, and a small rise in velocity since we have this upward drift in interest rates in that year. Those two taken together imply in the P* model--to keep P* just a little below P--a very mild deceleration in inflation, not a rapid one. The line is tilted down but not at a very steep angle.",176
-fomc-corpus,1989,We're having trouble seeing that.,6
-fomc-corpus,1989,What would happen if P actually reached P* at the end of '91? What is the gap at the moment in that?,26
-fomc-corpus,1989,"I can tell you that in a second. Well, at the end, if P were lower than--",21
-fomc-corpus,1989,"No, equal to the P*.",7
-fomc-corpus,1989,"Well, given the money growth that we've assumed, that would require then that prices come in less than the rate--",23
-fomc-corpus,1989,That's what I'm saying.,5
-fomc-corpus,1989,--and presumably we would have that P equal to P*. That would imply very little further downward pressure on--,22
-fomc-corpus,1989,"No, no. If at the end of 1991 P* is under P, then that gap is the measure of how much prices would fall if P were equal to P*. I'm asking--",40
-fomc-corpus,1989,Right.,2
-fomc-corpus,1989,How big is the gap is what he's asking.,10
-fomc-corpus,1989,Okay.,2
-fomc-corpus,1989,On the chart it looks as if it could be as much as 2 percent.,17
-fomc-corpus,1989,"At the end of 1991 P* is 1.345 and P is 1.381, so [the calculation] is .04 over 1.38. It's about 3 percent, I'd say, or whatever .04 over 1.38 is.",56
-fomc-corpus,1989,.04?,3
-fomc-corpus,1989,"Well, .04 over 1.38. So it's 2-1/2 percent or so.",22
-fomc-corpus,1989,2-3/4.,6
-fomc-corpus,1989,2-3/4.,6
-fomc-corpus,1989,[Unintelligible] a P* operation is that we could get a lower [inflation rate]. I'm not saying it's forecast; but it's not an argument that you could get a lower inflation rate consistent with that money supply growth [unintelligible].,53
-fomc-corpus,1989,I'm not sure I understood what you just said.,10
-fomc-corpus,1989,I'll say it again very explicitly.,7
-fomc-corpus,1989,I'm sorry.,3
-fomc-corpus,1989,"The hypothesis that employs the M2 growth, which is better, is therefore not inconsistent with a lower inflation rate than is in the Greenbook for '91.",32
-fomc-corpus,1989,"Right. Actually, relative to the Greenbook, in '91 the P* would give you 3-1/2 percent on the implicit deflator. The Greenbook has 3-3/4 percent, so it's not much different. I thought what you were getting at is what it would imply for '92. Presumably, that is where you're coming out of '91 and that would imply some further deceleration.",87
-fomc-corpus,1989,"Well, '92 is an easy forecast; it's '91 that--",14
-fomc-corpus,1989,"Can I follow up? The shorter-term problem, from my perspective and not obviously from other people's around the table, is that we're going to have a growth rate--going into the fourth quarter and starting the first of the year--of around 6-1/2 percent. Isn't that kind of a speed problem in the sense that we are accelerating?",71
-fomc-corpus,1989,"Well, if interest rates were to hold steady, I would not expect money growth to accelerate in the first quarter particularly.",24
-fomc-corpus,1989,Okay.,2
-fomc-corpus,1989,"Presumably, if interest rates didn't come down we wouldn't get the acceleration; I would expect M2 growth perhaps to decelerate slightly. But it would be basically in the 6-1/2 to 6 percent area in the first quarter.",51
-fomc-corpus,1989,It's just a problem for me to look at M2 growth of 5.2 percent fourth quarter-over-fourth quarter the previous year and your projection of about 4.5 percent [for 1989] and now to see you project that M2 growth is going to go back up to 6 or 6-1/2 percent. The argument generally has been that the cost of bringing it down because of interest sensitivity is too high--you get big swings in M2. But you can turn that around and say you can bring M2 down with relatively small swings in interest rates.,121
-fomc-corpus,1989,"In the short run that's right. This is the phenomenon that we discussed in July, I believe, when we were talking about the long-run ranges. The staff forecast with relatively flat interest rates was consistent with M2 growing about in line with nominal GNP. So if you think you're going to have nominal GNP growth on the order of 5-1/2 or 6 percent next year you're going to get M2, given that we've had a little decline in these rates, on the order of 6 or 6-1/2 percent, just mechanically working it through. But you could raise interest rates a bit and you would get a little lower nominal GNP. You would also get even more impact on M2 given that interest rise.",153
-fomc-corpus,1989,President Syron.,4
-fomc-corpus,1989,"A theoretical question, looking out and going into next year: If the capital gains legislation were to pass--and there is a lot of discussion about windows and that sort of thing--what kind of effect will that have on M2 as we go into next year?",53
-fomc-corpus,1989,"We discussed that to some extent. If there is, it could be a bit of a replay of 1986. If people realize a lot of capital gains quickly and then store the money waiting to pay their taxes next April, for example, we could have some temporary upward movement of M2 or a [unintelligible] level of demand for M2 in the short run, which would then come back presumably after the taxes were paid. It would be a little different than we saw in 1989 when we thought people were surprised in April by their tax returns and they drew down their M2 balances and then had to move them up. You could argue in this case that, perhaps having learned from 1989, people might deliberately make a decision on the basis of taxes in that they might be more tempted to take some of the capital gains they got and leave them in M2 and have that ready--",185
-fomc-corpus,1989,Wouldn't that degree of sophistication imply more M3 than M2?,14
-fomc-corpus,1989,"Depending on who's doing it, yes. If it were--",12
-fomc-corpus,1989,"If somebody were sophisticated enough to act in context of that law, one would assume it's more an M3 possibility.",23
-fomc-corpus,1989,"Possibly. I think there are probably a number of households with very high wealth and, therefore, potentially high M2 holdings who--if they were to park it there temporarily--could do this. Presumably, if there were a mood shift out [of M2] into M3-type liabilities, such as large time deposits, etc., from the bank and thrift perspective they would have to issue fewer other types of M3 liabilities. So, I'm not sure whether that would really affect the level of M3 so much. I think there might be some impact on M3.",117
-fomc-corpus,1989,"Anybody else? Why don't I get started on policy issues. This ought to reflect much of what I've been listening to here because I, too, think the outlook is mixed, with some key timing points in the period immediately ahead. It's fairly clear that the evidence for weakness, if one looks at that part of the spectrum, is most persuasively coming from the orders pattern, specifically in durable goods. The nondefense capital goods area, excluding aircraft, clearly is scaling back at a fairly pronounced pace, including declines in backlogs in nominal terms. What's unclear at this stage is to what extent that order easing is a reflection of real underlying weakness in capital equipment or merely an order adjustment process to a significant decline in average lead times on the deliveries of materials and parts. Obviously, if you're bringing the lead time down from, say, 90 days to 60 days--that's not the actual number--one can collapse the unfilled order pattern and orders would fall without affecting total plans for shipments. If that is a major cause of this phenomenon, owing to the fact that the order lead times are now probably at rock bottom, at least in the context of this country, it would follow, therefore, that within the next several weeks we should begin to see some firming in orders. The purchasing managers' order data have stopped their accelerating rate of decline; in other words, they are still implying a decline but the decline has stopped accelerating. And there is some evidence popping up in a variety of different places that suggests that maybe the softening is coming to an end. I don't think we're going to know that for another three or four weeks. The one aspect of the issue which I must say concerns me is the notion that this may be something more than that. The argument for it being more than that is the continuous, cumulative decline in profit margins that has occurred since the spring. It's clear that what has occurred is that the slowdown in volume, coupled with the price slowdown, has had a significant impact on the revenue side; the slow volume clearly has raised fixed costs and especially the extraordinarily high interest payments of the corporate sector. In fact, the series that we produce internally--the ratio of gross interest payments by corporations as a percent of gross cash flow--has spiked up in the last two quarters partly, I suspect, as a result of the interest increases that are going on but also because of a slowdown in cash flow, which is another way of saying that there is pressure on margins coming from this gradual slowing up. It is not reflected in the Greenbook too much, so maybe these numbers are not an issue of concern as much yet. But I do think that the capital goods markets are the key to this outlook. If capital goods hold up, I think there's very little chance that this economy can move down; in fact, if capital goods markets hold up we might exceed the Greenbook easily. But if the capital goods markets continue to erode and then accelerate down, then we get a significant backing up of in-process inventories in the system. We look at inventory data of purchased materials, goods in process, and finished goods from the establishment level. But there's a very significant part of all of those inventories which are really in process. If you consolidated them under their final sales level, for example, you'd find in the capital goods area that the proportion of inventories that were [in process] would be very high and that would tilt over the capital goods situation; even though the inventory sales ratios don't look formidable, you do get enough pressure to create some recessionary forces. This is the downside argument. The upside argument is basically that if this process were underway, it's already overdue on the basis of historical experience. This economy doesn't work that slowly. In other words, when you get these types of patterns, they trigger things and they go at a much faster pace than anything that we have seen. That sort of suggests that this might be a false move. In any event, when I look at this and translate it into policy, it says to me at this particular stage that the argument for moving in either direction is rather dubious at this point. One major reason is that if we were to move down--well, let me put it this way: Moving up at this point strikes me as very unsupported. I don't know a reason for doing that and nobody around here even remotely suggested it. But moving down right at this moment [is problematical], in light of what is presumed to be an increase in the Bundesbank rates on Thursday and a coordinated attempt on the part of the G-7 to now put monetary policy on the table and bring the dollar down--and believe me it will succeed; it will go right through the floor. If we were to get anywhere close to moving rates down in conjunction with the Bundesbank move, I'm fearful that we would get too much market response as the new G-7 coordinated monetary policy endeavors to bring the dollar down. And I think that would create some really major problems for us. I conclude, therefore, that at least where I'd like to come out would be alternative B, asymmetrical toward ease as we are now. And I would keep a close eye on the order patterns because we do get information coming in continuously. If the patterns weaken considerably, I think that probably would be suggesting to us that the capital goods markets are beginning to slip off. I don't think that's where the odds lie, but it is still a disturbing possibility. If the more probable event occurs--namely, that the economy is about to stabilize--I think we will know that in several weeks. In any event, I would like to suggest as a policy position alternative B, asymmetric toward ease. Governor Johnson.",1155
-fomc-corpus,1989,"Yes, I'd like to associate myself with that view. I'm not sure I'd explain it the same way. My major concern right now--even though I think there is a downside risk and we ought to be prepared to use our flexibility to ease at some point--is that the atmosphere is not right. I think there are still some questions going forward and we ought to wait and look. My major reservation at this point is what is going on with the dollar and the fact that any attempt to ease now, even if we thought it was the right thing to do, would have great risks because the perception [would be] that our goals were associated more with some dollar level than our view about inflationary risks. And I really don't want our policy tied in with that. So, I prefer to maintain our flexibility going forward.",165
-fomc-corpus,1989,President Parry.,4
-fomc-corpus,1989,"I would certainly support alternative B, but I would have a preference for symmetrical language because I think the data to date suggest that the risks are equal on the up side as well as on the down side.",41
-fomc-corpus,1989,President Forrestal.,4
-fomc-corpus,1989,"Mr. Chairman, I would certainly support your prescription for policy in the short term. I think it's exactly on target with respect to the dollar. Any easing at this point would be associated with dollar movement and that has very grave risks, as you stated. I think we're at a point where we ought to be fairly happy with the state of the economy. Clearly, there are risks and they have been articulated very well; I don't minimize them. But I certainly find it very hard to imagine a stronger case for leaving policy unchanged at the moment. I, too, would prefer a symmetrical directive only because I think that the risks are about evenly balanced.",130
-fomc-corpus,1989,Governor LaWare.,4
-fomc-corpus,1989,"I'm strongly in favor of alternative B. I think the risks of easing because of the dollar situation are significant. Therefore, I would prefer the symmetrical language.",31
-fomc-corpus,1989,President Hoskins.,4
-fomc-corpus,1989,"My concerns, again, remain in the longer term, not this short-term consideration. My fear in the longer term is not that inflation is going to get out of hand on the down side. It seems to me that if it's going to get out of hand it's going to be on the up side. That seems to me to be where the risk is: trying to head off a recession that is not there will always bias us toward inflation and volatility in the inflation rate. I would prefer the ""B"" path. I'm not so comfortable that I'd want to tighten right now but I would have asymmetry in the other direction on the notion of getting the M2 path below 6 percent for next year.",142
-fomc-corpus,1989,President Syron.,4
-fomc-corpus,1989,"Like many others, I'm happy with the current state of the economy. But also like many others, I'm not happy about the outlook, particularly on inflation, as we go out a couple of years. I know the errors that such a forecast has. I understand the constraints that are on us as far as the dollar goes. Because of my longer-term concerns on inflation I'm very comfortable with ""B,"" but I would also prefer symmetrical language in the hope that the market would see symmetrical language as no change.",101
-fomc-corpus,1989,President Boehne.,5
-fomc-corpus,1989,"Alternative B, and I think asymmetrical is fine. I could also live with symmetrical. I should say that while this makes good economic sense, I think it is going to be somewhat confusing to observers of this whole process in that we have been intervening to drive down the dollar and, if the Germans raise interest rates, there will be an expectation that this is a coordinated effort. And if we don't follow through--I agree we should not follow through, that's not my argument--I think it will raise a number of questions and will sire a number of speculations about where the Fed is in all of this. That's more politics and public relations, but it is nonetheless part of the world.",140
-fomc-corpus,1989,President Keehn.,4
-fomc-corpus,1989,"I'd be in favor of alternative B and asymmetric language. It seems to me that what we're basically saying is no change in policy. A word change is awfully minimal; nonetheless, I'd prefer remaining with asymmetric language at this point.",46
-fomc-corpus,1989,President Stern.,3
-fomc-corpus,1989,"Well, I too favor alternative B. I have a mild preference for symmetric language just against the circumstances in which we find ourselves. There are indeed a lot of problems that might impinge upon us, but it seems to me that the best policy we can adopt, given all these potential problems, is to try to keep the economy on a relatively even keel. And I think ""B"" accomplishes that. I certainly wouldn't want to see M2 growth in the near term--by that I mean the fourth quarter and going into next year--go above that associated with ""B."" I do think our credibility is very important and I think we have to be very careful about that matter.",138
-fomc-corpus,1989,Governor Angell.,4
-fomc-corpus,1989,"Yes, Mr. Chairman. I also prefer alternative ""B"" with asymmetric language toward ease. It seems to me that there is more restraint in place than I think some of the words so far have suggested. We have had monetary restraint sufficient to turn the foreign exchange value of the dollar around. We have had monetary restraint sufficient to take commodity prices that were rapidly rising and turn them into falling prices. We have had monetary restraint that has taken the PPI on a year-over-year rate of change basis from moving up to moving down. To think you can get lucky enough in that kind of environment to do that and have no change in monetary restraint and to think that that restraint is going to be just right on the other side does not follow the logic that I know of. So, I'm quite suspicious of the fact that we may be getting further into this process than we know. We need to be watching very carefully to see what occurs. Now, I would be delighted if we could just say: Well, we're going to pull the monetary aggregates down and we're just going to have them under restraint; but I think all of us know what happens if you go into that mode. The demand for money has to increase during a period of time in which price level stability is much more of a clear possibility. So, I think we have to watch very carefully all the signals that have served us so well in keeping this economy going for so long and yet provided the restraint that we needed. I believe that it's not so important at this point whether we ease a quarter or not here or there except that I don't want any timing with the dollar. But 25 basis points one way or the other doesn't make or break anything. You could make way too much of that. But it does contribute to the possibility of orderly markets that are so important; the whole housing industry, it seems to me, needs orderly markets. I think a very steady, careful, easing ought to be done; it's unfortunate that the G-7 took away what I think may be a time in which we may need to act. I think it's essential that we take this time to wait, but I am more inclined, I guess, than some others to believe that an easing is going to be necessary.",455
-fomc-corpus,1989,Governor Kelley.,3
-fomc-corpus,1989,"Mr. Chairman, I support alternative B with asymmetric language toward ease. That's where we are now and I see no reason to change it. I concur with Governor LaWare that the risks on the dollar are certainly there; you articulated them beautifully. But I also believe that that's going to have to be played out on a day-by-day basis. It's a little hard to know how that's going to go. I think that you and the Committee can and will adequately take that into account as events unfold. Meanwhile, I think the potential for weakness in the economy and the consequences of it--if we get it and it gets away from us--are severe. I may be a cockeyed optimist but I think there's a possibility that we will continue to get better inflation results than expected. As a consequence, it seems to me that your proposal is appropriate.",172
-fomc-corpus,1989,President Melzer.,4
-fomc-corpus,1989,"I favor ""B."" Symmetrical language would be my preference but I could live with asymmetrical toward ease. I would just comment that several months back I was concerned about the degree of the restraint. I'm not sure what to make of M2. But in terms of some of the narrow aggregate and reserve measures, I take some heart in the fact that they had a pickup in September and are projected to pick up [further] through the end of the year. So, I think that the shift that Governor Angell was concerned about to some extent has taken place, at least based on those [data].",123
-fomc-corpus,1989,Governor Seger.,4
-fomc-corpus,1989,"I favor alternative ""A"" because I think we do need a slight degree of easing; actually, I believe the difference between ""A"" and ""B"" is basically a slight one.",38
-fomc-corpus,1989,That means easing immediately?,5
-fomc-corpus,1989,"Yes. I don't think the 25 basis points is going to pour rocket fuel into our engine. Anyway, my main concern, as I indicated, is in the auto area and possibly in the capital goods area. In regard to the impact on the foreign exchange markets, I think the demand situation there is one of great strength for the dollar, which is why we had to be in there doing this heavy intervening and selling of dollars along with the other central banks. If we drop the interest rates slightly, then that would allow Sam Cross' people to take two days off and maybe that would be good. So, I don't think that that would be a real danger. Finally, just thinking back to our discussions here earlier this year about inflation, the actual performance of price indexes has been far better than any of us dreamed. And I don't think the apparent shortages that were so worrisome are there now. While I don't think inflation has gone away --and I say that so Lee Hoskins will understand--nevertheless, I don't think it is accelerating either. So, I would be more comfortable with alternative A.",225
-fomc-corpus,1989,"Martha, the Bluebook says that ""A"" is related to a 50 basis point drop. Would that change your view on that?",29
-fomc-corpus,1989,"I'm sorry, I meant 50.",8
-fomc-corpus,1989,Okay.,2
-fomc-corpus,1989,"No, it wouldn't.",5
-fomc-corpus,1989,Vice Chairman.,3
-fomc-corpus,1989,"I'm comfortable with alternative B. I guess I prefer symmetric but since we have asymmetric, that's fine--just leave it there. I would come out there pretty much on the grounds of my own assessment of the domestic economy, although the exchange rate situation makes it a bit more compelling. I would note, Mr. Chairman, tongue somewhat in cheek, that I'm not prepared to make this argument, but much of the earlier discussion today would not be incompatible with tightening monetary policy.",94
-fomc-corpus,1989,Do you mean drive the dollar higher?,8
-fomc-corpus,1989,"A whole variety of things: the dollar, price stability, making room for export growth. You could make a pretty good argument based on the discussion around this table that we should be tightening policy. I'm not prepared to make it.",46
-fomc-corpus,1989,You'd get a pretty darn good argument if you did!,12
-fomc-corpus,1989,President Black.,3
-fomc-corpus,1989,"Mr. Chairman, I'm very sympathetic to the point that Lee Hoskins made because I tend to focus on the longer run, as I think he does. And I think our long-run problem is inflation rather than recession. I'm also sympathetic to the points made by those who favor symmetry just because I'd like to send a signal to the market that we don't really approve of the G-7 action. But I also share Wayne's feeling that monetary policy has been a little tighter than most people assume and that it may be [sufficient to] hold down the inflation risk. So, I think your original formulation is probably the best one for now; I would go with ""B"" asymmetrical on the easing side.",143
-fomc-corpus,1989,"[Unintelligible] and I think most of the comments around the table about using monetary policy with respect to the dollar are right on the mark. I don't think the old adage ""you can't serve two masters"" is to be taken lightly. I think monetary policy should be devoted to domestic economic policy and not to the dollar. And further, with respect to the prescription for the period ahead, I would accept ""B"" but would want a symmetric directive. I wanted that last time, as you may remember, and I've seen no accumulating evidence that suggests we are any closer to a recession at this meeting than we were at the last meeting. As a matter of fact, in my own view, we're further away from it. As a result, I think there's a greater demand for a symmetric directive than there was last time. Therefore, I would prefer ""B"" symmetric.",178
-fomc-corpus,1989,President Boykin.,4
-fomc-corpus,1989,I favor alternative B. My preference also would be for symmetric language.,14
-fomc-corpus,1989,"The consensus is obviously alternative ""B"" with some concentration for asymmetric toward ease, which I would like to take a vote on. But I will say that since there's enough in the way of desire for symmetric language, should the evidence emerge that action is required I do think it might be useful to have a telephone conference and discuss what the issues are; they are likely to be subtle and the Committee's views would be useful. In any event, I would like to propose a vote on alternative B with asymmetric language toward ease. Would you read the directive so stated?",113
-fomc-corpus,1989,"""In the implementation of policy for the immediate future the Committee seeks to maintain the existing degree of pressure on reserve positions. Taking account of progress toward price stability, the strength of the business expansion, the behavior of the monetary aggregates, and developments in foreign exchange and domestic financial markets, slightly greater reserve restraint might or slightly lesser reserve restraint would be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with growth of M2 and M3 over the period from September through December at annual rates of about 6-1/2 and 4-1/2 percent, respectively. The Chairman may call for Committee consultation if it appears to the Manager for Domestic Operations that reserve conditions during the period before the next meeting are likely to be associated with a federal funds rate persistently outside a range of 7 to 11 percent.""",169
-fomc-corpus,1989,Call the roll.,4
-fomc-corpus,1989,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Guffey No Governor Johnson Yes President Keehn Yes Governor Kelley Yes Governor LaWare Yes President Melzer Yes Governor Seger No President Syron Yes,45
-fomc-corpus,1989,"Mr. Chairman, could I raise another question before we formally adjourn?",15
-fomc-corpus,1989,Sure.,2
-fomc-corpus,1989,"I wonder what the sentiment around the table might be, looking forward to our next meeting, to ask Mr. Prell and Mr. Truman and Mr. Kohn and others to do a special presentation for the Committee where we would take a look at this question of price stability in five years in some systematic way. I'm not suggesting a forecast but alternative scenarios, problems, obstacles, and costs, so that we could really get a systematic feel of what kinds of problems would be involved in that kind of underlying policy goal. I don't think--",108
-fomc-corpus,1989,[Unintelligible] suggestion.,8
-fomc-corpus,1989,One [other point]: I'm sure you all got this letter to respond to by the end of October or early November from Representative Neal and that kind of information might be useful. I don't know what we're all going to do about that but that kind of information might be an important--,56
-fomc-corpus,1989,What is the deadline for answering that letter?,9
-fomc-corpus,1989,The end of October or early November is my recollection.,12
-fomc-corpus,1989,He just said as soon as possible.,8
-fomc-corpus,1989,"Well, he says he'd like to make it a part of the record and he will be doing the hearings in late October or early November. And we assumed that--",33
-fomc-corpus,1989,"We are not all going to answer that separately, are we?",13
-fomc-corpus,1989,Do we want the FOMC [to respond]?,11
-fomc-corpus,1989,That's the question I was going to raise--no way.,12
-fomc-corpus,1989,I think we ought to [respond] as the FOMC.,14
-fomc-corpus,1989,I would think we should have one response.,9
-fomc-corpus,1989,Do we all agree?,5
-fomc-corpus,1989,That's what we have done in the past.,9
-fomc-corpus,1989,"Well, I'd like to discuss that.",8
-fomc-corpus,1989,"Well, putting aside this other view, I don't want to prejudge the letter.",17
-fomc-corpus,1989,We will discuss the letter at our luncheon.,9
-fomc-corpus,1989,"We have to deal with that. But quite apart from that, I really think that we ought to put this exercise under a microscope so we really have a--",32
-fomc-corpus,1989,"Well, this is something [unintelligible].",11
-fomc-corpus,1989,"Well, I'm just trying to formalize that.",10
-fomc-corpus,1989,"Yes, I agree.",5
-fomc-corpus,1989,What model are we going to use?,8
-fomc-corpus,1989,The model that works.,5
-fomc-corpus,1989,That's why I want to look at it.,9
-fomc-corpus,1989,"I think this will be something of a time consuming exercise at the FOMC meeting as well as for the staff between here and there. Aside from this Neal question which, if it needs to be answered by early November would precede the FOMC meeting anyhow, we do have a two-day meeting scheduled for December. The November meeting was to be a Tuesday afternoon meeting in any case. So before President Parry brought that up I was going to suggest that maybe we schedule it for the December meeting, but I'm not sure how it interacts with this Neal letter. We could have a Tuesday afternoon/ Wednesday meeting.",124
-fomc-corpus,1989,"Well, how about a Wednesday morning meeting with [Wednesday] afternoon?",14
-fomc-corpus,1989,Some Presidents don't like that when they have Thursday directors' meetings.,13
-fomc-corpus,1989,"The answer to that letter has to come long before any of this other stuff occurs. And I'm not altogether certain that the answers to the letter per se are going to be really tied up in any analytical issues. I think what's involved here is looking at the problems in financing the large budget deficit, not pressures on the money supply. What we really have to deal with, crucially, is what real rate of interest is consistent with a path of money supply which itself is consistent with zero or moderate inflation. Because it's the real rate of interest that will tell us, literally, the capabilities of bringing the system into balance. And I'm not sure that that really gets to this letter or anything related to it.",141
-fomc-corpus,1989,"Plus, it seems to me that there has always been a [unintelligible] definitions which has to be addressed as well. You could probably go around this table and find half a dozen different views about what price stability is. I know I have one.",53
-fomc-corpus,1989,"Yes, but I bet you they don't differ by more than 10 percentage points.",17
-fomc-corpus,1989,That's exactly the problem.,5
-fomc-corpus,1989,"Well, if we have to reply to this letter over the next month, and if we're going to have a two-day meeting in December anyway, this idea of price stability isn't going to go stale between now and Christmas.",44
-fomc-corpus,1989,I wouldn't think so.,5
-fomc-corpus,1989,"So, I think we ought to let it flow into our natural schedule.",15
-fomc-corpus,1989,"Okay. There is a fundamental problem that we have with this whole procedure in the sense that there are a lot of [unintelligible] things that have to be done in economic policy. And with fiscal policy now out of the game, and really monetary policy and sterilized intervention being the only [unintelligible] there's an awful lot of mischief that can occur. But I think it's those types of questions that we need to ask.",91
-fomc-corpus,1989,I agree.,3
-fomc-corpus,1989,"Well, the model that we're going to use is going to be rather important. It seems to me that if you're going to use the Phillips curve trade-off model you're going to defeat the Neal amendment.",40
-fomc-corpus,1989,What you want to do--,6
-fomc-corpus,1989,"[Unintelligible] if you want to defeat it, just use that model and you will guarantee a defeat.",24
-fomc-corpus,1989,"On the other hand, if you think you're going to get this like a free lunch, that's not realistic either.",23
-fomc-corpus,1989,And it depends on the time periods you're looking at. I think the Neal letter is consistent with looking at this over a long period of time. Most people don't behave--,34
-fomc-corpus,1989,[Even] over five years there are going to be costs.,13
-fomc-corpus,1989,There are going to be costs but there is going to be a benefit in that over the long period of time after that prosperity will be greater.,29
-fomc-corpus,1989,"Well, at a minimum, just having a focused Congressional examination of this process cannot be bad.",19
-fomc-corpus,1989,I'd rather Congress be debating this about monetary policy than a whole lot of others things they could be debating.,21
-fomc-corpus,1989,Exactly. I think it forces them to focus on the--,12
-fomc-corpus,1989,"Right, I agree with that.",7
-fomc-corpus,1989,--costs and benefits. Whatever comes out is unlikely to be anybody's--,16
-fomc-corpus,1989,"But I think it's also a good opportunity, even though fiscal policy is in a state of paralysis, to remind people about what good things could happen if it weren't.",33
-fomc-corpus,1989,How about Bill [unintelligible] might testify? He had--,15
-fomc-corpus,1989,"Well, I think he would say that.",9
-fomc-corpus,1989,"They might come to that conclusion anyway if they examine the costs of getting there. They may say ""Oh, no way are we going to pay that price."" That's the danger on the other side.",40
-fomc-corpus,1989,I will tell you: If you went back to the 1960s I would say you probably would have had 2 to 1 against it as far as economists are concerned. I bet you now it's 1 to 2 the other way.,51
-fomc-corpus,1989,It probably is.,4
-fomc-corpus,1989,That's right.,3
-fomc-corpus,1989,That's probably right.,4
-fomc-corpus,1989,The old Phillips curve trade-off was one that everyone believed: either you got lower inflation and higher unemployment or the reverse and that was it. But now I think there's a much more sophisticated view of that relationship and it differs.,45
-fomc-corpus,1989,We can use a long-run perfectly vertical Phillips curve and I wouldn't have any objection to that.,19
-fomc-corpus,1989,The truth is we don't know. We can have our biases but we don't know.,17
-fomc-corpus,1989,"Yes, that's about the best.",7
-fomc-corpus,1989,And what you have is an array from the most optimistic and least costly all the way over to something that would be fairly costly.,26
-fomc-corpus,1989,"Yes. Also, I think in all of our minds is the thought that over the next five years we really believe in some way or by some means that there is going to be a recession. And that's going to be the period in which the price [improvement] occurs.",56
-fomc-corpus,1989,"Right. But, with the exception of Lee here, probably few people would be willing to precipitate a recession to pull it off. But, if one occurred, we'd be willing to take advantage of it.",42
-fomc-corpus,1989,I never said I wanted to precipitate a recession. I object.,14
-fomc-corpus,1989,That's why I said--,5
-fomc-corpus,1989,I think lunch is served.,6
-fomc-corpus,1989,Would somebody like to move the minutes of October 3rd?,13
-fomc-corpus,1989,Moved.,2
-fomc-corpus,1989,Second.,2
-fomc-corpus,1989,"Without objection. We need a motion to accept the Report of Examination of the System Open Market Account, which I believe was distributed a few days ago.",30
-fomc-corpus,1989,So moved.,3
-fomc-corpus,1989,Second.,2
-fomc-corpus,1989,"Without objection. Mr. Cross, would you start us off?",13
-fomc-corpus,1989,[Statement--see Appendix.],6
-fomc-corpus,1989,Questions for Mr. Cross? Lee.,8
-fomc-corpus,1989,I have a couple of questions. Did we intervene in support of sterling?,15
-fomc-corpus,1989,No.,2
-fomc-corpus,1989,We did not. That was [incorrectly] reported?,12
-fomc-corpus,1989,"The Desk did operate [in sterling], but--",10
-fomc-corpus,1989,"Well, I was talking about for our account. We did operate for the Bank of England in our market.",22
-fomc-corpus,1989,As an agent?,4
-fomc-corpus,1989,"With their funds, as an agent. We do that quite often for any number of central banks.",20
-fomc-corpus,1989,Is the Treasury involved?,5
-fomc-corpus,1989,"No, this was a Bank of England operation; all we did was to undertake it in New York.",21
-fomc-corpus,1989,I remember that the press was assuming that we were acting on our own account at that point.,19
-fomc-corpus,1989,We haven't intervened in sterling for our own account for as long as I've been in the job.,20
-fomc-corpus,1989,This question may not be appropriate for you. Did we disburse any of our funds on the Mexican bridge loan? Because it's being [unintelligible]--,34
-fomc-corpus,1989,"That was before the last meeting, in early--",10
-fomc-corpus,1989,It was already done.,5
-fomc-corpus,1989,That was disbursed and reported at the previous meeting.,12
-fomc-corpus,1989,Okay.,2
-fomc-corpus,1989,"In fact, there has been a modest repayment since then. So that's [not] all fully outstanding.",21
-fomc-corpus,1989,Any other questions for Mr. Cross? Tom.,10
-fomc-corpus,1989,"Sam, when did we last have short-term interest differentials as narrow as we have now?",19
-fomc-corpus,1989,"Well, they are not only narrow; the Desk was telling me this morning that German interest rates throughout the range beyond six months are now higher than ours. And this is the first time, I suppose, in a decade--maybe [more].",49
-fomc-corpus,1989,Maybe back in the '70s.,8
-fomc-corpus,1989,"I don't know how long, but certainly it has been many years.",14
-fomc-corpus,1989,"Sam, with a tremendous narrowing--and now you're saying a reversal of spreads--that essentially implies a stable or firming dollar. What happens when the spreads are no longer narrowing or are going against us? In other words, does one assume that, adjusted for that process, there's a much stronger dollar underneath the system?",64
-fomc-corpus,1989,"Well, I think people can come to different conclusions on this. But certainly the reasons for investing in the dollar or in the mark are affected by a large number of things in addition to these interest rate changes. The events in Germany in the past few days have been raising concerns about the stability of the political situation there. And that can be a deterrent to investment in the mark, certainly under these circumstances, even though it's generally felt that over the longer pull--if there tends to be movement of more workers into West Germany--that this is very positive for the West German economy. It tends to lead to still higher interest rates because it is going to lead to expansion and pressure on resources, which again may tend to--",145
-fomc-corpus,1989,"The question I'm asking--and maybe it's more appropriate to ask both you and Ted later because this may be premature--is whether, adjusted for interest rate differentials to the extent that one can do that, the dollar has been very substantially stronger. I see a very significant uptrend, and this flat trend is merely offsetting these other positive elements against the negatives of contracting yield spreads.",77
-fomc-corpus,1989,"It's interesting to me at least that, with the interest differentials having declined and in this medium to long-term range totally disappeared, the dollar is still as strong as it is.",36
-fomc-corpus,1989,"Yes. I think that's one of the factors, as you said, underlying its remarkable resilience in some sense, despite the fact that we've had this [move in the differentials]. So, I think it's fair to say that the last couple of days' movement in the German interest rates has been more a German phenomenon, perhaps associated with a market interpretation of what's going to happen to Bundesbank policy three to six months out in light of all this. This is pretty much what's going on with real interest rates in that context--although there is a bit of a difference between nominal and real interest rates in this process. If you think in the short run that there's going to be some inflationary impact from this--and I think most people would--even given the longer-run positive aspects, you could then say that eventually the Bundesbank will lean against this, at least in nominal terms though maybe not in real terms. We may just be seeing that; and that's a slightly different phenomenon than what might just be driving their--",204
-fomc-corpus,1989,What you're saying I think has to be true.,10
-fomc-corpus,1989,"Yes, it has to be true.",8
-fomc-corpus,1989,"The only question is: What is the order of magnitude? In other words, it really gets to the question of how significant the yield spreads on--",30
-fomc-corpus,1989,"Well, Sam went through it. They have gone [up] by 350 basis points since April and the dollar is stronger than it was then. So, you've got to say that something has changed in terms of expectations for the future. The qualification that Sam put in there [relates to] how people also think they can get out if they need to.",73
-fomc-corpus,1989,Short-term differentials vis-a-vis the mark have declined 363 basis points since April; and against the yen they have declined 400 basis points.,30
-fomc-corpus,1989,"I haven't heard from Mr. Mulford recently; without looking at any of the numbers, I knew it had to be something like that.",28
-fomc-corpus,1989,The Europeans by and large are forecasting that their inflation rates will not peak until sometime in 1990. I was surprised that believe that theirs will move to percent before it turns down on a year-over-year basis. So there is some anticipation there that they have quite a stimulus going.,57
-fomc-corpus,1989,"As for the real impact, how much attention these investors pay to inflation-adjusted interest rates is a big question. But it's by no means [clear] that if they think the exchange rate is going to be stable they don't pay too much attention to these differences in inflation rates. If you take the inflation rates into account, Germany's inflation is probably almost a couple of percentage points below ours. And in the real sense, the yield on their longer-term bonds is very high relative to ours. It is a good question as to why they are--",110
-fomc-corpus,1989,"But a year ago, Sam, their producer prices were running minus 5 to 10 percent; now they're running plus 3 or 4 percent.",31
-fomc-corpus,1989,"They're now running around 3 percent, but they did have some one-time changes in taxes and all, which affected--",24
-fomc-corpus,1989,Did that improve?,4
-fomc-corpus,1989,"Well, the dollar's depreciation relative to oil prices [is a factor]. Its impact over the last year on our producer prices--and recently it has gone the other way--has been magnified by the fact that the price of oil has gone up more rapidly than dollar prices have gone up. [Unintelligible] came through into the producer prices.",72
-fomc-corpus,1989,"It's very possible over time, as investors begin to pay more attention to this, that they will tend to switch more. But my little story was attempting to say that the interesting thing is the extent to which the investment still is moving into dollar assets in light of these circumstances.",55
-fomc-corpus,1989,"Sam, does the FOMC still review the Foreign Currency Authorization and Foreign Currency Directive in March?",20
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,"Would it make any sense, since we have changed the rotation of Presidents' [terms on the FOMC] to January to do that review then?",31
-fomc-corpus,1989,It depends on the Committee.,6
-fomc-corpus,1989,"Well, the Committee may want to take it--",10
-fomc-corpus,1989,The February meeting.,4
-fomc-corpus,1989,We will do it in February?,7
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,"Presidents [may] argue against it, but it is true that the task force was targeted to finish its work by the end of March. [If you wait] a month we'll have more--",40
-fomc-corpus,1989,"No, we have [unintelligible].",10
-fomc-corpus,1989,"There is much work [to be done]; it's partly a result of that, but--",18
-fomc-corpus,1989,We have been aiming at March in trying to prepare this work that we were going to submit to the Committee.,22
-fomc-corpus,1989,"Any further questions for Mr. Cross? If not, can I first have a motion to ratify the transactions since the October meeting?",27
-fomc-corpus,1989,So moved.,3
-fomc-corpus,1989,Second?,2
-fomc-corpus,1989,Second.,2
-fomc-corpus,1989,"Without objection. Also, Sam requested a vote for a one-year extension of the swap line agreements. Motion?",22
-fomc-corpus,1989,So move.,3
-fomc-corpus,1989,Second?,2
-fomc-corpus,1989,Second.,2
-fomc-corpus,1989,Without objection. Mr. Sternlight.,8
-fomc-corpus,1989,[Statement--see Appendix.],6
-fomc-corpus,1989,"Any questions on Peter's report? If there are no questions, do you want to discuss the leeway issue?",23
-fomc-corpus,1989,Fine. [Statement--see Appendix.],8
-fomc-corpus,1989,"Are there any questions on the leeway issue? If not, can I have first a motion to ratify the Desk's actions since the October meeting?",31
-fomc-corpus,1989,So move.,3
-fomc-corpus,1989,Second.,2
-fomc-corpus,1989,"Without objection. And similarly, on the leeway request.",12
-fomc-corpus,1989,Move it.,3
-fomc-corpus,1989,Second.,2
-fomc-corpus,1989,Mr. Prell and Mr. Truman.,9
-fomc-corpus,1989,[Statement--see Appendix.],6
-fomc-corpus,1989,[Statement--see Appendix.],6
-fomc-corpus,1989,Questions for either gentleman?,5
-fomc-corpus,1989,"I graciously point out that your forecast was accurate, but under a different interest rate scenario. And since I ask this every time, to the extent that I follow them: What reasons would you give as to why the forecast will stay on course with a much different interest rate path? What would you say are the major factors?",66
-fomc-corpus,1989,"Well, for one thing, we actually did have interest rates rising through the first half of this year. The surprise on the interest rate path has been essentially since the spring. With the lags, one wouldn't have expected a very large deviation over the recent period. As we look forward into the first part of 1990, we get the offsetting influence then of the lagged effects of the dollar firmness on net exports. Those are at least two things that come immediately to mind on how one might be able to explain this.",107
-fomc-corpus,1989,By rising rates do you mean the funds rate?,10
-fomc-corpus,1989,"Right, particularly [the funds rate].",8
-fomc-corpus,1989,"But long rates didn't rise, really; they bounced around a little but they generally trended down, I think.",23
-fomc-corpus,1989,They never rose very much; that's clear.,9
-fomc-corpus,1989,"Yes. So, it was the dollar mainly. And what was the other one?",17
-fomc-corpus,1989,As we look into early 1990 I think these are the two offsetting considerations affecting GNP growth in the first part of 1990: we have lower rates than we anticipated but we have a much higher dollar than we anticipated.,48
-fomc-corpus,1989,The dollar forecast error offset the interest rate forecast error.,11
-fomc-corpus,1989,Right.,2
-fomc-corpus,1989,That's what I thought.,5
-fomc-corpus,1989,That's the first approximation.,5
-fomc-corpus,1989,"One other point I'd like to raise is about profits. Corporate profits, of course, have been reported as weak. I was wondering: How closely does the profits picture compare this time to, say, 1984--I don't know if you have this at your fingertips--when I remember we had a similar sort of picture developing in that we had a weakening situation occurring in manufacturing, and I think profits were weaker in that same period; a similar type of squeeze occurred. The funds rate had been raised up until mid-1984, or something like that, and then eased off.",118
-fomc-corpus,1989,"I don't think there's any comparison. Looking at the chart that we had in our pre-FOMC briefing yesterday, total nonfinancial corporate profits basically shot up in the early recovery phase and didn't really move much one way or the other through 1984. They began to give way toward the end of that year and have eased off since then almost continuously. But there has been a very sharp drop recently. Now, there are some rather peculiar things in the numbers because of the disasters; they eliminated some profits in the third quarter and we presume that BEA also will recognize the losses in insurance companies and so on in the fourth quarter. So, that's giving us some one-time shocks. But I don't think there's any comparison to that earlier period with what we're seeing now.",154
-fomc-corpus,1989,So you'd characterize this as a much weaker profit situation?,11
-fomc-corpus,1989,I think we've had a very marked decline and we're getting to historically low levels of profitability relative to the scale of business.,24
-fomc-corpus,1989,President Black.,3
-fomc-corpus,1989,"Ted, I was a little surprised by the severity of the decline in net exports in the third quarter. I just didn't sense the things that you [noted]. Does that seem to be a reasonable figure to you or is that one that we might--",51
-fomc-corpus,1989,"Of course, it was done without the September numbers and our guess is that the September numbers will move it somewhat in the other direction but not a lot. One of the factors is the oil [developments] that I mentioned. There is a big bulge in non-oil imports; and remember, this is the opposite--like a barrel of oil is valued in 1982 dollars. So it has a big impact on the GNP accounts. Cutting through those two factors, I think it is--",102
-fomc-corpus,1989,Factor income was a big--,6
-fomc-corpus,1989,"Well, on the factor income side I would say we have no information. That was not up [in] our forecast. And we stubbornly think that they probably overdid it--or underdid it, if you want to put it that way. I say that with some trepidation, since they do make up the numbers--",68
-fomc-corpus,1989,Self-glorified numbers.,6
-fomc-corpus,1989,Well--,2
-fomc-corpus,1989,There was such a dramatic change in [factor income] and what they based that on. Why did they come up with--?,26
-fomc-corpus,1989,"We don't have a good story. Periodically, we try to discuss that with them and we have not gotten a very good story out of it.",30
-fomc-corpus,1989,So that may be it.,6
-fomc-corpus,1989,"It could conceivably have something to do with the loan loss reserves that were taken by banks and that kind of thing. Conceivably, they may have attributed some of that--. I don't know how they treat that.",46
-fomc-corpus,1989,[Unintelligible.],6
-fomc-corpus,1989,"Or something like that. Conceivably, that's one of the factors. That has been one of the factors before but they haven't [told us]. They push these things around, so that may be one of the areas where they have done that. They also have tended sometimes to fudge, but one factor in particular for the third quarter that we tried to take account of is the fact that developing countries may stop [servicing their debt], but there weren't any particular factors of that sort in this period.",102
-fomc-corpus,1989,"Bob, are you [unintelligible]?",10
-fomc-corpus,1989,No.,2
-fomc-corpus,1989,"Just as a matter of interest, Mr. Chairman, there have been some comments about trying to project what this German situation may mean for their economy and our economy. I have heard a few comments with respect to the demand that will be generated by these 200,000 or 250,000 immigrants [from East Germany] that are hopefully skilled and will go to work and produce. They will be in a position of demanding the [unintelligible] if nothing else.",96
-fomc-corpus,1989,Housing.,2
-fomc-corpus,1989,Beyond housing.,3
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,What does that imply for their economy and our economy or for interest rates in that market?,18
-fomc-corpus,1989,"As I said, first of all, we had some of this built into our forecast for Germany because there already had been in the early part of the year a marked increase in the flow of migration to West Germany. So, some of this is built in on both sides. But obviously, in the last couple of weeks (a) things have gotten more so and (b) things have gotten fuzzier in terms of the total overall magnitude. But it is clear that there is going to be more demand in the economy in the short run--by that I mean in 1990 and 1991--than we otherwise would have had. And that will tend to put short-run upward pressure on prices and so forth and so on. Germany is an important market and, of course, it has multiplier effects in Europe. But [East] Germany's exports are 4 percent of total German exports. So it's not big; it's not West Germany, in any case. And as I said, presumably that pressure, given the current state of the German economy, will be met to some extent by Bundesbank policy, at least I think, in terms of the dollar [being] somewhat higher than it otherwise would be. Again, there is some question about what happens to real rates assuming that we [unintelligible] for them. The other aspect is that it has not been decided yet what they are going to do on the fiscal side. I understand that there is at least talk in Germany about having a special tax to finance this sort of thing. So, a lot of these expenditures are transfer payments--for transportation, or publicly subsidized construction in the housing area, and so forth. It's a little hard to shape the whole macroeconomic situation until one is more certain about the overall dimensions and the overall thrust of macropolicy. I think that's one of the reasons why the Bundesbank itself is not going to rule [that] out ahead of time--because they don't know to what extent there will be fiscal policy offsets to this situation.",412
-fomc-corpus,1989,"Mike, I have a question. We have had relatively strong growth in real disposable income in the past two years. If you had the traditional relationship between changes in real disposable income and consumption, how much greater strength would we have in consumption in 1990 than shown in the Greenbook, particularly in the nondurables and services areas?",68
-fomc-corpus,1989,I guess I'm not clear how you're connecting the past two years with 1990.,17
-fomc-corpus,1989,"Well, typically the [equations] show current consumption as a function of current and lagged values of real disposable income. I think the Greenbook goes into some special factors that may be causing consumption not to be responding as rapidly to changes in real disposable income. So I'm asking: If the relationship were traditional, how much more strength would you get?",71
-fomc-corpus,1989,"I don't think we're anticipating anything that is really extraordinary in that relationship. We have personal consumption expenditures next year growing roughly in line with disposable income. One might argue, looking at the rise in the wealth-to-income ratio that we have seen over the past year or more now, that you might tend to get a little stronger consumption growth than income. We haven't put a great deal of weight on that argument. But I don't think we have anything extraordinary, given our income path and that background on the wealth effects. Looking at the gyrations and relationships over the past couple of years, one needs to be mindful of the short-run effects of increases or decreases in farm income--which probably don't feed through to consumption expenditures--and various other special features of the income composition. But looking forward, I think we have a pretty steady relationship here between income and consumption.",171
-fomc-corpus,1989,"A lot of the weakness in the economy, if you're looking at the dollar source of weakness, is focused in nondurables; that's down to 1.1 percent, which is very small. And perhaps even more remarkable is services, which got down to 2.6 percent. They have been down that far, but that's not typical.",70
-fomc-corpus,1989,"We're expecting rates of growth in those items that would look low by the standards of this expansion. If you somehow felt that everything else was right about this forecast--particularly looking into 1991 when, in our forecast, import prices become a significant factor in creating something of a wedge here in depressing growth of disposable income relative to growth of activity --then you get into questions about whether people are viewing these as transitory terms of trade changes or something more permanent. In effect, we've assumed that people will take the permanent view and that they will reduce their consumption expenditures in line with that weaker disposable income growth. If they persisted, then you would have a tension here, which I think is sort of in the vein of your question.",146
-fomc-corpus,1989,Thank you.,3
-fomc-corpus,1989,"First of all, Mike, I've been meaning to ask you about these very substantial differences in our seasonals versus BEA's on the 10-day auto numbers. I assume that you use their data because that's what the GNP is made up of. But why are their numbers so different? I don't remember [the difference] being larger than it was in the first 10 days of November.",80
-fomc-corpus,1989,"This is a striking gap. Larry [Slifman] can speak with expertise on this subject. We have been around on this a number of times in the past and have argued with them about it; our raw judgment is that they don't really take a very careful view of the 10-day seasonals. We have tried to, but that still leaves last month with a considerable gap between the monthly numbers.",82
-fomc-corpus,1989,Your seasonally adjusted data are smoother than theirs. What do they require for conviction?,17
-fomc-corpus,1989,"Given the recent numbers, I think we ought to go back and haggle with them about this some more.",22
-fomc-corpus,1989,"As I say, it's a very big difference.",10
-fomc-corpus,1989,The product you get differs considerably.,7
-fomc-corpus,1989,I would sense that what [they] are saying is that the market is falling apart. You're saying it's asleep.,23
-fomc-corpus,1989,"Looking at assembly schedules on our seasonal versus [theirs], on our seasonals you don't have this appearance of a significant gap. Basically with [unintelligible] vendors implied significant inventory accumulation going on. So it's an important question. And this recent 10-day figure just amplifies this again. We'll talk to them some more, but we've had many conversations with them and thought maybe--",79
-fomc-corpus,1989,"While you're doing that, could you also find out why it is, which I gather is the case for Boskin, that BEA's estimate of the Boeing effect is minus .4 versus our minus .6 percent.",44
-fomc-corpus,1989,"I might say that in the past one of the things we have wrestled with BEA over is their willingness to adjust for the timing of model changeovers. We have been a bit more flexible and adaptive on this than they have and that has created, in a number of years, some significant differences in pattern. I don't know whether that's a continuing problem this year, where once again things were not necessarily perfectly aligned with the historical norms.",88
-fomc-corpus,1989,Any other questions?,4
-fomc-corpus,1989,"Yes. Mike, in Q1 1990 you have producers durable equipment leading business fixed investment up and then it's back down again in the second quarter. What gives rise to that?",37
-fomc-corpus,1989,That is the Boeing gyration. It's depressing PDE in this quarter and increasing it in the next quarter; then you're back onto the trend of growth.,30
-fomc-corpus,1989,But that's assuming this strike ends when?,8
-fomc-corpus,1989,"Indeed, this is all assuming that the strike ends at the end of this month and then that production gradually gears up to full [speed] by the first of the year. So, obviously, there is room for some significant short-run deviation.",49
-fomc-corpus,1989,"There are offsets in inventory, right?",8
-fomc-corpus,1989,"Offsets? At this point, since it appears that the suppliers are still providing materials and components to dealers, those are piling up. You're not getting the value added of the assembly. But that could change, too. If the strike went on beyond our assumption, we would expect that to become a factor.",61
-fomc-corpus,1989,"Governor Angell, let me just say in answer to your question that once we take account of our assumption about Boeing then we would have, in fact, a rather smooth deceleration in PDE growth over the near term.",44
-fomc-corpus,1989,President Syron.,4
-fomc-corpus,1989,"I have two questions, which I think are probably related to special factors as well. One that you have alluded to already is the rebuilding effect of the national disasters. It seems that that occurs very quickly and then tapers off. I just wonder about that--with no better information on my part than watching what we see being reported--because it seems that it would require more over a longer period of time.",83
-fomc-corpus,1989,We have a higher level gradually diminishing as we go out through 1990. But it is--,20
-fomc-corpus,1989,It comes on pretty quickly.,6
-fomc-corpus,1989,"What we've got built in is not as much as the numbers that one hears--$5 billion or $8 billion that we're looking at in terms of damage and so on. You don't know how much of that really will be replaced; you don't know in the short run how much will be squeezed out by that effort, to the extent that factors of production are reasonably totally utilized in an area. The possibility of doing the repair work and still maintaining the other activity that would have occurred becomes a question. So, I think there is some upside potential here from our forecast on the rebuilding.",117
-fomc-corpus,1989,That was one question I had. The other question has to do with the output figures in 1990. I'm just wondering if there were some special factors contributing to the pattern in output per hour compared to the growth rate in GNP?,48
-fomc-corpus,1989,In productivity?,3
-fomc-corpus,1989,"Yes, because you have productivity increasing as GNP is decreasing.",13
-fomc-corpus,1989,"Basically, we have the stronger effect as the economy is decelerating. And that's what one normally sees. As labor is adjusted to lower levels of production, you get some bottoming out in the growth and some tendency toward slight acceleration--you move closer to the longer-run trend of productivity expansion.",60
-fomc-corpus,1989,And your longer-run trend is?,7
-fomc-corpus,1989,"Something over 1-1/4 percent, maybe.",12
-fomc-corpus,1989,"Any other questions for the two gentlemen? If not, it's time for us to do our round robin or tour de table. Who would like to start? Mr. Boykin.",36
-fomc-corpus,1989,"Mr. Chairman, in the Eleventh District there is not very much new to report. I think it's fair to say that the expansion--what little we have had--has slowed. Private nonfarm and farm [income] was basically unchanged between July and September. The Texas index of leading indicators has fallen for four consecutive months. The declines have been moderate, suggesting continued weak growth rather than a recession. The declines have been led by durable goods manufacturing; nondurable goods manufacturing is holding up a little better. Services have been strong, with growth in business services especially strong. The construction sector does appear to have bottomed out finally. I guess the best words we are hearing are around the Houston and Gulf Coast area, although those words are not quite as good as we were hearing several months ago.",160
-fomc-corpus,1989,President Keehn.,4
-fomc-corpus,1989,"Conditions in the District seem quite consistent with the national trend of moderation, but the moderation is perhaps a bit more apparent in the District because of our very significant commitment to manufacturing and also the importance of the auto companies and export-related activity. And because of that, I think manufacturing may be showing something more of a downturn in our area than is true in the rest of the country. Just to add a word or two to the automotive comments that we've already heard: clearly, sales are down from the higher levels that were recorded this summer. My contacts in Detroit suggest that November and December levels will continue to be under--and I think quite considerably under--the average for the year as a whole. Even though the fourth-quarter production schedules for the domestics are down, nonetheless they anticipate that they are going to go through the end of the year with pretty high inventories at the dealer level. As a consequence, at least one manufacturer has a preliminary forecast of these variables and what strikes me is the size of the decline in production for the first quarter: down 18 percent compared to last year. Other automotive-related businesses obviously are showing signs of weakness. Heavy trucks are down significantly and diesel engine orders for one manufacturer are down 40 percent in September. Given all of this, the unemployment levels in the District are showing signs of increase. In Illinois, for example, unemployment went from 6.2 percent in September to 6.8 percent in October; in Michigan it went from 8.1 to 8.2 percent. If you look at the District as a whole, unemployment numbers are clearly over the national average. But offsetting that trend there is, I think, some good news in the District. First, the steel business--and it surprises me--has been quite good. The industry has been working off some pretty high inventory positions in a variety of products. They seem to be about through that. So there is an expectation that for some products production is going to pick up. For 1989 shipments are forecast at about 83 million tons; for 1990 the number is lower--from 80 to 81 million tons--but still hardly a [unintelligible]. Farm equipment has been particularly good, given that the production of crops has been completed. Farm income, of course, is good and expected to remain good. Large tractor sales in the third quarter were 15 percent over last year; combine sales were 86 percent over last year's. Clearly, that's a part of the industry that is doing much better. Production is higher but they are going to be very careful not to build up too high an inventory position. Construction activity in the District, particularly on the commercial side, remains surprisingly strong. For [unintelligible], for example, we have about 13 million square feet available for lease and another 9 million under construction. So, we're heading toward a vacancy rate that's going to be in the 15 percent area, which for us is pretty high. Despite that, new building seems to be coming on. On the inflation side, by and large the current developments are consistent with some moderation built in over a long period of time. Marketplace conditions for farm products seem to be very tight, with not as much latitude there as people would like. In fact, some prices are coming down. In the steel business, for example, the steel plate--[load] bearing or structural--prices really are coming down. And in agriculture, despite this significant improvement in business, they expect price increases next year of about 3 percent--not as much as they would like and certainly very low levels. On the wage front, wage rates are going up but I don't sense any particular big breakout on the up side. And in the manufacturing sector, at least among those that I talk to, people have overcome the [wage] increases with productivity improvements so that costs are remaining in line. So, things are working out about as we expected. I think the fourth-quarter numbers, as more of them begin to emerge, are going to evidence considerably more weakness than we saw in the third quarter.",832
-fomc-corpus,1989,President Parry.,4
-fomc-corpus,1989,"Mr. Chairman, the economy in the West continues to expand at a healthy pace despite the destructions associated with the Boeing strike and the earthquake. Employment in the Twelfth District grew 3.3 percent over the past year, which is considerably stronger than the 2.7 percent we experienced nationally. Discussions with our directors and other business people in the area indicate that business activity remains robust. But I think there's a generally shared expectation that [it will be] slowing. The Boeing strike shows no sign of a settlement and is beginning to affect the Puget Sound economy which, of course, was the strongest economy in our District. We estimate that personal income has been falling by about $25 to $30 million each week of the strike. Even assuming some generous multipliers, I think that probably translates into less of an effect than is included in the Greenbook, but I'm really not sure about that. If the strike were to continue to the third or fourth month, it is anticipated that the direct income losses would be on the order of about $60 million; but of course there would be secondary effects that would multiply that rather significantly. The negative effects from the quake are likely to outweigh the positive effects during the current quarter. I don't know how much rebuilding refers to the quake and how much actually applies to [hurricane] Hugo, but we feel that is offset by businesses that have slowed significantly due to actual business closures, the loss of tourists, and the interruption of normal traffic patterns. The number of unemployment claims, for example, has skyrocketed in hard-hit areas such as San Francisco where they are up 60 percent. If you get out to the Santa Cruz area, in one of the smaller towns there, Mutsenville, they are up 200 percent. At the present time, recovery efforts are limited to utility repairs, structural inspections, and demolitions--although I know demolitions add to GNP! With a few notable exceptions--the exception being the Bay Bridge, which will be opening Friday--in general there's not much going on in terms of repair and rebuilding for the simple reason that the earth is still shifting and people are unwilling to do anything until that shifting stops. And that typically [lasts for] a 3- to 6-month period. At the national level, we expect growth to be stronger than that in the Greenbook. We feel that consumption spending should benefit from the lagged effect of the strong growth of disposable income in the past two years. Moreover, strong investment in business equipment is expected to result from backlogs of orders for aircraft; also, the continued reduction in the relative price of information processing equipment should be a positive development and a source of strength for business spending for equipment. In our view, if the economy expands as fast as I think it could, which is around 2 percent, then unemployment will rise only modestly and I think upward pressures on the underlying inflation rate are likely to persist through the end of next year. Thank you.",604
-fomc-corpus,1989,President Forrestal.,4
-fomc-corpus,1989,"Conditions in the Sixth District haven't changed very much over the last couple of meeting periods, Mr. Chairman. We're chugging along at somewhat below the national average. Unlike the San Francisco District, though, we are getting some kick or boost from rebuilding resulting from the Hugo hurricane even though the worst effects were in Bob Black's District. The demand for building supplies and construction materials is coming not only from the Southeast but from the Caribbean as well, and that's giving a good push to transportation as well as to port activity. Beyond that, we're getting pretty good export experience with chemicals and grains as well. But the weaknesses in the Southeast and in the Sixth District economy are kind of overwhelming those positive things and we're seeing a rising unemployment rate--we are at about 6.2 percent in the District as a whole. Some of that is skewed, of course, by Louisiana; but we are seeing unemployment creeping up generally in other states. We have weakness in textiles because of a drop in domestic demand. That is something they have been afraid of for a while; they have been sustained to some extent by foreign demand. But the domestic demand now is beginning to fall off and we're getting corresponding weaknesses in apparel, carpets--carpeting, obviously, is related to the housing shortage--paper, and autos, of course. In construction, even though we have a lot of overbuilding in residential and in office buildings, the financing is available and the construction continues to go on. That's particularly true in Atlanta where we're getting a movement from a lot of class B buildings to class A. The buildings keep going up and I just think we're going to have a pretty bad vacancy problem down the road. Also, we're seeing a buildup in retail inventories and the contacts that I've been talking to don't forecast a very good Christmas season. Prices and labor conditions seem to be okay. We're not getting a lot of price pressures--consistent with the weakness in the economy, I suppose--and labor shortages are not significant. With respect to the national economy, we think that the economy will be somewhat stronger in the near term than the Greenbook forecast. That's basically because of our forecast for net exports, which we think will be a little higher. I'm not sure whether I have mentioned this before--I think perhaps I have--but I continue to be impressed by the number of people who initiate conversations with me about the softness in the economy. From the auto people and construction people you can expect that, but pretty much across the board I'm getting telephone calls and people stop me on the street and they talk to me at parties about how terrible things are. I think some of this is exaggerated but I'm really paying attention to this. I don't remember that happening before. I think back particularly to 1986 or 1984 when we had some weak quarters and I didn't get this kind of outpouring of emotion about it. I don't know what that tells me in real terms but it's something that clearly gives me some concern. In our forecast we also see unemployment being a little flatter than the Greenbook, but basically we're in accord with the Greenbook. The risk, in my view, is clearly on the down side at this point.",644
-fomc-corpus,1989,President Melzer.,4
-fomc-corpus,1989,"[Conditions are] somewhat better than I have reported earlier. Although things generally haven't changed much, this is the first time in three FOMC meetings that we've had an increase in nonagricultural employment in the most recent three-month period. We still have some weakness in manufacturing employment--somewhat less than I've talked about the prior two times--but the weak areas are food processing, electrical equipment, and transportation equipment. The electrical sector we've talked about; I think that's largely appliances. The auto area has been mentioned. We've had some shutdowns: a week at the medium and heavy truck plant in Louisville and about a month at one of the two Ford plants there. Chrysler has in [unintelligible] and they have announced that that plant will be closed indefinitely after the first of the year--or actually, one of the shifts will be laid off after the first of the year. It involves somewhere between 1600 and 1900 workers. Interestingly enough, at their other plant, which manufactures minivans, they would like to add a third shift. They made a proposal to the unions for three 10-hour a week shifts and the unions turned it down. So, they could be putting some of those idle workers back to work if they can't get it done. One other comment, which I think confirms what Mike said in the Greenbook in terms of other consumer expenditures ex-autos: We recently had a luncheon with chief financial officers, and two individuals--one with a very large national retailer and another with a smaller retailer--confirmed that they view this environment as ideal for their business. Things are going well and they are quite comfortable with how things are going; that was a bit surprising to me. That's really all I have.",353
-fomc-corpus,1989,President Boehne.,5
-fomc-corpus,1989,"In an overall sense, I think we ought to be generally pleased. We're trying to steer the economy through a narrow channel and we're doing that. However, I must say that when you are in that narrow channel it looks even narrower than it did before you got there. What I'm sensing is that the risks are more on the side that the economy is going to grow too slowly rather than faster. And I think the Greenbook numbers are too bullish; I think we will see slower growth over the next six months. I'm not running into the same emotion that Bob [Forrestal] is running into. But the sentiment clearly runs between one of concern to bearishness. Real estate people are very bearish; construction--in the residential area--is down and we're going to run into some bankruptcies there. We are headed toward some over capacity in terms of nonresidential construction and I think it's going to take us several years to work through that. Manufacturing is softer in the Third District than it is in the nation as a whole. The retailers feel reasonably good about Christmas, but I don't think their expectations are all that high. So I [wouldn't describe] the retail area as much more than flat. I make these comments in the overall context that this is what we set out to achieve in terms of steering the economy. But nonetheless, I have more concern that we're going to overdo it on the soft side rather than underdo it. And that will have some effect on my policy prescription in the next part of this meeting.",308
-fomc-corpus,1989,President Syron.,4
-fomc-corpus,1989,"Well, I'd say the First District economy is mixed to slow. Previously, the declines have been confined to the high-tech area, the real estate area, and generally in construction. But now they are broadening out to the economy as a whole. We actually had total employment over the last three months fall by 1 percent, paced by a 4-1/2 percent decline in manufacturing employment, with nonmanufacturing employment staying pretty flat. Previously, financial services had grown at some pace but that has leveled out now, and many banks particularly are taking steps to reduce costs because of their [unintelligible] problems. We've seen very slight increases in the trade sector. Housing permits are down 30 percent over a year ago and 60 percent from their peak level. And we are beginning to see some decline in house prices, by I'd say 10 to 15 percent, which is different. There's a substantially increased number of auctions as some developers do go bankrupt. Needless to say, loan demand is not terribly strong in this situation. Among the manufacturers that we surveyed that are active nationally, there is actually an amazing degree of almost unanimity in that they are reporting slow growth--not strong growth, but still things are not falling off the edge of the cliff. They're seeing increases in growth of about 6 to 7 percent, and that's because of a wide range of products from telecommunications equipment, milling equipment, and maybe personal care products, with some people saying they have [unintelligible] and greater strength overseas. An exception to this, of course, is suppliers in the auto industry and the computer companies. Computer companies in New England, because of particular product mix issues, just have not benefited from what's happening elsewhere. Actually, that's a lot of the source of the weakness in manufacturing employment. Despite this, inventories generally have not been a problem, although in a few particular cases they have built up. Retailers are not anticipating a good Christmas, which is to be expected in these circumstances; and as you also would expect, they have kept their inventories quite lean in this situation. Prices generally have been very well behaved. There has been some mention of an increase in prices of specialized metals such as tungsten. Labor markets have softened in line with the increase in unemployment that we've seen. And now for the first time--though we've seen this across many skilled classes before--no obviously exorbitant rates are being offered to starting labor at fast food chains. As far as the national economy goes, we don't have any real disagreement with the Greenbook, which we believe does not show a bad profile for the intermediate term given what we want to accomplish. I think Ed is right: we're steering down a relatively narrow channel here; I'm not quite so sure that I agree that we're listing to one side or the other. The more important question that we're going to discuss is what we want to accomplish over the longer run. I think there's fairly broad agreement within this group that we do want to get to a greater degree of price stability over time. I know at the next meeting we will talk at some length about what the cost of that would be. I would note that the Greenbook assumes that policy remains essentially the same through the middle of next year and then tightens somewhat after that. Even in that circumstance we really don't see any improvement in inflation, as measured by the CPI ex-energy through 1991. On the labor front, we have seen pretty well behaved settlements. I thought I might just mention the Nynex settlement because I happened to talk last night at some length to one of the mediators in that case. There are two unions involved--the IBEW and the New England Communications Workers of America in New York. This was but it's the same settlement in both places. Sadly, the settlement is not as favorable to management as is suggested in the press releases but it still is not disastrous. Basically, it probably comes down to about a 12 percent settlement over 3 years depending upon what one thinks is going to happen to medical costs. That was the big issue in this strike--virtually all medical costs continuing to be borne by the employer--and that's what people stayed out on. Ultimately, Nynex gave in on that. In terms of wages themselves, the contract provides for 3 percent the first year, 1-1/2 percent in the second year, and 1-1/2 percent in the third year but with a COLA in the second and third year that is equivalent to the CPI minus 2 percent--60 percent of the CPI over 2 percent is a better way of putting it. It is interesting that the inflation assumption that was used or agreed on by both the union and the company was a CPI of 4.7 percent the second year and 4.8 percent the [third year]. The medical cost--and I think this may be on the low side--is estimated at about 2 percent of the cost with regard to the agreement proposal over the life of the contract. In terms of the relevance of all of this, I believe that we do have to think about this price stability business. One thing that struck me in the Greenbook was that we have two sets of leading indicators and both of them--I think for some time now--have been trending down and showing the probability of a recession. I don't know whether that's [unintelligible], whether we're seeing a symmetrical risk in either direction. So, I'm not really terribly worried about that. I do think we've staked a good deal of credibility and have a lot of credibility right now. That was brought home, and I'll finish on this, by a conversation we had with the chief planner at --and this is kind of an ironic result. He said he was expecting a recession next year because he thought the Fed really wanted to get inflation down and the basic underlying rate of inflation was around 5 percent and that was too high and thus we were going to tighten. Now, this was in a call that was made by one of our economists. But a lot of people are paying attention to what we say and I am concerned that we maintain the credibility that we do have. Thank you, Mr. Chairman.",1263
-fomc-corpus,1989,President Stern.,3
-fomc-corpus,1989,"Well, comparing the District economy to the national economy, it looks to me like the District economy continues to do a bit better than the national economy. Agriculture has had a pretty good year; residential construction has picked up a little recently; and mining and forest products and paper industries are all doing well--there's expansion underway in those, certainly in the mining and the paper areas. Tourism had a good year thus far and we're expecting a good winter season; employment gains have been small but the unemployment rates remain low pretty much throughout the District. At the retail level, at least among the major retailers, they have had a good year and they're anticipating a good holiday season and are quite optimistic. Where there has been softness recently is where we've seen it nationally, it seems to me, and that's in manufacturing. One of the questions I've been asking myself is: What are the implications of what we've been seeing in manufacturing nationwide? How much weight ought to be given to what's happening in the manufacturing sector? I think what we're seeing is at least a bit reminiscent of what happened in 1985 and 1986. In going back and looking at that period, manufacturing employment nationwide declined over those two years by about 600,000 workers. For a period of time, at least, new orders for nondefense capital equipment were flat and purchasing managers' surveys showed some weakness. While all that was going on the economy really turned in a pretty respectable performance. Having said that, though, it was also a period when interest rates were coming down and money growth was accelerating. But it seems to me that it tends to emphasize a couple of things of which we're always aware. One is the uncertainty in looking at the outlook. And the second is the caution required, because coming out of the 1985-86 period the real growth continued--if anything probably more strongly than many had expected--and there was some clear uptick in inflation and inflationary pressures at the same time. So my reading of recent economic history suggests that the economy probably can weather some heavy seas at least in manufacturing. It may require a response but it seems to me that we want to be cautious about the degree of that response.",441
-fomc-corpus,1989,President Black.,3
-fomc-corpus,1989,"Mr. Chairman, the Greenbook projections haven't changed very much since last time and neither have ours. We continue to believe that if there is risk, the risk is probably that the economy will be a little weaker than the staff have been projecting. That feeling has been heightened by recent anecdotal information that we've been picking up. I got a particularly interesting piece this morning. A president of one of the small investment firms in Richmond sent me a collection of articles published by a guru he's been following for some 30 years and he said that the problem with the economy was that the Reserve Bank Presidents had recently started attending the Open Market Committee meetings and they were bullying you into accepting tighter monetary policy, which he thought was correct! But more important than that, our directors at their last meeting were decidedly less optimistic about the economy than they had been. They reported weakness in commercial construction and automobile sales a good deal weaker, with several dealerships in trouble. They said manufacturing activity appeared to be softening and loan demand was flat at some of the large commercial banks. But they went ahead to stress that despite all this, they didn't think [the economy] was really falling out of bed. And labor was still very tight. But in view of this indication that we've gotten from various sources, the Fifth District is probably slowing to some extent. Since this area has been one of the stronger parts of the national economy, we think that the national economy, if it isn't right on target with the Greenbook's projection, will perhaps be somewhat weaker than that. At the same time, we're a bit more optimistic--the Richmond Fed staff has been assuming no change in monetary policy--on the inflation side. Given the amount of tightening that we had in '88 and in '89, we think we're going to begin to see some dividends from that. I think there is some evidence of that in the squeeze in profit margins now; despite rising labor costs, firms are not able to pass that on to prices because there's more resistance to those prices. So, we are hoping that we'll do a little better on the inflation front than the staff is projecting.",426
-fomc-corpus,1989,Governor Johnson.,3
-fomc-corpus,1989,"Well, some of the things I wanted to say have been said. But I'll say a couple of things. I made that point about the forecast because a couple of things still trouble me about it even though I think the Greenbook forecast has been on track pretty well. In terms of the overall [picture] I don't think it's just the dollar that's the difference; if that were true, I think you'd expect to see most of the weakness in the exchange rate sensitive sectors. In fact, even though interest rates have been much lower than the scenario that we've been forecasting, interest sensitive sectors of the economy are the ones that are quite weak. Housing is down; automobiles are weak. Generally, the domestic interest sensitive sectors are part of the weak sectors in the economy. So I don't think it's just the fact that the dollar is strong; as a matter of fact if the dollar was that strong you'd expect more import demand than we're seeing as well, with the interest rates as low, and we're not seeing that either. So I think real interest rates at least are high enough to be causing a general slowing and that is feeding through to the inflation rate. I know it's not dramatic progress, but if you look at the core inflation rate changes, the CPI excluding food and energy was 4.7 percent in 1988 and it's running about 4 percent this year. The PPI ex-food and energy was about 4.8 percent last year and it's running about 4-1/2 percent so far this year. Intermediate prices ex-food and energy were 7.2 percent last year and are down to 1.7 percent so far. Crude materials are about the same. Those are all positives. I think the question is really how much risk we want to take. It's true that labor costs have not done as well as some of the improvement on the overall inflation rate. Labor costs seem to be running at about the same pace as last year. When I look at total compensation in nonfarm business or in the whole private sector area, that is running close to what it was last year both in the goods producing and the services components. But that's what's causing the profit squeeze and, as was pointed out, profits are falling significantly. And I think that's part of the process that has to work to hold the line on prices and actually get the benefit on inflation that we want. Again, I think the key question is really how much risk we want to take and what kind of timing we want for the improvement. We could get it all at once, but I'm not sure that's a risk we really want to take.",529
-fomc-corpus,1989,President Hoskins.,4
-fomc-corpus,1989,"The Fourth District is one of those Districts that has no natural disasters to report, although I know some of you believe that Cleveland is a continuing national--I mean natural--disaster.",38
-fomc-corpus,1989,Did you say national disaster?,6
-fomc-corpus,1989,"No, natural disaster. [That was a Freudian] slip. Not a lot has changed. We hear some of the same sentiments that you all have expressed around the table--namely, that there seems to be more caution expressed by business people but they can't find a lot of trouble right now in terms of their own businesses. They are still making commitments and making some investments. It's true that there is slowing in the growth rates of the order books, particularly on the capital goods side. Just one piece of anecdotal information that came out of the who has a major contract RV type of business, [unintelligible] retail, and he had attended a group meeting of these guys that do a lot of this sort of stuff and they said that the year, in terms of dollar volume, is going to be up significantly. So RVs seem to be continuing to move along, at least according to him. It is true that our unemployment rate is up about a full percentage point--from under 5 to about 6 percent in Ohio. Most of that, though not all of it, is just a slowing in the growth rate because we've had a very strong economy. But there is no [sense of] falling off the cliff that we could find as we searched around out there. People are pretty comfortable with inventories right now. In terms of the national outlook, we have no disagreement with Mike's forecast. Now, I presume it's an unbiased forecast, which means to me that the errors could be equal on either side. Mike can say it better than I can--and that is that given the current forecast, the error one quarter out on real GNP could leave us either at the start of a recession or could leave us in what we would call a boom. So I guess I have some concerns that we're torturing our ability to forecast with this fine-tuning that we are doing currently. With respect to Ed's channel, I think we must have made a mistake because we've gone through the wrong channel. The channel that I thought we were after was one that was aimed at reducing the rate of inflation. The channel we're in here, according to the Greenbook forecast, is one of continuing inflation at about the current rate. So, I hope we can find our way to a new channel soon before we end up finding out that the inflation rate is actually accelerating.",479
-fomc-corpus,1989,Vice Chairman.,3
-fomc-corpus,1989,"As far as the forecast, our bank staff forecast is still slightly stronger than Mike's forecast, as it has been for some time, but the differences are hardly statistically significant. And again, as it has been for some time, our inflation forecast is slightly higher. Leaving aside the technicalities of the forecast it does seem to me that the two major areas of uncertainty are capital goods and exports. And, of course, they're both related; they both get right to these questions that have been raised about the manufacturing sector. The point that Gary Stern made about keeping that in some perspective is very valid. I am a little more agnostic than some are in terms of trying to explain to my own satisfaction what is going on in the manufacturing sector and its possible implications for the economy at large. For example, I have a very, very hard time accepting the view that anything along the lines of the current level of either nominal or real interest rates should be capable of triggering a significant cumulative decline in the economy. Indeed, I'm not even sure myself--and I have not been for some time--how much of the slowing in the so-called interest sensitive sectors of the economy is really due to interest rates anyway, especially in a context in which the underlying prices of things like cars and houses and so on have been going up rather sharply, at least until recently. I'm also a little perplexed by the exchange rate arguments. Certainly, as Mike or Ted said earlier, it's true that the exchange rate we are seeing is one that is a good deal stronger than was built into the forecast going back, say, nine months ago or something like that. But there too it seems to me that at least part of that stronger exchange rate is being offset by a stronger growth abroad than was being thought about early in this year. It seems to me that in the context of this uncertainty about net exports, and exports in particular, the current exchange rate in the face of the growth patterns that we're seeing in the rest of the industrialized world should be compatible with continued quite respectable growth in exports. Indeed, I'm beginning to worry that if that's not the case then something may be more seriously wrong than we think in terms of competitiveness or something. I can't quite bring myself to the view that even the current exchange rate, in the face of the very strong growth abroad, should not yield quite a respectable continued growth in net exports. Now, the inflation situation I see as a Catch-22 in that I find it difficult to get too caught up in the inflationary prospects so long as the broad measures of wages and compensation are behaving the way they are. Indeed, if you look at our forecast and the Board staff's forecast, both now have unit labor costs growing faster than the deflator in a context in which, as Governor Johnson has pointed out, this profit squeeze is already very sharp. I don't see how you get any relief from that until you see the wage and compensation costs turn down. One of the worries I have is that if you build from where we are in terms of profits and profits as a share of GNP, what a period of four or five or six or seven quarters with a negative spread between unit labor costs and the deflator implies for profits raises some pretty serious questions in my mind about the implications for stock prices. The last point I would make, which is germane to these issues about manufacturing and the profits squeeze and exports, is that for the first three quarters of this year--if I remember the statistics right--the rate of net private investment for the economy as a whole is now down to 4.7 percent of GNP. And that is a very, very low number. And how we're going to get out from underneath a variety of these problems and get the productivity kicks that can really help us with this inflation problem with an investment rate of 4.7 percent of GNP is a real question.",787
-fomc-corpus,1989,That's called fiscal policy.,5
-fomc-corpus,1989,I know that's what it's called.,7
-fomc-corpus,1989,Roger Guffey.,5
-fomc-corpus,1989,"Thank you, Mr. Chairman. There hasn't been a great deal of change in the Tenth District since the last meeting. There are two or three things that I'd like to comment upon, however. One of them is an analysis of our third-quarter farm credit survey that we do on a quarterly basis. That clearly is showing that a recovery in the agricultural sector is continuing, as evidenced by the fact that this was the 11th consecutive quarter where farmland values have increased; they are currently about 8 percent above year-ago levels and roughly 23 percent above year-end levels of 1986. One of the other things that's rather striking is that the loan-to-deposits ratio in agricultural banks, as opposed to all District banks, is only 51.4 percent, and that happens to be a high for the last three or four years. They are looking for loans and there is some takedown of credit within the farm area. However, agriculture has had a bumper year, notwithstanding the two years of drought, largely because product prices together with red meat prices--particularly cattle, and until recent times, pork--have been very high and sustained. Retail sales District-wide are roughly flat. However, in talking with the major retailers, they think their inventories are in line; they are looking for a normal or usual Christmas selling season and they feel very good about the positions they now occupy. With regard to manufacturing, it has steadily increased. There is the problem of Boeing--with Wichita being fairly heavily dominated by Boeing--and their being out on strike. On the other hand, the auto assembly plants that we have are still going full tilt, meaning two full shifts. The exception to that is a GM plant in Kansas City that is now on a two-week shutdown and I'm told that they anticipate an additional two weeks at or near year-end. They are cutting back their production to meet the forecast of auto sales on a national level. With regard to prices, we don't have any clear evidence that there is any strong pressure on prices. The real problem that is beginning to show through on the wages is the cost of fringe benefits and that will be amplified a bit in the first quarter with the additional social security requirement. With regard to the national forecast, we have no quarrel with the projections that are contained in the Greenbook. For the fourth quarter we might be a couple of tenths weaker than the Greenbook would show. That simply tells me that if our primary objective is to slow the economy below its natural rate, then we're on track; I don't think we should panic. As a result, hopefully, we will get some indication of lower inflation rates. However, this forecast doesn't reveal that as far as I'm concerned. The Vice Chairman of the Board made some comments about evidence of lower prices; he reads the numbers differently than I do, I guess. Regional management differs--",581
-fomc-corpus,1989,I was just quoting the numbers ex-food and energy. If you look at the totals it's not quite as clear.,23
-fomc-corpus,1989,"I understand. The last thing I would note is that unemployment in the Tenth District in all four of the major cities in which the Bank operates is below the national rate of unemployment. Some of that may be as a result of out-migration that took place in the more difficult times; but there is potential for some price/wage increases as a result of our labor shortage. That's all I have, Mr. Chairman.",85
-fomc-corpus,1989,Wayne Angell.,5
-fomc-corpus,1989,"I have the same question. My hunch is that the fourth and first quarters are going to be somewhat weak, as forecast. But if you look at the more forward-looking items such as money growth, we have had M2 back on a fairly decent pace for about five months now and I've been surprised that commodity prices haven't continued to move down. I know they have moved down in certain of the industrial measures, but it seems to me a pretty isolated group of commodity prices that are continuing to move down. And they haven't moved down very much in comparison to how much they moved up in the 1987-1988 period. So, it seems to me that we have a ways to go in regard to restraint on those commodity prices. We had a serious drought, which took farm commodity prices up a great deal. We have not had what you would call a normal movement of commodity prices down, which you would typically get; that is, going back over the post World War II drought periods, ordinarily you would get more movement down of commodity prices than we have had. I'm somewhat [stymied] in my view concerning where we are because commodity price behavior hasn't been what I thought it was going to be. I guess that's one of the problems you have when you begin to target something; perhaps you ought not to look at what you think it's going to say. I think there are times when you [unintelligible] not see as much; it does not give me the sense of an economic slowdown that I felt in 1985 and 1986. It just isn't there. And I think it's crucial that it get there because the wage sector is no longer lagging as much as we would like. It's kind of upon us and we probably have some tough periods ahead.",361
-fomc-corpus,1989,Governor Kelley.,3
-fomc-corpus,1989,"Mr. Chairman, I think one of the times when you have to be careful is when you get what you want, which is pretty much what has happened here. It's a time to be careful because you have to develop a pretty careful view of what it is that you want to do next. We have the slowing that we looked for and that does leave us with the questions that Governor Johnson raised a little while ago: How slow is it going to get? How slow do we want it to get? And a more practical question is: What are the best ways to influence the process properly? To me, this quest for price stability that we're all on and believe in is playing itself out against the background of some pretty powerful and large forces. The inflationary forces we pretty well understand. We have an overemployed and overconsuming economy and all that that represents. But I'm haunted by what seem to be some underlying disinflationary forces that I wish I understood better than I do. They seem to me to be having a powerful influence, perhaps, on the favorable results we've been getting over the last year on inflation. Given the very full economy that we've got, inflation did not take on a life of its own to the extent that we might have expected it to a year ago. It seemed to stop what upward momentum it had before there was really much of an apparent slowdown in the economy. I wonder what underlies that? The major force that I can see is that there seems to be a tremendous amount of very low cost capacity in a wide variety of industries and commodities around the world. And capital is doing a very efficient job of seeking that out and exploiting it and holding costs down. I think the downsizing of GNP that you've spoken of very eloquently, Mr. Chairman, is a factor. It seems to me that we may be entering an era where we're servicing debt more than creating debt, which is deflationary. I don't know what all those forces are, if I can use that word, but they seem to be manifested in this profit squeeze that we have going on now--with costs being pushed up and the inability to pass that on through prices. That would be inflationary. But it can't go on forever; something has got to give. I certainly hope it's on the cost side. But maybe a key conceptual approach from a policy standpoint is that we really don't want either side to win too terribly conclusively. If inflation becomes dominant, we know what that scenario would be and that's unacceptable. In the slowdown scenario that we have here, it may be time to begin to think a bit about the power of those underlying deflationary forces--I guess I should say disinflationary at this point; they could become deflationary and lead us into some really serious problems that might be avoidable. I don't know that that's something that we have to deal with right now but I think it's something that we should keep in the back of our minds and strive to understand or get a better grasp on--at least better than I have. Thank you.",622
-fomc-corpus,1989,Governor Seger.,4
-fomc-corpus,1989,"I just have a couple of comments. I think this quarter and the next two are probably going to be quite weak, possibly even turning in some red ink performance. I believe the weakness will be centered in manufacturing--because we already have seen that--and also in construction to some extent. Some of my contacts in manufacturing indicate that in their view manufacturing is already in a recession or within a gnat's eyebrow of being there. To use autos as a specific example, I have been talking to people in the last few days in that industry and they are the most negative I've seen--not since 1985 or 1986 but since 1982. That is probably because production is running about what it was in 1982. While they expected a payback from the sales spurt in August and early September, which of course was a result of the very generous incentives, they didn't expect this much of a payback. The very weak October and early November sales performance has come as an unpleasant surprise, at least to my contacts. There were a couple of things I heard mentioned for the first time from these folks. One was the complications coming from the weak financial condition of a number of the automobile dealers, including very large dealers. The statistic given to me was that about half of the auto dealers in this country are losing money in 1989. We're not just talking about a small marginal group but a very major group. And that tends to lead to an unwillingness to carry the same size inventories as previously because the dealers just don't have the wherewithal to fund it. Therefore, at the moment you're seeing a very poor flow of orders to the producers from the dealers. It's a combination of the weak consumer demand for cars and also the efforts of the dealers to cut back their existing inventory levels. There are still apparently quite a few carryover 1989 [models] that they would like to dispose of but haven't been able to. Another interesting thing came up in the comments of He said a number of the dealers were telling him that some of their would-be buyers of Cadillacs are saying that they are knocked out of the market at the moment because their ARM mortages had adjusted upwards and, even though they're ""in the bucks"" so to speak, they are finding their monthly payment going up--these are people who don't live in shacks like I do--by $400, $425, or $450 and apparently that's just enough to discourage some of them from going ahead and buying a new automobile at the same time. That's the first time I heard that comment. Also, this unpleasant surprise is forcing a basic analysis of how much manufacturing capacity they really need. Chrysler is looking at this and so is GM. I think GM has four plants, although they haven't identified the exact four or five, that are going to be shuttered for good. Believe it or not, we've been concerned about capacity constraints; well, on autos we've had excess capacity and new capacity coming on stream all the time. So there are going to be these more permanent adjustments taking place--not in Roger's District; he's very lucky. But the assembly plant down the street from my old apartment in Detroit is getting it February 2nd. So, I would change places with you if your business is too strong down there. Also, I heard mentioned [by my contacts in the auto industry] concern over the strong dollar and what that is doing in the high-priced end of the market, particularly because expensive German cars are now coming into this country at sort of bargain prices. And this is making it more difficult for the American manufacturers to compete with them. Also, the rather feeble efforts of Chrysler to do some exporting of cars is now being impeded by the stronger dollar this year. Finally, I'd like to mention just a couple of things I've been picking up about construction and housing. One is the sad impact of the FIRREA legislation on the ability of builders to get loans because S&Ls apparently haven't had the kinds of lending limits on individual loan size that banks have had. Now with FIRREA they do; it's 15 percent of their capital. So, a number of developers are having a hard time getting loans of the size they need to do these developments. Also, the HUD parade of homes march is on and the competition from the foreclosed homes, at least in some parts of the country, is very significant. And that is tending to keep discouraged builders from putting up new homes. So, my personal feeling is that we're going to see further problems in both the manufacturing arena and in construction. I hope I'm wrong. We'll find out by fourth of July next year.",941
-fomc-corpus,1989,Governor LaWare.,4
-fomc-corpus,1989,"Thank you, Mr. Chairman. I must say that I can't find any fault with the Greenbook projection except that it's not what I'd like to see.",31
-fomc-corpus,1989,Don't let that stop you!,6
-fomc-corpus,1989,"It's particularly discouraging to see a projection of further significant deterioration in the employment numbers coupled with no projected improvement in the inflation rate, at least as measured by the CPI. We have in the Greenbook here a two-year look toward the near nirvana of stable prices that we have subscribed to, with no progress toward that end. And that means that we're 40 percent of the way there without having gotten there yet. It makes one wonder, given the lackluster economy that's projected here, if the only way to see less inflation is recession. And I don't like that. At the same time, that's coupled with information about corporate profits that, even adjusted for the losses of the banks in the third quarter due to [loan loss] provisioning, are certainly not very robust. And when corporate profits are being constrained by narrower margins [unintelligible]--and these are not just confined to the automobile industry, they are widespread across American industry today--then you have to start hacking away at the costs. And the first place you start that is with employment. We're seeing it in computers; we're seeing it in autos; we're seeing it in banks; and we're beginning to see some evidence of it, I think, in the defense industry. If we haven't already, it certainly looks like it's coming down the trail. At the same time, we have a number of fragilities that remain out there: the banks; the overhang in the real estate markets with the RTC situation; and even some other areas which have looked until very recently to be a lot healthier. And then of course you have the punk-junk market, which I think is balanced on a very thin knife's edge. Recession to my way of thinking is a decidedly dangerous alternative because I think the bulwarks by which we try to insulate ourselves or our industries against external shock are very thin. And if the economy in fact is any softer underneath than the Greenbook would seem to indicate, then we may be closer to the edge of the abyss than was indicated. And with that, I'm sure you can hear my dove-like wings flapping on the bridges.",430
-fomc-corpus,1989,Along with mine.,4
-fomc-corpus,1989,"With that, I think it probably would be desirable to break for coffee.",15
-fomc-corpus,1989,"Mr. Chairman, I'll be brief--well, not too brief. [Statement--see Appendix.]",20
-fomc-corpus,1989,Questions for Mr. Kohn?,7
-fomc-corpus,1989,"Don, this is unrelated to the presentation that you just made, but I wanted to ask you what you thought the frictional level of borrowing was. If it were necessary to inject more reserves, would you view it as a problem if the funds rate actually dropped below the discount rate?",57
-fomc-corpus,1989,"Well, even under alternative A [the funds rate] would still be a point above the discount rate. The difficulty, I guess, is that we're obviously looking at close to frictional borrowing levels. If the Committee were to decide to ease, for example, I do think that Mr. Sternlight could inject some more nonborrowed reserves, attain a funds rate that wasn't somehow out of control in relation to the discount rate, and borrowing would decline. Now, we said that under alternative A you would get a $100 million [decline in borrowing] for the 50 basis point [decline in the funds rate]. I wonder whether it wouldn't be less than that, given where we are on what's probably a very steep portion of the borrowing function right now--whether it would take a very small change in borrowing to accomplish that easing in policy. I think it's possibly quite feasible. I don't think we're in a situation where we're in danger of somehow letting the funds rate/discount rate relationship get out of whack or losing control over where it's running now.",213
-fomc-corpus,1989,I'd like you to talk a little about why we don't have an alternative C. It surprises me that the risks of recession clearly dominate the staff thinking relative to the risks of inflation. Another way to say that is that to me it looks like Federal Reserve policy is designed to prevent the inflation rate from falling.,61
-fomc-corpus,1989,"I gave this some thought. There were two major factors weighing in my mind for not having an alternative C. One was that not having it in the Bluebook didn't mean the Committee couldn't vote on it at the meeting if it wanted to. But the other factor was that policy had just eased and thinking about reversing that action after it had just been taken seemed so strange. And, we are just talking about policy between now and [the next meeting]--December 17th or 18th or whenever it is. So, I made a judgment that alternative C was so unlikely to be chosen that I didn't put it in the Bluebook.",129
-fomc-corpus,1989,"Let me just follow up with a question about when you might bring it back in. What are the odds that money growth will go to 9 percent rather than 7 percent? Or if it stays at 7-1/2 percent through the year-end are we going to look at ""C""?",61
-fomc-corpus,1989,"Well, we expect it to stay at something close to the 7 percent range through year-end; and at the current level of interest rates we'd expect to see it growing about like that in the first quarter of next year. I certainly have no problem putting in an alternative C for those who are bothered by that level of money growth. As I said, we thought about it this time and didn't do it; but most of the time we have it in.",92
-fomc-corpus,1989,"Alternative C will show up if anybody on the Committee wants alternative C to come back. Any other questions for Don? Let me get started on our last round robin. I think what we've been listening to today is really what our fundamental dilemma is--namely, that there is no viable clear-cut path that gets us to where we would like to be without some assistance from the fiscal side. I've made this point to the President and his associates and tried to explain, in effect, that there is a downside limit to how far short-term interest rates can go without retriggering inflationary expectations and a significant recession on the other side of that. There may be some dispute as to whether or not that level is 8-1/2 percent on the funds rate, or 8 percent, or if it was really 9 percent or even higher. But what I think is reasonably certain from everything we've been looking at and discussing today is that the flexibility that we have to achieve the dual goals of declining inflation and still sustainable growth clearly is a window--which may in fact not be there. In other words, I am talking in terms of Ed Boehne's and Lee Hoskins' various channels. Neither one of them may be opened in a practical way for us to drive through without some assistance on the fiscal side. I don't know to what extent that is going to be driven [unintelligible] but there is some clear indication from the White House at this stage that they may be getting serious. The business of letting the sequester stand is not altogether a sham. There are some fundamental discussions going on in private in that area. It looks to me as though what is likely to emerge is a partial sequester--that is, a sequester which will be permanent for three months, followed by some reconciliation bill which hopefully will get the type of [fiscal policy] that the Greenbook presupposes. But short of that, I'm not sure that we have a viable window. I also would like to point out that we have some very peculiar values out there. Jerry Corrigan strikes a very important chord when he raises the issue that unit labor costs at this stage are seemingly locked in at an unacceptably high range and improvement on the inflation side presupposes the necessity of declining profit margins. And declining profit margins, in the context of where I read the real expected rate of return on American securities and American stocks, suggest to me that we are now in a bear market. If the bear market is rather soft and cuddly, that's fine; but if it decides to move rather fast then I think we will get some of the wealth effects in the GNP accounts and the economy will tilt over. I must say, however, that the data on orders suggest to me that they are still weak but they are not deteriorating; we're not getting any evidence at this stage, of which I'm aware, that suggests that we are on a slippery slope. I think orders are soft and backlogs are still eroding. I do think it is surprising that steel orders have flattened even though backlogs are down. Aluminum orders still continue quite weak. The respective commodity prices, I might add, are following the order patterns rather surprisingly well, which is suggestive of the fact that commodity prices are now sort of a new ordering indicator rather than an inflation [indicator] per se. I think it's a very sensitive period for us and I'm not sure how we will come out. But I think we have to grope our way along. While not losing sight of our long-term goals, which I think are crucial, we also have to be careful not to fumble into a severe recession. That will make the capability of our achieving the long-terms goals politically unavailable to us. So, it's not going to be an easy next six months. In some of the most recent orders data I think there is at least some suggestion that we may well make it; but it's going to be close. I come out after all of that not knowing very much more to recommend than alternative B, asymmetric for no other reason than that's where we are at the moment. Wayne.",842
-fomc-corpus,1989,"Well, it seems to me that we're at a juncture here where it's time for us to pause and see what happens. The fourth quarter and the first quarter are the consequences of the monetary policy that we implemented in the second quarter and the third quarter. We are already past [influencing] those. Whatever these quarters turn out to be, it would be most unfortunate for us to have a slowdown--or a slowdown near to zero if it's that slow, which I don't think it is--and then not to capture the price level opportunity that you get from being there. It would just be such a waste to step up to that point and then not to capture the benefits. So, I think it's imperative that we not be too caught up in tuning in on the employment and output numbers that we're going to be seeing. I think we have to remain forward-looking. Most important, it seems to me that the dollar exchange rate is out there. And it seems to me that we cannot go through a period of substantial dollar weakness in foreign exchange markets without absolutely upsetting all the financial markets. The only way that I can see us not going through such a period is for us to make some gains on the trade balance in this window [of opportunity]. I am more encouraged from talking with central bankers in Europe and Japan concerning their growth prospects. We have an opportunity now for them to grow faster than we're going to grow and I guess I'm going to be on the optimistic side, as the Vice Chairman was, in regard to exports. It seems to me that our policy ought to be designed to keep nominal GNP in the 4 to 5 percent range and hope that we get a fantastic real GNP out of those numbers. If we hold to that kind of a pattern, then I think there's ample opportunity to [get] the exports we need to do or [get] the crowding out of imports. I think we're now moving in the period where that has to take place. So, Mr. Chairman, I also favor ""B;"" but frankly, I'm more of the symmetric mind in the sense that I would like us to be in a position that we not make another move in the near future without having a real concerted discussion of the FOMC concerning that.",458
-fomc-corpus,1989,President Melzer.,4
-fomc-corpus,1989,"I would favor ""B"" symmetric as well. I could live with ""B"" asymmetric, as you suggested. I have thoughts that I think are quite similar to those Wayne expressed. First of all--and I mentioned this on the ""Call""--we've got to be careful in the short run about not overreacting to the current data. We've been on the move for some months now with policy. And if we made a mistake with policy I don't think we're making it now; we probably made it last winter or early spring. But we certainly have taken the steps over the last five or six months, as I view it, to put policy back on an appropriate longer-term course. The second point I would make relates to this longer-term view of what we've achieved over not quite a three-year period. If you go back to early '87, we were looking at 12 quarters of trend growth of money that was almost 12 percent and we brought that down over this period of time to a little less than 5 percent. That's reflected in the P* model. It's very consistent with our longer-term goals and I would just hate to see us trade all that progress away by overreacting. My final point is that, to some extent, I think we have to be careful about how we characterize what we are doing. Even though we all believe in it and understand the benefits of zero inflation, however defined, I'm not so sure how broadly supported that would be. I've heard comments--not today, but around this table--about businessmen thinking the environment we have been in is just fine and why not just continue that, with inflation running 4 to 5 percent. So I think it's important [to recognize] as we look at what's going on here that there are some forces operating that are much bigger than we are in this sense. Now, it's not totally unrelated to monetary policy, but we've got this external imbalance situation that we're living with and that's imposing certain things on the economy. If we don't run the type of policy we've been running, which is consistent with that, there will be a much more drastic adjustment imposed on the economy. I suppose people could come up with a longer list, but to cite another example: we also have an adjustment going on to the unsustainable credit growth that we have observed, really, throughout this recovery. There are a lot of situations where people have geared their plans toward an economy growing much more rapidly than potential. To the extent that we can lay out a broader set of issues --that it's not just the Fed single-mindedly pursuing this price stability objective and ignoring all else--I think it would be to our benefit. I'm not sure how to do that. But I think that's a risk of where we are right now.",560
-fomc-corpus,1989,President Black.,3
-fomc-corpus,1989,"Mr. Chairman, I would go along with ""B"" with asymmetric language. I recognize that we've done quite a bit of easing in recent weeks and that M2 is growing pretty strongly. Clearly, at some point, as Tom expressed it so well on the ""Call"" the other day--and Governor Angell has made the same point--we're going to have to start paying more attention to the aggregates and less to these short-term indicators of real economic activity or else we're going to be headed for a lot of trouble. I don't think we've reached that point just yet, but that's clearly a judgment call. Having said that, I think it is very essential that we keep our eyes firmly on our longer-term goal of bringing down inflation. Accordingly, I think any further easing, even that little amount permitted by the proviso, should be approached very, very cautiously.",175
-fomc-corpus,1989,Governor Johnson.,3
-fomc-corpus,1989,"I agree with the Chairman's proposal for ""B"" with asymmetric language. I think that's really where we are. The risk is clearly on the down side and I don't mean just on the real economy. If I didn't personally think that we weren't going to make better progress than the Greenbook has indicated on inflation, I wouldn't want to tilt that way. As the Chairman said, we're at the stage where we have to be very cautious and not risk tipping the economy into a major recession because I don't believe the general public is going to understand our causing a major disruption to get a percentage point or two out of the inflation rate when we're already around the 4 percent range. So, I'm a gradualist in that sense and I wear that band pretty proudly. I think we ought to be very careful and try to make gains in a sensible way. I don't think we have much more easing to do; I agree with Governor Angell on that point. What we're seeing in the economy now is the result of policy months ago and I think we're getting closer to where we ultimately want to be. Clearly, when the funds rate got down close to 6 percent in late '86 or early '87 it was too low. I think a lot of us thought oil prices were going to stay down better than they did. So I don't think we want to return to those types of interest rates. But at 8-1/2 percent on the funds rate we've still got a ways to go; and the markets are certainly anticipating that we have a ways to go, but not a lot though. And I think that's the point. The longer we wait, if the economy deteriorates on us, the more we're going to have to move. And that's something we ought to try to avoid. [We ought to be] seeking out where we ultimately want to be, getting there early enough, and then letting the lags work their way through. I think we're close to that stage but we ought to be positioned to make another modest move because I don't think there is any upside risk to that. I think that's where we should be.",428
-fomc-corpus,1989,President Boehne.,5
-fomc-corpus,1989,"I agree with alternative B and the asymmetrical directive. It comes down to risks--and I think the risks are on the down side--and how much you're willing to take a chance on the economy going down to get some gains on inflation. I think we have to view inflation in this current sensitive context in a longer-term view. So, I support where you come out, Mr. Chairman.",80
-fomc-corpus,1989,President Parry.,4
-fomc-corpus,1989,"Mr. Chairman, I support alternative B as well. I have a preference for symmetric language as a result of my concerns about inflation and the inflation rate incorporated in the forecast. I must admit that I'm not quite sure I fully understand the initial part of your statement about how, if we don't get help from the fiscal side, it may make it impossible I think you said to reach our objectives with regard to inflation.",83
-fomc-corpus,1989,"Well, I don't know if it's impossible but I think it will be very difficult to do so without breaking the back of the economy.",27
-fomc-corpus,1989,I would hope that one thing we can look at in this study that is being done for next month is how the burden on the economy is affected by different assumptions about fiscal policy; because it's not obvious to me how the total burden on the economy changes with combinations of fiscal versus monetary policy. But I know how the burden on us changes. Okay?,70
-fomc-corpus,1989,President Syron.,4
-fomc-corpus,1989,"I agree with your suggestion basically because it's no change. Given what we did last week, I don't think we have much choice right now. I think we're in a very difficult situation. As Ed Boehne said, it is a question of risks; and I agree with Tom Melzer's point that some reality testing has to be done out there and I'm not quite sure how we get that to occur. But given the lags involved and what we've already done, I just don't think it makes any sense to make any changes at this time.",110
-fomc-corpus,1989,"So you're ""B"" asymmetric?",7
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,President Keehn.,4
-fomc-corpus,1989,"Mr. Chairman, I agree with your assessment. It seems to me that in a broad sense we are accomplishing what we set out to do and that it's coming out about as we would have expected. I do think the discussion around the table indicates that the economy is far different this time than was the case the last time. Having said that, I think we've done quite a bit over the last month or two and this is an appropriate time to simply stand back and see how things work out. I'd be in favor of alternative B. I don't feel strongly about the language, but would have a slight preference for asymmetric.",124
-fomc-corpus,1989,President Stern.,3
-fomc-corpus,1989,"I would support your recommendation, Mr. Chairman, of alternative B with asymmetric language. There are only [a few] thoughts I would add to this. Given the uncertainties about the near-term economic outlook, this may be a time to pay at least a bit more attention to the aggregates, to M2. Analytically that makes sense; also, M2 has responded in recent months more or less as expected and I think we can get some help there. If I fully believed the staff's inflation forecast for 1990 and 1991, I would be very discouraged about what we're facing. But the one thing I do conclude with that forecast is that I would be very worried about declines in the dollar from here on out.",148
-fomc-corpus,1989,President Forrestal.,4
-fomc-corpus,1989,"Mr. Chairman, I would associate myself with those who say we need to keep our eye on the long-term goal of price stability. And I certainly wouldn't want to give back the gains that we've made over time. However, I think we need to keep in the forefront of our minds that price stability is only one of the goals of monetary policy; it may be the primary one but I think we can't be seen as recession tolerant. And like you and other speakers earlier in the day, I think the risk of recession is beginning to grow. I think what we've done is sufficient for the moment; I would stand back and wait at the moment. But I have a feeling that we may have to ease a little more before the end of the year. So, I would favor your proposal of alternative B with asymmetric language.",165
-fomc-corpus,1989,Governor LaWare.,4
-fomc-corpus,1989,"Yes, Mr. Chairman, I favor ""B"" asymmetric; I probably could tilt a little more toward asymmetric than we have in the past, but I'll leave it the way it is.",38
-fomc-corpus,1989,Asymmetric prime.,4
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,President Boykin.,4
-fomc-corpus,1989,"Mr. Chairman, I would agree with alternative B; I have a fairly strong preference for symmetric language. Also, I agree with those who have already expressed the view that the inflation forecast that we have in the Greenbook doesn't show very much progress there. Granted, we have risks on the down side of the economy; but on the other hand, I'm not sure that we've had the opportunity to see all of the effects flowing through of what we have done in terms of ease over the last few months. I guess I'm hoping that that will keep us from slipping into recession. But I think we would make a bad mistake if we really didn't keep inflation fairly high in importance.",135
-fomc-corpus,1989,Governor Seger.,4
-fomc-corpus,1989,"I hate to be odd man, or woman, out again, but I feel fairly strongly that we are running the risk of a recession. And if we are worried, as I am, about the waning strength of the economy going into next spring, say, the steps have to be taken now to influence it at that time because of the well known lags involved. If I were convinced by my illustrious colleagues here that throwing us into the recession tank would solve our inflation problem I probably would vote differently. But I don't see that a recession is going to offset the impact of unwise legislation--by our friends under the dome down the street here--that would put upward pressure on business costs. I don't think that a recession is going to solve the medical care costs and the nursing shortage. Maybe we ought to deal with recruiting more nurses and getting rid of some of the excess lawyers who are chasing ambulances and getting big settlements which are driving up costs and not try to deal with it through a recession. These are the kinds of things that are contributing to inflation. I have a hard time seeing at the moment that it's excessively strong demand and shortages of capacity. So, having stated all that, I would prefer alternative A. Actually, when I look at the difference between ""A"" and ""B"" as described here by Don Kohn it isn't as if the one is going to produce monetary growth double the other. You're talking about really rather modest differences but sufficiently great, I think, to make a difference come next spring. I would go for ""A.""",315
-fomc-corpus,1989,Governor Kelley.,3
-fomc-corpus,1989,"Mr. Chairman, I support your suggestion of ""B"" asymmetric. I think that weakness is far more apparent than strength and I think we need to be very careful with it here. ""B"" is where we are now and I would certainly hate to appear, however implicitly and indirectly, to be taking a stronger stance than we presently have. I think it's extremely likely that any change that we would make in the intermeeting period would be to the accommodative side and that we should reflect that in the directive. I also do not think that that precludes -:he possibility that we can continue to make some small progress on inflation, as we have done in recent months and quarters.",138
-fomc-corpus,1989,President Guffey.,5
-fomc-corpus,1989,"Thank you, Mr. Chairman. I've been looking for some time for an opportunity to agree nearly 100 percent with Wayne Angell. And I do.",31
-fomc-corpus,1989,It must be bonus time!,6
-fomc-corpus,1989,It wouldn't be so bad.,6
-fomc-corpus,1989,I realize it's getting late.,6
-fomc-corpus,1989,"I think you stated it very well. We have had easing over the last four or five months of roughly 1-1/4 or 1-3/8 percent, which on a base of something less than 9 percent is a substantial easing. To be sure, the outlook is for [the expansion] to be slow in the fourth quarter and into the first quarter; in my view, that's what's needed. I'm not sure that that's enough to get us to the objective that I think we all would like to achieve--and that is something closer to price stability, however defined. As a result, given that we sort of preempted this meeting by an easing a week or so ago, clearly I'd favor maintaining what we have now with a B alternative. I would still opt for a symmetric directive because I don't know what an asymmetric directive now means, Mr. Chairman. We took two cuts in the intermeeting period which is a little beyond what I thought even an asymmetric directive meant without a vote.",204
-fomc-corpus,1989,Vice Chairman.,3
-fomc-corpus,1989,"""B"" asymmetric is acceptable to me. But I do want to associate myself with those who are suggesting a need for great caution at this point.",29
-fomc-corpus,1989,President Hoskins.,4
-fomc-corpus,1989,"My only comment on where we are right now has to do with our experience when we attempt to prolong expansions and that is: that will induce a recession at some point if we pursue that path. I think what Roger Guffey has indicated, and Wayne did before, is right on target: that where we are now is a function of what we did earlier. If we were concerned about a continuing monetary policy mistake, then we ought to check the aggregates. If they were shrinking or not growing then I would say yes, we ought to be easing because we're making a monetary policy mistake. But in fact they are growing. In terms of the proposal in front of us, I would again agree with Roger Guffey that given where we are there's not much choice. I'd prefer ""B."" [Unintelligible] reminds us that there are two sides to risks in a situation; we ought to be reminded of that and take a look at that on a regular basis. So, I think we ought to go with ""B."" I don't believe in fine-tuning. We've made the move, so let's live with it for a while.",230
-fomc-corpus,1989,"I read the general inclination here as being modestly in favor of ""B"" asymmetric but--to capture Bob Black's words--should we move, that we should approach ease very cautiously. I think that's the spirit of what I hear around this table. Let's put that to a vote.",58
-fomc-corpus,1989,Should I read the--,5
-fomc-corpus,1989,"Yes, please.",4
-fomc-corpus,1989,"It would read: ""In the implementation of policy for the immediate future, the Committee seeks to maintain the existing degree of pressure on reserve positions. Taking account of progress toward price stability, the strength of the business expansion, the behavior of the monetary aggregates, and developments in foreign exchange and domestic financial markets, slightly greater reserve restraint might or slightly lesser reserve restraint would be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with growth of M2 and M3 over the period from September through December at annual rates of about 7-1/2 and 4-1/2 percent, respectively. The Chairman may call for Committee consultation if it appears to the Manager for Domestic Operations that reserve conditions during the period before the next meeting are likely to be associated with a federal funds rate persistently outside a range of 7 to 11 percent.""",175
-fomc-corpus,1989,Call the roll.,4
-fomc-corpus,1989,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Guffey Yes Governor Johnson Yes President Keehn Yes Governor Kelley Yes Governor LaWare Yes President Melzer Yes Governor Seger No President Syron Yes,45
-fomc-corpus,1989,The next meeting is--,5
-fomc-corpus,1989,December 18-19.,6
-fomc-corpus,1989,December 18th and 19th.,9
-fomc-corpus,1989,What's the timing going to be?,7
-fomc-corpus,1989,Are we going to meet Monday afternoon?,8
-fomc-corpus,1989,I think for the sake of the items [on the agenda] we ought to start at 12:30 p.m.; we better start earlier than 3:00 p.m.,37
-fomc-corpus,1989,"Hold it, everyone. Jerry Corrigan is raising a question of whether we ought to start earlier.",20
-fomc-corpus,1989,Earlier than 3:00 p.m. on Monday.,12
-fomc-corpus,1989,Don't we have a fairly long paper coming up?,10
-fomc-corpus,1989,That's what I mean. It seems to me that we really should be prepared to devote a good solid chunk of time to these issues. I would suggest starting much earlier than usual; I don't know about people's travel.,43
-fomc-corpus,1989,How about 1:00 p.m.?,9
-fomc-corpus,1989,1:00 p.m. and have lunch here?,11
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,Is that satisfactory to everyone?,6
-fomc-corpus,1989,"No, have lunch at 12:00 noon and start work at 1:00 p.m.",21
-fomc-corpus,1989,That's good.,3
-fomc-corpus,1989,At least 12:30 p.m. for lunch.,12
-fomc-corpus,1989,On the 18th or 19th?,10
-fomc-corpus,1989,Let's start lunch at 12:30 p.m. and start the meeting at 1:00 p.m. Is that satisfactory?,27
-fomc-corpus,1989,"Mr. Chairman, the 18th is a Monday; there's a Board meeting. I don't know what the agenda is to be--",27
-fomc-corpus,1989,"In my judgment, this preempts the Board meeting.",11
-fomc-corpus,1989,We can start the Board meeting at 9:30 a.m.,14
-fomc-corpus,1989,It'll be a long day!,7
-fomc-corpus,1989,"President Stern is on his way, but we can get started. First, may I have a motion to approve the minutes?",25
-fomc-corpus,1989,So move.,3
-fomc-corpus,1989,Second.,2
-fomc-corpus,1989,"Without objection. Mr. Prell, would you like to start us off?",16
-fomc-corpus,1989,"Thank you, Mr. Chairman. I just wanted to make a few brief comments before my colleagues make their presentation. As we listened at the last couple of meetings to the remarks of various Committee members regarding their expectations for this session, I must say that we were more than a little concerned. The potential scope of the discussion seemed to encompass not only more than we would have time to prepare or present but also more than we know or than anyone knows. So, our first job was to narrow the focus of our presentation to the issues that were both manageable and relevant to the Committee's policy concerns. We concentrated in particular on the question of the costs, in terms of unemployment and lost output, that can be expected to be incurred with an effort to achieve price stability within a five-year time frame. Surely, our [unintelligible] not only are of importance but also [the degree to] which positive analysis as opposed to personal value numbers can be brought to bear. One that comes to mind immediately is that of inflation measurements [and how] one wishes to quantify this price stability goal. In the list of discussion thoughts we distributed were those other questions to which some theoretical and empirical analysis probably can be applied, although I must admit that research to date has provided few, if any, definitive answers. Be that as it may, what we are presenting today certainly addresses some of the most urgent [concerns] facing the Committee, given present economic conditions and where we stand relative to the ultimate objective of price stability. On that note, let me indicate that we have three speakers: Dave Stockton and Larry Slifman from the Research Division, and Peter Hooper from the Division of International Finance. Dave will begin. MESSRS. STOCKTON, SLIFMAN, and HOOPER. [Statements--see Appendix.]",365
-fomc-corpus,1989,"That's an extraordinarily interesting job, gentlemen.",8
-fomc-corpus,1989,It truly is.,4
-fomc-corpus,1989,The floor is now open for questions or comments.,10
-fomc-corpus,1989,"Just one question. When you compare these sacrifice ratios from the models with the historical experience you use an unemployment rate. I guess that's one way to do it. But it doesn't seem to take into account that there will be changes in productivity and substitutions of capital for labor. I was just wondering [unintelligible]. It struck me that even though the cost was fairly significant--in real output terms you lost about 2 percentage points of real GNP growth--the change in nominal GNP was dramatic and the decline in the CPI inflation rate was from something like 12 or 13 percent annual rate down to about 4 percent in one year. Now, I know I'm not talking about relative to potential, but GNP was growing at about a zero rate in '81 or so and the change in the growth rate was from about zero to minus 2 or something like that over the '81 and '82 recession. I'm not sure that that's the best example but that one just strikes me as something quite significant. We saw the inflation rate come down from what people thought was a core rate of 10 percent; people were talking about projecting 10 percent out indefinitely. The actual rate was running 12 to 13 percent, I think, at an annual rate. And we had about a 9 percentage point change in the inflation rate in one year with about a 2 percentage point change in the real growth rate. That struck me as a significant adjustment without the kind of dislocations that might be implied here. If you're looking at cumulative effects over the whole cycle on unemployment, I know the unemployment rate got a lot higher. But the real output sacrifice in terms of growth rates wasn't very large at all when you consider the dramatic change in the inflation rate.",355
-fomc-corpus,1989,I think one could also argue that our credibility wasn't as high during that period as it might be in the future.,23
-fomc-corpus,1989,Right.,2
-fomc-corpus,1989,Which would have made it even less.,8
-fomc-corpus,1989,Right.,2
-fomc-corpus,1989,"I think the point to remember, though, was not so much that the swing in the GNP growth was zero to minus 2 but the fact that the unemployment rate ran up to 10 percent and then came down quite slowly. In addition, inflation in general in that period probably slowed a bit faster than the models might have expected but then it plateaued and didn't slow much [below that rate] beyond that point.",85
-fomc-corpus,1989,"I agree, but I'm just saying--",8
-fomc-corpus,1989,"So, the output losses in some sense should be measured from potential output--how much output do you actually give up relative to what you could have had, had you been operating at the time at potential, in order to bring inflation down. It does raise an issue, which I don't think we were able to address very well, simply because there aren't that many episodes upon which to base it, and that is: Would you get a more rapid bang for your buck out of a very deep downturn in overall economic activity and a very sharp rise in [un]employment than if you went through a long protracted period of smaller [declines in economic activity] but [more persistent] unemployment? The models that we looked at, the [Board] model in particular, don't distinguish between those kinds of events. In fact, there may be some expectational effect--even though we're not going to be able to see it very well with this one episode--where, if the economy sinks and people expect you to keep the pressure on, you would in fact have a larger effect on overall expectations than you would inching the unemployment rate up to 6 or 6-1/2 percent over 5 or 6 years.",246
-fomc-corpus,1989,"I think that's a very relevant point with respect to looking at the '81 period that was being talked about because, while I'm not disagreeing on the point that we had no credibility in that period, that was a case where [we] demonstrated a willingness to really hit the economy over the head with a sledgehammer to get inflation down. And it may be that this kind of shock effect occurring all at once rather than by a gradual approach--. I think it's not clear how much credibility that--",101
-fomc-corpus,1989,"I think there was a very important event that occurred prior to all of this and that was that long sequence of inflation going up successively; it was ratcheting up. In other words, the lows were always higher than the previous low and the low previous to that; and the highs were higher. And people like Milton Friedman were projecting [it would move] progressively ever on upward. At that particular point in that period, the System had maximum public support and minimum credibility.",96
-fomc-corpus,1989,That's what's so striking about it: the fact that people were projecting continued [increases in inflation]. I'm still amazed thinking back on that. I remember how painful it was sitting there going through it. But I'm still struck by what appears to be a fairly small sacrifice when you consider what people thought it would take to unwind inflation like that. The only thing is the baggage we've been left with: all the debt buildup in the '70s that resulted from that and the exposure to the safety net that resulted from cracking it.,105
-fomc-corpus,1989,"Yes. Our short-term models are poor but our intermediate-term models are really extraordinarily difficult to deal with. In these different and separate models, to which I think you are referring, are a lot of very interesting results. But they give you really quite different scenarios as to what would happen under various conditions. I think what we're dealing with is a very difficult conceptual problem of how our economy functions, especially in the growing world environment, under these different scenarios. I think what you succeeded in doing was getting some idea of dimension on some of the areas, but the range of error has to be awfully high. And I think all we can do is pick up one or two major notions. Bob.",140
-fomc-corpus,1989,"I'd like to ask an opinion about the credibility issue. If one had a Neal resolution, and in addition to that had publicly announced some kind of multiyear path on something such as either nominal GNP or money, do you think that that would have a significant impact on credibility? And, therefore, would that lead you more in the direction of faster adjustment than was incorporated in the model?",79
-fomc-corpus,1989,We were looking to you folks to address that. I am sure you must sit around and talk about it and have views about it.,27
-fomc-corpus,1989,"My own view is that it would be difficult to expect an immediate adjustment and a response to that. If you look back at inflation expectations survey data, for example, in 1979 there wasn't an immediate reaction to the announcement of a change in Federal Reserve operating procedures. There was, however, after the effects of the implementation of that policy became clear. It seems likely that it would be difficult to gauge what period of time it would take to establish that credibility or by what channels one would be able to do that. But I guess one wouldn't want to bet on having a very large immediate initial effect from simply signing on to the Neal proposal; but that's [as] opposed to some other kind of commitment that might tie the hands of policymakers, etc.",151
-fomc-corpus,1989,"Well, first of all, the strong credibility [model] assumed that it would take 2 years before it was believed and that's a fairly long time. In addition to the Neal amendment, I was thinking more in terms of setting year-to-year targets, which is one question I might ask.",59
-fomc-corpus,1989,You're [layering] on top of an ultimate objective the things that are in the targets and so on?,22
-fomc-corpus,1989,"Right, which has to be--",7
-fomc-corpus,1989,"Clearly, we haven't always achieved our monetary targets; so whether that in itself would have a great additional effect isn't clear. On the other hand, if [you look] back to the early '80s--a time in which we were perceived, correctly or not, to be on a monetarist sort of approach--maybe that will bring back the memories that what was needed at that time was a very hard-nosed approach.",87
-fomc-corpus,1989,But the targets don't have to be in terms of monetary aggregates. They could--,16
-fomc-corpus,1989,"But then you will recognize that the structure of the system, the behavioral relations, are not normal--certainly in that in the short run you might get a variety of mixes of output and price movement given nominal GNP growth. I suspect the more you seek to tie your hands in the way [policy] seems to be directed toward price stability the more it does [unintelligible] to credibility. But as I said, rolling on top of that ultimate objective, [if] that [is perceived] to be strong, it's almost a sufficient condition in itself.",115
-fomc-corpus,1989,Thank you.,3
-fomc-corpus,1989,Governor Angell.,4
-fomc-corpus,1989,"Well, I want to echo Chairman Greenspan's compliments to you. Even though you [prefaced] your remarks by saying that it shows how little we know, I still think it has been a very fruitful exercise and certainly fulfills what it was that we were asking for in terms of this kind of a presentation. One interest that I have is in terms of the base case. You were suggesting that there could be a continuation of this impact into 1996 and 1997 that might involve an outright deflation. Consequently, it was nice to look at that earlier tight money phenomenon because it also brought the rate of unemployment down to its natural rate. And what I'm asking is: Since we're already getting something we don't know about, maybe we might as well go ahead and do another five years because we're only doing more of that which we don't know about; and thereby, we would have a base case movement to zero inflation in 1995 and then [we could] look at the adjustment to the natural rate of unemployment. And that would also give us an opportunity to look at the current account deficit. That's because I presume that taking the base case [up to] 1996 will cause an interest rate adjustment, which I presume would [work] through to both the budget deficit and also the current account deficit because of the interest rate effect. And [we could] see how that might follow through for the next five years. Would that involve too much more?",295
-fomc-corpus,1989,We'd have to consult with our model experts on that.,12
-fomc-corpus,1989,"Well, it certainly would be hard to do in a day or two. But a few weeks' work [unintelligible] to what you've seen here.",33
-fomc-corpus,1989,"But you could suggest that the adjustments would not necessarily be that we would let deflation occur but that we would make adjustments in the direction that I've indicated. And that would then be pluses for the federal budget deficit and pluses for the current account in the ensuing period after 1995. I also wanted to get your reaction to the oil price shocks. It seems to me that maybe the oil price shocks are not unrelated to monetary policy. That is, if we decided to leave the inflation rate at 4-1/2 percent, we might be more apt to have an oil price shock, or a so-called oil price shock, than we would if we proceeded in a tighter fashion.",140
-fomc-corpus,1989,"Yes, we really would, because some of those underlying factors would tend to increase the probability of oil price shocks. If we continue the growth of oil demand [unintelligible], we would see production outside of OPEC about flat, so that would increase the chance of something happening there. If world growth were to go significantly below potential, that would certainly reduce the chances of oil price shocks.",80
-fomc-corpus,1989,"But on the fiscal side I'm afraid it works the other way. That is, at some point in time if we pursue, for example, the alternative of earlier restraint, then we increase the risk of either tripping the Gramm-Rudman-Hollings [provisions] or getting changed legislation.",60
-fomc-corpus,1989,"What matters here is what's happening to real activity. If we're holding the oil price unchanged in real terms so that greater inflation results in an increase in the nominal price but not necessarily [unintelligible] your question. Clearly, there are fiscal shocks; we've had a more expansive fiscal policy than--",60
-fomc-corpus,1989,"It seems to me that the Committee ought to keep in mind when we talk about these sacrifice ratios that we could take, say, alternative 2 of pursuing a [constant] 4-1/2 percent inflation rate or alternative 3, say, assuming a rate of increase in inflation of 1 percent a year, or we could go with 4, which would be our [price stability] objective, and then we would follow those alternatives out. There's no guarantee that one would not encounter even more likelihood of a serious financial upset that might engender a significant [rise in the] unemployment rate. So it seems to me it might be possible that the cumulative sacrifice we're talking about might be higher under a constant inflation target or an increasing inflation target--if anyone wanted to do that--than it would be under a zero inflation target.",169
-fomc-corpus,1989,"It could be. A sense of this financial upset that you refer to might be one of [unintelligible] or sharper adjustments. [Unintelligible] you might get [unintelligible] by hitting the system without regard to the financial dislocations, affecting expectations more strongly. You're just perhaps, with the financial effects, layering on another contraction of [unintelligible], which means you get more bang for your interest rate buck in slowing the economy and inflation [unintelligible].",103
-fomc-corpus,1989,"Let me follow up on that issue. My impression is that they would not get what you're suspecting at 4-1/2 percent because the model would tend to keep the unemployment rate from moving dramatically. The way the econometric structure is put together you don't get the type of dynamics that probably would occur. Since I haven't asked the question in 6 months on the crucial area, or one of the crucial areas of this whole business of tradeoffs--the Phillips curve or the variations thereof and the relationship between wages on the one hand and the gap on the other in whatever variation we're looking at--could you review what our experience has been in the last several years? The unemployment rate has come down, obviously, a great deal; the wage rate has gone up some but less than I suspect earlier configurations of the model would have indicated. Could you address that question specifically with respect to how important that is? In other words, is it a minor issue or one that gives you concern about the range of potential error in these various different tradeoffs, projecting them out for a five-year period?",220
-fomc-corpus,1989,"Well, on Exhibit 10 the chart in the lower panel shows the simulation in the wage and price sector taken together. So, it has the Phillips curve and then also the mark-up. To be sure, you can see that in 1984, as I said, there was a substantial error; but it had dissipated over the subsequent year and a half. And in the most recent period, this dynamic simulation of the wage and price sector together measured on the price variable has been pretty much right on track. Now, we also did some simulations of the wage equation alone. Again, it is true that there was a period where the model was tending to overpredict the actual experience--that actual wages were falling faster than the model would have predicted. So, between '81 and roughly '85 there was a period of overprediction in measured growth rate terms. But since about the middle of 1985, again measured in growth rate terms, the model has been pretty much right on track.",201
-fomc-corpus,1989,You're using the same structure?,6
-fomc-corpus,1989,This is sort of estimating it up through--,9
-fomc-corpus,1989,'79.,3
-fomc-corpus,1989,'79 and then--,5
-fomc-corpus,1989,All of these simulations are out-of-[sample] simulations?,12
-fomc-corpus,1989,"Right, correct.",4
-fomc-corpus,1989,"When was the structure last estimated? In other words, when did you actually fit the last set of parameters into your structure? When was it last re-estimated?",33
-fomc-corpus,1989,"The equations on which the future simulations were based in the presentation today were estimated within the last year. But the basic structure of the wage and price simulations in the model, in terms of the variables that appear on the right hand side, take the form in which they entered and have been essentially unchanged since probably 1980-1981.",68
-fomc-corpus,1989,Have the coefficients changed materially?,6
-fomc-corpus,1989,"The coefficients have changed some; and it turns out that if we take the exact specifications and add them up [unintelligible]. If you simulate that sector forward for 1989 it tends to overpredict both the rates of wage and price [unintelligible] maybe 1 percentage point or more. So, you get probably three-quarters--",72
-fomc-corpus,1989,"That's right. I think that [unintelligible] interesting. My problem with out-of-sample projections is that an out-of-sample projection from a model which is awful never gets published. People go back and re-estimate the structure. And I just want to make sure we know that what we're dealing with here are endeavors that fit the system; I don't know to what extent the structure will change in here. The only reason I raise the issue is that I get a little concerned about the the size of some of these numbers, as though we know them with some degree of [precision].",121
-fomc-corpus,1989,Sure. We [don't] make any strong claim for precision here. The basic question is: Is there any relationship between the slack in the economy and wage and price [behavior]?,36
-fomc-corpus,1989,"The answer is unequivocally ""yes"" on the basis of that, which is important--",19
-fomc-corpus,1989,"Now, obviously, we're making our decisions as we go along. Some notion of how much effect we're going to get for various--",26
-fomc-corpus,1989,I grant you: Knowing the sign is very important.,11
-fomc-corpus,1989,"Let me just say, and Larry referred to this, that we have had underway a comprehensive examination of this issue; had it not been for the overload we reached when you requested this briefing, we would have had it done by now. It will be available before very long. And it will explore all of these specifics as well as amplify what already has been indicated about the various tests that we did to see whether there were structure changes.",87
-fomc-corpus,1989,"I would just add, on the basis of the work we've done to date, that we have done an experiment that is, I think, exactly like you would wish us to do. That is, taking ourselves personally out of this, we went into the published literature and pulled out three different published equations and paradigms. We put them through a test using data as they exist and what people are actually using and did a series of stochastic simulations [and ran regressions] out of sample. The results of those show what I guess you'd expect them to show. All the models were misspecified to some degree or another. That is, they all perform worse out of sample than they do in sample. But the standard error on the equation that is quite similar to the one that is used in the quarterly model was by far the smallest for a 4-to-8-quarter-ahead forecast, a standard error on the order of 1-1/2 percent. Now, that 1-1/2 percent is small in terms of econometrics and what you're actually able to do in real time forecasting. But it's huge, I would imagine, from the perspective of the Committee in terms of the kind of errors that you can expect to see over a horizon as short as 4 to 8 quarters. But I think that's about as much science as we can bring to bear on the issue at the moment.",283
-fomc-corpus,1989,"Well, I think that's a fair statement. Lee Hoskins.",13
-fomc-corpus,1989,"Yes. Again, I think the staff did a good job in terms of laying out alternatives; let me compliment you on that. And I also compliment you on that last statement because I think that's absolutely accurate. We have poor tools and we do the best we can with them. Several comments have already been made, most of which I agree with. I think Manley was trying to get at the idea, and I share some of its content, [unintelligible] that the 1980 examples surely must be an upper limit to the sacrifice ratio, if you want to put it that way. That's just an observation I want to make about it. Now, I'm also struck that the [policy prescription] not only of a Milton Friedman but a James Tobin in the late 1970s and early 1980s [implied a] horrendous cost to keep inflation down for a very long period of time. Again, not to be overly critical of these kinds of exercises, I think the staff itself in 1983 ran roughly the same kind of experiment here at the Board. We looked back at that exercise and found that it substantially overestimates the cost--at least it looks like it does now--of getting inflation down. So, I think we do run the risk of seeming to err at least on one side in these exercises--unless you bought the full credibility model, in which case we'd probably run the risk of erring on the other side of it. Having said all that, one observation I'd make, which I think Governor Angell was getting at, is that we are measuring the cost of reducing inflation. If one is trying to make a decision about whether or not it's worthwhile doing, one needs to measure the benefits of having a zero rate of inflation--that is, in the next 5 years out or 10 years--and then compare that with the cost of the transition, because many of us believe there are some gains to maintaining price stability in terms of economic performance. Finally, I have a couple of specific questions and I'll just rattle those off: 1) Why do international investors lose confidence in the dollar when we've stabilized it? 2) I'd like you to explain to me the relationship of real interest rates to the deficit. And 3) I guess Wayne has already made this point, which has to do with oil prices; I would concur with his observation that in a price stability case you're much more likely to have oil prices in real terms perhaps declining rather than rising.",511
-fomc-corpus,1989,"Well, let me address the question about the willingness [to hold] dollar assets in exchange for disinflation. Clearly, the rise in real interest rates would be in favor of the dollar; but in that case, the current account deficit is persistently [growing]--we're up to 1/2 percent of GNP and it's widening in absolute terms. And the U.S. [external] debt is growing to levels that perhaps could be a source of concern at some point. As to when the shift in [unintelligible] takes place, that would be hard to say; and it's one of the reasons we considered two clearly marked alternatives, obviously, since [unintelligible]. But we certainly couldn't rule out the distinct possibility of some movement against the dollar as the amounts of the external debt and debt payments begin to stabilize [unintelligible]. The second question was on--",184
-fomc-corpus,1989,How real interest rates are related to the deficit and what economists might have to say about it empirically.,21
-fomc-corpus,1989,"Well, we know there's a reigning opinion on this. Clearly, it has become much more fashionable in recent years to take the view that there is not the kind of correlation that has been conventionally [believed]. The Board model, in estimating these relationships does find the more traditional [unintelligible] budget deficit does [tend] to raise interest rates. We may live in a more [unintelligible] world but we can't detect it; it means [unintelligible] this correlation. But if this [unintelligible], when there is a [big] increase in government debt relative to the size of the economy it does tend to raise interest rates. In our baseline we've assumed that if the size of the government debt relative to GNP is [trending] down, it would tend to allow real interest rates to [decline].",176
-fomc-corpus,1989,"On the question about oil prices: yes, clearly, as we discussed before, if they were not very [successful] in slowing real output, the implications for real oil prices would tend to be more favorable. If we go back to the early 1980s, for example, the difference is that oil prices were at substantially higher levels to begin with; and perhaps part of the more favorable outcome then had to do with the fact that we were beginning to be on the down side of an oil price shock. We also had a very small rise in the dollar. Both of these tended to reduce somewhat the [costs] of disinflation in the world in that period, relative to a period when oil prices and the dollar were moving differently. At this point we are at a very low relative level for real oil prices. We're [assuming] the production costs are insensitive to oil prices in some of the marginal areas. And the outlook for production outside of OPEC does not look particularly good. So it's a very low downside limit on the oil price situation this time as compared to the early 1980s when there was clearly a very strong downside potential.",234
-fomc-corpus,1989,I'd just comment on Mike's budget [response]. I think that was a fair statement on the deficit. You also mentioned the possibility of [spurious] correlations. Some people argue that it may be the level of government expenditures that is correlated with deficits. That's one source of it. Another source would be a change in savings based on something like appreciation of the stock market.,75
-fomc-corpus,1989,"Well, we don't deny the existence of differing views on this; and we view this as a legitimate area for continuing research. But this is the model we have at this point and the one we've found best fits the historical experience. But we [realize] it is an area of continuing debate.",60
-fomc-corpus,1989,"In the forward-looking model, individuals are assumed to look forward and see the increased tax liability that accompanies the increased spending today. That is imposed in some sense in that model. Most independent tests don't seem to find the offsetting private savings behavior with respect to [unintelligible]. But it does not have the same kind of real interest rate effect as in the Board staff [model].",78
-fomc-corpus,1989,Mr. Boykin.,5
-fomc-corpus,1989,"Mr. Chairman, Wayne Angell and Lee Hoskins pretty well asked my question but I'd like to ask it slightly differently. I'm looking at Exhibit 8. When you look at the four charts there: you have the GNP deflator at zero in 1995; you have the unemployment rate in 1995 at 7 percent but the line is heading down; you have real GNP above potential growth; and you have interest rates coming down. Using the assumptions that are behind this, it seems to me that if all of that would happen it would be a very favorable picture. The question then, of course, is: What happens after 1995? I know you haven't done that work. But at this point do you know whether you would expect continued decreases in the rate of unemployment, continued growth of the GNP above the potential rate, and interest rates possibly coming down a little more if we could reach this point by 1995?",193
-fomc-corpus,1989,"Well, it's not so much a matter of what we would expect; it's really a question of what policy actions would be taken at that point. We expect that the policy action that would be taken at that point would be to ease monetary policy further to bring down real interest rates as a way of trying to continue to support real GNP and bring that unemployment rate down closer to the natural rate. So, the point that I'm trying to make is that you end this period with an unemployment rate, in this model, that is still substantially above the natural rate. It does [pose] this continuous strategic problem because, with the unemployment rate above the natural rate at that point and with essentially no inflation, the model then would want to produce an outright deflation, at least for some time. That's really the point I was trying to make.",168
-fomc-corpus,1989,"Well, I guess I would always assume, maybe erroneously, that of course we would make the right policy decisions. And with the unemployment rate holding steady there for 3 or 4 years and the downward slope of that line, I wondered whether we could expect that to continue.",57
-fomc-corpus,1989,"Well, that downward slope--and maybe it's a problem of the way we charted this--the rate is only going from 7.2 percent down to 7.0 percent. So it's--",41
-fomc-corpus,1989,"Yes, but it's the right direction.",8
-fomc-corpus,1989,That is correct.,4
-fomc-corpus,1989,When we tried [unintelligible] we have to bring it down and you get an overshoot in deflation. That's the basic [thrust]. One could come up with an infinite number of year-by-year paths here. But we have a couple of things that we think are broadly representative of the problem that you face.,67
-fomc-corpus,1989,"Let me also just reemphasize the point that this model does not incorporate any credibility effects. It seems likely, if one were successful in bringing down inflation the way that this particular simulation shows, that probably over time the credibility effects would begin to build. So the final result in terms of the costs probably would not be as high as this simple simulation of the model itself wants to produce.",79
-fomc-corpus,1989,Governor Seger.,4
-fomc-corpus,1989,"I have a couple of questions and a couple of comments. First of all, in regard to using the Hoey Survey: I know that you've all known him for a long time; I think if you administered truth serum to him he would be the first to tell you that this is a very shaky, flaky, sort of survey and he wouldn't want you using it as an indication of inflation psychology. Although I understand the need for a number, that doesn't make it good. Secondly, as I read through here, I'm trying to figure out the answer to the question: Credibility with whom? What group is it that we're trying to impress or convince that we're committed to price stability? Frankly, if you get outside the Beltway, most people in America don't know who the President of the United States is! And fewer know who the Chairman of the Federal Reserve Board is. Other than 32 people on college campuses and 25 Fed watchers on Wall Street they have never heard of the FOMC.",202
-fomc-corpus,1989,"Well, a simple response to that is that you would then lack [a forum] to achieve anything by declaring your intentions.",25
-fomc-corpus,1989,Well--,2
-fomc-corpus,1989,[Unintelligible.],6
-fomc-corpus,1989,"We sit here and assume that everybody is sitting on the edge of their chairs waiting to see what the FOMC does. I hate to tell you this, but they're more interested in the Redskins football game yesterday.",43
-fomc-corpus,1989,We have made that assumption. We clearly--,9
-fomc-corpus,1989,"I don't want to be disillusioning; maybe I just come from an unsophisticated part of the country where they like football. Also, when you had this list in Exhibit 1 of possible impediments to price stability, I agree about a jump in the world oil prices, fiscal policy miscues, etc. But I'm more and more depressed by moves that are taken by governmental bodies that are inflationary that are not fiscal policy. I'm thinking more of microeconomic things.",96
-fomc-corpus,1989,"Those things fall roughly in a class of supply shocks, along with the oil price change process.",19
-fomc-corpus,1989,I don't call that a supply shock: putting in some regulation that has tremendous--,16
-fomc-corpus,1989,But it really is. It reduces the productivity that exists in capital in many cases or--,18
-fomc-corpus,1989,You would call the minimum wage hike a supply shock?,11
-fomc-corpus,1989,"Yes; regardless, it shifts that labor cost function.",11
-fomc-corpus,1989,I guess to me a shock is something that just comes from out of the blue and not something that is legislated by people down the street here. That is not the connotation.,37
-fomc-corpus,1989,"Within our ability to incorporate these things in models, they are the same.",15
-fomc-corpus,1989,"Okay. Also, I couldn't sit here and listen very easily to the comments on the early part of this decade and how the disinflation costs were not that great. Possibly from Washington, D.C. they didn't look that great; or if you were sitting with the security of a government job or a government paycheck, perhaps they didn't. But I can tell you that there are a lot of people who paid dearly for that disinflation. They lost businesses; they lost farms; they lost jobs, and they're still without them. I'm not saying that the fight shouldn't have been waged; it probably should have. Maybe nationally the cost was very marginal, but when two states assumed about the whole cost it looked a little heavy. Also, in looking ahead at sacrifices, I think you have to be much more micro in your analysis and think far more about sectoral differences, because it doesn't all average out. I can tell you--pardon?",191
-fomc-corpus,1989,"One of the things that we know we didn't treat, for example, were distributional effects. That's something you might want to take into consideration.",29
-fomc-corpus,1989,"I think that's something you have to look at, though.",12
-fomc-corpus,1989,I think we'd have a very difficult time bringing you any very concrete quantitative results on that. That isn't to say it's not something we would want to think about.,32
-fomc-corpus,1989,"Well, [remember] some of the pieces of 2X4s that floated around this building that came in from builders in the early '80s! I think that suggests that at a certain point the sectoral burden gets a little heavy, and they speak out even if it's by flooding [us with] 2X4s. Anyway, thank you. It was a very interesting presentation.",81
-fomc-corpus,1989,President Melzer.,4
-fomc-corpus,1989,"I had one question, Mike. You mentioned at the beginning that five years was a relatively short time frame in the sense, I think, that if you didn't get right at it there was no way you could slow money growth by enough, quickly enough. I don't want to read too much into what you said. My question revolves around what would happen to the sacrifice ratio if the time frame were longer? I think I know what would happen to the expectational effects and the credibility and so forth. But do you have any sense of that? If you made it 10 years instead of 5, does the sacrifice ratio come down materially?",129
-fomc-corpus,1989,"In this particular model, to a first approximation the model is linear in regard to these sacrifice ratio calculations. So, if that were to be stretched out over a longer period of time it would still require the same cumulative excess amount of unemployment; it would just be stretched out further--if, of course, the amount of disinflation were the same.",71
-fomc-corpus,1989,"So, it would be the same?",8
-fomc-corpus,1989,That's the first approximation; it is not precise.,10
-fomc-corpus,1989,"In essence, if you have 2 percentage points of excess unemployment for one year or 1 percentage point in each of two years, you have essentially the same effect in terms of this.",38
-fomc-corpus,1989,"And then, if you believed it, it becomes more of a political question than an economic question--if the model were exactly right.",27
-fomc-corpus,1989,"Theory actually says that if you were to announce something that you were going to do in terms of money growth reduction in the future and if you allowed people time to adjust to it, the cost would actually be lower. But in essence, to follow that line of thought means that if we say we're going to do something two or three years from now, then the workers at Boeing, for instance, would reduce their wage demands in anticipation of what your [announced policy] was going to be. So, in some sense, while [announcing] what your actions were going to be may work--or it's how the model works out in theory--it doesn't seem very sensible from a policy perspective to expect that. In terms of getting to it early versus late, the issue really is that five years isn't a very long time, even in the case where you might have credibility, in terms of getting on a path whereby you don't end up the five-year period with some major disequilibrium or imbalance--like having the unemployment rate very high. The P* model tells a very similar kind of story to the Board's quarterly model in that if you end up with a big price gap at the end it must mean either that velocity is very far from its equilibrium and/or that output is very far from its equilibrium. In essence, the longer you have to get to this end point, the more adjustment can occur. Within the five-year period you can reach both price stability and some general real output equilibrium much easier than you can if you try to do it quickly and you have to be pushing very hard on one particular level.",325
-fomc-corpus,1989,President Forrestal.,4
-fomc-corpus,1989,"I have just a couple of comments, Mr. Chairman. First, I would join those who compliment the staff on this presentation. It's one of the few times I can remember when we've had the opportunity to sit back and look out into the future rather than dealing with the short term. I suspect, though, when push comes to shove that we're going to be back in the short-term policy making mode anyway.",82
-fomc-corpus,1989,It's always good to have background and a framework with a notion of where we're going.,17
-fomc-corpus,1989,"Sure, that's right. My gut reaction, as I looked at this and heard the discussion today, is that the cost will probably be greater in terms of GNP output and unemployment than this presentation would suggest. Be that as it may, the only comment I would make is that, even if you accept the zero inflation base case, the question that I ask myself is really a strategic question in terms of future policy and what it means in terms of our future actions. I question whether getting from where we are--at roughly a 4-1/2 percent inflation rate--to zero in 5 years, with the associated cost of a 7 percent unemployment rate, will be acceptable to the country at large. That's a public policy question. I guess it raises the question of whether or not, in the absence of the Neal legislation or something like it, the country will accept the cost of bringing inflation down from 4-1/2 percent to zero. The parallel to the 1979-80 time frame, it seems to me, is not quite applicable because we were coming from double-digit inflation, and I think people clearly recognized that that was a terribly insidious thing that was happening. I'm not so sure in the present environment that people will be willing to accept getting from where were are in terms of inflation now to zero inflation. There is an acceptance now--rightly or wrongly, and I think it's wrongly--that 4-1/2 percent inflation is not all that bad. As inflation goes up, there comes a point where people get concerned about it; I think people would be willing to suffer some sacrifice to go from, say, a 7 or 8 percent rate of inflation to something lower than that. But to go from 4-1/2 to zero, I think, raises a question about the political consequences of getting from where we are in 1989 to 1995. I'm not saying that I disagree with the concept of moving in that direction. But I think a question that we need to ask ourselves is whether 7 percent unemployment will be accepted by the public at large and, particularly, by the Congress.",437
-fomc-corpus,1989,You'll find out next year.,6
-fomc-corpus,1989,"I think that is a crucial question, and it's obviously implicit in everything we do. But before we confront that question, which I think we ought to discuss toward the end of this session, let's find out what we know about it and what the facts are before we try to make political judgments. I think we cannot approach this subject without raising the issues that you're raising.",74
-fomc-corpus,1989,"Mr. Chairman, I can't help but say that I think President Forrestal is leading up to your agenda as opposed to ours, but there is a nexus here. And that is, if the public thinks that the FOMC is thinking this way, then that means there is no credibility to the disinflationary commitment.",66
-fomc-corpus,1989,Absolutely.,2
-fomc-corpus,1989,"And what we were pointing out in the Hoey exhibit, whatever quality you want to assign to that, was that there doesn't seem to be an expectation of further disinflation out there. The basic perception seems to be that the Federal Reserve will resist acceleration [of inflation] but will not run the real risks of subpar economic performance to bring the inflation rate down. So we're in that credibility bind, I think.",84
-fomc-corpus,1989,"Well, I don't disagree with that completely. But I would say, if you look at that Hoey survey--and I agree that a survey is a survey--the fact is that it has been trending down consistently. You're looking at a point in time as opposed to a trend; you [extrapolate] the trend in expectations and we're coming down. So I would say that if the Fed has been gaining credibility all along over the last several years, instead of looking at it at some particular point if you project that trend forward and assume we continue to behave in a credible way you are getting long-term--",123
-fomc-corpus,1989,You've got to look at that [as an expectation that the rate] will go below the actual inflation next year.,23
-fomc-corpus,1989,"Well, I don't know.",6
-fomc-corpus,1989,[Unintelligible.],6
-fomc-corpus,1989,I have no idea. All I'm saying is that the trend has been coming down. And it has been coming down on the 10-year survey at times when the one-year expectations and the actual inflation rate have been rising.,45
-fomc-corpus,1989,But it has come down toward the actual inflation rate. That rate has been slower.,17
-fomc-corpus,1989,"I don't know what it's going to do in the future. I'm simply saying that it's plausible that we're gaining credibility. If I remember right, and I better go back and look at it, aren't there a few periods when--?",46
-fomc-corpus,1989,Exhibit five.,4
-fomc-corpus,1989,Exhibit five.,4
-fomc-corpus,1989,That reminds me. Just one other question on your forward-looking model: Was that a down [unintelligible] expectations?,26
-fomc-corpus,1989,"No, not with a forward-looking model without the [unintelligible].",16
-fomc-corpus,1989,I see; so you just push it.,9
-fomc-corpus,1989,My point here is that 10-year inflation [expectations] in the last year have been trending below the actual inflation.,25
-fomc-corpus,1989,"Well, you don't want to extend this forever. Basically, you had a period in which the short-run inflation was very much influenced by food and the price of oil, which I--",37
-fomc-corpus,1989,Whatever. I'm simply saying that the market clearly was looking through that phenomenon and saying it's credible for the long run; we're not worried about these supply-type shocks.,32
-fomc-corpus,1989,"President Forrestal implicitly raised another question that President Hoskins also raised, and we wrestled with it to no end. And that is: What are the costs and what are the benefits of going to zero as opposed to a steady rate of inflation if you could maintain it at 4-1/2 percent? And they [concluded] that if one believes in one's gut that that's the right thing to do, that's the way we have to go. But looking at the literature, there isn't very much out there that enables you to pinpoint the costs of staying at 4-1/2 percent, if you were able to, as opposed to going to zero. There are some things we can identify having to do with interactions with the tax system and so forth, shoe leather costs, and what not. But they are very hard to quantify and, therefore, would be very difficult to convince the body politic of.",185
-fomc-corpus,1989,The crucial issue is that it presupposes you can stay at 4-1/2 percent if you choose to.,25
-fomc-corpus,1989,Right; that's correct.,5
-fomc-corpus,1989,Easier than at zero.,6
-fomc-corpus,1989,Right.,2
-fomc-corpus,1989,Vice Chairman.,3
-fomc-corpus,1989,"Let me also congratulate the staff; this really was a terrific presentation. There are 3 or 4 main things that I, at least, draw from it. But the first and the most important is that I think it would be very, very difficult to safely conclude that one could do a heck of a lot better than the summary on Exhibit 14, line 1. Now, that doesn't say we can't do better. But to me the empirical evidence, both in the United States and in foreign countries for the time periods covered in this exercise and for other time periods not covered in this exercise, suggests that you'd be very, very hard pressed to safely conclude that you could do a heck of a lot better than line 1 on Exhibit 14. But I think it's also important to note in that regard that when you look at other countries and other times, the cases in which you have seen results that tend in some sense to be different than line 1 on Exhibit 14 have usually been accompanied by very, very sharp fiscal adjustments--not the kind of gradual adjustment that is built into the base case here. The second point I would make is that if you look at those estimates of the costs in the qualified way that I have, I think we do have to keep in mind that these are not small costs in human terms. That's partly, I think, the point that Bob Forrestal was raising. You start talking about a sacrifice ratio of 2.2 and 2.2 sounds like a little number. But in terms of the behavior of the economy over a very long period of time it carries with it some rather profound implications. One of those profound implications to me is that we have to be very, very careful not to leave the wrong impression about this. And the wrong impression in my way of thinking is that this somehow or other is a ""gimme putt,"" which it is not. I think it's especially not when you look beneath some of the numbers that are even in the base case. It already has been touched on but, for example, if you maintain a current account deficit of 2-1/4 percent of GNP throughout the whole period, I don't know what that means in absolute numbers but my rough arithmetic tells me that our external debt as a percentage of GNP would end up over 30 percent. We'd be sneaking up on Brazil! I don't know if that's quite right, but it's got to be in that order of magnitude, which is another way of saying that even in the base case we are talking about a long period of time in which GNP growth is quite subdued by historical standards and, even with that, the external side of our economic and financial situation gets much worse in many respects. Having said that, I come back to Governor Angell's comment earlier and that is: What do you measure the cost relative to? I think it's absolutely unambiguous that if we measure the cost relative to a strategy of accelerating inflation, that's easy. The cost of accelerating inflation obviously would be greater in the fullness of time. But what about a slower approach to price stability? Or what about a goal that looks more like 1954 to 1965 on the chart earlier on in the presentation? I think those are legitimate and important questions, Mr. Chairman. From my perspective the basic thrust of what Governor Angell said early on is exactly right in terms of ""relative to what?""",694
-fomc-corpus,1989,"Well, let me just add something to this. This is not an all or nothing game. In other words, we don't either do it or not do it.",33
-fomc-corpus,1989,No.,2
-fomc-corpus,1989,"It can be quite plausible to start in this direction and fine tune it, so to speak, and after a year and a half, say, decide that something has been accomplished and that we declare victory.",41
-fomc-corpus,1989,"That, of course, is what I'm suggesting. The last point that I would make is: What do we think we can do to improve the prospects of getting a better result, whether better is defined relative to Chart 14 or something else? Here, I must say that I'm a little dubious about betting the ranch on this credibility thing, because even if you look at the countries that are thought to have very high credibility, such as Germany, you can find that for periods other than the '81 to '85 period that's on the staff's chart the costs are there and they are quite real--as I said, even where credibility is thought to be high. That's not to say--whether it's in the context of a Neal [resolution] or something else--that [more] credibility might not get a somewhat better result. But I for one would be very reluctant to bet the ranch, so to speak, on the so-called credibility argument. On the other hand, if there were some prospects for complementary policy initiatives that could get at the savings/investment problem or get at the productivity problem, that's a different matter. If you had a framework over this 5- or 6-year period, for example, in which productivity growth were on average 1/2 point more than it has been and more than is built into these numbers, you would be looking at a different ball game. So, I do think that this line of questioning in terms of what helps is not irrelevant; and it gets back, of course, to the all important question of fiscal policy. One of the things this says to me is that you've been right all along; you usually are. We don't need just a balanced budget or even a balanced full employment budget; we need a surplus. And we probably need a full employment surplus in this time frame in order to make either the holes a little rounder or the pegs a little squarer. Any way you cut it up, I think the costs--whatever they may be--obviously are going to be much greater in a context in which this exercise is approached with monetary policy and monetary policy alone. I think we can perhaps do better than line 1 on Exhibit 14; but I'm very hard pressed to think how we are going to do better without complementary policies coming from other areas.",469
-fomc-corpus,1989,President Boehne.,5
-fomc-corpus,1989,"Well, most of the questions and points that I wanted to make have already been made. One thing that I get out of this is that we get into inflation and we tend to get out of inflation not so much in a straight line route but over a period of time over different cycles. Someone made the point earlier that inflation has built up over the 15-year period because it would peak out in a subsequent cycle at a higher rate than the previous inflationary peak and it wouldn't drop as low. And I wonder if that is not instructive in terms of how one gets out of it. As much as I would like to say, for example, that we want to set out on a course that brings inflation down over the next five years and then we're going to hold it there, I must say that my reading of history and my sense of what makes a country like this go doesn't encourage me that that's a very likely outcome. What does seem to me realistic--and it is [the course] that we really have been following in the '80s, if not by design, certainly by our actions--is that to get the inflation [progress] we want over a period of time we have to bring down the peaks of inflation and to bring down the troughs of inflation from cycle-to-cycle. What is different about the '80s is that we have kept inflation from accelerating all that much in this cycle. Now, sooner or later, we will have a recession. I don't think anybody around the table wants a recession or is seeking one, but sooner or later we will have one. If in that recession we took advantage of the anti-inflation [unintelligible] and we got inflation down from 4-1/2 percent to 3 percent, and then in the next expansion we were able to keep inflation from accelerating, sooner or later there will be another recession out there. And so, if we could bring inflation down from cycle-to-cycle just as we let it build up from cycle-to-cycle that would be considerable progress over what we've done in other periods in history. It seems to me it's [a policy] that is doable in terms of public and political acceptability.",444
-fomc-corpus,1989,President Guffey.,5
-fomc-corpus,1989,"Thank you, Mr. Chairman. I think some [good] questions [have been asked] and perhaps some satisfactory answers have been given; but I want to join those who suggested that we have not quantified the benefits of zero inflation or price stability. I think intuitively we all would agree that it has benefits; but when we talk about the costs then in some way we have to quantify the benefits, it seems to me. I don't mean to say that we shouldn't move toward price stability--or zero inflation, if that is price stability--but rather that when we set upon a course such as this we ought to know what we're going to achieve if we get to the goal. My own view, looking at this exercise, is that however good or bad it may be, if we're really serious about price stability we ought to set off on the course of a tight money policy and get it over with and move on to an economy that could perform for another number of years in a very satisfactory manner, if we could check on this beyond five years. But that also says to me that in the short run, as we think about what policy should be put in place now, it doesn't worry me as much that with a tight policy now we might skim along the edge to a recession. That is to say, in the immediate upcoming periods, the fear of recession simply isn't as great after seeing this exercise as it might have been before; because if I understand this correctly, in a recession we would expect to get some of the benefit of moving toward price stability. As Ed Boehne or somebody said, I don't think that any of us is looking for a recession, but I don't think we should shy away from it either.",347
-fomc-corpus,1989,President Parry.,4
-fomc-corpus,1989,"I have two comments about what Vice Chairman Corrigan said. I would agree that you don't bet the farm on credibility; but it seems to me, Jerry, that you're assuming there is no improvement in credibility. And I don't--",46
-fomc-corpus,1989,I didn't say there was none.,7
-fomc-corpus,1989,"You did because you said that you thought it was a zero for the zero inflation base case, which really does assume that credibility [unintelligible] in a very standard model way. I think we can expect better than that--not that we should go to the strong case, but I would expect something better than that.",66
-fomc-corpus,1989,I am not prepared to make that bet.,9
-fomc-corpus,1989,You wouldn't expect any?,5
-fomc-corpus,1989,No.,2
-fomc-corpus,1989,"All right. Secondly, I--MR.CORRIGAN. Wait a minute. Did you say any credibility effects?",25
-fomc-corpus,1989,Beyond what is assumed by a model that uses past experience as basically conditioning expectations for the future.,19
-fomc-corpus,1989,"You might get some benefits. But again, even if--",12
-fomc-corpus,1989,"So, there's no value in stating your [inflation] objective or having a resolution or anything like that? No value whatsoever?",26
-fomc-corpus,1989,Why are wage rate demands in Germany going to be 9 percent next year? Because the Bundesbank doesn't have credibility?,24
-fomc-corpus,1989,So you would assume no credibility improvement?,8
-fomc-corpus,1989,No. I said that if you had a Neal amendment or something like that and certainly if you demonstrably had other arms of public policy--,28
-fomc-corpus,1989,"Well, I want to talk about one as well.",11
-fomc-corpus,1989,"I'm not saying it would be zero, but I'm saying I think it would be a serious mistake to assume that it is very significant.",27
-fomc-corpus,1989,Okay. All I'm saying is that you're citing a limiting case where it's zero.,16
-fomc-corpus,1989,I'm not citing a limiting case where it's zero.,10
-fomc-corpus,1989,"Well then, I misunderstand how credibility is formulated in this model.",13
-fomc-corpus,1989,"He's saying that in Germany the Bundesbank has credibility; it isn't much, yet it's not zero.",20
-fomc-corpus,1989,I'm saying that if you take that cell on Exhibit 14 where the shortfall from potential GNP is 20 percent--,25
-fomc-corpus,1989,Right.,2
-fomc-corpus,1989,"--that is the so-called base case model but it essentially has a [unintelligible] of expectations built into it. My opening statement was that it would be very hard to conclude safely that you could do much better than that. Then I went on to say that there are some things that might permit you do somewhat better than that. And credibility might help. But I'm saying that I don't think it's going to help all that much; experience suggests that we should be very, very cautious on how much we think it might help. That's what I'm saying.",113
-fomc-corpus,1989,"With regard to stating our objectives conditioned by, say, the fiscal authorities: It seems to me that if we're going to do that, we would have no credibility because--",34
-fomc-corpus,1989,Say that again.,4
-fomc-corpus,1989,"Well, we're in charge of what happens to prices.",11
-fomc-corpus,1989,That's not what I'm saying.,6
-fomc-corpus,1989,"Well, I didn't understand you then.",8
-fomc-corpus,1989,"I'm not referring to Federal Reserve policy. What I'm saying is that if we had a credible fiscal policy in this country in the first place, or if there suddenly were a sweeping budgetary agreement struck independently by the White House and the Congress, then it would help.",53
-fomc-corpus,1989,I don't deny that.,5
-fomc-corpus,1989,All right.,3
-fomc-corpus,1989,"An interesting dilemma: If you start with cell 1 on Exhibit 14 that is a course in which the higher the sacrifice ratio that you s-cart with, the greater the burden you place on benefits to make the whole exercise worthwhile. Or another way of saying it is the more seriously, it seems to me, you've got to consider stabilizing inflation at the current rate, assuming that's possible--I have some doubts about that. But if you start with something like that I would be surprised, given what I know about the benefits, whether you can grind them out and make them equivalent to the costs.",121
-fomc-corpus,1989,But that's a question--,5
-fomc-corpus,1989,You have to take the present value of all the benefits in the future.,15
-fomc-corpus,1989,I understand; I understand that.,7
-fomc-corpus,1989,And the present cost of not doing it.,9
-fomc-corpus,1989,Let me ask you: Would you want to stabilize the rate of inflation at 10 percent? Or zero inflation?,23
-fomc-corpus,1989,"No, I'm saying I personally would start with the weak credibility case. So that gets me off to a different start. I'm saying that if you start with something as pessimistic as that I think you have a difficult challenge in a rigorous way to justify it.",52
-fomc-corpus,1989,What happens to credibility if we make an announcement of a goal and then don't make it?,18
-fomc-corpus,1989,That's right. I personally don't think--,8
-fomc-corpus,1989,I agree; that's a good point.,8
-fomc-corpus,1989,I think it's a very good point.,8
-fomc-corpus,1989,"If we bite off more than we can chew and we are viewed as failing, we've lost a lot.",21
-fomc-corpus,1989,Like below ground zero at that point.,8
-fomc-corpus,1989,President Black.,3
-fomc-corpus,1989,"Like so many others, Mr. Chairman, I would compliment the staff; in fact, I did compliment Mike Prell before the meeting. And I'd like to compliment you in allowing us to talk about these things. I've been attending these meetings off and on for 30 years now and almost all the time for 16 years and in that period of time I don't think we've addressed a topic quite as important as what we're doing now. I know no one would have a lot of confidence in the econometric measures that one would use to determine what the costs of eliminating inflation are, but what to me comes out as most important is the qualitative differences between these various approaches. The backward-looking model, which is the traditional way we've looked at it here, makes the cost very, very high. But if we can assume that we have something like rational expectations and forward-looking expectations and if we can assume that we have some kind of credibility and strength in that credibility, then the cost becomes considerably less. I think Manley made a good point a while ago, which Lee picked up on, when he said maybe the worst case is the one we had in the early '80s when we really hit the economy with a big shock without announcing exactly what we were going to do. I don't think we really anticipated ourselves that rates were going to go anything like that high; and yet from this vantage point, it seems to me the costs have been relatively low. There were certainly costs, but they were relatively low. And if something like the Neal resolution passed, and if we could state our targets--I would like to say over multiple years rather than just one year--in advance and come close to these and eliminate this base drift, then I think the costs are not nearly so scary as we seem to be concluding here. Finally, I'd like to pick up on Governor Angell's point about the cost of not aiming at zero inflation, which is the alternative. I think we have had a lot of experience of that in the postwar period. I think those costs are very great; and there are substantial risks that evolve from that sort of a program. So to me the case is to try to [unintelligible] rational expectations to the extent that you can and back those up with as high credibility as you can and then the costs of doing what we'd all like to do are going to be lower than they would be under any of the other possible alternatives.",494
-fomc-corpus,1989,President Keehn.,4
-fomc-corpus,1989,"As always, I think history is an interesting way to look at things; and I find this chart on the bottom of Exhibit 2 to be fascinating with regard to where we have been. My hunch is that if we go back, most of the periods with bad inflationary results may indeed have been the result of some exogenous events or shocks over which we had [no control], I suppose, with some exceptions. It's not monetary policy that has been the cause of that. And it seems to me that that may be [the case] over a long period of time; this suggests that what we can do is just put continued pressure on this. If that's the way in which we can achieve the best results, I'd be reluctant to be so committed to an objective of zero inflation that it became [unintelligible]. And I think John LaWare brings up a good point: that if we become that committed to something and then we miss it because of events over which we have no control then the cost of that gets to be very, very high indeed. And I'd be reluctant to be so constrained.",224
-fomc-corpus,1989,Lee.,2
-fomc-corpus,1989,"Let me just ask the question again, more generally, to anybody who wants to take it on: If you were sitting in 1980 or 1979 and you were looking at the estimates that either Friedman or Tobin gave to Gary's point you wouldn't do anything to monetary policy because the costs would appear so high. We are having the same debate now but we are looking at much lower costs. So it seems to me that the benefits, whatever they are, of a price stability policy become even more important because the costs are a lot lower now than they would have been if we had to do this at some other point in time. So I think we can trap ourselves with these estimates. I don't know how they're going to come out. I know what we've done in the past when we tried to do estimates; and what we've done in the past is overestimate the cost, at least in several cases that I've looked at. So I think we have to be cautious about just saying the costs are high and the benefits are uncertain. It seems to me that we ought to look at the benefits and one, of course, probably has to do with uncertainty premiums built into interest rates. That presumably could be modeled. We could have some impact that would reduce whatever uncertainty premiums were there. There are a number of other potential benefits and I don't want to run through them now. I'm sure the staff is aware of them, but they are also aware of the difficulty of putting your arms around them.",301
-fomc-corpus,1989,Governor Kelley.,3
-fomc-corpus,1989,"Mr. Chairman, I have to come at this necessarily from a non-professional economist point of view and I happen to have a share in trying to form policy. So as I listen to this presentation, I try to ask myself: What does it make sense to do? And I see a situation here where we've got huge uncertainties. Many of them are in the model and are admitted right up front; they necessarily have to be there. A lot of them can't possibly be in the model, even though we may know what some of them are. Then, of course, there are a whole host of them we don't even know about that might [arise] as time goes on. It's easy to see, as Governor Seger points out, that there are potential human costs here; and they are huge if we make a mistake. We haven't taken a look yet at what the possible second five-years might be as a result of getting out to where we get in this model. And what, of course, may quite possibly be the biggest threat of all of this is the political threat: that we could very easily set out on this course, incur all of the costs, and have the political realities abort the process before we got the benefits. That might be the worst of all worlds and, possibly, a fairly plausible one. So, what might make sense is to do two things that sound fairly simple and simplistic, but may be a pretty good challenge in themselves. One is simply to work to get the trends moving in the right direction without any terribly close attention to the slope of the curve--just get them moving in the right direction. The second is to work very hard to damp the volatility around the slope of those curves. To me the speed of advance is of secondary importance. If we can get it moving in the right direction, given all of these uncertainties, I think sometimes we'll be able to make fairly rapid progress and other times slow progress; sometimes we'll be doing well to hold our ground. If we get into a recession we might even have to take one step back. But basically [we should] try to figure out ways to set up conditions where we will be able to get the slope of the curves moving in the correct direction over time, without having to give too terribly much attention to any one particular time period.",469
-fomc-corpus,1989,"I have a question for, I think, Don Kohn. But if the others in monetary research wish to come in, that's fine. It's difficult sometimes to know what M2 growth path is really [apt] to restrain when we have changing opportunity costs of holding M2, for example. So I'm wondering: If we're in an environment in which the rate of interest is declining at an annual rate of 100 basis points--or as they did for a good portion of the period from June to December, I guess, declining at 250 basis points annual rate--how do we adjust M2 to know whether or not we still have restraint in place and a declining interest rate scenario? And how, on the other hand, do we know that we really have restraint in place in a rising interest rate scenario?",164
-fomc-corpus,1989,"That's a very difficult question and one that I thought about with regard to the Committee's decision tomorrow morning, in fact, because we do have a situation now in which M2 is running pretty rapidly. One can see that it's really a function of the drop in opportunity costs of interest rates rather than some overrun in current-quarter GNP. At the same time, what I was going to say tomorrow morning is that it strikes a note of caution when the money supply moves this fast. Not many people would put money right into prices; in some sense, it's all a part of a very complex set of interactions. And the question is whether the interest rates, or perhaps exchange rates, that have gotten you those money supply growth paths are going to lead some time in the future to higher rates and increases in inflation. I think what we've learned over time is that when the money supply grows rapidly over long periods of time, even though we can explain it contemporaneously by the past declines in opportunity costs, inflation rate, [unintelligible], it's a cautionary summons. It's a warning bell going off. The P* model was an attempt to cut through all that and to say: Suppose velocity grows at its long-run trend and output grows at its long-run trend, then how does money in a statistical sense feed through to prices? And where we are right now is that P* is below P. We've got a sense of restraint on, but I think in one of Dave's charts, Exhibit 4, you can see that the projected growth in money gets you down where there isn't any difference between P and P* in the early part of 1990 and then it rises again when money growth eases off. I don't think there's an easy answer to your question, Governor Angell. Ultimately, you would have to crank the whole thing through a big model of interest rates and money demand and all that sort of thing. The P* model tends to cut through it a bit. I do think that some attention to these money growth rates when they get very high or very low provides a sense of discipline on the central bank to make sure it's not going too far off the track one way or another. And that's essentially what P* attempts to do.",454
-fomc-corpus,1989,"Well, take table 1 of Mike's December 14th memo: table 1 does show on the accelerated disinflation path much lower [money growth] rates; and I presume when interest rates are declining toward the end then you show somewhat higher rates.",53
-fomc-corpus,1989,"At some point you have to take account of the decline in velocity, this so-called reentry problem.",21
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,"So, if nominal rates are coming down because inflation is coming down, at some point you've got to increase the real money supply to take account of that drop in nominal rates because velocity will react to that. But there are different scenarios; you can do it earlier or you can do it later in some sense.",62
-fomc-corpus,1989,"Well, Don, I guess the bottom line of my question is: Are we somewhat advantaged due to the fact that over the last 30 months we've had an M2 growth rate of something between 4 and 5 percent? Does this give us a better basis for watching this 5-year scenario than if we were in a period in which we--? I guess what I'm asking is: Do we have a start, in your opinion?",90
-fomc-corpus,1989,"I think you do, because--putting it in other terms--what that M2 growth has done with the monetary restraint is that it in effect contained inflation at least, so that it no longer seems to be accelerating. So you're in much better shape than if you had started from a position in which M2 had been growing 2 percentage points faster and inflation was threatening to accelerate. Then you really would have more sacrifice to make. The sacrifice ratio might not be different, but the total sacrifice might be. So, absolutely, I think by acting with restraint over the last couple of years you have simplified or made a little less painful the job of the next 5 years if you were to aim at zero inflation. And by getting inflation expectations down, as Governor Johnson pointed out, and by getting I think a bit of credibility, you can see it in the bond market in 1988.",181
-fomc-corpus,1989,"But on Table 1, the Q-4 over Q-4 percentage change for 1990, I note, is 5 percent; and that looks fairly tough to do.",37
-fomc-corpus,1989,Fairly what?,4
-fomc-corpus,1989,The 1990 Q-4 over Q-4 percentage change is 5 percent. That's in Table 1 of the December 14th memo.,31
-fomc-corpus,1989,For M2?,4
-fomc-corpus,1989,For inflation?,3
-fomc-corpus,1989,M2.,3
-fomc-corpus,1989,There's not an absolute [consistency] with the other forecast materials we provided. We simplified some things and developed a baseline. We don't necessarily capture all the [details].,34
-fomc-corpus,1989,"Well, is this a velocity adjustment?",8
-fomc-corpus,1989,[Unintelligible.] But we make a certain assumption about the natural rate of unemployment and we mechanically derive things that probably we would want to modify judgmentally given all the other [unintelligible] about economic circumstances.,46
-fomc-corpus,1989,Right.,2
-fomc-corpus,1989,"So, during a period of relatively slow M2 growth over the last 30 months, V2 has responded somewhat upward above this trend path.",29
-fomc-corpus,1989,That's correct.,3
-fomc-corpus,1989,So we're now getting a little adjustment back the other way?,12
-fomc-corpus,1989,"Right. Actually, consistent with the Greenbook forecast we have a 6 percent M2 growth. One of things that we've adjusted here is an assumption about how banks and thrifts respond with their deposit rates. It might not be quite the same [assumption] as they use in this other model. So we have 6 percent and essentially no change in velocity next year.",76
-fomc-corpus,1989,Using the P* you get the same monetary growth as we have.,14
-fomc-corpus,1989,Right.,2
-fomc-corpus,1989,"With this particular simulation, though, somewhat slower money and somewhat higher real interest rates were occurring relative to the Greenbook.",24
-fomc-corpus,1989,Somewhat slower GNP growth.,7
-fomc-corpus,1989,"Somewhat slower GNP growth, right. We did not constrain ourselves to adhere directly to the Greenbook forecast with a starting off point that assumed, in essence, somewhat tighter monetary policy in 1990.",42
-fomc-corpus,1989,President Syron.,4
-fomc-corpus,1989,"Mr. Chairman, I would think that probably most people around the table agree with the notion that we want to get inflation down over time but we're talking about how fast. Mike Kelley said something about the slope of the line. What I think is the real issue here, and several people have alluded to it, is the issue of political acceptability. Bob Forrestal raised that. There is a question [of our] not being a part of the government set up in the Constitution; but how long we can squeeze the--",106
-fomc-corpus,1989,We're going to come back to that question more generally. So I want to--,16
-fomc-corpus,1989,"Okay. Well, I only wanted to touch on this. In terms of this exchange between Gary Stern and Lee Hoskins, it seems to me that in many ways we can't really compare the willingness of people to look at what happened in '79, '80, '81, and '85 with the current situation in that, as you said earlier, we were coming off a period in which people were afraid our capital markets were going to be destroyed perpetually--that there was going to be [no] long-term bond market. And we had accelerating inflation. So there was much, much greater concern and much, much greater willingness to take tough action in that circumstance. That may have something to do with the fact that of the sacrifice ratios that are shown in Exhibit 9, the ratio of 1.8 for that cell [for the 1981-85 period], for whatever it's worth, is the lowest except for the 1970-72 period when we had [price] controls, than any cell, domestic or foreign, with the exception of the one in France. Whereas now, I think we're in a period in which most people's expectation is that we have relatively stable inflation. We need to get it down over time, but we have relatively stable inflation. That is dramatically different than the other situation.",266
-fomc-corpus,1989,Governor Johnson.,3
-fomc-corpus,1989,"What I want to say sort of follows up on what you said. I definitely agree with the whole concept of price stability; I think we ought to state it as a goal and it ought to be a real goal. I really do think there's something sort of even moral about it--that basically people ought to be able to expect some stability in the purchasing power of the currency and not have to conduct a lot of high search costs associated with the anticipation of prices. But having said all that, there are a couple of technical things I wanted to ask. First, even if one agrees with that, I still have trouble deciding on a definition of price stability. I think what we came up with in association with the language in the Neal bill was reasonably acceptable, because I honestly do have trouble with trying to say it's the level of the CPI, or the level of the PPI, or the deflator. There are so many difficulties associated with pinning it to any particular strict quantitative measure that I'm not sure it's realistic. So, it seems the definition of price stability has to have some flexibility associated with it within a narrow range. Now, I don't know exactly how to do it, but I think if we agree on price stability we really ought to spend a lot of time on how we want to define it. Secondly, I think it is important to distinguish the benefits between stabilizing the inflation rate and stabilizing at some concept of price stability. In theory, I think if you assume that people could always anticipate inflation growing at a specific rate I'm not sure the cost of pegging the inflation rate is that much greater than the cost of stabilizing the price level. But I don't believe you can do that this way; I'm not sure you could stabilize the inflation rate. But the fact is that if people could always be assured that prices were going to grow at 4 percent, they could take that into account just like a stable price level. The question I have is: Are relative prices somehow better behaved in a stable price level environment than they are in a stable inflation rate environment? I don't know; I'm asking. Is there a reason empirically or theoretically to believe that relative prices of goods and services are more predictable in a price level stability environment versus an inflation rate stability environment?",459
-fomc-corpus,1989,"Let me stop you right there. The general question that you raised is really the next topic that we will address after coffee. So, let's take a 15 minute break and [return].",38
-fomc-corpus,1989,"I'd like to put on the table now some specific questions relating to our [unintelligible]. Actually, we may want to combine a couple of them. I'll just read them and put them out on the table as an extension of what we have been doing: Do the Committee members believe that there are significant advantages in targeting stability in the general price level as opposed to seeking to establish a steady low rate of inflation? This has come up several times but has not been fully addressed. Combining with that: Is a precise timetable for moving to the ultimate objective important either as a self discipline or for expectational reasons or would it be sufficient simply to focus on maintaining progress in the disinflationary direction? These are essentially the questions that Governor Kelley raised early on and they really are quite relevant to how we move from our general analytical view of the immediate period to something somewhat more closely related to policy initiatives. Who would like to start us off?",189
-fomc-corpus,1989,Would you repeat the first question as you stated it?,11
-fomc-corpus,1989,"Do the Committee members believe that there are significant advantages in targeting stability in the general price level as opposed to seeking to establish a steady low rate of inflation? That is, are we looking for zero inflation or are we willing to accept, say, 4-1/2 percent?",57
-fomc-corpus,1989,"Let me just repeat the last question I left on the table, which I think relates directly to your question about what are the benefits of an inflation rate target versus a price level stability target. I was talking to Bob Parry during the break and raised another question, which is: If you have an exogenous shock, a supply shock that changed the level of prices either up or down--it doesn't matter which way you look at it, I guess--would you want to go back to the old level or would you want simply to move forward in terms of stabilizing the new shock level? And what are the costs and benefits of that? But I wanted an answer to that question I had about relative prices.",143
-fomc-corpus,1989,"Manley, if I might, I'd just say that I wonder whether that's really an answerable question without knowing the form of the shock. Clearly, it's the type of thing that we always address when we see--",43
-fomc-corpus,1989,What do you mean?,5
-fomc-corpus,1989,"Well, for example, it makes a big difference when what we're dealing with is a $20 oil shock or a $3 oil shock, or a--",31
-fomc-corpus,1989,Let's say a big shock.,6
-fomc-corpus,1989,Yes. What I'm trying to get at is that I'm not sure that you can answer that in the abstract. Can you?,25
-fomc-corpus,1989,"Well, yes. I would think so.",9
-fomc-corpus,1989,"Well, let's find out if somebody can.",9
-fomc-corpus,1989,"There is some empirical evidence relative to that point that there is indeed a correlation between the variability of relative prices and the level of inflation. Most of that correlation can be explained not by inflation causing relative prices to vary a lot, but by the fact that there have been episodes when relative prices have changed a lot and that has been associated with either accommodative policy to those shocks or just a significant and persistent effect on inflation for some short-run period of time. But there is some evidence that there is causality from inflation to relative price variability as well. So there's more noise in the prices the higher the rate of inflation. There is also some weak evidence suggesting that the variance of the inflation rate is associated with the level of inflation, meaning that you have more variability to overall inflation rates at 4 percent than you would at zero. But that evidence is weak, particularly if you [confine] yourself to industrial economies. There have been some countries that have run relatively high rates of inflation but it hasn't been extremely variable and other countries that have had low rates of inflation but it has been somewhat more variable. So I think there's some weak evidence in both those cases that that sort of variability and uncertainty is associated with inflation, but it's not strong.",249
-fomc-corpus,1989,What about the shock?,5
-fomc-corpus,1989,"In terms of what the models might suggest there, for adaptive expectations models, backward-looking models, the oil price shock will have an impact on the price level for a time. And this could work into the wage/price dynamics and have an inflationary effect. Now, if you had a system where zero inflation was expected so that a relative price shock was more forward looking, the inflationary effects generally would be small.",84
-fomc-corpus,1989,"The concern I have with having an inflation rate objective of, say, 1 percent, for example, is that if you do have an exogenous shock and it is fairly substantial and if these exogenous shocks over time are not random, I think you probably would look back over a period of time--say, 10 years--and find that you had an actual inflation experience that was quite different from what you wanted, which was the 1 percent. It seems to me it is much safer and more difficult at least to try to maintain price level stability.",113
-fomc-corpus,1989,Still on the table are the questions that I put on plus Manley's addition.,16
-fomc-corpus,1989,"Well, on the second question as to whether a specific timetable is necessary, I think we would want to get enhanced credibility and I would assume that that would be a component of it. But we do [need to] set off our objectives over some time frame that people consider [relevant]. I wouldn't think 10 years would be one; perhaps we would even have some pattern of achievement over, say, a 5-year period.",88
-fomc-corpus,1989,Governor LaWare.,4
-fomc-corpus,1989,"I have been repeatedly shocked, or I guess dismayed, by the level of nonchalance evidenced by some of my colleagues in my previous incarnation on how they felt about the current level of inflation. We have sat here at the Federal Advisory Council meetings and talked about the economy and almost had to drag out of them some level of concern about inflation. That puzzles me. I'm not sure whether it is because so much more of our economy is indexed today than it was perhaps 10 or 15 years ago or because we have been through a period in the late '70s and early '80s of high inflation and somehow survived and, therefore, like a battle-scarred soldier, the second time over the top is not quite as fearsome as the first time. But it does bother me. In specific comment on the question, I'm bothered by the definition. If zero means no increase in prices not adjusted for technology or quality then I think zero is an unacceptable target. On the other hand, a stable low rate of inflation bothers me because I think that any level of inflation, as long as it is perceived as inflation by the public, contributes to the low rate of savings that we have. You see an exaggeration of it in the Soviet Union where people convert rubles to goods and there's a certain amount of buy-now attitude because next year the price is going to be that much higher. I think that's an unhealthy kind of environment. So, I would be willing to try to develop a policy that would lead us to a level of price increase on an annual basis that reflected, in some sense, the real value added in that price increase. As far as setting visible targets and time frames for achieving those targets, I go back to the comment that I made out of turn earlier, and I apologize for that, which was that if we set a target up and then don't get it--. If Babe Ruth had hit that home run in the 1932 World Series, whether he pointed to the center field stands or not wouldn't have made any difference. But, [after pointing to the stands], if he hadn't hit it he'd have been seen as a fool.",437
-fomc-corpus,1989,"No, if he hadn't hit it, he never would have been seen as the ball game's--",19
-fomc-corpus,1989,"But having pointed, I think we run the distinct danger of [losing] credibility as well as confidence and then we get into the position, politically, where we as an institution become much more vulnerable. Having said all that, I think that we are in a terribly difficult position. I go back to what Jerry Corrigan said earlier: that we are no longer dealing with a set of tools in terms of monetary policy that can have as much of an impact on the economy as they once did, because we are so surrounded by external forces like irresponsible fiscal policies and the fact that we are operating in global markets and a global economy. So it is a very tough menu that we've set out for ourselves. I'm reluctant to give definitive targets within time frames. I'm also reluctant to try to go for something called ""zero"" without having a better definition of what that really means.",175
-fomc-corpus,1989,Vice Chairman.,3
-fomc-corpus,1989,I was thinking [you meant Manley].,9
-fomc-corpus,1989,Wrong Committee.,3
-fomc-corpus,1989,"I have been thinking a lot about the two questions that you have raised. I have a loose idea rolling around in my head, and I'm not even sure I like it, but let me throw it out anyway. The idea would be that the stated policy of the Committee would be couched in terms of a goal of price behavior that would be broadly compatible with what we had, say, in the '50s and early '60s. In other words, we wouldn't get hung up with one [indicator such as the] CPI or deflator, but we'd state a goal in terms of trying to return to a pattern that had the characteristics of that [earlier period] and we could say that we were going to try to achieve that in the time frame of the mid-'90s. So, it would not be all that specific in terms of a particular price index and it would allow for some wiggle for shocks. It certainly would not be time specific but it would be [unintelligible], Mr. Chairman, as kind of an answer to both of your questions. But I do want to go back to what I was trying to say before, in part because Mr. [Parry] didn't understand me but Mr. [Prell] did, just so there is no misunderstanding--or hopefully, none. Even if we stated a goal in a way that had some give in it but was certainly a commitment that I think would have some credibility gains to it, I still think that, based on what we know and what we have experienced, the costs of achieving even that goal are going to be large. [They might not be] precisely as shown on Mike's page 14, line 1, obviously; I don't know--nobody knows. But I think it's prudent to have in mind that they might be. Then the question becomes: What can be done that works in the direction of reducing those costs? Again, Bob, I didn't mean to suggest that credibility was worth zip. But I don't think it's prudent for this institution in the political world in which we live to bet the ranch on that because if we're wrong we've got a heck of a problem on our hands. So, if we're going to do this, Mr. Chairman, I think we have to be very mindful of the need one way or another to try and find--or encourage others to find--policies outside of monetary policy that would complement achieving that goal in the least costly way possible, recognizing that under the best of circumstances the costs are not immaterial.",516
-fomc-corpus,1989,President Melzer.,4
-fomc-corpus,1989,"On the first question on stability in the price level or a steady low rate, in theory I think stability in the price level is the right answer. Practically speaking, if we could achieve a steady low rate of inflation, I think it would be a heck of a lot better than what we've seen for many years. I think it's important in looking at the price level to look at it over long periods of time. I wouldn't feel that if we picked the price level and we had a little inflation that that should be immediately reversed with deflation. But that's, of course, implicit in that. That's why as a practical matter I think I would find a steady low rate of inflation acceptable. On the second point, if we don't have a timetable I think that we're too easily [unintelligible]. I think we need it as a matter of self discipline and I think it could have positive effects on expectations. But I don't object to what Jerry has suggested in terms of a general point in time when we would like to arrive there. I have a difficult time in our trying to set out a specific path of how we are to get there because that runs into the risk of what John was saying--an embarrassment along the way and all of a sudden we will have been derailed altogether. My general point would be--I've said this at earlier meetings and I've heard some other people say it today--that I worry about whether we really have the public and political support to do this now. I don't think there's a broad understanding outside of this room--and John your comments would reflect that--of the costs of a continuing, say, 4-1/2 percent rate of [inflation].",342
-fomc-corpus,1989,Let's hold it; that's our next question.,9
-fomc-corpus,1989,"Okay. Well, I won't lecture on that. But my only point is that, even though I support this direction and I support some kind of a timetable on it as opposed to [accepting] the general [unintelligible], I think we have to recognize that our timing is not great right now. This is not a good time to be out beating the drum on zero inflation because we don't have the support and we run the risk of getting derailed in the short run.",98
-fomc-corpus,1989,"Tom, I think the reason why it is important now is that if we are going in the other direction we very well better know what the costs are to the ultimate goal [unintelligible]. In other words, I frankly have learned a great deal from this exercise by knowing what type of space we have on the other side if we are forced to go in that direction.",76
-fomc-corpus,1989,"What I'm saying, Alan--I'm not tending in the other direction--is that we have to be politically smart about how we unveil this thing.",29
-fomc-corpus,1989,"Oh, I don't disagree with that. I'm saying that this is the right time to have this conversation.",21
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,It's probably the wrong time to go out and tell the public what we talked about.,17
-fomc-corpus,1989,That's exactly what I'm saying.,6
-fomc-corpus,1989,I'm sorry I didn't intend to interrupt you. Are you--,12
-fomc-corpus,1989,"No, you made my point much better than I could.",12
-fomc-corpus,1989,Dick.,2
-fomc-corpus,1989,"Mr. Chairman, I will comment on the two specifics of your question but, in terms of looking at the cost/benefits of this issue, I think Jerry's point is well taken: We don't know on that table. I think it's extraordinarily useful but [unintelligible] what precisely the sacrifice ratio would be. There has been a lot of discussion of the cost/benefits in present value terms. I think it could be interesting, possibly, to do an exercise to see what sort of sacrifice ratio you'd have to have so we'd know how much weight to put on the credibility issue to break even [unintelligible] that works. Because we're still operating in, at least--",141
-fomc-corpus,1989,How many people we throw out of work is acceptable publicly?,12
-fomc-corpus,1989,"No, I'm not saying publicly. Actually, what I'm saying is: How many people we throw out of work now will be made up for in present value terms by the [employment] gains we'll have later on?",43
-fomc-corpus,1989,As long as they're all in Massachusetts!,8
-fomc-corpus,1989,It's getting to be that way now.,8
-fomc-corpus,1989,That's where a lot of them are.,8
-fomc-corpus,1989,The real difficulty is that we cannot talk in terms of cost/benefits on the unemployment rate. It is debt that we--,26
-fomc-corpus,1989,"You can talk in terms of GNP, though.",11
-fomc-corpus,1989,"You can that, yes.",6
-fomc-corpus,1989,That's what I was thinking.,6
-fomc-corpus,1989,"You can, yes.",5
-fomc-corpus,1989,"I was thinking of present value GNP. But to get to your particular questions, I would find targeting something like a steady low rate of inflation acceptable. I find it consistent with the statements that you've made in the past about the level; the kind of numbers that you have used are, in fact, the kind of numbers that Jerry used. I think it's consistent with your statement that that level really would not seriously affect economic decisionmaking. As far as the timetable goes, I think it's hard to say yea or nay. My notes on other people's comments around this table suggest as well that [the feeling] is sort of yes, but not precise. And that's where I would come out, in part because of the concerns that John LaWare expressed. I don't think we get anywhere if we just say we're going to get there but we're not going to tell you by when. I think we have to give something like a two-year band or something, depending on the number that we pick--saying when we want to get there, say, 1994-96 or 1995-97, or something like that.",227
-fomc-corpus,1989,"Well, what's wrong with the 1990s, as Jerry--",14
-fomc-corpus,1989,I don't think there's anything wrong. I think it has a nice added--,15
-fomc-corpus,1989,"Again, I don't want to seem like I'm marketing that idea because I'm not sure I believe it myself. But the fact of the matter is that there is almost this mystique about that period in the '50s and early '60s. People kind of look back and think about it and they say: ""Hey, wow."" So what you're trying to capture is not a statistical phenomenon but almost a kind of state of mind.",87
-fomc-corpus,1989,"Well, we better make sure that we can do it.",12
-fomc-corpus,1989,That's the other question that the Chairman won't let us discuss until later.,14
-fomc-corpus,1989,"Yes, I know.",5
-fomc-corpus,1989,Which is the most important.,6
-fomc-corpus,1989,President Boehne.,5
-fomc-corpus,1989,"Well, the theoretically right answers to your questions are that we ought to have zero inflation with a precise timetable. I think those theoretical answers are wrong in practice because we need too much luck beyond our own powers to achieve that. I think we have to be careful here that we don't let perfection become the enemy of improvement. I would be quite happy to see us pursue a goal of disinflation over time and not necessarily in a straight line. And if we ever get to the point where we get that state of mind that we had in the late '50s and early '60s, then I think we could have another conversation around this table to figure our where we're going. I doubt if anyone of us will be here, however, to have that discussion because I think it's fairly far out there. I think we ought not be precise on the timetable because I'm with John: to state a goal and miss it undermines our credibility. I think what people look at is the progress made; and if over time we can make progress on inflation, that's about all that people realistically expect out of us. I'd be happy to leave it at that.",231
-fomc-corpus,1989,President Forrestal.,4
-fomc-corpus,1989,"I would like to associate myself, first of all, with what John LaWare said about the perception of inflation. I've been bothered by this for a long time; as I've been saying at several meetings, the people I talk to in my District really don't seem to have much concern about inflation at 4-1/2 percent. As I said earlier, I think they would if it were at 6 or 7 percent. I don't really understand why this is happening. I suspect, John, that in addition to any indexation and so on, that we've had a period of relative prosperity in the country and that the fear is greater of the loss through a recession than from having inflation at 4-1/2 percent. Therein lies our problem, basically. Now, on the specific questions: I think that zero is an ideal but it's [not] all that practical to attain. So, I would be happy with a relatively low level of inflation; I think the trend line is more important than any actual number. I'd be quite content to go back to that nice period of the '50s and '60s when we had relatively low inflation. On the time frame, it seems to me that we're between a rock and a hard place in some sense. Because if we don't announce some kind of a time frame, our credibility will be affected and people won't believe that we're going to do it. On the other hand, I also agree that if we set a precise target and miss it, our credibility will be hurt. It seems to me that the way out of it is to have an internal target of, say, 5 years, and try to achieve that, but not announce that to the public--but perhaps announce some kind of a range, as was suggested earlier.",362
-fomc-corpus,1989,Governor Angell.,4
-fomc-corpus,1989,"Well, I think we've gotten handicapped by the belief that inflation is a monetary phenomenon and that it doesn't make any difference what anyone else does--that the central bank has the power to control the price level and that it's for us to decide. I would strongly prefer for us to control the price level rather than to aim for zero; zero inflation is not a satisfactory target as far as I'm concerned. With zero inflation targeting, I believe that events will occur; and if we always in a sense let those events be positive but never negative, we're going to end up with an inflation rate that's unsatisfactory. So, I want to go beyond that and I want to have some periods in which we have deflation as well as periods in which we have inflation. I believe it's a commitment to a price level that is the most important. If we have a drought and the prices of food and fiber products rise and we say we didn't cause that drought, well, then, what happens when we have more favorable weather than usual? Do you think we're going to let that kind of supply side [shock] show up as favorable? Do you think we're going to say: ""Gee, we're going to take the rate of inflation down""? If we are, then of course we're where we ought to be. It just seems to me that the case is so strong for wanting the American people to be able to buy homes at a 5 percent mortgage interest rate. People ought to be able to get a 30-year fixed rate at 5 percent. And the benefit to that, it seems to me, is unusually high. There is a benefit for the Federal Government with its debt; the higher the debt grows as a percentage of GNP the more benefit there is in having low interest rates. The greater our external debt the more benefit there is of having lower interest rates. To me, these benefits are overwhelming and they are so apparent. We are a reserve currency country. And my goodness we have seigniorage gains. If the world uses dollars for payments, that costs us zero interest rates. It's just very convenient to have the reserve currency position. And we're not competing with the average country in the world; we're competing with the best competitors in that regard. Finally, it seems to me that there's basic integrity involved. I just don't understand why anyone would want to say they wanted to participate in a lack of integrity, meaning we're [just] making promises. It's our job to make promises in regard to the purchasing power of U.S. dollars. To me it's a moral question of integrity. And I cannot participate--I cannot serve on a Board and an FOMC that doesn't have this integrity. Excuse me for being so extreme! But I don't know how else to deal with it. Now, as for a specific timetable, yes. I'm willing to go slow and do it by 1995. And I believe we ought to tell people we're going to do it because I believe the costs of doing it are lower if we tell them. Excuse me for being so one-sided on this.",623
-fomc-corpus,1989,Angell-esque.,4
-fomc-corpus,1989,You feel strongly about that Wayne!,7
-fomc-corpus,1989,Bob Black.,3
-fomc-corpus,1989,"Mr. Chairman, I'm sort of on the side of the Angells in this!",17
-fomc-corpus,1989,[I knew someone was] going to say that!,10
-fomc-corpus,1989,"Well, I shouldn't have said it, I guess. It looks to me like the first question breaks down into two points: one is whether we ought to seek a zero rate of inflation or a steady low rate; the second is whether the Fed should target a zero rate of inflation or a stable price level. And there are a lot of costs. Don mentioned a while ago shoe leather costs in trying to minimize one's balances because of a rise in nominal rates and interactions with the tax code. When you have inflation of any kind, even a low level, you have all these nonsocial institutions that rise up and use resources to help you beat inflation. So, clearly, I think what we ought to do is to aim for a zero rate. Governor LaWare raised some interesting questions about this because he was saying, I think, that the existing indexes don't capture all the improvements in quality. That is certainly true. And, therefore, I was glad to see that you got the Neal Subcommittee to. adopt your definition of inflation, which is much less specific in that we don't have inflation when it no longer affects the decisions of the decisionmakers. Now, with regard to the second part of the question--the price level at which we ought to aim, or the zero inflation rate--I think we ought to aim at a particular price index, as I think Governor Angell was saying. Otherwise, I think we're apt to get shocks of all sorts [that induce] deviations from that zero rate. In effect, that's where the political pressures are going to arise. So, unless we undo that if it's an upward pressure or undo it if it's a downward pressure and go back to our original target, then I think we're going to have price level drift that is not unlike the base drift that we had when we targeted the monetary aggregates.",368
-fomc-corpus,1989,"Why is there a reason, though, to believe that those kinds of shocks will be different than random--or biased to one direction?",27
-fomc-corpus,1989,"Well, I just think that our whole economic system has a bias in favor of inflation. I even think that the Federal Reserve has some bias in favor of inflation.",33
-fomc-corpus,1989,"But I think we're talking consensus here. Theoretically, [if] we pursued a zero inflation rate target and we were not influenced by the politics that were coming later or whatever, why would we expect those shocks to be anything but random?",49
-fomc-corpus,1989,"In that kind of world I think that's what you would expect; but in a political world I don't think they would [be random]. The answer really, Manley, is that they would be purely random, but it's the political issue that enters in.",51
-fomc-corpus,1989,I think the best way to answer that is to count all of the letters that I have received in the last two years complaining that interest rates are too low.,32
-fomc-corpus,1989,That expresses it; I wish I'd thought of that.,11
-fomc-corpus,1989,The answer is zero.,5
-fomc-corpus,1989,"Well, you haven't talked to my mother-in-law! They're way too low for her.",18
-fomc-corpus,1989,Absolutely.,2
-fomc-corpus,1989,"Well, my mother-in-law is an exception to a lot of other--",15
-fomc-corpus,1989,Let's put it this way: they don't write me.,11
-fomc-corpus,1989,Do you think the probability of positive energy price shocks is the same as the probability of negative price shocks?,21
-fomc-corpus,1989,"Well, I don't know what the probability is. I can't think of any reason why the probabilities of negative or positive shocks would be any different.",29
-fomc-corpus,1989,In energy?,3
-fomc-corpus,1989,"Well, I honestly believe, personally, that there's a higher probability of a downward price shock in energy than an upward one right now.",27
-fomc-corpus,1989,You're right.,3
-fomc-corpus,1989,"Well, let me answer the second question. I got us off track I can see. As to the timetable, I would come out right where Governor Angell did on that; and that's where you came out, Mr. Chairman, in your testimony before the Neal Subcommittee. I think in the interest of credibility we need to pin ourselves down to get there. If all these simulations we did are in any sense right, you have less painful results when expectations are forward-looking rather than based entirely on past experience. So I would like to see that tied down to a 5-year period, realizing that if we don't hit it that we would have a few problems on that. But I think if we had the target we'd be more likely to hit it than if we didn't.",156
-fomc-corpus,1989,President Keehn.,4
-fomc-corpus,1989,"It seems to me that the Federal Open Market Committee is a policymaking body and that we really can't make monetary policy decisions in a vacuum. It's awfully awkward to be slavish to any mechanistic goal regardless of the events or the environment around us because the environment is constantly changing. And I think decisions have to take that into account. By definition, certainly less inflation is best. But there are these measurement issues, which Governor LaWare has brought up, and I think there are others as well. Indeed, if we were to aim at absolute zero inflation that, in effect, might very well be destabilizing for parts of the economy. So it seems to me that a more realistic goal is a steady but low level of inflation. Really, if the level of inflation is moving down and we are continuing to make progress, that's okay. But if it's moving up that's not all right, and I would expect us as a Committee to react to that. With regard to the timing question, for the same reasons it seems to me that it would be very awkward to be precise. Again, if we are making progress that would be the desirable objective. But because there are so many events out there over which we have absolutely no control but that could have an impact on inflation, if we were to be precise about a time I think we'd be put into a corner and have an economy that we really were not able to control.",286
-fomc-corpus,1989,President Stern.,3
-fomc-corpus,1989,"On the timetable question, I think we can establish a relatively specific timetable because I think we have to provide more rather than less. In other words, I would suggest that if we wanted to do that--say, pick 1995 or whatever in the middle of the decade--we should also explain what else we expect to happen. What are the accompanying developments? What are we really looking at as best we can judge the situation? That includes being specific about such things as our not anticipating anything extraordinary happening to energy prices or to the dollar or whatever. I don't think it's credible to simply say the target is zero inflation by 1995 and let it go at that. It seems to me that we should provide more information, and then as things unfold we're in a good position to explain why we either are or are not achieving the path we set for ourselves, or why we have to make modifications because of events we can't control. I don't think that's terribly different, frankly, from what we're doing right now with the Humphrey-Hawkins testimony. We're simply going further. There's going to be a lot of uncertainty, but that's always the case. And if we're providing more information so that people can understand what our true objective is, and the circumstances surrounding that objective, and the conditioning assumptions and so forth--if we put it in those terms--I think we can do it. But I think to just throw it out there would get us in trouble from a number of different perspectives. So, I wouldn't just establish a zero inflation objective by some time period. As far as the question of the price level or the rate of inflation: yes, theoretically, I think we want a steady price level. But in practice I'll take Ed Boehne's suggestion: let's get the rate of inflation down and then we'll worry about what we do next after that.",373
-fomc-corpus,1989,Bob Boykin.,4
-fomc-corpus,1989,"On the first question, targeting a stable inflation level would bother me because that implies we can come up with a specific number and I don't think we have any historical basis for assuming that we could maintain that particular number. It seems to me we would have more explaining to do using the zero inflation. In my mind, at least, that implies the definition that's already been advanced as far as inflation not entering into the business decision. It seems to me that we give the Committee a little more latitude by taking into account facts and circumstances as they are developing at any particular time. In my mind we do not get a locked-in mentality; that might not be the appropriate thing to do. So I would favor the concept of moving toward zero inflation with the understanding of what that really meant. I also think that a timetable is important. It's important to give us credibility and it's also important on the other side of it to give us a lack of credibility. It seems to me that the idea Jerry was talking about--saying the mid-'90s or something like that--would put us in the position of being able to take into account what was actually going on without doing any serious damage. But direction is important. And, given the inflationary [bias] both in the economy and probably within the FOMC, at least on an historical basis, it appears that if we don't formulate good policies to try to get to where inflation is not a factor in making business decisions our decisions are going to lead us inadvertently toward more inflation.",306
-fomc-corpus,1989,President Guffey.,5
-fomc-corpus,1989,"Thank you, Mr. Chairman. In response to your specific questions, my desire would be to achieve some stability in the general price level provided that that means [stability] at a low inflation rate. Just to stabilize a general price level could be at any level. If we were to set upon that course today, I'd assume that what we would do is maintain price level stability between 4 and 5 percent, which would be acceptable to me at least. With regard to the timetable, I like the idea of some statement much like Jerry Corrigan has set forth--that is, the mid-1990s. As you testify twice a year in Humphrey-Hawkins, for example, and many other times that you have to make public statements, I think you could address those issues that either bring us closer to that goal of price stability in the mid-1990s or away from it. I think it's going to be difficult, if not impossible, to achieve price stability at some level absent some help from the fiscal side. And I think time after time you have to beat that drum. This gives you the opportunity to do that. There is one other issue that keeps coming to mind and that is whether or not we have the authority--and I'm talking about legal authority, implicit or otherwise--to adopt a goal of price stability, price stability being zero inflation. We have a number of pieces of legislation that tell us what our goals should be. And they number as many as 10 if you get all the pieces of legislation together. So, if we were to say that as of now we're going to set upon the course of trying to achieve price stability, meaning zero inflation or thereabouts, by the mid-1990s, and as a result--whether by our making it or not--we got into a recession, I think we'd be challenged as to whether or not our goal was legal. We can say internally all we want about price stability being at or near zero, but when we get in public I think you're talking about something else.",417
-fomc-corpus,1989,Very interesting point.,4
-fomc-corpus,1989,"Mr. Chairman, I don't have the wording in front of me, but Section 2(A) of the Federal Reserve Act says in the first sentence, before you get to the Humphrey-Hawkins stuff, something about the growth of money and credit at rates consistent with the expansion of the productive capacity of the economy. And I think you could interpret that, with a view to promoting price stability [unintelligible]--",87
-fomc-corpus,1989,If you go about three or four sentences later it probably contradicts that.,15
-fomc-corpus,1989,"Not quite. Other parts of the Humphrey-Hawkins Act may, but the part in the Federal Reserve Act I'm not sure does.",28
-fomc-corpus,1989,"It says good; do it well. There was one issue I meant to raise with respect to the question of whether or not a stable inflation rate is different from zero or thereabouts. In our analysis of causes of changes in stock prices and other calculations we make which relate to the real cost of capital: What is the impact on that variable of the level of inflation? My recollection is that there's a fairly significant relationship, implying that the higher the rate of inflation the higher the risk premiums associated with the real cost of capital. Another way of putting it is that the higher the rate of inflation over a long period of time, other things equal, the higher is the real cost of capital. I don't remember how robust that conclusion is, but it was not bad as I recall.",157
-fomc-corpus,1989,I believe that is true if--,7
-fomc-corpus,1989,This was just strictly an historical correlation. You can pick up some of the variation in the real cost of capital from [unintelligible]. Lee Hoskins.,33
-fomc-corpus,1989,"I probably should start with a disclaimer that Wayne and I didn't get together and have a coordinated statement here. With that in place, let me start out by saying that we are a central bank and if we don't speak out for price stability I don't know who is going to do it. The integrity of the currency, whether it's a reserve currency or whether it's our own domestic currency, seems to me to be an extremely important matter. If you want to say it's a moral matter, I'm comfortable with that as well. There was a Governor here, Governor Wallich, who at one point in time made an argument, if I can paraphrase him, that a society that allows for inflation is a society that lies to its people. I think he made that statement, and some of you may remember it, in this Board Room. And I don't think that's [in]appropriate at all. One point is that if the public isn't comfortable with lower rates of inflation, then it's incumbent upon us to do the educating because no one else is going to do that. With respect to this idea of zero inflation and some definitional problems, I admit that they are there. I think Governor LaWare said it very well: that there may be improvements in quality that we need to capture. But saying that implies that we know what those might be--1 or 2 percent it seems to be. We could work to adjust the price indexes to take account of that just as well as saying that we can allow 1 or 2 percent inflation. The zero inflation concept, at least as I understand it, really is tied to a price level. Without the price level tie you have no anchor. I think that's the same thing Governor Angell was saying. It isn't mechanistic; it doesn't say that we have to react quarter-by-quarter or even year-by-year to a particular set of circumstances that cause inflation to rise. What it does say is that over time--and I'm comfortable with your definition in the Neal Amendment--that the price level really shouldn't rise. That implies some declines in the price level as well as rises. And that gets at your question about shocks; I would expect them to be on both sides. Over periods of 5 or 10 years under a zero inflation policy, which is really a price level policy, I would expect that we would have a stable price level.",478
-fomc-corpus,1989,But you're saying we wouldn't aggressively ease or tighten if there were supply shocks?,15
-fomc-corpus,1989,"I think the Chairman answered that in the sense that we have to decide what kind of shock it is. If it is a drought, I wouldn't do anything. I don't see how anything would help. We expect offsetting results on the other side of that. With an oil price shock, it depends on how countries respond to it. That is, if they accommodate it--and this Committee at the point in time of the initial oil price shock, if I remember correctly, decided to partially accommodate it--in order to lessen--",106
-fomc-corpus,1989,I'm thinking of the negative type shock like debt--anything that would shock the level down. I think you've got to be willing to say that.,29
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,"Okay, so you'd aggressively ease in that case?",10
-fomc-corpus,1989,I would respond to a drought.,7
-fomc-corpus,1989,"Well, how would you respond to a stock market decrease?",12
-fomc-corpus,1989,I wouldn't respond by providing the liquidity to make certain that that event didn't cause the demand for money to drive up rates.,24
-fomc-corpus,1989,"In order words, you would supply only that much which you feel [unintelligible] and the demand for money growth would drive up--",29
-fomc-corpus,1989,"Well, that's the first thing I'd do--supply. Then I would decide whether or not that financial event was going to precipitate any--",29
-fomc-corpus,1989,Deflationary impact.,5
-fomc-corpus,1989,--any deflationary impact and I'd watch commodity prices to see whether that was the case or not.,21
-fomc-corpus,1989,"Let me finish off, then. I would see us making the same kinds of decisions and struggling with the same problems that we struggle with now, except we would have a framework or anchor point that we were working against out there. That's the advantage that I see, though. I don't see this as being an automatic process. There are uncertainties and judgments that we're all going to have to engage in but we would have a frame of reference. And all I meant by zero inflation policy was essentially to anchor ourselves to a price level out there some place in the future. The last point: I generally believe that people operate more efficiently when they have more information, which is the point that Gary Stern raised. I think we ought to be perfectly candid and tell people what we think the consequences of our actions are going to be; and I'd indicate that there are circumstances in which we could get thrown off our path temporarily, but that we're after this objective over time. So to answer your questions: Yes, I would prefer the price stability objective; and I think the time frame is important because it is a way of providing information to people. I don't know the magnitude of that. It may be closer to where Jerry thinks it is--not worth much, but something--or closer to where I think it might be, which is worth more. The third question that you raised was: Is there something different about a 4 percent rate as opposed to a zero rate? I think there's a qualitative difference because I'm anchoring it to the price level. If you're taking 4 percent, or even a low rate of 2 percent, you're arguing that there's some kind of trade-off there. And if there's a trade-off there, then why don't we just pick 4 percent? Or maybe a circumstance will come along where 6 percent looks good. I don't think that's an appropriate thing to be building into people's planning horizons. I've said my piece.",388
-fomc-corpus,1989,Governor Kelley.,3
-fomc-corpus,1989,"Mr. Chairman, I apologize for jumping the gun a little before the break; I didn't know where you were going with the second half of the afternoon. But let me add another point. It seems to me that if we set a specific time objective two things are going to follow--the second from the first. If we think we're getting too much media attention and Congressional attention now on the subject of monetary policy, we ""ain't seen nothing yet!"" If we announce a firm policy and proceed to put things stringently in force toward that, I think we're going to have people looking over our shoulder like we never dreamed of before. Indeed, we're starting to look over our own shoulder, which leads to my second point. And that is, I think in the interest of our own credibility that we would run a risk--it may be even more than a risk, it would almost be inevitable I think--that we would have to overshoot. We would have to set policies that would overshoot making that goal, and we would run a very severe risk if we did that. That leads me to say that, as a practical matter, it seems to me that we would adopt a very tight specific time frame only if we intended to be absolutely single-minded about meeting it. That would mean meeting it--whatever shocks might show up, whatever uncertainties there may be in the information that's available to us, and whether they should happen to have severe consequences--regardless of what other national priorities might come along that would have an impact upon by monetary policy. And it's hard, indeed impossible, to foresee all those things. When I spoke in terms of getting the trend in the right direction, Jerry, I'd be perfectly comfortable with a definition of getting a trend in the right direction as: having a properly and carefully defined but very general definition of price stability by the mid-'90s. That's a level of specificity that I'd be happy to live with as being a way to move toward getting trends in the right direction and sustaining them.",406
-fomc-corpus,1989,Governor Seger.,4
-fomc-corpus,1989,"I just realized as I sat here how old I'm getting because I took the first economic courses I ever took in the '50s, before any of you were born! But I will tell you what they were teaching then--especially Manley, pardon me.",52
-fomc-corpus,1989,"Hey, I was born before the '50s!",11
-fomc-corpus,1989,1850?,3
-fomc-corpus,1989,"That's what I was referring to--1850! Seriously, first of all, in the '50s we were taught that deficit spending was not [only] okay but it was great because we had to prop up this weak kind of economy. Secondly, some of the gurus of the day--people like Samuelson and Slichter--were saying that you needed to have inflation of 2 to 3 percent per year to assure prosperity. Again, none of you remember this but you can go down to the library and pull out the books and check to see if I'm right.",117
-fomc-corpus,1989,I remember.,3
-fomc-corpus,1989,"I remember, too.",5
-fomc-corpus,1989,"The other persons from [unintelligible]! Anyway, I think it does state something about how the pendulum has swung. Frankly, as a conservative, I'm delighted to see this because I do believe in price stability. I also remember the early 1960s; in fact, I worked in Washington in the early '60s when we got those quite good results with the inflation measures. But the interesting thing, as I recall that period, was that it wasn't really planned. It was like a eureka experience. We got it and said: ""Oh gee, isn't this nice!"" We had this good record thrust upon us, which we then of course lost in the mid-'60s with the escalation of the Vietnam War.",150
-fomc-corpus,1989,But the country was on the Bretton Woods standard; there was a law in place.,18
-fomc-corpus,1989,"Yes, but--",4
-fomc-corpus,1989,"Yes, we have an old [unintelligible] on that stuff.",16
-fomc-corpus,1989,But I'm saying those rules of the Bretton Woods arrangement were followed and there was a discipline in place.,21
-fomc-corpus,1989,"Yes, but we had better inflation performance in the first half of the '60s than we had in the late '50s. Anyhow, my punch line in all this is that I think it's very good to state as a general objective that we want price stability. And by price stability I mean just be that vague; don't say whether we want to cast the CPI for October in concrete and make that the base or whether we want to do something else. Set a general target and move with our policies in that direction but without specific numerical targets because, as several people around the table have said, we're going to have this test every single week or every single month. Even if we're making general progress, to the extent that we miss a specific target, the financial markets particularly are going to pick this up and run with it and conclude that we're complete failures, whereas in fact we might be batting .800 instead of 1,000, which in most ball games isn't bad. So, I would be opposed to setting specific targets or selecting specific indicators of inflation because I think it would be very counterproductive. As to one of your points, Lee, about saying that we're going to impose price level stability even though maybe most people don't care about price level stability, these are value judgments. And if we get too far our of line with what the people in this country want, it's going to be like the government of East Germany and you're going to be put out of office.",297
-fomc-corpus,1989,"What I said, Martha, was that I think it's incumbent upon us as central bankers to educate people to the value of stable prices. On this other point that has come up a number of times about our credibility and that we run a big risk of loosing it: if I read market yield curves correctly, I don't think we have it to the degree that we might. The markets are not telling us that they believe right now that we want price stability. It seems to me that they are telling us we're going to have 4 or 5 percent inflation.",113
-fomc-corpus,1989,"Yes, but America is bigger than financial markets. You know, we sometimes forget that. The people who put governments in place are not all on Wall Street or in investment banking houses, etc. Anyway, it's a very big challenge. And I think we have made progress in going from the '50s when, as I said, it was sort of accepted and even thought desirable to have inflation. So, something that's vague and general, in my judgment, would still make a contribution.",98
-fomc-corpus,1989,"The last question on this subject has been discussed peripherally. Let's start with Roger's formulation as to whether or not we have a legal basis for doing what has been discussed here in general, on either side of what has developed as the two extremes. That is particularly important, I think, because with fiscal policy fumbling the ball, monetary policy has become the sole stabilizer in the system and that's becoming increasingly visible. With the Dorgan-Hamilton Bill I think successfully fended off, we're now running into what I think is going to be a draft Gonzalez-Tobin Bill where Jim Tobin's views about how we should restructure this Committee are potentially much more dangerous to the institution than Hamilton-Dorgan. I would like just basically to raise the question of how we develop political support to do what it is we perceive is necessary for a stable economy and sound monetary policy. If there were a [law] out there, which legally required us to do something very specific about inflation or the money supply, I suspect we'd all applaud that--meaning, in effect, that we would be required to do something independent of the secondary consequences on the grounds that some other institution or some other policy instrument would pick that up. There is no way that's going to happen, as I'm sure we are all aware. We often have to live with the fact that the Federal Reserve is going to be in the eye of the political system increasingly [unintelligible]. The thing I think we have to confront, rather than get up front and promulgate a policy, is to take a step back and ask ourselves the question: How do we try to develop support for the [type of] policies that we need? Why don't I put that on the table and see if we can clean that up before we go home this evening.",363
-fomc-corpus,1989,"I'll start it off. Off the top of my head, without having thought this through very much, to me the way you build political support is first--I agree with Lee--that you have to educate. I think it's very important for us in our hearings and our speeches and everything else to take an approach that tries to point out the benefits of what we're trying to achieve and how we interpret those. It would be best if we could come to some consensus and all say the same thing. I'm not sure that's possible. But if we decide on that, we ought to try and coordinate it, because coordinating it would be very important for the public. Secondly, and substantively, in terms of reality in the economy--and for this reason I am somewhat of a gradualist but I don't think a 5-year time frame is unrealistic--I think that we cannot afford to have the public perceive us as choosing the tradeoff of accelerating disinflation at the expense of much higher unemployment. I think it's another matter if the public sees us defending our inflation goals if inflation is accelerating and the economy is weak and we're not perceived as having any good choices. It's one thing to try to fight an acceleration in inflation because the economy is weak; I think the public can take a recession in that environment where, say, external policies have been bad, productivity is very low, prices are accelerating and we're not left with any choice except to let inflation accelerate or to stop it and inflict a recession. But I think it's another matter entirely to force the economy into recessionary conditions to accelerate the improvement in disinflation. I don't think it's a big factor to argue about how fast the economy continues to grow or whether employment growth is a little slower or a little faster, because I think the public generally is not very sophisticated in understanding what's happening when the economy is growing more slowly relative to what otherwise would be the case. But I assure you they're very keen on noticing when more people are unemployed and when people are being laid off. They would be saying: Well, the inflation rate is low and actually coming down, but [the Federal Reserve] is going to accelerate this [decline in inflation] from 4 percent to 1 percent and the cost is going to be higher unemployment. So, my view is that we have to be sensitive to the real economy. We have to be patient enough to pursue our goals consistent with avoiding recession unless inflation accelerates. If inflation starts to accelerate, we don't have any choice. That's the way I see it. Of course, if dividends come with [greater] credibility, then we can get there faster without the potential losses in real output and employment. I think we should state our goal of price stability and I think there is a time frame that's realistic. But I certainly don't think that means--even if we were to say we have a 5-year time frame in which we think we can get to conditions of price stability--that tomorrow the discount rate has to go up 1/2 point. It certainly does mean, though, that we have to set a steady course in getting there and take advantage of the positive dividends and resist the negatives.",641
-fomc-corpus,1989,Jerry.,2
-fomc-corpus,1989,"Well, I think that building the political support for even my softer version of the goal is going to be very, very difficult. My hunch is that if you put the Neal Bill to a vote this afternoon it would be overwhelmingly defeated in both the Senate and the House.",55
-fomc-corpus,1989,Did you know that in a survey taken of the American Economic Association it barely got supported?,18
-fomc-corpus,1989,"No. I think it would be overwhelmingly defeated in both the Senate and the House; I don't think it would even be close. Again, that's why I'm so sensitive to this cost thing. And in terms of the work that Mike and his colleagues did, you could take other very credible economic [scenarios] and get cost calculations that are much more severe than the base case. If you take the DRI model or something like that, why, you're just off the charts. So, you would get this process where people would start doing the arithmetic; they wouldn't do it as well as these guys [on the Board staff] do it, but you don't have to be a genius--people can do the arithmetic. And if you put it in those cold hard terms, I think it's a very, very--",163
-fomc-corpus,1989,[Unintelligible] be unemployed.,9
-fomc-corpus,1989,"I could have a field day with it if I were on the other side of the debate. And that, of course, is one of the reasons why I think we've got to be very careful about how we state this and we've got to be excruciatingly careful about what we claim. I don't by any means want to belabor this point, but I do worry a bit that in our collective zeal, and I do mean collective, we've got to be careful not to oversell what can be done and at what cost. Because if we do leave the impression of a cost that turns out to be a low-ball estimate, we're going to get fried. There's just no question about that whatsoever. It's precisely for that reason, Mr. Chairman, that I favor an effort to move us in [the right] direction, in Governor Kelley's terms; and it has to be accompanied by what Lee calls an educational process. The focus there again has to come back to the relevance of other public policy. I obviously agree, Wayne, that the capability is here. But I feel very strongly that the costs are influenced, for example, by fiscal policy. Unfortunately, there is a growing sentiment in this country now that not only says that fiscal policy is kind of out to lunch, but even worse, that we have had all these huge deficits in the '80s and everything is fine. What's the problem? What's the worry? And you don't find that just from the extremes of the economic journalistic profession. That is becoming an acceptable point of view to take in many circles. So, not only do I think it's a hard sell, but at least insofar as the other elements of policy are concerned, we're not--to use your phrase--ahead of the curve, we're behind the curve. Wayne, on your point about our reserve currency, there's nobody that feels more strongly [than I] about the role of United States currency. But can you continue to [unintelligible] reserve currency, even if you do well on inflation, when your external debt is 35 percent of your GNP? Maybe you can, but I think that's really problematical. So, there are a whole lot of things here that fit into this equation about political support. My sense of it is that, to the extent we can make a couple of arguments that are compatible with what we're after and that have inherent political attraction to them, it helps. What are those two arguments that have inherent political attraction to them? The two that I think ring the bells are: first, the internal savings/investment issue. Everybody recognizes that our investment rate in this country stinks. The second and related issue is our external competitiveness. Now, those ring the right bells in political circles. And they can be structured in a way that is quite compatible with a Kelley version or a Boehne version--whoever's version you want to pick--of moving persistently, consistently, but decisively, in the direction of a continued reduction in the rate of inflation within the kind of soft [time] target that I stated before.",629
-fomc-corpus,1989,Dick.,2
-fomc-corpus,1989,"Well, Mr. Chairman, I think we're in an extraordinarily difficult and tricky situation here when we try and [unintelligible] up public sentiment. I have been struck, when I give talks and discuss the need for the Federal Reserve to be disciplined and how we are being disciplined in getting inflation down--and I'm talking about business groups, not about community activists--that I haven't had anyone come up to me and complain. It's akin to John's point that inflation is really too high now. What they come up to say is: Why can't you get rates down because my machine tools aren't selling or this isn't happening or that isn't happening. So, I think the only way we're going to get anywhere--and it's a long-term process--is to demonstrate what the cost of inflation is. I think that a lot of the improvement to personal living standards has been driven by increases in the participation rate in the labor force and the norm now being the two-worker family rather than the single-worker family. Because of inflation and other factors, productivity hasn't been rising and real wages haven't been rising. We need to get the saving rate up. We have to show people how they and their children in the future are going to be better off in a low inflation world than they are now. Because they don't understand that now, they are not going to support that. And I think it's very, very important when we try to make this case that we demonstrate as clearly as possible the constraints that the Federal Reserve has on it: what it can and can't do. I'm not disagreeing that we can't get rid of inflation, but at what cost? And it depends upon what other people do. And by that I'm talking about things like the minimum wage, protectionist legislation, different steps that are being taken in medical care costs, all of those things. Someone told me a long time ago that being a shock absorber is not a terribly lasting profession; you get hot and worn out. And I think we need to demonstrate to people how we are really in the shock absorber role and show them the terrible box that we are in.",422
-fomc-corpus,1989,Ed Boehne.,5
-fomc-corpus,1989,"Well, to be very blunt about this, I don't think there is a public or political mandate to go to zero inflation if it means pushing up unemployment and risking a recession. And I think we would do ourselves and the public a disservice if we somehow pretended that achieving this is going to come at a relatively small cost because I think it would get short circuited fairly quickly. I don't think there is any amount of education and persuasion that we can do, barring a hyper-inflation kind of experience like the Germans had, that will ever educate the public to bear even the kinds of costs that we're talking about here. I think there is support out there for resisting accelerating inflation. Realistically, our educational efforts and our statements ought to be aimed at shoring up that support. Now, that means in the process that we have to make, as we have historically, stronger statements against inflation than other parts of society and government; I think that's what a central bank is for. But I think we kid ourselves if we take that rhetoric--every chairman of the Federal Reserve has had stronger rhetoric against inflation than, in effect, we have been practically able to deliver. I think that's the way life is in a democracy; to try to go for pure and ideal solutions is just not the way democracy works. Democracy involves a lot of compromising and we're compromising here. And I think the best compromise we can cut is to resist accelerating inflation.",291
-fomc-corpus,1989,Bob Forrestal.,4
-fomc-corpus,1989,"Well, Mr. Chairman, I think the fact that we all pretty much agree that the Neal resolution will not pass sends us a message. The message that it sends to me is that there really is not a political constituency for driving inflation down at any cost. I think that there is a sense, in the Congress and among certain people, that some decline of inflation is probably appropriate. But, as Dick said, when business people and bankers and not just the general public come up to you and say, as people have said to me, the Federal Reserve at this level of inflation has got a fetish about inflation--or to put it the way the British might, that the Federal Reserve is being bloody minded about this whole thing--I think it's going to be very, very difficult to get the general public to support zero inflation. That ought to be our goal but, no matter how much educating we try to do, I don't believe we are ever going to get people to understand the real cost of inflation at these levels. As I said before, if we have much higher rates, then they understand. Also, Jerry, while those arguments are very good about external competition, investment, cost of capital, and so on, when it comes right down to it the Congressman facing his constituent who is unemployed is not going to support us. So, I think what we really have to do is--",279
-fomc-corpus,1989,"[Unintelligible] I was grasping for straws, Bob.",16
-fomc-corpus,1989,"Well, I think a lot of people would certainly agree with those arguments theoretically. But when it comes down to supporting us, a Congressman, say, who has high unemployment in his District--no matter what the appeal of the theoretical argument--is not going to support us under those circumstances. We need to do whatever we can in terms of educating both the Congress and the public at large through talks and that sort of thing. But I think the real key is to bring the inflation rate down in accordance with our goal in a gradual way. We have the goal. The question is: What tactic do we use to get to that goal? If we do it gradually and minimize the cost, I think that will be the most effective way to achieve what we want.",153
-fomc-corpus,1989,Tom Melzer.,4
-fomc-corpus,1989,"It's a tough argument, but I think it's one we absolutely have to try to make. In a sense, if we're talking about this and if we set this goal--and Wayne I think you touched on this--we may be closer to that goal than we realize. One of the great risks is that we trade away in the short run the progress that has been made in the last two to three years. There have been some very good things said about how we make that argument. Another element of it, in my mind--and I don't mean this in a self-serving way--is that I don't think we convey how we conduct operations properly. There is this general perception, and we help to perpetuate it, that we move interest rates around. That's very dangerous because it leads people to ask us to do something about it to provide short-term fixes. What's so striking about the analysis that has been done, particularly the earlier versions when we had no mention of interest rates at all, is the realization that inflation is a monetary phenomenon. Obviously, this is not something we're going to get answered at the February meeting. But if we embark on this course, or if we continue on this course, there has to be some gauge of policy that is somehow, I think, aggregates based and gives somewhat heavier weight [to the aggregates] in terms of our public relations. I understand that we set the targets and so forth, but I think the general perception is that we set them but we're very happy to miss them. [We need to convey] some concept of our willingness to compromise in the short run--that we are willing to provide more liquidity to avoid the risk of a recession and to overcome a shock or whatever, but that there are limits on that within the framework of achieving the only longer-term goal that a central bank goal can achieve. I don't have a proposal. I made one in the past and I'm not trying to beat the drum for that. But as we proceed in this direction, I think there has to be something along those lines to put us in a more defensible position. We can't defend it on interest rates; we will get buried every time [we try].",439
-fomc-corpus,1989,Lee Hoskins.,4
-fomc-corpus,1989,"I think the political issue is a troublesome one and it's clearly reflected in the views that people put forth around this table this afternoon. But I look at the problem as one of changing the attitudes. This is a democracy, as Ed Boehne indicated. Democracies learn and they do change. I think it requires us to have character, will, and resolve; it requires us to have some leadership. Five years ago I wouldn't have guessed that we would have an amendment or a joint resolution even proposed for zero inflation. So, things do change over time when people pursue them aggressively. Five years ago the sage advice was to live with the Iron Curtain the way it was and to accept that compromise. We've been surprised, I think, by the rapidity of change that has taken place there. So, I'm not willing to say we can't change things because we don't currently have popular support. It seems to me that it's up to us to make the case for it. I think a lot of good ideas have come out. The Chairman testifies regularly and has stated that price stability is the objective. I do not see inordinate attacks on him by Congress when he's up there. I read the testimony and I just don't see the vehemence. In terms of practical things that we might do, one thing is to expose our ideas directly to Congressional people. I have been called in to meet with a Congressman or two with respect to my views. And while they just don't jump over to my side of the fence at the end of the half-hour meeting, at least they see that we have concerns and that we are not uncaring people and that we may have some worthwhile arguments. I think we can do more to make our case than we have done and I think we ought to do that.",360
-fomc-corpus,1989,President Keehn.,4
-fomc-corpus,1989,"Well, I agree with most of the comments, particularly Ed Boehne's comment that we probably don't have a broad constituency out there that supports an absolutely slavish drive toward zero inflation at this specific time. And in a practical sense, it seems to me that politically it would be very, very difficult to build that. When you talk to people about these kinds of objectives there's a running agreement in an academic sense. But as you begin to think through some of the consequences related to attitudes in the changing political environment it would be difficult to adjust that. That really was why I said earlier that I'd be opposed to a very specific public commitment to zero inflation in a very precise period of time; because if we really meant that, then as people began to work their way through what all that would mean, I think the political thrust to us would be very awkward. As long as we are continuing to make progress and continuing to bring the rate of inflation down--and our policy deliberations and decisions take that pattern--it seems to me that that's the ultimate objective and that we're doing what we should do. And the cost of becoming very mechanistic on this could be very difficult.",236
-fomc-corpus,1989,Bob Boykin.,4
-fomc-corpus,1989,"Well, just to put a little different light on this, I think we're probably selling the American public a little short. I don't want to overplay this. But having been through a depression recently in the Southwest that was more than just the very minimal, all through the very difficult period that we've been through I did not have one business person or anybody pick up the phone and call me and lay the problem at the feet of the Fed. I think there's a little greater understanding out there of the imbalances and a recognition that fiscal policy--. Now, I don't want to minimize the political aspects of it and what a constituency is. As far as the politicians themselves are concerned, I've spent my career running from them and I try not to talk to them; I don't really understand their mentality. But in terms of the individuals who suffered through this, as devastating as it was, I've had people that have totally gone out of business not lay the blame at the feet of the Fed. The only thought I'm trying to get across here, without minimizing the difficulties, is let's not beat up on ourselves too hard. I think there's a little more understanding out there than I'm hearing expressed around here. There are always risks, but given what we see as the objective, I'm not too sure that those risks, on a calculated basis, aren't worth taking.",269
-fomc-corpus,1989,John LaWare.,4
-fomc-corpus,1989,"I'm not sure how effective we can be as the principal preachers of this gospel. It seems to me that there's some suspicion of us as being self-serving: that in preaching an anti-inflationary stance and the importance of reducing inflation we sound like we're justifying our own existence in some way. Yet at the same time, I think we all ought to be trying to weave this concept into our public pronouncements when we get an opportunity to do it. Ideally, this would be a lot easier for us, even though it does not smack so much of leadership, if the call were coming from outside--if there were a public spokesman with a great constituency who could say: ""Hey, this is a good thing."" Lane Kirkland comes to mind but he's kind of an unlikely candidate.",160
-fomc-corpus,1989,He's on the other side of the--,8
-fomc-corpus,1989,"Yes, I understand that. And the Chamber of Commerce is a little suspicious perhaps, in the other direction.",22
-fomc-corpus,1989,I think Kirkland would be better than the Chamber is.,12
-fomc-corpus,1989,"In any case, I wonder if we couldn't--along the lines of Lee's concept of meeting with Congressmen--meet with other people and lay the issue out privately as well as publicly that this is a proactive and very responsible kind of stance. I don't think we can just expect it to happen because we want it to happen; we're going to have to work at it. And I think it's a perfectly legitimate thing for us to try to do if we believe that this is in the best interests of the country. If that's what you meant by leadership, then I think that's what we ought to be doing.",122
-fomc-corpus,1989,That's what I meant.,5
-fomc-corpus,1989,Gary Stern.,3
-fomc-corpus,1989,"Well, I have only a little to add to all of this. I think Tom Melzer is probably right: We're going to need to shift the focus to some measure or measures of the money supply as we proceed here if we can, both for substantive reasons and also because that has some political advantages as well, as we go forward. My experience is similar to that of some of the others who have commented. Once in a while I'll have a business person come up to me and say that they support the zero inflation objective; but most of the time the sense I get is that they don't have any trouble with 4 and 5 percent inflation and they're more or less content with that.",139
-fomc-corpus,1989,Is that what you hear in your board rooms?,10
-fomc-corpus,1989,It's mixed in the board.,6
-fomc-corpus,1989,It is mixed.,4
-fomc-corpus,1989,Remember that zero inflation means declining profit margins.,9
-fomc-corpus,1989,"Well, that's what I was going to say. I think part of the motivation behind this is the squeeze on profits. I don't think there's much question about that. Part of it, as somebody already commented, is that we have had 7 years of expansion and improving prosperity, and people--or some people at least--are reasonably content with all of that. The other aspect, which is really the other side of the same coin, is that in our District unemployment rates in almost every state are below the national average and yet the number one political issue out there is still jobs. I've been trying to figure out how you reconcile that. All I can figure out now is that the 1980-82 recession left such an indelible impression on so many people that that is still a big, big issue and people just don't want to tangle with something like that again.",177
-fomc-corpus,1989,Wayne.,3
-fomc-corpus,1989,"The Constitution, as you know, does give the Congress the authority to control the money supply and to protect the value thereof--I think that is the phrasing of it. And the Congress decided to delegate that responsibility to us. It seems to me that it's far, far worse for us to be held to task by the Congress for not doing the job that they, in a sense, expect us to do in regard to price level stability. That criticism can take place too. And I would far rather be in a position of saying we were a little too committed to this responsibility than I would to have them criticize us for letting inflation run. Economic growth is stated in the Full Employment Act of '46 and full employment is mentioned in the Humphrey-Hawkins Act. And it just seems to me that if we know the best way to [foster] economic growth is through price level stability, then it's our job to do the best we can on economic growth--which is, of course, to put price level stability first. If you believe that, then I think it's sellable. Now, I agree with what Manley Johnson said at the beginning when he said it's a question of strategy and timing. Certainly, Manley, when you and I joined this Board we were involved, first of all, in a proposition to grow the money stock more rapidly. For what reason? Well, I think it was because going from 12 percent to 3 percent on the inflation rate unexpectedly produced certain shocks that were threatening to upset the entire financial community. I think third world debt and the commodity producers everywhere--the world was just about ready not to worry. And I think that it did make sense to level off at 3 percent; and in doing so we really slipped back up to 4-1/2 percent. So, now I think it's very logical for us, having done this in the first step, to take the second step. And I think going from 4-1/2 percent to zero is not as tough as going from 12 percent to 3 or 3-1/2 percent or wherever it was. It seems to me if we're going to sell this we won't sell it by talking about trade-offs. You don't sell it by saying: ""Oh, we're going to go out and produce a recession and that's exactly what we want to do and we're going to put you in enough pain that everybody will become committed to not raising prices."" That's not the way to sell it. We really need to focus on what I call price level targeting; and that's why I like to use commodity prices as a way of saying that we're not trying to create slack. We're not trying to create unemployment; we just recognize that the commodity price level, however measured, has moved up and we have to restrain that move. And I think there's support for doing that. Now, on the fiscal side, I believe the Federal Reserve is more at fault on the federal budget deficit than is the Congress. It was the Federal Reserve with those double-digit inflation rates that caused tax receipts to rise at 16 to 18 percent per year. Why wouldn't the Congress get used to spending at that rate? We're the ones that taught the Congress to spend, and bringing the rate of inflation down, of course, shuts down the receipts and it does impose rather significant burdens. I don't think anyone here would suggest that the Congress doesn't have significant problems. Rather than saying we ought to be [content] and we can't get the inflation rate down, I think we ought to be a little more sympathetic to Congress' problem. Getting the budget deficit down in a period of declining inflation is pretty tough to do. So I think we need to be sympathetic with their goals and we need to admit that we want to make that pain as minimal as possible for the Congress. That's why I don't think we ought to do it as fast as the Volcker Fed succeeded in doing it between 1981 and 1984 when so much progress was made. The way I think you sell this program is that you sell low interest rates. You say low interest rates are desirable: that's desirable for economic growth; we get more capital formation with low interest rates; and we get an economy in which people can plan for their future. And savings ought to respond. I believe that we have to be somewhat more optimistic than we have been. We can't sit around and tell everybody it's not going to work. If you don't believe it's going to work, well then what are you doing here? What we have to do is to say: ""Sure it's going to work, and we're going to make it work."" I think it's sellable and I think it's exciting to be out there selling it. Frankly, this is the way I talk to audiences everywhere, as many of you know. And I've yet to find the first person to come up to me after one of those presentations and say: ""Oh no, you're wrong; you shouldn't take the inflation rate down."" No one says that.",1019
-fomc-corpus,1989,Because they know they wouldn't win the debate!,9
-fomc-corpus,1989,"Well, I think it's sellable if we want to sell it.",14
-fomc-corpus,1989,Bob Black.,3
-fomc-corpus,1989,"Mr. Chairman, I think Governor Angell was right in going back to the Constitution where it says Congress should have the power to coin money and regulate the value thereof. And that has been delegated to us through various forms of legislation. Don Kohn mentioned a while ago that among the objectives that have specifically been spelled out in the existing Acts is to control inflation. I think the best way to make that point is to do precisely what you did before the Neal Subcommittee by saying that this is the best way to get all these other things, which I sincerely believe.",114
-fomc-corpus,1989,I think it's true.,5
-fomc-corpus,1989,"I do too, absolutely. And that would be the brunt of my argument.",17
-fomc-corpus,1989,Nothing wrong with the truth.,6
-fomc-corpus,1989,When all else fails!,5
-fomc-corpus,1989,Any further comments before we close?,7
-fomc-corpus,1989,"I'd like to make just one brief point that I forgot to mention that was on my mind. In terms of the speed of adjustment, I've already laid out what I consider to be an appropriate strategy. But along with that is the notion that in the past when we have had fairly significant inflation, a lot of debt built up. Of course, a lot of debt was created even in the '80s when inflation was low, which is kind of interesting. But that was especially true during the '70s. I think we cannot force inflation down any faster than the safety net can bear the burden. In a sense, our lender-of-last-resort function is exposed from time to time; if you cause inflation to decelerate so fast that you create a debt bomb, we end up with the whole banking system falling into the safety net or huge debt problems that dramatically expand our lender-of-last-resort function. In fact, it's hard enough to arrange collateral now. And if there's no collateral to take, we're going to be limited to some degree. So I think we ought to keep in mind--at least if we pursue restraining policies--just what we think we might inherit through the discount window or, in general, our safety net.",251
-fomc-corpus,1989,"With those words, I think it's time for us to adjourn what has clearly been one of our most interesting meetings--certainly the most interesting meeting I've been at.",34
-fomc-corpus,1989,Yes sir.,3
-fomc-corpus,1989,"How would you like to summarize it, Mr. Chairman?",12
-fomc-corpus,1989,"I think it would be worthwhile in the December meetings to come back to this issue just to review where we stand because I think it gives each of us a view of the philosophical base of our colleagues. I think that's quite useful in these kinds of discussions. So, let's adjourn until tomorrow morning at 9:00 a.m.",67
-fomc-corpus,1989,"Before we resume our regular business, I would like to raise again a problem that continues to confront this organization with continuous damaging and corrosive effects, and that is the issue of leaks out of this Committee. We have had two extraordinary leaks, and perhaps more, in recent days: one in which John Berry at The Washington Post in late November had the time and content of a telephone conference; previous to that we had The Wall Street Journal knowing about telephone conferences and knowing a number of things that could only have come out of this Committee. I have discussed this subject a number of times but just let me tell you that, as best I can judge from feedback I'm getting from friends of ours, the credibility of this organization is beginning to recede and we're beginning to look like buffoons to some of them. If one readily translates what we heard here yesterday about how the credibility of this institution has major economic policy effects, one cannot fail to realize how important it is for us to have an organization which is not perceived to be discussing all sorts of confidential things to newspapers when we hold up ourselves as being a group that can confer in private. The real problems that conceivably can emerge are not only the ones that have been discussed here on numerous occasions, but I'm getting a little concerned about the free discussions that go on in this group--and yesterday afternoon is a very good example of this. If [our discussions] start to be subject to selective leaks on content, I think we're all going to start to shut down. Frankly, I wouldn't blame anyone in the least. We wouldn't talk about very sensitive subjects. If we cannot be free and forward with our colleagues, then I think the effectiveness of this organization begins to deteriorate to a point where we will not have the ability to do what is required of us to do. I don't know who the leaker is; I suspect it may well be only one person. I don't know whether the leaks are directly to Alan Murray, who has the clearest access, or to John Berry or Paul Blustein. Regardless, it's very destructive to the organization. I hope the person, who I would suspect can hear my voice at this moment, will recognize the type of damage that is being done to this institution. And if it's not the institution that you care about, at least recognize how important this institution is to our country. If we cannot function, the sole major economic policy instrument that this country has will not be able to function. Manley Johnson wants to insert a few words this morning.",511
-fomc-corpus,1989,"Being one of the members of the FOMC who generally has supported more disclosure--I admit I'm in that camp--I asked Alan to let me say a few words about a certain type of problem about leaks that I do think is serious. I wanted to make an appeal myself. I realize there is a debate going on within the Committee about policy disclosure and I think that's still a [valid] debate. But my big concern about the types of leaks that I've seen is that, along the lines of what Alan mentioned, I think it's very destructive if the confidential deliberations of the Committee end up in the press. If we can't sit here and have a dialogue and be honest and actually say things back and forth across the table to each other in an honest way without worrying about those discussions being disclosed at some point, then I think we have problems. I have been and continue to be generally supportive of the idea of accurate, timely announcements of our policy decisions. But our deliberations and how we get there have to be confidential. The thing that bothered me the most was back in February of this year when we were deliberating over whether to raise the discount rate and there was a Wall Street Journal story that announced a future FOMC meeting that was coming up in a few days. That just literally announces to the world that we're deliberating over the discount rate and anyone is free to--",279
-fomc-corpus,1989,You mean a Board meeting.,6
-fomc-corpus,1989,"Yes, a Board meeting; sorry, I said an FOMC meeting. But I think we had a conference call scheduled to discuss how we were going to approach this and even that was made public. So, I would like to make an appeal myself on the confidential nature of internal deliberations. And I separate that issue from the whole issue of announcements of policy. We have to preserve the confidentiality of deliberations because otherwise we eventually are going to come in here and read a script and not have a dialogue.",103
-fomc-corpus,1989,"Any comments gentlemen, ladies?",6
-fomc-corpus,1989,"Mr. Chairman, I'm very pleased that you made the statement that you made, particularly after the discussion we had yesterday, because if any of us were to indicate that we had such a meeting and that we did not come forward with a decision to [seek price level stability], that in itself could have a very significant [impact] on the market. I think that's a particularly delicate subject; and I feel quite certain that the price of gold, for example, would react rather immediately if it were leaked that we talked about going to price level stability and we didn't take action to do it or if it was placed in the worst context.",127
-fomc-corpus,1989,Questions?,2
-fomc-corpus,1989,"Mr. Chairman, some time ago I think Joe Coyne drafted something that was an agreement among the Committee that none of us would talk to the press seven days before or seven days after a meeting. I wonder if it's not worth revisiting that issue.",51
-fomc-corpus,1989,"That is, I presume, still part of the agreement promulgated by this Committee in its rules.",20
-fomc-corpus,1989,That was recirculated to the Committee in May of 1988.,15
-fomc-corpus,1989,"Any further comments? If not, let's get back to our regular agenda. We're now at the point where Mr. Cross can bring us up to date on foreign Desk operations.",35
-fomc-corpus,1989,[Statement--see Appendix.],6
-fomc-corpus,1989,Questions for Mr. Cross? I think Lee was first.,12
-fomc-corpus,1989,Okay.,2
-fomc-corpus,1989,"In regard to your dealings with the Treasury, doesn't the current limit give us a little more leverage with respect to arguing that we shouldn't be intervening?",30
-fomc-corpus,1989,"I think the Treasury sees our limits as a reflection of the view of the FOMC toward the whole subject. But if we are seeking to tell the Treasury that we don't want to intervene anymore, I think it has to be done in a direct way.",52
-fomc-corpus,1989,"I'm not opposed to the [proposed] increase of $1 billion [in the limit on System holdings of foreign currency balances]. I agree with your point about interest [accruals] but, as you pointed out Sam, this is a particularly sensitive period. And in my opinion, I can't foresee a situation developing where we would want to be selling dollars over this intermeeting period. It could occur, but I don't think there's much doubt that the Japanese are about to move on their discount rate--even though I'm not sure why--for their own domestic purposes. I think it's more political than anything else. But I can't see a situation in which we would want to be selling dollars into this market with the economy moving slowly and the DM and other European currencies strong and probably the yen showing some strength against the dollar. There already have been anticipations--rumors in the market--of a discount rate move, which weakened the dollar/yen rate some yesterday. Even if they move on the discount rate, I'm not sure whether that's going to be enough really to change things permanently or anything like that. Can you foresee a situation, Sam, where we would want to be selling dollars in the intermeeting period? I think it's okay to approve this.",253
-fomc-corpus,1989,"As matters now stand, my own view is that there certainly doesn't seem to be any reason to need to sell dollars. We are in the last two weeks of the year and the market tends more or less to close down at that point. An awful lot of the banks stop making markets. They all either have made their profits for the year and want to rest on them and pass out their bonuses or they have their losses that they can't do anything about. The market tends to close down. And for a number of years the dollar has tended to be a little weak toward the very last few weeks of the year. When the markets reopen in January I have no reason to think that the attitude will be any different from what it has been, which would mean that there is certainly no need to intervene. But, as we've seen many times before, these moods can change quickly. Although the dollar has declined really quite significantly in terms of the mark and most of the other European currencies, in terms of the yen it has declined very little; it's still at about 144 yen and at the time of the G-7 meeting it was around 146. And despite rather substantial amounts of intervention and other changes, there has been an awful lot of demand for the dollar against the yen. So, the short answer would be that I would see no occasion or need to be intervening during this period. But it's very hard to be certain about it, and we do have this problem of the accumulation of interest, which is going to push us up against our limit. So it seems to me, as a matter of prudence, that we do have to have some leeway to be able to operate.",340
-fomc-corpus,1989,Governor Angell.,4
-fomc-corpus,1989,"I think we ought to note that during 1989 we have sold over 2-1/2 times more dollars than in any other previous year of selling dollars. We've sold $22 billion so far this year and the rest of the world has sold $54 billion. We've had a total of $76 billion of sales. By and large I think this has been appropriate; I don't want to take a position in regard to not supplying the opportunity to do what needs to be done if there's any confidence whatsoever that the policy will be properly pursued. But when the weighted exchange value of the dollar has been on a three-month decline, which of course still leaves it well above year-ago levels, for us to sell and try and affect the yen/dollar relationship is at best naive and at worst stupid. It just doesn't make any sense whatsoever. Now, if there's a way to get that message through to the Treasury without some of us having to vote ""no"" on these kinds of matters, that's the preferable way to go.",207
-fomc-corpus,1989,"Let me answer that. I would be a little stronger than you. The sensibleness of this [unintelligible], as Sam has said. I think there have been innumerable occasions since the last FOMC meeting when the water they are drinking over there obviously has had something in it. But they have calmed down and I can't conceive that they would want to push on this side. All I can say to you is that considering the fact that the ultimate legal authority is over there [at the Treasury] I would say that the Desk has been very successful in fending them off. I have tried to convince some of our colleagues [at Treasury], with some success I think, and we will continue to do so. The authorization of $1 billion doesn't affect that in the slightest. That is there just in case the water gets too bad or something and we can keep them down to small amounts; but we're running out [of leeway]. All I can say is that I don't see any sentiment either in Sam's operation or any place in the Committee that would be supportive of anything other than what you suggested. It only comes down to this: we will do our best to keep them down.",244
-fomc-corpus,1989,"Well, if they say they're going to jump off the cliff, could we promise not to link hands and jump off with them?",26
-fomc-corpus,1989,"Yes, we could.",5
-fomc-corpus,1989,"I would prefer that we maintain our hand in the [unintelligible]; I agree with the sentiment that says that we ought not to pull ourselves out. It ought to be seen as an unusual move for us to take action for the Treasury's account without our doing it [for our account]. If that were to be the case, then I can support the increase in the limit because I do expect that we will receive interest on these funds.",90
-fomc-corpus,1989,I don't want to say to you that we will be successful in keeping them in [line]; we may or may not. You know them as well as I know them.,35
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,All I can say is--,6
-fomc-corpus,1989,"Yes, I know the same people.",8
-fomc-corpus,1989,"I think it's unfortunate that we have to move here prior to the study being completed, [but] I think it's prudent to do so and we ought to. Lee Hoskins.",36
-fomc-corpus,1989,"That was essentially what I was going to say. I don't think it's appropriate to tie Sam's hands on this one. If in fact we're going to have a full discussion down the road as to [the role of] our agency and the principal function with regard to the Treasury, I wouldn't want to see us stay in a mode of going up a notch here and there without ever questioning why we're doing it in the broader perspective--particularly when we're at this magnitude. I understand your argument for coordination but that doesn't seem to me to be an argument for $20 billion of Federal Reserve or $40 billion [total] of U.S. [participation]. I think we ought to visit that issue very carefully--that's the intent of the study--and [for now] I think we ought to pass on Sam's [recommendation] and get on with it.",173
-fomc-corpus,1989,Anybody have any other questions?,6
-fomc-corpus,1989,"I'll just add two quick comments. One is that I do think we have had a genuine measure of success in terms of the Treasury's attitudes and eagerness. That's not to say, as Alan said, that it guarantees anything for the future. But I think there has been some clear progress there. The second thing is more fundamental and that is that I think one can make a pretty good argument that even in the past six weeks the risks have shifted in a not inconsequential way in a direction--",102
-fomc-corpus,1989,"Jerry, it would be helpful if you'd speak up a little.",13
-fomc-corpus,1989,"I was saying that I think one can make a pretty good analytical case that even in the time frame of the past six weeks or so the risks have shifted in the direction in which rather than worrying about a strong dollar we could find ourselves worrying about a weak dollar. And I think that just reinforces the basic case that a number of people have stated here. So quite apart from the theology of it or the politics of it, I think the substance of it is clearly on that side.",97
-fomc-corpus,1989,"Well, that was my point precisely.",8
-fomc-corpus,1989,"If we didn't approve it, Sam would end up having to buy some dollars with some of his earnings on foreign currencies to stay below the limit. So we pretty well have to do it for that reason. Maybe--",43
-fomc-corpus,1989,It might not be bad to realize some of those profits.,12
-fomc-corpus,1989,"Well, let's see.",5
-fomc-corpus,1989,We're better off in the loop than out of the loop.,12
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,"Yes, but the question is magnitude isn't it?",10
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,How big do we want it to be? The bigger it gets the more that becomes a policy variable that I think is an inappropriate one. It takes our eye off the domestic economy and it takes our eye off price level stability.,46
-fomc-corpus,1989,The limit has to be enough to keep it from--,11
-fomc-corpus,1989,"I understand Sam's problem now; I don't have any problem with that. But I think we need to revisit the issue of why we do foreign exchange market intervention and, in particular, the size of that intervention.",43
-fomc-corpus,1989,I'm not disagreeing with that.,7
-fomc-corpus,1989,"Are there any further questions of Sam? If not, can I have a motion to ratify the Desk's actions since the November meeting?",28
-fomc-corpus,1989,So move.,3
-fomc-corpus,1989,I'll move it.,4
-fomc-corpus,1989,Without objection. We also have a motion on the foreign currency balance limit--[an increase from $20 billion to $21 billion].,27
-fomc-corpus,1989,So move.,3
-fomc-corpus,1989,Is there a second?,5
-fomc-corpus,1989,Second.,2
-fomc-corpus,1989,"Any objections? If not, would you bring us up to date on the domestic Desk operations, Mr. Sternlight?",24
-fomc-corpus,1989,[Statement--see Appendix.],6
-fomc-corpus,1989,Questions for Mr. Sternlight?,7
-fomc-corpus,1989,"I would just like to say that I find it extraordinary that the market reacted the way it did on Wednesday. This was, after all, the beginning of a five-day holiday period plus a weekend. They know that the demand for reserves is high in that period; certainly they have seen that in the past. So I must say I was very surprised at the reaction. The newspaper story, of course, put a little different light on it on Friday. But this is the question I would like to pose, Peter: The market is obviously focusing on a very specific federal funds rate--",117
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,"--and it was 8-1/2 percent in this case. If there were more fluctuation on a day-to-day basis, as we've had in the past, do you think the market would have reacted the way it did?",48
-fomc-corpus,1989,"I doubt it, President Forrestal. I think part of their reaction [reflected their] sense that we have been focusing more closely on funds rates in the last year--or pretty much since the stock market break of late 1987. And I think that sense of a closer adherence to the funds rate has gotten around the market.",68
-fomc-corpus,1989,"So, if we were to change our operating procedures to get more fluctuation or more noise in that rate, would that not be helpful in reserve matters?",31
-fomc-corpus,1989,I think it could be. We would have welcomed opportunities to do that. An obstacle to doing that is this sense of the borrowing/funds rate relationship not being as reliable as in the past. And I think that's partly what has kept us more closely bound to the funds rate.,56
-fomc-corpus,1989,President Black.,3
-fomc-corpus,1989,"Peter, off and on for several years Roger Guffey has been raising questions about whether the seasonal borrowing levels mean the same thing as the adjustment borrowing levels. Intuitively, I can't see how they really could because I don't think of banks as feeling the same degree of pressure when they have a [seasonal] loan that doesn't have to be paid off until a specific maturity date. But the studies that the staff has done always have suggested that, so far as we can tell over the banking system, the reaction to either type of borrowing has been pretty much identical and we have treated them as identical. This time we made two technical adjustments because of misjudgments about the level of seasonal borrowing. Does this indicate any change in the attitude of the staff toward seasonal borrowing?",156
-fomc-corpus,1989,"Don may want to comment also, but clearly we have recognized more explicitly in the last year, I would say, the changes in seasonal borrowing and we have made adjustments to the borrowing level in recognition of that. I think of the seasonal borrowing as in a kind of in-between zone. Banks clearly are not under the same pressure to repay those as they are with adjustment credit borrowing. But there is some sensitivity of seasonal borrowing to the spread of the funds rate over the discount rate. So in that sense it probably would be a mistake to focus just on adjustment borrowing; but it probably should be regarded in a somewhat different light--as we have been regarding it recently--than the adjustment borrowing.",138
-fomc-corpus,1989,"I agree with what Peter just said. Past studies had shown that seasonal and adjustment borrowing were somewhat different; as Peter said, seasonal borrowing is a little less interest sensitive than adjustment borrowing. But we found that when we added the two together we had a function in which seasonal borrowing--the part that wasn't interest sensitive--got lost in the noise of the overall function. And I think what's happened here is that with adjustment borrowing being so extraordinarily damped the seasonal borrowing now shows through into the overall function. So we've been making these technical adjustments sometimes between meetings. We have pointed this out in the Bluebooks for some time now and are trying to take account of it. This is something that we've been doing for at least a year I would say.",149
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,And the swings in seasonal borrowing have been much wider than previously; we're at record levels of seasonal borrowing.,21
-fomc-corpus,1989,It makes sense to me that you're doing it. But that's what I would have concluded without a study. One of my predecessors used to say that research consists of proving with uncertainty that which was known for certain beforehand. I'm glad to see this now and I imagine Roger is glad to see it too.,60
-fomc-corpus,1989,Governor Johnson.,3
-fomc-corpus,1989,"Peter, you may have said this and I just missed it. Even after we added reserves on that Wednesday with the funds rate slightly soft, we did that on the basis of an anticipated firming later in the day because of the reserve need, right?",51
-fomc-corpus,1989,"Well, we certainly had the reserve need for the period. I wouldn't have been surprised if funds had firmed later that day because we were projecting it as a reserve deficit day in a reserve deficit period.",41
-fomc-corpus,1989,"Yes, I remember funds slipped a little further in that period.",13
-fomc-corpus,1989,"They slipped further that very day. As I said, it may have been that, as participants were beginning to move toward that misimpression of an easing, the banks that needed funds began to slacken their purchases. What would go through their minds, I suppose, is: Why buy at 8-3/8 percent if it's coming down to some lower level?",75
-fomc-corpus,1989,"So you think there was some anticipation already growing in the market after our call, even before the news stories came in?",24
-fomc-corpus,1989,"Well, even the beginnings of somebody raising the possibility of an easing started to generate some reaction among the funds market participants; and the situation kind of fed on itself. The softening that occurred in the funds rate later that day probably fed back to more market participants, which strengthened their sense that there was probably an easing underway.",65
-fomc-corpus,1989,Where did the funds rate end up that day?,10
-fomc-corpus,1989,"It got down to 8-1/4 percent, or maybe a little lower.",18
-fomc-corpus,1989,So on that Wednesday it got down to 8-1/4 percent even before the stories?,20
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,How did the call go? Was there a broad consensus on what to do on the call?,19
-fomc-corpus,1989,On our daily conference call?,6
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,"As I recall, there was no [Reserve Bank] President on the call that day.",18
-fomc-corpus,1989,That's the problem!,4
-fomc-corpus,1989,"We had our usual discussion with senior staff at the Board; as we were having that discussion funds were trading at 8-7/16 percent. I think a question was raised as to whether the market might misinterpret that; and my judgment was that, no, they would not misinterpret it. Now, it was during the call itself--we began at 11:30 and the call was already well under way--when we saw the funds trading at a couple of the brokers slip off further to 8-3/8 percent. And we decided to leave the program in place. One can second guess this, but my judgment was still that it would not be misinterpreted. It was misinterpreted.",146
-fomc-corpus,1989,"By the way, my notes suggest that funds did firm a little toward 8-3/8 to 8-1/2 percent at the close. The average on the day was 8-3/8 percent, so there was quite a bit of trading at the [8-1/4 percent rate].",65
-fomc-corpus,1989,President Keehn.,4
-fomc-corpus,1989,"A meeting or two ago I raised a question about the seasonal borrowing program and it just came up a moment ago. It seems to me that we've been through a year in which the seasonal borrowings have been very, very heavy--maybe for some reasons that don't absolutely relate to seasonal requirements. And at this point, it seems to me it's getting a bit in the way of the operation of the Desk. I wonder if that doesn't raise a question as to whether or not we ought to look at the seasonal program to see if there's some way we could price it or handle it differently so it doesn't impact on the operations of the Desk.",127
-fomc-corpus,1989,We have a memo underway on that. We have been consulting with the discount officers at the Reserve Banks. I think we have it on the Board's agenda for late January. Is that right?,39
-fomc-corpus,1989,"It's not actually scheduled yet, but that's what we are planning.",13
-fomc-corpus,1989,"We are planning to put that on the Board's agenda after further consultation with the Reserve Banks. So, yes, we are looking at the seasonal program, even in terms of whether we should have it.",41
-fomc-corpus,1989,But we will be getting to it at a time of the year when the [Reserve] Banks will be back out offering the program again. So time is running [out].,35
-fomc-corpus,1989,That's one reason why we were pushing to get it on the Board's agenda.,16
-fomc-corpus,1989,"Well, if we're thinking about changing that program--and there may very well be good reasons to do it--I would not do it so abruptly that we have banks expecting that they would have those funds during the spring months and then we pull it. I think we have to give them some warning when they've had this for several years. Even though it gives us some problems at the Desk, we need to be mindful of what we do to them as well.",92
-fomc-corpus,1989,"I'd like to interject, Mr. Chairman, that I don't see the seasonal borrowing program as giving us significant problems of implementing policy at the Desk. Now, there may be good reason to review that program and revise it; but I don't see it as a problem for implementation of policy.",58
-fomc-corpus,1989,"In our thinking about this, President Boehne, we were certainly going to give an option--if there were major changes in the program--to delay those changes. That would be one of the things the Board would need to consider.",48
-fomc-corpus,1989,"When this issue came up before I think the argument was that perhaps seasonal doesn't present a problem for us when it's mixed with adjustment borrowing. But even if it's shown that it has some noise in it, to separate it out to a point--",48
-fomc-corpus,1989,[Whether to] have it in there--,9
-fomc-corpus,1989,[Do we] want to have it in the reserves?,12
-fomc-corpus,1989,"In the current situation, Governor Johnson, if we were just targeting adjustment borrowing we would be encountering problems of equal magnitude. I agree with Peter: I don't think we would [unintelligible] the level of adjustment borrowing to shifts in demand for adjustment borrowing. I don't think the seasonal borrowing is really the root cause of the problems with the borrowing function.",72
-fomc-corpus,1989,I agree with that. But it's just another minor noisy item or potentially noisy item.,17
-fomc-corpus,1989,"A question: Have you even thought about, or can you determine, why adjustment borrowing is so low? Is there simply so much liquidity out there either domestically or from abroad that they don't need the window?",42
-fomc-corpus,1989,"Well, we have thought about it. In fact, we had a special session about this at the discount officers' conference in October. This is all second hand because I wasn't there, but [they felt] the major issue really had to be the concerns of the banks about coming to the window and what that would convey to the rest of the market in an environment in which there were a lot of questions about bank soundness. Although we don't announce discount window borrowings --that's confidential information--often other people in the market know it, in part because we do ask the banks to go out and bid vigorously for funds before they come to the [discount] window. So there's somewhat of a pattern of purchases in the federal funds market that tends to broadcast that fact and often it does get out one way or another. So I think that's a major issue. There were some other factors, such as monitoring their accounts more closely partly because of daylight overdrafts and a few other things like that. We put in a penalty discount rate for very large borrowing, which may deter some big banks. So there were a number of factors; no one of them seems to explain it.",235
-fomc-corpus,1989,Governor Angell.,4
-fomc-corpus,1989,"Don, what would be the case for or against releasing our reserve estimates? That would be quite different, it seems to me, than our releasing or announcing what our policy is.",36
-fomc-corpus,1989,"I've given that some thought, Governor Angell. It makes me inherently nervous to release projections. Maybe this is a bureaucratic problem because quite frequently we're going to be wrong on those projections. [Unintelligible] and we also have a problem with the required reserves inherent in that. [Unintelligible.] So we've given that some thought. As I say, I don't like the idea of releasing projections because of the problems and also because I think the market would tend to say: Well, they're projecting a $2 billion-a-day need so they ought to be doing $2 billion today. It would tie the market's expectations into our projections very, very closely and I think in the end it would reduce our freedom of action. If we saw signals in the funds market that tended to contradict our projections, for example, I think releasing the projection would give rise to some very specific expectations about exactly what the Desk would be doing given those projections and would tie our hands even more. So, I have some questions about releasing daily projections of two-week reserve needs every day.",217
-fomc-corpus,1989,"Well, that's an understandable response. I would comment, Don, that it's not very bureaucratic to suggest it might be bureaucratic. Mr. Chairman, the point is that I think we do have an objective to preserve our policy freedom and freedom from disclosure. And that's why I asked the question. Don, would it help at all if you were to do it with a range?",77
-fomc-corpus,1989,"It might. I'd have to think about that and so would Peter. That might loosen things up a bit though I think it would have some of the same problems, perhaps ameliorated to an extent. One issue that Peter and I have discussed is whether we should release our previous day's balance sheet every day so at least the market would know where we were. I just throw that out; that would take care of part of this problem but not all of it and it's something we will be looking into. There are pros and cons on that also and a lot of thorny issues that need to be resolved. But it's something that Peter and I were planning on looking at over the next month or so.",141
-fomc-corpus,1989,"I'm glad you had the conversation. I do want to express confidence in your judgment in regard to what you recommend, but I'm glad you're thinking about it.",31
-fomc-corpus,1989,"Any further questions for Mr. Sternlight? If not, may I have a motion to ratify the transactions since the last meeting?",27
-fomc-corpus,1989,So move.,3
-fomc-corpus,1989,Is there a second?,5
-fomc-corpus,1989,Second.,2
-fomc-corpus,1989,Without objection. We now move on to the economic report. We can start with Ted Truman.,19
-fomc-corpus,1989,[Statement--see Appendix.],6
-fomc-corpus,1989,[Statement--see Appendix.],6
-fomc-corpus,1989,Questions for either gentleman?,5
-fomc-corpus,1989,"Could I ask, Ted: What would be your figure for net exports of goods and services for the third quarter?",23
-fomc-corpus,1989,It's about $6 billion less than what's in the Greenbook.,13
-fomc-corpus,1989,You mean it's a $6 billion improvement?,9
-fomc-corpus,1989,What would the fourth quarter be in the Greenbook on the basis of--,15
-fomc-corpus,1989,"I think we'd make very minor revisions at this point. Basically, we had not received the retail trade inventories. We had heavily discounted the wholesale trade inventories, which we received at the very last minute. When we look at those data and at the trade data, our hunch is that the best guess is still in that 0 to 1 percent range--not appreciably different from what we have now.",82
-fomc-corpus,1989,So inventory accumulation is up and net exports are down?,11
-fomc-corpus,1989,Right.,2
-fomc-corpus,1989,That brought sales down. President Parry?,9
-fomc-corpus,1989,"Mike, a question or two about Boeing: We had a conversation with them in the last week that suggested that the delivery of planes in the fourth quarter was a bit stronger than we thought it would be--24 planes in the 48 days during the strike. And they actually saw their inventories run down a little. We do not have inventory data for their supplies. The implication is that in the subsequent quarter one would not actually see a runoff of inventories but a slight accumulation of inventories and that the impact on [exports] would not be as great. Now, I don't know when you checked with them--and perhaps different people give different information--but it's sort of interesting because if these statistics are reliable, it could be that we're not going to see as much fluctuation in exports and inventories in the fourth quarter versus the first quarter.",167
-fomc-corpus,1989,"Well, we have been hounding those folks and evidently didn't hit the same person you hit because it sounds like you got much more information than we've been able to glean on the details of their scheduling.",40
-fomc-corpus,1989,We do have a lot [of information]. I don't know how good it is; that's the problem.,21
-fomc-corpus,1989,We have been trying and trying to get these facts pinned down and I have not heard through my colleagues--,21
-fomc-corpus,1989,"Well, let me make two comments. One is that the October numbers did have a big downward adjustment in aircraft shipments relative to the previous month.",29
-fomc-corpus,1989,Sure.,2
-fomc-corpus,1989,The second is that some of the export sales--and this maybe only speaks to part of the problem--had to do with the timing of shipments [rather than how] the workers were scheduled. So in that period there are two questions: To what extent are they being exported rather than sold domestically relative to the average experience? And to what extent do they come out of inventories? That is the question you were addressing.,85
-fomc-corpus,1989,"Well, they did have the data of the 24 produced during the strike: they exported 15 of them and 7 of them were 747s, which are the big ticket items. So, exports seem to keep up. Now, that would square with what we see in the October numbers.",61
-fomc-corpus,1989,"Well, they have stayed up. The total of large aircraft was $10.2 billion; that's down $600 million from the previous month but it's up in fact from the early part of the year. So it's not that they weren't continuing--",49
-fomc-corpus,1989,"What we've tried to communicate, President Parry, is that all of these are short-run factors, including the earthquake and so on. Basically what we see is growth in the range of about 1 to 1-1/2 percent from the fourth quarter through the second quarter.",57
-fomc-corpus,1989,"There was one other point they made regarding production effects that was sort of interesting. They estimated that normal production would be about $20 billion at an annual rate; and they were estimating about a $9 billion rate for the fourth quarter, which would mean an $11 billion change as opposed to the $14 billion. So, perhaps there's not quite as much GNP effect as you have there. But, I'm sure all of this will get sorted out in the next month or so.",97
-fomc-corpus,1989,Assuming the report [made it] to the BEA?,13
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,President Boehne.,5
-fomc-corpus,1989,"Mike, I wonder if you might comment a little more about what's going on in terms of the trade-offs in your forecast in inflation and growth. Essentially, for the next two years you have subpar growth of under 2 percent and the unemployment rate rising to over 6 percent. You have a somewhat heroic assumption that there will be no further easing in monetary policy over that period. Yet the inflation trend line is not very good. We get some relief in inflation next year but then in 1991 we get inflation going back up. Now, I'm not one to push the precision of these numbers, but essentially we don't have much progress over this time horizon, given the subpar growth. It's less than encouraging and I would appreciate your commenting on it.",152
-fomc-corpus,1989,"There are a number of items involved here. One is that the unemployment rate, while moving up faster in this projection than in the last one, doesn't really get to a level where we think it would have a significant effect in damping wage and price increases until we get well into 1990. In the near term, though, we think the smaller consumer price increases we have had in the second half of this year and that we anticipate in the first part of next year will be helping to damp wage increases. So, as we look at wage trends--setting aside the self inflicted wounds of social security tax increases and minimum wage hikes--the underlying trend is beginning to turn down very gradually around the middle of 1990 and it continues on down. A couple of other factors affecting the contour are the oil price assumption and the dollar assumption. Oil prices in the near term are a helpful element in the picture, but as time progresses and we get into 1991 our assumption of no real change in the oil price begins to become a neutral factor as opposed to a helpful factor in the inflation trend. Finally--and this is sort of what we demonstrated in the exhibits yesterday--the autonomous depreciation of the dollar, so to speak, does have some effect on that short-run trade-off. If you took out the dollar depreciation that we have, the picture would be much more favorable in terms of the apparent trend. Basically, next year's CPI probably would not be materially above 4 percent and might even be a shade below. Looking out into 1991 it probably would be at 4 percent or a shade below. So that might give you a little sense of movement toward a lower inflation projection.",339
-fomc-corpus,1989,Governor Johnson.,3
-fomc-corpus,1989,Sounds like a heck of a sacrifice ratio to me.,11
-fomc-corpus,1989,But in a sense we don't have any real sacrifice occurring until we get out into 1991.,20
-fomc-corpus,1989,As we measured it yesterday.,6
-fomc-corpus,1989,As we measured it.,5
-fomc-corpus,1989,"I'm not sure. It seems like a lot lost on the real side and nothing [gained.] on the inflation side. Although there may be a tenth or two, it's hard to see.",39
-fomc-corpus,1989,"Governor Johnson, let me remind you that if you play this game of abstracting from the dollar's movements, particularly the ones that we don't see as tightly connected to monetary policy and other fundamental factors, you would have to elevate the recent inflation rates in gauging the trend. So in a sense, you're working against these continuing price level shocks that affect how the year-to-year inflation movements look. But if you want to do that--and particularly if you felt others would do that and be charitable in their assessments of the trends and in shaping their expectations--then the picture isn't quite as unfavorable as it looks.",122
-fomc-corpus,1989,It might be useful to try to separate that out.,11
-fomc-corpus,1989,"Well, we have. And we can present that arithmetic again. There is that question of how people, in shaping their expectations, are going to read those data and whether they are going to take the same sort of view.",45
-fomc-corpus,1989,"Well, I agree with that. A couple of points: You mentioned the Blue Chip forecast. I agree they are not predicting a recession, which I think is interesting, but they do expect significantly lower trends in the funds rate.",46
-fomc-corpus,1989,It looks to me like a cut of about a half point by next spring is the consensus forecast.,20
-fomc-corpus,1989,Right. I think most of the forecasts that are not predicting a recession have the funds rate path coming down.,22
-fomc-corpus,1989,"Yes, I think there is a prevailing expectation of a decline in the funds rate. But I think that most people's concerns about recession really are near term enough that they see the interest rate decline as being coincident with the period of greater softness. What they're getting is a bigger boost to growth in the latter half of 1990 and on into 1991. And this goes to the point I made yesterday: I think they perceive the Federal Reserve as being very loath to see low growth and willing to accept a 4 percent plus CPI rate of increase. That is the projection for next year--something over 4 percent with no sign of any deceleration going into 1991.",139
-fomc-corpus,1989,I agree with that. Another point was made about the dollar when you were talking about the dollar depreciation forecast having a positive effect on the real side. Doesn't it matter how the dollar depreciates? It's one thing if it results from lower rates here; but isn't it another thing if it results from higher rates abroad as to the relative impact on the real side here?,73
-fomc-corpus,1989,You mean higher interest rates?,6
-fomc-corpus,1989,"No, a lower dollar. If the dollar is lower because of higher rates abroad, let's say.",20
-fomc-corpus,1989,Higher interest rates?,4
-fomc-corpus,1989,Don't higher interest rates abroad mean that foreign demands are going to be weaker?,15
-fomc-corpus,1989,"Well, yes, but it depends on whether you had [forecast] foreign demand right to begin with. And as far as this year was concerned, it's fair to say that we didn't. We have growth in the G-10 countries on average in 1989 at 3.4 percent, a percentage point higher now than we did in February at the time of the chart show. And we have the same growth rate, essentially, for next year so that the average level of economic activity is substantially higher than we had it before. So to some extent, the interest rate response to that in trying to [damp] down the recovery, [unintelligible] which is certainly that it had an effect on income and demand. And therefore, in some sense [economic activity] would be less than otherwise. But I think if you put the two things together, on balance, you have continuing strong growth on the income side plus this exchange rate--",193
-fomc-corpus,1989,So you're suggesting to me--,6
-fomc-corpus,1989,"Yes, and I'm not sure to what extent. In fact, I guess you could even argue the other way around. If you looked at models and you looked at the kind of interest rate differential changes that we've seen so far this year you could argue that the dollar should be much lower than it is--that the change in the dollar should be much greater than we've had since June or something like that. So in some sense we undershot those kinds of weak relationships that we shouldn't rely on.",99
-fomc-corpus,1989,"Well, let me just get it straight after all that. I asked the question: If the dollar is weaker in the forecast because of higher rates abroad, since we're not projecting--",36
-fomc-corpus,1989,"The point I was making is that it is really only a question of timing. Over the last three forecasts going from July of this year to the end of the forecast period the net change in the dollar that we've assumed or projected has been the same. And in that period to some extent we've raised growth abroad and at the same time we've also raised interest rates a bit. However, it seems that we have had some of it sooner than this [straight] line projection that we've assumed. Therefore, as Mike and I have said, you move some of it exogenously. We didn't fine tune the forecast [to that extent] so some of the real side and price effects, which under the original forecast would have come in 1992, will have moved into the forecast [for 1991]. I'm not sure I'm answering your question but--",170
-fomc-corpus,1989,"Yes, but [unintelligible]. The last question I have is the one I keep repeating--I know you're sick of hearing this but I'm still looking for an answer too. And that is: A year ago or even less than that you had a slightly stronger forecast. I realize if you go back to last April's FOMC or so that most of the weakness in the values projected [were showing up] in early 1990 rather than this year. The economy has softened a bit more toward the tail end of this year than you had forecast in those earlier projections and you actually were forecasting about a 10-1/2 percent funds rate and about a 10 percent long bond as of now. Yet rates are fully 200 basis points lower than they were when the forecast was for a real economy that was expected to be a little stronger than it is today. I'm still trying to find some way of reconciling that--how that has occurred when the interest rate scenario has been totally different and we've had much lower interest rates. If the economy has been slightly weaker than the forecast, I don't think it could be the dollar. Exports have held up pretty well in this whole forecast. In fact, I thought the lags were longer on that; at least that's what we've been saying. So it's not on the export side. Where has the weakness occurred? Or why has the forecast borne itself out generally, with a structure of interest rates that is 200 basis points lower?",303
-fomc-corpus,1989,"Well, as I've indicated before, this is a very complicated thing to try to sort out. We did an MPS model run to try to address this, and at this point the 1989 fourth-quarter to fourth-quarter growth in real GNP is the same as what we had in February. What has happened in this accounting is that the lower interest rates occurred only after a period of rise, so we haven't had that playing out entirely. We've had a higher dollar and the combination of these two forces end up being neutralized. So essentially we have a [GNP growth rate of] 2-1/2 percent, as we had anticipated. Because of the pattern we have had, though, if you went back and took the dollar and interest rate paths that we had in place as of February and compared that to what we now have, the picture for 1990 should be stronger than what we have. I think we have perceived some areas of weakness compared to what we had been anticipating. In housing, for example, we haven't gotten the kind of response we had anticipated. And there are some other sectors that probably are a touch weaker fundamentally at this point than we had anticipated. But basically in 1989 it's a story of lower [than anticipated] interest rates offsetting an unanticipated strong dollar.",265
-fomc-corpus,1989,Since when?,3
-fomc-corpus,1989,"In the year 1989, Q4 to Q4.",13
-fomc-corpus,1989,"Well, what about my point on exports? Am I wrong that exports have not held up according to the forecast?",23
-fomc-corpus,1989,You mean the February forecast.,6
-fomc-corpus,1989,We had [forecast] a 12 percent increase in real exports of goods and services in the February Greenbook. We have an increase of 7-1/2 percent now.,37
-fomc-corpus,1989,Is that right?,4
-fomc-corpus,1989,7-1/2 percent from when to when?,11
-fomc-corpus,1989,Q4 to Q4.,6
-fomc-corpus,1989,"A little of that is lower interest rates, I might add.",13
-fomc-corpus,1989,On the services.,4
-fomc-corpus,1989,Yes. In goods we may be off by a percentage point; the rest of it I think is--,21
-fomc-corpus,1989,Is that enough to account for the difference in interest rates?,12
-fomc-corpus,1989,Sure. Do you mean the services side?,9
-fomc-corpus,1989,"No, I mean is that difference in the export projection enough to--",14
-fomc-corpus,1989,"But, as Mike said, the real projection is approximately the same.",14
-fomc-corpus,1989,Right.,2
-fomc-corpus,1989,"And the question is whether--. Well, it is slightly differently distributed.",15
-fomc-corpus,1989,Okay. I think that's all.,7
-fomc-corpus,1989,Governor Seger.,4
-fomc-corpus,1989,"I have a question. Even though Mike can tell me never to ask about the quarterly distributions of economic activity, I'm sorry but I'm so confused that I'm going to have to ask anyway. In looking at the quarters for 1990, you have the strongest growth in the first quarter and--",58
-fomc-corpus,1989,That's Boeing and reconstruction.,5
-fomc-corpus,1989,"Well, I think that's giving a lot [of weight] to both of those! As for the tremendous pickup in final sales from the present quarter to the first quarter, I hope that's accurate, but what if it isn't?",45
-fomc-corpus,1989,"There are a number of things that could go wrong, or even right, in the outlook. If consumer demand, for example, is fundamentally weaker than we perceive it to be, [unintelligible] will be longer lasting and have worse effects. If export demand isn't as strong or business investment isn't as strong, these elements of final demand could be a drag on output.",76
-fomc-corpus,1989,You have a big pickup in consumption expenditures on durables.,12
-fomc-corpus,1989,That's a passing--,4
-fomc-corpus,1989,We have a rebound in car sales in the first quarter as they try to get these inventories down.,20
-fomc-corpus,1989,"Well, maybe that's where I should really part company with your forecast.",14
-fomc-corpus,1989,"But if you take those two factors off, Martha, they total 9/10ths of a percent--if I'm not wrong--so this comes down to 1.2 percent. So, really, your first quarter is as weak as any quarter in 1990 after you take account of the earthquake and the Boeing strike.",67
-fomc-corpus,1989,"Basically, auto production in the first quarter is deducting something like 3/10ths of a percent from output growth. So it's a decided negative, as it is in the current quarter. But our assumption is that through a combination of very low production levels and expanded incentives they will be able to get the inventories in reasonable alignment by the spring. As best I can tell from reports I have had from automobile companies they have budgeted very large amounts for incentives [next] year. They have incentives in place already but they are well below what they have budgeted for the year as a whole. So I would expect them to pull out all the stops in the next few months, unless there is a surprising pickup in sales without that.",148
-fomc-corpus,1989,"I'm sure they're going to try the incentives. We may talk to different people--we probably do--but I can tell you there's disappointment about the effectiveness of the incentives. The bang for the buck seems to be less and less each year. These incentives have been around for three or almost four years now. And to show you how desperate things are, the incentives have been put on minivans by two of the Big Three, and minivans have been the stars of the universe in that they were selling quite well even when a lot of other models weren't. As I said, I hope you're right; but I have a feeling that the first quarter is going to be weaker than what we're showing here.",142
-fomc-corpus,1989,"Well, of course, the automobile data don't really have an effect on GNP. You're pushing them out of inventory into sales and if the sales fail to materialize the only thing you're missing is the retail market. So, that's not going to affect the total of GNP.",56
-fomc-corpus,1989,"No, it's not.",5
-fomc-corpus,1989,No. What I'm worried about is--,8
-fomc-corpus,1989,"I'd emphasize that we still have production down. But if the sales with the added incentives don't come up to our expectations that means there's a more prolonged adjustment necessary. I think automobile companies have been trying to wrestle with the experience of the last few years in assessing what the price elasticity is and what the longer-run stock trends are. They have seen strong sales of cars and light trucks over the past several years and they have been trying, as we have, to get a handle on the extent to which people simply have accumulated a relatively large stock of cars at this point. On top of that there is concern about these very long car loans and how long people are in negative equity positions; they may be less inclined to buy a new car after the same interval that they previously did. So there are a lot of things going on that are hard to sort through.",172
-fomc-corpus,1989,The stories I hear are that the production schedules for the first quarter are written in pencil and are written very lightly.,23
-fomc-corpus,1989,"We have January well below what they currently have announced. We don't have [the production schedules for] all of the Big Three for the subsequent months but we have just a shade over 6 million cars at an annual rate in the first quarter, which is a low rate.",55
-fomc-corpus,1989,Thank you.,3
-fomc-corpus,1989,President Hoskins.,4
-fomc-corpus,1989,"On this last discussion, I think Mike was right to say one should not focus on the quarterly numbers. He has to focus on them because we want to see them. I don't know what the bands of error are around this, but I think somebody ran off a staff forecast yesterday that indicated the errors are really quite large one quarter out. So I think that was an appropriate comment. Also, having been in the business of forecasting quarterly numbers publicly, that's a very uncomfortable [position]. People ask you for those numbers but in fact you don't have great confidence in them. If your error--",118
-fomc-corpus,1989,"We still have to live through these quarters--quarter by quarter by quarter. And those, in fact, produce the average for the model for the whole year.",32
-fomc-corpus,1989,"The second point on the issue we're struggling with on the autos: In a policy sense, is this a structural problem as opposed to an aggregate demand problem? I think that's really where you're heading with it and my comment is that it is pretty hard to sort that out right now. Let me go on to my question, which like Manley I think I know the answer to, but I'll ask it anyway. As Wayne pointed out yesterday, we've had over 30 months of fairly reduced monetary growth--4-1/2 to 5 percent using the projection that this year will come out at about 5 percent. Many of my monetarist friends argue that the inflation rate is going to come in next year at less than the consensus forecast. They are not using structural models. The question to you is this: Is the probability equal in terms of the errors on either side of your inflation forecast or do you believe the probability is higher one way or the other?",194
-fomc-corpus,1989,"We never assert that, if we could formalize it, the probability distribution is perfectly even on both sides. But we think it's reasonably balanced. We noted yesterday that if you look at the P* model, for example, with a sort of money approach, we're in balance essentially between the equilibrium level and the actual price level. And our monetary forecast wouldn't yield through the P* model a distinctly different outcome for inflation than we have in the Greenbook.",91
-fomc-corpus,1989,I must say the P* model on prices is better than any monetarist model on prices that I've seen.,23
-fomc-corpus,1989,P* has almost precisely the Greenbook deflator; it has 3.9 percent and the Greenbook has 4 percent. For 1991 it shows a little tilt down that the Greenbook doesn't; it has 3.6 percent and the Greenbook stays at 4 percent. My guess is that that's the dollar effect going through.,71
-fomc-corpus,1989,Is that running it with that 5 percent or 6 percent?,14
-fomc-corpus,1989,That's running it with 6 percent in 1990 and 5 percent in 1991.,20
-fomc-corpus,1989,Governor LaWare.,4
-fomc-corpus,1989,"The discussion that I wanted to have has already taken place, so I withdraw.",16
-fomc-corpus,1989,We might do better the second time around!,9
-fomc-corpus,1989,"Any further questions? If not, shall we start our round table? Who would like to begin?",20
-fomc-corpus,1989,"Mr. Chairman, with respect to the national picture, we concur with the Greenbook projection for weaker economic growth combined with stubborn and [unintelligible] inflationary pressures. Looking at our District, the Eleventh District economy seems to have weakened in recent months, both in relation to its rate of growth earlier this year and in relation to the declining rate of the national economy. Overall District growth is positive but [barely] perceptible. Within the Dallas District, New Mexico has been growing faster than the nation; Texas has been growing at about half the national rate; and Louisiana has been declining absolutely. What is interesting about the economic performance in the District is the almost complete reversal in the areas of strength and weakness in the economy at the present time versus, say, a year or two ago. Durable goods manufacturing is declining and that is the sector of our economy that led us into the modest recovery two years ago. Nondurable manufacturing has been holding up quite well. The chemicals and rubber products, plastics, and apparel all are showing employment gains between 2 and 3 percent. The energy sector has been a stabilizing influence on the District economy. The rig count and energy employment are both expected to contribute slightly to growth in the near future. Construction, which has been declining absolutely for the past several years, has stabilized and even has shown a little growth over the past several months. The strength in the construction figures has been dominated by the construction of new chemical plants, but there also has been some pickup in multifamily residential construction in a few markets where occupancy rates and rents are firm. Overall, District agriculture is not doing very well; we're anticipating that farmers' net cash receipts will be about 20 percent below last year's level. Growth in the services sector has slowed considerably outside of government jobs. In short, the Dallas District economy has shown spreading signs of weakness recently and business confidence outside of the Houston area has reverted to the very low levels of two or three years ago.",400
-fomc-corpus,1989,President Keehn.,4
-fomc-corpus,1989,"Mr. Chairman, conditions in the District seem to be mixed, but I think clearly [our economy] is moderating. Manufacturing, in particular the auto and auto-related parts of the manufacturing sector, is showing signs of weakness. But there are other parts, particularly construction for example, that seem to be doing at least a little better than the national numbers. There is little I can add to what we've already heard on the auto side, but given the importance of that industry to our District, I certainly feel constrained to say at least a word or two. Contacts with that industry [indicate that the situation] is really pretty grim. Sales levels have been down. As a consequence, the expectation is that by the end of the year the inventory levels are going to be at least at a 100 days' supply, or maybe more, which is awfully high. Consequently, as we said, the production schedules of the first quarter are going to be down very significantly--in the case of one manufacturer down by 23 percent as compared to the first quarter of last year. At this point they caution that the production risk is clearly on the down side, not on the up side. And the reason for that relates to this incentive business. I hear what everybody is saying about the opportunity for more incentive programs, but they already have been fairly heavy and have had a terribly important and very negative effect on earnings. I'm told, therefore, that there isn't quite as much room on the incentive side as people might believe and that the response to bigger incentives will be further cuts in production. At the dealer level the attitudes are pretty sour. Many of the dealers are claiming to be facing very serious financial problems and there is some risk that the automakers may lose some dealers. Having said that, I do think it's important to keep all of this in perspective: what we're talking about is a sales volume for 1989, including cars and light trucks, of 14.7 or 14.8 million, and that would be even with a very bad fourth quarter. That is down from previous years but still not a disaster. For 1990 the expectation is that the first quarter will be low, say, 14.1 million in sales, but that there will be a pickup in the second half. Therefore, for the year as a whole we could be looking at a sales level of, say, 14-1/2 million, which though down would be not an unreasonable year. The effect of all of this, though, is pretty pervasive in the District because there are so many people who relate to autos one way or another. Other parts of the manufacturing side are doing surprisingly well, I think. Agricultural equipment obviously is doing well, given the improvement in the farm sector. As for the [steel] business, 1989 shipments are expected to be about 83 million tons, which is less than in 1988 but not significantly so. And the outlook for 1990 suggests about 81 million tons--again down, but still not a disaster. On the retail side, I think it's too early to see how Christmas is going to work out. My understanding is that buying patterns have shifted and people are increasingly buying later in the Christmas season. But the retailers I talk to are reasonably optimistic as to how it's going to go. On the inflation front, I think the outlook has become somewhat better. We see a lot of capacity coming on in some of the major industries--autos speak for themselves--but in steel we've had some additions to capacity over the last couple of years and the same is true of paper and chemicals. And I'm hearing from people that there are a whole host of prices that seem to be moving down, not up. Therefore, from that perspective, the inflation outlook has improved. On the labor side, costs are up; most of it continues to be on the benefits side as opposed to basic wages and, therefore, the outlook doesn't seem negative. Net, it seems to me that the outlook for next year continues to be positive but certainly moderate. But I do think at this point that the risks are very much on the down side; at the same time, I believe the outlook for inflation perhaps has improved a bit.",858
-fomc-corpus,1989,President Parry.,4
-fomc-corpus,1989,"Mr. Chairman, the economy in the West remains healthy with only a few signs of slowing growth. Employment gains have been less than earlier in the year but the rate of expansion has not diminished further in recent months. Even manufacturing employment has risen in the past year, up 1.2 percent. That certainly is a slower growth but it remains strong when compared to the rest of the country where manufacturing obviously has been either flat or down. All nine states in the District had employment growth during the past year that exceeded or matched the average growth in the rest of the nation. Even Arizona, a state that has been plagued by a lot of weakness in the construction area, has had employment growth of 2.9 percent, largely in services and trade employment. Also, I had the opportunity very recently to have a discussion with one of the largest retailers in the District who has some stores in this local area as well. He indicated to me that at least through the end of last week the Christmas season was equal to last year, which was a very good year. I don't know how recent weather patterns have been affecting sales in the last couple of days, but he seems comfortable that they will be able to match what was a very good year last year. Concern about the effects of defense cuts in California are a bit overblown, we're beginning to conclude. California has the largest share of defense procurement expenditures but on a per capita basis it really only ranks 10th in the country, which suggests that there is more diversification than in nine other states with regard to defense expenditures. Also, we observe that there are growing backlogs of orders for commercial aircraft in the state of California--either as a result of McDonnell Douglas or secondary contractors to Boeing--and that is taking up most of the employment slack in the defense-related area. So in total the employment gains there are fairly respectable. With regard to Boeing, the Boeing settlement is quite complex and we've been trying to price it out. The best we can conclude is that it will increase labor costs on average about 8 percent per year over the next 3 years with two-thirds of that occurring in the first year. So it is a very complex and relatively expensive contract. But given the demand for their product I guess that's not all that surprising. Turning to the national economy, I must admit that we have a somewhat stronger economy projected for the nation in 1990, primarily due to greater strength in PCE. As a result of that, our inflation forecast is slightly higher. Thank you, Mr. Chairman.",515
-fomc-corpus,1989,President Forrestal.,4
-fomc-corpus,1989,"Thank you, Mr. Chairman. I would describe economic activity in the Sixth District on average as being moderate at this point. The sources of strength are coming from natural gas exploration and production and that's basically in the Mobile Bay area. We're also getting increased oil exploration and the rig count has gone up in Louisiana, as Bob Boykin has mentioned. The petro-chemical industry continues to do quite well and that's based basically on strong demand for exports in that industry together with domestic demand for agricultural products. Industrial construction continues to be good and the vacancy rates in that area are the lowest in the nation. It's a little hard to get a good fix on the retail sales situation. The people that I've talked to indicated that the post-Thanksgiving sales were relatively good. But the picture is mixed in terms of the latter part of the season. I would say that nobody is reporting or anticipating very robust or buoyant retail sales; but some of them are saying that sales will be fairly decent or not too bad. The most pessimism comes from Florida generally and from the city of Atlanta. The weaknesses in the economy are in areas that one would expect; they pretty well mirror the rest of the country. There is weakness in housing and housing-related sectors and we're also seeing spillover from the auto sector in both steel and aluminum. Paper industry people are now reporting less demand in that industry and also softer prices. Manufacturing is the same as in the rest of the country in that there is less demand for consumer durables. As I said yesterday, the people that I talk to in the District are really quite concerned about the fragility, as they perceive it, of the economy. They are less concerned about inflation. We also don't see very much pressure on wages or prices. On the national scene, our forecast too is a bit stronger than the Greenbook and that goes back again to consumer spending. We've had a different forecast and a stronger one generally. As we've been saying, Mike, we think consumer spending on services particularly will be stronger than your forecast, and with that stronger growth we see less unemployment and slightly higher inflation. On balance, I think the risks are on the down side. In the present environment, with layoffs and the general attitudes of people, I think confidence could erode and that would be detrimental to the economy. There's a lot of apprehension in our District too, Bob, about the anticipation [of less] defense spending: that's particularly strong in Florida and Alabama. I think it's overblown too, but there is that fear. On the inflation side, I think inflation is clearly still too high. Labor costs are still up. But having said that, given my view that the risk is on the down side, I think that we do have some flexibility in policy to gain ourselves a bit of insurance to protect against that downside risk.",572
-fomc-corpus,1989,President Guffey.,5
-fomc-corpus,1989,"Thank you, Mr. Chairman. The District economy continues to improve modestly but the pace of improvement seems to be slowing somewhat. The farm sector remains a source of strength and the energy industry continues to improve. But growth in the manufacturing sector has slowed somewhat. In the agricultural sector a pattern has emerged with respect to the winter wheat and the very dry soil conditions that prevail. Because the weather has been so cold the snow has been very dry, which hasn't provided much strength to winter wheat. [Unintelligible] virtually no winter wheat being at pasture simply because it didn't get [unintelligible]. So far as the recent slump in cattle prices, a short supply of [unintelligible] could boost direct levels of prices in the first quarter of 1990. In the meantime, most District farm [incomes] were strong in 1989 and the prospects remain bright for 1990. Stable oil prices and increases in drilling for natural gas continue to buoy the District's energy industry. For example, the average number of active drilling rigs in the nation increased from 984 to 1,042 in November and in the District from 312 to 326. Both the U.S. and the District rig counts were significantly above year-ago levels. Most of that is in the natural gas exploration area. Manufacturing, particularly in the auto plants, is a downside element as has been noted before. I would say that we have no evidence of layoffs in that area; however, the temporary shutdowns that are planned for the auto assembly plants are in [train]. For example, a GM plant in Kansas City that would normally have a one-week temporary shutdown will take that one week and then two additional weeks in January, which supports the idea that the January production schedule is being cut back and that autos will be a source of weakness in the first quarter. On the other hand, the manufacturers of general aviation aircraft expect in 1989 to exceed the 1988 production level. Construction is up in our District and continues to improve. The October value of nonresidential construction contracts in the District stood 26 percent above the value in October of 1988 and residential contracts were about 20 percent above the year-ago levels. I would note that unemployment levels in all major areas of the District are below the national average. With respect to Christmas retail sales, the information that we have gathered suggests that the retailers are looking for sales that are modestly above last year's levels, which were considered fairly good. As to the national economy, we would be very close to the Greenbook forecast. And we have the feeling that the risk is pretty well balanced yet with respect to the upside or downside movement of the economy.",549
-fomc-corpus,1989,President Black.,3
-fomc-corpus,1989,"Mr. Chairman, we came here with the idea of saying that we thought the general outline of the Board's forecast was pretty accurate. But we intended to express the feeling that if we had any doubts, the doubts were whether the economy would be quite as strong as the projection. And I think Mike essentially has done that in his revised statement. We've been influenced not only by the incoming statistics but by the anecdotal information that we picked up, particularly at our last Board meeting. It's always hard to interpret what business people are saying about things because they don't seem to have any concept of seasonally adjusted rates or anything of that sort; they are always looking at the previous year. They can say it's the worst ever and it really might be a seasonally adjusted improvement. Anyway, they said the things one would have expected them to say. They were universally pessimistic; and there hasn't been a meeting since the last recession when our directors have been as uniformly pessimistic as they were at this one. Other anecdotal information has been pretty much along those same lines. We're a bit more optimistic than the staff is, though, toward the end of 1990 and the first part of 1991; [we're expecting] GNP to pick up primarily because of export improvement. And I think it's quite possible, and probably likely, that domestic demand will be stronger than the staff is suggesting in its forecast. I think too that lower interest rates may well be compatible with our efforts to control inflation, and the staff is projecting essentially flat interest rates. Finally, I'm a bit more optimistic on prices than they are. It's a great comfort to me that the P* model, which I think is a very great piece of work, is projecting [unintelligible] for next year. But just looking at the way I see the market working, profits are being squeezed and they're being squeezed because businessmen can't pass on price increases. There's a lot more resistance to price increases now than at any time in my lifetime that I can remember. And I think that's why they can't pass these things on. I [refuse] to pay list on anything. Somebody accused me the other day of shopping three places before I'd buy an ice cream cone. I haven't gotten quite that bad! But I do think the American consumer is in that kind of--",469
-fomc-corpus,1989,Do you buy the ice cream at a different place than you buy the cone?,16
-fomc-corpus,1989,"In essence what we do is buy in quantity and put it in the freezer and make our own ice cream cones at home! Anyway, I do think that is a bigger factor now than it has been. And I think some of these price indexes recently have been reflecting more inflation than perhaps we have had; for example, the last one shows automobile prices and apparel prices as being the two main offenders. The indexes are supposed to measure the price at which the items are generally available and I don't think they pick up the extent to which discounts occur. Automobiles, for example, you can buy at below dealer cost; there's no question about that in many cases. I think the System's practice of bidding for automobiles when we buy, which I think we have to do, really results in our paying higher prices than if we could go around and dicker with the dealers. I believe I can buy an automobile more cheaply than the Reserve Bank bank can buy one. I think the surveys are not picking up a lot of that discounting because the discounted prices don't appear to be generally available. So, I feel a little better about the price situation. I think [the outlook] looks very much like a soft landing with a slow pickup after that. That's probably too good to be true but that's my best guess.",262
-fomc-corpus,1989,President Boehne.,5
-fomc-corpus,1989,"My area of the country is essentially flat with a lot of variation across industries and geographical areas. If you want to get depressed, I can take you to places in New Jersey to talk to builders, real estate people, and automobile dealers; it's fairly depressing. If you want to feel good I can take you to places in Pennsylvania where the general business climate seems to be quite good. There are a few straws in the wind that perhaps things in manufacturing are flattening out. We too have been going through a period in recent months where manufacturing clearly has been trending down. One picks up some evidence that orders may be picking up, although the backlogs still seem to be going down fairly quickly. I wouldn't read too much into that, but I think it is a straw in the wind. On the national economy, I think the Greenbook forecast is a reasonable one. I think there is still some downside risk; the downside risk is greater than the upside risk. The inflation outlook for 1990 [in the Greenbook] strikes me as being about right.",214
-fomc-corpus,1989,President Syron.,4
-fomc-corpus,1989,"In the First District, the latest indicators show our economy as slow to mixed, which is an improvement. Expectations are almost universally gloomy but I think that's not just because of the national economy. It's an interaction of the budget problem in Massachusetts--which is sort of a fiscal Beirut--the softer [real estate market], the problems we have in the high-tech industry, and expectations of potential problems in defense. There's a lot of concern about that, obviously, as a result of recent developments; and that greatly increases concern about the banks and what that means potentially. This really has been carried widely in the newspapers and is having an effect. I don't know how good the sample is but if you look at the Conference Board consumer confidence survey by region over the last year, the expectations in New England are 29 percent below where they were last year. Despite that, employment in the last month actually grew slightly in New England and the rate of [un]employment was flat. This is a significant improvement from the downturn we've been seeing for some period of time. Retailers are quite bearish and very concerned about sales. And the anecdotal information isn't encouraging in that regard. Some of that is attributable to the very cold weather we, as many people, have had, which is keeping people out of the stores. On the other hand, the cold weather obviously is going to stimulate measured sales of natural gas, utilities, and other things. Almost all of our manufacturing contacts report sales as flat, [unintelligible] down. For example, a heavy manufacturing who is headquartered in New England but who actually has a lot of his facilities in Lee's District and Roger's District is very, very pessimistic. He produces a lot of stamping equipment for the auto industry and that sort of thing. Interestingly, he has found his sales now to be getting into foreign nameplate domestic producers; he has cracked that market somewhat. Someone raised the point of a structural shift in the auto industry and I wonder if that isn't something that is happening. If you look at the sales of foreign nameplate cars produced domestically, they are holding up a fair bit better than sales of the Big Three. Both input prices and prices for products remain fairly well behaved. Although most firms improved--I guess this is universal--from past behavior, they hope to improve their margins [further] next year. At this point most manufacturers we've contacted have not changed their plans for capital spending; their plans were not terribly ambitious in the first place, but they have not changed them a great deal. As I mentioned, the real estate market remains quite soft, particularly in the residential area. Nationally, we're inclined to pretty much agree with the Greenbook forecast. If we have any area [of doubt] it might be that we don't know that we will get quite the reduction in the out years in spending on consumer services that the Greenbook has. In terms of my own perspective, as far as the national economy goes, I have come around to the view that things may be somewhat softer than I had thought originally. And I think this is borne out by the latest figures we've seen. There are two factors I'd like to mention to expand on that. One is that in going through the consumer confidence survey by region that I mentioned--and as I said I don't know how good the sample is--the two regions where consumer confidence actually looks pretty good with regard to expectations next year are the west Northcentral and the east Northcentral. The west Northcentral looks pretty good but in the east Northcentral I think it depends an awful lot on what does happen to manufacturing there. I also wonder, given the problems the banks have in real estate and elsewhere, whether more firms are going to have difficulty getting credit as they reach the point in the cycle when they turn to banks to get credit. I know this is happening; we're hearing a lot of complaints about this in our Consumer Advisory Council. I wonder whether banks are going to be more inclined to pull their horns in, which could lead to accumulating [unintelligible]. All this leads me to believe the risks are more on the down side than I had thought before. A difficult question for monetary policy, it seems to me, is exactly what the effect of rates is going to be on much of this: on the [unintelligible], I'm not quite sure; also on housing, given the demographics. [Unintelligible] may well be through the export sector, but they obviously will have an adverse effect on prices, which comes back to the issue of where we go next and how we relate that to yesterday's discussion.",934
-fomc-corpus,1989,President Stern.,3
-fomc-corpus,1989,"With regard first to the District economy, I think the economy is actually better than the mood. What is weighing on the mood are a couple of things that we talked about yesterday. One is that profit margins are getting squeezed and that clearly is affecting business peoples' view of the situation. The other is the struggling manufacturing sector in our area, particularly high-tech. But if you go beyond that, major retailers seem at least satisfied and maybe more with holiday sales thus far. There are scattered reports of smaller specialty operations not doing very well, but the major stores seem happy. The reports on virtually all the metropolitan areas in the District are generally positive in terms of business conditions. And because of some recovery in agriculture and other factors that I've mentioned before--including tourism, strength in the paper products and lumber industry, and expansion in mining--most of the rural areas are doing pretty well. One exception, which is sizable geographically but not so sizable in terms of population, is North Dakota where there are a series of problems; otherwise, the District economy continues in my view to be in pretty good shape. With regard to the national economic situation, I don't think there's any doubt that we're in for two or three slow quarters. I just don't see a way around that. But beyond that, my guess is that the Greenbook forecast is perhaps a bit on the cautious or conservative side. Looking at income and consumer balance sheets, I think consumer spending on nondurables and services will do better as next year progresses and as 1991 unfolds than the Greenbook suggests at the moment. On the inflation situation I've been more optimistic for some time that we would start to see some disinflation or deceleration in the rate of price increases. I must admit, given the statistics over the last quarter or so in consumer prices and in compensation and so forth, that I'm beginning to wonder whether that has been an accurate assessment. I just don't have the sense, looking at that data, that such optimism is quite as justified as it might have been. I do pick up comments occasionally in the District: When you ask business people about inflation, they say it's not a problem; but if you get them to elaborate, what they mean by ""not a problem"" is that it's continuing at 4 or 5 percent.",461
-fomc-corpus,1989,Governor Seger.,4
-fomc-corpus,1989,"I have just a couple of comments. First of all, I agree with the Greenbook statement that signs of substantial slackening in the pace of economic expansion have accumulated in recent weeks. I think we're going to get more. I'm particularly concerned about autos; the inventory situation is excessively heavy. I think the days' supply is the highest level for the end of November in more than 10 years, which is quite a significant point I believe. Given that we're going into the next quarter with this tremendous inventory and given the fact that the effectiveness of incentives probably is wearing off, I think we will get much more of the adjustment on the production side than on the side of higher sales. We had the head of and what he and I discussed quite a bit was the impact of the liberalizing of debt terms on car sales some time ago. That is coming back and biting the dealers because individuals who took advantage of those attractive terms earlier now find that they have no equity in the car. They would like to get rid of the clunker--it's 3-1/2 years old--but they can't turn it in because they don't have the [equity] or the downpayment. This apparently is a growing problem. Also, he was talking about the financial health of the dealers. That is one place where interest rates do enter in because the dealers have to pay the floor plan financing on all these cars; that isn't a gratuity from the auto manufacturers. And that's a big part of their cost besides having to rent fields to park the cars in. So I really believe that over the next couple of quarters we're going to see quite a bit of additional bad news from the auto industry; and I don't think it's going to impact just the Seventh District. In fact, some of the announcements of plant closings have involved plants in places like Kansas and Georgia.",373
-fomc-corpus,1989,And Delaware.,3
-fomc-corpus,1989,And Delaware. I figured I'd get at least a couple of the Districts!,16
-fomc-corpus,1989,And Massachusetts.,3
-fomc-corpus,1989,"I don't want to emphasize this too much. In the area of housing, again, I'm very concerned. As real estate markets have weakened around the country, my realtor friends tell me it's more difficult to move existing homes. And for most people who are buying new homes, the purchase of the new home is contingent upon selling an existing home. Therefore, that is a very major factor in the weakness of new home sales. Again, the signals I get suggest that the real estate markets aren't about to improve dramatically soon, even in the Northeast. Also, I pick up more and more comments about the fragility of the financial system, particularly from business people--people who are not in a commercial bank or an S&L, but who just seem generally nervous about what's going on. And as Dick Syron said, there are more and more suggestions that this ultimately is going to impact the availability of credit, particularly for people who don't have a blue chip credit rating. I was at a real estate conference out in balmy California a couple of weeks ago and there was substantial discussion there of the problems coming from the FIRREA legislation and what it's doing in the way of imposing lending limits on S&Ls. The banks for some time have had limits on the size of loans that can be made to one borrower. But with FIRREA extending that to S&Ls, it has become a big problem for contractors to get financing--at least the same way they used to get it. So, there are a lot of things going on out there that in my judgment indicate that the risks--for sure for the next two quarters--are on the low side, the down side. I hope I'm wrong, but those are my concerns. Thank you.",349
-fomc-corpus,1989,President Hoskins.,4
-fomc-corpus,1989,"For the first three quarters of the year the District really did quite well, as I have reported to you all along. Since that time it has slowed but it's not shrinking at all with the exception, of course, of auto-related activities and some construction-related activities. There hasn't been a major downturn in any of the industries to the extent that it has caused people to say: ""We have a major problem on our hands."" Services continue to grow in our District. By cities, Cincinnati has relatively strong growth; Columbus is probably next in line; Cleveland is close to being flat; and Pittsburg is flat. Now, just so that you don't think I have reported this District as being extra strong in order to influence [others toward] my policy position, I had a witness at our last board meeting to hear all the branch directors speak. That witness was the Chairman. I think one might categorize their statements as rather sanguine about the outlook. So, the District may be somewhat peculiar in the sense that to the business community things may seem to be softening a little but not sufficiently to generate major concerns for them. In terms of the national outlook, I think Mike's guess is as good as anyone else's with respect to the course of the economy and I don't really have any major disagreements with it. My only concern is that we may focus overly on a particular quarterly change. I think that the economy needs room to make those kinds of changes before we do something with respect to policy. I expect variations quarter-by-quarter.",305
-fomc-corpus,1989,Vice Chairman.,3
-fomc-corpus,1989,"My sense of the situation continues to be pretty much in line with Mike's forecast. Looking forward that's probably as respectable a judgment as one can have. It is interesting, though, to think a bit about the situation in the context of a question that Governor Johnson raised earlier, and that is: If you go back to the beginning of the year, the growth of the economy for the year 1989 as a whole will in fact have been very, very close to what we were thinking back in February. I think it's true that the differences in interest rates and exchange rates relative to the outlook then pretty much do cancel each other out. But the question is: If that is true retrospectively, what about prospectively? And I think the signs of greater weakness in the economy right here and now are of more concern than what happened in 1989 as a whole. In looking at the sources of weaknesses in the economy now, we have to try to disentangle the reasons they are there. When you're talking about a difference in growth between 2-1/2 percent and 1-1/2 percent, at least at the margin 1 percent means a lot. But at the margin some of these things have to be kept in context. For example, in both residential and nonresidential construction, we are now paying the price for a lot of overbuilding that took place in the past; and indeed a lot of it was at interest rates a heck of a lot higher than the interest rates we're looking at today or prospectively. There are serious credit problems in this area, both with developers and suppliers. I have a down-home example: the contractor that we've used at the Bank for years. We were about to let a contract when his insurance company wouldn't post bond for him for credit reasons. And this is a company we've done business with for 50 years!",378
-fomc-corpus,1989,Maybe you didn't pay them on time!,8
-fomc-corpus,1989,"We paid them on time. These problems are quite real. What people are saying about a profit squeeze in the corporate sector is true and it has implications for fixed investment. Why is that? Well, there are a lot of reasons but one is that inflation in wage and compensation costs is still pretty strong; and a second reason is this interest cost. If you look at the corporate sector as a whole and break it down into 3 or 4 digit SIC industry groups, the interest cost running out of all this leveraging clearly is contributing to that problem. Again, in the [auto] sector a lot of things have worked. But I think it's hard to dismiss totally this kind of saturation or structural argument even in a context, as Si Keehn says, in which sales of cars and trucks this year still are going to be over 14-1/2 million units. Now, those are very, very big numbers. Having said that, I do think that in the very short run, which I'll define as the next couple of quarters, the risks are asymmetric on the down side. But on the other hand, if we manage to wiggle through the next couple of quarters, I think the danger is that the risks could then shift in the opposite direction at least to neutral and maybe even to the up side. And that's why I think this period is so tough.",276
-fomc-corpus,1989,Governor LaWare.,4
-fomc-corpus,1989,"I continue to be dismayed by the less than sanguine prospects for any progress against inflation in spite of the very low level of economic expansion that we're looking at in the forecast. And I'm increasingly of the feeling that we are on pretty thin ice--that the ice is thin between us and the cold water of some sort of a recession. I don't think it's a recession that is necessarily going to be triggered or aborted by financial external factors. I'm increasingly concerned that we may get a contraction in the economy here that is driven solely by a collapse of confidence. There are some signs out there that are very worrisome: this whole real estate fungus that is spreading across the country, which is a [unintelligible] of price resistance; the slowness of the markets; and increasing pressures on prices. It's not going to be helped at all by the cranking up of the activities of the RTC. And I think that's now being reflected in the serious concern that the markets are showing for the whole banking sector. It's not just New England banks as a result of the Bank of New England problem; they all took a terrible beating yesterday. It is indicative of this fragility that several have commented on around the table. And when you look at how a slowdown would affect the debt burden that we have in the economy in terms of the flow of revenues and the direct effect on cash flow and the coverage of debt service, it seems to me that you see a snowball beginning to roll downhill that I don't like the looks of. I'm not sure that further ease can do anything to correct this situation, if in fact this confidence factor is as serious as I think it is. But I'm certainly convinced that the risks are on the down side in the environment that we're looking at now. And I'm worried.",363
-fomc-corpus,1989,President Melzer.,4
-fomc-corpus,1989,"In our District we went through a sluggish period in terms of employment, which I reported, in the second quarter. The third quarter picked up; it was still slow relative to what was happening nationally, but we had employment growth. Interestingly enough, October was particularly strong: 4.3 percent growth in a month, with most of the strength in manufacturing construction and miscellaneous services. I don't think one can read too much into one month but our economy still seems to be [unintelligible]. It's not [unintelligible]. In Missouri, we have the second largest auto concentration behind Michigan. Interestingly enough, autos represent only 1.9 percent of our output in the District versus 1.2 percent nationally. I realize that the business extends more broadly than that, but that is in terms of autos directly. Chrysler has announced a shutdown of its number one plant in Fenton, which produces Daytonas and LaBarons, for a five-week or one-month period rather than the normal one-week shutdown. That's not news; what is interesting to me, anyway, is that people who are idled in this fashion will earn at the lowest levels 65 to 70 percent of their normal wage and the higher seniority people will earn up to 95 percent. So in terms of the impact on income currently, it tends to be minimal. I've also talked from time-to-time about the consumer durables business. We have a fairly heavy concentration of that. And the pattern there was that through midyear billings were up about 5 percent and then in July they fell off quite [sharply]; they were down about 17 percent compared to the prior year. But then for the months of August, September, October and now most recently November, they have been down about 5 percent in each of the months compared to the prior year. So there hasn't been a cumulative deterioration there. One of those manufacturers that I'm aware of is laying people off over the holidays for a longer-than-normal idling period--three to four weeks instead of one. On the retail side, in St. Louis I think the retailers are quite optimistic about the Christmas season. They were running higher inventories intentionally going into the season and they feel pretty good about the prospects. They don't expect it to be a great year in terms of profits but in terms of buying it should be. On the national front, I just want to make one comment. I don't think the general outlines of our forecast would be much different from what Mike and his people have developed. I'm certainly struck by the comments I hear around the table in terms of incipient weakness. The only thing I would say is that, in a sense, we anticipated that around this table six or eight months ago. Policy was eased beginning in May; it was eased quite a bit. And in my judgment, whether or not we sweep through this period--or however you put it, Jerry--is going to depend an awful lot on that bet we placed then and not on bets we make right now. I just think we have to keep that in mind. We all see the weakness; but don't forget that it was anticipated and steps were taken; and we do have that other goal that we discussed yesterday that gets jeopardized to the extent that we try to overcompensate.",670
-fomc-corpus,1989,Governor Angell.,4
-fomc-corpus,1989,"Well, Tom, it's interesting that you mentioned that. I would make one 30-day correction though; I think several of us wanted to ease in May, but I believe we didn't ease until June. Isn't that correct? Certainly, I was foremost among those wanting to ease at that time because I was looking at what I think are the factors that we have to keep our eyes on: that is, the factors that look ahead, not those that look behind. One of those that looks ahead, of course, is money growth; and at that time we had money growth that was pretty well in the tank after it had been through a rather restrained period. But I do agree with Tom that we have made a correction and that the time for worrying about the fourth quarter and the first quarter was in May and June and July and August. What we're working on now, of course, is the economy in the third quarter of 1990. I must admit that I don't see anything to quibble with in the staff's forecast for the real economy for 1990. I wouldn't know which way to try to [unintelligible] in terms of which way there are errors. Any time we are talking about an outlook for growth as low as the 1.2 percent projected for the first quarter--we all know that any one quarter can go in a surprising direction. But it's important for us to look ahead. As I look ahead, I would note that money growth seems to be falling along an 8 percent path for M2, which is rather significant compared to what we've seen previously. Besides that, it is reflected in auction markets and the auction markets show that we now have more liquidity out there than we had before. It's quite clear in the commodities. Commodities in May clearly were showing that we were in a period of suffering from quite a bit of monetary restraint. And for commodity prices on a year-over-year basis the rate of change was starting downward. But now we are in a period of very, very mixed--and I can say somewhat confusing--commodity price signals. In the industrial sector, clearly in aluminum and steel and copper, we have a significant change from what we have seen previously. But these industrial commodity prices are coming off historically high levels. And it doesn't seem to me that they have weakened so far as to take profit margins into the red for most of those basic metals. Of course, producers don't like it when that has happened. In the food and fiber areas we've had significant runups and with those runups producers of food and fibers continue to have profit margins that are rather ample. That shows up in the price of land that we get in the Tenth and the Eleventh and the Seventh District surveys. So that sort of offsets some of the others. The price of gold, of course, is somewhat erratic; it's somewhat like the exchange rates and tends to be given to overshooting and undershooting. Nevertheless, that is a rather significant indicator regarding the way people feel about dollars in the future; those who wish to make other kinds of bets would indicate, I think, that our exchange rate messing around in the last three months has contributed to some unease there and I think it's showing. And I think that has even [unintelligible] that active if it nevertheless has been quite accurate in terms of showing some change in sentiment. The foreign exchange market in the last three months certainly has shown that our money growth path changes are reflecting that. No longer do the foreign exchange auction markets show that dollars are somewhat overscarce in the minds of holders of international capital flows. Now, when I think about the dangers of what might happen--and it's always our job to try to guess and to worry about what might be happening--if the fourth and the first quarters or one of them turn out to be negative, there isn't anything we can do about it. That's already locked in. But if I'm going to worry about what might happen that could really put our economy in a tailspin, I would worry about the occurrence of circumstances in which the foreign exchange value of the dollar could erode rather seriously. I think Jerry was referring to that problem; he referred to it as from time-to-time. Sometimes I worry about it, sometimes I don't. When we have slow money growth compared to the Bundesbank and Japan and other countries then I'm not quite so worried. In circumstances when our monetary growth is no longer slower than the Bundesbank, then it seems to me there's a great deal of vulnerability. If we were to get some significant moves in foreign exchange rates that adversely affected bond prices--unlike so far, when foreign exchange weakness has not spilled over, except sporadically, in the bond market--and we were to have higher rates by lowering rates, it is in the higher rates where it counts. So, I think the vulnerabilities that we have are pretty well locked in. But it seems to me that there's nothing out there that says the third quarter is going to be all that weak. I must admit, Governor Seger, that I think some of the problems that you look at in automobiles may very well slip into the second quarter after a low first quarter. But other than that, I don't see things in the second and third quarters that are showing a need for a great deal of attention. And I do think back to 1980. Of all total benefit/cost analysis of all the policies that [unintelligible] wasted, nothing is so wasted as this short-term [unintelligible]. Two quarters of slow growth followed by a resumption [of rapid growth] are totally wasted as far as price level effects [are concerned]. So we want to be sure not to get too locked up in guiding monetary policy by what's happening in the economy.",1173
-fomc-corpus,1989,Governor Kelley.,3
-fomc-corpus,1989,"Mr. Chairman, I guess I've learned to think like an economist in one respect: by thinking on the one hand and then on the other hand. On the one hand, it's very clear that we have a weakening economy and it's very clear that a recession is highly undesirable for a whole host of reasons--the fragility that has been mentioned and many other things. That would argue, I think, for an accommodation to buy ourselves a little insurance for next spring, summer and fall. On the other hand, I do have great concern that we should to the best of our ability ensure that we keep the inflation trend moving in the correct direction. And I think that argues for being a little cautious. Also, in the area of reducing fluctuations around the trend line, that argues for being a little cautious particularly since the aggregates--M2 particularly--show a fairly high level of strength. I definitely share your concern, Governor Angell, about the possible bind we could find ourselves in if the dollar should suddenly go south in a serious way. So, on the one hand and on the other hand, Mr. Chairman, I come out [balanced], which leads me to think that perhaps we ought to keep our cards pretty close to the chest for a while.",252
-fomc-corpus,1989,"Just about everything has been said. I agree with a lot of it. And some of the recent comments were along the lines of what I was thinking. The economy is currently weak; I don't think there's any doubt about that. And I agree with Tom that it's not totally unanticipated. Some of what we're seeing now is what we knew would be coming down the pike from our tightening actions months ago. So it certainly is not a time for us to panic over what we see now; it shouldn't be a surprise to anyone and there's nothing we can do about it now for these couple of quarters. There is nothing in current policy that is going to alter what we're going to see develop in the next few months. However, financial markets are much more forward looking and much more sensitive to current policy and can certainly turn on a dime on the basis of what they think our current policy means for the future. On that front, I'm somewhat with Governor Angell--my views are not quite as strong as his--in that the current financial market data don't seem to be showing any certain pattern of [striking] concern about the degree of tightness in current policy down the road. The bond market is relatively stable; commodity prices are gradually weakening, I think, although oil keeps bumping those prices around from time-to-time. But I think the trend is clearly down, though not dramatically, in overall commodity prices. It is true that the dollar is weaker on a trade-weighted basis, but I personally tend to dismiss most of that as a result of what's going on in Germany and the fact that they have tightened their policy quite dramatically. The dollar is not really weak against the yen and it's not really weak against the Canadian dollar or pound sterling. But it is weak against the EMS countries and Germany because they have run real interest rates up quite substantially and [unintelligible] also over the east European problem. But I do agree with some of John LaWare's comments. I sense a sort of snowballing effect in the real estate market that's bothering me. I don't know how negative an effect that's going to have on expectations as home equity values come under pressure and housing prices or other real estate prices decline. But it is on the order of [unintelligible] systemic, I think. I wouldn't go so far as to bet the ranch on that now, but it worries me. And I certainly worry about having a deteriorating situation down the road with a worsening economy and finding ourselves in a mild recession. I'd be willing to face the threat of that if I didn't think inflation was improving some and if we had some flexibility. But I would disagree with those who don't think that there's any improvement on the inflation front or that we haven't made some progress. Certainly the actual inflation data that I've seen over the last six months show an improvement. It's not just food and energy [prices]; the central tendency of this Committee back in July when we made our estimates [for the Humphrey-Hawkins report] was 5 to 5-1/2 percent on the CPI. Now, with one month left, it looks like it's going to come in around 4-1/2 percent or something like that. It's running 4.7 percent right now. Some of that is an improvement in food and energy prices; but ex-food and energy, there has been progress over the last six months as well--both in producer prices and consumer prices relative to expectations. So actually, I think we do have some flexibility here. I don't think that the market is expecting a whole lot out of the Fed in terms of a further easing. I think we have gained some credibility and the last thing I want to do is to lose that. But the market is expecting some modest easing of policy in a way that fits into our scrooge-like approach to monetary policy in terms of protecting the inflation environment. We're worrying about where the economy is going to be six months down the road and we don't think there's an element of danger of a pickup in inflation or, in fact, inflation has continued to improve. So we're in a position to have some choices; I don't think we're faced with no choices.",847
-fomc-corpus,1989,"I just checked the fragilities. The [unintelligible] is down 22 so it's [unintelligible]. We don't have very much time for coffee, but let's take a very short break and--",44
-fomc-corpus,1989,Have some very cold coffee.,6
-fomc-corpus,1989,[Statement--see Appendix.],6
-fomc-corpus,1989,Questions for Don?,4
-fomc-corpus,1989,Relative to your projections in September what are the aggregates running? What were you forecasting in September for money growth for this three-month period?,27
-fomc-corpus,1989,I don't know. I can tell you what we were forecasting last time and it's running about 1/2 to 3/4 of a point above that.,33
-fomc-corpus,1989,Do you have any feeling as to why it's running above?,12
-fomc-corpus,1989,"Well, I think we've had a more vigorous response to the drop in [rates]. I'm sure it's running above what we had forecast in September because we have lower interest rates now than we were forecasting in September.",42
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,"But we don't have lower rates than we were forecasting at the last meeting since we just had that easing. I just think that we didn't factor in quite enough response to that ease--quite enough of a drop in velocity, really, in the current or the next quarter. We got a faster response and a bit stronger response.",65
-fomc-corpus,1989,Governor Johnson.,3
-fomc-corpus,1989,Would you repeat that?,5
-fomc-corpus,1989,I think we're having a somewhat stronger response to the drop in interest rates in October and November than we had [anticipated].,24
-fomc-corpus,1989,"Okay. Just looking at the charts that you handed out on real interest rates--it depends on which survey one looks at, but--in the short-term end they really show very modest declines in real interest rates since the peak of our tightening period. And in some of them there is even a recent uptick in real interest rates because of the improvement in inflationary expectations in the short run. If that's the case, one of the worries is that even though the funds rate is lower in [nominal] terms we really haven't eased policy recently. We are down from the peaks, I think, but not by very much.",126
-fomc-corpus,1989,"Well, that's the way I would read it, Governor Johnson--that is, I think we are off the peaks. And that is sort of confirmed in the long-term real interest rate. I think real rates have come down a little but not a whole lot. I would ignore those little dips there in what looks like the spring of 1989 because I think that was a surge in inflation expectations associated with food and energy rather than some underlying factor. I think the Committee has eased policy since February; real rates have come down but [not] as much as nominal rates. The more difficult question is: Where are they relative to some equilibrium level? I never thought that rates were that high relative to the equilibrium level, so my guess would be that we've come down a bit but probably not that far from where we ought to be. Looking at the long-term rates, including the measurement we did for the Committee a year or so ago on the corporate bond rate and how that lines up with our estimated equilibrium real rate, we're very close--about 20 basis points below.",216
-fomc-corpus,1989,"Okay, thank you.",5
-fomc-corpus,1989,Any other questions for Don?,6
-fomc-corpus,1989,"Just one more. It's my usual fragility question, Don. Aren't all the rates you've shown in all the alternatives, carried out, consistent with perhaps some acceleration in inflation over time rather than--?",41
-fomc-corpus,1989,"Well, no. Do you mean money growth rates?",11
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,"No, I wouldn't say that. Yes, if you carried the 8 percent rate out--I'm not sure I understand the question.",27
-fomc-corpus,1989,"No, you understand the question. The question is if we were to continue at these current rates--",20
-fomc-corpus,1989,I agree. If you were to carry 8 percent money growth through '90 and into '91--,21
-fomc-corpus,1989,Into '90 we'll have a problem.,8
-fomc-corpus,1989,"Yes, I agree.",5
-fomc-corpus,1989,But without raising interest rates you expect [growth] to slow to 6 percent?,17
-fomc-corpus,1989,"That's correct. At current levels of interest rates, I expect growth on the order of 6 percent for the year as the effects of the previous [rate] declines wear off.",36
-fomc-corpus,1989,At this stage how much does every 50 basis points do to the [expectation of] 6 percent in 1990?,27
-fomc-corpus,1989,It gets you about 1/2 point. For Q4 over Q4 we're at a stage where 50 basis points will get you about 1/2 point; 50 basis points now would get you--,44
-fomc-corpus,1989,So a decline of 50 basis points would take it up to 6-1/2 percent?,21
-fomc-corpus,1989,Approximately 6-1/2 percent.,9
-fomc-corpus,1989,"Any other questions? If not, let me start off. The meeting yesterday very clearly indicated that if we're going to get down to a low enough inflation rate to satisfy this Committee at some point in the next two or three years we are going to have to engage in some tightening. By that I mean we are going to have to bring the growth rate of M2 down, focused at--I don't know where the number is. The question also in the context of the political discussion we had is: When is that feasible? Well, if you focus from here on, it strikes me that the best path of getting that [M2 growth] rate down is some time--in fact, it already would have been embodied in the Greenbook at the stage in 1991 where we really begin to put some tightening on. A necessary condition, politically, for people arguing to do that is that we skim through this particular period without going into the ditch. Because if we could come through this period even with a mild recession, or preferably none whatever, I think the credibility of the institution would be such by the fall of 1990 that we could probably write our own policy ticket in that respect. As a consequence, though, I would very much focus on what our short-term actions are and whether in fact we will be able to work our way through this period without cracking up somewhere along the line. The evidence as of now is that in the manufacturing area orders continue to drift lower; unfilled orders are declining; there are actually very few production cutbacks with the exception of autos and direct auto-related areas and some elements in the capital goods markets. But there is no cumulative activity going on around these. The structure of the economy has not been cracked. It is undergoing increasing downward pressure as profit margins weaken. And autos have become a fairly [unintelligible] force. The failure of new residential construction to move with the decline in mortgage rates suggests to me that housing is essentially flat out there. Also pressing, but not unduly pressing, are the issues that Mike Prell called the sort of non-GNP inventory levels: the stock of autos, the stock of housing, and the stock of commercial buildings, all of which are one step back in feeding into the GNP. If it were true that short-term interest rates or interest rates generally at this particular stage have very little effect on the next three to six months I would say there's very little we can do about it. The truth of the matter is that I don't believe that for a minute. I do think that there is a significant longer-term impact from interest rates; but I don't see that monetary policy has no effect in the short run. The reason I say that is--well, there really are two questions. One is: How secure are we as far as activity is concerned in, say, the [spring and] forward? And I would say that we do have a forward indicator and that's largely unfilled orders. To the extent that unfilled orders continue to decline, that suggests to me that we do need something of a prop--more than we are going to be getting under existing monetary policy for say May, June, July, September. But I also believe that there is a distributed lag effect in monetary policy in which you do get, largely through the financial system, short-term effects. There is a very clear relationship between interest rates, Fed policy, the stock market, and real estate values. And to the extent that one shares some of Governor LaWare's concerns about confidence, there is a confidence element in here in which the lead times are not six months; they are often weeks to a month or two. In that time one can see new orders falling very quickly under financial stress; and the feedback is very dramatic. I remember sitting through 1974. Now, if somebody's going to tell me there was a long lead time between the period there in the fall and the period of February 1975, I will tell you that it went by so fast that you couldn't see it. I think it's a mistake to presume that monetary policy has no short-term effect. I don't deny that most of the effect works its way out in various different forms of distributed lags. But in this type of environment I'm not sure that is correct. In any event, where I come out is that at a minimum I think we should be significantly asymmetrical toward ease. I would much prefer, however, to go to $125 million on borrowings, which is somewhere between ""A"" and ""B,"" and the equivalent of about 25 basis points at this meeting. Vice Chairman, do you want to pick up?",945
-fomc-corpus,1989,Yes. Let me--,5
-fomc-corpus,1989,I'd like to say one more thing. After that I would stay symmetrical if there is an agreement on that.,22
-fomc-corpus,1989,"Let me just say a quick word on this financial fragility issue. I say with some confidence that I'm probably as sensitive to that as anybody in the room, but I think we've got to keep that in some perspective. First, where does it come from? I think there are two basic sources: one is the macroeconomic imbalances that we've been living with for a long time that fundamentally reflect the policy mix problem; and the second source of it is what we have to regard as excesses, or maybe even outright speculation, in large segments of the financial markets and in important segments in the real economy, including the nonfinancial corporate sector and the real estate sector. Obviously, we have to be sensitive to that fragility even though we may not like its causes. But I think we've got to be extremely careful not to sanction it because of its causes. So sensitive, yes; but sanction, no. In terms of policy, I see three options and they're not ""A,"" ""B,"" and ""C"" in Bluebook terms. Basically they are: first, to keep an asymmetric--perhaps a strongly asymmetric--directive and do nothing right now; second, to do something like what the Chairman just said, which essentially would mean moving 1/4 point on the funds rate or $125 million on borrowing while keeping an asymmetric directive; and third, to do the quarter point on the funds rate and the corresponding borrowing adjustment now but go back to a symmetric directive.",296
-fomc-corpus,1989,"Jerry, I was going [toward the third]--",12
-fomc-corpus,1989,"Okay. Well, I myself would come out in my own camp three. In other words, I'd take the borrowings down a notch right now, take the funds rate down a notch right now, and have a symmetric directive going forward. The fundamental reason why I would do that I would translate in terms of what I earlier called the wiggle factor--trying to kind of wiggle through this period. But in doing that, I would not in any way want to associate myself with some other statements that have been made that might suggest coming out the same place but for different reasons. I am not terribly uncomfortable with where we are and I do think that looking further out the risks could change. So, I'd say get this move behind us; do it right here today at the Committee meeting and accompany it with a symmetric directive going forward. Thank you.",171
-fomc-corpus,1989,President Boehne.,5
-fomc-corpus,1989,"I think it is a close call today. There are the downside risks and the financial fragility risks that argue for some additional insurance. However, I come down on the side of continuing the existing directive with no change now and asymmetrical in a downward direction. I come out that way essentially because we have what we set out to achieve--a slower economy--and we ought to try now to realize some of the anti-inflationary benefits that come from that and set the stage for further anti-inflationary benefits down the road. I think the wisest statement that's been made this morning is the one by Governor Angell when he said that it's a very wasteful experience to have a couple of slow quarters and then accelerate out of it. And I think we're in danger of doing that. We have a fairly rapid growth in M2; it's rapid as far out as we're projecting it into 1990. I think the risks are that we're going to come out in the spring faster than we would like and be in a position then of having to clamp down at the worst time, politically and economically. And we will have wasted what we've done. So, I think we ought to take some of the risks that go with this downside risk. If we have to ease, let's ease; but let's wait until there's a strong case to do it.",273
-fomc-corpus,1989,Governor Angell.,4
-fomc-corpus,1989,"Yes, Mr. Chairman. I do agree with you that there is some short-run impact of monetary policy. That is, I do believe that the second-quarter numbers can be impacted rather slightly because those actually are the months that really fit in there--and really [also] the month of March even though it's in the first quarter because it still affects how that first quarter ends. So, in the months of March, April, and May--sure, there will be some impact. But my view is that what we ought to look at here is not a sacrifice ratio or sacrifice index; we ought to look at a benefits index. And the benefit index is just too, too small. That is, we benefit so slightly compared to what it costs in terms of inflation. I remember the 1986 experience in which it actually ended up that one quarter was negative and the next quarter was positive; the third quarter was positive just the same amount the second was negative and we ended up getting zero. But the rate of inflation was down low enough that coming out of that was not letting the [unintelligible] in, and going by that I think was the proper thing to have done. But we came out of that with an inflation rate that had some room. It was down 1 percent. Now, 1986 was an unusual year; that was an aberration in terms of the oil price factor. Nevertheless, there were some possibilities of it not being so high. If we go through a two-quarter slowdown and there's not a recession and we come out of it with the rate of inflation where the staff have it forecast and then we have to turn around in the fall of 1990 or a year from now and tighten or if we have to turn around and tighten in the summer, that's when it's tough. When you think about the yield curve and the bond rates, what happens is that all of a sudden you get expectations that are changed. The long bond doesn't just represent inflation expectations; it also represents expectations as to Fed policy. And when we shift from easing to tightening we have a real tough deal to play. If this is not a political window, then I don't see how that's a political window, because it really is going to be tough to make that turnaround.",460
-fomc-corpus,1989,Can I just comment? We're talking about very small changes. To go back to 1980: I have forgotten the funds rate; I don't know how many points of that drop in the--,39
-fomc-corpus,1989,"Well, the funds rate came down from 9 percent to 5 percent.",16
-fomc-corpus,1989,"Oh, I don't know; it was more than that.",12
-fomc-corpus,1989,It got as high as 13 percent.,9
-fomc-corpus,1989,13 percent in what--?,6
-fomc-corpus,1989,In 1980.,5
-fomc-corpus,1989,"Oh yes, 1980.",7
-fomc-corpus,1989,That's about 1986--,6
-fomc-corpus,1989,"No, he was originally talking about 1980. What I'm trying to say is that if you look at the funds rate pattern and the borrowing pattern that we've been through here, they don't show in the chart. We used to get the sort of thing that you're talking about; what we've been doing is this--",63
-fomc-corpus,1989,"Yes, I recognize that M2 growth isn't going to go to 32 percent like it did in 1980. But I'm not suggesting that. What I am suggesting is that the benefit for the second quarter is so small and the benefit for the third quarter is not all that large. What I see is that the financial markets and commodity markets and foreign exchange markets are rather fragile right now. And I think we send an attitudinally wrong signal by this small step at this point in time. I point out to you that the long bond really has been stuck in this 7.85 to 7.95 percent region and the last [unintelligible] basis points in the fed funds rate has not been accompanied by a [unintelligible] bond yield. I'm saying that by being patient now and by waiting, we may very well get a climate in which these market expectations will be more favorable. I'm not suggesting that I would not at any point in time next year be in favor of further adjustment. But I would rather the bond markets lead us rather than take the chance now that if we make this move and the bond market, like the last two times, signals something else. That means it doesn't help. Housing starts are the key to any soft landing scenario. And we must let the long bond yield lead us. That's why I think this little bitty move is worth my resistance.",285
-fomc-corpus,1989,President Forrestal.,4
-fomc-corpus,1989,"Mr. Chairman, we all certainly agree that we started off on this path some time ago to bring economic activity down to a lower level so that we could get some gains in inflation. If I thought that we could remain at this point with the inflation gains--and as Governor Johnson just indicated we have made some gains on inflation--and keep on this path and slowly whittle away at the inflation rate, I'd be in favor of staying where we are. But my concern is that the economy is going to deteriorate. Everything that I see out there and everything I hear suggests to me that the risk is that we will fall into a recession. I think even a mild recession is going to make our lives very, very difficult. I would make the argument, contrary to the one that we just heard, that if we go into this period over the next few months and we have a downturn in the economy, then we're going to have to ease further. And I think that is going to make our lives difficult in terms of inflation. It is going to produce an acceleration of inflation and the timetable for achieving price stability is going to be put off by some period of time. So, I'm concerned about the risks. I continue to be concerned about inflation and I certainly don't want to give up on that fight. But I think we'd be making a mistake now if we did not have a mild decrease in the funds rate. I agree with you, Mr. Chairman, for all the other reasons you gave that confidence and the position of the financial markets are very important. I think we've got a political window here to do it. I'm afraid if we don't do it and the economy deteriorates, we're going to be in serious trouble not only economically but politically as well.",353
-fomc-corpus,1989,President Parry.,4
-fomc-corpus,1989,"Mr. Chairman, I basically would like to associate my views with those of President Boehne. Clearly, the economy has slowed substantially this quarter but there are temporary factors involved such as Boeing. And it seems to me quite conceivable that over the next few quarters economic growth could turn out to be somewhat [higher] than that incorporated in the Greenbook, although clearly it would be moderate. It seems to me, though, that a moderate pace of output growth is essential to lower the risk of an acceleration in underlying inflation and to begin to make some progress toward price stability. Thus, I would support an unchanged policy stance at this point.",128
-fomc-corpus,1989,Asymmetric toward ease? What do you want?,10
-fomc-corpus,1989,"I can accept asymmetric; it isn't my first choice, but I can accept it.",17
-fomc-corpus,1989,President Syron.,4
-fomc-corpus,1989,"As many people have said here, it's very hard to judge the risks on one side or the other. Mike Kelley's comment about his becoming a two-handed economist is appropriate here. But even though the risks are fairly well balanced, we can't avoid the fact that this is a very high stakes game that we're in, particularly at this point. The point that you made in terms of when we get a window is well taken as is the point that these changes that we're talking about are minute enough--minute may not be the right word, but they're not so gigantic that they're likely to have dramatically different costs in the longer run. So in that circumstance, I prefer taking out a little insurance in the sense of protection on the financial fragilities side and the economy going down. I would be comfortable with the 25 basis points but--and I think this is an important distinction--with symmetrical language. I have one last point: Another factor that weighs into this is that I strongly prefer taking the action, as Jerry said, at today's meeting. Now is the time to do it.",217
-fomc-corpus,1989,President Stern.,3
-fomc-corpus,1989,"Well, Mr. Chairman, I think you have made the case for taking some action now. What troubles me about it is that I think if we do take that action, it's going to make our job more difficult as 1990 rolls along in terms of bringing in M2 growth about where we'd like it to be--at a rate of growth consistent with our attainment of our longer-run objective. Weighing those factors and acknowledging that it's a difficult choice, I come out on the side of not taking any action now and going with an asymmetric directive even more strongly; a symmetric directive I can certainly live with. But knowing what I can see about 1990 and the trajectory that M2 has been on and so forth, I just don't think that this is a circumstance where I'd want to push further.",163
-fomc-corpus,1989,President Keehn.,4
-fomc-corpus,1989,"Mr. Chairman, I completely agree with your recommendation to make the move now. It seems to me that we have been moving in a pattern for the last several months and that it has been an appropriate way of dealing with the economy as it has been changing. Therefore, to make another move now would be important and I think that we should do so. It seems to me that the risks are clearly on the down side. I'm not quite sure what kind of an immediate impact we will get, but certainly at the margin it has to be a plus rather than a minus. I would move the rate down and then would return the directive to symmetric language.",131
-fomc-corpus,1989,President Guffey.,5
-fomc-corpus,1989,"Thank you, Mr. Chairman. I came into this meeting with the thought of retaining policy about where we are now with an asymmetric directive. But I could accept your proposal--that is, coming down a 1/4 point now with a symmetric directive in the period ahead. I'm not too opposed to giving the nation a little Christmas present, which is not necessarily--",74
-fomc-corpus,1989,To you.,3
-fomc-corpus,1989,The reputation of your Bank.,6
-fomc-corpus,1989,You don't think you're sending a false impression for later years do you?,14
-fomc-corpus,1989,"I appreciate that because if not, I probably would be out on a limb.",16
-fomc-corpus,1989,It is a Christmas present but it's a Trojan horse.,11
-fomc-corpus,1989,[Not] unless the door opens.,8
-fomc-corpus,1989,We better continue. Governor Seger.,8
-fomc-corpus,1989,"I would support your suggestion of an immediate cut in the fed funds rate; in fact, I could even go for 50 basis points, but I won't be a hog and I'll settle for 25. As I said earlier, I think the risks are on the down side. I don't see where the strength of the economy is coming from in the next two quarters, and beyond that I'm not sure what's going to provide the impetus for an uptick. I'm very concerned about the financial fragility; I'm very concerned that so many people in the business world are sensitive to it. It's one thing for me to be and it's another for them to factor that into their decisions. And I do believe that lower interest rates would have an impact on the economy before six or nine months go by, even though it probably takes that long to get the full impact. I think you would get some impact, particularly on the psychological side. So that's my vote.",190
-fomc-corpus,1989,President Melzer.,4
-fomc-corpus,1989,"I come out essentially where Ed Boehne did. Let me add another thought or two here. One is that I don't think we have a lot of opportunities left to ease. Now, that could be proven wrong. What I would tend to look at in that regard is if the demand for money is falling out of bed and we're pegging the funds rate, we better pay attention to that. So even though I don't favor easing now, I don't rule out the possibility that that may become necessary down the road. But the way I see things now, we don't have many opportunities; I think perhaps you're implying that by moving to symmetric language. But as things have progressed, I think it was quite appropriate earlier on to try to stay ahead of the situation, to anticipate and then move in advance. I think in a sense we're probably beyond that now. I don't have the impression that markets are expecting us to do anything and I think pressures will develop. I know there are expectations over time that the funds rate will come down, but I don't have the sense that people looking at it right now in general would conclude that the Fed really ought to do something right now. And given the view that we have very few opportunities left in this direction, I would tend to conserve them and not use an opportunity now. Beyond that, my view is based on some comments I've made before. I think we have made a significant adjustment in policy; I think the aggregates are growing now at rates consistent with continued expansion; and I'm concerned that a move in this direction at this time would make our [unintelligible] in terms of price stability.",329
-fomc-corpus,1989,Governor Kelley.,3
-fomc-corpus,1989,"Mr. Chairman, I could be comfortable going in either of the two directions that have been suggested in this conversation. As I look at the sack of apples and the sack of oranges, they weigh about the same on the scale. My head tells me to hold fire and not change now, but my tummy tells me that the economy needs, and can get, a confidence boost if we do a small move now. So, I come down on the side of concurring with your suggestion.",98
-fomc-corpus,1989,President Boykin.,4
-fomc-corpus,1989,"I would concur with your formulation, Mr. Chairman. One thing strikes me. I don't know whether it will hang together or not but I almost have the sense, tactically speaking, that the modest move that is being recommended right now probably puts us in a better position to resist a stronger move later on, because at least we could show that we had been responsive. If, in our judgment down the road, it really isn't the time to move, I think we're better positioned to resist that at that point.",103
-fomc-corpus,1989,"Bob, that was part of what I meant by my wiggle factor.",15
-fomc-corpus,1989,Okay.,2
-fomc-corpus,1989,President Hoskins.,4
-fomc-corpus,1989,"Listening to the comments, it seems to me that in some cases we have forgotten yesterday's meeting. It's like micro and macroeconomics: they don't seem to be linked up, at least in the text books. So, I'd like to start where I think we left off yesterday with regard to the comments around the table when we talked about price stability. There are some who want zero inflation and there are others who want one or two percent inflation. And I don't see us moving in that direction with the current recommendation on the table. Our goal is a long-run goal to provide price stability. I think policy is a long-term instrument to achieve that. We know the economists and policymakers can consistently predict business cycles. We look at the forecast; we have no recession now in the forecast and I don't see any reason to second guess that. What disturbs me a little is that to some extent we're following the same mechanisms that we followed [unintelligible] absolutely have to react on the other side. Now, maybe we're a better body than those people who made policy then, or maybe we've learned some more and we can continue to use that mechanism but do it better. I think that's what people are trying to argue around here. I'm not so confident that we can do that. With respect to the political issue, I look back five years and we've had five years of what I would call stabilizing the inflation rate. Certainly during that period there must have been some windows of political opportunity to move down and yet we have not done that in terms of the inflation rate. I think it's important to recognize the growth rates in money. Somebody like Ed Boehne recognizes [unintelligible] hasn't been out hammering out money continuously. I take note of that. I just don't see the political argument as persuasive; I think it has as many traps and pitfalls for us as it has at any other time. I find all the growth rates a little too high in any of the alternatives. But if I were to [choose], my recommendation would be for alternative ""C.""",418
-fomc-corpus,1989,Governor LaWare.,4
-fomc-corpus,1989,"My initial inclination, Mr. Chairman, had been to go for ""B"" with a revision in that arcane language that would tilt it even more heavily toward ease. My thought was that there may not be a compelling argument for an immediate signal but that we ought to have plenty of room to move if in fact some of the things that I was worried about [materialize]--if the ice begins to crack. I guess I am willing to go along with the immediate move, with the idea that the signal may be important. But I'm concerned that symmetrical language may in fact tie our hands too much if the ice is caving away under us. I think we may need room to move even further over a period of time.",147
-fomc-corpus,1989,"The only hands that are tied, frankly, are mine and Peter's. We have a telephone out there that hopefully works.",25
-fomc-corpus,1989,"Yes, I accept the technology correction. I will support, then, the recommendation of 1/4 point and symmetric language. See, I cave in so easily!",34
-fomc-corpus,1989,President Black.,3
-fomc-corpus,1989,"Mr. Chairman, I think it's a close call today. I have a marginal preference for staying right where we are because of very strong growth in M2. I have enough faith in the past to believe that the secular velocity of M2 is likely to remain pretty stable, and along the lines that Lee and Don were discussing awhile ago, that means somewhere along the way that growth is going to have to be slowed down. At the same time, I see less inflation out there than most people do right now. And I think interest rates are likely to be lower as we go along than most people seem to feel. So, I could live with your recommendation. If I were voting I would go with you on that, although I have a slight marginal preference for not making a change.",158
-fomc-corpus,1989,Governor Johnson.,3
-fomc-corpus,1989,"Listening to the tone of the conversation, my view is close to what I hear others saying. It's a close call. I don't think there's an overwhelming case to ease; and I think the people who have made a case for staying asymmetric are making reasonable points as well. But I certainly tilt toward the Chairman's view and I can support his recommendation for a couple of reasons, which I want to emphasize again. First, I guess I'm a little more optimistic about what we've achieved and where we're heading on the inflation environment. I don't see us making a trade-off here at all. As I've said, I think we have the flexibility and I referred back to the charts from yesterday that showed long-term inflationary expectations almost consistently trending down over the 1980s and continuing to trend down to the point where they actually have been lower than the near-term inflation expectations. I don't see this kind of move endangering that trend in long-term inflationary expectations at all. In fact, I refer back to the charts on short-term real interest rates that were just handed out today a few minutes ago and I'm a little concerned that real interest rates aren't really lower. We really haven't eased much in any relative sense for several months. So, I think it's riskless; as a matter of fact, I think it's prudent to offset what I fear is a growing concern in the financial markets. I agree with the Chairman that policy can be transmitted in the very short-run sense in terms of financial markets and the expectations for orders and things like that. But of course I was referring to GNP performance, which has a long lag. But obviously we can set the gears in motion very quickly, which I think is important to do. I think the economy and the financial system need something to be a little more optimistic about and this could be useful. I don't think it threatens any long-term inflationary trend or expectations. If I did, I really wouldn't be for it although I can understand those people who are concerned that it might. It's one of those close calls.",412
-fomc-corpus,1989,"I must say you could actually throw a blanket over this whole group and the differences really are quite marginal. The discussions are within a remarkably narrow range, but forceful nonetheless.",35
-fomc-corpus,1989,And deeply felt.,4
-fomc-corpus,1989,"Yes. What I would propose for an official vote is somewhere between ""A"" and ""B""--that is, the $125 million borrowing and a 25 basis point drop in the funds rate with symmetrical language. While it would not be in the directive, I think it would be desirable if we had a telephone conference somewhere in the middle of this period, which is inordinately long. It's seven weeks before the next meeting and I think it would not be inappropriate for us to check in with each other to see whether we're seeing any different--",110
-fomc-corpus,1989,"Mr. Chairman, I have one suggestion that I'd raise for the Committee's consideration in the language in the operational paragraph. It says ""taking account of progress toward price stability"" and I think it's nice to leave that number one. But I would move ""the behavior of the monetary aggregates"" into second place, which would be an indication as to why we've gone symmetric. It would be an indication that we will be concerned about M2 being above the 3 to 7 percent range that we adopted tentatively. And we know that right now we're guaranteed that we're going to be above it.",119
-fomc-corpus,1989,"Well, that's not exactly correct. Our models say that.",12
-fomc-corpus,1989,Okay.,2
-fomc-corpus,1989,But the guarantee is something else.,7
-fomc-corpus,1989,"All right, I'm sorry. You're correct. But I would suggest that moving that up would be a good reason as to why we went to symmetric language.",31
-fomc-corpus,1989,"You're recommending that we switch the phrases ""the behavior of the monetary aggregates"" and ""the strength of the business expansion""?",24
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,"I agree with that, Mr. Chairman.",9
-fomc-corpus,1989,Can I hear general views of members out there?,10
-fomc-corpus,1989,The last time you suggested that we submit ideas on rewording the directive that was the one we submitted and it was rejected.,26
-fomc-corpus,1989,"Yes, that turned out inconclusive.",8
-fomc-corpus,1989,I strongly support Governor Angell on that point.,10
-fomc-corpus,1989,"May I make an alternative suggestion, Mr. Chairman? I've heard a lot of discussion that I think was important today and yesterday in the area of foreign exchange and domestic financial markets as well. I'm hard pressed to know what the order of these ought to be. And it strikes me that if there's merit in that, one thing we might do is insert the word ""equal"" in line 63 before ""taking account""--that is, ""taking equal account of the progress toward price stability"" and so forth.",102
-fomc-corpus,1989,"Well, that's likely to cause problems.",8
-fomc-corpus,1989,That's a really fundamental change.,6
-fomc-corpus,1989,I would not do that.,6
-fomc-corpus,1989,I would support Governor Angell's.,8
-fomc-corpus,1989,"If we look at the multiple choices we have here, you recognize that we could be here 'til 4:00 p.m. this afternoon!",30
-fomc-corpus,1989,At least!,3
-fomc-corpus,1989,I suggest that we have a formal vote on the specific proposal if you can get a second.,19
-fomc-corpus,1989,I second.,3
-fomc-corpus,1989,"Okay, there's a second. Let's poll.",9
-fomc-corpus,1989,"Can I just make one other comment, which is consistent with parliamentary procedure here? Harking back to your comment about throwing blankets, I'm not quite sure that I would go as far as you did. The way I heard the discussion here in terms of people's first preferences--",54
-fomc-corpus,1989,We're not voting on the directive yet; we're just voting on the language.,15
-fomc-corpus,1989,"Oh, okay.",4
-fomc-corpus,1989,Can I mention one thing?,6
-fomc-corpus,1989,"This is relevant, though.",6
-fomc-corpus,1989,Go ahead.,3
-fomc-corpus,1989,"In terms of people's first preferences, the way I counted it you had a 10 to 8 vote among the group as a whole.",28
-fomc-corpus,1989,You're talking about the voting members?,7
-fomc-corpus,1989,"No, the 18 participants.",7
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,"And in terms of whether we ease policy now or don't, there were several people whose first preference was not to ease but who said they could agree with easing now. So I'm not sure that the blanket is as all encompassing as your early comment would suggest.",51
-fomc-corpus,1989,"No, I think the blanket is that all of us are within the position of unchanged to slight ease, not on the slight ease.",27
-fomc-corpus,1989,"Well, that's the point I wanted to emphasize. Leaving aside the specific language here, I think the staff should make sure that the policy record is consistent with that view because I would not want to associate myself with anything that had any connotation of a rush to a further easing of monetary policy.",59
-fomc-corpus,1989,"Oh no, on the contrary. I would say that--",12
-fomc-corpus,1989,I just wanted to make sure that that's [clear].,11
-fomc-corpus,1989,"Jerry, do you support moving the monetary aggregates [phrase]?",12
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,"Mr. Chairman, I have no problem with what Governor Angell suggested. I do caution you, however, that if you want to make this an official vote, that official vote is going to be in the record. I just wonder if this is the sort of thing that we want to have a record of dissents.",65
-fomc-corpus,1989,I think that is correct.,6
-fomc-corpus,1989,I wonder if you might just want to have a straw vote.,13
-fomc-corpus,1989,What you're proposing is to move the monetary aggregates to number two?,13
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,After price stability?,4
-fomc-corpus,1989,"[Returning to Ed Boehne's point], I'm not certain that that has to be. Remember, this is basically an amendment to the directive and the directive is what is being voted on. I would like to ask Don Kohn whether, in his judgment, a vote on the amendment is required to be recorded in this regard?",67
-fomc-corpus,1989,"I'm afraid I don't know, Mr. Chairman.",10
-fomc-corpus,1989,Virgil [our General Counsel] is back there.,11
-fomc-corpus,1989,Why don't we just have a show of hands of the voting members?,14
-fomc-corpus,1989,Right.,2
-fomc-corpus,1989,How does he know it's not legal? What is your opinion?,13
-fomc-corpus,1989,"I think if you follow Robert's Rules of Order, it would be something that has to be recorded.",21
-fomc-corpus,1989,Could I make one other comment?,7
-fomc-corpus,1989,"But we've done these things many, many, times.",11
-fomc-corpus,1989,We've had two [unintelligible] without recording them.,13
-fomc-corpus,1989,We have not followed Robert's Rules in the past.,11
-fomc-corpus,1989,He doesn't work here!,5
-fomc-corpus,1989,Governor Johnson wants to comment--Robert's Rules to the contrary notwithstanding.,14
-fomc-corpus,1989,"I don't mean to muddy the waters further on this language but there's one thing that bothers me about moving the monetary aggregates to second. I can support it but--and this may sound too complicated but it's important to me--I'm a little worried about emphasizing the monetary aggregates in the very short run if we're basically picking up the opportunity cost effects of changes in interest rates. In other words, I could live with emphasizing the monetary aggregates if it's in the context of something like long-term monetary aggregate trends relative to our price stability goal. But I don't want someone to get the impression out there that M2 for one quarter growing above target because of the interest sensitivity effects is going to be something that the markets should panic over. So, to me there's a big difference between the short-run and the longer-term trend in the monetary aggregates.",165
-fomc-corpus,1989,"Let me suggest what we are really voting for. On the one hand, we're voting to move the monetary aggregates up one slot. The alternative, which would be there in any event, is the awareness and the concern of the Committee about the growth in the monetary aggregates. Unless I'm mistaken that's what I've been hearing for two days. And I would say [unintelligible] represents the concern of the Committee. Is that a fair statement?",89
-fomc-corpus,1989,That's it.,3
-fomc-corpus,1989,So we can do it either way. Roger.,10
-fomc-corpus,1989,"I would not support moving it up, particularly at this time. I agree with what Manley Johnson said about moving it up for visibility purposes at a time when we have a [unintelligible] and it will be known that the aggregates are growing above our projected target for them. It seems to me it's an inappropriate time. I don't mind putting a bit more emphasis on the aggregates, but I don't think now is the time to do it.",91
-fomc-corpus,1989,"But Roger, to get back to Jerry's point, it does tend to make this show how close a call this was and the concern--",28
-fomc-corpus,1989,But that could be handled in the language in the policy record. Either way I think it's fairly clear where the conversation of the last two days has been; that issue can be captured in either place because it is factually the case. It's a question of how one wishes to capture it best.,59
-fomc-corpus,1989,Just as long as that issue is there so people could see that and not overreact to--,19
-fomc-corpus,1989,Sure.,2
-fomc-corpus,1989,"I would prefer to capture it in the description of the discussion myself. To the extent that we can wean ourselves from moving these things around and having people draw up charts showing which one we put first, second, third, and fourth the better off we're going to be, I think.",58
-fomc-corpus,1989,I would agree with that.,6
-fomc-corpus,1989,If we just leave them alone people will ignore them over time and I think they should. I think the rest of the policy record captures the sense of the discussion.,33
-fomc-corpus,1989,I would agree with that if we get the order right.,12
-fomc-corpus,1989,The second point is we--,6
-fomc-corpus,1989,"Mr. Chairman, I really think I'm going to request that we do have a recorded vote because I think it will be a precedent in history for--",30
-fomc-corpus,1989,That just eliminated it.,5
-fomc-corpus,1989,"[This] might help Manley a little. I think M2 ran for almost two quarters earlier this year at the bottom end of, if not outside, the range; I can't remember exactly. And I don't think the market overreacted to that in the sense that we were going to force the aggregates back in at the same time we were raising interest rates. It was clear we weren't intending to do it. I think they had the aggregates back a little further even than we did.",99
-fomc-corpus,1989,But did we have the monetary aggregates number two [in the directive language] during that weakness? I'm saying moving it makes it--. These people focus on every little twist in the directive and if they see we've changed the order of the phrase on the aggregates they're going to say we're focusing short term on where those aggregates are. And they're going to say we've moved the economy back in the order so we're going to put our concern in the short run on stabilizing the monetary aggregates over our concern about the economy. If we get that message across that it's the long-run trend in monetary aggregates that we're concerned about that's just fine with me.,127
-fomc-corpus,1989,I think that's the right way to do it.,10
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,It strikes me--,4
-fomc-corpus,1989,"Put the word ""long-term"" in there, then.",12
-fomc-corpus,1989,Yes.,2
-fomc-corpus,1989,You guys are going to get me changing my vote the way you're going here!,16
-fomc-corpus,1989,"We can capture it in the policy record, I think. It's fine as long as it's spelled out clearly. But I'm just worried about people saying: ""Hey, the Fed decided to chase the monetary aggregates over the economy in the near term.""",49
-fomc-corpus,1989,You're the one who is always advocating the financial variables. Which way do you want it?,18
-fomc-corpus,1989,Not the aggregates. I've never said anything about the aggregates.,12
-fomc-corpus,1989,I seem to remember a relevant comment the other day in that speech of yours.,16
-fomc-corpus,1989,If you can find it show it to me.,10
-fomc-corpus,1989,I will.,3
-fomc-corpus,1989,"Well, why don't we just have a show of hands? Clearly, if the majority wishes to go one way--",23
-fomc-corpus,1989,I prefer to put it in the record of the discussion. What's at issue here to me is a heck of a lot more important than the aggregates per se. We have a razor thin situation that we're looking at and I think that has to be duly and adequately and accurately reflected in the proceedings of this meeting.,62
-fomc-corpus,1989,I think that's correct. [Unintelligible] than how it appears here.,17
-fomc-corpus,1989,We need both.,4
-fomc-corpus,1989,"Well, this is not a big deal one way or the other.",14
-fomc-corpus,1989,Sure.,2
-fomc-corpus,1989,"Let me say that I'm confident we can capture my concerns in the policy record, so that's okay with me.",22
-fomc-corpus,1989,"I'm not worried about your concerns being captured, I'm worried about mine.",14
-fomc-corpus,1989,What's standing is a vote on the aggregates right now as number two. And I--,17
-fomc-corpus,1989,"No. I think it's basically that if there's a general view, it's crucially important that the policy record captures this general discussion.",26
-fomc-corpus,1989,"Yes, right.",4
-fomc-corpus,1989,The secondary question is whether in addition we put this in the directive. Can I have the voting members just indicate whether they are in favor of reversing the pattern by raising their hands?,36
-fomc-corpus,1989,I really don't care as long as the other matter is taken care of.,15
-fomc-corpus,1989,"I'm afraid that that fails. So, why don't we make certain that the language is acceptable to everyone here? In fact, if you want, we can have a poll again and maybe we can satisfy you. If the three of you would like to have a resurvey of this, we can do that.",62
-fomc-corpus,1989,No.,2
-fomc-corpus,1989,There are some other things we would like to resurvey too that we didn't vote--,17
-fomc-corpus,1989,We'll have different voting members next year.,8
-fomc-corpus,1989,The time is approaching on this. Would you read--,11
-fomc-corpus,1989,"It reads: ""In the implementation of policy for the immediate future the Committee seeks to decrease slightly the existing degree of pressure on reserve positions. Taking account of progress toward price stability, the strength of the business expansion, the behavior of the monetary aggregates, and developments in foreign exchange and domestic financial markets, slightly greater reserve restraint or slightly lesser reserve restraint would be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with growth of M2 and M3 over the period from November through March at annual rates of about--""",109
-fomc-corpus,1989,8-1/2 and 5-1/2 percent.,14
-fomc-corpus,1989,"""--8-1/2 and 5-1/2 percent, respectively. The Chairman may call for Committee consultation if it appears to the Manager for Domestic Operations that reserve conditions during the period before the next meeting are likely to be associated with a federal funds rate persistently outside a range of--""",61
-fomc-corpus,1989,"We could use 6 to 10 percent, which is more closely centered on 8-1/4 percent.",24
-fomc-corpus,1989,6 to 10 percent.,6
-fomc-corpus,1989,"Mr. Chairman, Mr. Prell had an amendment to propose in what was distributed. It relates to housing.",23
-fomc-corpus,1989,"It's just a correction of the language there. I would recommend that it read ""Housing starts fell in November but for the October-November period were up somewhat on average from their third-quarter level."" It captures--",42
-fomc-corpus,1989,Any objections? [Let's vote on the directive].,10
-fomc-corpus,1989,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell No President Guffey Yes Governor Johnson Yes President Keehn Yes Governor Kelley Yes Governor LaWare Yes President Melzer No Governor Seger Yes President Syron Yes,45
-fomc-corpus,1989,"The next meeting is scheduled for February 6th and 7th. For those of you who can stay, we'll have lunch.",27
-fomc-corpus,1990,Questions for the gentlemen?,5
-fomc-corpus,1990,"First to Mike: Given the fact that the inflation picture remains stable in spite of slower growth, I was looking at the profits trend and it's down. There is quite a profit squeeze going on. If we hold nominal demand pretty much in check, given the profits picture, doesn't something have to give? Wouldn't you expect labor costs to come down, maybe through layoffs or something? How can those weak profits persist when there's no avenue for changing them in terms of nominal demand? Shouldn't there be a cutback in costs or at least a recession or something?",112
-fomc-corpus,1990,"Well, there are a couple of pieces to that and they are both areas in which researchers have argued a great deal and have not reached definitive conclusions. One is the influence of profits per se on business spending. I don't think [the outlook for] that is favorable, and I indicated that profits and the cash flow picture are considerations in our weak investment forecast. Whether that influence should be stronger and we should have an even weaker investment picture is an arguable proposition. As it stands our forecast is considerably weaker than the Commerce Department's P&E survey would suggest and weaker than some other forecasts. But that crunch in profits, I think, does raise some questions. I would note that corporations are paying out a lot of their revenue to debt holders. And if you look at the return to capital in forms of both debt and equity, this doesn't look as low in historical terms as profit share alone. But it's a factor that one needs to keep in mind. Now, on the price side and the wage side, I think wages have a considerable momentum. What one picks up looking historically at decelerations in wages that come with higher unemployment is that those are times when typically there is weaker profitability too. Whether there's an independent influence here is the question. But I would think that this certainly would steel many managers in their negotiations with labor. They want to try to do something about improving their profit margins and one way to go about that is to be tougher on the wage side. That may lend itself to some contentious negotiations in the unionized sector. But in general I think that whole complex of weak demand and low profits is going to be putting some squeeze on wages. We have a gradual deceleration. It's obscured in 1990 by the big payroll tax and minimum wage effects; it's less so in 1991. But we tried to take those factors into account.",375
-fomc-corpus,1990,"Okay, thanks. A question for Ted on the dollar, and this is something I raised yesterday too [at the Board briefing]: I realize the dollar has depreciated from the peak in 1989, but I don't think it really has depreciated over the whole year. There have been a lot of wiggles since the dollar sort of settled down in 1987. I just have a little trouble with the secular depreciation in the staff forecast. I realize that the external claims issue is a theoretical issue that may support the dollar depreciation, but of course monetary policy may have something to do with that. In looking at these international trends, even though you're projecting slightly lower inflation for the foreign countries, based on this recent dollar depreciation, than for the United States, what we see right now is almost complete convergence in price trends. It's prospective, I think--going forward to what the inflation trends will be. What I'm struck by is the lower left panel on Chart 17, which shows that right now we have almost complete convergence in prices. I agree that expectations play a part in that, but with convergence in inflation rates we still have a slight interest differential advantage. It has narrowed quite a bit and I guess you have to look at the changes as one factor. But if prices converge rather than break apart like this, given where interest rate levels are now--we're still slightly higher than Germany in terms of nominal interest rate levels and we're still considerably higher than the Japanese even though that has narrowed--I'm not sure that dollar depreciation is in the cards. I would say that, obviously, if inflation diverges again, maybe to the degree you have [in the forecast], there is some modest [depreciation] in the works. But what do you say to that?",357
-fomc-corpus,1990,"Well, several things. One point is that inflation in Germany and Japan, of course, is lower than the average that is shown there, so that--",31
-fomc-corpus,1990,But we're talking about the trade-weighted dollar.,10
-fomc-corpus,1990,"But the relevant interest rates adjusted for inflation, at least the way we've done it, are the ones in Chart 15 where real interest rates in the United States are below those abroad. And that is, I think, the question. As we've calculated those real interest rates, there is some weight given to the forecast going forward and, equally I might add, to what has happened over the past year and a half. To the extent that we have overestimated the decline of inflation abroad, we have overestimated the level of real interest rates in those countries. Now, a lot of the decline comes from Canada and the United Kingdom, two economies that have moved into a fairly weak aggregate demand condition. Our projection is that, much as in the United States but sooner, that will begin to have an impact on the inflation situation. The other part of the decline is more of a statistical artifact and has to do with the fact that a couple of these countries--Germany and Japan are two in particular--had a somewhat artificial boosting of CPI numbers last year, which is going to be wiped out this year. So, you have had either an understatement of real interest rates this year or an overstatement of real interest rates next year depending on what you want to say about that. As I said in my presentation of the forecast, the decline of the dollar in this period is hardly precipitous and does not have a dramatic impact on the forecast on balance. It has some impact on the 1991 level of activity and prices and so forth. But in and of itself, given the level of the dollar where it is today, it has relatively little impact on the forecast for 1990.",338
-fomc-corpus,1990,"Okay. One last question, Mr. Chairman, on this recent turnaround in bond rates: I noticed in reading some of the commentary that was submitted to the FOMC, and in Steve Axilrod's comments and some others' too recently, it has been argued that the turnaround in bond rates--since most of it is real and not nominal--represents an effective tightening of policy. I don't know what policy necessarily can do about it, but the fact is that some analysts are saying that it represents a relatively tighter situation, let's put it that way, in the economy. I just wonder what you think about that. To me that's almost the other side of the coin of the question I have been asking for a long time here: Given the fact that long-term real interest rates were coming down, was that stimulative? I'm a little skeptical about the notion that the [more recent] turnaround is an effective tightening--as much as I was skeptical about the downtrend in long rates [being an] easing--because the implication is almost that the funds rate should come down further if we want an effective tightening. What is your response to some of that commentary about the turnaround in the long rates? Suppose most of it is real.",249
-fomc-corpus,1990,"Well, as we factor all that, there are three things that have happened on the financial front recently. The dollar has come down and, for the last few months, the dollar has tended to outpace our expectations on the down side. Short-term interest rates have come down and they clearly are a borrowing cost for a number of businesses and households. They probably have come down very considerably in real terms in the very short run. We view that rise in long rates as being at least partially a real increase; it is more than that long-term inflation expectations have risen. Governor Angell referred to one thing that may have some persistence here on the energy front beyond just the heating oil crunch in December. But, basically, we've viewed that as being at least in considerable part a real increase, and it has shown through in our forecast, particularly in the construction area. Mortgage rates, both nominal and real, are a factor in this forecast and, certainly, that was one element. So, these things have all sort of balanced out in the greater scheme of things with our dollar forecast. It has tended to buoy net exports as a contributor to GNP as we look out, but interest rate movements on net probably have tended to damp domestic demands somewhat. We've come out with essentially the same GNP forecast.",261
-fomc-corpus,1990,"Isn't there some suggestion that the increase in long-term rates could be due to higher inflation expectations? I note that the surveys we have available now cover inflation over a shorter timeframe but are indicative perhaps of a change in thoughts about inflation. In addition, some people have been concluding that the probabilities of recession are somewhat less now than they were a month or so ago. All of that would be consistent with the idea that we have upward pressure on interest rates in the long-term end of the market for domestic purposes as a reflection of changed inflationary expectations.",110
-fomc-corpus,1990,"As I tried to suggest, without putting a fine point on this, we've assumed that the rise in nominal long rates is part inflation premium and part real. It has been a big move and I think that real part is not insignificant.",47
-fomc-corpus,1990,"It's a difficult question. The move has been too sharp. The long-run inflationary expectations surveys have ticked up slightly, but not very much. At least the only one I've seen--Hoey--has hardly moved.",45
-fomc-corpus,1990,"Well, actually, Hoey hasn't done a survey since this recent run-up of the curve. So, for what it's worth, we don't have that one to look at.",35
-fomc-corpus,1990,I guess so. Okay. But I think most people would say there's a significant real component to it even if you do worry a little about the upturn in inflation expectations. One plausible explanation is that some sort of positive real rate increase is not necessarily contractionary. There are the developments in Europe; export markets may be looking better.,67
-fomc-corpus,1990,"That's one of the problems with looking at real rates as a gauge of monetary policy. It's an outcome of both monetary factors and expected returns on capital. And, yes, this is a world-wide phenomenon in the sense that you were addressing before because growth prospects and returns on capital may be higher owing to developments in Eastern Europe. It's hard to believe that's 70 basis points worth, but--",78
-fomc-corpus,1990,"No, but a combination of some--",8
-fomc-corpus,1990,And with the stronger cyclical indicators--the orders figures and so on--maybe there is some element of elevation in people's expected returns on real investment.,30
-fomc-corpus,1990,Or [it may reflect] their expectations of what the equilibrium real rate is not only because of Eastern Europe but because the stronger data suggested to them that the economy could go along with sustained growth at higher rates than they previously had thought.,47
-fomc-corpus,1990,"Right. What I'm thinking is that to the extent that is part of the story, that's not necessarily a contractionary phenomenon.",25
-fomc-corpus,1990,President Syron.,4
-fomc-corpus,1990,"This was a very complete presentation and I just had two technical questions. My first technical question has to do with the composition of auto sales as shown on Chart 5. As you know, we've been hearing for a long time a lot of anecdotal information from people in the auto dealership business and usually in the Big Three dealership business. I'm wondering if there's a possibility that we're giving that too much weight. Going back to 1987, say, if one looks at the increase in the number of domestically produced foreign nameplate units--and from what I understand just from reading--in many cases the input [unintelligible], and in some cases engines, are produced domestically in the United States. It's possible that we made a little too much at some point of the anecdotal information on the decline in the auto industry because of our natural instinct to look at the auto industry as Ford, Chrysler, and General Motors.",187
-fomc-corpus,1990,"Well, I'm inclined to think that that's true. There is quantitative evidence of the increasing role of foreign parts producers in providing inputs to the transplants. It has become a very complicated international market. The point I was making was that in terms of future employment prospects I don't think the Big Three are stripped down yet enough. They are carrying a substantial amount of excess capacity, particularly at GM. They're not operating as efficiently as they're going to have to. So, while the transplants are probably going to be expanding employment somewhat over the next couple of years, the net may be a negative from this decline in auto demand because the Big Three really need to shrink some.",133
-fomc-corpus,1990,"I don't disagree with that, but given the demographics and the cycle of car financing and so forth, there is a question of just how responsive much of this is to interest rates.",36
-fomc-corpus,1990,"Well, that's true. As I said, I think the stock out there has become relatively ample. There is that financing question and the fact that with long maturity automobile loans it takes a long time to build up any positive equity. So the automobile manufacturers think that as a short-run factor there isn't the opportunity in many people's minds to trade in as rapidly. That shouldn't be a big factor over time in affecting automobile demand. But that is something they worry about; there's no doubt about it.",98
-fomc-corpus,1990,"Also, if you look at the technical issues on this, cars are lasting longer as well.",19
-fomc-corpus,1990,Average life has been increasing and it may be because of improved quality.,14
-fomc-corpus,1990,"The second technical question, picking up on something Governor Angell said, has to do with the outlook on oil prices. On Chart 20, in looking at the price per barrel on oil, what is the general outlook that you've factored in here in terms of natural gas suppliers? I hear from a lot of people that the natural gas bubble is starting to peter out and that there are concerns about pipeline capacity. I thought maybe I should mention this, since we've had very substantial cutbacks in interruptable service in the Northeast.",106
-fomc-corpus,1990,Natural gas belongs on the other side of the table.,11
-fomc-corpus,1990,"I was afraid he was going to say that! I must confess I have not developed great expertise on the natural gas bubble. Yes, it is certainly widely discussed that the situation is changing, and in our forecast we have natural gas prices rising 4 to 4-1/2 percent per year in 1990-91. There is some firmness there in the long-run forecast. Fortunately, there are people who provide inputs to this process who are more knowledgeable than I. I suspect there are others around the table here who can speak with more knowledge on that.",114
-fomc-corpus,1990,Thank you.,3
-fomc-corpus,1990,President Black.,3
-fomc-corpus,1990,"Mr. Chairman, Governor Johnson's questioning about these real long-term interest rates prompted me to look at the footnotes on Chart 15 down in the lower left-hand corner where there are three asterisks. That says inflation is estimated by a 36-month centered moving average of actual inflation, forecast by staff [where needed]. Does that mean that the last figure has 18 months of forecasting in it?",83
-fomc-corpus,1990,"Absolutely. That's what I meant when I said to Governor Johnson that to some extent the higher real interest rates today reflect our assumption that inflation will be lower tomorrow in the foreign countries. As Mike was saying, there is a certain circularity in that construction. The historical series gives you an actual centered forecast.",61
-fomc-corpus,1990,"If you look at the survey-based expectations for the foreseeable future or at Hoey's last survey, for example, he's looking at 4-1/2 percent or something like that for 10 years. And that would not be grossly out of line with what is built into these numbers for the United States.",64
-fomc-corpus,1990,But I think you could argue that inflation expectations in those other industrial countries have gone up significantly.,19
-fomc-corpus,1990,"Well, that's a possibility. As I said, we are assuming that inflation will be lower. Now, if you add another percentage point to foreign inflation relative to our forecast and keep oil unchanged, then that differential is going to drop from 150 basis points to 50 basis points. [Unintelligible] absolutely. And there may be an expectational element built into that.",77
-fomc-corpus,1990,Governor Angell.,4
-fomc-corpus,1990,"Yes. Ordinarily, for many years, we've had a full employment Federal budget deficit. What is the change from 1989 fiscal year to 1991 fiscal year in the full employment deficit?",40
-fomc-corpus,1990,I can give it to you on a calendar-year basis.,12
-fomc-corpus,1990,"Okay, that's fine.",5
-fomc-corpus,1990,The change in the high employment budget was $11 billion in 1989 and then we reverse sign to minus $34 billion in 1990 and minus $44 billion in 1991.,39
-fomc-corpus,1990,"Would the high employment deficit or the actual deficit be the best measure of fiscal restraint? Now, I ask that, even though I don't understand what fiscal restraint is.",33
-fomc-corpus,1990,"Clearly, we'd opt for the high employment over the actual budget deficit as a measure. But even that number has its shortcomings--the treatment of interest, for example. There are a number of things that bother us about that and that's why we invested the effort in coming up with some new measures of fiscal impetus, which I didn't cite this time. Basically those numbers are headed in the direction of restraint in '89, '90, and '91 and especially in '90.",95
-fomc-corpus,1990,Where do you put Senator Moynihan?,9
-fomc-corpus,1990,Senator Moynihan?,6
-fomc-corpus,1990,The fact that you're using high employment--,8
-fomc-corpus,1990,I don't know what the net of Senator Moynihan would be.,14
-fomc-corpus,1990,Do you think of the FSLIC bailout cost as being different in terms of traditional fiscal effects?,19
-fomc-corpus,1990,"Well, either the high employment measure or our own fiscal impetus measures would be looking at national income and product accounts data that would abstract the purely financial transactions. So, that wouldn't be a factor in our thinking. Basically, the $30 billion that I cited is roughly that in either unified budget accounting or national income accounting. And that's in a sense a discretionary budget action and a reasonable measure of what we think fiscal policy is doing independently.",87
-fomc-corpus,1990,"Well, these questions are designed to get to the bottom line question which is: With monetary policy and some tendencies toward real interest rates being maintained at a level consistent with path and with some fiscal restraint, why does the forecast assume that there's that much improvement in the level of economic activity in 1991?",61
-fomc-corpus,1990,"Well, basically what we have is high rates and fiscal restraint holding growth below the long-run trend. We're opening up a gap over that period of time. But we do have the effects of the dollar working through here to provide some increased demand for U.S.-produced goods. And that tends to hold [activity] up while domestic demand is being more directly affected by the monetary and fiscal restraint.",80
-fomc-corpus,1990,Thank you.,3
-fomc-corpus,1990,President Stern.,3
-fomc-corpus,1990,"Mike, I'm not sure I understand your personal income forecast. If I look at the middle panel of Chart 10, your numbers for '90 and '91 are comparable with '80, '81, and '82. But at best it looks like it stays on the weak side even given your modest growth path.",64
-fomc-corpus,1990,"Well, we looked at that and asked ourselves the same question and, obviously, we ended up with these numbers after all of that. There is a marked slowing of employment growth in this forecast; we have increases in employment in payrolls of about 1-1/4 percent in the two years. We have another negative effect on real disposable income coming through the terms of trade effect as the price of imported goods rises relatively rapidly. That tends to create some wedge between product prices and consumer prices. It's a small thing, but it's tending to work in that direction. This is an economy in which we have very slow growth. We have some productivity increase and we think this is internally consistent. But it is a very low growth and it raises some questions, I think, about how this kind of situation will be perceived by consumers. We have not assumed that there will be any extraordinary change in their behavior, despite this prolonged period of slow growth. One needs to keep in mind throughout this, as we look at the future, that to the extent the population is growing more slowly we're going to get [unintelligible] too.",228
-fomc-corpus,1990,"Any further questions? If not, can we start our Committee discussion? Who would like to start off?",21
-fomc-corpus,1990,I think they all want to go home!,9
-fomc-corpus,1990,No comment.,3
-fomc-corpus,1990,"Comparing our forecast versus the Board staff's, I must say ours is somewhat stronger. We are looking for an increase in GNP, fourth quarter over fourth quarter, of about 2 to 2-1/4 percent. Our differences are not all that large in any particular category. But going down the whole list there does seem to be a bit stronger growth in most of the categories. Personal consumption, for example, in our forecast is higher and I think durable goods are a part of that; I'm sure autos have some relationship there. Business fixed investment also is stronger in our forecast; our housing number is somewhat higher. There are no major differences but, as I say, we have a higher number in most of the categories. But with regard to this interest rate increase we have had, if that were to continue at its current level for any length of time and become more pervasive, it might raise some questions about the strength of our forecast. Moving to the District economy, our District continues to have two economies, really: the auto and auto-related activities, and then everything else. On the auto side, despite the improvement in the sales level in January, the attitudes are awfully grim. Plants were basically shut down in the early part of January; some have reopened since but the schedules for the remainder of the first quarter are really very low. And the comments about the second-quarter production schedules are very cautionary. Everybody is saying that they certainly are going to be higher than the first quarter but lower than the second quarter of last year. But people are unwilling to be much more precise than that. January's sales level has reduced auto inventories to about 70 to 80 days' supply, down from about 100 days' supply at the end of the year. Despite that, and this is really a very difficult issue, the dealers just are not ordering more cars. About half of the dealers, as I understand it, are still losing money. They really do have a grim attitude and are just simply at the point of not buying more cars. Therefore, we see the risk on the production side as down and not up. Also, on the outlook for sales of heavy duty and medium size trucks, they had a bad year last year and the outlook for this year is pretty grim. Despite that, no one I talk to suggests a forecast in terms of cars and light trucks lower than, say, 14 to 14-1/2 million units. As I've commented before, yes, that's down from other years, but comparatively it's still not all that bad. Other parts of the District, I think, are moving along at a reasonably good pace. The steel business is surprisingly good despite this slowdown in auto orders; demand for steel for appliances and structural items for other sectors of the economy is doing pretty well. The level of incoming orders after the turn of the year generally looks good for this year. And I'm told that in the steel industry the actual facts are better than the perceived facts. Construction activity in the District is reasonably strong; both commercial and residential numbers are higher, I think, than the national numbers. And we have a surprising number of new office projects, particularly in the Chicago area. Vacancy rates are moving up a little but are not yet out of line. In agricultural equipment, business looks good; the expectation is for an increase in unit sales of 4 to 5 percent this year over last year. And in agriculture itself, the outlook is positive. Crop prices are down and farm income probably is going to be down a bit, but if we have a reasonable break on moisture and some rains this spring and summer, the outlook there is pretty good. As for retail sales in the District, the results in December were good and so far in January they have held up. So, net, excluding autos, we think that the attitudes are reasonably positive. There is no growing concern yet about accelerating risks on the recession side. But having said that, the big caveat is the auto industry. I think the auto sales will pick up, particularly in the second half; if that's not true, of course, the outlook will be different. Finally, on the inflation outlook, our numbers are a little more positive than the Board staff's. We're expecting moderation in inflation this year to 4 percent or perhaps even a little lower by the end of the year. The people I talk to say that raw materials prices in many cases seem to be down. Steel, aluminum, and copper prices, for example, are down. And I don't sense any strong upward pressure on the wage side. Therefore, our outlook for the inflation situation is a little better. That's not to say it's acceptable to have inflation of, say, 4 to 4-1/2 percent on a continued basis and, obviously, that has some monetary policy implications. But presumably we'll talk about that later.",988
-fomc-corpus,1990,President Parry.,4
-fomc-corpus,1990,"Mr. Chairman, turning first to the national economy: At current levels of interest rates we would expect real GNP at slightly less than 2 percent for this year. However, we do expect the composition of growth to be quite different from that in the Greenbook. For example, we are forecasting stronger consumer spending as a result of past strength in disposable income. Also, we are projecting a much smaller correction of nonfarm inventory investment from its fourth-quarter high. However, due to a long lag in the dollar's influence on trade, we don't expect significant improvement in real net exports until 1991. With regard to inflation, we expect the GNP fixed-weight index to average between 4 and 4-1/2 percent this year. Mild upward pressure on inflation should come from the price of oil, previous increases in the value of the dollar, and tight labor markets. If economic growth is moderate, pressures from the labor market should begin to subside late this year. But I really don't expect to see any downward pressures on inflation--certainly on the underlying rate of inflation--until late next year. If I may turn to the District economy, the economy in the West continues to exhibit healthy growth. We took a look at the Twelfth District employment growth last year and I think the numbers are really extraordinary. From December 1988 until December 1989 we saw employment in the District grow 3.2 percent; this compared to 2.3 percent growth for the nation--an extremely wide difference. Concern has been expressed about a collapse of California's real estate market. Our admittedly not detailed analysis--but I think it has been fairly careful--indicates that those concerns probably are not warranted. The housing market does not appear to be overbuilt in California. From 1984 to 1988 the ratio of new residents to new home permits was about 2 in California. The ratio for the nation was 1.1; in New England it's 0.8. The point is that we have had a very large increase in in-migration into the state and that has increased the demand for housing rather substantially. In addition, we have not seen a significant fall-off, at least to date, in home sales. They are down a bit from 1988 but not nearly as low as the average for the five years that preceded 1988. Also, there has been some decline in the state's median home price but that appears to be a change in the composition of homes sold. We're seeing a lot of strength in the central valley of California and in the Riverside-San Bernardino area --where the price of housing is quite a bit less--and less strength in the more urban areas. Meanwhile, the market for single-family homes in the Pacific Northwest is really booming, particularly in the Puget Sound area. Bidding wars have become common and home values are increasing at a yearly rate of 20 to 25 percent in many parts of that area. Thank you.",605
-fomc-corpus,1990,President Forrestal.,4
-fomc-corpus,1990,"Mr. Chairman, if I may start with the District, I would say that the Sixth District's economy is pretty much the same as that of the nation--as good or as bad, depending on how you want to put it. What continues to impress me is the very pessimistic attitude that people I talk to generally have about the economy. There's a very pronounced fear of recession and I would say a distressing lack of interest in reducing inflation. The concern about recession seems to center basically on the auto sector and its effect on the economy and the weak real estate market as well as the increasing loan delinquencies and the number of personal bankruptcies that are showing up. The manufacturing sector in the District continues to be quite soft, not only in autos but in related activities that are particularly affected by import competition. That's particularly true of the apparel and textile industries, where activity is slowing down and inventories are beginning to build. And in the [unintelligible] and that's for a period of time when imports are usually not high, the end of a year. The petrochemical industry, however, remains a very strong industry in the District, particularly in the Gulf Coast [area] of Louisiana. The housing market is just saturated with high inventories of unsold houses. New construction is obviously quite sluggish as a result. We did get in the District generally an uptick in office construction toward the end of the year, but that was mostly due to activity in Atlanta. And that gives rise to some concern because even though we'll get a temporary boost from that kind of construction and an increase in employment, it's definitely going to create problems down the line. We have something like 8 or 9 projects in the city of Atlanta of 650,000 or more square feet and pre-leasing is very, very low at this time. So I think that's going to be a problem. We've had some uptick in the energy sector. Two of the major oil companies are adding platforms and the independents are becoming a little more active in domestic exploration and the rig count is up somewhat. I mentioned natural gas before; natural gas production is emerging as a source of strength in the District and that will be a particular help to Louisiana. The very cold weather that we had in December took its toll in Florida. There was a 30 percent loss in the citrus crop, although the price impacts are being partially offset by imports from Brazil. This is in juice basically. There were fears earlier that the trees had been badly damaged or killed but that turns out not to be the case; most of them were not. The winter vegetable situation is more serious because that sector was hit much more severely than the citrus crop. For tomatoes, for example, where Florida is the major source for the country as a whole, imports from Mexico are not going to be sufficient to offset price pressures. And fresh vegetable prices are up by about 30 to 40 percent. If past experience is borne out, this should add about .2 or .3 to the CPI on a year-over-year basis. But in general in the District, we're not seeing any real pressures on prices and we don't seem to have any labor pressures at the present time. Turning to the national economy, our forecast in Atlanta is somewhat stronger than the Greenbook forecast. We have growth at around 2 percent in real terms for both 1990 and 1991. We're somewhat higher in consumer spending but not significantly. The major points of difference would be in business fixed investment and also in the inventory correction. We have a somewhat higher inventory formation rate than the Greenbook. Because of that somewhat faster growth our unemployment rate is obviously a little lower. Unfortunately, our inflation forecast is pretty much in line with the Greenbook forecast, and I just don't see very much hope on that side. We're seeing that trend of inflation right through 1991 and I think we continue to be very vulnerable on the price side. The incoming data for the first quarter will probably overstate the price pressures but I still think that we're looking--in the services sector particularly--at an inflation rate stuck at 5 percent. So, in terms of monetary policy, I think we have a tough road to walk.",850
-fomc-corpus,1990,President Black.,3
-fomc-corpus,1990,"Mr. Chairman, our projections for the Humphrey-Hawkins report are very similar to those of the Greenbook on both GNP and unemployment. We basically agree with what I think the Greenbook is saying: that the economy seems to be passing through an inventory correction that's largely centered in manufacturing and that the correction ought to be pretty well completed during the first quarter of this year. At the last meeting we felt that the risk of error was on the down side and this time we've shifted to the point that we now have a sense that the risks are about evenly divided on each side. We've been impressed by how quickly the domestic automobile industry has adjusted or moved to adjust its inventories downward, and we are encouraged by the strength of orders for durables goods and also for nondefense capital goods. So this suggests to us that manufacturing may be stronger than we thought and also that business outlays for new equipment may be somewhat better than we thought earlier. At the same time, I have to say that I'm really concerned about these projections for inflation that the staff has for 1991 as well as 1990. They show, in essence, no further progress in bringing inflation down from the present rate and, in fact, the CPI less food and energy is shown as actually increasing a notch in 1990 and again in 1991. The same is true of the fixed-weight GNP index. I think, like all of us of course, that that would be a very undesirable outcome--to put it gently--in view of our stated goal of getting prices down. I think it's essential that somehow or other we improve on this inflation performance shown in the Greenbook, and I'd like to suggest that we keep this in mind when we work on our long-term targets later on in this meeting. We're more optimistic on inflation, I should add, than the staff is.",377
-fomc-corpus,1990,What was your estimate?,5
-fomc-corpus,1990,We put in 4 percent.,7
-fomc-corpus,1990,President Syron.,4
-fomc-corpus,1990,"Mr. Chairman, if I could first turn to the District economy, there is somewhat of a dichotomy in the New England economy between what statistical measures indicate and the level of confidence. In fact, if you look at the confidence survey that the Conference Bureau does by census region, there was really a dramatic decline over the last year: The region went from being the highest in the nation with an expected outlook of 144 on the index to 72 now. So, we've had a 50 percent decline in confidence in the region in a year. But according to the recent data that we've actually seen, personal income on a per capita basis grew faster in New England than nationally. As for other closely related regional data, employment actually increased in the last two months of 1989 after declining earlier in the year. The unemployment rate in the region now is about 4.2 percent and the per capita income is still 124 percent of the national average, so we were starting from quite a high base. Having said that, we think a softening is inevitable. We do expect that the unemployment rate in the region will go up and will exceed the national level and that there will be a concomitant decline in the relative rate of growth in personal income. Thus far, the deterioration has largely been in the manufacturing and real estate sectors, exacerbated somewhat by newly emerging problems of financial institutions. If the only problem were in manufacturing because of the high-tech adjustment problems, one could be relatively sanguine. But I don't think that's the case. Looking at recent experience, even though we haven't had any real reason for boom/bust, we are going through one now in the real estate and construction area. It's to the point now where if someone calls a financial institution that they haven't had a long-going relationship with to talk about a real estate loan, it's almost like one of these commercials where people on the other end of the line just laugh and say something like: ""You must be kidding! We're not doing any more real estate loans unless we have a well established relationship with you or unless you have extraordinarily good collateral."" So, there is a great deal of doom and gloom. This, of course, has been reflected in retail sales. Our retail sales around Christmas were not terribly good, particularly in the durables area. And we have an emerging inventory problem in that area and in autos and other areas. I touched on the banking situation. The increased risk premia are having a compounding effect outside of real estate. We're hearing more and more, particularly from small and mid-size businesses, about greater difficulty in obtaining C&I credit. I think that's consistent with what we've shown in the loan officers survey. If you combine all of this with the severe fiscal problems and the essential political paralysis we have--certainly in Massachusetts and you can see it starting to emerge in Connecticut to some extent--it just doesn't paint a picture that is consistent with people having expectations that are going to keep spending up. Actually, we found quite a contrast when we talked to our larger manufacturers in terms of their experience domestically, in the region, and internationally. First of all, I should say that from the point of view of a producer, the labor market situation has improved markedly in New England. Turnover rates are down dramatically. Even in our Bank, turnover on the graveyard shift in the check production area is falling just astronomically.",686
-fomc-corpus,1990,Growth here is a wonderful thing.,7
-fomc-corpus,1990,If you're on the buy side.,7
-fomc-corpus,1990,You realize that the labor unions would say that was awful; you say it's wonderful.,17
-fomc-corpus,1990,"That's right, but we are not in an AFL-CIO meeting. And they have a little different view than we do on what is considered wage inflation as well. In the case of our large manufacturers, we have an interesting phenomenon going on. Many of them are suppliers to both the aerospace and the auto industries, and they certainly have seen a softening in their supplies to the auto industry. But you may have noticed that firms like Textron are supplying more to the aerospace industry even though their auto business is off. Big gains in aircraft are helping us out a lot. In terms of forward-looking indicators, we do have a large paper industry, as you know, and actually that area is somewhat worrisome. Paper and packaging materials tend to lead national cycles somewhat, and the demand for that does seem to be down and capacity utilization is down. Interestingly, thus far, defense really has not been that much of a drag on the regional economy and that's of course because a lot of what we do is in the research and development area. But large producers like Raytheon are attempting rather feverishly to diversify. Nationally, our forecast is not greatly different from the Greenbook. It's just about the same in terms of unemployment and inflation; we have slightly stronger growth. But we think the economy has softened. Where I would have said before that we thought the risks were somewhat symmetric, I think the risks now are on the down side for the economy. Obviously, we'll get into this when we talk about policy, but I think we're in a very difficult situation in that we're walking on this razor's edge. There's a real question of how long we will be able to walk on the razor's edge before getting cut or falling off and getting bruised. Perhaps where we sit depends on where we stand, but I think this question of financial fragility is really something that can't be taken entirely lightly. Having said that, I think that the arguments about concerns for greater inflation as compared to the softening of the economy can work both ways against fragility, which puts us in an extremely difficult bind in policy.",424
-fomc-corpus,1990,President Stern.,3
-fomc-corpus,1990,"Well, there's little new to report as far as the District economy is concerned. We've had a modest and sustainable expansion underway for a long time now. It seems to be continuing and it seems to be reasonably well balanced both by economic sector and by region of the District for the most part. There is some pessimism and concern around and that has been true for a while. But for the most part that doesn't seem to be reflected in the actual numbers on economic performance. In talking to some business people I too hear reports about a leveling off or declines in some input prices, especially materials. But where you don't hear that, of course--and I think where the problem is to some degree--is in compensation. Clearly, if anything--at least in our area--it is accelerating. Part of it is the medical cost problem, but I don't think it's tied exclusively to that. If you look at inflation from the wage and compensation cost side, that's a distinct problem. As far as the national situation is concerned, as I suggested with that question I asked earlier, I think the economy will do a bit better in 1990 than the Greenbook suggests. I think the Greenbook is conservative in regard to real disposable income and growth in consumer spending. As a consequence, I think we'll see a little more strength there. It wouldn't alter the outlook radically in my view, but I think the economy will do a little better. As far as inflation is concerned nationally, I have been cautiously optimistic for some time that we were going to succeed in bringing inflation down sometime soon. I must admit my optimism is fading. I would simply note that if you look at consumer prices excluding food and energy, the rate of increase has been stuck on a fourth quarter-over-fourth quarter basis in the 4 to 4-1/2 percent range since 1983. Actually, I think there was one year that it was worse. But otherwise, it has been pretty well stuck there since 1983; we just haven't made any further progress over that whole timeframe.",414
-fomc-corpus,1990,President Boehne.,5
-fomc-corpus,1990,"Well, as far as the national economy goes, I would agree essentially with the Greenbook. We come out roughly the same in terms of inflation and real growth. As for the region, the Mid-Atlantic states are about the same as the nation as a whole--somewhere in between New England and the Midwest--with New Jersey having a few characteristics of New England, but not anywhere to the same degree of severity, and with Pennsylvania and Delaware being closer to the Midwest. Attitudes vary depending on where in the District and in what industry the people you talk to are; but if there is a majority attitude, I think it can be characterized as somewhat more concern about economic prospects than, say, 6 months or a year ago. But there is a general expectation that the slowing that we're going through and the economic problems that we have are really a brief interlude, just a pause. It's almost as if the expansion of 7 years that we've had is so ingrained that people just think it's going to carry through into the future. Looking beyond the numbers and these current attitudes, I must say, as I listened to the chart show and leafed through these charts, I got the sense that this is a forecast waiting for something to happen. Essentially, what we're doing in the real sector is keeping the inflation rate about steady with subpar growth. That's not terribly satisfying; maybe it's the best we can do. Then, there's the whole business of financial fragility. For those of us sitting around the table what is especially frustrating is that our room to maneuver is really very, very small. In that context I think this kind of muddling through is probably about the best we can do, but it's not terribly satisfying intellectually or otherwise.",351
-fomc-corpus,1990,President Melzer.,4
-fomc-corpus,1990,"In our forecast we have inflation about the same as the Board staff's forecast and somewhat less real growth--actually relatively weak real growth--and somewhat higher unemployment as a result. I would characterize it, just because of the approach used in our shop, as the lagged effects of prior monetary restraint. In that connection, last July and then a year ago when we did the forecast and had to make an assumption about what we considered to be an appropriate monetary policy, it was rather a stretch in the sense that money growth was so weak. We were trying to assume something reasonable in terms of 4 to 6 percent growth in narrow aggregates so that it was difficult to see then how that would actually be realized. In contrast, this time around--for what it's worth--I think it's a little easier to make the assumption, with which I agree, that monetary policy looking forward is on a more or less reasonable course from the St. Louis perspective. As far as the District goes, again looking back, our regional economy was considerably weaker in the first part of last year than the national economy. But in the most recent quarters, and particularly in the latest three-month period, our employment is right in line with national averages in the nonagricultural area and reflects almost identical weakness in the manufacturing area. We've had gains in medical and business services, finance, insurance and real estate, and in construction. And the declines--and this has been the same pattern we have been seeing--are in electrical equipment, fabricated metal products, and transportation. Maybe the addition to that list would be the fabricated metals as the weakness in autos has filtered back. You all know in the consumer durables area I asked him not long ago whether he thought easier monetary policy would really help the problems in that industry and the answer was ""no"". He perceived the problems as demographic, which is the same thing that's affecting housing. In the auto area we've all read that Chrysler has announced the shutdown of the No. 1 plant in Fenton. That will affect 4,000 workers, 2,000 more than had already been laid off; the second shift had been laid off indefinitely. That closing will occur in September. And I think I mentioned in the past that at the No. 2 plant that produces mini-vans, where they're running just two shifts now, there had been a proposal to add a third shift. But there are different [union] locals at these two plants and the local at the No. 2 plant didn't want to hear anything about integrating some of these other workers to put on a third shift. So, I don't know where Chrysler will pick up that capacity. There also is an expectation that Ford is going to repatriate some truck production from Brazil to a plant in Louisville later this year. In terms of the residential [construction] area, activity in our District has been essentially flat most recently compared to declines nationally. There have been reports in the press of what people characterize as very heavy traffic in January and some better-than-expected sales. In reports I've read, Si, we don't pick up quite the same negativism in terms of auto dealers; they were more positive about what went on in January and the prospects there. That's just another perspective. Nonresidential construction has been especially strong, largely because of the large paper mill in Arkansas; it's a $300 million facility where the contract was let in December. Finally, just a comment on the defense area: McDonnell Douglas is our largest employer and two defense programs are scheduled for cancellation; the Defense Department has put out the F15 and the AV8. But generally the expectation is that McDonnell Douglas will make this up with some aerospace contracts that they have and in addition--and I guess you can afford this, Bob--with moves in production from California to the St. Louis facility. So right now in terms of McDonnell Douglas there is not a lot of negativism about how the cutbacks in defense will affect the local economy, although there is indeed some uncertainty. The last comment I would make is that I've read some reports and I heard some comments the other day that lending standards clearly are being tightened as a result of developments in the S&L industry and elsewhere. One person who is in the business of arranging financing for smaller companies mentioned to me that there's a view that the regulators are overreacting. Now, I suspect the regulators are being used as scapegoats by lenders who may not want to make the loans, but that tap dance is beginning to develop a little out there.",920
-fomc-corpus,1990,Governor LaWare.,4
-fomc-corpus,1990,"I'm running the risk here of being labeled the gloomy Gus of this organization, but my outlook is a bit gloomy. I see manufacturing employment declining almost on a secular trend; the construction industry is hurting in a lot of regions; the automobile industry is a hospital case--they're almost on a life support system--with incentives being pushed to try to push automobiles out of inventory; retailing is rather soft and I think deeply troubled by the problem of some of the bellwether companies in the industry being in bankruptcy and all the uncertainties that ride with that; corporate profits are selectively dismal; and consumer attitudes and consumer wherewithal are certainly not expansive at this stage of the game. And while the trend is more positive, the level of both corporate and household debt remains very high and I think that injects an element of ominous fragility into this system. The capital markets are certainly somewhat demoralized on an individual firm basis as well as in general terms. In the face of all that, I wonder if we aren't a little overconfident in not expecting some further stagnation in the economy. Add to all those factors a troubled banking system and a real estate market that is laboring under the overhang of the RTC inventory, and I guess I'm just worried that we're sliding toward a recession. And because of the external factors we may have our hands tied and not be able to do anything very substantial about it. CHAIRMAN GREENSPAN President Hoskins.",295
-fomc-corpus,1990,"We have a forecast that's slightly stronger than the staff's forecast, particularly if the current monetary growth rate of M2 remains near the upper end of the range for the rest of the year. Around the District the slowdown in automobile production obviously has hit us fairly hard, but it has not spilled over into anything that we can find. We're also fortunate to have some transplants that do quite well in the area. Capital goods and capital spending are on a solid growth path according to our contacts--companies like Timken, Eaton, and Inland Steel. Our stainless steel measure that is drawn from the orders for stainless steel strip which goes on all consumer products is below last year but higher than the company expected. So that has turned up even though it's still at lower levels than it was last year at this time. And steel producers say that first-quarter orders have picked up even from the auto industry. I'll mention another set of forecasts, for what it's worth. We have a Fourth District round table meeting quarterly, which involves economists from the financial as well as the manufacturing sectors, and their outlook for real growth is 2.1 percent with essentially the same monetary policy as in the Greenbook. For all these reasons, we think the risks remain on the high side of the outlook for 1990. Having said that, and taking account of Governor LaWare's and others' concerns, I remind myself that the forecast error of plus or minus 2 percentage points is certainly enough to result in a recession, given the Greenbook forecast. So, I share the concerns. I also share Bob Black's concern that we have made no progress with respect to inflation. And I think we should keep that in mind when we set the targets tomorrow.",347
-fomc-corpus,1990,President Boykin.,4
-fomc-corpus,1990,"Mr. Chairman, I'm in a bit of an unusual position of being more optimistic than the Greenbook concerning developments on the real side of the economy. I see real growth this year coming in at 2.1 percent--I don't know what that means--and considerably more inflationary pressures. I am very pessimistic about the inflation outlook. Our District economy has been improving recently--actually to a greater extent than I had anticipated. We thought that the weakness in the national economy would depress growth in our District more than it has. To our surprise this has not happened, which seems to show that there may be some underlying strength down our way. Our employment gains have exceeded the national rate during the last few months for which data are available. That may not be sustainable, although we do have some anecdotal evidence that suggests that the attitude in this regard has shown improvement. In agriculture, we're still reeling from the freeze. The lower Rio Grande Valley really has been devastated. The citrus damage I think was greater than in Florida, although we do have some insurance that will help tide growers over and cover some of that damage. The retail sector is not robust but it has had a reasonably good year; there are year-over-year gains. Our national retailers show much better gains in the District than in the rest of the nation. Manufacturing is not doing very much. We have a little concern about the anticipated layoffs in the defense-related areas. Construction seems to be stabilizing and there is talk of the first signs of liquidity coming in. We were told that some of the Houston improvements, certainly in real estate, probably have moved up our way. We've been told that raw land is actually selling in the Dallas-Fort Worth area primarily for residential development. The energy situation is pretty stable, with possibly some improvement there. I'll sum it up by saying that in our District, at least, the overall outlook is improving. I can't resist saying, in listening to my friend Dick Syron--",397
-fomc-corpus,1990,Try!,2
-fomc-corpus,1990,"I remember several years ago I gave a very comparable report and my good friend Ed Boehne leaned across the table and said ""Boykin, that's a Texas problem."" So, maybe that's just a Northeast problem.",43
-fomc-corpus,1990,"Now people in the rest of the country, instead of saying we're not another Texas, are saying we're not another New England!",25
-fomc-corpus,1990,President Guffey.,5
-fomc-corpus,1990,"Thank you, Mr. Chairman. With regard to the forecast over the upcoming forecast period, for 1990 we're very close to the Greenbook forecast--a tick stronger in real growth and very close to the projection for prices. There is very little difference in the CPI less food and energy. Turning now to the District economy, as I think all of you know, agriculture has been on a recovery path now for a year and a half except in those areas where there have been dry conditions. The concern was that we would start a third year of drought there. Much of that has been relieved with snow and rain across much of the Wheat Belt, although the sub-soil moisture reserves are still very low. They will need more moisture to produce this wheat crop, apparently. But, given the moisture that has already fallen, there are some brighter prospects there. Grain prices have slumped because of the moisture that has fallen but also because of improved soybean conditions in South America and a backlog of corn-laden ships in Russia, all of which have begun to dampen commodity prices. On the other hand, cattle prices are virtually at an all-time high and, given the selloff, there's a good outlook for the agricultural sector in the period ahead. Energy prices, as everybody is aware, picked up in both December and January because of the cold weather. Most of the operators in our area believe that's only temporary and it has not encouraged them to expand their projections for additional drilling exploration or pumping from existing resources. As a matter of fact, the District rig count fell about 10 percent in December from 337 to 303, if those numbers are to be believed. The manufacturing story is the same in the Tenth District as it is elsewhere, particularly with respect to the auto assembly problems. We are heavily involved with auto assemblies in the District. There had been temporary layoffs and I'm told that a relatively new, about a 3-year old, General Motors plant in Kansas City will lay off an additional 700 at the end of February. One plant has been closed, though not this year; nonetheless it has taken its toll in that community. Unit sales of general aviation aircraft increased about 45 percent nationwide in 1989 over 1988, but most of that increase--and we're fairly heavily involved with general aviation aircraft manufacturing in the Wichita area--has been single-engine piston driven aircraft and fewer large jets. As a result, the value of shipments is down from 1988. The construction industry, both non-residential and residential, is depressed in each of the major cities in the area. There isn't a great expectation for that to come back in the period ahead, particularly in the residential sector, as evidenced by the fact that a third fewer housing permits actually have been granted for residential construction. As a result that sector is kind of on its ear. On the other hand, in each of the major metropolitan areas in the District we have an unemployment figure that is less than the national average. That does say that there is some income being generated; [unintelligible] we probably will drag well behind the continued recovery on the national level.",633
-fomc-corpus,1990,Vice Chairman.,3
-fomc-corpus,1990,"Mr. Chairman, in terms of the outlook, our staff forecast is virtually identical with Mike's and Ted's both for this year and next. The only difference is that we have domestic demand in 1990 a shade stronger. The wage/productivity/ price components are for all intents and purposes identical to the second digit. As a matter of fact, in looking at the two forecasts they're so close I'm inclined to think it raises the probability that they are both wrong! On the more anecdotal side, in talking to business people in both small and large businesses, the impression I walk away with is that if you nudge them a little or maybe twist their arm a little they'll buy into that kind of forecast. But I think the nagging, if not growing, sense of unease is that things might not turn out quite that way. There has been a lot of talk about autos and real estate. I get the impression, reinforced by the earlier conversation about transplants, that there are a number of people who are beginning to wonder if the auto situation is simply an inventory adjustment or if there might not be something more permanent there. The real estate side--and the Second District is small geographically, but there are still a lot of people and a lot of buildings there--I would say is not by any stretch of the imagination in a calamitous state. As Ed said, New Jersey and I think especially maybe northern New Jersey--",289
-fomc-corpus,1990,Central and northern.,4
-fomc-corpus,1990,"--is bordering on New England-type conditions. But as far as New York is concerned, including Long Island and upstate, that would not be the case at all. The general impression I have is that the residential market, including the upstate market which in people terms is big, is holding up okay with the exception of the very high-end segment of the market--the $2 million condos and the $1-1/2 million houses in Rye. And as far as commercial real estate is concerned, again, we have not had even in New York City anything like the extent of the overbuilding problem that characterizes many other major cities around the country. So, while there's some overhang of office space in New York City, it is modest in comparison to many other cities around the country. While it's not going to be a source of strength by any stretch of the imagination, I think the real estate market, with the exception of northern New Jersey, is probably not going to be any significant drag in terms of the overall national picture of the real estate sector. I did want to mention a point that Tom Melzer mentioned. There clearly is a pervasive tightening in credit standards in depository institutions of all sizes. And, Tommy, whether it's valid or not, there is absolutely no question that lenders are alleging that they are being pounded upon by examiners. Some of what we're seeing here may reflect that. Again, I can't tell whether it's giving them a convenient excuse to say ""no"" when they were looking for an excuse or whether there's something to it. But certainly that is what one hears more and more from institutions, large and small. There's another development that is somewhat noteworthy and that is in the retail sector, which I think has been brought more to the fore by the Campeau situation. It is very clear to me from comments by both suppliers and major retailers, including that have some debt service problems of their own but are clearly not in the camp of the Campeau group, that supplier problems and even trade finance arrangements for these major retailers are now becoming a problem. While they kind of ""snuck through"" the Christmas season, we are beginning to hear a lot of commentary from both sides, including at the very big chains, that they're terribly worried about their ability to get inventories into the stores for the Easter buying season. Easter, of course, is nowhere near as big as Christmas but it is not trivial in relation to the total amount of retail sales from soft goods stores for the entire year. Now, whether that problem will begin to straighten itself out remains to be seen. But the commentary that I get, in the context of the Campeau situation, is that it's going to take a long, long, long time for that to get unscrambled. And as long as it is not unscrambled, notwithstanding the theoretical protections to suppliers that grow out of the bankruptcy proceeding, getting a steady flow of merchandise into these stores except [by paying] cash may not be the easiest thing over the period ahead and possibly for an extended period of time. That, of course, bears a bit on the other situation that I think accounts for some of this sense of discomfort I referred to earlier, and that is the very obvious and continued shrinkage on Wall Street. Again, in one sense it's a relatively small sector of the economy, but I think it does have some psychological overhang in other sectors as well. Now, if any of you have read, as I have recently, Barbarians at the Gate you might be inclined to say that that adjustment is overblown. Be that as it may, I think that too contributes a bit to this sense of uneasiness I mentioned before. Having cited those factors that I think do account for that sense of unease, I myself still think that the likely outcome is something like the staff forecast. One thing consistent with that is that we are getting reports that exports, especially of high value specialized goods, are holding up quite well. Indeed, I draw at least a small sense of comfort in that regard from the most recent set of business statistics. So, I guess the bottom line is that I think we're okay, but it's going to be a close call.",850
-fomc-corpus,1990,Governor Johnson.,3
-fomc-corpus,1990,"I also think that the Greenbook forecast is a reasonable forecast. It's closer to my view of the world than it has been in a long time. I am a little more hopeful on the inflation front, although I think the Greenbook scenario is plausible. Among the reasons why I'm a little more hopeful are some of the concerns that people--Jerry and Governor LaWare and others--are sharing about the real estate problems and debt problems and the restraint that that is going to place on overall inflationary behavior. It bears watching. I think there is a sense of unease, but I don't see anything systemic to that, certainly not at this point. That's probably one reason I'm a little hopeful on inflation. I also think the problems are [unintelligible]. So far the dollar does appear to be stable to slightly weaker, but I think the weakness is more a special D-mark problem associated with the optimism in Germany and Europe than anything else. Commodity prices have been stable to slightly weak, although the oil situation is an uncertain issue. I actually think the turnaround in bond yields bears watching. I think that is to some extent a perception of a bottoming out of the economic conditions and some optimism about Europe and the Soviet Union. So, to some extent it could [reflect] an improvement in perceived real returns, which may not be a contractionary force but a positive one. It could also be, partially, some inflationary expectations surfacing; but that's not necessarily borne out in some of the other financial markets. Certainly, it's enough of a development for us to be very cautious and it certainly bears watching. I'm generally optimistic in that I can start to see the light at the other side of the slowdown. But I think this is a period to be cautious if we're going to consolidate what I hope are gains on inflation.",367
-fomc-corpus,1990,Governor Angell.,4
-fomc-corpus,1990,"My number for real GNP is right underneath the staff's at 1-1/2 percent real growth, but my nominal number is considerably less [than the staff's number]. I put nominal GNP just barely above 4 percent, so that gives you some indication of how I believe we can get a pretty narrow squeeze if we do not get better improvement than the staff has forecast on inflation. The price picture is really pretty mixed at this point. I do not see that we've really had much of a downward move in commodity prices other than for industrial metals prices. For the most part, commodity prices are pretty well holding steady at a relatively high plateau. If those commodity prices stay at that plateau, I think the chance for an immediate PPI and CPI movement downward, which would boost the bond market, is not going to come as early in 1990 as might be desirable for real output reasons. But even though commodity prices don't show that much brightness, I do believe the whole price picture is in a position where it can move pretty fast. Several of you have mentioned some of these developments, but I want to refocus on them. Even though house prices nationwide are not in a deflationary mode, the fact of the matter is that the majority of homeowners do not have much expectation of appreciation. That has been a factor driving household wealth; and it's a factor that I think has artificially depressed the household saving rate. Consequently, I tend to feel that the household saving rate may very well respond and, contrary to what we're seeing, may not be an interlude but may be somewhat longer-lasting. I believe that in this rolling adjustment that we've been in, a lot of people have experienced severe burdens of debt. It happened in the farm sector and they haven't forgotten; it happened also in the oil sector and they haven't forgotten. It has happened in nonresidential real estate and I don't think they've forgotten; and it has happened in LBOs. And households are not in a position to pick up this gap. The changes in the tax laws plus more restrictive lending standards can have quite an impact. I think households have just realized that that tax reduction feature is no longer there. And since home equity lines are not apt to be expanded in a flat real estate market, the home equity line doesn't provide as much opportunity for low cost or tax deductible lending. It seems to me that autos financed out of nondeductible interest payments would be a rather severe burden, so I just don't see any outlook for autos and perhaps other household durable goods to come back as fast as maybe the Greenbook implies. However, I do believe that if we don't tip the economy over, there are some underlying positives. I agree with those who see the [outlook for] merchandise trade exports as being somewhat optimistic, as I think even the staff forecast shows. But I might expect slightly more optimism than that. The foreign tourism factor particularly is not a minor factor and I just can't but believe that that will continue. I think also that the undergirding factor in here is that we have had rolling recessions throughout the economy, so it's not as if we have been in a stage in which every sector has been in a boom. Consequently, I think we're not as vulnerable to downturn forces because, as Bob Boykin mentioned, in Texas energy is actually in a recovery mode and agriculture and agricultural machinery are in similar recovery modes. My forecast is for a much brighter picture except for the CPI; I only have the CPI down 1 percentage point from this year's level. So, I'm not expecting as much gain in the CPI because at this point in time I consider the greatest danger to this sustained expansion is through a financial problem for the dollar, and I'm not as optimistic about the dollar as I have been in previous years. Of course, my optimism about the dollar last year was that the dollar would be pretty stable and I think it behaved that way. I think that's our razor's edge; if something happens there, that could upset things. So, under the assumption that we're not going to cut the fed funds rate 25 basis points and drive long bonds up another 50 basis points, I think there's a reasonable chance that that will be okay.",853
-fomc-corpus,1990,Governor Kelley.,3
-fomc-corpus,1990,"Well, Mr. Chairman, let me put on the table something that I know everyone here is very aware of but that I don't think has been explicitly mentioned yet, and that is that we are living in a time right now of really incredible, momentous events in the world. I won't try to run the litany and I don't want to be too dramatic. But I think we may very well be in a time where there is a sea change going on that happens rarely in history. I think it's very, very important that we have a reasonably comfortable economy for the Administration to operate in, given this environment and this geopolitical era that we're in. And I think so far we have it. As I listen to the reports and read the statistics and read the Beigebook, indeed, I think the forecast that we all seem to share quite closely is satisfactory and meets that criterion. But I also share a lot of the concerns that the two gentlemen on my left and right mentioned when they spoke. I don't know what has happened to this corner over here, Mr. Chairman. Maybe you should separate us! But I share the concerns about what could happen and I think it's very, very important that we keep a weather eye out, particularly in the kind of environment that we share right now in the world. As far as monetary policy goes, I agree with everyone else here that it's essential first of all that we not allow [inflation] to increase, and indeed that we knock it down and make some progress toward stable prices over time. Hopefully, we're doing that right now and can do it this year. But I must say that, in economic terms, I don't think it's terribly shabby that we're holding [inflation] steady in the strong economy that we have had over the last couple of years, coming off of the kind of history that we've had over the course of the last ten years. In historical terms and in political terms--political in the big good sense of the word political--I think maybe we should be willing to accept some risk that this is the best we can do right here rather than be too terribly macho in the direction of trying to knock inflation down very rapidly at considerable risk to some other issues that may be larger.",451
-fomc-corpus,1990,Governor Seger.,4
-fomc-corpus,1990,"John LaWare stole my script. We're at the same end of the hall, so I'm a gloomy Gussie. I will add just a couple of items to his sad tale. One is that I really think the problems in the auto industry are more extensive and more permanent than a lot of people realize. I don't think we're going to have layoffs for a couple of weeks and then a pop back. If you look at even the transplant numbers carefully, I believe you'll see some adjustments. For example, Mazda has cut back on its pace of production--and that's acceptable Japanese, not American junk. So, I think one has to pay attention to that. Also, I don't believe that the weakness in durables manufacturing is limited to autos. Caterpillar Tractor, for one, is experiencing declines in orders from just about all categories of customers. They are below the peak levels. Also, appliances and [other durables], again these are not auto [unintelligible]. I'm getting more and more concerned about credit availability. I think I mentioned a couple of meetings ago that part of [the stringency is due to] the overreaction of examiners; they are scaring the heck out of bankers. But, in addition there's the problem in financing developers, and I mean the good developers not the scabby types. They are having problems getting financing from the S&Ls and their old sources because of these limits on loan size. [Regulators] have taken the national bank limitations and placed them on S&Ls and that's giving developers real problems. I think we're going to see this impacting the housing numbers more and more. Also, in certain parts of the country I think there is a problem simply in dealing with sick thrifts. I've been going back and forth to Arizona to check on my mother and out there 60 percent of the S&L assets in the state are now under conservatorship. When the grey panthers are talking about this kind of thing, you know it's a serious problem. And dealing with the overseers at these thrifts and conservatorships is different from dealing with other kinds of managements. They have a different outlook. Just the decline in real estate values is something that's very significant, and I don't believe it's going to go away soon. Many of the gains in employment are in jobs like bankruptcy lawyers and ""undertakers"" hired by the RTC, etc. So, I don't find all that growth an optimistic story at all. I'm certainly not eager to see a recession but I really feel that over the next couple of quarters we're at risk. I hope I'm wrong. Thank you very much.",531
-fomc-corpus,1990,Did you forecast a recession?,6
-fomc-corpus,1990,No.,2
-fomc-corpus,1990,"Hopefully without precipitating unnecessary debate, could I just make a quick comment on this recent rise in long-term interest rates? I may be missing something, but I don't find it all that hard to explain at all, and I think some of it is temporary. But abstracting from that, it seems to me that as long as we're in a situation where we have to attract $100 billion or more a year from the rest of the world and we have been through a period in which our interest rates have been falling and interest rates in the two massive surplus countries, Germany and Japan, have risen sharply in recent weeks, either one or two things are going to happen. Either we're going to see upward pressure on domestic rates here or downward pressure on the exchange rate or both.",155
-fomc-corpus,1990,Or we're going to see a decrease of the inflation rate in the United States to equal or below those of the other two countries.,26
-fomc-corpus,1990,"Well, that is another possibility, although I have a little trouble seeing that in the immediate term.",20
-fomc-corpus,1990,But you would agree that that is a third option?,11
-fomc-corpus,1990,"But looking at it in that light, it seems to me that what we're seeing is a rather vivid illustration of the box we're in with respect to the interactions between domestic interest rates, foreign interest rates--in the surplus countries in particular--and the exchange rate. It really illustrates how difficult the policy environment is.",62
-fomc-corpus,1990,"Well, I think that's a good way to end today's session.",13
-fomc-corpus,1990,Really end on an upbeat note!,7
-fomc-corpus,1990,We reconvene at 9:00 a.m.,11
-fomc-corpus,1990,"Good morning, everyone. Mr. Kohn is on the agenda for the initial discussion on long-run ranges for the aggregates.",25
-fomc-corpus,1990,[Statement--see Appendix.],6
-fomc-corpus,1990,Questions for Mr. Kohn?,7
-fomc-corpus,1990,"Don, you already mentioned it. I was going to ask on the M2 forecast which way you thought the risks were or whether they were symmetric. You said they were a bit on the down side?",41
-fomc-corpus,1990,"I think they are. The forecast that we gave you is our best guess. As the Bluebook noted, it lies in the middle of the range of the model forecasts. But I think there's some chance that offering rates on deposits might be somewhat lower than the models would judge from past history. As I noted in the briefing, I base this on a couple of things. One is that we see bank credit as relatively moderate and we see banks acquiring a lot of core deposits from thrifts as they shrink and as the RTC shuts them down. In addition, if the RTC gets active again and starts putting out more funds for thrifts to pay off high cost liabilities, thrifts might start shrinking their core deposits a little more--reducing the rates they offer. And that would put downward pressure on offering rates. So I think the risks are weighted a little more toward 6 percent growth than 7 percent growth on M2.",187
-fomc-corpus,1990,"That's good, too. A follow-up question on that: On balance, if commercial banks also were to decide to grow more slowly in this emerging caution that we see and decide not to fund [growth] in wholesale markets and people see some signs of less aggressiveness in the retail markets, would that work in the same direction?",66
-fomc-corpus,1990,"That would obviously work in the same direction. We put in fairly restrained bank credit growth, given that we do have them taking over, in effect, a chunk of mortgages from the thrifts--not literally. In some cases they might do clean bank deals in which they would acquire these thrift mortgages. But we see them, as they have been in the last several months, a little more active in acquiring mortgages, secondary mortgages essentially. But even allowing for that we have fairly restrained bank credit growth. If it were even more restrained, then I think the first option [for banks] would be to reduce their managed liabilities and to rely a bit more on retail deposits, which have a more stable base. So, I'm not sure how aggressive they would be in reducing that. But if they really got their managed liabilities down very far then they could [unintelligible] into the core deposits.",180
-fomc-corpus,1990,"President Syron, if you carry that general phenomenon far enough in terms of greater credit rationing effects and some contraction in credit availability, then you begin to affect the general interest rate level; presumably, that's consistent with the given growth path of the economy.",51
-fomc-corpus,1990,Sure.,2
-fomc-corpus,1990,"And then that tends, presumably, to work in the other direction. We've built in only a modest amount of that sort of additional restraint in the forecast. That's probably consistent with what most of you, I would judge, think is likely to occur. So, there is a possibility of something more of a constraint.",63
-fomc-corpus,1990,Thank you.,3
-fomc-corpus,1990,President Parry.,4
-fomc-corpus,1990,Two questions referring to page 8 [in the Bluebook]: The tentative range for M2 is not only consistent with the baseline throughout the entire period but it also provides the flexibility that if one wanted to be somewhat more aggressive in trying to reduce inflation it is in some respects even more consistent with that outcome as well. Is that correct?,68
-fomc-corpus,1990,That's correct. Because we're expecting M2 growth at the top of its range there's nothing preventing you from being tighter than the expectations in that regard. I saw the tighter range as in some sense forcing the FOMC's hand and then signaling its intentions. But you're absolutely correct.,56
-fomc-corpus,1990,"Well, the second point is that with regard to alternative III, which is the 2-1/2 to 6-1/2 percent range, you cite in your remarks the advantage of following the precedent of trying to reduce the [ranges for] growth of the aggregates 1/2 percentage point. It looks, based upon the record, that we ought to forget about that if reducing [the ranges] 1/2 percentage point in the future is something that we probably can't live up to. And perhaps we ought to recognize that as soon as possible.",115
-fomc-corpus,1990,I don't have any quarrel with that statement.,10
-fomc-corpus,1990,Thank you.,3
-fomc-corpus,1990,That depends to a large extent on the accuracy of the Phillips curve type of model.,17
-fomc-corpus,1990,"Oh, sure.",4
-fomc-corpus,1990,"And to the extent that the process might accelerate, as indeed it has in the past, we might find that--you know, it says 1990 to 1994--they might not be full years. They may be 10-month years and the thing can actually accelerate. I think we could probably play it by ear, but what this does tell us is that our ability to play the game of just going down, down, down without making [others] fully aware of the consequences has to be rethought.",105
-fomc-corpus,1990,Even in 1990 I think we perhaps would get some advantage by publishing a 1/2 percentage point decrease. But it then runs the greater risk that we're going to tell the market at the end of the year that we have missed.,49
-fomc-corpus,1990,Governor Seger.,4
-fomc-corpus,1990,"I know that several times in the past we have taken into account how well we hit the targets in the previous year, in terms of whether we should adjust for a miss. Now, on M2 we came in about 1/2 percentage point short of the midpoint of the range. Is that a close enough hit that it doesn't really enter into this consideration of what we set for '90?",80
-fomc-corpus,1990,"By and large the Committee has not adopted a policy of explicitly taking account of where the end point is. I think implicitly, though, it does that. That is, presumably the economic and financial conditions you're facing as you make this decision are partly a function of, or at least involved with, where M2 ended up last year. So, I think the Committee's point always has been: Where are we right now? What are the conditions we wish to foster from here on out? Wherever we ended up in the range last year, we can assess the situation right now. So, the Committee generally hasn't chosen to worry explicitly about tying one year's range to where it came out in the previous year or intended to come out. Rather, it has said: Here's where we are; let's go on from here. The accusation has been made that, in effect, the Committee has allowed money to drift up more than down over time, although I'm not sure that we haven't corrected some of that upward drift over the last few years. The previous thought was that the Committee tended to allow it to go up, but I think in the last couple of years the ranges have been taken from the [actual fourth-quarter level in the previous year], which had come in at the lower part of the range. The point is that you look at where you are and see where you want to go forward from wherever you ended up last year.",285
-fomc-corpus,1990,I know we discussed this in the past without having an explicit policy for dealing with it. Thank you.,21
-fomc-corpus,1990,Governor Johnson.,3
-fomc-corpus,1990,"I notice that even in your tighter scenario, the M2 growth rate for 1990 is still higher than the midpoint of the tentative ranges. You have 5-1/2 percent and I think the midpoint on the tentative range is 5 percent. So, as Bob Parry is saying, that scenario is fully accommodated within the tentative ranges. But a question that I have relates to your comment that real interest rates would have to be slightly higher over time to reach this 5-year path. Do you have any estimates for that or--",110
-fomc-corpus,1990,We have real interest rates rising about a point in the baseline and maybe 1-1/2 points in the tighter scenario. I would caution you that that's well within the margin--,37
-fomc-corpus,1990,So nominal stays constant?,5
-fomc-corpus,1990,"Well, actually, nominal goes up. But to get the real interest rates up because of the momentum behind inflation--. Let's take the tighter scenario since it illustrates the point a little better. That has nominal interest rates, say, the nominal funds rate, going up this year and next but only to about 9-1/4 percent, something like that. So, it's only a matter of--",81
-fomc-corpus,1990,Is this the tighter or the baseline scenario?,9
-fomc-corpus,1990,"The tighter one. Under the baseline we used the rates in the Greenbook forecast for this year and next, which only go up very marginally; and then we'd have another marginal increase in 1992. But you do have to have some increase in nominal rates because you can't get the increase in the real rates, given the momentum behind inflation, without some increase in nominal. But then they come down in the later years. As inflation comes down, nominal rates come down with it, leaving real rates a bit higher in the tighter scenario.",109
-fomc-corpus,1990,"It is a problem. I agree that that's the way you have to look at it. But, as the Chairman said, if inflationary expectations are just a little better than you anticipate, that doesn't necessarily imply a rise, or at least a substantial rise, in nominal rates.",56
-fomc-corpus,1990,President Black.,3
-fomc-corpus,1990,"Mr. Chairman, Governor Seger raised an interesting question about base drift. I've been very much concerned about that problem over time. I had felt that the best way was some kind of point target, and I even thought of going with some range for missing above or below. But the way we do it, if we end up expecting a rate of growth for the next year from some point other than the one where we are at year-end, it's very difficult to explain to the public. I don't know exactly the way around that unless we move to some kind of point target. But it's very confusing. If we're way over, even those of us who are the most hawkish are reluctant to vote for something like a 2 percent rate of growth to counterbalance some of the overshoot, because that would seem rather extreme to the public who would just pick up the 2 percent and not realize that it came from a different base. I think it's a problem we ought to try to deal with somewhat differently from the way we're doing. But I don't really have the best answer as to how to do that. I do have a lot of sympathy for some kind of point target way out there, a multiyear target.",246
-fomc-corpus,1990,There's another thing that I suspect all of us have in the back of our minds and that is that somewhere in this timeframe there is [likely to be] a recession. And the ability to lock onto an appropriate money supply target in a recession improves very dramatically if you [unintelligible] right. So it's not as though we have to focus on calibrating literally to this type of environment outlined in the Bluebook strategies. We may be fortunate enough in fact to be looking at 5 years of continued growth on top of what we have already had and it would make the job a little easier. But I think the probability is that somewhere along the line we're going to get a shot at it. And that may in fact be the easiest way to bring price stability in the 1994-1995 period.,164
-fomc-corpus,1990,"It would certainly be good if we could do that since our [Congressional] testimony--that of the four Reserve Bank Presidents and yours--of course suggested it. If we thought this were a real possibility within a 5-year period, the only scenario here that even comes somewhat close to that is strategy II.",63
-fomc-corpus,1990,"Yes, but none of these is a likely scenario.",11
-fomc-corpus,1990,Probably not. I hope we have something better than anything that appears in any of them actually; but I think it would be rather optimistic to expect that.,31
-fomc-corpus,1990,Any other questions for Mr. Kohn? Governor Angell.,13
-fomc-corpus,1990,"Don, following along through strategy II, I get a [growth rate for] dollar GNP under strategy II of 5-1/4 percent. Is that right?",35
-fomc-corpus,1990,In 1994?,5
-fomc-corpus,1990,In 1990.,5
-fomc-corpus,1990,"Yes, you're right.",5
-fomc-corpus,1990,I didn't have my calculator with me.,8
-fomc-corpus,1990,"[Unintelligible.] But anyhow, you're right: it's something like that.",17
-fomc-corpus,1990,Okay. Then that implies a V2 of zero.,11
-fomc-corpus,1990,Right.,2
-fomc-corpus,1990,That doesn't seem to me to quite fit under that scenario.,12
-fomc-corpus,1990,"In effect, what's happening in that scenario is that the decline in interest rates from the end of the last half of 1989 tends to push up M2 and push down V2; and then the rise in interest rates in the tighter scenario tends to exert the opposite force and they about offset. So, you get essentially no change in velocity for the year.",73
-fomc-corpus,1990,The velocities that I calculated on strategy II were zero in 1990 and in 1991 and plus one in 1992. It seems to me that that tightening scenario somewhere in there is apt to have a declining velocity.,46
-fomc-corpus,1990,"A declining velocity? Because of the drop in the inflation rate, you're saying?",16
-fomc-corpus,1990,Yes.,2
-fomc-corpus,1990,"It does in the out years. Once that inflation rate goes down and we start seeing that in nominal interest rates under that strategy--in 1993 actually and in 1994--then you get the velocities you're looking at. So, it's a question of how fast inflation comes down. Under the Chairman's thought that you might get faster 10-month years it would bring that forward. But you don't get it for a while because you have to get those real interest rates up and keep them up, in the conventional wisdom of the model, to induce a gap in resource utilization to get the inflation headed down.",123
-fomc-corpus,1990,"But those of us who believe that the Phillips curve model is not as accurate as the commodity price-V2 relationship position would tend to see the timing of that as being a little different. That is, it seems to me that the strategy II scenario would be associated with declining commodity prices sometime in the second half of, say, 1990. I just can't help but believe that that would tend to take velocity down with it; and there's some risk, it seems to me, that velocity could be somewhat lower than anticipated.",105
-fomc-corpus,1990,"If the declining commodity prices tend to take the price level and price expectations down with them so that nominal interest rates could fall, then I think you're right. That's the way I would think through your scenario-",41
-fomc-corpus,1990,"Yes, that will happen as gold prices decline!",10
-fomc-corpus,1990,"Any further questions for Mr. Kohn? Can we start the general discussion? I'll start very quickly. I felt that this simulation out to 1994 was very useful. It gives us a real shot at the meaning of what it is we're voting on. And it pretty much says to me that the general recommendation of alternative II of 3 to 7 percent on M2 probably gives us about the flexibility we need. I guess on M3 it's just a mechanical adjustment and the same is true on debt. But on the impression that I originally had--which I think a number of us had--about the need to calibrate down, I think this has given us a somewhat different focus at this stage. I'd be curious to get anyone's impression of this. Bob.",156
-fomc-corpus,1990,"I would be for alternative II; it not only provides an alternative that is consistent with our baseline but it also gives us the flexibility, if we wish to exercise it, to embark on a more aggressive policy to reduce the rate of inflation. I think it has a significant advantage over alternative III because I'm concerned that alternative III--though it has the advantage of maybe signaling our intentions--might set us up for failure in terms of not being able to adhere to it. So, I think this alternative is just what we need to accomplish not only our objectives for 1990, but potentially it sets us on the right path for subsequent years as well.",130
-fomc-corpus,1990,Governor Johnson.,3
-fomc-corpus,1990,"Yes, I agree with that. For M2, alternative II makes perfect sense. It's consistent with this strategy II of getting inflation down over time. I wouldn't mind at all going with the alternative III ranges for M3 and debt. But for M2, certainly, alternative II makes more sense to me. And I would think that the strategy II scenario is consistent with the alternative II ranges--even though those may be the actual inflation trends--moving down toward 2 percent over time, assuming that that's the trend. What could accompany that downward trend is actual inflation expectations that really could achieve what the Chairman has described as price stability anyway. Obviously, there may be a lag in adjusting the actual inflation rate. But over the '80s we had a consistent downtrend in 10-year or long-term inflation expectations. And even more recently, those long-term increases have moved below the 12-month inflation rate. So, it's quite possible that inflation expectations would be lower than the actual inflation rate along that path and that we would be accomplishing a lot of what we are looking for.",217
-fomc-corpus,1990,Bob Forrestal.,4
-fomc-corpus,1990,"Thank you, Mr. Chairman. I too found this very, very helpful; the outlining of the strategies is great because it gives us a longer-term outlook. In looking at those strategies, I realize that this is a fairly long timeframe here and we probably will not be able to adhere to any particular strategy. But starting out I would hope that we would adopt the baseline strategy I and not be too aggressive in moving toward price stability because I think the risk of recession in the second alternative is too great. And if we do have a recession, we'll then have to ease until we get back into this sort of stop-and-go kind of policy stance. So, I think that strategy I is the one that we ought to pursue. That means logically then that we favor alternative II for M2--that 3 to 7 percent range--given where we are with M2 at the moment. I think that's the logical one. We could move the M3 range down; I wouldn't mind having that moved down. We'd get a little announcement effect, I suppose, from that. I don't feel very strongly about M3, though I do think the M2 range should be at 3 to 7 percent.",243
-fomc-corpus,1990,Vice Chairman.,3
-fomc-corpus,1990,For 1990 I'd just keep it simple: alternative II for the reasons that you and Mr. Parry have stated.,25
-fomc-corpus,1990,President Boehne.,5
-fomc-corpus,1990,"Well, I agree with those who support alternative II, and I also think it is helpful to have this longer-term view of what these strategies mean. But as important as that is, we still have to live through 1990. And I think the questions that we have to ask are: How much risk of a recession in 1990 are we willing to bear in order to keep inflation from accelerating? And how much flexibility do we need in 1990 in these long-run ranges to deal with the threat of recession, should it get more serious? I think alternative II also encompasses the right balance for 1990 as well as for the longer-run outlook. Alternative III simply doesn't give us much flexibility in that regard and alternative I takes us in the wrong direction on inflation. So, both for the immediate year, 1990, as well as for these longer-run considerations, alternative II makes sense.",183
-fomc-corpus,1990,President Black.,3
-fomc-corpus,1990,"Mr. Chairman, I share your enthusiasm for the material contained on page 8 because I think strategy II clearly is the sort of thing that we really want to get, at a minimum. And even that strategy has inflation coming down only 2 percentage points over a 5-year period. In contrast to that, which seems to me to be the minimum progress that we ought to aim for, the baseline would have us coming down to an inflation rate that is still more than 3 percent in 1994. I part company a little with you by thinking that alternative III is probably a better way to go. But I realize that there are political problems. We did go with 3 to 7 percent tentatively as the range for M2 last time--although I argued forcibly, and I thought extremely persuasively, that it ought to be 2-1/2 to 6-1/2 percent but lost that battle--and it is very difficult to bring it down. But we also have to think about the risk of not doing something to lower the inflation over time. And that risk bothers me when I look at strategy II because it has the unemployment rate going up to 6 percent; I'm sure that bothers everybody else in the room too. But, as Governor Angell said, this is a Phillips curve type model and the Bluebook points out, I think wisely, that a more restrictive policy might well change expectations and increase the credibility of our efforts and reduce the cost of getting there. So, the tradeoffs might not be as unfavorable. Finally, beyond that, I would say that we need to give some consideration to the risk associated with an outcome like the one in the baseline simulation. The inflation rate is still above 3 percent in 1994 and we've all said, as embodied in the Neal Resolution, that 5 years seems to be a reasonable length of time to work the inflation rate down gradually. If we had 3 percent that late, I think observers would pretty well conclude that we had thrown in the towel. We can certainly do what is compatible with strategy II with alternative II instead of III, and I certainly wouldn't dissent on it if I were voting. But I do have some preference for alternative III because I would like to send that little signal to the market that we still have the long-run objective of reducing inflation.",477
-fomc-corpus,1990,Governor Angell.,4
-fomc-corpus,1990,"It seems to me that we really should make up our minds to live within the ranges. I would be more inclined toward a range that we can live within than I would to get a little too macho and then find ourselves deviating from it. I could live with alternative II provided we take quite seriously that 7 percent is really a desirable top. When we look back to the last deflationary period, we let M2 get to more than 9-1/2 percent, so it would be considerable progress from 1986 when we had 9-1/2 percent if this time it were 7 percent. It does seem to me that V2 could well be as low as negative 2. And if nominal GNP were in the 5 percent range, I think that over a period of time would be effective restraint. I would also prefer to wait to cut the ranges until we can cut them a full percentage point. I think it would be nice to make the cut from 3 to 7 percent to 2 to 6 percent. I just don't feel that that's a very livable cut this time. So, I would prefer alternative II. But I would prefer, Mr. Chairman, that in your Humphrey-Hawkins testimony you make it very clear what our strategy is and why it is that we do not believe in a steady process of decreasing the ranges but that we think significant range decreases will come during the next period of interest rate increase. If we have that kind of strong statement I would like that better. I would share with Governor Johnson some preference for moving down at least the debt aggregate. It seems to me that 5 to 9 percent on debt could be a livable range within the future. Even though the thrift situation might bring back higher growth rates in M3 in 1991, I would expect debt to work in a 5 to 9 percent range.",389
-fomc-corpus,1990,President Stern.,3
-fomc-corpus,1990,"Well, I'm concerned about all'these choices and the circumstances we find ourselves in. I'm not worried at the moment about how we're going to get to price stability; I'm worried about how we're going to start to bring inflation down to what I think ought to be a somewhat more modest objective. And it seems to me to be one of the [unintelligible] in M2 growth. If you look at the recent history of M2, as Don pointed out, it has been running the last 3 years with increases of 4-1/4 to 5-1/4 percent per year. Even allowing for some slippage, that suggests to me an upper limit on the M2 range in 1990 of about 6 percent. I really am concerned that anything above that would represent, obviously, some significant acceleration over its recent trends and would not help us on the inflation side. In my view it would make it more difficult to bring inflation down in the future. I really think we're placing an awful lot of emphasis on the precision of these relationships in these alternatives and strategies; I find that very difficult to accept. So, I personally think that something like an M2 range of 3 to 6 percent is appropriate here. And I guess I'm not really concerned about M3 and debt.",267
-fomc-corpus,1990,President Guffey.,5
-fomc-corpus,1990,"Thank you, Mr. Chairman. It seems to me that the critical question for this Committee at this juncture is whether or not we're really dedicated to bringing inflation down to zero or its equivalent--to achieve price stability, whatever its definition may be--or whether or not we're simply willing [to accept] and be happy with having inflation where we find it now. I look at the exercise--and I think it is helpful to go out to 5 years--but the fact of the matter is that if one considers the cost of taking action to bring inflation down from the current level, none of these strategies gives me very much comfort. That is to say, we're not making much progress against inflation or toward price stability, given any one of these three strategies. As a result, I would have to conclude that maybe our best efforts should be to cap inflation now with the thought that the only way we're going to get inflation down is with a recession and that quite likely a recession will occur within the next 5 years--particularly if we hold growth below the trend line for this long a period of time. I don't think there's a time in modern policy history in which we have gone for that length of time with growth below the trend line without falling into recession. So, I think recession is a real possibility in this timeframe. As a matter of fact, it may be something that gets us toward price stability. So, alternative II for the upcoming period is the most appropriate one, in my mind. And that says, really, that we're preparing in the near future to cap inflation and that the Committee hopes there's some exogenous event that causes a recession and we won't get blamed for it and yet we capture the progress toward price stability. The other thing about alternative II is that the reduction of M3 seems reasonable to me. It does show the flag a bit in the sense that we have taken a step in reducing the ranges of growth in M3 and debt. You can make whatever you want of that; it isn't much, I think. Nonetheless, for some people hearing your testimony it may be worthwhile.",423
-fomc-corpus,1990,President Boykin.,4
-fomc-corpus,1990,"Mr. Chairman, I lean a little toward alternative III. Governor Angell's comments appealed to me strictly in terms of the Humphrey-Hawkins testimony and a careful explanation that we really are not willing to settle for what we have and we're not losing sight of our objectives. With that kind of assurance, then I can accept alternative II. I also liked Governor Angell's point on debt: that probably a little further reduction on the debt figure would be possible. That had some appeal to me.",101
-fomc-corpus,1990,President Melzer.,4
-fomc-corpus,1990,"In terms of the broader strategies, I don't have any trouble at all identifying with strategy II, the tighter option. As I look at the baseline, I think the progress toward price stability is really minimal over 5 years. If you accept the P* model, it shows that when we get down to 3-1/4 percent or so we're stuck there. Under that type of program I just don't see how we can get any benefits of credibility, assuming there are some benefits of that in reducing the cost. I also think that we're unlikely to be able to sustain a program--and I know this is just a projection--of trying to keep the economy below potential for an extended period of time. So, I favor the tighter approach there. And, as the Bluebook observes, that logically leads one to alternative III in terms of the ranges. Obviously, we're in a very tricky period here. But, first of all, along the lines of what Gary was saying, I think the upper end of that range should be more than adequate to support positive real growth. And I think it signals our intentions in terms of really moving toward price stability relatively gradually. I think the 1/2 percentage point reduction in the M2 range conveys that. We moved the ranges a percentage point a year ago. I guess we're trying to trade off the perceptions of a number of different audiences here, but I think the most important audience--and the audience that is really going to determine what we're able to do or not do--is the market. What I think is important is the markets' perception more broadly, including the foreign exchange markets, along the lines of what Jerry was saying yesterday. If the perception is that we have thrown in the towel in terms of progress toward price stability, I think we're going to be dealing with much more difficult problems in the coming year than may be possible if we maintain that credibility. I still feel that if circumstances develop where we're forced to violate the ranges because of some very adverse developments on the real side, we can do that and maintain credibility. So, I would opt for alternative III.",426
-fomc-corpus,1990,Governor Kelley.,3
-fomc-corpus,1990,"Mr. Chairman, I completely support all of the thinking that has been presented on alternative II and identify with that easily. But I'd like to suggest that we consider leaving the ranges at the tentative rates that we set last summer, which incidentally are the same rates that we had in 1989. The differences are in M3 and in debt. M2, importantly, is the same in the tentative ranges and in alternative II; the other measures have technical downward adjustments in alternative II. As we look at criteria for the selection of ranges, I think it's important to try to project forward as much stability as we can, as much continuity of policy as we can and, insofar as we're signaling the market, as much clarity as we can. I'm concerned that, if we make these small changes to two of the three tentative ranges and leave one the same, we may be projecting that there's some deep subtlety that really doesn't exist. The message would be clearer and the policy would be in substance essentially the same if we left the tentative ranges in place.",212
-fomc-corpus,1990,Governor LaWare.,4
-fomc-corpus,1990,"Mr. Chairman, I am very attracted by alternative III for the signal that it sends, and yet I am concerned that, if the staff forecast is correct, we don't have much room in the M2 associated with that range. Consequently, I'd like to split my ballot here and cast a ballot for alternative II for M2 and alternative III for M3 and debt.",74
-fomc-corpus,1990,President Syron.,4
-fomc-corpus,1990,"A lot of what we're talking about here relates to perceptions, which are hard to know. And that always makes things very difficult. I'd like to associate myself with two things: Gary's comment about not being so worried about achieving zero [inflation] and holding where we are right now in the short run; and the consistency of that with your point that probably none of these things is going to happen over the next 5 years because of the intervening events. So, I think we have to look at the longer-run ranges in terms of their consistency with where we want to go in the short run. In terms of signal effects, like Governor LaWare, I had some sympathy for [unintelligible] going to 2-1/2 to 6-1/2 percent on M2. But then as I started to think about it, I viewed that as a balancing of risks--that the risk of not coming within the upper part of the range transcends the early benefits we get from having a signal. And if we're going to stay with M2 [of 3 to 7 percent], I would be inclined--this is a question of market perceptions and I think most of the market looks at M2--to leave all the ranges the same rather than have the market saying: If they came down on M3 and debt, why didn't they do something on M2? I'd also like to associate myself with Governor Angell's statement that this requires quite careful explanation--a fulsome explanation, perhaps is a better way to put it--in your testimony.",320
-fomc-corpus,1990,President Keehn.,4
-fomc-corpus,1990,"Mr. Chairman, I would also be in favor of alternative II, which seems to me to be consistent with the baseline strategy, i.e. reasonable growth or at least not unreasonable growth with some progress on the inflation front at least over a longer period of time. My hunch is that if the growth rate, particularly in the early years, comes in as low as the strategy would suggest then it's low enough or far enough under the growth potential that in fact the inflation results may be better than suggested. In terms of M3 and debt, I don't have a particularly strong feeling, but I would be in favor of 3 to 7 percent and 6 to 10 percent as outlined in alternative II. Those seem to be reasonably technical adjustments for us if we were to go forward even more. Alternative III, I think, would perhaps be more of a message than we'd want to deliver.",180
-fomc-corpus,1990,Governor Seger.,4
-fomc-corpus,1990,"It was interesting to see these longer-term projections, but I'm extremely skeptical about our ability to get exact projections out that far. In looking at the more near term, whatever ranges we select, we have to make sure first of all that the monetary growth we achieve fits in those ranges. Secondly, I think it's very important to allow ourselves some maneuvering room in 1990 just in case the optimists here are wrong and the nervous Nellies are right about the strength of the economy in the next couple of quarters. I was impressed by something that Don Kohn wrote on page 16 of the Bluebook which suggests that a 1/2 percentage point shortfall in aggregate demand in the first half of the year would require 7-1/2 percent M2 growth for the year in order to achieve the fourth-quarter level of real GNP in the staff forecast. And it seems to me, if I'm looking at these ranges correctly, that alternative II would not handle that. So, I would like to vote for an alternative that doesn't even exist, which is the alternative I version of M2 (3-1/2 to 7-1/2 percent) and then for M3 and debt I'd keep the tentative ranges that we adopted last July, just to give us running room through 1990. It doesn't mean anything in terms of my longer-term commitment to price stability.",281
-fomc-corpus,1990,President Hoskins.,4
-fomc-corpus,1990,"In terms of long-term strategies, I'd prefer strategy II or something better--or tighter, should I say.",22
-fomc-corpus,1990,We knew what you meant!,6
-fomc-corpus,1990,"Mike Prell might point out that in these long-term strategies that we're looking at, we're talking about a percentage point difference in the three strategies. And that probably is well within our ability to miss. I understand what the staff is doing: They are trying to be reasonable because we're all reasonable people around the table. But as the Chairman has indicated, probably none of these outcomes is what we're going to achieve. I might suggest that we be unreasonable once in a while and look at what could happen and take a tighter policy to get to where we say we're going to go, or we shouldn't be saying it's where we're going to go. And I don't mean zero inflation. There are many people who don't want to be nailed to that cross and I understand that. But I do think the statement that Gary Stern made is an appropriate one, at least the way I interpreted it. You may have to clarify this because I interpreted what you were saying as something different than Dick Syron said, and that is that you're not comfortable with the progress in this scenario--that you want lower inflation and we have not made any movement toward lower inflation. MR. [STERN(?)] We don't have a difference in interpretation.",242
-fomc-corpus,1990,"I might also point out in terms of long-term strategy that the only one that has 3 percent growth in 1994 for the real economy happens to be the tighter policy. And isn't that where we want to be? In some sense it seems to me that a tighter policy over that 4-year period or 5-year period is really what we ought to do. We averaged 4.6 percent monetary growth in the last three years. I don't see any reason why we should raise that in the next 3 years or 5 years, since that would be giving up some gains that we fought pretty hard to get. As I look at what has transpired in macro-economic theory in the last 20 years, it seems to me that the one thing that tends to come out is that policy ought to be predictable and it ought to be credible. I don't know what else we can say about policy than to make it predictable and credible. And it seems to me we're trying to do this backwards: We're trying to say let's get lucky and have the monetary growth rates fall out low and then we'll move our target ranges down to match it. That to me is not predictable and credible policy. Just as a side note: As many of you know, I received a letter from the ABA group of economists that suggested we have a range for [M2] of about 2-1/2 to 6-1/2 percent. So, I don't think the markets will be unduly shocked if we come out with a range of 2 to 6 percent.",318
-fomc-corpus,1990,But they also talked about a lower funds rate.,10
-fomc-corpus,1990,They're also not going to be held accountable.,9
-fomc-corpus,1990,"I understand. All I'm suggesting is that there are some people out there who happen to believe that a predictable and credible policy might be important. In terms of the alternatives, I would like to see a 2 to 6 percent growth rate for M2. I don't care about the other two, i.e., M3 and debt.",68
-fomc-corpus,1990,"I think the best way to proceed is to have alternative II moved and seconded and then to open up the discussion to amendments on changes in both M3 and debt. So, if the Secretary will read--. I beg your pardon, I'm sorry. Are you okay?",55
-fomc-corpus,1990,I'm ready. I move 3 to 7 percent for M2.,15
-fomc-corpus,1990,I second.,3
-fomc-corpus,1990,"Alternative II is moved and seconded. We're now open to amendments on altering the ranges for M3 and debt, sequentially. So, if anyone would like to--",34
-fomc-corpus,1990,"Yes, I would.",5
-fomc-corpus,1990,You can't move and--,5
-fomc-corpus,1990,Oh yes you can.,5
-fomc-corpus,1990,You can't move to amend your own--,8
-fomc-corpus,1990,"You can move to amend, that's right. Mr. Chairman, the reason that I wanted to be earliest is because I really have another suggestion. And if my suggestion gets a second, we can [be done] with it. The suggestion is that we show our seriousness by getting down to one target, M2. So what I'm suggesting and I'm willing to move it if someone would second it, would be that we not have targets for M3 and debt--just as we abandoned Ml. And that places us in a much more credible position. I believe that with a 400 basis point range for M2 that makes more sense. It is the one velocity we think we know more about. And so I would prefer and would move, Mr. Chairman, that we--",156
-fomc-corpus,1990,"Let me just suggest to you that that is a major move which, frankly, I would just as soon not have discussed or voted on unless we had a paper on it. This has a lot of implications with respect to our relationships with the Hill and a variety of other things. Obviously, if you want to move forward, we can discuss it. I'm not saying I disagree with you; it's just that I hate to make that type of move without a significant amount of thought about it.",98
-fomc-corpus,1990,"Well, Mr. Chairman, under those circumstances I would be open to waiting to consider this issue.",20
-fomc-corpus,1990,"Why don't we have Mr. Kohn provide some pros and cons on this and circulate that to the Committee? I don't think we're equipped at this stage to think of the various secondary or peripheral implications. Nonetheless, it has something to be said for it.",51
-fomc-corpus,1990,"Mr. Chairman, excuse me. I was just going to say that I'm very sympathetic to what Governor Angell has said, but I think the Humphrey-Hawkins Act says we have to report the rate of increase or diminution of the monetary and credit aggregates. And usually, I believe--",59
-fomc-corpus,1990,"We would be required under those conditions to explain in some considerable detail why we dropped the two of them, and I--",24
-fomc-corpus,1990,"It was just the plural on ""aggregates"" that made me hesitate, because I really support what he says if we could get away with it.",30
-fomc-corpus,1990,Can I go back to a different issue in the context of M2 or M3 and debt?,20
-fomc-corpus,1990,"Well, let's remember we're now in a position where alternative II has been moved and seconded.",19
-fomc-corpus,1990,"I want to make a comment about debt that actually goes back to something else Governor Angell said. As I think about it here, I must say that I have some sympathy with the idea of making the debt range, within the framework of the motion that's on the table, 5 to 9 percent. I think Don's observation is right that it's likely to come in somewhere around 7 percent. That range has some appeal to me for both the cosmetics and the substance of being able to say that we think the growth rate in debt has at last subsided--in a context in which in the minds of a lot of people the growth of debt has been symbolic of some of the excesses of the past--and of being able to point to an adjustment in the range of debt from 6-1/2 to 10-1/2 percent all the way down to 5 to 9 percent.",185
-fomc-corpus,1990,I would second that.,5
-fomc-corpus,1990,"Why don't you make that as an amendment and [Governor Angell can] second it. Why don't we vote on--. Well, first there has to be discussion. Does anyone want to discuss this particular amendment? Then, why don't we vote on it. All in favor of the Vice Chairman's amendment please raise your hand. Opposed? Can we do that again? There are a lot of people who have not [raised their hands!] [Laughter.]",93
-fomc-corpus,1990,"Well, we call the roll anyway for the record, don't we?",14
-fomc-corpus,1990,He wants a straw vote.,6
-fomc-corpus,1990,"We can do this in a number of ways. We can vote. It is clear that we all have different views on M2, M3, and debt. I think the simplest way, from what I've heard, is to have what we now have on the table: alternative II, which has 3 to 7 percent for M2, 3 to 7 percent for M3, and 6 to 10 percent for debt. My impression, basically, is that there is a consensus for M2; and, therefore, I've asked for amendments to see whether those ranges would pass for M3 and debt. Jerry has raised a specific amendment to alternative II which would strike 6 to 10 percent for debt and substitute 5 to 9 percent. And that will be voted either up or down.",165
-fomc-corpus,1990,You're looking just to voting members?,7
-fomc-corpus,1990,"Yes, voting members only. But I don't think we have enough. As I counted, not all voting members voted.",24
-fomc-corpus,1990,Okay.,2
-fomc-corpus,1990,Let's call the roll on the Vice Chairman's amendment.,11
-fomc-corpus,1990,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Boehne Yes President Boykin Yes President Hoskins Yes Governor Johnson Yes Governor Kelley Yes Governor LaWare Yes Governor Seger No President Stern Yes,44
-fomc-corpus,1990,It clearly carries. Would anyone like to offer an amendment for other than 3 to 7 percent on M3?,24
-fomc-corpus,1990,"Since I was the first one to say that even though I supported alternative II on M2 I thought the range in alternative III would be appropriate for M3--given what's happening in the broader aggregates and given the staff's forecast, which is even in the lower [part] of the alternative III range--I'll make the motion that we go to alternative III for M3, 2-1/2 to 6-1/2 percent.",90
-fomc-corpus,1990,Second.,2
-fomc-corpus,1990,May I just ask a question of where the forecast would show M3 in 1991?,19
-fomc-corpus,1990,We have 5 percent in 1991 because we have the runoff of thrift assets slowing down as more thrifts meet their capital requirements.,28
-fomc-corpus,1990,"So, in effect, there is no evidence at this particular stage that were we to move in that direction we'd have to reverse and move it back up in 1991.",35
-fomc-corpus,1990,"May I make another statement at this point, Mr. Chairman? There is some risk [on debt]. Although we have 7 percent debt growth for 1990, that is on the assumption that the RTC is off budget and not in the federal government sector. That would add a few--",59
-fomc-corpus,1990,I think the way to handle that is to make that assumption and be explicit in the Humphrey-Hawkins report; we will stipulate that.,30
-fomc-corpus,1990,"The point I was going to make is that if growth came in a little low on M3 that would balance off by being a little high perhaps on debt, if that's the way that came out.",40
-fomc-corpus,1990,I'm ready for lunch!,5
-fomc-corpus,1990,"Well, I think we have to be very clear on what definition of debt we're using and not merely allow ourselves to be moved by an arbitrary bookkeeping arrangement.",31
-fomc-corpus,1990,"Mr. Chairman, I might note on M3 that in our flow-of-funds forecast we're still assuming that there is some degree of restraint on thrift institution asset expansion and on that aggregate as a whole. If you look at the long-term trend, it is one of a velocity decline. So it does raise some question, if you have 6-1/2 percent as the top end, whether that would be sustainable over the longer run unless we did get nominal GNP moving down into the 4 to 5 percent range. So, that's a possible reason for a precaution in how aggressively you move the M3 range.",127
-fomc-corpus,1990,But it seems to me that this is not the time to worry about that. The time would be '91 to worry about stabilizing that range and maybe carrying it forward.,35
-fomc-corpus,1990,"Well, I was addressing the concern that the Chairman was raising.",13
-fomc-corpus,1990,Yes.,2
-fomc-corpus,1990,"Again, these things could be explained at each--",10
-fomc-corpus,1990,I agree that that may be the significant issue the next time we meet over this range.,18
-fomc-corpus,1990,Any comments?,3
-fomc-corpus,1990,May I ask a question? If we're going to move the debt target down a whole point and leave the M2 target the same--,27
-fomc-corpus,1990,Yes.,2
-fomc-corpus,1990,"Given where the M3 target is about to come in, is there some value of parallelism in the sense of people not seeing too much fine tuning in it and also going to 2 to 6 percent for the M3 target? I'm coming back to [the question] of whether we're doing this just for this period, this year, and not looking out beyond it.",76
-fomc-corpus,1990,We're essentially doing one year. Any further questions on Governor Johnson's amendment? It has been seconded. Will you call the roll?,27
-fomc-corpus,1990,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell No President Boehne Yes President Boykin Yes President Hoskins Yes Governor Johnson Yes Governor Kelley Yes Governor LaWare Yes Governor Seger No President Stern Yes,44
-fomc-corpus,1990,"Mr. Chairman, this is something I've never done before but in view of the way this may be interpreted I would like to change my vote, if it's going to be recorded, because I don't want to explain this little bitty thing. I would prefer not to go with the halves but I don't want to explain that.",65
-fomc-corpus,1990,Consider your vote changed.,5
-fomc-corpus,1990,"Mr. Chairman, I recognize the parliamentary procedure that you were using with these amendments but, in light of what Governor Angell just said, I wonder if we do want this kind of precision of votes recorded in the minutes. I would much prefer to have an overall vote that says whether we accept alternative II as amended and consider these largely straw votes and then let people vote up or down on something more substantive than these kinds of fractions.",87
-fomc-corpus,1990,I would agree with that. There's really no reason to use up all our paper in trying to do that.,22
-fomc-corpus,1990,"Well, but Mr. Chairman--",7
-fomc-corpus,1990,You can change your vote again if you want.,10
-fomc-corpus,1990,"Well, a procedural point: It seems to me that it may have been well for us just to have a consensus move on these; but once we took a vote, not to put it in the minutes offends my notion of accuracy of [minutes]. Is Virgil here?",56
-fomc-corpus,1990,"Remember, we are in fact recording and voting on the total. In other words, we are reflecting our views overall.",24
-fomc-corpus,1990,"Yes, I know. I'm just saying it's a matter of procedure. Roll-call votes are ordinarily recorded. I think it would be well for us not to have roll-call votes on these kinds of--",40
-fomc-corpus,1990,Sometimes it is easier just to find out quickly what the view is rather than segregate voting from nonvoting members and worry about who is for what.,31
-fomc-corpus,1990,"Well, what's Virgil's view on this?",10
-fomc-corpus,1990,"Well, it seems to me that if the Committee has taken a vote that that should be recorded in the minutes. You can vote to rescind that vote.",32
-fomc-corpus,1990,That wouldn't be good.,5
-fomc-corpus,1990,"Well, I just wonder if we're getting carried away here with this procedure.",15
-fomc-corpus,1990,"Yes, we are.",5
-fomc-corpus,1990,"My interpretation, Mr. Chairman, of what we did is that we took a straw vote and instead of doing it by raising hands we used our voices. And I view those two as largely equivalent.",40
-fomc-corpus,1990,I agree with him.,5
-fomc-corpus,1990,"Well, let me suggest that we complete this and then we'll put on the table a rule in which this Committee can make that judgment as to how we record this. I assume, Counsel, that we have that capability?",44
-fomc-corpus,1990,Yes sir.,3
-fomc-corpus,1990,"Alternative II has been moved, seconded, amended, and is now subject to a vote.",19
-fomc-corpus,1990,"Do you want me to read it, Mr. Chairman?",12
-fomc-corpus,1990,"Yes, I think you better read it.",9
-fomc-corpus,1990,You can't describe it as alternative II anymore.,9
-fomc-corpus,1990,I hope so.,4
-fomc-corpus,1990,"I'm reading from line 59 of the draft directive or from page 24 in the Bluebook: ""The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability, promote growth in output on a sustainable basis, and contribute to an improved pattern of international transactions. In furtherance of these objectives, the Committee at this meeting established ranges for growth of M2 and M3 of 3 to 7 percent and 2-1/2 to 6-1/2 percent respectively, measured from the fourth quarter of 1989 to the fourth quarter of 1990. The monitoring range for growth of total domestic nonfinancial debt was set at 5 to 9 percent for the year. The behavior of the monetary aggregates will continue to be evaluated in the light of movements in their velocities, developments in the economy and financial markets, and progress toward price level stability."" Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Boehne Yes President Boykin Yes President Hoskins No Governor Johnson Yes Governor Kelley Yes Governor LaWare Yes Governor Seger No President Stern No",222
-fomc-corpus,1990,"The vote is complete. Now, would somebody like to move that the minutes not record the preliminary vote--rather, the vote on the amendment to alternative II?",32
-fomc-corpus,1990,I'll move whatever you said.,6
-fomc-corpus,1990,I'll second it.,4
-fomc-corpus,1990,All in favor please raise your hand. All opposed? The vote is--,15
-fomc-corpus,1990,"I just wanted to ask about the wording in the directive. In the first sentence in that wording we had price stability first. In the last sentence in the directive we have price level stability last. I would suggest that we move the progress toward price level stability up to the first item in that last sentence, for reasons of substance as well as consistency.",70
-fomc-corpus,1990,"What lines are you on, Bob?",8
-fomc-corpus,1990,"I'm on page 24. This is on the 1990 ranges. The first sentence says: ""The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability, promote growth"" etc. The last sentence on that page says: ""The behavior of the monetary aggregates will continue to be evaluated in the light of movements in their velocities, developments in the economy and financial markets, and progress toward price level stability."" I'm suggesting that we say ""The behavior of the monetary aggregates will be evaluated in the light of progress toward price level stability, movements in their velocities, and developments in the economy and financial markets.""",125
-fomc-corpus,1990,"In other words, you're trying to--",8
-fomc-corpus,1990,Yes.,2
-fomc-corpus,1990,I would agree with that.,6
-fomc-corpus,1990,So would I.,4
-fomc-corpus,1990,I take it that you're moving that and you're seconding it. Yes?,15
-fomc-corpus,1990,"I suggest we might not want to record it, Mr. Chairman.",14
-fomc-corpus,1990,I think the edge--,5
-fomc-corpus,1990,What were you about to say?,7
-fomc-corpus,1990,I think Mr. Boykin's suggestion makes good sense.,12
-fomc-corpus,1990,Yes.,2
-fomc-corpus,1990,"Do I hear any objection? If not, I find that that is the consensus of the Committee.",20
-fomc-corpus,1990,That's it.,3
-fomc-corpus,1990,Record the dissents. I think that brings us to Mr. Kohn. Why don't we have his comments and perhaps we can break for coffee at that point.,33
-fomc-corpus,1990,[Statement--see Appendix.],6
-fomc-corpus,1990,"I think that's a very good explanation; at least that makes sense to me. May I ask one question that has popped up in my mind over the last couple of days? In the paper this morning there was talk of Germany going for a monetary [union] between East and West Germany. It appears that the Bundesbank is a little concerned about this. The political events are moving faster than the central bank in Germany would like. Now, I noticed that the dollar has depreciated a little more against the DM, possibly showing some anticipation of a big surge in demand for marks because of this monetary union. I've read some comments that the government is pressuring the Bundesbank to provide DM at a conversion rate for GDR marks that is well above the market exchange rate. That worries me, and I think the Bundesbank is worried about maybe having to convert GDR marks to DM at an exchange rate that is not appropriate to the market. If that were a big concern in the market, it seems to me that there would be a depreciation of the DM rather than an appreciation. What is going on there? Do you know any more than what is in the paper?",234
-fomc-corpus,1990,"I don't know much more than what is in the paper. I think several things are going on here. One is that the political forces are seeking to do something--as political forces tend to do, if I may put it that way. I think the Bundesbank's resistance to that, which I gather is shared by financial people in Bonn as well, is that this is dealing with the symptoms rather than the cause. You can't automatically exchange--well, you can do it--but you can't exchange x number of East German marks for West German marks and then say that the world has changed and we'll all go on. The question is: What comes next? You haven't done anything just through the currency exchange.",142
-fomc-corpus,1990,"I can see going to a DM standard, but I can't see exchanging--",15
-fomc-corpus,1990,"Moreover, it may make things worse in terms of the workings of the economy. The resistance from the Bundesbank comes primarily from the view that--I'm repeating myself--doing this is dealing with the symptoms rather than the causes. On the other side, I would agree with your analysis that it is not so much the conversion in and of itself [that is a problem], because I've seen calculations that if all the [East German] currency were converted into West German marks, there would not be a big change in the level of the money supply.",109
-fomc-corpus,1990,I have seen some reports of 3 to 4 percent.,13
-fomc-corpus,1990,"Well, it's something like 3 percent, which is trivial in the sense of what you're dealing with, because it makes some sense to have a new transactions currency. There may be concern, looking down the road, that there may be more to it than that. If you think of what adjustments have to made, initially it would be straightforward. Everybody's wages would be changed. If [the exchange ratio] were 3 to 1 and you were being paid x GDR marks per hour, you would now be paid a third of that per hour in West German marks. And that probably won't work. Moreover, the price levels presumably would adjust up to West German prices. And that's why it won't work. Then you might get the secondary impact on the Bundesbank [unintelligible] inflate. And I would argue that you are right--that one would be looking ahead, under those circumstances, to a more inflationary Bundesbank policy and would end up tending to think that the deutschemark ought to depreciate rather than appreciate. So, the deutschemark probably was responding to what is happening in Moscow, with all the fighting and discussion that has been going on between [unintelligible]. An interesting fact--and this is based really on one conversation--is that the East German financial people whom met with yesterday agree on this point. They agree that this conversion, without doing anything else, is likely just to make things worse rather than better, even in this period running up--",300
-fomc-corpus,1990,[Unintelligible] calls from a lot of very important politicians wanting to do this.,19
-fomc-corpus,1990,"Well, that does happen.",6
-fomc-corpus,1990,"Well, I certainly agree with Ted. I think what is happening in the market reflects the view that Gorbachev is in charge and things are likely to move ahead in a stable rather than an unstable way. The market is reflecting the value of the mark in that sense. Beyond that, the market is probably thinking that the Bundesbank and the Germans are not going to do something totally stupid in moving into this ""markization,"" or whatever it is, of the other part of the German economy. And I think they are further thinking that to the extent there may be genuine costs to the West Germans of making this move, which may mean higher interest rates and more borrowing by the Germans, that that may not be altogether bad from the point of view of the value of the D-mark--if the Bundesbank wins.",165
-fomc-corpus,1990,"If they win, yes.",6
-fomc-corpus,1990,Further questions for Mr. Kohn? President Parry.,12
-fomc-corpus,1990,"Don, I have a question about the consistency of the short- and long-term [alternatives] with regard to M2. Alternative B seems to me quite consistent with the alternative that was chosen for the long term. Obviously, M2 [growth] ends up high well into the '90s. On the other hand, if one were in favor of alternative III for the long term, that seems to me consistent with alternative C, and alternative C really is not consistent with the alternative that was chosen for the long term. Is that correct?",110
-fomc-corpus,1990,"I would agree with half of the statement but not necessarily the other half, partly based on what you said earlier today, President Parry. That is, alternative B is in a projection sense consistent with the 6-1/2 percent [staff forecast] for the year. We're assuming for the year essentially no change in interest rates under ""B."" We would expect [M2] growth in the first half of the year to be stronger than in the second half of the year under those circumstances and to run along the top part of the range rather than the lower part. By the same token, if you had adopted a lower range--the alternative III range--which you didn't do, you would be hard pressed not to begin to lean a little toward ""C."" But to echo what you said earlier today, I think having adopted alternative II doesn't mean you can't lean toward alternative C and tighten because there's a lot of room on the down side. Alternative II does not get in the way of running a tighter policy than assumed by the staff. It might get in the way of running an easier policy.",222
-fomc-corpus,1990,"Well, I agree with that. But someone who was strongly in favor of alternative III probably would be more inclined to follow ""C.""",27
-fomc-corpus,1990,"I agree. If you were in favor of ""III,"" you'd be more inclined to ""C.""",20
-fomc-corpus,1990,That's all I wanted to know. Thank you.,10
-fomc-corpus,1990,President Hoskins.,4
-fomc-corpus,1990,"Bob raised my question in part, but let me rephrase it. If we were centering our ranges for the year, that would imply a 5 percent monetary growth. What kind of interest rate increases would we have to have to generate that?",50
-fomc-corpus,1990,Relative to the staff forecast of 6-1/2 percent [for M2 growth] you'd have to have an increase of about 1-1/2 points in interest rates in the first half of the year to get [M2 growth] down to 5 percent for the year.,60
-fomc-corpus,1990,Further questions?,3
-fomc-corpus,1990,"I have a question. What would a 1-1/2 percentage point increase of the interest rate mean for the real economy, Mike?",29
-fomc-corpus,1990,That's for Mr. Prell; he's in charge of the IS curve!,15
-fomc-corpus,1990,I think moving that rapidly would make a material difference. We can probably infer something from the simulations that were presented earlier--that a 1 percent slower M2 growth adds only 1/2 percentage point to the interest rate level. And you saw the consequences in terms of GNP growth. So you'd be enlarging that. It would make it a much closer call as to whether we had any significant [economic] growth this year.,88
-fomc-corpus,1990,"In other words, it probably would bring on a recession, to be blunt about it.",18
-fomc-corpus,1990,No growth.,3
-fomc-corpus,1990,A no-growth scenario.,5
-fomc-corpus,1990,"But there are some unknowns here. If we were to tighten short-term rates, long-term rates might reverse [unintelligible] take the last reductions. So it seems to me that one might make a case that long-term rates would be lower rather than higher.",55
-fomc-corpus,1990,That would follow from the crash--,7
-fomc-corpus,1990,--in the stock market.,6
-fomc-corpus,1990,"Well, that's all off the baseline in the model. Clearly, there are different views about underlying forces. You might have an entirely different conclusion about the ramifications of that type of move.",37
-fomc-corpus,1990,"Well, I would think an increase of 150 basis points in short-term rates probably would not be expected to be followed by future increases. Consequently, I'm sure long bond prices would rise and long-term interest rates would fall. But I don't know whether that mix will work very well or not.",59
-fomc-corpus,1990,"Further questions for Mr. Kohn? If not, why don't we break for coffee at this stage and come back to this.",26
-fomc-corpus,1990,"Let me start off by making some comments about what I think is going on and what I sense are the issues that we all are concerned about. For analytical purposes and policy purposes I think it's probably well worthwhile separating, to the extent that one can, the physical aspects of the economy--more specifically, the income and product accounts analysis--against the balance sheets of the financial system. If you look strictly at the movement of income, consumption, inventories, investment and the like, it is very easy to make the case that we may in fact already have seen the weakest point in [activity]. The very sharp reduction in motor vehicle assemblies in January coupled with an acceleration of motor vehicle sales [resulted in] a fairly sharp--close to 300,000 seasonally adjusted--decline in passenger car inventories, and there is evidence of some stability in the order pattern for capital goods, if no increase. In short, just going through the sort of simple evaluation and balance problem, it's probably likely that industrial production, after falling sharply in January--well over a percent--has rebounded in the early weeks of February. In a sense, with housing starts coming back--considering the permits backlog--one can very readily see a process of very modest acceleration going on. Initial claims, which will be published tomorrow, come down under our seasonals from their sharp peak of the week before, although insured unemployment for the week ended January 13 was up, clearly reflecting the layoffs that became fairly extensive early in the month, specifically in the motor vehicles area. So, if one were to look only at those data, the sense of having come through this deterioration and perhaps seeing it at an end seems somewhat positive. Unfortunately, running simultaneously with this is what appears to be a general, continued financial balance sheet deterioration. It started perhaps with a related sort of half financial, half physical volume type of phenomenon--profit margins--which continue to erode. And it is very difficult to make the case that unless and until profit margins bottom out and turn back up that we will have anything resembling a semblance of business expansion. But, with prices defined in terms equivalent to profit margins increasing at a relatively stable rate excluding the energy and food explosions, what we are looking at is stable price inflation with falling profit margins, which implies that underlying unit costs are going up at a rate that is higher than the underlying inflation rate. And that suggests that we still have not yet seen any evidence of a decline in the underlying rate of inflation. On the contrary, as profit margins stabilize and rise, we're more likely to see pressure working in the other direction before we get inflation moving down. But, just as important in that whole process is clearly the overall sense of fragility, which Jerry Corrigan and John LaWare were discussing yesterday. We are getting some evidence of credit rationing in some form within the banking system, although I think a recent study--I've forgotten who did it--suggested that there's less there than usually meets the eye when one looks at processes similar to the one we see at the moment. You didn't read the study, Mike?",627
-fomc-corpus,1990,I'm not sure what study you're referring to.,9
-fomc-corpus,1990,"It was one of the things that slipped through my in-box and that I read as it was going to my out-box. The general thrust of the piece--. As I recall it was not contemporaneous but was basically a study of the extent to which credit rationing tends to go on and what its effect would be. I have trouble with this business of the extent to which banks are pulling in when that's not reflected in interest rates. There's usually more talk about people not being able to get loans; and if interest rates don't reflect it, I tend to be more dubious than not. Leaving that aside, there is no question that there has been some softening in real estate values, although on the basis of a report--which I'm sure you did see, Mike, because I know you were involved in writing it--the evidence of deterioration in real estate values, certainly in the residential area, is mixed. I think it's fairly heavily localized in a number of areas. And while it may be spreading, the anecdotal evidence probably is more negative than the real world. In a sense, that's what one often sees. But, the crucial issue that we're dealing with here is that we have an international system that is creating significant problems for us. I think there is a severe threat to the Japanese stock market; there is a general threat to the level of our interest rates here. And as a consequence of that, one concludes that while on the one hand [economic conditions] seem to be improving on the side of the income and product accounts--pretty much in line with what the Greenbook in fact is saying--the underlying risks, which are very difficult to model, clearly if anything, are getting worse and not better. How important is that relative to the other? I don't think we can readily make clear judgments on it. In my judgment, one thing that comes out of all of this is that clearly, at this particular stage, making any significant moves in monetary policy probably would be ill advised, because to the extent that we can contribute anything to the outlook, my suspicion at the moment is that the most important thing is a sense of stability. I'm not certain, using Wayne Angell's rule, that if we were to lower rates at this particular stage that we would not find that we were creating more problems rather than less. On the other hand, I'm not certain that I agree with Wayne's view that if we were to move rates up we could get long-term rates down. If that were guaranteed I'd be the first in line--second behind you. In any event, I think that at this stage policy is partly blocked. I don't think that we can discuss, at least publicly, some of these problems because to the extent that we communicate to the markets that our ability to lever the outlook is becoming increasingly less forceful, I think we can set off some unfortunate instabilities. In any event, I come out at this moment in favor of no change. I have no strong views about whether or not we should stay symmetric or go to asymmetric toward ease. If we were to change over the next intermeeting period, the odds are strongly likely that we will find reasons to move down rather than up. But frankly, my expectation and suspicion is that we probably will find that the least worse policy will call for more of the same--that is unchanged, alternative B. Governor Angell.",683
-fomc-corpus,1990,"Mr. Chairman, I agree with your analysis. I would favor ""B"" symmetric. That would be my preference even though I think that a large increase in the fed funds rate would cause long bond prices to rise. I believe there are many other factors that would make it unwise to do that, not the least of which would be the impact upon the yen. It seems to me that any tightening that we did at this point would be most apt to cause the Bank of Japan to make a move. Consequently, I would see it as somewhat frivolous in regard to its benefits and would believe, with you, that stability is the best path. Even though I wouldn't admit it outside this room and even though I like to talk about other factors like energy prices and oil prices, I think the fact of the matter is that the Federal Reserve is not in a ""pushing on the string"" era; we are instead in an era in which we're out of rope. And somehow or other, if we are going to get water out of the well and we don't have enough rope to reach it, we don't have as much power as we would like to have. I agree with your decision but I would very strongly favor symmetry because I would like a directive that would give the members of the Committee a chance to look at the impact of any intermeeting adjustment on the M2 growth path. It seems to me that it should be somewhat more of a major step than it might be otherwise.",299
-fomc-corpus,1990,President Parry.,4
-fomc-corpus,1990,"I also would support alternative ""B"" and symmetric language.",12
-fomc-corpus,1990,President Hoskins.,4
-fomc-corpus,1990,"Yes, I agree with your analysis of the problem. That problem is, if I read your analysis correctly, that we have a real economy that looks like it perhaps has been through the worst in terms of the numbers that we're reading, and that we will get the growth that Mike and the rest of the Committee essentially forecasted yesterday. I also agree that there's fragility out there. We hear the same stories that were repeated the other day about credit rationing, and people want me to express concerns in this meeting that something is going to happen in 60 days unless the banks start lending again. [That type of comment] comes in a lot. So, I agree that there is fragility. But I don't think we can deal with that concern as directly as we might want--or at least that's my view. I think it depends on the measures of policy that one uses. If you argue that interest rates are the measure of policy, then I think your analysis is appropriate; that could upset the wagon. If you argue that the measure is stability in monetary growth rates over time, then I think we're running the risk of upsetting the apple cart or the wagon by allowing M2 to grow 6-1/2 percent for this year. It has been averaging 4.6 percent for three years. It seems to me the midpoint of the target range was about an appropriate place to be. Now, I don't think we can get there by raising rates 150 basis points now because I'm not willing to run that risk. But it seems to me we need to indicate to the public that we want to make progress toward reducing the rate of monetary growth closer to the midpoint. So I'd be comfortable if we could make some moves in the front half of this year, maybe 50 to 75 basis points, that would produce a slower growth rate in the second half of the year. And I think the strength in the economy, if I remember your forecast correctly, is in the second half.",402
-fomc-corpus,1990,"Well, really, the first and second halves average about the same.",14
-fomc-corpus,1990,"They average the same. So, we run the same risks in terms of weakness, I suppose. But we might have a better grip, certainly, by then on the fragility issue. So, I think it really boils down to what our measure of policy is here. What do we think is driving us in terms of economic activity? I tend to come down on the side of monetary growth rates, so I would be in favor of alternative C.",91
-fomc-corpus,1990,Governor Johnson.,3
-fomc-corpus,1990,"I agree with you, Mr. Chairman. Your prescription of the situation is pretty much in accord with mine. I'm starting to see, I think, positive signs in the leading-type data that show the economy may have reached its weakest point. Going forward I think we are going to see some improvement, although I also agree that the situation is fragile and that there certainly is credit rationing going on. That may grow as a problem and affect attitudes and expectations as time goes on. So, we ought to be very careful about how we position ourselves. I'm also perhaps a little more optimistic about the future on inflation than some others. I noticed that last July our forecasts for 1989 indicated increases of 5 to 5-1/2 percent on the CPI and in fact the CPI came in at 4-1/2 percent. I don't think anybody was too confused about what special factors were at work on the inflation rate at that stage. Everybody knew in July that we were getting some benefits from the exchange rate and some other things, yet we still thought inflation was going to come in at about 5-1/2 percent for 1989 and it came in significantly below that. I notice the central tendency for 1990 is now running at least 1/2 point below what we estimated it to be for 1990 back in July. I think that's improvement. Our own expectations have improved whether we really think inflation has or not. The [forecasts] show that. So, I think what has happened is that our standards have gotten tougher as we've moved along. I don't think that's bad; it's probably good. It means when things work out a little better we can stay tough and get to our goals that much quicker. I agree that the news on inflation is going to get a little worse before it gets better because of some of the short-term pressures, especially the January numbers. But I think, or at least I hope, that the year is going to be fairly good. From my perspective, the situation calls for alternative B; I also prefer symmetric language even though there are some potential risks associated with the credit situation spreading. I think that's balanced by the slightly more positive leading data on the economy. So, that leaves me somewhere in the symmetric category.",461
-fomc-corpus,1990,President Boehne.,5
-fomc-corpus,1990,"I agree with your analysis, Mr. Chairman. I think we ought to stay where we are. I would state the case for staying where we are somewhat more strongly, I think, than you did. I think it would be counterproductive for us to change policy at this point. The forward-looking indicators do suggest that the economy is bottoming out and we've prided ourselves in staying ahead of the curve over the last year or so. And I think this is a good time to pay attention to those forward-looking indicators. On the financial fragility, I think lower rates would not help the credit rationing. What will help the credit rationing is when confidence begins to grow again about the economy and the risk of recession fades into the background. I'd also put more emphasis on the international side. To lower rates now would be counterproductive in terms of international flows and I think it would be counterproductive in terms of long-term rates. So, I feel quite strongly that we ought to stay where we are and for that reason I would like a symmetrical directive. To try to move away from a ""no change"" policy is a very major decision and it ought to require a full discussion of the Committee before we do it.",246
-fomc-corpus,1990,President Stern.,3
-fomc-corpus,1990,"Well, I also favor no change in policy at this juncture, largely for the reasons that you and Ed Boehne have expressed. I don't see much of a case for any change. As far as the real economy is concerned, even if it's starting to improve, it's likely to remain sluggish for another quarter or two anyway. I am sensitive to how rapidly the money supply, M2, grows this year, but I don't have any sense of urgency that we have to start doing something about it on the basis of the projection that has been presented so far. Experience, it seems to me, has taught us that these growth rates can wander around substantially over periods as long as six months or so. So, as I said, I don't have a lot of urgency about that at the moment. I also would favor symmetric language for the reasons expressed and also because it doesn't tie our hands.",180
-fomc-corpus,1990,President Forrestal.,4
-fomc-corpus,1990,"Mr. Chairman, I think your analysis is right on the mark. I perceive that the economy is doing somewhat better but I think what we really need at this point is stability, not only on the domestic side but, as Ed Boehne indicated, for international reasons as well. We have made some progress on inflation and from my point of view inflation is still too high. We need to keep our eye on the goal of price stability, but I think we need to recognize that in this kind of an environment it's going to take us a long time to get there. So I would not want us to move aggressively in the other direction. I think that staying where we are is the important thing right now for the markets. So, I would favor alternative B with symmetric language. If I can just add a footnote to a comment that was made yesterday on credit rationing: I'm hearing from a number of bankers that the credit rationing situation is being exacerbated by the regulators. Now again, this may just be the defense on their part. The regulator is translated in my District as the Comptroller of the Currency. I'm hearing this view quite a lot, and I think there's a concern among national bankers about the aggressive stance that the regulator is taking.",253
-fomc-corpus,1990,President Syron.,4
-fomc-corpus,1990,"""B"" symmetric. Looking at things overall, I agree with your analysis. I would like to make more progress against inflation, but in terms of moving now the international problem we talked about argues against that. I am concerned about the financial fragility and do agree that a little lowering in rates isn't going to deal with that. But a little lowering in rates could have some effect on the overall economy. So, balancing these two things out, I come out with the view that we should stay just where we are, particularly with the move that we're making on the long-term side and what the Chairman is going to be announcing in the Humphrey-Hawkins testimony. I think that's consistent with just being right down the middle of no change.",148
-fomc-corpus,1990,Governor LaWare.,4
-fomc-corpus,1990,"I believe that we cannot change basic policy and I would favor ""B,"" symmetric. Instinctively, I would like to have made a case for asymmetric language toward ease, but I think that our hands are completely tied by the international situation and our long-rate situation. So, I feel that that would be inappropriate and would support ""B,"" symmetric.",71
-fomc-corpus,1990,Vice Chairman.,3
-fomc-corpus,1990,"""B,"" also symmetric. This has all been said, but in this intermeeting period I think the chances are at least 50/50 that we will see some further increases in interest rates abroad. There is some danger that that could result in a real watershed situation either for domestic interest rates or exchange rates or both. But that really does put me squarely in the symmetric camp.",77
-fomc-corpus,1990,President Keehn.,4
-fomc-corpus,1990,"Mr. Chairman, I came to the meeting with the view in terms of policy moves that we've really done quite a bit in the last 6 to 8 months, that it will take a while for all this to work through and that, therefore, this would be a very appropriate opportunity to simply stay where we are. Therefore, I'd also be in favor of alternative B and symmetric language. My hunch is, given the length of time between this meeting and the next meeting, that there will be an appropriate opportunity to have a phone call.",110
-fomc-corpus,1990,Governor Seger.,4
-fomc-corpus,1990,"I would still prefer some modest degree of easing. From where I sit or stand, I don't see that the slowdown that we've had in either autos or housing is completely wound up and I do believe that some drop in interest rates, even modest, would help. Looking at autos first, the dealers are very reluctant to add to their inventories. One of the reasons is the cost of floor planning them. One half of 1 percent may not sound like much to us here, but it's real money to those folks. So, I think that would be significant. I think that housing is very sensitive to the level of interest rates and that the credit availability issue is especially critical--not in financing Mrs. Jones who wants to buy a condo but in financing the builders themselves. That doesn't show up in these spreads between mortgage rates and T-bills or anything else because that's not what we're measuring. We're talking about loans to contractors. So, I think that somewhat easier conditions would help both of those industries. If we should tip the economy into a recession, Congressman Neal may still be holding hearings on the need for zero inflation but 434 other people in Congress in the House and 100 people in the Senate are going to be dragging us down there to explain why in an election year they're facing rising amounts of unemployment back in their districts. And Congressman Neal--frankly, I don't know the characteristics of his district--may even get some calls. Who knows? But I don't think there's that much at risk for this kind of move and it could help in the immediate future. On the matter of inflation, I still maintain that we are not able through monetary policy to influence all of the sources of inflationary pressure and that we had better spread the responsibility for fighting inflation over more groups, including the folks under the dome down the street. They do a lot of things that contribute to inflation and I don't see how we can offset here all the bad policy moves that come out of the Congress. It may sound macho to beat our chest and pretend we can, but I think the cost to the economy of doing this is going to be very, very severe. So, I vote for ""A.""",439
-fomc-corpus,1990,President Melzer.,4
-fomc-corpus,1990,"I favor ""B,"" symmetric. There's no expectation of an easing of rates out there now and I don't see what we gain by creating one again.",30
-fomc-corpus,1990,Governor Kelley.,3
-fomc-corpus,1990,"""B,"" symmetric, Mr. Chairman. I really have no new thoughts to add to those that have already been suggested.",24
-fomc-corpus,1990,President Boykin.,4
-fomc-corpus,1990,"Mr. Chairman, I come out somewhere between ""B"" and ""C,"" as a matter of fact, recognizing all of the concerns that have been expressed: Financial fragility--we've experienced some of that; credit rationing--we've experienced some of that, and we're still there. Granted, the players sure have changed.",67
-fomc-corpus,1990,Some of you are still there!,7
-fomc-corpus,1990,Some of you are still there!,7
-fomc-corpus,1990,That booming District of yours is turning your head!,10
-fomc-corpus,1990,"If our view is right--and obviously we're an outlier on the up side--that there's probably a little more strength in the economy than the consensus feeling, and given that we're not quite as optimistic on inflation as the staff is, it does place me somewhat in a dilemma. If we wait until we get confirmation of which way it's going, obviously, it's always too late. In trying to figure out what I would do in this kind of situation, I guess alternative ""B,"" [is appropriate]. But when we start talking about the directive--and this certainly would be somewhat of a nuance--I would be inclined to go asymmetric on the side of greater restraint.",134
-fomc-corpus,1990,Any further comments? President Black.,7
-fomc-corpus,1990,"Mr. Chairman, I share fully Lee Hoskins' assessment of how we ought to measure the impact of monetary policy. And that puts someone who believes that in a very difficult position because what we have to do is to pick out of the air, as it were, some borrowed reserve target that will create some federal funds rate that will enable us to predict the demand for money. I'm very skeptical of our ability to do that in the short run, and I always have trouble with this particular part of the meetings for that reason. My guess is that the caveat Don Kohn threw out is probably right and that we're probably going to get a slower rate of monetary growth with existing money market conditions than shown in ""B."" That's a pure guess. But for that reason I would stick with ""B"" because I think the rate of growth we may get on M2 may be closer to that shown for ""C.""",184
-fomc-corpus,1990,President Guffey.,5
-fomc-corpus,1990,"""B,"" symmetric.",4
-fomc-corpus,1990,"I think we have a significant majority for ""B,"" symmetric. The Secretary will read an operational paragraph encompassing that and I will entertain a motion.",29
-fomc-corpus,1990,"""In the implementation of policy for the immediate future, the Committee seeks to maintain the existing degree of pressure on reserve positions. Taking account of progress toward price stability, the strength of the business expansion, the behavior of the monetary aggregates, and developments in foreign exchange and domestic financial markets, slightly greater reserve restraint or slightly lesser reserve restraint would be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with growth of M2 and M3 over the period from December through March at annual rates of about 7 and 3-1/2 percent respectively. The Chairman may call for Committee consultation if it appears to the Manager for Domestic Operations that reserve conditions during the period before the next meeting are likely to be associated with a federal funds rates persistently outside a range of 6 to 10 percent.""",164
-fomc-corpus,1990,Would somebody like to move that?,7
-fomc-corpus,1990,Move it.,3
-fomc-corpus,1990,Who seconds?,3
-fomc-corpus,1990,Second.,2
-fomc-corpus,1990,Would the Secretary call the roll?,7
-fomc-corpus,1990,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Boehne Yes President Boykin No President Hoskins No Governor Johnson Yes Governor Kelley Yes Governor LaWare Yes Governor Seger No President Stern Yes,44
-fomc-corpus,1990,I think that completes our business for today.. Our next meeting is on March 27th.,19
-fomc-corpus,1990,That's right.,3
-fomc-corpus,1990,"Mr. Chairman, do you want to say a little, or maybe I can say it, about how we plan to run that meeting? The task force report on System foreign currency operations is--",39
-fomc-corpus,1990,You're talking about March?,5
-fomc-corpus,1990,"March, right.",4
-fomc-corpus,1990,Why don't you talk.,5
-fomc-corpus,1990,"The report is due at that time and we plan to get the associated papers to you, I hope, 10 days to 2 weeks in advance of that meeting. Given your conference afterwards, we decided the best way to try to handle this would be to start at 9:00 a.m. and, especially if we finish [the Committee's regular business] at 12:00 noon, then run through the last hour and into the lunch period to discuss the task force papers that are being presented to you in that order. We figured foreign exchange goes better over tuna fish than ""A,"" ""B,"" and ""C.""",128
-fomc-corpus,1990,Is that satisfactory?,4
-fomc-corpus,1990,When is the planning meeting?,6
-fomc-corpus,1990,My understanding from talking to Ted Allison is that they are a little flexible about whether the planning meeting starts at 2:30 or 3:00 p.m. It would be whenever the discussion--,40
-fomc-corpus,1990,We're free.,3
-fomc-corpus,1990,Will the papers be distributed before?,7
-fomc-corpus,1990,"Oh, yes. Actually, drafts are already in the Reserve Banks.",14
-fomc-corpus,1990,"Yes, I know.",5
-fomc-corpus,1990,"We will polish them up and get them out to you. They are rather thick, I fear to say, but I think actually they're relatively accessible. We tried hard to make them accessible and we will try to get them out to you in an orderly manner and have a very brief summary--a reader's guide for them.",65
-fomc-corpus,1990,"Mr. Chairman, do you view this as a general intellectual discussion or do you view it as more than that--as something leading up to an action of some kind?",34
-fomc-corpus,1990,"Well, it depends very concretely on the nature of the discussion. I don't have any particular action in mind. I think that what we are doing is probably about the best we can do considering the nature of the circumstances. But I certainly think it requires a general review. If there are other alternatives that the Committee decides it might want to consider, they can be put on the table.",78
-fomc-corpus,1990,I think the answer to Ed's question depends on what is in or not in the papers.,19
-fomc-corpus,1990,"Are there 11 or 12 papers, Ted?",11
-fomc-corpus,1990,"If I'm not mistaken, there are 11.",10
-fomc-corpus,1990,Eleven papers so far.,6
-fomc-corpus,1990,"By doing it at lunch, is it clear that it's not a part of the Committee meeting?",19
-fomc-corpus,1990,"No, it is part.",6
-fomc-corpus,1990,It is part of the Committee meeting.,8
-fomc-corpus,1990,It is part of the Committee meeting but at lunch.,11
-fomc-corpus,1990,"Well, from whenever you finish the main part of your meeting.",13
-fomc-corpus,1990,"No, the meeting will stay in session through lunch.",11
-fomc-corpus,1990,But it's not a recorded vote.,7
-fomc-corpus,1990,"Not unless the Committee rules otherwise.  Anything else?   If not, let's adjourn.  We are earlier than I expected and sandwiches will not be here for another 35 minutes, so we're all on our own.",45
-fomc-corpus,1990,Governor LaWare has moved that it is a good morning. Are there any seconds?,17
-fomc-corpus,1990,Second.,2
-fomc-corpus,1990,It's too early to tell!,6
-fomc-corpus,1990,Can I have a motion to approve the minutes?,10
-fomc-corpus,1990,I'll move it.,4
-fomc-corpus,1990,Second.,2
-fomc-corpus,1990,"Without objection. Mr. Cross, would you bring us up to date?",15
-fomc-corpus,1990,[Statement--see Appendix.],6
-fomc-corpus,1990,Questions for Mr. Cross?,6
-fomc-corpus,1990,When is the last time that the Fed did not share in intervention with the Treasury?,17
-fomc-corpus,1990,"Well, there have been occasions when we didn't share for brief periods and in modest amounts. For example, there was the time--not within the past 18 months or so, I guess--when the Federal Reserve had very few, if any, yen balances and we were intervening for Treasury. And there have been some other occasions where for one reason or another there has been some modest activity by one or the other. But basically, we have participated 50/50, roughly speaking, with the Treasury for a number of years. It might have been [since] about 1980, at the time of the Carter bonds. It has been pretty much that way with these minor deviations.",140
-fomc-corpus,1990,"Sam, related to that: Did they ask us to share, and what did we say by way of opposition?",23
-fomc-corpus,1990,"Well, the Treasury is very interested in having us share; they regard that as very important. We told them that we had reached a point where it would require a further expansion of our authorized limits in order for us to be able to intervene anymore. As to taking that issue up at that point, particularly in the light of these doubts about the intervention with respect to the mark, we said we would wait and review the matter and look at the limits in the light of our discussion with the Committee since we already had set up this discussion and were planning to conduct a thorough review. So, we told them that we would not operate [for System account] until we had an opportunity to have this more comprehensive discussion with the Committee.",146
-fomc-corpus,1990,Did that make them very unhappy when you told them that?,12
-fomc-corpus,1990,Yes.,2
-fomc-corpus,1990,"I had another question, Mr. Chairman. Going back to the yen: Part of the weakness of the yen has been attributed to the rift between the Bank of Japan and the Ministry of Finance, beyond the more general political problem. But they did do the discount rate increase of 1 percentage point. Does that suggest that that rift has been healed or is that ongoing and will it prevent the Bank of Japan from taking further anti-inflationary steps?",93
-fomc-corpus,1990,"It's hard to say. The rift went on for so long that by the time the 1 percentage point change was actually introduced it already had been totally discounted in the market and market rates didn't change. So, rather than being seen as a sign of forcefully getting hold of the situation, it perhaps was taken by a lot of people as still a following of events--following the curve or trying to catch up and being dragged along belatedly when circumstances forced it. So, it did not come out with a result that was strong and positive. Whether these differences are going to be less in the future is a little--",126
-fomc-corpus,1990,"Actually, there is really a quite important difference between the Minister of Finance and the Governor of the Central Bank of Japan. I'm not sure they're going to be able to patch that back together immediately. As far as I can see, it is subject to continuing problems. Any further questions for Sam? If not, may I have a motion to ratify his actions since the February meeting?",77
-fomc-corpus,1990,Move it.,3
-fomc-corpus,1990,Is there a second?,5
-fomc-corpus,1990,Second.,2
-fomc-corpus,1990,Without objection. Mr. Sternlight.,8
-fomc-corpus,1990,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1990,Questions for Mr. Sternlight either on actions or on leeway questions?,15
-fomc-corpus,1990,"I have a question. Peter, I thought that your Annual Report on Operations for 1989 had considerable food for thought, and there were two points in that report that leaped out at me. One was your concluding comment, which I suspect you wrote with your own hand, in which you talk about how essentially we have moved back to federal funds targeting, even though we don't call it that, and an almost wistful philosophizing about how there ought to be a way to move away from that. I'd appreciate any comments that you might have on that. The other point that leaped out at me was the collateralization of currency. You made the really rather astounding point that for the first time since 1957 the System portfolio actually was reduced and that our leeway on collateral is really rather thin. I think that would be worth talking about. But beyond that, I think that is a sensitive political issue. Some years ago--I forget whether it was in '82 or '83--there was considerable Congressional interest in the use of foreign exchange as collateral for the U.S. dollar. We made some pledges, as I recall. I think Chuck Partee and some other people testified on that. If you link that issue with what was just talked about a moment ago--in effect, the first split with the Treasury in a long time, and the issue as to who is the senior and who is the junior partner, which was a very sensitive one Congressionally in the '73-'74-'75 period--it just strikes me that we may have a major issue developing. These two volatile issues were sensitive separately and I would think that when you put them together it could be a major issue. I don't want to step into the topic [on our agenda] later, but it does seem to me that we're opening ourselves up to bringing back some of those issues that we have fought in the past. If they come back together, we could have a big fight on our hands.",401
-fomc-corpus,1990,"Let's leave that, because it does step over into the other area.",14
-fomc-corpus,1990,Okay. Then I will go back to my first question about the comments [in your Annual Report].,20
-fomc-corpus,1990,"Well, I don't know that I have very much to add to the kind of philosophical comment I put in the Annual Report. I do think that what we do now is somewhat different than the overt fed funds targeting of the 1970s. But it certainly has become pretty darn close to it in substance. You can call it a wistful look at the past. I think there are regrettable things about fed funds targeting and I am hopeful of being able to get away from it more. I think it's going to be difficult to do until we have more confidence in something like a relationship of borrowing and the spread of the fed funds rate over the discount rate. But just in our day-to-day operations I think we can carefully seek out opportunities not to let ourselves be too tightly trapped into the perception that we target the funds rate, because part of the box that we get ourselves into is built up just out of our own interactions with the market. We carefully appraise each day's operation. What is the market expecting of us? What will they make of it if we do this or don't do that? And it's only by rather carefully taking opportunities to stretch their tolerance that I think we can begin to build away a bit from an excessive focus on the fed funds rate.",254
-fomc-corpus,1990,"Peter, I was interested in your comments on Drexel. In particular, do you sense any change in security firms' behaviors coming out of the Drexel [situation]? Secondly, do we send any different signals to primary dealers now about how they manage their affairs or--?",56
-fomc-corpus,1990,"Well, we certainly had been sending some very clear signals to Drexel, too, about how they managed their affairs. We felt very deep concern about the charges they took and the wrongdoing they admitted to, and we had them on very stern notice about what we expected of them just from the standpoint of being good citizens in the market. As to general changes in market behavior, as I mentioned, there is this greater tenderness about the financing of investment banking firms that does still linger in the wake of rumors that were rampant for a while but have quieted down now. It has made many firms look carefully at their own exposure just so they won't get themselves in excessively exposed positions; they will take that lesson to heart. In the areas that I regard as Drexel's greatest excesses, in the junk bond underwriting, I think that lesson really was being delivered well before their demise just because that market was virtually coming to a halt during much of last year. You just can't do those things, and probably shouldn't be trying to do those things, with highly leveraged buyouts to the extent that they were during their heyday.",224
-fomc-corpus,1990,I just want to make sure I'm listening correctly to what you said about Drexel. When a firm is a primary dealer do I understand that that gives us the authority to advise them on what they do in the area of corporate finance as well as securities? Is that what you're saying?,57
-fomc-corpus,1990,"Well, I would say we have a concern about all firms. Obviously, we want to be sure that the entity we deal with is properly capitalized and that it conducts itself properly.",37
-fomc-corpus,1990,Right.,2
-fomc-corpus,1990,"But we have said in our standards for primary dealers that we have a concern about their general financial standing and the reputation of the parent or other affiliates as well as the immediate entity that we deal with. It's not that we go out of our way to give a lot of advice on how they conduct themselves; but if we felt disturbed about their conduct in some other area, we would feel it was incumbent on us to say something.",86
-fomc-corpus,1990,Where do we overlap the SEC then? Isn't that their basic responsibility: to oversee these firms?,19
-fomc-corpus,1990,"Well, our role is not a regulatory role. It's just part of our business relationship with a counterparty. We don't want to do business with an entity whose reputation we're not comfortable with.",38
-fomc-corpus,1990,"One of the things that the Drexel case shows is that if there are serious problems in one part of the firm, those problems cannot be isolated from the rest of the firm. In that case, even though the primary dealer that we do business with had capital in excess of regulatory guidelines and all the rest of it, once the name of the firm was so badly tarnished, people wouldn't do business with the government security firm even in a context of book entry transactions in government securities. So you can't fully isolate or insulate the primary dealer from the affairs of the firm as a whole. But if we ever have a need to raise a concern about the affairs of a firm as a whole, we always do it in very close collaboration with the SEC. We go to extraordinary lengths in all of these types of issues through the day-to-day, at times hour-to-hour, very close if not intimate, working relationship with the SEC. The SEC is always center stage. Again, in the case of this company, it also happens to be true that some of the most serious problems that were encountered once the chute went up happened to be in entities that were not regulated by the SEC at all. So both we and the SEC had the problem of these unregulated entities being the focal point of some of the greatest sources of tension as they applied to markets generally. But, Governor Seger, we do try to maintain what we loosely think of as a fit-and-proper standard that's built into the written, published guidelines for primary dealers. What it essentially tries to say is that we recognize that even where, as in this case, the business entity that we're doing business with is fine--indeed, this was a good government securities dealer--if the rest of the firm gets into deep trouble, no matter how good the entity is that we're doing business with and even though it may be a business entity to itself, it will be contaminated by the problems of the rest of the firm. And that, of course, is precisely what happened. We try to walk that fine line, and there is no case where we would make the point about any other aspect of the firm without close consultation and collaboration with the SEC.",443
-fomc-corpus,1990,"Well, that's why I asked: to see if I was understanding Peter's comment about junk bond financing correctly. Because whether or not they choose to underwrite junk bonds is--",35
-fomc-corpus,1990,"We would never say anything about whether a firm should be doing junk bond financing or not. We might make a comment, as we did in this case, about the overall liquidity of the firm--about the ability of the firm to meet its obligations in the event of adversity. And we might stress, as we did, that they ought to be thinking seriously about how they would respond to problems. But we would never say they should or shouldn't do this or that. We would always be very, very general. If we thought something specific needed to be said we would call Mr. Ketchum or Mr. Breeden or somebody [else at the SEC] and say: ""Look, you ought to be aware of this."" We were the ones that first called to the attention of the SEC the fact that the excess capital was being taken out of the broker dealer. We never told them what they should do about it, but we certainly informed them of it; and it was up to them what they did about it.",205
-fomc-corpus,1990,"Jerry, don't we have a legal authority to set terms and conditions for primary dealer status when they do business with the Fed?",25
-fomc-corpus,1990,Right.,2
-fomc-corpus,1990,"So, if they don't want to be part of that club, they don't have to.",18
-fomc-corpus,1990,"That's correct. Oh, sure.",7
-fomc-corpus,1990,So it's not like we have regulatory authority; they don't have to be a primary dealer and buy and sell securities with the Fed.,26
-fomc-corpus,1990,"Technically, I don't think we have legal authority. I think it grows out of--",18
-fomc-corpus,1990,"Is there any legal issue about the terms and conditions we might set for a dealer to do business with us? Legally, could we say we don't like the rest of your business and we're not going to do business with you?",46
-fomc-corpus,1990,"Oh, sure.",4
-fomc-corpus,1990,Have we done that? Have we pulled a primary dealer?,12
-fomc-corpus,1990,"I don't know if we ever have. I'm just saying, as Peter pointed out, that as far as our business relationship with the dealer goes, I think we could probably set any conditions we wanted to.",41
-fomc-corpus,1990,That's right; that's because it's not statutory.,9
-fomc-corpus,1990,But of course they don't have to do the business.,11
-fomc-corpus,1990,"It's a very fine line. We agonized in the period after Drexel had pleaded guilty under what the U.S. attorney [unintelligible] and had entered into this agreement with the SEC. There was just no question that the government securities entity itself had nothing to do with all these problems. And we agonized about the kind of point that Governor Johnson is making: Should we, on the basis of general fit-and-proper standards, terminate in a public way our relationship with the firm? As I said, we talked about it at great length and finally decided that doing that in a public way, given all that was going on, probably in and of itself would have produced the immediate demise of the firm as a whole. So what we did, in effect, was put them on a formal probation. We put them on notice that if they failed to live up to all of the commitments they had made to the U.S. attorney and to the SEC, we would publicly stop doing business with them. But it was one of those very tough calls on an issue; I think in retrospect our instincts were right. Had we just overtly, publicly, stopped doing business with them instead of privately putting them on notice and putting them on probation, it's now very clear to me that that action, had we taken it, would have caused the demise of the firm; it was that tender. Now, it happened anyway. I must say I would rather that it happened the way it did than as a result of some overt action on our part.",312
-fomc-corpus,1990,"Is there any new evidence as to whether or not, when the firm is fully liquidated, there will be any capital left?",26
-fomc-corpus,1990,It's still hard to tell.,6
-fomc-corpus,1990,I don't really have a final answer on that.,10
-fomc-corpus,1990,"I recall one of the major subs, which is the public side of the SEC regulation, has a note to the parent company that presumably would be the vehicle by which any excess capital up in the regulated sub would go through the parent and back down. But if there are other obligations of the parent, does that line stand in any securer position, do you know? I'm talking specifically about the commodity stuff.",82
-fomc-corpus,1990,"The holding company you're referring to is called the Trading Corporation, which did foreign exchange, oil, and commodities [trading]. We can use as an example the Central Bank, which dealt with the Trading Corporation.",42
-fomc-corpus,1990,That's exactly the issue I wanted to raise.,9
-fomc-corpus,1990,"Say there's a $125 billion loan, either gold or bonds. If the Trading Corporation is a general creditor of the parent because it [unintelligible] funds to finance the parent's holding of bridge loans and junk bonds, that sub would share with all other creditors of the parent equally. So, if there are trade creditors, whatever creditors [unintelligible] with the parent all come before the shareholders of the parent. The have an advantage over the in that they got a guarantee from the holding company. They have legally to collect two [unintelligible] for distribution with the sub and themselves and if the sub had distribution. At least from what the lawyers of the say, they are hoping to get at least 70 cents on the dollar. Now, if they get that, that means that the shells of the holding company don't get anything. All these central bank creditors of the Trading Company will all have to collect before the shareholders will collect, unless someone says that this subsidiary ought to be subordinated--that it's unfair for the other creditors of the holding company--in which case all of those who did business with that subsidiary will come in second. And that's what the fighting is going to be about in the bankruptcy court: who is going to stand first in the line of creditors. Then we may just see what's going to be left for the shareholders, if there's any equity left at all.",283
-fomc-corpus,1990,"One of the problems, too, in terms of what may be left is that you have to take the common things like their leasehold obligations. Their leasehold obligations, believe it or not, are in the area of $11 million a month.",50
-fomc-corpus,1990,And there are a lot of leases.,8
-fomc-corpus,1990,And there are a lot of leases.,8
-fomc-corpus,1990,Any further questions of Mr. Sternlight?,9
-fomc-corpus,1990,"Peter, are the market participants that you talk to expressing any concern about the Comptroller's examinations in various parts of the country? Are they talking to you about the possibilities of a credit crunch?",39
-fomc-corpus,1990,"In our calls with some of the major money center banks we do hear some reference to that. But I think they're talking more just about what they hear generally. I don't get the sense that they're talking about their own situations having been impacted that severely, although some of them do tell us that they have been taking a more conservative view in their lending. It's a mixed sense that I get. It's not so much because of regulators bearing down but more just that in light of general conditions in the last year or two they have wanted to take a more restrained view about their lending programs.",116
-fomc-corpus,1990,But the nonbankers are not focusing on it very much?,13
-fomc-corpus,1990,"Well, there have been some articles in the press talking about the whole subject and some of the market participants--nonbanks as well--will refer to that. Some of them see it as a factor in shaping their economic outlook to some degree.",49
-fomc-corpus,1990,"Peter, is there any evidence that where American banks are pulling back on this issue the Japanese are moving in?",22
-fomc-corpus,1990,"I have not encountered that, Mr. Chairman.",10
-fomc-corpus,1990,"Well, you do hear it in real estate.",10
-fomc-corpus,1990,I know of one instance having--,7
-fomc-corpus,1990,"Mr. Chairman, I know of two or three instances in Boston where foreign loan production officers, foreign representation officers, have come in and taken over real estate deals with established developments in two cases and with a new development in another case.",47
-fomc-corpus,1990,"I was just looking at those credit data yesterday. What's interesting is that everybody talks about the contraction going on in real estate financing, but in fact from what the data show that hasn't slowed down at all. It's really just the business credit that is slowing down, which is quite disturbing. That is the source of the credit slowdown; it's not in the real estate area.",74
-fomc-corpus,1990,"One of the arguments bankers use on that is that they have commitments and that once you're in, you're in--you have no way to get out. So they keep putting new money in, and we won't see the real impacts of this tightening--",49
-fomc-corpus,1990,Until they're all drawn?,5
-fomc-corpus,1990,"Yes, until what's in the pipeline dries up. John might--",13
-fomc-corpus,1990,"Manley, were you talking about total real estate [financing] or real estate [financing] provided by commercial banks?",26
-fomc-corpus,1990,"I think I was looking at both, but it was the total that I was talking about.",19
-fomc-corpus,1990,"There has been some switching, of course, in the commercial banking industry.",15
-fomc-corpus,1990,"I know. I looked at both of them. But I was thinking of the most aggregate numbers. If I remember, those numbers were still clicking along at 15 to 25 percent annualized growth and it was business credit that was really slowing down.",51
-fomc-corpus,1990,"Business credit at commercial banks slowed down around the turn of the year. Some of that was the slowness to [move to] lower primes, so commercial paper surged at the same time. And a lot of it was merger-related financing. If you take out the merger-related financing and add back in the commercial paper, you get a very sluggish picture in short-term business credit. But it's a picture that's been present since at least the beginning of 1989.",94
-fomc-corpus,1990,Right. What's real estate doing there?,8
-fomc-corpus,1990,"Well, I just have the bank real estate data. We're estimating for March, on a very preliminary basis, about a 10 percent increase. That follows increases of 13 percent in February and 7 percent in January. The January number, however, was probably affected by writedowns. Last year we were running in the 10 to 12 percent area and that seems to be continuing pretty much.",82
-fomc-corpus,1990,"Yes, I was wrong; it's about 10 to 12 percent annualized.",17
-fomc-corpus,1990,But there has to be a big FIRREA effect there.,12
-fomc-corpus,1990,"Yes, it could be. That doesn't show any sign of deceleration, to me at least. There is that weak January relative to trend but February is as strong as ever in there.",38
-fomc-corpus,1990,And March is close to February; it's just a little [less].,14
-fomc-corpus,1990,Okay.,2
-fomc-corpus,1990,"Manley, I think what's happening--if the evidence from our small neck of the woods has any relevance to this--is that some of the larger and pretty much creditworthy developers are finding alternative sources of credit and they really haven't slowed down a great deal. The smaller and medium-size firms in the C&I loan area are suffering somewhat as a fallout of this experience. They find it difficult to get working capital; [their access earlier] had existed on a relationship basis with institutions that now have difficulties because of the real estate problems.",107
-fomc-corpus,1990,Yes.,2
-fomc-corpus,1990,There's a change in the composition because the foreign banks are not coming in and picking up that financing.,20
-fomc-corpus,1990,"Any further questions for Mr. Sternlight? If not, first can I have a motion to ratify transactions by the Desk since the February meeting?",30
-fomc-corpus,1990,Moved.,2
-fomc-corpus,1990,Second.,2
-fomc-corpus,1990,"Without objection. Secondly, can I have a motion to approve the leeway request of Mr. Sternlight?",22
-fomc-corpus,1990,Move it.,3
-fomc-corpus,1990,Second.,2
-fomc-corpus,1990,Without objection. We now move on to the staff reports on the economic situation with Messrs. Prell and Truman.,24
-fomc-corpus,1990,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1990,[Statement--see Appendix.],6
-fomc-corpus,1990,Questions for either gentleman?,5
-fomc-corpus,1990,"Ted, I have two questions. You mentioned the assumption about the path of the dollar. Is that the declining [unintelligible]? Could you give me some numbers? I can't remember what you were assuming before.",44
-fomc-corpus,1990,"We're assuming from now on, [after] the first quarter, that the dollar will decline on average about 3 percent.",25
-fomc-corpus,1990,This year.,3
-fomc-corpus,1990,"For the rest of the forecast period--taking account of the adjustment through the first quarter, which still is negative. And that compares with 5 percent in the last forecast. Then you adjust for the higher inflation abroad and that's where I sort of got the 1/2 percent.",57
-fomc-corpus,1990,"You pointed to some areas of strength that may show up in Eastern Europe other than in East Germany. The second question is: Isn't there another side that perhaps doesn't get as much attention, and that is that there could be some very important sources of weakness as well? One gets the impression that in places like Hungary and Czechoslovakia orders from the the Soviet Union have declined very substantially in the steel industry and other areas as well. Isn't it conceivable that in 1990 growth in those areas may actually turn out to be less than was anticipated before the--",113
-fomc-corpus,1990,I think so. The major focus of our analysis has been on the German situation.,17
-fomc-corpus,1990,Right.,2
-fomc-corpus,1990,"Basically, as far as the rest of Eastern Europe is concerned, we took the general level of exports of those countries with the United States and added on $1 billion or something like that by the end of the forecast period just to get some sense of where one would be going in the future. But I agree with you that in the short run we could have some negative impacts. It's a little hard to factor all these things in because each country is moving at a different [pace.] In Poland, on the one hand, although things seem to have gone downhill in terms of domestic production, they have gotten, as a consequence of the changes there, a great amount of increased access to foreign exchange. How that nets out in terms of their hard currency current account position and potentially demand from us and other countries is a little harder to estimate. And, of course, the oil question, which is in fact a negative impact in the forecast [unintelligible] oil price. It's one manifestation of [unintelligible].",206
-fomc-corpus,1990,It's even exaggerated in those countries because prices were being subsidized. Thank you.,16
-fomc-corpus,1990,President Syron.,4
-fomc-corpus,1990,"I have two questions. One is: In looking at the most recent CPI number, how much weight are you inclined to give to possible changes because of weather-related factors and seasonals in apparel, with much warmer weather early in the year? Will things potentially even out with the spring season earlier on? Is there a possibility that the seasonals were affected, perhaps biasing up the CPI excluding energy compared to the CPI?",84
-fomc-corpus,1990,"Well, we've anticipated seasonally adjusted declines over the next couple of months in apparel prices, which would not have been the pattern with the customary introduction of seasonal apparel over the past couple of years. So, in effect, the answer is that we are taking this as something of a special factor that should unwind over the next couple of months to some degree. Indeed, we've lowered our forecast of the ex food and energy CPI increase for the second quarter from what we previously had. But the cumulative effect of the last few months of data in this overall category--even though there are special things like transit charges and other items that seem to be one-time events--has been that the trend is a little higher. It just seems to fit with the general circumstances of overall spending being stronger--knowing that that profit margin pressure was there, which businesses presumably would like to relieve to some degree. [Unintelligible] the context of import prices turning upward, thus relieving a bit of the competitive pressure. So it all seems to fit together in this direction. We've raised [our forecast of] prices ex food and energy this year; they change Q4 to Q4 by .2 percent, a fairly modest change.",243
-fomc-corpus,1990,The second question I have is that I'm rather struck by the change in the [unintelligible] of the Greenbook. Over the next two years where you come out at the [end] is not terribly different from what you had last month.,51
-fomc-corpus,1990,That's by design of course. I hope everyone--,10
-fomc-corpus,1990,"But what is different is this assumption for quite a substantial increase in short-term rates. What I'm wondering is--you can answer this question either way--where we would come out at the end of this period in terms of the growth of inflation and also capacity utilization if we didn't have that increase in rates that's built into your forecast. What would your answer be? Conversely, if we wanted to have significantly more meaningful progress on prices--and I'll let you give the magnitude--how much higher would your assumption be for an increase [in interest rates]?",109
-fomc-corpus,1990,"Let me say first of all that in terms of the change in rate assumptions from last time, as you may recall, what we indicated at the February meeting was that we didn't anticipate any significant change but in terms of what we had written down in quantitative terms there was a modest upward drift in rates. So the rate increase in this projection is not quite the 1 point and 1/2 point that I referred to. It comes more quickly. We had had rates just drifting up through the projection [period] pretty easily. Whether or not one would characterize this as substantial could be debated. Certainly, in terms of cyclical movements in interest rates that in the past have caused major changes in the direction of the economy, a 1 point change in the funds rate really wouldn't look all that dramatic. Using our quarterly model and holding the funds rate at the current level throughout the forecast period, we would end up with a higher level of real GNP at the end of 1991 by about .7 percent. And because of the long lag in the price effects, we probably would see an inflation rate next year only .1 or so higher than what we have in the forecast. As we've emphasized many times, it takes some time for those inflation changes to reemerge. One could--",260
-fomc-corpus,1990,What kind of unemployment rate would you have at the end?,12
-fomc-corpus,1990,"We would have an unemploymnent rate about 1/4 of a point lower. That's really not a very big difference, and I guess that's consistent with what I've said about the kind of shock that a 1 percentage point interest rate change at the short end imposes on the economy. Clearly, if one wanted to move the inflation rate down, these can be applied in reverse. You'd need a substantial rise in interest rates to make significant progress within 1991 to bring the unemployment rate up much more quickly and reduce capacity utilization. The trajectory going into 1992, however, is an altogether different story. If the unemployment rate were to go in excess of 6 percent next year, presumably we would begin to see some significant deceleration in prices in 1992, all other things equal.",164
-fomc-corpus,1990,Governor Seger.,4
-fomc-corpus,1990,"I guess this is directed to Ted. I still have a hard time accepting your idea that the dollar will depreciate, even though you're saying you expect it to depreciate less than you had expected a month or so ago. I really can't go through this whole scenario and get a depreciating dollar to be consistent with a tighter monetary policy and rising interest rates. I just can't seem to get that into my mind as something reasonable. I hope you're right because, as you know, I have concerns about our ability to export--little things like that! I don't have a problem with the outcome; I just am worried about the likelihood of getting it.",130
-fomc-corpus,1990,"I'm not sure what I hope, actually, at this stage! I think there are three points. One, which is the basic story, is that we had some improvement--and I'm excluding capital gains and losses--in the current account in the last quarter of last year. That was $1 billion at an annual rate and some further improvement is projected there. We had the view that although this external adjustment problem is shrinking that the general adjustment problem would tend to weigh on the dollar. And we have essentially adjusted in light of the stronger [interest] rates. We moved from a modest weight to 60 percent of the weight or something like that. I don't think there's any magic in this; it certainly is possible that the dollar could be unchanged over this period. It wouldn't make much difference in terms of the immediate forecast because most of the effect of the exchange rates, at least in the context of the forecast and how we put these things together, is the adjustment from the middle of last year--that part moving through the pipeline. So, one would take maybe .3 off the growth of GNP over this period if the dollar were unchanged from the first-quarter average levels and maybe $3 or $4 billion off the current account level, if you believe the way this black box works on these things. The one point I should mention is that to the extent that the dollar's nominal strength were associated with [higher] inflation abroad, then in real terms you would be in about the same place. If inflation went to 6 percent in the major industrial countries on average and the dollar was unchanged, or if it [depreciate] by 3 percent relative to where we are now, in terms of the way things worked out that would be about the same. The [depreciation] essentially would offset the inflation abroad. So, one needs to set that partly aside. That's the best I can do. We've been wrong before and no doubt we'll be wrong again--which way I'm not sure.",403
-fomc-corpus,1990,I'm just nervous about the 7 percent advance in the dollar vis-a-vis the yen since our last meeting. It reminds me how difficult it is to get these estimates right even over a short period of time.,42
-fomc-corpus,1990,"Well, we don't even try to do it over a short period of time. One factor that hasn't been focused on very much is that the current account adjustment in Japan has been quite impressive in dollar terms. A piece of that is the J-curve. But they've had about a $30 billion adjustment over 3 years in that current account position. So that's 40 percent, essentially--on the same order of magnitude that we've had, if you want to put it that way. Part of it is the J-curve; part of ours last year also was the J-curve effect. Some of that is going on but there are some questions about how that's going to play out. You could even tell yourself a story that the current account adjustment is going more rapidly in size in Japan overall--",160
-fomc-corpus,1990,Thank you.,3
-fomc-corpus,1990,"--and that it continues here overall and, therefore, the expected level of the yen/dollar rate in the future is [unintelligible]. Now, that certainly is possible. There are a number of people who worry about the fact that we could get ourselves in a situation in which the U.S. current account position is in balance, however one wants to define that, and the Japanese current account position is in balance and we would be stuck with this large continuing imbalance in the [bilateral] trade balance. And that, I think, bothers some people for a variety of reasons. But it is something that can't be ruled out.",129
-fomc-corpus,1990,Another point is that in the first quarter the trade-weighted dollar was down at a double-digit [rate] in spite of what happened to the yen. So we have a very substantial decline in the trade-weighted--,44
-fomc-corpus,1990,"Yes, but actual trade decisions usually are not based on the weighted average; they're based on movements in specific currencies and the arrangements between specific countries.",29
-fomc-corpus,1990,But they are weighted according to the amount of trade that's done.,13
-fomc-corpus,1990,"Well, the weights are based on ancient history. I think if you look through how they--",19
-fomc-corpus,1990,"Well, that would give more to Japan if they did it on [ancient] history because Japan had a higher weight.",25
-fomc-corpus,1990,"All I'm saying, though, is that when you look forward I believe you have to think in terms of a very micro analysis of the foreign exchange markets if you're going to think about what the impact is going to be on our country and our economy.",50
-fomc-corpus,1990,"Well, you'd use a lesser weight for Japan.",10
-fomc-corpus,1990,"[Unintelligible] uses lesser or bigger weights. In fact we use two weighting systems. On the import side we tend to use import weights and on the export side we tend to use multilateral weights. We have looked at multilateral weights in the models in terms of whether changes in the weighting system give you much difference and the answer is ""no,"" even though Governor Seger is correct that they are ancient weights that haven't changed that much over time. Obviously, the weakness of the yen is affecting the outcome and we tried to take that into account. On the other hand, the strength until very recently of the DM and other European currencies, and the Canadian dollar for that matter, is on the other side. We have a lot of trade with Canada and they have a huge current account deficit at the moment. They do even up. Whether we have gotten the balance right in terms of these aggregates is obviously an open question.",188
-fomc-corpus,1990,"Also, Bob, I think you'll notice that more of our trade is with countries such as Taiwan and Hong Kong, etc. And the last I checked, their currencies were not picked up in the weighted average at all.",44
-fomc-corpus,1990,It is in the forecasting process.,7
-fomc-corpus,1990,Yes.,2
-fomc-corpus,1990,"No, I'm talking about that series we run on the weighted average; I didn't think they were in there. Anyway, one final question for Mike: With tighter monetary conditions assumed and rising interest rates and the FIRREA effect, how are we likely to get housing starts this year of about the same magnitude as last year?",64
-fomc-corpus,1990,"Well, last year was somewhat erratic; the course was generally in a downward direction even though interest rates came down in the latter half of the year. I would say that we have had a very hard time getting the base level from recent months, given all the weather effects, so there is clearly a bit of guesswork there. We've looked at the permits for the last couple of months, though, and they likely are not as affected by weather--particularly in the single-family area where we haven't had the HUD effect. Using that as some benchmark, we thought that something that had an underlying level roughly consistent with that pace would be appropriate for the coming months. I don't expect some little payback for the faster starts of houses in January and February, but basically that's what guided us. And we don't have very much interest rate movement this year. So we're just assuming starts are going to be in that area. This is the area where some of the other forecasters--mortgage bankers, the homebuilders, and others--are putting housing starts, so we have some company. But, obviously, because of the construction loan issue, there's considerable uncertainty about these figures.",235
-fomc-corpus,1990,Thank you very much.,5
-fomc-corpus,1990,Governor Johnson.,3
-fomc-corpus,1990,"I just want to follow up on some of the comments on the international side. First of all, responding to what Bob Parry said, I agree that the trade-weighted dollar is still--I don't know if it's down but it may be down slightly. It depends on what point you're talking about but--",62
-fomc-corpus,1990,"I'll tell you: it's the fourth quarter of '89. If you compare that to the estimate of the first quarter of this year is it down, Ted?",32
-fomc-corpus,1990,17 percent at an annual rate.,7
-fomc-corpus,1990,17 percent on the weighted average.,7
-fomc-corpus,1990,From when?,3
-fomc-corpus,1990,"The average of the fourth quarter of '89, which was 97 plus, to the average of the first quarter which is [93 on our index].",31
-fomc-corpus,1990,[Unintelligible].,6
-fomc-corpus,1990,"Okay. You're right; one can play those base games. But what struck me was the trade-weighted dollar going back to the end of this huge swing in the dollar. When I pull out that chart and look at the long-term trend in the dollar in the last three years, since 1987, it looks like noise. It just looks like little fluctuations around a flat or maybe gradually upward drifting pattern. Pull out a long-term chart of the trade-weighted dollar sometime and you'll be struck by what you see; in the last three years it looks like just a little fluctuation. And it looks a little soft, too. I can't believe that anything can result from those kinds of fluctuations one way or the other. But going forward, I think there is a shift, at least in the atmosphere, along the lines of what Ted Truman indicated. At least it seems so to me. But what that tells me--and I'd like a response on this--is that there is a trend of upward pressure on the dollar, and maybe it won't materialize, for the following reasons. But as you said, Ted, there's serious doubt now about the deutschemark being the anchor for the EMS. They seem to be willing to accommodate the unification in Germany at the expense of some inflation. I don't know how much, but the fact that they haven't moved rates relative to expectations already is raising some serious doubts. And the DM has even weakened; the dollar was at 1.64 and now it's around 1.71 from the low point. If you look at the Japanese situation, obviously, there's a lot of turmoil going on. There are a lot of expected inflationary pressures, financial market problems, governmental weakness--all those kinds of things. When I look at that setting, it's really hard for me to see the trade-weighted dollar depreciating in that scenario. Even if rates rise there, as you pointed out yourself, there's a good chance that those will be nominal rate moves that aren't even keeping up with inflationary pressures. And we've already seen that nominal rate differentials have narrowed dramatically against the dollar and the dollar hasn't weakened. There has been a rise recently in the trade-weighted dollar, but that's mainly because of the DM. The fact is that the dollar has come down against the DM over the period [since] last fall, but other EMS currencies have been tied into that to some extent. Looking forward, as long as we maintain our anti-inflationary policies, I can't see anything but upward pressure on the dollar. Explain to me how the dollar is going to depreciate in this environment.",529
-fomc-corpus,1990,"Well, if you look at Germany, Ted did explain it in the sense that if there's going to be greater economic activity in eastern Germany, it's going to affect western Germany in that the return on capital is likely to rise. If the real rate of return on capital in Germany rises, I would assume that investors would make portfolio shifts into--",68
-fomc-corpus,1990,"Yes, but I would argue that that effect has already taken place. That's why the dollar is down about 15 percent or so against the DM, from 1.9 to 1.7. But going forward, if they're going to have an inflationary experience out of this, then--",60
-fomc-corpus,1990,"But there clearly is room for a different scenario, a more rapid inflation scenario, and that's why I put that forward as a risk. As the staff usually does on these things, we sort of bend part way in that direction in putting together the overall forecast, but not all the way. To the extent that we get both more inflation and more economic activity than we've built in, we are going to get more corrections on the current account. In addition to the real versus nominal split, we would get more in terms of just the adjustment process and the dollar could well appreciate. This is not a very finely-tuned point [estimate of the] deficit. There is another point, which your first comment illustrates, that I think should be emphasized. Again, it can be viewed in two directions. Given the fact that the dollar has been in this channel--a wide channel, but a channel--for three years now, one might argue that the current account performance has been remarkably good. Indeed, in the last year or so it has been much better than most models would have predicted.",217
-fomc-corpus,1990,Than what?,3
-fomc-corpus,1990,Models.,2
-fomc-corpus,1990,You're talking about the adjustment process?,7
-fomc-corpus,1990,"Yes. The U.S. current account position is doing much better than [predicted]. We were saying a year ago that with the dollar staying where it was the current account was going to deteriorate and it has not. Now, you were saying that indeed a process is going on here which is outside of the exchange rate, however you want to weigh the process; or you could say that we have the [weights] all wrong and somehow the past will catch up with us. It is an area of uncertainty in terms of the whole outlook.",110
-fomc-corpus,1990,I can see it's definitely uncertain. I would say that's one plausible scenario; what seems to me equally plausible is that the dollar becomes strong from this point on.,32
-fomc-corpus,1990,"But if it's on the inflation side, I don't think it will affect the basic forecast very much.",20
-fomc-corpus,1990,I certainly agree with that in the short run.,10
-fomc-corpus,1990,"Okay. And if it's because of prospects for economic activity, then presumably that will help us. And one question is: To what extent is this featured appropriately in the 18-month forecast?",38
-fomc-corpus,1990,Just trying to create a little noise.,8
-fomc-corpus,1990,Governor Angell.,4
-fomc-corpus,1990,"Mike, one of the interesting parts of monetary policy is that we have options of being sometimes correct and sometimes incorrect on the forecast, but we also can be sometimes bold and sometimes timid. I'm wondering why it is that in your forecast you have us being so timid. That is, you're saying 100 basis points higher on short-term interest rates toward the end of the year. Well, if you're correct in your forecast, why not bring that interest rate increase by and large into the second quarter? Wouldn't that produce a better achievement of Federal Reserve objectives? That would, of course, make Ted's forecast wrong. But wouldn't that be the bold thing to do, Mike?",135
-fomc-corpus,1990,"I couldn't do that if it would make Ted's forecast wrong! I'd never hear the end of it! This is something we have to deal with every time we put together a forecast. Essentially, we're trying to give some indication of how we think monetary policy probably will have to move in order to bring about what we discern to be your objectives. One element in terms of how forceful an action we build in here is our assessment of whether the outcome we have would seem to be consistent with your objectives. Obviously, you all have somewhat different objective functions to some degree; and I think the key feature of this is that as we get toward the end of 1991 we don't have a discernibly different inflation trend than we did in the prior forecast. It's one where we feel the peak has been reached and things are turning toward a lower trend of inflation, but only very slowly. Indeed, one might debate whether that is the proper objective and whether we caught that right. In terms of the timing of the interest rate increase, I suppose in this instance I've indulged in some effort to temper this somewhat with uncertainties that I've noted. I've reached the judgment that, given that the real boost to domestic production is forecast not to occur until 1991, there was an interval here in which one could await some clarification of some of these uncertainties before moving what I characterized as a fairly moderate amount. If one felt you had to move 2 percentage points or 3 percentage points in order to rein things in, then whether it would make sense to have this all happening in about 3 or 4 months' time or to spread it out over a longer interval would have presented us with a different issue. But in effect, we've tempered this in terms of timing on the basis of the many uncertainties that we think exist right now.",366
-fomc-corpus,1990,So--,2
-fomc-corpus,1990,"So to interpret Mike, what he's saying is that he's not worried about Ted's forecast; he's worried that if we raise rates right now it will affect his forecast!",33
-fomc-corpus,1990,"We've always recognized that possibility. I want to emphasize that matters of timing, given these small amounts, would not make a great difference in our projections. That's maybe one argument for why we should always do something smoothly. But we also try to capture the uncertainties and the policy realities that exist.",58
-fomc-corpus,1990,"Well, I'm reading into your answer that you're suggesting we be timid because you think you may be wrong. That's always the wise thing to do: to be timid if you think you may be wrong. But clearly what you've shown on the path in regard to the employment gap that you believe is necessary for price level stability is not occurring as rapidly in the 1990 forecast as you had anticipated previously. And I guess one [unintelligible] your lack of boldness in wanting to create that kind of employment gap so as to achieve the proper price level improvement for 1991, because clearly the 1991 price level forecast is unacceptable.",130
-fomc-corpus,1990,"Some of my colleagues would argue that we've been bold, in a sense, in not raising our wage forecast more than we have. In that sense we have taken the lower unemployment rate and said it's not going to have a significant effect on the wage outlook because we've taken a fairly optimistic view of the incoming information. And I suggested that that was a risk. It's in essence saying we may be able to get by with a somewhat lower unemployment rate in the short run than we thought previously. I tried to highlight that risk. We mentioned it explicitly in the Greenbook. And that's one reason why we didn't feel the compulsion to put in a more aggressive move in terms of timing on the--",138
-fomc-corpus,1990,"Well, I may have done you a disservice because you may have been forecasting that we wouldn't be bold rather than--",24
-fomc-corpus,1990,"We're always in this tough position and we try to be as neutral as possible, not injecting ourselves into the short-run tactical decisions.",26
-fomc-corpus,1990,I think that has something to do with the characterization of what kind of time period and whether [an interest rate move of] 100 basis points is significant or not significant. There's a difference between whether it's significant or not significant in terms of the real economy and whether it's significant or not significant in terms of how much the Committee moves in a relatively short time.,72
-fomc-corpus,1990,"Well, I think we can look back to 1988-89 and see that the Committee really has moved significantly at times.",26
-fomc-corpus,1990,Come back to--,4
-fomc-corpus,1990,"But you never incorporated change in policy in the intermeeting period just immediately ahead, right?",18
-fomc-corpus,1990,"Sometimes we have when it looked like you had to move a considerable amount within a short period of time in order to head things off. Normally, we don't build things in immediately.",36
-fomc-corpus,1990,Sure.,2
-fomc-corpus,1990,But there have been times when we have.,9
-fomc-corpus,1990,No further questions.,4
-fomc-corpus,1990,You were finding this meeting very dull and you're finding a way to stir it up! President Boehne.,22
-fomc-corpus,1990,"My question has already been answered, or at least commented on.",13
-fomc-corpus,1990,You got reckless there for a minute!,8
-fomc-corpus,1990,President Stern.,3
-fomc-corpus,1990,"Well, I have a much narrower and less provocative question. It has to do with profits. We have seen this pressure on profits for quite some time now. Is that pretty widely distributed across the economy or is it concentrated in a few sectors of manufacturing or where?",53
-fomc-corpus,1990,"There are some sectors in manufacturing that one can identify as having suffered relatively more than others. But it isn't only manufacturing where the profits have turned down. One can see utilities and transportation, for example, as sectors where profits have turned down. Within manufacturing it's a mixed bag, and we only have figures through the third quarter of last year. Some of the areas that stick out are in the machinery and equipment area and, obviously, motor vehicles. Chemicals seem to have peaked out. Surprisingly, primary metals and fabricated metals held up fairly well last year. So, there are many industries in which profits have been squeezed, but it's somewhat uneven.",128
-fomc-corpus,1990,Thank you.,3
-fomc-corpus,1990,Governor Johnson.,3
-fomc-corpus,1990,"One last point, just following up on what I think Governor Angell was suggesting--I'm not sure if it's in the [vein] of stirring things up again--on what might be the way to go about this since everybody, I think, is frustrated with the price numbers they keep seeing in your scenario. Why not take an improved price scenario and tell us what kind of interest rates and economic performance go with it? And then let us make a decision about whether that's an acceptable risk or not.",101
-fomc-corpus,1990,"Well, we certainly have presented on several occasions specific alternative scenarios that will do more [on prices]. We had the lengthy presentation in December about longer-range disinflation paths. I think you--",39
-fomc-corpus,1990,"[Unintelligible] that people want to see some improvement in this period of '90, '91, and '92 and they don't see it. And the fact is that they want to know what the cost is of achieving it. They basically are saying: ""Look, this is what goes with no progress. What goes with the progress?""",71
-fomc-corpus,1990,"Frankly, what we try to do is listen and hit as close to the middle of the Committee's expressed desires here in shaping our scenarios. I certainly will listen to what I hear today and we will adjust accordingly. As I said, my sense is that there are varying degrees of aggressiveness around the table with regard to going all out to bring down the inflation rate within the next year or so. And I guess we felt that the highest priority was on establishing a trend, and that's simply what we've done. But we can be more--",109
-fomc-corpus,1990,"I agree with that, but the problem is--",10
-fomc-corpus,1990,"Well, it's in the wrong direction.",8
-fomc-corpus,1990,You were presented alternatives in February and will be again in July.,13
-fomc-corpus,1990,President Hoskins.,4
-fomc-corpus,1990,"I'll ask Mike a timid question. We've had a pretty big surprise in terms of increases in the inflation rate--a full percentage point since the last meeting on the CPI as well as the fixed-weight. If we were to look at a simple forecasting model, not necessarily a judgmental one, wouldn't a surprise like that tend to be built into longer-term inflation rates? I'm just wondering--well, I'm asking that question of you. But secondly, I'd like your judgment about the issue that Wayne has raised. Even though you haven't done an alternative forecast, there may be some expectational effects from moving early and small as opposed to moving later and large. I think that kind of gets at Wayne's question. I'd just like to hear your observations on the latter and also your comments on what simple forecast models would do, given a surprise with respect to long-term inflation.",173
-fomc-corpus,1990,"On the latter question, to the extent that you surprise people with your aggressiveness in responding to what might appear to be a stronger inflationary risk, then I think credibility is enhanced and maybe it does not take a large move but merely one that comes sooner than the market had expected. So, I would certainly grant that point. In terms of the surprise and what it would imply for prospective inflation, one aspect of the models would be that to the extent they have backward-looking expectations or lagged prices in their wage equations, that would tend to build the momentum in prospectively through markup models of prices. In effect, in our case we didn't feed this through to wages. Partly, it's quite conceivable that inflation expectations [unintelligible] a forward-looking expectations model in wage formation and that they really will not reflect the food and energy price bulges that presumably will unwind, and we may not have as big a price expectation problem. In terms of errors and so on, it isn't necessarily inherent in the models as to how one should translate that. That's at the discretion of the model operator to decide whether to have negative or positive adjustments in future [unintelligible] to a surprise. But as I suggested, we have taken a somewhat more optimistic view than models would of the recent experience. And with [unintelligible] to prospects.",273
-fomc-corpus,1990,"Well, I'd just like to compliment you on the boldness of your answer to the previous question, which I think was appropriate. That is, if you look at this Committee and try to deduce what it's going to do, I don't find anything wrong with your Greenbook projection.",57
-fomc-corpus,1990,You're not making my life easier! I badly feel [unintelligible] consensus here.,19
-fomc-corpus,1990,What does that say about your thoughts on the evaluation of the Committee?,14
-fomc-corpus,1990,[Unintelligible].,6
-fomc-corpus,1990,President Guffey.,5
-fomc-corpus,1990,"Thank you, Mr. Chairman. I only want to say that since Mike has said that he builds his forecast upon what he thinks to be the center of the sentiment of the Committee, I'd like to be counted on the side that has been set forth by Governors Angell and Johnson, and perhaps Lee Hoskins, for the period ahead. I think the numbers we are looking at with respect to inflation are discouraging over the horizon. As a result, if indeed it's going to take some snugging up, the sooner we do it the better. That's a little into the next part of the meeting, but I just wanted to be counted in the group so that this center comes a little closer to what I'd like.",144
-fomc-corpus,1990,"Any further questions for either gentleman? If not, I think it's time for us to do our tour de table. Who would like to start off? Ed.",32
-fomc-corpus,1990,"I think our District is moving at odds with the nation, because various sectors are weakening and weakening relative to the nation as a whole. Manufacturing is quite weak and taking on some of the characteristics of previous recessionary periods for manufacturing. Housing is down and I don't see much happening there. Nonresidential construction is still growing but I think that's more of a pipeline effect of finishing the projects that already have been started. Out beyond that I think one sees a fair amount of excess capacity. Financial services, which have been leading the Mid-Atlantic region for some years, are characterized by layoffs. Retail sales are flat. Job growth is essentially nil and unemployment is rising; it now is about where the nation is as a whole and I would guess 5 or 6 of our various cities and towns are seeing unemployment rates of around 7 percent or exceeding 7 percent. I think there is some basis to this bank lending phenomenon that we were talking about; it's more than smoke. I have talked with just about every major bank in our District in recent weeks and particularly in those that are examined by the Comptroller there is a definite scaling back. Part of it is that people who are running the banks as well as the lending officers do not have that long a track record. Most of their top-level experience is in times of expansion and they're not quite sure how to react [now]. The other part is that the Comptroller's examiners really haven't done a very good job of examining banks lately. They are coming on like gangbusters. I have heard more than once the comment ""They're scaring the heck out of us."" Some of that I think is useful and constructive, but the risk of overreaction is there. I ask myself where some of these small and medium-sized businesses are going to go for their money. We have had about 40 or so new banks start up and many of them are state banks. I suspect that in their eagerness we will see some of those loans shift over there and they probably will not do as good a job in distinguishing between the good and the bad. So, I think the District is out of phase with the nation. Inflation has begun to moderate and come down. As I look at the nation, clearly the inflation outlook has worsened; it's disappointing. We're not getting what we want; there's no question about that. When I look at the risk of recession, I would have to say that, yes, the risk is down. I think Mike did a nice job of summarizing the various national sectors in the Greenbook. But even taking his own analysis, except for personal consumption, one does not see much of a forward thrust. You don't see it in housing; you don't see it in [non]residential construction; you don't see it in exports. The only area in which you see fairly modest growth is consumption. While that is the biggest chunk of the economy by far, I would like to see a little more support than that one sector for me to say that we're out of the woods as far as the economy moving ahead. So, I think we find ourselves in a bad box: The inflation situation is worsening; and while I for one think the odds of a recession are down, I'm not willing to say we're out of the woods. I think we need some caution in making that assumption as far as policy goes.",681
-fomc-corpus,1990,President Parry.,4
-fomc-corpus,1990,"Mr. Chairman, the Twelfth District is also out of phase with the rest of the nation. The economy remains strong, although the sources of strength have changed. The growth of employment in the past year in the entire Twelfth District has been 3.4 percent, which is an extraordinarily large gain relative to the 2 percent for the rest of the nation. Economic growth in most parts of the region remains very high. As an example, over that period there are three states--Washington, Idaho, and Oregon--where growth rates of employment were 6 to 10 percent in the past year. Looking at all 9 states, even Arizona, which had a very respectable 3.5 percent growth rate, exceeded the average in the entire District. Construction employment is very strong; it was up 8.1 percent in the past year. And manufacturing [employment] rose .9 percent in the past year, compared to a fall of 1.4 percent nationally. There has been some shift, however, away from California to other parts of the District. Employment growth in California is getting much closer to that of the rest of the nation. Whereas in 1988 California accounted for 63 percent of all the employment growth in our District, last year it was only 44 percent. Also, similar to Arizona, we have seen some weakening of housing prices in some California markets. If I may turn to the national economy: As we've all discussed so far this morning, real growth, inflation, and interest pressures certainly seem to be stronger than they were at the time of the last meeting. Even with some restraint from higher interest rates, which is in both the Greenbook forecast and in our own, we would expect real GNP growth of at least 2 percent this year. I think some of that strength is going to come from consumption spending, reflecting the past strength in disposable income. I would also anticipate that stronger foreign GNP growth will lead to greater strength in net exports than previously had seemed likely. We're expecting the GNP fixed-weight index to average something very similar to that shown in the Greenbook, around 4-1/2 percent both this year and next. Admittedly, part of this worsening is due to firmer oil prices and the effects of past weakness in the trade-weighted dollar. Of course, if these factors were to reverse themselves, then we could get a break on the inflation front. Moreover, the fact that wages have been performing well probably does limit the size of the inflation problem. However, it's our view that the best way to insure that inflation begins to subside--and that certainly is not something that we see in our forecast--is to maintain moderate economic growth. Thank you, Mr. Chairman.",556
-fomc-corpus,1990,President Keehn.,4
-fomc-corpus,1990,"Mr. Chairman, [unintelligible] the advent of spring weather, but within a District context I sense that the level of economic activity has improved at least modestly both in tone and in fact. January and February were really very weak, of course, mainly because of the auto business, and that has persisted. I think there has been some improvement. For example, the steel business is much better. Orders are coming in from a fairly broad spectrum of industries, backlogs are up, and in some cases shipments are being deferred. Those I talk to are continuing to forecast shipments this year of, say, 81 to 82 million tons, and if there are any revisions, they are more likely to be up rather than down. Construction activity in the District continues to be strong, indeed above the national numbers. There continue to be just an awful lot of commercial projects coming along in Chicago. Vacancy rates are still in line but I hope we're not beginning to replicate the New England experience. Downtown Indianapolis, the different part of the District, apparently is going through a very substantial commercial real estate growth phase. Home sales are ahead of last year and permits continue to be high, which is indicative of a continuing good level of housing. Machinery business is quite good, with agricultural equipment for example at very high levels. The outlook is good for that industry; production schedules would suggest an 8 percent increase over last year. The big uncertainty continues to be the automobile sector. Certainly, the incentives of January are lame. The first 20-day sales of March were very much on the weak side. Unsold inventory is up a bit but not out of line for this time of year. Second-quarter production schedules look to be about 25 percent higher than the first quarter but still would be lower than the second quarter of last year. And in the case of one manufacturer, it's a substantial reduction from last year. The industry continues to forecast [sales of] cars and light trucks together of [14-1/2 million]. That number happens to be a little higher than our number but they are anticipating a pretty good second half to come up to that higher number. In the agricultural sector, there has been a very significant improvement over the last few weeks. At the last meeting I reported that the moisture issue was a significant concern. We've had very good rains over the last three or four weeks and at the meeting of our agricultural advisory council last week we heard that the planting conditions are the best they've seen in quite a number of years. For livestock, the outlook continues to be very good. Land values are continuing to move up fairly slowly, which I think is constructive. On the credit side, I've talked to a number of banks within the last few weeks and, despite the numbers to the contrary, I think there's a difference in opinion on commercial real estate. I sense some shutdown on that. Also, I will say that I've heard of one project in Chicago in which a Japanese bank was going to participate and within the last few days it has backed out. Our small business advisory council last week reported that they do sense some tightening of credit conditions and attitudes on the part of lenders. More paperwork is required, more detail, more this and that; therefore, it's making it harder for the smaller companies to get credit. On the inflation side, our outlook is perhaps a bit better than the staff forecast. Competitive conditions continue to be pretty intense. Price increases just aren't sticking, at least in the full sense. There has been enough new capacity in some industries--and I think paper is a good example of that--that the [competitive] price pressures will continue. Wage settlements seem favorable and are not in any way getting out of line. Offsetting that, though, just as a couple of negative items, I keep hearing about huge percentage increases in health care costs that are going through. Also, as a different item, we're starting to hear from some companies about the increase in transportation costs that they're beginning to experience. We have had a somewhat more positive view on the economy than the staff and, therefore, we think the upward revision that Mike has gone through is appropriate. We continue to think that the outlook for inflation is perhaps a bit better than the staff forecast, but I'd have to admit that our worry level on the inflation side is certainly higher at this meeting than was the case at the last meeting.",884
-fomc-corpus,1990,President Forrestal.,4
-fomc-corpus,1990,"In the Sixth District, Mr. Chairman, things really have not changed appreciably since the last meeting, but I have the sense that they're getting a little better. Certainly, there's a bit more optimism among people that I talk to. A lot of our contacts are reporting that business is not only better in the early part of 1990 in actual terms, but much better than they had expected. But having said that, there is still a continuing concern about recession, and there's a lot of caution in the marketplace. The weak spots, of course, continue to be autos and related products. I think we also would have weakness in textile manufacturing, aluminum, and timber were it not for pretty strong export demand that is keeping them going. If that export demand were to subside, given the state of the housing market, I think those sectors also would be in trouble. Energy continues to get better. In fact, we have reports now that some of the companies are finding it difficult to get skilled platform workers. I don't know where they've gone, but they've gone to other places and to other industries and they're not coming back. We also have had reports, which I found interesting, of some foreign interest in buying U.S. refineries. Retail sales seem to be fairly good--not great, but not bad either. We're not detecting any particular wage pressures or price pressures, although I put that in the context of what the expectation is. I think business people are building in a 4-1/2 to 5 percent inflation level in their contracts. The big item, and it has been alluded to before in our discussion, is this fear among business people and bankers of a credit crunch. I find it a little difficult to evaluate whether there really has been substantial credit rationing. On the one hand, the banks in the Southeast that already have been examined are clearly increasing their provisions for loan losses and there will be some pulling back there. And I think the banks that are next on the list [to be examined] are apprehensive and perhaps are taking some defensive measures by pulling back. But the general sense I have is that the good loans are being made and the marginal ones perhaps are not. The good bankable loans still are going forward, as far as I can tell. On the national economy, we agree with the Greenbook forecast. Our forecast had been stronger earlier on than the Greenbook's, so we're in agreement with them. There is still the risk of a downturn but I think the risk has shifted a little more toward inflation. I'm really very disappointed, as I'm sure most of us are, about the projection for inflation. Like some others, I find it very hard in the forecast horizon to see much of a depreciation of the dollar. We've talked about some of the economic factors involved in that. But what is uppermost in my mind are the political activities that are going on around the world that I think are affecting the dollar substantially. We not only have the situations in Japan and Germany, but the situation in the United Kingdom is very uncertain at the moment. And I must say that events in Eastern Europe are not turning out the way people had expected. This Lithuanian development could turn the whole situation around a great deal. With that kind of political uncertainty in the world, I think the dollar is still the safe haven and the place for investment. So, a depreciation of the dollar is not in the cards as far as I can see--in the near term, in any event. With respect to inflation, not only are the people that I'm talking to complacent about inflation but I think that complacency is now turning into an antagonism toward Fed policy. More and more I'm hearing: ""Why are you guys so concerned about inflation? You're really doing a lot more harm than good."" So, while the risk of some recession may be there, as I said, the real danger is increasing inflation. And I think we have a difficult job not only in containing inflation and bringing it down but also in persuading the country that this is the right road and the one we should be on.",830
-fomc-corpus,1990,President Black.,3
-fomc-corpus,1990,"Mr. Chairman, I think the changes in the staff projections are clearly in the right direction. As a lot of people have indicated, there is a great deal of uncertainty, but I do think we have enough hard information now to know that the inventory swing from the fourth quarter of last year to the first quarter of this year was [more] than we thought. Consequently, it looks as if the rate of growth in real GNP in the first quarter is going to be correspondingly higher. One of the key points looking ahead, of course, is that the staff has projected that there will be some rise in interest rates over this period of time in order to get roughly the same rate of growth in GNP and more or less the same sort of inflation figures. I think that change in policy assumptions is quite correct. We've had a sustained growth in M2 for about 9 months now and this may well strengthen aggregate demand considerably. In addition, events in Eastern Europe have moved much more rapidly than anybody felt they probably would. So it seems to me that the transformation of these economies is necessarily going to lead to higher real interest rates throughout the industrial world. Given this assumed upward adjustment in rates that the staff has incorporated in its forecast, I think the risk is about evenly split between up and down. If they had not raised these rates, I would have placed the risk on the up side in their forecast. I don't think it will surprise anybody to know that my chief concern is that which was voiced first by Governor Angell: that there's no improvement in inflation over this projection period. Someone mentioned an absence of trend, but actually if you look at the fourth-quarter-to-fourth-quarter figures on the fixed-weight deflator and the CPI, they both are higher for '90 and '91 than they were in the last Greenbook. The CPI ends up in the fourth quarter of '91 at about 4-1/2 percent, and I think we have to do a good deal better than that. Someone--I guess that was Governor Angell too--used the term ""unacceptable."" If we want to maintain our credibility, I think we have to do better than that. I sense that despite our best efforts we have lost some of that credibility recently; we ought to think about that very carefully as we formulate our policy later on in this meeting.",475
-fomc-corpus,1990,President Stern.,3
-fomc-corpus,1990,"With regard to the District economy, as been the case for quite some time now, there is very little new to report. It's pretty much the same as the national economy: that is, continued modest expansion is under way. It seems likely to me to continue. The major concerns of the District at the moment are the continuation of drought in some areas and prospective problems in the commercial real estate area. But the latter is probably at least a year or two off just because of the level of activity that's currently under way. With regard to the national economy, I largely agree with the Greenbook forecast. And as many people have already commented, as far as inflation is concerned that's unfortunate. It confirms my view that we're simply stuck at around this 4-1/2 percent rate of inflation that we've had for quite some time. With regard to the real economy, I don't disagree much with the Greenbook forecast. I think we have to be careful not to overreact to the latest month or two worth of numbers. We might find ourselves whipsawing policy and markets and so forth. On the other hand, as the Greenbook observes and as our own exercise confirms, if one takes the January and February payroll employment number seriously we can easily get 3 percent real growth in the first quarter; and there is some possibility that those numbers are right. If they are, and if that's telling us something not only about the immediate status of the economy but about its prospects, we might be looking at even more growth than the Greenbook suggests. I would fear in those circumstances that there may be even more inflation.",324
-fomc-corpus,1990,President Syron.,4
-fomc-corpus,1990,"To deal with the District first, the New England economy is not in phase with the rest of the nation. Just this afternoon we were talking about regions and this perhaps is a good precedent for it because we're seeing a lot of difference by region. The New England economy is relatively sluggish and in my way of thinking probably will be that way for the next year or so. There had been some thought, by myself and others, that expectations were worse than reality; but unfortunately reality is doing a good job of coming up to expectations.",106
-fomc-corpus,1990,Coming up or going down?,6
-fomc-corpus,1990,"Well, going down; that's right. There's some question about how much relevance it has to national policy because I think a lot of this has to do with a sort of classic bubble, particularly in the real estate area, and some problems that we had in manufacturing. And the accompanying financial situation, with the conversion of mutual savings banks to stock institutions, just put in place [unintelligible] in credit over a short period of time. We just had the data for regional employment benchmarked and, unfortunately, they show that for the region as a whole employment actually declined about 1 percent in 1989. It declined dramatically in some states such as New Hampshire where it dropped 3-1/2 percent. Construction employment in that state dropped 25 percent. Now, that's obviously a small state; but still, those are meaningful numbers. In the short run we expect a continuation of this rather negative trend in the business outlook. On this credit crunch issue, given the problems with depository institutions that everyone knows about, just any super regional in New England is very, very wary of extending further credit for real estate loans. I think that's going to be advantageous over the long run because we did have a bubble, but it means that construction, and to a lesser degree manufacturing, are going to act as drags on the economy in the period immediately ahead. In manufacturing, the outlook tends to mirror more the national scene. Firms tied to the aircraft industry account for a fair amount [of manufacturing activity] and are doing quite well. Firms tied to the auto industry, which we also have, are doing quite poorly. We have a sectoral problem in the [unintelligible] those in Bob Parry's District are doing, and I think it's going to take a while for that to turn around. Overseas sales by manufacturers have been stronger than domestic sales and that has still held up despite what has happened with the dollar; people are very optimistic there. Retail sales have softened but people are beginning to think that they are seeing some bottoming out in the softening, and there really aren't serious problems with inventories. It could be a degree of concern that kept people from building up inventories too much. Overall, there's a feeling of greater cautiousness among our manufacturers; I would expect that to be reflected in less vigorous orders for durable goods on their part in the coming year. One sees this particularly in the paper industry where capacity [use] is actually still high but they are just very cautious in going ahead. Price reports, as you might expect in these circumstances, are quite good, with absolute declines in prices in residential and commercial real estate. Labor markets are much better behaved, with people being able to find work where they couldn't before. You don't see many $6.25 an hour signs up in the McDonalds' windows anymore, and you don't even find as many crowded McDonalds' stores. Nationally. we find our own forecast for the economy to be very similar to that of the Greenbook, with some slight difference in timing quarter to quarter. But as many people have pointed out, an exactitude of this process in timing really doesn't mean that much. We are concerned, though we don't disagree with it, about the outlook for inflation. As has been pointed out by Governors Angell and Johnson and others, this is really quite a cause for concern. I would say that in the absence of concerns about the international scene or in the absence of concerns about financial fragility and some of these credit crunch stories that we're hearing--not two negligible factors, though--I would be inclined to feel that it's time to be really serious about progress on inflation and to move more vigorously. Even with these considerations, I think on balance the risks nationally are for more inflation rather than the other way around. And I think that our token [move] should be in that direction.",782
-fomc-corpus,1990,President Melzer.,4
-fomc-corpus,1990,"The picture in the Eighth District is one of continuing improvement. In January, for example, we had very strong employment in comparison to December. Even if you take away strong growth in construction and in retail and wholesale trade sectors, which I think benefitted from the mild weather, other sectors grew at least modestly. In manufacturing, for example, employment was up 5.2 percent and that included declines of almost 10,000 jobs in the automobile industry. So, virtually all major industries had moderate to strong employment growth. In both residential and nonresidential construction we continued to have strong growth in the most recent three-month period ending in January. In the area of anecdotal evidence, we recently had a group of chief financial officers of major corporations in the St. Louis area to lunch and the things that came through from that discussion were: (1) scarcity of qualified labor; (2) a sense of growing pressure on wages; (3) a margin squeeze--the feeling that any easy productivity gains have long since been realized; and (4) the feeling that the recent increases in the dollar have not really presented a problem in terms of export activity. Finally, and this is somewhat in contrast to what Bob [Forrestal] mentioned but I don't think either one of the views would be conclusive, I didn't pick up any sense of dissatisfaction with policy. In fact, some people expressed a preference for a diligently slow, stable situation in economic growth. So, nobody really is squealing about monetary policy being on an inappropriate course. I think it's right to question, though, whether people really would support the price of bringing down the rate of inflation significantly from current levels. A final thought in terms of the general picture nationally: I have felt that policy has been erring on the side of ease for some time and that we are in the process of giving up some ground in terms of our progress toward long-term price stability, however defined. So, I would agree with what the Greenbook says in terms of the need for some additional tightening. I'm somewhat ambivalent about whether that needs to be right away. I take some heart from the Bluebook forecast of a slowing in M2 growth. I have some questions about what the impact is going to be in terms of the profit margin squeeze, the general pressures of leverage on the economy, and the credit crunch we've heard about, and how that all may [affect] consumer confidence. So, while I think we need to move, I could be persuaded that it doesn't need to be right now.",517
-fomc-corpus,1990,President Boykin.,4
-fomc-corpus,1990,"Well, Mr. Chairman, the economy in the Dallas District continues to mend. Slowly but surely economic conditions are showing mixed signs of improvement. Finally, we even see Louisiana being able to reflect slightly better conditions. However, with regard to the improvements that we're seeing, while they're pretty much across the board, the extent of the gains is highly variable. Energy and construction continue to show modest improvement. The rig count in Texas has shown some significant gains. A lot of this is attributable to the horizontal drilling that's going on. The manufacturing picture has been somewhat mixed. On the construction side, while we have seen gains, they are possibly a little tenuous as construction values have fallen lately. On the other hand, this appears to be a correction related to potential overexpansion in petro-chemical capacity down along the Gulf Coast. The weakest sector of our economy is agriculture; that continues to be hurt by drought and other weather-related conditions. On the so-called credit crunch issue, we also hear some anecdotal evidence; but it's not all that different from what we have heard for quite some time with respect to our small businesses. And given where we've been in our District, we've been hearing this for quite some time. On a little broader issue, if the rationing really is going on and it seems to be primarily related to real estate concerns, I would question whether a slight change in interest rates one way or the other really would address that particular problem. On the national picture, I feel pretty good about the staff's current forecast. It seems a little more in line at least with what we've been thinking and we would not take issue with it. I would associate myself with those who are expressing concern about the long-term prospects for inflation. I think that maybe something ought to be done about that.",360
-fomc-corpus,1990,Anybody you want to suggest to do it?,9
-fomc-corpus,1990,President Guffey.,5
-fomc-corpus,1990,"Thank you, Mr. Chairman. The Tenth District continues to improve [unintelligible], but nonetheless is showing improvement with some mixed performance in the various sectors. For example, in the agricultural sector there has been a turnaround in the moisture; there has been good moisture across virtually all of the Tenth District and particularly through the wheat region both from rain as well as snow. That has a diverse impact, however, on wheat prices. So in terms of net farm income it may wash out. But the prospects for the wheat crop, which will start to be harvested in about six weeks, look very good. On the other hand, there is some weakness in cattle prices, as a result of a surge in the feed cattle production. There are some projections that cattle prices will fall about midyear. With the lower wheat price and lower cattle price, the outlook for net farm income may not be quite as good as some might expect. Nonetheless, the outlook is quite likely going to be very good in the agricultural sector. In the energy sector, the rig counts have fallen again most recently. That is, in the Tenth District the rig count has actually fallen in roughly three [unintelligible] from 298 to 255 in number, although it is still higher than the count a year ago. So, there is some year-over-year improvement; it's better than it was before. The manufacturing sector is still fairly slow, particularly with respect to automobile assemblies. There have been some cutbacks in production in the plants in the District. In one in Kansas City they actually have laid off 700 people and cut [production] from roughly 800 cars a day down to 600 for the second-line adjustment. But the 700 layoff is already significant. On the other hand, aircraft manufacturing in the District continues to be strong and vigorous. As a matter of fact, Beech just received a new contract for $1-1/2 billion to supply business-type aircraft to the Air Force for training purposes. That, of course, will stretch over time, but it is a new order of significance for that area. There is some improvement and strength in both residential and nonresidential construction in the District, which continues to amaze me given some overhang in the commercial [side] at least. But it may have been affected by the warm January temperatures. Nonetheless, there are those contracts out there and [work] will be performed in the period ahead. So overall, the District continues to improve--slowly to be sure, with disparate results depending upon what area of the economy you look at. As for the Greenbook forecast, we really have no quarrel with it. It's a bit stronger maybe than we originally had thought, particularly in view of the fact that we ran these numbers and got about the same result but without any interest rate increase. So by building in an interest rate increase, maybe the Board staff's forecast is a little stronger than ours. But given the timing--as I understand it, maybe a 1/4 point late in the third quarter and maybe another 1/4 point in the fourth--it won't have a lot of impact in 1990. As a result, we're fairly close together; I have no problem [with the staff's forecast].",665
-fomc-corpus,1990,President Hoskins.,4
-fomc-corpus,1990,"In the Fourth District, the pace of economic activity is continuing to improve in almost all sectors. Manufacturing employment now is back at its highs of mid-1989. A lot of that--about half of it--is auto-related, which had a pretty nice bounceback. In terms of auto production, everybody who has been on layoff has now been recalled, essentially.",75
-fomc-corpus,1990,Did you say auto employment is at a high in your District?,13
-fomc-corpus,1990,"No, I said manufacturing. It has come back to its 1989 highs and about half of the rebound that we got recently was due to auto-related manufacturing.",33
-fomc-corpus,1990,Thank you.,3
-fomc-corpus,1990,"My infamous stainless strip measure, which has predictive values slightly worse than the leading indicators--the direction is right--also has slowed fairly sharply. It had been reported at 20 percent below its seasonally adjusted levels in terms of new orders and now it's running about 5 percent above that. Price increases in that industry are likely to be forthcoming, given demand and the potential for some backlog. In terms of anecdotal information, the only good news I could dig out was that [BP] and Marathon think that inventories are going to be high and that going into the second quarter we will see some price reductions in petroleum products. With respect to the Greenbook, as I said before, given the implicit policy assumptions I wouldn't have much disagreement with it. I have trouble with the policy assumptions that are in there. My concerns stem from the issues of inflation and inflation expectations. If people do begin to build this kind of inflation expectation into their decision-making, then we will pay a price in terms of lost output when we finally have to bring the inflation rate down. So, that's something that I certainly would want to consider in setting policy this time.",229
-fomc-corpus,1990,Vice Chairman.,3
-fomc-corpus,1990,"I think the tone of the business situation is better, judged at least by the decibel [level] currently of people who in preceding months were concerned that the economy was really going to go off the edge. I think part of that simply is a reflection of the view that, at least statistically, both the fourth quarter and the first quarter are probably going to turn out better than a lot of people expected. If you recall, it wasn't that long ago when it was quite possible to find a lot of people who were expecting a negative real GNP number in either the fourth or the first quarter or both. And that is no longer the case.",130
-fomc-corpus,1990,There's even a possibility that we will see the .9 in the fourth quarter revised up.,18
-fomc-corpus,1990,"Yes, I know.",5
-fomc-corpus,1990,You had a sneak preview?,6
-fomc-corpus,1990,"No, it's just that we have a lot [of indications].",13
-fomc-corpus,1990,"Looking at the components, I think part of the improvement in the tone of the business situation that I detect is rightly characterized as the collective breathing of a sigh of relief. Now, how much better the situation is in underlying terms is a little tougher to tell. But my sense is that it probably is better in underlying terms as well. Some of the comments around the table are consistent with that. For example, Si Keehn talks about sales of 14-1/2 million trucks and cars, and that's not a bad year. That's a lot. Even before the meeting today I thought there were two sectors of the economy that at the margin could make quite a difference and those are agriculture and energy. I find it interesting that Roger and Si and Bob Forrestal and Bob Boykin are suggesting that conditions in those two industries, even outside of the Southwest in the energy area, show a little snip of a pickup in activity. And at the margin, those two sectors of the economy can make a distinct difference. So in terms of the business outlook, the staff forecast is probably a reasonable depiction of the situation. It's very similar to our forecast; the difference probably is that one may have a little more confidence in it than was the case several months ago. Now, on this credit crunch issue, I think there is something to it but I'm not sure it's as pervasive and fundamental as perhaps some think. I get a sense of it, for example, with banks in northern New Jersey and Long Island where we've had some excesses in real estate lending as well. On the other hand, I don't get much of a sense of it at all from the money center banks; the money center banks are simply complaining about a lack of business--period. There's another thing that we have to keep in mind about this silent credit crunch. During much of the second half of the 1980s we had a situation in the country when private credit demands were growing very, very rapidly and private credit growth was way out of line with historical relationships relative to GNP. And now what we are seeing is that a lot of that credit growth was bad credit. We're seeing it in chargeoffs in the banking industry, in the thrift industry, and in markdowns of prices of junk bonds. So, I'm not so sure that some margin of greater discipline in the credit origination process is something we should be terribly concerned about. It's probably a good thing. In terms of the small business side of it, again, I don't get the sense from our small business advisory groups and others that well-run small businesses are having any particular problem with credit availability. That doesn't mean there aren't some who are having trouble, but I don't think it's a general phenomenon. On inflation, in underlying terms, I come out where Gary Stern does. We've been stuck at 4-1/2 percent or something like that for a long time. I think what is different right now is that if one expected that we were going to do better than that, what the recent information suggests, of course, is that that's not going to come about very easily. But I myself don't think that the inflation situation has deteriorated in any significant way; it just refuses to get better, which is a problem in its own right. The biggest area of uncertainty in my mind continues to be the external side of the economy. Ted has one scenario built into the forecast; he described another. The fact of the matter is that you probably could put together three or four external scenarios, each of which would be strikingly different from the others and none of which could automatically be ruled out of hand. There is a range of uncertainties not just because of exchange rates but because of political developments, economic developments--the whole spectrum. So, I think the range of possible outcomes in the external sector out over the next six to eight quarters is really very wide indeed. The only other point I would make, Mr. Chairman--I don't have to make it but maybe you do--is that the renewed discussion here about the budgetary situation is possibly interesting. Rostenkowski's pronouncement, of course, has gotten shot down, as I'm sure he thought it would. Nevertheless, I still find it rather surprising, and maybe even a bit encouraging, that somebody like Rostenkowski was willing to put his cards on the table in the budget arena. I don't know whether that's just ceremonial or if there are some straws in the wind that would suggest that something constructive might happen on the budget front. As I said, I don't know if you want to comment on that later or not.",930
-fomc-corpus,1990,"I'll comment now. I think that there is something going on. The question is: How far will it get? I think that the failure of Rostenkowski to get shot down immediately, which he did not, is suggestive of a willingness to take another look. I think that process is going on, but it's much too premature to argue that anything is going to come of it. But you're quite right: there's something stirring that had not been stirring before. Anybody else?",97
-fomc-corpus,1990,"I'll comment. Actually, I've been impressed too that the economy hasn't shown signs of slowing to the degree that people had forecast earlier. It's still a little hard for me to tell at this stage how much of that can be attributed to our luck with the weather and how much is really a pickup after smoothing through those kinds of seasonal--unseasonal I should say--developments. Nevertheless, when you do smooth through it, you still have a picture that looks like sustained growth at a lower rate that doesn't look particularly scary. I also hear these stories--as a matter of fact, I'm bombarded by such stories--of a credit crunch. I have hosted at least three or four different state bankers associations here over the last couple of weeks and have been besieged by people saying that that is going on. But it's very hard to find evidence in the data that that is in fact the case. You hear a lot of anecdotes about it and that's what they bring to the table, but you don't see any kind of general credit crunch going on. I agree with others that there is clearly a commercial real estate overhang. It's all over the country; a contraction is going on there. I'm sure because of the S&Ls that there is a lack of availability of credit from the S&L industry to developers; you hear that everywhere. But actually, that's healthy; that's not something to be afraid of. That consolidation really has to take place. There still may be something in the pipeline on this credit crunch; it's just not obvious in any data that we see. Our quality spreads surely don't show it on interest rates. In fact, you would expect, if there were some sort of pullback in banks' willingness to lend, to see upward pressure on bank rates. If demand were still there and the supply was being restricted, why wouldn't short-term market rates come under upward pressure? It certainly doesn't look like there's any dramatic upward pressure relative to the funds rate. On the other hand, you don't see a tendency for demand to be that weak either because you don't see these short-term rates falling against the funds rate either. Things actually look fairly stable around the short end and quality spreads actually look very good--unless you're trying to find some junk bonds that aren't quoted in the market. Compare those to AAA corporates and I'm sure they don't look good. So, I think the economy is doing okay, at least in the period that we can see ahead. I don't have any disagreement with the Greenbook; I think it's about right, although I wouldn't want to project anything beyond six or eight months from now just because it's too uncertain. On the inflation front, as I said, it's a little disappointing that there hasn't been more progress, although I do attribute most of the short-run pressure that we have had to seasonal developments. I think the effect that the cold weather had on food and energy costs in the December period is the primary factor on the total CPI and PPI numbers. If you actually look at the producer price index excluding food and energy, you do see some progress. In fact, the 12-month rate for the PPI excluding energy is now down to 3.7 percent, which is better than previous 12-month rates in the PPI. What is disappointing is the consumer price index, which doesn't show any signs of easing off; even excluding the food and energy components that still seems to be strong. As a matter of fact the [increases for the] last two months, at .6 and .7 percent, are very troubling. You can always find some special factor like apparel or something else that has had a major impact, but there's always something. I can live with separating out the food and energy components because those are volatile elements that are somewhat beyond our control in the shorter run. But as for these other factors, you have to draw the line somewhere. The fact is that the CPI doesn't look all that good. It makes me wonder, though, since the PPI seems to be improving, if there is just a lag before it eventually shows up in the CPI; I don't know. The economy looks stable, although there's this atmosphere of concern about debt, a credit crunch, and things like that. But international events are developing, it seems to me, in a positive way. You can question how slowly or how fast [the changes in] Europe will develop, but unless the political climate changes dramatically--say, the Soviet Union gets tremendously tougher--in the longer run and maybe in the most immediate short run, that has to be positive. I don't know. But I'm convinced that East Germany is going to boom because West Germany is going to make it boom; they're going to throw money at it. So I think that is a positive in terms of external sources of economic pressure. Japan doesn't seem to be weak from a productivity point of view and I think their major problems are that they have been pushing the edge of capacity constraints and they have had a speculative bubble and all that is sort of fermenting over there along with the weak government. But I don't see external evidence of sources of depression coming from outside of the United States. So that should be positive. And the inflation picture seems to me to be somewhat stable but not improving. I don't know what that says for the immediate term for policy, but I think it does say that if we want to make progress in the upcoming period, we're going to have to have a tough look at that.",1105
-fomc-corpus,1990,Governor LaWare.,4
-fomc-corpus,1990,"Mr. Chairman, I'm persuaded that the Greenbook forecast is a very reasonable one, given the underlying assumptions; the interest rate construct, which is part of that, is certainly reasonable. I'm dismayed at the lack of progress that it reflects with regard to inflation. But my underlying concern at the moment--and this may sound like a disbeliever in the omnipotence of monetary policy--is that we may have witnessed here a transfer of at least part of the control of the growth of the economy as a result of this extraordinarily stringent application of examination standards to the banks. I'm concerned that that will, in fact, cause a contraction of credit that may deal a greater blow to inflation than our current policy. I think that in that kind of environment the supplying of reserves and reducing of rates will not necessarily encourage expansion. I guess I'd end by paraphrasing an old saw and say ""You can offer a banker wider spreads, but you can't make him lend.""",195
-fomc-corpus,1990,That's not true of the thrift industry.,8
-fomc-corpus,1990,"Try to top that, Governor Kelley!",8
-fomc-corpus,1990,"I would never, particularly coming from somebody who [was a banker] for 35 years! Mr. Chairman, we always are looking for one more piece of data; that goes on forever. But I am struck this time more than usual by the tentativeness of the data that we're looking at and the tentativeness of the forecast that we're able to make. I hear it from the staff and I hear it going around the table here this morning in both the area of the real economy and in inflation expectations. What's going on in the economy now is to some degree--and we don't know to what degree--the snapback from strikes and from storms and from the whipsawing in the auto industry. Some of the industries that are showing some strength, like housing, have big seasonals at this time of the year. And it's just really hard to tell how much of what is going on is sustainable and is real underlying strength. I also share John's and others' concerns about what we may be in for in terms of the extent of the credit crunch and what the results of that could be. On the inflation front, the forecast is that what we have seen in the last several months is going to unwind to some degree. I've been very disappointed, as I think everybody else has, in the numbers we've seen the last several months. The expectation is that that's going to unwind to some degree, but by how much? We're going to have to see about that. Meanwhile, as Governor Johnson pointed out, the PPI really is not validating that bad result that we've seen in the CPI and in the deflators. So, I go back to what Bob Parry said a little earlier in the morning: that what we need to do is to maintain moderate growth. I agree with that. I'm not sure what it's going to take to do that, on balance, with the other objectives that we have. And like Gary Stern, I'm a little concerned that we not overreact to two or three months' worth of numbers and wind up whipsawing the economy. I certainly share the disappointment that I hear everyone expressing; I agree 100 percent about the last few months and I share the impatience that goes along with that. But given all that we cannot be sure of at this moment, I'm pretty cautious about what policy ought to do.",475
-fomc-corpus,1990,Governor Seger.,4
-fomc-corpus,1990,"Well, as I think I hinted with my questions earlier, I feel uncertain about the outlook and I hope that what's on these pages from the staff turns out to be right because I believe in having moderate growth. I think it's important in many ways to have that happen. But I would just like to tick off some concerns I have that I think are going to put these possible outcomes at risk. I mentioned the first concern I have: the dollar and the issue of whether or not it actually will decline in value relative to the other major currencies. If it doesn't, I'm old fashioned enough to believe that that will have an impact on our trade situation on both sides of the equation. And that, indeed, concerns me since we are counting on trade to help us, particularly in 1991. Also, despite the fact that Russian tanks rolled into Lithuania, I think that we are still going to have some defense cutbacks and some actual cuts in the defense budget. I personally don't know how that will play out; I don't know which contracts will be cut back or which bases will be closed, etc. But I suspect that when that happens it will show up in somebody's District around the table here and also will impact the aggregates eventually. Also, there's the question of state and local government finance. I hear more and more comments about the deterioration in state budgets from the Northeast to the Southwest--all over. I met with a legislator from Michigan very recently and they're having to redo their estimates because they were too optimistic about the revenue forecast. So, instead of having a comfortable situation, it now doesn't look comfortable. I would think that ultimately that would impact either on spending by state and local governments or on their need to raise taxes, neither of which would be supportive of economic activity. On the U.S. budget situation, I heard the Rostenkowski name come up, but if we do get a tax hike I don't see that [unintelligible]. Is that the correct assumption: that you have not built in a tax hike in [your forecast]?",415
-fomc-corpus,1990,We have only a few billion dollars of the--,10
-fomc-corpus,1990,"Well, if by some miracle it happens, I would assume it would have some sort of impact. Also, I'm extremely concerned about the profit margin squeeze and what it will do; it's already going on and I think it will get worse. In my judgment that will have a significant impact on plant and equipment spending of all sorts. Finally, with regard to the credit crunch matter, which we've heard about from a number of people, I think it is going on. As Manley said, we talk to a lot of these banker groups that come through and we hear those comments; I also hear them from many business people. I've observed recently that banks were even tightening terms on their home equity lines, which of course they have been practically shoveling out the door. Now they're using a smaller shovel anyway. Certainly, we are all hearing about the commercial lending tightness. For auto loans, there's less enthusiasm for the [unintelligible] 6-year or the 5-year loan and the idea is surfacing that maybe you shouldn't make a loan that's longer than the life of the car. So there's some tendency, at least among some lenders, to cut that back. In the small business arena--I have a lot of friends who are small business people, including my brother--I'm not sure that what's going on is going to show up in the numbers we're looking at because so far a lot of the changes involve the terms or the fact that lenders expect personal guarantees. If you have a small corporation they want your personal backing on a loan; there's this desire for extra security to protect the lender. It is certainly making business people feel a lot more conservative and I would suggest in some cases rather nervous. On the S&L side there's the FIRREA effect in the case of small and medium-size homebuilders and developers--I'm not talking about developers of big projects or major strip shopping centers but about homebuilders. And I thought we had a housing shortage, at least in some parts of the country. I think it's important to allow builders who have an active market to build those homes. Yet these are the ones who are feeling the impact of this single-borrower limit that has been imposed on the S&Ls to match the limit on national banks. Frankly, I don't think we have much of that built into our housing forecast here. And finally, in the case of the captive auto finance companies, they too have been tightening some of their terms and standards; and some of these marginal auto buyers are not going to be able to buy a car because they don't qualify under the new standards whereas they might have under the old, more generous, ones. Frankly, I don't know how all this will play out, but it's just a long enough list of concerns and question marks that I am uncertain and I wouldn't feel comfortable with a 90 degree swing in policy from where we are now. I might [not] even feel comfortable with a 5 degree swing, even though I certainly am concerned about the inflation situation. But I don't know how to pull out from these reported numbers what is transitory and what is really a fundamental change. I'm really impressed with the degree of competitiveness out there in the real world. I just don't think we can sit here and assume that every business can say: ""Well, my costs are going up so tomorrow I'll just mark up all the prices of everything I sell."" They just don't think that the market conditions would [allow] that.",701
-fomc-corpus,1990,"Governor Seger, a clarification: We have $8 billion of various tax [increases] in our '91 deficit reduction package.",27
-fomc-corpus,1990,Thank you.,3
-fomc-corpus,1990,Governor Angell.,4
-fomc-corpus,1990,"Mr. Chairman, I don't have anything to say at this time. I'll listen carefully to your recommendation.",21
-fomc-corpus,1990,"You can't wait to hear what I have to say! Do we have coffee out there? We're a little late for coffee, but--",27
-fomc-corpus,1990,Mr. Kohn.,5
-fomc-corpus,1990,[Statement--see Appendix.],6
-fomc-corpus,1990,Lee.,2
-fomc-corpus,1990,"Don, to link your story up with Mike's: We have an increase in inflation even in terms of the Greenbook forecast, and my question revolves around the issue of how much of that increase in interest rates of 1/4 point or so over the last quarter you would attribute to inflation expectations versus real. What I'm really wondering is: If it is expectations about inflation, to keep policy neutral wouldn't we have to raise interest rates 25 basis points?",92
-fomc-corpus,1990,"Yes. My sense is that in terms of long-term rates, we have a couple of things working here. One is, of course, that the fed funds rate hasn't moved since December 22 or whenever it was we last changed policy. Long-term rates have moved substantially higher. Inflation expectations may be an element there, but I would put them as a fairly small element. I think the response came primarily in terms of a stronger economy here at home [plus] some of the pull from the European situation. We never did have good data but we have even less information on inflation expectations than we had before now that Mr. Hoey is between jobs, but my guess is that they'll do a survey in April.",143
-fomc-corpus,1990,That's the real damage from the [Drexel] failure! [Laughter.],17
-fomc-corpus,1990,"My guess is that people probably are holding off in revising upward their long-run inflation expections on the basis of the last couple of months' data. Now, I'm sure there might be some short-run [effect]. So, I think most of this is a sense that real rates need to be higher just to keep inflation somewhat in check rather than an increase in inflation expectations. But it's certainly anyone's guess.",83
-fomc-corpus,1990,"If you answered the question ""Yes, it's all inflation expectations,"" then how would you answer the second part of the question? To keep policy neutral, what do we need to do?",37
-fomc-corpus,1990,"If you thought that most of the increase--particularly in long-term rates or even the short-term rates--was inflation expectations, then indeed you would need to raise rates.",34
-fomc-corpus,1990,"Just continuing along that line a little: If a significant proportion of the increase is due to increases in real rates, what would be the implication in moving the funds rate [up]? How would you see the market responding?",44
-fomc-corpus,1990,"Oh, I think the market would see that as a tighter policy and long-term rates would rise a bit. That's what we have in the Bluebook. The response might be fairly damped but I really would expect, if you surprised the market by tightening policy at this time, that bond yields would rise at least initially.",65
-fomc-corpus,1990,But that's the only rate that hasn't had an increase in real terms over this period--,17
-fomc-corpus,1990,"But it's not as if raising the funds rate would be doing what the market expects you to be doing and, therefore, simply moving out along a yield curve. I think what happened before was that the market expected policy to ease. Now they don't, and they're doing what the yield curve says. So you would be surprising the market with an increase in the funds rate. It may be appropriate, but it would be a surprise.",86
-fomc-corpus,1990,"Would you say the chance of such a move not affecting long-term rates or having them decline slightly is very, very remote?",25
-fomc-corpus,1990,"Those odds are always there and, particularly if it strengthened the dollar, I think you'd get a feedback through the dollar. If you tightened policy and the dollar went up quite strongly --just ignoring what the reactions might be overseas for now--you could have a very substantial feedback on bond yields and bond rates. They might not rise very much at all and could even decline, depending.",76
-fomc-corpus,1990,Okay.,2
-fomc-corpus,1990,Could I ask Ted just what he expects the impact would be in the exchange market if the funds rate were to rise 25 basis points?,28
-fomc-corpus,1990,"Oh, I think you'd get some considerable--",9
-fomc-corpus,1990,"How much is considerable? I'm not going to ask you for a point estimate, but what do you think [the effect would be] on the yen and the DM generally?",35
-fomc-corpus,1990,"It would depend a bit on the timeframe of all this and what kind of music went along with it, if I may put it that way, and as Don has already said on what the reaction was abroad. But if you take what policies are abroad [now], my feeling is that you could get 3 or 4 percent, anyhow, on the dollar in the short run. Then, as other things came into play that might be sustained or move the other way. It would be affected by what goes on later. But I think you could get quite a lot of movement at this juncture, if the funds rate went up that much in the short run.",134
-fomc-corpus,1990,I think [the yen is at] 157-1/2.,15
-fomc-corpus,1990,Today?,2
-fomc-corpus,1990,"Now, or just below it. Since the market doesn't expect anything, if we were to do that, I think it probably would go right through 160 or better.",34
-fomc-corpus,1990,Yes; that's why I was curious.,8
-fomc-corpus,1990,"The market would be fooled. Any further questions? If not, why don't I start the discussion. There's no question that the underlying business cycle numbers have improved. Not only the current numbers coming in but the actual revisions of recent history suggest that the current state of activity is better than we would have expected, certainly at the last FOMC meeting, though it's too soon to get a sense that this is anything more than a modest rebound from the end of deterioration. We're not sure at this stage exactly how to read all the various weather seasonals. If we were getting a stronger order pattern in the manufacturing area, we could presume that the pressure here was accelerating. But from the surveys we take and from looking at the various sets of order patterns, orders seem to have stabilized at a relatively flat level, which is consistent with very little change in manufacturing activity. The continued deterioration of profit margins has not yet turned, although I suspect that the improvement in raw materials prices that has come in recent weeks and that Governor Angell has been following may be suggestive of a first sign that the deterioration in margins may be ending. But as of now, from what anyone can see on the profits side we are right at the bottom of this pattern and it has not turned. What history does tell us is that the capital goods markets do respond to margins. And in that sense, to carry this thing forward in the usual business cycle recovery pattern I think is premature. It may turn out that way. In fact, I suspect that the most likely forecast is precisely that. But we do have in the context of what is unquestionably an improving business cycle balance of forces--in a sense the cash flow part of the economy with the exception of profit margins--a lack of improvement in the balance sheets. That is, there is still the deterioration and the [erosion] in the balance sheet; in the overall balance sheet we're seeing leverage still growing. Don, I don't know whether or not the improvement in the liquidation of equity that you have in these flow of funds [projections] is going to occur that way. I'm really sort of asking why you still have -60 or something like that; I don't know why it's not going to zero myself. But the point at issue is that the leverage is still increasing and we're still dealing with a fragility in the balance sheet that is not improving. And when that overhangs the business cycle pattern, I think we have to be cautious in projecting any form of acceleration in the underlying demand forces. I, like everyone else, am not sure whether the credit crunch is real. It has to be partly real unless human nature has been repealed because there has to be a fundamental response to what has occurred. I think the issue is how bad it is. As Jerry points out, some of that is probably good, or not bad, especially if you look at credit that has been extended inappropriately. The inflation issue is obviously the most disturbing part of the outlook. I don't think it has gotten any worse since the last time. The Social Security tax increase and the minimum wage hike are coming at exactly the wrong time. If one had to go back and look at this whole thing in retrospect, that's not helping. Probably it does mean that if we get past it without an acceleration, the compensation patterns will begin to fall off. I don't know whether I'm encouraged or not, but whatever data we see on the wage side do not appear to be accelerating. But then again, it's not improving in any material way that I can see either. I'm encouraged somewhat by this slowing down of M2; I was getting concerned that it was going to break outside of our 3 to 7 percent range; it seems to be constrained. Part of that, obviously, is the extraordinary pattern of the bill rate vis-a-vis the funds rate. And in that sense one can argue that the markets have indeed tightened--that there probably is some modest tightening in the markets if you look at the bill rate, other short-term rates, and the money supply. But it's probably a very modest amount because it makes [no] significant difference one way or the other. My own impression, having said all of this, is that it's probably too soon for us to be moving rates up. The exchange rate effect, I think, would really be quite a destabilizing force. Even at this stage I suspect that it's probably premature to go asymmetric toward tightness in the directive, although I must say that I suspect the next move we're going to make is indeed going to be up, not down, and probably should be. At the moment I frankly would prefer that we stay symmetric but be very conscious of any evidence of inflationary pressures picking up, specifically in the price area, importantly in the money supply area, but most of all any evidence of acceleration in the business outlook. While it is very early in this turn from the weakness that we saw in the fourth quarter, and in my judgment far too premature to assume that we're looking at any acceleration, we are nonetheless at 5.3 percent unemployment. And that's a tight market. If we get acceleration in demand at this point, I think the price pressures will begin to move rather quickly. We have to be very conscious of that threat. But my own judgment is that it's much too early to assume that. The order structure and the profit structure remain somewhat weak and at this point I would say that calling for more than leaving the directive unchanged and symmetric probably is premature. However, if it were the Committee's desire to move to asymmetric language, I feel that's not altogether an inappropriate move--certainly at the next meeting, if not sooner. Governor Angell.",1149
-fomc-corpus,1990,"Mr. Chairman, I agree with your assessment. I would just as soon have ""B"" symmetric, with our watching it very carefully during the intermeeting period and being particularly tuned to any developments in any of the leading indicators that would help us to know [more] in regard to timing. It does seem to me that the transmission mechanism of monetary policy is increasingly through the foreign exchange rate and that having a somewhat higher foreign exchange value of the dollar does get us somewhat closer to the effects that we would have had with a somewhat lower dollar and with a 25 basis point increase in [interest rates]. It just seems to me, Mr. Chairman, that foreign exchange markets at this point would be destabilized by an unexpected move on our part; that would buy us more problems rather than less.",160
-fomc-corpus,1990,President Syron.,4
-fomc-corpus,1990,"Well, we're in a very difficult situation, obviously, and when one is treading on eggs it's best to tread lightly. In that regard, there is much to be said for your recommendation in terms of it being premature to make any move in terms of absolute [unintelligible]. But I am concerned that the Greenbook shows what I think most of us consider an unacceptable inflation performance with an implicit assumption--whether it's significant or not you can debate--of a 100 basis point increase [in the funds rate] over the year. So, I would say that on balance, because I think this issue of maintaining our credibility is very important, I would want to give the markets some signal that we were worried about inflation and I would have a slight bias toward going with an asymmetric directive.",160
-fomc-corpus,1990,President Guffey.,5
-fomc-corpus,1990,"Mr. Chairman, you might have detected from some earlier comments that I made that with respect to this particular meeting I started out leaning a bit toward ""C"" or something in the neighborhood of a ""B-C"" directive simply because of the lack of evidence that we have made any progress on inflation--nor will we in the next two years. Nor indeed is there clear evidence that we have capped inflation as some people would like to believe. As a result, it seems to me that making some sort of preemptive strike, if you will, by moving rates up at the the present time would have some beneficial effect. But given a couple of things that will occur in the future, it seems to me that that probably is inappropriate. Given the closeness of the G-7 meeting, I think you might have some real difficulty during that period of time. Also, there will be an employment report that comes out April 6th, just before your G-7 meeting that will give some better information with respect to what happened in January and February; it will either confirm or not confirm those numbers, it seems to me. Therefore, I would like to propose that we have ""B"" with an asymmetric directive so that if we do get information in the intermeeting period that suggests that we have a much stronger economy than we think we have, then we could move. Secondly, and perhaps more importantly, is that this would be a leading bit of information to the market as they see this directive following the next meeting. They would know which way the wind is blowing and what the next move could be. It has informational content, if you will, whether we move or not in the intermeeting period; an asymmetric directive seems to me to have some advantage.",354
-fomc-corpus,1990,President Forrestal.,4
-fomc-corpus,1990,"Mr. Chairman, if I were the all powerful czar of monetary policy I would do exactly what you've prescribed. I'm basically content with where we are. I share the frustration about our lack of ability to move against inflation. But I think we have to have patience; that's the key point in my mind. For the reasons that you've mentioned, I think we have a potential for instability in the market. We have fragility, we have this possibility of the credit crunch, and [we have the possibility of a problem in the] foreign exchange markets. All of those things suggest to me very strongly that it is premature to move at this time. It's a natural reaction on the part of human beings to want to take action when frustrated by something like this inflation rate. But sometimes inaction is the better course of action, and I think that's the situation that we're in now. So for that reason I would heartily endorse your prescription, and I feel that it should be a symmetric directive as well.",201
-fomc-corpus,1990,President Parry.,4
-fomc-corpus,1990,"Mr. Chairman, I agree with you that there is some uncertainty about both the strength of the economy and also the extent of the inflation problems. However, I would prefer a small move in the direction of tightness somewhere between Bluebook alternatives ""B"" and ""C."" It seems to me that if the Greenbook is correct--and certainly our work would suggest that it is--there will be a need for some fairly significant, or at least eyecatching, tightening in the second half of the year. It might be easier to do some of that at the present time and have to do a little less in the second half of the year. If that's not in the cards, to me a fallback position is to support asymmetric language in favor of a tighter policy. That approach would ensure that policy could be tightened promptly if we had indications that indeed the economy is strengthening and if inflationary pressures look like they're even more of a concern in the seven weeks until our next meeting.",197
-fomc-corpus,1990,President Boykin.,4
-fomc-corpus,1990,"Mr. Chairman, I would lean somewhere between ""B"" and ""C"" but I'm certainly willing to accept the arguments of what the possible effects might be on foreign exchange rates. That being the case, though, I would feel pretty strongly about going asymmetric on the directive. Roger pretty well made that speech. It does seem to me that it positions us, if later events call for an actual upward movement in the fed funds rate. If that became necessary, we could move; or if that were delayed and had to come even after the next meeting it seems to me that that would tend to minimize a bit the surprise element that seems to be a matter of concern. If later information indicates that the economy and other factors are not what I at least anticipate--if policy doesn't actually change over the intermeeting period--the markets would be able to read that; and following the next meeting, if nothing happens, they could tell that pretty quickly. So, I don't see any significant risk in going asymmetric, but I think there are a lot of good arguments for going that way.",216
-fomc-corpus,1990,President Stern.,3
-fomc-corpus,1990,"Well, at the least we obviously have a difficult timing problem here. But I find that I come out where you do. We have seen that inflation is at least as stubborn, and maybe more stubborn, than many of us had expected; and that may require a tightening move. But at the moment, at least, I don't have a sense of urgency about it. I think, as Tom Melzer said earlier, it's probably low cost to wait until the next meeting; and indeed, if we get a lot of confirming evidence earlier than that, we always do have the opportunity to act if that would seem to be appropriate. I don't want to whipsaw the economy or policy by moving now and then finding out through a series of data revisions and incoming information and so on and so forth that we overestimated some of the improvement. Looking at inflation from a longer-run perspective, I don't know what it will take to start to bring it down. Obviously, the scenario in the Greenbook doesn't suggest any progress in the next year or two. But I think the best thing we can do under all these circumstances, as I've said before, is probably to see to it that M2 growth remains modest. And I am encouraged at least about the near-term prospects there although unfortunately, as Don mentioned, it may be a little hard to read M2 as the quarter unfolds just because of the tax payment issue. Assuming we get something like [the staff estimate], then we're on a rather sensible course and I prefer to wait a while longer and let some more evidence accumulate. I have a mild preference for retaining a symmetric directive just because I think that maximizes flexibility. I'm almost always in favor of that. But for now it's a mild preference.",350
-fomc-corpus,1990,President Keehn.,4
-fomc-corpus,1990,"Mr. Chairman, I think you summed the situation up very well; I happen to agree with your conclusions. As I said earlier, I think the risks on the inflation side may have shifted upward a bit, but I'm really still hopeful that as we get further into the year the numbers will show some improvement without our necessarily having tightened policy. Therefore, at this point I'd be in favor of maintaining our policy and would have a preference for symmetric language. I would only add that I don't in any way view symmetric language as limiting action on our part during the interim period if something should develop that would call for that.",123
-fomc-corpus,1990,"President Hoskins. MR. HOSKINS, Well, our long-term goal publicly stated is price stability. For 1990 the nominal GNP we're looking at is about 6.2 percent, I think: we're looking at a monetary growth rate of 6-1/2 to 7 percent. It seems to me that that implies no movement toward our long-term goal, at least in terms of our policy position. If you look at P*, I find no pressure from the P* model for moving toward price stability. Moving toward more current kinds of considerations, it seems to me that we can always find a risk in the economy; we have done that consistently, at least over the last 2-1/2 years that I've been sitting here. If we're always going to weigh our decisions toward risk to the economic expansion, then we're always going to bias ourselves toward inflation. It seems to me we have a one-weighted risk scheme in here. We weigh only toward the economy until inflation is in some sense beyond our control [rather] than taking very aggressive policy action. I think it's very important to maintain credibility. I think what we've learned from the last 20 years is that the credibility of policymakers is probably the key element in successful policy. Given the lack of movement toward our goal, much less the increase in rates of inflation that we've seen, I don't think that we're providing any kind of credibility at all. I don't think we need a major move at this time. We may need a major move if we follow market interest rates up; if we are wrong and the economy is stronger, we will have to move more aggressively. So, I would favor a 25 basis point move now and let the markets sort that one out. I suppose as a fallback I could go for an asymmetric directive toward tightening if in it we expressed our concerns about the inflationary trends.",382
-fomc-corpus,1990,President Black.,3
-fomc-corpus,1990,"Mr. Chairman, when we've been faced with this degree of uncertainty about the business outlook I don't think we've ever tightened before. And yet when I look back through the history of the System, I think this is where we've made most of our mistakes. If we could take the Bluebook at face value and assume that we would get a growth of M2 of 6 percent for April through June, I think that would be an adequate slowing, given the rate at which the aggregates have been growing. But I'm a little suspicious that it might be a little stronger than that. So, I favor a bit of a preemptive strike--somewhere between ""B"" and ""C,"" a ""B-"" or ""C+."" But that clearly isn't going to happen. So, I would be prepared, if I were voting, to vote for a directive with asymmetry to the [tighter] side. I think we ought to do at least that much. If subsequent economic information suggested that that was the wrong way to have leaned, I don't see that we really would lose anything since that would not be released until after the next meeting.",230
-fomc-corpus,1990,Governor LaWare.,4
-fomc-corpus,1990,"""B"" symmetric.",4
-fomc-corpus,1990,Governor Johnson.,3
-fomc-corpus,1990,"Well, my preference was for something along the lines of ""B"" asymmetric for some of the same reasons that already have been mentioned by Roger Guffey and others. But I can certainly go along with the Chairman's suggestion for symmetry. I don't feel that strongly; I have a mild preference for asymmetry. There are a couple of things on my mind along the lines of what Lee said. If we didn't have to worry [unintelligible] quite so much, then I think it would be a great opportunity to gain some credibility by shocking the foreign exchange markets. But in fact, I can see a lot of difficulties with that; I can see that that would be a difficult problem that we need to be more sensitive to. Along with what Don Kohn said earlier, I interpret what has happened to long-term rates as mostly real rate pressures from some pickup in the economy, although in my opinion it could be because of some of the events that have taken place worldwide and not just domestically. It could be improvement in potential output and something like an increase in the net real return on capital. And if that is the case, the current funds rate would be a relative easing of policy. Although if it's an increase in potential, that wouldn't necessarily create a long-run inflationary problem. But it's impossible to sort all that out. It's just theoretical reasoning. We have to look for the data as they come in. I wish we did have a political setting in which to enjoy the advantage of having a strengthening dollar here and be able to get more bang per buck at this stage with some firmness. But I agree that it's not in the cards. We do live in a political economy, not a simple abstract situation. So, I can go along with ""B"" symmetric.",359
-fomc-corpus,1990,President Melzer.,4
-fomc-corpus,1990,"""B"" asymmetric. I could live with ""B"" symmetric.",13
-fomc-corpus,1990,Governor Kelley.,3
-fomc-corpus,1990,"Mr. Chairman, I certainly support your recommendation. I think that it would be premature, based on the tentativeness of the data, for us to move as yet. The decision is obviously between moving a bit in the direction of tightness or staying where we are. And I would suggest that we're getting a little tightening through whatever degree of credit crunch is going on out there, and I think there's at least some. Also, unless the G-7 does something to turn it around, my personal bet would be that for awhile at least we're going to see a rising dollar. We certainly have it in the yen and I would bet that on balance we're going to get it in the trade-weighted calculation generally. So, I would enthusiastically support your recommendation.",154
-fomc-corpus,1990,President Boehne.,5
-fomc-corpus,1990,"To move now on policy would be premature on domestic grounds and counterproductive on international grounds, I think. So I prefer a continuation of current policy. On the issue of symmetrical or asymmetrical, I prefer symmetrical. It turns on the question of what kind of burden of proof we want in order to make a policy change. I think a policy change over the next several weeks would be a major move, and there ought to be some burden of proof to make such a move; and that leads me in the direction of symmetrical.",106
-fomc-corpus,1990,Governor Seger.,4
-fomc-corpus,1990,"I would support your position of keeping policy at ""B"" with symmetrical language.",16
-fomc-corpus,1990,Vice Chairman.,3
-fomc-corpus,1990,"I have no stomach at all for changing policy right now either, but I came here with a very, very mild preference for asymmetric language. My preference is probably a bit stronger for asymmetric language, but operationally I don't think it matters a lot. We can react to incoming data as needed in either case. I think the only real argument that can be made for asymmetric has been made; as I say, I can be reasonably comfortable with ""B"" [symmetric].",95
-fomc-corpus,1990,What I hear is that there is some concentration for alternative B symmetric. The Secretary will read the directive encompassing that and we'll put that to a vote.,30
-fomc-corpus,1990,"""In the implementation of policy for the immediate future, the Committee seeks to maintain the existing degree of pressure on reserve positions. Taking account of progress toward price stability, the strength of the business expansion, the behavior of the monetary aggregates, and developments in foreign exchange and domestic financial markets, slightly greater reserve restraint or slightly lesser reserve restraint would be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with growth of M2 and M3 over the period from March through June at annual rates of about 6 and 4 percent respectively. The Chairman may call for Committee consultation if it appears to the Manager for Domestic Operations that reserve conditions during the period before the next meeting are likely to be associated with a federal funds rate persistently outside a range of 6 to 10 percent.""",160
-fomc-corpus,1990,Call the roll.,4
-fomc-corpus,1990,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Boehne Yes President Boykin No President Hoskins No Governor Johnson Yes Governor Kelley Yes Governor LaWare Yes Governor Seger Yes President Stern Yes,44
-fomc-corpus,1990,"Okay. We still have a large element of our agenda in front of us, so why don't we break for lunch, come back quickly, and get started as soon as we can. [Lunch break]",41
-fomc-corpus,1990,[Unintelligible.],6
-fomc-corpus,1990,"With that information, let's go ahead and get started.",11
-fomc-corpus,1990,[Statement--see Appendix.],6
-fomc-corpus,1990,Questions for either gentleman?,5
-fomc-corpus,1990,"Well, I just can't let this pass. First of all, I think you are to be complimented for putting together in one place a review of this complex issue. Even if not much change occurs, I think the study is worthwhile and it is a well-done record. I've never approached this [issue] from a particularly ideological point of view. I've always tended to be fairly pragmatic in terms of the politics as well as the economics about whether we ought to [intervene] or not. However, I must say that over the past year just the sheer amount of the transactions has struck me as being well beyond what is a reasonable number. I feel that we have just sort of slipped into this for good reason or bad reason. The number is something like $20 billion. It goes well beyond a narrow, or even a moderate, interpretation of disorderly markets; it goes well into trying to manipulate exchange rates. And it's difficult to see what we have gotten out of it. I personally don't think we can continue for another year with that kind of volume. It might be helpful as the Committee looks at this to try to draw a distinction between intervention to counter disorderly markets--as ambiguous as that is--and intervention aimed at manipulating the level of exchange rates. I, for example, would think that intervening to counter disorderly markets is a fairly routine, even technical, kind of thing over which the Desk, the Chairman, and the Foreign Currency Subcommittee ought to have fairly wide discretion. But when we get into the issue of whether we're going to intervene to manipulate the level of exchange rates and we commit the magnitude of dollars that we have, it seems to me that that kind of decision ought to be laid on the table as explicitly as when we change domestic policy rather than just come to the point where we ratify transactions. So, what I get out of this is that we ought to try to draw this distinction. If we're talking about anything that comes close to what we've been through, we ought to have a procedure in the Committee where that policy decision is aired and discussed and we either ought to go on record as favoring it or not favoring it.",438
-fomc-corpus,1990,"Ed, are you saying that those are both valid reasons for intervention?",14
-fomc-corpus,1990,"I'm not prepared to make a decision for all time and in all circumstances that says what is or isn't. It seems to me that the case for this narrow definition of intervention to counter disorderly markets is well within the bounds of what a central bank ought to do. I think it's fairly routine business [for a central bank]. On the broader issue, I think one would have to look at the circumstances in which we were trying to do it. It's more than economics involved here. When we start to commit billions and billions of dollars, as we have this past year, for the clear purpose of trying to manipulate exchange rates, I think that is a decision that ought to be made consciously. Maybe we would do it and maybe we wouldn't. I would just have to wait and discuss whether I would be for it or not for it depending on the circumstances. And I wouldn't make any [prior] judgment.",181
-fomc-corpus,1990,Implicit in your comment is that you think it's effective.,11
-fomc-corpus,1990,I think in some circumstances it might make sense for us to do it. And those circumstances may go beyond economics. I'm just not prepared to close the door on its potential effectiveness for a broad range of reasons. We ought to face up to that head on when the time comes.,56
-fomc-corpus,1990,Is your concern about the $20 billion a foreign exchange risk concern?,14
-fomc-corpus,1990,It's a political concern.,5
-fomc-corpus,1990,"Well, first of all, $20 billion is a lot of money to spend even for a central bank. Second, I think that there are some political accountability issues here, one of which we're going to run into on this currency [collateral] business, I would think, some time this year. We at least ought to have thought through what we're doing and why we're doing it before we commit to that kind of money.",86
-fomc-corpus,1990,"Is the agenda here to go through Ted's four policy questions, which I thought were quite good?",20
-fomc-corpus,1990,"Well, the first thing we [normally] would do is to ask questions, but they didn't say anything to ask a question about. So, if you want to comment on the substance of the issues, please go ahead.",45
-fomc-corpus,1990,"Well, let me just start where I think Ed was going. There are a number of points that could be raised around the issues that Ted put down; we probably ought to discuss those because I think they're fair and to the point. I suppose one response to Ed's statement is that we did approve those limits regularly, and there was some protesting along the way occasionally. But sooner or later we found ourselves in a situation of [spending] $20 billion. And I'm uncomfortable with it, as Ed is, for some reasons that are political. I think it attracts attention. And I think we ought to ask the question: Does it allow influence by the Treasury on us because of that relationship? I don't know the answer to that but that seems to me one question that we ought to deal with. Ted started off with the [question as to whether] we should be doing it for our own account. It's one thing to execute [transactions] as agent [for the Treasury]; it's another to give tacit [permission] to manipulating or trying to maintain exchange rates.",215
-fomc-corpus,1990,"Let me just say one thing now. To the extent that we at the Board raised concerns to the Treasury, I think we were more heard than not. In effect, I would say that in this most recent endeavor to suppress the decrease in the yen against the dollar about which we raised very strong [objections] and had extended discussions as to why that was desirable or appropriate, it actually paid off. In other words, the Treasury did pull back. As best I can judge, that was largely the result of our reluctance to go along and of the arguments we were making. So, even though in a legal sense we have to interpret ourselves as junior partners, it has been my impression that we do have a significant effect on the overall Treasury decision. Were we to pull away and be strictly [the Treasury's] agent, I think by that very nature we lose completely all of our capability of influencing decisions that could affect our monetary policies. My impression is that, if we were to poll this Committee, the extent of belief that there is any really significant benefit coming from [intervention] would be extremely mild to nonexistent. The question that we have before us is not whether it works in any substantial way; I don't think you'll find many people around here who believe that. Therefore, leaving aside the issue of intervention where it seems appropriate to curb disorderly markets and raising the much broader issues of pegging-type intervention, including G-7 coordinated intervention to drive the dollar down, for example, the question is whether or not we lose our ability to influence those decisions if we pull away. And I must tell you my impression is that we do. Sam, is that your impression?",339
-fomc-corpus,1990,"Well, there's no question that our discussions with the Treasury at all levels are very much influential on their views both because they do want to have the Federal Reserve involved in there with them and also because we can bring to the discussions some [insights regarding] the point of view of the markets and the point of view of the issues that the Federal Reserve is interested in, which have an influence on them. So, my assessment would be very similar to yours. There are a lot of times, of course, when we start off agreeing anyhow. But there are many, many occasions when we do influence their views. I think this recent experience is a case in point. But as in any arrangement of this sort, it's not going to happen every time. Looking back over a longer period of time, I think we have been very influential and quite helpful in influencing them in the directions that we have.",180
-fomc-corpus,1990,"Yes, I think we've succeeded in shutting off some of the extreme elements of policy that they tried to implement.",22
-fomc-corpus,1990,I think that's right. We mentioned in [the Task Force report] that the Federal Reserve frequently seems to be somewhat of a balancing wheel; sometimes Administrations tend to go off a little in excess in one direction or another. I think over the years that certainly has been the case.,57
-fomc-corpus,1990,"I don't disagree with what you said, but the balancing wheel this time seems to me to be in order of magnitude completely out of proportion to what we've done in the past. It's roughly four times the level relative to our portfolio that we've experienced.",49
-fomc-corpus,1990,"Well, certainly, the $20 billion we did last year is the largest we've done in one year. But if you [compare it with] periods in the latter 1970s [relative to] the size of the foreign exchange markets at that time, for example, the $20 billion was not big. If you look back at the size of the current account deficits in that period, there were periods of intervention when relative to those conditions the intervention figures were high, though they certainly did not approach the $20 billion total.",107
-fomc-corpus,1990,[Unintelligible] the current account deficits will make it work the other way? [Unintelligible] selling dollars with a large current account deficit.,33
-fomc-corpus,1990,"Well, that's right. I was trying to give a comparison of the [conditions] within which--",20
-fomc-corpus,1990,"But you can only relate it to our portfolio because if you're looking at channels of influence, it's true we can influence the Treasury. But the other side of that coin, it seems to me, is that Treasury can have some influence on us. One of those influences might have been that it had to get very large before we got our backs up.",70
-fomc-corpus,1990,Is there any question that we can't totally sterilize our activities in exchange markets? Are you raising the question of whether or not they can influence us because we can't sterilize or what?,37
-fomc-corpus,1990,"No, they can influence us in the size of our foreign currency holdings.",15
-fomc-corpus,1990,That's a separate issue.,5
-fomc-corpus,1990,That's a separate issue. Sure.,7
-fomc-corpus,1990,"It's not clear to me in what other ways, once we have a position of that size. Could we be influenced by a potential loss in that and would we adjust policy in order to avoid a potential loss? It's just a number.",47
-fomc-corpus,1990,"I think in fact it can complicate the sterilization process. Technically, we can definitely do it, but we already have found that we had some collateral pressures. Now, I know we could suspend that and reinterpret our collateral, but that complicates the process. Also, in my opinion, at times it can create a significant amount of uncertainty about policy in the open market because if the market doesn't know the degree to which we have undertaken exchange rate intervention then it can confuse the market's understanding of what the reserve need is on any given day. That can add volatility in the market and it can confuse the market at least in the very short run.",132
-fomc-corpus,1990,You're referring to intra-week I assume?,8
-fomc-corpus,1990,"Yes, absolutely; because it comes out eventually in the reports. But I think it could have a substantive effect if we ran into serious collateral problems. If we try to change our definition of collateral and expand what we consider collateral, we could open up a whole Pandora's box of questions about the substance of our policy.",64
-fomc-corpus,1990,"Just to come back to the collateral issue, since it has been raised twice now: It was a self-denying ordinance that the Board imposed on itself, given the circumstances as they existed in the early 1980s. And I suspect that the proposition that you--",54
-fomc-corpus,1990,"Well, I'm saying we still have to change it [even if] it was self-imposed.",20
-fomc-corpus,1990,You'd have to change your policy. The question is whether you--,14
-fomc-corpus,1990,You could raise a lot of questions about that.,10
-fomc-corpus,1990,But the issue shouldn't swing on that question.,9
-fomc-corpus,1990,"I couldn't agree more. All I'm saying is that it can complicate the sterilization process. Tentatively, that's true.",25
-fomc-corpus,1990,May I just ask a factual question? Has there been a significant or meaningful political change since we initiated that on the basis of the concern that we shouldn't back the dollar with foreign currencies? Is that spoken of politically as an issue? Does anybody have a sense of that?,54
-fomc-corpus,1990,"It tends to be associated with one or two people in Congress at least one of whom, Ron Paul, is not there anymore. It was also associated with concern and confusion in the outbreak of the debt crisis and the misuse of that power to bail out Brazil, Mexico, or any of your favorite or nonfavorite LDCs. It is not currently an issue. I'm not saying that it wouldn't be noted--",82
-fomc-corpus,1990,It could quickly become an issue if it looked as if we were bailing out the currencies of other countries.,22
-fomc-corpus,1990,"If the circumstances were such that the Congress felt that the dollar should go up and we were excessively buying foreign exchange--which I think is what you're talking about--it would become an issue. That is correct. Generally the bias in Congress has been the other way, however.",55
-fomc-corpus,1990,It's very easily demagogued; that's the really dangerous thing from our perspective.,16
-fomc-corpus,1990,"Look, the truth of the matter is the reason we built up at least part of that $20 billion is that in the early stages it just did not seem credible that the dollar would firm as much as it has. And the early accumulation of both yen and deutschemark balances was considered to be a good speculative investment that we would get rid of relatively quickly. Part of the problem is that the markets have behaved in a way that turned out not to have been expected. I think that has gone against us.",102
-fomc-corpus,1990,"Mr. Chairman, that raises a very important point along the lines of what Ed Boehne was talking about initially. It seems that there ought to be some understanding in the Committee about where we cross over the line from just providing intervention to resist disorderly conditions and at what point we decide that it has gotten out of control and the fundamentals are really working against us. It seems to me that if we accumulate $20 billion in foreign exchange reserves over a relatively short period of time, that's a signal that we've crossed over the line.",107
-fomc-corpus,1990,"Well, I wouldn't disagree with that; in fact, that's precisely the reason we increasingly fought the Treasury as these sums began to rise. In other words, as soon as they began to get into double-digits it was a signal that we were doing precisely that. My own judgment is that if we were not there, the total, which is now what--$45 billion?",76
-fomc-corpus,1990,Yes.,2
-fomc-corpus,1990,I would bet you that the total would be $60 billion at this stage.,16
-fomc-corpus,1990,"I guess the question is: What do we do, if they keep doing this? We have $20 billion of a $45 billion total. What if they keep wanting to sell dollars?",38
-fomc-corpus,1990,There's no problem because they are out of money in their Exchange Stabilization Fund.,16
-fomc-corpus,1990,"No, they could warehouse anywhere, if they wanted to. However, the political exposure of the Treasury to losses in that fund go directly, dollar-for-dollar, into the budget deficit, and I think there's sensitivity on that issue.",46
-fomc-corpus,1990,"Well, losses on our books could go directly in there too.",13
-fomc-corpus,1990,What I'm trying to say is it's an issue both ways.,12
-fomc-corpus,1990,"In that regard, Mr. Chairman, how big is the breadbox in the sense of the $20 billion that we're talking about now relative to the position that we've had in the past vis-a-vis the amount of trading that's going on in the market? Sam started to talk about that and that's what I wanted to ask him. Is this just an extraordinary buildup?",73
-fomc-corpus,1990,"Well, if you adjust for the size of the market--",12
-fomc-corpus,1990,But it is extraordinary relative to our portfolio.,9
-fomc-corpus,1990,To our portfolio.,4
-fomc-corpus,1990,"That's right, that's where the difference is; but it's not relative to the size of the market.",20
-fomc-corpus,1990,That's right.,3
-fomc-corpus,1990,"One of the issues that we have to confront is that there is a globalization going on; there is no question that the amount of cross border transactions of every type is rising secularly against the nominal GNPs of the countries. And this is an irreversible process. So I think the issue is that were we to keep the proportion of intervention relative to the transactions constant, I would suspect that consumer and commercial banks are not going anywhere. But the ratio of our holdings relative to our total assets also would be rising secularly, and that's the problem.",110
-fomc-corpus,1990,"If we continue to intervene, that's true.",9
-fomc-corpus,1990,"May I come back to one point that Mr. Johnson raised? We did look at this question of volatility, which is related to the sterilization; it's the very last three or four pages in the book. In fact, much to my surprise, we did not find a correlation between interest rate volatility and the scale of our intervention whether we were in the market in a moderate way or a big way. The volatility of interest rates, whether long or short, seems to be the same. I was surprised because in some sense it was a biased test. I would have suspected that [unintelligible] in the market because there were certain other things going on. It's not a strong test, but there isn't [a correlation].",147
-fomc-corpus,1990,Okay.,2
-fomc-corpus,1990,There seems to have been less confusion than I would have thought.,13
-fomc-corpus,1990,"Well, that may be true as an empirical matter; but the potential is certainly there for it to create mysterious volatility problems, especially if we're intervening in large amounts. I concede that empirically that may not have been the case so far, but potentially it clearly could be. And that's something we should take into account. But I think we ought to go back to what Bob Parry was saying. I wouldn't worry so much about this whole thing if I thought it was totally ineffective. I think generally sterilized intervention is grossly ineffective. But there are times--and I think even this research shows that--when it can be effective at least in the short to intermediate term. The time that it is effective, at least temporarily if not even into the intermediate term, is when there is concerted multilateral intervention, which basically gives a signal to the market that there's a coordinated effort by all the major industrial countries to achieve some exchange rate level. Now, whether they ultimately achieve it or not, it creates in my opinion potential turmoil in the market in the short to intermediate term. And it can even change the psychology of the fundamentals in my opinion.",232
-fomc-corpus,1990,But it seems that we all agree with this. I think the issue is: How can we be effective in getting that viewpoint across--by playing the game or by picking up our mitt and going home?,41
-fomc-corpus,1990,"Well, I can cite you an example that I have cited before. You can argue both sides of that. I think there have been times when we have been effective playing the game and there have been times when we have been totally ineffective. A good example is from my experience when I was at the Treasury. I have mentioned this to Ted and others before. When I was at the Treasury, Beryl Sprinkel was Undersecretary and there was a policy of non-intervention. Yes, there was some modest intervention at times when the Treasury decided that it was useful, but only when they decided it was useful. The Fed's views during the whole period were completely shut out. From my experience, I don't remember any cooperation or any plea by the Fed during that period having any effect whatsoever.",160
-fomc-corpus,1990,But you agree that there are times when it does have an effect?,14
-fomc-corpus,1990,Yes.,2
-fomc-corpus,1990,"Well, there's a crucial difference. Beryl Sprinkel is different from all others. I was going to use an econometric term on how one can apply that but I decided not to.",38
-fomc-corpus,1990,"Sure. What I'm saying, though, is that you probably could cite other times in the past where playing the game has not gotten us anywhere. And there are times where you have to draw the line and say you're going to make a stand. I would completely agree that playing the game up to a point is a practical thing to do. The question is: What are the guidelines as to where we draw the line and when we decide to make a stand?",92
-fomc-corpus,1990,Can you know a priori?,6
-fomc-corpus,1990,"I think we can have some guidelines to say in general what kind of intervention we find acceptable. No, I wouldn't tie anyone's hands. It ought to come to this table and there ought to be a discussion once we cross over some threshold we consider to be outside the frontier of what we thought was reasonable. We ought to decide it, though.",70
-fomc-corpus,1990,"Would you sketch out what the environment will be like after that point? In other words, what would be our role when we've reached that point where we say we're not going to intervene? What influence would we have? How would that be preferable?",49
-fomc-corpus,1990,"Well, I'll be honest. My view is that we've had considerable influence standing firm. The fear at the Treasury of the Fed pulling out of this process in my opinion has been as strong a disciplinary force as anything else.",44
-fomc-corpus,1990,"I don't disagree with that, but you say we will pull out at some point. After we've pulled out what kind of discipline can we exert?",29
-fomc-corpus,1990,"Well, there are several things we can do. I'm not saying I would prescribe these, but we have a lot of tools. One is that we don't approve any further intervention limits or intervene on our account. We say, okay, Treasury, you have independent authority to intervene as a matter of Treasury policy and you can do it for your account. But the other point is that we also have the authority to approve their warehousing of foreign currencies. Now, they can warehouse, as the Chairman says, in other places possibly. I'm not sure where.",111
-fomc-corpus,1990,Where?,2
-fomc-corpus,1990,Other central banks?,4
-fomc-corpus,1990,The BIS.,3
-fomc-corpus,1990,But I can't conceive of the BIS doing that.,10
-fomc-corpus,1990,"Yes, that would be risky for them.",9
-fomc-corpus,1990,"But the point is there are tools. First of all, we don't have to do it for our account and that becomes clear to the market. We don't have to warehouse their foreign exchange reserves. Those are basically the disciplinary tools we have. And I think before the Treasury would risk confronting that, they would listen to us. But we've got to be willing to use those tools or we're not going to get them to listen. The Chairman has been very effective in my opinion in getting them to listen at times, but I think you would concede that they have been pretty stubborn.",115
-fomc-corpus,1990,"Well, Mr. Mulford has been.",9
-fomc-corpus,1990,Messrs. Mulford and Sprinkel fall in the same category.,14
-fomc-corpus,1990,"No they don't. We have to distinguish. I happen to agree more with Mr. Sprinkel's view on how this should work; I don't have any trouble with Mr. Sprinkel. But most Treasuries have been heavy interventionists. The reason I want to say leave the Regan/Sprinkel [period] out is that it's a real outlier; it's really beside the point. There have been occasions when we've butted our heads to little avail, but I must tell you that the vast, vast majority of occasions we not only argued but I think to a large extent prevailed. There have been two or three occasions when we objected to heavy intervention largely directed at beating down the dollar. We were bypassed for a few days. But after they got the point that it wasn't making any difference, they dropped it.",168
-fomc-corpus,1990,But I feel that it was the fear of our pulling out of the process that scared them more than anything else.,23
-fomc-corpus,1990,"I don't think so, Manley. I don't think we ever even remotely suggested that we would pull away. Basically when Sam, for example, or some of us from here argue with the Secretary, I think it does have an effect. It has not been 100 percent effective in the sense that we are not fully in control. Frankly, I would be quite fearful of what they might do if we weren't there to harass them toward some degree of sensibleness.",96
-fomc-corpus,1990,"But then I think it would become clear to the market if we got to that point. If I were a market participant and I were sitting out there seeing the Federal Reserve talking about price stability and yet selling massive amounts of dollars, I think eventually I'd decide that was a joke as a policy. It seems to me that our policies have to be reasonably complementary and that we have to make some stand ultimately if the amount gets beyond the point of reason. I'm not saying that within a range we should not participate and act in a practical way on disorderly markets, as Ed Boehne said. But what do you do when you build up $50-$60 billion of foreign exchange reserves?",138
-fomc-corpus,1990,"There are at least two dangers. One is that we can lose our credibility and the market will assume we're going to ease policy in order not to take the losses. The other is that members of Congress become concerned about the losses and try to exert political pressure on us so that we don't have to take those losses, which would mean pressure to ease policy.",71
-fomc-corpus,1990,There's another issue here it seems--,7
-fomc-corpus,1990,"Listen, I have this old piece of paper that says on it Wayne Angell [wants to speak].",22
-fomc-corpus,1990,"It seems to me first of all that the very first principle is that the Treasury, with its official foreign exchange capability, and the Federal Reserve are inevitably linked in an endeavor. Even if we did not engage in foreign exchange operations, we could still have the possibility of a conflict between Treasury's official foreign exchange position and basic monetary policy; and it could become a conflict at the Congressional level if we decided that monetary policy was going to be for a strong dollar and if the Treasury said they wanted a weak dollar. So, I don't think we can back away and say somehow or other let's wash our hands of it. That won't work. I think it is important that the Federal Reserve continue its educational process. Now, I'm very happy with what has happened. I'm happy on two scores. In the first place I'm happy because the Federal Reserve is now, it seems to me, at a consensus position regarding the dollar. The problem that I had for so long was that we had so many in the Federal Reserve who saw a foreign exchange depreciation as a technique to resolve the foreign trade balance, which was in conflict with our price level stability goals. And I'm delighted, Mr. Chairman, that today this organization now seems to be together for the first time, which says that depreciation is not going to be used as a device to solve the trade balance problem. We're going to solve that problem some other way. So, it seems to me we've made tremendous progress. Now, when the Treasury wishes to engage in dollar depreciation in order to satisfy a short-term political objective, that's very dangerous and we ought not to participate in it. We ought to be willing to join in when we believe that the purposes are reasonable and give them some allowance in that regard. But when it comes to the point of having it appear to the nations and the capital markets of the world that the Treasury and the Federal Reserve want a depreciation of the dollar, that invites catastrophe and we can't be a part of that. Now, it seems to me we've made progress on that score. We no longer have that high risk. Selling dollars to drive the dollar down is a process that a central bank can engage in without a limit. We can create all the dollars we want to create and there's no stopping it. Frankly, when it is published that the Federal Reserve did not participate, I think that's going to give the Treasury a great deal of pause; I think they're going to be more careful and are going to listen to us more carefully than they did before. The fact of the matter is, Mr. Chairman, that in 1989 they continued to the point of building up balances that are unprecedented and those balances subject them to foreign exchange speculative risk and they subject us to that risk. And sooner or later, if you stake those kinds of positions, you're going to have a Congressional inquiry and the whole operation is going to be tarred. I think it's very [unintelligible] that we're setting out to do. When we first did the Plaza Accord that seemed to be somewhat well understood. When we first did the Louvre Accord that seemed to be somewhat well understood in regard to broad ranges. But we've been asked to engage in the selling of dollars at a time in which no one knew what the down side was in regard to the deutschemark market as we were selling yen, and in this [untenable] position that the Treasury was in I think we had no choice but to separate ourselves from that risk. Mr. Chairman, I'm delighted we have. But I will be more delighted when we get some kind of reasonable plan to deal with the large balances that we now have and some notion as to how they can be worked back down. There are uncertainties that really are impacting this market. No one understands what's happening to the yen at this point. At one time we had some reasonable understanding as to why [exchange rates] were moving. But we are now in a period of risk. And I think it's just extraordinary that we've made this kind of statement; it's going to be significant when it's announced. I think it is going to have an impact when it is published that the Federal Reserve stepped back from it. Now, I believe in doing this that we ought to be careful not to do it and turn out to be wrong. [Unintelligible] then, of course, we would lose credibility. But I think we've protected ourselves. But I would like to see the next plan, which is: Where do we go from here? What is to be done with the balances? When are we ever to sell currencies? That's what I think would be helpful to have your comments on.",936
-fomc-corpus,1990,"Okay. Before I comment, the Vice Chairman wanted to [speak].",15
-fomc-corpus,1990,"First of all, I very much agree with Ed Boehne. I think we have to be pragmatic about these matters. It's quite clear that every central banker that is worth his salt, regardless of country of origin, is going to want a strong currency. And that covers even [unintelligible]. But against that backdrop and the immediately past history, I would go even a step further, Ed, in the distinctions that you made. There are intervention activities that are aimed at countering disorderly markets in the historical context of that word. There are intervention activities that may aim at trying to check what seems to be an unsustainable rise in currency x. But then there are also intervention activities that are at least perceived as seeking to beat down your own currency. I think in the immediate past a lot of the tension, not just between the Federal Reserve and the Treasury but between nations--including both central banks and finance ministries--really has focused on that point. Indeed, I think much of the dissatisfaction around this table has been targeted at that point: i.e., intervention tactics or strategies that seem to have as their sole purpose stomping on our own currency. So, that is a third distinction that I think is useful in trying to put these issues in perspective.",255
-fomc-corpus,1990,"May I ask a question? You asked me before about policy and how we could be impacted by this. When you read the newspapers or listen to the discussion this morning, there is an expectation that the Fed won't tighten because of dollar concerns--that is, that the dollar is getting too strong. We heard it at the table to some extent just this morning. Suppose we have an increase in the inflation rate like we've had and we continue to have additional increases and we continue to say that we're supporting the Treasury in terms of intervention? It seems to me that we'll have no credibility at all. At what point do we decide to fight inflation here? The yen may continue to fall even if our inflation rate rises, even if they raise their interest rates 100 basis points. We don't know what's going to happen there. And I think Wayne's point is right about separating ourselves to some extent from the process because then the expectation is that we run monetary policy--that the Treasury may intervene, but the Fed will fight inflation when necessary.",206
-fomc-corpus,1990,I was going to get to that issue in a minute.,12
-fomc-corpus,1990,I'm sorry to interrupt.,5
-fomc-corpus,1990,"Given the kind of institutional background that we operate in, it seems to me that with respect to the distinction I tried to draw as to the motivation for intervention in the first place, the first kind of troublesome threshold we all come up against is this debate as to whether intervention works. Indeed, there are very sharp differences of opinion even around this table. Some people are against intervention because they say it doesn't work and other people are against it because they say it does work. I don't see quite how you square that circle. Then, you look at the great body of empirical analysis, some of which was summarized in Paper 11. That paper seems to say that it's pretty hard to find evidence that it does work. I have to say that I'm a little agnostic on that point. And I want to try to make the point that my agnosticism does not grow out of my place of origin, Liberty Street. I've asked my people to look at this question for me in some detail and I was very scrupulous: I asked some of the old timers like Dick Davis to look at it knowing their institutional biases; but I asked some people whose roots actually are here, like Bonnie Loopesko, to look at it. And they both tell me the same thing. What they say, basically, is that while maybe you can't draw a clear conclusion that intervention works, you can't draw one that it doesn't work. Moreover, they make the point that there is also a non-empirical foundation that tells us what determines exchange rates in the first place--whether intervention does or doesn't [work] or whether anything does or doesn't [work]. So, I think one has to have at least a healthy element of skepticism or agnosticism in terms of drawing sweeping conclusions on that threshold point. My own view is not unlike Governor Johnson's in that intuitively I think it can work at least in the short run. And because it can work I think we should treat it as though it does work. Now, in that setting, the questions about profits and losses, opportunity costs, size of portfolio, and amount of balances in some sense are secondary. We can find ways, I think, to deal with those. But it does seem to me that the threshold questions are: What role should this institution play in the process, if any? And in addressing that question, it's important to keep in mind that for most of this decade we essentially have been operating with a currency that has been strong rather than weak. But it wasn't that long ago--the latter part of the previous decade--when things were distinctly the other way around. And we went hat in hand to the rest of the world asking them to help defend our currency. Now, whether that worked or not, whether it was an expedient or not, or whether we were short-sighted or not as a nation, is beside the point. That's what we did. And there is no guarantee that we might not have to face those circumstances again at some point in the future. So, I think that in itself is a reason not to throw the proverbial baby out with the bath water. As I see it, the biggest danger with intervention--whether it's done by the Federal Reserve or the Treasury or both--is the danger that it can ultimately co-opt monetary policy. That, I think, is the ultimate risk. And that has a bearing on this question of whether we should be a part of the process or not. To me, the danger of co-opting monetary policy in some underlying sense is greater when we're out of the picture than when we're in the picture. I think it transcends the question of whether the Chairman with his considerable persuasive powers, or Mr. Cross and Mr. Truman with their persuasive powers, can browbeat the Undersecretary or the Secretary of the Treasury into a more sensible position day-by-day. It's much more fundamental than that. And I think that alone is more than a sufficient reason why the Federal Reserve should maintain a continuing, active, involved posture and presence in these matters. I also think that our international relationships lead to the same conclusion. We may think we'll scare the heck out of the Treasury by telling them we aren't going to play, but if the world at large--including our sister central banks--felt that that was our attitude, it would scare the heck out of them too. That in itself might produce precisely the problem that we're most interested in avoiding, and that is a weak currency rather than a strong currency.",908
-fomc-corpus,1990,"I don't understand that, Jerry.",7
-fomc-corpus,1990,"If the international community of central banks thought that the Federal Reserve was throwing in the towel and leaving this whole business to the Treasury, I don't think they'd be very happy. As a matter of fact, I don't think the international financial community would be very happy.",52
-fomc-corpus,1990,The Bundesbank would be happy.,7
-fomc-corpus,1990,"For now they might be, but I don't think that the perception that the Federal Reserve was jumping ship on the process would be well received.",28
-fomc-corpus,1990,"No, I agree with you.",7
-fomc-corpus,1990,[Unintelligible] he could be quite disturbed.,12
-fomc-corpus,1990,"Well, I think he probably would.",8
-fomc-corpus,1990,"But by and large, Jerry, if the Federal Reserve had pursued a rigorously tight monetary policy in 1978 we would not have had to go out with our hat in our hand.",38
-fomc-corpus,1990,"Well, I concede that we--",7
-fomc-corpus,1990,"If we pursue a rigorous monetary policy toward price level stability, the fear of a weak dollar is gone.",21
-fomc-corpus,1990,"I concede that, especially in the case of 1978 policies in general, we probably were short-sighted. But I don't think things are quite that one dimensional. Again, in the immediate circumstance, would it be a good thing, unambiguously good, if the yen [fell] from 157 to 200? It's not at all clear to me that that is unambiguously good.",81
-fomc-corpus,1990,"Oh, I agree with you.",7
-fomc-corpus,1990,"And with those circumstances, it seems to me that we have a constructive role to play in terms of--",21
-fomc-corpus,1990,"But that's why we shouldn't add to our stock of yen at 138 and 142, because then we lose the ability to do it when we need to do it to stop an overshoot.",39
-fomc-corpus,1990,"But, Jerry, there is still the question: Say that that was the trend, that the dollar was rising toward 200--",26
-fomc-corpus,1990,"Well, let me just finish here. I'll come back to that. The point I was making was on the threshold question of whether we as an institution should maintain a meaningful presence in this arena. I'm suggesting that we should. And the last reason I cited as to why I thought we should was not just for fear of loss of monetary policy autonomy in a domestic context, but that it would not be well received by the world at large if they literally felt that we had jumped ship on the process. Indeed, I for one could not [imagine] asking the Chairman of the Federal Reserve to go off to a G-7 meeting next Saturday with his hands tied squarely behind his back. I don't think that's in the interest of the Federal Reserve; I don't think it's in the interest of the United States of America; and I don't think it's in the interest of the well being of the world economy. So, the threshold question I'm trying to address is: Are we in or are we out? And in my judgment we're far better off in.",211
-fomc-corpus,1990,"Let me pose this question to you. Look, I don't disagree with that, but I think the question is: What are we in for? Let's say that the yen was weak for whatever reason--I could name half a dozen reasons why the Japanese may have continuing problems--and the dollar does continue to strengthen against the yen. It could turn around tomorrow. But say it [weakens] and we already have $8 billion of yen reserves.",90
-fomc-corpus,1990,"The threshold question is: Are we in or out? You know where I come out on that. Then we get to the question of procedures, the question of tactics, the question of portfolios and so on. Now, as far as I'm concerned, I have some sympathy with what Ed Boehne said: that there probably is room for some more systematic procedures at the Committee level to try and help members' comfort levels with what we're doing. But even there, at the end of the day I think the Chairman in particular has to have an appropriate degree of flexibility. And I'm not quite sure, Ed, how you square the circle in terms of what I interpreted your suggestion to be. Now, whether it means there should be a more systematic review or reports after the fact of G-7 meetings and other things like that or whether--and I personally hope not--we have to go so far as having a directive that mirrors the domestic directive, I'm not sure. But if you're saying, Manley, that we ought to have some better mousetraps within a context along the broad lines that I think we're all talking about, I don't have any problem with that.",236
-fomc-corpus,1990,All I'm saying is that the Chairman should be able to go into a meeting like that with some demonstration to the Treasury and the G-7 of where we [unintelligible] acceptable path.,40
-fomc-corpus,1990,The problem with that is none of us can anticipate what the Chairman is going to run into at one of those meetings.,24
-fomc-corpus,1990,That's right.,3
-fomc-corpus,1990,You cannot anticipate that.,5
-fomc-corpus,1990,"I still want to finish this example just as an illustration of what we might be faced with. Let's just assume that the yen continues to weaken against the dollar and we already have $8 billion or more of yen reserves. And let's just say that the reasons the yen is weak are internal to the Japanese market: they're not confronting inflationary pressures; they have a weak government, without much credibility; their stock market is overvalued. I could name off a few others. Let's just say they have all those problems and yet they don't want to confront those problems. They want us to help them on the foreign exchange markets. What do we say if, let's say, the Treasury wants to go along with that?",143
-fomc-corpus,1990,"In those circumstances, you're painting a picture not unlike what was true in the United States here in the late 1970s. We were unable or unwilling to face up to our problems. Now, that's going to break at some point. But in those precise circumstances that you described, if you asked me whether I would be willing to support modest intervention in the context in which the dollar is rising in a major way, I'd say ""Sure."" I wouldn't have any trouble with that. I would have no illusions about what it was doing but if it was doing nothing more than keeping us in the ballgame in terms of having some influence on the fundamental ways that these problems ultimately were to kick out, I'd say that's a small price to pay.",149
-fomc-corpus,1990,"All right, you've answered that. But what if the G-7 wants a multilateral concerted effort to drive the dollar to lower levels?",29
-fomc-corpus,1990,I would not support that.,6
-fomc-corpus,1990,You've answered my questions. There's where you draw the lines.,12
-fomc-corpus,1990,"The G-7 in this respect is not the relevant vehicle. The relevant vehicle is the Treasury. In other words, to the extent that we get confronted with that issue it's not the Federal Reserve in the G-7 fighting this issue. We ought to be able to turn the Treasury on this because if we can't, then it's dubious what it is that we have, basically. As far as I'm concerned, our crucial issue is to try to affect what the Treasury's position is. The question that was raised before about what it is they are doing I think we ought to discuss in a minute. But I do have two names, which have been sitting on this piece of paper, who deserve to get called upon: Dick Syron and Tom Melzer. So, after you gentlemen--and Governor LaWare. After the three of you--",169
-fomc-corpus,1990,I withdraw.,3
-fomc-corpus,1990,"Okay, after the two of you get through, I would like to call on our colleagues to define as best they can what the Treasury's position is, and then let's confront that specific question because I think that's where the real issue lies.",48
-fomc-corpus,1990,"Following my esteemed colleague from Massachusetts, I withdraw.",10
-fomc-corpus,1990,I don't have a colleague from Missouri.,8
-fomc-corpus,1990,You have Roger [Guffey].,8
-fomc-corpus,1990,"You can withdraw now, Tom!",7
-fomc-corpus,1990,"Before I make some comments, I had a question for you, Jerry. Could you explain what you meant by the Treasury co-opting monetary policy if we weren't involved? How would that work?",39
-fomc-corpus,1990,"Well, I think the danger of the Treasury getting us into entangling alliances through G-7 type mechanisms escalates in a circumstance in which the rest of the world thinks we're on the sidelines. So, there's that danger first of all. Second, I do agree with the Chairman that any form of intervention can be sterilized. But I think Governor Johnson's problem and Lee Hoskins' problem--about the markets interpreting what the policy of the United States government is--gets greatly heightened in those circumstances. Even now, quite apart from the dollar situation, there's this drift in newspapers and elsewhere about the Administration wanting the Fed to ease. Now, that's enough of a problem in and of itself. But if that same problem surfaced in a context in which the markets knew that we had gone on vacation insofar as exchange rate policy is concerned and in effect had abdicated to the Treasury, I think those concerns would be amplified in a very significant way both internationally and domestically. So, while I agree that even the Treasury's intervention can be sterilized by us, I think the psychology of the marketplace changes in a way that is very detrimental to the interest of good monetary policy in a context in which we simply decide we're going on vacation.",249
-fomc-corpus,1990,"I see it as an uncertainty risk, but we still have all the cards, I think. But they're--",22
-fomc-corpus,1990,"Well, no. Remember that the people who own the decks, the Congress of the United States--",20
-fomc-corpus,1990,"No, I understand.",5
-fomc-corpus,1990,--will [use them] if we don't use them.,12
-fomc-corpus,1990,"You're talking about monetary policy cards, though.",9
-fomc-corpus,1990,Yes.,2
-fomc-corpus,1990,But even there the Congress still holds the deck.,10
-fomc-corpus,1990,"Yes, I think that's a good point.",9
-fomc-corpus,1990,The historical work shows that it wasn't until 1962 that we even got involved in intervention.,19
-fomc-corpus,1990,Neither one of us was involved [before 1962].,12
-fomc-corpus,1990,"[Unintelligible] for us to ease or tighten if we don't want to in the short run, but the uncertainty would be damaging. Let me just make my point. I don't disagree with the general idea that we ought to be involved in this and we can bring a constructive influence to the table. But I think we have to recognize that we have a finite institution here in terms of the resources and that there is a responsibility for these resources in a sense that goes beyond this room in terms of [Reserve Bank] boards of directors and--I don't want to make this a government [unintelligible]--but there's a basic institutional question in terms of how we commit our assets and what the risks are associated with those assets. Clearly, I hope we never get to the point where we have to draw that line in the sand. But there is, I think, a line in terms of what is reasonable with respect to an ultimate commitment of the Federal Reserve and its resources to foreign assets. Now, I think there's another area where we ought to have a better understanding of some of the rationale for this and that is: What is a prudent war chest to have on hand if we need some foreign currencies on hand? But that's a much smaller issue, in my mind. And finally, I don't know what the implications would be if the Treasury went elsewhere to finance [their currency holdings] and how it would be handled in a government accounting sense. But I'm a little troubled about the issue that some other people have mentioned--that if there is a large exchange loss and all of a sudden Congress and other people wake up to it then they will look to see how it happened. And if it happened not only because we intervened for our own account but--under this somewhat questionable authority on the theory that it's an open market purchase--we also warehoused roughly an equal amount for the Treasury in what could be painted as sort of a secret transaction, I think there's a--",399
-fomc-corpus,1990,They set the exchange rate.,6
-fomc-corpus,1990,That's their loss.,4
-fomc-corpus,1990,"No, I understand that, but--",8
-fomc-corpus,1990,It's the Treasury's loss.,6
-fomc-corpus,1990,"If somebody wanted to do a job on the Fed they would say that we really, through some sort of a subterfuge, financed this behind the back of the Congress and the taxpayers.",39
-fomc-corpus,1990,Absolutely.,2
-fomc-corpus,1990,And that puts us in a position now where the American people [could] have this huge exchange loss.,21
-fomc-corpus,1990,"Tom, I think you're reaching. I doubt that very much. Should there be a major problem with respect to loss in the budget from the exchange rate operations, the Treasury will get it all. I don't think we'll get anything on that because it's very clear where we have stood on this question. In fact, I think the best chance that we have to cap de facto some of this is to really raise this specter. I raised it early on when the numbers were $10 billion and didn't make very much progress because essentially we were making money. And so long as we're making money it's very difficult for us to get anybody's attention. I tell you: At these levels a 10 percent move in favor of the dollar is $4-1/2 billion and that's direct budget money. That is a program, a child care program or something like that. I know [unintelligible] and I said the only tool that I think we have at this stage that effectively could operate at this point is this issue. I don't think that existed back at $10 billion. It exists now and, frankly, I think that's an issue that we should get re-surfaced as soon as we can.",243
-fomc-corpus,1990,"But, Alan, you don't think the Treasury wants to be out there floating in the wind by themselves on this issue. They really want us in, don't you think?",34
-fomc-corpus,1990,"They want us in, but they don't want us in because of this.",15
-fomc-corpus,1990,All right.,3
-fomc-corpus,1990,Why do they want us in?,7
-fomc-corpus,1990,"Well, I was about to ask my two colleagues down at the end [of the table] about the motives of the Treasury Department.",27
-fomc-corpus,1990,"Could I just get in one final thought, which is simply that I don't view it as either we're in or we're out at this point. I don't think it's reasonable to say: ""That's it; we're not going to warehouse anymore."" But I think we really have to try to draw some ultimate line in the sand and then work very hard to get a different understanding with the Treasury. I know you've been trying to do that but I think with that ultimate [unintelligible] power that Manley and Wayne were referring to. To me it's not a theological issue. We're charged with running this institution prudently. I know volumes in the foreign exchange markets have gone up. But the fact of the matter is there are not enough resources in this central bank or all of them combined to stand in the way of those markets for very long, whether you think [intervention] works or doesn't work. And we have to understand what those limits are. In my opinion that's a very defensible position and one we have to take. In order to leave ourselves enough room and time to get it done, [we need] to get a better understanding with the Treasury on how this can be used and how it can't be used because I could very easily, on the course we've been on, see this going to $60 billion, $80 billion. Who knows?",273
-fomc-corpus,1990,"Well, unfortunately, we are missing Treasury representatives. So, I think we'll use the two proxies.",20
-fomc-corpus,1990,"Well, let me say one thing. Obviously, we have had difficulties from time to time with the Treasury, which have been referred to, and we have been absolutely unable to reach agreement in a particular situation. But in my view that has been an occasional thing and certainly not a continuous thing. It would not be right for us to think that the Treasury is totally unreasonable in their approach to these matters. In the circumstances that we were talking about here a few minutes ago, I don't think that they would have an interest in pouring billions into a yen operation when it was totally a Japanese domestic problem. I don't think they have any reason to do it and I don't think they would argue it. That's quite apart from all of the points that we would be making on it. In fact, if you look back over these past several weeks, Japanese intervention as I mentioned earlier was about which is a very substantial amount for that period. Our intervention was $1-1/2 billion, about half when we were involved and about half when the [Desk] had suspended [its participation for the Federal Reserve]. But even with regard to the Treasury's own views it seems to me that they have become much more diffident in terms of the quickness with which they want to jump in and participate in an intervention operation in the yen when they are beginning to wonder themselves about some of these questions that you've mentioned--and which are becoming more apparent as time goes by--that there is a big domestic element. It's just a question about the political structure of the country and the problems that they're running into. We've had in the past two or three weeks two meetings with the Japanese--one by the President with Mr. Kaifu and one by Secretary Brady with Mr. Hashimoto. They didn't come back after those meetings and say ""Let's go in and bash the market."" Quite the contrary. We did a modest amount after the Kaifu meetings, and I can understand the need to show some cooperation, given everything that had happened. But it was certainly not a major push or anything. After the Hashimoto meetings, we did none. We did zero, absolute zero. And so--",435
-fomc-corpus,1990,"And this I might add was [at the initiation] of the Treasury because Mr. Brady asked me basically: What should we do? I said the ideal thing to do is zero; however, if you feel for political reasons that some token amounts are required, we will be supportive of that but we would prefer zero. And he came off with zero.",71
-fomc-corpus,1990,But maybe the evidence is that by our being [reluctant]--,15
-fomc-corpus,1990,Made a difference.,4
-fomc-corpus,1990,--that Treasury won't do it.,7
-fomc-corpus,1990,I don't think so; I disagree with that.,10
-fomc-corpus,1990,I don't think it was based on a feeling of our being in or out. I don't think that he had an interest in doing it for some other reasons.,32
-fomc-corpus,1990,"Let me raise one thing. Before Mr. Brady went off to see Mr. Hashimoto, I spent about 20 minutes with him here on the way to the airport. And I went through what I thought was weakening the yen: namely, the effect of the stock market and the portfolio adjustment process that was pouring yen into the international financial markets--an activity we could scarcely stop no matter how hard we tried. I said that the problem was essentially a Japanese problem, that we would in a sense be [spitting into] the wind trying to stop any of this and that we would be perceived as ineffectual in endeavoring to stop any really major move. As best I can judge, he went off to Los Angeles and took that position because when he came back everything he told me was perfectly consistent with that. While it may well be that the lower echelon technical people are aware of what we're doing with respect to participating or not, during that 20 minute or half-hour meeting Brady didn't mention it once. And he has not mentioned it to me since then. I will tell you that he is not disinclined to scream and yell at us when he doesn't like what we're doing. So what I will tell you is that it's not in his consciousness. And unless I'm mistaken, unless Sam tells me I'm wrong on this issue, I'd say that essentially Sam's views and my views did penetrate--or maybe more importantly the real world penetrated--because they got the message. And that's--",302
-fomc-corpus,1990,"Just to give my answer to your question, I think one thing that needs to be recognized is--and I don't think the situation in 1989 was any different, quite frankly, from the situation in 1978 in this regard--that there is a desire if you're sitting where the Treasury is to think that you have another instrument, a very strong instrument. And in the more recent period that has been complemented by the sense that they have an additional dimension of that instrument that's associated with something called the G-7 process. They see that as an instrument of dealing with a trade problem, which could be viewed either in terms of short-run policy or in protectionist terms or a longer-run build up of liabilities [unintelligible] of the United States that will bankrupt our children or grandchildren.",161
-fomc-corpus,1990,You believe that?,4
-fomc-corpus,1990,That's what they say.,5
-fomc-corpus,1990,"In fact, the Chairman recently asked Charles [Dallara] why he was concerned and that was the answer he gave.",25
-fomc-corpus,1990,No. That's what scares me.,7
-fomc-corpus,1990,Yes.,2
-fomc-corpus,1990,"They see it as a device, I would argue, that gives them another degree of freedom. I don't want to get into a debate with President Corrigan about what the technical literature says on this matter, but the Treasury officials certainly are on the side that says that intervention is and has been and can be and should be--certainly should be--effective. And if it is over the longer term, then they have a tool to deal with the problem that they see, the perceived problem. I don't think it's any more complicated than that. We were in exactly the same situation in the 1978-79 period.",125
-fomc-corpus,1990,"Well, let me finish. I'll follow up on what Ted is saying. In all fairness, early on in the process when we had a current account deficit we also were concerned about the accumulation of assets, which ultimately would kill the value of the dollar. It turned out that the willingness on the part of the world to absorb claims against the United States without disgorging them was much larger than we had anticipated, which meant that we did not have to view the trade imbalance as the indispensable number one adjustment process that a number of us thought--not that we chose to but we would have thought that a couple of years ago.",126
-fomc-corpus,1990,"But proper monetary policy is behind the world's willingness to take our claims. If the Federal Reserve had not tightened and grown our money stock at a 4 percent rate for two years, the world would not have taken those claims.",45
-fomc-corpus,1990,"Well, that may be true; we don't know that for sure. But what we do know is that the original view that a lot of us, in fact almost all of us, had early on was not [unintelligible] to the most recent view of the Treasury. Now, we may say that the Treasury is behind the times in understanding the facts, and frankly I think they are; but they probably are changing at this stage. And our recognizing that, while the current account deficit is not something particularly desirable, we do have a little more time to adjust it and hopefully adjust it in nonexchange rate terms is a new view. It's a view that I don't think we have any reasonable expectation to be able to hold. We've all misjudged the propensity--",156
-fomc-corpus,1990,Not all.,3
-fomc-corpus,1990,"No, there were some--",6
-fomc-corpus,1990,Right. Some of us said that was not to be--,12
-fomc-corpus,1990,"I alter my statement to ""most."" I would say the most general view was that that was something we had no alternative to and, therefore, that the Treasury held that view up until recently is not something that's utterly bizarre. Now, we may think they are wrong; we may think they are late in adjusting that--",64
-fomc-corpus,1990,"It's one thing to hold that view, which I think is an acceptable view in terms of the theory, but it's another thing to try and force it to happen with exchange rate intervention. If you believe in theory that it's going to happen, not--",50
-fomc-corpus,1990,"Well, no. If you believe it's going to happen, you try to cut it off at $500 billion net debt exposure before it gets to a trillion and a half; that's the theory. The theory may be right or it may be wrong, but the [presumption] is what the argument essentially is all about.",65
-fomc-corpus,1990,"But if you believe that that equilibrium adjustment has to take place, you wouldn't believe that intervention can change that.",22
-fomc-corpus,1990,"Well, no. If you believe--and there are a lot of reputable economists who do--",19
-fomc-corpus,1990,I agree that there are. But reconcile for me this notion of the belief that the current account deficit requires some equilibrium adjustment and that intervention matters.,29
-fomc-corpus,1990,"Well, suppose the equilibrium adjustment comes into exchange rates--and that's a debatable question--and the intervention works?",23
-fomc-corpus,1990,Okay.,2
-fomc-corpus,1990,"And intervention drives the dollar down, closes the current account deficit, and chokes off the growth in net claims against the United States. It may be right and it may be wrong; I think it's wrong, but it's not a crazy idea.",49
-fomc-corpus,1990,But I'm saying: If you believe it's got to happen why would you intervene? Why don't--,19
-fomc-corpus,1990,"You'd intervene because if you believe it's going to happen and you want it to, you believe that if there's less net debt out there, the adjustment process is less disruptive.",35
-fomc-corpus,1990,Maybe I'm missing something. Is there some simple mathematics on the size of the debt that you're talking about?,21
-fomc-corpus,1990,"If it's a problem, it's a smaller problem. I think that's all the Chairman is saying.",19
-fomc-corpus,1990,That's right.,3
-fomc-corpus,1990,"If it's going to be a problem, it's either a $500 billion problem or a trillion dollar problem.",21
-fomc-corpus,1990,But the foreign exchange intervention works because it has monetary policy behind it.,14
-fomc-corpus,1990,It's not sterilized.,5
-fomc-corpus,1990,That's the other question.,5
-fomc-corpus,1990,The possibility that you're gaining time by the Treasury [intervening] without us is a paper floating in the wind. They can accomplish nothing.,29
-fomc-corpus,1990,"But, Ted, I still want my question answered about why the Treasury wants us involved.",18
-fomc-corpus,1990,That's a different question.,5
-fomc-corpus,1990,"Well, but that's the question. Why do they want us involved?",14
-fomc-corpus,1990,"I would agree with what I think Sam said here implicitly and what President Corrigan said earlier. The Treasury recognizes--all Treasuries, if I may put it that way, have recognized --that they need the stature of the Federal Reserve or the central bank behind them and that it is not in their interest to go to international meetings, whether it's G-7 or G-10 or G-22, at loggerheads with the central bank. The Japanese are proving that today.",97
-fomc-corpus,1990,That's right.,3
-fomc-corpus,1990,"So, therefore, they feel that they're better off keeping peace in the family; it's not any more complicated than that.",24
-fomc-corpus,1990,But that just tells me that that's the reason we should be worried. They want us involved because they want us to be partners in this crime.,29
-fomc-corpus,1990,"Was it a crime, to use your word, in the 1960s when we were partners with the Treasury in protecting our gold stock by getting back into this business and creating the swap network? Now, some people will read history and will say that it was a mistake of policy to--",59
-fomc-corpus,1990,Protect the gold stock.,5
-fomc-corpus,1990,The mistake was that they did not use monetary policy consistent with that.,14
-fomc-corpus,1990,The world was very different.,6
-fomc-corpus,1990,We didn't do that.,5
-fomc-corpus,1990,But I don't think that the motivations of the Treasury and ourselves [yesterday] in terms of working together to deal with what was perceived as a common problem or common threat are any different than their motivations to work with us today. I don't think they have any ulterior motives. It's not in their interest to do so.,64
-fomc-corpus,1990,"Can I try something? I think we have the sense of where everyone stands. Let me make a specific proposal and let's discuss that particular proposal. I think that we're all in agreement that we should stay involved. Well, let's say that's the sentiment of the vast majority; I don't want to speak for everybody. The vast majority think it's probably better that we stay involved than not. There is considerable discomfort on the part of this group about the policies and the policy orientations of the Treasury. We all are concerned about the accumulation of the System's [foreign currency balances]. I would suggest that in order to limit the size that the Treasury continuously endeavors to get involved in, in large part because they are driven by our counterparties on the other side--in Japan to a much lesser extent than Germany--that we endeavor to resurface in some detail the potential risks that are involved in holding this much in the way of foreign currency assets. I will take a position and try to [unintelligible]: First, the extent that it affects our balance sheet and our technical capabilities of functioning, including the issues that Ed was raising; second, and I think far more conclusively, the risks that both we and the Treasury are taking with respect to potential backlashes should significant losses occur as a consequence of the holdings. I don't know with absolute certainty that those arguments will prevail. I think they are already beginning to prevail but I cannot know for certain. Ultimately, the Treasury has the constitutional authority to run international exchange rate policy. If we endeavor to confront them on that issue in an immediate confrontational way, we will lose in the Congress. We almost have to lose in the Congress because any bill that the Treasury offers that moves to the Hill almost has to pass. I don't see how that can be avoided even amongst those on the Hill who are very sympathetic to us. So, we cannot win that battle in any way with which I am familiar. All I can suggest to you is that I will put my best efforts forward, including communication of the not unimportant content of the discussion of this group today, which I will convey in some detail to them. Having said that, I would like for us to agree in principle: (1) to respond favorably to a request for an expansion, say, up to $15 billion, in the warehousing facility; and (2) to raise the limit on the System's overall [open] position to $25 billion and agree that the System's participation with the Treasury is discretionary, but with the strong presumption that the System will join the Treasury as long as there is reasonable two-way communication about U.S. policy objectives and tactics in this area. If we can agree on that, I think we will find ourselves in the best position that the System can be in. So, I'd like to put that on the table as a recommendation.",579
-fomc-corpus,1990,"May I ask one question, though? [",9
-fomc-corpus,1990,] Sure.,3
-fomc-corpus,1990,"I would feel a lot more comfortable with that proposal if it had one extra provision, which would be related to what Jerry was saying about where we draw the [line]. What do we say if there were an effort for concerted intervention to put the dollar at lower levels? I'm not saying that would happen, but what do we say?",68
-fomc-corpus,1990,"I'd say we say ""no.""",7
-fomc-corpus,1990,Okay. I'm for it.,6
-fomc-corpus,1990,Could I just ask another question? What does the Treasury think we're doing at this meeting? Do they think we withdrew for technical reasons or do they know at this stage how fundamental these concerns are?,39
-fomc-corpus,1990,"Nothing has been communicated to me from Treasury. So as far as I'm concerned we have gotten no response. Sam, do you know?",27
-fomc-corpus,1990,"Well, they know that we are having this meeting. They know, obviously, that we suspended our participation as of March 2nd and they know that we are looking at these issues because of some of the concerns we have.",46
-fomc-corpus,1990,"But I think it's fair to say that the Treasury does not know--and no one else, I think, outside this room essentially knows--that we have gone through this exercise and that the timing was of a nature that these two practically came together. We did not think it was in the System's interest to communicate with the Treasury that we have planned all along to have a big pow-wow on all this and, therefore, we're holding up [our participation]. So, in that sense it was technical; it seemed appropriate under the circumstances, including the uncomfortableness that has been building over the last six months, to say that we would pull out and re-examine this and would come back and tell them where we [stand] after the meeting. At least that's my--",157
-fomc-corpus,1990,"Yes, they certainly don't think that there's any consideration being given to a drastic change in the--",19
-fomc-corpus,1990,"In view of that and of the fact that these are fairly substantial increases in the limits, it might help us--and I don't know whether you'd be prepared to do this or not--if you were to indicate that though we never say never this is pretty much an outside limit at this stage and that to go beyond this really would require some very careful consideration. CHAIRMAN GREENSPAN(?). Tom, I think it would be [unintelligible] because the one thing we don't want to do, if we want to maintain continued presence, is to threaten them. And that could be perceived as an ultimatum or a threat.",128
-fomc-corpus,1990,My point--,3
-fomc-corpus,1990,"Remember, that if push comes to shove, we will never prevail on this.",16
-fomc-corpus,1990,"Well, I didn't mean it to come across as a threat. But on the other hand, they may well view this as just that we had these limits and an FOMC meeting was coming up, so as a technical matter we approved new limits.",51
-fomc-corpus,1990,"Oh no, no.",5
-fomc-corpus,1990,I think that's what the Chairman--,7
-fomc-corpus,1990,That's what I'm going to communicate.,7
-fomc-corpus,1990,There's no danger of that happening.,7
-fomc-corpus,1990,[I'm going to communicate that] the absolute size of what we're beginning to deal with is now getting to very dangerous levels. It's beginning to have potential systemic effects in the Federal Reserve balance sheet; it's beginning to have potential political effects in the--,49
-fomc-corpus,1990,"Yes. And I'm not saying that you should say that's an outside limit. But to the extent you were comfortable with it, you could say something to the effect that you're really not sure what kind of a reaction you would get going back to [the Committee for more]. That's--",56
-fomc-corpus,1990,"Oh, I can say that.",7
-fomc-corpus,1990,That might be helpful.,5
-fomc-corpus,1990,I can raise it in a somewhat uncertain way.,10
-fomc-corpus,1990,"Mr. Chairman, could we vote on these separately? The Exchange Stabilization Fund, it seems to me, is a somewhat different question than the $25 billion.",33
-fomc-corpus,1990,We have to vote on these separately.,8
-fomc-corpus,1990,"In terms of Tom Melzer's question, just based on discussions that I know you've had and one that I've had, the Treasury--or at least the Secretary of the Treasury--knows full well about both the policy and philosophical views that are at this table. Now, they may not know that we have this big fat book in front of us. There's no danger--zero--that they would misconstrue what the Chairman would be saying to them; no danger of that at all.",99
-fomc-corpus,1990,"It might be very helpful in influencing their behavior if they thought in terms of having this much left and of operating within that limit. Having managed traders, I know how that works.",36
-fomc-corpus,1990,"Yes, but you were managing them. And the question is that some part of the law reads [unintelligible] you have a problem. Are there any other comments?",36
-fomc-corpus,1990,"Well, just to comment on your overall proposal: I think it's a reasonable proposal, given the realities of the world that we live in. It may not be as easy for everybody around the table to digest as they would like, but I think it's reasonable and I'm supportive of it.",57
-fomc-corpus,1990,"Mr. Chairman? I too would support your proposal. When I look at the alternatives, it's the only way to go. But a point of clarification: Governor Johnson posed a question about our response to concerted intervention and you said you would say ""no"" at some point. I didn't quite understand.",61
-fomc-corpus,1990,No concerted intervention to drive the dollar down. In other words--,14
-fomc-corpus,1990,As opposed to holding it down?,7
-fomc-corpus,1990,That's getting too subtle. They don't say that; they just say drive it down.,17
-fomc-corpus,1990,"What I'm really looking for, Mr. Chairman, is what are the consequences of saying ""no""? What does the Treasury do then?",27
-fomc-corpus,1990,"Well, I would say at that particular stage I think we would have a confrontation.",17
-fomc-corpus,1990,"Well, I would just make the point that--",10
-fomc-corpus,1990,I don't think they'd push it at that.,9
-fomc-corpus,1990,That's probably right.,4
-fomc-corpus,1990,I don't see why that needs confrontation.,8
-fomc-corpus,1990,"They probably wouldn't push it, but before we get to that point I think it's very important to think through the implications for this institution. I think you were implicitly saying, Mr. Chairman, what a confrontation can mean in terms of what they do on the Hill. We have enough trouble with people--",60
-fomc-corpus,1990,On that particular issue they would not bring it to the Hill because trashing your own currency is something you never want to go up to the Hill to get--,32
-fomc-corpus,1990,"Well, I agree.",5
-fomc-corpus,1990,That happens to be the one--,7
-fomc-corpus,1990,We could win that. Exactly.,7
-fomc-corpus,1990,That's the one issue that would not bother me.,10
-fomc-corpus,1990,"But in the broader context, what I'm getting at is that I think for the good of this institution we need to avoid a confrontation, as you said, that we probably can't win. There are people who want to put the Secretary of the Treasury on this Board, or did. You're going to have that throughout. And if we have that kind of problem with domestic policy, I think we can throw the foreign exchange thing in as well if we're in a no-win situation.",95
-fomc-corpus,1990,"Well, when I say we'll have a confrontation I don't mean a big one. We'll have a big dispute and I think the highly likely occurrence is that they would be unhappy but they would back down.",40
-fomc-corpus,1990,"Could I make just one other comment? This is more of a suggestion. We have been participants in these discussions about intervention but I don't remember that we've ever had any discussion like we've had today, which takes into account the Treasury's feelings about intervention or what's going on at the G-7. I raise the question: W6uld it be possible for us to have some systematic discussion at our meetings about the attitude of the Treasury and maybe some debriefings about G-7 [discussions] to the extent that that's appropriate?",107
-fomc-corpus,1990,I don't see why not.,6
-fomc-corpus,1990,I think it would be helpful to get the flavor--,11
-fomc-corpus,1990,The debriefing about the G-7 [meetings] I can promise you; the systematic [unintelligible] sensible list from the Treasury--,32
-fomc-corpus,1990,"But I can tell you we'll have hearings. There were hearings over this G-7 exercise last September when the foreign exchange reserves had built up after that. I had to testify right after David Mulford and Mulford was roasted in both houses of Congress over that very issue. So I can tell you on the political front, the Chairman is right: Taking the position of [not] debauching our currency is something that we can win every time.",91
-fomc-corpus,1990,"Mr. Chairman, I certainly don't want to put you in a position of in a sense not having the authority you need to go to the G-7 or to the Treasury to work [unintelligible]. From the very beginning on this I've wanted to take actions that strengthen your hand, not those that cause you to be disempowered. I think that's very important. I do believe there's another alternative. I believe the first question we need to face is the Exchange Stabilization Fund. That was created by an act of Congress. Is that true, Virgil? [MR. MATTINGLY(?)]. Yes.",126
-fomc-corpus,1990,"That's true, in 1934.",8
-fomc-corpus,1990,"All right. And in a sense there was an appropriation of money, maybe out of another fund?",21
-fomc-corpus,1990,"No, they used the profits from gold sales.",10
-fomc-corpus,1990,[Unintelligible] $4 billion or something?,12
-fomc-corpus,1990,Yes.,2
-fomc-corpus,1990,"Nevertheless, it was an act of Congress that made the funds available. But it's also true is it not, Virgil, that there is some question in regard [to the warehousing]? That is, our engaging in foreign exchange operations is, we believe, something that we have sound grounds on. As our attorney you can say we can go with that one. But you don't know whether we have sound grounds in regard to the warehousing, do you? You don't know in a court that we could win on that one, do you?",109
-fomc-corpus,1990,"Hopefully, it'll never get to a court. But--",11
-fomc-corpus,1990,"But I want to understand what the constitutional principles involved here are, or the law.",17
-fomc-corpus,1990,"As you know, Governor Angell, the Board's General Counsel in 1962 issued an opinion with respect to the System's authority to resume foreign exchange operations.",33
-fomc-corpus,1990,"No, I'm not talking about operations.",8
-fomc-corpus,1990,All three.,3
-fomc-corpus,1990,It was all three. Warehousing was part of that opinion; there's no question about that. That opinion justifies the warehousing of open market purchases of foreign exchange from the Treasury. For that purpose the Treasury is in the--,46
-fomc-corpus,1990,"No, I wasn't asking about the history. I'm asking you as our General Counsel. I don't know the answer to this question. I'm asking you as General Counsel: Is there a reasonable prospect that if it came to court, that we would win in court? Or is there some doubt on the warehousing?",62
-fomc-corpus,1990,"I don't think so. Again, that's been the Board's position for 28 years and the Congress has passed a statute which, in effect--I don't want to put too much emphasis on this--sanctions the System's practice. The statute authorizes the Federal Reserve to invest the proceeds of its foreign exchange operations in foreign government bonds and obligations. It specifically enacted [this legislation at the] request the Federal Reserve for that purpose. And it seems to me that that act by the Congress very much [strengthens] the System's position on this--",111
-fomc-corpus,1990,But it has never been tested before?,8
-fomc-corpus,1990,"It has never been tested, no.",8
-fomc-corpus,1990,"Well,--",2
-fomc-corpus,1990,A lot of things that we do have never been tested before.,13
-fomc-corpus,1990,"But my view goes beyond that to say that I believe the Constitution gives the Congress of the United States the power to appropriate. I believe for us to do warehousing, which in a sense removes from Congress this appropriation power, is at best a [legally] risky proposition. I know that I've voted in the past for increasing the warehousing authority, but I didn't know what I was doing in voting for such a proposition. But now that I know that in doing that it eliminates the necessity for the Treasury to go to the Congress to get an appropriation, I can't do that as a matter of principle until the courts tell me that we can. Now, the courts told me on another issue that I thought was an issue but--",149
-fomc-corpus,1990,"I don't want to play lawyer here but it does strike me that there was one act of Congress that created the Exchange Stabilization Fund and gave it some capital. Okay? And [that was] 50 some years ago and since then there have been no appropriations. In fact, the appropriations in the meantime have taken some of that capital away and given it to the IMF. It was used to pay for our IMF subscription. Subsequently, [Congress] did give it capital in the sense that they assigned the holdings of SDRs to the Exchange Stabilization Fund and at the same time, after a big tussle with the Federal Reserve, authorized the Exchange Stabilization Fund to be able to sell us SDR certificates. So, they already created one area in which they can expand the balance sheet of the Exchange Stabilization Fund.",166
-fomc-corpus,1990,On the SDR certificates?,5
-fomc-corpus,1990,And gold certificates.,4
-fomc-corpus,1990,And the gold certificates.,5
-fomc-corpus,1990,"But, you see, I'm worried that the Shadow Open Market Committee and others are waiting to pounce because when you hold currencies in the size that we hold them, at some point in time you're going to have some losses.",45
-fomc-corpus,1990,"Yes, but that seems to me--",8
-fomc-corpus,1990,"And I believe that in that atmosphere at some point in time this is apt to become a political issue. And if it becomes a political issue, I believe it is incumbent upon us to protect the Federal Reserve's position, which is not to go around the Congressional appropriation that other warehousing would tend to do.",63
-fomc-corpus,1990,"Yes, but the warehousing is public, the Shadow Open Market Committee notwithstanding. It was public at the time that they passed the Monetary Control Act. Just because the Shadow Open Market Committee can't look up in the policy record and see when the [amounts] have been changed, they have been changed. It's part of the policy actions of the Committee. In fact, it dates back 28 years. It strikes me that the notion that the warehousing is a flimsy legal reed just doesn't [wash]. A different question, which I think the Chairman has addressed, is the risk to the United States of these large balances; that is a separate issue. It certainly is one that the Treasury Secretary as the chief financial officer of the United States ought to address in that capacity. And indeed, the Chairman has said that he plans to raise that even more forcefully than he has in the past.",180
-fomc-corpus,1990,"But I do not believe that members of the Appropriations Committee understand this issue. I do not think that they know their appropriations power is being subverted by our warehousing arrangement. And I for one choose to stand in the more pure position which is to say if in doubt, let's ask the Treasury to go to the Congress. And when the Treasury goes to Congress and the Congress appropriates the funds or if the Congress passes a law saying [it is appropriate] for us to be warehousing them, then the Federal Reserve's risk is gone.",112
-fomc-corpus,1990,You know what the law will state: [unintelligible] the Treasury has full unquestioned authority to execute exchange rate decisions period.,28
-fomc-corpus,1990,"Well, but I don't see that the present arrangement really has proved superior to that. We either make some gain here, Mr. Chairman--because if that's what we wish to accomplish, we would never have ended up with a $45 billion fund if our view had been very persuasive.",57
-fomc-corpus,1990,Is your concern about the $45 billion the risk of loss or is it something other than that?,20
-fomc-corpus,1990,"Well, it goes beyond that. The fund has become so large that it does have a risk; in a sense it puts us in a position of what I would call speculating in foreign currencies because it goes beyond what it seems to me is the demonstrated need as a reserve currency country for us to have this facility [to conduct] our operations.",70
-fomc-corpus,1990,"There's a chart or table--I forget which--in one of the many studies here that indicates, for what it's worth, that our foreign currency balances relative to our sister central banks are really quite small.",41
-fomc-corpus,1990,"But, Jerry, we are the reserve currency of the world and that's quite different than other countries who [unintelligible] have to look to a dollar exchange standard and historically held--",38
-fomc-corpus,1990,"The current system really is not that. We were the reserve currency; the dollar is regarded as that in a certain sense, but the current monetary system is not built on the Bretton Woods system where the rest of the world is obligated to defend the dollar. That's not true anymore.",57
-fomc-corpus,1990,"Well, I prefer to take the cautious view.",10
-fomc-corpus,1990,President Hoskins.,4
-fomc-corpus,1990,"My views on this issue won't come as any surprise to you or to the Committee. I was concerned about the level of both our warehousing and also the Exchange Stabilization Fund when we hit $10 billion. It may come as a surprise to you that I do have a pragmatic bone in my body. I am willing to suggest that there is some level at which we should cooperate with Treasury and be involved. However, the level has gone beyond the bounds that I'm comfortable with in either case. I voiced the concerns when we went from $10 to $12 billion and from $12 to $15 billion and then from $15 to $20 billion or wherever it went along the way. And now we're going to $25 billion. And much the same arguments were made [each] time as to why we were going up and the necessity of going up. My concerns are that we'll be here for the October G-7 meeting and we'll be talking about a $45 billion Exchange Stabilization Fund limit. And it seems to me that where this [discussion] started, at least the way I interpreted Ed Boehne, it's the size of our involvement that attracts the attention and that we could probably get away with cooperating with the Treasury at a much lower dollar figure. So, my concerns are in a sense political concerns [unintelligible] surrounding the sheer size of what we're getting into and the likelihood of that unless we get lucky and the dollar goes the other way. I suppose that's not lucky for some people--sorry, Wayne--that we can wind it down and use that ""stuff,"" to use Gary's word. I just think it's a matter of facing up to it either now or later in terms of the crunch with Treasury. I prefer a Treasury/Fed Accord II now rather than down the road when in some sense we're already implicated in this process of, to use Wayne's words, appropriations around the Congress. And as Tom Melzer said, [we are charged with] responsible management of our assets and accountability to our directors. So, I am not in favor of increasing either one at all. I don't want to tie your hands unnecessarily. I suppose a way around it would be for some indication that we will wind this thing down over the course of the next year. But, given what you've said, I think the Treasury would find that totally unacceptable and threatening.",480
-fomc-corpus,1990,"Well, Lee, all I can tell you is that as best I can judge the ultimate legal authority is theirs and should they choose to implement it through the Congress they would probably effectively put us out of the operation. You may find that attractive; I frankly don't.",53
-fomc-corpus,1990,I don't find that attractive but what I'm saying is that we did the $45 or $50 billion and at what point do we draw the line?,30
-fomc-corpus,1990,"Well, let me say this. All I can do is employ my best efforts. I hope we don't get to that position. If we do, I think we reopen the issue. We'd have to rethink this whole thing. I think it's premature to do that. I hope at this particular stage that we will be able to implement the principles I suggested here to resolve this issue. But it's not wholly in our hands. It is conceivable that this may not resolve the issue; in that case we then will have to revisit it with different conclusions.",109
-fomc-corpus,1990,"Mr. Chairman, may I just ask Ted Truman a technical question on warehousing?",17
-fomc-corpus,1990,Sure.,2
-fomc-corpus,1990,"In the past has there normally been some sort of maturity associated with a warehousing instrument, similar to a swap agreement?",24
-fomc-corpus,1990,"Well, I can only speak for the last 15 years. When you first did this operation in the late '70s, in 1976-77 in connection with sterling balances, in the second and third sterling balances agreement there was a maturity on the arrangement. When we came to the point where the Carter bonds had been issued and the issue was how the Treasury was going to hold those proceeds, which initially were being held pending intervention and later were held pending repayment since the Carter bonds were 3 or 3-1/2 year notes, the Committee eliminated that restriction. So at the moment there is not that kind of restriction. Speaking only from what I've heard in this discussion one component of resuming the discussions with the Treasury would be the question of dealing with the warehousing sooner rather than later. And presumably if that were the desire of the Committee, warehousing of foreign currencies would be dealt with before other foreign currencies would be dealt with. So, if you used foreign exchange--as has been done in the past--to pay our next increase of IMF quotas, it would come out of the warehouse if that were the choice of the Treasury. And we would certainly have the grounds on which to insist on it. We even have the grounds to insist that they redeem SDR certificates; that's written into the legislation. We can't force them but we do have the grounds because there is the legislative history on that point. So, it's the same type of issue. But at the moment there is no maturity. I'm not even sure it makes any sense to have any maturity unless you wanted to approach the Treasury and say ""Okay, $45 billion is too much and we want to get rid of $10 billion over the next 10 months."" We could no doubt work out a program in which we did that. I'm not sure it would make much sense, but we could do that.",380
-fomc-corpus,1990,I was just asking what the history was.,9
-fomc-corpus,1990,It was taken away when it didn't make sense in the context of the Carter bonds.,17
-fomc-corpus,1990,"Just one more technical question, I guess to Peter.",11
-fomc-corpus,1990,Go ahead.,3
-fomc-corpus,1990,"If we increase the warehousing limit to $25 billion and we use it, what do you see in terms of collateral problems?",26
-fomc-corpus,1990,"Well, that would pretty clearly put us beyond our ability to collateralize except by looking to the foreign currency, if we were up by that.",29
-fomc-corpus,1990,Except by what?,4
-fomc-corpus,1990,We'd collateralize with foreign currency.,8
-fomc-corpus,1990,By looking to the foreign currency for use in the collateralization because even at present levels we see--,20
-fomc-corpus,1990,The risk.,3
-fomc-corpus,1990,"--the risk later this year of coming down to, say, the $3 to $5 billion area of margin.",24
-fomc-corpus,1990,"So you could argue, if you wanted to raise this general question with Congress in a nonconfrontational way, that that in one sense does give you the basis to raise this question. The Chairman of the Board made this promise in 19--whatever it was--",54
-fomc-corpus,1990,1982.,3
-fomc-corpus,1990,"--in 1982 in connection with [unintelligible]. The circumstances have changed; these are why the circumstances have changed; and this is what we're now going to do. That invites the Congress to decide whether they're serious about the collateral issue, which was not a matter of law but rather a matter of procedure, including Governor Angell's warehousing.",73
-fomc-corpus,1990,And yet we would know--,6
-fomc-corpus,1990,"We could also use it to argue that we know right now that we're going to exceed our collateral in terms of the securities, and we will be going ahead and using collateral in the near future and that may or may not be acceptable to Congress, so perhaps we should not do that.",57
-fomc-corpus,1990,"How far would the $25 billion put us over, Peter?",13
-fomc-corpus,1990,"Right now as we look ahead for the rest of this year, if we don't make use of the foreign currency holdings for collateralization of the currency, as I said, we would come down to a margin of $3 to $5 billion.",49
-fomc-corpus,1990,By when would you say?,6
-fomc-corpus,1990,"Well, there are a couple of low points. We [project] one low point in late May, another in July, and another in October; it depends on the ups and downs of the Treasury balances and reserve requirements.",45
-fomc-corpus,1990,"Well, if we are required to go up and essentially reverse the Board's official position, it will surface some of these issues, which would not be all bad.",33
-fomc-corpus,1990,"Yes, there's a lot of good to say about it,",12
-fomc-corpus,1990,"Well, yes. But if we're going to surface them, why don't we surface them before we do it? Why are we waiting until it's a fait accompli before we surface them?",37
-fomc-corpus,1990,Why wouldn't we want to wait until we reach the point where there's a reasonable chance that we're going to have--?,23
-fomc-corpus,1990,Because Congress may tell us that it was completely inappropriate to do that. At this point we're asking for counsel and advice.,24
-fomc-corpus,1990,"If we have a reasonable chance, it's going to be on the Exchange Stabilization Fund in the immediate future. If we're going to ask about it, we better ask them now.",36
-fomc-corpus,1990,"No, it's quite possible that we will have agreed on raising these limits and that this may be close to the peak. I just don't rule that out; that is a possibility. And I'd feel more comfortable up on the Hill if we were up against some real problems with respect to foreign currency and they asked how this was happening rather than raise a contingent type of thing.",74
-fomc-corpus,1990,How are warehoused currencies treated? Is that a Treasury obligation or is it a foreign currency?,20
-fomc-corpus,1990,"Well, it's on our balance sheets.",8
-fomc-corpus,1990,It's on our balance sheet as foreign currency.,9
-fomc-corpus,1990,Right.,2
-fomc-corpus,1990,"Well, in answering that question on the $25 billion did you presume that it jumped to $15 billion as well or is that--?",28
-fomc-corpus,1990,It doesn't matter which way it's done the way we do it.,13
-fomc-corpus,1990,"Now we're claiming that is an open market operation, as I understand it. Is that correct?",19
-fomc-corpus,1990,Collateralized [RP].,5
-fomc-corpus,1990,"Is that what we're claiming? So what we're claiming is that the Exchange Stabilization Fund is a foreign exchange operation. Now, do we do that on Treasuries? When we buy do we buy new Treasury issues from the Treasury or do we buy them from--?",54
-fomc-corpus,1990,Only in exchange for maturing issues.,8
-fomc-corpus,1990,"In exchange for maturing issues. But we never buy new Treasury issues directly because we're not sure we have the power to do that kind of an open market operation, is that correct?",37
-fomc-corpus,1990,We definitely don't have that power.,7
-fomc-corpus,1990,We don't have the power.,6
-fomc-corpus,1990,"Okay. So, we don't have the power to do that open market operation and now everyone tells me we do have the power to do this operation because we've done it in the past and nobody's caught us on it?",44
-fomc-corpus,1990,It's not a Treasury issue.,6
-fomc-corpus,1990,"See, that's the answer: they're not called Treasuries!",13
-fomc-corpus,1990,But it's not open market operations.,7
-fomc-corpus,1990,"Yes, but the principle is the same, so I think you're right.",15
-fomc-corpus,1990,[Unintelligible.],6
-fomc-corpus,1990,"Well, I think all of this business with the collateral is really rather fortuitous because we agreed that if there were a confrontation between the Treasury and the Fed that the Treasury would win. In fact, we promised the Congress in the '70s that we would be supporting it.",57
-fomc-corpus,1990,Yes.,2
-fomc-corpus,1990,"[We] also promised the Congress that before we use foreign exchange as collateral, we'll let them know. And at the right moment we'll let them know and it seems to me that we will air the whole issue. We've kept our word on both and now we can air it and it's aired in a way that's not confrontational. If we get turned down, that's not all bad.",77
-fomc-corpus,1990,"Well, Ed, I'm not seeking a confrontation with the Treasury. I simply want the Treasury to go to the Congress and get the appropriation power. I don't agree with the rest of you who have opinions about the political outcome as to what the political outcome will be.",54
-fomc-corpus,1990,"My concern about that, Wayne, would be that the Treasury won't do that.",16
-fomc-corpus,1990,Of course they won't do that.,7
-fomc-corpus,1990,"They won't do that and, in effect, that gets us to the same point. And we don't have to try to get them to do something they're not going to do anyway.",36
-fomc-corpus,1990,"You may not seek confrontation with that, but it will create confrontation. That's very unfortunate since we--",20
-fomc-corpus,1990,"Well, the Treasury is not going to go to Congress over this issue. I feel certain they will not.",22
-fomc-corpus,1990,"The thought of holding Argentine australs as collateral against the dollar--well, who can say? Eventually, one day it might be--",27
-fomc-corpus,1990,We can [unintelligible] it now.,11
-fomc-corpus,1990,But who knows in 10 years.,8
-fomc-corpus,1990,The Committee has to take a separate vote to warehouse Argentine australs.,14
-fomc-corpus,1990,"I now ask that Sam consider [formulating] two appropriate motions that effectively would read in principle: (1) that should a question occur we would expand the warehousing limit up to $15 billion; and (2) that we would raise the System's open position to fund that. The third issue, which is basically best efforts on my part, I assume does not require a vote. Is that correct?",83
-fomc-corpus,1990,"It does not require a vote, but it's the most important part.",14
-fomc-corpus,1990,It's the most important part of--,7
-fomc-corpus,1990,"What I meant by that is: Everyone is in favor, right?",14
-fomc-corpus,1990,"Well, Mr. Chairman, to go ahead with the unimportant parts of the resolution, I would recommend that the authorization for the System's [overall open position in foreign currency] balances be increased from the present level of $21 billion to $25 billion effective immediately, because we do have interest earnings that come in all the time on these balances.",70
-fomc-corpus,1990,"Would a member of the Committee make that motion, please?",12
-fomc-corpus,1990,I will make the motion.,6
-fomc-corpus,1990,Is there a second?,5
-fomc-corpus,1990,Second.,2
-fomc-corpus,1990,"All in favor say ""aye."" SEVERAL. Aye.",14
-fomc-corpus,1990,Opposed?,3
-fomc-corpus,1990,Nay.,3
-fomc-corpus,1990,No.,2
-fomc-corpus,1990,We have two nays?,6
-fomc-corpus,1990,That's all I counted.,5
-fomc-corpus,1990,Three.,2
-fomc-corpus,1990,Three. Do we want a roll call on this?,11
-fomc-corpus,1990,Yes.,2
-fomc-corpus,1990,I think so. Let's take a roll call.,10
-fomc-corpus,1990,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell No President Boehne Yes President Boykin Yes President Hoskins No Governor Johnson Yes Governor Kelley Yes Governor LaWare No Governor Seger Yes President Stern Yes,44
-fomc-corpus,1990,Okay. Would you now formulate--,7
-fomc-corpus,1990,"Similarly, Mr. Chairman, I would request that the Committee express an agreement in principle to accept a further request from the Treasury for additional warehousing authority and to raise the present limit on that from $10 billion to $15 billion.",47
-fomc-corpus,1990,It's up to them; they may ask for less.,11
-fomc-corpus,1990,"Yes. That's the upper limit, which would be raised from the present $10 billion, of which $9 billion has been drawn, to $15 billion.",32
-fomc-corpus,1990,Will a member--,4
-fomc-corpus,1990,An extension of that limit--,6
-fomc-corpus,1990,"Will a Committee member make that motion, please?",10
-fomc-corpus,1990,I'll move it.,4
-fomc-corpus,1990,Is there a second?,5
-fomc-corpus,1990,Second.,2
-fomc-corpus,1990,Call the roll.,4
-fomc-corpus,1990,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell No President Boehne Yes President Boykin Yes President Hoskins No Governor Johnson Yes Governor Kelley Yes Governor LaWare No Governor Seger Yes President Stern Yes,44
-fomc-corpus,1990,Three [dissents] on each.,9
-fomc-corpus,1990,Yes.,2
-fomc-corpus,1990,"I can't believe this, but this brings us to the end of this meeting! However,--",18
-fomc-corpus,1990,I have a question.,5
-fomc-corpus,1990,You do?,3
-fomc-corpus,1990,We did the first one; there are three other [questions] on the [the list].,19
-fomc-corpus,1990,Four of them; you didn't read page 2.,11
-fomc-corpus,1990,There are a number of issues that Ted raised that I didn't think we addressed. Are we going to come back to them at some other date or--?,31
-fomc-corpus,1990,I guess we could. There's no reason we can't do it at luncheon. Would the Committee want to continue that at the luncheon of the next meeting?,30
-fomc-corpus,1990,"With all due respect, I think we've milked this one for a while. I think we have [addressed] those other questions implicitly. We talked about what the implications are for domestic policy; you've already agreed to keep us informed about G-7 meetings; and there's the other one--",59
-fomc-corpus,1990,Let me suggest this. I will at the luncheon of the next meeting report on the G-7 meeting. And if you wish to bring up those collateral issues at that time--,36
-fomc-corpus,1990,I don't think we have a luncheon.,8
-fomc-corpus,1990,"If I may be allowed to advise you in public, Mr. Chairman: I would suggest that since the [G-7] meeting is going to be held very shortly, on April 7, if there is anything even remotely substantive, you might want to have a telephone conference at least to report on the G-7 meeting.",67
-fomc-corpus,1990,"Well, no. Suppose it's nonsubstantive?",11
-fomc-corpus,1990,We'll have Norm call everybody up and say there is nothing [substantive to report].,18
-fomc-corpus,1990,"Why don't we leave that issue open? If there's a substantive question, we'll have a telephone conference; if not, I will try to review it at the next luncheon. We can come in and have lunch first.",43
-fomc-corpus,1990,Will someone move approval of the minutes of the March 27th meeting?,15
-fomc-corpus,1990,I'll move them.,4
-fomc-corpus,1990,Second.,2
-fomc-corpus,1990,"Without objection. Mr. Cross, would you bring us up to date on Desk operations?",18
-fomc-corpus,1990,[Statement--see Appendix.],6
-fomc-corpus,1990,"Questions for Mr. Cross? If there are no questions, would somebody like to move the ratification of his transactions since the last meeting?",28
-fomc-corpus,1990,So moved.,3
-fomc-corpus,1990,Second.,2
-fomc-corpus,1990,Without objection. Mr. Sternlight.,8
-fomc-corpus,1990,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1990,Are there any questions for Mr. Sternlight?,10
-fomc-corpus,1990,"Peter, in March I asked about collateral to back the Federal Reserve notes. You thought there might be a problem in May, but I guess the Treasury balance situation solved that. Or do you see a problem coming up soon?",45
-fomc-corpus,1990,We had thought that there could be a problem in May. Our subsequent reviews suggest that it doesn't look as tight for the balance of this year as we had thought a month ago. That's not to say that the problem may not still be there; but it's not going to be as severe for the rest of this year as I might have thought some 6 or 8 weeks ago.,77
-fomc-corpus,1990,The change in sentiment in the market was an extraordinary swing in mood. Yet I found that in the previous couple of months or so the national statistics that we were getting didn't seem to coincide with what I was hearing from the business community. The current numbers seem to me to be more consistent with what I hear from the business community. My question is: Is the marketplace so dependent on these published statistics or is it also relying some on the kinds of ad hoc information that it gets from the business community generally? What a difference one number made! It just struck me as extraordinary.,115
-fomc-corpus,1990,There was an enormous change in sentiment just about the time of that one set of employment numbers in early May. I think more went into it than just that number. It wasn't just any single number; it was the unemployment rate as well as the flat report on nonfarm payrolls and information that looked more comforting on employment cost measures all wrapped up together in that.,73
-fomc-corpus,1990,"Part of the issue is what they think the Committee is looking at, President Boehne. They are trying to guess what the Fed is going to do and they think that the Committee pays a lot of attention to those numbers.",46
-fomc-corpus,1990,"To add another two cents worth: My own impression from talking to people who are with dealer firms and looking for some insight into what the business community is saying is that the traders and even the economists in many of these firms don't have all that much exposure to anecdotal evidence directly from the business community. I have been disappointed regarding the paucity of such information, at least among economists in banks and industrial firms.",82
-fomc-corpus,1990,"Further questions? If not, would somebody like to move approval of the actions of the Desk?",19
-fomc-corpus,1990,I'll move it.,4
-fomc-corpus,1990,Second.,2
-fomc-corpus,1990,Without objection. Mr. Prell.,8
-fomc-corpus,1990,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1990,[Pause.] There must be questions!,8
-fomc-corpus,1990,"I have a couple of questions. On page 4 in the Greenbook, you have laid out the monetary policy assumptions about bringing inflation down over the next couple of years. We have an environment in which there is not very much support--certainly no national support--for this kind of firming in monetary policy, as best I can tell. But even besides that, going all the way out to the end of 1991 we have a 6-1/4 percent unemployment rate and then that slack continues into 1992. You don't indicate what the unemployment rate is in 1992. I presume it goes up another half point or three-quarters of a point?",138
-fomc-corpus,1990,"No, we're thinking it's within a small fraction of 6-1/4 percent.",18
-fomc-corpus,1990,"But even after we have done all of that [firming], we have not done much more than keep inflation from accelerating, at least in terms of the numbers that you have. There is some deceleration, but inflation is still largely in the 4 to 5 percent area that we have been talking about. Now, presumably, if you carry this [forecast] out to '93, '94, and '95, you begin to get some results. But to me that calls into question the whole logic behind this approach that we can gradually squeeze inflation out, as desirable as that goal is. Somehow this paragraph brought home (1) the difficulty of it, and (2) how unreasonable it may be even to think that we can pursue something like this in the kind of world that we live in. I don't know if that's a question or a comment, but I guess I'd like you to disagree with me. My second question has to do with this credit crunch phenomenon. We've all looked into it; we've put together these anecdotal reports, and every report suggests that there's less of a credit crunch than is talked about popularly in the general press. I'm just wondering if you have any insights as to why we have this dichotomy between what is said loosely and what we find when we try to zero in on the extent of it. It doesn't seem to be the same problem that is often reported.",282
-fomc-corpus,1990,"Well, on the latter question, I'll offer a little anecdotal information on anecdotes. I'll repeat one conversation I had with Bill Dunkelberg, who conducts the survey for the National Federation of Independent Business. That survey has shown very mild, if any, changes in the credit picture for that constituency. He related to me that he had been contacted by The Wall Street Journal before they published their lead story on the credit crunch and he had told them that. If you look at that story, he wasn't quoted. The reporter obviously thought it would be better to discuss the negative news than what Dunkelberg's survey suggested. That isn't to say the Dunkelberg survey is absolutely reliable. But I think one finds that sort of bad news orientation in the press reports. One also needs to look carefully at the geographic detail and the sectoral detail that is being addressed. Everything we have seen suggests that in the real estate area, particularly the construction side of the market as opposed to permanent financing of residential real estate, there has been a substantial change in the tenor of credit conditions. And I don't see any conflict with the anecdotal information in that area. As for small businesses, the senior loan officers opinion survey does suggest that there has been some tightening. It hasn't been just recently; it has been going on for the last year or so perhaps. And it's affecting small and medium size businesses, particularly in [unintelligible]. It isn't showing up in rates; it isn't showing up as businesses not having any access to credit, at least not in terms of figures [unintelligible] cut back existing customers; but it's showing up in the standards that are being applied and the collateral that is being used. The question is: What does that all amount to in the end? In terms of GNP we think that the only significant effects are going to be in the construction area. We would have had a marked weakening anyway in that sector, particularly in the commercial area, because of the overbuilding. On the inflation front, I don't want to repeat the entire presentation that we gave a few months ago, but this is basically consistent with that. In fact, I'd say this could be regarded as a relatively favorable short-run sort of Phillips curve trade-off. We are getting a lot of disinflation for what we perceive to be the gap relative to the natural rate. It does presume that history is telling us that we can get there gradually, but the effects are not linear. In a sense, you have to get sharp absolute declines in activity in order to get these effects, but we can do it gradually over a period of time. I don't think we have historical episodes to go back to and say ""Yes, we had periods where the economy moved slowly, the unemployment rate was perhaps slightly above the full-employment rate, and we got a gradual diminution of the rate of inflation."" But the evidence that exists suggests that we ought to be able to get some progress over time. As I hinted here and said in my briefing, we'd like people to perceive that it's headed in that direction and that the Fed is persisting--accepting whatever slack there is, presumably leading to some rise in the unemployment rate to 6, 6-1/4 percent. Frankly, people thought that was looking pretty good coming from where we were. Maybe we will get to see some of that developing and the tradeoff will look better.",690
-fomc-corpus,1990,Governor Johnson.,3
-fomc-corpus,1990,Did the recent numbers change your outlook any? I gather that you put a lot of this together before the most recent numbers.,25
-fomc-corpus,1990,The employment numbers led us to show a weaker second quarter than we might have otherwise. We didn't feel comfortable pushing the numbers much further than this. I must say that there certainly are arguments--looking at what's going on in the automobile sector--for a larger second-quarter number. But this is something we feel comfortable with.,64
-fomc-corpus,1990,The other question was on the budget. You implied that strong action on the budget would restrict the economy. Is that assuming that what goes with it is a drop in real interest rates? I just wonder: Wouldn't that be a source of stimulus to some degree too? How are you coming to this restraint view?,63
-fomc-corpus,1990,"Well, this is a complicated question, obviously. Part of the issue would be whether this was just a one-shot effort to hit the Gramm-Rudman target for this coming fiscal year or whether it was something that would dramatically change the outlook for the next series of years and greatly change expectations. When you open up that latter door you're somewhat at sea in terms of an econometric model. One can come up with rather interesting results with that, such as long-term rates going down appreciably in anticipation of less pressure on credit markets throughout the coming years. But if that opened the door to a great deal of investment activity and it happened very quickly, we could even in the extreme get a net increase in aggregate demand in the short run; and short rates might even have to rise some in response to that to keep things on a desirable path. Falling short of that, if the Federal Reserve is accommodative in terms of trying to hold real GNP close to the path it would otherwise have been on, I think the fiscal shock has to be one that tends to lower interest rates. The degree would depend in part on how much forward expectation there was and how much bond yields move as well as short-term rates.",243
-fomc-corpus,1990,Governor Angell.,4
-fomc-corpus,1990,"Mike, if you pursued a gradual reduction in the rate of inflation, it's quite likely, isn't it, that the noise may at times obscure any trend of progress? That's more apt to happen in a gradual reduction approach than if there were a significant recession.",51
-fomc-corpus,1990,"Well, in addition to that--",7
-fomc-corpus,1990,"So, even though in some ways this may not give the Committee a sense of a lot of achievement, you think it would be different than that if we did not pursue this course?",37
-fomc-corpus,1990,"Correct. Our suspicion is that if you hold to the current money market conditions, economic activity will gradually pick up. You will not see the unemployment rate rise much, if at all, over the coming year or so. And since we believe that right now the pressures are such that the tendencies for inflation point up, we would make a new course and head in that direction. So, instead of heading south to 4 percent a couple of years from now, we feel the risk is that inflation would be heading north to 5 percent. That's a significant difference and I'd hate to make it more precise than that. But as we've said, we felt there was noise affecting the reading of the trends [unintelligible] a variety of special factors: the surprising strength of the dollar earlier in the year and so on. It's always difficult to read these [unintelligible]. So, that's the basic thrust of our assessment at this point.",190
-fomc-corpus,1990,"Well, I appreciate very much your laying out the policy options for us that you have.",18
-fomc-corpus,1990,"My point was somewhat similar to Governor Angell's. The sentence on page I-3 [of the Greenbook] says: ""The recent data reinforced the view long embodied in the staff forecast that restoration of a disinflationary trend is unlikely at current levels of resource utilization."" The implication is that if we stay where we are for a very long time, there is only a very small chance of restoring the disinflationary trend and, in fact, it might even produce an increase in inflationary pressures. That's the implication.",108
-fomc-corpus,1990,"That's what we are saying. Now, there's a second part to this and that is: Will the Federal Reserve obviously let financial conditions go, maintaining the historic growth path of resource utilization numbers where they are? And that's the second projection. One is the implication of the resource utilization level; the second is about what financial conditions are compatible with resource utilization levels. I guess I'd say I'm a little less sure about the second than I am about the first and there's a good deal of uncertainty on the first.",100
-fomc-corpus,1990,"One get's the general feeling, though, that the public feels that if we were to stay where we are we would have a continuation of growth rates of around 2 percent and a gradual [reduction of inflation]. What you're basically saying is that if we stay where we are, growth rates are likely to pick up and we will not be able to restore [unintelligible].",78
-fomc-corpus,1990,"My sense of the consensus of business economists is that the economy probably is going to run with 2, 2-1/2 percent growth going out the next year to 18 months and inflation is going to remain roughly in the 4-1/2, 4-3/4, 5 percent zone.",66
-fomc-corpus,1990,But they would not be assuming much in the way of interest rate pressures?,15
-fomc-corpus,1990,"No. My sense is that they probably are expecting very little [change in] inflation, maybe some slowdown--",22
-fomc-corpus,1990,That's my point.,4
-fomc-corpus,1990,President Hoskins.,4
-fomc-corpus,1990,"I have two questions, Mike. One has to do with an earlier period--1988 and early 1989--when we raised the funds rate 300 basis points, I think. I'd like you to contrast how you view that tradeoff now. We raised interest rates a lot and not a lot happened. You have built into your forecast an increase of 125 basis points or so and are expecting to get some bang for that at the end of 1991. I'd like you to compare those two periods if you can.",107
-fomc-corpus,1990,Let me just go back to a factual matter. What we have built in here is a rise in the funds rate of about 200 basis points but then we have it coming off [some] in the latter half of next year as pressures begin to abate.,53
-fomc-corpus,1990,"Okay, that narrows the tradeoff down a little. The point I'm making here is that we acted fairly aggressively at one point in time and did not get much, as viewed by some people, in terms of [lower inflation] rates. We did not necessarily get disastrous results either in terms of slowing growth, but also we didn't gain a lot. We kept the inflation rate roughly where it was. I guess it could have gotten a lot worse had we not done something. I don't know if you see any difference between those two periods that would enlighten us now--perhaps not. The second question has to do with the deficit issue. If you argue that we could get some benefit from a lower deficit in the future, and if you've revised your 1990 deficit up, then couldn't you argue that we might need to tighten to take account of that now instead of in the future?",179
-fomc-corpus,1990,"Well, a large part of that revision is RTC-related and we don't think that's a real--",19
-fomc-corpus,1990,It's not real debt!,5
-fomc-corpus,1990,"Our measure of this shows a shade less restraint in the current fiscal year than it did previously and that's mainly a reflection of our reading of the information on what occurs on the tax side. It does look like tax revenues are running a bit weaker than we had anticipated. What seems to have come out of tax reform, reading a lot into the 1989 experience, is that revenue falls a bit relative to what we previously had anticipated in our forecast. So, we do have a little less restraint but it's a marginal difference, although that's [unintelligible] factor. Looking back at the 1988-1989 experience, there are many things that are different; and one has to make very difficult judgments about the timing of various effects. At that point we were coming off a dollar depreciation that was causing considerable improvement in our export growth. Exports were growing much more strongly than they are now. That probably worked against that restraint. We didn't have, perhaps, quite the debacle we think we have now on the construction side, though office building has been going down significantly for a while now and it wasn't at that point. Perhaps we are closer to demographic requirements in housing construction [unintelligible] some cushion here on interest rate effects. The levels are somewhat different. I think there are parallels in the two periods, but there are differences; and I have a very hard time drawing a particular lesson. Our sense is, as you said, that we did contain the rate of inflation. Whether that slowing in the economy and leveling of the unemployment rate that occurred was attributable to the rise in interest rates or to interest rates and other factors is difficult to say.",336
-fomc-corpus,1990,Governor Seger.,4
-fomc-corpus,1990,"I hate to sound like Ginny Dimwit today, but would you walk me through one more time the sectors that in the next two to four quarters would be taking off, or would be much stronger, with a status quo monetary policy? In other words, exactly which sectors are the ones that we have to restrain? I'm having a problem finding such sectors out there.",75
-fomc-corpus,1990,"I wasn't trying to characterize the current money market conditions alternative as one which led to a take off, but merely a gravitation back to the recent trend of potential output--a sort of natural tendency in the economy in any event unless there are countervailing forces. But in the short run we think that we could do a little better due to some pickup in inventory accumulation relative to the significant swing we have seen in a negative direction in inventories. And without that, the final demands in the economy should show through ultimately to output growth. If we didn't get the rise in interest rates, we would have in our forecast a stronger housing sector than we have. If we didn't have the restraint, we would expect investment to be stronger. So, if we start removing the restraint, the interest sensitive sectors would look a bit stronger across the board and we'd probably add on top of that some leaning toward a moderate, or higher than we have, level of inventory accumulation. And if the dollar were to be weaker than we have in there--",206
-fomc-corpus,1990,"I would just as soon see us export more, but that's a personal bias.",16
-fomc-corpus,1990,"Then, I'd begin looking for the fiscal policy--",10
-fomc-corpus,1990,Right.,2
-fomc-corpus,1990,That's the [unintelligible] shift.,10
-fomc-corpus,1990,"What amount of attention are you paying, then, to the availability of credit in the housing situation? I just hear so often that it's not the price of money or the price of credit as much as it is strictly unavailability.",46
-fomc-corpus,1990,"Well, as I suggested, the commercial real estate market may be more affected by this. We have built into this [forecast] some effect, showing the availability of credit to builders at a reduced level in the residential sector. I wouldn't say that it's large; it's not hundreds of thousands of starts in this forecast, but there is some mild effect. We think that would abate over time as builders make connections with new lenders and as lenders find ways of participating loans and some other arrangements. Over the next year or so we think we probably will see some abatement of these problems.",117
-fomc-corpus,1990,Thank you. I hope you're right.,8
-fomc-corpus,1990,Further questions for Mr. Prell?,8
-fomc-corpus,1990,"Mike, just a technical question: The inventory situation seems to be depending on how one looks at it. Are we going through any sort of structural change over time? How much weight would you put on structural change toward just-in-time inventories and that sort of thing? Or are you thinking it's still a pretty accurate reflector of [unintelligible]? My own view of inventories is that we're likely to see a bounceback. But do you think there's an argument against that and that [businesses are moving to] permanently lower levels of inventories?",109
-fomc-corpus,1990,"My judgment at this time is that I don't see inventories as an impediment to the growth of production. I'm not inclined to read it as a really strong bullish factor, in part for the reason that you suggested. I think there's still some effort, particularly in manufacturing but in other sectors too, to decrease inventories in relation to order/shipment ratios. And we view this as still having some way to go. An industry economist at a meeting I attended recently said: ""Boy, these numbers look great; but my boss thinks these inventories are still too high."" So, I think the target, in effect, is continuing to drift downward. That was one of the reasons why in the past year when we saw manufacturing inventory/sales ratios essentially just level out we didn't move up [our forecast] very much. I thought that was a concern and would likely lead to some effort to restrain inventories. And I think as [it turns out] that's the pattern we've seen. I think we're in much better shape now; but still, my enthusiasm for thinking we're on the verge of a boom is [unintelligible].",225
-fomc-corpus,1990,"Actually, they are leaner than I think the numbers show because our conventional measure is inventories over domestic sales, whatever they are. But [unintelligible] the proportion of the inventories of imported goods. While one can't say that excess inventories of imported goods will have no effect on domestic production but only an effect on production at foreign facilities, there is an element of truth in [the latter]. So the estimates that we're making for wholesale and retail trade inventories, for example, have a rise in the ratio of imports to total, all at factory gate values, from 20 percent in 1980 to 25 percent now. Assuming you also have the data for manufacturing, if you make the adjustments to have some form of weighing toward imports and take them out or put final sales in or total imports in, the inventory/sales ratios are much lower [now] than they were on an historical basis. So, they are already pretty far down. But, as Mike says, when you speak to purchasing managers they still have a way to go because they still think that there is significant improvement yet [to be achieved] in the quality of production. So, if the reject rate can go down, which means they can bring the safety stocks back [down], well, it's really quite an extraordinary change.",262
-fomc-corpus,1990,Could this trend also be in addition to the improved efficiency? That would be a good sign on the inflation expectations side. It could imply that the real cost to carry is pretty high and that there's no speculative inventory built in. That would be consistent with--,51
-fomc-corpus,1990,"Well, if you look at the lead times, the April lead-time numbers were the lowest in I don't know how many years. For production materials they're at the bottom of the chart.",37
-fomc-corpus,1990,"That would suggest the need to stock up in order to have supplies, so that's the argument against the big boom. With the firming of materials prices in [unintelligible] sector, the carrying cost might not look quite as formidable as it did months ago, but it's still substantial.",59
-fomc-corpus,1990,"The other issue is that there is increasing access to foreign facilities for materials, so that lead times don't have to be bunched up every time there is a contraction in excess domestic capacity. And it was the contraction in excess domestic capacity that used to trigger the lead time stretch-outs in inventory accumulation and [thus a] crash. At the moment one rather positive aspect of the big share of imports to domestic demand in this country is that it implies that we have access to facilities all over the world. That really makes a difference. Any further questions for Mr. Prell? If not, who would like to start our tour de table? Bob.",129
-fomc-corpus,1990,"Mr. Chairman, it's not too often that anecdotal and statistical information seem to be pointing in the same direction, but in our case for the first time in over two years they are beginning to match. In contrast to previous reports that I've been giving, where District performance had been marked with some strong and some very weak sectors, there is now improvement and it's more broadly based. District manufacturing continues to outperform the nation. We had increases in manufacturing employment in the fourth quarter of 1989 and the first quarter of 1990 while it was declining nationally. In wholesale and retail trade, District employment increased at about a 4-1/2 percent rate in the first quarter. Employment in the services sector is still growing at a healthy rate, with particularly strong gains in the areas of finance, insurance, and real estate. In the energy sector, all field activities continue to improve; as for the long-term outlook, there is considerable optimism for continued improvement. District construction activity has been strong recently, though it's likely to slow some from its current pace of nearly 10 percent. Recent rains have improved the outlook for agriculture except, of course, in those areas where we've had some very, very severe flooding, which I'm sure you've seen on the news. Our bottom line is that we do appear to be coming out of what we call our great recession in the District, and the improvement and growth seem to be widespread. Also, I think it's becoming quite evident that our economy is much more diversified. Having said that, I'm inclined to conclude that we may be getting away from the historical boom-bust type of activity that we've had. There may be some disappointment for those who are waiting for the next boom, having gone through the bust. But I'm inclined to think that for the longer term it's going to be a much more healthy situation economically. With respect to the national picture, we're in substantial agreement with the forecast that you have, Mike.",390
-fomc-corpus,1990,President Black.,3
-fomc-corpus,1990,"Mr. Chairman, we think that the more restrictive monetary policy that the staff is projecting is going to be needed if we're going to generate greater projected disinflation as appropriate. What's striking and disappointing to us is that this assumed tighter policy is expected to produce only a small improvement in the inflation outlook, at least through 1991, but a fairly substantial reduction in GNP next year. I think most of us would agree, and indeed this was an import of the excellent memorandum distributed to us sometime back, that there are different kinds of models on this: those that are forward-looking and those that are backward-looking. I assume that most of this is based on the MPS model. If you used one that is more forward-looking, I think that would suggest a better tradeoff, with more disinflation at a smaller cost. Of course, the staff readily acknowledges this in saying that the assumed tighter monetary policy could yield a much bigger payoff if it increased our credibility. And that, of course, is a very important issue from the standpoint of our policy decision later on. I don't think most of us would be willing to argue in favor of a tighter policy if we thought the payoff on inflation was going to be quite as small as what has been projected in the Greenbook. My own feeling is that the payoff would be larger because I think people are becoming more and more forward looking. If we can demonstrate to the public that we really have a strong commitment to [reducing] inflation, then I think perhaps we could have much better results than the staff is projecting on the inflation side. Now, we wouldn't quarrel much with the staff's near-term projections for the second and third quarters. I would guess that the near-term risks might be skewed a little toward the down side because I think there really is something to this real estate credit crunch. We hear this from too many places. We had an interesting statement by a major regional developer who is a very astute man, I think. He said that funding has virtually dried up; he cited one large city in the country where only one out of eleven major real estate developers can get any credit at all. And if that is true, of course, then it could have some early impacts and would bias the next couple of quarters to the down side.",466
-fomc-corpus,1990,President Parry.,4
-fomc-corpus,1990,"Thank you, Mr. Chairman. The Twelfth District economy remains pretty strong despite slower growth in recent months. Employment in the West grew 3.2 percent in the past year, which is somewhat slower than the kinds of growth rates in employment that we were seeing in 1989 when they averaged 4.1 percent. All of that slowing in growth can be attributed to the state of California. California's growth in recent months has been quite similar to that of the rest of the nation but the other states are doing extraordinarily well. For example, if you look at the seven fastest growing states in the nation, all seven of them were in the Twelfth District. The outlook for western agriculture is positive overall, although this summer's harvest is unlikely to be as profitable as those in recent years. Inventories of many agricultural products are higher than they were a year ago and the acreage that has been planted in the West is high as well. Even drought-affected crops such as cotton and rice are only going to be cut about 10 percent, so we'll see a large increase in output. At the same time, costs for some farm inputs are up dramatically. In California we're in the fourth year of drought. And in California that means you irrigate in a different way. Instead of using surface water, you go to well water or ground water; and that costs a lot more money and is going to cut substantially into the profits of farmers. In a state like Idaho where they also use a lot of irrigation, they have a shortage of water and the difficulty there is in obtaining irrigation pipe. Apparently, it costs three times as much this year--if you can get it--than it did last year. So, the agricultural situation really isn't that bad overall, but it's quite likely that agriculture won't be quite as prosperous financially as it was in the last year. I might note parenthetically on this issue of credit availability to farmers and to small businesses that we had two banks give us some very interesting observations, and I'd be interested if others ran into the same thing. One of the large banks said that there is a substantial restriction on credit to small businesses. Another banker said there were restrictions to agriculture, but he said it wasn't related at all to what has been happening with regard to regulators' views or associated types of events. He said it's related to environmental concerns. Banks, whenever they take over collateral when there's a default on a loan, are then responsible for the environmental consequences. So his bank, for example, which is a large bank, was no longer making small business loans to any gasoline stations, dry cleaning establishments, or any farms which had in-ground gasoline or diesel tanks. And any time they were doing large projects they would have to send out an environmental appraiser as well as a value appraiser. He said this was having a very significant effect on lending. My understanding is that apparently this is such a hot button with the industry that there are a couple of Congressmen who are now in the process of introducing legislation that will rectify this situation. It's a little different wrinkle that I hadn't heard before but apparently, at least among our bankers, it's very significant. Turning to the national economy, our outlook for the year 1990 is very similar to that of the Greenbook. We do part a bit in 1991, but it's a result of the difference in monetary policy assumptions. We don't have the federal funds rate rising as rapidly, and we get a result which actually is quite consistent with the Greenbook's results. With an increase in rates of about half of that in the Greenbook we get growth in 1991 of 2 percent and, indeed, there is no basic drop in the underlying inflation rate until 1992. Thank you.",759
-fomc-corpus,1990,I think we have to find a way of producing excess crude oil and just [unintelligible] into the market; that did wonders in 1986. President Syron.,37
-fomc-corpus,1990,"Thank you, Mr. Chairman. Well, you know where the strongest growing states are; I can tell you where some of the weakest growing states are.",31
-fomc-corpus,1990,It isn't Massachusetts any more?,6
-fomc-corpus,1990,"No, it's New Hampshire, actually. The economy in the region continues soft, although it's not in a steep decline. Employment fell about 1 percent in 1989. We expect it to fall by another 1 percent in 1990 and we expect the unemployment rate region-wide to go north of 6 percent. These assumptions are based on a model that was run without incorporating a national model with as much credit tightening as the Greenbook has in it. Actually, it's interesting that by state, New Hampshire is by far the softest, followed by Massachusetts and then by Connecticut. The reason for that, I think, is that construction has turned down so much. Construction [spending] region-wide has fallen about 10 percent, but it has fallen 25 percent in New Hampshire. This is really micro data, but with it being a very important industry in southern New Hampshire particularly, and becoming almost an economic [unintelligible] in its own right like a traditional manufacturing industry, that's a swing that couldn't be avoided. There is a substantial real estate overhang in the District. Housing sales activity remains soft; housing inventory stays high. I think housing remains soft in part because people are very unrealistic in pricing. We don't seem to be getting real price adjustments. Using the ultimate in anecdotal information--what I am doing myself, and I just sold a house--I think you can move houses but you have to sell them for about 18 to 20 percent less than the price at the peak. And people just generally aren't willing to do that. I think it's going to be slow to come back because we're at quite a regional disadvantage now in terms of wages in light of the very strong growth that we had for some period of time. And, obviously, we have serious tax problems; they are worse in Massachusetts but there are tax problems in Connecticut as well as some in New Hampshire. To some extent, in a regional sense, there was no one to take the punch bowl away and what happened was that the region just got carried away. Going to the credit crunch issue, we think there is something there but it's very specific to small-to-mid-size businesses and to the construction area. It's hard to say that in the construction area it's because of tighter supervision [of lending institutions]; we had other problems in that area. In the aggregate data a lot has been made of the System's preliminary data saying that lending in New England is down 8 percent over last year. We actually took that data and then adjusted it for two or three different things: the large volume of loan sales by some of our large banks that are in trouble; the sale of credit card portfolios; and the writing off of some of the other real estate owned and other adjustments. All that gets the reduction down from about 7.9 percent to about 1 percent. So, credit is growing more slowly but no way near as slowly as the data indicate. Outside the computer area, where I think we have specific problems, a large number of firms report that sales, while they haven't kept up their strength, are not off dramatically either, particularly in the national market. Interestingly, our large [unintelligible] producers--and by that I mean firms such as Ratheon, General Electric and United Technologies--are anxious about the outlook and they are planning for a slowdown; but given lead times, they haven't felt much effect on production. And they have had some success in converting plants to other products. Interestingly, they find their export business and even import substitution are actually quite good. For example, United Technologies just became a preferred supplier for--I guess we call them transplants--foreign-name plants producing modulars for doors and different things like that. So, the export business is becoming more important to us, both directly and indirectly. When we talk to people around the District, we're finding that inventories are quite lean. Again, it's hard to sort out exactly, but they are quite lean at the retail level as well as at the manufacturing level. As far as the national economy goes, we're in substantial agreement with the Greenbook. We had thought perhaps that inventories might affect us--that there was a chance for some breakout on the up side in inventories because we think things are potentially a little stronger. We're inclined to discount the retail sales report because of the noise and just see what happens when we get the next PCE report. We're encouraged by the improvement in the PPI but it's still obviously [unintelligible] with substantial problems of inflation fourth quarter to fourth quarter. In looking ahead--and this was a question I was going to ask but it was asked by Governor Angell among others--if we assume essentially no change in monetary policy, our feeling is that an already discouraging Greenbook inflation forecast would be significantly worse with the prospect of being substantially worse. And in that context, we'd be concerned about labor compensation given some of the [upward] creep we've already seen in that area. This will be covered during our policy discussion, but it may be easier to take out an insurance policy now rather than to wait until we get into a situation where we really have to crunch significantly later on. I think it is true that credibility is important and can make it easier for us on the way down; but I'm starting to become concerned about losing credibility with inflation creeping up on us and our not having been able to change materially the direction of that. That will increase the cost of our ultimately having to deal with it, and I think we ultimately will have to deal with it. This is a speech, and I guess I should omit that.",1137
-fomc-corpus,1990,President Keehn.,4
-fomc-corpus,1990,"Mr. Chairman, overall conditions in the District are pretty much unchanged from the last meeting. We seem to have stabilized at a level reasonably consistent with our outlook for the balance of the year, namely sustained growth at, say, a 2-1/4 percent rate. I have a couple of specific comments. First, on the auto sector, which Mike has covered: At this point it looks as if some of the uncertainties in the industry early in the year have been clarified, with the very large unsold inventories having been worked down now to I think reasonable levels, particularly for this time of the year. Production levels in the second quarter will be lower than last year by about 12 percent on average but significantly higher, of course, than in the first quarter. And the early outlook for the third quarter is that production levels will be higher than was the case last year, but last year's third quarter was comparatively a quite weak quarter. I think there's a slight change in sentiment among the auto dealers. They have gone from being very, very negative to at least being cautious. But my understanding is that on a national basis some 50 percent of them are still losing money. And clearly, it takes very big incentives to move cars at this point. The sales outlook for the year--adding cars and light trucks together--I'm told by the industry is about 14-1/2 million units. They think that's very disappointing. But having said that, they think their trend line is about 15 million units; so it seems to me that on a broader prospective 14-1/2 million in sales is a pretty reasonable year. A major uncertainty, of course, is the labor negotiation coming up in the fall. It is just far too early to tell how that's going to work out. It certainly does have the potential to have a big impact on production. The steel business seems to be reasonably good; production levels are in the 85 to 86 percent area. Sales of some steel products are coming in at about 100 percent of capacity and backlogs have now moved up to 82 to 83 days. As a consequence, we are seeing some price increases in the steel business and, given these kinds of pressures, those increases are sticking. The expectation is that prices will go up about 5 percent on average next year. In construction, surprisingly, both commercial and residential numbers in the District continue to move ahead of the national numbers. But I think we're going to see a big change and that there will be some reduction. Clearly, there is a curtailment of credit for commercial projects. But everybody I talk to says it's simply a result of having had far too much money going into too many projects and it's going to take a while for the absorption rate to dig into the vacancy rates. While the construction numbers probably will be a little lower than was our early expectation, offsetting that is our expectation that the opportunity for exports for the year will be a little better than we might have guessed. The level of the dollar has not been impeding sales and any reduction in the dollar along the lines that Sam suggested simply will add to a more positive outlook there. In the agricultural sector, I was really pleased to hear that planting conditions have been excellent. In fact, in Iowa a number of people describe conditions as the best they've seen in a good many years. The corn crop is largely in; the soybean crop will go in within the next two weeks. These better conditions will be reflected in a good increase in the demand for agricultural equipment. Industry sales of large tractors and combines are running significantly ahead of last year. On the inflation side, the outlook is certainly less clear; it's difficult to tell how the first-quarter aberrations are going to work out as we go along here. But we are still, I think, a bit more optimistic than Mike in that we see some improving trends in inflation as we get out toward the end of the year. Market pricing for manufactured products continues to be very, very competitive. There's a lot of pressure [to hold down] price increases, given capacity additions as well as foreign competition, [but] I think we're going to continue to see some price pressures. In the services sector, though, there are some increases that are more disturbing; that would be most particularly true in regard to health care. But on the wage side, basically increases seem to be continuing okay. One very unusual example: I talked to somebody who negotiated a six-year contract with the machinists union the other day, which provides for an annual cost increase of 2 percent and some unusual features. I think that's an indication that wage pressures continue to be pretty tight. On a national basis, we think that the outlook for growth continues to be positive. But certainly we're going to need to see some improvement in the inflation rate. We continue to be optimistic, as I say, but pretty soon we're going to have to see that evidenced by better numbers on the inflation side.",1005
-fomc-corpus,1990,President Forrestal.,4
-fomc-corpus,1990,"Since our last meeting, Mr. Chairman, the economy in the Sixth District seems to be doing a little better. For example, the unemployment rate in March for all of the states combined was the lowest that we've had in 15 years. That was mainly attributable to better performance in Alabama, Mississippi, and Louisiana, resulting from stronger agri-business as well as offshore energy exploration and development. We're also benefiting in the Southeast and particularly in Atlanta from job relocations, which are significant in some cases, to the area and to the city. Otherwise, the weaknesses and strengths in the District are pretty much the same as in the country as a whole, and I won't repeat those. We have very little real evidence to contribute from the credit availability survey last month to suggest that there were any major credit problems. But I must say that the bankers in the District don't miss any opportunity to remind me about the problem that they're having. They indicate that loan officers are increasingly reluctant to make commitments and to approve applications either because the bank has had, or is anticipating, an examination or because of the publicity. The data for District banks do show some deceleration in loan growth, but I would repeat that we don't find evidence of any substantial problem. Business contacts, and this includes our directors, seem to me a little less concerned about a recession than earlier this year, but they are complaining that the deceleration in growth is placing them under pressure within their own businesses. For the most part they have not seen price pressures accelerating and from this point they don't see inflation as a problem. As I've said several times before, many of the people that I talk to are not convinced that there's anything wrong with the current inflation rate, and that continues to disturb me a little. And they are worried, too, about our reaction and what will happen if we seek to bring inflation down too aggressively. Turning to the national economy, we did not as usual assume any policy change over the two-year time horizon, so our forecast is not especially comparable to the one in the Greenbook. But as I look at both of those forecasts, I think our forecast has a slightly more positive and optimistic view about the underlying rate of inflation. Some of the unanticipated increase in consumer prices in the first quarter we see as basically temporary and not so much of that is carried forward in comparison to the Greenbook. So, we're continuing to forecast the CPI to turn out between 4 and 4-1/2 percent over the next two years. Beyond that we see very little improvement and perhaps even a deterioration as we look past 1991; obviously, in the Board staff's forecast that improvement occurs later on. I think the Greenbook has done a very good and very reasonable job of distributing the weaknesses that result from a policy tightening. I'm anticipating our policy discussion to some extent, but I think that a case can be made for some policy tightening at the moment. One argument would be credibility to be sure. Another argument that has some appeal is that it probably will be increasingly difficult to make a move later on this year. Having said that, I don't think the timing is really right at the present time. There are still enough pockets of weakness both nationally and regionally that the risk of a downturn could be fairly high. The April data suggest to me that there's a bit more weakness out there than is built into these forecasts and other forecasts. The current concern about credit availability adds to that concern. And finally, it seems to me that with the budget summit that is starting today, a tightening of policy before this meeting is concluded might very well reduce the pressures on the negotiating parties to actually restrain the budget, meaning less would be done. So, to me the arguments are persuasive that we ought not to move at the present time.",763
-fomc-corpus,1990,President Stern.,3
-fomc-corpus,1990,"The District economy looks largely like the national economy. There are distinct pockets of great weakness, although overall I think it's probably continuing to perform, as it has for some time, a bit better than the national economy--whether you look at the overall growth of nonfarm employment or at specific industries that continue to perform very well, such as paper and forest products, mining, and tourism. There are some other surprising bits of positive news that I'll just pass on. One is that major retailers, at least in the District, continue to post very good results. And home sales in the Twin Cities in the first quarter were running 15 percent above last year's first quarter and that had been a steady number month-by-month. So, there have been some pretty good numbers there. Also, the extent of the drought in the District has been narrowed as a consequence of some fairly heavy rains in March and April and so far in May. And there's some [unintelligible] number of good reports not only of crop prospects but about capital spending in agriculture for this year. I might as well give you my two cents worth on the credit crunch. We're certainly hearing a lot fewer and a lot lower volume of concerns from agriculture and small business than we were hearing a few years ago when the Farm Credit System was in distress and when there were serious problems in agriculture and so forth. That's when we heard a lot about it. I must say today, relative to that period, it's absolutely quiet for the most part out our way. A major national developer that we're close to has reported difficulties--not his own but of competitors--in obtaining credit. In fact, he has reported that on a couple of deals where he was not the low bidder and did not get the contract initially the low bidder couldn't get financing so he wound up with the contract. In terms of economic activity, of course, there is no depressing effect. The project is going to get done; it's just a question of who is getting the credit.",401
-fomc-corpus,1990,At a higher price.,5
-fomc-corpus,1990,And he's rather happy.,5
-fomc-corpus,1990,"In other words, tighter credit leads to higher prices!",11
-fomc-corpus,1990,The high deal wins.,5
-fomc-corpus,1990,"Well, from the point of view of GNP you get a little more! As far as the national economy in concerned, I certainly agree with the underlying thrust of real growth as presented in the Greenbook. On the inflation side, I take that message to heart as well. Having said that, though, I must say that I don't have any anecdotal evidence suggesting that inflation pressures are building at the moment. It seems to be pretty much the status quo. And some business people at least are concerned that an effort to bring inflation down from 4 or 5 percent or wherever it is would be bad for their business because, of course, what they envision is that a recession would accompany it.",141
-fomc-corpus,1990,President Melzer.,4
-fomc-corpus,1990,"I would say that in terms of our broad view, we wouldn't be as concerned as the Board staff about monetary policy being somehow badly out of position here. Our outlook is for modest growth, containment of pressures in the short run, and gradual long-term progress. But we wouldn't envision the kind of tightening that's implied; in fact, I think it's much too early to tell. If you look at page 5 of the Bluebook and what has been happening to money, credit, and reserve aggregates over the last couple of months, you have to wonder whether there's a significant tightening going on already with the funds rate at a constant level. Again, having said that, I think a month or two is much too short a period of time to react to. In general I think we've been well served this year by not letting very volatile expectations whip us around. I think our ""steady-as-it-goes"" policy has been quite good. On a District basis, I would say we're growing modestly better than the national economy. Even without auto workers coming back, we've had growth in manufacturing jobs. On the agricultural front, the flooding in Arkansas has created some problems, although I don't expect them to have national implications. I think some wheat crops will be plowed under and some cotton, rice, and corn crops will be late getting in. But basically at this stage, there hasn't been a major impact. On the price front, I haven't picked up much commentary about the minimum wage [increase]. I did pick up some comments in Arkansas where firms have below minimum wage employees; they are complaining about the compaction effect on their salary scales and the fact that it has a much broader implication in terms of their costs than just on the people below minimum wage. A couple of people said the way they are dealing with it is with gradual, phased-in price increases over the first six months of this year, so they aren't faced with a step increase in their prices around midyear. One final comment: Our large reporting banks in the three-month period ended in April have actually had a decline in loans outstanding. It's in other categories. There is still growth in real estate and C&I loans, but a decline in personal loans and big declines in some other categories.",451
-fomc-corpus,1990,President Boehne.,5
-fomc-corpus,1990,"In the District, commercial real estate varies a good bit, but on the whole I think it's a major drag on the economy in some areas. I think the risks in the District are on the down side. In retail sales we're seeing some small increases, and capital goods continue to be a positive. Manufacturing generally is still slumping, but there's some sense that that slump may be bottoming out. Overall, I'd say we have modest growth. On the national economy, I come out about where Tom Melzer just did. I think our ""steady-as-you-go"" policy has served us well. We've resisted being jerked around. My own sense is that the risks to the economy continue to be about even. There is a risk that inflation may accelerate, but I think there is a risk that the economy may not be as strong as it is currently. I sense that the business community still feels that we will avoid a recession, but I must say that I think it would not take a lot of monetary tightening to change that. My sense is that we ought to push the ""steady-as-you-go"" policy another couple of months.",228
-fomc-corpus,1990,President Guffey.,5
-fomc-corpus,1990,"Thank you, Mr. Chairman. In the Tenth District, the economy continues to grow moderately slowly. Recent developments have been somewhat mixed. There has been a good deal of press given to the agricultural sector. The wheat crop, for example, has been estimated by the Agriculture Department as being near double last year's crop. That optimism isn't totally shared by some of the wheat growers themselves, although we're within probably 30 days of harvest in much of the Tenth District area. It does look very good, and I think the farmers are pleased with it. It's a question of how it comes out. We are always reminded that a wheat farmer has to lose his crop at least nine times; in other words, he's very pessimistic until it's in the bin. They're still not prepared to say it's going to be double what it was last year. The outlook for farm income for 1990 is very good not only because of the wheat but also other crops, so the last two-year drought will not affect the 1990 crops yet to be planted and harvested. On top of that, crop prices have firmed up recently and there's a good deal of excitement about red meat prices. For example, prices of cattle, including replacement cattle for the feed lots, are essentially at an all-time high. Inventories of the latter have not been rebuilt; they were run down over the last three or four years. So, if you combine not only a good crop year together with livestock prices, then the outlook for agriculture is very bright for our area. A somewhat damping effect is the rain that Bob talked about in Texas, which also has occurred through much of the Tenth District. That has restored the moisture level, but now farmers can't get the crops in [the ground], so it's uncertain. With respect to energy, despite the weaker oil prices, the District rig count did increase in April and remains above the year-ago level. We do have a good deal of auto assembly [capacity] in the District and that [activity] has been very sluggish, as has been detailed around the table. In the manufacturing sector that's laid against a very brisk business in aircraft manufacturing. In residential construction, contracts fell slightly in March, but nonresidential contracts increased, which doesn't tell the same story that apparently is told elsewhere in the nation. We do still have a large overhang of commercial properties in cities such as Denver, Oklahoma City, and Tulsa. But District-wide, the nonresidential commercial contracts have increased recently. With regard to the national economy, I have little or no quarrel with the Greenbook forecast. We go through an exercise in which we hold monetary policy steady as it has been going into a meeting such as this. Then, after we receive the information with respect to how the staff has treated monetary policy in the Greenbook, we do another exercise and lay them side-to-side. This time they come out fairly close, with the exception that we have a little less growth in 1990. That may reflect your pattern of increased interest rates; that isn't clear to us, I guess, when we get your information. But on that we don't quarrel. We think there will be a little less growth in 1990. The growth and the inflation aspects of 1991 look to be about the same, given the staff's pattern of the interest rate levels. We have found little evidence of a credit crunch, particularly in the agricultural sector. The agricultural banks are very liquid; they say they can't find the loans to absorb their liquid assets into loans. Where we do hear some evidence that credit is not available is in areas such as Denver that have just come off the bottom and where the larger banks have been hit and now have a rating that makes them very cautious about credit. I don't think it has anything to do with examiners coming in and knocking them. It's simply a fallout of what they've been through in the last year or two. They are on the way up but they're very cautious in their credit terms. It is not price as far as we can tell.",821
-fomc-corpus,1990,Vice Chairman.,3
-fomc-corpus,1990,"Well, Mr. Chairman, the impression I get from business people, particularly on the manufacturing side, is more in line with Mike's forecast than it is with the last three weeks of data. I just don't have any sense that things suddenly fell out of bed on us here. Exports are holding up quite well. More generally, people are saying that business at least has stopped getting worse. The computer business appears to be showing a renewed spark, and I don't know what to make of that. Some of the commentary I hear even from suggests that maybe there's a little more to that than even they thought.",122
-fomc-corpus,1990,It's probably stock adjustment; it was so weak for so long.,13
-fomc-corpus,1990,"That's probably part of it; they sure feel better. So, as I said, the impressionistic information is much more in line with Mike's forecast than these very recent data. Our own forecast is quite similar as well, although the policy assumptions are different. We don't have a rise in short-term interest rates anything like what is in Mike's forecast and the results are about the same. On this credit crunch question, I've read all the surveys and listened to all the comments around the table, and I still can't quite shake a sense of uneasiness that there may be something there that we just haven't seen yet. Of course, I have absolutely no evidence of that. But possibly, just possibly, the money supply, especially M3, may be saying something about that. But who knows? I'd like to dismiss it completely, but I can't quite bring myself to that. As for inflation, I blow a little hot and cold on the question of whether the underlying inflation rate has changed. Where I am at the moment is that if it has changed, it has changed only a tad and maybe it is basically unchanged in core terms. But whatever conclusion you draw about what's happened to the core inflation rate in recent quarters, I think what you have to be impressed with, notwithstanding all this talk about credibility and all the rest of it, is that the only way that the core inflation rate is going to come down is if there's a lot more slack in the economy. With the structure of the economy today, there just doesn't seem to be much to suggest that that's going to change in a downward direction in any appreciable way, given the kinds of resource utilization patterns we have right now. But that, I think, is going to create an acute dilemma for this Committee very soon, and I'm thinking in terms of this budget package. I don't know whether they will get one or not. I suspect that there's probably a better chance of that today than at any time in the recent past. And then all of a sudden we will have what we have all said we needed--what we have all been pleading for, begging for, and cajoling for. And it seems to me that the policy dilemma that the Committee is going to face in those circumstances is going to be rather awesome even if long-term interest rates come down by themselves, which I'm sure they will. But I think that is something that we're going to have to reflect upon a good deal. I don't think that's an urgent matter because I don't think they can cut a deal that fast.",510
-fomc-corpus,1990,I wouldn't hold my breath.,6
-fomc-corpus,1990,"I still think it has to be thought about a bit. If there is a deal of some substance, it's going to make things very difficult for us in an ironic kind of fashion.",37
-fomc-corpus,1990,I'd like to have that type of problem.,9
-fomc-corpus,1990,"You may. But, as I say, in the context in which that core inflation rate is either a tad higher or stuck, that's going to be a pretty difficult environment for us.",37
-fomc-corpus,1990,Governor LaWare.,4
-fomc-corpus,1990,"Mr. Chairman, on the local economy: Potomac, Maryland is generally doing quite well. However, the residential market is way overbuilt, overdesigned, and overpriced. But consumer confidence remains high and the public is generally blase about inflation as evidenced by the continued good business done by the Sutton Place Gourmet!",64
-fomc-corpus,1990,Is your wife the source of this?,8
-fomc-corpus,1990,"I continue to be concerned, though, about the ability of policy to deal with inflation. At the same time, I don't believe we have a lot of maneuvering room because we are in a precarious position. I believe on the one hand that we have the risk of higher inflation and on the other hand that we're very close to the possibility of tipping over into recession. I think the risk, if we go into recession, is greater than the risk of more inflation because I suspect that the underlying structure of inflation is not as firm or as high as may have been indicated by some of the recent statistics. I think that the credit crunch is real, and I don't think it's necessarily confined to real estate. I'm convinced that it's going to get worse and that it is not necessarily the result of the regulators; I think it's a general concern on the part of lenders about lending, about capital ratios, as well as about tougher examination standards. So, I just don't see that going away, with all due respect for the regulators recently urging the lenders to lend more money. I think the real estate market is under identified pressure and also some that hasn't shown up yet. Included in the latter, I would say, is the RTC situation; if this accelerates, short term we're going to get an even further depression of real estate values. And I think there's some real buyer resistance out there with regard to the price structure, particularly with that RTC overhang. I don't think that has adjusted itself. And I'm concerned that in a recession situation, the change in revenue flows would really tank some of these [firms involved heavily in] junk [financing] situations and that the ripple effect of that kind of a credit problem would be very severe. On the whole, I think the downside risks are quite severe, and I'm frustrated about inflation on the other side. On balance, I just don't think this is the time to make a change.",388
-fomc-corpus,1990,President Hoskins.,4
-fomc-corpus,1990,"There is not much change in the Fourth District since the last time we met. There are high levels of economic activity. We had a meeting with 25 economists representing businesses located in the District. To make a short story out of it, they see no credit crunch within the District, continued export growth, no cutback in capital spending plans, and real growth in the neighborhood of 2 to 2-1/4 percent for next year.",90
-fomc-corpus,1990,In the District or in the United States?,9
-fomc-corpus,1990,"They are District economists forecasting for the national economy. The only surprising or perhaps worrisome trend as reported by these forecasters is that out of the 25 none of them had a recession in the forecast horizon, which means they are probably wrong. My infamous stainless steel strip new order measure reached a 5-year high in April; that's seasonally adjusted. It indicated a very strong export side as well as domestic. It's muddied up a little by some inventory building by automobile companies in anticipation of a strike in the third quarter.",107
-fomc-corpus,1990,I thought we agreed that that [indicator] doesn't work.,12
-fomc-corpus,1990,It gets the direction right usually; the magnitudes are terrible.,13
-fomc-corpus,1990,I thought you were giving us a bearish forecast.,10
-fomc-corpus,1990,"No; the other anecdotal information surrounding this particular firm is that in two lines they are already sold out through the end of year and most of these sales are export oriented. So the steel side, at least the stainless steel side, seems to be doing quite well. They tend to argue that it's a proxy for the economy. We've tested it, as the Chairman has indicated, and it does less well than the [leading indicators] over time. They did post price increases a month ago of 4 to 7 percent, and they had no problem making that stick. In terms of the national outlook, I want to thank Mike again for making, I think, a real attempt to show us what we need to do if we want to tackle the inflation issue. Most of the risks in the forecast, it seems to me, are weighted toward having a little more inflation or perhaps having it stay the same. I understand that there are always going to be risks of fragility in financial markets; we've talked about that now for six months. And there is always a potential budget deficit deal. But I think we have to gear our monetary policy to the objective that we can achieve. I agree with Dick Syron that credibility is important, and I'm not sure we're maintaining it. I'm not unduly pessimistic about inflation, but we do have an objective of bringing it down and not much seems to be happening. I might quibble on the cost of bringing it down, though.",297
-fomc-corpus,1990,Governor Kelley.,3
-fomc-corpus,1990,"Well, Mr. Chairman, when Mike finished his presentation a little while ago he made the remark that there are a lot of jokers still in the deck to be turned over. I certainly agree with that. But when you're playing a hand of cards there are those things that you know and those things that remain to be seen. If we look at the things that we know, they don't look that bad. Obviously, as the cards turn over, things could change a lot. But we know, looking at interest rates, that we lowered the federal funds rate in December and interest rates have been up ever since then. We have had some tightening done for us by the market. Along with that, the aggregates have now slowed down a lot. I don't want to prejudge or put words in Don's mouth--he hasn't made his presentation yet--but I suspect he thinks they're likely to speed back up. But if they keep doing what they're doing now, then we're going to have a pretty slow rate of growth in the aggregates in 1990. Looking at the gross national product, the best guess is that its growth is now running around 2 percent and the two preceding quarters before that were 1.1 percent and 2.1 percent. That's clearly slow; it could reaccelerate. There has been talk around this table that at a 2 percent growth rate we could make slow progress, but nevertheless progress, on inflation. If you look at inflation as measured by the CPI, we had an appalling first quarter but the two quarters before that were both under 4 percent; and I think the increase is probably slowing down substantially from that bad first quarter now. John talked about the credit crunch. I think everybody would agree that there's something going on out there and we don't know what effect it's liable to have. Nevertheless, there is some constraint and it could be substantial. So, the things that we know, taken all-in-all, suggest that the state of the world is not terribly unsatisfactory. I think our policy pretty much has done what we desired it to do; it's too early to say that it has been ineffective in making some progress on the core rate of inflation. Core inflation could certainly change on the up side and, if it does, we undoubtedly will have to react. But I think that's far from sure. As a consequence, for now ""steady-as-you-go"" makes sense to me.",489
-fomc-corpus,1990,Governor Angell.,4
-fomc-corpus,1990,"Yes, Mr. Chairman, we do have some good news out there that I think we ought to talk about. We only did $50 million in foreign exchange intervention during the intermeeting period and I'm most grateful for that. In fact, I'm so grateful that I didn't even talk about the ESF after having an antagonizing document in front of me. But there's more good news than that. I counted out about 15 segments of industries in which expansion seems to be the order of the day. Quite often, I think we become somewhat impacted by those that are having the pain; those industries having a slowdown are more vocal than those in which things are looking up. I was used to that with farmers always describing things as mediocre or middling during times when we had boom conditions and most of the rest of time describing conditions as poor. In terms of the small business outlook, I think we had a diffusion index this morning that demonstrated the same sort of thing: that is, if you have as many people saying the outlook is positive as you have saying that it's negative, then it's really boom conditions. So, I think we have to steel ourselves to the fact that there is going to be some pain out there. And, of course, when that pain involves people getting used to house prices not rising as in the past, and in some cases coming down, we're going to feel that and see that. But that may be better news in regard to attitudes about money than we realize. When people see house prices going up 15 percent per year, I'm not sure whether that in some ways undermines their sense of value for money. And when all of a sudden the peak on selling their house passed, a lot of people said: ""My goodness! Why didn't I sell it earlier?"" It's sort of an attitude of: I want money; I'd like to have dollar balances. So, I think this kind of pain may be a precursor for some better inflation numbers. The fact of the matter is, however, that there are some troublesome things on the inflation front. Basically, commodity prices are still rather troublesome, as far as I can see. I don't care what index you look at, unless you get into some very specialized ones, there does not seem to be the kind of improvement that you'd expect to see. Look at corn prices, soybean prices. Wheat prices went up because there was an announcement of a large increase. But it really is a troublesome indication to see commodity prices move up as much as they did and then not move back down. I would agree that at a time when the pain seems to be pervasive in many households, and when M2 and M3 seem to be growing very, very slowly, that information ought not be ignored. I'd like to close by suggesting, when we are talking about a soft landing, that in any way the landing occurs it certainly has been soft but there is an element in which an airplane wing as it approaches the ground gets what we call ""ground effect."" Ground effect means that you have an opportunity to have more lift than you otherwise would have because of the proximity of the ground. As we're approaching the 90th month of this expansion, we haven't had any abrupt pullups that might result in stalled spins because after a stalled spin the wind does not produce much ground effect as the plane comes crashing in.",674
-fomc-corpus,1990,It gets too much ground effect!,7
-fomc-corpus,1990,"But the implication is that I think we have to be prepared to understand that our economy may have more ability to operate below 2 percent for longer periods of time without getting into negative numbers. To me that's an encouraging bit of news. I, for one, do not believe that there are factors out there that are producing a recession in the immediate horizon.",71
-fomc-corpus,1990,Governor Seger.,4
-fomc-corpus,1990,"John LaWare gave my talk, so I'll just piggyback on his. Thank you.",19
-fomc-corpus,1990,Governor Johnson.,3
-fomc-corpus,1990,"Actually, I feel a little better today about the inflationary risks than I did maybe a couple of weeks ago, with some of these more recent data. But once again, you can't tell much from one or two months of numbers. I still am generally concerned about the outlook, but these recent numbers cloud it up a bit. Consumption has been fairly modest, but the first-quarter real GNP number looked stronger than I would have expected. We see investment plans running at 7-1/2 percent, which is pretty strong; I don't know if that will actually materialize, but the plans are running fairly strong. My concern is that with inventories fairly low--and I realize that there are incentives to keep them that way--demand seems to be sufficient both on the investment side and the consumption side that the economy is poised to pick up if demand pressures develop. And my concern is that they might develop from external sources. I didn't hear too many people that concerned about export demand, but having just been overseas and having talked to people there I still have some concern about that. I feel more comfortable that the Bundesbank is going to deal with the inflation risk in Germany. Still, we see rates coming down in France and other European countries; and in fact, even though I think East Germany and other east European countries are going to be facing recessionary-type conditions, I think all their consumption is going to turn to the West. Even if it's lower than in the past, they're going to be buying goods. The outlook for the Soviet Union is grim because I don't think they're going to be able to sell anything. They may be able to barter a few things and they will be able to sell energy and some of their raw materials, but nobody is going to buy any consumer goods from the Soviet Union. All industrial countries are strained in terms of their productive capacity. Japan is still growing strongly in spite of their financial shake-out. And Europe continues to show signs of strength. So, I'm fairly optimistic about our export prospects and the improvement in our external position. But I do worry about what kind of pressure that's going to put on the inflationary situation going forward. So, I do think there are some risks. Some of the financial indicators suggest it. Even though long-term interest rates have come down more recently--almost a half percentage point from where they were--they are still up over the intermeeting period. And as Governor Angell pointed out, commodity prices have been under some upward pressure. They look a little milder now, depending on which index you look at, but still they are up. What worries me the most is that the trade-weighted dollar is turning down. Even though the dollar had shown strength against the yen, a lot of that has changed recently. As someone reported, the trade-weighted dollar is down 14 percent from its peak last year. If that kind of trend continues, we may be faced with some pretty significant external strength, and I don't know how much room we have for that. So, that's a worry. I'm not as concerned about the credit crunch issue; I have heard a lot of anecdotes and I think it is a potential risk, but just listening to what people have said around here it seems like some of that is [unintelligible]. The aggregates have turned weaker, but I would argue that that has to do with some portfolio shifts that have occurred with the change in interest rates more recently, and I think that will subside and we will see a return to more significant growth. So, I think we have to be very watchful and cautious. I think the risks are on the inflation side, but given the more recent data I don't know if it's worth pressing immediately.",753
-fomc-corpus,1990,Okay. Why don't we break at this stage for coffee and come back?,15
-fomc-corpus,1990,[Statement--see Appendix.],6
-fomc-corpus,1990,Questions for Mr. Kohn?,7
-fomc-corpus,1990,"Don, if we have credibility in the marketplace with respect to our [commitment to] price stability, why would the markets have any problem with alternative C?",32
-fomc-corpus,1990,I'm not sure I understand. Alternative C would--,10
-fomc-corpus,1990,Would be a tightening in policy.,7
-fomc-corpus,1990,Right.,2
-fomc-corpus,1990,"All I'm suggesting is that, if we were credible, that would mean we would see a drop in longer-term rates.",24
-fomc-corpus,1990,"If alternative C increased our credibility and reduced expected future inflation, that's correct. My guess, as noted in the Bluebook, would be that the initial response to such a policy probably would be a rise in bond yields. But, as I think the Bluebook also noted, to the extent that this was seen as the Federal Reserve giving extra emphasis to its inflation objective over time, those bond yields would move lower in nominal terms. Now, it's also fair to say that the real bond yield might be higher in that case because I think there would be a higher path of expected future real short-term rates than perhaps is built in now. But nominal rates could be lower after a bit, especially if the dollar firmed up after our tightening.",148
-fomc-corpus,1990,"Let me follow with just one question on the aggregates. If we didn't do any tightening through the rest of the year, what would be your estimate for fourth quarter-over-fourth quarter [money growth]?",40
-fomc-corpus,1990,"We have a 5-1/2 percent estimate now for M2; that's down from around 6-1/2 percent at the last meeting. The reason for the decrease is two-fold. One is the incoming data, which were weaker than we expected, and we scaled down for that; the other is the change in the interest rate path, which is worth probably about half a point. So, if you told me to change only interest rates, and I suppose there really wouldn't be much feedback on the economy in 1990 from assuming a different level of interest rates, I'd probably tell you M2 growth will be around 6 percent. But it also probably would be strengthening a bit as the year went on, or toward the end of the year, if the economy were picking up a little more speed than we have projected.",170
-fomc-corpus,1990,That 5-1/2 percent was with the Greenbook interest rate path?,17
-fomc-corpus,1990,"Yes, with the assumption of rising interest rates. So, it would be 6 percent with steady interest rates and nominal GNP as in the Greenbook.",32
-fomc-corpus,1990,President Parry.,4
-fomc-corpus,1990,"Don, if you go back to the period before the latest period, there was a sharp increase in long-term rates. I know you can't answer this specifically, but in your view what explains that rise mostly? Was a change in inflationary expectations mainly what caused that? Or was it some development worldwide or here that caused the real rate to go [up]?",72
-fomc-corpus,1990,"Well, I guess I'd have to say it was a combination of both. Certainly, the inflation data were far worse than people expected. When the March CPI came in, I think that caused an upward revision in expected inflation. On the other hand, the incoming economic data continued to suggest that the economy was chugging along at least at a moderate pace and wasn't weakening. I think it was a combination of those two things. Because the dollar was firm through that period, although a lot was going on in Germany and Japan at the same time, I'd be hard pressed to argue that inflation expectations had picked up to such an extent as to overwhelmingly explain the increase in nominal rates. I think real rates at least held steady or probably were a bit on the firm side through that.",156
-fomc-corpus,1990,"But through this period, then, if most of it was due to expectations of higher inflation, there has not been a tightening in monetary and financial conditions. There was a discussion here that implied that this was a tightening and that hasn't occurred to the extent that it's--",53
-fomc-corpus,1990,"Well, if instead of just focusing on the last couple of weeks or month or so you go from the end of the year, I think it's true that some of that increase is definitely an increase in real rates. But the equilibrium real rate--where real rates need to be to keep the economy in check--is higher. So, that increase in real rates would be restraining, but only relative to a lower level of real rates. It was an endogenous response, I think, to what has been going on. And the previous increase in rates did embody an expectation of Federal Reserve tightening. That was very clear in the structure of rates until the most recent employment report.",135
-fomc-corpus,1990,Right. Thank you.,5
-fomc-corpus,1990,"Any other questions for Don? If not, why don't I get started on the round table? Reflecting what I'm hearing among the Committee, I think what we're observing is something that I suspect has not been evident in recent decades. I never recall a set of economic forces precisely that goes with what is developing here, and I've been trying to forecast the economy for well over 30 years. On the expansion side, I think the evidence is very clearly mounting; we are past the maximum durable goods squeeze and I think we're beginning to see some flattening of profit margins at this particular stage [after earlier declines]. As a consequence, capital investment is clearly showing some quickening pattern, and I think that shows up in the orders and the appropriations and in various qualitative measures. On top of that is this extraordinary inventory situation, which continues to squeeze down--the issue Dick Syron raised. Of course, what that implies is that if we ever get to the bottom when we're getting a squeeze and there is any evidence of tightening worldwide--so that there are shortages not only in the United States but elsewhere--then the lead times will begin to move and we really will begin to get the type of classic acceleration that we've seen many times in the past. At this stage the evidence on the orders side is that they continue to improve gradually although they are by no means accelerating; the orders levels are just creeping up. The backlogs in real terms probably are flat to down, but that is a major improvement from a year or so ago when the economy was deteriorating in the total durables and manufacturing areas. If anything, I would say the evidence of all of this is [that economic growth is] probably mildly accelerating. The trouble, however, on the other side is that we have something more than a merely minor financial disturbance. I think there may well be more to this credit crunch than we're looking at; or to put it more exactly, I don't think we're through it yet. The concurrent data that we pick up all over the place suggest that there has been, as has been stated, a mild pulling back. But there is no evidence that it has stopped. For example, all of the evidence about forward commitments, specifically on real estate projects and loans, is that this phenomenon is nowhere near over on the real estate side. And we don't know at this stage to what extent it has spilled over in any other direction. I find the money supply data--specifically M3, as Jerry has pointed out--mildly disturbing because they say in effect, even if you take out the thrift part of M3, that there really is something that is constraining financial capacity even though the underlying orders patterns suggest that there's something of a [unintelligible] considerably more forward momentum here. The data we have on the credit crunch are, except for anecdotal evidence, not forward-looking. They are all historical--all basically something in the past. The trouble with the past is that as we continue to pick it up [in these data] it gets worse. And before we're out of this, this has to stabilize and turn around--or at worst just stabilize, even if it stabilizes at pretty low levels--because it has to be having a fairly significant contractionary effect out in the distance through the late spring and into the summer on a lot of construction projects, which are a very substantial part of the goods markets. So, where this all leads me is to the same type of dilemma that I found myself in at the last meeting, where clearly there are dangers on both sides. When we look ahead, the probability is that our next move will be on the up side because I do think one has to presume that this credit crunch is limited. The trouble, however, is that at this point it is still growing; and to move to tighten at this stage while the evidence is that the credit crunch is still occurring I think would be a mistake. Also, despite the fact that I think we probably will be required to move up before we move down, I wouldn't be inclined at this stage to be asymmetric on the up side. This might seem an odd way to put it, but although the odds suggest that that's the direction we will be going in, I'm not sure that we should position ourselves in that manner until the credit crunch matter has stabilized. Nonetheless, I do think that the inflation problem is very troublesome. And while I would feel comfortable with ""B"" either symmetric or asymmetric, I must say I would prefer symmetric and would have the policy record relate the concerns that have been expressed around this table on the issues of inflation and the instabilities that they create. But, like the last time, I think it's a tough call; and I suspect it may be no less easy as we get further on into the year. So, my bottom line at this moment is ""B"" symmetric, but with extensive language in the policy record on the issue of inflation.",1000
-fomc-corpus,1990,"Mr. Chairman, I could support your position but for somewhat different reasons. It seems to me that the uncertainties about the direction of the economy are perhaps the greatest reason to support alternative B at this point. I must admit that looking at the data and hearing the discussion today, I would never use the term ""credit crunch"" in the classic ways that I've heard that term used.",76
-fomc-corpus,1990,I'm using it as a forecast.,7
-fomc-corpus,1990,Okay. Then I would hope that we can in our separate Districts and here at the Board find a way to monitor that very closely. A credit crunch has real implications.,35
-fomc-corpus,1990,"It does, and I would say that the money supply will tell us perhaps as much as anything. If you look at the way the numbers have flattened out--I don't care what you say--that has come as a big surprise to me. There's something wrong about those numbers. And that's what bothers me.",62
-fomc-corpus,1990,"Well, we have [unintelligible] than last year. If you recall at this time--",21
-fomc-corpus,1990,I wish that they could be explained by the April phenomenon. I'm uncomfortable with that explanation.,18
-fomc-corpus,1990,"Well, it seems to me it is something that we ought to monitor very closely.",17
-fomc-corpus,1990,President Black.,3
-fomc-corpus,1990,"Mr. Chairman, I'd like to reiterate my view that the progress we make toward achieving our long-run objective and the transition cost of moving to that are going to be affected a great deal by the credibility of our policy. --the large regional real estate developer who told me that only one out of eleven developers in a given city could get credit--said that he thought our credibility as an inflation fighter had all but disappeared. He could find nobody who thought inflation was going to come down, and he was obviously disappointed that we didn't And that made me think about it somewhat differently than I otherwise would have because I think this fellow is unusually perceptive.",130
-fomc-corpus,1990,He's also about ready to retire.,7
-fomc-corpus,1990,"No he isn't; he's even younger than I am, Martha, if you can conceive of such a thing! So, I think we ought to pay a little more attention to the long-run issues in the position we take today than we typically do, instead of our perceptions of what is going on in the short-run part of the economy. And we [ought] to focus on what this is going to do to our credibility. So, I would favor ""B"" for now, but I would go asymmetrical. You've taken care of a good part of my concerns by suggesting that you really favor asymmetry but that you're not quite ready to put that language in the directive. I think we need a signal out there that we really haven't abandoned our quest for price stability. I'd like to see us put that asymmetry in the directive. But the behavior of the aggregates is a concern to me to some extent. I would be alarmed if they don't pick up before long, especially M2 and not so much M3, because I think we might have squeezed too much. But overall some kind of signal--not a discount rate increase but something from this Committee--really would be very helpful right now, because I agree with you that our next move will be to tighten. Of course, like everybody else, I'm guessing on that.",268
-fomc-corpus,1990,President Boehne.,5
-fomc-corpus,1990,"I favor ""B"" symmetrical. I think the risks are about even. I'm not willing to concede at this point that the next move is up. It may very well be, but I think we're in an uncertain enough situation that I'd like to stay symmetrical and make a judgment as the information comes in and as we learn more about the kind of situation that we're in.",74
-fomc-corpus,1990,President Forrestal.,4
-fomc-corpus,1990,"Mr. Chairman, I think there are enough uncertainties in the economy that we should not move at this time; we ought to stay where we are. So, I would support alternative B. But I tend to agree with you that our next move is going to be on the up side and, therefore, I would have a slight preference for asymmetric language.",71
-fomc-corpus,1990,President Keehn.,4
-fomc-corpus,1990,"Mr. Chairman, for the reasons you stated, I'd also be in favor of alternative B and would have a preference for symmetrical language. The only other thing I would add is a question of timing. Now, [unintelligible] I would not expect a lot to come out of the budget negotiations. But it does seem to me that this could be an awkward time to be adjusting policy if in fact there is at least a possibility that something could come out of the budget discussions.",98
-fomc-corpus,1990,President Guffey.,5
-fomc-corpus,1990,"My preference would be alternative B, asymmetric, given that I believe we're going to have to have some greater restraint in the period ahead if indeed we're going to make any progress toward lower inflation rates. However, I don't see anything on the horizon that would urge us to move in the intermeeting period--between now and early July, for example. I can't imagine that these numbers are going to reverse so quickly that they would trigger a further increase in the intermeeting period. There are ways, however, to get the message to the market for the credibility argument. One is, as you've suggested, that it be stressed in the policy record which is read by the market; on the other hand, we could have an asymmetric directive. Either would give the view that we're still interested and concerned about our credibility and will move against inflation. As I say, I would prefer ""B"" with an asymmetric tilt simply because of the communication. But I could, and would, accept your proposal that it be stressed in the policy record.",205
-fomc-corpus,1990,President Stern.,3
-fomc-corpus,1990,"Some people expressed the view prior to the coffee break that ""steady-as-you-go"" has served us tolerably well--at least so far--and I think that's true. For the time being, I favor a continuation of that policy. That would be ""B"" symmetric, in my judgment. I do think, though, that it's a matter of timing. I don't pretend to have any special insight about this, but it does seem to me that at best we can argue that the core rate of inflation remains stuck in the 4 to 5 percent neighborhood in which it has been for some time. And at the same time, as I think Manley was describing, the world more generally has become a somewhat more inflationary place. Some of the European countries in particular have taken advantage of what's going on in Germany to stimulate their economies and so forth. And I think that does raise the odds, as you expressed, that we are going to have to tighten at some point in the future if we're going to unstick inflation.",208
-fomc-corpus,1990,Governor Seger.,4
-fomc-corpus,1990,"I would support your position of ""B"" symmetrical. I don't think the condition of the economy is that clear. Also, I'm very concerned about the fragility of the financial system. I'm not just talking about the credit crunch angle, although that's part of it. But there are many, many financial institutions out there--S&Ls and banks alike--that are pretty shaky, and there are more on the list of those that will be getting shaky. I would like to support Si Keehn's point about the timing. If we tighten today, the day of the budget summit, I think we'd look like we had no sense at all. So, all that means that I would support your position.",141
-fomc-corpus,1990,President Syron.,4
-fomc-corpus,1990,"Mr. Chairman, I think this is a matter of timing and I don't think [unintelligible] from one meeting to another is going to make a lot of difference. We are always going to work and live in a world that has a great deal of uncertainty. As the meetings go by the calls get tougher and tougher, and I'm not sure we can make it any easier. I understand what people are saying about perceptions being important at this time; the budget issue is one that I think is very important. But that can almost play both ways. I would favor alternative B. When we come to the matter of symmetry or asymmetry, I think the credibility issue is very important. For that reason I would tend to favor asymmetric language--though that's almost splitting hairs, depending upon what the policy record says. If the policy record is strongly worded enough and if it indicates the same thing--essentially that if economic data start to come in and lean more strongly than this most recent information and we don't see any improvement on the inflation front and the credit crunch really doesn't develop into something that's equivalent to the market tightening for us, then we understand that we are going to have to tighten in the future. With that kind of language, I could more than live with symmetry, though I prefer the asymmetry.",264
-fomc-corpus,1990,President Hoskins.,4
-fomc-corpus,1990,"Our goal is to achieve long-run price stability. We have to make those decisions in the context of short-term policymaking and there is always lots of noise in the data when we do that. M2 is slowing; the yield curve may be flatter than it was; maybe commodity prices always give us conflicting signals in the short run because of the noise there. I asked Don Kohn questions about where M2 was likely to be at year-end if we do nothing; his answer was 6 percent or higher. We have done a good job. I'm not pessimistic about the long-term inflation outlook in the sense of it rising. We have had three years of 4-1/2 percent or so growth in M2. To give that away by producing a 6 percent growth in M2 this year is not an acceptable policy to me if our goal is long-run price stability. In terms of where I'd like to come out at year-end--and that will condition the way I would vote today--I would like to see M2 come in at 4-1/2 percent or below, fourth quarter over fourth quarter. It seems to me that then we would be making progress toward price stability. In terms of what M2 means right now, it's positive from my point of view in that it's slowing. But I'm not sure that it's going to stay there. Somebody already has used the expression that insurance may be appropriate at this point in time. It's a lot easier to lower rates if we make a mistake in this environment than it is going to be to raise them down the road. In terms of the short-term outlook, one can just simply look at the Greenbook, which also supports the notion that if we do nothing at best we'll stabilize the inflation rate and at worst we will have a rising inflation rate. So, I prefer alternative C.",375
-fomc-corpus,1990,President Boykin.,4
-fomc-corpus,1990,"Mr. Chairman, I am obviously more uncertain today than I have been in the past couple of meetings. I could support alternative ""B."" I would have a fairly strong preference for asymmetric language. Your prescription of a narrative in the policy record reflecting inflation concerns and that sort of thing is okay, but if we're talking about credibility and sending some signals, that brings in a lot of nuances and subtleties it seems to me. I think an asymmetric directive would give credibility to the verbiage that would be in the policy record and for that reason I think we would have some opportunity to strengthen at least the credibility [of our inflation effort].",129
-fomc-corpus,1990,Governor Johnson.,3
-fomc-corpus,1990,"My preference is for ""B"" asymmetric. But I certainly wouldn't make a big deal over that, given your preference for statements in the policy record showing our concerns. It's splitting hairs to make that point. However, like Dick Syron, I'm a little worried that if over the intermeeting period we get a few stronger numbers, our credibility could slip rapidly. I was very concerned for a few weeks before this meeting that we were right on the edge of totally losing our credibility when we got the CPI and purchasing managers' survey results; all the data were coming in strong. Of course, the more recent numbers have to some extent bailed us out. Maybe that's an indication that there was an illusion in the data. Still, even if we go for symmetric with a slightly stronger record of our concerns, we should be prepared--if these numbers slip in the intermeeting period--to be able to swing all the way to an intermeeting move. I think we're in a situation where if, say, the credit crunch concerns start to dissipate and all of a sudden we get one or two strong numbers, we may not make it to the next meeting with our credibility intact. We ought to be flexible enough to be able to react to that.",250
-fomc-corpus,1990,"Well, you know, what we react to and act on is not [just] what we write down.",22
-fomc-corpus,1990,"I understand, and I agree.",7
-fomc-corpus,1990,What we act on is basically what--,8
-fomc-corpus,1990,The facts.,3
-fomc-corpus,1990,"No, not on facts, but the attitudes of everyone. Essentially, what we put down on a piece of paper is what the Committee obviously wants to do, but I think the reality is a lot more subtle than that. And it depends on how events unfold.",53
-fomc-corpus,1990,Sure.,2
-fomc-corpus,1990,There's nothing that says we can't move with symmetrical language.,11
-fomc-corpus,1990,"Sure, I understand. That's why I'm saying I agree with what you're proposing.",16
-fomc-corpus,1990,Governor LaWare.,4
-fomc-corpus,1990,"""B"" symmetric.",4
-fomc-corpus,1990,Governor Angell.,4
-fomc-corpus,1990,"I'm somewhat tempted, Mr. Chairman, to counterbalance by having a governor vote for tightness to offset Mr. Hoskins' dissent so that we don't continue this issue about presidents versus governors on the tightening side. But I guess that really wouldn't be a logical basis for me to cast my vote. I would note that of the presidents who are voting only two out of five of them could muster a tightness in their [policy stance]. But of the ones who are not voting, four out of five can muster tightness, which I think probably is what gives the presidents the reputation for being hawks. You presidents really are hawks when you don't have a vote!",135
-fomc-corpus,1990,We want you to tighten now so we won't have to tighten later when we do vote!,18
-fomc-corpus,1990,"It seems to me, Mr. Chairman, that you are correct that there is some uncertainty right now. And that uncertainty is such that, even though I'm in the mood to tighten and I was hoping we would be tightening, I do believe that it would be much better for us to wait a couple of weeks and see what happens in that time. We could act at that point in time rather than run the risk of tightening and then have conditions go in such a direction that our credibility is lost on the other side and that we would not be able to do what we need to do when we have to do it. So, in that sense, I'm very sympathetic with your position, Mr. Chairman. I certainly understand why prudence is in that direction. I would prefer that the directive would read tighten now, but I can vote in the affirmative with the understanding that we're very close together with some consensus here which says: that we deem this attack against inflation to be a very high priority; that we think following that priority gives the economic expansion more of an opportunity to develop and to strengthen and to lengthen than not to do it; that we are steeled to be ready to do what has to be done some time in the future; and that that is not to be deterred because there's a little bit of pain [involved]. I had been hoping we could get there in a painless way but, frankly, what I have learned in 4-1/4 years tells me it's tougher than I thought. I know from the experience in 1986 that once we've eased it sometimes takes a lot longer for us to change direction to tighten than it does to stop tightening and ease, because everybody likes to ease. I just have a very strong compulsion at this point to be looking for an opportunity to get the fed funds rate up to where I think it ought to be. I'd be much more satisfied with an 8-3/4 percent fed funds rate than with an 8-1/4 percent rate. I just don't think today is the time to do it. I certainly hope we'll be ready to do it when we need to.",434
-fomc-corpus,1990,"That sounds like alternative ""C"" to me, Wayne.",12
-fomc-corpus,1990,"Well, I don't get credit for it. Alternative B, asymmetric.",14
-fomc-corpus,1990,Governor Kelley.,3
-fomc-corpus,1990,"""B"" symmetric, please sir.",7
-fomc-corpus,1990,Vice Chairman.,3
-fomc-corpus,1990,"Just to come full circle, I find myself quite sympathetic with Governor Angell and Governor Johnson. But I can associate myself with the prescription that you put on the table, Mr. Chairman. I also think, though, that this ""beefed up"" language--if I can put it that way--in the policy record is very important. And even though I have an uneasiness about this credit crunch issue, I would agree with Bob Parry that it would be a mistake in this key part of the policy record to frame this position on those grounds, partly because I'm afraid that that is susceptible to the interpretation that we intend [unintelligible]. I would be inclined to take that beefed up language and couch it more in terms of the economy, as you did a few moments ago, and the concern about the inflationary process.",172
-fomc-corpus,1990,I also think that Wayne Angell said something which is important: that the surest way to get a recession is to allow inflation to take over.,30
-fomc-corpus,1990,No question.,3
-fomc-corpus,1990,I think that's an important issue. The presumption that we are caught between inflation and recession is a misunderstanding of the way the system works. We are always against recession. The question is: How do we avoid it best--by tightening [or] easing? Sometimes it can be either.,58
-fomc-corpus,1990,"As I said, if that language can have some of that flavor and stay away for that purpose from this credit crunch matter, I'd be a lot happier.",31
-fomc-corpus,1990,President Melzer.,4
-fomc-corpus,1990,"I wanted to go last so I didn't feel the pressure of others wanting to speak after me: ""B.""",22
-fomc-corpus,1990,"I don't feel the pressure. Let's try a vote on the recommendation that I made, which is ""B"" symmetric with appropriate policy record language indicating the concerns about inflation.",34
-fomc-corpus,1990,"""In the implementation of policy for the immediate future, the Committee seeks to maintain the existing degree of pressure on reserve positions. Taking account of progress toward price stability, the strength of the business expansion, the behavior of the monetary aggregates, and developments in foreign exchange and domestic financial markets, slightly greater reserve restraint or slightly lesser reserve restraint would be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with growth of M2 and M3 over the period from March through June at annual rates of about 4 and 3 percent respectively. The Chairman may call for Committee consultation if it appears to the Manager for Domestic operations that reserve conditions during the period before the next meeting are likely to be associated with a federal funds rate persistently outside a range of 6 to 10 percent.""",160
-fomc-corpus,1990,Call the roll.,4
-fomc-corpus,1990,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Boehne Yes President Boykin Yes President Hoskins No Governor Johnson Yes Governor Kelley Yes Governor LaWare Yes Governor Seger Yes President Stern Yes,44
-fomc-corpus,1990,The next meeting is scheduled for July 2-3.,12
-fomc-corpus,1990,"Can we get started, please? If somebody would like to move approval of the minutes--",18
-fomc-corpus,1990,So move.,3
-fomc-corpus,1990,Second.,2
-fomc-corpus,1990,"Without objection. Mr. Cross, would you carry us through your operations since the last meeting?",19
-fomc-corpus,1990,[Statement--see Appendix.],6
-fomc-corpus,1990,Questions for Mr. Cross?,6
-fomc-corpus,1990,"I'm sorry, it was Honduras rather than Costa Rica in the ESF arrangement.",16
-fomc-corpus,1990,"Questions? If not, would somebody like to move to ratify the transactions?",16
-fomc-corpus,1990,Move it.,3
-fomc-corpus,1990,Is there a second?,5
-fomc-corpus,1990,Second.,2
-fomc-corpus,1990,"Without objection. Ms. Lovett, would you take us through domestic open market operations?",18
-fomc-corpus,1990,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1990,Questions for Ms. Lovett?,7
-fomc-corpus,1990,I noticed in the New York Fed's [report on its] financial panel that there was a comment by Scott Pardee indicating that he felt the pegging of the funds rate was not allowing market forces to show through and was creating a situation whereby even moving the funds rate a little would be viewed as a very strong signal. Can you evaluate that? Do you sense the same thing?,77
-fomc-corpus,1990,"Well, in the six weeks since you met last, it has been the case that market forces have shown through by the time the maintenance period has come to an end. So, we ended up with federal funds either being quite comfortable on the settlement day or quite tight on the settlement day. Some of that has been reflected in banks' behavior, based on their expectations of what the funds rate was going to be. In the first couple of periods they were quite convinced it was going to be a soft settlement day, and so it was. As we got into the June 13th period they were so sure it was going to be comfortable that they waited until the very end even though there was a real need for reserves. Some market [participants] chance this; they put off [action] until there is no more room.",166
-fomc-corpus,1990,"Any other questions? If not, would somebody like to move the ratification of the actions of the Desk since the last meeting?",26
-fomc-corpus,1990,I'll move it.,4
-fomc-corpus,1990,Second?,2
-fomc-corpus,1990,Second.,2
-fomc-corpus,1990,"Without objection. We'll now move on to the ""Chart Show"" by Messrs. Prell and Truman.",22
-fomc-corpus,1990,"Thank you, Mr. Chairman. We'll be referring to the charts in the package with the bright red lettering, which you should be able to distinguish from the other materials before you. [Statement--see Appendix.]",42
-fomc-corpus,1990,[Statement--see Appendix.],6
-fomc-corpus,1990,Questions for either gentleman?,5
-fomc-corpus,1990,"Ted, that 3.9 percent inflation rate for Germany [for 1991] looks awfully high by historical standards. Why do you think the Bundesbank won't resist that?",37
-fomc-corpus,1990,Politics.,2
-fomc-corpus,1990,Politics still?,3
-fomc-corpus,1990,"Our sense is that they would resist something above 4 percent but that for a period of time they will tolerate something in the high 3s. That's part of the forecast. And, as I said, they may [unintelligible] more, in which case the forecast [unintelligible].",63
-fomc-corpus,1990,President Parry.,4
-fomc-corpus,1990,I'd like to ask a question of Mike on the basic assumption that a shift in credit supply conditions has occurred. Throughout the Greenbook and the Bluebook there was certainly discussion of these events. Could you give me some idea as to how important those conditions are in terms of the forecast? Did they represent some percentage of GNP that did not occur as a result?,73
-fomc-corpus,1990,"Well, we don't have a quantification. It is woven into the forecast and, as I suggested, is not a big effect. If I had to quantify it, I'd say it's a fraction of a percent.",43
-fomc-corpus,1990,"A quarter of a percent, then?",8
-fomc-corpus,1990,It's just very hard to trace this through. My guess would be maybe a little more than that. Part of the problem is the semantic difficulty of identifying what is the credit crunch. If you build in the recognition of all the declining investment opportunities in real estate and so on and call that a part of the credit crunch you have a bigger effect than if you are thinking simply of the shift in credit terms offered to people of a given level. Congress is--,91
-fomc-corpus,1990,"Well, I was thinking of risks of changes in supply, which could originate from both of those factors.",21
-fomc-corpus,1990,"Right. Well, I think it's a fraction of a percent. Implicitly, given the changes we've made over time as we thought we recognized this, I'd say it's considerably less than a percent.",40
-fomc-corpus,1990,"Well, there's one way of coming at that in a slightly different manner. The data that have just come in from the survey on lending terms suggest that the combination of increased collateral requirements and increased spreads on loans over open market rates has a [unintelligible] of something like 25 basis points. So another way to look at this is to think of it in terms of how we would view the real rates if we had tightened the funds rate by, say, 25 basis points.",99
-fomc-corpus,1990,"I think the difficulty with that, Mr. Chairman, is that those effects seem to have been greatest for relatively small businesses. And as best we can assess it, the role of smaller businesses in total investment, for example, is not overwhelming. But then there are these secondary effects. Looking at corporate bonds, if you took the--",67
-fomc-corpus,1990,"Well, Mike, I think Bob was raising an interesting question about something we're all aware of. I can see the [unintelligible] and the point at issue is that it's crucial for us to get a feel for what the order of magnitude is. It's clearly not a percentage point, but how do we know [how much it is]? If the real interpretation of what I said is correct, it's less than 25 basis points. But there are a lot of other forces going on and this really gets down to a very tricky issue of what the definition is. What in the world does a term mean? We are looking at such complex forces here. How does one get a feel for how to separate them?",145
-fomc-corpus,1990,"Well, did you make any adjustments in the model to reflect the kinds of things that typically would not be captured by a model?",26
-fomc-corpus,1990,[Unintelligible.],6
-fomc-corpus,1990,"So, what you had in there are the typical types of changes in the supply of credit due to diminished prospects with regard to growth of income, employment, etc.",33
-fomc-corpus,1990,"Well, if this forecast were spit out by a model, then yes, I'd have a better basis. But, of course, we always are adjusting for various surprises, and to isolate this one would be very difficult. But I think one needs to lay on top of those direct interest rate effects whatever allowance one makes for collateral requirements. I suggested that perhaps the decline in consumer sentiment might have been affected to some degree by all of the press discussion of shortages of credit and the possibly bad effects on business. That might be why consumers are less confident than they were before. So I think it gets to be very, very difficult.",126
-fomc-corpus,1990,"Well, I think Bob is saying that in a very structural sense consumer confidence is an element in the model and interest rates are an element in the model but the credit crunch is not. And the issue here is how you embody that [in your forecast], other than, say, through consumer confidence or some other variable--or in this particular case, I would assume, add-factor adjustments. How do you capture that? That's the issue he is raising.",91
-fomc-corpus,1990,"I don't have an answer. I'd like to, but it's very hard because there are too many things going on at once. We would have to settle on exactly what categories these things would fall in. The land price story, if it is significant, is another thing that affects people's thinking on a number of decisions, and that isn't obviously related to the credit crunch. So, though I'd like to, I just don't have a good answer.",88
-fomc-corpus,1990,"Don't get me wrong; I don't think you're understating these events. I just wondered how you did it, that's all. I think the effects are probably on the low side of what you're saying. It is difficult to know how to deal with it.",51
-fomc-corpus,1990,"Mike, on Chart 9, the alternative fiscal scenarios, I wanted to ask you just what happens in your model for the longer-term growth rates of money where interest rates are adjusted to keep output close to the baseline path? Is there a change in the model in the longer-term growth rates of money yet?",62
-fomc-corpus,1990,"We have to have substantially higher money growth in order to accomplish this. Let me see, I must have those numbers here. Let me check and give you some idea.",34
-fomc-corpus,1990,"The rule of thumb we have been using is that [a decrease of] about 2 percentage points on the funds rate for the year will give you about 2 more percentage points in M2 growth on the standard M2 demand [function]. Now, whether that still pertains is another question.",59
-fomc-corpus,1990,"I don't have the corresponding money numbers but, clearly, having a little higher nominal GNP level here and substantially lower interest rates implies through the money demand function much more rapid money growth over the period.",40
-fomc-corpus,1990,"My point in asking and my general concern about this is that, basically, I would view a dramatic shift in fiscal policy as some sort of a short-run shock, and we can use monetary policy to try to offset it. But we're going to be giving up something in the long run to do it and I guess the model would incorporate that in a sense with higher longer-term growth rates in money.",80
-fomc-corpus,1990,"Well, longer term, perhaps one begins to look at things differently. But it's a matter of many years before these fiscal effects presumably would die out. We need to make some assumptions about what would happen to fiscal policy beyond this period. But in this period, obviously, we have to have that accommodation. And in this period, because of the balancing fiscal contraction, aggregate demand isn't growing much more rapidly and we don't have that inflation effect. If you maintain consistently higher money growth throughout the future--sort of along the lines of the Bluebook simulations--then you do begin to see these effects mount.",120
-fomc-corpus,1990,"I would view this more as a shift in the level of the money supply as interest rates fell or rose--fell, in this case--and then growth would be along whatever you thought the old equilibrium was relative to whatever inflation rate you want it to be. I don't see why this would result in a permanent increase in the growth rate of money; rather, I think it's a level adjustment.",79
-fomc-corpus,1990,One other question I had with respect to rates: What occasioned the dramatic change in your assumption on the path of interest rates between this meeting and the prior meeting?,33
-fomc-corpus,1990,"Several things were involved. One was the fact that in the near term the economy seems to be weaker in an underlying sense than we had anticipated previously. A second factor was our decision to make fiscal policy a bit more restrictive in 1991. On top of that, we already had brought our interest rate bulge down; we had thought rates would be going up and spiking in the first part of 1991 and then coming off. Those first two things moderated that considerably. Then we decided that it would be sensible, as a baseline for the discussion here, not to assume any significant change in rates because it still appears that we would have some mild disinflationary trajectory going into 1992. We felt this kind of scenario was in line with what we perceived to be the general policy objectives of the Committee, consistent with the symmetric directives recently and so on. This seemed a sensible baseline for the discussion.",185
-fomc-corpus,1990,Thank you.,3
-fomc-corpus,1990,"Mike, again in the area of the budget, but leaving aside RTC-type things, could you give me some sense as to the sensitivity of the [1991] budget deficit estimate to economic assumptions? What is [the effect of a difference of] 1 percentage point of GNP or 1 percent on the unemployment [rate] or something like that on the actual budget deficit excluding--",78
-fomc-corpus,1990,"I can give you, for example, the CBO's rule of thumb. A one percent change in real growth starting at the beginning of a year yields--if you take the lower growth scenario--$7 billion in the first year.",48
-fomc-corpus,1990,How much?,3
-fomc-corpus,1990,It's $7 billion in the first year and $26 billion in the second year. Was it real output that was your primary focus?,27
-fomc-corpus,1990,"What I was trying to ask was this: Looking at your earlier charts on page 3 for the differences in 1991 between the staff numbers and the Administration numbers for GNP, unemployment, etc., if you had to make a very rough ballpark guess, what does all that translate to in terms of the budget deficit?",66
-fomc-corpus,1990,"For 1991, I would take it to be a fairly sizable difference once one builds in the difference in interest rate assumptions. For example, their Treasury bill rate in 1991--these are not published numbers yet--is an average of 6.8 percent. So that's a little lower than our forecast entails. Looking across the board that's probably worth somewhere between $5 and $10 billion; I don't know the particular phasing. If you add on the output path difference, I would think we're running a difference of something in the $10 to $20 billion area in terms of the economic assumptions. Inflation differences are very small; the projections aren't very sensitive to inflation differences. Clearly, this is small potatoes relative to all the other aspects of [unintelligible] deliberations.",160
-fomc-corpus,1990,"Yes, that was what I thought.",8
-fomc-corpus,1990,Governor Seger.,4
-fomc-corpus,1990,"Somewhat related to Jerry's question: How likely is it, if Congress goes for expenditure cuts on the budget and higher taxes, that that actually would produce a larger deficit because the impact of that fiscal restraint would be to slow growth even further?",49
-fomc-corpus,1990,"Well, our simulation suggests that it's within the powers of monetary policy to offset any [expected] drag. It might take aggressive action, if you believe these models, but it's doable. I guess that's the most--",43
-fomc-corpus,1990,And you think the timing would work out and all that?,12
-fomc-corpus,1990,"Mechanically, the models say you can do this. I guess I should say, to follow up on the earlier question about 1991 budget deficits, that I wasn't really building in the differences in the 1990 forecast, which would start things off a little worse and widen that gap.",59
-fomc-corpus,1990,"The growth in output I think [depends on] a judgment as to when, for example, any tax increases that occur are effective.",27
-fomc-corpus,1990,Sure.,2
-fomc-corpus,1990,"We will know what that date is well in advance. We won't know the expenditure numbers that easily. I think we'll have some judgment as to the fiscal tax results. Now, if you want to think in terms of appropriations and forward orders, current contract awards and that sort of thing, we can track those things fairly well and they're not going to fall on their face overnight. In other words, it's going to be a very extensive lag so that a lot of the initial effect would be anticipatory. You can get a good deal of anticipatory effect from monetary policy because people expect interest rates to change and reduce some of this. But unless a change in orders arrives at somebody's desk, he is not going to change [inventory policy]. I have been reading in the newspapers that there has been a contraction in the budget and there's nothing we can do [unintelligible] change inventory policy or any policy. But when you get something it sure will. And I think it's that sort of timing that we have to be sensitive to. My impression is that it's very difficult to write the budget deal without some significant [unintelligible] in their fiscal impact. And it should be of a nature that we have more than adequate lead time to respond, if in fact our decision is to do so.",263
-fomc-corpus,1990,"My second question relates to what I thought I heard you say when you were talking about housing starts. I believe you said that you thought the credit availability problems for builders were a one-shot phenomenon. I hope that's true, but I'm not sure.",49
-fomc-corpus,1990,"Well, I tried to say two conceptually separate things. One is that to the extent that it lowers activity, that's a one-time effect.",29
-fomc-corpus,1990,Right.,2
-fomc-corpus,1990,"That's a one-time effect, and then a growth path can be pursued as determined by subsequent interest rate and income movements as well. The other thing is that to the extent that some builders have been displaced--for example, by their friendly S&L having been shut down or the loan-to-one-borrower restrictions having made their S&L less able to provide credit--we think that in time they will find alternative funding if they have viable projects. There will be people who want to make those loans. On a technical side, we think that institutions will find ways, such as participating loans and so on, to deal with the loan-to-one-borrower limitations. So in that sense we think that the level problem will diminish over time.",150
-fomc-corpus,1990,Thank you.,3
-fomc-corpus,1990,We were too focused on bidding Manley Johnson farewell and we forgot that we have a new member who now has the floor.,25
-fomc-corpus,1990,"Thank you, Mr. Chairman. My [question relates to] either the prospect or reality of higher state and local taxes in a number of populous regions. How is that included in the model?",39
-fomc-corpus,1990,"Clearly, that has happened already. I heard a news story that something like 10 or 11 states had tax increases going into effect yesterday. And in our forecast we expect, among the actions taken to close the budget gaps in a number of states, more tax increases. We have in the forecast a significant increase in the average indirect business tax rate of state and local governments. That tends to give a little boost to inflation as we go out through 1991 in this forecast.",97
-fomc-corpus,1990,Okay.,2
-fomc-corpus,1990,"I have a question about timing in terms of monetary policy reactions to a change in fiscal policy. If greater fiscal tightness were imposed and one wanted, say, to keep output close to the baseline path, what do the different lag structures associated with monetary and fiscal policy tell you in terms of the timing requirements for monetary policy?",65
-fomc-corpus,1990,"Well, unless we go to extreme cases, there is no timing requirement. If you act later, you have to act with greater force.",28
-fomc-corpus,1990,Do more.,3
-fomc-corpus,1990,"Just to give you some sense, though, of the sensitivity of these numbers: We did another simulation where instead of waiting until the fourth quarter, as we've assumed in this, we adjusted the federal funds rate by 150 basis points in the third quarter of this year and then let the rate drift up very gradually, pretty much back to the path seen here. And that has essentially the same output effect. So, it took 50 basis points less if you moved one quarter earlier. That gives you some sense that there is considerable [room] to maneuver, if you're willing to move in rather gross ways in your policy adjustments--and if you believe the model.",133
-fomc-corpus,1990,"That's one big ""if.""",6
-fomc-corpus,1990,"I'm trying to remember a comparable fiscal action that has taken place, and the only thing that comes to mind is the Johnson Administration's surtax and subsequent, or concurrent, monetary ease. What actually happened then in this context? Do you remember offhand?",51
-fomc-corpus,1990,"Well, that was before my time. However, when I arrived at the Kansas City Federal Reserve Bank in 1970 it was legend. There were a lot of economists in the System who were still feeling that that was one of the biggest mistakes they had ever made. They had neglected to take a sort of permanent income view of a one-time tax surcharge. I think it was expected to have significant effects on expenditures and in retrospect it didn't seem to have that. Now, in this case, the presumption would be that we're talking about something more permanent and one wouldn't have that kind of surprise. But I think that was the analysis. There may be people around the table who have a direct recollection of what went on within the System.",149
-fomc-corpus,1990,That was a temporary surcharge?,6
-fomc-corpus,1990,Right.,2
-fomc-corpus,1990,"So, basically, the model would take some marginal propensity to [consume]--0.7 or whatever the number would be--out of GNP when in effect it was probably 0.1.",41
-fomc-corpus,1990,"Well, it warmed Milton Friedman's heart because the permanent income hypothesis explained it pretty well.",18
-fomc-corpus,1990,Yes.,2
-fomc-corpus,1990,"The real issue is that there is a difference here, and we have to be careful that there's not another problem we haven't captured. The complexity of this issue is rather mind-boggling.",38
-fomc-corpus,1990,"We recognize that this [presentation] makes it all look more pat than it is. I hope I threw in enough cautionary words on that part. But as I said, I think it gives one some sense of the orders of magnitude that conceivably could be involved.",55
-fomc-corpus,1990,"I don't know if my memory is very good this evening but I think there was another element in that surcharge in 1968. And that is that for a long time prior to the point when the surcharge was supposed to come into play, there were a number of senior Federal Reserve officials, including Chairman Martin, who were pushing publicly and privately very, very hard to get some kind of a tax to finance the war. I certainly wasn't around or close enough to the situation to know whether or not all of their pushing put them in a position where there might have been some understanding of a [quid pro quo]. Certainly, the visible case was the one that Mike cited: that it was treated--whether because it was misunderstood or for other reasons--as if it were a permanent large tax increase [unintelligible]. But I suspect there was a little more to it than that.",177
-fomc-corpus,1990,To be sure. Any more questions? David.,10
-fomc-corpus,1990,"I have one question on the bottom panel of Chart 4. Since we talked about Friedman some, we can talk about Modigliani some. Your model, I guess, is meant to suggest a rebound in consumer spending because household wealth is relatively high. How has that notion worked as a predictor in the past? For example, one can't help but notice the little dip in October of 1987 in total wealth. Can you trace out the consumption impact of that?",94
-fomc-corpus,1990,"Yes, in a rough way. The fact is that after that period the personal saving rate did rise. There was not a recession, as some people expected, because there were some strong interest-income generating sectors--stronger than most people had realized at the time. The net export increase was sizable; the investment gains were sizable. That seemed to generate the income. And even if consumers wanted to spend less of it, they still increased their expenditures, and thus we glided through that period. But the index of the wealth effect would be the personal saving rate. So there's nothing in the data superficially, given everything else that was going on, to suggest that there wasn't the predicted effect.",139
-fomc-corpus,1990,"Just one question for Mike. It really is not a fair one because he probably hasn't looked at it. But, if the average error in the forecast one quarter out is plus or minus 2 percentage points when we have normal times--that is, no fiscal policy change--what would you [estimate] the error is going to be with a fiscal policy change?",73
-fomc-corpus,1990,"Well, I don't know. If I knew what the fiscal policy change was, we'd be able to [unintelligible]. I'm not sure the error would be any larger, but given that I don't know the [fiscal policy change] or the underlying strength of the economy, I'd say there is a very wide range of possibilities.",68
-fomc-corpus,1990,"If there are no further questions, can we proceed to our usual roundtable discussion? Who would like to start off?",24
-fomc-corpus,1990,"In the Philadelphia District, my sense is that both business sentiment and economic activity have deteriorated since the last meeting and that the outlook is more bearish now than even a month ago. Real estate is the weakest spot, with increasing reports of builders in trouble. The number of bankrupt properties is rising. One of our major firms that is closely tied to capital spending reports that new capital spending authorizations have moderated appreciably during the second quarter. The only major exception is for environmentally related projects. Spending commitments are off for steel, chemicals especially, pharmaceuticals, electric power generation, and oil and gas. And the prospect for continued weakness in capital spending authorizations is there. Retailers report essentially flat sales, and I would say that merchants are more cautious about the outlook than a couple of months ago. Manufacturing generally appears to have flattened out but at fairly low levels. And except for autos, I think most of the manufacturers in the District do not expect further slippage from these low levels. In general, bankers are increasingly gloomy; they are worried about loan quality, profit margins, and the next examination. Lending for real estate projects has been curtailed sharply and lending to small business--often collateralized with real estate assets--is under much more scrutiny. My sense is that against the background of a generally slowing economy and a general tightening of credit standards, most companies are falling short in terms of their targets and plans for sales and profits. I think all of those are ingredients for a period when business confidence is quite vulnerable and is susceptible to some significant deterioration in the months ahead. Now, translating that into the national economic outlook, I continue to think that the modest growth forecast, as outlined in the Greenbook, is most likely. But in my judgment, there has been a significant increase in the amount of downside risk to the economy in the last few weeks. So, while I would say that modest growth is the most likely outcome, I'm much more concerned now about it coming to pass than I was in May.",402
-fomc-corpus,1990,President Syron.,4
-fomc-corpus,1990,"Well, I guess this is a Northeast economic story. In New England our situation continues to worsen, and I'd have to say with some signs of cumulation. But I don't think this is largely because of national factors. Our own expectation for the region, given an economic performance nationally something like that in the Greenbook, is that the region will continue to decline well into 1992 and then level off but be slow coming back. Retail sales are now quite weak with aggressive pricing; there are some bankruptcies, and inventories are becoming a problem. There are some questions about weather influences because we have had a cool, rainy spring and purchases of things like gas grills and that sort of thing--once it gets past the fourth of July--may tend to be put off for another year unless they are priced very aggressively. Contributing to all this is the banking situation, which I think we'd have to say continues to deteriorate. We now have people actually becoming somewhat blase, about banking, which I guess could be either good or bad. We have had a bank failure about every two weeks for the last two months.",225
-fomc-corpus,1990,The people are blase or the outside--,9
-fomc-corpus,1990,"As these things happen successively, I suppose it is human nature that they draw less attention in the press. It's really noticeable that they draw much less attention in the electronic media and on the radio than one might have thought. Now, these are [mostly] small institutions. With the exception of one $2-1/2 billion thrift institution, these are institutions of less than $1/2 billion in size, so the impact is not enormously great. But to cite one example: A story that a $1/2 billion institution was going to be closing was in a gossip column in one of the newspapers two days before and it ended up having some problems but no severe runs or anything like that. Interestingly, consumer confidence--and the decline we have had is pointed out in Mike's chart 4--is remaining about the same. It's no longer falling in the region, which is a little hard to figure out, but it is at a quite low level. Looking at sectors, construction is obviously at dead center, particularly in southern New Hampshire where it was very big. And that is going to be a drag on the New England economy.",231
-fomc-corpus,1990,"Seasonally adjusted, it will soon turn negative!",10
-fomc-corpus,1990,"It's almost conceivable! Interestingly, employment in services has been falling as well, particularly in finance, insurance and real estate, and also in wholesale and retail trade. You just notice the availability of labor where there really had been a problem with availability in the services sector. It is now much less of an issue at the wholesale and retail stores; the stores are actually tightening up and have not put as many salespeople on the floor as they had before because of the concern that they have. Interestingly, the credit crunch question, although I'm not sure quantitatively or qualitatively that it has gotten any less pressing one way or the other, is becoming much less newsworthy and is drawing much less attention. We took some loan data and adjusted for sales of loans and items that were changed to writeoffs and things like that, and we found that loan data pretty flat except for real estate, and there was some decline in consumer loans. Manufacturing was really one bright spot, believe it or not. Sales were mixed for our manufacturers--from 0 to 15 percent. The two [unintelligible] see an increase [unintelligible] holding up relatively decently but a lot of these things are special factors. For manufacturers, exports are more and more becoming an important source of sales. Also, a lot of these things are in areas you might expect--in aerospace, as it has gone nationally, some types of electronics and defense-related products. Our computer sector is still quite weak. For the longer term there is quite a lot of concern about what defense means, and regionally I think we will see a substantial drag from state and local fiscal changes. The Massachusetts budget deficit is about $1.4 billion for the current fiscal year and the next fiscal year is forecast to be about another $1.4 billion. They are trying to arrange for some sort of [financing], part of that out 30-40 years. Connecticut has a substantial problem, so there is going to have to be very significant [unintelligible]. As far as the national economy goes, given the policy assumptions last time, our view is that the Greenbook seemed a little optimistic; and given the policy assumptions this time, it seems to us slightly pessimistic. I'd emphasize the ""slightly,"" particularly on the unemployment rate. As has been noted, it does seem to put a lot of weight on this credit crunch issue. I think that is so; at least it's discussed frequently--let me put it that way. And it's very, very hard to know what that means. There are lots and lots of unknowns out there; things are definitely softening but it's hard to see whether this is a pause or a trend. In terms of policy, we need to see something on whether this will continue or not. There are a lot of weather-related issues in the retail sales data, particularly in fuels and personal consumption expenditures and in some of the GNP accounts. I'm also skeptical of the month-to-month retail sales numbers. So, I don't know that we can think at this point that the consumer sector is really going to weaken. The export sector looks relatively healthy; residential construction look weak. On the other hand, the purchasing managers survey this morning looked reasonably good. The indicators of a recession don't suggest a [high] probability of that. Unemployment hasn't risen; claims aren't rising, even though we've seen poor employment performance. We just have an awful lot of unknowns out there, not the least of which is what is going to happen with fiscal policy. We'll get into a discussion about this later today or tomorrow, but I think it's a very difficult period to make a decision to change [policy].",745
-fomc-corpus,1990,"What is new in this whole process is that I don't think any of us has sat through this type of unraveling of an accelerated financial expansion. If you look at the flow-of-funds table, we go from double-digit [rates] to squeezing down, and that effect, I think, is really what we're hearing about. The question is: How does one read that? I think it explains the type of phenomenon that we see in New England at the extreme. But the rest of country is definitely [unintelligible].",107
-fomc-corpus,1990,"Well, on this business of a credit crunch--and I think we have had some severe problems along that line--in looking at these figures it's interesting that, once you've adjusted them, a lot of the fall-off is in areas you wouldn't expect to be price-driven--i.e, in consumer lending. There is just no avoiding it; that's what's going on.",73
-fomc-corpus,1990,President Parry.,4
-fomc-corpus,1990,"Mr. Chairman, the Twelfth District economy continues to grow, but the pace of growth has slowed recently. Employment grew at a 2.8 percent annual rate from January through May. That compares favorably to the U.S. rate of growth of employment of 1.8 percent, but it does represent a slowdown. From May of 1989 until January of 1990 employment in the District was growing at rate of about 3-1/2 percent. Conditions remain good in the trade and services sectors. Retailers report healthy sales, confirming moderate employment growth in recent months. In most parts of the West, home sales are still strong and median prices are rising but at a much slower rate. Reports of particularly robust activity come from Seattle, Sacramento, Oregon, and parts of Utah and Idaho. However, in the coastal areas of California, which are primarily Los Angeles, San Diego, and San Francisco, sales volumes and median prices have fallen from the high levels of a year ago. Although sales of more affordable homes continue to be robust, construction activity has fallen from the high levels of a few months ago. Nevertheless, the level of activity remains high with construction employment still registering solid gains over year-earlier levels. Manufacturing activity continues mixed. Production of commercial aircraft, aluminum, and some construction-related products is reported to be strong. However, employment gains in commercial aircraft are limited by both capacity constraints and also by improvements in labor productivity. It's interesting to note that Boeing has actually laid off some people and apparently has done that, as they explain it, as a result of increased labor productivity. High-technology-related industries are relatively flat overall with wide variations among firms and product lines. And layoffs and plant closures associated with defense cutbacks continue. If I may turn to the national economy, we're in general agreement with the outlook in the Greenbook for this year, but we do have a few differences. Adopting the Greenbook assumption of no change in the current level of short-term interest rates, our forecast would be about a quarter of a percentage point stronger, at least in 1990 and continuing into the first part of 1991. I'm not sure exactly what the causes of these differences are, but I have a feeling that they might be accounted for to some extent by differences in the impacts of credit availability effects. Even in the absence of credit availability effects, we expect real GNP growth to be less than that of the growth of potential, putting some modest upward pressures on the unemployment rate and containing inflationary pressures, at least underlying inflationary pressures. Therefore, we anticipate inflation in the GNP fixed-weight price index to average about 4-1/4 to 4-1/2 percent over the next 18 months, which I believe is slightly higher than that in the Greenbook. Thank you.",572
-fomc-corpus,1990,President Forrestal.,4
-fomc-corpus,1990,"Mr. Chairman, the economy has not changed appreciably in the Southeast since the last meeting. Growth is continuing along the slow path that we've been experiencing for some time now. We are seeing a fairly healthy expansion, I think, in services and in our export industries. Offshore energy exploration is also moving up higher and we continue to receive reports of severe labor shortages in the energy sector in Louisiana. Other manufacturing areas are quite weak, mainly due to the conditions at the national level for the automobile and construction-related industries. I don't have to go out and ask people any more what they think about the economic situation; I'm inundated with advice about what we should do. But I must say that people are expressing increasingly their concerns about current conditions and the outlook. Now, that certainly has been true for some time in the real estate and housing areas, but increasingly we're hearing it from others as well and particularly from bankers. In recent weeks they seem to be a lot less concerned about regulatory pressures than they were and much more concerned about loan demand that has weakened across the board. That is one very notable change from the views a few weeks ago. And I would echo what Dick said: that the publicity about regulatory pressures seems to have waned quite a bit. Looking at the national economy, our staff has somewhat faster real growth, especially in the early part of the forecast period, in comparison to the Greenbook forecast. The differences are basically because we have a small reduction in Federal spending and we have in fact [unintelligible] as much of an impact from the tighter credit conditions. We are also a bit more optimistic about the price outlook even though the forecast shows a somewhat tighter labor market. But as we go into 1991, our forecast does converge a little more on the inflation side. As I try to look at the outlook, like everybody else, I'm beset by a number of these uncertainties. I must say that one thing weighing heavily on my mind is that our bank directors, who have been very steadfast in supporting our anti-inflationary policies, are now leaning to the view that some reduction in restraint is needed right now. What is significant about that, I think, is that it is not only the business directors who are saying this but also the bank directors who have typically favored a relatively tight policy in comparison to the other directors. The business and financial contacts that I have spoken to in recent weeks are much more blunt in this regard--virtually without exception urging a reduction in rates. My take on this is that the negative sentiments really reflect the pressures, the temporary pressures I hope, to slow inflation after a period of pretty comfortable business conditions. Businesses seem to be having trouble, at least in the Southeast, raising final prices as much as they had expected to, and now they have to find ways to cut costs to preserve their margins. It seems to me that this is the pressure and the ultimate adjustment that we've been trying to achieve for a long time. But having said that, I still find myself now feeling--and even more so--that the risk is on the down side and that there is a greater chance of growth falling short of rather than exceeding our expectations.",643
-fomc-corpus,1990,President Keehn.,4
-fomc-corpus,1990,"Mr. Chairman, on balance the economy in the District is largely unchanged from the last meeting: mixed to just stable, at least at a moderate level. Clearly, there are some sectors that are weaker. Retail sales are down and I must say anecdotally I am hearing that June sales really have been very soft as compared to last June. Construction activity is down, both residential and nonresidential; yet our numbers I think are still running ahead of the national numbers. The Chicago purchasing managers report came out the other day; for June it was down a bit from May. Production, new orders, and order backlogs were lower. The manufacturing sector is generally unchanged, but there are some areas that are better. In the steel business, for example, as the year is moving along, the shipments level is being increased. They started the year off thinking it would be an 80 million ton year. Now, the numbers are up to as high as 84 million tons--a little lower than last year, but still a comparatively good year. Operating levels, at least at the company I talked to, are at about 89 percent. The electronic communications business is strong; the order rate is moving up and is now back up into the double-digit area. The paper industry is flat but at a high level, operating at about 98 percent. But having said that, an awful lot of capacity has come on in the paper business and, therefore, pricing is very, very intense. Liner board, for example, has gone down from $410 a ton to $370 a ton. In the manufacturing sector, not surprisingly, agricultural equipment is very strong; production levels are about 5 percent higher this year than last year. Sales of agricultural equipment at retailers are moving at a very good pace. Construction machinery, though, is weak; and in response to the decrease in construction activity, that category is down. The auto sector continues to be very, very uncertain; the sales level in May and early June certainly was weak and as a consequence the forecast for the year is beginning to be pulled down a bit. One company's forecast is down to a little under 14-1/2 million units for the year and that's depending on 14-1/2 million for the second half. Even those levels, of course, are dependent on tremendous incentives. The incentives continue to be over $1,000 per car in order to maintain these even weaker numbers of sales. Auto inventories at retail continue to be at reasonable levels; dealers just aren't buying and, as a consequence, many of them are losing money. GM is quoted as saying that 35 to 40 percent of its dealers are currently losing money. The auto production levels in the third quarter will be significantly higher than last year but there is a comparative issue involved because the third quarter of last year was pretty weak. In the agricultural sector, what started off a couple of months ago as being a near perfect growing season looks not quite as positive as a consequence of the heavy amount of rain we've had in the Midwest. We are having, to quote a new term, ""ponding"" in some areas and severe erosion. And as a consequence, the corn planting has been delayed and some of it has been shifted into soybeans, which can be planted a bit later. Depending on how things work from this point forward, I think we're still going to have a good production year, but it just isn't going to be quite as strong as it might otherwise have been. On the pricing side, our outlook is more positive than the staff forecast. I am continuing to hear awfully good reports. The raw materials prices are stable to down. One large manufacturer I talked to says that his firm's raw materials costs for all of this year will be 1/2 percent lower than last year. In other respects I hear very good news on the raw materials side. Finally, with regard to the credit crunch, the banks that I talk to are saying that they certainly are being more careful in their approach to credit lending. They are lending very, very carefully, but everybody says that there is more than enough credit for good credits. And, of course, they would emphasize the word ""good."" Just briefly, in a national context--and I think our view is reflective of our District outlook--we have been a little more positive than has the Board staff in the past and we continue to be so. Our outlook for this year particularly is stronger than the staff's and for next year we are a bit stronger. The difference really is in personal consumption, to some extent in nondurables but to a greater extent in the durables category and [more specifically] in household durables. Our outlook for home starts is a little higher than 1.3 million, whereas the Board staff's is a little under 1.3 million, and that works its way through in the household durables category. With regard to inflation, our outlook is a bit different from the Board staff's also. We think as we get into next year that the numbers will begin to show some improvement. And our outlook for inflation by the end of next year is certainly lower than the Board staff's. Thank you.",1056
-fomc-corpus,1990,President Melzer.,4
-fomc-corpus,1990,"In terms of our long-run outlook, we're right near the central tendencies in both years; we tend to be at the lower end in terms of nominal GNP, real GNP, and the CPI, and a bit at the higher end on unemployment. The one comment I would make is that in 1991 we're looking for somewhat lower inflation, just a quarter of a percentage point from the lower end of the central tendency. I would say that's based on the progress in the trend growth in money and the decline from double-digit rates in the 1986-to-1987 period to less than 4 percent now. Essentially, I think that kept us from overreacting earlier this year to the temporary runup in prices. And it also influences us now in the sense that we have built such a good base here that I think there's some reluctance to trade away a lot of that. Now, there's concern about the recent slowdown in money, but in general where I come out--and not everybody would agree with this--is that I'd need to see more before I reacted to that, particularly in the context of trading away some of this longer-term progress. As far as the District goes, the situation still looks pretty good right now. We have had growth in nonagricultural employment in the most recent three-month period that's right in line with the national numbers and over the last year almost right on top of them. Our manufacturing component is actually a bit stronger; it's growing sluggishly but that compares to declines nationally in the most recent three months and over the last year. On the horizon, however, there are clearly some problems. We have a lot of auto industry exposure in Missouri--in St. Louis and Kansas City. Chrysler has a shift that is scheduled to go out this fall and as I recall it involves about 1,900 workers. And recently McDonnell Douglas has talked about layoffs; they have not made any specific announcements but the rumors are that 4,000 jobs in St. Louis will be eliminated, and that would be 0.3 to 0.4 of a percentage point in terms of our metropolitan area unemployment rate. The interesting thing about that is that I would attribute those layoffs solely to current inefficiencies. That is, it may put them in a better position as contract cuts come a couple of years down the road, but basically this is dealing with current problems. And I think it caught people a bit by surprise in that they weren't really looking for any winding down until 1992 or some time around then. On the banking side, asset quality continues to improve in our District. Nonperforming loans are going down; real estate problems have gone up a little but they are still well below national averages. In St. Louis, for example, nonperforming real estate loans are less than 2 percent, compared to much higher numbers in some other metropolitan areas. On the agricultural side, the weather has affected the wheat crop. We have had, of course, very wet weather. It also has affected planting but I think corn is the only crop that would possibly be affected by that; soybeans and cotton are in pretty good shape. I wanted to comment on one other thing quickly. We had a series of meetings a week ago with our pension fund managers. I think it's dangerous to draw conclusions from a relatively small sample of managers, even though they're very professional, but what struck me was that I did not pick up from any of them a great deal of anxiety about the outlook. Basically they are assuming a soft-landing type of scenario. In other words--or I guess to put words in their mouths--they are assuming continued sluggish growth, a continued unwinding of inflationary pressures, and a gradual decline in interest rates. I would say that, in effect, what most of them were doing was looking through current [profit] margin pressures, which are very evident, and the effect that will have on earnings. They feel that a gradual decline in interest rates will offset that and that from a valuation point of view they will be okay. The flip side of that--and we didn't ask this across the board but we talked to one group--is to ask what they would worry more about. And I think in general they would be much more worried in a longer-term context about a resumption of inflationary pressures as opposed to some shallow recession. Of course, they were quick to add that once a recession started who knows whether it would be shallow. So, that was kind of a soft question. Generally, in the bond part of the portfolio there is usually not much of an interest rate bet; in fact some of them won't make any at all. They just stick right around the Shearson-Lehman index in terms of their duration. But there were two standouts, one on either side. One manager is betting on declining rates and another on rising rates. So, overall, there's a pretty neutral view there.",1002
-fomc-corpus,1990,"We're not supposed to adjust policy based on that, are we?",13
-fomc-corpus,1990,No.,2
-fomc-corpus,1990,President Stern.,3
-fomc-corpus,1990,"With regard first to the District economy, for some time I have reported that it was doing better than the nation as a whole. We just had some data revisions; the series we follow most closely are nonfarm employment and income, and the data revisions confirm those reports. Both for 1989 and early in 1990 at least, the District has outperformed the nation. I think essentially what is going on is that the natural resource industries in the District, which sometimes act as a drag, have actually been pulling things up. In that regard, I'm referring to mining and forest products and paper and, of course more recently, agriculture. In fact, the farmers in our District have just about run out of things to complain about and that almost never happens. We too have had a lot of rain but it was much needed. So, people's spirits are up and that has positive implications not only for morale and farm output but for implement spending and so forth. On top of what has happened to natural resources, as I have reported before, the diversified economies in the Twin Cities and some of the other mid-size metropolitan areas have done pretty well throughout most of this expansion. We recently had meetings not just with our directors but also with our advisory council on small business, agriculture, and labor. And, based on those meetings, I would say the general tenor is positive. It is not ebullient; there certainly is not a great deal of confidence going forward, but in general they are relatively satisfied with what is happening at the moment. There are a couple of exceptions, both of which are obvious: anybody whose business is related to defense is concerned as are those in construction--although they are not concerned about new home sales, I must add, which continue to run above year-ago levels in many places in the District. Generally, I don't think the District is going to continue to outperform the national economy much longer. It is likely to perform much like the national economy; that is, I think things are going to become a bit more sluggish as we go ahead. Commenting very briefly on the national situation, I have a [unintelligible] sense that, as Tom Melzer and a couple of others suggested, we may be poised for some progress on inflation in terms of disinflation here. I say that in part because of the slow growth in money that we've had over an extended series of years now, but also because in terms of anecdotes from people in the District I really haven't had any reports of growing inflation pressures in at least a year. Of course, the latest aggregate price statistics look a bit better. Now, the obvious kickers are the services sector and some of the things that Mike pointed out in his report about the [unintelligible] and so forth. Nevertheless, I think we may be close to a point where we finally start to see some progress there. As far as real growth is concerned, I'm pretty comfortable with the Greenbook forecast or maybe even something a bit better. I think most of the fundamentals are in place for some acceleration of growth. But having said that, I must say that the statistics for the last few months on employment and consumer spending, and my impression of what is happening with home prices, raise the yellow flag.",661
-fomc-corpus,1990,President Black.,3
-fomc-corpus,1990,"Mr. Chairman, our projections for GNP are pretty close to the staff's; they are almost right on the button for this year, but they are a little lower next year than the staff is projecting. As we see it, this seems to be pretty compatible with the kind of growth we've had in the aggregates recently and the Greenbook's assumption that we'll have the same degree of restraint over the forecast period. We would guess that the risk of error would be on the down side and perhaps very much on the down side for the next six months or so. I say that partly because there doesn't seem to be a real thrust in the economy anywhere right now, with the exception perhaps of exports, and also because of the sharp deceleration in the aggregates. The staff memo did a good job of eliminating a lot of the worries I had about the slowing in the aggregates, but as the staff admits--and, of course, we all know--this could be reflecting to some degree a slower growth in the economy than would be healthy. And we, like Bob Forrestal, Si Keehn, Tom Melzer, Gary Stern, and maybe some others, are more optimistic than the staff about the degree of inflation that we will have, and we have felt that way for some time. We think the staff is about right for this year because of what is already in place for the first quarter, and that puts us at 4-3/4 percent on the CPI for the year. But we're expecting a deceleration in 1991, down to the neighborhood of 3-3/4 percent maybe, because of the drop in M2 growth in the second quarter and also the projection on the part of the staff that we will have a constant federal funds rate over the forecast period. And, finally, we think the credibility we will get on our anti-inflation policy, if in fact we do hold the federal funds rate steady over the next 18 months in the face of rather sluggish real growth, really ought to have at least a moderate [salutary] effect on the rate of inflation that we actually achieve. I was intrigued by Si Keehn's comments about ""ponding"" in his District; we've had a little dry spell, Si, and I think we would be happy with a little ""puddling.""",471
-fomc-corpus,1990,President Boykin.,4
-fomc-corpus,1990,"Mr. Chairman, on the national picture our view is not very different from the staff's forecast. We see slightly more strength for the rest of the year and about the same for 1991. I don't quite share my friend Bob Black's and others' optimism on inflation. I continue to remain a little pessimistic there. With respect to the District, the economic recovery continues but its strength seems to have diminished in the last two months. At the May meeting I spoke about how, for the first time in three years, the recovery in the Eleventh District had time finally to spread across all sectors and all geographic regions in the District. A definite slowdown has occurred recently, probably in response to the slower growth nationally. Our manufacturing industries are still out-performing the nation. We actually have slow-to-modest employment growth, but the gains have been concentrated in chemicals and energy-related manufacturing. Electronic equipment, apparel, paper and several other sectors that had held up manufacturing strength have slipped recently. Defense contractors, of course, have been cutting back heavily. In spite of lower energy prices, drilling activity has continued to increase significantly and all the leading indicators suggest that this should continue for several months to come. Retail sales have softened and construction contracts have declined. Most disturbing, however, is the noticeable slowdown in the service-related sectors. This has been an area of persistently strong growth, but the most recent three-month period marks the weakest growth this group of industries has exhibited since a recovery began three years ago. In spite of what I've been saying, for some strange reason business sentiment seems to have improved a little lately, perhaps because steady slow growth in a stable, predictable environment has finally come to be viewed as preferable to an uncertain stop-and-go environment. Nonetheless, the talk of credit shortages--and I'm not just talking here about real estate nor just for the smallest firms--is becoming more widespread down our way. To keep [my report] balanced, I guess I should say that our directors are probably not quite as optimistic as I am.",408
-fomc-corpus,1990,President Guffey.,5
-fomc-corpus,1990,"Mr. Chairman, the good news is that the drought is over as far as our District is concerned. We had ""ponding"" and ""puddling"" but the fact of the matter is that the farm sector still remains the primary source of the strength in this rather slow-growing District economy. With respect to the agricultural sector, the wheat crop, which has been mentioned here already today, is in a sense [unintelligible]. Mother Nature plays tricks on the farmers as she does annually, I guess. But overall the wheat crop is projected to be at or near a record level. As a matter of fact, earlier today I received a report that wheat in western Kansas had yielded 10 percent more than it ever had before.",149
-fomc-corpus,1990,Better subtract the fraction of a bushel that Wayne brought back and we lost!,16
-fomc-corpus,1990,"The fact of the matter is that some of the wheat crop, which 30 days ago looked outstanding throughout most of our District, has been lost because of high winds and wet weather. But overall it apparently will come out very well. In addition, there has been a delay in planting corn and the corn acreage will be down this year, but that is [offset] by the soybean crop because of the later planting date for that crop. Red meat prices for the farmers still are very good and as a result the agricultural economy looks very strong. With respect to the credit crunch that has been mentioned, with some diligence [in our search] we simply don't see it in our area of the country. As a matter of fact, the complaint is that there is very little loan demand and liquidity is very high in most of the small agricultural banks particularly, as well as in some of the bigger banks. Employment continues to grow throughout the District; in fact, in each of the metropolitan areas the unemployment rate is lower than the national rate, and there is some strain on skilled labor in the District. The District automobile manufacturing sector remains in the doldrums. There is some continued modest improvement in the general aviation manufacturing area. As for construction, home building is at a low level and there is very little commercial construction taking place because of the overhang that still exists in the energy areas such as Denver, Oklahoma City, and Tulsa. Although there is some [construction] in Kansas City and a little in Omaha, by and large it does not measure up to year-ago levels. In the energy sector, the OPEC overproduction has driven down prices, as noted earlier today. However, the rig count in the District still remains fairly stable and in fact is higher than a year ago. Overall, I would characterize the District as being in fairly good shape in most areas. I hear very few comments from people that I or my staff have been in contact with concerning the economy itself. People are pretty well satisfied, but one has to lay that against the fact that some of them suffered rather dramatically in the 1980s, so they think current conditions are pretty good. On the national level, we have no real divergence from what was presented in the Greenbook with the exception that in 1990 we're about 1/4 percentage point stronger [on GNP] than the Greenbook and inflation is roughly 1/4 percentage point more. We're back together in 1991, however. So, over the total horizon our forecast is not greatly different than the one the Greenbook portrays.",521
-fomc-corpus,1990,Vice Chairman.,3
-fomc-corpus,1990,"Mr. Chairman, to start with, our own forecast continues to be very, very similar to Mike's forecast both in terms of GNP and inflation. There are some minor differences around the edges but they are really quite small. But insofar as the kind of bias [unintelligible] around the forecast is concerned, I associate myself with the comments that Mr. Boehne made at the opening of this discussion. And that is, if somebody put a gun to my head and said ""You have to put a forecast down,"" that's the forecast I would put down. But I don't think I'd have quite the same confidence in that forecast that I would have had three or four months ago--again, for some of the reasons that Ed Boehne mentioned. Anecdotally, there are some aspects of the consensus forecast that look pretty good. Certainly, the impression I get is that the export sector still is quite strong, quite similar to Ted's forecast if not even a bit stronger in volume terms. Again from what people say, the capital goods sector seems to be hanging in there but it is not robust by any stretch of the imagination. One interesting thing that someone mentioned to me just the other day--I don't know, Bob Parry, if you picked this up--was that this was the first instance that this individual could remember of a domestic airline failing to exercise options on Boeing 737s that they had had for three years. I get the sense that the capital goods sector is okay, but certainly not robust. The real estate sector is a tough call. Two or three things strike me there: one is that I do get the sense that the second- and third-level effects of the contraction of real estate are beginning to show up a little more directly for derivative products. That's not by any means confined to the Northeast. On the other hand, having spent a lot of time over the past several weeks with both bankers and with my own examiners, some of whom I think are pretty darn good at this real estate stuff, the feeling I get is that while there is more bad news in the pipeline there isn't a sense of any kind of rout yet to come. There may be pockets geographically or otherwise in which that is true. But even in terms of what my own examiners tell me, drawing from the credit files and so forth, they see some things out there that still worry them, but they do not see a collapse in real estate markets generally. On the other hand, for what it's worth, those same examiners are more concerned today than they were 6 or 12 months ago about another round of LBO-related problems. This is stuff that they don't feel they know enough or are sure enough about to be able to significantly downgrade some of these [unintelligible] credits, but based on their experience their comfort zone is lower. [They cannot] justify substantial changes in classifications but they do tell me that they are more concerned about some of the LBO-related loans that are in there right now. So, there are some good aspects in that they don't see, nor do I sense from the major banks, a further black hole with regard to the real estate situation, although in the case of some of the small banks and some of the regional banks in the Northeast I don't think they would be quite as confident because those institutions have a much higher concentration in real estate loans than big banks. In the minds of everybody I talk to who has a broad-based business concern or lending concern, the big question is the consumer and what the consumer is thinking and going to do. I come away with an impression, not unlike what Gary Stern was saying, of so far so good. But I have this nagging feeling that any kind of a shock could knock consumer spending off in the wrong direction. Now, on the credit crunch issue more generally, I think we all have problems trying to rationalize [or to] quantify what we seem to see. I think that's partly because it is a financial shrinkage that has many different aspects to it. Much of it is demand-side oriented; some of it is supply-side oriented. But a lot of it is a reaction of both supply and demand to excesses of the past. When you try to put that all together, it's very hard to quantify; but I continue to think that there is something of consequence going on. Take the example that Joan Lovett referred to in her remarks about the Chrysler matter a couple of weeks ago, where it was announced that Chrysler was being put on a credit watch list for its commercial paper ratings and, just on the basis of the announcement alone, within three or four business days Chrysler had drawn down its bank lines by almost $3-1/2 billion to replace commercial paper that it couldn't roll over. That was just on the basis of an announcement! Now, one of the interesting things about that is that Chrysler had fully paid backup lines throughout the banking system. The bankers are saying to me point blank that if somebody comes in looking to draw on their lines and they don't have fully paid lines, forget it--the loans simply aren't going to be made. I think that is symptomatic of this very, very cautious, and ultimately healthy, process of shrinkage and consolidation that's going on. But any way you cut it, I think there is clearly something there. Again, I go back to Mr. Boehne's comment. On the inflation front, my sense of the situation at the moment is that the so-called core inflation rate hasn't changed. Maybe it is poised to go down, but when I read articles like I read in this morning's paper about automobile price increases I have to wonder. In that sector everything is--",1157
-fomc-corpus,1990,[Unintelligible] your core inflation is psychiatric--,12
-fomc-corpus,1990,"--identified with responding to problems [by raising] prices. I don't think that quite tells me we're out of the woods yet on the inflation side. Thank you, Mr. Chairman.",37
-fomc-corpus,1990,President Hoskins.,4
-fomc-corpus,1990,"Well, the Fourth District is a little more like Si Keehn's District than it is Ed Boehne's. There is not much of a change from the last time I reported. In terms of the manufacturing side, I would say we're more upbeat than the national counterpart, perhaps because we focused on capital spending and it turns out that in real terms capital spending plans for most firms are running increases of between 5 and 10 percent, whereas the Commerce Department's [number] is running at 3-1/2 percent. Again, like Si's District, steel is relatively strong. I don't have a really good explanation for that. In carbon, they are looking for a pretty good second half. And in stainless, a major firm in our area has very close to a record year in terms of its order book in the next two months. Also, a good portion of this is driven by a very strong export sector in the District. The weakness, as you might suspect, is in retail sales and construction. In terms of the credit crunch issue, we have talked to our small bank advisory council and, of course, to all of the major banks. Small bankers report no change in their standards; they are worried about the regulators coming in. And these small banks are seeing more deals come across now from S&Ls that have been closed; developers are moving over and searching the banks. So, there are plenty of deals in front of them, but most of them aren't very good. In terms of larger banks, we see rather flat to modest growth in loan demand--nothing spectacular. The one thing that I do sense in talking to my directors, who have been and remain very concerned about inflation--and it's very apparent more recently--is that there is some concern about the economy. When I press them on their own firms, all of them are doing all right--some robust and some flat, but nobody's going over the cliff. Their perception is that somebody else is going over the cliff, but they don't know who at this point in time. So, there is a greater degree of caution in the minds of the business community in the District, it seems to me, than there was just last month. As far as the national outlook goes, we're a little stronger in terms of real growth than the Greenbook and a little less optimistic about reductions in inflation. I think the difficult times, looking at what has happened to money, are making some sort of sense out of that. Staff [unintelligible] but the confidence level around the forecast of velocity leaves me a little cold as well. The problem with retail sales is also a bit of a concern. I don't like to be much of a fine tuner; it has been going on for a time so I'm comfortable watching things for a while.",568
-fomc-corpus,1990,Governor Angell.,4
-fomc-corpus,1990,"I was a little struck, Jerry, when you said that we could knock consumer spending off in the wrong direction; I was rather startled by that. That's a new worry, because I presume you meant it might be knocked down. And, of course, if it is knocked down that means the saving rate is higher, and it means we would be getting this long-awaited adjustment in household behavior. I think it's an adjustment that comes quite naturally, given what has been showing up in the housing sector. It's quite clear that during most of the post-World War II economy, American households one-by-one went from better to worse [unintelligible]. The last old word was that the more money you borrowed to buy a house, the more money you made; and the only sad thing was that you didn't buy a bigger house. Of course, farmers learned that if you borrowed money to buy land or machinery, you made more money; and the oil people learned that if you borrowed more money to drill holes in the ground, you made more money. One-by-one all of these notions have bit the dust; housing in a sense is the last one. So, I'm somewhat optimistic that the U.S. saving rate will stay at the 6 percent level, whereas the staff is forecasting that it will fall back to 5-1/4 percent. So in this new environment of opportunity, we get just what we've been asking for for a long time. It does appear that what everybody said--that real interest rates do not determine savings rates--was wrong, like most everything else we were taught. And it does appear that we're making some real progress. Now, my forecast is somewhat weaker on nominal and real GNP than the staff's, but not as much as you would think, given my 6 percent saving rate, because I do anticipate that the export sector is going to continue [to support domestic output]. I have a great deal [unintelligible] and if we have more capacity opportunities and we have rather low profit margins in the domestic sector I think our economy is responding in rather an amazing way. I just note that hardly anyone talks about the fact that the trade deficit and the current account deficit now are projected to be less than half of what they were at the highest point. And it does seem quite likely now, from my perspective of course, that we're going to move into a balance-of-trade surplus position before my term is over. So it just looks to me as if--",505
-fomc-corpus,1990,When is your term over?,6
-fomc-corpus,1990,"It's a secret! I know this sounds too optimistic for most of you but I'll add to it by joining in with Si Keehn, Tom Melzer, Gary Stern, and Bob Black. I also believe that 1991 is the year that we will get the rather dramatic move on inflation numbers. The way the numbers are set I think the year-over-year CPI is not going to change much from the present 4.2 to 4.4 percent level until about next January. And then all of a sudden I think we're going to be seeing 3 percent numbers. But you better discount that, because I've been saying that the last two years!",132
-fomc-corpus,1990,Governor LaWare.,4
-fomc-corpus,1990,"Well, I'm also in general agreement with the Greenbook except that for 1991 I'm not quite as optimistic about the rate of growth, given the interest rate assumptions. I don't think we have much room to maneuver. I think we're walking along a path that's rather close to the edge--if not the edge of the cliff, at least the edge of the ditch. And I believe that the downside risk is greater than the upside risk, maybe significantly greater. I sense that this real estate malaise is spreading. It's not contained; it's creeping down the East Coast; we have it right here on the Potomac. And I think that's a matter of serious concern. The loan demand that has been cited as being relatively soft is a reflection of attitudes and confidence--not only individual confidence but business confidence as well. I think the publicity about taxes and the savings and loan [bail-out] costs and the debt problems of Trump and RJR and the whole junk bond story and all the other stories that are out there in the press can further depress the markets. Personal consumption expenditures are not exuberant by any means, and in a consumer-driven economy that doesn't spell much of an increase in growth to me. The saving rate is more likely to stay at 6 percent or even go higher because I think consumers are far more cautious than the Greenbook forecast would indicate. So, I think these psychological factors, if we did happen to slip into a recession for a couple of months, would accelerate the downhill slide. The watch words ought to be ""be alert and be cautious.""",316
-fomc-corpus,1990,Governor Kelley.,3
-fomc-corpus,1990,"Mr. Chairman, in the brief time that I've been on this Committee I can't remember an intermeeting period where it seems to me that less has changed. I almost have the sense that since May 15th we've been in a kind of suspended animation, with no startling new strengths or weaknesses showing up. Maybe the most important news is what didn't happen. Inflation was scary in the first quarter; we all expected and hoped that it would slow, and fortunately it has done that. So far the credit crunch hasn't eaten us alive. It still could, I suppose, but usually these things have a way of either gaining momentum or losing momentum. My sense is--and I hope it's correct--that it is not gaining momentum. Short term, I have some of the same concerns that Governor LaWare noted in the sense that a couple of things that are going on are unavoidable. One is in the area of construction. Commercial construction, housing--real estate generally--has probably not seen the bottom yet; and I worry about whether it could drag other things along with it excessively. The automobile industry has been borrowing from the future for some time and that's going to catch up with them sooner or later. And I must say that the notion of answering slow demand with rising prices strikes me as bizarre, and that's what they have just done. It's clear that things are going to change if we have been in a period of suspended animation; maybe no one will agree that we have. But shortly we will know much more than we know so far about the fiscal outlook. For better or worse, that's going to become clear quite soon. And perhaps as the next year develops, we're going to know much more about the impact of foreign events on our economy. They promise to be profound, perhaps more so than they have been in the past. But it seems to me that, for now at least, we can feel pretty good about the fact that our strategy continues to look like it's working and that we are on track: that we largely have the conditions that we had hoped to get, and that there is a reasonable prospect that the results flowing from that will be the ones that we had hoped for. So for the moment, I feel that the thing to do is to sit tight and watch closely.",457
-fomc-corpus,1990,Governor Mullins.,4
-fomc-corpus,1990,"I really don't have much to add to the extensive review given by the presidents and my fellow governors. When I look at the data, it's clear to me that the economy is weaker than was projected earlier, but there are no compelling signs that we are headed for a recession. There are some positive signs, perhaps, on the inflation front but mostly in terms of breathing a sigh of relief that the early numbers for the year were transitory. I think one would have to look really hard to see strong evidence of any breakout on the down side. I would argue that there is greater risk on the down side. The consumer risk has been talked about. It is true that the retail sales numbers were only for one month, but they were accompanied by downward revisions for March and April, and the breadth of that retail sales report was not too encouraging since all categories fell except one. Pretty soon we will know whether we will get the bounceback we are hoping for or not. I tend to agree with Governor LaWare, though, that there are a lot of bad vibes coming across to consumers through the tube and through their home prices. And the confidence survey shows confidence to be a little low, although there doesn't seem to be any hard evidence that there's any kind of dive. I also worry a little about the services sector. We have had no real growth in employment in that sector, at least recently. And it seems to me that sooner or later they're going to have to deal with their cost structure. Inventories, the way I look at the data, show no real evidence of impending recession; the same is true for capital goods. Construction is obviously not in great shape. Exports have been really helpful. I wonder about the buoyancy of western Europe. The industrial production numbers of Germany have not seemed to me to be all that encouraging. On the inflation side, again, I don't see any major changes. I just went back and looked at a whole series of commodity prices a year ago versus now and it looks like there's nothing to be upset about there on the up side, and there may be some encouragement on the down side. Lumber is way up due to the spotted owl [unintelligible]. Scrap steel was higher than I expected, perhaps having to do with the auto companies thinking about strikes coming up and so forth. The one factor, which has been discussed here a little, that I find puzzling and concerning is the slow growth in monetary aggregates--not only M2 and M3, but also demand deposits, which presumably are mostly corporate demand deposits. When you look at a period in which all the aggregates have been growing more slowly than projected and add to that the notion of some sort of credit crunch going on, it's conceivable that monetary conditions are implicitly tighter than intended or projected. Over time that's going to be helpful on inflation but perhaps [adds] some risk to growth in the economy. So, I wonder about the implications of that. And while I generally would not disagree with the Greenbook, I guess that's what makes me believe that if there is a risk, it tends to be more on the down side than the up side.",634
-fomc-corpus,1990,Governor Seger.,4
-fomc-corpus,1990,"I have a couple of comments. First of all, I do agree with Mike and the Greenbook that the economy is sluggish. In fact, I would even use the word ""weak"" to describe some sectors. I'm pleased to see some of the estimates getting down more in my neighborhood, which is a very low number for economic growth this year and no growth next year. Maybe I'll have some company for next year as well. I will note just a couple of concerns that I have. Autos have been mentioned quite a bit, and I too was surprised by the announcement in today's Wall Street Journal about price hikes. I checked with two friends of mine, including one who is and his explanation was that they added on to the sticker so they can give bigger incentives. I'm not a marketing person, so you can explain to me later whether that makes sense. It still has a negative impact as far as the public is concerned. And I don't think it's too bright, especially when some of these same people have been telling me for some time that there has been a problem with sticker shock, particularly in parts of the country where income levels are a lot lower than they are around Washington. So, that's a problem. Also, the consumer debt load is a growing problem and the auto companies have been having trouble getting some of the would-be buyers qualified to get loans even by their own captive finance companies. You would think that they would bend over backwards to get the sale made, but I think that says something. On the credit availability side, I picked up some comments that some of the dealers themselves have been kicked out of commercial banks for their floor planning. So, credit availability is entering into autos in that way rather than on the individual consumer side. I talked with people at has been expected to fill this void by providing funds for floor planning; but because of their own problems, they're not always able to do that. And a growing number of car dealers are having financial difficulties, to the point of going bankrupt. The number of dealers going bankrupt in the first 6 months of this year is equal to the number that went into bankruptcy in 1987 and 1988 combined and is 50 percent above the number that went bankrupt in all of 1989. So, I think this is getting to be a serious problem and it [unintelligible] in a couple of ways. One is that they are not going to be around to make sales; the second is that they're unwilling to come up with a good order stream because they're just so stretched themselves that they cannot afford to carry decent-sized inventories. Everything I heard I don't view as a temporary phenomenon--something that's going to go away in the next couple of months, unfortunately. Then, of course, the auto makers have the UAW to negotiate with. I can't get anybody to admit, by the way, that they're adding to production in order to stockpile; that just does not seem to come through. In fact, what I hear more is that they're having a hard time getting enough orders from dealers to do their build out just so they can handle the production for which they already had ordered parts and supplies. Another area I want to say a few words about is housing. I probably deal with less-than-spectacular builders, but I don't think the problems are all going to be resolved in a hurry--particularly in smaller towns. I don't believe that it is easy just to walk out and find alternative sources of funds. Even though it would be nice to assume that, that doesn't seem to be the case. A person just called me this morning from California with another whole raft of stories about small and medium-size builders who are having problems getting financing. In some cases they are builders of single-family homes; others are builders of small apartments--10 to 12 unit apartments, not the big ones by developers who have been engaging in all sorts of wild extremes. I would like to think that housing starts have bottomed out, Mike, but I'm not necessarily convinced that that's the case. Finally, on inventories, even though the aggregate numbers may look pretty good, there are growing examples of firms in the retailing industry, and to some extent in manufacturing, whose inventories are creeping up above where they would like to have them. So, these are the areas that I'm most concerned about at the moment. In looking ahead for 1991, my problem is that I can't see what's going to give this rather sad-sack situation a boost and turn it around, particularly with the talk about the tax hike. I had the TV on yesterday and it seemed to me that every program--every one of these ""Face the Nation"" kinds of shows--was going into this subject of the tax hike and President Bush breaking his pledge of no new taxes. You would have to be deaf and a low-grade moron to have missed this. And I think that is going to have a real impact going forward. On inflation psychology, I talked to the head of a big paper company and I'll just tell you what he said because I remember a year or year and a half ago paper was one of the industries that we worried about having shortages of capacity and that were passing out price hikes with abandon. Anyway, he said that they have ample to excess capacity at the moment and that there's nothing in the way of price increases either in the works now or on the horizon. Many prices of this particular producer are actually well below where they were a year ago and at the moment some prices are still declining. He thinks the rest of 1990 and 1991 should be [a period] of price stability for their whole industry, not just for his company. There has been new capacity added in the last year, year and a half, and there is going to be more coming on all the way through 1991 which, of course, will make it still tougher just to pass through any higher costs. From his point of view inflation is not a big problem, and he doesn't hear other business people that he speaks with mentioning inflation as a big problem either. He thinks the so-called inflation psychology is much more evident in the financial community than in the manufacturing arena. And I think he's probably right. Thank you.",1257
-fomc-corpus,1990,"Well, that concludes the go-around, but I think we have time, as the last item on this evening's agenda, for Don Kohn to at least discuss the longer-term ranges for monetary policy. Then we will call it an evening. Remember, we're invited to the British Embassy for cocktails, I believe at 7:30 p.m., and dinner thereafter. Don.",76
-fomc-corpus,1990,"Thank you, Mr. Chairman. I will be referring to tables in the Bluebook as I go along. [Statement--see Appendix.]",28
-fomc-corpus,1990,We left off yesterday with the completion of Don Kohn's presentation on the long-term ranges and we are now open to questions.,26
-fomc-corpus,1990,"The growth rates for M2 and M3 in 1990 and 1991, particularly 1991, assume that the special factors that impacted 1990 will persist in 1991. Is that correct, particularly with regard to M3?",51
-fomc-corpus,1990,"Yes, especially with regard to M3. We are assuming that the thrifts continue to shrink in 1991 and shrink at close to the rate that they did in 1990, or a little less. The marginally solvent ones will remain under pressure and there are enough assets and liabilities out there in the conservator thrifts to keep the RTC going at a pretty good clip for the next six quarters at least. So, we built in a continuing shrinkage of the thrift industry and [continuing] activity of the RTC. We built in moderate growth in bank credit--about 6-1/2 to 7 percent--which would be a slight pickup from now. So, we have diminishing effects relative to the second quarter when we had no growth in M2 and M3. We don't have that built in; we have that moving down or decreasing over time. But there are still some effects, yes.",187
-fomc-corpus,1990,"If there are no other questions, I would like the members now to address the issue of the 1990 ranges--whether they should be the current ones or perhaps the alternate ranges--and I also would appreciate having the members' views on the 1991 ranges with respect to M2, M3, and debt. We will have to vote separately on the two sets of ranges, but I think it would be useful in this discussion around the table for the members to combine both years.",99
-fomc-corpus,1990,"Mr. Chairman, first of all, I would like to compliment the staff on the excellent Bluebook. It's always good, of course, but the provision of the extensive longer-term alternatives was very helpful. Before I turn to the longer-term ranges, let me say a few words about the alternative [strategies] that were set out in the Bluebook. As I look at those, the first two scenarios are the only ones that seem consistent with our policy of trying to push down inflation; the third does not really accomplish our objective. The first scenario seems to me to be representative of the policy of gradualism that we have been following. I certainly endorse that policy; it is a policy that we ought to continue. It is a policy that is very frustrating in the sense that it does not produce very quick results, but I think we need to accept that anyway. It seems to me that a more aggressive policy at this time really would jeopardize the achievement of our long-term goal of price stability. One could argue about the credibility associated with a more aggressive stance, but I'm not convinced that that's a practical solution. I think we ought to be very pleased essentially with where we are with respect to policy. We obviously would like to have had [better] results in terms of the inflation numbers, but that will come if we exercise patience. I think we've done very well considering the posture of fiscal policy over this time. With that as a preamble on where I'm coming from, let me turn to the ranges. I would favor keeping the range for M2 at its present level of 3 to 7 percent for 1990. Tampering with it six months into the year would reflect a degree of precision that we don't really have. There's a lot of uncertainty surrounding M2, and I think that any potential shortfall for 1990 can be explained when you testify. Now, with respect to M2 for 1991, I realize that as a signal effect we've had a tradition of generally lowering the range to indicate our continued attention to inflation. But with all of the uncertainty surrounding velocity and the state of M2, I would leave that range alone. Also, we have projections from the staff that it may grow more quickly anyway. So, I don't think it would be good to change the M2 range either for this year or for 1991; I would keep it at 3 to 7 percent. I would keep the M3 range the same in 1990 as well. An argument can be made to reduce that range for 1991; but again, given all of the uncertainty surrounding the S&L situation and velocity and all the things that Don indicated, I think the argument is stronger for keeping the range for M3 the same. So, I would not change the ranges either in 1990 or 1991 for either M2 or M3; nor would I change debt.",591
-fomc-corpus,1990,President Black.,3
-fomc-corpus,1990,"I concur, Mr. Chairman, with Bob Forrestal's statement about how useful these longer-run [Bluebook] simulations are because I like to look at monetary policy from a particularly long-run viewpoint. As I studied these, I found myself thinking about the Neal Resolution. If we can assume hypothetically--I'm sure it's purely hypothetical--that the Neal Resolution would pass Congress this year, we would be mandated to bring inflation down to zero by the year 1995, the last year shown in the simulations. Since we supported this resolution publicly in part of the testimony [presented by] many of us, the deceleration shown in the simulations in strategy II would seem to be the very least that we ought to be aiming for over the long run. Two percent is certainly not zero, but it's considerably closer than the 3-1/4 percent that we would have in the baseline simulation. And the simulations for strategy II do suggest that GNP growth would be very modest over this extended period of time in order to get inflation down to the 2 percent level over the five-year period. But as we are well aware, there are various kinds of models and the Board's model is not a particularly forward-looking model. I think one that took more consideration of the rational expectations [theory] might show that there would be a [higher] rate of real growth consistent with the progress against inflation that is shown in strategy II. In any case, the inflation rate in strategy II seems to me to be the minimum progress that would be consistent with our stated objectives. To help achieve this minimum progress--and I would hope we could do even better although I'm doubtful about that--I think we ought to reduce the ranges for M2 steadily over this entire period of time, with the goal of eventually bringing them down to 2-1/2 or 3 percent no later than 1995. I had this sort of thinking in mind when I argued--I felt very persuasively but later found out very unconvincingly--in February that we ought to go to 2-1/2 to 6-1/2 percent for 1990. So, I would like to see us do that, and we can explain it on the basis of its behavior. There is some risk, I suppose, that some might think that was a tightening move, which I would not consider it to be. In any event, I do feel very strongly, whatever we do with the 1990 ranges, that we ought to cut them for 1991--in the case of M2, to 2 to 6 percent. I think the adoption of such a range would send the public a pretty clear signal that we have a continued firm commitment to our anti-inflationary strategy. And it may be especially helpful to send this signal right now because of the recent fiscal developments and the likelihood that we're going to get added political pressure to ease policy aggressively if anything significant comes out of this. Now, if we did reduce the M2 ranges, it obviously makes sense to lower the M3 ranges too, although I really don't think that does a lot for us operationally. I'm pretty sympathetic to Governor Angell's suggestion that we eliminate M3. But I do think the staff produced a good memo that suggests that there is some marginal value in maintaining it.",680
-fomc-corpus,1990,Governor Angell.,4
-fomc-corpus,1990,"Yes. Even though I proposed eliminating M3, and I hold that position as the proper policy, I do not believe this is the right time to make that move. I think it would signal something we don't want to signal or to deal with at this time. In regard to the 1990 ranges, I wish to reaffirm the ranges adopted previously. I believe it's better for us to look at the target ranges as targets that we're planning to hit, based upon the assumptions we had at the beginning of the year, and then explain why we didn't hit them than it is for us to move the targets to hit the growth path. So, I am not--and never have been before--very open to changing at mid-year. On the 1991 ranges, I agree with Bob Black that strategy II is the only alternative that's consistent with our stated objectives. Frankly, I wonder why I wasn't able to see a year ago that M2 growth might not be larger. But I really anticipated a somewhat weaker economy this year than we really ended up with, and my guess was that we might need the 3 to 7 percent for this year. But it seems to me that the behavior of households has changed and that many households, for example, find that they probably want to hold smaller balances and hold less non-tax-exempt interest-rate debt. And as the consumer saving rate has risen, that in a way brings with it a desire to hold a lower balance largely because of consumers' intolerance for debt, which I think finally has caught up. It does seem to me also that there may be other behavioral changes in people's willingness to hold M2. So I believe it's quite consistent to choose alternative I and alternative II and to choose for 1991 2 to 6 percent for M2. Now, I would also choose 2 to 6 percent for M3 on the basis that I have a commitment to only lower these ranges and never to raise them. And even though we may think that 0 to 4 percent makes sense for M3 for alternative II for 1991, I would hate to see us chase it down to that aberration and then end up moving it back. So, I prefer to leave the consistency of 2 to 6 percent for both M2 and M3. I recognize that there could be a scenario developed in which M2's growth path in 1991 might push the upper boundary of that 2 to 6 percent; that kind of risk is there. I'm very, very pleased, Mr. Chairman, that we've been able to get M2 growth down from those 9-1/2 percent [rates] that we had in 1985 and 1986 and to squeeze that M2 growth down without ever having the monetary shock that all of our critics thought we were producing. We're looking at four-year average growth of M2 of 5 percent, three-year average growth of M2 of 4-1/2 percent, two-year growth of M2 of about 4.2 percent, and one-year growth, I suppose, of less than 5 percent right now. So, we have the one-year, two-year, three-year, and four-year all there together and we're going to be able to get it to the 2 to 6 percent range without a monetary shock. It's just almost an ideal situation. On the debt, I'd use 5 to 9 percent.",700
-fomc-corpus,1990,President Syron.,4
-fomc-corpus,1990,"Well, I agree with everything that President Forrestal, President Black, and Governor Angell have said. I think that we are just about where we want to be, perhaps in the aggregates as well as in the real economy. There is just an awful large number of unknowns out there with respect to the real economy, the behavior of velocity, and what is going on in financial markets. From a policy perspective, I come out with a somewhat different result, but it's largely a matter of how one presents these things. I agree that strategies I and II are the only relevant choices, given what we need to accomplish. This really is a matter of velocity. In terms of how one presents this in testimony to the [Congressional] Committees and how it's read in the broader financial public community, there is some value to indicating that we're willing to change targets as velocity changes and to indicating that these [ranges] do not have [the certainty] of a physical science by a long shot. It makes it easier when we do have a problem to have indicated beforehand that we made these adjustments because of changes in velocity. Generally I also think that we should try to have targets that are somewhere in the middle of the range that we adopt rather than going up [to Congress] and extensively explaining that we're not going to be in the range but that's because of all of these [reasons]. I can see arguments on both sides of that, but that would be my preference. Given that and given the slight change in or flat velocity between 1990 and 1991, I would be in favor of the staff's alternative shown on page 17 [of the Bluebook] for both 1990 and 1991. Because we would be making a substantial change this year, I think that would require a change next year given that we expect a more normal pattern of economic growth in relation to velocity. Having said that, I would not be uncomfortable with--but I'm very worried about how to fine tune this image for 1990--changing, say, to an M2 range of 2-1/2 to 6-1/2 percent and whatever corresponding M3 range would be involved and then going to these ranges for 1991. But just as a matter of presentation, I'd prefer that we go up [to Congress] now and explain that there have been these changes and explain what our longer-term expectations are and how the monetary targets have to be adjusted for changes in velocity. So, that's the direction I would take.",512
-fomc-corpus,1990,"President Syron, what about debt?",8
-fomc-corpus,1990,"On debt, I'm comfortable with 5 to 9 percent.",13
-fomc-corpus,1990,President Parry.,4
-fomc-corpus,1990,"Mr. Chairman, according to our projections, the present 3 to 7 percent range seems likely to accommodate the uncertainty about M2 over the remainder of this year, although it's likely to end up toward the bottom part of that range. Therefore, I recommend that we reaffirm our M2 target for 1990. For 1991, at least based upon our projections, I would recommend a 1/2 point reduction in the M2 target, but I certainly wouldn't have any problem if we reduced it a full point to 2 to 6 percent. On the basis of our projections a [reduction of] 1/2 point would accommodate the growth of M2 that we would see and put M2 exactly in the middle [of that lower range]. With regard to M3, the special factors that we've seen probably will continue to depress M3 in the second half of the year. And, of course, that's going to place the aggregate well below the current range in December. But I prefer to retain the present M3 range for 1990 and just explain to the [Congressional] Committee that there are some very special factors--and uncertainty as to how long they're going to last as well--that may cause it to end up below the lower end. For 1991, I would suggest a reduction of 1 percentage point in the M3 range. Again, that would be consistent with the forecast of M3 that we have for 1991. I must admit, though, that the uncertainties associated with M3 are so great that my confidence in that range or the range that is in the alternative in the Bluebook is not very high. With regard to debt, 5 to 9 percent in 1990 and 4 to 8 percent in 1991 would be appropriate in my view.",372
-fomc-corpus,1990,President Stern.,3
-fomc-corpus,1990,"Where I start on all this, Mr. Chairman, is with the M2 growth rates that Governor Angell enumerated. We are well into our fourth year of moderate growth in that aggregate and I think it's important that we sustain that kind of performance. It's important principally because that's what is going to get us to our long-run objectives and to the kind of overall economic performance that we want to achieve in the long run. So having said that, I think we should lower the ranges for 1991, consistent with the alternatives specified here. I would apply that to all the variables although, as I said before, M2 is the one that I at least focus on principally. I think it's important that we consolidate what we have accomplished over the past several years, and in my judgment that's the kind of range that will help us do that. With regard to 1990, the current year, I feel a little less strongly about what we ought to do with the ranges. Despite some of the mysteries surrounding what has happened to M2 [and M3] recently, it seems to me that we have enough information with regard to the thrift contraction and so forth that it probably does make sense to lower the ranges for 1990 as well. That's where I would come out with regard to that issue. As I think Don mentioned yesterday, and certainly we're all aware of it, if we were to get some meaningful budget package and a meaningful shift in fiscal policy--and that's a big ""if""--we might want to reexamine all this. I certainly wouldn't prejudge where we would come out were that to happen; that's going to depend on an awful lot of things, including progress toward our objective and what's happening to market rates and bank offering rates, and the list goes on and on. So, at this point I think we just have to put that issue aside and be prepared to deal with it if and when it becomes appropriate.",391
-fomc-corpus,1990,So you would reaffirm the 1990 ranges?,10
-fomc-corpus,1990,"No, I would lower those because I think we have enough information to make the case that that's the sensible thing to do.",25
-fomc-corpus,1990,"So you'd have 2 to 6 percent in both years, then?",15
-fomc-corpus,1990,Yes.,2
-fomc-corpus,1990,What about M3?,5
-fomc-corpus,1990,I'd lower that as well.,6
-fomc-corpus,1990,To the 0 to 4 percent?,9
-fomc-corpus,1990,Yes.,2
-fomc-corpus,1990,"I'd like to backtrack just a minute and re-ask the question that [Don Kohn] raised relative to this issue. Whether or not we can forecast quarter-by-quarter what the level of RTC resolutions will be, I feel uncomfortable arguing that the [anticipated trends of] the thrift changes alter our ranges. If in fact we knew about it and were able to make that judgment at the beginning of the year, then it can't be the thrift [developments] per se that create the [deviations from] our target.",107
-fomc-corpus,1990,"Well, I have two reactions. One is that I don't think we felt that we knew the magnitude of the thrift [effects] with any precision. But I don't think it's just the question of the thrifts. The year is half over, so in some sense we have the 3-1/2 percent or so growth of M2 behind us for six months. We're looking at relatively modest projections for M2 growth for the third quarter as well. Those may turn out to be wrong, admittedly; but if they are in the ballpark, we have pretty modest growth for about 3/4 of the year and that's a fair amount of information it seems to me.",137
-fomc-corpus,1990,"Well, let me tell you the argument we would get up on the Hill. We're supposed to run monetary policy, at least in theory, on the basis of the targets that we set. If we set targets on the basis of the monetary policy that we run, they will argue that we have it backwards. Adjusting [the ranges] because of the fact that the money supply is veering off our targets is not an acceptable view up there. That's the reason I feel uncomfortable with this form of explanation. If there's a proved [or] partly anticipated structural change, then that's a valid statement. But I don't know how we can argue that because, in fact, the degree of [thrift] resolutions going on is not all that different from what we were telling the Congress they were going to be. It's just that the RTC didn't even do it for a while and finally they are trying to catch up at this particular stage.",187
-fomc-corpus,1990,"Well, I guess I can't judge the degree of precision with which Congress views this [target-setting]. I've always viewed it as clearly having a wide range of uncertainty.",33
-fomc-corpus,1990,"Well, we can also raise some serious questions about the targets themselves; but I'm just talking about the issue of what's in the law and how we handle it. I hate to interrupt at this stage, but I need to ask the question of Don: How do we handle this?",56
-fomc-corpus,1990,"Well, I can't tell you exactly what we were assuming for thrift resolutions in the face of the decline in thrift assets last February. I'm sure that the staff was not assuming as much as we got in the second quarter. But I think maybe the more fundamental point here is that, whatever our assumptions were, we have never tried to set monetary targets in a period in which the depository institutions system was shrinking the way it is now. This is unprecedented. I agree with your point and Governor Mullins' point that we knew something was going on; we knew things were going to happen. I hope I'm not being too defensive if I say that in this situation it's very difficult to judge how the whole thing is going to play out. One can easily get surprised and have it then seen as more of a velocity shift or a structural shift rather than a violation of the underlying policy. But there is some of the other too because we've had very weak bank credit growth; some of that may be a restraint on the economy, and one can't excuse that altogether. So, there is a mixture, I think, and it's not easy to sort out.",229
-fomc-corpus,1990,"Mr. Chairman, if I can follow-up: In thinking back to where we were when putting together the flow-of-funds projection at the beginning of the year, our focus was very much on our view that the thrift industry was going to contract and that that would result in some disruption of the mortgage market. We were very much concerned about who would pick up the mortgages. We anticipated that banks would pick up many of the liabilities the thrifts were giving up. I think we were sort of right in our analysis of the mortgage market effects of the thrift institution change, but we didn't anticipate the weakening in bank credit. And at that time we didn't anticipate all of the hits on bank capital that would arise as real estate loans were recognized to be less valuable and as these other events occurred, especially in New England, that affected bank capital and the growth of bank assets. That was another surprise. So we've had some significant surprises relative to what we were thinking on the supply side of the credit market and at depository institutions in particular.",207
-fomc-corpus,1990,Let me play Senator Foghorn or whomever.,12
-fomc-corpus,1990,Is he in the Senate?,6
-fomc-corpus,1990,"I doubt you'd be very successful. ""Fedspeak"" is too much a part of you!",20
-fomc-corpus,1990,"You're right. The argument will be made that that is precisely what the targets are for. In the event that the economy is weakening and money supply slows, the expectation up on the Hill is that the Fed would then ease to push them back [on track].",52
-fomc-corpus,1990,"But the economy is roughly on the track that we charted at the beginning of the year. The central tendency of the forecasts at this point looks very similar to what we had, except that the inflation rate is a little higher. Debt is on target, around the middle of its range, and I think that's what we indicated. In a sense it's this depository element, which is so important for the monetary aggregates, that has been disturbed.",89
-fomc-corpus,1990,What you're saying is that it was mis-estimated with respect to things on which we had no historical experience?,22
-fomc-corpus,1990,"Right, so I think there's a rationale--",9
-fomc-corpus,1990,"Oh! Now, that's more like it. It's got to be something on which there was a judgment about how markets would behave under certain structural changes--not economic changes, not the business cycle. We took a shot at it; we didn't quite hit it; and we are readjusting. That's a credible argument.",64
-fomc-corpus,1990,"Also, the Committee should have to decide what it is trying to communicate [via] the monetary aggregates. Are they closer to ultimate objectives for your purpose in policymaking or are they just instruments? In a sense it's as if you were shooting at the moon; you set your direction initially and then found you were off target. It seems to me completely reasonable to say you adjusted your instruments rather than shoot past the moon and then explain later why you missed. That may be an exaggeration of the differences here in the way one can view it, but I think you have to decide just how important the monetary aggregates are per se as a representation of your policy.",132
-fomc-corpus,1990,"Don, I think you mentioned the other day that we did mid-year adjustments twice before. Do you remember in what kinds of circumstances and for what rationales?",32
-fomc-corpus,1990,"Well, I think they were both M1 adjustments; the M1 ranges were increased [because] we had velocity surprises. They happened to be in the direction of increases rather than decreases.",38
-fomc-corpus,1990,Which were easy to explain to Congress at the time--,11
-fomc-corpus,1990,President Boehne.,5
-fomc-corpus,1990,"For 1990, I would keep M2 and debt the same, but I would make a technical adjustment on M3. The rationale for keeping M2 and debt the same is that we are fundamentally on target, that there are uncertainties, but the ranges that we have, with a 4-point spread, are wide enough to accommodate that. I think that conveys a message that we are fundamentally happy with the basic thrust of policy. M3 I would adjust technically, largely for the argument that was just given. We have a target for M3 that we almost surely cannot hit because we mis-estimated what it ought to be at the beginning of the year. We mis-estimated these deposit flows and I think we ought simply to face up to it and make that adjustment. So, I would go with a 0 to 4 percent range for M3 in 1990. For 1991, I think it is important to continue on this longer-run track of lowering the aggregates, conveying the notion that we are serious about working inflation down. I would lower the ranges for M2 and debt by 1/2 percentage point so that we would end up with 2-1/2 to 6-1/2 percent for M2 and 4-1/2 to 8-1/2 percent for debt. I would keep M3 the same, 0 to 4 percent, on grounds that we made a technical adjustment now and we ought to wait and see whether that's accurate. If we have to adjust it again, we have to adjust it again.",322
-fomc-corpus,1990,President Guffey.,5
-fomc-corpus,1990,"Thank you, Mr. Chairman. I'd like to join those who start from the premise that strategy II on the long run--the one labeled ""tighter"" [in the Bluebook]--is consistent with our objective. I also would join those who have indicated that where we are today is about where we want to be and about where we had projected in the past. I think it's rather remarkable. With that background, I would prefer to take the opportunity that I think is now available to ratchet down M2, simply because over the long term 6 percent growth in M2 is the maximum growth that we can sustain and still achieve the objectives that we're looking for. As a result, I would ratchet down M2 by 1 percentage point on both the top and the bottom for both 1990 and 1991, simply taking advantage of the window that seems to me to be available. With regard to M3, there's some debate as to whether or not we should keep M3. There are those who have spoken on that in the past--particularly Governor Angell, who says that he would not pursue his feeling about doing away with M3. I would want to keep M3. But as has been indicated in the discussions before by the staff and others, it seems that M3 needs to be adjusted because of the uncertainties that have occurred. I don't like the proposal by the staff of a 0 to 4 percent range; I don't like the 0. As a result, I would like to see an adjustment to a 1 to 5 percent range for M3 and I would maintain debt at 5 to 9 percent. I would do both of those adjustments, to M2 and M3, now rather than later.",357
-fomc-corpus,1990,Debt?,2
-fomc-corpus,1990,Debt at 5 to 9 percent.,9
-fomc-corpus,1990,Both years?,3
-fomc-corpus,1990,Both years.,3
-fomc-corpus,1990,Governor LaWare.,4
-fomc-corpus,1990,"Mr. Chairman, I'm persuaded that to go to strategy II may accelerate us a little toward that ditch I was talking about yesterday. So, I would rather stay with strategy I. Consistent with that, I would like to keep the range of 3 to 7 percent for M2 for 1990 but reduce it to 2-1/2 to 6-1/2 percent for 1991. I agree with President Boehne that we can make a rational and credible argument for a reduction in the M3 range and we should do it now. I don't get so disturbed by 0 because I don't consider it nothing; I just consider it [another] point on a range. So far as debt is concerned, the 5 to 9 percent for 1990 is acceptable, but I would move it down to 4-1/2 to 8-1/2 percent for 1991.",190
-fomc-corpus,1990,"For M3 in 1991, 0 to 4 percent?",15
-fomc-corpus,1990,"Yes, sorry.",4
-fomc-corpus,1990,President Melzer.,4
-fomc-corpus,1990,"I have a couple of general thoughts on this. I would say first of all, in terms of long-run strategies, that I would be in favor of strategy II. Generally, I think there is a lot more informational value in the ranges if we gear them to what we believe long-term trends are. In other words, I get very concerned about [moving around] these ranges over time. Given where we are and where we're headed, there is very much the prospect of ratcheting these ranges down at some point to accommodate some short-term velocity development and then having to bump them back up. And I think that becomes very confusing. Personally, I like to think of these ranges much as Bob Black does--in terms of where we want them to be in a long-term sense--and I'd move them gradually toward that. I guess that view leads to two points: (1) with respect to problems in the current year, I would [allow actual growth outside] the ranges and explain that and not reset them; and (2) as to the future year, particularly with something like M3 which I think has limited value anyway, I would set a range that's reasonable in the context of what we think the long-term trends are, knowing full well that actual growth probably will miss it. I'd telegraph that right up front and indicate that we are going to be putting less weight on it for that reason. The other point I would make is that while I'm in favor of strategy II, I don't think we have all that far to go. If you take the number Bob Black threw out--around 3 percent--as what we might want to get in terms of M2 growth, that would assume roughly 3 percent potential growth in the economy, with roughly 0 percent velocity. Taking that as the center point of the range, that means we have the potential of eventually getting down to 1 to 5 percent on the range. Therefore, we'd be taking a pretty big bite out of what we have left if we ratchet the ranges down a full percentage point right now. So, all of that put together would lead me simply to reaffirm the 1990 ranges. And in 1991, I would ratchet M2 down by 1/2 percentage point and, if it is in a longer-term sense consistent with that, do the same with M3 and debt. I look to the staff for guidance on that, but that's essentially where I am.",499
-fomc-corpus,1990,Governor Kelley.,3
-fomc-corpus,1990,"Mr. Chairman, Bob Forrestal summed it up well for me when he started us off this morning. I think our strategy is on track. There are good prospects that it will work acceptably and I think we have reason to be fairly pleased so far. And I would like to give that strategy every chance to work. I think that strategy definitely calls for an inflation result on the strategy II matrix, but I'm not quite sure what necessarily is going to be required in the way of aggregates growth to achieve that. As far as 1990 goes, I am definitely of the school of targeting and budgeting that would say we shouldn't shift in the middle of the game. If we are missing the targets, then we should explain why we are missing them but not shift the target at that point in time. So for that reason, I would reaffirm all the ranges for 1990 and, if we miss on M3, explain the technical reasons why that happened. For 1991 I would stay with 3 to 7 percent for M2 because, given where it is now and where it looks like it is going to be in the rest of 1990, I would not be comfortable with the prospect of having an even lower number, 2 percent, be in the range of acceptability. So, I would leave the target for M2 in 1991 at the 3 to 7 percent we presently have. I have been convinced by Don and others that the M3 realities have changed. As a consequence, for 1991 I would go to the 0 to 4 percent range because of those technical realities. On the debt side, I could be comfortable with either 4 to 8 or 5 to 9 percent.",354
-fomc-corpus,1990,President Keehn.,4
-fomc-corpus,1990,"Mr. Chairman, for reasons that I think are clear from the discussion, we are going through a period where the uncertainties are particularly high with regard to the aggregates. While it's clear we will be low in the range for M2 and below the range for M3, I think changing at this point implies a [degree of certainty] that we just don't have. Therefore, I'd be inclined to maintain the 1990 ranges as they are. In your testimony you can explain it. It does seem to me that the exchange that you had with Mike and Don a moment ago begins to provide a good basis for reducing the ranges. First, Don's model and our models are not perfect; they certainly give as good an educated guess as we can come up with as to how things are going to work out. So, I do think there's a basis for lowering [the ranges]. Secondly, Don used the word ""symbolism"" in his text and I think that is important. In effect, it's why we should continue the program of lowering the ranges. So, I would lower the 1991 ranges. Specifically, for M2 I'd be a bit more comfortable with 2-1/2 to 6-1/2 percent. I don't feel strongly about it, but I have a minor preference there. I think we definitely should continue targeting M3. In a period of uncertainty, the more alternatives we have the better off we are; therefore, I'd continue M3. Somehow reducing it to 0 to 4 percent seems like a big drop; I have a minor preference for 1 to 5 percent. I don't feel very strongly about debt, but it does seem to me that the economy may begin to pick up next year as the forecast suggests that it might; therefore, I'd prefer to keep the debt range at 5 to 9 percent for next year.",379
-fomc-corpus,1990,President Boykin.,4
-fomc-corpus,1990,"Well, Mr. Chairman, I will have to confess that the arguments are very persuasive for leaving the ranges the way they are for 1990 or for changing them!",34
-fomc-corpus,1990,That's almost as good as your colleague across the way quoting that famous philosopher who said that 95 percent of the putts don't go in the hole!,30
-fomc-corpus,1990,"Being forced to have to take some [position] here, I would lean a little toward the alternative of reducing [the ranges for] 1990, although I don't know how to sort through how to explain that and how it would be read. So, that's a slight but not a strong preference; I could certainly accept leaving the 1990 ranges the way they are. Now, I do have a little more definite feeling on 1991. Of course, I agree with continuing to indicate our long-term commitment toward reducing inflation. And I would favor 1991 ranges of 2 to 6 percent for M2, 0 to 4 percent for M3; and 4 to 8 percent for debt.",147
-fomc-corpus,1990,President Hoskins.,4
-fomc-corpus,1990,"I favor strategy II for the long term. I think that [presentation of alternative strategies] was nicely done. I think we ought to be comfortable, as many people around this table have already indicated, that we have made good progress toward that [objective], probably more than I thought we would early on. I agree with Tom Melzer's point that it is important not to bounce the ranges around. I would not want to see them have to be moved up because of suspected shifts in velocity. But that doesn't pose a particular problem for me since I wanted a 2 to 6 percent range [for M2] anyway. I have some concerns about the aggregates and about the point that Dave Mullins made--that they all are sending us the same signal and they are slowing rather dramatically. But since I was comfortable in February with 2 to 6 percent, I think we ought to go to 2 to 6 percent. There is a rationale to explain that: It is our best estimate of where we are at this point in time and I think Congress ought to have that information. I would accept all the other ranges--for M3 and debt--under the alternative for 1990. CHAIRMAN GREENSPAN, That is, 2 to 6 percent on M2, 0 to 4 percent on M3, and 5 to 9 percent on debt?",281
-fomc-corpus,1990,Yes.,2
-fomc-corpus,1990,Both 1990 and 1991?,9
-fomc-corpus,1990,Yes.,2
-fomc-corpus,1990,You want 4 to 8 percent for 1991?,13
-fomc-corpus,1990,The 1991 alternative as listed by the staff [in the Bluebook].,16
-fomc-corpus,1990,5 to 9 percent.,6
-fomc-corpus,1990,"Well, for 1991 it's 4 to 8 percent.",14
-fomc-corpus,1990,It's 4 to 8 percent for 1991.,12
-fomc-corpus,1990,Let me get this straight.,6
-fomc-corpus,1990,I want the staff's alternatives both for 1990 and 1991.,16
-fomc-corpus,1990,"Okay. It's 2 to 6, 0 to 4, and 5 to 9 percent for both 1990 and 1991.",32
-fomc-corpus,1990,"No, it's 4 to 8 percent [for debt] for 1991.",18
-fomc-corpus,1990,"Well, something I'm looking at has a mistake on it. Governor Seger.",16
-fomc-corpus,1990,"Well, like everybody else here, I think it's great to be a long-range thinker and strategist. I'm also looking backward 6 years to the first Humphrey-Hawkins meeting I attended in 1984. Just to remind you folks, we had an M2 range of 6 to 9 percent and we have brought it down to 3 to 7 percent, which is quite a significant change. The actual M2 growth ran 7.7 percent for 1984 and we are estimating it at around 3-1/2 percent this year. I think that's very significant. Also, these ranges have been moved down very consistently; we haven't had them popping around like popcorn, and I think that's good also. On M3 we went from a 6 to 9 percent range down to where we are now, 2-1/2 to 6-1/2 percent, and the actual growth went from 10-1/2 percent down to an estimated 1.1 percent this year. I'm just mentioning this because there has been a very significant amount of squeezing out of liquidity in the economy over that period. So, having pointed that out and looking ahead with respect to the strategies, I'm a baseline strategy supporter. With all due respect to the forecasters, I'm just not convinced, looking out 5 years at the additional inflation relief we would get from going the tighter route, that it's worth taking a chance on. I realize that's a value judgment; but it's the way I feel. I'm also not convinced that tightening policy will generate greater growth out in 1995. So, I would go with strategy I. In terms of the ranges for 1990, I've never supported changing the ranges in the middle of the year; I just don't think it's a good idea. I believe that these ought to be set with some idea of stability and [we should] just keep moving them downward; we can pause [in implementing the] decline, but I just think it's very disruptive to have too much volatility in the ranges themselves. So, I would be for keeping the ranges where there are, including the M3 range of 2-1/2 to 6-1/2 percent. And instead of just dismissing this [shortfall] as a technicality because of RTC activities, I think a big part of the credit crunch story is in here. Maybe we ought to look at this and ask ourselves whether we should be satisfied with a 1 percent increase in M3 for 1990. If many people up on the Hill are continuing to get letters from their unhappy constituents, they might be asking that same question or a similar one. So, I would support keeping the same ranges for this year that we established earlier. And for 1991, I also would keep the same ranges for the main reason that we have another crack at these in February. There are a lot of uncertainties about velocity and the economy in general--the RTC activities and a whole lot of other things. Therefore, there's something to be said for hanging in there with the existing ranges and then, with six months' additional information and knowledge, if we're off we can adjust them at the next Humphrey-Hawkins meeting. Thank you.",660
-fomc-corpus,1990,Vice Chairman.,3
-fomc-corpus,1990,"Let me make a general comment first, and that is that I cannot quite shake the feeling that there may be something going on here that's a little more real. Even all the discussion about the RTC represents something very real; and what it represents is that in the prior period there was a heck of a lot of bad debt created in the financial system. So, it's not just a kind of accounting change. What I keep toying with in my mind is that there is perhaps a small possibility that we are going through a phase here where this retrenchment of the financial system, as symbolized by the RTC and the slow growth of bank credit and the slowdown of overall debt, is something quite real and something that need not even be transitory. If you look at the great bulk of experience over recent years, we have had this very substantial disconnection, for example, between the growth of debt in the economy and the growth of GNP. And it turns out that a lot of that disconnection reflects the fact that a lot of that debt was bad debt. It's now showing up as RTC and bank write-offs and junk bond write-offs, etc. So, there may be something here that goes beyond the so-called transitory factors. I tend to take a rather eclectic view of all these Ms, but I am struck that even Mr. Kohn can't explain, no matter how hard he tries, a sizable part of the shortfall in M2 in the second quarter. So, again, I'm not quite sure that we fully grasp, or at least that I fully grasp, all that's going on here in these relationships. For that reason I think we do have to be a bit more cautious about the interpretations that we put on these things. Now, with that general point in mind, Mr. Chairman, for 1990 I would keep M2 where it is at 3 to 7 percent and keep debt where it is at 5 to 9 percent. For 1991, I'd be thinking in terms of 2-1/2 to 6-1/2 percent for M2 and 4-1/2 to 8-1/2 percent for debt. For M3, I'm quite prepared to let you do whatever you feel most comfortable doing. But even in the framework of letting you do whatever you feel most comfortable doing, it's possible that a compromise--in the interest of cohesion in the Committee--might be to put it at 1 to 5 percent for both years. But I have no strong feeling on that at all; I'm quite prepared to let you explain it because basically you've got to explain it one way or another. Either you have to explain why we changed it or you have to explain why we didn't change it. And I would leave that to you.",567
-fomc-corpus,1990,Thank you. Governor Mullins.,7
-fomc-corpus,1990,"My preference would be to leave the 1990 ranges essentially the same. I don't like the perception of moving the targets to fit the data; I think monetary aggregates are pretty important and not just instruments. It also bothers me--the point that the Vice Chairman made--that there's an unexplained component of this. If we really could explain it as just a portfolio shift from one part to another part, I'd feel a little more comfortable with it. I think we ought to have the burden of explaining what's going on, and I generally agree with Tom's point that we ought to set ranges based upon long-term factors and have the discipline put on us of explaining aberrations rather than shift the ranges to try to fit the aberrations. So, for 1990, I would keep the same ranges. On 1991, again, I don't like the idea of moving the targets around. I am concerned with lowering the tentative targets for 1991 in the current environment of fiscal uncertainty as well as the uncertainty of what really is happening to the monetary aggregates. The way I would view the [appropriate] stance for monetary policy, I would hate for us to come back and tentatively have to move the ranges in the opposite direction. Also, I agree with Governor Kelly on M2; I'm not entirely comfortable with the notion that 2 percent would be acceptable. So, I would prefer that the M2 range for 1991 be kept at 3 to 7 percent, although to be honest with you--maybe because I'm new on the Board and I have less courage than the old warriors--I wouldn't be uncomfortable moving it down 1/2 percentage point. On M3, I still would prefer to try to have a range that is more consistent with what we expect it to be over the longer term. I think the RTC is going to go in fits and starts. When the new guy gets in there, I wouldn't be surprised to see a period of time in which there is not a lot of action--a period in which they gear up and change strategies. So, I would prefer not moving that range to 0 to 4 percent, but keeping it at more the long-term average range. I wouldn't fight keeping it where it is, but I would feel comfortable with 2 to 6 percent, which would require the Chairman to explain the deviations in 1991 as well. For debt I think 5 to 9 percent would be fine and I could [accept] a 4-1/2 to 8-1/2 percent range as well. So, my general stance is that we ought to stick with the targets, especially as long as there is uncertainty. If there were no unexplained component, then I would feel much better about shifting the targets. I guess I'm a little more cautious about 1991, given the current stance. If we move the ranges down, [we might] then find ourselves in a position of having to consider a move back.",606
-fomc-corpus,1990,"Thank you. I have here in front of me a set of numbers [on the members' preferences], which led me to ask whether the coffee was ready. But frankly, whether it is or not, we will have a short recess.",48
-fomc-corpus,1990,"Our abacuses evolved the following results, which I will eventually put to an official vote: There is for 1990 an overwhelming balance [of preferences] for no change for the M2 range; a marginal [preference to] shift toward 0 to 4 percent for M3; and overwhelming, if not unanimous, support for keeping debt unchanged. For 1991, it's not that we're all over the place; we are close. I inferred with great insight, because that's what it required, that the mode or mean was something resembling 2-1/2 to 6-1/2 percent for M2. The predominance of 0 to 4 percent for M3 in 1991 was rather large, and for debt it looks to be 4-1/2 to 8-1/2 percent. So, what I shall do is to call for two votes, one for 1990 and one for 1991.",197
-fomc-corpus,1990,"Mr. Chairman, there is language in the Bluebook suggested, if the Committee did decide to reduce the 1990 range for M3 and wanted to consider special language.",35
-fomc-corpus,1990,"Well, Norm, why don't you read it?",10
-fomc-corpus,1990,"I'm reading from page 4 starting with line 72 if you're using the draft directive; if you're using the Bluebook it's page 27, paragraph 29. ""In furtherance of these objectives the Committee reaffirmed at this meeting the range it had established in February for M2 growth of 3 to 7 percent, measured from the fourth quarter of 1989 to the fourth quarter of 1990. The Committee also retained the monitoring range of 5 to 9 percent for the year that it had set for growth of total domestic nonfinancial debt. With regard to M3, the Committee recognized that the ongoing restructuring of thrift depository institutions had depressed its growth relative to spending and total credit, though to an uncertain extent. Taking account of the outlook for unusually strong M3 velocity, the Committee decided to reduce the 1990 range to 0 to 4 percent.""",179
-fomc-corpus,1990,"Mr. Chairman, since the other items seem to be compromises, I wonder why there isn't room for a compromise on M3, as the Vice Chairman of the Committee suggested. That is, the 1 to 5 percent range does accommodate what we expect to happen in 1990, I think, and it increases the odds for those of us who do not want to vote for an increase in the range to have a better chance of not having to do so. You did not have a majority vote, as I counted, on the 0 to 4 percent.",115
-fomc-corpus,1990,That's correct; it was a very close showing.,10
-fomc-corpus,1990,"So, I'm just wondering why we couldn't take the compromise between those of us who are for 2 to 6 percent and those who are for 0 to 4 percent and come out with 1 to 5 percent.",46
-fomc-corpus,1990,"If that is a substitute motion, I will second it.",12
-fomc-corpus,1990,"I was about to suggest that we do this officially. I will read it as 0 to 4 percent; you propose an amendment to raise it to 1 to 5 percent and we'll vote on that particular amendment. You may well be right that there is support for that. I was puzzled a little about the reasons that we had discussed earlier about the restructuring of the thrift depository institutions. [I'd suggest adding] ""more than anticipated"" to the phrase ""depressed its growth relative to spending and total credit.""",105
-fomc-corpus,1990,"Well, getting into this is a kind of trap. I just think that this will pose a problem for you when you start using that language up on the Hill. I think your suggestion is a great idea.",42
-fomc-corpus,1990,"Unless the Committee votes for no change, we have to use some language and this is the least--",20
-fomc-corpus,1990,I'd use the least language possible.,7
-fomc-corpus,1990,"Frankly, I don't think that this is where our problem lies. Would the Secretary read the sentence with the revision in question put into it?",29
-fomc-corpus,1990,"""With regard to M3, the Committee recognized that the ongoing restructuring of thrift depository institutions had depressed its growth relative to spending and total credit more than anticipated, though to an uncertain extent.""",39
-fomc-corpus,1990,"Do you want to put ""though still to an uncertain extent?""",13
-fomc-corpus,1990,"No, take it out.",6
-fomc-corpus,1990,It doesn't ring right.,5
-fomc-corpus,1990,I think not; take it out.,8
-fomc-corpus,1990,"I'd say ""more than anticipated"" period.",9
-fomc-corpus,1990,"And maybe then just say ""taking account of the unusually strong M3 velocity"" instead of ""the outlook for"".",23
-fomc-corpus,1990,Taking account of what?,5
-fomc-corpus,1990,"Just take out ""the outlook for"" there since you already would have said it's more than anticipated; so you're saying it's unusually strong.",27
-fomc-corpus,1990,"You could make it ""unexpectedly strong"" if you want to reinforce your earlier thought.",18
-fomc-corpus,1990,"Okay, use ""taking account of the unexpectedly strong."" Would somebody like to move that paragraph?",19
-fomc-corpus,1990,Sure.,2
-fomc-corpus,1990,Is there a second?,5
-fomc-corpus,1990,Second.,2
-fomc-corpus,1990,"Now, Mr. Chairman, I presume that has the 0 to 4 percent range for [M3]?",23
-fomc-corpus,1990,That's correct.,3
-fomc-corpus,1990,"Mr. Chairman, I move to substitute 1 to 5 percent for 0 to 4 percent in paragraph 29.",26
-fomc-corpus,1990,Is there a second? Let's vote on that.,10
-fomc-corpus,1990,You're voting on the 1 to 5 percent?,11
-fomc-corpus,1990,"Yes, I assume there's no discussion.",8
-fomc-corpus,1990,"You could take a straw vote, Mr. Chairman; that way we wouldn't have to record it.",20
-fomc-corpus,1990,Then we won't have to record it. I don't think this is the kind of vote that we would want to record.,24
-fomc-corpus,1990,"Well, let me put it this way: All those in favor of 1 to 5 percent instead of 0 to 4 percent raise your hand. Opposed? The ayes have it; the amendment carries. We will now move to a vote on the paragraph itself.",57
-fomc-corpus,1990,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Boehne Yes President Boykin Yes President Hoskins Yes Governor Kelley Yes Governor LaWare Yes Governor Mullins Yes Governor Seger No President Stern Yes,45
-fomc-corpus,1990,"Okay, we'll now move to 1991. As I indicated to you before, we have 2-1/2 to 6-1/2 percent for M2; 0 to 4 percent for M3, which is consistent with 1 to 5 percent; and 4-1/2 to 8-1/2 percent for debt. Why don't you read the paragraph itself?",84
-fomc-corpus,1990,"I'm reading from line 63 if you're using the draft directive or from the top of page 27 [in the Bluebook], about 4 lines down, starting with ""For 1991."" ""For 1991 the Committee agreed on provisional ranges for monetary growth, measured from the fourth quarter of 1990 to the fourth quarter of 1991, of 2-1/2 to 6-1/2 percent for M2 and--"" Is it 1 to 5 percent instead of 0 to 4 percent?",111
-fomc-corpus,1990,"No, it's still 0 to 4 percent. If somebody wants to propose an amendment, they can.",22
-fomc-corpus,1990,"--""and 0 to 4 percent for M3. The Committee tentatively set the associated monitoring range for growth of total domestic nonfinancial debt at 4-1/2 to 8-1/2 percent for 1991.""",50
-fomc-corpus,1990,"Mr. Chairman, I would move to amend the 0 to 4 percent on M3 to read 1 to 5 percent.",28
-fomc-corpus,1990,Is there a second?,5
-fomc-corpus,1990,Second.,2
-fomc-corpus,1990,"There is a second. All in favor raise your hand. One, two, three, four. five. Opposed? One, two, three, four. I'm sorry, it's five.",39
-fomc-corpus,1990,Four.,2
-fomc-corpus,1990,You have 9 voters in here.,8
-fomc-corpus,1990,I will then move my vote to 1 to 5 percent and let it carry.,18
-fomc-corpus,1990,What was the vote?,5
-fomc-corpus,1990,Five to five.,4
-fomc-corpus,1990,Five to five.,4
-fomc-corpus,1990,Who's missing?,3
-fomc-corpus,1990,Governor Johnson is absent.,5
-fomc-corpus,1990,President Corrigan didn't vote.,6
-fomc-corpus,1990,"Let us now vote on the paragraph for 1991, with 1 to 5 percent for the M3 range.",25
-fomc-corpus,1990,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Boehne Yes President Boykin Yes President Hoskins Yes Governor Kelley Yes Governor LaWare No Governor Mullins Yes Governor Seger No President Stern Yes,45
-fomc-corpus,1990,"Okay, we now move to our regular short-term monetary targets. Don Kohn.",17
-fomc-corpus,1990,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1990,"Questions for Don? If not, why don't I get started then on the Committee's [unintelligible]. The same forces that I discussed at the last meeting are still operative but, as best I can judge, they turned up a notch. I think we are observing the unwinding from several years of excess credit expansion relative to the economy. One can see that in virtually all the aggregates for the money supply, obviously, and just as importantly in a wide variety of other sub-elements within the flow-of-funds [accounts]. As you may recall, they exhibited some fairly significant credit acceleration, in part as a result of real estate appreciation, mergers and acquisitions, LBOs, and some overall degree of exuberance in the middle 1980s, which I think carried forward and is now gradually unwinding. I think what we are looking at is a credit slowing in which in large measure we're going back to historical relationships. And the only question that we really have to focus upon is whether in the process the contraction is overdone, which of course is what one normally would expect whenever one gets these types of adjustments. In any event, I think we're seeing the credit slowing interacting with the hard asset balance sheet items--that is, the stock adjustment processes--which I believe I mentioned at the last meeting. Motor vehicles--which had a long run with the number of cars on the road [increasing] as the number of two- and three-car families [rose]--and a variety of other elements all were above trend and then ran into a stone wall in 1989. We're looking at that sort of adjustment. We're obviously seeing the same problem in a more extravagant way in the commercial real estate markets with the vacancies involved; we're also getting some of the problems in residential real estate, though it's obviously far less of a problem than in commercial real estate. There is some slowing in the rate of increase in equipment stock as well. As I indicated last time and would reiterate today, I think the reason why that process, which I believe historically would almost always have dumped us into a recession, failed to do so was because the inventory management change has created a much less volatile inventory investment pattern and essentially removed a major factor that tends to tilt the economy over into recession. In the very near term there's little evidence that I can see to suggest that in fact the economy is tilting over. The motor vehicle assemblies and the extraordinary electric utility output because of weather clearly suggest that there is some temporary uptick--perhaps a small one--in the June industrial production index. But from what everyone can see in there, one must conclude that it is probably temporary because there's really no other evidence of an acceleration taking place. While orders are holding up--or perhaps stated more appropriately they have stabilized [after] their decline--and we have some positive signs from the NAPM survey the other day, backlogs are stagnant; and some surveys suggest they may even be softening slightly. On top of all this, there's at least a better case to be made at this point that inflationary pressures are cresting. The wage data are no longer carrying through with evidence of an acceleration. An experimental unit cost analysis of manufacturing, which the staff has been working on, had earlier indicated underlying cyclically adjusted unit costs actually rising. In effect, one way of looking at it was that with price inflation steady while profit margins were going down more than cyclically, the adjusted cost elements clearly were rising. That too now seems to have stabilized; but I would not want to put too much emphasis on those data because they do kick around a good deal. But at least they are no longer signalling a firmer inflationary tone. In any event, in this particular economic context I would say that it would be inappropriate for the money markets to be tightening either on their own or through Federal Reserve action. While the evidence here is clearly difficult to come by, it strikes me that it is becoming increasingly evident both from fragmentary data and anecdotal reports, as well as history I guess, that the money markets at the current funds rate are actually tightening. We are seeing up through May, the last survey period, some marginal evidence of an increase in some loan rates and an opening up of the spread of loan rates against the funds rate. My suspicion, however, is that when the data come out for the current period--I don't know when that will be but it's a number of weeks away--what we are picking up anecdotally has to show through in some evidence that there has been some pulling back. By pulling back, I mean essentially that commercial banks are concerned about their capital positions and are doing some form of marginal credit rationing. I think the anecdotal evidence has reached a point at this stage that it is extremely unlikely to be without any basis whatever. To be sure, when one goes from excess credit extension to normal, it feels as though it's a tightening; and that, I would expect, is unquestionably the vast majority of what this credit crunch is all about. But I would suspect that there is a little more to this. The particular statistic that bothers me the most as a consequence of all this is the unexplained part of M2, which has clearly sneaked down into a no change range. According to what Don was saying, it's holding--I would say has settled--several percentage points under where all the other factors that we're looking at would suggest is likely. So, this is obviously not a definitive case where one would say that there's clear evidence that this credit rationing is going on. I don't think we ever get that evidence except six years after the fact. But from what I can gather and from the contacts I have I would say that at this stage the odds that we are not seeing some actual money market tightening are very slim indeed. Put another way, the funds market is trying to ease and we are essentially holding it in check. Our job is really not so much to focus on trying to fine tune the economy; we can't do it. All that we can do is get ourselves involved with money supply, credit, and financial systems; and as I read the data at this particular stage I would say that we probably have been sitting here with an inadvertent minor tightening, which I think would be appropriate if the economy were showing some significant signs of firming. But at the moment the evidence of that is really quite remote. As a consequence, I would be inclined to go with an unchanged directive, asymmetrical toward ease, but with the expectation that unless a firmer tone in the financial aggregates--and indirectly in the economy--began to exhibit itself fairly soon that it would call for a small, 25 basis point, decline in the funds rate. So, I would like to put that somewhat complex issue on the table and would be most interested in the responses I get to it.",1393
-fomc-corpus,1990,"A technical question, Mr. Chairman. Are you suggesting a 25 basis point cut anticipating we will have a conference call or are we voting for that now essentially unless there's a--",36
-fomc-corpus,1990,"I would say voting now. My view is that a conference call shouldn't be necessary. In other words, we've discussed at great length the types of things we're looking at, and unless something unusual happens of a nature that always indicates the need for a conference call, I don't think that I could convey very much more. Governor LaWare.",67
-fomc-corpus,1990,"I'm encouraged that my economic education seems to be going along in pretty good style because you have expressed exactly the thoughts that I had intended to express. I strongly endorse ""B"" with an asymmetric tilt toward ease.",42
-fomc-corpus,1990,Governor Kelley.,3
-fomc-corpus,1990,I will second Governor LaWare's remarks.,9
-fomc-corpus,1990,Vice Chairman.,3
-fomc-corpus,1990,"Well, I'm basically in the same place. I came to the meeting thinking that there were three choices available to the Committee. One was an asymmetric plain vanilla kind of directive; the second was a strongly asymmetric directive, which is what I think your suggestion amounts to; and the third was even the possibility of easing right now. My own strong position was the second of those choices, the strongly asymmetric directive, so I support completely your proposition.",88
-fomc-corpus,1990,President Forrestal.,4
-fomc-corpus,1990,"I support your proposition, Mr. Chairman. I have a technical question: I'm not quite clear in my mind what data you would be looking at to trigger the 25 basis point cut.",38
-fomc-corpus,1990,"Basically the data that are coming out at the end of this week--including average hourly earnings, which is not a minor player as far as I'm concerned. Also, the money supply data early next week and--",42
-fomc-corpus,1990,The employment number.,4
-fomc-corpus,1990,--the employment figure on Friday.,7
-fomc-corpus,1990,"So, you're looking at a fairly near-term adjustment?",11
-fomc-corpus,1990,"Yes, I would say within the next week to 10 days. President Parry.",18
-fomc-corpus,1990,"Mr. Chairman, I would favor alternative ""B."" However, since I think there is a good chance that economic growth will be faster in the second half than in the first half, I would prefer symmetrical language.",43
-fomc-corpus,1990,President Stern.,3
-fomc-corpus,1990,Where I stumble a bit with your suggestion is with the automaticity of the move. I too have a great deal of interest not only in the upcoming data but in how the economy is likely to perform over the next several months given the situation as it has changed with regard to consumer spending and whatever wealth effects we may get out of housing. I must admit to a lot of uncertainty as to how that's all going to play out. I'm a little concerned by the asymmetric directive with the automaticity of moving on the basis of another week or two weeks' worth of data; that gives me some pause.,120
-fomc-corpus,1990,"Obviously, if there is evidence of firmness in the data, that would suggest to us that the money supply data are not as terribly [weak] as we think. I would say the money supply data are really the crucial data as far as I'm concerned, because we're getting to the point where what we affect essentially is the credit system. And to the extent that the credit system is contracting--and it is showing as far as I can see no signs of stabilizing--it means that the process is still going on. And if it is, what I'm arguing for is not an easing. I'm arguing for [unintelligible] holding. The question, therefore, is basically: Do we want to be tightening in this particular context? I would say only if there is evidence that the economy is picking up, and I must tell you that at the moment I don't see a single statistic out there suggestive of such an acceleration. That's [unintelligible] basically. Obviously, we could wait for three weeks, two months, whatever. It may--",213
-fomc-corpus,1990,I don't disagree with your interpretation of the latest data at all. It's just that I've watched these data bounce around an awful lot.,26
-fomc-corpus,1990,"Well, so have I. And this is the first time in six months that I have nudged off the middle because I was unconvinced by all of this evidence until now. And it's not economic weakness; it's credit. I'm sorry, I interrupted you.",53
-fomc-corpus,1990,"No, actually, I had concluded what I was going to say. You've elaborated your views on how you see this. And, as I said before, my concern was with the automaticity of the move not with the asymmetric language on ""B"".",51
-fomc-corpus,1990,"Well, there's no such thing as an automatic move.",11
-fomc-corpus,1990,"No, I would say I'm somewhat comforted by your comments.",13
-fomc-corpus,1990,It's an asymmetric comfort then.,6
-fomc-corpus,1990,Governor Angell.,4
-fomc-corpus,1990,"Well, I appreciate what President Stern has said. It really is a very important difference for me, Mr. Chairman, because I do want to vote with you on this. I would admit that I'm not able to discern so accurately the need to stay symmetric versus the possibility that incoming data will tell us that we need to ease. I would prefer symmetric language but I can compromise away from that if we are going to be looking at the data and, if the data coming in say that we ought to subsequently make a decision to ease, I can go with that. But I cannot go with the notion here that we really are going to ease, because if we really are going to ease, we might as well do it now and then those of us who are going to vote ""no"" can vote ""no."" And I will just vote ""no.""",171
-fomc-corpus,1990,"I think that's a correct [interpretation of the] difference. It's [essentially] why we raise the issue of automatic; if it's automatic, then it can't be asymmetric.",36
-fomc-corpus,1990,"So, I suggest that we not put into ""Fedspeak"" all this new language that the Vice Chairman is about to introduce in regard to super ease. I really don't think we need to fine tune our language. My understanding, based upon what you said, is that we're going to be recommending that we have no change in policy, alternative ""B,"" which I can support with the ""mights"" tilted [toward ease]. I can go with that. I don't want to make too much over little differences, but I do believe strongly that we have reached a point where we're just about to succeed in something that we've been trying to get done. You put it so well last year when you talked about the view that we have to err on the side of restraint. All of us know that there is risk in doing that. I want to continue to err on the side of restraint, but I definitely do not want to get this economy into recession. I want us to reap the fruits of what we're about to [achieve], and I think the sooner we move the more likely the bond markets are to misinterpret and say that the Fed really gave up before we were there. I think the whole [issue] is that attitudes concerning inflation are at a very delicate point. I noted in the staff's laying out of strategy II on the long-run model, that in 1995 that results in the highest real GNP growth of any of the alternatives. Now, I just think it happens faster. I think the whole monetary world works faster than it ever worked before. And if we really stand here and are prepared to do what needs to be done, I believe we'll get lower long-term interest rates. Frankly, one reason that we got into slow money growth is because we lowered the fed funds rate in December, ran the long bond rates up 70-80 basis points, and the opportunity cost [of] the M2 balances has [risen] so that the shortfall of our aggregates is due entirely to our premature ease in December.",415
-fomc-corpus,1990,I don't think that's correct.,6
-fomc-corpus,1990,"Well, I do.",5
-fomc-corpus,1990,"Well, that's your evaluation. I think--",9
-fomc-corpus,1990,"Well, you see, what has happened is that the opportunity cost on the M2 balances has changed and then you get the lagged effect of that change from March and you get low growth of M2 in May. My view is that we need the lowest long-term interest rates we can get for the second half of 1990. And I happen to think that being patient here for a [while] will get us lower rates than we will get if we jump the gun on easing.",99
-fomc-corpus,1990,"The difference, Wayne, is that I think we're closer to having success here than you think.",19
-fomc-corpus,1990,"Well, I think we're closer in that respect too.",11
-fomc-corpus,1990,"I think we're very close. If I believed otherwise, I wouldn't be arguing for the type of asymmetry that we're talking about.",26
-fomc-corpus,1990,I'm somewhat impatient for patience.,6
-fomc-corpus,1990,President Keehn.,4
-fomc-corpus,1990,"Mr. Chairman, I'd be in favor of alternative ""B"" with the current asymmetric language, and I'm entirely comfortable with the explanation that you gave Bob Forrestal on what would trip using the asymmetric language. Perhaps I have a slightly more positive outlook on the economy than some, and perhaps more so than you, but I think it's awfully important that we provide an environment in which we can continue to have these kinds of results. It does seem to me that the move that you suggest will give us that.",102
-fomc-corpus,1990,Governor Seger.,4
-fomc-corpus,1990,"Obviously, you know that I'm in favor of easing. I'm just sitting here trying to decide what we gain by doing it in a couple of weeks rather than now. I'm thinking about the lags that I thought I had been taught about by Don Kohn and his pals. Whatever we do today or in two weeks or three weeks is going to impact the economy some time in the future, not immediately. The way I read the economy, I'm not sure we have until Christmas Eve or New Year's Eve to have some stimulus actually being felt. The employment numbers are not my favorite numbers, but I do read them. As I remember, in the April and May statistics the whole show was the hiring of temporary workers by the Census Department. And from what I've seen previewed, those folks are leaving; a lot of them--something like 160,000--left in June. That number came from Barbara Bryant who heads the Census; it isn't something I just threw out. That's going to have an impact on the employment numbers again and not a very good impact. Some more of these folks are going to be turned out on the street in July. So, I think we're going to get some weaker employment numbers as we go along here. Also, I read the retail sales numbers as weak. I don't think we have had three months in a row [of weak data] that have been flukes or aberrations; I think there's something going on there. I hate to repeat myself unnecessarily, but I believe that this so-called credit crunch has had a big impact on construction in many parts of the country; it's worse certainly in some parts than in others, but it's not confined to New England or Arizona. And I don't think that is over as an influence. I also believe that lower interest rates amazingly would help the strength of the financial system; it would provide some of the marginal institutions a better chance to make it because it would allow them to get a lower cost of funds rather promptly and improve their margins. And I think we need to do that very swiftly. I would argue that lower interest rates would help even on the liquidation of the S&Ls by the RTC. So, I certainly agree with your notion of some ease, but if I wanted to split hairs--which I won't do; I will support your position--I would feel more comfortable doing it sooner rather than later.",480
-fomc-corpus,1990,President Black.,3
-fomc-corpus,1990,"Mr. Chairman, I think the last several years of monetary policy have been some of our very finest; I wouldn't go back and change any vote that I've cast during that time. It has been many years since I went through an entire session without dissenting in favor of tighter money. I started off thinking about the short-run objectives with exactly what you had in mind: an asymmetrical directive because of this apparent softness in the economy and the slow growth in the aggregates. Then I started looking at the economy a little more closely and I read Don's and his associates' memo. And when I looked at the economy, I couldn't see what it was that was going to make us turn down; and his memo on the behavior of the aggregates gave me a good deal of comfort. So, I became somewhat uncomfortable with the asymmetrical part of it, since I think our objective is price stability and we're going to have to take some responsible risks on the side of restraint if we're going to get there. I came out with alternative B, but I favor symmetry. I certainly wouldn't dissent on this, but I do think that in general it's better to have a symmetrical directive because that suggests we are able to go either way. I think that would give sufficient leeway to do exactly what you have in mind. I don't have any great problem with asymmetry, but I have a slight preference, as I think Governor Angell has also, for symmetrical language. But I think you're very close to where we ought to be on this. You made a good statement; I found particularly helpful your analysis of the current conditions, and I take some comfort in your view of inventories. I share that feeling. I don't know what's going to make us turn down. So, if I voted, I would go with symmetrical but not dissent on asymmetrical.",368
-fomc-corpus,1990,President Guffey.,5
-fomc-corpus,1990,"Thank you, Mr. Chairman. This may be hair-splitting a bit, but my preference would be ""B"" with a symmetric directive. I don't see that there is accumulating evidence of a tightening of credit markets. As a result, a symmetric directive--to the extent that it will be read six weeks from now as a sort of ""steady-as-you-go"" policy--seems to me to be a reasonable outcome [of our meeting]. On the other hand, if I have understood the discussions around this table in the past, particularly as articulated by Don, with a symmetric directive you have the ability to take one cut--if you will, a quarter point [on the funds rate], which is what we are talking about--without the necessity of a conference call or consultation. As a result, it seems to me that ""B"" with a symmetric directive gives you what you want and I wouldn't object to that.",187
-fomc-corpus,1990,President Boehne.,5
-fomc-corpus,1990,"""B"" asymmetric. I'll skip the subtleties.",11
-fomc-corpus,1990,President Melzer.,4
-fomc-corpus,1990,"I'd favor ""B"" symmetric but I could certainly accept ""B"" asymmetric as you specified it.",20
-fomc-corpus,1990,President Syron.,4
-fomc-corpus,1990,"""B."" I have a marginal preference for symmetric but I can certainly accept asymmetric. I do have some of the concerns that Gary Stern expressed on the automaticity of the approach, but I am comforted by your explanation. I think it's important to have in the Humphrey-Hawkins testimony an indication that we are not trying to lead the market down, but that we are not effectively trying to ease policy--that there has been some tightening in policy not at our volition and that we see this as bringing policy back more to where we get the [unintelligible] rather than the other way around. I think that's actually quite an important distinction.",132
-fomc-corpus,1990,Governor Mullins.,4
-fomc-corpus,1990,"In my view, the economy has been weaker than [the staff has] projected and I haven't felt especially comfortable with the low growth in the aggregates. I have been concerned, given the notion of the low growth and the credit crunch, that we might be implicitly tighter than what the Committee had committed to earlier. To believe differently is to put a lot of faith in adjustments and still accept an unexplained error. I don't believe that a tighter stance at this time is warranted. And I wonder whether a marginally lower funds rate wouldn't be consistent with maintaining the stance of monetary policy voted on earlier this year. The advantage of this approach is more discretion, more time to adjust to the new data; and it has less automaticity than the approach of easing directly. I think Dick's point is extremely important because that's exactly the way I view it--that we essentially are maintaining the intended moderately restrictive monetary conditions and, when there's unintended tightening out there, we're simply not easing but moving back to that position. So, I would wholeheartedly support ""B"" with asymmetry toward easing or returning to the [degree of] restraint that we intended earlier.",228
-fomc-corpus,1990,President Boykin.,4
-fomc-corpus,1990,"Mr. Chairman, I would favor alternative ""B."" Coming into the meeting I had felt that symmetric language would be preferable. However, the explanation that you gave would cause me to accept asymmetric language. But I do want to say that I agree with about 85 percent of what you said, Governor Angell. I share a lot of sympathy for not letting go prematurely just as we're about there. I don't know what the next week or week and a half is going to show, but I have a slight uneasiness in the sense that it's almost preordained that there's going to be a downward move shortly. That may be necessary and it may be what's called for; I just can't read that. But I would accept asymmetry.",149
-fomc-corpus,1990,President Hoskins.,4
-fomc-corpus,1990,"Mr. Chairman, as someone who has worried consistently about the growth rates in the aggregates, I find myself in one sense pleasantly surprised that the aggregates are at about the growth rates that I thought were appropriate for the year. Unfortunately, I'm uncomfortable with how we got there. I think your explanation may well have some merit for pegging the funds rate [when] the economy is weak. We're not running monetary policy by supplying reserves; we're running it through interest rates. Having said all that, and given the staff's forecast of where we're likely to be, I'm equally uncomfortable with the velocity projections. So, that leaves me in a position of great uncertainty. And in that position, I'd be more comfortable with ""B"" symmetric.",146
-fomc-corpus,1990,"Well, I think that with the appropriate money supply targets, I'd like a vote on the asymmetric directive.",21
-fomc-corpus,1990,"The operational paragraph would read: ""In the implementation of policy for the immediate future, the Committee seeks to maintain the existing degree of pressure on reserve positions. Taking account of progress toward price stability, the strength of the business expansion, the behavior of the monetary aggregates, and developments in foreign exchange and domestic financial markets, slightly greater reserve restraint might or somewhat lesser reserve restraint would be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with growth of M2 and M3 over the period from June through September at annual rates of about 3 and 1 percent respectively. The Chairman may call for Committee consultation if it appears to the Manager for Domestic Operations that reserve conditions during the period before the next meeting are likely to be associated with a federal funds rate persistently outside a range of 6 to 10 percent.""",168
-fomc-corpus,1990,Call the roll.,4
-fomc-corpus,1990,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Boehne Yes President Boykin Yes President Hoskins Yes Governor Kelley Yes Governor LaWare Yes Governor Mullins Yes Governor Seger Yes President Stern Yes,45
-fomc-corpus,1990,The next meeting is on August 21st.,10
-fomc-corpus,1990,"Mr. Chairman, when is your testimony? Do you know?",13
-fomc-corpus,1990,The 18th.,5
-fomc-corpus,1990,The 18th. Is the Senate first or the House?,13
-fomc-corpus,1990,"It's the Senate first, and I think the House testimony is either on the 19th or the 24th.",24
-fomc-corpus,1990,It's the 24th.,6
-fomc-corpus,1990,"On revisions with respect to the projections, Mike Prell says as late as Monday morning will be no problem. Any changes can be faxed in, I assume, by that time.",37
-fomc-corpus,1990,"We use the administrative message system, if it's convenient.",11
-fomc-corpus,1990,"If there is no further business, the meeting is finally adjourned.",15
-fomc-corpus,1990,"Good morning, everyone. We'll start with a controversial issue: approval of the minutes.",17
-fomc-corpus,1990,So move.,3
-fomc-corpus,1990,Is there a second?,5
-fomc-corpus,1990,Second.,2
-fomc-corpus,1990,Without objection. Sam Cross.,6
-fomc-corpus,1990,[Statement--see Appendix.],6
-fomc-corpus,1990,Questions for Sam?,4
-fomc-corpus,1990,"Sam, was the unwinding of the DM warehousing related to any collateral problems that we have with respect to notes? Why did the Treasury do that? What reason did the Treasury give?",38
-fomc-corpus,1990,"Well, I think the Treasury is interested, as we are, in not having these [warehousing] amounts continue indefinitely and be too big. So, when the conditions were such that it was possible to make some arrangements in order to bring those holdings down, they were not reluctant or hesitant to do this. It's not envisaged as a continuous or perpetual facility.",73
-fomc-corpus,1990,Are we looking to bring ours down?,8
-fomc-corpus,1990,Our mark holdings?,4
-fomc-corpus,1990,Yes.,2
-fomc-corpus,1990,We don't have any plans at the present time.,10
-fomc-corpus,1990,Any other questions for Sam? This is the first time I recall in an extraordinarily long time when there have been no transactions. When was the last time there were no transactions during an intermeeting [period]?,41
-fomc-corpus,1990,"Well, I don't think we had any intervention transactions in the last period.",15
-fomc-corpus,1990,We had to ratify some.,7
-fomc-corpus,1990,"I'd have to look it up, but there hasn't been any exchange market intervention for some months.",19
-fomc-corpus,1990,"Well, of that I'm aware. But quite frankly, it's the first time I recall in a very long time that there has been no [need for] ratification.",34
-fomc-corpus,1990,We'll check the date.,5
-fomc-corpus,1990,"The same, of course, does not apply to Peter Sternlight's [area].",17
-fomc-corpus,1990,Shall I proceed?,5
-fomc-corpus,1990,"Yes, please.",4
-fomc-corpus,1990,[Statement--see Appendix.],6
-fomc-corpus,1990,Questions for Mr. Sternlight?,7
-fomc-corpus,1990,"Peter, what do you think the number of primary dealers will be a year from now? What is basically happening? I assume these pressures are not likely to get any better in terms of profitability.",39
-fomc-corpus,1990,"Well, the experience of the opening five or six months of this year is a little better than last year. I wouldn't be surprised to see some further decline of several dealers. There are still more than enough, certainly, to serve our needs and the needs of the market. We got along nicely for a decade or so with a number that varied in the mid-30s, and I think that would be a very satisfactory kind of number now.",90
-fomc-corpus,1990,So we may get back to that?,8
-fomc-corpus,1990,"It's possible that we'll have some further decline [in the number of primary dealers], yes.",18
-fomc-corpus,1990,"Further questions? If not, may I have a motion to ratify the transactions since the July meeting?",21
-fomc-corpus,1990,So move.,3
-fomc-corpus,1990,Second.,2
-fomc-corpus,1990,Without objection. We'll now move on to the staff report on the economic situation. I'd like first to call on Mike Prell.,26
-fomc-corpus,1990,"Mr. Chairman, I was away the last three weeks and missed much of the excitement. For that reason I've asked Dave Stockton, who was here for it all to reach the exciting conclusion, to present the domestic side of the outlook.",47
-fomc-corpus,1990,Thank you. [Statement--see Appendix.],9
-fomc-corpus,1990,[Statement--see Appendix.],6
-fomc-corpus,1990,Thank you. Questions for Messrs. Stockton and Truman?,12
-fomc-corpus,1990,"In Part I of the Greenbook you talk about the revision in your inflation forecast and say that it's primarily because of the oil outlook. I was just wondering, since we did have some other figures that came in before that--this is an exercise of speculation, I realize--if you had been redoing the Greenbook and [the invasion by] Iraq had not occurred, what rough estimate would you have had in terms of the forecast for the change in inflation?",93
-fomc-corpus,1990,"I think we were going to estimate something roughly on the order of .1 or so higher price inflation both in 1991 and 1992 as well, if we had not made other changes to the outlook path to offset that. The dollar obviously was going to be providing a little more boost to domestic prices. And the downward revision I mentioned that we have made to our estimate of potential output, and part of that is a downward adjustment to trend productivity, also would have implied a bit more pressure on prices than we previously thought.",107
-fomc-corpus,1990,"Can I just follow up on that, in terms of the downward revisions? You revised down by 1/4 point, I guess, your estimate of potential. But the revisions we saw in the actual data were pretty disturbing to say the least. Were there any special factors that caused you not to revise down further? Or was it just that your model came out with about 1/4 point decline in potential given the data that we have? I was a little surprised that there wasn't a greater decline in potential, given that the unemployment rate remained the same.",113
-fomc-corpus,1990,"This is a very imprecise calculation. But the important point to remember about the downward revision to potential output is that we extended that downward revision to potential output all the way back to 1980. Therefore, the cumulative effect on the level of potential output by the time we get to 1990 is quite large. Essentially, what we're trying to do is this: Every year when we receive the GNP revisions we try to feel around to [determine] what sort of underlying trend productivity would best explain the course of activity over the entire business cycle. In the absence of any particular reason for assuming that there had been a pronounced break in the growth rate of potential output just in the last two years, we essentially adjusted the entire path down extending all the way back to the previous peak. So, in terms of the level of slack one ends up with, while it appears to you that we just have revised down 1/4 of a percentage point in the last two years when the real GNP figures were revised down much more, that might have implied that even then there would have been somewhat greater slack. The cumulative effect of having revised that trend down over 10 years implies that [when] we get to the end the slack is not too much different, but we've--",259
-fomc-corpus,1990,How sensitive is your model to short-term changes in demographics--the composition of the labor force?,19
-fomc-corpus,1990,It's not sensitive to that at all.,8
-fomc-corpus,1990,"What is a concern in a sense is that there's very little chance that the demographics are wrong in that you get pretty much the same pattern if you [unintelligible] the labor force or if you construct the labor force out of the payroll data and the insured unemployment. They both show the degree of tightness that has been exhibited by the sample surveys which, from the evidence that we see, suggests that this is not a statistical anomaly that's going to get revised next year.",96
-fomc-corpus,1990,We will be taking another cut at this when we get the revisions on the employment data next month. We may have something additional to report then.,29
-fomc-corpus,1990,President Parry.,4
-fomc-corpus,1990,"I have two questions. Dave, at the FOMC information call Ted Truman gave us some useful rules of thumb about the effects of a change in the price of oil on real growth and also on the CPI inflation. It seems to me that the effects on inflation are rather substantial; I was struck by what you show as a very sharp decline in the fixed-weight deflator for the fourth quarter from 4.7 to 4.0 percent. I know the impacts on the fixed-weight deflator are different from those on the CPI. But even taking that into account, it seems to me that that is a very low number. Could you explain that and indicate what contribution oil is making to that number?",143
-fomc-corpus,1990,"For the fourth-quarter fixed-weight number? Well, the principal reason the fixed-weight deflator does not show as large an effect as the CPI is that, while obviously we consume more energy than we produce, the weights for energy are several percentage points different in the CPI and the GNP fixed-weight. And that is the principal reason for the difference. There may be some slight differences in what we assumed about the fourth quarter as well. We have a very low increase from the federal sector in the fixed-weight deflator in the fourth quarter, which is helping to pull things down.",116
-fomc-corpus,1990,"So, it's just across the board--smaller increases in quite a few sectors?",17
-fomc-corpus,1990,"I would say that's true, with the difference in weights between the energy share in the CPI and the energy share in the GNP being the biggest factor.",31
-fomc-corpus,1990,"Yes, I heard. The second point is that I was really struck by the Commerce Department revisions of compensation per manhour in the nonfarm business sector for 1989. In the period from 1984 through [the end of] your forecast the lowest compensation per manhour, excluding 1989, is 3.7 percent; in the forecast it's about 5.1 or 5.2 percent. During the whole year [1989] the increase was in the 2 percent area. It just seems very difficult to understand what happened in 1989 that would make those numbers believable.",123
-fomc-corpus,1990,"Well, the first thing to mention is that, as Mike pointed out, we have not yet received benchmark revisions to the employment or hours data. We'll receive those in September. Typically, those [benchmark revisions] occur in May and June and by the time the revised compensation per hour figures would come out [the Commerce Department] would already have incorporated those revisions. They had to. And as a result, we really didn't even wish to discuss those figures in the Greenbook because we think at this point they are pretty meaningless.",105
-fomc-corpus,1990,Okay.,2
-fomc-corpus,1990,We don't want to offer you the great hope that that's going to eliminate all of the peculiarities in these numbers. This series just seems to move in ways that are inexplicable at times. And we think the ECI data are a more reliable guide than--,52
-fomc-corpus,1990,It certainly seems to be that way at this point.,11
-fomc-corpus,1990,The ECI data are far more comparable with the monthly average hourly earnings numbers; both the numerator and the denominator are comparable.,25
-fomc-corpus,1990,Yes.,2
-fomc-corpus,1990,I guess the revision would be horrendous on the compensation numbers.,13
-fomc-corpus,1990,I think so. Thank you.,7
-fomc-corpus,1990,President Boehne.,5
-fomc-corpus,1990,"Let me compliment you on your report. I think you and Ted did an excellent job on what is a difficult situation to get a hold of. Our whole approach has been one of gradually opening up some excess capacity and hoping that that will dampen prices. To date, at best we've kept prices from accelerating. But if we disaggregate prices, we find more progress in the goods sector than we do in the services sector; and the goods side of the economy is more responsive to monetary policy. That raises a very fundamental question as to how much excess capacity one really has to open up in the economy to generate the kind of anti-inflation progress [we hope for] on the services side. I'm wondering, now that we are, say, a year and a half or so into this strategy, if the staff has given any thought to whether the whole thing is just more complicated than this fairly simple notion of opening up some aggregate excess capacity--that it may not be all that simple and that the fundamental strategy may have some flaws to it.",210
-fomc-corpus,1990,"I guess my basic reaction, of course, is to agree with your statement that the process is considerably more complicated than just opening up slack and having inflation change in some mechanical way. The labor markets are extremely complex phenomena, so it is going to be more complicated. On the other hand, I would look at events of the last several years as more a confirmation of that basic underlying paradigm than a contradiction. That is, wage inflation in particular had been on a downtrend through 1986 with the unemployment rate above 6 percent--really in some sense it was somewhere in the 7 to 6 percent range. As the unemployment rate moved below that, wage inflation turned around. And over the last year, we've had the unemployment rate at 5-1/4 percent and we've seen some mild acceleration. We have yet really to create, at least on the labor market side in our view, any slack that would be sufficient to reduce those trends. Now, another point that you made that I think is correct is that we have seen progress in moving [inflation] back down again on the manufacturing side as slack appears to have opened up in terms of capacity utilization. So, I think the recent events have been relatively kind to that particular paradigm, recognizing that there are developments in the agricultural sector, the energy sector, and movements of the exchange rate that at times clearly influence the pattern of overall price developments. But at this point I wouldn't see any compelling reason to abandon the basic paradigm while recognizing that the confidence [intervals] one can place around the estimates of what slack is or what any particular level of slack might actually lead to are quite wide.",333
-fomc-corpus,1990,"Well, actually, the error here is in participation rates in the labor force. If you substitute historical forecasts of labor [unintelligible] participation rates, the unemployment rate opens up with the same growth. Presumably, the wage rate following previous patterns does precisely what the model would suggest. So I think the problem we're looking at in an arithmetic/ analytical sense is: What is going on in the participation rates in the labor force that we do not understand? I'm not saying that's the sole issue but, unless we can answer that question, we're caught in the dilemma whereby at these growth rates we don't get any loosening in the system.",129
-fomc-corpus,1990,"We also have to keep in mind the possibility that some of those phenomena that might be affecting labor force participation suggest that the unemployment rate may not capture all of the elements that are affecting wage behavior. If labor force participation is falling off because people don't feel the job opportunities are there, that's a somewhat different kind of slack in the system that could moderate wage increases. So, it's a very complex system. But I would underscore the point that there doesn't seem to be evidence contradicting the basic view that slack will diminish inflationary pressures. Indeed, there are few other channels available to us that would seem really to affect the inflation rate.",126
-fomc-corpus,1990,"Well, there's a fair amount of history in this country and other countries [suggesting] that a recession will bring noticeable relief on inflation. But there is not a lot of evidence that suggests that this gradual approach of opening up slack but not having a recession will result in very much.",57
-fomc-corpus,1990,That's true because we haven't had extended periods of slow growth. So the question is: Is it the slack or is it the sudden shock of a decline that one sees in a recession that really explains that?,41
-fomc-corpus,1990,Right.,2
-fomc-corpus,1990,We noted that fact last fall when we had a presentation on inflation--that there was uncertainty about whether there was some sort of nonlinearity in the system.,32
-fomc-corpus,1990,"I wouldn't want to overinterpret the information, but the current Canadian experience is that they have had slow growth for an extended period of time, not a recession, and their consumer price inflation has begun to bend down. The year-over-year rate has declined by about 1/2 percentage point. They have been helped, if you want to put it that way, by a depreciating dollar. I'm not sure how accurate that [linkage] is, but it is an example where a basic strategy that is essentially the same--maybe a little more so--seems to be producing some results along those lines.",123
-fomc-corpus,1990,How long have they been following it?,8
-fomc-corpus,1990,"They've been at it for, depending on how you count these things, about a year and a half or so.",24
-fomc-corpus,1990,Longer than us?,5
-fomc-corpus,1990,"Yes, a little longer. They've had slower growth; they have come down from a higher growth [rate] to [unintelligible]. So in some sense there has been more deceleration of growth in the period and their unemployment began to turn up in about the early part of this year.",60
-fomc-corpus,1990,But their unemployment rate was much higher?,8
-fomc-corpus,1990,"Well, as I said, I don't want to overinterpret this. It is generally accepted that they have a much less flexible economy than ours and, therefore, their natural rate of unemployment should be higher. Their market mobility and so forth is tighter and they have complicated laws; that is one explanation for why they started out with a somewhat higher inflation rate.",71
-fomc-corpus,1990,President Keehn.,4
-fomc-corpus,1990,"The budget deficit numbers that Peter mentioned, particularly the $300 billion, are a little higher than I had heard. That is a combination of lower revenues and higher expenditures, I presume. On the expenditure side, is it mainly the RTC-related expenses or are there other categories that are also going up? If you take that higher number, is there any way that we can finance that without having big upward pressure on rates?",84
-fomc-corpus,1990,"Maybe I shouldn't respond because I haven't seen official estimates on that anywhere in that area. But as I said, that assumes a soft economy--skirting along the edge of recession or in some of the private estimates an actual recession--so there is definitely a weakening of revenues. No budget package had the thrift bail-out expenditures greater than in this current fiscal year.",72
-fomc-corpus,1990,"Let me try to put this in the perspective of our forecast. For fiscal 1991 we have a $35 billion deficit reduction. That's smaller than the $50 billion they still are talking about but perhaps some of the people who are concerned by recent developments would think that maybe even $35 billion is in question at this point. As Dave indicated, just before the last meeting all the talk was leading us to think that maybe $35 billion was too pessimistic. At this point, it looks like a healthy adjustment given the political situation. But if you take some of that out, we could begin to move closer to a $250 billion deficit, including $70 billion of RTC-related [expenditures] in fiscal 1991. If you overlay on that a weaker economic picture--say, with no growth or a mild recession over the next year--then it could easily move toward the $300 billion level. So this discussion of a $250-$300 billion deficit is not inconsistent with the kind of picture that we've depicted in the Greenbook.",211
-fomc-corpus,1990,President Forrestal.,4
-fomc-corpus,1990,"Well, Si Keehn just asked my question about the budget, but perhaps I could also ask Ted about the $25 oil price assumption. Does that assume increased production by the Saudis?",38
-fomc-corpus,1990,"Yes. As Dave said, we assumed essentially a shortfall of 4-1/4 million barrels a day from Iraq and Kuwait. And then we assumed an offset of 2-1/4 million barrels a day. Partly just because we felt it was useful to write down figures so we could in some sense check our assumptions--and I emphasize assumptions--later on against the realities, we assumed 1-1/2 million barrels a day in Saudi Arabia, [300,000] barrels a day in Venezuela and 200,000 barrels each, I think, in UAE and Nigeria just to spread it around.",127
-fomc-corpus,1990,"Also, in your description of the real GNP targets, you said something about a 50 percent decline in--",23
-fomc-corpus,1990,"No, 50 basis points.",7
-fomc-corpus,1990,"I'm sorry, a 50 basis point decline in the funds rate. I didn't quite catch what you said. Could you say that again?",28
-fomc-corpus,1990,"Well, in order to achieve this real GNP target, the model made us, if I can put it that way, reduce the funds rate by 50 basis points in the third quarter. That was sustained and then gradually the gap between that and the baseline [unintelligible]. I should emphasize [unintelligible] we're dealing in a quarterly model, so we moved Iraq back to [3.0 million barrels per day] in some sense.",93
-fomc-corpus,1990,President Stern.,3
-fomc-corpus,1990,"Let me go back to the budget. In looking at developments in Iraq and Kuwait and trying to understand the economic consequences of that in the forecast, the one thing that surprises me is that I, at least, don't catch anything on the military outlays and what that is likely to mean for the outlook.",61
-fomc-corpus,1990,"Well, I think you're correct. There isn't much in here. We have really a trivial increment to defense spending in this forecast over the next few quarters, partly consistent with the oil price assumption that things are presumably--",43
-fomc-corpus,1990,"Well, one thing that is happening is an increase in the cost of fuel and bottled water.",19
-fomc-corpus,1990,Some chartered airline flights as well.,8
-fomc-corpus,1990,"I think there is also some effect on suntan lotion prices--the sunblock effect! At this point, it seems largely to be a matter of taking some things out of inventory, shifting expenditures, and so on. If this results in major deviations from what we had anticipated in overall personnel and additional munitions and [supplies], if we maintain a significant presence in the Middle East over the coming quarters, then we might begin to talk about at least several billions of dollars. One could read into comments made by the President yesterday that some of the defense reduction that people had been looking for might not be achieved. That then perhaps would begin to chip away at our fundamental fiscal assumptions. So, there is clearly upside potential here on the fiscal front for some lesser restraint than we have embedded in this forecast. I think that's a clear risk.",169
-fomc-corpus,1990,Governor Mullins.,4
-fomc-corpus,1990,"Your answer on the defense spending is that the increment is less than a couple of Texas S&Ls, presumably?",23
-fomc-corpus,1990,That's true.,3
-fomc-corpus,1990,"I'd like to get some insight, Dave, into your view of consumer spending. You mentioned that the second-quarter retail sales were a lot better than we initially had thought and that one reason was that when you start from a small enough base it looks a lot better when it comes up to--I guess it was minus .9 for the quarter and was marginally positive in July. You mentioned in the projection that household real consumption will fall but not quite as much as the reduction in real income. Why did you make that assumption and how do you feel about the impact of this event on consumer confidence and whether consumers view this as transitory or more permanent?",131
-fomc-corpus,1990,"At this point we made the assumption that most but not all of the decline in real income is reflected in the consumption in the second half because we assumed that some households will be uncertain about the permanence or transitory nature [of the decline] and probably will be assessing and adjusting their consumption plans accordingly. That is, some households clearly will think that this is transitory and others that it is permanent and that combination will result in only a partial reduction in consumption in response. I should say that the reduction in the saving rate that we have as a consequence of this is pretty small; we have taken most of the reduction in real incomes out of consumption. On the goods consumption side, things have been quite weak and we expect them to get weaker in the second half. If you look at the past year and take that as the underlying trend relative to the second half--which shows the averages through the ups and downs of the automobile sector in the third and fourth quarters of last year as well as early this year--the place where we would expect to see a particularly sharp hit is in the automobile sales area in the second half of the year. The only support that we really are getting in consumption is on the services side, where in our view it's a little harder in the short run for households to adjust consumption of housing services or medical services to fluctuations in income. And that in essence provides somewhat of a base on the consumption side on which we get relatively meager increases--about a percentage point in the second half--in consumption growth.",307
-fomc-corpus,1990,"What are the chances that this, on top of the other shocks we've had to consumer confidence in residential real estate values and the like, really could cause consumers just to put their pocketbooks away for a while?",42
-fomc-corpus,1990,"I guess that is clearly a risk in terms of the projection. As we reported in yesterday's briefing [to the Board], we did receive some weekly information from the University of Michigan on consumer confidence. That showed a very precipitous fall-off in the few days right after the Iraqi invasion of Kuwait and then some rebound throughout the course of the last couple of weeks to a level that is still below where it was prior to the invasion. But it is not an astronomical fall-off at this point.",99
-fomc-corpus,1990,But do you think that evidence would be roughly consistent with what you forecast in the Greenbook or marginally more pessimistic or--?,27
-fomc-corpus,1990,"Given the accuracy with which one can use those survey data to predict consumption--and the link is very, very weak--",24
-fomc-corpus,1990,"You do have a proxy that is almost as good and probably even better than that, which is the 10-day [auto] sales figures. In a period like this, to the extent that you get consumer shock, it is going to show up in those numbers. Indeed, if you believe our seasonals, as distinct from BEA'S, there was really quite a significant fall from the last 10 days of July to the first 10 days of August. Was it 6.1 on our seasonals?",105
-fomc-corpus,1990,"6.1 or 6.2. The 10-day auto sales figures have the advantage of being very timely. They have a disadvantage, of course, in that they can move around for reasons of seasonal adjustment problems or other reasons that make them a little difficult to interpret. We did call around to auto dealers in the wake of the price increases and didn't pick up any major stories about a significant reduction in showroom traffic, so--",87
-fomc-corpus,1990,There has been a consistent drop-off from the last 10 days [of a month] to the first 10 days in these seasonally adjusted figures.,31
-fomc-corpus,1990,[On our] seasonals?,7
-fomc-corpus,1990,"I think on ours as well. I just don't think we've found a way of capturing the pattern, particularly in the transplant sales. They have this tendency to be very strong in the final--",38
-fomc-corpus,1990,"Well, I'll wait for the second 10 days.",11
-fomc-corpus,1990,I think it's pretty reasonable that people might not want to buy a car.,15
-fomc-corpus,1990,"Well, it's not entirely clear. We have looked at the historical evidence on these oil prices, and whether people don't buy cars or whether they shift the kind of cars they buy is not as clear as one would think.",44
-fomc-corpus,1990,"One of the reasons that we delayed the fall-off in auto sales in the projection is that we think, almost no matter what happens to automobile demand, that the auto makers at this point will make it through incentive programs [unintelligible] to clear out the 1990 models. And that helps hold up sales a little in the near term; but by the fourth quarter we show a bigger fall-off.",83
-fomc-corpus,1990,They don't have much inventory.,6
-fomc-corpus,1990,"They don't have much in inventories and that [unintelligible) they won't have any buyers. Our current assumption is that there isn't going to be a precipitous fall-off in sales in the near term that would require them even to have to go through some kind of major increase in incentive programs. But if that were to occur, it seems quite likely that they would use incentive programs to [work off] whatever inventories they needed to.",88
-fomc-corpus,1990,President Hoskins.,4
-fomc-corpus,1990,"Yes, I want to get back to your simulation. If I understand it right, you have a neutral policy going forward to generate essentially the same nominal GNP. It's just that the components would differ; you would have lower output and higher inflation. You open up slack in the economy and the inflationary surge is temporary. You say that you don't take account of expectations; you haven't talked much about that. I think one could argue that with interest rates going up around the world--every place, really, except the United States--we could see a deterioration in inflationary expectations. My question is: What do you think about that? And secondly, what does that do to your real forecast?",140
-fomc-corpus,1990,"Obviously, the neutrality of oil prices is a feature of the model. Whether or not it's a feature of history, at least it's captured by the model. And there's no particular theoretical reason why that necessarily has to prevail at least to the degree it has; maybe it [unintelligible]. As far as the model goes, you're correct that there are not forward-looking expectations in the model, though it's not quite clear to me in this world with which we are dealing what you would ground forward-looking expectations on because you have to have expectations about, among other things, the oil price scenario itself. And, as has been discussed, that could go a variety of different ways. When we ran the simulations, we did adopt at least, again as a mechanical feature, slightly different monetary policy assumptions abroad. And that does produce some depreciation of the dollar and gives us some impetus to consumer price inflation from that source. So it does wash through this way; you don't get a very dramatic impact. As I tried to lay out our judgment about policy responses, I'm not so sure that other than in Japan we are going to get any particularly pronounced policy responses. I think it is true that the market is expecting a more--and I should underline ""a more""--vigorous resistance to inflationary impulses from the Bundesbank at this time. Our judgment is that the market is wrong or maybe overdoing it. And in some sense, that's what we built into the forecast. To the extent that we do get more [policy restraint] abroad, then we would have a more vigorous resistance to the inflationary impulses from higher oil prices. I think that would manifest itself in the first instance in exchange rates, and that clearly is a risk to the forecast.",350
-fomc-corpus,1990,"Let me follow up: Assume that inflation expectations got worse and go back to the real side of the economy. Presumably, you'd be forecasting higher unemployment?",31
-fomc-corpus,1990,"Well, it depends on your--",7
-fomc-corpus,1990,"Right. Well, suppose we don't accommodate those expectations.",11
-fomc-corpus,1990,"In a sense, the only thing that would change is inflation expectations and that would drive down perceived real interest rates. That would affect demand for goods and services in a stimulative way, conceivably. It's a very complex process and it's going to depend on your response to those--",57
-fomc-corpus,1990,"Well, I think the point you're getting to is that if you drove that process far enough, that would be one interpretation. It might even be minor. But in the 1970s process it would result in circumstances in which, although in the short run the mechanics of the model would generate lower real interest rates and so forth and so on, in the longer run you would have a higher built-in level of inflation and all the associated dislocations that we believe underlie that. So it could get us on a higher plateau of inflation [and a lower] long-run potential of the economy under those circumstances [than we] would assume, even though in the short run it might have stimulative effects as Mike described.",145
-fomc-corpus,1990,I think the third alternative illustrates this to a degree by showing the higher level of inflation that we would have.,22
-fomc-corpus,1990,"So it's relatively optimistic because, as Dave said and as President Boehne's question implied earlier, in some sense the fundamental forecast accepts that the amount of slack that's built in the underlying forecast--given no further shocks from further oil price increases--is enough to begin to bend down inflation. But it's postponed and it's at a higher level.",68
-fomc-corpus,1990,"If you moved to contain nominal GNP growth under that alternative, two things would be pushing up nominal GNP growth--both prices and output. And if you tried to hold nominal GNP growth, then you'd have more price with the adverse inflation and [unintelligible] less real growth for that nominal GNP growth.",66
-fomc-corpus,1990,"Well, I agree with what you said. I guess what I'm getting at is that markets may now behave somewhat differently with respect to expectations perhaps than they did in the 1970s in that they in fact are not fooled. And when we have higher real rates, the implication seems to me to be higher unemployment quicker. And if we want to avoid going back to the 1970s [experience], one policy response would be to signal the markets that we're not going to accommodate it and in the long run that could lower our costs [unintelligible].",114
-fomc-corpus,1990,Governor Seger.,4
-fomc-corpus,1990,"I have a different question about what I guess I would call a worst-case scenario or ""what if"" games. Did you try in your model to see what the impact would be if we had one of these horrendous sequesters that I hear kicked around town--if they knock off $100 billion and send pink slips to the federal employees and things like that?",74
-fomc-corpus,1990,"We have not yet run through the model something as acute as a sequester of the size that could occur under current legislation. The reason we have not yet done that is that the dislocation would be so enormous that at this point it's very difficult to imagine politically in the weeks before the election that either the Administration or the Congress would wish to have a sequester of $100 billion, which is about the size that we're talking about here, go into effect. In fact, at the mid-session review Mr. Darman issued a report outlining all the things that would occur if this sequester were to go into place, including that 30 percent of the prison guards would be sent home and people would be let out of jail because there wouldn't be public defenders and they couldn't get access [to the courts]. It just seems so extreme that I guess we feel fairly comfortable that something will occur in the time [before] the sequester to delay, if nothing else, our decisions until after the election.",204
-fomc-corpus,1990,You will admit that the government would improve under such conditions! [Laughter.],16
-fomc-corpus,1990,What is the decision date for this? Is it by October 1 that something has to be done under Gramm-Rudman? Is that the magic time?,32
-fomc-corpus,1990,"By October 1st they have to issue their sequester report and by the 15th, I think, the cuts actually have to be in place.",33
-fomc-corpus,1990,"With the existing Gramm-Rudman law, what would it take to derail it? Is it a forecast of two quarters of real GNP growth below 1 percent?",34
-fomc-corpus,1990,A forecast of recession or the experience of two quarters of less than 1 percent growth.,18
-fomc-corpus,1990,And we're not going to get less than 1 percent for Q2 and Q3.,18
-fomc-corpus,1990,"Either OMB or CBO, I believe, can make that forecast.",15
-fomc-corpus,1990,"Are you sure about that? Are you sure that CBO could unilaterally, by just an arbitrary forecast of a recession, derail Gramm-Rudman?",33
-fomc-corpus,1990,It doesn't derail it; it simply allows Congress--,10
-fomc-corpus,1990,It allows for a suspension.,6
-fomc-corpus,1990,"In other words, it automatically puts a vote on the table for suspension?",15
-fomc-corpus,1990,"I'm not sure that it's automatic, but it does provide for the Congress to temporarily suspend [the Gramm-Rudman cuts]. They have to make that decision.",32
-fomc-corpus,1990,"My second question in regard to worst-case scenarios involves oil prices. Having remembered the difficulties of the 1970s and 1980s in getting even the direction of oil prices right, what would be the impact on the economy of, let's say, a tremendous additional acceleration in oil prices to $35 a barrel because the Iraqis also take over Saudi Arabia or some other major producer? Have you tried any of these scenarios in your model? I'm not saying these are terribly likely outcomes or high probability assumptions but--",103
-fomc-corpus,1990,"Well, there are some nonlinearities involved in this, but in that range the models will tell you that you would get proportionally the same kinds of responses or a little more. Instead of losing 1/2 percentage point of growth, we would lose another 1 percentage point plus of growth over the next four quarters--at least abstracting from the dislocation effects, which I would argue and I think you would argue probably would be there. So, the models would suggest that a $35 oil price rather than a $25 oil price for a sustained period is going to cut another percentage point or more off of growth. And given the level of growth that we have, that would put us near zero or below. We all know that when we make up numbers, a smooth forecast will show something like zero but that probably is going to mean several quarters of negatives--on that order of magnitude.",181
-fomc-corpus,1990,What else could we face that would throw our forecast into the trash can?,15
-fomc-corpus,1990,Put it in the file cabinet? [Laughter.],11
-fomc-corpus,1990,Trash can is more appropriate.,6
-fomc-corpus,1990,"There always are innumerable uncertainties. I think we've just layered over the normal ones. There are some very, very big imponderables at this point. I might just say--and this might seem silly normally, but just to close the loop entirely on this Gramm-Rudman issue--if there were a declaration of war, that would suspend the Gramm-Rudman [provisions].",78
-fomc-corpus,1990,And the probability of that is not zero.,9
-fomc-corpus,1990,That's why I raised the point. It's not inconceivable.,13
-fomc-corpus,1990,"Well, thank you for playing my game with me.",11
-fomc-corpus,1990,"If there are no further questions, who would like to start the Committee discussion?",16
-fomc-corpus,1990,"Mr. Chairman, I would like to ask a question of the staff with respect to the forecast that has been laid out. To give us the export numbers that are contained in the staff's forecast, it seems to me that the forecast assumes that growth in other industrialized countries will continue fairly strong. I know there has been discussion of it already, but given the uncertainty about the oil situation and the reactions of Germany and Japan for example with respect to their interest rates, how comfortable are you that we will maintain exports at the level that you are projecting?",111
-fomc-corpus,1990,"Well, that's one of the conditional dimensions of the forecast. We're reasonably comfortable, given the particular oil price scenario that is built in here. In the baseline scenario we think there would be a spurt in inflation, some reduction in growth, and some reduction in exports in the short run--over the next several quarters. But then these economies--at least the continental European economies and Japan--in general would be relatively robust. There is still the phenomenon of rebuilding in eastern Europe and East Germany that is driving those economies and it should help sustain exports, In Japan in particular, as I mentioned in my presentation, there has been quite a lot of rise in short-term nominal interest rates, so they call it monetary restraint and as always there's a question of calibrating the extent that that is going to bring about adjustments. And the big drop in the stock market in Japan [unintelligible] as well. So I suppose we could see--it's not outside the realm of possibilities--half the growth that we now expect in Japan. That would have some implications for the forecast. But I think it's no more uncertain than anything else that we put before you in this export [unintelligible] policy.",242
-fomc-corpus,1990,Who would like to start off? Si.,9
-fomc-corpus,1990,"Mr. Chairman, reporting first on the conditions in the District prior to the Middle East events, I must say I certainly was surprised, positively, by the resilience of the Midwest and the ability of the District economy to rise above the national trend, at least so far. Certainly, the GNP revisions reduced our baseline forecast at least somewhat, but pre-Middle East events we continued to have a positive expectation for the economy. We forecast continued improvement this year and into next year. I have a couple of specific comments. The steel business continues to be good. A company I talked with is currently operating at a level of 85 percent of capacity; their order books are full for the third quarter; the fourth-quarter orders are coming in well; and they have not experienced the normal summer slowdown that they generally do each year. They continue to look for shipments this year of 83 to 84 million tons, which is about equal with last year. And even prior to the Middle East events, there was something of a boomlet going on in steel used in energy-related activities. Demand for sheet and bar continues to be good. The only significant change in their order book is that they do see a downturn in the demand for heavy structural items that would go into commercial construction. Recent price increases in the steel industry have been sticking, but on average they are still at this time some 6 percent under last year. In the construction area, on a year-to-date basis both nonresidential and residential construction in the District have been comparatively strong. We've had plus numbers in both categories versus negative numbers on a national basis. And just one item, the backlog for cement shipments, currently is running some 40 percent higher this year than last year, at least for one shipper. But having said that, I do sense in a more current perspective that there are not only postponements of some major commercial projects but some outright cancellations. I think within the last couple of weeks even in the Midwest there has been a change of attitudes there. One supplier to the commercial construction business tells me that their attitudes are rather worse now than they have experienced since 1981 or 1982. The auto business continues to be a sector of enormous uncertainty. But I did talk to one company as late as last Friday and they continue to hold to a sales forecast for cars and light trucks together of 14.4 million for this year. And they're looking at 14.3 million for next year. While those numbers, at least in my eyesight, look pretty good, their baseline number is 15.4 million. So, when they're under that baseline number by that amount, they think conditions are pretty negative. Third-quarter production schedules this year are up 17 percent over last year; fourth-quarter schedules are up 10 percent over last year. But, clearly, the production risks at this point are on the down side. And even this late into the third quarter the projected pickup of 17 percent is likely to be erroneous. Meanwhile, auto dealer attitudes are very negative. One would expect some pickup in orders because of the possibility of a strike; despite that, dealers just aren't ordering cars. But again, for the company that I talked to, 27 percent of their dealers are operating at a loss, which accounts for the negativism. The heavy truck business is bad. One manufacturer we talked to is looking for shipments of class E trucks, the heavy trucks, this year of 125,000 units; that's lower than others that are at 133,000 to 135,000. Again, that's against the baseline number of about 160,000. So, clearly, they're having a very bad year. In the agricultural sector, growing conditions continue to be very good, but because of late plantings and the reasonably cool summer that we've had so far, crops are a bit slower [coming in] than normal. The yield is going to be determined largely by the timing of the first frost. If we have a reasonable break on that first frost, production could be excellent and, indeed, farm income will be high. There's a shot at least at having a record farm income. With regard to credit and lending conditions, I continue to think that this is really a phenomenon caused by the banks themselves going through a self-correcting process. I think they've raised their lending standards. But even with the increases in C&I lending by the District weekly reporting banks lower this year than last, the numbers are nonetheless positive. And C&I lending by small banks in the District is higher this year than was the case last year. So, maybe we're seeing a bottoming in this trend--at least in genuine C&I lending, taking out merger-related activity and the like. I am reassured by the bankers that for good credits--they do emphasize the word ""good""--there is plenty of money available. But they do all say that they have raised their credit standards. Shifting to a post-Middle-East-events comment and a look at the national economy, I think it's just too early to assess the damage that we're likely to experience. Having said that, I haven't talked to anybody so far who specifically has changed their business pattern or what they are doing in the way of operations. Some companies are going through their capital budgets, but there are some contradictory [comments] on that. Some companies are planning to pull back on their capital spending programs, but I did talk to one company that's doing quite the opposite. They are now in the process of accelerating their capital spending because they sense that the level of inflation will be higher and, therefore, they want to get their expenditures in before that occurs. Now, I continue to have a feeling, at least in an intuitive sense, that the economy is operating at a very moderate level and that the Middle East events certainly are a negative in all this. But it's awfully hard to judge the outlook at this particular point. And, therefore, certainly in the monetary policy sense, it's a very awkward period.",1213
-fomc-corpus,1990,President Parry.,4
-fomc-corpus,1990,"Mr. Chairman, in the Twelfth District, employment growth continues to exceed that of the nation, although the rate of growth has slowed more in recent months than has been the case in the nation. For example, if you go back a year ago, our growth of employment was about 1-1/2 percent more than the rest of the nation; now it's running a little under 1 percent more. Following the national pattern, employment in manufacturing and construction has fallen in recent months, but it has fallen at a rate that is less than half that for the rest of the nation. Growth of trade and services industry employment is below that of a year earlier, but the growth rates continue to be in the area of 3 to 4 percent, which are not bad increases. Agriculture is performing well in the District as a result of high crop prices and yields and also high livestock prices. If I can turn to California, since California got some attention in the Greenbook as well, economic growth has slowed from last year's pace; there's no question about that. But the state's employment is growing at a steady rate of just under 2-1/2 percent on a year-over-year basis. Defense and aerospace layoffs are [slowing] and will slow economic growth. But even in LA and San Francisco, where the bulk of the layoffs will take place, the loss of jobs in these sectors will be small relative to what are expected to be healthy gains in other nonmanufacturing sectors. Real estate activity is slow. There's no question that sales and permits are off significantly. Median home prices indicate the drop in home prices but, as was indicated in the Greenbook, most of the decline reflects a shift in the composition of sales to lower priced areas, particularly Sacramento, Riverside, and places like that, and also to smaller homes. Turning to the national economy, although the risk of recession certainly is real, the upward revisions in retail sales for May and June, the June drop in the inventory/sales ratio, and the favorable report on June net exports are certainly encouraging. It appears as though, with a better balance between inventories and sales, positive real growth in the second half is quite likely. Although the Greenbook's oil price assumptions are reasonable, I believe that the effect on inflation in the second half of the year will be larger than that indicated in the Greenbook. In addition, the impact of higher oil prices in stimulating business investment could turn out to be a bit greater than implied in the Greenbook forecast. Finally, although a future drop in oil prices is assumed and certainly would help to moderate inflation, I don't think we should forget the effects of the dollar depreciation, which has been quite substantial. The latter, plus continued upward pressure on wages, should prevent a significant decline in inflation next year. Thank you.",568
-fomc-corpus,1990,President Forrestal.,4
-fomc-corpus,1990,"In the Atlanta District, Mr. Chairman, with the exception of exports, the tone of the reports that we're getting is very, very negative. The list of the weak or the weakening sectors that I talked about at the last FOMC meeting is unchanged. And I suspect from reading the Beigebook that these weak areas are very much the same as those around the country. Construction activity is particularly sluggish at the present time and, unfortunately, there is a large unoccupied stock that will have to be worked off before any new activity is justified. I don't hear very much about the [credit] crunch anymore. Clearly, the banks have tightened their underwriting standards. What we are seeing, though, is a decline in consumer loans rather than construction loans. And I suspect that that's more a function of demand than supply. Before the Middle East problem arose, the oil and gas business in the District was beginning to expand, but the industry has been constrained by labor shortages. The workers have left the area, particularly Louisiana and the Mobile area, and are not returning. At the moment it's still too early to tell how much stimulus the oil component sector will get from the recent price increases. The important regional industries that are maintaining their level of output are doing so only because their exports are replacing domestic sales. And in this category I certainly would include wood and pulp and paper producers. Agriculture is strong in the District, and sales of farm equipment are rising pretty rapidly both because of a good year domestically and also because of rising export sales. In an overall sense, the slowdown may be a little more pronounced than it was in July, but I don't see any new areas of weakness emerging. One other comment that I picked up from a number of contacts, particularly people in small businesses, is that they are seeing a growing problem with receivables, which have been much harder to collect. As a result, these firms are in effect financing these slow-paying customers. Sentiment is very negative, I would say. And, Governor Mullins, consumer confidence is very low in our District--and it's getting lower as a result of the Kuwait and Iraq situation. With respect to the national economy, I find myself in agreement with the Greenbook generally. In the interest of full disclosure, I would say my staff is a little more bullish on consumer spending than I am. I must say that I am increasingly pessimistic, and I was pessimistic before Kuwait, about the budget accord. I would like to think that something will happen, but I'm not at all sure that's going to be the case. Overall, I think that we may avoid a recession; but I am more concerned about our falling off the edge than I was at the time of the last FOMC meeting.",555
-fomc-corpus,1990,President Boykin.,4
-fomc-corpus,1990,"Mr. Chairman, as seems to be the case for the nation as a whole, economic conditions in our region are showing signs of slowing. There are special factors here and there that keep the overall growth numbers positive. After fairly strong employment gains in the first quarter of the year, our three-state District would have experienced employment losses in the second quarter had it not been for a strong growth in government jobs. Our manufacturing employment had been growing slightly while conditions nationally deteriorated. In the last few months, however, manufacturing employment has declined in each of our three states. Weakness has been concentrated in transportation equipment--mainly defense-related--apparel, and electrical equipment. While employment gains were experienced in chemicals and petroleum refining, we expect some slowing in these industries with the higher price of energy-related input. Employment in the services sector has been extremely weak outside of government employment. The government employment gains were for all government entities and were not just related to federal census workers. In private services, the main areas of strength were in transportation and public utilities, both of which will be adversely impacted by higher energy prices. The one area where higher energy prices should help the District economy is in drilling activity, but any positive response that does occur will be with a long lag time. First, inflation-adjusted oil prices are only about half the peak level reached in 1981, and the rig count is highly correlated with real oil prices. Second, almost half the drilling activity in the Dallas District is for natural gas which has a long way to go before gas prices catch up with oil prices. Third, drillers have to be convinced that higher energy prices will persist for several years. And lastly, even if everything on the price side fell in place--and as Bob Forrestal found out--we simply do not have the capacity to increase drilling activity since about half of that capacity exited the industry over the last four years. I did see on local TV that they reinstituted a rough-neck school out in west Texas to teach people how to drill oil wells. So, somebody has a little optimism. In the short run, the negative effects of higher energy prices in the District will predominate over the positive effects. I might add, however, that the weak picture for retail sales that has existed lately should be helped somewhat by the sharp boost in royalty and partnership income which is proportional to oil prices. Following the Iraqi invasion of Kuwait, we did do another round of Beigebook contacts. As a result, the anecdotal evidence has shifted from [an outlook for] slow but steady growth to one of great uncertainty. Even the focus of agriculture down our way has shifted from too little or too much moisture into marketing uncertainties in the new environment. With respect to the national picture, I really don't have views that would be considered different from the Greenbook forecast.",572
-fomc-corpus,1990,President Boehne.,5
-fomc-corpus,1990,"Well, since we met in July there has been some further softening in an already soft Philadelphia District economy. The sluggishness is widespread, including manufacturing, retailing, construction, and capital goods. Some areas of the District that have experienced labor shortages for the last several years now report the number of job applications rising. And in banking, I sense that our loan problems, which heretofore have been concentrated largely in New Jersey, are now floating across the Delaware, much as George Washington did some years ago. And I think we're going to see some of those loan problems in Pennsylvania as well. The chemical and plastic firms are the two that I have talked to most, and both of those industries already report substantial cost increases from the Middle East problems. I also noted that attitudes have turned very, very cautious. For the first time in a number of years I'm hearing more talk about recession in the outlook and, although I think that is still a minority view, it's a growing minority view. On the national outlook, my sense is that we probably will see some negative real GNP by the fourth quarter. Before the Middle East shock, we had increasing downside risks stemming from weakening demand in most sectors and tighter credit conditions. And with the Middle East problems, I think we'll have still worse downside risks. My hunch is that the Greenbook is underestimating the negative impact on consumption. I think that consumer confidence has been on thin ice for a while and with the cumulative impact of economic concerns that were building, and as this Middle East situation drags on, I think we will see more of a negative impact there. And that's going to affect business confidence as well. I think the key issues for us are: How much slack is enough and how much downside risk are we willing to tolerate to provide a reasonable prospect of keeping the impending bulge in oil-related prices from working its way into the core rate of inflation? And that's the next part of the meeting.",396
-fomc-corpus,1990,President Syron.,4
-fomc-corpus,1990,"Mr. Chairman, the gloomy news continues to track the people from the Northeast. The New England economy, I think, has continued softening at a somewhat faster rate than it had before--even in the pre-Saddam period. That will be exacerbated to some extent by the Middle East problem--at least in terms of peoples' expectations--in that as a share of energy provided we rely about 50 percent more on petroleum than the nation as a whole. But the number of BTUs per dollar of output is only about 80 percent of the national output. So, it tends to offset itself somewhat but not completely. In the District, the most pressing immediate issue continues to be a further softening--and almost a free fall in some parts--of the real estate market. I don't know whether you've sold your house or not, David. While we haven't heard anything about it yet, the oil situation could have an impact on vacation homes similar to that in 1973 and 1979, when people did not want to buy them because of concern about the greater cost of getting to them, and that's why we had a lot of softness in condos. At that time--though it isn't true this time--there was a concern about the supply of fuel to get to vacation homes. Even before this came up, though, we really had a quite poor tourist season. Construction employment, of course, has fallen very strongly, but it still has a way to go. Even though the level of construction employment has fallen very significantly, it is still above the 1981 level; so we think that will continue to be a drag. Beyond that, we've seen weakness now spread to the services and trade sectors. In the trade sector particularly, we've seen fairly significant declines in employment. As for consumer confidence in the region, the Conference Board data show that even before this oil situation confidence had fallen 55 percent July-over-July. I don't know how good these regional measures are, but several months ago New England was the only declining region. Now it's striking that only three of the nine census regions--relatively small regions at that--show an increase in confidence. In terms of the less dim, if not bright, areas of the region's economy, I'd have to say that's in manufacturing exports. I find a quite distinct pattern for manufacturers between their domestic business and their export business. For the domestic business, our survey shows them about flat to down 10 percent; but their export side is up about 5 to 20 percent. Interestingly, and I think this reflects something that Bob Parry said, we've started to see some turndown--and we have secondary suppliers--in the aerospace industry and we've started to be greatly concerned about how soft things are. But we're beginning to see some hope that defense cutbacks won't be as great [as anticipated]. In fact, at Raytheon, one or two contracts have been continued that were expected to be dropped. Credit availability continues to be much talked about and I think is a somewhat broader problem. A relatively small thrift operator came in and said he has told his loan officers: ""If it isn't gold, don't bring it in to me."" I don't say that that's a particularly widespread view, but I think it reflects something about the people in general working out problems. As far as the national economy goes, it's far too early into this whole situation to know what the impact is going to be in terms of disruption. We need to look at things in terms of before Saddam and after Saddam. My own reaction is that I am quite struck by any overreaction to it. I'll admit that I was struck by the revisions on the GNP numbers--that what we saw when they came out [differed so much] from what [we thought] had happened before. And on the basis of that, I myself have some concerns about confidence and a little concern that the Greenbook forecast might be a bit on the strong side, actually. However, I also have--maybe it's a reflection of being a [unintelligible] from the Northeast--an increasing concern about this issue of financial fragility in almost all of our large institutions. Thus, on balance, I would have thought the economy seemed somewhat softer before the Iraqi business, though perhaps not to the point of dictating a policy change. I don't know if we know enough yet to determine what's going to happen. With the degree of [military] buildup that we're going through, it seems to me entirely possible that--even short of an absolute shooting war--before too long we could get to a point where we will get some stimulative effect on the economy, particularly if the reserves are called up. We have had, as everyone has, some reserves called up already in our District. I also am somewhat concerned about the patterns in consumption and the steepening of the yield curve in the context of the international situation. So, I think the discussion in the policy section is going to be very lively indeed.",1013
-fomc-corpus,1990,President Stern.,3
-fomc-corpus,1990,"Well, as far as the District goes, it's more of the same. Growth is unspectacular but it's steady. We continue to do a bit better than the nation; of course, that's not a very remarkable statement these days. But most of what has been happening in the District reflects a continuity of what has happened over the last several months. Agriculture remains good; tourism has been good; most of the natural resource related industries are doing well; and the diversified metropolitan areas continue to do well, all things considered. I would say that we're not likely in my District to continue to outperform the national economy much longer, but at the moment anyway things are still going a bit better than at the national level. The run-up in oil prices as a result of Iraq and Kuwait occurred too late to stop the bikers from descending on Sturgis [unintelligible]. So that turned out to be a successful event and injected a lot of income into the South Dakota economy. With regard to the national outlook, somebody used the word ""dilemma"" earlier and I think that captures it. Even before the invasion of Kuwait, we were looking at slow growth and we were looking at that simultaneously with a lack of progress in bringing down inflation. And it seems to me if that was the dilemma, it has only been sharpened by what has happened in the Middle East. Obviously, I can't assess magnitudes, but I think it's fair to say the dilemma has been sharpened. My own judgment is that on top of all that--and one could probably point to some other things that have gone wrong--the likelihood of any progress on the budget has diminished as a consequence of this. I would guess, although this is a double-edged sword, that we will see some kick to military spending before this is all said and done. Now, that may help the real economy a bit, but I just have a sense that there's an awful lot of turmoil out there and that the dilemma, as I say, has worsened.",408
-fomc-corpus,1990,Vice Chairman Corrigan.,5
-fomc-corpus,1990,"Well, first of all, in terms of the national outlook, I think the staff has done as well as anybody could possibly do in terms of trying to capture what might happen and what the contingencies are. For what it's worth, both our baseline forecast and our alternative forecast are really quite similar to the kinds of things the staff is talking about. About the only material difference is that in the next two quarters we probably have the real economy a bit softer and the inflation rate a bit higher. But over the forecast period as a whole, the numbers both internally and externally (on trade) are really quite similar to the staff's baseline forecast. There are multiple risks. In the very short run the greatest risk or uncertainty, of course, is that the Iraqi situation will turn into a shooting war. I've talked to some people who know something about the oil infrastructure in that part of the world and the impression I get is that even if it were a very short armed conflict, a guy like Hussein could do one heck of a lot of damage in a very short period of time to the oil infrastructure in terms of pipelines and that type of thing. So, again, even if a shooting war were very short and very decisive for the good guys, the damage that could be done to the oil infrastructure in a matter of days is quite substantial, I gather.",271
-fomc-corpus,1990,It's all concentrated in a relatively small area south of Kuwait.,12
-fomc-corpus,1990,"All the pipelines I gather are above ground even when they're far removed from Iraq or Kuwait itself. So, they are just sitting there. And the potential for substantial damage when you have a crazy guy like this guy is quite real.",46
-fomc-corpus,1990,When you say crazy [unintelligible] get it back to work and functioning within a year.,21
-fomc-corpus,1990,"All of that would, consistent with what Gary says, involve some substantial stimulus from a lot of sources. Anyway, I think the staff's effort to try and capture both the baseline and some of the contingencies is as good as one can do it in these circumstances. Leaving that aside, an interesting way to think about this is to ask what was going on pre-Iraq and what superimposing Iraq means. I have to say that my impression is that even prior to the Iraqi invasion the attitudes in the business community--both big business and small business--were souring. My sense is that the economy, if anything, was softer rather than stronger and that even before the very latest CPI number the inflation rate was higher rather than lower--not in any decisive way, but certainly the hopes that the inflation rate was going to bend down, I think, were fading. I agree with some of the others who said that--again, even before the Iraqi invasion--expectations had soured quite significantly in terms of the prospects for any kind of a meaningful budget compromise. Obviously, the Middle East situation has made all of those things worse, at least in the short run. What I hear now is not only more overt talk about the risks of recession but a crescendo of opinion about a vicious form of stagflation in which the inflation rate, at least for the foreseeable future, could be significantly higher in a context in which the economy is just sitting there. Now, the good news in all of this that I detect rather overtly in many instances is that there is a recognition in the business community and maybe even on Main Street that, at least in the short run, it's not something that is subject to any quick fix by monetary policy. I think there is a recognition that all of this does put quite a constraint on monetary policy. Indeed, I'm even surprised about the number of people who talk overtly about not making the same mistakes that were made in the 1970s when, in the eyes of many people, oil prices and energy shocks were allowed to feed into the general pattern of wage and price setting. So, there may be at least that element of realism there. Nevertheless, I have the impression at this point that things are very much on the gloomy side. One quick footnote on the real estate situation: You can get many different stories there; it depends upon whom you talked to last. But what I'm impressed with is that my examiners--who I think are pretty darn good, especially in real estate--are very much of the mind that the situation had to get worse before it was going to get better. And again, that was before any further problems were superimposed on that situation.",547
-fomc-corpus,1990,President Melzer.,4
-fomc-corpus,1990,"For the District, the most recent numbers, which are second-quarter numbers, show a decided shift. Generally in recent months I have been reporting that we have been out-performing the national economy; in the latest period both absolutely and relatively there is weakness in employment and weakness in non-residential and residential construction. In talking to our directors and others around the District, I have not picked up any sense that they have noticed anything dramatically different. What's interesting is that, despite reporting that things are pretty much as I have described them in recent months, there is a lot more anxiety. Last week I had our staff do a survey of business contacts throughout the District, which was rather interesting. In general, it supported an outlook for continued, albeit somewhat slower, expansion for the balance of 1990. One surprising part of it to me was a good deal of optimism in terms of retail sales, which either met or exceeded expectations. And those sales were obtained without unusual price cutting; their inventories were in good shape. Basically, 7 out of 9 retailers contacted reported that their outlook was good or optimistic for the balance of the year.",227
-fomc-corpus,1990,This [survey] was taken when?,8
-fomc-corpus,1990,"Just last week. Now, we have relatively sluggish job growth and some layoffs coming in the aerospace industry --in St. Louis in particular--and in the defense industry. So, whether or not that optimism by retailers holds up in the face of slowing or maybe even declining employment growth and lower incomes remains to be seen. Based on this survey and the views of our people, in general we would expect weakness in autos and construction and some strength in services, agri-business, and mining. That pretty much sums up the results of that survey. On a national basis, I would be in general agreement with what the staff has forecasted. What's very tricky, if we come to grips with monetary policy, is that there's an assumption in that forecast of an essentially unchanged monetary policy in terms of the funds rate. And, of course, given our operating procedure, an unchanged funds rate in a slowing economy could in fact create a tightening--from the perspective of monetary stimulus. And I think that's something we have to watch pretty carefully. Now, I've personally been encouraged by the pickup in money growth recently and what's projected for August and so forth, but we have to watch that carefully. The other general comment I would make is that I think the July experience sort of showed us that we're not in an environment, given the concerns about inflation, in which we can try to lead the market lower. I think we're in a position where we have to follow behind market expectations in terms of policy actions.",298
-fomc-corpus,1990,President Guffey.,5
-fomc-corpus,1990,"Thank you, Mr. Chairman. Well, [economic activity] in the Tenth District is not a great deal different than reported in prior meetings. We continue to have moderate growth with mixed performance in individual industries within the District. However, the higher oil prices will likely slow job growth in the District, particularly in states such as Missouri, Nebraska, and Colorado. And that will not be offset in our opinion by the District's increase in energy production in states such as Oklahoma, Wyoming, New Mexico, and Kansas. In the energy area, the District rig count did increase before the Middle East situation; the rig count went up from 266 in May to about 290 in June, largely in the natural gas area, however. That level of 290 in June is only about [20] percent of the level in the peak years of 1982 and 1983 when the number of rigs operating in the District was something over 1500. Automobile manufacturing has been curtailed within the District, principally in Missouri, as has been reported. For example, the GM plant has been closed for two weeks' vacation related to a lack of parts. There is some suspicion that it's simply because the dealers just don't want to take down additional inventory. On the other hand, Ford has closed its plant for a week because of the slow orders from dealers. In the agricultural sector, there has been a very large wheat crop, as I think everybody knows. Prospects for corn and soybeans and other feed crops have been very good. As reported earlier, because of a wet spring and late planting there is a good growing season, and it appears that we will have a very good crop in all of these different commodities providing we don't get an early frost, which would kill off this late planted corn and soybean crop. One interesting thing that I'd like to report on is a second-quarter survey of farm land values, which showed a continued increase of 3 percent overall. But that's a slowing in the rate of increase of agricultural land prices. For example, in the same period in 1988 the year-over-year increase was 5-1/2 percent; for the same period in 1989 it was up 4 percent; and this year the increase slowed to about 3 percent. Given all of that, we don't see any great deterioration of economic activity, which is very much as it has been in the past. What will happen with respect to the energy sector as a result of oil prices is still uncertain, obviously. But as also reported earlier, we will not be able to get back into a boom condition of drilling oil wells simply because the level of skilled labor has vanished since that earlier period and there is not the equipment to put in the field to bring forward new wells. With regard to the national outlook, as Bob Forrestal said, in the interest of full disclosure I should report that our staff believes the outlook is a little weaker than shown in the Greenbook, marginally so. However, I'm more supportive of the Greenbook forecast. And it does show, of course, the kind of outcome that we would hope for. That's all given against the background of the great uncertainty of the Middle East situation. Talking about a recession, given what's going on in the Middle East and the prospects for a shooting war, I don't know that we have any history of going into a recession during a shooting war. As a result, this adds a bit more uncertainty, but I come out [with the view] that the Greenbook forecast is very believable.",716
-fomc-corpus,1990,First Vice President Monhollon.,8
-fomc-corpus,1990,"We think the baseline projections in the Greenbook make up about as reasonable a scenario as anybody might come up with, given the additional uncertainties created by the Middle East crisis. The key assumption underlying these projections is that the oil shock will be relatively brief and relatively mild. That may or may not turn out to be correct, but it's certainly a reasonable assumption given what we know now. But even the stronger and more persistent shock assumed in the staff's alternative scenario produced only a moderately different outcome. As has been discussed here, we agree that the [range of] confidence around these projections is obviously wider now than it was a month ago. And the probability of a near-term recession is correspondingly higher. As a matter of fact, slowing economic activity in our own District and rather pessimistic recent comments by some of our directors and other contacts led us to think that the probability of a downturn had risen a bit even before the Iraqi invasion. But we think it's important not to exaggerate the downside risk to the economy. Several points, some of which have been mentioned, come to mind in this respect. First, the upward revision in the second-quarter retail sales figures suggests that final demand in the second quarter was stronger than we had thought, and the healthy increase in hours worked by production workers in July indicates that the payroll employment data may have overstated the weakness in the early part of the third quarter. Secondly, both the United States and the rest of the industrial world are better positioned, for a variety of reasons, to absorb an oil shock now than in the 1970s. Third, the prospects for continuing pretty strong growth in Japan and the European community should hold up export growth to provide a partial offset for softening domestic demand. Fourth, the absence of any widespread inventory imbalances implies that if we do get a recession, it should be fairly mild. And finally, the projected acceleration in M2 growth in August holds out some hope that the extraordinary weakness in the growth of the money supply in recent months may be ending. These observations are certainly not intended to deny that the downside risks with respect to economic activity have increased. But the purpose is to help keep these things in perspective.",439
-fomc-corpus,1990,President Hoskins.,4
-fomc-corpus,1990,"Business conditions in the District really have not changed much from the reports I've given you before, and we continue to operate at high levels of economic activity. What has changed, obviously, is what everyone has mentioned here already and that is the uncertainty that people have going forward. In response to that [uncertainty, the comment I heard] when I dug around a little was that firms were not planning to reduce production now or to curtail capital spending plans. Their plans had more to do in some sense with anticipating slower growth out there and preparing themselves for reductions in their labor force in the future. The responses that some people seem to be making to the uncertainty about the fourth quarter included: using overtime as opposed to adding new people; letting attrition run down the work force a little; and using contracted help. One response from a steel company executive was to protect the company in the fourth quarter by exploiting opportunities in Europe where steel demand is very strong and mills are booked out through December. He has the opportunities for business in that area. The only cancellation, or at least deferred sale that I know of, is at a steel company that had a transformer on a ship to Iraq. I don't think they're going to complete that sale for a while!",250
-fomc-corpus,1990,"Iraq really needs it, doesn't it?",9
-fomc-corpus,1990,"They'll need it more later. In terms of the national outlook, it's obvious what we face. The oil shock has given us two outcomes for the economy: higher inflation in the near term and reduced output. It seems to me also that one could argue that real interest rates need to be--and probably are--somewhat higher to ration or reduce the supply of output over time. With respect to monetary policy, I think there's little that we can do constructively to get more oil. And there's not much we can do constructively to lower real interest rates. There is one thing we can do and that is to keep the long-term inflation expectations from being built into this economy.",137
-fomc-corpus,1990,Governor Angell.,4
-fomc-corpus,1990,"It does seem that looking at the real economy provides some benchmark that we can use to make our estimates about the future. But, certainly, the latest revisions make it very clear that, when some quarters in 1989 that were originally around 3 percent are revised to 1.7 percent, we have to be very careful about thinking about that kind of precision. I am somewhat optimistic about the real economy in regard to the performance of net exports. I think the strong current dollar net exports in the second quarter will certainly switch to very strong real net exports in the third and fourth quarters, as the price patterns in the second quarter reverse. The monetary aggregates now have fallen into the category of being interesting. I used to think they were much more than interesting, having had four years in which the growth of the aggregates has been down, with M2 below 5 percent. Whether you're measuring M2 over four years, three years, two years, or one year, its growth is very close to 4-1/2 percent. But the fact of the matter is, according to the staff forecast, we're probably going to end up with the highest year-over-year CPI inflation since 1981. That means the results in nine years have been better than the results this year. Certainly, for an old fashioned monetarist that gives one pause. Now, that doesn't mean that the monetary aggregates are not important; it probably just means that we have to look to somewhat lower M2 growth rates to achieve our objective than we first thought necessary. We can also look at real interest rates, which I think are a very crude check in regard to distinguishing between periods in which monetary policy is apparently very easy, as it was in the 1970s, versus the real interest rates that prevailed in the 1980s, which in general were in the 4 to 4-1/2 percent range. Certainly, it seems likely, given the tax changes with regard to the deductibility of interest, that those real interest rates are consistent with inducing a change in household savings patterns. And in a sense, I think all of us ought to be much more enthused than we are regarding the level of consumer spending. It seems to me that the saving rate in the United States is not too high and that, consequently, some rise in the saving rate--which means a diminution in the rate of growth of consumer spending--is exactly what the doctor would order. Now, it seems to me that a look at forward-looking indicators really can [help one] begin to pinpoint a bit better when monetary policy has been easy and when it has been restrained. And those forward-looking indicators clearly show that monetary policy in 1988 and after maybe the first three quarters of 1989 were indicative of rather significant restraint. Whether you're looking at commodity prices, the yield curve, or the foreign exchange value of the dollar, you get a confirmation of the fact that the money growth prevailing at that time did not enable enough liquidity to be out there to support upward movements of commodity prices and it supported the exchange value of the dollar. But, frankly, it seems to me that over the last nine months we have moved--though not from a monetaristic determined way of looking at monetary policy--from monetary restraint to monetary ease. I don't think it has been an abrupt move; I think it has been a very gradual move. And we probably have not altered the real interest rates significantly, or so dramatically as to [foster] too much expansion in the period ahead. But I think it is quite apparent that the yield curve is indicating that participants in the real market are suggesting that the appropriate rates of interest are higher than we may be providing. Certainly, [that can be seen in] commodity prices. The staff did me the favor in Chart 7 of indexing these commodity prices to the first quarter of 1986, which is in some way a little embarrassing for me because I talked about keeping those commodity prices within a range of 10 percent up or 10 percent down from where they were in the first quarter. And when I look at all commodities, the index at almost 140 means that we had an 8 percent annual growth rate over a 4-1/2 year period. All commodities except crude oil show a 5 percent annual rate of gain; and that's not stability in those prices. So monetary restraint does not seem to be characteristic of this era. When you look at the bottom chart, all commodities except food and crude oil--which takes out some of the variabilities of agricultural policy--it looks like we have had a very significant trend line of rising prices over the last 11 months. So, there's nothing there that gives me any indication that monetary policy at this moment is too restrained. Indeed, if the foreign exchange value of the dollar continues to fall at the rate it has been falling--since really over the last 10 months--it's a rather significant event, which with the recent movements in gold prices I think could be an outright devaluation. And that only occurs during periods of monetary ease, not monetary restraint. So, I'm somewhat of the view that we have already eased. And I'm of the view that that ease, if it takes hold prior to the time that we get a breakout of the rate of inflation from the rut we have been in on the down side, is going to give us one heck of a problem in the years ahead.",1102
-fomc-corpus,1990,Governor Kelley.,3
-fomc-corpus,1990,"Mr. Chairman, I'll be brief because my observations are very much in the mainstream of much of what has been said this morning. In the area of inflation, pre-Iraq I think the news was already disappointing in that we really had made very little progress. And now post-Iraq, we have an oil shock that is a virtual cinch to pick inflation up substantially. So, I believe we do have a higher inflation outlook. There is some concern that it might be substantially higher; that's a very clear and unequivocal threat. In the area of real economic activity, I think pre-Iraq we have been getting pretty much what we had asked for--maybe a little on the soft side of that, but no real nose dive that was in any way perceptible. And today, we have even more softness in prospect as a result of the oil shock. So, the recent events are certainly not a plus and they certainly add to the risk and to the uncertainty. But at least there is not yet much evidence that the economy is headed for the tank. So, we do have an exacerbated inflationary situation and I think there is a clear need that that be minimized in a way that is most sensible to the rest of the economy and its progress. Economic activity per the Greenbook may still be okay; I hope we get the Greenbook outlook and I think that probably would be okay. One question that I ask myself is: If we did try to help the economy through easing, would it work? Would the medicine turn out to be as bad as the disease is in the first place? I'm not sure; perhaps some percentage thereof. I'm not sure what would happen to long rates in that event. I'm not sure what would happen to the dollar or the inflation rate. And I'm not even very sure whether we would get the response we would be looking for from the consumer and on the investment side if we did that.",388
-fomc-corpus,1990,Governor LaWare.,4
-fomc-corpus,1990,"In general, I would like to identify myself with President Boehne's remarks. In spite of the fact that the consumer confidence figures are terribly volatile and not necessarily reliable in the long term, they are cause for a reasonable amount of alarm on my part because we have such a consumer-driven economy. I think we're very close to the edge of that cliff; if it's not a cliff, it's a steep decline. I'm concerned that if we do lapse into recession, certain weak elements in the economy could accelerate. The real estate mess could be a real collapse on a much broader front than it currently is. The further losses that a recession would imply for the banking system would further undermine the banks at a time when many of them are on skinny ground as it is. Corporate profits remain very disappointing. The debt burden of the private sector is heavy and, obviously, the burden of servicing that debt in a declining economy is going to be much greater. I have no confidence that the oil price rise will be contained or that it will begin to decline due to offsets from Saudi Arabia, Venezuela, the United Arab Emirates, etc. I'm not sure that they really are going to come on stream as advertised and that they will be sustained. Part of it depends on the duration of the Iraq crisis and I think that's an imponderable. Short is obviously good even if it's a shooter; long is very serious whether or not it's a shooter because of the effect on the economy and the possibility of permanent or at least longer-term impairment of the flow of oil. The dilemma is that the external circumstances have threatened growth and at the same time stimulated inflation. And the challenge for us is that movement against one exacerbates the other, whichever way we go. And the whole situation is seriously complicated by the vulnerability of the dollar and the possible consequences of a free fall in the dollar to the financing of the deficit--and the deficit may be growing at the same time. So, those are comments that don't lead us anywhere, but they describe what I am thinking about at any rate.",412
-fomc-corpus,1990,Governor Mullins.,4
-fomc-corpus,1990,"My views on the nature of the economy, pre-oil shock, are pretty consistent with what everyone else has described. I would consider it marginally gloomier than last time, but with no really clear evidence of a recession, and brighter than the gloom that pervaded after some of the statistics that were released a few months ago. I guess we're still pinning our hopes on exports. Looking back over six quarters, if you ignore the first quarter of 1989 drought distortions, we have had roughly six quarters of maybe 1.4 percent GNP growth. That should be the equivalent of a couple of quarters of negative 1 percent recession with the rest of them in the mid 2 percent range and you would think that it should have produced slack. We don't see a lot of evidence of slack in the economy but we do see some. Capacity utilization has edged down some and it's only high in a couple or three industries, such as mining and primary metals. Unemployment has increased and employment has fallen. The real mystery is what happened to the 600 thousand to 1 million people who left the work force. Clearly, if they were in the work force and if the latter had grown at the rates we saw in the 1980s, unemployment would be above 6 percent. I think they are legitimately out of the work force because we don't see the pressure on wages. And we see other evidence in the labor statistics, such as aggregate hours worked, that suggests there is not a lot of slack. So, overall, I think we've seen very little progress on inflation. It is true that the June CPI number, which upset so many people, had the owner's equivalent rent in it suggesting that home costs were going up pretty rapidly at a time when other things suggested they were going down. That was true in July as well, but it was not the only factor in July; there were other concerns in July. You can't help but believe that nearer term the recent months of slow growth in money and credit should start to have an impact. But I would say at this stage that I see no hard evidence of progress. From these levels of GNP growth I'm also not that confident that if we saw a downturn we could do much to catch it in time, which is why I think we need to look ahead and think carefully about the future. My initial view of the oil shock was that it was not such a massive event. In terms of the increase in the price of oil it is perhaps 50 percent. In the early 1970s, oil prices increased by four times and in the late 1970s by two or three times. This seemed a lot smaller, although the news media tends to equate it with those two [earlier] events. And I think the 1970s conditions were far different. Certainly, we're going to see higher CPI numbers. As Governor Angell mentioned, these will be the highest we've seen essentially in the [last decade] and in fact the highest we've seen since the last time an oil shock happened. One of the reasons we didn't see higher numbers in the 1980s was because we didn't have oil shocks in the 1980s. It's still not a very pleasant prospect; and it comes on top of not very much progress before this in the CPI. The staff estimates a moderate impact on inflation, perhaps 1-1/2 percentage point higher CPI numbers, and a transitory impact. I guess that's consistent with the notion that there is some slack in the economy. The economy is pretty weak and money and credit growth have been slow. It's not too likely that this would feed into some generalized inflation. Yet the bond markets reacted quite negatively to this--and around the world, I might add. The reaction was pretty similar in bond and stock markets in the major industrialized countries. U.S. long bond yields went up 50 to 60 basis points, and it's hard to reconcile a transitory impact on the CPI with 30-year investors in some crude sense saying 30-year inflation is one half point higher. They are responding not so much perhaps to the projected median inflation rate as to the small probability that the high consequence outcome is letting inflation get out of hand. I also believe some important part of the higher yields is a real risk premium associated with the uncertainty and the disruption in real economies. Investing in 30-year bonds is simply riskier in a world when small countries can disrupt large economies at will. That disruption risk had been there in the 1970s. We went through the entire 1980s without one of these events; indeed, we went through the entire Iran-Iraq war without one of these events. The cold war ended and now all of a sudden we have real instability, which I think people will offset with a real risk premium. There are some arcane measures which document the volatility. The implied volatility on bond options has gone through the roof. There are technical factors in the bond market. When you have this sort of uncertainty the hedges come undone; it's more expensive to be a 30-year investor. Peter mentioned the problems with the auction. And it's not clear to me that some of the other markets that didn't have the auction problems went up quite as much. One way I try to conceptualize the oil shock impact is to assume that it hadn't happened but that instead we had a budget deal which involved a $10 a barrel tax on oil with half of the proceeds given as foreign aid to oil-producing countries. It seems to me that the inflationary impact of that sort of budget deal in some crude sense should be roughly the same as what we've seen. But I suspect the markets would have responded far differently. And it seems to me that difference in response has a lot to do with the uncertainty and the potential for future disruptions of this type. So, I wouldn't read--",1192
-fomc-corpus,1990,But the difference is who imposes the tax.,10
-fomc-corpus,1990,"I think the yield curve is going to be more steeply sloped for some time to come because of an uncertainty premium in it. What bothers me most is the impact on the real economy. This is a contractionary event. People are poorer; they have less money to spend; their wealth is reduced. Because the magnitude of the impact is not that great in terms of the percentage increase in prices, the impact in the Greenbook is relatively small--less than 1 percent reduction in GNP. And we don't have a lot of GNP to give up now; we come out projecting .5 for the fourth quarter, which is a pretty small margin of error. I've already alluded to my major concern in this area, which is the fragility of consumer confidence. I'm a little concerned that we may see the increase in the saving rate that Governor Angell talked about if we start a shooting war over there. I'm also concerned that we haven't thought a lot about how this is likely to end. We discussed it a little here. The outcomes aren't that encouraging from the point of view of consumer confidence. We could be lucky enough to have an efficient coup. But when you think about the scenarios, it leads to a pretty sour mood. This on top of an already fairly weak economy suggests to me that there's certainly a possibility that the contractionary consequences could be greater than projected in the Greenbook. I'm still a little concerned about the slow growth in money and credit. We have had very low growth in the past four or five months, including last month, despite the absence of RTC activity. I guess growth is picking up in the first couple of weeks of August, as we apparently have scared people back into money. Money market mutual funds have gone up and we're apparently exporting currency again at a rapid pace. Obviously, some of it could be demand; but there also is some fragmentary evidence on the supply side. The lending officers survey continues to show tightness; and finance company lending went up pretty dramatically recently, which is consistent with the notion of some borrowers having to search for alternatives to bank credit. I'd be particularly concerned about where the low investment grade borrowers are going. The junk bond market is gone; the banks are not forthcoming. You don't see the substitution effect in the commercial paper market; high-grade credit has gone down as well. The other concern I would have is the fragility of the banking system. If we have a sharp downturn, we could have some real problems there and the FDIC could have some real problems as well. So, I see a fairly weak picture to begin with--with this shock making it weaker--and with the certain prospect of higher numbers on the CPI as inflation works itself through, the specter of a real possibility that the consumer could pull in his or her horns. This presents us with a difficult dilemma for setting policy; people have extended their pity on our tough dilemma. What concerns me is that I think it's likely to get more difficult before it gets easier. As the numbers actually start to go into the CPI and as the impact on the consumer becomes clearer, the policy options down the road may be at least as difficult as the ones we face now.",645
-fomc-corpus,1990,Governor Seger.,4
-fomc-corpus,1990,"Every time I come to one of these meetings I am reminded of how difficult it is either to analyze the economy currently or to forecast it. This time we've just come through a period of having received these major revisions in the GNP numbers which, at least as I read them, show that we had weaker growth last year than most of us thought we had had. Also, the numbers for the first two quarters of this year look rather weak. In doing our forecast, I think the uncertainties are really tremendous. I mentioned a couple of them in my questions for the gentlemen at the end of the table: primarily, the impact of the Middle East situation, the budget summit or what might come out of the summit, or how Gramm-Rudman will work and whether or not we'll have a sequester. All of those are key unknowns in our forecast. I certainly don't pretend to have any answers that are any better than anyone else's. It is interesting for someone who has been rather concerned about the signs of weakness in the economy, as I have, to be able to add some more indicators to my list this summer. A number of them have been mentioned, so I won't repeat them. Also, I think it's interesting that the U.S. Chamber of Commerce has now come up with, and made public, a recession forecast for this year. Solomon Brothers economists also are now forecasting a recession. As I compare my own views with the Greenbook presentation, there are a couple of things I would mention. One is the area of consumer spending. I'm somewhat more negative about that than our official forecast, primarily because of the debt situation. Consumers are really loaded up to their eyeballs, I would argue. And I think this Middle East mess and what that's doing to consumer confidence is going to result in a chance that their debt problems may even worsen with defaults and delinquencies and those sorts of things. Also, I never hear anyone mention the impact of these declining real estate [values] on consumer spending. John LaWare and I have talked about it in the past as an influence on the health of the banking system and S&Ls, etc. But for the average person, at least the average person I know, the equity in their home is the biggest single item on their personal balance sheet. And when the bombs dropped on the values of those homes--they actually are facing declines in real estate values in many parts of the country, except maybe where Bob Parry lives--it made them feel more poor. I think that is a bigger impact on the consumer sector than the October 1987 stock market decline. The latter impacted people who owned equities, but a lot of other people didn't even know there was anything going on on Wall Street. I think the decline in real estate values is far more serious to the consumer and will be a future influence on consumers' willingness and ability to spend. Also, I'm somewhat more concerned about housing and other kinds of construction because I don't think the financing problems that are out there in the real world have been fully reflected in our statistics, particularly the needs of contractors to locate funds to do their construction work. I know we've discussed the credit crunch primarily in the context of banks, but it also relates to S&Ls and to the closing of S&Ls and to the limits on loans to a single borrower. That is coming in through the back door and impacting on the construction of single-family homes, multifamilies, etc. I'm also more concerned about what's going on in state and local governments and their budgetary problems. I think we're likely to see either cuts in their expenditures or still more hikes in their taxes. We've already seen numerous instances of that but it wouldn't surprise me to see still more. And that, of course, impacts those folks who have to pay the tax bills. In terms of why I would just as soon not let us go into a recession, the fragility of the financial system is certainly the big part of that. I'm sure that the problems that already exist would be made much, much, much more difficult. And a recession would make the U.S. budget far more difficult to deal with and would make the budget deficit much, much bigger. As for inflation, if you could guarantee me that a trip through the wringer would cut our inflation rate in half, I might sign on for the ride. But I haven't heard anyone try to make that argument. Consequently, I am unwilling to take the risk of a recession to get what may be a very modest cut in the inflation rate. So many of the sources of inflation that I see are just out of our reach, period--whether it's an action by government or whether it's something that has to do with OPEC or Mother Nature, etc. I think we have some impact but we certainly don't have complete control. So, I hope that we can come up with a good decision today--one that will help to keep us out of a recession if we're not already in one, though be responsible on the inflation-fighting side.",1016
-fomc-corpus,1990,I think we all need some coffee.,8
-fomc-corpus,1990,Good idea.,3
-fomc-corpus,1990,Mr. Kohn.,5
-fomc-corpus,1990,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1990,Questions for Mr. Kohn?,7
-fomc-corpus,1990,"I'd like to ask a question about what you referred to as the ""felicitous"" outcome involving an unchanged [nominal] income path after the shock which, of course, leads to an [un]changed interest rate path and M2 path. To me that has critical implications for the policy decision we make here. What bothers me a little is that it seems to me a bit counter-intuitive; also, I know a couple of models at least where there are different results. It would seem more likely, with an oil shock of the magnitude we're talking about, that in the first year we probably are going to see more of the impact on higher prices than on the real side. That would suggest that in order to get the same path for nominal income growth we would need higher interest rates and somewhat slower growth of M2. And if indeed the same nominal income path is what we want now, this is a very critical difference. I don't know how much effort was spent in trying to verify this or to look at it in different ways, but assuming an unchanged nominal path is what we want, it's critical which interest rate path is consistent.",231
-fomc-corpus,1990,"Well, let me make one or two comments and then Dave or Ted may want to comment as well. One is--and this follows the conversation we had before--that I think it's important to distinguish between GNP prices and the CPI.",48
-fomc-corpus,1990,Yes.,2
-fomc-corpus,1990,"You get a lot more [effect] on the CPI, given that it has imports in it and given that it has a higher weight on energy, than you would on GNP prices. Secondly, it's sort of a function of the model; it falls out of the model's parameters, which are based on past experience. I think you could argue that past experience was distorted; we had controls in certain cases and things like that. So, I think it is particularly difficult to get a reading on what's going to happen now.",106
-fomc-corpus,1990,There's also an interesting change in the translation from crude oil to product prices this time relative to the last time. We used to have a long lag; now it's instantaneous.,34
-fomc-corpus,1990,"Well, we had price controls.",7
-fomc-corpus,1990,"Yes, everything was distorted by the controls, certainly in the first period. So, my thought is that past experience may not be that good a guide. And that simply reinforced my own feeling that one can start with the staff forecast as a first approximation, but this is probably a period in which the odds on that coming through are less than I would usually say is true for the staff forecast and, therefore, that one needs to be somewhat more adroit and alert in changing policy if in fact the incoming information is not so suggestive--",108
-fomc-corpus,1990,"It isn't the case that our forecast is constrained by this particular feature of the model--that somehow the energy price run-up would naturally lead to offsetting price and output effects with unchanged nominal income. As Don pointed out in his briefing, it is a function of the parameters of this specific model and not a theoretical feature of the economy or something that is anything other than a summary of past historical experience.",80
-fomc-corpus,1990,"It seems to me that we made one major judgment that interest rates should be the same or lower, but I have a feeling that we shouldn't take too much confidence in that result. It seems to me quite likely that if we make that judgment then we're probably, in effect, going to see higher nominal income and it's probably going to be primarily as a result of greater inflation. I think the risk is there and it's a significant risk.",87
-fomc-corpus,1990,I think the sense in which this nominal GNP concept is attractive is as sort of an automatic stabilizer.,22
-fomc-corpus,1990,Right.,2
-fomc-corpus,1990,"But you don't necessarily have to constrain yourself to that automatic response. So, there's nothing magical about this. If you were concerned about any acceleration in inflation in the short run, you might want to have a lower nominal GNP path or even--",49
-fomc-corpus,1990,"Oh, that's true.",5
-fomc-corpus,1990,So it doesn't do the work for you here in terms of the policy decision.,16
-fomc-corpus,1990,But it may cast it in a somewhat more [unintelligible] way if indeed the underlying relationships are different than as portrayed by that model. But you're right: It depends on what you want to set as your objective.,46
-fomc-corpus,1990,President Stern.,3
-fomc-corpus,1990,"Don, what do you project for M2 growth in the fourth quarter given something like the baseline assumption?",21
-fomc-corpus,1990,"We have 4 percent quarterly average growth in the fourth quarter. But I believe the monthly numbers, which I don't have right in front of me, are lower than that. We come out of the third quarter higher, so I think we're looking at rates more like 3-1/2 percent on a monthly basis in the fourth quarter. And partly because we have the RTC activity picking up at the end of September, once again that starts depressing M2 growth early in the fourth quarter. And then we have opportunity costs perhaps even widening a little as banks and thrifts reduce their offering rates in lagged response to other rates. So, we don't have any big push in M2 for the fourth quarter. We did raise the projection for the year to 4 percent based largely on incoming data, revisions to past data, and how we saw the third quarter. We didn't really strengthen our outlook beyond the third quarter very much.",187
-fomc-corpus,1990,"Anybody else? If not, why don't I get started and try to cut through some of this. I must say that this is about as difficult a policy discussion as I have ever been confronted with, and I've been around these policy woods so to speak for 40 years. Let's start with where we are. I think there are several things we can stipulate with some degree of certainty: namely, that those who argue that we are already in a recession I think are reasonably certain to be wrong in the sense that we do have weekly data that suggest, as others have mentioned, that up until perhaps a week or so ago there was no evidence of deterioration in what was a very sluggish pattern. The insured unemployment data are as broad as any set of numbers that we have for the economy as a whole. They don't get revised. Sometimes they are a little unstable, but in general they do give an unfailing measure of where we have been. And I think where we have been in the first half of the third quarter is clearly some small plus. The whole thing may fall on its face next week, but I think at the moment it hasn't. On the inflation side, those who argue that the goods inflation is suppressing the problem on the services side are clearly looking at the numbers [but] I find the numbers a little difficult to read. I think the crucial issue here is not the services inflation numbers but the wage rates which--however one looks at this inflation trade-off--clearly have not been coming down and show a slight upward tilt. Although there is still the possibility that that could turn around in the third quarter, I wouldn't want to count on it given the type of environment we're in. The services inflation problem has a lot of tricky things to it, which is what I think David Mullins was raising--especially when you try to substitute existing house prices for the cost of house operations for the owner or renter. So, it's a mixed bag. What I am saying, essentially, is that there's a degree of apparent certainty out there in forecasts and judgments, which I think is suspect. The crucial issue confronting us right at the moment is that the odds of an actual war in the Middle East are 50/50. If you look at the form of the buildup that we're engaged in there, it's fairly apparent that this is not a military establishment that is going to sit there for a very long period of time. We are bringing in fairly significant tactical offensive weapons. The chances of this all positioning itself and doing nothing and Saddam backing down easily has to be on the low side of the probability [spectrum]. And the crucial issue here is that if a war does come, we have a very serious question--as I think Jerry mentioned--with respect to the state of the Saudis' oil facilities, a very substantial part of which are concentrated directly under Kuwait off Ras Tanura and to the north of Bahrain. And that is not all that far away from a couple of kamikaze raids, which some Iraqi pilots have already volunteered for. Frankly, I don't think it's an issue in the next week or so. We are still building our military forces and it's extremely unlikely that anything will be triggered until we are positioned. We are nowhere near there because of the lead times it takes to move our equipment and troops. And while we have a formidable force--enough for inhibiting any adventuresome activities--I don't think we're yet anywhere near the level that the reported flow of materials suggests we are. As a result of that, in an odd way where the economy has been is a very interesting statistic, but I'm not altogether certain it's as crucial as we probably would like it to be. We obviously have a major budget problem, not so much in the additional costs but I think in the reduced probabilities of getting an agreement, which I think clearly have declined significantly. In Gary Stern's terms, we are in a sense in economic/political policy turmoil. In that type of an environment, it is crucial that there be some stable anchor in the economic system. It's clearly not going to be on the budget side; it has to be the central bank. It's got to be we! I think we very clearly have to preserve--which is our fundamental role, mainly--the value of the currency both internally and externally and, in a sense I suspect, be more involved in damage control than in trying to implement a policy that is apt to do something of very significant dimensions. I personally would feel very uncomfortable if we exhibited any evidence that we were going to accommodate the increase in nominal GNP that we would like to come out [unintelligible] with the price rise. As Lee Hoskins mentioned, the experience of the 1970s is something that very clearly has to be avoided. When we get uncertainties at the level that we currently have, I think we have no choice but to go to where our fundamental policy issues lie, mainly in trying to maintain as closely as we can a stable credit and monetary environment. I must say, I disagree with Wayne Angell's pessimism on M2. I would be more inclined to explain the fact that we have had a very low rate of M2 growth in the last three or so odd years--in the context that inflation was not coming down more--in terms of the P* model that we set up. That would show in 1986 that adjusting the money supply relative to the price level indicated that the price level was down here and the long-term parallel real money supply was up here. What we have been seeing essentially is a gradual narrowing, with the price level coming up and essentially burning off the excess money supply. And it's only very recently that the lines have crossed. I certainly would say that if the inflation rates were to continue [moving] up as money supply stayed stable, then the pessimism that you're exuding has some reason to be focused on. But at the moment I think it's premature; I think we have evidence that this system fundamentally still works. And I think that we have to be focused on essentially where the credit aggregates and the money supply growth are. While at our last meeting we were getting clear indications that the markets were tightening more than we had anticipated, I had hoped that the money supply numbers we were looking at in recent weeks were suggesting that that basically is simmering down. As I recall, Bob Forrestal mentioned that he was hearing less about a credit crunch and that may in fact be what is happening; it may well be that what these money supply numbers of recent weeks are showing us is that the cumulative pressure coming in the credit markets in an endeavor essentially to preserve capital has reached the point where that continuing tightening has at least flattened out. In today's environment we have to recognize that there is a rather limited chance of affecting the economy in a significant way. I would suspect at this point that the Pentagon has more policymaking clout than we do, because it's fairly obvious looking around the world that if oil [prices] go up and oil [production] comes down, that will have profound effects on the system. And if Saddam is perceived to be increasing his power and his clout and his control over the West, he is going to be able to name OPEC's level of output--including his own, which will be up there and everybody else's, which will be down. And his control would be more than just strictly the Gulf states because he has terrorist groups out there and he can control Indonesia and every far flung oil producer in the world. Consequently, our ability to divert this guy probably has far more implications with respect to crude oil output, prices, interest rates, the world economy, and specifically the United States economy, than anything we can do sitting around this table for weeks. So, I would suggest at this particular stage that we ought to have a more modest view of what it is we're going to be able to accomplish. I don't think it is in our power to either create a boom or prevent a recession or vice-versa. At this particular moment and for the period immediately ahead our tools are limited. Therefore, I would suggest that perhaps the greatest positive force that we could add to this particular state of turmoil is not to be acting but to be perceived as providing a degree of stability. And I would hope that to the extent our foreign central bank associates will feel the same way, we might be able temporarily to put some degree of stability at least somewhere in the system. Having said that, if one looks through to our next scheduled meeting on October 2, I think it's more likely that events will materialize in a manner whereby we eventually will feel more comfortable easing than we will tightening. So, I would still like to stay where we have been which is ""B,"" asymmetric toward ease. But this is such an uncertain period that I think we're going to have to be auditing it quite considerably. And under any conditions, I would recommend that we not go more than two weeks before we meet again on the telephone because I do think that within the next two-week period something is very likely to emerge that will require a general review. I don't know anything specific about whether or not [our military] has built up to an offensive technical capability or not. Frankly, if I had to guess, I would believe that the President has not made that judgment yet. To know that we have the capability, one only needs to watch the television tube for any protracted period of time and know something about what types of armaments are used for what types of purposes. Now, if this is strictly a limited police action, there are just too many policemen. So, let me stop there with that proposal and see where everyone would like to go.",1967
-fomc-corpus,1990,Just a point of clarification.,6
-fomc-corpus,1990,Sure.,2
-fomc-corpus,1990,"In the context of what you said on asymmetric language and the conference call, are you suggesting that you are suspending what I guess has developed into a tradition recently of asymmetric meaning you have two calls of your own of 25 basis points, or would you confer?",53
-fomc-corpus,1990,"No, this particular period I would view somewhat as a special case. I don't know how I'm going to answer that frankly at this stage. I haven't given it thought. The authority of the Chairman under this proposed directive I think has to be evaluated very carefully. Certainly, this is not the same view that I held last July when I put it the other way around. I think we need something very significant to move from where we are. President Syron.",92
-fomc-corpus,1990,"I guess the first law of medicine is do no harm. It seems to me that you're suggesting that that might be the first law of central bankers in these circumstances. I have a lot of sympathy with that. I think of the whole situation in a sort of ""BS,"" before Saddam, and ""AS,"" after Saddam way. I must confess that before Saddam I was somewhat inclined to think on the basis of the data we had coming in--the GNP revisions, other developments, and the financial situation--that some moderate easing along the lines of 25 basis points might be appropriate. But in the wake of what has happened in the Middle East, with the further steepening of the yield curve and the intermingling of the concern of inflation expectations for a variety of reasons and also what has happened in the foreign exchange market, it's a somewhat hazardous course to make any change at this point in time until we have somewhat more certain information about what's going to happen with the dominant event. As you point out, the dominant event will be something not determined in this room. I must confess to being somewhat dismayed by your odds. I'm not disagreeing with them because I'm sure you know more than we do, but still it's fairly discouraging. I agree with the ""B"" asymmetric; and because it is a long time in this environment until October 2nd, I think we may need some consultation before then.",286
-fomc-corpus,1990,President Parry.,4
-fomc-corpus,1990,"Mr. Chairman, in light of the uncertainties and concerns that you mentioned, I certainly would be supportive of Bluebook alternative B. In terms of my own viewpoint, though, my concerns about higher inflation are equal to my concerns about recession. Consequently, if I had my druthers, I'd prefer symmetric language as well.",65
-fomc-corpus,1990,Governor Angell.,4
-fomc-corpus,1990,"I'm encouraged by your confidence in M2 and, Mr. Chairman, I want to believe you're right. I think [your proposal] is in a somewhat acceptable range and I certainly do agree that we need to have more information to move. Although somewhat satisfied with the range that you stated, my preference would actually be ""B"" with a tilt toward restraint. But I don't know that that restraint would need to take place by an increase in interest rates. I just believe that there's some confusion in the marketplace in regard to what it is that we are about. And if there were some way of communicating your call for stability, and that includes price level stability, then I believe that we would have a much better chance to get long-term interest rates down. My guess is that if we were to move the fed funds rate up 25 basis points that that would be quite a surprise and that it would be taken as an indication of our not accommodating this oil price phenomenon. And frankly, I would expect long bond rates to come down as much as short-term rates go up. Now, I realize it's a lot easier to suggest that when you're not Chairman than it is when you are, but that's my guess. In periods of low growth in which the housing industry is under such a serious restraint that it does make other consumer goods areas vulnerable to the downturn, it is important to have lower long-term rates; and those lower long-term rates come with reduced inflation expectations. I believe if the world knows the Federal Reserve stands as the guardian of the value of the U.S. dollar in purchasing goods and services in our market, which also includes a stable value of the dollar abroad, then we would do wonders for interest rates and actually increase the chances for the higher real growth that I think some of you would like to see.",364
-fomc-corpus,1990,President Keehn.,4
-fomc-corpus,1990,"Mr. Chairman, I absolutely agree with the solution that you describe in what is at best a very difficult situation. Therefore, I would support alternative ""B"" with asymmetric language toward ease. I have one minor operative difference, and it relates to the question that Lee Hoskins raised. Looking ahead, I do think the chances are that we will be easing policy sooner than we will be tightening it. And it seems to me that these kinds of situations happen very, very quickly and that there are brief windows in which we would have an opportunity to make a change. Therefore, I would not be uncomfortable--if you were to become aware of something and you felt we did not necessarily have time to bring the Committee together--if you were to go ahead and make a change without a phone call.",159
-fomc-corpus,1990,"Lee was raising a question of two [changes], is that correct?",14
-fomc-corpus,1990,"Yes, that was what I understood it [meant] around the table when the language was asymmetric. But my question also relates to--",28
-fomc-corpus,1990,I recall we always really interpreted it as one.,10
-fomc-corpus,1990,One.,2
-fomc-corpus,1990,"Yes, that's how I interpreted it.",8
-fomc-corpus,1990,"Well, I always interpreted it as that you had [as Chairman the authority to make] a 25 basis point move either way if the directive was symmetric. That was my understanding. If it was asymmetric--",42
-fomc-corpus,1990,"I don't think that has ever actually been formulated by this Committee, at least--",16
-fomc-corpus,1990,[Secretary's note: Unintelligible because several people were talking at once.],17
-fomc-corpus,1990,I think we shouldn't do it today.,8
-fomc-corpus,1990,I don't think it's the appropriate day.,8
-fomc-corpus,1990,"I think we have to have some confidence in our Chairman to use his discretion, particularly in periods like we're in now.",24
-fomc-corpus,1990,That's my point.,4
-fomc-corpus,1990,That's the point.,4
-fomc-corpus,1990,I appreciate that. President Forrestal.,8
-fomc-corpus,1990,"Mr. Chairman, in the pre-Iraq invasion environment I was beginning to feel that we were at the point where we should consider some easing of policy, and I must say that the events in the Middle East have tended to confirm my feeling that that is probably the appropriate stance for policy. I'm not at all convinced that the price of oil is going to be maintained at the $25 level that' the staff is forecasting, in the context of your remarks--which I tend to agree with--that there's a 50/50 chance that we're going to get into a real shoot-out here. All of that I think is going to reduce aggregate demand in the economy and it's going to have a greater effect on the real economy and on output than on prices. My view is that we should do what we can to avoid a recession for reasons that we're all familiar with and that Governor LaWare articulated very well a few minutes ago. I think one can argue that we can attain greater stability by moving at this point and giving greater confidence to the people at large that we are not going to be moving into a recession. And I say that with full recognition of the effects on inflation and the exchange rate. But having said all of that, your argument is quite persuasive. As you said, it's a very, very difficult call--probably one of the most difficult we have faced in a long time. So, I can support your prescription with some reservation. My preference would be to move slightly to give a psychological boost, if not a real boost, to the economy. But if I were a voting member I would not dissent from your prescription.",328
-fomc-corpus,1990,President Boykin.,4
-fomc-corpus,1990,"Mr. Chairman, I'm fully supportive of your position.",11
-fomc-corpus,1990,President Stern.,3
-fomc-corpus,1990,"I support your position as well. I think it's the right prescription for these circumstances. There might be something to be said for a symmetric directive, in part because that's my usual preference and in part because of all the uncertainties and risks. But I don't feel very strongly about that at the moment.",59
-fomc-corpus,1990,President Guffey.,5
-fomc-corpus,1990,"Mr. Chairman, I also would support your proposal. I think the most important thing that you may have indicated is the need for stability. If we were to move, it seems to me that the markets would read it as sort of a double whammy. On the one hand, I would assume a move toward ease would indicate to some that we are more concerned about a recession and, therefore, people will accumulate the thoughts [and tend to react in ways] that will make it come true. On the other hand, another part of the market would read the easing as being inflationary over time and that will build inflationary expectations. I think nothing good could come out of a move right now. And as a result, stability is where we should be and where we should stay unless some very dramatic changes take place in the near future.",170
-fomc-corpus,1990,President Boehne.,5
-fomc-corpus,1990,"Well, doing nothing so as to do no harm is one side of the coin. The other side of that coin is paralysis. I think it might freeze us into avoiding opportunities to make some positive contribution. And I think we need to be aware of that paralysis risk as we go through the next several months. I agree that at this point we cannot change policy, if for no other reason than what's going on in the financial markets, both the bond and foreign exchange markets. But I feel that the real economy is going to need some help; it's going to need some help from us in the coming weeks and months and I think we ought not to shy away from providing that help. So, I prefer an asymmetrical directive in the direction of ease but I think I would be more active with that asymmetrical directive than I sense you would be. I would look for opportunities to ease in the intermeeting period when financial markets would be more favorably disposed to accept such an action. I view this as a tactical maneuver rather than an abandonment of our basic strategy of restraint to bring down inflation. My expectation is that whatever easing moves we make in the coming months will likely have to be reversed once the economy begins to strengthen. We hark back to the lessons that we learned in the 1970s, but I think we learned lessons on both sides. In the first episode in 1974 we underestimated the amount of weakness in the economy that was in the background when we had that first oil shock, and we ended up with a very, very deep recession. On the other hand, in the later one in 1979, we wanted to avoid the first mistake so we tended to err on the side of ease and we ended up with one big inflation that led to recession. So, there are lessons on both sides. And while I agree with you that this is not the time to move, let's not get an inferiority complex in this big world and get paralyzed into doing nothing when opportunity knocks at the door.",406
-fomc-corpus,1990,President Melzer.,4
-fomc-corpus,1990,"I would agree with what you recommended here. I'd make three points. First, in this kind of environment, while I don't think we can rely exclusively on it, I really do think as Don Kohn suggested that we need to watch what money is doing because I don't think we can assume that an unchanged funds rate is an unchanged policy. Secondly--I've said this before as well and I think Don suggested this too in his remarks--I don't think that we can pretend to lead markets in this kind of environment; we really have to follow. Now, we don't always have to buy what markets are doing in a volatile period, but I'm suggesting that unless there were expectations of ease evidenced in financial markets, it would be very difficult for us to ease and get away with it given the concern about inflation that's out there. And the final point I would make is that if a recession is imminent--if we're going to go into recession in the fourth quarter--I don't think we can do much about it right now. Even in the face of weak incoming data, if we feel that we're on a monetary policy course that is consistent in the long run with sustainable growth and progress toward price stability, that's about all we should do. I worry about overreacting--not on your part but just in general--to incoming weak data on the thought that somehow we could pull this economy out of recession in the short run. I don't think we can.",289
-fomc-corpus,1990,Governor LaWare.,4
-fomc-corpus,1990,"Well, instinct and intuition both tilt me toward ease and sooner rather than later. But the cautionary comments that you made persuade me that, as long as we monitor the situation carefully and closely and are prepared to move quickly, your recommendation is appropriate. So I join in supporting it.",57
-fomc-corpus,1990,Governor Kelley.,3
-fomc-corpus,1990,"Mr. Chairman, I fully support your recommendation for ""B"" asymmetric toward ease, but I'm not as sure in my own mind that we really are locked into an eventual ease. I think we may be surprised with the strength of the economy. I also think that if we do contemplate ease, we're going to have to assess that very carefully to make sure that it is efficacious if we do ease.",81
-fomc-corpus,1990,Vice Chairman.,3
-fomc-corpus,1990,"I also would support your formulation. It's probably fair to say in my case that prior to the Iraqi developments, I would have leaned to easing in any event. As things stand right now, I probably would come fairly close to associating myself with Mr. Boehne's definition of the situation. But I also think it's so uncertain that it could easily go the other way. I could easily envision unpleasant circumstances where we might have to tighten monetary policy. I say that not because I favor that, but only because it captures the range of emotions that I think is really on the table. As I say, your formulation is fine with me as things sit right now. I would lean toward Mr. Boehne's prescription, but depending upon what happens I might be a lot more cautious about seeking out an opportunity to ease.",166
-fomc-corpus,1990,Mr. Monhollon.,7
-fomc-corpus,1990,"I think there's a serious risk that if we were to ease now, we might be misread by the public and by the markets. It might decrease our credibility and might produce sharp negative reactions in both domestic bond markets and foreign exchange markets. It might make our longer-run objectives more difficult and more costly to achieve. So, I have a strong preference for ""B,"" Mr. Chairman for those reasons in addition to the ones you've outlined. I don't have a strong feeling about the symmetry question, but I have a slight preference for symmetry.",108
-fomc-corpus,1990,President Hoskins.,4
-fomc-corpus,1990,"Mr. Chairman, I agree with your analysis this time almost wholeheartedly with respect to what monetary policy can and can't do. As I said before, we face the fact that there is an oil price shock, that output is going to be less than it otherwise would have been, and that inflation is going to be higher than it otherwise would have been. There's not a lot we can do about that. The one thing we can affect, however, is how people in the marketplace view the future for inflation--that is, inflation expectations. My view would be that we should look at that more carefully or at least give it more weight than perhaps we have in the past. This is a policy mess, but there is a silver lining in it. It does offer us a chance to regain some of our credibility or to increase it. That would argue for a position very close to Wayne Angell's. One could make a case on those grounds, I think, for a token tightening. But since the market already expected an easing by us, that would argue in my mind for staying where we are for stability reasons. But I do think we are at risk with respect to our credibility in terms of pursuing price stability. My preference would be that we have symmetric language in ""B"" and that hopefully we would have a Committee discussion before a move is made.",271
-fomc-corpus,1990,Governor Mullins.,4
-fomc-corpus,1990,"I would support the proposal, although I'm leaning more in the camp with Vice Chairman Corrigan and President Boehne. Without this [Middle East situation] I think a case could be made for some easing, especially if money and credit growth had not picked up a little in August. It still bothers me when we go through a period of months with low growth in money and credit because history suggests difficulty a bit down the road. I would agree that in the current setting stability is important. I do think, though, that there are some risks in waiting and that it's not likely to be a lot easier down the road. What concerns me most is that we might find ourselves in a position where we're trying to play catch-up, requiring larger moves, which would make me uncomfortable because of the risk to stability. I believe there's great merit in gradualism. Also, looking down the road, I would suggest that at some stage it wouldn't be too bad an idea to get the market used to somewhat more movement in the fed funds rate instead of the assumption that it's chiseled in marble. That's something we should think about as well. But in the current climate I would support ""B"" asymmetric toward ease.",242
-fomc-corpus,1990,Governor Seger.,4
-fomc-corpus,1990,"I know these are very tough times and it's difficult to come up with accurate forecasts and it's difficult to make good policy. And I appreciate your point about the need for stability and the need for some sort of anchor in Washington or something that is viewed as an anchor. But having lived on a river for 13 years, I remember that even boats that are anchored move a little; otherwise the line snaps. So I think we could move a bit and not be viewed as either irresponsible or reckless and also that it wouldn't turn the financial markets on their ear. In fact, it seems to me that a modest move--to me 25 basis points is modest--would offset some of the availability problems that I see in the credit markets. And at the same time it would make it easier to do further modest moves in the future as we see the need. So my preference would be for some sort of a move that would resemble ""A.""",188
-fomc-corpus,1990,"I don't think I have asked specifically for support in a large number of meetings, going back a number of years. I'm not saying that people should violate what they think are their principles. I merely indicate that at this particular meeting it's important for us to have as large a consensus as we can get. Obviously, I'm not asking anyone to go against his or her particular view of where you would like policy to be, but if you can find your way clear, this is the type of meeting in which it would be helpful if we had a very substantial consensus. Having said that, I'd like to request the Secretary to put to a vote ""B"" with the language asymmetric toward ease.",137
-fomc-corpus,1990,"I have a question. On the asymmetry toward ease, we [now] have ""slightly greater reserve restraint might or somewhat lesser reserve restraint would...."" Stay with the ""would""?",38
-fomc-corpus,1990,"Yes, I'd stay with exactly what we had.",10
-fomc-corpus,1990,"""In the implementation of policy for the immediate future, the Committee seeks to maintain the existing degree of pressure on reserve positions. Taking account of progress toward price stability, the strength of the business expansion, the behavior of the monetary aggregates, and developments in foreign exchange and domestic financial markets, slightly greater reserve restraint might or somewhat lesser reserve restraint would be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with growth of M2 and M3 over the period from June through September at annual rates of about 4 and 2-1/2 percent respectively. The Chairman may call for Committee consultation if it appears to the Manager for Domestic Operations that reserve conditions during the period before the next meeting are likely to be associated with a federal funds rate persistently outside a range of 6 to 10 percent.""",165
-fomc-corpus,1990,Call the roll.,4
-fomc-corpus,1990,"Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Boehne Yes President Boykin Yes President Hoskins Yes Governor Kelley Yes Governor LaWare Yes Governor Mullins Yes Governor Seger Yes, with careful writing of the minutes. President Stern Yes",53
-fomc-corpus,1990,Thank you.     Our next meeting is October 2nd.   Let's break for lunch.,19
-fomc-corpus,1990,"Good morning, everyone. Would somebody kindly move the minutes of the last FOMC meeting?",19
-fomc-corpus,1990,I'll move.,3
-fomc-corpus,1990,"Is there a second? Without objection. Mr. Cross, would you bring us up to date on foreign operations?",23
-fomc-corpus,1990,"Yes, Mr. Chairman. [Statement--see Appendix.]",12
-fomc-corpus,1990,Questions for Mr. Cross?,6
-fomc-corpus,1990,"Sam, could you elaborate some on your comments about the dollar being less of a safe haven, which certainly has been true in this latest Middle East crisis? Do you see that as something that has been evolving over time and the Middle East situation brought it to a head? Or do you see it as something that is more transitory? What are your thoughts on it?",74
-fomc-corpus,1990,"Well, it's very hard to be sure. It may be that over time as other currencies tend to be more widely used and as other markets tend to be further developed one might expect some lessening of the uniqueness of the dollar. Also, we now have a situation in Europe where for the first time the political differences and uncertainties that existed before aren't there, which may have meant that on this occasion there was more willingness to use some of these other currencies because they don't see the same kinds of political East/West problems as before. It could be for any number of reasons. But it's certainly true that the traders we talk to tell us that the old timers who work for them were all taking positions that assumed there would be a lot more movement into the dollar than happened. As I say, it could be having a significant effect in the kind of cautionary attitudes [unintelligible]. We also detect that a lot of people are very hesitant to be very short of the dollar in these circumstances because they think if there is overt military hostility the likelihood is very high that the dollar would pop up. So, quite often recently on Fridays we see evidence that there's a lot of settling of the books--that people don't like to go home for the weekend very short of dollars because they fear that if some really serious hostilities were to break out they could find themselves suffering very, very large costs.",279
-fomc-corpus,1990,Other questions for Sam?,5
-fomc-corpus,1990,"I'll make a comment in the context of Ed Boehne's question. In this immediate setting I think it is also true that concern abroad about financial fragility--or whatever you want to call it--in the United States and in U.S. financial institutions unquestionably has been a factor in the timeframe of the last month or so. It's impossible to quantify that, but there's no question in my mind that that's a factor.",85
-fomc-corpus,1990,"Well, that's true. I certainly should have mentioned that factor. There is hesitation about U.S. institutions.",22
-fomc-corpus,1990,"Extending on Sam's remarks, I think there really is something fundamentally different about a confrontation where there is the possibility of a whole country or countries going under from a coup or some instability and the currency could conceivably--with a very low probability that's still not zero--become worthless. And that probability did exist with the East/West confrontations for Europe and for Japan. This confrontation doesn't have that characteristic. In other words, there's no credible judgment that one can reach that says this thing will be wiped out. I think we saw that reaction in Saudi Arabia where there was this huge run [unintelligible] just moved as though it was the old dollar because that type of threat was there. So it may be that while this confrontation has negative effects on Europe and Japan they really are quite limited. And this war effect is very new to them. The real test will be if the dollar doesn't do terribly much if there is a war, which is not all that inconceivable assuming that we can--",205
-fomc-corpus,1990,What we also have heard a lot is that instead of movement from one currency to another currency there has been a surge of movement to liquidity in many places. So this tends to be a greater shift to liquidity than to a currency.,46
-fomc-corpus,1990,"Sam, at the other end of the spectrum, what set of circumstances might create a run on the dollar?",22
-fomc-corpus,1990,"One can think of any number of possibilities. Certainly, one concern is the fact that the Japanese industries are holding something on the order of $250 billion or so that would be largely unhedged. And because of what may happen here that could cause them to get frightened and to start running for cover fast. Or, as I was indicating in my comments, there are factors in Japan that could lead to a desire to shift a lot more funds [to yen] for their own reasons. One could envisage all kinds of scenarios that could cause the dollar to start moving down very, very, rapidly, with a lot of investors all around trying to get out.",132
-fomc-corpus,1990,Thank you.,3
-fomc-corpus,1990,It's a real danger.,5
-fomc-corpus,1990,"Any further questions for Sam? If not, I'd just like to take a few minutes to review what occurred at the G-7 meeting relative to the issues to be discussed today. Those of you who have seen the communique know that a crucial paragraph on monetary policy brings forth the issue of, as they put it, ""that the rise in the price of oil associated with the Gulf crisis poses two risks: a risk of inflation and a risk of lower economic growth."" The original draft that had been worked up by the deputies actually was skewed more toward inflation problems and had much less in the way of the issue of recession. But [unintelligible] and Mr. Brady both pushed for a symmetrical statement --or more exactly a statement that encompassed both even though [unintelligible] also involved income policies and a whole slew of other things, which were supported by no one. Interestingly, however, the following sentence in the communique was crafted by , which seems to contradict the basic endeavor to get balance between inflation and growth, and it reads: ""The Ministers and Governors consider that stability-oriented monetary policies and sound fiscal policies constitute the correct policy response."" The interesting aspect of all of this is that the participants who were most strongly concerned about the inflation impact of the Gulf affair were the , both of whom in the previous G-7 meeting had lectured the group on being careful not to let the inflation genie out of the bottle because of all the difficulties they were having stuffing it back in. And I thought it was quite interesting the extent to which they basically were not pushing for anything other than stability and clearly were acting against any form of accommodation. My sense is that the other members of the G-7 were essentially all in the area of stability. I heard very little in the way of--at least in the table discussions--""interest rates should move up."" In side conversations with some of the Germans I did get the impression that concern about the major increase in German government deficits was going to cause some upward pressure on monetary policy driven largely from the market side. But that concern did not get expressed in the underlying discussion that evolved among the various participants. I would suspect at this stage that pretty much everyone recognizes that if there is a credible budget agreement here, we will ease. I didn't get too much in the way of concern about that, although I would suspect that if we embarked upon significant ease without a budget agreement, we would. To the extent that these people ever express disapproval in anything stronger than moving an eyelash, we would get a double eyelash effect or something like that. But the notion of stability in the context of individual adjustments was really enforced by the fact that there was no criticism, for example, of the Japanese [3/4] percentage point rise in the discount rate on the grounds that that was required to maintain what they perceived to be a basically stable policy. There was not too much conversation on exchange rates. There was a general belief that a weak dollar would be undesirable. And that was implicit in the communique, following up on the previous G-7 meeting's communique which had indicated that the yen was exceptionally weak, in language suggesting that the yen had reached a broadly acceptable range without specifying against which [currencies]. The general view of the group, even though it was not explicitly stated, was that dollar stability--in fact, general stability--was desired, although suggested that it might not be all that bad if the yen did actually firm somewhat relative to the other currencies. But that was not a general view and that did not, of course, find its way into the communique. I got the impression indirectly by the way he responded to the editing of the communique that Mr. Brady basically was not in favor of significant weakening of the dollar. He made several statements suggesting that, but he made no pronouncements; it was sort of half sentences. But he was clearly not desirous of driving the dollar down and probably would be uncomfortable if that in fact happened. The French at the meeting and the Japanese in public speeches requested that there be exploration of ""a more stable international monetary system"" as they put it. And the G-7 basically agreed that some looking at the process was authorized, although I sensed no enthusiasm for the process on the grounds that no one was thinking that anything useful would come out of it. But because a study and not an action paper was requested nobody particularly fought against it. With respect to intervention, generally nobody wanted to discuss anything about ranges; nobody even wanted to discuss contingent intervention. As a practical matter, while it may have been discussed peripherally, there was less talk about concerted intervention even in the abstract than at any time since I've attended those meetings. I would say in general that it wasn't a particularly dynamic meeting, in part I think because there has been a change in the participants. Considering the background of all the things that were going on, it was remarkably quiet and pretty much described by the communique. There were no sub rosa discussions and no implied programs that are not in the communique. And there is nothing much I can report that was not in the newspapers. Does anybody have any questions or anything they want to comment on?",1056
-fomc-corpus,1990,Was there any discussion about the possibility of recession in the United States and the potential spillover into other countries?,22
-fomc-corpus,1990,"Yes. There was general discussion of that in the context of the monetary policy issue. I might say that there is a high degree of awareness about what is going on in the American economy and concern about it. But as far as I can tell it's a limited concern, though clearly there.",58
-fomc-corpus,1990,"Could I just follow with one other question? I've seen some press reports recently that the [Delors] proposal, the parallel currency, is getting noisier.",32
-fomc-corpus,1990,The hardened ECU?,4
-fomc-corpus,1990,Yes. I understand that it's getting more support than it did when he proposed it originally. Was there any discussion or do you have any sense that this is gaining any momentum?,35
-fomc-corpus,1990,"Well, the discussion wasn't at the G-7 meeting but a couple of weeks earlier at the Basle meeting of the G-10 governors. It was clear that the European part of the group had just come from Rome where they had had a fairly extended discussion, which sort of pushed back the [Delors] plan slightly. I got the impression that the interest in the hardened ECU was not that everyone had all of a sudden looked at this and said ""Gee, what a terrific idea."" I think what happened was that the finance ministers finally had gotten the message that when you have the type of monetary policy integration contemplated in the Delors plan a substantial loss of financial sovereignty is involved. So it wasn't the hardened ECU theme that created the problem; it turned out to be the vehicle that enabled some of the governments to back off from their commitments by saying ""Isn't this interesting? Let's look at that."" But I would suggest if there hadn't been a major plan they would have found something else.",200
-fomc-corpus,1990,I take it that it's your sense that our trading partners will be following a fairly restrictive monetary policy for the foreseeable future?,24
-fomc-corpus,1990,"Well, I think that's certainly true on the part of the Germans. It is going to be true on the part of the Brits and the Canadians until they begin to see more weakness in their economies. And as Sam had mentioned this morning, Mr. Hashimoto is already talking about what was effectively turning monetary policy around. I'm not clear what that means. As of the G-7 meeting, one had the impression that they would remain firm, although there was no discussion of a further rise in their discount rate. But, certainly, there was no indication of the type of reversal that was even remotely implicit in Hashimoto's remarks yesterday.",128
-fomc-corpus,1990,Thank you.,3
-fomc-corpus,1990,"Is there nothing else on this? We don't need anything to ratify [any transactions] since, fortunately, I assume nothing was done.",28
-fomc-corpus,1990,"No, there is no need for any action.",10
-fomc-corpus,1990,Peter Sternlight.,4
-fomc-corpus,1990,[Statement--see Appendix.],6
-fomc-corpus,1990,Questions?,2
-fomc-corpus,1990,"Peter, I've been on the call on occasion and I've watched the market tend to focus more and more on the funds rate as the measure of our policy. To an extent, at least based on your report, we are beginning to alter our program so as not to indicate that we made an easing [move]. In other words, we had to add [reserves] and we didn't do it because the market might have reacted.",86
-fomc-corpus,1990,Right.,2
-fomc-corpus,1990,"The question to you is: Are you comfortable with that or would you be more comfortable with more flexibility around the funds rate? And if you would [prefer the latter], do you have any ideas on how we can get that without disturbing the market?",50
-fomc-corpus,1990,"Well, we have been uncomfortable for a year or more--two or three years maybe, going back since the October 1987 stock market decline--with the extent to which we give a lot of attention to the funds rate rather than feeling that we have some element of flexibility where we would aim at a borrowing gap and have a rough expectation about the funds rate but where there was room for the funds rate to vary some around that. I think what has put us in the kind of box that we're in now is a weakening of the relationship between borrowings and the funds rate spread over the discount rate. I wish there were greater flexibility so that the market could accept our doing things when the funds rate is a bit to the easy or firm side of what they think is the central point without their getting all that excited about the policy implications of our actions. I think it would take some kind of public statement to get the market off its fixation [on the funds rate]. And even then, it's going to be hard to do because the market is always reaching for something to guide itself. And unless we can put something else out there--and I'm not sure what else we have now to substitute for the current security blanket--",244
-fomc-corpus,1990,"Well, I don't either. That's why I asked you.",12
-fomc-corpus,1990,"But if it were explained that there would be greater fluctuations in the funds rate, do you think that's something they could live with?",26
-fomc-corpus,1990,"Yes, I think that could help.",8
-fomc-corpus,1990,It will?,3
-fomc-corpus,1990,No. I think that would be--,8
-fomc-corpus,1990,That would take a public statement.,7
-fomc-corpus,1990,"I don't know, really. When we say more volatility around something, of course, they'll be looking at the something. Unless there is literally another instrument that we can employ, even in part, with some credibility, merely allowing the funds rate to fluctuate doesn't help us all that much because they will all be competing on who knows what the central tendency is on the funds rate. What we really need is another instrument--some mechanism that captures the degree of tightness in the system better than the funds rate itself.",102
-fomc-corpus,1990,"We need some kind of reserve measure tied to M2, but there's no way--",17
-fomc-corpus,1990,[Unintelligible] goes off in the wrong direction.,13
-fomc-corpus,1990,"Our present structure was set up to target Ml, which then ceased to be a good indicator. We have all this institutional set-up in effect and it's not useful.",33
-fomc-corpus,1990,"Yes. In fact, I'm going to come back to that issue a little later because we've been giving a lot of thought to that structure not only in this context but also in the context of reserve requirements, which were originally set up on an M1 targeting basis.",53
-fomc-corpus,1990,"Very cleverly done, too.",6
-fomc-corpus,1990,"The way they set it up, I thought it would have been terrific if it had worked.",19
-fomc-corpus,1990,"I thought it was great at the time, but I didn't know what was going to happen to Ml.",21
-fomc-corpus,1990,"Mr. Chairman, if I could add to this for a second. I think--we'll see whether [Peter] agrees--that things became even tighter after that Thanksgiving problem we had but loosened up a bit recently. I think the problem in the last few weeks has been one of extraordinarily volatile expectations that we were going to ease, perhaps momentarily. And if we're not doing what the market expects us to be doing, that's always going to be a problem for the Desk. And there's also a greater disconnection between the funds rate and the underlying reserve conditions. I wonder, without being able to prove it, whether that isn't partly a function of the problems with the way these banks are changing their operations to some extent in the money markets. That creates another set of problems for the Desk. So, I think we've had some pretty unusual circumstances over the last three maintenance periods.",177
-fomc-corpus,1990,Yes.,2
-fomc-corpus,1990,"But in general, my sense is that we've loosened a bit over the last few months relative to where we were right after Thanksgiving.",27
-fomc-corpus,1990,"Maybe so. There was a day recently that we were able to provide some reserves--I think it was through multiday RPs--and funds were [trading] a hair under 6 percent and that was accepted by the market. They thought there was a big reserve need and they didn't think anything of it on that occasion. But at the moment I'm more conscious of the occasions when we felt our hands [were tied] because of the expectations of an imminent easing that Don referred to, and we didn't move lest they misinterpret our--",109
-fomc-corpus,1990,"Peter, does anybody think we've tightened any because we went above our expected--?",16
-fomc-corpus,1990,"No, I do not think so.",8
-fomc-corpus,1990,I haven't seen any indication of it; I just wondered if you had.,15
-fomc-corpus,1990,"I'd like to pursue a little more your views on the consequences of passage of the budget compromise. If the compromise is passed and signed, you feel that that probably would produce a rally in the long-term end of the market? Is that correct?",49
-fomc-corpus,1990,I think it would be a positive. I would not expect a big rally because there's still that concern about inflation.,23
-fomc-corpus,1990,"That, and you said the consequence, if we then followed that with an easing move, would be that long-term rates would probably [unintelligible] and not move up. Is that what you're thinking?",43
-fomc-corpus,1990,In that context I would not expect the long end to move up; right.,16
-fomc-corpus,1990,Further questions for Peter? Martha Seger.,9
-fomc-corpus,1990,I'm just sitting here listening to Peter and Don talk about this fed funds fixation and the problems [that creates]. Are you sort of making the case for prompt release of our minutes? Maybe that would fix it so we could tell people what we're doing rather than make them try to read it from entrails.,61
-fomc-corpus,1990,"I wasn't trying to make that case, no. I'm not sure that would help them in terms of trying to guess what we're going to do tomorrow, which is really what it's all about--not what we did yesterday.",44
-fomc-corpus,1990,It would still give them more guidance than they now get where they just really are flying by the seat of their pants.,24
-fomc-corpus,1990,"I'm not sure, Martha, that it makes the case to release the minutes. It makes the case simply to say what the fed funds target is, much the way we say what the discount rate is. I think the minutes are so ambiguous that they don't tell you very much. But if we say the target is an 8 percent funds rate, people know what an 8 percent funds rate is just like they know what a 7 percent discount rate is.",93
-fomc-corpus,1990,Maybe the Greenbook--,5
-fomc-corpus,1990,"If there's a case in all of this, that's the case. I don't see it on the minutes side.",22
-fomc-corpus,1990,"Well, I think we need to give them some more guidance so they don't have to hang on every basis point change [in the funds rate] and try to equate that with a policy move.",40
-fomc-corpus,1990,Would there be a benefit in going to a range from our point estimate? Or would that just--,20
-fomc-corpus,1990,"Well, I like to think of what we have as a range anyway. But the market would immediately put the rate in the middle of the range and if they're looking for--",35
-fomc-corpus,1990,They'll be looking for the central point of that range.,12
-fomc-corpus,1990,"If they are looking for ease, then anything to the lower side of that range will make them begin to think it's the first step on the easing side; conversely, if they are looking for tightening.",41
-fomc-corpus,1990,But it would make your job easier to use a range?,12
-fomc-corpus,1990,"I tend to think of it as a range anyway, but the market doesn't.",16
-fomc-corpus,1990,You are in the [minority]. Of all the observers you're one of the few who really think that. Don't virtually all observers think of it as a target?,33
-fomc-corpus,1990,"In principle, you either have an interest rate or a non-interest rate [target]. The trouble is in trying to finesse all this; it doesn't work.",31
-fomc-corpus,1990,You have to be able to predict--,8
-fomc-corpus,1990,"Either we have to say interest rates don't matter and we basically are targeting some financial variable or structure of variables or we target an interest rate. And then we're always going to find somebody who's seeking the central point of whatever range we contemplate. I don't know what we do about that, but it's not satisfactory; that's for sure.",65
-fomc-corpus,1990,"You're absolutely right. As long as there are legions of very, very well paid people out there whose livelihood depends upon their ability to understand every nuance in Mr. Sternlight's activities, we're stuck with it.",43
-fomc-corpus,1990,Are you suggesting something about creating some more [un]employment?,13
-fomc-corpus,1990,"Actually, that would do it!",7
-fomc-corpus,1990,[Unintelligible.],6
-fomc-corpus,1990,"It's true, though, that there are literally thousands of people all over the world who do only that.",21
-fomc-corpus,1990,[That's] why we need to tell them what we're doing.,13
-fomc-corpus,1990,I don't think it would change it.,8
-fomc-corpus,1990,They have to find something to look for.,9
-fomc-corpus,1990,Right. They'd be looking for [something].,10
-fomc-corpus,1990,"No matter what we did, unless we really went the whole distance by going through some kind of a quantity as opposed to a rate--",27
-fomc-corpus,1990,Or lock in a mechanical [approach]--,10
-fomc-corpus,1990,"But even that--. If you go back to the period in 1980 and 1981 where we really did, at least for a period of time, [target] the money supply range, we had pandemonium every Thursday afternoon when the money supply figures were published. And that gets very frustrating. But I must say it's pretty darn hard to figure out how to avoid it.",79
-fomc-corpus,1990,"If we say, for example, what the funds rate is, then they will try to figure out what it is we look at when we are about to change the funds rate.",36
-fomc-corpus,1990,Yes.,2
-fomc-corpus,1990,"And if we release that, then they'll go back--it's an impossible situation.",16
-fomc-corpus,1990,Jerry suggests a significant part of the gross national product is value added from [Fed watchers].,18
-fomc-corpus,1990,Nationwide.,3
-fomc-corpus,1990,He has a new instrument. They can all come back and work for Don.,16
-fomc-corpus,1990,"Further questions for Peter? If not, may I have a motion to ratify the Desk's actions since the last meeting?",25
-fomc-corpus,1990,So move.,3
-fomc-corpus,1990,Is there a second?,5
-fomc-corpus,1990,Second.,2
-fomc-corpus,1990,Without objection. Mr. Prell.,8
-fomc-corpus,1990,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1990,Questions for Mr. Prell?,7
-fomc-corpus,1990,"Mike, I know a lot of this is because of the oil issue, but I have one technical and one substantive question. The technical question: Is the big [drop] that we see in the first quarter of 1991 in the CPI because of what you already have anticipated on the excise tax?",62
-fomc-corpus,1990,"That is part of the first-quarter effect. Of course, with the timing of the gasoline tax that has been proposed, that means we'll get something before the end of the year.",36
-fomc-corpus,1990,"My other question relates to your forecast of two mildly negative quarters but then quite a bounceback. I know that it's completely [impossible] for anyone to forecast what's going to happen in the Middle East, but I just wonder how likely your forecast is from a much more qualitative point of view. Perhaps I'm factoring too much into this for how likely I think the credit crunch is and how much momentum I think this downturn could cumulate once we get into it, particularly on the consumer confidence side. That may or may not be offset by the assumption you had to make about when oil prices would change that.",121
-fomc-corpus,1990,"I'm pleased that you said we had to make that assumption because, obviously, there was some degree of arbitrariness to that, and we hope that this is a plausible baseline. We feel somewhat optimistic--but [unintelligible] I think to highlight the kind of policy issues you confront. Basically, that rebound does follow fairly naturally from the improvement in real disposable income that would result from this kind of decline in oil prices. History suggests that oil price shocks of the sort we have had do tend to disturb consumers, and [thus] we see very sharp drops in confidence. The previous large drops were in somewhat similar circumstances. Unless the economy really follows through with a significantly negative performance, one might expect confidence to improve somewhat. We certainly see downside risks here because of the credit situation, but we think we've built in some allowance for that in an informal way. But should quality spreads widen dramatically, should lenders really pull in their horns more sharply than we sense they are, that would certainly be a drag on business spending. We've assumed that inventories will be kept in very tight check over the coming months; that's one of the reasons for the weakness in production in the forecast. We don't have a buildup [in inventories]; they keep production lines running. So, that positions us for a nice rebound in production as soon as that underlying demand picks up. But as we enter into a period of such weakness, there are a number of variables that could turn more negative than we have [projected]. It's possible too that we will skate through this without any cumulative decline.",314
-fomc-corpus,1990,Is there an historical analog for a disturbance causing this kind of muted downturn but then bouncing back this quickly?,21
-fomc-corpus,1990,"Well, I guess one would have to reach pretty far back to find any example. This is a supply shock. The supply shocks that come to mind occurred in 1973, which was a period when other things also tended to exacerbate recessionary pressures, and again in the 1979-80 period when we had a recession with an oil price shock. But the magnitudes differ and the general circumstances differ. I think one couldn't simply appeal to historical precedent to justify this forecast.",98
-fomc-corpus,1990,Thank you.,3
-fomc-corpus,1990,"You mentioned the conservative inventory policy here, but basically it isn't much of a cycle in inventories. Do you feel very confident about that? Typically, one expects some buildup of excess inventories, which are subsequently run off, and then some increased production as the economy picks up. We go through these cycles in real GNP. But in truth, these inventories are really pretty [consistently] at very low levels; that may be a potential source for some greater cyclicality than was in the forecast.",100
-fomc-corpus,1990,"Well, as I suggested, we've assumed that businesses do move their inventories very consistently with sales in this period ahead. Our sense is that in recent years, given the kind of inventory management practices that have evolved, the pattern really does support that kind of assumption about their behavior. One can already see an awareness on the part of businessmen that there may be weak sales in the months ahead. We have anecdotal reports of retailers ordering very cautiously for the fall. Basically, we are looking for the production adjustment to happen very rapidly and that's when our recession is occurring.",112
-fomc-corpus,1990,Okay.,2
-fomc-corpus,1990,President Hoskins.,4
-fomc-corpus,1990,"Mike, my question is about your relatively quick drop--from my point of view--in the inflation rate out in 1992. My question focuses on a couple of observations. One is that ex food and energy, the trend has been upward in the last couple of years; and I'm wondering what you think is going to put the squeeze back on inflation. The second has to do with potential GNP. If the oil price doubles, or under the other assumption increases by 50 percent, that must have some impact on the potential GNP that you've built in, which means that you have lower growth for the real economy but you also have lower potential GNP. I'd like you to sort that out for me.",144
-fomc-corpus,1990,"On the latter point, we really haven't done anything exotic in the assumptions about potential GNP. You're quite right that the shift in the relative price of energy could affect the productivity of the capital stock; it could have an effect on the level of potential GNP. If oil prices stayed very high, one would have to be concerned about some effect. I can't state the magnitude; perhaps Dave has something to contribute on that point. Basically, though--assuming there isn't a major contraction of supply that is permanent, so to speak, going out through 1992--I think our forecast follows quite naturally from the assumption we made about oil prices, the projection we made for the dollar, and our anticipated increase in slack in the economy. We have a 6-1/2 percent unemployment rate. We think that is high enough and the slowness of growth per period great enough that we should see some downward pressure on real wages. We anticipate that import prices will be rising fairly rapidly in the near term, but as a result of our dollar path [the rise] will be decelerating and thus that will be a helpful factor in the deceleration [of overall inflation] by 1992. And we have a favorable trend relative to overall inflation and energy prices as we go out through 1992. So, the cumulation of these things puts [inflation] back into the low 4 percent area during 1992.",290
-fomc-corpus,1990,Thank you.,3
-fomc-corpus,1990,Dave.,2
-fomc-corpus,1990,"On the potential outlook question, I'd say that given our basic forecast, which is just sort of a continuation of a modest rise in the relative price of energy--abstracting from this temporary rise--that we're not expecting any significant scrapping of the capital stock. And that is the principal way in which the potential output falls in the short run. Obviously, if [energy] were to be maintained at that higher relative price, there would be greater scrapping of the capital stock and greater substitution away from energy that would [lead] to a reduction of potential output.",113
-fomc-corpus,1990,"This is a complex question--one we really want to look at in the weeks ahead. As we noted in the Greenbook, one still has to be very tentative about one's assumptions on potential GNP. And we've yet to address that in that broader production framework.",53
-fomc-corpus,1990,"When you look at the GNP data rebased to 1987, you tend to get lower growth rates [unintelligible], of course, slower productivity. And when you take a look at the potential, the question is: Are you going to be viewing it solely in the context of 1982 dollars or in 1987 dollars, which I assume is the base that will be emerging relatively soon? And that base is .1 or .2 less, as I recall, on a systematic basis.",104
-fomc-corpus,1990,"Well, that's just one more of the uncertainties. And, of course, if and when there are revisions of the data, that will alter the sectoral distribution of value added as the result of the repricing of computers and so on. And that could alter one's impressions of what has been going on in productivity performance.",64
-fomc-corpus,1990,Let me just follow up on--,7
-fomc-corpus,1990,President Guffey.,5
-fomc-corpus,1990,I'm sorry.,3
-fomc-corpus,1990,Roger.,2
-fomc-corpus,1990,"Looking at the forecast, Mike, it appears to me that a good deal of emphasis was put on the net export sector. You have it coming back fairly quickly. What kind of assurances do you have, given the uncertainty of the Middle East problem, that that's really going to come about? You have it coming back very quickly, it seems to me.",71
-fomc-corpus,1990,"There are really three factors there. The answer is that we can't give you too many assurances, obviously, for the reason that you cited: We have the same [uncertain] oil situation here. There are some short-term effects built in, which cause this low that's going to look like [unintelligible]. As a short-term factor, we took account of the fact that we're not going to ship any more grain to Iraq right away but that the grain will go somewhere else as we get into 1991. So, that tends to give you a short-term decline that magnifies the bounceback. Then in the fourth quarter to the first quarter, with the negative growth in the United States, imports are held down. So that gives you an arithmetic effect as far as net exports are concerned. Then, as we get further out into the forecast, the lower dollar that has come about over the last year tends to give a boost to exports as well as to hold down imports. The growth assumption that's in here has been marked down somewhat from recent forecasts; it was marked down last time and it was marked down this time consistent with the effects that we have in the U.S. economy. And we have quite slow growth built in, as the Chairman mentioned earlier, for Canada and the United Kingdom, for example; we have negative growth in those two countries. On the other hand, we have some resumption of growth next year, especially in Canada. So, that does give a boost in that direction. We also have a somewhat rosier outlook--or let me say a less negative outlook--for Latin America in 1991, which gives us a boost to [exports]. Those are the big factors.",346
-fomc-corpus,1990,Governor Seger.,4
-fomc-corpus,1990,"I'm back on my housing kick. If I'm reading this page correctly, you are estimating housing starts for this present calendar year at 1.2 million, going down to 1.15 million next year, with this present quarter actually being the low quarter--although the next quarter is going to be about the same. It surprises me that we see this downturn ending so quickly--unless you're a lot more optimistic than I am about the credit situation, which, obviously, you are.",97
-fomc-corpus,1990,"I suspect so. But that doesn't mean that we're expecting things to return to the kind of situation we had three or four years ago. I must say that on the mortgage side, as opposed to the construction side, we still don't see signs of any great addition to effective demand in that market. But I think the construction credit side will continue to be a touchy situation for a while longer. As you know, we have assumed that there would be some gradual improvement in access to credit by builders who have decent projects to propose. But the key here is that we're looking primarily to the weakness in real income over the next couple of quarters to be the major drag on housing demand. And as that situation improves, we expect some people to come back into the market and provide some lift to housing demand. The level to which we go back is still a relatively low level of overall housing activity; it certainly does not go beyond what one might think the longer-run demographics would suggest should be the basic level of housing demand. So, we don't think we have a very aggressive forecast here as we look out to 1991.",224
-fomc-corpus,1990,"Do you have a number that you use for sort of gross extinctions--in other words, the equivalent of the age of stock in the passenger car market--from the housing stock? There is a figure that is basically the net extinctions, which is related to the total number of operable housing units and the total number of--",69
-fomc-corpus,1990,"Well, the figures that we've built into our thinking would involve about 400,000 units a year to replace dilapidated or demolished units and meet the second-home demand. If you add that to the demographic trend, we estimate that the basic housing start level ought to be somewhere at 1-1/4 to 1-1/2 million units--maybe toward the lower end, if you want to be conservative.",86
-fomc-corpus,1990,So we're at the point where the vacancy rate increase is negligible and the housing starts number is following with the demographics?,23
-fomc-corpus,1990,"Well, we are sort of building into this forecast the notion that we're going to absorb some excess supply at this point. That's one moderating influence in the growth of starts over the next couple of years.",41
-fomc-corpus,1990,"That's just residential, right?",6
-fomc-corpus,1990,That's right.,3
-fomc-corpus,1990,Yes.,2
-fomc-corpus,1990,"Mike, how about this heavy flow of horrible publicity about real estate problems, such as the latest Newsweek cover story. If you [don't] own a house, it seems to me you'd get a slight case of cold feet about buying one because it practically guarantees a big loss on your investment, whereas a few years ago practically everyone--especially around this area--who stepped into the housing market expected to make a killing.",84
-fomc-corpus,1990,Can I just add to that?,7
-fomc-corpus,1990,Isn't that right?,5
-fomc-corpus,1990,The equivalent Newsweek cover at the top of the market was exactly at the top of the market. And then we got a signal that maybe--,29
-fomc-corpus,1990,"Yes, a bleeding signal.",6
-fomc-corpus,1990,"I think we've been pointing for some time to the altered psychology of this market. The investment motive for buying a home in many areas of the country is not very strong at this point. There are still areas where prices are reasonably firm. On the whole, though, the picture is certainly one of a flattening out of prices for both new and existing homes. It looks much like the kind of rate of increase or stability that we saw in the last recession. But interest rates are anticipated to be a bit lower. They're at the low end of the range we've seen in the past decade or more. And there is some basic underlying demand. Now, houses might get smaller. We've seen a lot of moving-up-the-scale by homebuilders in recent years and perhaps if there's some moderation in demand for shelter, it will take the form in part of less extravagant houses. But at some point we're going to have this pressure to house this population. While we may have doubling up and so on for a while, I think there is some underlying support here.",210
-fomc-corpus,1990,But Governor Seger is right. It could just as easily go to a million annual rate for a quarter or two and still be consistent with--,29
-fomc-corpus,1990,It could go even lower than that. It's a small sector. It has some side effects but it would take a very deep plunge relative to our forecast to have a major effect in altering the outlook.,40
-fomc-corpus,1990,"It's small, but it involves a lot of small business people who write their Congressmen.",18
-fomc-corpus,1990,"Well, you're moving into another sphere. I guess you could say that might--",16
-fomc-corpus,1990,I'm not; it makes no sense here.,9
-fomc-corpus,1990,That might [hint] at some offset in terms of fiscal policy.,14
-fomc-corpus,1990,Thank you.,3
-fomc-corpus,1990,Governor Mullins.,4
-fomc-corpus,1990,"Mike, I was interested in the general tenor of your presentation, which was: ""We are projecting two consecutive negative quarters but we don't really believe it very much.""",33
-fomc-corpus,1990,That's a slight variation of what I tried to say.,11
-fomc-corpus,1990,There are no hard data to support it.,9
-fomc-corpus,1990,We can't see it yet.,6
-fomc-corpus,1990,"True, you talked about new orders, which looked fairly depressing. Also, you could make the point, which you made, that the purchasing managers index would be rather consistent with your forecast, it seems to me. As for consumer spending, August--the first post-oil-shock month--didn't look too great and some of the third quarter will be [what happened in] July. But again, the auto sales really are holding up even in September. Yet the forecast has been lowered for the fourth quarter by 1-1/2 percent and for the first quarter [of 1991] by a little over 1-1/2 percent based upon apparently no hard data supportive of it. What did you see that fed into such dramatic changes, despite the fact that the hard data didn't really compel you to do it?",169
-fomc-corpus,1990,"Well, as I noted, there were several [factors]. One of the biggest single considerations was the significantly higher level of oil prices that we have in the fourth quarter and in the first quarter of next year, which is going to squeeze the real purchasing power of households by a significant degree.",59
-fomc-corpus,1990,"So, if we reduce the oil [price] forecast to where it was in the August Greenbook that would account for most of the--",28
-fomc-corpus,1990,That would account for at least the majority of it; I wouldn't say it would account for all of it in a [strict] mechanical translation. We thought there were other factors in the environment too. The general inflation trend looks a bit worse and the excise tax hit also implies somewhat greater inflation in the near term and still further erosion of real income. We also looked at the credit market developments and at least intuitively judged that there is more restraint being imposed there than we might have anticipated in our previous forecast. We try to take into account the anecdotal information. I mentioned that as something that certainly has looked negative and I think it would be silly for us to ignore that totally.,138
-fomc-corpus,1990,Do you see hard evidence of the credit market constraint?,11
-fomc-corpus,1990,"Hard evidence? Well, obviously, the trends are visible. The lending practices surveys that we pick up aren't that up-to-the-minute, but the recent survey showed a slight widening of quality spreads in the bond market. Very clearly something that has impressed us is the turmoil in the banking sector. That is something we can't yet document in terms of its effect on their lending, but it seems to us to suggest some significant further constraint on them.",88
-fomc-corpus,1990,"May I ask a related question on the [projection]? We have now gone through six quarters with GNP growth averaging a little over 1 percent. And capacity utilization, it seems to me, hasn't come down that much. We have talked about why unemployment hasn't gone up so much--because of the participation rates. What's your view? Is this about what you'd expect: a 2 percent drop in capacity utilization?",83
-fomc-corpus,1990,"We have had some reasonable increases in industrial production thus far this year. Indeed, there is something of a tension between the industrial production numbers and the GNP numbers over the course of this year. The relative movement is pushing the limits of what one might have expected. But the natural consequence of that is that we don't have capacity utilization coming down a great deal. I don't have an answer for this. These are somewhat independent data sets and they sometimes do diverge. They are also both subject to revision. And where the truth lies, I can't say with any certainty.",114
-fomc-corpus,1990,"Could one explanation be something analogous to what happened in the labor market, in the sense that the labor force hasn't grown as rapidly as we expected? Perhaps the capital stock has not been growing, in fact.",41
-fomc-corpus,1990,"Well, in a sense this is a mechanical calculation. All the variation in capacity utilization essentially comes from the variation in industrial production. We don't measure capacity month-by-month. I guess one might say that there hasn't been anything very obviously strange about the relationship of capacity utilization to price behavior this year. Materials prices have not been collapsing; the PPI for finished goods has not been collapsing. This doesn't suggest that capacity utilization really has been falling dramatically. So, I don't see any indication that we've been led astray by these numbers.",106
-fomc-corpus,1990,Thank you.,3
-fomc-corpus,1990,"Further questions for Mr. Prell? President Hoskins, didn't you have a question?",18
-fomc-corpus,1990,"I was just going to follow up on your comment, but it's so far removed now that I don't think we ought to put Mike back on the rack to torture him more on that.",37
-fomc-corpus,1990,I could use a couple more inches!,8
-fomc-corpus,1990,"If I listened to your comments correctly, [the implication] was that if we do have a slowing in real GNP and potential GNP is also slowing, we're running off a gap or slack model and the 6-1/2 percent unemployment isn't going to buy us the same reduction in inflation. That was the only point I was trying to make. But it isn't [unintelligible] and nobody knows.",85
-fomc-corpus,1990,"Well, the point we tried to make is that if potential GNP is growing more slowly, one has to lower one's sights on what kind of GNP growth we can have and achieve a given degree of slack. That, I think, is the cutting edge on this issue.",56
-fomc-corpus,1990,"Mike, following up on David Mullins' questions in regard to the fourth quarter: I note that you have nominal GNP at 2.6 percent for that quarter. If my memory serves me correctly, we hardly had any quarters in the 1981-1982 recession that had nominal GNP that low. That 2.6 percent is an extremely low nominal number. I wondered: How does V2 on a one-quarter lag basis look with 2.6 percent? We really have a fair idea, don't we Don, as to where M2 might be in the third quarter relative to the second quarter? We could put that to bed and then take this number [and determine] what kind of a V2 change we would have.",152
-fomc-corpus,1990,For the fourth quarter?,5
-fomc-corpus,1990,Yes.,2
-fomc-corpus,1990,"We have a minus 2 percent velocity. Now, we wrestled with this issue, and we tried to address it at least in a sentence or two in the Bluebook. Obviously, we did not have a comparable slowdown in money to accompany the slowdown in nominal GNP. Just from a modeling perspective, we find that the models are driven by consumption, and nominal consumption remains quite high. A lot of that is prices--oil and whatnot--and it's not real. But nominal spending--dollars flowing through--remains quite high, and that should help to support M2. From a more theoretical perspective, the notion is that holdings and increases in holdings of M2 are related in some sense to notions of permanent income and longer-term trends. So, we wouldn't ordinarily expect money demand to react very sharply contemporaneously to slowdowns in nominal GNP. It would work through in the sense that it averages through in a slower path in nominal GNP over time. That's how we tried to square this circle. We really don't expect a comparable slowdown in M2 for those reasons.",219
-fomc-corpus,1990,"Governor Angell, I might just note that the relatively low deflator we have gotten for the fourth quarter--",22
-fomc-corpus,1990,I noticed that.,4
-fomc-corpus,1990,"--is something of an artifact of our assumption about oil prices, the oil import pattern, and how fast those prices of imported oil flow through to finished products, and so on. The fact that we had a big bulge in the oil price gives us this temporary dip, which is then reversed in the first quarter. That isn't to say we don't have a pattern of slower nominal GNP growth over this quarter and the next; but it is still a relatively low number.",95
-fomc-corpus,1990,"But on the nominal [GNP] there's also a rather significant move back from what looks like a 1990 nominal of about 5 percent. That's not for the [calendar] year, but for the Q2-to-Q2 period; then it looks as though it goes from 5 percent nominal to 7 percent nominal. But I don't think it needs any more elaboration.",78
-fomc-corpus,1990,"Any further questions for Mike? If not, would somebody like to start the Committee discussion?",18
-fomc-corpus,1990,"I will start off, Mr. Chairman. I would have to say that the business and consumer attitudes we have found in the Sixth District since our last meeting suggest a quite fragile economic outlook. The people that I've talked to in the past several weeks have become increasingly negative, with just a few exceptions. We have been looking with interest at the oil sector, the energy sector on the Louisiana coast, expecting that perhaps the higher oil prices might have given rise to some greater interest in investment in that sector. But we have been told by our contacts in the industry that there is just too much uncertainty about the price of oil in the future. So, they're not ready to embark at this point on any significant added investment. The only bright spots that I can find in our economy are for the most part in the export-producing industries. The industries that are competing with imports are still shrinking, and that's particularly true in the apparel area. Retailers in the district are anticipating substantial caution on the part of consumers, which I think is certainly justified. Interestingly, they're delaying orders for Christmas merchandise; they think that manufacturers will need to clear out goods at lower prices later on. I'm not sure that their bet is quite good on that score since manufacturers' inventories are quite lean. So, it's hard to tell how their strategy will finally come out. Now, what I've been talking about is really a reflection of attitudes and anecdotal information. The hard data that we get from the July numbers suggest that the District is doing fairly well in comparison to the rest of the country. In the month of July, for example, unemployment fell just a little, which moved the rate a bit closer to the national average. But we did get hard data for August for the state of Florida and that suggested that there is going to be a significant increase in the rate of unemployment for the month of August. Picking up on what Mike said about the credit crunch, the business contacts that we have are reporting increasingly stringent credit policies at banks. While I'm not in a position to say that good projects are not finding financing, the atmosphere created by the documentation that is being required is producing a cautionary effect. So, the anecdotal information in the District is quite negative. As we look at the national economy, our forecast is similar to the one in the Greenbook, although we don't actually show declines in the fourth and first quarters. Our services consumption sector is certainly not strong, but it's not as weak as that shown in the Greenbook and that keeps our GNP from turning negative. Also, our investment spending forecast is not quite as soft. Now, having said that about the Atlanta staff forecast, I want to throw in a caveat and say that I suspect that our forecast is not incorporating the anecdotal evidence that I've talked about but rather is using the hard numbers. So the errors, if any, in our forecast are likely to be on the down side. I think the oil shock came at a time when business confidence was already quite low, and that has caused projects which might have seemed a little doubtful to be put on the shelf. There are pressures on businesses to reduce expenses and that could quickly lead to reductions in both output and employment. The other issue that is a concern is the weakness in the banking system. Unfortunately, the media attention to this problem is certainly not helping. And it's in the banking sector as well as the real estate sector, Martha. So, I think the financial sector difficulties are probably adding to the tax-like impacts of the oil shock. In these circumstances, it seems to me that one could easily come up with a negative judgment about the national economy. And that is my judgment; I find myself turning quite negative.",745
-fomc-corpus,1990,President Parry.,4
-fomc-corpus,1990,"Mr. Chairman, at present it's really not clear what impact the developments in the Middle East are having on the Twelfth District economy. On the one hand, there are anecdotal reports that do suggest a considerably less optimistic attitude by business leaders in the District, and we've also seen some slowing in retail sales. We do a survey of business leaders asking them whether they expect recession in the next 12 months, and in the most recent survey 40 percent of the survey respondents said they do expect a recession. That represents a change from only 4 percent several weeks ago. That to us was a rather significant change. While the attitudes of most of these respondents have changed considerably, when we then asked them whether they actually had made changes in their business plans, we found that a number are taking an increasingly cautious attitude toward investment and operating costs, but the vast majority really have not changed their plans at this point. When we talk to retailers, we find that quite a few have experienced either slower sales or actual decreases in sales of nondurable goods in August and early September. These are not published data; these are just reports from individuals. At the same time, however, the recent published data don't show very much in the way of weakness. Employment, for example, showed some improvement in July and August over what was a bit of a sluggish performance in the second quarter. Employment levels in August were 3.2 percent higher than a year ago. That compares to 1.6 percent for the rest of the nation, so it's a very strong performance. As for real estate, although this number has a little problem with it, real estate loans--single-family and home equity loans--have continued to expand at a rate of 22.7 percent in the past year. If you look at the monthly seasonally adjusted increases in the past seven months, they have ranged between 13 percent and 45 percent. I must admit that some of that is due to the bank restructurings, because S&Ls are becoming a less significant factor, particularly in the state of California and also in Arizona. But even stripping that out, there is underlying strength in real estate loans in single-family and home equity loans in the Twelfth District. If I can turn to the national outlook for the moment, the basic path of the Greenbook forecast certainly seems plausible to us. We expect one or two extremely weak--and I guess they could be negative--quarters. We would say that is primarily resulting from the oil shock. We then would expect that to be followed by a pickup of growth in the first half of next year. I think one of the primary sources of strength is going to be in the net export area, resulting from the 15 percent decline in the trade-weighted value of the dollar in the past year. We also expect, using the Greenbook's assumptions with regard to oil prices later on in the period, that consumer spending should pick up in 1991. Inflation certainly is going to be higher next year--probably somewhat over 5 percent, as indicated in the Greenbook. Inflation will be fueled not only by higher oil prices, but we ought to keep in mind also the impact of the decline in the value of the dollar, and more importantly, underlying wage pressures. The unemployment rate at its current level suggests that, even without the oil shock, the economy would have been straining at its capacity to produce in the months ahead and that that would have been a further impetus to strong underlying price pressures.",709
-fomc-corpus,1990,President Black.,3
-fomc-corpus,1990,"This is obviously a very volatile and highly uncertain period and any economic forecast is going to be subject to an unusual degree of uncertainty. At the same time, I think we have to avoid overemphasizing these uncertainties. To me the main thing that has changed is that we have this oil problem in the Middle East and we don't know how that is going to affect the price of oil. Given the kind of assumptions that the staff has made about what will happen to the price of oil, I believe their forecast is a very plausible one and I think the economic projections make sense. I would guess that the odds of error are about equal in both directions. The key feature of the forecast to me is not so much that a recession is predicted, but that the recession the staff is projecting is relatively shallow and brief. And when you think about recessions that we've had in the past, they have almost always been preceded by some kind of overheating of the economy: inventories have been bloated to some extent, usually inflation has accelerated rapidly, and interest rates generally have risen rapidly. But those conditions really don't exist for the most part today. So again, I think the staff's projection is pretty well on target. I make this point because I think it implies that the policy approach that we take ought to be cautious and measured, like the one that we have been taking in recent years. I don't think there's any cause for panic now even though we obviously need to be alert to what is going to happen in the Middle East. So far as our District economy is concerned, usually I don't see anything that's all that different, but I come out with a little different view than Bob Forrestal did. I don't think the Beigebook report reflects conditions as well as what we've heard since then because our most recent anecdotal information suggests that economic activity is still growing for the most part, but at very slow rates. The sharp slowing that we had been reporting early in the year seems to have subsided. The main weak point in our area, as is true I guess in most other places, is certainly commercial building. We have some major problems in the Baltimore-Washington-Norfolk corridor. It looks as if we increasingly will have to deal with the kind of real estate problems that some other parts of the country have been through. Apart from that particular situation, however, I would describe the activity in our area as still growing, but at a very, very modest pace.",496
-fomc-corpus,1990,President Keehn.,4
-fomc-corpus,1990,"Thank you, Mr. Chairman. In a District context, there really is very little recent specific data that will give a meaningful indication as to where the economy is going. Everybody is in a state of suspended animation--waiting to see how some of these major uncertainties will work out. But I agree with Mike that there's a considerable dichotomy between the sentiment out there and the underlying facts. On balance, though, I think the District economy is continuing to show further moderation. We're still doing a bit better than other parts of the country, but I think the growth rate is coming down. Despite that, I'm quite surprised, really, that some of the basic businesses are better than I might have expected. The steel business, for example, continues to be strong; and as the year has gone forward it really has shown improvement. They started this year expecting shipments of about 80 to 81 million tons; that number has come up and we're close enough to the end of the year that 84 million tons looks like a very safe [bet by the] fourth quarter. Order books are basically full; there are some orders being delayed but no outright cancellations that I'm aware of. Meanwhile, though, those in the steel business are trying to raise prices where they can and when they can, and to some extent the increases are sticking. The construction business in the Midwest has finally hit the air pocket that others have experienced. The August numbers, both residential and nonresidential, showed declines--not perhaps as significant as in other parts of the country--but they were down, and that's the first time we've experienced that. General attitudes of those in the construction business are, understandably, quite pessimistic. In the auto sector, sales expectations certainly are being reduced. The third-quarter number for cars and light trucks together came in at 14.6 million. The fourth-quarter number is now down to 14.2 million and that brings 1990 down to 14.3 million; there has been a steady erosion as we've gone through the year. For 1991, at least at the company I talk to, they are expecting 14 million at this point; but they have brought that down from 14.3 million the last time I talked to them and from 14.9 million the time before that. So, it clearly has been coming down. In the September numbers that Mike referred to, fleet sales apparently had an impact both on the first, but maybe most particularly, the second 10-day period of September; those sales were moved forward a little earlier than is normally the case to deal with production schedules. The fourth-quarter production schedules for the auto companies are higher than last year, but last year was a comparatively low period. Clearly, the production risks are on the down side which, of course, is exactly what happened in the third quarter. They had a very big production increase scheduled for the third quarter and they reduced that right through that period. As an aside, the heavy duty truck business has been and continues to be very, very soft. The news out of that area is bad. The agricultural sector continues to be strong. Another week or so of this good weather and crop production is just going to be excellent. Farm income, despite low commodity prices, is going to be ""pretty good,"" which means really very good. There is some uncertainty and the budget resolution adds to that uncertainty. As a consequence, the agricultural equipment business seems to have plateaued. And as the major manufacturers look forward to next year, they think it's possible that equipment sales have plateaued and that 1991 will not be as good as 1990, and that's the first time in 2-1/2 years that we've had that comparison. On the price side, I must say as I talk to a lot of people around the District, that they are using opportunities to raise prices where they can. Many of them felt they got burned the last time around on this energy issue and this time rather than waiting and putting through more major increases on an annual basis they are trying to add a little here and a little there whenever they have an opportunity. Whether the competitive conditions are going to permit that remains to be seen. What to me is the most worrisome is this attitudinal issue. While the current level of activity seems to be pretty good and there is certainly no evidence of accelerating deterioration, most businesses are worried about a recession. And many of the CEOs that I talk to are running their businesses as if we are going to get into a recession. They are looking at their plans for 1991 very carefully. They are trying to curtail capital spending where they can. The risk, of course, is that this could become a self-fulfilling prophecy and we could experience something of a downturn as a result. Therefore, Mike's forecast looks entirely reasonable from our perspective. Because of that and given the budget resolution and the other caveats, with respect to policy I think we need to be alert to the opportunity to respond to potential weakness.",1020
-fomc-corpus,1990,President Syron.,4
-fomc-corpus,1990,"Thank you, Mr. Chairman. As far as the First District goes, the situation is not very ambiguous. Activity has clearly slackened and it is becoming softer--with a lot of variation, of course, sector by sector. In the real estate sector, of course, we are seeing some adjustment in prices. Residential prices on average are down about 15 percent; condominium prices are down 40 to 60 percent depending on where they are; and commercial rental rates are down about 33 percent. Consistent with that, 90 percent of the banking assets in the District are now in institutions that we have rated either currently or prospectively as 3s, 4s, and 5s, and about 55 percent are in institutions that are 4s and 5s. As you talk to people, it is interesting that in many ways it seems that businesses are gloomier the closer they are to the consumer. Sales of white goods and appliances generally are quite poor and are poorer than we expected, even given the housing cycle. Car sales have been bad but not really awful, with essentially mixed changes as they have been nationally and fewer sales of small trucks. Talking to [retailers in] different types of apparel stores, what we found--and I suppose this isn't unexpected--is that the discounters are doing significantly better than traditional upstairs stores, but even they are finding an enormous amount of price sensitivity. Real specials when they run them--I talked to a representative after they had an extraordinary special--will bring people in, but on a day-to-day basis people won't come in. And, one interesting thing that some of the people who run these discount chains tell me is that they obviously are keeping their inventories very lean, but they have the perception that the people they buy from also are keeping inventories lean and that's one reason they are not expecting a terribly good Christmas season. They think they may not see the surplus of goods coming into them that they have seen in earlier periods. Interestingly--I'm not sure it means an awful lot except noise--consumer confidence bounced up in the region from 28 to 37. [Laughter.] With our manufacturers, the outlook is somewhat more mixed. Computers are quite weak, even including their export sector; that is a relatively recent change. But I will say--maybe this is consistent with what Mike was talking about regarding expectations on the new IBM systems--that people who produce fabricated metal boxes that the computers go in say that they are doing reasonably well and that they are expecting pretty good orders further down the line. Manufacturers of longer lead time products that utilize manufacturers [unintelligible], such as those who produce power systems and locomotives, are still doing reasonably well. The credit issue continues to be very, very difficult. There is an enormous amount of nervousness about this and, as other people have said, it's a daily story in the newspapers and on the talk radio shows, which is kind of an ultimate index of these things. Some significant tightening is probably appropriate in home equity line conditions by banks. And we have seen some businesses that really are very substantial in size actually cutting back their capital spending or being more cautious on capital spending because of a concern about how much more debt they want to take on. They are becoming very, very worried just about the environment and the attention that is being paid to different quality paper. In that regard, mutual funds that we talk to are very, very nervous about all types of bank paper and a lot of them have cut back on it. And we're seeing substantial outflows from junk bond funds, which again I suppose is what one might expect. As far as the national outlook goes, we're pretty much in agreement with the Greenbook, although we have this question of whether we will get as much of a snapback as quickly. But again, I think that is a slightly different perception on the credit side. I would say that with respect to that one issue, which we think might cause some cumulation of this [slowdown], there really is a lot of nervousness about the financial fragility question. Looking at the latest two examination reports on shared national credits and highly leveraged transactions, the increases in classifications in those areas are just very, very substantial. So the concern I would have, even if we get into what should be a relatively mild downturn precipitated by a supply interruption, is that that could cause significant problems for some of these institutions, which will further tighten the credit situation and may expand a slowdown beyond one induced by a supply constraint.",919
-fomc-corpus,1990,President Melzer.,4
-fomc-corpus,1990,"As for the District, I would say activity in terms of what we can measure is still slowing; I would guess we're probably bouncing along around zero right now in the District. One relatively bright spot, at least through June 30th, is the banking area. For the first six months of the year, we're showing at small banks in the District return on assets of 1 percent, return on equity of 12 to 12-1/2 percent, and really no significant buildup in nonperforming loans. Now, I don't think that's going to hold up necessarily through the balance of the year, but that sector so far looks pretty decent. In terms of the numbers on the large reporting banks, there's not a lot of credit being extended but my sense is that that's somewhat of a mutual thing. I think there's just a sort of paralysis. Dick, you mentioned this too: I'm not sure borrowers, even if the credit is available, are all that anxious to borrow in this environment. I had a dramatic example of something we have heard about from a number of people this morning. I was in a couple of areas in our District last week where geographically the economy is really doing quite well, not only statistically but also if you talk to people they say business is going well. But their attitude is much more negative than the reality of what they're dealing with. I think that pervades people's actions in the conduct of day-to-day business. The other feeling I get is that there's not a lot of sense that monetary policy is somehow at fault. In other words, I'm not getting accosted by people saying: ""You guys have really screwed up; you really ought to be doing something differently."" I'm just not picking that up. Perhaps the corollary to that is that there is a general malaise out there, a lot of uncertainty, paralysis--however you want to describe it. I'm not sure we have it in our power to snap the economy out of it. And maybe yesterday's stock market reaction--and I realize this is just temporary--gives us some insight into the influence the Middle East situation has on expectations and this malaise that has set in: the slightest whiff of some resolution there really had a very positive, temporary, impact on attitudes. Turning to the national situation, I personally would not be surprised to see one or two negative quarters, and I wouldn't really have any quibble with what Mike has projected. We look at monetary policy from perhaps a somewhat different perspective than Mike, but I think we're saying essentially the same thing. Our assessment is that the current course of policy is unlikely to exacerbate whatever recessionary pressures exist. I think there is some sense--and I mentioned this a meeting or two ago--that some people might criticize the Fed for being too tight. And yet if you look at the latest three months--whether you look at reserves, the base, narrow money, or broad money--compared to the prior 12 months, there really has been no tightening of monetary policy on that basis. In fact, some of the measures suggest somewhat of an easing. Anyway, my view is that we have built a tremendous [foundation], or whatever you want to call it. We have wrung out a tremendous amount of excess liquidity over the last three years that had been built up from monetary stimulus or whatever in the mid-1980s. And if we can just come through this next period here with a reasonably good monetary policy still intact--probably a combination of good luck and good policy--the prospects for making significant progress on inflation down the road are really pretty good, I think.",733
-fomc-corpus,1990,President Stern.,3
-fomc-corpus,1990,"Thank you, Mr. Chairman. For some time I have commented on reasonably good economic conditions in the District and I think by objective measures that is still the case: The economy is continuing to expand at least modestly. Of course, every generalization has holes in it and, as Si Keehn reported, farm implement sales clearly have leveled off--and they had been quite strong in the spring in our District. Agricultural conditions in general are very good, but there are remaining pockets of drought, so there obviously are ongoing problems in those areas. The construction sector has weakened in some locations. Having said that, and having reported that I think by objective measures the District economy is expanding, like a lot of other people who have commented I think what has changed recently are attitudes, which clearly have deteriorated significantly. There's a good deal of concern out there; we're even picking up some questions about the status of the large money center banks, which is a topic that doesn't come up very often in our District. But there is some concern about that. Attitudes clearly have worsened as a generalization, but there are exceptions. I happened to be in a meeting with the treasurers of many of the corporations based in the Twin Cities and they almost universally reported business as strong. Now, these companies tend to have very large international exposure, not just selling abroad but operating abroad. So, they're not saying the U.S. economy is strong per se. But they are reporting that business for the most part is strong. There were a couple of exceptions; but in general I was surprised by the tenor of their remarks and the comfort they seem to have, at least looking at their businesses worldwide. In regard to the national economic outlook, I don't disagree much with the Greenbook forecast. Our own model has us avoiding a recession, although we have a continuation of three or four more quarters of very slightly positive real growth. But we can also calculate probabilities of recession with the model, and clearly the probabilities have gone up relative to those calculated prior to the previous FOMC meeting. I think that's just a statement of how the risks have shifted; that clearly argues that there are greater downside risks for the real economy. Unfortunately, the inflation numbers, as Mike commented, also have been disappointing irrespective of food and energy prices. And our model doesn't provide much comfort on the longer-term inflation outlook either. So, I see risks sitting out there in both directions. It's not a pleasant outlook to contemplate, obviously.",502
-fomc-corpus,1990,President Boykin.,4
-fomc-corpus,1990,"Mr. Chairman, the economy in the Dallas District seems to reflect many of the national trends, but overall we may be doing just slightly better than the nation now. The picture is quite mixed, however, and virtually all segments of the region's economy are growing more slowly than earlier in the year. The higher energy prices help fewer people and hurt more people in our District than was the case years ago. So, the net impact is less certain. Residential construction activity has shown a modest pickup from the extremely depressed levels of the last several years, but nonresidential construction is flatter now, with the exception of the Houston area. Retail sales have shown some very slim gains in recent months. The refining petro-chemical business has held up relatively well lately. Other areas of manufacturing have been somewhat weak. We did meet with our advisory council on small business and agriculture a few weeks ago. Our agricultural conditions seem to have improved, certainly in recent weeks. Outside of the issue of credit availability, which incidentally is not a new issue with us, the economy may be doing considerably better than it had been over the past several years of meeting with that group. Looking at the national economy, I have no real disagreement with the staff's Greenbook forecast. Intuitively, I wonder if the third quarter will be quite as strong as they're indicating, but I would not have a great quarrel with it. We don't see any evidence that we're heading into a cumulative downturn. As a matter of fact, as I look at Mike's forecast and think about that outcome, it would not be a bad result, if it could actually be accomplished. It seems to me that the assumption is that a steady monetary policy would accomplish that result. So, in spite of all the uncertainties and concerns, I would tend to pay a bit more attention to the inflation picture rather than [to the possibility of] the economy slipping over too far.",385
-fomc-corpus,1990,President Boehne.,5
-fomc-corpus,1990,"The District economic indicators are generally weak and, as elsewhere, business and consumer confidence is low and I think deteriorating. Employment is falling in the District; manufacturing is slumping; construction is off; retail sales fell in August and the first part of September; and bank lending is declining. And at the anecdotal level, there is more concern on the part of the ordinary public and the business community about the soundness of banks. It's hard to measure, but I think it's there and I think it's growing. I'm also hearing anecdotal evidence about the slowing payments of accounts receivables. Again, it's hard to measure, but they seem to have slowed a good bit. One businessman told me at a meeting that he doesn't even hear ""the check is in the mail"" anymore; people just say that the money isn't coming, which I think is a major change. At the national level, I think the risks are on the down side. My hunch is that we're facing a recession that will be more pronounced than contemplated in the Greenbook. I think business and consumer confidence are likely to get worse and the stresses and the cracks in the financial system are likely to weigh more substantially on aggregate demand during the coming months than is built into the forecast. We talk about a cumulative downturn and we say we don't see the evidence for a cumulative downturn. I think we're probably looking for the kind of evidence that was typical of recessions that we had when the economy was more dominated by manufacturing. We tend to look at sales and orders and inventories and that sort of thing. We have a different kind of economy and I think the cumulative downturn may have a different kind of anatomy this time. We had a demand side softening of the economy coming into the summer. The economy had slowed a good bit. Then on top of that we had the supply shock, which has caused it to slow more. Now we have the financial fragilities. And it seems to me that that's the cumulative set of forces that will take us into a recession rather than having business people misjudging sales, seeing their inventories build up, and then cutting back on their orders. I think we're in a different kind of economy. It's important for us to resist inflation in this kind of environment and to reduce inflation over time; but it's also important to buy some insurance against too deep a slump in economic activity where we would then find ourselves in a situation--if the economy starts to get away from us--in which we're forced to ease too rapidly in a very short period of time. I think we've bought a lot of credibility in recent years by trying to stay ahead of the economic curve, and I think we should continue that approach to policy even in the face of the uncertainties that we're experiencing at the moment.",557
-fomc-corpus,1990,Vice Chairman.,3
-fomc-corpus,1990,"In terms of the national economy first, I think the forecast that Mike and his colleagues have put on the table is as good a forecast as you're going to get right now. Our own bank forecast is very similar in all of its major elements to Mike's forecast. But having said that, I think the point Mike made at the outset and that several others have made is very important: There really is a sharp dichotomy between attitudes and expectations versus what we see in the economic statistics and what those hard economic statistics would suggest in terms of a forecast. And I think there is a danger in that environment of the classic self-fulfilling prophecy. There have been several comments made about the financial fragility aspects of that. Let me just add a couple of insights in that area. First of all, part of what we're seeing in banking, broadly defined, is also being seen in other countries. There is a similar situation at least in many respects in Japan and, while it's not widely talked about, there are symptoms of the same kind of conditions beginning to develop even in the London clearing banks because of asset quality problems and overextension of real estate loans and so on. So, while the problem to date has received a lot more attention in the United States, it is not one that is in all of its dimensions unique to the United States. It has secular elements to it, especially in this country, in terms of even greater questions in the marketplace as to how these institutions are going to generate the earnings that they need not only to raise capital but also to maintain reasonable rates of return for shareholders. But right now there clearly is a very, very pronounced cyclical element surrounding this issue of credit quality concerns. Looking at that from the vantage point of the major money center banks, there are three areas: the LDC loans, the HLT loans, and the real estate loans. Right now what we see is a clustering of weighted classified asset ratios in the money center banks in New York. For the institutions that have been the subject of a lot of this recent attention, those weighted classified asset ratios are now in the range of below 20 percent, which is not great but certainly should be manageable. I would say right now that by far the greatest risk of further deterioration in asset quality is in the real estate area. The LDC situation, if anything, is better, especially after all the chargeoffs that were taken for Argentina. The exposures in that area essentially now are in four big countries: Mexico, Venezuela, Brazil, and Argentina--not that the others are totally insignificant; but of those countries two are in pretty good shape. The HLT situation, while laden with uncertainties, again I would judge as manageable. But the big, big question is on the real estate side. Even if, as I think, the situation right now is better than a lot of the market scuttlebutt would have it, it's certainly not as good as we'd like to see it. And it's very important to recognize that if you just take those seven institutions, you're talking about banking assets of about $700 billion, which is something like a quarter or a third of domestic banking assets. And with only one or maybe two exceptions, for the foreseeable future the growth in assets in these institutions is going to be very, very restrained because of capital considerations, leaving aside whatever judgments one might want to make about credit screening and those types of things. I think it's also important to keep in mind that the foreign banks, especially Japanese banks, that have been a very important source of the net growth of credit in the United States are not going to be a source of that kind of growth in the future, at least in the foreseeable future. Again, I'm leaving aside what we mean when we talk about credit crunches. I think we have a situation in which a very large number of institutions, both foreign and domestic, are simply not in a position to be doing a lot of lending because of de facto constraints, and appropriate constraints, coming from the capital side. But at the moment my assessment still would be that the situation, while not pretty, is certainly not as difficult as some of these reports would indicate. I should also say in the area of financial fragility that while the spotlight at the moment is on the banks, it should also be kept in mind that the securities houses and the insurance companies are by no means exempt from these problems. Indeed, I would stipulate that some of the potential sources of vulnerability in the securities industry could be even more acute than some of the ones in banking, even though that is not a subject of great conversation at the moment. Against that backdrop, a question that keeps running through my mind is: Why are attitudes so sour? Now, presumably everybody is looking at the same numbers that we're looking at. What is it that has produced this very, very substantial deterioration in attitudes and expectations? It seems to me that there are at least three or four factors at work here. One is that I do detect, even among the most aggressive businessmen, a recognition now that inflation has proven to be much more stubborn than we expected and than they expected. There was a time when we talked about inflation that a lot of people would say to us ""You're fighting the last war."" They don't say that anymore. I think there is a recognition that the core inflation rate has not gone down and probably has crept up. So, that's a factor. I think the budget process, leaving aside what you think are the results in terms of numbers, has taken a major toll in terms of expectations or attitudes. On Wall Street and on Main Street that has been viewed as a farce and I think in its own way has clearly undercut attitudes and expectations. Again, no matter what you think of the program itself, which I actually think is pretty decent, we're still staring at this incredibly massive deficit for next year. You can dress it up any way you want, but I think that number has been a shock to people as well. The third factor that I think is very, very important in terms of this souring of attitudes and expectations has been a decline in asset values. For the typical household it really has struck right in the breadbasket because between stocks and houses there has been a very sharp psychological adjustment if not a real adjustment. One of the things that sharply distinguishes this period from other periods that we've gone through in the past is the fact that asset values at the level of both the household and the corporate sector are declining in many cases. Some of that, of course, especially in real estate, is a result of the excesses that went before. Nevertheless, it is there. I also think that there are renewed and heightened concerns, even among people who don't normally think about this question, about the reliability of our external sources of finance. All these news reports about the Japanese pulling back and other things are catching the attention of people who normally don't even give those types of issues a second thought. In a way, Sam's earlier comments about the exchange rate are a manifestation of that. So, you take all of that and superimpose the Middle East on top of it and the conclusion I come to is that we shouldn't be terribly surprised that expectations and attitudes are as sour as they are. When you put it all together, it seems to me that what we have right now that is different from most of our earlier experience is either the reality or the danger of a significant element of illiquidity and/or credit rationing beginning to manifest itself in asset markets, especially real estate. And that does seem to me to carry with it some dangers that are quite different from some of the things that we've had to deal with in the past. Indeed, I would be concerned that any further or more widespread illiquidity, again especially in real estate markets, could very well be the thing that tips some of these expectational factors into more underlying behavioral factors.",1601
-fomc-corpus,1990,President Guffey.,5
-fomc-corpus,1990,"Thank you, Mr. Chairman. With respect to the District itself, the economy continues to grow moderately and there are mixed results in individual industries or economic areas of activity. In the energy sector, for example, the higher oil prices have pushed up the rig count modestly. For example, in August the count was 282 in the District and in September 301. However, that followed a drop in the rig count from July to August. But it has come back and, as has been stated around this table before, the question is whether or not there is enough equipment and skilled labor to meet the demand. The last and important part of that equation is whether or not there are enough lenders out there willing to finance oil speculation exploration. Having been burned in past years, I'm not sure that that kind of financing will come from District banks. Whether it will come from Boston's probably is not very clear either! With regard to the agricultural sector, farmers have put in the bin the largest wheat crop since 1982. The corn and soybean crop look very good, with some concern about the bean crop being nipped with a little early frost. But with regard to the wheat crop, given the lack of exports to Iraq that has already been mentioned and the projection of restricted or lower levels of exports to the Soviet Union, the reaction in the market is simply to [unintelligible] the big harvest. The lower exports and less demand clearly have dropped the price of those commodities substantially. In the livestock industry, on the other hand, both hogs and cattle are going great guns, particularly with the prospect for cheaper feed in the future. As for automobile assembly activity in the District, auto makers continue to shut lines down or to shut down entire assembly factories. For example, in Oklahoma City a plant will go down a full week in October and in Kansas City a Ford plant will shut down a week or two weeks, depending upon their order levels. As a result, it's off and on. There isn't much lost income when those auto workers are not working, however, because of the arrangements under the auto contracts. So, it's really not a matter of cutting their purchasing power but rather a question of how much they're actually working and what kind of orders they're getting for particular automobiles or trucks. On the other hand, in the aircraft industry, which was mentioned this morning by Mike--and Wichita is a big player in this--the billings for 1990 and 1991 are projected to be about 30 percent higher than last year, year-over-year. So, that industry is still clicking along very well. With regard to construction, activity is up rather significantly over year-ago levels: about 30 percent in nonresidential and 5 to 7 percent in residential. So all in all, the District, although not booming by any stretch of the imagination, is doing as well as or better than the nation. And that is important with regard to the outlook in the sense that a lot of people I talk to say ""Well, we're doing pretty well, but I think we're in a recession."" When you press them on why they believe we're in a recession they say they watch the news or read the newspapers and given what's happening in the Middle East they simply think that times are [not] as good as they otherwise would have been. But there's no real evidence that we're in a recession. With regard to the national economy, we go through the same exercise that the staff here does with regard to projections and with basically the same assumptions. One thing we did not build in this month was the fiscal restraint that would take place with regard to a $35 billion budget agreement. Even with that, we're a little less optimistic than the staff in the sense that we would project an additional quarter of flat growth--not negative, not positive, but flat--in the second quarter of 1991. Otherwise, it looks very similar. But given the uncertainties that are out there, I don't think one can put a lot of faith in the long-run projection. There are too many uncertainties. As a result, it seems to me we probably should be doing nothing.",838
-fomc-corpus,1990,President Hoskins.,4
-fomc-corpus,1990,"First on the national outlook, I don't have a lot of problem with Mike's forecast. But there is a very large error band around forecasts, and as the Chairman indicated last week to the business economists, that error band is increasing, not getting smaller, certainly relative to 20 years ago. That error band is a couple of percentage points either way. So, I'm not so worried about the forecast as I am about our perceived response to it. As several people already mentioned, we had an oil price shock; that was a real shock. There's not much we can do to increase output because of that. We have had a wealth loss and I don't think that calls for much of a response by us. Some of the other concerns, of course, relate to our ability to fine tune in some sense. I don't think we have a very good record on being able to pick out when the appropriate time is to increase the rate of growth in money and when the appropriate time is to shut it down. Nor do I think the evidence from the academic community, at least as they judge policy in terms of the importance of expectations, supports our doing anything other than providing a stable monetary policy. I would judge stability by the rates of growth in M2, and we've had a pretty stable rate of growth for three years as Tom Melzer mentioned. And with Don's numbers--they are coming up--it looks like we're going to be fairly close to that number of the last three years. So, I think the problem now is not making an error to signal the markets, essentially the currency and bond markets, that we're running a risk of making some of the mistakes that we did in the past--that is overdoing it in the face of a potential recession. So, I think we need to find some way to [provide] some certainty or at least not increase the instability about the future. I suppose one could make an argument for tightening policy as a way to send a signal. I'll save that for later. Let me talk about the District. The Fourth District is doing generally better than the nation, but not a lot better. As just one example, our employment in manufacturing in the last year has been flat while the nation's has declined about 2 percent. Our unemployment rates, after tilting up in the second quarter in Ohio and Pennsylvania, now are back at 5.3 and 4.8 percent respectively. So, the level of activity is holding up pretty well. Capital goods producers, which we have a [unintelligible], are still filling their order books, but they are less optimistic. One turnaround has been in heavy duty truck activity; the orders there are starting to revive. Also, the export side, which has been a strength for us, still seems to be strong but we're beginning to get some signs of a softening there. We recently talked to an economist at one particular construction machinery company who indicated that they had experienced a very sharp falloff [in demand] for construction machinery worldwide starting in August. So, there are some signs that the economy has softened, but as far as the numbers go, in general the Fourth District seems to be holding up okay. In terms of attitudes, they are very similar to what people have indicated around the table. I went through the District last week on a bunch of road trips and when I talked to individuals they always seemed to have a good reason why their business was doing okay. Everyone had his or her own peculiar reason--we just got lucky or we got this order that will take us out through the second quarter of next year. But there is this pervasive view of impending disaster out there. I think there is some tightening in terms of cost control within the larger firms because of that, even though their order books haven't shifted much. Overall, I don't think the District has changed much other than in terms of the attitudinal caution because of the oil price shock.",793
-fomc-corpus,1990,Governor Seger.,4
-fomc-corpus,1990,"I have just a couple of comments about two industries I've been following closely in the last several months. One is autos. Quite a bit has been made of the fact that deliveries in August and September have looked pretty healthy, and that has been used as an indicator of consumer spending not falling into a sewer someplace. What I picked up from some analysts within the industry were two things: (1) that the seasonals are atrocious because the auto industry no longer has the regular seasonal swings that it used to, so that applying the seasonal factors that we do doesn't make a lot of sense; and (2) that the auto sales and these deliveries statistics really were distorted this time. Si alluded to it, but didn't expand on it. They were distorted by fleet deliveries, but these are fleet sales that are controlled by the auto companies themselves, primarily to car rental agencies. All of the Big Three own car rental agencies and they use deliveries to them to sort of cook the books, if you want to say that. They can more or less determine what kind of sales statistics they want to report by getting either more orders placed or fewer orders placed for their car rental subs. And there was an exceptional amount of that done in September for a couple of big reasons. One is that they simply didn't have enough orders coming from the traditional sources--purchases by folks like you and me--to get their assembly plants cranked up. They needed to get more strength in orders, so they chose to provide it in that way. Also, there is this continued push in the industry for market penetration. There's a real horse race out there. It's as if nobody wants to blink and no one wants to cut back and run the risk of cutting their market share statistics still more. So, they are really trying to hold their production up. Then there are the rating agencies--Moodys and Standard and Poors--and those folks are really checking carefully on the Big Three these days with threats of downgrading their debt obligations. Apparently important factors considered are production and market share as an indication of future viability. So, that's another factor entering in. Anyway, I was warned by two different people that these statistics should not be taken at face value at all. Also, I got an interesting statistic on showroom traffic, which would be the kind the consumer would usually think of; it has dropped substantially to about 15 percent below a year ago. And what they call the closure rate, or the number of deals that are actually closed as a percentage of the individuals they deal with, has dropped by 20 percent just in August. It was pointed out to me too that inventories are building and that the auto inventories themselves are probably about 4 days above normal and that truck inventories are getting up to about 20 days more than the dealers would like to have. Another industry that I was probing Mike on is homebuilding, because I've been talking to a lot of homebuilders in the last couple of months, and there really is a problem out there. The financing situation is getting more and more attention; it started out as an S&L problem in the form of limits on loans to a single borrower but now it has spread way beyond that. We are hearing of more and more homebuilders failing and closing their businesses or liquidating, etc. Small business groups in general, I think, are showing a lot of nervousness. They seem very negative. Retailers who are in the small business category seem to be very cautious about their Christmas orders. Again, as Bob Boykin said, small businesses always have gripes about getting credit, but I've never heard them as loud as they are this time because now they're talking about having had credit but then the lines were cut. So, this is a little different from lack of availability initially. And these credit availability problems are way beyond small business. Again, we're hearing it from businesses of all sizes and in many different industries. So, I wouldn't be surprised to see the couple of negative quarters that are shown in the Greenbook. I guess what I would be surprised to see is the kind of snapback next year that the staff is assuming. I'd like to see it but, frankly, I doubt that it will happen.",853
-fomc-corpus,1990,Governor Kelley.,3
-fomc-corpus,1990,"Mr. Chairman, let me focus for just a moment on the budget deal that was struck this past weekend. It seems to me that the basic dilemma we have been struggling with for months now has been intensifying recently; even before the oil shock, the economy was having some problems. We have a perception that we are going to weaken substantially, largely driven by the oil situation. But even before that I was disappointed in the level of economic activity--in the second quarter, for instance. In the case of the financial system, we know there is a lot of pressure there and a great deal of credit stringency in the banking system that is playing back into the real economy. Taken by themselves, these kinds of factors would push one in the direction of easing. On the other hand, the inflation situation seems to look worse, again driven by the oil situation. But even before that occurred there was precious little progress being made; maybe there was some deterioration. So, there's a concern that [higher prices] are becoming embedded, which would lead one in the direction of firming. So, what we needed was a way to break out of the impasse. And we now have a fiscal deal. I imagine everybody would define the ideal fiscal deal differently, but this one I'm sure is not it. I would hope that it's a new genre in the shabby history of budget deals; I would hope that this one is going to turn out to be firmer and to have less smoke and mirrors in it than those we've had in the past. We don't know that much about it yet, but it looks that way. I've been trying to find more reports on the teeth that may be in the enforcement part of this and I haven't found very much yet. But there is some evidence that there are teeth in it and that's encouraging. It is a multiyear commitment, which I think we all felt was very important. And I think it has a good configuration to it: it's about the right size early on and then grows as it goes down the line. Could it be another snow job? Oh, sure it could! We could turn out to be as disappointed as we've been in the past. But if it works, I don't think it needs to be all that it is cracked up to be in order for it to do a lot for us. It could go far toward restoring our fiscal health; it could help the saving rate a lot. It would by definition, I guess, help the saving rate a lot. It should help investment a lot, which I think is the absolute key to the future of this country's economy. In the area of reducing inflation, it would seem to me that there is the possibility of more progress available here than in anything that we could do at this point through monetary policy by cooling excess demand and providing relative strength to the dollar. In general, we've all been talking about the malaise in attitude that we have around the country and I think it could go a long way to [reversing] that. Again, I don't think it has to be as good as it's touted to be in order to be highly beneficial. If it's not passed, we're quite likely to be due for a very painful trip through the wringer. If that should occur, I think the Fed is probably just going to have to look to the long-term best interests of the country and kind of let the short term fall out as it may. But if it's passed, it can only help--and perhaps can help a great deal. The question is: How much? Keeping in mind the fact that we're still going to have very large deficits to be dealt with for the next couple of years at the minimum, I think that if it's passed, we should be looking for appropriate ways to support it.",764
-fomc-corpus,1990,Governor Mullins.,4
-fomc-corpus,1990,"I generally agree with the staff's forecast. I think we're facing a stalled out economy that is likely to dip for a quarter or two into negative territory. I'm a little less optimistic, as a number of people are, on the [prospects for a] consumer-led pickup in 1991. First, that assumes oil prices are going down as the major impetus; we'll see what happens there. I also worry more about further erosion of consumer confidence, given the fragility of the banking system, new taxes both on the [state] and federal levels, continued real estate value problems, and also just the experience of a recession. People haven't seen one in 8 years and many of them were not adults at that time. I also would sign on to what most people have said about attitudes. I would just make one additional point. President Corrigan mentioned asset values falling. I think we also have to take into account the fact that debt ratios of individuals and firms are relatively high. And with the economy slowing, a lot of them are facing the prospect of servicing debt. Before, there was an easy way out: you could sell the house at a higher price or you could split up the firm and sell [parts of] it off. I think it's not a cheery prospect facing those constraints and living with them; there is some sense that the good times are gone in a lot of markets. I'm also a little less optimistic on the export side, due primarily to concern about the growth of foreign economies. It seems to me that when you see the stock index in Japan go from 39,000 to 22,000 that is not bullish. Germany also has had a reduction of 30 percent in stock prices pretty recently. I'm concerned about the oil impact in eastern Europe. Obviously, Canada and the United Kingdom are not in great shape, but the dollar should help. I would just perhaps be a little less optimistic overall on the pickup. We also don't see the momentum to a downturn; we don't see a free fall. I think Ed is exactly right: the world has changed in some sense, and maybe we will not see the typical inventory cycles of the past. Instead of seeing a momentum to the downturn, we have seen a ratcheting down, it seems to me. We had a near-term growth path of 1 to 1-1/2 percent and it was disrupted by the oil price shock. I also agree with Mike Kelley on the budget deal. I think it is contractionary. While it is an embarrassing spectacle to see one of these made like sausages into law--and this one isn't law yet either--it does have some real taxes and some real cuts in it. Mike Kelley mentioned the enforcement agreements. What they have in this in effect are little decentralized Gramm-Rudman sequester constraints by categories of spending: defense, domestic spending, and the like. And if more is spent than the budget allows on those categories, in 15 days you go into a sequester. And by the way, those detailed Gramm-Rudman constraints last for a couple of years and then go back to more macro constraints. And on entitlements and revenue bills there is a constraint that they must be pay-as-you-go or there is sequestration. So, I am encouraged by the discipline they have tried to build in; even the rough discipline of Gramm-Rudman, I think, has been beneficial. I wonder if we would have had even this without that. By the way, I think the markets responded positively to the budget deal, although they were lucky to have a day in which oil prices came down! [Laughter.] On the inflation side, I agree that no real progress is apparent. I continue to believe that the right approach is a stable monetary policy and I think we should see slack opening up. I think that's essentially what we should do; about all we can do is to maintain a moderately restrictive stance. I also continue to think that we're not in the 1970s scenario and that if we do [maintain that stance] there is little realistic danger that the oil price shock will get generalized into inflationary expectations, especially given the state of the economy. My real concern continues to be the credit markets. It's not at all clear to me that we are maintaining a constant stance. It seems to me that with the slower projected growth in economic activity and constant short rates, it's hard to avoid a conclusion that monetary conditions may have tightened. The budget deal at the margin is more contractionary than we projected in the Greenbook. And even though a couple of people have mentioned that the monetary aggregates are back on their growth paths, that's due almost exclusively to the growth in two components--currency and money market funds. The core components of money continue to creep along and that has been going on for seven months. From the beginning of 1990 through the third quarter, savings deposits have grown at 3/4 of a percent annually; small time deposits have grown at 3/4 percent; large time deposits have contracted by 8 percent; other checkable deposits have contracted by 1/2 of a percent; money market deposit accounts have grown at 4-1/4 percent, but that growth was mainly in February and March; and demand deposits have rebounded 2-1/2 percent. So, the reason M2 and M3 are back on track is because of the rapid growth in currency--much of it for export, which I think is not much related to economic activity--and money market funds. Money market funds this year have grown at 12 and 22 percent for the two categories. Again, I think the increase in money market funds is not responding to increased economic activity nor is it likely to engender greater growth. It's responding to problems in the stock market. At the margin it does increase credit, but it increases credit to a specific segment of the economy: investment-grade institutions, and the Treasury and commercial paper markets. Indeed, the SEC has a rule out, as you may know, to restrict investment of money funds in below A1/T1 paper. Now, to be honest about it, it's really not fair to cut out a couple of categories. But it does seem to me that when you look at the recent reaction of money market funds--and we can understand what's going on in currency and the consistency of all the other core money categories and the persistence of this very slow growth at well below our lower range--that there is a concern that money is growing more slowly than we projected and endorsed. The final point I would make in this vein, which has been made by a number of other people, is something new in the condition of the banking system. There have been well publicized concerns about the FDIC fund, which is projected to be $10 billion at the end of the year and then perhaps go into single digits. Insurance fees on banks have increased from 8 basis points to 19-1/2 basis points in a little over a year and the prospect is that they will go higher as will the capital ratio.",1440
-fomc-corpus,1990,It's 23 basis points in the budget--,9
-fomc-corpus,1990,"It's 23 basis points in the budget deal, which brings in $4 billion over 5 years. This is not what we talked about earlier in the summer; it's not [the limits on] loans to one borrower; it's not examiners' zeal. It is a lot of big losses in a lot of institutions. Commercial real estate problems are evident throughout the banking system. Community banks, small regionals, large regionals and money center banks all have significant investments in commercial real estate. I think we will have several more quarters of bad news while the accounting reality catches up with these institutions. More generally, I think we're in for a protracted period of retrenchment in the banking industry both to deal with the asset quality problems to build capital, as Jerry mentioned, and also to figure out how to be profitable in the new world. I think all this has translated into higher funding costs for banks, lower stock prices, and bank debt yields at junk bond levels. And it seems to me inescapable that these sorts of pressures in the banking industry have shrunk or restricted credit. Specifically, I would be concerned that they have limited credit to a very large portion of the economy, those small businesses and large businesses that are not investment grade. I'm less concerned about the investment grade institutions; they have the public market to go to. It's difficult to make a case that the rest of the economy has an easily accessible alternative source of funds. I look at insurance companies; they're not doing so well. One can see some of the impact on finance companies. But if we do have this contraction in the banking industry, it certainly has to have tightened conditions for a major portion of the industry. So, I think we're currently facing a stalled out economy, which is projected to dip into negative territory. What concerns me on top of that is the increasingly tight credit market conditions. With the lags in the process, I think we do have a risk of turning a mild downturn into a fairly ugly situation. I agree with Dick Syron that herein lies the potential for a cumulative deterioration. I'm more concerned about this problem this time than last time--first because the economy has weakened; secondly, because the core components of money don't seem to be picking up; and finally, and most importantly, because the pressure on the banking industry seems to have tightened and the tourniquet has been turned an extra notch. I would still believe in a stable policy. I'm just concerned that what we are getting is one which is more constrained than what we projected, endorsed, and would like.",518
-fomc-corpus,1990,Governor LaWare.,4
-fomc-corpus,1990,"I won't presume on the Committee to try to restate or recite all of my views at this point. You have all heard my concerns about the fragility of the financial system. Perhaps I can shorten my remarks by simply associating myself strongly with both Ed Boehne's statement and Jerry Corrigan's statement. In addition, I think that the banks are really scared and have become super cautious. I think bankers are demoralized. I've been talking to a lot of bankers in all parts of the country over the last several weeks and I have never seen them [exhibit] a lower sense of optimism and bewilderment as to where to go from here. And that will make the credit crunch worse in the future than it is at present, particularly if there are signs that the economy actually is going into a period of recession. Perhaps under those conditions, the momentum in a downturn might be very surprising and might cause the recession to last longer and go deeper. I have to say that, being a cynic, I believe that the budget deal is a sham and a delusion. If you had walked across the Sahara Desert without a canteen, you would think the water in Boston Harbor was [potable]. [Laughter.] And yet, in thinking or contemplating any move toward ease as a result of the perceived window that we have here because the markets have reacted favorably to this budget agreement, I worry about the dollar because we have an environment of rising interest rates elsewhere in the world against the contrast of perhaps lower rates here and a softer economy, which is less inviting to investors. Yet I think a case might be made that perhaps at least some modest move toward ease has already been discounted in the exchange value of the dollar. So, I'm concerned that perhaps this is the time to make a very slight move toward a bit more accommodation.",372
-fomc-corpus,1990,Governor Angell.,4
-fomc-corpus,1990,"There really has not been any money shock that has synchronized all the sectors of the economy and there is no inventory correction cycle underway. This is not a recession as generally defined. Never before have we had a recession in which monetary policy eased 12 months prior to what somebody says was the likely high point. I don't agree that June was, but somebody thinks it was. It clearly is a synchronized slowdown in the U.S. economy, but it is more in the nature of an event related to buildings and real estate and, consequently, banks and thrifts. We have to be careful if we really want to be forward looking, not to look backward at the real economy. If you are trying to be forward-looking, that's always a disaster; you can't get ahead by looking backward. Now, I think there are some considerable risks, but those risks are in the years out ahead, not in the 6 months ahead of us. The considerable risk is that we will go through this slowdown event and end up with inflation at a rate of 6 or 7 percent and end up with a set of easings that tips the dollar loose. I do agree with the analysis of Sam Cross that there still is a safe-haven effect on the dollar. The considerable risk is that we will throw the monetary policy tool away before we have the ability to use it. I would not enjoy being in a situation of a declining dollar with all that means for future inflation. That could then mean that inflation doesn't peak in the third and fourth quarters of 1990; the peak might be out there further ahead. So, it seems to me that the exchange value of the dollar is a real restraint on us, but I don't see any reason to admit that to anyone outside this room. But I would hate to see us get into a position where we no longer have any potential to do it because we have a spread of 300 or 400 basis points between the Treasury bill rate and the 30-year Treasury. It seems to me that under those circumstances then, the fears that people have about downward risks certainly would be justified. So, I think there is considerable risk. I do believe the U.S. economy has a lot of recuperative ability. [Unintelligible]--and I'm not able to tell as well as David is how each of the parts go--but if monetary policy is reasonably steady and stable, then I think the adjustment mechanisms can take place and can take place in an environment in which we get some of these corrections made. I must admit that when I first came on board I was pleased that we had engaged in monetary policy actions that I think avoided a recession in 1986. But looking back on it, I have a feeling that what has happened in Boston and in New England and elsewhere would not have been carried to such excesses, if we had let a correction take place a little earlier. So, I'm just urging caution.",594
-fomc-corpus,1990,"We're running late, as I'm sure you're all aware, so we do have coffee out there which I hope is not too chilled. And lunch is not that far away. So, let's make the coffee break a bit shorter than usual and then reconvene.",51
-fomc-corpus,1990,Mr. Kohn.,5
-fomc-corpus,1990,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1990,Questions for Mr. Kohn?,7
-fomc-corpus,1990,"Back to David's comments about the components of the aggregates: Instead of looking into that aspect, let's look at [velocity]. You put a memo out in June, I think, saying that there might have been a shift in M2 velocity. If that were the case, isn't the [recent] resumption of growth inconsistent with that? Wouldn't you expect lower growth rates?",76
-fomc-corpus,1990,"Well, I think we're still seeing that velocity shift. That is, if you look at the resumption of growth that we've had on a quarterly average basis, we're still seeing in the third quarter a quarterly average growth of only 3 percent even with the last two months being strong. And that's about 2-1/2 percentage points less than the model was predicting for the nominal GNP we think we have gotten. We have growth in the fourth quarter projected at about 4-3/4 percent on a quarterly average basis; it's 4 percent month-over-month. And even that, I think, is close to 2 points less than the model predicted. So, yes, there has been some pickup in M2 growth, but certainly if it slows down to the 4 percent pace, that's still consistent with the velocity shifts we thought we were getting before. We have about 4-1/2 percent for the year and that's a 1-1/2 percent shift over the year, which is not completely out of line with past history though on the outer edge of it. So, I don't think the pattern really contradicts what we were talking about at midyear; it may be a little stronger, probably impelled by these uncertainty factors. I think the underlying shifts are still there. Governor Mullins remarked about the deposit components still being weak, and that was part of the picture. [Banks] didn't need to make loans; they didn't need deposits; they weren't going to compete for funds and I think that's still true.",313
-fomc-corpus,1990,"Don, the three alternatives you talked about are different from what was in the Bluebook, right?",20
-fomc-corpus,1990,"Slightly, in the sense that as I thought about the sort of--",16
-fomc-corpus,1990,Is there no analytic support at all--something that might suggest that the inflation problem is severe and should be dealt with?,24
-fomc-corpus,1990,"For the tightening alternative, ""C""?",8
-fomc-corpus,1990,Yes.,2
-fomc-corpus,1990,"I think there is some support for it. If you thought it was sufficiently severe, my feeling was--I think I used the word ""practical"" as I presented these--",36
-fomc-corpus,1990,That doesn't sound very economic.,6
-fomc-corpus,1990,"Under the circumstances of a tightening fiscal policy and widely expressed concerns about credit conditions, my feeling was that an alternative C was in the Bluebook but I didn't see expending a lot of the Committee's time on it so close to lunch.",48
-fomc-corpus,1990,"You took time to add an ""A+"" though.",11
-fomc-corpus,1990,"No, the easiest alternative I had was exactly the same as this--an ""A minus/B"".",20
-fomc-corpus,1990,That's right.,3
-fomc-corpus,1990,"Don, you may have said this, but I missed it if you did. If we did alternative A in one step, 50 basis points, what do you think would happen to long-term rates?",41
-fomc-corpus,1990,"I think they'd go down. Peter, I think, may disagree. The market is not expecting that, but in a situation in which the economy is seen to be very weak and fiscal policy is moving toward restraint, whether it's enough or not, I think long-term rates would go down. They wouldn't go down by anywhere near the 50 basis points, though. It would be a restrained reaction. And if the dollar fell and if the incoming data in the subsequent couple of months didn't confirm the economic weakness [unintelligible], then bond rates would end up two months from now higher than they are right now.",124
-fomc-corpus,1990,Absolutely.,2
-fomc-corpus,1990,"I'd like to follow up on Lee's question. In the M2 forecast for the fourth quarter, have you included anything for this flight to liquidity? Or is it based pretty much on the way you think velocity is deviating from--",47
-fomc-corpus,1990,"We have a little, but slowing down. This is not a war forecast or something like that. We have conditions settling down somewhat, but still we have allowed a little for the flight to liquidity. Though we still have this velocity shift going on, it's not as much as we had in the third quarter; we have much less in the fourth quarter in a settling down kind of process.",78
-fomc-corpus,1990,"Ted, can I ask you--this is slightly different than what you assumed--what your view is on the pressure on the dollar under ""A"" and then ""A prime,"" if we part with the assumption that something is done on the budget deficit?",51
-fomc-corpus,1990,Which one is which?,5
-fomc-corpus,1990,"""A"" is the traditional ""A"". ""A prime"" is ""A minus/B,"" I guess.",21
-fomc-corpus,1990,"Well, I think you would get a reaction with ""A,"" quite pronounced, if you get it all done at once. With the two-step process the way Don described, you might get a reaction with the second step, depending on what the circumstances were at that time. As Sam said earlier and Don suggested, I think there is something built into the market at this time. Sam, you may want to comment again in light of what has been said. We probably would get some adjustment. In some sense there was an adjustment yesterday, essentially anticipatory. The exchange market came back a little today; I think the adjustment may have been overdone.",131
-fomc-corpus,1990,"Certainly, you'd likely get a reaction if there were the larger move. On the more moderate one, I think the markets are expecting it but there might still be a reaction, even though they are expecting it and have built it into their thinking, on the grounds that it would sort of confirm it. Basically, I think the general attitude toward the dollar is negative and that kind of easing would tend to confirm that the Committee may be going in that direction. So, you could get a reaction even on the smaller move.",104
-fomc-corpus,1990,Could I ask your degree of nervousness about a cumulative decline on either of these things?,18
-fomc-corpus,1990,Falling out of bed?,6
-fomc-corpus,1990,"There certainly is that possibility. And if it happens this quickly and spreads through all the other markets and has all these effects on interest rates and the stock market and everything else, then we have a real mess on our hands. It's impossible to assess how big the possibility of that is. But the market's view toward the dollar is generally negative. So, there is some susceptibility--some fertile ground to see something starting as a movement down, which could then lead to a lot of efforts to get out and protect the dollar. That is a serious possibility.",111
-fomc-corpus,1990,"Sam, what would be the odds of the dollar engaging in a significant downward move if we stand pat on policy--that is, take the third alternative?",31
-fomc-corpus,1990,"Well, the dollar has been stable for the past few weeks, basically, except for the strange things going on with the yen.",26
-fomc-corpus,1990,"So, we could be somewhat encouraged to believe that it might be stable or even slightly strong again?",20
-fomc-corpus,1990,"Well, as I say, if you cut away from all of these things, as far as we can tell the general sentiment toward the dollar is negative. Markets are talking about moving further toward 150 on the mark and toward 130+ on the yen. So, that is the sort of framework we are dealing with. After having heard the statements of the Chairman and various other things that have gone on, the markets certainly would not be surprised to see the middle option move tied in with action on the budget. That is probably the general expectation of most people out there.",115
-fomc-corpus,1990,How is the long end behaving today?,8
-fomc-corpus,1990,"It's up a little, but not much.",9
-fomc-corpus,1990,"We talk about the prospects for the longer end and the dollar if we ease. Do you have any concern, given all the commentary that has taken place with respect to the fragility of the banking sector, that if we were to do anything before the budget is really set in concrete that it would be misinterpreted? Maybe misinterpreted is not the right word. Rather, would it be thought that we reacted to the fragility of the banking system and as a result would that propel the market into greater negativism and [unintelligible]?",111
-fomc-corpus,1990,"As I indicated in my briefing, I think an action before the budget is at least more wrapped up than it is now would be a little confusing to the markets. They wouldn't know whether you were responding to fiscal policy or to credit market conditions and that sort of thing. Under those circumstances, I would advocate that the Chairman look for an opportunity to explain that and explain what was propelling the Committee and give the reasons why you did it. I think that would be important, especially if it were separated from the fiscal policy response.",106
-fomc-corpus,1990,"Further questions for Don? If not, let me start off by giving you as quick a review as I can on the budget plan. I realize the inclination of John LaWare and I sympathize with it, but having looked at this I'm inclined to believe that the degree of criticism is a bit overdone. However, I might add that the fact that it is a bit overdone may make it difficult to get it passed on Friday because there is a lot of ""real stuff"" in here. Let me define what I mean by real stuff. I would say that any program that requires a majority of both houses of the Congress and a Presidential signature to be reversed would be defined as being enforced. If you go down the list of all the various items that they have agreed to--though I must tell you there is a disproportionate amount of tax and tax-type stuff in there, much more than I would prefer--it does have the characteristic of enforceability. The consequence of that is that $500 billion is not a number which I would argue has no smoke and mirrors. My view of $500 billion is that it has always had some smoke and mirrors in it no matter what; it's a question of how much. If we get a reconciliation bill and an affirmation of what David Mullins calls the ""mini Gramm-Rudman,"" they've actually come up with something that is a lot better than anything they have done before. There are a few holes in the system which can break through between the budget resolution on Friday and the actual 13 or 12 individual budget items that have to be, according to the reconciliation instructions, on the floors in the House and Senate and in place by October 19th. But I don't think they are very large. In other words, once you lock in the reconciliation on the floor in both houses, given fairly rigid instructions to the various committees within each house as I understand it, the leeway is not all that considerable. There is some fudging possible, for example, in the agriculture committees where they can take the $13 billion and knock off a couple [billion]. I don't think that can be done in any of the other ones in any realistic way. No I take it back. There is one other, but it is not very important. You can't do it, for example, in the civil service lump sum; that's specific and that's it. The postal affairs item is one that's in there. In any event, there are a number of items in which there can be slippages between the reconciliation and the final passage, but I don't think enough to make all that much difference. The probability of passage is fairly high in the Senate but a very close call in the House. The markets responded positively to it and to the anticipation of it, but as David said, they were lucky that they ended up with the oil price decline. Sometimes luck is not always bad! I would think that the consequences of that deal being voted down on Friday would be very adverse in the markets. There would be disillusionment the likes of which would be very large. And even though it's the Administration's position that they may need more than one vote to get it put in place--in other words, lose it and then come back at it--I'm not all that certain. I think that if they lose it, unless they lose it by just a handful of votes, it's going to be final. There's not much to say on the Middle East issue with the exception that it's fairly clear that the futures markets have fairly persuasively forecast some form of war. We have $35 oil when in fact production has pretty much closed the gap on what has been lost. And inevitably, consumption has to be down 1/2 million barrels a day at these prices. The supply/demand balance is not all that different from what it was before the invasion of Kuwait. What we're looking at is a large number of refineries around the world that are concerned about being shut down because of inadequate crude or bidding in the market for inventories that already exist. What we have is not a flow/price effect, but basically an inventory adjustment/price effect. There's no knowing where that number will go because there's nothing that one can readily evaluate with respect to price changes under those conditions. I think there's enough of that buying to hold the price up for a while. The forward markets are discounted $10 to $13 a barrel. And there I think we are looking at a bimodal distribution in which part of the forward market reflects a war that actually happened--loss of the Iraqi/Kuwait oil but also some Saudi oil--and the other part is the expectation of a war where nothing is destroyed or there is no war and everyone goes back to production. If they go back to production, prices will fall below $20 a barrel in this environment. This is not a market in which it is going to go back to $21 and stay. This is a market which has an over-inventory, high production levels, and an awful lot of cheating out there which no one yet has figured out. I cannot believe that Libya is producing at where it says it is; it's not the way they behave. As a consequence, what we have is a highly uncertain situation. When we were here the last time, we were discussing when and if war might break out. I think it's still the case that lots of materials are moving across the ocean to Saudi Arabia. We're obviously not positioned; if we were, all that stuff wouldn't be coming. So, we are not ripe yet for an ultimate confrontation on either side. It's only when we get to that point that the issue will be enjoined and resolved or there will be military confrontation. But that's weeks away, maybe well into November. What we're likely to get is a heating up to a point where it's going to go either way and probably will get resolved within six weeks after that, hopefully. In fact, I think the odds of peace have gone up rather than down in the last two or three weeks. So, we have that large uncertainty out there. In the interim, we have all the issues that everyone here has been discussing. I do think the evidence clearly suggests that we have a credit implosion going on. We can see it all over the place. I don't know whether the word ""crunch"" is a relevant notion, but everything is really being pulled back. Commercial banks, on the basis of restrictive capital requirements and fear of not being able to meet the requirements, are pulling back. Asset quality results are giving them some concern. And while I don't know how to read it, I think that Ed Boehne is right in the sense that what's happening here is some sort of pressure. I may change my mind in three or four days, but I still think we're in a situation in which there are forecasts of thunderstorms and everyone is saying well the thunder has occurred and the lightening has occurred and it's raining, but nobody has stuck his hand out the window. And at the moment it isn't raining. The point is, as best I can judge, that the third-quarter GNP figures in the Greenbook are not phony. I think they are relatively hard numbers. They can get revised down; they are being put down more and more but the economy has not yet slipped into a recession. Now, that may change next week, but I think it's important to distinguish between forecast and history. In any event, we have some really significant pressures out there. And at this point what strikes me as our major concern is that if we're going to maintain a semblance of monetary stability in an environment in which credit pressures are tightening the market, then I think we have to find some mechanism to ease. We probably should ease at some point, really, to offset the credit crunch--with or without a budget deal. But what I would recommend at this particular stage, in the context of all of this, is that we go asymmetric toward ease today with an understanding that if the budget resolution passes we go down 25 basis points, say, on Monday, but stay asymmetric. There is still a possibility, although I think the odds are falling very sharply, that the budget deal--although it can't fall apart after the reconciliation--can get muddied in a certain sense. I would hesitate to go more than 25 basis points on the budget resolution itself because it's not the ultimate final deal, although it is most of it. And I think it would be appropriate to respond to that. In that context, I would just stay asymmetric, and if the economic data look very poor on Friday, it might be desirable--especially if the budget deal finally makes it--to go down again, although I'm not sure that that would be the appropriate response. But what I would suggest at this particular point is to presume that under certain contingencies we would move. If there is an area of uncertainty about the events as they emerge, it would probably be desirable to have a telephone conference. In fact, this is a very touchy period and if there's any uncertainty or questions about what is actually happening, I think it would be appropriate for us to have a conference. At lunch we will be discussing an additional action that the Board is currently contemplating, which is the reserve requirement issue that I mentioned to you previously. It is not supposed to involve interest rate effects, but does have an anti-credit crunch implication if the Board does decide to move in that direction. So, in light of the fact that the credit pressures have picked up, if anything, in the degree of stringency and--having looked at the plot of retail M2 excluding the elements that you suggest--that monetary growth clearly is pretty slow, I would agree with the way you put it, David: that we are tighter than we had intended. So, in the context of a budget agreement and this stringency, I would think it appropriate to take the types of actions under the various contingencies I have outlined, and I throw that on the table as a recommendation for discussion.",2032
-fomc-corpus,1990,"May I have a clarification, Mr. Chairman? Are you talking about Friday or are you talking about early the following week?",25
-fomc-corpus,1990,"Not Friday, no.",5
-fomc-corpus,1990,Okay.,2
-fomc-corpus,1990,"Probably Monday, I would assume.",7
-fomc-corpus,1990,I think it's a holiday.,6
-fomc-corpus,1990,It is?,3
-fomc-corpus,1990,Columbus Day.,4
-fomc-corpus,1990,"It's not a holiday for financial markets, though it is a bank holiday.",15
-fomc-corpus,1990,It's a bank holiday?,5
-fomc-corpus,1990,For the Federal Reserve and commercial banks it's a scheduled holiday.,12
-fomc-corpus,1990,But the securities market will be open.,8
-fomc-corpus,1990,How do you implement monetary policy when the banks are closed?,12
-fomc-corpus,1990,You wait until Tuesday! [Laughter.],9
-fomc-corpus,1990,"May I ask a question on the luncheon discussion? If you decide to do that, how do you think that will play? Will that be perceived as some sort of an easing in policy or will it be perceived as a technical matter?",47
-fomc-corpus,1990,You're talking about the reserve requirements?,7
-fomc-corpus,1990,Yes.,2
-fomc-corpus,1990,"Well, we hope it's perceived as a technical issue. But it is a non-interest rate easing effect in the same sense that if you reduce taxes on commercial banks, some of it goes through into increased loan availability. How much depends on what the incidence is. I don't think it will be perceived as an easing.",63
-fomc-corpus,1990,"What might the timing of that be, assuming you go through with it?",15
-fomc-corpus,1990,I would say sooner rather than later. We haven't quite decided.,13
-fomc-corpus,1990,Fairly near term?,5
-fomc-corpus,1990,"Yes, I would assume so. In fact, how that is perceived will be dependent on the words that Joe Coyne puts out with the action! The purpose of that is to emphasize it as a technical issue, which it is. It's basically something that we have been discussing; as you can see, that memorandum has been on the Board's agenda for quite a long while.",76
-fomc-corpus,1990,"I have a question. If this problem with banking is a kind of nonprice rationing, I don't see how lowering prices at the banks is going to help a lot in terms of availability of credit.",41
-fomc-corpus,1990,Are you talking about the reserve requirements?,8
-fomc-corpus,1990,"No, more generally about lowering interest rates. If [banks] are tightening their standards and they don't want to make real estate loans, then lowering rates 1/2 point probably isn't going to change them.",42
-fomc-corpus,1990,It will improve their earnings.,6
-fomc-corpus,1990,"I disagree with Mr. Hoskins. Basically, if you're a commercial bank and you're concerned with your capital, you pull back; and the method by which you pull back is an asset rationing that opens up your margins. In other words, the way you ration essentially is either through increases in price or through asset quality. To the extent that you're opening up, if the federal funds rate moves down, you may bring the level of loan rates down. That's the tradeoff. So in that sense, it does make credit available.",107
-fomc-corpus,1990,"Well, we can discuss it some other time. I can see the reserve requirement effect a little better and, by the way, I would be in favor of something like that because it is a direct tax. You do increase capital almost instantly for them; that's clear. What's not so clear to me is whether you increase demand for loans when you lower the funds rate and all loan rates go down.",80
-fomc-corpus,1990,"You don't increase demand, you increase supply.",9
-fomc-corpus,1990,Or you'll increase supply if bankers are not rationing on the basis of price but on the basis of credit quality.,23
-fomc-corpus,1990,"No, but credit quality and price are interchangeable in anybody's portfolio. [Unintelligible] if you tell me I'm making a loan at 12 percent and I think the borrower is a deadbeat, I would say I want 30 percent; that's the same credit restraint.",57
-fomc-corpus,1990,"Could I ask an operational question to be sure I have this clear? You're suggesting that we ease early next week, say, Tuesday. Is the purpose of that easing to respond to the tightening that has taken place in the market?",46
-fomc-corpus,1990,"No, that's in response to the budget resolution passing.",11
-fomc-corpus,1990,That was the question. Are you then suggesting we would ease 25 basis points near term before that?,21
-fomc-corpus,1990,"No, no action prior to Tuesday. I think if we did it sooner, it would be very confusing.",22
-fomc-corpus,1990,But you are suggesting a second 25 basis point [move] when the budget agreement is wrapped up?,21
-fomc-corpus,1990,After the budget agreement is wrapped up.,8
-fomc-corpus,1990,That would be after the 13 individual appropriations have been done and the situation clarifies?,19
-fomc-corpus,1990,Yes.,2
-fomc-corpus,1990,And this is primarily in response to the credit conditions?,11
-fomc-corpus,1990,"No, it's a combination of both the budget agreement and credit conditions. If the budget issue were not on the table, I would still argue for the easing of 25 basis points. I'm just saying on combining the two, it depends on how the budget agreement--",53
-fomc-corpus,1990,"Because there's more weakness than that imparted by the supply shock? If, as I thought was stated, most of the weakness was a result of this supply shock, there's nothing we can do about that really.",42
-fomc-corpus,1990,"Oh no, it's more weakness than that. I would say that the appropriate policy under the oil price supply shock is to do what we were doing before--to try in a sense to maintain the same money supply growth pattern we would have had prior to the oil shock, absorbing a lower level of physical activity and a slightly higher level of inflation largely because we can't avoid either of those two. I would say that the appropriate action is essentially to be where we were. It's not to be accommodative; it's not to try to stop the rise in prices, because we can't.",115
-fomc-corpus,1990,"Well, one can do something about the inflation to some extent.",13
-fomc-corpus,1990,What I'm trying to say is that there are two types of inflation. One is the oil price pass-through. The other is whether it embodies itself in the wage structure. It's the second that we have to be very careful to avoid.,47
-fomc-corpus,1990,That's right.,3
-fomc-corpus,1990,"If we believe that the oil price goes up and the [unintelligible] comes down and there's no wage effect, it's a complete washout. There is no way to keep the [higher] price in there unless it embodies itself in some nonprice cost, in other words wage costs, cost of capital, or something.",67
-fomc-corpus,1990,I guess I see the tradeoffs perhaps somewhat differently. You are computing the Greenbook's forecast of what is likely to happen to the oil price but the Greenbook's forecast of interest rates is constant. If you had interest rates declining--,48
-fomc-corpus,1990,"I'm not using the Greenbook forecast. I frankly think that if we take Mike at his word, this one is a real problem. But I would say that I see no reason for us to change the policy patterns that we had in effect as of July. Basically, the targets that we constructed for the money supply should not change as a consequence of the Middle East crisis. That's what I think should govern what we're doing. If we do that, in my judgment we do not accommodate the inflation process.",101
-fomc-corpus,1990,"Mr. Chairman, if you would favor this move without the budget agreement because of economic considerations, wouldn't it be wiser to link it more to those economic considerations so we don't have this precedent of having acted because fiscal policy has acted? I think that could set a precedent for us in the future that--",60
-fomc-corpus,1990,"That may be, but the number of budget agreements that we're going to see making a precedent is going to be so few that--",26
-fomc-corpus,1990,"You have a point there. You still stressed it in the context of a longer-term objective of trying to control inflation, given that the aggregates have picked up some, but a lot of that pickup may be fictitious. It seems to me that under those circumstances maybe a little lower interest rate is compatible with keeping the money supply running at the rate we had in mind all along, and couching it in those terms--",84
-fomc-corpus,1990,Make it economic not political.,6
-fomc-corpus,1990,"Yes, that's essentially what I'm saying.",8
-fomc-corpus,1990,"I don't disagree with that, but the issue basically is that I don't see how we can get around not responding to a real budget agreement. This is a real budget agreement. There is no question that there is a significant absorption of purchasing power coming out of the system. No one has ever seen a joint monetary policy/fiscal policy switch pulled off, and I don't think we're going to see it here. But I do think that there's a general expectation [of an easing response], which we'll have great difficulty getting around, at least on the verbiage side. Let me put it this way: If I had the impression right at this stage that the economy was strongly inflationary, I think the argument we would make is that we should do nothing unless that budget agreement were making the economy go through the roof. That's not where we stand. I would argue for some ease, as indeed I have, because of the credit stringency issue over the last several months. If anything, what evidence we have suggests that that stringency has gotten worse in recent weeks.",213
-fomc-corpus,1990,But I would still express that in terms of reiterating our long-term objectives.,16
-fomc-corpus,1990,"Oh yes, absolutely.",5
-fomc-corpus,1990,This is perfectly compatible with that and it's not throwing in the towel [on inflation]; that's what we're concerned about.,23
-fomc-corpus,1990,"I think it is important for us to emphasize that we have set target ranges for the money supply. If growth veers outside of them the Committee would then act [accordingly], and I think that anything we do in the next six months had better keep monetary growth well within those ranges or we're going to accommodate this oil price thing. And then I think we're going to be in the soup.",79
-fomc-corpus,1990,All I'm saying is let's make that a part of the statement. I think most of us would agree that that is the way we want to do it.,31
-fomc-corpus,1990,I think that's right. That's acceptable to me.,10
-fomc-corpus,1990,"It's hard to know, really, what funds rate level to pick out of thin air that will give us the rate of growth we want in the aggregates. I was cheered by the pickup in M2, but when you examine it you wonder if that isn't part fictitious.",56
-fomc-corpus,1990,"Yes. I think that a small part of it does show up, but David is right: it's in M1 and money market mutual funds.",29
-fomc-corpus,1990,"To me, if in fact M2 is really still relatively weak, then this easing is perfectly compatible with the policy that aims toward price stability. But if M2 for some reason or other strengthened a great deal beyond what we think, then--",49
-fomc-corpus,1990,"Let me put it this way, Bob. If M2 were at the upper edges of its range at this stage, I would feel very uncomfortable. And my judgment is that David is right. One has to be careful about taking out individual components; when you look at a price index and say without this, this, and this--",67
-fomc-corpus,1990,"We don't know how to read M2, and certainly we don't know how to read it disaggregated. That's nonsense.",25
-fomc-corpus,1990,Are you arguing that the money market mutual funds are not in this basic thing?,16
-fomc-corpus,1990,I'm arguing that we do not have sufficient knowledge about where the increased liquidity is located or whether or not being located one place versus another place makes a difference.,31
-fomc-corpus,1990,But we do know the motives for the accumulation [unintelligible] assets.,17
-fomc-corpus,1990,But we do not know that the motive for holding the assets is what affects behavior.,17
-fomc-corpus,1990,"I would say, basically, that if you know the motive for holding it, you know what the behavior is; that's the definition. We know the currency--",32
-fomc-corpus,1990,"But does anybody believe that if someone has $40,000 in a money market mutual fund that he is less apt to buy an automobile than if he had the $40,000 in--",38
-fomc-corpus,1990,"Yes. If he just moved it out of the stock market, I would say the answer is yes.",21
-fomc-corpus,1990,Because they're scared to death of the stock market.,10
-fomc-corpus,1990,"But when the stocks were sold, someone bought the stocks. There's no use going on. I'm not going to be convinced! [Laughter.]",29
-fomc-corpus,1990,"Don, what is the relationship between the changes in the components of M2 that you can discover and spending in the economy?",25
-fomc-corpus,1990,"I don't want to make a point of this, and I don't think David wanted to make a point of it, but I think it's not an irrelevant consideration to try to disaggregate on occasion. Even if we don't disaggregate, we still get moderate growth. Go ahead.",55
-fomc-corpus,1990,"I think I'll stay out of it! [Laughter.] Obviously, we aggregate these things; they work better that way.",25
-fomc-corpus,1990,Good choice.,3
-fomc-corpus,1990,"I'm ready to answer particular questions, but I do think we ought to get going on the policy discussion.",21
-fomc-corpus,1990,"Just a specific question, Mr. Chairman. I have a lot of sympathy with what you suggest. The specific question has to do with timing. You would envision next Tuesday. Would you also envision, without putting too fine a point on it--I know this is an action by the Board--the reserve requirement action being announced around the same time?",70
-fomc-corpus,1990,It could be or it could be earlier.,9
-fomc-corpus,1990,I'd feel a little better if I knew how that reserve requirement matter worked out.,16
-fomc-corpus,1990,"I got confused about a different disaggregation problem. The thrust of your suggestion, Mr. Chairman, was that next Tuesday you would envision, in an almost automatic fashion, an adjustment of 25 basis points in the funds rate?",46
-fomc-corpus,1990,If the budget resolution passes.,6
-fomc-corpus,1990,"I'm just trying to clarify the two steps here. You have said, assuming this budget resolution gets passed in the Congress, that on Tuesday of next week there would be a 25 basis point adjustment in the federal funds rate. You then stipulated that there might be another?",54
-fomc-corpus,1990,Yes. At that point we would stay asymmetric toward ease.,12
-fomc-corpus,1990,Okay.,2
-fomc-corpus,1990,And we would contemplate another move if the economic data and/or the budget deal suggest that.,18
-fomc-corpus,1990,"Mr. Chairman, given that you're thinking about moving on Tuesday after a holiday on Monday, we won't know then how the markets will react to the budget resolution being passed. Would you consider--",38
-fomc-corpus,1990,"The stock market will be open on Monday. And we don't do anything until 11:30 a.m., so the markets will already be open on Tuesday--",32
-fomc-corpus,1990,"Well, 24 hours can make a difference in the way the market reacts to digesting what happens on Friday. That is my point. And I would delay [our move].",36
-fomc-corpus,1990,Until Wednesday?,3
-fomc-corpus,1990,"Yes. Also, it complicates the Desk's problems, being the last day of the reserve period.",21
-fomc-corpus,1990,That wouldn't be a problem; that would be the middle of the two-week reserve period.,18
-fomc-corpus,1990,"Oh, that's right. Okay. I'd just like to see how the market reacts to the budget activity before we go forward and complicate matters if it is a negative reaction.",35
-fomc-corpus,1990,"But the budget action this week--excuse me--is a binding decision, right?",18
-fomc-corpus,1990,That's correct.,3
-fomc-corpus,1990,"It is a decision that is about 80 percent bound, maybe more than that, if my recollection is correct. Theoretically, it's 100 percent binding, but I think as long as we have Bobby Byrd and Jamie Whitten up there--",52
-fomc-corpus,1990,Is this change in the reserve requirements going to have any real impact?,14
-fomc-corpus,1990,What will it do to the growth rate? Can you calculate an effective growth rate of reserves?,19
-fomc-corpus,1990,"We would make a shift adjustment for this, so all our published data [would reflect that]. Traditionally, whenever we publish reserve requirements, as St. Louis does for its monetary base requirements, we would make a shift adjustment. In dollar terms it would drop the monetary base.",55
-fomc-corpus,1990,Can I get the discussion started? Bob Forrestal has the floor.,14
-fomc-corpus,1990,"Oh, I was going to ask a question. I don't want to prolong this either so I'll quickly ask the question and then make my comments. Suppose they don't pass the budget resolution, when do we face sequestration?",44
-fomc-corpus,1990,"Well, that's an interesting question. Theoretically it is supposed to be effective--well, they are going to vote Friday night so I guess it's Tuesday morning.",33
-fomc-corpus,1990,"Tuesday morning. If we face sequestration and it's real and they don't change it, then the contractionary force in the economy is even greater.",29
-fomc-corpus,1990,Are you going to believe that that sequestration is real for the first 24 hours? I wouldn't.,21
-fomc-corpus,1990,I don't know; that's a judgment call. My point is that I think we need to be prepared for that contingency.,24
-fomc-corpus,1990,"Well, I would be very hesitant to move upon the sequestration, which is readily reversible by a majority of the Congress and the President, especially given the size of the sequestration we're looking at; it's not credible. So, I'd be a little careful.",52
-fomc-corpus,1990,"Well, if you want to get the [policy] discussion going, let me say that I agree with your prescription. As I said at the meeting last time, I think that there is greater weakness in the economy than the forecast suggests. And I think that weakness was already present at mid-summer before the Iraqi invasion of Kuwait. So, I think it would have been appropriate to ease at that time, and I think the argument for easing at this point is even greater. In the interest of time, I won't go into the whole litany of reasons why I think that. Suffice it to say that I have two points. I think that we have established a great deal of credibility. We can continue to use that credibility, but I think it's time to use it and to exercise leadership. And I think that'll be understood. The thing that appeals to me about the 25 basis point move is that we can test the market a little as well and see what the reaction is before we move to the second step. If we had a sharp drop in the dollar or a runup on the long end of the maturity spectrum, we'd know that. So, I agree with what you're prescribing.",241
-fomc-corpus,1990,President Melzer.,4
-fomc-corpus,1990,"My preference would probably be alternative B, asymmetric toward ease. If I were voting I wouldn't dissent against the 25 basis point move downward. In any case, I'd be very sensitive to growth of the aggregates--sensitive to their heralding a possible slowdown and a decline in market rates, and thus pegging the funds rate at too high a level. So, I can identify with the general sensitivity that you have. I'd like to make three other comments very quickly. One, I agree with what Bob Black was saying. I'd much rather see the rationale here being made in the context of what's happening in the economy--expectations with respect to how that may affect our performance against monetary aggregates and so forth as opposed to [the budget issue]. I'm just thinking back to how the unintended credit tightening rationale played in July; and if we can put [our action] in a broader context of the economy and our broader goals, I think we'd be better off. Secondly, I'm very goosey about tying too much to budget deals, particularly if there are two steps in that. My assumption has always been that that is a political position more than an economic position. I understand why we're there and I don't--",241
-fomc-corpus,1990,But it's not inconsistent; it's a little consistent with--,11
-fomc-corpus,1990,"No, I understand. But, again, in an economic context I might have some questions as to the extent of the response that would be necessary. My only point is this: If we make one adjustment that's perceived to be in connection with that, that might be quite enough. If we make another one, the perception might be that we're following right along. I don't think people will necessarily distinguish between the budget deal and fiscal restraint, and there's a lot more fiscal restraint promised down the road. And I'd hate to see us get into a linkage where we sort of condition people to think that there is always going to be a monetary policy offset.",129
-fomc-corpus,1990,I honestly don't think that's--,6
-fomc-corpus,1990,"Okay. Well, I just wanted to express that concern. And then finally, I really don't know about the adjustment in reserve requirements, but I'm sure you are weighing it in the context of everything else you have in mind. As you know, people have been taught to think in terms of the three tools of monetary policy. And I'm not sure how that would play, particularly in conjunction with the two contemplated easings.",84
-fomc-corpus,1990,Why don't we discuss that at lunch?,8
-fomc-corpus,1990,That's fine; that's a concern I have that I don't know how to accommodate.,16
-fomc-corpus,1990,President Syron.,4
-fomc-corpus,1990,"Well, I would agree with the program with all these different components. The reason is that I'm not upset with [unintelligible] there is in the Greenbook that we need to do something about inflation in sort of a [unintelligible]. But I don't think we're going to get it--and [this reflects] my own degree of nervousness about the financial markets--without doing something. As I look at this, I think the reserve requirement part is important. I look at the reserve requirement part as having something to do with bank earnings and the longer-term threat to [the viability of] the financial system. I look at the 25 basis points that will be done early next week as something that is in return for what is--when you assign probability to it--a significant degree of fiscal restraint.",166
-fomc-corpus,1990,President Keehn.,4
-fomc-corpus,1990,"I would absolutely agree with your proposal as to both timing and methodology, which I would gather is alternative B as Don verbally described it, with asymmetric language now and an assumption that we may move next week with a continuation of asymmetric language.",47
-fomc-corpus,1990,President Parry.,4
-fomc-corpus,1990,"Mr. Chairman, the price level consequences of the oil shock are my greatest concern, and I would hope that we would take actions to make sure that those price level consequences don't get embedded in underlying inflation. And I think the inflationary pressures were significant even before the oil shock. It seems to me that the best way to deal with this situation would be to have an unchanged funds rate. So, I would support that alternative, whatever it is--""B,"" or ""B-A"", or whatever.",101
-fomc-corpus,1990,Governor Angell.,4
-fomc-corpus,1990,"I agree with the decision that Tom Melzer has expressed and I also agree with what Bob Parry has suggested. Monetary policy does its job best when it looks at the price level. And this is not a monetary event in terms of its cause and it is not a good precedent to have a linkup with fiscal policy. It really is the worst form of fine tuning because it is being made on the basis of the real economy and then it is linked up with fiscal policy. And it has the potential of being 50 basis points, so I cannot support this policy action.",116
-fomc-corpus,1990,President Boehne.,5
-fomc-corpus,1990,I support your proposition.,5
-fomc-corpus,1990,Vice Chairman.,3
-fomc-corpus,1990,"I support your proposition with one caveat. I am still quite worried about the exchange rate creating problems for us. So, I would urge that after doing the first step we go quite slowly and test the waters before being committed irrevocably in any sense to the second step.",56
-fomc-corpus,1990,"Well, the way things are working, I would suspect that if we get to the first step, we should have a telephone conference to evaluate how that step went because we can't project a sequence of events that is at all complex through to the next FOMC meeting. I just don't think we know how to do that.",65
-fomc-corpus,1990,A lot could happen.,5
-fomc-corpus,1990,Governor Seger.,4
-fomc-corpus,1990,"I certainly support an easing move, basically because of the spreading weakness in the economy that I think was apparent even before August 2nd, the credit crunch situation, and the fragility of the financial system that doesn't seem to be getting better. My preference would be for something called maybe ""A*,"" which would be an immediate 25 basis point cut reflecting those concerns, to be followed by another 25, which would be the reward to the boys on the Hill for doing the budget.",99
-fomc-corpus,1990,President Stern.,3
-fomc-corpus,1990,"Well, I have some sympathy with the concerns that have been expressed about the real economy. Unfortunately, I have the impression that we're losing sight of the inflation situation as we do that. As I said before, I think there are equivalent risks here. In that environment, I would favor stability in policy. And as I look at the alternatives, something like the growth of M2 that we would get under ""B"" would be acceptable to me. I could even imagine going a bit beyond that--that is, trying to make sure that growth in M2 didn't fall below the 4 percent or so anticipated in ""B,"" which would then involve some slight easing. But I have the sense here that we're talking about going beyond that for reasons that I don't find very compelling. Those have to do with the composition of M2, and/or real estate problems that are long-term, and inventory problems that we certainly aren't going to solve with policy actions taken here today. So, I must say that I'm uncomfortable with where we seem to be headed.",210
-fomc-corpus,1990,What would you do?,5
-fomc-corpus,1990,"I'd be willing to contemplate an asymmetric directive and even a 1/4 point move in the funds rate depending on what happens on Friday--the economic data, and how the aggregates are looking and so forth. But I think I would want to stop there.",52
-fomc-corpus,1990,"I would certainly say, assuming that is done, that we would go back to the Committee. So, you have another shot at it in the sense that, as far as I'm concerned, it is not a self-evident process. We would evaluate how that move went--",56
-fomc-corpus,1990,"There's one problem. If we go back into a Committee meeting and then we come out with asymmetric language again, I think a lot of people don't like to dissent around asymmetric language.",36
-fomc-corpus,1990,"No, that's not what I'm getting at. I'm talking about a basic discussion of what the actual response was. Jerry is raising a crucial question. If we all of a sudden find that the dollar is loose on the down side, we'd be crazy to move again. My suspicion is that the members of this Committee will evaluate what has happened pretty much the same way. Each of us is going to be looking at the same data. I don't contemplate that as a particular problem, frankly. President Boykin.",101
-fomc-corpus,1990,"Well, Mr. Chairman, as much as I would like to support what you're recommending, I have some difficulty doing it. I guess to me the Greenbook forecast looks a little more realistic than it does to others. I'm afraid we might lose sight of the inflation situation. I'm more concerned that the timing would be premature by several weeks if we did make a move. It seems to me that the last 1/4 point move was tied to the credit situation. And I have to confess I don't fully understand--we'll discuss it at lunch--but if you do the reserve requirement change, it's to address that. That seems to me at least a nod in that direction. So, if that is a nod, I would want to wait a while longer and let the economic data come through before doing what is being contemplated. So, I would not favor it.",175
-fomc-corpus,1990,Governor LaWare.,4
-fomc-corpus,1990,"Well, I favor your recommendation, Mr. Chairman, but I regret deeply that it will look like an endorsement of this non-agreement, which I cynically still have great doubts about.",38
-fomc-corpus,1990,Governor Kelley.,3
-fomc-corpus,1990,"I support your suggestion, Mr. Chairman.",9
-fomc-corpus,1990,President Black.,3
-fomc-corpus,1990,"Mr. Chairman, this is a time when we have to be extremely cautious, as everybody has suggested here. We have had recent increases in the core rate of inflation; we have weakness in the dollar and complete uncertainty as to how this budget package is going to play. The more I look at it the more it bothers me. For example, I don't know whether the public is going to [react] the same way. And there is this nervousness in the bond market, which made me lean initially toward doing nothing on the federal funds rate. But to me changing the federal funds rate is not really a change in policy; it's a change in policy if we really are trying to do something with a rate of growth in the aggregates. And you have satisfied me that your intention is to try to keep to what I think is an appropriate target. So, I don't think that's a change in policy. The market, however, is going to look at it as a change in policy, and that's why I suggested earlier that we couch it in terms of not having abandoned our long-run target, but just as a way of implementing what we want to do.",232
-fomc-corpus,1990,I agree with that.,5
-fomc-corpus,1990,"So, I would go along with it. It wouldn't have been my first choice, but you're probably more right than I was when I got here. As to this second step, I sure would agree with Jerry Corrigan--as you did and I think everybody has--that we want to look at that one very closely. But to the extent that we can disabuse the market of the notion that we really have changed the thrust of our policy every time the federal funds rate jumps a little--",100
-fomc-corpus,1990,"No, I would say that we have a specific operational problem that we have to find a way of resolving. Just to be locked in on the federal funds rate is to me simplistic monetary policy; it doesn't work.",43
-fomc-corpus,1990,"As I've said before, it's a modern day version of the real bills doctrine. We set a particular rate and the market gets all the money it wants at that rate. The only way we have to encourage it to take more is to lower that rate, or the only way to discourage it is to raise the rate, which is what we had under the real bills doctrine. And I don't like the initiative for the generation of the money supply to come from the market. It ought to be supply determined rather than demand determined since the long-term velocity of M2 looks like a pretty stable function to me now. So, I've always endorsed that. I don't have the answer, as I indicated earlier. We just don't have any reserve measure that can be expected to control M2, so I don't know what the alternative is. And I am very frustrated over that.",173
-fomc-corpus,1990,President Hoskins.,4
-fomc-corpus,1990,"I was going to give the case for alternative C that Don didn't have time to give. Given what's on the table here, I think I better address the issue.",33
-fomc-corpus,1990,I'll talk to you after the presentation; save it up for next time.,15
-fomc-corpus,1990,"I think there is a danger of our losing sight of what the fundamental job of a central bank is, which, of course, is to bring down inflation over time. And this is the kind of period when I think we typically have lost sight of that in the past, so I'm very cautious about any wavering at this point in time. Monetary growth is returning to the 4 to 5 percent range. I think our growth ranges are rather wide. I dissented in February because I didn't want [M2] to get to 6 percent this year; I wanted us to keep the rate of growth around 4 to 5 percent. So, I would not be happy to see M2 surge up to that level. I don't think we have the credibility that some people around the table think we have, though of course that's debatable; I think we have to earn it yet. But with respect to policy moves, I'm very concerned about the reaction in the marketplace--that they might see us as tossing in the towel on inflation. So, I do think that the explanation that you give--and I would prefer to link this motion if it carries to the economy and M2--needs to be done carefully. Again, I didn't want to tie it continuously to the credit crunch because then we're locking ourselves in. As the banking system gets weaker, which I think is a structural problem over time and not a cyclical problem, we'll be tying ourselves to something like that.",299
-fomc-corpus,1990,"When we talk about credit stringency here, hopefully you're referring to a sort of supply-side effect of restraint in the context of weakening demand. In a sense if we're trying to maintain a steady supply and the markets are tightening up independently of what we are doing--at, say, an 8 percent funds rate--I think this is a classic case of what's wrong with [focusing policy on] an 8 percent funds rate or some other fixed funds rate.",93
-fomc-corpus,1990,"Well, I would agree if I could see a little more clearly that that was happening. If, as I think Don suggested, we begin to see some real weakness in M2, then we would recognize this as a severe credit related problem. I don't see that yet, and that's why I'm having a little trouble right now.",66
-fomc-corpus,1990,That's very internal.,4
-fomc-corpus,1990,"My preference, of course, contrary to popular opinion, would be not to raise rates at this point, but to stay where we are. I would agree pretty much with [others on] this side of the table that 50 basis points is a lot to do. I'm uncomfortable doing that for the reasons I've suggested.",64
-fomc-corpus,1990,Governor Mullins.,4
-fomc-corpus,1990,"I support the proposal. I also agree that the best way to deal with this situation is to try to keep a stable policy. I think that's what we should do and about all we can do. And that's what this proposal seeks to do. I also agree that it's useful to get the market attuned to a little more flexibility in the fed funds rate and to get market participants to think some about the difference between the monetary policy stance and a specific interest rate. I also think the timing is right. Given the lags in the process, if we wait much longer, we run the risk of this credit situation producing some real damage six months from now and turning a mild downturn into something that could be more severe. The dollar is a concern. Looking at the alternatives, the alternatives are perhaps not too kind to the dollar as well, if we were to have a more severe downturn and trouble in the banking system. So, I don't see any easy way out for the dollar, given the situation we face. In terms of the size of the move, the long-bond market has come down about 40 basis points and I think following that roughly in magnitude would be consistent with a stable policy of monetary restraint.",244
-fomc-corpus,1990,President Guffey.,5
-fomc-corpus,1990,"Mr. Chairman, I would prefer to delay the 1/4 point [move] until there is something more concrete to support it in the economic data than what we're looking at now. I don't see that we would be creating a greater supply, given the credit crunch, simply by dropping the rate 1/4 or even 1/2 point. It's rather like pushing on a string. As a result, I'd wait until either one or two things happened: until either the economic data suggested that it's appropriate to ease or until the budget agreement itself is actually put together with some certainty. Now, that may be three weeks; that may not be until the 19th of October. It's October 2 now, so that's about 2-1/2 weeks away.",157
-fomc-corpus,1990,"Let me rephrase my proposal in the form of a voting proposal. I would recommend alternative B asymmetric toward ease, with the presumption that if the budget resolution passes both houses there would be a 25 basis point decline [in the funds rate objective] on Tuesday morning or Wednesday or sometime around then. Implicit in the proposal is that I'd like to remain asymmetric toward ease but--and this is something of a change from what I indicated earlier because I'm sensing different views in the Committee--that's as far as I would go. It would merely be an asymmetric position with no presumption of a [further] move. And if events materialized in the usual manner, in the way they have not under an asymmetric directive since the last FOMC meeting, what I would suggest is that it has the same status of that. That is, under the same conditions we would move and there would be no implication of further action or the necessity of automatic action either as a consequence of an October 19th budget agreement or anything else. Obviously, if the economic data all of a sudden turn sharply adverse, that would trigger it; that's the type of thing I would use. So, that's the proposal that I would put on the table and request that we get a vote on.",257
-fomc-corpus,1990,"Excuse me, are you suggesting that whatever second move might happen would be subject to a [conference] call?",23
-fomc-corpus,1990,"Well, there will be a call in any event to evaluate the first move, assuming that we have one, to get some judgment [on the reaction]. But that has nothing to do with the--",40
-fomc-corpus,1990,There's no implied second move.,6
-fomc-corpus,1990,There's no implied second move.,6
-fomc-corpus,1990,No automaticity.,4
-fomc-corpus,1990,There's no automaticity; that's correct.,8
-fomc-corpus,1990,"Just one other point: As I listened, Mr. Chairman, I thought there was a lot of wisdom in the suggestion that several people made about not tying this unduly to the budget resolution in your public statements. The more I think about that, the more I think it would be embarrassing.",59
-fomc-corpus,1990,"No, I would say that the budget agreement would not be a relevant reason to move were it not for the fact that there was a weak economy. One can basically say that in the context of squeezing down the deficit, there is a little more reason but the fundamental reason is the economy and not the [budget] agreement.",65
-fomc-corpus,1990,Could we just be asymmetric and then see what happens in the marketplace after the budget deal and then you simply would have the authority [to call for a move]? Or do you feel you'd be in a position of saying yes or no?,47
-fomc-corpus,1990,"Well, are you saying: Suppose something happens, would I feel obligated to request the Desk to move even if I thought at that point that it was a mistake because of some events that had occurred?",40
-fomc-corpus,1990,Yes.,2
-fomc-corpus,1990,"Well, that's a good question. I would accept that.",12
-fomc-corpus,1990,"Okay, in other words we will have asymmetric language and it will be simply the Chairman's judgment.",20
-fomc-corpus,1990,"Yes, that's my inclination, as I've indicated, if [the legislation] passes and nothing else of significance happens to prevent action. But I grant you that if there's some adverse market response or if something peculiar happens, it might not be desirable to move. At that point, however, I think it would be appropriate to have a telephone conference to discuss why. But my inclination would be in that direction.",81
-fomc-corpus,1990,But it's sort of like what we had in July?,11
-fomc-corpus,1990,Exactly.,2
-fomc-corpus,1990,Okay. That's my point.,6
-fomc-corpus,1990,Any further comments?,4
-fomc-corpus,1990,One thing to bear in mind is that the employment report comes out on Friday and that's significant.,19
-fomc-corpus,1990,"Let me be very specific. This is an asymmetric directive. Asymmetric directives are not automatic by their very nature. However, I do suggest to you that if the Congress passes the budget bill, I would intend to implement the easing. It is conceivable that other events concurrent to that may make that unwise. That's as far as I'm going.",69
-fomc-corpus,1990,Let's hurry up and vote.,6
-fomc-corpus,1990,Please.,2
-fomc-corpus,1990,"The language would be: ""In the implementation of policy for the immediate future, the Committee seeks to maintain the existing degree of pressure on reserve positions. Taking account of progress toward price stability, the strength of the business expansion, the behavior of the monetary aggregates, and developments in foreign exchange and domestic financial markets, slightly greater reserve restraint might or somewhat lesser reserve restraint would be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with growth of M2 and M3 over the period from September through December at annual rates of about 4 and 2 percent respectively. The Chairman may call for Committee consultation if it appears to the Manager for Domestic Operations that reserve conditions during the period before the next meeting are likely to be associated with a federal funds rate persistently outside a range of 6 to 10 percent.""",167
-fomc-corpus,1990,"Mr. Chairman, in light of our abilities on the funds rate, I wonder whether it would be a little more accurate to pull that range in a bit. The 400 basis points--",38
-fomc-corpus,1990,We've raised this issue before.,6
-fomc-corpus,1990,Okay.,2
-fomc-corpus,1990,"I would suggest the following: May I ask Don Kohn to submit a recommendation to this Committee on that question, because we've been doing this for long time?",32
-fomc-corpus,1990,Yes.,2
-fomc-corpus,1990,"I agree with you that we probably [unintelligible], but let's not muddy this.",19
-fomc-corpus,1990,We could discuss it over breakfast.,7
-fomc-corpus,1990,We'll be here at breakfast.,6
-fomc-corpus,1990,"Okay, we're voting on the directive now. Please call the roll.",14
-fomc-corpus,1990,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell No President Boehne Yes President Boykin No President Hoskins No Governor Kelley Yes Governor LaWare Yes Governor Mullins Yes Governor Seger No President Stern Yes,45
-fomc-corpus,1990,Let us have lunch.,5
-fomc-corpus,1990,Would somebody like to move approval of the minutes?,10
-fomc-corpus,1990,I'll move.,3
-fomc-corpus,1990,Second.,2
-fomc-corpus,1990,"No objections. Mr. Cross, foreign currency operations, please.",13
-fomc-corpus,1990,[Statement--see Appendix.],6
-fomc-corpus,1990,"I have two questions. One has to do with the warehousing arrangement. Sam, I didn't catch what you said in terms of our exposure now and where our ceiling is. And, is it advisable to consider lowering it?",45
-fomc-corpus,1990,We now have $4-1/2 billion warehoused.,14
-fomc-corpus,1990,And limits?,3
-fomc-corpus,1990,The limit is $10 billion.,7
-fomc-corpus,1990,The [current] limit is $10 billion and the [potential] limit actually voted by the Committee is $15 billion.,25
-fomc-corpus,1990,"So, we have a $15 billion limit but we're currently at $4-1/2 billion. I'm wondering if we should consider bringing the limit more in line with the outstandings, especially since it has attracted some attention.",47
-fomc-corpus,1990,"Well, there is an occasion to reexamine these limits, which comes up in February. I'm sure we can look at it at that time.",30
-fomc-corpus,1990,"My second question has to do with the swap arrangements. I've brought this up before. Most of the countries on the list are industrialized countries with AA ratings for their debt and an exchangeable currency. There's one exception, and that's Mexico. My view on Mexico has been that it doesn't meet the goals of why that swap arrangement was originally set up. In a sense it's more like foreign aid or a loan to Mexico by the Federal Reserve and that's more or less outside the goals of swap arrangements. Mexico is a different [type of] country than the other ones.",113
-fomc-corpus,1990,"But we do, of course, have very close ties with the Mexicans for many, many reasons. And we've had the swap line outstanding with them for decades. At times it has been regarded as useful for the Federal Reserve to be in a position to provide some financing during a period when Mexico was working to try to get its situation under control. We have participated with the Treasury and it has been very helpful to be in a position to be able to provide in effect a measure of confidence about what Mexico was trying to do, which we were very much supporting. But never did we do anything that caused really great exposure for us.",127
-fomc-corpus,1990,"In the current market environment, do you sense that the exchange market would react differently to a change in the funds rate versus a change in the discount rate?",31
-fomc-corpus,1990,"I would think that most market participants expect that there will be some change in the federal funds rate looking ahead over the next few days or so; at least there seems to be a general expectation of a very modest change and a [possibility] for another one. The latter is a much smaller expectation but some people in the market are thinking about a further step maybe by the end of the year. Even though they are expecting such a move to take place, that doesn't mean it would not have any impact in the exchange market; I think much will depend on how and when [a move is made] and the circumstances and so forth, and whether the market gets the idea--looking further into the future--that we're on a particular path in a particular direction. So, even though most people in the market expect that there will be a modest change in the federal funds rate, I don't think one can conclude that that wouldn't have any effect. It might not have any immediate effect, but it certainly goes into their thinking about what they're looking for over a longer period. My own feeling would be that a discount rate move would be regarded as a more significant step and one that I don't think they really are anticipating at this point.",246
-fomc-corpus,1990,"Any further questions for Sam? If not, would somebody like to move to approve the one-year extension of the swap lines?",25
-fomc-corpus,1990,Move it.,3
-fomc-corpus,1990,Second.,2
-fomc-corpus,1990,"There is a second. Without objection. Peter Sternlight, domestic operations.",15
-fomc-corpus,1990,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1990,Questions for Peter?,4
-fomc-corpus,1990,"This is just a hypothetical question. If the funds rate were to come down, do you see any problem with the discount rate--with the spread being narrowed? I know you're not using it as the fulcrum anymore.",45
-fomc-corpus,1990,"At some point I think there could be, but I don't think a modest further move of the funds rate would cause difficulty in that regard.",28
-fomc-corpus,1990,What is the nature of that problem?,8
-fomc-corpus,1990,It would be more a problem if we were trying to judge the adjustment borrowing--,16
-fomc-corpus,1990,Yes.,2
-fomc-corpus,1990,We have operated before with the funds rate below the discount rate.,13
-fomc-corpus,1990,It seems to me in the current environment--the way we're tending to operate by pegging the funds rate--that we probably could go ahead and operate with a penalty discount rate. Is that right?,40
-fomc-corpus,1990,Right.,2
-fomc-corpus,1990,I think that's right.,5
-fomc-corpus,1990,"I had one other question, the perennial one. Given all these changes that have gone on and the consideration of potentially reducing reserve requirements as well, are we going to have a collateral problem soon?",39
-fomc-corpus,1990,"The dewarehousing that Sam referred to and that I noted relieves the immediate concern. I think we could still run into a problem early next year. We came close on some days in the recent period--closer than we had expected because of the very slow growth of money and, hence, reserve requirements. But the dewarehousing gave us some more breathing space. I don't really look for a very tight squeeze again until maybe February.",89
-fomc-corpus,1990,"Our projections, President Hoskins, actually have us squeezing through February with a little breathing room; I'm not sure about Peter's. It is the case after the dewarehousing--and obviously depending on what happens to the dollar and the reserve requirements and what not--that if reserve requirements were reduced as a policy move, something would have to be done about using the foreign currency holdings. We don't have enough space to move.",85
-fomc-corpus,1990,Si.,2
-fomc-corpus,1990,In the Bluebook there is a comment about the Japanese banks borrowing overnight and about the fact that [such borrowing] apparently doesn't have an impact on the domestic rate. I'm not quite clear how that works.,41
-fomc-corpus,1990,I think the comment was that there has traditionally been a little premium paid by Japanese banks borrowing in the fed funds market and that has tended to increase in the recent period.,34
-fomc-corpus,1990,A premium.,3
-fomc-corpus,1990,There are various reasons for it; some of it is the market perception of the Japanese banks and some is that those banks seem to be concentrating more of their funding in the overnight market.,37
-fomc-corpus,1990,"I can understand why the spread has opened up, but what I can't understand is why the spread existed in the first place. What is there about the risk on overnight funds, versus, say, a year and a half ago, of a major Japanese bank? Why is it any more than for an American institution?",63
-fomc-corpus,1990,I think it's just the reluctance of some participants in the market to extend their range of contacts. The sellers in the funds market are typically the smaller regional banks that are not used to dealing in the international markets. They just have had a preference for selling their funds to their traditional correspondents. To get them to reach out and sell to any foreign banks has taken a bit of a step-up in rates.,82
-fomc-corpus,1990,The Japanese banks have always paid up in London too.,11
-fomc-corpus,1990,That's even more bizarre.,5
-fomc-corpus,1990,"And they used to pay up more, even before, at the end of the quarter on the statement dates; the spread would widen for a day or two and then come back down. So, it's clear that people, rational or not, were having trouble showing that [borrowing] on their balance sheets.",62
-fomc-corpus,1990,More trouble spelling some of the names!,8
-fomc-corpus,1990,"There has been a tendency for all of the foreign banks to pay up a little, although the increases recently have been more or less confined to the Japanese banks. The European banks have not seen a step-up in premium.",44
-fomc-corpus,1990,President Melzer.,4
-fomc-corpus,1990,"Peter, again this is a hypothetical question. If you had been able to meet the demand for reserves that would have achieved the target funds rate, would that have substantially affected the growth rate of reserves over this period? I'm not sure you can answer that.",51
-fomc-corpus,1990,I just don't know whether it would have had that much short-run impact.,15
-fomc-corpus,1990,"My view would be that it would not, because the difference in interest rates, in effect the fed funds rate, is very minor and, therefore, the demand for required reserves would be affected by a very, very small amount. I'd be skeptical, as Peter is.",54
-fomc-corpus,1990,President Forrestal.,4
-fomc-corpus,1990,"Peter, there has been a lot of discussion concerning the Japanese and other foreign investors pulling back from their investments, particularly indirect investments, in the United States. I'm not sure what the order of magnitude of those flows has been but if they have been substantial, why aren't we seeing some upward pressure on interest rates as a result of that?",67
-fomc-corpus,1990,"Well, I think there has been a pulling back by the Japanese but what impact that would have has been offset, because in a soft economy other demands for credit have been lightened. And there is this quality differential factor as well, where Treasuries have been in demand because they are seen as the premier type of investment as against virtually any other kind of investment.",74
-fomc-corpus,1990,"President Forrestal, you probably have seen it, but you've seen it more in the exchange rates than in the interest rates.",25
-fomc-corpus,1990,"Well, it goes to the question of the financing of the deficit, and we've talked about--",19
-fomc-corpus,1990,"Although Japan is still running a current account surplus, it is a lot smaller, so there's less financing going to come, net, from that country anyhow. So, some of that is going to come out in various pieces. But to the extent you have some [unintelligible] factors, you're going to find it both in interest rates--and there may be special reasons why you don't see it in the Treasury bill market--and also in the foreign exchange markets.",95
-fomc-corpus,1990,"One of the related things going on too, Bob, is a very clear widening out of spreads even on standbys and things like that. In other words, one manifestation of all of this concern about credit quality is that for a given structure of interest rates, spreads and fees even on standbys are actually widening--and perhaps by a lot. Some of that I think is directly related to this general concern about credit quality, but some of it also is directly related to the fact that the Japanese banks' profile--not just here in the United States but in Europe including Britain--really has changed.",120
-fomc-corpus,1990,"As a factual basis: In the recent refunding, how did the foreign demand hold up and also how did individual purchases hold up?",27
-fomc-corpus,1990,"Foreign demand was on the light side. It had been on the light side in August also, as you may recall. The Japanese dealers were there but it was not altogether clear how much was really going back home to Japanese investors. To some extent I think they put in an appearance and then just turned the stuff over in the U.S. market. They were not very big participants; they were moderate size participants.",83
-fomc-corpus,1990,What percentage appearance did they put in would you say?,11
-fomc-corpus,1990,"In the 3-year note it turned out to be very little because they were bidding but other people outbid them, so they only got around 5 percent. In the 10- and 30-year issues my recollection is that it was more in the 15 to 20 percent range.",61
-fomc-corpus,1990,I got the impression from the Japanese that they took about 2/3rds as much this time as they had in some earlier periods.,29
-fomc-corpus,1990,That sounds about right.,5
-fomc-corpus,1990,And the individuals?,4
-fomc-corpus,1990,"Individuals were about normal, I'd say.",8
-fomc-corpus,1990,I think their participation was down from the previous couple of auctions but still pretty high given that [market] rates had come down closer to the deposit rates.,31
-fomc-corpus,1990,"I have a question also on the collateral issue. If we had a major problem with a large banking institution, would that affect our collateral [against Federal Reserve notes]?",33
-fomc-corpus,1990,"Yes, it would if we were making big discount window loans. What they put up as collateral might or might not be countable in backing currency. It would depend on what--",36
-fomc-corpus,1990,"And barring that, we get through February before we bottom out again?",15
-fomc-corpus,1990,"Maybe. It's close, but it looks as if we have a much better chance than we did before the [dewarehousing].",26
-fomc-corpus,1990,Thank you.,3
-fomc-corpus,1990,"Well, at some point that law has to be changed, it seems to me. This is probably not the time to do it.",27
-fomc-corpus,1990,It never is.,4
-fomc-corpus,1990,We really ought to get rid of that; it's a fiction [unintelligible] reserve requirement rather than some notes and deposits.,27
-fomc-corpus,1990,"How big would the discount window borrowing have to be in order to create a problem? Assuming, let's say, that all or rather a quarter of the collateral wasn't as nice as you'd like to see--",40
-fomc-corpus,1990,"Well, there is a fairly tight spot in February, as Don noted, so we wouldn't have to get any really major borrowing.",26
-fomc-corpus,1990,A billion dollars would do it?,7
-fomc-corpus,1990,It might.,3
-fomc-corpus,1990,I'm glad you amended your question to say 1/4.,13
-fomc-corpus,1990,That's interesting. Any further questions?,7
-fomc-corpus,1990,"Just a follow up. We have the authority to back currency with foreign assets, right?",18
-fomc-corpus,1990,"Legal authority, yes.",5
-fomc-corpus,1990,Does any additional action need to be taken in order to implement that?,14
-fomc-corpus,1990,"Yes, by the Board.",6
-fomc-corpus,1990,The Board [unintelligible] required authority. There was some in place because your Bank and a couple of others used it as I remember. The Board declared that it would not do so.,40
-fomc-corpus,1990,"Yes, but didn't that come up just because of Mexico?",12
-fomc-corpus,1990,"No, it came up because we were using Swiss francs.",12
-fomc-corpus,1990,Swiss francs?,3
-fomc-corpus,1990,Yes.,2
-fomc-corpus,1990,That soft currency!,4
-fomc-corpus,1990,"It is true that during that period there were problems with the Mexican peso, but in the particular cases in which [foreign currencies] were used we were using Swiss francs. The Board said at the time that it would not do so again except under a determination of unusual and exigent circumstances. So, there's an S letter out governing the use of collateral and that would have to be changed.",78
-fomc-corpus,1990,Maybe we should go back to the gold backing.,10
-fomc-corpus,1990,The greenback would go to a premium then.,10
-fomc-corpus,1990,You want to devalue also?,7
-fomc-corpus,1990,"Well, this is so bizarre--the silliness of this. Any further comments for Peter?",19
-fomc-corpus,1990,May I just ask one question?,7
-fomc-corpus,1990,Go ahead.,3
-fomc-corpus,1990,When you alluded to the pressure being put on mutual funds to improve the quality of their--,19
-fomc-corpus,1990,"Yes, the money funds.",6
-fomc-corpus,1990,I figured you meant bank CDs and commercial paper. Is that correct?,14
-fomc-corpus,1990,Yes.,2
-fomc-corpus,1990,"I guess I didn't realize that the SEC has the authority to manage accounts. I thought that the primary purpose of the securities laws required--well, that it was not to tell the managers what to put in their portfolios.",44
-fomc-corpus,1990,"I think this would involve a rule that would dictate the accounting practices that they follow. In order to continue accounting for investments in the fund, keeping the unit value at $1 or whatever, they would have to follow certain accounting rules. And the rule that was being proposed would have set a very stringent standard as to what proportion of their assets could be in less than the top rated forms of commercial paper or bank deposits.",84
-fomc-corpus,1990,"You recall they also have regulated the maturities, in essence for the same purpose.",17
-fomc-corpus,1990,That's right.,3
-fomc-corpus,1990,"So, they played a very active role in this field.",12
-fomc-corpus,1990,But this is for money market mutual funds that don't want to mark to market and that want to be allowed to use that cost plus basis and keep the unit values. The rule is no more than 5 percent A-2/P-2 paper and the maturity has been shortened to 90 days.,60
-fomc-corpus,1990,"But still, they will come back up and make financing problems for the issuers of those--",19
-fomc-corpus,1990,Yes.,2
-fomc-corpus,1990,Governor Angell.,4
-fomc-corpus,1990,"Mr. Chairman, I agree that the problem you were referring to is ludicrous, but I do believe that we need to make up our mind by the next meeting about what we're going to do. It would be better for us to deal with it before there's a crisis. I would like to suggest, Mr. Chairman, that the Committee be open to your recommendations at our next meeting as to what--",82
-fomc-corpus,1990,"Well, I'll put it this way: One percent gold is better than 40 percent something else at least, because you've got--",26
-fomc-corpus,1990,"Well, I wasn't really thinking about gold. I was thinking about our collateral problem. I believe that we ought not to wait until we need to make a loan and then at that time have to deal with this. It would be far better for us to make up our mind ahead of time than to wait until we need to make a discount window loan. The time we need to make a discount window loan is going to be the worst time to make the changes.",93
-fomc-corpus,1990,You want at least $20 billion in discount loans?,11
-fomc-corpus,1990,"Well, I wasn't thinking of anything quite that large, but--",13
-fomc-corpus,1990,I think this issue is getting to the point that the logic of it makes no sense. This is really an extension of the original statutes in which we had backing for the currency for the legitimate purpose of its convertibility; that has ceased to--,49
-fomc-corpus,1990,It's the law. We would either have to send the letter back to Congress and say we don't mean to do it anymore or we'd have to get rid of some foreign currency holdings. Or we have another suggestion--,42
-fomc-corpus,1990,"That's one of the options. If there are no further questions for Peter, may I have a motion to ratify the transactions at the Desk?",29
-fomc-corpus,1990,So move.,3
-fomc-corpus,1990,Second.,2
-fomc-corpus,1990,Without objection. At this time Don Kohn would like to address another anachronism at the end of our directive.,25
-fomc-corpus,1990,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1990,"Mr. Chairman, since we have some policy considerations ahead of us, I would support waiting until that is done before we deal with this issue.",29
-fomc-corpus,1990,"That's the reason we decided to do it before [the policy discussion], because we ran into that problem the last time. We decided for exactly the opposite reason that we would make a decision [about this issue first]. I'm not quite sure what it is we're going to say later that comes to grips with any of the options that Don has raised. Do you have an idea?",75
-fomc-corpus,1990,"Well, it does seem to me that there might be one alternative that would get us a little more volatility in the fed funds rate. And if we did have more volatility in the fed funds rate, then the 4 percent range specified could be a clear indication of what we were doing. Now, it may be unlikely that there will be a majority who would wish to do that.",77
-fomc-corpus,1990,"I think that happens to be true. But I'm not sure that that solves the problem because you're talking substance and we're talking public relations. The issue that you're raising, which is a substantive operational question, is something we've been struggling with and have not been able to find a consensus here that would enable us to function in that context. We had put it aside temporarily hoping we'd find an opportunity to address that issue. But pending [a resolution of] that substantive question, we have this anachronism that is in the directive, which is on the table for us to address. The question is: What option do we choose? One option is to do nothing. And it may well be that we should do nothing until we come to grips with the fundamental question. That's clearly an option, but I do think we at least ought to make that judgment explicitly if in fact that's the option the Committee chooses to adopt. President Parry.",187
-fomc-corpus,1990,"Mr. Chairman, since you characterized the sentence as an anachronism, why don't we choose the environmentally sensitive solution and eliminate it?",28
-fomc-corpus,1990,[Unintelligible] I'm not sure we'd have that much trouble explaining it.,17
-fomc-corpus,1990,I don't think so either.,6
-fomc-corpus,1990,President Black.,3
-fomc-corpus,1990,"Mr. Chairman, I think that Don gave us a good solution to the problem, and I certainly agree with Bob Parry that the final option is the best one. We certainly don't want to lock ourselves into the pre-1979 procedures where we have a very narrow range and have all the problems attendant to that. When you look at the third and fourth options, we have all these difficulties writing what we want in the directive now, and I can't imagine this group being able to sit around the table and come up with an alternative that we would agree on for the language there. So, this kicks me back toward the final option. If we're not willing to do anything in the way of adopting a new one, then I think what we have now is better than any of the alternatives other than dropping it.",163
-fomc-corpus,1990,Do you mean option one?,6
-fomc-corpus,1990,"Yes, go back to option one if we don't go to five, but I much prefer five. I've always been opposed to any limits of any sort because my predilections are to try to control things with some kind of a reserve measure. That necessitates a wider range over which the federal funds rate can move than we've been willing to tolerate in the past.",73
-fomc-corpus,1990,President Hoskins.,4
-fomc-corpus,1990,"In the interest of truth in labeling, given the way we've been operating, it would probably be a good idea to get rid of it because that is a straight-forward, honest interpretation of what we're trying to do. However, the issue that Wayne raised--and you correctly identified it as substantive--is an important one. I have asked Peter before and maybe we should ask him again, in moving toward the substantive area: Would you want some more variability in the funds rate than we have now?",99
-fomc-corpus,1990,"Well, I would welcome some greater day-to-day flexibility in the funds rate. I don't know whether it has an awful lot to do with this.",30
-fomc-corpus,1990,Would getting rid of this sentence do anything to your operation in terms of how people might interpret what goes on in the funds market?,26
-fomc-corpus,1990,"I don't think that would be detrimental. If you went for a substantial narrowing, I think that would.",21
-fomc-corpus,1990,We've been on that road.,6
-fomc-corpus,1990,President Syron.,4
-fomc-corpus,1990,"I have a fair amount of sympathy for what Bob Parry said because I think it's somewhat consistent with the discussion we had earlier in the day. We ought to say what we're doing when it's possible and do what we say. If this is something that we're really not paying much attention to and it's hard to think that we are--and this is separate from the substantive point--I really wonder why we have it there. That was a very effective rhetorical question that Lee asked--whether the 4 percent range was really affecting Peter very much now. So, I'm sort of driven to the polar extremes: just to drop it out of the directive completely or to go to something that leaves it in there and then also add something like the sentence in the fourth suggestion--the sentence on what's happening in the real economy and the statement that the Chairman has a great deal of discretion, which is what I think should be the case. So, in the interest of simplicity, I'd come out in favor of just dropping it.",202
-fomc-corpus,1990,"Or, following those up, we could go to saying explicitly what funds rate we are targeting.",19
-fomc-corpus,1990,They figure that out.,5
-fomc-corpus,1990,"That's another sensitive question, but I think it's worth--",11
-fomc-corpus,1990,"That's a substantive question, which I suspect would not enjoy this Committee's support. I hope not, anyway.",22
-fomc-corpus,1990,"I think the interest in the Committee would be to provide more information, though maybe not necessarily that piece of information.",23
-fomc-corpus,1990,In our previous discussions there has been a very significant amount of discussion in which we've extolled the advantages of having certain flexibilities in our operating procedures. Peter feels extremely restricted at this moment for reasons that I think are fairly clear. What we're failing to do is to find the means to do it. I don't think there's a lack of interest in trying to go in that direction. It's an issue of [finding] an operational procedure that is objective and that we can function with. And I think we're still looking. But literally trying to lock in on a funds rate probably will give us real problems in any event. President Melzer.,128
-fomc-corpus,1990,"I'd favor dropping it. I would just observe, in thinking back to that memo Ann-Marie Meulendyke did 3 or 4 years ago, that it's interesting that we have had different operating regimes, but if oriented toward the funds rate there used to be a constraint associated with reserves or aggregates--I don't remember specifically. Of course, the irony of this one is that, in effect, we have an operating regime that practically targets the funds rate and our constraint is the funds rate. And a point that falls down the road is that if we're going to have an operating regime and a constraint, the constraint really ought to be oriented toward reserves or something behaving drastically differently from what we expected. That would be a sensible restraint in the current operating regime.",152
-fomc-corpus,1990,If we are willing to admit we're targeting the fed funds rate.,13
-fomc-corpus,1990,Yes. I would just eliminate the sentence.,9
-fomc-corpus,1990,"Well, when Roger used to say we were targeting the federal funds rate, Chairman Volcker used to say: ""That's what you always say, Roger."" He always used those exact words.",38
-fomc-corpus,1990,And nothing changes.,4
-fomc-corpus,1990,Governor Kelley.,3
-fomc-corpus,1990,"Mr. Chairman, I agree that the two options that have been mentioned most here are the two best ones: either to do nothing or to delete the sentence. It is an anachronism now; it has been an anachronism for a long time. I don't see any compulsion to do anything about it right now, given the fragilities that we're all intensely aware of and have been discussing and given the fact that the Fed is in many ways at the center of the scrutiny and the concern about the fragilities. I've heard no hue and cry on the part of anybody to do anything about this issue. I would suggest that in this environment we leave it alone, although I could support deleting it if we were going to do anything at all.",153
-fomc-corpus,1990,"Mike, the absence of objections might be because some of us have been objecting for so many years with so little success that we just finally quit out of a sense of futility. But I see renewed hope, based on what the Chairman said about that. And I think it is tied into Governor Angell's point that it's really closely related to what our new procedures turn out to be, if indeed we adopt new procedures.",86
-fomc-corpus,1990,President Keehn.,4
-fomc-corpus,1990,"Because the sentence really is no longer operative, as we discussed, I would very, very strongly favor eliminating it altogether. There is another option if we feel we can't do that: Sort of coupling the third and fourth alternatives with the word ""and"" may cover all the circumstances--and indeed are the circumstances under which we would want a consultation. But I prefer dropping it altogether.",76
-fomc-corpus,1990,Governor LaWare.,4
-fomc-corpus,1990,"If you have the leeway to call for consultation any time you wish in any case, I don't see that we need the sentence at all. On the other hand--I'm learning, Bob, about what economists mean by ""on the other hand""--if it is necessary to say something it seems to me that we could use option 4 with one word change. We could say: ""The Chairman may call for Committee consultation if economic and financial developments appear to be diverging significantly from Committee expectations."" Significantly is a qualitative word rather than a quantitative word; substantially is quantitative. And that gives you complete flexibility to determine that some trend line is significant or not significant and doesn't in any way inhibit you; and at the same time it does say something if we feel compelled to say something. But I could vote for eliminating it completely.",168
-fomc-corpus,1990,President Forrestal.,4
-fomc-corpus,1990,"I think, too, that it has been anachronistic and irrelevant for a long period of time, and my preference would be to eliminate it. But as Governor LaWare just said, if there's a particular reason to preserve in the record your discretion to have a consultation, then I think we could fashion language that doesn't really tie it to any particular economic situation but just gives you broader authority to call a consultation whenever you feel like it. For example, ""The Chairman reserves the right to call for Committee consultation when in his judgment conditions warrant such consultation"" or something like that.",117
-fomc-corpus,1990,That's very implicit in the current directive.,8
-fomc-corpus,1990,"Well, that's right. It is implicit and that's why I favor doing away with the sentence. But if anyone felt they wanted to have language, I would prefer broad language like that rather than tying it to the funds rate or to economic conditions. But you're right, it is implicit.",57
-fomc-corpus,1990,President Boehne.,5
-fomc-corpus,1990,"I think this discussion shows that we really don't want to face up to the major issues that confront us, because it strikes me as being clearly a minor issue on our agenda today. It's also full of irony because if you look at the operational paragraph, it's the only reference to the federal funds rate yet we essentially peg the federal funds rate and we are [talking about] eliminating that reference. I don't think it makes a lot of difference whether we keep it or not. I would think that the most accurate sentence to put in would be what John LaWare just suggested because that does explicitly keep in [language regarding the Chairman's] discretion to call for Committee consultation and it does refer to what we've been using all along, and that is a fairly wide range of economic and financial variables. But I'm prepared to support practically anything because I don't think it makes a lot of difference.",176
-fomc-corpus,1990,"Mr. Chairman, I'm sorry I brought it up.",11
-fomc-corpus,1990,At least we find out what the Committee has to say. It has been moved and seconded to eliminate that sentence from the directive. Are there any comments?,32
-fomc-corpus,1990,"I'd like to make one comment. I wonder if there might be some merit in making this effective at some future date, such as the beginning of 1991, so that it takes away from it having any immediate significance.",45
-fomc-corpus,1990,The trouble with that is that if we make an explicit statement that we're leaving it in until the next year we're saying it has some meaning.,28
-fomc-corpus,1990,"Yes, but here it is November and we're talking about doing it January 1st.",18
-fomc-corpus,1990,They're going to be suspicious that we have something else in the works.,14
-fomc-corpus,1990,That's why you leave it alone.,7
-fomc-corpus,1990,That's the problem. I couldn't care less what it says because I know what we're going to do anyway. But I think there is a problem in that--,31
-fomc-corpus,1990,We're about to change.,5
-fomc-corpus,1990,"That's right. The worst interpretation would be if we take it out and it leaves the impression that the Committee has decided that it will no longer make any intermeeting adjustments in policy, and--",38
-fomc-corpus,1990,Cuts back [unintelligible] on phone calls.,12
-fomc-corpus,1990,This will not appear in the policy record until six weeks after this meeting.,15
-fomc-corpus,1990,It will be published the Friday after the December meeting--about the 21st.,17
-fomc-corpus,1990,They'll all be on Christmas vacation so they won't notice!,12
-fomc-corpus,1990,We will have minutes at that point and I assume the minutes will explicitly state the purpose of what is being done. I don't think it should create a problem unless I'm missing something.,36
-fomc-corpus,1990,"Well, all the ""somewhats"" and ""slights"" and ""mights"" in the operational paragraph imply that we might do something.",30
-fomc-corpus,1990,"Look, we have a motion and it has been seconded. Is there any further comment?",19
-fomc-corpus,1990,Can I just ask one question? I think you said we've had this exact sentence since 1982. How many times in that 8-year plus period has the fed funds rate deviated more than 4 percentage points between meetings? It cannot be often.,52
-fomc-corpus,1990,I doubt there were any such instances.,8
-fomc-corpus,1990,I can't think of one myself.,7
-fomc-corpus,1990,"Since the end of 1982, when we went off the nonborrowed reserve--",18
-fomc-corpus,1990,"I would suggest that the motive here is to save money--for example, on the ink that is used on the paragraph. Any further comments? If not, will the Secretary call the roll.",39
-fomc-corpus,1990,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Boehne Yes President Boykin Yes President Hoskins Yes Governor Kelley Yes Governor LaWare Yes Governor Mullins Yes Governor Seger Yes President Stern Yes,45
-fomc-corpus,1990,It is removed.,4
-fomc-corpus,1990,"That was enthusiastic! It suggests, Mr. Chairman, that if we want enthusiasm on the part of the Committee that we should discuss insignificant items.",29
-fomc-corpus,1990,"[We move to] the substance, ladies and gentlemen. Messrs. Prell and Truman are now on the agenda.",25
-fomc-corpus,1990,"Thank you, Mr. Chairman. I'll try to sustain the level of interest here! [Statement--see Appendix.]",23
-fomc-corpus,1990,[Statement--see Appendix.],6
-fomc-corpus,1990,Thank you. Questions for either gentleman?,8
-fomc-corpus,1990,"At the risk of repeating David's question at the last meeting--I'm going to make an assumption sort of going forward--let me ask this question. On the basis of having made a forecast that to me is a little optimistic given no change in policy--and you qualified that in what you said, Mike--I'd be interested in your reaction as to which way you think the risks are of not coming out on your forecast. You mentioned, and I'm particularly interested in, the snapback issue. Given the continued expectation of problems on the credit flow side, I have a little question about the mechanism by which we get a snapback without a change of policy in two quarters.",135
-fomc-corpus,1990,"Well, the major mechanism is the drop in oil prices that we have assumed. On top of that we get some impetus over time coming from the recent decline in the dollar showing up in the stronger export growth and the retardation of import expansion. So, that's the major impetus to defining final demand as we look out into the latter half of 1991. As to the risks: Obviously, they're manyfold and very substantial. If I had to characterize them for the very near term, I'd put a small interval around the minus 2 percent and say that is what we think is the most likely result. My judgment would be that the tail [of the probability distribution] is probably a bit longer and a bit thicker going to the down side but that we have a significant [mass] of the probability around this moderate drop--I don't know if a drop is ever moderate--of 2 percent or something close to the magnitude that we have in the fourth quarter.",194
-fomc-corpus,1990,"There is never an awful lot of comfort in these things, but are you much more uncomfortable in terms of your distribution about how long it takes to come back--whether it's two quarters, three quarters, etc?",42
-fomc-corpus,1990,"Well, we're sort of captives of our key assumptions. And oil, given the movement we have forecast, is a quite powerful influence. So the broad contours here seem right to me in light of that assumption. Now, as to how one might want to alter that in light of one's geo-political-military assessments, obviously, there's a tremendous range of possibilities. I think there is a lot of sense to assuming that at some point over the next 6 to 9 months we will have a significantly lower oil price either after military conflict or in the absence of military conflict. But the timing of that and what might happen in between is hard to say. So, that obviously complicates things. As to the credit picture, as we've said all along, this is just very hard to translate into GNP points. We are not able to point to very clear-cut real impacts at this juncture that we can say are obviously attributable to the credit situation. For example, in nonresidential construction, which is where everyone thought the most direct hit would be, it isn't really obvious there yet. We can see the contracts and permits data suggesting some weakening, but there seems to be a pretty long pipeline and there isn't a sign of an enormous drop right now. We're predicting that we will see some significant weakness in construction put-in-place in the next two months' reports. But this is hard to predict.",283
-fomc-corpus,1990,"We may be seeing it in declines in some of the prefabricated manufacturing elements that go into the inventory data prior to going into the value put-in-place figures. The SIC 344 --that whole metal fabrication area which precedes the value put-in-place--is beginning to become quite weak. So, we may be seeing it on the edges.",70
-fomc-corpus,1990,"Well, I think the evidence is mixed in this area. Last week at a meeting of business economists, a steel company economist indicated specifically that the steel fabrication for structures seemed to be holding up quite well up through the first part of next year.",49
-fomc-corpus,1990,Are they talking about the orders for steel structures?,10
-fomc-corpus,1990,"This is just what they had booked through the first quarter of next year. Now, there's always a vulnerability to some shift in this; and one company's perspective may be different from another's. We're expecting a significant change in the tenor of these things. Also, based on anecdotal information that has come in, there are some areas such as steel and chemicals where perhaps there has been a bit of inventory building, and we could see production fall off very noticeably in the coming months. Certainly, we have a distinct change in the tenor of things happening right now in this forecast. And it's a judgment call; it's not something that we can substantiate by pointing to clear leading indicators in the data, particularly with regard to the timing and magnitude.",148
-fomc-corpus,1990,President Stern.,3
-fomc-corpus,1990,"Mike, do you make much of the divergence between the payroll and the household employment data? The household data have been quite a bit weaker for some time now and I'm wondering whether, as we come to understand the recent pattern of the economy better, that isn't telling us something.",55
-fomc-corpus,1990,"Well, both of them look weak over the last two months and that's the key inference that we're drawing--that there is weakness in labor demand. There have been these divergences over time, which have not been fully explained. But both series for employment show weakness recently, and that's one of the reasons we're putting considerable weight on that information.",68
-fomc-corpus,1990,"Mike, on the personal saving rate, how much of that oil tax hike was absorbed by the personal saving rate?",23
-fomc-corpus,1990,"The personal saving rate has come down and has done so in circumstances where real disposable income has been significantly eroded by the energy price increases. Basically, in the very short run, if these data hold up, what we've observed is that people have not adjusted their spending patterns very rapidly in the face of this decline in their incomes. We're expecting that this adjustment will occur and that we'll see some movement back up in the saving rate, particularly because of the general financial environment. All that we know about consumer sentiment suggests that people are not necessarily going to want to diminish their financial wealth. They've already experienced rather weak real estate values and the stock market hasn't gone up, so their wealth positions just have not been improving recently.",143
-fomc-corpus,1990,"Our analytics tell us that consumer spending should be weak. And consumer sentiment looks like it's in a free fall. But the data we have don't yet show it, is that right?.",36
-fomc-corpus,1990,I think that's a fair characterization.,7
-fomc-corpus,1990,"Just a follow up on Dick's question again, because I'm not sure I have your orders of magnitude right. One concern that I have is that there's still a reasonable chance that the fourth quarter may not even turn out down. But if I listened to you correctly you're pretty confident--meaning 80-90 percent probability--that we're going to have a negative?",72
-fomc-corpus,1990,77 percent! [Laughter.],7
-fomc-corpus,1990,"That's close enough, thanks.",6
-fomc-corpus,1990,"Until you get the retail sales, how can you feel that comfortable?",14
-fomc-corpus,1990,"All right, 65 percent. [Laughter.] I'm not going to be enormously more confident when I've seen the first set of retail sales data knowing how much they are vulnerable to revision subsequently. But it would certainly help to make the pieces fall into place in this puzzle that we tried to put together here. We have had, basically, a very large drop in hours [worked]. Historically that has proven to be one of the most reliable indicators at our disposal of short-term movements in output. We had discounted that because the drop in the average work week, especially outside of manufacturing, was just huge and seems incredible. But even with that discounting, we're off to a very bad start. Initial claims don't suggest that the labor markets are firming; we're looking for further declines in employment and a noticeable drop in hours overall for the quarter.",169
-fomc-corpus,1990,"It's not that I disagree--actually I agree with your forecast--but let me play the devil's advocate for a minute. Initial claims are up sharply, but it is the level of the initial claims not their direction that determines the rate of change in economic activity. And that level is back at the 1986 level, not back to 1982.",72
-fomc-corpus,1990,That's recession.,3
-fomc-corpus,1990,"And the only hard retail number we have at the moment is motor vehicle sales; and while they're off a bit, they're clearly not implying anything in a negative direction. And while the data from the October employment report, which picks up wages and salaries, certainly are low implicitly as are the hours those data are notoriously subject to revision. I don't know if it's 70 or 80 percent, but Lee is not raising a totally illegitimate question. [Laughter.]",93
-fomc-corpus,1990,[Unintelligible] are still set with a wide confidence interval. No one could state this with normal certainty. We do know one other thing and that is that motor vehicle production is going to be down appreciably in this quarter and that alone by our arithmetic--when you put the cars and the trucks together--probably cuts better than a percentage point off of GNP growth in this quarter.,80
-fomc-corpus,1990,I think that's a difficult call.,7
-fomc-corpus,1990,"That's helpful in adding these things up. We know that, unless something bizarre happens with wages in this quarter, real labor income is going to be very weak because of the oil price increase. So then it becomes a matter of how aggressive people are going to be about spending what they have. And the Christmas spirit--my predecessor was always inclined to bring that up at this time of the year--may move people to spend very freely. But we have to try to make our judgment based on all of the information at our disposal. And we don't hear anything that suggests that kind of pattern emerging at this point. So, we think it's a negative quarter. Basically by going [from a forecast of minus 1 percent], which was just slightly different from 0 in our perspective, to [minus] two percent we're signaling that we think it's going to be a negative quarter and we feel fairly confident about that.",182
-fomc-corpus,1990,Governor Mullins.,4
-fomc-corpus,1990,"Let me just pick up on this. I know we started some of this this morning. [Secretary's note: The reference is to a briefing of the Board of Governors by its staff.] We have a strange phenomenon because the auto experience is a good example of the producers having cut back even though the hard sales data are not down. And it sounds as if most of the evidence is that the producers have decided, just as our staff has decided, that demand is going to be down so they started laying people off and started not producing. My guess is the result will be that demand will be down.",121
-fomc-corpus,1990,"Well, if they are wrong and demand holds up reasonably well, we're going to see a drag on inventories here that's going to give us the possibility of some bounceback in the early part of next year.",41
-fomc-corpus,1990,"Well, presumably some of the people laid off will now decide not to be quite as aggressive as they might have been.",24
-fomc-corpus,1990,That's true. There's some income that is lost in this process.,13
-fomc-corpus,1990,"Can we talk about the snapback as well, just to clarify that? The logic is: oil prices went up and that shattered consumer confidence. And then when they come down consumer confidence will be reconstituted with about the same lag and there will be someone around to finance the increase, this snapback effect, in the second quarter of next year.",71
-fomc-corpus,1990,"Well, some of it is just the straight price effects on real purchasing power. But I wouldn't set aside the question of confidence. It isn't just an oil price shock; it's a whole discussion of war and peace and one's sense of the stability of the world after a very good move that developed because of [unintelligible] in eastern Europe. So, I think with that, plus the debacle of the budget in Washington, there have just been a number of things which seem to have led to an enormous shift in the sentiment of American households. With the passage of time maybe the budget issue will be forgotten and something will happen with respect to the military situation. I guess it's implicit in this that the risks don't look worse several months down the road.",152
-fomc-corpus,1990,"In fact, it did seem like the budget experience was a second impact on consumer confidence.",18
-fomc-corpus,1990,My sense is that the polls suggested some loss of confidence in our economic policy makers at that point.,20
-fomc-corpus,1990,It's hard to believe!,5
-fomc-corpus,1990,The markets have not been marking up the probability of war but certainly in the political rhetoric and in troop movements there is some suggestion that maybe the probability has gone up a bit. What is the staff's--,41
-fomc-corpus,1990,"I've tried to puzzle through this. The people on Wall Street keep saying that the economy has hit a wall. They think that we're going into a serious recession and that we need dramatic monetary policy action to cushion the economy. Yet they have not bid the bond prices up further than they have. I suspect part of that, and I've heard it said, is that people don't want to buy bonds in front of a war. So I think there is a risk premium embedded in there and it is reflecting this.",101
-fomc-corpus,1990,What is your current scenario of what happens in the event of a war?,15
-fomc-corpus,1990,What happens in a war? You mean economically?,10
-fomc-corpus,1990,"Yes, economically.",4
-fomc-corpus,1990,"Well, I don't think we would presume to have enormous insight. There's a considerable range of things that could happen. Clearly, if there were significant damage to the production facilities and the transport facilities and so on, we could have a period of time in which supplies were significantly disrupted. On the other hand, perhaps in that circumstance we would get the drawdown in reserves and that could be a cushion for a period. There could be military spending consequences if a war went on and utilized a large amount of munitions that it was felt had to be replaced within our lifetime. It's conceivable that some things just would not be replaced immediately, but the sign there I think is positive--i.e., that there would be more military spending.",147
-fomc-corpus,1990,But we haven't had many recessions during wars.,10
-fomc-corpus,1990,"In fact, we haven't had many of either.",10
-fomc-corpus,1990,"Implicitly, I think the assumption is that the war would be short and would have, as Mike said, relatively minor impacts on the production side. The other scenario, which I think is also broadly consistent with the oil price assumption but doesn't have quite the same broader psychological impacts, would be just a stalemate. And under those circumstances we could have much higher prices. That is, with oil prices that are consistent with existing supply and demand relations you would find a gradual erosion in oil prices. You can even argue that that's what has happened to some extent over the past several weeks. I don't want to push these data too much, but we've had some of both scenarios. So, it's fair to say that this is not a ""long war forecast,"" if you want to put it that way.",160
-fomc-corpus,1990,Thank you.,3
-fomc-corpus,1990,Governor LaWare.,4
-fomc-corpus,1990,"Ted, in your analysis you referred to a 5 percent further drop in the value of the dollar. I presume that that's based on the same interest rate assumption: that is, that we keep the fed funds rate and other rates about where they are.",51
-fomc-corpus,1990,And it is essentially the drop in the dollar that has occurred between the forecasts.,16
-fomc-corpus,1990,"Okay. Now, the Bluebook refers to a further sharp drop in the dollar if we go to a sharp reduction in rates. Can you give us some idea of what that expectation is--what quantification you put on that?",46
-fomc-corpus,1990,"Well, the models, such as they are, don't help very much in this area. The quantitative history does say 50 basis points on the funds rate is not going to do much more than 1 or 2 percentage points at most on the dollar. What the Bluebook was trying to point to is that there are things that are [beyond the] model. In some sense we haven't had much change in interest rates since July. We had an 11-1/2 percent drop in the dollar. So, it really is a question of how much more of that there is in the pipeline. As you know from dealing with economists these days, there are two views. One would be the market view that Sam put forward: that things are very fragile and [the dollar] could move quite far and quite quickly. The other view, as Sam also said, is a sense that has been partly articulated that authorities might take action. But one could even say--I'm putting words in his mouth that he didn't actually say--that there's a sense that the dollar has moved a long way down and, therefore, has created more of an upside potential.",233
-fomc-corpus,1990,"All right, but I'm still trying to pin you down a little.",14
-fomc-corpus,1990,I think what the Bluebook was trying to point out was that there is no significant risk! [Laughter.],23
-fomc-corpus,1990,"All right, let me ask a simpler question. To what extent does the current level of the dollar reflect a forward discounting of expectations of further easing--in other words, another quarter point on the funds rate?",43
-fomc-corpus,1990,"With another quarter point you're going to get some [dollar movement], and we saw that over the last several days--though, as always, these observations over the last 10 days or so are contaminated with things like the Bundesbank moves or other events that happened in the world. But I would say that with another quarter point the dollar would move down marginally because it is already mostly discounted.",80
-fomc-corpus,1990,"Based on forward rates and so forth we think that most people are expecting it. As I was indicating earlier, that doesn't mean that it might not continue to have an effect--maybe not immediately, but it influences people's views about the next x weeks.",50
-fomc-corpus,1990,"The authors of the Bluebook had in mind a bit how the market perceived the Fed's priorities in making this [recent] move. The Fed has been seen as a very reluctant ""easer"" through a period of weakness. If the next move were perceived as changing the priorities--moving toward [concern about] the real economy and a bit away from prices, that could have a significant impact. If, on the other hand, it didn't see it that way--. That's why there is this uncertainty; it's really impossible to answer the question because it's a question of the psychology and the perceptions about our reaction, basically.",126
-fomc-corpus,1990,Yet it's a very important part of making this decision today.,12
-fomc-corpus,1990,President Guffey.,5
-fomc-corpus,1990,"Thank you, Mr. Chairman. I want to go back to the discussion that took place between Governor Mullins and the staff with regard to the plant closings on automobiles and trucks. There was some implication that there would be fewer consumer purchases simply because of that event. It's my understanding that [auto workers] will continue to draw between 90 and 95 percent of their pay during these one-week or two-week closedown periods. So, there is not a great diminution of purchasing power.",99
-fomc-corpus,1990,I think you're right. Under the contract there are these unemployment benefits. You probably have it nailed down better than I do.,25
-fomc-corpus,1990,"But, Roger, that's not true of the suppliers. That's the Big Three aspect. Between the sub-benefit and the unemployment benefit the auto workers come up to around 95 percent. But everybody who feeds into the auto industry--those producing widgets and nuts and bolts and all those things--is not necessarily that protected.",64
-fomc-corpus,1990,"Look through the corporate [unintelligible], if you want to get fancy. You would figure that's coming out of Big Three profits, all other things equal, and that certainly affects the shareholders ultimately.",41
-fomc-corpus,1990,"Further questions? If not, why don't we take a short break. [Secretary's note: Chairman Greenspan called on Mr. Parry to begin the review of economic conditions and the outlook.]",39
-fomc-corpus,1990,"The Twelfth District accounts for just under 30 percent of U.S. oil production. Higher oil prices have stimulated very little additional production in Alaska and California due to uncertainty about how long prices will remain high and also due to problems associated with environmental restrictions. Even at current levels, however, higher prices are yielding a windfall of revenues for Alaska's state government and also are stimulating the Alaska economy in a significant way. Home sales have declined sharply and median home prices have declined moderately during the past year in California markets. The southern California real estate market is particularly weak; sales activity is down in the previously hot Seattle and Sacramento markets and price increases there are moderating. Concerns about overbuilding in nonresidential markets, particularly in southern California, are widespread; and recent declines in rents and leasing concessions are consistent with these concerns. After adjusting for the normal relationship between bank lending and economic activity, lending by large banks in the Twelfth District has not been unusually low. Turning to the national outlook, the basic scenario of the Greenbook forecast certainly seems plausible. However, real growth may be a little stronger and inflation somewhat higher than in the Greenbook, especially if interest rates follow a lower path than that assumed in the Greenbook. We expect negative net real growth in the current quarter and probably also in the first quarter of next year related largely to the effect of oil prices. As the effects of higher oil prices begin to dissipate when oil prices decline, however, the economy should pick up by next spring. Although consumption spending will continue to be weak for a while, I would agree with the Greenbook that net exports will contribute over 1 percentage point to the growth of GNP next year and help to prevent a serious downturn. The underlying rate of inflation is not likely to rise significantly next year, but I expect that the lower value of the dollar will be a factor contributing over 1 percentage point to the inflation in GNP prices next year and even more to consumer prices. Thank you, Mr. Chairman.",406
-fomc-corpus,1990,Bob Forrestal.,4
-fomc-corpus,1990,"Thank you, Mr. Chairman. Economic activity in the Sixth District pretty much mirrors what has been happening in the rest of the country, as I reported last time. Our retail sales have been flat on average around the District with noticeable declines in autos, household appliances, and furnishings. The retailers in the District are very cautious about orders since they're not expecting a good Christmas season at all. We have seen discounting already, even this early in the season, so it appears that the emphasis is on tighter inventory control. On the production side, new orders have declined in a number of key industries, especially carpet and apparel. But, as I believe I mentioned last time, those manufacturers who have established export markets are seeing strong sales growth. As a consequence, manufacturing activity overall is continuing to expand although rather slowly, while domestic sales and employment are falling in those same [industries]. The only other report I heard on strong sales was from a small businesswoman who said she's making a lot of money selling deodorant to the government for distribution to the troops in Saudi Arabia. On the price front, where we can separate out the oil shock effects we find very few pressures on prices in the District outside of medical services. And looking at the oil-producing area, again as we've reported several times, severe shortages of skilled laborers, particularly welders, are constraining production at the present time. The premium for these workers is now upwards of 20 percent in the last two months, and with that kind of a premium attraction we're likely to get back some of those industry workers who were dropped in the last five years. In looking at some of the loan data for banks in our District I was surprised to find that, unlike the rest of the country, our consumer loans are weaker than real estate loans. And that pattern has existed from April through September. Real estate loans really have not changed all that much. Looking at the national economy, given all of the uncertainties surrounding these forecasts, my own feeling is that the Greenbook forecast is fairly plausible. We've heard a lot of talk about whether we're in recession or not; I think that's really an irrelevant question at the moment. The key issue, it seems to me, is how deep it may be if in fact we are in a recession. And that's the critical question I have with respect to this forecast--whether the negative growth in the fourth and first quarters will be as mild and whether the rebound will be as much as is forecast in the Greenbook scenario. For those reasons, and I'll talk about this later, I continue to favor some cushioning of the economy against a substantial downturn.",527
-fomc-corpus,1990,President Black.,3
-fomc-corpus,1990,"Mr. Chairman, I think the Greenbook's forecast is certainly plausible and internally consistent, given the kinds of assumptions the staff is making about policy and the price of oil over the forecast horizon. But it seems to me that the risk is clearly on the down side even if one assumes that oil prices will behave as the staff has concluded by declining significantly. What impresses me about all the recent data we have received, both statistical and anecdotal, is that it is just universally bad. As Mike Prell indicated a while ago, the worst is the employment figures. But the National Association of Purchasing Managers' figures don't look good. We got the figures on industrial production and capacity utilization this morning and they certainly didn't look good. The Beigebook suggested that virtually all parts of the economy--in most sectors and in most regions--are experiencing slower growth or even some decline in business activity. From our directors and other grassroots contacts, except for those in the agricultural area, we're just not getting any good comments at all. At last Thursday's meeting of our board, for example, they were more pessimistic than I remember for years and years; even at the meeting before there were a few bright spots that were mentioned, but absolutely none at this one. We even had one letter from an unusually affable former director who is a strong supporter of this System saying that the System really didn't understand how bad it was out there. He was irked by all the statements that we don't know whether we are in a recession or not and he proceeded to give me a set of figures that demonstrated to his satisfaction that we are, though they were hardly conclusive. Obviously, none of this suggests that we're about to fall over the edge of the cliff. But given the state of business and consumer confidence, which as I assess it is lower than I can remember for many a day, it seems to me that there's a better than even chance that we're going to have a greater drop in GNP than the staff is projecting. It may well mean also that the recovery is not going to come as early as the second quarter. Now, I think the downside risks would increase pretty significantly if the growth in the aggregates comes in below what is projected, and I'm very much concerned by this further evidence of weak growth in the aggregates. I hope the Committee is going to take some steps later on to try to get the aggregates more nearly on what seems to me to be an appropriate path. Finally, I would like to say that I sure was happy to see the projections on inflation that the staff has made for down the road a way. It's certainly true that we're going to have some turbulent times, but I think we have made some progress toward our long-run objective of achieving price stability. I'm delighted to see this reflected in the forecast, and I believe the staff is going to be right on that.",578
-fomc-corpus,1990,President Syron.,4
-fomc-corpus,1990,"Thank you, Mr. Chairman. As far as New England goes, the economy obviously continues to deteriorate. Bob Parry's report sounded like [his District was in] the early stages of some of the things we complain about. I'd say that in a sense the rate of decline [captured] in the second derivative may be turning a little in that the steepness of the decline seems to be attenuating a bit. A lot of this is in real estate, obviously. In the residential area we've actually seen prices decline by probably about 20 to 25 percent; and that is bringing greater activity and activity has sort of stabilized. The commercial area is still quite poor, with vacancy rates up around 25 percent in the suburban areas. Related to that, we're seeing an absolute decline in hookups for electrical power, which by the way ends up being very coincident with nonpayments or corporate delinquencies for electrical bills; it's very highly correlated with that. We've seen a substantial jump in that and a significant jump in bankruptcies, particularly among customers of Massachusetts utilities.",216
-fomc-corpus,1990,It's shocking!,3
-fomc-corpus,1990,"Well, I want to get a charge out of it; we try to stay plugged in! In our manufacturing sector, demand is weakening with a few exceptions; interestingly, net exports now are declining for our manufacturers except for a few off the shelf items that have improved somewhat in the computer area. The retail area is very soft, with a lot of price promotions. Actually, there are a lot of complaints among retailers that the weather has been too good thus far this fall and that there really have been soft sales of heavy winter clothing. Retailers say that they're in pretty good shape on inventories, but they're trying to be very, very cautious and push a lot of stuff out of the door before the Christmas season. Most of them feel that they just don't want to go into December carrying very much. The banking sector, I'm afraid we have to say, is truly dismal. Some asset markets just literally have ceased to exist. And this is not just in the real estate area; I'm talking about loans to small businesses and that sort of thing. As a result of all this, I think the good news--and perhaps it's somewhat better than in the nation--is that we're seeing some improved price performance, though [unintelligible]. I'm concerned, though, about the implications both for the region and nationally of all of this on confidence as far as the bounceback goes. I must say with regard to the national economy that if I thought we could get the kind of result that's in the Greenbook with the policy implications that are contained in the Greenbook, I'd be happy to take it in a way. But Mike made the point, and I think it's the relevant one, that it depends on what one thinks is causing all this. The forecast seems a little too optimistic, though perhaps my view is too much influenced by our local situation. But I don't think this is all an oil phenomenon; I think it has to do particularly with the credit situation. I'm also worried to some extent, given the outlook in Canada and the United Kingdom, just how much export growth will continue to be a source of strength and bring us out of the weak economy here. I must say--and this is somewhat related but not directly to what we do in the funds market--I've developed what I'm afraid are [unintelligible] some radical beliefs. I used to think you couldn't have a credit crunch, as we traditionally found, unless there was a breakdown in markets. It feels somewhat silly raising this, but I think what is becoming more and more an issue nationwide, and it is for real, is that we need to take some steps to reconcile our objectives in macro policy with what we're doing in the supervisory area. I must say I hate to raise that because it apparently goes against a lot of things we all believe. But I just can't come to a different conclusion because regardless of what we do in policy--and we're constrained with the dollar on one side of the prospective policy--it would take an awful big move to divert some of the enormous increase in conservatism and risk premiums by many lending institutions, and not just commercial banks, given the problems that they have. There are several actions that we could take in that area, though as I say they're not directly germane to today's [discussion] on what has to be done. But I think we really have to give an awful lot of thought to that as being part of how we proceed--that leaning against the wind may apply to supervisory policy in many cases just as well as monetary policy. I hope that in these observations I'm overly influenced by parochialism, but that may not be the case.",737
-fomc-corpus,1990,President Boykin.,4
-fomc-corpus,1990,"Well, Mr. Chairman, I really don't take much exception to the staff forecast through the first quarter of next year. I do wonder a little, as others have, about the bounceback of growth in the second quarter and thereafter on the inflation side. I hope it turns out to be the way that it's forecast. I guess I have slightly less optimism in that regard. As far as developments in the Dallas District, it does seem that conditions down our way, at least on average, are reflecting the same set of weaknesses that are affecting the rest of the country. Higher oil prices are supposed to improve matters in Texas, Louisiana, and New Mexico but so far we're not seeing any of the benefit. For example, neither drilling activity nor employment in the oil and gas industries has increased significantly. Manufacturing employment is down; construction is down slightly; employment growth is stalling in the private producing sectors; agricultural incomes are lower than expected because of increased fuel costs. Government is the only robust sector, and to me that's a bit of a negative. Uncertainty is a major factor that seems to be depressing economic activity in the District. The volatility in the oil markets leaves oil and gas producers uncertain about the future price of oil and, therefore, cautious about expansion. In addition, there seems to be heightened uncertainty about the health of the national economy, interest rates, the tax load, and the possibility of war in the Middle East. All of these factors seem to be leading consumers to postpone purchases, particularly purchases of real estate and durable goods. Within the District, growth patterns are very uneven. New Mexico, which had been showing the strongest growth of our three states, has shown actual declines in employment and other economic measures through 1990. Louisiana had been laggard in the recovery in the Southwest but has been showing steady growth and improvement. Texas, particularly in the last few months, seems to be slowing almost to a standstill. We had a joint meeting last week of all four of our boards of directors and the comments made at that meeting certainly confirmed what our statistics are saying. There was very little optimism expressed at that meeting. In short, the near-term outlook is on the pessimistic side; but looking further out, we can expect to see some improvement only if higher oil prices are sustained.",461
-fomc-corpus,1990,Is that your unbiased report?,6
-fomc-corpus,1990,Clearly a regional view.,5
-fomc-corpus,1990,The newest member of OPEC!,7
-fomc-corpus,1990,That's where they learned how to do it.,9
-fomc-corpus,1990,Texas railroad commission!,4
-fomc-corpus,1990,"Mr. Chairman, in the District context, I think our part of the Midwest is still operating at a better level than is true of the national indicators. Nonetheless, clear signs of weakening are beginning to emerge. In the steel business the plants are operating at a comparatively high level, at about 84 percent of capacity; and at this point of the year, the year being really all but done, they are rather sure that they will see shipments this year of about 84 million tons. So comparatively, it's quite a good year. But for the first time in quite some while, they're seeing a deferment of orders. Two markets that in particular have this phenomenon are autos and appliances; appliances really have been very, very weak. The price increases that have gone into effect in the steel business certainly are not sticking; competitive pressures, I'm told, have been very tough and, therefore, the price increases really are not sticking. The automotive sector we talked a little about this afternoon. An explanation I would offer for the strength in sales relates to this fleet sale phenomenon. The company that I talked with has had a very significant increase in the fleet component of their sales. Going back to 1987, for example, fleet sales were about 27 percent of their total volume; this year they are going to be about 35 percent. That selling is largely behind [them] at this point of the year. Therefore, they are reducing their production schedules, which we talked about, and they have reduced their sales outlook for the industry next year--cars and light trucks--to about 14 million units. In the agricultural sector, though obviously we have had a good crop year, the production and sales of agricultural equipment are down. There is a lot of uncertainty out there in the market because of the impact the tax bill is going to have on subsidies. That uncertainty has caused farmers to defer major purchases. And in order to keep inventories in line, some of the major producers are planning significant layoffs between now and the end of January so they can keep inventories low. Heavy construction equipment is declining, reflecting [weaker] conditions in real estate, mining, and forest products. And real estate construction, which in our area had been holding up I think surprisingly well, is now showing signs of softness in both residential and commercial sectors. Interestingly, I've had a chance to talk to a number of different architectural firms recently and their business has just absolutely stopped. There are no new projects coming on line; they're finishing off some of them, but new projects have just dried up. Retail sales, particularly in those areas that are affected by the auto sector, are weak: and home appliances are pointed out as being something particularly soft. In the financial sector, I think there's still a question but we are seeing a tightening of credit conditions. The banks have raised their credit standards and also certainly are raising their prices for credit extensions. There is a growing apprehension that there's going to be a very significant tightness in the markets as we get close to the end of the year. A lot of banks are beginning to play with [unintelligible] measures to be sure that they get past the year-end [unintelligible]. Therefore, I think it's the time when capital ratios could be impacted by year-end transactions that [unintelligible] some measures to control that. With regard to inflation, excluding energy, I sense [price trends] are showing signs of, if not improving, certainly not getting any worse. And given the weakening economic circumstances the [competitive] pressures, I think, are very high. Labor costs particularly are showing similar and reasonable restraint. Now, I don't think anybody is forecasting anything like a collapse; nonetheless, I do think we are seeing signs of weakening and it's perhaps very likely that we're in for a rough quarter or two. Certainly our outlook in a national context for the fourth quarter of this year and the first quarter of next year would be consistent at least in direction with the forecast that the staff has given.",810
-fomc-corpus,1990,President Guffey.,5
-fomc-corpus,1990,"Thank you, Mr. Chairman. On the national level, given the uncertainties and the assumptions contained in the Greenbook, the staff forecast seems to me as plausible a projection as one could make. On the District level, the economy continues to grow at a moderate pace. Agriculture and energy are giving it a bit of a boost. On the other hand, manufacturing and construction activities are sluggish and actually are deteriorating somewhat. In the agricultural area, District farmers are completing the third [quarter]--and maybe the fourth, depending upon the area of the District--of an excellent year. Farm income will be strong for 1990, although livestock producers will have a better year than crop producers largely because the wheat harvest came in at or near a record, which has depressed the price. That feeds over, of course, into the [costs in the] livestock area for finishing off the cattle and hog in the red meat area. As a result, the livestock producers will probably do better than the crop producers; but taken in the aggregate the farm sector has done very well in 1990. There is some concern, as Si Keehn mentioned, about the budget package as put together and what that will mean for subsidies in the period ahead. Quite clearly, subsidies are going to be less in the future than they have been, but [questions about] how they're administered and the Administration's timing of those subsidies have created a lot of uncertainty. And that does feed back into farm machinery sales, which have been almost at a standstill as far as we can tell. In the energy sector, because in October domestic oil prices were roughly double what they were back in June, there has been some modest increase in activity, principally in drilling. For example, in the District in October there were 325 rigs working; that was up from 305 in September. There has been a modest increase in the national rig count, and I'm sure the staff has those numbers. With respect to manufacturing, as I've indicated before, District auto plants are taking one-week or two-week sabbaticals--well, layoffs. There is a shutdown at both the Ford and the GM plants in Kansas City; neither worked the first week in November and the GM plant has continued to be closed for the second week of November. On the other hand, the general aviation industry, which is a fairly large component part of our District economic activity, has begun to rebound although the light aircraft sector continues to decline. Sales of turbo props and business jets are up very significantly and plants in Wichita will build the front section of the new Boeing 777 airplane for which they have substantial orders already on the books. So, there is a very favorable outlook for the period ahead. In construction, both residential and nonresidential contracts awarded in the District fell in September; they're at levels now about 13 percent below what they were one year ago. There isn't really any evidence at the moment that either of those two sectors will see any revival until at least the spring of 1991.",610
-fomc-corpus,1990,President Stern.,3
-fomc-corpus,1990,"Thank you, Mr. Chairman. On the positive side, the District's economy, although spottier than it has been, remains in pretty good shape--especially in the rural areas because agriculture, as others have commented, had a good to very good year at least in most parts of our District. And mining had a good year; indeed, they are talking about further expansion in that industry in a variety of states in the District and I would anticipate that they're going to go ahead with at least some of those plans. Retailers, as best I can judge, are cautious but not particularly pessimistic at this point, at least about holiday sales. Having said all that, I think the pattern of activity for the national economy for the near term, as reflected in the Greenbook with a couple quarters of contraction, is a reasonable forecast. I have a very distinct sense, based on a variety of anecdotal evidence, that the weakness we're seeing isn't particularly related to the energy situation, although obviously that's a factor. At least as I get the story, it's really a combination of factors, some of which were in place before oil prices ran up. Clearly, the credit availability issue has grown in importance as time has gone on. And I have the sense that what we are seeing is not particularly driven by energy, but by a combination of negative factors, some of which have affected attitudes and some of which simply have cut into important sectors or regions of the economy.",294
-fomc-corpus,1990,President Boehne.,5
-fomc-corpus,1990,"I think almost everybody in the Philadelphia District is dressed up in a bear suit because it's hard to find any optimistic note. The manufacturers still talk about downturns, which we have had for months. There is a hint that maybe the rate of descent is slowing, but that's not much consolation for them. Attitudes among retailers are just terrible; they're very pessimistic. In fact, they're so pessimistic and are following such conservative Christmas inventory policies that even if in the Christmas spirit there were a rush to buy, I'm not sure they would have the kind of stocks that could really turn it into a good season for them. The real estate market remains very soft and much of this is spilling over into the banking system. I think we have some significant problems ahead of us there. On the national scene, I think in some sense what we're seeing is a typical pattern. We've been debating around this table and around the country for several months about whether we're going to have a recession or not. Now most people are convinced we are having a recession and the debate is about how bad it is going to be. The Fed's job--and we've talked about it around this table--is to buy some insurance against a deep and long recession. All that is fairly typical; what I think is different, however, is the condition of the financial system, because I think that makes the need to buy some insurance against a deep downturn more important than usual. If major cracks develop in the financial system, we're going to end up in a pretty bad economic downturn. So, what I see here are some real discontinuities. Either we're going to get away with a mild recession and the financial system is going to hold up generally, or we're going to end up with a financial weakness and with a very deep and long recession. It's hard to envision a lot in between. If it weren't for the constraint of the dollar, I would be favoring today a more substantial move toward easing than I think we prudently can do, given the dollar's condition. But we're dealing here with a situation that I find increasingly scary because the risks of a really deep downturn, given the condition of the financial system, strike me as much larger than I recall [in my years of] sitting around this table.",455
-fomc-corpus,1990,President Melzer.,4
-fomc-corpus,1990,"In our District for the most recent three-month period the economy is still growing, albeit at a slowing rate. Right now if you could measure it, we're probably just bumping along holding our own. But that performance is somewhat better than the national average. Payroll employment in that period was up about 1 percent; the gains are in government services; employment in wholesale and retail trade and manufacturing is down about 1 percent. The area that I hear the most about in manufacturing is the consumer durables area; both Whirlpool and GE have had layoffs that are very much tied into the housing industry. One interesting note in Missouri itself--and Missouri is the second largest state in terms of automobile and auto-related employment--we had some layoffs by the Big-Three and also at McDonnell Douglas, but District-wide auto employment in the most recent quarter is flat. Basically, what has happened is that the Japanese transplants in Kentucky and Tennessee and their suppliers have really picked up that slack. Finally, construction activity, while it's declining, is not nearly as depressed in our District as nationally. In the first nine months of the year residential construction was down only .1 percent compared to 7 percent nationally, and nonresidential construction was down not quite 4 percent. One bit of anecdotal information, which I've heard on a couple of different occasions, is the sense that inventories are being managed more closely. I picked that up from in the trucking industry: the pattern they're seeing there is one of much more frequent shipments of smaller amounts. His general interpretation of that is that firms really are trying to manage their inventories very closely. I still have the feeling that the sentiment is probably worse than the reality, although I agree with Mike that there is more evidence of a downturn. In that connection, I think probably the most important factor bearing on sentiment is the Middle East situation. I just wonder--and this may be politically naive--whether or not from an economic point of view a stalemate situation couldn't be construed as somewhat stable and we could see some drop in oil prices that could turn that sentiment somewhat. On the national situation, generally I haven't been terribly concerned about some of the forecasts in terms of a slowdown in economic activity or a recession. That has been based primarily on my general feeling that the thrust of monetary policy has been about right as measured by the behavior of the monetary aggregates. If that's the way you look at things, when you see a month like October you have to be a bit concerned. I'd simply say that at this point I would not be inclined to overreact based on one-month's data. I'm not sure that we really have the ability--though I know how much effort goes into it--to project with all that much confidence what the aggregates are going to do down the road. And, of course, the most recent easing really isn't reflected in the aggregates at all. The final point I would make is that I don't think there is a lot we can do about the availability of credit. We can make sure that we provide adequate reserves and that money grows at an appropriate rate, but I think the behavior of credit really is largely out of our control. I would simply observe that in the months of August and September--we don't have complete data on October yet--short- and intermediate-term business credit was growing at a fairly decent rate: 7.7 percent in August and 10.1 percent in September. I think there's some evidence that the commercial paper market and finance companies and so forth are picking up some of the slack from the banking system.",716
-fomc-corpus,1990,Governor Seger.,4
-fomc-corpus,1990,"At the beginning of the year when I was trying to get Mike Prell to tell me why I couldn't see the strength in the economy, he sort of suggested kindly that I needed new glasses. So, I just wanted you to know that I went to the ophthalmologist two weeks ago and got an exam and a prescription for new strong lenses. And now that I can read the numbers they look worse! But seriously, I do get concerned about the numerous signs of weakness in the economy. I agree with the staff forecast that we should look at things more modestly than we have been. I hope that the weakness doesn't turn out to be still worse than the staff is showing in the Greenbook forecast. Business is so bad that I noticed that George McGovern, innkeeper, filed for bankruptcy; maybe that's not a function of the economy but more a function of his competence. Also, Lipton is closing a teabag plant in Texas. And Mr. Forrestal's Peachtree Center in the Sun Belt of Atlanta is being foreclosed on I understand by Equitable. So, there are some pretty scary pieces of news around. Also, the regional sales numbers really bothered me simply because two major chains that are pretty strong financially showed sales in October that were actually below year-ago levels. Even Nordstroms, which is considered a rather superior place and operates in the boom part of the United States that is Bob Parry's District, is talking in less optimistic terms. I'd also like to put in my two bits worth on the auto situation. I believe what has happened is that the auto sales figures that are reported really are distorted by deliveries of police cars and cars for corporate fleets, etc. Most dealers don't see those deliveries; they go through just a handful. So, the average dealer is looking at a showroom which is devoid of much traffic. People who do come in are not eager actually to close the deal. And the dealer looks out the back door and sees all these cars on the acreage that are not being sold and he is paying interest to carry them. So, I think there's good reason for most dealers to be very negative. And they are the ones who have to send orders in to the manufacturers or the manufacturers don't have enough to keep their plants running. I think that's what is driving these decisions. They are not made unilaterally by the car producers; they are based on the orders received from the people out in the so-called trenches. If you look at inventories that way, we are not in as good shape as the aggregate figures might suggest. I'm more concerned about the housing situation I think than Michael is, mainly because housing under construction is the sector that really is taking the brunt of the credit crunch, if you care to call it that. Also, I think there is going to be a growing problem coming from state and local governments. Now that the elections are over we're going to see some more honest statistics presented. They looked pretty bad even before the election, but now that that's behind us I think we're going to see still more states [and cities] that are in not very good condition. Mr. Boehne's Philadelphia is the greatest basket case, but it's probably going to have some competition.",653
-fomc-corpus,1990,We have some company coming along from the Big Apple.,11
-fomc-corpus,1990,"Exactly, the Rotten Apple! Those are some of my concerns. Putting this all together, I would love to believe the staff forecast and would love to accept the idea that the improved oil price situation will turn the economy around in a couple of quarters. But because I don't believe that the oil price hike is the main problem, I'm not as convinced that having oil prices behave well will turn things around. I really think we are going to have to deal with this fragility in the banking system and the credit availability situation or we are going to have something that none of us has seen before. Thank you.",121
-fomc-corpus,1990,Vice Chairman.,3
-fomc-corpus,1990,"Well, there's not much more I can add. It is now clear to me that we have had what I would characterize as a violent shock to expectations and attitudes. As far as I can piece together the diagnostics of that, I rather agree with Gary Stern's view of it. I think the oil situation and the war issue are in the realm of the straws that broke the camel's back. A lot of stuff was there to begin with. The budget process hurt a lot. But I might say in that regard, having now had the time myself to put that budget package under a bit of a microscope, I find that there's a helluva lot more substance to it than I thought there was, especially in the out years. But, of course, there too what happened was that the process was so long and the near-term deficits were so large that what in fact is not a bad package has just been swept away. I think there's no recognition of that at all. I spoke a few moments ago about the international dimension of this situation, but I really think it does need emphasis. Maybe anecdotes don't do much, but the fact of the matter is that over the past, I'd say, four to six weeks I have had literally a string of people whom I consider to be the true elder statesmen of international finance--these are guys who have been around for 40 years in many cases--telling me that they have never seen a situation as delicate as the one right now. And the focus is all directed at the United States, with particular emphasis on U.S. financial institutions. And as Peter said in his remarks earlier, it is by no means limited to banks. It is across the board and it is indiscriminate; AAA-rated companies are being affected just as much as lesser rated companies. And as I said, I cannot help but take seriously comments like these from people who have been around the track, in a couple of cases almost longer than I've been alive. I think there is the danger--I don't want to call it a probability or anything like that--of some kind of a serious liquidity shock originating offshore, And that, of course, makes for a further serious complication in the context of the whole exchange rate situation, because in the eyes of the rest of the world these problems are very much linked back to the exchange rate. But what we have is something that appears now to be taking on the organic, if not the statistical, properties of a recession. But it's a different kind of recession and this is a little like what I think Ed Boehne was driving at. If indeed we are in a recession, it will be the first recession in recent memory that has not been predated by a sharp and protracted rise in interest rates and the underlying inflation rate. I don't know if my history is right but I suspect that if it is a recession it will be the first in the postwar period that will have that trait of not being preceded by a buildup in inflation and a sharp rise in interest rates. In those circumstances, I think that the policy response, as Ed Boehne said, is a helluva lot more difficult. It is partly expectations to be sure; but at this point it's very hard to take exception to the fact that the credit side of the equation is a powerful force at work here. When I look at that credit side of the equation in kind of snapshot terms, I still come to the view that it is not as bad as all of the market forces, press reports, or rumor forces would have one believe. But the problem with snapshots, of course, is that they are frozen in time and they don't tell you a lot about the future. And one of the things that has become a matter of some increasing concern to me is that I can now easily see any number of other parts of the country besides the Northeast that could get bitten rather sharply by the real estate problem that is at the heart of so many of the problems, at least in the Northeast. And, of course, as Ed was suggesting, if that does begin to play out and reinforce itself on the credit side, I think it can make things a heck of a lot more difficult. In the context particularly of the risk--however large or small you may think it is--of some kind of a serious liquidity problem originating offshore and of the sensitivity of the dollar, there are limits at least at this point as to how much can or should be done with lower interest rates. That also brings me to the view--not unlike Dick Syron's suggestion or I think implicit in Ed Boehne's suggestions--that maybe we have to start looking at some other things here. I mentioned this at the last Committee meeting and almost got run out of the room--it's not the first time that has happened and it won't be the last--but I must say that despite the political risks I still have an awful lot of sympathy in this environment for thinking about doing something with reserve requirements, even if it had to be watered down and phased in and convoluted. I think I am fully sensitive to the risks, but I'm also sensitive to the risks on the other side, which I think are more than anyone knows at this point.",1056
-fomc-corpus,1990,Governor LaWare.,4
-fomc-corpus,1990,"Mr. Chairman, the economy in the Potomac district is decidedly mixed. Real estate is very sloppy with hardly any construction going on and over 100 houses on the market with no bidders. Retail sales are very soft and gasoline prices are much too high.",51
-fomc-corpus,1990,Which district is this?,5
-fomc-corpus,1990,"This is the Potomac district, so it is the 13th district.",16
-fomc-corpus,1990,That's an unlucky number!,5
-fomc-corpus,1990,"That's a subdivision of the Fifth District, Mr. Chairman.",12
-fomc-corpus,1990,It's a zip code.,5
-fomc-corpus,1990,"Turning to the national economy, I guess I'm in a policy quandary at the moment. I'm convinced that these gloomy consumer attitudes will be reflected this quarter in retail sales, with the exception perhaps of the luxury items that will be subject to tax after the first of the year and may be moved back into the quarter. But perhaps that argues that the first quarter will be a little softer. Corporate profits, although they're a little better in the third quarter than predicted, are still far from robust and are very spotty. Add to that the problems of the airlines and anybody else involved with energy and it seems to me that there is a lot of pressure there. Capital markets at least in the near term are increasingly closed to the banks and I think that potentially is going to create some very severe problems for the banking system, not just in real capital but also perhaps in short-term funding. In all probability, I don't believe that the banks will lend us back into growth at least until they see some improvement in earnings, understand and know how to deal with the current regulatory constraints, and feel comfortable with their capital ratios. What I'm implying is that this downsizing that is being undertaken to either get capital ratios to the minimums or to build additional cushions is going to continue. And that's not consistent with pro-growth lending in my opinion. I think recession obviously has real downside risks due to the often cited fragilities, and I've probably cited them more often than anybody. On the other hand, an easier policy would put the dollar at risk, and I'm convinced that the implications of a very weak dollar--a flight from dollar securities--in the midst of this bad image that we have projected of disarray in terms of political leadership could have long-term consequences that would be uncontrollable from the standpoint of monetary or even fiscal policy. And I think that the psychological attitudes out there right now, which we hear being expressed not only by consumers but also by businessmen and bankers, may prevent any ease from being stimulative in the long run. So, the possible contradictory effects of policy moves in either direction leave me in a quandary as to where to go from here. I guess that sums up where I am.",439
-fomc-corpus,1990,Governor Mullins.,4
-fomc-corpus,1990,"Well, I think we have a recessionary psychology in full bloom. It has captured the staff and also most business people as well as consumers. Even though the hard evidence is not in yet, everyone is behaving as if we're in a recession. It interests me that in the lending officers survey the primary reason given for tightening credit standards is the condition of the overall economy. Presumably, that was just after the third-quarter GNP number of 1.8 percent was released. I think the evidence is fairly clear that the staff is pretty much right this time. As Jerry Corrigan mentioned earlier, it is a curious recession. It breaks a number of the rules--not only the rule that we usually expect a precipitous spike in inflation and an inverted yield curve. That may be sufficient for a recession but it apparently is not necessary. Another rule we've broken, which has been mentioned a number of times, is that we see no inventory accumulation problem; maybe that's a thing of the past if people take a different approach toward inventories and we now have the technology to back up that approach. The other thing which may be curious about this recession is that we may go through it with an unemployment rate that is right around what we used to consider full employment. In October the unemployment rate stayed constant despite the weakness in the report because the labor force dropped by about the same amount as jobs dropped. I think we'll probably not break that rule, though, and that unemployment will drift up. But it's pretty much a full employment recession, so far at least. All those signs would suggest that the recession should be relatively mild because we don't have the imbalances in inventories and we haven't had the spike in interest rates. It also suggests that maybe we can make some progress on inflation. As the staff mentioned, we have a number of pieces of good news there. I think it's instructive that commodity prices still show no real signs of taking off. Most of the indices we follow are lower than they were last week, last month, and even last year once you take out the energy prices. So, given the increasing slack in the economy, maybe we're making some progress there, although it probably would take quite a few months to convince us that we really have made any progress. It's just better than going in the opposite direction. I tend to agree with the sentiment of a number of people that the real problem is in credit markets. I'm concerned with how below investment grade companies get credit. We've seen some widening of the spreads; default rates are up in corporate bonds and I think they're going to continue to rise, especially as the big bulk of junk bonds ages and gets to the age where default rates typically go up. It is true, as Tom Melzer mentioned, that we can see people going to alternative paths when bank credit is not available. Commercial paper issuance has gone up and finance company lending has increased markedly. That I think is hard evidence of tightness in bank lending. I wonder, though, whether those channels are sufficient to meet all comers. Generally, we see a lot of evidence of below investment grade, medium grade firms, having difficulties. I think it was Peter who mentioned that the spreads between high-yield bond indices and Treasuries are now 1200 basis points, which is up from about 400 basis points. Still, I think the greatest reason for concern is financial institutions. I see weakness across the board, not only in the banking system. Another thing Peter mentioned is what's going to happen at the end of the year. We continue to hear stories that institutional investors are going to go to great lengths not to show banking securities on their year-end statements, which could give us some interesting times. We've talked a lot about the banking system, but if you look beyond the banking system you see developing problems in virtually all other types of financial institutions. The ""good thrifts,"" if that's not an oxymoron, have exhibited deteriorating profitability in the third quarter. Insurance companies are suffering from asset quality problems. It may be that Equitable has closed on Peachtree Center, but people are closing in on Equitable as well. Securities firms are also not in great shape and are under quite a bit of pressure. There's excess capacity; there's simply no business out there in mergers and acquisitions or in underwriting. They have some trouble with asset quality with some bridge loans and the like. Maybe some of those things are getting taken care of, but we hear even the best investment banks complain about skittishness in the suppliers of capital to them; we've heard a lot of that from some of the best ones. The health of the finance companies who are called upon to increase their lending is also being called into question. And even the government sponsored enterprises [are having problems]: Freddie Mac, as you might have noticed, has had some difficulties with multifamily housing; Fannie Mae has tightened standards; and Sallie Mae also has had some difficulty. So, when you look across a broad range of financial institutions you see weakness; and you see a system which is not in good shape to provide credit to people who need it and who are worthy of it. These sorts of trends are clearly understood by the capital markets. The long rate has come down substantially, reflecting the slowdown, perhaps 50 basis points or so. And quality spreads for these financial institutions have widened, giving evidence to the problems there. In terms of the monetary aggregates I see seven months where M2 has grown a little less than 3 percent. So, I tend to believe that monetary policy has remained reasonably tight over the full [1990] period. Going from the fourth quarter of 1989 it's still above 4 percent; but M2 growth was 7 percent in the fourth quarter of 1989 and 6-1/2 percent in the first quarter of 1990. When you average together the last six or seven months--maybe that's still not long enough--even if you take all the components of M2 together, that aggregate has not been growing very rapidly. So, when I look at it, I agree with the projection of a mild downturn; I also agree that there's a great risk that the downturn could become much more severe and longer in duration, given the weakness of the financial system. I also think there's a credible case that some lowering of short rates would improve the financial health of these institutions and perhaps at the margin also loosen up some credit and produce a growth rate in the aggregates that would at least creep back into the lower range of our accepted policy.",1321
-fomc-corpus,1990,Governor Kelley.,3
-fomc-corpus,1990,"Well, Mr. Chairman, by late in the day when it's your turn to speak, you always run the risk that by then somebody already has expressed your view. And David just expressed mine. As a consequence, I'll try not to be redundant. I've been increasingly concerned in recent weeks about the specific composition of what's going on here. We have been going through a series of rolling recessions in this economy for a decade I guess, and I would argue that on balance it's been a very positive experience. Industries and indeed all regions have had an opportunity to go through a planned decline, to restructure, and to come out of it stronger. And they've been doing it against a background of overall strength so that it has been able to be done rather quickly. Although it's never any fun while you're in it, at least it's about as good a process as you could expect and it's rather healthy. But we have two sectors going now that seem to me to be rather unique, and they are very interrelated and very interactive. And, of course, those two are the real estate sector, where we are grossly overbuilt, and the financial institutions. David just gave us a good [overview] on that and I won't repeat it. But it seems to me that these two in decline together have the prospect of having a materially different effect on the economy than maybe almost any other two sectors that one can think of because of all the leverage they exercise on the rest of the economy. First of all, they are felt everywhere and are not just in a specific constrained region or constrained industry; it's a drag across the board. Secondly, there is the wealth effect on confidence and on people that has to have some effect on buying decisions. And perhaps it will come to have an effect on debt servicing. But it's obviously essential to the growth of every industry; and there's enormous leverage when credit gets tight, as we all know. Also, these two situations feed on each other. It's going to be interesting to see how that process exhausts itself. The asset quality of banks is being dragged down by real estate; on the other hand, you can't work through the real estate recession because the lack of credit is pulling down the ability of real estate to be moved and cleared out. I don't know where else that could occur where we have that kind of interaction. We've seen automobiles and agriculture going into the tank and they were not terribly interactive. Energy and textiles were going into the tank and they were not terribly interactive. But these two are. And taken in tandem I worry that there's the potential for very serious mischief. I would hope that we're going to watch that very closely and perhaps take out a little insurance against the possibility that these are the two that could get away from us on the down side.",559
-fomc-corpus,1990,Governor Angell.,4
-fomc-corpus,1990,"I've been noticing as I've been listening to the comments around the table that in reflecting we quite often use the words symmetric and asymmetric. And I've been thinking that there's somewhat of a lack of symmetry in regard to the way we're approaching two quarters of expected growth below where we'd like it to be. I have a feeling that if we had [in prospect] two quarters of growth above where we would want it to be, there wouldn't be near the kind of alarm and the wondering about how we're going to get it down three quarters from now so we only have two quarters of boom. But you can't have six quarters or seven or eight quarters that are stronger than you want and then turn around and have two that are less than you want and come out with anything like price stability. Some of you talk as if the worst case scenario is that we might not get this recession, if we're in one. And I'm about as sure as David Mullins is on that; it clearly is very soft. But some of you are worried that we're not going to get out of it in two quarters. The only recession that I remember that was five or six months in length didn't make a single bit of difference in regard to the underlying rate of inflation. This is not an event induced by a monetary shock event. It might be a culmination of monetary restraint, but it's not a monetary shock event. And if we try to jab our way out with a monetary reaction, we might very well find ourselves worse off than we were before. In other words, I think we have to have more confidence that the system will work and that we don't have to have a policy that in a sense is countercyclical; we just have to avoid policy that's procyclical, because I believe that the recovery forces in the kind of economy we have out there will be in place. So, I'm a little more worried about balancing our way back out of it before we get the imbalances corrected. If we're in a recession and it takes three or four quarters to get out and we get the price level thing together, then it seems to me that we have a much better chance to avoid what we most wish to avoid. I think the question is: Can we get out of this situation without having a downside event? And it seems to me a downside event is not now in place. It seems to me that we run the risk of having some other events take place which could cause destabilization in financial markets, and that's when we're going to be in real difficulty I think. That's why I join with those who worry about the foreign exchange value of the dollar. We are a reserve currency country that has a good deal of the world's claims that rest with us. And the global ability to take one's money and go is much more volatile than I think we've ever experienced before. So, to get ourselves in a position in which our rate of inflation is higher and our interest rates are dramatically lower than those of major competitive reserve currency countries--and if we begin to move dramatically on policy in that kind of environment--seems to me is most likely to precipitate a destabilization of markets. Now, I agree that the financial situation and financial institutions pose risks and I don't favor interest rate targeting. But clearly if we have an end of the year kind of event, interest rate targeting might be exactly what keeps that from getting out of hand in a sense, Mr. Chairman. That is, interest rate targeting in that kind of environment does mean that we might end up supplying a few more reserves at the end of the year than we may be anticipating doing. So, my view is that the foreign exchange value of the dollar will be okay even if it drifts downward in an environment in which price level corrections are evident to all. That is, if we see the rate of inflation really coming around and if we have commodity prices that are deflating, then in that atmosphere I believe we can have considerable ease without being disruptive. But I think it's pretty risky for us to get too premature with all that.",816
-fomc-corpus,1990,President Hoskins.,4
-fomc-corpus,1990,"Well, let me be very brief. The District is not too much different from what I reported to you last time. People were pessimistic last time, if you recall, but when I checked their order books they also had a reason as to why their own specific firm was going to do all right. Now we're actually picking up some cancellation of orders to firms and that kind of thing. So, it's a little softer. But perhaps surprising to some of you is that manufacturing employment still is almost at the same level it was when it reached its high in early 1989. So, there hasn't been much deterioration and there probably still is some growth left in the District. Steel, for some very special reasons, is running at a pretty good rate. Those special reasons are that the dollar is weak and imports are shut down and Canada, of course, has a steel strike under way. So, we're getting some special help there. What has changed the most is what I would call a loss of confidence by the bankers in the District. It's not so much a view that the world is coming to an end but just this hunkering down attitude that we're going to build a fortress balance sheet and that's the way to survive. That's the nature of what we hear all the time and that's a little disturbing to me. Switching to the national outlook, I haven't any reason to object to what Mike has presented in the forecast. I have trouble with forecasts because the errors are really quite large in them. But the reason I asked the question was that it seems to me there are two kinds of errors that we can make if we are in a recession or heading into one. One is that if we try to head off a recession or keep it relatively short in time or very shallow without having all the necessary information about where we are in the economy, by an aggressive easing of some kind we could actually cause an increase in inflation, notching it up and making ourselves worse off. That's why I was interested in your confidence intervals. So, it seems to me that one mistake we don't want to make is to ease aggressively, cause inflation to rise, and be caught in that potential trap that Wayne alluded to. The second kind of error is the one that concerns me and really is the subject of Don's talk later on, and that is that we've been pegging the funds rate. If the economy is weak and we're pegging the funds rate too high, then the aggregates are going to shrink and we will provide a monetary shock to the economy. And while two months don't make the case, as Governor Mullins pointed out, we've had a rather strange pattern in M2. So, I have some concerns about that risk as well.",548
-fomc-corpus,1990,Don Kohn.,4
-fomc-corpus,1990,[Statement--see Appendix.],6
-fomc-corpus,1990,Questions?,2
-fomc-corpus,1990,"Don, how do you get your December number for money?",12
-fomc-corpus,1990,"Well, it's largely an assumption. The incoming data are quite weak. The most recent weekly data actually suggested a decline; I don't have anything new since the Bluebook. Our presumption was that, with short-term rates having declined, some of the weakness was a bit of an aberration and some of that would level out and start back up again. So, it's a projection based on past relationships and based on the staff's economic forecast which is for weak income growth and still an increase in nominal income.",102
-fomc-corpus,1990,"I might note that in terms of our forecast, nominal consumer expenditures will grow in excess of 6 percent in the fourth quarter, which would affect transactions demands for money.",34
-fomc-corpus,1990,We certainly have projected considerably less money than the models suggest.,12
-fomc-corpus,1990,"No, I was just curious because the model hasn't been performing very well and--",16
-fomc-corpus,1990,We've actually allowed a larger shortfall from the model's projection in the fourth quarter than we've had for the past few.,24
-fomc-corpus,1990,"Other questions for Don? If not, let me start off by saying a little more about oil prices. At this particular stage we have an economy where supply and demand have come into balance. The Saudis have brought back liftings to a point where the shortfalls that occur as a consequence of an embargo are pretty much closed at this stage. As is typically the case whenever you get higher prices, all the other OPEC members cheat. You can see it in the data and you can see that the inventories are no longer under pressures. And there is some evidence that consumption is slowing down against these higher prices. What we obviously have is a group of refineries throughout the world that think there's going to be a war and that they don't have adequate inventories; and it's their bidding in the market for existing inventories which has kept the spot crude price $10 to $12 a barrel over its equilibrium position. There is some reasonable assumption that at where inventories are now there are potential storage problems. The evidence is that inventories on the seas are increasing; the tankers are slowing down again, which is a typical pattern when there's a bit too much oil out in the system. This announcement of no rotation of U.S. troops in the Gulf is a statement that short term, either we are picking up our bags and leaving or we're taking a bunch of shots and then picking up our bags and leaving. And unless we get severe damage to the Saudi fields at this particular point or accidents in the refinery systems around the world including Kuwait, which I think we could probably write off at this stage, the oil price assumptions in the Greenbook short term are too high. In this market it's going to go straight down for a while until we get a readjustment. I'm not altogether certain that that is unequivocally positive. The reason I say that is that we're thinking that we're dealing with a symmetrical system in which higher prices--leaving our OPEC members aside--are negative and lower prices are basically positive. But what I think we have here is a system in which, as a lot of you have said, the oil price rise essentially has had an income effect, which basically we see as crucial at this stage on consumption expenditures. Unquestionably, there is a very large risk premium that has hit the market as a consequence of the Middle East situation. We can see it in the yield spreads on securities, which have all of a sudden just taken off; the A1/P1 to A2/P2 spread has moved over all maturities; everything has opened up. If you take a look at the forward exchange rates that we calculate, the so-called 10-year forwards--which as a practical matter are a rough cut to get at what's happening to the exchange rates by subtracting the yield spread changes from the exchange rate--what you see is a relatively high forward exchange rate for the dollar in the G-10 currencies, which holds up until about midyear and then starts to come down; and with the budget problems and the Gulf problems it just falls like a rock. All of this suggests that we have a very unstable environment--one in which the economy is being pressed down by the [adverse] psychology. I think, for example, that the uncertainties and the risk premiums coupled with the oil tax, if we may call it that, are pushing down on consumption, opening up savings. And if there were inventories sitting behind this, I think we would be in a free fall right at this stage. I don't think the evidence--at least from the initial claims, which are the best figures we have--suggests that the economy is falling off the cliff as yet; it may three weeks from now, but it hasn't yet. It seems to be crumbling very gradually under the financial pressure that everyone has been talking about. What we have basically is old-fashioned disintermediation; that is, it is not that the net underlying credit demands that finance the GNP are collapsing; they seem to be going up slower than they were but we sure enough seem to be seeing that the intermediation system--not only depository institutions but insurance companies, finance companies, and everybody else--seems to be pulling back. And what we are getting is the obvious tightness, which I think clearly is the major factor in a contraction of M2 and which is only one side of the depository institutions' balance sheets. You can basically see the thing squeezing down as we get loan officers pulling back. The one great advantage that we have in all of this I think is that slowing inflation is now finally becoming credible. Certainly, the employment cost index was a very important indicator, and even now there's a lot of question about the zero average hourly earnings number that we saw in the October release. It is all consistent with a significant slowing down, which I think is beginning to show up in the underlying price data. Indeed, if you disaggregate the CPI prices and reconstitute them with the weights coming from GNP --that is, using the fixed-weight PCE deflator--there's a very significant lower core rate of inflation implicit in there, which essentially reflects the problems we are all having with the housing service component in the CPI. And there you have the very anomalous question of the market value of the underlying assets of this residential or quasi-residential group. That's going down slightly and rents are going up. Now, rates of return don't do that. And I'm merely offering the suggestion that the commodities CPI is under 4 percent. If you substitute some reasonable estimates for the services component for housing, I think we're beginning to get some evidence that at a minimum the acceleration has stopped. While it's still premature, and indeed I think it's potentially dangerously premature, to assume that we have it beaten, I think that for the first time there are hard numbers that suggest there's something going on. Under these conditions one would not assume, were it not for the crisis atmosphere, that the dollar would weaken as much as it has because one cannot explain the extraordinary weakness in the spot exchange rates strictly by the yield spread differences. In fact, the type of calculation that we make, which tries to separate that, clearly suggests that a very significant part of the weakness in the dollar is essentially a vote of no confidence in the United States obviously with respect to the banks, financial institutions, and everything else. Under those conditions, it's very clear to me that if we are perceived as responding excessively easily to all of the other signs that would induce central bank ease, that the risks of the system cracking on us are much too dangerous. I think we have to be awfully careful. Nonetheless, I don't think that we have the choice at this stage of not trying to ease into the markets, being fully aware that at the first sign that we get of negative response we're going to have to stop. I don't know whether or not we can do more than a 1/4 point over the next several months. I would say the economy and M2 and the financial markets require it, but we may not have the choice. In any event, I would suggest that we do have the possibility here--because there is no inventory system throwing us into a potentially sharp decline--that what we are looking at is a non-inventory shallow contraction which can stabilize after the saving rate adjustment is completed as a consequence of the oil price shock. Even though, as I said before, I don't think that the decline in oil prices is going to be symmetrical with respect to [unintelligible], I still think that the oil tax will reverse, but I'm not sure that the psychological impact is going to be readily soothed over, so to speak. So, I think we have a good shot at actually coming up with the Greenbook's forecast. However, I would read it slightly differently; I think that the best thing to do at this stage, when confronted with the types of problems which give John LaWare difficulties, is to remember what a central bank is here for. A central bank is here to maintain monetary conditions in a stable manner. And I would say that at this moment, if we had a money supply that was going up around 5 percent, I would be very concerned about moving in the direction of ease even in this context of weakness. But with the money supply doing what it's doing and the evidence of the continuous contraction that is going on, I would opt to ease 25 basis points right now and stay asymmetric [toward ease] with the understanding that only if the situation continues to worsen and is manifested in the credit aggregates in one form or another should we move again. But if there is any evidence of significant weakness in the dollar, I think we will have to pull back and harbor the thought; it's not inconceivable to me that at some point if we overdo it, we will have to move back up. Anyway, I would propose that as sort of the ""least-worst"" policy alternative that I can conceive of at the moment. In summary, it's essentially for us to go down 25 basis points and stay asymmetric and watch the system as closely as we can. Ed Boehne, do you--",1855
-fomc-corpus,1990,I support your least-worst policy.,8
-fomc-corpus,1990,President Keehn.,4
-fomc-corpus,1990,I concur with your recommendation.,6
-fomc-corpus,1990,President Forrestal.,4
-fomc-corpus,1990,"I agree entirely, Mr. Chairman, except that I think that we also have the possibility of moving another 25 basis points if the markets don't react adversely. In other words, my preference would be to do 25 now and then wait for another opportunity to do another 25.",57
-fomc-corpus,1990,"Well, that is basically what I'm saying. But we have to be very careful on how we interpret things; in other words if the markets behave at all adversely and we hit them at the point when they are marginally adverse, I think there a danger. Governor Angell.",56
-fomc-corpus,1990,"Mr. Chairman, I can live with your formulation because it seems to me that you placed the emphasis upon the tenuousness of the situation. And it does not indicate that, except under the best conditions, we would go farther. I would comment in regard to M2 that I could very well support a regime in which you announce and thus the whole world knew what we were doing with M2 and would thereby not conceive of it as an easing. Because in a sense, if we were on an M2 regime, this would not be an easing. And I think the foreign exchange markets might interpret it as not being an easing. I have a little difficulty with--",135
-fomc-corpus,1990,"You lost me on that last lap there, Wayne.",11
-fomc-corpus,1990,"Yes, I know. I have a little difficulty trying to blend this formulation of policy with that one because it's hard for the foreign exchange markets to know exactly what it is we're doing. But the bottom line is: I could live with your formulation.",50
-fomc-corpus,1990,President Parry.,4
-fomc-corpus,1990,I would support it as well.,7
-fomc-corpus,1990,President Guffey.,5
-fomc-corpus,1990,"I would also support it. I do have a question, however, Mr. Chairman: Why an asymmetrical directive?",24
-fomc-corpus,1990,"Well, basically because I think the evidence at this particular stage is that we're more likely to have an opportunity to ease before the December 18th meeting than that a break in the foreign exchange markets is going to cause us to go in reverse.",49
-fomc-corpus,1990,"I think I understand that we eased two weeks ago, and I assume you're proposing under this recommendation to ease tomorrow or sometime when it's convenient to the Desk. That's essentially two easing moves within 2 or 2-1/2 weeks and there may be a further opportunity in the period ahead before the December 18th meeting. But I would prefer if we're going to ease now--and I would delay it for a few days, by the way, and not do it right at this meeting but wait until we get some additional numbers on retail sales which come out tomorrow and do it next week--to accept your recommendation and then have a consultation before we ease again. In other words, it could be three times in something over a month.",149
-fomc-corpus,1990,"Well, let me say that I think it would be a mistake, short of some extraordinary event, to move again in another week or so. I don't think that's a good--",36
-fomc-corpus,1990,"What is the exact effect of an asymmetrical directive, then?",13
-fomc-corpus,1990,"Personally, I'm saying we're going to have to go through December 18th. In other words, if a situation emerges in which the economy continues to soften, I would consider that what we're dealing with is early December, something of that sort. Let me put it this way: I don't think it would be wise to try to formulate exactly what would be done. If it is sufficiently ambiguous and a difficult decision to make, I think it would be appropriate to call a telephone meeting and get the advice of this Committee. It may not be that way; it may be as it was, for example, for quite a while when we were asymmetric and didn't move for weeks from one period to the next. It's going to depend on events.",148
-fomc-corpus,1990,"I understand that, and you have been very prompt to call a consultation under the circumstances you've just described. I guess maybe I need some clarification of what a symmetrical and asymmetrical directive mean then. Because if I understood what has been discussed before an asymmetrical directive would give the Chairman the flexibility to move without consultation one time in the intermeeting period.",70
-fomc-corpus,1990,"I agree with that. The only reason I prefer the asymmetrical language is that it's my impression of the forces we are looking at that it is more likely that we will be moving down than moving up. That's all it means. Frankly, I'm not certain that it really has that much operational significance because if the economic events are clear enough, it's not going to matter one way or the other what that tilt is.",84
-fomc-corpus,1990,In a sense you didn't want to change the directive; you wanted to leave it the way it was?,21
-fomc-corpus,1990,That's correct.,3
-fomc-corpus,1990,"But basically, you have a kind of balance in your recommendation, which is a little unusual.",19
-fomc-corpus,1990,Yes. Vice Chairman.,5
-fomc-corpus,1990,I support your recommendation.,5
-fomc-corpus,1990,President Stern.,3
-fomc-corpus,1990,I support it as well.,6
-fomc-corpus,1990,Governor LaWare.,4
-fomc-corpus,1990,I support it.,4
-fomc-corpus,1990,President Syron.,4
-fomc-corpus,1990,"I think it's the least-worst [position] and I support it. I'm concerned about the fragility issue, but I'm not sure any greater move would do anything beneficial; it may not.",39
-fomc-corpus,1990,President Melzer.,4
-fomc-corpus,1990,"My preference would be ""B,"" although I could support this. One of the things I worry about a little is all this prior unfortunate dialogue and how through comments the Administration has made and so forth we sort of have been linked into this budget process. I'd really prefer to do something after more time has passed because I think all that runs fundamentally to our credibility. I guess the reason I'm worried about it is the point Jerry and others were making about the dollar. I think we really have to guard our credibility because when it comes to defending the dollar we're really the only act in town. So, that gives me some concern; but I can live with [your proposal].",134
-fomc-corpus,1990,The move we made at the time the budget agreement occurred was not interpreted as a roaring--,18
-fomc-corpus,1990,"No, I understand that. I just worry that this might be interpreted as a second installment, and I don't like that linkage.",26
-fomc-corpus,1990,"I think that's right, but when they see the minutes of the last meeting I'm not--. Governor Seger.",23
-fomc-corpus,1990,"I'll support it, although I wish we could go 50 basis points, maybe just based on my having a negative--",24
-fomc-corpus,1990,President Hoskins.,4
-fomc-corpus,1990,"I'm more in the Melzer-Guffey camp on this in the sense that the economy does really appear to be softening up, but I think the reasons have to do with structural problems that we've all talked about, as well as the oil price shock, not necessarily Fed-type policy. I'm not sure there's much we ought to do about that. I do think we ought to guard against the error of having a continuation of money growth that is so low that we will shock the economy. Now, two months doesn't make a trend, but given the other things that people have talked about here in terms of a weak economy and fragility in the banking system, I can go along with your proposal. I would like to delay it, but I won't make a big issue out of that.",158
-fomc-corpus,1990,Governor Kelley.,3
-fomc-corpus,1990,"I support it, Mr. Chairman.",8
-fomc-corpus,1990,President Boykin.,4
-fomc-corpus,1990,"I concur, Mr. Chairman. I do feel a little of the sentiment that Tom Melzer expressed.",21
-fomc-corpus,1990,Governor Mullins.,4
-fomc-corpus,1990,I support it; I think it's fully consistent with the reduction in long rates that we've seen.,19
-fomc-corpus,1990,Can the Secretary read the appropriate directive?,8
-fomc-corpus,1990,"""In the implementation of policy for the immediate future, the Committee seeks to decrease slightly the existing degree of pressure on reserve positions. Taking account of progress toward price stability, the strength of the business expansion, the behavior of the monetary aggregates, and developments in foreign exchange and domestic financial markets, slightly greater reserve restraint might or somewhat lesser reserve restraint would be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with growth of M2 and M3 over the period from September through December at annual rates of about""--I'm not sure what--",111
-fomc-corpus,1990,1-1/2 and 0.,9
-fomc-corpus,1990,"--""1-1/2 and 0 percent respectively."" There would be no final sentence.",20
-fomc-corpus,1990,There's no final sentence. Would the Secretary call the roll?,12
-fomc-corpus,1990,Can we live with saying 1 to 2 percent or something instead of putting that 0 in there?,22
-fomc-corpus,1990,Zero? Can you have 1 to 2 percent on M2 and just forget M3? The 0 is for M3.,28
-fomc-corpus,1990,How about 1/2?,7
-fomc-corpus,1990,"Say ""M2 and M3 in the range of 1 to 2 percent"" or something like that.",23
-fomc-corpus,1990,Just forget about M3?,6
-fomc-corpus,1990,Leave M3 out.,5
-fomc-corpus,1990,Don't you think people will read that as M2 targeting?,12
-fomc-corpus,1990,As a change.,4
-fomc-corpus,1990,We ought to call all the Fed watchers right there.,11
-fomc-corpus,1990,"Yes, give them two things to talk about: no last sentence and no M3!",18
-fomc-corpus,1990,The minutes will have captured the substance of these changes; there is no problem.,16
-fomc-corpus,1990,They'll assume that we're going back to Ml.,10
-fomc-corpus,1990,"I don't know. Don, can you accept 1 to 2 percent for M3 as well?",21
-fomc-corpus,1990,"Sure. I think we won't get it, but that's fine.",13
-fomc-corpus,1990,Why do that?,4
-fomc-corpus,1990,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Boehne Yes President Boykin Yes President Hoskins Yes Governor Kelley Yes Governor LaWare Yes Governor Mullins Yes Governor Seger Yes President Stern Yes,45
-fomc-corpus,1990,The next meeting is on December 18th.,10
-fomc-corpus,1990,Would somebody like to move the minutes of the previous meeting?,12
-fomc-corpus,1990,So move.,3
-fomc-corpus,1990,Second.,2
-fomc-corpus,1990,Without objection. Gretchen Greene.,7
-fomc-corpus,1990,[Statement--see Appendix.],6
-fomc-corpus,1990,Are there any questions for Gretchen?,8
-fomc-corpus,1990,"Gretchen, do you think the market continues to anticipate further easing by the Fed? Is that the [unintelligible] of the market?",31
-fomc-corpus,1990,I think the body of opinion does expect that. The questions in the market's mind are: How much and how fast?,25
-fomc-corpus,1990,"You mentioned that negotiations to ratify the swaps are finished. My question is: Given the size of our current foreign exchange holdings, why do we need to ratify those levels?",36
-fomc-corpus,1990,"These are the swap arrangements that we have with other central banks, which have a term of one-year and are renewable every year. As a routine matter we renew them each year.",36
-fomc-corpus,1990,It was more than just Germany and Japan.,9
-fomc-corpus,1990,"Yes, the action to renew them was endorsed by the Committee at the last meeting.",17
-fomc-corpus,1990,"Gretchen, I've always wanted to know how much of the activity in the foreign exchange market involves corporate positioning as opposed to traders who work for money center banks. I know that many multinational corporations are having to get involved with foreign exchange more and more as a byproduct of their real work. Do you have any sense of how that proportion would fall out?",72
-fomc-corpus,1990,"That's a very difficult question to answer, partly because we don't have very good statistics and partly because the concept is hard to define. When we last conducted the turnover survey, in 1989, we did ask banks to tell us what proportion of their total foreign exchange turnover was with customers. I've forgotten the number, but I believe it was somewhere between 5 and 10 percent. But that only goes so far, because it depends on every respondent identifying who was a customer and that would not necessarily be a corporate customer. Nonbank financial institutions could be customers also. The rest of the business that a bank does, although it's reported as interbank business, may be in support of the customer's business. For example, if I do a trade with a customer and then I wish to manage my position, that forces me to go into the interbank market to do a certain amount of transactions. I think the average number of interbank transactions one might engage in to support one customer trade could be anywhere from 4 to 10.",207
-fomc-corpus,1990,"What made me think of it was that I was talking to a friend of mine who is a corporate treasurer and he was saying that in their shop, which is a very major company, they now have at least one person in the treasurer's office 24 hours a day monitoring what is going on around the world not only because of general interest but also because of their foreign exchange situation. That's what made me think that maybe corporations as whole, particularly multinational ones, are more involved than they used to be, say, 10 or 15 years ago.",113
-fomc-corpus,1990,I think they are; the trend is definitely [up].,12
-fomc-corpus,1990,Thank you very much.,5
-fomc-corpus,1990,"Further questions for Gretchen? If not, can we hear from the domestic Desk, Peter?.",19
-fomc-corpus,1990,[Statement--see Appendix.],6
-fomc-corpus,1990,Questions for Peter on either the Desk operations or the leeway request?,14
-fomc-corpus,1990,"You mentioned the reserves that institutions would need for clearing purposes and that, obviously, the required reserves also have served that purpose to this point.",28
-fomc-corpus,1990,Yes.,2
-fomc-corpus,1990,Who actually will be determining that number? Is that a bank matter? It's not a monetary policy matter.,21
-fomc-corpus,1990,"Well, the banks will make their individual decisions on this; it's a question of what levels they will feel comfortable with. We've spoken to some of the money center banks who have been reviewing where they will be with the reduction in reserve requirements. Several of them are considering establishing these required clearing balances because they say, for example, that the balances they would have to keep at the Fed would be coming down to a range that just doesn't give them enough of a margin of comfort for daily operations.",98
-fomc-corpus,1990,"Well, I understand that. But I just wondered if the people within the Federal Reserve who are so concerned about the daylight overdraft issue are also going to get involved in setting the numbers or if it would be driven strictly by managerial [decisions].",50
-fomc-corpus,1990,Reserve Banks--,3
-fomc-corpus,1990,"Well, the comments I've heard have had to do more with just the avoidance of overnight overdrafts. Some of the studies by the Board's staff suggest that not very much impact is expected on the daylight overdraft side of it.",46
-fomc-corpus,1990,"We expect some increase, but relatively small. It is very hard to gauge, given that banks presumably would re-orient and re-configure their transactions to avoid those overdrafts if possible. In terms of required clearing balances, my understanding is that that is driven primarily by the commercial banks in an effort to avoid overnight overdrafts.",66
-fomc-corpus,1990,Will we need to use foreign currency as backing during this period?,13
-fomc-corpus,1990,It looks as though we will need to in early January; I think Don would know.,18
-fomc-corpus,1990,Our projections agree with Peter's.,7
-fomc-corpus,1990,Will there be some announcement of this or will it just happen mechanically?,14
-fomc-corpus,1990,"The Chairman signed a letter--I asssume it went out last Friday or Monday--to the Hill notifying them and an S-letter notifying the [Reserve Banks]. Hopefully, there will not necessarily be a public announcement; it's up to them. An S-letter should be already out or will be going out to the Reserve Banks with the appropriate documentation to the Federal Reserve agents. That was supposed to go out at the same time, so it might have left yesterday.",93
-fomc-corpus,1990,President Syron.,4
-fomc-corpus,1990,"Peter, you mentioned market expectations of what might happen next in terms of rates or even a discount rate move.",22
-fomc-corpus,1990,Yes.,2
-fomc-corpus,1990,"You noted what the situation was and the range of expectations developing in the market. To what extent is that difference due to this year-end situation? In other words, people are saying that it may be a while before something happens; how much are they influenced by the year-end situation? Is it markedly different than if we were at the same place in the cycle--if it's possible to determine that--and this were July rather than December?",88
-fomc-corpus,1990,"I think the reserve requirement move was seen as being helpful in [terms of] the year-end situation. With respect to a further easing of reserve pressures or a reduction in the funds rate, I think some have felt that the steps taken recently helped in reducing some of those year-end pressures. But to say that that is a factor may just be imparting my own speculation about what their thinking process might be; maybe they're looking forward to another move near term. As I say, there was a high expectation, particularly after the last employment report, that there would be another easing by year-end; but it tended to get set back a little by the producer price report last Friday.",136
-fomc-corpus,1990,Thank you.,3
-fomc-corpus,1990,I'm just wondering if the funds rate is going to come down without a change in the discount rate. How do you think the participants in the market would view that? Would that confuse them or would that be a non-event?,45
-fomc-corpus,1990,"There has been some discussion about whether there are technical impediments to the funds rate coming down to the level of the discount rate or perhaps even below the discount rate. I think it would be feasible for that to occur--that the market would accept it. They would probably continue to look for the discount rate [cut] in due course, but they might think there were reasons--perhaps concerns over the dollar or whatever--that the Fed was holding off for a time on the discount rate.",98
-fomc-corpus,1990,Would it affect your operations at all?,8
-fomc-corpus,1990,"It would take some careful implementation whichever way one goes on this. So, yes, it would have some effect; but I think it can be done either way.",33
-fomc-corpus,1990,Easier or more difficult?,6
-fomc-corpus,1990,I don't really have a strong point of view.,10
-fomc-corpus,1990,It would be easier in that you would not have to worry about what the level of borrowed reserves was as much as you did.,26
-fomc-corpus,1990,Governor Seger.,4
-fomc-corpus,1990,"I have a question that relates to Bob Parry's question involving the relationship between the discount rate and the fed funds rate and also the very low level of borrowing. It seems to me that a big part of the so-called reluctance of banks to borrow could be explained by that. If you can get fed funds for about the same rate as the discount rate why go through the hassle at the discount window? [Unintelligible] your favorite desk a call. We probably will see borrowing go to zip, if we let the fed funds rate and the discount rate coincide.",116
-fomc-corpus,1990,Except for those who pay big premiums [over] the funds rate.,14
-fomc-corpus,1990,"Yes, but I may know an atypical group that has made money--",15
-fomc-corpus,1990,Would this have been seen as a possible temporary change or do you think the market would interpret this as either a change in operating procedures as far as what we said about the borrowings or a ratification of a change that may or may not have occurred in operating procedures? If we were to go effectively to no difference [between the funds rate and] the discount rate or a penalty discount rate without saying anything about--,83
-fomc-corpus,1990,I'm not sure how they would interpret it; I think they might regard it as a temporary circumstance.,20
-fomc-corpus,1990,"As I indicated in the Bluebook, I think that would produce a little uncertainty. I agree completely with Peter that from a technical perspective he could execute policy either way, particularly now that we pay a lot more attention to the funds rate and a lot less attention to borrowing than we used to. But I do think putting the funds rate under the discount rate would raise a question in some minds as to whether we had gone to a penalty discount rate. And it also would raise questions because the newspapers have reported that there are preferences within the Fed not to do that. So, I think if they see that, they then would be waiting for a discount rate change. It would raise a bit of uncertainty but it's certainly completely doable from a technical perspective. It would perhaps lead to a small increase in federal funds rate volatility, but very small.",168
-fomc-corpus,1990,"Peter, I think maybe you have answered the question, but let me just go back over it again. On this year-end issue, I keep hearing that because of capital level constraints this year the year-end pressures are going to be particularly tough. Are you saying that was the case but [unintelligible] a bit?",66
-fomc-corpus,1990,"Certainly, the concern is still there. It seemed to reach its peak about the end of November and came off. In the last couple of days we've seen some move back up but not with that near panicky feeling that seemed to be there in November. An awful lot of preparation was undertaken for year-end and in some cases we're hearing that institutions have prepared themselves to be able, within limits, to take on some credits at year-end where they think they will find good business opportunities to do some of that. So, at this point anyway, I'm not looking at it as a terrible looming problem, but it's certainly something that we're going to keep a very close watch on right up to the year-end.",141
-fomc-corpus,1990,"Peter, I don't think I understand the Japanese [unintelligible] in the market that has pushed the rates up. Are [U.S. money markets] providing liquidity to offshore Japanese banks or are they only providing liquidity to the Japanese banks here in the United States?",55
-fomc-corpus,1990,"Well, I think it has been provided mainly to the U.S. operations and then they may have done operations to move some of the funds. I can't say what might have happened after that step. But as to why there was this greater sense of demand--maybe Ted or Gretchen would want to comment too--there was some greater reluctance among U.S. banks to extend lines to Japanese banks to the same extent as before, because even though U.S. banks were being downgraded and were regarded with less favor, so were Japanese banks. There was less willingness to extend some of those lines and less willingness particularly to serve as intermediaries between, let's say, smaller U.S. banks that would have funds to provide and the ultimate Japanese bank as buyer. Whereas before a major U.S. bank might have been willing to sit there in the middle and take its 1/16th or 1/8th, they might say that it's not worth 1/16th or 1/8th to have this exposure to an entity that's coming under some question.",218
-fomc-corpus,1990,"Peter, I think you alluded somewhat--maybe I misread you--to the idea that in your day-to-day operations it's a little more difficult to signal where we are, given the reserve requirement change. I'm wondering if we should view this as an opportunity to get a little more variability into the funds rate and to get back toward more of a reserve borrowing approach. Of course, that would require the discount rate to be moved if we were to choose to operate in that way. Is this an opportunity?",102
-fomc-corpus,1990,"I don't really see it that way because I think what we have now just is a very low level of borrowing. And we don't really have a good substitute to put in the place of the focus on the funds rate. If anything, as we go through this transition period in the reserve requirements, I think we're going to have to lean even more on the funds rate. I really just don't see a good alternative to that.",85
-fomc-corpus,1990,Maybe we ought to signal explicitly then and tell the market what the funds rate [objective] is.,20
-fomc-corpus,1990,"Well, it's coming darn close to that.",9
-fomc-corpus,1990,"Further questions for Peter? If not, we need two motions. I'll first entertain the motion for ratifying the Desk operations since the last meeting.",29
-fomc-corpus,1990,So move.,3
-fomc-corpus,1990,Is there a second?,5
-fomc-corpus,1990,Second.,2
-fomc-corpus,1990,"Without objection. Secondly, would somebody like to move Peter's request for a leeway increase?",19
-fomc-corpus,1990,I'll move that also.,5
-fomc-corpus,1990,Second.,2
-fomc-corpus,1990,Without objection. We'll now move on to the other regular staff reports. Messrs. Prell and Truman have the floor.,25
-fomc-corpus,1990,[Statement--see Appendix.],6
-fomc-corpus,1990,[Statement--see Appendix.],6
-fomc-corpus,1990,Comments?,2
-fomc-corpus,1990,"Ted, I'd like to follow up a bit on your comments about net exports. The decline in GNP for the fourth quarter that the staff has in the Greenbook is about $32 - $33 billion and the improvement in net exports is about $30 billion. That improvement has to look highly unlikely, given the October number. You usually don't have reversals, though this could be something of an aberration.",83
-fomc-corpus,1990,"Well, it could be. You may have noticed that last year we had a similar aberration in October, so I think there are some misplaced seasonal factors at work in these data. Obviously, if we had to go back and do the forecast given the data we have as of this morning, we might have a somewhat smaller swing. However, much of this swing is coming from the oil phenomenon and we have pretty good data going through the early part of December on that. I might note that the oil number that's on the table there is higher than we had projected both in quantity and value, but that is largely because we found some oil in the New York harbor that hadn't been included in previous months. If you strip that out, you have a sharp drop-off in the quantity of oil, which will be stripped out in the GNP account, and a sharp drop-off in the volume of oil imports, which get valued at 1982 prices. So, that's going to have a big statistical impact in the current quarter.",206
-fomc-corpus,1990,Let me add: the oil was in ships!,10
-fomc-corpus,1990,"If the improvement were on the order of maybe half of what was forecast here, we could be talking about a decline of 1 or 2 percent more at an annual rate than the forecast.",39
-fomc-corpus,1990,Sure.,2
-fomc-corpus,1990,"We have not had time to sort through these data in detail and to try to match them up against the various expenditure categories, but I think one needs to emphasize that GNP measures domestic production.",39
-fomc-corpus,1990,Right.,2
-fomc-corpus,1990,"Indeed, as of last Wednesday when we went to press with the Greenbook, we didn't even have retail sales data, etc. We were depending to a considerable extent on the labor market data to get some sense of what the input was to domestic production and then we were trying to make some reasonable guesses, in effect, about productivity and so forth. But I think one should not leap to the conclusion that dollar-for-dollar any surprise in net exports would track through to GNP. We may find stronger expenditures on capital goods, for example, to match some imports or some other adjustment. There may be more luxury cars being imported, which will be part of our bulge in consumption in the fourth quarter. If that were the case, rather than coming out of inventories, that might have implications for the first quarter. So, I think it's a very complex process that one needs to go through with these data.",182
-fomc-corpus,1990,"Well, can we assume that since the PCE for October is higher than originally estimated and imports are higher that we may be seeing nothing more than a higher level of imports of consumer goods?",38
-fomc-corpus,1990,"Every category was actually up; there is no one particular thing to point to. Automobiles were up substantially and that may be the luxury car phenomenon. Other consumer goods also were up substantially, but capital goods were up too.",45
-fomc-corpus,1990,"But you said PCE in October, right?",10
-fomc-corpus,1990,Yes. I'm sorry; I meant November.,9
-fomc-corpus,1990,[Unintelligible.],6
-fomc-corpus,1990,"Any further questions for the gentlemen? If not, I think we'll start around the table.",18
-fomc-corpus,1990,"Mr. Chairman, these are obviously uncertain and difficult times not only for consumers and producers but also for forecasters. This looks a little different from anything we've ever had before. I think the staff's forecast is highly plausible, given the assumptions on which it rests. But our hunch is that the projection for real GNP for the current quarter and the first half of 1991 will turn out to be on the high side even if the oil prices do come down from the relatively optimistic path that the staff has assumed. I have several reasons for saying this. One is the big revision the staff has made in net exports of goods and services by showing a pretty steep, near-term drop in imports which, of course, has the effect of raising both real GNP and net imports of goods and services compared to the November Greenbook forecast. We think the direction of this revision was clearly appropriate, given the weakness in domestic demand that's been evident in the recent data and also the census data mentioned in the Greenbook and again the figures that we've gotten on the merchandise trade balance for October--though a lot of that may wash out as Ted suggested. Despite all those things, the magnitude of the revision looks a little big to us. And the second reason is this persistent weakness in M2, which I don't think anybody really can explain satisfactorily. That continues to worry us a great deal. And finally, we've been impressed by the continued strong negative tone of most of the anecdotal information that we've been getting from all sorts of sources. One piece of information that struck me as particularly impressive came from the who is in the plastics business and makes parts for manufacturers all over the country and sells them on a nationwide business. He called up specifically to tell us that the bottom had fallen completely out of his order book, which is something that he had not seen before.",373
-fomc-corpus,1990,That was as of when?,6
-fomc-corpus,1990,"This had happened last month. Now, we feel somewhat more comfortable with the staff's inflation forecast than with the projections on output and employment. The staff has revised downward a little its projections for inflation for 1991 and 1992 from the last Greenbook, and that strikes us as appropriate. But as I said earlier, I really think the monetary restraint that we have put in place over the last several years as a whole may well produce greater long-term benefits on the inflation side than the staff has been projecting even if this recession turns out--as I hope it will--to be as mild as they are projecting.",125
-fomc-corpus,1990,President Boykin.,4
-fomc-corpus,1990,"Well, Mr. Chairman, about the best that we can say about the Dallas District is that it's pretty flat. This is what our statistical evidence is saying and it has been confirmed by our board of directors at our meeting last Thursday and by other anecdotal information that we've been getting lately. It is increasingly difficult to find a segment of our District economy that is doing well. Most of our contacts are mentioning either mild declines or slight gains. Manufacturing activity has been weak, particularly in electronics and defense-related industries. Construction activity has picked up slightly, but most of that pickup represents a completion of major petro-chemical projects begun about two years ago. Our retailers are telling us that the Christmas season has been slow, with merchandise not moving except at post-Christmas-type discounts. Overall, the outlook for the District economy is for little or no growth over the next few months. With respect to the national picture, I certainly would not take issue with Mike's forecast, particularly since he added somewhere along the line that the risks are certainly on the down side.",210
-fomc-corpus,1990,President Parry.,4
-fomc-corpus,1990,"Mr. Chairman, the economy in the Twelfth District continues to be slow overall, with mixed pockets of activity across the region. The California economy, which accounts for about two-thirds of the District's employment, has slowed along with the nation. If we look at employment, what has happened since August is that employment is actually down slightly and our year-over-year employment growth remains about 1/2 point above the national average. Not surprisingly, the slowdown has been most pronounced in trade, construction, and manufacturing, with year-over-year declines in construction and manufacturing that are not that different from the rest of the nation. In the near term we expect that the state will continue to move along with the national pattern. If you look at the remainder of the District, however, there are some rather interesting developments. There are some effects of the national slowdown, but the District's manufacturing employment outside of California is actually at the same level as a year earlier and construction and trade employment are up 4.3 and 3.6 percent, respectively. Residential real estate sales volumes are certainly down in California, Hawaii, and Washington but up in a fairly sizable way--believe it or not--in Arizona, Utah, Idaho, and Nevada. Home prices continue to rise except in Seattle and the coastal California areas, which, of course, do represent a very substantial part of the District. The agricultural outlook, which is very important to us because in some measures it is the single largest industry in the District, is quite bright. The USDA points to particularly strong production and export performance for the region's fruits, vegetables, and other specialty crops. If I may turn very briefly to the national outlook: In the current quarter we see real GNP declining at a rate of about 4 to 5 percent, which is a bit stronger falloff than projected in the Greenbook. I must admit that I can't point to any particular quantifiable factor that would be causing that degree of weakness. It's obvious, for example, that the oil shock is not enough to produce that kind of a falloff. Our best guess is that we'll see a small rate of decline in the first quarter, similar to that in the Greenbook, followed by a pickup in the second half of the year much along the same lines as in the Greenbook, including improved exports. It does appear to us that the underlying inflation rate may have peaked and that with the unemployment rate on the rise we're likely to see some moderate progress in that area over the next year or so. Our projections for inflation, however, are somewhat higher than those in the Greenbook. Thank you.",530
-fomc-corpus,1990,President Syron.,4
-fomc-corpus,1990,"Thank you, Mr. Chairman. I had thought until relatively recently that we were beginning to see some signs of a sort of second derivative in New England--a turnaround to some potential flattening. But I must say, given the beginning of a slowdown in the national economy, that that's probably not in the cards at this point. We have seen some real evidence in the region of markets working in an entirely favorable sense in terms of better price performance and better asset levels [unintelligible] in wage levels. As far as the District itself goes--and I don't know what the implications of this are for the nation--retailing looks very, very soft. People are out; there is activity in the stores, but people are not buying. Promotions haven't been that effective, and retailers say they don't expect that people are going to be buying after the first of the year. This isn't a case of delaying purchases; it's a case of people just saying ""I'm not going to buy very much more."" I talked to some people yesterday at major department stores who indicated that it has been a very poor Christmas season thus far for their outlets, both locally and nationally. And consistent with that is what we see in credit card activity. We talked with some people at credit card unit and they said year-over-year the level of charges in New England is down 3 percent, compared to up slightly nationally. I don't know what the national implications of this are, but certainly in New England an important factor has been the loss of paper wealth in [declining values of] housing. We're beginning to do some work on this and very very crude estimates would indicate paper wealth reductions of $600 to $800 billion in the region's real estate. That is very significant on a personal income of about $290 billion in terms of any sort of consumer consumption factor. I think housing construction in the area still has to go down a ways. As I said, we have seen some real improvement in prices, with some spec housing having declined 40 to 50 percent in price and land prices also having declined in some areas.",422
-fomc-corpus,1990,That's an improvement: down 40 to 50 percent?,12
-fomc-corpus,1990,"Well, it's an improvement because the price level was just so high that it wasn't consistent with any long-term viable economic gain.",25
-fomc-corpus,1990,Because it stops being solvent on some of the prices? Is that what you're saying?,17
-fomc-corpus,1990,"It just stops being solvent at those prices. I think that's an important point; I'm glad you mentioned that. Actually, until recently the transaction level had improved a bit, but land prices had very significant changes, again involving speculation in developed lots, finished lots. In some cases we know of, transaction prices were down 1/2 and in a few cases 3/4 from the original asking price. We're also seeing this in labor markets, where there has been a very dramatic improvement [in the availability of] marginal labor, if you will--for warehouse labor, McDonald's labor, and that kind of thing. The banking situation has been pretty bleak and obviously is going to continue to be so for a while; some bad news seems likely after the first of the year. As far as the credit crunch goes, I think we have seen indications that some of the larger banks are attempting to improve their earnings as they go out to increase their willingness to lend. At this stage, that really hasn't been translated very much into increased activity, given the concerns that are going on. Manufacturing is generally weak, with some exceptions. Some exports are doing fairly well as are some short-term defense-related items, particularly missiles ordnance that has to be replaced. Capital spending looks quite weak to us. In talking to some people--and one has to remember that 1981-1982 was a fairly benign period relatively in New England--we hear them comparing the current period to 1974-1975, and they are saying that they are just going to wait a while before they do any spending and that survival is the most important thing. I think a good side of all of this is that it has brought an increased awareness of the excesses of the past. We hear from more and more people: ""Let's just get this over with as quickly as possible and go on to something in the future."" I agree with Bob Parry in terms of the forecast; what we look at internally suggests that the fourth quarter could be a little weaker than the Greenbook [forecast]. As far as the national economy goes, I think we may well face somewhat of a bimodal potential outcome. I personally find the Greenbook a feasible forecast, albeit with somewhat of a change in conditions--some modest further easing. However, I am concerned about some of the imponderables [such as] consumer confidence. Historically, if you look at the data, these periods of oil price run ups and then improvement have been associated with a real bounceback in consumer confidence. This may be different because of the issue of diminishing war fears. I don't know that I think this will wash out, but the perceived decline in wealth nationwide that Gary mentioned, given what is going to happen to housing prices, may have an effect. On the exports side, there's some concern about whether foreign economies, particularly that of Japan, will be as strong as we might hope. And given what's happened to prices, I think housing nationally will be depressed for a while. So, even without a real problem in the financial sector, there are a number of factors that could tip us over to the other side--into the second of the two modes. I think all this argues for taking out some modest insurance on where we're going; I don't think in any sense that it means one should panic. I think we have made, or are in the process of making, substantial improvement on prices. And the issue is to keep that improvement but at the same time be vigilant so that this doesn't really tip over into something that none of us wants. Thank you.",724
-fomc-corpus,1990,President Forrestal.,4
-fomc-corpus,1990,"Well, Mr. Chairman, conditions in the Sixth District continue to weaken with the exception of the energy and chemical areas, which seem to be doing fairly well. Most of the industries in the District are experiencing deteriorating conditions. We did a recent survey of retailers about their Christmas season sales, and they say that spending is not only weak but has fallen below what had been very modest expectations to begin with. And as other people have mentioned, the retailers are not really looking for any comeback after the first of the year. The good news, to the extent that it is good, is that inventories at least are under tight control at this point, which is consistent with the discussion in the Greenbook. We don't have the base of export activity in the District that other parts of the country have and, therefore, manufacturing activity is not good and we won't get the effect of greater export activity. As a result of that, we've seen in recent weeks a stream of announcements of layoffs and plant closings. That includes the banking industry and that, incidentally, is getting front page headlines--not only the condition of the financial institutions but the layoffs associated with it. The business and financial contacts that I talked to in recent weeks are universally gloomy, and that includes our directors. Most of them, I would say, think that this contraction is going to be a deep and lengthy one--deeper and longer than the standard forecasts. Worries about the banking system, as I said, get daily attention, and recent publicity about the FDIC is certainly aggravating peoples' concerns and not contributing to confidence in any great way. On the credit crunch, the most recent thing I heard was at a meeting I had with about 14 or 15 business people. The only thing they wanted to talk about was the lack of financing. They simply can't get financing even though they have had a long association with their bank, and that is a source of great concern to them. While the situation in the Sixth District does not look at all good, our forecast for the nation is very similar to the Greenbook both with respect to GNP and inflation; and our assumption about the behavior of oil prices is very similar as well. Notwithstanding that, I do think that the risks are on the down side of the forecast and I'm very concerned about the stress in the financial system that could very well restrain a rebound in activity. I'm also concerned about the weakness in the monetary aggregates. Now, there are two other things that I would mention, which affect my outlook for policy. Because of the credit crunch and because of the situation at financial institutions we may not be getting the same effect from monetary policy that we ordinarily would; it may be damped. And that may call for a little more aggressive policy response at this particular time. I think it would be a very big mistake for us to deal with the financial problems of the banking industry by exercising greater forbearance; the way to deal with this situation as well as the economy generally is to have a more aggressive monetary policy. I guess I'll have a chance to say a little more about that later.",629
-fomc-corpus,1990,President Stern.,3
-fomc-corpus,1990,"Thank you, Mr. Chairman. There's not a lot of additional news to be said about the District economy; there hasn't been a lot of change. I will comment on a couple of things that have come up recently. In talking to some of the large firms in the Twin Cities, a good number of them had a very good 1990, particularly those that have some substantial foreign exposure or are major exporters. Despite that, they almost universally have a good deal of concern about 1991, particularly domestically, of course. One of the reactions that seems to be occurring is that they are stretching out their salary programs. That is, they're going to go ahead in January with the normal kind of salary programs that they've had in previous years but are telling employees that those increases will last for 15 to 18 months. That's something that I, at least, hadn't come across until recently, and I think it is clearly because of their concerns about the economy and business conditions in 1991. With regard to holiday sales in the District, I'm not hearing much in the way of euphoria nor terrible gloom. So, I assume that things are rather mediocre and that's about all that can be said about it. With regard to the national economic outlook, I generally agree with the shape of the economic performance as expressed in the Greenbook, although I will admit that I'm less confident that the upturn is going to occur quite as quickly as envisioned in that document. There are a number of intangibles to worry about at this juncture, it seems to me. And I think, as Dick Syron suggested, the major wild card is real estate values. I just feel instinctively that if those values continue to come down substantially and if that becomes more pervasive around the country than it has heretofore, that has to have a bigger effect on the economy.",376
-fomc-corpus,1990,President Keehn.,4
-fomc-corpus,1990,"Thank you, Mr. Chairman. While in a comparative sense economic activity in the District has been stronger than the national economy, as I have commented at past meetings, I think there has been a clear downward shift both in sentiment as well as in the underlying level of activity itself. Probably the greatest impact--and Mike can certainly comment on this--has been in the auto sector. We've finally reached the point where these fleet sales have moved through the system. And that had kept both production and sales at a higher level than we would have expected over the last several months. Given that, I think sales levels probably will be down and will be more reflective of underlying consumer demand. As a result, sales forecasts have been reduced. One manufacturer that I talked to has reduced its sales expectations for next year by about 1 million units --down to 13-1/2 million units. And even that is dependent on a pretty good improvement in the second half of the year. At this point the auto inventories are at pretty reasonable levels with days supply around the mid-80s, and that's certainly better than was the case last year. Nonetheless, production schedules for the first quarter of next year are down substantially. And the manufacturers say the risk is clearly on the down side--that they probably will be reduced even further as we get into the quarter. All of this is backing up into the suppliers to the auto industry; they've seen very significant cutbacks in their orders. So, the backup is beginning to be pretty pervasive both in Michigan and Indiana, which are heavy suppliers to the industry. Another swing factor has been the level of construction activity. We also have finally been hit by this. Commercial contract awards have all but stopped. At this point we have quite a number of projects that are still [some distance from their] completion dates. So, we're going to have a lot of floor space coming on and, therefore, vacancy rates which already are beginning to climb certainly are going to be climbing even further. We're going to have some cash flow problems developing in some of the developer areas. For home starts, our numbers are perhaps not off as much as the national numbers, but currently we're seeing a downturn there as well. The volume of home sales this year is significantly lower than last year. In the good news category, in the agricultural sector the production levels clearly were high, although the prices weren't quite as good as farmers would have liked. Farm incomes at the end of the year are really in very good shape and I think the farm sector is in pretty good balance. Many of the uncertainties that were bothering them before are behind us. Farm equipment sales next year are expected to be about level with this year. There are going to be some layoffs in that sector to bring inventories into line, but the farm outlook seems to be pretty good. It is hard to get a fix on retail sales, particularly this early in the season. My hunch is that the Christmas season will come in better than a lot [unintelligible] would suggest. Clearly, the pricing is bad. When I say that sales will be okay, I really mean that in a volume sense. I think pricing is going to be very tough and, therefore, the profit levels will be down. On the inflation front, excluding energy, I think the news is just okay. Competitive pressures out there are terribly heavy and, therefore, the pricing continues to be tough. The steel industry is a good example. They're going to ship 84 or 85 million tons this year, which comparably is a pretty good year, but the pricing is really rough. As a consequence, companies are shipping a lot of metal but are not making as much money doing that. And certainly on the labor front there are no current excessive upward pressures. In a national context, our forecast is very consistent with the staff forecast, at least in broad contour, We have some interim quarterly differences, but I don't think that's particularly significant. In my mind, the major uncertainty here is the financial system. I can't remember a time when there has been a bigger buildup of pressures throughout the financial system. It's awfully difficult to measure the impact if something were to get loose on us here in a kind of [destabilizing] way. And when we get into the policy discussion, that would be a very important determinant, at least to my mind, of how we should conduct policy.",889
-fomc-corpus,1990,President Boehne.,5
-fomc-corpus,1990,"I would say that the sentiment is increasingly pessimistic or if it's not pessimistic, the level of concern is rising. Retailers are still hoping for a season-saving finish. They have a long weekend just before Christmas and there's still some hope; but there has been so much price discounting that even if sales do pick up, their profit margins are going to be poor. Manufacturing has been weakening longer in our District than it has in the nation, so it's at a very low level. But a number of manufacturers are building into their 1991 plans some pickup for the second half of next year. There is extreme pessimism in construction for obvious reasons. Bankers are worried to scared, depending on how close they are to retirement.",148
-fomc-corpus,1990,Some may retire sooner than they expected!,8
-fomc-corpus,1990,"The District's unemployment rate, which had been below the nation's, has caught up with the nation's and I suspect will rise above it. And for the first time in a long time we now have areas in the District with unemployment rates of 7, 8, and even 9 percent. The state and local fiscal situation is very serious, particularly in Philadelphia, but it is not limited to Philadelphia. Now that the state elections are over, I think the state of Pennsylvania will have to face up to a large deficit. New Jersey, which has had huge tax increases, still has a deficit. And a number of municipalities that probably won't make The Wall Street Journal nonetheless are having very serious problems. On the national economy: While the Greenbook forecast of a relatively mild, short-lived recession is plausible, my guess is that it's wrong and that we will have a longer lasting and a more serious recession. Even if one is optimistic about how the Middle East situation will come out and about oil prices, I doubt very much whether consumer spending will bounce back with the same amount of vigor by spring as envisioned in the Greenbook. Consumers just feel chastened after a number of years of some fairly loose spending habits. And I think they're going to remain cautious. Even if the optimistic assumptions on oil and the Middle East are realized, we still are going to have high and probably rising unemployment. The consumer still has these high debt burdens, and delinquencies are rising. Also, the worries about bank safety, which are all over the talk shows and in the newspapers, just weigh on people and I think they are going to weigh on people even more. So, my guess is that we're going to see a fairly bearish consumer for longer than envisioned in the Greenbook.",353
-fomc-corpus,1990,President Melzer.,4
-fomc-corpus,1990,"Starting off with the District, in terms of the statistics we are still slowing. But even though manufacturing employment is going down, we're still getting modest employment growth overall. I'd say the employment picture generally in the District is somewhat stronger than in the nation. In terms of nonresidential construction, over the last year we're down about as much as the rest of the country. Housing has not been hit nearly as hard, but it is down. As far as anecdotal information goes, and I mentioned this on our recent telephone conference call, the sense I'm getting from directors and others--and it was reinforced in some further discussions last week--is that things have not gotten materially worse in the last 30 days. As far as holiday sales go, I think retailers in the District are expecting modest, or maybe somewhat larger, real declines in retail sales. But that generally was anticipated and I think inventory levels in general are in pretty good shape. One very bright spot is bank performance in the District. We have third-quarter numbers in now: Returns on assets are still about 1 percent; returns on equity are greater than 12 percent; and nonperforming loans are unchanged from the prior quarter and the prior year.",243
-fomc-corpus,1990,Can't you create some contamination? [Laughter.],10
-fomc-corpus,1990,"Probably the fourth quarter won't look as good; I'd expect some deterioration. But again, it's a much better picture than I think we see elsewhere. In terms of expansion of credit, that generally has been sluggish over the last year in the District. On the national front, the one comment I would make is that we've had some concerns over the last couple of months--really since September, October, and November--about the slowdown in the monetary aggregates. I guess the way that one would conceptualize what is going on is that as demand for reserves has fallen our operating procedures of pegging the funds rate has really caused us to drag out reserves to maintain whatever the targeted funds rate was. I think there was evidence in, say, the early part of this 2-1/2 month period that we weren't really keeping pace with declines in other short-term market rates. I don't know to what extent we can rely on these spreads, but it's something that I think is worth looking at. The main point I wanted to make in this connection is that with the steps that were taken in November, we really have not only caught up with the declines in market rates but actually have moved the funds rate ahead of them. Just to cite a couple of examples: From the end of September to the end of October, the funds rate had only come down 9 basis points, whereas short rates had come down on the order of 20 to 30 basis points depending on what instrument we looked at; but for the period as whole, from the end of September through the middle of December roughly, the funds rate was down 100 basis points and these very short-term rates were down roughly 30 to 60 basis points. So, if one worried about our being out of position and not providing adequate reserve growth, to the extent that these interest rate spreads are some indicator we certainly have caught up with the market movement and gone beyond that. Perhaps that gives a somewhat more optimistic perspective in terms of what reserves and money might do down the road.",408
-fomc-corpus,1990,President Guffey.,5
-fomc-corpus,1990,"Thank you, Mr. Chairman. In the Tenth District, in contrast to several other Districts, we still have growth--though to be sure it's rather modest. But we always had modest growth, I think, relative to the nation; this time we happen to be positive while the nation might be negative. A lot of this largely comes from a very good harvest. For virtually all of the crops grown within the Tenth District, the harvest is completed. The exception is the cotton crop down in southern Oklahoma, which is an outstanding crop apparently, and the prices are very high for cotton because of some reduced crops in other parts of the country. All in all, the agricultural sector is very healthy. Cattle and hog prices remain very strong. Wheat, corn, and other small grain prices have diminished because of the large world output in agricultural products. However, there is some hope--not euphoria--that with the export credits that have just recently been granted to the USSR that exports of agricultural products will pick up and will impact our part of the world. On the energy side, there has been some modest pickup in exploration drilling. I'm not sure that that will last very long. For example, the rig count in the Tenth District went up modestly from 325 rigs to 336 rigs in the month just passed. But the employment pickup in the energy sector probably is related more to the reworking of old wells than it is to new drilling or exploration. That is, you can take a well that may be producing 6 to 10 or 12 barrels a day, rework it for $10,000, and increase that production to 18 or 20 barrels a day; it makes sense given the oil prices currently. Retail sales within the District, as best as we have been able to determine, are essentially flat. I'm talking about the Christmas season, ex autos. Autos are very soft as they are around the country. I might just indicate, however, that the best anecdotal evidence about the agricultural sector [arose at] our branch board meetings: There was one report that new pickup trucks were actually being sold for cash, which is something that hasn't happened in 6 to 8 years in the Tenth District. As for retail sales being flat, the report that I received most recently about the Christmas season not being very strong [is partly related to] the very warm weather we have had. Retailers expect or at least hope that in the last seven days--and there is a cold front coming through the Midwest--those sales will pick up and that the Christmas or holiday season will indeed turn out better than most people expected, at least in our part of the country. With regard to manufacturing, automobile assembly plants have been closed down periodically because of cutbacks by the manufacturers, and the extended holiday will continue well into the first of the year for all of the auto plants within our District. Construction is essentially flat, both commercial as well as residential. There is some hope, particularly in the state of Kansas; there is a very big highway project there as a result of this public works project. The value of the nonbuilding contracts in that state is well ahead of last year. All in all, the Tenth District is doing fairly well. All the major cities that are metropolitan areas have unemployment rates well below the national rate. And there's fairly good optimism--at least based on comments of our board members, not only at the head office but at each of the branch boards. With regard to the national outlook, we differ a bit in our view of that but the depth of the recession is not greatly different from peak to trough than what is projected in the Greenbook. We have had some concern, and our numbers would reflect it, that the recession will be a little longer by one quarter. In other words, rather than turning up in the second quarter of next year we would not expect to see that uptick until the third quarter; and then the latter two quarters of the year would be fairly close in the aggregate to what the Greenbook projects. With regard to prices, in the Tenth District we don't see any price pressures and we don't quarrel with the projections in the Greenbook.",853
-fomc-corpus,1990,Vice Chairman.,3
-fomc-corpus,1990,"Mr. Chairman, as far as the national economy is concerned, I think Dick Syron made my point earlier. If I had to put a forecast on a piece of paper, I'd probably put down one that looks a lot like the one that Mike has put in the Greenbook. Having said that, and for all the reasons that have been cited earlier, I think the risks in the second quarter of 1991 and beyond are probably on the south side of that forecast. Indeed, in looking at Mike's forecast, if we had an economy behaving in growth terms like his forecast for the next seven quarters--while it may be cyclically less than we've seen in the past--I'd consider that terrific. Basically, he has 2-1/2 percent growth throughout the balance of 1991 and 1992. Let me say a brief word on the local economy, in the New York metropolitan area particularly. Keeping in mind that in manufacturing terms that is nowhere near as important as it once was, the fact of the matter is that it still has something like 10 or 12 percent of the nation's population and in some industries such as real estate it's disproportionately more important than even population would indicate. For the metropolitan area as a whole, it is clear that the white collar recession is still deepening. Some of this is the prominent headlines that you see on cutbacks in financial firms. But it's not just that. Indeed, that white collar profile of the recessionary forces in the metropolitan area really is quite extraordinary in any kind of a historical perspective. We think the real estate situation still has a ways to go south. Again, the market measured in square footage terms is very, very large. You lose sight of the fact that lower Manhattan by itself has almost as much office space as the city of Chicago. And when you look at the situation in the metropolitan area broadly defined, New York City itself probably is marginally okay in that vacancy rates are now in the area of 20 percent, which is high but not fatal. And there is not a whole lot of fresh new supply in the construction pipeline; there is some, but not tremendously large amounts. Rents, on the other hand, really have plummeted. If you look at prime midtown office space--I'm talking about large chunks of space, say, 200,000 to 400,000 square feet, not little pockets of space--space that perhaps as recently as a year ago but certainly 18 months ago could have commanded $50 to $55 a foot, today they are lucky to get $30. It really is an extremely large change in a very, very short period of time. As I said, the only saving grace is that there aren't that many truly large blocks of space even in the midtown market with the exception of three or four buildings that are being finished on 6th Avenue. The suburban real estate markets are worse than the New York City markets and that is true pretty much across the board, whether you're talking about Long Island, Jersey, Westchester, or parts of Connecticut. We don't have very good statistics in terms of how much space is sitting there. Most of these surveys, Coldwell Banker and the like, are pretty good for cities but not so good for suburban areas. Based on what developers are telling us and what our examiners see, we think the downside potential in the suburban community is still quite considerable. Ed Boehne touched on this in the context of Philadelphia and Pennsylvania, but we have basically the same kinds of pressures on the state and local fiscal side with all the implications either for higher taxes and/or lower spending at the state and local level. The New York City situation isn't great at the moment; it doesn't look anything like the way it looked in the mid-1970s, but it's not good. And whether we're talking about Connecticut or parts of Long Island, there are large prospective deficits in state and local government budgets pretty much across the board. Leaving the metropolitan situation alone for a moment, the general psychology of the situation, as reflected in attitudes of CEOs of major multi-national companies, is that it's pretty lousy. Interestingly, in the face of Ted's comments earlier, I don't get the sense that the companies that are major exporters are quite as confident about the potential for volume growth in exports in 1991 as they were even three months ago. Now, they haven't said so, but it's not considered a [near certainty] as I think it was as recently as three months ago that they would continue to see volume growth in the area of 10 percent or 12 percent. As far as the Christmas retail season goes, the sense I get from both the national retailers that are headquartered in New York and even from some of the small businessmen we talk to is that ""It ain't good."" It's very soft. The only exception is in the very high price end of the retail market in New York City, and that's coming from foreign buyers. I don't know how this gets into trade statistics and things like that--not that it's all that important in absolute dollars--but the very high end of the retail market in New York City is quite strong mainly because foreign buyers benefiting from the exchange rate look upon New York as a shopping haven at the moment. On the credit crunch, there too I think we still have a ways to go. We will talk about this later, but one particular manifestation of that--the way it seems to be at least at the moment spilling through into the money supply--is becoming a greater concern to me. The silver lining behind the cloud of the credit crunch is that there is now what I would describe as pervasive evidence of significant rebuilding of pricing and margins taking place pretty much across the board. Now, some of that has been facilitated by the withdrawal of the Japanese banks from not only the direct lending markets but the commitments and standby-type markets as well. But the evidence I think is now pervasive that we are seeing a significant rebuilding of pricing and margins; whether it can be sustained is another question. But I mention that because it is quite clear to me that there is some combination of margins and spreads and levels of interest rates that will snap the credit crunch and snap it in a constructive way. I'm not sure we're there yet, but we may be getting closer than we suspect, especially if this rebuilding of spreads and margins proves to be somewhat durable. There are a lot of uncertainties. But the combination, as Gary and Dick and several others said earlier, of the real estate sector and the vulnerabilities as they impact on the financial sector are probably the biggest single source of uncertainty as I see it right now. I've said this before but let me emphasize it again: There is a natural tendency to focus commentary on financial concerns on the banking system; but as I see it those problems are every bit as acute in both cyclical and structural terms for the nonbank sectors of the financial system as they are for the banking system. Indeed, just yesterday we were looking at a broad cross section of data on the insurance industry, top to bottom. And I will tell you, that is pretty grim stuff, to put it mildly. Just anecdotally on the real estate situation, I spent a morning last week with Bob Boykin and his Dallas directors and up until then I had been tending to convince myself that Texas had turned a corner. Maybe Houston has, but one of in the construction business was telling me that he thought there were 10 to 20 million square feet of newly constructed office space in the Dallas area that would be better off bulldozed. If you say $100 a square foot and take the midpoint of that estimate of 10 to 20 million, that's $1-1/2 billion worth of new construction with no place to go. So, again, of all the wild cards out there I think that real estate--as it reflects directly on the economy, along the lines of Gary's comments, but also as it reflects on these problems on the financial side--is the biggest single wild card.",1626
-fomc-corpus,1990,President Hoskins.,4
-fomc-corpus,1990,"The District continues to perform better than the nation. Just as an example: For the year October-to-October, output in the state of Ohio was up 5 percent and in the nation it was up about 2 percent. The weakest link, as you might expect, is in autos right now. There is one exception: We have an announcement of a new auto plant in the Lexington area that is going to employ a number of people. The Lexington area is an abnormal situation; the unemployment rate there is 3.2 percent. But the unemployment rates around the District over the last three months average 5.5 percent in Ohio and 4.2 percent but rising in the Pittsburgh area. Economic activity is definitely weaker than it was last month but that weakness is nottranslated, at least by most participants that we surveyed, into a recession in the District. They're apprehensive that one will develop there; they believe one is under way in the nation. But when we talk about a softening market, we talk about reducing overtime. And other than in autos and construction, we haven't had major layoffs in the District. So, it's still performing quite well. In fact, the capital goods side is still doing better than manufacturing overall, but not quite as well as it was before. It's a little more mixed now, but there are still some positive signs. Heavy trucks had their third best month of the year, in terms of new orders, in October. So there is still a little strength around the District in capital goods. Retail sales are flat, as everybody has indicated already. In terms of the national outlook, I think we'd be pretty happy to see Mike's forecast come true. It has a declining inflation rate. We'd like to see a little more of that. I would simply like to focus on the fact that that's a relatively short recession he has forecast and that whatever is causing it--whether you believe it's oil or the credit crunch--neither is laid [at the foot of] monetary policy. And the kind of decision we're going to make later today really is going to have its impact at the time Mike has a snapback in the forecast in terms of real growth. So, that is something that we ought to think carefully about in terms of making our policy decision. In the longer term I guess Mike has 2.4 percent growth, which is close to our potential growth; but I would expect us to see in his footnotes a note that our potential may be somewhat less now. We have a lot of asset prices that are coming down. It seems to me that those represent some excesses that occurred in the past and that resources have to flow out of those areas. I don't think there's any way around that. We have some defense restructuring to do and obviously some restructuring in financial services. It seems to me that those things, along with the factors that Mike pointed out, argue that our potential growth probably will slow in the future. So, I don't have the sense that anything is falling apart on us at the moment. Several of you suggested a number of risks that are out there, and I think those are always there. What that points out to us is the size of the errors around the forecast--that we are very uncertain about those. And when we're uncertain about them I think we ought to proceed cautiously. If there is a reason to ease, it seems to me it has to do with the monetary aggregates. About the best we can do in terms of managing the economy is to keep inflation low and let the economy take care of itself. That means we've got to watch the aggregates.",729
-fomc-corpus,1990,Governor Angell.,4
-fomc-corpus,1990,"I think looking at the M2 growth is always a good place to start. It seems to me that there is clearly a very significant downtrend over a four-year period in the growth rate of the monetary aggregates. But so far there has not been what you would call a classical monetary shock; that is, the rate of growth actually has been brought down in a very gradual pattern. It is true that the rate of growth over 26 weeks is now getting close to a level at which I think anyone would be concerned if that were to continue to weaken on a 26-week basis. But I would just note that in 1987 and 1989 we had almost identical periods of weakness on a 26-week basis. Clearly, we ought not ignore what those monetary aggregates are saying. But I would note, as Tom Melzer did to a degree, that the yield curve doesn't really suggest that we have a monetary tightness phenomenon that's being driven by the central bank; that is, the slow [money] growth is not driving short-term rates above money market rates. We have just the opposite. The yield curve basically shows that there is quite a bit of monetary liquidity out there. The foreign exchange market also I think shows considerable monetary easing; that is, the transmission mechanism of monetary policy for the United States is increasingly through the foreign exchange mechanism. Certainly we've had a considerable, 15 percent decline, of the dollar against the G-10 currencies. That is a factor for domestic stimulus. Commodity prices it seems to me are showing more money neutrality than they are monetary restraint. That is, you have some fall-back in commodity prices, but you don't have the rate of deflation in commodity prices that set in during the 1985-1986 era and that really became pervasive. Of the factors that we have going for us, the two factors I'd like to mention that are difficult to judge are the phenomena of house prices and other real estate. Unfortunately, there's no futures market for housing. But I think we ought to begin thinking about housing and other real estate more as if they were a commodity, because clearly what has been happening here is really [similar] to what happened in the agricultural depression of the mid-1980s, which was a rather short, sharp depression in agriculture. What we see happening is that the forward price is not rising as fast as it was expected to have been rising before. Now, if someone has a 10-year horizon and expects house prices to rise at a 10 percent annual rate, that would mean a $100,000 house would be worth $269,000 in 10 years. But if all of a sudden you think it will rise not at 10 percent but at a 5 percent rate, then instead of $269,000 you're looking at $163,000 for the 10-year forward price. That means that the forward price has to come down about 37 to 40 percent. If the forward price comes down faster than long-term interest rates, then of course the present value is also going to fall. But that doesn't mean that housing inflation is gone; it just means an adjustment from a 10 percent housing inflation environment to a 5 percent housing inflation environment. What makes this so tricky is that houses have so much to do with household perceptions of wealth. Consequently, household saving behavior is certainly impacted. I think all of us understand that we're seeing a long-cycle event in regard to attitudes here. The other area of uncertainty, it seems to me, relates to the fact that the U.S. economy is increasingly competitive in a global marketplace. The international competition just means that there will not be sustained profit margins in any industry such as there were in former times when there was less vigorous international competition. Now, the problem that concerns me here is the advent of failure and whether or not we might be falling into a turnaround in an expansion in an international economic order and we turn that into a protectionist world in which international trade stops growing. That event then, of course, could lead the world into a most precarious circumstance. In that regard I think we should be rather careful about policies that might cause the foreign exchange value of the dollar to weaken further, which in some sense can be a very strong motivating factor in regard to protectionism elsewhere. We have enough protectionist forces in the United States. And when we start seeing these protectionist forces hit the European Economic Community, as I think is entirely possible where the foreign exchange value of the dollar is right now, it means that we're going to crowd in there at a rate that they're not going to like--not just in agriculture but in other areas. So, that's an uncertainty that causes me to think more than once.",955
-fomc-corpus,1990,Governor Seger.,4
-fomc-corpus,1990,"Just so you'll know, I'm crying not because of the outlook but because I have a virus in my eye. Last night when I was reviewing the staff forecast one more time I was reminded of something in my childhood. Although it was a long time ago I do remember a few things from it! My mother always read to me every night and I had a strong preference for stories that had ""they lived happily ever after"" kinds of endings. I feel the same way about the forecast. I really do love the ones that are positive, optimistic, and happy. So, I have no problem [with the forecast]. And that's why I would remind you that at the beginning of the year, when we had the soft landing scenario which was marvelous because it accomplished all our goals with no pain, no strain, no sweat, that was terrific. But it sounded too good to be true and what I have discovered is that if things sound too good to be true there is often a problem. So while this forecast isn't [unintelligible] scenario, it still isn't a dismal forecast. I hope that what is in the Greenbook turns out to be right. But I'll just mention some of the questions I have about the numbers, even though, as I said, I hope that Mike's and his staff's assumptions are on target rather than mine. First of all, I really sense that whatever it is we're in now--I call it a recession--it's going to be longer and more serious than the Greenbook suggests. One thing I'm more concerned about is consumption. As you know, I've been taking a more dismal view of the auto industry for some months now, and I think that some of my concerns are [now] rather evident to the public at large. And I don't see what is going to turn that around really quickly. Also, in the consumption arena I am concerned about the nature of the layoffs that we're seeing around the country; it's not just Joe on the line at the Rouge, the blue collar types I used to assume would be laid off. But that didn't have the same impact as when the sales vice president of some company who lives next door loses his job or a bank president loses his job or in some states bureaucrats are being laid off. That sends a different message and I think it's having a big impact even on the people who are still working. Also, there is the deterioration in confidence. I'm from a state where confidence is usually negative because the state's economy is very cyclical, so I'm used to a lack of confidence and nervousness and all that. But I've never seen anything like what I'm seeing now. And I'm not confining my remarks to Michigan at all; it's widespread and is impacting ordinary individuals who just have this feeling that something isn't right. They don't necessarily know what it is that's wrong, but they just feel uncomfortable. I know that it's nice to assume that that's a fallout from Saddam Hussein and the higher gasoline prices and the worries over availability of oil, but my sense is that if all those things were taken care of [unintelligible] this afternoon and whatever it takes to solve this problem were done, this would not go away completely. Also, you don't hear much about it, but there is a real problem with the consumer debt load. I used to nag our researchers about looking at the consumer debt load and was told that the two sides of the balance sheet were okay--that the assets were building at the same time as the debt load was, so forget it. But it is a problem now, at least for a lot of individual consumers. And I think some of the delinquency and loan write-off data suggest that. In fact Sunday night I happened to have my TV on and one of the PB evangelists came on and his wife was announcing that in January they're going to run some seminars for their parishioners to tell them how to get out of debt in 1991. Now, that says something to me: It has even become a moral issue! Also, we are being hit by very much higher taxes in this country. I realize we've just seen a nickel a gallon increase on gasoline so far, but that budget deal has a lot more coming up. That may help the budget deficit, but I don't think it's going to be a positive for consumer behavior. And at various state levels, there are substantially higher tax hikes down the pike. We saw a lot of tax hikes in 1990 and I believe we're going to see still more in 1991 because so many states and cities and other localities do have budgetary problems. So, I just feel very concerned that the consumption side is going to be weaker than we're assuming. Housing has gone down rapidly. We're now down again to where we were back in the 1981-82 recession--depression for my part of the world. That's where we are already. It seems to me that the so-called credit crunch has been especially tough in this arena; it has been centered on the home builder, not Mrs. Jones who needs to get a mortgage to buy a house. It's the financing for the person who wants to build the darn thing. Again, I hope I'm not being too negative but I just don't see what's out there that's going to turn that credit availability problem around really soon for those kinds of folks. If I'm right that that's a big constraint, then I don't know what's going to turn this around. On exports, I would just repeat what Jerry said. In talking to people who actually export rather than to academic analysts, I think the opportunities for 1991 look a little less robust. And when I think about the shape of the economies of some of our major trading partners such as Canada, which is already in a serious recession, it makes me agree with the folks who are in the business. Also, I realize we're running a sort of war in the Middle East, but I think there are still some defense cuts coming through, which will have an impact on places like sunny California and have already had some effect in the Northeast. So, those are some of my concerns. And what I think is really unique this time, though--to borrow the term of my favorite peanut farmer--is this general malaise that seems to exist throughout the land. It's hitting individuals as consumers but also as businessmen and women. Personally, in my life time, I have never seen it that way. On the financial fragility issue, there is this drumbeat--which unfortunately is coming out of Washington, D.C.--about the problems of the financial industry. If we could put a gag or a muzzle or something like that on some of these people so they would shut up, maybe this problem would be less severe. But we haven't, and the awareness of this is just becoming a big problem and in turn is tied into the so-called credit crunch. And as I already have mentioned a number of times, there is the special situation in real estate, the deflation in real estate values. Unless you go back to the 1930s, I don't think you will see anything like it. My good friend Wayne Angell in his comments used +5 and +10 percent figures; you'd get some exciting numbers if you used -15 percent. Thank you.",1470
-fomc-corpus,1990,Governor Mullins.,4
-fomc-corpus,1990,"I was most impressed with Lee Hoskins' report that in the middle of this environment they're building auto plants in Lexington, Kentucky, which shows you the resiliency of the American people. You didn't mention: Was it Toyota or Nissan? [Laughter.]",51
-fomc-corpus,1990,Toyota.,2
-fomc-corpus,1990,"Toyota. My view is generally in agreement with the staff's forecast. Producers seem to have cut back almost in advance of the cut in consumer spending, keeping inventories lean. And I think that puts the economy in pretty good shape for a rebound in the spring. It may be a bumpy landing rather than a soft landing. I'm not quite so sure that consumer confidence, Humpty Dumpty, can be reassembled as quickly as it is in the Greenbook. The pessimism is still rampant; I think Martha's correct on that. I got a call from a former student who is a partner in They just had a meeting of their national partners and the overwhelming view there was that we had entered a deep and long recession. That doesn't seem to be entirely consistent with the somewhat better than expected retail sales data and orders data, so there's still this gap. Perhaps it has just been a long time since people have seen a nationwide recession, so they don't remember what it feels like and it's pretty scary and they don't know how to get through it. Still, I think there is the potential for this rebound. The stock market thinks there is; it doesn't appear to be quite so pessimistic as the public. Indeed, if we have a resolution in the Gulf, if the bad news on financial institutions becomes old news, and if the banks start to go for the profit, I also believe there's a potential for consumer purchases that have been deferred. The autos that people are driving are reaching very old ages in terms of the average for autos. People still aren't going to buy in the current environment, but at some stage we might get a rebound. I think the real estate problems are more troubling and long-lasting in terms of the wealth impact of that reduction [in value]. I still speak from the perspective of a New England homeowner. We also have several sources of stimulus in place moving in our favor. The oil prices have started to come down and I hope they'll continue; the dollar is down; there is monetary ease--long interest rates, not just the short rates, have come down fairly substantially over the fall. Financial fragility continues to be a concern. Publicity about it seems to be unending in virtually all areas. Jerry mentioned insurance companies; I would just mention one industry that has yet to hit the news but conceivably could and that is the mutual fund industry. If you look at junk bond mutual funds, high yield bond mutual funds, they've done an extraordinarily good job of managing through this collapse in the junk bond market. However, over the past several months a number of them have allowed their redemptions to run their cash reserves to precariously low levels. Given the illiquidity in the market, if one of them should have to suspend redemptions, very quickly I think all of them would be under pressure. They're a tiny part of the market. It's not significant from an overall point of view, but I think it would get publicity and perhaps have an impact on other mutual funds--bond funds, money market funds, and the like. I wouldn't suggest that monetary policy can do anything about that, although it would be nice to have liquidity and a lot of credit availability in that case. But I do think there is a potential for a series of negative surprises in the finance area, which does not bode well for confidence. More generally, though, the concern is: Who is going to finance this rebound? Where is the financing going to come from to fuel the rebound? If you look across the board, the non-RTC thrifts reported very large losses in the third quarter. Most of that was in the group that is targeted for RTC action. But even the good thrifts, it seems to me, about broke even. Insurance companies are under pressure due to asset quality, and they also have a great need next year to refinance a large volume of maturing GICs, guaranteed investment contracts. So they're going to be under some pressure; it's not clear they can expand lending. Finance companies have been taking up a lot of the slack and growing at a rapid pace. Business loans by finance companies started the year at about $250 billion and they're closing in on $300 billion. That compares with $600 to $700 billion in business loans at commercial banks, so it's still not too large. I wonder how long they can continue to grow and take up the slack at this pace. Commercial paper also took up some of the slack. Again, nonfinancial commercial paper is only about $150 billion, so presumably they can't take up all the slack. But commercial paper issuance, after growing rapidly in August, September, and October, collapsed in November presumably due to credit quality concerns as marginal credits decided to take down their back up lines from Japanese banks, which probably accounts for some of the fed funds anomalies in that period. I think there's little evidence of a credit crunch for investment grade companies. You only have to look to the bond issuance in November, which was up very dramatically; but none of that involved below investment grade issues. One wonders who is going to finance the segment of the market that is below investment grade. Banks have been the traditional source. I thought that the bank credit supply conditions were likely to ease in January. The logic was that a lot of these banks want to show a good risk-based capital number on that year-end statement, and that is done by investing in mortgage-backed securities and governments, not loans. I thought that would tend to free up. And there is the point that Jerry mentioned: The fed funds rate has come down quite a bit without the prime changing. At some stage those competitive juices have to start flowing, and I thought it would happen pretty rapidly in the first part of the year. I'm a bit more pessimistic now for a number of reasons. First, I'm pessimistic in the sense of thinking that this credit supply [situation], including bank credit conditions, is likely to extend into the new year. There is a growing concern and publicity about the bank insurance fund. Now, it's accepted that there will be some sort of recapitalization paid for by the industry. I think there will be a period of uncertainty and banks may continue to hold back until they see how that issue is resolved in terms of how much they're going to have to pay and in what form they will have to pay. I also think the FDIC will start to resolve some of these institutions that it may have delayed until the new year. The Treasury report on banking reform when it comes out, probably in the first week of January, may well call for some fairly dramatic changes, which will result in a lot of debate in Congress. That again might be the type of thing a banker would look at and say: ""I think maybe I'll hold tight for a bit instead of moving out aggressively."" Obviously, we still can have some bad news in the fourth-quarter results on asset writedowns at banks. And even an issue like mark-to-market for banks is going to be debated, I think, in the early part of next year. The proponents of mark-to-market will argue very loudly that banks are misrepresenting their assets and misleading investors. And those sorts of arguments are not the type that are likely to lead to increased confidence in the banking system. So, on balance, there may be some easing of the credit supply condition, but I don't think we're going to return to normalcy until a number of these issues--such as the bank insurance fund and having some of these problem institutions resolved and off the street--are resolved, probably later in the spring. We can't control a lot of those issues. We can't take responsibility for junk bond funds. But we should have responsibility for money. I continue to be bothered by its anemic growth. We did have blips in M2 in August and September but the overall pattern continues to be one of slow growth. M2 growth was 3.2 percent in the second quarter of 1990, 3.1 percent in the third quarter of 1990, and I think we're projecting about 2 percent in the fourth quarter. This is no monetary shock, but it is a squeeze I would say. So, while the real economy seems to be feeling its way--however depressed people are--through this downturn in a manner which in my opinion has the potential to produce a rebound, I do think the slow growth in money and credit is not good news in this environment and does not augur well for achieving that rebound in the spring.",1719
-fomc-corpus,1990,Governor LaWare.,4
-fomc-corpus,1990,"Mr. Chairman, one of the advantages of waiting until almost the end is that you could just say ""Me too"" because everything has pretty much been said. But I can't resist the opportunity to make a comment or two about the Greenbook forecast. It seems to me that oil is the major wild card in that forecast. And I'm uncomfortable with the assumptions that either the situation is going to stabilize in the Middle East or get better, which would bring oil prices down and keep them down. That seems to be an important part of the recovery [forecast]. It might have been useful in this special case to have had an alternative forecast that might suggest what would happen if there were hostilities in the Middle East or if the Saudi production capacity had been damaged in some fashion which would create, for example, an oil price of $40 a barrel and keep it there for a while. I think that would significantly prolong the timing of the recovery. The other wild card, it seems to me, is the credit crunch, which I think except for the comments around the table has been dismissed rather casually. And yet we have in at least one part of the country a credit paralysis that is affecting the whole economy and shows no signs of reversal. And I think that serious impairment is spreading down the East coast. Bankers clearly are worried and scared and certainly are unwilling to lend in major parts of the country. And consumers are worried. And Messrs. Littan, Brumbaugh, and Seidman and the media are doing their best to raise that worry to the level of sheer terror. I think that terror relates to consumer attitudes toward banks and toward investment and spending and getting further in debt. And since we have such a consumer-driven economy, it's hard for me to see a rapid upturn until those consumer attitudes have changed. My best guess would be that those consumer attitudes will not change significantly until the Middle East situation is settled one way or another and until the banking situation is perceived as being stabilized. I think those are the underlying concerns that are haunting consumers, and I don't think those attitudes are going to turn markedly more optimistic until those two factors have been addressed.",434
-fomc-corpus,1990,"Finally, Governor Kelley.",5
-fomc-corpus,1990,"Well, Mr. Chairman, I guess I'm the last leaf on the bush and there's certainly very little left to be said about current conditions, as Governor LaWare just remarked. But I would like to try to resurrect a perspective that I first offered, probably a little prematurely, a year or so ago as to the underlying longer-term thrust of what's going on here. It seems to me that what we may be seeing is the first downturn in what may be a rather powerful and long-lived deflationary era--a sea change, if you will. I think there's considerable evidence underlying that. On a worldwide basis almost all commodities are abundant: food, materials, heaven knows in this country built space, and labor. Capital can seek out low cost labor and is mobile enough to get there and put production in place on a low-cost basis. It seems that monetary policy has been under tight control for some time; there's not too much of a problem in sight there. Hopefully, fiscal policy is turning around. Maybe the most important thing on an economy-wide basis in this country is that I think we've gone from an era of creating debt, which was inflationary, to servicing debt, which is deflationary. And if there's anything to all of this thesis, I think it can explain a lot of the financial problems and a lot of the real estate problems that we see. And it may be manifesting itself in this long decline that we're going through in corporate profits, where firms are being squeezed between the last of the upward thrust of cost pressures and the inability to pass that through in the form of prices. I don't think this is a done deal. There are a lot of things--monetary, economic, political, sociological--that could change this and abort it. But if this is true, it has implications for how we view everything. If this is true, we may have a stickier short-term situation--a little slower in. the near term to come out of the recession, but a far more positive longer-term outlook as time goes along and we do come out. The converse of that would be if we're in another episode of what we've seen before in the postwar era. If that turns out to be true, we could wind up with a quick, weak recovery and then fall back rather soon and be very disappointed. But if it becomes clear that this is a new era and a disinflationary one, I think the long-term perspective is really quite positive. But that does leave us with a near-term challenge: to facilitate the weaning of the economy off of the inflation kick that it has been on for so long and to avoid the potential for deflation and serious contraction that that could lead to. Thank you.",553
-fomc-corpus,1990,Thank you. Why don't we adjourn for coffee and come back in 10 minutes.,18
-fomc-corpus,1990,[Statement--see Appendix.],6
-fomc-corpus,1990,Questions for Don?,4
-fomc-corpus,1990,"Don, I noticed in the money projections in the Bluebook that there's a very dramatic difference when you get out to February and March between alternatives A and B, much more so than I think we normally see. Do you want to comment on that?",50
-fomc-corpus,1990,"We tried to stick with about a normal difference. First, we have a different base here. We are meeting earlier in the month than usual. Ordinarily, we would have a December-to-March base and we'd be meeting around the end of December or early January. So partly, it's because we're meeting a couple of weeks earlier. Aside from that, we didn't do anything special to widen the difference. We used the usual assumed elasticities.",89
-fomc-corpus,1990,I just can't recall 2 and 3 percentage point differences in the growth rates between these various alternatives. It just struck me.,26
-fomc-corpus,1990,I think that's roughly in line with what we see as the elasticities after three or four months.,20
-fomc-corpus,1990,"What interest rate elasticities do we assume for money demand, roughly speaking?",15
-fomc-corpus,1990,"I can give you some numbers on what if the funds rate changes by x basis points, that kind of thing.",23
-fomc-corpus,1990,Yes.,2
-fomc-corpus,1990,"A 50 basis point decrease in the funds rate--now this is a quarterly average, so it won't show up the way it would in the monthly numbers--gets you about 3/4 point for the year, but it's loaded into the first and particularly the second quarters. So 1/2 point on the funds rate will get you about .09 by the second and third quarters and then it tends to drop off after a while.",89
-fomc-corpus,1990,It's four times the quarterly rate.,7
-fomc-corpus,1990,"Dave just handed me a note: the elasticity after, say, four or five months is about .08 or .09.",25
-fomc-corpus,1990,And empirically that works very well. My impression was that the theoretical models had much lower elasticity.,20
-fomc-corpus,1990,"Well, I think in this case a lot depends on how the offering rates adjust to the market interest rates. That adjustment drives this a lot; the elasticities are lower over time because the offering rates then adjust to the market rates. So over time--after a couple of years--you get some very low elasticities. But our assumption here is that the offering rates, while adjusting perhaps faster than we would have thought a couple years ago because the market rate is moving down and we presume the banks don't want [to attract deposits], would still adjust sluggishly.",113
-fomc-corpus,1990,And in the past the model fit the data pretty well. When did it stop fitting the data pretty well?,22
-fomc-corpus,1990,"About the second quarter of this year. Well, that's not quite a fair response. We've had large errors from quarter-to-quarter and even for a couple of quarters in a row. But in terms of cumulative error, this year we're going to have the largest error we've had, even outside the sample period, by at least a half point.",68
-fomc-corpus,1990,Okay.,2
-fomc-corpus,1990,"Don, to your surprise, I'm not going to ask you where alternative C is today. I do have a question.",24
-fomc-corpus,1990,You must have been in the Christmas punch!,9
-fomc-corpus,1990,"I started early, Martha. I do want to follow-up on a couple of questions that have already been raised. You have pretty rapid growth--accelerating growth--in January, February, and March. The quarter finishes at 7.6 percent. And I guess that's really what David was [raising]. To press on: What happens in the next quarter? Do you expect us to go back to a 6 percent growth rate or 5 percent or lower?",94
-fomc-corpus,1990,In terms of alternative A?,6
-fomc-corpus,1990,"Yes, if we adopted alternative A.",8
-fomc-corpus,1990,"In the 6 to 7 percent range, I think. It would still be an increment from where it would have been otherwise. So I guess what we would have would be more like 7 percent.",42
-fomc-corpus,1990,"So, we'd have a pretty strong first half, at 6 percent or something like that? It seems to me we'd be giving up some of our gains--",32
-fomc-corpus,1990,"I think you could have that kind of growth. I'll try to be a little clearer here. We are assuming that this upward shift in velocity continues--a downward shift in money demand--so we're sort of going off a base. If we had alternative A, say, that will give us about 125 or 150 basis points [since] this past summer. Before, we would have expected much more rapid growth by the second quarter of next year if it weren't for this shift. Our models, in fact, are projecting growth of around 6-1/2 percent in the first quarter; instead we have 2-3/4 percent growth. So, we have that down by an increment, but that's relative to the fourth quarter which is already coming down. So, we still get the trajectory going up. It just has a couple of percentage points shaved off what you would have expected before the second quarter.",185
-fomc-corpus,1990,"But instead, under alternative A it will be about 6 percent money growth for the first half of the year, or somewhere in that range. You have 5 percent in the first quarter and 7 percent in the second.",46
-fomc-corpus,1990,"We are a couple of weeks away and there is just no evidence that that has started yet. So, be careful with your forecast.",27
-fomc-corpus,1990,"Well, we've been concerned about the model because, as you know, we put a lot of emphasis on M2. We did try running a different version with no trend variable in it. What we put in was a thrift share as an explanatory variable and that did get rid of the drift in the model. It doesn't make money grow any faster, but it tries to get at the problem in a different way.",83
-fomc-corpus,1990,"We're trying a number of experiments using yield curve variables and things along that line to try to capture substitutions in and out of M2. Our expectation was to try to supply the Committee before the February meeting--well before the February Committee meeting, we hope--with a memorandum summarizing the various experiments we've been running to help to explain this number. A pure model forecast with alternative B in it has a 5-3/4 percent growth in the first quarter and then 4-3/4 percent in the second quarter. [One-and-one-half percentage points of] the impetus [behind] that 5-3/4 percent is an interest rate effect; the interest rate decline we've had through the fourth quarter has its biggest effect in the first quarter in that model.",156
-fomc-corpus,1990,"President Black, first.",5
-fomc-corpus,1990,"Mr. Chairman, I was just looking at the P* model shown in Chart 9 and, as I read that, it provides me with a pretty good comfort level. Don, do you take much comfort in that?",45
-fomc-corpus,1990,"The problem, President Black, is that it rests on an assumption about what the equilibrium velocity level is. And I think the discussion we just had--",30
-fomc-corpus,1990,Clarifies it.,4
-fomc-corpus,1990,"Occasionally, we have some doubts about whether we will return to V* or not at that--",21
-fomc-corpus,1990,"Well, in the long run it has been pretty darn stable.",13
-fomc-corpus,1990,We don't know anything that contradicts it.,9
-fomc-corpus,1990,That's right.,3
-fomc-corpus,1990,"We're beginning to accumulate a few quarters that tend to move it away, but so far we certainly don't have any long-run evidence that it has moved away. If velocity were to return to its old pattern and if we were to get the same M2 growth--so that the Committee didn't compensate by having more M2 growth as velocity shifted back--then you'd get this pattern of prices.",77
-fomc-corpus,1990,"If the discount rate were to go down by 1/2 point but the Committee only wanted the funds rate to go down 25 basis points, how difficult would it be to communicate that to the market, given the fact that we haven't done this much in the past and given the normal churning that goes on at year-end? It might take a while for this to occur and we may find ourselves in a situation of having to--. I guess the miscommunication risk is what I'm driving at.",101
-fomc-corpus,1990,"Peter may want to answer this as well, but my thought was that you really have two instruments for that. One is the press release. If this were the decision of the Committee and the Board separately arrived at [a decision to cut the discount rate] but somehow coordinated that, we could hint--without necessarily saying the funds rate will only drop by 1/4 point--that it's partly to catch up to previous decreases in market interest rates. That would be a very broad hint and we could play with that wording to give the best possible clue in the press release. And I think it would only take a couple of operations by Mr. Sternlight thereafter to make it clear. If they dropped the funds rate further than the Committee wanted it to, all we have to do is bring in some reserves in a pretty aggressive way. Now, I think you're right that the churning around year-end is a problem; and my view is that if we're going to do something, we probably ought to do it in the next couple of days to get it out there and done with and then pretty well even keel it through this potentially difficult period around year-end. But I don't see why it can't be done in the next few days.",247
-fomc-corpus,1990,I would agree that it can be conveyed. I think something about like that move is what a number of people in the market expect. That would also help in being able to convey [an intention] like that.,43
-fomc-corpus,1990,"If we did this, you don't think it would provide an undue degree of surprise, do you?",20
-fomc-corpus,1990,No.,2
-fomc-corpus,1990,That's the way I read it.,7
-fomc-corpus,1990,And what if we didn't do anything? Would that be a surprise?,14
-fomc-corpus,1990,"I think people are looking for some action but not necessarily immediately. If nothing were done going well into January, let's say, I think that would be an element of disappointment to the market.",38
-fomc-corpus,1990,"Wayne, you were first.",7
-fomc-corpus,1990,"Yes, Don, I just wanted to comment. Of course, the problem that occurs by the Federal Open Market Committee moving away from the borrowing targeting is that we thereby take away the separation between the discount rate decision, which is the Board of Governors decision with the recommendations of the Reserve Bank boards as a factor. If the Federal Open Market Committee really were to choose a fed funds target precisely--if we said we want it to be 7 percent, say--then under those circumstances there is no monetary power left with the Board of Governors and Reserve Bank District boards as we'd normally see. As long as we maintain the charade of a borrowing targeting then that separation of function can still be there, it seems to me. That is, as long as we write the FOMC minutes based upon the charade of borrowing then the old practice can still be there.",173
-fomc-corpus,1990,Are you recommending that?,5
-fomc-corpus,1990,"Well, I don't want to get into a discussion about the discount rate. I can argue both sides of that.",23
-fomc-corpus,1990,You'd have to! [Laughter.],9
-fomc-corpus,1990,"But I do think in this discussion we ought to recognize that it might be desirable--that is, the Committee and the Board may wish to consider maintaining a policy that does not wipe out this distinction we've historically used. And I would not be for that kind of a change [unintelligible].",60
-fomc-corpus,1990,President Syron.,4
-fomc-corpus,1990,"Peter, you made the point that you thought the market might be expecting something like 1/2 point on the discount rate and 25 basis points initially on the funds rate. I find that overall approach fairly attractive. But I'd like to ask Gretchen: Is that generally in the neighborhood of what's expected in the exchange markets as well?",68
-fomc-corpus,1990,"I think it's fair to say that in the exchange markets the distinction between the discount rate and the federal funds rate may not be quite as widely appreciated. The symbolic influence of the discount rate probably carries a greater weight in exchange markets than it does domestically simply because the exchange market looks at lots of central banks and the discount rate for so many central banks is an important policy instrument. So, it might take a little while for the exchange markets to come to the same interpretation as the domestic market of such an action.",103
-fomc-corpus,1990,"Would there be some comfort, if I can use that term, to the exchange markets by what would be conveyed in the sort of press release that Don talked about?",33
-fomc-corpus,1990,"They do look at the press release and, sure, anything that could be comforting in the press release would help.",23
-fomc-corpus,1990,President Boehne.,5
-fomc-corpus,1990,"Don, what do you think it would take to get the prime rate to come down?",18
-fomc-corpus,1990,"I don't know. We had a grand debate when we were writing the Bluebook as to whether something like this would take the prime rate down. Most of us felt that come hell or high water banks probably wouldn't do it before the first of January. I do think that another easing and something as symbolic as the discount rate might pry a few people loose even before year-end. A further easing in my mind would raise the odds to a very, very high level that the prime rate will come down after year-end. The issue is whether they might reduce it sometime in the next two weeks. The discount rate change might do [the trick] by focusing some attention on it. But I think it almost certainly--he says hesitatingly!--would happen at some point after the first of the year. It would still leave an unusually wide spread between funding costs, assuming CD rates came down pari passu with the funds rate. So their margins would still be wide.",193
-fomc-corpus,1990,Roger.,2
-fomc-corpus,1990,"As I remember your earlier comment, Peter, the year-end positioning has almost run its course, is that right?",23
-fomc-corpus,1990,I think the intensity of pressures reached a peak about the end of November and then subsided. We've seen some increase in rates again in the last couple of days but--as I see it anyway--without the same sense of stringency or near panic that seemed to be there in late November. I wouldn't want to say it has run its course. I think we could still be in for some pressures that you'd want to monitor and maybe deal with in some way.,93
-fomc-corpus,1990,"Well, given that, my question is: How soon after the first of the year would you see that unwinding being completed? What I'm really driving at is whether to delay a discount rate action and a reduction of the funds rate until after the first of the year, which is two weeks, roughly, given the several days on which the market would [not] operate in any event because of the holidays.",82
-fomc-corpus,1990,"Well, in terms of what the market looks for, I think one of the critical things will be the next employment report. which I believe comes out January 3rd or quite early in January. If that looks weak again and if they haven't seen some [easing] by then, they will look for it and be quite disappointed if they don't see it. Normally, you'd expect year-end pressures to unwind about a week after the turn of the year. We do have the added complication of the reserve requirement reduction and how banks respond to that and how we respond to their response.",117
-fomc-corpus,1990,I guess I was suggesting that since the activity has not been as intense this year as in past years it might unwind more quickly after the first of year--in a shorter period of time.,38
-fomc-corpus,1990,I don't have a particular sense of that.,9
-fomc-corpus,1990,"Any further questions? If not, let me get started and be fairly brief because I think that we've covered a lot of ground this morning and put on the table most of the major issues. I think it's fairly clear at this stage that the type of economic phenomenon we're looking at is something without any parallel in the post-World War II period. This is in a sense a balance sheet suppression, the type we've all been mentioning. It's really quite interesting to see the process, which is essentially one in which values continue to be under significant pressure. For example, we're now beginning to see the weakening of residential real estate prices work its way into the CPI through the owners' equivalent rent numbers, which have finally flattened out. Earlier data suggested that these numbers moved in parallel; they went out of line a bit earlier this year, which is probably a statistical fluke. But it's fairly clear that we're beginning to see a disinflationary process going on, starting largely from the balance sheet structure of businesses as well as the financial system. And I think that's a major element that is feeding into the basic price structure. We are looking at it through the assets side and also as assets affect prices and prices affect wages, reversing the usual type of pattern. We're obviously also seeing a significant weakening in the retail markets as a consequence of a fairly dramatic decline in realized capital gains on the sale of existing residences, which started to be weak in the second quarter. And, although the data are very fragmentary, as we move into the fourth quarter the level of existing home sales has to be awfully low. I think a goodly part of the weakness in consumer markets is not only consumer psychology but also a reduction of purchasing power--quite similar to what President Syron was talking about with respect to New England, only on a much broader basis. The psychology issue is obviously becoming really quite pronounced. While one can argue that a substantial part is balance sheet related and asset related, the coincidence of the decline with the Persian Gulf crisis clearly has to be a considerable part of that. But it's fairly apparent, irrespective of how one is looking at the pattern of economic activity as it works its way back between psychology and action, that we are seeing a seizing up of some forms of credit availability. And the intermediation that has been taken out of the system in large part because of the savings and loan shrinkage is not insubstantial at this stage. So, overall what is occurring, as a number of you have said and one can sense it, is that the fear [felt by] banks and the fear of getting involved in the intermediation process are really putting a big suppression on things. I would suspect the 2 percentage point difference that Don is getting between the growth of M2 and that in his model may in fact reflect something we don't measure--namely, the inclination of individuals to hold liquid deposits which in the previous calculations are all presumed to be risk free. The very substantial [volume of] noncompetitive tenders [in Treasury auctions] obviously in train this year is a mere suggestion of that particular phenomenon. Having said all of that, we have severe recessionary pressures. But recessions always end. And while our basic requirement as far as policy is concerned is to make certain that we maintain adequate liquidity in the system, especially under conditions such as those we are now experiencing, we also obviously have to look at the other side of this. At some point we are going to come out of this and we want to make reasonably certain that when we do we're not looking at a degree of liquidity in the system that brings with it [higher] inflation rates and the next downturn much more quickly than is usual. So, I think that it's apparent that we have a fairly difficult next six months ahead. I don't think there's any particular short-term policy uncertainty. My judgment and what I hear as the general consensus around here, if I read it correctly, is that the money supply has become extraordinarily restricted and that we're looking at what is a very major credit contraction. The fact that the prime rate hasn't moved is an indication of the extent of that. And I think there is an inclination to ease up a bit further here. I'm becoming more convinced as the days go by that, while the optimum policy would be to somehow bring the funds rate down and [to generate] the associated credit with it until we get the economy in somewhat of a balanced growth position at which point [short-term rates] could stay down, the chances of being able to implement that are becoming increasingly small. It's just not credible that a central bank can't print money; and the more we try to print it, in figurative terms, the more likely it is that at some point we'll succeed beyond our wildest dreams. And while I would argue strongly that we have to get some downside policy cushion here, namely to make certain that we supply adequate credit into the system, I think we also have to be prepared for the fact that we may, and probably will, overdo it. At some point the equations will come out right and we are going to be required to start pulling back, probably earlier than we might be desirous of doing so. So, I would not at this particular stage leave out the possibility that we may overdo it, but I would not be overly concerned about that provided we are aware sufficiently in advance that that's what's happening. The difference between where the credit aggregates, the money supply, the monetary base--all the various financial elements with which we interface--are at this moment and where inflationary concerns are I think is rather substantial. We have a long way to go, so I'm not particularly concerned about it. The bottom line that I come out with is: As I think we implied, the discount rate is on the table [for Board consideration] tomorrow. Should the Board decide to reduce the rate in line with the vast majority of the recommendations of the Reserve Banks, then it strikes me that perhaps the partial accommodation of a 1/2 point reduction in the discount rate with a 1/4 point in the funds rate, bringing it from 7-1/4 percent to 7 percent, probably is at this stage the most sensible policy option. If the Board chooses not to reduce the discount rate, I would still argue in favor of moving the funds rate another 1/4 of a point to 7 percent under appropriate open market policies. And I would further suggest that having done that, we should remain asymmetric toward ease. Comments?",1318
-fomc-corpus,1990,"Mr. Chairman, I'm sympathetic to what you're saying, but I just want to be sure that we're maintaining as best we can the fine line. I wonder if you could accommodate that to mean that we would be voting here for alternative B symmetric toward ease, and then you as Chairman of the Committee would have some discretion over the intermeeting period, particularly as you sat with the Board of Governors in regard to the discount rate.",85
-fomc-corpus,1990,"It could be done that way. What I'm actually recommending is that the FOMC act independently to move. But as I noted, it's a technical question.",32
-fomc-corpus,1990,"Here again, I'm thinking that the way policy runs and has run over the last several years is that at some period of time the Federal Open Market Committee has the balance of power. That is, during periods in which interest rates are increasing, ordinarily the fed funds rate moves up as pressures are put on the fed funds rate. In a sense the Reserve Bank directors and the Board of Governors have a standby policy. And even [when the rate is] on the way down that's also the case. Now, on the way up a point is reached where the distance between the fed funds rate and the discount rate gets so wide that no one is willing to allow that kind of a subsidy, so then the balance swings to the Reserve Bank directors and the Board of Governors. And until someone convinces me otherwise, I would favor maintaining that [balance]. And I would favor the FOMC saying at this point in time that the direction of interest rates downward now largely rests with the boards of directors of the Reserve Banks and with the Board of Governors. In a sense it's kind of a flip-flop. I think we ought to hear a debate on that question and see if there's a better way to do it.",242
-fomc-corpus,1990,"Well, why don't we quickly put that on the table and let people comment. Bob Black first.",20
-fomc-corpus,1990,"Mr. Chairman, you formulated exactly what I would have done. I just want to express the hope that the Board of Governors in its wisdom does what you suggested it might do tomorrow so that the net effect would be a 1/4 point change in the federal funds rate. If the Board does not act, then 1/4 point is all I would want to do at this point. I think a 1/2-point move would do things to the bond market and the foreign exchange market that we wouldn't like very much. That would be seen as throwing in the towel [on inflation] at this point. So, I'm with you 100 percent on that.",136
-fomc-corpus,1990,President Parry.,4
-fomc-corpus,1990,"[Unintelligible], I guess mainly because the Greenbook is a bit more optimistic than I would be. I would like to make two points, though. It seems to me that the process that we've been going through in recent months does suggest that there is a high likelihood that we will overshoot at some point. I feel as though we have to have a view of the future that we have some confidence in. We realize that there are rather substantial lags in terms of when these policy changes will have an effect. And if we don't do that, and we react primarily to conditions as we see them appear in the statistics, I think that there is a high likelihood we will overshoot. Secondly, if that does occur and maybe even if it doesn't--and this is a point that you certainly alluded to--I think we need to be prepared to reverse our actions at some point rather promptly.",183
-fomc-corpus,1990,Do you have any views on Wayne Angell's comments?,12
-fomc-corpus,1990,I want to think about it.,7
-fomc-corpus,1990,"I wanted to get a clarification from Governor Angell. Are you suggesting that we stay at 7-1/4 percent asymmetric toward ease and, not to prejudge what the Board will do, but suppose that it lowers the discount rate 50 basis points, that all of that will be passed through? Or is that just a signalling device?",70
-fomc-corpus,1990,"No, I was suggesting that with our asymmetry toward ease we delegate to the Chairman the decision as to whether or not the full 50 points show through or only 25 show through. I'm just trying to keep it technical so that the FOMC is only talking about the so-called pressure or [existing] pressure between the fed funds rate and the discount rate. But in the intermeeting period, given the uncertainty in the FOMC about what the Board will do, the Chairman would have the discretionary authority. And if the Board chose not to move the discount rate, the Chairman then could go ahead and immediately move the fed funds rate by 25 basis points. So, I'm not talking about any difference in outcome in terms of what the Chairman is suggesting; I'm just talking about the technical manner.",162
-fomc-corpus,1990,"If the Board voted not to accept the recommendation of the majority of the Reserve Banks, what would be the expectation, if I can use that phrase, of what the Chairman would do?",37
-fomc-corpus,1990,"Well, I think the Chairman has made it clear that he would expect to move the fed funds rate.",21
-fomc-corpus,1990,25 basis points now and maintain asymmetry toward ease?,11
-fomc-corpus,1990,Which might or might not be used.,8
-fomc-corpus,1990,"Oh, yes.",4
-fomc-corpus,1990,I'm not talking about any change in outcome from what the Chairman is proposing.,15
-fomc-corpus,1990,"Let me finish off then. My preference would be not to change; I could live with asymmetric language. But I would agree with Governor Angell's proposal: that is, if the Board is going to change the discount rate, do it first and see what happens. Then we would have the opportunity, if the foreign exchange markets reacted badly to that, to sit for a while or to move forward. It seems to me to give you more degrees of freedom. But my overall preference--",98
-fomc-corpus,1990,"We do have to have a press release with a discount rate action, which does bind our hands with respect to that issue.",25
-fomc-corpus,1990,"No, I'm saying that [unintelligible] you've lowered the discount rate, say, 50 basis points, but you don't do anything with respect to the funds rate until that reaction--",39
-fomc-corpus,1990,"But if you do that, the problem is that the normal market expectation would be a 50 basis point decline in the funds rate, which is more than I think we want to suggest. So, in the press release we're going to have to say something to the effect that the expectation is for it to show through only partially in the funds rate.",70
-fomc-corpus,1990,"Mr. Chairman, I think the FOMC ought to talk about the distance between the fed funds rate and the discount rate, and they ought to be advising us along with the boards of directors. And I think the Board of Governors should decide this question.",52
-fomc-corpus,1990,I'm not clear on why you think they must move in lock step. There has been a disparate relationship as long as I can remember between the discount rate and the fed funds rate. We've been operating for two weeks at least at a 1/4 point [spread between the two rates]. We operated at 300 basis points for a while. Why would the assumption be that we would drop both by the same amount?,84
-fomc-corpus,1990,Because that's in fact what we've been doing.,9
-fomc-corpus,1990,"Any time we've moved the discount rate, except September 3 of 1987, we've moved the fed funds rate the same amount as the discount rate.",31
-fomc-corpus,1990,"Well, I don't know why we should feel our hands are tied because of that.",17
-fomc-corpus,1990,I think we could put out a news release if we decided this sort of thing.,17
-fomc-corpus,1990,"Well, let me put it this way. Let's first get the policy down for which there seems to be very little difference. And then we'll worry about the means of implementation. It will not be viewed differently in the market but it will affect how the minutes read and how the implementation of the directive reads. It won't affect anything else, but let's make certain that we get some agreement on what we're actually going to do and hold for a minute the question of how that is technically implemented. Bob Forrestal.",101
-fomc-corpus,1990,"Well, Mr. Chairman, with respect to the policy issue I start from the proposition that we're in a contraction, that the contraction is going to continue, and that the risk of a more serious downturn is present. And the risk of that kind of a downturn is one that I would not like to take at this point. I think it's an undue downward risk, and I would prefer that policy be contracyclical at this point rather than procyclical. I think you put your finger on a very important aspect of this downturn: the psychology. And the psychology is universally bad. Although monetary policy can't cure all of the ills in the economy and certainly can't deal with the Middle East and so on, I do think it's the only thing at this point--unless there is a solution to the Middle East situation--that is really going to bolster the psychology. So, while we do have the risk of overdoing it, I would be prepared to run that risk at this point. My preference would be to move 50 basis points immediately; however, if you wanted to do it in two steps with an asymmetric directive, I wouldn't have a great problem with that. If you did 50 basis points immediately, I think that to some extent technically solves the discount rate problem because the funds rate would be below the discount rate and the market would be expecting some symmetry between the two. My preference in terms of policy and implementation would be to move 50 basis points [on the funds rate] and to drop the discount rate as well.",311
-fomc-corpus,1990,Vice Chairman.,3
-fomc-corpus,1990,"First of all, I support precisely the recommendation that you put on the table. That is, I hope the Board will move the discount rate 1/2 point, with the Committee trying to settle the funds rate in around 7 percent--I have no question myself that Mr. Sternlight and his friends can engineer that even in the year-end environment--and maintain asymmetry in the directive. I know it's late, but let me just make a couple of quick comments in terms of the policy setting. I think Martha made a good point before when she spoke about the soft landing. Everyone knew that was going to be a difficult exercise. The economy now seems to have tipped into a recession. But I think it's important that we and others keep in mind that if indeed it is a recession, the causes of it seem to be [primarily] an autonomous shift in expectations growing in part out of excesses of the past, of which the credit crunch is a symptom, and in part from Saddam Hussein. Not to raise vestiges of the past, but in his Per Jacobsson lecture Paul Volcker made the point that if there is a recession, it's not going to be monetary policy's fault. And I think that's right. Moreover, if we can achieve an outcome like Mike's forecast, I don't think it's the end of the world by a long shot. In addition, we can say now what we couldn't say six months ago: that there's at least a strong [hint] or two that suggests that the inflation outcome could be better than we thought six short months ago. All in all, while no one likes a recession, I don't consider the outcome terrible by a long shot as long as we get something like Mike's forecast. And that's where I do worry a bit, if not a lot, about the money supply. No one is ever going to accuse me of being a monetarist, but as I see it the money supply, total reserves, and whatever, are all kind of in the red zone. And in those circumstances I think the policy you're suggesting is exactly right. Even with that policy I'm by no means convinced that we are inevitably and irreversibly destined to overdo it. I think we can squeeze through. Just quickly on the point that Governor Angell raised, which I think goes well beyond how we communicate this particular change: I think Governor Angell is raising a more difficult question of the whole matter of the relationships between the Board of Governors and the boards of directors on the one hand and the Open Market Committee on the other. I must say, Wayne, that looked at over a very long period of time on both sides of the interest rate cycle, I for one think that those relationships are about right. And I would be most reluctant to change them. I might add, at the risk of seeming to prod a bit, that if one does care about the [monetary policy] role of directors and the Board of Governors it seems to me it's a matter of logical extension that one should not be too crazy about a penalty discount rate.",621
-fomc-corpus,1990,"I understand that and as I suggested, Jerry, there's another side of that issue. In regard to that relationship I feel exactly as you do.",29
-fomc-corpus,1990,"Well, it might not be a bad idea at some point to have a sort of a fleshing out of this [unintelligible] issue you're raising. President Melzer.",37
-fomc-corpus,1990,"I can accept your recommendation on the funds rate, Alan. I think it's probably appropriate. I have a sense--as I expressed earlier and to use a phrase I heard elsewhere--that we're getting ahead of the curve a little. I think we have brought the funds rate down faster than market rates, and I presume that that is going to show through to the aggregates. But this is responsive to the concern of the slow growth. I agree with you that we're likely to overdo it. Unfortunately, I don't have the same confidence that we'll undo it. I say that simply because I sat here as recently as 1986 and 1987 as we looked at quarterly growth rates in M2 in excess of 10 percent and I have to tell you there are lot of asymmetric monetarists. That's Lee's phrase, but I think it's very true. There were many people not at all worried about that [M2 growth] at that time. I hope I'm wrong, but I'm not--",200
-fomc-corpus,1990,"If P* is any sort of basic inference, we are significantly better positioned than we were then.",20
-fomc-corpus,1990,"Oh, I understand what position we're in, and that's why--",13
-fomc-corpus,1990,We have a lot of room to make a mistake in here.,13
-fomc-corpus,1990,Yes.,2
-fomc-corpus,1990,Bob Parry and I are going to be on next year too [as voting members]!,18
-fomc-corpus,1990,"In any case, I would like to try to avoid the overshooting not only for that reason but also because I think a volatile monetary policy has other consequences that flow from that. On the discount rate, if it were up to me I would let the 1/4 point show through in open market operations tomorrow and I'd be inclined to cut the discount rate on Friday. And at that point I'd make it very clear that it's simply a technical adjustment to move the discount rate in line with other rates. I think the communication in this other scheme could get a little confusing. I think we could establish a 7 percent funds rate by Friday and then just have a technical adjustment [in the discount rate] and use the appropriate language for that. I'm not concerned about Wayne's concern here. We could be left in the same position if the Board decided not to move the rate on Wednesday and then we would have a situation where, with the authority we are proposing to delegate to the Chairman, we would still have the funds rate coming down close to or possibly below the discount rate. So, I'm not troubled with that. I'd go ahead with the open market operations.",233
-fomc-corpus,1990,President Keehn.,4
-fomc-corpus,1990,"Mr. Chairman, I would enthusiastically support your recommendation, which I think is absolutely the right thing to do given the current circumstances. Specifically, in terms of our decision here today, I would reduce the fed funds rate by 25 basis points, have asymmetric language, and hope that the discount rate would be reduced concurrently or shortly.",67
-fomc-corpus,1990,President Stern.,3
-fomc-corpus,1990,"I support your recommendation, Mr. Chairman.",9
-fomc-corpus,1990,President Boykin.,4
-fomc-corpus,1990,"I would support your recommendation, Mr. Chairman. I would also hope that there is a discount rate cut. The only comment I would make is that I hope you would exercise considerable discretion in going any further in the intermeeting period unless something very unusual happens.",52
-fomc-corpus,1990,President Hoskins.,4
-fomc-corpus,1990,"I just wanted to finish the policy statement separate from the discount rate issue. I think we ought to have asymmetric language. I'd rather have the 25 basis point move in the hands of the Chairman at his discretion. We have made some significant moves in terms of interest rates in the recent past and we haven't seen those fully show through yet. Don's projections presumably could err on both sides, not just one side, and we may well get a faster growth rate of money. But even with the projection that we have, a 50 basis point move puts us at the top of our tentative target range for next year by June. And it seems to me that some patience is needed here and some careful watching of the aggregates. I'm not averse to moving if the aggregates pan out to be more than a 26-week fluke. But maybe we ought to see what's in that aggregate box before we move ahead.",183
-fomc-corpus,1990,President Syron.,4
-fomc-corpus,1990,"Mr. Chairman, I like your suggestion exactly as it was put. I disagree with Lee in the sense that I think what the FOMC ought to do--I'm not a voting member--is vote to make a 25 basis point cut with asymmetric language toward ease. It is true that this is not a policy-induced recession. I think that's a very important point. It is also our responsibility to take into consideration the world as it exists, and I think what you suggested does that without panic on the down side. I think it's very important that we now move ahead, but I must say I feel some of Tom Melzer's concerns about how quickly we'll adjust, being a confessed asymmetric monetarist. We may not react as quickly on the up side. It's important that the FOMC vote for what it thinks should be done, and I'm a little wary of getting into things that have too many conditions. This is a very difficult question. Besides the results of being on horseback here, there are too many things that are permutations and combinations--that if A happens we'll do this and if B happens we'll do that. We ought to say what we think should be done, and I think your suggestion did that.",246
-fomc-corpus,1990,Governor Seger.,4
-fomc-corpus,1990,"I enthusiastically support a move toward ease, and tomorrow I will vote in favor of a discount rate cut because I think one of the reasons for the lack of confidence in business communities is the feeling that somehow or other a lot of people in Washington don't know what's going on. I think this would be a kind of discreet action. It wouldn't be so discreet that no one would know it, but it would be something that would fit on the front page of the newspapers and, therefore, would be communicated all over the country and not just to fed watchers. And that would help a great deal. I'm not a betting woman, but to answer Don Kohn's question: If this goes across the wire tomorrow at 9:30 a.m., we'll see the prime rate cut announcements starting about 9:42 a.m.",165
-fomc-corpus,1990,That's pretty precise!,4
-fomc-corpus,1990,You want to bet?,5
-fomc-corpus,1990,President Boehne.,5
-fomc-corpus,1990,"I support your recommendation, Mr. Chairman. I think the Federal Open Market Committee ought to vote for a 1/4 point reduction in the rate today with an asymmetrical directive, and I think you and your colleagues ought to do what you will tomorrow.",52
-fomc-corpus,1990,As long as it's the right thing! Governor LaWare.,12
-fomc-corpus,1990,"I support your recommendation, Mr. Chairman. The only thing I'd add is that I feel quite strongly that under the circumstances there is very little chance that this particular policy directive would lead us to overshoot the mark.",43
-fomc-corpus,1990,I regretfully suspect that you may be right. Governor Kelley.,13
-fomc-corpus,1990,"I support your recommendation, Mr. Chairman.",9
-fomc-corpus,1990,Governor Mullins.,4
-fomc-corpus,1990,"I support the recommendation. I think we have allowed the fed funds rate to come down gradually this fall and more rapidly recently as market rates also have fallen more rapidly. We've yet to see the full impact on M2. Still, M2 seems to be decelerating a bit. And I think there's ample room to continue at least this marginal decline. It is true that I've only seen Don's forecast errors on one side, but there's always the possibility that it will turn around.",97
-fomc-corpus,1990,It has.,3
-fomc-corpus,1990,"So, I support the recommendation.",7
-fomc-corpus,1990,"Roger, do you have any remarks?",8
-fomc-corpus,1990,"I would support your recommendation, Mr. Chairman. I would go one step further, however, given the background that we have reduced the fed funds rate by roughly 3/4 of a percentage point in a six-week period starting with October 29 and that hasn't shown through yet. Another 1/4 point doesn't bother me, but if we continue I do have a concern about overshooting and I also have a concern about moving the fed funds rate to the level of the discount rate or making the discount rate a penalty rate. I would feel a lot more comfortable about your recommendation if indeed I was assured that the Board would act rather promptly to reduce the discount rate and that only half of it, 1/4 point, would show through.",151
-fomc-corpus,1990,I might just say technically--,6
-fomc-corpus,1990,"I don't see standing on ceremonies, which I think Wayne Angell has brought forth in the distinction between the Board and the FOMC. Now is the time to set policy and I'd like to see it established here.",44
-fomc-corpus,1990,"Mr. Chairman, I would like to comment on the monetary policy question rather than the technical one that I spoke to earlier. My position is just about exactly identical with Tom Melzer's. We have quite a few more months of rather unpleasant news ahead of us. And if anyone is under the illusion that there are not going to be pressures to reduce the fed funds rate and the discount rate in January, and February, and March--. It seems to me that we have at least three more months of rather bad news because in spite of all the manifestations from looking at M2 I really believe that most of the members of the Committee are looking at the real economy. And there's always a lag in regard to the information on the real economy. That's why the Chairman was suggesting the problem in regard to our overshooting. Now, I hope that this time around, Tom, there will be the votes to make the rather dramatic move, which may have to be made if you look at the forward looking indicators--the money stock, commodity prices, and the yield curve. We could find ourselves in a position where we have to tighten before we have any real evidence that the economy has recovered. And I think that's going to be very difficult to do. So, Mr. Chairman, I can go along with this, but my decided preference is to go much slower than 75 basis points a quarter. And I mean 75 basis points a quarter. If we continue to do that, at some point we're going to find out what the Foreign Desk warned us about: the problem of the dollar. It's almost as if there's a willingness to walk us there and we're going to find that we're going to be blindfolded; we're going to walk in the dark and sometime we're going to find it. And that frankly scares me. So, I'm very uncomfortable voting to do what we're doing. I do hope that the votes are going to be there when it is necessary and the time comes to tighten.",399
-fomc-corpus,1990,I think that's well said. This is not the tough vote; the tough vote is on the other side of this.,24
-fomc-corpus,1990,And it's on the other side where we've made our mistakes every time throughout our history practically.,18
-fomc-corpus,1990,"Well, let us remember one thing that we can be pleased about and that is that we've cut off the top of this [inflation bulge] very early on. In terms of looking at the real M2, we have not been confronted with this big [unintelligible]. In other words, essentially we've stabilized the growth in money supply to an extent that we haven't seen in quite a long time. And hopefully we can continue doing that. We're not going to get it [unintelligible] but we have kept it within our target guidelines now for a surprisingly long period of time. And I just hope we have the capability of doing that in the future. But I think what Wayne Angell has said is something we'd better be at least careful about. [Unintelligible] run this. It's going to happen. If it turns out that the Greenbook forecast is right, that would be terrific. But as Mike said very early on, he thinks that the risks of that forecast are asymmetric toward a worse outcome. And I think we're all saying that that's what we're responding to, but it may not turn out that way. And we had better be prepared to--",239
-fomc-corpus,1990,"Well, the last time we really had the problem that Governor Angell was talking about wasn't in fact in 1987; it was in 1988. To use the soft landing analogy, Mike pointed out to us 15 months ago that we overshot the runway. And if you want to look for mea culpas, the mea culpas belong in 1988 and not 1987. And I think that's the last time--",89
-fomc-corpus,1990,"But, Jerry, my view is that in the last quarter of 1986 everything really took off and we really ignored all those events. Every money market watcher knew in March of 1987 what had happened and market interest rates soared and soared twice as much as what we did.",57
-fomc-corpus,1990,And policy firmed and then firmed further through the summer of 1987 and the stock market crash took it down. And when we got into 1988 that is where the real problems were.,41
-fomc-corpus,1990,Yes.,2
-fomc-corpus,1990,Are you saying we overdid it in 1988 on the up side?,16
-fomc-corpus,1990,"No, we didn't go down soon enough and far enough.",12
-fomc-corpus,1990,We didn't have a recession then; it's a lot tougher when there's a recession on.,17
-fomc-corpus,1990,"No, that's right.",5
-fomc-corpus,1990,"Okay, can we put this directive to a vote?",11
-fomc-corpus,1990,"Norm, I would put 4 percent and 1 percent in the two blanks at the end.",20
-fomc-corpus,1990,"On line 21--. I'm sorry, I may be ahead.",14
-fomc-corpus,1990,"We also distributed changes for lines 17-20 and 20-21 to take account of the new information on trade for October and the CPI for November, which we got this morning.",38
-fomc-corpus,1990,"I think lines 21-23 as proposed risk the mistake of our saying that the inflation is okay. Do I have the wrong one? It is dated December 18th. It says ""Consumer prices continue to increase moderately."" My view is that it would be better to say that consumer prices are rising moderately as compared to the rather strong rise that occurred in the first nine months of the year. I'm afraid this will be interpreted as meaning that we think consumer prices during 1990 have been okay.",101
-fomc-corpus,1990,Why don't we say consumer prices have improved somewhat.,10
-fomc-corpus,1990,"The trouble, unfortunately, is that the ex-oil part also accelerated at some point, which gives some--. May I request that the Committee leave with the chair the solution to this problem?",39
-fomc-corpus,1990,That's fine.,3
-fomc-corpus,1990,We have to get the right language.,8
-fomc-corpus,1990,"""In the implementation of policy for the immediate future, the Committee seeks to decrease slightly the existing degree of pressure on reserve positions, taking account of a possible change in the discount rate. Depending upon progress toward price stability, trends in economic activity, the behavior of the monetary aggregates, and developments in foreign exchange and domestic financial markets, slightly greater reserve restraint might or somewhat lesser reserve restraint would be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with growth of M2 and M3 over the period from November through March at annual rates of about 4 and 1 percent, respectively.""",122
-fomc-corpus,1990,Will you call the roll?,6
-fomc-corpus,1990,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Boehne Yes President Boykin Yes President Hoskins Against my instincts but given the collective weight of my colleagues and the promise that they'll do the right thing next year at the right time--Yes,54
-fomc-corpus,1990,Get it in writing.,5
-fomc-corpus,1990,Some of us take that personally!,7
-fomc-corpus,1990,Governor Kelley Yes Governor LaWare Yes Governor Mullins Yes Governor Seger Yes President Stern Yes,18
-fomc-corpus,1990,We'll now adjourn to luncheon.   Our next meeting is February 5-6.,18
-fomc-corpus,1991,"Good afternoon, everyone. Welcome, Bob McTeer; it's nice to see you at the table. You're sitting between two formidable characters but I suspect you'll survive.",33
-fomc-corpus,1991,What do mean by that?,6
-fomc-corpus,1991,"The first item on my agenda is not on the [meeting] agenda but it's something I'd like to bring up because I know a number of you felt quite uncomfortable about the need [for the Board] to take the action that we took on Friday and the way we had to take it. The action, in my judgment, had to be done and I think in retrospect it clearly was right. I thought waiting until this meeting [would have] put policy behind formidably, which I think we have to avoid. As we discussed at that time, we moved under the directive de jure, which was still targeting borrowing and not the funds rate. And, obviously, under those conditions, there's an immediate basis point-for-basis point passthrough with the discount rate. De facto, it's very hard to believe that that is what we're doing. As a consequence, I think we have to resolve this question in a manner that is consistent with the rules of this Committee. Unless somebody has an objection, I would suggest that we form a small committee--and I'm recommending Messrs. Kohn, Sternlight, Mattingly, and a Federal Reserve Bank economist of their choice--to prepare a paper on this issue and how it should be handled for inclusion on the agenda of our March 26th meeting. We have so much ambiguity on this particular issue that I think we have to get some clarification so that the Board, the Desk, and the Committee know where we are under all conditions on this issue. If anyone has anything to add to that, I'd appreciate [hearing] it. If not, I'd just like to go forward and officially appoint that committee to prepare a paper and put this issue on the agenda next time.",349
-fomc-corpus,1991,Just a clarification on the paper: The mandate is to look at the operating instruments as well as the relationship of the discount rate to the funds rate?,30
-fomc-corpus,1991,"The mandate is basically to evaluate our procedures and give options on what the alternative actions are when the Federal Reserve Board chooses to move the discount rate. We are into the formal meeting. Since at the moment we have no chairman, I will turn [the meeting] over to Governor Seger, who is our senior [Board] member, to obtain a chairman and vice chairman for us.",77
-fomc-corpus,1991,As Mr. Greenspan says--I shouldn't call him chairman at this point--we have to select a new chairman and vice chairman for this FOMC year. I would entertain a motion for chairman.,41
-fomc-corpus,1991,"Oh, you want them separately.",7
-fomc-corpus,1991,Yes.,2
-fomc-corpus,1991,I move Mr. Greenspan be chairman.,9
-fomc-corpus,1991,"Okay, thank you. May I have a second or some more nominations?",15
-fomc-corpus,1991,Second.,2
-fomc-corpus,1991,Move the nominations closed.,5
-fomc-corpus,1991,"All in favor? SEVERAL. Aye, aye.",13
-fomc-corpus,1991,Thank you.,3
-fomc-corpus,1991,"You were just in time, Dick!",8
-fomc-corpus,1991,"Right. Now we need a nomination for vice chairman, please.",13
-fomc-corpus,1991,I move Mr. Corrigan.,7
-fomc-corpus,1991,All right. Any additional nominations?,7
-fomc-corpus,1991,I'll second Mr. Corrigan.,7
-fomc-corpus,1991,"Thank you. All in favor? SEVERAL. Aye, aye.",16
-fomc-corpus,1991,Thank you. I guess we have our officers.,10
-fomc-corpus,1991,"Congratulations, Mr. Vice Chairman.",7
-fomc-corpus,1991,"Condolences, Mr. Chairman.",8
-fomc-corpus,1991,"We now have to elect staff officers and I ask the Secretary, technically the Deputy Secretary--he's just been promoted--to read them.",28
-fomc-corpus,1991,"Secretary and Economist, Donald Kohn Deputy Secretary, Normand Bernard Assistant Secretaries: Joseph Coyne and Gary Gillum General Counsel, Virgil Mattingly Deputy General Counsel, Ernest Patrikis Economists: Michael Prell and Edwin Truman Associate Economists from the Board: David Lindsey; Larry Promisel; Charles Siegman; Thomas Simpson; and Lawrence Slifman. Associate Economists from the Federal Reserve Banks: Alfred Broaddus, proposed by President Black; Richard Davis, proposed by President Corrigan; Karl Scheld, proposed by President Keehn; Sheila Tschinkel, proposed by President Forrestal; and Jack Beebe, proposed by President Parry. That's the list, Mr. Chairman.",143
-fomc-corpus,1991,"If there are no objections, I will consider the list to be approved. The next item on the agenda is to select a Federal Reserve Bank to execute transactions for the System Open Market Account, and we recommend the New York Bank unless I hear any objections. Without objection, I assume that is approved.",60
-fomc-corpus,1991,I was going to push Kansas City!,8
-fomc-corpus,1991,"I knew you were! That's the reason [I made a prompt recommendation.] We need to select the Manager for Domestic Operations and the Manager for Foreign Operations, System Open Market Account. The incumbents, of course, are Messrs. Sternlight and Cross. Unless I hear objections, I will assume that we approve their carrying on for the next year. I assume you have reviewed the Authorization for Domestic Open Market Operations and again, without objection, I will assume that that is also approved. I'll now call on Mr. Cross for a series [of recommendations]. Mr. Cross.",116
-fomc-corpus,1991,"Mr. Chairman, this is the warehousing agreement proposal?",12
-fomc-corpus,1991,Yes.,2
-fomc-corpus,1991,"Mr. Truman circulated a memorandum on this matter to the Committee and I concurred in the memorandum. The Committee will recall that at its meeting last March it agreed to a proposal to increase the warehousing maximum by $5 billion, from $10 billion to $15 billion. This was made subject to a Treasury request. In the event, the additional amount of $5 billion was not needed during the year and was not used; there was no Treasury request to use it. Indeed, the Treasury has taken an initiative, with our aid and encouragement, to reduce the amount outstanding under the present warehousing agreement. As you know, the amount outstanding has been reduced in the past months from $9 billion, which is where it stood when the Committee approved the increase, to $4-1/2 billion. The Treasury in reversing these amounts and reducing the outstandings to $4-1/2 billion has always urged that a cushion of unused capacity be retained in case there is a requirement for it, even though [the need] has been going the other way. We have made the point that we don't think the warehousing facility should be in continuous use and we have been helping and encouraging them in bringing the amount down from $9 billion to $4-1/2 billion. Our view is that the correct approach at this point would be to drop the additional $5 billion that was added last year and to seek the renewal of the facility at the present time with the pre-existing maximum of $10 billion. And I so recommend, Mr. Chairman.",314
-fomc-corpus,1991,Questions for Mr. Cross?,6
-fomc-corpus,1991,"I have a couple, Sam. One is: What happens if we don't renew it? Does it automatically expire or is this a process that the FOMC has set up to review this annually? If so, I guess the idea is that the Committee is endorsing this kind of activity.",59
-fomc-corpus,1991,"Well, there have been warehousing arrangements with the Treasury going back to the early 1960s. I would have to seek legal guidance on what would happen if at the time when there were outstandings the Committee did not authorize their continuance.",51
-fomc-corpus,1991,I assume they would run off as they mature.,10
-fomc-corpus,1991,"I assume so, yes. The next ones that fall due are in May and June. Well, I don't know what the legal position would be. If there were no warehouse facility, I don't know whether that would mean that the whole $4-1/2 billion would have to be ended at this moment or--",64
-fomc-corpus,1991,They would go off according to the terms. Is there a term on them?,16
-fomc-corpus,1991,Yes.,2
-fomc-corpus,1991,There are terms on them.,6
-fomc-corpus,1991,[Each] would roll off according to its terms; there would be no additional warehousing after the resolution.,22
-fomc-corpus,1991,"So, if we endorse the recommendation of $10 billion, would that essentially mean that the FOMC endorses the activity of warehousing?",29
-fomc-corpus,1991,"It means that the FOMC endorses the continuance of this facility up to a maximum of $10 billion, yes.",26
-fomc-corpus,1991,The FOMC has been authorizing the warehousing on an annual basis when it votes on this.,21
-fomc-corpus,1991,"Sam, what's magic about $10 billion as opposed to $5 billion, for example?",18
-fomc-corpus,1991,"Well, as I say, the Treasury has taken the initiative and has acted to bring down the amount outstanding quite substantially in this past period. They have always made the point very clearly that in doing so they urge and would expect that there would be a continuation of this [facility] so that if conditions should change--and they can change--it would be available to them quite promptly in order to continue further warehousing. At this point conditions are such that it certainly does not look like that's the way it's going; it's going the other way. We're in the process of reducing our foreign currency holdings.",120
-fomc-corpus,1991,"A follow-up question: If we were to authorize $10 billion, then it's up to them? We don't trigger it but they do? They could do this anytime they want to and we have to take it?",43
-fomc-corpus,1991,"If we authorize the $10 billion, then typically we act on their request in providing the warehousing. Now, obviously, this is not an adversarial relationship, as far as I'm concerned. It's something that we talk to them about, work with them on, and deal with them on a daily basis. It has always worked satisfactorily on that basis.",72
-fomc-corpus,1991,"Charlie Siegman, do you have anything you'd like to add?",13
-fomc-corpus,1991,"No. I think the Treasury's need for some contingency or a cushion for reserve is appropriate, given the uncertainties. Otherwise, we'd have to review this on an emergency basis rather than--",37
-fomc-corpus,1991,"Any action to change this does get reported. If we leave it at $10 billion, that's outstanding until we choose to act otherwise or we look at it again next year.",35
-fomc-corpus,1991,"I think we're still in the mode of trying to reduce our holdings [of foreign currencies] and that will continue. We have communicated that periodically to the Treasury, and I think we are just going to bring down gradually what we all think is an excessive position in this respect. It will take a while, but I think we're moving in the right direction.",71
-fomc-corpus,1991,"We've made clear to the Treasury many, many times that we don't visualize this as a facility that should be in continuous use. It's there when conditions are such that it's required and it should be drawn down, or reversed, at times when conditions warrant. That's the basis we've been working on and the basis on which it has been reduced to $4-1/2 billion in recent months.",78
-fomc-corpus,1991,Governor Angell.,4
-fomc-corpus,1991,"Mr. Chairman, for two years I was rather uncomfortable with this position. I am not uncomfortable with this $10 billion request. I feel that the Treasury was rather generous in moving in this direction, [based on] the Federal Open Market Committee's objections. It seems to me that they gave heed to the size of the fund, which was one basis for the objections. The second area that I was objecting to as a matter of principle is no longer valid in that we did call to the attention of the Congress [issues] about the appropriations process. If the Congress feels comfortable with the arrangement, I'm certainly on board in this context.",130
-fomc-corpus,1991,Any further questions? Would somebody like to move approval of Sam's request?,15
-fomc-corpus,1991,I'll move it.,4
-fomc-corpus,1991,Is there a second?,5
-fomc-corpus,1991,Second.,2
-fomc-corpus,1991,"Without objection, it is approved. We have three additional foreign currency instruments, which have to be approved. Would somebody like to move them?",28
-fomc-corpus,1991,I would move that.,5
-fomc-corpus,1991,Second?,2
-fomc-corpus,1991,Second.,2
-fomc-corpus,1991,"Without objection. The next item on the agenda is the memorandum from Mr. Mattingly, which is dated January 25th, on the Committee's Rules Regarding the Availability of Information. I specifically requested that individuals on the Committee be contacted to see what the general response to that draft memorandum was. There were several who had problems with it. My view is that if there isn't [virtual] unanimity on an issue such as this, it would be inappropriate for us to [approve] it or move on it. And I would suggest that it just be dropped at this stage. Hopefully we'll get our issues in this area resolved in a somewhat better manner. Nonetheless, we have to have a vote on the technical part of that memorandum before publication. Would somebody like to move that?",157
-fomc-corpus,1991,I'll move it.,4
-fomc-corpus,1991,Second.,2
-fomc-corpus,1991,Is there a second? Is there any discussion? Without objections.,13
-fomc-corpus,1991,Would it be appropriate to ask what the nature of the objections was?,14
-fomc-corpus,1991,"Yes, I'd be interested also.",7
-fomc-corpus,1991,"Don, why don't you comment?",7
-fomc-corpus,1991,"Several members of the Committee and other presidents questioned the need for it. Several expressed the view that, indeed, whoever was doing this leaking knew it was wrong, so why do we have to pass more rules? A couple members of the Committee were concerned that the language having to do with verbal or unwritten--as well as written--material was overly broad and might end up gagging their ability to discourse in public even in the normal course of business without [divulging] anything that could be used in that way. Let's see, those were two of the reasons. Really, it was: Why do we need this? It could be misinterpreted; it could be used against the Committee at some point. It seems unnecessary, so why go forward with it? That was, I think, the general nature of the objections. Norm, do you--",173
-fomc-corpus,1991,"Yes, in line with your comment, the observation was made that the rules already contained the prohibitions and the authority for the Chairman [on this matter], so there was really no need to be more specific and draw attention to this.",47
-fomc-corpus,1991,"Mr. Chairman, I understand that it is your intent just to drop this now, but do you anticipate that this will be reexamined and revisited?",32
-fomc-corpus,1991,"No, if there is concern in the Committee that in order to respond to a specific problem we are creating too [cumbersome] an instrument--which is what I infer, basically, from the comments--then I would recommend that we just drop it and live with the problem that we have and hope that it does not get worse. Maybe we'll be fortunate and it will disappear. MR.SYRON. I hope I'm not being gratuitous, but my own concern is that I think the problem that we have, if it continues, is a problem that threatens the viability of how we approach both the discussion and formulation of policy. So, if the problem were to continue, I think we would have to do something.",144
-fomc-corpus,1991,"Well, unless somebody can find a means that is acceptable to the Committee on a virtually unanimous basis, I think we will have to live with this until we find some alternative.",35
-fomc-corpus,1991,"I don't have a solution to that problem, but just to express my view: I thought a greater degree of specificity was appropriate, and given the problems that we've experienced, I understand that it could be contentious.",42
-fomc-corpus,1991,"If the issue comes up again and it is creating significant difficulties for deliberations in this organization, then it will be appropriate to [revisit] it. But somebody has to have an idea that is [unintelligible] formality. Okay, do we have to a motion? [Secretary's note: The motion was made, seconded, and approved.] Can we now have a motion to approve the minutes of the previous meeting for December 18?",93
-fomc-corpus,1991,So moved.,3
-fomc-corpus,1991,Second.,2
-fomc-corpus,1991,"Without objection. Sam Cross, would you now bring us up-to-date on your operations since December 18?",22
-fomc-corpus,1991,[Statement--See Appendix.],6
-fomc-corpus,1991,Questions for Sam?,4
-fomc-corpus,1991,"I have a question on intervention activities with respect to the mark, since that's the only currency involved in the intervention we've been doing. I presume that is supposed to be a sterilized intervention. The question really is: If we're pegging a rate like the funds rate, how do we know we're sterilizing it?",63
-fomc-corpus,1991,"I think it happens automatically, but I defer--",10
-fomc-corpus,1991,"If we didn't sterilize it, the supply of reserves would be changed and the funds rate would be different. So, I think in order to peg the funds rate, we have to sterilize it. If I can see that the funds rate is being basically determined by supply and demand for reasons--",60
-fomc-corpus,1991,"Yes, but you're sterilizing around the funds rate and not around total reserves.",16
-fomc-corpus,1991,Either way I think it's--,6
-fomc-corpus,1991,"Total reserves is what we think drives money and we're trying to get money to grow. So, if one is worried about the slowness of monetary growth, one might worry about this practice.",39
-fomc-corpus,1991,"If we didn't sterilize it, then it would show through presumably to total reserves, to interest rates, to borrowing, or whatever it is the Committee is targeting.",33
-fomc-corpus,1991,Other questions for Mr. Cross?,7
-fomc-corpus,1991,"Sam, what is your sense of the outlook for the dollar? You say that, given the interest rate differential and other things that are putting pressure on the dollar, [downward pressure] is there. But is a precipitous fall likely here or just this continued downward pressure?",56
-fomc-corpus,1991,"Well, it's very hard to predict because one never knows when something is likely to set off concerns about confidence in the [exchange] rate of the dollar, which could lead to a precipitous fall and spread to other markets and all the problems that that entails, since we obviously still have a large deficit that we still have to finance and have to attract the funds to do it. There has been downward pressure on the dollar and, as I say, it's at an all time low in terms of the mark. As to the prospects over the more medium term, there are some facts that tend to provide more encouragement about it. For example, the dollar at these very low levels is considered by many people to be quite competitive; and if this present period can be managed, then maybe that [sentiment] will begin to be reflected more in the exchange markets.",172
-fomc-corpus,1991,"Sam, and Peter also: With respect to what you in the market hear, do you hear much more in the way of concern about overseas purchases of U.S. debt securities? How much has this been an issue and how much do people anticipate it becoming more of an issue? Or do they?",60
-fomc-corpus,1991,"It is an ongoing saga. Every time we have a refunding the question arises: Will it this time be a party to which no one comes--a Stella Dallas party? But thus far, [unintelligible]. There continues to be foreign participation; it changes and at times has declined quite noticeably, but funds continue to come in. Peter, do you want [to comment]?",78
-fomc-corpus,1991,"I don't think there's anything remarkably different about foreign participation. I'm hearing that there was good foreign participation in the three-year note that was just offered today. There is rather limited talk about what participation there might be in the longer maturities, but that's related more to the portfolio decisions of those foreign holders rather than about the particular [amount of] dollars at this point.",73
-fomc-corpus,1991,"What we are seeing though, Dick, is foreigners backing away a little from private securities of all kinds, including bank paper--certainly anything over 5 years. Even if it's from Morgan Guaranty, it cannot be sold overseas.",48
-fomc-corpus,1991,But this is a financial fragility risk question as well as a question about the dollar.,18
-fomc-corpus,1991,"Right, it's both.",5
-fomc-corpus,1991,"Also, a lot of the activities in the foreign exchange markets reflects changes in hedge ratios. That [means that if] Japanese investors and these categories of large investors decide that they think the dollar's prospects are not good, they will change the hedge ratio without necessarily getting rid of the securities or anything like that. So, you can't detect this just by what is going on in the securities markets. There's an awful lot of hedging and dehedging and that is a very important factor.",98
-fomc-corpus,1991,"Sam, are these funds that are flowing in in connection with Desert Storm detectable in terms of coming through the foreign exchange markets? Are they continuing to cushion the--",32
-fomc-corpus,1991,"They pay us in marks and yen and we feed them out in a manner that is like our normal customer business. In other words, we just try to make clear that this is not an action by us [so as not] to appear to be influencing the rate.",54
-fomc-corpus,1991,So it's not affecting rates?,6
-fomc-corpus,1991,"As far as we can tell, it has worked out quite well so far.",16
-fomc-corpus,1991,"You haven't used the BIS on this have you, Sam? We have done this ourselves?",18
-fomc-corpus,1991,"We have used the BIS for some portion of these sales of foreign currencies, so that we're not seen in the market to appear to be selling. Thus far, it seems to have worked out satisfactorily.",41
-fomc-corpus,1991,"Anything further for Sam? If not, would somebody like to move approval of his transactions of yesterday?",20
-fomc-corpus,1991,I move them.,4
-fomc-corpus,1991,Is there a second?,5
-fomc-corpus,1991,Second.,2
-fomc-corpus,1991,Without objection. Mr. Sternlight.,8
-fomc-corpus,1991,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1991,"Thank you, sir. Questions for Peter? Tom.",11
-fomc-corpus,1991,"Peter, I wanted to ask you about your thoughts on the instability of the funds rate. Do you view the instability as a problem, which seems to be what you've implied, in terms of markets knowing where we are and other interest rates not being affected? Maybe it isn't a big problem, but I'm sure there are other problems in terms of overnight financing and that sort of thing. So my first question is: Is the instability a problem? Secondly, do you think it will persist as some of these seasonal factors affecting reserve balances, cash, and so forth pass? In other words, are the reserve balances adequate to handle the clearings? And, finally, assuming they aren't, what do you think we can do about it?",146
-fomc-corpus,1991,"I think it has been something of a problem. We've been somewhat lucky in that we've been able to communicate policy moves as well as we have without that process getting confused. So, I wouldn't say it was such a problem that it kept us from doing the essentials of the job, but it was something of a problem. As to whether it's a temporary or more lasting phenomenon, I think the severity should be ameliorated from what it has been as the players get used to the new factors and partly because we're just now coming through a reserve period where the need for maintaining balances at the Fed to satisfy reserve requirements is exceptionally low. It's a seasonal low point for balances at the Fed because cash is seasonally high and reserve requirements are seasonally low. Also, there has been a gradual build-up--rather modest so far, but ongoing--in these required clearing balances. More and more banks have looked at the possibility of [establishing] these required clearing balances to pay for Fed services and that has gone up about $500 or $600 million since mid-December. I know that's true of a number of large banks; and undoubtedly many small banks also are looking at it now. So, I expect to see something more there. But I don't know if that's going to be enough to erase the problem totally. I suspect there's going to be some lingering element of greater volatility looking ahead. As to what can be done about it, probably the best thing--if one could have a wish list on this--would be to be able to pay interest on required reserves. But that would take Congressional action. We've been considering, and some market people have suggested, the possibility of bigger reserve carryovers. I think that could be of a little help but rather limited; it takes more looking to decide just how much help it might be.",368
-fomc-corpus,1991,"Bigger and longer, too.",7
-fomc-corpus,1991,"Also, there has been a suggestion that the banks have more than one period in which to use excess that developed in a given period. The suggestion has been made to have the Desk enter the market later on the same day. I would see very little net gain from that just because we're physically limited in how late we can go in and still achieve delivery in the day. So much of the greater volatility has come after that point in the afternoon. But we really don't have much more information, let's say, at 1:00 p.m. than we have at 11:00 a.m. that would give us much gain from later entries.",130
-fomc-corpus,1991,Do these developments suggest that the level of reserves that banks are required to hold is very close to what they would hold if there were no required reserves?,30
-fomc-corpus,1991,"Yes, it suggests that they're close to what they would hold for clearing purposes alone.",17
-fomc-corpus,1991,Isn't that sort of surprising? One would have thought that with a 12 percent requirement on transactions balances that would have [meant] much more [reserves] than a bank--,38
-fomc-corpus,1991,"Transactions balances are a very small proportion of total deposits; they're less than 10 percent, or in that range.",23
-fomc-corpus,1991,"And a great majority of banks, of course, are not bound at all. They have been meeting their needs fully with all cash anyway.",28
-fomc-corpus,1991,"I think there is still a tax involved in this reserve requirement because if one were transacting with a private bank, one might hold these balances but at least receive compensating balance credits or earnings credit on them. They would serve double duty for you. We don't allow them to serve double duty, although that's part of what is going on. The banks are building up their clearing balances and those balances do serve double duty, but the required reserves [do not].",92
-fomc-corpus,1991,"It is surprising that just that one change in reserve requirements, which didn't look like it was that much in terms of billions, just moved to the margin--",31
-fomc-corpus,1991,Do you have any idea what proportion of the balances are literally dedicated to paying or offsetting fees?,20
-fomc-corpus,1991,"Well, required [clearing] balances are around $2.3--",15
-fomc-corpus,1991,"$2.6 billion, I think.",9
-fomc-corpus,1991,$2.6 billion?,6
-fomc-corpus,1991,"Right, but that's not included in our required reserves. We have about $16 billion of required reserves this week, which is the seasonal low, plus another $2.6 or $2.7 billion of required clearing balances.",46
-fomc-corpus,1991,"So, it's still a small part?",8
-fomc-corpus,1991,Yes.,2
-fomc-corpus,1991,"So, even if those were eliminated, that is not going to--",14
-fomc-corpus,1991,"Well, I think that $2.6 or $2.7 billion will rise over time so that people feel more comfortable with the total level of their balances with the Federal Reserve.",37
-fomc-corpus,1991,"But the rate at which the balances now are turning over, whether they're required clearing balances or required reserves, has grown exponentially and is still growing. So, I don't find it surprising, Bob, that that last change had as big an impact as it had. MR. PARRY(?). It's a fifty percent change.",64
-fomc-corpus,1991,"It's a very big percentage change. And if you look at the turnover as a proxy for transactions, it's still rising at a geometric rate.",28
-fomc-corpus,1991,"Peter, with respect to the relationship between the RP rate and the funds rate: Have you had to alter your stopouts or other terms in an effort to get to a particular funds rate in this [intermeeting period]?",44
-fomc-corpus,1991,"We have noticed, of course, the relationship of RP rates and the funds rate. We have done some looking into what might have brought about the relatively higher RP rate. Traditionally that has been a little under the funds rate. It may have something to do with just the volume of securities being financed; it may have something to do with name problems, in terms of some of the parties getting their financing. I wouldn't say it has been that much of a problem in trying to get to the funds rate that we want. We generally have an idea of the amount of repurchase agreements we want to do and we stop where we have to in order to get that amount done. But we'll also be conscious of where the stopout rate is and where it might fit in relation to what we are hearing from the market as to their expectation of the stopout. That might be a small factor in our decision about just how much to do on occasion, but I think it's a pretty small factor.",198
-fomc-corpus,1991,But there has been a meaningful change?,8
-fomc-corpus,1991,I don't think so.,5
-fomc-corpus,1991,"The other thing, too, that would make a difference that I don't think Peter touched on--but I guess Don will be discussing tomorrow--is the whole question of the use and administration of the discount window, particularly in terms of these end-of-day types of things.",54
-fomc-corpus,1991,"Making for a very high funds rate at times [unintelligible] to come to the window. Yes, I should have mentioned that.",29
-fomc-corpus,1991,Bob Black.,3
-fomc-corpus,1991,"Mr. Chairman, I have been on the [morning] call thus far this year and I think Peter handled this exceptionally well under very difficult conditions. But it necessitated his resolving these frequent doubts between the borrowed reserve target and the expected federal funds rate always, it seemed to me, on the side of the expected federal funds rate. And that's how he kept the market apprised of what we really were aiming at. Peter, I just wanted to ask you if you could remember a period when the relationship between the borrowed reserve level and the federal funds rate was quite as tenuous as it seems to have been [recently].",127
-fomc-corpus,1991,No extended period.,4
-fomc-corpus,1991,I hope there wasn't another because I know how you struggled with that.,14
-fomc-corpus,1991,Si Keehn.,4
-fomc-corpus,1991,"Peter, I agree with Bob's answer but as another operational alternative: What if you were in the market more frequently than once a day--frequently enough that you could deal with some of the volatility?",41
-fomc-corpus,1991,"Well, as I say, we go in at that hour when we have our reserve numbers assembled. On rare occasions we've gone in earlier because we had to be sure of being able to do the job or because we wanted to register at an earlier hour some viewpoint as to conditions that were ongoing. So, there's a limitation at one end involving when we would have reserve information in our hands and that sets [the timing] at around 11:00 to 11:30 a.m. At the other end, if we're going to get delivery and have our operations effective that day, it can't be much later than 1:30 p.m. or so. So there's not an awful lot we could do under present institutional arrangements about the volatility that comes in mid and late afternoon and on into the early evening, which is when we get some of the greatest extremes of variability.",176
-fomc-corpus,1991,"Si, one time during the week I was joking with members of the Board's staff [on the call], and Peter asked if we would mind stopping so he'd have time to get into the market. It looked like we were going to delay him unduly--which was unintentional by the way!",61
-fomc-corpus,1991,Lee Hoskins.,4
-fomc-corpus,1991,"Well, this point has already been tortured by three other people, but the problem is not the market knowing where we want the funds rate; they know where that is. The problem is in the latter part of the day. What you said about having to have everything done by 1:30 p.m. sort of defuses my question; otherwise you could just stand ready to buy and sell at 6-1/4 percent as an alternative to what we're doing. That leads me to another question--really for you, Mr. Chairman. In this commission that you have just given to Don Kohn, are we going to consider alternative operating procedures? Was the mandate that broad?",138
-fomc-corpus,1991,"No, we're restricting it to the very specific problem that was on the table. The other issue is so broad that the commission won't get back in time--",31
-fomc-corpus,1991,We need another commission.,5
-fomc-corpus,1991,It would be pretty radical for us to be willing to say what it is we're really doing!,19
-fomc-corpus,1991,Bob McTeer.,5
-fomc-corpus,1991,"Peter said that authority to pay interest on required reserve balances might be helpful. Usually when that's discussed in the context of proposed legislation, it is coupled with authority for banks to pay interest on demand deposits. I just wondered: If you got both of those as a legislative package, would the second part of that help or offset the benefit of the first part?",71
-fomc-corpus,1991,"I don't see a direct problem in terms of implications for open market operations. I think there are broader issues to consider, which the System certainly would want to think through in a legislative way.",38
-fomc-corpus,1991,That would free up a lot of resources in the economy devoted to cash management and add a little efficiency I would think to the--,26
-fomc-corpus,1991,"The last time the Board testified to the Congress on this, which was 5 or 6 or 7 years ago probably, we linked those two proposals partly because we were concerned about the politics of giving the banks money and enhancing their profits. We thought both of those were desirable for really very different reasons but [the proposed legislation] didn't go anywhere.",71
-fomc-corpus,1991,It wouldn't appear to be as much of a giveaway program now with the banks so troubled.,18
-fomc-corpus,1991,"Yes, I think it probably would be welcomed.",10
-fomc-corpus,1991,"If you could ever sell it, this is the time you could sell it.",16
-fomc-corpus,1991,"One thought on this volatility in the funds rate in a context in which it has been stipulated that there has not been an enormous problem in terms of policy transparency: I must say that I'm not sure I consider the volatility all bad. If nothing else, it may ultimately be consistent with a little more discipline and a little more order in the way borrowings are managed. As I said, I don't think it's necessarily the end of the world.",88
-fomc-corpus,1991,Is there any evidence that the failure to use the discount window is pressing everything on open market operations? Do you sense that?,25
-fomc-corpus,1991,"Well, yes. I think that's part of what has been going on really for a couple of years now. I don't know that it's the shift of the borrowing function; the borrowing function has gotten down so close to the origin that it's hard to imagine further shifts. But I would guess, if anything, that in the last several months it has been worse.",72
-fomc-corpus,1991,"If you do that in the context of lowering reserve requirements in general, it's double-hitting the System then.",22
-fomc-corpus,1991,"Yes, the safety valve. I will talk about this tomorrow, but in some sense the safety valve of the discount window doesn't seem to be there and so we get these 90 percent funds rates that banks feel they have to bid before they come into the window. As Peter said, there has been a lot more use of the window, partly because they were just about forced--they had to [borrow] in order to avoid overnight overdrafts. I'm not sure that's so bad; it creates a little background in borrowing here.",106
-fomc-corpus,1991,Any further questions for Peter?,6
-fomc-corpus,1991,Can you open the [discount] window at night so they won't been seen going in? Would that help?,22
-fomc-corpus,1991,They already have been seen coming out.,8
-fomc-corpus,1991,Let in the night air!,6
-fomc-corpus,1991,"There is this other point, too, that Bob McTeer raised and Si raised. Virgil, I forgot the nature of the authorization, but in the 1980 law I remember we stuck in a provision where there is the authority to pay interest on these--",54
-fomc-corpus,1991,Supplemental balances.,4
-fomc-corpus,1991,--clearing balances or supplemental balances in a context in which the Board makes a determination of whether those supplemental balances are needed. I don't think it was just for monetary policy or even for clearing purposes.,40
-fomc-corpus,1991,"No, I think it was for monetary policy purposes.",11
-fomc-corpus,1991,"We had our lawyers look at that and their view was that we can't use that escape hatch right now. I think somebody else ought to check it out, but our view is that it can't be used.",41
-fomc-corpus,1991,"I think the other point was that we can't reduce the reserve requirements--say, take them down to 8 percent and then put them back again and pay interest on the difference between 8 and 12 or 14 percent or something like that. There was some protection, I believe, in the [law].",63
-fomc-corpus,1991,"If we do see a legislative proposal for interest on required reserves, I'm afraid we'll have a [unintelligible] attached to the bank insurance fund. Peter, you mentioned the three-year auction. How did that go today?",46
-fomc-corpus,1991,"Quite well. There was strong bidding. I just got a brief report on that and it came out about where we were expecting, at a 6.98 percent average.",35
-fomc-corpus,1991,What about noncompetitive bids? Anything on that?,10
-fomc-corpus,1991,I did not hear.,5
-fomc-corpus,1991,"Anything further for Peter? If not, would somebody move to ratify the actions taken since the December 18th meeting?",25
-fomc-corpus,1991,I'll move it.,4
-fomc-corpus,1991,"Without objection. We now move to the chart show, with Messrs. Prell, Promisel, and Slifman.",26
-fomc-corpus,1991,"Thank you, Mr. Chairman. We'll be utilizing the chart package that everyone should have. If you haven't found it, you may have another. MESSRS. PRELL, PROMISEL, and SLIFMAN. [Statements--see Appendix.]",51
-fomc-corpus,1991,Questions for our colleagues?,5
-fomc-corpus,1991,"First, I'd like to say that the presentation was very useful--particularly the last exercise, which was quite helpful. I'd like to press a bit more on this issue of the credit crunch. I think I understand how you characterized its impact but I wonder if you would do it somewhat differently. If you were to look at the causes of recession, such as higher oil prices, war, consumer confidence, or--as some outside this room might say--monetary policy, etc., where would you in an ordinal sense put the credit crunch? How would you characterize it--as small, as the top cause, or as the bottom one?",129
-fomc-corpus,1991,"Well, I think the credit crunch was already at work prior to the downturn. As you know, we've discussed that over the course of the past year and we would characterize this in some nonquantitative way as a significant but not huge effect. If one could somehow embody this in GNP growth terms, it probably would be less than a percentage point--maybe much less than that.",77
-fomc-corpus,1991,Some rather to these other--,6
-fomc-corpus,1991,"By our reckoning, the oil price shock--just the direct normal type of oil price change that we run through econometric models--would have had a larger effect as of the end of last year. We think during this recent period that [other factors had] a much larger effect than oil prices. Certainly at this point we ought to be seeing a turnaround in terms of the oil price effect and we'll be seeing what other things are in train. The even greater unknown in all of this is [what] psychological damage was done by the oil price change, which probably summoned up in people's minds recollections of a couple of earlier major shocks that were followed by recessions. I suspect that it created in many people's minds the specter of rising unemployment and so on. There also was the war aspect of the situation, which may not have been a very positive factor in people's thinking, though I must say historically--for example, in the Viet Nam war--it's not entirely clear that people become grossly negative in their expectations and their sentiment as there is an increase in military activity. But my sense is that that has not been a big plus for sentiment. And we had last fall this debacle over the budget. If we all think back to that period, we'll remember what an appalling spectacle that was; and it probably had at least in the short run a rather devastating effect on people's assessment of whether the government here in Washington really had a handle on economic affairs. I haven't seen any concrete evidence that this financial fragility and the failures of banks and so on stand out as factors in people's thinking; but I think it has to be a negative, too, for consumer sentiment. On top of all this, we've had fiscal restraint of a modest degree in train for a while. These things cumulate to a very considerable damping effect at least on economic growth. And with the oil price change and the war I think it put us into negative territory. That's my crude [analysis].",398
-fomc-corpus,1991,Bob Forrestal.,4
-fomc-corpus,1991,"Well, I too, would like to compliment the staff on a very good chart show. They're always good, but this one was particularly helpful.",29
-fomc-corpus,1991,"It was really quite innovative, I think.",9
-fomc-corpus,1991,"Very innovative, yes. I might ask a question about the alternative export forecast: If that turned out to be the case, how much would that shave off your real GNP forecast? Would it be a substantial decline?",44
-fomc-corpus,1991,"Well, at $15 billion, if you take the $9 billion out of net exports it is something on the order of--",26
-fomc-corpus,1991,"It's something under 1/4 percent [on] real GNP. But, as Larry pointed out, that was on the assumption that you stick to a previously assumed monetary expansion path. If you wanted to offset that, you would raise money stock growth and let interest rates fall and you would have some offsets through exchange rates and effects on the interest-sensitive sectors of the economy. So, it would not be such a large shock and not at all difficult to offset through a moderate policy adjustment if you saw it coming.",104
-fomc-corpus,1991,Other questions? Bob.,5
-fomc-corpus,1991,"I guess the most striking thing about the real GNP forecast was the abrupt turnaround from the current quarter to the next quarter. I notice from your Chart 13 that over 1/3 of it is inventory investment and, since that happens again in the next quarter, I assume that's intended inventory investment rather than involuntary. What makes you think that inventory investment is going to be so strong in the next three quarters?",84
-fomc-corpus,1991,"First, it turns out that in the second quarter itself we still actually have some liquidation going on but the rate of liquidation is slower than in the first quarter, so in a GNP accounting sense it shows up as a positive number here. We do, however, start to get some accumulation beginning in the second half of the year. But the amounts of accumulation are very, very small in dollar terms. Again, it's because of these swings from rapid liquidation to slower liquidation to a small accumulation that in GNP terms that winds up adding to real GNP. That is really what I was trying to show on the preceding chart, Chart 12, where you can see that even during part of that projection period we still have GNP below final sales and then it rises just very gradually. We think it's a very modest amount of inventory accumulation that takes place; in fact, the inventory/sales ratio that's consistent with this actually falls for a while and then basically just flattens out at these historically low levels.",203
-fomc-corpus,1991,Vice Chairman.,3
-fomc-corpus,1991,"Mike, several people have commented on the chart show, which really was first-rate, but let me just add to that. I thought the paper that you circulated on potential GNP, etc., was absolutely marvelous. I don't know what your practices are about publishing those kinds of things but I would hope it would be published. It's really an excellent piece of work.",73
-fomc-corpus,1991,Thank you. We haven't really thought about publication but we'll have to give it some thought.,18
-fomc-corpus,1991,"It really is, as I said, an absolutely first-rate piece of work.",16
-fomc-corpus,1991,Dick Syron.,4
-fomc-corpus,1991,"Mike, just a question, going back to what Bob asked. Though it's not enormous, the swing in the impact of government [spending] in the second quarter is 0.3. How much of that is state and local and how much is federal? It may be reflecting what we see all the time but I'm becoming more and more bearish on the state and local [sector].",78
-fomc-corpus,1991,"Actually, it's a very small amount, as you can see. In terms of our forecast we see it basically all coming from state and local purchases. But they're very small; they're growing 0.3 percent, which is a very small number. The federal net real purchases are falling. What we really have in terms of the state and local sector is some construction going on but not very much.",80
-fomc-corpus,1991,But the 3/10ths might be just GNP?,13
-fomc-corpus,1991,Right. And it turns out that that also happens to be the growth rate as well.,18
-fomc-corpus,1991,Okay.,2
-fomc-corpus,1991,They happen to match up in that one instance.,10
-fomc-corpus,1991,Are you referring to the second quarter?,8
-fomc-corpus,1991,Yes.,2
-fomc-corpus,1991,"Well, in the second quarter there's actually a little uptick in federal spending, but it's only 2-1/2 percent. But your point on state and local [spending] is well taken. In fact, we've lowered our projection of state and local real purchases in this forecast and we only have a 1/2 percent increase this year, which assumes probably some decline in construction spending--an area that really had been surprisingly strong through last year. We've been surprised on the up side fairly frequently over the past year or so that this apparent fiscal problem has not shown through on spending. Obviously, on some of it there's a lag. They sold bonds earlier and are going to go ahead with some of these infrastructure investments. But we expect that there will be some crunch there; obviously, a number of you are familiar with rather dire situations in your locales.",174
-fomc-corpus,1991,Thank you.,3
-fomc-corpus,1991,Bob Black.,3
-fomc-corpus,1991,I have a question to which probably everybody except me knows the answer on Chart 3.,18
-fomc-corpus,1991,That's promising; that's my kind of question!,9
-fomc-corpus,1991,This is shown as a percent of real federal purchases. What is the fiscal impetus there?,18
-fomc-corpus,1991,"I'd be happy to send you a descriptive memo, but it's a measure we developed that unlike the high [employment] budget surplus--which you know is a measure of discretionary fiscal policy--basically rates various components of the budget according to their impact on aggregate demand as revealed by econometric relations. It strips out some of the trend elements and gets rid of some of the one-time sorts of financial effects that at times distort the high employment budget. For example, in the high employment budget currently those contributions from foreign countries would show up in the normal calculation as additional revenues and greater fiscal restraint. And it's somewhat counter to [logic] to think that if somebody else pays for it instead of having to pay for it ourselves that that's additional restraint on aggregate demand. So, this measure doesn't include that sort of thing. And we think it's probably a better way of capturing things. We've run this in terms of horse races against other measures of fiscal policy in determining GNP and this seems to work better.",199
-fomc-corpus,1991,"Yes, I would be interested in seeing your memo. I'm sorry I was the only one who didn't understand.",22
-fomc-corpus,1991,"I hesitate at times to use this because I know it's a more obscure measure, but I thought that under the circumstances--",24
-fomc-corpus,1991,I was just curious. I was trying to figure out what it could be and I couldn't come up with anything.,23
-fomc-corpus,1991,It's a way to characterize a $300 billion budget [deficit] as fiscal restraint.,18
-fomc-corpus,1991,"Clearly, there was a package of cuts in expenditures and hikes in revenues enacted last year and that's the basic process that's going on here.",27
-fomc-corpus,1991,Lee Hoskins.,4
-fomc-corpus,1991,"I, too, want to compliment the staff on its professionalism and objectivity in presenting this very interesting report. I have one question with respect to the longer-term averages that you present here. A naive and uninitiated person--nobody at this table, of course--could read this as saying that with the baseline [policy] we will average 2-1/4 percent [real growth] for 5 years and if we have an easier monetary policy, a pro-inflation policy, we will average 2.6 percent. So, over long periods of time it looks like if we have a pro-inflation policy or rapid money growth, we'll have higher rates of real growth. And that simply doesn't seem to [happen] over the longer periods of time. I presume your answer is that 5 years isn't [a long] enough time period.",177
-fomc-corpus,1991,"A different way to look at it is that there's an aggregate supply function out there and an aggregate demand function. If monetary policy keeps pushing the growth of aggregate demand out there faster than aggregate supply will support, we're going to end up with accelerating inflation. And that's the message that this is intended to convey. There will be a lot of dynamics over a period of time if we are right and you kept pressing against that. But that's, I think, the interpretation of this data. Obviously, there are significant uncertainties, and I think we underscored this in the report. Larry's reason for presenting the band on it was to suggest that on a statistical basis 2.6 percent is almost as good an estimate as 2.3 percent. Where the issue arises is if you take the more optimistic view, say, of the Administration and you're talking about 3 percent plus [real growth]. That begins to press pretty hard against our confidence intervals here; that's stretching it. But there are lots of assumptions made about the future in this and this is just our best guesstimate--as careful an analysis as we could do.",228
-fomc-corpus,1991,"If you were to run your model with expectations of some degree of credibility or full credibility, would you expect to get the same results?",27
-fomc-corpus,1991,I don't think credibility would be--,7
-fomc-corpus,1991,Are you referencing the Bluebook?,7
-fomc-corpus,1991,"Yes, the one that has the five-year average.",11
-fomc-corpus,1991,"Right. It's our view, which we expressed in the Bluebook, that we could get either the [unintelligible]. However, if [the Federal Reserve] had some credibility, we think the tighter alternative would give you some combination of higher output and lower inflation than presented here. These simulations embodied entirely backward-looking expectations.",66
-fomc-corpus,1991,Built on the 2.3 and 2.6 percent projections for--,16
-fomc-corpus,1991,"I think that's also noteworthy with respect to your observation about real GNP over this time. In some sense it helps that we've started above the assumed natural rate so that you can push the economy for a little while. It's a bit like Mike's alternative simulation. Inflation takes a while to begin picking up because we don't drop below the natural rate for a time. So, in some sense this was a favorable starting point for a more expansive policy. But you'll note that when we get out to 1995 finally, we do have lower growth in output; it's a little higher level of output and we do have a soaring inflation. At some point, presumably, the Fed would have to [rein that inflation] in.",144
-fomc-corpus,1991,And the same point is made simply in our Greenbook forecast: in essence that over the next seven quarters after this one the economy is growing at a rate clearly above our estimate. But it's an environment of decelerating prices because we're above the natural rate.,52
-fomc-corpus,1991,"Any further questions? If not, why don't we take a coffee break and come back and do the tour de table.",24
-fomc-corpus,1991,Who would like to start the round table? Bob.,11
-fomc-corpus,1991,"Thank you, Mr. Chairman. The Twelfth District economy continues to blend recessionary problems in California with robust growth in the rest of the region. The California economy continues to experience weakness similar to that of the rest of the nation, although some data indicate that conditions may be improving. Employment in January registered a 1.1 percent decline from a year earlier, with weakness reported in durable goods manufacturing, construction, and retail. Agriculture has suffered at least $1 billion in crop losses because of the freeze and it looks as though there could be significantly greater damage if the water cuts actually take effect as a result of the very serious drought. The remainder of the District states continue to report relatively strong growth. Outside California, employment in the past year has grown 3.3 percent. Individual state growth rates range from a low of 2.3 percent in Hawaii to 6 percent in Nevada. But Hawaii is a very interesting situation. They're not growing because they don't have a growing labor force; they have an unemployment rate of only 2.8 percent. Despite relatively sluggish retail sales, trade employment still has grown 3.2 percent in the rest of the District. And employment in services has grown a solid 5 percent. I have two interesting vignettes about the effect of the war on the economy, who is a very large retailer with stores predominantly in the West but also on the East Coast. He said that they didn't have the best Christmas but that sales really started to pick up right after Christmas and then just went down the tank on the 16th of January. I called him last Friday and he said that sales have started to come back a bit, so apparently there must have been a very quick reaction, probably because people were watching their televisions.",356
-fomc-corpus,1991,The CNN effect!,4
-fomc-corpus,1991,"The other vignette is from He said that the Prime Minister of Japan made a speech about the inappropriateness of people vacationing if they are draft age males; it wouldn't look good to the rest of the world. And in the week after the speech there were 2,000 cancellations [by Japanese tourists] of reservations in Hawaii, each one of whom typically goes for 4 or 5 days and spends $500 per person as opposed to $125 spent by U.S. tourists. I just thought those stories were rather interesting. If I can turn to the national outlook, we are expecting a short recession and a moderately strong recovery, assuming that the war in the Gulf is over by spring and oil prices remain low. Our forecast, as it turns out, is very similar to that of the Greenbook. And we do expect the inflation rate to come down to about 4 percent or a little lower both this year and next. However, I'd like to add that to prevent a subsequent rise in inflation, it seems that we're going to have to respond to the economic recovery by tightening policy in a timely fashion, which of course is assumed in the Greenbook forecast, just as we've recently eased policy to prevent a deep recession.",249
-fomc-corpus,1991,President Keehn.,4
-fomc-corpus,1991,"Mr. Chairman, starting with a comment about the national economy: Our forecast is considerably more modest than Mike's rosy scenario. But I am pleased that our forecast is comfortably included within the central tendency. We have a couple of particular differences: First, and this really relates to the Greenbook, we expect a pretty significant reduction in consumer durables in the second quarter rather than a very large pickup. That difference probably relates to the automotive sector, which seems to us to be very much on the optimistic side in the staff forecast. I'll make a comment or two about the automotive sector in just a moment. The second significant area of difference is on the export side. Our expectation for import growth is a bit more modest than the Board staff's, but the difference is more particularly on the export side; we just don't think that exports are likely to grow to quite the level that the Board staff shows in their forecast. And that really accounts for the differences in their forecast and ours. Turning now to the District: As I have been reporting, the District really is doing quite well compared to other parts of the country but we are now catching up. Clearly, a shift is taking place; certainly, more and more within the recent couple of weeks, our region is taking on the aspects of a fairly classic manufacturing recession. So far it's mainly auto-related. The Middle East events have resulted in an almost total shift in attitudes with regard to the outlook in that sector. At this point it's very hard for automakers to keep any semblance of a normal production schedule. Normally, they set their production schedules pretty far in advance. But now they are meeting frequently--about weekly--and the tendency is to reduce production week-in and week-out. As a result of significantly reduced retail sales, dealer inventory is building up in terms of the number of days stock on hand. And, therefore, the dealers' attitudes are just terrible and dealer orders have been cut back substantially. [Their sales] are running at about 50 percent of last fall's levels, and last fall was pretty weak to start with, particularly if you take out the fleet aspect of that. So, the dealer orders from the manufacturers are very, very low. Employment levels and production schedules have been reduced substantially and at least one company that I talked to would expect that production this quarter will be down 11 percent from last year, which was not in itself a strong period. They would further expect that the risks are on the down side with respect to incoming orders, and it's entirely possible that their production in the first quarter will come in 24 percent below last year. As they add their production and the production for the other manufacturers together they would expect that this would have a negative impact on the first quarter GNP by about 1 percentage point. It's far too early to tell what is going to happen to auto production in the second quarter, but certainly it's going to be down compared to last year. And as you would expect, [the impact of] autos is now moving into the supplier community and the suppliers are seeing very, very sharp curtailments of purchases. That's the bad news. There is some better news. The steel business--and I found this surprising--is quite good. The orders are continuing to come in at reasonably good levels and firms are operating currently at a level of about 83 percent of capacity. The current estimate for shipments this year is 81 million tons. That's down from 85 million tons last year but is still a pretty good year, at least as they see it now. And I think, encouragingly, they are exporting steel at pretty good levels even to Japan. I do think the steel industry is one where the competitive aspects have improved very substantially just in going through the last three or four years. Machine tool orders are surprisingly strong; some of that goes into the auto sector. There will be substantial retooling in the auto sector as they come up with some new models over the next year or two, so that has been strong. Agricultural equipment certainly is going to be down; they have cut production substantially in this quarter but not nearly as much as the auto sector. The production plans for the remainder of the year are expected to be down about 12 percent. I end up with a comment--an anecdote really--on retail sales not unlike Bob Parry's. I talked with a guy who runs a specialty chain store that has operations all over the country. They had a good year last year and a good Christmas season. But as of January 15th there was just a complete shutdown of retail sales, unlike anything he had experienced in his life,. He mentioned one story about a conversation with one of their salesmen he had seen when he was in New England. The salesman had just completed the sale of a large couch to somebody. As they were completing the paperwork, the buyer was just filled with apologies that she was buying the couch. She made the point that she thought it was a bad time; she was embarrassed to be making a purchase at this particular time but the family desperately needed a couch to sit on and that's why they were doing it. He suggested this is symptomatic of the attitudes that people have; they are quite worked up about this [war in the Gulf]. And as a consequence, his retail stores are really quite void of people. He doesn't think this will be a continuing effect, but for now it has had a very significant impact on their sales.",1102
-fomc-corpus,1991,President Forrestal.,4
-fomc-corpus,1991,"Starting with the District, Mr. Chairman, conditions in the Sixth District remain weak, although it does seem that the earlier deterioration is ending. The unemployment rate is averaging higher than in the rest of the country and we think it's going to continue to be that way for some time. The export sector is doing fairly well, although we've noticed that we've lost exports from the Sixth District to the Soviet Union and the Persian Gulf in recent months. That reflects some agricultural products, particularly rice. And I was very surprised to find that we're losing the sale of carpets to Saudi Arabia. I didn't realize we were selling carpets there, but apparently it has been a big factor.",132
-fomc-corpus,1991,They put it on the desert to keep down the dust!,12
-fomc-corpus,1991,Is that what it is?,6
-fomc-corpus,1991,"They're not Persian carpets, are they?",8
-fomc-corpus,1991,"Obviously not. The energy sector seems to have softened somewhat after it became pretty clear that increased OPEC production and heavy inventories would keep prices down. And the District's [energy] producers are still seeing quite a heavy shortage of skilled workers, as we have talked about before. The rig count in Louisiana was down 9 percent from a year earlier and the offshore count was 7 percent lower. Even though the data we have continue to be uniformly negative, I would say, based on the contacts that I've had personally and that our staff has had, that there seems to be a little less pessimism about the situation, even with the war in the Persian Gulf. People are convinced, I think, that the steady deterioration has slowed up if not stopped. And bankers are seeing a bit more light in terms of the demand for funds. As a result of all this, we are looking for a somewhat better situation in the District, although in my view the recovery in the Southeast as well as in the nation is still pretty fragile. Looking at the national economy, our forecast is quite similar to the Greenbook forecast but it is weaker. We show a somewhat smaller decline in the present quarter but the rebound over the rest of the year is not quite as robust. One of the differences that we have--and this has been alluded to by someone else--is that we don't see as much of a contribution coming from the export sector. It seems to us that the improvements in net exports are not going to be quite as strong [as in the staff forecast]. As a result of this lower growth rate than the Greenbook, we obviously see a higher unemployment rate toward the end of 1991. But our estimate of inflation is somewhat better--in fact quite a bit better--than the Greenbook. We are anticipating inflation, measured by the CPI, of about 3 percent; looking at the chart, I think we're at the low end of the forecasts. These forecasts, of course--both the Greenbook, I assume, as well as ours--did not take into account the easing action of last Friday. So, if you look at those forecasts in that light, perhaps they represent a worst-case scenario. But I'm not convinced that that's the case. It seems to me that the recession could last somewhat longer and be a bit deeper than we're forecasting. Both our forecast and the Greenbook forecast seem to me to be quite reasonable. But I think the uncertainty surrounding the general economic situation and the situation of the Persian Gulf threatens any potential rebound in consumer confidence and consumer spending. The deterioration of public confidence or the lack of confidence in the banking system also is going to be a major factor. The credit crunch perhaps is not getting any worse, but the announcements that keep coming forth from the press and on the talk shows about weak bank earnings and the potential FDIC losses and a deficit in the FDIC are really quite adversely affecting sentiment and raising considerable concern about the public costs of dealing with these problems. And the rise of bankruptcies may be working in the same direction. My point is that even though I believe the Greenbook forecast is a reasonable one, although a bit rosy, I think the risk is still very much on the down side.",651
-fomc-corpus,1991,President Boehne.,5
-fomc-corpus,1991,"In the District, weakness is widespread. I suspect we have several more months of downturn, with the beginning of the recovery more a second-half phenomenon than a second-quarter one. Attitudes are really very, very cautious both among business people and individuals. And we see bank assets continuing to slide, with a couple of banks close to the edge. Real estate is probably several years away from recovery, especially on the commercial side. In the nation, I think the staff forecast, while well thought out, is on the rosy side. We can't be very sure of any forecast at this point. I think we just need to keep an open mind and stay alert to incoming information. I'd rather err on the side of too much stimulus at this point rather than too little because I think the costs of misjudging and having a prolonged and deep recession are very [high]. Having said that, I think we have to be prepared to offset it with some tightening at some point. But we simply can't afford to have a prolonged, deep recession, given what is going on in the financial system.",217
-fomc-corpus,1991,President Syron.,4
-fomc-corpus,1991,"Actually, Ed Boehne and others have said much of what I wanted to say. In terms of the situation in New England, unfortunately, I don't think one can characterize it any other way than as dismal, with pessimism on the edge of panic. At this point there really is no source of strength with the possible exception of Patriot missiles for which Raytheon is running three shifts a day, seven days a week. When people turn on CNN there is almost a perverse desire to see another one go up because it means more production!",111
-fomc-corpus,1991,How many people do they employ?,7
-fomc-corpus,1991,"About 2,000 in that particular facility. There is some export strength. As for employment, though we started at a substantially lower unemployment rate and a higher per capital income [unintelligible] the 1973-75 recession years, the decline in employment we're seeing in New England now is at a substantially faster rate than at any time in the postwar period. That also holds true for the change in growth in personal income. This is having the impact you'd expect. Retailing is extremely soft; we're seeing very widespread discounting of all merchandise. When we talk to retailers they say: ""Once this inventory is gone we are not building any inventories. We're tired of doing this."" Actually, that may be somewhat favorable in the longer term. We're seeing a change in the composition of the retail outlets, even in fairly affluent neighborhoods, more toward discount stores. Tonier places are closing and there are more vacancies. And we are seeing price improvements going along with this. As you have all read, we have an extraordinary degree of financial nervousness. It's to the extent that on the talk shows every morning as you're driving in you can dial up and get the Tracy Report and for $20, which you can charge to your Mastercharge, you will be sent a list of safe Swiss banks where they say you should be sure that you have some of your money. We've shipped out close to $400 million in the last several weeks in emergency cash payments [because of] runs in Rhode Island. People are calling in to question the safety of the FDIC. There are some real concerns about our larger institutions. and some other mutual funds and insurance companies are raising questions with us about how they can be sure that they'll be protected if they have a fail in a repo transaction during the day and it goes into overnight or if they send in funds in anticipation of funds in an ACH transfer and an institution is closed. In fact they have come with proposals to have that stuff essentially swept off the bank's books onto our books overnight. The surprising thing is that the banks are so panicked about it that large institutions have come to us and asked if we can do this. I think the only way to look at the economy is that we have a long way [to come] back. A friend of mine just did a real estate forecast which is being hailed as greatly optimistic because he shows the beginning of some bottoming out and a snapback in 1995. Compared to a lot of other people's forecasts, actually it is relatively optimistic. The recovery there is going to be quite slow. As far as the national economy goes, it seems to me that an awful lot has to do with what happens to confidence. Mike I think pulled everyone's line and appropriately so by saying ""rosy scenario."" I have been inclined, as have others, to accuse the forecast of being somewhat rosy. But in particular I think the simulations that Mike showed at the end are very useful in dealing with that. So much depends on confidence. No one knows how long the war is going to last. My own naive view of this was that if we had a sort of Nintendo war that was over in a week, there might be some great exuberance and people would feel like they should go out and spend. But even if this war goes on for several more weeks or a couple of months, I don't see it leading to a great bounceback in consumer confidence. As far as the oil price impact on confidence, relatively recently we've seen some improvement in oil prices. And I do have to admit that I bought the credit crunch story late in New England and now have to eat crow with a lot of people and admit that they were right. I think the chart you showed was very useful but we're not at the high point nationally in terms of where we'd be [with respect to] a credit crunch number. All those things weigh a little on the down side, so I'm inclined to think that the forecast may be slightly or a little more than slightly optimistic. But if that's the situation, as I say, I think the simulations or the scenarios that were shown at the end [of the chart show] are the way to go. Because of my own, perhaps biased, concerns about financial fragility, I'd be prepared to take out some insurance now with the notion that we would, as Ed said, make a commitment that we'd be willing to turn quickly if we're wrong and we don't need it.",897
-fomc-corpus,1991,President Stern.,3
-fomc-corpus,1991,"Well, I was hoping I wouldn't follow Dick because I don't have any colorful adjectives to use to describe the District economy! I guess I would have to say it's mixed. The rural areas, because of the importance of agriculture, continue to do reasonably well. One exception is the areas where wood products are important. It took a little longer to hit them than I might have thought, but clearly because of the weakness in housing that sector has deteriorated. On the other hand, in the Twin Cities there is a lot of concern about many of the issues we've already touched on this afternoon. And while the objective measures of economic activity are still reasonably good, there are lots of signs of at least imminent softness in the economy. With regard to the war, I haven't been able to judge what it has meant psychologically. There are a couple of objective things. Some of the large corporations have either eliminated or severely curtailed foreign travel as a consequence of the war. On the other hand, some of the firms that clearly have military business said their orders have just taken off. There is no question about that. The response has been large and very quick, and they, of course, are quite positive. With regard to the national economy, like many others, I guess I'm not as confident as the staff about the recovery occurring quite as quickly and quite as robustly as the Greenbook suggests. It seems to me that even if this turns out to be a garden variety recession, it could well last into the spring and maybe even into the summer. In that regard, I thought the latest employment report was more or less consistent with that--suggesting that maybe this is a garden variety recession but that it has a way to go. I can't resist commenting a bit on the credit crunch and the real estate situation. I think maybe we are exaggerating the effects of the credit crunch, at least in that area. In a sense we do have an inventory problem in the economy. It's not in manufacturing; it's in real estate. We simply have too many office buildings, too much retail space and, in many parts of the country, too much residential space. We know that prices are going to decline in that environment and they have. I don't happen to think that additional credit availability would help the situation at all. I can't think of any responsible way of addressing this problem. We're really paying for the excesses of the 1980s both in the real estate market and in financial institutions. We have to work our way through those. We have to let the market deal with this because the excess supply is apparent. As I say, I don't see any responsible way out of that.",536
-fomc-corpus,1991,President McTeer.,5
-fomc-corpus,1991,"After only a couple of days on the job, I don't have a lot of firsthand knowledge of the economy in the Eleventh District except for the residential real estate market. I find myself buying into a rebounding market and selling into a market which is declining fairly rapidly. The Eleventh District, as I'm sure you are aware, ended 1990 out of sync with the rest of the country. It was either somewhat stronger or less weak, depending on what measure one looks at. Employment growth held up much better than it did in the national economy. In the fourth quarter there was employment growth not only in the government and private services sectors but even slight employment growth in the manufacturing sector and fairly substantial employment growth in nonresidential construction. Most of the growth occurred in the first two months of the fourth quarter and then the weakness started in December. Of the states in the Eleventh District, the strongest was New Mexico with total employment growing by 3.6 percent at an annual rate; in Texas and Louisiana growth was at annual rates of about 2.5 and 0.6 percent, respectively. Part of this had to do with the composition of the energy sector rather than primary oil or primary gas. Gas has been very weak and employment has been shrinking there. Oil drilling hasn't gone up very much in the Texas and New Mexico areas, but employment in that industry has grown somewhat as existing wells have been worked more intensively. Also, the additional profits and incomes that are resulting from the higher oil prices have added to the liquidity and spending power of the sector and have helped that part of the country do a bit better than the rest of the country. As for the national economy, I believe I would be describing the Dallas research staff's view accurately in saying that they really have no quarrel with the pattern of the Greenbook forecast. They just believe that the expected rebound is not likely to be as sharp as the Greenbook has it.",392
-fomc-corpus,1991,President Guffey.,5
-fomc-corpus,1991,"Thank you, Mr. Chairman. The overall pace of economic growth in the District appears to be slowing somewhat, due mostly to weakness in manufacturing and construction. Automobile manufacturing, for example, which we share with the St. Louis District, has weakened further. But the District aircraft manufacturers reported improvement in sales of business jet aircraft and as a result are showing a good deal of strength. Construction activity in the District remains weak overall but public works projects, such as a large public project in Kansas, continue to offset the weakness in both residential and nonresidential building activity. I might also say in reference to state and local spending that throughout several of our metropolitan areas there appears to be on the shelf--the bonds have been sold--infrastructure construction that will be commencing in 1991 and will hold up that sector somewhat. The oil price volatility and uncertainty about the outlook for oil prices is slowing activity in the District's oil patch. And sluggish export demand has led to weak prices in wheat, corn, and soybeans. On the other hand, the livestock prices continue to bolster farm income, and I would characterize the rural areas as being fairly optimistic. There is one vignette I'll add to Bob's: In talking with a restauranteur who has stores across the United States in the mid to upper range of restaurants, they also found that [their business] virtually closed down on January 16th, 17th, and 18th. But by the first of February they were back at a level that they found encouraging. They attributed it largely to CNN and people sitting in front of the TV to determine what was happening in the Gulf war. As to the Greenbook forecast, we also believe it to be rosy. That is, the pickup in the second quarter seems unlikely to us but we believe there will be the start of a pickup in the second half--probably in the mid to late part of the third quarter. We have growth about a percentage point below the growth projected in the Greenbook for the year 1991 but a percentage point above that projected in the Greenbook for 1992. So, averaging it out, the staff forecast does not look unreasonable to us; it is simply the timing and the contour of the recovery that we believe may be different than in the Greenbook. I would say that if the war continues beyond midyear, then all bets are off as far as we can tell. As I understand it, the best guess is that it should be over by mid-April.",505
-fomc-corpus,1991,The 18th!,5
-fomc-corpus,1991,In the a.m!,5
-fomc-corpus,1991,Saudi Arabian time.,4
-fomc-corpus,1991,"Thank you, Mr. Chairman.",7
-fomc-corpus,1991,President Black.,3
-fomc-corpus,1991,"Mr. Chairman, I think the staff has done a very thorough job in putting together their economic forecast but, like so many of the other speakers, I believe that it may be a bit on the optimistic side and that the risk of error with respect to real GNP is at least moderately tilted toward the down side. I think the staff is probably about right on its guess that the war may end in the spring but my fear is that it will be the late spring rather than the early spring. In any event, while the war is going on there are going to be a lot of continuing uncertainties and periodic setbacks and it's going to damp both business and consumer confidence as well as sentiment in the financial markets. Now, these negative impacts are going to be amplified, I think, by three big problems: the situation in the Northeast; the perceived fragility in the banking system; and the extreme weakness in commercial real estate in substantial parts of the country. So, we think there's a significant chance that the economy will recover later and probably less strongly than the staff is projecting. Our guess would be that the recovery might begin in the third quarter rather than in the second. And we expect only about 1 percent growth in real GNP on a fourth-quarter-to-fourth-quarter basis, which does not put us comfortably within the central tendency, as Si was, but labels us as an outlier in that the staff is predicting about 2 percent growth over this period. We also are an outlier on the inflation side because we're more optimistic about inflation under the assumption that we can avoid a long and destructive war in the Gulf. In addition to the effects of the declining oil prices on the CPI, we think that the underlying trend rate of inflation is going to begin to respond in '91 to the considerable deceleration that we've had in the growth of the aggregates over the last several years. I think it's quite possible that our core inflation rate for the CPI may be down to around 3-1/2 percent or lower by the end of the year.",412
-fomc-corpus,1991,President Melzer.,4
-fomc-corpus,1991,"On the national scene, we're very close to the median; I'm not sure that has ever happened before but there's some statistical probability of that and I guess it occurred. In the short run, not surprisingly, our staff would view the major risk as being whether the assumption with respect to money growth, something in the 4 to 5 percent area, is realized. I guess I'm a little schizophrenic about that because I'm worried that it may be realized and then some. And in that context I think Mike's scenario 2 here is very instructive because we could have some considerable challenges ahead of us. We have to get through the one we're in right now but, as we've discussed in the past and as Bob Parry mentioned, I hope we will be ready to respond in the other direction when we need to.",165
-fomc-corpus,1991,That 8 percent funds rate is a quarterly average. What is the peak?,16
-fomc-corpus,1991,[Unintelligible] percent.,8
-fomc-corpus,1991,"In terms of our District, I don't have a lot to say. Our economy is stagnant, probably declining slightly. Perhaps with what is going on in autos and cancellation of the A-12, we'll have some further weakness showing up. Essentially, what has been going on is that manufacturing weakness, which is not as great as it is nationally, is being offset by strength in services--health services and business services, generally. Just one last comment on the banking sector: I would say that when the year-end numbers come out, some weakness probably will show up; but our banks are still in relatively good shape. I was at our Memphis branch a couple of weeks ago and one of the bankers said ""This kills me to do this, but I've got to tell you that I don't think additional stimulus from the Fed is really going to help. We're swimming in reserves; we don't know what to do with them. And the problem is that when we try to lay them off, eventually we get to the New York money center banks and we don't necessarily want to sell very much!"" Another banker--these were both large bankers in that area--said that they have cut their fed funds selling by 70 percent in the last year. I took that to mean in terms of approved names on the list. So, that's a pretty dramatic shift.",268
-fomc-corpus,1991,"Mr. Chairman, if I might just inject a point that perhaps we should have made in talking about that last simulation: According to our model, the additional M2 in 1991 would be about 2-1/2 percent. So, to give you some--",55
-fomc-corpus,1991,"That's the incremental amount, Mike?",7
-fomc-corpus,1991,"Yes, incremental M2 growth in 1991.",11
-fomc-corpus,1991,"To bring it up to a total of what, Mike?",12
-fomc-corpus,1991,Seven percent.,3
-fomc-corpus,1991,Vice Chairman.,3
-fomc-corpus,1991,"On the anecdotal side, the only thing I can say that is unambiguously good is that the weekend before last in Tampa, Florida, there were actually no signs of a recession. Quite to the contrary.",43
-fomc-corpus,1991,Playing for the championship for the Second Federal Reserve District!,11
-fomc-corpus,1991,"That's right. But on a more serious note, the impression that I get from talking to businessmen and women and directors and others is that the statistics have basically caught up with their expectations, which had been distinctly sour for some time prior to the point when [the weakness] really showed through in the statistics. As I've said before, I do think that the real estate situation, at least in the greater New York metropolitan area--while not in the same category as it is in parts of New England--has not bottomed out. I think Gary's point is absolutely right: The excess inventory of real estate of all kinds is going to take a long time to work itself out. It's not just in the Northeast; I get the impression that this is pretty much a nationwide problem. Also, as several people have mentioned, one does get the impression that at least for a while in mid-January the so-called CNN effect was quite real in terms of retail operations and restaurants. They say it even showed through in the theaters in New York City. I have no independent evidence of that. But notwithstanding all of that--and this is where we come to the great dilemma--if you go through the exercise of looking at the economy sector by sector, regardless of whether you rely on a formal econometric model or rules of thumb that you may have acquired over time, it's not that hard to see a short recession. Based on my own purely subjective instincts, having spent a lot of time going through that kind of analysis, if I had to make a guess I would probably say that the chances of an outcome that is somewhere around the center of the central tendency are probably 50/50. Indeed, I would think there's at least some chance that we could get as robust a recovery as Mike has in his forecast. But, of course, if we do get that, then we have an obvious problem of the second scenario on the last page of the chart show. On the other hand, I would say that the chances of an outcome that is weaker than the central tendency--again this is not scientific --are probably about 15 percent or 20 percent. But unfortunately, I can't rule out the possibility of an outcome that is very significantly weaker, either. Now, I don't think that's the likely outcome but if you asked me whether we could have a long and really deep recession I think I'd have to say there's at least a 10, 15, or 20 percent possibility of that. Again, I don't think it's anywhere near the likely case, but I don't think one can rule it out. And the reasons it can't be ruled out in part get to the things that Gary was talking about: the overhangs of the excesses of the '80s. Some of Mike's charts on corporate cash flow positions and debt positions and things like that I don't think really capture how much of an overhang those things are. But on top of that I do think what we have is a recession that in the first instance is being driven by expectational factors, some of which are conditioned by those earlier excesses. But whatever the precise anatomy of the recession, the character of it, as I see it, is different enough that it is that much more difficult to judge how things will work their way through it, even in terms of this question of how much bang for the buck do we get from lower interest rates. I'm not sure. And because of some of these behavioral and expectational characteristics of current patterns of behavior it's very, very difficult to make that judgment. On the credit crunch issue, again, I essentially agree with Gary's point. But I think there's also a little more to it than that. One really does get the impression--it's more than an impression because I have been told point blank even by the best banks in the Second District, and at least one or two of them are among the best banks in the country--that the banks simply are not doing things on the credit extension side anything like the way they used to, even to those who would have been considered good customers 8 or 9 or 10 months ago. And the rate of foreclosures as opposed to restructurings or stretchouts, especially in the real estate sector, is another symptom of that phenomenon. So, while I think it's fair to say that the credit crunch is exaggerated, especially in political circles, I think it's entirely fair to say, as Gary did, that it tends to reflect these excesses of the past. I still think it is a very important consideration in the current setting, especially as it bears on this all important question of confidence and expectations. That is one of the many reasons why I find that I can be so ambivalent about what I think is going to happen. I sit down with Dick Davis and his guys and they convince me in two hours that Mike Prell is right, or more or less right, and not to worry. Then I start thinking about it and I say: ""I guess I am worried."" And that's about where I am, Mr. Chairman.",1024
-fomc-corpus,1991,Lee Hoskins.,4
-fomc-corpus,1991,"The District's [economic] activity has softened since October but is still generally stronger than the nation's. The unemployment rate in Ohio is up about 1/2 point but employment is about the same; it hasn't changed much. In fact, if you look at [initial unemployment] claims, the peak seems to be in the first week of January at 44,000 and they declined gradually each week to around 24,000. The hardest hit, of course, are autos and auto-related industries; that has impacted steel companies, which are operating at about 70 percent. [Unintelligible] cited a recent survey by a bank of its customers and 85 percent of respondents said that in terms of new projects they have no trouble getting credit; in terms of operating monies, 91 percent said they have no problem. As for straight-out anecdotal information, the international airline with which I'm familiar, since my wife works for it, has offered a month off without pay to anyone who wants not to work. That's clearly associated with the war and lack of travel. And you're probably all waiting for my stainless steel strip index, but I'm not going to give it to you because I've latched onto a new one: the Smuckers Index! I had a chance to talk with Paul Smucker, an elderly gentleman who has been through many business cycles and he told me that apple butter sales remain relatively soft and that's a good sign because during deep recessions apple butter sales soar. [Laughter] So, I'll be reporting to you on apple butter.",314
-fomc-corpus,1991,It sounds to me as though business is in a jam! [Laughter/hoots],19
-fomc-corpus,1991,"I'll make my comments on the national economy really short after that! As I look at it, I agree with the staff's view and also with what the Chairman has been saying. This is principally a situation where the downturn occurred as a result of the war and the consumer sentiment associated with that. With respect to problems in real estate, I think Gary Stern has it right: It's a long-term problem; there's no easy way out of it. And I don't think monetary policy can help either one of those situations. Now, I'm sitting here looking ahead at policy. There's a lag that we all know about, and we have a forecast that says the economy will be rebounding at about the time that the average lag says [current] policy is going to have an impact. So, I have some concerns about that, but I'll save those for Don Kohn. What I think we, from the point of view of a central bank, ought to be focusing on--[unintelligible] some of the concerns that people around the table have particularly from the areas that have been impacted hard--is what is happening to money. Perhaps some of you are interested in credit, but I would tend to focus on money. If we're going to worry about anything, I think we ought to worry about making sure that we don't permit a procyclical monetary policy at this point.",277
-fomc-corpus,1991,Governor Mullins.,4
-fomc-corpus,1991,"My view of the economy is that the fourth quarter was not quite as bad as I expected; it looks like a contraction that is accounted for mostly by inventories, with much of it in the auto industry. The downturn still seems to be synchronized in the sense that inventories are in line with no serious imbalances, with the one exception of the commercial real estate inventories which are out of balance. But we have yet to see the imbalances. More recent data continue to have a sour cast to them, although the leading indicators were up in December; durable goods were also up but, of course, that [increase] was focused in certain areas. It bothers me a little that the purchasing managers index is still dropping and consumer confidence has yet to bottom out. Indeed, I agree with Jerry that the hard data are kind of catching up with the attitudes, and I wish the attitudes would stop moving for a while. I noticed this afternoon during the break that the 10-day auto sales reported this afternoon were at a 5.2 million annual rate whereas people were expecting a 6.3 million rate or something of that nature. When I look at corporate finance, it doesn't lead me to forecast a vigorous rebound either. I think the Greenbook mentions that 1990 was a year of record defaults; that's really probably just the overhang of the junk bond market. But 1990 was also a year of record downgradings in bond ratings and almost a record in dividend cuts--probably the greatest number of dividend cuts and eliminations since the late 1950s. And that just suggests that corporations, like banks and consumers, may be in for a period of retrenchment--a period in which they will rebuild their capital structures and bond ratings before they're ready for aggressive growth again. Against this doom and gloom of recession and financial fragility, the stock market continues to charge ahead and [the DOW] will approach 3,000 if it continues another few weeks at the current pace. Why is this happening? Perhaps the most common indices we look at are more weighted toward multinational companies and reflect the prospects in some of the--",430
-fomc-corpus,1991,But the stock prices of smaller companies have gone up even faster.,13
-fomc-corpus,1991,"[Yes], the difficulty is the smaller companies have gone up even faster. It is an interesting scenario when our staff says we will have downgradings this year. I assume from watching the screen that the downgradings are continuing at a pretty rapid pace, yet their stock prices are going up. Now, of course, that can happen in a period of uncertainty; when you're a highly leveraged company your bond prices can go down but your stock prices can go up. Still, I think it's hard to escape the conclusion that the stock markets see better times ahead. And while it is true that a lot of publicly traded companies do have access to the public debt markets and commercial paper markets, when you get down to the broad equity markets this is not true and that includes some of the growth companies. So, I would say that the long bond rate, which is now approaching 8 percent, confirms that the recession is here and inflation is under control; but the stock market tends to suggest that there's a light at the end of the tunnel. I don't know how much confidence one would want to put in the stock market as a forecaster, but the stock market has a rosy forecast. So, overall I see the economy still contracting at a slow pace. There's real uncertainty about the war. What will happen when the ground war starts? What will really happen to consumer confidence in that case? I tend to agree that the prospects are good for a rebound this summer. I also tend to agree with what a lot of people have said: that it's not likely to be quite as robust as [the staff] forecast. I think this--the war, the recession--has been a pretty sobering experience. People haven't experienced a recession in a long time. And with all the bad news about the financial system, it may take consumers and businesses a while to rebuild confidence. As for the banking system, the credit crunch has been discussed pretty thoroughly here. I think some progress has been made in the [banking] industry. They made it through the end-of-year financing pressures and now not only has the fed funds rate come down but the other money rates--the CD rates and commercial paper rates--have come down pretty substantially, by [125] and 175 basis points. This has really helped to open up the margins it seems to me; even bank stock prices have rebounded a little. And it has opened up a spread that might accelerate the process of financial healing in some of those institutions. We also have gotten through the fourth quarter and the results of another round of commercial real estate problems. The industry has absorbed another round of publicity about the bank insurance fund being broke; and also the public impact of the failure of Bank of New England is behind us. That was the most visible weak institution overhanging the market. Looking ahead, we may have another quarter or so of bad results to get through. And I'm afraid we will have a lot more publicity on the bank insurance fund that we'll have to put up with as well as a lot of publicity about the banking reform legislation, which will be accompanied by comments that the banking system is in trouble. I'm also concerned about the weak elements in the banking system and the need to get some of those weak components cleaned up rather than just waiting for them to fail into the bank insurance fund. I don't know exactly how to do that, but I think they could be a drag on the economy and on the psyche for a long time unless we can think of how to do that. So, overall on the banking system, I think we've had some progress, primarily in that the lower rates have helped the banking system; but there is a way to go in working through the bad news. I noticed noncompetitive bids in the three-year note auction were only $769 million, which is far below the $2 billion that people were expecting and the $2-1/2 billion that was the record. And what bothers me about the financial system is not only the direct impact on lending but also that the bad news about banks feeds directly into consumer confidence it seems to me. And then there's also the low probability but serious outcome of a crack in the financial system. As others have mentioned, I think we have a good dose of stimulus in the pipeline: the reduction in the dollar--even as we speak, probably. Oil prices have come down without a real rebound in consumer confidence yet, as Dick noted, which would suggest that it's the war that is affecting confidence and not just the oil prices. And the fed funds target has come down 200 basis points since the summer; [rates on] long bonds are down probably about 100 basis points. Most of this has taken place without disrupting markets. I know there is a lot of uncertainty left relating to the war, and I still have concerns about the financial system; a lot of these concerns are captured in the money and credit data and I continue to think we should focus on money and credit, which are ultimately and appropriately our responsibility.",1011
-fomc-corpus,1991,Governor LaWare.,4
-fomc-corpus,1991,"Mr. Chairman, there are three things that puzzle me about the staff outlook for the economy as reflected in the Greenbook. First, the projection is based on far from firm and certain assumptions that there will be a quick and decisive end to the Gulf War and no substantial damage to Saudi productive capacity that would interrupt supplies. These assumptions underlie the further assumptions that oil prices will stabilize in the low $20s and consumer confidence will rebound promptly and decisively at war's end. No ""what if"" alternative, or worst case scenario is offered against which to make judgments pertinent to the proper course for monetary policy. Second, the degree of fragility in the economy is not really addressed. There is no quick end in sight for commercial real estate problems, and certain large segments of the banking industry are continuing to downsize and restrain loan growth. The current timidity of bank lenders is being compounded by depositor anxieties and deposit erosion to the perceived safer haven of government securities or money market funds. Third, it is not clear in my mind what role the banks are expected to play in the projected recovery. If fund flows are not to depository institutions but rather to Treasuries and to the money market funds, they won't be reflected in lending activity. In my view the economy is [experiencing] a paralysis of confidence which may not respond to the classic monetary policy moves to increase reserves and lower rates. Anxious consumers are loathe to spend or borrow. Businessmen are looking for clearer signs to invest, whether in inventories or plant. Governments plagued at the federal, state, and local level by unmanageable deficits are in a weak position to offer stimulus. And bankers, paranoid about overdiligent examiners, worried about capital levels, uncertain about the economy, and finding prospective borrowers weakened by recent economic trends, are refusing to lend. This spells out to me a recipe for economic stagnation. And I'm at a loss to understand how monetary policy can deal with it beyond sending signals that we hope the lookouts will see and interpret properly.",414
-fomc-corpus,1991,Governor Kelley.,3
-fomc-corpus,1991,"Mr. Chairman, I would accept the staff's forecast or something close to it--maybe a bit less robust--as probably the most likely outcome. And, certainly, it's positive and desirable. But the concerns I have turn out to be ones that have run through this discussion over and over again. That is, I am struck in a way that I've never been struck since I've been here that the risk of war analysis is very, very heavily skewed on the side of caution. If we get a recession that is mild and ends soon and the rebound that follows it, that is going to present questions for monetary policy, without any doubt. But they will be happy kinds of questions, if you will, and they are going to be in a positive context. Again, that's probably the most likely scenario. But I think the positive consequences that would flow from that result are not nearly as significant as their mirror image on the down side--the negative consequences that could flow if we get the opposite scenario. If the situation turns out to be much more severe, along the lines that Jerry described a few minutes ago, that could have some very nasty consequences that are much larger in scope than their positive counterparts on the other side. They're broader in scope as far as their impact on our society goes, and I think they are far longer-lasting in the effect they could bring. That has some likelihood, whatever it is, and it's certainly greater than zero--perhaps 15 percent. I don't know [the precise number], but there is certainly the statistical probability that we could get a much more severe result. If we do, and if we wind up with the seriously crippled banking system that John LaWare fears, for instance, it would be very difficult for that kind of a banking system to make it to the time when the economy was coming back around. I'm not sure where the financial contribution and support would come from if the banks have been crippled before that outcome started to take effect. Obviously, the process of watching the banking system become crippled, if that should evolve, would have a severe impact on consumer and business confidence and would exacerbate the situation. We could have a very, very large deficit built up, which would have a very long tail as far as its consequences go: a much larger debt burden; the further fragility that would result from leveraging up the economy; and all those kinds of things that would follow from the leveraging up that we're all familiar with. I think it would foreclose--or at least for a very long time severely impinge upon--a variety of social and political options that we need to have available to us in this country as far as rebuilding our infrastructure goes, [ranging] from education needs to rebuilding bridges. It would have a very severe impact on business investment down the line and on various elements of our international position. And I would think that it would have to have severe inflation implications that really aren't necessary for us to have to undergo. Another point that I don't think is inconsiderable in the long-term scheme of things is that it would have a very severe impact on the possibility of constructive banking reform in the near future. We think that the time may have come for an effective reform movement. And if we got into a very severe recession right now, that would certainly doom the possibilities of the passage of a good package in the near term. So, we have a severe skewing that I haven't been conscious of in my thinking before, and I think it necessitates our looking at some things that sometimes we don't have to spend a lot of time on--a broader array of considerations and potential downside concerns as well as some very long-lived potential downside results that we would all hate to see ensue. All of which leaves me intrigued with the thought of investigating and considering further scenario 2 on the last exhibit.",776
-fomc-corpus,1991,Governor Angell.,4
-fomc-corpus,1991,"This event clearly is an event that doesn't happen very often. We really haven't seen [in a long time] such a switch in preference from wanting to be leveraged to wanting to have liquidity. We haven't seen such a period in which the creditors are not anxious to lend. This is a very significant event and it's an event that I don't think we've seen since the 1930s. This economy has a lot of factors that make for a very significant departure from the way we went through the events in the 1930s and the way we're going through them today. I agree with the staff's estimate in regard to the areas in which there are strengths. There are considerable strengths. And I tend to believe that of the factors on the export side particularly. It seems to me that this $20 billion per year payment from abroad--I don't care how you classify it--is really like an export of a military service. If you put that together with the other factors, our balance of payments certainly swings rather dramatically. But that swing in the balance of payments does mean that a saving rate move is going to go with it, and certainly the government sector is not going to be the source of that savings. And I doubt that the corporate sector is apt to add to that savings. So, I tend to think that there is somewhat less robust final demand in the consumer sector than I would expect. Frankly, if it occurs in the second quarter and it becomes evident that there are no more interest rate declines, then I would expect the foreign exchange value of the dollar to make a very significant turnaround. I would expect the foreign exchange value of the dollar to head back to the highs of 1989 in rapid order. That, of course, may then mean that later on we would get a slowdown on the export side. There is a significant downside risk that if monetary policy focuses on what I call a fairly weak economic scenario, monetary policy will not be neutral but in fact could be quite damaging to the spot [dollar] prospects. That is the most dangerous event that we're looking at here: to have the foreign exchange value of the dollar move into a decided destabilized position, which I think could cause the bond markets and the stock markets to reverse rather rapidly. So, I'm looking at a scenario that I think is somewhat like [what was described by] some of the rest of you, but I tend to believe that monetary policy, if we're not careful, will make it worse rather than better. From June of 1989 we've decreased the fed funds rate by 365 basis points; that's a rather significant move. But it focuses upon the wrong rate in regard to what ails us. The right rate is the rate that the real estate market is facing, which is the long bond rate. And now for the first time in a long time we actually have long bond rates lower than they were a year [earlier]. And it seems to me that we are in a rather precarious [position] if we believe--and I guess I take this from Gary Stern and many others--that these corrections don't have to take place. If we believe that, I think we are mistaken. I think the correction with regard to household savings is underway and is going to take place and I think the use of monetary policy to deal with that has to be very, very carefully done so as not to make it worse rather than better. If we do not destabilize the situation, it seems to me that the rebound is going to occur. There are many factors [signaling] that. But if the dollar becomes progressively weaker, I don't think that will help us a bit on exports because in the mood of a war economy, with many countries in recession, that kind of environment could foster protectionist sentiment that could be very, very explosive. So, even though I'm not quite as optimistic on the real side as the staff, I do agree with the staff's [assessment of the] sources of strength; I think they are there. And I'm comfortable with that, if we do not harm this situation. I would admit that I am rather bullish in that if the Federal Reserve policy doesn't destabilize the situation--and I'm going to sound a little silly perhaps when I say this--I would not be surprised if my forecast of the CPI at 3.2 percent [is wrong] for 1992. The reason my CPI is so high is because of what the foreign exchange value of the dollar put us through; and once the dollar begins to rebound I can see CPI inflation doing very, very well. And then [we could] get the correction that we need, which is mortgage rates in the 7 percent range in order to bring this about where we need it. You see, real interest rates cannot be homogenized at this point; there are real interest rates in every market. And the real interest rate for houses right now is pretty darn high. In a falling real estate market--when one does not expect house prices to rise, and even expects them to fall--real interest rates even after taxes may be extremely high. So, I think the key is getting long-term bond rates down; and that's a lot harder than getting short-term rates down.",1058
-fomc-corpus,1991,Governor Seger.,4
-fomc-corpus,1991,"I think most of my points have been made--12 times--but I will start off just by explaining an experience I had when I dug into my files to see what I had sent in this time last year for a forecast because I try to key off that when I do the next go-around. Last year I was the source of the low end of the range, in case any of you have forgotten. I had 1 percent real growth fourth quarter-to-fourth quarter, which was off the bottom of the chart. And what is making me nervous is that that turned out to be too high; as you know, it came in at about .3 percent. Anyway, having said that, I love Mike's forecast and I hope it is realized. Even though I'm leaving, I certainly hope that this is what materializes. But I must say that I'm a little skeptical that it will. I'll just mention a couple of things. One relates to the assumed bottoming out of housing or the investment in residential structures. I realize I'm biased because I just met with a couple hundred homebuilders last month, but I really think there is a problem there. I think the credit crunch is still present in that industry, particularly on the side of builder financing. The United States is a big country and housing markets are local; there are zillions of them. They are not all like Boston or Denver or Dallas. There really is a housing shortage, especially in low and moderate income housing. We can use some more structures. So, I hate to dismiss this as something that we don't need to be concerned about. And I don't believe that we've seen the bottom yet on this; I don't think it's going to bottom out in the second quarter because of this credit situation. Also, on the consumer side: I would love to see the consumer come roaring back into the stores. It used to be VE day or VJ day--I'm aging myself; I don't know what this would be--[VS] or something.",405
-fomc-corpus,1991,VI.,2
-fomc-corpus,1991,"VI or VIQ. Anyhow, I would love to assume that [that will happen]. I have no idea when the war will end but, whenever it does, I just don't think that in and of itself is going to cure all the consumer confidence problems because I think part of the confidence problem involves the war but another big part involves this continuing flow of bad news about the financial system. It's like having cold water run down your back continually and a lot of people are reacting that way. That's part of it, but also consumers are still very overloaded with accumulated debts. I saw in one of the presentations the quality of consumer debt deteriorating, mortgage defaults growing, and that sort of thing. So, I just don't think consumers are in shape to run right out and go on a spending spree if they feel like it. Finally, on the assumption that exports are really going to carry a big part of the load: again, I would like to assume that. I'm impressed with how we have gotten our exports turned around. But as I hear about the conditions in other countries, such as Canada, that are our major trading partners and I think about their problems, I just wonder how strong those markets are going to be and, therefore, whether our exporters--no matter how good they are and how good their products are--in fact can achieve these kinds of results. Anyway, this certainly would be my preferred outcome; there's no doubt about it. But I just have a feeling that the timing is somewhat too optimistic and that whenever the bottom does occur the rebound from that low point will be more gradual and less sharp.",325
-fomc-corpus,1991,Okay. Why don't we recess until tomorrow morning at 9:00 a.m. You may leave your papers here.,24
-fomc-corpus,1991,Mr. Kohn.,5
-fomc-corpus,1991,"Thank you, Mr. Chairman. [Statement--See Appendix.]",13
-fomc-corpus,1991,Thanks. We're open for discussion on this issue. Let's do questions first. Any questions? Dick Syron.,22
-fomc-corpus,1991,"Don, I find myself in great sympathy with what you said. I have a technical question having to do with this issue of V2 and the credit crunch--not the New England credit crunch, but the national credit crunch. The chart we saw yesterday in the chart show indicated that, in terms of this particular measure of the credit crunch, we are not in a much different place than we usually are at this stage in the cycle. But part of your velocity forecast assigns some weight to the credit crunch, doesn't it? It may be consistent with the earlier data; that's what I'm trying to get a hint on.",123
-fomc-corpus,1991,"My interpretation of the charts--and I think Mike had the same interpretation--was that something unusual did seem to be happening in the depository sector. It was hard to see it reflected--in his charts, anyhow--in total credit or total borrowing really. The flow of credit relative to GNP didn't look all that different from past recessions--although it was consistent with a recession, which we weren't anticipating at the beginning of the year.",89
-fomc-corpus,1991,But the smaller business borrowing would be mostly from banks.,11
-fomc-corpus,1991,"Right. The banking depository credit was extraordinarily weak, and we think that's what is being reflected in M2. Now, part of the reason we have a velocity shift is because some part of that weakness in depository credit doesn't matter. As Mike pointed out, to the extent that it just reflects easily securitized consumer credit or mortgage credit that flows through different channels, the final borrowers--for example, households in this case--don't even know who is holding their credit. It doesn't matter to them whether it's a bank or someone else. But when it seems to cut a little further into small businesses, where information is important and where the cost of rechanneling the credit may be rather high, then [it does]. So, to the extent that it's easily rechanneled, we could get an increase in velocity because the banks wouldn't need to issue time deposits. GNP would be whatever it was anyhow and M2 would be weak relative to GNP. But to the extent that it cut into not so easily rechanneled credit, it would have an effect both on M2 and on GNP. That's why I say I think some of the weakness we saw in M2 was reflected in GNP over the year and some of it was this velocity shift. But the velocity shift persists. To the extent that it does persist, we don't need to worry about that amount of shortfall in M2 relative to GNP. And I think that is the part that's easily rechanneled in our depository institutions.",309
-fomc-corpus,1991,Further questions for Don? Governor Angell.,9
-fomc-corpus,1991,"Don, I really have a two-part question. I want to precede the question, though, by the comment that I thought this section in the Bluebook on page 8 and the following pages on long-run strategy was most helpful. I thought you put it in the context that is just right for decisionmaking. And I'm not trying to set you up for the question. You mention on page 10 in that paragraph about in the middle of the page--this is about strategy II--that ""nominal interest rates, while higher than in the baseline in the first two years, thereafter move below those in the baseline as inflation comes down more."" I didn't see those interest rates in the chart. Did I miss that somewhere?",147
-fomc-corpus,1991,"That's because in the past we haven't shown those interest rates in here. In the baseline forecast, for example, we would have interest rates averaging about 5-3/4 percent by the end of 1995--just to give the end point.",51
-fomc-corpus,1991,Okay.,2
-fomc-corpus,1991,We have a 5-3/4 percent funds rate in the baseline and about 5-1/8 percent in the slower M2 [growth scenario].,33
-fomc-corpus,1991,Okay. Could you give me those numbers for 1993 also?,14
-fomc-corpus,1991,"Sure. In the fourth quarter of '93 it's 6-1/2 percent, rounded, in the baseline and it's about the same actually [in the slower M2 growth scenario]. The fourth quarter of '93 is about where the crossover occurs.",51
-fomc-corpus,1991,I presume these rates are short-term interest rates?,10
-fomc-corpus,1991,That is the funds rate.,6
-fomc-corpus,1991,"Now, Don, the tough question, which I've set you up for: Could you tell me about the pattern of long rates with those two scenarios? And to make it really tough, I'd like to know the pattern of long rates without credibility and the pattern with, you might say, enough extra effort to bring on credibility.",65
-fomc-corpus,1991,"Governor Angell, I can give you the deviation from the baseline. I don't have the charts showing the actual rates in the baseline, but I can tell you for the corporate bond rate that by the end of 1995 it is lower in the tighter alternative than in the baseline by about 15 basis points.",63
-fomc-corpus,1991,"Yes, but what I really want to know about is the second half of '91. Would the long bond rate be higher or lower if you add credibility?",32
-fomc-corpus,1991,"Certainly, without credibility it would be higher. The way this works is that in the slower growth scenario--in order to damp money growth even more than the staff forecast, given the momentum of GNP--you have to raise interest rates. You have higher nominal and real interest rates that damp spending gradually. That then feeds through to inflation. How fast it feeds through might depend on credibility effects; in the model there aren't any credibility effects. And then the [lower] inflation will bring down nominal rates, although you'd still have higher real rates, at least with a backward-looking expectations [model], and a higher unemployment rate at the end of this period under the tighter alternative, as you see from the table.",142
-fomc-corpus,1991,"So, in other words, you're saying that the first part of any tightening would give [rise to] expectations of further tightening, which alters the opportunity cost of holding bonds, and thereby bond prices would be somewhat lower than they otherwise would be until the improved inflation effect overcomes it?",57
-fomc-corpus,1991,Right.,2
-fomc-corpus,1991,And that's where credibility would be so important?,9
-fomc-corpus,1991,"Right. If there were credibility effects, obviously, that would feed through faster and bond [prices] would probably rise; but [the markets] have to believe us. In my mind, the credibility comes mostly from our actions rather than from our words. So, it would take a while for that credibility to build. But once it did, then I believe that bond yields certainly would come down faster than we've captured in here.",86
-fomc-corpus,1991,Thank you.,3
-fomc-corpus,1991,"Other questions for Don? If not, let me start off with general comments on this issue. I have been puzzled, as I think everyone has been, by the extent to which our equations forecasting M2 and the various interest rate assumptions became progressively worse through the fourth quarter and kept a fairly large gap in the first quarter. That's suggestive, obviously, of two possibilities: that there has been a shift in the function and that we're now on a different slope, or that it's going to snap back. And if it snaps back, that implies a dramatically different outcome than if the existing divergence continues. My impression of the difference is that it is really quite substantial. In short, at this stage we really do not have a feel for how this is going to come out--not in a way that would make us feel rather comfortable about it, I would suspect. I conclude from this that we have very little basis on which to move from our preliminary position. I would say we pretty much have to make a fairly strong judgment in order to move one way or the other from alternative I, because I am fearful that if we choose either of the other two alternatives we probably would be setting ourselves up for things to go in the wrong direction. I think there is just as much of a probability that we soon will be engendering double-digit M2 as zero; if we could somehow hedge that until we get a much better fix on what is going on in the numbers, I must say I would do that. So, I prefer to stay basically with the preliminary ranges of alternative I. Dick Syron. I think we're",325
-fomc-corpus,1991,"I fully support what you suggest. is uncertain, the course of in a time when the course of the economy world events is uncertain, and the course of the behavior of the aggregates vis-a-vis the economy is uncertain. And in the context of all of this, we are also in a period when everyone is watching what we do extraordinarily closely. It seems to me that it makes all the -42-sense in the world to be would presume that fairly -44-2/5-6/91 rate and reduced output, thethrows of the agonies run of the unemployment other side. And we're the to [over on] the we potential have to come back. And I think a 6 percent going to need the excuse us the excuse to come back and raise interest rates ceiling. gives ceiling than the 6-1/2 percent quicker",171
-fomc-corpus,1991,Vice Chairman. ranges that you CORRIGAN. I would maintain the VICE CHAIRMAN recommended.,22
-fomc-corpus,1991,Governor Seger. that stability is good,8
-fomc-corpus,1991,"I agree with the argument just looking at But I was and that there is great uncertainty. realize but I this is ancient history Appendix B [in the Bluebook]--I do pay attention to the monetary aggregates and the targets we set--remind you about M2 growth, looking back: In and I just thought I'd in 1989 we missed the the midpoint on the low side; we missed the midpoint on the 1988 midpoint on the low side; and last year we missed be an low side. And to me, at some point anyway, there ought to about at least a modest catching up. I guess that think to effort is main the reason, along with the desire for some stability, that I year the targets that we had for last would prefer to carry forward ranges that were set last July for this year.than rather I think the tentative use we've been assuming our targets were half-way a appropriatebut we've been low-balling it right along. I remember some pass when Beryl Sprinkel was at the CEA, he made Anyhow, ago, years few in one of the Economic Reports to the President. at that idea at the end drawing a line related of each I just feel more comfortable notJanuary 1 isn't to December 31. as if calendar year and acting mix, using alternative III for M2 and So, go with a I would I for M3. That would just carry last year's ranges alternative alternative. forward, which is a nonexistent LaWare.",302
-fomc-corpus,1991,"Governor Well, I want to repeat my skepticism about the",11
-fomc-corpus,1991,"the economy, at least temporarily policy to affect power of monetary stated yesterday at this stage of the game and the preference I jiggle the thing offcenter dead giving signals that might worry about believe it is stuck. On the other hand, I that we have associated ourselves signal. In spite of the fact of effect worry I , aggregates the about concern in the aggregates growth interest particularly we M2have a possible as not in moves lower see where the rates at dollar is a point going to when settle after downunder had therecent circumstances the discount rate and the funds rate. safest I is thewhether our And course of concern that about action although it may I think alternative raise some questions about aggregates is genuine. g o t t e n back into the GREENSPAN. M2 still has not CHAIRMAN alternative I range yet. that LAWARE. Well, I know and understand GOVERNOR",178
-fomc-corpus,1991,"Mr. Chairman, I support alternative I, as you suggest. I think we've been talking about two sets of effects that the ranges have: the signal effect and the guidance for actual policy. Looking back at Appendix B, I note that over a period of years actual experience does track along with our intent in the sense that both the ranges and actual growth have been coming down gradually--since 1983 in the case of M2. But in any one year [growth] varies substantially inside the range. So, actually, any of these three ranges would give us ample room to conduct policy as we might need to in order to accommodate the events over the course of the year. But in the case of the signal effect, I think we're rather locked in to alternative I. If we were to raise the ranges, it would send a bad sign to the market relative to our inflation [credibility]; if, on the other hand, we were to lower them, it would send a bad sign to the economy relative to our desire to help check this recession. Therefore, I feel comfortable with the actual policy guidance effect of any of the three, but the signal effect leads me to alternative I.",239
-fomc-corpus,1991,President Guffey.,5
-fomc-corpus,1991,"Thank you, Mr. Chairman. I think Wayne Angell has probably made my comments--rather well, as a matter of fact. It seems to me that there are only two real and important aspects to the range for M2--and that's the only aggregate I'd be concerned about. One is the midpoint, which gives us ample opportunity to achieve the staff's forecast for the year, and the other is the top of the range. The real test if we do get the bounceback [in the economy], which implies vigorous growth of M2, is going to be whether or not we have the courage to do what I think we should do fairly quickly. The second part of that is that we only have 5 months, or 6 months maybe, before we take a look at these ranges again. I think the message that would be received well by the markets is that we are indeed still concerned about inflation. All the rhetoric about the short recession I think plays well with the longer-term view that inflation is our major target.",207
-fomc-corpus,1991,Governor Mullins.,4
-fomc-corpus,1991,"I support your proposal, Mr. Chairman, and your rationale. We have seen an extended period of low money growth rates, [with growth for 1990] the lowest shown in Appendix B [for any year since at least 1979], and also falling growth rates in recent years. I'm comfortable with the existing ranges. In the last 10 months M2 growth has been at the low end of its range; I don't think it's a good idea in the current environment to reduce the range. I think we would appear to be lowering the target so we'd have a greater chance of hitting it. I also think it's not a good idea to raise the range; we're unlikely to achieve it and it's not a good idea to reverse the trend of reducing the range gradually through time. And even the 2-1/2 percent low end of the current range is roughly consistent with the long-term real growth potential of the economy. I think this is an important decision, given the heightened public perception that we're interested in M2 and the aggregates in general. I think any decision other than alternative I risks confusion. We should focus on achieving actual money and credit growth within the ranges and leave the ranges pretty much alone.",244
-fomc-corpus,1991,President Melzer.,4
-fomc-corpus,1991,"Let me just comment first on the strategies that Don laid out. I strongly favor strategy II. Given our role as a central bank, I can't see associating myself with any other strategy. The only thing we can affect in the long run is inflation; that's the only one that really shows any progress. That does not lead me, however, to alternative II in terms of the ranges; I would support alternative I. As Bob Parry already acknowledged, there's already a reduction in the ranges implicit in the tentative ones, so in my mind that's consistent with strategy II. My own view is that a further reduction in the ranges, given the environment we're in right now, really wouldn't be seen as particularly credible. I don't think we would buy any credibility by ratcheting them down any further. What is credible and what we need to do in this environment is to make sure that we acknowledge that the one thing we affect in the long run is prices and that we're still committed to price stability. [I mean that] not in a saber rattling short-term context, but we have made so much progress over the last four years in bringing down the growth rate in money that, as I've said before, I think we have a tremendous opportunity here to make a permanent impact on inflation. And I want to make sure we don't lose sight of that. I'm sure we won't as a Committee, but in terms of what we're conveying to the public we need to convey that we have some short-term problems to work through now but we still have our eye on the right ball.",314
-fomc-corpus,1991,I think not moving the ranges up in the face of this recession gives that signal. It's cyclically adjusted!,22
-fomc-corpus,1991,What I'm suggesting is that we can't rely on that alone to convey the message.,16
-fomc-corpus,1991,President Hoskins.,4
-fomc-corpus,1991,"Well, I'm pretty much in the same mode as Wayne and Roger and Tom. Our job is to reduce inflation over time. I think all of these ranges allow us to do that, as Mike Kelley pointed out. Midpoints are important and I would hate to have us think that if we do come out for your suggestion, we have to hit the midpoint because that's above where growth has been averaging. I think that was Wayne's point. So, I'm for strategy II, a tighter [M2], because that's the one that makes inflation disappear on this piece of paper in front of us. I'm not sure it will, in fact. But I'm not troubled by marching the ranges down slowly over time because there's a consistency in that that does lend itself to credibility. And we are moving down a notch. So, while I would prefer to be more aggressive, I can understand your arguments and would support them.",182
-fomc-corpus,1991,President Stern.,3
-fomc-corpus,1991,"I support your proposal, Mr. Chairman, and I agree with Tom Melzer that we have an opportunity here really to make some progress on the core rate of inflation if we conduct our affairs [unintelligible].",44
-fomc-corpus,1991,President McTeer.,5
-fomc-corpus,1991,"I would associate myself pretty much with Tom Melzer's statement. I could buy the economic case for alternative II, but I don't think I'd want to put you in a position of having to announce a reduction in the targets in the middle of a recession. So, I would support alternative I.",59
-fomc-corpus,1991,President Boehne.,5
-fomc-corpus,1991,"We're sending a rather powerful signal these days with our short-run policy movements, and I think it's important that we not confuse that signal. I think staying where we are with alternative I is least likely to do that. We already have lowered the ranges one notch and by not going back [up] we send a signal that we haven't given up on inflation. To go to alternative II in the current environment of bringing interest rates down would send some mixed messages, which I don't think we want to send. In terms of operating room, I think all of these ranges give us operating room. And if we get a shift in the function, these ranges aren't going to be terribly relevant. So, I come down for alternative I on both counts: the signal effect and the operating room.",156
-fomc-corpus,1991,"With the exception of Governor Seger, I assume that when the preferences for alternatives were being cited it was across the board, with no differentiation being made with respect to the ranges for M2, M3, and debt. If that's the case, it appears that we have a--",57
-fomc-corpus,1991,"Oh, I can go with alternative I.",9
-fomc-corpus,1991,"No, I was just trying to get [that clarified]. What I'm saying is that alternative I generally seems to capture the center of this particular group, and I would ask the Secretary to take the role on that motion.",44
-fomc-corpus,1991,"Do you want to read that portion, Norm?",10
-fomc-corpus,1991,"Yes, you better read it.",7
-fomc-corpus,1991,"I'm reading from page 23 in the Bluebook or line 43 in the other handout, starting near the bottom of page 2: ""The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability, promote a resumption of sustainable growth in output, and contribute to an improved pattern of international transactions. In furtherance of these objectives, the Committee at this meeting established ranges for growth of M2 and M3 of 2-1/2 to 6-1/2 percent and 1 to 5 percent, respectively, for the period from the fourth quarter of 1990 to the fourth quarter of 1991. The monitoring range for growth of total domestic nonfinancial debt was set at 4-1/2 to 6-1/2 percent for the year""--",165
-fomc-corpus,1991,8-1/2. Let's not swallow it back too much; it's 4-1/2 to 8-1/2 percent.,30
-fomc-corpus,1991,"--""4-1/2 to 8-1/2 for the year. With regard to M3, the Committee anticipated that the ongoing restructuring of thrift depository institutions would continue to depress its growth relative to spending and total credit. The behavior of the monetary aggregates will continue to be evaluated in the light of progress toward price level stability, movements in their velocities, and developments in the economy and financial markets.""",84
-fomc-corpus,1991,Call the roll.,4
-fomc-corpus,1991,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Black Yes President Forrestal No President Keehn Yes Governor Kelley Yes Governor LaWare Yes Governor Mullins Yes President Parry Yes Governor Seger Yes,44
-fomc-corpus,1991,We'll now move on to current monetary policy. Don Kohn.,13
-fomc-corpus,1991,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1991,Questions for Don?,4
-fomc-corpus,1991,"Don, what does your model tell you for M2 for the first half, given the [policy] moves that have been made?",27
-fomc-corpus,1991,"If we build in the error that seems to be in train for the first quarter--that is, if we put in the 4 percent and the 5 percent that we had for February and March--that would give us 2-1/2 percent for the first quarter. Now, the model has something like 6 percent for the second quarter but we wouldn't expect anything like that. We'd be looking probably at something more in the 4 to 5 percent area as a judgmental forecast. We're looking at a 1-3/4 percent approximate shortfall from the model for the year; we have a substantial part of that in the first quarter but not entirely. I don't have a projection for the first half that really goes with alternative B, but I would guess off the top of my head that it implies something like 5 percent, which would be about a 1-point shortfall from the model; the latter was saying 6 percent.",194
-fomc-corpus,1991,But our confidence in the model has fallen?,9
-fomc-corpus,1991,It never was very high.,6
-fomc-corpus,1991,"Other questions for Don? If not, let me start off with my appraisal. First of all, to me the most fascinating aspect of the last several weeks is the stock market, which I think essentially is clueing in to the fact that the war will be either significantly contained or short. Now, I'm not sure it makes all that much difference. If, for example, we cauterize the major [enemy] forces around Kuwait and wait for their supply of food and water to run down, which could take months, and it appears as though their offensive capabilities in the area--scuds, aircraft, and so forth--are pretty much eliminated, I'm not sure it matters whether the war is over at that point or not. But I think the market essentially reads it that way. What is really important about the stock market is not so much whether it is forecasting correctly or not but that the very mood of the market itself has economic implications in the context of what I would call an add-factor economy in which most of our equations don't work and what really moves the forecast is how one fiddles with the add-factors. In that sort of environment, confidence is the problem, essentially. I would think at this particular stage that the news is possibly better than we feared, if I may put it that way. And while we've all taken pot shots at the Greenbook forecast, it is not a zero probability forecast by any means. [Laughter]",292
-fomc-corpus,1991,[Damning with] faint praise!,8
-fomc-corpus,1991,I'm willing to go at least 15 percent!,10
-fomc-corpus,1991,Can I get you to 60?,8
-fomc-corpus,1991,"With all seriousness, I'm a little concerned that we may be looking at the January data with a longer-term view of what it all means than it may in fact mean, especially if one realizes that it [reflects] the climate going into the war or the uncertainty it raised. One thing I found fascinating yesterday was how many people around here are getting feedback around the country on the CNN effect. Usually we only hear it anecdotally in one place; we heard it virtually all around this table. I hope it doesn't get out; it's terrific for CNN business! In any event, I do think that in the context of our success in bringing down money supply growth, we're beginning to see the benefits on the inflation side. That's one area where I actually don't quite agree with the Greenbook because I think the inflation forecast is too high. From what I can sense, looking at the internal price structure of a lot of companies and talking to a lot of people about market resistance [to higher prices], it may turn out to be doing better than we know. I think it's showing up very specifically in the obviously crucial wage area. I think this has given us room to lower the interest rate structure, which we have done, without engendering inflationary effects. And I think the way in which it has been done to date, with a rather slight lag probably, has been very helpful in preventing inflationary pressures from moving up over the longer run. Ideally, I would suspect that we would like to have the rate structure, to the extent that it is relevant, come down and just stabilize as we go into the expansion phase. But trying to ease into the equilibrium in that manner strikes me as really quite unrealistic. I have come to the conclusion that we may have to move it down further as insurance but be prepared to back right up when and if that becomes necessary. Unless we seriously believe that we have the capability of bringing rates down to a point, including where we are now, and then flattening them out at that point, we have to be [operating] under the presumption that we are going to move them down and then we are going to move them up. I think we have to be prepared to do both, but hopefully in a less volatile manner than has been the case for monetary policy in the past. I would say certainly that in recent years we've been able to do that and I hope we can continue. What this leads me to, granted all of what we were discussing yesterday, is that it seems extremely unlikely that this economy will start to move up, or more importantly that the money supply will start to move up, at a pace that would induce us to be moving in a direction of tightening rather than easing prior to our next meeting. I can conceive of our easing further--not immediately, but certainly in response to additional events. I would conclude, therefore, that the appropriate policy at this stage would be ""B"" asymmetrical toward ease. Governor Angell.",603
-fomc-corpus,1991,"Mr. Chairman, I'm in agreement with everything you have said. I think you put it exactly right, so I'm not going to repeat any of that because I think you hit it right on the mark. I'd also like to say, Mr. Chairman, that I could detect in Don Kohn's statement not just a pure analysis, but I thought he also was leaning in exactly the same direction that you have indicated.",84
-fomc-corpus,1991,Are you suggesting that I influenced Don Kohn?,10
-fomc-corpus,1991,"Yes, I am; he's easily influenceable! In going with your outline, I would like to mention that the one thing I disagree with you on is that I think the probability of this scenario is more like 45 percent rather than 15 percent.",51
-fomc-corpus,1991,"I said ""at least""!",6
-fomc-corpus,1991,"Oh, at least 15 percent! I'm going to go to 45 percent even though I tend to think the recession is going to be a little longer and the recovery a little shallower. But the fact of the matter is that I think we do have ahead of us some more disheartening news on the first quarter. Not only do we have the CNN effect, which I think really is there--people have been watching TV more than shopping--but there's also the travel factor. I have been at the airport in Zurich and at Heathrow and JFK, and there just isn't anybody there. There is a real impact. Harrod's runs a beautiful store at Heathrow and they had about 30 sales people and I think 2 customers. So, it does seem to me that travel is going to be down sharply; that along with the CNN effect means that the first quarter will be down sharply. So, I think we do have some bad news ahead of us and we need to steel ourselves for that. Now, if the staff is correct regarding the bounceback, one thing I do believe is that once the capital markets recognize that the U.S. economy is in a recovery phase, there'll be no more cuts--and possibly increases--in short-term interest rates. And I do believe the dollar could have a very sharp bounceback effect once we get past a period of stability. So, I did a little calculation. We have what --about $56 billion of deutschemarks? Is that close?",303
-fomc-corpus,1991,That's close.,3
-fomc-corpus,1991,"I was thinking that we may have a window of, say, 90 days to get rid of 2/3rds of that. If we want to get rid of 2/3rds of the deutschemarks we hold--I'm not counting the interest because so far this year the $50 million we've done is only 1/5th of the interest we've earned--we're going to have to sell quite a bit. I calculate $620 million per working day over the 90-day period.",104
-fomc-corpus,1991,That will get their attention!,6
-fomc-corpus,1991,"It really is a very substantial item, and I would suggest that the budget deficit for 1991 does not need to have a huge foreign currency exposure because we've marked the gains up in 1990 on a mark-to-market basis for our payments to the Treasury. So, Mr. Chairman, I appreciate very much that you have gotten done the $50 million and just would suggest that you carry on with more enthusiasm!",84
-fomc-corpus,1991,"Governor Angell, we have $33.9 billion in DM, in recent values.",18
-fomc-corpus,1991,He wants to go short!,6
-fomc-corpus,1991,We did sell--,4
-fomc-corpus,1991,"Oh, I was looking at the totals.",9
-fomc-corpus,1991,Including Treasury holdings.,4
-fomc-corpus,1991,"I was including the Treasury too, but I thought the Treasury probably would want to do the same as we would.",23
-fomc-corpus,1991,Are you [using] DM or dollars?,9
-fomc-corpus,1991,"No, this is dollar values.",7
-fomc-corpus,1991,Bob Black.,3
-fomc-corpus,1991,"Mr. Chairman, I would agree that alternative B is the best. We have just taken a fairly significant, strong, and dramatic policy action and any further move now would appear to me to be sending the signal that we had pushed the panic button. The staff may be right in saying that we won't have to ease further in this cycle: I certainly hope that that's true because it's in that area and the failure to tighten up promptly that we've usually made our mistakes. But in my own forecast I see it somewhat weaker than the staff does. So, I think it's possible that we may have to do a bit more [easing] before we start upward, though I hope not. But because of that possibility, I would go with your asymmetric directive tilted toward ease. Lest anyone think that a hawk has become a dove, I think I will be among those who will argue the strongest quite early for an increase in the federal funds rate, if the economy does turn around.",197
-fomc-corpus,1991,President Parry.,4
-fomc-corpus,1991,"Mr. Chairman, I support your recommendation of alternative B since it appears that the economy will be recovering at a satisfactory rate 6 to 9 months from now, especially in light of the policy moves that were taken recently. However, I do have a strong preference for a policy directive that is symmetrical. If new developments in the next several weeks suggest greater weakness, I believe there should be a full discussion of the implications of those developments for the outlook 6 to 9 months from now before policy is changed. It seems to me that that kind of discussion runs the greatest chance of avoiding the error of going too far in the direction of ease in response to weakness in the statistics that are conveying information about the performance of the economy in the recent past.",151
-fomc-corpus,1991,President Forrestal.,4
-fomc-corpus,1991,"Mr. Chairman, we have done a lot over the past several months and the most recent action is just behind us; for that reason I would support your prescription. I do think, as I said yesterday, that the risk continues to be on the down side and that we may get some bad economic news over the next several weeks. And for that reason I would support also your prescription for an asymmetric directive. I'm glad you said what you did about our moving on the up side when that becomes necessary because I think it's important for us to remember that we're not on automatic pilot with monetary policy and that we have to adjust to conditions. I might say, going back to the asymmetric directive, that we have a long interval between this meeting and the next one and I think it's important to be able to move promptly if the information is negative. On the CNN effect, I might just say too that Jane Fonda is very happy with that!",188
-fomc-corpus,1991,Si Keehn.,4
-fomc-corpus,1991,"Mr. Chairman, I support your recommendation. It seems to me that we've done quite a bit and we ought to sit back and pause here. Having said that, I think the chances are that we are more likely to ease than to tighten before the next meeting and, therefore, I think the asymmetric language would be appropriate.",65
-fomc-corpus,1991,President Hoskins.,4
-fomc-corpus,1991,"Mr. Chairman, I support your recommendation. I was particularly encouraged--and you have said it all the way along, so it should be no surprise--[by your] preparing this group for having to tighten if things start to grow. However, on the asymmetric language, I'm comfortable for different reasons. I hope we will be emphasizing slowness in money growth as the reason for moving rather than weakness in the economy. The errors in our ability to predict the economy one quarter out by anybody's forecast evaluation are really quite large. I think our best chance of getting to where we want to be in the long term is to continue progress on relatively steady money growth over time. So, I would hope that the asymmetric language would be exercised if we get bad news--that is, slower growth in money than we anticipate.",165
-fomc-corpus,1991,Vice Chairman.,3
-fomc-corpus,1991,"I certainly would support the suggestion you put on the table, but I would just elaborate a little on one or two aspects of policy beyond that. Everybody has put his or her own probabilities on outcomes of various forecasts and, as I said yesterday, my own sense of it is that there's at least a 50 percent chance that we'll get something along the lines of the central tendency of the Federal Open Market Committee members' forecasts. And we certainly can't rule out the kind of [outcome] that Mike talked about. But if we're going to get either of those--a modest recovery beginning sometime around midyear or even a fairly bouncy one as in Mike's forecast--it seems to me that either outcome is already baked in the cake in policy terms. There is enough there, if policy is working, to produce that result. On the other hand, there is a 10, 15 percent chance--again, pick your number--of it being a lot weaker. Now, especially if it turns out to be a lot weaker, then we're looking at a very deep recession with all of the [attendant] financial problems. That, by the way, I think would blow the stock market right out of the water. Then we really would have a terrible situation not only in terms of what it implies for the economy and unemployment and all the rest, but in those circumstances I think policy would be judged universally as the culprit. Moreover, the risk of the whipsaw effect sometime out in the future, which is embodied in Mike's second scenario on the last page of yesterday's handout--even in the case of a steep recession--gets much greater under any scenario like that. Now, I think the problem for policy and the appearances of policy is a bit further complicated by this credit crunch issue. There are two schools of thought about the credit crunch. One school of thought is that it's very real and that the Fed in particular isn't doing much about it. I don't happen to agree with that school of thought. Gary's analysis yesterday comes much closer to the mark as far as I'm concerned. But there is that other school of thought: that the Fed itself is overstating the credit crunch because that rather suits its purpose. And the argument that grows out of that essentially says that the weakness in money is really due to policy, not a credit crunch--that the credit crunch is a smokescreen and the Fed is hiding behind that smokescreen. Indeed, that argument goes one step further and says that the Fed is targeting the funds rate, that reserves are strictly demand determined, and that it's the policy process itself that is producing the weak growth in money supply and/or the credit crunch, or even worse for the Machiavellian types that the Fed is hiding behind the credit crunch. The reason I bring that up is again in the context of what happens--regardless of whether you think the risks are 10 percent or 20 percent--if it turns out that the economy goes down the tank. That leaves me in this quandary of desperately searching for what I like to think of as a low-cost insurance policy. To me, a low-cost insurance policy is something that either in substance or in form tries to defuse some of those arguments without bringing with it the necessary result that we go too far in underlying policy terms and set ourselves up in the kind of conundrum that Mike so graphically described yesterday. So, I ask: Is there a low-cost insurance policy? That is somewhat of a contradiction in terms, of course; there really cannot be. While I don't think it's germane to the Committee's discussion this morning, I have this rather crazy idea that runs around in my head that might deserve consideration as a low-cost insurance policy. Essentially, what is running through my mind is going a good deal further than we have been thinking to date about trying to bring the discount window to bear in this process. The concept that rolls around in my head--and I understand it can be shot to pieces, but maybe Don and Mike and the staff could think about it a little anyway--is a 6-month period, for example, within which we would have a highly advertised program of more liberal discount window accommodation, including term discount window loans. The program would be structured to say that its purpose is to ensure liquidity to individual institutions to meet the needs of creditworthy borrowers. We might have more liberal collateral requirements, but we'd haircut the devil out of them so there would be no risk to the Federal Reserve. But the thought would be that people could have easier access and more generous collateral requirements--in terms of what is put up [as collateral], not in terms of how it is haircutted. It would have a market rate of some kind or other. The way I think about it is that if it's used, I don't see that it has to have any material impact on the broad thrust of policy, at least if one thinks of policy in terms of interest rates or exchange rates. I think we could engineer those effects out through Mr. Sternlight's operations. So, if it's used, fine; I don't think it has to compromise the basic thrust of policy. And there would be no risk to the Federal Reserve. On the other hand, if it's not used, I'm not sure that that's the end of the world either. Indeed, if it's not used, it seems to me that it goes at least a little in the direction of helping us to defuse the argument that our unwillingness to provide liquidity either through open market operations or otherwise is the cause of the credit crunch and all these other things that go with it. Now, as I said, there really is at the end of the day, of course, no such thing as a low-cost insurance policy. This has smoke and mirrors to it. But I am worried about the danger that is inherent in an outcome in which [the economy] really goes south on us. I ask myself what other alternatives there are that do not involve the risk of compromising the basic thrust of monetary policy, and I look with Bill Taylor and others at some of the things they are talking about on the supervisory side. Now, the problem there is that the ones that might do something by their very nature are going to raise the specter of forbearance on the thrift situation and all the rest, and I think in a global setting relaxing capital standards or something like that would be crazy. On the other hand, the kinds of accounting things that are being talked about I don't think are going to do anything. As a matter of fact, I think they will be viewed transparently as not doing much at all. Again, maybe we don't need a low-cost insurance policy; but that, I think, is your judgment.",1369
-fomc-corpus,1991,"Well, no. On the contrary, that is not my judgment. I think we may need it; I'm not saying that we don't; we may and I think we should consider it. But it might be useful to continue on and get some comments on that issue at the luncheon, okay?",59
-fomc-corpus,1991,Right.,2
-fomc-corpus,1991,President Syron.,4
-fomc-corpus,1991,"Mr. Chairman, I support your recommendation with asymmetry. Many of the reasons have been given before; one is that there's a long interval before the next meeting. I think we may have to do something before the next meeting, and [it makes] sense to take out insurance on the fundamental policy side. I do agree very strongly with the comments that Wayne made--and it's reassuring that everyone has made them--on the importance of recognizing the scenarios that were shown. [I'm pleased] that we're willing to pay the premiums involved in this insurance policy if we do have to [ease] in the intermediate period rather than being tighter and I think we all should realize that there may be a difficult period coming out of this one. The only comment I would make is--and again this may be more appropriate for the [non-FOMC] lunch discussion--that we may well have to do something more on the discount rate before doing more on the funds rate because with a 6-1/4 percent funds rate and a 6 percent discount rate, given people's aversion to borrowing, effectively, we have a penalty discount rate right now. I think it's equally likely that the next move may well be a cut in the discount rate without a further change in the funds rate.",257
-fomc-corpus,1991,Without the funds rate showing through and with the spread opening up again?,14
-fomc-corpus,1991,That's right.,3
-fomc-corpus,1991,Governor LaWare.,4
-fomc-corpus,1991,I support your recommendation with the asymmetry.,9
-fomc-corpus,1991,Governor Mullins.,4
-fomc-corpus,1991,"I also support the proposal. I do think that we will have to get through another bout of unsettledness when we confront the possibility of a ground war, which could give us another CNN effect for a week or two--although it may be less popular because it may look less like a video game. I agree that there are risks on the down side and I think that's understandable, given the 6 to 9 months of very slow growth in money and credit we have had. I would think that we'd be facing a pretty tough period, although looking beyond that we have a good dose of stimulus in the pipeline already. But I still think, given the uncertainties, that it's wise to be asymmetric toward ease and watch events.",146
-fomc-corpus,1991,President McTeer.,5
-fomc-corpus,1991,"Mr. Chairman, when I read the Bluebook, I wrote in the margins ""I like the interest rate implications of alternative A but that alternative puts us on too steep a growth path for money in the out years."" So, I would recommend alternative B. And the asymmetric language toward ease sounds good to me, although I like Lee Hoskins caveat about that being focused largely on the growth of the aggregates. I can just confirm the CNN effect. In anticipation of moving, we had our cable disconnected last week and I've been suffering withdrawal but I haven't gone to the mall yet!",117
-fomc-corpus,1991,President Boehne.,5
-fomc-corpus,1991,I agree with your recommendation and your comments surrounding it.,11
-fomc-corpus,1991,President Stern.,3
-fomc-corpus,1991,"I certainly support alternative B. With regard to the question of the language: Looking to the future, if all we want to consider is asymmetric language toward ease, that certainly makes sense because I find it very hard to believe that between now and March we will get enough coincidence of events to suggest that we would want to raise the borrowings target and the funds rate. However, we have moved a lot recently, and I think we do have to consider the lags in all this. In light of that, I would have a preference for symmetric language just because I think we run the risk of not allowing the actions that we've taken to date to have an effect on both the aggregates and ultimately on the economy.",142
-fomc-corpus,1991,President Melzer.,4
-fomc-corpus,1991,"I support alternative B also. Let me just pick up on some things Jerry said. I was writing some notes here and when he started talking I thought he was going to say the same thing I am. But when you hear what I have to say, you'll realize that that was virtually impossible. Basically I agree with this focus on slow money versus weak current economic numbers. I think that's what we ought to focus on; that's what we have influence on. But I'm also sympathetic to the uncertainties with respect to the short-term behavior of money, particularly the broader aggregates. Don has talked about it--the restructuring that's going on in depository institutions and so forth. And I guess we also know that the base is distorted by currency flows overseas. So, if it were up to me, I would pay some attention to reserves. That's what we affect directly. And over the last year there has been virtually no growth in reserves. Now, I'm not being critical here, because I think we've tried to respond to that to some extent by bringing rates down; and we have recognized in this Committee the perils of funds rate targeting and we've been trying to respond to that. But we shouldn't sit around and be surprised that we're not getting any money growth if we're not providing any reserves.",255
-fomc-corpus,1991,But we are. Supposing reserve balances stretched across not only transaction balances but across the whole spectrum of various depository obligations. Required reserves under those conditions obviously would have been going up a great deal more. How would money in that environment have moved differently from the way it has?,56
-fomc-corpus,1991,I'm not sure. My only point is that I don't think we can expect money to grow if we don't provide the basic fuel that's necessary; we're demand driven.,32
-fomc-corpus,1991,"What I'm trying to get at is that it is really an excess required reserves problem and we've locked our required reserves into an instrument that has become increasingly obsolete. I think you may raise the question on excess or free reserves or something like that, but I'm uncomfortable with total reserves as an issue.",58
-fomc-corpus,1991,"Well, I'm not proposing a specific approach here. I'm just saying that I would pay some attention to what is going on there. We have some uncertainty about how the aggregates are behaving; that's what we can influence. And I think we should pay some attention to it.",54
-fomc-corpus,1991,That would be influencing by increasing reserves. I don't know any other way of doing it.,18
-fomc-corpus,1991,Yes.,2
-fomc-corpus,1991,What I'm trying to get at is this: Is there additional information here other than the money supply data themselves that you feel we ought to be targeting?,30
-fomc-corpus,1991,"I guess what I'm suggesting, picking up on Jerry's point that we're vulnerable, is that where we're vulnerable is that somebody may look at it and say basically that by targeting the funds rate we haven't provided any reserves to permit an expansion in the aggregates. And my answer to that is not smoke and mirrors; our best defense against somebody taking a shot at us is trying to do the right thing. And I think we have been--",86
-fomc-corpus,1991,"But Tom, if we focused on reserves, don't you think that we could end up with a 2 percent fed funds rate rather easily? Are you willing to pay that price?",36
-fomc-corpus,1991,"I'm not suggesting that we target reserves. I'm just saying that in this uncertain environment it could be helpful because if we're sitting here pegging the funds rate at the wrong level and we're shrinking the supply of reserves, we are not going to see the money growth that we are going to need. I think that could just be helpful to us in this process. I think you all know what I've advocated over time; I'm not one who would be inclined to go nuts on the easing side, but I think this could be helpful in the other direction as well. My main point is that our best insurance policy is just to assure ourselves that we are doing the right thing. And that's going to be the best defense. We are going to be vulnerable if the record shows on a continuing basis that we're still not providing adequate reserves. And I'd be the first one to say on the other side that it's a problem, too, if those [monetary growth] rates shoot up to double-digit rates over a sustained period of time, as they very likely could with what has already been done. Anyhow, I support the Chairman's proposal.",227
-fomc-corpus,1991,"Bob Black, do you have a comment?",9
-fomc-corpus,1991,"Yes. I was just going to say that I have a lot of sympathy for what Tom said. I think that reserve measures can be refined, though. There are several things that are reservable that are not part of M2. The whole [reserve structure] is set up with the idea of controlling M1 but we know ahead of time, because requirements against interbank deposits and government deposits are lagged, what volume of reserves we need for that. And we could put those in at the beginning of the period. Those against the M2 portion are not lagged quite as much. So anything we put out over and above that, which would be something of a refined measure of total reserves, would be available for supporting M2 and nothing else. I think we could get to something like that. Another thing I'd like to see us do is to try to make some estimates of the amount of currency that is going abroad because that [outflow means the] currency component is badly distorted and if we think that's part of our domestic money supply, we're being badly mislead. But I really think the rate of growth in the aggregates is demand-determined now, and I think as Tom does that it ought to be supply-determined to some degree and that's not easy because of the reserve structure we have. Also, I think financial innovation would create a number of instruments that would not be reservable; indeed, a lot of them in M2 are not reservable now. But I think we can get something better by moving in general in that direction. And I would support--",318
-fomc-corpus,1991,"I forgot one other point I was going to make, which is that I think we can best defend ourselves by sticking to promising things we can control and we can affect. We cannot solve an intermediation problem in the economy, and I think that creates false expectations. But what we can do is make sure that we're providing adequate reserves to the System so that the financial intermediaries can do with those what they will.",84
-fomc-corpus,1991,"But no matter how you measure reserves or anything else, in the kind of situation we're in right now the only way that we can deal with this conundrum would be to run a policy, in effect deliberately, that is prepared to accept the risks of very large amounts of free reserves or excess reserves in the System. And by definition if there is something real to this so-called credit crunch, that approach to policy--no matter how you define the base or how you define reserves--carries with it the risks of a 2 percent federal funds rate.",112
-fomc-corpus,1991,"Which, of course, we haven't seen.",9
-fomc-corpus,1991,"We haven't seen it because [of how] we're conducting policy. But the only fail-safe experiment--and that's what it would be--that would resolve that issue, no matter how you define the base and no matter how you measure reserves, would be the willingness of this Committee to run a policy that carries with it the risks of a 2 percent federal funds rate.",74
-fomc-corpus,1991,I'm not suggesting that we use it as an operating target.,12
-fomc-corpus,1991,I know you're not.,5
-fomc-corpus,1991,"I'm just saying that if it were up to me, in this environment where we're worried about getting the money growth path, I'd hate to be sitting here three months from now with a slope on that line of total reserves that was still totally flat as it has been over the last year.",57
-fomc-corpus,1991,That's part of the reason why I made the suggestion about trying to get some reserves out through the discount window in a way in which Peter could do a pretty good job of protecting against--,37
-fomc-corpus,1991,Sterilizing!,4
-fomc-corpus,1991,"Protecting against--well, sterilizing them!",10
-fomc-corpus,1991,Governor Kelley.,3
-fomc-corpus,1991,"Mr. Chairman, I support your recommendation for all the reasons that have been articulated here. I would like at an appropriate time, now or later, to suggest a change in the order of the priorities of our considerations in the operational paragraph. I don't know whether you'd like to pursue that now or do it as a separate item.",66
-fomc-corpus,1991,Let's do it separately. Governor Seger.,9
-fomc-corpus,1991,"I support your view, Mr. Chairman, but I would say that the risk is definitely on the low side if for no other reason than the auto industry situation. As you know, it's responsible for the biggest chunk of the decline in the fourth quarter. Both auto sales and production in my judgment are going to be a disaster in this quarter and right now I can't think what is going to bring them off the floor in the next quarter. That is simply one reason. In addition, there is the confidence factor. I think that is partially related to CNN and the Gulf War but I think there's another big chunk coming just from this nervousness over the financial system. I wish that weren't the case but I think it is. Certainly, a lot of easing has been done. But in order to compensate for the credit crunch, which in my judgment is definitely out there, there will be a need to do still more to offset that. I think it would be good to look at Jerry's idea, too; it strikes me as sort of extraordinary to accommodate a special challenge of this nature, which I haven't seen since the 1930s. So, I would go with [alternative B], asymmetric toward ease.",243
-fomc-corpus,1991,President Guffey.,5
-fomc-corpus,1991,"Alternative B. I would prefer a symmetric directive, given the background of the easing that already has taken place and the closeness of the easing just last Friday. A symmetric directive does not imply that you do not have the flexibility to take a cut at easing between now and the next meeting on your own. And that is the insurance that I would feel comfortable with rather than the asymmetric directive.",78
-fomc-corpus,1991,President McTeer.,5
-fomc-corpus,1991,"At the risk of getting in over my head prematurely, I want to raise a point in connection with Tom's concern about reserves and in connection with the comment about excess reserves and free reserves. I wonder if we might have some parallel now to the situation in the late 1930s when the Federal Reserve perceived [the existence of] a lot of excess reserves in the System and took action to raise reserve requirements to mop them up only to find later that the bankers didn't necessarily regard them as excess. They were excess in the legal sense, but not necessarily excess in their own minds in view of the uncertainties in the economy. I wonder if we might have a situation now where there's a difference between what bankers themselves perceive to be excess reserves and what are excess in a legal sense. If that's the case, then I think there may be some room to be concerned about the flatness of the reserve aggregates.",181
-fomc-corpus,1991,"Well, that's the reason I raised that; because Peter has that problem every day as to what the demand for excess is and it doesn't mean it's going [unintelligible]. We're going to move now to the directive and vote on alternative B, with asymmetric language toward ease. But prior to doing that. Governor Kelley has the floor--with a proposal I would presume?",75
-fomc-corpus,1991,"Yes sir, if I may. As it appears in lines 72 and 73 of the operational paragraph we have stated for some time that our order of priority was ""price stability"" followed by ""trends in economic activity."" My suggestion is that, to the extent we'd like to be forthcoming in this document, it might be an appropriate time to reverse the order of those first two priorities. That would be consistent with the reasons for our recent actions and I think it would be consistent with the Committee discussion that I've heard here yesterday and today. We have an awful lot at stake in this economy and that is what we've been discussing. But I don't think that a reversal of that magnitude would in any way indicate a downgrading of our consideration of inflation. It's certainly going to continue to be vitally important to this Committee, and it shouldn't and won't be forgotten. But at this time I think, for the record, it would be a more accurate reflection of the reality of the Committee's concerns to reverse the order of those first two priorities.",210
-fomc-corpus,1991,"Shouldn't we also move up monetary aggregates then, Mike?",12
-fomc-corpus,1991,"Well, I don't know where--",7
-fomc-corpus,1991,"As I've sat and listened here today, that has received a lot of discussion.",16
-fomc-corpus,1991,"Somehow I'd like to have everything be first, but that's difficult. My suggestion would be simply to reverse the first two.",25
-fomc-corpus,1991,You'd like to comment?,6
-fomc-corpus,1991,"Mr. Chairman, I'm only going to talk about a question of the way that we conduct our business. I feel so strongly about this issue that, if we're going to do it, I'd really want to have a recorded vote on this.",48
-fomc-corpus,1991,On this?,3
-fomc-corpus,1991,On this.,3
-fomc-corpus,1991,"Indeed, that we will.",6
-fomc-corpus,1991,Okay.,2
-fomc-corpus,1991,This is an important issue.,6
-fomc-corpus,1991,"Okay. In other words, a recorded vote on the amendment?",13
-fomc-corpus,1991,Yes.,2
-fomc-corpus,1991,"So, what is your view?",7
-fomc-corpus,1991,My view is that price stability needs to be there first and that it really does help the long bond market to get long rates down to have price stability as the first priority.,35
-fomc-corpus,1991,"I don't often argue with my colleague on my left, [Mr. Kelley], but it seems to me that price stability and the progress toward price stability is the thing that has enabled us to make the recent moves toward ease, or one of the things that has supported that. I wouldn't want to lose sight of that as a primary target. I'd be more comfortable leaving it where it is.",78
-fomc-corpus,1991,"I would agree with Governors Angell and LaWare; in fact, I'm a little concerned that recent trends in economic activity may be a bad basis for current policy.",33
-fomc-corpus,1991,Bob Black.,3
-fomc-corpus,1991,"I agree with what Governor Angell suggested. I'd also like to move monetary aggregates up [in the list]. I'd rather have them before trends in economic activity, but that's raising an issue I don't think you want to get into.",46
-fomc-corpus,1991,"I think there are times when you don't want to kick sleeping dogs and this is probably one. I know that Governor Angell feels very strongly about this issue but, frankly, I would hope that we could resolve this informally one way or the other. We have a great deal of unanimity in the Committee now, and I think that's important given all the problems out there in the economy. I think to have a separate vote on word ordering is not in the best interests of the big issues that we face. I would urge that we--",109
-fomc-corpus,1991,We may not need it.,6
-fomc-corpus,1991,"Well, I would hope so.",7
-fomc-corpus,1991,It doesn't look like we do.,7
-fomc-corpus,1991,I probably don't need to comment.,7
-fomc-corpus,1991,"My preference also would be not to change the order and not to appear to be responding to the current economic conditions, but rather to respond with policy actions. And I would agree with [unintelligible].",42
-fomc-corpus,1991,"I agree with Mike's thought; but having said that, changing the order at this point I think would imply more than we want to. So, I'd be inclined to leave it as it is.",40
-fomc-corpus,1991,I would feel the same way.,7
-fomc-corpus,1991,"Mike, you probably want to withdraw it at this stage and resurrect it at a later time.",19
-fomc-corpus,1991,Consider it withdrawn for lack of a second!,9
-fomc-corpus,1991,"""In the implementation of policy for the immediate future, the Committee seeks to maintain the existing degree of pressure on reserve positions. Depending upon progress toward price stability, trends in economic activity, the behavior of the monetary aggregates, and developments in foreign exchange and domestic financial markets, slightly greater reserve restraint might or somewhat lesser reserve restraint would be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with growth of M2 and M3 over the period from December through March at annual rates of about 3-1/2--""",109
-fomc-corpus,1991,"Can we say 3 to 4 percent, using round numbers, rather than 3-3/4 and 3-1/2 percent?",31
-fomc-corpus,1991,"So it would be ""growth of both M2 and M3 over the period from December through March at annual rates of about 3 to 4 percent.""",32
-fomc-corpus,1991,We're changing the 3-3/4 percent? Is that it?,15
-fomc-corpus,1991,We seldom use quarters.,5
-fomc-corpus,1991,I'm thinking of 3-1/2 to 4 percent as more capturing what the Committee discussed because we're not going to get up to our range if we don't stipulate that kind of range.,40
-fomc-corpus,1991,"The reason is that the current lags keep us from getting up there within this period, but it does get us to the range later.",28
-fomc-corpus,1991,We have it projected up there by March.,9
-fomc-corpus,1991,But is 3-3/4 percent what you're projecting?,13
-fomc-corpus,1991,3-3/4 percent for M3 and 3-1/2 percent for M2.,21
-fomc-corpus,1991,Let's make it 3-1/2 to 4 percent; I think that may capture the point.,22
-fomc-corpus,1991,"May I just ask one question? Has there ever been a directive put out that just went one way? In other words, do we really think that in the next six weeks or so greater reserve restraint might be pursued?",44
-fomc-corpus,1991,Yes.,2
-fomc-corpus,1991,I'm just asking if that is true; that's all I'm saying.,13
-fomc-corpus,1991,"It's conceivable, in the spirit of President Boehne's remarks.",14
-fomc-corpus,1991,This isn't a criticism. I'm just asking if that has ever been done.,15
-fomc-corpus,1991,"No, I know that.",6
-fomc-corpus,1991,"Governor Seger, this is ancient history, but going back to the late 1960s the directive was quite different in form but in essence at times it was one way.",36
-fomc-corpus,1991,Thank you.,3
-fomc-corpus,1991,We're going to write 3-1/2 to 4 percent in there?,17
-fomc-corpus,1991,"For both M2 and M3, 3-1/2 to 4 percent.",19
-fomc-corpus,1991,Call the roll.,4
-fomc-corpus,1991,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Black Yes President Forrestal Yes President Keehn Yes Governor Kelley Yes Governor LaWare Yes Governor Mullins Yes President Parry Yes Governor Seger Yes,44
-fomc-corpus,1991,"If anyone would like to change their [Humphrey-Hawkins] projections, I think Mike would like to have the changes by close of business Monday.",32
-fomc-corpus,1991,Monday is fine.,4
-fomc-corpus,1991,Your testimony is when?,5
-fomc-corpus,1991,"[February]    20th and 21st, I believe. The next meeting is March 26th.",24
-fomc-corpus,1991,"This is the first time in a long time that [the Committee membership] has been addressed as ""Messrs."" Who would like to move approval of the minutes?",33
-fomc-corpus,1991,So move.,3
-fomc-corpus,1991,Second.,2
-fomc-corpus,1991,Without objection. Don Kohn will discuss the [report] of the task force on the relationship of the discount rate and open market operations. Don.,30
-fomc-corpus,1991,"Thank you, Mr. Chairman. I can summarize our points briefly. First, the task force noted that over recent history there have been periods of fairly automatic passthroughs of discount rate changes to federal funds rates and periods in which on a number of occasions only part or none of the change in the discount rate was echoed in the federal funds rate. The first regime has tended to prevail since late 1979; the second in the 1970s. Under a borrowed or nonborrowed reserve operating target for open market operations, the passthrough tended to be automatic. When open market operations were geared to achieving federal funds rate targets, discount rate changes often flowed through but the decision was more discretionary; the adjustment was often not basis point for basis point. And when intermeeting ranges for the federal funds rate were narrow, as in the late 1970s, chances of inconsistencies were heightened and the passthrough became less frequent. Second, we did not attempt to resolve what was meant by ""pressures on reserve positions"" in the current directive. Clearly, the FOMC has in mind a specific federal funds rate level. And the Desk operates with an anticipation of that level being achieved with only secondary thought given to the borrowing objective. At the same time, the Committee has deliberately avoided explicit announced federal funds targets and explicit narrow ranges for movements in the funds rate objective over the intermeeting period. Against this background, there seems to be something to be said for at least a fairly strong presumption of a passthrough of discount rate changes in many, if not most, circumstances. Such a policy would retain one element that has fostered a degree of flexibility in federal fund rates in the 1980s, avoiding the rigidities that became built into the system in the 1970s. Inconsistencies between passing through changes in discount rates and the FOMC directive are likely to be rare. Whatever information causes the [Reserve Bank] boards of directors to vote for a change and the Board of Governors to approve the change would usually also call for an adjustment under the directive. At the same time, there are circumstances in which the potential federal funds rate response to a discount rate adjustment would seem to call for a discussion by the Committee. One such circumstance might be when the change in the discount rate was not intended to show through entirely; this would involve an adjustment to the borrowing objective. Another would be if the full passthrough of a discount rate change implied an especially large change in the federal funds rate between Committee meetings. The task force suggested enhanced consultation in these circumstances. If possible, this would include advance notice to Committee members of the action contemplated and an opportunity for thorough discussion of the alternatives. Now, I'd like to give my colleagues, Peter Sternlight, Karl Scheld, and Virgil Mattingly a chance to add their thoughts. I think Peter does have a few things to say.",591
-fomc-corpus,1991,"I don't have much to add to Don's summary. Clearly, the discount rate and the anticipated funds rate have tended to move broadly together, and I think that's to be expected given that they are responding to similar sets of information as interpreted by similar and partly overlapping sets of policymakers. Our paper tried to strike a balance between the presumption of similar movement and at the same time some recognition of the value of flexibility and discretion in those cases where full uniformity in the size and timing of moves could be questioned. Reasonable judgments may vary a bit on precisely where one draws the line as to how strong the presumption is of parallel movement. Consultation, of course, need not mean something other than parallel movement. It's just an opportunity to review the situation in light of additional information. That's all I had to add, Mr. Chairman.",167
-fomc-corpus,1991,"I thought you gentlemen had an impossible job, and as best I can judge you came out with about the best compromise that one could conceive of. I must say I'm still quite reluctant to cave in, if you will, on this question that we can do nothing but target the federal funds rate. This issue arises largely because what we are doing de facto is targeting the funds rate. I'm not sure that any of us believes that that's the right policy. What I think this compromise does is to recognize that that is what we're doing and that it does require enhanced consultation in the form in which Don Kohn suggested. But it probably would be unwise to go to anything very specific or very detailed if for no other reason than that if we start to get very rigid in this area, we'll have to publish exactly what our guidelines are, and I think that probably would restrict our capabilities somewhat. So, as far as I'm concerned, the enhanced consultation notion strikes me as the way to come at this question in a manner which brings together what really are statutorily two fundamentally conflicting forces. If we really had to operate the discount rate independently from open market operations, we probably would get a monetary policy that was less than terrific. Indeed, I think that's the experience we had in the 1970s. If we can possibly avoid that and find a way to come off rigid funds targeting, I think that would be the ultimate solution to this problem. And even though de facto on a day-by-day basis I think we are targeting the funds rate, in the longer-term sense I'm not sure that's right. I would say that in the recent periods we probably did more monetary aggregates targeting in a sense than funds rate targeting, although operationally we were using the funds rate as the target. Considering all of that, it strikes me, frankly, that the [staff] committee has come out almost Solomon-like if that's even conceivable in this kind of situation. Does anyone else have comments?",395
-fomc-corpus,1991,"Mr. Chairman, I agree completely with your point about federal funds targeting. I've felt for a long time that we needed to find something else, preferably some kind of reserve measure, but that's not all that easy with a lot of the parts of M2 not reserveable and with the proclivity of the financial markets for innovating if we did slap reserve requirements on those. But I think we need to move in that direction, and we probably need a little more consultation than we've had. The problem I had with the memo was that I didn't think the authors necessarily were suggesting more consultation. I think you've been unusually good in calling us together, but there have been one or two instances when I wished we had gotten together and we didn't--the change in the discount rate right before the last Federal Open Market Committee meeting, for example. One of my colleagues called and said: ""You know, you've just been disenfranchised on your vote."" Well, I happened to agree with that move; we were one of the Reserve Banks that had sent in [a request to lower the discount rate], and I didn't really feel disenfranchised. But he felt very strongly that that [action] had precluded the FOMC from determining the federal funds rate, which he thought was the province of the FOMC. And I can understand that argument. So, I would opt for slightly more consultation, but I think you've been better than anyone else has ever been in providing that.",299
-fomc-corpus,1991,Bob.,2
-fomc-corpus,1991,"Given the current operating procedures, this recommendation of enhanced consultation makes a lot of sense. If we were to do that, I think some of the concerns that several of us felt would be much allayed.",41
-fomc-corpus,1991,"I guess I don't know what the term ""enhanced consultation"" really means. I don't want to define it and put it in stone, but it has the right ring to it in the sense that I don't think the discount rate should dominate open market activities in the intermeeting period or vice-versa necessarily. And as a result, it does require some discussion and more frequent discussions; but whether or not this [enhanced consultation suggestion] implies that isn't clear to me. I happen to agree with Bob Black's comment with respect to the further action taken before the last FOMC meeting.",119
-fomc-corpus,1991,Lee.,2
-fomc-corpus,1991,"I'm not sure what ""enhanced consultation"" means. I don't know if it means we're going to take a vote more frequently. I think the issue here clearly focused on whether or not the FOMC as a body had in some sense authorized the extent of the moves that occurred. And that was in conflict, I think, with the Board's view of what the discount rate function was. I find the statements somewhat ambiguous, particularly when I read the last page on the legal section which states clearly--at least it does to me--that the authority for monetary policy actions at least with respect to this group is with the FOMC. That's the way I read the conclusion on page 9. And that seems somewhat inconsistent with what you're suggesting. Maybe Virgil has a comment on that.",160
-fomc-corpus,1991,"I would only comment that it wasn't clear to us and we deliberately did not attempt to specify exactly what open market operations meant. This goes back to the ambiguities as to what the directive really [unintelligible]. It was clear, I think, from 1979 to 1987 when open market operations were aimed at borrowed reserve and nonborrowed reserve targets. Now, it's less clear. So, the legal appendix didn't really help much--it didn't help me anyhow--in a policy sense of deciding what ought to happen.",108
-fomc-corpus,1991,Governor Angell.,4
-fomc-corpus,1991,"My first reaction is that in the period from 1984 to the present things seem to have worked rather well in terms of the balance that's there. Now, that's [using] the assumption that I have, which gives the FOMC certainly decided power. If the FOMC uses a borrowing or reserve target of any kind, it in effect causes certain pressures [in reserve markets], and that makes the funds rate move in such and such a way in relation to the discount rate. I don't see anything inconsistent with the FOMC deciding that they would like the funds rate to be approximately 50 or 75 or 100 or whatever basis points above the discount rate. In that scenario, if the Board with the advice of the Reserve Banks changes the discount rate, the FOMC still has the last word in the sense that they could choose to make an adjustment of the spread between the discount rate and the fed funds rate. So, it seems to me that in switching from reserve targeting to fed funds targeting, the fed funds targeting could be seen as targeting that [spread or] cushion of the fed funds rate above the discount rate. And I don't see why that infers such new territory.",242
-fomc-corpus,1991,President Forrestal.,4
-fomc-corpus,1991,"Well, Mr. Chairman, as you indicated earlier, we have two statutory provisions that on the surface at least do seem to be in conflict. But I think it would be a big mistake for us to get too bogged down in jurisdictional questions here. After all, both the Board through its [oversight] of the discount rate operation and the Federal Open Market Committee [have] the same objective, and that [requires] a unified monetary policy. But having said that, we obviously need to preserve our own prerogatives in these areas. I think what is needed here, since these statutory provisions as I read them are somewhat in conflict, is to have a bridge between the two. And that's exactly what [the staff report] suggested with this [enhanced] consultation. I think that really is the way to get at it, and I would urge us to have more frequent consultations. But we ought not to get too bogged down in the rights of the Board versus the rights of the Committee. I think that's counterproductive.",210
-fomc-corpus,1991,Tom Melzer.,4
-fomc-corpus,1991,"I would agree with what Bob Forrestal said about getting too technical here; I think it could be a problem. Where I would come out, because I have sympathy for what Lee said on the legal side, is that if a discount rate action causes a change in the instructions that the FOMC has given to the Desk, in a very simple-minded fashion it's hard for me in a very technical sense to let that happen without consultation. As a practical matter we are on a fed funds targeting regime now. We have chosen not to say that to the world. I think it's bad public relations, basically, to say that that is what we are doing, and I think it's right not to; but internally we all recognize that that's what we are doing. Those circumstances call for greater consultation, not less. So, I have some of the problems that were expressed earlier by Bob Black and Roger Guffey about exactly what this language means because it seems to define very little. I really don't think we could define a specific rule; but in the circumstances we're operating in right now it argues for erring on the side of more consultation, not less, when in effect we're changing the instructions to the Desk. The other observation I would make, Don, is that I don't know how to interpret the historical evidence but, as I look back at a couple of situations that I happen to remember quite well, generally all we've done is to relate discount rate changes to fed funds changes; no one has ever looked at whether or not consultation took place. But I can remember in a strict borrowings regime--for example, in July and August of '86--there were discount rate changes that showed through to the funds rate and there was consultation with the FOMC. The FOMC basically acted at its meeting to ease policy and recognized that that might be effected through a discount rate change. I'm not saying it's possible to get it nor that it would necessarily clarify things all that much, but the evidence that we have is in some sense not the right evidence.",412
-fomc-corpus,1991,"I think there were instances in the middle '80s period when it went both ways. Norm and I looked in the record before the last FOMC meeting and found at least one meeting in which the Board had acted right before an FOMC meeting and then another meeting several months later during which the FOMC members had a discussion such as the one at last December's meeting. So, it went both ways.",85
-fomc-corpus,1991,Ed Boehne.,5
-fomc-corpus,1991,"I think the people who did the paper did a pretty good job. We should not be too technical in how we divide this up, and I think if we err, we ought to err on the side of more communication. Just in the last few months we've seen [a case], at the last FOMC meeting, where the discount rate came down just before the meeting. That clearly is going to rub some people the wrong way, although in the meeting before that the FOMC essentially precluded what the Board needed to do.",108
-fomc-corpus,1991,That's right.,3
-fomc-corpus,1991,"And the Board had to change the discount rate that day or the day after--I've forgotten how it worked. I think we're just going to find ourselves in these kinds of situations, and the way to minimize the unhappiness that shows up from time to time is to err on the side of talking rather than not talking.",64
-fomc-corpus,1991,"One thought I meant to mention is that there's a lot of potential value added in terms of conveying any technicalities of interest to one group versus another. I think there is a potential for a higher quality decision, even though it may be more difficult to get, just through the consultative process.",59
-fomc-corpus,1991,"Well, I think that's actually what has worked in the past.",13
-fomc-corpus,1991,"I think enough has been said about this and I agree with the gist of what has been said about more communication. I have what may be a more technical question on this issue: Just how does having what may be close to, or effectively considered to be, a penalty rate by many people affect the implementation of policy by Peter Sternlight? I know we've had some discussion and I'm not directly addressing what has happened, but I'm wondering as we proceed if it's worth at some point having someone crank out something on how much of an issue or concern this is for the Desk--i.e. the relationship between the funds rate and the discount rate when we're in a period such as we're in now.",138
-fomc-corpus,1991,Peter has obviously confronted that issue in some detail. Maybe it wouldn't be a bad idea to put down what you said orally in a short memo and circulate it. I think it's an interesting issue how the Desk--,42
-fomc-corpus,1991,"Well, just in my own thinking about it, I would find that helpful.",16
-fomc-corpus,1991,"Yes. Can you and Don put together something like that, Peter?",14
-fomc-corpus,1991,Sure.,2
-fomc-corpus,1991,"I was thinking that as we go forward this probably won't be an issue; but if it comes up again, it would be helpful to know.",29
-fomc-corpus,1991,"It raises an issue that Wayne Angell, who now has the floor, has raised at some length.",21
-fomc-corpus,1991,"I'm responding to Tom Melzer's comment because I think Tom is right at the heart of it. I turn to the operational paragraph. Now, maybe the operational paragraph is not accurate in regard to what we're doing. But if it is not accurate, maybe we ought to change it. The operational paragraph says the Committee seeks either to maintain or to decrease [or increase] the existing degree of pressure on reserve positions. That's what we say the FOMC is doing. And if we do that, we then are determining more or less the gap between the discount rate and the fed funds rate rather than the level of the fed funds rate. Now, if the FOMC is determining the level of the fed funds rate, the operational paragraph doesn't say that. Frankly, I like the operational paragraph as it is. I think we can make it work well that way. But if that's what it is, then the FOMC is not in a sense determining the fed funds rate; it's determining the pressure.",203
-fomc-corpus,1991,"Of course, those words are more like what we would wish the case to be rather than what it is. [Laughter]",26
-fomc-corpus,1991,"The thing about the discount rate, which doesn't have any notion of the Board of Governor's or the FOMC's posture that's so important [unintelligible]. We really have two policy tools. One of them is a more subtle one. That is, the open market operations can be more subtle and can have no announcement effect if we're not pegging the fed funds rate. And I think all of us would prefer to have one tool that was subtle and not announced. The other tool is an announcement tool. And it has never made much sense to me to hit the gong, to make the announcement, and to say nothing.",128
-fomc-corpus,1991,Does anybody else have anything to add?,8
-fomc-corpus,1991,"Just a quick comment. My basic view on this was captured very well by what Ed Boehne and Bob Forrestal said. I have just one added thought in the context of this enhanced consultation process, whatever it means, that I think we all have to be sensitive to. And that is that within the framework of a so-called enhanced consultation we have to be mindful that that process could become counterproductive if it deteriorated into people insisting upon a formal vote of the FOMC every time there was a consultation. I think we all have to have an open and flexible mind on that because if it degenerated into a process--which I don't think it will--where we ended up with frequent recorded votes in intermeeting intervals, I think that would be potentially damaging and at the extreme could produce an inertia problem with the monetary policy process itself. So, at least from my perspective, the spirit of what Ed and Bob particularly said captures it very well. I do think we have to be mindful that within the process of enhanced consultation that same need for flexibility will be there.",216
-fomc-corpus,1991,"Anything further? If not, let's see if we can implement in some way the inclinations that have been expressed here both in the memorandum and by various members of the Committee. And we'll look back after a while and see whether or not we're doing it right; and if not, we'll recalibrate it again until we feel comfortable. I thought the [task force] report did help us in this particular area; let's see if we can benefit from it. Let's go now to the regular formal agenda and start off with Sam Cross. Sam.",108
-fomc-corpus,1991,[Statement--see Appendix.],6
-fomc-corpus,1991,Questions for Mr. Cross? Lee.,8
-fomc-corpus,1991,"Sam, you were in on both sides of the market, buying and selling. Is there some intent to re-establish or confirm target zones by the G-7?",34
-fomc-corpus,1991,"No, I think it's more just an indication of the events of this period. Certain parts of the Treasury had at times shown a keen interest in trying to get some G-7 interest in something approaching [that], but I wouldn't say target zones. But there has been a considerable reluctance on the part of the other G-7 members to do this. I think the intervention that we saw in this period was really not so much a concern about the specific level that the dollar had reached as it was the fact that the dollar had moved up very, very rapidly--by about 16 percent in a few weeks. At times the markets were really quite disorderly. Last Thursday there was a movement of six pfennigs in one day. And the markets were very unsettled at times also in response to the proposals, specifically by the Germans, to participate in some coordinated intervention because of their concerns about the threats on the mark.",187
-fomc-corpus,1991,"Other questions for Sam? If not, would somebody like to move to ratify the transactions?",19
-fomc-corpus,1991,"Mr. Chairman, I would move without enthusiasm.",10
-fomc-corpus,1991,So recognized. Is there a second?,8
-fomc-corpus,1991,I second.,3
-fomc-corpus,1991,"Without objection. Sam, do you want to go forward?",12
-fomc-corpus,1991,"Well, Mr. Chairman, to move to another subject: Questions have been raised about the level of U.S. foreign exchange balances and whether it would be appropriate to take some moves to reduce those balances. I would like a few minutes to discuss this matter with the Committee, if I might. The U.S. authorities combined --that is, the Federal Reserve and the ESF--now hold marks with a market value of about $30 billion and yen with a market value of about $18 billion. Let me mention some of the pros and cons of having these balances. First, on the positive side, looking at it from the perspective of where I sit, there certainly are some distinct advantages of our owning for the first time ever substantial currency reserves. Without having to belabor the obvious, not having to depend on the Bundesbank and other foreign central banks for all our financing at times of need gives us a great deal of independence as well as more of what I would call policy flexibility to deal with any exchange market flare-up, without necessarily having to change some of our policies at a time when that might not be wise or appropriate. Also, I would say that's one reason we got through the heavy downward pressures on the dollar that we faced in February that I just described--and got through it really with relatively little pain and anxiety compared with previous problems of that sort. A lot of that had to do with the fact that we have more credibility and more market confidence because we do hold substantial balances. The market is aware that we hold them and that we are able to take action if we want to. I think that did help to keep the dollar's decline from getting out of hand at a time when our currency was at all time lows. Also, I should say that our currency balances, which are certainly far higher than ever before, if compared to international standards in other countries don't really show as a high currency reserve currently. On the negative side, our reserve holdings do entail exposure to the exchange rate risk. At present the ESF and the Federal Reserve combined have a cumulative net profit--that's the difference between the present market value of our currency holdings and the acquisition value--on our currency balances of around $4 to $4-1/2 billion of which the Federal Reserve share of the profit amounts to about $3.2 billion. Of course, we regularly mark-to-market on these balances, and these translation gains have already been reflected in our balance sheet. This means that the Federal Reserve's share of the profits have been used when they were accumulated to increase the level of Federal Reserve profits that we hand over to the Treasury. Accordingly, if the exchange rate moves up from this point, the level of those cumulative profits declines. Only if the dollar goes down does this [backtrack] the other way. And if the dollar goes up, that reduces the Federal Reserve profits going to the Treasury. There's a concern that this exchange rate exposure and the possibility of these translation losses could lead to public and Congressional criticism. There is no real loss in terms of the interest these days. Our interest rates are presently below those of both Germany and Japan; [so that goes] the other way. If there were a need to cut back on our currency balances, it seems to me it's important that we have a clear and well understood rationale for the action. Of course, we could reduce them by more active intervention operations and that's perfectly understandable. But if we simply adopted a conscious policy of getting rid of a substantial part of our reserves, it seems to me that that could be seen by the market and by foreign officials and by the general public as a move by the United States toward withdrawal of its role in international responsibilities and its role in helping to maintain the stability and smooth functioning of the [international financial] system. One possible rationale for selling reserves other than through our intervention operations is to unwind some more of the warehousing. Last year we did succeed in selling off a substantial amount of foreign currency balances as part of the unwinding of the warehousing arrangements with the Treasury. We sold some both off-market and on-market and we explained it publicly after the fact. That did not cause problems and was accepted as a reasonable and understandable action to reduce the warehousing; it is generally agreed that drawings under the warehousing are not to supposed to be permanently outstanding. Another possibility would be to adopt an approach of selling the earnings on our reserve holdings from time to time as we have the opportunity and putting those out into the market or elsewhere as conditions permit. Other nations sometimes follow approaches not too different from that. For example, the Germans accumulate their troop dollars in this manner and then feed them off; they may keep them for a considerable period and then feed them off into the market even when it seems desirable to do so or when conditions are favorable for absorbing them without market disruption. Similarly, we might look for opportunities to make sales to other central banks whose reserve needs might be complementary to our own. So, an approach of some sales along these lines for reducing the warehousing or for disposing of some of the earnings would provide some considerable scope for flexibility in disposing of some of the balances. However, at the moment, I should say that the prospects for such sales are not very encouraging. With the dollar strengthening very sharply, neither the Germans nor the Japanese would like to see us putting more mark or yen balances into the market under present conditions. Also, the Bundesbank has just paid a substantial amount of its dollar reserves to us for its Desert Shield contribution and that, as well as the intervention, reduced their dollar reserves. And the Bank of Japan has just paid us a little under $6 billion in dollars as we converted the yen that they have contributed for the Desert Shield operation. In light of these circumstances, I would suspect that neither of those central banks is likely to be interested in either further off-market exchanges right away or market [sales]. But over time we could think of ways to utilize some of these currencies along these lines and ways to provide us some more flexibility if that is the Committee's wish. Thank you.",1228
-fomc-corpus,1991,Questions for Mr. Cross? President Boehne.,11
-fomc-corpus,1991,"If this warehousing arrangement with the Treasury were unwound, how much would that reduce total U.S. balances?",23
-fomc-corpus,1991,"The Treasury's present warehousing is $4-1/2 billion. I think they would not be happy to reduce it totally, but we did reduce it by a considerable amount last year, and I think some further reduction would certainly be possible.",50
-fomc-corpus,1991,"Assuming for the moment that we want to be a major player in the foreign exchange market and have enough ammunition to play those type of wars, what [amount] of reserves do we need to have a credible balance? Setting aside the amount we have now, if you were starting out as a strategist, what amounts do you think we would have to hold to get respect from the market?",78
-fomc-corpus,1991,"Well, it's very difficult to be at all precise in this.",13
-fomc-corpus,1991,You don't have to be precise.,7
-fomc-corpus,1991,Even in interest it's hard to say how much--,10
-fomc-corpus,1991,"$50 billion, $20 billion, $100 billion?",12
-fomc-corpus,1991,"Well, I really do think it's difficult to set a specific target level. It seems to me that the reserves that we have accumulated as a consequence of what we've done and not done--. One of the problems is that it's very difficult to say we don't need $48 billion, we need $42 billion or $55 billion. It's very hard to justify that kind of decision, it seems to me.",81
-fomc-corpus,1991,"I think Ed is raising a question involving three choices: $20, $50 or $100 billion.",21
-fomc-corpus,1991,Right.,2
-fomc-corpus,1991,$50 billion.,4
-fomc-corpus,1991,Governor Mullins is first.,6
-fomc-corpus,1991,I guess Ed was getting at what I wanted to ask which is not the number but: What conceptual basis is there for determining an appropriate balance? Could we start with that and then think about what that means in terms of numbers?,46
-fomc-corpus,1991,"Well, as I say it's very difficult to know the kind of reserve needs we may have because we don't know what circumstances we're going to face. The fact that we have them in a sense makes it less necessary to use them. So, to impress the market and to impress the rest of the world, it seems to me we need a substantial level--along the lines of what we have. Our reserves are not high relative to, say, those of Germany or Japan or even Taiwan, which of course has the highest in the world. By most international standards we do not have a level of reserves that shows us to be excessively endowed by these kinds of comparisons. You can argue how much the United States should have, given its position, whether that's more or less. But it seems to me that the United States should be up with the big players, as it were, and that we should have amounts that don't look quite small relative to what other major countries have.",194
-fomc-corpus,1991,It does seem to me that we're kind of at sea unless we can think a little more precisely about the conceptual basis.,24
-fomc-corpus,1991,"If I may just piggyback, it's not that we have in the past always had to go to foreign central banks to borrow currencies for intervention. We did, remember, have a period when we actually went out and sold Swiss [franc and] deutschemark denominated Treasury securities to raise those funds in the markets.",65
-fomc-corpus,1991,That's right.,3
-fomc-corpus,1991,"We do have alternative means of accumulating currencies should we need them. It's not only the level [of our foreign currency holdings that matters] but our standby options [to acquire more] to meet alternative rather than prespecified requirements. In other words, it's not an issue of just having inventories of some physical commodity which when they get to zero it means something. It doesn't mean that much in foreign currencies, if we have a realistic capability of borrowing fairly substantial quantities in open markets. And I think that's an issue [relevant] to what Governor Mullins is raising in terms of the conceptual framework.",119
-fomc-corpus,1991,"You also need the cooperation in order to borrow, and that's what we obtained the last time. But it takes time and so forth and so on. Obviously, the ability to borrow in the open market is one potential source.",45
-fomc-corpus,1991,"As an aside, how much have we lost over the past six weeks in value?",17
-fomc-corpus,1991,"Well, we intervened in the amount of $1.4 billion during the February period; that's the only intervention.",24
-fomc-corpus,1991,Not intervention. What is the change in market value in the past six weeks?,16
-fomc-corpus,1991,"Well, I don't have the precise--",8
-fomc-corpus,1991,"Is it $5 billion or something like that, would you guess?",14
-fomc-corpus,1991,"In the past six weeks, on the balances of DM the United States in total lost approximately $3 billion, not including yesterday's appreciation. And on the yen the United States lost close to $1 billion.",42
-fomc-corpus,1991,"And we will report that? So, it's the same order of magnitude as 3 or 4 big S&Ls?",25
-fomc-corpus,1991,But those are unrealized [losses].,9
-fomc-corpus,1991,President Hoskins.,4
-fomc-corpus,1991,I'm not clear about what the point is. Are you seeking advice on what to do with this stuff?,21
-fomc-corpus,1991,"Well,--",2
-fomc-corpus,1991,"I'll repeat where we started, or at least where I started in late '87 and early '88: The discussion around the table at that time, as I recall it, was that there was some sense of agreement in some parts of this body that in large open economies sterilized intervention does not impact exchange rates over time and that, therefore, intervention is nothing but churning and noise to the market and it can interfere with our policy efforts. At that time the argument was--and I think it was an appropriate argument--that we ought to have some [foreign currency balances] at least for cooperation purposes, to show the flag and to be part of this process. But then we were talking about less than $10 billion. If I remember correctly, that limit moved up and there was a dissent at $12 billion; then it went to $15 billion. And now we have backed ourselves into a situation here where we're turning this accumulation into a rationale. There was no rationale; we just did it. And for a body that has some concern about Congress and its inspection of the Federal Reserve and its willingness perhaps to change the Federal Reserve Act it seems to me that we're in a bad situation if we continue to run these kinds of potential losses plus the warehousing. I think that's a potential problem for us as well. So, if you're looking for recommendations, I would bring [our holdings] back down to some level where we can show the flag and be part of the process but where we don't expose ourselves to the other kinds of political difficulties.",311
-fomc-corpus,1991,Governor Angell.,4
-fomc-corpus,1991,"Sam, what was the maximum dollar guide on these holdings before we began to pull back on the Exchange Stabilization Fund? What was the maximum you said we--",32
-fomc-corpus,1991,$15 billion. Do you mean the amount of the warehousing?,14
-fomc-corpus,1991,"No, what was the maximum market value of the total Federal Reserve and Treasury holdings of deutschemarks and yen?",22
-fomc-corpus,1991,"Probably $53 billion; I don't have the precise number, but I would say around $53 billion.",21
-fomc-corpus,1991,"All right. So, if you want to be able to buy and sell--you feel some handicap in regard to being that close--do you see the $53 billion as kind of a ceiling?",40
-fomc-corpus,1991,"Well, I don't see that $53 billion particularly as a ceiling or anything else. I don't see any need for us to continue to accumulate [foreign currency] reserves, if that's your question.",39
-fomc-corpus,1991,Let me put the question another way. Let's suppose in the process of officially determining the U.S. foreign exchange position that there is more of a tendency to want to intervene when the dollar is strong than there is to intervene when the dollar is weak. Let's suppose we had that kind of posture officially. What would tend to happen to the size of your fund over time if you're operating in that circumstance?,80
-fomc-corpus,1991,"Well, you've asked a rhetorical question. But it seems to me the question is whether you agree with the approach on the intervention, not the question of what is the level of reserves.",37
-fomc-corpus,1991,"No, I'm asking what would happen to the size; I think you know the answer, Sam. What would happen to the size of the fund?",30
-fomc-corpus,1991,"If we always intervened when the dollar rose and never intervened when the dollar fell, our reserves would accumulate.",23
-fomc-corpus,1991,"They would accumulate. Now, some of us are not quite as purist as Lee is on the intervention issue, although I do understand Lee's position. But if we get ourselves in the circumstance where we are selling yen and deutschemarks when the dollar is weak and is very low by any measure of purchasing parity estimations, no matter how bad they are, then how in the world are we going to get the size of the fund down so that when the mark gets to 200 or 220--? I presume you're going to want to be buying deutschemarks then. Is that the general assumption?",121
-fomc-corpus,1991,"You're not getting any assumption from me. What I was talking about was the possibility, if the Committee has the desire, of looking for occasions to feed out some of these currencies as we did last year. We could look for opportunities to put them out in ways that don't have an exchange rate effect--just sell off a few and announce that the only [reason] that we are [selling] is to help bring down the warehousing or that we have an approach of disposing of some of the earnings from time to time. That was the concept I was--",112
-fomc-corpus,1991,"Well, Sam, I guess I'm really asking you: Do you think it's possible or do you know of a way that we can bring more balance to the game in terms of [as much] enthusiasm for buying dollars as we have for selling dollars?",50
-fomc-corpus,1991,"Well, I do think that's more a question of the approach to intervention than of reserve determination.",19
-fomc-corpus,1991,I think I know Sam's answer to these questions.,11
-fomc-corpus,1991,Vice Chairman.,3
-fomc-corpus,1991,"Well, for starters I'd say that I am not inherently troubled at all by the fact that the Federal Reserve either on its own or in collaboration with the Treasury has foreign currency balances; that doesn't bother me at all. The only point where that would bother me inherently would be if the mere fact or size of those holdings in and of themselves tended to undercut the role of the dollar as the world reserve currency. That I would have an inherent problem with. And I don't think that condition is within sight. Now, that's kind of my breaking point. But having said that, the question comes up: What is reasonable and what is unreasonable? I don't know the answer, either. But I do think we should keep in mind that as recently as 1977 or 1978--I forget which year--when the perception was that the United States was going in the tank, the United States government, including the Federal Reserve, found it necessary to approach the world at large, hat in hand, and establish what was then a $30 billion war chest. To be sure, a lot of that war chest was smoke and mirrors and some of it was subsequently financed as you pointed out through the so-called Carter bonds. But the Carter bonds were hardly a great victory from the point of view of the United States either in political or in economic terms. So, I think there is a lot to be said for the war chest theory. In terms of the size issue, the fact of the matter is that in the late 1970s when the world was a lot smaller than it is today what was thought to be a reasonable war chest--again recognizing that a lot of it was smoke and mirrors--was a fairly substantial amount. That [leads] me, as does the point that Sam made about the currency holdings of other central banks, to the view that in rough orders of magnitude the balances we hold right now don't seem unreasonable. In terms of the question of whether they should go up or go down, my instinct is that if they stay roughly the same or maybe even go down a little, that's fine so long as the reasons why they are going down are credible. And here I must say that I worry a bit about undue--and I want to emphasize that ""undue""--preoccupation with net losses and net profits. I don't hear anybody asking Mr. Sternlight how much money he lost for us in the past six weeks when the long bond went down 5 or 6 points in price or whatever it was.",509
-fomc-corpus,1991,"That's a good question, Peter!",7
-fomc-corpus,1991,Why didn't you sell those bonds before they lost value?,11
-fomc-corpus,1991,"I suspect though, Peter, that the amount was not inconsequential in the time-frame of the past 5 or 6 weeks. So, I think we have to be a little careful about latching on to the star of profitability because--",50
-fomc-corpus,1991,"There is a difference, Jerry. U.S. government consolidated purchases that the Federal Reserve--",18
-fomc-corpus,1991,"Well, the precedent in my judgment is not inconsequential. I understand your point and that's why I didn't want to overstate the argument. [As I] say, I think we have to be careful about making a public argument for disposing of balances simply on the basis of trying to maximize profits or minimize losses. I think that would be a mistake. On the other hand, if the specific suggestion is something along the lines of what Sam said--and as I heard Sam he was saying two things--one is that in a orderly way maybe we can try to wind down the warehousing and two is that maybe we ought to have in mind trying to work off the earnings. I wouldn't be wildly allergic at all to something along those lines because I think he could make a fairly coherent statement, including to our colleagues abroad, as to what we're doing and why we're doing it. But at the end of the day--I think Lee Hoskins touched on this--what is very, very important here is that whatever we do and however we do it, it should not be allowed to be construed by anybody as even carrying the remotest threat that the Federal Reserve or the United States is copping out in terms of international relationships, particularly the kinds of not very aggressive but nevertheless cooperative intervention that we've seen in the past six weeks, for example. I'm not at all troubled that we [were] on both sides of the market within a six-week time-frame. In the first case it was in a context in which a number of us were worried that the dollar was about to fall out of bed. Whether you agree with that or not, we did look to our friends abroad for a little help and they gave it. And it doesn't seem to me at all credible for us to say ""The hell with you"" six weeks later when we got this unbelievably dramatic change in psychology and they turned to us and asked if we were willing to help out a little, even if it's symbolic. I just don't see that as viable. So, I would be careful here. But if I understood what Sam was saying in operational terms, I certainly wouldn't have any problem with the thrust of his suggestion.",439
-fomc-corpus,1991,Roger.,2
-fomc-corpus,1991,"To raise an old technical question maybe, given that we neatly divide the holdings between the Treasury and the Federal Reserve: Do we have sole authority to determine the foreign currency holdings of the Federal Reserve System or is this a national policy that must be coordinated with the Administration? Where do we stand? Can we just sell off $24 billion of mark and yen and forget it if we want to?",78
-fomc-corpus,1991,Are you asking in the legal sense or the policy sense?,12
-fomc-corpus,1991,How does that [differ]?,7
-fomc-corpus,1991,"Legally, it is set by the Committee. We have a limit of $25 billion in exposure, which is the maximum that we can--",29
-fomc-corpus,1991,"Well, let me put it another way: Can we sell off $48 billion, which is the Treasury's holdings as well as our own?",29
-fomc-corpus,1991,"No, the Treasury's holdings are part of the ESF and subject to the determination of the Secretary of the Treasury.",24
-fomc-corpus,1991,"If we were to choose to sell off $5 billion of our own, how do you maintain the 50/50 split between the two?",29
-fomc-corpus,1991,"Well, we and the Treasury have a different amount of [foreign currency] reserves at the present time. We have a higher level of reserves partly because of the warehousing. But even excluding the warehousing we have--do you have the number, Charlie?",52
-fomc-corpus,1991,We have $26.5 billion and they have $22 billion.,14
-fomc-corpus,1991,"We have about $26 billion and they have about $22 billion. So, there are some differences. But, as you know, the policy has been for a long time to try to pursue these things together and to work jointly. And almost all of our intervention has been financed that way. Certainly, the Treasury is very happy with that arrangement and would be very concerned if there were a proposal to go off on a different track.",87
-fomc-corpus,1991,Although on intervention policy the Treasury has the mandated authority--,11
-fomc-corpus,1991,Yes.,2
-fomc-corpus,1991,--and we have to consult and work in conjunction with them.,13
-fomc-corpus,1991,On the intervention the Treasury has a stronger hand.,10
-fomc-corpus,1991,"Well, the answer to my question then is that if we decided to reduce our Federal Reserve holdings of foreign currencies, this Committee could do that and you could effect it.",34
-fomc-corpus,1991,The Committee has the legal authority to set the maximum holdings that we have.,15
-fomc-corpus,1991,"But as a practical matter, Roger, if the Committee were of a mind to sell $5 billion equivalent of D-marks tomorrow morning, I think we would have to consult with the Treasury; indeed, I think we would feel an obligation to consult with the Bundesbank as well.",57
-fomc-corpus,1991,"Well, it would be inconceivable that we would do any such action without working with the Treasury. But also we would not just be selling off other countries' currencies without working it out with them. When we did the $2 billion last year we did work it out with the German authorities so that it could be done in a way that didn't cause problems for them and their markets. But we're now in a different market situation.",87
-fomc-corpus,1991,President McTeer.,5
-fomc-corpus,1991,"On the point of the rationale for these things that Lee mentioned, it seems ironic that the world's primary reserve currency country might be trying to measure its own international clout in terms of its holdings of foreign countries' currencies. It just seems a bit inconsistent and ironic.",53
-fomc-corpus,1991,President Syron.,4
-fomc-corpus,1991,David Mullins asked my question.,7
-fomc-corpus,1991,President Boehne.,5
-fomc-corpus,1991,"As a practical matter, I think we around this table are going to find that we have to intervene from time to time, and that means we need a war chest. And it would be best if we could arrive at some rough amount that we feel comfortable with, intellectually or conceptually. But we aren't getting very far in that direction, and perhaps we won't. If your brain doesn't lead you somewhere, then you've got to go with your gut feeling. My gut tells me that we ought to unwind this warehousing arrangement as best we can. I think $48 billion is on the high side and my sense tells me that we ought to look for some opportunities to lower that number. I don't know how far we ought to lower it but a lower number would make me feel more comfortable; I doubt if we need $48 billion. So, in the absence of some conceptual framework, if Sam is looking for advice, I would say: Talk to the Treasury and reduce the warehousing and take advantage of some opportunities to reduce the $48 billion in other ways.",213
-fomc-corpus,1991,President Melzer.,4
-fomc-corpus,1991,"I'm going to overlap a little with Ed and agree with David. When we started off a couple of years ago, in the beginning the idea of that foreign exchange study was to see whether we could develop some rationale. It turned out to be very effective because I think the weight of that effort slowed down in a broad sense the propensity of the Treasury to intervene, but we never answered the threshold question. I'm not sure there is any answer in a number sense but conceptually there's probably an answer. And I think we have to be prepared with that because there's the potential for some heat here and with good reason.",122
-fomc-corpus,1991,I think we'll get hearings on this.,8
-fomc-corpus,1991,"Longer term, I think we need to pursue that; there are some international financial considerations that the people who are going to be taking the shots at the profit and loss statement don't really appreciate. So, I think we can do an educational job and we have to be ready to do that well. Longer term, I suspect the problem is that most of us feel that sterilized intervention doesn't really do any good and yet we're caught in a sort of international alliance in which some of our counterparts do. So, in order to play in that game, we do something that we don't fundamentally believe in. We're not going to answer that today but I don't know what the dynamics are that perhaps ultimately will lead to more sensible combined behavior in that regard internationally. As a practical matter I agree that we have to play the game. We can't just say that we think this is stupid, that it doesn't work, and we're not going to do it. Maybe over time there are efforts we can make to lead the world to perhaps a more sensible approach on this. Maybe that's idealistic; I don't know.",219
-fomc-corpus,1991,"Let me ask Sam a question, which in a sense comes out of this discussion. Your argument for a war chest and some of the concern on the negative side is the associated price risk since the interest rate risk--or I should say the interest income is level. Is there not any mechanism by which we can create swaps or RPs or something of that nature in which essentially we have fixed the exchange rate of our holdings? Is there a way in a sense to have a [unintelligible] put back to the originator of a currency so that, for example, at this particular stage we would have a deal with the Bundesbank where we would match certain parts of their dollar holdings and an equivalent part of our DM holdings and agree that that is a swap at a fixed price and eliminate exchange rate fluctuations, which affect--",167
-fomc-corpus,1991,"I'm not sure I understand. We could obviously--and we have done so--enter into exchanges with the Germans and others to give them back a portion of their currency and receive back a portion of our currency. The kind of facility you're talking about, if I understand it, sounds like what the swap was originally intended to do.",66
-fomc-corpus,1991,"Well, the only difference is that the currency moves after the agreement. What I'm asking is: Can we move the currency retrospectively in a sense or agree at this stage that--? I'll give you a specific case. We basically are saying that the $10 billion deutschemarks and the equivalent of yesterday's exchange rate in dollars held by the Bundesbank are presumed to have been fixed-price swaps which we will at some point unwind at that exchange rate. It gives us the cushion but it doesn't give us the exchange risk.",104
-fomc-corpus,1991,"You could have an exchange of puts. In effect, you could swap puts and thereby assume that somebody would ultimately want to exercise that added advantage. And that would effectively accomplish what you want to accomplish.",40
-fomc-corpus,1991,There are lots of ways of doing that.,9
-fomc-corpus,1991,It sounds like a forward exchange transaction. I'll be happy to try to think and see if there--,20
-fomc-corpus,1991,"Well, the point at issue is that it's a [forward] exchange transaction that has a date on it.",22
-fomc-corpus,1991,Right.,2
-fomc-corpus,1991,"And effectively that gets factored into the market and neutralizes your position. What I'm thinking of--and I just thought of it this moment, so there might be plenty of reasons why not--is an open-ended fixed-price mutual put, to put it in the terms that Governor Angell stipulated, so that we can eliminate part of the problem that is on the negative side of the current--",79
-fomc-corpus,1991,"It can at least take off the tail, I suspect.",12
-fomc-corpus,1991,Yes.,2
-fomc-corpus,1991,We'll try to think that one through.,8
-fomc-corpus,1991,"Okay. In the interim, unless I misheard, at a minimum there is support here for trying to edge the stock of foreign currencies down either by unwinding some of the warehousing and/or selling interest receipts into the market if that is at all feasible. In today's environment I'm not sure how much we could do of that, but clearly something is going to show up. I certainly didn't hear anyone here support a significant increase; we are pretty much biased in the other direction.",96
-fomc-corpus,1991,"I think there probably would be a preference for unwinding the warehousing first, too, Mr. Chairman.",22
-fomc-corpus,1991,"[Unintelligible] warehousing because that implied an issue for opening up [talks] with the Treasury, which we have to do. And I think we are in the process of discussing that. Hopefully we may succeed.",47
-fomc-corpus,1991,We might be able to couple that with opposition to letting the FDIC borrow $25 million from us and get a credit--,25
-fomc-corpus,1991,That's an idea. We'll give them the deutschemarks!,11
-fomc-corpus,1991,Good idea!,3
-fomc-corpus,1991,Give deutschemarks to the FDIC?,8
-fomc-corpus,1991,"That wasn't really what I had in mind, but that's an interesting fallout.",15
-fomc-corpus,1991,If that doesn't get somebody's attention!,8
-fomc-corpus,1991,"I bet it would too. I was just thinking about the monetary policy accord in the early '50s. We need a credit accord too, where they don't try to dictate the composition of our assets, which is what the FDIC maneuver does and what this warehousing does.",56
-fomc-corpus,1991,"Well, we will be discussing this.",8
-fomc-corpus,1991,"Yes, I didn't mean to get ahead of you.",11
-fomc-corpus,1991,"I was just going to ask how you would characterize the conversations with the Treasury on reducing the warehousing so far. Have we been pushing hard on them and have they been reluctantly going along or are they going to sit there and say: ""Why didn't you tell us to sell this stuff?"" How have those communications gone?",64
-fomc-corpus,1991,"Why don't you go ahead, Sam.",8
-fomc-corpus,1991,"Well, I think the Treasury is sympathetic to some reduction but they are not talking about getting rid of the whole warehousing amount or anything like that. This hasn't gone through all their [decisionmaking] processes but the discussions that have taken place so far indicate some willingness, certainly, to consider some decline in the warehousing; but they're not talking about the whole amount.",74
-fomc-corpus,1991,And have we had to push them hard to peel off what has been sold already?,17
-fomc-corpus,1991,"Well, I'm not sure I understand. We could--",11
-fomc-corpus,1991,"The answer is ""no,"" Tommy.",8
-fomc-corpus,1991,Governor Angell.,4
-fomc-corpus,1991,"There's one slight addendum to this discussion: We have a reserve holding that costs us more money than what is reasonably in prospect to happen on foreign exchange rates and that is that we really are not a small reserve holding currency country. I think we actually have official reserves of $85 billion, Sam, compared to Taiwan's $75 billion. And if you mark our gold to the $358 price, we end up with something like $170 billion. There are opportunity costs because we don't get interest on that gold as we do on our foreign exchange [holdings]. That cost is out there also. I would hesitate for us to have foreign currency holdings that have swap puts that just sit there, [which] is now becoming the case for our gold.",151
-fomc-corpus,1991,Charlie.,2
-fomc-corpus,1991,"I just want to bring to your attention also, as you may have heard, that Congressman Gonzalez has raised all kinds of concerns about the ESF and Federal Reserve holdings. He is proposing fueling that in a Congressional setting--tying all the accounts to the IMF legislation and other sorts of problems here. It's very much on his mind and his staff is making noises to that effect. So, it's not an academic issue of what happens to our balances; it has some other political dimensions. May I just have one other word about the discussion? The problem is that the level of the balances and disposal of the balances are two separate items. As we just discovered, even when we agree we have too much, it is very difficult to sell except at a time when the dollar is under very severe downward pressure. If the pressure is in the other direction, upward, the other side is very concerned and the timing is not right or, as currently, we have other financing problems in other countries. So, the problem of the disposal is as difficult as the issue of the level. The other point that I think deserves at least to be mentioned is that there's always room for replenishment. It's a two-way situation. If one does dispose of a certain amount and feels one needs more, when the market situation is right there is a chance through intervention to acquire additional holdings. One final comment with regard to the method of sales and whether it's off-market or on-market: On-market sales are equivalent to intervention in the broader scheme of things. If you do affect the market at all, within a certain time it could be neutralized; whatever effect it has is the same. But when you have off-market sales the timing has something to do with the interpretation of whether you have a target for your rate. And you do influence your co-central bankers of whether you're trying to protect a rate and not have it go higher or lower. And that again complicates the matter of disposal.",394
-fomc-corpus,1991,"One minor point though, Charlie. I understand what you're saying and it's relevant to something Governor Angell and also the Chairman said. In a sense over time the natural tendency, then, will be to accumulate more and more reserves. That's the direction it will go in. So the cost of holding them, presuming we had a conceptual framework where we model all this, is not completely symmetric in the sense that at least under current arrangements we can borrow if we need to. Well, apparently we can; I know it's not always possible, [but generally] we can borrow if we need to get [foreign currencies] but at this point in time we don't have a mechanism for disposing of them when they get to a certain level. So, that [leads me to] a judgment--I realize this isn't precise--that as we proceed our bias should be to sell as these [balances] begin to accumulate, given the difficulty of selling as compared to accumulating.",194
-fomc-corpus,1991,"Well, as Sam just pointed out, we are in some sense a victim of historical accident. The year when we really accumulated huge amounts--$22 billion--was 1989. Without that the numbers would look very different, even if you adjusted $22 billion [down to make it comparable] to other years. So, that was the year that we probably overbought.",77
-fomc-corpus,1991,"I think we had a very short window earlier this year, when we could have done a significant--my impression was upward of $10 million deutschemarks--off-market swap with the Bundesbank. But that window closed very quickly on us as the markets began to move. What it required was the Treasury to go along, [not] for this body to go it alone. And by the time we got the system [greased] the market had run from us and made the issue moot. There are windows, but they're very narrow and I think rare. I did speak to Karl Otto Poehl at the Bundesbank, and he seemed inclined at that stage. Now at this point I don't know; I don't know what else is going on. But there are times when large transactions could be made if we chose to do them.",167
-fomc-corpus,1991,"It's not much, but it does seem germane to what you said. I think the [view] of the Committee would be that if such a window should open up in the not too distant future, you wouldn't necessarily want to take the time for very extensive [consultation] with the Committee. I would interpret this discussion to mean that the Committee would be happy to have that happen.",78
-fomc-corpus,1991,"No, [the reason for the delay] wasn't this Committee but [the Treasury.] Any further questions?",21
-fomc-corpus,1991,"I just had one. In your earlier report, did you talk about a swap with Romania that was paid back?",23
-fomc-corpus,1991,"Yes, by the Treasury.",6
-fomc-corpus,1991,"By Treasury, not--",5
-fomc-corpus,1991,It was a Treasury participation in a European BIS swap. It was outstanding for about a week.,19
-fomc-corpus,1991,Peter Sternlight.,4
-fomc-corpus,1991,"Thank you, Mr. Chairman.",7
-fomc-corpus,1991,Do you want to go back and change [your prepared statement] to make sure that what you have written is now--?,25
-fomc-corpus,1991,[Unintelligible. Statement--see Appendix.],11
-fomc-corpus,1991,Questions for Mr. Sternlight? Lee.,9
-fomc-corpus,1991,"Just a question on whether anybody, in terms of the market participants, is looking at money. When do you think that would be a concern, if it isn't now?",34
-fomc-corpus,1991,"Well, they certainly had been looking at it and they had noted the concerns that the Chairman and others expressed when we were in the period of very slow growth. The close attention to it seemed to fade as they no longer were looking for slow money growth as a reason to be expecting further easing moves. I wouldn't say that I'm hearing any concern about an excessive pace of money growth at this point. What I hear more is along the lines of: ""Well, it looks like your M2 measure is getting into the middle of its range and isn't that nice.""",112
-fomc-corpus,1991,Si Keehn.,4
-fomc-corpus,1991,"Peter, with regard to the discount rate: I must say I find it a little awkward to have the discount rate and the fed funds rate at the same level, given our interest in trying to encourage at least the visibility of [the discount window]. If we were to reduce the discount rate and make an argument that it was absolutely just a technical change to reestablish the [alignment with] market [rates], would the market buy it or not?",91
-fomc-corpus,1991,"I think it would. That thought could be put into the language [of the press release about] a discount rate change so that they wouldn't look for any change in the funds rate. On your first point, though: While I realize there are others like yourself who have that sense of discomfort, it has not been an impediment to our operations to have the rates right on top of one another. And even with respect to the point we make about wanting to see a little more use of the discount window, I'm not sure I see it as that much of a problem because at the times when banks would come in to use the window we'd typically be getting some pressure on the funds rate. So, whether it's being lifted from a 6 percent base or a 6-1/4 or 6-1/2 percent base, I think there would still be that same incentive to turn to the window rather than pay such funds rates.",189
-fomc-corpus,1991,Governor Angell.,4
-fomc-corpus,1991,"Peter, would there have been a difference if we had not sent out the signal that borrowings were sort of okay? To what extent is the way we've accommodated to this due to the slightly different signal about borrowing?",43
-fomc-corpus,1991,I think that little signal on borrowing probably helped to trim some of the volatility that might have [occurred] on a few days in the recent period.,31
-fomc-corpus,1991,"Since this has worked in some ways better than some might have anticipated, what might happen if the Committee at some point in the future--I'm not suggesting now, but sometime in the future--wanted to go 25 or 50 basis points lower on the fed funds rate [than] the discount rate and we had at least this generous an attitude about the window? Would that possibly be a workable environment?",81
-fomc-corpus,1991,"It might be a little more awkward than what we have now. I still think it would be workable; there might perhaps be a little more volatility in the funds rate, but I'm inclined to think it would not be impossible.",45
-fomc-corpus,1991,"What you're saying then is that if there's some reason the Committee at some point in time wished to do that, you would not be alarmed about at least seeing what that's like?",36
-fomc-corpus,1991,That's right.,3
-fomc-corpus,1991,"Wished to do what, Wayne? I didn't understand.",12
-fomc-corpus,1991,Have the funds rate a 1/4 or--,11
-fomc-corpus,1991,I chose not to call it that.,8
-fomc-corpus,1991,"I find this whole issue of where we are on the discount rate compared to the funds rate very interesting and one that I don't completely understand in terms of the market's reaction to it. In that regard, Peter, I just wanted to ask: Is there confusion out there when you read the screens and you see all of these comments that people are making, particularly given the strength of the dollar, about expecting that something might be done on the discount rate just for alignment purposes? I'm not saying we should change procedures here, but at some point it would be nice if people knew what we were intending or not intending by this whole situation. But maybe there isn't this confusion in the marketplace.",137
-fomc-corpus,1991,"Well, as I commented in my remarks, there were a few days after the move on March 8th when the market perceived that funds were going to be trading more likely around 6 percent. And with the discount rate at 6 percent, there were some who were thinking that we had to do something with the discount rate to have a workable relationship. But with the passage of time and with some comments that had been picked up by the market, I think they became reconciled to the reality that it does seem to be a workable arrangement.",110
-fomc-corpus,1991,"But, as Peter remarked in his briefing, it's not just a technical thing. Part of the reaction in the markets was [because] we didn't lower the discount rate and it looked like we weren't intending to do anything again very soon. So, I don't think I agree entirely with Peter's answer that if we did lower it, the market's reaction would be entirely neutral. It would be seen as giving a scope for further easing much as when the Germans raised their [Lombard] rate and made a very loud noise about how it wasn't going to affect their overnight rate and everyone assumed it was going to affect the overnight rate eventually anyhow. It's very hard to change [the discount rate] when the spread had been zero, [and have] a neutral effect at this point.",157
-fomc-corpus,1991,"There's a quite ambiguous statement in the Bluebook about a change in the funds rate having--I can't recall the exact words--a pronounced and pretty short-term impact on the exchange rate of the dollar, etc. What's the parallelism between that and the discount rate?",53
-fomc-corpus,1991,Without it showing through or with it showing through?,10
-fomc-corpus,1991,Without it showing through.,5
-fomc-corpus,1991,I think it would have much less of an impact on the dollar than if an actual cut in the funds rate had accompanied it.,26
-fomc-corpus,1991,"Any further questions? If not, would somebody like to ratify the actions of the Desk since our last meeting?",23
-fomc-corpus,1991,So move.,3
-fomc-corpus,1991,Second.,2
-fomc-corpus,1991,Without objections. Mike Prell.,7
-fomc-corpus,1991,[Statement--see Appendix.],6
-fomc-corpus,1991,[Statement--see Appendix.],6
-fomc-corpus,1991,Thank you. I think we ought to take questions for these gentlemen and then break for coffee. The floor is open.,24
-fomc-corpus,1991,The thought of coffee killed any questions!,8
-fomc-corpus,1991,"Well, let's break for coffee.",7
-fomc-corpus,1991,"Let me start with the District, if I may. We're getting very mixed reports on the Sixth District. Considerably more optimism has developed, as one would expect, after the ending of hostilities in the Persian Gulf. Realtors are reporting that sales of single-family homes picked up in February and that inquiries and traffic have been quite strong so far this month. In fact, I spoke to one of the leading realtors in Atlanta and he told me that February was one of the best months they've had in a long time. That may be seasonal, of course, but the contacts that I've been talking to seem more optimistic about their prospects as long as mortgage rates don't back up much further. On the commercial side, because we've had so much overbuilding and because in-migration of businesses and individuals is at a much lower pace than just a few years ago, I think construction is likely to remain weak for some time to come. Reports from retailers indicate sales levels that are below those of a year ago in real terms and there's a great deal of caution about inventories. Most retailers are trying to prevent inventories from rising or are trying to reduce them through aggressive promotion. Trade show contacts report that orders for giftware are strong and orders for apparel and other consumer items are quite soft. Auto dealers think that the worst in sales may be over and they expect a modest pickup in the months ahead. On the manufacturing side, the attitudes of manufacturers in the District are really quite negative at this point. Some exports are doing reasonably well but that has had little impact in the District since the region's tradable goods sector is relatively small compared to that of the rest of the country. Export growth in the pulp, paper, and chemical industries slowed over the winter and the chemical industry in particular had been a source of stimulus and strength before. This is due primarily, we understand, to concerns over the war and may prove to be temporary, although we haven't heard of any renewed strength so far. Convention business also weakened during the winter and reports in early March suggested no improvement in Atlanta and New Orleans where bookings are running below those of last year. There is concern that pressures to cut corporate travel budgets will sustain the weakness. On the other hand, contacts in Florida, and particularly in Orlando, tell us that the number of foreign visitors has picked up since the end of hostilities. The oil production and exploration areas were not affected very much by the conflict in the Gulf. In February the average rig count in Louisiana was up just 3 percent from a year earlier. Permits were also up a little. And the area is still suffering from a shortage of skilled labor; that situation has not improved. Reports on credit conditions suggest little easing of the tighter standards imposed by banks, although on the supply side banks are telling me that they are out in the marketplace seeking loans. But most lending officers are almost totally unwilling to look at any kind of real estate related loans. We had a group of high-tech people in a week or so ago, and while they all report that they're looking for an expansion in export sales, they are complaining bitterly on their own behalf and on behalf of their customers about the difficulties that they face in obtaining financing. On the wage and price side, our directors are reporting very, very little pressure in either of those areas. I would also just add with respect to the District that our unemployment rate went up to 6.9 percent, which is higher, of course, than the national average. Looking at the national economy, our forecast has been revised lower since we met last time. The larger decline that we had expected in the first quarter is not fully made up over the rest of the year after the economy turns around. In comparison to the Greenbook we don't see the expansion as being quite as strong over the remainder of the forecast horizon. We think the rise in consumption is going to proceed at a somewhat slower pace than the staff forecast, and I think demographic factors account for a good deal of this. Our outlook for prices is basically different from the Greenbook. We have the CPI rising at a slower pace in 1991, and we don't get any improvement as time goes on. In fact, the pace of the CPI deteriorates a bit in our forecast. We are similar to the Greenbook, however, in that we do show a resumption of growth sometime during the second quarter, certainly in the second half of the year. And while I'm a little more comfortable with that forecast than I was six weeks ago, I remain concerned about how much fragility there is in the economy. We've had declines in asset prices and we have high debt levels; and the continued emphasis on problems with deposit insurance threatens to erode confidence somewhat. The recent rise in confidence --certainly the number [released] this morning--is encouraging but I have to wonder how much of it has to do with the euphoria over our success in the Persian Gulf; I haven't yet seen it translated into any hard spending and that may not occur. In addition, as was mentioned early this morning, I'm concerned also about our estimates of activity for our G-10 partners. Those estimates are being revised lower, as we heard, and it seems as if we're now dependent on activity strengthening abroad as well as here in the second half. Even though there's some offset from reconstruction demand in Kuwait, this may take more time to develop and it does reflect a need for capital. So, in summary, Mr. Chairman, I believe that these forecasts of an impending turnaround have a fairly high probability of being right, but I'm concerned still that the risks to the outlook are on the down side.",1136
-fomc-corpus,1991,President Black.,3
-fomc-corpus,1991,"Mr. Chairman, we've moved in a slightly different direction from Bob Forrestal in that we think the near-term outlook has improved significantly since the February meeting. Back then we were expecting the recession to last through most, if not all, of the second quarter, and we felt that the risk of error in the Board staff's projection was clearly on the down side. We now agree with the staff that the economy is likely to turn back up in the second quarter and we think the bulk of the risk has now shifted to the up side, particularly in the second and third quarters, although obviously there is still some risk that we could have more down side weakness than we see. For example, exports might not do as well as we are thinking. The main reasons why we feel a little more bullish are what you might expect. One has been this decidedly improved level of confidence on the part of businesses and consumers that followed the ending of the war. The second is that we've had this flurry of scattered statistics that suggest some little intensification of activity. And the third is that the grass roots information that we're picking up around our District is decidedly better than what we saw at the time of our last meeting. And the improvement appears to be more than what could be accounted for by the normal seasonal things, which is something that businessmen have difficulty distinguishing when they're reporting on whether business conditions have improved. For example, at our last board meeting I saw what was the most abrupt change in the attitude of our directors between two meetings that I've seen at any time since I've been with the System. They were practically all on the positive side. The one exception was our director who had been on the positive side before and he has moved to the negative side now. But seems to move in a different direction from everybody else on a lot of issues. And then the last but by no means the least reason we're more optimistic is the pickup in growth of M2. It seems to be responding to our earlier easing actions and, as Mike Prell indicated, that doesn't guarantee a strong recovery but it certainly does enhance the possibility that that is what we'll get. On the price side, we were particularly glad to see that the staff has lowered its forecast of inflation somewhat over the period ahead. We're still generally optimistic that long-term inflationary pressures are going to move in the right direction as a result of what I think has been a very wise monetary policy over a period of several years now. I think we're going to hit pay dirt on that one. But I am disturbed, of course, by the rapid run-up in both the consumer price index and the producer price index even after allowing for the known special factors. I'd be even more concerned about that if the recent growth in the aggregates doesn't slow somewhat in the near future from its pace in the last couple of months.",569
-fomc-corpus,1991,President Parry.,4
-fomc-corpus,1991,"Mr. Chairman, the Twelfth District economy has shown some signs of strengthening in recent months. The California economy, which contracted in terms of employment between July and December, is showing some positive signs. Although the California unemployment rate rose markedly in February, that largely reflected a sharp increase in the labor force. Payroll employment growth actually was up strongly in January and flat in February. Moreover, anecdotal evidence suggests that the residential real estate market is beginning to recover in the coastal California cities. And recent rains have raised reservoir levels to a point where some of the more drastic rationing plans are now being softened. The rest of the District appears to have avoided any significant downturn. All Twelfth District states have higher employment growth rates than the national average and most did not experience much of the slowdown [seen elsewhere] following the onset of the Persian Gulf crisis. Annualized payroll employment growth rates between July and January outside of California ranged from 2 percent in Arizona to 6-1/2 percent in Nevada. Increased real estate activity is also reported in Seattle. Other real estate markets, which were not as adversely impacted last fall, remain stable. The relative strength in the West is reflected in its commercial bank lending. Although loan growth has slowed, loan volumes continue to rise. Total loans at the District's largest banks rose 7 percent in February over a year ago compared to only 1.2 percent for the rest of the nation. District bank real estate lending accounted for much of the fast growth, increasing 10.4 percent over the level a year earlier. Admittedly, some of this was a result of changing shares as the commercial banks successfully competed against the savings and loans in the District. Turning to the national outlook, we expect a short recession and moderate recovery especially now that the war in the Gulf is over and oil prices have remained low. Specifically, we anticipate an economy much like the Greenbook forecast with output declining at a rate of about 2 to 3 percent in the current quarter and recovery, we would expect, before midyear. The sectors that have contributed most to the fall-off in final sales, namely consumer spending and also residential investment, should contribute the most to the recovery in final sales. Retail sales and housing starts reports for February and the upsurge in consumer confidence in early March are certainly consistent with this kind of outlook. Because the recovery in our view is likely to be moderate by historical standards, we expect the unemployment rate to stay in the 6-1/2 to 7 percent range this year and then to decline gradually in 1992. Temporary slack in the economy should produce a moderate decline in the inflation rate between this year and next, as in the Greenbook forecast. But we also expect that an increase in the fed funds rate will be required later this year to keep inflation on a flat to declining path. Thank you.",578
-fomc-corpus,1991,President Keehn.,4
-fomc-corpus,1991,"Mr. Chairman, I sense something of a dichotomy in the District with the end of hostilities and the arrival of spring, which in Chicago is always a welcome event, or the combination of the two. I think attitudes in the District are quite significantly better than they were at the time of the last meeting. Retailers, for example, are reporting a significant increase in floor traffic and, in turn, improvement in sales of small ticket items. It hasn't yet flowed through to big ticket items, but small ticket items are up. Auto dealers certainly have a significantly improved attitude. As they went through December, January, and February--a very grim period--dealers were ordering cars from manufacturers at rates lower than the retail sales level. That has now reversed; they are ordering cars at a higher level than their retail sales. And while that's typical for this time of the year, nonetheless, I think it is a decided shift in attitudes. But while the attitudes seem better, some of the specific numbers really don't line up with these improved attitudes. The District labor markets, for example, are weak. And while our numbers had compared favorably with the national numbers, we're seeing some deterioration there. Claims for unemployment insurance are rising in the District, and my hunch is that our numbers are going to begin to take on an adverse comparison with the national average. We're continuing to experience what I think of as an unending series of layoffs from one plant to another--100 people here, 200 there, etc. Specifically, in the auto industry, though the outlook may be improving, it's at pretty grim levels. The manufacturers that we talk with have reduced their sales forecast for the full year again, down to 13 million units; of course, that's cars and light trucks. And even that number is dependent on comparatively good third and fourth quarters. The production levels in the auto industry in the second quarter will be higher than the first quarter but still some 10 to 15 percent lower than last year. And as I hear it, the production risk in the auto industry is still very much on the down side at this point. This weaker auto situation is reflecting itself in the steel industry. That industry is reducing its forecast for shipments for this year down to 77 million tons, which is down from 80 million tons at the time of the last meeting and down from 85 million tons for last year. One manufacturer, at least when I talked to him, was producing at 70 percent of capacity. The order rate is a little higher, so they won't do poorly in inventory. Prices in the steel industry are at best stable but at a very low level. The competitive conditions there are really very, very tough and as a consequence some have gone through some difficult profitability issues. The pricing in general in the District, as far as steel and other things, is reflective of that. Competitive conditions are awfully tough and for most items I don't sense much upward pressure. In heavy trucks, i.e. Class E trucks, a category I haven't talked much about, conditions are really very weak. Sales and production this year are off some 25 percent from last year; last year itself really was not a good year. And one major engine manufacturer, a supplier to that heavy truck industry, is currently running at 30 percent of capacity, so they are really all but shut down and they don't expect any near-term improvement. In fact, normally they sell about 180,000 units in a reasonably good year and the sales forecast for this year is between 110,000 and 130,000 units; therefore, it's a pretty depressed situation. Adding to that problem for that industry, some of the major haulers are having a tough time getting credit to finance the purchase of equipment, so that just exacerbates the problem. The machine tool industry is a bit brighter than some of the other industries in the District. Sales and backlogs are a little higher. The auto industry will have to go through some significant model changeovers in the next couple of years, and that shows up in improved orders for machine tools. Net, in the District context, I hope that we are going through something of a transitional phase and that we will see some improvement in the numbers following this improvement of attitudes that I certainly feel. In a national context, we have no basic disagreement with the staff forecast, at least in pattern. We think we are moving past the low point here. But our expectation is that the recovery will be a bit more modest than the staff forecast would suggest, at least for the next couple of quarters. The personal consumption numbers look a little high, particularly for durables; that in turn will be dependent a great deal on the auto industry, and we'll just have to see how that works out. So, as we look at it, we think we are moving through this transitional period, but at least for the moment the risk continues to be a bit on the down side.",1001
-fomc-corpus,1991,President Syron.,4
-fomc-corpus,1991,"Mr. Chairman, considering the meterological analogy, spring hasn't come to New England yet either in terms of the economy or the weather; it was snowing when we left there yesterday. One would be hard pressed to call our situation ""mixed."" I think on balance it's still pretty negative. There are a few glimmers of hope; there is some fairly significant improvement in the sales of existing homes, consistent with what is happening nationally. That might be expected, given that the prices probably have fallen about 20 to 25 percent. We did a survey of auto dealers in the last couple of days to find out what is going on. Some hope is being generated with increased foot traffic but not sales as of this point yet. Actually, dealers did not believe that they would get [increased] sales this quickly after the foot traffic went up. In manufacturing, the only strong point that we have--and I might be stretching to call it strong--is that exports are still holding up. But even the defense goods producers are having layoffs. The most hopeful sign may be that we're getting price and wage adjustments. Actually some work we've done on that indicates that at least for New England historically we really have to have a period of substantial declines in employment and substantial increases in unemployment before we reach a threshold--and that's in both directions--that affects wage behavior. We now have had for the region an employment decline, since the local peak, of somewhat greater than 6 percent, which makes it the weakest period of decline in New England on a peak to not-yet-trough basis in history. It's possible, but we don't have the monthly data, that in 1946 when a lot of the shipbuilding facilities closed after the war we might have had as much of an employment decline, but that's how far back one has to go. All of this, of course, has had a negative effect on consumer confidence; it is flattening a little but is still very low. Retailers report very soft activity with a lot more discounting going on. In construction--and this is something that needed to happen--the value of what is being put in place is down somewhat more than 50 percent. Financial sector problems are still prominent in the news. We expect that in addition to the Bank of New England situation we'll have another $20 billion in institutions this year that will have to be resolved. That will be a total roughly the size of the Bank of New England and will be a further hit on consumer confidence. As far as the credit crunch goes, I don't think there's a great deal of improvement with our own indigenous institutions. We are seeing more entry of nonbank financial institutions and others coming into this market to pick up some opportunities that may be there. An interesting note is the fiscal problems of our state and local governments. If you look at either the reductions in expenditures that are going to be required or the likely tax increases, it comes out District-wide as a number somewhere on the order of 2-1/4 percent of personal income. And if you add local governments to that it goes to about 2-3/4 to 3 percent. So, we think this is something that is going to be rolling through toward the end of this year that will have a further effect on consumption. We do think that the region will at least flatten about two quarters after the national economy. As far as that goes, I find the Greenbook conditional forecast for the next several quarters pretty persuasive. The only place I may question it at all is on the basis of [the inadequate] weight it gives to state and local government [spending], which the Greenbook already has as being pretty soft. But looking across the nation I'm not sure what is going to happen with that sector. I do think, as it should be, that the risks implied in the Greenbook forecast are pretty symmetrical both on the up side and the down side. As far as policy goes, we've done a fair bit already and there are some lags involved; and Mike referred to some of the early signs one might see of upcoming improvement. An important factor for us to keep in mind at least--I don't want to preach about it--is that the recession wasn't caused strictly by Iraq in my view. We also had adjustments to some fundamental imbalances in the economy that were of a balance sheet nature in some cases. I think New England was an extreme case of that, depending on some of the activity that had gone on there and that had gotten a little out of hand. And in this environment I think our responsibility is to provide a climate in which these imbalances can be addressed in a painful adjustment period but over time. Again, I think the Greenbook forecast is one that would allow us to do that and, obviously, in periods such as this one should be cautious.",978
-fomc-corpus,1991,President McTeer.,5
-fomc-corpus,1991,"Springtime has come to the Eleventh District, and I have a good bit of it in my sinuses right now, as you can tell! At the last meeting I reported that economic activity in the Eleventh District was either stronger or less weak than in the nation. That continues to be the case, and perhaps even more so. One measure is total employment, and employment is continuing to increase in all three states of the District and in most major sectors of the economy. It is slow growth but it is growth. Anecdotal information from directors and other community people we've talked to does not sound quite as positive as the numbers seem to look. They emphasize the fact that the economy is not so strong that it can stand up against the national recession, but they also emphasize continuing credit availability problems. The reluctance of banks to lend is cited by all of our people out there as the key factor that they believe is going to keep the recovery fairly mild. But one of the members of our Small Business and Agriculture Advisory Committee a few weeks ago reported that if you went into a bank four years ago and asked for a loan the answer was ""Hell no!"" and if you do it now the answer is merely ""No."" Given that circumstances in our area are more favorable than they are in most of the country, we don't find the Greenbook forecast to be implausible. We think it's pretty much on the mark, although we probably would push the recovery from the second to the third quarter and would not be quite as optimistic about the abrupt decline in the consumer price index as the Greenbook forecast.",322
-fomc-corpus,1991,President Boehne.,5
-fomc-corpus,1991,"The District economy is still declining, but there are some straws in the wind that a recovery may be in the making. There has been a shift in attitudes toward the positive side. Even in a state like New Jersey, which has some of the characteristics of New England, I think they are beginning to feel better. And I had the same experience with my board as Bob Black did with his. I really don't recall such a dramatic shift in attitudes on the part of nine people over a one-month span. There are a few signs at banks that loan demand may be picking up. Bankers are not as willing as they once were but there is willingness to lend; but these are more at the ""nibble"" level rather than anything very major. Home buying has clearly picked up and the real estate people are--euphoric is too strong, but they are feeling very good. That has not spilled over into automobiles, although there is more traffic at dealerships. Nonetheless, when you look at the hard numbers, sales are still down. The retailers, particularly department store people, say that sales haven't picked up except that right after the end of hostilities there was a pickup for a week or so; but they haven't seen it more recently. Now, some of the specialty stores report that business has picked up. Manufacturers, while they are hopeful about the second half of the year, say their numbers are still bearish; and the people who transport manufactured goods report business is still bad. As for the commercial real estate market, I think we're not talking months but several years to get that turned around in the middle Atlantic states. So, I would say, with the exception of what is going on in home sales, that the recovery is mostly hope and attitude at this point. But that's an important change and is probably a harbinger of things to come. My judgment on the national economy is that the risks are in the process of shifting from a decidedly downward direction toward a more evenly balanced outlook for the economy. And I think that we ought to pay attention to that shift as we move into the policy discussion later this morning.",428
-fomc-corpus,1991,President Melzer.,4
-fomc-corpus,1991,"In our District I would agree with something Ed has said. So far there is little that one can really put a finger on statistically; it's more of an attitude change that I've noticed. I had the same experience that Ed and Bob described with our directors about a week ago; there was a very noticeable shift in sentiment. Statistically, I guess the one thing we can hang our hat on is employment growth. It had gotten very sluggish; it never had turned negative in the District on a year-to-year basis, but there is some evidence that it has bottomed out and started moving up. And that's a combination of both less weakness in the manufacturing area than nationally and considerably more strength in the non-manufacturing area. The other piece of evidence we have is not so much in terms of the current economy but we have year-end numbers on banking; bank performance has continued to hold up with [delinquencies] of about 0.9 percent and not a significant increase in either loan losses or nonperforming loans. We're perhaps a little behind the rest of the nation in potential real estate problems, but I don't think those are going to get significantly bad; we never had the boom, really. Nationally, the only comment I would make is that I'm pleased to see that we can now look back and say that we have had some sustained growth in reserves and money. And at least for my part, I'm not too concerned about reacting to that at this stage. There would come a point in time when maybe I would, but things are tenuous enough now that I'm just pleased to see it and leave it at that.",328
-fomc-corpus,1991,Vice Chairman.,3
-fomc-corpus,1991,"Well, looking first to the national economy, the forecast of the staff in New York in profile terms is similar to Mike's but there are a couple of differences. Our staff essentially has the second quarter as flat and a more modest recovery in the third and fourth quarters. But for what it's worth, the 1992 outlook is very similar to Mike's forecast with one or two exceptions that aren't important except in terms of algebraic signs. We have net exports turning into a drag in 1992, and I want to come back to that in a minute. And we also have slightly less improvement in core inflation in 1992. Mike, you have it getting down to around 3-1/2 percent?",145
-fomc-corpus,1991,"Well, by the end of the year.",9
-fomc-corpus,1991,"We're basically in a holding pattern at 4 percent, which isn't great given all we've been through. In terms of even the profile of the forecast, the one substantive thing that I am a bit more concerned about--aside from some anecdotal reports, which I'll get to in a minute--is the external side. The kind of forecast we're looking at for 1991 even in the context of something like the current pattern of exchange rates I don't think is unreasonable, but I think there is greater risk--and Bob Forrestal or somebody already said this--on the foreign growth side, looking out from where we are right now. And given the tenuous nature of the outlook, that situation at the margin can make a difference. Nevertheless, I think the case for a modest recovery sometime in the spring or early summer is not at all unreasonable at this juncture. In terms of anecdotal reports, we're hearing things not unlike a number of things others have said. For example, there is widespread gossip, if I can put it in the proper terminology, about a pickup in activity in housing. And that's pretty much true at big banks and small banks, upstate and Long Island; it is not true in the very expensive New York City condominium market. But with that exception there does seem to be something more than a seasonal pickup in housing. The retail sector is still soft, and manufacturing--at least as we hear about it from the vantage point of very large manufacturing firms that are headquartered in New York--is still very soft. The credit situation is better. We do get anecdotal reports--and somebody else said this, too--that at least some banks are actually out there looking for loans so long as they're not real estate loans. Again, there are sound straws in the wind that the asset price deterioration may be beginning at least to moderate, if not to flatten out. It's probably a little too early to make that judgment in any definitive way, but it seems to be a bit better. Having said that, there is something else that seems quite clear, and that is that people feel better. I guess there's a bit of a similarity with where we were last spring. If you recall, last spring the anecdotal reports and the expectations were lousy and the numbers were still pretty good. Right now we seem to have a situation in which the expectations and anecdotal reports are pretty good and the numbers are still pretty lousy. I blow a little hot and cold as to what to make of that. I think there is a danger that if the postwar euphoria does not in fact reflect itself in some pickup in spending and activity, this rebound in confidence could reverse very, very quickly. It's awfully hard to judge that, but right now the comment that a number of people here have made to the effect that people seem to feel better certainly is the impression I'm getting, even though the numbers aren't there to support it at the moment.",591
-fomc-corpus,1991,President Stern.,3
-fomc-corpus,1991,"Well, with regard to the District economy, I think we are basically beset by the same crosscurrents that are affecting the nation and that many people have discussed. The market and the economy remain quite soft but the anecdotal information clearly has a much better tone encompassing housing and autos and retail activity; people at least are feeling a good deal better and traffic is up. In part because of the improvement in attitudes and the change of the tenor of the anecdotes, I am comfortable with the Greenbook forecast for real activity this time. And it is also this time very consistent with the pattern that our model produces, and our model is very different in structure. That does raise an interesting timing question, though. Even if the economy picks up promptly in April--or maybe it already has picked up--we won't see that in the hard data on aggregate activity until May or June as those numbers start to flow through. Given that we obviously would want to see some consistent evidence of improvement, it really suggests that it won't be until sometime this summer that we will recognize whether or not the Greenbook forecast is turning out to be accurate. I don't know what the implication of that is except that it seems to me that we might want to be even more cautious than usual in terms of responding to information as it becomes available over the next month or two. On inflation, obviously, we were concerned too about what looked like a significant acceleration of core inflation; and I'm always a little suspicious about special one-time factors that one can parcel it out to. But we did run some tests to try to find out about the energy prices, assuming that the run-up in energy prices in the summer and fall may have boosted core inflation temporarily as they worked their way through the economy. The tests suggested that that was in fact the case.",363
-fomc-corpus,1991,Does Mike Prell get the same number?,9
-fomc-corpus,1991,"Yes. And as the subsequent decline in energy prices starts to work its way back through, it seems to me we ought to be looking at better core inflation numbers rather promptly.",35
-fomc-corpus,1991,President Guffey.,5
-fomc-corpus,1991,"Mr. Chairman, in the Tenth District, the economy continues to outperform the national economy modestly and that is a bit of a departure from the long-term trend; we normally lag the [national] economy. But both the personal income as well as the employment numbers show that the economy during the fourth quarter continued to add jobs and that that will continue in the first quarter. The District added jobs at an annual rate of about 1-1/2 percent during the fourth quarter as the recession took over nationally and, as I understand it, the national employment figures dropped about 1.6 percent. So, in terms of the overall health of the Tenth District relative to the nation, I think we're still doing fairly well but at a very slow pace. There were jobs added in each of our seven states with the exception of Oklahoma. Overall, the region in terms of economic health is being held down a little in the manufacturing sector because of our area of Missouri. It is, however, a time when the sap begins to rise and the euphoria comes on the agricultural sector. In agriculture, cattle and hogs, the red meats, are still the most important addition to the economy in the sense that feeder cattle, for example, are now selling for over $100 per 100 pounds, which is an all-time high. On the other hand, small grain, and principally wheat, does have some serious problems because of the drought. Governor Angell's farm probably ended up partially in Oklahoma City a couple of weeks ago when there was a big dust storm coming out of western Kansas and western Oklahoma! If that area continues without moisture, clearly, the outlook for wheat will be hurt. With regard to manufacturing, perhaps the story has been told many times with regard to auto assembly. Clearly, each of the assembly plants in our District is cutting back; they actually are cutting out shifts and/or closing down for short periods of time. I do understand, however, that the inventory of cars being held now by the manufacturer and the dealer is coming down to a very low level. If there is a pickup in consumer confidence, that should be a real kick in terms of the manufacturers coming back on stream. The energy area is essentially flat; there hasn't been much activity. Drilling activity had actually decreased month-over-month, but that is so small that it makes very little difference probably. The one area that may be a catalyst, or an area of the economy that could give a kick start to the Tenth District, would be oil field construction and drilling equipment orders that may come as a result of the Kuwait/Iraq situation. We do have several rather large oil drilling construction companies in the District. As far as the national economy is concerned, I would agree with those who say that the second quarter probably will be flat and the third and fourth quarters will be a little less vigorous than the Greenbook forecast. But overall the Greenbook is about as good a guess as I have or as most everybody else has, I think. I'd be willing to buy it.",616
-fomc-corpus,1991,Governor Angell.,4
-fomc-corpus,1991,"I didn't intend to follow right after Roger's comments about the wind. It is true that the high plains do see heavy winds in March, but we always seem to gain soil rather than lose it.",40
-fomc-corpus,1991,I don't know. Would you get it from North Dakota?,12
-fomc-corpus,1991,"It seems to me that the staff's forecast is plausible. But if I [differ] in any direction on the forecast, it is not so much in regard to the timing but that I lean toward a bit weaker view of households' penchant for consumption expenditures. My hunch is that this recession has been different from others in regard to the [buildup] of debt and that the saving rate will tend to run a little higher in this recovery period. I am slightly more optimistic in regard to net exports--although I know the staff is also optimistic--but maybe not quite enough to offset the difference of somewhat flatter consumption expenditures, if there is any difference. It just seems to me that this event, even at the manufacturing level or the business level, is going to be one in which recovery in spending may occur prior to that in unemployment. So, I would expect the unemployment rate to continue to move up and maybe to approach 7 percent, even though we have this kind of expansion. The talk about medical costs just has to be quite a factor. [Unintelligible] union collective bargaining power in terms of the desire [of business firms] to maintain somewhat leaner labor costs. So, I would expect it to be in the direction that the staff has but just slightly less than that, as I judge it. It does seem to me that the pickup in M2 growth is coinciding with some flattening of the commodity price deterioration. And the commodity prices don't look exactly the way they sometimes look in a full-fledged recovery--that is, if a full-fledged recovery were underway right now. But at the same time commodity prices certainly are not deteriorating the way they were as we were going into recession. So, it looks to me as if we're close together in regard to the outlook, but maybe with a somewhat longer and less robust recovery path.",377
-fomc-corpus,1991,President Hoskins.,4
-fomc-corpus,1991,"The District's goods manufacturing is pretty much deteriorating. And for the first time we have in Ohio an unemployment rate that is higher than the national average. I rather wish that Martha were here to hear that because she has been saying all along that our region has been a lot stronger. It's about the same in Pennsylvania; it has deteriorated a bit there as well. And it's in the usual suspects--autos and steel; Si has already mentioned steel. We are seeing some bounceback, though, in activity in department stores and in home mortgages. So, the signs the rest of you are picking up, we're picking up as well. The only anecdotal story I want to share with you, because it was a little surprising to me, relates to my specialty steel producer I called him up before I came down here and asked about his order book. It has been very weak, as steel was weak throughout the fall and the first quarter. He started out very cautiously in saying that they were going to make it through the year and it will be fine. And then I pushed him a little and he said that the export side of his business is very strong; he has booked in the first quarter more than he booked all last year on the export side. Now, his concern as we went down this path a little--and I found this to be an unusual one--is that his people can book him out through the third quarter but if he goes ahead and does that on the export side and we get a snapback in the economy, he won't be able to service his local customers. So, he's almost in the position now of thinking about not booking the export side of the business. He can't turn the orders away, obviously, but that was one unusual story that I heard. I don't know if it's typical or atypical. In terms of the national economy, as I look at the Greenbook and what we went through in the last six months around here, it just reminds me that, at least the way I look at it, we don't control much on the real side. A lot of other things happen; Dick has mentioned a couple and other people have too. So, I don't think we should view ourselves as managing this recovery any more than we managed the downturn. What we control over time is obviously the price level, and we put ourselves in pretty good stead to continue to do that if we continue to watch the aggregates. I'll save those comments for later.",497
-fomc-corpus,1991,Governor Mullins.,4
-fomc-corpus,1991,"Well, we are in an interesting period and I have a few observations on the issues. The first question is inflation and our fears: Are there fears that inflation is reigniting and is it reigniting? I think the economic logic is clear and supports the opposite case, given the increasing slack we have; I see no signs of trouble in the commodity prices or movement in the dollar. Despite the recent revival of M2 growth, we're coming off a long period of slow growth; in seven out of the past ten months, M2 growth has been less than 3 percent. The labor costs data, one of the toughest components of inflation, is behaving remarkably well. And even the inflationary expectations in the surveys are down somewhat. So, I think everyone should agree that we're making substantial progress on inflation. The only thing that doesn't agree with that is measured inflation itself, which keeps chugging along apparently oblivious to the inescapable economic logic. We've had a couple of pretty awful months and there are stories especially about the postal rates and the excise taxes and the like. Many people would argue, especially for those special cases, that government-induced increases are not part of the inflationary process. But the problem is that they are. They respond in part to the increases in labor costs and they also feed into the inflationary process. So, I think it's a little difficult to ignore. The markets may also be getting concerned about inflation. Long bond rates are up about 35 basis points since the last meeting. Our Board staff argues that that is an increase in real rates rather than an inflation premium, and they point to a broad array of market data consistent with that analysis, including the stock market data, the junk bond data, the dollar, and commodity prices. And everything is suggesting increased probabilities of an imminent turnaround. Even on March 19th, when the CPI number was released, the housing starts data were released the same day and the dollar went up, which is rather inconsistent with a lot of fears of inflation. Some people believe another reason the long rate went up was not only because of the notion of a turnaround but also because the CPI numbers might keep us from easing. Peter has already talked about the bond market's reaction to our 1/4 point ease a couple of Fridays ago, March 8th. In those three stories I think there is a fair amount of confusion: Some people said that maybe we had gone too far, but at least as many people seemed to say the fact that we cut the fed funds rate and didn't cut the discount rate signaled that this was the end of the easing. When I talk to people on the street, there's still a fair amount of confusion over exactly what signal we're trying to send with the fed funds rate on top of the discount rate even though operationally it may work okay. I think the most compelling thing that happened that day, though, was that the Michigan survey leaped with a 20 or 30 percentage point increase. So, it's difficult to make much out of that, and I'm comforted by all the market data that say inflation is under control. To me the most troubling aspect is to look back for seven years to the beginning of 1984 and see that core inflation has been stuck at between 4-1/2 and 5 percent, which makes one wonder whether a short and shallow recession can really do the job. The logic is pretty persuasive but one thing we're going to have to face, if we get a string of these, is that the bond market itself will stop buying the story and start looking at the numbers. I'm sure we're all prepared for that. In terms of the real economy, again, everything looks great: The war is over; oil prices are low; consumer confidence is back; money is growing; and all markets are signaling a rebound. To turn this logic into reality, we need consumers willing to spend and bankers willing to lend. I share some of the opinions expressed by others that while we're seeing confidence go up, there's a question of whether it will stick and an even greater question of what sort of lag there is between that confidence and the actual spending. On the down side, when confidence collapsed in August, it was really a couple of months before spending collapsed. I doubt if it will be much faster on this side of the hill. Moreover, this is the first national recession we've had in eight years. Many young working Americans have never had the experience of worrying about their job security and I wouldn't be surprised, as Governor Angell also indicated, if consumers much like banks and corporations don't step back and spend some time building some equity before returning to their old ways. And it is true we have some drags on the process, including the unemployment situation. I would also agree with Dick Syron about the state and local government situation; when you look across the country, by some measures 28 of 50 states have pretty severe problems. That's likely to be an overhang. In terms of hard data, one thing is clear: Americans did not celebrate victory by buying a new car. In terms of the hard data, we are staring to get some uptick. Clearly, the most encouraging area is housing. Even the February data in housing, of course, could be the effect of global warming because we did have a warm February and that's the most highly correlated thing with housing starts and, I guess, existing home purchases. I see one potential problem, though, with a housing-led recovery. And that's this question of whether the banks will finance homebuilders, because I don't think there's anyone else around to do it. Not many builders have access to the commercial paper market. I don't see insurance companies or finance companies financing construction. And, I submit, we'll find out whether we have a credit crunch or not--whether it's on the demand side or a supply constraint. With the commercial real estate disaster fresh in their minds and with many builders financially weak or bankrupt, capital-thin bankers are going to be asked to finance a new round of real estate development. And, again, the logic looks pretty encouraging as well. The banks are in much better shape now and we've seen them raising capital. They haven't been lending so much yet; but if we expect homebuilding to play a major role, pretty soon we will be going through existing inventories and we will see whether they can get that financing. One important piece of evidence that many people have mentioned, which is consistent with a return to more normal conditions in the banking industry, is the growth of the monetary aggregates. It looks as if we finally have the engine of money growth jump-started. It may be idling at a rate that is a little high and we may need to adjust the choke a bit. After ten months of slow growth, it's encouraging to see the pickup, but there is a question of whether it's going a little too well. There is another factor that weighs on the other side of the growth in the aggregates and that's the behavior of the dollar. As mentioned, since the last meeting the dollar on a trade-weighted basis has essentially retraced all the ground that it lost during the war. It stands about where it was the middle of last summer, though still down from its heights of last spring. I view the increase in the dollar as something that should have a contractionary effect; it should weigh against inflationary pressures and should reduce the risks of an overly robust economic rebound. In other countries people view a strong currency as equivalent to monetary tightening. Indeed, Charlie Siegman mentioned that, in effect, it is equivalent to an increase in interest rates or that to offset it we would have to reduce rates. So, my view of the increase in the dollar is that we have the opposite of the situation in August, September, and October when interest rates were steady and rising and the dollar was falling, which helped cushion the decline in the economy. I think we are now in the opposite situation where the dollar can be viewed as a partial counterbalance to concerns about too rapid growth in the aggregates, a rekindling of inflation, and a rebound that is too buoyant. The Greenbook assumes the dollar will fall back from its 11 or 12 percent appreciation to a 4 or 5 percent gain; I guess I'm not so sure. When I look at the position of the U.S. economy and political system coming out of this war and when I look at the troubles in Germany, eastern Europe, and Russia, with the rest of Europe wired together through the exchange rate mechanism, and the prospect of lower growth and lower interest rates in Japan, just the uncertainty in these areas versus the situation in the United States makes it not unlikely that the dollar will maintain its gains and might appreciate a bit more. And I view that as a risk to the upturn and as insurance against inflation. So, in summary, I'm pretty much about where Governor Angell is. On balance, I'm a bit more pessimistic than the Greenbook on the timing and strength of the rebound due to the strength of the dollar and the lag in the transformation of consumer confidence into consumer spending as well as a couple of other overhanging risks such as the financing of the housing side and the state and local government side. I can't be too pessimistic since I've spent most of my career as a financial economist and I believe in markets. And the staff has pointed out to me that every market indicator known to man, woman, or beast is flashing a clear signal of imminent economic rebound. I didn't quite see those signals on the other side when the economy started down, but at least that should temper our pessimism.",1952
-fomc-corpus,1991,Governor LaWare.,4
-fomc-corpus,1991,"Well, like everyone around the table, I guess, I have some sense of encouragement that we are hearing some good news. Certainly, the return of consumer confidence has some promise. The decline in oil prices and the projected level of oil prices has to be good for economic activity. The slight uptick in retail sales is encouraging, but I have a little skepticism about it; this confidence may be enough to get people smiling and walking to the mall, but whether it has them reaching deep into their pockets for the big ticket items is another question. The housing starts look better but we're still a long way from what anyone would describe as an ebullient housing market. Sales of existing homes are probably one of the brightest lights and really give some glimmer of hope, even up in darkest New England. On the other hand, auto sales, which are such an important part of the economy, are still absolutely lousy. I think that industry is considerably worried because we see all these leasing opportunities as an inducement to try to get people to do something without having to commit a lot of money up front. I'm skeptical of what I've heard, at least spottily around the table, about business confidence. I don't see the signs of business confidence; business profits are lousy. And I think that has contributed to the fact that there is not widespread significant credit demand from the business sector. In fact, we see businesses restructuring--not restructuring in the '80s style of piling on a lot of debt but rather restructuring in terms of selling assets to pay down debt, cutting expenses, laying off people, and shutting down plants. And that's not exactly the kind of environment in which one expects an immediate return of a high level of business activity. The very high levels of debt of both businesses and consumers are a further deterrent, particularly if people are concerned about unemployment and the possibility of being laid off. All of this coupled with the remaining unsettled conditions in the banks raises some questions. I think confidence is being significantly undermined by the FDIC floundering around trying to figure out how to refinance itself--and with no clear public policy direction coming from any part of the government with regard to how to do that plus the fact that there is a possibility that the inability to deal with this effectively will result in a ""taxpayer bailout,"" which will effectively scuttle the opportunity for restructuring the banking system and modernizing it. All of that is creating some lack of public confidence not only in the banking system but in the deposit insurance system. Then add to that something that Governor Mullins touched on, which is that the upturn in long-term rates is more likely to be a reflection of higher inflationary expectations, and that kind of environment especially is not going to be a contributor to recovery. So, I believe the downside risks remain very significant. But I am also skeptical in that interest rates and interest rate adjustments may not be the effective medicine if the problems that are inherent in this economy are more psychological than financial or rational. So, I'm at the point where I think it is much too early to take the punch bowl away; but at the same time I wouldn't be inclined to refill it.",639
-fomc-corpus,1991,Governor Kelley.,3
-fomc-corpus,1991,"Well, Mr. Chairman, once again I'm the last leaf on the bush and the day is getting long, so let me be brief. As I contemplate this recovery, I'm mentally migrating West; I'm going to be from Missouri for a while! We do clearly see very positive sentiment, but there are just no data as yet to support it. And I think Gary's point earlier is worth repeating: We have to be careful about this confidence business because at some point if it doesn't begin to get fulfilled, it will reverse on us. That could happen rather quickly and I'm concerned about that. A couple of the pillars of the recovery we're hoping for strike me as being a little suspect. Autos are a big ticket discretionary item and as such they're fickle. The numbers aren't there yet and we're going to have to see them, I think, before we can be sure of them. Also, in the case of exports, the G-7 countries are largely in a slowing mode and we're in a stronger dollar period, so I have to worry a little about the extent and timing of how that is going to run. As for inflation, I am very chagrined and disappointed that the core rate is so sticky so far. And as far as the Greenbook's projection goes, the staff doesn't show it improving meaningfully until the second half of 1992, and that's a long time away. I hope that David's inescapable logic is correct and that Gary Stern's is correct; I think there's good reason to hope that it may be. But we should have been seeing it by now and we haven't as yet. So, where do the risks lie? In which direction are they liable to fall? It seems to me that Dick Syron and Ed Boehne were probably right that they are approximately symmetric right now. But I would like to close with this point: While the risks may be symmetric in both directions, I don't think the consequences are. It seems to me that the potential consequences of an error on the down side are substantially more severe if we don't get--or if there is a significant delay in getting--the recovery. The banking system, as John LaWare reminds us frequently and correctly, is shaky. We hope to get reform, which I think might well go away if the economy doesn't improve. The budget deficit could really spiral up, with all sorts of consequences. So, while the risks might be symmetric, we should be very conscious and especially alert to the concern about the asymmetry of the consequences.",510
-fomc-corpus,1991,Thank you. We will now move on to Don Kohn.,13
-fomc-corpus,1991,"Thank you, Mr. Chairman. It's late, and Governor Mullins gave half my briefing, so I'll try to summarize what I have left. [Statement--see Appendix.]",35
-fomc-corpus,1991,Questions for Don?,4
-fomc-corpus,1991,"One, coming back to the point that David raised that every financial market indicator under the sun seems to be indicating a rebound: Just looking at the stuff that came out, the comments [about] the stock market really were quite persuasive. I was wondering what previous history there is of a false positive with this degree of [a stock market] move.",70
-fomc-corpus,1991,None.,2
-fomc-corpus,1991,An increase in the middle of a recession; [have you] looked at it?,17
-fomc-corpus,1991,I think the largest false positives previously of an up movement in the stock market in the middle of a recession have been about 5 percent.,28
-fomc-corpus,1991,This is the first you see?,7
-fomc-corpus,1991,But this would be by some order of magnitude.,10
-fomc-corpus,1991,There are always firsts.,6
-fomc-corpus,1991,It's like a yield curve predicts and rebuilds--,10
-fomc-corpus,1991,"Any other questions for Don? If not, let me get started. I have nothing that's significantly at variance with what I've heard around here. I do think we can look at the policy outlook as essentially representing more of a bimodal distribution in which the probabilities of events are probably discrete rather than continuous. By far the highest probability at this stage seems to be that the healing process that we've been observing in recent weeks will continue and will gradually lead into a bottoming out and an economic upturn. A crucial issue that Governor Angell raised is the question of the saving rate. One way of looking at that process is that what often has been the case in such periods is that we get a run-up in existing home sales, which in turn engenders realized capital gains financed by mortgage debt, which in turn creates funds that the surveys suggest go disproportionately into big ticket consumer items. It turns out, obviously, that the national income accounts show a rise in consumption without a rise in disposable income and, therefore, a decline in personal savings. And since we're starting from a saving rate that is probably slightly north of 5 percent, we do have some possibility of getting [added] consumer spending even in the context of what is clearly a very deficient income flow. In that context it's interesting to note that a substantial part--perhaps almost all--of the fluctuation of the GNP since the fourth quarter is gross motor vehicle products, meaning auto sales plus the steel and all the various parts; GNP ex gross motor vehicle products for all practical purposes was zero or maybe a slight plus in the fourth quarter and will be roughly zero in the first and second quarters of this year. That is another way of saying that it's a recession without the capital goods relationships that historically were the major elements that gave us much deeper declines than we are seeing currently. That leads me to the second probability, which is not [on a continuum], but one in which we could see a failure of the recovery to take hold, continued pressures on profit margins, business confidence falling, and finally a real dive in capital appropriations, which we haven't seen. And that would induce a secondary phase of the recession, which would deepen rather considerably. The probability of that is at this stage still rather moderate to small, but in my judgment non-negligible. I think that leads us then to a policy stance that really gets to this point: If the economy is healing and recovering, then certainly no further easing is required at this stage; but if we get a cumulative erosion, which leads to clear evidence that the capital goods markets are beginning to cave, then I think the proper action is probably a significant drop in the discount rate. Were the economy to go in that direction and those events were emerging, obviously from the discussion we had earlier in this meeting about enhanced consultations, that would clearly be on the table. As a consequence, I conclude that as a practical matter, what we're dealing with at this stage is a symmetrical directive because anything veering off that strikes me as something that would be likely caused by events about which it would be useful to have a consultation of this Committee. There are other issues that we have to be aware of over the longer term. We have finally jump-started M2 back into the range, and the existing projections suggest that it will stay there--perhaps somewhat on the higher side rather than in the middle. And I think we may very well have to contemplate, though not necessarily immediately, that our next move will be not down but up. As I look at it, I would say that we have done exceptionally well in keeping money and credit aggregates over the last two or three years on a trend which, unless we are all wrong about inflation being fundamentally a monetary phenomenon, will lead over the next two or three years to a marked decline in the rate of inflation. And at this particular point we have the luxury in a sense of responding to the recession fairly aggressively because we've had a constricted money supply. If this economy begins to recover and we begin to run into accelerated money supply growth, it would be wise for us to be careful not to let it get away from us, having spent so much time trying to get it down into this particular area. The one interesting problem, which I don't know how to handle at this stage, is the exchange rate. We cannot explain the exchange rate in terms of our standard variables. It looks to me as though what we have is an historic discontinuity in judgment about the nature of politics and property rights in the United States and hence the value of holding dollar claims relative to the other major currencies. I'm not overly confident that the dollar is going to reverse at this stage. I have concerns similar to those Governor Mullins [mentioned]. And the only argument at this point that raises the question of whether we should move rates lower for reasons other than business or economic activity is if we [were to] begin to view our exchange rate as creating some form of problem for us. I think that's well in the future and a very minor issue--certainly not something that is contemplated in the intermeeting period, but something that may surprise us and become the other side of the problem we have been so concerned about for so long: mainly, an exceptionally weak dollar. So, in summary, I would say as a practical matter that I see very little alternative at the moment other than alternative ""B"" with symmetric language. Obviously, if there's a strong desire around the table for asymmetry, which I don't feel frankly, that's not a big deal one way or the other; it's more a practical than a strategic issue. But for the moment I would stay where we are, watch the data as closely as we can, and unless we see this cumulative deterioration taking form, I would suspect that we ought to be patient and wait for the economy to turn. President Syron.",1182
-fomc-corpus,1991,"Mr. Chairman, I find myself in complete agreement with your suggestion and encouraged by the mechanism that you suggest. I think that we are probably close to a turning point. You're right that nothing is ever certain. The behavior of the aggregates is encouraging but if we have to move the discount rate, that may well be the way to go particularly in light of what may be nonfinancial factors accounting for changes instead of world spirits about the United States [leading to an] appreciation of the dollar. And I am heartened by your suggestion that if it becomes necessary to move the funds rate significantly as well, further consultation would be appropriate at that time. So, I completely support your suggestion.",137
-fomc-corpus,1991,Governor Angell.,4
-fomc-corpus,1991,"Mr. Chairman, I can accept your suggestion for ""B"" symmetric. I suppose I have a slight preference for an asymmetric directive on the side of tightness in that during periods of recession as we approach the trough it's very important to guard against easing during such a period. I suppose the reason that I'm at that position is that I notice the staff has a 6.9 percent nominal GNP growth path from Q2 1991 to Q2 1992, and 6.9 percent is a pretty heavy dose. Now, I guess if I thought it were going to be 1 percent less, at 5.9 percent, I would feel more comfortable; I'd feel more comfortable if it were going to be at 5 percent because at this stage it's not the CPI or the fixed-weight deflator that counts, it's the GNP deflator that counts in terms of the crowding out [effect]. That is, the only crowding out that occurs is on the GNP deflator. And if the GNP deflator is at 3 percent and we have 5 percent nominal, we have plenty of room. I just feel that 5 percent is more consistent with our progress toward price stability. I do agree, Mr. Chairman, that there is some bimodal possibility here, but the most likely way that a significant downturn could occur it seems to me is for the bond markets and the capital markets to become discouraged in regard to our progress on inflation. And a run-up in long-term rates could be unfortunate in the fragile situation that we're in. Now, I also agree with you and Governor Mullins that the exchange value of the dollar is more apt to be strong rather than weak later and I do agree that at some point in time that might be a factor, particularly if the price of gold were plummeting below $330 an ounce or something like that. It's always possible that we could find ourselves in that environment, but I think we could take action at that time because the bond markets would be on our side. So, I would prefer to be asymmetrical toward tightness. I'm not giving much signal that I'm very enthusiastic about that other group changing that other tool.",445
-fomc-corpus,1991,President Parry.,4
-fomc-corpus,1991,"Mr. Chairman, I could support your recommendation of alternative B, no change in policy, since it certainly appears that the economy will be recovering at a satisfactory pace several months from now, especially in light of our recent policy moves. I also have a preference for a policy directive that is symmetrical. Before any further policy action is taken, consideration of the inflationary implications of such a policy seems necessary. I think the persisting high long-term interest rates are indicative of the market's concerns about inflationary pressures in the future as well as its perceptions of the strength of the economy. Given that a near-term turnaround in the economy is being widely forecast, such precaution appears especially warranted at this time. Also, forecasts of a turnaround would seem to be more credible now that war-related uncertainties have been substantially reduced. So, I would support alternative B and symmetric language.",172
-fomc-corpus,1991,President Black.,3
-fomc-corpus,1991,"Mr. Chairman, several months ago we sat around this table as we eased policy and reminded ourselves--and several people participated in this--that we had better be ready when the time came to avoid the mistake that we usually have made in the past in not tightening soon enough. I was prepared to deliver that same talk again and also to throw in a caveat that we ought not pay much attention to our favorite economic indicator, the level of employment. You made essentially the same talk and made all the points I thought were pertinent. So, I very much agree with you that we ought to stay with ""B"" with a symmetrical directive. I also agree that if we move in either direction, it would be desirable to meet and talk about it.",150
-fomc-corpus,1991,President Forrestal.,4
-fomc-corpus,1991,"Mr. Chairman, I agree entirely with your recommendation that we make no policy change at this time. However, given my view of the economy and the risks to the economy, I would slightly prefer an asymmetric directive in the direction of ease. But it's a close call and I would certainly support a symmetric directive.",62
-fomc-corpus,1991,President Keehn.,4
-fomc-corpus,1991,"""B"" symmetrical.",4
-fomc-corpus,1991,Si.,2
-fomc-corpus,1991,"Oh, sorry! I apologize.",7
-fomc-corpus,1991,If that's a proxy--,5
-fomc-corpus,1991,"I would be in favor of alternative B. I would have had a slight preference for asymmetric language in favor of easing but I think your comments with regard to consultation in the event of accelerating deterioration deal with that and, therefore, I support your position.",50
-fomc-corpus,1991,Si is the first fellow who has ever had a hired gun to speak for him at a meeting!,20
-fomc-corpus,1991,President Stern.,3
-fomc-corpus,1991,"I strongly support your proposal. I think it's important that we go to a symmetric directive at this point, in part because I have an ongoing bias in favor of that largely to let evidence accumulate before we act. But in these circumstances, as I suggested earlier, I think we do want to maintain a sense of balance and a perspective as we go forward here. And I think the symmetric directive is appropriate.",81
-fomc-corpus,1991,Governor LaWare.,4
-fomc-corpus,1991,"I support the recommendation of ""B"" symmetric for all the reasons that you have so much more logically and eloquently stated than I.",27
-fomc-corpus,1991,President Melzer.,4
-fomc-corpus,1991,"Oh, I do get to go before Ed! Maybe I can be briefer: Yes.",19
-fomc-corpus,1991,President Boehne.,5
-fomc-corpus,1991,I yield to President Keehn!,7
-fomc-corpus,1991,President Hoskins.,4
-fomc-corpus,1991,"To the extent that we have or believe that we have countercyclical capabilities, it seems to me they rest on our credibility; that's the only clothes we have to wear. And our credibility depends largely on our actions that support price stability. We have no price anchor; we're not tied to a price level directly. And the only thing I think we can do over time, as I have said many times before, is to maintain money growth at a low rate. That's a long-winded way of saying that I think we ought to watch money growth and I support your recommendation.",117
-fomc-corpus,1991,Vice Chairman.,3
-fomc-corpus,1991,"""B"" symmetric.",4
-fomc-corpus,1991,Governor Mullins.,4
-fomc-corpus,1991,"I support ""B"" symmetric, and I think we may well get Governor Angell's 5 percent nominal GNP as it is, although it's still not inconceivable to me that we may need a gong.",44
-fomc-corpus,1991,Governor Kelley.,3
-fomc-corpus,1991,"Mr. Chairman, I'm happy to support ""B"" symmetric but I would personally have a slight preference for asymmetric toward ease because of the asymmetry I see in the consequences of a shortfall.",39
-fomc-corpus,1991,President McTeer.,5
-fomc-corpus,1991,"I will support ""B"" symmetric.",8
-fomc-corpus,1991,President Guffey.,5
-fomc-corpus,1991,"""B"" symmetric.",4
-fomc-corpus,1991,Would the Secretary read an alternative B symmetric directive for purposes of a vote?,15
-fomc-corpus,1991,"""In the implementation of policy for the immediate future, the Committee seeks to maintain the existing degree of pressure on reserve positions. Depending upon progress toward price stability, trends in economic activity, the behavior of the monetary aggregates, and developments in foreign exchange and domestic financial markets, somewhat greater reserve restraint or somewhat lesser reserve restraint would be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with growth of M2 and M3 over the period from March through June at annual rates of about 5-1/2 and 3-1/2 percent, respectively.""",117
-fomc-corpus,1991,"Mr. Chairman, the only issue I'd raise is whether, given your tendency not to move, ""might"" would be a better word than ""would.""",31
-fomc-corpus,1991,"I think I'll change it to ""might.""",9
-fomc-corpus,1991,"It would be ""somewhat"" still? CHAIRMAN GREENSPAN(?). Yes.",18
-fomc-corpus,1991,"""Somewhat greater or somewhat lesser...might be acceptable.""",12
-fomc-corpus,1991,Call the roll.,4
-fomc-corpus,1991,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Black Yes President Forrestal Yes President Keehn Yes Governor Kelley Yes Governor LaWare Yes Governor Mullins Yes President Parry Yes.,41
-fomc-corpus,1991,Thank you.      Our next meeting is May the 14th.     Let's adjourn for lunch.,21
-fomc-corpus,1991,"Are there any comments raised by the report on the examination of the System Open Market Account--agenda item 2? If not, would somebody like to move that?",33
-fomc-corpus,1991,So move.,3
-fomc-corpus,1991,"Without objection. We have a memorandum from Mr. Mattingly on amendments to the Rules Regarding Availability of Information. Virgil, do you have anything to add at this particular stage?",37
-fomc-corpus,1991,"No, I think these are technical. The major reason is that the Committee is required by law to have a fee schedule for processing requests under the Freedom of Information Act, so we came forth with these recommendations. Because we had to do so, we suggested certain other changes to the rules to update them. They are all technical; they don't result in any substantive change in any of the disclosure policies of the Committee.",83
-fomc-corpus,1991,"Are there any questions at all on this issue? If not, would somebody like to move acceptance?",20
-fomc-corpus,1991,Move it.,3
-fomc-corpus,1991,Is there a second?,5
-fomc-corpus,1991,Second.,2
-fomc-corpus,1991,"Without objection. Gretchen Greene, would you now report on foreign currency operations?",16
-fomc-corpus,1991,"Thank you, Mr. Chairman. I hope you can hear me; I'm suffering from the same throat ailment as some others here. [Statement--see Appendix.]",33
-fomc-corpus,1991,"Questions for Ms. Greene? If not, would somebody like to move to ratify the transactions?",20
-fomc-corpus,1991,There is nothing to ratify.,7
-fomc-corpus,1991,There were no transactions.,5
-fomc-corpus,1991,"No transactions. That's easy. Thank you. In that event, let's move on to the report of the Domestic Desk. Peter Sternlight.",28
-fomc-corpus,1991,[Statement--see Appendix.],6
-fomc-corpus,1991,"Thank you. Questions for Mr. Sternlight? MR. FORRESTAL Peter, what was the foreign participation, particularly Japanese, in the Treasury refinancing?",31
-fomc-corpus,1991,"It was quite strong in the 3-year, rather modest in the 10-year, and about average in the [30-year] bond. The bond had really light coverage. I think the major deficiency there was domestic demand; customer demand was really on the light side.",55
-fomc-corpus,1991,Governor Mullins.,4
-fomc-corpus,1991,On the 30-year bond auction I noticed a messy tail and light coverage. How much of that had to do with this botched bid problem?,30
-fomc-corpus,1991,"There was, as you note, a botched bid; but it still would have been quite light coverage.",22
-fomc-corpus,1991,But the tail wouldn't have been there?,8
-fomc-corpus,1991,"The tail wouldn't have been as big, but--",10
-fomc-corpus,1991,We don't have an automated auction system!,8
-fomc-corpus,1991,"We're working on it, Governor; we don't have it yet but I would say that even an automated system is not going to remove totally the possibility of botches from time to time.",37
-fomc-corpus,1991,How about the noncompetitive bids?,7
-fomc-corpus,1991,I don't remember specifically; I don't remember their being out of the [ordinary].,16
-fomc-corpus,1991,"On the 3-year note, they were very close to the previous one; but I'm not sure about the 10- and the 30-year issues.",32
-fomc-corpus,1991,"Okay, I thought there was some sense that they had ticked up a bit.",17
-fomc-corpus,1991,President Parry.,4
-fomc-corpus,1991,"Are you surprised by the narrowing of quality spreads at the long-term end of the market? What do you think explains most of that narrowing, particularly that involving less than investment grade securities?",37
-fomc-corpus,1991,"I'm a little surprised at the extent of it. I think the big widening of spreads occurred, and particularly got exacerbated, during that somewhat scary year-end period when some genuine systemic concerns were beginning to emerge. As it was clear that we were getting through that period and that the economy was, though in a downturn, not in utter collapse, I think there was reason to expect there would be some narrowing. So, the fact of some narrowing shouldn't be any surprise; but the extent of it has been a little more than I would have predicted.",110
-fomc-corpus,1991,"On the index I'm looking at, which is the Merrill Lynch index, although the spreads have narrowed by 4 percentage points from their highs around the end of the year, as Peter said, they are back to where they were in the first half of 1990. And that's 4 percentage points over where they were in '86, '87, and '88.",75
-fomc-corpus,1991,"Peter, the 30-year Treasury rate, which seems to be going in the wrong direction, is hard to judge. What is the market's view on this? Is this a supply issue--just a very heavy volume of financing coming to market for [unintelligible]--or is this inflationary expectations?",64
-fomc-corpus,1991,"It's very hard to sort out. I think both of those factors are there, President Keehn. Recently the most potent concern has been just the sheer supply. But lurking in the background there is concern not so much about a lot of inflation expected but of recovery expected and concern that there will be more competing demands for long-term financing.",67
-fomc-corpus,1991,Any other questions for Peter?,6
-fomc-corpus,1991,I just have a short one for Peter. The Bluebook indicates that the [funds] rate traded low because of market expectations. And I was wondering if you were having trouble signaling to the market.,41
-fomc-corpus,1991,"There was that one occasion when the funds rate was sagging in mid-April and there was even some speculation beginning to build up that we were deliberately being tolerant of lower rates, and we thought it was good just to clear up those misperceptions by going in early one day. And I think the market got that message quite clearly on that occasion. Through virtually all the rest of the period the market seemed pretty clear in its perception of what they thought we basically were aiming for.",97
-fomc-corpus,1991,Would somebody like to move to ratify the actions of the Desk?,14
-fomc-corpus,1991,Move it.,3
-fomc-corpus,1991,Is there a second?,5
-fomc-corpus,1991,Second.,2
-fomc-corpus,1991,Without objection. Let's now move on to Mike Prell.,12
-fomc-corpus,1991,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1991,Questions for Mr. Prell?,7
-fomc-corpus,1991,"Mike, on inventories: What do you make, if anything, of these stories that we have a smaller number of retail outlets for any given volume of sales and that there is a secular downtrend in this? Is that something worth paying attention to?",50
-fomc-corpus,1991,"Well, I've made the argument for a long time now as I've looked at the trend of inventory-sales ratios in retailing. I've looked at the enormous growth in floor space in retailing and the many shopping malls that have opened up. We have developed an awful lot of stores. Each one of them has some inventory. They have clearly moved beyond the point of adequate returns and we're seeing an industry shakeout. And in the course of that shakeout we probably will have some consolidation over time and some movement down in inventory-sales ratios. That's a very macro sort of view of the process. But clearly retailers have moved to try to capitalize on computerization and some of these other [techniques] such as ""just-in-time"" deliveries. They should be doing better on inventories than they seem to have done, and maybe this is part of the story.",171
-fomc-corpus,1991,What makes it a little hard to tell exactly is the lack of some abstract notion that targets what the inventory-sales ratio is and how far we are--,30
-fomc-corpus,1991,"We still don't hear a lot of complaints that inventories are uncomfortably heavy. On the other hand, the profits aren't there. Something is out of kilter. I think this excess capacity in the industry is reflecting part of the excess stock of consumer goods on the shelves.",55
-fomc-corpus,1991,President Parry.,4
-fomc-corpus,1991,"One of the reasons for weakness in the second quarter is the pickup in nonfarm inventory liquidation. If you look at what we know in terms of sales and industrial production, which is admittedly very sketchy, do you think it's possible or would you say more likely now that we could actually see the pattern that seemed to be developing in the first quarter continuing in the second? That is, could actual inventory liquidation turn out to be less in the second quarter than in the first?",95
-fomc-corpus,1991,"Well, I think you put your finger on the problem in saying anything with any great conviction at this point: We don't have much data. We've looked at orders to try to see beyond the data for recent months that we have on industrial production. We don't know a great deal about the flow coming in from abroad or going out from current production; that's an unknown. We basically reached this conclusion as one that was consistent with what we thought plausible as a final demand picture and what we sensed was going on in terms of production. Also, I think there is certainly in some sectors a desire to achieve lower inventory levels. And, as I've noted, this is the third successive quarter of substantial inventory liquidation. For a recession that we entered with supposedly pretty lean positions, we're ending up in total absolute dimensions with an inventory liquidation that's pretty much in the ballpark of previous cycles--not relative to GNP but simply in '82 dollar terms. So, maybe there is some upside risk, but I don't think there's a great desire to accumulate inventories at this time.",211
-fomc-corpus,1991,President Stern.,3
-fomc-corpus,1991,Is there something unusual in what we're seeing in personal income?,12
-fomc-corpus,1991,I don't think this is greatly atypical.,9
-fomc-corpus,1991,"Relative to what is happening to GNP, this is not atypical. In other words--",19
-fomc-corpus,1991,But GNP has been strong.,7
-fomc-corpus,1991,"The falloff in GNP, assuming our forecast is right, would be about half the typical peak-to-trough decline in GNP. But if you look at the ratio, say, of personal income to GNP, that ratio has its own cyclical pattern.",54
-fomc-corpus,1991,"And we may not be getting, overall, the kind of cushion we did in some cycles in terms of the government sector. But I don't think there's a gross disparity here. We were disappointed, as I noted, in the first quarter; much of the surprise was in data revisions. Some of it seems quite plausible to us. Previously, the interest income figure seemed to be holding up more than appeared reasonable in light of what was happening to interest rates. So now we've had a significant reduction in interest income in the figures for the early part of this year. It's reasonably sensible.",116
-fomc-corpus,1991,They calculate that interest income in a very simplistic manner.,11
-fomc-corpus,1991,"Well, of course, they use the very best data that are available: our flow-of-funds accounts!",22
-fomc-corpus,1991,"Any further questions for Mike? If not, can we have our ""tour de table""? Who wants to start off? Si.",26
-fomc-corpus,1991,"Let me correct something. We did have some numbers and I blanked out on this. We're getting more DPI decline in this recession than on average in prior recessions. That's what I had in the back of my mind, but then I was thinking no other data I had seen looked different from that.",61
-fomc-corpus,1991,"Again, is that relative to the GNP decline?",11
-fomc-corpus,1991,"Yes, especially since this is a lesser GNP decline.",12
-fomc-corpus,1991,Who would like to start?,6
-fomc-corpus,1991,"Mr. Chairman, conditions in the District remain unchanged from the last meeting. You will remember that having come through the early phases somewhat better than other areas of the country, the data have now caught up with us, and the current level of activity in the Midwest, I think, is very much reflective of national conditions or already perhaps even a little weaker. There may be some tentative signs of improvement, but nothing specific to suggest that we have reached a turning point. I think you can tell from Mike's comments, and it's certainly true in the District, that the critical area of focus is the auto industry. Our District will not show a real-side improvement until we see a sustained pickup in the level of retail auto sales. With the first and second quarters essentially complete now, the 1991 model year really has been a big disappointment. The forecast of total sales for the full year was being pulled down to 12-1/2 to 13 million units and even that reduced level is quite dependent upon having a good improvement in sales in the third and fourth quarters. And though car inventories at the retail level are really quite low at this point, the dealers are still reducing their orders substantially. At the time of the last meeting I reported that orders by retail dealers were in excess of or within the sales level. That has turned around. The dealers have turned quite negative and are ordering cars at about 80 percent of the current sales level, and that's, of course, very unusual for this time of the year. In part, the dealer attitudes are based on the fact that many of them are losing money; at this point something like 50 percent of the dealers are in loss positions. Despite this, given the seasonal factors of course, production in the second quarter is going to be up quite a bit from the very depressed levels in the first quarter. Still, that higher level of production will be substantially under the production levels of the second quarter of last year. But because of this shift between the first and second quarters, in a production sense the industry is going to be less of a drag on GNP than it was in the first quarter; indeed, it might have something of a positive effect. As a final comment on the auto industry, I certainly would say that the enormous first-quarter losses that the Big Three experienced have cast a big pall on the Detroit area. Many of the other sectors of the District are impacted by the auto situation. In the steel business, for example, one of the CEOs was telling me that his business was, in his term, ""rotten."" They currently are operating at about 70 percent of capacity. The forecast of shipments for the year has been reduced from 85 million tons last year to 76-77 million tons this year. And of that reduced level, about 20 percent is going into the export markets; of course, those sales have very little margin, so there's not very much profit there. Other suppliers of the auto industry are equally hard pressed. Some of the other parts of the District also are having a fairly weak time of it. Construction activity, for example, continues to fade. Construction contract awards are off very substantially from last year; through March the awards level is something like 26 percent under last year's level. And people in the concrete business say that they are experiencing something of a free fall. More positively [for prices], though, the news in the agricultural sector is really quite good, mainly because of a reduced level of exports. Corn and wheat prices are under [downward] pressure; that's going to hold down farm income. Nonetheless, I think in an inflationary sense that ought to be good. Due to heavy rains--we have had a lot of rain in the Midwest--planting is about 10 days late. But this is really a good problem, not a bad problem. People I talk to say that the planting conditions really are excellent. And while it's certainly far too early to judge the outlook for crop production, at least at this point it looks pretty good. Also positively on the inflation front, based on my talking to people, I think the price outlook is continuing to improve. Competitive conditions in the marketplace are awfully tough. Price increases are just very, very difficult to sustain. And people who keep track of their raw material purchases say that they are experiencing very little price increases on raw material purchases. The CEOs, looking ahead, still don't have any expectations that they're going to experience a very big price escalation. Net, while in a national context we may well be reaching a turning point, certainly we don't yet see it in the District. From our perspective within the District an improvement is going to be very dependent on the auto sector--an improved level of sales following the end of the model year production--and also an increase in exports. Certainly at this point both of these objectives seem agonizingly elusive.",987
-fomc-corpus,1991,President Black.,3
-fomc-corpus,1991,"Mr. Chairman, I think the staff's downward revision in their projection of real GNP for the second quarter makes sense in light of the incoming information. More generally, the overall profile that they've predicted for the next three or four quarters strikes us as eminently reasonable given the staff's policy assumptions, the behavior of most of the leading indicators, and the pattern of recent anecdotal information. It's interesting to me how close the projections of the staff are to those of the private economy. Mike suggested theirs were a bit stronger, but it seems to me they are remarkably close, which is something that many people might view with alarm given the record of forecasters in the past. I might be one of those except that I believe they're about right on this. And I believe that the risk of error is about equal on the up side and on the down side. I guess the most important question we ought to ask ourselves is: How great is the risk that we will have a big error on the down side? In other words, how likely is it that we will get a significantly greater decline in the current quarter than the staff expects and that this will be followed perhaps by a greater decline in the third quarter? Obviously, we can't rule that out entirely; but in the absence of some totally unlikely, unexpected negative supply shocks such as we had last August, the probability of that kind of decline seems to me to be pretty low. We've already taken out a lot of insurance to prevent such a thing happening, with the cumulative policy actions over the last six months or so. And beyond that, we're now seeing new signs of life in residential construction, strength in the stock market and some of the other leading indicators, and a recent upturn in the National Association of Purchasing Managers' index, which was higher in April than it was in the lowest quarter trough of any previous full economic upturn. So, those all suggest to me that we are probably now very near the bottom of a recession. Whether it's going to be longer or whether it's a near trough, I don't know. But it seems to me that a significant further weakening is decidedly unlikely. I was particularly glad to see that the staff has reduced its inflation forecast because I have felt for some time that we had followed a very wise policy [course of] action and that it would pay off in terms of inflation numbers. The staff has cut a couple of notches off the inflation projections for both this year and next year and they're now predicting a core rate of inflation of about 3 percent at the end of 1992. And I think we ought to have at least that degree of progress against inflation. But it is important that we keep in mind what the staff has assumed when it made these projections, and that is that we'll come very close to achieving the midpoint of our target range for M2. I think it's critically important that we take whatever steps are required to keep M2 somewhat in that range in case the recovery and consequently the money demand turns out to be somewhat stronger than it now appears to us that it might be.",619
-fomc-corpus,1991,President Forrestal.,4
-fomc-corpus,1991,"Well, Mr. Chairman, activity in the Atlanta District is generally the same as in the rest of the country as a whole, although I must say that the business people I've spoken to recently are somewhat less pessimistic than they were six weeks ago. In the immediate Atlanta metropolitan area, the sentiment has gotten a big boost by the announcements from UPS and Holiday Inn that they are moving corporate headquarters there as well as the awarding of the fighter aircraft contract to Lockheed. The most positive event that has happened is that there have been significant increases in sales of single-family homes in the last several weeks. On the retail side, consistent with the report we had this morning, retailers in the District are reporting a pickup in sales in March but activity in April fell off and was below their expectations. Tourism, too, has picked up as well as convention bookings in the District, and that is interesting to note, too. Foreign visitors are beginning to come into the area again after the Persian Gulf situation; that's particularly true in Florida. In the manufacturing area, orders are still fairly weak, employment levels continue to be reduced, and capital expenditures are still being postponed by most business people that we talk to. Exports from the District have also been weak; some are attributing that to weaker growth abroad. But I think another factor to be taken into account is that military shipments from the District ports displaced regular shipments; that probably accounts for some decrease in that export activity. The agricultural area is quite mixed. Crop production probably will be lower this year but fruit, vegetable, and livestock should be higher. Si mentioned the rains; we've also had heavy rains almost throughout the entire District and that has delayed planting in practically every state. All of the states in the District have been hit, as have many others of course, by revenue shortfalls. Up until now in our District the legislatures have resisted any major tax increases. But if we don't get a turnaround in the economy fairly soon, I think most of the states in our District are going to have to look at major tax increases next year. The credit crunch seems to be about the same as it was at the time of our last meeting; that is to say there really doesn't seem to be much change in the standards that the banks are applying. The problem, according to most bankers, is on the demand side. There just isn't a great deal of demand for loans. Price increases, as someone else mentioned, are minimal if not nonexistent; and that seems to be what is expected over the next several months. Looking at the national economy, we've lowered our forecast since the last meeting. We're somewhat weaker in both '91 and '92 compared to the Greenbook, but not appreciably. We have both consumption and exports weaker and as a result our unemployment is a bit higher. But we also show a little better success on the inflation side; our inflation number is a bit lower. I think the risks in the forecast are more symmetric now than they were several weeks ago--certainly more symmetric than they were earlier. I have been saying right along that I thought the risks were on the down side; I'm not so sure that they're completely on the down side now. But, and I think Bob Black was alluding to this, the costs of missing are really not symmetric at all. That is to say, it seems to me that the costs involved in overshooting the forecast are not very high, given the present levels of capacity and unemployment. But if the economy turns out to be weaker than the forecast, then I think the costs would be very, very high indeed. Obviously, we need to take that into account as we set our policy recommendations.",740
-fomc-corpus,1991,President Parry.,4
-fomc-corpus,1991,"Mr. Chairman, the Twelfth District employment statistics have become a bit weaker since our last meeting, although the District as a whole continues to outperform the rest of the nation. In March only the state of Arizona reported a month-to-month gain in employment in our District. However, the declines in the District's other states follow several months of relatively robust employment growth. Employment levels still are between 1.6 and 4.8 percent higher than they were a year ago in District states other than California. And that would compare, I think, to a fall of about 1.2 percent in the rest of the nation. California's economy has slowed with the nation. Since last July employment has fallen nearly every month; in April the state posted its first year-over-year decline in the level of employment which was down 0.4 of a percent. Durable goods employment continues to fall, led by declines in aerospace and electronics. I think some of our losses were gains in the Atlanta District. Construction employment has fallen to a level about 8 percent less than it was a year ago but, interestingly, real estate sales and prices have picked up. As a matter of fact, the median price of residential real estate in California is now above its previous peak. The effects of California's economic slowdown, combined with growing structural problems in the state's budget, have resulted in a projected $12.6 billion deficit by the end of the next fiscal year. Tax receipts have been low for rather obvious reasons: weak sales, weak consumer spending, and also unexpectedly low corporate and bank profits. At the same time, case loads in the health area, welfare, and especially at prisons have risen sharply, and mandatory cost-of-living adjustments have further increased required expenditures. At the same time Governor Wilson has proposed [reducing] the deficit through a 1.5 cent sales tax increase--the tax right now is 6 percent or higher based upon some local initiatives--elimination of all COLAs on programs, and shifting some state services to the counties, although no one can figure out where the counties are going to get the money to finance this. Where this will all end up is difficult to say because the governor is adamant about not changing income taxes. As far as the national outlook is concerned, our view is not very different from that of the Greenbook. We have slightly slower economic growth and a bit less inflation. We expect the economy to be roughly flat in the current quarter and then we think real growth probably will average somewhere in the 3 to 3-1/2 percent range in the second half, which is a little weaker actually than the Greenbook. Next year, we look for growth to slow a bit to 2-1/2 to 3 percent. It's clear that the main sources of expansion should be the easing of monetary policy, which President Black referred to, a gradual improvement in consumer and business confidence, and a pickup in inventory investment. It also seems quite obvious that the recent rise in the dollar and slower economic growth abroad are going to limit the contribution to growth that will be coming from the foreign sector. In view of the slack in the economy and also the lower oil prices and the higher dollar, we would expect inflation as measured by the CPI to decline next year to about the 3 to 3-1/2 percent range.",681
-fomc-corpus,1991,President McTeer.,5
-fomc-corpus,1991,"With regard to the national economy, we have no quarrel with the Greenbook forecast. For the Eleventh District, we have been right at the top of the Districts in terms of maintenance of employment levels. As a matter of fact, we were probably number one until a couple of months ago; I believe about a month ago the Kansas City District overtook us. But now we're beginning to experience a decline in employment and a rise in unemployment rates. Many of our local unemployment rates are now at or above the national average. The strongest data in our District are in Texas, particularly the Houston and the Gulf Coast areas. Petrochemicals and energy seem to be helping them a little. The impression we get from our directors is that growth is positive but barely so. Borrowers in our District believe that the credit crunch is very real; they always have and still do. Generally, bankers have been telling us that there is just not good credit demand. The Texas Bankers Association did a poll the other day and the majority of them said there was a credit crunch and that it was all the regulators' fault that it existed. State finances are tight, too, and Texas is beginning to talk about an income tax.",245
-fomc-corpus,1991,President Syron.,4
-fomc-corpus,1991,"Thank you, Mr. Chairman. The economy in New England is very poor, with few spots showing improvement; [there are some exceptions], primarily housing. Perhaps most disturbing is that I think this may have to do with just getting further into a recession; an enveloping feeling of gloom has affected everything. And I see that it spreads further down in the Northeast, actually. As other people have noted, we too have continued problems with state and local governments. If anything, the estimates of the deficits on a state-by-state basis are increasing and increasing in a fairly significant way, which will absolutely necessitate significant tax increases. The retail situation, however, is a little mixed. Durables are not good; autos in particular are very soft, although nondurables have picked up somewhat. Some mail order houses particularly have noted a pickup in demand; a lot of that is probably [goods] sold out of the District. Interestingly, consistent with improving their margins, some [chains]--and we still have to see how this will work out--actually are charging for postage on catalogues. Commercial real estate continues to decline. As I mentioned, housing has picked up a bit for first-time [buyer] units, which in our District at this stage of the game are homes whose prices total less than about $200,000. Manufacturers seem to have become quite pessimistic even in the computer area where things have picked up a little nationally. Suppliers to the auto industry and to the aerospace industry are quite pessimistic. Interestingly, we have several defense contractors some of whom--for example, --also have a significant part of their business in the commercial sector, and they have said that on balance any improvement they got on the defense side was washed away by the regular civilian side. They still see this long-term reduction in restructuring on the defense side. Prices, consistent with all this, continue to be pretty well behaved. Our lenders are quite cautious. Even a couple of our largest banks will say, essentially, that they are not lending unless it's extremely good credit. Others that are in a little better shape will tell you that they just are concerned about the loan quality coming in. But universally they are seeing very, very little in loan demand. As a consequence, they just don't want money. I think this is related to what is going on in the monetary aggregates. Some institutions that have had potential customers come to them are really lowering their offering rates quite a lot. Those are people coming from institutions that are closing or have capital [problems] and from others that don't feel they need any money. I'm not quite sure how one factors this into evaluating the situation, but at least in New England--and I suspect more so nationally as well--this issue of restructuring that we've talked a lot about both in financial services and manufacturing, and what is happening in inventories and in state and local governments, does make a situation in which one has to look at the employment numbers at least somewhat skeptically as we go forward. Once managers get into this process of feeling that they can have the same level of output and maintain their margins by reducing costs if not increasing sales, they discover all kinds of opportunities that I think they're going to exploit for some time to come. I was struck by talking to several people who were saying that there's still more to do here and that they are discovering new opportunities. One interesting story that fits with what is going on in inventories--showing that this is again a two-sided sword--is that we talked to an off-price discounter who indicated that business was horrible but the reason business was horrible wasn't so much that the demand in the stores was horrible; it was because manufacturers had maintained their inventories more carefully and he wasn't able to pick up the volume of distress sale goods that he could before. Nationally, I find the Greenbook forecast very plausible on a center-weighted basis. One would really have to nitpick to find fault with it. It is more useful to ask what the risks are. I would think that in a very, very marginal sense the risks might be slightly on the down side; I see the third quarter falling into the same pattern as the second quarter conceivably, typically because of concerns about exports. But I do think--and this goes back to what Bob Forrestal said--that one needs to look at the risks of the outcome, if you will, not just the risk of something happening. If we were to get much further deterioration than we expect, that could be fairly difficult to deal with given the problems that we have in some sectors. On the other hand, one has to be very encouraged by at least the forecasted improvement in prices that we see. It really would be tragic to throw that away. So, I think it's very hard to be sure of the outlook at this point, which makes it extremely important to follow the data that continue to come in very, very closely.",992
-fomc-corpus,1991,President Stern.,3
-fomc-corpus,1991,"Mr. Chairman, I would continue to characterize conditions in the District as mixed, but overall not bad. Agriculture is looking pretty good. The key word there, as usual, is moisture, and in much of the District it now appears to be adequate this year. The livestock sector is really doing very well, as it has over the past several years as well. In the paper industry and the forest products industry, again, conditions are mixed. There is a lot of excess capacity at the moment in paper and even more coming on [stream], but the profits aren't there. But that's a business where they tend to run at capacity almost no matter what, and they're still running at capacity, at least in our District. The wood products business has come back a bit, and that's probably a consequence of an inventory cycle and maybe some optimism about the outlook for homebuilding. Clearly, housing sales have picked up substantially, certainly in the Twin Cities. It's my understanding that not only are houses selling but they are selling at pretty close to asking prices without any fancy financing so far as I can tell. On retail sales, once again I haven't heard any horror stories. Some people say business is tough and some say it's satisfactory, and that seems to be about the way that has been holding. Only one state in the District has a significant budget problem with which they have not yet come to grips. I don't know at this juncture what the pieces of that resolution might turn out to be. With regard to the national outlook, I'm pretty comfortable with the Greenbook forecast. I also think, as several people have commented, that it pays to reflect on the risks a bit at this juncture. The risks are probably symmetric in the sense that while a recovery by midyear is likely, I do think we're going to need to see a good deal more consumer spending. In that regard, I have been under the impression, and Mike confirmed it, that perhaps disposable income has been somewhat weaker than I would have expected throughout this contraction, and that is certainly a source of concern in my mind. On the other hand, as to the risks on the inflation side, I find the recent data encouraging and most of the anecdotal reports I'm getting encouraging as well. But I must say I'm not persuaded yet that we have nailed down a significant reduction in the core rate of inflation. I'm a little puzzled as to why the bond market has not responded at this juncture, not just to the inflation news but to the overall picture of what is happening domestically and abroad. And I wonder if we don't have to be a little sensitive to that.",526
-fomc-corpus,1991,You mean [the volume of debt financing] doesn't explain it?,13
-fomc-corpus,1991,"No, I don't find that an adequate explanation.",10
-fomc-corpus,1991,President Boehne.,5
-fomc-corpus,1991,"In the District, the signals are mixed but on balance I think the overall District economy is still down like that for the nation. As in the nation, commercial real estate and retail sales are generally negative. There are some indications that manufacturing is beginning to bottom out. The only clear area of upturn is in home sales. Loan demand is still weak. Bankers say that there isn't demand; the business people--or some of them, anyway--say that the bankers won't lend. With regard to state and local governments, Philadelphia is about to go broke; the states have deficits. So, I think that situation is fairly general. I would say the attitudes vary from cautious optimism, with more emphasis on ""cautious"" than ""optimism,"" to a lot of concern on the part of business people about when a recovery will occur and what kind will occur. I find more people who are just about writing off 1991 as a bad year and they are beginning to look to 1992. I sense, and I don't think it's particularly unusual at this stage of the business cycle, a dichotomy now between those who analyze the economy and those who manage it. I think most of those who analyze the economy see signs that the economy is beginning to pick up, whereas those people who have annual meetings to chair--whether they want to downsize the company another notch or they are going to meet the financial analysts--want to be reassured that there really is a recovery out there; they don't really yet feel it in their bones. We're at a fairly critical period in that, if we don't begin to see some tangible evidence on a broader base that we are indeed going to get a recovery, we could see confidence really drop off and we might have a double-dip in terms of the downturn. I do subscribe to the notion that the economy is going to pick up, but I think we're playing with some tender attitudes out there. I would say that the risks are probably even to maybe marginally on the down side. But I [agree with] those who are concerned about the outcome. If we don't get a recovery or if it's postponed, I think there will be some real costs and it will be quite difficult to try to get the economy turned around. On the inflation side, my sense is that financial markets may be somewhat behind in appreciating what is going on in most of the economy. We're making better progress on inflation than I would have expected a few months ago and that's positive. I think the long bond market has some catching up to do there. As for the Greenbook forecast, I think it's reasonable. I would probably have more of a saucer shape kind of recovery--perhaps a little weaker--but it's hard to quarrel with the basic analysis there.",559
-fomc-corpus,1991,President Guffey.,5
-fomc-corpus,1991,"Thank you, Mr. Chairman. In the District itself we continue to see some modest pickup in economic activity. In manufacturing, for example, the auto plants are not back full out, but the Ford plants are running two shifts and a large General Motors plant in Kansas City itself is beginning to put people back on [the payroll]. It also has raised a problem in that they simply have begun to use overtime rather than put a second shift back on. And the unions have become very upset because auto manufacturers haven't put the second shift people back to work. As a result, I think they're trying to manage [unintelligible]. It does seem quite clear to me that although the auto makers' projections are not strong, there will be some positive impact on our output in the period ahead simply because they are starting from a very low base and they are at work and are producing. In the aviation area, general business aviation--the small jets, for example--is still very good. They had very good bookings and sales in the first quarter and that is projected to continue. Construction remains sluggish, particularly in the commercial area, but in the residential and other nonresidential areas some pickup is evident. The agricultural area has already been discussed. The winter wheat crop looks to be fairly good and is spotty only in the sense that we've had some fairly severe weather come through the Midwest and that could be devastating to wheat at this stage in its development simply because of the hail and strong winds. But by and large there is a fairly optimistic view of that crop. The problem, obviously, is the weak commodity price for wheat. Nonetheless, it's better to produce than not to produce. Cattle producers, as I've indicated before, are doing very well, and that's projected to continue. In the energy area, drilling has slacked off I think simply because the stability of the imported oil prices at $20 a barrel or thereabouts does not encourage very much exploratory drilling. There has been some development drilling. That is, after a field is discovered, it has to be developed, and there is some modest activity going on in that area. The other area of optimism in the energy field is the oil field suppliers who take some encouragement from the Gulf contacts that they established as a result of the Persian Gulf oil catastrophe. With regard to the national picture, I have no great quarrel with the Greenbook forecast. As a matter of fact, I think it's a good deal better than it has been in the past. We believe that the staff is a little over-optimistic on the timing in that their second-quarter forecast is considerably stronger than we have, although the second half of the year really comes out about the same. So, it's simply [a difference in] timing. When we scaled back the second quarter we scaled back a bit from where we were before. But, on balance, it's as good a forecast as I think one can make, and it's a believable forecast.",596
-fomc-corpus,1991,Vice Chairman.,3
-fomc-corpus,1991,"Well, Mr. Chairman, on the forecast first: We have a profile at least that is similar to Mike's, although not quite as strong--especially in the second half of the year. But certainly [we expect] a respectable recovery over this six-quarter period. Mike did mention several areas of uncertainty. One of the reasons why our recovery is less robust than the staff's is net exports; the staff essentially has net exports plateauing and we have a $20 billion deterioration built in over the entire forecast period. I don't have a lot of confidence in that forecast and I think Mike made the point earlier that it could go the other way. But it is in marginal terms an area of great uncertainty in this forecast period. And the difference between 0 and +20 or 0 and -20 in terms of the kind of growth rates we're talking about here is not inconsequential. Another point I'd just mention about the forecast--several people have mentioned it--is the state and local sector in a context in which the underlying thrust of fiscal policy is probably on the restrictive side as well. The state and local [data] have all kinds of smoke and mirrors in them and it's hard to know what the real picture is. But it's hard to dismiss the possibility that there could be a greater measure of difficulty there, especially because these problems are so pervasive. There are darn few states and certainly few major cities that don't seem to have pretty hefty fiscal problems. Again, the smoke and mirrors makes it a lot harder to judge how difficult that may be. But, as I said, I would associate myself with those who feel the risks in the forecast probably are more symmetric than they were, in part because of the changes in policy that have been made. On the anecdotal side, we clearly hear report after report to the effect that the residential construction market is looking much better. In your old neck of the woods of [northern] New Jersey, Tommy, one of the thrift people was telling me the other day that in the first three months of the year the stock of existing unsold houses in Summit was cut in half. That's one little community, but that community is not a trivial piece of the puzzle up there in northern New Jersey. The commercial side is lousy. And in the industrial sector, the comments that I get from big manufacturing companies continue to be sour across the board. Of course, a lot of these guys are sour all the time so you don't try to make [much] of that. But one comment you do get from these guys who are sour all the time is that there is a higher sense of anxiety about the outlook for their exports over the next four to five quarters. It's also important at this point to note--and several people have touched on various facets of this--that we can now see several areas in which some good things are happening that are not entirely unrelated to the kind of policy that we've been following. For example, balance sheet rebuilding even in the face of the decline in the saving rate in the household sector is making some real progress. And what we're beginning to see in the corporate sector is also noteworthy. Indeed, if you look at some of the things that were going on in the second half of the '80s, particularly for the companies that aren't already bankrupt, this reverse of the old phenomenon is not entirely inconsequential. Taking a longer view, I think this balance sheet rebuilding, while it may temper the recovery, could turn out to be a very healthy development for the intermediate term even though it may dampen things a bit in the near term. Somebody mentioned--Dick Syron, I guess--that restructuring is taking many forms and includes state and local governments. I think that is now more than straws in the wind and that's beginning to pay off. I'm trying to remember, Mike, when the last time was that we had a 2.8 percent decline in GNP and a 1 percent rise in productivity; I'm sure it has happened, but not very often. And that in itself may be symptomatic of some of those things. A number of people have mentioned the inflation situation, and I have to say that in this area there has been a change in my thinking. For the first time since the so-called core inflation rate plateaued at around 4 to 4-1/2 percent in 1984, I think we have a pop at penetrating that 4 to 4-1/2 percent core inflation rate. I've never felt that in this entire period. Now, like Gary Stern, I'm not ready to bet the ranch on it, but I do think that the inflation outlook is distinctly better. I still have to wait a little to see if we can get through that threshold. My hunch is if we can get through it, we might have a reasonable chance of staying through it. So, I think the outlook is still murky; there are plenty of uncertainties. But on the other side of the coin, I can see in a number of areas things that might bode well for the intermediate term.",1027
-fomc-corpus,1991,President Melzer.,4
-fomc-corpus,1991,"I haven't heard much change in the kind of anecdotal information we've been hearing for the last couple of months, though there is a somewhat more positive tone to it, with strength in the obvious places but no evidence in those comments of new areas of strength and no new areas of concern. One other comment on the anecdotal side I would make is that Jerry mentioned the sour comments from manufacturers and I wonder--and it's too early to tell now because I suspect their orders are still pretty lousy--whether they're going to be expecting too much out of this recovery. They may be thinking of more traditional recoveries. My guess is that it's still going to be a very difficult environment in which to do business. On this point I was amused that when Alan was in St. Louis a month ago we heard one manufacturer who heads up a very well-managed company fussing about the margin pressures. He said he hadn't seen anything this bad since '74-'75. But subsequently, having seen their first-quarter earnings, there was another increase--maybe a record. So, there are some people who like to tell us how tough it is. As for the numbers themselves, as was noted before, the positive information we're receiving is mostly anecdotal and it isn't there in the numbers. In our District it's starting to show up in the numbers through the first quarter. We actually had nonagricultural employment growth at about--not quite--a 1.5 percent annual rate. Manufacturing is still weak; that's primarily in transportation, autos and aircraft. And in nonmanufacturing and services, there was strength across the board with most of the contribution being from wholesale and retail trade and services. We also had growth in the construction sector. The previous four quarters all had declines, so this was the first positive quarter in nonresidential construction contracts in over a year. On a broader basis, one comment I want to make is on this inflation question. I'm somewhat troubled the more I hear comments about and see in the press good reported inflation numbers. When I say in the press, I mean comments from market observers--I don't associate this with what Jerry was saying before about better reported price numbers in the short run--that somehow that gives policy room to move. I have two reactions to that. One is that I think the numbers we're seeing now are the result of actions taken many months ago, if not years ago. And in that sense I don't think they justify any action on our part in the short run if policy is in the proper position. The second aspect of that, and the more important, is that these are declines from unacceptably high levels to somewhat lower but I think in a longer-term context still unacceptably high levels. What I'm saying is that if the policies we've put in place over a long period of time are working, we're going to go through a fairly long period where we're going to see better price numbers, but that in and of itself shouldn't be a justification for easing. There is this rather simple-minded concept sometimes in the financial markets that somehow that gives the Fed room to ease and I just don't buy it.",627
-fomc-corpus,1991,Governor Angell.,4
-fomc-corpus,1991,"There are indeed mixed signs out there. But I think we should note that the three major forces that took us into a downturn are no longer there. We no longer have any energy/oil price escalation that is eating up purchasing power; most of that price increase is now out of the system, as we've seen. The housing price situation, whether it's deflation of disinflation, has changed; whatever it is has slowed down. We're in an environment in which we have improved affordability of housing, and I think that going from a minus to a plus is a rather significant factor. And we're already seeing what is happening in regard to the autos--at least the inventory adjustments that already are there. That leaves us, then, with [a question of] what it might be that would take the economy another leg down. And I frankly do not believe that the risks of that happening are symmetrical. I suppose it certainly is true that if net exports were to falter, having been as strong as they've been, that would be an offset to some of these other areas of improvement. But it seems to me rather unlikely that we'd get that much movement in net exports with the time lags that generally exist in the net export sector. Now, I think we should note that bond supply always tends to increase during a periods of downturn, which impacts government revenues. But what happens to the financial markets is that loan demand generally falls off as much; so during most recessions we get a typical downward movement of long-term interest rates that exceeds what we've had this time. We can do all the talking we want about why it is that the financial markets do not see the improvement that we see; and yet there are people who are making bets with real money and I don't think they have any reason to want to be biased. As long as we maintain money growth above the [bottom of the ranges] that we have adopted--and certainly we've maintained it around the midpoint--it would be conducive, it seems to me, to an increase in nominal GNP, if not quite as robust as you have it, Mike. Nevertheless, I would expect nominal GNP to increase rapidly enough that this improvement in inflation that everyone is anticipating thereby provides that kind of growth. It may very well be time for us to be patient with regard to being willing for that phenomenon to take place. What is wrong with nominal GNP growing 1 percent less than we have projected if that means that we're going to make that much more progress on price stability? When the bond market really sees that [progress], then I think we'll get the additional stimulus that will come from a normal cyclical decline of long-term interest rates. That has not happened in this cycle.",547
-fomc-corpus,1991,President Hoskins.,4
-fomc-corpus,1991,"Not a lot has changed around the District since the last meeting. There has been no drastic drop-off in anybody's order book that I can find and no drastic increase either. Really, very little has changed. We're running at an unemployment rate somewhat higher than the nation. And the same comments that others had about pessimism apply to the District. In terms of the national outlook, I have some discomfort perhaps even with the way we structure the meeting. We talk in these meetings about the forecast as if it's something that we can control; we can control the forecast but not the outcome very well. There are a number of real events that we simply are unable to anticipate that will change the actual outcome from the forecast. So, we almost set it up in some sense to lead us toward more of a fine-tuning approach than I think is warranted by the knowledge that we have as policymakers or as economists. That leads me back to Tom Melzer's and Wayne Angell's comments in terms of what we ought to be thinking about in the future, and that is not to be making tradeoffs for inflation and employment. It seems to me that that's nothing but a potential problem for us. Because the inflation rate is low by the standards of recent history that is no reason not to continue to press forward with what I think is the right thing for a central bank to do, which is to eliminate inflation. We can look at long-term interest rates all we want but there's not much we can do about them unless we get rid of the uncertainty about inflation. And the way to do that is to have a credible and predictable policy. I think at this point the Federal Reserve's credibility will be tested and it's very important for us not to err in that test. I'll save the rest of my comments for the [policy discussion].",365
-fomc-corpus,1991,Governor LaWare.,4
-fomc-corpus,1991,"Mr. Chairman, I have been very disappointed in the fact that a rather aggressive pattern of moves toward ease over the past several months has not really resulted in much more stimulus to the economy than the refinancing of existing debt. That leads me to the conclusion that perhaps we have a somewhat different kind of phenomenon here, namely that we have a real crisis of confidence that doesn't necessarily get cured by repeated signals of monetary ease. I guess I'm convinced that the number of things that are acting against renewal of confidence in the economy is very significant. First of all, we have genuine concerns about the health and the future of the banking system, which I think are very widespread. We have corporate profits that are very disappointing. We have a very heavy debt burden remaining for consumers, for businesses, and for governments--to the extent that the fiscal problems of state and municipal governments really have taken away their ability to have any stimulating effect on the economy. In fact, there's an overhang of apprehension on the part of both businesses and consumers that these problems of state and local governments can only result in higher taxes or reduced services or a combination of both. We have press reports of layoffs and restructurings and bankruptcies; we have lackluster performance in new orders that certainly has damped business enthusiasm for expansion. And the stubborn resistance of long rates to respond to lower rates on the short end is a reflection, I think, of inflationary expectations on the part of the public. I believe that, until confidence picks up in some fashion, the economy is likely to remain sluggish. Therefore, that leads me to conclude that the risks in the forecast really continue to be on the down side. But for the life of me I don't have a good solution as to how to stimulate that recovery in confidence.",358
-fomc-corpus,1991,Governor Mullins.,4
-fomc-corpus,1991,"I'm hopeful that the economy is pretty much on track for bottoming out this summer or in the third quarter. The evidence does suggest that it is contracting at a slower pace. We see that in the industrial production numbers, employment data, the purchasing managers' report, and maybe even in the retail sales numbers. There continue to be things that bother me. Paralleling what Mike did, I have a list of moderating influences on the strength of the upturn; it started out with only the debt overhang and commercial real estate as the two factors. I've added financial fragility--although maybe I can retire that one--higher unemployment, state and local government problems, the higher dollar, weaker foreign economies, and now some inventory concerns in some sectors. So, the weight of these moderating influences is becoming a bit heavier. It also seems to me that the Greenbook story this time in May versus March is a little less satisfying; it may be more accurate. But it is unlike the old story, which had a starring role for the consumer to lead us out of the recession--propelled by increases in real income as oil prices dropped, a wealth effect out of the increase in stock prices, and a rebound in consumer confidence. It has been four months since the market rebounded, four months since oil prices collapsed to pre-war levels, and two-and-a-half months since consumer confidence rebounded. And now in the May Greenbook we're projecting consumer spending to grow not nearly so fast as we were projecting it in the March Greenbook. Obviously, consumer spending grew a bit faster in the first quarter. The saving rate remained low but personal income didn't grow. Governor Angell asked what will take the economy a leg down; I guess I'm wondering what will take it a leg up. I wonder if there's enough impetus in this new story to get us moving. In the new recovery script, the consumer takes a less prominent role and we project these three factors to lead to the recovery: homebuilding, inventory accumulation, and capital spending. It seems to me that each one is promising and each one has some question marks. There's every reason to be optimistic that the housing rebound is real. The issue remains that of translating housing sales into housing construction. I think there's reason to be optimistic when one sees the volume of debt and equity issues by commercial banks bolstering their capital positions. It is clear that banks are going to apply higher standards in lending to homebuilders, but maybe with improved capital conditions they will not extinguish the housing upturn. I'd say there are still some questions, though, on the translation of the home sales into homebuilding. On inventory accumulation, I wonder how much we're going to get out of this. Companies either have moved or are in the process of moving to a fundamentally different philosophy of inventory management; they now have improved information technology to implement a philosophy involving very tight management of inventories. I think businesses will seek to maintain very lean inventories when the economy turns up. There has to be some contribution from inventory accumulation when they stop cutting inventories, but even when there's a little wind in the sails from some other source, I wonder how much contribution we're going to see out of inventories. I feel about the same with respect to capital spending. I see little in the orders data to suggest optimism or little from talking to the sour executives that Vice Chairman Corrigan talks with. I think we're more likely to see capital spending in response to a recovery lag the recovery rather than lead it or be coincident with it. It is encouraging to see the volume of stock and long-term debt issues by corporations. Most of that, though, is going into shoring up balance sheets, which is a good thing; not much of it is getting through to capital spending. Still, the availability of ample long-term funds on good terms should encourage some capital spending for the competitiveness reasons that Mike alluded to, or at least limit the decline in capital spending. I tend to think we'll have to see a pickup in demand first before we see much [impetus from] capital spending. So, it does seem to me that the story is a little less convincing than last time. I have a little less confidence in the upturn since we have no reliable lead actor to replace the consumer. Again, it may be more accurate, but it's not quite as simple a story. And I think waiting around while the consumer flunked his screen test for this recovery may be one of the reasons why there is some increased gloominess, at least in the business community. It may be just the executives of large companies that Governor Seger mentioned at lunch on whom the international situation--the higher dollar and weaker foreign economies--is having an impact. I think there continues to be the worry that as we wait around for this [upturn] there will be some atrophy in consumer confidence as it retreats toward the real numbers rather than spending rising to meet confidence. The discount rate move a couple of weeks ago was useful in injecting a little optimism into the picture and in demonstrating that the Federal Reserve is still in the game. And I think precipitating the prime rate reduction was a help. Still, when I look at the markets, I'm pretty reassured. The markets still seem in pretty good shape, although they may be down a bit. And they represent not only a forecast of recovery but a contributor to it--not only with the elusive wealth effect but also, as Jerry mentioned, we see them freeing up debt capacity, including short-term debt capacity. That means companies will be in good shape to respond to increased demand, should that demand ever arise. We've also absorbed a fair amount of bad news in the market: another round of bank insurance fund bad news and some insurance company bad news among those companies that specialize in high-yield bonds. There continues to be some skittishness in the long-term bond market. It made some progress and then drifted back some, although it is still off a bit, obviously, from the peak of over 9 percent in the fall. I tend to think that if you invest in 30-year bonds, you need some real convincing on the inflation side. The people who bought 30-year bonds in 1965 at 4 percent own them today or were fired and the new portfolio manager owns them. So, it's not surprising that after seven years of core inflation at 4-1/2 percent it will take some time. I agree with the sentiments expressed that we have the potential for substantial progress in reducing core inflation and that we should be careful on that front. There has been some deceleration in the monetary aggregates, which Don was talking about. Some of that was warranted to bring them more in the middle of the ranges. When I look at the interest-sensitive components of M2--money market deposit accounts and savings accounts--they are still growing at a very rapid clip and, if anything, at a too rapid clip. Of course, time deposits have been dead in the water ever since I've been here. The deceleration in Ml is accounted for by currency and demand deposits and there are plausible explanations--special factors associated with April. I don't see at this stage a serious risk of M2 growth decelerating to an unacceptably slow rate, but in this environment we ought to keep that in mind just as we should the other side as well. We still have a good bit of stimulus in the pipeline. We see its effects in the buoyancy of markets and the rebound of residential housing. And as the prime rate has been reduced, I think we may see it more broadly. Overall, I guess I'm a little more concerned than last time about the path of the real economy; I swallowed the March Greenbook whole and this one is a little less digestible. However, the markets look pretty good and I think the policy looks pretty good, despite my queasiness. This is probably a time for patience, but it's also a time for vigilance as well. I think we should stand prepared to keep things moving in the right direction if necessary. The lengthening list of moderating influences--the reduced forecast of consumer spending, somewhat slower M2 growth--suggest to me less risk of an overshoot in the current environment. And the current environment reminds me of a sailing analogy: When you're sailing and you try to tack, which means to turn in a very light wind, what you do is push the tiller over to the other side of the boat and you shout as confidently as you can ""hard-a-lee,"" which means ""we are turning."" Then you wait and wait and hope a little puff of wind comes along and grabs the sails and moves you off in the right direction. I think we have pushed the tiller and we are in the waiting phase. The only reason I hesitate to use the sailing analogy is that I'm a notoriously poor sailor and, when I try to tack in light wind, about half the time I end up dead in the water drifting backward. But we have a much more experienced crew on this ship, I'm sure!",1833
-fomc-corpus,1991,Want to make a bet?,6
-fomc-corpus,1991,Governor Kelley.,3
-fomc-corpus,1991,"Well, Normand, will you please make a note for the next meeting that whenever Governor Mullins signals he wants to speak, put me down immediately ahead of him! There's isn't much left to say, Mr. Chairman. As I read the statistics that are available to us, and more particularly as I listen to the reports from the Districts, it may well be that the bottom and the recovery are at hand, but they sure aren't in hand. I'm confident that they will be and that we are reaching the bottom. I'm not that confident about the outlook thereafter. I'm not sure what kind of strength we're going to get out of a recovery or how sustainable it's going to be. I don't think those are sure things. I continue to have considerable concern about the drag that's going to be present with us for a while from balance sheets. I'm sure Jerry is correct that balance sheets are beginning to recover both at the household and the corporate level. But I also wonder if that doesn't have a long way to run yet. And I wonder, as that process does run its course, what the implications are more broadly. I don't see where our real strength is going to arise from. There are some good straws in the wind but none of them look to me as if they're of the nature that they have the strength to push or that we can be very confident as to their sustainability. The exception to that is probably the inflation outlook, which I think ought to help in a lot of ways that are both visible and invisible. And, of course, there is a natural buoyancy to this economy that, as Mike and others have pointed out, usually leads to better results than one can see at any given point in time. But I continue to think that perhaps the risks are not yet symmetric. For the short term at least, they do seem to me to continue to be on the down side. Confidence is the biggest fragility I see. As John LaWare said just a moment ago and as Ed Boehne said earlier: If confidence doesn't continue to improve and begins to deteriorate, it could lead to some potential real problems down the road. But as far as our work goes, I do think that policy has provided us with a good deal of insurance against these gloomy possibilities. It seems to me from a policy standpoint that it's a time to wait and see how things develop.",478
-fomc-corpus,1991,Thank you very much. Let's break now for coffee.,11
-fomc-corpus,1991,[Statement--see Appendix.],6
-fomc-corpus,1991,"Thank you. Are there questions for Don? If not, let me get started with an anecdote that I was confronted with at the meeting of the Business Council last Saturday. They had me on a panel on Saturday morning with the Chairmen of IBM, Penney, Morgan Guaranty, Chemical, and Monsanto. And a gloomier set of forecasts you will scarcely hear. It makes the most dour view of this afternoon [that of] a raving optimist. At the end of the discussion, it finally got to me. They all looked at me as if to say: ""Well, what are you going to do about this?"" And I turned to the audience and said ""This sounds the way it always sounds right at the bottom of the business cycle."" And the truth of the matter is, it did. Now, that is not the same thing as saying that if that's what it sounded like, therefore, it is the bottom of the business cycle! But it is true that when the economy is at the bottom of the business cycle that is what it sounds like. In a sense I think the evidence is very clearly falling gradually into place in that respect. The problem that we're having in evaluating it is in part the consequence of two things that have occurred, and they have been mentioned previously. One is the structural change in inventory policy, which has limited the extent that inventory accumulation is followed by massive liquidation, with production levels substantially under consumption levels. The total system finally drains out and pops back. The second is the issue that Don was raising: namely, that as far as monetary policy and the credit aggregates are concerned, we didn't have the counterpart to the tightening as the economy since the peak [turned] into the break, the liquidation, and the reversal. What we're seeing at this stage is a far slower [than ususal process of adjustment], where in effect the contraction follows the very heavy and excessive debt creation of the 1986-87 period, the subsequent gradual retrenchment of debt growth and M2 growth, and basically, deleveraging beginning to occur, arriving at a point where I gather we had record equity issuance in April. And the effects of this are very obvious. We're seeing that the quality of balance sheets, as Mr. Corrigan points out, is improved. Despite the fact that the banking sector is still fragile, there is no question that the difference between the banking sector today and the banking sector six months ago is really quite stark. The structural weaknesses that we saw back then and the yield spreads and the difficulties to borrow relative to what we have today I think indicate that we have a much sounder [banking] system now. I think the inflation numbers at this stage are really credible. If you look at them in detail, if you look at them in an historical context and in an overall credit sense, unless inflation has ceased to become a monetary phenomenon, something fundamental is happening. And I think it is extremely unlikely to reverse. We're picking up the benefits of several years of fairly substantial improvement in all relationships of money, debt, and prices. But in that context I think monetary policy gradually defused the overheated economy and slowed it down to a point that in effect what I was hearing at the Business Council was not that their orders were deteriorating but that they were absolutely dead. Nothing was moving; everything was just absolutely frozen. The only problem with that is that it appears, unless our data are just all wrong, to be allegedly freezing at a point in which production, fortunately, is well below consumption levels. And that has to run out. It's not a question of an inventory pickup; it's basically the end of inventory liquidation, which has been the classic element to turn around the economy in every pickup after recession that we've seen in the post World War II period and I'm sure earlier. So, when somebody says ""What's the spark? What's going to move us?"" the implication is that everything is in balance. The problem at this stage is that it's not in balance. Unless the data are all just wrong, we are undergoing a rate of liquidation at this particular stage, despite the fact that we have this structural change [in inventory management], that cannot persist very much longer because businesses are running out of stocks. And at that point production begins to move, real income begins to move--the classic Keynesian stuff, to whatever extent it works--and that's when it works. We get the multipliers working and the whole economy begins to move. The problem is that it's happening very slowly. I think John LaWare raised the relevant question here. This is a confidence issue. We can sit at this level for quite a while and eventually everyone will get discouraged and pull the plug on the capital goods market. Even though the capital goods markets have come in below our forecast, it does not appear from talking to a lot of people that what we are seeing are cancellations and major contractions. What we're seeing fundamentally are stretch-outs in the capital goods markets because we can see the appropriations backlogs are holding. Everything is holding. The only thing that has changed is the fact that instead of doing it today, it's ""manana;"" but it's still there. The danger is that they will become so discouraged that eventually everyone will start to contract and pull in their horns; and then we will get a secondary double-dip in the recession. At this stage, even listening to all the gloom that I did on Saturday, I don't get the impression that there is a widespread initiation of cancellations of projects, as distinct from stretch-outs. So, I think we have a little time. The trouble is that everything is going in such slow motion because of the inventory and the credit [situations] that it may be too slow to get us out of this in time. But the elements are here. The basic [issue] is that we cannot sit with everything as it is now because the levels of production are too low relative to consumption, and something has got to give. One thing that disturbs me, which disturbs a lot of you, is that we are uncomfortable about where long-term rates are. Obviously, should bond rates back up, then the mortage market will back up and we could abort [the recovery] in the residential real estate markets, which are still healthy. But I suspect that the difference between the analysts and the managers, as Ed Boehne called them--and it was the managers that I ran into on the Business Council--is that the managers are operating as though they are serving the level of demand; the analysts are saying they're not. And we're about to find out whether or not the data really tell us anything. All this suggests to me that we probably just ought to xerox the last directive and rerun it, because I can't see any argument that I at least find plausible to push us on one side or the other. So, I would just put out as an initial recommendation, ""B"" symmetric. Governor Angell.",1410
-fomc-corpus,1991,"Mr. Chairman, I agree.",7
-fomc-corpus,1991,So do I.,4
-fomc-corpus,1991,Okay. That's two.,5
-fomc-corpus,1991,I do too. Three. OTHERS. Four. Five. Six. Me too.,19
-fomc-corpus,1991,"Norm, it will be fun writing the policy record on this one!",14
-fomc-corpus,1991,"I have just one [comment]. I happen to agree with what you said with the exception that if the aggregates--in particular M2--do not come in as projected over the next couple of months, I would have some concern about the outlook.",50
-fomc-corpus,1991,"You know, Roger, I would suggest that that is probably telling us that the capital goods markets are beginning to fade. It may be one of the early signals the Committee gets about the need to be very watchful. Who was it who said we ought to be vigilant? Was it Governor Mullins? I think the money supply may be a very weak tool, but I suspect in the current period it may be far more serviceable than it has been in a very long time.",97
-fomc-corpus,1991,I think there's some informational value over the next couple of months.,13
-fomc-corpus,1991,"Yes. And we also need to take a look at the weekly asset side of the intermediary system, which reconciles to the money supply--disaggregate it into real estate loans, business loans, [and so forth] and in a sense try to see what the obverse of money supply elements is. Right now the data indicate a definite weakening in business loans, but I suspect that's being offset by issuances of securities in the long end of the market, so it's not a contraction. But if we get what you're concerned about, I think we're going to see it on the asset side of the intermediary balance sheet and it would be quite suggestive of the type of problems we worry about.",139
-fomc-corpus,1991,"I'm perfectly willing to xerox the last directive, Mr. Chairman. But for the record I'd like to indicate that while I believe the risks are somewhat more symmetrical than they were, I would still prefer an asymmetric directive simply because I think that if we do move between now and the next FOMC meeting, it's going to be a move toward ease. And I think we ought to have that reflected, but I don't feel that strongly about it.",90
-fomc-corpus,1991,"That's probably factually correct, but I think the tone of the balance of risks is symmetric. In fact, I think you put it exactly right: The balance of the risks is probably symmetric even though the policy risks may be asymmetric. Si.",49
-fomc-corpus,1991,"I agree exactly with what Bob Forrestal has said. I have a slight preference for asymmetric language, but I don't feel strongly about it. And I do absolutely agree with both the current situation and with [policy] as you see it. It's a fairly long time between now and the next meeting, and a question comes up in my mind. Presumably, we have now established that you have the right to move policy, and by that I mean the fed funds rate, by some amount. I don't want to get into that but what would cause you to make a change as you look at the data that may be coming up in the next few weeks?",132
-fomc-corpus,1991,"Well, do you mean on the down side or the up side?",14
-fomc-corpus,1991,"The down side. CHAIRMAN GREENSPAN. I would say on the down side that the major issue would be the money supply. If it's beginning to show a kickback from the weak April and all of a sudden it starts to dip down again, I think we had better be careful. Don did mention that. I think the data had been [unintelligible] but in the last loan officer survey even though the rate of tightening is much less it is still tightening. And in a sense there are liquidity questions because it's very hard to figure out how in the world we would get significant interest rate reductions in the context of very subnormal money supply growth and an exchange rate that is firming not only against the European currencies but against the yen as well. In other words, there are some people, and I have a certain sympathy for this, who are saying in effect that those are indications that monetary policy may be too tight. However, if the money supply is moving adequately, I would say it's a hard argument to make. But if we end up with a situation in which the money supply is beginning to shrink and/or the dollar is beginning to firm very extraordinarily, or if we get some really weak [economic] numbers--and that I would say at this point is unlikely unless something cracks--we need something. I think the Committee has actually created enough of a bottoming here that some new force has to come on stream to knock the economy down. As I said here the last time, the danger is really the capital goods markets. If the capital goods markets hold up, I think we're out of the woods. But as I think all of us are saying--that's right, Jerry raised it and I forgot all about it--the real issue here is that if all of a sudden the stock market falls on its face and breaks business confidence, then we ought to be prepared to move pretty quickly.",385
-fomc-corpus,1991,[Then] we've got problems.,7
-fomc-corpus,1991,"Well, I haven't looked at the calendar of the data that will be coming out over the next three or four weeks, but I'm simply saying that if there were some indication of basic weakness, I would hope there would be an opportunity to move.",49
-fomc-corpus,1991,"If it is of the form that's cumulative. But if it merely reflects what anecdotally already is in the system, that probably is not new information. Look, durable goods orders for April I assume are going to be down. If they're down by huge amounts, then we've got to look at it; but if they're just moderately down, I don't see that that is telling us anything new.",80
-fomc-corpus,1991,"I think what President Keehn is hinting at, if I may, is that it might not be a bad idea to have rather firmly in mind a consultation in the first week in June or something like that.",43
-fomc-corpus,1991,Thank you!,3
-fomc-corpus,1991,"Why didn't he say that! It's inconceivable to me that we can get through the next three weeks without something happening that is not important to talk about. I would assume, even if there's nothing to say, that we ought to meet. Does anybody else want to comment?",56
-fomc-corpus,1991,I just want to explore the stock market issue. We talked to some investment managers a week or so ago and my sense is that some are expecting some sort of a correction.,35
-fomc-corpus,1991,We just got it today.,6
-fomc-corpus,1991,"Oh, we did? How much?",8
-fomc-corpus,1991,Down 37.,4
-fomc-corpus,1991,"Well, I'm not sure that's what they had in mind! [Laughter]",16
-fomc-corpus,1991,Are you talking about 2600 to 2550 on the Dow?,15
-fomc-corpus,1991,"Maybe this is a peculiar circumstance at this time, but I think it's a little tricky to tie monetary policy into a stock market predictor. I just don't know what the linkages are.",37
-fomc-corpus,1991,"Don't misunderstand; I wasn't suggesting that kind of rigid linkage. What I was saying is that if we had a major ""tanking"" in the stock market, I think that would rather quickly show through to other things.",44
-fomc-corpus,1991,Suppose the market goes down 180 points? Isn't that what monetary investors have in mind?,19
-fomc-corpus,1991,"In one day or over, say, a period of a week?",14
-fomc-corpus,1991,"No, in one day.",6
-fomc-corpus,1991,"Tommy, if we had a very substantial correction in the stock market, I think it would feed right into the kinds of things that Don was talking about in terms of the confidence factor and the double-dip factor.",44
-fomc-corpus,1991,"I guess I'm a little uncomfortable with the conversation. The bulk of the conversation is agreement over the M2 growth and that seems to me a very good thing for us to be watching. Quite frankly, the stock market has behaved rather robustly and we didn't say that that means the recovery is going to be robust.",63
-fomc-corpus,1991,I would bet you that it had an effect in stabilizing this.,14
-fomc-corpus,1991,"Oh, I think it did, too. That's why some of us were pretty confident about it. Clearly, there would be a change in confidence in our [unintelligible] if the stock market turned up at 2450.",48
-fomc-corpus,1991,"Well, for the record, I would be in favor of what you proposed as the policy prescription.",20
-fomc-corpus,1991,"Anyone else before we vote? If not, there is a correction.",14
-fomc-corpus,1991,"Yes, to catch up with what has been happening in the foreign exchange markets, the staff is proposing a change in lines 35-36 from ""increased somewhat further on balance"" to ""show little change on balance over the intermeeting period.""",50
-fomc-corpus,1991,"This is in the Bluebook, Norm?",9
-fomc-corpus,1991,"This is in the draft directive, line 36.",11
-fomc-corpus,1991,The one that was distributed.,6
-fomc-corpus,1991,The one that was distributed.,6
-fomc-corpus,1991,"The whole sentence reads ""The trade-weighted value of the dollar in terms of the other G-10 currencies showed little change on balance over the intermeeting period.""",33
-fomc-corpus,1991,Fine.,2
-fomc-corpus,1991,"I'd like to propose that we repeat the directive, but obviously it requires some changes.",17
-fomc-corpus,1991,"[It would read:] ""In the implementation of policy for the immediate future, the Committee seeks to maintain the existing degree of pressure on reserve positions. Depending upon progress toward price stability, trends in economic activity, the behavior of the monetary aggregates, and developments in foreign exchange and domestic financial markets, somewhat greater reserve restraint or somewhat lesser reserve restraint might be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with growth of M2 and M3 over the period from March through June at annual rates of about 4 and 2 percent, respectively.""",115
-fomc-corpus,1991,Okay.,2
-fomc-corpus,1991,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Black Yes President Forrestal Yes President Keehn Yes Governor Kelley Yes Governor LaWare Yes Governor Mullins Yes President Parry Yes,40
-fomc-corpus,1991,"The next meeting is July 2 and 3, but [in the interim] we will have one or more telephone conferences.",26
-fomc-corpus,1991,Questions for Sam? Lee.,6
-fomc-corpus,1991,"Sam, what is our outstanding foreign currency exposure now relative to the limit?",15
-fomc-corpus,1991,We hold $20.9 billion against a limit of $25 billion.,15
-fomc-corpus,1991,"Sam, has the market become aware of that swap?",11
-fomc-corpus,1991,"The market has not become aware of exactly what has taken place. The market did notice, as I mentioned in my comments, that the Bundesbank was selling Treasury securities, which they needed to do in order to position themselves for this. And the market has seen the Treasury's balance sheet, released yesterday, which shows the change in certain of the accounts. But unless something has happened in the course of the day, they are still a little uncertain as to exactly what that means. There are some who are interpreting these moves as positioning for large-scale intervention either by the Federal Reserve or the Treasury or in the sale of the Treasury securities by the Bundesbank. So, they've seen some of the data and I think they will get a clearer view of this when the Bundesbank announces its balance sheet figures, which are supposed to come out Thursday but may come out on Friday.",174
-fomc-corpus,1991,They told us this morning close of business tomorrow.,10
-fomc-corpus,1991,"It may be Wednesday or Friday. They're now talking close of business Wednesday. So, there will be a statement, which will not mention the United States, but will talk about an exchange of these reserve assets for dollars. I imagine people will be able to put two and two together at that point.",60
-fomc-corpus,1991,And you think an interpretation would be that this is just something routine or--?,16
-fomc-corpus,1991,"Well, I think when they see everything that has happened, they will begin to understand just what it was. Up until now they've been wondering whether it was a gathering war chest for [intervention].",40
-fomc-corpus,1991,"Our understanding is that when the Bundesbank releases its statement at the close of business on Wednesday, they will say that their gross assets and liabilities have been reduced because of an exchange with a foreign monetary authority. When the statement of the System comes out, given that hint, the market will then presumably be able to put it together as to what monetary authority is involved. We and the Treasury have worked out--",81
-fomc-corpus,1991,We've given the Treasury a statement.,7
-fomc-corpus,1991,"--a general statement just saying: ""Yes, the U.S. and German authorities have agreed to reduce their holdings, have been working on this for some time, and have come to a mutually agreed off-market transaction.""",44
-fomc-corpus,1991,"So, by Friday when the Federal Reserve balance sheets come out, they will have all the information.",20
-fomc-corpus,1991,It's not intended to provide information on the whole [agreement involving] 10 billion [DM] but essentially what has at that point impacted on the balance sheet.,32
-fomc-corpus,1991,"Sam, when do we release our monthly reserves consolidated?",11
-fomc-corpus,1991,That comes out--,4
-fomc-corpus,1991,"Well, that would be much later. The System's monthly statement is only published in the Federal Reserve Bulletin.",22
-fomc-corpus,1991,"No, I think it's released in the press release with the Bulletin.",14
-fomc-corpus,1991,"U.S. reserves are released about two weeks after the end of each month. But that combines the valuation adjustments of all kinds of other things, so it's not--",33
-fomc-corpus,1991,These are big enough numbers.,6
-fomc-corpus,1991,"Well, in mid-July that will show what is on the balance sheets as of the end of June.",22
-fomc-corpus,1991,It will show the Treasury [balance sheet] as well; that's the thing.,16
-fomc-corpus,1991,It shows both.,4
-fomc-corpus,1991,"It shows the Treasury, the ESF--",9
-fomc-corpus,1991,"The United States foreign exchange reserves, including Federal Reserve holdings, are shown valued at market.",18
-fomc-corpus,1991,Lee.,2
-fomc-corpus,1991,"Sam, it seems to me that there might be some merit in having the Committee consider formally lowering the limit for a couple of reasons. One, it's symmetric; it shows that we can put a reference point back around this Committee discussion of when we want to take a look at the portfolio. That is, we have to move them down [given that] we move them up. Second, we can face some discussions in the market that we're simply reloading--that we did a swap and we're reloading to go after protecting [our] currency again--and I think that would dispel that. Lastly, I think it's the right thing for us to do both in terms of the currency holdings as well as the warehousing arrangement; since the warehousing arrangement is $4-1/2 billion and the limit is $10 billion, it's not a real limit. I don't think that cuts down our flexibility. It seems to me that it indicates to a lot of other players--Congress, other central banks, and the markets--what our intentions are with respect to the currency. And if there is a reason that the Committee has to move, then we can take a look at the limit; and if we run up against it, then presumably we'll have a good reason for moving it. But it gives a point of reference and framework for discussing where we want these activities to take place and the magnitude and why we're doing them. But if we leave the limits where they are, we're working in an asymmetric way. We only bump the limit when we hit it and we never lower it.",319
-fomc-corpus,1991,"Well, we do, of course, look at these limits every year. We can certainly examine it to see whether the present limits are appropriate. The fact that it has come down from $24 to $21 billion is certainly a decline, but we do have to leave room in these limits because we are earning interest regularly on our holdings and we always have to consider what kind of [leeway] we need in order to allow for the interest accruals as well as for the possibility of being able to operate in the market when it's appropriate to do so.",113
-fomc-corpus,1991,"President Hoskins, I think there are two other considerations. One is that the arrangement, while it reduces our position by about $3.3 billion, pertains to a forward transaction, and only the first chunk of that has been done. So, I think there's a risk that until the full operation is completed you will confuse the market by lowering the limit in anticipation of what is in the contract but has not been put out. Secondly, as far as the warehousing is concerned, the Committee did consider that in February and the amount that has been warehoused has not yet been changed since then. Sam and I both in our conversations with the Treasury have told them that we think it's important, as this unfolds and they get the actual dollars, to reduce the warehousing and to bring that down substantially by the end of the year. So, the beginning of next year, when we have completed this operation, would seem to me the reasonable time to consider whether the Committee wants to change the limits.",201
-fomc-corpus,1991,"Other questions for Sam? If not, would somebody like to move [approval]?",16
-fomc-corpus,1991,I'll move it.,4
-fomc-corpus,1991,Is there a second?,5
-fomc-corpus,1991,Second.,2
-fomc-corpus,1991,"Without objection. Shall we go on to the Domestic Desk [report]? Joan Lovett is here, I gather; her colleague is off at some unannounced place doing unannounced things.",39
-fomc-corpus,1991,Presumably having a nice time! Thank you. [Statement--see Appendix.],16
-fomc-corpus,1991,Questions for Ms. Lovett?,7
-fomc-corpus,1991,"Joan, what is likely to come out of a refunding study, and will they [implement any change from] the third quarter out?",29
-fomc-corpus,1991,"They are looking at an array of options. I believe their thinking at this point is not to try to change the whole structure, because it's a process that has worked very well, but to make some adjustments around the margin. It's possible that if they do decide to make a change, they would probably want to make that change known before we get into the August refunding and conceivably even before the next round of two- and five-year note sales.",92
-fomc-corpus,1991,"Even after taking into account the strength of economic statistics in the month of May, were you surprised by the amount of the increase in bond yields, especially since there were some indications that financial markets were feeling a little better--or at least it seemed that way--about inflation?",55
-fomc-corpus,1991,"Yes, some people feel that the move up to 8-5/8 percent or toward that level--it didn't really stay there--was reflecting an awful lot all at once. And, therefore, the yield has come back to the 8-1/2 percent trading range and it is sort of being held in that range because the views on both sides in terms of the [likely] extent of this recovery seem to be somewhat offsetting. There is a concern that even if the rate of inflation does come down, as analysts say they think it will, there are going to be sufficient pressures elsewhere in the long run that may keep that particular part of the yield curve from moving down much more. In that connection they keep looking at the yield environment in Germany and other countries and feel that it just may be a factor inhibiting any possible downward move in long rates even if inflation comes in better, as they think it will.",188
-fomc-corpus,1991,Are they expecting strong real demands for credit?,9
-fomc-corpus,1991,"Well, there have been a lot of reports about demands for credit abroad. I think right now, as far as people can see, the major source of credit demand is in the U.S. government and perhaps the state and local entities. What the corporate issuers are doing isn't being seen as an important part of the demand for credit but as restructuring their own balance sheets.",75
-fomc-corpus,1991,"Other questions for Joan? If not, would somebody like to move to ratify the actions of the Desk since the last meeting?",26
-fomc-corpus,1991,I'll move it.,4
-fomc-corpus,1991,Without objection.,3
-fomc-corpus,1991,"Mr. Chairman, could I briefly bring up another matter related to Desk activities?",16
-fomc-corpus,1991,By all means.,4
-fomc-corpus,1991,"The matter is a little project that we've been thinking about up in New York and I've touched base with Don Kohn on it very generally. I affectionately call it ""save a tree."" The concept is basically this: I've asked the two Desks to pull together a little report that is intended to remind all the Committee members of all the routine reports that the two Desks put out, ranging from daily to yearly. What we'd like to do is to send to the Committee members a paper that outlines those reports and the frequency with which they're prepared and to raise with Committee members the question of whether they all are needed or at least whether they all are needed with the same frequency that they are currently being produced, recognizing if nothing else that screens have changed the world. I am simply mentioning this for the Committee's benefit right now. What I would plan on doing is to make this package available to Don and his people. Who knows? They may want to add some things to it! But after they have looked at it, then we'd circulate it to the Committee. It's designed so that you can get through it probably in 20 minutes or a half hour at the most and [provide] us some indication as to whether all these reports are still needed at least with the frequency with which we now produce them. As I said, it's called ""save a tree,"" but it's also fair to say that if we can whittle away at this a little, it would save a lot of time on the part of the people who prepare these reports.",309
-fomc-corpus,1991,You're saying that if the results come in in the other direction--that maybe if there were howls out there--,23
-fomc-corpus,1991,"That's right. Obviously, if the results come in in the other direction--that people really find the status quo valuable--we'll maintain the status quo. We also in this paper have solicited your suggestions as to whether there are some things we're not doing that we could do. But I do think, Mr. Chairman, that it's worthwhile at least every now and then to take a look at this and make sure that all the time and effort and money that goes into preparing these things is producing the desired results.",103
-fomc-corpus,1991,Mike Prell and Ted Truman.,7
-fomc-corpus,1991,"Thank you, Mr. Chairman. We've distributed a packet of charts with red lettering on it entitled ""Staff Presentation to the Federal Open Market Committee."" Statement--see Appendix.",34
-fomc-corpus,1991,[Statement--see Appendix.],6
-fomc-corpus,1991,"Thank you, gentlemen. Questions for either?",9
-fomc-corpus,1991,"Mike, the chart that you had on state and local governments was a rather dramatic chart. We're beginning to see a lot of efforts on the part of state and local governments to deal with these'problems, and the dollars that we're talking about are not insignificant. For example, California very recently passed a series of laws that are going to have an impact of $15.7 billion; and New York has a sizable one as well. Typically, we don't spend much time taking these kinds of influences into account, but are we missing something here--especially when we have new developments like this? Is there something that we should be doing to look a little more deeply as to what the potential micro impacts might be?",143
-fomc-corpus,1991,"Well, we've been attempting to monitor this. We raised the flag long ago that there was an emerging sizable imbalance. And we have built into our forecast, certainly since the beginning of this year, a picture quite similar to what we have now of historically quite weak state and local real purchases.",58
-fomc-corpus,1991,There is a tax side as well.,8
-fomc-corpus,1991,"That's right, and we've built that in too. And we've been noting for some time that a small but not totally insignificant ingredient in our expectations for consumer prices would be repeated increments to indirect business taxes. That plays a role, and, of course, even the property tax increases tend indirectly to show up in the consumer price index through the rents and owner equivalent rent figures. So, we think those are built into our disposable income projection. But this is a sector that is very hard to monitor. The data sources are poor; the numbers upon which all these estimates are based are benchmarked to shaky data after long lags. We could be blind sided. But as a Wall Street Journal article, I think of yesterday, suggested, there's a very powerful momentum here as one looks back at history. There are very strong demands for services; there are various imperatives. The prisons have to be staffed; there is a backlog of infrastructure investment that has to be attended to. So, though I think the risks here are reasonably balanced, there is an upside potential beyond our forecast as well as the possibility of some shortfall.",224
-fomc-corpus,1991,One of the things that is most troubling about the California situation is that basically it isn't a cyclical problem; it clearly is a problem that is structural in nature. And that's why I think the limitations on the growth of spending and to some extent also the taxes are likely to be permanent as opposed to something to deal with the short-run problems.,69
-fomc-corpus,1991,Lee.,2
-fomc-corpus,1991,"In the same vein, I guess: Have you looked back at the Greenbook to see if, at this point in the cycle, there's a systematic error? Do we tend to underestimate the expansion? My intuitive notion is that we underestimate money growth rates, we underestimate the expansion, and we underestimate the rate of increase in inflation. Do you have any feel for that?",74
-fomc-corpus,1991,"We have on occasion studied that. Certainly, I've warned for some time now that most forecasters tend to underestimate the amplitude of expansions; maybe the same is true of recessions. But I've been conscious of the fact that by presenting these highlights of the forecast the way I have that I have focused somewhat on the negatives because I'm trying to explain why we're expecting something well short of the norm. But I think these do stand out--for example, the state and local sector--as something unusual in a cyclical context. The restraint on federal spending, given the budget laws that have been put in place, is an innovation that may suggest a departure from the past. It stood up through the recession period; now, we will be into a recovery period; presumably that won't even give them the option that they had so readily if they had wanted to set aside the constraints. And in the construction sector, as I've illustrated, the imbalances seem to be well beyond anything in recent experience. So, I think there are some real negatives. Now, we could get surprises. We might do better in international trade than we have in the forecast; businesses may feel a greater urgency to modernize their equipment and improve productivity thereby. Maybe we can get an impulse there. If everything went well, maybe consumers would find the wherewithal to increase their spending relative to income. But, as I illustrated, barring a radical revision to the personal saving rate, we're really in very low territory. So, I think in each of these cases there are risks on the up side and the down side; but they add up to something that suggests to us that we're going to fall short of past norms.",338
-fomc-corpus,1991,"Using the average for the past may be a little bit of a difficulty [unintelligible]. There are [recovery periods]--I think after the '80 and '69-'70 recessions--with increases in the first year that were actually smaller than what you're forecasting. So, there are some precedents; both [of those recoveries] were moderate.",75
-fomc-corpus,1991,"Well, there has been only one since the Korean War, I think, that had less than 6 percent growth for the first year--ruling out the abortive '80 cyclical expansion because that ended so quickly.",45
-fomc-corpus,1991,'69-70?,5
-fomc-corpus,1991,"Right. So, this is a distinct outlier, which gives me some hesitation. Indeed, one of the features of the recession thus far has been a quite healthy inventory liquidation. And that is probably part of the correlation one sees between the depth of the recession and the size of the rebound. In this case we're looking for a sizable inventory swing because of how strong the liquidation has been. Yet we're saying the final demands are going to hold down this overall upswing. Obviously, none of this is certain and we recognize the risks on both sides.",110
-fomc-corpus,1991,"Just to follow up, though maybe it's more a question for Don later on: How do you get this--to me, troublesome--5-1/2 percent money growth [assumption] in the Greenbook? Do you view that as a monetary stimulus? Do you view it as a neutral [factor], even though it's an increase in money growth? I'm not sure how you get your forecast. Do you start with nominal [GNP] and back out money and velocity or--",98
-fomc-corpus,1991,"Well, I think we back out money via a velocity or money demand relationship, having derived a forecast using some interest rate assumption--in this case stability of the federal funds rate. That is the assumption made.",42
-fomc-corpus,1991,"Then you'll have a very unusual velocity behavior for this recovery, because there hasn't been a recovery that has had positive velocity--at least in the last four.",31
-fomc-corpus,1991,There hasn't been a recovery in which interest rates came in absolutely stable in the short end either.,19
-fomc-corpus,1991,Sure.,2
-fomc-corpus,1991,"I recognize the artificiality of this but, as Don will be exploring, I'm sure, there are special factors in the environment that condition our expectations about velocity.",32
-fomc-corpus,1991,Do you see faster money growth?,7
-fomc-corpus,1991,We usually have money growth for eight quarters after recovery starts that is a couple of points faster than the trend rate prior to the recession.,27
-fomc-corpus,1991,Right.,2
-fomc-corpus,1991,And velocity is usually negative for eight quarters on average.,11
-fomc-corpus,1991,Right.,2
-fomc-corpus,1991,"I did note that one of the things that suggests to us that possibly there's less of a monetary impulse to this recovery is the fact that thus far we haven't seen much of an acceleration in money stock. If you look at real M2 in past cycles, for example, it's very clear that around the troughs and early in recoveries there typically has been very marked acceleration.",75
-fomc-corpus,1991,"I can address this now since the subject has been raised, and I'll skip it when I get to my briefing. We see a couple of things that are different this time than in past recoveries. First, we are still predicting some further downward shifts in money demand. We've had a history over the last year of money falling short of what we'd expect, given nominal income and interest rates. Based on historical experience, we're predicting that that will continue, although at diminishing rates. So, we have some downward shifts of money demand that we haven't had in previous expansions. Secondly, we came in, as Mike just said, with a less steeply sloped downward trajectory of interest rates. I believe that a lot of the extra money we got early in an expansion before was a lagged effect of the previous stimulus coming in. And we have considerably less stimulus coming into this trough, in terms of the trajectory of the federal funds rate, other interest rates, and certainly long-term interest rates, than we've had in other expansions. Third, this is the first expansion we've ever had without Reg Q or without Reg Q being removed. Look at 1983. A huge portion of the M2 growth in the first year of that expansion was the result of MMDAs and the removal of Reg Q ceilings. So, we don't believe that deposit rates have been held below equilibrium over the last couple of years as they probably were in a Reg Q environment. We are predicting that deposit rates could edge down even further in the first couple of quarters of this expansion. That will raise opportunity costs and damp M2 demands. So,'those are the three factors that we think differentiate this from previous expansion periods.",339
-fomc-corpus,1991,"My point was that there is a rationale; I anticipated it, and it's a sensible argument. The problem, as we look back over 30 years of M2, is that all kinds of special factors have occurred and yet if we ran M2 at 3 percent forever we seem to get to price stability. So it troubles me because we're moving away from a trend rate that we worked very hard for four years to bring down to 4 percent, and it's causing me some concerns. All I'm saying is that there is a lot of slippage in terms of forecasting these things, and I don't put a lot of confidence in these relationships.",129
-fomc-corpus,1991,"I think we've emphasized that the kind of money stock growth that we're anticipating over the next year and a half could not be sustained over the subsequent years and [remain consistent with a] move toward that significantly lower inflation you're seeking. So, yes, this would have to be a transitory phenomenon; if you want to move toward price stability, [M2 growth] has to move significantly lower and, obviously, there are alternatives in the Bluebook that describe such a path.",95
-fomc-corpus,1991,"Well, I want to raise one last point and that's your sacrifice ratios that are involved here. If you ran a forward-looking model with forward-looking expectations, then I think you would get a different picture.",41
-fomc-corpus,1991,"I think in essence we've really embodied in this forecast a bit more favorable sacrifice ratio than some of our models would predict. But, indeed, we have not assumed that within this time span we're going to get an improved tradeoff coming from enhanced credibility and so on. But if moderate policies are pursued and it's clear that we are pursuing that objective wholeheartedly, then one might expect that tradeoff to improve over time.",82
-fomc-corpus,1991,Governor Angell.,4
-fomc-corpus,1991,"Lee Hoskins has almost asked my question, but not quite. These scenarios really have been very helpful and the presentation was helpful, but I suppose it's always natural that somebody wants something else. And the one item that I would like to have had, of course, would have been the one that we control. That is, I'd like to have seen an alternative scenario of keeping money growth at 4 percent. What happens over '91, '92, and '93 if, instead of keeping the fed funds rate constant, we keep M2 constant at 4 percent--which would be identical to the rate it has grown over the last three years and identical to its growth rate from Q4 1990 to the present time?",147
-fomc-corpus,1991,"Governor Angell, the alternative II strategy on page 9 of the Bluebook is an approximation; it has 4-1/2 percent M2.",32
-fomc-corpus,1991,That's the disturbing page that has the baseline for three years at 5-1/2 percent money growth.,22
-fomc-corpus,1991,Okay.,2
-fomc-corpus,1991,"As you can see, we get into the vicinity of price stability by 1995, with allowances for measurement questions and so on. We're certainly close, if we're not there.",36
-fomc-corpus,1991,"Yes, it really does. Thank you; I'm sorry I missed that. And the real GNP sacrifice is how much? It's not very much in the out years.",34
-fomc-corpus,1991,"Well, the model says that roughly 1 percentage point of extra unemployment for a year gives you a 1/2 percentage point reduction in inflation, and we have not built in additional credibility effects that could improve that tradeoff as time progresses. So, it might well be that one could achieve, with the same unemployment path or a better unemployment path, as good or better price performance by the mid-1990s.",85
-fomc-corpus,1991,But that path shows unemployment rates actually accelerating through the period. Does that seem surprising to you?,19
-fomc-corpus,1991,"Well, in the staff's estimation, in order to hold down money growth and nominal GNP, you have to have higher real interest rates. And in order to get this kind of price performance by '95 you have to hold [real rates] up there and the unemployment rate has to be high. Clearly, we could have fine-tuned this to some extent to get a little more unemployment now and a little less later. I was bothered also by this accelerating path of unemployment.",97
-fomc-corpus,1991,Okay.,2
-fomc-corpus,1991,"But I think the basic point there is that without credibility effects and the sacrifice ratio somewhere in the neighborhood of 2 or a little less, you're going to have to have quite a bit of unemployment to get price stability or something approaching price stability by 1995.",53
-fomc-corpus,1991,"But if you were fine-tuning it, Don, then you would probably take the 6-1/2 percent 1992 unemployment rate up a bit and maybe take down the 7-1/4 percent.",45
-fomc-corpus,1991,Yes.,2
-fomc-corpus,1991,"Well, there's another option. I think Don considered getting into this--and he's discussed it in the past--that there is this entry problem as you approach price stability. In a sense you're going to overshoot unless you bring that unemployment rate down fairly rapidly by around 1996. So, what one would do presumably is accommodate some faster growth out in '94 and '95 and then you would have a smoother landing as you went toward price stability. This just goes mechanically throughout without the kind of fine-tuning that one could do here.",109
-fomc-corpus,1991,Yes.,2
-fomc-corpus,1991,"So, that maybe overstates the bleakness of the employment--",13
-fomc-corpus,1991,"Well, thank you for doing precisely what I wanted you to do!",14
-fomc-corpus,1991,Except they had it a point too high!,9
-fomc-corpus,1991,Just one question on the baseline. One way to do a baseline would be to take the past growth rates. You must have something else in mind.,30
-fomc-corpus,1991,"Well, the baseline was the extension of the staff Greenbook forecast. So, we had the 5-1/2 percent we're projecting for the next 18 months. Then we extended that through '93 with the judgmental forecast and also through '94 and '95. We didn't set out with a 5-1/2 percent rule. What we did was to set out what we thought was a policy strategy: that is, to bring the unemployment rate down gradually but to bring the inflation rate down gradually at the same time. Recognize that if you're going to continue to bring the inflation rate down, you can't have the unemployment rate at or below the natural rate. And these money growth rates fell out of that calculation. We didn't say: ""Let's do 5-1/2 percent forever and see what happens."" It was an accident of the relationship of nominal GNP and interest rates.",183
-fomc-corpus,1991,Some people will judge policy change as a change in the monetary growth rate.,15
-fomc-corpus,1991,Right.,2
-fomc-corpus,1991,And so for them a baseline would be just a consistent growth rate; and that's obviously my problem.,20
-fomc-corpus,1991,"Well, we tried to describe what our baseline meant because, as Don described, it was an extension of the Greenbook forecast assuming that you are going to leave some small margin of slack to bring down the unemployment rate gradually.",45
-fomc-corpus,1991,I understand that.,4
-fomc-corpus,1991,My recollection of our discussion of the natural rate of unemployment in March was that it was about 5 percent.,23
-fomc-corpus,1991,"We found a range of estimates from about 5-1/2 to 6 percent, and we've determined that we would bet on something closer to the 5-1/2 percent.",39
-fomc-corpus,1991,But then you said you used the MPS model for taking this out. And the MPS model has what--6.2 or 6 percent?,31
-fomc-corpus,1991,It has been adjusted to be consistent with the judgmental assessment.,13
-fomc-corpus,1991,"Oh, I see. So you made a judgmental assessment. Okay.",15
-fomc-corpus,1991,Governor Mullins.,4
-fomc-corpus,1991,"Mike, you mentioned in passing your estimation of zero inflation as 1-1/4 percent, given the measurement bias?",25
-fomc-corpus,1991,"I was speaking loosely, but I think one could make the case that something in the 1 percent vicinity might be consistent, when you allow for the possibilities of substitution, look at quality change measurement problems, and so on. But that's [likely] to be settled when we get closer--",58
-fomc-corpus,1991,"Yes, I know it may be premature to talk about that, but when the time comes--",19
-fomc-corpus,1991,We have a study already in process.,8
-fomc-corpus,1991,"When the time comes, if my term isn't up yet, which is in '96, we might have a little more background work on that, I agree.",32
-fomc-corpus,1991,My term will be up; I sure would like to know now.,14
-fomc-corpus,1991,We'll send you a postcard!,6
-fomc-corpus,1991,"In fact, we'd be happy to distribute a paper by some staff members that was presented at the AEA meetings last December, which addresses this very question as a first cut.",35
-fomc-corpus,1991,"Any further questions for the gentlemen? If not, who would like to start the Committee discussion?",19
-fomc-corpus,1991,"Texas and the Eleventh District continue to lag the national economy. In the fall that was an advantage that we had; our employment kept growing while the downturn in the national economy was occurring. That came to an end in January and February and we're now lagging on the wrong end. We had a weak May. I could see that May was our first month with expansion nationally. When we went into the recession in the fall, rising oil prices helped cushion our economy in the Southwest and now falling natural gas prices have been a problem of considerable concern. They have been low and declining for quite a while. A lot of the factors that have been cited here today as being a possible drag on the recovery nationally are factors also in the Eleventh District. I don't believe it has been mentioned today, but the perceptions have not changed out there; the credit crunch is still with us and is real. The banks are healing; they are becoming profitable and their measures are improving. But they are not lending at the moment, as far as we can tell. The decline in bank credit continues and they're getting illiquid, but the lending to small businesses has not really accelerated. And that's the impression that most of the people I talk to have. Fiscal drag is also a reality in the Eleventh District states, particularly in Texas; we hear more and more talk of service cutbacks and layoffs and/or higher taxes. And Texas is debating the question of whether to have an income tax for the first time in a long time. But it's certain that there's going to be some sort of fiscal constraint for some time to come. There's a good bit of concern about defense expenditures--defense cutbacks and base closings. We had five bases on the chopping block the last couple of days and three of them were axed. That, of course, is going to occur over time but it does affect current behavior as people anticipate the loss of about 7,000 jobs in the Fort Worth area and a bit less in--",402
-fomc-corpus,1991,The loss of Lyndon Johnson!,7
-fomc-corpus,1991,And Jim Wright!,4
-fomc-corpus,1991,And Sam Rayburn!,5
-fomc-corpus,1991,That's all I wanted to say.,7
-fomc-corpus,1991,Bob Black.,3
-fomc-corpus,1991,"Mr. Chairman, I hate to say this because it may be a source of worry and concern for the staff, but our projection for '91 is almost exactly what you all have. So, you may want to go back and check yours! As I read the Greenbook, adjusting for the swings in the overseas earnings of oil companies, it's pretty clear that the [recession] must have hit bottom in the second quarter. That's a reasonable conclusion based on what we know about the April and May figures and the little we know about the June figures. Whatever the final record does show, I don't think the bottom will come any later than July in view of this evidence we have of increased consumer spending and strength in residential construction. In any case, I think that the staff's 1991 projections are very plausible and that the risks of error are about equal on both sides for both real GNP and inflation. When we get to '92, however, we differ right much. We are much more optimistic on both the growth side and on the inflation side. We're projecting about 1/2 percentage point more growth in real GNP and we're forecasting only a 3 percent rise in the CPI, which is about 3/4 of a point lower than the Greenbook and well below most other forecasts that we've seen. Now, I need to emphasize something that we have already alluded to earlier, and that is that our staff's 1992 projections are based, in accordance with our instructions, on what we would regard as an appropriate monetary policy in the next six quarters. So, what we've done is to assume that M2 will come in slightly above the midpoint of its current range this year and that the FOMC will lower the range for 1992 to 2 to 6 percent and will hold the actual growth of money within that range. This assumption of a lower target range for 1992 has a direct bearing on our projection since we believe, given the background of very favorable behavior in the money supply over the last few years, that reducing the range further would increase significantly the credibility of our anti-inflationary strategy and, consequently, would result in a more favorable division of nominal GNP between real growth and inflation--because of [how we factor in] forward-looking expectations, Lee. And without that strategy [unintelligible]. If we achieve what we think are these highly plausible results, then we think the prospects of the subsequent years after 1992 will be very bright indeed. I think we have a real opportunity here to make significant progress--the best we've had since I've been around.",530
-fomc-corpus,1991,"The coffee is here and I neglected to take the break; I notice everyone is running for coffee, so why don't we take a short break and come back in 5 minutes?",36
-fomc-corpus,1991,President Parry.,4
-fomc-corpus,1991,Mr. Chairman.,4
-fomc-corpus,1991,"Begin, s'il vous plait!",8
-fomc-corpus,1991,"After a relatively strong performance during much of the national recession, more recently the Twelfth District's economy has actually weakened. Total District employment fell on a month-to-month basis in February, March, April, and May. The February and March declines were due to weaknesses only in California; but employment losses elsewhere in the District account for the April and May declines. However, I should point out that total District employment still remains 0.4 of a percent above the May 1990 level, with California the only District state to lose employment over the year. District residential property sales picked up this spring; in May, we saw the fourth consecutive month of increased sales activity and increased median home prices in California. However, it appears as though construction activity has not rebounded yet. Boeing recently announced a major expansion of its Puget Sound area facilities. Facilities will be built or expanded at about 25 sites in the area and the construction cost is estimated at almost $3 billion over the next two years. Most of the facilities will support production of Boeing's commercial aircraft, including the 737, the 767, and the new 777. Turning to the national outlook, our view is not really much different from that presented in the Greenbook. In the near term, we expect the main sources of recovery to be increases in personal consumption spending and also a short-lived inventory swing. Next year consumption will continue to support GNP in our forecast and there should be something of a turnaround in business equipment spending. Like the Greenbook, we expect a decline in inflation over the next year and a half. Indeed, it seems to us that there is a fair chance that CPI inflation could be brought down in 1992 to as low as the 3 percent that Bob Black mentioned. Much of this improvement clearly reflects the existence of considerable slack in the economy. However, a good part also stems from the recent appreciation of the dollar and, therefore, may not be of a permanent nature. Thank you.",401
-fomc-corpus,1991,President Forrestal.,4
-fomc-corpus,1991,"Thank you, Mr. Chairman. While the economic data that we've been receiving in the Sixth District tend to confirm that the recovery is at a turning point, if it hasn't already turned, clearly we still have some soft spots to contend with. Our contacts are reporting that there is lots of traffic in the stores and in the shopping malls but that spending has been fairly restrained to date. Where we are getting sales, they are concentrated primarily in apparel and home furnishings. Our recovery in home sales that has been going on for a while continues, and permits are up in most states of the District. We continue to have the problem that is associated with other places around the country: namely, the empty office buildings and retail spaces as well as excess capacity in manufacturing. And all of these things are tending to diminish business fixed investment. Orders and sales of apparel, household products, textiles, and packaging are increasing, which is good news. On the other hand, orders for autos, auto parts, and other consumer durables are either declining or flat. Our exports are about as they were at the time of the last FOMC meeting; that is, we're not doing as well in exports as the rest of the country, although one producer of telecommunications equipment recently reported strong gains in exports, particularly to Japan, which I thought was interesting. On the state problem that we've all been talking about, the three most populous states in the Sixth District--Florida, Georgia, and Tennessee--have now increased their estimates of budget shortfalls and they're attempting to deal with these in a variety of ways. Florida has a freeze on state employment; Tennessee tried to push through a state income tax but failed; and in Georgia there are just tightening budget constraints. The credit crunch seems to be abating somewhat, although the demand for loans is still very, very soft. One banker told me that his loan demand has picked up considerably but unfortunately none of the applicants was creditworthy! [Laughter] I don't know whether we want to count that or not. The agricultural situation has been dampened--no pun intended--by very heavy rains, which are beginning to [moderate] a bit so the farmers are now getting out into the fields. That's the picture in the Sixth District; it's a little better than the last time we reported, although there are some soft spots, as I've indicated. With respect to the national economy, we have some differences from the Greenbook forecast with respect both to growth and inflation. And the differences are magnified by the fourth-quarter-over-fourth-quarter comparison; they're not quite as extreme if you look at the annual averages. We have less growth in the early stages of the recovery as well as higher inflation. Both of those tend to even out and come a little closer to the Greenbook as we get further out into the forecast. Without going through all of the sectors, it seems to me that the basic difference from the Greenbook is that we're showing a slower pace of growth in the labor force than does the Board staff over the forecast horizon. This gives us less growth and amounts to a more pessimistic view on our part. What it comes down to, it seems to me, is that we're simply getting less improvement on the wage front. On that score I also don't see in our forecast very much improvement in the services sector, and that's something that perhaps we ought to be looking at a little more carefully as time goes on. What I'm more concerned about than any of that, though, is the continued fragility in the financial system. I think that's a shock that could come and kick us one of these days. It's not only the actual condition of some of the banks around the country and in my District as well but the continued publicity and pessimistic reports that are coming from the various agencies in Washington. That is having a very, very negative effect on people's attitudes toward banking and their basic confidence in the economic system. I think that's unfortunate and I hope it doesn't deteriorate to the point where it has an effect on the recovery itself.",813
-fomc-corpus,1991,President Guffey.,5
-fomc-corpus,1991,"Thank you, Mr. Chairman. The District's economic growth continues to improve, with agriculture being the dominant source of that strength, but manufacturing and construction continue to show some additional improvement. In the agricultural sector, the harvest of wheat--a major agricultural product in the District--has been virtually completed. They've gone through Oklahoma, Kansas, and are now in eastern Nebraska. That wheat crop is estimated to be something like 25 percent less than last year--last year being a bumper crop. But the more important aspect is that wheat prices are at very low levels. As a matter of fact, I think they're now at the level that Wayne Angell experienced when he got out of high school 10 years ago! [Laughter] The fact of the matter is that there will be a cash flow but it's just not an outstanding crop. Part of the diminishment in the actual grain production of about 25 percent comes from less planting acreage, but also there are fairly spotty areas across the District in terms of either wet or dry [conditions] or some infestation. Beyond that in the agricultural sector, cattle prices have declined from their record levels but still remain a principal source of cash flow for the farmers. In manufacturing, the District automobile plants, with the exception of the one in Kansas City, have been operating on a full two-shift production schedule. And that plant in Kansas City, which is a new GM plant, will be putting its second shift back on in September, suggesting that those production schedules are gearing up to meet what they hope to be sales. Construction activity in the District also continues to improve. The building contract awards in the District in April, for example, were nearly 25 percent above year-ago levels and that was principally a result of public works projects, or infrastructure kinds of projects. However, the residential and the nonresidential contracts have shown improvement over year-ago levels, so there is some hope that those will continue and we will not have another downturn in that area. The energy sector has been a dead issue in the sense that prices are such that it just does not encourage any new exploration; indeed, they've shut down some of the small producing, stripper-type wells as a result of the current oil prices and projections of prices in the future. On the other side, natural gas prices, which the Tenth District probably is better known for--it has a greater supply of natural gas certainly than of petroleum--continue to deteriorate and as a result there's not great euphoria in that area. On the national level, we're not greatly different from the Greenbook forecast but, like Mr. Forrestal, we have a little different pattern. For example, we do not show in the last half of 1991 as much vigor in the economy as the staff does. As best as I can determine, looking at the relative figures, the staff has a fairly sharp comeback in inventories which we do not have. On the other hand, in 1992 we're a bit stronger than they are and the averages for the next six quarters together are right on the button at about 3-3/4 percent growth through that period and in 1993.",640
-fomc-corpus,1991,President Syron.,4
-fomc-corpus,1991,"Thank you, Mr. Chairman. As far as the First District goes, I'd say that there has not been much change. It's pretty clear at this point that the District has been through its most wrenching adjustment since World War II. A lot of that, obviously, is because of the bubble that we were coming out of. Much has to do with specific problems that are not sensitive to the U.S. economy. In manufacturing, we have almost weekly announcements of layoffs; a lot of them have to do with some specific problems in our high-tech industry. In the defense sector, we have announcements of shutdowns of plants; but that has to do with Tip O'Neill not being Speaker [of the House]; they're not sensitive to macro policy. Outside of the high-tech area, the encouraging sign that we get in talking to manufacturers is that the general trend seems to be that things aren't getting any worse and about half of them seem to see things getting somewhat better. They do have a very, very cautious approach to capital spending. Generally, we don't see any problems with inventories and I'm seeing a favorable price performance from their suppliers. As far as retail sales go, consistent with what has happened in other Districts, ex-autos we have seen some significant pickup in our District. But we've had very, very warm weather and that probably is part of it. In the real estate sector, as has been mentioned in several other cases, we have serious problems remaining. Probably the best estimates are that we have about 54 million square feet of vacant space. Even if we were to get a recovery fairly soon, optimistically we would be looking at an absorption rate of 4 or 5 million, tops, of that space. So, it just looks as if we have a ways to go there. That, of course, has had very, very serious effects and we're a long way from being out of the woods. In terms of our financial sector, there is a lot of discussion on talk radio about that. I suppose the favorable aspect of it is that it doesn't seem to affect--except in a broader consumer confidence sense--people's behavior. People are not running from one bank to another; they feel quite secure with there being federal insurance. And some people are saying they've been through three institutions and they expect they'll go through a couple more before they get to another situation. We do have some feeling that a credit crunch is still going on but, again consistent with what Bob Forrestal said, loan demand for projects or enterprises one would want to finance is quite weak. In the residential sector we are seeing some pickup in housing; that has continued. That is not reflected in production yet, though, because of the overhang that we still have. As far as the national economy goes, I have very little to add to the Greenbook forecast. I am comfortable with the forecast both in terms of its likelihood and also in thinking that it's not a bad situation to have evolve. One can't help but be struck, as was pointed out by Mike in his presentation, by the unusual nature of this recovery--the importance of inventory swings and of exports in terms of what we're looking forward to. And I think all of this means that we almost certainly have reached the bottom; but there are significant uncertainties about the upswing. Although hopefully not gratuitously, I find myself comfortable with the staff's assumption of what the baseline is because on a somewhat [capriciously] velocity-adjusted M2 basis I consider that to be about what we had built into the baseline.",717
-fomc-corpus,1991,President Keehn.,4
-fomc-corpus,1991,"Thank you, Mr. Chairman. First, with regard to the national economy, our forecast is very similar to the staff's forecast. The differences are really very much at the margin. Maybe my memory is faulty, but it's interesting that the range of the members' forecasts this time, particularly for real GNP, seems a bit narrower than I ever remember in the past. Our outlook is a little more modest than the staff forecast for both this year and next. I think, like Roger Guffey, that the main difference is in the inventory area. Although the staff forecast would suggest a somewhat smaller inventory swing this time than in the past, nonetheless, our numbers are even a bit more modest than that. I think the other differences really are very modest and our numbers line up reasonably well. With regard to the District, there are increasing signs that we have reached stabilization and I think the prospect for renewed growth has improved quite a good deal since the last meeting. District employment was essentially unchanged in May after declining significantly in April and, as we [survey] the hiring plans for the third quarter, the employment situation looks to be getting better. As always, the auto sector is absolutely key to the District and, of course, we are in the model changeover period and there is an awful lot of uncertainty out there. But I think on balance--maybe it's because people are looking to a new model--that the attitudes are a little more positive. And we would anticipate that production schedules in the third quarter would add a full percentage point to the GNP. Even though auto inventories at retail are in good balance, nonetheless, I think the production risks continue to be on the weak side. Given the results of the 1991 model year, any way you look at it there is an awful lot of nervousness about the 1992 models, and we aren't going to know the market reaction to all this until later this month and really into August. But the dealer attitudes are better; fewer are operating in loss positions now than was the case before and in general, as I say, the auto industry attitude is a little more positive. This is working down into the supplier sector. The steel business is a bit better than was the case at the time of the last meeting. The forecast of shipments for the year has been moved up a bit to 77-78 million tons. And the initial outlook for next year--at this point it has to be very [preliminary]--is that shipments will come in at about 80 million tons. But still, it's important to remember that these numbers are significantly lower than the 85 million tons that were shipped in 1990. In the capital goods area, an awful lot of weakness continues. Construction orders still are well below last year; the machine tool business is soft. Heavy truck sales this year are about 15 percent lower than was the case last year, which was not a very good year. In the agricultural sector, we have a couple of interesting dichotomies. First, starting with the weather: Parts of Iowa are very wet--much too wet in fact to get into the fields; but some parts of Indiana haven't had enough rain. Nonetheless, on balance, with any reasonable luck on growing conditions it should be a good production year. The planting is about completed in the District. For some, though, I would say it was the latest planting that they've experienced in a great many years. And the latest Agriculture Department survey on planting would suggest that District corn and soybean acreage is up just a bit this year, which brings the other dichotomy forward: namely, food prices. Because of the increased acreage and significantly lower export opportunities, the carryover stocks this year are likely to be heavy, and prices are under significant [downward] pressure. Corn and soybean prices particularly are under a lot of pressure. Therefore, farm income is going to be down, and I am beginning to hear some bad news out of some parts of the agricultural sector that are a little more highly leveraged than others. We could have some more problems there. On the inflation front, the news continues to be good and the outlook is even better. Materials prices are under a lot of [downward] pressure and competitive conditions continue to be very heavy. For some of the large manufacturers whom I talk to, the increases in their purchase prices this year are lower than last year. One very large manufacturer that I talk to from time to time says that in fact they have a lot of leverage; they have been able to achieve a decrease in the overall cost of their raw materials and other purchased products this year. So, they've accomplished a good deal. Labor contracts continue to be favorable, with fairly long contracts and good terms. But I would caution that there are at least two major contracts in the District coming up this fall that could make a difference. But, net, District conditions seem to have stabilized, albeit at a fairly low level, and people's outlooks seem to be much more positive than at the time of the last meeting.",1019
-fomc-corpus,1991,President Stern.,3
-fomc-corpus,1991,"Thank you. If you go through the District economy sector by sector, I think you conclude that conditions are mixed. That is, you can find some sectors that are doing reasonably well and others that are not. On the other hand, if you cut it differently and ask how the second quarter looks compared to the first, almost universally I think people would report that the second quarter looks a good deal better than the first. Some of that is undoubtedly seasonal but, even discounting for that, it is pretty obvious from the reports we get from our directors and advisory council members and so forth that the economy in the District clearly did better in the second quarter. With regard to the national outlook, I find myself quite comfortable with the Greenbook forecast, primarily for one important reason that I think some people were getting at earlier. Presumably, the path of the economy isn't independent of the policies pursued. Following the '81-'82 recession we had a massive tax cut and expansionary monetary policy for at least some time. If memory serves me correctly, we had some of the same kind of policy mix coming out of '73-'75, and it wasn't surprising that we had a very strong expansion. I think we will get a modest expansion this time, basically because I don't think we're going to see fiscal stimulus and I'm assuming we will not see much in the way of monetary stimulus. So those things go hand-in-hand, and I think they give us the kind of path for the economy that the Greenbook suggests.",303
-fomc-corpus,1991,President Boehne.,5
-fomc-corpus,1991,"Well, my story has largely been told. I think the Philadelphia District is much in line with what is going on in most of the country. We're in the process of bottoming out but there's no lift-off yet. I would say attitudes in the business and banking community are hopeful but still cautious. Business people don't read as much into a tenth or two increase from month-to-month as do analysts. I think they tend to look more at their absolute level of output in business and they still see that business is low even though it's stabilizing. One gets the sense that a little good news would go a long way toward substantially improving confidence. I think the other side is true, too: Bad news would have a magnified effect in the pessimistic direction. But I think things have stabilized and attitudes are lagging some and will probably catch up. I can ditto pretty much what Bob Forrestal said about credit conditions and banks. I'm getting more calls than I would like from bankers who basically are saying ""I told my board that at the end of the year I was taking a big write-off and I ought to have most of it behind us; now I'm coming back and going to have to put in for some more."" I think the worst is over but there's still bad news coming out. And that does feed into this vulnerability issue concerning the financial sector. People are just being bombarded with it; to me it's the largest vulnerability that we have. I think you would find that credit demand is still weak. Business people will say there is a credit crunch while the bankers will say there is no credit crunch but they just need to make good loans. I think that is still there. As far as the forecast goes, I think the staff is broadly correct in forecasting a modest upturn for all the reasons that have been given. I would see perhaps less growth in the second half of this year and more next year, simply because there are these cautious attitudes out there. Lots of business people are largely writing off '90 and '91 and looking more toward '92. But that's certainly a subtle difference, and I think the broad contours are correct.",432
-fomc-corpus,1991,Governor Angell.,4
-fomc-corpus,1991,"My forecast for nominal GNP is a little lower than the staff's for the four quarters ending in the fourth quarter of '91. Frankly, I think I would be more comfortable if I were a disinterested party looking at the Board staff's forecast than I would with my own because mine seems somewhat extreme to me in some ways. Yet I think I'm looking at the very same things that Mike Prell has looked at in terms of modifying his forecast to a less-than-exuberant recovery. But Don is certainly correct when he suggests that Reg Q is not [a factor] this time, and I think that does mean some very different things for money growth. [Several] of you have mentioned the tax and fiscal policies, and I think that has to be noted as a difference this time around. That is, quite often we get either some more liberal or faster depreciation of capital rules or investment tax credit or a reduction of capital gains tax; there's always some deal out there, and this time there is no deal out there. We have to remember that this time we're also not getting any action in the long bond as we ordinarily do. If you take either the 12 months before the recession started or take a point halfway into the recession, which would be all of 1990, long bond rates in 1991 don't move [in a way that suggests] they're going to be any different than 1990 long bond rates. So, that's quite an adverse factor for the residential real estate sector that needs recovery. Ordinarily, we find that household expenditures do seem to relate to what happens to home starts--not just appliances but crazy things like automobiles seem also to be related. I think we have a consumer out there who is also more damaged in regard to his exuberance for the future than we've seen in all of the post-World War II recoveries. I just don't think there's a lot of enthusiasm for borrowing and spending. Finally, the realization by many consumers that there is no tax deductibility on their interest charges is a factor there. So, this seems to be a consumer who is behaving differently. I know, Mike, that you have it in your numbers, too; I'm just taking it down a step more than you did, which is probably too extreme to be worth much. But that tends also to get me a little better picture in regard to the imports; that is, I think the consumer is being a little less exuberant so I do not expect the rebound in imports that the staff has in its projection. What really worries me is that we have not had the kind of price effect that it seems to me we should have had. That is, given the money growth rates, given the slack that's in the economy, and given this recession effect, it doesn't seem to be there. Why have commodity prices failed to decline as much as they ordinarily would during recession periods? Now, it also looks as if commodity prices are not spiking upward in a recovery like they ordinarily would. So, we have a different picture in commodity prices than I've seen in a recession and, frankly, I'm very puzzled by it. At the same time that commodity prices do not show the extent of the recovery, I think it's somewhat strange that gold prices failed to move down. Given central banks' reduced willingness to own gold, or given what I see as a reluctance in the foreign central banks and others to hold as large gold stocks, given countries in southeast Asia who have changed their attitudes [toward gold], and given the Soviet Union [sales], I don't understand why gold prices do not come down. It suggests to me that there may be some what we call ""crazies"" out there who believe that gold is a good [inflation hedge]. And I guess I think that [inflation concern] is in the long bond. On money growth, I do not expect 5-1/2 percent money growth with interest rates staying where they are. With interest rates staying at current levels, I expect lower money growth--more like what we've seen. So, I do not see that it takes a dramatic run-up in short-term interest rates in order to keep money growth at 4 percent. Well, that's a contrary and rather rambling indication of my being perplexed by what is going on. So, I don't have much confidence in my forecast, Mr. Chairman.",887
-fomc-corpus,1991,Governor LaWare.,4
-fomc-corpus,1991,"Mr. Chairman, I think the direction of the economy, as indicated by the recent news, is obviously up. And I have a good deal of confidence that indeed we are in a recovery mode and that the staff projection is a reasonable one. My concern is that the recovery doesn't abort along the way. Without being able to identify possible external shocks that might stall out the recovery, I continue to think the downside risk is significant. And I believe that it is centered in the financial system. Although the stock market continues to surprise me by its strength, I'm concerned that continued weakness in corporate profits and another spate of bad news about the banks could cause the market to retreat and the confidence of both consumers and bankers to evaporate. Without more vigorous lending by banks and the concurrent demand from both consumers and businesses, the recovery could run out of gas. I don't see the banks exhibiting rosier cheeks much before the first quarter of next year, which makes the next six months critical. And in that kind of an environment, we need to remain flexible and tactically nimble in these months ahead. Given all that, I would favor keeping the range for M2 growth just where it is. It might be a serious mistake to signal our intent to slow the growth in the aggregates before we have confirmation of the strength of the recovery.",266
-fomc-corpus,1991,Vice Chairman.,3
-fomc-corpus,1991,"The economic forecast that my associates in New York have put together is not now materially or systematically different from Mike's forecast; there are some differences around the edges. In listening to the talk around the table, Mr. Chairman, I'm inclined to the view that Mr. Prell and his colleagues perhaps should qualify for a gold star either for forecasting or for courage in standing pat against the skepticism of many of us around the table for the past six months.",90
-fomc-corpus,1991,With an oak leaf cluster!,6
-fomc-corpus,1991,"With an oak leaf cluster! You're not there yet, Mike, but you look a heck of a lot better than we thought. I do think it's a great tribute to Mike and his colleagues that they were willing to stand pat, essentially, with their forecast when a lot of people, including myself, weren't buying it. Now, it's not in the barn as Roger Guffey would say--or the bin, I guess. I never get those two things straight, bins and barns, but--",100
-fomc-corpus,1991,Barn is for hogs; bin is for corn.,11
-fomc-corpus,1991,"Okay. [I had] good training; I was out in the Ninth District, too!",19
-fomc-corpus,1991,You left too soon!,5
-fomc-corpus,1991,"I left too soon. In terms of the anecdotal [evidence], I can say that even among the industrial sector types that I talk to, if nothing else, the decibel count is down a bit. And if you try really hard, you can even find one or two here and there that acknowledge that something looks a little better. If that's not confirmation, Mike, I don't know what is! Having said that, there still is, of course, a not-so-silent minority who remain concerned about a double-dip. And something that surprised me a little is that we actually hear a little more these days about the credit crunch than maybe we did even six months ago. That may just be some people smelling the coffee for the first time; nevertheless, certainly that was the impression I had with the fall meeting of our Small Business Advisory Council as opposed to the last two meetings when they were in. I do agree with John LaWare, Bob Forrestal, Ed Boehne, and perhaps others, who have made the point that in terms of the near-term risks, the financial fragility factor probably looms as the largest. [The financial system] is still tender. I think John's comments about some of the events at the end of last week illustrate that point. On the other hand, and for what it's worth, we've just gotten through examinations of a couple of the big banks that we examine directly and I see some evidence, at least on the basis of that small sample, that the rise in problem loans is stabilizing at a high but, in these cases, not alarming level. I'm also hearing reports from my own examiners in connection with the shared-bank credit review, Mr. Chairman, in cases where they are working jointly with the Comptroller and the FDIC--for the first time certainly that they're willing to talk to me about it and I don't know whether others are picking this up as well--about rather sharp collisions between examiners working on the same credits. The suggestion is that the other two agencies are differing sharply in some cases with my people over classifications of the very same loans.",426
-fomc-corpus,1991,Which direction?,3
-fomc-corpus,1991,"[Down.] I don't know what to make of that, except that I do have a fairly high degree of confidence in my own examiners. I don't know if others have picked this up or not.",41
-fomc-corpus,1991,Only one.,3
-fomc-corpus,1991,Did you say that the difference is that they're rating down versus your ratings?,15
-fomc-corpus,1991,Yes.,2
-fomc-corpus,1991,And they want a whole write-off.,8
-fomc-corpus,1991,Much lower.,3
-fomc-corpus,1991,That's what I'm hearing.,5
-fomc-corpus,1991,That has definitely been our experience with our large institutions.,11
-fomc-corpus,1991,"Yes, it surely is.",6
-fomc-corpus,1991,"The worst case I know of involved a fairly large credit, though not huge, where they even had differences in algebraic signs. My guys were saying that they thought it should have been upgraded a notch and the dispute was to downgrade it a notch. That's a big difference.",55
-fomc-corpus,1991,That's a huge difference.,5
-fomc-corpus,1991,"As I said, I don't know whether other people have picked this up or not but I have been told this by my own guys.",27
-fomc-corpus,1991,"I'm picking up the first part, but I have not yet picked up different signs.",17
-fomc-corpus,1991,"Well, that was one case; I don't want to make a big deal out of this isolated case. I mentioned that just to be dramatic.",29
-fomc-corpus,1991,You have been!,4
-fomc-corpus,1991,"But the point is that this is unusual; this is not something that happens with great frequency. It doesn't happen often that there are material differences in judgment among teams of examiners working on the same credit at the same time. I cannot verify how widespread it is, but it's widespread enough that it has been called to my attention in a couple of individual cases by my own examiners. That's an aside; the main point is that the financial tenderness, if I could put it that way, is still very much in evidence. Having said that, let me just add one other general point. If what I hear to be the consensus around the table is correct in that the recession is over and that at least a moderate recovery seems to be taking hold, I think it's probably fair to say that in one sense we really may have very successfully dodged the bullet because not only are we looking at what historically would be a very modest recession in all respects but a recession combined with other factors that I think have produced some of the foundations that could really help us out over the intermediate term. Now, Ted mentioned earlier the improvement in the external sector. The numbers Ted is looking at now compared to what we were looking at not too long ago really are a good deal better. There has been a lot of talk about the prospective improvement on the inflation front; not only is that improvement absolute but it's also relative. If you look at the chart on page 12 of Ted's handout, you find a very pronounced convergence in the inflation rate in the United States versus those of Germany and Japan. They're not the same but the gap has narrowed very appreciably.",330
-fomc-corpus,1991,We could cross Germany next year.,7
-fomc-corpus,1991,We could.,3
-fomc-corpus,1991,"Well, I think we will.",7
-fomc-corpus,1991,"It's really significant in terms not just of the absolute improvement but the relative improvement. The cost containment going on throughout the economy, including in the banking sector, I think bodes very well for the future. And notwithstanding what Governor Angell said a moment ago, I think the balance-sheet rebuilding that we're seeing in the corporate sector and the household sector, while badly needed, is not an inconsequential factor looking out over the intermediate term as well. That is another way of saying that if we don't screw it up, the outlook over the next few years is a good deal better than we might have thought.",122
-fomc-corpus,1991,President Melzer.,4
-fomc-corpus,1991,"We're at the low end of the central tendency for the inflation outlook in '92, so we're very constructive on that score. I might add that that assumes a tighter monetary policy than I think the baseline does. I'm not sure about all these velocities and so forth.",53
-fomc-corpus,1991,They wash out over time.,6
-fomc-corpus,1991,"Picking up on Jerry's last point and a little on what Bob Black said earlier about the uniqueness of this opportunity we have: It took four years of good policy to get here and I hope we don't screw it up, because I do think it's a very unique opportunity. As far as current District activity goes, we have the same pattern that I've described in recent months. We're getting slight employment growth and basic weakness in manufacturing--not as much weakness as nationally--being offset by growth in nonmanufacturing. And the particular weakness in manufacturing is in transportation--McDonnell Douglas and Chrysler, with the layoffs they've had in the St. Louis area. And in nonmanufacturing, we're seeing strength in services. Somebody said earlier that they are not seeing that yet; we're seeing that and we're also seeing a pickup in construction employment. In fact, both residential and nonresidential contracts are up in the most recent period, and residential is up very sharply. That's now beginning to spill through to some other sectors of the economy. GE in Louisville has called back 1,000 employees because of what they see going on in homebuilding. As far as banking conditions go, if you compare the numbers in the first quarter to the first quarter a year ago, it's really hard to detect that there has been any change. There's a very slight deterioration in return on equity and in nonperforming loans, but it's almost indistinguishable. So, banking conditions in the District are still very good. Despite that, and even though the banks are in a position to lend, we're seeing very moderate credit growth, which I think probably reflects a weakness in demand.",329
-fomc-corpus,1991,President Hoskins.,4
-fomc-corpus,1991,"Mr. Chairman, I wanted to come here today also and congratulate Mike by confirming that the recovery started in the quarter in which he called it. However, I was not able to get hold of Mr. Smuckers to get my apple butter index and come down here and report. And that's unfortunate; that index is really reliable.",67
-fomc-corpus,1991,Mike had two quarters!,5
-fomc-corpus,1991,"The District isn't showing anything much different from what anybody else's District seems to be showing, at least from what I've heard here. In the state of Ohio employment in May is up one percent over what it was a year ago; in Pennsylvania it is down a percent and a half or so. All the anecdotal information suggests that we've touched bottom and will be beginning to head up soon. The employment numbers in Ohio would tend to indicate that. The capital goods people are all nervous. The order books aren't dropping or anything like that, but they don't see any sign of a pickup in the third quarter, with the exception of large trucks; there has been a pretty good surge in that.",137
-fomc-corpus,1991,I'm sorry. There's what?,6
-fomc-corpus,1991,"A surge in the last couple of months in the order books for large trucks. The one thing I hear uniformly from talking to people is their comfort with the inventory levels. There was not one person we talked to who thought they didn't have their hands right around inventory; inventories were very low and right where they wanted them. That's the only consistent [comment] I got across the District in talking to manufacturing people. In terms of the outlook for the national economy, again, we're not too much different from the Greenbook. We just have different monetary assumptions than they do. I guess I'm a little troubled by our concerns over all the risks that are out there. We have to be cognizant of risk but I think everything we know about the empiricism of macroeconomics, as well as macroeconomic theory in the last 20 years or so, tells us that we probably can't control most of those things very well. And trying to offset them with monetary policy is not going to help us a lot, whether it's unemployment caused by defense changes or troubles in the real estate industry. So, it seems to me that we ought to keep our eye on what we can control over time. If we want to get long rates down and get some credibility, then we ought to take a tack that focuses on inflation. Now, if 4 percent money growth isn't going to get us there, then I think we ought to go lower. Governor Angell is concerned that we haven't gotten far enough; maybe that's because the relationship is disturbed. The objective is not money growth; the objective is price stability. So, I think that's where our focus ought to be.",332
-fomc-corpus,1991,Governor Kelley.,3
-fomc-corpus,1991,"Mr. Chairman, I'm a good deal more comfortable than I was when we last met here in May. At that time we hoped that we had a recovery at hand and now it's virtually certain it is at hand and probably in hand. I find myself with a forecast for the remainder of '91 that's on the high end of the [members'] range. It's strong inventory that does that. But that having been said, I'm in the camp for '92 of still having some considerable concerns. My forecast produces what I consider to be a good [result]; it's a bit under those of some people, but I'm concerned that the economy could well be tender for a good while for several reasons. The first is the fragility in the banking system; that has been brought up by several people and I think everybody here is fully aware that it exists. I think that's going to be here and it presents continuing risks, as John LaWare points out consistently. The second thing that concerns me is the heavy load of debt that has been built up over the '80s at all levels of the economy. I think that's going to be a drag for some time. In my view, we've crossed the watershed between the basic orientation to create debt and are changing over now to an era where it seems to me the orientation is more to service debt and try to bring it down. That's going to take an extended period of time to accomplish and that's going to be a certain underlying drag all the time that it's at work. The third concern would be in the area of this inventory cycle. As I understand it, it seems to be a substantially heavier component of the overall recovery that we're looking for this time around. And after a little while--a couple of quarters or maybe three --that's going to run its course. Then there are going to have to be some other sectors to pick up that slack when that ceases to be an expansionary factor. And it's a little hard for me to see where that slack is going to get picked up. Net exports don't look as if they're going to be any help; real estate generally and commercial construction in particular are going to be very weak for an ongoing period; government certainly doesn't look as if it's going to provide any stimulation--and I certainly hope it doesn't. There may well be some help from consumers, but I have some question in my mind about that. Some of these other things may turn out to be just a little better. I'm well aware of Lee Hoskins' remark earlier today that things always seem to be a little better than we estimate, and I hope that that turns out to be the case here again. But I think we're in for a tender period, at least through the next year. So, that leaves me thinking that our policy challenges are, on the one hand, to do what we can do to sustain the economy--not hype it up but sustain it--and to try to see that it has a chance to broaden as it goes along. Clearly, at the same time, we have to get in hand and then maintain and hold this much improved inflation outlook that I think we all see. But for the time being this is a time to wait a while and see what sorts of things begin to unfold over the next quarter or two.",660
-fomc-corpus,1991,"Finally, Governor Mullins.",6
-fomc-corpus,1991,"Most of my stuff has been stolen by now by other people! Some of my views are pretty consistent with Mike Kelley's. It's very difficult to predict the turning point, and there are plenty of moderating influences out there, which we have talked about many times. Some are starting to come to a resolution. In the state and local governments and pretty soon in most of these venues we will see the shape of the resolution. The dollar continues to be strong. The Greenbook now projects only a modest retreat and many people have referred to Joan Lovett's list of the new recent flare-ups on the financial fragility front. I would just mention, in reference to Jerry Corrigan's comment that some of these recent episodes in the examinations may raise again the specter of the credit crunch, that there was an article today on the screen, and it may have been in The Wall Street Journal, on the difficulty homebuilders are having getting credit. The National Association of Homebuilders was saying that it's going to be a terrible year. I might point out that their estimate for housing starts is only a little higher than the Greenbook estimate. So, actually, we're not being too optimistic, I think it's fair to say. The Greenbook story has slimmed down and now it's mostly inventories driving the process. I think the cessation of inventory liquidation should give us a healthy boost for a couple of quarters. It's less clear to me how much accumulation we can project--whether businesses will really want to replace the $80 billion they liquidated. Inventories have been a bit illusive, although it's good to hear that people think they have them under control; we should get some help there. After that, like Mike Kelley, I don't see a lot to propel the economy. The Greenbook simply falls back to moderate growth in consumer expenditures and acceleration in business-fixed investment in '92, and I wouldn't have a great argument with that. That should be enough to sustain the recovery. I do think there is some risk that after the inventory effects wear off in the next quarter or two we could return to the slow growth we had in '89 and the first part of '90, leaving us vulnerable to shocks and recession. There is the question of the adequacy of money growth to sustain the recovery. For the last four years we have undershot the midpoint of the target range. And I feel confident we're on that track this year as well. It's not clear to me in which direction the next appropriate move will be. I think the dollar has already gotten a head start on the tightening, as Ted Truman alluded to--although perhaps not quite in that way. I do agree that we stand on the threshold, potentially, of very substantial progress in reducing the core inflation rate and it's a position that has taken this Committee quite a few years to achieve. The potential progress seems to be large by historical standards, so I think it is important that we do what is necessary to try to put that in the bank. I think we're in pretty good shape overall. It is true that the long bond may not be convinced; again, to say it relects concerns about inflation raises questions of why the dollar has responded [differently]. I need more lessons in chart reading because the CRB index looks like it did fall off some, although gold is another issue. And there may well have been an increase in the real rate due to the demands in eastern Europe. But my view is that it will take more than just a couple of months of this to convince those taking a 30-year risk. And if the inflation numbers behave as we've projected them as the recovery progresses, I think they will want to see what happens after it starts. And I think the long bond will come around.",759
-fomc-corpus,1991,"Thank you, everybody. I think we've run pretty much to the end today. We will adjourn until 9:00 a.m. tomorrow morning. Are we going to lock up here?",39
-fomc-corpus,1991,"We usually do, yes.",6
-fomc-corpus,1991,Anyone who wants to leave his materials here may feel free to do so.,15
-fomc-corpus,1991,Mr. Kohn.,5
-fomc-corpus,1991,[Statement--see Appendix.],6
-fomc-corpus,1991,Questions for Don?,4
-fomc-corpus,1991,"I sort of asked you all these questions yesterday, Don, so let me try it differently this time. The Bluebook and the alternatives that you present for the Committee give us the impression that we can shape the contours of output in the short run without giving up disinflationary efforts. What I want to know is: What is your comfort level with these kinds of projections based on the models that you use? They're not forward-looking particularly, and our experience with them leaves me uncomfortable.",98
-fomc-corpus,1991,"Obviously, there's a wide band of error around any of these projections. Mike would be the first to admit that.",23
-fomc-corpus,1991,Or second! [Laughter],7
-fomc-corpus,1991,"We're obviously giving you our best guess based on experience, model results, etc. We are coming at this from the trough of a recession in which we do have some slack in resource utilization, which gives us some encouragement that we can both reduce that slack, keeping the unemployment rate above the natural rate of unemployment, and get some progress on inflation. It is a middle road. It's a new version of a soft landing in some sense and perhaps the ideal outcome. Obviously, there's a lot of room for slippage on either side. And the issue for you, I guess, is whether you want to aim at that or aim at something else. The other piece of slippage, of course, is between money and the objectives. Not only is there uncertainty about the underlying forces in the economy but there is a lot of uncertainty about what money growth paths one would choose in order to hit some agreed on set of objectives. So, that compounds it.",190
-fomc-corpus,1991,"President Hoskins, if Don hadn't just made that remark, I think I would have myself. My sense is that we have as much confidence in predicting what inflation will be over the next couple of years looking at the real GNP and unemployment picture as we would looking at money and guessing at velocity and the links through all these channels to prices. So, there is a significant uncertainty here about what you should be focusing on to have the greatest confidence--",90
-fomc-corpus,1991,Let me just follow up. Would you make that same statement if we were talking about money growth over a 5- or 10-year period?,30
-fomc-corpus,1991,I might.,3
-fomc-corpus,1991,But you wouldn't be comfortable?,6
-fomc-corpus,1991,"Obviously, this unemployment/inflation link is a short-run relationship, so it may not be relevant over the longer span. But with financial innovation, I'm not sure what the meaning of M2 will be five years from now. So, in today's world I'd be reluctant to set out in advance a particular course and say ""I want to stick to that and I can be highly confident what the price trend would be.""",84
-fomc-corpus,1991,"If I may take the liberty of retranslating your question: Our forecasts are based on a path for nominal interest rates and they relate that to spending and through that to output, employment, and inflation; and another way of putting your question is whether over 5 or 10 years I would have as much or a little more faith in a money/nominal GNP relation than I would in a nominal interest rate/GNP relation. I think as we practice policy we end up looking at both of those and at a number of collateral pieces of information to try to interpret the interest and exchange rates--with money being an important piece of collateral information. But we'd be hard pressed to put entire reliance on one or another set of these things.",149
-fomc-corpus,1991,"I just had one other question, not on that subject. At one point we widened the bands on M2 and the [other] aggregates because we thought there was significant volatility. As I look at the numbers over the last four years, we've been within a 1/2 point or so of the midpoint of the range on a fourth-quarter-over-fourth-quarter basis. So, it seems to me that maybe we don't have the same degree of uncertainty about where we're going to come out. I guess I'm asking you: Would you be comfortable with a narrower range, given our experience of the past?",121
-fomc-corpus,1991,"No, I guess I wouldn't. I think the widening of the ranges reflected two things. One is the increased interest elasticity of M2. So, working as we do with interest rates and nominal GNP, and feeding that back through M2, a mistake on the interest rate/nominal GNP spending side means that the Committee would tend to push interest rates higher or lower and, because M2 is more interest sensitive now than it used to be over short periods of time, we can get quite a substantial response in M2 to get the same nominal GNP with the same inflation outcome in the short run, cyclically. The other point would be that, if anything, I'm a little more uncertain about the relationship of M2 to nominal GNP now than I was two or three years ago when I thought we had a very good handle on it--at least it looked like--over four [to] six quarters. Now I'm less sure. So, the fact that we came out near the midpoint of the ranges the last few years is almost a coincidence, involving offsetting surprises to some extent. I know, for example, that last year, 1990, we expected money growth--and I think the Committee didn't disagree with this--near the upper part of the range by the end of the year. And it fell way off. So, I think there's at least as much uncertainty about those relationships now as there was when the Committee widened its ranges.",296
-fomc-corpus,1991,"Don, a very key assumption in the alternatives is what happens to the shift in the demand for money. Clearly, we had a substantial shift in 1990 and we're making some assumptions about further shifts. If one were to see a return to more normal relationships, then clearly we'd have a much different outcome with regard to what the target ranges should be. Is there some additional information you could give us about the degree of confidence associated with those particular assumptions?",91
-fomc-corpus,1991,"I think I just expressed my uncertainty to President Hoskins. I'm not sure I could emphasize it any more. We see that miss being related in part to the unusual developments in the depository sector over the last year: the shrinkage of the thrift industry and the simultaneous problems of the banks and the effects they are having on both depositors and depositories. Since we're projecting an expansion in the economy and a slow abatement of the credit crunch--and that these pressures on the depositories and the thrift adjustment, while continuing, won't be accelerating anyhow--we're projecting that in growth rate terms M2 and GNP will come back closer into their historical alignment over time. But it is purely a projection that comes out of this notion of the abatement of some of these severe pressures with the economic expansion. But there is just a huge amount of uncertainty about that. It is the case that relative to the models the errors in the first half of this year were a little less than they were last year, and that by either extraordinary skill or pure dumb luck we actually projected the model error at the beginning of this year. The model error we got for the first half of the year is pretty close to what we expected.",245
-fomc-corpus,1991,"I guess I'd make a comment. Those alternative strategies to me seem very useful, but in going to the alternatives that you then show it's useful also to think that one could justify perhaps following one strategy in the next year or so, given the uncertainty associated with that period, and still go to perhaps an even more aggressive strategy in subsequent years to achieve--",70
-fomc-corpus,1991,"We tried to hint at that in strategy IV, in which we were sort of having fun fine-tuning this. We said: ""Well, suppose the Committee put a little more money in now. How fast would they have to take it out so that at least they didn't get off the track of strategy I?"" But, obviously, there are lots of permutations and combinations.",75
-fomc-corpus,1991,President Stern.,3
-fomc-corpus,1991,"My question is really along the same line. I'm trying to understand the process in these alternative strategies a little better than I do. Where does this 5-1/2 percent money growth in the baseline, especially in the out years, come from?",51
-fomc-corpus,1991,"We start with the presumption of a strategy for policy involving slow deceleration of inflation, holding the unemployment rate around 6 percent. We ask what nominal GNP and interest rates would be consistent with that and the M2 fell out of that. We did not set out to design a rule for money growth. You couldn't hold--",67
-fomc-corpus,1991,You specify the economic characteristics and then you back into the money path?,14
-fomc-corpus,1991,Exactly. And we recognize in the P* simulations--they are sort of footnotes here--the notion that you couldn't hold to 5-1/2 percent forever and get decelerating inflation. It's too fast.,45
-fomc-corpus,1991,President Syron.,4
-fomc-corpus,1991,"Don, not to put too fine a point on it--and I think you probably already answered the question--but on this key issue of the relationship between the Ms and nominal GNP: In footnote 5, where you say you assume further downward shifts, would it be fair to say that that's a separate assumption and that you could just as easily have less downward shift as more downward shift? That has some implication for how much room we'd need if the downward shifts were not [abating].",100
-fomc-corpus,1991,"It's our best guess and I agree with you that we could have some more. If you thought that the shrinkage of the depository institutions system was just beginning, by asking for more capital, closing all these thrifts, we would really be rerouting credit away from these institutions. The new banking bill will put depositors, at least uninsured depositors, at risk if it passes and I think accelerate that process. If anything, one could easily make a case for asking what they are going to do with all those M2 [funds]. They won't need them; they won't have any loans to make and we will have greater downward shifts in the out years. I think one could also make a case, which is sort of embodied in the P* model, that we've had a constant velocity since World War II on average. Actually one can go back earlier, I guess--is that right, Mr. Chairman?--to World War I and we've had constant M2 velocities since then. And what the staff is assuming here is that V* is changing; that is in effect what we're doing here. We have permanent velocity shifts, which is fighting an awful lot of history. So, I can make arguments, as I just did, on both sides of that.",256
-fomc-corpus,1991,"Well, one nice thing is that, given the preliminary nature of these deliberations, we will have six months more to observe what is happening to velocity relative to what one would expect before [we set the final ranges in] February.",47
-fomc-corpus,1991,"Well, in fact, the 5 percent growth for the year 1991--5-1/2 percent over the two quarters of the second half of the year on average--really has very little further downward shift relative to our standard demand model. So, it will be interesting to see whether that happens.",63
-fomc-corpus,1991,Governor Angell.,4
-fomc-corpus,1991,"Don, on page 9 [in the Bluebook] on the baseline you have real M2 growing from 1 percent in 1991 to 2, 2-1/4, 2-1/2, and 2-3/4 percent [in the subsequent years through 1995]. Why does real M2 grow--now, maybe real M2 is not something you think works--and yet under alternative II, the tighter [scenario], you have real M2 growing on a much slower course, from 1 percent to 1-1/4, 1-3/4, 2-1/2 and then to 3-1/4 percent? Why does real M2 behave so differently under those two scenarios?",157
-fomc-corpus,1991,"Okay, I'm not sure I see the 3-1/4 percent; I see 2-1/2 percent.",26
-fomc-corpus,1991,"Well, in 1995 you have the price level at 1-1/4 percent.",20
-fomc-corpus,1991,"Oh, I see. I'm sorry; you're right. I think the point is that you tighten up a lot earlier in strategy II and then in order to keep the unemployment rate from rising, at some point you have to ease off a bit and push in a little real M2 or you're going to have even faster increases in the unemployment rate out there. The other point is that with the slower growth--this probably accounts for even more of it--and the lower inflation of strategy II, the tighter strategy, nominal interest rates are moving down pretty substantially by the end of the period, almost a percentage point below the baseline. Baseline nominal interest rates also begin to move down in '94 and '95 as inflation abates, to keep the real rates from rising too much. They move down even faster in the slower money growth strategy because inflation is coming off even more. As those nominal rates move down, you get increased demands for money in the usual velocity sense of lower velocity. And if you didn't push in more M2, you wouldn't get the decline in nominal rates; things would explode in a tightening way. So, you need more M2 in the out years in order to satisfy demands for money compelled by lower interest rates.",248
-fomc-corpus,1991,Under both scenarios?,4
-fomc-corpus,1991,"Right, but even more under the tight scenario in the late years because inflation is coming down more and nominal interest rates come down more. For nominal interest rates, although they go up in the tight scenario right away and stay higher, the decline is a full 2 percentage points from '92 through '95. In the baseline scenario, the decline is about 3/4 of a percentage point.",80
-fomc-corpus,1991,But if that's the case--if you have real M2 under both alternative I and alternative II at 2-1/2 percent in 1994 and then in 1995 you have 3-1/4 percent [under alternative II]--I would think the unemployment rate would fall more rapidly in 1995 under alternative II than it would under alternative I.,76
-fomc-corpus,1991,"Well, the answer is in this interest rate effect--that is, the effect of money once you take account of the demands for money associated with lower interest rates. It isn't that much; the growth doesn't accelerate that way under the tighter alternative; you get some additional [growth], but not as much as [under the easier one.]",67
-fomc-corpus,1991,"Okay, that's fine. I don't think you're disagreeing with what I'm saying: that there would tend to be toward the latter part of this period some possible gains from unemployment, depending upon credibility. That might actually bring the unemployment rate below alternative I.",50
-fomc-corpus,1991,Below alternative I? Below 6 percent? That would be a lot of credibility! But it's moving in that direction.,24
-fomc-corpus,1991,With the same inflation rate?,6
-fomc-corpus,1991,"Anything is possible, Governor Angell.",8
-fomc-corpus,1991,"Any other questions for Don? If not, let me get started. I was looking over the data the last few days and the more I look at the data--despite all the flowers that we are getting and all the showering with praise that David Mullins has gotten recently up on the Hill--policy has really been quite successful, especially on the money supply side. That is, by whatever means, we have managed to bring money supply growth down in a gradualist, successive, cumulative way to a point where we are now back to growth rates of the 1950s. And we have done it by bringing down the targets slowly; actually, one time we left them unchanged, but otherwise we continued to move them down in small increments. I think we especially ought to be quite pleased that we've come through a recession--hopefully, this is the end of it--without engendering double-digit money supply growth. And that is an accomplishment that I don't think is to be pushed aside very readily. When you look at the data in the context of the P* model, which is as good a reduced-form means of looking at money and inflation [as any], we still have a way to go on the down side with respect to [controlling] inflation--that is, under the existing regime. I don't think we can hold the last three months' figures, which are under 3 percent; but it may well be that we will be surprised at what is actually in the process of emerging at this stage because it's hard to make the case for anything above a 3-1/2 percent inflation rate with these types of data. In fact, assuming constant velocity, at the 4-1/2 percent midpoint or slightly less, actual [M2] growth is consistent--or pretty close--to price stability, if we believe that there is an upward drift [in the price measures]. Or I should say that the price [measures] do not fully capture the quality drift and, as a consequence, overestimate the inflationary pressures. I do think the credibility question that we're looking at has to be a function of where both money and prices are. I cannot see how anyone could claim that we have been expansionary with money, even though we have not yet seen prices fall to the level that [is commensurate with what the decline in money growth] suggests. It's hard to know how to read the long-term bond rate, as to whether there really are inflation expectations in there, or the behavior of the exchange rates, which suggests that it's more real than we realize. I don't think there's any question that the 5-1/2 percent M2 growth rate that is implicit in the baseline model is too high over the long run. That [rate of growth] is not consistent with the level of price stability that the vast majority of us are looking at. And there's no question that at some point within the next year or two we're going to have to bring down our targets by a notch, maybe two. But we're not all that close from where we want to be over the long run if we believe that the long-term velocity [of M2] is stable. As a consequence of that, I raise the question: If over the long run we're going to be required to bring down the target rates, is this July 1991 meeting the time to do it for the year 1992? My answer to that at this particular stage is ""no."" We have a credit crunch; we have fragility; we have all sorts of problems that have not worked their way out. And I should think at this particular stage that we could do very well by staying where we are. I fully recognize, and I agree with Bob Parry on the point that the credit crunch may disappear. By next February, the outlook may be significantly different; the fragility may be behind us; and we'll have another shot at [the ranges for] '92 in February. In fact, I had Don put together for me a list of the times we've changed the July provisional targets in February, and one way or another we've done that more than half the time. So, I would argue at this particular stage, with fiscal policy clearly shackled and likely to remain shackled for a while, that the spotlight is on us in a way that I don't think we've seen for a while. And I see, frankly, very little benefit to moving now on lowering the targets, although I think it's essential that we not stop here. I think we have made extraordinary progress in bringing inflationary pressures down. We have gone through the recession without blowing it. And with the current targets I think we have the capability of continuing to cement a continued disinflationary process. I'm not sure there's anything to be gained in the short run in signaling a tightening for '92 this far in advance. I don't think we need it. All that will do is to galvanize some anti-Fed actions which, since the banking bill is still open and under negotiation, can create an inadvertent problem for us because amendments on the floor of the House and the Senate can be particularly ill-informed and still pass. I should think at this particular stage that we probably would be well advised to sit tight with '91 and '92, but plan to look at it again in our next review of the '92 targets. If things have improved measurably and we have a shot at it, we probably should think strongly about reducing the ranges a notch at that [time]. But if we wait a year or if we wait a year and a half, I don't think that does us any damage so long as money growth doesn't start to move outside the target ranges and we are perceived to be willing to accept a lot more in the way of monetary and credit growth than we have demonstrated these last several years. Bob.",1189
-fomc-corpus,1991,"Well, Mr. Chairman, according to our projections as well as those in the Bluebook, it is likely that M2 and M3 will end up well within the range this year unless the outcome for economic activity and inflation [differs markedly from our expectations]. Thus, maybe we should retain the ranges that we currently have for this year. For 1992, I can see compelling reasons in support of either retaining this year's ranges or lowering at least M2's range by 1/2 percentage point. In support of lowering the ranges, price stability over time does require further reductions in the range of M2, as you noted. Also, a reduction could send a clearer message to financial markets concerning our goal for reducing the ranges and it could have salutary effects on inflation expectations. On the other hand, a reasonable outcome for the economy next year, including further progress against inflation, seems to require an M2 growth above the midpoint of this year's range. Moreover, there is considerable uncertainty, as we've talked about this morning, about the trend of velocity over the next 18 months. It could return to slower growth rates more quickly than is being assumed in our forecast. Finally, staying with the same range for M2 for two years was agreed to in 1989 and also in 1990, without I believe sacrificing the pursuit of price [stability]. I believe in view of the preliminary nature of our July deliberations for 1992 I would favor alternative II, which basically repeats the same ranges for next year as we have for the current year.",316
-fomc-corpus,1991,Governor Angell.,4
-fomc-corpus,1991,"As you know, Mr. Chairman, we've had a few reporters around in recent months asking questions. One of the most interesting questions I was asked--my answer was not reported as far as I know--was: What have you learned in five years? And to that there was a clear-cut, easy answer. I've learned that getting inflation down is a lot harder than I thought it was five and a half years ago. It just is pretty hard to get it down. There have been times that I've argued with the staff, with Mike, in regard to inflation. I thought we were going to be more successful than we were. It's very clear to me now that it's not easy to get the rate of inflation down. The second point I would make, Mr. Chairman, is that you pointed out to me a year and a half ago, when I was complaining about inflation not coming down, that inflation would come down in a bunch sometime, and I think you were right. If you look at the history of disinflation, it does tend to come in bunches. I had the view at one time that maybe inflation can come down during expansions, but our success in getting inflation down during the latter part of an expansion phase has proved not to be an event. So, we have an opportunity; and when you have opportunities, you act to make gains. The third point I would make is that inflation never comes down too rapidly. Now, deflation could be too rapid. But inflation doesn't come down too rapidly because when inflation comes down rapidly the bond markets know it and you get some benefit from falling interest rates. So, gradualism sounds nice in theory, but it's just too easy if gradualism never begets progress. So, at some point in time we have to stake out an opportunity, and I believe this is an unusual opportunity to make tremendous gains. Now, Don, I know why it is that you have the 5-1/2 percent [assumption for M2 growth in 1992]. But it seems to me that by most measures we can look at the 4 percent growth rate from Q4 to June and the 4 percent average over three years --and it was very stable during the three years--and say that it really is quite adequate. It would have been very adequate if the rate of inflation had not bulged to 5 percent. We would have found the 4 percent to be just fine if that rate of inflation hadn't bulged. If M2 growing at 4 percent is sufficient to provide a recovery that all of us are agreed is in place, then I see no reason why 4 percent money growth won't work in the future. I think you asked the question, Mr. Chairman: Why do it now rather than in February? And I think the answer to that is that we have a Chairman who is very, very good at persuading when he makes the Humphrey-Hawkins report. And if the Chairman explains why it is that we're [adopting] a lower target range, that can give us the credibility kick that all of us think would be very, very helpful. And in doing that I think we have a chance to have this recovery be better rather than weaker. That credibility could cause the long bond interest rate to fall from its [current] level, which is higher than it was last year, and that would be very, very good for the recovery. So, the reason that I would like to do it now is because we need the bond market improvement now. That would give us a credibility that we could not get in any other way. And, Mr. Chairman, even though you would prefer not to explain that now, I think you'd be very good at explaining it now. And I think that would make a considerable difference. If I'm wrong and the money relationship changes, I don't see any reason why we couldn't back off in February. The tentative step should be the step that we want to make and then if the money relationship turns out to be quite different, you'd be able to explain that next February.",827
-fomc-corpus,1991,[Explain] raising the targets in February? I appreciate your over-estimation [of my abilities]! President Black.,23
-fomc-corpus,1991,"Mr. Chairman, I've never disagreed with you before, much to my pleasure, and I certainly agree with your comments that the baseline growth rate for M2 is much too high and that strategy II is near what we ought to be aiming for. I even went so far as to say one time to a reporter, facetiously, that much to my dismay I was tempted to just give you my proxy and go play golf. And you, on another occasion, said you were going to hold me to that! I will try to cover my tracks by saying that I suppose at some point inevitably we're all going to differ. So, I'm with you on the first two-thirds but [not] when we get down to the discussion of the ranges. I recognize that long-run alternative II, which means extending the '91 ranges to '92, could encompass strategy II--an idea that we both endorse. But as the Bluebook points out on the bottom of page 19, long-run alternative III, which lowers all the ranges 1/2 percentage point is ""more consistent with the spirit and intent"" of our anti-inflationary strategy. And that would provide fresh evidence of our commitment to the very things that Governor Angell has just described very well. I think that is a very important point, as he emphasized. As I said yesterday and as he said much better today, we are at a very crucial point; we've had remarkable success up to this point and many forecasters are now beginning to lower their projections of inflation in part because they think the economy is not really going to spurt as much as it has in past recoveries. But I think a large part of that is due to the growing credibility that we have gained because we have had this remarkable record over the last several years. I think leaving these ranges unchanged in '92 would raise some doubts and possibly slow, if not break, the momentum that we've gained thus far. But lowering them would reinforce our credibility and I think would reduce the transitional costs of achieving price stability. Consequently, I very strongly favor alternative III. I recognize that M2 growth may well be in the upper part of that range next year if we adopt that alternative, but that strikes me as a pretty manageable problem that we could afford to take on in view of the benefits that I think we would get from the credibility standpoint by lowering our ranges. And if, as Governor Angell postulated, we had to raise them, I share his confidence that you could explain that very well. We really have a golden opportunity here that we haven't had until now, and I think we have to seize it. Although there are many reasons why I could argue that we ought to temporize, I'm afraid that I just have to come out for alternative III.",562
-fomc-corpus,1991,President Hoskins.,4
-fomc-corpus,1991,"Our goal is price stability. I agree with you that we've made progress in terms of bringing money growth down. What we know about money--or at least what we think we know--tells us that we ought to get some progress. To date we haven't gotten the progress. I'm not wedded to a particular money growth; I'm wedded to price stability. And it seems to me that what we think we know about it is that we're about a percentage point away from a noninflationary economy in terms of money growth. And to look to raising the growth rate in money--. Even though I know it's a residual that falls out of your output, price, and interest rate model, I view it as a policy instrument. And I just can't see how we would want to tolerate a 5-1/2 percent rate of growth in money for any significant period of time when we've worked so hard to get where we are. If the 4 percent growth rate [over the past] four years doesn't get us anything, then I think we ought to move on down to 2 percent or whatever it takes to get us there in a reasonable time-frame. I just think that we shouldn't be considering anything in the upper end of this target range. I would argue that we ought to lower the midpoint of this target range and center it on 3 percent because that's where we want to be. And if that doesn't work, then we should center it lower. But I don't think we ought to abandon our efforts to bring money growth down when we seem so close. We can stay with the current targets for the rest of this year but, for the reasons that both Bob Black and Wayne Angell have already given, I think we would do ourselves a great service by clarifying our commitment to price stability by lowering the target ranges. I'm not even comfortable with a 2 to 6 percent range; I'd like one centered on 3 percent or at least I'd collapse the top end of the range.",403
-fomc-corpus,1991,"Be patient, Lee; be patient.",8
-fomc-corpus,1991,Show the kind of restraint that Governor Angell and I showed!,13
-fomc-corpus,1991,"Well, I'll compromise and opt for a lower target range of 2 to 6 percent. That's my recommendation.",23
-fomc-corpus,1991,President Forrestal.,4
-fomc-corpus,1991,"Mr. Chairman, as I look back over our experience of the past 12 to 18 months, I think that policy has been about as good as we could have expected and certainly better than I had anticipated. And for all of the reasons that you gave, I would very strongly favor staying where we are. In saying that, I'd like to make it clear that I in no sense am abandoning the idea of price stability, but I think we have to bear two things in mind. We're trying to achieve price stability over time, not all of a sudden at a cost to the economy. We have other responsibilities besides price stability. Price stability may be the primary objective of a central bank, but I don't think it's the only one. Our credibility, it seems to me, is measured not only in terms of how we deal with inflation but also how we deal with the real economy. We have a recovery in train at the moment; I think that's pretty evident. But I do think the risks are still on the down side. You pointed to a number of other risks, none of which is trivial, I would say. So, I think it's important that we hold where we are at the moment. I think the risks to us as an institution as well as to the economy are really quite significant if we make a move at this time. So, I would strongly support your recommendation that we hold [the M2 range for] both '91 and '92 at 2-1/2 to 6-1/2 percent at this time.",313
-fomc-corpus,1991,Governor LaWare.,4
-fomc-corpus,1991,"Mr. Chairman, the position that you have presented to the Committee today and the conditions you described are almost identical with the one's I espoused yesterday, so I'm very happy to support alternative II as the strategy. It seems to me that there's room in that range to accommodate whatever we wish to do in terms of continuing to put pressure on inflation. And I am very concerned that at this point, when we don't have assurance of the strength of the recovery that we think is underway, the announcement effect of saying that we are going to slow down the growth in the money supply could run the risk of aborting the recovery. So, I very strongly support staying where we are, believing that we have enough room within that range to do whatever we wish.",150
-fomc-corpus,1991,President Syron.,4
-fomc-corpus,1991,"Thank you, Mr. Chairman. I think, as others have said, that policy has been quite effective, largely by drift of fortune as well as by skill. And I think there is general agreement that most of us often think about our objectives in terms of inflation and [view achieving price stability] as a vehicle for promoting real growth in the economy. A lot of the somewhat technical debate right now comes down to the issue of how much we want to take into consideration uncertainties associated with the relationship between money and output. And it seems to me that, not unusually, we're in a time of significant uncertainty. First of all, we're not absolutely sure where we are in terms of the real economy itself. Beyond that, there are all of these factors going on in the financial system to which some people have alluded. And coming back to the question I asked Don earlier, it's far from clear that we have a great deal of certainty about velocity's behavior in either direction. In terms of credibility, a concern I have--I think we'd be surprised by it--is that if we were to lower the ranges and then have to break through the top of the range, that could be as damaging to credibility as some other specs could be in the other direction. Additionally, I have a great deal of sympathy for your view, Mr. Chairman; I'm not quite sure what we get for changing [the ranges] now in July, halfway through the year. We'll have more information both on the real economy and on what is happening in the financial system as the year goes on. So, I think the opportunity for gaining credibility is greater, if we find it necessary to make a change, to do so after some of these things become less [uncertain]. So, for that reason, I support your suggestion.",362
-fomc-corpus,1991,Governor Mullins.,4
-fomc-corpus,1991,"I would prefer alternative II at this time as well. I think, as Governor LaWare says, it's unnecessary to change the ranges. The current [M2] range provides ample flexibility to respond to inflation risks. If we need 4 percent growth we have the ability to achieve it within this range. Indeed, we've experienced 4 percent growth over the last year and a half within the range. On the credibility question, there is some merit to the credibility argument. On the long bond, I'm not so convinced that there's much inflation built in. When I see our long bond rate at roughly the same rate as the German long bond, I wonder how much inflation premium is built into our bond. Moreover, it seems to me that our credibility is not threatened now. It has not been brought into question. And we might be better off saving this and using it when it's needed more, although I do think one could make an argument there. I have some concern about the appropriateness of the 2 to 6 percent range and the 4 percent midpoint, and I think that's something we should think about. It may be right, but I'm not convinced that setting the midpoint at a rate that is below realized core inflation for virtually every year for the past 20 years is something we should do right now. If we really think inflation is going to be 3 percent in '92, and if we're going to have 4 percent growth in money, and velocity stays constant, are we willing to say to the world--or to the people who will read it this way--that we're willing to accept 1 percent real growth and rising unemployment? If we are willing to accept that, perhaps now is not the time to announce it when the unemployment rate is still rising, the recession is not yet cold in its grave and inflation is already receding, and the banking bill has opened up our statutes to meddling. This process of reviewing it has been quite successful and has been characterized by patience and persistence; and it's an impressive achievement. We are approaching a stage when we ought to think about where we're headed--toward a stable range and a more stable target and what price stability really means, given that we have the bias in estimation, as the Chairman mentioned and as we discussed a bit yesterday. I think there's a question about the range as well. It's not clear to me why Germany has a 4 to 8 percent range and many of these other countries are able to operate within relatively tight ranges. My view is that we're approaching a time in which we ought to confront those issues. But I would prefer to postpone that and talk about them perhaps with some background work by the staff and in an environment with the recession behind us and the recovery safely underway and when we know more about the shape and form of the recovery and the nature of the progress that we're making on reducing inflation. At that time the credibility of lowering the range might be worth much more. So, I would agree with your proposal, Mr. Chairman, the current ranges for '91 and tentatively for '92.",621
-fomc-corpus,1991,President Keehn.,4
-fomc-corpus,1991,"Mr. Chairman, it seems to me you phrased it very, very well, and I absolutely agree with both the strategy and the scenario as you outlined it. It seems to me at this point that the message effect of what we decide today is awfully important, perhaps a bit more important than the practical operating effect. As I think about it, I'm not sure I'd like the message effect of changing the ranges either way at this point. To reduce the ranges has some unfortunate consequences, which you talked about; it's the wrong time to send that particular message. And, obviously, raising the range would be inappropriate. I think the baseline alternative strategy as Don has outlined it is reasonably consistent with the economic forecast that we talked about yesterday. And I must say that as I think about that forecast for this year and next year, it's a pretty constructive outlook and, therefore, it seems to me that we ought to continue to leave the ranges as we have them. I very strongly favor the ranges of alternative II.",203
-fomc-corpus,1991,Governor Kelley.,3
-fomc-corpus,1991,"Mr. Chairman, I strongly support alternative II and I think that case has been made pretty thoroughly by others. But I would like to go ahead and offer my summary of where my thinking lies. There are two concerns that have been mentioned. Number one is the actual operation of policy, which is of course the most important thing. But signals are also important. As far as the actual operation of policy goes, we always have a challenge on both sides. The primary challenge, of course, is to maintain the downward trend of inflation that we're all dedicated to, and that will be particularly important if this recovery flourishes. But alternatively, we have to be able to provide for a sustainable and broadening recovery if it tends to falter after a bit. Under alternative II, we would provide ourselves room to expand a bit if that turned out to be required and I think the probability of that is non-trivial. And we would still have plenty of room to apply more constraint if that were required. If, on the other hand, we tighten the ranges now, we'd be pretty much constraining our ability to respond if the economy did turn out to falter after a time. As far as the signal effect goes, we clearly have tightened slowly for as much as a decade now and within the framework of today's economy I think it's fair to say that we continue to do that. And I believe that we're perceived as doing that. I think the market perceives us as dedicated to lowering inflation, but it also sees us as trying to be realistic about the state and the needs of the real economy. It also sees us as a bit frustrated as far as our inability so far to make visible progress on inflation. So, in those contexts, I really question the need for an aggressive signal at this point. I would even suggest that an aggressive signal might frighten the market in a way that would be counterproductive, if they come to see the Federal Reserve as tending to over-react to its frustration of not getting faster inflation progress. So, signal-wise a perception of an increased level of aggressiveness at this point may be (a) unnecessary, and (b) possibly a little counterproductive. As far as the actual conduct of policy goes, I think the present ranges give us plenty of room to provide more constraint if that's what time shows to be necessary and still provide us some head-room if trouble arises and we need to have some head-room.",490
-fomc-corpus,1991,President Stern.,3
-fomc-corpus,1991,"Mr. Chairman, I favor alternative III essentially for two reasons. One has been discussed at some length and has to do with credibility. I'm not sure that a 1/2 point move in the range gets us a lot of additional credibility. In fact, in this environment and given our stated objectives, it might be kind of expected. On the other hand, anything we can do to enhance credibility is important because there are costs involved in bringing inflation down; and to the extent that we can get credibility working for us and contain those costs, I think that's an advantage. My judgment is that a reduction in the range at this point would help us at least a bit on that score. The second reason I'm in favor of lowering the ranges at this point is continuity. This has been commented on as well. The fact is that M2 over the past 4+ years has grown at 4 to 4-1/2 percent or so. It just seems to me that we shouldn't compromise that kind of performance. I think continuity is important here, and we ought to act in that fashion.",221
-fomc-corpus,1991,President Boehne.,5
-fomc-corpus,1991,"Well, long-range target setting is a mix of substance and symbolism. Given where we are as the only game in town and hopefully at the bottom of the business cycle with inflation coming down, I think the symbolism part is more important than the substance. It is important that we have credibility on the inflation side in terms of reducing it, but I think it's also important to have credibility in the sense that the central bank ought to be viewed as pro recovery and pro healing of the financial system. And I think keeping the ranges the same in this context is the right balance. I think it gives us the overall kind of credibility that we need in order to be an effective policymaker. On the more substantive side, the technical side, all of the options that we're talking about have us in the top end of the existing range. I think we need that maneuverability and the operating room, given the uncertainties about what kind of recovery we're going to have. We've talked a lot about velocity. It may turn out to be the way the staff says; it may not turn out to be the way the staff says. So, when I look both at symbolism and substance, I come out fairly clearly on the side of keeping the ranges the same.",248
-fomc-corpus,1991,President Guffey.,5
-fomc-corpus,1991,"I think perhaps everything has been said and there's nothing more new, particularly with respect to my view that your proposal is the correct one. That is, we've come to mid-July when you will testify and there are still such uncertainties about this recovery that to suggest that we can say the recovery is well underway and we can look forward 18 months ahead and say we're going to bring money growth down seems to me to be the wrong signal to be giving at this time. That does not say, however, that if I were here in February that I would not be going to the 2 to 6 percent range, because I think it is over the long run the appropriate way to go--providing we do have the recovery that has been projected by the staff in the Greenbook.",158
-fomc-corpus,1991,President McTeer.,5
-fomc-corpus,1991,"For 1991, I think everyone is in agreement that we ought to stay with the same ranges. For 1992, it's a fairly close decision, but the emphasis is that the ranges are tentative for 1992 and will be reviewed in seven months. I agree with Governor Angell that one can make the case, based on what we expect to happen between now and then and based on conditions that we expect to prevail in 1992, that our tentative judgment right now is that it will be appropriate to reduce those ranges by 1/2 of 1 percent, centering on 4 percent. I would recommend that we do that and explain it in a way that emphasizes that should developments not occur as we expect, it could always be reversed.",154
-fomc-corpus,1991,Vice Chairman.,3
-fomc-corpus,1991,"I would reaffirm the '91 ranges and put in alternative II for '92. But I do take quite seriously this point you made, Mr. Chairman, about the need to take a hard look at those '92 ranges in February. I say that because, assuming there are no big surprises in the economy or financial system that would make me take away Mike Prell's gold star that I gave him yesterday, we are at the point in the cycle where we have to think about, or begin to think about, the need to tighten policy. Certainly, I'm not saying that's needed right now, but we should start thinking in those terms. And it seems to me that on this whole question of credibility, which probably gets a little overblown, the real test of our credibility is going to be whether, if it's needed, we will tighten soon enough and sufficiently enough to prevent the serious mistakes in policy that were made in the mid-1970s. If you look at the forecast and take it more or less at face value, it seems to me that that question could easily be on the table in spades six months from now or so. Since I see that as a possibility, and since I think our credibility really does come down to what we do and not what we say, I'd rather keep the ranges where they are just in case things do work that way. And then a cut in the ranges in February will be more than symbolic and the timing might be precisely what we need. So, I'm quite comfortable with reaffirming the ranges in alternative II but, as I said, I do take seriously your point about the need to look at that closely in February. Indeed, things could turn out such that both substantively and symbolically a cut in the ranges then could be just what the doctor ordered when we need it most.",369
-fomc-corpus,1991,President Melzer.,4
-fomc-corpus,1991,"In terms of the strategies laid out, I'd favor strategy II, the tighter one, and flowing from that alternative III in terms of the ranges. We're talking about a long-term approach to strategy here, and that underlines our commitment to price stability, which I think is the one thing we really can influence in the long run. The credibility point is the major argument in favor of it. It seems to me that we could get the most positive impact by making a move now. I agree with Jerry: Our actions are more important than the symbolism of this. But I think if we change it in February, it's going to be because we're perceived to be on the run; and I don't know whether we buy a lot at that point in time. Some of the arguments that I've heard I'm not particularly persuaded by--for example, gradualism. We've been at this for four years and I think we ought to keep down that path. I agree with what you said, Mr. Chairman, and with what Lee said: There's some distance to go here. And I think this is the time to try to consolidate some of the gains. In terms of this issue about a top end of 6 percent somehow constraining our ability to act if the economy is weaker than we expected--and this picks up on Jerry's point--we're already ""acting"" quite a bit now; we have projections in the Bluebook of M2 growth moving up to a 6 percent rate, which is 50 percent higher than what we've averaged over the last four years. So, we're doing our part in trying to assure a recovery. In fact, I would agree with Jerry that what we have to be thinking about is: When do we take some of that rope back in? On the final point that I've heard some arguments that I don't necessarily agree with, I'd add the financial fragility point. I don't think the conduct of monetary policy, so long as we're providing adequate liquidity to the economy, is really the appropriate tool. I think we can look ourselves in the mirror and say that we've been doing our part on that score. I don't disagree that there are problems out there, but I think there are other policy approaches that need to address those. If you step back and look at them, the problems that we're having with the financial system are really the products of a monetary policy that sowed the seeds for inflation, and a lot of the problems are inherent now as inflation is coming down.",498
-fomc-corpus,1991,Okay. We have to take two votes at this stage. One is on 1991. I inferred from the comments that there was a consensus for maintaining the 1991 ranges currently in place.,40
-fomc-corpus,1991,I move that.,4
-fomc-corpus,1991,Is there a second?,5
-fomc-corpus,1991,"I'll second that, Mr. Chairman.",8
-fomc-corpus,1991,"Mr. Chairman, could I interrupt just a second? In the Bluebook we raised the issue of whether the Committee wished to delete the words ""a resumption of sustainable growth"" in the first sentence. We put that in when the economy was in recession.",52
-fomc-corpus,1991,I think it's appropriate to delete that.,8
-fomc-corpus,1991,I would agree.,4
-fomc-corpus,1991,Does anyone object to the deletion of that phrase?,10
-fomc-corpus,1991,Are we talking about the language of the [directive] now?,13
-fomc-corpus,1991,"Yes, the long-run part of the directive.",10
-fomc-corpus,1991,Page 26.,4
-fomc-corpus,1991,"I was wondering what contribution this phrase ""contribute to an improved pattern of international transactions"" made. That seems to me a bit of fluff maybe. I think we took some of that out of the shorter-term language in the operational paragraph. It seems to me that we could excise that as well. The recommendation that Don made was to take out ""a resumption of"" and I suggest that we take out what follows--that is, ""and contribute to an improved pattern of international transactions""--because I don't know what it means. It seems to me that it would be better if we said ""will foster price stability and promote sustainable growth in output.""",132
-fomc-corpus,1991,You know what it means but you can't provide it! [Laughter],15
-fomc-corpus,1991,"This phrase, if my memory is correct, has been in the directive since about the middle of the 1970s. And it was--",29
-fomc-corpus,1991,That's even more reason!,5
-fomc-corpus,1991,"Well, I'm not so sure about that. There have been several rounds in which we tried either to define it or to refine it to a greater degree. My memory of listening to the Committee on this point is that they always ended up saying it's a way of suggesting that international dimensions of policy are not completely irrelevant to the Committee's deliberations. If you want to look for substance, that's what it is.",82
-fomc-corpus,1991,"Bob, would you rephrase your revision?",9
-fomc-corpus,1991,"Yes. ""The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output.""",25
-fomc-corpus,1991,It strikes me as eminently sensible at this particular time because I had the same problem when I reread it. Does anybody have any objections?,29
-fomc-corpus,1991,I agree.,3
-fomc-corpus,1991,"Okay, let's assume that the bracketed phrase ""a resumption of"" gets deleted and that the sentence ends with a period after the word ""output."" Would the Secretary call the roll?",38
-fomc-corpus,1991,This is for reaffirming the '91 ranges with the new wording in the leadoff paragraph: Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Black Yes President Forrestal Yes President Keehn Yes Governor Kelley Yes Governor LaWare Yes Governor Mullins Yes President Parry Yes,59
-fomc-corpus,1991,"For 1992, as I recorded the consensus, it comes out as alternative II. I infer that that referred not only to M2 but in general to M3 and the debt aggregate. Would somebody like to move that?",46
-fomc-corpus,1991,I'll move it.,4
-fomc-corpus,1991,Is there a second?,5
-fomc-corpus,1991,Second.,2
-fomc-corpus,1991,"It would read: ""For 1992 the Committee agreed on tentative ranges for monetary growth, measured from the fourth quarter of 1991 to the fourth quarter of 1992, of 2-1/2 to 6-1/2 percent for M2 and 1 to 5 percent for M3. The Committee provisionally set the associated monitoring range for growth of total domestic nonfinancial debt at 4-1/2 to 8-1/2 percent. With regard to M3, the Committee anticipated that the ongoing restructuring of thrift depository institutions would continue to depress the growth of this aggregate relative to spending and total credit. The behavior of the monetary aggregates will continue to be evaluated in the light of progress toward price level stability, movements in their velocities, and developments in the economy and financial markets.""",168
-fomc-corpus,1991,Call the roll.,4
-fomc-corpus,1991,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell No President Black No President Forrestal Yes President Keehn Yes Governor Kelley Yes Governor LaWare Yes Governor Mullins Yes President Parry Yes,40
-fomc-corpus,1991,Okay. We now move to current monetary policy and I'll call on Don Kohn.,17
-fomc-corpus,1991,"Thank you, Mr. Chairman. I will be much briefer this time. [Statement--see Appendix.]",22
-fomc-corpus,1991,Questions for Don?,4
-fomc-corpus,1991,"Don, if we look to the period ahead and, as Vice Chairman Corrigan indicated, we find it necessary to engage in a tightening, are there any explorations underway that will enable us to administer the open market window in such a way that we would not have every 1/4 point seen as an announcement arrangement? It just seems to me that it has always been very helpful when we had some reserve targeting arrangement that did not give an announcement effect to the fed funds rate. What can you tell me in regard to explorations of ways to administer the window which would enable restraint to take place and would cause interest rates to be seen as rising by market pressures rather than as an announcement of the Fed?",142
-fomc-corpus,1991,"As you know, Governor Angell, we explored such possibilities a little while ago, partly at your urging. I think there is nothing actively underway now. If the Committee wished, obviously, we could do something. I think the key question the Committee would need to ask is whether you're going to have reserve targeting and have it tied in some way to M2; this would be a stretch, given the pattern of reserves, as Harvey Rosenblum pointed out [to me] yesterday, but you could do it. We played in the past with ""shadow"" reserve targets but not tied to M2. The premise there would be that movements in M2 would provoke some reaction. The Committee would have to have enough confidence in its reading of M2 that it would want money markets to be moved around by deviations of M2 of some size--the Committee could decide [what those should be]--from its projection. The underlying confidence needed is in the relationship of money to the outcome.",199
-fomc-corpus,1991,"Well, would having the discount rate above the fed funds rate and having some other supporting overnight arrangement below that tend to give an atmosphere in which you could do this without having the fed funds rate run too far?",42
-fomc-corpus,1991,"Well, I think your plan would limit the movements in the funds rate, depending on where the penalty discount rate was in terms of a ceiling and where something else was in terms of the floor. But if you wanted a substantial band in there, then you would have to tolerate increased federal funds volatility within that band; that would go along with this. So, it would help in some sense. I don't think it would negate the need to make the fundamental decision about whether you wanted to tie federal funds rate movements even within a band to relatively short-run movements in M2. Now, if the Committee so desires, we can certainly work to see how we could do something along the lines of tying reserves to the funds rate and M2. But I think there are some decisions that need to be made by the Committee if we're going to go ahead with it.",172
-fomc-corpus,1991,"Mr. Chairman, the reason I ask this question is that this will be the first time that we might be in a tightening arrangement in which the market will misread every 25 basis points in the fed funds rate as having an announcement effect. And I think that's a frightening disadvantage for us.",59
-fomc-corpus,1991,"I agree with that. If we can find a way to avoid that in time, I think it would help policy.",24
-fomc-corpus,1991,"I would strongly support that suggestion. I've been urging my colleagues in Richmond to do just that, but they have been resisting because they don't really think it can be done. And it is difficult, unless we're saying that the reserveable part of M2 is going to grow at the same rate as the nonreserveable part. If we paid interest on reserve balances, it would make that more likely. But having to reach up in the air and pick some federal funds rate that's going to give some predictable rate of growth in the money supply is just a crap shoot at best. I'd really like to move toward some kind of reserve targeting if it can be done. But it might necessitate a complete change in the reserve requirement regime to do it successfully.",150
-fomc-corpus,1991,"Why don't you give it some thought, Don? Well, we've been thinking about this continuously now for quite a while. The question is: Are we at a point where there's any payoff in committing Committee resources to start to be somewhat more detailed? It's more a question and not so much an issue of whether we should do it because, obviously, if it looks as though it's going to work, it's something very valuable for us to have. The question is more an operational issue as to whether or not enough is out there to suggest that the commitment of research resources will come up with something other than ""on the one hand and on the other hand."" [Laughter]",134
-fomc-corpus,1991,"We will commit to bringing a memo to the FOMC by August, at least outlining the issues and the sorts of decisions that we think will need to be made. I would invite the research directors around the edge of the room to supply me or my colleagues with any of the work that you have already done on this, please.",67
-fomc-corpus,1991,President Boehne.,5
-fomc-corpus,1991,"Don, what would be your interpretation of the meaning of M2 if it continued into July-August at the subdued rate of growth that we've seen in the last months?",34
-fomc-corpus,1991,"I don't know; it would worry me. And I would have to be honest with the Committee and say that the numbers handed to me this morning suggested weaker M2 than we built into the Bluebook for the latter part of June in terms of preliminary data. This wouldn't necessarily affect the July growth rate, but we'd probably be marking June M2 down by close to a percentage point relative to the Bluebook, based on the data for the last two weeks. As I tried to say in the briefing, one way of approaching it is to say: Well, everything is going fine; the economy is recovering; all the incoming data on the business cycle etc., seem very consistent, and we assume they will continue that way over the next few months, consistent with the outlook of the staff or of the Committee for a recovering second half of the year. I might also say that something odd is going on with peoples' portfolios, so just ignore it; it's a demand shift [unintelligible] missing money [unintelligible]. I guess I would have trouble if it persisted, particularly through August, and growth was edging down toward the lower part of the range. I would have trouble making a judgment to dismiss it out of hand. If people are moving out of M2, they're finding other assets more attractive. In the past when the Committee has eased or tightened, for example, the first effect on M2 is just a portfolio shift. You raise or lower the rates on other kinds of instruments; people shift their M2 portfolios and later change their spending. If we're seeing a situation in which interest rates in bond markets, for example, are so high that they're attracting a flood of savings, it may be that those interest rates are so high that they're not going to support the kind of expansion [we envision]. If we're seeing a situation in which depositories simply don't want the retail deposits or depositors are still so scared and uncertain about what is happening at depositories that they don't want to give [funds] to them, the re-channeling of that credit may not be entirely effortless. So, I would hesitate to say that if it continued weak like this, I would definitely ease policy. But it would certainly make me think hard about where we were going three, six months from now and whether we really did have a satisfactory policy in place. It would be an extraordinary miss in the predictive power of M2, which isn't very great. There's a wide band around our expectations but it seems to me that when you get to one or another edge of the band you're probably getting a signal that you shouldn't ignore it unless it is overwhelmed by other signals. It would weigh on that side in my mind.",546
-fomc-corpus,1991,Other questions for Don?,5
-fomc-corpus,1991,Where is that weakness in M2? Is it across the board or in the non-M1 components?,21
-fomc-corpus,1991,It's in the non-M1 components. I started talking about the revisions that I just got handed me this morning.,23
-fomc-corpus,1991,Is that more than yesterday?,6
-fomc-corpus,1991,"Slightly, I think. I can't remember exactly what it looked like yesterday. But it's widespread. Small time deposits, which had been consistently weakening, have continued to weaken; there are big minuses there. But the interesting thing in this is that the MMDAs have weakened as well.",60
-fomc-corpus,1991,Is M1 still growing?,6
-fomc-corpus,1991,"Yes, in fact Ml, if anything, was revised slightly upward.",14
-fomc-corpus,1991,Wouldn't that give you some comfort in connection with your response that--,14
-fomc-corpus,1991,"Yes, particularly since the strength is in other checkable deposits. We will be publishing a drop in M1 on Friday, but the preliminary data for the latest week suggest that that comes back, with a $2 billion increase on July 1.",50
-fomc-corpus,1991,"Don, is there anything that suggests--other than what your material contains--that the small time and savings deposits might be moving into bond and stock funds?",31
-fomc-corpus,1991,"We have actual data on the bond and stock funds through May, which show very large increases. We've talked to the managers of those funds and they say that it's not less for the stock but more for the bond funds and that those inflows have persisted in June. So, I think there is some of that there.",64
-fomc-corpus,1991,Would I be justified in being less concerned about the weakness in June because of where this money has gone?,21
-fomc-corpus,1991,"Well, I don't know. I think that's an analytical issue. Whenever M2 is weak, it can be weak for one of two reasons: Income is weak or people are reallocating their portfolio. I do think it's not giving us a signal that the economy was somehow collapsing in June. Of that I'm quite confident. But as to whether the portfolio reallocations can be entirely ignored, I'm less confident.",81
-fomc-corpus,1991,"I come out, I think, about where you do. It gives me some comfort knowing where they've gone; otherwise I'd be concerned that M2 has been too weak.",34
-fomc-corpus,1991,"Any other questions for Don? Why don't I start, then, on the discussion. It's really interesting in a sense that we are getting so many positive signs that the economy is strengthening. We're picking it up pretty much across the board. In fact, with the exception of a somewhat disappointing new-home sales figure that came out this morning, I don't recall a figure that was under expectations in the last three or four weeks, which is really an extraordinary run on specific data. Very specifically, I think the progress that we had been discussing at the last meeting relative to how we foresaw inventory liquidation moving into increased orders and eventually increased production is pretty much on schedule and, if anything, is ahead of schedule. The order patterns are weak in increasingly fewer areas. There is still evidence that in June, even though it looks as though industrial production is clearly up for June, inventory liquidation was still going on. And when you look at all of the other elements of final demand, there's not much to see; it's not terrific, but it's clearly not caving. The crucial issue that concerned me--namely, the problem of capital goods weakness--seems to be fading. The order patterns are somewhat better. There seems to be at least now a mixed pattern in nonresidential building contract awards and permits, whereas before it was a free fall. So, all of the data are coming together, with the exception of the financial balance sheet structure. The weekly data that we're turning out on bank loans look awful. They suggest that inventory liquidation is being financed out of declining bank loans. Bank credit, as Don has said, is pretty sluggish; we are getting a modest increase in residential real estate loans and a presumed continued decline in commercial mortgages. Since the individuals who are putting the orders in and obtaining the production materials are the same or at least in proxy form are those who are making the financial decisions, it's obvious that purchases of materials are getting financed. So, the question we have to ask ourselves is: Why is it that the flow-of-funds or the balance sheet structure don't seem to reflect the financing in physical volume? There are a number of potential answers to this. The first is that it's clear that this is not a forecast. This is actually what happened; it is merely looking at the recent past. Orders are moving up, production is moving up, and sales are moving up, and the balance sheets show nothing. So, whatever is happening, ex post it is being financed. I've been meaning to look at one thing and haven't had a chance to look at it closely; I have a suspicion that part of the answer is that an increasing part of the nominal GNP reflects non-asset accumulation categories. Electric power purchases, for example, in the GNP have no balance-sheet effect. Purchases of residential structures do; inventories do and involve varying degrees as you go up and down the detail of the GNP, even though you can get a very big chunk of services with no balance sheet effect. And that clearly has an impact on how the system is financed. I suspect that is the case. I also suspect that the grossing effect in the flow-of-funds has probably come down, meaning the type of big grossing that we used to see in the state and local government sector, which borrowed to reinvest, or the very big element of borrowing on existing homes. One of the interesting charts that Mike had yesterday was the one that showed net equities as a percent of GNP and net borrowings as a percent of GNP. In the last several quarters they were tending to converge, implying, if you just put them together, that the total-funds-raised ratio to GNP wasn't all that much out of line. But there is no question at this stage that we are getting a credit deflation. That is, not only are the monetary aggregates growing more slowly but all of the intermediary expansion is softening. And part of this is clearly offset by significant increases in direct borrowing in the bond markets and increased equity issuance. So, that curve that we used to look at about the proportion of financial intermediation on the one hand and commercial bank intermediation on the other as a percent of the GNP has been going down for quite a long time and still seems to be doing that. And it may well be that what we've got here is sort of a secular shift out of intermediating institutions; part of that may be that people are just scared of banks and thrifts and are trying to keep their money out. It doesn't require very much change to affect the net change figures and to give us peculiarities, which may well explain the money supply problem that Don is raising. I don't know what to make of it. I would say that the bottom line suggests to me that it's not a policy question at the moment. Things seem to be pretty much on track and I don't think there's any real alternative to alternative B. There are [areas of uncertainty] that are more likely to affect Federal Reserve action later rather than [sooner]. And I think we have problems in both directions. Jerry raises the concern, which I think may well be the more appropriate concern, that problems are going to be coming at us in the direction that will require us to tighten, not ease. But there is the possibility that we may be looking at a financial system that is disintermediating and we're going to have to make a decision as to whether or not that has any significance for the economic output or the economy. But at the moment it doesn't strike me as an immediate issue that confronts us; I suspect it's one that may emerge sometime later in the year. So, for now I would recommend no change, alternative B. Bob Forrestal.",1159
-fomc-corpus,1991,"I would agree completely, Mr. Chairman, alternative B. I assume you're talking about a symmetric directive?",21
-fomc-corpus,1991,"Yes, I didn't say but obviously I--",9
-fomc-corpus,1991,That's really symmetric when you don't even have to say it!,12
-fomc-corpus,1991,President Parry.,4
-fomc-corpus,1991,"Mr. Chairman, I would agree with your recommendation of alternative B--that we stay with existing policy. However, based on the performance of the economy in the early stages of past recoveries, I really wouldn't be very surprised to see new information coming in that will indicate that perhaps the recovery is a bit more robust than we're currently anticipating. If that were the case, then I think promptly reacting to such information probably would have beneficial effects on long-term financial markets and, moreover, probably could avoid the need for a more vigorous policy action in the future. Therefore, I would prefer an asymmetrical policy directive to reflect the possible need to tighten over the intermeeting period.",134
-fomc-corpus,1991,Governor LaWare.,4
-fomc-corpus,1991,"I support the proposal of ""B"" symmetric.",10
-fomc-corpus,1991,Governor Angell.,4
-fomc-corpus,1991,"I support ""B"" symmetric, although I understand what President Parry is concerned about. And I would emphasize that I think it's very, very important that we not be seen at all to be getting behind the curve. That is, if the market believes we're falling behind the curve in that kind of circumstance, it would be very, very unfortunate; I think the long-term bond rates would show that and when we tighten I think long-term interest rates would go in the wrong direction. But there isn't anything right now that suggests that that needs to be done. It seems to me that the money growth ought to be discounted; that is, we ought not to be thinking we're as tight as maybe we think we are looking at money growth. But looking at commodity prices and other things, I don't think there's any need to tighten at this point.",169
-fomc-corpus,1991,"President Melzer. Mr. MELZER. I favor ""B"" symmetric. I'm just reflecting on something you said, Alan, and on Don's comments before. I'm wondering whether we ought to be worried about weak M2 growth in the other direction. In other words, it may actually give us a false sense of comfort that we have a restrictive policy in place. I had our people look at what reserves are doing every two weeks when they're released. And if you just look back over the last year, total reserves--this isn't the St. Louis number this is the Board number--have grown 5.2 percent over the last year; since the end of the year they've grown 7.1 percent; since the end of the first quarter they've grown 8-1/2 percent. But over the last two months, it's 16.4 percent. So, if you look at that, it's hard to argue that monetary policy is not providing adequate liquidity to the economy. We've talked about it before in terms of the problem with the operating regime, but if market rates start to move up with a strengthening economy and we peg the funds rate too low, this is the result. I guess I'm a little worried, just listening to the comments that we have portfolio shifts in M2 but that the Ml component of M2 is growing very healthily, that we may be misled by a weak M2 number. I would not advocate any tightening now; I wouldn't even advocate an asymmetrical directive. But I think we have to be very attentive to this.",316
-fomc-corpus,1991,That's an important point. I think that's the reason why Wayne's view about trying to get off the funds rate is really an important issue. President Syron.,32
-fomc-corpus,1991,"Mr. Chairman, I support what you suggest, ""B"" symmetric. I do think that the point that has been made--that it may be necessary for us to be willing to react quickly, if things do come back strongly on the real side--needs to be emphasized again. Also, I think what Governor Angell said is very, very true. But it's less clear to me how we resolve that in the short run. So, all of this argues in my mind for just staying where we are right now.",105
-fomc-corpus,1991,President Black.,3
-fomc-corpus,1991,"I agree with ""B"" symmetric, Mr. Chairman. I would like to suggest that we consider moving the ""monetary aggregates"" phrase up to either first or second place, though. I'm a little concerned by the weakness we've had, but I think there's a good explanation for it. So, I think Governor Angell is right; we have not been too tight. But at some point the aggregates may give us a little more accurate information and I'd like to pay more attention to them.",100
-fomc-corpus,1991,"May I suggest something? Actually, if we had more time, Governor Kelley was going to make the presentation on this whole question. If you wouldn't mind, I'd just as soon wait until the next meeting when we can discuss this in considerably more detail. I think you ought to be prepared at that time to re-raise the issue because--",68
-fomc-corpus,1991,That's fine.,3
-fomc-corpus,1991,That whole section [of the operational paragraph] does require us to take a look at it and I think it would be useful then to make some decisions. President Keehn.,35
-fomc-corpus,1991,"For the interim period it seems to me that the current policy is appropriate. There is a fairly short interval between now and the next meeting and, therefore, I'd be very supportive of alternative ""B"" with symmetric language.",44
-fomc-corpus,1991,Governor Kelley.,3
-fomc-corpus,1991,"""B"" symmetric, Mr. Chairman.",8
-fomc-corpus,1991,Governor Mullins.,4
-fomc-corpus,1991,"I support ""B"" symmetric",6
-fomc-corpus,1991,President Stern.,3
-fomc-corpus,1991,"I, too, support ""B"" symmetric. I don't see any case here for changing anything. I do have a little concern that things have worked out exceptionally neatly this time.",36
-fomc-corpus,1991,You don't trust it!,5
-fomc-corpus,1991,"I don't trust it. But unless we get some major data revision or something, I guess we ought to just--",23
-fomc-corpus,1991,Enjoy it.,3
-fomc-corpus,1991,"Enjoy it, right.",5
-fomc-corpus,1991,Vice Chairman.,3
-fomc-corpus,1991,"""B"" symmetric. Let me just come back to this point that Ed Boehne raised first and others have commented on. In the period immediately ahead, partly for the reasons Tommy Melzer noted, I would worry more about slower real money supply growth than I would about fast money supply growth. Part of what this dilemma about the money supply is telling me at least right now is that the money supply really isn't worth a damn either in terms of a policy indicator in the short run. Wayne wants to get off the funds rate and so do I; but if you're going to get off that, you have to get on something else. And it isn't clear to me what else we can get on.",140
-fomc-corpus,1991,That's what Don Kohn keeps telling us.,9
-fomc-corpus,1991,"But this point you're raising, this intermediation phenomenon, really could make the policy process in the period ahead very, very tricky no matter what horse we're riding. It is a worry.",38
-fomc-corpus,1991,I think it's so dramatic that a lot of our old guidelines have to be rethought. President McTeer.,23
-fomc-corpus,1991,"""B"" symmetric, Mr. Chairman.",8
-fomc-corpus,1991,President Hoskins.,4
-fomc-corpus,1991,"With our hard peg on the funds rate, as everybody has said, money is the residual; and we don't much know what that residual is telling us. If you want a suggestion for what we ought to be targeting, it's probably the CPI. And if it moves up, we ought to raise rates.",61
-fomc-corpus,1991,Commodity prices?,3
-fomc-corpus,1991,"""B"" symmetric! [Laughter]",8
-fomc-corpus,1991,President Guffey.,5
-fomc-corpus,1991,"""B"" symmetric.",4
-fomc-corpus,1991,I guess that leaves President Boehne.,9
-fomc-corpus,1991,"""B"" symmetric.",4
-fomc-corpus,1991,"We have a consensus for ""B"" symmetric and I would like to have the language read with the appropriate [wording].",25
-fomc-corpus,1991,"""In the implementation of policy for the immediate future, the Committee seeks to maintain the existing degree of pressure on reserve positions. Depending upon progress toward price stability, trends in economic activity, the behavior of the monetary aggregates, and developments in foreign exchange and domestic financial markets, somewhat greater reserve restraint or somewhat lesser reserve restraint might be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with growth of M2 and M3 over the period from June through September at annual rates of about 5-1/2 and 3 percent, respectively.""",113
-fomc-corpus,1991,Would somebody like to move that?,7
-fomc-corpus,1991,I'll move it.,4
-fomc-corpus,1991,Is there a second?,5
-fomc-corpus,1991,Second.,2
-fomc-corpus,1991,Call the roll.,4
-fomc-corpus,1991,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Black Yes President Forrestal Yes President Keehn Yes Governor Kelley Yes Governor LaWare Yes Governor Mullins Yes President Parry Yes,40
-fomc-corpus,1991,"The FOMC meeting will adjourn after I indicate that the next meeting is Tuesday, August the 20th.",24
-fomc-corpus,1991,"Good morning, everyone. Would somebody like to move the minutes of the July 2-3 meeting?",21
-fomc-corpus,1991,So move.,3
-fomc-corpus,1991,Second.,2
-fomc-corpus,1991,"Without objection. Mr. Cross, will you bring us up-to-date on the Foreign Desk?",19
-fomc-corpus,1991,[Statement--see Appendix.],6
-fomc-corpus,1991,"Questions for Mr. Cross? If not, would somebody like to move to ratify the transactions as requested?",22
-fomc-corpus,1991,I'll move it.,4
-fomc-corpus,1991,Second.,2
-fomc-corpus,1991,"Without objection. Mr. Sternlight, the Domestic Desk.",12
-fomc-corpus,1991,[Statement--see Appendix.],6
-fomc-corpus,1991,Questions for Mr. Sternlight?,7
-fomc-corpus,1991,"Peter, has the equality of the discount rate and the federal funds rate presented any special problems or opportunities in terms of the conduct of operations by the Desk?",31
-fomc-corpus,1991,"It has not presented any undue difficulty, President Parry. I anticipate that it could make for slightly more volatility in the funds rate. And if the Committee were to adopt a course that had a lower funds rate expectation than the discount rate, I would look even more for possible difficulty on that score. But in the present situation, there is no particular difficulty.",72
-fomc-corpus,1991,Would you expect that to be a serious difficulty in terms of complicating operations?,16
-fomc-corpus,1991,If we were expecting a lower funds rate than the discount rate?,13
-fomc-corpus,1991,Yes.,2
-fomc-corpus,1991,I wouldn't think it would be a terribly serious problem even then. I think you'd have to be reconciled to somewhat greater fluctuation in the funds rate.,31
-fomc-corpus,1991,"Other questions for Peter? If not, would somebody like to move to ratify the transactions of the Desk?",22
-fomc-corpus,1991,Move it.,3
-fomc-corpus,1991,Second.,2
-fomc-corpus,1991,"Without objection. We now move to an issue we have discussed previously, which is alternative operating procedures. We have considered it on innumerable occasions and we're revisiting it today with a memorandum from Don Kohn.",42
-fomc-corpus,1991,"Thank you, Mr. Chairman. At the last meeting several members of the Committee requested that the staff look at alternative operating procedures. The Committee seemed to be motivated by concerns about the announcement effects that we get for each change in policy these days, and in particular in the context of a possibility that at some point--perhaps later this year or next year--policy would have to be firmed to keep the Committee on track toward price stability. The Committee was sent a memo by Dave Lindsey with an attachment by Al Broaddus and a cover by myself. [See Appendix.] I'll summarize the issues very, very briefly. In his memo, Mr. Lindsey mentions two types of related, but potentially distinct, alterations in operating procedures. One would involve somewhat looser targeting of the funds rate than the very narrow targeting around a single level that has become the practice in recent years, without necessarily any implications about how this target is arrived at. Allowing some ambiguity for System intentions would tend to diffuse reactions to a change in policy partly because it would take some time for any such change to feed through into the market. It would allow Peter to drain or add reserves more freely than at present, perhaps damping some of the end-of-maintenance-period volatility that we have now because [earlier in each maintenance period] he is constrained [in his operations] by the level of the federal funds rate. It would allow demands for reserves to show through a bit more. It might allow the Desk to ""test the waters"" with respect to a policy change, without necessarily committing to it. On the other hand, ambiguity does have its disadvantages. It does risk that the market would get the wrong idea from time to time, and that puts extra volatility in the funds rate. It risks that there would be delays in having the market recognize changes that the Committee felt desirable. And additional ambiguity risks additional calls--from Congress, for example--for us to be much more explicit about our operating targets. The second strand of change in operating procedures that Dave covered was a shift toward an operating procedure that was keyed at least semi-automatically to changes in reserves or monetary aggregates. This would introduce a greater automatism, and the funds rate would then be seen as falling out of the shifting demands for money and reserves relative to the Fed's supply, much as in the 1979 to 1982 period. We would be seen as targeting the funds rate much less. The problem here is to identify something to which you want the funds rate tied automatically. There were sufficient concerns expressed when we were using Ml; the Committee gave up on that because of the volatility and changes in M1 velocity. That would seem to throw some doubt on reserves--nonborrowed or total reserves--because they're tied now exclusively, really, to Ml. And even though M2 has become a more prominent target for the Committee, there is still a lot of doubt about the short- or even intermediate-term relationship of movements in M2 to movements in the variables the Committee cares about--nominal income or prices--in the short or intermediate term. So, as you undoubtedly noticed, the staff didn't come up with any conclusions about where to shift to. There seem to be pros and cons on all of these alternatives. I would ask whether Dave or Al has anything to add to my summary. Dave indicates that he does not. Al?",680
-fomc-corpus,1991,"I would just point out that I used the term ""reserve target"" pretty loosely in my letter. What I really had in mind is total reserve targeting--alternative 6 in Dave's memo--not nonborrowed reserve targeting, which I think is under 4 and 5. We're not saying that we think the case for using total reserve targeting as a [policy] instrument has been made yet. We're simply saying we think there's a strong case for additional research on it.",96
-fomc-corpus,1991,Questions from the Committee? I don't know what to make of that long pause.,16
-fomc-corpus,1991,Do you want comments?,5
-fomc-corpus,1991,"No, I started with questions, assuming I'd get comments. Now I better ask for comments. Comments, then.",23
-fomc-corpus,1991,"Well, having been something of an advocate of a different procedure, I must admit, Don, that in going through your analysis I really don't find anything there about which I can say ""I really want to do that right now."" Theoretically, I'm very much impressed with what Al Broaddus had to say in his letter. I'm very impressed with the notion that pegging the fed funds rate and keeping it steady does not necessarily mean that policy is in neutral, and I think everybody agrees with that. But the recent experience we've had with M2 causes me to have more doubts than I have had in previous years, and I suppose I am not quite as ready as I was four years ago or two years ago to introduce some automatism in the program. At one time it seemed reasonable to me that if we erred in our estimates of the demand for money, all of the error should not show up in the money stock and that we ought to let part of the error show up in a move in the fed funds rate. Now, I'm still somewhat of that opinion, but I'm not ready to advocate any of those other alternatives, Mr. Chairman.",233
-fomc-corpus,1991,President Black.,3
-fomc-corpus,1991,"Mr. Chairman, I'm glad you gave us a chance to take a look at this. I don't think it would surprise anyone who has listened to what I've said that I would favor such a study. And now, like Governor Angell, I don't know where the answer would lead; and Al Broaddus certainly doesn't know exactly where it would lead. But I've never really been comfortable trying to control the aggregates by manipulating the federal funds rate because I think the demand for money for any given level of income in the short run fluctuates too much to do that. I have some sympathy for those alternatives that have a degree of automatism. But I remember that when we had the procedures in 1979-82 and we were supposed to adjust the level of borrowed reserves by half the amount of any miss in the aggregates, about two-thirds of the moves we made were also discretionary. So, I'm not under any illusions that we're really about to put [policy] on automatic pilot. But a lot of things have come along in the way of studies on this since we last looked at it. All I would advocate is that we use the System's considerable research resources to examine this question because I think all of us feel some dissatisfaction with the way we do it. But I don't believe there's anybody here who really feels that he knows the answers as to exactly how it ought to be done. It was simple in my mind when we wanted to control Ml; but it's not simple when we're trying to control M2 and only a small fraction of M2 is reservable. And we're not paying interest on required reserves, and that encourages further innovations. So, where this will lead, I don't know. I suspect we probably won't get far from where we are, but we ought to take a good hard look at it. And I think Don and Dave have done us a good service in providing us these various alternatives.",383
-fomc-corpus,1991,President Melzer.,4
-fomc-corpus,1991,"In terms of the first three alternatives in Dave's memo, allowing more fluctuation in the funds rate really doesn't appeal to me very much. I don't think ambiguity would serve us very well. The point about pressure on us to divulge more about our targets if there's ambiguity about what policy is I think is a point well taken. In terms of automatism, if you will, it doesn't appeal to me to tie anything to M2; in other words, those fourth and fifth alternatives don't appeal to me at all. I guess I still have some affinity for looking at reserves or the base. I don't think we should write off Ml for all time. There's a possibility that in a more stable environment in terms of inflation and inflationary expectations M1 perhaps is going to be more meaningful. So, I would support Al's and Bob's suggestion that we do more work on that. But I don't think we're anywhere near being able to go to an operating regime that targets reserves. Something that might be possible in the short run--and this was in your summary memo, Don, not in Dave's--would be this idea of continuing to do what we do but having some broad constraint based on some short-run aggregate that may modify behavior as we approach the limits of that constraint. I really think of that as a trade-off. We've talked about this concept before in the context of the directive; when we had monetary targeting we had that caveat in terms of funds rate fluctuations. Now we have funds rate targeting and I think it would be quite appropriate to have some kind of constraint in terms of aggregate behavior. But I don't think we can look at a period as short as an intermeeting period; we've got to look at much longer-term behavior of some reserve or monetary aggregate.",356
-fomc-corpus,1991,President Parry.,4
-fomc-corpus,1991,"The suggestion of introducing greater funds rate volatility under existing operating procedures is not something that I find very attractive. And re-establishing an inflexible borrowing reserve target I don't find appealing at all. But it seems to me a couple of the things in the papers are really quite [helpful]. There are some interesting points conveyed in the examples in Dave Lindsey's memo with regard to a greater role for deviations of M2 in affecting our policy in the intermeeting period. I also found Al Broaddus's arguments interesting. And in the past we've gotten some [worthwhile] suggestions from Tom Melzer. We've done some work looking at Bennett McCallum's monetary base procedures, which are linked to nominal income targeting, and they seem to provide some [promising] procedures as well. It seems to me that there are enough things of some interest here that maybe we ought to heighten our look at possibilities. Perhaps the System Research Advisory Committee could look at some of these possibilities or we could even have some studies done by the FOMC itself. There are some things here that could be useful. What we're trying to do is to find an approach that is better than the current procedure, not one that is necessarily perfect in an absolute sense. So, I think these papers are very useful.",261
-fomc-corpus,1991,President Forrestal.,4
-fomc-corpus,1991,"Mr. Chairman, as I look back at policy over the last couple of years, I think we've done a reasonably good job with the present regime, so I don't feel any compelling need to make any change, particularly at this time with all the uncertainties that we have. I do think that some flexibility in the funds rate is probably desirable. And if I were pressed to do something today, I would marginally favor the first option in the Lindsey paper. The other thing that occurred to me is that over the time we've been discussing this, I at least have picked up an inference--and I may be wrong--that having some flexibility in the funds rate would somehow protect us from political pressures when we have to move on the [tightening] side. I don't really buy that. If there is that inference, I think it's an incorrect one; we're going to get that political pressure notwithstanding what we do with the funds rate. I would be interested, if it's not unduly putting Peter on the spot, to ask whether from an operational standpoint he has any preference or, to put it another way perhaps, if he has any problem with those first three alternatives. Would any of those give you difficulty?",241
-fomc-corpus,1991,"I would welcome, I think, some greater flexibility in the funds rate, although I recognize some of the counter arguments that Dave's paper referred to. But I can think of instances where we have felt somewhat constrained by what was happening in the funds market from doing the reserve injection or reserve extraction that we thought ought to be done from a reserve management standpoint.",71
-fomc-corpus,1991,"Well, I would just add one final point. I thought Al Broaddus's letter was very interesting and I certainly don't think we would lose anything by embarking on the kind of research that he has indicated.",42
-fomc-corpus,1991,"Peter, may I just follow up and ask you what you feel are the consequences of the [funds rate constraints] on your [operations]? I would presume that as a consequence you end up periodically with either a collapsing funds rate or an accelerating funds rate on a Wednesday afternoon at the close of the maintenance period.",63
-fomc-corpus,1991,Yes.,2
-fomc-corpus,1991,"How often does that occur during the year, either way?",12
-fomc-corpus,1991,"Several times, I would say.",7
-fomc-corpus,1991,Three or four--something like that?,8
-fomc-corpus,1991,Something like that.,4
-fomc-corpus,1991,Do you sense that there are any destabilizing occurrences as a consequence of that?,16
-fomc-corpus,1991,"I don't think long term it has any really serious impact. If a very big, unfilled need or a very big excess developed, it might cast its shadow over our operations in the next reserve period and, if there had been a desire to effect some policy change, it conceivably could have delayed that change. I can't think of a specific instance when that occurred, but that's the kind of [situation] where I could imagine it having some undesirable effect. But I don't regard it as a really serious impediment. Just from a manager's standpoint in dealing with reserve positions, it has been a mild or moderate frustration at times to feel that we're hemmed in by the funds rate. But I've gotten used to it. [Laughter]",151
-fomc-corpus,1991,President Hoskins.,4
-fomc-corpus,1991,"If we're to serve [the needs of] economic policy, then we ought to have a monetary policy that is credible and consistent. Putting more fluctuation in the funds rate doesn't provide the markets much information with respect to either one of those goals. I would be in favor of trying to link the funds rate to a broader target like M2, but even tying ourselves to an aggregates target without any explicit long-term objective in mind seems to me to run the risk of introducing some uncertainty with that target as well. So, just to follow up on what Bob Parry suggested: Although I wouldn't go for nominal income targeting, I would like to link the funds rate a little more tightly to a broad aggregate like M2, but then I would like to have a multi-year price level objective in mind so that we don't introduce more uncertainty by focusing more on the monetary aggregates.",174
-fomc-corpus,1991,President Syron.,4
-fomc-corpus,1991,"Thank you, Mr. Chairman. I think you largely asked my question. I'd just like to add, Peter, to the question the Chairman had, and ask about how you feel in a situation in which you believe--of course it may not be possible to forecast this--that the constraints that you're under would have an effect upon the outcome of the ultimate variables that we're worried about. I presume there are procedures that you could follow now in consultation with the Chairman and others to deviate from a tight funds target [constraint] for a short period of time.",112
-fomc-corpus,1991,"Yes, I guess so. But we feel that the funds rate is a constraint at this time. The reason we feel it is a constraint is that we don't want to mislead the markets. [Unintelligible] I presume an approach that I might develop in consultation with Don Kohn and the Chairman.",63
-fomc-corpus,1991,"My overall concern, as other people have said before, is dissatisfaction with the current system--understandably so. But life is an imperfect situation. And at least in this situation, I see more or as much volatility or lack of stability in the financial sector as in the real sector. That makes me concerned about doing anything in the short- to intermediate-run to change the approach that we're taking. I completely agree with the concerns that people have about the lack of desirability of introducing greater ambiguity.",100
-fomc-corpus,1991,"Any further comments? I appreciate the [difficulty] of trying to [develop] a study that approaches this question. If I knew all the things we were to study that we don't know--. I'd be curious to ask Don and David: Is there any significant, unexplored statistical or analytical area from which we might focus on this issue that would be a productive use of the resources of the System?",80
-fomc-corpus,1991,"Well, I think you could answer ""yes"" to that question without the results of that research necessarily having any implications for a change in FOMC operating procedures. I think Al's letter raised some interesting research issues that ought to be given more attention by the staff of the nation's central bank. But I guess in my own mind we have a sufficiently close handle on the Committee's desires and on the relationships at work that it wouldn't imply, therefore, that the Committee ought to alter its operating procedures. On the other hand, I would support--this is my personal opinion and Al and Don may disagree--additional research, which to some degree is ongoing in any event. We could add a bit more emphasis to it. But I'm not sure in my own mind, whatever the results of that work within reasonable boundaries, that it would have any real implications for our operating procedures.",175
-fomc-corpus,1991,Al.,2
-fomc-corpus,1991,"Well, I don't disagree with that. It seems to me that there is enough room for long-term improvement in the way we do things to at least do a substantial research project on this. I don't think we really know how a total reserves operating procedure would work. We would have to study that in the context of the overall strategy and situation. We'd have to ask questions like what would we tie that instrument to in the way of the longer-term goal and whether we should still have intermediate targets. But it seems to me there's enough out there that we need to understand to justify a fairly focused research effort within the System. And I think we have the resources in the System as a whole to do that.",141
-fomc-corpus,1991,"I agree with both Al and Dave. I think what I'm hearing from the Committee is no sense of urgency for coming up with something new, partly because of the skepticism Dave expressed as to whether there really is something new out there that would solve our problems or appreciably [lessen] the difficulty we see with the current procedures. What I was going to suggest, Mr. Chairman, is that I consult with Al and other research directors around the room to see whether we could at least have some ongoing research on these issues. The McCallum research on targeting the base, which keeps popping up in every conference I go to, for example, and some of these other things are areas in which the System ought to be doing work. It doesn't mean that something has to be done by the next FOMC meeting. We ought to be able to focus our resources in a way that at least answers some of the outstanding questions or approaches. I think that would be the right thing for the central bank to be doing.",204
-fomc-corpus,1991,"One of the big reasons reserve targeting has been opposed in the past has been the feeling that it would cause more fluctuations in short-term interest rates. And as Al indicates in his letter, there is some evidence now that that might not be the case for long-term rates. That could be an important factor, I think.",64
-fomc-corpus,1991,"I think we're all acutely aware that holding steady with the funds rate is not the same as a stable monetary policy. Even though we focus on that as an instrument, I don't think there's anyone around this table who believes that a flat funds rate is equal to a stable monetary policy.",57
-fomc-corpus,1991,"It's awfully hard, even if you know what you want to accomplish, to pick the [appropriate] fed funds rate.",25
-fomc-corpus,1991,"So, it may not be a bad idea to expand our insights into this area. It may not be directly usable but I think if we learn something, the payoff is very large.",37
-fomc-corpus,1991,"Well, that gets back to a thought that I had when Dave was speaking. It's not clear in my mind what you mean about research. It seems to me that we've done a lot of research; more can be done. Are you getting at the idea that the problem of implementing some of those research findings has more to do with the Committee's view about multiple objectives rather than focusing on a single objective? Are you saying that we have some research to date--",92
-fomc-corpus,1991,"Well, I wouldn't draw as tight a link as you did between many or only one ultimate target and the procedures for intermediate targeting and operating targets that might get us there. I think one could essentially have the Neal resolution passed, have price stability as our ultimate objective--period, and still end up through a deliberative process deciding that our current operating procedure is probably the most sensible way to get there. So, even if there were a clear decision to move to price stability with no ifs, ands, or buts, there would still be these issues as to whether or not the way to get there is more or less doing what we're doing now but with that end in mind.",137
-fomc-corpus,1991,Could I just--,4
-fomc-corpus,1991,"Go ahead, Al.",5
-fomc-corpus,1991,"There is some evidence that that might not be the case. We may well wind up there, Dave. But there are at least some models that suggest that long-run price stability simply may not be consistent with the procedure we're using now.",47
-fomc-corpus,1991,"Well, it's true that if you're not taking seriously that long-run objective, then you're not going to get to price stability. Lee wouldn't disagree with that.",31
-fomc-corpus,1991,That's right.,3
-fomc-corpus,1991,"On the other hand, if you are taking that seriously, I'm confident that you could move the funds rate in a manner over time that would get you there.",32
-fomc-corpus,1991,I think it would be useful in this second stage of research to define the problem pretty carefully in terms of what we're trying to achieve. It is true that everyone recognizes a stable funds rate is not a stable monetary policy. What has been difficult to convince people of is that a change in the federal funds rate may be an unchanged monetary policy. That is a bit more difficult.,75
-fomc-corpus,1991,It logically follows the first.,6
-fomc-corpus,1991,"Yes, everyone buys the first.",7
-fomc-corpus,1991,"Well, the second is directly derivable from the first; it should not be difficult to convince--",20
-fomc-corpus,1991,"We haven't been able to write QED after the second one. It does seem to me that we also lose some information when we don't allow markets, in some range, to tighten and loosen on their own. So, part of the research should be to think about, at a very practical level, how we've achieved what we think is a mistake now. I feel pretty uncomfortable picking a fed funds rate out of the dark and also with this process of two types of changes in the fed funds rate, one being a change in policy and the other not being a change in policy. With that narrow sort of definition of the problem as well as the broader definition of the policy of [unintelligible] the question of reserve targeting and targeting to price levels at a broader objective level.",157
-fomc-corpus,1991,"Well, when David Lindsey speaks about the present procedures, I think he's correct that none of us really had in mind a year ago that we wanted to get the fed funds rate to 5-1/2 percent. No one really seems to have in mind the fed funds rate that is driving us. What has been driving us in a sense has been a kind of feeling our way in all of the procedures [on the basis of] all of the information that we have; and we find ourselves with a 5-1/2 percent fed funds rate. So, I don't think that the [current] procedure necessarily means that we're really hooking on to some predetermined fed funds rate. I think in a way many of us are surprised to find ourselves at this juncture with a fed funds rate of 5-1/2 percent. And since we're surprised, then it must be that we have considerations that are driving us other than the fed funds rate.",193
-fomc-corpus,1991,"You'd be surprised as to what the aggregates are doing with that particular fed funds rate, which we thought would be something very different.",27
-fomc-corpus,1991,That's right.,3
-fomc-corpus,1991,"And therein lies our frustration, I think.",9
-fomc-corpus,1991,"But in a sense, therein lies what policy is all about. It is, in effect, what we have endeavored to do just to balance two--in fact, a lot more than two--variations from our intermediate expectations. Any other comments? If not, unless I hear any objections, I assume that Don's suggestion probably does capture the general tenor of this discussion and I would ask him to go forward with that. And we shall wish him well, because I'm not sure what--. [Laughter]",104
-fomc-corpus,1991,And there may be Federal Reserve Bank research departments that might wish to take on some additional tasks relating to what has been done at the Board.,28
-fomc-corpus,1991,That's what we intend.,5
-fomc-corpus,1991,"Well, I would intend to coordinate with Al and other research directors.",14
-fomc-corpus,1991,Another round.,3
-fomc-corpus,1991,I didn't intend to make it just a Board staff project at all--as little as possible! [Laughter],23
-fomc-corpus,1991,"Okay. Shall we move on then? Another item that has come up previously and was deferred to a study relates to the directive language concerning intermeeting adjustments. This is an issue that Governor Kelley has raised and he in conjunction with Don Kohn has brought forth a memorandum. [See Appendix.] Governor, would you like to chair us through this?",69
-fomc-corpus,1991,"Thank you, Mr. Chairman. When you say that a study has been done on this subject, that's giving it much too much credit. We haven't done a study but--",35
-fomc-corpus,1991,You have given it some thought.,7
-fomc-corpus,1991,"Yes, some thought. As I indicated to you in my memo of May 20, it seems to me that the Committee might well review the language that we employ in the operational paragraph wherein we indicate the areas of concern--theoretically, in rank order. That order has not changed now for 38 months, and certainly [the economic] conditions and the nature of the discussions that have taken place around this table have changed over the course of that period. To refresh the Committee's memory: We established that language on June 30, 1988--or at least we established that rank order of considerations; the rhetoric has changed some. Since that time there have been 5 tightening moves, 1 discount rate move in an upward direction when we went to 7 percent in February of '89, and the directives have had 6 tilts toward tightness. We reversed direction in June of 1989 and since then there have been 17 easing moves, 3 discount rates changes in the direction of ease, and 9 directives that tilted toward ease. And sprinkled throughout that whole period in both the upward and downward direction, there have been 9 symmetric directives. So, a lot of water has passed under the bridge while nothing has changed here. And it appears to me that we may want to take a look at that. In my view, either alternative 1 or alternative 3 in my memo would be preferable to what seems to be our current practice, which is simply not actively managing it. I think [the current practice] is probably viable because it has become pretty much meaningless, but it's not very desirable for exactly the same reason. If we don't feel that we want to manage that language actively--or more positively, if we decide that it's simply not very useful any more--then I think we should consider dropping it, or changing the rhetoric perhaps, or employing Don Kohn's additional thought that appears as number 4 in his memo, which I appreciate having. The latter would change the recitation of the factors; it would keep them in there but blur their order of presentation. For what it's worth, I think that active management of that language is useful. I know in my own case it's a useful pre-meeting discipline to think through that. It seems to me that for the historical record of the activity of this Committee it has real value. So, I personally would like to see us keep it and come up with a system where we review it in a way that will keep it fresh and current but still not be an undue burden on the Committee. I would appreciate very much having some other members' thoughts. I'd like to ask Don Kohn first of all if he'd like to add anything.",551
-fomc-corpus,1991,"I don't have anything to add to what you said. Obviously, we would try to be helpful and come up with suggestions for implementing whatever the Committee decided it wanted to do.",35
-fomc-corpus,1991,Questions?,2
-fomc-corpus,1991,"I think there's some merit in focusing on our longer-term objective right up front and consistently saying what it is. The question is whether we can agree on it. I guess we can as long as we don't put a time frame around it. If we start to say we're going to do it in three years or five years, then I think disagreement will arise. But I think highlighting that as the major policy thrust over time is important.",87
-fomc-corpus,1991,I'd just like to add that it doesn't necessarily follow that holding that list of objectives constant through that period of ups and downs is necessarily a contradiction.,29
-fomc-corpus,1991,"No, absolutely.",4
-fomc-corpus,1991,You can create that type of phenomenon. The issue is: Does that occur consciously or has it just become a mantra of some kind for us.,29
-fomc-corpus,1991,"Well, one rationale by which it could have been actively kept that way is for this Committee to have decided that it permanently wants to keep absolutely preeminent under any conditions this focus on price level stability. And if that's what we want to do, then to me there is a better way to express it rather than to continue to imply that there's a rank order and that somehow or other price stability inevitably comes first. We can do it in a different way and still make due allowance for that price level stability preeminence to be expressed.",108
-fomc-corpus,1991,You mean have a separate sentence that indicates our commitment to price level stability?,15
-fomc-corpus,1991,"Yes, and then deal with the others.",9
-fomc-corpus,1991,"And then deal with the others. Well, I think there's certainly some merit in that approach.",19
-fomc-corpus,1991,"Governor Angell, there is a sentence already in the directive. If you look on the last page of the package with Governor Kelley's memo, there is a copy of the July meeting's directive. The first sentence at the top of the page that precedes the discussion of the long-run ranges does, in effect, do that. We could change the wording of that sentence.",77
-fomc-corpus,1991,"What sentence are you talking about, Don?",9
-fomc-corpus,1991,"""The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output."" It's page 2 of the directive.",30
-fomc-corpus,1991,Right. It's one paragraph up from the one I'm talking about.,13
-fomc-corpus,1991,"Now, we could play with that. The issue is how the intermeeting directive fits into those already stated goals.",23
-fomc-corpus,1991,Vice Chairman.,3
-fomc-corpus,1991,"To pick up on a point that you made, Mr. Chairman, I'm not inherently troubled by the fact that the rank order stayed the same over this whole period, despite Mike's clever recitation of all that took place in that period. On the other hand, if you look at this table, there are at least a few cases in which the change in the rank order did mean something. For example, around the time of the stock market crash in October 1987, there's no question that that change really meant something. Whatever we do, I think we have to preserve some flexibility to take account of things like that. On the other hand, I fear that if we got into the practice of managing the rank order as part of the normal deliberative process of the Committee, it could be disruptive to the policy process. For example, I think it would be terrible if we ended up with a situation in which the Committee couldn't reach a reasonable conclusion about the thrust of policy because of a great debate as to what should be number two versus what should be number three or number four versus number two. If we were going to move in the direction of what Mike Kelley has characterized as an active management of the rank order, the only way I can see that that can be done without running the risk of disrupting the normal consensus-building process within the Committee would be in a context in which there would be a consensus on that point after the policy directive itself had already been voted on. The thought of inviting dissents over what is number three versus number two I think could be very disruptive.",317
-fomc-corpus,1991,"Well, the problem there is that just procedurally, if you have, let's say, a list of five items and a Committee this large to make a judgment, the time frame required to solve that matrix--",43
-fomc-corpus,1991,That's my point.,4
-fomc-corpus,1991,"--goes way beyond lunch, dinner, and whatever else. One possibility is that we can alter this list in a very generic way once a year or something of that nature as we do the monetary aggregates when we're looking at them in a sense as a separate policy orientation for the period ahead rather than at every meeting. Were we to do that, we could actually do that almost independently of the deliberation process of a specific directive in the same way that we do the monetary targets. I'm not certain that we need to change these every meeting. But I do think that we should either freeze them permanently--meaning that this is the Committee's formal set of objectives in the order of our priorities, which is invariant to specific economic conditions that we're confronting--or have some greater flexibility where they might change over a period of time or in cases where there was a very specific indication such as the stock market crash or, as we'll be discussing later, this very peculiar M2 problem that we're running up against. [In the latter case] there are potential recommendations to alter the directive with that characteristic being in a sense a specific short-term type of adjustment for a specific meeting. I don't know how that strikes you, Governor Kelley, as a recommendation; it sort of comes to grips with the problem you raised but hopefully doesn't get into the problem that Jerry Corrigan raised.",272
-fomc-corpus,1991,"I totally agree with Jerry's concern. It may indeed be insurmountable and, thus, we may want to look in other directions. I would have no problem going in your direction, and I think that Don's [proposed] change could be a way to get at that. And if we have another event of the magnitude of October '87, we can change the language on that occasion.",82
-fomc-corpus,1991,"Mr. Chairman, I like that suggestion. If we were to do that, say, at the December meeting, that would be a ""goals"" meeting, which could then precede our establishment of the ranges at the February meeting.",48
-fomc-corpus,1991,As part of the discussion?,6
-fomc-corpus,1991,As part of the discussion. But I think we should leave open the opportunity for some intra-year moves that might take place when events occur during the year.,31
-fomc-corpus,1991,President Parry.,4
-fomc-corpus,1991,"I guess I'm not as enthusiastic about that suggestion. It seems to me that an approach that would solve our problems and in addition enable us to highlight things that we think are important when important events occur is what Don indicated in 4.b. on page 3 and a slight variation of 4.c. on page 4. That does involve repeating the long-term objectives, but it states them there and then just indicates the kinds of things we want to put in at a meeting that are of particular importance. If we don't go through each meeting ordering the four or five elements, this just focuses on things that at that particular meeting were important. To me this has the flexibility and also the emphasis on the longer term, and I think it's very constructive and preferable to what we have.",157
-fomc-corpus,1991,"Well, I think Governor Kelley has done us a real service in pointing these things out. I've been uncomfortable for a long time with the way we've handled this thing. And even though we ourselves don't pay much attention to this, the Fed watchers do pay a lot of attention to it and they think it's an indication of our practice. More importantly, if we do change them, they think that means we've changed our emphasis. So, if we continue doing that, there's a strong argument for doing what is almost the unthinkable, as you and Jerry have pointed out, of debating this and maybe reaching an impasse at every meeting. So, I've concluded that what I think you are all moving toward is that we should eliminate this language and take another route. Changing this list, even infrequently, tends to promote the perception already held by many that we are constantly changing our objectives and we're trading off one objective against the other. And I don't think considering the list at each meeting would add anything to our policy deliberations; that could hamper us, as Don pointed out, and you and Jerry also have mentioned. So, my preference would be to adopt what is Governor Kelley's point 3 and Don's example under 4. Don gives three examples and I like the one labeled 4.b., which is at the bottom of page 3 in his memo, because it puts long-run price stability at the head of the list. And needless to say, I'd want to retain the reference to the aggregates because right now I think that is the best route to get to long-term price stability, although our views may change as a result of this study we talked about earlier. But adherence to that approach doesn't necessarily bind us to that every time. If we have a particular situation like we have now, with extreme weakness in the aggregates for some unexplainable reason, or like the stock market crash in October of 1987, then we could certainly change it. But I would like to start off with saying something about price stability. As Don pointed out, there is such a reference in the previous paragraph, but I don't think it would hurt to put it at the beginning of the operational paragraph too and make it a generic reference. I would very much favor doing that.",458
-fomc-corpus,1991,President Melzer.,4
-fomc-corpus,1991,"The more I listen to this discussion, the more I think that maybe we ought to do away with this listing. That's partly because the table presented in Governor Kelley's memo reminded me that I've seen that table in certain research where people try to figure out what the Fed is doing. That sort of scares me because, as Jerry pointed out, sometimes we consciously change [the items in the list] and sometimes we don't think about them at all. And it seems to me the purpose of that language is really guidance to you, Mr. Chairman, and to the Desk in the intermeeting period. I personally have confidence in your having listened to the discussion in the meeting and in your interpretation of that, and I'm not sure you need that guidance. And I'm not sure that guidance adds any value to public [understanding], really. These are sort of boiler plate things that any central bank is going to take into account in setting policy. So, I'd be in favor of doing away with that recitation myself.",203
-fomc-corpus,1991,Governor Mullins.,4
-fomc-corpus,1991,"I think Tom raised an interesting point. If you look at the context here, this is not a recitation of long-term goals; it is the implementation of policy for the immediate future--in the intermeeting period--that we are focusing on. And that's why it's so useful to have the flexibility to signal that there's a near-term concern like the stock market or, if the dollar should collapse, that in the near term there is special emphasis on that. That's a fairly rare circumstance, but it's nice to have a device already in place to deal with it. In thinking of what to do in default when we don't have that, I like the notion of considering it once a year with the targets to establish what sorts of things we look at in the intermeeting period in normal times. But I think we'd have less flexibility if we didn't have language here to guide the intermeeting period focus; and then when we have one of these events, it's a more jarring change somehow just to interject exchange rates or credit market conditions and the like [in the directive]. So, I guess I would prefer having a standard list that we would consider for the next year, i.e. what would be the kind of default issues we would look at. Price stability would be number one, but we then also have there the mechanism for signaling concerns. It is different, though, than the longer-term objectives because we're really talking about what we might focus on in the immediate future.",295
-fomc-corpus,1991,"Dave, wouldn't you think the policy record would reveal that, though? Wouldn't it reveal our particular concern without restating that in the operational paragraph of the directive? That was my main point.",39
-fomc-corpus,1991,"Yes, we could just write it out. I think it might be useful first to state what in normal times are the issues that we look at, and this would be a nice simple concise way. If we had a clearly conceptualized approach to this, it wouldn't bother me if this showed up in tables. I think it's a concern if it shows up in Fed watchers' tables when we aren't focusing on it and don't have it clear in a gut sense.",92
-fomc-corpus,1991,Yes.,2
-fomc-corpus,1991,That's it.,3
-fomc-corpus,1991,President Syron.,4
-fomc-corpus,1991,"Mr. Chairman, along with what everyone has said, I think we have to be careful not to try to send too many messages to the market. We're having people see three messages, perhaps, for every one we're trying to send. In that regard [I like] your suggestion for [reviewing this] once a year. And I think David [Mullins] is absolutely right that we want to retain it and make it an extraordinary event to some extent when we change these things. In what we present in a once-a-year approach such as you suggested it is important that we get in there that while we're focusing on price stability, we're focusing on price stability for a reason. And that reason is that it's not an objective by itself; it's an objective in order to maximize real economic welfare. Sometimes--fortunately not in this group but outside--there can be some confusion about that.",179
-fomc-corpus,1991,"I think we're trying to serve two purposes here. One is to provide information. And the second is procedural: to help us conduct our policy affairs and make sure we're getting things right. Where I come out on the information question is that there's not much informational content because what these five or six factors that we list tell people is that we have multiple objectives. We can say price stability and long-term economic growth until we're blue in the face; but if we list those, we're signaling to the market that those things are important to us and we'll shift them around when we feel like it. I don't like the list personally because I don't think half of the items should be in there. So, I'd go essentially for Bob Black's and Tom Melzer's suggestion and reduce the list. I guess that's 4.b. on page 3 of Don's memo.",172
-fomc-corpus,1991,Any further comments?,4
-fomc-corpus,1991,"I think this point bears on the one that you raised earlier about our not thinking of a change in the federal funds rate as a change in policy and yet the market, or most of the market, does. If we had this overall summary statement as in Don's example 4.b. on page 3: ""In the context of the Committee's long-run objectives for price stability and sustainable economic growth, somewhat greater reserve restraint..."" then we can go into these things. But we have said that that is in our judgment compatible with our long-run objective and I think it would reduce the tendency of the public to think of that as a change in policy when it really isn't. That's one of the main reasons I lean toward a reserve base measure because if we had that, we could have interest rates go this way or that way and we wouldn't have any better idea as to which way they would go than anybody else. I don't know if they would tend to be interpreted that way, but it is just the natural fallout of trying to seek a long-run objective; it may involve lower rates or it may involve higher rates, and that can change all over the place from time to time.",238
-fomc-corpus,1991,"Any further comments? It strikes me that we've made considerable progress on the issue that you've raised, but we haven't resolved it yet. If I may, Governor Kelley, I would request that for the next meeting if you could perhaps get views in somewhat greater detail from all the Committee members and the nonvoting presidents, you may find that there is a much more solid consensus than may appear here. But I think there was a growing view somewhat in your direction on this question. If you can query everyone with respect to their specific suggestions, you may be able to bring before us at the next meeting something capturing this discussion with alternative recommendations. Clearly, item 4.b. is one alternative; the one that I mentioned is another; and there may be a third, or something else you can come up with. Get it down to two or three specific things and we may be able to resolve the issue at the next meeting. So, if you wouldn't mind, I'd--",194
-fomc-corpus,1991,"I'd be happy to do that, Mr. Chairman. My sense is that there is a large common core of thought here among Committee members as to whether to do this, although there probably are nuances from every seat around the table. We'll come back with some proposed alternatives.",54
-fomc-corpus,1991,One possibility being to eliminate it completely.,8
-fomc-corpus,1991,Sure.,2
-fomc-corpus,1991,Or change it to something different.,7
-fomc-corpus,1991,Thank you.,3
-fomc-corpus,1991,Okay. We're now up to [our review of] the economic situation. Mike Prell.,19
-fomc-corpus,1991,Statement--see Appendix.,5
-fomc-corpus,1991,Questions for Mike?,4
-fomc-corpus,1991,Where do we stand on our inventory scenario? What happened in the second quarter and what do you think is happening now?,24
-fomc-corpus,1991,"Well, what happened in the second quarter was clearly a liquidation of stocks in the nonfarm business sector. We believe on the basis of the data that came in after BEA's advance estimate that that liquidation will be, in all likelihood, deeper in the revised numbers but perhaps still not quite as sharp as we had anticipated in our June Greenbook forecast. Looking ahead, while one can see in the June data--if one wants to read them very closely--some hints of a diminished rate of liquidation, basically our view is that, in light of the anecdotal evidence and our anticipations of what behavior would be at this point, we are probably still in a phase of inventory liquidation but at a slower pace than earlier. And probably we are not swinging toward stability or accumulation quite as rapidly as we had thought we might be in our prior forecast. As I indicated, businessmen just seem to be very cautious and not at all confident that the recovery and the demand are there and will remain there. So, I think this process is likely to be stretched out some relative to our earlier forecast.",218
-fomc-corpus,1991,You have in the Greenbook for the second quarter a negative $21 billion [for inventories]. What was in the advance number--negative $16 billion or something?,33
-fomc-corpus,1991,What is in the Greenbook is the BEA number. We think we're likely to have several billion dollars less inventory investment.,25
-fomc-corpus,1991,"Are there any biases in the inventory change numbers as a consequence of the [change in the] price base? In other words, do real inventory levels change or will they be significantly altered with the move to 1987 prices in the November base revision?",51
-fomc-corpus,1991,"I would think that oil would be the major item of inventory that would be significantly affected, but obviously other items could be affected to a lesser degree.",30
-fomc-corpus,1991,Do we know the direction of the effect?,9
-fomc-corpus,1991,I have not seen estimates and I don't think we are able to replicate those estimates at that level of disaggregation; we could not really pin that down.,31
-fomc-corpus,1991,One of the things about which there could be a concern is that we are viewing the outlook in the context of a set of homogenous goods--units from which we interpret there is liquidation of a certain dimension--and it could conceivably turn out that a goodly part of our presumption is wholly the result of the arbitrary choice of a price base.,72
-fomc-corpus,1991,"Well, there are always risks that the inventory numbers could be significantly revised. History provides very discomforting examples of this kind of thing. The evidence--in terms of surveys and in terms of what we see going on in industrial production and orders and so on--is consistent with our impression that, indeed, inventories have continued to be liquidated. But the dimensions are important here. So, if there are errors in these numbers, they could be misleading us.",92
-fomc-corpus,1991,"I would suspect that the forthcoming durable goods order series is quite crucial to this in the sense that if the rate of liquidation is what it appears to be, that figure should be moving up, not sideways or down.",43
-fomc-corpus,1991,"We would like to see firmer numbers than the June figure. The June figure wasn't particularly a surprise, in a statistical sense, coming after the pretty good gains we had seen in the prior months. At this stage of what we think is a recovery, erratic movements without a clear-cut, month-by-month upward thrust are not uncommon. But, as I said, the major areas in which we became somewhat more insecure were how rapidly the inventory turnaround would occur and how much spending on business equipment would improve. I'd say those figures will be of considerable interest.",112
-fomc-corpus,1991,President Parry.,4
-fomc-corpus,1991,"The assumption made in the forecast with regard to the dollar is that it remains constant. Is that an exogenous determination? And if it is, what, for example, would the MPS model give for the dollar and what would be its implications?",50
-fomc-corpus,1991,"Well, viewing the forecast as a whole, it is not an assumption that is part of the projection process. It is endogenous to our outlook for interest rates here, which is where we start from, our outlook for interest rates abroad, and what else is going on in the forecast. The MPS model has a slightly different exchange rate equation than most others, none of which does very well these days. Basically, since the forecast for interest rates is flat here and flat abroad, the unchanged dollar, at least [to the extent it is] driven by interest rates, is consistent with that. To the extent that one wants to add in some view of what is happening in the current account, which some other equations do--that's a feature that has tended to do very poorly in the models recently--the fact is that the current account is continuing to be in the negative. It is quite modest, at least taking the judgmental forecast. Again, I don't think you can find any particular downward pressure on the dollar from that.",206
-fomc-corpus,1991,"Just to clarify something stemming from an earlier question from Governor Mullins: Our guess is--just reading the data that we can see on manufacturing and retail/wholesale trade--that the inventory liquidation that was put at $3 billion in the initial GNP estimate will be more like $11 billion. So, it's a significant change.",67
-fomc-corpus,1991,"Say that again, Mike.",6
-fomc-corpus,1991,We think that the manufacturing and retail and wholesale trade data imply a downward revision of roughly $8 billion in the inventory accumulation rate in the second quarter.,30
-fomc-corpus,1991,"Any further questions for Mike? If not, would somebody like to start the Committee discussion?",18
-fomc-corpus,1991,"Mr. Chairman, we have been forecasting a modest recovery and it seems to me that at best that's what it seems we have been getting. Our forecast has been a little weaker than the staff forecast and with the passage of time I'm afraid the difference seems to have narrowed. With regard to the District, I think overall conditions are continuing to show improvement, but certainly this unevenness continues. The auto sector remains the key uncertainty, with the change in models. Recent sales trends have been encouraging at least but still far from strong, and the numbers are really confused by fleet sales. It's very difficult to get at those numbers and really determine just what the underlying retail demand for cars is. The '92 models have been introduced and the introduction hasn't gone quite as well as had been generally hoped. Indeed, attitudes in our District are a little more negative than just a month ago. In fact, one manufacturer is concerned enough about the way the '92 sales are going that they are going to put out a nationwide sales pitch of an unprecedented level in September. Having said that, the retail dealer inventory is very low; no correction there is necessary. But despite that, the production risks, looking at the third and fourth quarters, are still viewed as being on the down side. Of course, the three main domestic manufacturers are reporting big losses. And heavy truck numbers continue to be very weak; sales forecasts for '91 are estimated at about 90,000 units for the Class A trucks and that's down some 25 percent from 1990, which itself was a weak year. The recreation vehicle business, which is very important--particularly to Indiana--also is pretty weak. That business continues in a three-year slump now; [it's down] as much as 25 percent for some individual manufacturers. The steel business, though, is doing a bit better. Those manufacturers supplying the auto industry are operating at a slightly better level; 80 percent of capacity is the overall industry average. And the current level of orders is responding to the slight pickup in car production; the current level of orders of those supplying the auto industry is at about 150 percent of capacity, but they do caution that those steel orders are subject to cancellation. Nonetheless, they are forecasting for this year shipments of about 76 million tons and the initial forecast for '92 is 82 million tons. In the agricultural sector, the drought, as I commented the last time, is beginning to have some negative effect on the outlook for crop production. So far it's not nearly as severe as the 1988 drought, and we do not expect this to move into the banking sector and cause the kind of problems that we had before. Nonetheless, in terms of our District--and I think we are perhaps a bit more impacted by the drought than some other parts of the country--corn production will be down about 15 percent from last year and soybean production will be down about 4 percent. But because the drought conditions are recent, prices haven't risen as much as one might expect and, therefore, farm income will be adversely affected. That is beginning to show up in the weakness of sales of agricultural equipment, and the main manufacturers of ag equipment are beginning to pull back their production schedules for the remainder of this year. On the inflation front, I must say I continue to be impressed --really almost surprised--by the very, very heavy and continuing pressure on prices. Competitive conditions out there are very intense and price increases at least from a [unintelligible] just aren't sticking. Manufacturers are able to get a [price] reduction on their purchases of raw materials and other parts and products. Some of the reductions really are quite impressive, so they've got a very good control on their costs. Offsetting this, and Mike alluded to it, there has been some recent shift in labor contracts; some of the more recent contracts are not coming in quite as favorably as they were earlier in the year. I would point out that Deere and Caterpillar are just starting their negotiations. These are very important contracts. And certainly, the caps in their discussions particularly are starting off badly. They can't even agree on the sites where they're going to hold the negotiations. With regard to the credit crunch--and I must say here I'm certainly speaking from a Midwestern perspective--the problem, at least in our part of the country, doesn't seem to be as bad as in other regions. I think there is a slight shift taking place. Though banks have raised and continue to have pretty high credit standards, for those companies and borrowers that do meet these standards there's plenty of credit available. A CEO of one large regional bank told me the other day that for any good credit that goes on the table, five banks are coming after it pretty quickly. In the consumer credit area--and we do have a director who follows consumer activities pretty closely--I must say the level of personal bankruptcies is getting a little worrisome. The numbers are up very significantly this year over last year. And this seems to be showing up in increased delinquencies in [banks'] consumer portfolios. The recovery still seems to be on track but it's certainly modest and uneven and very, very susceptible to shocks such as what we experienced over the weekend. From a policy perspective, continuing ease is the best policy to facilitate the continued recovery and seems to me an appropriate course of action. Thank you.",1085
-fomc-corpus,1991,President Parry.,4
-fomc-corpus,1991,"Thank you, Mr. Chairman. Following weak activity in recent months, the Twelfth District economy shows few signs of recovery at the present time. California's economy, which contracted somewhat less than the nation's throughout most of the recession, remains sluggish. Payroll employment has been flat since March; manufacturing and construction employment continue to contract and cutbacks planned for state and local government sectors are expected to weaken employment further. I might also add that we're likely to see greater weakness in the aerospace industry primarily located in southern California as well. If you look outside California, the conditions are really quite mixed. States such as Washington, Oregon, and Nevada have experienced employment declines in recent months and that's a bit of a change from what their experience had been a few months ago. Also, as in California, the weakness in their employment has been primarily in construction and manufacturing. Three states--Idaho, Utah, and Arizona--remain relatively strong, with rather impressive increases in employment. Nonresidential construction is obviously quite weak; residential real estate construction is showing some signs of recovery. Sales activity and median prices are above their year-ago levels in California and in the West in general. Permits for new construction are up as are housing starts, at least for the month of June. This renewed activity, however, has yet to be reflected in increased construction employment, and we do have quite a few builders reporting difficulty in [obtaining] financing. I might note that the banks in general seem to be talking much more about difficulties they are having with the examination process and the impact that is likely to have on their lending decisions. I might also point out that it seems to me reasonable to assume--and this was alluded to in the Bluebook--that given some of the major mergers throughout the country and particularly the one in our District, it's likely that the enthusiasm with which these banks approach new and existing business in the six-month period when they're putting together their mergers will be considerably less. If I can turn to the national outlook, our forecast is not greatly different from that in the Greenbook, if one assumes that the value of the dollar remains constant. I think that is a critical assumption. In the near term I would assume that the main sources of the strength in the economy would be household outlays on such things as durable goods and also housing. Next year perhaps we can look forward to something of a turnaround in business spending for equipment. Obviously in this forecast, as has been mentioned by many others and certainly by Mike Prell, there are both downside and upside risks. Clearly, the recent slowdown in M2 and concerns about financial fragility do raise the prospect and the risk that the recovery could turn out to be less than that in the Greenbook. But I also have to take into account the chance of a more typical post-recession pickup in expenditures. It wouldn't be the first time that we've been surprised by the strength of the recovery. While I'm optimistic about inflation and I think it will decline over the next year and a half, the recent behavior of wage costs is certainly a concern. And those concerns were adequately expressed in the Greenbook. I might note in closing that we do have a model forecast where the dollar is treated endogenously. In light of what has happened in the last 48 hours, the discussion of a lower dollar doesn't seem as relevant. But that forecast includes the possibility of the dollar declining between now and the end of next year at a rate of about 15 percent. The impact on real growth in 1992 is very substantial; it adds more than a percent to growth and adds about 0.3 of a percent to inflation. I have to admit that I am more comfortable with the assumption of a constant dollar, but most of the models I've looked at have a tendency to cause the dollar to decline somewhat.",772
-fomc-corpus,1991,President McTeer.,5
-fomc-corpus,1991,"The Eleventh District continues to lag the national economy. Therefore, it has weakened since the last meeting and is probably a drag on the national recovery at this point except that one source of Eleventh District weakness, which is low natural gas prices, is probably helping the national economy somewhat. Another source of weakness locally is the slowing in the building of petro-chemical plants in the Gulf Coast region. Geographically, the Houston area has accounted for 40 to 50 percent of the job growth in the last year or so and that has now stagnated somewhat. Turning to our view of the national economy, the staff is not too worried about a double-dip, based on their review of past double-dips and the characteristics they had. They find that inventory explanations are largely present that are not relevant now. Also, they expect net exports to gain strength and there have been five consecutive months now of a rising index of leading economic indicators. Recession in that context is fairly unprecedented. The staff is not as worried as I am about the recent decline in the broader measures of the money supply. They tend to view it as a fairly benign disintermediation process away from depositories into stocks, bonds, and other types of instruments. But I do believe it's important to get money back on track, regardless of the explanation for the slowdown and the decline. And in the context of the previous discussion, I believe that the will to do so is more important than the way or the method to do it.",302
-fomc-corpus,1991,President Black.,3
-fomc-corpus,1991,"Mr. Chairman, we're very, very close to the staff, as we usually are, and maybe even closer this time than ordinarily. We'd be very happy if we got the outcome that they think is most likely, but from the standpoint of policy the relevant question is where the risks lie. I think the staff concludes as we do that the risks probably are on the down side, when you think about the insurance problems--and now we have the casualty insurance companies hit by hurricane Bob--the so-called credit crunch, and the weakness in the aggregates. We ought to keep in mind some other things, too. There's always doubt when you're in a recession as to what it is that's going to take you out of it. I remember that in every single one we've had. Mike just enumerated three major factors that had caused the staff to think that maybe this forecast ought to be revised slightly upward: the behavior of consumer expenditures, residential construction, and net exports. The thing that worries us most of all, I think, is the behavior of payroll unemployment and employment. We went back and looked at the behavior of this for all the postwar upturns in the first three months following a trough. If you look at that and compare the first estimate that we have now for the last month, it really doesn't look very different from what we've had in the other postwar upturns except in one case. So, this may not be quite as alarming as it looks on the surface. With these things in mind, I don't think it's time yet to push the panic button. But I think we have to be very, very alert to the risk to the near-term outlook that is being posed by the behavior of the aggregates since we simply can't explain by econometric models or otherwise all of this weakness that we've seen in them. And that makes me worry somewhat that monetary policy could have been tighter than we really meant it to be.",387
-fomc-corpus,1991,President Syron.,4
-fomc-corpus,1991,"Mr. Chairman, as to the situation in New England, there certainly isn't anything new to report, at least of a favorable [nature]. Talking to directors and businessmen more broadly, there's an increased sense of pessimism that is definitely palpable and a feeling that the region is still deteriorating. While the pace of the decline may be abating, there's certainly no sense of an upturn. The only bright spot for now is continued activity generated by mortgage rates and existing home sales and also by [housing] price adjustments. There is some slight improvement in new home construction. Given the inventory overload that we have, particularly in the condo market, it is going to be very interesting to find out just how many waterside condominiums were fully damaged by the hurricane that went through! I think the insurance industry inspectors should be quite careful [in determining] just what did cause the damage.",177
-fomc-corpus,1991,The only problem with that is that then the burden is on all your insurance companies.,17
-fomc-corpus,1991,"Exactly, which brings me to the next point. In terms of looking at local markets, the employment situation certainly in the life companies and in the property and casualty companies has contributed further to this great feeling of pessimism, which is being reflected in soft retail sales and also in continued concerns about inflows and tax revenues of state and local governments and what that will mean later on. As far as the U.S. economy goes, the concern that we have is that there may be an asymmetry of risks in the forecast toward the down side. There is information one can go through that would explain much of the softness in the Ms and that alone might not be a cause for concern if the softness in the Ms wasn't happening in an environment in which there seems to be increasing causes for concern about the real sectors of the economy. Also, what has been referred to as [funds] moving out of banks into other areas, I think does have some implication for credit flows. We do see continued concern about credit availability. I recently have spoken to the chief executive officers and the chief financial officers of all of our large life insurance companies and their standard reassurances suggest a thin veneer [covering] a sense of great concern; in a couple of cases it is almost in the panic stage or very close to it. There is an enormous caution in their lending and a great desire to increase liquidity. One very large company which is in both the life and property and casualty businesses was saying that it wanted to be in a situation within a few months where it could liquify one-third of its portfolio very quickly if it had to. It's not quite clear to me how that's going to happen. I think many of the banks feel--and I think some of this is the result of over-reaction by some of the regulators--that there's a whole generation of commercial loan officers who may not be able to function in the future because they have been through such trauma in this whole aspect. It is too early to know the impact of the hurricane on the property and casualty companies but at this stage, based on a few phone calls, it doesn't seem to be very great. We generally agree that the Greenbook forecast is the most probable outcome. But I think, as Mike said, the probability distribution has widened, and I would guess the tail on the negative side has increased somewhat. We're very dependent on a few things that come back to confidence, including what happens in the auto industry. And in this environment, the shocks that we have going on internationally as well as domestically increase the concern on the negative side. It's something for us to take into consideration in the next [portion] of the meeting.",539
-fomc-corpus,1991,President Forrestal.,4
-fomc-corpus,1991,"Mr. Chairman, conditions in the Southeast pretty much parallel what is happening around the nation; the pluses and minuses in the national economy that Mike outlined are present in our [regional] economy as well. We are seeing some modest growth in retail sales along with some indications of increases in orders in major industries. Housing is picking up a little--at least housing starts are. But I must say that there is a continuing sense of pessimism among virtually all of the business people I talk to, including directors. They are really afraid now of another downturn or a double-dip. People generally are also very concerned about the bank mergers and other business consolidations that are moving along so quickly and about the potential for unemployment in their own situations and among their families. It seems to me that business investment is virtually on hold for 1992 as a result of this pessimism among business people. On the other hand, there are some positive signs. For example, industrial parts of the region appear to be a bit stronger; I wouldn't say it's great, but it is a little better. Increased auto production has helped Tennessee; the Saturn plant there has picked up its production. The commercial construction area seems to have hit the bottom, according to our contacts, but as we all know the vacancy rates are such that it's going to take a long time for that area to improve, and we see no evidence that the improvement is accelerating in any sense. We have budgetary restraints in virtually all of the states in our District and that's leading to spending cuts. And the depressed level of natural gas prices is causing cutbacks in production and layoffs in that area. The credit crunch continues to confuse me; I get differing reports from different people. But cutting through all of the chaff, I think creditworthy customers will be serviced by the banks. The banks, in fact, are out looking for good loans but they're not finding much demand. In summary, as far as the District is concerned, people keep asking the questions: Where is the recovery? And if there is a recovery, why aren't business conditions better than they seem to be? On the national side, our forecast is very similar to the Greenbook, although we do show somewhat slower growth in the fourth quarter of this year and the first quarter of next year. And even with that slower growth, our inflation number is not quite as optimistic as the staff's; we're in the range of 4 percent versus the staff's 3 to 3-1/2 percent. For reasons that have been indicated by other people, I think the risks are clearly on the down side at the moment. Like other people, while I don't ordinarily pay a great deal of attention to M2, I think this persistence in its weakness is telling us something that we have to be very careful about. Certainly if it continues to grow at these rates, we could have some serious repercussions. The financial sector also continues to concern me. We have news of financial stress constantly in the newspapers. Added to that now are scandals as well in the insurance companies. And while it's too early to tell, if the situation in the Soviet Union continues to cause uncertainty, I think that is going to cut into consumer confidence as well. Altogether, I think the risks are very clearly on the down side and we need to take that into account a little later this morning.",679
-fomc-corpus,1991,President Stern.,3
-fomc-corpus,1991,"Well, with regard to the national economy, I do think the incoming data taken together are consistent with a modest recovery of the type described in the Greenbook. I would add that I'm also a bit more encouraged about our prospects for disinflation as suggested in the Greenbook as well. There's not much going on in the District that would make me doubt this general kind of forecast--I suppose that's not the most positive way to put it--except for some signs of strain and disappointment in some businesses that may have thought the recovery was going to be a little stronger than it has to date. But if you look at the other data, nonfarm employment in the District is up relative to a year ago and the agricultural sector outside of the dairy industry is in pretty good shape. So, things seem to be continuing to move along reasonably well. Having said that, as many have already commented, there are reasons to be concerned nevertheless. Some comments have already been made about commercial real estate. We know we had a drop there and values are in the process of adjusting. But it seems to me that the spillover there is perhaps even greater than I, at least, had anticipated--not only for the financial sector and creditors in general, but for state and local governments on the revenue side. And those governments are already stressed. So, we're getting some restraint there in addition to all the other factors that we can talk about. And assuming nothing terribly unusual comes out of the situation in Russia, we're getting some restraint from the Federal budget as well. So, when I add all that up and couple it with the weakness in M2, I think there are reasons to be concerned as to whether this is going to play out in quite the positive way that the Greenbook would suggest.",357
-fomc-corpus,1991,Vice Chairman.,3
-fomc-corpus,1991,"Well, I don't think there's any question that the anecdotal side of things has gotten quite shaky again. Some of that is because the typical CEO of a company never really believed his or her own economists or other economists in terms of the outlook, going back two or three months ago. And I think a lot of business executives have interpreted recent data to mean that they were right and the economists were wrong. My own sense of the situation is that while things are not as good as they would like them to be, they're not as bad as they think they are either. I believe the truth still lies somewhere in the middle. Now, having said that, and as someone who has been sensitive to what I'll call financial jitters for a long time, I do think it's fair to say that confidence on the part of both consumers and business people is being further shaken by the cumulative effects of financial jitters. And financial jitters, as some people have already said, take a lot of forms here. There are new questions about insurance company scandals, and consumer delinquencies are rising. All of that is having a little impact, or perhaps even a lot, in an insidious way on confidence in general. One implication is that the economy at large is probably even more vulnerable to any kind of financial surprise or shock, even though I've believed it has been vulnerable for a long time. There are also two things of a more intermediate nature that worry me a bit relative to my earlier expectations. One has already been touched on and that is that while the inflation outlook in some sense is better--and certainly I still think we can break that so-called core inflation rate of 4 percent that we've been living with for most of the decade--I, too, look at that second-quarter data on wages and so on with some concern. While I can readily see how we'll break the 4 percent, I'm not nearly as sure as I was some months ago that we can do a lot better than that. Indeed, it seems to me that in order to do a lot better than that one of two things has to happen. One is that overall compensation has to bend down, and I'm getting a little skeptical that that can bend down in any significant way except in the context of an economic outlook that would be horrible otherwise. Or, we have to get some real recovery [in] productivity, which doesn't look so [likely] either. So, again, I feel a little less sanguine than I did before about the intermediate-term outlook for inflation. The other intermediate-term thing that has gotten worse is the budgetary deficit outlook. If you look at these new estimates--whether you use OMB's or CBO's and whether you put the S&L [bailout costs] in or out--there really is a material deterioration in the intermediate outlook for the budgetary deficit. And that's a worry. Now, as Mike said, even against the backdrop of those short- and intermediate-term variables, one can conceive of a wide range of possible outcomes over the forecast period. I think the saving rate is a very large wild card; indeed, in the context of Bob Black's remarks about employment and wages and so on in other cycles, one big difference is that in other cycles we didn't have a 3.5 percent saving rate like we have right now. It's a little hard to see how that all will play out, especially if one is assuming implicitly that the rate of increase in nominal wages and compensation has to come down a lot and inflation is going to have to come down a lot. So, there's a bit of a conundrum there; again, I think the saving rate is a wild card. Just a brief word if I may, Mr. Chairman, on M2--not so much as a policy indicator but more in terms of what it may be telling us about the economy. In looking at all the work that the staff did, I come away with the view that M2, at least in informational terms, seems to be saying two things. One is fairly benign, and that is that this reach-for-yield [behavior]--in a context in which people are a lot more sophisticated and alternative outlets are a lot easier and cheaper to get at--is an important factor here. That, in and of itself, is not something that I worry a lot about, if at all, in policy terms. But in looking at the staff's work, I come also to the view that the credit crunch is indeed a factor. Now, I can't quite yet sort out the demand side versus supply side influences that constitute the credit crunch. But I do find very revealing the table following page 6 in the staff memorandum where they try to look at the relationship between core deposit growth, capital positions of banks, and loan positions of banks. That table to me, which admittedly only covers the very short period of June 3rd to August 5th, is a very revealing table. Again, it doesn't tell us whether it's demand or supply, but I think it does tell us an awful lot: that this credit crunch [phenomenon] is quite real and that that aspect of the way the disintermediation process is working does matter for policy. As I said, the reach-for-yield [phenomenon], I think, is rather irrelevant.",1081
-fomc-corpus,1991,"Yes, this does suggest supply as the relevant issue.",11
-fomc-corpus,1991,"I'm not sure I feel I can go quite that far. Clearly, it says that supply is at work here.",23
-fomc-corpus,1991,"Well, that's what the matrix is trying to suggest.",11
-fomc-corpus,1991,"Well, it clearly says that, but there are ways in which demand forces could also be producing at least some of this result. Certainly, I don't think one can say it's 100 percent supply. But to me it's a very revealing table and, unlike the reach-for-yield phenomenon, does have some policy implications--though not in terms of whether M2 should be used as a target. That's another issue altogether. If anything, it says M2 shouldn't be used as a target; but I don't want to get into that debate. What it does say to me in the context of these other considerations, and in particular the emphasis on financial jitters, is that while there is a broad range [of risks, they are mostly] on the down side. Having said that, I think we're probably okay in terms of Mike's forecast or something like it. But the cumulative [impact of] all this financial stuff is a real overhang on the whole outlook.",194
-fomc-corpus,1991,President Guffey.,5
-fomc-corpus,1991,"Thank you, Mr. Chairman. With respect to the Greenbook forecast, our staff forecast is very close to it but continues to be, as it has in the past, a bit weaker in the latter half of '91 and therefore all of '91 and a little stronger in '92; it is really a shift, I think, of some of the component parts of the forecast. So, the Greenbook forecast, as far as I'm concerned at least, looks to be the most likely outcome, and I think that the risks are basically balanced on either side at this point and that there's not a greater risk on one side than the other. As a matter of fact, we took a look at the double-dip scenario, which Bob McTeer mentioned before, and we could not see anything that resembled what the historical experience has been on double-dips. So, we believe that the projection for continued slow growth over the next six quarters is the most likely outcome. With respect to conditions in the District, the economy seems to be slowing somewhat from what was observed before. It is due to a stalling in the [production of] natural grains in the agricultural sector and the sluggish energy and manufacturing sectors. We're projecting somewhat weaker export markets. And now this new event has taken place. You will recall that the President did agree to provide $900 million of export guarantees to the Soviet Union; that has been put on hold as I understand it or has been or will be withdrawn, depending upon the [political] outcome in the Soviet Union. If that is the case, then the crop prices that we're concerned about, particularly corn, would be weakened somewhat simply because the market has been diminished. And that's notwithstanding the drought conditions that we still have; that may not be quite as broadly spread as in the Chicago District, but it is nonetheless real; it is spotty, and its [impact in terms of] diminishing crops is uncertain. At the District automobile manufacturing plants, production remains weak, although each of them has come forth with a increased production schedule starting in September. For example, in the Kansas City area, a second shift will be put back to work in a GM plant that has been on layoff now for six to eight months. The outlook for construction activity in the District continues to improve, mostly because of gains in residential and the non-building contract awards; the latter include infrastructure improvements on the table now for bidding, which will be concluded over the upcoming period. And despite a recent modest increase in the number of active drilling rigs in the District, energy activity remains sluggish and well below the level of a year ago. That's largely because of the uncertainty in the cost of imported crude, and there's a very weak market in natural gas. So, there's not much to encourage somebody to do any exploratory development or drilling at the moment. With regard to the agricultural financial sector, the loan-to-deposit ratio in those banks is only at about the 52 percent level. They're looking for loans. In the whole District the loan-to-deposit ratio is at fairly low levels. There just is not the demand; there's plenty of liquidity, apparently. Lastly, our quarterly agricultural survey indicates that land prices have stabilized after coming off very low levels over the past two to three years. Prices are now about 35 percent higher than they were at that low; we had seen continued increases in agricultural land prices until this past quarter, when they essentially flattened out.",696
-fomc-corpus,1991,President Boehne.,5
-fomc-corpus,1991,"What I sense around the table is that most of us are still keeping the faith about a modest recovery, but we have increased doubts about it and see more downside risk. I certainly agree with that. What one would like to see at this point is more convincing signs of a cumulative upturn--self-feeding kinds of factors in the economy. Yet in every one of those critical junctures, I think caution and doubt are diluting their effect. What we count on is the inventory kick and yet what we find there is a great deal of caution. People are more into a ""just-in-time"" kind of inventory policy. We're still getting liquidation; surely, at some point we will get accumulation but it just doesn't seem to have the potential thrust to the economy that one might expect. At the next juncture, at the hiring juncture in this linkage, we see the same kind of caution. Most of the jobs have been created in the services sector in recent years and we're already beginning to see much more caution and layoffs in that sector. The next linkage is the consumer spending area; we see caution there. A linkage further out is investment. I must say in talking with the business community that I hear more and more talk that '92 is going to be an extension of '91, and there's more caution there. So, what bothers me about this emerging recovery is that I just don't sense that these cumulative self-feeding forces are going to have the [usual] impact. Add on the financial fragility and perhaps that's part of the explanation. So, I share the view that while a modest recovery is still likely, the downside risks have increased significantly in recent weeks. Also, whenever you see more downside risk I think you have to ask yourself what the consequences are. And while I don't think a double-dip is likely, I think that a very slow recovery or something that approaches a double-dip really could have some major consequences on getting the economy going because basic confidence is in need of healing with these financial fragilities. So, I think we're in a situation now where the risks are fairly significant and we have to deal with them.",433
-fomc-corpus,1991,May I just ask: How do you reconcile that now with the continued strength in your manufacturing survey?,20
-fomc-corpus,1991,"Well, I think what that survey is showing is the same thing that we're seeing in industrial production. A lot of that seems to be auto-related and auto supply. I find that we get those survey results--and they are very accurate if you look at them over the last 20 years--and yet if you talk to people who run the companies you would get a different story. I find it difficult to reconcile that. That survey shows more optimism than any other anecdotal information I'm picking up. I can understand that early on in a recovery but that survey is in its fifth month now of showing some increases, which is consistent with the national industrial production [data]. But it doesn't fit the mood that one senses. It doesn't translate into hiring, for example, and it's not translating into improved capital spending plans.",163
-fomc-corpus,1991,Have you matched the actual report that you get against the rhetoric of the individual who is associated with that [company]?,23
-fomc-corpus,1991,"Well, I haven't gone back and done that detailed a look. We have called back a number of these companies to verify the numbers. And, you know, it is a diffusion index; it doesn't actually measure the level of output. It just is another example of this gap between people who are running firms, and--. I think Jerry may have said it right: Things are not as bad as the business community thinks they are, but they're probably not as optimistic as their economists are forecasting things are going to be.",104
-fomc-corpus,1991,President Hoskins.,4
-fomc-corpus,1991,"On this issue of concerns about the economy, we do pick up the same concerns when talking with business people. But when one pokes at their order books and asks them what is going on, really it's a matter of perception in that they [anticipated] they were going to get a stronger kick than they have gotten and their orders are either flat or up only marginally. So there is this lack of fulfillment of their expectations about what a recovery is all about. There are a couple of points to make about that. I didn't look at the numbers, but I suspect that going into a recovery in past cycles there was a lot more monetary stimulus in place, which ultimately led to some problems. So, I would tend to argue that this ought to be the kind of recovery one should have rather than the other kind. In terms of the risks that the economy is facing, I prefer to look at it the other way around: Namely, that a major mistake--if there's one being made or the risk of one being made--is that inflation expectations are too high relative to the policy that we've been delivering. And it's crucial right now in the [wage and price] setting processes that people recognize the kind of policy that we've delivered because if they don't and they set prices too high, then another adjustment will have to be made. People's [sales] expectations won't be fulfilled in terms of their price increases. And it seems to me that the only way to convince people, given that we don't tie ourselves more explicitly to a price level target, is simply to wait it out. The problem with waiting it out for better numbers--and I'm confident that we're going to get those because I think we've put a policy in place that will generate a lower rate of inflation in the near term--is that we're in the business of trying to change expectations and get people to adjust their price setting to reflect the policy we've delivered. Yet we could be in a position I think, at least I hope, of trying to boost monetary growth at the same time. So, this is a long-winded way of getting back to the idea that we probably ought to tie ourselves to multi-year targets and they ought to be associated with the price level so we don't end up in this circumstance again. The Fourth District hasn't changed much. [Business activity] didn't go down a lot and is not coming back very strongly. The consumer side is picking up a little. The capital goods side is rather mixed; some people feel they're at the bottom; others show slight improvements in their order books. Overall, the District is holding up pretty well because it didn't go down much.",530
-fomc-corpus,1991,President Melzer.,4
-fomc-corpus,1991,"The numbers for our District show a little different pattern. These would be for the three-month period ended in June, so they're somewhat dated. But this is the first time we've shown overall employment declines in recent months. Manufacturing hasn't really changed much; it has been declining slightly. What has happened is that we haven't had the offsets on the non-manufacturing side. There is particular weakness in mining and construction. In mining it has to do with the Clean Air Act and the high sulfur coal deposits in Illinois and Kentucky; in construction, it's a reflection of [the nationwide slump that] we're all familiar with. I will say, though, that contracts in both residential and nonresidential construction show growth, so I think there's some improvement in store down the road there. Just one piece of anecdotal information on this inventory story: a large cotton grower, and he mentioned that the consumption of cotton in the textile industry is at the highest rate in 15 years. Mills are running flat out 7 days a weeks and it's basically--",208
-fomc-corpus,1991,[That's] the reason the crop is so huge; I gather they've got the supply to use.,20
-fomc-corpus,1991,"Right. But the other comment he made is that the inventories have been run down to a [low] level. His instinct, anyway, is that we'll be seeing a turnaround in the inventory situation in that particular industry. On a more general note, having listened to all the commentary, I think we have to caution ourselves at this point not to get whipsawed too much by the incoming data. We're all familiar with the lags in policy, and this is going to be a time when expectations are going to be very volatile. And at least in terms of how I look at policy, I don't think M2 is a very good indicator of the thrust of policy; I think we have to look at something narrower. On that basis the thrust of policy has continued to increase throughout this year. We just have to bear in mind, for example, that the growth rate of M1 over the course of 1991 has accelerated. I certainly can't pretend to tell you whether a 7-1/2 percent growth rate in Ml is too much stimulus. I'm just saying if we look at that as an indicator of the thrust of policy, we've been pumping more and more in. And at some point we have to have the confidence that the actions we've taken are going to have the desired effect and not [let ourselves] get whipsawed by incoming data on the real economy. To me that's a very dangerous guide for what monetary policy ought to be.",293
-fomc-corpus,1991,Governor Angell.,4
-fomc-corpus,1991,"Mr. Chairman, I'm having trouble getting used to a kind of newfound optimism, and I don't quite understand why I should be optimistic when the majority seem not to be. I suppose there are two reasons. One is that I had the lowest forecast for real growth among the Committee members; and I had the thought that given where Mike [Prell] is now I'd almost be willing to meet him half way. So, maybe I had a lower forecast to begin with for '91. The second reason may be more strange, and that is that I've been in Colorado, and Colorado seems quite different than it has been for many years during its very long recession. When I look in Colorado, I see runways and runways and runways being built; I've never seen so many runways under construction--both in Colorado Springs and Denver. But there's a new atmosphere there. And it shows some of the ways that our system works. When house values are where they are in a place like Colorado Springs compared to California, people start to move from California to Colorado Springs. The kind of values there are just rather unbelievable. And there's certainly a definite pickup. But that's too minor a factor to explain much about the U.S. economy. What is it, then, that gives me more optimism? And this is an optimism for 1992 maybe more so than for 1991. The optimism, I guess, comes from a reluctant realization that I'm closer to Tom Melzer in regard to M2 than I am to Lee Hoskins. I'm just not as worried as I was earlier about those M2 numbers. Don's paper was an excellent paper; it was very helpful to me to mull over what is going on in M2. And I think there's a realization that M2 is both the outcome as well as the cause. It just seems to me that M2 probably is not going to respond as much as the members of the Committee would like. But it may not have much to do with the outcome in the real economy. Maybe my optimism is also due to the fact that the real estate price event may be almost over and that should bode well for the banking system, which I see recovering and which I think will give us a different result in 1992. But at the same time commodity prices continue to be pretty weak and rather inconsistent with a strong recovery. So, I think that means we should take a little off of our estimates for the third quarter. But if the third-quarter estimates are a little softer, that seems to me an environment in which maybe what has happened to long-term bond prices can continue if the Committee is willing to be patient. That is, if we continue to get through this quarter and into the next and the PPI numbers are consistent with what commodity prices are showing, then it seems to me that with patience we may have opportunities for additional, perhaps minor, steps to be taken in time, and long bond prices would respond as favorably as they did in this last move. Now, we not only have long bond prices for Treasuries down to 8.10 percent but we've had even more of a gain in mortgage-backed securities; and those spreads over Treasuries are narrowing considerably. And it seems to me that that bodes well for the housing recovery--which is a very gradual recovery, but I think it still adds quarter-to-quarter to the kind of results that we want to see. The final reason for my optimism is optimism with regard to the net export picture. It seems to me that as Mexico moves more to a market-system economy with more sound monetary policy it earns the right to be a capital importer and, indeed, it is becoming a capital importer. Policies they have in place will earn them an increasing right to be a capital importer, which will be very helpful to them in their development. But I see also throughout Latin America and South America a desire to follow that mode. And if these countries become the capital importers that I expect them to become because of improved monetary and fiscal policies, then it seems to me that that bodes better for our export industries. So, I look for a somewhat better outcome there than even the staff has forecast.",847
-fomc-corpus,1991,Governor LaWare.,4
-fomc-corpus,1991,"Mr. Chairman, I had a great temptation just to associate myself completely with President Corrigan's remarks, but I can't resist the opportunity to make a few additional comments. Obviously, the United States is probably less susceptible to whatever the events in the Soviet Union will bring forth than other countries. At this stage it's very difficult to quantify that, but it certainly muddies the crystal ball a little regardless. In spite of these glamorous mergers that were recently announced and in spite of the fact that I share Governor Angell's view that the banking system will look better in the fourth quarter and going into next year, I believe it is still fragile and still very defensive in its attitude. I think there will be further large failures and that the effect of that could be to make the others, the survivors, even more defensive than they currently are. Business profits remain very poor; they're disappointing. And I think restructuring among business firms will continue in order to improve their ability to handle debt more comfortably. And that's hardly the climate for an improved outlook for business fixed investment. I'm still convinced that the basic problem with the pace of recovery and the sustainability of recovery is one of confidence rather than the level of interest rates. That is to say, I believe consumer confidence is reining in the growth in retail sales. I think that business confidence is responsible for the slack demand for business credit. And lender confidence is responsible for the lack of aggressive lending on the part of the banking system. The credit crunch, whether it is due to a reluctance to lend or a reluctance to borrow, is a reality. And it's the greatest threat to the recovery, which I believe is clearly underway at this stage of the game. I think banks are enjoying their new margins and I think they intend to enjoy those new margins rather than lower rates in order to attract more business, even if policy is eased further. If the banks are reluctant lenders and are well stocked with securities, they are not going to be very competitive in bidding for [retail] time deposits, and that may account for some of the recent dynamics or lack of dynamics in M2. The M2 phenomenon is not well enough understood to persuade me that it is terribly important to this whole equation and that' its current behavior would justify further policy accommodation.",458
-fomc-corpus,1991,Governor Mullins.,4
-fomc-corpus,1991,"Coming into this weekend I [would have] agreed with much of what has been said around here. We had a pretty weak recovery, one with clear upward impetus in the industrial sector and in residential housing, but one that in some sense had not taken root in the way that Ed Boehne described with his cumulative reinforcing process and one characterized by this dissonance between the anecdotal data and the industrial production data. If you think of the dynamics of this recovery, you can understand some of this dissonance because if you talk to a manufacturing plant executive, he or she is increasing production not because sales have jumped but really because inventory is too lean. At some stage the cessation of inventory liquidation is going to cause manufacturers to start increasing production even though sales haven't improved very much. That's not likely to make that executive feel very comfortable. In spite of the fact that the industrial production numbers are going to look better and are going to give thrust to the economy, that increase in production is not responding to an immediate, visible upturn in sales. And I think we're not likely to get good anecdotal data in spite of the fact that the industrial production numbers show that [production] is going on. The second stage, of course, is that the higher production should give rise to higher income and then to higher sales and then these folks should cheer us some. It's pretty clear from the anecdotal data that there's not a lot of evidence that the second stage, which I would consider the reinforcing self-feeding process, is really taking hold. So, there is reason for concern. The argument that the industrial production numbers indicate that things are going pretty well is easy to make from our marble enclave here in Washington and harder to make if you're on the front line. But this is the tone I would currently whistle while walking through this graveyard. [Laughter] My view is that we're not far off track; we may be marginally off track. But there is concern about this process taking root. There's also concern about the waves of bad news that hit everyone about the financial system; even the BCCI and Solomon Brothers publicity contributes to the climate, though it probably doesn't have much of an impact on too many people. We continue to have weak credit growth. Money growth has been weak for over a year. I wouldn't be concerned by 3-1/2 percent M2 growth at this stage. But it seems to me that in the last couple of months the bottom has really fallen out and I am concerned about that rapid deceleration; even Ml decelerated pretty dramatically in July. I think Don's analysis did suggest that money matters, and I believe the central bank should take responsibility. I agree with Jerry that a prime concern is the supply side or the intermediation side. You can add the insurance companies to the list of sources of finance that are not likely to be helpful to below-investment-grade businesses. So, there continue to be concerns --in my mind concerns that perhaps [extend] a bit [beyond] the real economy. Now, when you layer this weekend's events in the Soviet Union on top of this, it seems to me that those events are also clearly contractionary. When I go down my list of channels of influence, we have the possibility of reduced confidence by consumers and businesses. The Iraqi invasion last August was met by a historically large collapse in consumer confidence. [The current situation] is a bit different, but at least at the margin it can affect confidence, which can affect spending by consumers on durables and capital spending by businesses. It's going to have to hold the possibility for lowering export growth, as the European economies are affected. We've already seen a higher dollar--maybe a little less higher today than it was yesterday--and this again is a contractionary factor. [There may be] higher oil prices with the possibility of a reduction in Soviet supply; and a marginally higher long-term rate, which we saw at the end of the day yesterday, is a response to increased uncertainty. The world is a riskier place to invest long term for 30 years than it was at the beginning of the weekend and there are more incentives to stay short and liquid and there may be marginally lower stock prices as well. Defense spending might be a plus; it's also true that the political process involved in increasing defense spending has some risks of its own to the budget deal. When I total up this list, it's clearly contractionary on virtually every component. But compared to the Iraqi invasion, the event is clearly a lot less dramatic in virtually every component. In confidence the Iraqi event confronted Americans with the immediate prospect of the commitment of U.S. troops and also revived the memories of the oil shocks of the '70s. The Iraqi event also produced much more dramatic increases in oil prices, in the long bond rate, and a much larger decrease in stock prices. Though the events of the weekend are clearly contractionary, their cumulative weight adds probably only marginally to the outlook; it is more likely to produce a downward deflection in the slope of the recovery rather than tipping the economy into recession as the Iraqi affair did. The resilience of the financial markets in absorbing this shock yesterday is consistent with this assessment. Of course, when I say it's going to deflect the slope of the recovery, I have to admit we don't have much slope to work with, and I think it does heighten some of the downside risks. The real risk is that this is only the assessment of act one, and this is not likely to be a one-act play. Indeed, this is only the beginning. The episode is not over and we're virtually guaranteed to have future shocks as the situation is resolved or at least stabilized. When you consider the critical condition of the Soviet economy, the possibility of civil war, the still formidable military strength of the Soviets both in conventional forces and with 30,000 nuclear devices, it's pretty clear that this has the potential to deteriorate into a situation which is at least as damaging to our economy as the Iraqi war. So, from the [perspective of a] first analysis, these events seem clearly but only marginally contractionary. It does has the potential for more serious consequences. When we add it all up, I think we have a pretty problematic situation to begin with and this adds somewhat to the downside risks and increases the tail of the risks on the down side. It is worth noting, as I mentioned, that the markets over here at least responded quite well to the first round yesterday. It's not clear the markets need our help at all in responding to this. As people mentioned, long rates also have come down almost 50 basis points in 2 months in the face of good but by no means very impressive inflation numbers and this should help the economy. We made a move a couple of weeks ago, which should also help. But as Governor LaWare noted, it has yet to dislodge the prime rate. It could be that this event might actually increase the growth of M2 by increasing the demand for liquidity, but I would not be any surer how to interpret that than I am the current improved situation. The big factor is that events are just beginning to unfold and it's very important to assess the shape and pattern of events as they start unfolding very rapidly. I don't think we should wait until we have hard evidence of a faltering economy before we consider another move, given the lags involved. We have to anticipate; it would be nice to get ahead of some of these contractionary forces. But I think it will be most useful to see the early returns out of this episode: the confidence surveys, the new orders for capital goods surveys, the stock market behavior, and the money figures as well. There's certainly a lot of noise in the system now. And even though I do feel that the downside risks have been marginally increased and the potential for larger problems has been increased pretty substantially, I think it's useful to wait until the noise settles down a little and then anything we decide to do might be more clearly heard.",1631
-fomc-corpus,1991,Governor Kelley.,3
-fomc-corpus,1991,"Well, Mr. Chairman, it has all been said and the hour is getting late. I would just add one quick thought. I certainly share all of the downside concerns that have been expressed around this table this morning and all of the nervousness not only because I get it from this group but from contacts outside as well. But I do think it's a little early to make any judgments. While we're getting an awful lot of anecdotal evidence that is of great concern--and that needs to be given a lot of attention--I would also try to keep in mind that we have a good many economic series that are beginning to come along fairly well. Some pretty slow but pretty firm trends are beginning to fall in place in industrial production, housing, retail sales, the purchasing managers survey, and others. And certainly all of economic history and the thrust of analysis will tell us that a double-dip is unlikely. Obviously, it could occur, but it appears unlikely. As I try to formulate my own thinking, I keep in mind Tom Melzer's caution of a few minutes ago that we not get whipsawed by the data. We also have to be careful that we don't get whipsawed too quickly by the anecdotal information. So, I think it's perhaps a time to be a little cautious and see what emerges, along the lines that David just summarized.",274
-fomc-corpus,1991,Thank you very much. I'm informed that coffee has arrived. It's probably cold now!,17
-fomc-corpus,1991,"[Military forces have surrounded the Parliament] building [in Moscow], but there are also 150,000 people around the building and the crowd is growing. This is a confrontation that is obviously growing [unintelligible]. The stock market, which was up over 30 points, is now up 8; it's still up. It's an extraordinary historic event in the process of occurring. I hope we can finish up so we can go and participate.",91
-fomc-corpus,1991,Or watch.,3
-fomc-corpus,1991,"I want to be a spectator, not a participant.",11
-fomc-corpus,1991,Don Kohn.,4
-fomc-corpus,1991,"In that context, Mr. Chairman, it's awfully difficult to talk about M2, but I thought I'd do it anyhow. It's not perhaps at the top of everyone's mind right now. [Statement--see Appendix].",44
-fomc-corpus,1991,Lee.,2
-fomc-corpus,1991,"I have two questions for you, Don. One is on the P* chart. Have you run that out any further in terms of assuming a monetary growth rate in the middle of the target range and seeing what you would get for the inflation rate in 1993?",54
-fomc-corpus,1991,Not since the July Bluebook.,7
-fomc-corpus,1991,We did it and it comes out to be 1-1/2 percent.,17
-fomc-corpus,1991,Since it's already down in the 2 percent area there is not--,14
-fomc-corpus,1991,But my second question to you is: Do you have any sense of what kind of deviation from trend growth in M2 for a period of time has an impact on the economy?,36
-fomc-corpus,1991,"Well, we tried to look at that in a sort of reduced form way through the various ranges of causality tests in the VAR models. In the case of the more extended VAR model it had an effect but a fairly small one. That is, once you took account of interest rates and stock prices and so forth, a 1 percent deviation of M2 took about 1/4 point off of real growth for the next year and a half or so. So, there was an effect in that model, anyhow; it was fractional. But even taking account of all those other financial variables, there was a significant relationship between M2 leading income.",131
-fomc-corpus,1991,"Any other questions for Don? If not, let me get started on the discussion. Incidently, one of the problems I think we're having is that when a recession is over, by definition, the economy is at the lowest point in a cycle and it feels awful. The anecdotal reports we're getting from a lot of people are a reflection of the fact that the levels of orders, activity, etc. are exceptionally low. It's very interesting to get a sense [of the views] in the political realm; there is a confusion as to whether ""the recession ends"" means the receding has come to an end or that the economy is back up to normal. I think the overwhelming evidence is that it's the latter [view] that we run into. So, we observe different views, as Jerry points out, between economists and economists' bosses. I think we're all talking about different things, basically, and that's an issue that is going to continue to confront us. The issue that concerns me most--the one that Jerry also raised with respect to the saving linkage--means in effect that there is a personal consumption expenditure restraint on this expansion. And although residential construction is obviously moving moderately, nonresidential is not; capital expenditures are not; and export demand is moving but not exceptionally. So, the whole dynamics of a recovery basically falls on the inventory dynamics. There what we are clearly seeing is something that in a way is unusual. With the measured rate of [inventory] liquidation that we are getting--assuming the numbers are correct--one would expect to begin to see the historic dynamics start to emerge here. The way it has tended to run historically is that as liquidation begins to ease and production moves up to consumption, the lead times on the deliveries of materials begin to stretch out as we begin to get some squeeze on [production] facilities. And the increase in lead times has created an increased desire for inventories on the part of the purchasing managers. They start to increase their orders to reach their new inventory goals, which in turn puts still greater pressure on production facilities, which in turn is what that self-feeding process from the inventory side is all about. However, if we look at the lead times in the National Association of Purchasing Managers [survey], it's pretty clear that for production materials especially it is dead, flat. It actually has been easing down recently. And it is consistent with the notion that ""just-in-time"" has really taken over the whole inventory process. But unless and until we begin to see some of that pressure emerging and the dynamics of new orders beginning to move in the historic pattern, we will have this very extraordinary concern that this [recovery] may stall on the final demand side before the dynamics take hold. I doubt that that's going to happen; there is no reason to suggest that. As Governor Angell points out, the commodity prices are soft and are in fact reflecting this very process, but they're not collapsing; indeed, the steel scrap price has even gone up a little and that, as Wayne knows, is my favorite commodity price. There are good reasons for that. It actually has been telling us a great deal about the durable goods part of the system. In any event, while I do think that the odds still strongly favor the ignition of the dynamics and the acceleration [of the expansion] and, indeed, the likelihood is that the next Greenbook forecast will be revised up, the risk structure has nevertheless clearly increased. So, while there is clearly no policy purpose that I can see in moving rates lower immediately, I would suggest nonetheless that with a directive without change--the ""B"" version--we ought to be asymmetric toward ease with the recognition that if events continue to deteriorate, we would move. But we ought to be careful to make sure that that is in fact what is going on and not be whipsawed by the statistics as they go back and forth. At the moment it is very difficult to make the case that the economy is falling back into a double-dip recession. The recovery is slow, sluggish, and frustrating, but it is still plus. And it could very well become a significantly larger plus than any of us senses, certainly from the anecdotal evidence. If we get to the point where the evidence suggests that further easing might be necessary, I suspect that would require a discount rate move. I think we'd have to be prepared to do that if events move in an adverse direction. In any case, I would like to put on the table as a suggestion that we adopt variant ""B"" asymmetric toward ease. And frankly, I would prefer version II of the text that Don suggested [in the Bluebook] with respect to the language of how the money supply concerns are evolving and are affecting policy as they very obviously are. President Syron.",967
-fomc-corpus,1991,"Mr. Chairman, I agree with your conclusions and prescription, which is ""B"" asymmetric toward ease. On the margin I would be reasonably comfortable going to version II in the current circumstances. I must say that in a lot of other circumstances I would have a concern about moving the aggregates up to that level of prominence. But given the weight that has been assigned to the aggregates by many in the public arena and in the markets, I think it's worth doing. My concurrence with your view is based on the notion that it's not just an immediate double-dip that is my concern; I'm really concerned about a prolonged period of weakness characterized by no growth or very slow growth rather than a double-dip and the potential impact on the financial system. That could lead us potentially to a situation that, unlike the forecast, causes a downturn later on that would lead us to have to take moves that are inconsistent with our longer-term objectives. So, I think less now is better than more later.",197
-fomc-corpus,1991,Okay. President Hoskins.,6
-fomc-corpus,1991,"Mr. Chairman, I can live with your suggestion. I would prefer to move now--not because I'm so wedded to M2 that I'll live and die with it, but because it's the instrument that we've been using. In terms of our targeting, it's the one we've been telling the market that we were going to deliver on, and we're running the risk of falling outside the target range. It also seems to me to be the aggregate that better affects the future. I don't know what we can do about the economy today or tomorrow; I don't think we can do much. But we can do something about 1992. And if we've erred and M2 comes back, then I'm perfectly prepared to reverse course. But I judge policy essentially by rates of change in the monetary aggregates, and we're deviating from trend [M2 growth by] perhaps as much as 2 percentage points. What we think we know about that is that it's going to slow the economy--unnecessarily, I think--in 1992. So, I would urge you to move sooner rather than later.",220
-fomc-corpus,1991,President Black.,3
-fomc-corpus,1991,"Mr. Chairman, in most cases I would agree with Lee, but I think there are some special factors at work here. So, I would buy all three of your recommendations--""B,"" asymmetry toward ease, and version II.",48
-fomc-corpus,1991,President Parry.,4
-fomc-corpus,1991,"Mr. Chairman, I would agree with your recommendation on alternative B. It does seem clear that the economy is likely to undergo a moderate recovery and that--also similar to the Greenbook forecast--we'll see modest gains with regard to inflation. However, I do feel that there are risks on both sides of the forecast and I'm not so sure that they're all that unbalanced. So, if I had a preference, it would be for symmetric language.",91
-fomc-corpus,1991,Governor LaWare.,4
-fomc-corpus,1991,"Mr. Chairman, I agree with the ""B"" recommendation. Like President Parry, I would prefer the symmetric language. I guess I'm not persuaded that we have enough certainty about the behavior of M2 to think that we can push the button and make it happen. I don't expect that the projection on the growth levels under the different scenarios is necessarily going to happen just that way. So, I would prefer ""B"" symmetric.",87
-fomc-corpus,1991,President Stern.,3
-fomc-corpus,1991,"I support your recommendation, Mr. Chairman. It seems to me that whatever the explanation for M2 may be--and I don't know that we'll ever have a fully satisfactory one--this is not the time to let it either fall below the target path or deviate very significantly from its performance over the last four years or so. So, I think we should pay some attention to it. And we probably should go with the language in version II, giving M2 somewhat greater prominence in these circumstances, which I think is appropriate.",106
-fomc-corpus,1991,Governor Angell.,4
-fomc-corpus,1991,"Mr. Chairman, I agree with your recommendation on ""B,"" and the version II [language] is okay. I'd have a slight preference for symmetric language but with you at the switch I don't see that the meaning is any different. [Laughter] I would like to suggest that what we're going through here is, of course, painful. But it's less painful to me than what I considered to be of some possibility six months ago, which was that we'd be through this event and back out and never get the rate of inflation down. It just seems to me that we do have to have a little patience here. I think we're entering a period in which we're making more progress toward price stability than during any of the period that I've been here. And there's so much joy in that to me that I'm able in a sense to endure a little of the agony. But that doesn't mean that I want it to continue into another year. I'm very open to the Chairman's suggestion.",196
-fomc-corpus,1991,President Keehn.,4
-fomc-corpus,1991,"Mr. Chairman, given the risks as I see them--I think I heard some comments of the same nature around the table--I would prefer to do a bit more now. But having said that, I find your recommendation entirely acceptable: namely, alternative ""B"" with version II language. [Nevertheless], I hope it would not take the accumulation of an awful lot of negative data before we make a move.",83
-fomc-corpus,1991,How would you go on the directive language version?,10
-fomc-corpus,1991,Version II.,3
-fomc-corpus,1991,Governor Kelley.,3
-fomc-corpus,1991,"Mr. Chairman, I certainly concur with your ""B"" asymmetric toward ease recommendation, but I would prefer the language in version I. I don't want to quarrel about it; I'm not going to vote ""no"" over it. But in the light of our long inertia, as we discussed earlier this morning, and the factors that we've discussed around this table that surround M2, the situation just doesn't seem to me of a nature that it would call for a departure [from wording] that we have been using for a long, long time. So, I would prefer staying with version I but can accept version II.",125
-fomc-corpus,1991,President Forrestal.,4
-fomc-corpus,1991,"Mr. Chairman, I think one can make a fairly persuasive case for easing now. I would make it more on the basis of a boost to confidence and getting a little ahead of the risk and also with some element of M2. But having said that, I don't think it's a compelling argument, and I would be satisfied with the prescription you have outlined, which would be ""B"" asymmetrical. I have a slight preference for version I, but I can certainly live with version II.",99
-fomc-corpus,1991,President Melzer.,4
-fomc-corpus,1991,"I prefer ""B"" symmetric, but were I voting I could certainly live with what you suggested. With respect to the language, let me just raise a question. It's possible that M2's behavior has nothing to do with what the real economy may be doing, and I question how we would be reacting to it. Let's say that we're sitting here a month from now and M2 is still not performing and we're much more comfortable about what we see unfolding anecdotally on the real side; I think that language could trap us. I'd be much more comfortable if, when we refer to the monetary aggregates, we were referring to them very broadly--in other words, including Ml. I think we're getting ourselves into a trap in terms of too much focus on M2 and M3, which we can't directly control. We would have much more opportunity to keep ourselves out of a corner that we may be painting ourselves into if we thought about M1 a bit. I'm not saying we should target Ml; but if we thought about it a little more, it might help keep us from getting painted into that corner. So, for that reason and because I presume we're not really looking at Ml, I'd favor version I in the language; I don't want to be painted into that corner.",258
-fomc-corpus,1991,Governor Mullins.,4
-fomc-corpus,1991,"I think there is a legitimate case for making a move now, but perhaps there's a somewhat more persuasive case to stay asymmetric toward ease and assess the impact of the last move. The lower long rates may have some impact, and if we can get some returns from them as events unfold, our moves may have a bit more impact later on. So, I would support asymmety toward ease, although it seems to me the way things are shaping up that the probability is pretty high that we will have to move again. I would also marginally prefer version I, under the same logic that Governor Kelley and Tom Melzer mentioned. We have a strong tradition of no change in this directive, as you pointed out. But it does reduce our flexibility marginally. I could easily live with version II, but I would have a marginal preference for version I.",171
-fomc-corpus,1991,Vice Chairman.,3
-fomc-corpus,1991,"""B"" asymmetric is okay with me. On the language, I seem to remember that at the end of the last meeting I said something along the lines of ""The worst thing I can think of in some sense is an economy that appears to be recovering and M2 is dead in the water."" And that's what we've got. I don't trust M2 and I trust it less today than I did six weeks ago. For that reason, I would favor version I. I think Tommy's point about getting trapped by that is a concern.",107
-fomc-corpus,1991,It's the obvious problem. President McTeer.,10
-fomc-corpus,1991,"I have no problem with your recommendation. I would have a slight preference for alternative A and version II, primarily because I think the economy could use some lower interest rates. And if we can believe the menu that has been presented before us, we have an opportunity here to get some lower interest rates with very little acceleration of money growth rates. If we have a choice like that, I don't think we ought to turn it down. But your recommendation would be fine and I would urge you to use your asymmetry quickly.",104
-fomc-corpus,1991,Like Wayne did. [Laughter],8
-fomc-corpus,1991,President Boehne.,5
-fomc-corpus,1991,"Well, I think your recommendation makes sense. I came to this meeting, before the Russian developments, thinking that we ought to ease now; but there is something to be said for waiting. But I wouldn't be overly patient about using the asymmetry. I have a slight preference for version II but not a huge one.",64
-fomc-corpus,1991,President Guffey.,5
-fomc-corpus,1991,"I would opt for ""B"" with a symmetric directive, given the fact that you have the authority under the procedures to move without consultation of the Committee. I would marginally favor version II.",39
-fomc-corpus,1991,Okay.,2
-fomc-corpus,1991,"Mr. Chairman, after hearing Mike and Tom, I think I would really prefer version I.",19
-fomc-corpus,1991,"Well, I want to split the vote because I think that's an important difference. What we'll do is vote separately on the language because, as I read it, we have a fairly substantial consensus on alternative ""B"" asymmetric but not on which version of the language. And I think it would be best if we voted separately.",65
-fomc-corpus,1991,"Do you want a recorded vote in the minutes, Mr. Chairman?",14
-fomc-corpus,1991,Why don't you just have a show of hands or something?,12
-fomc-corpus,1991,Why don't we just recount?,6
-fomc-corpus,1991,What's wrong with having a recorded vote?,8
-fomc-corpus,1991,Because then people who dissent may have to write dissents!,12
-fomc-corpus,1991,"Okay, good enough. [Laughter]",9
-fomc-corpus,1991,"More accurately, the Secretariat would have to write dissents for people. MR. BERNARD(?) I could live with a dissent or two.",29
-fomc-corpus,1991,"Since he has the official scorekeeping, I can [check] the score. I have: Corrigan I; Angell I; Black II, Forrestal I; Keehn II; Kelley I; LaWare--",44
-fomc-corpus,1991,I.,2
-fomc-corpus,1991,Mullins I; Parry--,8
-fomc-corpus,1991,II.,2
-fomc-corpus,1991,"That is very slightly in favor of version I, so I would propose for a vote alternative ""B"" asymmetric toward ease and version I with respect to the language. Could you read that?",38
-fomc-corpus,1991,"""In the implementation of policy for the immediate future, the Committee seeks to maintain the existing degree of pressure on reserve positions. Depending upon progress toward price stability, trends in economic activity, the behavior of the monetary aggregates, and developments in foreign exchange and domestic financial markets, somewhat greater reserve restraint might or somewhat lesser reserve restraint would be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with a resumption of growth of M2 and M3 in the weeks ahead; but in view of the decline already posted since June, the Committee anticipates that M2 would be little changed and M3 would be down about""--do you want 1-1/2 percent?",139
-fomc-corpus,1991,"Well, make it 1 percent.",8
-fomc-corpus,1991,"--""down at an annual rate of about 1 percent over the period from June through September.""",20
-fomc-corpus,1991,Will you call the roll?,6
-fomc-corpus,1991,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Black Yes President Forrestal Yes President Keehn Yes Governor Kelley Yes Governor LaWare Yes Governor Mullins Yes President Parry Yes,40
-fomc-corpus,1991,Okay. Our next meeting is on October 1st. And we have 9 minutes until we begin our 1:00 p.m. luncheon.,31
-fomc-corpus,1991,Dining Room E.,4
-fomc-corpus,1991,"Dining Room E, a celebration.",7
-fomc-corpus,1991,Celebration?,3
-fomc-corpus,1991,"Good morning, everyone. We have Tom Hoenig with us--officially this time--and I gather, Tom, that this is your first day as president.",33
-fomc-corpus,1991,As a matter of fact it is and that's a warning to all of you.,16
-fomc-corpus,1991,It's all up hill from now on!,8
-fomc-corpus,1991,Would somebody like to move the minutes of the August 20th meeting?,15
-fomc-corpus,1991,So move.,3
-fomc-corpus,1991,Second.,2
-fomc-corpus,1991,"Without objection. Sam Cross, you have a number of issues on the table.",16
-fomc-corpus,1991,"[Statement--see Appendix.] Mr. Chairman, I also might take a moment to mention that we circulated a memorandum to the Committee on questions related to the investment of our German marks. As the memorandum points out, almost all of our marks are in a three-month double-forward facility with the Bundesbank. This causes a problem for the Bundesbank in terms of some mismatch between that facility and the two-month repo position that the Bundesbank uses these funds for. They are concerned and have been seeking to get some change in that facility, and we're looking into the possibility of some modification. We need to work this out, of course, with the Bundesbank and the Treasury and there are many technical questions that we have to look into. The memorandum also suggests that we might look at some possible change in our approach more broadly. I mentioned the possibility of a three-point approach for dealing with these DM and yen balances. The first element would be that we would work out an arrangement whereby either regularly or from time to time as seems appropriate we would put the earnings we receive on these various reserve holdings back into the market or sell them in other ways. The second element would be that we would continue to look for further opportunities for off-market exchanges such as those that we carried out and are still in the process of carrying out with both the Bank of Japan and the Bundesbank and thereby reduce some of our reserve holdings in that manner if it seemed appropriate. Then, thirdly, I suggested that we might also consider some modest diversification of our facilities so that they might be less heavily focused on these very short-term, three-month facilities which are available on a two-day notice--less heavily focused in this Bundesbank facility and other similar facilities. We might think about putting a somewhat greater portion, for example, in the BIS or in some other arrangement of that sort. We'd try to work out this matter with the Bundesbank; it is causing them concern because it does put them in a position whereby they have to explain to their GAO and auditors why they have a facility with us that can cause them to make losses out of profits. And as part of this general examination we could also consider some diversification so that we might move a small portion of the balances into somewhat longer German government paper beyond the 12-month limit that we've been held to up to this point. There's very little of this very short-term paper available in Germany, and for reasons of diversification it might be appropriate to consider a somewhat more flexible approach. Thank you, Mr. Chairman.",508
-fomc-corpus,1991,Any questions for Mr. Cross?,7
-fomc-corpus,1991,"One question, Sam: What are the real prospects for off-market sales of marks?",17
-fomc-corpus,1991,"Well, we're about halfway through the process that we worked out with the Bundesbank to cover the months from July through December. After that, I do not think the Bundesbank would be unwilling to consider some further possible exchanges next year. I mentioned as a part of the approach that we would continue to look for such opportunities. I assume there is a possibility that both we and the Bundesbank might find it in our mutual interest and therefore advisable.",89
-fomc-corpus,1991,"Any other questions? Peter Sternlight, the Domestic Desk.",12
-fomc-corpus,1991,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1991,"President Corrigan, do you want to add anything?",11
-fomc-corpus,1991,"Yes, let me just say a couple of further words on the Salomon situation. As Peter has indicated, and as I think is widely known, the status of Salomon as a primary dealer is under active review. Just so the Committee understands the way that all came about, Gutfruend called me on Friday the 9th of August and first revealed the initial violations. We sent them a letter the following Monday, which they got on Tuesday, in which we basically said that in view of what they had disclosed they had 10 days to make their case on why they should be retained as a primary dealer. That letter, I think, prompted the second round of disclosures, which didn't come easily I might add. And when the full scope of the second round of disclosures became apparent, I told them--and this was all in consultation with the Treasury and the Chairman, so I was not acting in a vacuum--that signals were off for the 10 days and that they should not conclude that the Tuesday letter meant that we might not take immediate action. And I think it's fairly clear that that message was what, in turn, prompted the decision of Strauss and Gutfruend to resign and Buffet to come on board. There was no horse trading about this. But we did decide here on Friday morning in the Chairman's office that in those circumstances we would give them a little more breathing room to make their case. So, in effect, we did give them an extension, which has now run its course. They have submitted to us a rather voluminous set of documents laying out all the changes they've made and all the changes they plan and so forth, and that is under evaluation. Nevertheless, we are rapidly approaching the point where the decision time will be at hand. Indeed, I would be very surprised if whatever decision we make is not made sometime around the middle to the end of this month. I can't see it going beyond the end of this month. At this point, I don't want to try to prejudge that decision. And above all we recognize that the Board of Governors and the Committee have a natural and appropriate interest in both the decision and the decisionmaking process, if for no other reason--and there are others as well--that there are possible decisions in the spectrum of all that might be considered that could have very major implications not just for the firm but for markets as well. As that gets closer we will, of course, make sure that appropriate means and mechanisms are followed to satisfy those natural interests. Obviously, we will have to consult with the Treasury and the SEC as well. Even though I don't think it has to bear on the decision, whatever it is, I can't underscore enough how large and how complex this firm is. If you look at it relative to Drexel, for example, Drexel literally looks like a fly on an elephant's behind in terms of both size and complexity. The balance sheet, as Peter said, is down to something a little over $100 billion now. But again, unlike Drexel, not insignificant parts of this balance sheet are booked in foreign offices in a multiple-currency type environment now, with significant balance sheet assets denominated in various foreign currencies. Their global operations are several orders of magnitude different from anything we've seen to date. But I think the biggest element of potential complexity is the off-balance sheet. The off-balance sheet in total notational terms is about $650 billion, isn't it Joan? [Secretary's note: Ms. Lovett replied in the affirmative.] Again, that's bigger than a bread basket. One of the things, of course, that you see when you confront this kind of situation is that although everybody says you can net positions down and all that, it doesn't work that easily in practice. The most complex element of the off-balance sheet by far is the swap book. The swap book aggregates to $320 billion; the rest of it is foreign exchange, futures, and forward mortgage-backed securities. They're complicated in their own right but one could at least visualize how those things can be taken care of. The swap book is a horse of an entirely different color. It involves multiple categories of counterparties all over the world. And the swap book was, among other things, the instrumentality through which these incredibly complex hedging positions were developed. So, it's not as if you can take the swap book and carve it out without the carving out itself having very important implications for all the other instruments both on and off the balance sheet. And maturities in the swap book can run out as much as 10 years; they're not just interest rate swaps. Some of them are highly complex swaps that involve both interest rates and exchange rates. Some have three or four or five interest rate/swap-type transactions that are tied up with currency swaps that might involve six or seven different currencies, and that's basically one transaction. But the difficulty with the swap book other than its complexity is that writers of swaps essentially have either an implicit or offer a very explicit responsibility to buy them back and/or to make a market. Now, the problem that creates is that if the thing starts to slip, what will happen just as sure as any of us are sitting here is the counterparties that are net plus in individual swaps will put them back and the ones that are net minus will take to the hills. And that can create some rather unusual difficulties. But I say that just so people recognize that this is an extremely big and very, very complex firm. Again, it's not that that by itself bears on what one does or does not do; but it does say that, as a part of the process of coming to whatever conclusions have to be reached, we have to consider, and we are doing so seriously, possible contingencies that could arise. Mr. Chairman, I think that's all I want to say at this point.",1186
-fomc-corpus,1991,Questions for either Jerry or Peter?,7
-fomc-corpus,1991,"Well, I think the understatement in your comments is that this Committee and others in the System have some interest in all of this. This is probably not the forum, but I have some strong interests, and perhaps other people do too, not only in the implications for the financial markets--and I think you've given us a hint by talking about swaps just what some of the implications and some of the contingencies are--but also, closer to home, just how vulnerable we are as an institution in all of this. Again, this is probably not the place to talk about it, but I think it is important to talk about it in some forum.",130
-fomc-corpus,1991,"Jerry, would the removal of the primary dealer status bring the firm down?",15
-fomc-corpus,1991,"Well, that's obviously a tough question. The prevailing view among people in the markets here and abroad, including some very prominent foreign officials--the prevailing view among those who choose to express a view about that to me--is, yes. Now, that doesn't mean that view is right. We ourselves certainly think that is a possibility. It's one of these things that is so hard to judge.",78
-fomc-corpus,1991,Yes.,2
-fomc-corpus,1991,"A second question, of course, is that even if you thought it would, how do you judge the follow-on systemically? And a propos Ed Boehne's questions, from an institutional point of view, there are risks on both sides even of that. Now, there are certainly people who say that our institutional reputation is damaged if we don't do something like that. But if we did it and it produced that kind of problem, our institutional reputation could be damaged in the opposite direction. So, it's a very, very difficult question.",109
-fomc-corpus,1991,What we need is a Solomon!,7
-fomc-corpus,1991,We surely do.,4
-fomc-corpus,1991,"Jerry, as this begins to sort itself out--I don't know what the potential is but obviously we're dealing with confidence here--it seems to me that an important part of this, if it were at all possible, is not having whatever decision is reached jumped on by key politicians right and left. I don't know what that--",65
-fomc-corpus,1991,I think that's the thrust of Ed's comment. But there's not a win-win there that I can see.,22
-fomc-corpus,1991,Right.,2
-fomc-corpus,1991,Governor Angell.,4
-fomc-corpus,1991,"Jerry, I think there are two kinds of responses that we can be involved in. One is the response to a firm that has violated the ethical principles in regard to falsifying reports, which is an issue in itself. But the other problem that seems to me is very important to the Federal Reserve is that we address the entire question of whether or not a small group, in a sense, ought to have that privileged access. And in that vein I'm wondering how far down the road it would be for us to be able to have an electronic ability at various firms to make their bids. I presume that takes quite a bit of software as well as hardware.",131
-fomc-corpus,1991,"Well, let me say two things about that, Wayne. First, as you know, as part of this interagency review process we are looking very hard at what steps can be taken to accelerate the programs that are already on the drawing board. I don't have a firm answer as to how much can be done to accelerate that process. It is unambiguously clear that some kind of electronic bidding system would help [alleviate] some of these problems. But it is not by any means a panacea. I think, for example, that what Salomon did was three things: One is that they violated the auction rules; two is that they systematically lied about it; and three is that they used the set of customer relationships that are all within existing rules to piece together these very complicated financing arrangements for themselves and their customers that produced the ""squeeze."" Squeezes can be good; squeezes can be bad. That's a problem in its own right. In any event, that produces these distortions either in terms of the price of the underlying security or the pricing of the RP in the marketplace. Now, those latter things, whether one thinks they're good or bad, could have been done entirely within the existing rules. That may say that the rules are wrong; but they could have been done entirely within the existing rules. And that issue in my mind is in some ways more fundamental than the fact that they broke the rules. It has nothing to do with the question of penalties, of punishments fitting the crimes, and all that. In terms of the way the market works, an electronic bidding system isn't going to do a darn thing to deal with those issues. The other thing that is important to keep in mind is that one can at least speculate--and that's all it is--that even the most sophisticated electronic bidding system and trading system might still result in a situation, and indeed I suspect would result in a situation, in which there still would be a relatively small number of large institutional players that are going to be a very, very prominent if not dominant part of this market. In addition, even the most sophisticated electronic bidding and trading system in and of itself does not provide the answer to the question of who our counterparties are. And that's where the nub of the so-called moral hazard problem arises. Because as long as we have to deal with somebody, there has to be some kind of objective standard. In this day and age of ""Government in the Sunshine"" and all the rest of it, we wouldn't last 5 minutes saying: ""Well, that's our business and nobody else's business."" So, while the electronics can and will help a lot, and frankly in retrospect we probably--not probably, we should have been putting more emphasis on that--as you know very well, it was perceived as a question of priorities. We've put huge amounts of resources into the upgrading of the book entry system itself; we've put huge amounts of resources into Treasury direct; we've put huge amounts of resources in the savings bond thing; and the perception was that the auction system was working well. It didn't seem, certainly to me--and I was wrong--to be at the front end of the priority list in terms of intensive application of new technology.",655
-fomc-corpus,1991,"I don't want to debate all these questions at this point, but I do think it's very important that the marketplace and the public perceive that we're very sensitive to an open access bidding system and that we really ought to give a lot of priority to making certain that that option is available so that as the discussion takes place we are not seen as holding up that process.",72
-fomc-corpus,1991,"I agree completely with that. And, really--Dave has been working with us on this--we will be putting a full court press on that. But I don't want to leave the impression with anybody that once we fix that, we've fixed all these other problems because that just doesn't follow.",58
-fomc-corpus,1991,I understand and I'll be very happy at some other time to talk about some of those other problems.,20
-fomc-corpus,1991,Any further questions?,4
-fomc-corpus,1991,"I just want to make one follow-up comment. Thinking about what John [LaWare] was saying--and again not prejudging where this ought to come out--it seems to me that one can draw a distinction between violations in the auction process, which the Treasury oversees, and our decision with respect to primary dealers, which is whom we choose to deal with to execute our transactions. It just seems to me, getting back to John's point, that in effect as a punishment--and maybe it's perceived by some as an appropriate punishment--that implicitly the statement the Fed is making is that we're not comfortable dealing with these people. I can just imagine what the reaction will be. It will be ""The Fed must know something about this that we don't know,"" if they say they're not comfortable dealing [with that firm]. That's a pretty serious statement, it seems to me. And if somehow a distinction could be made between those two issues--the Treasury bidding process and our role in executing transactions--which is a distinction you've made before, I think it's an important one.",213
-fomc-corpus,1991,"The one problem with this and the reason for the extensive discussion is that it is perceived--and I think Ed's comment is very appropriate--correctly or incorrectly by many people out there that the appropriate sanction applier, if I can use that term, is the Federal Reserve. Now, if that is not how it's done--and I'm not judging that one way or another--then there has to be a way, given what happened, that that issue is somehow defused and it's clear what the sanctions are and why the Federal Reserve is not the appropriate one [to apply sanctions] and what it is that whoever is appropriate is doing.",128
-fomc-corpus,1991,"Yes, we can suspend them from the auction process without pulling their primary dealership; that's what I'm saying.",21
-fomc-corpus,1991,"The trouble, unfortunately, is that what we can't do is suspend them temporarily as a primary dealer.",20
-fomc-corpus,1991,Sure.,2
-fomc-corpus,1991,"It's like executing somebody technically and then resuscitating them. If there are no further questions on this issue or to Peter, may I have a motion to ratify the actions of the Desk?",39
-fomc-corpus,1991,So move.,3
-fomc-corpus,1991,Is there a second?,5
-fomc-corpus,1991,Second.,2
-fomc-corpus,1991,Without objection. We now move on to the economic discussion. Mike Prell. MESSRS. PRELL and PROMISEL. [Statements--see Appendix.],33
-fomc-corpus,1991,Questions for either gentleman?,5
-fomc-corpus,1991,"Mike, that was really an excellent opening statement about the economy and where we are. I think it really summarized it quite well. I have a question about the profile of the recovery. The profile in the Greenbook is essentially a real growth rate of about 3 percent, give or take a few tenths in either direction, starting in the third quarter and going out through the forecast period. Yet, I think the typical historical pattern has been that in the initial quarters--the first two or three quarters--we tend to get a more rapid growth rate and then it begins to slow. I'm wondering in your analysis of past recoveries if you think that there is anything in the sort of jump-start dynamics earlier in a recovery that we have to have a faster growth to get it going and then it tends to slow and whether, if we only get 3 percent in the initial quarter, that's enough jump-start action to keep the recovery going in subsequent quarters.",192
-fomc-corpus,1991,"I think that notion has some intuitive appeal. It's not something that one can discern in terms of the behavioral relationships that are sort of the averages through cycles that are embodied in econometric models. My sense is that where this in fact may be a part of the current process is that some sectors are having a more muted initial response for various reasons. The housing sector, for example, is perhaps not having as big a kick from declining mortgage rates as we've had in some past cycles, and we are not seeing a big pent-up demand for consumer durables. We didn't get a big surge initially, and this may have tended to contribute to this sense that things are really not picking up. And with the rather negative tone that I referred to earlier, in those circumstances the confidence may not be there on the part of businessmen to proceed to the next phases of restocking and pickup in investment as might have occurred previously. So, in a sense, the initial sluggishness may be continuing to retard [activity] as people just don't get the sense that things are falling in place and that they should proceed with confidence in making investments to meet future demand. So, it may be that there's some of that dynamic here. I don't see that, though, as necessarily suggesting that this [recovery] has to peter out. We have this continuation of what we think is the beginning now of a moderate growth path.",280
-fomc-corpus,1991,President Syron.,4
-fomc-corpus,1991,"Mike, this is related to Ed Boehne's question. This forecast incorporates our usual assumption of no change in rates, which you essentially had to make. In going back and looking at our forecasts historically, we have quite a substantial change in rates from what they have been. I'm wondering in going forward whether you think the difference between these expectations of rate changes and what the economy has done has been caused primarily by external differences and what is going on in the real economy. That's one factor. And how much--and you addressed this somewhat already--is it a change in the responsiveness of the economy to a fall in rates? It's impossible to give a precise weighting on that, but I'd be interested in your speculation about that, particularly going forward.",150
-fomc-corpus,1991,"Ted Truman presented an interesting econometric result--I think it was in the chart show--which indicated in essence that to a first approximation the decline in interest rates that had occurred since the beginning of this year had effectively offset the surprise we have seen in the dollar, which we had not anticipated to appreciate as it did. Thus, if you looked at where output would be sometime out in 1992, these were compensating forces. Now, what caused the dollar to do that--whether it was exogenous events and political factors and so on or part of the internal endogenous dynamics in the economic system--is hard to say. But some political factors clearly were involved in that development.",137
-fomc-corpus,1991,So you might say this was different in the past and you wouldn't necessarily forecast that that would continue?,20
-fomc-corpus,1991,"Well, I would not discount entirely the notion that some of the responses to the financial developments that we have seen in the economy may have differed from what we have observed in the past. There's a complex of factors in terms of term structure and financial flows and the credit crunch aspects of this and so on that you'd have a hard time matching up against previous history. My sense is that the key interest-sensitive sector, housing, has responded to the easing in rates; that did happen. And we expect the recent easing to continue that process. Inventory investment has been very cautious and we've been a bit surprised. On the other hand, there haven't been other things occurring that should have driven firms to restock aggressively. So, maybe things are not out of kilter there; the basic elements of the cyclical dynamics are there. And it's really hard to discern how much they've departed in degree from the past.",180
-fomc-corpus,1991,President Parry.,4
-fomc-corpus,1991,I have two questions. One is on nonresidential construction of structures. There has been a very protracted and also sharp fall-off for 13 quarters. Is that almost unique in terms of cyclical history?,43
-fomc-corpus,1991,This is an extraordinary slump.,6
-fomc-corpus,1991,The duration clearly is; is it the biggest drop?,11
-fomc-corpus,1991,"Right, it's very long; it started a while back and it is very protracted by historical standards. In terms of gauging how far it might go, we think it's reasonably aligned with what we can see already in the construction contracts and permits data, which have some lead time in them. We think that there is still [in train] a significant decline in office and hotel construction and probably in other commercial construction to some degree and that we're likely to see only modest improvements over the next year or so beginning in industrial construction and maybe in some utilities construction. This just looks like a very weak sector. The vacancy rates have remained high to date despite the fall-off in construction of office buildings. We just don't see a basis at this point for an improvement there. And the financing situation is obviously not a plus. But, given the fundamentals, that's just a side story. Nobody in their right mind would finance the construction of a new building in many of the major cities.",195
-fomc-corpus,1991,"I would assume that after that process is completed some of the major excesses that occurred prior to that would pretty well be offset. Let me ask a question on inventories. Clearly, the pattern for the next couple of quarters is going to be dramatically impacted by what happens in that area. What you had for the third quarter is the continuation of a very conservative inventory policy. We have July numbers; we have production and sales numbers for August. Are they basically consistent with a nonfarm inventory liquidation of that magnitude, which is really still very substantial?",109
-fomc-corpus,1991,"In fact, as we noted in the footnote in this Greenbook as we had in the prior one, we actually perceive the liquidation as likely to be larger than the number we wrote down in the Greenbook, given our expectation that the inventory liquidation in the second quarter would be lower. We've circulated some revised tables.",64
-fomc-corpus,1991,We have them. They have that in them?,10
-fomc-corpus,1991,"Under this cover sheet are the revised forecast tables that we distributed. There is a substantial liquidation still in the third quarter. We think that is consistent with the July numbers, anticipating that in the subsequent months there will be a little less liquidation and that as we move into the fourth quarter we're going to move toward to some end to that liquidation. But even the fourth quarter we perceive at this point to be in negative territory on a GNP basis. So, we think it's consistent with the production figures and the import figures and the limited inventory data we have. But we're dealing with a very small amount of data on the third quarter.",126
-fomc-corpus,1991,Sure.,2
-fomc-corpus,1991,"And there's room for a surprise, certainly.",9
-fomc-corpus,1991,Thank you.,3
-fomc-corpus,1991,Governor Angell.,4
-fomc-corpus,1991,"Yes, Larry, I'd like to ask a question about Japan. We understand that just-in-time inventory management seems to be in place in Japan and certainly Japan appears to have rather high short-term real interest rates. Is there some possibility that the heavier rate of production in the first and second quarters is an inventory surge that still has to be looked at as a threat to the continued growth of the Japanese real GNP?",83
-fomc-corpus,1991,"Well, it's hard to rule that out, but I wouldn't think so. I think inventories have been held in pretty good shape; in the second quarter, I'm not sure how well they did. The Japanese are talking quite a bit about the need to get investment going--I'm referring to fixed investment, not inventory investment--at this time, and they are concerned about increasing their output capacity as demand increases. My sense is that they do not have an overhang of inventories that is going to damp significantly the output rise over the near term, although we do not expect a very robust growth in Japan in the near term. We have growth fairly sluggish in the second half of this year and picking up only to about the rates of potential growth, maybe 3-1/2 to 4 percent, in 1992. So, we're not anticipating very strong growth, but I don't know that an overhang of inventories would be a major downside risk in that.",193
-fomc-corpus,1991,"Any other questions for the two gentlemen? If not, shall we move ahead with the round table? Who would like to begin? Bob.",28
-fomc-corpus,1991,"Well, I think getting a hand on the true state of the economy and its near-term prospects is about as difficult this time as it has been at any time I've ever been involved in it, and I've been doing this longer than I would like to remember. Much of the anecdotal information that we've been getting lately has been negative and discouraging. Of course, there is some positive news--especially in the manufacturing area--and similarly the statistics are pretty mixed. But despite all that conflicting information, I think the staff has made a particularly strong case for the kind of moderate growth that they're projecting here. And I think it's important to bear in mind that this is just a moderate [recovery] and not in any sense a strong one. Real GNP, for example, is expected to grow at only slightly above what most people assume to be the long-run economic potential. So, if this is all that happens, this recovery is definitely going to be on the slow end of those that we've had in the postwar period. Our guess is that the downside risk on the forecast, while somewhat greater than the upside risk, is not as much greater as most people appear to think today. We're all aware of the downside risk presented by such things as the weakness in M2, apparently continuing restraint on credit supplies to some industries and in some geographical areas, the fiscal restraint in the federal and the state and local government [sectors], and the heavy overhang of commercial real estate throughout the country. But balancing all these negatives, at least to some extent, are strong increases in the leading indicators of manufacturing activity, an apparent reduction in the underlying inflationary pressures--although Mike did explain very clearly that that's not an unambiguous signal--and the substantial reductions that we in the Federal Reserve have effected on short-term and long-term rates. The one aspect of this recovery that does appear to be clear to me, really, is that we have made substantial progress toward reducing inflation or the underlying trend rate of inflation. The staff's projection of about a 3-1/2 percent rate by late next year in the context of continued moderate real growth seems pretty reasonable to us. And if we can get 3-1/2 percent next year and then maybe 2-1/2 percent in 1993, then I think we will be closing in on what is effectively price stability. Now, I'm certainly aware of the risk that excessive monetary restraint could damage the economy and its apparently precarious position and that we could make it more difficult, if not impossible, to achieve sustained price stability. So, we definitely want to exercise a degree of caution. But at the same time I think it's important that we not be too cautious. We clearly have some momentum in reducing the inflation rate now; our credibility is growing and that will not only increase our chances of attaining our goal but will also reduce the cost of attaining it.",588
-fomc-corpus,1991,President Parry.,4
-fomc-corpus,1991,"Mr. Chairman, the Twelfth Federal Reserve District economy is producing mixed signals at the present time. Several sectors are reporting continued declines. For example, unlike the recovery occurring elsewhere in the nation, the District's manufacturing sector continues to contract. California has been particularly hard hit, having lost 38,000 aerospace jobs since January of last year. Banks are reporting loan levels that have fallen faster than in the nation as a whole; total loans are down 3.6 percent from the level a year ago. Retail sales are reported to be sluggish throughout most of the District, although in the states of Arizona and Idaho there is the report of strength. Construction and real estate activity are weak, with continued job losses in July reported in the District; and nonresidential construction activity remains weak, particularly in California. Residential sales, after rebounding in the spring, have declined for three consecutive months. There are other indicators, however, that are turning positive. Total employment in the District rose in July for the first time in six months. The July increase occurred in all District states except Alaska, and it left the District's employment approximately 0.2 percentage points over what it was a year earlier. Trade employment rose for the first time in six months while service jobs were added at a solid 4.7 percent annualized rate between June and July. If I can turn to the national outlook, we expect to see a modest recovery over the next six quarters, and I'd say it's roughly at the same pace as that in the Greenbook, assuming that the value of the dollar is constant. In the near term we expect that the main sources of growth will be in household outlays on durables and housing plus a switch from inventory liquidation to inventory accumulation. And then next year we would anticipate a turnaround of business equipment spending. We are optimistic that a moderate recovery would be consistent with moderate declines in both the inflation rate and the unemployment rate in the period. We also believe that there is a chance that the dollar may drop as much as 10 percent over the next year and a half as long-term interest rates fall and also as the U.S. demand for imports grows. If that were to happen, that path of the dollar would add approximately 1/2 point to the growth rate of GNP next year but also would add 1/2 point to the inflation rate by early 1993. Thank you.",486
-fomc-corpus,1991,President Syron.,4
-fomc-corpus,1991,"Thank you, Mr. Chairman. In terms of the District, New England has changed very little since the last meeting. In fact, a sense of resignation is beginning to accompany the pervasive sense of gloom. Confidence at the consumer level about both current and expected conditions continues to decline; we're in a range that's somewhat worse than the national level. And partly as a result of this, retailers we talk to are extremely nervous about the Christmas season. They are going in with very light inventories; there has been a lot of inventory liquidation so far and they are planning on quite light ordering for Christmas. In fact, now they're seeing some lost sales because of not having goods on the shelf and that's reflected also in indications that discounting has diminished in some of these cases; but they're not about to increase their inventories for a while. Manufacturers by and large see some bottom but no real rebound. Again, they are very nervous, very cautious on capital spending, and have continued plans for restructuring and reducing employment. There is concern in the aerospace sector, which in our area involves feeder industries; they are particularly concerned about what may happen to the B2 program. Actually, it's interesting that in the District as a whole we saw a reduction in the labor force last year of about 1 percent. Some of that I think is people moving out and some of it is the discouraged worker phenomenon. In the financial sectors there is obviously a lot of continued restructuring going on. Much of this, if not all, is very necessary; but it obviously will have a transitional impact on the labor market and the commercial space market. It is an interesting phenomenon. In the space market alone there is an enormous amount of jockeying going on as developers who have buildings just completed or about to come on line try to compete to steal tenants away from competitors by knocking down lease prices quite a lot. From the standpoint of the economy as a whole, while this restructuring certainly has been an important and necessary long-run phenomenon that we don't want to stop, it does constitute a drag on the economy, particularly as it affects many people who usually haven't been impacted by recessions; and it affects their confidence. Residential real estate in the District has softened but one would expect with the mortgage market improvement that there will be some turnaround. Unfortunately, in what I think has to be on balance a negative report with regard to District business activity, on the inflation side we did have one interesting labor contract, the NYNEX contract, that will affect to some extent at least the management of the New England division of NYNEX. It's a fairly rich contract--about 13.2 percent over three years. It actually had to reverse the previous deals in trying to [introduce] cost sharing for medical insurance where [unintelligible] program as long as the company would pay for it fully. This was traded off [for other concessions] and we'll see if the productivity returns come in. Management expects that they have gotten some significant work rule improvements, but we don't know. And they're continuing to cut management employment. But I think it was really buying labor peace at what I thought was an unusual time in the cycle. As far as the national scene goes, I think it's very, very hard to find a central tendency in the forecast that would be much different--or one that I would have much more confidence in--than what the staff has produced. I find myself very much in sympathy with Mike's views of the risks as far as the outcome goes. I would think that they're slightly on the down side but not greatly. From my perspective what this comes down to, since it's all a game of risks, is: Which side is the worst if we are wrong? My own view is that I would prefer to be wrong on the side of having a little stronger growth than somewhat weaker growth, at least in the short run, because I am concerned about the financial sector. We have talked about many of the [financial sector concerns]. We would be quite a ways away from potential if the economy were to come in--instead of, say, at 3.3 percent growth, which is the central tendency --at something like 1.8 percent rather than 4.8 percent growth. That implies further stresses on the system--[more than if] we were to have 4.8 percent for a short period of time. As long as we're willing to reverse course, I think that the latter could be dealt with more easily than coming in with a very slowly growing economy. Depending upon the state of confidence, I think we could see a quite slow Christmas season. I admit that there are strong offsetting risks that imply a rather evenly balanced outcome in terms of what may happen to the economy. Again, my views are driven by which side I would rather be wrong on, in terms of the effect of being wrong.",980
-fomc-corpus,1991,President Keehn.,4
-fomc-corpus,1991,"Mr. Chairman, in the Chicago District at least we seem to be in something of a steady state. Really not much has changed in total context since the last meeting. In a comparative sense our numbers seem a little better than the national averages. On employment, for example, our numbers have shown a little less erosion than the national numbers; excluding Michigan, which of course has its own very obvious problems, some of the employment numbers are looking at least flat to up a bit. Manufacturing activity is showing some sign of modest improvement. The steel business, for example, is operating at a higher rate, and at least one manufacturer would anticipate that their operating rate would go up pretty close to 100 percent by the end of October. As has been the case all year, so much is very, very dependent on the auto industry. And I must say at this point that I find it awfully hard to get a grasp on what the underlying retail demand for cars is. The early September sales numbers are a little on the disappointing side, but it is expected that fleet sales during the last 10 days will boost sales for the month as whole. The industry obviously is hoping for a better fourth quarter and the forecasts for sales of cars and light trucks seem to be coming in at about 13.6 million at an annual rate. But they do admit that that could be a little on the optimistic side. Based on that sales expectation, their production schedules for the fourth quarter have been set at levels quite a bit higher than the fourth quarter of last year and higher than the third quarter of this year. But, again, the caveat or the production risk is on the down side. Looking back at the third quarter, of course, they had production schedules that were forecast at quite a bit higher level than actually took place. If the sales fail to live up to expectations and production is cut back, that of course would work back onto the suppliers. A lot of the order increases that steel manufacturers have are based on auto production, but these are orders that are cancelable. We're just going to have to wait and see how all this works out in coming weeks. In the agricultural sector, despite the drought in parts of the District--it's particularly tough in central Indiana--and now the early frost, production is going to come in at a reasonable level. Corn is down just a bit from last year; soybean production is probably down a little more. The impact in the District in terms of farm income is nothing like what we experienced in '85 or '86 when we went through a big correction, barring even the drought of '88. And the ag banks do not anticipate a significant deterioration in the permanent aspects of agricultural loans. On the price inflation side, I must say the situation continues to look positive. Competitive conditions are just too tight and too tough to provide much latitude for price increases. The steel industry, for example, has announced a price increase for sheet steel. They think it will stick, but major users of steel say it will not stick and that they will be able to beat it back down. On the wage side, there is not much change other than, I would point out, that Caterpillar is really in a very tough negotiating stance--really a non-negotiating stance. They anticipate a strike and final settlement coming out of that at a very low rate--at about the settlements of some of the other UAW contracts. In a national context, our numbers, certainly for the third and fourth quarters of this year, are quite similar to the Board staff's. But I will say that our forecast for next year is a little lower than the staff forecast. The main area of difference is in personal consumption for durable items and in turn for disposable income; our numbers are lower there as well. So, I would argue that the staff forecast is a little on the positive side as we get into next year. And, net, while the recovery seems to be developing along the lines that we've been anticipating, the main question is the one that Ed Boehne raised: whether this recovery is going to be strong enough to get enough of the boats off of the bottom to sustain it for a continued period.",848
-fomc-corpus,1991,President Forrestal.,4
-fomc-corpus,1991,"Mr. Chairman, when we were together in August I reported that economic activity in the Sixth District was very slow and uneven and, unfortunately, that hasn't changed at all. In fact, the people that we've been talking to over the past several weeks would describe the local economy, and to some extent the national economy, as one that really is struggling to maintain any forward momentum. Retailers are experiencing flat sales; they've been very disappointed by the back-to-school season. They're also seeing, of course, weakness in durables as is the trend around the country. They are very concerned about sales in the upcoming Christmas holiday season and are not really expecting very much from that. I would say that confidence continues to be low. The sentiment in the District is reflected in the general comment we get from business people: If we're really in a recovery, why doesn't it feel better? On the other hand, industries that are in any way related to the export side are doing a little better; and that includes, for example, industries like chemicals and poultry processing. Manufacturing inventories continue to be quite lean. Another positive note is that single-family housing inventories seem to be declining, though declining at a fairly slow [pace]. And building activity and sales seem to be improving a little. However, in two of our major markets, Florida and Atlanta, the momentum in housing seems to be declining and there's some evidence that it might actually be stalling out. Adding to the gloom generally in the area, state and local governments have experienced revenue shortfalls and are cutting expenditures quite stringently, with the exception of Louisiana, which has benefited somewhat from the oil situation. There are no price increases to be reported at all. On the famous credit crunch side, that problem still seems to be with us in the Sixth District. Bankers say they are willing to make loans to creditworthy borrowers but it's pretty clear to me that the standards for gauging credit quality are pretty stringent and haven't changed very much over the last several weeks. So, in summary, it seems to me that the Southeast--the Sixth District--is experiencing activity very much like the nation as a whole, with the same mix of strengths and weaknesses. On the national side, we're fairly close to the Greenbook forecast, but we do show somewhat slower growth, particularly next year, and somewhat higher inflation. We agree that the recovery is going to be slow; it's probably going to be pushed by manufacturing. I'm somewhat concerned that our forecast--not only ours but forecasts generally--have been a bit more optimistic than the reality and I hope that upcoming forecasts will prove to be a little more realistic. But as I look at the overall characteristics of the economy nationally what I see is: modest growth in consumption expenditures with households and businesses constrained by high debt levels and limited income growth; a housing sector that's still adjusting to slower rates of family formations--the demographic situation we've talked about; a nonresidential market that has a three-year supply of office space; and negative fiscal impulses at both the state and the federal levels. When I add that up and add to it the balance sheet position of individuals and businesses, which is retarding growth, it seems to me that the risk is somewhat on the down side. And I would ask the same question that Dick Syron asked: If we're going to make a mistake in policy, would it be better to err on the side of stimulating growth a little more? I would tend to come out on that side.",698
-fomc-corpus,1991,President Stern.,3
-fomc-corpus,1991,"At the national level, as has been the case for some time, I find myself quite comfortable with the Greenbook forecast. The latest readings on the economy and its prospects suggest that a modest recovery is underway and I think it's likely to continue. I would add that I'm also more confident than I have been for some time that we are finally going to see some progress in bringing down the core rate of inflation over the next year or two. So, from that perspective, the outlook to me looks reasonably satisfactory. In the District, recent meetings that I've held have had a surprisingly positive tone. But I think that's because they've been very District-specific. By that I mean that they focused mainly on agriculture, which for the most part is having a good year; on tourism, which has had a good year; on residential construction, which in parts of the District at least is doing surprisingly well; and on retail sales, which have been boosted substantially by Canadian shoppers apparently flooding across the border and stimulating activity all across the northern tier. So, from those perspectives, things really look quite positive. On the other hand, if I talk to business people whose businesses are more diverse geographically and who do business nationally and internationally, attitudes really are terrible. I've been trying to understand why, without a lot of success, because I don't think the aggregate data that we look at are as bad as the attitudes would suggest. Part of the explanation may be that business people simply expect, and indeed want, stronger and more rapid improvement in activity than they are experiencing. Part of it may be the pricing situation; my general impression is that it would be very difficult these days really to get any kind of price increases at all. And that may be affecting them, of course, both directly and through the profit side of the business.",361
-fomc-corpus,1991,Ed Boehne.,5
-fomc-corpus,1991,"Except for manufacturing, there are few signs of growth in the middle Atlantic states. There's continued weakness in the labor markets and joblessness--the number of people who are out of work--is still rising. The word from the retailers in the District, and the statistics do back it up, is that retail sales are fairly flat, with not much expectation of a Christmas season that they will feel comfortable about. The banks and the financial sector generally are still quite sluggish and the overhang of commercial real estate is still there and will be there for some time. On the whole I sense that the District is somewhat weaker than the nation and attitudes are at best cautious. As far as the national economy goes, I hope the Greenbook is right. I always feel better when I hear Mike. The trouble is that when I get back home, it doesn't last long; it's a quick fix and I need more of it to overcome what I keep running into. But I think the risks are on the down side both for growth and for inflation. And then I ask myself the question that Dick raised earlier: If we miscalculate, nine months or a year from now which miscalculation would we rather have? If this incipient recovery should slip away from us--though I don't happen to think it will--I think it would be very difficult for us to rev it up again. I would prefer to try to slow down a faster recovery than to try to speed up one that isn't moving along. So, I think the risks are on the down side and the costs of the downside risks are higher than coming out on the up side.",326
-fomc-corpus,1991,Governor Angell.,4
-fomc-corpus,1991,"I think it's time to remember that we are 28 months into this period of declining short-term interest rates. The fed funds rate is 465 basis points lower than it was 28 months ago. This was accompanied, of course, eventually by a shift from a flat yield curve to a very positive yield curve. That very positive yield curve has been in place for quite a few months. We're looking, then, at a shift in behavior in the commercial banking system as well as the nonbank public in regard to their positioning of assets. The commercial banking system is shifting heavily into U.S. government securities. This is quite typical at this stage of the interest rate cycle that we're in. Undoubtedly, when commercial banks begin at the margin to add to their holdings of government securities and to offset that by some shrinkage or no growth in loans that, of course, means that the opportunity costs of making a new loan are moving in the direction of alleviating the credit crunch. So, it seems to me that we have fully in place the atmosphere that does provide for the kind of forecast that Mike has described. To me the one factor that was most noticeable in Mike's statement was that the Blue Chip forecasters have a slightly lower rate of economic growth but a slightly higher rate of inflation. And I guess, Mike, that maybe we have inside information. But the critical question before us puts me somewhat in disagreement with those who talk about where the risks are. The critical risk that we run at this stage is that we do not make the gradual progress in the core rate of inflation as Mike has outlined. And if we go past this window and find ourselves with the same basic core rate of inflation we've had since 1984, you can better believe that we will pay for that yield structure and the term structure of interest rates in the future, and that certainly will be a very significant factor with regard to the size of the U.S. government debt and the interest payments that will be there. So, I feel that where we are is just about right. I don't see how it could be much better. It seems to me that it would be better for us to have 2-1/2 percent real growth rather than 3-1/2 percent real growth and make the progress in [reducing] the core rate of inflation. The environment that we're in, if we maintain it, came after a period of patience, which may mean that the rate of inflation, and the rate of [unintelligible] may come down more in the next 12 months. Yet we're looking immediately at financial markets that [have yet] to adjust to news in regard to what we think the third-quarter GNP numbers are going to be. It's entirely possible that given those numbers--[growth in] real GNP in the third quarter at the 3 percent level--that we could see the long bond yields rising above this nice 7.79 percent where they now appear to be. So, we have in front of us a very delicate matter. And it seems to me that the best prospects for growth will rest with further progress in [lowering] the core rate of inflation. So, I'm very pleased, but I would be happy to have Mike be 1/2 point too high on this real GNP number.",671
-fomc-corpus,1991,President McTeer.,5
-fomc-corpus,1991,"The economy in the Dallas District, Mr. Chairman, has improved somewhat since the last FOMC meeting. Over the summer we experienced some employment gains, after about five months of no gains. District manufacturing activity has gone along with the nation in being stronger than the services areas. The strongest part of manufacturing has been in chemicals, petroleum refining, plastics, and also some construction-related manufacturing. Construction has picked up slightly in residential areas but not in nonresidential areas. The energy sector remains weak primarily because of the prolonged decline in natural gas prices. Rig counts in the District are down about 5 percent in the last month and down 21 percent over the past year. Retail sales have languished in recent weeks and remain well below year-ago levels. Our directors and other people we talk to and get anecdotal information from have the feeling that we're stuck in the mud--that forward progress is not necessarily being sustained. They're still very concerned with what is going on with bank lending and they're concerned about the sectors of the economy--the small business and medium size business sectors--that are still relying heavily on the banking industry as opposed to someone else for their financing.",234
-fomc-corpus,1991,First Vice President Hendricks.,7
-fomc-corpus,1991,"Well, I'm pleased to be here with you again. Several of you commented that you'd rather see Lee at this chair than me and I agree with that; I certainly would. Nevertheless, in our District we are cautiously optimistic about prospects for further gains in output as inventory cutbacks near an end. Our District contacts tell us that they're reasonably satisfied that retail stocks are at about the desired levels. Manufacturers, especially of motor vehicles, steel, and major appliances, have for the most part cleared their inventories. We also see scattered signs of a comeback in capital goods out there. Several industry sources believe that their business is either near a trough or in the early stages of recovery. This is especially the case with producers of industrial equipment, industrial controls, heavy duty trucks, small electric motors, electrical equipment, and ball bearings. But I would hasten to add that the recovery in our District is not yet broad-based or very strong. Our directors do not yet see much of a recovery but their attitudes may be based more on year-to-year comparisons or on their memories of pre-recession operating rates, when they expected to be at 85 percent or more [of capacity]. Still, we feel that the latest purchasing agents reports confirm that manufacturing has been in an expanding phase in recent months; and that should continue, albeit less rapidly than many would want. That concludes my remarks.",274
-fomc-corpus,1991,Governor LaWare.,4
-fomc-corpus,1991,"Mr. Chairman, recent public attention has been focused on the banking sector being the skunk at the garden party, which is restraining more vigorous growth in the economy. I have a somewhat different view. I believe that the credit crunch isn't [the issue]. I believe it's not so much that banks are not lending as it is that borrowers are not borrowing. It is true that bankers' confidence has been badly shaken by savage examination experience, a slack economy, and stiffer capital requirements; but they can hardly abandon their basic business, which is lending money. I think the anecdotal evidence favors the conclusion that it is weak demand rather than lender reluctance that accounts for the credit contraction. Consumer confidence and business sector confidence are weak and are not likely to be stimulated by further interest rate changes. Some solid good news about the economy is far more likely to stimulate demand than a 25 or 50 basis point cut in the fed funds rate. I hope we don't lose patience with the pace of recovery if we have confidence in the staff analysis, and I do. In the past, we have had a tendency to ease too much and too long; and I hope this time that we can keep our eye on the target of price stability and not over-stimulate the economy.",256
-fomc-corpus,1991,"Well, John, I'm glad you liked the waffle! Vice Chairman.",14
-fomc-corpus,1991,"This is going to sound as if it was orchestrated, but it was not. Amid all these anecdotal reports, Gary's people must be sending the people in Minneapolis to talk to me because I hear all this terrible stuff too. But staff at the Bank yesterday were walking me through some [analysis] on the household sector, which actually made me feel a little better. Some of it Mike already referred to and indirectly John referred to it. We all have this impression that the saving rate is very low, that income growth is rather sluggish, and that spending is rather sluggish. But if you look at it in the context of these NBER charts, you find several things. One is that the saving rate never falls in the beginning of a recovery. What that means, of course, is that it is income that pushes up spending, not the saving rate falling. And when you look at the income side in this recovery, it's sluggish but certainly not disastrously so. I think that was part of what Mike was saying before. And neither for that matter is overall consumption spending or even so-called discretionary consumption spending all that wildly out of line with what one might expect. On the other hand, nonagricultural employment is a bit weaker, but interestingly enough that is not in manufacturing; it's not even in construction. It's basically all in services, with particular emphasis on finance, insurance, and real estate, and in state and local governments. And, of course, those problems are as much secular as they are cyclical. What that basically says is that if you look at the dynamics of the consumer sector in the context of income, employment, and savings, despite the fact that nobody feels very good, it's not all that unusual looking. There's another side to it, which gets to John LaWare's point that I found even more interesting. And that is what has been happening to the household balance sheet. When you look at that household balance sheet in flow-of-funds terms, what you find is that the contraction in the growth of household debt doesn't look all that unusual either. The only thing that's unusual is that it started a little earlier than it normally does and that the fall in the growth rate of non-mortgage debt started distinctly earlier and has been much steeper. But that probably reflects the 1986 Tax Act as much as anything else. But as the rate of growth of debt falls, if you believe in a balance sheet, something else must happen. And of course when you look at the last four or five years as a whole, the saving rate on balance hasn't really changed at all. Therefore, what we find, which isn't surprising, is that over that period the growth in the acquisition of financial assets and the acquisition or increase in liabilities are very, very similar. And that, of course, makes the overall situation look even more typical. But it turns out--and this is the thing I didn't really have a clue on--that there is one very big difference in terms of the financial assets side of the household balance sheet over this four-to-five year period, and that is a very large atypical shift in the composition of household financial assets out of bank deposits into various securities-type instruments, including government securities funds and so on.",657
-fomc-corpus,1991,The financial funds.,4
-fomc-corpus,1991,"Well, even the mutual funds are a part of it, but it's also the government funds. Now, that big relative drop in bank deposits, of course, we see in the context of the rate of growth in the money supply. But if you think of it in this broader context, it seems to me that the pattern as a whole is quite consistent with the hypothesis that it's being driven importantly by the desire to shed debt, which is quite consistent with John's point about the demand side of the equation being more important than the supply side. Indeed, it's also quite consistent with the hypothesis that the portfolio shift phenomenon, which in part is being facilitated by technology, may have an important role here as well. Now, the reason why that makes me feel a little better in the context of the earlier comments about income, consumption, the saving rate and so on is that, to the extent it is significantly driven by purposeful decisions to manage the balance sheet better and shed debt, it also makes me at least less nervous--I'm still nervous--about the money supply and about the credit crunch. That's not to say that I think I understand the money supply and it's not to say that there are not elements of the credit crunch there; it's simply to say that it makes me feel a little better about them and therefore a little more comfortable with the kind of forecast that Mike has on the table. I'd quickly add, Mr. Chairman, on the anecdotal side, that the attitudes one hears about, especially from big businesses, are still lousy. The only other thing--I don't remember if I mentioned this at the last meeting or not--is that I do get the sense that the commercial real estate market in price terms may be bottoming out, at least in the greater New York metropolitan area. There's still going to be a long workout, but one does begin to get the feel that the precipitous--",380
-fomc-corpus,1991,Commercial and not residential?,5
-fomc-corpus,1991,That's right.,3
-fomc-corpus,1991,You're talking now about the rental prices flattening?,10
-fomc-corpus,1991,Sale prices.,3
-fomc-corpus,1991,"Sale prices are flattening, which means that the rental prices are flattening?",16
-fomc-corpus,1991,"Yes. Now, that's still in the straw-in-the-wind category, but I now have had enough people say that to me that I can't dismiss it.",32
-fomc-corpus,1991,New York was the leader in going downhill in certain respects.,12
-fomc-corpus,1991,"Well, it's not just the City. I get this now from northern Jersey too, anyway. Ed, I don't know what they're saying in southern Jersey, but certainly in northern Jersey--",37
-fomc-corpus,1991,Northern Jersey has more excess than south Jersey. But Jerry's point is that probably in relative terms there's more excess space in the suburban areas than in the central cities.,33
-fomc-corpus,1991,"Bob, what is your judgment of commercial real estate price trends in the last month?",17
-fomc-corpus,1991,That they're weak and probably have come down.,9
-fomc-corpus,1991,Does anyone else sense this?,6
-fomc-corpus,1991,I sense that rental prices are still coming down but that sale prices in the Philadelphia area are in the process of flattening out.,26
-fomc-corpus,1991,Commercial?,2
-fomc-corpus,1991,Commercial buildings.,3
-fomc-corpus,1991,The relevant rental prices are the new lease rental prices because the average is going to come down for a long period.,23
-fomc-corpus,1991,The new lease prices are still very weak.,9
-fomc-corpus,1991,"Have you seen anything, Dick?",7
-fomc-corpus,1991,I think the new lease prices have weakened but are stabilizing. We have levels that are substantially below what they were before but I think that they are reaching--,32
-fomc-corpus,1991,"Bob, is there anything in Texas?",8
-fomc-corpus,1991,I don't think there's a lot of activity there.,10
-fomc-corpus,1991,Does anybody else have any sense of developments?,9
-fomc-corpus,1991,Rental prices are still weak in the Atlanta area.,10
-fomc-corpus,1991,They have to start somewhere.,6
-fomc-corpus,1991,"Look, don't misunderstand me. They are weak in New York. But what I'm saying is that they appear to be--",24
-fomc-corpus,1991,The rate of decline is [abating]?,9
-fomc-corpus,1991,"Well, that's clear. The rate of decline has abated, but my impression is that it is beginning to sound as though people think it may be bottoming out.",34
-fomc-corpus,1991,"It's different in suburban areas and the central city. In Boston, where obviously it occurred earlier than in some other places, the class A space seems now to be going for $21-$22 and that hasn't changed much, I would say, over the summer.",52
-fomc-corpus,1991,It's half of where it was four years ago.,10
-fomc-corpus,1991,That's right.,3
-fomc-corpus,1991,"I think the weakness in prices and its continuation are broadly consistent with the forecast. If you had these prices bottoming out now and presumably moving up in the next quarter or so, maybe you would have your [projected] decline in nonresidential construction and maybe within that the commercial [sector] coming to an end. But to the extent that that forecast is correct, I would anticipate considerable weakness in prices in the months and quarters ahead.",89
-fomc-corpus,1991,"Well, a lot of leases are rolling over and the average is obviously coming down because people are very aggressively going out and seeking to steal tenants. There are a lot of places where that is going on.",41
-fomc-corpus,1991,"Tom Melzer, do you want to comment on this and make your report?",16
-fomc-corpus,1991,"I don't have any comments on that particular subject. In terms of the District in general, I would say the numbers, which are necessarily somewhat stale at this point, would indicate that maybe we're at the beginning of a turnaround. I have been reporting overall employment declines. We have had pretty healthy growth in manufacturing employment in the most recent three-month period and a seeming cessation in the decline in nonmanufacturing employment, and both residential and nonresidential construction contracts are growing at pretty healthy rates. Anecdotally, I picked up a somewhat different tone. What I've been hearing, particularly from our board of directors, over a long period of time is that things are just moving along at a slow pace without any significant declines. We were in a couple of different parts of the District last week, and particularly in Evansville I picked up some very positive comments. They all seem to go back to roughly midyear; they talked about a very lousy first half of the year. One fellow who supplies automobile parts is running [his production facilities] seven days a week and has record shipments. Another in electronic components has increasing orders. There is some talk of capital expenditures in the industrial area there. A lot of people are looking all of a sudden to relocate. It's not new construction; it will be relocated manufacturing facilities. But the observation was that people don't even look if they're not somewhat constructive, and there's a lot going on there. In general, I would say this is mostly manufacturing-driven, just given the people we had in the room from that general area. In another area where the economy isn't performing so well, Mt. Vernon, Illinois, there was a lot of talk about credit availability. But in general I think there was a recognition that a rebuilding of balance sheets needed to take place. One thing that surprised me is that no one really attacked [the Federal Reserve] in terms of interest rates. In other words, no one said: ""You've got to do something about interest rates."" Now, I think if you're in areas such as Boston and the West Coast, where maybe there's a lot of real estate hung up, that interest rate pressure is still there. But in these areas there's just a general feeling that rates are not the issue. And I would say, picking up on John LaWare's point about the credit crunch, that our aggregate banking data for the District continue through midyear to show no increase in nonperforming loans; we're at roughly the same level we were at the end of last year, with less than 2 percent in nonperforming loans and yet no loan growth. So, this should be a group of bankers that isn't as shell-shocked as some others; and loans aren't growing. On the national situation, I'm comfortable with the Board staff's forecast. I would make at least four observations. First of all, I personally don't think monetary policy is inconsistent with recovery and expansion; I think it has been consistent with that for some time. Secondly, I'm very skeptical about our ability to fine-tune the real side. So, the concept that we can somehow buy more insurance bothers me. I just don't think we'd be good enough to cash in that insurance, or however you want to describe it, when we need to. And in that connection, I think there's a good deal of monetary stimulus in train, as Wayne pointed out--whether you look at what has happened to interest rates and in particular short-term real interest rates or whether you look, as we would be more inclined to do, at the behavior of narrow money or reserves over a period of time. There's a good deal of stimulus in the pipeline and I don't think it has all shown through. In fact, and this would be my final point, our view is that if we were to continue this rate of narrow money growth for a sustained period of time, we're probably already risking a somewhat higher inflation rate than the 3 to 4 percent that we're talking about achieving in the forecast period down the road.",804
-fomc-corpus,1991,Governor Kelley.,3
-fomc-corpus,1991,"Mr. Chairman, it seems to me that what we've all been talking about this morning and what is at the front of all our minds is a very straightforward question with a very ambiguous answer. Is this economy faltering or is it going to falter? If we knew the answer to that question, we'd have a pretty good idea of what to do about policy. The staff forecast is that it's not faltering and is not going to. But I think the staff and everyone else would agree that the question is very much outstanding. I would certainly concur with those who say--and I've said here before--that the consequences of a falter are very severe. And we have to keep that very much in mind and be very concerned about it. But it seems to me as we ponder policy right now that we have to keep in mind the fact that we have a good deal more stimulus coming from what has already been done. Staff studies have indicated that the stimulus that we're going to get from easing actions to date is going to peak in late '91 and the first half of '92. The major part of it is still ahead of us. We all know how much rates have come down. Wayne Angell mentioned 450 plus basis points in the last 28 months. The aggregates may be beginning to move; it is very tentative yet. But I think one can make the case perhaps for this sticker shock and that the portfolio shifts are beginning to abate and may be in the course of beginning to move a little, which will help the aggregates. We just had a drop in the prime rate. Mortgages just went under 9 percent for the first time in a long time. Yields on long-term Treasury securities just went under 8 percent. There's some help still on the way. It seems to me that policy help right now, to the extent that it can be provided and is needed for the economy, may be to reinforce the downward trend in long rates. We have an incipient view now that inflation is going to improve, and we need to encourage that. It seems to me that the best way to do that would be to try to see if we can't hold short rates for the moment.",444
-fomc-corpus,1991,Governor Mullins.,4
-fomc-corpus,1991,"I don't have much to add on the real economy. We expected a moderate recovery and we're getting no better than that. There still is some sense that it hasn't really taken root, although the evidence is pretty clear that we're getting a manufacturing rebound. I had some sense from the anecdotal evidence that this recovery may have lost some of its steam in late summer. That certainly happened in the housing area, but--as both Mikes mentioned--the recent retreat of mortgage rates might rekindle that faint flame. Consumer spending appears to be holding up, again growing with moderate growth in income. From the real side what concerns me is that after this manufacturing recovery and the inventory side of it, it remains difficult to identify the sources of final demand that are going to move the economy forward. The government sector remains bleak. Perhaps we can expect an uptick in business spending next year; attitudes are not too encouraging, but they never are. And on the consumer side, consumers can only spend at the modest rate of income growth. So, I think the final demand side late this year and early next year is a concern. On the financial side, I still see some weakness. It's true that the public capital markets, the investment grade sector, look fine. As the long bond rate has come down, bond issuance has picked up smartly. The stock market has been marking time for six months now; still, we're getting a fairly healthy volume of new stock issues. For below investment grade businesses--small and medium-size firms, which are the growth sector of the economy--I still think conditions are [poor]. Demand is certainly weak; at some stage demand should be picking up. I wonder why we hear so much about credit constraints if they're not out there. In the beginning, I thought it was commercial real estate developers; I would assume by now most of them are broke and not able to complain! The jury is still out on the capacity of the system to satisfy loan demand should it ever arrive because I think banks are focusing on increasing capital, working out problem loans, and rationalizing operations with mergers. One way I would [phrase] the question confronting us on the financial side of the economy is: Are monetary conditions tight or easy? You can pick your indicators here. M2 conditions look tight, with unprecedentedly slow growth in M2. We've discussed some of the issues there. What would concern me most is the credit side and less so the portfolio side. Ml growth continues to look healthy; maybe it has tailed off a bit, but it continues to look healthy. We have little confidence that M1 is related reliably to economic activity. Some would suggest even that the reliability of the M2 relationship could be called into question. Look at credit growth. Conditions also look tight; but, again, that could be demand. If you look at interest rates, we've brought short-term rates down substantially, as has been mentioned, and that looks like ease. Of course, it's real rates that matter and with CPI inflation of 5-1/2 percent in 1990 and looking at perhaps 3-1/2 percent in 1992, real rates have fallen less over this last year than nominal rates. So, there has been less ease than would be apparent just looking at the rates. Real Treasury bill rates are higher than they have averaged over the long sweep of history. Over 60 years the real T-bill rate has been zero. Currently, it's probably 1-1/2 or 2 percent, although it is probably marginally lower now than the rate that prevailed over much of the '80s. It's roughly in the same order of magnitude as the '80s; of course, the '80s was a different environment, characterized by growth in credit demand. If you're interested in stimulus to final demand, you might look at real rates paid by final borrowers; perhaps they matter. If you think of real rates faced by bank borrowers, they would still seem to be pretty high. As Chairman Riegle pointed out the other day, the last time the discount rate was 5 percent, the prime rate was 6 percent, not 8 percent as it is now. It is true that over the last year the federal funds rate has fallen 300 basis points; the prime rate has fallen only 200 basis points in nominal terms; and the real prime rate has fallen even less. With respect to real consumer bank rates, I would suspect that we've had little, if any, easing in those rates; maybe they've come off in nominal terms a bit, but I doubt if we've seen much easing in those rates in real terms. And it's not clear why we should expect much stimulus from that source. So, it does seem to me that the financial system is inherently tight currently and is not transmitting our easing actions fully through to final borrowers. I think one sees this if one looks at money growth, credit growth, or real rates, which for many borrowers still appear high. We are concerned about flagging final demand out there in a couple of quarters. It could be that in this environment we may need to offset some of this inherent tightness; and lower rates may be necessary for the ease to show through to final borrowers and produce the stimulus we would normally expect from our actions thus far. I realize this argument applies most forcefully only to a segment of the financial system: the banking system, and perhaps insurance companies in an institutional system. However, those without access to the capital markets do constitute a significant sector of the economy in terms of size and I think in importance in terms of stimulated growth. And even in the capital markets, we must recognize that real rates have fallen less than nominal rates. I would also mention parenthetically here the point that Mike Prell made based upon Ted Truman's work: that the rise in the dollar this year has also offset much of the apparent ease. So, the bottom line is: I wonder just how stimulative policy has been. I fear that it might be tighter than we have intended. I also feel that at the current stage we continue to receive data consistent with weak recovery. We've made a couple of moves in the last six weeks and these have been well received by the long bond market and precipitated the reduction in the prime rate. So, it may be wise to continue to assess developing responses to these actions before moving again. I hesitate in part because I wouldn't like to miss that opportunity that Governor Angell mentioned. I do think, though, that if the economy sinks into recession early next year, that would not be helpful to pursuing our ultimate goals. So, I do see risks in waiting too long for the financial system to ease on its own. We may need to do more to offset what I see as an inherent tightness, if we're concerned about this issue of the level of final demand later this year and early next year.",1393
-fomc-corpus,1991,Anything further? Does anybody else want to make any comment?,12
-fomc-corpus,1991,"Mr. Chairman, do you want to hear from our District?",13
-fomc-corpus,1991,"Well, I did, but I didn't want to push you, Tom.",15
-fomc-corpus,1991,I appreciate that.,4
-fomc-corpus,1991,I thought you might just like to sit here and listen for the first time.,16
-fomc-corpus,1991,I might just make a couple of comments that might be of some value.,15
-fomc-corpus,1991,Please do.,3
-fomc-corpus,1991,"Our District economy has been growing fairly modestly, and I think it's particularly important that this has happened in the manufacturing area as well. Our automobile manufacturers are operating at capacity. And while our aircraft industry, which is important in parts of our District, had a downturn in the first half, it is anticipating some recovery, which is good news for us. I might mention that residential construction activity in our area has been picking up, but nonresidential has continued to languish, although not as seriously as in other parts of the country. I might even mention that in Denver, although there's not a lot of activity, there is an appearance that lease rates are firming up and that is important to us. In agriculture, the situation is very similar to what you've heard here. There is some strengthening in crop prices but cattle prices have been falling fairly importantly and we anticipate about a 10 percent decline in agricultural income in our part of the country. Energy also is weak, particularly in the natural gas area. It has been very harmful to our Oklahoma area where prices have been down and therefore rig activity has been falling as well. On the national economy, I would like to mention that our analysis is, like others, very similar to what is in the Greenbook. We are a little more pessimistic in the consumption area and net exports but a little more optimistic on the investment side. We think it might be even stronger if long-term rates were to continue to come down. We are also in agreement with the projections on inflation being less than 4 percent. We think that's a very important focus as we go forward because that will help long-term rates to come down and that will have a much more important stimulus on the national economy. So with that, Mr. Chairman, I'll make my remarks short. Thank you.",365
-fomc-corpus,1991,"Thanks, Tom. Why don't we break for coffee?",11
-fomc-corpus,1991,[Statement--see Appendix.],6
-fomc-corpus,1991,Questions for Don?,4
-fomc-corpus,1991,The forecast of M2 is adjusted; how are the errors treated?,14
-fomc-corpus,1991,"Well, judgmentally.",5
-fomc-corpus,1991,"In other words, using the model, we would have gotten numbers significantly higher than in the Bluebook?",21
-fomc-corpus,1991,From here on out you mean?,7
-fomc-corpus,1991,Yes.,2
-fomc-corpus,1991,"Yes, about 3 percentage points higher.",9
-fomc-corpus,1991,"Okay, so in effect you're saying--MR, KOHN. The growth rates we'd be seeing would be more like 6 percent than 3 percent.",32
-fomc-corpus,1991,Do the errors deteriorate or are you basically--?,11
-fomc-corpus,1991,"Yes, we have smaller errors in the fourth quarter than we had in the third, but the errors are still substantial--on the order of 3 percentage points. In the third quarter we had an error in our model of 6-1/2 percentage points.",54
-fomc-corpus,1991,Okay.,2
-fomc-corpus,1991,"Our projection is that whatever mysterious forces were causing that will abate, in part because people with MMDAs, savings deposits, or other deposits have had a chance to reallocate their portfolios.",39
-fomc-corpus,1991,"Further questions for Don? If not, why don't I get started. We have a very unusual set of problems, but the least difficult strikes me as in the area of policy. The reason I say that is that at this stage we seem to be treading what in retrospect is very likely to turn out to have been the right path. If we go back historically, as Jerry and a number of others have in this discussion, what is clearly happening is a long-term phenomenon where in the first half of the 1980s, in part as the result of the 1981 Tax Act, we created an extraordinary expansion of credit. The grossing up in the flow-of-funds sense of both the funds raised per dollar of nominal GNP and the degree of intermediation were all fairly extensive. There was a really major financial expansion. It finally petered out somewhat in the middle part of the 1980s and then got really dragooned with the 1986 Tax Act, which took away all of the real estate incentives that had been the major spark that had engendered the credit expansion. Since that period we have had the grossing coming down dramatically; by the grossing I mean the types of activities in which state and local governments borrowed at the [tax exempt interest] rate, invested at the Treasury rate, and picked up a guaranteed rate of return. There was a lot of that going on. I'm talking about the very large amount of borrowing against realized capital gains and the sale of existing loans, which built up the balance sheet. The whole thing was really quite explosive, and all of that is now in the process of turning around and, in fact, has been turning around for the last four years. It is not something that disturbed us particularly until it began to fall into the money supply area. This may be premature, and I suspect it is a little premature, but I think what is occurring is that we're beginning to find that if past relationships on M2 were in place--or as Don likes to say ""in train""--we probably would have a much weaker economy right now than is currently the case. Now, that's a very tentative statement because we really don't have enough evidence. But if one were to look back from, say, February 1992 and ask ""How does this all look?"" I have the impression that the hypothesis that Don raised may have some validity: namely, that the S&L evaporation has more to do with the money weakness than I think we realize. In principle, we have always argued that M2 was determined essentially by the choices of the holders, which means in effect that from where the supply comes is irrelevant. And our general view about the liquidation that was occurring with respect to the resolutions from the RTC was essentially that all that money was going into other intermediary places and to a degree in commercial banks and was leaving M2 fundamentally unchanged. I think the proposition that M2 is mainly demand determined and perhaps Ml even more so really is questionable; it is by no means clear that the proposition that M2 is all [demand] determined makes any sense. And indeed with the size of the contraction of the S&Ls, it probably shouldn't be a surprise for us that we're getting as much of a contraction as we are. What is surprising is why now? Why not earlier? And that raises the question as to how quickly people adjust. As I was mentioning to Don a while back, I remember how long it took a decade ago for the 5 percent passbook accounts to disappear. People just sat there with 5 percent when they could have gotten twice that and more; it took a long while to unravel. But it's fairly apparent that when you shake somebody and say ""Look!"" they change. And when you have an S&L resolution, people [reset] their views as to where they should be relative to the types of holdings they have. I think that's what is probably going to turn out to be the case. This again raises as a hypothesis that when we look back in six months or thereabouts I suspect we will be looking at what really was a fundamental change going on in the structure of finance. I think that the real economy, if one could measure it in terms of whether it is good or bad, is really not bad. Productivity has increased significantly in the manufacturing area over the years. I would suspect, although the evidence is difficult to come by, that profitability at any given rate of operation tends to be higher; that there is a great deal more competitive capability in the American business system than there was a while back; and that what we are running into is a deficiency--basically in this case the intermediary system. It surely is not in the area of bond issuance. [unintelligible], as a number of you told me the other day, indicated that the view at is that the total investment banking industry was operating at capacity and that if there is any more issuance coming out in stocks or bonds their ""due diligence"" would begin to break down. We're seeing an extraordinary [volume of] financing going on in the larger companies, but we are seeing a really extraordinary pulling back in the depository institutions. I'm somewhat less inclined to take the view that John LaWare has taken. I think there is a supply side effect from the capital side. I'm not sure how it's going to be resolved but it's probably the 1980s that were off, not the 1990s. All in all, I think what we have here is that the grossing that went on throughout the '80s has come back to normal. The general net funds raised is far closer to normal, but we have a really hobbled intermediary system, which is not only the S&Ls and commercial banks but clearly the insurance companies as well. Were it not for the fact of a weakened intermediary system's effects on primary borrowings, one could argue that we'll finance the economy outside the intermediary system. But it doesn't work that way. And what I think we are seeing, as I put it to my friends at the White House the other day, is that it's very much as though an economy which is picking up steam is running against a 50 mile an hour head wind. My impression is that we'll make it through, but it will be a struggle. Having said all of this, I think we're getting some evidence that the commercial banking problems are not getting worse. We're getting some indications that we have passed the worst in the S&L situation; we still have insurance problems but they're not getting worse. So, the question at this stage is: Can we get through the next several months? My suspicion is--and I would buy the staff's forecast on this--that we probably will. And if that is the case, what we are testing right now is a major hypothesis as to whether the money supply contraction that we are seeing really matters or whether we are seeing an economy hobbling along with insufficient finance that nonetheless will be able to make it. If that is in fact the case, we will look in retrospect and say, rightly or wrongly, that we probably have the optimum policy that one could conceive of, granted the types of problems that exist. Now, having said all that, we're not in February looking back at something which looks as though it has been cured; we're not there yet. And I would be inclined at this stage to tread very cautiously, as I think we've done. I'd rush nowhere quickly. And that would lead me to conclude that policy should be somewhere between symmetric and asymmetric toward ease, but I'd be less inclined to move unless we begin to see further deterioration. If the staff forecast is right, and if this hypothesis about money that Don has raised is right--and I think it is becoming increasingly more reasonable--then we should begin to see some strengthening in the data within the next six weeks. If it fails and fails in an obvious way, it is telling us that this hypothesis is not correct and would lead one more toward the type of hypothesis that Governor Mullins raises. I would recommend a directive--although I personally would feel comfortable either with symmetric or asymmetric toward ease--that is more toward the latter because it's hard for me at this stage to envisage that we might tighten within the next six weeks. Finally, let me say that irrespective of what is going on, I think we are going to have some tough public relations difficulties on the Hill, not only with the issue of Salomon but with this whole problem of a sluggish economy. An economist's view is that a recession is over when the economy stops receding; and that by definition is the low point of a cycle, the worst point of a cycle. Politicians believe the recession is over when the economy has recovered fully. And we're going to be in this dilemma, as far as I'm concerned, for a goodly number of months. But if the staff is right on the forecast--. So far things are falling into place even if the anecdotal evidence doesn't work, and I think we may well come out in that area. In any event, I spoke longer than I intended to but I'd like to put on the table as a general suggestion ""mildly asymmetric toward ease,"" if one can characterize a directive in those terms. MR, BLACK. Is that ""B"" mildly asymmetrical toward ease or ""A"" mildly asymmetrical?",1898
-fomc-corpus,1991,"""B.""",2
-fomc-corpus,1991,"It's ""B.""",4
-fomc-corpus,1991,"I frankly would not expect us to ease right here. We could well ease; and if that happens, we might find that the economy turns around a lot faster than we now expect. President Parry.",41
-fomc-corpus,1991,"Mr. Chairman, as you indicated, the economy does appear to be recovering from the recession; at the current level of the funds rate, the forecast for moderate growth along with some gains against inflation certainly seems reasonable. I also think that the downside risk in the outlook has been addressed by the recent decline in interest rates. Consequently, I would certainly support the idea that we leave policy unchanged at this time, and I must admit a slight preference myself for a symmetric policy here.",95
-fomc-corpus,1991,President Forrestal.,4
-fomc-corpus,1991,"Mr. Chairman, while I said earlier and I still continue to believe that the risk is on the down side, I certainly hope your forecast for our looking back from February and saying our policy has been right is correct. I'm still rather nervous about where we are, but I would certainly at this point support your prescription for no change with an asymmetric directive.",71
-fomc-corpus,1991,Vice Chairman.,3
-fomc-corpus,1991,"""B"" mildly symmetric sounds fine to me.",9
-fomc-corpus,1991,Mildly asymmetric?,5
-fomc-corpus,1991,Asymmetric. There are too many adjectives in these things!,12
-fomc-corpus,1991,President Black.,3
-fomc-corpus,1991,"Mr. Chairman, I come out right where you do but I really do feel a great loss in seeing M2 lose its meaning. I feel almost like a baby who has lost his pacifier! [Laughter]",44
-fomc-corpus,1991,"Well, Bob, you adjusted when you lost Ml.",11
-fomc-corpus,1991,It took a while!,5
-fomc-corpus,1991,Governor LaWare.,4
-fomc-corpus,1991,"I favor ""B"" but with symmetric language, please.",12
-fomc-corpus,1991,President Boehne.,5
-fomc-corpus,1991,"""B"" asymmetric.",4
-fomc-corpus,1991,"Which way, Ed? [Laughter]",9
-fomc-corpus,1991,I imagine we ought to have little ambiguity!,9
-fomc-corpus,1991,Governor Angell.,4
-fomc-corpus,1991,"I prefer ""B"" symmetric but I like ""mildly"" better than straight asymmetric.",19
-fomc-corpus,1991,President Keehn.,4
-fomc-corpus,1991,"""B"" asymmetric.",4
-fomc-corpus,1991,President Syron.,4
-fomc-corpus,1991,"""B"" asymmetric.",4
-fomc-corpus,1991,Governor Kelley.,3
-fomc-corpus,1991,"""B"" asymmetric.",4
-fomc-corpus,1991,President Melzer.,4
-fomc-corpus,1991,"""B"" symmetric.",4
-fomc-corpus,1991,First Vice President Hendricks.,7
-fomc-corpus,1991,"We still have some concern over the continued weak behavior of M2, so ideally what we'd like is a directive between ""A"" and ""B"" with an early reduction of 25 basis points in the funds rate as reports perhaps unfold in the next week or two.",54
-fomc-corpus,1991,President McTeer.,5
-fomc-corpus,1991,"""B"" asymmetric.",4
-fomc-corpus,1991,President Stern.,3
-fomc-corpus,1991,"""B"" asymmetric.",4
-fomc-corpus,1991,We're still missing Governor Mullins.,7
-fomc-corpus,1991,"""B"" asymmetric.",4
-fomc-corpus,1991,And President Hoenig.,5
-fomc-corpus,1991,"""B"" symmetric.",4
-fomc-corpus,1991,"As I read it, I guess it falls between asymmetric and symmetric ""B."" But there is a majority for asymmetric by several, so I think that [unintelligble.] If we use in the directive ""slightly"" rather than ""somewhat,"" I think that probably captures the sentiment. Would the Secretary read the directive?",67
-fomc-corpus,1991,"I was on edge wondering how you were going to do that! MR, BERNARD. ""In the implementation of policy for the immediate future, the Committee seeks to maintain the existing degree of pressure on reserve positions. Depending upon progress toward price stability, trends in economic activity, the behavior of the monetary aggregates, and developments in foreign exchange and domestic financial markets, slightly greater reserve restraint might or slightly lesser reserve restraint would be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with growth of M2 and M3 over the period from September through December at annual rates of about 3 and 1-1/2 percent, respectively.""",134
-fomc-corpus,1991,Will you call the roll? MR. BERNARD Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Black Yes President Forrestal Yes President Keehn Yes Governor Kelley Yes Governor LaWare Yes Governor Mullins Yes President Parry Yes,50
-fomc-corpus,1991,"Okay, the next meeting is November--",8
-fomc-corpus,1991,Five.,2
-fomc-corpus,1991,"November 5th. We have a need to have a very short Board meeting before lunch.  So, if the Board members would just stay here and others would give us a few minutes to have a legal meeting, we'll be back at lunch.",50
-fomc-corpus,1991,"We need to approve the minutes. Without objection. Today, in lieu of Sam Cross, who as all of you know is retiring on December 2, we have Gretchen Greene. I suspect that were Sam here we all would have wanted to wish him well and, Gretchen, if you wouldn't mind, by proxy please give him our best.",70
-fomc-corpus,1991,I certainly will. And I'm sure that I speak for him when I say that he has enjoyed working with you and will miss the associations he has had by being in this job for the last 10 years.,42
-fomc-corpus,1991,"Well, I think Sam is going to be quoted around here for quite a long time. He has made an impression, which is quite rare for somebody at the FOMC. And it's not superfluous to say that we will miss him. Having said that, I can think of no one better qualified to sit in for Sam today than you. Would you start?",75
-fomc-corpus,1991,[Statement--see Appendix.],6
-fomc-corpus,1991,"Thank you. Questions for Ms. Greene? If not, it would be interesting to us if Ted would discuss the most recent events regarding our relationships with the Soviet Union and certain pending negotiations.",38
-fomc-corpus,1991,[Statement--see Appendix.],6
-fomc-corpus,1991,"Questions for Ted? If not, Gretchen, would you update us on the annual extension of the swap agreements?",23
-fomc-corpus,1991,"Certainly, Mr. Chairman. As you know, this is the time of year when we start the process of discussing our swap arrangements with other central banks. We have no changes in the terms and conditions to suggest at this time and would request the Committee to give us the authority to begin those negotiations. The swap arrangements actually will come up for renewal at various times during the month of December and should be completed before year-end whereupon we'll come back at the first meeting in 1992 to bring you the results of those discussions.",106
-fomc-corpus,1991,Any questions? Would somebody like to move authorization?,10
-fomc-corpus,1991,Move it.,3
-fomc-corpus,1991,Is there a second?,5
-fomc-corpus,1991,Second.,2
-fomc-corpus,1991,Without objection. Let's move on to the Domestic Desk. Mr. Sternlight.,16
-fomc-corpus,1991,"[Statement--see Appendix.] That concludes my report, Mr. Chairman. I do have a request on the intermeeting leeway.",27
-fomc-corpus,1991,"Questions for Peter? We have a very uncurious group this morning! Why don't you go forward, Peter.",23
-fomc-corpus,1991,"Thank you, Mr. Chairman. [Secretary's note: Mr. Sternlight recommended a temporary $2 billion increase in the leeway. His remarks are included in his statement in the Appendix.]",39
-fomc-corpus,1991,Questions? Would somebody like to move the authorization for the [leeway] increase?,17
-fomc-corpus,1991,So move.,3
-fomc-corpus,1991,Second.,2
-fomc-corpus,1991,Without objection. We also have to ratify the transactions since the October meeting. Would somebody like to move those?,23
-fomc-corpus,1991,So move.,3
-fomc-corpus,1991,Second.,2
-fomc-corpus,1991,Without objection. Let's move on now to the economic situation and Mike Prell.,16
-fomc-corpus,1991,[Statement--see Appendix.],6
-fomc-corpus,1991,Questions?,2
-fomc-corpus,1991,"Mike, I have two questions. Is it fair to say, looking at the probability distribution in your forecast now, that you still would consider the negative tail fatter, even after your revision?",39
-fomc-corpus,1991,"Given the direction things have been going, my gut reaction is to say ""yes."" But I think also that the tail isn't quite so long and so thick as before. As I said, what we've done now essentially is that we have realized some of the risks we perceived earlier [by lowering our forecast] and I think the risks may be somewhat more balanced in this forecast than before.",77
-fomc-corpus,1991,And just a clarification question: Did you say that in putting together the [forecast] for this Greenbook you changed the procedure regarding your assumption on where the funds rate would be? Was that before the most recent confirmation?,44
-fomc-corpus,1991,"That's right. Our strategy normally is to take the prevailing funds rate as a neutral base for the projection. What we were looking at with that funds rate path, though, was an economic forecast that in our judgment strayed farther perhaps from the Committee's objectives than one might like in terms of presenting you with a reasonable framework for discussion. Indeed, the unemployment rate at the end of next year might have been a shade higher than it is currently rather than the level we have. So we returned to a procedure that we have used in the past of putting in policy adjustments so as to try to get closer to something we thought would be acceptable to the Committee.",131
-fomc-corpus,1991,"Well, I thought it was very useful. But a question came out of it, in a sense: Since you assumed a 50 basis point cut, essentially--",33
-fomc-corpus,1991,That's correct.,3
-fomc-corpus,1991,"--and we have gotten 25 basis points of it so far, do you consider the forecast that you have now as centered, leaving the previous question alone on the tail, with another 25 basis point cut? [Would that be] your answer as compared to another 50 basis points?",59
-fomc-corpus,1991,"Right, but obviously 25 basis points is a very fine reading. But that is [the thought] we went into this with.",27
-fomc-corpus,1991,President Parry.,4
-fomc-corpus,1991,"Looking at the forecast once we get beyond the next two quarters, short rates certainly would be considered acceptable, I think. It seems to me that one of the things that has changed rather dramatically is the thinking with regard to inventory investment. I wonder if you could comment on how you reached these conclusions because, clearly, if you had some of the previous thoughts about inventories, you probably would have shown a bit more strength.",84
-fomc-corpus,1991,"Well, there are two things, I would say. One is that the swing in inventory investment in the quarter just ended in September was considerably larger than we had anticipated. And with the potential revisions of those data, it goes even further. In a sense we got ahead of the game that we were anticipating businesses would play here. The second factor is that as we look at the prospects for final demand and what we think businessmen might be anticipating at this juncture, we have a hard time conceiving of businesses wanting to move further in the direction of inventory accumulation at this point. So, we stretched the process out here. We have an inventory/sales ratio path that is downward through this forecast. We think that implies that at some point in the coming year, if we can just get through this period and sustain growth, there is going to be some further movement in the direction of inventory accumulation. And by the end of next year we have businesses adding to their stocks at a gradual pace. This might be regarded as a quite conservative inventory forecast. Certainly, we have model results that would suggest that that is so. But we think businesses are being very conservative in their inventory management. And to the extent that there is still stringency in credit markets affecting some businesses, I think it just encourages them even more to try to keep their inventories down to avoid having to finance a lot of stocks.",279
-fomc-corpus,1991,Did you suggest that there would be a possibility of that third-quarter number being revised?,17
-fomc-corpus,1991,"Right. As I mentioned, the manufacturers inventory numbers were much higher for September than we had expected. They were also much higher than the Bureau of Economic Analysis built into their estimate of third-quarter GNP. Relative to their assumptions, there were additional manufacturers inventories of about $10 billion, in 1982 dollars at an annual rate. And that inventory investment in the third quarter is essentially equivalent to a percentage point of GNP. Whether that will be the ultimate adjustment of the GNP numbers and whether we'll see some weaker wholesale and retail figures than they anticipated, one can't say. But, clearly, it's a substantial surprise for BEA.",128
-fomc-corpus,1991,I would assume that they would have incorporated fairly fully what happened in the auto industry in September. I think auto inventories were very high in August; I had assumed they'd be down somewhat in September.,39
-fomc-corpus,1991,Are you talking about auto dealer inventories?,8
-fomc-corpus,1991,Yes.,2
-fomc-corpus,1991,"Well, actually, they've been running very low, for autos in particular. Truck inventories were heavier, but they undoubtedly came down in September with the big surge in light truck financing.",36
-fomc-corpus,1991,But wouldn't they have taken that into [account]?,10
-fomc-corpus,1991,"It's always a bit murky as to exactly what data they are using in estimating the retail auto component of inventories. But, yes, presumably they had a handle on what was happening in vehicles.",39
-fomc-corpus,1991,Thank you.,3
-fomc-corpus,1991,President Stern.,3
-fomc-corpus,1991,"Yes, a couple of things, Mike. I have the impression that one of the things that may be going on here is a lack of pent-up demand relative to previous recoveries, particularly in autos and in housing, in part because of the strength of the '80s. Is there anything to that?",62
-fomc-corpus,1991,"Well, I think I showed in a chart show earlier this year our estimates of the number of unoccupied dwelling units during the '80s. The buildup was much more marked in the multifamily area than in the single-family area. But those are housing units and people can choose among these. I think there is something of an overhang in the housing market. Certainly, at this point with the new homes sales at the pace they're running, the months' supply of new homes on the market is very sizable. So, yes, that is a factor. Sorry, I forgot the other--",119
-fomc-corpus,1991,Autos.,2
-fomc-corpus,1991,"Auto sales were quite high through much of the 1980s and the stocks looked to be fairly sizable per household, for example. In the last couple of years the average age [of the auto stock] has leveled out; it's fairly long. As I look at the forecast going forward, I think perhaps we're beginning to develop a movement back in the other direction. If car sales stay as low as we have them in this forecast, as we look ahead another year or so the demands may begin to reflect some pent-up buying desires. But at this point we don't think those desires are very intense.",122
-fomc-corpus,1991,My second question: Do you have a reaction to the report on the news last night and in The Wall Street Journal today about expected downward revisions in the payroll data?,33
-fomc-corpus,1991,"Well, Janet Norwood called attention to this in her testimony before the Joint Economic Committee last year. This is a procedure that is followed routinely every year to utilize the unemployment insurance data to benchmark the payroll employment series. The data evidently did show a very abrupt drop relative to the payroll employment series estimates early this year. She cautioned against taking this as gospel at this point; these are preliminary readings. But it is conceivable that ultimately, when the revisions are made, payroll employment growth will appear less robust than before. I think the feed-through to GNP that has been implied by some of these reports is a bit tenuous. Certainly, in the short run we expect that BEA when it has a lot of data missing may give some attention to the hours input, but I wonder how important that would be looking back at history. It could be, if the employment is slower and hours commensurately lower, that productivity growth will look better than it currently does.",195
-fomc-corpus,1991,Thank you.,3
-fomc-corpus,1991,It could also be that this will lead them to lower their estimates of labor income until the data from tax returns are available.,25
-fomc-corpus,1991,Governor Kelley.,3
-fomc-corpus,1991,"Mike, you substantially lowered your forecast for this quarter and the next couple of quarters and you have expressed in the last few minutes a concern that that still may be a bit too strong. If for balance you wanted to sketch out a possible case on the up side--that the situation could develop a little more strongly than you have in the Greenbook now--what would be the elements of that positive case?",81
-fomc-corpus,1991,"Well, I wouldn't want to leave the impression that we feel there aren't any upside risks here. We continue to return to the notion that, in the absence of absolutely clear evidence that we are back into a second dip, recoveries often surprise one in their strength. So there could be unexpected areas of greater increase in expenditures. It is conceivable that the decline in mortgage rates, which seems to be inspiring a lot of refinancing--suggesting that people think these are good rates--perhaps will stimulate some additional home buying beyond what we have. My concern is, though, that people are just so worried about whether they are going to be employed that that [rate decline] may not be as powerful as it might otherwise be. It's a possibility. We don't have any clear index of what desired inventory/sales ratios are in various sectors of the economy. We can guess by the historical patterns and apparent response what that is. But maybe this goes to the earlier question: Getting a more rapid buildup of inventories could be an indication that we underestimated where businesses want [their inventories] to be and that they won't continue this kind of liquidation but rather will stay even or move into some accumulation in the near term. That could be worth a point or two, conceivably, on GNP growth in the short run. Business investment is another area, conceivably, that could be stronger, but the orders and anecdotal evidence just don't seem to suggest a lot of upside potential there. And we have consumers not spending a whole lot in the quarter. The personal saving rate ticks up. Maybe consumers, despite the worries they're expressing, will behave as they seem to have behaved throughout this recovery and spend practically every dollar they get their hands on. Maybe that's simply because many of them have their backs to the wall and they really don't have a lot of leeway, and if there is this additional income, it actually will flow into the spending stream. Those are possibilities, and cumulatively they would add up to a materially different picture.",404
-fomc-corpus,1991,"Let me ask, Ted, with the dollar having fallen recently: Could that be reflected in time in further recovery of net exports?",26
-fomc-corpus,1991,"Well, we have incorporated into the forecast a dollar at essentially the level that we have today, though there always are uncertainties, as Gretchen has said, about how that will end up playing out in terms of the fundamental competitiveness and perceptions thereof and, therefore, export sales and import purchases. So, there is certainly some looseness to the translation between the exchange rate and everything else that goes along with it and the net export picture. And, of course, there is some uncertainty on both sides--on the up side as well as on the down side as far as growth abroad is concerned. We have a modest expansion abroad; it would certainly be easy to sketch out a scenario that is weaker than that. It's also possible to sketch out a scenario that is stronger either in its own right or to some extent stimulated by maybe a somewhat stronger picture here than we or others are currently thinking about. But there's some [uncertainty] on both sides, I'd say.",194
-fomc-corpus,1991,President Melzer.,4
-fomc-corpus,1991,"I have two questions, Mike. One has to do with layoffs and quarterly earnings announcements. I don't know whether you ever look at that, but often those two actions might be linked. Is there a possibility that this spate of bad news we have gotten on the job front in terms of certain layoffs is simply a seasonal thing associated with the announcement of the third-quarter earnings?",75
-fomc-corpus,1991,"Well, I suppose there could be something there. My sense is that this is an ongoing story. It may be that managements feel the ongoing negative earnings reports require some action to convince the security analysts that this is not going to be repeated in the future. Some people have noted that there seem to be a lot of layoff announcements pertaining to the fourth quarter and that this cuts against some tradition in business of not laying people off just before Christmas. My sense is that a lot of restructuring is going on in industry where this recession has revealed the need for some cost-cutting in order to get reasonable profit margins in an environment where inflation is not going to offset any looseness of management. There's this sense, too, that the layoffs are occurring in places where people thought jobs were once fairly secure. And that undoubtedly adds to the feeling among many people who would seem on the face of it to be in pretty good shape that even they could be vulnerable to some structural adjustment that seems to be going on, particularly in the service-producing sectors.",208
-fomc-corpus,1991,"My second question relates to the statement you made about real interest rates. Just as a general matter I'm somewhat skeptical about our ability really to set those over time. In any case, I was surprised to hear you say that you felt there was considerable scope for further reduction. I'm curious as to how you're measuring that. A look that we took would indicate that on an ex ante basis using, say, [unintelligible] the CPI and a 3-month Treasury bill rate, we're beginning to get to levels that, if sustained, were associated in the '60s and '70s with periods of rising inflation. I just wanted you to expand on that if you could.",137
-fomc-corpus,1991,"I think that's a fair statement. The rough cut I made, just looking at short rates, was perhaps the conjecture that inflation expectations might be viewed as a little less tenuous than thinking about 10- or 20-year horizons. By this assessment the short-term rates have come down considerably. One calculation I have looks very similar to the general level during the 1960s. My point really relates more to that cyclical stage typically reached toward the end of a recession when real rates quite regularly have been decidedly negative. The point is, though, that perhaps there wasn't a movement to tighten soon enough as the expansion progressed to avert that building up of inflation pressures. This isn't to say that a sharp move of the sort I suggested might be necessary in order to achieve the Humphrey-Hawkins central tendency as a rate level you want to hold for a long period. There might well be some need to move back up within a year or so. But historically, the lows in this cycle don't look at all like the lows we have seen in short-term real rates in previous cycles, certainly in the postwar period.",226
-fomc-corpus,1991,Other questions? Tom.,5
-fomc-corpus,1991,"May I ask a follow-up to Tom's question? As you described the economy, there were some fundamentals in terms of real estate and some adjustments in leverages and so forth that are going to be constraining. If we ease now, what in your judgment is the risk of pushing inflation [up] and compromising our ability to bring it down in the future, given these fundamental adjustments that probably should continue regardless?",83
-fomc-corpus,1991,"The real estate is an easier factor to consider. The leveraging gets to be a little more difficult to pin down--i.e. whether firms really are cutting back their investment because of their debt loads. There's some anecdotal evidence that would suggest that, but I don't know how powerful a force that is. And we can see a significant amount of restructuring going on, with some of the firms that have leveraged themselves up to the hilt being able in the current environment to reduce their interest burdens and to alter their debt/equity ratios in ways that ought to give them a little more room to maneuver. I think the real estate problem is going to be there for some time and will weigh against a strong surge in the economy. The fiscal policy picture--just the total setting aside from the current budget program--will remain less than stimulative, of course. So, there are some things that [appeared] in the past in recoveries and early expansions that aren't going to be there this time. But the higher the growth rate, the lower the unemployment rate; and the less slack in the economy, the greater the risks are that you're not going to make the kind of progress toward lower rates of inflation that we have in this forecast. And that even might just be cut off entirely if we get a strong enough [trajectory]. So, these are the risks one has to weigh at this point as to whether the economy is going to prove weaker than is acceptable and whether the inflation rate might be more stubborn than we've anticipated. I must say there seems to be a lot skepticism among forecasters with outlooks for economic activity that don't differ greatly from ours about whether the disinflation trend can be sustained well into the expansion period--say, getting out into 1993. There is a sense that in the past the decline in inflation has stopped or has become very meager as people have sensed that the economy was on a solid growth track. And that might be a concern.",397
-fomc-corpus,1991,"Further questions for Mike? If not, would somebody like to start the Committee's discussion? Bob Parry.",22
-fomc-corpus,1991,"Mr. Chairman, economic conditions in the Twelfth District reflect widespread weakness. Recent employment data for the western states have been disappointing. Total employment fell at an annual rate of 1-1/2 percent in September. California continues to show particular weakness: Employment in California fell at an annual rate of 4-1/4 percent in September and at a 1-1/2 percent rate in October. I might note parenthetically that this issue about the reliability of the payroll series is a very controversial one in California. The Department of Finance is estimating that the peak-to-trough decline in employment in California is in excess of 300,000 as opposed to the published data of 100,000. So, it's a very hot issue; and politically it's quite an issue because tax revenues are coming in at a very low level and seem to be more consistent with the more pessimistic outlook that we have for employment. Even in states where growth has been robust in the recent past--particularly I'd cite Idaho and Utah--employment has shown lower growth or even declines in recent months. Weakness is also widespread across sectors of the western economy as well as in states. Manufacturing and construction continue to lose jobs in the District. In addition, the growth in the services sector, which has been the region's primary source of strength in recent months, has slowed to a crawl. Anecdotal information also suggests deterioration, as pessimism about poor economic conditions has spread from California to most other parts of the District. We conduct a business sentiment survey which, among other things, asks whether or not a recession is anticipated during the next year. The last time we conducted it before this most recent period, 7 percent said they thought there would be a recession in the next year; that has risen to 17 percent. If I can turn to the national outlook, the data that we've all seen since the last meeting have certainly led us to revise down significantly our forecast for real GNP for this quarter and the next. Our forecast for growth in the fourth quarter is that it will be slower than in the third quarter, although we do not have a double-dip recession and we don't think that is likely. Like the Greenbook, we expect growth to rebound to a much more satisfactory rate throughout most of 1992, and the major sources of strength are the interest-sensitive sectors of the economy and inventories as well. As far as inflation is concerned, I'd have to say that the news on that front is somewhat encouraging. The low fixed-weight GNP price index in the third quarter and the moderation of the employment cost index, especially wages, are encouraging. Overall, our expectation is that there will be some reduction of inflation in 1992 compared to this year, which is a bit of a difference from the Greenbook. Thank you, Mr. Chairman.",573
-fomc-corpus,1991,Could I ask Mr. Parry a question?,10
-fomc-corpus,1991,Sure.,2
-fomc-corpus,1991,"Bob, just in the past few weeks I've heard a couple of people, including a really large national real estate developer, sounding very dire about the real estate outlook on the West Coast and in California particularly--much more so than anything I've heard before. Is there anything to that?",56
-fomc-corpus,1991,In the commercial real estate area there is.,9
-fomc-corpus,1991,"Yes, this is--",5
-fomc-corpus,1991,"And I think if you were to focus on southern California, particularly Los Angeles, there's quite a serious problem. Vacancy rates are quite high and they're going to rise over the next year because there is an awful lot of building that will be coming on line in the next 12 months. Another area is Orange County, which is suffering as well. Those two areas are significant enough to make the general picture of the state with regard to commercial real estate look quite negative. When you look at some other areas, such as San Francisco, it's not nearly as bad. They put a moratorium on building, which has kept building at very moderate levels for the last several years; so I don't see that [area] as a problem. The other point is that the [situation in] residential real estate is quite different from the commercial. Residential, at least in terms of prices, has held up quite well, although clearly the sales of new houses are weak. It's a problem.",196
-fomc-corpus,1991,President Keehn.,4
-fomc-corpus,1991,"Mr. Chairman, in the District some signs of weakness have developed since the last meeting. Attitudes have certainly deteriorated. Anecdotal reports are coming in very much on the negative side. As always, the auto sector is the major swing element in the District and in that area the news seems to be coming in more negatively. The company that I've talked to has reduced its fourth-quarter production schedule by 8 percent from the time of our last meeting, and the production risks are still on the down side. In part, the fourth-quarter production rate is based on a dealer order rate of about 66,000 units a week. The order rate is in fact coming in substantially under that; it has averaged 52,000 units over the last five weeks and most recently it was only 43,000. In the retail auto sector, inventories are turning out okay and maybe a little on the low side. If this gap between orders and production [widens] as we get into the quarter, we're probably going to get some further production cuts. In turn, that will result in cuts in orders from the suppliers. While earlier we expected that the auto sector might have a positive effect on fourth-quarter GNP, perhaps by as much as 1-1/2 percentage points, it now seems much more likely that the sector will be flat at best and perhaps a bit negative. The production of medium size and heavy-duty trucks in September of this year was down 22 percent from last year. And in terms of a comparative year, sales were pretty weak last year. District employment has moved sideways since April; it's up a bit in manufacturing, offset by a decline in nonmanufacturing. Retail sales came in very much on the weak side, particularly in Detroit. And one Chicago retailer told me that sales of autos in Chicago since Labor Day have begun to trail off and currently are running about 7 to 10 percent under the same [period] last year, particularly [unintelligible]. Sales of new and existing homes in the District have declined quite substantially and housing starts have dropped as well. Plant closings in the District--and I'm not talking about just temporary shutdowns but permanent closings--are continuing at what seems to me to be disturbingly high levels, with announcements day-in and day-out. Offsetting what may seem like gloom, here and there are some bright spots. The steel business, for example, is something of a mystery. The industry is now running at about an 80 percent rate [of capacity utilization] and the estimated shipments for the year have been increased a little--from 77 million tons at the time of the last meeting to 79 million tons now--and the outlook for 1992 is even a bit better. Though the steel companies do expect some more cancellations coming out of the auto industry, steel inventories of manufacturers and also in the steel centers really are very, very low. It should mean that even if there are some cutbacks in orders from the auto companies, the steel production levels ought not to be hit too hard. On the price front, the outlook continues to improve. I think the better conditions are centered perhaps in the manufacturing sector; the major manufacturers are able to hold down the cost of their purchases. Indeed, in some cases they really have achieved some good reductions. I have no sense that direct labor costs are increasing more than productivity gains. Deere, for example, very recently settled their contract; financially it is a little more expensive than they wanted. Nonetheless, they got very good work rule changes and they feel that they can overcome the financial aspects through productivity. And a word of caution: Caterpillar is in their negotiations and those have broken down. It looks as if they might have quite a tough strike and the settlement of that could set something of a pattern for the UAW at least [unintelligible]. Turning to the national economy, the Greenbook revisions plus the staff forecast for this year are much more in line with where we have been. But the staff forecast still seems to us to be a bit on the high side as we get into 1992. The main difference, first of all, is in consumption, particularly for durables. While the increases in the staff forecast are in reasonable alignment with the historical record, nonetheless in a current context they still seem to be a little on the high side. Net, I think we have something of a [unintelligible] on our hands, which I think we will need to address as we get into the policy deliberations.",921
-fomc-corpus,1991,President Forrestal.,4
-fomc-corpus,1991,"Mr. Chairman, I think the best descriptive term to use for the Sixth District economy is ""quite soft,"" although there are still some signs of recovery out there. Several manufacturers have added to their inventories intentionally. Activity on the export side continues to be fairly good, although it's off a little from what it had been. Textiles have improved, and we've also seen some evidence of a few new capital projects. Retailers, on the other hand, are reporting flat to only very modest increases in sales. Caution by consumers, of course, is very much in their minds and they are very, very pessimistic and fearful about the Christmas season; they don't expect business to be good at all. Tourism and business travel were up slightly in October and in fact are running even a little ahead of a year ago. Our bank contacts are reporting very weak loan demand; on the other hand, we have potential borrowers who are continuing to complain about difficulty getting credit. We continue to receive that information from people on our small business advisory group, for example. But overriding all of the statistical data about the economy is the anecdotal information, which continues to be very, very poor indeed and is quite worrisome. Everywhere I go both in business meetings and even at social affairs--cocktail parties and so on--there is a real sense of doom and gloom. In fact, I went to two functions over the weekend and I was sorry I went because people are just describing business as terrible or dismal, or words of that kind. Interestingly, though, if you ask a lot of these people if they think lower interest rates would help their business or help the economy generally, you don't get a uniform answer that ""Yes, [the Federal Reserve] ought to be lowering rates."" Some people think that is not the answer. They don't have an answer, but they don't necessarily think that lower interest rates are the solution. There is, of course, continuing concern about job loss, concern about consolidation in the services industry. And while unemployment hasn't risen in the District, companies are reporting an unprecedented flood of applications and resumes from people who are anticipating layoffs in their business. On the inflation side, there's no evidence of any price increases in the District from the people we talk to. The agricultural side looks fairly good and that probably is the only substantially bright spot in the District. This confidence issue is very perplexing to me; I'm very confused about it because it doesn't really seem to stack up against the statistical data and the hard facts that are coming in. So, I guess the question that we need to ask is: Is it just disappointment that business is not as good as people expect or does it really indicate that there is a slowing in the economy and we need to take that into account? With respect to the national economy, our forecast is a bit stronger in the near term, that is, for the fourth quarter and the first quarter of next year. But then we have growth decelerating a bit and are somewhat below the Greenbook forecast for the balance of 1992. If there is going to be a faltering in the economy, it seems to me that it's going to come on the consumer side as opposed to inventories. That is, I think consumers may well attempt to shore up their savings and to reduce their debt throughout 1992, given their concerns about the employment situation. So, in general, Mr. Chairman, I think the Greenbook forecast is not a bad forecast, given all of the uncertainties in the economy, but I continue to think that the risks are on the down side and that the economy is subject to some vulnerability. And for that reason, I would be in favor of some immediate easing of policy, though not anything dramatic. But we can get into the details of that a little later on.",769
-fomc-corpus,1991,President Syron.,4
-fomc-corpus,1991,"Thank you, Mr. Chairman. Both in terms of the District and nationally, I think that in the midst of all these problems we're on the edge of some really favorable long-term developments. I don't think we should panic in the midst of the very worrisome intermediate term, but there are a lot of reasons to be concerned. In that regard, I said last time that New England had a level of pessimism that bordered on panic. I think it's fair to say that it has passed over into the zone of panic now. One is tempted now when going to a social event to say to folks [unintelligible] because people start to berate you so much about the employment situation if you tell them what you actually do.",149
-fomc-corpus,1991,Some think you haven't got a job!,8
-fomc-corpus,1991,"That's right, and then they sympathize with you! I'm not sure that the fundamentals have changed that much but confidence seems to have fallen just dramatically, as other people have said. When one talks to the relatively small number of major newspapers in our District, one hears about a very interesting and unfortunately worrisome trend in year-over-year retail sales--and last year was not a good year in New England. Our major newspaper is seeing a 30 percent decline in their normal ad lineage for retailers going into the [holiday] season. If you follow that up by calling a few of the larger retailers, they have had quite weak performances recently and they expect a weak Christmas. I think the long and the short of it is that they're trying to cut their expenses and cut their way through this whole period; they figure that a lot of their competition isn't going to make it and they want to be there on the other side but they're not going to try to boost sales in the short run by advertising. That's very true in the auto sector where auto sales have been very poor. Inventory levels generally are not something that people express concern about but, coming back to what Mike said, we really don't know a lot about the desired inventory-sales ratio now because of these just-in-time changes. Loan demand continues very weak at our banks and even in the mortgage refinance area there has been some weakness as people expect that the economy will continue to slide and that rates will decline, so they are waiting to refinance later. Actually, in terms of fundamentals, if you look at the rate of deterioration of employment in the District, things are not getting worse as fast as they were earlier. In fact, even in the computer sector there has been some slight sign of optimism, although that is offset by weakness in manufacturing elsewhere. There is a great deal of concern in the defense sector, particularly in three of our large firms: Raytheon, United Technology, and General Electric. Wages have been very well behaved. We still have a real benefits cost problem, which is an inexorable rise in medical care costs. As far as the national outlook goes, I agree with the Greenbook and also with Mike's characterization of where the risks lie. On that score, I must say in talking to a number of money managers in the city that one does start to have a concern, with these disappointing corporate profit figures, about what would happen if in the midst of all this we were to have another 10 percent break or so in the stock market. People are talking about that as not being at all out of the realm of possibility. There is continued concern about banks but, as I say, I think a lot of this is on the edge of a long-term favorable trend [stemming from] restructurings and, while it is temporarily a drag, we're going to see more productivity later on. So, the bottom line is that in many ways this fear that has been generated by a lot of people is partially because of the decline in asset values but also it's a cumulative awareness by corporations and even more so by individuals that their consumption levels of the '80s were not consistent with their long-term income prospects. And this is an attempt to make up for that in a quite short period of time. That is being reflected in what producers are saying as well, which is that this is a correction that we have to go through in the economy and we have to hunker down to get through it.",697
-fomc-corpus,1991,President McTeer.,5
-fomc-corpus,1991,"Mr. Chairman, the Eleventh District remains sluggish--""stuck in the mud"" is a phrase one hears, or phrases similar to that--although in the third quarter we actually experienced employment increases. That's primarily the result of state and local government employment increases. We have the same fiscal problems as everybody else, but a number of our areas are under court mandate to expand and to raise taxes to do that. The Dallas Fed's index of coincident indicators has been declining fairly steadily but our leading indicators have been fairly flat. I don't have an explanation for that. Low natural gas prices continue to depress drilling activity in the District. A national retail chain headquartered in Dallas expects a weak Christmas, following a weak Christmas last year. Prospects for defense industry spending are adding to the uncertainty in our area, given all the concentration that we have [in that area]. Our directors and other local business people perceive the economy to be weak, but we don't hear as much as we used to about the need for an easier monetary policy. A typical comment is that it's not the level of interest rates that is causing the problem; it's the inability to borrow any money from banks at any interest rate. I believe Bob Forrestal mentioned that. Texas, of course, has had a credit crunch longer than the rest of the economy and, therefore, just about everybody you meet knows someone personally whom they consider a worthy and dependable borrower who cannot get credit. And some of our directors have had fairly close experiences with that. So, they're very preoccupied with the fact that banks are not making [any] loans. We actually, at their request, have scheduled a special meeting at the time of our November board meeting in which we're going to deal with the credit crunch--and possibly solve it. We'll be sure to notify you if we do! In that regard, I do think that since the business community is absolutely convinced that there is a credit crunch, they don't have a lot of patience with trying to define it or to talk about the nuances of that. And I think it behooves Federal Reserve policymakers to go ahead and accept that terminology. I don't think it does us any good to poke around it and act as if it's not there if everybody out there really believes it is. On the national scene, our research people agree generally with the staff here. They see further weakness and they're about evenly divided as to whether that has any implications at all for monetary policy.",491
-fomc-corpus,1991,President Stern.,3
-fomc-corpus,1991,"Thank you, Mr. Chairman. In the District, there is really little new to report; recent trends are continuing. In the rural areas, activity remains fairly decent and attitudes are okay, I think, at least compared to what I encounter in the Twin Cities where, as I've reported before, attitudes are quite bad. Of course, that's because there is a different mix of businesses both in terms of their diversification and their scope of operations. And they pick up a lot of bad news from their other operations both domestically and internationally. The Twin Cities situation is really rather interesting. Unemployment in the Cities remains in the neighborhood of 4-1/2 percent as the computer industry [unintelligible]. The problem with that was that the medical technology business has exploded, so the adjustment has all occurred without a great deal of dislocation. But despite that, attitudes among the business community --or the preponderance of the business community that I have encountered--are quite negative. And the Twin Cities do account for a good bulk of the nonfarm economic activity in the District. In the Twin Cities we have come up with a couple of new forms, though not altogether new forms, of economic stimulus. One is hosting major sporting events. We still have the Super Bowl and the Final Four to go. But in addition, more recently we have snow removal. And that looks as if it's going to be affecting the economy for some time! On the national outlook, I continue to think that a modest recovery is certainly the most likely outcome. I have a suspicion that we might do marginally better than the latest Greenbook forecast. But I think the real developments on the national level are on the inflation front or the disinflation front. I've become increasingly optimistic that we really are making progress there. The balance of the latest statistical evidence certainly suggests that, but I've also become more and more impressed by the anecdotal evidence that I get. It's very hard to find any evidence of price pressures and wage pressures to speak of, at least among the people I've talked to. That has been going on for a while and it has now gone on long enough that I think it really is significant. There is, of course, some ongoing carping about health care costs and about the cost of [meeting] various regulations, but there's nothing new in all that. And I don't have any sense that that situation is getting worse. So, I do think there is clearly a positive development on that side.",501
-fomc-corpus,1991,President Hoenig.,4
-fomc-corpus,1991,"The Tenth District continues to outperform the nation to some extent, although if we keep talking about it we may talk ourselves out of any improvement. It's doom and gloom from a number of people, although the numbers continue to show some improvement. For example, most of our automobile plants continue to operate at capacity. Now, in aviation manufacturing, there has been a decline in production over [the level] a year ago and that's primarily due to a drop-off in foreign demand. The District's oil and gas exploration activity remains lackluster, as it does elsewhere. Drilling rigs were up very slightly in October over September and are still well below--about 23 percent below--year-ago levels. In agriculture, cattle prices have turned [up] and are now back to the break-even point. And in the grain area, prices have increased, which has been a help in that sector. Finally, the indicators of construction activity in our District quite frankly have been improving. Building contracts awarded in the District in August were up 11 percent over year-ago levels. Residential awards are increasing in most of our states. And we're even seeing some improvement in non-residential contracts in Colorado and in New Mexico. So, the District's economy is consistently showing improvements. As far as the national economy goes, we continue to forecast sustained growth although slightly weaker, as the staff is projecting. Our forecasts are for a little better growth than the staff has in the first half and a little more moderate growth in the second half. We see a little stronger inventory investment and some continuing strength in consumer spending; even though the attitudes are down, we don't see that dropping sharply. As for inflation, we anticipate the inflation numbers will stay modest and actually fall somewhat below 4 percent. So, that is how we are viewing things right now. Thank you.",370
-fomc-corpus,1991,President Boehne.,5
-fomc-corpus,1991,"Well, this is all getting a bit much, I must say, with all the gloom and pessimism around the table. But I think it is quite reflective of what one hears in conversations almost wherever one goes--in business, socially, and otherwise. And my District is no exception to that. I think the economy has deteriorated over the last couple of months, and certainly sentiment has become sharply more bearish. Manufacturing had been a relative bright spot in our area, but it has slowed rather dramatically and I think the sentiment is in the process of changing about 1992. I would guess that as our future surveys come in they will reflect that, judging from the conversations one has. Retailers are about as pessimistic looking toward this Christmas season as they have been probably since the '81-'82 recession. Our commercial real estate market is typical of what you have heard elsewhere in the country. And loan demand is still declining at banks. I do sense, however, that price pressures have diminished and I think that is an optimistic part of all this. As far as the national economy is concerned, I think the risks are decidedly on the down side. We have an anemic outlook at best and I suspect that if I'm wrong it will be on the down side. Clearly, we have something going on here that is more than a normal cyclical downturn; you can have your own list of favorites. My sense is that we're going to see a longer period of weakness in the economy, but I think most of us are going to be surprised at how much progress we're making against inflation. In this kind of situation where the resiliency of the economy is under stress, I think we're quite vulnerable to some kind of shock. I don't know what the shock will be; if we knew, it wouldn't be an unpredictable shock. But we're in a situation where some event could really turn this from a bad situation into something more serious. There are not very many good policy options out there, but the way I look at it the only available policy tools are in this room. And I think that we simply have to ring the monetary ""gong"" to demonstrate that somebody somewhere is at least trying to do something positive to try to arrest this sharply deteriorating sentiment. I don't sense any real cost in doing that. In the unlikely event that we ease too much, I think we can reverse course. We tightened in 1980; we tightened in 1988; we can tighten in 1992 if we have to. But now we need a loud and clear easing signal to try to undercut this deteriorating sentiment that we have out there, which is making us quite vulnerable.",537
-fomc-corpus,1991,First Vice President Hendricks.,7
-fomc-corpus,1991,"Thank you, Mr. Chairman. The District's economy reflects the sluggishness that we see in the data at the national level. Employment growth has stalled. Weakness in auto sales has led to some cutbacks in production schedules. And this weakness in demand for autos has led to a more sluggish recovery in the tire industry as well. On the other hand, the steel industry--and Si reported on this--is one of the brighter spots in our District. Steel producers report that this will be the best quarter of the year, supported especially by a pickup in auto and steel warehouse business. Producers of flat-rolled steel are operating at 85 to 90 percent of capacity. But prices are weak, profits are down, and the mood certainly is not buoyant. We also were pleasantly surprised recently with the outlook for inflation that was developed by a panel of economists from firms around the Fourth District. Their projection, which had been running at about 3-1/2 to 4 percent, has been revised downward to 3 percent. In brief, we see the growth of the economy stalling in recent months but we have no reason to believe that the recovery will not be sustained. And we are hopeful about the outlook for inflation. That concludes my report.",254
-fomc-corpus,1991,President Black.,3
-fomc-corpus,1991,"It seems obvious to us that in our District people now think everything is pessimistic; whether they're consumers or business people, [they have] very low expectations. A particularly striking [example] came at our last meeting, which was a joint meeting of our Baltimore/Richmond boards, when I heard the most pessimistic statements of the economic conditions I think I've heard in the 36 years or so that I've been attending these meetings. And virtually all the reports we've gotten since then have been along that line. From what I read and what I've heard around the table, it's pretty clear that for the most part that pessimism is equally widespread in the rest of the country and may be even more widespread in certain places. And then we got--to use Mike's term from a while ago--""a stunning confirmation"" of this when we received this downward revision in the Conference Board consumer confidence series. But having said all this, I think the question we have to answer this morning is: Exactly what does this mean in terms of the near-term prospects for the economy? I certainly think it tells us something: namely, that the recovery has been weaker up until now and probably will be weaker in the immediate future than any of us thought it was going to be. The current quarter and probably the first quarter are certainly going to reflect this. So, the downward revisions in the Board staff's figures are clearly indicated. But I think it would be premature at this point to conclude that this apparently declining confidence means that the economy is necessarily going to go into a double-dip recession as some people have been assuming. Sentiment frequently remains bearish in the early stages of an economic upturn, and it's clearly even gloomier than usual this time if I remember correctly. I think the media has added a lot to this because there has been so much more hype on this than in the past. Now, I know there are differences of opinion about what these consumer surveys show, but three studies done by different Federal Reserve Banks have suggested that they are not really very good predictors. I would say they probably are a coincident indicator at best. So, while we have this October drop in the survey of the Conference Board and this obvious pessimism in the form of anecdotal information, I'm not ready to push the panic button at this point. Some of the recent data are a bit on the favorable side at least. We had some upward revision in the payroll employment figures for August and September and the M2 numbers have turned around--not as much as I would like, but they've certainly turned around recently. And the orders and production components of the National Association of Purchasing Managers [survey] in October were generally favorable. So, I think the staff's revised forecast is reasonable. And the risks on their projection are probably equally divided, although like Gary Stern--who I believe is the only other one who said this--I think they might even be tilted a little toward the up side. So, we ought to approach this policy issue today very cautiously before we make any kind of major move toward ease.",618
-fomc-corpus,1991,President Melzer.,4
-fomc-corpus,1991,"In terms of our District, I would say it is still expanding but the expansion is sluggish. We have employment growth in both manufacturing and non-manufacturing; it's somewhat stronger in manufacturing. Residential construction over the most recent three-month period is up over last year; commercial construction is still down, but down considerably less than nationally, particularly year-over-year. On a broader prospective, my view is that certainly some of the numbers that have come out on the national economy recently are disappointing in relation to what we expected. But they really are not all that bad, as others have observed. Clearly, confidence is very sour. I guess I'm influenced by what Mike said earlier and this was confirmed by people on our staff: that confidence really has not proven to be a very good forecasting tool. I get a sense that we're very much caught up with a very short-term orientation toward policy right now. There's considerable ease in train, whether you look at money or whether you look at interest rates. Clearly, there has not been enough time for all the effects of that to be felt. And, following up on my question to Mike Prell, I just don't see--whether you look at money or at interest rates--that there's all that much more scope for further easing. Now, certainly we can try to force interest rates down further. But I don't see why it is that we think we can step into the same trap that we have stepped into in virtually every postwar recovery and then be good enough and strong enough and smart enough to turn that around and not end up in the same position we've been in before. I think we have been approaching this whole period of the last four years considerably differently than in the past and I hope we can continue to do that. In my view, that argues for considerable caution at this juncture, in line with what Bob Black said.",374
-fomc-corpus,1991,Vice Chairman.,3
-fomc-corpus,1991,"I'm not going to add anything in the anecdotal area; it would be more of the same. But, like everyone else, I spend a lot of time these days scratching my head a little and asking why the recovery hasn't really taken hold and what is going on out there. The more I look at it and think about it, the more clear it becomes to me that there are a number of structural or semi-structural forces at work. A lot has been said about inventories, and that's good news and bad news; it makes the recession itself shallower, but it also means the recovery has less ""pop."" One thing about inventories that I hadn't really focused on until yesterday is that the sense of comfort that inventories are in good shape is okay as a generalization, but I was surprised to see when I looked at it that in the non-auto retail sector inventories are not in all that great shape. Now, maybe that's just because there are a lot more stores and maybe even a greater variety of goods; nevertheless, it's there. But beyond the inventory situation, one of the longer-term things we all talk about is this real estate overhang. I think Dick Syron is right when he points to the fact that it's not just the overhang itself but the spillover effect it has on perceptions about asset quality prices that has an impact on confidence. Mike Prell touched on debt burdens with a bit of a question in his mind. I've had a question in my mind, but the more I think about it, the more important I think it is in terms of attitudes and financial fragility that we all have talked a lot about. The fiscal situation is ugly not just because the deficits are big but because the process is basically immobilized. But when I think about those things, with the exception of inventories, one of the things that strikes me is that in a sense they're all symptomatic of the chickens coming home to roost. They're all symptomatic of earlier excesses of one kind or another. But I still ask myself: What do they mean? I just handed some charts to the Chairman that are based on work I had staff at the Bank do in trying to look at some of this in a much longer perspective. Just to cite a couple of examples that come out of that: When you look at the default rate on corporate bonds--this is the default rate on all rated issues, so a lot of the junk bonds aren't even in this calculation--it's currently 3 percent of all rated issues, which is by far the largest it has been in the postwar period. We did one calculation on office space that may or may not be right, but it's pretty dramatic because it says that it would take six years of service-sector employment growth at the very rapid rates of the 1980s to absorb the overhang in service-sector office space that's there now, assuming that nothing else is built for the next six years. It's a big number. If you look at the banks--maybe somebody else looked at this before but I hadn't really focused on this--loan losses as a percentage of total loans are 1.37 percent. That doesn't sound all that bad, but it turns out that 1.37 percent is by a wide margin the highest that this has been since 1936. And the loan losses in the banking system just in 1990 were $28 billion, as against before tax profits of $23 billion. Again, what is interesting about the $28 billion in losses is that while $7.7 billion was in real estate, $7.2 billion was in consumer lending, $8.5 billion was in C&I lending, and there was still $4.7 billion left over in all other categories of lending. Again, those are very big numbers and they're not confined by a long shot to real estate. When I look at all those things, what leaps into my mind, other than that the chickens are coming home to roost, is that in some ways I'm surprised that we didn't have a credit crunch, whatever that may mean--I think Bob McTeer makes a good point there--a lot sooner or that it hasn't been a lot worse. But the way I come out on all those numbers is that, in the face of them, we're probably doing as well as we could reasonably expect to do. But that raises in my mind even more this question about the outlook. Clearly, those things strongly reinforce the view that the recovery, whatever else it may be, is going to be distinctly subpar. That has never bothered me per se. But the question that looms larger in my mind and has in the past is: With all of that, can we even get a result that looks like the Greenbook in a context in which I think the Greenbook [projects] a pretty good outcome if for no other reason than that it is respectable at least in terms of growth. But more than that, it is an outlook that is compatible with this continued whittling away at the core inflation rate. And I guess I'm not so sure that even that outlook is as comfortably in hand as I once thought it was.",1041
-fomc-corpus,1991,Governor Kelley.,3
-fomc-corpus,1991,"Mr. Chairman, I guess there's one thing that's clear and that is that things are not ebullient.",22
-fomc-corpus,1991,We can stipulate that!,6
-fomc-corpus,1991,"We can stipulate that. The anecdotal evidence we've had at the table here this morning could hardly be more negative. We came out of the third quarter with a poor September and went into the fourth quarter with what looks like a poor October. And the confidence data that we're seeing certainly don't give us any confidence. Still, as I look at the data available to us, the third quarter, while not as strong as we had thought it might be, was not bad. The Greenbook outlook, which is probably about the best estimate that we can make, is certainly not all bad. And we have to keep in mind, as has been mentioned by several people, that we have a great deal of easing still in the pipeline, and I think that's very important. So, I ask myself: How can policy best help this situation? The first thing one has to say--and this has been said, too--is that a lot of what is going on here is structural and is not going to be susceptible to being helped by monetary policy. It's just going to take time to work through. But if we do feel that we want a little insurance for the middle part of 1992, cautious and modest easing would probably provide that. And if we do feel that things are going to hell in a handbasket in a hurry, then maybe it's time--or would be at some point--to get very aggressive and ring the gong very loudly. One thing that I think is in everybody's mind is: How do we improve confidence? I'd like to say a word about confidence; I think it may be a little more complex than meets the eye. If we make another small move, it probably will have a small impact. We've made 10 small moves in the last 12 months. And we can each make our own assessment of what the effect on confidence has been from all of that. If we make a major policy move in an effort to improve confidence, it's not easy [to conclude] that it will have the result we want. On the affirmative side, of course, rates would probably drop, the prime rate particularly. Spending and borrowing would probably be helped at the margin. But there are potential negatives to it as well. For one thing, the Fed could come off looking panicked, which could possibly have very adverse consequences since we're seeing the data as being not that bad but people would wonder what the Fed knows that they don't know or what the Fed thinks that they don't think. And particularly right here with the drumbeat of the White House in our ears, I think the Fed could come off looking politically dominated. Both of those things feed into what I think would be very a poor situation if the Fed began to lose its credibility. In my view, we're just getting that solidly in place now after a long time of feeling that we deserved it and weren't getting it. And I would surely hate to see something happen that would knock that back. If something were to happen just as we were beginning to be accepted as fully credible and we were called into question again, it might be a very long time indeed before we could get that credibility back once more. I think inflation expectations are beginning to wane in the economy and that's beginning to have a favorable effect. And I certainly would hate it if we were to do something that would call that into question again and cause that confidence that inflation is receding to waver. If it appeared that inflation were returning, once again we would be a long time weeding it out a second time. That could have the effect of holding interest rates, particularly long-term rates, higher than they would otherwise need to be. Also, there are the self-fulfilling elements of having inflation expectations [revive], which could make our job very difficult all over again. There are a couple of other risks that we need to keep in mind as we think about the desirability of a very strong move, to the extent that that is attractive. For one thing, the stronger the move, the more likely it is that we would get a perverse effect in long rates. I don't know how likely that would be or at what point that would [happen], but we have to think about the possibility that that could occur at some point. The inflation battle isn't won yet. I've always been optimistic that we can and will win it and I still am; but I'm not quite as comfortable--to use the word that Jerry used just a few minutes ago--as I was. And frankly, the Greenbook forecast, which I'm sure is a very responsible and good one, isn't all that impressive to me in terms of the amount of inflation progress we're going to make over the forecast period through 1993. The dollar could weaken meaningfully if we got very aggressive [in easing]. Of course, that would help net exports. That would be good news for the short run but in the long run we'd have to deal with the inflationary consequences that could come out of that. Another thing that has not been mentioned yet today is that we're going into the political season, and there's going to be an enormous temptation in this environment for fiscal stimulus of one sort or another. I can envision the possibility, if we got a huge amount of stimulus moving through the pipeline, that we could be presented with some pretty tough choices. We could either accommodate that fiscal stimulus, in which case we'd have monetary and fiscal policy both easing at the same time we have this enormous deficit. Alternatively, we could offset it by an earlier tightening than we might otherwise desire. That could be very awkward to do from a number of different standpoints. So, in sum, if things are going very wrong either now or in the future, we might just have to bite the bullet and ring the gong and run the risk of getting lead poisoning from the bullet. On the other hand, it's not impossible that things might turn out to be somewhat better or at least as good as they appear, in which case I don't think any immediate action would be required. And to the extent that is what we see, we'd have a little time to watch and wait. If we're unsure but would like to get some mid-1992 insurance--and we may well want to do that at some point--I don't think there's any rush to do it. There is some time still available to affect the middle part of 1992, and a delay will give us an opportunity to evaluate just what risks we have and to pick a time and a method to do that carefully and methodically. Mr. Chairman, that's where I am at the moment.",1336
-fomc-corpus,1991,Governor Angell.,4
-fomc-corpus,1991,"I agree with those who suggest that this is a long-cycle adjustment process. I think anyone who saw what happened in the oil producing states and the agricultural states in the mid-1980s understood that this was going to be an asset price adjustment period. Now, monetary policy was sufficiently powerful in the mid-1980s to be able to abort that adjustment process. We are not just at 12 months and 10 small [easing] moves but 2-1/2 years and 490 basis points lower in the fed funds rate than we were in June of 1989. That's a rather significant move. Now, it seems to me that monetary policy lags may be increasing in this environment. And I wonder about looking at maybe at least two behavioral groups to see how that might be occurring. First of all for households, with their reliance on CDs and other short-term investments that we taught them to rely upon in the 1980s, I think that heavy shift really did not involve direct ownership of equities; and a very small amount of direct ownership of bonds by households leaves them rather vulnerable on the income side, [given] the interest rate declines that have occurred. The interest gap for the household sector is rather enormous when one thinks about short-term CD rates at 4-1/2 percent as compared to credit card interest rates of 19 percent. It doesn't take a great deal of brilliance for households--many of whom learned to have a mix of both short-term liquid assets and also to hold liabilities at the same time--to understand that there's a lot of payoff to shifting out of CDs and bringing down debt. That low rate of return for households is undoubtedly driving them into the equity market in a new way. As interest rates fall, that occurs. And that phenomenon means that we don't get quite the ""bang for the buck"" that we ordinarily would because we're not impacting the rates that households are paying as much as we're impacting the rates that households are receiving. There's also a lagged phenomenon at commercial banks. In ordinary recession cycles there is a shift, of course, between lending and investment; but [when] a longer-term adjustment [is under way] that shift might be even more pronounced and longer-lasting and have some somewhat perverse effects. It seems to me that the real opportunity cost for commercial banks in lending is not exactly the opportunity cost in what they're paying; as U.S. government securities in the two- to three-year range become a larger portion of the assets of commercial banks, the real opportunity cost is the yield on those two- and three-year Treasuries. In a declining interest rate market that yield is much higher than the coupon rate. And as long as that yield is as high, in many ways commercial banks worried about asset quality in the lending area would naturally delay making the transition to aggressive lending. In many ways it seems to me, then, that the impetus to lend is going to come somewhat after interest rates have stopped declining. So, to some extent, declines in short-term interest rates may [lead to] a delayed effect as to what occurs. Now, there's another factor we ought to consider and that is that long-cycle adjustments occur because conditions get out of whack. And those adjustments--those things that need to be changed--need to [occur]. In a sense aborting asset price adjustments doesn't help all that much. Asset prices need to adjust to a different level of expected inflation. And in some ways the faster those asset price adjustments take place the better the recovery. Unfortunately, the RTC and other ownership arrangements that don't cause these assets to be docked may indeed prolong the adjustments. Another fact in the long cycle that we have to consider is that household savings in a sense are inevitably linked to capital inflows to the United States. And I think there are some real advantages for household savings to adjust in such a manner that we do not [continue to take] the share of the world's capital that we have been taking over the last 10 years. So, that savings adjustment needs to take place, and we need to keep in mind that we don't want to disrupt conditions by trying to create in a sense the typical recovery. The typical recovery is not going to be there; and trying to get that typical recovery will run greater risks of upsetting certain markets than if we go in a more steady-as-we-go [manner] through here. Just think how serious it would be if we were to upset the foreign exchange market or upset the equity market. One concern that I have is that the equity market could be in for a boom and that could involve a speculative fervor; and if this adjustment period is as long as I expect it to be, then a run-up in equity prices [until they get] out of line and then watching them unwind very rapidly is not going to be a very pleasant experience. So, the critical question in front of us is: What are we teaching the world that we are doing? Are we teaching the world that our focus is on employment and output or are we teaching the world that we continue to have a concept of price level targeting that will enable long-term interest rates to come down in such a way as to continue to get recovery in housing, which I think is essential to get this long-cycle process going our way? Just because it's a long cycle doesn't mean that it has to be an extraordinarily bad long cycle. And I think what we do is very, very important.",1104
-fomc-corpus,1991,Governor Mullins.,4
-fomc-corpus,1991,"Well, I agree with Governor Angell that we don't have much risk of a typical recovery here. What I would like to see, though, is confidence that we at least have a sustainable recovery. I guess I do agree with the basic diagnosis that we're experiencing a gradual wringing out of the excesses of the '80s and that that is imparting downward pressure on growth. We've seen those excesses, and people are talking about an asset [deflation] in real estate. Expectations of inflationary home prices have collapsed, and I agree with those who think that that has had a profound impact on consumers since that's probably the single most important component of their wealth. And I do agree that the leverage also was an excess. One can see the way corporations are using the current equity market to [deleverage]. Consumers not only have been reducing their debt, but their leverage has robbed us of the excess bench capacity to spur a recovery. So, we don't have that force. And I believe all this comes home to roost in financial institutions, which financed these excesses. We've seen this most dramatically in the collapse of the S&L industry; but it's also in banks, insurance companies, and finance companies, all with varying degrees of exposure to these structurally troubled areas of commercial real estate, unleveraged loans, and junk bonds. The public capital markets in my view adjusted quickly and brutally to these excesses. The stock market collapsed in '87; the junk bond market disintegrated in '89. But even after that period, the momentum of excess continued in financial institutions, and their retrenchment out of this is slower and more painful. They're still in the process--it was not only in 1990 but even in 1991--of recognizing and dealing with asset quality problems and pulling back to raise capital ratios and asset quality. We see this in the shrinking of financial intermediary credit at the same time that public market debt is growing. We also see it in slower M2 growth. I think that much of the force of our easing to date has been absorbed by this retrenchment process instead of fostering spending. The ease in long rates and the rise in stock prices resulted in large new issue volumes, but the proceeds are not going to business spending; they're going to clean up balance sheets. The ease in bank funding costs has gone into the healing process of increased margins, and mortgage rate reductions have gone increasingly into refinancing to reduce home [mortgage payments]. We can't avoid this retrenchment process, but I think we must take into account these retrenchment pressures in setting our course. And our current stance has not been consistent with our earlier forecast of moderate sustained recovery, at least in my view. That earlier forecast had two engines of growth. First, sustained recovery in housing of modest dimensions and secondly, this inventory-led increase in industrial production. These two developments, housing and industrial production, were supposed to spur income growth and consumer spending with business spending coming in later. In my view, it's pretty clear that the forecast is not being fulfilled. The housing market, after advancing since early this year, has at best flattened out and is likely declining despite lower interest rates. Industrial production, after growing for four straight months, has been dead in the water for three straight months. The leading economic indicators also have flattened out and the momentum that was in evidence in mid-summer is now gone. And sentiment has turned increasingly sour. With the importance of the consumer to our economy, I think we have relatively little room for error in the current situation. With industrial production and employment not growing, income growth will be minimal with a low saving rate and deteriorating consumer confidence. We've already seen it have an impact in the housing market; we've had long-term mortgage rates coming down dramatically over the last several months and yet the housing market is going in the opposite direction [of what one would expect]. I think that's the impact of confidence. There is a real risk in this environment and a potential for the momentum in this massive economy to turn down. Business confidence is also increasingly sour, reflecting the deterioration of the recovery. And I fear there is power in negative thinking. [Earlier] the momentum was generated in part by an exogenous shock: the military success in the Persian Gulf. It raised confidence, which increased stock prices and bond prices and reduced oil prices. This time I see no such positive shocks on the horizon, although I wouldn't rule that out. I would agree with those who think the economy is vulnerable to a negative shock, and there are some potential ones in the financial sector. So, I have difficulty with the current [Greenbook] forecast [in terms of] understanding what is going to pull the economy out of this deceleration and place it neatly back on the track in the second quarter of '92. That is perhaps where I differ a bit from the Greenbook. As for policy in the current environment, we need to weigh against these retrenchment forces and the deteriorating confidence in order to return to the track of this summer's Greenbook forecast. Since these are contractionary forces we are responding to, I see little risk to the inflation reduction program. Indeed, the current environment has been characterized by an extended period of slow growth of M2 and slow growth of credit. If you take one-year inflationary expectations right off the Michigan Survey and compare them to one-year bill rates, real rates are higher than they were last year at this time. So, I don't believe monetary policy is too easy. It is true that we've done three easing moves recently, but two of those--or I guess more than two--are already included in the Greenbook forecast. There are some arguments against making this adjustment. Some would argue that lower rates may not be especially effective. If so--if you think they're not going to affect the economy--they should not be especially harmful or risky to inflation. Despite doubts in every [bout] of economic weakness, I believe that monetary policy works. And I think a significant reduction in rates would help the housing markets and the stock and bond markets and would facilitate the [deleveraging] process, which ultimately must give way to business spending. I think it would help banks; it would precipitate a lowering of the prime rate and allow the pass-through of lower rates to final borrowers while still retaining the margins needed for the adjustment process. Ultimately it would help with consumer durables as the average age of autos reaches historical levels. The quality of domestically produced autos has improved substantially, and I think we'll have a pickup from that as well. Also, I think a move would cause the dollar to give up some of this year's gains and that would have an impact on exports. My view is that a move at this time would also help confidence; I don't think it would frighten people. It's pretty clear to me from the confidence surveys or the public opinion polls that consumers and business people alike perceive the deterioration in the recovery. The frustration is that they see nothing happening that could turn the situation around. They see no response. And if we respond in a discreet and visible way, I think that would be supportive to confidence, not frightening. It is true that we might be accused of responding to what Mike Kelley calls the drumbeat from the White House but since that drumbeat is constant [unintelligible] all is quiet up the street.",1493
-fomc-corpus,1991,"If they had an impact, they would have stopped at some point.",14
-fomc-corpus,1991,"And when they say this ease came just after a drumbeat, I would say: How does that distinguish that day of the week from any other day of the week? I do think there is some risk of dissipating the impact of our moves with continued small moves, and I wonder if we continue on this path whether we're going to have much of a ""gong"" left to ring. So, I think the time has come to make a move and to lean visibly against this ill wind before it blows us seriously off course. The risk to policy if we wait is that the force of economic momentum could well turn down and confront us with much more difficult policy situations down the road in 1992.",141
-fomc-corpus,1991,Governor LaWare.,4
-fomc-corpus,1991,"Mr. Chairman, I've really been startled by the recent clouding of our otherwise perfectly clear crystal ball. I also find it difficult to deal with the proposition that this is a bank-managed credit crunch that is a major factor in the continued sluggishness of the economy. After all, credit extension is a two-party transaction: a willing and demanding borrower and a willing and accommodating lender. And lenders who have been abused for reckless lending and excessive risk-taking can hardly be criticized for a more cautious current stance. As a matter of fact, I suspect that those who are complaining the most and the loudest about the unavailability of credit are the people who didn't pay back their loans last year and whose balance sheets have deteriorated substantially as a result of the economic slowdown. I think businesses and consumers at this point are confused and worried by the same conflicting signals that confuse and worry us. And they are not hammering on the doors of the banks demanding extensions of credit. In my opinion we are in a paralysis of confidence on the part of consumers and businesses as well as banks. And I am somewhat skeptical about the effectiveness of monetary policy in dealing with human psychological depression. It seems to me that confidence is more likely to return under the stimulus of a clearly enunciated political leadership in dealing with domestic issues, and I question whether further ease in interest rates will do the trick.",274
-fomc-corpus,1991,Coffee has arrived. [,5
-fomc-corpus,1991,Mr. Lindsey.],4
-fomc-corpus,1991,"Thank you, Mr. Chairman.",7
-fomc-corpus,1991,"Excuse me, why don't you wait; we've just lost Governor Mullins. Sorry about that. We're back in recess pending the finding of a missing Board member. Here he is. Okay, go ahead.",42
-fomc-corpus,1991,"Thank you again, Mr. Chairman. [Statement--see Appendix.]",14
-fomc-corpus,1991,"Any questions for David? If not, let me get started. As I indicated at our telephone conference last week, I think what we are dealing with clearly is an historical process that has very little in the way of counterparts in the post World War II period. This is an old fashioned asset contraction. It is reflected most severely in the commercial real estate area, with obvious consequences in the financial [sector] as we discussed. It's reflected, strangely, in the residential single-family area even though the data themselves scarcely suggest anything even remotely close to the asset-price deflation in commercial real estate. Nonetheless, what is clear--and one picks this up from anecdotal evidence and at these cocktail parties we all go to--is that individuals somehow perceived that the market values of their residences were actually much higher than they really were. There was a sense in which the offering price they had in the back of their minds was the equivalent of a market [price], and what is happening now with the return of a degree of realism is basically that people feel that the prices of single-family residences are undergoing a fairly major decline. All of the analytical work we've done suggests that this is a major factor in household purchases, especially durable goods outlays. Part of this process reflects not only the weakening in balance sheets, but it is also a significant element in the physical volume sense. As Gary Stern was saying earlier, what we have here is another ""inventory"" problem, which we've been discussing pretty much all year--especially earlier in the year--and last year. These inventories are not so much autos in the dealers' showrooms or unsold homes in the hands of developers, but too many cars in the garage and too many homes relative to the underlying demand. In a sense, not having had an economic contraction in the 1980s, we just never had that adjustment. Businesses and households picked up a much higher level of economic structures and of hard durable assets so that their balance sheets are all undergoing a fairly apparent adjustment process at this stage. What is clear about this whole process is that one would assume that there is some significant price deflation going on. But I have been confronted with something, which I find really quite puzzling, in the differential behavior of the stock market and the bond market. If in fact there is a significant decline in inflationary expectations, which one would assume in this sort of environment and which is clearly supported by the slow growth in money supply even if we make all of our various adjustments, one would expect that price/earnings ratios in the market would be high. All of our history suggests that in a noninflationary environment price/ earnings ratios are significantly higher than in an inflationary environment. Indeed, the level [of stock prices] today, calculated in a real rate of return sense, is fully consistent with the notion that the stock market is presuming that there is a disinflationary force out there and that a low discount rate on effective real earnings is appropriate. But if this is the case, why are real rates in the long end of the market as high as they are? Or, more readily getting at the issue of trying to make that calculation, why are nominal rates as high as they are? One possibility, which I suggested to some of you--and I must say it's unclear whether it's true or not--is that we all view the intermediation process as something that brings down the real rate of return of long-term instruments. In fact, it is that phenomenon that creates the value-added in the intermediation process. As a consequence, if you are focusing on what has clearly been a crippling of the intermediation process, and the symptoms of this are all over the place, then the answer may be--and I'm not sure that this is a correct answer--that one of the reasons we have higher long-term real rates is that we are not getting the intermediation process that brings the whole basic rate structure down. That should not affect the stock price relationships because that's external to the intermediation process. But it is very clear that this issue is a major problem in trying to evaluate the extent of the disinflationary forces and how critical they really are. Measured inflation is higher than is consistent with the hypothesis that what we are looking at is a gradual disinflationary process. Part of this, however, may very well be the fact that there are significant increases in indirect business taxes that are showing up in the GNP accounts. And this is partly the issue at the state and local government level. It also reflects some of the excise taxes that were put in as part of the last budget agreement. Indeed, take a look at the nonfinancial corporate business rates and remember that they break down prices into unit profits, unit capital consumption allowances, unit indirect taxes, and all that. If you strip out the governmental actions that affect price levels--indirect business taxes and mainly subsidies, which usually come in in the other direction--then the rate of inflation that we are looking at through the second quarter in the GNP accounts shows that the total price increase for the quarter is 3.8 percent; excluding the direct taxes and subsidies, it is 3.1 percent. Now, I don't want to make too much of that, but it may well be that one of the problems we have here is a measurement problem because it's fairly apparent that we could have a highly disinflationary process and if we stick a bunch of sales taxes on top, we get measured price indexes in the CPI that are fairly significant. The implication is that once we get beyond this particular period, the measured price inflation is likely to fall somewhat faster than is indicated in the Greenbook. In fact, if I had a bet on it, I would take it. The consequence of all of this is that we have seen, as everyone has mentioned, a very major crippling of financial intermediaries. Obviously, the S&Ls are not lending; they're in trouble [as are] the commercial banks and insurance companies. It's really interesting that the areas where we are seeing very strong lending are areas that are not touched by this, namely, the smaller finance companies, other than those involved in autos. In fact, the most interesting statistics that were given to us yesterday in the Board staff presentation were the very dramatic increases--a 25 percent annual rate--in small finance company lending. We're obviously seeing a tremendous amount of public offerings of equities and bonds. If the loan demand is so weak, why is it so strong in certain areas? I think the answer has to be in part that we are dealing with a very weak financial intermediary system. None of this is new. We knew all of this two, three, four months ago. We certainly knew it when the economy was coming out of the recession. What we didn't know is how significant all of this was, as Mike Prell mentioned earlier. There is no question that the economy was coming back in July and August. It wasn't coming back in a huge surge, but [at a pace] consistent with the proposition that this overhang of disinflationary forces was not very potent. In the last several weeks it is beginning to appear that that conclusion may not be correct; it can be a wholly false phenomenon. I had to live through the summer of 1976. We all remember the ""recession"" of the summer of 1976; that's what got Jimmy Carter elected. And in February 1977 there was this new ""get the economy rolling"" program which had to be pulled back because the economy was at that point rolling too fast. So, we have seen pauses before, and it is not inconceivable that this is exactly that. The trouble is that we just do not know that this is going to happen. And we have to think of policy in the context of a period which is very sensitive and one which in retrospect is going to look absolutely clear to all of our critics! What all of this suggests to me is that at this stage six-week intervals between contacts of this Committee are not particularly appropriate time lengths. In discussing the issues of policy, I would suggest, irrespective of what we decide to do, that we really ought to meet--and I don't mean physically but in a telephone conference--to review what is going on. Having said that, in trying to balance the various forces as I see them, I think the risks of easing at this stage are very small. I say that for two reasons. One, if we were to move lower at this point, it would be in the context of the money supply showing a minus $4 billion when we publish it Thursday, leaving the growth of M2 for the year below the lower bound of the Committee's range. If we look at the credit structure, it is very tough to envisage inflationary forces re-emerging anywhere near this level. It's not interest rates that move inflation; it's finance. And so far as finance is concerned, we just do not have inflationary forces running. The rate of borrowing at this stage is the lowest it has been in the post World War II period. It is just extremely difficult to believe that inflation will take hold unless one believes that inflation is not a monetary phenomenon. And that, I suggest, just makes no sense whatever. Secondly, I think the evidence of our ability to move on the up side during an election year is fairly significant. Earlier views were that the Fed could not move under those conditions. I think what we were able to do in 1988 clearly indicates that there's a change in the tone of how money and politics run. And, if it became necessary to turn around, I don't see any reason why we shouldn't be able to do that. I certainly would say, and I hope, that the will of this Committee is clearly in that direction. So, I conclude from all of this that we ought to move lower. Because of the uncertainties that are involved in the outlook, I would suggest that we only do 25 basis points. Now, how we would handle that with respect to the discount rate is something that the Board of Governors will have to decide. Having gone through all of that, I would suggest to you that we are in a very unusual period. And while I hear this issue of a jump-start as being crucial, a jump-start is not the need of the economy because you can't jump-start the American economy. It's like a battleship or an aircraft carrier, which has to turn. We may at some point need an element that affects confidence. I would suspect that it's conceivable, as Mike Prell pointed out, that we may have to do some ringing of the bell a lot more loudly at some point. At the moment, however, I think it is very important that the Federal Reserve appear to be there because what has been going on out in the political world is the indication that nobody is minding the store. We're the last game in town. And to do something that suggests that we are there, that we are mindful of what is happening, and that we are up to date on everyone's concerns is a crucial factor that we have to keep in mind as the weeks go by. We're going to find out one way or the other where this whole thing is going within a much shorter time than I think we suspect. And in the interim, as I said earlier, we have to keep in somewhat closer contact with Committee members and make judgments in real time. So, in summary, I would at this stage recommend half of alternative A, which I hope we would implement after the refunding is over, which suggests to me Friday. Governor Angell.",2363
-fomc-corpus,1991,"Mr. Chairman, since we might be having a telephone conference call anyway, there's some uncertainty in my mind as to how that would take place if the Board were not to make a discount rate move. Wouldn't there be some advantage in going ""B"" asymmetric and then having a telephone conference call after we know what the Board is going to do? That would still mean the FOMC would be free to do what it chose to do, but it would then have knowledge about what the announcement--",100
-fomc-corpus,1991,"Well, with the alternative I suggested we don't need a telephone conference because the 1/4 point is contingent on a discount rate cut.",28
-fomc-corpus,1991,That could be an alternative. That would be an alternative that would be more appealing to me.,19
-fomc-corpus,1991,"Mr. Chairman, how would you propose to structure this technically? If there were to be a decision at this table to go down 25 basis points to be effective Friday, we have a couple of days to get through here that could be susceptible to some sort of leak to the market that could be of critical importance.",64
-fomc-corpus,1991,"I would suggest to you that the experience that we have had in the last couple of meetings indicates that this is a secure organization. If that is false, then we have far more problems than we know. If you feel more comfortable about it and you want to leave it asymmetric, I would recommend that we go asymmetric but my intention would be to move.",71
-fomc-corpus,1991,Would that be on Friday?,6
-fomc-corpus,1991,Friday.,2
-fomc-corpus,1991,On the federal funds rate?,6
-fomc-corpus,1991,Yes.,2
-fomc-corpus,1991,"Mr. Chairman, if I might just [comment] on that narrow issue. I think security after our unfortunate episode has improved. And if we really think that's what we're going to do--I have some sympathy for it and I'll get back to that later--then this group, depending on what it thinks the Board of Governors is going to do [on the discount rate], should vote for it now instead of going through the process of just saying we're not officially doing it because we're afraid of a leak in a couple of days.",106
-fomc-corpus,1991,"I feel uncomfortable about it just because of that leak possibility. Wayne, are you through?",18
-fomc-corpus,1991,Yes.,2
-fomc-corpus,1991,President Parry.,4
-fomc-corpus,1991,"Mr. Chairman, it's pretty clear that the recent data have intensified doubts about the whole process of the recovery; that's clear to all of us. At the same time, we seem to be making some progress with regard to inflation. Under these circumstances, I too would favor the middle course, which I would define as a 25 basis point cut in the funds rate. I really would not favor the 50 basis point decline. It seems to me that gradualism has served us quite well. Of course, we reduced the funds rate 1/4 point last week and I think another 25 basis point, presumably on Friday, would be appropriate. If we wish to ring the ""gong,"" it's very easy to do that, of course. And I guess in some respects I would be in favor of that. It seems to me that if the move of 25 basis points that we're talking about were combined with a move on the discount rate, that probably would accomplish a great deal as well. Finally, in terms of the language, I would favor asymmetric language on the down side.",219
-fomc-corpus,1991,"Mr. Chairman, I just have a technical question before we proceed. We do have this even keel [consideration] in [the face of a Treasury] financing but is it an open-and-shut case that this change could not be done tomorrow morning? After all, we have the shortest maturity being auctioned today, which isn't as affected by these fluctuations. If we did it tomorrow, both the medium-term and the longer-term bidding would still be ahead of us. And I am thinking, given the risks--and while we are an honest organization--that that's a long time to go. I'm just wondering what the pros and cons are.",130
-fomc-corpus,1991,"Well, may I make a suggestion?",8
-fomc-corpus,1991,Yes.,2
-fomc-corpus,1991,"Let's wait to see what conclusion we come to. Then, let's put ""when"" on the table, if that is the conclusion, as a separate issue.",32
-fomc-corpus,1991,Okay.,2
-fomc-corpus,1991,"Okay. Bob Parry, are you finished?",10
-fomc-corpus,1991,Yes.,2
-fomc-corpus,1991,President Forrestal.,4
-fomc-corpus,1991,"Mr. Chairman, I came into this meeting feeling that we should cut the funds rate 25 basis points. I also hoped, and I still continue to hope, that that will be accompanied by a drop in the discount rate. I think that would send an important and dramatic message that we really need to send. As you said, the momentum of this recovery has slowed down or even stalled. I pay a great deal of attention to this confidence element, and I think people really need some kind of a signal from some institution. And given the impotency of fiscal policy at the moment, we're the only institution that can provide some kind of action that will help to turn confidence around. Twenty-five basis points and even a drop in the discount rate may not renew confidence completely, but it will go some of the way toward helping with that and helping with the further consumption and business [unintelligible] needs. Finally, I agree with you entirely that the inflation risks of moving at this time are very minimal. So, given the risks to a sustainable recovery, I think we need to move and 25 basis points strikes me as [appropriate].",230
-fomc-corpus,1991,And would you be asymmetric?,6
-fomc-corpus,1991,I'd be asymmetric.,4
-fomc-corpus,1991,President Syron.,4
-fomc-corpus,1991,"Mr. Chairman, while I'm in favor of what you want to do, some questions arise, given what we know and don't know. What we do know is that we have risks on the down side and that, while we may not be able to control things, we can influence them. This issue of confidence, which others have spoken of, is very important. I think the worst thing we could do would be to tell the American public not only that fiscal policy is impotent but that we don't think there's anything the Federal Reserve can do either. I think people would give up. Also, in terms of the longer time frame, if it should be necessary to turn back, I think the Federal Reserve would do it. It's a win/win situation in some sense if the economy recovers because we buy more credibility in the long run by showing that we're willing to do it then. I certainly hope, because I think some--to use the phrase of the day--""gong effect"" is needed, that the 25 basis point cut will be associated with a cut in the discount rate. Some of [my concern] does have to do with the timing issue that Ed Boehne raised and that you want to return to. But I'd be in favor of [your proposal] and I'd be in favor of asymmetric language.",267
-fomc-corpus,1991,First Vice President Hendricks.,7
-fomc-corpus,1991,"Thank you, Mr. Chairman. Our support for the recent reduction in the fed funds rate was based on the need to encourage a stronger growth rate of M2, not because of a perceived threat to the economy in the District or the nation. We're concerned over the persistent weakness in M2 since last spring and its longer-term trend over the past four years. A stronger growth rate in M2, within its target range, would likely add to the credibility of that target and would provide the base for a realignment of intermediate-and long-term rates. Normally, we would be inclined to wait a bit longer to judge the impact of this recent reduction in the funds rate to the 5 percent level. Work in Cleveland suggests that if we want a fourth-quarter-to-fourth-quarter 1992 growth rate of 3 percent in M2, we need a funds rate lower than 5 percent. Projections of M2 growth have fallen short for some time now, and we would prefer to push on the funds rate until we get M2 safely to a level we are comfortable with. We're getting close now to next year and, although we haven't come to a finalization on our view yet, our guess is that we will want something around 3 percent. We would not mind going into next year a little heavy on M2 growth, but we don't believe the 1/2 point reduction in alternative A is needed at this point; our preference is for the position half-way in between. We believe another 25 basis point reduction of the funds rate with symmetric language is appropriate at this time. And we believe we should push ahead as rapidly as we can to get the M2 growth we want.",341
-fomc-corpus,1991,President Keehn.,4
-fomc-corpus,1991,"Mr. Chairman, it seems to me that the small reductions we have been doing really aren't producing the desired results, with M2 in this process having continued to deteriorate. We haven't reduced the discount rate since September and that seems to me an awfully long time to have left such a visible rate in place, not having made a change. I do think we are at a point where we need to do something a little more visible. This confidence factor is important. Also, it's important to do something that will bring the prime rate down. I'm not [certain] that a lower prime rate is necessary to encourage more lending, at least at the outset; however, ultimately, I think it does work its way through to higher lending. But it certainly does reduce the costs [of doing business]. My preference would be to reduce the discount rate by 50 basis points and the fed funds rate by 25 basis points. As to whether it's Wednesday or Friday, I have a slight preference for Friday, but I don't care. I must say, having heard the conversation earlier, that I don't know quite how much confidence I have that a change in the discount rate [will be adopted] at this point. Lacking that, then I'd be in favor of alternative A with a 50 basis point cut in the fed funds rate. But I could live with 25 basis points now on the fed funds rate if there were asymmetric language. If [the consensus] were for 25 basis points now and symmetric language, I'd find that a very difficult option at the moment.",315
-fomc-corpus,1991,President Boehne.,5
-fomc-corpus,1991,"I favor this ""A to B"" 4-3/4 percent funds rate with an asymmetric directive for this body, and I think it ought to be accompanied by a discount rate reduction by the other body. The logic is that we have a reasonable prospect of doing some good with this package and I think we have very little chance of doing harm. And even if we find it is harmful, we can undo it. So, in that situation, it seems to me we ought to do it.",101
-fomc-corpus,1991,President Stern.,3
-fomc-corpus,1991,"I find these unusually difficult circumstances, but on balance I come out in agreement with you. It's not that I think a 1/4 point reduction in the funds rate, whether or not it's accompanied by a discount rate reduction, is going to do a lot quickly and directly for consumer confidence or [business confidence] or jump-start the economy. And we know more about jumper cables and jump-starts in Minneapolis than most! But my expectations would be more modest. I am concerned about the slow growth of M2, not so much in a strictly monetarist context but in the sense that going into this year I at least was looking for continuity in policy, not a sharp departure in M2 growth from what we experienced in the previous four years. I think continuity is still a virtue. I don't believe such a move at this point would weaken our credibility. In fact, it might enhance our credibility and I think it's the responsible thing to do at this time. And I don't think it would interfere with wringing out the excesses of the 1980s, a process which has to continue if we're going to restore economic health.",229
-fomc-corpus,1991,President Melzer.,4
-fomc-corpus,1991,"I'm in favor of standing pat right now. I'd go with alternative ""B."" We just moved. [Unintelligible]. It's not an original idea; Wayne alluded to it and others have mentioned it. But I'm not so sure that a lot of activity isn't frozen on the expectation that rates are going to go lower. A lot of people are just waiting to see. So, I'd just stay where we are and watch for a while. Also, I wouldn't be so quick to say that there isn't any inflationary risk right now. I continue to think long rates are a reflection of long-term inflationary expectations. I wouldn't be a bit surprised, if we made a move, that long rates would come down somewhat. But I don't think that's the measure; it's a measure over a longer period of time of what those rates are doing. I think we have to be careful if we disturb them.",182
-fomc-corpus,1991,President McTeer.,5
-fomc-corpus,1991,"I think your recommendation of a 25 basis point cut in the funds rate is appropriate. And in the context of more frequent discussions in the coming weeks, I would prefer the symmetric language.",38
-fomc-corpus,1991,President Hoenig.,4
-fomc-corpus,1991,"Mr. Chairman, I have some concerns about easing now in terms of inflation down the road. I assume that there may be a discount rate cut. If that's the case, that would make for an announcement from the Fed and then I would recommend the possibility of a 1/4 point cut on asymmetric [language toward] easing based on new information that may come to you. So, I'd be slightly different.",83
-fomc-corpus,1991,Vice Chairman.,3
-fomc-corpus,1991,"I would favor the 25 basis point reduction in the funds rate accompanied by a discount rate change of 1/2 percentage point, recognizing, of course, that the timing decision [for the discount rate] itself is the Board's. If both of those things were done--this gets into Ed's question about timing--I probably would favor a symmetric directive thereafter. With just the funds rate done, that complicates matters and I'd probably favor an asymmetric directive.",93
-fomc-corpus,1991,The trouble is: Which would you vote for?,10
-fomc-corpus,1991,That means I'd vote either way.,7
-fomc-corpus,1991,President Black.,3
-fomc-corpus,1991,"Mr. Chairman, I'd like to suggest a compromise, which I guess would be controversial, though.",20
-fomc-corpus,1991,"That's how it's a compromise! MR, BLACK. I thought we had covered every permutation and combination we could have, but I don't think anybody has come up with exactly this. I would leave the federal funds rate where it is for right now, but I would favor submitting--in the case of our Bank, which would join several others--[a recommendation for] a 1/2 point cut in the discount rate with the hope that the Board would see fit to approve that on Friday. If we had a steady federal funds rate right now, I think that would be a good way to reassure the long-term markets and it would give us a little more time to judge the easing actions that we took last week. At the same time, reducing the [discount] rate would reestablish a more normal spread between the discount rate and the federal funds rate. And a very important point, to which Governor Angell alluded earlier as did Tom Melzer, is that it might also convince a lot of potential borrowers who are sitting out there just waiting until they think rates have hit the bottom to move into the fray. A lot of people in the real estate business think that is true. Now, if we did adopt that approach, which I'm sure we're not going to, I would favor having an asymmetric directive in favor of ease thereafter.",270
-fomc-corpus,1991,Governor Kelley.,3
-fomc-corpus,1991,"Mr. Chairman, I don't believe the state of the economy is quite to the point here that others seem to feel. We may get there, though I hope we don't; I don't think we're there now. I think there's still a lot of stimulus in train that is going to support us as time goes forward. And I don't view a discount rate cut here as quite as riskless as we would like. As a consequence, I would prefer alternative B but I do believe that asymmetric language is warranted under these circumstances. I'm aware of the fact that you have said you would use it if you got it. If that turned out to be the case, so be it.",135
-fomc-corpus,1991,Governor Mullins.,4
-fomc-corpus,1991,I would favor a 1/4 point cut now and also asymmetric language because I believe the risks are still very much on the down side. We're playing catchup.,34
-fomc-corpus,1991,Governor LaWare.,4
-fomc-corpus,1991,"Well, I must say that I feel like the person who is lost in the woods who as a boy scout was told that if you get lost in the woods find a stream and follow the stream downstream and you'll eventually come out. It may be a long trek if you're somewhere near the Continental Divide! But I sense that there's a stream going along here, and I guess I'm persuaded that the downside risks are not material. So, I will vote reluctantly for ""A"" symmetrical.",96
-fomc-corpus,1991,"I'm sorry, with the 25 basis points?",10
-fomc-corpus,1991,"Yes, 25 basis points down but symmetrical language.",11
-fomc-corpus,1991,"I've run out of people. It's clear that there is a majority of the Committee for 25 basis points. I count one, two, three, four, five...; there is a majority for asymmetrical. Let me ask you this: Is anyone's vote dependent on ""when?"" Can we discuss that independently?",64
-fomc-corpus,1991,"Well, maybe Peter ought to address that issue.",10
-fomc-corpus,1991,"No, no, what I'm trying to say is whether or not the vote [unintelligible] we just took a survey. What I conclude from marking down what everyone has said is that there is a majority for both 25 basis points now and leaving asymmetric language. The question I am asking is: Was anybody's [decision] related to whether that would be done, if it were done, sooner or later? In other words, can we discuss that issue after we find out whether in fact that is the consensus of the Committee?",109
-fomc-corpus,1991,Yes.,2
-fomc-corpus,1991,I'm merely asking whether these are independent events in a sense.,12
-fomc-corpus,1991,Yes.,2
-fomc-corpus,1991,"Okay. If that's the case, then I would ask that you read the directive. MR, BERNARD. ""In the implementation of policy for the immediate future, the Committee seeks to decrease somewhat the existing degree of pressure on reserve positions. Depending upon progress toward price stability, trends in economic activity, the behavior of the monetary aggregates, and developments in foreign exchange and domestic financial markets, slightly greater reserve restraint might or slightly lesser reserve restraint would be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with growth of M2 and M3 over the period from September through December at annual rates of about 3 and 1 percent, respectively.""",135
-fomc-corpus,1991,Would you call the roll.,6
-fomc-corpus,1991,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell No President Black Yes President Forrestal Yes President Keehn Yes Governor Kelley No Governor LaWare Yes Governor Mullins Yes President Parry Yes,40
-fomc-corpus,1991,"Okay. We now ought to have a discussion on the timing of this. Do you want to start, Peter, on the issue of what would happen if we move 25 basis points Tuesday, Wednesday, Thursday, or Friday?",46
-fomc-corpus,1991,"Well, Mr. Chairman, as I said in my statement, I think the market is looking for further easing: probably a further 1/4 point on the funds rate and probably also a discount rate move. That has to be on their minds as they bid on these Treasury offerings. Yet, I can't escape the feeling that it's somehow potentially disruptive to have those changes actually implemented right within the period of bidding for the Treasury securities. If something had been done early this morning, a couple of hours before they come up to bidding for the 3-year, so be it. We did that in August, I believe, when a small change was implemented the morning of the 3-year auction. We did get a certain number of complaints from the market even about that. But with a move that occurs right within the bidding period we would hear even more about it. You can say, well, why wouldn't an easing move if anything be a plus for securities if they take them? But you have to remember that they're in the midst of a distribution process where they are shorting; they are selling on a ""when-issued"" basis the issues that are about to be bid for. So, you could catch some market participants in that stage of having sold ""when issued"" to some customers with the expectation that they will then be putting a bid in the auction. I think that's an awkward position to be leaving them in. So, I have just a gut feeling that it's preferable to wait. Now, how long should you wait? It seems to me Friday would be about the earliest that I could feel comfortable with. I could even make a case for having it carry over to early next week. But I would feel most strongly that it would be preferable not to implement a visible change just within these bidding days of today, Wednesday, or Thursday.",370
-fomc-corpus,1991,Do you want to [comment]?,7
-fomc-corpus,1991,I agree with Peter's comments.,7
-fomc-corpus,1991,Governor Angell.,4
-fomc-corpus,1991,"Mr. Chairman, I hope my advice is wanted on this even though it wasn't on the other. I do believe that there's an integrity question here. Information is scarce and information is hard to come by for the market. And I don't feel comfortable for us to deliberately let an auction take place for a 10-year issue tomorrow morning and not let the markets know all that we know. I do not feel comfortable with people taking short and long positions on an auction tomorrow while we know precisely what we're going to do. It seems to me that the fairest thing to do is to do it as soon as the markets have [closed], which I think for us would be tomorrow morning. I would also suggest, Mr. Chairman, that there have been times that we've had leaks that are more in the realm of information for [news media]. But if we were to have a leak, that would only be seen as an advantage for someone in the market and would do this institution a great deal of harm.",201
-fomc-corpus,1991,"You know, I must say I agree with that. Let me cite one of the problems I have. The FOMC is scheduled to meet on a publicly announced date and is expected to make decisions. The market knows that. If we in the past had moved during an auction, everyone would have screamed bloody murder. But the question essentially is: Who is right in this question? And the question I'd like to put to a vote with you is: If we were to do it some time in the middle of the auction, how much damage would actually be done?",114
-fomc-corpus,1991,"I personally started out with that view last week and early this week. And I thought particularly that if the Committee were to go down 1/4 point, that is what is expected and it could be done in [the midst of] an auction. But after talking to Peter, who yesterday read me a litany of commentators saying it's inconceivable that the Federal Reserve would move during the auction. I said: ""Peter, I realize that's a common view, but is it right?"" I was resisting even then. I did finally come around to the thought that it would be better not to mix this policy change with the middle of that bidding process. So, as I said before, I personally come down with Peter on this one. After having thought about it, I realize there are two sides and I've been on both!",167
-fomc-corpus,1991,But answer the question. How much damage is actually done?,12
-fomc-corpus,1991,"Mr. Chairman, may I add to your question? How much damage is done and to whom is the damage done?",24
-fomc-corpus,1991,"Well, let's say that the 1/4 point isn't fully built in. Let's say we announce tomorrow and there's a little decline in the yields in the 3-year note. To the extent that there is some market reaction, those who went short on the 3-year are going to be hurt and we're going to hear from them. There are going to be complaints. I think they'll complain more if we move tomorrow than if we move on Friday in the sense that they're going into their bidding on the 3-year note pretty sure that we are going to move on Friday. So, they're not as likely to write irate letters even if yields move against them. So, there are people who potentially are damaged. I should probably let Peter--",150
-fomc-corpus,1991,[Unintelligible.],6
-fomc-corpus,1991,"In these kinds of situations where you have something of a trade-off, I think you have to ask yourself a question: If I had to defend the actions to the whole world, which side would I rather be on? And I would rather be on the side that said we had a scheduled meeting and we made a decision; there was speculation pro and con but we implemented that decision in the market so that everybody would find out about it at the same time. I'd rather say that than that we delayed it for three days or five days or six days because we were afraid a few people would get hurt selling short. In the whole context of what our role is as a public institution, we have to go with the side that meets our standards and with which we feel comfortable.",155
-fomc-corpus,1991,"Well, you have to ask yourself: What is the job of the market people? Their job is to make judgments as to what is going on in the market. And one of those jobs is [judging] what we're going to do.",49
-fomc-corpus,1991,"Mr. Chairman, I just want to associate myself very strongly with the views both of yourself and Governor Angell. I think this is a case where there is a question of integrity of the organization in what we're doing, particularly in the environment of the last several months domestically. I'd be concerned about not letting people who are paid to bear the risks bear the risks when we really don't think, from what I hear, that this is something we fear is going to do a lot of damage to the economy. And the economy is what we're supposed to be concerned with.",114
-fomc-corpus,1991,President Black.,3
-fomc-corpus,1991,"Mr. Chairman, there's another complication. A number of us have meetings of our executive committees or full boards on Thursday and we'll be addressing the question of the discount rate. And if we know that we're going to cut the federal funds rate 1/4 point on Friday, we can't tell the directors yet. They don't have the information they need to make a rational decision. So, there's another reason for doing it now rather than then, although I have a lot of sympathy for what Peter and his associates have been saying.",105
-fomc-corpus,1991,You mean you can't make a recommendation on the discount rate independent of that?,15
-fomc-corpus,1991,"Sure, I can; but I have knowledge that they don't have that I can't share with them.",20
-fomc-corpus,1991,"Yes, but you--",5
-fomc-corpus,1991,And I wouldn't--,4
-fomc-corpus,1991,That's true all the time.,6
-fomc-corpus,1991,"Well, it is [a concern] to me not to share information and give them my best judgment, which would have to be affected by the knowledge that we were going to cut [the funds rate] 1/4 point the next day. We're pretty free with our directors but we never tell them anything about what we're going to do or anything about what we just did that isn't released, and we never will. So we couldn't possibly tell them that this 1/4 point [reduction] was pending. And yet I think their attitude would be affected to some significant extent by that if they knew.",123
-fomc-corpus,1991,Governor Mullins.,4
-fomc-corpus,1991,"First, I think we shouldn't schedule FOMC meetings around quarterly auctions.",15
-fomc-corpus,1991,Why don't the quarterly auctions schedule themselves around our meetings?,11
-fomc-corpus,1991,That's not a bad idea!,6
-fomc-corpus,1991,"I tend to agree with Wayne's analysis, although I think we should be aware that there is potential damage here. The concern I would have is the 30-year auction, because that price is no longer being set by people at the margin. On auction day, Thursday, they will rip open the market and reach deep within it to sell $12 billion worth of bonds and, when you do that, that marginal buyer is sometimes a fairly aberrant personality. If there is skepticism about our move, I don't think we would see that on Friday so much because, again, they are trading at the margin. And we just are more vulnerable and at risk of getting a sloppy auction and doing some damage to the long-term rate. I think that happened a bit in April, and there have been some other examples as well. Even recognizing that risk, I still would come down with Governor Angell.",180
-fomc-corpus,1991,President Melzer.,4
-fomc-corpus,1991,"I was just going to ask Peter: If, say, we did it tomorrow, how effectively could you transmit it? I don't know what mode open market operations are in right now.",37
-fomc-corpus,1991,"Well, we think we have a moderate add need. We didn't do anything today because funds were sitting right at 5 percent. If we wanted to transmit a signal tomorrow, we probably could do overnight system repurchase agreements and it probably--",48
-fomc-corpus,1991,"At what time, Peter?",6
-fomc-corpus,1991,At our normal time.,5
-fomc-corpus,1991,"Could we do it early, though?",8
-fomc-corpus,1991,You wouldn't do it early?,6
-fomc-corpus,1991,I don't know. I'd have to think about that; I wouldn't be inclined to.,17
-fomc-corpus,1991,"If that's your concern, wouldn't you have to put more in if you do it at the regular time rather than by doing it with an announcement effect before the market opens?",34
-fomc-corpus,1991,"I don't know. My inclination would be to do something--. To go back to this question of damage, I don't see terrible damage from doing it, and I really have a lot of sympathy for what Governor Angell and others have said: If there's a change in policy, it ought to be transmitted to the market. Maybe I've been too close to the markets on this, but I think we'll get some adverse reactions.",85
-fomc-corpus,1991,I'm a little rusty on this. I was just going to ask: What is the dollar price effect of 10 basis points on the 10-year?,31
-fomc-corpus,1991,"A whole bunch! MELZER. Exactly. So, if somebody is short $50 million on the 10-year, isn't that--?",28
-fomc-corpus,1991,It's probably $150 per 1/32 per million.,12
-fomc-corpus,1991,"But as the Chairman has said, they're all big boys and they know that we're facing these policy decisions and could be acting. They know we're having a meeting today.",33
-fomc-corpus,1991,Vice Chairman.,3
-fomc-corpus,1991,"I tend to be a bit conservative, as you know, about these things. But in this context, I frankly don't worry about [unintelligible] people maybe getting burned because they're short. They are risk takers. What worries me is a little more far-reaching than that, and that is, as you know very well, we have to be very careful about this marketplace. Governor Angell is quite consistent. But going back to our discussion a week or 10 days ago when we were talking about basically dismantling the whole infrastructure to that market, this is a very concrete, vivid example of the kind of thing I'm worried about. And we've got to be careful of these things.",140
-fomc-corpus,1991,"Well, what we ought to do is at least schedule our meetings--",14
-fomc-corpus,1991,"Well, I think Dave has the right idea. Notwithstanding my extreme caution in terms of some of these other more sweeping moves, in this particular context I'd go ahead and do it on Wednesday and take our chances. But that doesn't mean that my anxieties about the need for a little care and nurturing of this market can be assumed to have disappeared.",70
-fomc-corpus,1991,President Forrestal.,4
-fomc-corpus,1991,"I think my question has been answered. I was going to raise the question about how we would get the announcement effect out tomorrow. The last time we did this there was some confusion in the market. So, whatever we do, we ought to make it very clear. On the broader issue, I'd go ahead and do it and risk the letters and so on. I just wish we had done it early this morning!",84
-fomc-corpus,1991,"If you hadn't talked so long, maybe we could have! [Laughter]",16
-fomc-corpus,1991,That's impossible.,3
-fomc-corpus,1991,I know. I'm being facetious.,8
-fomc-corpus,1991,Governor Kelley.,3
-fomc-corpus,1991,"Mr. Chairman, I'm very strongly in the camp with Governor Angell. We have made a decision here and it becomes at that point a simple question of integrity. With this auction going on, we now know what has been done and what will be done and it is only a matter of straightforward integrity that we have to go on and do it and release that information. If we did not make this effective right away, in time, as the minutes come out, the fact that it was decided upon and then delayed would be known to the market and I think we would quite correctly suffer an integrity question and a credibility gap that we would deserve to suffer. And that would be there for a long time.",141
-fomc-corpus,1991,I didn't want my comments to be misinterpreted. I'd support going ahead and announcing it. It think it's unfortunate but I support that.,28
-fomc-corpus,1991,"Well, we also ought to see if we can arrange not to have a conflict; this issue has come to us before.",25
-fomc-corpus,1991,Bizarre.,3
-fomc-corpus,1991,It's just crazy.,4
-fomc-corpus,1991,This issue shouldn't be coming to the surface. Tom.,11
-fomc-corpus,1991,"I totally support taking this action tomorrow for the very reasons that Governor Angell, Governor Kelley, and others have expressed. We need to get it out.",31
-fomc-corpus,1991,Okay. Anyone else?,5
-fomc-corpus,1991,I'd go now.,4
-fomc-corpus,1991,"Could I ask Peter one question, Mr. Chairman? Peter, if we went in before the normal time, which you could and sometimes do, would that alleviate to any extent the problem that you alluded to originally?",44
-fomc-corpus,1991,It probably is a better way to make sure the message gets across immediately. I don't think it will remove some of the down side that I see. I'm kind of swinging around in my own view.,40
-fomc-corpus,1991,"I'd favor doing it in the morning, first thing.",11
-fomc-corpus,1991,Just make an announcement--not let it happen through the market?,13
-fomc-corpus,1991,"No, I was thinking about going ahead and doing it through the market tomorrow as soon as the market opens.",22
-fomc-corpus,1991,As soon as the market opens?,7
-fomc-corpus,1991,That's what I think I'd do.,7
-fomc-corpus,1991,Okay.,2
-fomc-corpus,1991,Not 11:00 a.m.?,8
-fomc-corpus,1991,"No, nor 11:30 a.m.",10
-fomc-corpus,1991,The next meeting is December 17 and we will adjourn for our luncheon for our departing colleague.,20
-fomc-corpus,1991,Is that a one-day meeting?,7
-fomc-corpus,1991,A one-day meeting.,5
-fomc-corpus,1991,"Before we get started with our agenda, I'd like to welcome our two new Board members to their first FOMC meeting. I trust it will be both interesting and inspiring; I can pretty much guarantee the first.",43
-fomc-corpus,1991,"Mr. Chairman, there may be some people who still entertain doubts that Governor Lindsey is actually from the Fifth District, but he is wearing the Thomas Jefferson tie. If you can arrange it, I think it would be good if you would call Terry Sandford and tell him you'd like him to come over and meet him; he would recognize the tie!",70
-fomc-corpus,1991,Would somebody like to move the minutes of the previous meeting on November 5th?,17
-fomc-corpus,1991,So moved.,3
-fomc-corpus,1991,Is there a second?,5
-fomc-corpus,1991,Second.,2
-fomc-corpus,1991,"Without objection. Gretchen Greene, would you bring us up to date on the Foreign Desk?",19
-fomc-corpus,1991,[Statement--see Appendix.],6
-fomc-corpus,1991,"Are there questions for Ms. Greene? If not, would somebody like to move the [amendment to the reciprocal currency arrangement with the Netherlands Bank] that was requested?",35
-fomc-corpus,1991,I'll move it.,4
-fomc-corpus,1991,Is there a second?,5
-fomc-corpus,1991,Second.,2
-fomc-corpus,1991,Without objection. Would you continue?,7
-fomc-corpus,1991,I would like now to report to you on our discussions with the Bundesbank regarding the possibility of altering the double-forward investment facility provided for the investment of the bulk of the U.S. authorities' German mark reserves. [Continuation of statement--see Appendix.],51
-fomc-corpus,1991,Are there any questions for Gretchen? Would somebody like to move [the ratification of the transactions in foreign currencies during the intermeeting period]?,29
-fomc-corpus,1991,I'll move it.,4
-fomc-corpus,1991,Is there a second?,5
-fomc-corpus,1991,Second.,2
-fomc-corpus,1991,Without objection. Thank you very much. Peter Sternlight on the Domestic Desk.,16
-fomc-corpus,1991,[Statement--see Appendix.],6
-fomc-corpus,1991,Questions for Peter?,4
-fomc-corpus,1991,What is the status of the notion that the Treasury would rely less on long-term bonds?,18
-fomc-corpus,1991,"Well, Secretary Brady acknowledged at a couple of recent Congressional hearings that they are looking at the question of the extent of their reliance [on them]. He seemed to be trying to downplay the effects that might follow from that, noting it is only a modest portion of their net borrowings; 7-1/2 percent or so is done in the 30-year area. I believe that, after a very sharp reaction following that first day's reference, a clarification came out [from the Treasury] to the effect that people should not look for them to abandon totally the long bonds. So, the market was left with the impression that there might well be some scaling down but probably not an abandonment.",140
-fomc-corpus,1991,Is this a variation of the Operation Twist idea?,10
-fomc-corpus,1991,"Well, it has some resemblance, although in the case of Operation Twist there was a positive desire to see short-term rates higher as a balance-of-payments remedy; that element has not been present this time. The Treasury might just [want to] leave both ends lower.",55
-fomc-corpus,1991,"And to our knowledge, they haven't tried to enlist the Fed in this effort--at least not yet.",21
-fomc-corpus,1991,Any other questions for Peter?,6
-fomc-corpus,1991,"Peter, is there a central tendency in the range of views on the effectiveness of this kind of thing? It seems to have had a big expectations effect.",31
-fomc-corpus,1991,"We hear such a range of views that it would be hard to say whether there's a real coalescing. I have heard very strongly put views from some in the bond market who think it would not do much good at all; and they are very troubled with the idea of tinkering with the Treasury's regularity and reliance on the long end. On the other hand, there are some who feel that some modification could be useful and recommend it as at least a partial step.",96
-fomc-corpus,1991,"Now, what is interesting here is that there has been extensive literature on Operation Twist, and my recollection is that it's pretty mixed. No one has been able to confirm that there is a significant supply-side effect occurring in that particular context. On the other hand, there is also evidence, mainly in the recent period, that the Treasury rate is higher relative to private instruments than it otherwise would be, from which one assumes that there is a supply-side effect. So, I would say that there is no really strong analytical evidence that confirms this one way or the other. And what I find a little surprising is how strongly the market responded to Brady's initial [remarks]; I think rates moved down 5 basis points at the long end of the market.",151
-fomc-corpus,1991,"Unfortunately, any time public officials make comments about taking away the supply of an instrument that the markets have been accustomed to using--. And with the considerable demand for strips that is out there, it does seem to me a bit dangerous to destroy in a sense an entire market system, including that largest commodity of all which is Treasury bond futures. That is, I think moderating the supply is quite different from any discussion of taking the instrument away.",89
-fomc-corpus,1991,"Any further questions for Peter? If not, would somebody like to move to [ratify] the actions of the Desk since the last meeting?",29
-fomc-corpus,1991,So move.,3
-fomc-corpus,1991,Second.,2
-fomc-corpus,1991,Without objection. We now move on to reviewing an issue that we have discussed previously. You may recall that Governor Kelley raised a question with respect to the directive language relating to intermeeting instructions. We've gone through a series of [discussions] on that and I thought it might be useful if Governor Kelley could bring us up to date on where we stand and perhaps make recommendations as to how we might finally resolve this question.,84
-fomc-corpus,1991,"Thank you, Mr. Chairman. The Committee will recall that after our inconclusive discussion of this matter on August 20th, the Chairman asked me, with the good help of Norm and Don, to poll the Committee and see if a preference could be developed. We appreciate the response of Committee members. Everyone participated but I have to say that it still was not at all definitive. We had presented three options. The poll came out 7 for option 1, 7 for option 2, and 2 for option 3, which left us in a bit of a quandary. As a result of that, we felt that we should at least come back today and put on the table again the two recommendations that were at either end of the spectrum [of alternatives]. If you'll turn to pages 17 and 18 of your Bluebook, alternatives II and III there represent the two ends of the spectrum of possibilities that we discussed earlier. Alternative II would represent the continuation of the current approach. And if the Committee comes out of this discussion wishing to go that route, we'll have to look further at whether or not we want to change the order of what we have. Alternative III on page 18 is the other end of the spectrum, which is to delete the entire matter and start over. I would like to recommend, if I may, alternative I on page 17. This is the response to the initial alternative number II from the memo back last fall, which is to try to use elements of what we have had but restructured somewhat. You've read that language and I won't repeat it. This is an attempt to focus on long-term goals, which is the essence of the old alternative number II. It also makes reference to the factors that the Committee considers in its directive. That is in reference to the old alternative I, which called for continuing that. Also, by watering this down and making it much more generic, it is an attempt to give, at least on an implied basis, some emphasis to the desire possibly to get away from this system altogether. So, Mr. Chairman, my recommendation would be that we adopt this language in alternative number I on page 17 of the Bluebook with the understanding, of course, that this could be brought up and reviewed at any time and probably should at any rate be looked at by the Committee at least once a year.",480
-fomc-corpus,1991,I think that's pretty reasonable and I would support your point of view on this. I think it's a clear improvement over where we stand.,27
-fomc-corpus,1991,"I would support it as well. I think it's good to have the distinction between long-run objectives and attention to the shorter-term developments in the economic, financial, and monetary areas in the same basic sentence. And I think it's an improvement over what we had.",52
-fomc-corpus,1991,President Syron.,4
-fomc-corpus,1991,"For the reasons that the Chairman and Bob Parry gave and that Mike Kelley talked about, I support this. It does make it clearer and I like the idea of considering it once a year rather than debating at Committee meetings the exact wording of this from time to time. The only question I have--I'm just curious--is that I'd like to ask Peter how much all the things we put out there are scrutinized. I don't see [this matter] coming up on the screens often. I do see it in newsletters, etc. Given the [directive] publication lags, how big a deal is that? I support doing it but I'm just curious.",132
-fomc-corpus,1991,I think [the order] gets attention when there are changes.,13
-fomc-corpus,1991,How much attention?,4
-fomc-corpus,1991,That's why it has not been a big deal.,10
-fomc-corpus,1991,It gets the analysts' attention and they write about it in their market letters and so on.,19
-fomc-corpus,1991,President Black.,3
-fomc-corpus,1991,"Mr. Chairman, I think Governor Kelley has done us a real service in bringing this question up, and I would strongly support his recommendation seconded by you. I'm particularly pleased that he listed price stability and then sustainable economic growth, since I feel so strongly that that is the route by which we reach sustainable economic growth. So, I really like the order of those.",74
-fomc-corpus,1991,"That was especially for you, Bob!",8
-fomc-corpus,1991,"Well, there were some others too--you included, I think.",14
-fomc-corpus,1991,Sure.,2
-fomc-corpus,1991,Vice Chairman.,3
-fomc-corpus,1991,I support Governor Kelley's position.,8
-fomc-corpus,1991,Governor Angell.,4
-fomc-corpus,1991,"I can support that position. I guess I don't have quite as much enthusiasm as others have expressed. It seems to me that Governor Kelley ought to know how hard it is to change it once we've done this. And with this language it's just almost impossible to change it, so I think we're back in the same circumstance. I do believe there are times that the Committee may wish to give a signal of changing emphasis; it seems to me that during the '80s we had foreign exchange markets that did need some attention. And having a way of responding to that which is necessary, I think, was helpful. At the same time the movement up in the order of ""price level stability"" was a part of the announcement or the signal of the Committee's determination in that regard, which I think frankly will get lost in this arrangement. But I can understand when something is going [to be approved] and so I'm going to vote for it! [Laughter]",193
-fomc-corpus,1991,It will shorten the meetings; that's another advantage of it. I wish I had thought to mention that!,21
-fomc-corpus,1991,President Forrestal.,4
-fomc-corpus,1991,"Mr. Chairman, I think this is a clear improvement over what we have, so I would support Governor Kelley's recommendation. I take Governor Angell's point; there's something to be said for that. On the other hand, I don't think we're precluded from making a change if at some point we really wanted to send a signal. So, I look forward to reviewing it again next year.",81
-fomc-corpus,1991,Governor Mullins.,4
-fomc-corpus,1991,"I also can read the tape and support this. I do agree with Governor Angell that it's useful to have a mechanism to signal special concern. He mentioned the exchange markets; there might also be a case where the stock market is weak or financial institutions are very weak and we might want to signal that that's a concern. As Bob Forrestal said, we still could do that. I think this is an improvement overall, though, and I would support it.",92
-fomc-corpus,1991,"Just a word to our two new members: If you seriously believe that what you're hearing here is that people are falling in basically because other people are falling in, the same people will sell you the Brooklyn bridge! Governor LaWare.",46
-fomc-corpus,1991,"I would much prefer alternative III. I think it's simple and straightforward and it gives the opportunity to emphasize in the Policy Record anything that we want to call particular attention to. However, I, too, can see that the train already has left the station, so I will support alternative I as a step in the right direction.",65
-fomc-corpus,1991,President Keehn.,4
-fomc-corpus,1991,"Mr. Chairman, while I might have a preference for adjusting the wording slightly or the order of the objectives, I think I hear the way things are going and I support Governor Kelley's recommendation.",40
-fomc-corpus,1991,Does anybody else wish to make any comments? We will not have an official vote on this but will embody the obvious consensus in the directive when that is discussed and voted upon later in the meeting. I thank Governor Kelley. And I am impressed with the way he strong-armed everybody on the Committee into accepting his position! We now move to the economic situation and Messrs. Prell and Truman will prevail.,82
-fomc-corpus,1991,[Statement--see Appendix.],6
-fomc-corpus,1991,[Statement--see Appendix.],6
-fomc-corpus,1991,Thank you. Questions for either of the gentlemen?,10
-fomc-corpus,1991,"Mike, we've talked a lot about consumer confidence over the last couple of months. I'm just curious: How much do you take into account in your forecast the Conference Board surveys and the Michigan Survey results?",40
-fomc-corpus,1991,"Well, [the reliability of the] information we are getting from those data is a matter of considerable dispute among researchers. I think there is considerable evidence that they do add something to the relevant data one has for judging what consumer spending is doing currently. The increment to our knowledge of what will happen down the road is probably more limited. We had basically taken it as a sign early on, when we saw the drop in last month's figures, that this was going to be a weak quarter for consumer spending; and I wouldn't want to read much more into it at this point.",115
-fomc-corpus,1991,President Parry.,4
-fomc-corpus,1991,"In the key assumptions section, you discussed fiscal policy and indicated that action was likely but that the impact was likely to be quite small in terms of affecting the economy in '92 or '93. I wondered if you could give us some views about what some of the most likely possibilities are. This is more a question for Don Winn, I guess.",70
-fomc-corpus,1991,"Well, I would duck that to anyone I could! If we had a strong conviction about what the composition and magnitude of any package would be, given our guess that something is going to happen, we would have put it in. We really don't know. There are significant differences among the packages, [such as] emphasis on actions that would reduce the cost of capital versus other things that would provide a rapid transfer of income to middle class households or whatever. These things vary considerably and their impacts would be significantly different, I think, in timing and potential dimension.",112
-fomc-corpus,1991,"It seems to me that a lot of them, in the effort to try to maintain the integrity of the budget agreement, end up almost with no effect.",31
-fomc-corpus,1991,"Well, that fact was one of the reasons--and I think we at least hinted at it--why we didn't put it in. I do think they still feel somewhat constrained at this point by the size of the budget deficit and the Budget Act itself. No one seems to be talking about really large net fiscal impulses, so we felt we wouldn't be missing much by not including the package in the forecast at this point and merely suggesting that the direction is likely to be stimulative but probably not very large.",101
-fomc-corpus,1991,Thank you.,3
-fomc-corpus,1991,President Syron.,4
-fomc-corpus,1991,"Mike, you [raised] a question on equipment spending. On the face of it there is a pretty significant change, with different concepts to some extent, between equipment spending in this Greenbook and the last Greenbook. There's some discussion of this, but I was curious: Is this almost entirely attributable to changes in weights in the computer sector so that, in terms of how you think businesses are reacting, there is nothing to be read into your forecast on equipment spending this quarter as compared to last quarter?",101
-fomc-corpus,1991,"Well, the change in computer deflators that went into the index is a major factor in the change in this forecast.",25
-fomc-corpus,1991,It must be a big change!,7
-fomc-corpus,1991,"But we've also anticipated, in light of the stalling out of overall activity, that there's going to be a greater deferral of equipment spending. So there's an element of fundamental change in the forecast. I might also note that the revisions in the national income accounts give a larger weight to nonresidential construction in business fixed investment. And given that that's a very weak component in the forecast, that also tends to damp the expansion of business fixed investment in this forecast.",93
-fomc-corpus,1991,"One other aspect of this is that on the trade in computers, which is subject to the same kind of influences, it does seem that there has been a structural shift. Our trade in the computer area, broadly defined, is such that essentially we now have balanced trade. We've gone from a situation in which we had a slight surplus in this [area] to balanced trade. That seems to be associated largely with the change in the structure of the market whereby mainframes and so forth are being de-emphasized and peripherals, software, and other computer processing [equipment] are being emphasized more. [These categories] are those that tend to come in from abroad and [they are subject to] all kinds of relocation decisions and so forth and so on. We have vaguely adjusted to that process as it seems to have unfolded over the course of 1991, and we see no basis for [assuming] it will change. Therefore, we have in some sense a stronger import component to computer-related demands than we had built into our forecast before.",209
-fomc-corpus,1991,"Any other questions? If not, can we start on our round table? Who would like to start off?",22
-fomc-corpus,1991,"Alan, I'll start on the theory that if I say something positive maybe we'll get three or four more [doing so] after me; that's the usual pattern. Lately, we've been starting too much on a negative note, so I'm going to go first. In terms of the latest numbers we have on the District, we have had reasonably strong payroll employment growth over the period, about a percentage point higher than nationally. Most of that is coming from manufacturing, although there's some growth in the nonmanufacturing segment. Residential construction is particularly strong over the three-month period. Contracts are up 10 percent; that's not at an annual rate; that's a percentage increase over the prior three-month period. Nonresidential is still weak. Our banking sector really continues to look very good. If we look at the numbers through the third quarter in the Eighth District overall, we're looking at: 1 percent ROAs; 12-1/2 percent ROEs; nonperforming loans that are really up imperceptibly over the last year and are at less than 2 percent; and reserves that are about 10 basis points shy of fully covering nonperforming loans. In fact, in the month of November at the large reporting banks we have seen for the first time some meaningful loan growth, mostly in the C&I sector. That sector in that month was up 2 percent--not an annual rate but 2 percent absolutely. The anecdotal information is hard to read, but what I keep picking up is that [business conditions] are basically pretty much the same, though I wouldn't be surprised to see a little deterioration in employment showing through in the last couple of months of the year. The national sentiment that we all read about in the press is quite a bit different than the numbers we're seeing in the Eighth District. As for the economy overall, the only comment I'd be inclined to make is that I think there are dangers inherent in trying to apply what the economy is doing right now to what policy ought to be doing. I worry increasingly about that. Obviously, that doesn't take account of the lags, and there is no gauge of the thrust of policy in there. That's all I have. I hope we get some positive comments to follow. [Laughter]",457
-fomc-corpus,1991,That wasn't bad; it's like a jump-start. President Forrestal.,14
-fomc-corpus,1991,"Well, maybe I should defer my comments! [Laughter] I'm not sure I can fulfill Tom's expectations, although I don't think I'll be completely negative, Tom. Basically, Mr. Chairman, there has been very little change over the past couple of months in the level of economic activity in the Sixth District. That is to say, I think we're just bumping along the bottom; there's no acceleration, but there's no perceptible deceleration either. Some of the people I've talked to over the past couple of weeks, including our directors, tend to confirm this. They certainly are not very happy with the state of the economy, but they also are reporting that they don't anticipate any further declines. Retail sales are better than retailers had expected. One of the things that is constraining sales in the District is low inventories, and that's especially true of discounters. All of the retailers, of course, are citing very cautious spending--a cautious attitude--on the part of consumers. A lot of consumers apparently are waiting for further markdowns, further promotions. So, as we get closer to Christmas, there's an expectation on the part of some of the retailers that they may get a surge in their sales this week or early next week. We did a survey of retailers in the four states that have most of the population in our District and they're anticipating an increase of 2 to 3-1/2 percent. That was [the figure] for the 23 days ending on December 7; I hope they're able to realize that for the entire season. The gains are generally in nondurables, as I guess we would expect. Residential real estate activity is basically flat. The commercial side is still very, very poor. The commercial developers are still complaining about lack of credit. But for the most part I think their not getting credit is a good thing because I don't think they are very good credit risks, at least the ones I've talked to. On the other side of the fence, very large firms in the District outside of the commercial real estate area are reporting that bankers are now coming down and visiting them with some regularity, attempting to book some business. Those firms, of course, are the ones that can go anywhere in the marketplace to get financing. So, that's the situation in the District. It's very little changed; it's basically flat for the most part. With respect to the national economy, our forecast was revised down but not quite as much as the Greenbook forecast. Our forecast for the current quarter and the first quarter is somewhat higher than the Greenbook. As we get out in the second half of 1992, the two forecasts are about the same, but then we show a modest deceleration as we get into 1993. The differences are basically in consumption and investment. Our inflation forecast is lower this quarter and in the first quarter of next year than the Greenbook but higher over the forecast horizon. I certainly agree with the comment in the Greenbook that the risks to the forecast seem to be more evenly balanced than they have been recently. What all of this suggests to me in terms of policy is that we certainly have done a lot over the past several months. And I think at this point that we have to be very careful not to overdo the stimulus in the economy; we need to proceed very, very cautiously. Thank you, Mr. Chairman.",682
-fomc-corpus,1991,President Parry.,4
-fomc-corpus,1991,"Mr. Chairman, business sentiment and confidence and general economic conditions in the Twelfth District have deteriorated since our last meeting. Confidence of District business leaders and expectations of retail sales have weakened. The comments we receive from our directors and Beigebook contacts are now almost uniformly negative with the only exceptions being those from Utah and Idaho, where conditions are really quite good. Department store and auto sales in early December are reported to be extremely weak throughout the District. Employment conditions in California and the State of Washington have worsened while remaining the same in other District states--that is, relatively strong with the exception of Arizona. After leveling this summer, payroll employment in California has fallen for three consecutive months. And employment in the State of Washington has declined in 7 of the past 8 months, with job losses centered in construction and also in trade. Manufacturing employment in the State of Washington remains stable and that's largely a result of the strength of Boeing. Conditions in most other District states are relatively stronger. In October, employment expanded at annual rates ranging from 1.6 percent in Hawaii to 13 percent in Alaska, with most states growing in the 7 to 9 percent range. Employment in Arizona, however, declined for the second consecutive month. As I'm sure you know, agriculture has become the largest industry in California and it's very important in the District as well. We seem to have a series of problems that affect agriculture, such as drought and those kinds of things. The new one, of course, is the white fly infestation, which is devastating the Imperial Valley. What we now see is of such a magnitude that it actually had a significant impact on the CPI in November. So, we're not sure what other natural disasters can befall us, but there probably are one or two more that we could experience. Turning to the national outlook, data since our last meeting have certainly led us to revise down significantly our forecast for real GNP in this quarter and the next. Like the Greenbook, we expect the economy to be roughly flat in the current quarter. For the first quarter of next year we do have a slight positive; but since the uncertainty is so high I certainly wouldn't argue strongly with the small decline incorporated in the Greenbook. In the quarters that follow we have growth rebounding to around 3 percent, with the major source of strength being spending for inventories and also some strength in the interest-sensitive sectors of the economy. It seems to us that the outlook for inflation is clearly encouraging. It certainly was good to see the lower PPI and CPI figures for November as well as the moderation in unit labor costs. Overall, we expect a reduction of inflation in 1992 compared with the average of this year.",547
-fomc-corpus,1991,"Incidentally, is there anything that is being done on the infestation to suggest that it can be eliminated at some point?",24
-fomc-corpus,1991,"They really don't have many ways of dealing with it. Apparently, the chemicals don't work very effectively, so what they're looking for are some natural predators. I think they have found some small [unintelligible] or something like that that is a natural predator. But the infestation is spreading; it has already gone into Arizona and is moving a little farther north in California, but it won't get too far north because of the cold. But the Imperial Valley, which has mainly truck types of crops--lettuce, tomatoes, strawberries, and things like that--really has been devastated. The white flies have wiped out over 70 percent of the honeydew crop, for example.",136
-fomc-corpus,1991,What kind of insect is that white fly?,9
-fomc-corpus,1991,I don't know. I'll get the technical description later.,11
-fomc-corpus,1991,President Keehn.,4
-fomc-corpus,1991,"Mr. Chairman, I'll admit to feeling a bit on the gloomy side. In a District context, the moderating pattern that has been in evidence for quite some while is continuing. I don't think it's necessarily accelerating, but it certainly is continuing. As I have so frequently commented, the automotive business of course has a very major impact on the District's activities and it is continuing to exert something of a negative influence. The order rate for dealers has been consistently underneath the manufacturing production level with the result that the production schedules are continually reduced. In the fourth quarter, production is going to come in substantially under what just a month or two ago was revised to the very lowest level possible. There was something of an increase in the order rate in the first week in December, but I am told that about half of that increase was the result of fleet sales, not higher retail demand. The first-quarter production rates are very uncertain at this point. Initially, they have been set at a level a little lower than the fourth-quarter level, but there is every expectation that as we get into the quarter they will be reduced further. But because the first quarter of 1991 was so very weak, in a comparative sense at least the production levels may exert a positive influence. The forecast sales levels for 1992 are about one million units higher than 1991, but much of the increase is in the second half. And, frankly, it seems more of a hope than a forecast of the reality. All of this is backing up into the supplier group. Steel companies are experiencing cuts resulting from the auto manufacturers. The orders have been reduced by about 10 percent for January and February and, as a result, the operating rates in the steel industry have declined and are currently down to about 77 percent. Therefore, the first-quarter expectations for steel will be weaker than they were before. Still, they are expecting for the full year that shipments will come in at about 82 million tons. That would be up from about 78-1/2 million tons this year. The other suppliers to the auto sector are experiencing similar curtailments. It looks to us as if in a direct and indirect sense the automotive industry may have a negative impact of as much as 1 percent on fourth-quarter GDP; and it may also have a continuing negative effect in the first quarter. The heavy truck business continues to be terribly weak. The class A truck shipments this year will come in at about 100,000 units. For next year the expectation is that the shipments will go up to 109,000 units, so it's quite an increase. Nevertheless, we have to compare that number with what shipments could be in a good year, and shipments could come in--have come in--at as much as 175,000 units. District employment increased in October; that's the latest month that we have available. But the unemployment claims rose in November, and a survey of hiring plans for the first quarter indicates a decline in the Midwest from the fourth quarter. The Chicago Purchasing Managers survey indicated a pretty substantial decline in November; there was even a steeper decline in Detroit. And the Chicago December report, which will be coming out later this month, shows a further decline. With regard to retail sales, it's a little hard to get a picture; but I think the outlook is a little better, particularly for those in the discounting business. For those people the early Christmas sales seem to be running a little over last year. But alternatively, those who are not in the discounting business are having a very tough time. One specialty retailer I talked to said that currently he's having the worst experience he has had in 29 years. He gave me a report on sales in the various regions that they cover and I was surprised that in Chicago in the first week of December they had an 8-1/2 percent decline in sales from the first week of December last year. On the inflation side, given the competitive conditions, pricing is really very, very tough. One major manufacturer said that they have gotten decreases in the prices of their outside purchases of 1.4 percent this year and they are forecasting a further 0.6 percent decrease next year. Despite some attempts to raise steel prices, I am told that steel prices more broadly are still at about the 1980 levels, so there is no improvement there. The wage patterns continue to be favorable, but I will say there's a growing level of anxiety about the Caterpillar strike, which at this point looks very, very difficult. In a national context, the reduced staff forecast certainly seems plausible. In fact, our current look at the first quarter would be just a bit better than the staff forecast, but we have the remaining quarters of 1992 weaker than in the staff's outlook. I think there's a lot of hope in this expectation that we'll get a turnaround. To me the risk is that the growth rate, if we get it, won't be strong enough to sustain itself and that we could, therefore, get back into a deteriorating environment. And it seems to me that our policy actions have to deal with that risk.",1038
-fomc-corpus,1991,President Black.,3
-fomc-corpus,1991,"Mr. Chairman, I think it's a very difficult time to forecast. Of course, it's always hard but it is particularly difficult now. Looking back, the vast majority of forecasts--and that certainly includes our forecast--underestimated the strength of the negative forces that are apparently working in the economy. But I guess by now we really should realize that some of this restructuring and downsizing that we've seen in a lot of different industries will not only eliminate existing jobs--forever probably--but will also raise a lot of doubts in the minds of others about their job security, with predictable effects on consumer and business confidence. I think we've all been aware that there are some important structural changes taking place in the economy, but we underestimated the extent to which they were restraining consumer income and spending. And, of course, in this highly uncertain environment, the disinflation process is making it increasingly difficult for businesses to pass on any increase in prices. The firms are naturally very reluctant to hire and are cautious about inventory management, not to mention capital expenditures. This caution really augurs well for the long run because I think we're going to emerge with a much more competitive society than we had before. But certainly in the short run it has some implications for the level of business activity and I think it's going to retard the recovery beyond what we had thought earlier. When you think about the structural changes and couple those with some cyclical changes occurring on top of them, it makes it very difficult to predict how strong and how persistent these restraining forces are going to be and to what extent they're going to be offset by the lagged effects of the considerable easing in monetary policy we've done over a period of a number of months. The Greenbook projections of the real economy strike us as reasonable and quite plausible, given what we now know. We do think the staff might be a little high in their projections of inflation, although those are certainly reasonable. But I believe the inflation outcome in [1992] is going to be a tad better than projected in the Greenbook if we can maintain the System's credibility about our long-term objectives. That last point is a very crucial one as we move into this policy-setting process today. Another measured step toward ease of the sort we've been taking for some time is probably appropriate now, but I think any more aggressive move would be quite counterproductive at this point.",478
-fomc-corpus,1991,President Boehne.,5
-fomc-corpus,1991,"In the Philadelphia District, I'd say [activity] is flat to down, with little prospect for an upturn on the horizon. Manufacturing, which had been a relative bright spot earlier in the year, has turned down--and rather sharply--in December. Some of that is auto-related but it's broader than that. Construction, which had seen a modest improvement in housing, is down; there's a lot of gloom in the construction industry, with very little near-term prospect for improvement. Retail sales are about even with last year; but the number of people that the retailers are hiring is down, so there's a negative effect on employment. I still see a slippage in loan quality at banks. It's particularly evident--though it may just be because I've spent more time on it in the last few weeks--in de novo banks, which seem to be running into some additional problems. In terms of attitudes, I don't sense that there has been a deterioration in attitudes so much as a ""hunkering down"" kind of sentiment--a view that what we have may last a while. Turning to the nation, the Greenbook forecast is certainly reasonable, but I think the risks are still on the down side, perhaps more so than six weeks ago when we last met. It's difficult to find a sector to lead a recovery. And having gone through this so-called inventory cycle, I have less confidence in that the second time around than the first. I think this hunkering down attitude just reflects less confidence that we will have a recovery. There's also a second downside risk and that is that monetary policy will continue to have less of a stimulative effect than one might ordinarily think. This could very well turn out to be one of those recessions--and we've had them before--in which we have to push the fed funds rate below the inflation rate in order to get the kind of forward momentum to the economy to bring the Greenbook forecast about. In any event, with inflationary pressures subsiding--and they clearly are--I think this double-downside risk provides room for some additional monetary easing, and I would prefer it sooner rather than later.",430
-fomc-corpus,1991,President Stern.,3
-fomc-corpus,1991,"Thank you, Mr. Chairman. As has been the case for some time now, District business activity is mediocre. It really hasn't weakened much--and we seem to have been insulated from some of the major problems around--but it isn't all that strong either. Unemployment remains uniformly low in the District; attitudes, nevertheless, are quite negative. There are some positive signs, for what it's worth. It really is true that you can't find a parking space in the shopping malls on the weekends. Retailers are quick to point out that people are looking for bargains and not buying as much as they used to, and so forth. But we'll see if that plays out. All I can tell you is that there's a lot of traffic. The auto dealers report that sales are bad but traffic in the showrooms has picked up. Perhaps people are looking for bargains or perhaps they're getting ready to buy something sooner or later. In any event, there's at least a glimmer of hope there. Sectors that have been in pretty good shape for some time include tourism, agriculture, and the retailers who are reachable from Canada. Those areas of the economy continue to move along as they have been moving and really are quite healthy. With regard to the national situation, I agree with the comments that have already been made and, as the Greenbook forecast is currently depicting, that the risks are probably symmetric. I was puzzling for a long time as to why attitudes, particularly business attitudes, are as bad as they are, given that the aggregate data don't look that bad. But it seems to me that the aggregate data are starting to catch up with the attitudes, and that's reconciling that difference at least in my mind. But what I would emphasize at this point is a comment that Mike Prell made earlier, which is that disinflation is in train. And I think that's something that we can look forward to. Anecdotally, it's very hard to find much in the way of price pressures. I was struck by a meeting we had at the Bank recently during which a lot of private-sector employers in the Twin Cities reported [that they expect] wage increases of about 3 percent for the year ahead. Of course, benefits are rising more rapidly than that, but 3 percent is the kind of number we haven't heard in the Twin Cities in quite some time. There's a lot of concern looking to the future about aggregate demand; but we've been looking at supply, recognizing that that's somewhat of an artificial distinction. But it looks to us at least as if the 1980s were characterized by unusually rapid growth in labor force participation and unusually large increases in hours worked. If that is not repeated in the 1990s, and it doesn't seem likely, then the supply side of the economy's ability to grow seems to me to be constrained unless we get real improvement in productivity--which, of course, is possible, but hard to bank on--or unless we believe that when the aggregate demand comes back the gaps are going to be made up by imports. So, we may be looking at a situation where not only is aggregate demand likely to be subdued, but the growth in productive capacity may be as well.",646
-fomc-corpus,1991,Governor Angell.,4
-fomc-corpus,1991,"Yes, Mr. Chairman. Even though it seems as if the economy is dead in the water--and the forecasts for the fourth quarter and the first quarter certainly suggest that--I think it's better to look at the economy as being balanced by certain sectors and regions in which growth is occurring, albeit rather slowly, and other sectors and regions in which there are continuing adjustments and some retrenchment. So, it seems to me that there still is not the synchronization of all of these sectors and regions into a common inventory cycle phenomenon. Consequently, it seems to me that the seeds for growth are building even while we're in this period of a pretty flat economy. Secondly, I want to suggest that the pessimism we see associated with this [economy] is a real estate phenomenon. It's a long-cycle real estate phenomenon and it is accompanied by depository institution difficulties that look just like those that were experienced in the 1920s and 1930s. And it seems to me that we are not immune from the sense of pessimism associated with that kind of an event. I think it would be well for us to remind ourselves of some significant differences between the current conditions and those that prevailed during that last banking-real estate episode. First of all, I would suggest that the monetary aggregates--whether you look at Ml, M2, or M3--are growing; they are not contracting. And there's a substantial difference between monetary contraction and slow money growth. If you look at Ml as well as M2, there's some indication here that we are supplying liquidity to the system. And that liquidity, as shown in the steep yield curve, will work its way. Now, in the 1930s the banking system did not have the heavy concentration of Treasuries in their portfolios that they hold now. At that time, as many of you probably remember, the government debt was contracted from about $24 billion in 1920 to about $16 billion in 1929. So, in that episode, we didn't have commercial banks chasing yield into long-term Treasury securities. And the commercial banks had a quality bond problem. It wasn't just a question then of having bad loans; it was also a question of having bonds, both municipal and business corporate bonds, that were not marketable. And when that quality spread developed, the banking system was, of course, locked in with those securities. So, they didn't just have bad loans. They had bad loans in bonds as well as bad loans of the usual kind. Of course, they did not have something that we have today and that is deposit insurance. I know a lot of people have been complaining about deposit insurance systems, but this is not too bad a time to have one, it seems to me! [Laughter] And, of course, that's why we haven't had a monetary contraction. If we had had these depository institution failures without deposit insurance, it seems to me that there would have been no way we could have kept the money stock growing. The second thing I would mention is that we are not in a deflation period as measured by the producer price index. In the latter 1920s and early 1930s, we had very steeply declining prices that brought the price level down 40 to 50 percent below where it had been before. We haven't yet had what I would call a significant producer price index decline. And the fact that the PPI for finished goods is now year-over-year at minus .5 percent is hardly an indication of a deflation underway. The third point I would mention is that our system is indeed a transfer payment system that does offer a huge amount of support. I mean by that not just Social Security, but Medicaid, Medicare, and unemployment compensation, and also a rather large pension plan program. So, that provides a great deal of sustenance. The fourth thing I'd mention--I know one could add more to the list but I'm going to stop at four--is that world trade is expanding. It's not expanding quite as rapidly as it was a few years ago, but it's still expanding. And in the 1930s, as you know, we were undergoing the threat from the Hawley-Smoot tariff. So, this circumstance is so different that to me it doesn't make sense for us to let that kind of fear permeate our ranks. Now, as to the monetary aggregates, I frankly am not worried at this point about M1's growth rate. When I look at Ml and M2--and M2 seems to be dawdling along at a little higher [growth] rate than it was before--it doesn't seem to me that this is a problem at this point on either side. I'm not going to join the forces of alarmists in regard to Ml. But I do remember, Ed, that in 1986 when I was not too worried about M2 growing at a rate of 9-1/2 percent and some of you were saying that that was a problem, that it did turn out to be somewhat problematic. So, I don't know at what point in time liquidity in a sense catches hold and shows up. At this point, commodity prices do not show any force of over-liquification as Ml's growth rate might indicate. That is, I don't see any upward bulge in commodity prices that says we're putting too much liquidity in the system. But neither do I see commodity prices forecasting a significant deflation. It does seem to me, though, that the commodity prices are forecasting stable producer prices and some diminution in the commodity price index. But I think it's worth noting Bob Parry's report regarding agriculture. Civilizations do go through periods in which certain [anomalies] in agriculture show up. And it seems to me that we do run the risk that we're in an era in which food prices may be subject to more [unfavorable] surprises than good surprises. In conclusion, it seems to me that the healing forces and the recovery forces--with a little longer time lags than we're used to--are really underway. I don't want to try to do any better at forecasting [than the staff]; I don't have any quarrel with Mike's forecast at all. I don't think we've ever been to this place before, and I don't know for sure that that's the way it's going to work, but it does seem to me that this is a time for a little patience.",1299
-fomc-corpus,1991,Bill Hendricks.,5
-fomc-corpus,1991,"Thank you, Mr. Chairman. We concur with the Board staff's view that growth of the economy has stalled, although we are not quite as bearish about retail sales in the fourth quarter as is indicated in the staff's estimates. Perhaps, like Gary Stern in Minneapolis, we view the outlook from the vantage point of a District that has outperformed the nation since last spring, although there are signals of softening in our area, too. Ohio unemployment rose slightly in November for the third consecutive month and the unemployment rate held steady at about 5.6 percent, which is low relative to the nation. Retail sales and manufacturing production also have been stronger than the national averages, at least through September. And construction contracts for both non-residential and residential homes have continued to grow faster than for the nation through October. Our concern, as Si Keehn also has indicated, is that scheduled cutbacks in auto production extending into the first quarter of '92 may be working through the auto supply industries in our District. Steel operations are under downward pressure. Our steel contacts note that delivery lead times have been shrinking in recent weeks; customers are no longer on a quota; and order books for flat rolled steel now have openings for late January delivery. Capital goods production is still mixed but apparently on a slowly rising trend. I would conclude by mentioning that, despite a pervasive mood of pessimism, even among business executives we see no widespread cutbacks of capital spending plans. Indeed, some producers plan increases in 1992 and they have not changed their plans, while a few others are scaling down spending increases in view of the lower-than-expected sales and profits in recent months.",333
-fomc-corpus,1991,President Syron.,4
-fomc-corpus,1991,"Thank you, Mr. Chairman. In the First District the economy remains poor, but we have some hope that it may [improve] to mixed. However, there is concern that the mood--you probably saw that story in the front page of the Sunday New York Times about depression in New England--certainly exceeds the reality in terms of sourness. I think this is something that has been spreading nationally recently, not just in New England. But even though there isn't a fit between the mood and the reality, this does have a psychological effect which feeds back on the economy, and it's obviously something that overhangs [unintelligible]. We think that we probably would not be that far from the bottom in New England if we were to have a national outcome somewhat like that in the Greenbook in that employment losses are stabilizing and there is some beginning of stabilization in the banking situation. On the retail side, we talked to retailers over the last several days and they say that people are being extremely cautious. This is reflected in some interesting ways. One way, according to a major retailer, is that as there are successive sales, a lot of people are coming back and bringing items to the return window because something they bought at $14 last week is advertised at $9.95 this week. So there's more foot traffic in a way than there are sales, though we don't have any problem with parking spaces at this stage! I'll report what one retailer told us regarding sales: Sales, while bad, are not terrible in that there's an expectation that on a year-over-year basis many [retailers] may actually break even, though some national chains we've spoken to have indicated that they see a spreading of the situation in New England to the rest of the country. Part of that is because inventories have been kept so lean, and purposely so. And some retailers say that they are losing sales because inventories are so lean. But if the choice is to take a chance on one side or the other, they are not going to [take it on the side of] inventories. The job market remains very soft. A personal anecdote on that is that we have something called a ""sunrise shift"" in our cash operation, with hours from 4 to 8 in the morning and no benefits. It has turned out to be very effective for us. We had three openings on that shift and when we advertised in the Boston Globe we had 1,000 applicants. The applicants actually had to come in and apply--there wasn't any sending in of resumes--so we know that people were serious about it. On the other side, we do see some change in the timing of projects by state and local governments with the notion that this is a good time both to finance and to get lower construction costs. As far as the Greenbook goes, we find it realistic this time and possibly even slightly too pessimistic--in terms of what it forecasts for the economy per se, not the potential results. We do think that the unemployment rate for any given level of output could be slightly higher than the Greenbook forecast. But, looking at all of this, one starts to [question] what went wrong and why things are so much softer than they had been. There has been some reference, and I think appropriately so, to the restructuring phenomenon and the effect of that on confidence and to these longer-term issues about which there may not be much that we can do. Another interesting question, and I don't know the answer, is whether any of the changes in the tax code and the composition of employment this time have diminished the effect of the automatic stabilizers in some ways--there must be some data on this--and whether the decline for any given change in economic activity and federal receipts has been a little less this time. There are arguments one can make to say that that was the case. Whatever it is, things aren't working as expected. And in an [environment] in which things aren't working as expected--even though, as I say, the Greenbook forecast is pretty realistic--what I'm concerned about is the risk or the impact of an error. And I think Mike mentioned that. We've been through this a number of times; we don't need a lot of discussion on the amount of fragility in the financial system or in expectations. But I do think one has to be quite concerned about the potential spreading of this level of inappropriate panic. Like many other people, I do see an improvement in inflation. I see it on the wage side and, with the number of medical providers that we have in our District, we've begun to see even the beginning of some steps being taken on benefits, which will have an effect in the longer run. As far as policy goes, I know that we have this overhang regarding what may happen on the fiscal side. But from my own perspective, that argues for our doing what we think we can more promptly rather than less promptly before concerns become evident [unintelligible] have a little less uncertainty about what the range of options may be on the fiscal side. I'll finish by saying that if an action is taken, I think there is some value to maximizing the signal impact of any given amount of change because of what I personally feel are the psychological aspects of this. There's nothing we can do about the short run but the environment that we've been in I think does demonstrate the problems involved in an interest-rate targeting regime and what that implies in terms of discrete steps.",1106
-fomc-corpus,1991,Governor Mullins.,4
-fomc-corpus,1991,"Well, I think the economy is dead in the water with no forward momentum or maybe drifting back a little but with no momentum there as well. I can't really quarrel with the Greenbook forecast for the fourth quarter or the first quarter. For the second quarter of next year the Greenbook has 2.6 percent real growth in GDP. We haven't had a quarter like that in over 3 years. If we get it, it could be perceived as a boom and might be disorienting to people! [Laughter] I think that second quarter is where it is difficult to see what is going to happen. The Greenbook puts an emphasis on the inventory cycle and on a rebound of consumer spending as the saving rate falls. Since I've been here I haven't been impressed with our ability to predict inventories, but the logic is there for the inventory side. The consumer rebound is difficult for me to see when I think of the environment next year where the media will have a couple more negative quarters to work with. We will have a political debate which will aspire to divisiveness and may achieve it. I think there is serious downside risk for a stalled economy. The most obvious one, and the one I would be most concerned about, is that if confidence continues to be a problem, with the prospects for the political debate and the media hype, these fears will lead consumers to increase their saving rate. And since they are 60 or 70 percent of the economy, that could propel us downward pretty quickly. There are many other downside risks for next year, not only the fiscal policy foolishness. Already perhaps the speculation about an investment tax credit could be sufficient to freeze capital spending plans for a while. And, of course, we have large banks on the precipice as well as maybe a couple of industrial companies as well. There are international events. So, I see a little more risk on the down side. And, of course, underlying all of this is the continuing pressure from this retrenchment process, the balance sheet adjustment process, which it seems to me in retrospect has been going on for three years. The recent third-quarter GNP number, which has now been wiped from all of our data, was revised to 2 percent. We thought it was going to be revised up. That 2 percent real growth in GNP was the best quarter since the first quarter of '89, and I think it was the first quarter of '89 that was biased upward by drought effects. So, the compound growth rate over these three years from the first quarter of '89 to the first quarter of '92 as projected is 1/4 percent annually; essentially, we've had three flat years. So, I think the contractive pressure of this retrenchment process is strong; it's durable and it's stubborn. I see no evidence that it's on the brink of exhaustion. Can monetary policy help? I think it can and has. One wonders where the economy would be without the easing actions we've taken. I believe the easing we did last year helped lift the economy out of the more traditional recession--the traditional Gulf or oil-price-related recession--which was superimposed upon this longer-term adjustment. More recently, I believe the moves we've made since August have helped stabilize the housing recovery and also have arrested the free-fall in M2 growth and put it back into the lower end of the range. But it seems to me the important role for monetary policy in the current environment is in facilitating this adjustment process itself. Monetary policy has raised stock prices. It has produced the issuance of equities, which has helped in the de-leveraging. It has decreased bank funding costs, which allows banks to create this margin that will help in building their capital. The reductions in the prime rate have reduced the debt burden for firms and consumers because a lot of home equity loans are tied to the prime rate. And, of course, mortgage refinancing has also reduced homeowners' debt burdens. Even though much of the force of monetary policy has been absorbed in this balance sheet adjustment process, I don't view it as wasted energy. This is important work for monetary policy; it is necessary and indeed unavoidable work. There is no way monetary policy can short-circuit those adjustment processes, and we shouldn't try to rekindle the excesses. I view a role of monetary policy as advancing the day in which consumers, businesses, and banks can turn to future growth. So, even if we don't see it immediately giving rise to real spending, I think it is still having a beneficial effect. Where are we in terms of monetary stance? I think there are some positives here. We have moved [down] 125 basis points on the fed funds rate since August; we have moved 75 basis points in the last six weeks. M2 growth is once again positive and has moved [up] into the lower end of the [Committe's long-run] range. The dollar is down. It's still not as low as it was last year at this time, but it is lower than the Greenbook forecast. That is offset a bit by the softness in the foreign economies. The stock market, despite a few shudders, has held up; the market sees no double-dip. One might make some argument on that as well, but at least it's up there. The yield curve is still steep. People are betting real money that rates are going to be higher in the future, and the quality spreads in the debt market also have remained relatively narrow. The housing market appears to be holding up. Consumer confidence is very low, but it's still well above the lows of last October and still well above where it was in the 1982 recession. At least on the Michigan survey that is true; the Conference Board [index] is somewhat lower. I think the recent round of easing and where we stand now has been sufficient to keep the economy from turning down and to keep it from gathering momentum on the down side. But it has left the economy pretty much at a standstill against these forces of retrenchment and I see the downside risks overhanging next year's environment. I think we need to be moving ahead; it would be useful to accelerate the balance sheet adjustment process and offset its impact. Moreover, I think it's now safe to say that reports of M2's death were highly exaggerated. It was only a flesh wound. We saw M2's weakness in the summer and now we see weakness in the real economy, even though other aggregates were giving more positive signals. We have seen M1 grow at a healthy rate, but we haven't seen that associated with healthy [economic] growth. I wonder--and maybe Don Kohn can answer this later--my general impression on M1 is that it is growing a bit more slowly than our models would expect, given the reduction in interest rates. This time around we have no exogenous shocks; we have no oil price increases or wars; we basically just have to recognize the force of this retrenchment. And in this environment my view is that we ought to look for consistent monthly growth of M2 in the upper half of the range. I also continue to think that with a prime rate of 7-1/2 percent, given outside analysts' forecasts of near-term inflation in the 3 to 3-1/2 percent range, real rates to final borrowers remain high at 4 percent over prime. The real prime rate doesn't look like easy money to me. So, in conclusion, I still think we need an adjustment in policy to acknowledge and incorporate the downward pressure from this retrenchment process and help the economy move ahead. I don't view this as aggressive counter-cyclical policy but rather as an attempt to achieve a monetary stance that will both facilitate this adjustment process and have a little left over for growth. I don't see potential damage to the objective of reducing inflation. We don't have high M2 growth. We don't have high credit growth. If you take the federal government out, credit growth is quite anemic. And we don't yet have a federal funds rate below the expected inflation rate. In last summer's Greenbook, we were satisfied with the disinflation path implicit in 3 percent real growth. Now we have a few quarters of flat or negative growth and I can't see the risks in returning to the 3 percent path. If we don't move, I think we risk instability. How do we make the adjustment in monetary stance? My feeling is that it may be time to reconsider the pattern of moving in an incremental approach and making the smallest moves possible. I'm concerned that this may dissipate the impact of our actions and not have the signalling effect. I'm also getting a bit concerned about the way the market is responding to the easing pattern rather than perhaps to economic fundamentals. They think we ease on employment reports and before [Congressional] testimony. They're predicting policy easing rather than focusing on the fundamentals, it seems to me. And I wonder how much benefit there is to making another fully anticipated minimum size policy move. We had academic consultants in the other day and one of them said, in effect: ""It's time to get this mule's attention."" I doubt that another 1/4 percentage point tap on the mule's head is likely to do much. It may be time to figure out where we want to be and get there and make a stand. So, I still think we need an adjustment in policy, but in view of the lags I believe we should try to get the work done ahead of the uncertainties of next year. I would like to be in a position where we would have the expectation that we would not have any easing to do next year--to be essentially in a symmetric position. We do have to save some ammunition for emergencies, but I'd rather make the bulk of the adjustment in a deliberate manner than gradually dribble out 1/4 points with the perception that we have a lot more to go. I'd like for us to be in a confident position to say the Fed has done its part; M2 is growing; real rates are not high. My guess is that there is not a unanimous consensus on this; indeed, I think we have done a lot lately. We might consider at this stage waiting a bit and doing nothing--waiting a few weeks to break the pattern of ease and to let the market think about economic fundamentals. We could wait until the data are more convincing and then in our own time, for our own reasons, implement a discrete, significant, adjustment. If the data don't convince us, we can stand pat or move another 1/4 point. I think a few weeks one way or the other will not make a lot of difference. I certainly would not oppose a move now because I think we ought to have a lower rate, but I might prefer waiting until we have something to communicate rather than simply to move another fully anticipated 1/4 point. In my view, we don't have much room left and we ought to make every move count. So, even though I think we should make a move, if there's not agreement, it might be useful to break the pattern of a slow slide and step back and wait to make a significant move when we feel comfortable with such a move. Obviously, I wouldn't vote against another small move, but on balance I would be comfortable waiting until we have the confidence to make a symbolically louder move.",2308
-fomc-corpus,1991,Governor LaWare.,4
-fomc-corpus,1991,"Well, Mr. Chairman, at the risk of sounding like a broken record, I will restate my conviction that what we have now is a crisis or paralysis of confidence. There is clearly [underway] a deliberate restructuring of balance sheets on the part of consumers, businesses, and banks to reduce debt and increase equity and liquidity. And given current attitudes, until that adjustment is much further along than it is now, I think we will not see a return to stronger [economic] growth patterns. Confidence is at best an ephemeral concept and basically it is a psychological phenomenon. Perhaps if we had a clinical psychologist on the Committee, it might help! In the meantime, I remain unconvinced that confidence will be shored up by a further easing in policy. While I recognize that the burden of high levels of debt is somewhat alleviated by a lower structure of interest rates, at the same time I do worry about the dollar and the risks related to a steeper slide in its value due to an even more significant interest rate differential. A flight to safety may be the thing that is keeping the dollar as stable as it is, given chaotic conditions in the Soviet Union and eastern Europe. And yet I am persuaded that we have not seen the full effect of the easing that we have already accomplished, and I would like to wait before initiating any further ease.",273
-fomc-corpus,1991,President Hoenig.,4
-fomc-corpus,1991,"Thank you, Mr. Chairman. Our District growth continues to be slow and we see no real improvement in [prospect] in the near future. In agriculture, we expect declines in income of between 5 and 10 percent this year and we anticipate similar declines next year. Activity in the oil and gas areas of our District continues weak. Drilling operations activity as of November is down about 30 percent from the year before and there are no signs of any significant improvement there. Manufacturers, particularly the auto companies that are operating in our District, are now increasing their furlough periods. The General Motors plant is going to go out for four weeks starting I think this week or next week. In the construction area, our District has seen improvements. As I mentioned last time, it's partly because we've had such deflation; but we've seen good residential activity and some nonresidential activity in parts of our District. As far as the national economy goes, our staff feels that its projections are generally in line with those in the Greenbook. We're not quite as pessimistic for this quarter or the next quarter, but we're certainly not as optimistic about the rest of 1992. For inflation, our forecast is very similar to the Greenbook forecast. We see no really strong inflationary pressures going forward. As for the implications for policy, then, we think there is room for easing, although our preference is along the lines of what Governor Mullins said in that we think it's something we ought to be prepared to do down the road but would wait and choose our time. I think that would be perhaps a more effective way of going forward. Thank you.",332
-fomc-corpus,1991,Vice Chairman.,3
-fomc-corpus,1991,"Well, as everybody has already said, this is a tough one. Clearly, attitudes are lousy. To pick up on Gary Stern's point that the statistics are catching up with the attitudes: Maybe the causation is precisely in that direction and we have a classic self-fulfilling prophecy. Another interesting thing that is surfacing now in a rather forceful way, which is attitudinal in one sense, is that even among informed observers there is this notion that monetary policy is pushing on a string. I just don't think that's right. Mike Prell touched on it a bit. But if you look at the behavior of the so-called interest-sensitive parts of spending versus the so-called non-interest-sensitive parts, at least to date, the anomaly is not in the interest-sensitive parts; it's in the non-interest sensitive parts. It's not that the interest-sensitive parts are booming, but the big difference is in the non-interest-sensitive parts which, of course, is consistent with the view that monetary policy is not pushing on a string. When you look at it a bit more carefully in the context of this confidence factor, where are the big differences? It seems to me that one can say, at the risk of a major oversimplification, that the big differences lie in two areas. The first is government itself. We do have for good and necessary reasons a more restrictive fiscal policy stance at the federal level, given where the economy is, than we had in earlier episodes. But what I think really makes the difference is the combination of the federal level and the state and local level. Indeed, it seems to me that the state and local sector in many, many different ways--including the way it affects confidence--really is one of the major differences in the economy and the performance of the economy in recent quarters. Now, the second big difference is the one that many have touched on and that is the debt overhang problem. The point that Governor Mullins made is an important one. In part, the workout of the debt overhang problem has been going on for two or three years, and I don't think we fully recognized it when it began to take hold. But it is one of the reasons why the economy as a whole has basically been limping along for three years. And whatever you think of it, it obviously still has multifaceted implications both now and for the immediate future in terms of financial institution problems, balance sheet rebuilding, corporate restructuring, and all the rest of it. But the cumulative effects of those things have a lot to do with this confidence factor that everyone's speaking of. But even after having said that, I am still perplexed on the one hand and worried on the other as to why these measures of confidence have dropped like a stone in the last couple of months. We can argue whether they are at 1982 levels or 1987 levels, but they do just seem to have cracked. Again, I think Mike's point is right. The economics profession doesn't tell us much at all about what to make of that. Certainly, it doesn't tell us much at all about how to build that into a forecast or anything like that. As a matter of fact, the track record of those [confidence surveys] is lousy. Nevertheless, we have this sharp downward break in confidence against the history of all these other events. Well, I don't know what to make of that any more than anybody else does. But it does seem to me that at the very least it raises further questions about the near-term outlook for consumer spending. As I think I mentioned at the last Committee meeting, the retail inventory situation isn't great. Now, when we talk to individual store owners, they say their inventories are lean as the devil; and when we go into our local department store and look around, the shelves don't look overburdened. But what we forget is that there are a heck of a lot more stores out there. There has been a tremendous increase in the number of retail outlets as a part of this boom of the '80s. So, the information at the level of the individual store may not be telling the whole story. Another concern, in the context of this confidence factor, is the other side of Dave Mullins's point about the stock market. The stock market, of course, has been doing terrifically. With all of these new offerings and stock prices holding up the numbers, it is actually one of the few things that probably are helping to maintain confidence. But we have to remember that, by many conventional measures of PE ratios and things like that, the stock market is at a pretty high level given any kind of reasonable guess as to what near-term profits at least are going to be. Now, of course, it may be that the stock market has really gotten smart and is looking through the near term to the longer-term implications of the restructurings and other things that are going on, which could be a big plus [over time]. Nevertheless, it is another area of concern. When I put all that together along with what everybody else has said, I can't take serious exception to the kind of forecast that Mike has in the Greenbook or that of my own staff in New York, which isn't all that different. But I think the band of uncertainty is pretty wide, if for no other reason than that this confidence factor, as John LaWare says, really is the wild card.",1091
-fomc-corpus,1991,President McTeer.,5
-fomc-corpus,1991,"Mr. Chairman, there has been very little net change in the economy in Texas and in the Eleventh District since our last meeting. It remains essentially flat with perceptions somewhat worse than the numbers. A lot of those perceptions are not based on local developments but on the continued drumbeat of national announcements of closings and layoffs. This past week we got two local jolts to confidence: One of Dallas' two newspapers, which was 112 years old, closed; then just the other day [unintelligible]. The prime candidate is one that's in the Dallas area. We've done a lot of surveying in the last few days on retail sales, trying to pin down what has been going on during this Christmas season. It's very hard to pin down, but on balance the conclusion is that retail sales have not been too bad in the context of diminished expectations. Most of the strength is in discount stores such as Wal-Mart, Kmart, and Target; their sales seem to be up about 8 to 10 percent over last year. The conventional department stores and the chain stores such as Penney's and Sears are not doing as well, although their sales are up from last year, nominally at least, about 5 percent. Penney's, which is headquartered in Dallas, says its store sales are up about 5.3 percent over last year, but they report very weak catalogue sales. And the reason they give is very interesting, I think; it's because when they print a catalogue they can't take account of price declines, so it becomes outdated and nobody uses it. Let me give you a quick year-end report on Eleventh District banking, because I'm pleased to report that in 1991 for the first time in several years we have not led the nation in bank failures. We are going to conclude the year with only 33 bank failures; that compares to 105 last year and 144 the year before.",388
-fomc-corpus,1991,How many are left?,5
-fomc-corpus,1991,"I might say that someone mentioned the timing of these banks' charters: A third of those that failed in '91 were chartered in the '80s. The failing banks are getting much smaller. The 33 in '91 had $1.4 billion [in assets] and the 105 in '90 accounted for $6 billion, whereas the year before it was $24 billion and it gets bigger as you go back. After four years of aggregate losses, 1990 was the first year of aggregate profitability for the District banks, and that has continued into this year. But Eleventh District bank lending has continued to decline on net, and the bankers say that's because loan demand just isn't there. Property values are beginning to stabilize after about six years of deflation. I mention that because property values and banking trends still appear to be moving in the other direction in many parts of the country, and I guess the message from the Eleventh District is that that does not augur well for a quick recovery. On policy, I would just say that whenever we decide to take the next step, I believe it's important that we do all that we think is going to be necessary in the foreseeable future. Someone mentioned a moment ago that discussions of the investment tax credit can freeze capital spending. By the same token, I think expectations of still lower interest rates in the future can cause a postponement of big ticket spending as well. So, when we do decide to ease interest rates further, I think we ought to ease enough so that the directive becomes symmetrical and the probability of going one way is the same as the probability of going the other way the next time a move is made. And I would just comment that I would not consider lowering short-term interest rates a little more to be a major easing move because of the long period of very slow growth in M2. I think our current de facto procedure of targeting the fed funds rate and our pattern of small frequent changes may have given us the impression that we were doing more than we actually were on fundamental monetary policy. So, I think there is room for a further reduction without derailing our long-run objective of price stability.",438
-fomc-corpus,1991,Governor Kelley.,3
-fomc-corpus,1991,"Mr. Chairman, it's helpful to me as I look at the economy to think in terms of two separate sets of factors working together to retard economic growth. One is a cyclical set and the other is a secular or structural set. And they march to entirely different drummers, I believe. The cyclical factors are the usual suspects that we find over and over again down through the years: inventories, and so forth. I think they probably would have been overcome by now--or maybe would never even have emerged--in the absence of the structural problems that we have. The latter are much more important and they are much stickier. And I think they are going to have to be allowed to play themselves through to correction in the interest of long-term growth and stability. I would mention the debt overhang and several things that interplay one with another: the real estate depression, the credit crunch in all of its different manifestations, and the very large fiscal deficit, which has several different kinds of perverse effects not the least of which right now is the inhibition it provides to any counter-cyclical fiscal activity. And then, of course, there is the restructuring and perhaps downsizing in the services sector. Those are pretty powerful and pretty important structural and secular trends that are going on. The policy dilemma, as I would identify it right now, would be to allow these structural problems to go ahead and correct. I think it would be a mistake for us to try to abort them to the extent that we could. Obviously, we want to cushion them, but I don't think we ought to try to abort them. We should allow them to run their course and, obviously, we all want to be careful that we don't lay a foundation for future inflation. On the other hand, to the extent possible, we certainly want to try to ensure against having economic activity fall into a black hole, which I think haunts the back of our minds at this point. And we also want to do what we can to [encourage] an acceptably strong recovery as soon as possible. Three sets of things go together with those conflicting desires in the way of activity. One would be, obviously, the recent weaknesses we've had in the economy; we've been over that and I don't need to mention that any further. I do think it's important to stress maybe a bit more than we have this morning the stimulus that is in the pipeline from earlier monetary policy moves. The staff informed me that as of yesterday we have approximately 3 percentage points at an annual rate of stimulus in place right now for 1992 spread out over the year almost equally from the first quarter through the fourth quarter; it recedes a little by the fourth quarter.",546
-fomc-corpus,1991,That's on GNP?,5
-fomc-corpus,1991,"Is it GNP or GDP, Mike?",9
-fomc-corpus,1991,It's the output that we're talking about.,8
-fomc-corpus,1991,"Right. At any rate, there is a lot [in the pipeline] that is going to come along. That could turn out to be either a salvation or, possibly even before it's all over, a problem. If we ease further, that obviously ups the stakes on both sides of that. Net, it seems to me that monetary policy has already done a great deal. We have eased every month this year from January through December with the exception of May, June, and July when there seemed to be a recovery underway and we stopped. We started again in August, in what I think was a very early recognition that things were not continuing to go well. There's a great deal that the economy has to do for itself in the area of these structural adjustments--things that I don't see as being very susceptible to a useful assist from monetary policy. It may be that we've done enough or very nearly enough in terms of monetary policy now. I think that policy stability is an important virtue in and of itself and that quick starts and stops in policy are undesirable. And we could be getting close to setting ourselves up for one of those cycles. So, my preference would be to wait and see here. Obviously, if it appears that the economy is continuing to slide, we'd have to take appropriate action at that time. I do have to grant, of course, that there is a good case for going ahead and easing. The economy has reached lower levels [of growth] than I think many of us would have anticipated--certainly lower than I anticipated. It's relatively low risk to proceed to ease a bit more and it might help some at the margin. So, I would not demur from an easing, though I would prefer to keep our powder dry for a time at least.",356
-fomc-corpus,1991,Governor Lindsey.,3
-fomc-corpus,1991,"Well, as a novice governor, I found this to be a very, very interesting discussion. My knowledge is about the same as what was contained in the Greenbook. The issue I would like to reflect upon is simply what one does when confronted with the Greenbook's statistical [data]. I guess I've been not too long out of a classroom when I was temporarily domiciled in the First District.",80
-fomc-corpus,1991,It's a crowded District!,5
-fomc-corpus,1991,"I'd point out that we have three Virginians sitting here; my colleague was born in Richmond. What one would look at first is the probability of being wrong, and I have no reason to dispute the argument that the risks are equally weighted on the up side and the down side from the Greenbook forecast. But I'd point out that those are economic probabilities only. One never knows when another Saddam Hussein might come along, when something might happen in Russia or the Russias, or when something might happen in other parts of the world. Those kinds of surprises, while we might wish they were symmetric, probably are not symmetric; they are asymmetric on the down side. The implication of that probability is not helpful for solving our problem. On the one hand, if the risks are on the down side, that might incline one to ease. On the other hand, if the risks are on the down side, one might want to keep one's powder dry in case those risks come true. So, on the probabilities side, I have no answer. One has to look at what the penalties are for being wrong on either side. On the up side, if the economy turns out to be more robust than we thought, the staff forecast suggests that we're going to have decelerating inflation through '93 in any event. In fact, if one looks at the labor market data, the big surprise is not that unemployment is as high as it is but that the rate is as low as it is. An analysis that we were presented with yesterday suggests that, using the standard [econometric] model, we're not going to see unemployment peak at 7 percent but at closer to 8 percent. We're fortunate that that's not the case; but that suggests that there's probably more labor market slack than otherwise. So, if anything, I would say the upside risks are very, very low. I don't see the penalty for being wrong, if the economy is stronger, as being very [large] on the inflation side. I think the downside [penalty] is great. If one looks at what could happen--really, we should compare the September forecast with what we have now--the real downside risk is that we're wrong by two quarters, just as the staff forecast was wrong roughly by two quarters in September. That two-quarter error in the forecast of when the recovery would start is 1-1/2 million extra jobs; it's $69 billion in lost output at an annual rate. And since that will continue for about 2-1/2 years, the cumulative effect of that is a large number even in Washington. Other downside risks include banking problems--we know that there are weak banks out there--and, as Dick Syron mentioned, fiscal policy. Whatever they do [on fiscal policy] is not likely to be helpful, and perhaps we should think about positioning ourselves to avoid the downside risks of extreme Congressional action as opposed to modest Congressional action. So, in conclusion, Mr. Chairman, I would say the probabilities may be equally weighted. I would stress the penalties of being wrong. They are very modest for stimulus; they're very great if we're too tight.",633
-fomc-corpus,1991,Governor Phillips.,3
-fomc-corpus,1991,"Thank you. I must say that, speaking toward the end of this discussion, there's not much I can [add]. I would say that the discussion has been extremely helpful, and it does portray the very difficult balancing situation that we find ourselves in now. I wish that some of the positive signs coming out of St. Louis could have carried through a little further. The negative economic signs that are portrayed in the Greenbook have been confirmed. If you make a list of the negatives and of the positives, the negative list is longer than the positive list. Nevertheless, the restructuring that has been discussed around the table does lay a very good foundation. Once we get through bumping along the bottom, I think we will be poised to move up with stronger productivity, better efficiency in the services sector, and so on. And I do think the monetary aggregates are showing signs of getting back on track. So, we're in this balancing situation and, perhaps a bit like Larry Lindsey, I've been trying to weigh what the penalties are on the down side. I haven't been in Washington that long but I am becoming sensitive to the political pressures; there might be worse things coming from the Hill or downtown--however one words it. Nevertheless, I do come down on the side of accommodating this continued balance sheet restructuring. From my perspective, David Mullins described the monetary easing that has occurred very, very clearly. I think we do need some more easing. [I don't know] whether the timing is right now or whether we should wait for a bigger bang, so to speak, to get that maximum impact. I could be persuaded on that. Nevertheless, I do think some easing at this time to continue the accommodation of the [business] restructuring would be helpful. I'm afraid, unfortunately, that I agree with the Greenbook that the economy is still likely to be moving along the bottom for a while. So, some easing at this point would seem to be helpful, but we're likely to need even more later on. To the extent that we can do it earlier rather than later, I think we're better off because if we go into the spring and we start to see that black hole widen, we might start seeing more [unintelligible]. And about February is not a grand time to be seeing a panic situation. Thank you.",465
-fomc-corpus,1991,I'm informed that coffee is here.,7
-fomc-corpus,1991,[Statement--see Appendix.],6
-fomc-corpus,1991,Thank you. Questions for Don?,7
-fomc-corpus,1991,"Don, I have been one of those who thought that M2 was flashing wrong signals. I even went so far as to say in one of my more frivolous moments that it was as if I were experiencing colic like a baby who has lost his pacifier. But looking at it now, as Governor Mullins indicated earlier, it might not have been flashing all the wrong signals. What has happened has been along the lines of what you would have expected, taking it at face value.",99
-fomc-corpus,1991,"I would interpret its signals as partly wrong and partly right in the following sense: I don't think we're getting the extent of the damping in nominal income one would have expected from the kind of money growth we've had, especially with interest rates coming down. That should have boosted money growth and it didn't. Essentially, we have had unchanged velocity for the year but one would have expected a very sharp decline in velocity. So, I think we've had some shift in the money demand function. That means that not all the weakness shows through. At the same time, the forces affecting money growth--the credit crunch type forces, to use the overarching phrase here--clearly also have been affecting income. So, while not all the weakness in money growth has shown through to income, it has been a bit of a leading indicator, and I think that was true in 1990 as well as in 1991 in terms of weakness in income. Now, we tended to discount it in 1990 because the war intervened; the weakness in money was followed by weakness in income but that was said to be because of the war. Maybe looking back, the weakness in money should have been telling us something about an underlying process in the financial system that was showing through to income. I wouldn't put percentage point by percentage point M2 and income together; I don't think one could do that. But I do think M2 has had some [leading] properties.",290
-fomc-corpus,1991,I think that's a much better answer than the one I suggested earlier. You had warned us that there might not be [unintelligible].,29
-fomc-corpus,1991,"Any other questions for Don? If not, let me start off where Bob Black left off. I, too, sense that there's more to what is going on in M2 and that its weakness is more relevant as it passes through to the economy than I would have been willing to believe six weeks or six months ago. I think it's still obvious that a very big chunk of the M2 weakness is essentially structural; but to the extent that it is in fact taking disintermediation out of the system, it doesn't matter that it's structural; it's working there. The only ways one can look at it as being non-relevant are either: (1) through the displacement in mutual funds, which we've discussed; or (2) that in many respects the sharp declines in small CDs in the thrifts, for example, are not materially impacting home mortgage lending largely as a consequence of the extraordinary degree of securitization that has evolved in that market. But having said all of that, we are still dealing with something that suggests that the normal relationships between M2 and the economy are at least in part holding, which also means algebraically that P* is still alive and well. And if P* is alive and well, there is a good chance that the Greenbook may be overestimating the level of inflation. And that, frankly, is my impression. I do think that we're looking at success in bringing the inflation rate down a lot faster than we had any reason to contemplate. When one considers that there has been an extraordinary rise in state and local indirect taxes--sales and other indirect taxes that have been embodied in the price level--I think we are getting a core inflation rate, ex-taxes, which probably is doing a good deal better than we might readily grasp. The economy is dead [in the water]. It's not decelerating; we are not getting really major problems. It is true that industrial production is down in November and that, on the basis of the weekly data we are looking at, it probably is going to be down in December. We are clearly looking at some secondary inventory recession, which is not atypical of previous pauses in past economic recoveries. What is really extraordinary about this particular period is what Jerry mentioned: namely, that in the context of a period not really all that much different from a lot of pauses in the early stages of a recovery, we have had such a dramatic drop in consumer confidence that one would presume that something fundamental has really struck us. We are all puzzling about it and, as Jerry pointed out, no one really knows exactly what happened. But let me throw on the table a possible hypothesis based on an additional piece of evidence. A very interesting survey came out last week as a Wall Street Journal/NBC poll. It indicated that the average consumer or voter--depending on how you wish to look at it--perceived that the economy was terribly important but that what should be done was not tax cuts for themselves, or middle income income tax cuts, but tax cuts for business. Even the capital gains tax cut got the majority vote in that context. What clearly came through, as best I could see, is this really very profound fear of the long-term economic outlook. What has happened, I suspect, is that while the economy was coming back from the recession, it led to a willingness on the part of the average consumer to say essentially that it's coming back and that's okay. But as soon as the balance sheet pressures put the wringer on this recovery, I think there was an abrupt reconfirmation of their concerns about whether the long term is really out there. They observed increasingly that they are living in houses that are nowhere near the quality of those that their parents lived in, even though their parents may not have had the education or any of a number of other [advantages] they have had. And they are worried about the future. They ask: Where is it all going? This situation creates a very profound fear. I must say that I find the fact that the savings rate is as low as it is in this particular context, frankly, slightly surprising. I think there's a good chance that it may move up, which leads to a conclusion that is an odd one in the sense that the economy isn't all that far down. You can't account for the consumer psychology with the unemployment rate where it is. But far more importantly you cannot account for the psychology with the layoff rate. The layoff rate is basically not fundamentally different from what it was in other years in the '80s, not even during the recessions. And initial claims, adjusted for the [number] of those in the labor force, also are not showing anything really extreme. Therefore, something different is basically going on. It suggests that if this type of psychology eases, it won't be all that difficult for a modest recovery to resurface. And since it is not all that far from the top of a recovery, the economy can probably come back pretty much in line with the Greenbook forecast. But, as John LaWare points out, there is something really fundamental involved here, psychologically. And it's going to be difficult to break this general attitude easily, although I do think that the balance sheet problems are probably now starting to ease because the market itself is creating a very significant countervailing force. We now have record equity issuance, which is de-leveraging the system. We have a significant volume of public offerings of debt securities, a significant part of which are being used to fund short-term liabilities, and that is taking off some of the pressure. Lower interest rates, as Don mentioned, are having an important impact on reducing debt service burdens. The market's courier system is working. And unless it cracks open, it probably will proceed in that way and we will look back at this period a year from now and say that we were unduly concerned. Frankly, that's my best expectation. Indeed, I'm saying that I think the Greenbook forecast is probably right. As a consequence, as far as policy is concerned, my reading in this context is that the majority of the Committee favors some further downward adjustment in the rate structure. If that is in fact what the Committee chooses to do, that suggests that the Board will have to determine how the discount rate should be structured to get the maximum effect of the easing, especially in the context of this psychology. What I would recommend for today is that we vote to go asymmetric toward ease with a very strong presumption that unless improvements in the economy become evident rather quickly or unless we get significant evidence of a pickup in M2 in the period immediately ahead, it would be expected that the Desk would be requested to move lower. So, I would recommend an asymmetric directive, which I would characterize as hard asymmetric; the balance of the evidence is going to have to be that the economy is really showing surprising signs of strength [to preclude an easing move]. There is a possibility that things that have been extremely dull could become very buoyant very quickly; were that to happen, I think we would want to stand pat. But if that doesn't happen, the meaning of what I suggest is that we would move lower. Governor Mullins.",1455
-fomc-corpus,1991,I support your recommendation. I think it's the right approach in the current environment.,16
-fomc-corpus,1991,President Syron.,4
-fomc-corpus,1991,"Mr. Chairman, I support your recommendation as I interpret it, but I might go a little further. Let me say why. If we were to get the Greenbook forecast, with the turn, it might be not all that uncomfortable. But I'm afraid that the risks are not symmetrical on the cost side. I really do think there's a chance we will get an outcome that would be highly undesirable. And then I ask: What can we do about it? I don't believe policy is totally impotent. I don't think a lot of people do, given what has been talked about here. And in that sense, I really do prefer maximizing the signal effect of what we're doing. The first paragraph in the Bluebook says that following the last meeting there was a ""slight easing of monetary policy,"" which it interprets as being a 25 basis point cut in the funds rate and a 50 basis point cut in the discount rate. If that's slight, I have some question about whether that's what we should be doing in this period of time. We could always reverse [an easing move] if we were to get happy surprises. I agree with your basic view that the most likely outcome is the one that is [in the Greenbook]. What I'm concerned about is the risks that are on either side. So, for that reason, my own personal preference would be alternative A.",277
-fomc-corpus,1991,President Hoenig.,4
-fomc-corpus,1991,I agree with your recommendation.,6
-fomc-corpus,1991,Vice Chairman.,3
-fomc-corpus,1991,"I support your position. I'd just make a point that sounds absolutely preposterous in this environment: Things could develop, even in 1992, where we could get surprised on the up side. That sounds ridiculous right now, but let's not forget about that possibility.",54
-fomc-corpus,1991,"I might say parenthetically that I presume it would be the desire of this Committee to move with due dispatch should that consideration arise. That has been the [stated position] of this Committee previously. But it's important for us to be aware that it may be necessary to preserve what has been really an extraordinary success to date on inflation. I must say, looking back, that I think we've had some lucky things happen to us. One of them is that our policy has been able to rein in inflation at a much more rapid pace than we had contemplated earlier. And it would be a shame if we were to let that get away. President Forrestal.",131
-fomc-corpus,1991,"Mr. Chairman, I would support your recommendation. A point of clarification: I assume you're talking about a 1/4 point move?",28
-fomc-corpus,1991,"Yes. Let me put it this way: If it turns out to be more than that, the implication is that other things are going on and it would be appropriate under those conditions to have a telephone conference.",42
-fomc-corpus,1991,"Well, as I said, I would support your recommendation. I find myself in a bit of an anomalous position, as someone who has been urging ease for over a year, to feel a little uncomfortable with this position now. But that is because I think we may have done enough at this point in time. We need to keep in mind that there are very substantial lags in monetary policy and that anything we do now is not going to affect the fourth quarter and is not going to affect the first quarter. As I look at the profile of the Greenbook forecast, I think it's not a bad outcome given no additional restraint. And since my forecast for inflation is a bit higher in the 1993 period, I'm just a little nervous about overdoing this and making the kinds of mistakes we've made before. On the other hand, the arguments for ease of the kind that you are describing certainly are reasonable. We may get a very substantial psychological benefit from moving. So, I would support the recommendation.",202
-fomc-corpus,1991,President Melzer.,4
-fomc-corpus,1991,"Jerry, if you think what you said sounded preposterous, wait until you hear this! To say I'm not worried about the real side would be silly; I think one has to be. But at the same time, I have the feeling that there's a limit to what monetary policy can do on the real side and that whatever it can do is only temporary. The permanent effect of our actions is really only on inflation. And I'd have to say that policy has become very stimulative in the last six months. To gauge that, I look at reserves and I look at narrow money. I do that because those are things we really affect through our actions. And both of those are growing at double-digit rates. One can argue about what that means, Alan. But in terms of being surprised about what happened to inflation, one of the things that we look at is a three-year moving average of Ml. When you came on, in 1987, that was over 11 percent; and in the next three years the three-year moving average of Ml came down to about 3-1/2 percent or a little less. To us that indicated that the thrust of policy was very much on a disinflationary course and we've seen that flow through. Now, what worries me is that, given the actions in the last six months, that trend growth rate has moved up a full percentage point. My guess is that if we did nothing further, it probably would move up another full percentage point in the first half of next year. And I worry about the long run. I'm not sure we've stepped into the trap yet, but I think we're getting very close to making the same mistake monetary policy typically makes at this point in the cycle in that we could be sowing the seeds of the next inflation. Now, I don't disagree [about the near term]. I think we're going to see very good inflation numbers in '92 and we're probably going to see very good numbers in '93. What we're doing right now isn't really going to affect those years in terms of prices. I think the effects are further out. It gets back to what Mike was saying before. I worry about setting up a stop-and-go policy and putting us in a position where several years down the road we're going to have to tighten dramatically. I think the only chance of bringing inflation down in a permanent sense is through stable policy applied over a long period of time. So, that's my longer-run concern. In the shorter run, what I worry about is the risk in foreign exchange markets. I was struck by Gretchen's describing that earlier. We have a fiscal policy that's in pretty tough shape; we're going to be looking at deficits next year of 6 to 7 percent of GDP; and we're going to be hearing a lot of political discussion about other measures that might be taken on the fiscal side. We could continue to have a weak economy with that background music and we could find the dollar under extreme pressure. If at that time we are sitting here with a monetary policy that is way out of position--and I'm arguing that I think we're getting there fast--we could have a real problem next year. So, where I come out is that I would not be inclined to change policy now. Obviously, that's not going to fly; I understand that from our discussion, but that would be my preference. What I would argue for, assuming that we do make a change, is that we begin to communicate in some fashion that monetary policy has done about all it can because, if we don't start getting that message out there, expectations and pressures and so forth are going to continue to try to stampede us. David, you talked a bit about this. I probably wouldn't favor doing it with as aggressive a step as you would, but we need to get that message out. And we need to do that relatively soon or we're going to continue to get run over by these pressures.",796
-fomc-corpus,1991,President Black.,3
-fomc-corpus,1991,"Mr. Chairman, I always feel very uncomfortable when I disagree with Tom Melzer, and I'm partly with him because I think we've done almost enough. But if we adopt your proposal of moving [the funds rate] 1/4 point--and I would add a gratuitous bit of advice to the Board of Governors that they couple that with a 1/2 point cut in the discount rate--I think, and hope, that the market probably would conclude on its own that we've gone as far as we are going to go. And some people will come out of the woodwork when they think rates have gone as low as they're going to go.",132
-fomc-corpus,1991,That's right.,3
-fomc-corpus,1991,"I would be a little more leery of taking that second step because I think a 1/2 point move on the funds rate, even if it's done later on, might look surprisingly close to these ridiculous suggestions we've been getting with regard to fiscal policy. I basically buy what you have suggested, but I share some of Tom's nervousness that we're almost there.",74
-fomc-corpus,1991,Mr. Hendricks.,6
-fomc-corpus,1991,"Yes, Mr. Chairman. We come out just a bit different from your recommendation, perhaps a little closer to Tom Melzer. We acknowledge the potential for a no-growth economy this quarter and next. But we don't believe further action by the Fed can do a whole lot to counter the near-term weakness in output. Neither do we believe that the Fed can or should do much to offset the structural imbalances in the economy that have been talked about around the table here today: real estate, the decline in defense expenditures, debt overloads, and so forth. Apparently, M2 growth has revived recently and might now be on an acceptable path that is close to the midpoint of the target range. We've cautioned against a policy oriented around a reaction to real-time economic data. History has shown, it seems to us, that such a policy process can mislead policymakers into thinking they can fine-tune these economic activities. Moreover, it seems to us that such a policy process also leads policymakers to lose sight of the key long-term objective of maintaining price stability. So, our policy prescription, while not a whole lot different from your recommendation, is that the FOMC hold a steady course at least for now until we see the cumulative results of our several actions to cut interest rates over the past year.",261
-fomc-corpus,1991,Don is a little concerned that maybe what I said wasn't clear. I'm saying that my recommendation is to do nothing now but to have an asymmetric directive. I don't think that has been--,37
-fomc-corpus,1991,"Yes, Bob Black I think stated it a little differently, but that's the way I heard you.",20
-fomc-corpus,1991,Yes.,2
-fomc-corpus,1991,I didn't hear it that way. I'm sorry.,10
-fomc-corpus,1991,"Oh no, I'm sorry.",6
-fomc-corpus,1991,"You're saying ""B"" asymmetric?",7
-fomc-corpus,1991,"""B"" asymmetric.",4
-fomc-corpus,1991,A hard asymmetric.,4
-fomc-corpus,1991,"When you invoke the proviso, if you have to, you would go 1/4 point and that's all?",24
-fomc-corpus,1991,"Yes. I'm sorry if there was any confusion. I'm recommending ""B"" asymmetric.",17
-fomc-corpus,1991,I guess I'm the only one who is confused!,10
-fomc-corpus,1991,"No, apparently, [I wasn't clear]. I'm sorry about that.",14
-fomc-corpus,1991,"No, it's my fault.",6
-fomc-corpus,1991,President Parry.,4
-fomc-corpus,1991,"Mr. Chairman, I could accept ""B"" asymmetric. I would hope that [if and] when the rate is moved that it would be accompanied by a change in the discount rate and that we would find some opportunity to emphasize or highlight our longer-term objective. In addition, I'd emphasize the point that we've made around this table that it's important for us to be willing to reverse direction when circumstances dictate. And I would like very much to disagree with Tom Melzer, if I am understanding him correctly. I don't want to join this dialogue that monetary policy can't do any more. I think that's wrong. There may be an issue of whether we should do any more, and that's certainly a legitimate question. I hope we never join the group that says that we're pushing on a string and can't do any more.",162
-fomc-corpus,1991,"I don't think I said that, Bob.",9
-fomc-corpus,1991,"I think you said: ""We can't do any more."" Maybe I didn't hear what you said. What did you say?",25
-fomc-corpus,1991,That we shouldn't.,4
-fomc-corpus,1991,"Oh, I thought you said we couldn't.",9
-fomc-corpus,1991,"Shouldn't, not can't.",6
-fomc-corpus,1991,Governor Kelley.,3
-fomc-corpus,1991,"Mr. Chairman, I support your recommendation but I do stand spiritually with Messrs. Melzer and Black.",22
-fomc-corpus,1991,President Stern.,3
-fomc-corpus,1991,"I, too, support your recommendation. The only thing I would add at this point is that, while it's certainly understandable that there's some frustration around the table in terms of the results we've achieved to date--at least in terms of the real economy and its tendency to fall below expectations--I think we should resist the temptation to try to do something more dramatic and more heroic. I believe the course we have been on has been the right one and I think we ought to continue with that. As many people have already commented, a lot of the problems we face are structural and are not amenable to changes in monetary policy. And I think, as you suggested, that we are not very far from where we want to be in any event. So, I'm comfortable with your recommendation.",157
-fomc-corpus,1991,President Boehne.,5
-fomc-corpus,1991,"I would prefer alternative A. I think there still is a positive role that monetary policy can play both in terms of healing some of these structural wounds as well as providing some cyclical uplift. And given my reading of the downside risks and the cost of being wrong, I prefer to get on with it.",61
-fomc-corpus,1991,Governor Angell.,4
-fomc-corpus,1991,"Mr. Chairman, I can vote for your proposition, as I'm sure you anticipated that I would. Thanks a lot for giving me a chance not to have to write another dissenting statement! I do want to suggest that during the last six years I've become a bit less optimistic in regard to how easy it is to get the rate of inflation down. When I came in, I had the view that inflation could be brought down by gradual and persistent control of the money stock even if unemployment is at its natural rate. My experience is that it's very tough to get the CPI rate of inflation down. And I don't know why we're looking a gift horse in the mouth. Here we have had some unexpected occurrences, which means that the rate of inflation is going to come down a little faster than we thought it was going to. But we're committed not to let it turn into deflation. We're just not going to let that happen. I don't know, Mr. Chairman, whether there's more pain doing it this way than there is doing it over a 10-year period. I feel quite confident that this improvement in the outlook for inflation will make the recovery that we finally get a much better and a long sustained one. I do look forward to the discussions that I think we might be having, particularly in regard to Governor Mullins's comments, and I guess I get to vote again. So, thank you.",281
-fomc-corpus,1991,Many times. President McTeer.,8
-fomc-corpus,1991,"Mr. Chairman, my view doesn't change the tally but I would have preferred alternative A. I think we all are very confused about the current stance of monetary policy, including me. If it's narrow money that's important, it's too easy. If it's short-term interest rates that are important, policy is not as easy as it seems; we have in this recession reduced the fed funds rate by a smaller percentage than in previous recessions. And if broad money is what is important, policy is too tight. This is the first recession in the last 30 years, I believe, where the rate of growth of M2 has not increased during the recession. If we believe M2 is the right M, we need to be more aggressive. I believe the next move ought to be a 1/2 point move because I think it's important that people stop perceiving that every time we do something we're going to do something else a week or two later. The next time we move the perception ought to be that we have done our thing and people should stop waiting for the next shoe to drop. People are out there trying to make decisions --they want to buy a house or a car--and as long as they think there's a little more [reduction in rates] to go they're going to be postponing those decisions. When we do make a move, if it's correct to do so, it's important that we emphasize the slow growth in M2 because I think that's the best way to set the stage for the time when we're going to have to reverse the course and [raise rates]. And I think M2 will be our most consistent explanation for changing course.",332
-fomc-corpus,1991,President Keehn.,4
-fomc-corpus,1991,"Mr. Chairman, given my concerns about the outlook and the overall situation, I'd be very much in favor of doing more and doing it now. I'd be in the Syron/Boehne camp, supporting alternative A. Having said that, as I hear your recommendation, the evidence of economic growth would have to be very, very compelling in order not to ease. If I'm right about my interpretation of that and if the move might be in the near term, then I support the recommendation. But if I'm not right, I don't know how you can be more precise about exactly what you mean in terms of the indicators that would cause you to do something. If I'm not right in my interpretation, then I'd be in favor of alternative A.",148
-fomc-corpus,1991,Governor LaWare.,4
-fomc-corpus,1991,"I would prefer ""B"" with symmetric language. I really think that we have to send a firm sign that the [downward interest rate] drift is going to stop. That could have a very stimulating effect because I think the economy and the public are being exposed to something akin to Chinese water torture. We creep down 1/4 point in the funds rate and then we creep down another 1/4 point and we change the discount rate. If we follow that same pattern, it seems to me that we are creating the expectation that that pattern is going to continue almost indefinitely. I think there's a lot to be said for turning it off, at least for a while, and seeing what happens. I'm still not convinced that all of the effects of our previous easings have come through and I don't see why we need to continue this drift. So, I would be in favor of ""B"" symmetrical.",184
-fomc-corpus,1991,Governor Lindsey.,3
-fomc-corpus,1991,"Mr. Chairman, I'm happy to be able to support your proposal. I am struck, however, by comments from people who are disagreeing with your proposal on both sides. The term psychology is used by those who would not favor further easing and my good friend John LaWare has just made the case against further easing but by saying that water torture is going on. So, there is a great deal of sentiment at the table--and I'm struck by it--that we have not solved the psychological problem by this proposal. That issue may have to be revisited. But I am very happy to support your proposal, which I thought was a very well crafted statement of the [FOMC'S] position.",142
-fomc-corpus,1991,Governor Phillips.,3
-fomc-corpus,1991,"I also am pleased to support the proposal. I could have gone further, but I'm happy to support this proposal.",23
-fomc-corpus,1991,"Tom, did I miss you?",7
-fomc-corpus,1991,"You don't want to hear that one again, do you Alan? I'm ""B"" symmetric.",19
-fomc-corpus,1991,Okay.,2
-fomc-corpus,1991,He thought he wrote you down on a piece of paper without [unintelligible].,18
-fomc-corpus,1991,"No, I heard a long discussion but I didn't remember how you actually came out.",17
-fomc-corpus,1991,"Well, I'm relieved.",5
-fomc-corpus,1991,"Okay. As I read it, the proposal on the table will be ""B"" asymmetric toward ease with the new language that Governor Kelley drafted earlier. I'd like Norm to read it.",37
-fomc-corpus,1991,"""In the implementation of policy for the immediate future, the Committee seeks to maintain the existing degree of pressure on reserve positions."" Then, the new language would be as on page 17 of the Bluebook--",41
-fomc-corpus,1991,"Norm, at the risk of interrupting, which I'm doing, could I ask the Chairman for just a bit more interpretation as to what you really mean in terms of the indicators that would cause you to do one thing or another? What would really make a difference in terms of monetary policy?",58
-fomc-corpus,1991,"Essentially, what I have in mind is that if events do not change and if the quality of the outlook remains unaltered from where we sense it today, additional ease would be appropriate.",39
-fomc-corpus,1991,Continuation of the current trends. Do you have a time perspective in mind?,15
-fomc-corpus,1991,"Well, obviously we're dealing here with a time-frame encompassing the period immediately ahead; we can always have another meeting.",23
-fomc-corpus,1991,Two to three weeks or something like that?,9
-fomc-corpus,1991,"I don't want to be [too precise]. I couldn't disagree with you, but I'd hesitate to phrase it that concretely.",25
-fomc-corpus,1991,Thank you.,3
-fomc-corpus,1991,"Continuing with the new language on page 17: ""In the context of the Committee's long-run objectives for price stability and sustainable economic growth, and giving careful consideration to economic, financial, and monetary developments, slightly greater reserve restraint might or somewhat lesser reserve restraint would be acceptable in the intermeeting period."" And then coming back to the standard sentence, as shown on page 15: ""The contemplated reserve conditions are expected to be consistent with growth of M2 and M3 over the period from November through March at annual rates of about 3 and 1-1/2 percent, respectively.""",121
-fomc-corpus,1991,Call the roll.,4
-fomc-corpus,1991,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Black Yes President Forrestal Yes President Keehn Yes Governor Kelley Yes Governor LaWare No Governor Lindsey Yes Governor Mullins Yes President Parry Yes Governor Phillips Yes,46
-fomc-corpus,1991,"Okay. Our next meeting is Tuesday and Wednesday, February 4th and 5th of next year.",22
-fomc-corpus,1992,"If we can get started.... I'd like first to welcome Bill McDonough. Welcome, William, to your inaugural meeting. This is our annual organization meeting. We start off with the election of officers, and I'd like to turn the gavel over to Governor Mullins.",55
-fomc-corpus,1992,The floor is now open for nominations for the position of Chairman of the Federal Open Market Committee.,19
-fomc-corpus,1992,"Mr. Chairman, in an unplanned manner I would say that I think it would be a wonderful idea for us to have Alan Greenspan as Chairman. Now, would you want me to go ahead and do more [and nominate a Vice Chairman] or do you want to do one at a time?",61
-fomc-corpus,1992,"No, let me request that you stop there.",10
-fomc-corpus,1992,You wouldn't like to take a chance on a group ticket!,12
-fomc-corpus,1992,I think we need a second.,7
-fomc-corpus,1992,Second.,2
-fomc-corpus,1992,Without objection. The floor is now open for nominations for the position of Vice Chairman of the Federal Open Market Committee.,23
-fomc-corpus,1992,In like spirit I will nominate President Corrigan.,10
-fomc-corpus,1992,Is there a second?,5
-fomc-corpus,1992,Second.,2
-fomc-corpus,1992,Without objection. We have a new team.,9
-fomc-corpus,1992,"I thank you and, speaking for the Vice Chairman, he thanks you! I now would like to have the Secretary read the list of staff officers for potential election.",33
-fomc-corpus,1992,"Secretary and Economist, Donald Kohn; Deputy Secretary, Normand Bernard; Assistant Secretary, Joseph Coyne; Assistant Secretary, Gary Gillum; General Counsel, Virgil Mattingly; Deputy General Counsel, Ernest Patrikis; Economist, Michael Prell; Economist, Edwin Truman; Associate Economists from the Board: David Lindsey; Larry Promisel; Charles Siegman; Thomas Simpson; and David Stockton; Associate Economists from the Federal Reserve Banks: Alicia Munnell, proposed by President Syron; Richard Davis, proposed by President Corrigan; John Davis, proposed by First Vice President Hendricks; Anatol Balbach, proposed by President Melzer; and Thomas Davis, proposed by President Hoenig;",144
-fomc-corpus,1992,Are there any objections?,5
-fomc-corpus,1992,All good men and true!,6
-fomc-corpus,1992,And women!,3
-fomc-corpus,1992,And women!,3
-fomc-corpus,1992,"If there are no objections and no additional nominations, I will assume the list is approved. I will now entertain a motion regarding the Bank--which I would require to be the Federal Reserve Bank of New York--to serve to execute transactions for the System Open Market Account. Would somebody like to do that?",61
-fomc-corpus,1992,So move.,3
-fomc-corpus,1992,Is there a second?,5
-fomc-corpus,1992,Second.,2
-fomc-corpus,1992,"Is there any objection? If not, so be it. We have now separately the selection of the Manager for Domestic Operations. Our current incumbent is Peter Sternlight, and I trust that somebody will nominate him for reelection. SEVERAL. So move.",52
-fomc-corpus,1992,Second.,2
-fomc-corpus,1992,"It has been nominated and seconded. Is there any objection? If not, we move to the election of a Manager for Foreign Operations; our [candidate] is Bill McDonough and I would seek his nomination.",44
-fomc-corpus,1992,So nominate.,3
-fomc-corpus,1992,Second.,2
-fomc-corpus,1992,Without objection. I think that we are now down to the review of--,15
-fomc-corpus,1992,The Domestic Authorization.,4
-fomc-corpus,1992,"Oh, yes. Would somebody like to move the adoption of the Domestic Authorization?",16
-fomc-corpus,1992,So move.,3
-fomc-corpus,1992,Is there a second?,5
-fomc-corpus,1992,Second.,2
-fomc-corpus,1992,Without objection. I would now call on Ted Truman to review the three foreign currency instruments and the warehousing agreement.,23
-fomc-corpus,1992,"We would recommend that you approve the Foreign Currency Authorization, the Foreign Currency Directive, and the Procedural Instructions as they now stand. With respect to the warehousing authority, as we discussed at earlier meetings of the Committee last year, the warehousing agreement with the Treasury on behalf of the Exchange Stabilization Fund and the Treasury's general fund is subject to annual review. You have received a memorandum from me on this subject. To summarize that memorandum, the amount of DM warehoused has been reduced from a peak of $9 billion in March of 1990 to the current $2 billion. And with the prospect of a further reduction in the near term to zero, it would seem appropriate to us to reduce the size of the arrangement from the current $10 billion to the more historically normal level of $5 billion; that level prevailed from 1978 to 1989. Therefore, I recommended a renewal of that size and Bill McDonough concurs with that recommendation. I would note three points. First, if the Exchange Stabilization Fund repurchases the remaining $2 billion, as we assume and expect it will, its dollar position will be relatively low, so we might have to reverse that later. Secondly, the Treasury has expressed some anxiety that conditions could change such that they might want to warehouse more than $5 billion. In staff conversations with the Treasury, we noted that the size of the arrangement has been increased in the past and we assured them that the Committee is prepared to consider any reasonable request for changes in the future. Lastly, Bill McDonough and I have told the Treasury that once the $2 billion is repurchased, the terms of the arrangement should be adjusted marginally to conform more closely to market practice. In the future, the forward ""leg"" would be at a forward market rate rather than being flat. This seems more sensible. It basically equalizes our interest returns and our foregone earnings. The Treasury staff has agreed in principle to this change and has agreed that it is appropriate to make the change not in the middle of an arrangement but once we've gotten it cleaned away. I'd be pleased to answer any questions.",431
-fomc-corpus,1992,"Are there any questions? If not, would someone [make a motion]?",15
-fomc-corpus,1992,I would be happy to move the adoption of the proposals that have been presented by Mr. Truman. And I would like to express appreciation and gratitude that we're back to [an authorized level of] $5 billion and [the amount warehoused] will not be close to that amount.,58
-fomc-corpus,1992,Is there a second? SEVERAL. Second.,11
-fomc-corpus,1992,"Any further discussion? If not, all in favor say ""aye."" SEVERAL. Aye.",21
-fomc-corpus,1992,"Opposed? [Secretary's note: None heard.] The ""ayes"" have it. We're now up to approval of the minutes of the meeting of December 17. Would somebody like to move it?",41
-fomc-corpus,1992,Move it.,3
-fomc-corpus,1992,Is there a second?,5
-fomc-corpus,1992,Second.,2
-fomc-corpus,1992,Without exception. We'll now move to foreign currency operations and I call on Mr. McDonough.,20
-fomc-corpus,1992,[Statement--see Appendix.],6
-fomc-corpus,1992,Questions for Mr. McDonough?,8
-fomc-corpus,1992,"I'm just curious about the intervention. I don't have any real problem with it, but could you give us a little more background on what was going on at the time? Were the markets felt to be particularly disorderly? What was happening that precipitated the decision to intervene at that particular point in time, presuming that we don't have a target?",70
-fomc-corpus,1992,"The dollar had rallied very strongly and very quickly, as I mentioned, almost certainly basically on short covering. And that strength had continued through Thursday, January 16th. In the morning we had a rather [sloppy] market because of the questioning of how best to interpret the trade figures. At that time the Treasury expressed a very strong view that it was ""appropriate,"" as they put it, to cap the dollar and to adjust it downward somewhat.",91
-fomc-corpus,1992,"One additional point: This had been discussed at least in principle the day before in the context of a strong dollar--the dollar having gone up. The ambiguity came when we had the market that we had on Friday. On our part we felt that since the dollar was backing off, the Treasury probably would no longer be interested [in intervening]. But they turned out to be interested and we had to confront the question of whether to go along; we felt that on balance it was better to go along.",101
-fomc-corpus,1992,I think I understand why we did it.,9
-fomc-corpus,1992,That puts you ahead of the rest of us!,10
-fomc-corpus,1992,Any other questions? Let me take a minute to review what occurred at the G-7 meeting.,20
-fomc-corpus,1992,We need a motion on the transactions.,8
-fomc-corpus,1992,That's a nice idea.,5
-fomc-corpus,1992,I will move it.,5
-fomc-corpus,1992,Second.,2
-fomc-corpus,1992,This is a motion to ratify the actions of--,11
-fomc-corpus,1992,To ratify the Federal Reserve sale of $25 million against yen on January 17th. That was our only operation on behalf of the Federal Reserve during the period.,34
-fomc-corpus,1992,"It has been moved and seconded. Any objection? If not, I take it that is approved.",21
-fomc-corpus,1992,"Mr. Chairman, we've already talked about it, but let's just go ahead and vote for it anyway! [Laughter]",25
-fomc-corpus,1992,"Let me just take a minute to update you on the G-7 meeting. That meeting obviously comes out of the Tokyo meeting between President Bush and Prime Minister Miazawa in which, as you may recall, there was a communique which specified that they were jointly in agreement on the issue of a ""growth agenda"" without specifying particularly what that concept meant. There was in the context of those discussions a reaching out to the other members of the G-7 to join them in that particular view of the world. And the Treasury decided that a meeting of the G-7 finance ministers and central bank governors would be the ideal vehicle by which that could occur. So the meeting was planned and as the days went on, in endeavoring to create the usual advance communique, it became fairly clear that uniformity of view was not exactly how one would describe the nature of those negotiations. As a consequence of that at the end we all moved up to Garden City. It turned out that while the Treasury, I think, was quite successful in moving its broad philosophy of growth, it nonetheless acquiesced in language which very specifically maintained the long term anti-inflationary posture of the G-7 and the need to continue not to dissipate the gains that have been made against inflation. Discussions on potential intervention really got very little support and, as Bill McDonough indicated, the communique in that regard was relatively noncommittal. We discussed the Soviet--or I should say the former Soviet--republics and their problems a good deal. The issue of a stabilization fund was raised by It got remarkably little support in the group; that never really proceeded very far. Although I suspect there is considerable latent support within the group to do something when the time is right, nobody at that meeting really held the view that the timing was such as to make it particularly useful. As a consequence, the communique ended up with a [statement in] support of the growth scenario promulgated in Tokyo and a number of individual country reports on their specific policies which struck me very much as national travel agencies describing the goodies of coming to visit. But nothing much else was involved. I think it was a harmonious meeting, certainly compared to the one in Bangkok. It did have a significant element in that there was a very clear tilt in the basic philosophy of that group, which I must tell you I would more readily describe as the views of the finance ministers because we central bankers were sitting there on our hands to a large extent. The substance beyond the growth area was mainly in the discussion of the Soviet quota in the IMF; there was considerable discussion of it. It was assumed that a specific conclusion would not be reached except that obviously there [would be] discussions leading up to the Interim Committee meeting. Is that in April, Ted?",567
-fomc-corpus,1992,Late April.,3
-fomc-corpus,1992,"That meeting would bring that to fruition. There was very strong support for a fairly quick resolution of the Russian federation's application and that of several of the other republics. That was pretty much all that was involved in the meeting. It was not one of the more significant endeavors on the part of the G-7, but certain things were accomplished. Any questions? I'd be glad to entertain them. If not, we'll now move on to the Domestic Desk and Peter Sternlight.",96
-fomc-corpus,1992,[Statement--see Appendix.],6
-fomc-corpus,1992,Questions for Mr. Sternlight?,7
-fomc-corpus,1992,"With regard to the increase in long-term rates, all of the factors you cited are domestic in nature. Did market participants ever refer to any international considerations that might have been placing some upward pressure on rates?",41
-fomc-corpus,1992,"They did on occasion, President Parry. I perhaps should have mentioned that, although it did not seem to be a big factor in the recent period. But in the fairly recent past I was hearing as one reason for the rise in domestic long-term interest rates the competitive pull particularly of German rates.",60
-fomc-corpus,1992,Most German interest rates were down over the period since early January.,13
-fomc-corpus,1992,Okay.,2
-fomc-corpus,1992,"Further questions? If not, would somebody like to move to ratify the actions since the previous meeting?",21
-fomc-corpus,1992,Move it.,3
-fomc-corpus,1992,Is there a second?,5
-fomc-corpus,1992,Second.,2
-fomc-corpus,1992,"Without objection. We now move on to the Chart Show with Messrs. Prell, Simpson, and Truman. MESSRS. PRELL, SIMPSON and TRUMAN. [Statements--see Appendix.]",44
-fomc-corpus,1992,"That report was pretty impressive, gentlemen. Questions for any of them?",14
-fomc-corpus,1992,"One of the characteristics of the forecast is that the interest sensitivity of real spending is different than I think traditional elasticities are. Could you indicate how much of a difference there is and whether you assume that the historical difference between those elasticities has disappeared over the period? It seems to be a big factor in the forecast, for example in components such as commercial office space.",74
-fomc-corpus,1992,"Well, that very clearly is a deviation from past norms of cyclical behavior, and I think it does reflect an unusually low degree of interest sensitivity. Basically, we think that process has been short-circuited by the buildup of so huge a stock of unoccupied buildings. Traditionally there has been a modest but significant contribution from nonresidential construction in the first couple of years of business upturns. Outside of that area, there are indications--and we've tried to gauge this econometrically--that housing may be less interest sensitive than it once was. It's a little hard to disentangle historically because of the disintermediation or reintermediation with segmented mortgage markets that produced a credit rationing effect that outweighed whatever interest rates effects there were. So, one has to disentangle that. There is also more reliance than in the past on adjustable rate mortgages, which scarcely existed earlier; and that conceivably may affect interest sensitivity. So, we may not have as great an interest sensitivity in the housing sector as one might expect. But, indeed, our models have been surprised at the weakness of residential construction. And that may be partly a matter of gauging the perceived real cost of home buying. It is quite conceivable that in the past year or so people have perceived the prospect of capital loss as being much greater than any trend in prices over recent years, which is the normal effect that the models capture. I think those are the major areas. It's possible, too, that inventories don't have a greater interest sensitivity than we have built into this. And in the consumer durables area, we're torn between a couple of considerations: (1) the interest sensitivity probably isn't all that high to begin with; and (2) the movements of consumer loan rates haven't been enormous, but on an after tax basis they have moved somewhat perversely in recent years. On the other hand, somebody looking at the option of whether to invest in a consumer durable with the expectation of a return of flow of services versus the 3 or 4 percent rate earned on a deposit might feel that isn't a bad deal and might be stimulated to spend a little more than otherwise.",437
-fomc-corpus,1992,"On the issue of elasticities, my recollection is that the growth of imports is a little slower than one normally would expect, particularly in 1993. Is that correct that the income elasticities have been lower?",44
-fomc-corpus,1992,"Yes, the models will give you a higher income elasticity. However, a statistical test in which we essentially re-estimated the elasticities suggested that those elasticities have come down over time pretty much like the [actual behavior] and are closer to an elasticity of one on both the export and import sides. Therefore, we have in the forecast a relatively modest pickup in the real [import] component.",80
-fomc-corpus,1992,That's an interesting development.,5
-fomc-corpus,1992,"In general imports have been performing throughout the last several years at a lower level than we had anticipated. And those two things together plus the other factor, which [has been] important for a number of years, led us to put in a small adjustment [unintelligible].",56
-fomc-corpus,1992,Thank you.,3
-fomc-corpus,1992,"Mike, a curiosity question on productivity as depicted in Chart 14: Am I right that overall productivity includes manufacturing and services?",25
-fomc-corpus,1992,Yes.,2
-fomc-corpus,1992,"The question relates to my impression that on the manufacturing side productivity seems to have been pretty good over the [past] few years and, therefore, in an inflationary sense it has been a constructive thing. Am I right about that?",47
-fomc-corpus,1992,"Yes, indeed. In the 1980s there was a distinct improvement in productivity performance in manufacturing. The residual has not shown that kind of improvement, and basically our expectation is that we will continue to see manufacturing do well in terms of gains in output per hour and that probably we will see the remainder of the economy improve its performance somewhat. I would caution, however, that it's not so clear that the developments we've been seeing recently--the restructuring--constitute a vastly different kind of event than we have seen in other cycles. So at this point I think one should be cautious in anticipating a really radical shift in productivity gains.",127
-fomc-corpus,1992,"A question for Tom Simpson: In your discussion, you talked about the balance sheet restructurings of both households and corporations. This is not a well-defined question, but do we have some notion even in a generalized sense of how much more desire there might be to do that? I'm trying to get to how much intermediated versus nonintermediated funds are going to the open market in this area with some vague presumption of conditions in the market remaining about as they are now.",97
-fomc-corpus,1992,"Well, it's really hard to pinpoint. In dealing with the corporate sector, we certainly hear a lot of stories about firms wanting to strengthen their balance sheets. And the announcements of reverse LBOs and so forth suggest that there still is more room to go in that area. What is going to constitute the new norm once all this adjustment occurs is an open question. Personally, I'm not so sure they will go back to the leveraging ratios of the late '70s or early '80s. The household sector is even a little more difficult to evaluate. We do hear a lot of stories about individuals straining under the weight of their debt burdens and holding the line and restraining themselves. But there again, I'm just not sure--",147
-fomc-corpus,1992,"In terms of intermediation and [unintelligible] depositories, which is part of what I thought you were getting at, we have this securitization process for mortgages, which has been underway for a while but has certainly gotten going on consumer debts. So, the relative contribution of depository institutions to the whole credit flow has been depressed by their own choice through this securitization process. Other intermediaries are taking it.",89
-fomc-corpus,1992,"I was also trying to get at some of the cyclical aspects of it in the short and intermediate run, which I think Tom has answered as well, so--",33
-fomc-corpus,1992,"Mr. Chairman, we've just received auto sales data. For those of you who want to be brought up to the very minute, there was some improvement in the last 10 days of January. On our seasonal adjustment factors auto sales were 6-1/4 million at an annual rate with almost 4 million in sales of light trucks. So we ended the month at 5.9 million autos sold and 3.6 million trucks sold; that's a little better picture than we saw in the first 20 days of January. The cars were close to the December rate; trucks were off a bit; you will recall that the year-end incentives distorted it. So, I think we're on a steady-as-you-go [course] in the motor vehicle market.",154
-fomc-corpus,1992,"Mike, I want to ask something relating to the single-family residential area because it's an important part of the projections as we come into 1992. Given the comments on restructuring of debt that have been made and some of the demographics, can you explain to me again why we're going to have such a strong residential recovery even without the fiscal stimulus which, if I understand it, was not part of this projection? [Your forecast] seems very optimistic to me.",92
-fomc-corpus,1992,"Well, it's very difficult to get a precise fix on underlying longer-run trends. We know something about the demographic situation. It's certainly clear that the relevant population is growing more slowly than it was several years ago. It's also clear that if past patterns hold, that would favor single-family relative to multifamily construction because people are passing into years where home ownership rates typically rise very markedly. We think we have been below the longer-run trend recently and that we're going to move up relative to that trend--conceivably to around trend or a bit above it--in response to what is much enhanced affordability. We've had a very distinct improvement for people who want to buy houses, and the signs are that there is some response already in train here. We've raised our forecast since the last meeting despite no change, really, in our mortgage rate assumptions. It just appeared to us that people have been responding more than we had anticipated previously and that with perhaps a small degree of optimism we could carry that through the forecast period.",202
-fomc-corpus,1992,Tom.,2
-fomc-corpus,1992,"Ted, I don't know quite what to make of this, but it seems as if your projection of consumer prices in the G-7 countries represents an extraordinary convergence of inflation rates and even of real output. Am I right in making that observation? And if so, what do you think the implications of that are for exchange rates and so forth?",69
-fomc-corpus,1992,"Well, I think you're right in making that inference; there probably is some degree to which we have a natural convergence of these things at least on the inflation side. After we put all this together, we noticed that several of the 1992 numbers on that chart are at 3.0 percent. I think that reflected a reluctance to put ""2"" [as the first] number. On the growth side, it seems to me that there is a convergence, but the movement is from different directions. Germany and Japan essentially are moving down and the weaker economies are moving up [in their respective growth rates]. In some sense that reflects the fact that a period in which we've had quite a lot of divergence in the experience and the needs of the different G-7 countries is coming to an end, though we end up with a forecast in which certainly for the United Kingdom and Canada growth still remains pretty weak relative to potential. As far as the exchange rates are concerned, to the extent that we do have both this convergence on the inflation side and less divergence in terms of certain short-run macroeconomic policy needs, it would seem to me that we're likely to have less shocks, if you want to put it that way, coming from abrupt shifts in policy over this period. I suppose the one set of question marks associated with this is that we're in a period, taking the two-year period as a whole, in which we have not only here but abroad--in Canada, the United Kingdom, France, and Japan--a lot of elections. If you put that all together, we could have some political shocks. In the case of the United Kingdom, I don't think we will see a fundamentally different policy even if the Tories should lose because Labor is as committed to staying in the ERM as the conservatives are and that is going to constrain monetary policy. Plus they think things are so bad that they would undertake once and for all to make exchange rate adjustments. It's uncertain what that may mean in terms of macro policy. And on the fiscal side they may move from a situation in which they have quite a lot of room to maneuver to one in which they really don't have that much anymore; but they're pretty much boxed in, even if there is a change in governments.",456
-fomc-corpus,1992,"Further questions? If not, let me mention Mike Prell's insistence that any changes in your forecasts arrive by the end of this week. Who would like to start the tour de table?",39
-fomc-corpus,1992,"I'd be happy to, Mr. Chairman. Economic weakness persists in the Twelfth District economy, unfortunately led by a worsening California economy. California continues to report declining employment in nearly all sectors. Weakness is most pronounced in construction and also in manufacturing. In 1991 construction employment fell in excess of 7 percent, and we actually had accelerating declines in the fourth quarter. Manufacturing showed a similar pattern, with employment declines of about 4.4 percent in 1991. I also have to point out that additional defense cuts are expected in 1992. Retail trade activity is also off sharply. Searching for a positive sign in the California economy, I was able to come up with one, and that is in real estate activity, at least residential, where median house prices actually have not fallen and resale activity has risen in several major markets. Even in Los Angeles, looking at year-over-year comparisons for single-family houses, the prices seem to be very similar to what they were a year ago. Throughout the rest of the District conditions are clearly mixed. Two of the largest of the remaining states, Arizona and Washington, are showing weakness. The state of Washington, which has had quite a few years of uninterrupted prosperity, actually showed a loss of employment in 1991. And Arizona has shown considerable weakness in the last four months. Other states--Alaska, Hawaii, and Oregon--are relatively sluggish. The only two states in our District that have shown strong growth are Idaho and Utah; of course, both of them are quite small in terms of the number of residents. Turning to the national outlook, we expect the economy to expand only slightly in the current quarter, which would mean we might see some further declines in the near term. In the quarters to follow, growth is expected to rise at around a 3 percent rate. Our major sources of strength come from inventories in the interest-sensitive sectors of the economy, although we would certainly subscribe to the Greenbook's expectations with regard to reduced interest sensitivity in most sectors. I do feel, however, that there is a rather large band of uncertainty encompassing both sides of this forecast. Nevertheless, the outlook for inflation continues to be encouraging. And consistent with a downward trend in underlying inflation, we expect to see a reduction in most major inflation measures this year compared to 1991. Thank you.",472
-fomc-corpus,1992,President Keehn.,4
-fomc-corpus,1992,"Mr. Chairman, our forecast is quite close to the staff forecast for 1992. Indeed, we probably are closer now than we have been in a while. Our outlook for both inflation and unemployment is just a little lower, but the differences aren' t really worth talking about. With regard to the District, in the period since the last meeting of the Committee, I think the District economy really has weakened. This seemed particularly true as we approached and then went through the year-end period. In some respects, I think the District just caught up with the conditions that were prevalent around the country. The employment situation is perhaps the most evident indicator of that. Total payroll employment in the District declined in December, and the District unemployment rate went up to 7-1/2 percent; that's the highest level we've had since May of 1986. Illinois really did stand out in that; its unemployment rate went up to 9.3 percent and that got a lot of attention. There are some special factors behind that; nonetheless, it was a very, very significant increase in the level of unemployment in Illinois. And that puts us, I believe, at the top of the industrial states. Announcements of employment reductions, closings, early retirement programs, and the like, are continuing at what seems to me to be a very disturbing rate. Since the year-end, I've been trying to look around pretty hard for better news and I have to admit it is a bit scarce. I will say that there are some categories in which there are signs, if not of improvement, at least of stabilization. The steel business is perhaps in that category. One large manufacturer in our area is clearly operating at a 72 to 73 percent rate, but its current order rate is a little higher, coming in at about 75 percent. So, that should mean their total production will go up a bit. And the forecast for shipments this year is a little higher than was the case last year. In the steel industry, though, the pricing is stable, which from their point of view means that it is just terrible. Their prices currently are generally at about the level that they were in 1980-81 on a nominal basis. On an inflation-adjusted basis that means they're about 30 percent under that level. The outlook for heavy trucks also is just a bit better; sales are expected to be some 5 to 6 percent higher this year compared to last year. But I will say that that improvement is very much a forecast for the second half of the year; there's an awful lot of focus in the District on the second half versus the first half. Machine tool orders increased in December; that was particularly true for metal cutting tools, which should mean that those industries will be producing at higher levels. Also, I think there's something of a brighter note on the retail front. One specialty retailer I talked to said that in the early part of January their sales around the country were up some 14 to 18 percent. Another very major retailer in the area said they had a good January; their sales for the full month were 17 percent over last year. On a cautionary note, though, last January sales were very badly affected, of course, by the so-called CNN factor. And all the retailers say that discounting continues to be just very, very tough. In the automotive business, though, as Mike has said, the last 10 days were a little better. Still, for January as a whole those sales came in a bit lower than the earlier forecast. I think that means that the first-quarter production schedules are at further risk. But one manufacturer that I talked to said that they had seen some improvement in the order rate from dealers, which is something I've been looking at pretty carefully. And, indeed, last week they had a very significant increase in the order rate from their dealers. They're not quite sure why. If that is maintained, then their production schedules in the first quarter might be okay. In the agricultural sector, the equipment business has hit a rough spot. One major manufacturer has had a decline in sales of major implements of some 24 percent over the last couple of months. There's a comparison issue there, but they still are down very significantly; the reason is supposedly that the farmers are looking at the ITC and are going to hold off until that gets clarified. I do think that for many of the businesses in our District, this ITC uncertainty is going to be something of wild card. In an overall context, while I can't find people whose attitudes are particularly positive, nonetheless some of the very heavy depression that was rather pervasive when we last met has passed, and I do think our policy change in December had an important effect on that. On the pricing front, the outlook continues to be positive. The competitive conditions speak for themselves: Price increases just don't stick; and wage increases, particularly in manufacturing, are modest and can be dealt with through productivity improvements. Therefore, I think the staff forecast on inflation is very realistic. Also, I think the restraint on credit extensions by banks is beginning to stabilize. As nonperforming loan problems begin to unwind here and capital ratios continue to improve, lending attitudes are getting just a bit more expansive. It hasn't shown up in the numbers yet, but my sense is that the lending officers are being encouraged to go out and find good loans, and I certainly would want to emphasize the ""good"" in that comment. Net, I think the risks continue to be on the down side in terms of overall economic activity, but I do think, though it's hard to give you statistical evidence of it, that there has been at least a mini-improvement on balance from the last meeting.",1157
-fomc-corpus,1992,President Forrestal.,4
-fomc-corpus,1992,"Si, has the Caterpillar labor negotiation progressed?",10
-fomc-corpus,1992,"It has not; it has gotten worse. Caterpillar, of course, built up very large inventories going into the strike. And because of the low sales level they are still very much working off those inventories. And the union has an enormous strike fund. This is getting to be tougher; they are not talking, and it's difficult to see a constructive way out of this one.",76
-fomc-corpus,1992,What are the union wage demands?,7
-fomc-corpus,1992,"It's not so much wages as it is the issue of [the industry] pattern. The UAW settled with Deere and is insisting on the same settlement out of Caterpillar. Caterpillar is saying they ship to different industries and face different competitive factors, and they cannot settle on the [basis of the] Deere package. Again, it's the pattern that is the ultimate issue here.",76
-fomc-corpus,1992,"It would seem, with farm sales down 24 percent, that maybe Deere made a mistake also.",20
-fomc-corpus,1992,"Well, Deere had a bad [strike] the last time and went into this one deciding they were going to find a way of settling.",28
-fomc-corpus,1992,President Forrestal.,4
-fomc-corpus,1992,"Mr. Chairman, activity in the Atlanta District has softened since the last time we met, but I'm happy to say that there seems to have been quite a turnaround in expectations. Most of the contacts we've talked to expect an upturn, although a modest one, in the spring. On the manufacturing side, even though activity slowed in the last few months of 1991, a large number of firms that we surveyed recently indicated that they expect an increase in production and shipments as well as in orders over the next six months. We've had informal contacts with retailers, and they're suggesting a similar outlook. Retail sales were somewhat better in January; that [improvement] was concentrated in nondurables. Retailers continue to be very cautious about their inventory levels. One bright spot in the District that was picked up for the nation in Mike Prell's report is the sale of single-family homes. This has been true across the District generally and is concentrated in the lower to the mid-price range. And that obviously has implications for durable sales, which I mentioned. Another positive factor in the Atlanta District has been a rise in convention bookings as well as in the number of visitors and tourism. Foreign tourism in particular is expected to benefit from the weak dollar. The agricultural sector is generally favorable, but the situation is really quite different for the energy sector. In December, for example, Louisiana operated 40 percent fewer rigs than a year earlier. The number for the country as a whole is 30 percent less. This is giving rise to continuing layoffs in the District in that industry. Banking contacts are reporting very weak loan demand, as was suggested a few minutes ago. Loan officers are out there looking for good credits; the problem is that they're not finding very many good credits. The banks also are reporting that they're not changing their underwriting standards at all, and some of them are reporting that there has been really no change in the regulatory pressure that they had seen earlier on. So, in general, while things have softened, the attitudinal situation is considerably better than it was six or eight weeks ago. With respect to the national outlook, we're reasonably close to the Greenbook in terms of the GDP forecast. Although we see a little more strength in the first half of '92 and somewhat less growth as time goes on, the GDP forecasts pretty much converge. Our outlook for inflation is somewhat less optimistic. We may indeed get the good results that the staff is forecasting in the Greenbook, but I think the risk on inflation is on the up side. My hunch is, although our forecast and the staff forecast are based on no fiscal change, that we're going to get fiscal stimulus probably above what the President has suggested. And that suggests to me that the GDP forecasts are probably on the low side; if we get that fiscal stimulus, the economy will probably do better. Having said that, I do think our decision today should be based on our assessment of what the situation is going to be ex fiscal policy. Thank you.",604
-fomc-corpus,1992,President Black.,3
-fomc-corpus,1992,"Mr. Chairman, I don't have much to add to this very excellent presentation the staff gave us and the fine coverage in the Greenbook. Our projections really are not significantly different. We do expect a little more real growth and a little greater slowing in the rate of inflation. But the broad profile is pretty much the same, with some pickup in the rate of increase of the recovery in the second quarter--but only to a very moderate rate in comparison with what has happened in past recoveries--and continued deceleration in core inflation, even though we are projecting that the overall CPI will come in a tad higher this year than it did last year. Insofar as the risks of error are concerned, I guess a carefully reasoned analysis would say that they are about equal on both sides. Certainly, there are some downside risks: the heavy overhang of commercial real estate; the corporate restructuring; the balance sheet adjustments that are taking place; the restraint on credit. Also, all these temporary dislocations that have taken place as a result of declining rates of inflation could produce another year of lower-than-expected growth. But on the other side of that, I think the substantial further easing in monetary policy we engineered in November-December could easily produce a more rapid recovery than we are expecting here, particularly if a fiscal package is enacted early in the year or relatively early in the year. For what it's worth, my instinct is that the upside risk is probably a little greater than the downside risk mainly because of the actions that we took in the fourth quarter. We engineered a very significant easing in policy; it has not at this point had a very positive effect upon the economy; the stock market really seems to think [it will] over the next several quarters. Moreover, we're seeing a decided change in the comments that we hear from our contacts around the District. There is not much hard evidence yet that things really have improved, but the outlook for the next six months or so is decidedly better than it has been over the several times we've made contacts; it's quite a shift away from what we heard [unintelligible]. It always seems to me that the pessimism is the greatest right at the bottom of a recession. So, since it looks a little better now than it did a while back, I hope that means that we're beginning to come out of this a little faster than most people seem to think.",484
-fomc-corpus,1992,It could also mean we're not at the bottom of the recession!,13
-fomc-corpus,1992,I hope it doesn't get any worse than it is now. It would really be bad. It's the worst I've ever seen since the '30s and I don't know very much about that.,38
-fomc-corpus,1992,First Vice President Hendricks.,7
-fomc-corpus,1992,"Thank you, Mr. Chairman. At a January 24 meeting of the Fourth District round table, economists agreed that the economy will be flat again this quarter but will improve throughout the remainder of 1992. Similar to the staff forecast, the group of economists expects 6 percent growth in nominal GDP over the next four quarters, and that's about evenly divided between output and prices. They pointed out that structural changes in the economy, such as corrections in overcapacity in retail and banking and long-term adjustments in the automobile and computer industries, are restraining the recovery. With respect to our projections, they are very close to those included in the Greenbook. Currently, activity in the District is mixed and has perhaps lost a little ground in terms of the momentum it enjoyed in recent months. Nonfarm payroll employment fell in January after three successive monthly increases. Our unemployment rate rose 1 point to 6.6 percent but is still, of course, below the national average. Construction contracts, retail sales, and manufacturing production all outperformed the nation through late 1991. Auto production remains weaker than expected, although the auto economists who participated in the round table still believe that production this year will be at least 10 percent higher than last year. [They base that assessment] on the strength of sales and inventories that they feel are a little better than they originally had expected. Auto suppliers note that orders softened late last year, but Goodyear has just announced a recall of 300 workers because of good demand for replacement tires. Steel operating rates at nearly 80 percent of capacity are expected to ease a little this quarter in the view of those economists because of the recent let-up in orders. The signals from capital goods producers are also mixed. Those sensitive to auto and truck production note easing in orders, but the industrial machinery and equipment producers report that orders are either flat or, in the case of machine tools, rising. The capital spending outlook for 1992 is also mixed. More durable goods producers plan either the same or higher levels of spending than those who plan cutbacks, but petroleum producers, retailers, and real estate developers will cut spending. Although the commercial real estate markets in the Fourth District are not as soft as in some other areas of the country, developers of shopping centers and office buildings are concerned about too much capacity. Inadequate financing and cash flow have put several projects on hold in Ohio, New York, and California. It appears to us that we are perhaps at the threshold of an expanding economy. Of course, we thought that was the case last summer. We are encouraged by the absence of price pressures and by the modest 2 percent increase in the price deflator again last quarter. And we expect continued moderate inflation in the months ahead. That concludes my report.",561
-fomc-corpus,1992,Thank you. President Syron.,7
-fomc-corpus,1992,"Thank you, Mr. Chairman. In the First District we had thought that the economy was on the verge of rebounding but now it seems perhaps to be stalling a little again. The sector where that's coming from is the manufacturing sector. A significant amount of that has to do with defense, and it's probably a long-term structural adjustment. Defense is an extraordinarily important industry in Connecticut; on a per capita basis it dwarfs even California. So, everyone wants peace to break out as it affects someone else's factory; but we know we're going to have a lot of cuts there and it's causing a fair amount of uncertainty for the District. Also, the people who produce the capital spending more generally are finding that their customers are concerned. With respect to manufacturing in softer goods, several discount retailers have told us they've had calls from producers saying: ""Can you take things from us now because we're starting to be concerned about cash pressures and our inventories are building a little more than we'd like?"" For the retail sector, the post-Christmas period has been a little better than expected, as was the Christmas period. So, that is relatively good news. In the banking sector, loan demand for ""acceptable"" loans is still weak. Several banks have indicated that they are going to be more cautious as a result of the recent legislation in terms of prompt progressive intervention and capital standards. We are seeing the beginning of some improvement in nonperforming loans; the level of nonperforming loans has actually dropped slightly at the margin. And that is consistent with what has been talked about in other Districts. We have seen some pickup in residential construction in single-family homes even in New England; I'm not quite sure who is going to buy them, but I'm told that they are all contracted for before the [shovel] goes in the ground. Again, I'm not sure what the reason is, but the mood is generally improved somewhat as well. I think part of it has to do with our December cut [in rates]; it is being seen as a watershed event to some extent. But people are saying: ""Well, it has to get better, and we expect it will get better in the spring."" As far as the nation goes, our own forecast would be quite similar to the Greenbook forecast, though I must confess not necessarily on the same policy assumption that's embedded in the Greenbook. I don't mean that as a criticism of the Greenbook; I realize the institutional constraints. But I think we do have to take into consideration that a forecast based on the ""no change"" approach to policy, which has become more of a standard assumption in the Greenbook, may have been biased toward optimism as we've gone through these periods. I realize looking immediately ahead that we do have this unknown in fiscal policy out there. I was very interested in Mike's comments that even the things that have been talked about now--the presumption that this [fiscal package] doesn't get ""Christmas-treed"" too badly--would not have a dramatic effect. At any rate, that's something that we can't anticipate very well at this point. The one place where our forecast does differ is with respect to the unemployment rate. For any given level of GDP, we would have a slightly higher unemployment rate forecast than what is reflected in the chart. I think that goes back to our own little model [at the Bank] where we have the labor force increasing slightly more than is anticipated in the Greenbook forecast. We think that could add as much as a couple of tenths in some of the intermediate periods and, consistent with that, we'd be somewhat more optimistic on inflation. To sum up, on balance we think that the risks still are on the down side. One reason has to do with the consumer and the necessity of forecasting that we're going to see a snapback in consumption to some extent. If that doesn't happen, I have a fear about what that would mean for inventory behavior and what that [implies in turn]. We've obviously made an enormous amount of progress on inflation and we don't want to give that up. But consistent with that, we've also seen this restructuring phenomenon that is going on, which will be very beneficial for productivity in the longer run. And it seems to me that the proper role of policy, as others have said, is to ""facilitate"" that restructuring phenomenon. I do have a concern that were we to see a significant further slowing in the economy, we'd see demands for all kinds of protectionism, not just in the international trade sense but in a slowing down of the restructuring process in many industries. That may be because I come from a District where a lot of people have been restructured out and I'm very sensitive to it. Thank you.",952
-fomc-corpus,1992,President Melzer.,4
-fomc-corpus,1992,"In terms of the outlook, our view is similar to the Board staff's. We're somewhat more positive on real growth and right in the middle of the central tendency as far as inflation, as measured by the CPI, goes. But what I want to comment on are the assumptions. It's interesting how two people can look at the same thing in different ways. Dick was worried about an unchanged interest rate [assumption] and I'm worried about what I think is another policy assumption implicit in there! [Laughter] When we do our forecast further out--this would have very little impact on '92--our presumption is that at some point, not in the reasonably near future but in the course of this year, we'd get back to Ml growth of 4 to 5 percent. We don't run our projection solely on that; there's a lot of judgment implied. But implicit in the policy assumptions in the Greenbook and the Bluebook is an 11 percent plus growth rate in Ml for all of 1992. Now, I guess my view is that an unchanged interest rate is not necessarily an unchanged monetary policy. If we're pegging an interest rate and we have an economy that is picking up and there is greater demand for credit and associated with that transaction balances are created, we have to supply the reserves. So, my view is --though some things could occur in the short run to disturb this--that over longer periods of time if we're fostering growth in reserves and narrow money at double-digit rates, that's going to come back to roost in terms of higher inflation. So, in terms of underlying assumptions looking further out, there are considerable differences. The other thing in this context that troubles me in general is that this can go on with an apparently benign policy as far as M2 is concerned because only 25 percent of M2 is comprised of the Ml component; 75 percent is in the non-Mi components. And special factors will hold the growth of those non-M1 components probably to zero in 1992. So, we can sit there with 10 percent Ml growth and have M2 growing at 2-1/2 percent. Enough about that now, but I think we had the same sort of problem between the middle of '88 and the middle of '89 in reverse in essence, where M2 looked as if it was growing fast enough at a rate of about 4 percent. We were comfortable with that, but in fact what we were doing to maintain our pegged funds rate--which arguably was perhaps too high--at those levels was that we were pulling out reserves. Ml declined and we pulled out reserves over that one-year period at an annual rate of 3.2 percent. So, I think those are important considerations as we look ahead to tomorrow. In terms of the District, I didn't go first today--that didn't do any good last time--but the numbers still look pretty good. Non-agricultural payrolls in the most recent period for which we have numbers were growing at 1.3 percent compared to 0.3 percent nationally, and we're seeing that growth both in [services and goods-producing industries], with particular strength in food and kindred products and in textiles. I continue to hear this anecdotal story about textile mills running flat out [in our District]; it's partly a delivery problem as I understand it. Inventories have been run down to the point where wholesalers and retailers can't wait for foreign deliveries so domestic mills are benefiting in the short run. As far as construction goes, residential construction has been particularly strong over the last year. Contracts have been growing at twice the national rate over that period. Nonresidential construction is off over the year and most recently, but it's off I would say modestly--about 4 percent over the course of the year--and there are no signs of further declines at least at the moment. I picked up the same thing Bob Black did on the anecdotal side. Over the last two or three weeks for the first time in many months, I have started to hear some positive comments from people in the housing area, from a couple of bankers talking about a pickup in loan demand both in the consumer and commercial areas, and also from the retailing side. A major national retailer based in St. Louis saw activity pick up in the week or two before Christmas and that pickup has been sustained throughout January. At the same time they point out that this is a very promotional period in terms of prices and that, as Si mentioned, last year is really a bad benchmark. But they're doing better than their plan. Anyway, District-wise, the story is really about the same as I laid out last time. At the moment things look pretty good.",955
-fomc-corpus,1992,President Boehne.,5
-fomc-corpus,1992,"My assessment of the District economy is that it's just bumping along the bottom. I don't think there are any firm trends, up or down. But I, too, have picked up in recent weeks perhaps just a tad of improvement in sentiment. Some is from retailing, some from banking, and some from the housing area. If you didn't want to see it, I don't think you'd see it; it's not a big deal, just a little here and there. You would have to put your finger on the pulse; it's just a sense, and I think that's a positive sign. As far as the nation goes, I think the Greenbook is about right. That forecast is the most likely outcome and I think it's well reasoned. Nonetheless, it could be wrong and we could relive what we went through last year. I just put my finger in the air and came up with my own assessment, which is that there's probably about a 60-65 percent chance that we will get an expansion along the lines the Greenbook sees. But I think there's maybe a 25 or 30 percent chance that we won't and that we could see a repeat of last year, with the balance [of risks] being that we could get a stronger expansion. So, it's a profile that has the odds favoring an upswing but enough of a chance of a downturn that one can't dismiss it. I do think this is a time when we need some patience; we need to be very pragmatic about applying patience. We ought to wait a reasonable period and look for some indicators that the economy is picking up. If we don't see those signs after some reasonable period, we have to keep an open mind about how to proceed. But at this point I'd be willing to play the odds of a pickup.",361
-fomc-corpus,1992,President Hoenig.,4
-fomc-corpus,1992,"We think our District is growing somewhat more slowly; it might be described as flat at best. In the agricultural area, because of the subsidized grain shipments, the wheat price that we've talked about has gone up and that, of course, has been positive. But livestock prices, which had fallen sharply, have only come back slightly. And we're still projecting a slowdown in agricultural income, which has [adverse] effects on suppliers to that industry. Also, with natural gas prices being so weak, the energy industry, which is a very important resource in our District, is suffering. As someone said, the rig count for us is about the same as for the nation--about 33 percent less than it was a year ago--but very weak; and employment in that sector is very weak as well. In manufacturing, we are involved in the auto industry. Shifts have been eliminated and cutbacks in production schedules have caused unemployment to increase in that industry; layoffs of about 1,000 people in Kansas City were just announced recently. General aviation has also seen some modest falloff, but for us that is important. The construction industry has been positive, particularly in the residential area. Some significant gains have occurred there, and that has been the most positive note out of the District. On the national economy, our projections are less robust than those in the Greenbook, partly because we have seen such a poor fourth quarter for the economy and we look at what impact that would have going forward. We see a slower increase in the first quarter, or perhaps no increase at all, and a pickup after that, putting our projections below the central tendency [unless] we assume that there will be some modest fiscal package, which would bring us back up toward the central tendency. With that we see unemployment in the same range as the staff projection and inflation without the fiscal stimulus probably being within the same range or lower. So, that is how we see the national economy as well as the District economy.",401
-fomc-corpus,1992,President McTeer.,5
-fomc-corpus,1992,"The Eleventh District economy can be classified as flat to down slightly. As Tom [Hoenig] indicated, we're also suffering from the low natural gas prices and not too high oil prices. A lot of drilling activity is being shifted overseas. Also, in our major metropolitan areas, defense-related industries at least prospectively are losing employment, and that's getting a lot of attention. We continue to hear a lot about the potential loss of a major GM plant in our metropolitan area. The leading indicators that our staff looks at for Texas and the District, though, have been offering some promise recently. There has been improvement in some of the labor market indicators. The average workweek is up and initial claims for [un]employment are down locally. There is good news along the border areas: The smaller towns are benefiting from a stronger Mexican economy than the U.S. economy. Our contacts, Beigebook and otherwise, have been mentioning being squeezed by their inability to pass on a lot of their rising costs. For the first time in a long time, we've heard complaints about higher minimum wages and the higher mandated benefits in health costs and so forth. I've been in Dallas a year now--this is my first anniversary--and in my [staff's] briefing yesterday I couldn't help but notice that we were at about the same place this year relative to the recession and hope for a recovery as we were a year ago. The main difference was that the staff seemed more pessimistic this time than they did a year ago. In the area of hope and better sentiment, the people I talked to reacted very favorably to our easing move in December. That seemed to give some hope. They're very skeptical about any benefits coming out of the fiscal side. They don't know what [the fiscal initiatives] will be, but they know they won't do any good and may do harm. I was at Texas A&M last week and I heard about an Aggie doctor who illustrated this fiscal package very well. He amputated a patient's leg, came in the next morning and said: ""Well, I have some good news and some bad news. The bad news is I took the wrong leg; the good news is the other one is getting better."" [Laughter]",450
-fomc-corpus,1992,"President Stern, can you improve on this?",9
-fomc-corpus,1992,"I won't even try! For a long time, I've been reporting that the District economy is relatively steady, plodding ahead at a slow pace. That continues to be a reasonable description of the situation. Obviously, some sectors are doing better than others and some regions of the District are doing better, but none is really doing awfully. So, in that sense, we seem to be doing okay. On the positive side, as several people have already commented, recently almost wherever one goes, residential construction seems to be improving; that is underway. And as other people have commented, attitudes clearly have improved in the sense that while they always seem to me to be worse than justified by circumstances some of the intensity of the gloom seems to have lifted, if I can put it that way. So, slightly better attitudes at least seem to be emerging. On the negative side, some manufacturers have commented--and I think this is implicit in the charts that Mike presented--that inventories are excessive upstream and that has started to affect them in the sense that orders have slowed and so forth. Although we're not a big textile district, our textile manufacturers are running pretty well full out, as Tom [Melzer also] commented. So, there is something going on at least in that area. With regard to the national economy, I do think the stage is set for something like the Greenbook forecast. I don't have a very different view as to how things will turn out. I would reemphasize the point that has been made that it is by most comparisons a very conservative forecast, and it wouldn't be altogether shocking to me if the economy did somewhat better than that. The one thing that does trouble me a bit, looking at the national circumstances at the moment, is the state of the long-term bond market where clearly nothing favorable has been happening in recent weeks. Indeed, rates are at the levels they were before the discount rate cut back in December.",390
-fomc-corpus,1992,Governor Kelley.,3
-fomc-corpus,1992,"Mr. Chairman, I have very little substantively to try to offer today, but I would like to put out one notion. I am struck by the very strong consensus that I read in the press--and indeed it seems to be here as well--that the economy is likely to be ""flattish"" in the first quarter, that it will be a little better or that a recovery of some magnitude will occur in the second quarter, and that the economy then will move on up from there. I share that view. What worries me is that I have a bit of the contrarian in me, and I ask myself: If we have this very strong consensus, it's probably wrong, but in what direction and how? Is it too strong or too weak? Again, I'm part of the consensus, but my suspicion is that we could very well see events prove to be on the stronger side. If we were going to have a collapse, it seems to me that it would likely have been evident in the fourth quarter and would be underway now, and I don't sense that it is going on now. And the longer that doesn't appear, it seems to me the less likely that it will. It's probably too soon to rule it out, but [more strength than is projected] would seem to me to be the way things are liable to go. We have some things going for us already that should help, maybe more than we know. The short-term rates and the monetary stimulus that's in the pipeline should help. The refinancing of homes is putting more spendable income into the pockets of people every day. And I wouldn't be a bit surprised if this little uptick in long rates doesn't accelerate that [development]; and it might accelerate home sales as well. I'd also bet that the white collar layoffs have seen their peak. I think most CEOs who felt the need to lay off workers probably wanted to be able to report it in their year-end statements and got it done in the fourth quarter. If there's anything to that, layoffs are going to decline and that should help confidence. The credit crunch may be beginning to ease and the bank crisis may be beginning to ease. We're hearing here today and we read that banks are looking for good loans. My suspicion is that if they look, they're going to find them along the way. Fourth-quarter earnings of banks were better; their stock prices are up; and the loan officers' survey says that nobody is tightening anymore. So, maybe we will begin to get some relief there, although I don't think it's going to be very dramatic very quickly. On balance, I'm with the consensus but if the consensus does prove to be wrong, I think it's going to be on the up side.",546
-fomc-corpus,1992,Governor LaWare.,4
-fomc-corpus,1992,"Mr. Chairman, I want to discuss for a minute this confidence issue. If the consumer is truly the key to this economy and if a lack of confidence is what is driving his behavior at the moment, I ask myself: What are the things that are going to change that? Now, my previous suggestion that we hire a behavioral psychologist was rejected by this Committee last time, so I was looking around for other solutions!",84
-fomc-corpus,1992,Couldn't afford it!,4
-fomc-corpus,1992,"We couldn't afford it; well, the Administrative governor put a veto on that!",16
-fomc-corpus,1992,You already voted for the budget; it's too late!,11
-fomc-corpus,1992,"We've been told since November that the President's speech would lay down a program for the country that would inspire confidence. It was a letdown; it certainly didn't draw any ""hazzahs"" from the assembled throng and it certainly did not create a consensus that we are now on a high road. The corporate restructurings and the layoffs, which Governor Kelley referred to, have continued, and they increasingly involve Blue Chip companies that were considered above the storm. And I think that has further alarmed not only blue collar workers, the traditional layoff victims, but white collar workers as well. Congress is certainly mushing around without much show of confidence-building leadership. The fiscal solutions involving massive cuts in defense spending seem to me to instill panic in the hearts not only of employees of defense industries but also their shareholders. And modest tax cuts don't sound to the recipients as if nirvana has arrived. Having said that, it is hard for me to believe that further monetary ease in the absence of some statesmanlike political leadership can really restore the economy to vigor. At the same time, it seems to me that previous monetary policy moves and the accumulated demand that has to be there in the economy should make something close to the staff Greenbook projections for GDP a realizable target without further monetary stimulus. In the pursuit of price stability, I don't think the modest growth rate outlined in the Greenbook is an undesirable outcome, although I must confess that the staff outlook for inflation is somewhat disappointing in the context of that slower growth rate. Mr. Chairman, that's all I have to say on the confidence issue today.",323
-fomc-corpus,1992,Governor Mullins.,4
-fomc-corpus,1992,"I don't have much to add. I like the Greenbook. I liked it last February as well. And I hope I never see it [repeated] again--not next February at least! I think the economy remains in a state of lethargy, although perhaps the intensity of the gloom is burning off. I think it's worthwhile to ask where we stand. We're in pretty good shape in the sense that we do have a lot of stimulus in the pipeline and we can see that working visibly and forcefully in financial markets--all the things we've mentioned in terms of the refinancings. Of course, we've been making this argument for some time now and someone is going to ask: When does this stimulus start to trickle out the other end of the pipeline? We have cut the fed funds rate 175 basis points in the last six months; 125 basis points of that has come in the last four months; our last move was six weeks ago. Sooner or later people are going to say: ""Where's the beef here?"" What real economic data do we have, even the forward-looking data like orders, that would suggest that we have found the appropriate monetary stance consistent with recovery? The housing market continues its modest rebound and we have exports as well. Of course, it's still pretty early in the lagged response cycle. However, so far we have relatively little to show for our actions. Those actions were certainly received as a credible move to realign short-term rates with lower inflation expectations but they have yet to produce much in the way of real economic stimulus. It's good that M2 is growing a bit more but it's still in the lower half of its range. When I look at the outlook for persistent slack in the economy, capacity utilization and labor, and the continued slow growth in M2 and credit, with significant sectors of the economy clearly sitting on the bench out of the recovery game--I mean by that state and local governments, commercial real estate, and consumers in the sense that they lack the debt capacity for explosive spending--it's still difficult for me to conjure up much fear that an overly robust recovery will ignite inflation. I guess there is some fear on the fiscal side, although I think that will tend to lead to chaos rather than effective stimulus. Nonetheless, we have had growth in M1 and reserves that has gone from high to very high. We also have a high long-term bond rate. Given the way the long bond has been reacting to statements on the screen, the evidence tends to suggest that the long bond rate would fall if we eased again. That's no reason to ease, necessarily. Despite that, the fact that the long bond rate hasn't come down more is clearly a concern. I think underlying that concern is primarily the fiscal situation. Despite a rigorously binding budget agreement, the deficit has continued to balloon even before one considers the fiscal package. And now we're moving to a fiscal bidding war where the first bid is a deficit of $400 billion. If I were a long bond investor, certainly I could understand why I would be a little concerned. There is the supply side of that and also the artificial supply in the sense that dealers have been heavily shorting government securities as part of the process of issuing this record volume of corporate debt. And I suppose there may be the expectations of recovery as well. So, I think the long bond rate has to give one pause. It is consistent with the expectation of a cessation of progress on inflation once the recovery starts. It's interesting to note that many private forecasters as well as OMB and the Administration project a flattening out of the inflation rate once the recovery gets underway--a flattening out in the 3 plus percent range rather than the continued progress that the Greenbook shows. And this is despite very extended periods of slow growth in M2 and the persistence of slack in the economy. So, I think there's ample reason for caution. I, for one, don't want to see us go so far that a major tightening is inevitable once the recovery gets underway. And I'm certainly sobered by the realization that some on the Committee would suggest that we may have gone that far already. So, I would agree with Ed Boehne that it's a time for patience. We're at a critical period here in the sense that we have a few weeks of relative quiet before the fiscal or political battle intensifies. I fear that will be even more unsettling for the markets and may tend to immobilize us. While it is a time for patience, I think it's also a time for vigilance. We should start to see some of this stimulus dribble out of the pipeline soon and we ought to start being concerned if we don't get some movement soon or if we should start to get some convincing negative news or significant signs of deterioration.",967
-fomc-corpus,1992,Vice Chairman.,3
-fomc-corpus,1992,"Speaking near the end, there's not much left to say in terms of the national economy. It's very hard to take serious exception to Mike's forecast at least for 1992; 1993 is obviously another question. I would agree, as many of you have said in one fashion or another, that attitudes at least have stopped getting worse. Whether they are better, it's hard to say; but one can [at least] say they are no worse. Even some of the most bearish major corporate CEOs now associate themselves with that. I also think one can make a pretty darn good argument that the stabilization of attitudes, even if that's all it is, is fairly directly related to the change in monetary policy that was made at the end of December. Now, in terms of the shaping of the future, I have managed to convince myself that we probably are a bit further along in this correction of the debt overhang [problem] that Tom Simpson was talking about than maybe is fully recognized. I also think we can now begin to make a case that the banking sector--and perhaps the financial sector more generally--looks a little better even if there still is a long way to go. And I do agree with several people who made the comment that banks are more [receptive to borrowers]. Just in terms of advertising space in the New York Times, we see a lot of full page ads now about loans, not deposits. If those two points are accurate even at the margin, I'd stipulate that one of the key assumptions of the chart show, to the effect that the credit crunch will ease ""somewhat""--I think that was the word--in 1993, might be a bit pessimistic. I might be able to envision that [easing] at least in ""somewhat"" terms some time in 1992. But having said that, I agree also with John LaWare that the confidence factor is the wild card. Even if there are some straws in the wind that smell a little better and look a little better, the economy does remain vulnerable to shock. That's one of the reasons why I blow a little hot and cold about the level of the stock market. But I also think, as a number of people have said, that the source of particular uncertainty is political with a capital ""P,"" bipartisan. I can't top Bob McTeer but I agree that the great [risk] on the fiscal side is that [the stimulus] will get overdone or that the process will get ugly, or both. If it gets ugly in a process sense, that certainly is not going to help confidence. If it gets ugly in a substantive sense, financial markets aren't going to like it. And that is a major risk. Perhaps a bit longer term, I must also say that I take this Japan/U.S. thing as a symptom of what I perceive as a real rise in protectionism and some elements of neo-isolationism. This is a real concern even though it may not seem as imminent as the fiscal [actions]. And while it's even less imminent, the point that Bill McDonough made in his remarks at the opening of the meeting about this tension among the Europeans--with a quite different economic profile in Germany on the one hand than in most of the other countries, with its implications for exchange rates and interest rates and some other symptoms of a political stress point--can have important economic implications, though maybe not immediately. So, there's no shortage of things to worry about out there. But the risks as I see them are much better balanced today than I viewed them over much of the fourth quarter. I think we always run the risk of instant replay but for that reason I feel more comfortable with the kind of profile in Mike's forecast right now than I have for the last few months.",768
-fomc-corpus,1992,Governor Angell.,4
-fomc-corpus,1992,"It seems to me that the bond market continues to be a check in regard to our ability even to re-inflate. I have some question as to whether we can cause the growth path to be much more robust than is forecast. Probably we would have to demonstrate that we're re-inflating before we can alter some of these conditions that exist in people's confidence level. I don't think I've ever seen so much ill regard for our government among people. And even though we think that inflation is a monetary phenomenon, people out there have a lack of confidence in government and what spills over from that somehow or other is that things won't be dealt with in a proper manner. Maybe that is what causes long bond prices to be at the same place they were 2-1/4 years ago. That's a rather sad commentary. Now, clearly, the housing market has been helped because the seven-year Treasury rate has come down quite substantially over the last 2-1/4 years even though the long rate has not. I sense, as many of you do, that there is some perking up, particularly in the housing market. Houses are selling; old houses are selling. And that does involve new activities. Certainly, a lot of refinancing is going on. As to whether the refinancing is being done in such a manner as to reduce the payments, the best sources that I have indicate that 70 percent of the refinancings are going to reducing the length of the maturity and keeping the payment [amounts] about the same. Clearly, M2 looks a little better than it did a month ago. I agree that in the commercial banking system the capital positions of many of the banks are improving; and the stock market seems to be a plus. But I can't find any robust sector. I can't find any area, in any industry or any geographic region, that really is alive. I know, Tom, that you have those textile mills running at capacity; but as far as robust and entrepreneurial spirits being charged up, that doesn't seem to me to be really there. I think some additional mischief could occur on the international scene. Europe could be a little softer than the staff has [projected] in the Greenbook. I see very little prospects for the GATT round getting anywhere by April, as everyone is saying. And if that doesn't occur, I tend to share the feelings that have been expressed about how protectionism might slow us down. So, we have what I think is a recovery out there, but I certainly don't think it is a very robust one. If it is, I'll be mistaken. I'm somewhat more optimistic on the GDP deflator for this year, but only marginally so.",543
-fomc-corpus,1992,Governor Lindsey.,3
-fomc-corpus,1992,"I think that we're back to the problem of the law of averages. Listening to the comments around the table, on average, the Greenbook is correct. But with all respect to our staff, when I did a count I counted five who are more optimistic, five who are more pessimistic, and two who think you're about right. It means that on average you're right. I think about Mike Kelley's comment to the effect that the consensus is wrong; our dilemma is that we don't know in which direction it is wrong. One of the reasons that's true is that we have begun in the legislative and executive arenas to adopt pro-cyclical policies instead of the usual anti-cyclical policies. Now, if you'll excuse a witticism: In the current environment, pro-cyclical policies mean that when things are bad, act aggressively to make them worse. If you look at the particular legislation that has passed, I think the pro-cyclical nature is clear. Beginning with the banking legislation: Through regulatory fiat and through legislative policy we've adopted banking provisions that, when things start to deteriorate because they feed through into the capital environment, rapidly shrink loans. When things begin to turn around and we have rapidly rising capital, either through market values or through the ability of the banks to raise equity we will hopefully, sometime, have a rapidly rising ability for banks to make loans, but right now we're on the down side.",287
-fomc-corpus,1992,Sounds like the Banking Act of 1863.,10
-fomc-corpus,1992,"It very well could be; my memory doesn't go back that far, Mr. Chairman, and unfortunately nor does my history.",25
-fomc-corpus,1992,You were on the wrong side of the war!,10
-fomc-corpus,1992,"Yes, that's right; we were fighting you guys back then! [Laughter] In labor markets we also have adopted pro-cyclical policies. They were well intentioned, but they have the problem of being pro-cyclical. In particular, I point to plant closing legislation which requires substantial advance notice. I can understand the humanitarian reasons for doing so, but when the economy starts to turn down, or when we're in a down cycle, a company is forced to announce more plant closings, which has an adverse feed into psychology [and] the confidence factor. And if you look at what is happening on Capitol Hill, the other two potentially bad things that will happen if things continue to get worse--and they've already been mentioned--are a gross fiscal stimulus, which will push up long-term bond rates, and a revival of protectionism. We have to think about how to interrupt this pro-cyclical policy. The keys have already been mentioned. The first is that the public knows that the political apparatus is not working well. One can see that in that the purpose of the politicians is to engender confidence. The President certainly billed his speech as one to engender confidence and the opposition appropriately called it ""warmed over"" and said that there was no confidence there. Further, if you think about why our December policy was apparently as successful as it was in building confidence--just about everyone commented on that--I think it was because it was decisive. With all that as background, I think that on average the staff forecast is right. I don't know which way it is wrong, but I do know that it is wrong. I do know that the risks are high on both the up side and on the down side. And the proper policy call is that we should be as flexible as possible and should be prepared to take on the risks whether it turns out that we're wrong up or wrong down. In addition to being flexible, we should also learn the lesson of December and we should act decisively when we act. But in which direction that action should be, I share the Vice Chairman's view: I don't know. Thank you.",432
-fomc-corpus,1992,Governor Phillips.,3
-fomc-corpus,1992,"Thank you. Coming toward the end of this discussion, there's really not as much to say. Based on the Greenbook analysis and the comments that have been put forward describing what is going on in each of your Districts, it still seems to me that at best we can say the recovery is sluggish. We've been saying that for quite a while and I agree with Governor Angell in that I can't see where that source of light is that will lead us out of this. Some of the disappointing news that we're continuing to hear really confirms the hypothesis that we're seeing some structural changes. This is not just a cyclical move. The problem with that is that it may take us longer to come out of the recession than might have been the case in the past. I will say, on the positive side, that the positive signs we are seeing are very good for the long run. The balance sheet restructuring certainly is good for the long term, as is the strengthening of the banking sector; and the fact that inflation does not seem to be as much of a concern in a broad variety of sectors is good for the long term. We're seeing some change in people's viewpoint toward savings. We've been saying for a long time that we need to have savings policies in this country, and I think we're starting to see some improvement there. And the easing that occurred in late December was about as positively received as we might have hoped. So, that was very helpful. I do think that a lot of the easing that has occurred over the last year and a half probably has been soaked up in the balance sheet restructuring. So, a lot of the easing that we may have thought was in the pipeline may be used up. I do agree that we're not yet seeing in the real economy the easing that occurred in late December. We certainly saw [mostly positive reactions], with the exception of the long bond situation. Certainly the stock market reacted very favorably. I'm concerned, as is Larry, about what might be happening on Capitol Hill to fix the situation. In view of the fact that I don't think the easing is fully reflected in the real economy, I don't feel quite the same pressure to ease that I was feeling in December. But like the Vice Chairman, I think we have to be quite vigilant over the next perhaps couple of weeks. In the next couple of weeks there may be a window before Congress starts doing all kinds of things. If there is a desire generally to ease, from a political perspective--though I hate to say it--it may be better to do it sooner than later. On the one hand, it's not expected before Congress gets going, and it may well strengthen the hand of those who wish to try to address the deficit situation. So, if we're thinking in terms of ease, I'd be inclined to urge that it be sooner rather than later. Nevertheless, having said that, I'm not feeling quite the same strong pressure that I was in late December.",592
-fomc-corpus,1992,Thank you. With that note I think it would probably be appropriate to adjourn until 9:00 a.m. tomorrow morning.,27
-fomc-corpus,1992,"The next item on the agenda is the long-run ranges for the aggregates, and I will call on Don Kohn to brief us. I'm sorry, Don, could you hold up for a second? Wayne Angell would like to amend some of the remarks that he made yesterday, so perhaps the best time to do that would be right now. Governor, the floor is yours.",76
-fomc-corpus,1992,"Mr. Chairman, I don't know whether ""amend"" is exactly the right word because as I was talking yesterday and listening to myself it sounded very confusing to me. [Laughter]",38
-fomc-corpus,1992,You can imagine how the rest of us felt!,10
-fomc-corpus,1992,"I decided last night that the reason it was confusing was because I wasn't really willing to put the proper labels on what I think are our current circumstances. I don't think we can do the right job of selecting policy unless we understand more precisely the nature of the circumstances that we're in. Those circumstances are, I believe, that we are [involved] in a long-cycle event. And it's a long-cycle event about which we must understand the cause because we can't do the cure if we don't understand the cause. I think the cause of this long-cycle event was the very expansionist monetary polices of the 1970s that created double-digit inflation. That double-digit inflation began a debt cycle in the private sector, which in a sense was not sustainable unless the rate of inflation was to be increased continually. I believe it was not possible for the world's reserve currency to be subject to a continuation of that inflation. So, it was entirely proper that under the Volcker Federal Reserve that was headed off and brought back down. But, ultimately, no more inflation means that the private sector--either corporations or households--does not wish to hold the debt as a ratio to their income that they did before. Now, during a long-cycle event it seems to me that the proper policy is one of price-level stability in order to get real stability to the event. As we've found during this period, to keep disinflation from turning into deflation we've had to provide reserves at a rate much [higher] than we ordinarily would think necessary, and we still have had a hard time keeping M2 and M3 growth where we wanted it. If it's the case that households and corporations are trying to reduce debt as a percentage of their cash flow and their income, then it seems to me that we have to admit something that central bankers never want to admit, and that is that the government has to become the debtor of last resort in such a circumstance. Because if we're going to force the growth of credit at a 3 percent rate or whatever even anemic rate may seem desirable, then someone has to be the owner on the other side because credit can't grow faster than debt grows. I think it's entirely responsible and important for the continuation of the creation of the private sector that those debt ratios be brought down. And under those circumstances I do not know how government debt can keep from going up. That raises the question for me as to what we say about this borrowing because it's the borrowing that causes the people out there to be so unhappy. The people are unhappy with their government because they don't understand how during this critical time we can have what they call ""irresponsible borrowing."" Now, if that's the case, then I am somewhat admitting that Keynesian economics is really depression economics and I don't want to sound Keynesian; it's terrible for me to sound Keynesian, but I think we ought to be wise in regard to what the government does as it increases its debt. As defense spending comes down and as we have layoffs of highly skilled workers in the defense sector, it seems to me that it will be important for us to have [other] capital investment. It's not good to replace defense spending without employment compensation. That's a very bad tradeoff in regard to our getting done what we need to get done. So, I would much prefer to recognize the desirability of public sector spending on the infrastructure, that is, building highways and bridges and doing public sector spending that has the best multiplier in regard to the private sector. In other words, what I was trying to say yesterday and sounded so confused about is that I don't think monetary policy can in and of itself resolve this problem. I don't think monetary policy can do it [now] any more than it did in the Great Depression. So, Mr. Chairman, I wanted to revise and extend my remarks to recognize that this event is different. By that I do not mean that it has to be more severe; I do not mean that the outlook is necessarily worse than Mr. Prell has it. But I do believe there's a downside risk to the outcome that Mr. Prell has outlined. That is, if the debt contraction in households and in the business sector is to go on and if households ex ante wish to increase their savings all at the same time, then the paradox of thrift leads us to somewhat slower consumer sector spending than we have projected in front of us. And under those circumstances our job ought to be viewed somewhat differently and that is not that we can fix it but that we can keep it from getting worse. That would lead me to a stability orientation. Thank you for indulging me in that.",936
-fomc-corpus,1992,"Thank you, governor. Let's now move on to Don Kohn.",14
-fomc-corpus,1992,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1992,"Thank you. I'm going to be distributing a picture of what President Black and I will be proposing. Mr. Chairman, while that picture is going around the table, I'd like to begin with an apology. It had been my intent this morning to wear the Thomas Jefferson tie that Alan Murray made famous following the last FOMC meeting. But I got dressed in the dark because I didn't want to wake my wife, and it turned out that I pulled out my Adam Smith tie instead of my Thomas Jefferson tie. I was embarrassed, but Bob Black has reassured me that had Smith lived on this side of the Atlantic he no doubt would have chosen Virginia. And he also no doubt would have preferred the ""Tunnel Option."" With that aside--",148
-fomc-corpus,1992,The last time I spoke to him he didn't indicate that!,12
-fomc-corpus,1992,"It's the ""Invisible Tunnel.""",6
-fomc-corpus,1992,He may have thought you weren't up-to-date on the issues.,13
-fomc-corpus,1992,"[Statement and charts entitled ""The Virginia Plan""--see Appendix.]",13
-fomc-corpus,1992,"Shall I go ahead, Mr. Chairman?",10
-fomc-corpus,1992,Go right ahead.,4
-fomc-corpus,1992,"I can't do what he said I would do, but actually he's given me a lot more credit for this than he should have. I had put this on the back burner; I had thought about it many times earlier. He surfaced the plan and sent it to me and asked for my suggestions and I made one or two suggestions, which he very graciously adopted. Then he sent me another version and I made one minor suggestion on that. So, the thought of giving me the credit for it is really misplaced. Since he has entitled it ""The Virginia Plan,"" I wish very much that I could have Patrick Henry do the defense! There's little doubt that he and Thomas Jefferson and George Washington and George Mason would certainly have a favorite rate of growth of the money supply with the use of ""tunnels,"" if anybody had ever brought that up. I do know that they would be a bit worried if they knew the ""Virginia Plan"" was being defended by somebody who was born in Kentucky. My only defense there would be that Kentucky was once a part of Virginia.",213
-fomc-corpus,1992,It was then.,4
-fomc-corpus,1992,That's right.,3
-fomc-corpus,1992,"Yes, it was then, that's right. I wish we could go back in time and I could speak at that time; but while I'm a Kentuckian by birth I'm a Virginian by choice--maybe that will give me a certain amount of credibility--and I also have two children who are native Virginians and I married a native Virginian. You kind of absorb some of this as you go along. I think Governor Lindsey has already stated quite well the reasons for adopting the multi-year tunnel approach instead of the annual cones and basing this on the level of M2 at the end of 1990 originally. Now, we set the data on 1991, but it comes out to the same thing. Let me make three additional comments on this, mostly by way of elaboration. First, the upside insurance this would give us at this particular moment is really a compelling reason. The [beauty] of this tunnel is that it pretty much guarantees that we would get price stability over the long run--which I think should be the objective of monetary policy to the exclusion of all others--as long as we were willing to reduce the rate of growth in the money supply until we got it down to the rate at which the potential output of the economy could increase [over time]. Now, everything we know about monetary history tells us that we can stabilize price levels if we get [money supply growth] down over time to somewhere in the neighborhood of 3 percent or so. People differ on what the potential growth of the economy is, but I don't think there's any doubt that it would be greater if we had price stability than if we didn't. And this is essentially the message of the P* model, which is one of the finest pieces of work I think we've done in the System. I wish I'd had a hand in that, but I certainly applaud the others of you who did. I think a continuous unbroken tunnel would be a much more appropriate and powerful device for controlling the long-run rate of growth in M2 than the current cones because it would eliminate base drift. And base drift has really been the bane of our existence. Whatever base drift has brought us in the way of short-term flexibility in some years, in practice I think it has made it virtually impossible for us to control the long-run rate of trend growth of M2, with the result that we have [not] known and nobody else has known what the price level would be several years down the road. Consequently, I've concluded that no matter how strong our intentions are to reduce inflation--and for the last several years this group has had a stronger inclination in that direction than virtually at any time in the history of the System and I don't think that intention has ever been stronger than it is right now--I don't think we will achieve that goal. Despite our feelings on that and our best efforts, I don't think we will ever achieve that goal unless we do something about moving away from our present targeting procedures. And I think the tunnel would address this. Moreover, and I can't emphasize this point too much: I think this move to a tunnel would greatly increase the credibility of the System. We have said repeatedly that our intention over time is to bring down the rate of growth in the money supply to noninflationary levels. This would spell that out in a great deal more detail and yet it would be clear that we would have the necessary leeway in the short run to do what needs to be done. And if this did increase our credibility, it would greatly reduce the transitional cost of moving to price stability. Second--and all of this is relevant to the comments that Don put in the Bluebook under the ""tunnel option""--it's certainly true as the Bluebook suggests that we wouldn't want to adopt the tunnel option when the relationships between M2 and income and prices are going to fluctuate in the future. All we really have to guide us is past experience and, historically, we know that there have been variations in the short run extending sometimes more than a year but that in the long run there has been stability in that relationship. V2, by the best statistical measures that we have, has been constant and predictable over the long run. Consequently, this tunnel approach makes a great deal of sense to me. But the tunnel needs to be wide enough to accommodate a fair amount of these variations in V2 that we normally have over periods as long as one to several years. Maybe a 4-point spread, as Governor Lindsey suggested, would be the proper amount, but it's possible that the width should be greater than that. It's important to note in this regard that even a very wide tunnel would still constrain the trend growth of M2 over a long period of time sufficiently to ensure price stability. And finally, the Bluebook may be right in suggesting that a substantial further easing of policy might be needed to get M2 up to the midpoint of Governor Lindsey's tunnel. But if we had a tunnel that extended our long-run trend objectives to 1993, I wouldn't feel compelled to move M2 up too rapidly from its present position near the bottom of the tunnel to the midpoint by the end of this year if it were clear that the recovery had resumed. In other words, this is not a ploy for ease. What I'm trying to do here is to suggest a long-run strategy that would give us the necessary flexibility in the short run. So, with regard to the width of the tunnel, it might be that it would be better for us to have a 5-percentage point tunnel if we wanted to make sure right now that we accommodate what is probably a good projection on the part of the staff, which is that 3-1/2 percent M2 growth in 1992 would be consistent with a resumption of the recovery. But, again, even a fairly wide tunnel like that would be concerned with the course and control of M2 over a long period of time. And that to me is the beauty of the tunnel approach. So, Mr. Chairman, like Governor Lindsey, I hope the Committee will give the ""Virginia Plan"" favorable consideration. I did not admit this to you, Larry, but as you were labeling this ""The Virginia Plan"" I thought to myself it really sounds more Hamiltonian than Jeffersonian. And then I thought with your background from New York you could send a ""New York Plan."" But in my case, although I spent right much time in New York, the first time I went to New York I crossed on the Staten Island Ferry prior to shipping overseas at the end of World War II and I didn't even see the Statue of Liberty. I was the only one who went out without seeing it and that was the main thing I was interested in seeing. So, I didn't think I could defend a New York Plan, but I do think this may be a little more Hamiltonian than Jeffersonian. And I hope the Committee will honor these distinguished forebears of ours who, other than an occasional glass of whiskey, probably would have liked nothing better than a slow, steady rate of growth in the money supply!",1439
-fomc-corpus,1992,"Well done, gentlemen. Let me raise a few issues on the other side of this. I don't think there's any question that we all hold the basic view that we wish to move toward price stability as a necessary condition for maximum long-term real growth. Also, I think that the monetary policies we set around this table, and the mechanisms we employ to achieve them, don't rest all that much on simplistic cones, tunnels, or whatever. Hopefully, we're looking at the issues in somewhat greater detail to understand the relationship between money and GDP. Having said that, I have been in and out of a position in favor of the ""Tunnel Approach"" over the years, and this is the original version of money supply growth notions. I think the key question we have to ask ourselves is: To what extent do we actually use the cones to operate policy? We're obviously acutely aware of what other people see with respect to these data. And to the extent that the particular cones that we use--or even if we were to use tunnels--reflect our basic view of what we wish to be done, then indeed we would follow them. But the cone is a simplified version of P*. Everything that's in the cone is obviously in P* in a somewhat more detailed way. And we do use P* as a guide and indeed have been using it, obviously, for the last several years as we try to move our way toward price stability. Indeed, it's that sort of process that suggests to us what the path of money supply should be. So, I think we have to ask ourselves several questions about this. Would our switching from cones to tunnels affect what we actually do here? Or are we trying to alter the perception of the market and other people? I submit it is the latter, not the former, that is crucial to this. And if that is in fact the case, then I think we are confronted with a very difficult problem here, which is that even though we may perceive the tunnel as being an endeavor to simplify P* as the long-term goal, as a practical matter we are signaling a very sharp and immediate reduction in the funds rate to move M2 growth up [in the cone]. Were we to start something like this when we are at the midpoint of a range, it would be very easy to do. I don't think one can readily argue strenuously--with the exception of a few minor issues I would raise--between the desirability of a cone and a tunnel. I think every person around this table has been on both sides of this in their monetary policy discussions. I'm most concerned that if we were to do this at this stage, it would look as though we were merely trying to hide the fact that we really want to move the money supply up sharply by dropping the funds rate. And in the context of what is happening on the fiscal side, I must tell you that I would be quite nervous about that perception being conveyed even if somebody as formidable as Bob Black, who certainly has no reputation as an inflationist in this country, were to come forward and defend this particular plan. My basic impression at this stage is that were we to move from what we define as the bottom of the range and put the tunnel into position, we essentially would be saying that we are going to make a major push on the money supply and presumably on interest rates. Now, that clearly is not the basic view of either Governor Lindsey or President Black. My concern is that there's a degree of skepticism out there, which I find frankly to be very deep-seated. And while I personally would not mind discussing this in some detail--I might even vote for it if we were starting from the midpoint of the tunnel because most of the arguments you make are valid arguments and I think they make a great deal of sense--my concern is where we are at this particular point. The difficulty that we have mechanically is that we have chosen, for better or worse, to rebase on the grounds that there are structural problems in the relationship between M2 and gross domestic product that [cause that relationship to] veer off from time to time for several years. And that shows up in the P* data; it would show up in the tunnel data. What our cones enable us to do is to reset all the past imbalances to square one. As I said to some of my colleagues, it's like pushing the odometer on the dashboard back to zero so you start from scratch. Now, in today's environment, we know there's base drift; we know that money growth is under where we probably would want it to be. And even though we start from square one, what we do as a consequence is to adjust to that fact [on the basis of] our judgments as to where we want it to be. I was also concerned that if we were to move the range up to, say, 3-1/2 to 7-1/2 percent or something like that instead of 2-1/2 to 6-1/2 percent to reflect the base drift or even more, that would create the same problem that starting at the bottom of the cone suggests. The general [suggestion] that the other ""Kohn"" raised with respect to this issue is, namely, to stay where we are but to recognize fully that we have had base drift. And if indeed the depressing forces on M2 which we presume to be temporary start to ease and M2 starts to move into the upper [portion] of the cone, I don't think we should feel pressed to tighten policy to bring it back in; [rather we would] make an ad hoc adjustment in our procedures to recognize that this is not a bad level of M2 at which to be. So, I would conclude that I don't see any difference in philosophy between my view of money and that which Governor Lindsey and President Black expounded. In fact, were we in a particular range at this stage and changed to a [tunnel], it would not create the question of ""What kind of game are they trying to pull?"" I'm concerned about doing that at this time. I think the benefits that we would get from the tunnel, as Governor Lindsey outlined it, we could achieve just as readily if we are willing to operate in the upper [portion] of the cone, without creating for ourselves what I would consider to be a rather difficult public relations problem. As much as we may think that we are doing things like this as a strictly analytical monetary policy position, I'm fearful that the rest of the world with its [high] degree of cynicism would not give us the benefit of the doubt. Would anyone else like to speak?",1347
-fomc-corpus,1992,"Mr. Chairman, could I say something in response to that?",13
-fomc-corpus,1992,Go ahead.,3
-fomc-corpus,1992,"I don't hear anything you say that makes anything but sense, but my policy position now and I guess for the short run is that I'm going to argue that we not change the federal funds rate. I don't see any reason for doing that at this point. If we're concerned that [adopting the tunnel approach] would look like a tightening, then I think we could widen this tunnel, make it 5 percentage points, which would ensure that we would come within our targets. And on your last point, in a sense I think you're saying that it wouldn't be so bad to disregard the cone if the money supply were to go over it; and I certainly would want to do that myself if [that began to happen]. But I think that would be a bit more damaging to our credibility than if we had a tunnel [because with a tunnel] we would not be seen as disregarding our targets. People think that we don't pay a lot of attention to the targets. That's the only reason, really, why I want [a procedure] that we could live with and have the flexibility we need and not [unintelligible]. And I think with those two changes we could do it okay.",241
-fomc-corpus,1992,Governor Angell and then Governor Lindsey.,8
-fomc-corpus,1992,"Mr. Chairman, I really appreciated this discussion. It is exactly the right presentation. I side with you that the most critical question for us at this point in time is conveying what we are going to do in the short run. So, I agree with your position. I would, however, like to keep on tap this notion of the tunnel as possible for the long run as well as the short run. That is, we sometimes have [viewed] a yearly [target] as if it were the long run and then our FOMC meeting [decision] as the short run. It does seem to me that once we find ourselves at the middle of the desired tunnel, it might be good in terms of a track record for us to have [the tunnels] out there as we [draw] our cones to see whether or not we have cumulative base drift. Bob, I was a little surprised that you were willing to accept a 4 percent growth path in your tunnel. I would have thought that you would have insisted on a growth path in the tunnel of either 2 percent or 3 percent, which is consistent with price level stability. Now, I find this tunnel arrangement puts us in an expansionist mode; I think it does exactly what you suggested, Mr. Chairman. If we had said we should have fostered growth of the money stock at 4 percent last year, not 4-1/2 percent, and if the tunnel from that should have been 3 not 4 percent, then we would have a long-run tracking guide that I think gives P* its force but yet maintains a business as usual [approach] in regard to this year's cone.",341
-fomc-corpus,1992,"Mr. Chairman, could I just say one thing in response to that, because I think Governor Angell has hit upon a very important point? When this was first done, Larry had it at 4-1/2 percent and I suggested that we cut it to 4 percent. That was done and he carried the 4 percent rate on out into 1993. I would not want 4 percent in 1993; I would want to bend it down to 3-1/2 percent or something of that sort. There's a sentence in the letter that he sent me in which it appeared, if someone read it carelessly, that he might be committing himself to 4 percent forever; I don't think that was his intention. So, I suggested that we make it appear that we want to bend it down. What surprised you is not the way I had suggested. So, I'm really where you thought I would be; it's just that we didn't end up changing that particular thing.",202
-fomc-corpus,1992,"Could I just ask you a quick question? If we were to adopt this and the money supply were way out of these ranges by the end of this year for reasons that are fully technical, would you feel that we would be required to push back into that tunnel over a particular period of time or [would we] stay outside for a year, or what?",72
-fomc-corpus,1992,"I would say if [the reason for such growth] is purely technical, it would be permissible to go outside. I have not been as disturbed about the low rate of growth in money we've had recently as I would have been had I not felt that there were explanations for it. If we have good reasons for why it's growing unusually fast, I think we should state those to the public and use them as justification for staying outside [the tunnel] but say, that if we get into a more normal pattern of money growth, we will definitely get [money growth] back into the [tunnel].",120
-fomc-corpus,1992,Governor Lindsey.,3
-fomc-corpus,1992,"Mr. Chairman, I understand very much your sentiments. Let me say that, looking at the picture, I forgot the old adage that a picture is worth a thousand words. Regrettably, the picture that I have in front of you, which from my point of view is for presentation purposes, is in error. It was based upon preadjusted M2. Am I correct in saying that we had 3.1 percent growth last year?",92
-fomc-corpus,1992,That's correct.,3
-fomc-corpus,1992,"Actually, therefore, this box should be substantially closer to the middle of the target range, i.e., 0.6 percentage point closer. Further, if we adopt President Black's suggestion, with which I agree completely, the tunnel would be widened to 2-1/2 percentage points on either side and we would be a full 1.1 percentage point above the bottom end of the target range. That wouldn't be close by any measure. So, the picture as presented--which by the way is not even to scale but is illustrative--actually should show our starting point as somewhere very close to the middle of the bottom half of the target range. That's the only correction I have in that presentation.",143
-fomc-corpus,1992,President Parry.,4
-fomc-corpus,1992,I have a question of clarification. It seems to me that the initial starting point is an important issue and that it ought to be based upon some concept of a steady state velocity. Did you choose the fourth quarter of '90 with the thought in mind that we were in effect in a period when we were at a steady state velocity? Is that why you chose it?,74
-fomc-corpus,1992,"Probably, and I would be happy to be corrected by President Black on this. We were in the middle of this period of uncertainty. If I were to select a period of more stable velocity, I probably would have to go back further; and if I were to go back further, I'd be incorporating more base drift in there. I would be incorporating so much base drift that the picture wouldn't look very sensible. So, I will admit to arbitrariness in the selection. I was basing it, really, on the statement of this Committee last quarter which said it was our [objective] to move back toward the middle of our 1991 target range. So, five months ago we were willing to say that we should be where that middle line is.",153
-fomc-corpus,1992,"I'm not sure how to accomplish this, but it would seem to me that if one does see value in P*, which of course uses steady state velocity as an important component, one would want to figure some way to get a greater symmetry between the two procedures.",52
-fomc-corpus,1992,Dick Syron.,4
-fomc-corpus,1992,"I think it's very difficult because it's very hard to deny the intellectual consistency of this approach; in fact, it is completely intellectually consistent with what we say we're doing, which inevitably in discussing it leads one back to pragmatism. My concern is that it may be a little more consistent than the consistency of velocity allows us to be over time. I admit in making that argument a continuing analogy: Hancock and Revere were considered sort of rogues and not the intellectuals that Jefferson and Hamilton were, so I'm not going to make their argument. My concern is that I just don't have confidence in the stability of these relationships in a multi-year process. That would lead us to having to have the tunnel be quite wide if we wanted to have any confidence that we were going to stick with it over time. And if the tunnel has to be that wide and also if we need to have the possibility of bending the tunnel, one comes back to the issue that the Chairman raised of either a very wide tunnel or a bent tunnel. Bent tunnels are almost cones in a sense, and that leads us back to this problem of saying that people could misinterpret what we're trying to do. Obviously some will make a fairly mechanical calculation and see that we really would have to drop interest rates--as is implied on page 15 in the Bluebook by extension--very, very dramatically if we wanted to come back to the midpoint without bending the tunnels. So, my own view is that this [approach] ultimately is tied to the issue of how flexible we want to be in the intermediate period. That's what we're talking about; all these are subsets of that. Given the concerns that we have about velocity's erratic behavior and given the many structural changes that people have been talking about, I don't know that this is the time to make a change. I prefer for the longer term to focus on P*, which I think is another way of doing it and avoids some of these problems. But having said all that, I can't deny that intellectually this is completely consistent and in that sense would seem to be the way to proceed. I just am afraid that practicalities both in perception and measurement preclude it, in my own view, at this time.",448
-fomc-corpus,1992,Vice Chairman.,3
-fomc-corpus,1992,"In the past 13 years or so I've been around this track more than once, too. I can't deny the neatness [of this tunnel idea], but I have to ask myself the question: Are we dealing here with form or substance? And if we're dealing with substance, it has to follow that the adoption of the tunnels would, in fact, mean that policy in some sense would be different. If we're dealing with form, we're saying that policy would be the same but somehow or other the form would make a difference in terms of perceptions about policy --the so-called credibility effect. I have to say that, despite the neatness, I think it's much more form than it is substance. For example--and I can't allow for compounding, so Don Kohn can correct me if I'm wrong--I think it's about correct to say that had the Committee at the end of 1986 adopted a policy of a five-year cone from then to the end of 1991, policy wouldn't have been any different than it has been in one sense. I think we would have been within the cone each and every year. If we put ourselves back to that position--if we had had the cone and we were in it every year and M2 growth for the five-year period averaged 4 percent--would we have felt back then that we would have achieved price stability or have been much closer to it than we are right now? I think a lot of people would have said ""yes"" to both of those questions; but I don't think the outcome would have been any different either in terms of the execution of policy. I am very skeptical--I always have been--of this so-called credibility argument. The people out there setting wages and prices in the trenches wouldn't know a cone or a tunnel if they were in it. What they react to is demand and supply in the marketplace. And what we are ultimately trying to influence are those considerations. So, while I do think [the tunnel concept] is neat, I don't think there is a great deal of substance, defined the way I did define it--meaning that the actual execution of policy would have been different than otherwise. I have a lot of sympathy with the argument that Dick Syron just made that at this juncture, not only for the reasons the Chairman cited but for the other one that Dick hinted at, this could end up as somewhat of a bear trap. Right now, I'm not even sure I know what the algebraic sign of the interest elasticity of demand for M2 is. In other words, I could make a pretty decent argument that if we want to accelerate M2 growth, we better raise interest rates. Now, you may laugh, but I don't think you can just reject that out of hand. And if we're not even sure what the algebraic sign is, why do we want to get ourselves trapped into a more mechanistic approach? In addition, there's the concern that the Chairman raised about what it might imply regardless of how we fine-tune the beginning point. So, like others, I have been around this debate more times than I'd like to count. I can't deny the neatness, but I would be reluctant to bet the ranch on the tunnel option at this juncture.",657
-fomc-corpus,1992,Anybody else?,3
-fomc-corpus,1992,"I agree with the Chairman that the best time to switch is some year in which we end up at the midpoint and then we could click right into a tunnel approach. One difficultly is that we haven't hit the midpoint or been close to the midpoint in five years; we've been consistently under the midpoint and we're projected to be under again this year. Philosophically, I like this approach, and I agree that a lot of it turns on this issue of credibility. I agree with Jerry that for UAW and Caterpillar the cone versus the tunnel will not be a major issue in their negotiations. I do think the credibility issue is more important in the capital markets, where I believe bond market participants and the like might look at it. One thing that bothers me about continuing with the current approach, even though I can understand the arguments for it, is the sense in the Bluebook that we're setting a policy based upon our projection of what we expect to happen--of what is pretty much achievable based upon our rigorously accurate forecasting abilities in these areas. We see what is going to happen and we say: Well, we should set the target there. Whereas I like the idea of forcing us to think about a long-term objective and then achieving it. Of course, in part this is a little different perspective. Despite the imperfections in M2, as I read it M2 grew a little over 3 percent last year as did nominal GDP. And I tend to think that M2 will come back this year because a lot of these factors will open up. As Jerry said yesterday, the banking system and some of the credit crunch issues are opening up and I think the RTC is near the end of the road; many of those institutions have already been squeezed. I think one would expect the bulk of the yield curve effect to come relatively early when the yield curve switches. So, I wouldn't be surprised to see a catch-up. The way the Bluebook puts it is, on page 18: ""The tunnel approach in 1992 would be appropriate if last year's shortfall in M2 was seen as associated with an undesirable shortfall of income""--and I would define a recession as an undesirable shortfall of income--""or transitory shifts in the demand for money."" I have a feeling that we're going to get some catch-up on that. I do agree with the general sentiment that there are advantages to flexibility. Those in decision-making positions always will prefer flexibility to being bound. And I do think there is a problem in how people would interpret this at the current time. But more generally I would agree philosophically with the notion, especially once we get out of this period in which I think we have some temporary problems with M2, of trying to put us under a bit more pressure and committing to some longer-term ranges.",567
-fomc-corpus,1992,Anybody else?,3
-fomc-corpus,1992,[What about] questions of Don?,8
-fomc-corpus,1992,I was hoping you had forgotten me!,8
-fomc-corpus,1992,"Don, the Bluebook indicates that the growth of M2 would be 3-1/2 percent, assuming that there is a downward shift in the demand for money of similar magnitude to that experienced in 1991. If there were not such a downward shift and we had a continuation of the experience of 1991, what would be the model's forecast of M2 growth?",78
-fomc-corpus,1992,"Well, the standard model would have it something close to 6 percent with a 5 percent GDP; that's because it would still be getting some push from interest rates early in the year. Our yield curve model, however, has been doing a bit better these past few years, although it has been missing; it would have [M2] growth more on the order of 4 percent. So, I would tend to split the difference in the models and tell you something like 5 percent on M2 to get 5 percent GDP.",109
-fomc-corpus,1992,"Now, the tough question: At the beginning of 1991 you had some feelings about the probabilities of these forces continuing in 1991. You obviously in this Bluebook have some convictions about that as well. How strong are they this time? Governor Mullins indicated he thought that these effects may not be as strong as you think they are.",70
-fomc-corpus,1992,"Well, as I indicated in my briefing, I think 3-1/2 percent growth is our best shot.",24
-fomc-corpus,1992,Right.,2
-fomc-corpus,1992,"But if there were a risk to this, I think it might be that we could get a little more M2 growth or something like the FOMC [members' forecasts of] GDP, which is higher than the Greenbook GDP. And it would be because of the fact, as Governor Mullins mentioned, that [the effects of] some of the initial shifts in the yield curve may be wearing out and so forth. I guess to some extent we're perhaps a little gun-shy on this because those are arguments we've been using for the last six months about why banks in response would have higher--",121
-fomc-corpus,1992,Not necessarily.,3
-fomc-corpus,1992,"It's true that velocity was unchanged in 1991. But it took an incredible decline in short-term interest rates to keep it unchanged. And all our past relationships in models and charts and whatnot would suggest that that would give you a huge decline in velocity--a lot of M for a little bit of GDP--and we didn't get that. Now, some of that may unwind a bit this year, but our best guess is that the credit for the expansion in the staff forecast, which I think is an entirely credible one, would basically come from outside depository institutions. Most of it is going to come through the capital markets. So, I don't see loan demand picking up at banks or thrifts; they're still on the securitization route. Certainly, marginal banks and thrifts under the new banking law are under tremendous pressure--even more pressure than they were before--to downsize to get their capital up. So, I don't see those credit conditions deteriorating; I also don't see them snapping back a lot. And I think there are still a lot of portfolio shifts coming that we haven't seen yet. A lot of small time deposits [that depository institutions] put on a couple of years ago are just maturing.",248
-fomc-corpus,1992,"This 3-1/2 percent certainly would be something that one could use to support a recommendation of alternative II, if one had considerable certainty. To the extent that one moved more toward the kinds of comments that Governor Mullins made, one would tend to look more favorably on alternative I or even conceivably alternative III.",67
-fomc-corpus,1992,"One of the problems that the current period is creating with respect to the money supply is that we are going through this extraordinary turmoil with the virtual dissolution of a big chunk of the savings and loan industry. We have all sorts of abnormal aspects with respect to holdings of liquidity. It strikes me that our major focus at this stage has to be to understand the very short run of where we want to be on money supply, largely because we know so little about what is going on. The ""Virginia Plan"" and all the [other] tunnel-type plans presuppose precisely the opposite: That we are feeling sufficiently comfortable with respect to these relationships that we can project further out and make available to the public a plan to which we intend to adhere. I wish we were under those conditions. Were we in that position, I would feel quite comfortable about locking in longer-term commitments in a sense to bind us so that we don't get off a particular track. My difficulty, knowing all of the technical problems that are associated with the relationships between money on the one hand--and liquidity for which it is a proxy--and gross domestic product, is that our state of knowledge in that sequence at this stage has not been so poor in many years. Also, I would be very hesitant to lock into a tunnel because I'm fearful that we might find that all of a sudden [relationships have gotten] back to some form of normal [at a time when] we are outside the tunnel. It would then take us an awfully long time to work our way back unless we took the whole tunnel and changed it up or down, which would be the worst of all possibilities. I don't know how we could find our way back, whereas the procedures we have at the moment at least enable us to start from scratch in early February. Despite all of our intellectual, analytical problems, which may have been totally unresolvable with respect to policy in the previous year and created a base drift, at least in a sense we can always start from scratch and struggle from where we are rather than try at that stage to work our way back and absorb mistakes that we made analytically two years earlier or something. It creates major problems if we are wrong. Obviously, if we are not and we can stay within the tunnel, it is very effective. But I ask myself the question: What do we do if we're wrong? And I say if we're wrong and we have cones, we can adjust far more readily than we can if we have a tunnel. I would be very hesitant to go to a tunnel unless we felt confident that [money] were not going to veer substantially outside the ranges of a tunnel. And at this stage I frankly can't feel secure in that respect, knowing our terrible difficulties in trying to forecast M2 on the basis of all our previous models.",567
-fomc-corpus,1992,The trouble is that when we're wrong we are sometimes reluctant to make the change in that new year to compensate for that wrong.,25
-fomc-corpus,1992,"That is a problem and that's the advantage of this [tunnel concept]. But I should certainly think in the context of what Jerry Corrigan was saying--namely form versus substance--that if we have enough understanding to know the difference, we would make certain our policy is formulated on the basis of substance and not on the position of where a dot is on some particular chart that we built.",79
-fomc-corpus,1992,"We came in with less [growth] in nominal terms than was expected. We saw real growth that was significantly less than forecast in July, but there's probably not going to be much discussion about that history and its implications for what we might want to do in 1992.",55
-fomc-corpus,1992,"Well, the question is: Why isn't there? Well, let me put it this way: What is it you want to put on the table that the rest of us--",35
-fomc-corpus,1992,"No, I'm not--",5
-fomc-corpus,1992,I think we're all acutely aware of that whole episode.,12
-fomc-corpus,1992,But again: Does it affect how we construct targets for 1992?,15
-fomc-corpus,1992,Yes. That's my view.,6
-fomc-corpus,1992,"My view on that is that there's a strong intellectual case for moving the cone up. However, I wouldn't support that case because it would send the wrong signal. So, I think the way to handle it is to do what the Chairman suggests, which is to recognize an intention to be at the upper end of the cone next year. But this is the difficulty; it gives us flexibility but it's more [in the nature of] hypothetical flexibility.",89
-fomc-corpus,1992,"In the Bluebook the implications were that we had to reduce interest rates by a fair amount--did you say 3/4 of a percentage point?--to achieve that. So, that is the issue [unintelligible] discussion that [unintelligible] relying on what happened last year.",63
-fomc-corpus,1992,That's real substance!,4
-fomc-corpus,1992,That's real substance!,4
-fomc-corpus,1992,That's real policy!,4
-fomc-corpus,1992,"But no matter what form we select, we're always going to have serious doubts about how much we need to move the federal funds rate.",27
-fomc-corpus,1992,"Oh, I believe that! [Laughter]",10
-fomc-corpus,1992,We're never going to know the answer to that!,10
-fomc-corpus,1992,Nobody is saying that either one of these [approaches] is going to solve that.,18
-fomc-corpus,1992,"Well, that's the really difficult issue and the reason I wish we could develop some other control mechanism, but I'll be darned if I know what else we can do. Most of M2 is not reservable and, given the market's proclivity for designing new instruments that would avoid any reserve requirements we put on existing instruments--if indeed we did--unless we paid interest rates on the reserves, which is a political problem.... That would certainly make it legally controllable.",95
-fomc-corpus,1992,President Melzer.,4
-fomc-corpus,1992,I wanted to ask Don a question; are we still in that mode?,15
-fomc-corpus,1992,Yes.,2
-fomc-corpus,1992,"Don, what M2 growth would you consider consistent with price stability based on what we think longer-term relationships are? Is it the 3-1/4 percent in strategy II?",37
-fomc-corpus,1992,Right.,2
-fomc-corpus,1992,In the out years is that--,7
-fomc-corpus,1992,"That largely reflects some remaining--questionable in Jerry's terms--interest rate elasticity. That is, nominal interest rates are coming down so that you'd have to get a little extra [money growth]. If you believe the P* model and the assumption of a constant P* and the economy is growing at 2-1/4 percent--our current estimate of what the capacity of the economy is--presumably M2 over a long period of time would have to grow something on that order as well.",101
-fomc-corpus,1992,"Well, what if [unintelligible] will not accept zero measured inflation?",17
-fomc-corpus,1992,"That would give you more like 3 or 3-1/4 percent, if you thought 1 percent measured inflation were equivalent to price stability.",31
-fomc-corpus,1992,"I have this view that, if we adjust our cones over the years, I don't want to get into a position where we need to move them back up if we can avoid it. Ideally, in a perfect world we'd like to ratchet those things down gradually, getting to a cone that's consistent in the long run with price stability. If we missed our cone, we'd explain why; but I don't envision a world in which we're juggling these things around. And I was trying to get some feel for how much further we have to go; probably we'd have to ratchet it down another percentage point, maybe a little more.",125
-fomc-corpus,1992,"Yes, I think you're right about the price level and the measurement problems. So, I would say a range of about 1 to 5 percent would probably do it for you. We used to worry about what would happen as we approached price stability and nominal interest rates fell and we'd have this surge into M2 [assets] so that in order to keep the economy from plummeting at that point we'd have to pump in some more liquidity to meet that demand. But we've had our decline in nominal interest rates without a surge in M2, so perhaps this reentry problem isn't so bad unless long-term rates come down and we end up with 4 or 5 percent long-term rates with this thing. Then, all of a sudden those bond funds won't look so attractive relative to a 2 percent OCD or NOW account rate and we could get a surge of funds back into M2. So, there might be complications as we approach price stability, but I think your sense of around 3 percent in a steady state is probably [right].",211
-fomc-corpus,1992,"Do we have studies on the drift problem, the measurement problem, with zero inflation? You mentioned 1 percent.",23
-fomc-corpus,1992,"There have been studies. I heard Bob Gordon give a paper at the Tokyo Conference--Dick Syron and Ed Boehne were there--and his view was that something between 3/4 and 1-1/4 percent, given his sense of distortions, was about right.",59
-fomc-corpus,1992,At some time it might be useful to explore that issue in more detail because we are getting within shouting distance.,22
-fomc-corpus,1992,"Governor Mullins, as you know, we distributed to all of the FOMC members a paper by Dave Stockton and colleagues which included a discussion of that issue, and there's further work being done. But we do have something that has gone out to the Committee.",53
-fomc-corpus,1992,"[Unintelligible] very imperfect. The technical data are interesting both in the context of Dave Mullins's question and Tom Melzer's last question. If you look at the actual targets for M2 going all the way back to '83, once we got out of the recession, they have come down from 6 to 9 percent to 4 to 8 percent, to 3 to 7 percent, and to 2-1/2 to 6-1/2 percent. But if you look at the actual growth rates, in the first part of the period we had a base drift on the high side and in the second part a base drift on the low side. I think for that period as a whole we probably end up about having washed it all out.",161
-fomc-corpus,1992,You'd end up with an historical tunnel.,9
-fomc-corpus,1992,That's right.,3
-fomc-corpus,1992,I guess we've proceeded as far as we're going to go on questions. It would now be useful to have each member and other presidents state very simply of these various alternatives where they would like us to come out. Who would like to start?,48
-fomc-corpus,1992,"I would start on the tunnel, Mr. Chairman, by confessing to Mr. Lindsey and Mr. Black that I have spent very little time in Virginia. I only pass through occasionally, so I had no bias one way or the other. But I think the Chairman's points were well taken. The other thing I would add, Mr. Chairman, is something you didn't mention. It seems to me that to introduce this tunnel proposal at the time of the Humphrey-Hawkins report would raise an awful lot of pressure and would be counterproductive in the present environment. On the targets themselves, I would be very much in favor of keeping the targets that we established last July. To change them in either direction would send the wrong signal. To bring them down, which has obvious implications for price stability, is desirable in a theoretical sense but would seem to me to lead to the interpretation among market participants that we intend to moderate growth. And in this environment that would not be very appropriate. On the other hand, of course, raising them would give rise to the interpretation that we've given up on our fight against inflation or at least are moderating that attack. And that, too, would be the wrong signal to send. I think stability in the targets is what is called for now, so I would like to keep both M2 and M3 where they were.",275
-fomc-corpus,1992,President Parry.,4
-fomc-corpus,1992,"Basically, I agree with what Bob Forrestal said. If you just took the staff forecast of M2 and M3, you could make an analytic case for reducing the ranges, particularly for M3. But I don't think that would be a very wise development at this time. So, my preference would be to leave the money and debt ranges at the tentative levels that we set in July. I must admit that I would be interested in talking about this subject of the tunnels again in July, particularly after we've had an opportunity to look at some of the more technical issues like the base, etc. But at present I prefer to stick with the cone.",131
-fomc-corpus,1992,President Black.,3
-fomc-corpus,1992,"Mr. Chairman, the one time I dissented on anything since you've been here was when we established the tentative ranges in July of last year. But we missed so badly because of base drift, by virtue of this faulty procedure we use, that I think it would be a mistake to do anything other than alternative I. So, to show my graciousness, I would argue that we ought to stick with alternative I.",84
-fomc-corpus,1992,"I wasn't aware you'd lost anything, frankly. President Hoenig.",13
-fomc-corpus,1992,"Given the circumstances that we have today, I would not be in favor of the tunnels. I think what we have now does give us the flexibility we need to move toward price stability, and that's what should be our focus. As for the alternatives here, I am in favor of alternative I for the reasons that have been given. That gives us the flexibility we need to continue to move toward price stability, and to adopt either of the other alternatives I think would give an incorrect signal at this time.",100
-fomc-corpus,1992,President Boehne.,5
-fomc-corpus,1992,Alternative I for all the cogent reasons given.,10
-fomc-corpus,1992,President Melzer.,4
-fomc-corpus,1992,"I prefer alternative I; I could accept alternative II. First of all, I think alternative I is consistent with strategy II, which I believe in and I guess [other] people around the table also do. I just wanted to make one other point in connection with this. I think M2 is probably the best indicator we have of concurrent economic activity. It gives us some sense of how we're doing with respect to our goals. I have some problem calling it a target. I don't want to get into a semantic debate and I wouldn't suggest we change how we describe it, but in my view a good target is not only something that relates to our goals but is also directly controllable by our actions. As I mentioned yesterday, the component [of M2] we do control is only 25 percent of the total and our ability to indirectly influence [M2] through our influence on interest rates is questionable; I think the evidence that we've seen here recently calls that into question. This isn't a proposal but I urge people not to lose sight of things like reserves, the base, and narrow money that we do directly influence because I think they give us some indication of the thrust of monetary policy actions, which I don't think M2 really gives us. In that connection, I get somewhat troubled when I hear suggestions that we ought set as our longer-term goal somehow getting M2 into the upper end of the range that we're setting because if that happens under circumstances where we're getting no growth in non-M1 components of M2, we're talking about 25 to 30 percent Ml growth. One can scoff at Ml, but I feel very strongly that if we put that kind of stimulus into the system over a period of 6 to 12 months, we will have big problems. Now, if we get into the upper end under different circumstances where M1 is much more controlled and some of those other components are growing, that's a different story. Anyway, I would urge that we not lose sight of those [measures]; I think we need to pay attention to them. I wouldn't advocate a target but we may even be at a point in time when we would want to monitor consciously or explicitly the behavior of a narrower [measure] that reflects the thrust of our objectives.",457
-fomc-corpus,1992,Would you and Si be supportive of proposing reserves across the board on the M2 components?,18
-fomc-corpus,1992,Good question.,3
-fomc-corpus,1992,"I don't know about the politics of that, Alan, but that's something we ought to think about in terms of the longer-term influence of monetary policy--possibly reducing reserve requirements and spreading them more broadly over broader classes of deposits.",45
-fomc-corpus,1992,That's a good idea.,5
-fomc-corpus,1992,We have a letter from Chairman Neil on that issue and I'm sure you'll be asked to address it at your Humphrey-Hawkins testimony.,28
-fomc-corpus,1992,First Vice President Hendricks.,7
-fomc-corpus,1992,"Thank you, Mr. Chairman. We continue to advocate a policy to achieve price stability, and the recent slowdown in inflation suggests that we're on track. To continue a gradual approach to that objective we would expect some downward shift in the M2 band in 1992. But we really don't know how long it will take or how big it will be. Ideally, in the year ahead we would prefer an M2 target range of 1-1/2 to 5-1/2 percent because that range corresponds more or less to our desired M2 growth by year-end, if conditions warrant. The ranges are wide enough to accommodate some makeup from last year's shortfall. As a practical matter, we could live with the ranges expressed in alternative II. We'd inch down the ranges and remind markets of our [intent] to achieve price stability over a reasonable period of time. Recognizing our recent progress in reducing the M2 growth trend, lowering the target range to center on a 4 percent midpoint would in our opinion enhance the credibility of our commitment to our long-term objective of reducing inflation. With respect to the tunnel approach, we were prepared to comment on it. As a matter of fact, we prepared an ""Ohio Plan"" handout. But as I listened to the discussion, I found that all the questions were answered and all the comments were made, so our plan wouldn't add much to the discussion. But we are interested in seeing a different approach at least kept on the table.",300
-fomc-corpus,1992,"You know, Ohio has been part of Virginia, too!",12
-fomc-corpus,1992,Vice Chairman.,3
-fomc-corpus,1992,I favor the alternative I tentative ranges from last year. I would certainly tolerate growth in the upper half of the range if it could materialize in a context of developments in inflation and economic activity that are otherwise satisfactory.,43
-fomc-corpus,1992,Governor Angell.,4
-fomc-corpus,1992,"On a long-run basis, alternative II is clearly my preference. Real GDP between 1991 and 1996 grows at a 2.6 percent percent average annual rate under alternative II, which is just 0.2 percentage point lower than the 2.8 percent path under alternative I. Now, I know we don't have clear insight that these are accurate paths. I guess Don Kohn doesn't claim clear insight that these are accurate out [that far], but I do think this expresses exactly what we know to be the long-run relationship between monetary policy and economic growth. So, if I could end up in 1996 with zero inflation.... While we have 3/4 of a percent in the Bluebook table, clearly that falls within my notion of what zero inflation would be; I would guess that 3/4 to 1-1/2 percent would probably be real zero inflation if we measured properly. So, I have a clear preference for alternative II. I would admit, Mr. Chairman, that politically I think February 1992 is not a good time for you in your Humphrey-Hawkins report to announce this. Even though it would be a wonderful economic presentation and education, I think it would not be desirable for you to do that. And I can't imagine your wanting to do that. So, I will accommodate myself to one more year of begrudgingly voting for and accepting alternative I. But I do want us to be [where alternative II takes us]. And I do agree with Bill Hendricks and Tom Melzer that we must keep our vision on price level stability. Indeed, in the circumstances that we're in, that clear commitment to price level stability in the Humphrey-Hawkins report will do more to keep long-term rates down and I believe will give us a better growth path than we would get if we appear to be willing to re-inflate.",387
-fomc-corpus,1992,Governor Mullins.,4
-fomc-corpus,1992,"On the narrow issue, I would favor alternative I, and I would also favor and support the Vice Chairman's comments on being willing to tolerate growth in the upper end of the ranges under satisfactory economic and inflation circumstances. More generally, I think we're moving into new territory where considering these issues will be different than it was when we had ranges of 6 to 9 percent. We're nearing the end of a long and successful journey of ratcheting down these ranges and we're approaching a steady state. And I think we need to revisit the issue of how we operate in a steady state and what it is. But I support alternative I for next year.",130
-fomc-corpus,1992,Let me just ask President Hoenig something. You indicated a preference for alternative I. Would you associate that with these remarks about tolerating the upper end of the range for that?,36
-fomc-corpus,1992,Yes.,2
-fomc-corpus,1992,"Mr. Chairman, I didn't; I would not.",11
-fomc-corpus,1992,That's clear and I did not ask you! [Laughter] President Syron.,17
-fomc-corpus,1992,"Mr. Chairman, I also would be in favor of alternative I because, like everyone else, I have no confidence in what is going to happen in the future to return M2 growth to its ""normal path."" Since you asked specifically, I would be much more willing to be close to the edge at the upper side than the low side. In fact, I think that may be necessary and be consistent with what we have in the economy. So, given my own guess on what is going to happen to velocity, I would hope that we're at or toward the upper part of the range. It is essential that all this be taken in the context of continued progress toward price stability. As an add-on comment, I don't agree with Tom Melzer's enthusiasm for Ml and in that regard I would be enthusiastic about doing something to impose reserve requirements more broadly across the components of M2.",178
-fomc-corpus,1992,President Stern.,3
-fomc-corpus,1992,"I, too, favor alternative I. On the question of where M2 ought to be within the range, I'm a little more conservative than some. M2 growth over the last 5 years has averaged a little over 4 percent, if I read those revised data [correctly]. If that's right, it seems to me that we ought to be careful about letting it veer very far from that on the up side lest we risk compromising what we have already put in place in terms of progress [toward] price stability. I don't think that's going to dissipate very quickly, but I believe we need to be sensitive to that. Clearly, there are some circumstances under which I would find more rapid M2 growth acceptable, but I'm urging a bit of caution at this point. Just to state the obvious, we always, so far as I know, accept a wide range of incoming information before deciding those kinds of questions. And as long as we continue to follow that policy, I guess I won't be troubled.",205
-fomc-corpus,1992,President Keehn.,4
-fomc-corpus,1992,"Mr. Chairman, I would be in favor of alternative I. For the reasons we've articulated today and in any number of other meetings it seems to me that the [historical] relationships have broken down. As a consequence, to make a change would imply a greater degree of confidence in the aggregates than we currently have, at least in an operative sense. Moreover, if we were to make a change, either up or down, it would convey a policy message that I think at this particular point would be very inappropriate. So, I would be in favor of alternative I. As to where we might end up in the range, it's awfully early in the year to try to determine that. It does seem to me that in an operative sense we are really driving policy off a different measurement anyway. And I'd like to see how the economy seems to be developing as we get further into the year before trying to determine just where in the range M2 might properly be.",194
-fomc-corpus,1992,Governor Lindsey.,3
-fomc-corpus,1992,"Mr. Chairman, I share President Black's good grace, and I concur with the obvious consensus for alternative I. With regard to where we end up in that range. I'd like to avoid a normative statement and make a positive statement. If we do not get the velocity shock, if the staff forecast of inflation is correct, and if in fact the economy has resumed growth as we think it might have because of the money in the pipeline, then two meetings from now with 2.8 percent real economic growth we will not only be in the upper half of the target range, we will be at the very top of the target range. And I would be very interested in what the Committee decides in May should that come to pass. Thank you.",150
-fomc-corpus,1992,Governor LaWare.,4
-fomc-corpus,1992,"Well, Mr. Chairman, I have a strong personal preference for alternative II. I think we have a precious opportunity here to press the attack on inflation, and the inflationary trend under alternative II is much more appealing to me than the rather slow progress under alternative I. I understand the pain in the growth rate [of the economy] and the unemployment figures that are consistent with that. And I understand the institutional risks that are probably inherent in making a change of that kind at this point in time. I believe that alternative II gives us enough range and enough flexibility to pursue an intelligent monetary policy that would not overly inhibit the growth of the economy. I'm just afraid that if we don't press the attack now, [inflation] may get away from us in the final analysis. Having said all of that, in order to clear my conscience, I am prepared to vote for alternative I. But, like Governor Angell, I would be very unhappy if the actual growth in M2 were anywhere near the top of the cone.",205
-fomc-corpus,1992,President McTeer.,5
-fomc-corpus,1992,"I basically agree with Governor LaWare. My real preference would be for alternative II but, for reasons that Governor Angell mentioned and those that Governor LaWare called ""institutional risks,"" as a practical matter I would opt for alternative I right now. But I, too, would like us to try to stay as close to the middle of the target range as we can. I think any inflection point in the growth of money supply is a shock to the system, and I don't see any point in going above or below [the midpoint] right now. I think we should always be moving asymptotically, if that is the word, toward the middle of the range.",137
-fomc-corpus,1992,You didn't learn that last week at A&M did you?,12
-fomc-corpus,1992,I guess it's a Boston thing!,7
-fomc-corpus,1992,"On the tunnel, I don't know what Sam Houston would think of the tunnel, but I have more sympathy for it than most of the people [who have spoken], especially if it were bent down at the end of next year to 3-1/2 percent. It would give us a tunnel that's very much like the tunnel that connects these two buildings, which works very well. It would eliminate base drift, and I don't believe it would be received badly by the financial markets. I think it would do two things that would be favored: One, it would indicate our willingness to speed up the rate of growth of money in the short run, which I think is needed; and, two, it would cap the rate of growth in the long run, which I think is needed. So, I hope we will revisit this issue soon.",169
-fomc-corpus,1992,Governor Kelley.,3
-fomc-corpus,1992,"Mr. Chairman, I think this discussion has bracketed the situation very well. The higher ranges are simply a non-starter. The lower ranges are where we want to go but probably are not desirable now, which leaves us with the same ranges, those of alternative I. And that's certainly what I would support. As far as going into the upper part of the ranges, without enthusiasm I could support that for what I hope would be a fairly brief period of time. But I'm not enthusiastic about it or lusting after that. As for the tunnel versus the cone approach, I have a lot of sympathy with the tunnel idea. But I concur with your suggestion that this probably is not a good time to adopt it. I'd like to see it stay on the table; I'd like to see us watch it closely and look at some different ways to do it and have it be a continuing part of the dialogue.",182
-fomc-corpus,1992,Governor Phillips.,3
-fomc-corpus,1992,"As the native Virginian, it seems to me that elements of the Virginia Plan--",17
-fomc-corpus,1992,These two carpetbaggers!,6
-fomc-corpus,1992,"Right, these carpetbaggers. I do have sympathy for the tunnel plan, and I'd like to see it continue to be discussed and kept on the table because I think it is better for the long run. As a person who has not spent as much time on monetary policy matters as on other policy matters, I've noticed a tendency that whenever the time is inappropriate to make a change that's when it's on the table and is brought forward. If we were at the midpoint of the range, it probably would not be as much of an issue. I think it's very difficult to make policy changes when you're at the middle; there's just not an incentive to do it. I do understand the politics of the situation, so, like several others who have spoken, I'd like to see the tunnel plan remain on the table for discussion, particularly for looking at the long-range policy implications. I could support alternative I. Maybe I'm not even as optimistic as some; I'd like to see us get to the middle of the cone but I certainly could tolerate going to the upper parts of the ranges. If growth does get to the upper part of the range, I'd be willing to bet that there will be a discussion then for tightening. So, it will be interesting to follow this discussion as we move into the year.",259
-fomc-corpus,1992,I hope so.,4
-fomc-corpus,1992,"Mr. Chairman, I wonder if it might be a good idea for Governor LaWare to repeat briefly what he said when you were out of the room.",31
-fomc-corpus,1992,Sure.,2
-fomc-corpus,1992,I took notes.,4
-fomc-corpus,1992,"He said he preferred alternative II, but- -",10
-fomc-corpus,1992,"I said I personally preferred alternative II because I thought we had a precious opportunity right now to pursue the attack on inflation. And the [Bluebook] trend line under alternative II in winning that fight against inflation sooner rather than later was very appealing to me. I was afraid that if we stuck with alternative I, the inflation objective might escape us. I'm well aware of the pain involved with regard to the [economic] growth rate and the unemployment numbers. But it seems to me that the long-term public policy interest might better be served by pursuing alternative II. At the same time, I think there are significant institutional risks in making that kind of change at this time, even though the ranges [of alternative II] probably give us enough flexibility to do whatever we want to do with monetary policy. So, I would vote for alternative I, but like Governor Angell, I would prefer to stay toward the lower part of the range described rather than allow a drift up to the top.",196
-fomc-corpus,1992,"Well, let me make the following proposal. First of all, there is obviously sufficient interest in pursuing the tunnel proposal to keep it on the table and keep it on the agenda. We will look at it. That would essentially [address] Governor Phillips' concern, on which I think she is quite right: namely, that when things are easy and normal and you don't think there's a problem, then you don't spend any time on it. But let's make sure that we do and do that readily by putting it on the agenda the next time this issue comes up, and keep it there until we lose interest in it or decide to use it. Let's keep it in a context where it can be an alternative. Secondly, it's clear that we have a large majority of the voting members in favor of alternative I, with a majority willing to accept--should it occur as a result of market forces--growth in the upper end of the range. But in our official statements relative to this, I think it's important that we insert in our [explanation] that we do not wish to lose the gains that we have achieved with respect to price stability and that our actions with respect to monetary policy over the long run will be very sensitive to that particular [issue]. What that implies in actual action is that we might accept [growth in] the upper portion of the cone, but with some reluctance, and certainly not as a permanent phenomenon. So, what I would like to put on the table for a vote at this point is alternative I with language in the Humphrey-Hawkins report somewhat similar to the way Jerry put it, but including immediately thereafter a comment that the gains in price stability have been extremely valuable to this economy and that it's certainly our strong desire--or some [wording] even much more formidable than that--to make certain that those gains not be dissipated. I won't give you exact language but in rough form would ask if that is acceptable to the Committee to vote on.",400
-fomc-corpus,1992,"I have a question, Mr. Chairman. Isn't there some danger in that? I agree that the majority of the voting members would accept the upper part of the range. But if we said that in the Humphrey-Hawkins report, doesn't that then put us in the position of appearing to have [that as the] actual desired range? Suppose money growth is weaker than we anticipate. Even though we might end up, let's say, cutting the fed funds rate one or two times, we might still have weak growth. Would that not then cause our critics in Congress to say to us: You really acted as if you wanted to be in the upper end and then you didn't [even] get to the middle.",144
-fomc-corpus,1992,"Well, I think we would be subject to that [criticism] no matter what we did. But the language that Don or the Vice Chairman used I don't think puts us into that position. We're not saying we're going to force [money growth] into the upper part of the range; but if market forces were to do that, we would not be acting strenuously to push it down.",80
-fomc-corpus,1992,There would be no reason for people to presume that we would be anyway if growth were in the range. Isn't that right?,25
-fomc-corpus,1992,"Well, I would hope so, but one doesn't know. There's another alternative. We can leave it out of the official text and I could use that in the questions and answers--",36
-fomc-corpus,1992,I would prefer that.,5
-fomc-corpus,1992,"I would, too.",5
-fomc-corpus,1992,Yes.,2
-fomc-corpus,1992,"Okay. Why don't we leave it out then and I will, if the issue surfaces, find appropriate language in the Q&A portion of the Humphrey-Hawkins testimony to put that on the table.",41
-fomc-corpus,1992,"In your statement about the ultimate objective of price stability or something close to it, would it be well to underline the fact that in subsequent years this would most likely require further declines in our targets?",39
-fomc-corpus,1992,"If that comes up in the Q&A, I would answer in the affirmative; I have in the past.",22
-fomc-corpus,1992,I'm thinking of a conditioning for what might become--,10
-fomc-corpus,1992,"Yes, I suspect it has been true of all of us when that issue has come up. We've all indicated that the particular range we're in at the moment is not necessarily by any means our view of [the range that is consistent with] price stability. Okay, could somebody move this?",58
-fomc-corpus,1992,So moved.,3
-fomc-corpus,1992,Is there a second?,5
-fomc-corpus,1992,Second.,2
-fomc-corpus,1992,"The directive would read--I'm reading from page 24 of the Bluebook--: ""The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output. In furtherance of these objectives, the Committee at this meeting established ranges for growth of M2 and M3 of 2-1/2 to 6-1/2 percent and 1 to 5 percent, respectively, measured from the fourth quarter of 1991 to the fourth quarter of 1992. The monitoring range for growth of total domestic nonfinancial debt was set at 4-1/2 to 8-1/2 percent for the year. With regard to M3, the Committee anticipated that the ongoing restructuring of depository institutions would continue to depress growth of this aggregate relative to spending and total credit. The behavior of the monetary aggregates will continue to be evaluated in the light of progress toward price level stability, movements in their velocities, and developments in the economy and financial markets.""",204
-fomc-corpus,1992,Call the roll.,4
-fomc-corpus,1992,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes First Vice President Hendricks No President Hoenig Yes Governor Kelley Yes Governor LaWare Yes Governor Lindsey Yes President Melzer Yes Governor Mullins Yes Governor Phillips Yes President Syron Yes,50
-fomc-corpus,1992,"Okay, I think coffee is outside. Let us adjourn [temporarily].",16
-fomc-corpus,1992,"Bill, you asked for the floor.",8
-fomc-corpus,1992,"Thank you, Mr. Chairman. Since the vote and during the recess, I've been thinking about the presentational difficulties that you might have and that, from your view, unanimity on the 1992 targets is the desirable thing. We're willing to support the present targets, and I would therefore request that my vote be changed.",66
-fomc-corpus,1992,"Thank you. I think it is important that we have unanimity where we can in this particular period, with the turmoil and politics going on and swirling around us. A perceived division within this FOMC is something we should try to avoid if we at all can. This would be helpful and I will declare the vote unanimous. Let's move now to Don Kohn.",74
-fomc-corpus,1992,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1992,Thank you. Questions for Don?,7
-fomc-corpus,1992,"Don, I guess this is a question for Ted Truman as well as for you. When we look at the real exchange value of the dollar, I presume we do not make any attempts to adjust for differences in the measurement of inflation in the United States versus that in the other G-7 countries. If most of us tend to believe that we might be as much as 1 percentage point off on our measurement of inflation, over a period a time that 1 percentage point compounded could give us quite a distortion in terms of the real exchange value of the dollar.",113
-fomc-corpus,1992,"Well, I think there are two factors. One is the question as to relative distortion that you want to focus on. I guess a priori my view would be that in some sense the relative distortion would be larger in the major industrial countries abroad than it is here. We probably spend more time purifying our CPI than do some of the other industrial countries, which biases [their estimates] in the other direction. Moreover, just in the short run, we have a phenomenon because what we use here are consumer price indexes. There are cases for using other price indexes. It's like everything else: There's nothing perfect. It depends on what you are trying to prove. Certainly, in the short run, we have had a situation where there have been a number of shocks to the consumer price level abroad. These are the result in the last couple of years of excise tax increases and things like that: for example, [goods and services] tax in Canada, the [value added] tax in the United Kingdom, etc. So, the foreign price level, in a truly competitive sense, is probably somewhat inflated relative to the CPI measures. And that goes back for the last couple of years.",238
-fomc-corpus,1992,"It seems to me that in places like Japan, by using rents as the equivalent to owner-occupied homes and then having rent control, they understate their rate of inflation.",35
-fomc-corpus,1992,I think that's a possibility. We looked at it a couple of months ago [and] we were not convinced that it was as understated as you suspect it may be.,34
-fomc-corpus,1992,All right.,3
-fomc-corpus,1992,President Parry.,4
-fomc-corpus,1992,"Mr. Chairman, I wanted to ask you a question. Do you think that there is in the market and the Congress a tradeoff between what we do and their enthusiasm for fiscal policy?",38
-fomc-corpus,1992,"I think there's some. There's a view in the market that if it is perceived that the Fed is shut down and won't be doing anything more, that will induce increased fiscal activity, so to speak, on the Hill. I don't know whether it's true; it's hard to judge. It's probably true in part. How important it is, I really don't know. A number of people believe that in the market; I think that is a fact.",89
-fomc-corpus,1992,"If rates were cut 50 basis points, would it alter the dialogue, the momentum, etc?",20
-fomc-corpus,1992,"I'm not sure. I think there's something to it, but I would not want to move policy on the presumption that it might create a more balanced fiscal policy. I frankly doubt it. Any further questions for Don? Well, why don't I get started. I think the issue of the extent of monetary policy [easing still] in the pipeline can be looked at in a somewhat different way. And it, too, suggests some effects but it is by no means complete. If we judge that the major problem confronting us is the balance sheet strain created by the rise in debt and, in certain instances, by a fall on the asset side of both household and business balance sheets, the business balance sheets obviously would have to fall in value in substantial part because of [declines in] real estate. Any decline in values on the asset side of the household sector is rather [questionable]. Obviously, there's a belief that residential real estate values have fallen, but that's very hard to prove. I think it is the case that equities have declined some as debt has eaten into the value of real estate, but it's not by any means obvious that it's on the asset side. What I think is essentially the case here is that the debt overhang is creating a diversion of disposable personal income on the one hand and corporate cash flows on the other more toward repairing balance sheet relationships rather than consumption and investment expenditures. And this may be showing up in some increase in the saving rate, but that remains to be seen. Obviously, in the month of December the [published] saving rate at 5.8 percent is a very weak statistic, and the range of error is considerable. Nonetheless, it is consistent with the employment of disposable income for the reduction of debt and, therefore, an increase in the net equity of households--meaning saving rather than consumption expenditures. This implies, as we've discussed before, that [households and businesses] need to repair these balance sheets as a necessary condition to initiate expansion. The evidence clearly suggests that that is underway. We are looking at a very significant amount of corporate equity de-leveraging in a number of corporate balance sheets. We are looking at a very high level of corporate debt issuance, in part to refinance high interest debt but also presumably to pay off short-term liabilities and improve the liquidity position of the corporate balance sheets. Now, clearly, the decline in interest rates is showing up in the various [ratios of] interest costs to cash flow both in the business and in the household sectors. And in that sense the debt burden is moving down. So, one can clearly see the impact of the combination of Federal Reserve policy on the short end and decreasing inflation expectations on the long end beginning to repair balance sheets in precisely the way one would presume that markets trying to repair themselves would function. The question is: How far has this gone? I think the answer is that we don't really know; it has gone part way, but there's no evidence that we're anywhere near the point where a significant easing in [strains on] balance sheets has occurred enough to restore the normal recovery forces in the economy. At this point, all the evidence suggests that output is essentially flat. The weekly data that we have on industrial production suggest that there was a decline in January but probably no further follow-through in February. Indeed, it's possible that February may be moving back. What one can say in general is that while the balance sheets apparently are being repaired, the economy is on hold; and there is no real evidence to suggest that that's about to change quickly. I think the inflationary forces continue to recede, and I would be not surprised to find that actual price data come in under the Greenbook [forecast]. I hope that is, in fact, the case. I suspect that if we have any surprises in that area, that's probably where they are going to come out. This leads me basically to the obvious question of some evidence of improvement in confidence, which a number of you mentioned yesterday. And that strikes me as probably a reflection of previous Federal Reserve actions, because we're not picking it up in any of the general surveys. We're getting it largely from more sophisticated people who would be responding to the type of things we might be doing. We are seeing evidence--at the moment mainly anecdotal but to some extent real--in residential housing: in housing sales and in starts and permits. And that appears to be creating some positive elements. But for the moment we are reaching if in fact we are stipulating that the economy has turned up. There is no evidence of which I am aware that supports that view. Nonetheless, it's my personal view that we probably have done enough to put the economy on track eventually. But I'm willing to acknowledge that we may not have. Since I think the probability that we would want to move interest rates higher or tighten in the intermeeting period approaches zero and that there is at least a non-negative probability that we might want to ease during the period, I would conclude--if that's the view of the Committee--that something like alternative B, with normal asymmetric language toward ease is appropriate, without specifying a presumption that any action is contemplated during the period other than what one would assume under the normal procedures with asymmetric language. I put that on the table for your reactions and would be curious to get the judgments of other members. President Syron.",1083
-fomc-corpus,1992,"Mr. Chairman, I guess my longer-term objective here is to have to vote for tighter policy as soon as possible. And that has something to do with how we behave in the interim period. I'm inclined to agree that we have put a lot of stimulus in the pipeline and that it's more likely that we're going to see an upturn than a further slide. But I am concerned about [specifying] an asymmetry of risks or costs [and] being wrong on one side or the other. We [are not sure] about the forecast, anyone's forecast. That raises, of course, the issue of risks and insurance and how long one waits. I think we're going to have to wait a while to see data that are really conclusive in one direction or the other. I do think, and Governor Phillips raised this point yesterday, that we may be in a situation--I don't want to use the term ""window""--where it's easier for us to make a change now than it may be later as we come closer to a season that may be seen as more political and also as we get into the midst of all this fiscal policy business. Those things would argue for ease because I think we are in the midst of this long cycle that we've talked about, and our role is to facilitate lending. The best thing we can do to facilitate the long cycle adjustment is to have a stronger economy. Where all this leaves me at the end of the day is that I would favor easing sooner rather than later. But I am aware of the time in which we operate and I think we are in a period in which there's a great deal of concern about confidence in the government as a whole. That point is very well taken. And in that environment, it's nice to see one organization that has some element of stability. So, to tell you the truth, while I would prefer to ease now, short of that, which we won't get [consensus on], I prefer strong asymmetry. In this business of nuances, I'd find acceptable what you suggest but would prefer the other side.",418
-fomc-corpus,1992,President Parry.,4
-fomc-corpus,1992,"Mr. Chairman, given the prospect of a moderate upturn at least incorporated in most of our expectations, I would prefer alternative B. I do think, though, that the uncertainties are as you indicated, and that would lead me to be very supportive of asymmetry to provide for significant further ease. Two points with regard to that: It would be my view that if we were to ease, it probably should be of some significance because public visibility for the event would probably be desirable; secondly, my own feeling is that it probably would be desirable for that ease to come sooner rather than later.",119
-fomc-corpus,1992,President Forrestal.,4
-fomc-corpus,1992,"Mr. Chairman, I think the appropriate course for monetary policy at the moment is to stay where we are. As has been indicated several times around this table over the past day or two, there is a good deal of stimulus in the pipeline. And as we look back at our history, we certainly have made the mistake of overdoing it on either side of the equation over time, and I hope we won't repeat that mistake. I think what we need at this time, as other people have said, is some patience to let our policy feed its way through to the economy. So, I would support your recommendation of no change at the moment and, therefore, I would support alternative B. I must say that before the meeting I was more inclined toward a symmetric directive but, having reflected on it overnight, I think the uncertainties in the forecast are such that we ought to be in a position--you ought to be in a position--to move rapidly in the event that incoming data indicate that that's the appropriate course of action. So, I, too, would support an asymmetric directive.",218
-fomc-corpus,1992,President Boehne.,5
-fomc-corpus,1992,"I think this is a time for patience and watchful waiting. On the question of symmetry or asymmetry, if I were voting, I could accept either. I agree with your logic that the chances of tightening are essentially nil and that there is some chance for easing. So, there is something to be said for asymmetry and I would support it.",71
-fomc-corpus,1992,President Hoenig.,4
-fomc-corpus,1992,"I, too, am inclined to follow your recommendation. First of all, I'd start by saying that there is a lot [of stimulus] in the pipeline and we should be patient. However, as I mentioned yesterday, our projections are that the real economy might actually grow more slowly than what is in the Greenbook forecast, and that gives me some pause. I also am concerned about the growth of M2, which I think has been erratic and too slow. So, I am inclined to go with ""B"" asymmetric toward ease, but I would wait until we have some more information on the real economy and on M2 before I would charge forward.",133
-fomc-corpus,1992,First Vice President Hendricks.,7
-fomc-corpus,1992,"We've had several years of moderate growth and our view is that the inflation trend appears to be a decline to 3 percent and that it may be getting down even beyond that. We see the basic thrust of policy as being consistent with that outlook: that is, 3 percent inflation in '92 and 2 percent, perhaps, in '93. Therefore, we feel that the FOMC does have some room for further easing if the policy action that was adopted in December does not stimulate growth in money and credit. M2 seems to have been particularly erratic over the past month or so, making it difficult to judge just what sort of growth track we're really on. For the year we'd like growth in M2 of 3-1/2 percent or so and we would not like to see any significant shortfall from that path this quarter. Consequently, we would like to see further easing in policy should the incoming data suggest that M2 is weakening from current levels. Our position for now, however, is in line with the Greenbook projection and your suggestion, Mr. Chairman. We would support alternative B with asymmetry toward ease.",230
-fomc-corpus,1992,President Melzer.,4
-fomc-corpus,1992,"I would prefer ""B"" symmetric, but I have absolutely no problem with what you recommended. If there were a presumption of another easing step in the asymmetry, I'd have a lot of trouble with that. I agree with you that I don't think we can do anything with our policy that is going to affect what we get in fiscal policy. The politicians are going to have to be seen to be doing something, and they can't just stipulate that the Fed has taken care of it and they don't have to do anything. So, I agree with your analysis on that. The only other thing I would suggest--perhaps this is partly tongue in cheek but not totally--is that we ought to get an alternative C back in the Bluebook. We have recognized all along that we were probably going to overshoot on the way down here. There's a statement in the Bluebook that was music to my ears about unsustainably low real short-term interest rates. Now, they can become sustainable, I know, through two courses. But, at any rate, I think we ought to get used to looking at an alternative C because there could be circumstances where we're going to get some rope back, and it might be better to move on that sooner in small steps rather than later and not let too much build up. I have no problem with alternative C not being in there for this meeting.",279
-fomc-corpus,1992,Governor LaWare.,4
-fomc-corpus,1992,"Mr. Chairman, my personal preference would have been to have symmetric language with ""B"" for two reasons. First of all, I have strong reservations about whether further ease in monetary policy is going to affect the outcome significantly. And secondly, symmetric language would tend to enforce a posture of patience on us more rigidly. On the other hand, I accept the argument that we need a safety valve of some kind here that can be used in the event that circumstances change dramatically from what they are now. Consequently, I can support your recommendation of ""B,"" asymmetric.",113
-fomc-corpus,1992,President Keehn.,4
-fomc-corpus,1992,"Mr. Chairman, to state the obvious, this is a very difficult period to try to assess both the current as well as the prospective environment. There may have been at least a mini-improvement in the balance from the last meeting but, as I said yesterday, I still think the risks are very much on the down side at this point. And the policy directive should reflect that risk. I think it's perhaps too soon to ease again; moreover, we don't have a credible basis on which we could make that kind of change. But if the incoming data begin to show further deterioration, I'd move and I'd move quickly. Therefore, I'd be in favor of your recommendation for alternative B with asymmetric language toward ease.",142
-fomc-corpus,1992,President Stern.,3
-fomc-corpus,1992,I would support your recommendation.,6
-fomc-corpus,1992,President Black.,3
-fomc-corpus,1992,"I agree with you, Mr. Chairman. I might point out that Friday we will get the unemployment report and if we get a surprise on that on the down side you could, of course, schedule a conference call to decide what to do and where to go from there.",55
-fomc-corpus,1992,President McTeer.,5
-fomc-corpus,1992,"I would support your recommendation, Mr. Chairman.",10
-fomc-corpus,1992,Governor Angell.,4
-fomc-corpus,1992,"Mr. Chairman, I can certainly support your recommendation. But I would like to indicate my strong preference, if easing does appear to be appropriate, that we time it with more forward-looking indicators and avoid creating the impression that monetary policy is tied to the real economy. If that [latter] impression is developed, then the bond market will anticipate, rightly or wrongly, that a rebound in growth means we're going to tighten. Whereas if the monetary aggregates--and I might even mention commodity prices--were to indicate the desirability of having a lower fed funds rate, it would be clear that any easing that we do would really not be easing in the sense that money growth was below target and we were trying to keep monetary policy neutral by not pegging the fed funds rate high.",156
-fomc-corpus,1992,Vice Chairman.,3
-fomc-corpus,1992,"""B,"" asymmetric.",4
-fomc-corpus,1992,Governor Lindsey.,3
-fomc-corpus,1992,"Mr. Chairman, I am in concurrence with your view. The one thing we all know is that we don't know. And given that the uncertainties are high, we [ought] to go to the normal kind of analysis, which is a loss function. I think the loss function is much greater on the down side than on the up side. Secondly, [we need to ask]: ""How easily can we correct policy?"" Again, it's much easier to correct policy if we are surprised on the up side than if we're surprised on the down side. So, I think you selected exactly the right course of action.",123
-fomc-corpus,1992,Governor Phillips.,3
-fomc-corpus,1992,I support your recommendation.,5
-fomc-corpus,1992,Governor Kelley.,3
-fomc-corpus,1992,"Mr. Chairman, I'm clearly for ""B."" And I will support asymmetry as well because if there's a move in this period, very clearly it's going to be on the easing side rather than on the tightening side. But I must say that I don't share the presumption that we will ease that seems to be implied in conversations speculating on how the timing will work.",75
-fomc-corpus,1992,Governor Mullins.,4
-fomc-corpus,1992,"I support ""B,"" asymmetric. And if we do get evidence of deterioration or if we don't get some movement pretty soon, I would favor seriously considering moving [toward ease].",36
-fomc-corpus,1992,"On the table is alternative ""B,"" asymmetric. Would you read it, please?",17
-fomc-corpus,1992,"""In the implementation of policy for the immediate future, the Committee seeks to maintain the existing degree of pressure on reserve positions. In the context of the Committee's long-run objectives for price stability and sustainable economic growth, and giving careful consideration to economic, financial, and monetary developments, slightly greater reserve restraint might or slightly lesser reserve restraint would be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with growth of M2 and M3 over the period from December through March at annual rates of about 3 and 1-1/2 percent, respectively.""",116
-fomc-corpus,1992,"Let me just ask the question here whether in this context ""somewhat"" or ""slightly"" is the appropriate word. I would ask Don to refresh me on this.",35
-fomc-corpus,1992,"I thought as Norm was reading that the ""slightly"" did tend to capture the sense that it wasn't an unusually strong--",25
-fomc-corpus,1992,You said it did?,5
-fomc-corpus,1992,"It did capture the sense. And perhaps if in your judgment, Mr. Chairman, more than one move became necessary over the intermeeting period, which is a long intermeeting period, I believe a consultation with the rest of the Committee would be appropriate.",51
-fomc-corpus,1992,"I would certainly think that is correct. I feel comfortable with the word ""slightly"" frankly, but I wanted to make sure that that's appropriate.",30
-fomc-corpus,1992,Preferred.,2
-fomc-corpus,1992,Okay. Call the roll.,6
-fomc-corpus,1992,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes First Vice President Hendricks Yes President Hoenig Yes Governor Kelley Yes Governor LaWare Yes Governor Lindsey Yes President Melzer Yes Governor Mullins Yes Governor Phillips Yes President Syron Yes,50
-fomc-corpus,1992,"Okay. As been mentioned, our next meeting is March 31st, which is--",18
-fomc-corpus,1992,Eight weeks.,3
-fomc-corpus,1992,It's outside the March 20th deadline. I don't know what significance that has! [Laughter],21
-fomc-corpus,1992,About right.,3
-fomc-corpus,1992,We now adjourn for lunch.,7
-fomc-corpus,1992,"Mr. Chairman, may I remind you about the updates of anyone's forecast?",16
-fomc-corpus,1992,I thought we did that yesterday.,7
-fomc-corpus,1992,"Yes, and I wanted to raise the question about fiscal policy assumptions. There seems to be some confusion about what has been asked for.",27
-fomc-corpus,1992,"Oh yes, my apology. There's an interesting question about the basic assumptions implicit in the forecasts of the Committee members and other presidents with respect to fiscal policy. I would suggest that we each make our own assumption. In a sense make it an endogenous calculation, rather than have an imposed external presumption, because I'm not sure that's very helpful and I'm not sure that we want to have an official position as such. So, I would assume that each of you is making a forecast in the context of how you believe the politics of what is going on may--",111
-fomc-corpus,1992,We're allowed to do that!,6
-fomc-corpus,1992,We won't anticipate any particular indication of what you are specifically assuming. So it's [unintelligible].,21
-fomc-corpus,1992,"Okay, we'll adjourn for lunch.",8
-fomc-corpus,1992,"I wanted to welcome Jerry Jordan to his first meeting of the FOMC, but I understand that he attended his first meeting in August 1969. So, I have decided we'd just say: ""Hello, welcome back"" and leave it at that! The first item on the agenda is always, of course, the approval of the minutes, and I would seek a motion.",77
-fomc-corpus,1992,So move.,3
-fomc-corpus,1992,Is there a second?,5
-fomc-corpus,1992,Second.,2
-fomc-corpus,1992,"Without objection. The next item on the agenda is the report on foreign currency operations, and I'll call on Bill McDonough.",26
-fomc-corpus,1992,[Statement--see Appendix.],6
-fomc-corpus,1992,Are there any questions for Mr. McDonough?,11
-fomc-corpus,1992,May I ask one clarification?,6
-fomc-corpus,1992,Go ahead.,3
-fomc-corpus,1992,"Something out of my past struck me here about the BIS. Twenty-odd years ago, in an environment of a weak dollar, the Germans were intervening and acquiring more dollars than they wanted to put into U.S. Treasuries, especially special certificates of indebtedness, at very low yields. So, they were making deposits at the BIS for a period and that gave rise to a phenomenon that later was labeled ""rabbits out of hats."" When the Bundesbank realized what was going on, they drastically cut their deposits at the BIS, forcing a contraction of dollar credits by the BIS. I would want to be assured on this that we're not making the same mistake in reverse by putting DM on deposit there and having them extend the DM credits. They are not a central bank. I don't know what the full set of transactions is that they are doing, and it struck me as interesting that we're sort of reaching for yield on our foreign portfolio but not on the domestic portfolio. Every dollar's worth of DM we hold in CDs at the BIS is that much less U.S. Treasuries that we hold.",224
-fomc-corpus,1992,"I suppose, Mr. Chairman, the answer partially [relates to whether] we should reduce further our overall DM holdings. The reduction of DM10 billion this year and the sale of our interest earnings, which I mentioned in my note to the Committee last week, is about the maximum amount that would lead the Bundesbank to feel that we were operating in a friendly manner between central banks. That was about the maximum, in conversations that President Corrigan and I had with Mr. Tietmeyer, that the Germans could really go along with. So, that's a partial answer to the question. The shift of the DM6 billion was partially to get some additional yield With regard to our arrangement with the BIS, just in terms of our own liquidity, we do have an early liquidation agreement with them. Therefore, from the standpoint of managing our own affairs, I think the move to the BIS is something with which we can be comfortable.",188
-fomc-corpus,1992,"I think the other distinction, President Jordan, between the period 20 years ago and today is that 20 years ago the operations took place without the concurrence or even the knowledge of the U. S. monetary authorities. In this case we're moving to the BIS with the Bundesbank's knowledge So, it's folded into their monetary policy and they have the capacity to offset the temporary effects The other side of it is that",83
-fomc-corpus,1992,But in lieu of other sources funds to the BIS will not [unintelligible] their balance sheets?,22
-fomc-corpus,1992,The balances moved to the BIS,6
-fomc-corpus,1992,Any other questions for Mr. McDonough?,10
-fomc-corpus,1992,"Yes. I don't have a question on these specific transactions but as another sort of newcomer here I've been listening to these reports and I'm never quite sure exactly what the role of the FOMC is in exchange market intervention and what our goal really is in a world of flexible exchange rates. That's not necessarily a question for now, but sometime I'd like to hear a discussion of precisely what we are trying to accomplish in these kinds of transactions.",87
-fomc-corpus,1992,"I think we ought to have that topic for a luncheon discussion at some point. We have periodically done precisely what you're suggesting, but it's probably worthwhile to redo it every once in a while to make certain that we're all still in the same boat.",49
-fomc-corpus,1992,"Well, we have three new presidents and two new governors this year, so I think it might be helpful. I know it would be to me.",30
-fomc-corpus,1992,"President McTeer, as the Chairman said, two years ago we did have an investigation, if I can put it that way, of this matter. Maybe I've been derelict, but I have provided the new governors with a copy of that study and, if the new presidents would like a copy of that document, they can get it if it's not already in their Banks. I think it will be useful as background to this matter. The simple point is that the System has independent legal authority to operate and we have set procedures that have been in place and reviewed periodically over the last thirty years. We have the ability to make our own choices about whether we operate with the Treasury or not. In fact, as Bill has described, this last period very clearly illustrates the usefulness both of having our independent authority and of using it from time to time because it serves in my opinion to improve the overall character of the policy decision.",186
-fomc-corpus,1992,I don't really question our authority. I'm just not sure what we're trying to use that authority in pursuit of. I'm just not really clear on that.,30
-fomc-corpus,1992,There is a directive that is approved by this Committee at least once a year.,16
-fomc-corpus,1992,"No, I think the president is requesting the answer to the age-old question: Does it work? And this is still a dubious proposition about which studies go back and forth. I think the great value of the presentation a couple of years ago that Ted was mentioning was that it really went through the literature and the various studies which we have been engaged in and endeavored to conclude in what areas such intervention could be productive and have beneficial effects and in what areas it seemed unlikely to do so.",98
-fomc-corpus,1992,"Mr. Chairman, it seems to me that it might be somewhat worthwhile at this point to reassure the new members that in [our review of] this issue two years ago most of us who were on the side of not having as heavy a hand and not building up our foreign currency balances have been very appreciative of the fact that the Federal Reserve's position under the Chairman's leadership has been in the direction that we prefer. I have a great deal of appreciation for the fact that there's a political question involved here. And it seems to me that our being absent from a significant portion of that [intervention] speaks a lot louder than the $25 million participation that we did. So, I feel in accord with the direction we're going in and I'm satisfied, but I'm not suggesting that we ought not to have the review. Mr. Chairman, I'd be very happy to move to ratify the transactions, if that's appropriate.",184
-fomc-corpus,1992,"Well, let's first double check on whether there were any other questions.",14
-fomc-corpus,1992,Just a quick question.,5
-fomc-corpus,1992,Fundamentally and technically.,6
-fomc-corpus,1992,"Any further questions? If not, is there any objection to Mr. McDonough's request for advance clearance for the DM sale? Finally, would you like to make that motion [again], Wayne?",41
-fomc-corpus,1992,"Yes, I would. Anything you say, Mr. Chairman! [Laughter]",17
-fomc-corpus,1992,I won't tell you what motion you made!,9
-fomc-corpus,1992,He was carrying out the vital function of educating his fellow member here on a particular point.,18
-fomc-corpus,1992,Is there a second?,5
-fomc-corpus,1992,Second.,2
-fomc-corpus,1992,"Without objection. As a somewhat related issue, we have an exchange of letters with the Treasury Department. I call upon Ted Truman to elaborate on the subject matter.",32
-fomc-corpus,1992,"The Committee will remember--those of you who were here--that at the last meeting the Committee voted to reduce the size of the Treasury warehousing facility from $10 billion to $5 billion, a level at which it had been for most of the last 15 years. As the Chairman said, in the aftermath of that decision there was an exchange of letters between Treasury Secretary Brady and the Chairman. As I noted at the last meeting, this reduction from $10 billion to $5 billion caused a certain amount of anxiety at the Treasury. There was concern or nervousness about whether the Exchange Stabilization Fund, which remained pretty [fully invested] on the foreign exchange side relative to the dollar side, would be available to carry out other vital functions. Secretary Brady wrote to the Chairman expressing his concerns to this effect. The Chairman replied making three basic points. One was that he could contemplate a wide variety of circumstances in which he would strongly support an increase [in the size of the warehousing facility]. Secondly, he expressed his confidence that the Committee would give full, careful, and expeditious consideration to any reasonable proposal in that regard. [Lastly,] he said he could not guarantee in advance what the Committee might do with such a proposal. On the second point, just to clear everything up, we mentioned to the Committee last time that it was our hope and expectation that the Treasury would unwind the remaining $2 billion of DM that they had warehoused with the System. And they are planning to do that; they are ready to do that effective on Thursday. So, the facility will be wound down to zero effective as of that date. [Secretary's note: Copies of the letters referred to by Mr. Truman are appended to this transcript.]",352
-fomc-corpus,1992,"Any questions for Ted? If not, let's move on to the Domestic Desk, Mr. Sternlight.",21
-fomc-corpus,1992,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1992,Questions for Mr. Sternlight?,7
-fomc-corpus,1992,"Peter, you made reference to the strong demands for credit as playing a role in terms of what has happened to interest rates. But the debt aggregates seem to suggest, when you look at what actually has been new debt, that there really hasn't [been much]; it has been quite weak. I guess most of it is mainly [unintelligible]. Is that really much of a factor?",79
-fomc-corpus,1992,"Well, I'm commenting on it as I see it from the market's perspective of enormous Treasury issuance and still pretty heavy corporate issuance. I realize that if you fold in everything, including the bank loan demand and so forth, that it's weak or not all that substantial. But just from the standpoint of what the trading markets are coping with it has been substantial.",71
-fomc-corpus,1992,There's probably also some greater volume of net mortgage financing and it's clearly at the long end.,18
-fomc-corpus,1992,But when it comes to the debt aggregate it just doesn't show up as being very strong; it's very weak.,22
-fomc-corpus,1992,There's a very modest pickup from the fourth quarter.,10
-fomc-corpus,1992,Further questions?,3
-fomc-corpus,1992,Peter alluded to this. Is there any more to tell about these stories of a squeeze in the 5- and 7-year note areas?,30
-fomc-corpus,1992,"Well, as I said, we are following up on those stories. On the 7-year note we had a rather formal, organized roundup of additional information and have contacted a number of the dealers to talk specifically about how they are conducting their operations in that issue. We've also had several conversations with respect to the December 5-year issue, which has been a kind of on and off special. It went off and then in the last couple of days came back on special. There, too, it has seemed to us that these were the results of understandable investment decisions by market participants. We don't get any sense of market manipulation activity that, at least at this point, makes us feel that we have to proceed further in that vein.",147
-fomc-corpus,1992,"Further questions? If not, would somebody like to move to ratify the transactions since the February meeting?",21
-fomc-corpus,1992,So moved.,3
-fomc-corpus,1992,Second.,2
-fomc-corpus,1992,Without objection. Mr. Sternlight still has the floor with respect to the memorandum that he sent out a couple of weeks ago.,26
-fomc-corpus,1992,[Statement--see Appendix.],6
-fomc-corpus,1992,Questions or comments?,4
-fomc-corpus,1992,"Peter, I completely agree with the conclusions in your paper. I have a question on one of the statements in it about the decision that was made some time ago to maintain the liquidity of the System's portfolio.",42
-fomc-corpus,1992,Yes.,2
-fomc-corpus,1992,"In looking at the reasons to maintain the liquidity of the portfolio, what are the relative weights? Is it [primarily] a concern that if we own [securities] at the longer end of the market there are risks for gains and losses as we go in and out or is [the dominant concern] the risk of impacting the longer market more than we might impact the short market? I was trying to understand.",84
-fomc-corpus,1992,"It's more a question, President Syron, of having ample holdings in the very short areas so that if on short notice we had to lighten our portfolio by substantial amounts within a matter of months or even weeks we could do that by either running off bill holdings or selling very short-term securities.",58
-fomc-corpus,1992,That has to do with the depth of the short market as compared to the depth of the long market?,21
-fomc-corpus,1992,Yes.,2
-fomc-corpus,1992,"Okay. So, it's the disruption in the market you would have to deal with. Theoretically, you could still do it on the long market but you might have a greater impact.",38
-fomc-corpus,1992,There would be a disruptive effect if we sold large amounts in the longer end.,16
-fomc-corpus,1992,Okay.,2
-fomc-corpus,1992,This first arose when Continental borrowed billions and billions of dollars in a very short period of time and we had to offset the reserve effects of that. I think there was a concern that at a time of financial crisis there is definitely a flight toward Treasury bills and that would be a market that we could easily sell into. But we weren't sure what would be happening in the coupon market. And selling into a market that might already be--,86
-fomc-corpus,1992,Tumultuous.,4
-fomc-corpus,1992,--treacherous or tender would not be a good idea.,13
-fomc-corpus,1992,Hold on a second. President Black was first.,10
-fomc-corpus,1992,"Mr. Chairman, I think Peter has done an excellent job of outlining the history of this for us and he has made an excellent case for a high degree of liquidity. That has been needed in part because we have had to offset reserves supplied through the discount window and also through foreign exchange operations. The only point I would make is that a lot of us have reservations about how much we ought to deal in the foreign exchange market. The changes in the discount mechanism and the law that was passed last year suggested that we lessen our emergency lending through the discount window. So, I think this gives us a little more opportunity after we've sopped up the reserves released by the reduction in reserve requirements and through the ""encouragement at the margin""--I believe that's the term you used, Peter--toward getting longer-term securities. If there is some premium on those rates, this could help to reduce that premium to some extent, although I don't really buy that argument to any great degree. I think we have a little better case now for intervening than we did before but it's only a marginal case, and I don't feel very strongly about it. We also would earn a little more from the Treasury if we did more, but who can tell? Maybe, we'd need more liquidity and a further reduction in the reserve requirements. It was a good paper; I thought it was very, very good.",279
-fomc-corpus,1992,Thank you.,3
-fomc-corpus,1992,President Melzer.,4
-fomc-corpus,1992,"Peter, let's say we did tilt toward doing more operations in longer coupons. I don't know what your reaction would be, but it seems to me that a cynical market observer could question what that implies in terms of the System's long-term commitment toward price stability. I don't want to carry this too far, but to the extent we are seen trying to jawbone long rates down or conducting operations that substantively are not going to have a lot of impact, if someone looked at that cynically they could view that as window-dressing to try to hold long rates down while perhaps we were trying to pursue basic policies that weren't consistent with price stability. Do you see the opportunities for that kind of cynical interpretation?",141
-fomc-corpus,1992,"I do, President Melzer. That makes me very leery of doing anything, as I say, very noticeable in that direction. That's why I would suggest holding any greater effort in that vein very much at the margin.",45
-fomc-corpus,1992,"I think the question, however, is: Do we slow the rate of decline in the average maturity of the portfolio, do we stabilize it, or do we defend against a rise? And despite the $11 billion in Treasury coupon absorption last year, the average maturity continued to fall. The question is: Do we want to let it continue to fall or to stabilize it? I would be surprised if the markets reacted negatively to our taking actions that tended to stabilize or just slow the rate of decline toward ever shorter maturities in our portfolio. I think the argument is that if we switch from [slowing the] decline to a rise, that could very easily turn out to be a counterproductive activity on our part. But I gather from what Peter's memorandum is suggesting that the issue is essentially [whether] to slow the decline.",167
-fomc-corpus,1992,"And I think it would have that effect. That particular statistic on the average maturity is very dependent on how we handle not so much our market purchases but our rollovers and quarterly refundings. We've tilted those quite strongly toward the short options. That was what we had outlined as a plan to the Committee in the mid-1980s, following the discussions that Don alluded to. And by virtue of steering our holdings very strongly toward the three-year option each time, that has tended to work, just as a factor in itself, to bring down that average maturity.",114
-fomc-corpus,1992,The purpose then was to increase the liquidity of the portfolio for fear that it might not have been adequate in the event of some really significant problems with some of the larger banks?,35
-fomc-corpus,1992,Right.,2
-fomc-corpus,1992,"That refunding action itself has no effect on the maturity of the debt held by the public because our allotment is just an ""add on"" to Treasury auctions.",33
-fomc-corpus,1992,"My point, Alan, was that there's probably no problem doing what [Peter is] suggesting, but it's probably better for us if it's just done quietly than if for some reason what we do attracts publicity. That's my point.",45
-fomc-corpus,1992,I don't think Peter is recommending that we--,9
-fomc-corpus,1992,"No, I know.",5
-fomc-corpus,1992,Governor Mullins.,4
-fomc-corpus,1992,"Well, I agree with President Melzer and Chairman Greenspan on this issue. The pattern has been one of [average] Treasury maturities increasing since the '70s and System holdings decreasing in maturity. And that means the public holdings have increased substantially [in maturity]. Now, I don't think it's an especially good idea to wander around in maturity issues, whether it's our holdings or Treasury issues. So, I think there's a strong argument to figure out where we want to be. I'm not very comfortable with discretionary action or anything that could be perceived as discretionary action to move along the maturity structure to affect rates, especially in this environment. One only has to look at the way the markets responded to this innocent little reserve requirement cut we did a few weeks ago to document Tom Melzer's assertion of cynicism in the market. So, I think it would be a bit difficult to pull off here, and we ought to be very careful. It's hard to communicate what we're doing. But I think it would be useful to stop the wandering and determine what makes sense as a maturity structure and implement that. And I think that's what Peter's memo does.",230
-fomc-corpus,1992,Vice Chairman.,3
-fomc-corpus,1992,"I think there really are two issues here. One is this question of what should be our strategy as a whole with regard to demands on the portfolio itself. I think that's fundamentally what Peter's memorandum addresses. For the reasons that a couple of people have already cited, including Don Kohn, it seems to me that the premium should in fact be on liquidity even though we may need it only once in ten or twenty years. When we need it we better damn well have it! I think what Peter is suggesting is quite consistent with that. I don't have a great deal of allergy to the average maturity going down a little more or slowing down. What Peter suggested seems to me to make a lot of sense. Of course, the other question that looms in the background, which I think is different than a coherent longer-term strategy to portfolio management, is this question of whether the System, by becoming more active in the long end of the market, could or should do something of a one-time nature to help somehow or other to tilt the yield curve down. I don't think that issue [unintelligible]. On that point, I have to say that I am increasingly skeptical. I think Peter captured it right: That the great danger here is that this holds out more than it could possibly deliver. I ask myself again the question of why the long rate is so high and so sticky. Peter gave the usual menu of explanations. Now, I think they're all relevant, but I am coming more and more to the view that maybe it's not all that complicated. The Treasury is selling $100 billion, give or take, of new debt into the market per quarter. It doesn't matter whether some of it is cyclical deficit or RTC financing; it's still $100 billion a quarter. And it's in a context in which for the past year to 18 months--this is Bob Parry's point--private credit demands have been virtually nonexistent, net. I think part of what we're seeing now is [the realization that] if the economy starts to pick up and if the credit crunch is about to have run its course and private credit demands begin to increase even a little when we still have the $100 billion a quarter hanging over our heads--and in a context in which the appetite of the Japanese for American securities and Treasury securities in particular has changed very significantly and is not likely to reverse itself in the near term--the deck is stacked against us. In those circumstances, I'd have to say that any overt effort to use our own portfolio management tactics and strategies to wiggle around the long-term rate would run a very sizable risk of backfiring. I would be most reluctant in these circumstances to get ourselves back into that kind of position.",549
-fomc-corpus,1992,"Any further comment or questions? I gather from that that there is a general acceptance of the philosophy and thrust of Mr. Sternlight's memorandum with respect to this issue. If that is the case, I think we can move on to the economic situation and call on Messrs. Prell and Truman.",61
-fomc-corpus,1992,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1992,[Statement--see Appendix.],6
-fomc-corpus,1992,Questions for either gentleman?,5
-fomc-corpus,1992,"Mike, I'm curious to know why exactly you think that long-term rates are going to come down over the next year? Is it basically inflationary expectations?",31
-fomc-corpus,1992,"Well, we do think that the outside world is perhaps overestimating the inflationary effects of this moderate growth and underestimating the effects of what is generally perceived to be a continuing fairly sizable amount of slack in the economy. So, I think the possibility of diminution in the markets' inflation fears is a significant one. Also, as people perceive that only moderate growth--if we are right--is ahead, that will ease some people's fears that we might be opting to do something that could close the margin of slack more rapidly. I have the sense that perhaps long-term rates have moved up into the range in which they have been fluctuating for a while without a particularly sound basis and that we can simply have some reversal. But I think the fundamental factors are the moderate course in the expansion we see and the continuing slack that should be bringing the inflation rate down, not stabilizing it or pushing it up as most outside forecasts have it.",189
-fomc-corpus,1992,President Parry.,4
-fomc-corpus,1992,"Ted, two characteristics of the usual forecast are what was mentioned: the downward trajectory for long-term rates and also a flat dollar. What are the interest rate developments internationally that are assisting in bringing this about? For example, in our model we almost have to constrain it from pushing the value of the dollar down in that kind of environment.",67
-fomc-corpus,1992,"I'm not sure what you assume about rates abroad, but on the interest rate side we have essentially the same [amount] of decline in long rates. We're assuming that ultimately the Germans will get things under control and bond rates will drift down as well, though maybe not quite with the same timing as U.S. rates, by about 50 basis points over the projection period.",75
-fomc-corpus,1992,Japan?,2
-fomc-corpus,1992,"And that includes Japan, though the timing might be a little different for German and Japanese rates.",19
-fomc-corpus,1992,Would more conventional linkages among rates produce a decline in the value of the dollar when one uses the model?,22
-fomc-corpus,1992,"Well, it all depends on the model. Exchange rate models that use longer real interest rates essentially produce an unchanged dollar using these rates.",27
-fomc-corpus,1992,They produce an unchanged dollar?,6
-fomc-corpus,1992,"Yes, an unchanged dollar, given our inflation forecast and given our interest rate forecast. We mentioned in the Greenbook that there is one qualification that one might introduce here and that is the issue of what is expected either here or abroad. One can tease out of some of this yield curve information and certainly out of T-bill futures a view of U.S. interest rates that is different than Mr. Prell's, if I can put it that way. And to the extent that Mr. Prell's true view becomes clear to the markets, one might argue that that would put downward pressure on the dollar. I think the only question is whether there is an analogous error of judgment about interest rates abroad. So, there is some downward risk coming from that disconnected light at the end of the tunnel that he referred to.",165
-fomc-corpus,1992,The Prell factor! Thank you.,8
-fomc-corpus,1992,President Syron.,4
-fomc-corpus,1992,"Mike, I have a lot of sympathy for your view of the importance of inventories and trying to understand this whole area of inventories and the risks on either side. There's no definitive answer to this, but I was wondering: What is the central tendency of opinion on how close we've come to the end of this process of [firms] changing their optimal, if there is such a thing, inventory/sales ratios? Do you see that as a process that is still going on?",96
-fomc-corpus,1992,"I feel reasonably confident that it is a process that is ongoing. Certainly, to the extent that there is any evidence, formal or informal, companies indicate that they would like to have lower inventory/sales ratios. In manufacturing, while there has been some considerable progress, firms still are redesigning their production processes, their relationships with suppliers, and their overall inventory management, to trim inventories. And as we noted before, we've yet to see the benefits of inventory management techniques and utilization and so on in the retail and some wholesale sectors that we might have hoped for, and we think there's potential there as well. But, certainly, the consolidation of the retail sector, if that continues, ought to work a bit in that direction. So, there's still likely to be a trend movement and it's inherent in our forecast. We have a very modest rate of inventory accumulation; late in 1992 and in 1993 the inventory/sales ratio is drifting down [in our forecast]. We're drawing our lesson much more from the trends of the last long expansion than from what one might have seen in earlier cyclical upturns. So, in a sense it's either a cushion or we've captured a trend that's probably continuing.",242
-fomc-corpus,1992,Thank you.,3
-fomc-corpus,1992,President Stern.,3
-fomc-corpus,1992,"Mike, would you elaborate a bit on this issue of pent-up demand that you mentioned in passing with regard to the consumer spending situation?",27
-fomc-corpus,1992,"That is obviously hard to assess. It's to some extent a matter of gauging what people's desires are and those could change over time. A simple examination of what happened, particularly in the motor vehicles area, is that we look for trends in motor vehicles per household. The trend in the stock of motor vehicles has varied in constant dollars. We look at the equations that we have for automobile demand, such as they are, which estimate a desired stock given operating costs, interest rates, and those sorts of things. All of these seem to point toward some shortfall. We're not sure how much it is. Drawing some trend lines we get something like 1-1/2 to 2 million units at present. We are aware of the forecasts within the industry, which are based on the notion that there may be a 3 million unit shortfall--pent-up demand as it were. Basically, our forecast is one that, given the basic replacement needs, doesn't really make any substantial progress in overcoming that. Again, one might view this as possibly a small upside risk: That as this expansion proceeds people will want to replace some of those cars which are now, in terms of median age, considerably older than people used to live with. Maybe the cars are better; maybe we don't need to return [to trend]; but there does seem to be some possible backlog of demand there. Other areas we don't see so clearly. There has been a very sharp downturn in expenditures on other durables and on some nondurable items that one might think of as lasting some span of time. Conceivably, there's some backlog of desired spending there. We haven't built it in; it isn't readily visible in other data on stocks for durable goods, for example. The past year or so has been a period of extraordinarily weak consumer spending and we think there's some backlog and buildup.",373
-fomc-corpus,1992,"Further questions? If not, would somebody like to start our Committee discussion? [Does the silence mean the answer to] that is a no?",29
-fomc-corpus,1992,The last couple of--,5
-fomc-corpus,1992,I think Bob Parry signaled me first.,10
-fomc-corpus,1992,I yield to my colleague.,6
-fomc-corpus,1992,"Thank you. Mr. Chairman, the Western economy appears to us to be moving sideways, although I must admit there are a few encouraging signs that have emerged since the last meeting. We do a survey of business leaders and ask them their views about future developments. One of the questions that we ask them is whether they expect any declines in output in the next two to four quarters. In January, more than 30 percent indicated that they did. In the most recent survey, that number was a little over 10 percent. We also have seen a bit of a change in the residential real estate market. In California, for example, the number of existing homes sold has risen in each of the last four months, and the gain that we saw in February was the sharpest month-to-month gain in five years. Moreover, retail sales don't seem to be deteriorating the way they were. One major retailer on the West Coast indicated that in the month of February his sales were up 8 percent from the year-ago period and another major California retailer indicated that sales were about 10 percent above year-earlier levels. One recognizes that there were some special factors, including the extra day in February and also the war-related weakness that occurred the year before. I'm sure you've heard about or are familiar with the benchmark revisions going on with regard to employment data. On a negative note, the California benchmark revisions for employment are expected to show a falloff of 4 percent since July of 1990, which is more than double the decline that we've been working with in the preliminary data. If I can turn briefly to the national outlook, it certainly seems clear to everyone that final sales have picked up rather significantly in the first quarter. As a result of these developments, it would seem to me that the risks to the outlook are more symmetrical than they were at the time of our last meeting when the downside risks seemed to dominate. Our forecast is very similar to that of the Greenbook. Both forecasts include a downward path for long-term interest rates, which to me seems consistent with the fundamentals of a moderate expansion. Such an outcome for rates, however, as we've mentioned a couple of times, does not accord with market expectations. My own view is that if we do get those kinds of rates, it's conceivable at least that we'll see the dollar decline rather than remain flat. Finally, it would seem to me, given the current low level of economic activity and also the prospect of a modest expansion, that the Greenbook's basic outlook for a gradual downward trend in underlying inflation certainly makes a lot of sense. Thank you.",524
-fomc-corpus,1992,President Forrestal.,4
-fomc-corpus,1992,"Mr. Chairman, I'm happy to say that economic conditions in the Sixth District have definitely improved since the last meeting. The information that we have for the six states in our District suggests that activity is improving in all those areas with the exception of Louisiana. And more importantly, the forecast seems to be that this improvement is going to continue. This general improvement has been confirmed by our directors and other business contacts that I've talked to over the past several weeks. They're expressing guarded optimism, but the tone is certainly a lot better and there seems to be an uptick in consumer confidence. On the other hand, bankers are continuing to report very soft loan demand. If there's any strength at all in loan demand, and it's very marginal, it's on the consumer side, not in business lending. We've recently seen modest expansion in orders, production, and shipments by producers of apparel, household goods, and construction materials. And there is a parallel development of improvement in the retail sector as well, although durable goods retailers are reporting rather weak sales. But the nondurables and services are doing better. Auto dealers, on the other hand, are talking about increased traffic but not increased sales. Housing, as in other parts of the country, has improved, although realtors are becoming more and more concerned about increases in mortgage rates. We've had increased permits for single-family homes, and I guess associated with that lumber prices have moved up a little and builders are [now] anticipating price increases for other construction materials as well later on this spring. On the commercial side, leasing rates for commercial properties have stabilized and this market seems to be in the very early stages of a recovery. Another positive factor in our District is that we're not hearing of any new projects coming on stream, which is certainly a plus. Tourism and business travel continue to be a bright spot for our District. Convention bookings are up in several cities and Florida is seeing a quite significant increase in visitors from abroad. The improved health of many of the Latin American countries is reflected in increased export sales to many of those countries. Those are the positive aspects of the ledger. Obviously, we have some weak spots as well. State and local governments throughout the District are still wrestling with their budget problems, and I don't really see any light at the end of that tunnel. The energy sector has also been very hard hit by the mild winter, which has added further downward pressure on natural gas and oil prices. And in February the rig count was down 41 percent in Louisiana from a year earlier; that compares to a decline of about 32 percent in the nation as a whole. And, of course, layoffs are continuing apace in that sector in Louisiana. In addition to those price pressures for construction materials that I noted earlier, many manufacturers are anticipating some higher input prices in the second half of this year. Labor markets on the other hand are still quite soft and wage pressures are quite steady; in effect, there are no wage pressures. With respect to the national economy, our forecast for real GDP is quite similar to the one in the Greenbook. We're not quite as strong in the first quarter, but after that we virtually converge with the Greenbook. We do have unemployment coming down a little faster than the Greenbook, but our biggest difference is on the inflation side, where we see inflation moving up more rapidly than in the Greenbook. Our forecast in 1993 is for inflation, as measured by the CPI, of about 4 percent. In general, it seems to me that the risks are much more symmetrical than they were when we last met; they're much more balanced. Obviously, as Mike indicated, we could have another false start as we did before. But I personally feel much more confident that we're on a path of a more sustainable but modest recovery. All of this suggests to me, Mr. Chairman, that we don't need any policy adjustments at the moment. Thank you.",787
-fomc-corpus,1992,President Keehn.,4
-fomc-corpus,1992,"Thank you, Mr. Chairman. With regard to the national economy, our forecast is very similar to the staff forecast at least in contour. We also show an improving quarterly trend but our growth rates, particularly in the first and second quarters, are a bit lower. Our outlook for personal consumption, particularly durables, is just a little lower than the staff forecast. Correspondingly, our outlook for inflation this year is a bit more positive. We would think the CPI, for example, by the end of the year could be at 3 percent or a bit lower. But these overall differences are really just differences at the margin. In the District, the modest improvement that I commented on at the time of the last meeting and also on the telephone call continues. Certainly, residential housing in the Midwest has been a strong point. Homebuilding has increased significantly and home sales have also been very active. But I do think weather has been a decided factor. We've had the warmest winter in 97 years and I have a hunch that the seasonal adjustment factors have had an effect on the numbers. At the distant horizon--and I would emphasize distant--I am hearing a little better tone in the commercial real estate sector. Some investors are beginning to express at least a possible interest in commercial real estate. That's the first time I've heard that in quite a while. Not in any way should this suggest that there's any interest in new projects; that's a long way out. In fact, in Chicago we have a number of fairly sizable projects that are still being finished. As a consequence the rental overhang is pretty high and the rental terms are very, very tough. Nonetheless, this possible interest on the part of investors to come back may be indicative that we could be reaching toward stabilization in this very tough sector. The automobile business is a bit better, at least for the one manufacturer that I talked to. Their first-quarter production, for example, was 32 percent over last year; last year, of course, was very low as a comparative period. The second-quarter production will be up about 8 percent. Encouraging also is the dealer order rate, which has shown a significant improvement on a week-by-week basis as we've gone through this year. Sales have been a little under forecast but there is a better tone out there. There is a better mix: Fleet sales are down; retail sales are up. Also, retail pricing for autos has been a little firmer. In the truck industry, medium truck demand is flat to down a bit, reflecting very tight control on capital expenditures by businesses. But the demand for big trucks, the class A rigs, is up a bit, and one manufacturer is forecasting a 10 percent increase in sales this year for the class A group. Still, in a comparative sense, that is a very modest number. The steel business continues to be pretty reasonable. First-quarter sales will come in at an 82 million ton annual rate. The industry is now operating at about 85 percent capacity but the pricing in the steel business is very, very tough. On the retail side, sales continue to show an improvement. It looks to us as if retail sales in the Midwest are running about 5 percent ahead of last year on a comparable store basis but the pricing continues to be [very competitive]; we see no inflation on the retail side. In the agricultural sector, the outlook for the crop year looks favorable, at least at this point, despite a fairly warm and a dry winter. Ground moisture is regarded as being excellent in most of our ag areas. Planting is going to start in two to three weeks and the outlook is pretty positive. There is some concern out there about the [weather] effect; nonetheless, we are forecasting normal crop production this year. With regard to inflation, I do think the outlook continues to improve. Pricing conditions in the marketplace are awfully tough. The big increases just don't stick and in some industries--paper, for example--prices are continuing to come down. And energy prices just don't represent anything by way of an inflation issue. On the labor side, the contracts are being settled on very favorable bases. In the paper [industry], for example, one of our directors reported that a company has recently gotten a six-year contract, with annual increases of 3 percent a year plus a one-time premium shift buyout of 3 percent. Two other paper companies got five-year contracts at very, very modest wage increases. So, certainly, those contracts have gone well. But one labor negotiation that has not gone well, and I've commented on it before, is the Caterpillar contract; the strike is now almost five months old. They held the first talk in quite some while last week, but nothing came out of that. In fact, the union rejected what the company said was absolutely its final offer. So, the discussions broke off and both sides left. The pattern issue is what is holding them up. Both sides have said that absolutely under no circumstances will they give on that particular issue. In the interim Caterpillar's inventories are running down to pretty low levels; and current production, of course, is very spotty. I talked to somebody yesterday That for the union would be a very tough situation. The expectation is that this could get to be pretty vicious before we're all done. Net, while the anecdotal reports and certainly the data continue to be positive in a modest sense, I continue to think the risks are very much on the down side. They are perhaps not as great as they were a few months ago but, still, I think that's where the risk is. Therefore, in terms of policy response, I think we should be geared to deal with any signs of weakening should they appear. Thank you.",1161
-fomc-corpus,1992,President Black.,3
-fomc-corpus,1992,"Mr. Chairman, there has been a marked change in the degree of optimism in our area, which seems to be very similar to what is happening in the rest of the country. For example, in our recent regular survey of retailers and manufacturers for the Beigebook, we found more signs of optimism, both nationally and locally, than we had at any time since 1989. Contacts with our directors and others since then have pretty well verified that sort of sentiment. And we are seeing in the actual figures some pickup in physical activity. For example, new home sales and residential construction are rising pretty much across the District; and sales and production in industries related to housing--like furniture, textiles, and homebuilding products--are also picking up in strength. At our last meeting, one of our most astute directors said he sees absolutely nobody who thinks the recession is not over. The way he put it, the only question in people's minds is what the strength of the recovery will be. So, against that kind of regional background, and taking account of the latest information that we have gotten on a national basis, I think the staff was justified in making the upward revision in the forecast that it did. The overall profile of the Greenbook is quite close to what we would expect. The key question is where the risk of error lies. And on this we come out a little differently from some of the others who have spoken in that we think the risk of error is on the high side even after these upward revisions in the forecast are taken into account. That is because we continue to believe that the easing we put into effect in November and December was pretty strong medicine and that its full potential impacts have not yet shown up and probably are not captured fully in the Greenbook and other forecasts. But we have less confidence in that now than we did because of the weakening in the behavior of M2 in March. One of our economists did a simulation that suggested the widespread uncertainty about jobs probably was reducing consumption by maybe 2-1/2 percent from what it otherwise would be. It's really an interesting study; it's econometric but nevertheless pretty revealing, and it sort of verifies what everybody assumed was happening. I'm happy to see that the staff still expects that the disinflation trend will continue and that inflation can be brought down somewhere below 3 percent by the second half of this year. As the Greenbook notes, this projection is pretty much at odds with most of the current market expectations. It's also at odds with most of the forecasts that we've seen, which call for an early increase in inflationary pressures as the economy improves. But the difference between the staff forecast and these other forecasts now is that we can make ours happen if we play our cards right! And I'm increasingly confident that we will.",562
-fomc-corpus,1992,President McTeer.,5
-fomc-corpus,1992,"The Eleventh District economy has held up throughout the recession and slow recovery better than most Districts, I think. Our total employment is almost 2 percent higher than it was in July of 1990, just before the recession started. Initially, our economy was supported by improvement in the energy sector, resulting from the temporary spike in oil prices. But since about the middle of 1991, the energy sector has become a major drag rather than a source of impetus. Bob Forrestal already referred to the low gas prices and the effect that is having on the gas industry. And the oil exploration and production business is rapidly disappearing in our District through layoffs and moves abroad. That's a long-run decline that people are very gloomy about, particularly with the Clean Air Act having just passed; that's going to have an impact on refineries as well as exploration. The gap, though, since the middle of '91 has been largely made up in our District by the reaction of residential construction, single-family housing, to the lower interest rates. We've also benefited throughout this past year and a half from a fairly strong Mexican economy and fairly robust exports from the Eleventh District to Mexico. The mood in the District seemed to improve dramatically when we first started hearing reports on retail sales in January and February, before the data were announced. So, things have picked up optimism-wise and that's reflected in our Beigebook survey as well.",284
-fomc-corpus,1992,President Syron.,4
-fomc-corpus,1992,"I'm not sure that we have very much to report as far as the region goes that is different from what people are talking about nationally. We have seen some signs even in New England of tentative recovery consistent with what people have talked about [happening] elsewhere in terms of retail sales, housing sales, and sentiment. We've been seeing some increase in employment, which is interesting because we find that in the current household survey but not in the payroll numbers. Trying to reconcile the two we find that there are a lot of new electrical and gas hookups and new firms starting that are not yet picked up in the payroll survey but are picked up in the current population survey. On the banking side, there are some stirrings of very, very tentative improvement in loan demand though a leveling off, I would say, on the side of asset problems which we think probably have peaked. I would think that housing prices--not commercial real estate but housing prices--probably have reached their low point; and that, combined with [lower] mortgage rates, has been stimulating some activity. As for manufacturing, the paper industry is actually doing quite well and the computer industry is seeing some improvement, but there is some more recent concern about exports. There is, of course, a lot of variance in this across the region--the defense influence. I would have to say, and probably one shouldn't read too much into this because of the problems with seasonals, etc., that in conversations since the Beigebook--in calling people in the last few days before coming to the meeting--both retailers including auto dealers and people in the real estate business report some slack in the last 2 to 2-1/2 weeks. There may not be too much to that, but some of it is attributed to the rise in rates at the long end. As far as the national economy goes, we share the view that the economy is improving. We continue to be worried, though, about the durability [of the improvement] and how [developments] will cumulate. We do have an uneasy feeling, which one can't avoid, about vulnerability to swings in mood. Just in talking to people generally --and others have mentioned this--we see a degree of dissatisfaction generally and a fragility in people's confidence about the future that require us to stay on our toes. As I say, I pretty much agree with the Greenbook. I am concerned about two things: (1) the cumulative process that I referred to earlier and (2) the possibility of exports being a little softer than we have talked about before. As far as policy goes, I think this leaves us with two issues. One: Is the economy turning? I think the answer to that is probably yes. The second issue, though, is: How strongly is it turning? I would say that one place where we might have a slight disagreement with the Greenbook is that we see the unemployment rate possibly increasing a little further. Based on work that we've done on the relationship to claims, we don't really see the unemployment rate declining until we get claims dropping below 400,000 for a long period. So, we still think that the strength of the upturn will be on the soft side. That is consistent, of course, with our quite optimistic view of continued improvement on the inflation side. We think that Mike's interpretation of long-term bonds is probably correct because if inflation does continue to come in fairly well, it will tend to convince markets further as we go along.",704
-fomc-corpus,1992,President Boehne.,5
-fomc-corpus,1992,"Developments in our District are broadly consistent with what is going on in the rest of the country. There is noticeable improvement in the residential area, including the construction of new houses. The retailers feel better and the sales data are there. But when they look at their sales it's year-over-year, and last year sales were very weak. So there's concern about how these retail sales will look a couple of months from now. The manufacturing area has shown some strength. In the nonresidential area, the District really has a long way to go before it digs its way out of the hole; I think that sector is just going to be a drag for some time to come. Bankers report essentially flat loan demand outside the residential area, although more of them are reporting that the share of new financing is rising and the share of refinancings is falling. I think that's consistent with the data we're getting on the residential side. Employment growth is still flat to down, and I think it will be some months before we see any improvement there. In terms of attitudes, I think ""optimism"" is too strong a word. I would say ""cautiously hopeful"" describes business sentiment more [accurately]. I think [business executives] see a turn, but they just are not optimistic yet. In terms of consumers and rank and file citizens of the District, the mood is certainly not optimistic but more one of frustration than of pessimism. How that will play out in consumer sales I'm not sure. But there is this dichotomy, I think, between hopefulness in the business sector and a very deep-seated frustration on the part of most other people. As far as the nation goes, I think we do have a modest pickup in the making. The issue, as we've talked about around the table, is whether it is sustainable. I think the risks are less on the down side now than they were six weeks ago, but on net I still have more concern that this modest recovery will peter out rather than be significantly stronger than the Greenbook forecast. But my forecast would be very close to that in the Greenbook. I think a modest recovery is the most likely outcome.",438
-fomc-corpus,1992,President Hoenig.,4
-fomc-corpus,1992,"Our District continues to show a mixed performance on balance with very slow recovery [emerging]. For example, our employment in January was up about 0.1 percent over the prior month. As for the positives, one is retail sales. Retailers around the District tell us that there has been a pickup in sales and they are, as we've been saying, cautiously optimistic that that will continue. Construction-wise, we are still seeing improvement. January was about 12 percent over a year ago for the District, but that was primarily in residential. Commercial property continues to be fairly weak, with vacancy rates in Colorado, for example, still in the 24 percent area and higher than that yet in Oklahoma. So, that sector is going to remain weak; but residential [construction] has been very strong. Manufacturing is mixed for us. In the auto industry there are still plans to continue with two shifts, but there has not been enough optimism for them to reverse [the decision] in process of being implemented to lay off 1,000 employees in Kansas City. Also, other manufacturers we talk with are seeing some pickup, but it's very modest and they're not at all convinced that business is going to continue strong as we go forward. They're waiting to see. Economic activity is also being dragged down a bit with some defense cutbacks. Martin Marietta in Denver, for example, is laying off 1,000 workers; and Allied Signal in Kansas City is laying off about 750. So that's a bit of a drag offsetting the anticipation of stronger sales in the auto industry. Clearly, our weak sector is energy. It's still very weak. The rig count is down 25 percent from a year ago--not as much as in Louisiana, but down. As you may have read this morning, Oklahoma has passed a law trying to restrict production of natural gas in an effort to boost its price; we'll see how successful they are. In agriculture, the outlook is a little mixed. In the grain area, there is some optimism with regard to prices. In the cattle area, there is more pessimism. Land values have remained virtually unchanged because of some concerns about pricing going forward. So, our economy is mixed, although people are trying to be optimistic. Nationally, we generally agree with the Greenbook although our forecast is not quite as strong. We anticipate and we're optimistic that the economy will grow a little less than 2-1/2 percent over the year. However, we differ a little. We think investment will be a little stronger and consumption a bit weaker than the Greenbook is projecting. On the inflation front, we are also about in line with the Greenbook in terms of seeing core inflation continue to trend down. So, that's where we see things right now.",560
-fomc-corpus,1992,President Stern.,3
-fomc-corpus,1992,"With regard to the national economy first, Mr. Chairman, I'm struck by how much better the readings on the national economy are relative to what we were seeing as recently as three months ago and relative to what we expected to see. I think the Greenbook has the appropriate response to this. I personally am pretty cautious. A quite modest recovery by historic standards is still what I think we're most likely to get, and that's what is reflected in the Greenbook. So, I'm comfortable with that outlook. But the probability of achieving something like that looks to me to be a good deal higher than we might have expected just a few months ago. At the District level, we've seen modest improvement for some time. That seems to be continuing. Attitudes have improved. I wouldn't say that they're positive necessarily, but the gloom seems to have lifted. And the expansion seems to be reasonably broadly based. It's evident in housing, of course, retail sales, agriculture, and tourism, so that the District seems to me to be consistent with the national picture as well.",211
-fomc-corpus,1992,President Melzer.,4
-fomc-corpus,1992,"In our District the statistics continue to be generally positive. We have modest nonagricultural employment growth; manufacturing employment is down modestly compared to the prior three-month period but that's more than offset by gains in nonmanufacturing. I would say that manufacturing has been bouncing around a little; I think I reported a modest increase last time. Both residential and nonresidential construction contracts are quite strong, up about 15 percent in each category against the prior three-month period. And the banking numbers that I report on periodically have continued strong through the fourth quarter. Basically, the question always is: Will those numbers hold up through year-end reserving and so forth? And in our case they did. ROAs are still around 1 percent; ROEs are around 12 percent; nonperforming loans are flat and also are fully reserved. On the anecdotal side, I've had three or four contacts with branch boards or our board and other groups since our conference call, and I would say that the pattern I've heard there supports the more positive tone that seemed to emerge on that call. I continue to be struck by people reporting plant relocations, plant expansions, labor callbacks, and so forth. So, I get the sense that this [better tone] is gradually working its way back into the manufacturing sector. We had a group of CFOs in from major St. Louis companies, and I would say that in general the picture I got from them was not as positive as some of this other information. They still view this as a very difficult business environment with not a lot of flexibility on the price side. They are basically either maintaining or increasing earnings through a lot of focus on the cost side. So, that pattern goes on. Nationally, the only comment I would have is that our forecast generally is in line with the Board staff's in terms of real growth looking out to 1993. On the price side, we're not quite as optimistic and generally are getting increasingly concerned about the stance of policy vis-a-vis what might be shaping up on the real side.",416
-fomc-corpus,1992,Vice Chairman.,3
-fomc-corpus,1992,"Let me just start with a couple of rifle shots on individual points. First of all, I do get the sense from business leaders and others that things feel better. How pervasive or lasting it will be I think is still a big question. But even among some of the CEOs of major companies that are notoriously bearish we do get reports of a quite discernible uptick in activity in orders in the past couple of months. Upon reflection, I think a lot of what is showing, at least to date, seems to be directly or indirectly related to the pickup in housing activity and the more modest pickup in the auto sector. But for what it's worth, even among the most notoriously bearish that comes across. Just an outlier point, to get back to something that Ted Truman mentioned in passing, I have to say, Mr. Chairman, that I'm getting more anxious about the situation in Japan, both in economic and financial terms. Some of that I think is for the reasons that Ted mentioned or alluded to, but just in the past few weeks I have had several [talks] with private-sector individuals on firemen's visits, and these guys are really bearish. At least in memory, I've never heard Japanese CEOs from both financial and nonfinancial firms speak with the concern that comes across. I don't know what to make of that, but I do think that situation is probably even more tenuous than perhaps the numbers themselves would indicate at this point.",291
-fomc-corpus,1992,"I think there's a lot of whistling in the dark there, too.",16
-fomc-corpus,1992,"Well, that's part of what I mean. Closer to home, as several others have said and as I've said at a couple of previous meetings at least about the greater New York area, commercial real estate in price terms and in rental rate terms does indeed seem to be firming.",57
-fomc-corpus,1992,"Firming, not stable?",6
-fomc-corpus,1992,"Firming, yes. Now, as others have said, that doesn't mean the beginning of new projects. And needless to say, this Olympia and York [situation] could queer that firming depending upon how that shakes itself out. My sense of that right now is that while there is a lot of international exposure, it's sufficiently widely distributed and diversified that in and of itself it would not materially add to our problem. The larger question is whether [Olympia and York] is having a liquidity problem or worse. I fear it's probably worse. And I think the danger, aside from the obvious point about creditor exposure, is that it could reverse the apparent stabilization or slight improvement in commercial real estate in a lot of places, not just in New York or London. That's an uncertainty even if the credit exposure part of it can be effectively managed. On the banking side, loan demand is still quite clearly slack. I think it's also fair to say that financial fundamentals do look slightly better, partly because the real estate situation has stopped getting worse. Another point that's relevant is that at the moment it's probably fair to say that the fiscal threat is reduced but not eliminated by recognition of the real dangers of highly reckless fiscal policies.",243
-fomc-corpus,1992,As recommended by a number of our colleagues!,9
-fomc-corpus,1992,"I was going to say that if we had a few of these Nobel laureates under a little better control. I might feel a little better! Notwithstanding that, the risks there don't look to me to be as bad as I thought they would be. One last point I'd make in terms of the national outlook--and Mike touched on this--is that the employment outlook is very important in our thinking about the forecast, partly for the psychological reasons that people have talked a lot about. I do think this confidence issue is importantly rooted in uncertainties about employment prospects. But beyond that, as Mike said, it would be quite unrealistic to assume that we're going to finance even a modest rise in consumer spending with a decline in the saving rate. In the Greenbook there is a tiny decline over the next couple of quarters. If you look at our own forecast or Mike's forecast--in round numbers, Mike, you have growth of something like 800,000 Q4-to-Q4 in payroll employment, give or take. Now, that number doesn't sound all that crazy; it's 65,000 to 75,000 a month on average. Those are not horrendously big numbers. And that gives me some confidence in the internal consistency of the forecast. But I do think that the employment situation, both for psychological reasons and for income-flow reasons, is going to turn out to be very, very important. Having said all of that and recognizing that there are a lot of crosscurrents out there, I personally feel that the staff forecast is a good one. Despite all the problems, I think there's a reasonably good chance that we can see a pattern that looks very much like that over the course of the year.",345
-fomc-corpus,1992,Governor Angell.,4
-fomc-corpus,1992,"I would agree that the staff forecast is a reasonable forecast. I would be on the side of slightly lower nominal GNP, if I had any difference, over the coming two or three quarters. I agree with Jerry Corrigan that the circumstances in Japan are really close to being super worrisome. Asset price deflations once underway may not respond as well as some may believe to a monetary policy adjustment. And I think we all know about the run-up in real estate prices in Japan. It's not as if it were a magnitude of 2 times or 3 times as high as would seem reasonable, but it might be more a magnitude of 5 to 10 times as high as might be reasonable! I guess all of us have had confidence that they will be able to produce a soft landing a lot better than we could, and yet it does seem to me that their reluctance to respond to rather low monetary growth does indicate that the tide among central banks internationally, including the G-7, is still pretty conservative. It seems to me that the European community also has its own problems, and driving European monetary policy by the Bundesbank's particular set of parameters affecting Germany and not affecting others seems to me to [drive fiscal policy in Europe to] equal in some sense the fiscal policy in Germany, which is out of accord with the Maastrich rules. That is, they're not going to qualify for being a part of the club if their fiscal policies deteriorate. So, even though I expect some change, as Ted Truman suggested, it does seem to me that it will be on the conservative side. And when you look at those European economies and the amount of subsidies that are there and the pressures that are on them, it does seem to me that they are not quite in the promised land in regard to the economic growth that one would expect to be a part of the Common Market phenomenon. I think we will find more and more that a common economic market without a common political market has a lot of obstacles and they haven't found the way to crawl over all the boulders yet. And there seem to be a lot of boulders. This would then suggest that U.S. exports or net exports would be even more of a drag than Mr. Truman and the staff suggest. And I suppose my optimism shines forth here in regard to my belief that with cost-cutting in U.S. firms, with the exchange value of the dollar where it is and the learning curve that our exporters are on, I expect to see us do as well as the staff suggests if not slightly better, even with a somewhat weaker foreign economy. Now, it seems to me that the driving force in regard to monetary growth in the United States is not so much what happens on the liabilities side of the commercial banks' balance sheets but what happens on the assets side. When commercial banks have been looking at spreads between loans and CDs and all of a sudden on the margin the assets they are picking up are U.S. government securities, then in a sense the spread that they're chasing is a quite different spread. So the only way that they're going to have the kind of earnings they insist on is to have CD rates that tend to continue to run lower than rates on governments, which it seems to me is going to [encourage] disintermediation to some extent and hold up M2 growth as compared to Ml and the monetary base. So, in this environment it seems to me we end up with really quite a bit of rope out on the table. And, frankly, I don't think it would make much difference in the growth of the monetary aggregates if we had fed funds rates 50 basis points lower than they are. So, I would still expect the monetary aggregates to come in at around the midpoint [of their ranges] or below. And if the monetary aggregates surprise me and are stronger than that, then I think it's probably getting pretty late in the game. My guess would be that once private credit demands increase--and I think the good news we are hearing around the table gives some notion that there might be some increases in private credit demands--if they begin to expand as fast as we would like them to grow, then we would probably find growth of M2 headed toward double-digit rates, though again I'm talking quite a few quarters down the road, farther than I can really see. My guess is that we might have to have an adjustment in the fed funds rate of 200 basis points to [rein] that in. But I think that's a long ways down the pike.",922
-fomc-corpus,1992,President Jordan.,3
-fomc-corpus,1992,"Let me first characterize my thoughts about the economy in the last couple of years to put things in the context of where I think we are now. When the economy doesn't expand, I look for the depressants because I think there's an inherent tendency for the economy to expand and that [if it does not], something is either causing it to contract or have sub-par growth or preventing very rapid growth. Two years ago there were many depressants, but two certainly stood out and are still with us today. One was the cuts in defense spending, and that [depressant] may even be increasing in some local economies. The other was the unwinding of commercial construction. That has not been a depressant in the Fourth District but it's still there in some parts of the country, though lessening I think. A third was the oil shock, as brief as it was. Nevertheless, I think that was the factor that did push us into negative GDP for a couple of quarters, but that is now reversed. Except to the extent that falling energy prices may be a very mild depressant--energy is weak--I don't think we're getting any depressing impulse there. The fourth is monetary policy. There were occasions in the last couple of years when I thought that it was too restrictive. But I don't think that now; I think it is adequately stimulative. And the depressant that has emerged or been reinforced over the last several months is the one that Jerry Corrigan mentioned also, the fiscal side. I think that is feeding into the psychology affecting longer-term interest rates in the bond markets. And concerns about the lack of fiscal discipline in this country are either direct threats to the economy or indirect threats to the actions we can take through monetary policy. Where I come out is that I don't disagree with Mike Prell's description of the economy in 1992, but for 1993 I would be a little stronger than he is. The arguments for why [growth] is going to slow [over the course of] 1993 I don't find satisfying at this point. At the District level, we held a small business roundtable discussion and advisory meeting ten days ago. We had twelve bankers from around the District. All parts of the District were represented and all but one reported better conditions. They said their local economies were improving. One banker in northwest Pennsylvania said that the economy was still pretty much flat. The others seemed to think that their situation had improved over the last few months. There was a general sense of optimism, of things getting better. Residential construction, including even some commercial construction, [was up] and all reported that retail sales were better, though there was not a lot of confidence that it would continue so. Capital goods manufacturing has been quite strong. The recession that we went through a couple of quarters ago was the mildest in Ohio in the postwar period. Always in every recession before Ohio has had a sharper decline in employment than the nation. That didn't happen this time. So, the contrast between Ohio in my District and Michigan is really dramatic. Ohio didn't have the stimulus of commercial construction before so the state didn't have the depressant of it going away. And the state had the benefit of good export demand and probably more importantly import substitution, taking back domestic markets previously lost for capital goods industries. The general mood in that part of the Great Lakes region is very [upbeat]",683
-fomc-corpus,1992,Governor Mullins.,4
-fomc-corpus,1992,"Well, I guess the consensus is that we have the makings of a recovery with this strong consumer spending. It's nice to see that spending reinforced by the increase in confidence [reported in recent] surveys. This morning the Conference Board reported an increase in March to 54 from 47 percent, the largest jump since the Gulf War. I think the issues that Mike Prell laid out are worth reviewing because we were in this position last year and things didn't work out. Will this year be different? There are a lot of positive signs on the durability or sustainability issue. There's ample evidence that we've made progress on this 3-year depressant of the deleveraging process with the improvement in corporate balance sheets. Interest coverage is looking more like it did in the mid- or late '80s than it did in the early '90s. Consumer installment debt to disposable income is down to where it was in 1985, so we've rolled that back; and we're reclaiming the decade on consumer indebtedness. I think mortgage refinancing has helped a lot. And the banking system is clearly in much better shape to support [growing] demands should they ever come about. So in this [unintelligible] we seem to be poised to abate at this time. There is also this issue of pent-up [consumer] demand. Measuring it against the late '80s raises the question of how much of that was real demand or conspicuous consumption, but I guess we'll find out. There's also the possibility of pent-up demand in business spending--replacement spending and capital equipment spending that has been postponed. And most fundamentally from our perspective, what is different this year is the fact that rates are much lower now; the fed funds rate since last summer has come down 175 basis points. And the dollar, despite its recent rise, is still substantially below where it was last summer. On the negative side compared to last year, Governor Angell and President Corrigan and others have mentioned that exports look less encouraging given the deterioration in western Europe and Japan, and I would share that view. Consumer confidence, despite the recent gains, is still well below levels of last spring. And last year we were looking at what I thought were lean inventories--of course, one can never tell until a few months later whether they were lean or not --and now we have a little overhang. And the employment picture continues to be weak. There's concern over what we'll see in the upcoming report. So, I think an issue is: Where does the income growth come from for sustainability? A number of people have mentioned the issue of long rates, and that's an important input into the environment. The Board staff has been doing a lot of work looking at that 30-year bond and trying to figure out what is causing its yield to go up. One way to think of a 30-year bond is that it is composed of 30, 1-year forward rates implied by the yield curve. That allows us to look at these forward rates, which we can back out of the yield curve, and see where the pressure is coming from. The Board staff has done this. I think they've come up with some interesting results. The 1-year rates expected to prevail 20 or 25 years out in the future haven't changed much at all in recent years. In fact, they are about where they were in the early '70s. So, we haven't seen a big shift in long-term inflationary expectations or long-term expectations of rates at least. What has pushed the 30-year bond around has been the movement of the short- and intermediate-term rates. The first three forward rates account for 25 percent in weight of the overall 30-year coupon, and the big increase in these 3-year rates has driven up the overall 30-year rate. In fact, the increase in the forward rates in the first 5 years of the overall 30-year structure accounts for virtually all of the increase in the long rate. When you look at it, that increase is pretty dramatic. As you recall, all these rates responded well to our cut in December and then rates bottomed out in January and started up. Those 3-year forward rates have gone up 150 basis points; and if you look at the 1-year rate today it's 4-3/4 percent. The forward rate in year two is up to 7 percent and by year three the market is expecting in some sense an 8 percent 1-year rate. Then it levels out at about year five at 8-3/4 percent. So, the way to think of it is that the market is expecting very large increases. I don't know if they heard Governor Angell's talk on this, but they're expecting very large increases in rates in the very near future. And the weight of that is pushing up overall long rates as well. I think it's worth asking why people would expect that; I think there are three possible explanations. First, they expect inflation to increase; secondly, there's this fiscal argument, a fiscal crowding out; and third, they expect a recovery that is a lot stronger than perhaps the Greenbook forecast. I think the inflation explanation is not very satisfying because when these rates turned around in early January the dollar was also rising and the price of gold was falling off. In the survey evidence that Mike mentioned, the Michigan survey, inflation expectations continue to fall. The 1-year inflation expectation in March was 3.3 percent whereas last October it was 4.7 percent. Even the 5- to 10-year inflation expectation last March in the Michigan survey was a little over 6 percent and now it's about 4-1/2 percent. So, I think it's hard to ascribe this expected increase in short- and medium-term rates to a rekindling of inflation. The deficit argument, as President Jordan and others have mentioned, is a better explanation. First, if one looks at the timing of these rate increases, they really turned around in early January when the budget was released and this so-called bidding war started. And as the probabilities of a big fiscal package have gone down, we've seen some easing of those rates. But what I think has happened is that in the fall of 1990 many participants in the market saw a budget agreement that they thought held the promise of a multi-year disciplinary mechanism, a pay-as-you-go mechanism that finally was going to work. And that confidence has come unwound this year. In this town there's more hopelessness on the deficit issue than I've seen in years because there's a feeling that these structures--whether it's Gramm-Rudman or the new structure--simply aren't working. The 1990 structure worked flawlessly and we've had no new spending initiatives. Despite the fact that pay-as-you-go has worked, the deficit continues to rise. So, I think that's a major factor. And the other factor, which Jerry alluded to earlier, is the interaction of the deficit and the strength of recovery because, with the deficit out of control, there's relatively little private savings left over to finance a recovery. And that implies that when those demands occur, rates and the dollar have to rise to [accommodate them]. I think we can usefully ask what we can do about this situation if the market is expecting big deficits and any private demands to push up rates dramatically. While we can usefully ask that question, the answer on monetary policy fundamentally is that there is nothing that we can offset if the deficit is going to be out of control. We can't offset the increase in real rates. We could accommodate it, and this is the secondary risk that might be included here. But I don't think we would do that because we understand the problems there. So, there is some concern about the contractionary impact of this; and certainly at the margin it's something we have to think about in the overall mix even though fundamentally it's not something that monetary policy can cure. I don't think it's inflationary expectations; rather it's these factors. When you pull all this together, I think we have a positive cast here to the economy. I do worry about it some. Since January a number of elements have shown at the margin some tightening of [financial conditions], including the increase in the dollar even though it's well below where it was last year. Medium-term rates have been moving up; the short-term inflation expectation is moving down; and, of course, there's the falloff in M2 growth. We had a couple of good months of M2 growth, held up primarily by Ml growth, compensating balances, mortgage repayments, and the like. Now, measured from the fourth quarter, we're down to about 4 percent M2 growth which, as Governor Angell mentioned, is below the midpoint. If we look over longer periods of 6 months or 9 months or a year, again, we're very low in our ranges. I had held the expectation that we would be above the midpoint for awhile. And we find ourselves here once again in this position of having to depend upon the velocity increase to bail us out, to make the Greenbook forecast come true. So, I think that's something to be a bit concerned about. And as people have mentioned, growth in credit also remains slow. We ought to be sensitive to the risks of a second false start, which I think are fairly substantial in terms of confidence, the fiscal actions, and the monetary pressures. On balance, I think the reading is more positive. But because of the consequences of a second false start and the slowdown in M2 growth, we still need to be sensitive to the down side.",1953
-fomc-corpus,1992,Governor Kelley.,3
-fomc-corpus,1992,"Mr. Chairman, in my still fairly brief time on the Committee I don't recall seeing as much change in sentiment from one meeting to the next as has happened between February and now. In the last meeting, most people shared a fairly strong consensus that the first quarter was going to be flat or maybe slightly up and that there was still a substantial balance of risks on the down side. There were some reasons to hope that we might get an upside surprise and improvement somewhat sooner than expected, but that was a bit weaker case. Now we seem to be having that upside surprise. As we hear this morning--and it began to show up on the telephone call several weeks ago--most areas are showing distinct improvement. And many sectors of the economy are showing a great deal of improvement. Now the question before us is whether or not this improvement is going to sustain itself or whether it's going to fizzle again. Certainly, there are forces that cut both ways; Governor Mullins and many others have run that liturgy and I won't repeat it. There are lots of concerns and I have lots of concerns. But [I'd make] two points. First, as Jerry Jordan mentioned a while ago, there's an historical bias in favor of growth in this economy. I don't think that has gone away; I think it's still there. And secondly, more times than not--maybe most of the time--momentum creates momentum and trends tend to sustain themselves. I think we're beginning to have a favorable trend here and the more probable outlook is that it will sustain itself. That would be my best guess, for whatever it's worth. But it certainly does seem to be too early to be sure of that. At the next meeting, or maybe the July meeting, we'll have a firmer feeling about it, I would hope, one way or the other. For now it seems to me that this is the time to watch and wait.",383
-fomc-corpus,1992,Governor LaWare.,4
-fomc-corpus,1992,"Mr. Chairman, I'm one who has felt that we were in a genuine recovery for some time, and the current forecast--if it is accurate and I think it probably is--seems to sustain that. Certainly, consumer confidence has improved even though it's not exactly ebullient at the moment. Corporate profits are somewhat better, but business confidence is still restrained. The fragility in the financial system that we have worried over for the last two or three years seems to be mending, particularly within the banking system, although there are still a number of large troubled institutions that command a major share of media attention. And media attention, I think, has a psychological effect on these confidence factors. Bank earnings are certainly much better and the availability of capital has improved, and that's encouraging for further strengthening of balance sheets. Banker confidence I believe is still a problem, and that may be at least partly responsible for the slow pace of growth. Having said all that, I think there are still some pitfalls that could abort or at least sidetrack this recovery. A dollar at its current level, or perhaps even a little stronger, and weaker economies in our major trading partners could reverse our recent export performance, which has certainly helped keep this recent recession a shallow one. I guess I'm politically skeptical enough to believe that there is still a possibility that irresponsible legislation to provide a quick fix could happen, and it might in fact be counterproductive. Defense cutbacks, I believe, will create long and painful transitions because the laid off workers are going to be permanently displaced, and they will have difficulty relocating in any short time frame. I think that effect will be more regional than general and will have important impacts in states like California. As a matter of fact, the current issue of The Economist has a real scare article about the effects in California, Washington, New Mexico, Connecticut, New Hampshire, Maine, and one or two other states. A further increase in long-term interest rates could certainly smother the recovery of the housing market and discourage long-term financing for investment or refinancing of higher-cost debt. I believe that, properly managed, all of those problems can be limited to a minor drag on the rate of recovery. The [interest] rate issue is the most important one in my view, and it suggests a position of vigilance, although I remain skeptical about the ability of further easing of policy to stimulate the economy or bring down long rates. In fact, further easing might have the perverse effect of driving up long rates. I think our stance needs to be flexible at the moment. And, as I said to begin with, I think the Greenbook forecast looks pretty good.",533
-fomc-corpus,1992,Governor Lindsey.,3
-fomc-corpus,1992,"Mr. Chairman, I must say that in my six years in Washington I have never worked with such a modest group of people. We have talked this morning about the improvement in optimism in the last few months. We've also talked about the derailing of what could have been a disastrous fiscal package. I think my colleagues are much too modest; we should have patted ourselves on the back. I think the decision that was made in December is one of the main reasons for the rise in optimism; had that decision not been made, I think we would be facing a much less pleasant fiscal situation today. So, I believe we have much to commend ourselves for, although you are all too modest to say it. I'd also like to commend the staff. I think the Greenbook forecast is certainly the most likely outcome and is also one in which the risks are about balanced. I also think the conclusion of the Greenbook that the disinflation process is continuing is one that is easily buttressed by the data--Governor Mullins stated it quite well--the survey data on forward rates, the strong dollar, and commodity prices. Indeed, I would be positively ebullient--in fact I was three weeks ago--but my concern at the moment has to do with what has happened recently with M2 growth. It has fallen. It is going to continue to fall. Using the projections in the [Bluebook] we will have had from the fourth quarter through March 4.1 percent M2 growth and through June we will have had 3.8 percent M2 growth. That is well below the midpoint of the target range. I don't think that is necessarily a disaster, but it is something that raises cause for concern. I think one has to take into account not only the fact that the risks are balanced but also what is involved if we're wrong. M2 is signaling an economic risk, which is the risk of perhaps another failure of the economy. Confidence would be very severely damaged, and I think we would see a replay of the headlines we saw last year that the Federal Reserve no longer has clout over the economy and that monetary policy has failed. In reality what I think has happened is that the desired debt reductions have lowered the effective elasticities on monetary policy and, therefore, greater policy action is needed. I think those elasticities would fall further and monetary policy would in fact be weakened if we had a collapse of confidence again and a recurrence of recession. There's another factor about which I'd like to speak briefly. Let's put ourselves a year from now and say that the economy in fact has not improved and we are in a second dip or what have you. We shouldn't look at political risks except with regard to how they affect the independence of our judgment. And one concern we should have has to do with changes that are going to come in this election. Yesterday our staff briefed us about the British election and said that there's going to be a hung Parliament. I think there are a lot of people who would like to see a hung Congress as well at this point. I don't know whether the devils we're going to come to know are going to be any better or worse than the devils we now know. But the fact is we know those devils and we don't know what the new devils are going to do. If we have a turnover of a quarter to a third of the House and similar types of numbers in the Senate, we would have to be concerned about developing relationships with a new group of people who may not know of our independence. In fact, we take a higher risk next year. I would think we'd want to be able to look back and have them look back on our performance as one that is commendable and beyond reproach because, while they may get bounced because of rubber checks, we face some risk in that process as well. Therefore, I think we have to be very concerned about the risks on the down side and we should probably keep our policy as it was following the last meeting. I think alternative A is probably unnecessary. Alternative B has the advantages of staying the course, but I do think we have to keep our guns loaded. The downside losses, should the economy begin to dip back into a recession, could be quite severe not only for the economy but for this institution. And I think the problems in Japan that were mentioned by several of my colleagues only reinforce the need to keep our guns loaded. Thank you.",897
-fomc-corpus,1992,Governor Phillips.,3
-fomc-corpus,1992,"Thank you. I guess I'm on cleanup again! I find myself in a great deal of agreement with what has been said around the table. I am pleased that the positive signals seem to be strengthening in more than just a few parts of the country. At least today we were hearing a little more positive signs from both coasts. Like others, I am concerned about whether this fledgling recovery is going to be self sustaining or if we're going to continue to bounce along the bottom for a while or falter again. I won't go through all of the areas of risks because several folks have elucidated most of them. One area I would mention that hasn't been talked about quite as much is the question of employment and unemployment: the pervasiveness of the levels of unemployment and how long it's going to take until we start to see something on the unemployment rate with the first digit being a ""6"" as opposed to a ""7."" And like the Greenbook, I'd be pleased if it didn't get worse before it got better. But because corporate America is on an efficiency drive in a recessionary period, I believe the cost-cutting and the drive to cut out layers of management are creating a situation where it's going to be harder to pull out of the unemployment situation. To the extent that occurs, it may keep us either bumping along the bottom or create a situation where it's going to take longer to climb out. The question of restructuring is also an issue I'd like to talk about a bit. We clearly have made a lot of progress, as Governor Mullins mentioned, on the restructuring. The question I wonder about is: How much more progress are households and corporate America looking to make? I wonder how much longer that restructuring is going to take and whether that will continue to draw away some of the monetary ease that I do think remains in the pipeline. So, along with the questions of long-term rates and the vulnerability of exports, there are some [other] areas of risks. I'm not sure that necessarily indicates that we should change our monetary policy at this point. However, I do think we need to be vigilant. If we don't start to see some improvement, we perhaps should be prepared to reassess that situation. Some of the tightening that has occurred in the last couple of weeks that Governor Lindsey alluded to may be the early signs of a need to be vigilant. But certainly at this point we have every reason to be pleased with the progress that has been made and [with the signs] that the monetary policy steps that were taken last year are beginning to bear fruit.",517
-fomc-corpus,1992,Thank you. We've run a little long and as a consequence I've a note from Norm which says that the coffee is cooling. The bad news is that he gave that note to me ten minutes ago! Let's find our whether or not it's iced coffee.,50
-fomc-corpus,1992,Mr. Kohn.,5
-fomc-corpus,1992,"Thank you, Mr. Chairman. [Statement--see Appendix. Finally, Mr. Chairman let me briefly update the Committee on the money supply data received this morning. It's very weak, much weaker than we expected and than we built into the Bluebook path. For the week we're about to publish--and these data ought to be reasonably [firm] by now--we're looking at about a $4-1/2 billion decline in Ml, a $10 billion decline in M2, and a $12 or $13 billion decline in M3. The downward revisions were mostly in demand deposits but in many other categories as well. The very preliminary data for the week of March 30th show no snapback from that. In fact, they show further declines. Now, these are based on only 3 days of information, so they can revise; but they do show further declines, with M2 approaching the lower end of its range if they were to come out that way. Thank you.",202
-fomc-corpus,1992,It seems as though we started on a high note but ended on a low one! [Laughter],21
-fomc-corpus,1992,"Don't blame the messenger, please!",7
-fomc-corpus,1992,"Well, Don, they are your seasonal adjustment numbers!",11
-fomc-corpus,1992,"Let me start off in the vein these data are basically addressing. I think we're all aware that by any of the measures we use for physical slack--that is, with respect to the GDP potential--the economy is very loose and has very considerable areas for improvement shall I say without any [price] pressures being evident as a consequence. I'm not sure that that is in fact the case if one defines capacity in a financial sense. The way I would read that as a concern is to reiterate some of the notions that several around the table have mentioned this morning: most specifically, the rise in long-term rates in the context of what is really a relatively mild improvement in economic expectations. We're all aware that gross private savings is not a particularly large number and we're also aware that the Federal government with its extremely heavy demands is absorbing a very large preemptive part of that. If the economy were rising fairly sharply, one would assume that the net available savings after the government takes its preemptive [share] would be modest and that the demand would squeeze against a small base and drive interest rates fairly significantly higher. What we are looking at is something which feels that way but it is hard to make the case, even with the optimism that is emerging here, that we're looking at a very strong surge in activity. So, I conclude, granted with very little evidence, that the base of private savings off which we are running is inordinately low and that very small pressures are creating interest rate responses that could essentially act, for reasons we've all discussed, to choke off the recovery. The financial structure also has some of these characteristics in the sense that we are aware that capital restraints have made the flexibility of intermediation less than we would otherwise like it to be. And if we are running into a net savings problem and an intermediation problem, which are obviously related, we essentially are saying that we are running up against some financial capacity problems. I don't know whether or not one could ascribe the most recent weakness in M2 to this phenomenon. Obviously, one can make the case, but I think it's premature to argue that these numbers mean all that much. We're not really clear as to the structure of M2 and what causes it; and even though we ran into a problem last year, it is not clear in retrospect how significant that impact was. So, I think we're treading ground at this point in areas for which we have no really hard evidence but a number of concerns that are suggestive of the possibility that indeed we might run into another stone wall and find that we're having difficulty reaching the [economy] as it recovers. If that occurs, we could very readily get a pulling back of capital investment plans. And we could get some cumulative weakening [in the growth of economic activity], somewhat more than we're looking at here. That, [coupled with] the external situation--not only Japan but some questions about Europe--raises some serious questions about the future in the context in which all of the hard evidence we're looking at today is really quite good. It may well be that this is essentially a short-term housing development, which is driving appliance sales, auto sales, and the like. There seems to be more in it. There seems to be a pickup of profit margins; there seems to be a broader general view of some improvememt in the future; and capital goods expenditures do seem to be picking up. And even though we may be running into a seasonal problem in the sense that six straight winters, I think, of above normal temperatures may be altering the seasonal adjustment factors, it's conceivable that the March data, seasonally adjusted, are going to look weaker than one would ordinarily expect. Then, we could get this [economy] turning very readily. At the moment, I think there is no question that monetary policy should stay on hold. However, in view of the various developments that are occurring, it is probably premature to switch from asymmetric toward ease to symmetric. Were it not for the financial factors that we're looking at, I would say this is a classic symmetric case. But until we get beyond the concerns about the behavior of the financial markets, which we do not fundamentally understand, it strikes me that we should stay asymmetric if for no other reason than that the probability we would wish to tighten over the next six weeks seems rather remote. And, having had an asymmetric toward ease directive in the last eight weeks and finding no need to alter policy, I would hope that we may be able to get through the next six weeks in the same stance. So, while I must say I would have no difficulty accepting symmetrical language with alternative B, I would much prefer to see us stay with the asymmetric language until we get beyond this period of uncertainties about what all of these data really mean. I'd be curious to get people's concerns, responses, and views. Who would like to start off? President Syron.",993
-fomc-corpus,1992,"Mr. Chairman, for the reasons that you have gone through, I find myself very strongly supportive of your fairly pronounced preference not to change policy. I think you're right that it is premature at this stage to switch back to pure symmetry because, while the risks of the outcome in the Greenbook I think are pretty well balanced, the damage that would be done by making a mistake is not. As for the likelihood that we may have to do something between meetings: While we do think that we're seeing a turn here in a number of areas, if I weigh the factors that are out there--the concerns in Japan, and some of the concerns in the financial markets which you alluded to related in turn to the real estate problems, etc.--I find it hard to think that we're going to be in a situation where the probability is equal that we're going to have to tighten between meetings as compared to [easing]. That to me says that we're in a classical ""stay asymmetric"" [mode]. Also, while I have to confess that I'm not one of those who think that the Ms mean everything, I certainly think they mean something. And looking at what we've said we intended to do this year--not increasing the range but wanting to come in at least at the midpoint of the range--though I realize the numbers are extremely preliminary, I find the trend we're seeing in M2 particularly disturbing. So, I think we're in a world, and many people agree with this, where we need to remain vigilant. The likelihood of having to take action, perhaps because of an unforeseen event, is greater on the stimulative rather than the tightening side, and I think that is consistent with staying asymmetric.",339
-fomc-corpus,1992,Governor Angell.,4
-fomc-corpus,1992,"Mr. Chairman, I would prefer to be symmetric. It seems to me that the foreign central bankers perceive our policy as being easier than it is. And they tend to have this history [of believing] that the United States always sort of leads the way to too much inflation. I think we really have a very delicate matter here in regard to the foreign perspective as to where we are, and how those central banks feel about us spills over into the capital markets. Of course, I can see that there might be some circumstance--if the Bank of Japan made a significant easing move and the yen became extra weak while factors here made it consistent with price level stability--[where it would be appropriate] for us to make a move: I could understand that. And I can vote for a policy that's not my preference based upon what I said at the last FOMC meeting. Mr. Chairman, I also said at that time that I had all the confidence in the world that you wanted to meet the same price level stability objectives. I have a great deal of confidence in that, so I can vote for asymmetry [toward ease], but I have to express a little caution when I do.",241
-fomc-corpus,1992,"I need to say one additional thing. I realize we don't put a great deal of moment in the P* calculations, but we are below trend now in [that calculation]. In other words, we have brought the money supply numbers down to a point which is certainly consistent with a noninflationary environment. If anything, we've overshot the mark. So, we actually have some room to respond to those who are concerned abroad that we would create an engine of inflation because I think--this is the wrong phrase, but--we have money in the bank. The truth of the matter is, it's the sign that's negative.",126
-fomc-corpus,1992,"I guess it's the yield curve problem that I consider. And [despite] Governor Mullins's careful analysis of that yield structure, I don't quite agree with his view that it's the fiscal [situation] that drives it. It seems to me the driving factor is that monetary policy was seen to be eased on the basis of real economy data. And the bond markets say that if we ease on the basis of the real economy, then we're going to tighten if the real economy is strong. So, I think it's this anticipation of stronger growth that has caused the yield curve to falter. So, even though we've got money in the bank, in the real bank, I don't think we have much money in the perception bank.",147
-fomc-corpus,1992,"No, that's a very important point, I think that's true. President Melzer.",17
-fomc-corpus,1992,"I'd prefer ""B"" symmetric but I can live with what you proposed. One of the concerns I have in that regard is the public relations aspect of it. I know [our directive] doesn't get [published] for a long time but if we were releasing it today after the meeting I think a lot of people would react by saying: ""Oh my god, what are they worried about?""",79
-fomc-corpus,1992,"That's the argument for not releasing the directive. Indeed, I think it would be a mistake for us to release it.",24
-fomc-corpus,1992,"Well, I'm not suggesting that it should be.",10
-fomc-corpus,1992,"Well, I meant if we had to release it today I'm not sure I personally would recommend going asymmetric.",21
-fomc-corpus,1992,"Well, I guess unfortunately, I always operate on the theory--and I'm not commenting on the FOMC in particular but in general--that if I make a decision, no matter how hard I try, it's likely to become known. So, I frankly worry about that. And I think symmetric language gives us every bit of flexibility that asymmetric does to respond. Let me just comment about what I touched on earlier when I said I was becoming increasingly concerned about the posture of policy. I think M2 over long periods of time is a reasonable indicator of economic activity. I think it's helpful in that regard, but it doesn't tell us anything about the thrust of policy. And I do think we have to pay some attention to the narrower aggregates whether it's reserves, the base, or Ml. I'd be ready to admit, as a lot of other people would point out, that some technical factors very likely are influencing the growth of Ml right now. But what I worry about, and I've said these things before, is this: In an interest rate targeting regime like we have, if we have that rate pegged at the wrong level in relation to where policy ought to be given what the economy is doing, the only way we're going to keep it there if it's pegged too low is by pumping in more and more reserves. Now, we've seen short-term market rates in this period move up 20 to 25 basis points. I'm willing to say in that connection that that probably just reflects wringing out expectations that were built into the yield curve that short rates were going to continue to fall--that policy would continued to be eased--and I think those have been washed out. For at least some period of time here, I think the market is discounting an unchanged policy. But I would begin to get more and more concerned if short-term market rates worked their way up even further and we continued to hold the funds rate at 4 percent because in effect that would be indicating to us that we're having to pursue a more and more stimulative policy to hold it there. So, that's my concern. But at this meeting, I think there's enough uncertainty in terms of what is going on with Ml on the technical side to come out for an unchanged policy and watch for a while. But what I'm worried about is that we may conceivably be getting out of position in a longer-term sense.",480
-fomc-corpus,1992,Vice Chairman.,3
-fomc-corpus,1992,"I would favor ""B"" asymmetric. I basically come out there for two reasons. First, I think the forecast that's on the table, as I said before, is fine as a forecast. There are so many crosscurrents [producing] uncertainties that a slight hedge--that's how I would think of this asymmetry--makes some sense. The other thing I have to say is that even before I heard Mr. Kohn's latest M2 numbers, I was a little nervous about M2, not that I have ever pledged allegiance to that number. My nervousness is in part because I don't understand it; I can't figure it out. But beyond that, if M2 were systematically to tank again, it certainly would make our external relationships more difficult. So, ""B"" asymmetric.",161
-fomc-corpus,1992,President Black.,3
-fomc-corpus,1992,"Mr. Chairman, I came prepared to argue for ""B"" symmetric. I wanted to point out that we could move in either direction but that if the economy did strengthen, as I thought it most likely would, then we would look very omniscient to have moved at this particular time when this [directive] is released in late May. But after absorbing the new numbers on M2 and listening to your other comments, I come closer to where you are. The only difference I have is that your disinheriting the P* model bothers me a little because I still have a lot of faith in that.",124
-fomc-corpus,1992,"I thought I did not disinherit it. In fact, I thought I was stipulating that I thought it was indicating that we had a little slack to accelerate M2 without violating our price stability goals.",41
-fomc-corpus,1992,That part I agree with; you made that very clear. But there was a statement you made in the beginning against giving too much credit to the P* model. LAWARE. He was being modest.,41
-fomc-corpus,1992,I have a lot of faith in it because I don't think we have any evidence yet that there's not a shift in the secular trend of V2. But I would comfortably--,35
-fomc-corpus,1992,"No, frankly, I think it's working.",9
-fomc-corpus,1992,"Well, I think it is, too. As a matter of fact, if you take M2 at face value and say that we thought we had a reason to explain its weakness, it has pretty darn well predicted what happened even without any adjustments. So, maybe it didn't lose some of its meaning. I did think that we would be [tightening policy] and it would be nice to show that we anticipated this a little. But I have some more doubts as a result of the behavior of the money numbers than I had. That being true, I can put that off for another meeting. At the next meeting I hope we will be able to move to symmetric language if events go our way between now and then.",145
-fomc-corpus,1992,President Parry.,4
-fomc-corpus,1992,"Mr. Chairman, the Greenbook forecast certainly is more optimistic now than it was at the time of our meeting in February. In addition, it seems to me that the recent data suggest that the risks are more evenly balanced than they were, far more than appeared in February. That leads me to have a preference for alternative B and a slight preference for a symmetric directive. I must admit, though, that I do fear the possibility that we'll see a situation similar to what we had last year. And I certainly don't take much comfort from what we just heard about the aggregates. So, I would not object to asymmetry.",125
-fomc-corpus,1992,Governor LaWare.,4
-fomc-corpus,1992,"I came prepared to argue for symmetric language and for alternative B, and I guess the news report from Don Kohn tended to sap my courage. I must say that in the first few meetings I attended here I was puzzled about the lengthy debate over precious changes in language or changes in precious language. But I now know that the world watches so carefully everything we say and exactly how we say it and in what order that I guess the debate is worthwhile. And I think probably staying the course and keeping the flexibility that's implied by the asymmetric language is appropriate.",110
-fomc-corpus,1992,President Stern.,3
-fomc-corpus,1992,"Well, I certainly prefer alternative B, and I have a mild preference for symmetric language mainly because that's my usual preference. I rather like the thought of just letting the evidence come in and analyzing it as the period unfolds. And I think we have plenty of flexibility and have reacted quickly even with symmetric directives, but I don't feel all that strongly about it. I don't know that I understand what is going on with M2 either, but I won't let that stop me from making a few comments! I think it's a little premature to get too worked up about it. For one thing, I don't know what Don's numbers are precisely, but for the December through March period it looks as if M2 still grew at least as fast as we had expected at the last meeting or two. So, while it bounces around a lot month to month, it's still coming in more or less as expected or a bit on the high side. I'm not sure we're going to learn much more in April and May if the tax payments and so forth [distort] the data as they have in the past from time to time. Finally--and I think you touched upon this in a way--if our objective is to achieve price stability, then I've been of the view for a long time that we want M2 growth at about the midpoint of its range or somewhat lower over a sustained period of time if we're going to get to price stability. And that's certainly what I have in mind.",296
-fomc-corpus,1992,President Hoenig.,4
-fomc-corpus,1992,"Mr. Chairman, because the Greenbook and our forecast agree that the economy is improving and because year-to-date, at least as Gary said, the money numbers are near the midpoint, I'm comfortable with alternative B. At the same time, I recognize that the money numbers that have just come in cause us to flinch. But more importantly, I can support the asymmetry [because], although our economy is being projected as stronger now than it was in February, it still remains a very modest recovery by any [historical] comparisons and it is in my mind still a very tender recovery. Therefore, I feel comfortable with the asymmetric language toward ease.",131
-fomc-corpus,1992,"Mr. Chairman, on President Stern's point, he is correct that even with these very weak numbers, we would have growth for December to March of around 3-1/2 percent, which is what we expected before. But the other part of that is that we would be coming out of March in a week that is billions and billions of dollars below the monthly average; i.e., the monthly average weakness is coming in this next number.",90
-fomc-corpus,1992,"Governor Kelley. MR.. KELLEY. Mr. Chairman, I'm not quite as agile as some of my colleagues. I came in prepared to support symmetric and I'm still there! To me the risks have become symmetric and that suggests a symmetric directive. I concur with you that an intermeeting change this time around is fairly unlikely; hopefully that's true. That also suggests symmetric. And generally, I think [asymmetric] is intended to be used when there's a meaningful expectation that there will be a move in a certain direction--a reasonable confidence that that will occur--and I don't see that here. All of that having been said, I do believe that if there should be an occasion to change policy between meetings here, it is far more likely to be on the easing than the tightening side. Also I believe that if we do get a downside surprise, the consequences would be quite serious and should be guarded against. So, for those reasons I would prefer symmetric but can accept asymmetric.",197
-fomc-corpus,1992,"President Boehne. BOEHNE. Well, I came here supporting ""B"" asymmetric and I am pleased.",24
-fomc-corpus,1992,Governor Mullins.,4
-fomc-corpus,1992,"There's no question in my view that the forecast risks are far more balanced this time. I agree with what others have said about the consequences of the downside problem being more severe, and I think it's a good idea to be asymmetric with the current uncertainty in the markets and the aggregates. I would also like to mention Tom Melzer's point, which is rather interesting, that last year it was the Treasury bill rate that was leading the fed funds rate down and this year it is the reverse. So, I think we have some interesting times ahead of us. Governor Angell mentioned our problems with the foreign central bankers. [My response to them] is to point out our record of very low growth in money over a long period of time. I don't have much success with that!",156
-fomc-corpus,1992,I'm surprised that you don't.,6
-fomc-corpus,1992,"Well, it's a lingering problem. If you look at the record--to pick a time let's say over four or five years--it is pretty impressive that there is this lingering suspicion. And one feels it [in discussions with foreign officials] as we go around the room. We can look through all the economic fundamentals currently, whether it's commodity prices or slack or the dollar going up, and we're in pretty good position. Yet this is something we're going to face, I think, for a long time until we wring [inflation] out. And I don't think it can be wrung out until we go through a recovery and show at that time that we've come out of this without going too far. On balance, I still prefer to stick with asymmetric.",153
-fomc-corpus,1992,President Keehn.,4
-fomc-corpus,1992,"Mr. Chairman, while we are moving through this transition pretty well and the tone and numbers are a little better this time than they were the last time, nonetheless, as I said earlier, I think the risks continue to be on the down side. I also think the inflationary outlook is better than [unintelligible]. To me it would be very premature to make a shift from asymmetric to symmetric language and, therefore, I'd be in favor of alternative B asymmetric toward ease.",97
-fomc-corpus,1992,President Forrestal.,4
-fomc-corpus,1992,"Mr. Chairman, I think policy really needs to stay on a steady course at the moment. I, too, like many others, came prepared to argue for symmetric language because I thought the balance [of risks] was a little more evenly distributed. But I don't have the same courage of my convictions as does Governor Kelley, so I tipped over to asymmetric during the course of the discussion today basically because I think the vulnerability that we have of missing on the down side is so much greater. If we miss on the up side, it won't be all that significant. And I would just say that I would not give a great deal of weight to what Don Kohn just said about the Ms at this point. I don't think we ought to be guided too much by one week's money supply numbers. So, I would support ""B"" asymmetric.",169
-fomc-corpus,1992,President McTeer.,5
-fomc-corpus,1992,"Mr. Chairman, all this discussion about the difference between symmetric and asymmetric makes me think I probably don't understand the difference well enough. It seems to me that the main difference between the two is a telephone call. And if I'm right in that, it would seem to me that we ought to prefer symmetric language and talk about it if developments warrant.",69
-fomc-corpus,1992,Governor Lindsey.,3
-fomc-corpus,1992,"Mr. Chairman, I support your preference for asymmetric. I think we want our words to be both precious and prescient, the words I heard earlier. And like Don, I've taken to carrying my calculator. I have M2 growth through the end of March from the fourth quarter at 2.3 percent.",63
-fomc-corpus,1992,"That's from the fourth quarter base, not from December?",11
-fomc-corpus,1992,From the fourth quarter base and also it is to the end of March.,15
-fomc-corpus,1992,It's right around 2.5 percent.,9
-fomc-corpus,1992,It's 2.5 percent? Okay. I think that we will be both precious and prescient in our words if we keep that in mind.,30
-fomc-corpus,1992,Governor Phillips.,3
-fomc-corpus,1992,"I support your proposal of ""B"" asymmetric, and I appreciate your comments on getting past this period of conflicting data. I hope that we will start to see better corporate earnings reports coming out following the first quarter so that we can see some sustainability in the equity market that is at a fairly high level. With regard to the Ms, I agree with you, President Syron. I'm not sure exactly what they mean. I know they mean something and maybe they only mean something in hindsight. So, I certainly agree that it's something we need to pay attention to but shouldn't get rattled by. But there are a number of remaining concerns, so I would support your proposal based on them, Mr. Chairman.",142
-fomc-corpus,1992,President Jordan.,3
-fomc-corpus,1992,"Over the last couple of months we have had the steepest yield curve in several decades from bills to bonds. And putting bills on a coupon equivalent basis so we can understand what it is [and say] anything with any confidence at all about the future would indicate that the yield curve tends to flatten as the expansion progresses so that most likely later this year, or a year from now, we'll get a yield curve that is flatter than it is today. And I hope very, very much that it comes from the long end. In fact, if I were still in the private sector I'd probably be willing to bet that that flattening will occur at the long end as concerns over fiscal policy tend to dissipate and people become comfortable with the idea that expansion can not only occur but may even be robust without any kind of inflation. But I am concerned about what has been happening to the yield curve in the last several weeks. The flattening has been occurring starting at the long end and kind of rolling down the curve, first with the 10-year note moving up toward the 3-year area and rolling down to the 3-year area. And David Mullins's comments about the forward rates I thought were very perceptive [unintelligible] market. So, we have had a flattening from 3 years on out and a considerable steepening from 1 year to 3 years, and at the same time a shift up in the 3- and 6-month and 1-year bill rates. I was interested in the go-around on the economy to hear about the false start last year and concerns that it might happen again. But one of the differences today is that we have a bill rate above the funds rate and it has been so for some weeks. That hasn't happened in a couple of years. If that continues with the flattening or rolling down of the yield curve toward the shorter end and we get upward pressure on short rates, especially from the bill rates pushing up relative to the funds rate, then I would like to know what the implications for Desk operations are going to be if the funds rate is held firm at the 4 percent level. I think, if we're right about the outlook, that the funds rate at 4 percent is too high as inflation expectations subside and as the long end rallies back down. But I'd be concerned about not having the leeway to allow the funds rate to be pulled up if these bill rates start to be under a lot of upward pressure in the spring months. So, for that reason I'd like to see [the language] symmetric in either direction.",525
-fomc-corpus,1992,"The consensus as I hear it is to support the last directive. So, if the Secretary would read it for us--",24
-fomc-corpus,1992,"Mr. Chairman, one further point. I'm quite sure that if our staff sat down and had to do money projections right now, they'd probably come out lower than the 3-1/2 and 1-1/2 percent [shown for] M2 and M3 with constant interest rates. At the same time, if the Committee were to write those lower, say at 3 and 1 percent, that would in effect be allowing and accepting a bit of the undershoot that is coming, and the Committee may not want to do that. That is, you might want to stick with the 3-1/2 and 1-1/2 percent, which is still slipping below the midpoint. But I thought it wise to warn you.",154
-fomc-corpus,1992,"Yes, I think that is right because the concerns that we have are [that] it will slip down; and if we say we're accepting that, then there's no meaning to having it consistent. MR. KOHN(?). That's right.",49
-fomc-corpus,1992,"If it has any meaning as a goal, we should have what you originally had in it.",19
-fomc-corpus,1992,"So, you would stick with the 3-1/2 and 1-1/2 percent?",22
-fomc-corpus,1992,That would be my inclination. Is there general agreement on that?,13
-fomc-corpus,1992,"Well, I don't think we should be in the business of changing it because the numbers that just came in were weaker, unless we want to change the targets because we don't like the number.",38
-fomc-corpus,1992,We have to be careful about these numbers because they are extraordinary numbers.,14
-fomc-corpus,1992,"[The directive would read]: ""In the implementation of policy for the immediate future, the Committee seeks to maintain the existing degree of pressure on reserve positions. In the context of the Committee's long run objectives for price stability and sustainable economic growth, and giving careful consideration to economic, financial, and monetary developments, slightly greater reserve restraint might or slightly lesser reserve restraint would be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with growth of M2 and M3 over the period from March through June at annual rates of about 3-1/2 and 1-1/2 percent, respectively.""",127
-fomc-corpus,1992,Call the roll.,4
-fomc-corpus,1992,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Hoenig Yes President Jordan Yes Governor Kelley Yes Governor LaWare Yes Governor Lindsey Yes President Melzer Yes Governor Mullins Yes Governor Phillips Yes President Syron Yes,46
-fomc-corpus,1992,"Okay.   Thank you very much, everyone. Our next meeting is on May the 19th.",21
-fomc-corpus,1992,"Good morning, everyone. Would somebody like to start us off by approving the minutes?",17
-fomc-corpus,1992,So move.,3
-fomc-corpus,1992,"Without objection. Bill McDonough, would you start off please?",14
-fomc-corpus,1992,"Good morning, Mr. Chairman, ladies, gentlemen. [Statement--see Appendix.]",17
-fomc-corpus,1992,"I think it's apparent that we're moving in the direction that the Committee very strongly urged in the last year or two. My own personal impression is that we should move in the direction in which [Bundesbank Vice President] Tietmeyer is suggesting with regard to selling U.S. holdings of marks. The second question that you raised, namely the balance of what we have in our portfolio, is really quite important to address because I get the impression--indeed, I'm sure--that no coherent mechanism was employed in accumulating these foreign balances in a manner that was in any way related to what was a rational portfolio for long-term intervention purposes. Now that we're finally getting to the point where we're slimming down toward a reasonable aggregative level, it's probably wise to put back on the table what in fact should be the long-term--both strategic and tactical--position of the Foreign Desk. And I think it might be useful to have some recommendations coming from you in that regard.",195
-fomc-corpus,1992,Certainly.,2
-fomc-corpus,1992,I open up the meeting to questions with the specific hope that each member will use the occasion to indicate whether he or she is still on board with the position that we have taken to streamline significantly the aggregative holdings that we had as of a year or two ago. Who would like to start off?,60
-fomc-corpus,1992,"I think there's an opportunity to move further in the direction that we want to go, and I concur that once we're closer to where we want to be it will be worth thinking [more precisely] about what that position should be.",46
-fomc-corpus,1992,I concur with Mr. Syron.,8
-fomc-corpus,1992,"I not only concur, but I really want to express appreciation for Bill McDonough's capturing the spirit of the Board and the FOMC position and very well representing that. It's very comforting to me to know the direction we're going, and I've had time to worry about other things!",58
-fomc-corpus,1992,Does anybody have any questions?,6
-fomc-corpus,1992,"I have no problem with the broad direction we're going, and I completely agree with the point on the structure of the balances. But I have to say on the D-mark balance itself that if I extrapolate out this next $10 billion, I do have a nagging sense of uneasiness that we might be getting to the point where there's some danger of being too thin.",76
-fomc-corpus,1992,We still have $20 billion DM.,8
-fomc-corpus,1992,"Not after the next [transaction], i.e. the further sales proposed by Tietmeyer.",20
-fomc-corpus,1992,"It would leave about $14.7 billion equivalent in DM after the next transaction, which would be about 24 billion deutschemarks.",27
-fomc-corpus,1992,Bill is using dollar equivalent figures and combined Treasury/Federal Reserve figures. That's at current exchange rates.,20
-fomc-corpus,1992,"I make this observation knowing, and I think broadly sharing, the sentiment of the Committee. There probably are only a few of us who were around in the late '70s when we had to approach the world hat in hand [to obtain needed foreign currency balances], and that was a very uncomfortable feeling. I would not like to find us in that position again.",73
-fomc-corpus,1992,"Well, I think we still have a very large block of holdings.",14
-fomc-corpus,1992,"I agree with what you're saying. I just want introduce a little element of caution, that's all.",20
-fomc-corpus,1992,Caution noted.,4
-fomc-corpus,1992,"It's worthwhile for us to give some thought as to what is the appropriate balance, where we should start and stop, and how far we should go. I know that's difficult, but as we move forward I think that's something that we should start to confront.",51
-fomc-corpus,1992,"Mr. Chairman, I agree fully. I've never had very much sympathy for intervention, but I do remember the days that Jerry has alluded to when we had to draw on the swaps to get money to support the dollar. And if we are going to continue [to intervene], which I hope we won't, our holdings could come in useful, as he says. But I have never been sympathetic toward intervention and I'm glad we're going in the direction we're going.",92
-fomc-corpus,1992,Does anybody else want to express an opinion or raise a question?,13
-fomc-corpus,1992,"I'm new to the process and didn't participate in your discussions before, but I like the direction. The desirable level, I think, is so far below $20 billion deutschemarks that I'm perfectly comfortable with getting down there.",44
-fomc-corpus,1992,"If there are no further comments, I believe the content of what I just heard indicates that Bill ought to go ahead and see whether or not he can formulate the appropriate longer-term strategy. I guess the next meeting would not be an inappropriate time to resurface this. If there are no further questions, I'll take a motion on ratifying--no, we don't have to ratify anything. Let's move on to the Domestic Desk, Peter.",88
-fomc-corpus,1992,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1992,Questions for Peter?,4
-fomc-corpus,1992,"Mr. Chairman, as you are generally aware, I wanted to bring to the Committee's attention the fact that the multiple investigations of the Salomon Brothers incident from last summer may be coming to a head in the near future. I say ""may"" because this is a very complex matter and things could change even at the eleventh hour. I don't think I can characterize the bottom line of that process except to say that a major effort is being made by all of the official agencies--the U.S. Attorney, the Justice Department, the SEC, the Treasury, and the Federal Reserve--to act in a way that puts this unhappy event behind everybody in a coordinated fashion. As I said, any number of things could change, including the most obvious --the precise timing. But the specific issues of primary dealer status and the status of Salomon's relationship to the Treasury in a context of the bidding restrictions that they put on them last year will be addressed as well. The intention is to try to address those issues in a context that is consistent with the entirety of a solution. Again, I can't characterize the likely bottom line, because I still don't quite know what the pieces of that bottom line are, but I thought it important that the Committee be broadly aware that it seems likely, but by no means certain, that this could get put to bed in the near future.",275
-fomc-corpus,1992,Any further questions for Peter or Jerry?,8
-fomc-corpus,1992,"You have to help me with my memory on this. As I recall from the last time this issue came up, if there was a felony involved in this, a suspension is automatic, isn't it?",40
-fomc-corpus,1992,"Well, first of all, Governor Lindsey, in the new guidelines there is a reference to the fact that if a firm pleads guilty or nolo contendere to a criminal charge, a sanction would follow automatically. However, in Congressional testimony we went to rather great lengths to say that that specific provision would not necessarily apply ex post to the Salomon situation. Therefore, even if a firm were not indicted for a criminal charge, we still would have the flexibility to impose a sanction even though that specific provision, which followed the event, is there. But we were quite clear in saying that we did not feel that we were necessarily bound by that in the context of the events of last August.",139
-fomc-corpus,1992,Thank you for that information.,6
-fomc-corpus,1992,"If there are no further questions, I will entertain a motion to ratify the actions of the Domestic Desk since the March meeting.",26
-fomc-corpus,1992,So move.,3
-fomc-corpus,1992,Is there a second?,5
-fomc-corpus,1992,Second.,2
-fomc-corpus,1992,Without objection.,3
-fomc-corpus,1992,"I'd like to make a recommendation on leeway for the next [intermeeting] period, Mr. Chairman.",22
-fomc-corpus,1992,"Sure, go ahead.",5
-fomc-corpus,1992,[Statement--see Appendix.],6
-fomc-corpus,1992,Is there any objection? We'll assume the vote is in the affirmative. Let's move on to the economic discussion.,22
-fomc-corpus,1992,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1992,Questions for Mr. Prell?,7
-fomc-corpus,1992,"Mike, you went through some of the risks to the forecast. It seems to me that there are some areas where the economy could turn out somewhat better. Some of the work we've done suggests that perhaps we could get greater strength in the residential sector. It's conceivable that the dollar may end up being somewhat weaker than was estimated in the forecast and then net exports would continue to be somewhat better as well. And the equipment area could be stronger. And finally, inventories--though they are not likely to get back to a traditional relationship--could perhaps not change as much as seems to be implied in the forecast. When you look at the risks, do you see a real symmetry of risks in this forecast or do you think there might be a predominance of risks on one side or the other? What strikes me now as opposed to the [forecast at the time of the] prior FOMC meeting is that, at least in terms of visibility, there seem to be some upside risks that weren't there before.",201
-fomc-corpus,1992,"Well, we've felt that the balance of risks also was more even in the last couple of forecasts than it had been through much of last year. And I think we repeatedly flagged what we perceived to be the asymmetry of the probability distribution through last year. We are reasonably comfortable with this forecast as presenting fairly balanced risks. I think each of the items that you mentioned is a plausible story. The one reservation I would have in light of the recent data is that the latest housing market data are disappointing relative to even our meager expectations. We probably had about as low a forecast for second-quarter housing starts as anyone and yet the April figures--one month admittedly--do paint a weaker picture.",138
-fomc-corpus,1992,Although rates have come down.,6
-fomc-corpus,1992,"Rates have come down and some observers sensed that people were beginning to look at home buying as they would look at car buying: They had to feel there was a bargain. You know, the government offered rebates early in the year and people rushed to buy. We had not attached a lot of importance to that at the time, but in retrospect it may have pulled forward some housing starts from later in the year, or certainly some home sales. And we're not exactly sure where we are.",97
-fomc-corpus,1992,"So, you would say the risks still are relatively balanced?",12
-fomc-corpus,1992,I think they're reasonably balanced here.,7
-fomc-corpus,1992,President Black.,3
-fomc-corpus,1992,"Mike, in reading the Greenbook, I concluded that you thought the first-quarter GNP, or rather GDP--I haven't made that transition completely--increased at a 3 percent rate. Then in reading the briefing papers last night, I thought at first you were going to say 3.3 percent but then I looked at the chart and it appeared that it might go as high as 4 percent. What is your best guess as to what that figure really might be?",97
-fomc-corpus,1992,"Let me give you the arithmetic [to the extent] that we are able to do these translations. Every number that has come in since the BEA's initial estimate has been higher than they had anticipated, at least until the revision for the March housing starts, which had only a small impact. If you cumulate those figures, you come out at this point with about a 4 percent increase in GDP. That's assuming that the merchandise trade figure comes in right on their assumption. It could be higher; it could be lower. Our feeling was that all these additional goods being sold might be tilting the risks toward some lower [trade figure]. So, that's where we are, and I think it's a fair statement at this juncture. Now, BEA will confront the same anomalies that I noted, and they will have to take that into account. They have some room to maneuver, but I think we should expect a substantial revision.",188
-fomc-corpus,1992,"That really would be something of a surprise to the private economy if it were that much, wouldn't it?",21
-fomc-corpus,1992,"Indeed. It's looking backward, but I don't think everyone has caught up with this. I see that a number of private analysts have been talking in the last week or so about growth of around 3 percent, and they will probably refine that a bit. So, it's unlikely to be a total shock, but it's coming in on the high side of expectations, well on the high side.",78
-fomc-corpus,1992,Governor Lindsey.,3
-fomc-corpus,1992,"Mike, in the forecast you have an implicit decline in long nominal rates.",15
-fomc-corpus,1992,Explicit decline!,3
-fomc-corpus,1992,"Explicit decline, excuse me! I forgot where it was in the Greenbook. Yet long rates seem to [be stuck in] a trading range; I think we all find them awfully stubborn. Suppose they stay in the same trading range. How much risk is there to the forecast if there is no decline over the next year in long rates?",70
-fomc-corpus,1992,"Well, I'm not sure how one would define the ""recent"" trading range. If you look at the period since early February until recently, I think we're pressing against the lower limits [of that range] this morning, and we could conceivably break below that. Looking at the broader time frame going back, with bond yields having gotten down to about 7-3/8 percent, that's about the dimension of the decline that we're anticipating in our forecast by early next year. I think the answer to your question depends on what circumstances bring about this failure [of long rates to decline]. If it is a buoyant economy and strong demands for capital, then obviously it's not a problem. If it is higher inflation expectations, we get into some more complex issues about how that might affect the affordability of housing and so on; but if it's inflation expectations and not real rates, again it may not be a compelling negative. If it's risk premia brought on by political uncertainties--and this may be a year of tremendous political uncertainty--or just the wrong expectations, as we've had on some occasions, that could be a negative. So it's really hard to say ex ante.",235
-fomc-corpus,1992,May I follow up on that question?,8
-fomc-corpus,1992,"Sure, go ahead.",5
-fomc-corpus,1992,"In the Greenbook, Part 2, on page III-3 you list the indirect effects of Larry's question. You say ""velocity rose further despite declines in opportunity costs. Recent weakness in M2 occurred in the face of still small opportunity costs."" You refer to a chart and so on. But then I flip over to page III-5 in the paragraph at the top of the page where it says ""the lack of aggressive pricing for these deposits evidently has encouraged investors to move from retail CDs into stock and bond mutual funds in order to take advantage of higher anticipated returns."" That says, at least for some components of M2, that the real opportunity cost is not the short-term yield change in the chart on the prior page but rather these longer-term yields and that those components of M2 are more like investments instruments than they are like money instruments. So, that paragraph says that you've got the wrong opportunity cost, at least for those components of money.",193
-fomc-corpus,1992,"Well, I think that's right. There are several Reserve Banks, including your own in particular, that have used other opportunity costs that took into account the intermediate- and longer-term time deposit rates. And that does a little better. Although it doesn't pick up all the unexplained shortfall in money, it does help to explain it to some extent. Now, it has always been the case that the division between money and investment assets--particularly for money after deregulation and after Reg Q was taken off NOW accounts--is very hard to see. It's hard to draw a bright line between something you would call money and something you would call investment assets. Other checkable deposits, NOW accounts, have elements of investment assets; people hold them because of rate expectations. So, that has always been a somewhat fuzzy picture. I agree that our measurement of opportunity costs probably could be improved. I think one issue here is what that is telling us when banks aren't competing for these intermediate- and longer-term CDs. It's telling us in part that they don't see loan demand; they don't intend to make a lot of loans out in the future. Then we have to go back and ask whether that means something: whether it is just a relatively benign redirection of credit flows or whether it is saying something about the intermediation process that could feed back on aggregate demand. So, I agree with your point on opportunity costs; but once you cut below that point, it still leaves a lot of ambiguity about the meaning of the slowdown in money.",306
-fomc-corpus,1992,"But the reason for asking comes back to what Mike was saying [about whether] what the Greenbook says this month is right. The Greenbook says long bond yields have come down because of lower inflation; Mike termed that very appropriately [unintelligible] very hopeful outlook for 1993. I'd like to believe it. But the question was: What are the risks to the forecast? Can you connect up what is going on with these components of money and [say that] part of this optimistic outlook on inflation reflects the economy or is there something a little stronger than that to tie it to? Part of it, I assume, is also because of slow growth of M2. Given this reason for slow growth of M2, how comfortable can you be with that?",156
-fomc-corpus,1992,"Well, let me just say that I think we noted in the last Greenbook, not this one, that we didn't find the narrower monetary aggregates nor the enhanced narrow monetary aggregate that you're implicitly describing as providing strong evidence on the outlook. Historically, we haven't found that these provide all that much better guidance than M2 as it is, with all of what I view as flaws in the logic of its construction. But I'd also argue that in telling the story about how money affects inflation, there's a short-run transmission mechanism which I think would run through the pressures of aggregate demand on aggregate supply. Thus, I think our assessment of the pressures in resource markets is very relevant to the short-run outlook for inflation through 1993. So, I can segment these questions to some extent.",156
-fomc-corpus,1992,With symmetric risks?,4
-fomc-corpus,1992,"Well, I guess I'm skeptical about the meaning of the monetary aggregates right now. I'm not inclined to assign a large asymmetry to the risk just because the monetary aggregates have been running low. Clearly, that's a judgment call. Others have differed, and perhaps wisely, in looking at the progress of this recovery. But one also needs to interpret why the aggregates are behaving the way they are and whether it is demand shifts or changes in the structure of intermediation and so on that may be neutral in terms of their implications for the cost and availability of credit to support it.",115
-fomc-corpus,1992,President Syron.,4
-fomc-corpus,1992,"Mike, I have two questions, which are somewhat technical in.nature, dealing with historical [precedent] in data series. One is that just in talking to people and getting anecdotal information on the housing market, [that information] is consistent unfortunately with the pattern of data that was announced this morning. What I was wondering is whether there is any evidence of increased sensitivity to mortgage rate changes in housing and how that fits in. I remember in one of your earlier nonfinancial reports that you talked about almost a change in the relationship between prices and purchases. That is, as prices stopped declining in some markets, there was a hypothesis at least that people were more willing to buy because they were less concerned about the [potential] loss, which was a different sign on price than we thought. I have a second question, but I wanted to get to that one first to ask how this fits in with our historical experience and whether there has been a change in habits.",194
-fomc-corpus,1992,"Well, as a general matter, we would perceive the interest sensitivity of the housing sector as being reduced from what it once was, in part because of reduced market segmentation--the elimination of the non-price rationing effects that occurred a couple of decades ago when rates moved above Reg Q ceilings and we got disintermediation. The introduction of ARMs might work in the same direction, but how important that is isn't clear. There's a question on mortgage rates. Some people have been able through considerable effort to tease out of econometric equations some suggestion that people will wait until the rates have come down and they don't think rates are going to go down any further before they will move. But that is a very short-run phenomenon and it doesn't seem to be a very important result over significant spans of time. On the price side, it depends on which model you think is most relevant. There's an affordability model, which clearly does have some importance. That looks at mortgage rates and prices and at that combination relative to income; and that says that we have had a considerable improvement in affordability over the past couple of years. On the other side, if you look at an investment model, a user-cost model, it says that it's cheaper to own a home when you're getting capital gains. So expected price movements would be important in that model. Basically we've taken a middle-ground view saying affordability is better and the fear that people will be losing their shirts in owning a home is probably abating because house prices generally have firmed some over the past year. It's a hard call to make as to which of these things is most important. I think what we've seen recently, as I was suggesting, is that people are very sensitive to a number of aspects of this. They jumped when they saw those mortgage rates get down to low levels and when there was the first-time home buyer credit [proposal]. They seemed to have pulled back very sharply when rates backed up and the credit [proposal] evaporated. An environment in which people are still rather uncertain about their employment and income prospects is a fragile situation. And, going back to President Parry's comment, if we can begin to get, without generating strength solely out of the housing sector, some reasonable growth going here and some confidence in employment prospects, then people may move in response to this vastly improved affordability, and we could get a significantly stronger housing expansion than we have forecast. We're certainly operating at low levels even given the prevailing demographic trends.",496
-fomc-corpus,1992,"For what it's worth, I think your analysis is probably correct and that we don't necessarily get symmetric behavior. But after we have a period of declining prices, the relative weight on the investment side becomes somewhat more important. The second question I'm trying to figure out is whether to take much encouragement in the household data. I've always been inclined to look more at the payroll data but I'm just wondering whether we do have an historical precedent to some extent or if there has been a shift there because of all of the restructuring that's going on. Again, one hears these anecdotal stories of many new smaller firms starting, etc. I just wanted to ask you if you could explore that a bit more because we are seeing quite a diversion in patterns [between the two series]. I'm grasping for encouragement here if you can provide it.",163
-fomc-corpus,1992,"Well, it's not bad news. The question is how much good news there is in these numbers. We've looked at the history and a lot of other analysts have too. Some have declared that there is some lead, particularly in the early phases of an upturn, in the household employment series relative to the payroll series. Others have said that's just not a very robust relationship. We find hints, but [the relationship] doesn't seem to be highly reliable. The fact is that in the payroll series the Bureau of Labor statistics make an allowance for new business formations as well as the closing down of businesses. And it is a little murky how they do this. It is conceivable that they're underestimating the rate of new business formations if the economy is picking up and that that is biasing the change downward. But as I suggested, looking at corollary evidence entirely separate from these things--such as initial claims and the responses in the Conference Board surveys about job availability--all these other things don't suggest that employment is growing at 300,000 plus a month. [Actual growth] may be somewhere in between but I'm more inclined to think it may be closer to the payroll trend at this point than to the household trend.",246
-fomc-corpus,1992,Governor Angell.,4
-fomc-corpus,1992,"Mike, looking back at the chart on page III-3 on M2 velocity: Last fall some around here were quite concerned that M2 growth was quite a good indicator of where [the economy was] and yet these first-quarter numbers I presume [raise] nominal [GNP growth] for the first quarter up to somewhere between 6 and 7 percent. That makes V-2, with a one-quarter lag, shoot up to 4 percent. Doesn't that really cast a lot of doubt on all that concern about slow M2 growth?",110
-fomc-corpus,1992,"Well, as you know, I've not been an enthusiast of that view and have worried that that was more a coincidence. Typically, we have thought of there being a lag between changes in money growth and changes in GDP. So, the close timing last year I think was not necessarily in line with what we normally consider the relationship to be. Whether a one-quarter lag in velocity gets at this or not is another question. I think we're looking at a period of slow growth of money that stretches back a few years now. And in a sense we haven't gotten some of the payoff [in] disinflation that some might have anticipated. If [the economy is] growing at the rate it appears to be, that doesn't quite seem to fit. But I don't want to state the case excessively strongly either. There may have been a message--and it may show up in the second quarter or the third quarter--from that weakening money stock growth last year.",191
-fomc-corpus,1992,"Governor Angell, I had some work done, drawing it with the two-quarter lag that people like to use and assuming that the Greenbook is close to right for GDP. That also shows some pretty sizable increases in velocity in the first half of the year, unlike last year when velocity was a bit flatter. So, after a while, as I'm about to say in my briefing, I think there is some reason to believe that the weakness in M2 we see this year is not sending us the same kind of signal, whether it's coincidence or not, that it seemed to be sending last year. But there is a question of confidence here. The weakness is extreme and even if the signal-to-noise ratio is very, very low--",148
-fomc-corpus,1992,I calculated the two-quarter lag also and had the same conclusions. Thank you.,16
-fomc-corpus,1992,"There's another way to come at this, which yields much the same results, in the sense that we've got this long-term trend, the P*, tracking the general price level. The existing pattern of P* at this stage is at virtually zero if not a negative price level. If one is going to presume on the basis of the data that we are seeing a resistance to coming down under the 3 percent level or even that it is somewhat off the zero base, then the question essentially is whether we are incorrectly measuring [M2] in the same context. Namely, if M2 is artificially deflated and [that] created this particular zero [or slight] decline, we have the wrong M2; we have the wrong proxy for money. If we had the right proxy for money, it would be growing much faster than the numbers we are looking at; it would be much closer to the opportunity cost even in the context that Jerry Jordan is raising the issue. It would also mean that P* is back on track with exactly where the equation numbers are. So, it seems as though the financial system in a general way is more in line with the real economic system, with the outlier essentially being M2. If we alter M2 everything else falls into place. It's a disturbing consideration, but it sort of leads to the conclusion that all of our theoretical judgments with respect to the effect of the RTC on M2 have not been exactly correct and that there is a significant element of technical erosion in the data as a consequence of the liquidation of the small CDs and the thrifts. There has been a fairly significant reduction in the thrift area without a spillover--as we all would have expected with the eliminations of the thrifts--from the thrifts into the commercial banks and other depository institutions. Governor LaWare.",369
-fomc-corpus,1992,"Mike, I'm puzzled by the corporate profits projection in the Greenbook. It looks like fairly steady improvement during 1992 and then it goes rather blah in 1993 with a fair amount of swing back and forth from one quarter to another. What is the rationale behind that projection?",57
-fomc-corpus,1992,"Well, without being too precise in this, we've seen some evidence in the first quarter of a very big jump in profits. A sizable move at this point wouldn't be surprising in terms of the historical relations, which suggest an acceleration in output growth that produces an acceleration in profits. As things level out, as productivity increases begin to move back toward trend, we get a little additional pressure on the profit margins even though the rate of compensation increases is diminishing. And thus we get this leveling out of the profit share and in the pattern we see for total corporate profits. It may be that profits should be trending up a bit more. That certainly would be more consistent with the view that I think prevails among private analysts, which has consumer price inflation stabilizing or increasing in 1993. Those people tend to see continuing upward movement in corporate profits.",169
-fomc-corpus,1992,The stock market would seem to indicate that that's the view on the whole.,15
-fomc-corpus,1992,"I think it's very difficult to read what the stock market is building in here. But looking at this year's profit forecasts, recognizing that the PE ratios are distorted by extraordinary factors in 1991 that may be unwinding in 1993, we can see a movement of PEs at current stock price levels back into the high teens, still at a high level historically. But later on this year things will not look as out of line as they do now. And if interest rates are stable or coming down, this all hangs together fairly plausibly. It's on the high side of history but plausible. I sense the market probably is taking a view that with expansion come firmer prices and that profits will be a bit better in 1993 than we forecast.",152
-fomc-corpus,1992,Thank you.,3
-fomc-corpus,1992,"Mike, just to follow up on your comment on inventories: You say that in the revised first-quarter numbers inventories are playing a more important role but that should not have an adverse effect going forward. That is what I think I heard you saying. Can you go through that again as to why we would not have some repercussions from that?",67
-fomc-corpus,1992,"Well, the repercussion is that had we ended up with the level of sales we are running at with lower inventories as per the initial estimate, that would have been a bullish factor for the economic outlook. As it is, though, we don't see that there is a gross inventory imbalance coming out of the first quarter except for the wholesalers. And in fact in the nondurable wholesale area there are not very many signs of inventory/sales ratios being high. Our expectation is, though, that inventories are going to be managed very cautiously and that quite possibly wholesale inventories will run off some. Manufacturers show no inclination to see their inventories rise. We expect to see some runoff of inventories for a little while longer but at a lower rate than even the reduced pace that we think the first quarter produced. So that means that inventory investment makes a small positive contribution in the second quarter in our forecast and a considerably greater contribution in the second half of the year as we see a swing to a mild rate of accumulation as sales trends continue positive.",205
-fomc-corpus,1992,"Any further questions? If not, let's move on to the Committee discussion. Let me make a request to those of you who have any insights into the commercial real estate area to put them on the table. Very specifically, I think it would be useful to know if there are any indications of a pickup in commercial real estate transactions, [because] what we have been looking at is a decline in offerings and appraisals. And until we see the bids coming in, we will be getting no indication of any stability. Obviously, as the bids begin to move in, that will engender transactions and it may be a far clearer signal that we're getting closer to the bottom of [the decline in that sector] than any rather dubious price index for commercial real estate. So, for those of you who have any sense of this, it would be useful for the Committee to get a better view of an area that has been crucial to us and for which our data sources have been less than correct. Who would like to start off? Jerry.",208
-fomc-corpus,1992,"To comment exactly on that point, the commercial bank I was with conducted eight auctions before I left. They were all in the Southwest and on the West Coast. But the process was: Once we did the first auction and generated the interest that there is a market out there, each one went better than expected and better than the prior one because it was clear that there was a core market left; [we started] in Texas and then we went over to Arizona, Nevada, Utah, and Colorado. It appeared to us that there were a lot of people who had been waiting for the bottom, figuring that this was going to be the buy of the century in commercial real estate, in particular. Some of it was raw land but most of it was in structures. As they saw each successive auction going better, with greater interest than the prior one, they became concerned that they had missed the low point and it tended to feed on itself with great success.",191
-fomc-corpus,1992,"What is the time frame you're talking about, Jerry?",11
-fomc-corpus,1992,"The first one was about 18 months ago, and then about 4 months elapsed before we tried the second one. And from that point it picked up in pace.",34
-fomc-corpus,1992,"Jerry, would you like to comment on your general view on the District while you have the floor?",20
-fomc-corpus,1992,"Well, just over the last 10 weeks the sense around the Fourth District is that things are definitely improving. The comments from all parts of the District have been of a uniformly upbeat nature. The negative tones come in on the lack of robustness--not on the direction but the vigor--and still with expressions of concern about the durability or sustainability of the expansion. There are frequent references by full-time directors and members of our small business advisory and small banker advisory councils to having been disappointed last year when they thought the recovery was under way, and they are concerned now that we could have another false start. Most of the durable goods manufacturers, especially the capital goods firms that have the ability to export, are experiencing very strong order books. Some are exporting to Canada and some to Europe with some surprise at the strength, especially in Germany, in their capital goods [orders]. A number are expressing pleasure at having recaptured domestic markets, especially those in the auto sector who now are able to start selling to Japanese transplant companies and finding success against foreign competition in that area.",212
-fomc-corpus,1992,President Black.,3
-fomc-corpus,1992,"Mr. Chairman, the staff forecast has changed really just a little since the last time. We thought it was a good forecast then, and it still seems to be a reasonable forecast to us. Certainly, most of the anecdotal and other information that we are getting in the Fifth District and also in the country as a whole is consistent with this relatively moderate rate of recovery that the staff is projecting. On the point regarding commercial real estate transactions, our Vice Chairman is a big real estate operator. He does a large volume of business and also is a solvent real estate developer, which makes him an unusual breed. He has been reporting for about two months now that commercial real estate is beginning to move. Nothing new is being built, but it is beginning to move; the prices had dropped to the point that they looked attractive. He also always adds ""and there's plenty of financing out there for it."" This was not true a while back, but that's the way he has seen it for some two months. And I think that's a pretty [reliable] reading because his firm operates in a lot of cities throughout the country. It's certainly true that both manufacturing activity and retail sales did appear to have decelerated a bit since we had the gains earlier in the year. Nevertheless, most of our contacts believe that the recovery is here to stay this time. That view was universal at our last board meeting, for example. And for the most part they expect their own businesses and industries to grow at a solid, if something less than spectacular, rate over the months ahead. These contacts cite a wide variety of leading indicators; they all seem to have their favorites, and those range from increasing trucking activity to reduced loan delinquencies to rising telephone hookups, and on and on. Even though I think the staff forecast is reasonable, it's certainly true that reasonable forecasts don't always come true. So we have to ask, as we always should, where the risk lies. And I think the risk of errors may be on the down side. I'm bothered by this sharp deceleration in the rate of growth in M2, although I think your explanation comes very close to explaining why it has misbehaved, and I'm very sympathetic to that. The apparent continued sluggishness in May is obviously a further risk on the down side, and it's a risk I worry about a great deal. Still, I believe we can be fairly certain that the weakness that we had results from these special factors such as the lower non-withheld personal income tax payments and the movement into other kinds of assets, this substitution for M2-type balances. My 85 year old mother-in-law, for example, is now out in the longer end of the market and that is something I never thought would take place! And I think we'll be better able to gauge--",565
-fomc-corpus,1992,She's holding until maturity?,5
-fomc-corpus,1992,"Well, if we get the lower interest rates that the staff has projected she might take capital gains on that! Anyway, I think to be better able to read the significance of M2 we have to get a little further past April and the tax date. Now, on the other side, I think it's worth noting that the main differences between the staff forecast and most other forecasts is that the staff expects inflation to decline further this year and then hold steady next year. Many of the other forecasters think inflation is going to bottom out this year and is going to be higher in the next few years. The staff is also projecting, as I just mentioned, lower long-term interest rates over the period ahead and it seems as if most other forecasters expect interest rates to continue on an uptrend. I see the Greenbook projection as more desirable, and it is certainly plausible. But I believe the chances of achieving this are going to depend pretty highly on whether or not we make the right policy calls in the critical months ahead. In particular, I think we have to convince the markets and the public that we are still determined to reduce inflation further even as we try to foster this budding recovery we apparently have under way. The credibility of our long-term strategy is at a very crucial point right now and it's really on the line. So, I think we need to do all we can to reinforce this commitment that I think all of us in this room share to working inflation down over the longer run.",299
-fomc-corpus,1992,President Parry.,4
-fomc-corpus,1992,"Thank you, Mr. Chairman. The Twelfth District economy is experiencing varied signals, with weakness in California offset by modest growth in other District states. In California, there is some improvement in the north, with continued problems in the southern part of the state. I guess that latter comment is something of an understatement. The five-county Los Angeles area accounts for 50 percent of state employment and it also accounts for 80 percent of the 550,000 jobs in the state that were lost between May 1990 and March 1992. So, it's clear that not only is there weakness in the state but it is highly concentrated in the southern part of the state. The riots in Los Angeles are estimated to have cost $1 billion in total property damage and to have resulted in additional job losses of around 25,000. Now, I have seen estimates as high as 40,000, and that may be referring to a peak that endured for just the number of days immediately following the riots. But the number that we're going with is 25,000; and expectations are that in a number of weeks that could fall below 10,000 as some buildings are repaired and some stores are restocked, because some stores were just looted and not seriously damaged. There is also obviously further concern about the effects of the riots on tourism and firm location decisions. And while I'm still talking about Los Angeles, I don't think I can give you any of those glimmers of hope with regard to commercial real estate. Last year 9 million square feet of office space was added in the Los Angeles area. It caused vacancy rates to shoot up quite a bit; it depressed lease rates and property values; and projects under way indicate that the problem is going to get somewhat worse before it gets better. So, I have not been able to pick up any improvements, at least in the Los Angeles area. I would agree with what Jerry Jordan says in terms of some other areas in the District. We even picked up a few optimistic comments coming from some people in the state of Washington where there also was a fairly serious condition of over-building as well. For the state [of California] as a whole, indicators of economic activity are mixed. Existing home sales reports indicate a modest rebound; payroll employment rose in April; and it appears as though agricultural conditions are improving. However, manufacturing employment continues to contract. And while construction employment has risen for two consecutive months, nonresidential construction awards and residential permits are below their year-earlier levels. There is a very big issue that you may begin to read a bit more about in the month ahead. Reflecting recent economic weakness, the state faces a severe shortfall of $10 to $12 billion through the end of the next fiscal year. Not surprisingly, revenues have fallen substantially below projections. The law in California requires that they enter the new fiscal year with tax and spending plans to produce a balanced budget. And this is before July 1st. There obviously are some things that they can do that are of a rather tricky nature, but in large part they have to find $10 to $12 billion of reduced spending or higher taxes. And that's not exactly the Keynesian approach to dealing with California's problems. Outside of California, District states have performed relatively well over the recession, and they continue to show modest growth. Construction activity is rising in several District states as are home sales. Cutbacks continue to be reported, unfortunately, in aerospace, with job losses of 6,500 projected for Boeing this year. I should point out that Boeing employs over 100,000 in the Seattle area. In addition, Boeing continues to have a large backlog of orders and actually has a very strong long-run forecast with growing demand from the Pacific and Asian region. Contacts that we have in nondefense manufacturing report a modest rebound, with lumber and wood products manufacturing currently bottoming out, and that was a considerable source of weakness in the past year. If I may turn briefly to the national scene, incoming data since our last meeting seem to add to confidence that a moderate recovery is under way. Indeed, as I [noted] in my discussion with Mike, it's not difficult to come up with an outlook that is a bit stronger than is indicated in the Greenbook. For example, our analysis points to somewhat greater strength in inventory investment, residential construction, and net exports. And we end up with a growth rate over the next year and a half of a little over 3 percent compared to the Greenbook expectation of 2-3/4 percent. I agree with the Greenbook that inflation is on a very slow downward trend, but I fear that such slow progress will make others question the resolve of the Fed to deal with inflation longer term. It seems to me that we might be at a point soon where we'll have to be more forthcoming about our inflation objectives. And probably we can't do that until 1993. Thank you, Mr. Chairman.",1006
-fomc-corpus,1992,President Forrestal.,4
-fomc-corpus,1992,"Mr. Chairman, in the Sixth District, conditions clearly have continued to improve. The business people I have spoken to over the last several weeks are much more upbeat than they were and they have more confidence that the recovery is going to be sustainable. I hear much less talk about a stalling of the economy or a double or triple dip, whatever you want to call it. There also, I think, is a recognition among business people recently that the recovery is going to be modest. They are no longer looking for that historical type of recovery that we've had. We've had gains in a number of areas in the District--retail sales among them, especially in apparel. And that's in spite of the fact that we had a late Easter and some bad weather. Auto sales have also been relatively good, as have other durables, particularly those related to housing. Home sales have been fairly decent also and that has reduced [housing] inventories and led to greater growth in housing permits. Capital spending is projected to be fairly modest, but manufacturers are reporting that orders and shipments are turning up. A couple of other areas that are important to us are tourism and [convention] business, and we see gains in both of those areas. On the commercial construction question that you asked, anecdotally I've been hearing from people that commercial construction perhaps is at the low point. I can say that commercial space is much less of a drag than it has been. We've had some absorption of space and that is beginning to stabilize lease prices. And that's pretty much [the case] around the District's major cities. On the price side, prices for finished goods are holding relatively steady, and in other industries we see stable input prices and no pressure on wages. The two geographical areas that are dragging a little are Florida and Louisiana. Florida is suffering from reductions in defense spending particularly, as well as the lower interest rates that are affecting the high number of retirees. I guess there are a lot of mothers-in-law in Florida!",403
-fomc-corpus,1992,Tell them to go long!,6
-fomc-corpus,1992,"Louisiana continues to suffer as a result of the energy situation. So, with respect to the District, Mr. Chairman, things are looking relatively good and more sustainable, as I said, than they had been. With respect to the national picture, the Greenbook forecast is quite a reasonable one and, in fact, I would be very happy if we could achieve it, especially on the inflation side. Our forecast is about the same as the Greenbook in terms of GDP but we see somewhat lower unemployment and higher inflation. I think the difference is basically that productivity gains [are lower] and labor costs are higher in our forecast than in the Greenbook. I do think the expansion is likely to endure. The efforts we see on the part of people to get their balance sheets in order lay the foundation for a more sustainable expansion but, of course, we haven't seen the full effects of that, and I guess that leads to some questions about the risks to the forecast. I was prepared to mention that but Mike did a very good job of detailing those risks in the forecast, so I won't go over that again. I would say with respect to the slow growth of M2 that a lot of this, if not all of it, we hear is principally the run-off of small time deposits. Banks are not bidding very aggressively for funds in this current environment and that suggests the process of financial disintermediation is still constraining. Putting all of this together, it seems to me that the risks in the forecast are more evenly balanced than they were. They are more symmetrical, and that suggests to me that we don't need a change in policy at the moment. I continue to be concerned about the outlook for inflation. Maybe participants in the market are wrong, but it seems to me that the yield curve is telling us something about future prices that we need to take into account. The price numbers themselves are somewhat disappointing and we don't know at this point whether we are looking at a temporary blip or whether we are on a trajectory toward a higher level of prices. So, I think as we approach the policy discussion we should move very, very cautiously. Thank you.",435
-fomc-corpus,1992,"With regard to the District, the modest but steady progress that has been in place for quite some time continues, and I won't go into details except that there are a few concerns around. One is in agriculture where, of course, this time of year moisture is always the major uncertainty, and that is the issue in some parts of the District. Beyond that, there is some concern in the timber industry where environmental issues are limiting activity, and we've seen some marginal mining operations go out of business. But otherwise the District economy is in pretty good shape, I think. Attitudes are also in pretty good shape. With regard to the national economy, my views do not differ from most that have been expressed so far. As Mike Prell indicated, if anything, we've done at least as well or better really than we thought we would over the last couple of quarters. That [improvement] does seem in my judgment to be continuing; I'm referring to the real side, and I don't see any reason at this juncture for renewed or additional concern in terms of real activity. The disappointment, to the extent there has been some, has been on the inflation side, at least as measured by consumer prices or the employment cost index. In talking to business people in the District, for the most part they continue to describe a very competitive environment and they don't give any impression that it's easy to raise prices or pass along cost increases or whatever. But it's a little hard to know in light of all the data whether they simply mean by all this that they can live with 3 or 4 percent inflation and thus that's what they mean by a very competitive environment. It's just hard to know what they have in mind as they describe that situation. With regard to commercial real estate, the situation is quite mixed as best I can judge it. I have heard of some renewed activity in the construction of warehouse and manufacturing space; it's not a lot, but there do seem to be some signs of life there. With regard to office space, one of our directors, with whom you're familiar, has been ""bottom fishing"" in terms of buying office space in various parts of the country for a couple of years now. He also has bought some raw land in some locations. I think he feels quite positive and comfortable about this. On the other hand, I do come across investors and developers who tell me it's still difficult to find financing. They're not talking about financing just for new projects but to refinance or to purchase existing buildings; although when I express a counter view and basically describe what one of our directors has done, a number of people will admit that they've been doing that too. It leads me to believe that perhaps there is a little more activity around than we might appreciate, but perhaps it's a little subterranean. Olympia and York has not been a topic of conversation in the Ninth District, but we have our own interesting situation: The so-called Mall of America, a mega mall, is nearing completion. The first part of it is supposed to open in August and now that it's too late there is growing concern about how successful it is going to be. So, we'll just await developments.",635
-fomc-corpus,1992,President Keehn.,4
-fomc-corpus,1992,"Thank you, Mr. Chairman. In terms of the national economy, our forecast for growth this year is very consistent with the staff forecast. We get there in slightly different ways. Our consumption numbers are a bit lower. I think the differences in durables probably relate to the fact that our housing numbers are a little lower than those in the staff forecast but, offsetting that, our export numbers are a bit stronger. There is a difference, though, in the outlook for inflation. Our numbers are more constructive than the staff forecast. We expect in terms of the CPI that we would be getting down to the 3 percent area by the end of this year and then perhaps see continued improvement next year. With regard to the District, there seems to be slow but steady improvement in the major segments of our economy. But I must say the magnitude of the improvement between this meeting and the last meeting is not quite as great as was the case at the time of the last meeting. In that prior period there had been pretty good improvement. In fact, in some cases there are signs of moderation appearing. As an example of this, our housing activity is down a bit but from very high levels. Seasonal factors had a big effect on January and February housing activity. Also, that was a period in which mortgage rates had come down quite substantially and that gave housing in the Midwest a push; but we're now seeing some softness in housing. Retail activity also has slowed a bit; it is still positive compared to last year but the momentum has slowed, again from a very rapid pace in both January and February. On the other hand, the manufacturing sector continues to show slow but steady improvement. Second-quarter production in the auto industry is continuing to run well ahead of last year, but of course the second quarter last year was comparatively weak. Third-quarter schedules have been set a little higher than the third quarter of last year, but the magnitude is not as great as the pace of the second quarter. Current dealer attitudes are good, I'm told. Their order rate from manufacturers is very much in line with the production schedules. But I will say the dealer order rate is a bit ahead of the retail sales level. Still, the inventories out there don't seem to be out of line, particularly for this time of the year. I must say that in this overall category I have heard from just everybody that the demand for light trucks is very, very strong. The industry sales forecasts are a little stronger than ours. They are expecting a very good third quarter and an even better fourth quarter. So, there is more to come on that. The heavy truck business continues to be better than last year. The current order rate is running about 10 percent ahead of last year, but of course that's an increase from a very low level. And heavy truck manufacturers are operating at about 70 percent of capacity. They are forecasting an improved sales level this year of only about 119,000 units and that's versus a good year of, say, 165,000 to 175,000 units. The steel business also is doing a little better; orders, particularly for sheet, are coming in at good levels. That I think is reflective of the auto production schedules and also a bit of strength on the appliance side. The steel industry is operating at about 83 percent of capacity. They're going to ship 40 million tons in the first half and are forecasting 42 million tons for the second half, so it ought to be a good year in terms of the [tonnage] being shipped. But the pricing is just terrible. I find this somewhat of a contradiction: They're shipping a lot of metal but they're just not making any money. With regard to the real estate question that you asked about, the firm I talked with feels that we may be getting to the point of stability but we still aren't there yet. They are seeing some increased interest on the part of funds to buy real estate. There's a greater level of interest but not a significant volume [of sales] is taking place. They think we're going to have a continuation of price declines this year, perhaps as much as 10 percent for the year as a whole. That's lower than in previous years, which again is indicative that we're getting to a point of stability. The vacancy rates in Chicago are going to go up. We have two or three big projects that are still finishing up, so our already fairly high vacancy rates are going to go up. This firm does not anticipate a return to normal vacancy levels until 1995 or 1996. In the agricultural sector, we've had a very unusual planting season. It has been cold and wet in most of our area. But in one week, the week of May 10th, some 50 percent of the corn acreage was planted, which was pretty phenomenal. However, given the carryover stocks, which were fairly low, and the significant uncertainty with regard to weather, our expectation is that it's going to be a year in which prices are going to be very, very weather-related, but at least we're off to a pretty good start. I might say that the ag equipment business is sour. Contrary to earlier expectations, retail sales of major agricultural implements have slowed significantly. It's down about 13 percent currently from last year. As a consequence the production schedules, which had been set at a pretty conservative level, now are being reduced. With regard to inflation, I do think that the outlook is increasingly constructive. Price increases are just not sticking. In the manufacturing sector, I continue to be impressed by the major manufacturers who are continuing to get decreases in their prices for purchased products or, if there are increases, they are pretty modest. The same also is true in the retail sector. People who supply the major retail stores know that they just can't get price increases through. The consumers in turn are very tough. So, I must say general attitudes in the District are that rising prices are just not a major danger. Labor contracts continue to be negotiated under favorable terms. Three-year contracts are the norm. The occasional six-year contract in the paper industry and the wage increases under these contracts are easily managed through productivity improvements. After months of bitterness that I have commented on from time-to-time here, the Caterpillar strike just went ""poof."" When the company threatened and then began to bring in replacement workers, the union attitude just collapsed. They have not, of course, settled the contract yet, but they're back at work. This won't necessarily set a pattern for the UAW negotiations with the auto companies this fall, but certainly it's going to have an effect on the tone as they go into those discussions. Net, while I think the economy is continuing to show signs of slow but steady improvement, without more strength in some of the major segments the question [of sustainability] has to be a significant one. Therefore, as we see it, the risks in terms of growth continue to be on the down side. And with the improved outlook with regard to inflation, it seems to us that our policy response should be geared to dealing with signs of deterioration in growth should they begin to emerge. Thank you.",1440
-fomc-corpus,1992,President Boehne.,5
-fomc-corpus,1992,"I'd say the District is mixed. Manufacturing has been up for several months running but there is some slowing in the pace of advance. In retailing, there just isn't much of a trend either up or down; it seems to be fairly stuck. Residential [construction] is growing but not robustly. As to your commercial real estate question, I have the sense that the District is either at or approaching the bottom of the hole but that there is not much sign of a pickup. The general [view] is that this is a three-to-five year problem to work our way out of before we get vacancy rates at the point that they will stimulate much construction. The bankers, I think, feel that the worst surprises are on the table; but the most optimistic feeling is that we may be at about the bottom. The bankers see some evidence of a pickup in loan demand, although not much in the hard numbers; it's more at the inquiry stage. Attitudes, in contrast to this mixed view of the real sector, are more upbeat than the hard numbers would support underneath. There just is a sense that things are going to move, and that's an improvement over a couple of months ago. But I suspect that this sentiment is not firmly based and that one or two months of poor sales or shrinking orders would change the attitudes. Nonetheless, I think the attitudes are better. For the national economy, I think we do have a moderate recovery; if anything, it's faster than expected. And it's hard not to feel better about the sustainability issue and feel that we have a sustainable recovery. The money supply issue strikes me as one of those things we can argue about day-in and day-out. We have some good reasons not to worry about it, but it is a shadow that hangs over us. I think the only way to settle it is not to worry about it as long as it's an outlier and the economy picks up. But if we start to see some weakening in the real sector, then it's going to mean something. It's almost an agnostic approach in terms of how we should deal with it. On the inflation side, my sense is, much as Si just expressed, that it's awfully hard to see upward pressures in prices. The other side of that is that, particularly in large cities, the unemployment problem looks as if it's just stuck. There is an attitude both from the business side as well as those people seeking jobs that there just isn't going to be much improvement. How all that will play its way out through the warm summer months in these cities is something that one has to be uneasy about.",523
-fomc-corpus,1992,President McTeer.,5
-fomc-corpus,1992,"Relatively speaking, the Eleventh District economy remains one of the stronger District economies, at least in terms of employment. From the bottom of the recession in April of 1991, employment has grown about 1-1/2 percent in our District. Within the District the weakest, and the declining, sector is energy and the main source of strength is exports, especially exports to Mexico, which account for a third of Texas exports to foreign countries. Between 1990 and 1991, Texas exports to Mexico were up 16-1/2 percent; and exports to Canada, which is our second largest internationaltrading partner, were up almost 8 percent. The number of businesses requesting information on assistance with exporting from the international marketing division of the Texas Department of Commerce was as great through April as they had expected for the entire year. So, there's a lot of activity gearing up for the prospective North American Free Trade Agreement, which is very important to our part of the country. And given the present economic environment and political climate, freer trade--even though we would all agree that it's desirable--is becoming a harder sell politically. That's not so much true in our area because our business people expect to benefit disproportionately from NAFTA, but I hope that all of you throughout the country will give it a plug in your speeches and in your publications and your economic education efforts. I think it's very important to the near-term and long-term health of the economy. Prospects are pretty good for continued growth in our District based on the confidence that we hear increasingly expressed in the business community and based on our leading indicator indexes.",327
-fomc-corpus,1992,President Hoenig.,4
-fomc-corpus,1992,"Thank you, Mr. Chairman. Our District economy is growing, but it's still very slow and somewhat mixed. As others have mentioned here, the agriculture area is subject to some uncertainty due to the dry weather. Also, in our area cattle is a very important industry and, although prices are up, there's a lot of uncertainty there. With this environment of uncertainty there has been some very reduced activity in the agricultural sector; in fact our banks' loan-to-deposit ratios in that sector are at their lowest levels in some time, at just over 50 percent. Manufacturing is mixed to flat, I would say. In the aircraft industry there has been some slowing in shipments recently. And in our auto industry, there has been activity but no real expansion in activity, with some modest gains overall in employment. Our energy industry is suffering very significantly. The level of drilling activity in both oil and gas is at post-World War II lows and [the outlook is] not at all good. Everyone one talks with is blaming it on some of the regulatory restrictions as much as on some of the economics, so that is a very sore point in our area. As to the construction side, construction activity in the residential sector has been very high but our anecdotal information now suggests it is backing off from those highs just as you hear is happening elsewhere. On the commercial real estate side, there is some increased absorption but still enough vacancies out there that we're not seeing any significant pickup in prices. An important factor we've heard in very recent conversations is that in some of our areas the lease rates remain extremely low. And until those pick up we don't really expect that the price levels are going to pick up at all. That includes Denver, where there has been some activity; still, lease rates are very favorable, and though we have had some sales we're not seeing a real pickup in the prices or bidding to any large extent. On the national economy, our projections are very similar to those of the Greenbook. There are some differences. We are looking at a little weaker consumer spending and residential investment, and a little stronger government spending and stronger still business fixed investment. On the inflation front, we're very much in line with the staff forecast; we may be a little more optimistic on inflation but not enough to make a real difference overall at this time. Thank you.",471
-fomc-corpus,1992,President Melzer.,4
-fomc-corpus,1992,"I'd like to make two general comments; the first relates to M2 and how to interpret that. One comment that I don't think has been made in the comments we've heard today is that some work we've done would indicate in our view that the relationship of M2 to nominal GDP is stationary only over very long periods of time. I think we're talking five or more years. It follows from that that the ability to predict velocity shifts in the short run is not at all good. Therefore, the idea that--and I'm not suggesting anybody has advocated this--M2 can be used as a short-term targeting tool for monetary policy, as far as I'm concerned, just doesn't fly. To some extent, I think the emphasis that we have placed on that target has perhaps in a public relations sense painted us into a corner somewhat, and there are probably ways to deal with that by citing some other factors. But the fact is, when push comes to shove in the short run, I would have a hard time justifying a policy action aimed at trying to get M2 into the target range or to some point in the target range for these very reasons I've cited. Obviously, it's better to be in the target range, but if we have questions about whether M2 is [outside the range because of] technical or fundamental factors--and we're pretty confident there are some important technical factors--I would be inclined to explain those and take the heat for missing it. That's the first point I wanted to make. The other point, which relates generally to the economy, is that we're a year into the recovery now and my sense is, both in terms of the statistics that we see and what I hear anecdotally, that the pace is picking up. Obviously, the recovery is not in line with other post World War II recoveries, but I think it's well in place and picking up. And I'd say that in general other forecasters are probably looking for the best inflation performance in 1992 with some pickup in '93. Now, we all know what the Board staff's forecast is; but even there Mike has seen fit, based on some recent information, to ratchet the forecast up. And I think we've seen from time-to-time, not at the present moment, in the bond market and perhaps to some extent in the foreign exchange markets some questions about the Fed's resolve with respect to long-run price stability and so forth versus short-run fine-tuning of the real economy. The point I would make with respect to that is that I don't think one can get terribly alarmed by anything we've seen in those areas as yet, but once it's clear in those indicators that we've lost credibility it's very hard and very expensive to buy it back. So, in my view we want to stay ahead of that. All of this is to suggest that I think the time really has come for us to focus not on when we're going to ease next but on when it is we are going to tighten. And my final point on credibility is that while words can help, this is one of those times when people are going to watch what we do, not what we say. Just very quickly on our District, the picture is the same as I presented last month. We are continuing to have moderate growth. On the employment side, [growth] is coming primarily in the services area. Manufacturing is still sluggish. In particular, strength on the nonmanufacturing side is coming in construction; we have residential and nonresidential contracts up 20 to 30 percent from the prior three-month period. My sense is that in the nonresidential sector it's primarily in the industrial area. I don't have any sense of [much] going on with transactions in office buildings and so forth at this time. Finally, just the tone of the comments I pick up is improving. The anecdotal information seems to confirm this picture we've been looking at for some time in terms of improving economic activity in our District.",797
-fomc-corpus,1992,Governor LaWare.,4
-fomc-corpus,1992,"Thank you, Mr. Chairman. I must say that over the last six weeks or so I have become more of a cautious optimist about what is going on in the economy. It seems to me that these most recent figures on consumer attitudes forebode a much brighter outcome. Consumers have been gradually reducing their debt load, which I think has helped to improve their feeling of confidence as reflected in their attitudes toward housing, auto, and appliance acquisitions. At the same time, long rates most recently have shown some slight improvement, and we have some reason to believe that that may now continue. The banking system I believe is substantially recovering from the problems that have plagued it the last four or five years. Operating margins, net interest margins have improved; earnings have improved. The restructuring of many of these institutions toward greater efficiency is beginning to take hold. Balance sheet values are certainly much sounder and much closer to reality today than they have been, although in some isolated instances there is still a ways to go. Clearly, they have better access to the capital markets so that the capital shortages that still exist certainly can be dealt with much more easily now than they could have been up until this time. I believe that these bankers are still cautious lenders. I think the burns haven't completely healed and the memories about recent events will be long. But I believe that they are now able, and to some extent willing, to respond to legitimate demands. So, I think the banks will be able to finance whatever level of recovery is coming along. Corporate conditions, I think, have improved significantly. Again, restructuring has had a very salubrious effect on corporate balance sheets. Corporations have eliminated in the process not just people, but some poor businesses. The divestiture or even shutting down of businesses that have been otherwise a drag bodes well for future profitability. Also, the reduction in debt service has been appropriate. They have done this through much more favorable debt financing and by replacing debt with equity. So, I think the general tone there is better and that's why I'm a bit skeptical about the 1993 projection for corporate profits. I think there may be some fundamental improvement there that can be very helpful. Having said all that, I think the progress on inflation is disappointing in view of the length of time that we have had a fairly restraining hand with regard to policy. And it's particularly disappointing and puzzling that the figures are better when you leave food and energy in right now than when you take them out. They've always been seen as the wild cards. It seems to me that the Greenbook forecast is a reasonable one. My own would be somewhat more optimistic but only marginally. But I don't think we should be discouraged by a modest growth rate in the GDP. I think it is fully consistent with a continued move toward price stability, which should be our objective. We must be sure to stop pouring drinks while everyone is still sober, and probably the next policy move will have to be toward restraint rather than ease.",605
-fomc-corpus,1992,President Syron.,4
-fomc-corpus,1992,"Thank you, Mr. Chairman. To start with the District, I'd say the New England economy remains lethargic. It's no longer in a pronounced decline but it really has little momentum going in the opposite direction. It's interesting actually to hear Bob McTeer talk about things being more encouraging in Dallas. We've said that things are more encouraging in New England because on a moving average basis the decline in employment last month was only 2 percent at an annual rate. But we do think things are close to the bottom. As far as different sectors go, after a fairly good opening of the year, the retailers now seem--I've talked to some of them myself--a fair bit more concerned. In housing, we don't know if this has to do with weather or what the story is, but there does seem to be--""softness"" is too strong a word--an attenuation in the growth that we've seen in housing. It had done quite well; now, it's slowing off again, which is why I asked the question about interest rate sensitivity. And, of course, the expected depreciation is a very big issue in New England. As far as your question on real estate goes, it's a very interesting pattern here. It depends a great deal on the sectors that one looks at. In the pure office space sector, absorption now is about flat; we don't have negative absorption any more. I hope none of you has too much money in TIAA-CREF because you're going to take some loss in the Boston market. We have an interesting phenomenon going on with the zero absorption; people are trading up at the same price to higher quality space and there just isn't going to be a market for some of the B+ quality space to [say nothing about the] C space. The retail market is really quite interesting in that it shows that real estate is very local. We have a couple of new small shopping centers being built with new retailers coming in at the same time that we have great excess capacity in retail space elsewhere. To come back to something that Jerry Jordan talked about, the one area where there has been some success in auction type sales has been in the condo market. It hasn't held true in the commercial or the retail or office building sectors, but in the condo market finding a price floor has produced the same sort of pattern that Jerry talked about for some of the markets. We hear less about the credit crunch than we did a year ago, although I think it's still somewhat of a residual drag. There are some tentative signs of a pickup in lending. Some of these companies that John LaWare talked about are in a better competitive position. Some of our institutions have raised capital and there's nothing like a little competition. We're hearing now about beating the drums of who will be the next aggressive lender. As far as the manufacturing sector in the region goes, that's mixed. Well, that's true obviously of anything that's tied to defense, and we have a lot that's tied not only to defense but to commercial aerospace, which is also somewhat weak. Until recently, autos and housing-related manufacturers had been doing relatively well. An encouraging sign we just had is this: Digital puts on a show every couple of years where they bring people in from all over the country. And actually they sold more equipment on the floor there than they expected by a fair amount, though other manufacturers we talked to are concerned about seeing their backlogs decline. For the U.S. economy overall, I have little reason, as usual, to disagree with the Greenbook. I can quibble on the unemployment rate, which we think might be a little higher in the out period than the staff has it, but the difference is minimal. Also, I reflect everyone else's concerns about disappointment on inflation. Looking ahead, while I don't have any disagreement with any individual forecast--and this doesn't hold true just for the Greenbook--in most forecasts there has been a serial correlation going out two to three quarters, and we've all been overly optimistic. Again, it's not a criticism of any individual forecast but it makes me wonder why that has been the case and whether it's more inertia and whether there has been more of a shock to the economic system in some confidence sense [than was anticipated]. And it makes me worry, particularly since we're counting a bit [on] even the relatively anemic growth we see in this quarter, [about] what is going to happen to PCE in the durables sector and autos and in final sales generally. That leads me to the view, even if I agree with this [forecast] that the probabilities are fairly evenly balanced on the outlook, that I'm not sure the risks are relatively evenly balanced. The reason is that if we were to get another negative surprise regarding the pickup, I'd be quite concerned about the impact that could have on confidence and for building in this inertia in terms of trying to get things moving. Another part of that, though, is that I don't think there's very much we can do about it. Just looking at what is happening in several asset markets, there is a potential for disappointment, an incongruity between the rate of growth we expect in the economy and some asset [market behavior], particularly in my own mind the securities markets. Now, I'm not saying it's our role to ratify it, but I think we have to take into consideration that that's a potential disappointment that is going to come along and is going to have a negative pull on the economy. I agree very much with Tom Melzer's comments on the Ms. I've always been pretty agnostic about that. But I think we're in this difficult position in that we've said that we're watching the Ms, and I worry about a situation in which we might have a combination of the economy coming in soft and the aggregates being out of their ranges. I'm worried about that even in a world in which we do want to get to lower inflation. I think we all agree on [the desirability of] getting to price stability, but the problem I have is that we could see something snap in the process here that would lead to protectionism, fiscal policy [moves], and other kinds of things that would make it more difficult in an ironic way for us to get to price stability. At some point I think we're going to get some happy surprises in terms of this correlation of the forecasts, and I'm looking forward to that and will be happy to deal with those when the time comes. Unfortunately, I have no reason to believe that there should be any bias toward a happy surprise more than a continued negative surprise at this point in time.",1321
-fomc-corpus,1992,"Thank you, Dick. Governor Angell.",9
-fomc-corpus,1992,"I've always been very sympathetic to watching the monetary aggregates, and I believe that they really are a very [integral] part of our fundamental program against inflation. But as you know, from time-to-time I have looked carefully at other means to determine whether or not there is a shift in demand for any one of the aggregates. And I've concentrated on commodity prices as probably being the most sensitive in showing whether or not monetary restraint truly is in place or whether [policy is] characterized by monetary ease. At the present time commodity prices, although they have the reputation of being very volatile, seem rather stable to me. If there's any trend it's probably slightly upward but not as strong as ordinarily would be seen in a recovery phase. So, on the surface that doesn't seem to show great inflation signals out ahead. Gold prices probably need to be looked at some, particularly since there are those who view the declining gold prices as [unintelligible] into growth rates. This thesis holds that M2 growth has been very slow and it shows up by following gold prices. I think it's important to recognize that gold is always [unintelligible] in regard to its monetary properties and for a long period of time gold prices were lower than market forces would have dictated due to the fact that many governments wanted to sell out their gold stocks. Consequently, gold stayed in the [$340] range a lot longer than it otherwise would have. Costs of production in many places in the world were way above that, and so there was no technology going into that industry. When gold prices are running up so the optimists believe the price is going to be in the $500 range, then you get a surge of technology into that industry. And it seems to me we're experiencing the impact of that surge. Indeed, the surge has been primarily a U.S. surge. In the United States, we've had during the 1980s over $8 billion of investments in gold mining, just as an example of what technology can do when the price outlook is favorable. That has resulted in a very quick [advance] for the United States from nowhere in the park of gold producers to the number 2 position. Indeed, production in the United States is now above 60 percent of that in South Africa and very well could exceed South African production before the decade is over. A new technology involving heat-bleaching means that the cost of production with that new technology runs closer to $250 an ounce rather than to $350 an ounce. When you look at what is happening in Chile and other areas around the world, it looks as if this same technology probably is catching on in other places. One would then expect the price of gold to fall closer to its cost-of-production in the marginally efficient areas. I give this explanation I suppose partly because I've begun to receive ""hate mail"" [accusing me] of having been unresponsive to falling gold prices and [saying that I] should have been an advocate of monetary ease based upon that.",607
-fomc-corpus,1992,How did you answer the question?,7
-fomc-corpus,1992,"Well, I answered the question by saying that I have never supported $350 an ounce gold; people just think that I do.",26
-fomc-corpus,1992,I thought it was in support of gold $10 below wherever it is now!,16
-fomc-corpus,1992,"I see. Well, it's all right to be in that direction. It seems to me that we ought not let the current information on inflation, disappointing as it is, cause us to move to precipitate action. It seems to me that sound money is something we accomplish over a long period of time. But it does suggest to me that the level of restraint that's out there is probably not as great as many have thought it to be and that we do need to be in a posture of maintaining constant restraint over time until we get the producer price index numbers behaving better than they're behaving. There's no reason for us not to get inflation in the goods sector quickly down to zero. And I think if we maintain the kind of posture that's needed, that will occur. I do think there will be a time lag between [that and] the adjustment of inflation in the services sector to zero. Looking at the real economy, the Greenbook forecast is one with which I would have no strong arguments. I would expect exports to be somewhat stronger than in the Greenbook and I would expect productivity gains in 1993 to be more of a continuation of the patterns seen in 1992. I would consequently expect corporate profits to be in range similar to what John LaWare has outlined. It's a very disappointing period in regard to those inflation numbers. I think we do not stand ourselves in good stead by representing too strong an interest in movements in the real economy from quarter-to-quarter.",294
-fomc-corpus,1992,Vice Chairman.,3
-fomc-corpus,1992,"In terms of the national economy, our forecast is very similar to what Mike talked about earlier today. And as he indicated, and others have also, I also have a feeling that the risks are distinctly more balanced. That seems broadly consistent with the kinds of things one hears on the anecdotal side with this nagging question about sustainability, which is a question that nags at me a little too. But in talking with business people, especially to the multinationals, most of them are now saying that things are better and a few are saying that they're better with emphasis. And that, I think, is different. Several people have cited exports; again, the anecdotal comments from these companies are quite consistent with that in terms of being surprised at how well their export activity is holding up. And as Ted or Mike or somebody said, a lot of it is to Latin America, Asia, Eastern Europe, and Japan. On the commercial real estate question, I have reported over several meetings a sense that the decline in prices in the New York area had abated and perhaps even bottomed out. And I think I mentioned at least once that there were very specific transactions, quasi-auctions, for very large buildings where they had cleared the market. I know of at least a couple of cases [of property] sold by banks where they cleared the market at prices that exceeded the charged down level on the books of the banks--in other words, the provisions which they had taken for [loan losses]. Now, at least in the New York area--and someone may have touched on this when I was out of the room--I think the Olympia & York situation does cast a bit of a cloud over that. Their total real estate in New York is enormous and I think it's a little too early to make a judgment on that. But that could represent a further dent here, certainly in New York. The jury is very, very much out so far as how that is going to play out. As I said, that introduces a new element of uncertainty. Looking more broadly--a number of people have already touched on this and I don't want to beat a dead horse--let me comment on this inflation outlook issue. If I look at the 1993 forecast that Mike has, 3.2 percent I think in the CPI ex food and energy, I sense that that is a reasonable number. I think it is going to be darn hard to do better than that, and it's not so hard to see how we can do worse than that. Again, and John LaWare touched on this, in a broader perspective of what has happened going back to 1988 in terms of the CPI ex food and energy, we've essentially gone out through 1993 in the forecast from a 4-1/2 percent core inflation rate to 3.2 percent. So, we will have brought about, if you will, a 1.3 percentage point decline in core inflation. And if you look at it in terms of cost, it's five years of cumulatively very modest growth at best; the last two years, 1992 and 1993, are a little better but for the five years as a whole, it's not much. Now, if you look at M2--and I agree with a lot of people in that I think that's not the right thing to look at--we will have had seven years of distinctly modest M2 growth going out through 1993. What I keep coming back to here is that no matter what we look at we also have to look at what is underneath, such as compensation costs, productivity, and unit labor costs, and there's a lot of slippage there. But when you go underneath, even if you look at it simply as arithmetic and not as economics, it's still hard to see--at least I find it hard to see--how we're going to do a heck of a lot better, if at all better, than that very costly process that we've seen over the last five years. I don't think that should alter our commitment to work toward that goal of price stability, however that's defined. But the evidence is rather overwhelming that this is a very slow, costly, tough, grinding out process. I don't see much that's going to change that.",864
-fomc-corpus,1992,Governor Mullins.,4
-fomc-corpus,1992,"I guess I have nothing especially useful or new to add. I generally agree with a lot of what has been expressed. I think we have a weak recovery. And as I understand the Greenbook, the recovery is projected to be fueled by growth in consumption driven by growth in income. The only difficulty is identifying where the growth in income will come from. I guess the answer is sort of everywhere and nowhere. Everything grows a little and the whole juggernaut gradually moves forward and momentum will carry us. It seems to me that the concern about sustainability is really the fact that we can't point to an engine driving this. Perhaps we thought it was going to be residential housing; I think there's evidence that the steam is coming out of that. And there are still concerns about losing steam especially if the first-quarter growth rate turns out to be 4 percent and the second quarter is 2 percent; that might have some impact on confidence. It is encouraging that consumer buying attitudes, as John LaWare mentioned, in all three of the major categories of the Michigan survey have steadily strengthened. But the overall confidence index is still below where it was in the summer through September, though that's still progress. When I look at the picture, I don't see much that is robust on the real side or the financial side, but there is relatively broad-based progress in terms of moving forward. And, with the ample slack in production resources, echoing a little of what Jerry Corrigan was saying, I don't see too much risk on the up side. The economy still has an adjustment to make on defense spending, in state and local governments such as California, and in commercial real estate; we still have some further financial adjustment to go as well. I think Bob Parry is probably right: The economy could easily be stronger with growth above 3 percent, but the consequences of that sort of upside risk would not bother me much. It is discouraging that after the long period of slow economic growth and many years of slow money growth we haven't made more progress on inflation. I should point out that I think we've only had significant slack in the economic system for a little over a year and a half now. When I came on the Board the unemployment rate was 5-1/2 percent and capacity utilization was 85 percent or higher. It is also interesting to note that inflationary expectations as measured by the Michigan survey in the near term continue to come down gradually; but it is still true that core CPI is 4 percent, where it has been for eight years. I think it is probably deeply embedded. On the financial side, short rates in real terms look low now and less low for lending to bank customers because the prime rate is 6-1/2 percent; it still has the margin built into it and consumer rates have that margin as well. So, I think we still have something of a dichotomy where I see easy conditions on rates in the financial markets and somewhat tighter conditions in the intermediated markets. I think it's fair to say that the yield curve is still very steep, and it's not clear to me that this is driven by inflationary expectations. It's pretty clear that people are betting big money that rates are going to be a lot higher in a year or so. And I think it's not at all unlikely, even if inflation doesn't re-emerge when credit demands re-emerge, that we will be joining the global village of high real rates just as everyone else has high real short-term rates. We're really the outlier in the world, and it's primarily because we have such weak loan demand. As far as M2 is concerned, I'm certainly not here to praise it; I thought we buried it last summer but someone dug it up again. I'm fully prepared to accept the notion that the traditional relationship between M2 and GDP has been distorted by weakness in the financial system associated with restructuring. Just because the traditional relationship is altered does not mean that a sharp deceleration of M2 conveys no useful information. Obviously, I'm a bit biased by this coincidence last summer. We've only had a handful of months in recorded economic history where M2 has been negative or zero. We had one last July and then August and September were essentially flat. In the fourth quarter, we did get some deceleration but now in March and April it is negative. Clearly, the traditional relationships don't hold, but dramatic decelerations still make me nervous. Now, since the RTC has shut down temporarily, M2 should snap back smartly, presumably. And we're over the tax season. I don't know how much comfort to take in Tom Melzer's observation that the relationship holds only over a long period of five years. I tend to conclude from that that we're going to have five years of stagnation some time in the future. The only other thing I would add to the M2 debate--other than saying that it's a mystery and I'm less concerned with it being low than with the deceleration--is that it's not only M2 that is weak and not only M2 and M3 that are weak but L is weak. It's not just intermediated liabilities that are weak. Domestic nonfinancial nongovernmental debt is, I would suggest, about as weak as it has been in any period we've recorded. Even when you throw in the government, who is usually a dependable borrower, it still looks relatively weak. So, my view is that with projected GDP growth in the second quarter of 2 percent, with 1 percent of that coming from autos and 1/2 percent from inventories, without a dependable engine to keep the momentum going, with this weakness in credit pretty much across the board, and less concern for capacity to overshoot at this stage, I still think the most prudent stance is to remain sensitive to the risks of losing momentum.",1173
-fomc-corpus,1992,Governor Kelley.,3
-fomc-corpus,1992,"Mr. Chairman, we are now five months into the year. At the very first of the year, there was an extremely strong consensus that [economic activity] was going to start out very slow and then begin to gain a bit of momentum in the second quarter and be much stronger thereafter. A contrariness instinct at that time was to ask the question: ""Where is the surprise going to come from?"" because the consensus was too strong. There was some indication that the surprise might be on the up side, and by the time we met in March it was fairly clear that we were getting an upside surprise. News over the last six weeks has been that it looks as if the first quarter was even better than [expected]. So, it seems now that the question has shifted just a little to: ""Is what we've seen so far something of a false dawn or are we going to continue to be favorably surprised on the up side?"" There is the usual array of factors and we've certainly been through them this morning. On the concern side are the aggregates and the fact that housing has again slowed a bit. Several sea anchors are still [restraining growth]: commercial real estate, the defense slowdown, net exports, and the disappointment we all feel in the year so far with regard to the CPI ex food and energy. As I look at that array it seems to me that people might say in the market that most of that has been there for a while. And while it's still there it has had its impact. On the other hand, I think one can say that there may be, and hopefully are, a couple of emerging trends on the favorable side that haven't really had a chance to catch on yet. One may be employment growth. I've been taught since I've been here that the payroll survey on employment is more reliable than the household survey, and I accept that. But it may be that early in a recovery here we are getting some leadership from the household survey. I wouldn't suggest that employment has grown 350,000 a month, but it may be that the household survey is telling us that [employment growth] is somewhat stronger than we thought. If the household survey is telling us good things, they are coming from the places that traditionally have helped a lot and that is small-business entrepreneurial activity and so forth, [and the statistics] may lag a little [before] the payroll survey picks that up. The other [favorable trend] that may just be beginning to set in is in the area that we've called in short hand ""the credit crunch."" An array of factors is there. As John discussed a while ago, banks clearly are stronger: Their profitability is up; their liquidity is high; their balance sheets have come back; the loan officers survey indicates that they are getting a little more ready to lend money, and there are indications that that should continue. On the demand side, there's a lot of anecdotal information that small and medium-size business credit demand is beginning to come back. We know that balance sheets have been restructuring generally across the board, and consumers have been very reluctant to borrow; they might come back. So, it seems to me that we could well be seeing an incipient trend toward a better climate for credit extensions. There are some other things, too. The dollar has been on the weak side. We may get a little better [performance of] net exports as a result of that. Consumer confidence is not high but it has been rising steadily, and it seems to me that it's very responsive to employment. And if we do get the good news on employment that I hope is going to come, then maybe that will give a further boost to consumer confidence. So, I think it's possible to build a rather plausible, rosy scenario here around employment growth and a thaw in credit conditions more than anything else. I'm not buying into that wholeheartedly; there are too many negatives still out there to do that. But I think the odds are improving that real activity is going to continue to improve. And there's a fair to good chance that we can hold policy where it is. I certainly hope so because, if that's the case, I think that improves the chances [for continued expansion] for a while without our tightening too much as the economy strengthens. And the longer we can do that responsibly the better news there will be over the long haul.",877
-fomc-corpus,1992,Governor Lindsey.,3
-fomc-corpus,1992,"Mr. Chairman, growing up I never thought I'd be an economist; I didn't know what an economist was. I think my mother is still waiting for me to make something of my life and go to law school! But I always liked math and I liked history and I found them together in economics. And my first comment is on math. I don't think anyone thinks velocity is stable on a quarter-to-quarter basis. In fact, on a distributional basis using the 120 quarters from 1961 to 1990, there is a 7-1/2 percent chance of velocity being more than 3 and an 18.3 percent chance of velocity being more than 2. And if you use lagged velocity, I have a distributed lag function where the odds are even greater than that: 29.2 percent for having a velocity shock of more than 2 percent. So, I think what we're seeing now is very much in line with historical averages on the up side. One need only to think back to the early 1980s. I wasn't here, but I've looked at the numbers; there was a very strong negative velocity shock on the order of perhaps 2-1/2 or 3 percent a year. So, I don't know if we really want to abandon velocity just because it's unstable on a quarter-to-quarter basis. I agree with President Melzer's comment in fact that it's over long periods of time that M2 and the M2 velocity relationship are stable. Of course, that means that if we're going to have 4-1/2 percent nominal GDP growth and we have a year and a half of 2-1/2 percent M2 growth, that we should be equally comfortable with a year and a half of 6-1/2 percent M2 growth. If one is willing to let [M2 growth] go to 2 or 1-1/2 or 1 percent, one should also be willing to let it go to 7 or 7-1/2 or 8 percent for an equally long period of time on the other side. So, the real question is whether or not we want to use money as a policy variable in constraining [the economy]. The point is that velocity is stable over the long run, so we're going to have a bounceback. Indeed, all the explanations we've heard this morning suggest that that's the case. Don Kohn yesterday mentioned that if we include the yield curve we can explain perhaps a 1-1/2 point velocity shock. I don't think anyone thinks the yield curve is going to remain as steep as it is now. It's going to bounce back and so will velocity. How about the flight from CDs? Well, certainly, it isn't going to go on forever; eventually CDs would go down to zero and then [the decline] would have to stop. My suspicion is that CDs probably will catch on at some point in the future and money will flow back into CDs. So, again, we have to think about the fact that in the long term we have a stable relationship here. M2 growth of 2-1/2 percent is not a long-term sustainable rate of growth. How long we want to tolerate it in the short run is something we might want to debate. But no one says that it's a short-term parameter. That's the math lesson. The history lesson is one that I was debating about, but my contrariness juices really got flowing. I heard a wholesale abandonment of money here this morning and that takes three [forms]; (1) money doesn't matter; (2) banking weakness is also not a monetary phenomenon; and (3) that one [assesses] monetary ease by looking at interest rates and not money growth. I happen to have these quotes from history; we've been here before. As to the first that money doesn't matter: These events ""shattered the long-held belief, which had been strengthened during the 1920s, that monetary forces were important elements in the cyclical process and that monetary policy was a potent instrument for promoting economic stability. Opinion shifted almost to the opposite extreme, that 'money doesn't matter' that it's a passive factor which chiefly reflects the effects of other forces."" That was Friedman and Schwartz. They went on to say that there was a tendency--this is again in the early '30s--to regard bank failures and contraction of deposits ""as regrettable consequences of bad management and bad banking practices or as inevitable reactions to prior speculative excesses,""--Where have I heard that before--""or as a consequence but hardly a cause of the financial and economic collapse"" of the time. And finally, regarding nominal interest rates, a gentleman named Sprague who was a consultant to the Fed--and this was in February 1931--wrote that the Fed concluded that an aggressive easy money policy was practically out of the question in the United States ""for there is no general acceptance of view in this country that additional good loans and additional good investments are available at a lower rate of interest."" And continuing on the line that short-term nominal rates are a measure of policy, the Annual Report of the Fed in 1930 said: ""The Federal Reserve pursued a policy of monetary ease"" in the last year. In 1931 it said: ""The credit policy of the Federal Reserve System in the first nine months was directed toward the furtherance of easy credit conditions, as indicated by further reductions in rates on discounts and acceptances."" And finally in 1932--this is over a period in which money shrank by a third--""Conditions in the open market for short-term money were relatively easy throughout the year and in the latter part money rates declined to exceptionally low levels."" We've been there before. My suspicion is, and my fear is, that we might be there again. I certainly hope not. And finally, this is from the FOMC statement of October 1935 and suggests that inflation is always a fear we have: ""The Committee cannot fail to recognize that the rapid growth of bank deposits and bank reserves in the past year and a half is building up a credit base which may be very difficult to control if undue credit expansion should become evident."" They were worried about it in 1935. With regard to existing conditions, clearly we're on a good path. I'm not sure that an easing at this time is the right thing to do, but whenever I see the kind of wholesale abandonment of monetary aggregates that I heard this morning I get nervous. So, I'd rather have the gun loaded, Mr. Chairman.",1337
-fomc-corpus,1992,"Governor Phillips. MS..PHILLIPS. Thank you. I think I'm bringing up the tail end again and I'll keep my comments short. It seems that since I've been here we've been on the cusp of a recovery, trying to get a recovery going. Certainly the signs on the real side are more positive this time; certainly that's what we've heard this morning. I find myself being concerned about and questioning its strength and its sustainability. Some of the sources of strength that we've been pointing to the last couple of months--housing and exports--seem to be fading a bit. And I think it's interesting that no one has really talked today about some of the problems in the economy that we seem to have forgotten about. The first one that I'd point to is the federal deficit, which I think is a continuing drag on the economy. We have talked about the state and local government shortfalls, and I've seen a few tax increases coming out of some states but not a lot. So, I think we're going to continue to see that as a drag on the economy. The major area of concern that I would point to--and I would magnify perhaps Dick Syron's [remark] with respect to its potential--is consumer confidence, which seems to me to be very much tied into the labor market situation. I think the 7.2 percent unemployment rate perhaps understates some of the weakness in the labor market because of the pervasiveness of unemployment through a variety of occupations and the restructuring that is going on in industry. This whole concept of underemployment and downward mobility is continuing to lengthen the period of time it's going to take us to get a real recovery going. Certainly, on the money and credit aggregates, which we've talked about so I won't go into it, I'd agree with Larry: I don't think we ought to abandon M2; we ought to look to see what it's saying at least in part. On inflation, I am concerned that we're still seeing a bit higher inflation than we'd like. I would have to say, however, that we need to expand our research on what zero inflation is. I'm beginning to wonder if we're not getting closer to it than the traditional CPI measure or even the deflator would imply. On balance and in sum, I'm pleased that we're making some progress but the risk of another stall is certainly in the realm of possibilities. So, I think we should be alert to weakness on the real side.",490
-fomc-corpus,1992,"Thank you, governor.",5
-fomc-corpus,1992,"Jerry, I might interject for those who worry about money that from the third quarter of 1987 to the first quarter of 1992, M2 grew at a 4.2 percent annual rate even with all the weakness we've had recently.",51
-fomc-corpus,1992,"So, with 4 percent inflation we're looking at zero real M2 growth?",16
-fomc-corpus,1992,Yes.,2
-fomc-corpus,1992,Do you have our average target for that period?,10
-fomc-corpus,1992,"No, I don't.",5
-fomc-corpus,1992,The average target would be more like 4-1/2 to 5 percent.,18
-fomc-corpus,1992,"Not only did that note about the coffee say that the note was an hour and a half late, but I think the coffee probably arrived an hour and a half before the note!",36
-fomc-corpus,1992,You're right!,3
-fomc-corpus,1992,"With that, I would like to call upon Mr. Kohn.",14
-fomc-corpus,1992,[Statement--see Appendix.],6
-fomc-corpus,1992,Any questions for Mr. Kohn?,8
-fomc-corpus,1992,"Mr. Chairman, this is in a sense a procedural question: As I read the Bluebook and the projections for the monetary aggregates, particularly the alternatives, the time frame is from March and April to June. I wonder if we wouldn't be better served in the policymaking decision to have a longer time frame extending beyond June for those projections. We're practically at June now. I assume you have those [longer-term] projections, and it seems to me that it would be better to have a projection out perhaps to the fourth quarter.",107
-fomc-corpus,1992,"President Forrestal, if you look at paragraph 15 in the Bluebook, it gives a sense of where the aggregates might come out for the year--1/2 point more or less than for Alternative B with the selection of ""A"" or ""C."" We have been going for many, many years with this [procedure], but I agree with you. The reason that paragraph 15 is in the Bluebook is that the effect of anything done in the middle of May probably would be greater in July and August than it would be in May and June, so you do need to be thinking about that.",123
-fomc-corpus,1992,"Yes, I realize this is the way it has been done for a long time.",17
-fomc-corpus,1992,"I think there is another problem with that in the sense that if we introduce a longer-term time frame for money supply where it tends to override the targets that we came out with at the beginning of the year, what we're in danger of doing is having two forecasts. It's essentially the targets on the one hand and a specific one on the other. In general that might be fine if the second forecast is close to the middle of [the target range]; but if it is not, we're raising an interesting question about what it is we're trying to do. It's almost as though we're trying to find a degree of accuracy that I think isn't even remotely possible. I would be more inclined to the argument that we drop that forecast than extend it too far because our ability to forecast is awful.",156
-fomc-corpus,1992,You raise an interesting question--maybe not facetiously--about dropping it.,15
-fomc-corpus,1992,"I would prefer to drop it. I have not given it any thought until this minute, but I ask: What does it do for us? What would happen if we were to drop it?",39
-fomc-corpus,1992,"Well, I think the issue would be how it feeds in. Perhaps it's an issue that really should be discussed in July because it's a question of having annual ranges and where the aggregates are [currently] relative to those ranges or whether you care where they are relative to the ranges. If you were to drop the--",63
-fomc-corpus,1992,Could you draft us a memorandum? Could you circulate to the Committee the pros and the cons?,19
-fomc-corpus,1992,Sure.,2
-fomc-corpus,1992,Include President Forrestal's recommendation. That ought to be addressed.,13
-fomc-corpus,1992,Certainly.,2
-fomc-corpus,1992,There are a lot of anachronisms sitting in our directive. Every time I read it I'm waiting for somebody somewhere to write a fun piece in some newspaper about the Federal Reserve directive! I hope Bill Saffire of The New York Times doesn't get hold of that!,55
-fomc-corpus,1992,How about Art Buchwald?,6
-fomc-corpus,1992,Either one of them!,5
-fomc-corpus,1992,"You know, it's written as it would be written if we were going to publish it the next day.",21
-fomc-corpus,1992,And as if we [know] all of the structural shifts in these relationships and how tight they are.,21
-fomc-corpus,1992,Yes.,2
-fomc-corpus,1992,He might also compile our estimating accuracy over the past few years!,13
-fomc-corpus,1992,That's a mean thing to say!,7
-fomc-corpus,1992,We do actually do that as an internal matter from time to time.,14
-fomc-corpus,1992,Very internal!,3
-fomc-corpus,1992,Any other questions for Don?,6
-fomc-corpus,1992,"Just a quick technical question. Don, you mentioned that the lags had to do with the tax payments and some of the other things that we think have distorted these [numbers]. Could you quantify the lags from the inside to the outside of the deposits?",52
-fomc-corpus,1992,"Well, on the taxes, I certainly expected the sort of snapback we saw. [Our analysis suggested that] those checks would be clearing in late April and the first half of May--",38
-fomc-corpus,1992,Right.,2
-fomc-corpus,1992,"--and that's when one would expect to see a snapback [in money growth]. So, the fact that we had a $9 billion increase, or whatever it was, in M2 last week and that we have another increase in the $4 to $5 billion range coming for the week of May 11th is not surprising. And it's heavily in the M1 component, which is where the transactions money is, where you'd expect most though not all of the tax payments to be made. So, I'd expect the tax [effect] to play out pretty much by the second half of May. The other [factors] I think are much harder to explain. The [effect of] RTC activity is a bit contrary to common sense. We have always found, though, that there were some lags in that. That is, RTC activity one and two months ago was having an effect on M2 growth this month. Now, I think that's partly because it does take a while: peoples' depository relationships are disrupted; they get notices that their rates are reduced or a new bank has taken over and it takes them a while to react to that and to reconsider their portfolios. So, perhaps it's not that contrary to common sense, but there is a little lag there. So, given the lack of RTC activity after about the second week of April or so, we probably will begin to feel that more in June and moving into the third quarter. And on the other one, the interest rate [effects], the lags are of course even longer so that they can play out over a longer period of time. We have by the way, President Forrestal, about 3-3/4 percent growth on a quarterly average basis projected under ""B"" for the third quarter and then 4-1/2 percent for the fourth quarter. So, we would have a strengthening in the third quarter, presumably.",387
-fomc-corpus,1992,Thank you.,3
-fomc-corpus,1992,President Jordan.,3
-fomc-corpus,1992,"To catch up a bit with you on where you are compared to where you thought you were: I don't know what you were looking at in terms of alternatives in your midyear review last year but you mentioned an easing in policy since last summer. If at that time you had run your model contemplating a drop of 200 basis points in the funds rate over the next nine months, what would you have been projecting for the Committee in terms of monetary growth?",91
-fomc-corpus,1992,"I'm sure I would have been projecting several percentage points more than we had, but at the same time we did embody in the projections to the Committee last year and in February of this year an expectation of downward shifts in money demand. So, I don't think we would have been as far off as you might imagine just from feeding that [funds rate decline] through because we were aware at the time that things were out of kilter relative to the standard models. We allowed for that; last February we were predicting only 3-1/2 or 4 percent [M2] growth for 1992. So, we had allowed all along for some slippage there. But I'm sure we would have been predicting probably about 2 percentage points more--maybe instead of 3-1/2 percent more like 5-1/2 percent for 1992--if you had told me in July that we were going to have 2 percentage points lower interest rates.",198
-fomc-corpus,1992,"With your past experience with the model, what is the probability you would assign of an offsetting error going forward? Is that a tendency you have any confidence in?",33
-fomc-corpus,1992,"Well, there used to be, but I don't have much confidence in that right now given that we've had a string of about eight shortfalls in a row counting the second quarter of this year. A couple of years ago I would have said that I'd expect some offsetting errors and come out about right. But I don't expect that now. We are not projecting an offsetting error in our projections of 3-1/2 percent for 1992 and 4 percent for 1993 for M2 growth consistent with the Greenbook GNP; we do not have offsetting errors built in. We have continued increases in velocity. We do have a fading out of some of the shift that's occurring; instead of continued downward shifts we have it fading out gradually.",154
-fomc-corpus,1992,"Okay, that answer suggests a one-time level adjustment on M2, a mirror image of what happened in 1983 when MMDAs were introduced.",31
-fomc-corpus,1992,Right.,2
-fomc-corpus,1992,We got double-digit growth of M2 for about a year. We all recognized it as a shift of the level and then resumed [with] what a model [would predict] afterwards.,38
-fomc-corpus,1992,Right.,2
-fomc-corpus,1992,Is that the way you would characterize this period?,10
-fomc-corpus,1992,"Well, no, in the sense that in 1982 one could identify a specific deregulation event. We knew the MMDAs were coming. We actually surveyed people to find out what they were shifting into NOW accounts and whatnot. In one sense you're right: If the shifting stopped and it was just a level adjustment, that would be fine. I'd have more confidence in that if I saw the shifting stop. But in an underlying economic sense, I think a very different kind of thing is going on. One can't identify it so strongly with an external deregulation or technology change as we had with Ml in the mid-1970s. It's something much deeper in the intermediation process and I think harder to analyze.",147
-fomc-corpus,1992,President Stern.,3
-fomc-corpus,1992,"What's the sample period, Don, over which you estimate your standard model?",15
-fomc-corpus,1992,"I think it's about 1963 to 1986. Is that right, Dave?",18
-fomc-corpus,1992,I think it goes up to 1988 now.,11
-fomc-corpus,1992,"It's the same model, however, that we used in the conference we had in 1987 on money demand.",23
-fomc-corpus,1992,President Keehn.,4
-fomc-corpus,1992,"Don, in your comments about the structure of interest rates and the yield curve, I don't think I heard you say anything about the supply factor and the impact that has on rates. Is that in your mind not an issue?",45
-fomc-corpus,1992,"Well, I think it's a smaller issue than expected in increases in real interest rates because of where we've driven short-term real rates and perhaps inflation as well. I tend to discount it to a certain extent. On the supply, one thinks of not only government but even more particularly corporations and households shifting way out on the yield curve. On the other hand, we have had the households supplying the funds in some sense through shifts into bonds and mutual funds. It probably had some effect but a small one relative to the other [factors], in my judgment.",111
-fomc-corpus,1992,Governor Lindsey.,3
-fomc-corpus,1992,Could I follow up on Jerry Jordan's question? At what point do you predict that the leveling off of velocity will occur?,25
-fomc-corpus,1992,"Well, in terms of our models we actually have the demand shift pretty well dying out by next year. We do have an increase in velocity next year on the order of 1 percent. We would view that partly as still a working down of some things like savings accounts and NOW accounts, in our models anyhow. And I think that will probably be true in real life as well. Rates on some of these types of accounts, like NOW accounts and savings accounts, will continue to drop very slowly over an extended period of time in response to the lower rates. So, we will have an increase in velocity next year but not really a money demand shift.",131
-fomc-corpus,1992,Could we call that a continuing response to the steepness of the yield curve?,16
-fomc-corpus,1992,"No, that [effect] sort of dies out. The way the yield curve plays out in our model is that it is affecting [M2 growth] this year and is rather neutral for 1993. It's not affecting it much one way or another.",52
-fomc-corpus,1992,What happens when the yield curve starts to level out?,11
-fomc-corpus,1992,"Well, assuming that the CD rates then come into closer alignment with market rates and market rates level out, then I'd expect some reflows into M2.",31
-fomc-corpus,1992,Any other questions for Don?,6
-fomc-corpus,1992,"On the question of resumed bank lending, have you taken much account of the risk-based deposit insurance as well as the risk-based capital coming into view?",30
-fomc-corpus,1992,"Only a little, I think. We implicitly had a sense that banks would not be actively pursuing deposits in order to make loans in part because the cost of making loans is going to be higher. We have not specifically factored in the risk-based premium. We had, I believe, a notion that premiums would be higher; whether they would be risk-based or not is another issue. That may be more an issue of distribution of loans throughout the banking system rather than the total.",96
-fomc-corpus,1992,"Further questions? If not, why don't I get started. Listening to this general conversation, it creates a somewhat better outlook than I was perceiving as I walked into the room--not a great deal better, but enough to be somewhat noticeable. The general consensus around here, which is clearly supported by the data, is that the economy is moving forward on a fairly broad front but that nothing seems to be moving very quickly. There doesn't seem to be significant, outsized momentum in any sector, but it does seem to be gradual and pervasive across a fairly broad [spectrum]. The crucial question, however, is how fast [the expansion in the economy] really is. I think the issue that Mike Prell raised with respect to the first-quarter GNP problems is a clear indication that there is something peculiar in our data system. There may be something to the argument that the payroll series could be more deficient this time than usual. The general argument that we all can make with respect to month-by-month changes in employment is that the standard error of the employment change in the household series is very high. It isn't all that high if you take a time frame of four, five, six, or seven months, average two or three months on one end and two or three months on the other, and calculate the standard error of that change; it's obviously very substantially lower. So, it's hard to believe that with a sample of 60,000 [in the household series], with some historical parallelism to the payroll series, that the argument has to be that the payroll series is really being representative and that the man-hour data that are implicit in it are the best indicator for industrial production because, remember, industrial production is weaker than the GDP. Obviously, if we decided that the household payroll series was accurate and built up the gross domestic product side with those data, then the statistical discrepancy, which is the problem with the first quarter, would narrow very considerably. And, obviously, what you would get is a significant rise in the saving rate in the first quarter which, of course, is where the discrepancy change gets offset in the accounts. When you look at that, you ask if it is possible that the economy is really growing at 3-1/2 to 4 percent [and] that we have a saving rate which suggests that there is actually room for consumption to move faster than income; that is sort of a scenario that suggests there is more buoyancy in this outlook than the first-quarter data show. The truth of the matter is that I'm not sure anyone can judge that. The anecdotal evidence raises questions as to whether the economy has anywhere near that type of momentum. Even though the orders data in manufacturing look somewhat better, they are not consistent with the type of significant rise in employment in manufacturing that one must presume would be part of the acceleration in household employment of the size or order of magnitude that we've been seeing in recent months. I conclude that we're probably doing somewhat better in employment than the payroll series [indicates] but far short of the household series [increase] in that the economy in the first quarter was fairly good. The only question I would have with it is whether it is too much too soon in the sense that rather than going into the second quarter with inventory liquidation, we're going in with very modest liquidation and with upside momentum. If one looks at the data as they are materializing with respect to auto sales, starts, and the like, they don't suggest a really robust second quarter. It also looks as though we are financing this recovery very heavily internally. If you look at the household sector, for example, there's very little borrowing. That essentially means that both gross asset expansion and gross liability expansion are very significantly below normal. That is another way of saying that M2, which is on the household asset side, is exceptionally slow and that the slow borrowing, with everyone financing internally, is an element of risk aversion. Clearly, that has also been the case, although I suspect to an increasingly lesser extent in the corporate sector where one must presume, if these numbers are correct, that a very significant increase in cash flow is going on and that even though we have some fairly heavy borrowing externally a very large amount of financing with internal funds is going on pretty much as usual. So, this is in a way an odd sort of recovery, one that we've discussed at length in connection with the question of balance sheet repair, which is another way of saying that a significant amount of cash flow is going to pay off debt rather than going to the consumption of goods and services or investment. The outlook does not seem to have changed significantly from the last time we were here when there appeared to be some form of financial ceiling on the economy basically represented by the balance sheet pressures and essentially reflected in the fact that every time the economy seems to pick up, long-term interest rates seem to go up. What we have learned apparently is that that is having an effect on a number of areas, very specifically on the housing area, which leads me to conclude--pretty much as I have been concluding since the beginning of the year--that the crucial statistic in the outlook is nominal long-term interest rates. To the extent that they have a significant effect in the housing market and the turnover of mortgages, refinancing, they have been a critical factor in the general forward thrust of the economy. I think we're also learning that the inclination at the long end of the market for rates to move lower with lower federal funds rates is increasingly dubious. While I must say that I can't give a persuasive analytical argument at this particular stage, I nonetheless would be willing to put money on the table that moving the fed funds rate lower right now would not bring a lower long-term bond yield. However, that may not continue to be the case. As a consequence of that, I would be disinclined to try to move the funds rate lower now, but if it turns out that at some point it begins to look as though we might be able to prod the long-term rate lower were we to move the funds rate, I personally would be more inclined in that direction. Frankly, my overall view is that we are probably more likely as a Committee to be moving to lower rates than to higher rates in the next several months. The next move is more likely to be down than up, but I don't think the odds are skewed enough in that direction to argue in favor of an asymmetric directive. I must admit that I don't have any strong feelings personally either way. I would be somewhat inclined toward symmetry if for no other reason than that in listening to the tone of the individual District discussions, things are somewhat better than I would have suspected; but I could live with an asymmetric directive. In either case, I would argue that we should adopt alternative B. I would prefer symmetric but could very easily go with asymmetric if that's what the Committee wants. President Parry.",1396
-fomc-corpus,1992,"Mr. Chairman, I would strongly support your recommendation. It seems to me quite likely that the economy could be growing at a rate of 3 percent over the next six quarters. At the same time, all of our forecasts are showing that inflation is not going to show significant improvement. In that kind of environment and with those kinds of prospects, I think it would be very desirable not to change policy and also to have a symmetrical directive. I might also point out that if we get a very significant upward revision of those first-quarter data and the next thing that hits the financial market is the fact that we had an asymmetric toward ease directive, I don't think that would be received very favorably in the financial markets at all. So, I believe the case for a symmetric directive is quite strong. Thank you.",162
-fomc-corpus,1992,Governor Angell.,4
-fomc-corpus,1992,"Mr. Chairman, I could support an asymmetric directive if it were toward tightness and I could accommodate myself to a symmetric directive as you have suggested. It seems to me that we do encounter some likelihood over the coming period that the fed funds rate might need to be closer to 5 percent than to 3-3/4 percent; and money growth, M2, right now doesn't give us any leeway to make that move at this point in time. So, symmetric will work for me. But I just wanted you to know my leanings and also my inability to support the asymmetric direction.",121
-fomc-corpus,1992,President Forrestal.,4
-fomc-corpus,1992,I would support alternative B with a symmetric directive.,10
-fomc-corpus,1992,Governor Kelley.,3
-fomc-corpus,1992,I support alternative B with a symmetric directive.,9
-fomc-corpus,1992,Governor Lindsey.,3
-fomc-corpus,1992,"Mr. Chairman, I understand from your logic that we should keep our options open. That is a very compelling case. One of the first things I learned at my first [Committee] meeting was that the ""would/mights"" were not an insect but in fact inhabit our monetary halls. This sounds to me as not a ""would/might"" situation but a ""would/would"" situation. I think we want a symmetric directive but want to keep our options open to indicate that we [are prepared] to respond to economic data. So, in stating my opinion, perhaps I'm asking a question: Does your suggestion for symmetry mean a ""would/would"" directive or a ""might/might"" directive?",143
-fomc-corpus,1992,I don't have a clue!,6
-fomc-corpus,1992,"Then I would recommend the ""would/would"" as an approach if we want symmetry.",18
-fomc-corpus,1992,"Let me say this: I will be disinclined, frankly, to support moving lower unless we see some real signs that this [recovery] is starting to stall out. And I'd need a little more than just a vague notion; I'd need a set of data suggesting a cumulative process that in my judgment probably would incline this Committee toward moving lower even from a symmetric directive. But I would be a little cautious if we kept seeing a steady economic recovery and M2 looked awfully weak. I would conclude from that that we have more of a problem with M2 than we have with the economy. But if we saw both beginning to look rather shabby, then I think it would be incumbent on us to move lower. I would also say that should we get a change in the economic environment, it would be appropriate for us to have a telephone conference and discuss it because, if there is a real change in the economic environment, the group around this table collectively would have a good sense of that. If there seemed to be some evidence that this recovery was faltering and it were not confirmed in the individual Districts, I would question the data. So, even though I'm saying we should keep our options open, I do think we ought to be cautious about moving too quickly unless the evidence really begins to mount. This is a very unusual set of circumstances and a type of period where we could make the kind of mistakes that monetary policy often makes at the bottom of the cycle. I don't know whether that's ""would/would"" or ""might/might.""",313
-fomc-corpus,1992,"The Secretary's view is that ""might"" captures that thought better than ""would.""",17
-fomc-corpus,1992,President Stern.,3
-fomc-corpus,1992,"Well, following on your last comment, Mr. Chairman, I too favor ""B,"" symmetric. In part, I think we have to be careful not to respond to what we already know--the sense that we continue to look at a modest recovery by historic standards. Presumably, that's what we expect. We continue to expect for the next six weeks anyway to look at pretty sluggish M2 expansion; that's what the Bluebook expects at least. If that isn't acceptable, we ought to want to change policy. With regard to M2, since I didn't weigh in earlier, I might try to muddy the waters a little further right now. Governor Lindsey's point about the volatility of M2 velocity in the short run is undoubtedly correct. I recall that we ran some simulations several years ago that said that if we really wanted to apply fairly rigorous confidence intervals to the annual M2 targets, then the ranges shouldn't be 3 or 4 percentage points wide; they really had to be 6 to 8 percentage points wide if we wanted to be reasonably confident of achieving them. That tells you that there's a lot of short-run volatility in velocity. As to whether M2 is going to or has to bounce back at some point, I must admit I'm getting increasingly skeptical. I think we may need to devote a little more time to that question and the role of that aggregate. If I think about what has transpired recently and what is different, it seems to me that customers of depository institutions today--customers broadly defined--clearly face a wider range of choices than they did certainly 10 or 20 years ago, the time encompassed in the estimation period of these models. Clearly, banks and other institutions face a much wider range of choices when it comes to pricing and other policies than they did 10 or 20 years ago. And we're also operating for the most part in a lower interest rate environment than we have over a sustained period of time. Maybe we have to go back to the '60s to find something like this, at least for short rates. So, as I think about all that, it's not clear to me that there's going to be some automatic correction in M2 or indeed that a correction in M2 is desirable in these circumstances. A lot has changed.",461
-fomc-corpus,1992,Banks have disappeared; depository institutions have disappeared. The way we measure some or most of M2 almost surely--,23
-fomc-corpus,1992,Right.,2
-fomc-corpus,1992,It's an interesting question: When does this long-term trend we are all forecasting begin to affect the M2 data?,23
-fomc-corpus,1992,Congress is working on it! [Laughter],10
-fomc-corpus,1992,"Since you have the floor, Governor LaWare, why don't you stay with it.",17
-fomc-corpus,1992,"Well, for all the reasons cited in my earlier sermon, I support your recommendation of ""B"" symmetric although I would like to identify myself with Governor Angell's preference for asymmetric toward restraint.",39
-fomc-corpus,1992,President Jordan.,3
-fomc-corpus,1992,"I always have to translate what I think it really means when people talk in terms of raising and lowering the funds rate in the sense of tightening and easing policy. I've come to understand that easing in the sense of the funds rate doesn't mean we are more stimulative necessarily and raising the funds rate doesn't mean we are more restrictive. We have difficulties [not only] in communicating [that] outside this room, but translating it inside. I was pleased that Governor Lindsey mentioned the 1930s in that context of easing and tightening because otherwise I would have been shy about mentioning something that relates to 60 years ago. I read that period a little differently in that, first of all, asset prices historically have always risen in advance of output prices and the reverse, taking the stock market as the measure of asset prices. And, of course, in that earlier period asset prices were falling very sharply; and it turned out to be a good indicator of what was going to be happening to output prices, deflation. Governor Lindsey mentioned how money shrank by one-third in that period as interest rates fell, so was policy tighter or easier? I think it was tight. The money measure, though, was a very narrow measure, even narrower than today's published Ml. And today the very narrow measures, i.e., reserves, Ml, [unintelligible] are growing extraordinarily rapidly. And I think we interpret those as biasing our actions in the direction of stimulus to the point that, if credit demand grows and short-term rates are under upward pressure, a higher funds rate would be interpreted as a tighter policy. I would view it as stimulative if we were lagging behind the market. I think there is a risk going forward as the economy gains momentum that we could lag behind the market and our actions would be stimulative while raising the funds rate would have the label ""tight"" on it. If we should get a good rally in the bond market--something I hope very, very much for--and a flattening [of the yield curve] from the long end, and if that should carry with it downward pressure on the bill rate on a full-coupon equivalent basis toward a level well below the funds rate, then I think it would be appropriate to lower the funds rate and not hold it up artificially. If the bill rate were rallying down we would have to drain reserves and contract monetary growth, and I wouldn't like to see that. So, I come down on the side of symmetric with a bias in the direction of up, especially promptly up, if credit demands so warrant.",521
-fomc-corpus,1992,President Keehn.,4
-fomc-corpus,1992,"Mr. Chairman, I was right with you absolutely all the way as you went through your analysis right up until the end. I must say that although the general tone of the comments seems more positive now than it was the last time, I do think there are some unusual factors here. And I continue to think that the risks on economic growth are on the down side. You said, and I certainly agree, that in the near term we are more likely to ease than we are to tighten. Therefore, it seems to me that the directive ought to reflect those possibilities. As a consequence, I'd be in favor of ""B,"" but I'd continue with asymmetric language.",133
-fomc-corpus,1992,President Melzer.,4
-fomc-corpus,1992,"I'd favor ""B"" asymmetric toward tightening. I think we've had a stimulative policy in place, no matter how you look at it, for a long period of time. And, at a minimum, that's consistent with recovery and expansion. Consistent with what Jerry was saying, I also think there's a risk as this expansion progresses that our policy, in terms of interest rates, is likely to be inconsistent with progress toward price stability. We ought to be mindful of that. I was quite comfortable with what you said in responding to Governor Lindsey, Alan. Your earlier comments about perhaps seeing an opportunity to coax long rates lower worried me a little. That may be possible at points in time, but I think it's very risky business at the level of short-term real rates we have right now and could well backfire, for what that's worth. Finally, I could live with your prescription of ""B"" symmetrical but I'd prefer ""B"" asymmetrical toward tightening.",192
-fomc-corpus,1992,President Boehne.,5
-fomc-corpus,1992,"I think your proposition is reasonable and I support it. I must say that it's hard for me to imagine a set of circumstances that would be convincing to tighten policy in the next five or six weeks, given where the economy has been and where it is likely to go and all the uncertainties about the money supply. Maybe [that view] reflects the fact that Philadelphia is in the northeast part of the country.",81
-fomc-corpus,1992,President McTeer.,5
-fomc-corpus,1992,"I would support your recommendation, Mr. Chairman.",10
-fomc-corpus,1992,President Black.,3
-fomc-corpus,1992,"""B"" symmetric, Mr. Chairman, with your clarification about your reluctance to move in either direction unless we had some confirmation in the real economy as well as the aggregates. I think you're dead right on that and I was going to throw that [comment] out had you not done it ahead of me. Another thing we need to address is this alternative sentence proposed for the directive. That sentence indicates we are expecting at least a moderate resumption of expansion in the aggregates, and I'd like to see that in there rather than the old sentence that we had.",112
-fomc-corpus,1992,"The reason for it, obviously, is that the original procedure would have given us an odd statement. President Syron.",24
-fomc-corpus,1992,"I support ""B"" symmetric. I hope we need to tighten before the next meeting; I doubt it. Coming back to language, on this whole issue of symmetry I remember long debates about ""would/coulds"" and ""could/woulds,"" and I find it very hard to get excited one way or the other about a consonant. So, in that regard, I would go along with what you suggested.",85
-fomc-corpus,1992,Governor Mullins.,4
-fomc-corpus,1992,"Well, using Jerry Jordan's model, I would have to prefer asymmetric toward ease with the T-bill rate well below the fed funds rate. With that model I wonder a bit how we get a clear view of what the Treasury bill rate really is other than a prediction of what we're likely to do next. And I do agree in general with the notion that we are going to have to think very carefully about real rates as we go through this process. However, I simply don't see the loan demand picking up again. And I don't think it's just M2; it's total debt, as the Chairman mentioned, as well. So, I would prefer asymmetric toward ease in this environment but I would support symmetric along with the stance of monitoring developments as we roar through this 2 percent quarter! [Laughter]",162
-fomc-corpus,1992,President Hoenig.,4
-fomc-corpus,1992,"Mr. Chairman, I certainly would support ""B."" As far as symmetric or asymmetric, my preference would be toward asymmetric. I may have heard some good things about the real economy, but I don't consider it all that much stronger than where we were some months ago when we were talking about being willing to live with money growth above the midpoint. And now suddenly we're very satisfied with it being at the bottom [of the range] and are satisfied that [it will be sufficient] to carry us forward. We're now relying on an accelerating velocity that we really can't predict. I don't see that there is all that much strength going forward. But I certainly can live with symmetric language given that we would have a consultation if there's other news coming forward.",149
-fomc-corpus,1992,Vice Chairman.,3
-fomc-corpus,1992,"""B"" symmetric is fine with me. And just a quick footnote: I don't know when we'll have to tighten; it could be soon; it could be later. But I'll tell you this: If that judgment is reached in a context in which M2 is still on the floor, it's going to present a mighty tricky issue in terms of formulating the logic and the public relations to go with it. And it's quite possible that that could happen.",91
-fomc-corpus,1992,"I know what the solution to that is. Give the job to Don Kohn to get a new set of Ms! Although I will say this: Unless it's very close by, that would certainly indicate that M2 is really very far off target. I was quite sympathetic with President Hoenig's remarks about how we were talking about M2 earlier.",70
-fomc-corpus,1992,Right.,2
-fomc-corpus,1992,"In the last six weeks to two months I have been somewhat dismayed by what has been happening to M2 on the grounds that it has been a very useful indicator for us. And I am increasingly coming to the conclusion that something is wrong with the measure. As I indicated before, whenever you get a measure [that previously] explained several different things like the P*/price relationship, the income/velocity relationship, the relationship of balance sheets, and all those things [the issue is whether] you could just draw a new line and everything would fall back into place. It really raises a question as to whether it's the single [measure] that's out of line with everything else.",137
-fomc-corpus,1992,"Mr. Chairman, there is active staff work not only here but at the Reserve Banks looking at different measures, and it will be a topic on the agenda at the Financial Analysis Committee meeting in St. Louis in June; there is at least one paper on that.",53
-fomc-corpus,1992,"Finally, Governor Phillips.",5
-fomc-corpus,1992,"I would prefer ""B"" asymmetric toward ease, but I'll support symmetric recognizing that we may have to talk again in the intermeeting period.",28
-fomc-corpus,1992,"I'm sorry, Mr. Chairman, I asked a question but I never stated my view. I'd just like to indicate my preference for the record, especially since I see that my colleague to my left has me down as favoring symmetric. My preference would be for asymmetric.",54
-fomc-corpus,1992,I had put down that your preference is asymmetric.,10
-fomc-corpus,1992,Okay.,2
-fomc-corpus,1992,Asymmetric in which direction? [Laughter],10
-fomc-corpus,1992,He's asymmetric to you!,5
-fomc-corpus,1992,"I tried to get a view of the Committee, and it's very clearly heavily asymmetric toward symmetric. [Laughter] Let me say this. I think that Don's recommendation with respect to the alternate sentence really makes a good deal of sense. Unless I hear an objection--",54
-fomc-corpus,1992,"Could you tell us where to turn to read that sentence, please?",14
-fomc-corpus,1992,At the bottom of page 15 in the Bluebook.,12
-fomc-corpus,1992,"I'm sorry, Chairman Greenspan: ""Contemplated reserves conditions...""",14
-fomc-corpus,1992,The very bottom of page 15.,8
-fomc-corpus,1992,I would write in there 2-1/2 and 1-1/2 percent; I don't like writing 1/4 percent on growth targets.,33
-fomc-corpus,1992,Does anybody have any objections to the insertion of Don's recommended language?,14
-fomc-corpus,1992,"I understand the ""might"" but do you want ""somewhat"" on both sides?",18
-fomc-corpus,1992,"We have not gotten there yet. We're on the very last sentence, the bracketed sentence.",19
-fomc-corpus,1992,"Mr. Chairman, if the numbers are 2-1/2 and 1-1/2 percent, I'd question the word ""resumption."" Are we talking about a resumption to 2-1/2?",46
-fomc-corpus,1992,"Well, that's a good point.",7
-fomc-corpus,1992,No. You're right.,5
-fomc-corpus,1992,This doesn't make a lot of sense.,8
-fomc-corpus,1992,With a resumption of growth in M2--,10
-fomc-corpus,1992,It shows our problem.,5
-fomc-corpus,1992,"We don't have growth in M2, so I suppose we are open for a resumption.",19
-fomc-corpus,1992,"We might take out the words ""a resumption of.""",12
-fomc-corpus,1992,So the phrasing would be?,7
-fomc-corpus,1992,"""With growth of...""",5
-fomc-corpus,1992,That's better.,3
-fomc-corpus,1992,Agreed without objection. Will the Secretary read the language?,12
-fomc-corpus,1992,"""In the implementation of policy for the immediate future, the Committee seeks to maintain the existing degree of pressure on reserve positions. In the context of the Committee's long-run objectives for price stability and sustainable economic growth, and giving careful consideration to economic, financial, and monetary developments, slightly greater reserve restraint or slightly lesser restraint might be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with growth of M2 and M3 over the period from April to June at annual rates of about 2-1/2 and 1-1/2 percent, respectively.""",118
-fomc-corpus,1992,Would you call the roll?,6
-fomc-corpus,1992,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Hoenig Yes President Jordan Yes Governor Kelley Yes Governor LaWare Yes Governor Lindsey Yes President Melzer Yes Governor Mullins Yes Governor Phillips Yes President Syron Yes,46
-fomc-corpus,1992,"Thank you very much.       Our next meeting will be a two-day meeting, June 30th and July 1.",25
-fomc-corpus,1992,Let's start with foreign currency operations. Mr. McDonough.,13
-fomc-corpus,1992,[Statement--see Appendix.],6
-fomc-corpus,1992,Any questions for Mr. McDonough?,9
-fomc-corpus,1992,I'm always struck by the purchasing power parity basis. Further weakness in the dollar just doesn't seem justified. Has that theory of exchange rates been routed or are we neglecting it? Why isn't that showing through in the markets?,44
-fomc-corpus,1992,"I think it's not routed completely, but it's certainly less important now because of essentially speculative capital flows based on interest rate differentials and views of stock markets. As I mentioned, I think what is hurting the dollar at the present time is the interest rate differential, which is clearly against us, and a view that Wall Street may not be as attractive [as previously]. People are reading about the flows into equity mutual funds slowing down and so on. The capital flow, which was really the source of strength in the dollar, is slowing down; and that is giving us the weakness even though there's no question on a purchasing parity basis that the dollar is far, far weaker than it should be.",138
-fomc-corpus,1992,"It may be, Governor Lindsey, that one of the reasons is that the conventional measures of purchasing power parity for the DM and the yen are so far from where [exchange] rates have been for so long--2.10 for DM, 190 for the yen--that they've lost their credibility as a benchmark even for such considerations. Still, we can imagine [tolerating]--if you want to put it that way--exchange rates at that level, and the associated current account deficits that go along with that. Now, that's one man's reaction to your question. I have been struck by the work that McKinnon has done at Stanford on this. Two or more years ago there was some suggestion that we could get back [to PPP] and, therefore, there was a lot of attention given to that issue. But with the dollar essentially [disconnected from any anchor] on a purchasing power parity [basis] for such a long period of time, it has lost its [relevance] and we should not use the word ""anchor.""",212
-fomc-corpus,1992,"Bill, you mentioned the market's expectations with respect to what might come out in Munich in terms of multilateral intervention. Is there validity to that? Is that an expectation that has some substance behind it?",41
-fomc-corpus,1992,"From what we hear, the Europeans don't have any interest in any multilateral foreign exchange activity. And I haven't heard anything from the Treasury as to their planning to [undertake such operations]. But the market is quite convinced that there is going to be at least a U.S./Japanese accord, which the Europeans will probably bless but not participate in.",70
-fomc-corpus,1992,"The Europeans are somewhat divided. The French I think will go along with anything, but the rest of the Europeans will not. My sense from my own conversations with Treasury staff, unless their views have changed in the last several days, is that they are not thinking of a deal, but one can never be quite sure when one is dealing with the United States Treasury.",73
-fomc-corpus,1992,"Under the circumstances in Japan, I'm not sure I understand why they would want a stronger yen. I know it would damp inflationary pressures but it would also work against the real sector.",37
-fomc-corpus,1992,"I believe there are two factions, but they wind up in the same place coming from different directions. The Ministry of Finance thinks that it will be very convenient for them politically in the bilateral relationship with the United States to have a stronger yen. The Bank of Japan seems to have a very firm view that a stronger yen encourages capital flows into the stock market, and they would very much like a stronger stock market because of, among other things, the positive effect it would have on the tier-two capital ratios of the Japanese banks.",105
-fomc-corpus,1992,I always thought that a strong currency didn't encourage inflows but that the prospects of a stronger currency later did.,22
-fomc-corpus,1992,"I think what you say is accurate, but what I've described is the position of the Bank of Japan, I'm quite convinced. They need not necessarily be right.",32
-fomc-corpus,1992,"That's not contradictory. If you are the Bank of Japan and the yen is strong, the presumption is that the probability of [the yen] getting stronger is higher than the probability of it getting weaker. So, it's essentially the same issue: at least that's what they're saying.",56
-fomc-corpus,1992,"Well, it's especially true in stock markets. I was speaking to [unintelligible], which is what they're hoping for.",26
-fomc-corpus,1992,"That logic has a chicken and egg problem if the idea is that you want a stronger currency to help asset prices, but what is going on in that market [relates to] this purchasing power parity in tradable goods, neglecting asset prices. The dominant factor is what is going on in that system--weakness in real estate and equity and other asset prices--and the idea that they can do something with the exchange rate to turn around asset prices doesn't wash.",94
-fomc-corpus,1992,"Further questions? If not, let's go to the report from the Domestic Desk. Joan Lovett.",20
-fomc-corpus,1992,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1992,Questions for Ms. Lovett?,7
-fomc-corpus,1992,"I was monitoring the ""Call"" this period and was struck by a couple of things. There were at least two occasions when the projection was for a need to add reserves but the funds rate was trading down toward 3-5/8 percent. So, even though the projection would have called for adding reserves, at least tentatively the program was to drain reserves in order to avoid giving a false message to the markets as to our intentions. And then there seemed to be some gaming going on in the Street by some banks that were bidding up the funds rate just at the ""Call"" time. Whatever it was they were looking at, they were thinking ""Uh oh!"" and trying to keep us from doing what we otherwise would have done.",149
-fomc-corpus,1992,Even though they didn't want to have to do that!,11
-fomc-corpus,1992,What is your reaction to that kind of heuristic action-reaction? We would have wound up doing something in reserve supplying operations that really wasn't consistent with what we wanted to do because of this perception. And then they would have a perception on the other side regarding what we might do and try to game it in order to prevent us from doing it.,69
-fomc-corpus,1992,"It's one of the foibles of having a federal funds rate objective that gets narrower and narrower. That did happen on a couple of occasions and we didn't want to have to drain the reserves if we could avoid it. So, the fact that the perception out there was that at certain rate levels and at certain times we didn't have a tolerance [for actions] that would cause people to bid the rate up is part of what one has to call the ""market dynamics.""",93
-fomc-corpus,1992,"You could now be in [a similar] position in the opposite direction. With the funds rate at 3-7/8 percent if you saw a need to drain, [you would] feel compelled to add reserves--to do something that is not really consistent with supplying reserves--in order to avoid giving a wrong signal.",66
-fomc-corpus,1992,"Well, we have a little more flexibility on one side of the rate depending on the state of market expectations. There isn't anyone out there who expects that the Committee is going to be firming policy, so there's more tolerance for a funds rate that deviates to the high side of the expected level than there would be for a funds rate that deviates to the low side. So, actually, we have throughout this period felt somewhat more comfortable with having our operations be a little loose on the up side--that is, letting funds trade at higher levels without necessarily going in and offsetting it. Whereas on the low side we wouldn't feel as comfortable because if there were any direction to policy in this period, that's the way the market thinking has been. MR..JORDAN. That asymmetry, though, is due to market perceptions that we are conditioned by real magnitudes; they think we're responding to things we can't control anyway. But the follow-up question is this: Over this last week the market tried to [interpret] that failure to cut the funds rate, in a reserve supplying sense, as a relative tightening of policy. From the Desk perspective, would you view it as tighter?",239
-fomc-corpus,1992,The market has built in a good amount of the 25 basis points.,15
-fomc-corpus,1992,"So, maintaining the funds rate is more restrictive than lowering the funds rate given where the Street [thinking] is?",23
-fomc-corpus,1992,"In fed funds terms, the market--",8
-fomc-corpus,1992,"Well, [I mean] in terms of reserves. We have to supply less or drain more in order to maintain the same funds rate, given where the yield curve is.",35
-fomc-corpus,1992,"No, I don't think so.",7
-fomc-corpus,1992,"I'm not sure about that because the amount of reserves is very small. I agree with Joan's earlier implicit assessment that if the Committee does not ease at this meeting, particularly if the employment data were on the soft side, short-term rates would back up a little. The market has built in a Fed reaction to the incoming data. I think that's equivalent to what you're saying.",75
-fomc-corpus,1992,Not quite because I don't really interpret tightening in terms of where the funds rate is. I really don't care [about that].,25
-fomc-corpus,1992,But the market does.,5
-fomc-corpus,1992,"I do care about reserve operations. If the yield curve is under downward pressure, wouldn't you drain more reserves or supply fewer reserves than you would have otherwise in order to support the same funds rate [objective]? In this recent period when the funds rate was trending down you were saying you saw a need to ease but you actually were going to have to drain reserves to maintain the same funds rate.",78
-fomc-corpus,1992,We may have to drain.,6
-fomc-corpus,1992,President Syron.,4
-fomc-corpus,1992,"We have seen some improvement at the long end, with rates coming down. I was going to ask you--this may be unfair--to look at what has occurred since the last meeting, not on a day-to-day basis but rather on a week-to-week basis. We now have a long bond rate just a tad above 7-3/4 percent. How much of that is consistent with the fairly steady pattern we're seeing of, if not softness, a lack of firmness in the real sector and then a building in of further ease in the market? Again, it comes down to the question of expectations. What I'm asking, and I'll try to be more direct about it, is: Do you view the improvement that we've seen in the long end fitting in with the market's expectation of what we might do?",164
-fomc-corpus,1992,"You're right that there has been a better tone underlying the long end of the market. And the barrier, which seemed to be 8 percent for the longest period of time, now seems to be 7-3/4 percent. The long rate doesn't seem to be able to get through that barrier; it has been at about the 7.80 percent level, which is where it was at the time of the last meeting also. So, there hasn't been too much net change over the full intermeeting period, even with the decline--",109
-fomc-corpus,1992,I thought it went up after the [ previous directive] came out indicating symmetric language and then--,19
-fomc-corpus,1992,"Yes, and then it came back down.",9
-fomc-corpus,1992,It came back down as the data weakened. It depends on where--,14
-fomc-corpus,1992,"It's hard to say. The fact that the recovery doesn't look robust certainly has been a factor in any improvement in the long end of the market. But in discussing what the long end will do [in response to] Fed policy, it usually turns on whether or not the long rate is going to back up, not so much whether there's a chance for sustained improvement. Most people in the market don't [consider it likely] that there is room for a sustained improvement in the long end for quite a while. There's at least a sense that people have to wait to see whether or not this improvement in prices is sustained, and there's a lot of skepticism about that. Some people don't think the progress has been all that it should have been. And then we have these deficits. The market also frequently makes reference to the global demands for capital. Finally, our own statements may not be adequate, and there are all these political uncertainties. So, people don't seem to have a lot of high hopes for the long end of the market doing a lot better. It's really a question of [rates] moving back up if the Fed were to ease.",227
-fomc-corpus,1992,I don't know what caused [a move of] 10 basis points one way or the other but it was interesting to me that on reports of symmetric [language in the directive] the market backed up.,41
-fomc-corpus,1992,Right.,2
-fomc-corpus,1992,"And then they saw, if not a softening, a lack of firmness in the economy--not an enormous amount but a measurable amount.",28
-fomc-corpus,1992,"Right, and I do think the fact that the recovery doesn't look like it's rolling ahead has been a help for the long end.",26
-fomc-corpus,1992,"Any further questions? If not, would somebody like to move the ratification of the transactions since the last meeting?",23
-fomc-corpus,1992,Move it.,3
-fomc-corpus,1992,"Without objection. We now move to the Chart Show: Messrs. Prell, Stockton, and Truman.",22
-fomc-corpus,1992,"Thank you, Mr. Chairman. We'll be referring to the set of charts that you all have before you labeled ""Material for Staff Presentation to the Federal Open Market Committee."" MESSRS. PRELL, STOCKTON, and TRUMAN. [Statements--see Appendix.]",55
-fomc-corpus,1992,"Thank you very much, gentlemen. Questions from any of the Committee members? Vice Chairman Corrigan.",20
-fomc-corpus,1992,What is the potential growth rate implied in Chart 17?,12
-fomc-corpus,1992,"Basically 2 percent throughout the forecast horizon and 2.1 percent as time goes on. Obviously, beyond the next three years what potential output will be is certainly open to much wider question. But the evidence in the last few years at least makes us reasonably comfortable with something in the 2 percent range.",62
-fomc-corpus,1992,What is your labor force participation rate projection?,9
-fomc-corpus,1992,It would go up a few tenths over the period.,12
-fomc-corpus,1992,"This potential output assumption is basically what we communicated in that report on potential output, with the adjustment that was needed because of the change in the 1987 base year for the output measures.",38
-fomc-corpus,1992,"So, essentially, what is built in here is a modest further increase in the labor force participation rate. Even allowing for that and taking the potential growth rate at 2 percent, what I find really surprising--bordering I guess on unbelievable--is that if you look at case 2 versus case 3, the cumulative difference in the real GDP growth rate is always 0.6 of a percent over the whole period. And the absolute difference, of course, in the unemployment rate at the end of the period is only 0.5 percent. That strikes me a little as magic.",120
-fomc-corpus,1992,"Well, part of the problem is that in the price stability case there is a timing difficulty. It has to do with the lag [in] Okun's law relationship that relates real GDP to unemployment. In the stable inflation case, you can see we're easing up growth a lot at the very end of the simulation in order to try to limit the potential overshooting. In effect, if you carry out the price stability simulation a little further, the unemployment rate is going to be down to about the natural rate within a year from the end of that simulation. So, that limits the discrepancy around 1997. The simulations use the identical Okun's law relationship so that there isn't any structural difference in those two simulations. But there is in the quarterly model, with relatively long lags elsewhere for the unemployment [rate].",165
-fomc-corpus,1992,Further questions? MR.. PARRY. You talked a bit about the effect on inflationary expectations of our goals with regard to inflation. I wondered if you had done some work or had a judgment about what some of the possible advantages might be of our being more explicit about our goals and how that might affect inflationary expectations and therefore the actual tradeoff between growth and inflation that results from pursuing those objectives.,81
-fomc-corpus,1992,"I certainly don't have any particularly wisdom to add on that point. We did a similar exercise a couple of years ago for the Committee and we talked a great deal about the role that credibility might play. I guess one could look at this current episode and, given the output losses we have already incurred to achieve the disinflation that we have, feel that it's difficult to see in that any credibility effects so far. The costs seem pretty much [as expected]. If there were a dramatic break in the regime--in the way in which monetary policy was made--one certainly couldn't rule it out. And one cannot rule out the fact that credibility even in financial markets and among wage and price setters may not come as smoothly as the models suggest. It could very well be that at some point in the next year and a half or two years there will be a significant break in inflation expectations. But I suspect that the effects on output costs and disinflation will have more to do with your actions rather than your pronouncements.",204
-fomc-corpus,1992,"We in the past have had various studies suggesting that there was an inverse correlation between the degree of price stability and productivity. I assume that that's not embodied in here; that [takes] a much longer time. So, to that extent one might presume that there is some underestimation of the real gross domestic product here at the lower price expectations levels.",71
-fomc-corpus,1992,"That's correct, Mr. Chairman. We've made no adjustments here in terms of our expectations for future potential output or the effect of price stability itself. Our research suggests that to the extent that correlation is there, it occurs at very long time intervals, probably perceptibly beyond the time interval that we're considering here.",61
-fomc-corpus,1992,Governor Angell.,4
-fomc-corpus,1992,What would be the impact of following case 2 versus case 3 on the saving rate and thereby the investment rate over that period?,27
-fomc-corpus,1992,"Well, the feedback from that to actual potential output would probably be very minimal within the time frame that we have here. It's certainly the case that in the price stability example the short-run effects of pursuing that policy, which would require higher real interest rates for a period of time in order to bring inflation down, would be adverse for capital equipment investment. But over the longer term in none of these cases is the sort of natural rate of interest being influenced by the course of monetary policy within this time frame. Our estimates suggest that because there is an interaction in the long run between inflation through the tax system that is adverse [to] investment, the benefits to potential output growth over the long run would be positive from pursuing case 2 versus case 3. In the short run, though--for the time period that we're considering here--it's not clear that we see that. It would be more [true] of a 10-year horizon.",189
-fomc-corpus,1992,"So, the argument for case 2 really is that the benefits would appear in the period from 1996 to maybe 2006, which I think everyone would admit is a very long time.",40
-fomc-corpus,1992,"When you do a present value calculation, [given] the distortions with a non-indexed tax system, the payoff doesn't look bad for the short-term sacrifice. But it is a substantial sacrifice in the short run.",44
-fomc-corpus,1992,Governor LaWare.,4
-fomc-corpus,1992,"I'm a little puzzled by the projected effect of food and energy prices. We've been seeing a lot in the press just recently and also in the Beigebook about crop problems this year and cutbacks in beef and pork, and yet you forecast very modest increases in food prices in the CPI this year and even next year. And on the energy side we see increased imports and you seem to dismiss the effect of that by not believing that OPEC and Saudi Arabia are going to stick to a more restricted production capacity. Is that because you see it being fully offset by Iraq returning to the market?",118
-fomc-corpus,1992,"On the OPEC side, there is a considerable debate in the market as to exactly what Saudi Arabia's position is. There was a runup when the market thought [the Saudis] were shifting their position, and then it backed down somewhat when uncertainty was introduced. We have predicated our forecast on the assumption that they haven't shifted their position on market share. That is because they have been increasing their productive capacity and it would seem to be a waste of money to increase productive capacity if they weren't going to use it. And we have Iraq coming in three months later than we had before, so that's a negative factor. This forecast of a drop in oil prices from the current spot rate is essentially the same as in the futures market. It is a bit more optimistic but the optimism is on the order of 50 or 75 cents a barrel. So, for better or worse, it's essentially consistent with the market forecast, which for obvious reasons is taking the same view, and that leads us to [a forecast of] a little more of a drop-back.",214
-fomc-corpus,1992,"On the agricultural side, it's obviously too early to tell yet how this year's crop production will turn out. Indeed, there has been a great deal of volatility in the markets in the past month and a half. As you know, it looked as if the weather would be dry and then in the last few weeks the rains have come and the situation has looked considerably better. We're not expecting to see any serious disruptions in terms of crop production this year. But inventories are lean and if I had to say which side the risks might be on I'd say that if we did see a shortfall, there could be a potential price spike. We're expecting meat production to pick back up this year and we think that is going to keep the lid on meat prices as well. Basically, on the food price side, a really encouraging development was the significant break we saw last year. [Previously, food price increases] had been running in a reasonably high 5 to 5-1/2 percent range. And a big chunk of that [break] is attributable to the nonvolatile components. It just looks as if underlying food price inflation and probably wage developments as well have settled down considerably.",236
-fomc-corpus,1992,Thank you.,3
-fomc-corpus,1992,President Syron.,4
-fomc-corpus,1992,"Back to Chart 17: I want to ask a question on potential, just in terms of gross orders of magnitude. If we were to follow case 2 right now, say, and [the economy] were running below capacity in the interim, the question I have--and I think I know the answer--is about the relative magnitude of the investment that is given up because of running below potential for a while and how that influences potential in the out years even beyond [your forecast horizon]. It's probably not great. There were other questions about how these various approaches could affect potential. I was wondering to what extent the foregone production and the share of production that would go into investment have been incorporated and what the magnitude of that would be.",149
-fomc-corpus,1992,"In terms of the price stability scenario and the interest rate assumptions that go along with that, we would look for the level of business fixed investment through the end of '96, let's say, to be roughly 5 percent lower than in case 1, the disinflation case, which is more of a middle ground type case. But I don't think even in the longer term that that is a transitory reduction in investment; we don't really see that having significant negative effects for the overall rate of capital accumulation further down the road. If anything, we think at some point that would turn around and, because the tax distortions would be less, that we'd actually see better and more productive investment further out.",142
-fomc-corpus,1992,Thank you.,3
-fomc-corpus,1992,President Boehne.,5
-fomc-corpus,1992,"On Chart 10, the household spending chart, what kind of job growth lies behind the personal income and consumption dynamics that you've laid out?",28
-fomc-corpus,1992,"Dave showed you some numbers for the household employment increase. Basically, we have payroll employment gains creeping up toward a level of 150,000 per month by the end of the year, which is really a very modest increase relative to the trend, say, in the last decade. And that's reflected in the very slow progress that we see in the reduction of the unemployment rate.",75
-fomc-corpus,1992,What do we have for the year to date roughly?,11
-fomc-corpus,1992,"Well, we've had only a very small increase in total payroll employment. I'm not sure what it is. We're approaching 1 million on the household series, I think.",34
-fomc-corpus,1992,"Payroll [employment growth] has been more like 300,000 so far, hasn't it?",19
-fomc-corpus,1992,"Payroll has gone up only about 300,000 from December to May.",15
-fomc-corpus,1992,"So, even though it's modest growth, we still have to have a notable increase in the rate of job growth?",23
-fomc-corpus,1992,"Well, a little better than we have been doing. The last couple of months have been in the ballpark. We would expect to get some acceleration, but it's quite modest overall.",37
-fomc-corpus,1992,President Hoenig.,4
-fomc-corpus,1992,"On Charts 5 and 6, just to make sure I heard what you said, is the projected improvement in our export figures due more to the devaluation of the dollar than to the economic activity in this country?",44
-fomc-corpus,1992,"No, most of it is due to economic activity. The dollar, although it has moved around and is at the low end of where it has been, doesn't stay there. It may be wrong in the forecast per se because it has been up and down for the past year. What I meant to say was that, in comparing the two halves of 1993, the relative [widening] of the gaps between the red and the blacks bars is a function of the lower level of the dollar as a secondary effect that plays out.",109
-fomc-corpus,1992,"Okay, thanks.",4
-fomc-corpus,1992,"Related to that, do you have more conventional assumptions about income elasticities of demand for imports?",19
-fomc-corpus,1992,"It's on the order of 1-1/2 percent, though we have this level because we're picking up additional factors on capacity utilization [unintelligible] and that pushes up the [unintelligible] end of the income elasticity on the import side.",54
-fomc-corpus,1992,President Jordan.,3
-fomc-corpus,1992,"Back to that comment about inflation: I'm very sympathetic to the latter part of your presentation and your responses to questions. I think this issue of the transition costs and how they are related to the credibility of our commitment to price stability deserves a lot of attention. That's a very difficult issue but a very important one, and I think we need to keep reemphasizing it. But I found Chart 14 very disturbing. Whatever the model or theory we have [to explain] those kinds of relationships [as they may relate to] progress toward actively reducing inflation, it gives rise to the perception on the part of the public at large and political people that credibility of that the commitment is tied to our ability to withstand political pressures, in other words the willingness to [unintelligible]. Credibility of the price stability commitment is tied to tolerance of slack, a gap of actual output below potential, or an unemployment rate above the natural rate. So then it becomes a contest of political wills, which I don't think any of us believes is embodied in what we're doing. To tie together the progress toward reducing inflation to any kind of real magnitude [in] explaining what monetary policy has done or is doing shifts the nature of the discussion, I think.",249
-fomc-corpus,1992,"Of course, this isn't a public discussion.",9
-fomc-corpus,1992,I understand.,3
-fomc-corpus,1992,"I would emphasize that basically we are looking from various points of view here at the debate that one might have about the progress we'll make. This relationship has proven to be quite robust in the short run, though as Dave Stockton emphasized this is not a fully specified model. We are not taking account of expectations effects, which are obviously very important in shifting the short-run Phillips curve around. But there is information in this that suggests that to a first approximation slack is what gives us the disinflation force. And I think we need to confront that internally in our policy decisions in terms of what tradeoffs are acceptable in the short run, recognizing as Dave emphasized that over the long run the actions might build credibility and lower those costs and make those short-run tradeoffs increasingly advantageous.",154
-fomc-corpus,1992,"But even that response--saying that slack gives [impetus to disinflation]--may be based on a model that says the appearance of slack is information that people use in forming their expectations. I don't know how people form their expectations. Some people will cite budget deficits; some people will cite the past; some will cite politics. But by saying that it has to do with slack or unemployment being above what is perceived to be an acceptable rate may be simply something that helps people form their judgments about future inflation. But that again ties it back to a tolerance on the part of this group to that slack or unemployment--and I find that very troubling--rather than the more straightforward way of saying that what we're talking about when we talk about inflation is the purchasing power of money over time. And, therefore, one would talk about it in terms of money growth.",175
-fomc-corpus,1992,I thought this was just looking at the stylized facts. Have we had any period in modern history in which there was substantial progress in the fight against inflation without slack?,34
-fomc-corpus,1992,"Well, one can look at dramatic regime changes--major currency changes and so on--to see whether there were tradeoffs in those instances and try to find information there. I'm not sure the results are uniformly favorable. I appreciate your point, President Jordan, but from our perspective there has to be some mechanism that gets you from money to prices. And that mechanism historically seems to involve some constraint on aggregate demand expansion, some weakening of demand for resources, some slack that evolves, and then there is the wage and price response. One finds only limited evidence--Dave has worked on this in the past--of a more direct effect which may be consistent with a view that all wage and price setters out there are watching the money stock trends and adjusting their expectations accordingly. But that isn't obvious; the statistical evidence is limited to support that kind of direct channel. But if one could declare with absolute credibility that inflation will end next week, then it would be costly for people to behave in any other way. So the question does arise: What could one do if one of those [unintelligible] was raised here to enhance the credibility of that commitment. Of course, once you fail, then you've lost that--",242
-fomc-corpus,1992,"Well, I don't disagree with the dynamics that you're describing, given the institutional context and the rest. I'm just hesitant to explain to anyone that I think inflation will come down because of the high unemployment rate.",41
-fomc-corpus,1992,"Well, we're always very attentive to that political problem in writing public statements. But some sense of that, I think, is abroad and it doesn't come as a very great shock to people that that is the mechanism that many people have in mind.",49
-fomc-corpus,1992,"Any further questions? If not, would somebody like to start the discussion? Bob.",17
-fomc-corpus,1992,"Mr. Chairman, uncertainty about the direction of the Twelfth District economy has increased since the last meeting. It has become clear that many of the District's states that previously had posted solid employment gains have weakened in 1992. The District as a whole has posted employment gains of only 0.1 percent between December 1991 and May of this year. All states except Oregon and Utah have registered either little increase or actual declines in employment since December. Since the beginning of the year California's employment has stopped declining. However, employment is 1.5 percent below the level of a year ago and downside risks clearly remain. Northern California is following the national pattern, but southern California is exhibiting further weakness. Manufacturing continues to report job losses, and more declines in aerospace are expected in the Los Angeles area. Moreover, addressing the state budget deficit is likely to weaken the state's economy further. Current estimates suggest that the state has close to an $8.1 billion deficit. Cuts of that magnitude would reduce next year's nominal state and local spending below that of the fiscal year just ending. Failure to accomplish cuts by tomorrow will force the state to issue scrip. Negotiations have been deadlocked, particularly on cuts in education spending, which also is likely to see nominal spending below the current level. Finally, the agricultural sector is facing hard times. Drought conditions prevail in Idaho, Utah, and eastern Oregon, leading to low yields and some acreage reductions as well as herd reductions in the cattle industry. While drought conditions are not as severe this year in California, prices for many commodities, including vegetables, cotton, and citrus, are down sharply from a year ago, leading to low profitably and some losses. Turning to the national economy, I believe that a moderate expansion will continue throughout the remainder of this year and in 1993. Although consumption data for May were disappointing and I'd say somewhat worrisome, they were not too surprising in view of the very rapid growth in consumer spending that we saw in the first quarter. Overall, I wouldn't be surprised to see somewhat faster growth this year than is projected in the Greenbook, but the difference certainly is well within the normal range of error. I also would agree with the Greenbook that underlying inflation is on a very gradual downward trend. However, it is surprising that we have not seen a more rapid decline in inflation, given the slow growth over the past three years. And I believe it is possible that the Greenbook may be a little on the pessimistic side. Perhaps a more explicit statement of our inflation goal and our plans to achieve it might dispel questions about our resolve and lead to improvement in inflation expectations. Thank you.",540
-fomc-corpus,1992,President Keehn.,4
-fomc-corpus,1992,"Thank you, Mr. Chairman. Starting first with a comment on the staff forecast: Our forecast is very similar to the staff's in terms of the numbers; the pattern, though, is somewhat different. Our GDP forecast for '93 is lower than the staff's and in fact is lower than our forecast for this year. The differences seem to be in the auto and housing sectors. Our forecast for sales of cars and light trucks in the second half of next year is lower than the staff forecast by about 500,000 units at an annual rate. Our outlook for long-term interest rates also is not quite as optimistic as the staff's and, as a result of that, our housing starts for next year also are lower than theirs. These two differences, of course, lead to secondary differences at least in terms of growth. Our inflation forecast is very similar to the staff's; we're a little lower this year and about the same for next year. While the differences between the forecasts aren't that great, assuming that this year and next year work out about in line with either of these forecasts, in my view the bigger question is whether there is enough momentum in the underlying economy to be sustainable. After three years of comparatively weak growth, the likelihood of a fourth year of weak growth this year and perhaps a repeat next year for a fifth year of the same, [the question is]: Is this the best we can do and will this growth be strong enough to improve significantly the employment problem as well as the utilization of our industrial capacity? I have growing feelings that it will not--that this is not a satisfactory forecast--and that in our policy discussion we will need to take steps to try to develop some stronger growth. In terms of the region, while many of the major sectors of the District's economy have shown some improvement, here again the durability as well as the strength are open to question. The major area of improvement has been in the auto manufacturing sector. The second-quarter production schedules were somewhat over those of last year. Third-quarter schedules have been set preliminarily at levels about 17 percent higher than last year. But those schedules are based on the expectation that retail sales will increase from current levels; and if they don't, then we would expect the production schedules to be reduced. In turn, the suppliers to the auto industry have seen some pickup in orders. In the steel business, for example, they expect to ship some 21 million tons in the third quarter, up from 20 million tons in the second quarter. For the full year they are forecasting shipments of 82 million tons; that's not a bad year. And the improvement in the steel business is not just on the auto side; for example, shipments to appliance manufacturers are also a bit higher. Other parts of the District have been a bit mixed. Housing activity was higher in May than in April, though April was quite weak, and transaction volume has been pretty good. However, retail sales, which increased in May, seem to be down in June; at least the reports are that sales were a little on the soft side. Weather may have been a factor; it has been exceptionally cold in our part of the Midwest and people just are not buying the things that they normally do at this time of the year. In the agricultural sector, we may be in for a difficult summer. We had an exceptionally wet spring, which resulted in a difficult planting season. That was followed by an exceptionally dry spell and has affected much of the corn and soybean crops of the District. And most recently we had frost conditions in Michigan and Wisconsin, which have had an effect on the fruit crop. Despite that, it's still early enough that if we get a reasonable break on the weather from this point on we should get pretty good crop yields. But given this uncertainty in the farm area, sales of agricultural equipment have been very weak--surprisingly weak--and indeed were described as terrible by one CEO. As an example, combine sales in May were some 80 percent under the volume sold last May. Therefore, production schedules, which had already been reduced, are now in the process of being cut further. On the employment front, District employment has increased by about 100,000 since the low point in August of 1991, but despite that increase we still have recovered only about 25 percent of the losses that we sustained during the recession. Many manufacturers are continuing to implement staff reduction plans, and I just don't sense any fundamental improvement in the underlying employment conditions. Inflation continues to look constructive. Intensive competitive conditions seem to be an absolute lid on significant price increases. The people I talk to say the pricing environment for all products is really very tough. One major manufacturer, admittedly [with] an enormous amount of clout, is achieving a reduction of almost 1 percent in the cost of outside purchases this year. And I must say that in talking to people I just don't have any sense that inflation is a part of their current thinking. Net, while I think the District has shown improvement since the last meeting, the strength of the underlying momentum and the vulnerability of this level of activity are the major questions. Thank you.",1039
-fomc-corpus,1992,President Forrestal.,4
-fomc-corpus,1992,"Thank you, Mr. Chairman. Let me start with the District activity. As in the nation as a whole, the pace of improvement in the Sixth District that became evident in the first quarter has tapered off. The District's economy is relatively dependent on housing activity in the nation as a whole, so the downturn in housing activity--or moderation perhaps in the pace of home sales and building at the national level--has been very quickly felt in the District. Our most recent survey of manufacturing plants also reflected this; our respondents' outlooks were a bit less optimistic than the month before. At the same time it was still a relatively positive report. In general, a fairly broad-based but moderate expansion seems to be taking hold in most areas of the District with the exception of oil-dependent Louisiana and South Florida. The situation in South Florida is linked to declines in interest rates, as you would expect with the heavy retirement population there. As for other areas, consumer spending appears to be moving ahead, with nondurables, particularly apparel, continuing to sell quite well. Auto dealers are also showing some improvement. While the business contacts I have met with recently appear confident that growth will be sustained, they're very clearly disappointed with the pace of expansion and are looking for greater growth. At the same time, their comments don't indicate that a lack of liquidity or financing is a problem anymore. If anything, they're reporting improved cash flows from lower interest rates, and several have noted that banks have become increasingly aggressive in efforts to make loans. Only a few of the people that I've talked to believe that a further easing of policy would provide much help or would generate the enthusiasm about the outlook that seems to be missing. Rather they think it's going to take a long time to work off the imbalances that developed during the 1980s. As others have said, in the Sixth District we're not hearing any reports of price increases at all. So, while there has been some [moderation] in activity in the District, I think it is still relatively good albeit quite modest. Now, with respect to the national outlook, we have some minor differences with the Greenbook in the various components of GDP but our forecast is basically the same. We still have a substantial difference in the forecast of inflation, which we see as being basically unchanged through 1993. I guess I'm a little less confident than I was at the last meeting that the recovery has really taken hold, although I still think we're in a sustainable recovery. It may be that this is the best we can do for the time being. It seems to me that we need to keep in mind that monetary policy can't raise the economy's potential, at least in the short run. So, in general, while I think we're moving ahead with some falling back perhaps in the rate of growth, we need to measure our policy response very carefully.",575
-fomc-corpus,1992,President Black.,3
-fomc-corpus,1992,"The big economic news in the Fifth District, as I suspect many of you know, is that it may soon be possible to buy a BMW that has a honk with a southern accent! BMW people have just announced that they are going to build a huge new factory in northwest South Carolina that will create jobs for about 4,000 people. I wish that had been announced before our last directors' meeting when you had an exchange with our protectionist-minded Mr. Chairman, who has been mourning the loss of those high paying jobs and their replacement by this sort of thing. But there is an unfortunate side of this in that South Carolina paid about $150 million in subsidies in order to get that factory. So, this is not a purely economic decision but it does augur well for that particular part of the country at the expense of some other part. Now, beyond that, not much really has changed in the region. Gradual recovery seems to be continuing and business people are generally optimistic about the near-term outlook pretty much across the spectrum of sectors and industries. The tone of the anecdotal information, though, at our last joint meeting of our three boards was a little less positive than it had been at the meetings immediately before that. Against this background, we think the optimism about the future could fade pretty fast unless actual business activity does accelerate at least a little in the fairly near-term future. At the national level, our projections are very close to those of the staff. We expect slightly more real growth and slightly less inflation, but the differences are not really significant. The question of where the risk lies seems to me to depend largely on how much weight one wants to give to the persistent weakness in M2 as an indicator of what lies ahead. We're still inclined to discount most of the recent weakness that we've seen because we feel most of it comes from the portfolio adjustments that are reflecting the structural changes in banking and financial markets with which all of us are very familiar. But the longer this weakness persists, the more uneasy it makes us. Our uneasiness was heightened by the excellent analysis in the second part of the Feinman/Porter memorandum which suggested that M2 is by no means dead. So, on balance, we think the risk of error is now moderately on the down side rather than the other way around, given this renewed contraction in M2 that apparently has been taking place in June. Despite whatever questions there may be regarding the real side of the projections, we are very comfortable with the staff's projection that inflation will come down. This is also our projection and in fact we expect somewhat more decline than the staff does both this year and next. And we think there's a good possibility that a growing acceptance of this belief on the part of the public would work to bolster real economic activity.",563
-fomc-corpus,1992,President Boehne.,5
-fomc-corpus,1992,"The District economy continues to expand slowly with New Jersey the weakest of the three states. Manufacturing has been the relative bright spot, although by no means robust. Retailing has been flat to up slightly, reflecting in part the weather but also just the general weakness in the economy. The sense I have in the housing area is that it has been slowing, but in the commercial real estate area there are people close to that market who feel that it has reached bottom. Some of the deals are now attractive enough that some properties may begin to move, although there's no real hard evidence of that; that's just a sense. The major weakness in the District has been in the job market. We've had a weak labor market now for many months. There is some hint of improvement perhaps in the manufacturing area, but overall there continue to be losses in jobs in the District. At banks, consumer lending is up some but business lending is still soft and I don't hear any of the talk about bankers being aggressive, at least from the point of view of the business community. All in all, I think the District continues to expand but probably more slowly than the nation as a whole. What strikes me about the national economy is that almost wherever one looks the various sectors are either weak to begin with or, after some improvement for several months, are in the process of slowing. That again puts the spotlight on sustainability. What we're counting on for the Greenbook forecast is that out of this slow and slowing situation we're going to get enough job growth and generate enough income that it will feed enough consumption to keep a modest expansion going during the second half of this year and then next year. I have more doubts about this sustainability than I did several weeks ago. If growth in the early part of this recovery had been at 5 or 6 percent or 4 to 5 percent or even 3-1/2 to 4 percent, I think this slowing in momentum that we're experiencing would be welcomed. But the strongest quarter we've had is under 3 percent; and this is supposed to be the fastest part of the recovery, so there's not a lot of downside margin. If there were brighter prospects from exports or something stronger outside the immediate job/income/consumption dynamics, I'd feel more confident about achieving this [projected] growth rate of 2-1/2 percent or so. But there just isn't much margin and we appear to be going into a period of some slowing. So, I think the downside risk is greater than it was a few weeks ago. And while monetary policy should never depend on one particular indicator, it seems to me that the key area we need to look at with regard to the sustainability and dynamics [of this recovery] is job growth. If we don't get even the modest kind of job growth that underlies this Greenbook forecast, the expansion is going to break down. If we see some signs of this job growth [expectation] not being met, then I think this expansion has some real problems and we will have to take a serious look at what our options are in the monetary policy process. I think we can largely discount what is happening to M2, but what bothers me is that M2 was growing slowly and now has turned negative and it's in the context of total credit being very weak. If the weakness in bank credit were being offset by credit from other financial intermediaries, it would be easier just to forget the whole thing. But that's not happening. So, there are a lot of good reasons for discounting M2 but, putting it all together, one just has to have a nagging feeling that there is something here that is reflecting the underlying demand in the economy.",744
-fomc-corpus,1992,President Hoenig.,4
-fomc-corpus,1992,"Thank you, Mr. Chairman. Our District continues to grow very sluggishly in my opinion. We have seen some job growth in construction, particularly residential construction, over the last year. This is primarily in our northern area, in Omaha and in the Denver, Colorado area. Beyond that, agriculture is at best steady; we've seen some production loss in wheat because of the weather but that is being helped a little by some firmer prices. So, we don't expect a drop there but we're not seeing [that sector provide] any strength to the economy, as it has in the past. Our manufacturing sector was very sluggish through the first quarter; while we have seen some improvement there anecdotally, it really has been very modest at best. Others have talked about the auto industry; we've not seen any pickup in jobs in plants in our area, at least to this point. Our energy sector is, as it has been, very, very poor for a lot of different reasons, so it's not generating a lot of activity in our region of the country. So, we expect continued growth but at a rate less than we're seeing for the nation as a whole. As far as the national economy goes, we also are very close to the Greenbook projection, which we would note was adjusted down in the period going forward; that's consistent with our view. We see the economy growing very sluggishly and we're sensitive to that. That is consistent with the type of credit activity we're seeing on loans and what is being reported to us. So, we think there is a downside risk to the economic recovery right now and, although we see improvement in the inflation rate, we think that downside risk is something to be alert to as we go forward with the policy discussion.",353
-fomc-corpus,1992,President McTeer.,5
-fomc-corpus,1992,"Mr. Chairman, the economy of the Eleventh District, which did better than the U.S. average during the recession and the first phase of the recovery, seems to have fallen back to the average of the U.S. recovery. Previous sources of strength have dissipated somewhat; activity is essentially flat now with employment growth barely perceptible and certainly too slow to cut into the unemployment rate, which is about at the national average. There's just no sense of momentum in the District as far as I can tell. At the national level, we have no quarrel with the Greenbook although we believe that the risks are greater on the down side. It appears that the strongest quarter of 1992 may already be behind us. The headwinds include: declining defense spending, which will be going on for a long time; the overhang of real estate, which will be with us a long, long time; the need and desire to reduce debt at all levels in the economy; the fact that there is no room for fiscal stimulus; and now the recently diminished export prospects. All of these headwinds seem too strong for the stimulus of lower short-term interest rates. It may even seem surprising that we have the strength of the recovery that we do have in view of all these longer-term trends. Our own staff's optimism about the sustainability of this second phase of the recovery seems to have waned somewhat lately. We're concerned about the slow growth of M2. While we have been discounting the measured M2 somewhat because of the special factors that we all know about, we're still concerned because even after taking those into account there appears to be some slowing in M2. The problem with all this is that I'm not sure there's anything we can do about it. It seems to me that further easing moves at this point are just as likely to raise long-term interest rates as to lower them. But I believe we ought to consider [a move] carefully. And if we think a further slight easing of monetary policy might result in a cut in the prime rate, even if it did not result in a lower 30-year bond rate, since the prime rate-based lending is so important to the small businesses and the entrepreneurs who are so essential for job creation at this point, we might want to consider it on that basis.",464
-fomc-corpus,1992,President Melzer.,4
-fomc-corpus,1992,"In terms of the economic projections, we're an outlier at the high end in both years on real GDP and the CPI. I don't put a lot of credence in these projections in general in terms of how helpful they really are in the policymaking process. But even if we were where the staff is, with a somewhat more modest projected recovery, I would actually be somewhat encouraged by that. I think the monetary policies that we have pursued really have been quite different than those pursued in and around other postwar recessions. And I think the fact that we're coming out of this recession with a much more modest growth rate gives us the chance to make some sustainable progress on the price front. I would say in general that the pattern in the past was that monetary policy was much too stimulative in and immediately following recessions; and that has been associated with much higher rates of real growth than we're seeing now. But that creates relatively soon, in a matter of several years, a fairly tricky [choice to] reverse course to keep things expanding. So, I'm actually not discouraged by what we're seeing here. In terms of what our fundamental job is, that may set up a unique opportunity for us. The other thing, which is not something that I've heard around this table but when I read it in the papers I cringe, is this thought that the low measured inflation we're seeing right now somehow gives us room to do things. It may in a sense if we could perform this high wire act and figure out when to reverse [course] again. But I really think the effect of our actions on inflation ought to be based on what we see happening two or three years down the road and not on the concept that low measured inflation right now gives us perceived room in somebody's mind to do something. As far as what we're seeing in the Eighth District, it's the same pattern that I've been reporting. We continue to have job growth that's considerably in excess of what we're seeing nationally. And the pattern is still the same: We're seeing very modest declines on the manufacturing side that are made up by fairly significant growth on the non-manufacturing side, generally across the board except in mining. There is particular strength in construction; residential construction contracts remain very strong. We're seeing some slowing on the commercial side, which had also been very strong. The anecdotal information that I'm hearing is consistent with continuing improvement. I'm not picking up any ebullience but I haven't picked up some of the negative vibrations that I've heard others report here. In terms of the anecdotal information, I see a pattern, for what it's worth, of an expansion that's continuing to take hold, with confidence among consumers and business people that is increasing and no warning signs on that front.",550
-fomc-corpus,1992,"Tom, when you said you were an outlier on inflation did you mean on the low side?",20
-fomc-corpus,1992,"No, on the high side.",7
-fomc-corpus,1992,President Stern.,3
-fomc-corpus,1992,"Thank you, Mr. Chairman. I personally agree in almost every detail with the outlook presented in the Greenbook. The possible exception is the unemployment rate, which I think might be a little slower to come [down] than is indicated in that forecast. I must admit I'm a little surprised at some of the comments I've heard around the table. It seems to me that we're getting pretty much what we expected for the first half of the year or maybe doing even a little better. If I look back at the Humphrey-Hawkins numbers that we put together in February or just think about the Greenbook forecast over time, it seems to me that the numbers have come in pretty much as expected. I don't see any really negative surprises in what has unfolded. We were expecting a modest recovery and what we're getting is along those lines. For what it's worth, we run an exercise in updating our forecast with the latest evidence on the national economy that has become available since the last meeting, and we did it again this time, of course. Our model, by the way, is purely statistical; there are no judgmental factors in it at all. The evidence that has become available has looked rather mixed, but when we put it in the model we got pretty much the same forecast that we had before the latest data became available. So, I take it from at least that one indicator that what we're getting is pretty consistent with what we thought we would get as we go along here. I might add, John, in regard to the question you raised about food inflation: Talking to people in a couple of big companies in the food wholesale and retailing business in Minneapolis recently, they said they think we're overestimating food inflation at the consumer and wholesale levels. We're going to be meeting with them further to try to understand what the difference is, but their view is that it has been pretty tough to raise prices in that business as well. We will see if we can find out a little more about that. I would think that the risks, at least in terms of real growth, may be on the up side as much as on the down side at this juncture. I say that on the basis of the anecdotes that have come my way recently in the District. The obvious caveat, of course, is that the District is pretty thinly populated and may not have a big impact on national performance. Just to give you a formula for this: Tourism was at a record last year but all the tourist spots are way ahead of last year so far this year.",514
-fomc-corpus,1992,It has been discovered by Canada!,7
-fomc-corpus,1992,I don't know; maybe we ought to secede and join Canada!,14
-fomc-corpus,1992,You have an awfully big sample in relation to your universe! Let's look at it that way.,20
-fomc-corpus,1992,"Highway construction has been strong; I take it that is tied to the highway program that was put in place at the federal level, but we're getting a number of reports along those lines. Residential construction has been strong; auto dealers seem encouraged; and retail sales in general have been pretty positive. It's not that everything is positive. The military bases, especially the air bases in the District, are adversely affected by what is going on there. And there is some expectation that the [influx of] Canadian shoppers, who have been streaming across the border for quite some time now, may slow. In the past that kind of information would have led to some sense of despair; but this time people seem to be shrugging it off as something they can deal with. As for M2, I think I'll await Don's wisdom on that subject before I comment.",172
-fomc-corpus,1992,President Syron.,4
-fomc-corpus,1992,"Thank you, Mr. Chairman. In the First District we have not had a great change since the last time we met. But I would have to say now that it's on the soft side of ""mixed."" The reason for that characterization is that there is a lot of variance within the District. The only place we're seeing any significant bounce-back is inside [Interstate] 495 in the greater Boston area, where the economy does show some signs of strength with vacancy rates stabilizing, commercial rents stabilizing, and residential prices actually firming. But all of this is because M2 is behaving the way it has! That's an exaggeration, but we're seeing enormous flows into mutual funds. I meet with people from the mutual funds fairly frequently and they actually are at the point where they are concerned now and are sending warnings, if I can characterize it that way, to people who are investing in junk bond funds. They have had just enormous flows--",190
-fomc-corpus,1992,You're saying that M2 has an inverse correlation with the [inflows to mutual funds]?,18
-fomc-corpus,1992,"That's right, because of the importance of the management of funds and institutions [whose assets] don't count in M2 and their being a big part of the greater Boston economy.",35
-fomc-corpus,1992,Boston strives to be different!,6
-fomc-corpus,1992,As the non-M2 economy!,7
-fomc-corpus,1992,"That's right, the non-M2 economy. See, that's why we've always been heretical! But there really is a concern about a potential break [soon] in the equity market and also further out in the junk markets. There's a lot of worry about how sophisticated many people are who are reaching for yield coming into this market. On a more serious note, once you get outside the greater Boston area, the periphery--my notes here say ""the periphery""--is poor. And that, of course, is tied in large measure to what is happening in the manufacturing sector. We're not benefiting for reasons that don't have anything to do with the national economy and the improvement with computers. It has to do with the problems in the high-tech industry generally in New England, though we are suffering from the pull-down in defense. I think we're just in a long and inevitable period of readjustment here that's going to be painful. Looking sector by sector: Retailers, excluding autos, report a somewhat weaker situation; housing is slightly weaker compared to the last time except at the low end of the market; and manufacturers, particularly of non-computer high-tech products, have seen some fall-off in their foreign sales but some slight improvement domestically. As for capital spending plans, the only reason anyone we talk to is investing is not to increase capacity but because they have the notion that they have to do it to remain competitive in a tougher world. The price situation is very similar to what we have heard elsewhere, with lots of pressures on margins and prices looking quite good. Bank lending is still quite slow and, given the amount of capital that has been raised by many institutions, I think it's less because of supply constraints and more generally because of the [slow]down in demand. [Unintelligible] anecdote, we find that these things always seem to take a year and a half: This week the Rhode Island crisis was resolved a year and a half after it started--at some substantial cost to the state, as is always the case. As far as the national economy goes, we're in general agreement with the Greenbook. However--and this isn't a comment on the Greenbook so much--in going through the exercise myself for a Humphrey-Hawkins forecast this time I noted that at least in my own forecast, and I think this has been true generally, the central tendency for the last four years has been for serial optimism in our forecasts for economic growth and, with the exception of one year, serial pessimism on inflation. I'm not saying that that's going to continue going forward, but I think it is instructive that we have generally been too optimistic on the economy and too pessimistic about the price side. In my own view I'm nervous about a lack of firming or cumulative [improvement] in the economy and how this will fold together. We're not seeing a firming, and a great deal of new softness is emerging. On that score, the numbers that we've been getting on unfilled orders now for three quarters of the year become a concern. One starts to ask: What is the dynamic for this to come together? We keep talking about confidence, but unless we see some improvement in income, we have to start to wonder how sales are going to keep going. And as for the improvement we've seen in income so far, even with the most recent figures income is not growing as much as retail sales and an awful lot of that income is in transfer payments. If we look at what has come from employment in the profit sector, we don't see anything there that is consistent with an improvement in confidence. All things put together, we would expect a somewhat higher unemployment rate than the staff, but marginally so, based on about the same outlook for GDP. We think the staff forecast is pretty evenly weighted; however, I'm concerned that the cost of a mistake is not evenly weighted but [is greater] on the down side. My view may be formed too much on the basis of conversations with people who are worried about continuing financial fragility and what will happen if there's too much disappointment in the marketplace. I'll make one final comment on this: As far as the Ms go, despite the inverse beneficial impact in Boston, we've always been rather skeptical of the Ms. But I do think they say something. Just looking back over the last decade, unless we get a break back up in M2 we will be further outside the M2 and M3 target ranges than we've been in the last ten years in an environment in which we would have to say that, at least thus far, we've been disappointed with the economic performance we've seen. I think that puts us in a potentially difficult position in explaining our actions as we go forward.",956
-fomc-corpus,1992,Governor Angell.,4
-fomc-corpus,1992,"It seems to me that we ought to assume that the economy is really moving along at about a 2 percent growth path in the first half. I tend to discount somewhat that little higher number for the first quarter, and I wouldn't consider moving back to 2 percent in the second quarter and maybe only a little higher than that in the third quarter as being out of line. It seems to me that it's very difficult to derail and change the direction of an economy. We have a huge transfer payments support network in this economy, and I just don't see what it is that's going to turn all this around. We're seeing a lot of the same things we've been seeing for some time but I don't see new sources of weakness out there at this time. Whereas my forecasts for real GDP and the CPI are identical to the staff's for 1992, I have some concern about the particular mix that the staff uses to get there. And it seems to me there's a vulnerability. I think this adjustment period we've been in is really an adjustment period in regard to the personal saving rate in our economy. I expect the personal saving rate to be inching up whereas the staff has it pretty flat. I also see the trade deficit moving south again as a vulnerability for the foreign exchange value of the dollar. And with the dollar as weak as it is, any move at this point that would be associated with a lower fed funds rate could quite easily be interpreted as Federal Reserve acquiescence to a depreciating or devalued dollar. And I'm not sure how world capital markets would react to such an event. There's a real potential for upset in that regard. Corporate profits and cash flows look pretty good, so the saving rate in the business sector may be much better than in the government sector, which doesn't look like it's going to respond very rapidly and yet does, I think, provide a considerable amount of restraint. So, it seems to me that we're in a circumstance in which our being seen as focusing on price level stability has more payoff than any other action in terms of having faster growth. I just do not see how an alteration of the present fed funds rate is going to contribute to an improved outlook, and I think it could very well contribute to instability rather than stability.",453
-fomc-corpus,1992,President Jordan.,3
-fomc-corpus,1992,"First, I have some comments from a District perspective. Traveling around the Fourth District and getting acquainted with bankers and business people all over the area, I'm most often meeting people for the first time. It's been very helpful, very instructive. In manufacturing, which is very important in the District, the general sense is that things are improving modestly. The headlines will be something like ""British Petroleum lays off 300."" That's front page news. But Ford Motor Company recalling 800 or planning to add another 800 doesn't make the news; or Goodyear, Reliance Electric, or Piedmont Corporation adding workers, if it shows up at all, is back on the third or fourth page or buried well inside the paper. When I talk to business people about their own views they tend to convey a sense of ""well, we're doing a little better but we're worried about the national economy."" And they're worried about the national economy either because of the budget deficit or because of national politics and concern about what kind of leadership we have, believing that the long-run outlook for the economy depends very much on political leadership rather than institutional factors. But they do not reconcile in a way that's clear to me what they are seeing or feeling as they personalize their own businesses with what they think about the economy at large. The retailers comment about how slow sales have been and usually attribute that to weather, which carries with it, of course, the expectation that sales are going to pick up with better weather. So they could easily be disappointed if better weather comes and they don't see sales and order books picking up. When I quiz people about their inflation outlook, consistently manufacturers and retailers say that it's not a question of inflation, it's a question of deflation. They ask: How do we manage stable prices or a decline in prices? But they think that the national inflation rate is going to be 4 or 5 percent. Very rarely do I find somebody who is talking about something less than 4 percent over a 5- to 10-year horizon, even though in their own businesses they don't expect to be able to increase prices. So there is a disparity [between] what they face or feel they are contending with and this national [view]. When I ask why they don't believe us about going to price stability and what that world would be like in terms of interest rates and other things, they often cite the budget deficit or national politics or [what they see as] the outlook for easy money-- that sort of thing. There is no real substance to why they feel that way. A few other comments on sectoral developments: We see strong increases in bookings at hotels throughout the District; the convention business in the Fourth District is really doing quite well, maybe in part because it didn't have a boom so it didn't have a bust and kind of moved right through this. When I try to elicit sympathy for how tough things are in southern California where I'm from, I get no sympathy at all. They think it's well deserved! [Laughter] There have been reports of a pickup in residential activity throughout the District; we're seeing some new home starts pretty well throughout the whole area. One banker reported commercial lending up 12 percent year-over-year; he happens to be in an area where Ford Motor Company is recalling workers and adding workers. That's balanced off against bankers in the more agricultural areas expressing concern about a third year of drought; [they say] they're going to be getting a lot of keys if we do have a third year of drought. But they have carried [the farmers] this long; they need rain and there's nothing they can do about that. When I talk to bankers about interest rates and inflation, consistently without exception they talk about higher interest rates and higher inflation. I asked them why we don't see more growth in time certificates of deposits. They say it's because their customers are waiting for higher rates and don't want to get locked in. Why are they waiting for higher rates? [They reply that] when we get the higher inflation, we're going to get higher interest rates. And I asked them why they don't tell their customers that that is not going to happen. They say because it is going to happen; we are going to get higher interest rates because we'll get higher inflation as soon as we get [more economic] growth. I've asked them to consider a world in which we have roughly stable inflation and what that means and what they're going to pay on their checkable deposits and their regular savings--what it was like, say, in the early 1960s. And they simply say they don't believe it [will happen]; they're not willing to lower checkable rates or regular savings rates and make their customers, especially their older generation customers, unhappy because they will just have to raise them again as soon as growth picks up or as soon as inflation picks up. Turning to the national economy, I don't disagree significantly with the Greenbook. I guess I would be a little more optimistic on real growth--on the higher end of the [Committee members'] range--but not any different at all, really, on the inflation outlook for the near term. The comment that Mike made about capital goods was consistent with what I heard throughout the District; I heard the same kind of phrase about the pickup in capital goods being far from spectacular. Most of our capital goods suppliers say they are getting more orders; the transplant plants especially are picking up business from the foreign producers and taking back domestic markets. But they all would characterize it as ""not spectacular growth.""",1115
-fomc-corpus,1992,Governor Mullins.,4
-fomc-corpus,1992,"Well, I don't have much to say this time so I'll probably talk longer than usual! For me there is an issue of risk which has intensified since the last meeting. There's no question about the point that Gary Stern raised: When you look at our forecasts, they look better than last time or roughly in line. For the first quarter we expected growth to be around zero and it was 2.7 percent; at least, I think it's settled on 2.7 percent now. The concern is about the pattern, obviously--the pattern of a surge early in the year followed by deterioration on the spending side--and that raises questions about sustainability. Housing has clearly lost momentum and there's also concern about retail sales. Auto sales have held up, but I wonder if that's not due to the age of the fleet and some replacement demand or quality effects of American autos. Export growth also has slowed and we do have industrial production coming in [slightly higher] now. As Ed Boehne pointed out, the key is whether that feeds in through job growth to stabilize the situation. We're now projecting a couple of quarters of growth of around 2 percent. There's some question in my mind of a stalling here. Given the spending outlook, I think the chances are perhaps 1 in 3 that we'll have a couple of quarters of growth below 2 percent and that indeed the unemployment rate, instead of stalling, might well move up toward 8 percent with a couple of quarters below 2 percent. I think there are risks here. There are risks to the institution. I wonder how good a job we've done in selling our goal of price stability, and I wonder how widely shared it is within the body politic and the American public. And I would just as soon not test that too strongly in the current environment. I think there are risks also of instability and damage to our long-term objective. If we don't make a move and indeed we do get some bad news, I think we'll feel compelled to take more aggressive actions down the road. The hallmark of the success of the price stability program has been gradualism, and there might be concern about instability. On the other side, I see the upside risk as 4 percent growth; and with this degree of slack in the economy, I don't think the consequences for inflation are all that troubling. I do think there are businesses out there that would be relieved of the vise of several years of really tough demand considerations and who might try to increase prices. So, I wouldn't entirely discount some inflation consequences. It does seem to me, though, that compared to last time the downside risks have increased. It's less clear to me how we should respond. There's no question that the problems of the economy have not been caused by monetary policy, and it's not clear how much monetary policy can do to help at this stage. But we are facing weak money and I'm afraid increasing signs of weakness in the real economy. And as the central bank most people view us as responsible for money growth. M2 is certainly distorted; but, as has been pointed out, the debt aggregates are also weak and even M1 has started to decelerate. Even with the distorted M2, I can't help but suspect that the dramatic collapse we had a few months ago contained some information about what was happening to consumer demand. I guess we'll talk more about this tomorrow. Of course, we could say that ease would have no effect; I think that's a tougher case to sell after the ease late last year and the surge in spending. Our staff would call that Grainger causation; others might call it coincidence. [Laughter] But I think the economy was poised for that response in the sense that [our easing actions] from October through December unleashed refinancings and put spendable cash in people's pockets and helped with that spending spree. Moreover, I think [further easing now] would result in a reduction in the prime rate and would increase cash flows. I doubt that it would unleash a wave of new borrowing. Governor LaWare's alma mater, Chemical Bank, reduced its prime a bit for a while and stood prepared to be trampled by credit-starved borrowers, and I think we can infer that it was lonely out there. I do think [an easing action] would help on the cash flow side. We could say there are inflation risks with easing. I think we're pretty much on record as saying that the pressures on inflation are easing, and I doubt that there's a strong case that we'd do much to reverse them; the fundamentals are well in place. But, again, it's not without cost. There is concern about the long rate. Consistently as information has come out which increases the probability of ease, that long rate has moved down and vice versa. That doesn't mean, though, that actual ease would not result in the long rate going up because then the critics actually would come out of the woodwork and start talking. But empirically I wonder about that argument. So, I guess I see zero M2 growth in the context of building evidence of decelerating spending and that makes me nervous. It's hard for me to believe that this economy is money starved. Nonetheless, the liquidity is really hanging it back. We've had some help already: some effective ease from a dollar that is down 8 percent from its peak in March; a long bond rate that is down 25 basis points since March; and a mortgage rate that is down 50 basis points since March. Moreover, late last summer I thought real short rates were a bit high. I think that's no longer the case. The [federal funds] rate has come down 200 basis points since last summer; market rates are low in real terms at about 0 to 1/2 percent. Bank rates still remain high in real terms, it seems to me, and a move may help there. I'm also mindful of the need to save a little ammunition for adverse contingencies. In my view we have very little left in our arsenal with which to face an equity market packed with former bank CD investors who didn't like 3 percent returns; they'll be receiving their second-quarter mutual fund statements shortly showing a negative 3 percent return. We may have a better test of the wealth effects of market crashes out of this one. Indeed, I think the equity funds in the last couple of months have shown net outflows for the first time. It also may be wise to save a little fire power considering the prospect of a hung presidential election and three months of uncertainty on the impact on the stock market. And of course in that event the dollar may well fall out of bed, which may hurt our ability to respond. So, overall, the situation is pretty complex and I am concerned as every day passes that the chances increase that we're going to have to face another mini-dip. It seems to me the argument for considering a move is that it would do some substantive good, do relatively little harm, and would show responsiveness to economic risk. There are also arguments for holding tight and there are risks associated with that. To a certain extent a lot of [the problem] is illustrated by the colloquy that Jerry Jordan had with Mike Prell on this troubling sense in which price stability is linked, rightly or wrongly, to the tolerance for unemployment or bad economic circumstances. I think Mike is correct: This view is abroad in the land or at least in the local vicinity. [Laughter] And if we hold tight, I think we should feel pretty comfortable about weathering the adverse outcomes that could occur, which include a couple of quarters of growth below 2 percent and the possibility of a higher unemployment rate. I think we should go into that with our eyes open, willing to absorb these outcomes without having responded to developing signs of deceleration. We certainly can't do anything about the second quarter; we have little time left--six and one-half hours! [Laughter] We would I guess be expected to show responsiveness to the patterns of weakness that have been developing and we could take out a little insurance on the third quarter. We could wait and try to respond later. My view is that we're running out of time here and in this environment it only gets tougher to act. Maybe I'm too pessimistic; the odds are still favorable that we're going to scrape by this situation. But in golfing terms, I think it's a pretty tough lie; we're not in the sand trap and we're certainly not in the lake, but we may be in the rough looking at a possible ""bogey"" as they say.",1733
-fomc-corpus,1992,That's not too bad.,5
-fomc-corpus,1992,"If it's a bogey, I'll settle for that any day.",13
-fomc-corpus,1992,Or a double bogey.,6
-fomc-corpus,1992,Governor LaWare.,4
-fomc-corpus,1992,"Mr. Chairman, although I have read all the memos and listened to the various theories expounded, I don't claim to understand the refusal of M2 to respond to an established pattern of stimuli. It's as though Pavlov's dog had his saliva glands dry up! [Laughter]",58
-fomc-corpus,1992,That's a triple bogey!,6
-fomc-corpus,1992,"And no matter how loud and long Pavlov rang his bell the dog wouldn't drool. Something has to be different. I believe it is an unprecedented conjunction of discomfiture on the part of bankers, consumers, and businessmen. Businesses won't borrow for inventory because they lack rapidly growing sales; and they are reluctant to borrow at current rates for plant expansion or equipment replacement because they can't discern what the future holds. Besides, they're still paying off the economically unproductive debt they undertook in the '80s for buy-outs and takeovers. Consumers are intimidated by unemployment statistics--daily reports of corporate layoffs not only of white collar and blue collar workers but of top executives--and the still formidable task of paying off the debt that they incurred in the '80s. Bankers who have been badly savaged by examiners are just beginning to realize how much worse it's going to be under the wonderful FDIC Improvement Act. The very fact that they have not moved the prime as a pricing strategy to attract loans indicates a reluctance to lend at all, even to the best risks. And, of course, demand for credit is anemic. Add to all of that the prevailing public impression that the nation is adrift with no clear sense of direction and one can understand this discomfiture. If these conclusions are accurate, then it is hard for me to see what effect we could expect to have from a further easing of policy. To the contrary, in my view there are some recognizable risks, including a further weakening of the dollar, higher long-term rates based on the conviction that further ease is inflationary, and finally the concern that we are pursuing a political course following public jawboning from the Administration. M2 has not responded to our previous moves and it is hard to reason that it will suddenly come back to heel. I think we need more time to see where [the economy is] headed before we make a policy move. And I don't see that the threat of immediate collapse is real enough to justify a tilt toward ease at this time. Thank you, Mr. Chairman.",420
-fomc-corpus,1992,"I thought that was an eagle, myself! Governor Kelley.",12
-fomc-corpus,1992,"Mr. Chairman, my comments might follow pretty closely along the lines set by Governor Mullins and Governor LaWare.",23
-fomc-corpus,1992,"Well, wait a second. If you can reconcile [those two sets of comments], that's a double eagle!",22
-fomc-corpus,1992,"Well, I think I came out understanding where Governor LaWare is but I'm not sure I came out understanding where Governor Mullins is, at least at this moment. At any rate, we've had our usual extensive and excellent economic analyses and it seems that we probably have a recovery pretty firmly in place. But it's a frail child and there's certainly some risk that it could falter. Policy setting would be a whole lot easier if things were either better or worse. If [the economy] were recovering smartly, we'd pretty well know what to do; or if it were faltering badly, we'd probably know what we should do. But we're in a broad gray zone here where we have a slow, tentative, stop-and-start situation that is hard to read. That leads me to ask myself three questions, which I can share with you. If that's where we are--in the slow, tentative gray zone--the first question is: What is appropriate for the central bank to try to do about it? Secondly, if we do wish to try to solidify [the recovery] or accelerate it, what is the best way to do that? And thirdly, whatever policy we put in place, what are its likely long-term effects? On the first question of what is appropriate, I think this Committee and the central bank have several responsibilities. The most basic one, a view I think we probably all share, is to foster and maintain the integrity of the financial system and its currency. Then, of course, if the nation ever got into a crisis--a world war or something like that--we would have to do whatever it was necessary to do, no matter what, under circumstances like that. I think we also have a responsibility to try to ensure that we don't strangle the economy for lack of money and achieve price level stability by rendering the economy comatose. We could probably do that, but that's obviously not desirable. So, if we do have a slow economy right now, I think we ought to ask ourselves if it is because we've followed an inappropriately tight money policy. And it seems to me that the answer to that is fairly clearly ""no."" There is plenty of liquidity in the system. We've all talked a lot about loan demand and so forth; it just seems pretty obvious to me that the sluggishness we're dealing with does not have its origin in overly tight monetary policy. So, we probably are meeting our responsibilities there, at least so far and in the short run. Beyond that, it gets pretty murky as to what is appropriate for the central bank to try to do. The conclusion that I come to on my first question is that we're not in a situation that forces the central bank to put at risk its basic responsibility to the financial system of maintaining its integrity. Surely, we want to do what is appropriate to help the economy in any way that we can. But I think it's important that we do that without unduly running a risk to our primary responsibility. Turning to the second question: If we do decide that we want to try to do something to accelerate the expansion through monetary policy, what is the best way to do it? If we ease policy, we do that against the background of all this financial restructuring that is going on, which we all understand and have talked about a lot. I think it's critically important that it work its way through. If we do ease policy, clearly we would probably get a lower prime rate; but I'm not at all clear that that would help loan demand or make very much of a difference, given this other [situation]. Would it be a big boost to the monetary aggregates? I haven't seen any suggestion that that might happen. And it's very possible that it might be counterproductive in the sense that it could drive up long-term rates. If it did, it seems to me very likely that that would more than offset any beneficial effects we might get. So, the conclusion I come to on that question is that the chances are at least 50/50 that the best way to help this economy, if our number one wish is to help the economy, is to stand pat. On the third question of what are the likely long-term effects of any policy either way: If we stand pat and don't change, I agree that it is certainly not riskless, as has been pointed out here. But I think the rewards that we could reap if we did stand pat and it worked out are very substantial indeed. If we ease now, I see several risks that could ensue from that. A couple of them have a pretty low probability; the third may have a little higher probability. The low but I think non-zero probability is that we could set up [conditions] for an inflationary surge down the road. If we were to ease and should that cause a very severe deterioration in the value of the dollar and possibly unleash an incipient credit explosion, that could require a monetary policy response that would be destabilizing down the road. That could cause some fairly radical kinds of upset to the process over time. Maybe a little higher probability would be that we would succeed in what we wanted to do in accelerating the economy and in the process abort this restructuring process before it has a chance to work its way all the way through. That would be very unfortunate in the sense that it would almost surely set [the stage for] a renewed weakness in the economy very shortly and it could possibly get us into a new downturn prematurely. Perhaps a higher probability and a concern that I have would be in the area of Federal Reserve credibility. Our credibility may be on the line right here. We could do ourselves some serious long-term damage if we were to ease and if, however inaccurately, the market perceived that we were pandering to politics or that we were putting a premium on growth at any cost even if we had to accept a devaluation of the currency and the financial system to get it. That could be very unfortunate. I think we might be in a very important time right now in terms of testing our credibility. If it's very clear that the wheels are coming off the economy and that things are going south, then I think we probably would have to ease and the markets would understand that and would not fault us for it long term. But if an easing is seen as some kind of panic or a response to political pressure or what people would perceive as mistaken priorities, then I think our credibility would have had it for a long time. And that would make our job down the road much, much tougher. If we're able to stand our ground here and the economy struggles on through, which seems to me to be the most likely possibility, that could be a very, very major boost to our credibility and pay us huge dividends over time. So, on balance, Mr. Chairman, I come down for now, subject to how events unfold, saying that standing pat is our best bet to help the economy short term and long term.",1407
-fomc-corpus,1992,Vice Chairman.,3
-fomc-corpus,1992,"Let me just start with the national outlook in terms of the forecast. The forecast that the gentlemen and ladies in New York put together this time is virtually identical to Mike's forecast, not just in terms of the totals but even the components. As a matter of fact, you could put a postage stamp on the two of them and cover them both in all the details. From my point of view, given all the structural problems that people have been talking about, if the results over the next six quarters through the end of 1993 were in line with those forecasts, I'd be a very happy fellow. I would also point out that in Mike's forecast the cumulative growth rate in real GNP for the years 1992 and 1993 combined is to the decimal point equal to the 2-year growth rate in the price stability scenario in Chart 17. So, there's no conflict whatsoever [between] the forecast, if you want to believe that chart to that level of detail, and this notion of price stability. But the question, of course, is: How does one feel about achieving that result? I have to say that I share the views that have been expressed by a number of members in that I am uneasy about achieving that result. The point has been made at least by a number of people that the problem is this sustainability question and the lack of any clear momentum in the economy; there's a sense [that the recovery] just doesn't want to take hold. The anecdotal comments that I get from businesses, small and large, are virtually without exception consistent with that concern about sustainability, momentum, etc.; it's a lot like Ed Boehne's characterization of the situation. Now, the one thing that we do hear anecdotally that is different, even from small businesses, is that the banks are out beating the bushes looking for business. And this is the first time we've heard that on any kind of systematic basis. But even where they're looking for business, it isn't there. However, they do tell us now of calling officers back on the road and of banks running seminars in various parts of the state, and that's a change, clearly. In terms of where we go from here, Ed Boehne put his finger on it as far as I'm concerned: The crucial variable in terms of hitting something close to that forecast is the employment/income side of the equation in a context where, Wayne, we at least don't have the saving rate going down. At the beginning of the year one could roughly visualize income streams compatible with that forecast with rather modest growth in employment--65,000 to 75,000 a month--throughout the year. But we've lost ground relative to that. To be sure, some of it has been made up in income terms by [increased] hours, but the fact of the matter is that employment in Q1 was lower than in Q4 of last year and, if I have this roughly right--again using Mike's forecast--Q2 payroll employment in the forecast is something like 400,000 higher than Q1. Obviously, it's going to take a pretty healthy increase [in June] to get anything like that. The question really in some ways does come down to: Will the employment growth and income growth be there that can produce enough by way of spending, given the structural problems, to get an outcome that roughly resembles the forecast? On M2, I've never worried too much about it, but I think we can explain a lot of that [weakness]. But, again, the point has been made by a couple of people that it's not just M2. If we look at the broadest measures of credit, we still find this systematic weakness. We can explain a lot of that away, too, by the debt restructuring and the necessary consequences of all the problems in the 1980s. But if that continuing pattern of very sluggish growth in any M out to M27 continues in a context in which the economy begins to fall short of the forecast, it's going to be pretty hard for anybody to dance to that tune. Again, I don't think the question in any sense is: Should we be trying to accelerate the economy relative to something like the [staff's] forecast? As I said, I'd be as happy as a clam if we got a result that was even roughly like that forecast. But I come back to Si Keehn's comment a long time ago--3-1/2 hours ago or something like that: What if it turns out that instead of looking at a 2-1/2 percent economy we find ourselves looking at a 1-1/2 percent economy? And in terms of this argument about Fed credibility, which I think cuts both ways, if it turns out that we have a 1-1/2 percent economy and that's what we're responding to, then there's going to be a big problem in terms of Fed credibility on the other side. This is as difficult a policy setting as I can remember in a long, long time. I think Mike Kelley had it right: It would be a heck of a lot easier if the economy were either a lot better or a lot worse. But I do think the crucial question is not whether to seek an acceleration of the economy relative to the forecast but where one's comfort zone is as to whether we can either hit the forecast or come within striking distance of it. And I'd have to say that my degree of comfort in terms of our ability to hit the forecast has waned from where it was a couple of months ago. Thank you, Mr. Chairman.",1131
-fomc-corpus,1992,"Mr. Chairman, as a point of clarification, so that people know on Thursday [when the employment data are released] what the surprise is relative to our forecast, I think the Vice Chairman had the disadvantage of looking at some rounded quarterly average numbers. Actually, what we have for June is only an 80,000 increase in payroll employment.",69
-fomc-corpus,1992,For June?,3
-fomc-corpus,1992,Right.,2
-fomc-corpus,1992,I was talking about the quarterly average.,8
-fomc-corpus,1992,"The quarterly average is 400,000 above the first-quarter average.",14
-fomc-corpus,1992,Governor Lindsey.,3
-fomc-corpus,1992,"What I'd like to do is to summarize briefly what I think I have learned since our last meeting in May. It is summed up well in the aggregate; that is, I think the staff have very well assimilated all the data that came out into their forecast. While quantitatively the forecast reflects some modest weakening, we still have a 2 percent quarter projected for the second quarter and some minor downward revisions in the future. Those downward revisions anticipate that real GDP at the end of the second quarter next year will be about $14-1/2 billion lower than [projected previously]. And I think that's a fairly good summation of how much weakening we've seen. Although I call that a modest quantitative weakening, I'm somewhat concerned about the qualitative weakening that lies behind the numbers. Personal consumption expenditures will be about $20 billion lower. Contrast that with a rise in inventories of $12 billion. I think what we've seen is a more modest quantitative reduction that masks a substantial qualitative weakening in the economy. Much of the growth that is there is moving away from final demand and is moving toward business accumulation of inventories and faster business investment. That very well may come to pass, but we are gambling, I think, on a riskier scenario. Inventories and investment are necessarily riskier components of demand than is something like consumption. Quantitatively, that involves something like 170,000 fewer houses, 13 percent less, and payroll employment that's about 650,000 less or about 0.6 of a percent of the work force. So, that's the magnitude. And I think it sums up well the amount of weakening we've seen in the economy since the last forecast. I'd also point out that the anecdotal information we have gathered here today suggests that the quarter has ended on a weaker note than it began. We were all somewhat more sanguine about the economic forecast at the last meeting than we are now, and the anecdotal evidence from around the country suggests that in fact the economy is weakening in June relative to what it was earlier. The second set of data that we've learned is that we've had two tests of market reaction to what I would call basically ""monetary policy developments."" The first came immediately after the last FOMC meeting on May 19 with the publication in The Wall Street Journal of the Wessel piece which described our reaction as having been one of going toward symmetry. At the close on May 21, the 1-year note was up 25 basis points, the 3-year note was up 30 basis points, the 10-year note was up 19 basis points, and the 30-year bond was up 9 basis points on the publication of the Wessel story. That is one test--and I admit no test is perfect--of how the market responded to our presumed decision to go with a symmetric directive rather than the asymmetric directive that preceded it. The other economic test came last Wednesday when the President had his interview with The New York Times and the paper published what is obviously rather public pressure on us to [ease]. The 1-year rate fell 11 basis points, the 3-year rate fell 11 basis points, the 10-year 5 basis points, and the 30-year 2 basis points. So, I think that gives us some idea of the likely market reaction to what we might do. Those are the two economic things I think we've learned. The political lesson we've learned is one that I wish we hadn't learned. I was privileged to be able to meet with the Reserve Bank presidents up in Baltimore and I predicted that we were going to be coming under increasing political risk. I think the Chairman mentioned that earlier in his comments. Well, I think we saw the political risk in the President's comments. Frankly, I didn't like it much. So, this weekend I began contemplating how we might respond to that political risk. If this were Saturday, I might be quite tempted to want to stand strong in spite of what I think is evidence of weakening economic activity. Governor Kelley pointed out some key advantages to our standing [firm]. I couldn't imagine a better test for us to establish credibility. We have not only a Presidential statement but since the Beltway is within the Fifth District and I've worked there, I've studied the matter rather closely. This was a very unusual development for this Administration. They got everybody together to give background interviews. So, it was a pretty public act of pressure on us. We'd clearly establish credibility if we stood tall. Second, there have been arguments around the table which may have merit--but on balance I think they're probably wrong, though I'm quite uncertain about my own views--that we might be at a juncture, an unusual juncture, where an increase in short rates may actually help M2 growth. The idea there is that we would stop the runoff into nonbank depositories. And as someone who is very concerned about M2, although I don't agree with that description of the sign of the elasticity, I'm willing to admit that I might be wrong. I couldn't imagine a better [time] to experiment than right now [and to be] wrong. And thirdly, standing tall might have another advantage. It's amazing when I go out [in public] that everyone thinks we know something that nobody else does. Given the amount of disagreement around this table, it's unclear that we know anything, but they all think we know something that nobody else does. And perhaps a sign of strength on our part might be a signal that in fact the economy is recovering; it may be a self-fulfilling prophecy that might get things going. So, I think the political lesson is that we are at an unusual juncture. Were we to stand tall--perhaps we could even raise rates and, who knows, really show our independence--we might produce some very desirable results. We might have a tremendous bond market rally and that could get the economy going. I have to view that as a long shot, though. But it's a long shot with a high payoff. I haven't played golf in 15 years, so I'm not going to get into golf analogies but it would sound to me a bit like shooting a double eagle. Would that make sense? I'm a more conservative player and I think our real risks are very much along the lines of what President Corrigan said. And I think we have to get it right. We're not being asked to hit a home run or a hole-in-one, but we are being asked to get a par, not a bogey. On net I would have to go back to my economic training and to what I think were both market tests to our behavior and also the overall weakening that's epitomized in the change in the staff forecast. I would be inclined as a result of that to reject my instincts to act tough and do what the economy says to me, and that is I'd be inclined to ease.",1397
-fomc-corpus,1992,Governor Phillips.,3
-fomc-corpus,1992,"Well, I think I'm batting clean-up again. I'm going to change the analogy a bit because I feel as if we're running both the top and the bottom of the ninth inning at one time and the bases are loaded on both sides. In any case, I certainly agree with the Greenbook forecast of a slow, modest, sluggish recovery. One of the things that seems to have changed since last time is the question of how long this period of sluggishness is likely to continue. The longer it goes on, the more I am starting to question whether or not we're going to start to lose consumers at some point and a slowdown will begin. [Various] drags on the economy have been identified--the [financial] restructuring and the operating restructuring; the defense restructuring is really only getting started at this point. We're starting to see a fall-off in demand. While the confidence indexes look better, as Mike indicated, they're still below their high points. I tend to wonder whether when people respond to the confidence surveyors they say one thing but when they respond to the political surveyors they say another thing, and thus we have a three-way race at this point. The international side has started to weaken and, of course, state and local government constraints may be starting to come in. I am encouraged about the progress on inflation. I tend to wonder whether the concentration on the CPI or even the core CPI is perhaps overstating the price pressures that people are really feeling given this inability to raise prices, the bargain or sales shopping, and so on that are going on. So, I'm a little more encouraged about price pressures than perhaps concentration on the CPI might indicate. The study and analysis of the monetary aggregates that we all appear to have engaged in since the last time do help to explain, partially, what has been happening in the monetary aggregates. And that I think is helpful. I wonder whether the banks, instead of aggressively bidding for deposits, are now out making loans; I wonder if they're really out building their CRA files instead of spending time on loan development. In any case, we're not seeing the credit expansion. So, I think we understand a bit more about the monetary aggregates. Nevertheless, we're still seeing weakness in those aggregates. Again, if we concentrate only on looking at the Ms in the short run we may not know too much, but in the long run I do think they tell us something. And we're having a [relatively] long period of weakness in those aggregates, so I think that is disturbing. I do agree with Presidents Boehne and Corrigan that the key is employment growth. And to the extent we have slow GDP growth--if it does drop down below 2 percent for an extended period of time--we're going to have some problems seeing sustained growth. So, while things haven't changed a lot substantively since the last time, it does seem to me that the length of time and the cumulating effect are heightening the downside risk.",598
-fomc-corpus,1992,Thank you very much. We've come to a break for the day; our next session commences at 9:00 a.m. tomorrow.,29
-fomc-corpus,1992,Shall we move on to the next item on the agenda which is the long-run ranges for monetary policy? I will call on Don Kohn to make his presentation.,34
-fomc-corpus,1992,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1992,Questions for Don?,4
-fomc-corpus,1992,"The staff projections are certainly very important in terms of which of these alternatives should be selected. Typically in the past I think the way you have handled projections was that you took the difference between the actual and the forecast and had that difference decay over the forecast period as an error. Judging from the discussion, I take it you're assuming that the error persists at the same level. Or do you have a different rate of decay? How did you get such a low number?",94
-fomc-corpus,1992,"Well, basically we assumed that the forces acting to raise velocity in the first half of the year would persist over the second half of the year. So, for example, relative to our standard money demand model, which has been missing for two years now, we assumed further shifts. Looking out to '93, and if we were to look out further than that, I think we might assume that the additional shifts would taper off; but we would not be tempted to assume that the level of velocity would tend to come back to what it was before. That is, if you interpret this as basically a shrinking of the depository system for one reason or another, as I think the memo to the Committee noted, some of that shrinkage might be a temporary reaction to the problems of the past. But I think a lot of it must be permanent. The safety nets are being priced differently and people view depositories differently. So one wouldn't expect the level of velocity to come back, say, to the old P* [assumption] but--",209
-fomc-corpus,1992,So there's a different structure?,6
-fomc-corpus,1992,"I think it is a different structure. Clearly, one could imagine without too much trouble that at some point in here growth rates will come back into alignment and that the growth of the monetary aggregates and the growth of nominal spending will move together again in a relatively predictable way. But I rather doubt that the level would adjust back, and there's a lot of uncertainty about growth rates in the interim.",78
-fomc-corpus,1992,President Black.,3
-fomc-corpus,1992,"Bob Parry's question raised something that has been on my mind for some time. I think there are two ways to look at these intermediate targets, or the long-term targets as we call them now. One is that they are in fact medium-term targets. The other extreme is to set these where we think the aggregates are going to be and not really think of them as targets. I think what Don has said is that the reason he has suggested lower [growth rates] is that he thinks they are reasonable targets because of the downward shift in the demand for money that we've seen, which makes [lower growth] perfectly justifiable. But I think it's a trap we can easily get into: setting these where we think they're going to be rather than where we think they ought to be. I'm very much in favor of choosing targets and making the aggregates behave the way we think they ought to rather than just putting these out. I think the staff has done a very fine job in a very difficult environment in setting forth the numbers that we have here. And I think Don would agree with what I'm saying.",221
-fomc-corpus,1992,"I would want to be clear though, President Black, that we have made our forecast based on the Greenbook projection for nominal income. So, if that projection is anything like what the Committee wants it to be, then we would say that the monetary growth you ought to want is something in the neighborhood of our projection, with this huge margin of uncertainty around all those things.",75
-fomc-corpus,1992,Any other questions?,4
-fomc-corpus,1992,"Don, when economic variables don't behave as our background and our history suggest they should behave, it seems to me that we may have a tendency to think too soon that there will be a return to the standard or what we would call ""normal."" Let me ask you what you think the risks are that this [unusual] behavior of M2 and its velocity has not yet peaked. What is the risk that M2 growth might be even lower and V2 might be even higher than you anticipate? The reason I'm asking is because a 1-1/2 to 5-1/2 percent range is pretty close [on the low side]. It doesn't do what Bob Black suggests, does it? That is, it doesn't really move the range down so that we center it on 2 percent. So, my question is: What is the probability that M2 growth might be substantially lower than 2 percent and V2 substantially higher?",190
-fomc-corpus,1992,"Well, we've set our [M2] projection, we hope, with the risk balanced on both sides. Now, as Bob Parry remarked, we did lower it quite a bit this time relative to where we were last time; in the February Bluebook I think we had 3-1/2 percent [M2 growth], or roughly the same as nominal GDP. So, we've gone from 3-1/2 to 2 percent in stages. Quite frankly, my thinking was influenced a lot by the expectation of a bounceback by May and June; we didn't get it. In fact, we are getting quite a bit of weakness and that has caused me to reevaluate this relationship, assuming that the economy has expanded as we expected over those months. So, we made this downward revision. I think we have it centered more or less in this wide sort of very flat probability fan there. I couldn't say that there's no probability that we would have higher velocity; of course, we could have larger velocity increases. At the same time, one issue here is how the Committee wants to treat the possibility of even lower M2 growth, i.e., how worried it should get about M2 or even M1 and whether to put a little weight on that. While I would put the probabilities of a greater velocity increase as obviously not zero, the Committee needs to consider how closely it wants to examine its federal funds rate target if money comes in weaker because it might be telling us something as well.",303
-fomc-corpus,1992,"No, I wasn't suggesting that you weren't balanced; I was just suggesting that if you were projecting 5 percent growth and we had a range of 1-1/2 to 5-1/2 percent, that a miss on one side would be a more serious--",56
-fomc-corpus,1992,"Oh, I see. So, the fact that the range wasn't reduced even further to center it around 2 percent is what you're reacting to?",29
-fomc-corpus,1992,"Well, no. I would be historically at least close enough to Bob Black not to want to do that. But I think you've answered the question.",30
-fomc-corpus,1992,President Syron.,4
-fomc-corpus,1992,"My question was the question that Wayne Angell asked. It was concern about the fact that we don't know when the correlation of errors is going to break and in which direction, and you answered it absolutely as well as it can be answered.",48
-fomc-corpus,1992,President Jordan.,3
-fomc-corpus,1992,I have two questions. One is particularly to help me understand some of the terminology. Would you say a little more about what you meant when you started off about using the aggregates as an information variable? Aggregates have been used as an indicator in two different senses: sometimes to underline the thrust of monetary policy actions influencing economic activity and sometimes as a more timely indicator of information about what is going on in economic activity compared to national income account information or other reports. Is there a tendency on the part of the staff at this point to go one way or the another as to how you use these as indicators?,121
-fomc-corpus,1992,"No. As I tried to indicate here, I would say that I tend to use them a little both ways. In some sense, in terms of the current situation, we have other information coming in about hours worked and retail sales and this, that, and the other thing. So, the lead [time] of money [supply data] over that information, although it's subject to revision, isn't that great. It might give us a little sense that things were developing somewhat differently than expected but we have a lot of other information coming in. So, I give it some weight that way. But the other issue is whether there are some forward-looking properties to it; and I think in the past there have been, although they have been rather loose. I think money encapsulates both our actions and the demands coming from the market, and one can see influences on them before one sees the influences in the economy. So, in terms of this leading indicator property, I'd differentiate money from, say, the way we treated it from 1979 to 1982 when M1 was the direct target of the Committee and we moved the federal funds rate around very vigorously in a semi-automatic way in reaction to deviations in money growth from the path. Clearly, since the fall of 1982 it has been more of an information-indicator type variable.",272
-fomc-corpus,1992,"Any further questions for Don? Let me raise an issue which is more than tactics. The issue is how to handle the problem that we have. I think the staff paper is extraordinarily good; I certainly agree with Jerry on that. It pulled together most of the crucial issues that have been discussed around this table for quite a while. I conclude from that paper as well as other observations that for the moment M2 is a proxy for the financing of a system that is clearly broken down. I don't deny that it probably still has some shadow effect that we don't know the aggregate dimensions of, but the regressions that were employed to separate the different types of money are regressions of a model or series of models, all of which are unchanged over historic periods. Now, we do know that M2 has been falling off the charts in the last couple of years; indeed, a lot of things have. The question we have to ask ourselves [relates to] the underlying assumption we're making--namely, that the structure that we're endeavoring to measure econometrically is unchanged. If it is changed, then obviously one can't make any assumptions even about the nature of the adjusted effects of M2. This is an issue that I suspect we're going to be looking at for a number of months. With the degree of focus that we are giving to it, I would gather that we're going to learn more as we go on, as indeed I think the evaluation of the more complex opportunity cost functions has demonstrated. We will learn things if for no other reason than we will get more observations in this very crucial period, which will tell us about how nominal gross domestic product works its way through the intermediation process to M2-type components. This puts us in a very peculiar position only because we have a Humphrey-Hawkins testimony in front of us. I would gather that if that were not the case, we would be somewhat more relaxed at this point about how we're going to handle this. So, unless somebody can find a better idea--and I must admit there are not great ones around--let me at least suggest as a fallback position that if we can't find anything better that essentially we communicate all of this discussion to the Congress. I suggest we say we are working on it and we will keep them informed in a written form or something of that nature. We will send them an interim report on our progress, which could be every quarter or what have you, and proceed not to change anything [at this meeting]. In other words, I'm suggesting that we not change the 1992 ranges and effectively pro forma allow the 1993 ranges to be the same as the 1992 ranges. I suggest that only because if we do anything other than that, we are presupposing that we have some knowledge about what is going on, which we don't have. So, we are caught in this dilemma where if we make any changes at all it would be on the basis of an insight we're professing to have, which at this moment I suggest we don't have. I don't feel comfortable with this as a conclusion; it means more work for Don. He doesn't even flinch; [maybe] he isn't listening! [Laughter] But unless somebody can think of a better tactical procedure with respect to how we handle this.... I'm not talking about the more important questions of what it does and how we interlace policy. The issue of how we relate policy to the monetary aggregates is something we're going to be struggling with on a very intense basis for the period ahead, Humphrey-Hawkins to the contrary notwithstanding. But I was raising this collateral, optical question and issue. If anyone would like to comment on that, please do. Governor Lindsey.",753
-fomc-corpus,1992,"Mr. Chairman, I think you have laid out a very good strategy for the approach to our Humphrey-Hawkins report. Based on the conversation and particularly President Parry's question, I would like to note that from an a priori view we may know something. There are really three possibilities that we're considering, which have to do with the money demand curve shifting because of loan repayments or runoffs of time deposits or what have you. The first possibility is that the shift in the demand curve is of a temporary nature and it will shift back. That means we believe small time deposits, for example, may come back in vogue in the future or that bank margins somehow may [go] back down. If that's the case, then velocity will also bounce back and we are going to need a symmetric tolerance of M2 growth down the road. I think that gets to the heart of Jerry Jordan's question. The second possibility is that we have a permanent demand shift and we're going to see at some unknown point in the future a new equilibrium emerge between the banking sector and other financial intermediaries, with permanently higher bank margins. If that's the case, then velocity will not bounce back but it will stop growing and we'll establish a new velocity relationship but not one where we have this continual 3 percent growth in velocity. And in that case our M2 targets are going to have to be roughly what our nominal GNP targets are. The third possibility is what I would call a continual demand shift: that forevermore we're going to see loan repayments and runoffs of small time deposits. That would mean velocity will always be shifting. We'll have, say, 3 percent velocity shifts every year. In that case, we should permanently lower our money targets. Frankly, I find the continual demand shift model incredible. If nothing else, there are only so many time deposits to run off; there are only so many loans to be repaid. But I think [the shift] will actually stop before that. So, I think we're torn between the temporary demand shift and the permanent demand shift models. I believe that informs our discussion and if anything, Mr. Chairman, it reinforces the view that you have just expressed.",443
-fomc-corpus,1992,Thank you. President Syron.,7
-fomc-corpus,1992,"Well, I agree quite strongly with where you come out, Mr. Chairman. While we may approach it differently tactically, we all agree that the idea of Fed credibility is very, very important, particularly I would say at a time when, as you mentioned earlier, there are so many shifting sands in other areas. But I think we reinforce that credibility when we don't know something by saying we don't know it rather than by pretending that we do. [That is] my greatest fear when we go up [on the Hill]. I think Larry has outlined three alternatives quite well. My own view is that the structural shifts are still going on and I agree with him in that I don't expect them to go on forever. But I would be very concerned about making a change that would be predicated on the notion that we have some idea, with a measurable degree of precision, of where we are in this whole process. I just don't think we are at that point. The more difficult problem, as you indicated, is the pedagogical one: the timing. And in that context I think we just ought to say that we don't have a precise answer regarding what is going on and we'll keep [Congress] informed. It's an excellent strategy.",248
-fomc-corpus,1992,President Black.,3
-fomc-corpus,1992,"Mr. Chairman, I'm with you about 95 percent of the way, which is a lower percentage than it usually is.",25
-fomc-corpus,1992,I'll take it any time!,6
-fomc-corpus,1992,"But in the absence of some multi-year policy strategy such as the ""tunnel"" strategy that Governor Lindsey and I so bravely proposed back in December, which we all did not have the wisdom to accept, I think we have to look upon these one-year targets that we set now as sort of a mid-term benchmark. We don't know what the heck is going to happen, as you correctly said, so I think it's very wise to stick to the 2-1/2 to 6-1/2 percent [M2 target] for this year. The main reason I would suggest that is not that I think we're likely to be anywhere near the 6 percent, but that there is a possibility we might be there. And to have to change [the target] later on by raising it because we chose a range that was too low would reverse what we've been doing over a long period of time. There's a beautiful story in Appendix A of the Bluebook showing how, since about 1980, we've been lowering these targets steadily over time, and I think that conveys an important message. But if we were to choose the lower range and then for some reason or other M2 or the other aggregates were to strengthen and we had to raise the range, I think that would muddle the thinking of the whole financial market and it would be very bad. But by the same token, as we choose our target this time I think we ought to send an unambiguous message to the markets that we have not lost sight of our long-term objective of good economic growth with stable prices. And I would favor very strongly adopting for 1993 a range of, say, 2 to 6 percent [or] one of the recommended ranges--say, 1-1/2 to 5-1/2 percent. Governor Angell and I discussed that last night. A 2 to 6 percent range would be my preference because of the uncertainty, but 1-1/2 to 5-1/2 percent wouldn't bother me either unless we got to the point that it really wasn't enough and we had to raise that. So, I would really prefer the 2 to 6 percent because I think that gives us enough room on the downside to convince the market of what we really want to do and at the same time enough to provide adequate financing for whatever economic growth we can get.",487
-fomc-corpus,1992,President Melzer.,4
-fomc-corpus,1992,"That sounded like 50 percent agreement to me, Bob!",12
-fomc-corpus,1992,It was higher than that!,6
-fomc-corpus,1992,"Alan, I'm in agreement with what you recommend. The only other comment I would make is that in principle I'd align myself with what Jerry was suggesting and I think Bob was suggesting in terms of what these targets represent. If, let's say, we were experiencing some temporary demand shifts or whatever but we still felt confident about longer-term relationships between money and income, I would like to get to the point eventually where we set the targets to be consistent with what we think is an environment of price stability. In other words, we should gradually work them down to some level that we think is [unintelligible], explaining why we missed and not get into the mode that Bob suggested of possibly moving these targets up and down based on what could be short-term [developments]. That's a moot point in this context, I totally agree.",166
-fomc-corpus,1992,Implicit in my suggestion is that this item remains on the table until we get it resolved.,18
-fomc-corpus,1992,"Oh, I understand that. I'm just expressing my view on that point, but I totally agree with where you are right now.",26
-fomc-corpus,1992,"Just to reinforce that I was about 95 percent with you, I think your suggestion that you explain this in your Humphrey-Hawkins testimonies is absolutely vital.",34
-fomc-corpus,1992,"Oh, indeed.",4
-fomc-corpus,1992,I strongly endorse that; I just forgot [to mention] it. But I'm 60/40 if--,22
-fomc-corpus,1992,So 50 and 60 adds up to 110!,12
-fomc-corpus,1992,He's 1000 percent behind you!,8
-fomc-corpus,1992,You have a narrower confidence; you're willing to support it with more precision than the precision we have in the Ms at this point in time.,28
-fomc-corpus,1992,"Well, like Governor Lindsey, I think there's a limit to how far these things can go, but I don't know what it is. I think a lot of [the adjustment] probably is behind us because I don't know anybody who has thought about it at all who has not shifted money out of M2. I cited my mother-in-law who is 85 and has gone long-term. And the Chairman asked me if she was holding these for income. I said probably but she wasn't averse to taking a few capital gains if they came. There has to be an end to this, but I don't know when it will be. I think Don's group has done a very, very good job in addressing all the issues; it's one of the finest things they've done, yet I'm sure they feel somewhat dissatisfied with it because it's so complex. If this target-setting gets any more complicated than it is today, it is going to mitigate to some extent the disappointment I have in not being able to participate in the next target-setting session. I don't think I could find one any more challenging than what we have today.",223
-fomc-corpus,1992,President Jordan.,3
-fomc-corpus,1992,"I've agonized quite a bit over this issue of uncertainty about the velocities and control in hitting targets versus the information to the public at large--the need to announce the targets and how that is stated. I would not like to see targets announced in such a way that we are lowering the ranges and the headlines read ""The Fed Tightens Policy"" without [our action] being tied to some other things that would condition that perception. I go back to what Bob Parry said yesterday afternoon in the first go-around as he concluded his statement about the importance of making our longer-run intentions clear. With the uncertainty or the discomfort over what is going on in the legislative and executive branches of government and the current political situation, it is not the right message for this institution to say: ""Well, if you thought that was bad enough, we've lost our compass as well and we also are not sure about the future and the outlook."" The monetary aggregates, especially M2 with its long historical record despite all our uncertainty about M2 as currently put together, are still the best guide that we have for communicating to people what the long-run outlook is. And we have to do what we can to say this will still serve for the foreseeable future. I was not a part of your deliberations not to lower the target range this year, so I'm not in a position of either saying ""I told you so"" or having to defend something now that was done without the considerable advantage of hindsight. I thought it was useful information to the public at large that the target ranges were gradually lowered year-by-year, with either the upper or lower bound or both being brought down. Had that sequence been continued this year you would have [established a range of] 2 to 6 percent, which I think would have been very desirable, and we would be looking at 1-1/2 to 5-1/2 percent for next year and 1 to 5 percent for the year after that and would be serious about it. And that would help people in thinking about the long run. We've been in the situation very recently of being at the bottom end or even below the bottom end of the range, and people are wondering if we really are serious about the Ms. I thought the action in April couched in terms of M2 was a useful beginning toward saying we're really serious about it in a symmetrical way; if we're below the bottom end of the target range, we'll do something about it and try to get [money growth] up so that people understand that the opposite is also true. Therefore, if we were at the top or above the top end of the range, we'd also be serious about that, so people would know that we are committed to moving toward a growth rate of money that is consistent with price stability. So, I would like to see the range reset this year at 2 to 6 percent, where I think it should have been anyway. I'm in-between alternative I and alternative II. To go all the way to 1-1/2 percent now and leave it there for 1993 would lose some information that I think is important. But if we leave the bottom end of the range at 2-1/2 percent this year and have 2-1/2 to 6-1/2 percent again next year, then I think that we are bound to say ""Here's what we're going to do to make very certain that [M2 growth] is at least within the range rather than at the bottom end,"" and couple that with [appropriate] short-run actions. Just to cover what I would really like to see right now: [I'd favor] a very unusual event that should not necessarily be a precedent for the future. I'd announce the ranges well in advance of the hearings--[the Humphrey-Hawkins hearings] being the customary way to do it--coupled with a strong statement that we are serious about being within the range and are willing to engage in reserve supplying operations consistent with an expectation of lower interest rates [associated] with the lower monetary targets for '93. And especially important to me would be that this be done in a way that the Committee is viewed as being solidly behind both the short-run action and the long-run action. I'm very troubled by the perception of the press that changes in the funds rate up or down say something about our long-run commitment to growth versus inflation or the Phillips curve [tradeoff], or that sort of thing. So, [I'd suggest] an unusual press conference approach announcing the ranges and the interest rates expected to be associated with them. And I'd not do that on the day that the employment numbers come out so that we disassociate the action and the announcement of what we want from a measure like employment or unemployment.",969
-fomc-corpus,1992,"Jerry, suppose we are in a process now of a major change in the role of intermediation in the financial system as a consequence of the decline in the franchise value of the intermediation process, significant increases in intermediation costs, statutory issues, and a major structural change involving one of the large elements in the intermediation process--the S&Ls. Suppose we in retrospect can look back on this period as one with a structural discontinuity that doesn't change the long-term interface between various monetary aggregates, inflation, growth, and the like. Suppose that our P* model requires a level adjustment but then proceeds and works as well as before. It will turn out that we will be back to an appropriate process of where we should be and how we should be doing that, but it will also turn out that this particular period will be a period of structural change that will create a deceptive [impression] with respect to how the aggregates are being employed either for monetary policy purposes or as indicators of what is going on in the financial structure of the system. And until we know that or until we have a sense of that, we would be taking a risk in doing what you're suggesting. I say that as one who philosophically agrees fully with the position you've just stated. I do think that we should be working our way down to a stable price environment and at that point then hold the money supply within a relatively stable, modest range--whatever we may decide that should be. But having said that, it would be an act of faith on my part to do what you're suggesting because it presupposes we know the answer to something I'm afraid we don't.",334
-fomc-corpus,1992,"I appreciate that uncertainty. Presuming knowledge that we don't have is very troubling to me. I think that what you have described is the case. I agree that we're in some kind of transitional period to an environment that we will all easily recognize 10 years from now, looking back upon the period as maybe an early 1960s [type of] world in terms of inflation and interest rates and various relationships. It is also a risk to see things like total bank reserves down for the month of June and M1 or M2 or [some other] measure down. The whole array of [monetary measures] is contracting and we are not taking action to do something about it. I'm afraid that if we back away from the aggregates generally, especially M2 in the way it has guided this Committee in the past, that we will simply be looking through the aggregates to real economic activity. And--",182
-fomc-corpus,1992,"Not necessarily. I think we'll be looking through the aggregates to the total financial system; what I think we actually will do is to try to use the aggregates as a proxy for a much broader view of a very complex financial system. What we should appropriately do is to try to look through [the monetary measures] into what in fact is going on in the financial system. If indeed there are other factors that are suggesting that movements in the aggregates in the most recent weeks are pointing to something, we should begin to see it in certain areas of the system other than nominal gross domestic product or any of the real variables. I don't think any of us would wish to argue that if we see financial constriction occurring in which the aggregates are merely indications of other developments, that action wouldn't be an appropriate thing to put on the table. Obviously, I think it would be. In fact we'll be discussing in our next segment whether or not that is indeed the case.",191
-fomc-corpus,1992,"I've taken some comfort previously from the fact that M2 was at the bottom of the range but Ml was off the top of the charts, the monetary base was growing very rapidly, and bank reserves were growing very rapidly. Given that, I concluded that probably the truth was someplace in between; M2 was probably understating stimulus and Ml and other [measures] were overstating it. Now, it's only one month of information, and I don't want to put too much [emphasis on] that, but I am uncomfortable with the idea that [all the monetary measures] seem to be contracting all at once.",124
-fomc-corpus,1992,"Well, that's a most legitimate concern, and I don't think any of us would--",17
-fomc-corpus,1992,"Mr. Chairman, I don't see a lot of difference in the approaches the two of you are suggesting except that I think Jerry would favor reducing the range next year because of the signal effect. Otherwise it seems to me you have said essentially the same things, as I've understood you. That's the point I was trying to make.",65
-fomc-corpus,1992,"I think the difference basically is that I would prefer not to make a firm statement about 1993 until we know something beyond what we know at this particular moment. At the point when we can again say that we know something about the way M2 or whatever [measure] we're using at that time is responding, then we can tie that to our long-term goals in a manner which emphasizes what the very general policy of this Committee is.",88
-fomc-corpus,1992,"I would much prefer that if we had the option. But if we should take a step toward [ease] either through adoption of a directive that is asymmetrical toward ease or through dropping the federal funds rate, I think we badly need something out there for the future that says we have not abandoned our long-term quest for price stability. And that's why I--",72
-fomc-corpus,1992,"I would say, frankly, that it's essential that we do that in the Humphrey-Hawkins report, no matter what we do at this table. At this particular period in time to reemphasize our commitment to price stability over the longer run as a fundamental goal of the FOMC is fully appropriate independently of what our discussions [today] or otherwise are with respect to the issue of the ranges.",83
-fomc-corpus,1992,I was sure you would feel that way. I just feel that some tangible movement in cutting the aggregate ranges would be necessary and make that as believable as I would like it to be.,37
-fomc-corpus,1992,"That's why I was suggesting coupling them on just this one occasion. While they are independent in some respects, as I said, I wouldn't be happy to see a headline that says ""Fed Tightens Policy"" if we lower the ranges; but I also wouldn't be happy to see a headline saying ""The Fed Caves In"" if we cut the funds rate.",72
-fomc-corpus,1992,That's my problem.,4
-fomc-corpus,1992,Putting the two together and announcing the range and an expectation of lower rates in order to achieve these [monetary growth objectives] is an important message about the future.,34
-fomc-corpus,1992,President Forrestal.,4
-fomc-corpus,1992,"Mr. Chairman, I very strongly support your recommendation. I think you put your finger on the issue correctly when you indicated that were it not for Humphrey-Hawkins we probably wouldn't even be having this discussion. As a matter of fact, I would like to see us spend a little time thinking about how we can get out of this Humphrey-Hawkins box entirely. But that's another issue and it's particularly unrealistic [to address it] at this time. Due to all the uncertainties surrounding the aggregates generally and particularly M2 at the moment, I think we'd be making a big mistake to pay too much attention to them and in effect to chase them by lowering the ranges either for '92 or '93. This is not to say that we should ignore the aggregates; they do contain information that we have to look at, but certainly over a longer period of time. So, I think our best strategy at the moment with the Congress is to communicate fully. After all, that is what the Humphrey-Hawkins is all about--not so much the setting of the ranges but delineating to the Congress what our intentions are over the longer term both with respect to [economic] growth and prices. So, I think we can explain the shortfall in M2 adequately; and with so many uncertainties, to change the range for '93 now would be a mistake. And, of course, we have the opportunity since this is only a tentative setting of the ranges anyway to make a change in January or February. And by that time, hopefully we will have learned a little more about the behavior of the aggregates. So, I think your recommendation is right on target.",336
-fomc-corpus,1992,Governor Angell.,4
-fomc-corpus,1992,"Mr. Chairman, Bob Black got into part of my question but I want to follow it up. I just have two questions and then, depending on your answer, I'll respond. Our commitment to price level stability has in it, in a sense, the background that we thought we were going to be lowering these M2 targets until we got down to an M2 growth rate that was consistent with price stability. I believe many of us thought that it meant ""never-never land""--that maybe at some point in time M2 growth rates of 1 to 4 percent or somewhere in that area would be consistent with price level stability if we didn't have something going on with regard to the aggregates. After the higher costs of intermediation have worked their way through--and I think Larry Lindsey is right that these [adjustments] can't go on forever, at least not in one direction--what in your mind would be an appropriate M2 target consistent with price level stability in that future out there?",201
-fomc-corpus,1992,"Well, I don't want to say that I know for sure, but let's define a couple of issues. While Larry Lindsey is right that the adjustment can't go on forever, what he's really right about is that it can't go on at the rate of change that we now are looking at. It's really the second difference that he's raising from this perspective.",69
-fomc-corpus,1992,Sure.,2
-fomc-corpus,1992,"If we are using the franchise value of intermediaries--in other words, if in effect technology is gradually changing the fundamental purpose of commercial banking with its so-called credit knowledge capabilities so that securitization becomes increasingly the means of financing--one can envisage a very small intermediary sector. In principle one can visualize zero; there's no conceptual reason why a market economy as complex as ours cannot function with direct finance, provided of course that there is [unintelligible] part of securitization and other mechanisms for transactions balances and the like or a narrow banking system. So, I want to say that over the long run it matters what we are measuring. I can envisage the current definition of M2 actually being consistent with a trend in which unit M2, that is the ratio of M2 divided by potential real gross domestic product, falls relative to the level of prices, meaning it's a sort of P* with a trend. Now, I don't know what that is at this particular moment. What I'm reasonably certain of is that to the extent there is a sign, if I may put it that way, it is negative. That is another way of saying that income velocity is a long-term constant; that's the same thing as saying that the price level is proportional to unit money supply. Now, I'm saying that is the outside limit as far as I can judge of what is occurring and that the only thing that may happen is basically that we're getting to a long-term uptrend in velocity, which is the obverse of the decline of the intermediation process. I don't know what the number is; all I'm saying essentially is that in the context of a constant long-term velocity an appropriate guide to monetary policy may be somewhat less than a 1 to 4 percent range.",357
-fomc-corpus,1992,The second question is: If you believe as you and Bob were indicating in your interchange that price level stability needs to be a significant part of the Humphrey-Hawkins report--and you know I agree with that--what alternate form of communication do you propose [to convey] that that's what we are out to do and the manner in which we want to do it? What would substitute for Jerry Jordan's 2 to 6 percent range that some of us voted for last year and pulling that down? I'm open to another program.,108
-fomc-corpus,1992,Let me say the only program that's involved here is a short delay until we get the issue resolved because I think at some point we have to revisit [the question of the ranges for] 1993. And I wouldn't necessarily wait until February if we've come to a conclusion before then.,57
-fomc-corpus,1992,"Well, you see my question stems from a view that there is something resembling a Wicksellian natural rate of interest prevailing in the critical 5-year, 7-year intermediate interest rate area, and we have tacked onto that Wicksellian natural rate an uncertainty premium in regard to inflation because the world doesn't know what we're doing. What I'm asking is: What do we say? How do we explain our action? What is the guidepost that causes the bond markets around the world to understand the nature of our commitment?",107
-fomc-corpus,1992,Are you talking about what we say in the Humphrey-Hawkins testimony?,16
-fomc-corpus,1992,Yes.,2
-fomc-corpus,1992,I would say that we'd have to do it verbally and do it in a manner which specifies that we're working on this and that when we come to a conclusion we'll announce it.,35
-fomc-corpus,1992,"Well, I am so committed to such a proposal and I have such questions about M2, which we're working on, that I'm certainly willing to consider an alternative that has that kind of commitment to explain to the world exactly what it is that guides us. And it indicates in a sense the rigors of monetary policy. You know, gold standards aren't marvelous deals; the only thing gold standards do is that they ensure some kind of discipline that will remain there; if you stay with that game, you don't have the luxury of doing what's popular. What we have to do is to indicate some better system than that, which would give the world the confidence we need so that we can get economic growth restored.",141
-fomc-corpus,1992,"If the judgment of this Committee is right--to the extent I can infer from the various statements different people have made--I would contemplate, [indeed I think] it's quite conceivable, that we may end up in the latter part of 1993 and into 1994 with significant acceleration of economic activity in the context of a much lower inflation rate than we are looking at now. If that were the scenario and if we were at that point in a moderate financial posture as a central bank, I would say that the message would have been very well delivered and that we would have created a very high degree of central bank credibility. Now, the problem we have is the tremendous uncertainties about what is going on at this moment not only with respect to the economy but with respect to the money supply. It's very difficult to develop any firm footing because we have to be careful not to put our foot down solidly when we don't know whether what is underneath is firm. I think we have very little choice. If I personally thought that at this stage we had in the pipeline a level of inflationary liquidity in the system, I would say that we would be in a wholly different environment than what I think we're in. Then the issue you are raising would disturb me quite a great deal. But I don't think that is the case, which means that I don't think that our having difficulty with this issue is or should be more than a technical problem now rather than what it could be, which would be rather dangerous. As Jerry Jordan points out, if the view were that all of a sudden the Federal Reserve has lost its footings, then I think we'd be in real difficulty.",335
-fomc-corpus,1992,"Frankly, Mr. Chairman, I think that a statement in the Humphrey-Hawkins from you that indicates our commitment to this program and our expectations of some success--almost a Bundesbank-like commitment to price level stability--without any monetary aggregates in it, would work. But that's a pretty tough step for us to take.",67
-fomc-corpus,1992,"Well, I think what we would do is to repeat basically what we have [said] before because we're testifying before Steve Neal.",27
-fomc-corpus,1992,"Yes, he's very friendly.",6
-fomc-corpus,1992,"Yes, and what we are subscribing to is basically Steve Neal's proposition. We've already done that, and it is not--nor should it be perceived as--a shift in policy for this institution.",40
-fomc-corpus,1992,"Well, I can go with your recommendation with this interchange as background, and I thank you.",19
-fomc-corpus,1992,"Alan, just to clarify: Your proposal for '93 would be just to stick with what we had in '92 and explain? It's not to say that we have nothing for '93.",38
-fomc-corpus,1992,"No, I'm basically saying that what we are doing is putting in a marker temporarily.",17
-fomc-corpus,1992,Right. And that will be what we had in '92?,13
-fomc-corpus,1992,That is correct.,4
-fomc-corpus,1992,"Okay. If we do that, I think a lot of the public is not going to look at the nuances, though some people will. But they would really notice if there were nothing there.",39
-fomc-corpus,1992,"Yes, I think we have to put something in as a holding position.",15
-fomc-corpus,1992,I agree.,3
-fomc-corpus,1992,"You said you didn't want to put your foot down firmly, Mr. Chairman; I think 2 to 6 percent would not be putting your foot down firmly like 1-1/2 to 5-1/2 percent would be.",50
-fomc-corpus,1992,"A 2 to 6 percent range presupposes that we know something in order to move from one range to the other, and I feel uncomfortable about that.",33
-fomc-corpus,1992,"I understand. You're in a very defensible position; you're a very persuasive person; you have higher credibility than anybody in the country. But if we don't lower that range, I think people are not going to believe everything you say. That is what I'm afraid of.",54
-fomc-corpus,1992,"In a sense that's the problem we had a year ago. When we talked about the range for '92 we said: ""Well, let's just put the tentative marker down and leave it alone."" Then when we got to February we said: ""Well, we really don't want to change our tentative marker."" So our tentative marker last year got to be a little more solid than some of us had hoped.",81
-fomc-corpus,1992,But then we believed that when we looked at M2 we were looking at something that--,18
-fomc-corpus,1992,"Well, I didn't think we were and I didn't think Don thought we were. I thought M2 was a problem a year ago. Opportunity costs and M2 velocity were running off the charts a year ago, so we knew we had a problem.",50
-fomc-corpus,1992,"I knew we had a problem; it's not like the problem we have now, I tell you! President Parry.",24
-fomc-corpus,1992,"Mr. Chairman, I certainly would support your recommendation for 1992, particularly with the explanation of the uncertainties. I really do think there is a far better alternative for 1993. It seems to me that if we were to reduce the range by 1/2 percentage point, there are some things we could say that would make a great deal of sense. First of all, we could indicate that the uncertainties are likely to persist, and I'm sure we feel that way. The staff projections would be more consistent with that range than the current range. And most importantly, it would be consistent with our view that over the long term we have this objective of price stability. I don't see anything to lose. That doesn't mean that we're changing it and the uncertainties have disappeared. What it means is that we believe that at some point in the reasonable future those uncertainties are likely to disappear. But there is no reason [not] to take small steps in that direction. As a matter of fact, I think there will be a large group in financial markets and other places who would misinterpret the meaning of our staying with the existing targets for two years. And I don't see what we give up at all by just reducing the range 1/2 percentage point. It's consistent with the long term; it's consistent with the projections; and it's consistent with the idea that the uncertainties are temporary. I see no problem.",283
-fomc-corpus,1992,Vice Chairman.,3
-fomc-corpus,1992,"Well, I would support your suggestion. I have just a couple of comments to tack on. First of all, in terms of this discussion about credibility and price stability and so on, I'm a believer in what we do, not what we say. In trying to get a point of view across to the Congress and the public, it's obviously important, as a number of people suggested, that we reaffirm that. But it's also not a bad idea to look at the record. And the record of the past five or six years, including 1992, in terms of money growth is pretty darn good. Not only is it darn good in an arithmetic sense [unintelligible] in terms of achieving price stability, but the fact of the matter is that this Committee has shown a great deal of stick-to-it-ness over the past three years in a context in which the performance of the economy by most standards has been lousy. I think we have a darn good story to tell. So, I would tell both sides of the story: I would put some real emphasis not just on saying what we're thinking about for the future but what we have done. I think it's a very good story. Now, the other comments I want to make are that I agree very much with this rather cute little idea of yours of keeping the Congress informed, but I wouldn't go too far in that direction or they'll have you up there every Thursday afternoon after the money supply statistics are released! So, I think we have to hang loose there a little. The last point I want to make, and I think it's more important, is that clearly part of what we're seeing here is this at least temporarily changed [financial] intermediation process. And I think it's appropriate to put emphasis and perhaps a good deal of emphasis on that. But there's more to it than that. That is partly the reason I made the comment yesterday, and I've made it before, that if it were just M, whatever M you want, that looked funny, that argument would be quite credible. But it's not just M whatever; it's the whole shooting match that looks funny. Therefore, at the very least, I think in your explanation you have to try not to get too tied to this intermediation issue itself. The other thing that obviously can be brought to bear is the debt restructuring and all that. That's another way of saying that the questions that are running around in my mind go well beyond just the disintermediation phenomenon and the role of the intermediaries, short term and long term. I'm cautious about betting the ranch on that issue. The only other point I'd make in concluding, just to complicate matters further, is that if I wanted to, I could make a pretty good argument that price stability could turn out to be quite compatible with higher rates of growth of the money supply rather than lower. That again is just another way of saying that we're in a heck of a box in terms of how definitive we could be about much of anything.",606
-fomc-corpus,1992,President Syron.,4
-fomc-corpus,1992,"I just want to ask a question of Bill McDonough. I'm taking the opportunity [now], but the question is one that was more relevant earlier. I think we're talking about tactics here. I have a fair amount of sympathy for the message [and] the credibility we want to [earn]. But the concern I have and the reason I strongly support staying with the existing ranges is that I simply don't think we know enough. I'm deeply concerned that to lower the range by 1/2 percentage point--the question I want to ask Bill McDonough is related to this--would say that we think we know something with some degree of precision. We have three audiences: the financial markets, the public, and the Congress. The question I have for Bill is whether in this environment, looking particularly at the financial markets, he agrees with my perception that the markets think the Ms are rather confused at this point and whether they would put a lot of weight on the credibility side if we lowered the [bottom of the] range from 2-1/2 to 2 percent.",218
-fomc-corpus,1992,"If the Chairman makes a very strong statement without putting himself in too much of a box--in that regard I would support President Corrigan--that there is a commitment on the part of the FOMC to price stability, I think that is what is important. And it can be done in a way in which holding the M2 [range] as the Chairman suggests is going to be fully acceptable to the market. I think the market would say this: ""If you say that you really are uncertain about what is going on in the monetary aggregates and therefore are going to leave them alone, that's fully understandable. If you say you don't know what is going on in the monetary aggregates and are studying it and are going to come up with an answer but in the meantime you are going to change the range, the story doesn't hold together."" I think the market is always very confused about a story that doesn't hold together and is very accepting of a spokesman with [the Chairman's] degree of credibility saying: ""We're not sure; we're studying it; and we're going to come up with an answer as soon as we have one."" That's a very comprehensible, understandable, believable story.",237
-fomc-corpus,1992,President Stern.,3
-fomc-corpus,1992,"I strongly support your recommendation. At this juncture--and this has been said a couple of times already--our first obligation is to tell the Congress what we know and what we don't know about M2. I think we know a good deal more than we knew at the last meeting but we certainly have not resolved all the uncertainties. In any event, we should share that with the Congress; and putting a great deal of emphasis on the ranges in this context just doesn't make a lot of sense to me. So, leaving the ranges where they are is fine with me. From an institutional point of view or a credibility point of view, being direct with the Congress is the way to go in an environment where it is widely recognized that there are some changing relationships and some mystery with regard to the aggregates and maybe other credit and financial variables as well. That will enhance credibility rather than undercut it. We're not going to fool anybody by pretending that we have some insights that we don't have, at least at this point.",204
-fomc-corpus,1992,President Hoenig.,4
-fomc-corpus,1992,"I would support your approach, although I have a lot of sympathy for Jerry Jordan's comments. The difficulty, as others here have said, is that we are in transition; we are uncertain. In that position, changing targets--whichever way--leaves open so many questions that I think it will only confuse the participants, and that is unwise. So, I'd go along with your recommendation. I'd carefully explain it and, as Jerry Corrigan said, make a little [comment] on our record and our commitment to price stability in that context. I think that will be accepted better than our suggesting that we know something when we don't.",130
-fomc-corpus,1992,Governor Kelley.,3
-fomc-corpus,1992,"Well, Mr. Chairman I strongly support your suggestion. And for the reasons that have just been articulated by many, I don't think there's a thing in the world wrong with [acknowledging] uncertainty and [exercising] great caution in the face of basically changing conditions and a situation in which we don't know where those conditions are going to resettle. I don't think any apology or any excuse whatsoever is necessary. It would be a mistake if we were to try to bluff our way through and say that we know more than we know or alternatively, at the other end of the spectrum, if we were to stick our head in the sand and say: ""Never mind, we are still going to fly on the same old instruments."" I don't think either of those courses would be credible. The key to credibility and integrity here is to be candid about this situation. We are working hard to reformulate the guidelines to policy [to foster] new understanding when that's possible to do. I'm not sure when it will be possible to do, which is the only other point I would like to make. I think we have to discipline ourselves and probably educate the Congress and the public to the fact that it may take some time before it's possible to do that again. It may be a while before conditions are sufficiently stable for us to have some confidence that we understand where we are and for things to have settled down so we are able to reformulate our basic guiding stars.",294
-fomc-corpus,1992,Governor Mullins.,4
-fomc-corpus,1992,"I would support your proposal. I do think there's a case for cutting [the range] a half point in 1993. It seems to me that it's simply time to do so in the normal rhythm of things. It was not unusual to skip last year. In the summer of '88 the Committee cut the ranges for the following year, skipped '89, cut in '90, and skipped '91. The difficulty is that it's '92 now and in the normal pattern it would be time to move. It would put the market on notice, independent of federal funds rate moves and other policy moves. The difficulty I see--and the reason I would agree with your proposal--is that it's simply difficult to send a clear signal in the current environment with the context of a distorted M2; it's difficult to separate the policy target from the questions of distortions of M2. What we lose is that we muddle the signal. I think there's no way to avoid the suspicion that we're moving the target down in part because M2 is weak. And I think we would have a better signal of long-term policy and our targets after this is better understood. It's unfortunate because we are moving up to a period where we have the capacity for reassessment of that inflation premium that Governor Angell talked about. And I am concerned when I look at what the market expects later this year and next year: They expect rates to go up. By setting the fed funds rates we'll get precious little market information on when to do that. Money hasn't been a reliable signal. So, I am a bit concerned that we'll find ourselves following the market up, lagging, and chasing credibility. And one way to try to get ahead of it is to put the market on notice and send the signal early. I think we'll have a much clearer picture in the months ahead; and maybe we will not have to wait until February because I tend to think that much of this may be transitory. We'll see how the time deposit refugees feel if the stock market gets a little cool here! I do expect the yield curve to flatten in at least two ways. And I think the de-leveraging is running its course. It is true that we have these higher costs of intermediation which have already given the banks all-time record profits in the first quarter. So, they seem not to be suffering too much. Therefore, I think there is a case for cutting the ranges at this time. But the difficulty is that we would lose the signal in this environment, so I would support your proposal.",517
-fomc-corpus,1992,President Keehn.,4
-fomc-corpus,1992,"Mr. Chairman, I completely agree with your proposal and support it for the reasons that you stated. The only thing I would add is that by lowering the ranges it's just possible that we might send some signal to the people who are viewing our outlook and expectations for the economy in terms of the [monetary] growth rate. I just don't think that's the signal we want to send.",78
-fomc-corpus,1992,Governor LaWare.,4
-fomc-corpus,1992,"I support your recommendation, Mr. Chairman, but I just have a nervous reaction as to how much we tell the world that we don't know. This is a jittery kind of situation. We have an unusual political situation and an uncertain trend to the economic recovery that most of us, I think, believe is genuine. And this institution is considered one of the anchors, one of the stable factors in this whole political and economic environment. If we are too forthcoming about how little we know about M2, which is the [measure] on which we have hung all of our policy rationale for the past several years, frankly I think that could be a very destabilizing element in the whole environment. So, I'd just caution that we should be very careful as to how much we say about how little we know.",162
-fomc-corpus,1992,Governor Phillips.,3
-fomc-corpus,1992,"Clearly, we're in this terrible gray area that Governor Kelley talked about yesterday. I'm having a bit of a hard time separating the discussion on the longer-range goals and the short-term action. To try to comment on the goals outside of some discussion about the short-term action I find a little difficult. It seems to me that if they were taken in conjunction, we'd have an opportunity to give two messages: A message about the strength of the economy and at the same time a signal with respect to our seriousness about inflation. As a citizen I also have some difficulty setting goals that we have no chance of meeting and that we're not intending to meet. In a managerial sense I've generally thought of goal-setting as something that makes a statement as to where one wants to go. I don't think goals are always set in an environment where one has full knowledge of all of the variables that make up what goes into those goals. So, I'd rather see a bit of a conjunction in the message that on the one hand we're going to ease to try to deal with the economy but at the same time we are making a statement about inflation with respect to our longer-run objectives.",230
-fomc-corpus,1992,President McTeer.,5
-fomc-corpus,1992,"Mr. Chairman, I support your recommendation primarily because I don't have a better idea. But I share Governor LaWare's sentiment that it's rather tricky trying to enhance our credibility by admitting that we don't know what is going on.",45
-fomc-corpus,1992,Governor Lindsey.,3
-fomc-corpus,1992,"Mr. Chairman, let me ask a question. I probably misunderstood what you said the first time in light of your later comments, particularly your answer to Governor Angell. If in fact we go up [to Congress] and say that we are uncertain about where things are temporarily, that's one thing. The question I have is: If we think, as you suggested, that a continual demand shift may be going on, then aren't we really throwing monetary aggregates out the window on a permanent basis?",99
-fomc-corpus,1992,"I don't think so because the type of shift that I was discussing is a long-term shift, in which what we're dealing with is a relatively small ""add factor"" not a short-term or even a major [unintelligible] break.",49
-fomc-corpus,1992,"So, you would expect within the foreseeable future that we would be back to some kind of stable money/income relationship?",24
-fomc-corpus,1992,I would certainly think so.,6
-fomc-corpus,1992,Is it your expectation that that will be by '93 perhaps?,13
-fomc-corpus,1992,"I'm going to comment when we get to the next agenda topic, the short-term [decision], on what I think is going on in the economy, which is not unrelated to that. Let me try to answer that question in that context because I need [to cite] some background to give you my point of view.",64
-fomc-corpus,1992,"My third question about what you were saying is: Are you going up there with no anchor at all? In other words, if you say that temporarily we're not looking at M2, I think Milton Friedman and others have--",45
-fomc-corpus,1992,"No, I'm not saying that.",7
-fomc-corpus,1992,"Oh, good. Okay.",6
-fomc-corpus,1992,"We are saying that we are looking at it. We're saying nothing more than we have basically said [before]. In other words, we are not saying it is meaningless. To say it is meaningless is a statement of knowledge. What we're saying is that something that had relationships has gone off the track. That basically stipulates that for this particular time it has no meaning; it is a state of knowledge we don't have. Indeed, it may be reflecting something quite significant, but we don't know that.",100
-fomc-corpus,1992,Implicit in your statement is that you would expect that uncertainty to continue through 1993?,18
-fomc-corpus,1992,"No, I don't know. I'm saying I expect that the uncertainty will continue enough that we will not get through the next Humphrey-Hawkins hearings with any real insight into what is going on. It may well be that by September or October we'll have a much better sense of what is going on and a much better feel of what the relationships are. I might add that under those conditions I would think we would then take a firm shot at 1993. I myself would not be disinclined, under those conditions, to go lower.",110
-fomc-corpus,1992,"Mr. Chairman, I think confusion demonstrates why you're such a wonderful person to represent the Fed.",19
-fomc-corpus,1992,I don't know if I like that but go ahead! [Laughter],15
-fomc-corpus,1992,"Well, I mean you managed to convince us all. I must admit I'm puzzled but--",18
-fomc-corpus,1992,In other words you find it hard to vote the same way that I vote?,16
-fomc-corpus,1992,"In view of the fact that you are on the other side of the table I'm not surprised. I look forward to seeing your Humphrey-Hawkins testimony, Mr. Chairman, in a tactical sense. [Laughter] But I appreciate your answer to the question and that we're not abandoning M2.",61
-fomc-corpus,1992,"No, I have no intention of doing that because I, frankly, think it would be a mistake.",21
-fomc-corpus,1992,Okay.,2
-fomc-corpus,1992,It's the question of interpreting what we're looking at that's crucial. President Jordan.,15
-fomc-corpus,1992,"I have both a question about how this would be explained and also a recommendation. But before I get to either I have a couple of comments that may sound like digressions but to me at least they have a point. First, I'm in somewhat of an uncomfortable position having written in 1982 very positively and glowingly about the good relationship between Ml and nominal GNP and the stability of M1 velocity over the prior 20 odd years just at about the time it was breaking down. So, I am hesitant about riding a horse that is in the process of change. Some 20 to 25 odd years ago or more, there was a lot of discussion in this Committee, in System committees on the directive, and in academic circles about technological change and innovation--what was going on in the financial system--suggesting that the relationship between the narrow aggregate, Ml. and economic activity would break down because of velocity growing extremely rapidly due to things like sweep accounts, point-of-sale transactions, automatic transfers, credit card utilization, and so on. The idea was that the demand for some narrow measures of transactions liabilities, maybe even currency, would decline and so velocity would [grow]. Well, we had exactly the opposite in spite of all that wisdom that went into what would be wrong with Ml. In the late 1970s there was a great deal of work done, some by the Board's staff, some by staff of the Reserve Banks and by economists of commercial banks--the ABA advisory committee was very active in it--assisting in the effort to try to improve control of the narrow monetary aggregates. That wound up in the 1980 omnibus legislation. The way we got to the single uniform reserve ratio on all transactions liabilities was that we wanted to crown M1. We wanted to reduce the variability of the multiplier so that when balances shifted from Reserve City banks to country banks, members, nonmembers, savings and loans and on and on, we stopped getting all the noise we were getting. We entered into this legislation with Bob Weintraub's help [unintelligible]. That may have helped in the very short-run sense because nothing happened with Ml; [that] would do us no good at all in terms of M2. My question first before the recommendation is: If the targets were not changed for '92 and '93, would that be accompanied--in addition to a statement that we're studying this and we're comfortable being below the target range pending results of studies and we're not going to do anything--by a fairly clear indication that we're not going to lower the range and we are going to [take] actions intended to bring the growth back within that range?",540
-fomc-corpus,1992,"I'd be more inclined to imply--or even to state if necessary--that if the money supply were on track or we understood it, it would be the inclination of this Committee to lower the ranges. In other words, I'd make a statement that it's the philosophy of this Committee to move the ranges down, but in this context, prior to an understanding as to what the appropriate structure is, no action is being taken. My own inclination is to suggest that the view of the Committee--if we decide to go the way I was suggesting and I was just raising it as a suggestion--is that we would reiterate the long-term goals that we have previously stated and idicate that we do not believe that [the current] range captures the lowest level that we ultimately wish to achieve and that there is a further step to be taken. Don, am I correct that it was the last hearing--or was it a year ago?--when we originally moved to this level for the ranges and we stipulated that this was a way station to a lower level? I think reiterating that as our general purpose for our long-term strategy can be done without getting involved in actually saying that we would move the [ranges] down. That would imply that when the numbers have gotten back on track and we understand them, that the notion would reassert itself in the then context of relationships that we figure are stable.",280
-fomc-corpus,1992,"Given that response, I guess I come out where Bob Parry suggested in that he doesn't see what the cost is of--",25
-fomc-corpus,1992,The cost is basically what has been raised by Governor Mullins and others: There is a danger here that we could be moving the ranges not as a [matter of] policy but as a pragmatic [adjustment] merely because we are more or less getting them down to where the numbers are. It's a very difficult thing to fight. It looks like an opportunistic as distinct from a principled action.,81
-fomc-corpus,1992,"My recommendation then is that we indicate in addition to the point that we are very seriously studying these relationships that we also are going to do more than just study this and we're going to be making recommendations in order to enhance both their control and maybe their relationship with economic activity. My preferred recommendation for some time on that idea is to move to a system, which would require legislation, of a single very low reserve ratio applied to all non capital liabilities. On M2, we don't want a single reserve ratio as we currently have only on transactions liabilities and not on nontransaction liabilities. We have this oddity of unbound banks and surplus vault cash and on and on which confuses the issue even as to what total reserves are in the usual way of thinking. My guess is that [the single reserve ratio] would be well under 5 percent. It would both correct the competitive inequity problems in the banking industry today caused by the way FDIC insurance is assessed in combination with Reg D and the way we impose reserve requirements whether they're domestic oriented or funded [unintelligible] pay the higher tax or franchise fee than does a wholesale bank or money center bank.",233
-fomc-corpus,1992,"Jerry, I think there's considerable sympathy around this table for that view. Remember that the original position regarding reserves on transactions balances largely reflected a view as to how this Committee would function operationally when the legislation was passed. Now that is no longer the case. If people are going to focus on M2, we would clearly want to look at the question of why we have reserves on transactions balances only. That is a very legitimate question. We have to look at the problem we may have with it, which is that if we do that something else will pop. It's not something that we can automatically get involved in because were we to do that, as we study it--which I'm sure is in fact your purpose--we probably would get a far greater ability to stabilize M2 growth but at the cost of significantly more volatile interest rates, at least in the short run. So, an interesting set of questions is involved, but it's a quite legitimate issue to be raised because I think there is a fundamental inconsistency in our approach to have targets for aggregates which we effectively can't control. I'm not sure we can control M2.",225
-fomc-corpus,1992,That's the big point.,5
-fomc-corpus,1992,Governor Mullins.,4
-fomc-corpus,1992,"A point of clarification: As I understand it, the proposal is to set tentative preliminary ranges for '93 and that we could revisit this, say, in October or November and actually change the ranges then rather than wait until February.",46
-fomc-corpus,1992,"Yes, in fact that's precisely--",7
-fomc-corpus,1992,Why don't we put it on the agenda as we get more information and this will give us another opportunity to say something instead of saying that we have--,30
-fomc-corpus,1992,What are you getting at?,6
-fomc-corpus,1992,"Well, on the FOMC meetings as we go forward when it comes time to consider this, let's just put it [on the agenda].",29
-fomc-corpus,1992,Do it formally?,4
-fomc-corpus,1992,"Yes, do it formally.",6
-fomc-corpus,1992,"Yes, I think that's--",6
-fomc-corpus,1992,Then we're communicating not just that we have decided to postpone until February consideration of--,16
-fomc-corpus,1992,I have not intended to imply that we would. That's the reason I said that we'd be sending up interim reports from the Committee.,26
-fomc-corpus,1992,It might be useful to do it in October or November.,12
-fomc-corpus,1992,"Well, supposing we--",6
-fomc-corpus,1992,"If we're not ready, it would not be useful!",11
-fomc-corpus,1992,"I would say in the Humphrey-Hawkins testimony that it's our expectation that this issue would be revisited as soon as feasible, hopefully by the fall or whenever we're ready.",36
-fomc-corpus,1992,"Yes, I wouldn't expect you to commit in the Humphrey-Hawkins testimony but just for our own planning.",23
-fomc-corpus,1992,"No, for our own planning this is on the agenda until we resolve it; it's on every six weeks with a report from Don because I don't think that we can put this aside until the question has been addressed. President McTeer.",48
-fomc-corpus,1992,"Just an observation, Mr. Chairman: I believe it's true that over past periods when we've observed stable velocity of various Ms, it has been stable because after the fact during the period of changing circumstances the definitions of the Ms have been changed to take account of changes in composition and so forth. So, they are sort of stable retroactively. With that background, I believe we're overstating our ignorance because I think we do know a lot about what has been happening to M2. Maybe we should be focusing more on that and perhaps less on the ranges. For example, if we adjust M2 over the past few months to what has been happening to stock and bond funds and perhaps RTC activity, I believe that we can make the case that M2, properly defined to take that into account, has been pretty much in the middle of our target ranges.",171
-fomc-corpus,1992,"Yes, but then unfortunately the trouble is that if we carry that definition consistently back, it ceases to have the earlier robust relationship with nominal gross national product. I'm not sure that the changing definitions have created that much of an alteration in history. My recollection is that even though the definition of M2 has changed materially over time, it has always been stable back to the turn of century.",79
-fomc-corpus,1992,"I think it's the case with M2 and Ml, though, that it's much more stable after the revisions backward.",23
-fomc-corpus,1992,I will not deny that.,6
-fomc-corpus,1992,I think we would have--,6
-fomc-corpus,1992,The reason you can assume that is that we would not have published if it were less stable!,19
-fomc-corpus,1992,"In any case, I would hate for us to overstate our ignorance and have that be interpreted as our not having a clue as to what is going on. I think we know pretty much what is going on.",43
-fomc-corpus,1992,"What we will do essentially is to indicate very much what the staff study suggests, which is a very clever insight into a number of issues, and say what pieces of information remain to be understood prior to our coming out with an answer. I think that's actually what we're doing. Any other comments? I'd like to have separate votes on this since there may be differences. I would like to propose alternative I with the stipulation that for 1992 [we will retain the current ranges]. You have the language that goes with it. Don, would you give us your recommendation on the language here?",119
-fomc-corpus,1992,"Just on 1992, assuming the Committee votes to retain the 2-1/2 to 6-1/2 percent range, the staff had put in a sentence, shown at the bottom of page 21 and the top of page 22 of the Bluebook, that the Committee might want to consider if it wanted to say that velocity increases might persist and that it recognized that [money] growth could be low. As I read this in the full light of the FOMC meeting, my recommendation is that, given the uncertainty, I wouldn't use the second half of this sentence saying that M2 and M3 could come in around the lower end of the ranges; we just really don't know. So, I think there are really two alternatives. One is to say: ""In evaluating the aggregates, the Committee anticipated that developments contributing to unusual velocity increases could persist in the second half of the year"" or something like that so at least you convey some sense that something unusual is going on. While you were talking I was writing something else similar to that: ""In evaluating the growth of the aggregates relative to the ranges, the Committee recognized the unusual behavior of velocity apparently in train this year"" or something along those lines. So, I would recommend against the second half of the suggested sentence. But the Committee might want to say something like the first half of the sentence in the directive. Obviously, this will be said in the Humphrey-Hawkins report, so it's not as if we wouldn't be communicating with the public. But you could say something in the directive about anticipating unusual velocity behavior this year.",326
-fomc-corpus,1992,The Humphrey-Hawkins report will be published before this is published.,15
-fomc-corpus,1992,Right.,2
-fomc-corpus,1992,"So, this is really a moot question?",9
-fomc-corpus,1992,Sure. It's just a question of completeness of the record.,12
-fomc-corpus,1992,Yes.,2
-fomc-corpus,1992,It's not important.,4
-fomc-corpus,1992,The first [part of the] sentence I think probably makes sense and I'd leave it at that.,20
-fomc-corpus,1992,The first half?,4
-fomc-corpus,1992,"Just the first half of the sentence. Okay, so it would say: ""The Committee anticipated that developments contributing to unusual velocity increases could persist in the second half of the year.""",36
-fomc-corpus,1992,Period.,2
-fomc-corpus,1992,"This will be a vote on the 1992 ranges. The first sentence on the general objectives would stay the same and then continuing: ""In furtherance of these objectives, the Committee reaffirmed at this meeting the ranges it had established in February for growth of M2 and M3 of 2-1/2 to 6-1/2 percent and 1 to 5 percent, respectively, measured from the fourth quarter of 1991 to the fourth quarter of 1992. The Committee anticipated that developments contributing to unusual velocity increases could persist in the second half of the year."" And then to pick up on nonfinancial debt, about the middle of page 22: ""The monitoring range for growth of total domestic nonfinancial debt also was maintained at 4-1/2 to 8-1/2 percent for the year."" Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Hoenig Yes President Jordan Yes Governor Kelley Yes Governor LaWare Yes Governor Lindsey Yes President Melzer Yes Governor Mullins Yes Governor Phillips Yes President Syron Yes",217
-fomc-corpus,1992,Okay.,2
-fomc-corpus,1992,"Congratulations, Mr. Chairman",5
-fomc-corpus,1992,Wait a minute.,4
-fomc-corpus,1992,"And then for 1993 beginning about two-thirds or so the way down on page 22: ""For 1993, the Committee agreed on tentative ranges for monetary growth, measured from the fourth quarter of 1992 to the fourth quarter of 1993, of 2-1/2 to 6-1/2 percent for M2 and 1 to 5 percent for M3. The Committee provisionally set the associated monitoring range for growth of domestic nonfinancial debt at 4-1/2 to 8-1/2 percent. The behavior of the monetary aggregates will continue to be evaluated in the light of progress toward price level stability, movements in their velocities, and developments in the economy and financial markets.""",150
-fomc-corpus,1992,"May I ask a question just on the language? I'm sympathetic to the suggestion, but the concern about velocity also applies to what we're talking about for the '93 ranges. So, I'm wondering if it would be better just to say that unusual velocity could persist, period, rather than to say it could persist in the second half of the year. If it was thought that that sentence would apply also to the '93 targets, that might be better because otherwise we don't have something that explicitly says that.",100
-fomc-corpus,1992,"We do. The last sentence says: ""The behavior of the monetary aggregates will continue to be evaluated in the light of progress toward price level stability, movements in their velocities, and developments in the economy and financial markets.""",44
-fomc-corpus,1992,"I saw that, but the earlier sentence that refers to '92 is a little more explicit.",19
-fomc-corpus,1992,"Yes, the trouble is it creates the type of problem that Governor LaWare is concerned about. It makes too much of a ""know-nothing"" [unintelligible].",36
-fomc-corpus,1992,"I understand that argument and I don't want to say that we don't know anything; but I think there is a difference in being able to say that the world has evolved and that our body of knowledge and ability to interpret--our internal computer, so to speak--hasn't diminished in terms of our effectiveness. But it's this external environment; it may be a subtle point and it may not be possible [to convey it]. I happen to think that's what the situation is, that our internal capacity to evaluate these things probably is greater because of the experience than it has been in the past but that the external environment is more difficult.",125
-fomc-corpus,1992,"The sentence refers to velocity ""increases,"" so I don't know whether the Committee wants to make that statement about next year particularly [unintelligible] ranges. I think it recognizes the fact that growth is coming in at under 2 percent, Q4 to June.",55
-fomc-corpus,1992,It was a suggestion and I withdraw it. But I can't withdraw a question! [Laughter],20
-fomc-corpus,1992,"Don, is there any alternative language to ""The Committee agreed on tentative ranges""? It seems to me that what we're saying here is something a little different than ""agreed"" on tentative ranges. I think what we've agreed to do is quite different; we are really saying that we are deferring a decision to change the range.",66
-fomc-corpus,1992,"Can we say ""The Committee tentatively placed"" or something like that?",15
-fomc-corpus,1992,"Yes, any change in the wording would be helpful.",11
-fomc-corpus,1992,"I think you're right that the word ""agreed"" is not the right word.",17
-fomc-corpus,1992,"""Tentatively established""?",5
-fomc-corpus,1992,"""Established"" is tough.",6
-fomc-corpus,1992,"The statute in force requires language close to this. I think it requires you to ""establish""--",20
-fomc-corpus,1992,"""Plans and objectives.""",5
-fomc-corpus,1992,"Yes, ""plans and objectives."" And one time we tried not to, though that was more extreme--",21
-fomc-corpus,1992,"Well, this will be a minor issue because it will be published after the Humphrey-Hawkins report and we'll handle that in that respect.",29
-fomc-corpus,1992,"Why not just say the Committee ""set"" tentative ranges?",12
-fomc-corpus,1992,That's a good idea.,5
-fomc-corpus,1992,"Yes, ""set"" is better.",8
-fomc-corpus,1992,That's much better.,4
-fomc-corpus,1992,"Well, ""plucked"" might be even better!",11
-fomc-corpus,1992,"I think ""set"" solves the problem.",9
-fomc-corpus,1992,Right.,2
-fomc-corpus,1992,Thank you.,3
-fomc-corpus,1992,"Change ""set"" to ""established"" in the other sentence?",14
-fomc-corpus,1992,"Okay, sure.",4
-fomc-corpus,1992,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Hoenig Yes President Jordan No Governor Kelley Yes Governor LaWare Yes Governor Lindsey Yes President Melzer Yes Governor Mullins Yes Governor Phillips No President Syron Yes,46
-fomc-corpus,1992,"Okay, let's now break for coffee.",8
-fomc-corpus,1992,"A number of members yesterday gave the reasons I'd already written down for why the Committee might want to choose one of the other courses for the intermeeting period and I won't repeat them. I do have a few background points, though, to bring to the attention of the Committee as you make your decision on short-run policy. First, I can bring you up to date on the monetary aggregates; we do have some new information this morning and it suggests a further weakening in money growth and credit. The revisions are exclusively in the Ml category. [Statement--see Appendix.]",113
-fomc-corpus,1992,Questions for Mr. Kohn?,7
-fomc-corpus,1992,"Don, M1 growth from Q4 to June would be what?",14
-fomc-corpus,1992,"Well, Governor Angell, I don't have that answer for the new Ml, incorporating the latest revisions. I guess I'd subtract about 1/4 or 1/3 of a percentage point; growth from Q4 to June before was 12-1/4 percent so my guess would be 12 percent or a little under that.",69
-fomc-corpus,1992,So it's approximately 12 percent--well within double-digits then?,14
-fomc-corpus,1992,Yes.,2
-fomc-corpus,1992,And the 3-month growth rate of Ml?,10
-fomc-corpus,1992,"Well, it was 6 percent and now it would be 5 percent approximately.",17
-fomc-corpus,1992,Thank you.,3
-fomc-corpus,1992,"Don, what is your early look at next week?",11
-fomc-corpus,1992,For the week to be published Ml would be about flat and M2 and M3 would decline by about $3-1/2 billion and $9 billion respectively. I hasten to add that these are very preliminary data subject to substantial revisions.,50
-fomc-corpus,1992,President McTeer.,5
-fomc-corpus,1992,"Don, do you think the prime rate would respond to a 1/4 point cut in the fed funds rate?",24
-fomc-corpus,1992,"I think it's highly likely. The banks didn't respond last time; I think another cut would put pressure on them. I suppose they might try to resist, especially if there weren't a discount rate cut at the same time. It would be a nice test of whether there is any aggressiveness out there in seeking loans.",63
-fomc-corpus,1992,Do you have an educated guess about June employment numbers?,11
-fomc-corpus,1992,No.,2
-fomc-corpus,1992,Do you have a guess?,6
-fomc-corpus,1992,Mike has a guess.,5
-fomc-corpus,1992,Uneducated?,3
-fomc-corpus,1992,"Our guess was 80,000. Just to bring you up to date, for those who don't have telerate screens today, the National Association of Purchasing Managers came out with a report this morning. The overall index was down [from] 56 and a fraction to 52 and a fraction. Construction put-in-place data for May came out; they were a little hard to read because they involved revised seasonal factors, but a quick look suggests that the numbers going from the first to the second quarter were considerably stronger than we had anticipated, particularly in the state and local sector. So, offsetting some of the disappointment there--",127
-fomc-corpus,1992,We finally got a number that's higher than expected!,10
-fomc-corpus,1992,This state and local number is phenomenal; it's running very strong.,13
-fomc-corpus,1992,Was the private nonresidential unchanged?,8
-fomc-corpus,1992,"Well, that's what is a little hard to read. It does not appear to be a drastic change from our expectation.",24
-fomc-corpus,1992,Does that modify your real GDP for the second quarter?,11
-fomc-corpus,1992,"Well, I think it helps it to stay in the 2 percent area.",16
-fomc-corpus,1992,Any further questions for Don?,6
-fomc-corpus,1992,At the last meeting were we looking for 2-1/2 percent M2 growth for the second quarter or something like that?,27
-fomc-corpus,1992,"We were looking particularly for about 1-1/2 percent in May and 3-1/2 percent in June, which we didn't get.",31
-fomc-corpus,1992,Did you run a simulation or anything with the experimental model for the second quarter?,16
-fomc-corpus,1992,"Not for the second quarter, or at least if we did, I'm not aware of it. Dave Lindsey, are you aware of anything? I didn't ask anyone for it.",35
-fomc-corpus,1992,Further questions? Jerry.,5
-fomc-corpus,1992,"With the advantage of whatever hindsight there is in the last few months, if you felt very strongly about 1-1/2 percent for growth of an aggregate in the second quarter--and it was talked about a couple of months back--would an experimental model have suggested that if there had been a sufficient cutting of the funds rate it would have produced that kind of growth? And would we know about which components of M3 are going down [unintelligible]?",94
-fomc-corpus,1992,"I wouldn't know exactly what the ceteris paribus is there, but I think probably not. That is, the interest elasticities in those models, while still of the appropriate sign, assume that long rates react a little with short rates since there's a lot of yield curve [unintelligible]. [If] long rates go the wrong way or don't move at all, then the interest elasticities go essentially to zero or even turn around. But assuming long rates came out as they did over the second quarter, it would have taken a very large reduction in short-term interest rates--I don't know the number--to have gotten M2 growth into the 2 to 3 percent area over the quarter.",143
-fomc-corpus,1992,"It seems to me that there are only two ways we're going to get stronger M2 growth: If there is either a pickup in loan demand and banks bid more aggressively so that the yield curve on their liabilities shifts with the offering rate on time certificates versus regular savings and so forth; or if the banking industry decides to drop sharply the zero maturity deals. At some point there will be yields between zero maturity liabilities from checkables and regular savings and money market deposit accounts, versus time certificates [that] compete with other nonbank liabilities.",106
-fomc-corpus,1992,"I think dropping the zero maturity yields isn't going to help M2 growth. In fact, that's basically the story we're telling for the rise in velocity in the second half of this year and into next year: That those zero maturity yields along with the effects of the FDIC Improvement Act (FDICIA) will be dropping offering rates. And while some of that will just keep money [in] time deposits to some extent, people with savings-type money in NOW accounts will be looking elsewhere to put that money outside of M2. So, I don't think dropping those rates will help.",117
-fomc-corpus,1992,"If balances shift from reservable liabilities to non-reserveable liabilities, we're going to see either a contraction in bank reserves--Desk operations will be absorbing reserves--or a build-up, temporarily at least, in excess reserves. And the banking industry is going to be working to try to get rid of those excess reserves.",64
-fomc-corpus,1992,"Right, and the federal funds rate would be under tremendous downward pressure.",14
-fomc-corpus,1992,Exactly.,2
-fomc-corpus,1992,"Right. And so as long as the Committee sets the federal funds rate with an instruction to Ms. Lovett to hit it, the reserves could contract under that situation. If the Committee were to choose to target a reserve level and that happened, then I think the federal funds rate would drop very substantially in the short run.",65
-fomc-corpus,1992,"So, we'd have a situation where bank reserves are going down with a constant funds rate and the interpretation would be that policy is unchanged while bank reserves are contracting?",32
-fomc-corpus,1992,That depends on how one measures policy.,8
-fomc-corpus,1992,"Anything further? If not, let me get started on the discussion. I've puzzled about the fact that we as a group have a fairly general, consistent notion as to how the economy works and where we'd like it to be, and yet in yesterday's discussion it was fairly clear that there was a very significant difference among various [speakers]. I asked myself what is causing that to see if we can get a firm view as to how the system is working. As best I can judge, it all really started with Jerry Corrigan and others raising the point that if somebody wanted to certify the outcome in the Greenbook, we'd all say ""Hurrah, that's perfect"" and we'd sign off on it right now. I'm not aware of any of us who would argue strenuously that the outcome in the Greenbook is substantially inappropriate and that if it came out that way we would be anything but pleased. The question really gets down to the notion of what could prevent that from happening. While there were some comments--not a great number but enough to raise an issue--that the economy could conceivably turn out to be much stronger than the outlook in the Greenbook, the substantial concern was that it would fall short. That is, most of you who are in this camp suggested that the risks are on the down side, implying that in some way the economic system would falter. I think we have to ask ourselves why. What is it about the system that we are now observing that would have that particular characteristic? If we take the Greenbook forecast, we have a standard, old-fashioned economic forecast with old economic relationships, as Mike Prell put it. Maybe I shouldn't put words in his mouth! He'll come back at me and tell me he was misquoted! [Laughter] I'll [ascribe that description] to myself. We are having a significant expansion in operating profit margins, cash flow in the corporate sector is improving, and we are beginning to see it in the capital goods markets. History tells us that that process will feed in through the increased incomes and employment that a number of people are looking for. A conventional expansion of the type that is in a sense expressed in the Greenbook, or even something slightly higher, would be the normal expected outcome. That is what that view of the world exemplifies. Were that in fact the case, it's pretty obvious at this stage that where we are with monetary policy is probably where we ought to stay because there is no obvious need to move [rates] lower; in fact one can argue that it may be counterproductive in that context for us to move lower. There is, however, the other model which is evolving over time, which I would hate to be required to put into structural form and try to estimate its parameters. In fact, I'd even prefer not to put it down in writing because it might get too clear! I'm not being facetious. There is a sense that what we're looking at really gets to [such] a set of relationships here. Let me try it out and see where I get because I think it would explain what the phenomenon is and would suggest to us what to look for to test whether the hypothesis is working. I start with something we've discussed before: namely, to explain the nature of the balance sheet restraint that resulted from a significant rise in assets during the 1980s, funded by debt, and a subsequent decline in market values of assets which created balance sheet impairment. The balance sheet impairment [leads] individuals and businesses to move their cash flow from the purchase of goods and services and investment goods toward debt reduction or other balance sheet repairs, essentially shifting the consumption function in a manner to generate a much higher saving rate and basically a pulling back on investment incentives in the business sector. Now, that is a phenomenon we have seen many times in the past--it's called [the panics of] 1873, 1893, 1907.... It's the classic balance sheet/market value crunch which induces a very significant liquidity freeze-up in the banking system and induces a tremendous shift of cash flow toward savings rather than to the purchase of goods and services. And you get the classic Keynesian contraction at that time. It strikes me that what we effectively have been doing since 1989, I hope more consciously than otherwise, is to take the same adjustment process--which in the 19th century would have meant that the economy would have gone down sharply, the balance sheets would have been repaired reasonably quickly, and [the economy] would have come back the usual way--and by injecting significant and continuous amounts of liquidity into the system, we in effect have prevented the liquidity freeze-up and have stretched out the adjustment process. The question, of course, is whether there is more adjustment that has to be done this way or less. Or do we know? I suspect that at this point we don't really know. But I do think this explains, or can explain, what basically has been happening in the last two years. When we continue to inject liquidity in the system, the adjustment process takes place; and when we stop injecting liquidity, after a while the economy begins to show symptoms of weakness again. That is another way of saying that the unmedicated economy goes back to the way it used to behave in the 19th century and it begins to get the [liquidity] freeze-up until we re-inject even small amounts of liquidity and the adjustment process continues. That, I believe, can explain the Christmas effect that we had. I think it explains the April injection. And the question that one has to ask is: If this is in fact the case, how long will it go on and what will happen if we stop moving toward supplying liquidity when a normal adjustment process is in fact to squeeze up the process and to tilt the economy toward a sharply increased propensity to save rather than to consume and go into investment goods? If what we are seeing now is an indication that we haven't done enough and that the last injection has petered out, then presumably we will see some weakness in activity, which is very difficult to explain in the context of our standard models. In other words, it is very difficult in my judgment to take our standard models--to take the income flows that are moving the profit flows--and argue other than [that we will see] an increase in activity albeit modest. So, the key test of which of the models is basically working requires an evaluation of the short-term phenomena. And the reason why in Jerry Jordan's terms we are somewhat concerned about the turn in all of the monetary aggregates and the low level of nonfinancial debt creation, which incidently would be obviously explained by this process, is that one would presume that if we are dealing with a sort of implosion propensity, we may see it in very modest financial intermediation and presumably also in a significant softness in loan demand, which is basically what we have. So, if this does explain the phenomena--and let's assume that we now have done enough and that the data for the most recent weeks are phony and the economy is coming back--it does raise an interesting question on the other side of this whole process. Because if we had been injecting significant amounts of liquidity in the system--and at the moment I leave what I mean by that somewhat undefined--it would follow that.when the balance sheet adjustment is complete, the level of liquidity would be too high and we would then be required to pull back in the growth [of money] as the economy begins to [gain strength] and as the cash flow, which has been drawn off at least in part into savings flows, starts to shift its proportions to a more normal .95 in personal consumption and a much higher response in the capital goods markets. I might say that the argument statistically, which raises some question about this hypothesis, is that it is difficult to find a significant rise in the saving rate. Granted, I'm only looking ex post; the argument that I'm making is ex ante. Nonetheless, if there were a significant rise in the saving rate, that would very strongly suggest that this is a model that is functioning. Now, it may well be, as we have discussed at other times, that the personal saving rate is indeed actually higher than we are measuring it on the grounds that the statistical discrepancy may be reflecting a shortfall in wages and salaries or personal income. And that particular shortfall would be consistent with the fact that household employment data are actually much stronger than the payroll data; indeed, some analyses by the staff suggest that the next revision of the payroll data will be up. That might suggest, since personal consumption expenditures have not changed in this process, that raising income will put it all into savings. So, it may well be that looking back at this period after the fact we will indeed see what is seemingly the missing ingredient in this model: That we have a somewhat higher level ex post of savings than we [currently] seem to be getting. In any event, what all of this suggests is that the testing of these two models as to what is happening is essentially what we are seeing at this particular stage. My own impression is that having eased 22 times so far [since May 1989]--is that what it is Don?--which has to be some sort of record, we have to be getting close to the point where this adjustment process is beginning to come to an end. I would suspect that at the point it does come to an end this economy could all of a sudden show some significant vibrancy. But, obviously, we don't have to go all the way because if, for example, the proportion of expenditures out of cash flow is rising, though it remains subnormal, the rate of growth in the economy will pick up, although less than its potential. So, I think it would be helpful to look not only at the economy directly but to a great extent at what is happening in the financial system for an indication as to what is going on. Having come through all of this, I would conclude that we have to watch very especially the nature of what is going on in the economy. I would suspect that were we to choose to move, say, 25 basis points and got a prime rate cut, we probably would get 50 basis points; and if this process of liquidity freezing up is what is occurring, then clearly that would be helpful at that particular time. I don't feel overly comfortable, frankly, with either of these two models at this stage. But I think they do capture, as best one can, the prevailing possibilities--the major probabilities--of where this economy is going. We're undoubtedly going to learn a good deal more in the next couple of weeks as to how this is all evolving. I conclude by saying that, after listening to the general views regarding what this Committee is concerned about and adding up the number of people on the Committee who have taken different views, I am led, as I try to find the central tendency, to [propose] a mildly asymmetric directive toward ease but with the requirement that before any action is taken there be a telephone conference to explain why. I'm not sure that captures everybody; I suspect it probably does not. But having thought about trying to find where the central tendency is --where one captures the largest number of views and concerns of this Committee--that's pretty much where I come out. Actually, I find myself comfortable in that position, and I would like to raise it as a possible means by which we can resolve what is clearly a differing set of concerns about the immediate outlook that this Committee expressed in some detail yesterday. President Black.",2353
-fomc-corpus,1992,"Mr. Chairman having been in the uncomfortable position of supporting you [earlier] only 95 percent in my estimation, I would like to express 100 percent agreement with this approach. I would add only thing: I think we ought to include the bracketed sentence on page 23 of the Bluebook which stresses the uncertainty.",66
-fomc-corpus,1992,"Yes, I agree.",5
-fomc-corpus,1992,"So, it's 100 percent agreement, not 98!",12
-fomc-corpus,1992,President Parry.,4
-fomc-corpus,1992,"Mr. Chairman, I originally came with an expectation of recommending no change and a symmetric directive, but it became clear to me in the discussion yesterday that the weakness was not in the Twelfth District, so I certainly could accept your recommendation.",48
-fomc-corpus,1992,President Forrestal.,4
-fomc-corpus,1992,"Mr. Chairman, as I said yesterday, I have somewhat less confidence than I had in May that the recovery is on a sustainable path. But having said that, I don't think there's any substantial evidence that the economy is going into the tank in any sense. So, while there's a case to be made for some easing, I don't think that's the more persuasive argument at the moment and I would prefer to maintain our present policy and await further developments. And I think there's no particular harm in having an asymmetric directive, so I accept your proposal.",109
-fomc-corpus,1992,President Keehn.,4
-fomc-corpus,1992,"Mr. Chairman, given my comments yesterday, I'd favor alternative A and an easing move now, but I could accept alternative B with asymmetric language. Without necessarily meaning to put you on the spot, what kind of timing [are you contemplating] and what kinds of things might prompt the calling of a telephone conference?",62
-fomc-corpus,1992,"I would say a fairly broad sense of cumulative weakness beyond where we are now. It's hard for me to be specific; there are so many different interests. I think we all know what the key elements are. But an evident break in the pattern of what we're seeing now would have to show up. I doubt if I can be any more specific than that. Let me say, for example, that if auto sales all of a sudden die, frankly, that would worry me because that has been one of the [unintelligible].",108
-fomc-corpus,1992,"You mean autos, employment, a series of things like that?",13
-fomc-corpus,1992,"Plus let me say that even though we have argued strenuously about various monetary aggregates, that is not the same thing as saying that they are utterly irrelevant. Obviously, if we're getting evidence that loan demand is continuing to fall and the monetary aggregates are starting down in the context of other weakness, we should not disregard the financial measures even though there have been significant problems with them. At the margin, they are probably telling us something.",87
-fomc-corpus,1992,"Just the same, my view is that we have reached a point where some additional easing would be called for now; therefore, I would have a preference for ""A."" But the way that you phrased ""B"" with asymmetric language [toward ease] would be acceptable.",56
-fomc-corpus,1992,Governor LaWare.,4
-fomc-corpus,1992,"Mr. Chairman, for all the reasons I cited yesterday in my references to Pavlov and his dog and so forth, I would prefer ""B"" but I strongly prefer symmetric language.",37
-fomc-corpus,1992,President Melzer.,4
-fomc-corpus,1992,"I come out the same place, Alan. I feel that symmetry is an important issue. At the last meeting we in effect communicated to the public--probably earlier than intended though it should be communicated this Friday--the fact that our having moved to symmetric language at that time was quite significant. And to move back to asymmetry toward ease would communicate the wrong [message] about how we ought to approach this process. There's no question about it: There's a lot of uncertainty now. But I don't think we can let ourselves get whipped around by these changing expectations the same way speculators in financial markets do. We have to take a much longer view and we have to be willing to look through one month or two months; we have to be looking at quarterly or longer numbers. So, in a sense the message we're sending here is a very confusing one and probably a much more significant one than anything we might do with long-run ranges. It gets back to the issue of: ""Look at what we do and not what we say,"" but this is something that we say that's much more significant, I think, than the long-term ranges. The reason I come out where I do is that first of all, I think we have an expansion in place somewhere around the economy's potential. I think at a minimum monetary policy is consistent with that expansion process. In other words, I don't have the sense that the economy is being choked by any means on the liquidity front. As the expansion progresses and it comes through in a number of ways--you just said it yourself in your comments and I think it's implicit in some things in the Bluebook--we're going to have to be going in the other direction. And to be thinking about additional ease now makes that next job that much tougher. Again, I don't want to flip-flop. It's really in the context of where we were last time. In general, thinking along those lines at this stage has some important credibility effects which could be reflected in long markets and in the foreign exchange market. I don't really put much credence in declines in longer-term yields that are supposedly associated with expectations of ease. I think what tends to happen is that when that sense develops, speculators [find] that a very effective vehicle in which to speculate. That's where one gets the most bang for the buck. The speculators get in there; they may drive yields down temporarily but in the event you could have a lot of sellers [who are] very disappointed. So, I take heart in the fact that whatever disappointment was reflected in our moving to asymmetry last time washed out fairly quickly and long-term yields worked their way down. Obviously, they may have come down a little further on some of this speculative behavior I'm describing, but I think that's how we're going to make our contribution. We took a stand last time and I think this is the time to stay with it.",585
-fomc-corpus,1992,President Boehne.,5
-fomc-corpus,1992,"Well, I think we're at or near a point where we're going to have to ease, and asymmetry is broadly consistent with that. I'm sure all of us wish we had some stable beacon way off out there in the fog that we could latch onto and [unintelligible], but the fact is that there isn't that kind of beacon. While we may not be very happy that we have to look at these current economic indicators, in fact that's all there is right now that we can look at. And if the economy begins to weaken again, which I think already has started, it probably will need another shot of liquidity. We ought not fight that; we ought to accept it and move with it and do the best we can. I would not wait all that long. I don't think we need a whole lot of evidence piled on top of what we have to reach the point for easing. Also, if we get to that point, I wouldn't automatically think in terms of just a quarter point on the funds rate. A quarter point may bring down the prime rate but it may not. I don't think we need another present [such as the one] we gave the economy last December, but we could very well think in terms of 1/2 point on the discount rate and something comparable to that on the funds rate. So, I think we're looking at an easing move, and I suspect we'll have one before we sit around this table again.",292
-fomc-corpus,1992,Governor Angell.,4
-fomc-corpus,1992,"In some ways it seems strange, I suppose, to be confident at times such as these, but I ask myself what we need to do to have long bond rates lower by September 1 and I am very, very confident that [the answer] is for us to do as you suggest and that is to stand pat. I believe that the Federal Reserve does control long-run bond prices; it's much tougher than [controlling] the fed funds rate, but if we're going to control long bond prices, we have to do it by focusing on that [rate]. The uncertainty inflation premium is very disruptive to economic growth. I'm also confident that economic growth will be stronger if we stand pat and if we give the world a sense that we are indeed an independent central bank that has its eye upon the one thing we can do and that is to create an environment of price stability. That adds not only to long-run growth but I believe it adds to short-run growth in this environment. I understand that the Humphrey-Hawkins testimony has been pretty well determined, and I'm thinking about how our commitment to price level stability would come out if before that [testimony] or at that time [we were to ease] We know that's not what is our guide, but the world will see it as a capitulation. It seems to me it would undermine that testimony that I understood you wanted to be there as a substitute for lowering the monetary aggregates growth ranges. Now, like John LaWare and Tom Melzer, I strongly prefer symmetric language because that really is standing pat. I wonder, with the attention on symmetry that took place last time, whether we will get through the Humphrey-Hawkins testimony without this being known. It seems to me that even going from symmetry back to asymmetry sends a signal of uncertainty that the market doesn't need. So, I strongly prefer symmetric language. I heard what you said in regard to the way you're going to make your choices and I didn't hear anything about M2 being the guiding factor in that. So, in a sense, I'm very supportive of what you're saying, but I'm very concerned about being in the same voting group with others who certainly want to ease quickly.",442
-fomc-corpus,1992,President Stern.,3
-fomc-corpus,1992,"I, too, would prefer a symmetric directive at this point mainly because I think we shouldn't be in too big a hurry to take any action in the near term and should be prepared to assess a range of incoming data. I don't know which of your two models may be more appropriate in the current setting. It seems to me that another way to describe what is going on--in terms of a sluggish recovery, small gains in employment, small gains in spending, balance sheet restructuring, and all that--is that it's part of the price that has to be paid to bring down the rate of inflation. Perhaps if our credibility were higher, the price would be lower and we wouldn't have to endure some of this and we would see incoming numbers perhaps more to our intuitive liking. But I've become convinced, unfortunately, that our credibility really isn't all that high and that a period like this is probably what we have to endure to make progress on that side.",189
-fomc-corpus,1992,Governor Phillips.,3
-fomc-corpus,1992,"I would prefer to ease to accommodate the restructuring, but I could live with an asymmetric directive.",19
-fomc-corpus,1992,Governor Kelley.,3
-fomc-corpus,1992,"Mr. Chairman, I support ""B"" and I would strongly prefer symmetric language; I identify myself with President Melzer and Governor Angell among others and their comments. But I would not vote ""no"" on an asymmetric directive because I do share your concern and others' concerns that [the economy] could possibly be faltering seriously here, although I very much doubt that. If it became clear--and I do mean clear, at the risk of being what some would call too late--that we were having a seriously faltering economy, then I could support an easing. Consequently, I would not vote against an asymmetric directive.",127
-fomc-corpus,1992,Vice Chairman.,3
-fomc-corpus,1992,"This is a tough one. I guess the way I try to approach a lot of this financial confusion is that in my mind's eye I can conceivably see three profiles of the economy over the next several quarters. Each looks to me as if it has profoundly different implications. It is possible, although I think it's only a 10 percent probability, that we could have a 3-1/2 percent [growth] profile. If that turned out to be the case, the policy response to that is pretty easy: We'd have to start tightening. Then there is the 2-1/2 percent economy, an economy that as I said yesterday is quite consistent with the price stability goal based on Chart 17. I do think that that's the likely outcome. I would still put a 50 percent probability on that. And the policy response to that is also easy: We'd just sit where we are. But then there's the third scenario, the 1-1/2 percent profile, which in my mental processes carries with it something like a 40 percent probability. Now, that's the tough nut, because I personally believe, in the broadest possible context of public policy, that that outcome is unacceptable. Also, if we find ourselves in that profile after the fact and we're left in a position in which we were trying to adjust policy after the fact, I think we'd have a helluva problem on our hands. Because I think there is not an inconsequential probability of that kind of outcome, I would rather squarely associate myself with an asymmetric directive.",316
-fomc-corpus,1992,President Syron.,4
-fomc-corpus,1992,"Mr. Chairman, this obviously is as tough a situation for deciding what to do in the immediate situation, [as we've had] in some substantial period of time. But I must say that, for my own reasons, I find myself having views that are very similar to Jerry Corrigan's. In looking at the reasons, I find myself quite attracted to the second model as compared to the conventional model, in terms of what is happening with the economy. A part of that is looking at the serial optimism that has been in my own forecast based on the conventional model going back for some time and looking at the optimism that has been in all of our forecasts on a conditional basis. I am aware of the concerns that if the second model is [true] it means that inevitably we are overshooting and putting in too much liquidity, but I think we can sop that up afterwards. And what that tells me is that we need a more activist policy in terms of not being so concerned about relatively small movements in the funds rate. Though I think we come at this from somewhat different analytical schools, I am attracted to some of the questions that Jerry Jordan raised about credibility in the sense that if we said we're going to do something on the Ms but we're not doing it. I don't like the excuse that we were unwilling to move the funds rate to [achieve that]. Also, looking at what we might do right now, I do think that a move in the prime rate would be beneficial for the economy as a whole; I don't have a lot of concern that we'd see too much stimulus out of that, and I think we'd get [a prime rate cut if we eased]. To tell you the truth, in the absence of the jawboning that we've had from the Administration--if we weren't in such an awkward position--I would generally prefer to do something at this meeting. I have to disagree with Ed a little in that under ordinary circumstances I would have preferred [a cut of] 25 basis points at the meeting today. But in the environment we're in, with this amount of jawboning, I'd be cautious about pushing too hard for that. Where all of this leads me, to go back to Bob Black's analogy, is that I'm 60/40 in favor of what you're doing but that's heavily weighted by the notion that I think we should be asymmetric toward ease. And the indication that you've given that we would have a conference call to deal with that assuages my own concerns that we should generally [act] at meetings or when there is full Committee consultation.",518
-fomc-corpus,1992,President Jordan.,3
-fomc-corpus,1992,"I took your reference to 22 moves to be cuts in the funds rate over a period of time and then you made a reference to [that] coming to an end. If we're still on a track toward at least a lower inflation environment if not stable prices, measured somehow, then it shouldn't be the end of the moves because 3-3/4 percent is still too high whether one thinks in terms of real rates or [unintelligible]. The one reason that might be given for either going back to an asymmetric directive or to cut the funds rate now or in the future that I would oppose is weakness in the economy. If we're going to do something, that's the wrong reason to do it because it reinforces the idea that we try to fine-tune policy actions to influence things we can't influence. Whatever uncertainty we have about the aggregates, I have more confidence in their giving us and the public at large information about the long run [unintelligible]--where it's going to be next year and the year after--than the latest numbers produced by the Commerce Department or the BLS or the purchasing managers or realtors or any other particular group. We have a lot of uncertainty about those numbers [as well as] a tremendous amount of uncertainty [about] M2, but we can signal that we have more confidence in the [money] numbers by changing the funds rate based on them. Not doing it based on the Ms, I think, is not helpful to our longer-run case in terms of credibility. I'm in a difficult position because we are below target on M2 and the decision has now been made not to lower the range for this year or next year. To be consistent then, given the model that we use for influencing the aggregates, we should be lowering the funds rate in order to show how serious we are about coming in at least at the bottom end of the range. That's so we will be credible when we say that the opposite is also true--that when we're at the top end of the range we're not going to hesitate then either. So, failure to cut the funds rate, given what is going on in the markets today, is in my mind a relative tightening policy action compared to the market, and I don't see any basis for that. Reserves are falling and all of the aggregates [are weak], and I think that's something we should not be willing to tolerate. But at the same time I would resist cutting the funds rate on a signal of weak economic activity. I'd like to do it today, but I wanted to do it today coupled with an announcement that we cut the target ranges for the long run at the same time we cut the funds rate and then let the analysts figure out whether we tightened or eased.",555
-fomc-corpus,1992,President Hoenig.,4
-fomc-corpus,1992,"As I look at the discussion that we've had and your models, I prefer your second model as well. I think it is suggesting that we still have an environment in the economy generally of great uncertainty and the building of liquidity. And in that context staying where we are is, as Jerry stated, a tightening. In addition, it's not just the money numbers but other financial information and the financial environment that suggest that we could and should ease. My strong preference, then, would be to ease now; however, I can live with an asymmetric directive. It's consistent with where I was at least last time. And if the information comes in, given the way you answered President Keehn, I can live with that.",143
-fomc-corpus,1992,President McTeer.,5
-fomc-corpus,1992,"If we're not going to decide to ease today, then I would support your recommendation for ""B"" but with a symmetric directive. It may become necessary to ease a little later and if so it can be done with a symmetric directive. But if it's not necessary to ease later and we don't end up easing, I think symmetric language in the record would serve us better than asymmetric language.",77
-fomc-corpus,1992,Governor Lindsey.,3
-fomc-corpus,1992,"Mr. Chairman, I very much appreciate your efforts to find a consensus. What has struck me about the challenge to the independence of the Federal Reserve is a need for us to speak with one voice as much as possible. Frankly, I find myself torn between your recommendation, which I will support, and President Jordan's recommendation which I also could support were he chairman! [Laughter] The reason I think his argument is compelling and I think your argument is compelling is that I believe both will end up iterating in the same direction. But we face tremendous uncertainties, tremendous challenges, both in the economic arena and in the political arena. And I would hope that your search for a consensus would produce one in this Committee because I do realize that the challenges you personally have ahead of you in the next month are great.",164
-fomc-corpus,1992,Governor Mullins.,4
-fomc-corpus,1992,"We have an environment with both weakness in the aggregates, which we've seen for some time, and the risk of weakness in the real economy. So, I think ""B"" asymmetric toward ease is appropriate.",41
-fomc-corpus,1992,"I'm not sure I'd say the same thing if I were speaking again. I supported the Chairman but then on further reflection I thought that if we had lowered the targets for next year I would support him more enthusiastically, if I may put it that way.",51
-fomc-corpus,1992,I am proposing a vote for a mildly asymmetric directive; that's alternative B with the presumption of a telephone conference prior to any move that might be initiated under that directive. Do you want to read the language?,42
-fomc-corpus,1992,"[Does the Committee wish to use the additional sentence proposed in the Bluebook, which reads]: ""However, the recent unusual behavior of these aggregates suggests that the relationship between their growth and the Committee's long-run objectives is especially uncertain at this time.""",50
-fomc-corpus,1992,"Do we want to say ""especially uncertain at this time?""",12
-fomc-corpus,1992,"I don't like that ""especially.""",7
-fomc-corpus,1992,"Governor LaWare has a point. ""Uncertain"" is uncertain enough!",15
-fomc-corpus,1992,"We can say ""slightly"" or ""somewhat.""",12
-fomc-corpus,1992,"""Could"" be uncertain or ""would"" be uncertain.",12
-fomc-corpus,1992,Do we really need that sentence in here at this time?,12
-fomc-corpus,1992,We've already got it regarding the '92 range.,10
-fomc-corpus,1992,"I think we need the sentence in, but I'd take ""especially"" out.",16
-fomc-corpus,1992,"What's the view on that? Should we take ""especially"" out or keep it in? How many people feel ""especially"" would be better?",29
-fomc-corpus,1992,Please.,2
-fomc-corpus,1992,I don't like the sentence.,6
-fomc-corpus,1992,I don't like the sentence either.,7
-fomc-corpus,1992,Why don't we do this; why don't we have the whole thing read and let's see what it sounds like.,22
-fomc-corpus,1992,"With ""especially"" out.",6
-fomc-corpus,1992,"With ""especially"" out in the reading.",9
-fomc-corpus,1992,"""In the implementation of policy for the immediate future, the Committee seeks to maintain the existing degree of pressure on reserve positions. In the context of the Committee's long-run objectives for price stability and sustainable economic growth, and giving careful consideration to economic, financial, and monetary developments, slightly greater reserve restraint might or slightly lesser reserve restraint would be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with growth of M2 and M3 in the period from June through September at annual rates of about 2 and 1/2 percent, respectively. However, the recent unusual behavior of these aggregates suggests that the relationship between their growth and the Committee's long-run objectives is uncertain at this time.""",143
-fomc-corpus,1992,Sounds bad.,3
-fomc-corpus,1992,"If we take the sentence out, how can we live with the 2 percent and the 1/2 percent?",24
-fomc-corpus,1992,That's the problem.,4
-fomc-corpus,1992,"What do we have besides 2 percent and 1/2 percent? What is a better number than 2? If we say ""about"" and we want to be symmetric around it what number would you choose, Don?",46
-fomc-corpus,1992,"Well, let's see. Do you want a whole number?",12
-fomc-corpus,1992,"No, I don't--",5
-fomc-corpus,1992,"We gave you our best guess, i.e., 2 percent.",14
-fomc-corpus,1992,2 percent.,3
-fomc-corpus,1992,It's 2 percent for M2 and 1/2 percent for M3; that's what 2 and 1/2 mean; there are two lines.,33
-fomc-corpus,1992,"Oh, I see--2, okay.",9
-fomc-corpus,1992,I am missing something here because the prior sentence refers to June through September.,15
-fomc-corpus,1992,Right.,2
-fomc-corpus,1992,And the latter sentence says that their relationship to the long-run objectives is uncertain. Uncertain with respect to what? Is that compared to before or compared to something that we're less uncertain about?,38
-fomc-corpus,1992,I think there has to be a sentence in there but I feel uncomfortable with this sentence as it's constructed.,21
-fomc-corpus,1992,You're absolutely right; it's a problem.,8
-fomc-corpus,1992,"Well, why don't we take ""long-run"" out? Say ""suggests that the relationship between their growth and the Committee's objectives is uncertain at this time.""",33
-fomc-corpus,1992,Do we have more confidence in the funds rate?,10
-fomc-corpus,1992,It's certainly the case that this problem will be addressed extensively in the policy record as well as the [directive]; it's in the paragraph on the long-run ranges. The draft sentence was a response to a request made at the last meeting.,47
-fomc-corpus,1992,Is it like the Surgeon General's warning?,9
-fomc-corpus,1992,"No, I think the recent behavior of these aggregates--",11
-fomc-corpus,1992,"Perhaps to make it more operational we could say ""However, the recent unusual behavior of the aggregates warrants especially close monitoring by the Committee"" or something like that.",32
-fomc-corpus,1992,"Well, I agree we do want to solve the question. It's obviously making this relationship more uncertain than usual, whatever it is. We basically have a problem [in that we need] to stipulate the reasons why we are putting in these rather low numbers. Because if we believe them and those were really functional with respect to the economy, then I think it's incumbent on us, as Jerry has been saying, to move them up. What we're trying to say here is a qualification: That while we're putting down these very low numbers, our view of the importance of these numbers is far less than is usually the case. That's where the issue is.",130
-fomc-corpus,1992,Right.,2
-fomc-corpus,1992,"The sentence feeds back into the previous sentence or the two sentences before. It says that in the context of the Committee's long-run objectives you will be looking at monetary developments. So, we've already sort of said that and this kind of--",48
-fomc-corpus,1992,"We could say something like ""in view of the unusual behavior, we expect growth to be 2 percent and 1/2 percent.""",28
-fomc-corpus,1992,"Using 2 percent and 1/2 percent, I would think we'd want to focus further on the short run by saying that the Committee is particularly aware of the unusual relationship that exists with the monetary aggregates. I'd just add something like that tagged on the end, which is not specific to our objectives. This [proposed language] raises as many questions as the problem [we're trying to address]. Why don't we just say that the Committee was acutely aware that the behavior [of the aggregates] has been unusual--not necessarily in those exact words.",112
-fomc-corpus,1992,"The previous sentence says ""The contemplated reserve conditions are expected to be consistent with...."" Is that where the uncertainly is? The last sentence suggests, though it's not clear to me, [not] what is consistent with reserves but what it means for the long run.",54
-fomc-corpus,1992,"I think you've hit it, Jerry. I think that's where the uncertainty is. We're not certain whether the contemplated reserve conditions are consistent with--",28
-fomc-corpus,1992,That's exactly right.,4
-fomc-corpus,1992,"Then, why don't we just say: ""The contemplated reserve conditions, although more uncertain than usual, are expected to be consistent"" etc.",28
-fomc-corpus,1992,I don't think it's the conditions that are uncertain.,10
-fomc-corpus,1992,The point is that we don't know whether they are expected to be consistent; we have less expectation of consistency.,22
-fomc-corpus,1992,"Do we have to have the ""contemplated"" sentence in there? Does the law require us to have a sentence that says ""the contemplated reserve conditions""?",32
-fomc-corpus,1992,"No, no.",4
-fomc-corpus,1992,Why don't we drop the whole issue since we're addressing it elsewhere?,13
-fomc-corpus,1992,We put in forecasts and people notice [unintelligible].,13
-fomc-corpus,1992,"Well, part of the idea behind putting this sentence in was to give a sense of flexibility--that you wouldn't have to react to this. Without such a sentence here the directive doesn't relate at all to the long-run ranges, which may be fine.",50
-fomc-corpus,1992,Just by stating those low growth rates on the very face of it we've indicated that we're willing to accept those growth rates even though they are below the target range. That is the confusion we're trying to clear up with that last sentence. I think we could take the last sentence out altogether.,57
-fomc-corpus,1992,"It seems to me that we could say ""The contemplated reserve conditions are not likely to cause the monetary aggregates to return to their targeted ranges.""",28
-fomc-corpus,1992,"We could say ""may not.""",7
-fomc-corpus,1992,"Yes, ""may not be consistent with the aggregates returning to their ranges.""",15
-fomc-corpus,1992,"""During this period"" or ""in this period of uncertainty"" or something like that.",18
-fomc-corpus,1992,"Isn't it somewhat contradictory, though, to say that we're tilting toward ease and that it's going to result in a lower growth rate for M2 and M3?",34
-fomc-corpus,1992,"Well, in a way not, because if we were--",12
-fomc-corpus,1992,That's the way it reads!,6
-fomc-corpus,1992,"I think we could take that last sentence and attach it to the one before and say ""in light of the recent unusual behavior of these aggregates.""",29
-fomc-corpus,1992,"Mr. Chairman, I hesitate to inject this but perhaps the thought that people have is that the Committee is adopting a policy that would be expected to move the aggregates back toward the range unless the recent unusual behavior of velocity persists. That would be a correct statement, but a non-quantitative one.",60
-fomc-corpus,1992,"I think that's accurate. I don't think we expect that. Look at this chart in the Bluebook and where ""B"" is.",27
-fomc-corpus,1992,But that assumes that the recent unusual behavior persists. What I'm saying is that unless it persists you'd expect [growth of M2] to move back because we would not expect to end up the year with only 2-1/2 percent [M2 growth] given our GDP forecast if normal velocity behavior were to resume.,65
-fomc-corpus,1992,"But Mike, Don's chart shows ""A"" and ""B"" below not only the cone but below the parallel lines. Both ""A"" and ""B"" are below the parallel lines and we ought to communicate--",44
-fomc-corpus,1992,"I'm saying that isn't necessarily what is known to be the operative element in your policy concern. It is contingent on a continuation of unusually strong velocity. If you didn't get it, then you would expect [the aggregates] to come back. I apologize for the diversion.",53
-fomc-corpus,1992,"The ranges we have now reflect an expectation that these [aggregates] are going to fall below [for the year], and I think we should drop that last sentence because it only adds--",38
-fomc-corpus,1992,Let's try Jerry's suggestion for the last try at this because we're not--,15
-fomc-corpus,1992,"This is an alternative sentence that would say: ""These growth rates in the monetary aggregates are a reflection of the continuing, uncertain relationships between the aggregates and the Committee's long-term objectives.""",37
-fomc-corpus,1992,But I thought it was the uncertainty about the Board staff's model and what interest rate and reserve conditions would produce certain aggregates. There are two separate things: There's a velocity issue and--,37
-fomc-corpus,1992,Why don't we drop this whole thing?,8
-fomc-corpus,1992,Where are you going to start to drop?,9
-fomc-corpus,1992,"Starting with ""however""?",5
-fomc-corpus,1992,"Starting with ""however.""",5
-fomc-corpus,1992,"And ending with ""time.""",6
-fomc-corpus,1992,I think that's a better suggestion. The problem is: Do we really think that these reserve conditions are expected to be consistent in the world that we're in now?,32
-fomc-corpus,1992,"Let me put it this way. I would almost [be tempted] to drop the ""contemplated reserve conditions"" sentence.",26
-fomc-corpus,1992,"Yes, that's what I would prefer.",8
-fomc-corpus,1992,"Well, Mr. Chairman, if we're going to delegate to you some [asymmetry], why can't we delegate to you [the task of] carefully going over this until you're satisfied that you have a [good] sentence? I would prefer to give you the authority to clean that up or take it out, whichever one you want.",68
-fomc-corpus,1992,Good idea.,3
-fomc-corpus,1992,"That would be helpful if you would. If I have any serious questions, I will re-circulate a draft to the Committee if that's okay with everybody.",32
-fomc-corpus,1992,"Yes, it would be better than our trying to manufacture [one as we sit here].",18
-fomc-corpus,1992,"Yes, this is a tough one. Okay, why don't we leave that and go to a vote.",21
-fomc-corpus,1992,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Hoenig Yes President Jordan Yes Governor Kelley Yes Governor LaWare No Governor Lindsey Yes President Melzer No Governor Mullins Yes Governor Phillips Yes President Syron Yes,46
-fomc-corpus,1992,"Okay, our next meeting is on August the 18th, and we can adjourn for lunch.",21
-fomc-corpus,1992,Is there a second?,5
-fomc-corpus,1992,Second.,2
-fomc-corpus,1992,Without objection. Thank you very much. Let's now move on to Bill McDonough and the foreign currency operations.,23
-fomc-corpus,1992,[Statement--see Appendix.],6
-fomc-corpus,1992,Questions for Mr. McDonough?,8
-fomc-corpus,1992,"Bill, the questions I have do not have to do with the tactics of what we're doing because I have full faith and very strong confidence in the tactics that we use in carrying out these operations. I have to confess, though, to being somewhat perplexed--and I'm sure there's an answer to this--about what our policy is and what we're trying to do here and to what extent. I just want to be reassured that what we're doing is in the interest of having more orderly markets and [is appropriate in regard to] its impact on the domestic securities market, more particularly the government bond market. Just looking at this round of [actions] and looking at the longer-term pressures, particularly if something were to happen with the German official rates, I worry about our credibility more broadly, not just in the foreign exchange market. If there's a risk, it's perhaps inappropriate if we are seen trying to do something that is impossible to do. So, I'm trying to figure out what we are really trying to accomplish here and over what time horizon. I'm also interested in your view as to what extent [the exchange market] is a factor that is taken into consideration in terms of short-term domestic policy. If we are concerned about the credibility of this institution, particularly at this point in time, we don't want to seem to be going in two opposite directions. I'd be interested in how you integrate these things.",281
-fomc-corpus,1992,"I think one must distinguish in foreign exchange intervention between trying to protect a rate level and seeking to avoid markets being disorderly. Now, we have something of a [conundrum] with the Treasury on exchange rate policy; they, I believe, would be rather more interested in the rate. Our interest--certainly my own and the one I keep preaching to the Treasury with regard to what we ought to be doing--is that we should try to avoid disorderly markets. [It is only when] we make that second judgment that we will be effective in doing anything. As to the two interventions so far, I think the key tie-in to short-term domestic policy is that the Committee has a greater degree of freedom this morning than if the dollar were a great deal lower. Now, I have no idea what the deutschemark-dollar rate would be if we hadn't intervened. I think it's reasonable to say that it would be a good deal lower and the Committee might be worrying about the weakness of the dollar and any inhibiting factor that might be. Going forward, if one were to apply the test of ""Is the market disorderly?"" and ""Would intervention do something about it?"", it becomes more difficult the more we intervene. It's a tool that gets dull pretty quickly. One can really see the difference between the two interventions if you [count] the second two pieces as part of one. The first intervention was very successful because nobody expected it to happen and we did it at a time of day when such intervention normally doesn't happen. It was as if there were a rookie pitcher on the mound and Babe Ruth was at the plate and they moved in the fences; it wasn't too hard. But now it would be really difficult because the market is sitting there waiting for us to come to them, and that's a very awkward position to be in if we are to accomplish something. So, my own view would be that at certain periods it gives the System greater flexibility in monetary policy and at other times it is not likely to be effective and could be counterproductive. Philosophically, that's where I am. Exactly how you apply that is difficult.",430
-fomc-corpus,1992,Do you think its effectiveness is diminished now as compared to the first [intervention]?,17
-fomc-corpus,1992,"I guess the best test of that is that last Thursday the Treasury staff up to just below the Secretary was very inclined to want to intervene; I spent a fair amount of time trying to convince them that it wasn't a good idea. At one stage I moved in my good friend, Mr. Truman, to help. And the two of us I think dissuaded them largely, in addition to policy considerations, on the grounds that it just wouldn't work.",91
-fomc-corpus,1992,President Forrestal.,4
-fomc-corpus,1992,"Well, Mr. Chairman, I've heard the rationale of disorderly markets [as the reason for intervention], but I feel constrained to say that I was extremely surprised at this intervention, particularly the second and the third [operations]. Of course, I would respect the judgment of the Desk and Bill with regard to whether the markets were in fact disorderly. But we've had extensive discussions over the last year or so in the Committee about the effectiveness of sterilized intervention, and I thought it was the sense of this group that, unless we were going to follow intervention with some kind of substantive monetary policy move, intervention was not the policy of the Committee. I haven't been clear, Bill, whether or not this might have been instigated by the Treasury, but from your remarks I gathered that that was not entirely so. What really compounds the problem with respect to our credibility is having intervention and then having that followed by the Secretary's statement that he's looking for lower interest rates. That to me made us look extremely silly, to put it mildly. So, Mr. Chairman, I'm just confused as to what the policy of the Committee is. And I guess I'd be interested in knowing what really constitutes a disorderly market in the minds of the Desk. I didn't think hitting a postwar low or coming close to a postwar low with respect to the mark constituted a disorderly market, but maybe there are factors that I'm not aware of.",287
-fomc-corpus,1992,President Parry.,4
-fomc-corpus,1992,President Forrestal covered it.,6
-fomc-corpus,1992,Go ahead.,3
-fomc-corpus,1992,"I have a number of comments. As far as the Secretary's remarks, I remember that a decade ago we had a Secretary of the Treasury who was very emphatic in saying that we would not intervene and we would sell the foreign currencies that his predecessor had bought; this always intrigued me. Bill, you emphasized surprise a number of times both in your prepared remarks and in your response to Dick Syron and that suggests to me that the rate effect was the key consideration. In fact, your last comment that it wouldn't work last Thursday suggests that the criterion is whether something is working or not working with regard to the rate effect. And I think President Forrestal's remarks about whether the intervention is sterilized or not becomes the key criterion. It seems to me that for this Committee to say on one side that we're in the mood to see our inventory of foreign currencies reduced, as reflected in some of the discussions since I've been here, and at the same time to raise questions about intervening or selling of foreign currencies would not be consistent. If the general attitude is that we would like to see our inventory of foreign currencies diminished and we're willing to communicate that we welcome opportunities to reduce U.S. holdings of foreign-denominated currencies, would that reduce the element of surprise--the benefits that you see to surprising the markets? Would the benefits be diminished if we are very open and acknowledge that when the market is receptive to our selling foreign currencies, we would do so? Also, one small point: In your first remark about our intervening with Canada when the European markets were closed, you said we ""bought"" DM. I think you meant ""sold.""",331
-fomc-corpus,1992,"Sorry, I did mean ""sold.""",8
-fomc-corpus,1992,"Okay. Also, I understand why traders talk in terms of buying and selling dollars, but of course we're the central bank and we can't really buy dollars. So, when you ask for approval and say that we purchased $385 million dollars. I would far prefer that you say we sold so many deutschemarks, but give the equivalent in dollars for the actual amount of the deutschmarks. I'd prefer that we talk in terms of buying and selling foreign currencies because we, of course, pay U.S. dollars.",102
-fomc-corpus,1992,Any further questions?,4
-fomc-corpus,1992,"Let me just make a further comment, partly in response to Bob Forrestal's and Dick Syron's point. I think the sentiment of the Committee is quite well recognized. I would say the Committee views intervention, however couched, with rather distinct displeasure, and that I think is clear enough. But I don't consider the kind of thing that Bill tried to describe to be practically or philosophically out of character with that distinct Committee orientation. I would say that if the orientation of the Committee is, to put it in its extreme form, that under under no circumstances could there ever be intervention for any reason, I think that is a potentially dangerous posture. And while the orientation of the Committee is clear enough--I think it is well understood both within the Committee and in the markets--we have to be careful in terms of taking that orientation to the point where it is indeed seen as a statement of ""never"" because experience suggests that such a position is one that can come back to haunt us. So, I recognize and accept the sentiment and the distinct orientation of the Committee, but I personally would not be comfortable with the logical extremis of that position that says ""never."" I try never to say ""never""!",245
-fomc-corpus,1992,"Let me add to the general discussion here and broaden it to evaluate the question and the implications of what sterilized intervention does and does not do. I think we're all pretty much aware that there is very little intervention can do in and of itself to affect the average of any exchange rate over a particular period of time. But the other side of that issue is not that we are going to get a stable set of bilateral currencies without any intervention at all because we're also aware that we've seen significant bubbles in exchange rates. We have seen what amounts to, in certain cases, panic selling and clear issues of disorderly markets. In principle, the same arguments [apply to] not intervening, on the logic that is implicit in the portfolio adjustment process with respect to sterilized intervention; the other side of that issue is that on occasion [the markets] clearly break down. And the evidence does suggest that when that occurs we in fact can affect the market. One has to ask how it is possible for intervention even of $1 billion to move the dollar/mark relationship by four pfennigs. Clearly, that's not a fundamental issue. The question is: How in the world did that exchange rate for that particular period of time get that far down and be changed by a very small amount of intervention minutes later? The same argument that one employs to evaluate that is the argument that markets feed on themselves, get out of hand, and sometimes create some degree of instability. Nobody in this Committee that I have spoken to is of the view that intervention has any long-term consequences. But I do think the evidence is quite strong that it does on occasion have short-term consequences. I don't know what to make of it, but the comments within the market in the last two or three days--and I heard it on the radio this morning--are that the expectation that central banks might intervene has stabilized the currency. Now, I don't know whether that's true or false, but that type of market chatter which essentially is saying ""Don't get locked into a position; be careful because you might get hit by the central banks"" does tend to create a level of uncertainty in the market that is helpful. Some uncertainty is not; I would suspect that this is. Now, I don't know in any individual instance whether [intervention] is useful or not. I think that Bill is right: That in this particular case we would now be sitting, at least for a while, with a much weaker dollar with spillover effects on dollar-denominated assets. Would that correct itself? Probably. But we are aware that there have been occasions in which disorderly markets crack the structure of the underlying base of the market and the market unfolds. That's what happened when the stock market broke in October 1987; the whole structure just broke down underneath. That wasn't a fundamental change--fundamental in the sense that there were external events. So, while it's terribly important that we stay away from if we can find times when the market is perceived to be disorderly, [intervention may be useful]. And I would even define a disorderly market as one in which the shorts have become excessive--or longs, depending upon which side of the market it is. A true test as to whether or not the intervention worked or not is whether those people believe that they were wrong. In that case the markets will adjust. There's no science to this; I agree with Bill. The other day when the market was expecting us to intervene and it was self-evident that no matter what we did we could not succeed, we stayed out and I think that was wise. Were we to go back and intervene within the next two or three days, I think we would fail. It's only when the market begins to perceive that we're not going to be there that I think we have a shot at it. So, it's a tricky issue. only conditions under which [intervention] can be effective--then a single isolated move probably requires marginal reinforcement at a later date or at some point merely to indicate that there is no pattern which is easy to [discern]. If we had done only the [first intervention operation] and then stopped completely, I'm not sure that we would have gotten the effects, [in terms of introducing a] degree of uncertainty about when central banks move. I was not one who believed at the time that the second intervention would accomplish very much other than what I just said. I was frankly surprised when in fact it did work immediately. I thought it would have a very mild effect; but in my judgment the point was that it would be useful merely to have that action there. For the same reason, I think it would be a terrible mistake to try to [intervene] now, because I think the markets are expecting us to do so. If we were to do it, it wouldn't have any effect. And it then becomes a tar baby to the market; we can't get ourselves out of it. Governor Angell.",1002
-fomc-corpus,1992,"Well, even though I really support what you've said, Mr. Chairman, I find it unusual for me to be almost on the other side of you on this issue in that I have complained so often over six years regarding intervention. I need to make my position clear; I don't think it has been expressed by anyone yet. There are many ways that we go about conducting monetary policy. In that context, foreign exchange policy is a part of monetary policy. Monetary easing domestically tends to cause the value of a currency to depreciate versus other goods that are trading in the domestic market. Internationally, monetary ease tends to make a currency less valued against goods traded worldwide and against foreign currencies. The full scope of monetary policy then should enable us from time-to-time to use all aspects of this. Monetary policy is not the sole province of the Federal Reserve. When the Secretary of the Treasury makes remarks, in some sense that creates uncertainties in the market in regard to what U.S. policy is. My own view is that the foreign exchange value of the dollar at this time is in a very precarious spot. It's not whether or not the market is very disorderly but whether or not it will become very disorderly. We have used monetary policy to take interest rates in the United States very low for domestic purposes compared to the monetary policy adopted by the Bundesbank in pursuit of their domestic policy. As a result of [the slope of] our yield curve out to 10 years [versus] the Bundesbank's yield curve out to 10 years, there is an arbitraged 10-year D-mark/dollar forward rate of 170. [Unintelligible] if the Bundesbank seems to be more concerned about inflation than we are, that would tend to make the forward D-mark stronger compared to the forward dollar. Now, we are in a spot, it seems to me, where we have to understand that what happens in the foreign exchange market is part and parcel of what happens to 10-year Treasury securities. If we were to ignore the foreign exchange relationship in a world with huge international capital [stocks], the international capital flows would occur in such a way as to cause an equilibrium adjustment of 10-year notes in the United States. It just can't be that the dollar will fall off a cliff [relative to] the D-mark and head down from 145 to 140 to 135; if that occurs, then at some point in time someone will say: ""Hey, how in the world can the dollar get back to 170?"" And there could be a serious breakdown such as what the Chairman suggested happened in [October] of 1987. To me we are very close to that kind of serious breakdown. I believe we have accomplished a great deal of what we wanted to accomplish, which was to create an interest rate environment in the United States that was conducive to U.S. economic growth. I don't believe at this point that depreciating the dollar is going to work very much [in the direction of providing] stimulus to our foreign trade. It's part and parcel of all that we do, and I don't want to tie one of our hands behind our back at a critical moment in time. If someone says that they want us to use the right hand to do one thing and the left hand to do something else, then I will vote ""no"" as I did in the summer of [1989] when we were following an exactly opposite policy in foreign exchange intervention than we were in [domestic] monetary policy. Now, I support this program; it's a good program and I think we ought to be prepared to do more of it. But I support it because I do not want to take the foreign exchange value of the dollar down, which will cause import prices to rise and will not be conducive to progress on inflation. I don't want monetary ease. In a sense that could be a drastic kind of monetary policy ease that I believe could upset the markets. So, I guess that's a more extreme position than has been heard.",816
-fomc-corpus,1992,President McTeer.,5
-fomc-corpus,1992,Governor Angell says that exchange rate policy is part of the context of monetary policy and obviously it is. I'm not clear to what extent we're in agreement on whether exchange rate policy comes under the jurisdiction of this Committee. Do we have a clear idea of who's in charge of exchange rate policy--the FOMC or the Treasury--or who's the junior partner and who's the senior partner?,77
-fomc-corpus,1992,"This issue is pretty clear legally. The President of the United States and through him the Secretary of the Treasury--who if push came to shove statutorily could demand that we do certain things, not necessarily with our portfolio but on their behalf--is in charge. There's an ambiguity in the law with respect to whether we could act independently. I suspect that we could find a lawyer in this city who would say that we could buy deutschemarks while the Treasury is selling them. The operations have evolved over the years as a joint venture between the Treasury and the Federal Open Market Committee. Sometimes it has worked well; sometimes it has worked less than well. But in general the issue has very rarely come to a confrontation where we took a hard line position and the Treasury took a hard line position and there was no agreement, at least in my experience. Now, since Jerry [Corrigan] was about to talk in any event--and he has a longer experience in this than I do--I was curious to get his recollection on this issue.",209
-fomc-corpus,1992,"I think you're about right. Actually, the point I was going to make builds on this. Regardless of the precise legal authority in the relationship between the Treasury and the Federal Reserve, I think when it comes to this area we also have to recognize as a practical matter that there are other players or partners involved--namely, the monetary authorities or central banks in other countries. I think it's fair to say--and Ted or the Chairman or somebody has--that pretty much without exception the heads of all the major central banks probably in their own way would come pretty close to subscribing to the view that intervention over time doesn't do anything. But I think as a group they would also certainly come pretty close to associating themselves with a hybrid point of view that would incorporate some of what Bill said, some of what Wayne said, some of what the Chairman, and maybe some of what I said. And I think I can say with absolute confidence that not one of them would associate themselves with the ""never"" school. So long as that is the case--and I suspect, frankly, that it will always be the case--it would be very, very difficult as a practical matter for us literally to go it alone in a context in which we must maintain these relationships. Now, I think the evolving position of this Committee over the years has had an influence in shaping attitudes in other financial capitals on this very issue. But I must say that in my judgment it would be rather naive, quite apart from our relationship with the Treasury, to say that we could literally go it alone without running some very, very high risks one way or the other that such an attitude or policy would come back to haunt us in spades. It might not be on that issue but on some other issue. So, putting all the theology aside, I think one has to be sensitive to these relationship questions. Those relationship questions far transcend 15th Street or 14th Street or 16th Street, or wherever [the Treasury is located]. So, there is also that very pragmatic aspect of this, which is one of the reasons why I subscribe to that ""never say never"" school.",434
-fomc-corpus,1992,"Well, I agree that there's no question as to where the call is located legally in regard to exchange rate policy. But the monetary policy operations of this Committee can overwhelm any official exchange rate policy. That is, if we decide to buy Treasuries or buy deutschemarks--it doesn't make any difference--if we buy in the open market, we will overwhelm other foreign exchange objectives. So, this Committee has tremendous power when it comes to determining the outcome of the official position that is [decided] by the Secretary of the Treasury in consultation with the Chairman.",113
-fomc-corpus,1992,"Let's hear from President Black and then shut this [discussion] down for now. This is the type of subject that we can [return to] if we like in our general planning sessions over the next couple of days. Even though it's not on the agenda, I'm sure it could very well surface. It is an important issue and I think we're coming to at least a temporary close on this question. I think it would be useful for us to go on after President Black has had his say.",99
-fomc-corpus,1992,"Mr. Chairman, a while ago you said that statutorily the Treasury has the primary responsibility [for foreign exchange policy]. I believe it would be safe to say, wouldn't it, that it also has that primary responsibility under the Constitution, just as Congress has the power to coin money and regulate the value thereof, which gives us primacy in the monetary policy area.",74
-fomc-corpus,1992,"Well, I think there is an ambiguity involved. The President's power comes from his Constitutional authority in international relationships.",23
-fomc-corpus,1992,That's what I was speaking of.,7
-fomc-corpus,1992,"So, there's no question that there is a legal ambiguity surrounding this whole issue, which has never been pushed to fruition. I remember we reviewed this in considerable detail a few years ago; and the tortured logic of some of the stuff that I saw was really [unintelligible]. The history of this issue is really bizarre.",66
-fomc-corpus,1992,"In fact, Mr. Chairman, it's interesting that in that tortured history, going back to the early 1960s [when] the Treasury agreed to the interpretation of the Federal Reserve Act made at that time, they did not assert that all we did had to meet with the approval or the control of the Treasury. We understood at that time the need for cooperation, but that was not an element of the debate in the early 1960s. From time to time, there have been some discussions on that point, but it has never been asserted as far as I know that as a legal matter the Treasury had the power to order us what to do with our own portfolio.",137
-fomc-corpus,1992,"Not with our own portfolio, but they certainly--",10
-fomc-corpus,1992,"I agree 100 percent with Mr. Corrigan that we don't have the power, at least as a technical matter, to operate on our own. We'd be foolish to do so. And the [Committee's] directive under which all these operations [are conducted] does require us to operate in close and continuous consultation and cooperation with the Treasury and, as appropriate, with other monetary authorities, for the reasons that President Corrigan just articulated.",88
-fomc-corpus,1992,Would somebody like to move to ratify the actions of the Desk since the last meeting?,18
-fomc-corpus,1992,So move.,3
-fomc-corpus,1992,Second.,2
-fomc-corpus,1992,Without objection.,3
-fomc-corpus,1992,Let's move on to Peter Sternlight's report.,10
-fomc-corpus,1992,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1992,"Thank you. Questions for Peter? If not, would somebody like to move to ratify the actions of the Desk since the last meeting?",28
-fomc-corpus,1992,So moved.,3
-fomc-corpus,1992,Without objection. They let you off the hook since this is a celebration of your last meeting! We now move on to Messrs. Prell and Truman.,32
-fomc-corpus,1992,"I'm deferring to my colleague, Mr. Stockton, this morning in light of my absence through much of the period. He's more on top of the forecast. MESSRS. STOCKTON and TRUMAN. [Statements--see Appendix.]",49
-fomc-corpus,1992,Are there questions for either gentleman?,7
-fomc-corpus,1992,"Did I hear you say--this is almost an exercise at the margin--that if there were risks in either direction, particularly regarding employment, you think they might be on the negative side?",38
-fomc-corpus,1992,On the unemployment rate--,5
-fomc-corpus,1992,"That's what I meant, on the unemployment rate.",10
-fomc-corpus,1992,There is probably some upside risk as we look at it.,12
-fomc-corpus,1992,So the risks wouldn't be center-weighted.,9
-fomc-corpus,1992,"You mentioned the housing starts figure, and I thought you mentioned that the permits looked pretty good.",19
-fomc-corpus,1992,What I indicated was that the permits for single-family starts in July inched up a bit but were only at their second-quarter average.,27
-fomc-corpus,1992,Okay.,2
-fomc-corpus,1992,One wouldn't necessarily want to characterize them as--,9
-fomc-corpus,1992,It looks pretty flat; maybe the multifamily [permits] were up a bit. What other evidence do we have? We've seen the big refinancing boom pick up in July again. How about actual purchases and starts? Do we have anecdotal evidence that we may be getting something going here?,59
-fomc-corpus,1992,"The only other piece of anecdotal information that we have at this time is a preliminary August homebuilders survey which showed that their views about sales have moved back toward the levels of earlier in the year. So, they have picked up a bit. They didn't sag quite as sharply this spring as did starts and sales, but they moved back up a little.",71
-fomc-corpus,1992,Okay.,2
-fomc-corpus,1992,"On these July figures, I think last time in the Chart Show one of the exhibits I showed indicated that [the housing data] had been somewhat out of whack in the past several months. We were getting a much higher level of single-family starts than customarily goes with the level of new home sales we had observed. The level of starts in the latest month is well aligned with the permits--it had been running high relative to permits--and it's well aligned with the recent pace of new home sales. Our supposition is, though, that we are in a period when new home sales are rising. There will be some eating away of inventory. And attitudes are favorable for home buying apart from the concerns about the general economic environment. Certainly, home buyers perceive interest rates as being attractive. So we'll see permits and starts rising a little.",169
-fomc-corpus,1992,The recent data on home sales really reflect decisions of a couple of months ago?,16
-fomc-corpus,1992,"New home sales are reported fairly promptly after a sales contract is signed, but we don't have data for July. And there are slight lags; [sales are] a little behind when these lower interest rates should have had their effect.",47
-fomc-corpus,1992,Thank you.,3
-fomc-corpus,1992,Governor Lindsey.,3
-fomc-corpus,1992,"Dave, you mentioned some uncertainty about the unemployment rate forecast and, certainly, there is some. If we were probabilistic about this, what do you think the chances are that the unemployment rate will hit 8 percent?",44
-fomc-corpus,1992,"Well, that's very conditional on what is likely to occur with overall activity over the remainder of the year. Eight percent, let's say, by the end of the year would require a pretty weak fourth quarter relative to where we are right now. But if you were to ask me whether that is a standard deviation away from the forecast we have here, clearly the answer would be ""no.""",77
-fomc-corpus,1992,I was trying to get a feel for your sense of the risks in the forecast. Whether they're balanced or not is one question; whether they're diffused or not is another.,35
-fomc-corpus,1992,"Obviously, over the summer period we also have a bit of a difficult time, with the influx of teens in and out of the labor market, trying to pin down exactly where the unemployment rate is. We face that same uncertainty again this summer. So, in some sense there is a diffusion of estimates that always increases this time of the year and we are facing that as well. But I don't think there are any unusual risks to the unemployment rate apart from the fact that, as I mentioned in the briefing, the data that we actually have in hand right now show no signs of improvement in the labor market and are not signaling a step-up in activity. If you were to take that as a risk that we could be seeing just more of the same as we move through the second half of the year, I think there would be some risks that the unemployment could be higher.",175
-fomc-corpus,1992,Productivity is just doing too well!,8
-fomc-corpus,1992,"Right, it leaves the less efficient workers unemployed!",10
-fomc-corpus,1992,"The recent data have been favorable on balance for consumer spending. Car sales haven't been great, but retail sales have been good and orders for capital goods have been pretty good. There just isn't any reason to think that we are falling off from this somewhat erratic but generally steady trend of slow growth. We only have 2-1/2 percent growth [forecast] for the fourth quarter. If we were to fall short of that by a percentage point, the Okun's law relation would add only a touch to the unemployment rate. So, it gets back to what Dave has been emphasizing in terms of these uncertainties about the labor market relationship per se: What is happening with productivity and what is happening with labor market participation?",145
-fomc-corpus,1992,President Stern.,3
-fomc-corpus,1992,"Dave, while we're on this: What is your estimate of potential growth in the economy these days and how do you parcel that out?",27
-fomc-corpus,1992,"At this point our estimate of potential would be 2 percent with roughly 1 percent in trend productivity and a 1 percent increase in labor input. That's a tad lower than where we were before we saw all the [unintelligible] revisions, which revised output growth down. So, we're just a little below.",65
-fomc-corpus,1992,Is there a tendency that that 1 percent might be higher?,13
-fomc-corpus,1992,"On trend productivity? Yes, that's certainly a possibility, although currently when we're coming out of the business cycle trough--",23
-fomc-corpus,1992,We are? [Laughter],7
-fomc-corpus,1992,"-- it's difficult to pin down what the trend in fact is. The good productivity performance that we've seen thus far in the recovery is not inconsistent with normal cyclical behavior if one were to assume a trend of 1 percent. That is in some sense how we infer what the trend is. But one could certainly say that at this stage we don't know how much of this restructuring is actually accomplishing some underlying improvement in trend productivity and how much of it is just simply using the existing work force more effectively as firms always do in a cyclical recovery. So, there's certainly a possibility that it could be better, but I wouldn't bet on it at this point. If one thinks back to where we were in the early '80s, coming out of that recession there was a tendency, I think, for many people to overestimate the improvement in productivity. There was talk then that the trend had improved to maybe 2 percent or in excess of 2 percent and it turned out to be a disappointment that as we progressed through the decade we didn't see that kind of improvement. So, I think it's always difficult when you see the good increases in productivity early on [in a recovery] to know exactly how much is trend and how much is cyclical.",250
-fomc-corpus,1992,President Jordan.,3
-fomc-corpus,1992,"In the last Greenbook you were more optimistic than private forecasters about long-term interest rates, though not quite as optimistic as what in fact has happened since the last meeting. On one side, given the sharp downward movement affecting intermediate- and long-term rates, I would have expected that to show through in economic activity. The other side is--at least from all the anecdotal reports I've heard and probably everybody is hearing--that there are more complaints about lower interest income to savers rather than [happiness about] lower interest expense to borrowers. Once again you have a projection that's more optimistic than private forecasters, [which is a view] that I share. I still think the 7.3 or 7.4 percent bond yield is much too high to be consistent with what is embodied in a [forecast of] 5.8 percent nominal GNP growth, [out] over a year and a half or so [unintelligible]. From this point how do you sort that out if we get a further substantial downward move in intermediate and long rates versus if we get a significant backup and we give back what we've gained in the last six weeks?",236
-fomc-corpus,1992,"I guess we'd come down pretty strongly on the side that we would imagine that lower intermediate- and long-term interest rates would be beneficial for overall activity. To be sure, lower interest rates always have an income effect in the household sector given that the household sector is a net creditor. But as I tried to indicate in my remarks, I think we have seen signs that the interest-sensitive sectors have responded to lower interest rates and would do so with greater force if rates were lower. I suppose a backup in long-term rates, assuming that the backup occurred for reasons other than purely inflation expectation reasons--",118
-fomc-corpus,1992,Are you saying that even though this forecast is somewhat weaker--and I read it to be weaker than the last Greenbook--it is stronger than it would have been if we hadn't had the rally in the bond market?,44
-fomc-corpus,1992,"Correct, and I think you can see that in the way that the forecast has changed. We have higher equipment spending in this forecast; we have some upward tilt now to net exports that we didn't have before and a little better consumer durables expenditures. But that has been offset in part by a bleaker outlook for the state and local sector and, given that we think the starting point here is weaker in some sense, weaker consumption outside of durable goods.",91
-fomc-corpus,1992,"Any further questions for these gentlemen? If not, who would like to start our tour de table? [President Boehne.]",26
-fomc-corpus,1992,"I think ""economic anemia"" is how I would diagnose the Third District economy. Retailing is listless; manufacturing growth seems to be slowing; bank lending is soft. There is some activity in residential housing at the low end but not a lot in other areas. Commercial real estate has several more years of adjustment ahead. The District economy has settled into a slow-growth rut and the attitudes reflect that. People seem to think things will improve at some point, but the economy is just in that slow-growth pattern. At the national level, it's very hard to find a sector that is going to act as an engine for a faster recovery. It's certainly not in exports; it's not in investment; it's not in consumption; it's not in government. I think we're just in a long, slow, corrective phase to the credit excesses and overbuilding of previous years. Clearly, as all forecasters are aware, this corrective phase will give way to faster growth at some point, but I think we need a lot of humility in forecasting just when that is going to be. My own gut feeling is that this corrective phase is going to last even longer than the Greenbook expects and that inflation correspondingly will be less than the Greenbook expects. I think the role of monetary policy in this environment is quite limited; we can stretch out the corrective phase, but we can't eliminate the need for it. If we get even slower growth than we have now or if growth appears to be heading negative, I think we would have little choice but to respond. But our options are really not all that plentiful at the moment.",321
-fomc-corpus,1992,President Parry.,4
-fomc-corpus,1992,"Mr. Chairman, economic conditions in the West appear to have deteriorated further since our last meeting. Employment fell in June in all Twelfth District states except Utah. The number of jobs fell especially sharply in the state of California, at an annualized rate of 5.4 percent. And California employment remained weak in July, rising only slightly. California's budget problems are going to be yet another source of weakness in this troubled area. The implementation of the new budget--whenever it comes--will have a much greater negative impact than the stalemate itself. Most of the $8 billion plus budget shortfall will be resolved through cuts in spending by state and local governments and schools, which will further weaken the state economy. Now, in addition to the $8 billion plus [shortfall], we have a $2 billion carryover from the prior year which is why in Part II of the Greenbook there is a reference to about $11 billion. But there's another interesting point to be made, and that is that the estimate of the deficit for the current fiscal year is based upon a forecast that is old. They are going to be making a new forecast in a week or so and that's likely to show an even larger budget problem--probably $2 billion above the current estimate of the problem for this fiscal year. There is a tremendous incentive for agreement in the next week so they don't have to deal with the $2 billion problem that at this point is unofficial. Lawmakers from both parties are strenuously opposed to increasing state taxes, although fees at the state's universities have been raised substantially and some tax increases by local governments are possible as well. Turning to the national economy, we continue to forecast a moderate expansion with most of the strength coming from sectors that are sensitive to interest rates and also to exchange rates. Our projection is somewhat stronger than that in the Greenbook, largely as a result of more inventory investment and also somewhat slower growth in imports. With activity continuing to fall below the economy's capacity, we expect further downward pressure on the inflation rate. In our opinion consumer price inflation is likely to fall from 3 percent this year to around 2-1/2 percent next year. While this scenario seems like a reasonable one, there clearly are downside risks to the real economy. As has been noted, the expected moderate expansion has seemed likely for a year now and has so far failed to materialize. Thank you.",489
-fomc-corpus,1992,What is the latest status of these vouchers or other IOUs that the state government is handing out?,20
-fomc-corpus,1992,"Well, the problem now is that quite a few of the large financial institutions are unwilling to accept them. Consequently that means that some people who are receiving vouchers in effect have to stick them in the top drawer until they can be cashed in after a budget agreement or they can be given to an institution that will accept them or be returned to the state. For example, some businesses--I don't think this is very widespread--that receive money from the state because they sell things to the state are making their sales tax payments with these vouchers.",108
-fomc-corpus,1992,"Including the 5 percent interest on them, I suppose?",12
-fomc-corpus,1992,"Well, it depends on what the market is at that point. If they are just giving them the face value, then the state would in effect be picking up the 5 percent return.",38
-fomc-corpus,1992,Are they in M12?,6
-fomc-corpus,1992,I'm not sure where exactly they are!,8
-fomc-corpus,1992,"Well, they ought to have some value on accrued interest I would assume.",15
-fomc-corpus,1992,"Oh, they would. And the market, if you were to buy them, would reflect that.",20
-fomc-corpus,1992,"If the state treasurer were smart, he wouldn't accept them; it's lousy paper! [Laughter]",21
-fomc-corpus,1992,That would seem a right unwelcomed message to send out.,13
-fomc-corpus,1992,"Given that there's this large stock out there, does everyone come in and redeem them the same day? If so, where does the state get the money?",31
-fomc-corpus,1992,They are interest-bearing notes.,6
-fomc-corpus,1992,"Well, the budget agreement presumably raises funds to meet all expenditures, including expenditures now being made.",19
-fomc-corpus,1992,But the flow of that savings is over 12 months.,12
-fomc-corpus,1992,"The only thing that's not in the budget as a revenue source I assume--and maybe it's being built in--is the accrued interest as these are held over a period of time. So, I think the money is there; there may be some timing differences. I don't see a problem unless I'm missing something.",62
-fomc-corpus,1992,President Keehn.,4
-fomc-corpus,1992,"Mr. Chairman, in terms of economic activity in the District, really there has been very little change since the last meeting. Some sectors are doing a little better but others not quite so well. Much of the District's focus continues to be on the auto sector which has declined just a bit since the last meeting. The third-quarter production schedules, which earlier seemed pretty strong, have been reduced quite substantially, principally due to GM's cutback. Whereas originally the third-quarter schedules were set at about 18 percent over the third-quarter 1991 levels, they now have been reduced to about 11 percent [over the year-earlier level]. We would expect the effect of the auto sector, which earlier might have had an effect on third-quarter GDP of about 1 percent, to be reduced to about 1/2 percent. The fourth-quarter production schedules haven't been announced for all the manufacturers, but one I talked to has reduced its sales forecast for the fourth quarter from 14 million at an annual rate to 13-1/2 million. They feel in their case that the production risk is definitely on the down side. Retail sales in the area continue to be very tough; merchandise will move but only at discounted prices. And the pricing techniques have become very, very aggressive. At least one retailer that I talked to had a pretty good early part of July; at the end of the month things turned sour and the lower sales levels have continued into August. Offsetting this, though, the steel business continues to be pretty good. The industry is operating at a rate of about 82 percent. One large Midwestern manufacturer is higher than that, at about 85 percent, and they now expect shipments for the year to come in at about 82 million tons, which in a comparative sense is not that bad a year. Part of the strength is based on lower imports. The industry, as you know, is involved in an effort to deal with tariffs, and that is having an effect; but also the export business has been pretty good. The heavy truck business also is showing some favorable signs. The order flow for Class A units has improved and customers for these units are feeling pretty good about their business. The industry expects to ship about 120,000 to 125,000 Class A units this year; that's up from 100,000 last year. Indeed, the current order rate is a little higher than that, and they expect the order rate to come out at the end of the year at about 140,000 units. The residential housing business is also quite strong. New single-family home sales in the Midwest have been stronger than the national average. Housing starts on a seasonally adjusted basis, though down in the second quarter from an unusually strong first quarter, are still above levels for 1991. And given the reduction in mortgage rates, I think the attitudes about residential housing are pretty good. In the agricultural sector, we've had a very significant change from the last meeting. We had plenty of rain in July and early August and at this point the crop outlook is really excellent. Crop prices reflect that; they're down quite significantly. And that negative effect on farm income is showing up in the sales of agricultural equipment. That industry is really having a very tough year: For example, year-to-date sales of 4-wheel drive tractors are down 37 percent; sales of large tractors are down 32 percent; and sales of combines are down about 36 percent. So, production schedules, which had already been reduced, are being reduced further. One large manufacturer expects that their fourth-quarter production schedules will be about 20 percent lower than last year. On the inflation side, the news continues to improve. Upward price pressures just aren't part of anyone's thinking. Large manufacturers are putting tremendous pressure on their suppliers. In many cases, they are holding [down] price increases on their purchases to very low levels and in a couple of cases they actually are getting reductions. The pattern of prices on purchases over the last two or three years really has been very, very favorable. While in an economic sense, in terms of the indicators, the news in the Midwest and indeed nationally is a bit mixed, I must say that I think there has been a deterioration in mental attitudes. Many of the people I talk to seem awfully grim. The uncertainty and the negative outlook are beginning to creep into business thinking and, therefore, I think the risks here are a bit on the down side. Using the analogy of the slow takeoff--and I think we've been experiencing this slow takeoff for an awfully long time--my worry is that we're reaching the end of the runway. And in a policy sense, I think we better push forward on the throttle until we're sure we are clear off the ground.",968
-fomc-corpus,1992,President Forrestal.,4
-fomc-corpus,1992,"Thank you, Mr. Chairman. We've seen some slowing in the already modest pace of recovery in the Southeast, and the anecdotal information has become even less encouraging in recent weeks than it had been. The litany of bad news would go something like this: Consumer spending was not as strong in July as in previous months and auto sales in particular, which had shown some improvement, have been quite mixed in the last several weeks; manufacturers are reporting that both production and shipment levels have plateaued recently and fewer firms are reporting increases in new orders and shipments; and bank lending is very weak, and [the explanation] is on the demand side basically. Incidentally, on David Mullins's question related to mortgage financing, the anecdotal information available to me would suggest that while there has been a great spurt in refinancing in the Sixth District, very little of that is going into new home purchases. Growth in home sales and building has decelerated, as I've just indicated. Multi-family and commercial construction remain pretty grim; they're in the doldrums. One bright spot--and perhaps it's the only one in the District--is that business travel and tourism are up; that's basically in response to the airfare price wars. But that, of course, is coming at great expense to the airlines, which are a significant employer in the District. Foreign travel continues to be pretty good, too, as a result of the lower dollar. So, in general, a slowdown appears to be in train in the Sixth District. While some optimism was evident just a few months ago, attitudes about the future have become quite negative or, to use the words somebody else just used, quite grim. Business people are seeing growing evidence of caution among consumers. And among consumers, there's a belief that the ongoing wave of consolidations and cost-cutting will lead to further layoffs even in industries that had been perceived to be recession-proof. So, in this environment very little business expansion is being planned in the region. With respect to the national economy, like many others, we too have lowered our forecast for GDP for 1992. We do see a little stronger near-term growth than the Greenbook but not the acceleration that the Greenbook has for 1993. Our estimate of unemployment is around 7 percent at the end of next year; and consistent with that outlook, we've lowered our inflation numbers as well. On balance, it seems to me the risks to the forecast are now skewed to the down side. There is a lack of confidence out there and it goes beyond the political uncertainties; and that can further restrain consumer spending in the future. On the export side, perhaps we're getting some help from the weaker dollar, but growth among our major trading partners could fall short of the forecast given the policies that some of our trading partners appear to be committed to. Since we have lowered our forecasts for both real GDP and inflation, it seems to me that perhaps it's time for us to reconsider our policy as well. To be sure, there is a lot of stimulus in the system, measured by almost every measure except M2. But we've seen over the past year or longer that it is taking more easing than we had expected to achieve any results. So, I'm of the opinion, Mr. Chairman, that we should at least be open to considering a move toward ease. The excess supplies of resources at this point make me doubt that a significant acceleration in growth would lead quickly to increased inflation. Having said that about moving toward ease, I also recognize that this probably is not the week to do it.",720
-fomc-corpus,1992,President Syron.,4
-fomc-corpus,1992,"Thank you, Mr. Chairman. Unfortunately, I think we're in an increasingly interesting situation here. As far as the District goes, in New England--consistent with what other people have said about their parts of the country--we had a little buoyancy before we lapsed into a softer state. It's hard to separate all the factors that are involved--there are always special factors--but there is no question that there's less buoyancy than before. We're not sinking fast, but there's certainly an increase in people's uneasiness. Some of this may be related to weather. The retail sector has been soft after some earlier encouragement; tourism is not very good. The mood is very gloomy, particularly as we get increased announcements of layoffs and further restructuring in employment. The tone of the labor market seems to have softened more recently, even I would say in the health care sector, which is one area where there had been significant [employment] increases. Looking at the manufacturing sector, the source of strength before was exports and to some extent [unintelligible] supplies for autos, but those are softening now. In housing, there is quite a lot of refinancing activity and some marginal improvement in ordered housing--certainly not houses built on speculation--but not very much. The banking side is interesting. Our institutions have improved their balance sheets a fair amount and they are taking a more active stance toward encouraging loan demand. But they're not finding very much demand. I think some of it may have to do with the need to adjust pricing terms to get back to a longer-term equilibrium. Loan officers and many senior managers complain of still overly cautious borrowers; but really we just are not seeing very much demand. On that score, just as a side point, it was interesting to look at some data: When we pulled out New England from the U.S. data, our region contributed a fair amount to the softness in loan demand in the Northeast and also to the employment problems. As far as the U.S. economy goes, I'm finding myself in broad agreement with the Greenbook. But if we look at previous forecasts over a substantial period of time, there has been a negative correlation in our errors. There's no question that at some point this will turn, but one never knows when that turning point will be. Now, I'm not critical of the forecasting process; changes are the [essence] of its nature. But when I look at what is going on, I simply don't see any cumulating strength at all in the economy. In different periods we see a little contribution from housing or exports and in some cases manufacturing, but nothing that really is coming together to accelerate into a consistent recovery. All of this is consistent with the notion of all the obstacles in this long, long cycle readjustment that we have, which many people have talked about. Another aspect to this--and I think it's why employment and what happens on the employment rate are key--is that people are writing down their human capital as well as their physical assets. With each announcement of further restructuring they say: ""Well, you see this new [unintelligible] you're talking about, what am I going to do longer run?"" And in my own mind that makes it more difficult for us to have any estimate of what their equilibrium or desired liability structure is going to look like and to know when the saving rate is going to return to what they think is a ""normal situation."" People are very much in flux on this as they watch what is happening in the employment markets. For that reason, I really have concerns--not about the technical aspects of the forecast but looking at the forecast from a broader perspective--about how even this wretched and anemic forecast that we have can hold together. For example, a concern I have is that we think productivity will be a little stronger and we see a lot of continued impetus for restructuring, so the unemployment rate may well increase. As the unemployment rate increases, that is going to have an effect on people's view of their welfare and it could contribute to a further increase in the saving rate. Thus, I'd say that the outcome risks are slightly on the down side, though maybe not in a pronounced way. And certainly in my own mind the costs of an error one way or the other are much greater if the error is on the down side. The second reason to question whether this forecast can happen--and there's nothing we can do about this--is that if you look at the broad society and the body politic, there is an increased impetus from either party for some sort of fiscal package, which is almost certain to be counterproductive in a long-run sense. I just think as we get into next year, regardless of who wins the election, that there's going to be an enormous amount of discontent with people saying they are just not going to accept a situation where we have very slow economic growth. There are a lot of people who are very, very concerned about their economic welfare in the long run. I'm not sure what we can do about this, but I see a lot of stimulus for [politicians] to develop fiscal packages, and that's a concern I have. I don't think our policy has been inappropriate; I think it has been appropriate. But I believe we're in a very, very tough situation; indeed, it's what I consider in a broader sense perhaps a somewhat unstable situation.",1084
-fomc-corpus,1992,President Hoenig.,4
-fomc-corpus,1992,"Our District continues to show sluggish growth in most sectors except for real estate construction in some areas. As for the farm economy, it's stable but as you've heard elsewhere prices are down and that is bringing the prospects for our ag sector toward the down side as we go forward; there may even be a decrease in [farm] income depending on what the near-term future holds. Manufacturing in our District is flat. The aircraft industry is feeling the effects of slumping foreign sales. Our auto industry is not pushing production at all and that is showing through. In energy, we have had some pickup in the rig count, but that is a very sluggish industry and we are not going to see much economic activity coming from that sector. As far as the real estate area goes, our residential sector does show some strength. There is a considerable amount of refinancing. But we are also seeing new construction in some parts of our District, particularly in Denver where what is almost a boom situation in residential housing gives us some pause. I would add a couple of anecdotal points. We have talked with bankers in our region and we also hear and observe that the problem is not that they are unwilling to make loans but [that there is little] demand for loans. But that is a very unique situation. Beyond that, though the banks will say demand [is the problem], where their [loans] have picked up or they want to add [loans], they have changed their underwriting on the margin--how many guarantees and how much collateral they require. In one instance when they did that we observed that they were able to add significant amounts of loans, some of it taken from other banks who wouldn't change their underwriting. I'm not talking necessarily about throwing out all caution, but just that some changes will make a difference. I think banks in our region as they anticipate the need to bring their capital levels up are keeping their underwriting standards higher than they might otherwise and are trying to build those capital levels; and it is showing through in terms of the level of their lending activity. As far as the national economy goes, we have some differences with the Greenbook quarter-to-quarter, but overall our GDP projections are now similar. We've adjusted ours down and we've adjusted our inflation expectations down as well. I see the national economy, with the things that are going on right now, in a sluggish mode, and as I listen to comments here I think we can anticipate further sluggishness. The situation does in fact suggest that perhaps we need to take a more forceful action.",509
-fomc-corpus,1992,President Black.,3
-fomc-corpus,1992,"Mr. Chairman, a while ago Si Keehn's analogy of an airplane reminded me of another mechanical analogy that I think is very pertinent here. In the days when we first began to install antipollution equipment on automobiles I used to get terribly frustrated trying to get the car started and running very smoothly. I've been experiencing the same sort of feeling about the economy with its fits and starts and near stalls. But eventually we usually did get the car to run pretty smoothly, and I'm satisfied that sooner or later we're going to have the economy moving up at a smoother pace. But I do think the downward revision that the staff has made in the forecast over the remainder of 1992 is clearly appropriate in view of the lackluster growth we've had in the economy since the end of the first quarter. My guess is that the risks of errors are about evenly divided between the up side and the down side. On the down side, for example, many of the factors that have been plaguing us in the recovery in recent months--such as the negative impact of this corporate restructuring, which I think augurs well for the long run but is terribly painful in the short run--are still around. But it does mean increasing efficiency in the long run. And I think the rise in productivity probably means a higher long-term growth potential than the 2 percent the staff is estimating. We also have the slowing in defense expenditures; we have situations abroad where the economies are not really growing very fast; we have the oversupply of office space and other commercial real estate. And maybe even more important in the minds of the consumer, there are a lot of non-economic worries such as crime and drugs and the breakdown of family values that I think have been making people less inclined to part with their dollars than they otherwise would be. I believe this sort of thing is going to be with us for quite a while and is going to exert a drag on economic activity in the period ahead, and the weight of the drag could even increase. Of course, in addition to that we have the weakness in M2. We've explained a lot of that, I think, but I still have a nagging worry that there's some weakness there that we're really not explaining away by these special factors. But then one can look at the up side of this and say that there are at least some signs now that this might turn into a typical recovery--albeit a much less rapid recovery than we've usually had--because of the decline in interest rates, which eventually I think is going to stimulate housing. My expectations got a little setback with the data released this morning. Certainly, sales of durable goods at the consumer level and also of producers durable equipment are going to be one of the stronger parts in the recovery when it comes. And that, of course, will stimulate jobs and economic growth. But having said that, I think it is important for us to recognize that there's a big downside risk and it's very serious. I'm getting at the same sort of thing that Dick Syron was talking about a while ago. If these reduced Greenbook expectations turn out to be true, this could be pretty serious in terms of jeopardizing our strategy for getting to our long-term objectives. We need to give that some consideration in our setting of short-term policy goals today. Now, in the case of the long-term objective, I think the staff's estimate of the inflationary outlook is [about right]; we will certainly be moving closer to our goal by the end of 1994. That's obviously very encouraging to someone who thinks that the prime goal of monetary policy ought to be price stability. But in the context of the staff's outlook, it seems to me that this further progress is dependent upon continued sluggishness of any projected recovery even as far out as the second half of 1994. Maybe this continued softness is necessary in order to get inflation down further. But my own guess is that we can get the same kind of inflation results with stronger real growth in late 1993 and in 1994 if we maintain a visible commitment to our long-term objective of price stability, despite the current weakness in the economy. And I think we ought not miss any chances to say that that is our ultimate long-term goal even though we recognize that we have some short-term problems on the side of weakness in the economy right now.",878
-fomc-corpus,1992,President McTeer.,5
-fomc-corpus,1992,"There was a definite shift in the Eleventh District economy between the first and the second quarters, both in terms of economic activity and of mood. Measuring economic activity in terms of employment growth, in the first quarter of this year our employment was growing faster than the national average and in the second quarter employment was shrinking and not keeping up with the national average. We have shifted from being a source of strength to the national economy to being a source of weakness. As for mood, in conversations with directors, bankers, and business people there is the definite sense that all is not well with the economy, although most people are not urging further ease of monetary policy. I believe the view is that monetary policy has done its thing; it hasn't been very effective but we don't find many people thinking that further reductions in short-term interest rates will help very much. That's their view on the one hand, but in addition to that there is increasingly the cry from those who are aware of lower interest income and the impact that is having on a significant segment of the population. On the question of mood, let me say that I've been around a number of bankers recently, more than usual, and I'd just like to report that they are a very unhappy, mad bunch of people. They feel beleaguered--especially the small banks. They recognize the FDICIA legislation as punitive legislation and they are really dreading the regulations that are going to come out of that. And they don't see any light at the end of the tunnel; they feel that they're in a business that is going down the toilet and nobody cares. Their numbers in the context of measures of health of banks are improving in the District. But after all these years of recovering they still aren't lending; they're still shrinking their lending [activity]. And I guess they're turning into bond funds; they're riding the yield curve right now.",374
-fomc-corpus,1992,President Stern.,3
-fomc-corpus,1992,"Thank you, Mr. Chairman. With regard to the District economy, I don't detect any underlying change in activity; I think it's still expanding quite modestly. There really isn't a lot of additional information to add to that. I might comment on a couple of recent developments to flesh that out a bit. I reported before on very strong sales along the northern tier of the District to Canadians coming across the border. That currently is in the process of slowing down, apparently because the Canadians are making it more onerous to get back into Canada with everything that one has purchased. But that was due to change for one reason or another eventually, and it has. There is a significant expansion in the paper industry under way again. A couple of new plants have been approved and construction will start shortly if it hasn't already. Finally, you've probably heard about the so-called ""mega mall"" that has opened up in the suburbs of the Twin Cities. It actually opened about a week ago. So far, it has exceeded expectations--at least the expectations of those of us whose expectations weren't too high. I haven't been out there, but the press reports that traffic has occasionally exceeded 100,000 people a day. There have been lines to get into the restaurants and some of the other entertainment venues and so forth. Whether anybody is buying anything beyond that I don't know, but at least by some measures it's off to a positive start. With regard to the national economy, I'm certainly comfortable with the contours of the Greenbook forecast. It's always difficult in a circumstance like this, when you try to do bottom-up forecasting and look at consumption and investment and so forth, to talk yourself into believing that any of these sectors is going to be very strong in this environment. Yet my experience has been that just when I've talked myself into that, the economy surprises me on the high side. I have a hunch that isn't going to happen this time. Bob Black gave a pretty good litany of the problems that are restraining growth, and I think those are in place. For what it's worth, my guess is that it will probably take longer for those to diminish than we might expect. So, the general shape of the forecast portrayed in the Greenbook looks like a pretty good estimate to me. The good news, of course, is that the price and cost statistics are starting to come in more in line with the anecdotal reports we've discussed around here for quite some time. It seems to me that we've commented for quite some time that we have talked to a lot of business people and don't hear much about price or wage pressures and so forth and so on. It took quite some time for that to show up in the statistics. But now it is at least starting to show up in a more convincing way, which suggests that we're making some progress in a principal and significant area.",573
-fomc-corpus,1992,President Melzer.,4
-fomc-corpus,1992,"In our District I would say that the same shift that Bob McTeer described has occurred statistically. We are looking now at June numbers and I would describe the situation as one where we've had modest employment growth, manufacturing more or less flat or maybe slightly negative, and nonmanufacturing offsetting that. For the most recent three-month period, we actually have nonmanufacturing [activity] flattening out and modest employment declines. I would say that one of the areas in nonmanufacturing that is particularly weak from an employment point of view is construction and that's reflected in contracts--residential as well as nonresidential--although compared to a year ago we're still up very significantly in the residential area. Anecdotally, it's hard to place in time when some of this was detectable; it may have been a couple months ago. But basically I don't detect any major shift in sentiment toward the negative. I spoke with a handful of CFOs of some of our major companies, and in the retailing area the description I got was the same as what was mentioned earlier--I forget by whom, maybe Si--that the first couple of weeks of July were very strong and then sales slowed and [the slowdown] seemed to continue into August. The retailer who passed that along said to me that they're not sure but they think the Olympic coverage may have had something to do with that; he likened it to the CNN effect to some extent. Another retailer described things as generally volatile. Every time they think things may be coming together they have a downturn. From a profitability point of view, the largest of the retailers I've talked to had just reported a very strong quarter and they got it basically by controlling costs. On the manufacturing side, a major electrical equipment manufacturer described their consumer-driven business as very strong. They, too, reported very strong earnings, largely again a contribution of cost controls and so forth. I did talk to a chemical manufacturer as well; a lot of their chemical business is driven by the auto business and housing and that has been generally sluggish, with no particular signs of strength there. The capital goods side is described as sluggish, basically. Order backlogs are holding up but not growing very rapidly. So, the general picture I get from business people is that the environment hasn't changed dramatically. With respect to monetary policy--just picking up on some of the comments that have been made, particularly Ed Boehne's in terms of what the role is for monetary policy in this sort of environment--I agree that monetary policy can't solve some of the structural problems that we're dealing with. And at least in my view, whether you look at interest rates or reserves, we're pursuing a very easy monetary policy right now: Short-term real rates are negative and reserves over the last two quarters have grown at almost a 17 percent annual rate compared to a four-year trend of about 4-1/2 percent. I know it's a very difficult period in which to get a handle on the thrust of monetary policy, but I think there's a lot of danger in focusing just on the real economy as our guide for what we ought to be doing--and that seems to be what is happening--and not trying to look at policy from some other perspectives. I think we've had some warnings in the foreign exchange markets and in long-term credit markets from time-to-time depending on what statements are made--albeit those rates have come down--that we may be testing the limits of our credibility. And we could well find ourselves in a situation here given the season--and I gather some people are looking at the same facts and coming out a different door--where we're going to want all the credibility we can get. If we don't have any, since we're the only game in town in that respect, we could have some very serious problems.",767
-fomc-corpus,1992,Governor LaWare.,4
-fomc-corpus,1992,"Mr. Chairman, I'm increasingly concerned about what I view as the continued deterioration of the economic psychology of the country. I believe that psychology creates the conflicting signals which in turn contribute to the sluggish rate of recovery in which we find ourselves. Banks continue to be chary of aggressive lending, but their role in a more dramatic growth rate is also constrained by a very slack demand for credit by both consumers and businesses. Consumers, or at least a lot of them, are frightened and very cautious about taking on more debt to step up consumption. Businesses are still involved in balance sheet restructuring to equitize debt or refund debt to reduce debt service [costs]. That posture will not change until demand creates confidence in inventory production and capacity expansion. And perhaps more fundamental than any or all of the above is the sense of the country that we are adrift: That we are in an election year in the midst of domestic and international issues which differ from those of a few years ago and perhaps are more worrisome. Stubborn political and humanitarian issues both at home and abroad are frustrating because the diplomatic, economic, and military tools we might have resorted to in the past no longer are particularly applicable or available, especially in the absence of fiscal ammunition. And neither candidate has yet given us a clear idea of how he would approach the final solution to these problems. In these circumstances, I believe monetary policy is at a juncture similar to the doctor who has moved his patient into intensive care, shot him full of antibiotics, given him multiple transfusions of whole blood, has an intravenous going with glucose, and is assisting respiration with shots of pure oxygen. The doctor can now only wait for all of that to take effect. Further intervention will probably not change the outcome. Patience is prudent and patience should be our watchword for now.",365
-fomc-corpus,1992,Governor Kelley.,3
-fomc-corpus,1992,"Mr. Chairman, the last meeting turned out to be a little traumatic for me. After holding forth at some length, I reversed myself less than 24 hours later on a discount rate vote. So today I'll just try to throw in a quick speculative thought. It seems to me that we're clearly in the same pattern that we've been in for some time now: a slow, struggling recovery that has been severely inhibited by the financial restructuring in both the financial and the nonfinancial sectors. To me so far--I would emphasize ""so far""--this recovery has been going along at a pace that may be a bit disappointing; nevertheless, it's still acceptable because it seems to me that the long-term health of the economy demands that we get this restructuring successfully accomplished. In my view this financial restructuring was going to happen and it could have been a great deal more traumatic than it is given the way things have evolved so far. I think we may be able to see in retrospect that monetary policy has been very effective indeed over the course of this era that we're in rather than ineffective as some have alleged. Two things seem to be evolving and I'm hearing both of them around the table this morning. One is that the timing of this breakout to a higher level of growth seems to be getting stretched out. The second quarter was weaker than a lot of us had hoped it would be; the third quarter now looks as if it will be weaker than we had hoped, too. I think most of us are reducing our forecast for the fourth quarter. We haven't started lowering the first-quarter forecast yet, but we'll see about that! The second point is that we may be making more progress on inflation than many of us had ever dared to hope. Year-over-year [measures of] the CPI began to break around year-end 1990 and the first quarter of 1991 when we went through that recession period. The core CPI in the year 1990 according to the Greenbook was 5.3 percent; and the Greenbook projects 1994 at 2.5 percent even considering two back-to-back 3 percent growth years. So far, the history has been that in the first quarter of 1991 year-over-year the core CPI was at about 5-3/4 percent; now it's at 3-3/4 percent. That's a 200 basis points decline in the core rate of inflation over 18 months, and I think that's pretty impressive. Clearly, the very slow growth period and the increase in unemployment and the concern in the country that we've been experiencing has had an awful lot to do with that. Trying to put those together looking forward, it seems to me that if this sluggishness does continue to stretch out for a very long period of time, we may need to ask ourselves if we are beginning to be in danger of our disinflation trend overshooting and actually becoming a deflation, which could conceivably have pretty serious downside implications. I continue to believe that it's very important that this financial restructuring be completed. A great deal of progress is being made and I'm comfortable that our policy so far has been about right. We've been doing pretty respectably at balancing the needs for a lot of this restructuring to work through and still have as healthy an economy as possible. But having said that, I think this period does have to come to a conclusion at some appropriate point lest it start to feed on itself with some serious downside potential. That could turn out to be the issue that we're going to be grappling with a little later in the year, though probably not just yet.",724
-fomc-corpus,1992,President Jordan.,3
-fomc-corpus,1992,"Well, after listening to Bob Parry's report, it sounds as if I chose a very good time to leave California! It also turns out to have been a good time to go to the Midwest. If I were to go through and talk about sectors and industries we've been in contact with, it would sound very similar to what Si Keehn has said. There's really no difference there. The manufacturing area is doing quite well, much better than the nation as a whole in terms of employment. Industrial production, whether it's trucking or auto-related, is doing well. Residential housing, which I think is related to people's confidence and jobs, is very positive. Some areas in east Kentucky that had suffered very greatly for a long time in the '80s have virtually boom conditions now, with 4 percent unemployment, and are doing quite well. Agriculture had come through two very bad years and farmers were very worried coming into this season. But we're getting such good volume numbers that it's dominating the price effects, and even the ag sector bankers are much better these days. In spite of all of that, attitudes remain lousy. When I confront individuals, especially nonbank business people but to some extent the small bankers as well, and ask why, they keep telling me about good numbers and then complain. They cite the political situation, mainly at the national level but sometimes at the state level. Companies continue to report: ""My numbers are good, my orders are up, my sales are good, I've cut my costs, my profits are at a record, and I feel lousy about it."" And they don't see much that can help them. I have been struck by the difference in attitudes about inflation between the bank and the nonbank sectors. The nonbank side tells us that inflation is simply not an issue. Large and small businesses are saying that they have no expectation of raising their prices. It's a question of what the smallest declines are that they can get away with and if they can match the price pressure they're feeling with productivity gains and other cost reductions. One major company advises a great many smaller companies in the District and nationally and has told them all that any well-run business can reduce its prices by a percent given the gains in current productivity. They say they only want to buy from well-run businesses, so everybody should come in with bids that are no more than 5 percent less than before or else they shouldn't bother bidding. The bankers, though, continue to worry about inflation. Whether they're citing declines in short-term interest rates from easy policy or the fiscal side, which is more often the case, they're persistent in believing that inflation is heading back up and, with that, interest rates. When I asked if there was anything we could do to persuade them differently, they said ""no."" They're just not willing to be persuaded. The bankers will tell us that commercial loan demand is weak but consumer loan demand, especially for auto financing, is very strong throughout the District. One of the positive things that I see happening in the adjustment process is that bankers in their search for lending opportunities are finding some very innovative ways throughout the District for doing minority housing lending, including enlisting the clergy as loan officers--conducting seminars and teaching them how to evaluate people's financials--and then making contributions to the religious organizations for every loan that is based on that. They also are reducing the amount they contribute on a formula based on delinquencies or default. A lot of volume is being generated by the activity, with a lot of good sentiment developing in the communities about how available the bankers are for exploring opportunities to do that kind of lending. One major home improvement supplier said that we have a national boom going; people who aren't doing anything else are apparently remodeling their homes. And that is consistent with a story that I could take as another very positive development. There was an article saying that people, in a search for alternatives to what were characterized as the lousy yields one gets at the bank, in addition to doing home improvements are trying to start up new businesses. They gave a lot of examples of people opening restaurants or engaging in other distribution-type or light manufacturing activities because it's better than just leaving the money in the bank earning 2 percent. And I would think that that is part of the adjustment process we would expect from price stability.",864
-fomc-corpus,1992,Vice Chairman.,3
-fomc-corpus,1992,"I'll start out by saying that while I agree with a lot of what John LaWare said, I'd make an argument that at the very least the patient is out of intensive care. I think we have made some progress. As far as the national outlook is concerned, our people see it pretty much as their Board staff associates do with the one exception, as has already been discussed, being the unemployment rate. And that, as has been suggested, is probably a crapshoot. Our people have it more in the 7-1/2 percent range at the end of next year. But the point is that regardless of whether it's 7 percent or something north of 7 percent, even taking the Board staff's forecast means nine consecutive quarters in which the unemployment rate will have been 7 percent or higher. There have been multiple comments about the gloomy atmosphere and, obviously, that [unemployment rate] in itself has a lot to do with it. A number of people have directly or indirectly touched on what is called a very broad political landscape; undoubtedly that has something to do with it too. But whatever weight one wants to put on those or other factors, I think the tone is pretty darn sour out there. In terms of some of the underlying issues, the budget outlook even without any new magic is actually worse in the out years; on the basis of these latest figures some of that obviously reflects the level of economic activity itself, but it's not just the level of economic activity. A number of people have said that the inflation outlook is better; it is. A number of people have also said that price increases are not on the horizon or the radar scope for anybody, especially in manufacturing. I guess that's true except for the auto industry. I never quite understand those guys! On the anecdotal side and the District side, I wish I had some brilliant new insight to offer but I don't. It's really just more of the same. I do think, as everybody has said one way or another, that we have this Catch-22 situation: Productivity is better, profits are better, and costs are better; but in part because those things are better, employment is worse, income is worse, and attitudes are worse. I think that to a very large degree is a result of cumulative pressures. My own sense of it, trying to put it all together, is that on net the risks are about balanced. That's about all I have to say, Mr. Chairman.",496
-fomc-corpus,1992,Governor Mullins.,4
-fomc-corpus,1992,"I would agree with the notion that has been expressed by a number of people that we're probably stuck in the same old ditch for a while, rocking back and forth trying to gain the momentum to escape the gravitational pull of this deleveraging phenomenon. I don't really have a serious argument with the Greenbook, although there is the question of the timing of our escape from this. I do wonder whether or not we are in a lurching pattern with two steps forward and one step back as opposed to a steady progression and gradual acceleration. I don't know how to write down a lurching pattern in the forecast. That's the difficult part, so I wouldn't argue with that. I tend to think the next lurch is likely to be a bit forward, although I'm not so certain about that given the political climate. But I wouldn't be surprised to see third-quarter [GDP growth] a bit better than 2 percent following the reduction in long bond rates and our [interest] rate cuts. We have another round of mortgage refinancing going. Even if housing activity hasn't picked up, we've already seen some revival of retail sales, especially the discretionary GAF category. So, we might have a little better third quarter than the Greenbook projects. I still think we are likely to be stuck in the range of 1-1/2 to 2-1/2 percent growth for the foreseeable future until these balance sheet adjustments are sufficiently far along to allow sustained growth in spending or until this upward ratcheting process pushes employers beyond the limits of increasing production hours and overtime and into some hiring and some income growth. We continue to have the logic of pent-up demand waiting allegedly in the wings to be unleashed. But on the other side we also have the risk of cautious consumers increasing their saving rate. At this stage we have very little rigorous insight into how long we will be stuck in the sluggish growth rut or the trajectory on which we will emerge. We are getting some G-7 companionship, as Ted mentioned, in this condition. Some countries are climbing out of recession into sluggish growth and others are descending from healthy growth. It is interesting to see the process of convergence among the G-7 nations with real growth in '92 converging in most countries to 1-1/2 percent, inflation at around 2 to 3 percent, and unemployment in the 8 to 10 percent range. And just as we have no U.S. sector to provide an engine, we seem to have no G-7 country as an engine. Fortunately, we're making progress on that, which might be useful at the margin. Focusing on the near term, I do think we have another shot of stimulus in the pipeline as reinforced by the reduction in the long bond rate, which has descended barely through the lows of early January. The dollar has also descended. So, near term we have some stimulus. This could be just another pig in the python working its way through the system which, once digested, will leave a hungry economy in need of another feeding. That is the Arkansas version of the Chairman's seize-up model! [Laughter]",630
-fomc-corpus,1992,They have pythons in Arkansas?,8
-fomc-corpus,1992,"They have a lot of pigs! [Laughter] So, it's unclear at this stage whether that is what is going on or whether we are getting on a more stable recovery [path]. I do agree that the disinflation trend is starting to take hold. Two years ago, as I mentioned last time, the unemployment rate was 5-1/2 percent and manufacturing capacity utilization was 83 percent. Unemployment didn't break out of the 5 percent range until the fourth quarter of 1990 and capacity utilization didn't break below 80 percent until the first quarter of 1991. So, we've had about a year and half of this slack and I think it's taking hold. We see it not only in the numbers on wage inflation and the CPI and PPI, but we see it in consumer attitudes. I think there is a new ethos of bargain hunting which has reflected on business in a healthy way. I would agree with the comments that businesses are gradually, and I would say grudgingly, accepting cost-cutting and productivity improvement as the status quo and a steady-state approach to business, rather than restructuring and a brief painful period followed by price increases as the way to go. So, I think that is good news. Commodity prices also continue to exhibit no signs of price pressure. Gold attempted a brief breakout recently, you might have noticed, but then collapsed. I think we're likely on the threshold of some real progress here and, again, the reduction in long-term rates suggests this as well. I would point out, though, that despite the consumer bargain hunting, inflationary expectations among consumers as expressed in surveys such as the Michigan survey have not come down much. Those expectations are still very high in the 3 percent range, at around 3.9 percent. And the 5- to 10-year inflation expectation is about 5 percent, so that's still relatively high. In terms of the market view of inflation, our 10-year rate, which is the international long rate, is now only 6-1/2 percent. It's 150 basis points below the German 10-year rate of 8 percent and that looks pretty good. Unfortunately, the 10-year rate is influenced by the shape of that yield curve and is heavily weighted by the short-end rates included in that. So, our 10-year rate is weighted down by the short end; the German rate is weighted up by their short end. If you look at the 1-year implicit forward rate 10 years out, the German rate is about 7-1/2 percent and ours is about 8-1/2 percent. So, our 10-year forward rate viewed at the end of that 10-year period is still about 100 basis points above the German rate. So, on consumer inflation and in the capital markets we may have a ways to go. I think it would be interesting to try to assess the current stance of monetary policy. While that's interesting, I don't have much insight into it. There's not much new to say. I view real short-term rates as low, as around zero. I wouldn't quibble with a view that they were marginally negative. If we do get more progress on inflation expectations, we may revisit that issue to see whether there isn't a case for an adjustment of nominal rates, but I would not make such a case now. M2 in the current environment is very little help. We have attained some insight into the distortion caused by the yield curve, and it seems to me we can adjust analytically for that distortion by in effect adding back the M2 that has been pulled out of the yield curve to see what a corrected M2 would look like. If you do that exercise, you find that this corrected M2 still has been growing probably at 2 to 2-1/2 percent since the fourth quarter; it's still near the lower bound. So, that distortion does not explain all the slow growth, nor would I believe that all that disintermediation yield curve effect is benign. I think it may have some impact. The credit channel I believe is important, not just the money channel. You can also, of course, just add back the growth of the [institution-only] money funds; that would get M2 growth up to about 4 percent. When I look at those figures I don't see a case [for arguing] that we're too easy in those terms. A more direct approach is to look at nominal GDP targeting; we have been experiencing and are projecting very low growth in nominal GDP. Still, it seems to me that it's very hard to make a case that there's compelling evidence the economy is constrained by an overly restrictive monetary stance or lack of liquidity or rates that are too high. So, I think it's quite difficult to gauge effectively the stance of policy. Perhaps this does lend credence to the Chairman's alternative model of an economy responding to liquidity shocks rather than to a stable relationship with the monetary stance in a traditional sense. The other thing I would say is that in this environment I would agree with those who continue to argue that there are concerns about going too far. I don't believe we have the ability to pursue aggressive fine-tuning effectively or to respond to a blip in the unemployment rate and avoid a bad quarter. That may sound odd since we've come from 10 percent down to 3-1/4 percent on the fed funds rate; that sounds like contra-cyclical policy. But I think the economy in the late '80s was growing rapidly, fed by debt and leveraging; and that process went into reverse to deleveraging and financial contraction. And it's wholly appropriate for the nominal rate structure to decline dramatically just to maintain an appropriate stance of monetary policy, which is not overly restrictive but is still consistent with progress toward price stability. I think that is what we've done in that adjustment. We haven't yet gone too far. If we do go too far, with the long and variable lags in monetary transmission mechanisms and the unreliable navigational aid of M2, we obviously risk losing an opportunity it has taken years to earn. So, that's something to be wary of. A final reason to be concerned about our near-term policy is the long list of potential shocks and risks in the current environment. Bob Black presented the litany of restraints. I'd just like to mention some of the potential shocks and risks. We have military situations--potential military action in Iraq and Bosnia-Herzegovina--fragility in markets in Japan, weakness in the economies, markets, and foreign exchange relationships in Europe, and in the United States we have the dollar, the election, and of course the stock market. Moreover, I'm not at all sure we are completely out of the woods with regard to some of our large financial institutions. So, one argument is that these are downside risks to be concerned about; another is that we might save a little ammunition. Overall, the early returns on the July move are encouraging, especially in terms of the response of the long-term rate and another round of refinancing under way, which can help reduce [financial] burdens and accelerate the adjustments. I think we should continue to learn about this unusual economic environment, to do research into the forces at work here, and to work at understanding them. I would also argue that we need to be mindful of the risks, and I agree with those who suggest that the risks remain tilted toward the down side.",1506
-fomc-corpus,1992,Governor Phillips.,3
-fomc-corpus,1992,"Thank you. On the one hand there has been some progress in the sense that I've managed to move myself from the bottom or the last on the list to talking at least before a few other folks! On the other hand, and even after listening to the Gipper last night, it's a little hard to find the bright spots--or maybe I should say the points of light. The economy and the monetary aggregates appear to have weakened since our last meeting. Maybe I should say the monetary aggregates have weakened and then the economy has weakened. In trying to locate likely sources of strength, I don't think we're going to see it from the consumer. Housing may be a potential source of strength, but with the unemployment uncertainty and because trying to get out of the recession into a stronger recovery situation has taken so long, it seems to me questionable that housing is going to provide the spark that we may need. And, certainly, the news from different parts of the country tends to be spotty. Investment spending is a possibility, but again that may be somewhat constrained by the retrenching that we're seeing in business, the emphasis on efficiency, and just simply the slowdown in spending. The downward Greenbook revision in GDP for the third quarter is particularly disturbing in view of the fact that last time we did not assume there would be an easing. What this implies to me is that it has taken an easing to feed this restructuring process that we've all talked about and that we've all observed. It appears that it is deep-seated and more widespread than many of us might have thought. As for the unemployment situation, I tend to wonder whether or not there's more pain out there in the labor market than is evidenced even by the 7.7 percent [unemployment rate]. I cite that because people know there is more restructuring to occur; the defense cutback is really only getting started. The fact that it is taking such a long time to move [along] is protracting some of the pain. And I guess the question for us is how satisfied we are with this picture of slow growth and an economy that doesn't seem to be generating jobs. So, for me, the risks seem decidedly on the down side. I certainly recognize the arguments that another easing may not help. On the other hand, the question is: What are the risks of another easing? Inflation doesn't appear to be flaring up. And maybe, as Governor Kelley mentioned, we are approaching the point where we have to start wondering if we are overshooting. The politics, the press, and the concern about timing are problems only if we make them problems. That is to say: If we allow ourselves to be dictated by whatever happens to be going on in a particular week, then it becomes a problem. We have to do what we think is right. And I don't think we should be waiting around for fiscal policy. That is tenuous at best. So, on balance, it seems to me that since last time the risks have moved more to the down side.",606
-fomc-corpus,1992,Governor Lindsey.,3
-fomc-corpus,1992,"Thank you, Mr. Chairman. I woke up in a good mood and then I heard these words: listless, torpid, mixed, slowing, softer, sluggish, shrinking, flat, lousy, and sour. That was the report. The only good news was from Minneapolis. I read recently that TIAA is 40 percent owner of that mall. And given some of the trash they bought in the First District, I'm glad that at least something is running well. I don't know how much I'm going to stake on that. I agree with Tom Melzer that we err when we look too much at the real economy. What I learned was that we were supposed to look at nominal GDP as our ultimate target objective and that money, particularly M2, might be a good intermediate target--which may not be true so much anymore--but that was only because it was a good guide to nominal GDP. When I look at that, I see we just ended over two years of nominal GDP growth at the 4-1/4 percent level and now it's dropping down to the 3-1/2 percent level at least for two quarters. And 3-1/2 percent is summed up as listless, deteriorating, mixed, slow, exhausted, sluggish, etc.; it's lousy. It is a number that is below any of our forecasts. In my view it should be sending off alarm bells as to what we are doing to the economy. We cannot control the mix between real and inflation, but we can control the sum of the two. And 3-1/2 percent is not the right sum in my mind. With all respect to Dr. LaWare, if I were on the operating table, I wouldn't want to counsel patience. The patient after all is the U.S. economy. Sitting back and waiting for the outcome, when the outcome could be quite bad, is not something I would advise. Therefore, I share the sentiments expressed here that our likely next move is a cut in nominal interest rates. The question is whether to do it now or later. The case for later I think is a good one. We have all kinds of risks out there in the next three or four months. Bill's report included the possibility that Germany may raise the Lombard rate. I'm not an expert on this, but my bet would be that that will cause a European currency crisis. The French are voting on Maastricht on September 20th; the polls are all moving in the direction of defeat. As a little follow-up, the Danes recently had a poll last week asking people how they would vote now on Maastricht and it was booted down 57 to 43, an even wider margin. The pound is now below where it was when we were certain that Kinnick would be the next Prime Minister. The Financial Times Stock Exchange [Index] is down; it has lost all of its gains since the election; there is certainly a possibility of a pound crisis. There's always a possibility of a lire crisis. The Japanese market is weak, down another 4 percent. The likely reaction to that is going to be an easing by the Japanese, which will put downward pressure on the yen. They've reacted to that by selling dollars and that is not going to help our situation. We have our own stock market problem. There is also the possibility of instability in any part of the world. I would add to Governor Mullins's list the USSR. We recently had a briefing by a friend of mine who is an oil market operator and he pointed out that we risk an oil supply shock due to unrest in the USSR. That certainly has not been factored into the market. So, those are all reasons to wait. The best reason to [move] now I thought was summed up in Bill [McDonough's] report. The best time to act is when we surprise the markets. And because everyone ""knows"" we would never act this week, that may be the best time to act. I am agnostic on when we're going to act, but I would give long odds that the proper next move will be a cut.",838
-fomc-corpus,1992,Governor Angell.,4
-fomc-corpus,1992,"I wanted to hear all the news and I agree that Governor Lindsey has summarized it pretty well. There is almost a total lack of anyone who thinks the economy really is going to go charging ahead, and maybe that's the best news there is. I've had such low nominal GNP forecasts for so long that I'm glad finally to have some company with forecasts the same as mine. I think you're right also, Governor Lindsey, in looking at the international arena. That's not something we can control. Yet the U.S. dollar is still the major reserve currency for the world and the U.S. dollar is affected by activities that take place in the world. Even though the goods markets may be very imperfect, with a lot of protectionist devices out there, the capital markets are not imperfect and they do move very quickly. When we look at the question of whether or not the disinflation in the United States has gone too far and whether we are moving into deflation, the fact of the matter is that wholesale prices around the world on a year-over-year rate of change basis indicate much more disinflation as do prices in other G-10 countries than do prices in the United States. Of course, in Japan [prices have declined] year-over-year; but even in Germany, with the Bundesbank worried about inflation, the year-over-year change in wholesale prices is lower than ours and very close to zero. It even looks as if the United Kingdom's disinflation rate is such that their year-over-year change in wholesale prices might slide under ours in a couple of months. Our year-over-year change in wholesale prices at 1.8 percent just doesn't show what I would call disinflation turning into deflation. So, I don't see how we can build the story that we're in a deflationary environment. Clearly, we're in an environment in which economic conditions are very sluggish. To me this is to be expected. It seems to me that American households should want to alter their balance sheets and to increase their saving rate. And it seems to me that there is some prospect that the saving rate before we get to 1994 might move up beyond 5 percent from the low of 4 percent that we had a few years ago. We've seen it move on up to 5 percent and I think it quite likely could move up to 5-1/2 percent before 1994. That would mean then that the source of our growth would not be from the consumer sector as we might expect. As we look at the patient, Dr. LaWare, maybe we ought not just be patient but monitor a few things as we go along. I think we ought to monitor commodity prices and see that commodity prices do not turn downward. Gold has quite often led commodity prices; gold has bounced around some and is now in somewhat of a downward mode. I don't think we ought to ignore that leading signal which might be more important at this point than M2 in terms of our seeing where we're going. Frankly, if the price of gold were to take another strong leg down, I'm not sure but I might join Governor Lindsey in regard to where we ought to go. But I do believe that we need to be on a very secure price level stability base before we make the next easing move because, if the world doesn't know that we are committed to price level stability and we ease in that environment, we risk destabilizing financial markets around the world. Governor Phillips says: What do we have to lose? There's not much danger that the inflation the bankers are worried about is going to come charging back. But I do think in the environment that we're in that we could very well destabilize international capital markets and we might understand that the notion of sour is a whole lot better with the DOW at 3320 than if the DOW were losing 200 points a day. So, I think there's some strength out there. In addition to commodity prices, I want to monitor M2. I think M2 in the coming months is going to be very important because I've had an hypothesis that M2 is going to be guided more by what happens to intermediate rates [unintelligible]",843
-fomc-corpus,1992,Mr. Kohn.,5
-fomc-corpus,1992,"Thank you, Mr. Chairman. I'll attempt to summarize my presentation in an effort to cut it down at least by a few minutes. That may make it slightly more incoherent than usual! [For Mr. Kohn's full statement, see Appendix.]",51
-fomc-corpus,1992,I think it would be helpful at this stage to get a judgment of the Committee on this particular point. Do you want to say anything in defense of any of your proposals for the last sentence of the operational paragraph?,43
-fomc-corpus,1992,"Well, I tried last time and I got beaten up! The reason alternatives C and D are in the Bluebook is because of the issue that arose last time about writing down a monetary growth number --particularly now that it would go through the end of the year--that was inconsistent with the range you just gave to the Congress. However, I went back and looked at the report and the testimony and I do believe that they are sufficiently ambiguous as to leave open the possibility that monetary growth would drop below the range. And that would be judged on the basis of incoming information about how velocity was behaving. So, I think a sentence along the lines of either ""C"" or ""D"" would line up with the report and testimony and the decision of the Committee at the last meeting that it didn't know enough, really, to change the existing growth rate [objective] for the year. So, I think you could do either ""C"" or ""D.""",192
-fomc-corpus,1992,Jerry Jordan.,3
-fomc-corpus,1992,"In helping us to choose among these, let me make a couple of comments about what I've heard and observed over the last few months. From the standpoint of an outsider, in the 1980s it seemed to me that you were in a pretty good position on two counts: Having had pretty good results both in getting a model that helped to alert the Committee on what M2 to expect and [thus] hitting the target and on interpreting what it meant in terms of velocity, P*, and so on. Recently, at least since I've been here, we've only had two problems: One is that we don't know how to hit [the target]; and two is that we wouldn't know what it meant if we did. So, if you have to indicate a relative confidence, would you have greater confidence in your ability to indicate what money growth would be, given the funds rate or whatever, or what it means in terms of the velocity? Where are we supposed to indicate that we have more confidence? If we put in the statement about velocity, it implies that we have more confidence in that than we do in something we are supposed to hit.",229
-fomc-corpus,1992,"That's a very difficult choice. Clearly, we have major questions about both of those. They go together; I can't separate those two questions; I can't answer one or the other. The way we do the forecast is to take the path for [nominal] income in the Greenbook and the path for interest rates implied in the Greenbook and ask what money growth would come out. That's how alternative B is put together. It's all part of the same process. I don't see it as two different questions.",102
-fomc-corpus,1992,To me it is two different questions. But that's a matter of a framework or a model or control versus--,22
-fomc-corpus,1992,"Well, the other question is: If the Committee said to Peter Sternlight that it wanted 2 percent M2 growth, give or take a percentage point, and didn't care what interest rates and income went with that, I believe Mr. Sternlight could achieve that over a period of six months or so. Now, we might get some very wild interest rate [movements] in the process and perhaps as a result wild [variations in] income growth; but if that's all the Committee cared about, I feel some confidence that within a tolerable range and over a sufficiently long period we could achieve the M2 growth that the Committee asked us to achieve.",133
-fomc-corpus,1992,I interpret that to mean that you're more comfortable explaining the misses rather than putting the weight on hitting the target?,22
-fomc-corpus,1992,Yes.,2
-fomc-corpus,1992,Governor Angell.,4
-fomc-corpus,1992,"I'm uncomfortable with ""C"" because putting the velocity in there makes it seem that the resulting nominal GDP is exactly what our policy objective is, whereas my understanding is that we would like the resulting nominal GDP to be higher than it might be or than we might be able to make it to be. So, I would prefer just to do the straightforward ""B,"" I'm presuming with your revised numbers that you might be able to put a ""2"" in there. Is that right?",97
-fomc-corpus,1992,"Yes, I think so.",6
-fomc-corpus,1992,"So, I'd prefer ""B"" with 2 percent in it.",14
-fomc-corpus,1992,President Melzer.,4
-fomc-corpus,1992,"I would not favor ""D."" I had some sentiment for ""C,"" but I am a little concerned about the precision that second sentence might imply. I don't have any problem with the concept of doing ""C"" and then saying we don't think we're going to make the ranges for the year. I don't have a suggested change, but I think the words here may imply more certainty about these relationships than we have; I think Wayne was saying the same thing. I could live with ""B.""",99
-fomc-corpus,1992,"In support of that, we can certainly take many more words in the Policy Record itself to explain how the Committee decided to do what it did. We're not confined to [the wording in the directive]. So, the record would accommodate this relationship.",49
-fomc-corpus,1992,"Let me cut this whole thing short. With that qualification, could we all accept ""B"" at this point?",23
-fomc-corpus,1992,Could you tell us a little more about the qualifications?,11
-fomc-corpus,1992,"Why don't we do that unless somebody has some objection. If I hear none, I'll just assume that we will go with ""B"" with the addition that Don suggested.",34
-fomc-corpus,1992,The Policy Record would explain that the Committee recognized that this put [M2] on a trajectory where it might fall short but took into account a number of different things in choosing this without having to specify exactly--,42
-fomc-corpus,1992,"Any general questions then to Don? Yes, Jerry.",11
-fomc-corpus,1992,"Following up on what Wayne Angell said earlier in his remarks about the rally of the market affecting the intermediate term: Don, I would have expected you to come back and say that in view of the market developments since the last meeting our model is now showing a lot stronger M2 growth. So, one of two things [must be true]: Either other things weren't equal or I was wrong in guessing which way that goes.",85
-fomc-corpus,1992,"Well, you have the direction right; it's a question of what the size is, and in particular our models operate with some lag. So, a lot of this would be feeding through into the fourth quarter. It gives us more confidence. Yesterday, Governor Angell was challenging me on why I had any more growth under alternative A than I did under alternative B, given our recent experience. I think the decline in intermediate-term rates gives us a little more confidence that we'll get the 2 percent [M2 growth] or a little more in the fourth quarter under ""B"" and that we'll get some more under ""A."" So, I think it's the kind of thing that builds confidence. We had a shortfall in July--more than we expected--and we carried that shortfall forward but slanted up growth from here on out, partly based on the decline of intermediate-term rates.",179
-fomc-corpus,1992,"Any further questions? If not, I'll start off on the policy issues. We've all been looking at various models. In the earlier go-around members made major additions to macroeconometric models by employing such concepts as economies in ditches, the end of runways, terminal patients, and the python in a pig, or is it vice-a-versa! [Laughter] I have two models which I've discussed previously, and I'd like to raise them again merely on the grounds that I think it's fairly apparent that the basic structural models that we employ of necessity are not capturing what essentially is going on in this environment. The one we used in the Humphrey-Hawkins testimony is what I would call a somewhat benign model. It essentially argues that there has been a diversion of cash flows in both the household and the business sectors away from purchases of goods and services to debt repair, largely a reduction in debt. That obviously engenders a higher saving rate and a subdued level of economic activity. But it basically stipulates that the saving rate is stable at a higher-than-desired longer-term level, that the balance sheet repair will continue until balance sheets get into pretty good shape at which point the amount of diversion of cash flow that is required for the eventual [recovery finally] supplies enough money, then spills over into goods and services, and ends up in gross domestic product. That argument stipulates that if the balance sheet repair [process] is, say, to a substantial extent completed in the business sector and, say, halfway through in the household sector--which the data on debt service burdens somehow but very crudely imply--then one would conclude that we're over the major part of the adjustment or at least in the middle of it and are sort of going down hill. One would not expect it to be an all or nothing adjustment on the balance sheet until the balance sheet repair is complete, but rather the beginning of a gradual moving away from savings toward purchases of goods and services as the balance sheet repair gets 80 percent complete, then 90 percent, and eventually 100 percent. That argues for something not terribly different from the Greenbook projection: a rather moderate, subdued gross domestic product increase but with characteristics essentially as described in the Greenbook. The alternate significantly less benign model is the one I raised at the last FOMC meeting. It differs from the first model in regard to the presumption about the extent of balance sheet stringency--which you may recall I characterized as having many of the characteristics of the 19th century type of economic processes in the periods when we had a major speculative increase in assets financed by debt, followed by a decline in market value of assets, debt burdens becoming oppressive, and people effectively seizing up on their expenditures in an effort to pay off their debts and restore their balance sheets. The effect is an implosion in economic activity. I stipulated at the last FOMC meeting that one way of looking at this process that we are involved in and have been involved in for the last three years is that it is one in which we forestalled this [adjustment] by continuously injecting liquidity--or I should say basically injecting funds and reserves into the system. That stretched out the adjustment process and effectively worked toward ease and toward a sort of relaxing of the grip when we eased, but only for a limited period of time. That is, one can view the essential player in the economy as having a desire to repair the balance sheet very rapidly but the process was being stretched out so to speak by some form of tranquilizer or whatever we may call it. And that tranquilizer has a limited life expectancy so that when we ease we get an economy which is not collapsing but tending to stabilize. But we have to ease continuously in order to get the economy just to stand still and prevent it from seizing up and collapsing. Now, at the moment I think we can be on either Model 1 or Model 2. If after the substantial amount of liquidity we have injected in the system we are still at a stage in which there is a significant endeavor to repair balance sheets at a pace that implicitly [consistent] with negative gross domestic product growth, then what we've heard around this table would lead us to conclude that the cumulative weakness is going to go an awful lot further. This leads me generally to conclude that what we have to do at this stage is just to watch what happens. I felt that the [strengthening in] the M2 data, which Don mentioned just this morning, was helpful. It's not going in the wrong direction. And it's at least not inconsistent with Model 1. If Model 1 is in fact working, then we've probably done enough at this stage and no further actions would be required on our part. But we don't know that; the reason we don't know that is that it is conceivable, for example, that when housing sales figures come out at the end of this month they may be revised down sharply for last month and the newest month may be down; and automobile sales may start to go south. And even though [businesses] have very significant cash flow and profitability, plant and equipment expenditures data, which we will be getting in several weeks, may provide at least an indication of what is going on in corporate planning. All of that will at least give us an indication of where this whole process is going. Listening to various views of the Committee, I would suspect that one way or another a significant majority of us are somewhere around alternative B asymmetric toward ease, but with a general awareness that if the economy starts to look a little better or even just continues to grow, no action would be required. Action would be implied only under the condition that expectations begin to emerge which suggest that the expansion is going to be running under the Greenbook forecast or if we get further important downward revisions that are relevant. The basic reason I would argue in those terms is one that Governor Mullins raised: namely, that we're running out of ammunition for potentially dangerous episodes. We do have a stock market, whatever [index] it is we're looking at, which is quite high. And I would hate to be at a point where we couldn't do anything to respond to that market because we had expended all of the ammunition available to us. But having said that, if in fact it is turning out that this malevolent Model 2 type of seizure is going on, I suspect we probably would have no choice at that point and would wish to move and hope that if we run out of bullets in the process that at least there's no one left to shoot at. So, that's my addition to a python-in-the-pig!",1340
-fomc-corpus,1992,Governor Angell.,4
-fomc-corpus,1992,That's acceptable to me.,5
-fomc-corpus,1992,Jerry Jordan.,3
-fomc-corpus,1992,"I have a question. I know this is a Board matter, not an FOMC matter, but in terms of using ammunition: With the projection for seasonal increases in reserves in addition to the continuing trend of reserveable deposits growing very rapidly, would the Board consider using the ammunition it has, i.e. the bullet of lower reserve requirements?",69
-fomc-corpus,1992,Do we have room right now?,7
-fomc-corpus,1992,"I think if we lowered them in October we'd have to raise them in February. I would doubt very seriously that we'd have room to get to the next seasonal low point even after the actions we have taken. We could take at look at that this fall, but I'd be skeptical at this point.",59
-fomc-corpus,1992,"The statutory limit is 8 percent and I don't understand the operating point. Peter tried to explain this to me, too, and I simply don't understand it. But the legal ammunition is that you can go down to 8 percent without seeking new legislative authority.",52
-fomc-corpus,1992,The basic question is clearing balances.,7
-fomc-corpus,1992,"But if more banks were to choose to adopt the alternative clearing balances, that would alter that prospect, right?",22
-fomc-corpus,1992,"Right. The key is to have a stable and predictable demand for central bank liabilities, whether it's the reserves or clearing balances, off which Peter can operate in his open market operations.",36
-fomc-corpus,1992,Vice Chairman.,3
-fomc-corpus,1992,"""B"" asymmetric is fine with me.",8
-fomc-corpus,1992,President Parry.,4
-fomc-corpus,1992,"""B"" asymmetric.",4
-fomc-corpus,1992,Governor LaWare.,4
-fomc-corpus,1992,"Mr. Chairman, I don't see anything about symmetric language that forbids a change, but to have asymmetric language seems to me like giving you a loaded gun that is already cocked, I would really rather have symmetric language so that you would have to have a consultation with this group before you cock the weapon and certainly before you pull the trigger. So, I would certainly strongly favor ""B,"" but I would favor symmetric language.",86
-fomc-corpus,1992,President Syron.,4
-fomc-corpus,1992,"I favor ""B"" asymmetric. To tell the truth, if we didn't have the situation of wanting to be consistent--I'd be afraid we'd lose credibility in the exchange market if we did something now--I might be inclined to do a little now. So, for that reason I'd prefer to be asymmetric and leave it on hold.",66
-fomc-corpus,1992,"The only argument I would have against John LaWare is that I feel a little uncomfortable or awkward about having been symmetric then asymmetric and going back. My view is that the safety catch is on the gun, if you want to put it that way.",50
-fomc-corpus,1992,But symmetric language as opposed to asymmetric language might also be interpreted as an expression of confidence. The asymmetric language is saying we expect trouble.,27
-fomc-corpus,1992,Do you have that confidence?,6
-fomc-corpus,1992,Yes.,2
-fomc-corpus,1992,You do?,3
-fomc-corpus,1992,Yes.,2
-fomc-corpus,1992,I'm delighted.,3
-fomc-corpus,1992,"Well, I'm lonesome but I'm delighted too! [Laughter]",15
-fomc-corpus,1992,[Unintelligible.],6
-fomc-corpus,1992,I have a patient; I'm waiting for him to recover.,12
-fomc-corpus,1992,All doctors have patients! That wasn't very funny. Governor Kelley.,13
-fomc-corpus,1992,"""B"" asymmetric is fine.",6
-fomc-corpus,1992,President Forrestal.,4
-fomc-corpus,1992,"Well, Mr. Chairman, I'm going to be even a little more lonesome than Dr. LaWare. I think your arguments are very persuasive for staying where we are. However, it does seem to me that we've had considerable slippage in economic activity from the first quarter. I see very few signs or areas of strength that will give us any forward momentum here. I ask myself the question, first of all: What good would easing do at this point? It's questionable I suppose. But on the other hand, it may help, and I don't see any substantial risks; in fact, I see very little risk in moving. So, I would prefer to make a move now.",139
-fomc-corpus,1992,I think the risk in question is how much ammunition we have left. That's the only risk I see.,21
-fomc-corpus,1992,"Well, we still have 2 percentage points to 0.",13
-fomc-corpus,1992,That's right and we may need it.,8
-fomc-corpus,1992,"We may need it. Well, I think I would prefer to shoot the bullet now with alternative A.",21
-fomc-corpus,1992,Okay. President Keehn.,6
-fomc-corpus,1992,"Mr. Chairman, I agree with Bob Forrestal. I would prefer to ease now in the direction of ""A"" but certainly find ""B"" with asymmetric language acceptable.",35
-fomc-corpus,1992,President Boehne.,5
-fomc-corpus,1992,"""B"" asymmetric.",4
-fomc-corpus,1992,President Jordan.,3
-fomc-corpus,1992,"I feel a lot more comfortable with several [recent] developments: the rebound in July in reserve growth, in the monetary base, and in Ml, whereas everything was negative in June. And I would want to see that--especially [the growth in] reserves--continue to be positive. I wouldn't want foreign operations to show up and drain reserves. Partial analysis, of course, [indicates that] they do, but I would hope that would be offset, or sterilized, consciously or not either way. I would be with John LaWare on preferring symmetric language at this point because I think things are in motion except--and this is not a policy issue but a communications issue--if we went with symmetric now, when that is released in the middle of October after the next meeting I would expect that the headlines would read that the Committee had tightened. And that is enough to dissuade me from changing the directive even though my preference would be to do so.",196
-fomc-corpus,1992,President Stern.,3
-fomc-corpus,1992,"I support your proposal for ""B"" asymmetric.",10
-fomc-corpus,1992,President Hoenig.,4
-fomc-corpus,1992,"I would be more with President Forrestal's alternative now, but I would accept your argument of holding back and thus would accept ""B"" asymmetrical.",31
-fomc-corpus,1992,President Melzer.,4
-fomc-corpus,1992,"I favor ""B"" symmetric, Alan. I won't go into a lot of reasons; it's essentially for the same reasons that I cited at the last meeting but I feel even more strongly about them. I think credibility is more of an issue now. Also, we just eased and, if you think about it in percentage terms, it was a 15 percent cut in the level of nominal rates; that's not insignificant. Finally, I think this view captures a number of people who want to ease right away, and I just feel so strongly that that's the wrong thing to do that I guess it's hard for me to put myself in that group.",129
-fomc-corpus,1992,President Black.,3
-fomc-corpus,1992,"Mr. Chairman, ordinarily I'm biased very much in favor of symmetric language but I think your reasoning on why we shouldn't switch from one to the other and then back again is compelling. So, I would say ""B"" asymmetric.",46
-fomc-corpus,1992,Governor Lindsey.,3
-fomc-corpus,1992,"Mr. Chairman, I will support your directive. However, I'd like to associate myself with the views of Presidents Forrestal, Keehn, and Hoenig. There is the number of bullets and also the quality of bullets. I think a little bullet shot now because it's unexpected would have a big effect. So, had you not expressed your view, I would have been inclined to favor ""A"" and shoot 1/4 point now.",89
-fomc-corpus,1992,President McTeer.,5
-fomc-corpus,1992,I support your recommendation.,5
-fomc-corpus,1992,Governor Mullins.,4
-fomc-corpus,1992,"I think ""B"" asymmetric is the appropriate stance given the current environment and the changes we've seen. I tend to support the stronger asymmetric stance.",29
-fomc-corpus,1992,Governor Phillips.,3
-fomc-corpus,1992,"I'd prefer ""A"" but will support ""B"" asymmetric.",13
-fomc-corpus,1992,"I think we have a majority for ""B"" asymmetric toward ease. If you'll read the language--",20
-fomc-corpus,1992,"""In the implementation of policy for the immediate future, the Committee seeks to maintain the existing degree of pressure on reserve positions. In the context of the Committee's long-run objectives for price stability and sustainable economic growth, and giving careful consideration to economic, financial, and monetary developments, slightly greater reserve restraint might or slightly lesser reserve restraint would be acceptable in the intermeeting period."" Moving on to page 14 to alternative ""B"" for the last sentence, but I'm not sure what Don's latest numbers are--",101
-fomc-corpus,1992,"Taking account of today's data, 2 and 1/2 percent.",15
-fomc-corpus,1992,"""The contemplated reserve conditions are expected to be consistent with growth of M2 and M3 over the period from June through December at annual rates of about 2 and 1/2 percent, respectively.""",40
-fomc-corpus,1992,Take the roll.,4
-fomc-corpus,1992,CHAIRMAN GREENSPAN Yes VICE CHAIRMAN CORRIGAN Yes GOVERNOR ANGELL Yes PRESIDENT HOENIG Yes PRESIDENT JORDAN Yes GOVERNOR KELLEY Yes GOVERNOR LAWARE No GOVERNOR LINDSEY Yes PRESIDENT MELZER No GOVERNOR MULLINS Yes GOVERNOR PHILLIPS Yes PRESIDENT SYRON Yes,69
-fomc-corpus,1992,"Okay, thank you very much.   We will adjourn for lunch.",15
-fomc-corpus,1992,"I think it is most appropriate for me to comment that as far as I can judge we've been handling the issue of confidentiality awfully well. I haven't seen the slightest indication of any breach of security out of these meetings--the last two--and I merely wanted to note that fact and hope that whatever it is we're doing we continue to do. With that, I'd like to request a motion to approve the minutes.",83
-fomc-corpus,1992,Move it.,3
-fomc-corpus,1992,Is there a second?,5
-fomc-corpus,1992,Second.,2
-fomc-corpus,1992,"Without objection. As you know, today is the first meeting in which Bill McDonough is in charge of both Desks in New York; he took over obviously very recently. And I'd like to call on Bill for his usual start--the Foreign Desk report.",53
-fomc-corpus,1992,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1992,Thank you. Any questions for Bill?,8
-fomc-corpus,1992,"You ended on a note about staying alert to early signs of a run on the dollar. But there really isn't much one can do in terms of contingency plans. Essentially, we have interest rates to deal with that and we have foreign exchange operations to deal with that, and foreign exchange operations have shown that they're not effective in [countering] these kinds of massive movements in capital flows. Domestic concerns would make an interest rate movement not a good course. That exhausts my list. What else is on that list that one can do if this kind of situation should materialize?",115
-fomc-corpus,1992,"Intervention is unlikely to be highly effective because it would be very difficult under the circumstances to organize a coordinated intervention. It is tough to be effective intervening on our own. I think it's a tool and, quoting President Corrigan at the last meeting, I'd be inclined to say ""never say never."" It is something that we may want to use. The reason it would be difficult to organize a coordinated intervention is that most of the Europeans don't have any deutschemarks, which would be the currency of intervention. And the Bundesbank, I would think, probably would want commitments from the Chairman on the future of monetary policy that I suspect he would be very reluctant to give. Because of their concern about what [intervention] did to the management of their money supply, it would be a fairly tough argument to make in any case. In the midst of a political campaign, if one or more of the candidates could be induced to say that a weak dollar policy is not what he has in mind, that could be somewhat useful if it were done with good timing.",213
-fomc-corpus,1992,Earlier this year we heard some things about the difficulties the Germans were having with sterilization and their desire to see us diversify and so forth. What were they saying during September about their problems with the other countries? And was that a constraint on our options?,51
-fomc-corpus,1992,"Well, all during September we were very much in the mode of not wishing to intervene because of the likely counterproductive effect on [our] domestic markets, especially the bond market. Therefore, in fact, I didn't have any discussions of ""What if...?"" or ""What do you think we should do?"" with them. At that time the main thing that would have inhibited any desire by the Germans to do an intervention operation with us is that they very much wanted the ERM to come apart in order to stop having the monetary policy problems they had and to establish what they think is the single most important principle of the mechanism, i.e. that it be flexible. So, I think the main concern they had was purely internally European.",148
-fomc-corpus,1992,"So, our actions would have appeared to be trying to hold the ERM together?",17
-fomc-corpus,1992,Right.,2
-fomc-corpus,1992,And they didn't want to hold it together.,9
-fomc-corpus,1992,"Exactly. When we did intervention operations during the summer, the other European countries were just delighted every time we even mentioned the [possibility] of it. The Germans were much more reluctant, but they didn't want to get ""noticed"" as being against an operation which the other Europeans saw as positive because in weakening the mark it helped them keep the system together.",72
-fomc-corpus,1992,Your remark about [intervention] giving us domestic problems: Was that because if you're selling deutschemark-denominated securities you are going to be sterilizing them by buying domestic-denominated securities?,38
-fomc-corpus,1992,The technical monetary effect of the intervention wasn't what we were concerned about. It was the psychological effect of an unsuccessful intervention operation on other markets.,28
-fomc-corpus,1992,"The psychological effect is one thing, but the idea is that if you sold deutschemark-denominated securities, you'd be buying U.S. Treasuries.",31
-fomc-corpus,1992,Right.,2
-fomc-corpus,1992,"And that would be helpful. Given the position of other central banks now with deutschemarks and given our desire to reduce our holdings of deutschemark-denominated assets, do you have an opportunity to do off-market sales of some of our deutschemark holdings and, the counterpart, to buy more Treasuries?",61
-fomc-corpus,1992,"One last question: Going forward, if we do start to get more stability--even firmness--of the dollar, what is your attitude going to be toward moving into the market and still reducing our position in deutschemarks?",44
-fomc-corpus,1992,"As you know, we have this [conumdrum] with the Treasury, and about 55 to 60 percent of U.S. reserves belong to this Committee and the rest belong to the Treasury. Perhaps understandably, given everything else that has been going on, the Treasury has not been able to focus on the whole issue of reserve levels or management since we've had these discussions this year with the Committee. I think realistically what we have to do is wait until after the election and until this Treasury team or whatever Treasury team is prepared to talk about it, and then we can come back to the Committee.",122
-fomc-corpus,1992,"President Jordan, two points seem to need to be added here. One is that in the second phase--the September phase of all this--I at least detected from my own contacts that there was essentially no pressure on us from the other Europeans to operate. We did not have the same thing going in August. So, they too were not looking for us to get involved in Europe. On the last point, I think it's worthwhile sharing with the Committee the current attitude of the Treasury, which was that they were not interested in sharing the operation with Sweden. That's why you are about to approve the entire $400 million. So, there is a certain reluctance there. It is my judgment, certainly, that these are not the right circumstances to put that issue squarely to the Treasury. It is probably better to wait until things settle down.",169
-fomc-corpus,1992,President Black.,3
-fomc-corpus,1992,I just want to commend those of you who had a part in the decision for having tried to urge the Treasury not to do this intervention. I think you proved your point very well.,37
-fomc-corpus,1992,President Syron.,4
-fomc-corpus,1992,"Bill, I just want to be sure that I didn't mishear something you said before. Did you say that you thought the market had--""built in"" is too strong a phrase--a sort of preponderance of expectation of a 25 basis point cut in the funds rate?",58
-fomc-corpus,1992,"The foreign exchange market, yes.",7
-fomc-corpus,1992,"I was just going to ask you this: To the extent one can reconcile that with the question Ed Boehne raised on your point regarding concern about a potential break away on the down side, is the market seeing that as a factor that might lead to this break away? Is that a factor they see that might or might not lead to this?",70
-fomc-corpus,1992,"No. It could happen, but my judgment is that the highly expected 25 basis point easing in the funds rate would not do much of anything in the foreign exchange market.",35
-fomc-corpus,1992,President Parry.,4
-fomc-corpus,1992,"How effective have the Germans been in sterilizing? I think short-term rates have come down a fair amount, which would suggest that they have [not completed the sterilization]",35
-fomc-corpus,1992,They definitely don't have all of these operations sterilized yet; I don't have a good feel of what would be a reasonable percentage.,26
-fomc-corpus,1992,"In many respects, given the magnitudes that Bill described, which are unprecedented in terms of anything I've heard of [unintelligible], I think they have been remarkably successful--so remarkably successful in fact that they had already put the markets back in a position in which they were net short of funds at the end of the maintenance period last week, which is one of the ways the Germans were able to stabilize the situation. In talking to people at the Bundesbank--though every person one talks to probably would give a different answer on that question--my impression is that at a very technical level they have been able to force some changes in their own operating procedures, but nothing like the price system to [unintelligible] instruments. But they have been quite successful in the first round. However, there's a big dispute within the Bundesbank that goes back decades about whether one can fully sterilize any of these operations. The only way I could understand it is that if you have large capital flows, it is not clear that you could return the liability side of the central bank's balance sheet to its status quo ante. But it's not clear with that and the same interest rates that you have changes in the demand for money that will give you different money supply numbers, a change in the multipliers, or whatever you want to call it. There's a lot of dispute within the Bundesbank itself about whether one can truly sterilize the [effect on the] money supply. That's at a different level, I think.",304
-fomc-corpus,1992,Thank you.,3
-fomc-corpus,1992,"Any further questions for Bill? If not, would somebody like to move to ratify the actions taken by the Desk since the last meeting?",28
-fomc-corpus,1992,I move it.,4
-fomc-corpus,1992,Second.,2
-fomc-corpus,1992,"Without objection. Bill, would you introduce Joan Lovett officially?",13
-fomc-corpus,1992,"Thank you, Mr. Chairman. There are two things I've learned by this the fourth business day of responsibility for the Open Market Desk, judging from the first three days: Deciding exactly how to go about adding or subtracting reserves and in what amount is a lot tougher than I think anybody, especially me, realized.",64
-fomc-corpus,1992,Arithmetic is a pretty rough activity!,7
-fomc-corpus,1992,"It has been an interesting baptism. The smartest thing I could possibly do was not to fake it for the whole period and, therefore, Joan Lovett will give the report.",35
-fomc-corpus,1992,Go ahead. Welcome.,5
-fomc-corpus,1992,"Thank you, Mr. Chairman; thank you, Bill. [Statement--see Appendix.]",18
-fomc-corpus,1992,The bond market was about 1/4 point lower this morning and I think the bill rate is up about 3 or 4 basis points. Is there any commentary around as to what this type of mood is suggesting?,45
-fomc-corpus,1992,This morning?,3
-fomc-corpus,1992,Yes.,2
-fomc-corpus,1992,"The early read we got was that a technical adjustment had been taking place in the market yesterday afternoon as the stock market recovered from its lows. And with the world stock market this morning also tending to recover from the lows seen yesterday, there is just what one would call normal, technical position adjustments taking place. There didn't seem to be anything more fundamental than that at work.",74
-fomc-corpus,1992,President Melzer.,4
-fomc-corpus,1992,"Joan, I know this most recent reserve period started off with continued pressure on the funds rate. I don't know if that has continued into this week or not. Were you surprised by that? I know the quarter-end has passed and we may still have Treasury balance problems and so forth. How do you evaluate that?",64
-fomc-corpus,1992,"We were somewhat surprised. The quarter had finished on a firm note. We really thought that we had put in [enough] reserves and made an allowance for even higher-than-normal excess reserves for the quarter-end, but we had a very large miss. Therefore, the next morning, which was the beginning of this maintenance period, the funds market started out on the firm side; and sometimes that carries over. But I have to say we were surprised by the carryover firmness because it was the first day of the maintenance period and the banks had the whole remainder [of the period to adjust] and it was also prior to the time when there were widespread expectations that the Fed would be cutting the rate. So, we're having a very difficult time trying to understand why people would pay these higher rates so early on. The rates aren't consistent with the reserve numbers either. Reserves don't show [a need for us] to put in that volume of reserves. So, we've been surprised by it. The market hasn't been as surprised because they think the need is bigger than we are saying. This is one of those periods where right after the quarter-end the Treasury balances plummet because they have to pay out these social security [checks]. And the market, even though it knows that, thinks the need is bigger. So, the market hasn't been as surprised about the firmness of the funds rate as we have been. The firmness that we're hearing about is coming more or less from regional sources, and we just don't have a satisfactory explanation for it.",308
-fomc-corpus,1992,"The first couple of days were aggravated, as was the September 30th quarter-end, when Bank of America's computers went down about halfway through the day on Wednesday. And I believe, Bob, they didn't get them fully back up until yesterday.",49
-fomc-corpus,1992,Wells Fargo had a problem too.,8
-fomc-corpus,1992,"Well, I didn't know that. Bank of America is usually a pretty good size supplier of fed funds, so I think that was probably at least a marginal contributor. But it isn't the whole explanation of why funds have been quite as tight as they have been.",52
-fomc-corpus,1992,"It was also in the context, as I recall, of days when the bill rate was actually easing quite considerably.",23
-fomc-corpus,1992,The fact that the funds rate hasn't behaved quite the way it should has been largely ignored by the market thus far. It is seen as something that's technically driven at this point.,35
-fomc-corpus,1992,President Jordan.,3
-fomc-corpus,1992,"Do the traders look at any of the various measures of bank reserves, the monetary base, or monetary aggregates in forming their expectations about Fed actions?",29
-fomc-corpus,1992,"I guess I could answer that in two ways. They look at those kinds of aggregates broadly in terms of their impact on policy, but I think they see that impact as being somewhat removed. They look more closely at their estimates of reserve requirements as an operating factor that we have to contend with. And I think that's as close as their focus would go on that.",73
-fomc-corpus,1992,What would it take to get them to move away from focusing on the perception of a weak economy to looking at some kind of monetary indicator in determining what we do?,33
-fomc-corpus,1992,"Well, the market looks at what it thinks the Federal Reserve acts on; they feel reasonably confident that that is the thing to do. They don't see the monetary aggregates as being the driving force to policy right now. They find it very difficult to read what the aggregates are saying, and everything they read says the Committee does too. So, they don't tend to look at them that closely.",78
-fomc-corpus,1992,"So, at the moment, if miraculously M2 and M3 started to soar as in Germany and if Ml and the base plunged--again as in Germany--the Street wouldn't react to it as long as they thought we were going to react to unfolding real economic indicators?",56
-fomc-corpus,1992,"They don't ignore the money numbers by any stretch of the imagination; they do look at them. Some people are commenting a lot about the rapid growth of M1 being a harbinger of trouble, but others aren't. Some say one can't look at that because the Fed is looking at the broader aggregates. Nobody understands fully or positively what is going on here. If they thought we were going to be acting on it or if they thought we should be because the growth rates are out of historical experience, then they would respond to it.",107
-fomc-corpus,1992,"One more question: How do you reconcile the perception that in the long run we have big problems--fiscal stimulus, inflation, and all of that--with the constant drumbeat of the need for us to ease because of weak economic conditions? What is it they want us to do? Do they want us [unintelligible] or don't they?",72
-fomc-corpus,1992,"I think the attention span of most people who trade securities is relatively short. [Laughter] The big thinkers have tomorrow in mind! Seriously, one of the things that makes them think that way is that their bonus systems are based on thinking for rather quick gratification rather than longer term. Going back to your earlier question, in most of the firms the Fed watchers have become much less important than the traders. And the traders very much look at psychology; they're getting more and more married to the black box which says that the past is the mirror of the future. So it has changed a great deal from the period when the Fed watchers and the economists in the big trading firms were really quite powerful. I think there would have to be an extended period of this [unintelligible] off to concentrate on the monetary variables for a change to take place because the firms would have to recast their own internal structures and to whom they listen.",188
-fomc-corpus,1992,"But that dichotomy suggests that it's not necessarily inconsistent, given what is going on there, for the perception to be simultaneously that we're too tight and that we need to ease and we're in the process of inflating.",43
-fomc-corpus,1992,Right.,2
-fomc-corpus,1992,Exactly.,2
-fomc-corpus,1992,Then we'll have to tighten later.,7
-fomc-corpus,1992,Right.,2
-fomc-corpus,1992,"I take that back. I think we've had something of a contradiction in this whole episode of an upward sloped yield curve which suggests that at some point--[unintelligible] through liquidity premiums or whatnot--rates would have to come back up again and [given the] immediate expectations of consumers or constant disappointment with how the economy is turning out, the Fed will ease. So, I don't think there is anything new. If anything has happened over the last three or four months, it's that the middle part of the yield curve--the one, two, and three-year part--has really come down quite a bit, particularly after the June employment report. So, a sense of when the rates would have to go up has been pushed out [in time].",155
-fomc-corpus,1992,"I'm sure I shouldn't read this and I don't have his permission, but I insist. This is a Corrigan-gram which says we could put Bill and Joan on the road. [Laughter]",40
-fomc-corpus,1992,I don't know what that means! [Laughter],11
-fomc-corpus,1992,"At whose expense, right?",6
-fomc-corpus,1992,I think we'd like to discuss that Corrigan-gram!,12
-fomc-corpus,1992,"Are there any further questions? If not, I think we have to get the ratification very quickly. Would somebody like to move the ratification?",30
-fomc-corpus,1992,Move it.,3
-fomc-corpus,1992,Second.,2
-fomc-corpus,1992,Without objection. Let's move on now to Messrs. Prell and Truman.,16
-fomc-corpus,1992,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1992,[Statement--see Appendix.],6
-fomc-corpus,1992,Questions for either?,4
-fomc-corpus,1992,"Mike, would you elaborate some on your comment about going from 3 percent to zero--and presumably we could [even] have a negative real [federal funds rate]. It's an article of faith for anybody who has taken one or certainly two economics classes that lower interest rates are going to be a positive [for] growth, and I'm not quarreling with that orthodoxy. But when one goes out and talks with people in the business community and consumers, one almost invariably runs into the view that lower rates are not the [solution]. If I probe that, an answer I frequently get is: ""If I thought interest rates were going to stay down, then lower rates would help. But if you lower interest rates now, I know you'll have to raise them a few months or a year down the road. Just knowing that rates are going to be down for a short period doesn't help me because I'm going to have to finance whatever I'm going to buy with this [loan] for 5 or 8 or 10 years."" I find increasingly that the view in the business community is at odds with what most of us have accepted as a good [economic] relationship. I wonder if you could help me through some of that.",249
-fomc-corpus,1992,"It's a difficult question. I think many people in different positions perceive the effects of changes in short-term rates differently. A retiree living on the proceeds of short-term deposits would not see an improvement coming from lower short-term rates. A business that has a heavy load of short-term floating rate debt or debt that rolls over frequently is going to achieve some significant improvements in the bottom line from the decline in interest costs. I think it is fair to say that some of the channels of positive influence from declining rates have been somewhat diminished in their effectiveness in the past couple of years because such sectors as commercial real estate are just so far out of kilter in terms of the fundamentals of supply and demand that making borrowing cheaper is not going to make new investments particularly profitable. It may enhance property values to some degree and diminish the write-downs that will occur, but we're not going to get quite the stimulus we would have in other circumstances. Similarly, to the extent that credit availability has been the problem for some classes of borrowers, a small reduction in rates probably is not going to make a very great difference. But there are a lot of borrowers for whom lower rates will make a considerable difference. I think we've seen that the decline in rates has significantly abetted the balance sheet restructuring process. I think lower rates have played a role in sustaining relatively high valuations in the stock market and probably have cushioned the falls in a variety of other asset values. We have not argued that modest changes in short-term rates are going to make a night and day difference, but if you feel that there is nothing else here to provide a great deal of push to the economy over the next few quarters, our assumption of a decline in long rates looms rather large as a factor in the projected acceleration. And the question becomes one of whether some easing of short rates is needed to facilitate that process. If people thought that the Fed was overdoing it and that the implication of the easing was that we would have significantly higher inflationary pressures down the road and that we wouldn't reverse course in a timely way, then we might not get the beneficial effects in the bond market. My sense is that unless the Fed went to 1 percent on the funds rate tomorrow--if the movement was gradual--that in the context of weak economic indicators we are more likely to get the ""too little too late"" complaint than we are the notion that we've overdone it and have shifted to a grossly inflationary posture. So, there are a lot of things to weigh here. But, as we suggested, I don't think we should ignore the fundamental notion that on balance easing probably does give us some stimulative effect. It's a very long answer.",541
-fomc-corpus,1992,Thanks.,2
-fomc-corpus,1992,"On this subject, do we have any evidence that the marginal propensity to spend out of interest income tends to rise as interest rates fall on the assumption that the [unintelligible] part of the standard of living of interest receivers is fixed?",49
-fomc-corpus,1992,"I'm confident that we don't have any evidence to support that but no evidence to counter it either. It's hard enough to discern a general phenomenon of a lower propensity to spend out of interest income in general. They refine it to that point. I don't know that anyone has even endeavored to do that. By postwar standards this is rather an extraordinary episode in terms of the dimension of the decline in interest income, partly because we started the rate decline early and there's a lag effect here as instruments roll over. I'm not sure we have a great historical sample from which to try to discern those [relationships].",120
-fomc-corpus,1992,"As a response on that, I don't think there is any empirical evidence about the people who already are living on interest income, but I've been testing the attitudes--this is all purely anecdotal--of people who are not yet at that stage. Bankers tell me that their customers who are looking ahead to retirement have a threshold in mind of interest income they're going to need. And what they've been doing is raising the amount of assets they feel they need in order to achieve their desired interest income as we move to a lower rate structure.",107
-fomc-corpus,1992,This is the income-to-price effect. We have the classic question here about how interest rates will affect consumption and savings.,24
-fomc-corpus,1992,Are you saying that they're moving out on the interest rate maturity curve for a higher yield?,18
-fomc-corpus,1992,"No, they're just raising the amount of assets that they feel they need to set aside.",18
-fomc-corpus,1992,Their target is trying to get current income.,9
-fomc-corpus,1992,I'm sure it's more than they have.,8
-fomc-corpus,1992,President Parry.,4
-fomc-corpus,1992,"Mike, relative to previous forecasts, this forecast seems to get started a bit later and when we get to the faster growth it's not quite as strong, at least in 1993, as it was before. Would you characterize this as an indication of greater uncertainty on your part as to the strength of the economy, both short and long term?",69
-fomc-corpus,1992,"Well, I suppose we ought to be more uncertain [given that] we have been disappointed in our prior thinking, but I don't conceive of it as more uncertain, though it's still very uncertain. I think the risks are reasonably balanced at this point. One might argue that we have tipped the scales in a more negative direction by taking the position we have on productivity, in a sense making the personal saving rate more directly a function of what is going on in the labor market. But I think this forecast is no more certain in the end than our prior forecast was. We've been less than confident for some time now about what was going on.",128
-fomc-corpus,1992,"I would ask Ted a question as well. The import numbers are really quite strong; I guess that's attributed to computers. If one looks at the normal relationship between an economy exhibiting the characteristics that we currently see, isn't this really an extraordinary increase in imports given what we see for [unintelligible]?",61
-fomc-corpus,1992,"I think most of the surprises are in the computer area. If you strip out computers and look at nominal imports, our standard equations are not--",29
-fomc-corpus,1992,Doing too well?,4
-fomc-corpus,1992,"--doing any worse than they were before, if I may put it that way. So, when you take out computers, other imports have not gone up. The real surprise has been in computers which seems to be [a mystery]. First of all, no one has a good model about what drives computer imports at this stage. What seems to be going on is that there are a lot of applications with more power, but they are at the low end of the technological scale and that's where we are relatively import intensive. At the higher end of the technological scale we are export intensive. As a result we have a situation in which the computer trade balance is reversed. And even assuming exports and imports now grow at the same rate, we would have a widening of that gap.",155
-fomc-corpus,1992,Do people in the industry feel as though this is going to continue for some period?,17
-fomc-corpus,1992,"We cooperate with R&S on this, and our sense from contacts we had after the Greenbook went to print was that the very rapid rate that we already had in the forecast might underestimate what is going on.",42
-fomc-corpus,1992,Governor Lindsey.,3
-fomc-corpus,1992,"I'd like to ask Ted and Mike a statistical question. We know that the things we don't measure well are exports and imports. Anecdotally, when I was in San Francisco lately, I was on the Fisherman's Wharf on a Sunday and I heard German, I heard French, and I heard lots and lots of Japanese. When I'm on an airplane, I'm one of the few Americans in the first class section. Howard Banks just wrote a piece saying it was cheaper for a Brit to spend a long weekend in New York than a long weekend in Paris. We have all this anecdotal evidence. An expression I heard that sums it up best is: ""We've become the world's Wal-Mart."" Now, with all these tourists packing their suitcases full of Gucci and whatever else they buy on Fifth Avenue, isn't it possible that we are seeing a miscalculation of the effect of the dollar and that a lot of what we're picking up as consumption might actually be exports?",194
-fomc-corpus,1992,"That certainly is possible, though I will make two comments. One is that over the last decade the Commerce Department has dramatically improved its collection of data in this area. Moreover, we do see a dramatic upward trend in our exports of services of all kinds. Now, the question you're asking basically is whether we're picking up as much of it as we should be. The answer may be that the statistical system probably is lagging behind somewhat. That's one of the reasons why, as I commented at the end [of my remarks], the services component of exports of goods and services is growing in the forecast even while the goods side of it is shrinking.",129
-fomc-corpus,1992,"Your question raises an interesting issue about the consumption behavior that we've observed because consumption has not been stronger than one might have expected given the usual determinants. So, that would suggest it has been running fundamentally even weaker if this phenomenon is--",46
-fomc-corpus,1992,Right. But if our fundamental domestic economy is weaker than we think but the dollar is having a bigger effect than we think--,25
-fomc-corpus,1992,"As I said, I think it is unappreciated that, as opposed to the 1970s, one of the big impacts of the weaker dollar--not where it has been but where it has gone--has been the income effect as growth picked up in the rest of the world.",60
-fomc-corpus,1992,Right.,2
-fomc-corpus,1992,"Income differentials are less so that foreign travel, which is generally a luxury good anyhow, is cheaper and easier for people to do. So, there are two things together: Coming to see the Grand Canyon or Fisherman's Wharf or whatever is a big deal and it's cheaper and easier, and it affects the--",62
-fomc-corpus,1992,"It's true that it affects the net export position and personal consumption expenditures, but it does not affect the current account.",23
-fomc-corpus,1992,Right.,2
-fomc-corpus,1992,"It appears in a different line of the current account and, as far as the total system is concerned, it clearly doesn't matter.",26
-fomc-corpus,1992,"It does affect the GNP, I think.",10
-fomc-corpus,1992,"[It does] affect the GNP, but it doesn't affect the current account balance.",18
-fomc-corpus,1992,Right.,2
-fomc-corpus,1992,It is in the services area.,7
-fomc-corpus,1992,"If it's accurately measured, it's in the services area.",11
-fomc-corpus,1992,Not if they buy the goods that are in their suitcases.,13
-fomc-corpus,1992,They're not making the distinction of whether it's a U.S. purchase or a German purchase.,18
-fomc-corpus,1992,Not in that sense; it is put together with increases in U.S. net exports.,18
-fomc-corpus,1992,Right.,2
-fomc-corpus,1992,"We also have the same problem with direct foreign investment. If somebody came and dismantled an office tower in Los Angeles and moved it brick-by-brick abroad, we'd consider that an export.",38
-fomc-corpus,1992,It's a good idea!,5
-fomc-corpus,1992,We should probably do that!,6
-fomc-corpus,1992,President Melzer.,4
-fomc-corpus,1992,"Ted, maybe I read too much into your comments, but you seem to take some comfort in the fact that the dollar is up on a trade-weighted exchange basis something like 1-1/2 percent over the intermeeting period and maybe 4-1/2 percent from the lows. I must say I don't share that [view]. The reason is that when one looks at how we've done against the other two principal reserve currencies, the DM and the yen, [the dollar is] down significantly and at historical lows. I'm concerned that in a period of international turmoil we're really not providing much of an option in terms of a safe haven, and I think we ought to take note of that. I don't know what your reaction to that is. I would have expected that we would have provided more of an option and that in fact maybe we were part of the problem rather than the solution. So, I just don't take that much comfort in looking at the broad trade-weighted exchange rate.",201
-fomc-corpus,1992,"I take your point; I actually was trying to have it both ways, if I may put it that way. It depends on what question you're asking. I would separate it into two parts. One relates to what has been going on with respect to the yen, where the dollar has been weaker. But given the size of the Japanese current account surplus, it's difficult to imagine that the dollar isn't going to have to move down against the yen at least in the near term. It is difficult to believe anything else is right for that particular problem. On the European side, the normal historical pattern back in the 1980s when we had more frequent realignments in the EMS and ERM was for the dollar basically to be unchanged on average following [the realignments] because the mark was going up and the franc was going down. The market in some sense is simply thinking in terms of competitiveness. They had the dollar unchanged. And the fact that the dollar has come up on average in the face of all this is something that should be noted because, among other reasons, in terms of thinking about the outlook it is a real appreciation and it has a damping effect. It comes back to this question of how we live in this new ERM [era]. They jumped in the canoe and we have for some period questioned whether they would toss us into the lake. So, I think it is not irrelevant that the dollar is down relative to its level at the time of the last FOMC meeting by 3 or 4 pfennigs against the mark but up 3 or 4 pfennigs from the low of 138. So, in that sense we have a bit to go; there is a cushion there, it seems to me, before we really are breaking new territory on the part of the European currencies. I would put the yen on the side. But, the important point that you're emphasizing--and I agree with it--is that the markets, as we saw yesterday, seem to be extraordinarily jittery. One needs to recognize that fact. And whether this is the right time to log another action, which may or may not be fully discounted in the markets, I think is a question.",447
-fomc-corpus,1992,Governor Mullins.,4
-fomc-corpus,1992,"On this issue, just a word on the perspective of the dollar being weak. Some have suggested that it has held its value pretty well against commodities, but that's not really my area.",37
-fomc-corpus,1992,I'm glad to have you contribute your part to that!,11
-fomc-corpus,1992,We're running out of candidates for engines to pull the economy out of this. One which reappears--you mentioned it and it is one of the few pluses in the outlook--is the prospect that the long bond rate might fall another 75 basis points or so as we move through next year. Supposing in the post-election period it became fairly obvious that the prospects of a large fiscal package were quite high. How would that be reflected in the long bond rate in the forecast?,98
-fomc-corpus,1992,I guess the simple answer would be that we don't have that in our forecast. There could be a tradeoff between the direct effects of lower taxes on income or higher expenditures on activity that would eliminate the need and probably tend to elevate long rates relative to what they are in our scenario.,57
-fomc-corpus,1992,"Indeed, last year during the first-quarter debate [on fiscal packages] the long bond went up 60 basis points.",24
-fomc-corpus,1992,"Yes. It's an open question, of course, whether rates are now higher than they would otherwise be if there were not already considerable concern about the possibility of some significant enhancement in the size of the budget deficit. So, it's a little [hard] to sort out what the effects would be; but I can envision circumstances, as you're suggesting, in which the bond markets would be adversely affected at least temporarily.",82
-fomc-corpus,1992,Or at least we wouldn't get the 75 basis points decline; rates would stay constant.,18
-fomc-corpus,1992,"I can't say that we have a lot of company in this projection. There are some other forecasters who are looking for that kind of rate effect, but it is clearly not what is built into the market structure at this point. There are always uncertainties about liquidity premiums in the term structure, but I don't think it's built into the market now nor is it necessarily clear that the forecasters generally are talking about this. But it's interesting, I might note, that most private forecasters are anticipating flat or maybe even a slight upward tilt to long rates over the coming year or so. A growth forecast of the dimensions we're showing here is also quite [common] so they're in essence saying that [a decline in long rates] isn't essential. We're taking a bit more negative view of what the underlying strength of demand will be ex any effective fiscal stimulus, post-election surge in sentiment, or something.",178
-fomc-corpus,1992,Don't you think the other forecasters will catch up in a few weeks once they grind through all the latest data?,23
-fomc-corpus,1992,"Possibly; it's hard to say. Even before the employment report last week, having much the same information as we had, I sensed more positive expectations than we had. For example, I attended a meeting of the technical [consultants] of the Business Council last Tuesday and the prevailing forecast--there was a slight lag in this, admittedly--was for growth more around 3 percent without interest rate declines and without a general expectation of significant fiscal stimulus.",91
-fomc-corpus,1992,Three percent for 1993?,7
-fomc-corpus,1992,For 1993.,5
-fomc-corpus,1992,President Forrestal.,4
-fomc-corpus,1992,"Thank you. Ted Truman already answered my question, Mr. Chairman.",14
-fomc-corpus,1992,President Hoenig.,4
-fomc-corpus,1992,"Mike, I'd like to follow up on Ed Boehne's question. If I understood you correctly, you were saying that within the context of having provided a fair amount of liquidity for the readjustment, you are expecting things to improve down the road next year and beyond based on where rates have already fallen. But if the improvement doesn't happen, you suggested toward the end of your comments that we might have to make substantial reductions in rates to move the economy along. Having said that, is your discussion about a modest reduction now an insurance policy on the rates that have already come down or did I misunderstand you?",123
-fomc-corpus,1992,"Well, I guess it could be viewed that way in the context of a prevailing expectation now that some small amount of easing is going to be occurring, which might have a little negative effect on bond yields if the market were disappointed, all other things equal. Basically, as we were putting this forecast together, my sense was that given the behavior of the Committee what we were forecasting seemed highly probable and that, unless you switched gears, some slight further easing would be consistent behavior. We did not assume anything that we felt was really material to the basic thrust of the forecast. As we indicated, we are thinking only of a small fractional further decline in the funds rate as being in the range that underlies this forecast. If our story is right, most of the decline in long rates that we have projected would occur even if the funds rate were held at 3 percent. But that's a conjecture. Basically what I said in my briefing was that we have the expansion beginning to pick up gradually fairly soon. If something is wrong in our analysis, the only logical conclusion we could draw in terms of policy implications is that more needs to be done if you want to do at least as well if not better than the forecast. We're falling short of what the Committee's expectations were for economic activity as it stands, so that was the conclusion we reached.",269
-fomc-corpus,1992,Governor Kelley.,3
-fomc-corpus,1992,"Mike, returning for just a moment to the discussion a few minutes ago about how we measure things: There have been some comments around here recently about the possibility that our inflation measurements may in fact be lagging the reality. Could you comment on that?",50
-fomc-corpus,1992,"Well, I don't have anything new to add. As we've noted in the past, there is possibly some measurement bias toward higher inflation than in truth is occurring. That probably has prevailed for some time. It could conceivably be getting worse, but that's even harder to judge. The 1 to 1-1/2 percent inflation that I held out as a possibility sometime out toward the middle of the decade could be interpreted in light of the scientific evidence available as being essentially price stability. So, if I were at DRI, I would probably title this a price stability forecast. We are following a path very much akin to what we've outlined in the past. Dave Stockton and his colleagues in briefings to the FOMC have indicated possible paths to price stability; and inadvertently in terms of what our forecast have been, we've been on that unemployment path for the last couple of years and our forecast continues on that path in essence. We're on a gradual path back toward full employment in this forecast but it's far enough down the road that we'd be making a lot further progress on disinflation.",220
-fomc-corpus,1992,"If we may be meaningfully overstating the inflation rate, how does that play through to nominal GDP and real GDP?",24
-fomc-corpus,1992,"Well, nothing obvious on nominal GDP--there may be some tricks of measuring here that would have an effect--but real GDP presumably is being underestimated. But then so, too, is potential GDP in some sense. The benchmark I think you want to put an eye on here is capital resource utilization. The unemployment rate isn't affected by any of these measurement issues and it has been trending upward in this recovery. We expect it will be going up further, so there is room by that measure for the economy to grow faster; no matter how fast it is growing, it can grow faster than it has been.",121
-fomc-corpus,1992,"If all these things are happening, where it must be getting absorbed is in even higher productivity growth rates.",21
-fomc-corpus,1992,"Indeed, and that may go back a considerable ways into postwar history.",15
-fomc-corpus,1992,President Stern.,3
-fomc-corpus,1992,I'd like to go back to long-term interest rates one more time. You put a lot of emphasis on their decline. Is that--I just don't remember--a sharply different view than you've had before?,41
-fomc-corpus,1992,"There is no material change, for example, from the last forecast to this one in terms of the path for the long-term rate. Now, I think we've gradually come down over the past several forecasts. In 1992 basically long-term rates have followed the path we charted at the beginning of the year. It took a lot of short-term rate decline apparently [Laughter] and that is something that one might want to consider in terms of the prospects for achieving the further interest rate decline that we have forecast. Whether we would be where we are now if we had not had those cuts in short-term rates is difficult to say. On the one hand, we wouldn't have had the pull from those short rates punishing people who don't go out and invest at the long end. On the other hand, we probably would have reduced aggregate demand to some extent and lowered inflation expectations and tended to lower nominal bond yields. But we've been saying for some time that we expect the long rates to come down significantly over the forecast period.",206
-fomc-corpus,1992,President Syron.,4
-fomc-corpus,1992,"I want to ask Ted a question. I don't mean to try to put too fine a point on this, but it's just because I find today's discussions even more difficult than usual even though they're often very difficult. Ted, you mentioned the jitters in the markets. This links back to what Bill McDonough was talking about before. Do you see a difference in the jitters in the markets given their expectations of what we're going to do one way or the other? In other words, are the markets likely to become more or less jittery whether we act or don't act or is it pretty much center-weighted?",124
-fomc-corpus,1992,That's a very difficult question.,6
-fomc-corpus,1992,It's a very difficult situation.,6
-fomc-corpus,1992,"I think that's right. In some sense this is the position we were in at the beginning of September when we had the bad employment report. Do you disrupt the market more by disappointing it relative to its expectations or do you disrupt it more by giving it what it expects, assuming we have [assessed] the expectations right? We can guess, but our guess is not perfect. I'd just add one point from a rest-of-the-world perspective. It's one thing if we were just running our own situation. But one of the problems, which makes this a little different, is the uncertainty that has been generated by the European situation and the fact that that has not played itself out in all its political as well as economic dimensions. That does seem to me to add one small note of caution. I don't think it is decisive, but to the extent that Federal Reserve easing at this point disappoints Mr. Sapin again, he may have to cut off a few more heads [unintelligible] go forward. But I think that goes with the territory. That would be basically my response, but it is a possibility.",225
-fomc-corpus,1992,"May I correct something I said? While the interest rate decline going out to 1994 is essentially the same amount as before, in light of the weaker economy over the next few quarters we've moved that decline up in time somewhat. More of it occurs quickly. So, on this forecast we have somewhere between 1/4 to 1/2 point more decline by next spring than before; then the rate flattens out more as the economy picks up.",93
-fomc-corpus,1992,"If I could pick up on Ted's comment for just a moment: I think we have to recognize that the situation in Europe is still very unstable. So, something could happen in Europe whether we lower the fed funds rate here or don't lower the fed funds rate; it could have very little to do with what we do or don't do. But establishing that causality necessarily would be very difficult. I come to the conclusion that the foreign market does not inhibit the Committee from doing what it otherwise wishes to do.",102
-fomc-corpus,1992,That's precisely the answer. Thank you.,8
-fomc-corpus,1992,President McTeer.,5
-fomc-corpus,1992,"Well, speaking of what might or might not inhibit our activity, we've had several references this morning to the fact that expectations of further ease already seem to be built into both interest rates and foreign exchange rates. Yet we're within a month of the election and I thought it was conventional wisdom that we weren't expected to act so close to an election. But I never see any references to that anymore. Whatever happened to that?",83
-fomc-corpus,1992,"I've seen a few, but I think the more predominant notion is that the recent weakness in economic indicators just seems to make a compelling case in light of the past patterns of behavior of the Committee.",39
-fomc-corpus,1992,"It also isn't true. There are numerous examples of this Committee tightening within a month of an election, not just easing.",24
-fomc-corpus,1992,And given lags.,5
-fomc-corpus,1992,"Well, tightening doesn't affect our credibility the same way that easing might. We're usually accused of doing things to help the incumbent, I believe.",28
-fomc-corpus,1992,But it's a long lag.,6
-fomc-corpus,1992,Any further questions for either of these two gentlemen?,10
-fomc-corpus,1992,"I have a couple of questions for Mike involving quotes from the Greenbook. Some of this may already have been covered in the questions and responses but I'm still looking. I have two different questions, really. One is about the linkages, the model that you use in assessing the effects of policy on the outlook. That's still not clear to me. On page 23 in Section I of the Greenbook it says at the bottom of the first paragraph: ""The rise in short-term rates in 1994 is assumed necessary to prevent aggregate demand from gaining so much momentum that noninflationary levels of resource utilization are subsequently exceeded."" There's a gap in there but also an implied linkage from nominal interest rates to GNP, I suppose; you've already responded a little to that in your answer to Tom's question. Then the Greenbook says: ""Long-term rates are expected to edge down further as expectations of inflation continue to recede."" So, the long-term expected rate of inflation is somehow influenced by observed actual inflation. Now, all of this taken together implies that real short-term interest rates are rising even if nominal rates are not. But you're saying that the rise in real short-term rates is not sufficient in your framework to keep the economy on a noninflationary path and so you need an increase in nominal rates as well as real rates since obviously inflationary expectations are coming down and real rates are rising.",284
-fomc-corpus,1992,"We in essence have the real short-term rate moving back toward what might be regarded as more the equilibrium level in the longer run as we use up some of the slack in the economy to insure that aggregate demand doesn't overshoot a disinflation path. Our assumption is that we have reached further in the direction of relatively low real short-term rates, below what would be sustainable in the long haul. We have it coming back up some. Another factor in this is that we are getting some extra retardation in a sense in the financial sphere now from the credit crunch and other experiences in the financial system. As those ease, some adjustment in the nominal market and real market rates would be called for in order to exert adequate restraint on aggregate demand.",148
-fomc-corpus,1992,Meaning further increases in real rates; the natural increase is not enough and you need further increases in real rates in your framework. But it also depends on a linkage between nominal interest rates and nominal spending.,40
-fomc-corpus,1992,"Well, we're thinking of this more in terms of a link from real interest rates to spending decisions. And there's a whole dynamic here of activity and resource utilization and inflation; the inflation results do affect expectations about future inflation. That gets built into the bond yields and so on.",55
-fomc-corpus,1992,"Well, I know you have said that in your presentations from previous months and in the arguments I have listened to about inflation expectations, the inflation [component] in the long rates, and what's coming down based on experience. But when I talk to business leaders and people in small and large businesses regarding their inflation forecasts, or look at the Michigan Survey or [that of the National Association of] Business Economists they have this persistent 4 to 5 percent inflation range or higher. No one mentions the gap between current [and potential] output or the unemployment rate. If they mention anything at all, they mention the budget deficit or they say: ""I don't know, but that's what always happens--inflation goes up."" But you are in effect saying that inflation expectations are going to come down, bringing long-term interest rates down in spite of these perceptions, [and] that eventually experience with lower prices grudgingly will dominate their view about [the effects of] fiscal impulses on inflation.",199
-fomc-corpus,1992,"But I think it's not a sustainable relationship here to have inflation running at 2 or 3 percent and inflation expectations remaining at 4 or 5 percent. Something has to give: Either those inflation expectations will prove such a serious impediment to lower wage agreements and provide some momentum somewhere in the price system that we won't get the disinflation we have [forecast] or, as experience builds that the norm is not the 5 or 6 percent inflation we've experienced over the last two decades but 3 percent or 2 percent, there's going to be an adjustment. The experience to date suggests that the brute force effect of slack in the system has been able to overcome any stickiness in this inflation expectation that's evident in the consumer surveys or even many professional economists forecasts. Indeed, we pointed out over the past year that it didn't appear that the private economists were generally expecting inflation to come down further in the latter part of this year or 1993. I've seen a shift in that. I think there is more movement in our direction. We're still a bit ahead of the average in our expectation about the disinflation progress, but there is a change. Some of you have noted that businessmen increasingly are thinking that they are going to have to do their planning in a pricing environment that is going to be more consistent with lower inflation.",268
-fomc-corpus,1992,"But in this transition until the expectations of private decisionmakers come into line with where we think policies are taking inflation, we do have these very substantial transition costs on the economy. Does all of this suggest that you're not relying on any version of the P* model anymore in forming your inflation outlook?",59
-fomc-corpus,1992,"Well, I will confess that we never did, [at least] on the straight P* form--though there are elements of the P* model that are very much consistent with our models. That is, the output gap there is the critical lever in lowering inflation, and that is equivalent to the aggregate model we're using. Obviously, the money growth numbers don't argue against our forecast; they argue for an even more rapid deceleration of prices. And if you believe that money is behaving in a normal way, then I guess you'd want to argue that we grossly [over]stated where the inflation rate is going to be in 1993-94.",133
-fomc-corpus,1992,"Any further questions? If not, who would like to start the Committee's discussion? Bob Parry.",21
-fomc-corpus,1992,"Mr. Chairman, economic weakness persists in most of the Twelfth District and it may have intensified since our last meeting. District-wide employment fell in August at a 4.6 percent annual rate, led by weakness in construction and manufacturing. Job losses have been most severe in California, where employment fell at a 6.2 percent annual rate in August and at a 2.1 percent rate in September, bringing employment in the state of California to a new cyclical low. Other District states also are beginning to show some signs of weakness. Previously robust growth in Idaho and Utah has [waned], with employment declining on balance since February. Cutbacks in aerospace production are affecting Washington, and the lumber and wood products business is contracting in Oregon in large part due to environmental restrictions. Both business contacts and statistical indicators of District activity give little evidence of renewed economic growth. The outlook for California is of particular concern. Already announced cutbacks in aerospace, defense, and state and local government, together with an overhang in commercial real estate, suggest weakness could persist well into 1993. Turning to the national economy, our forecast is quite similar to that of the Greenbook. I would characterize our forecast as one in which the pickup in the economy, instead of being just around the corner, appears to be just around the corner and well down the block. In addition, once economic activity gets to that point it doesn't seem to be quite as robust as we had it before. That development produces greater uncertainty at least on my part. That combined with what appear to be better inflation rates in the offing suggests that a policy move at this time would be appropriate.",334
-fomc-corpus,1992,Governor Angell.,4
-fomc-corpus,1992,"There seems to be little disagreement in the views that I expect to hear as the go-around continues and the staff forecast. It does not seem to me likely that the economy is going to be substantially stronger than the forecast. Since I anticipate so much agreement in regard to the current state of the economy, it seems to me it would be well for us to continue the earlier discussion, which involved assessing how well monetary policy is working to accomplish any impact upon the real economy. Now, I for one have more confidence, I think, in Mike Prell's forecast than maybe he does.",117
-fomc-corpus,1992,You might think about whether it makes sense!,9
-fomc-corpus,1992,"My confidence is based upon the fact that he has produced consistently biased errors in one direction over the last three years. That seems to me entirely likely if you have someone who has some motive other than getting the forecast right or if the model is defective. And it seems to me it's time for us to examine more carefully the model that produced such biased errors. Let me go back to the Humphrey-Hawkins period and the July FOMC meeting: I think the pickup in M2 growth in August and September to a very slight 3 percent rate was due more to the declines in intermediate rates, which were almost unprecedented, following the Humphrey-Hawkins testimony in July. We had dramatic declines in two-year, three-year, five-year, seven-year, and ten-year Treasury rates, and that seems to me to account for the rise in M2. Now, I would hold that lower fed funds rates under some conditions may well reduce aggregate demand and that under some conditions lowering the fed funds rate may very well cause intermediate rates to rise. Under those circumstances it seems to me that M2 will grow more slowly rather than more rapidly and we will then end up with unintended consequences. But to me the most important point is not necessarily to look at the [transmission] mechanism through the fed funds rate on M2 but to look at it in terms of its impact upon household balance sheets and on household income statements. I believe it's time for us to devote a great deal of attention to the question of the duration of household assets and the duration of household liabilities. If households have taken [on] a huge interest rate debt and if the duration of household assets were conditioned by a period of rising interest rates or an expectation that interest rates would rise again and if households then are holding very short duration assets, under those conditions a fall in the fed funds rate is going to result in a substantial reduction in household income. Now, I do not know what the duration of household assets might be by looking at their flow-of-funds. I don't know whether anyone knows what that duration might be. What I'm suggesting is that there may be some conditions under which lowering the fed funds rate is not going to work the way we'd anticipate. Since we have watched the fed funds rate come down from 9.90 percent to 3 percent--that's 690 basis points--and it has had less than the intended effect upon credit and upon spending, then it seems very appropriate for us to look again at this model. Now I'm going to live a little dangerously: I think I disagree with Bill McDonough's comment that the foreign exchange market does not in a sense have an implication for our domestic monetary decisions. I would agree that a reserve currency country does not take its cues from trying to follow somebody else's exchange rate. But it seems to me that the dramatic fall in intermediate interest rates in July and August put the spot foreign exchange value of the dollar on a downward course, unless the implied forward rate of the dollar were rising faster than those rates were falling. So, we have to ask ourselves then: What will happen if we reduce the fed funds rate at a time when the foreign exchange value of the dollar may be at a precarious point? It seems to me that making a fed funds rate move might very well feed into a weaker dollar. I think all of us must understand that we have a very exploding global money market condition; we have almost pure competition in this market--not perfect because information is catching up--but it's exploding also. So, with this very perfected money market that is global, we have to look at the feedback loops that possibly exist between the fed funds rate and its impact upon the weaker dollar and its subsequent impact, which could very well cause intermediate rates to rise. Indeed, if the implied forward exchange rate is to remain constant, then under those circumstances lowering the fed funds rate [and] lowering the two-year Treasury rate, has to raise the implied forward rate at years 9 and 10; otherwise we're going to be out of adjustment on the forward rates. So., I believe we're in a precarious place here. One of the good things we have going for us in an economy that needs growth is that the U.S. equity market has not yet taken a tumble. But I think most are very leery concerning where we are here. My assessment, then, of our current economic condition is that it is a global-money capital-market-driven relationship. We have gone a long way. And I am not optimistic about the impact of lowering the fed funds rate at this point in time in terms of stimulating economic growth. Now, if we are willing to make our fed funds rate moves based upon price level targeting and if everyone knows that's the basis upon which we're making our moves, then it seems to me that under those circumstances we could very well expect in the future that lower fed funds rates will provide us more bang for the buck. So, I'm in a mode of saying that there may be lower fed funds rates out there that will be helpful in the future if we are on the path that Mike Prell has suggested toward price level stability. But the question for us is: How do we get the most bang for the buck?",1055
-fomc-corpus,1992,President Black.,3
-fomc-corpus,1992,"The latest national reports--especially that of the National Association of Purchasing Managers, the employment figures, and the downturn in consumer expectations--have been very disheartening to say the least. In light of those reports, I think the staff was correct in lowering its projection; what they've done seems pretty reasonable to me. But I don't think anybody really understands why we are getting this persistent weakness in the economy. In such a case it looks to me as if the risks of error on any kind of forecast are very high indeed. I would be more hesitant to guess which way the risks of error might lie in this particular period of time. I do take a small measure of comfort in the most recent information we have gotten from around our District. The economic picture may not be as bleak as suggested by the national data; some of the District information is [more current]. For example, reports of our directors at the September meeting certainly did nothing to suggest that there would be any further decline in business activity in their view in our District. The same is true of the reports that we got in our regular survey of manufacturers and retailers. In fact, that survey actually suggested a slight improvement in a number of areas such as retail sales, manufacturing, business sentiment, and residential real estate. And I think the recent growth in bank credit and money also presents at least a ray of hope about the future. Indications that loans are now more available, as reported in the Greenbook, are pretty well consistent with what we are hearing in our District through anecdotal information. While the 3 percent rate of growth in M2 in August and September is lower than I would like to see at this point, it's a big improvement over the negative rates of growth that we had for the previous five months. I hope this could be the beginning of some sustained period of higher growth. Insofar as the inflation forecast is concerned, as you know, the Greenbook is showing a decline in the CPI down to a rate of about 2 percent by the end of 1994. That seems reasonable to me, given the sharp deceleration in money growth that we've had over the last several years. If we were to achieve this low inflation rate, however, then I think we have to be prepared if necessary to let the federal funds rate rise rather quickly when economic activity and the rate of growth of money do speed up, although I hope what Governor Angell described is really what will happen in that case. I'll return to this point later when we get to the policy discussion.",512
-fomc-corpus,1992,President Keehn.,4
-fomc-corpus,1992,"Mr. Chairman, conditions in the District have not changed that much since the last meeting. While the trends are somewhat mixed, I think on balance the overall rate of economic activity has moderated; and certainly attitudes have deteriorated further. The auto industry and all auto-related activities are weaker. Third-quarter sales were lower than the industry's earlier expectations and the sales forecasts for the fourth quarter have already been reduced and, I think, still may be on the high side. As a result, fourth-quarter production plans are steadily being reduced. At one point, the fourth-quarter schedules were significantly higher than last year--though last year was a weak comparative period--but by now they have been scaled back and are only about 4 percent over last year's level. Again, I think the production risk is on the down side. Farm equipment sales and manufacturing continue to deteriorate. The sales of major [farm equipment] units for the year through August are off 18 percent from last year and off 24 percent from two years ago. One major manufacturer has reduced its fourth-quarter production schedule again and is now planning fourth-quarter production that is 21 percent below last year. Other parts of the manufacturing sector in the District, however, continue to expand but, again, the growth rate has moderated. Orders for Class 8 trucks, the big trucks, are running some 25 percent over 1991. But in the last 30 days there has been a perceptible change in the attitude of major truck customers, and the manufacturers are now concerned that this [orders trend] might turn around quite quickly. Therefore, their confidence regarding the rest of this year, but more importantly for 1993, is not very strong. Medium truck sales, Class 6 and Class 7, are about level with 1991 and no improvement is expected. Offsetting this, though, housing activity in the District continues to show strength. New single-family home sales in the Midwest rose 15 percent in July and continued to climb in August. Home starts also were strong and that strength is carrying through to the manufacturers of building materials. In the retail area, sales continue to run about 6 to 8 percent ahead of last year. Customers, however, as I've commented before, are very, very price conscious. And retailers who import a good deal of their merchandise are continuing to have to raise prices to reflect the plunge in the dollar. Finally, in the agricultural sector, I think crop production is going to bring very good news. We're clearly going to have good crops--indeed, perhaps bumper crops--in both corn and soybeans. Prices are way down, but we're going to have very good production. In the inflation area--price pressures--the news continues to improve. Intense competitive conditions are continuing to restrain price increases and many manufacturers are holding the increased cost of their purchases to very, very minimum levels. In the case of a couple of large manufacturers, they have actually been able to accomplish reductions in their purchase prices on a year-over-year basis. But at this point inflation is just not an issue, certainly among the people I talk with, and they are growingly disturbed that they just can't get price increases to stick in the marketplace. In turn, they have worked [to hold down] their purchase prices, as I suggested. In the labor area, contracts continue to be settled on what I think are very favorable terms. In a national context, I find the overall economic outlook increasingly worrisome. [The economy has remained] a long time in this very steady state--I think perhaps too long--and there is a real risk at this point that [the expansion] will lose momentum. We continue to reduce our growth forecast and are now down to a point that the sustainability of even the current very moderate rate has to be open to question. In this environment, despite the policy easing moves that we have made, the risk of the economy taking off at such a rapid rate as to cause strong inflationary pressures seems pretty close to zero. But I think the risk that the economy could fall back into negative growth is very real and is increasing with the passage of time. Therefore, in a monetary policy context, I think we ought to move again as early as we have the opportunity to do so.",864
-fomc-corpus,1992,President Forrestal.,4
-fomc-corpus,1992,"Mr. Chairman, leaving aside the effects of Hurricane Andrew, conditions in the Sixth District appear to have stabilized in the last six weeks or so. That, of course, represents a change in our situation because, as you remember, I've been reporting for some time that we've had considerable deterioration in economic activity in the first half of the year, particularly on the employment side. I hasten to add that the improvements that we're seeing are very marginal in nature, although I would say that the outlook does seem a little better because the imbalances in our local economy are not quite as evident as they were at the beginning of the year. Looking at some particular sectors, residential real estate is expanding modestly and we're getting reports from realtors in several cities that they experienced higher sales of single-family houses in September. Rents appear to be firming in the District, although multifamily and commercial building rents are flat. Construction of industrial facilities is rising, basically because, interestingly, the vacancy rate in the industrial sector in our city is below that of the national market. We recently completed a survey of manufacturing plants and that survey shows some improvement in August, with more respondents reporting gains in production as well as in shipments compared to July and compared to a year earlier. On the other hand, the survey does show some softness in capital spending and expenditures; they are going to be confined apparently to productivity enhancements as opposed to plant expansion or expenditures on equipment. Our unemployment rate continues to be above the national average. In terms of individual states, Florida has been hit pretty hard, of course, not only by the hurricane but by defense cutbacks and very slow in-migration. Louisiana and Mississippi are being impacted adversely by weakness in the energy sector. Despite this poor employment situation, retail sales have increased modestly but I guess the [operative] word there is ""modestly."" We, too, Governor Lindsey, are seeing sharp increases in the number of foreign visitors to the District; that has been going on for some time but has accelerated with the weakness in the dollar. However, the recent hurricane in Florida has caused tourism to be off there not only in the impacted area but throughout the state as well. We see bookings off, for example, in Orlando where the hurricane didn't hit. As we noted in our special report on the hurricane, the District will at least temporarily be a beneficiary of the hurricane in the near term because of the concentration of industries throughout the District that are related to housing and construction. Finally, we see no inflationary pressures and no price pressures at all in the District. Looking at the national economy, like the Board staff, we've lowered our forecast of real GDP over the balance of this year and into 1993, although perhaps not by quite as much as the Board staff. On inflation we're pretty much the same in the near term. So, basically we're comfortable with the staff's forecast, although I don't feel very comfortable about any forecast these days and haven't for some time. It's difficult for me to see sources of improvement in the economy anywhere in the near term. The outlook for growth abroad has deteriorated steadily and certainly it's not being helped by the volatility in the foreign exchange markets and the recessionary trends in the economies of many of our trading partners. Of course, as we have talked about several times, we are seeing the restructuring of balance sheets both on the part of households and corporations, but it seems to me we have a long way to go. A continuation of that process is going to temper spending for some time longer, I think. From people that I talk with and from what I'm observing in the press, people are very concerned and very pessimistic about the state of the federal budget deficit. I think they are expecting tax increases to deal with that situation and that, too, is going to crimp incomes in the 1990s and beyond and certainly crimp spending. When I put all of that together, Mr. Chairman, it seems to me that the risk is very much on the down side; and we need to take that into account as we deal with monetary policy. While I have the floor, if I could go back to the hurricane for just a minute--though this is really a non-FOMC matter--I'd just very quickly like to say what I've already written to most if not all of you: The people in Miami and certainly we in the District appreciate tremendously the wonderful outpouring of support of all kinds that came from around the Federal Reserve System. If ever the family spirit of the System was evident, it certainly was in this period. So, we thank you very much.",931
-fomc-corpus,1992,President Boehne.,5
-fomc-corpus,1992,"Conditions in the Philadelphia District are mixed, but on the whole I think they've deteriorated some in recent weeks. The major source of that deterioration has been in manufacturing. Manufacturing was a source of some uplift to the District economy in the first part of the year, but in the last couple of months manufacturing activity has slowed and I think it has now become negative. Despite continuing employment declines, which have been sharper than for the nation as a whole, particularly in New Jersey, retail sales have held up fairly well. They are not great but they are probably running a little over a year ago. In the construction area, I have nothing to add; nonresidential construction continues to decline and [sentiment] is very sour. There is some improvement in residential construction. One of the additional changes, besides what is happening in manufacturing, is that while I would have summarized the condition of our banks until fairly recently as marginally bottoming out with some hints of improvement, I wouldn't be comfortable saying that now. I think more of our banks are deteriorating than improving. If we probe the bankers on that, we hear a number of reasons. For one, they say that a number of small and medium-size businesses that had held on through this period of slow growth are running out of string and are just dying. That is showing up in loan delinquencies and loan defaults. Some of the banks are able to cover [the resulting losses] because of their spreads; and they've lowered their other costs. But the deterioration is clearly showing up, and I think we're in for a period of some additional deterioration. Attitudes, I think, are worse than the underlying conditions. The Mason-Dixon line makes a big difference! Our September meeting was about as pessimistic in terms of director attitudes as I have seen, reflecting this cumulation of slowness and not much prospect of getting better. As with other Districts, inflation outside the health care industry and the regulated industries is largely a non-issue. It is just hard to make price increases stick. As far as the national economy goes, its growth is basically stagnating. I think we have about as much chance of getting some modest declines in growth as we have of modest increases. There just are no sustainable drivers. The employment-income-consumption dynamic is missing and it's very hard to see where we're going to get the thrust. Despite that, I have found this current period more difficult in thinking through monetary policy. I believe any of us sitting around the table, if we're at all objective, could come up with some good reasons to ease and some good reasons to stay where we are. I come down on the side that some good would come from some additional easing. So, I'm in the camp that thinks we ought to ease monetary policy--not that I think it will do great things but because I think at the margin it will be positive. Also, it's important that the Fed as an institution be viewed as doing whatever we reasonably can to help the economy get out of the swamp. Some additional easing in monetary policy would fall into the column of something we can do that is reasonable and I don't see a lot of downside risks in that.",640
-fomc-corpus,1992,"President Melzer. I'm sorry, President Syron.",11
-fomc-corpus,1992,I'll cede.,4
-fomc-corpus,1992,There's nothing to cede; it's just my mistake.,11
-fomc-corpus,1992,"I don't know if there's anything dramatically new in our District. What may be not dramatically new, consistent with what other people have said, is that there is a deepening disillusion and fear being reflected in consumption and other things. It's not panic, but fear is the word that unfortunately is [applicable] I think; I suppose [it reflects] regional problems; considering our employment is down 10-1/2 percent from the peak, that's not greatly surprising. Manufacturing over the period since the last FOMC has turned somewhat more sluggish. That's tied largely to the aircraft and the auto industries and to the problems we have that are endemic to the local computer industry and their competitive niche. Retailing is mixed. Value price retailers report some strength on mixed sales. Actually, an interesting phenomenon is that they're reporting a willingness to hold inventories longer, given the reduced costs to carry. But upscale retailers are reporting that sales are pretty poor. Auto sales are soft and that has gone on since the last period. The one sign of strength that we have seen is in the housing area for first-time home buyers--low-price houses are being built--but there has been a slowdown again in [sales of] upper price houses. Prices are very well behaved. We hear these stories about plywood prices--I'm sure everyone does-- and the pickup trucks heading down Route 495. As far as the U.S. economy goes, I find myself as usual in broad agreement with the Greenbook forecast. I'd quibble slightly with some elements of it. Given the employment information we have, for the output that is in the Greenbook I think we might have an even slightly higher unemployment rate. But I do believe the forecast itself is internally consistent. There are risks, obviously. We've been on the low growth path for quite a long period of time; and we don't know what shocks or episodes could come along and knock us off this path from one side to the other. We see some of that potentially happening and then reversing itself in the stock market. Also, I personally believe that there's a lot to this headwind argument--that this is a rebalancing of people's internal balance sheets. But it's very hard, even though we see improvement, to know what the new optimal balance sheet is that individuals and even corporations have in mind, given that many of them have been through a quite frightening period. At the end of the day, what this comes down to for me is that while many of us usually say we generally agree with the Greenbook and could be fairly comfortable with the outcome in the Greenbook, I have to say that I'm pretty uncomfortable with the outcome in this Greenbook. Looking at the third quarter next year, we still have an unemployment rate--and, as I say, mine would be slightly higher--that is hovering just below 8 percent and we haven't gone through 3 percent [GDP] growth. I think in its broadest terms this is just not going to be an acceptable outcome. Unfortunately, again repeating what other people have said, I just don't see the engines that are going to bring us away from this. So, I think we're in a very, very difficult position. I'm sure--""sure"" may be a little strong--that we will see some sort of fiscal package regardless of who wins [the election]. I don't think that's something that we should be weighing in our calculations, so we're in a very delicate position. My sympathy, like Ed Boehne's, lies with doing something more. The only thing that would dissuade me in that sympathy is a strong argument that the credibility of the organization would be hurt by our doing something close to an election. I personally have a lot of skepticism about that argument because we're so close now and the lags are [long], but it's something I think we should discuss a little in the general monetary policy discussion. Thank you.",786
-fomc-corpus,1992,President Stern.,3
-fomc-corpus,1992,"In the District there has been a discernable but I would say small improvement in activity since the last meeting. Consumer spending has improved a bit; residential construction and sales of residential units have picked up; forest products seem for the most part to be doing reasonably well, getting a little additional kick from the hurricane. It has been a good year for tourism both from domestic and foreign tourists. And unemployment rates in the District have continued for the most part to be well below the national average. Agriculture is mixed, depending on the weather. Perhaps the only real sign of weakness is in mining where some recent layoffs have occurred up on the iron range in northern Minnesota. Despite this further improvement, I'd say attitudes remain uniformly cautious. I wouldn't describe them as particularly discouraged, but people are cautious. I don't think anybody is expecting a sharp change for the better in economic activity. I came across the same sort of concern about interest rates that Ed Boehne expressed earlier. There does seem to be a view that interest rates are going to go back up, perhaps significantly, at some point in the not too distant future. I don't think it's tied to any expectations one way or the other about changes in monetary policy. I don't think it's tied, at least not very directly, to expectations about an acceleration of inflation. It may in some instances be tied to people's assessment of the budget. But it's mostly that people, in their business experience, view rates as unusually low today and they don't believe that these rates are going to be sustained. The analysis essentially stops there. It's basically a judgment about what is typical. With regard to the national economy, we are all emphasizing the very weak and disappointing statistics that we've received over the last month or six weeks. That is reflected in the forecast and I think that's fully understandable. On the other hand, if you go beyond the latest statistics--and, of course, we can't do anything about them--and look at the financial variables, if anything they look a little better. M2 growth has moved back into the positive range. Bank credit and business loans at commercial banks seem to have picked up a bit and we hear some anecdotes about greater availability and more aggressive searching for customers on the part of bankers and others. If we look at bank reserves or narrow money, we see very rapid growth, and I would say that this is something we need to keep an eye on as we go forward.",484
-fomc-corpus,1992,President Melzer.,4
-fomc-corpus,1992,"At the last meeting I reported that our picture, which had been generally positive on the employment front, had weakened a bit. That would be the case in the most recent period as well. We have modest declines in employment, more in manufacturing than nonmanufacturing. Earlier on, gains in nonmanufacturing were really offsetting the weakness in manufacturing. Notwithstanding those numbers, I have not detected any significant change in attitudes among directors and other people I talk with. Last week I was in two areas of our District that probably have never seen a recession, as a matter of fact. Many businessmen I talked to--these tend to be small and medium-sized businessmen--are reporting record years and yet they just feel lousy. Their complaints run to things like regulation, clean air, ABA, and things like that and the impact those things are having on them. There's a great deal of uncertainty or lack of confidence--I don't know how to describe it. It's just a not good feeling about where we're going or a lack of knowledge or confidence about where we're going. And that, I think, is really affecting people. I picked up the same thing we've heard from Ed and Gary: Very seldom does anybody say that additional interest rate cuts are going to help; in fact they say quite the opposite. On the banking side in the Eighth District, as I've commented from time-to-time, our numbers still are looking very good. We are outperforming our peers. We tend to look at banks of less than $15 billion and I guess the most significant point is that nonperforming loans are lower--about 1-1/2 percent versus almost 3 percent in the peer group--and charge-offs are half that of the peer group, maybe 1/2 of 1 percent versus 1 percent. I think that's the principal thing affecting results. So, all during this period I've perceived our banks to be in a position to extend credit and I've felt that demand has been the problem, not supply. We've seen modest growth in loan demand over the last year and that has continued in the most recent period. The most significant point is that it's across the board this time around. We've all read articles recently about the increase in [banks'] securities portfolios. Over the last year those have grown about 18 percent in our District but in the most recent quarter only 2 percent. So, I sense that what is going on--and I don't know whether it is a harbinger of things to come more broadly--is that with a healthy banking sector we are beginning to see a little more loan demand, which is being reflected not only in the loan growth but in much slower growth in holdings of investment securities. Probably, in terms of the aggregates, as demand picks up that will get reflected in M2. As you all know, the non-M1 components are really very weak--negative--and all the growth we're getting in M2 is from very rapid Ml growth. Commenting nationally, the one concern I have about Mike's forecast is the longer-run inflation outlook. I hope he's right. I have no quibbles with what inflation is likely to be next year and maybe well into 1994, but the lags here are very long. And one of the things I've commented on from time-to-time is this trend growth in Ml, which is a 3-year moving average. I don't think we can make short-term policy decisions based on the short-term behavior of Ml; but over longer periods of time it gives us some information on what the thrust of policy has been. From, say, late '86 or early '87 we had brought that trend growth down from 11 percent to roughly 3 percent. In early 1990 it moved up in a relatively short period of time to over 7 percent and, of course, M1 is growing at about 15 percent now. Again, I don't know that it has any relevance for decisions we'll be making today but longer term I worry about whether or not we're trading away some of that basis for lower inflation that we had created several years ago and that we're reaping the benefits of now. Just a couple of other comments, quickly. One has to do with market expectations and whether we should gratify them or not because they're there or whether that gives us room to move. I think we have to recognize that when this party comes to an end, whenever that is, it's going to be disruptive. In other words, we've had a long period of declining interest rates and human nature, being what it is, is going to anticipate more. That's just the way behavior in markets tends to work over time. So, whenever the time comes for us to say ""that's it,"" it's going to be difficult. I don't think that will ever be easy. The other general observation I would make is that I'm more sensitive about the risks in foreign exchange markets, [along the lines of] Governor Angell's comments, than what I've heard in general around the table. I just feel that that's a process; we learned this in the mid '80s. Monetary policy was very stimulative for a long period of time and the chickens really didn't come home to roost in the foreign exchange markets until '87 as a result of actions that were taken in '85 and '86. I think we all know from that experience that once they do, it's awfully hard to get them under control again. While it's easy to say that another 25 basis points may not engender any kind of crisis, if it ever did we would have one big problem on our hands.",1133
-fomc-corpus,1992,President McTeer.,5
-fomc-corpus,1992,"We haven't detected much difference in the Eleventh District economy from the last time I reported. We still have a positive but very flat growth trend. I believe it would put us in the top half of the Districts, though, or maybe even in the top third. Employment is still growing, largely because of government employment growth. Private sector employment growth is essentially flat; the employment growth we get is in fits and starts. The weakest sectors of the economy are energy and durable goods manufacturing. Residential construction has flattened a bit in recent months as well. The strong part of the economy, of course, is along the Mexican border, especially in retail sales. Governor Lindsey mentioned that this country may be in the process of becoming the world's Wal-Mart; ironically enough, that may apply to the Third World as well as the rest of the world. I learned this past week that McAllen, Texas, along the border, supposedly has the two most profitable Wal-Mart stores in the country. It has a mall with reportedly the highest sales per square foot of any mall in the United States. All along the border retail sales are higher than personal income. So, we are doing a lot of retailing to the Mexican customer there. Symbolically, although it's of no relevance to monetary policy, we just gained the headquarters of Southwestern Bell from St. Louis. They are moving their headquarters to San Antonio. One of the main reasons they gave for that move was to be closer to Mexico because of a joint venture they have going with the Mexican telephone company. I've been engaged in a series of eight meetings with bankers around the District to talk about various issues and see what is on their minds. Tomorrow will be the eighth of those. It was scheduled for a room in a hotel in San Antonio. We're being bumped from our room so that Presidents Bush and Salinas and Mr. Mulroney can sign the NAFTA agreement; we're going to be pushed down the hall from that little exercise. The mood of the bankers is very negative; they're focused almost exclusively on the regulatory burden and what is coming at them with this new FDICIA legislation. When you talk about a credit crunch with them, they associate that with supply constraints and they deny that there is any credit crunch when they [look at] it that way. They attribute the flatness in lending almost exclusively to weak demand for quality loans. On the other hand, in other conversations with them when we are talking about the regulatory burden, they seem to be saying that lending is flat in part because it has become much riskier to lend and a lot easier, and just as profitable these days, to invest in government securities. So, lending is still very flat in the Eleventh District after all this time of healing. I guess the lesson from that is that even after measures of bank health improve, and have been improving for a long time, it's still a long time before that results in additional lending. Most measures of health in banking in the Eleventh District have been improving for quite some time and now stand significantly above those in the rest of the country. If you look at the bank loan situation from the point of view of potential borrowers rather than from bankers, up until a few months ago they did believe that the credit crunch was more than weak quality-loan demand; they believed it was supply constraints from the banks. But there have been reports now for two or three months that that is changing. They are reporting that bankers are out there soliciting loan business to a much greater degree than they were previously. From the tone of meetings of our directors and small business advisory councils and others I'd say that the mood has deteriorated a little over the period since the last FOMC meeting. And based on what we all read in the press more than anything that has been happening locally, our reading of the national economy is that it is much worse off than the local economy. Also, we have no disagreement with the Greenbook forecast.",797
-fomc-corpus,1992,Governor LaWare.,4
-fomc-corpus,1992,"Mr. Chairman, I find the incoming statistics very disappointing, particularly industrial production, new orders, purchasing agents' reports, consumer attitudes, and housing starts. On the other hand, the monetary aggregates look somewhat healthier, or perhaps less sick is the right way to describe it. Bank credit apparently has begun to grow again, although certainly not ebulliently. Attitudes are being affected by media expectations of instantaneous increases in employment and decreases in unemployment to reflect what is going on in the economy. The predilection to dwell on gloom and doom is exemplified by the way they deal with headlines in any economic article. A good example is recent articles predicting masses of bank failures and estimates as high as $80 billion of assets in the banks that are due to fail over the next six months. They emphasize all of that instead of talking about the much stronger earnings and the much healthier capital ratios that are typical in the industry. The increasing uncertainty about our political future I think is a major factor here. With neither party candidate for president offering a credible program for dealing with the nation's problems, I'm more convinced than ever that the current partial paralysis of the economy will continue until after the election and that the expected clarification of what the future holds [will be delayed]. In that kind of environment, I doubt that short-term interest rates lower than those already in place will have any stimulative effect. I think this is a time to say that the inventory in the candy store is sold out; we should hold steady where we are to allow the full effect of the previous easing and rationalize the attitudes on the part of consumers to stimulate more vigorous growth. Furthermore, the risk of additional chaos in the foreign exchange markets and the possible rekindling of long-term inflationary expectations is real in my mind, and it can only be avoided by keeping with our present stance.",371
-fomc-corpus,1992,Governor Kelley.,3
-fomc-corpus,1992,"Mr. Chairman, as I reflect on the period since the last meeting, it seems that a lot has happened but very little has changed. That may be the one thing that makes this meeting so difficult for me certainly, and maybe for most of us. We've been over all this; we're still struggling with a recovery. I guess technically we're about to have to call it an expansion. We should have crossed over into new high ground during the third quarter by almost any expected growth rate, for whatever that's worth. We're certainly stretching out--forever it seems--the expected time to break out. On the good news side, the inflation news seems to keep improving. I believe the restructurings that have been going on, financial and otherwise, have been the big story of this situation and have been the cause of this stretch-out we're going through. They need to be allowed to go through to completion. I think it's very important for the long run that this be allowed to work through. We've made a lot of progress and I think policy has been about right in balancing the need to get inflation down, the need to allow these restructurings to continue and be completed, and the need to maintain something close to a decent economy in the process. I still believe all those things. But, as I said last time we were together, at some point this has to be completed. At some appropriate point we need to see some solid progress. Otherwise, as has been indicated this morning, we run an increasing risk of having this sluggishness begin to feed on itself. And if indeed inflation is meaningfully lower than we're measuring it, we may slip into deflation without realizing it and that might turn out to be as hard to stop as inflation was. I'll breathe easier--I guess we'll all breathe easier--when we can generate some sense that there's an inertia of motion that is beginning to take over from the inertia of risk. I don't get that sense yet. Certainly, in the key area of employment, there's no sense of any dependable improvement. Another issue that's beginning to gnaw on me is: What is going to mark a completion of this restructuring process? Dick Syron touched on this a few minutes ago. Where is the new equilibrium going to be? I've looked recently at debt service ratios both for households and corporations--debt service relative to income and in the case of corporations relative to cash flow--and both of those ratios are falling rapidly. But if you look at their history back to, say, 1960 or so, it's hard to identify any natural support levels. There is no easily identifiable equilibrium that one could say: ""When we get to this place we're going to have it made and it will balance out."" There was no equilibrium at all in the '80s; it was just a steady increase in these burdens. In the '70s there was something that might be called an equilibrium level, but it was at a considerably lower level than where we are right now. In the '60s, when there was some equilibrium for a period of time, it was a good deal lower on both of those measures than where we are right now. I can envision, I'm afraid, that we could easily fall back to that '60s level given the psychology that seems to be abroad in the land right now. If that's the case, it might imply that we have a long way to go indeed. I have to say in candor that I've been relatively comfortable so far, but I'm beginning to experience the first faint cringes of impatience. As time goes on, I'm a bit more ready to see some signs that we are getting through this and I don't see them yet. That's beginning to make me more nervous than I have been heretofore.",761
-fomc-corpus,1992,Governor Mullins.,4
-fomc-corpus,1992,Looking at the data--they've been pretty well discussed by a number of people--it's clear that our annual fall-winter swoon seems to be in full flower; it seems to be an annual event.,42
-fomc-corpus,1992,It has been only two years.,7
-fomc-corpus,1992,"Actually, one could say 1990 was not a walk in the park. To me the data coming in are pretty consistently negative. I thought the September employment report was worse than the August one because of the collapse in hours and the implications for personal income, spending, industrial production, and the like. And virtually all the indicators for the real economy at least seem to be pointing south. The Greenbook has translated this into 1 percent growth, roughly speaking, in the fourth quarter. We can't really do anything about that fourth quarter to speak of here, although we might think about the implications of the fourth quarter on attitudes and spending as we move into the quarters we can affect. The question has been raised a number of times: The Fed has gone from a fed funds rate of almost 10 percent in '89 to 3 percent now and where is the impact? I think there has been an impact. One can see it most clearly in the broad statistics on the banking industry; when you look at the entire industry compared to the fall of 1990 I think it has improved dramatically. As Ed Boehne pointed out, though, there is a segment--and that segment is an economically significant one--which is finding this period quite difficult. We don't need to go through the statistics, but I asked at the briefing the other day about the market value to book value ratios for the top 50 banks. In December 1990, it was about 85 percent; they were showing 85 percent of book and now it's 150 percent. So, I think there has been a big improvement there. I believe the corporate restructuring is going quite well. In fact, corporations are issuing commercial paper again, which suggests that they are moving right along. The consumer side is the difficult side because consumers, unlike banks and corporations, can't issue equity. And they have a long, tough process. They've reduced debt burdens but it's not clear to me that the principal of the debt has been reduced. So, I think there have been benefits but primarily in cushioning this process and moving it along. One only has to look at the experience of economies that are going through this de-leveraging process without the benefit of a responsive monetary policy. The UK would be a prime example; they've had more than two years of negative growth and 10 percent unemployment. There are a number of economies like that, and I think there but for the grace of monetary policy goes the U.S. economy. Indeed, when you look around--we had a staff review of the industrialized economies around the world--the United States looks like the fastest horse or the best horse on a very sloppy track, and it's getting sloppier all the time. I think monetary policy can be credited with the fact that we haven't had a very severe situation here. I know all of this is cold comfort, but I think it's hard reality, and I'm glad I'm not running for election in this campaign. We just have to admit that this restructuring process is severe, persistent, and long-lived and, indeed, for a consumer with excess debt, there's no quick and easy fix. It just takes a long time of diverting resources to pay it down. People are comparing this with short-term cyclical adjustments [but] as has been suggested, the process is long and severe. And other countries are learning that as well. The next question is: Would additional rate cuts have any substantive beneficial impact? It seems to me that there are sound reasons for believing additional actions would be beneficial--beneficial to the growth of M2, which is still weak. We'd certainly get another prime rate cut. We're right on the cusp of a prime rate cut, and I do not expect that to unleash a wave of borrowing and spending. It may be helpful to reinforce this recent very modest uptick in borrowing, but most pertinently it would reduce the debt burdens on firms and on individuals who have home equity loans tied to the prime rate. Moreover, those who analyze the outstanding stock of mortgages at different interest rates project that a lowering of rates would ignite yet another significant round of mortgage refinancing. And, of course, the market expects and seems to have priced in additional action, so it wouldn't surprise anyone. I might add that just because I believe the next shot will be a potent shot does not necessarily mean we should fire it. Indeed, I'm not so sure about the [potency of the] shot after that and it might be nice to have a potent shot around. I think the timing of any additional action is difficult. While the real economy is clearly decelerating and the deceleration has momentum, we do have a substantial slug of ease in the system. The fed funds rate is down 75 basis points over the past three months. As Governor Angell pointed out, the 30-year bond is down 50 basis points. The 10-year rate is down 100 basis points in the last three months. The dollar has fallen. We've seen some pickup in M2; even with a yield curve adjustment, it's still probably below our lower bound, but that deceleration has stabilized. And we have the slight hint of a pickup in credit demand. Business loans at banks and at finance companies, commercial paper, and the debt aggregate all have shown some stirrings. Now, of course, this could simply reflect a financing of the modest backup in inventories, but I would hope that is not the case. So, we have some stirring in both money and credit growth and we also already have a refinancing boom in full flower now both in the corporate sector and in mortgages. So, I think we do have some countervailing financial force already at work against the real economy. And there is risk in moving in the current environment on the currency side as the dollar has fallen to new lows. So has the long bond rate. So, I think it's difficult to argue that this has ignited inflationary fears or flight of foreign investors so far. But if we should move, I would acknowledge that there is some risk of destabilizing the dollar. The hot money speculators are bulging with profits from their European escapades. And if they did start an attack, who would stop it? Who would stand in the way of a run on the dollar? The Administration has not evidenced any strong concern over a weak dollar. Central bank intervention has not been impressively efficacious in recent weeks, to understate the situation. So it seems to me that there is some chance, however remote, that we could have a problem there, and that would be disruptive. I agree with Tom Melzer that it might be difficult to get the genie back in the bottle because this [move] would be one which would infect the bond and stock market. And that argues for a little caution. So far it hasn't affected the bond and stock market as far as I see. And, of course, there are other potential shocks and uncertainties looming in the pre- and post-election periods. All of this argues for [some] caution and saving a little ammunition. There is also, of course, the very real risk of going too far. This will turn around some day. I have no persuasive evidence to support that statement [Laughter], but I do believe this will end. Given the lags associated with monetary policy and the risk that headwinds could become modest tailwinds, we should not overreact to pessimism on the real economy. Nonetheless, given the weakness in the real economy and the need to reinforce weak growth in money and credit if the current trends continue, we likely will be confronted with a persuasive case for a rate cut. Indeed, I think the case is fairly persuasive now. The timing and execution are difficult. I tend to think it has been quite useful that we haven't moved in the past few days. Nevertheless, there's some danger in being too cute on timing and losing momentum--and the momentum we have in the aggregates is real--and risking a severe deterioration. We may be able to avoid a rate cut if things start to firm; the timing of additional action is difficult and we need to discuss that. In my own mind the appropriate policy stance is clear. We ought to lean very hard toward additional action and be prepared to ease if confronted with more disappointing forward-looking data.",1676
-fomc-corpus,1992,President Hoenig.,4
-fomc-corpus,1992,"Our District continues [to expand] at a very modest pace overall and employment is up just a little over last year. The agricultural sector is flat; there may be a little decline in [farm] income, even though crops are good, because prices are less robust. Manufacturing is basically flat. Our aircraft industry is suffering because of the reduced demand overseas. Our manufacturing of autos is either flat or there is significant [unused] capacity. So, there is not a lot of activity there. As far as construction goes, the residential sector is still strong throughout the District and in some areas the nonresidential sector remains good. In the energy sector, the movement in natural gas prices is in a sense positive. I think more fundamentally than the effects of the hurricane there has been an improving trend; supplies have been brought into a little better alignment with demand so prices are increasing nationally. In talking to people in that industry, though, they say if that were to continue, they wouldn't really have resources until sometime next year, so that's not an immediate pickup for our District at all. On the national scene, we have no real differences with the Greenbook. We're not quite as pessimistic for the fourth quarter. Fundamentally, we're looking at the negative numbers and adjusting our projections of real activity down a little. Also, like the staff, we do not expect inflation to be a major problem. With regard to policy considerations, I have to admit I'm a little more ambivalent about easing than I was last time, partly because we have talked to business people, as others of you have, and they're saying that interest rates are not a problem right now. We don't need it, given the other aspects of the economy and the so-called headwinds we've talked about. Credit growth is a little better and I have some concerns about the foreign exchange situation. But on balance I'm personally still comfortable with easing because we are looking at a continued [sluggish] and maybe even weakening economy. And while I say that credit is improving, it's still weak in every way. The monetary aggregates, M2 and so forth, are still weak by every definition. And price inflation is not at this point a major issue; we don't see inflation picking up again given these other factors and, therefore, we have some room to ease. And on the margin I feel that easing would facilitate this restructuring that is still in process, even though we don't know where the equilibrium may be. We know it is in process and there are still significant adjustments that have to take place. So, as I wash all this out, I have to come down on the side of some further ease.",532
-fomc-corpus,1992,President Jordan.,3
-fomc-corpus,1992,"I've met with a number of people throughout the District in recent weeks, and the general sense is that our area of the country is now fully recovered from the 1982 recession. [Laughter] We didn't experience the 1990-91 one. Employment growth has been better than the nation; industrial production has been better than for the nation; jobs are up about 1-1/2 percent since the beginning of the year. The unemployment rate hasn't come down as much because labor force growth is very strong. Other people following me could be moving back from southern California to the Midwest. In many respects it's somewhat of a reversal of what we saw in the '85-'89 period when I was out West. We have a large number of major national retail organizations headquartered in the District. In talking with them they say this September was better than they had expected, better than earlier months, and better than they [had first] thought. There was a bigger pickup in sales post Labor Day. We're running retail sales increases in our District of about 6-1/2 percent versus 4 percent nationally, but they say they are seeing better numbers across the country than they had expected and they are raising their expectations now about Christmas retail sales. They say home-improvement related items and furnishings have been extremely strong--double-digit increases. People aren't getting any yield on their assets in the banks so they put it in the brick and mortar of a patio or something. We're the second largest auto and auto-related manufacturing District in the country. And while the auto companies report flat sales and some concerns, the auto suppliers are more optimistic because they've been getting orders from the transplant companies. They feel that they are very competitive with imports. They're taking back some market [share] they previously had lost. Heavy truck orders are much better than expected just a couple months ago [and the truck manufacturers] are feeling very good about their backlog. Home sales and home starts are strong throughout the District, going along with the better employment and labor force that we have in our area. The Fourth District round table economists--mostly nonbank business economists with a few bank economists in there--met recently and they are more optimistic than the Greenbook. They have 3 percent real GDP as an average forecast of the group for 1993. There has been some improvement in their inflation outlook; it's still up around 3-1/2 percent but trending down. More people are talking about inflation going under 3 percent than just three months ago when the group met. So, we've had a little movement there. Our banks are even better than Tom Melzer's banks. We have the strongest banks in the country. Aggregate market capital is second only to New York; without Morgan and Bankers Trust we beat them all. None of the banking assets in our District are owned [by banking institutions] outside the District. Our banks are looking for earning assets; they're giving incentives to go out looking for loans. My head examiner was in to see me worried about the banks looking too hard for loans; I said ""Don't worry about it yet."" They're also looking for opportunities to inject capital into banks in other Districts, so you will be hearing from them a lot in 1993 as they seek opportunities to spread their skills and their capital. Talking with business leaders about their strategies for the '90s has been very interesting. They characterize the past as having been an environment of counting on rising sales where they hire people, order some stuff, mark it up, and they make money. Their new strategy is not to expect increases in sales in the '90s but basically to view the situation as one where all increases and earnings are going to come from cutting costs: reductions in the work force and productivity increases. When I asked both large and small businesses about their inflation expectations, there was a contradiction [in their responses]. They say they can't raise their prices at all; they have no expectation or plans to raise their prices and in some cases they talk about how rapidly the prices would be cut in the future. But they expect nationwide inflation to remain high. So, when I question them about how they are going to handle that with their labor costs or what their employees think of it, they say ""It has to come from productivity or we're in a deep stew."" Dick Syron asked about the [economy's] engine. I look at what both households and businesses are doing; they are basing their plans on the expectation of higher inflation in the future, with the idea that it is transitorily low [now] and is going to rise. And we're engaged in policy actions that say ""No, inflation is not only down but it's going to go even lower."" That inconsistency between what is out there in the marketplace and what we're doing is creating this drag. Now, there are two ways to reconcile that. Either we simply conform our actions to their expectations or we try to do whatever we can to help accelerate the process of their adjusting their expectations down to where we intend to go on policy. I ask business people why they don't believe us when we say we're going to zero inflation. I tell them the budget deficit or other things they worry about don't matter; it's what the central banks does that determines that. They just sort of shrug and say they don't believe it. They say we keep easing policy in order to promote growth, and one of these days it's going to wind up in higher inflation. I point to slow M2 growth and how we're all trying to work toward a stable price environment, and they tend just to shrug it off. I think the issue we have to attack is the credibility of our commitment; we as a Committee need to convey in the clearest way we possibly can that we are going toward zero inflation. That's what we should tell them about how to gauge our policy.",1180
-fomc-corpus,1992,Governor Lindsey.,3
-fomc-corpus,1992,"I had two thoughts: One was on the economy and was prompted by something Mike Kelley said; the second was on the financial markets. Twenty years ago I was sitting in freshmen economics with Samuelson's Eighth Edition, and the first thing we were taught was something called the ""paradox of thrift."" The paradox of thrift was the 1972--or probably the 1952--way of saying ""balance sheet restructuring will lead to less economic activity."" When I thought of Governor Kelley becoming impatient, all I could think of was Keynes's famous quip about how in the long run we are all dead. And that was, in fact, the response.",133
-fomc-corpus,1992,What about the parable of the bees?,9
-fomc-corpus,1992,"Well, we've been trying to unlearn Keynesian economics for the last 20 years and that may have been a mistake because, in fact, I think it's probably very close to the situation we're in now with balance sheet restructuring in part caused by this mismatch that Jerry Jordan just spoke of between inflation expectations and our inflationary reality. As for the economy, I think that's clearly in lousy shape, and my normal training would say we should move to ease. The second thing I'd like to talk about is financial markets. Yesterday, frankly, I had a bit of an epiphany. I hope these things don't happen too much in life. I looked very closely at what happened in both the foreign exchange market and the stock market. I can tell exactly what happened in the stock market because I've set up my telerate to do that. I couldn't tell [exactly] in the foreign exchange market but it was close. The stock market bottomed at minus 100 and something at exactly 11:29 a.m. And it looked as if the foreign exchange markets did a similar thing. What is important about 11:29 a.m.? Well, that's Fed time and the markets woke up and said ""Oh, they're not coming in."" I assume that's what they did. I don't know what else is important about 11:29 a.m.; maybe it was just one data point and so I have an R-squared of one. But it looked pretty convincing to me. It's also where we hit the circuit breaker.",307
-fomc-corpus,1992,"Yes, they hit the 100-point circuit breaker.",11
-fomc-corpus,1992,"Yes, it worked.",5
-fomc-corpus,1992,"It worked anyway. So, I think yesterday the market was telling us that their bet was we weren't in. Looking at the numbers, I also agree exactly with Joan and Bill's analysis that a 25 basis point reduction is factored into the market. So, I have to say I'm confused because on the one hand the market already has us in and on the other hand the market is telling us not to come in. The only way I can work that out--and I worked it out to my own satisfaction overnight, if not to anyone else's--was that I had your model in mind. What the market is not telling us is whether to tighten or ease. It's telling us something else and that is whether this organization is in reactive mode or what I would call deliberative mode. If you watch the pattern of the market's reaction to our not moving Friday and the pattern of its reaction to our not moving yesterday, the relief came because we weren't panicked. We were waiting for this every sixth-week meeting and we were actually going to sit down and talk through rationally what we were going to do. And I think the markets were applauding us for having done that. Now, again, it doesn't answer what we should do; but it does say that we get rewarded for being deliberative and not reacting to the latest employment report. So, that was my epiphany. Now, what should we do? I think, frankly, that our next move is going to be to ease. It might be because there is a sharp break in the market and we have to move in to the stem the gap--something like the October '87 [episode], perhaps. I hope that's not the case because then we are back to the reactive mode. It might be because, as Ed Boehne said, the Fed should be viewed as doing anything we reasonably can in the face of the current economic statistics, which are bad. That could be reactive or it could be deliberative. The question is: When do we move? Option one is to wait for the new Administration, until January 20th or later. Clearly, the next Administration is going to need help no matter who wins the election. We're going to have a fiscal stimulus which is going to send long rates up; and while fiscal policy is going to be more stimulative, I think its quality is going to go down, in particular with regard to getting small business and employment taxes. I think health care is going to be hit no matter who wins the election. And while it's good for us in the long run, it's lousy for the health care industry in the short run and that's one of the few growth industries we have. So, we're going to add our hospitals to the layoff lists next year. That's a case for waiting until January, when [the economy is] going to need help. We could wait until after the election but before January; I wouldn't recommend that. It's going to be a time of maximum uncertainty largely because appointments are going to be coming out at a rate of about one every two or three days. I would not want our actions to be interpreted as applauding or rejecting particular nominees, say, for Secretary of the Treasury. The other possibility is to act now at this meeting. I believe that's the commendable course of action. Even if I don't know what the rules are on our specifying a time-- whether or not we have to vote to do it today--I think we should take the action here at this meeting and not leave it to random events in the future. I think the odds that we will be [easing] before the next meeting are overwhelming. I think it will come either from a stock market break or because the economic statistics will make it imperative for us to do so. Given that choice and given that reality, I think we should be deliberative and not reactive and we should vote to ease here today.",791
-fomc-corpus,1992,Vice Chairman.,3
-fomc-corpus,1992,"Well, it's almost time for dinner, so I'll be brief. First of all, I don't see anything new on the economic outlook that differs from the bulk of what has been said around the table. I do think that attitudes have gotten at least a bit more glum. I put a lot of weight on Mike Prell's simultaneity paradox of linkages or reverse linkages among income, employment, and spending, especially in a context in which the saving rate is already very low and we're not going to get any more spending through a reduction in the saving rate. I think there is superimposed on top of that a whole lot of concerns that intensify those things that are somewhat easy to identify--some of them political, some of them involving a growing recognition that out there in the great beyond there is a very large, very expensive series of national economic problems that are going to have to be dealt with in a context in which there are vast social problems that also have to be dealt with. And I think people worry about that. So, as I said, the bottom line in terms of the outlook is more of the same with, if anything, a tilt toward a bit more concern and a bit more sour expectations. I agree with those who said that inflation in some sense is a non-issue, whether it's measured correctly or not. I also agree with those who are saying that whether the Fed does something now or next week is not going to have a whole lot of adverse implications for so-called Fed credibility on inflation. The inflation outlook is a lot better, but it is a lot better because we're going to have 16, 17, or 18 straight quarters with an unemployment rate above 6-1/2 percent and 11 or 12 quarters with an unemployment rate above 7 percent. There's no magic to it at all. We have better inflation the old fashioned way: We paid for it. I do have some sympathy, though, with Jerry Jordan's comment or quandary as to why nobody quite believes there is at least a fighting chance of preserving that [progress on inflation] over time. The main point I want to make--and others have said it in slightly different ways--is that we do have a renewed case of the financial jitters out there. It's not all that hard to explain why that's there. I do think the principal points of vulnerability are the stock market and the exchange market. But I don't think anybody is even remotely clairvoyant enough to be able to anticipate through what channels a disturbance might work itself into those markets. And that was the thrust of Bill McDonough's comments, if I can put words in his mouth. I also do not think that a modest change or even a big change in monetary policy in the direction of ease right now is going to forestall the possibility that one of those disturbances might happen. It won't work that way; if anything, it might work the other way. But it will not work in the direction of forestalling it. I agree with a number of comments that have been made that if something starts to tilt the wrong way, the situation could get pretty messy. Ed Boehne's comment about four hours ago about limited tools in a foreign exchange situation is quite valid. But having said that, it is potentially dicey. I think it's important to recognize, as a number of people have said, that major banks and major nonbank financial institutions in the United States, with one or two obvious exceptions, are in a much stronger condition today than they were in 1990, or in '87 or '84 or '82; and that's a plus. What is not a plus is that the second-tier institutions, especially nonbanks, are in weaker condition. And it's also important to recognize that if we get into one of these [situations], all institutions are going to be a lot more defensive. That may be good news in one sense, but it's bad news in another sense in that it makes it that much more difficult to deal with them. So, no matter what the Committee in its wisdom decides about near-term monetary policy in the conventional meaning of the word, I think that decision should be couched in a context in which it is implicitly understood that in the period ahead there could be circumstances in which the Desk or Desks will need at least a margin of greater flexibility. In terms of monetary policy in conventional terms, I am very much of the view that for a variety of reasons the better course of action, at least for the moment, would be to ""maintain."" I'd have a distinctly asymmetric bias but I would not do anything. But above all, whatever the Committee decides about policy as a whole, we need to recognize that there could be circumstances where on a day-to-day basis an extra margin of flexibility is going to have to be built in. I don't think that has to be part of the directive, but it has to be recognized.",1002
-fomc-corpus,1992,Governor Phillips.,3
-fomc-corpus,1992,"Well, since I think I am the last one to speak, I'll be very short. I'm much more comfortable with the Greenbook forecast this time--the marking down [of the economic growth projection]. I've been a bit more pessimistic all along with respect to the real economy. I'm not pleased to see a markdown to 1.2 percent real growth in the fourth quarter, but I think it's fairly realistic. I'm also in agreement generally that inflation is under control by almost any measure. And I think we're getting to where--with the discussions of what the CPI means, the measurement problems, and so on--we're recognizing that we may be getting close to that deflationary point that Governor Kelley mentioned. The fact that we've gone on so long with this weak economy adds another uncertainty generally. The uncertainty is reflected in the market. We've talked about the political uncertainty, and certainly the international uncertainty is reflected in the markets. As for the uncertainty with respect to how long this balance sheet adjustment is going to go on, though, the duration of this weakness and of the adjustment process is continuing to drag people down and that is further damping the capability of the economy to recover. The last couple of times we've scratched our heads trying to figure out what M2 was telling us and whether or not we should change the cones or move the cones around. So we said we weren't going to do anything because we didn't know enough about what the monetary aggregates were telling us. We've seen some small improvements in M2 lately but it still looks as if it's moving sideways. Maybe the monetary aggregates were telling us more than we were paying attention to earlier. With respect to exchange rates, I recognize that if we allow the dollar to be a policy constraint for us, we may end up lengthening the cycle--lengthening this long period of slow economic growth--and in fact it may hurt us in the long run. Adding all of these things up, I come out thinking that we probably are going to need another easing move. I'm somewhat concerned about its timing; care needs to be given to when we do it. I'm not enthusiastic about this reputation that we seem to have garnered that we react to various things and I'm a little concerned about getting ""gamed"" by the traders who I think are having a rather grand time these days. So, I come out for a move toward ease but I think the timing needs to be considered carefully.",486
-fomc-corpus,1992,"It's really quite late, so let's take a very short coffee break--in fact, 10 minutes.",21
-fomc-corpus,1992,"Thank you, Mr. Chairman. I saw him nod; some of us are very attuned to those nods. [Statement--see Appendix.]",30
-fomc-corpus,1992,"Any questions for Don? If not, let me start off. This has to be one of the most difficult periods for policymaking that I remember. The reason essentially is that we're dealing with an outlook that is far more difficult to fathom than I think any of us had really thought about. It is by no means certain that the restructuring model we're looking at is of the type that I discussed here a couple of meetings ago; [that model involves] affecting the restructuring process and the improved balance sheet process by a level of interest rates that essentially over time restructures the balance sheets and induces a restoration of spending out of cash flows. The alternate model I raised was what I called the ""seize-up"" model, namely that what we are looking at is an old 19th century major balance sheet seizing up under crisis conditions in which if we inject liquidity and ease into the market, it temporarily looks as though it is recovering but then as the stimulus runs out it reverts to the old [19th century process] of very rapid balance sheet adjustments. And what we find is that the cash flow that is being engendered gets disproportionately shifted toward balance sheet repair and savings and there is general weakness in economic activity. As Governor Mullins indicated, this is a sort of periodic ""fall"" problem; it's the third straight year that we've run into this. I'm not sure that the date is particularly relevant, but there is evidence that [economic activity] does not wish to accelerate. I do, however, think it is premature to conclude that what we are dealing with is a cumulative process in which the previous injections of liquidity have petered out and the economy is now beginning to ""seize up"" again and move toward a negative growth pattern. If that were actually occurring right now, it's hard to believe we would have the auto and truck sales numbers that were released yesterday, which were fairly good. I also wonder whether the other evidence of reasonably good retail sales would be emerging; and I wonder whether loan demand, which may be nothing more than a shift from external financing to commercial bank financing, means all that much. These are very fragile indications [on the positive side] and I must tell you I scrounged very hard to find them. Nonetheless, it is not immediately evident that we are moving toward a cumulative deterioration. As a consequence of that, I would be reluctant to move toward further ease at this point. But I do think we may be at the cusp of some deterioration which just hasn't cumulated in the usual pattern that one would expect. We have some fairly unstable financial conditions, especially the stock market, that a number of you have alluded to. There is unquestionably a potential danger in easing and I think we have to be very careful of that when we are looking at the market responses to what we are doing or what everyone thinks we are doing. We are largely getting a response from the dealers who inventory bonds and who react very rapidly to what they think we are doing. It's not altogether clear that they are going to judge their retail markets, their pension funds, correctly. It may very well be that one of these times, when we see bond markets getting very strong with the expectation of ease, we're going to find that that's a result of a build-up of inventories on the part of dealers who are unable to sell them to their customers, and the markets will reverse very sharply. So, we have a very touchy problem here. I'm aware, as you all are, that everyone expects us to ease and that becomes a self-fulfilling activity. While the case for easing right now is quite strong, I would be far more inclined to wait for a short while--maybe a couple of weeks--to see what is developing in the financial markets, what is developing in the foreign exchange markets, what is developing in Europe, and what is developing in the overall economy. I do not think one can argue, especially in the context of some of the discussions I've heard here, that this economy is slipping off the edge. It may; we may find evidence of that within a reasonable period of time. I would argue further that if we do not get improvement within the next couple of weeks, the odds will then very strongly favor [the hyposthesis] that this ""seize-up"" model I mentioned at the beginning is functioning. So, having gone back and forth in the last 48 hours looking at all sorts of numbers, I myself would feel most comfortable with a hard asymmetric directive toward ease, reflecting the fact that we would do nothing at the moment. But unless we begin to see some firming in particular indicators, I do think we should move lower. I say this without a great conviction because anyone who has a great conviction at this stage about what the economy is doing or what proper policy is I think is under a mild state of delusion. I would like to say finally that I wish we had the luxury to sit back and do nothing until after the election, as is the conventional procedure of the Federal Open Market Committee. I don't think we have that luxury. However, I don't think the markets have been viewing anything we have been doing as politically motivated. There are obviously those who make those statements, but I don't think that's a serious issue confronting us. So, I would dismiss that as a consideration; it's not something we need to be overly concerned about. But if the money supply weakens and the markets behave poorly and we have the evidence that we've getting cumulative deterioration--or more exactly that the economy is not picking up, which is I think the main criterion at this particular stage--I do think that we should move toward ease. And ease in this context I would say definitely would require a discount rate cut and some action on the funds rate. So, I would put that out as a recommendation to start the discussion and hope somebody may be able to expand on it with some great insights as to how policy is functioning.",1203
-fomc-corpus,1992,"Question, Mr. Chairman?",6
-fomc-corpus,1992,Yes.,2
-fomc-corpus,1992,"As stated in the Bluebook, ""A"" requires a reduction immediately in the federal funds rate to 2-1/2 percent. Was that your intent?",33
-fomc-corpus,1992,"No, I'm arguing for ""B.""",8
-fomc-corpus,1992,"All right, ""B."" I thought you said ""A."" I'm sorry.",16
-fomc-corpus,1992,"I may have said ""A"" then ""B."" I'm arguing for alternative B asymmetric toward ease, with the expectation that if the economy fails to show signs that it's [improving], we will reconsider whether to move. President Jordan.",48
-fomc-corpus,1992,"I wish I had more confidence about what indicator to look at to gauge our policy. But much more so I wish the private decisionmakers had more confidence about how they will be able to gauge our policies in the future because it's our future policy actions that are going to influence their decisions most. It struck me in recent weeks in looking at the turmoil in Europe that the Germans have very slow growth in their narrow monetary aggregates and very rapid growth in their broad aggregates and they chose to gauge their policy by M3. They have a sharply inverted yield curve at a very high level of nominal interest rates and what we would generally regard as high real interest rates and an extraordinarily strong currency. We have had a very steep yield curve, very low short-term interest rates relative to long rates, [low] recent inflation, extraordinarily rapid growth in the narrow aggregates, which is disturbing, and almost no growth at all in the broad aggregates, M2 and M3. And we tend to characterize our policies by the broader aggregates as having been restrictive, which is not consistent with our weak currency. The markets seem to be saying--looking at a lot of indicators, including surveys--that our policies have been and will continue to be expansionary and that the Germans' policies have been and will continue to be restrictive. I'm not sure the Germans are right in looking at M3, but they keep saying they are going to persevere and people believe them. I'm not sure that we're right in saying M2 is the right measure, but people are not believing it and do not believe that we are going to persevere. Don Kohn in his remarks mentioned the risks about how to perceive what we do and why. If it's clear that it's due to a weak economy and that in the future we're going to maintain slack in the economy, then maybe the markets would take it okay. But that casts this Committee as being anti-growth, and I'm not anti-growth. I'm not comfortable with the idea that we're going to maintain slack and slow growth as the method of achieving price stability. I want price stability because I want fast growth. I would prefer at this point to take Committee action to complete what we suspended on July 1st, and that is setting targets for 1993--what I argued for then but didn't succeed in getting. I'd suggest that we announce a reduction in the [M2] target range for 1993; my preference would be a full percentage point. I think we should have been at 2 to 6 percent this year and I think we should have 1-1/2 to 5-1/2 percent for next year. I'd go ahead and announce it and couple it with an immediate action to inject reserves and probably to cut the discount rate because of the necessity of a press release in order to say we are taking action as a Committee to achieve the minimum of our target range in monetary growth. I'd say we are not satisfied with being below the target, we want to get growth up [within the range], and we're at the same time lowering our target range for next year because we're not going to let [growth exceed] the top end of the range either. We should take this step, coupling what is perceived as an easing action in the short run with an announcement of lowering the target range for '93 as re-enthroning M2 because it's the only horse we have to ride to gauge our policies at this time. Until such time as the Committee is ready to say we are going to restructure M2 or switch to some other aggregate, we have to stick with M2 because it's what we have, just as the Germans have to stick with M3 with all of its faults. I wish we had their credibility.",752
-fomc-corpus,1992,"Jerry, let me just comment on this for a second. I think you're raising a crucial question about whether we should lock back in on a specific aggregate. We obviously are confronted with the difference between the yield curve effect on Ml versus M2 and M3. It would be nice if we had a particular conviction that one or the other or some other M was the best one; if we did, then clearly we should lock in. But I don't know if we can say that merely locking in, irrespective of whether in our judgment it's the right measure on which to lock in, is a wise move. So, while you're raising a correct issue--that we really ought to review our guidelines --I think it's regrettable but it's a little late in the game for this meeting. But I do think that should be on the agenda for the next meeting because we did, in fact, say that we would do it before next year, and the next meeting would be the appropriate time to do it. But to make a judgment that we are locking in on M2--enthroning it as you put it--presupposes that we have confidence that that's the right measure. I would much prefer to be uncommitted to which particular money aggregate we are functioning with until we have a judgment as to what we want to work with. If M2 is wrong and we lock in, we're going to have far more difficulties in aligning ourselves than if we lock into something when we have considerable confidence. I don't think we have that confidence at this stage. President Forrestal.",315
-fomc-corpus,1992,"As I was reflecting on the policy stance for this meeting last night, I thought about what I have been doing over the last three weeks and I came to the conclusion that I have been sitting in front of a screen becoming increasingly depressed almost on a daily basis, perhaps even on an hourly basis, by the negative numbers that were coming in. Not all of them were negative, of course, but even going back to August we had a low number for employment and industrial production. Orders are down, confidence is down. Exports, which had been a minor engine of growth, are off. M2 is improving a little. All of this led me to conclude that what we ought to do is to ease policy now. As other people have said, easing policy--lowering interest rates--has helped the economy. And I think additional ease would help in this particular situation. I'm not sure that we're not on the edge of a downward, cumulative, spiral here. It may not be upon us at this exact moment, but the potential is there. So, I think we need to ease. But having said that, the case you made for waiting is certainly a reasonable one; and certainly we have offsetting considerations in the international exchange market. So, I would support your strong asymmetric-toward-ease directive.",264
-fomc-corpus,1992,President Parry.,4
-fomc-corpus,1992,"Mr. Chairman, I'd like to set aside for the moment the issues of financial instability and what could happen in foreign exchange markets and the issues associated with being close to the election. But it seems to me that in many ways this has been a very different meeting from those we've had in the past. In the past, we've seen a forecast where the economy looked as though it was going to pick up almost imminently and that the rate of growth would be something on the order of acceptable. There were certainly concerns about whether or not that would be realized. That generally would result in our having asymmetric language and then when we saw some statistics come out that confirmed or heightened those uncertainties, we would ease. I think this is a unique meeting. This is a meeting where the Greenbook has come up with a forecast that is much more negative; it shows that the pickup is coming considerably later and that when the economy does expand it's going to be less strong. Based on the discussion, I counted approximately 11 who seemed to be in substantial agreement with that and who voiced concern about the direction of the economy. That is far more powerful to me as [an indication of] what we should do on policy--the work has been done collectively by all of us and our staffs and in the Greenbook--than what developments might occur in the next two to three weeks. Consequently, I would recommend that we reduce rates--my proposal would be 25 basis points in terms of the funds rate--and that we have asymmetric language.",305
-fomc-corpus,1992,Governor Angell.,4
-fomc-corpus,1992,"Mr. Chairman, I was hoping we would come into this meeting and be prepared to be patient, be prepared to seize the initiative from financial markets and indicate that we were conducting monetary policy in a deliberative way as Governor Lindsey suggested. I think what you've given us, Mr. Chairman, is a courageous action in that it does step back from market expectations. However, there is a difference between courage and foolhardiness; and no matter how strongly I believe that it would be appropriate for us not to take a step at this time, I do want to see how the markets react to this news because what you've suggested is, it seems to me, news. So, it's a courageous step and I think we should see how the markets behave [in reaction to] the step that we're taking. If at a point in time the Board of Governors were to decide to lower the discount rate, then it would be appropriate under those circumstances to have a telephone conference call. Even though my preference would be a straight ""B,"" you certainly accommodate what I believe is appropriate under these conditions.",217
-fomc-corpus,1992,Governor Lindsey.,3
-fomc-corpus,1992,"Mr. Chairman, it may be that epiphanies only happen rarely; it's probably good for the soul that it's that way. I looked at the list of upcoming indicators and I have to say I agree with President Parry: I don't see one that would convince me any more than the discussion that we had around the table today as to what shape the economy is in. The major statistic coming out is industrial production; we know what that is; that's going to be released a week from Friday. The other two big indicators are the PPI and the CPI. I don't think they really give us a--",123
-fomc-corpus,1992,"I think initial claims, which come out [soon], are a very crucial indicator of short-term deterioration; it has been one of the problems. The retail sales figure [could] show weakness.",39
-fomc-corpus,1992,"Yes, you're right. Again, what I think we should do is for this Committee to establish the guidelines; that decision should be made here [today] because we're being gamed very much the way the European central banks were being gamed. With each major statistic that comes out, people take sides; [people talk about] the possibility that someone may have some inside knowledge or rumors spread that someone has it and that's going to affect Fed actions; that is what is driving markets. Frankly, I think that's increasing the instability in the markets. And the way to restore stability to the markets in part is to have this body make decisions and have a fixed date rather than an effectively random date for taking actions. One particular area of instability that has been mentioned is the foreign exchange market, and that is an area of concern. But I would make two observations. First of all, to the extent we have a concern about the foreign exchange market, it would not fit into the paradigm of strongly asymmetric because the only ""cure"" that we would come up with would be an increase in rates, and I don't see that coming. Also, I think the fundamentals are quite different here in the United States. I think the United States is like France and not like Italy or the UK in that we do not have an obviously overvalued currency; quite frankly, we have an undervalued currency. So, for both of those reasons I don't think the foreign exchange instability is a reason for not acting now. I think we ought to make the decision here. In my mind that decision could even be a contingent decision: contingent on having over 400,000 or whatever you would like in the initial unemployment claims or a CPI under 3 percent. But I really think there's an advantage in our making the decision here today, and that would be my very strong preference.",375
-fomc-corpus,1992,"I might say that the decision will be made obviously also in conjunction with the Board of Governors on the discount rate, so that issue gets involved.",29
-fomc-corpus,1992,Yes.,2
-fomc-corpus,1992,President Black.,3
-fomc-corpus,1992,"Mr. Chairman, I think the policy decision that we face this morning is, as Don said, essentially a matter of weighing the risk of a renewed deterioration in the economy against the risk that a further easing at this juncture will damage our credibility and might not do any good in any event. My real preference, reading the tea leaves the way I do, is to do something now--move a quarter point --but I can accept your formulation of ""B"" with an asymmetric directive. But I want to underscore what Jerry Jordan said: This decision would be a lot easier if we had cut those targets back in July. Governor Angell and I felt strongly enough about advocating a cut in the [1992] targets [in July 1991] that we actually dissented on [the vote to retain them]. But if we do cut them regularly, I think we establish the credibility whereby we can make these short-term lowering [moves] without scaring the market half to death because we would reassure them that we have not lost sight of our long-term targets.",214
-fomc-corpus,1992,Governor LaWare.,4
-fomc-corpus,1992,"Mr. Chairman, for all the reasons I stated before, I would prefer ""B"" symmetric because I don't have any confidence that a further change in rates can accomplish the stimulative effects that it's supposed to have. And I'm very reluctant to take the risks that are inherent in the foreign exchange markets, which I believe are there. On the other hand, I think your argument that we need some emergency firepower in the event of an accident or a surprise is persuasive for asymmetric language. But I would prefer to have it symmetric with the idea of reconvening the Committee if the emergency happens. Maybe the emergency will happen too fast to make that practical, but until I hear the other comments around the table I'd like to be recorded as favoring ""B"" symmetric.",154
-fomc-corpus,1992,President Stern.,3
-fomc-corpus,1992,"In general, Mr. Chairman, I support your recommendation and would only add a couple of thoughts. First of all, in assessing the question of asymmetry and timing, I hope we cast a relatively broad net. I am concerned about the foreign exchange markets. On the one hand, we seem to believe that the dollar is lower than is sustainable but the presumption is that it's going to go lower still; and that doesn't seem to me to be an equilibrium, let me put it that way. On top of that, as we weigh the desirability or necessity of additional interest rate cuts to sustain or further the recovery, I hope that we will bear in mind its consistency with our long-run objective for price stability. And I must say that I don't quite understand what we would have gained by lowering the monetary aggregate targets and locking in more tightly on M2 in these circumstances. There's certainly some information value in M2 but there's also a lot of uncertainty surrounding both its behavior and its implications for economic performance in the future, and I don't see how we would enhance our credibility by focusing on something with that degree of uncertainty associated with it.",228
-fomc-corpus,1992,Governor Kelley.,3
-fomc-corpus,1992,"Mr. Chairman, as time goes on here, economic events are making the case for ease stronger and stronger. But I do strongly support your recommendation for today because I do not think this is a propitious time to ease. I worry that we could set off a run on the dollar. The traders are feeling their oats these days and they might just like to take us on, and we don't need that. It's very important that the FOMC regain control of monetary policy, which I think we have largely lost to the market and the media. I do not share the view that today is a day when we could look reflective rather than reactive. Real rates are very low, as we've seen on the handout distibuted here this morning. So, I don't think there is any strong urgency, on that merit, to [move] today. I think it's desirable to get a reading on events as time goes along and desirable to have our powder dry in case some of these potential emergencies show up. So, I strongly support your prescription.",210
-fomc-corpus,1992,President McTeer.,5
-fomc-corpus,1992,"Mr. Chairman, I agree with the number of people who have argued for us to take the initiative back [from] the markets. I think the FOMC is the place to make these decisions and generally I would prefer to make them during the meetings. I have a continuing preference for symmetric directives. And given the turmoil in the world right now and the low level of interest rates that we already have, I think our best contribution could be to act as a force for stability. So, my preference, if I were a voting member, would be for ""B"" with a symmetric directive.",120
-fomc-corpus,1992,President Boehne.,5
-fomc-corpus,1992,"I think we all feel the ambivalence that you talked about; there clearly is uncertainty. I find it difficult to believe that any of the new data that are going to come out in the next couple of weeks will make this any clearer. Jerking the markets around--first they think we will ease and then they think we won't and then we try to come back and do it again--may have a cuteness to it or too much cuteness to it, but I think that undermines our credibility. There are times when you step up to the batter's box and you try to get on base. We've had a good discussion but I think this discussion is probably ahead of the data. I would prefer to make the decision and do it--and not try to second guess this event or that event or this statistic or that statistic--by sticking to the fundamentals. And I think the fundamentals call for lower rates.",184
-fomc-corpus,1992,President Syron.,4
-fomc-corpus,1992,"Mr. Chairman, I would prefer to act and I'd prefer to act now. But let me add some qualifiers to this. This is as tough a situation as we've seen, at least in a while. And it seems to me that on the basis of the discussion there is little question about which direction--unless we're happily surprised or we get extraordinary shocks the other way--our next move will be. Generally, I prefer to do things at meetings. I have some sympathy for the arguments that were raised by Governor Lindsey in that regard. We do have uncertainties out there and I have no illusions about my ability to read these uncertainties in terms of the exchange market or other things that might come along. There is this question of just how much data we're going to get in. I guess it depends on how one interprets your recommendation. I interpret your recommendation on being highly asymmetric toward ease as saying that the timing to some extent will be decided by you. The direction is not necessarily completely decided yet, but there would be a predisposition to ease--I was writing down your words--unless we were to see some strengthening in the economy. On that basis and given all of the uncertainties in the economy and in institutions, I would reluctantly support your recommendation.",250
-fomc-corpus,1992,President Keehn.,4
-fomc-corpus,1992,"Mr. Chairman, my view on today's decision really is completely separate from either exchange market or other market expectations or political issues. It does seem to me that these are matters that we can reasonably deal with, given any decision that we come to today. Rather, my decision would be based on the economic situation, which I think clearly has weakened and quite considerably so. At this point the risk that the economy could fall back into a negative situation is not insignificant; I think the balance here is very delicate. It seems to me that we already have the data that we need to make a decision. It's very much there on the record. Therefore, as I indicated in my comments earlier, I could live with ""B"" asymmetric, but I frankly would have a far stronger preference to move now and to use this meeting as a reason for making that decision.",171
-fomc-corpus,1992,President Hoenig.,4
-fomc-corpus,1992,"To repeat myself a little, Mr. Chairman, I came in a little more ambivalent, and I think we have had a very good discussion. The preponderance of views is that ease is appropriate. I think now would be the time [to ease], having had the discussion, and it would be a deliberative move. However, given your [explanation], I can live with ""hard asymmetric.""",83
-fomc-corpus,1992,President Melzer.,4
-fomc-corpus,1992,"Alan, if it were up to me, I'd prefer to take action here at this meeting. Having said that, I would vote ""no."" [Laughter] I basically view the hard asymmetric you've described as a decision to move. It's almost a certainty. And for the reasons I've articulated at other meetings, I just can't support that. I think we're expecting far too much out of monetary policy as a short-run, fine-tuning tool for the real economy. Frankly, I think there probably would be some benefits in terms of stability and so forth in communicating to markets: The easing is over; now let's adjust to this level of rates and work from here. I think there's ample stimulus in train. To cite a quote from you: ""My mild state of delusion continues."" [Laughter]",162
-fomc-corpus,1992,Governor Phillips.,3
-fomc-corpus,1992,"First of all, I'd like to support President Jordan's suggestion that we take another look at the M2 cones. In essence, if M2 is a policy guide, we should have eased earlier. If it's not a policy guide but only an aggregate that we forecast, then we should be lowering our forecast. So, I find this inconsistent attention to M2 somewhat troubling. I would prefer to ease today, so my preference is alternative A. However, having said that, because of my concerns about the traders' voracious attempts to ""game"" the System --and having had first-hand experience with that crowd--I will reluctantly support [""B""] asymmetric.",132
-fomc-corpus,1992,Governor Mullins.,4
-fomc-corpus,1992,"I think there's a sufficient case for ease now but I can support [""B""] asymmetric. In terms of what information to focus on, I think it will be useful to focus on money and credit flows and how those develop.",45
-fomc-corpus,1992,Vice Chairman.,3
-fomc-corpus,1992,"Your prescription is fine with me, Mr. Chairman.",11
-fomc-corpus,1992,"President Jordan, I never did get an indication from you as to how you came out.",18
-fomc-corpus,1992,I'm still working on it! [Laughter],10
-fomc-corpus,1992,"Let me just say something that I think is important for us to focus on. This is a very close call here and what I don't want to do is to convey a sense that I have some strong conviction as to what is involved here. I want to make certain that we're not getting a Committee vote which merely acquiesces in a view that I have stipulated because, as we have all indicated around this table, this is an extremely difficult period. I want to make certain that we get a vote which is essentially a Committee vote rather an acquiescence to the position of the Chairman. Ordinarily, I would never say such a thing! [Laughter]",133
-fomc-corpus,1992,Which votes are you trying to lose? [Laughter],12
-fomc-corpus,1992,"The fact is that we all recognize that this is a very tough decision we are making and it's best that we all say exactly what it is that we [prefer]. As a consequence of that, I want to read off my notes to be sure that I have gotten everyone's view and priorities correctly. Accordingly, I'm going to poll each of you, starting from the bottom. President Syron would prefer easing at this meeting but will accept asymmetric toward ease. The same is true of Governor Phillips [and of Governor Mullins]. Do I gather this correctly?",110
-fomc-corpus,1992,I think there's a case for ease now but I--,11
-fomc-corpus,1992,But that's not the [unintelligible] question.,12
-fomc-corpus,1992,"I would go ""B"" asymmetric.",8
-fomc-corpus,1992,"That there is a case for ease now is unquestioned, but what's your priority?",17
-fomc-corpus,1992,"""B"" asymmetric.",4
-fomc-corpus,1992,Your priority is asymmetric?,5
-fomc-corpus,1992,Yes.,2
-fomc-corpus,1992,"So, your preference is asymmetric but there is a case for easing; it's the other way around.",20
-fomc-corpus,1992,Yes.,2
-fomc-corpus,1992,"President Melzer votes ""no"" on ease and symmetric language with ""B."" Governor Lindsey very specifically indicated a desire to ease now. Governor LaWare wants symmetric now.",34
-fomc-corpus,1992,"Symmetric ""B.""",5
-fomc-corpus,1992,"I'm sorry, ""B."" Governor Kelley wants asymmetric toward ease, but I gathered from your comments that while you could accept [a move toward] ease you would prefer not [to move]?",38
-fomc-corpus,1992,"Mr. Chairman, I may be the only one at the table who supports you on the merits of your case! [Laughter]",27
-fomc-corpus,1992,He [talked] me into it.,9
-fomc-corpus,1992,"President Hoenig is asymmetric toward ease but could accept ease, if I gather correctly.",17
-fomc-corpus,1992,But not on the merits of the case!,9
-fomc-corpus,1992,"Governor Angell would not be in favor of ease, but would do asymmetric toward ease. I would suspect that the Vice Chairman is asymmetric toward ease because that's his conviction.",34
-fomc-corpus,1992,That's right.,3
-fomc-corpus,1992,I wonder whether President Jordan finally has his solution.,10
-fomc-corpus,1992,"The reason I have a problem with ""B"" asymmetric is that no matter what we think it is we're doing [any action] will be the result of real economic indicators and reinforce the idea that we ease policy when the economy is soft and we are going to tighten policy when the economy is strong. I have a problem with that. So, I would prefer either to act today and do it because of weak money growth and make it very clear that we're trying to get short-term money growth up and long-term money growth down or, if we don't do that, adopt ""B"" symmetric but without the discretion of judgment for the future.",128
-fomc-corpus,1992,"Okay, as I now reconfirm what the views are, there is a majority for asymmetric toward ease in the form which I originally stipulated it. Therefore, I would request that you read the [directive language].",42
-fomc-corpus,1992,"""In the implementation of policy for the immediate future, the Committee seeks to maintain the existing degree of pressure on reserve positions. In the context of the Committee's long-run objectives for price stability and sustainable economic growth, and giving careful consideration to economic, financial, and monetary developments, slightly greater reserve restraint might or slightly lesser reserve restraint would be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with growth of M2 and M3 over the period from September to December at annual rates of about 2 and 1 percent, respectively.""",112
-fomc-corpus,1992,Call the roll. MR. BERNARD Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Hoenig Yes President Jordan No Governor Kelley Yes Governor LaWare No Governor Lindsey No President Melzer No Governor Mullins Yes Governor Phillips Yes President Syron Yes,54
-fomc-corpus,1992,Okay.      Let's go have lunch.,8
-fomc-corpus,1992,"Good morning, everybody. The first item of business is the recognition of the fact that this is Bob Black's last meeting. His first meeting was much closer to the 19th century than any of you would know: It was in 1960! That's really extraordinary. I wish to implore all of you that we not become unduly sloppy in our intellectual procedures with Bob leaving the group. In any event, we'll see a lot of you in the future, I presume, Bob. I tried to think of a few things to say about you; it's very difficult to add anything other than refer to the extraordinary esteem which all of your colleagues very clearly have shown to you through the years. And while I've heard a lot of nasty things about me and about other members of this FOMC, I can tell you that I never once have heard anyone say anything other than positive things about you. It goes without saying that we're going to miss you and miss you dearly for your wisdom and your extraordinary insights and experience. It's not going to be easy for us.",214
-fomc-corpus,1992,"Thank you very much, Mr. Chairman. I'll be perfectly willing to send you a letter if I think you're going astray, and I hope you will heed that letter!",35
-fomc-corpus,1992,Why don't you fax it!,6
-fomc-corpus,1992,He won't own a fax!,6
-fomc-corpus,1992,I don't have a fax machine but I'm thinking about getting one.,13
-fomc-corpus,1992,The second item on the agenda is an important announcement from the President of the Federal Reserve Bank of New York.,22
-fomc-corpus,1992,"Most of my colleagues have probably seen The New York Times this morning. There's an article of enormous consequence on the front page. For those who haven't seen it, I thought I should share it with you to make sure that these proceedings go forward on a liturgically sound basis. The article reports that for the first time in more than four centuries the Roman Catholic Church today issued a new universal catechism which, among other things, identifies a range of new sins that are the product of modern-day society. Among the sins defined in the new catechism are tax evasion, drug abuse, mistreatment of immigrants, abuse of the environment, artificial insemination, genetic engineering, and financial speculation. I don't know about the rest of you, but I've got to get me one of those! I can see it now: When Gretchen and Joan and Bill go to confession they're going to have to make sure that the confessor understands the difference between hedging and speculation.",197
-fomc-corpus,1992,With that I'm not sure I can get approval for the minutes because I'm not sure what we were doing back then! But I will request it in any event. Would somebody like to move the minutes of the last meeting?,44
-fomc-corpus,1992,Move it.,3
-fomc-corpus,1992,Second.,2
-fomc-corpus,1992,Without objection. Before Gretchen goes to confession she better report to us.,15
-fomc-corpus,1992,"I'll try my best, Mr. Chairman, not to be too confessional. [Statement--see Appendix.]",22
-fomc-corpus,1992,"Questions for Gretchen? If not, let's move on to Bill McDonough. [Secretary's note: Mr. McDonough requested authorization to negotiate renewal of the System's swap lines for another year.]",42
-fomc-corpus,1992,Questions for Bill?,4
-fomc-corpus,1992,How many countries do we have swap lines with?,10
-fomc-corpus,1992,Fourteen and the BIS.,6
-fomc-corpus,1992,"So, it's all of the European economies that are linked to the deutschemark?",16
-fomc-corpus,1992,"Japan as well, and we also have a small swap line with Mexico.",15
-fomc-corpus,1992,"Well, I recall what we were doing when these swap lines were [activated] in the 1970s, but it's not clear to me these days when actions really involve the dollar, the deutschemark, and the yen why we would want a swap line with the Dutch for guilders for instance.",61
-fomc-corpus,1992,"The most likely swap lines to be utilized are those with Japan and Germany. I think there are circumstances when, given the tie-ins of the EMS currencies, there could be a possibility --less likely I agree--of using the swap arrangements with some of the other central banks. You will recall that we owe the Committee a discussion of the general issues of our currency arrangements and our reserve holdings. This is part of that picture. I would prefer, and I recommend to the Committee, that we renew the lines and then revisit the issue when we have that later discussion and after we have a new Treasury team with whom to discuss their views.",127
-fomc-corpus,1992,Any other questions? Would somebody like to move Bill's recommendation?,13
-fomc-corpus,1992,I move it.,4
-fomc-corpus,1992,Second.,2
-fomc-corpus,1992,"Without objection. Bill, do you want to continue with the report of the Domestic Desk?",18
-fomc-corpus,1992,[Statement--see Appendix.],6
-fomc-corpus,1992,"Bill, do you have any evidence from those forward federal funds contracts or from short-term money market instruments that the near-term firming in federal funds futures, which looks to be about 25 basis points, actually tilts over after the first of the year? Are we close enough yet to draw inferences as to whether that in fact is what the markets are saying?",74
-fomc-corpus,1992,Your [inference] is exactly right. We're just at the cusp of being able to see whether it's purely a year-end phenomenon or whether it goes past that. The rate structure in the market and perhaps even more our very active conversations with banks and the Wall Street firms do lead us to the conclusion that it's a year-end phenomenon.,67
-fomc-corpus,1992,"Other questions for Bill? If not, would somebody like to move to ratify both the previous actions of the Desk and Bill's request for the intermeeting leeway change?",35
-fomc-corpus,1992,I'll move them both.,5
-fomc-corpus,1992,Second.,2
-fomc-corpus,1992,Without objection. Let's now move on to Mike Prell.,12
-fomc-corpus,1992,[Statement--see Appendix.],6
-fomc-corpus,1992,"Questions for Mike? If not, would somebody like to start the Committee go around?",17
-fomc-corpus,1992,"Thank you, Mr. Chairman. In the Sixth District we continue to see signs of improvement in economic activity but the pace is still very, very slow. We did a recent survey of manufacturing plants for October and that showed a leveling off of activity from the third quarter, but the respondents were optimistic about their prospects for the near term at least. In the housing sector, single-family home sales and construction remain fairly healthy. Multifamily activity, on the other hand, was still pretty poor but it does seem to have bottomed out during the summer. This also seems to be true for commercial construction, although the vacancy rates in the District are quite high; they are above the national average and considerably above in some of our key cities. Retail sales have improved and retailers are optimistic about holiday sales. However, because they placed their orders some months ago when they were in a more cautious mood, their inventories are quite lean, and it appears that discounts and promotions will probably be less a factor this year than they were in recent years. Output of goods and services has been expanding but employment growth is low. The unemployment rate is at its highest level in six years in the District, and major firms continue to announce layoffs. For example, Bell South announced 5,000 layoffs, I think. This, of course, is increasing uneasiness in the labor market generally. We continue to see better demand for goods related to housing and construction materials in light of the national level of activity but also because of the rebuilding going on as a result of hurricane Andrew. In connection with the hurricane I might add that insurance companies have raised their estimates of losses; and five insurers who represent about 60,000 policyholders in Florida have failed as a result of the hurricane. That's the situation in the District, Mr. Chairman; it's somewhat better than last time but still proceeding at a very slow pace. With respect to the national outlook, our forecast is very similar to the one shown in the Greenbook. The profile over the next several quarters is somewhat different, but we come out in the same place. The only other difference is a marginal one in that our inflation forecast is perhaps a little higher than the Greenbook's. But it's a forecast that we would generally agree with and, especially with respect to 1994, I hope we can reach it.",470
-fomc-corpus,1992,President Keehn.,4
-fomc-corpus,1992,"Mr. Chairman, on balance conditions in the District have a somewhat better tone than was the case at the time of the last meeting. It is a little hard to back that up with statistical data. In fact, some of the data have gone the other way; for example, the Chicago purchasing managers survey for October went below 50 percent. Still, the steel business continues to be pretty good. The industry is currently operating at about an 80 percent rate, and that's a rate that will maintain inventories at a fairly stable level. Shipments this year are probably going to come in at about 82 million tons, which is a pretty good year, though I must say that pricing continues to be very tough. For 1993 the industry expects an increase in shipments to about 85 million tons. There is a wild card with regard to next year and that relates to the outcome of trade suits that have been filed. The early outlook on these suits is favorable and, if they prevail, that should be helpful both to volume and also to prices. Aided by strong light truck and van sales, the motor vehicle sales levels have improved. Sales this year will probably come in at about 13 million units and the industry is expecting an increase to about 13-1/2 million units next year. Based on these higher expectations, one manufacturer has set first-quarter production schedules 15 percent over the first quarter of last year. I was talking to representatives of one major automotive manufacturer last week and was trying to convince them that at 13 million units this has been a pretty good year; they didn't buy it a bit. They reminded me that the industry's base year, in their view at least, is 15-1/2 million units; and with operating results running very firmly in the red it's very difficult for them to view this as a good year. The heavy truck business also is better. Sales of the Class 8 units this year are about 25 percent over last year and the industry expects continued improvement next year--perhaps another 20 percent increase. But I must say that even at these higher levels sales are well under the very much higher levels that existed in the mid-1980s. Retail sales in the District are showing some improvement. I think consumer confidence is back a bit and the early outlook for Christmas is a little more positive than previously expected. But the consumer continues to be very price conscious and it does take price discounts to produce sales. In line with that comment, the price and inflation news in the District continues to be very positive. Price pressures really just aren't there. Offsetting the good news, the agricultural equipment business is just terrible, with no signs of improvement. One major manufacturer just finished its fiscal year and large tractor sales in that fiscal year were down by some 40 percent from the year before. They are continuing to reduce production schedules and to lay off employees. Also disturbing is the continuing drumbeat of layoff notices in the District. Just in the last few weeks we've had another 8 or 10 companies announce layoffs. Some of them are small--180 to 200 employees--but others are much larger. And this constant announcement of layoffs does cast something of a pall over the employment outlook. We had something of a milestone in Chicago last week. There was a large reception commemorating the completion of the last major office building in downtown Chicago. No one has projects underway and we now have a vacancy rate in the downtown area of about 23 percent. At current absorption levels, it is going to take about 10 years to work through that inventory and there is a gloomy prediction out there that we won't see another big project until the next century. In a national context, while the outlook may be showing at least some signs of improvement, the improvement seems to be very modest. I continue to think that we have a very fragile situation on our hands and that the risks continue to be on the down side. If the staff forecast is right--and ours is quite close to it so I don't think it's worth spending time discussing the differences--the issue really is whether this is an outlook that will be acceptable and whether it will produce the kinds of employment gains necessary to sustain the recovery over a reasonable period of time. That to me is the issue that in a monetary policy context would be the important question. Thank you.",877
-fomc-corpus,1992,May I ask: Do you have any particular insights you can share with regard to the intermediate-term situation at General Motors? We are now getting a sense that at least some of the financial people are going through a very fundamental reappraisal of the prospects for General Motors over time. I don't know whether there's anything to that other than people just going through the exercise. The other question I wanted to raise is: Do you see from your vantage point any near-term possibility that GM or GMAC could start to run into problems in terms of rolling over the tremendous amount of commercial paper they have out in the marketplace?,122
-fomc-corpus,1992,"Jerry, on the first question, there are frankly questions of viability about GM; that has been true not just recently but going back a few months. I talked to just felt that the troubles were much bigger than were fully understood by the market, and this goes back three or four months. So, everything that has come out tends to confirm what he was saying. The most recent numbers [coming out] in the last few days are really very much on the serious side. So, that is certainly an open question. In terms of your second question, if in fact this does evolve in a way that suggests there are questions as to GM's viability, it's only a matter of time until the market will pick that up and make the rollover of paper a very difficult issue. So, this is a very significant concern in more than just a District context.",171
-fomc-corpus,1992,Between GM and GMAC what do they have--something like $20 billion of commercial paper outstanding?,20
-fomc-corpus,1992,I don't know if it is that large; it is huge.,13
-fomc-corpus,1992,President Parry.,4
-fomc-corpus,1992,"Mr. Chairman, conditions in the Twelfth District are little changed from our last meeting, with continued weakness in California offsetting modest growth in the other District states. District-wide employment in September fell at a 1.1 percent annual rate, led by weakness in California. California employment by itself fell at a 3.8 percent annual rate in September and 2.1 percent in October; that brings the state's employment to a new cyclical low. I might also point out that there's a consensus among forecasters that the actual level of employment is 100,000 less than is being reported in the survey. Last year there was a similar view that employment was being exaggerated, and revised figures certainly confirmed that. Outside of California, District employment expanded at a 3.3 percent annual rate in September. The contacts we have in Alaska, Arizona, Idaho, Nevada, Oregon and Utah report fairly favorable conditions. But California is weak; in Washington conditions are flat due to production cutbacks in aerospace; and Hawaii is affected by slumping tourism. The weakness that we're seeing in California certainly is a concern. Already announced cutbacks in aerospace, defense, and state and local governments, together with an overhang in commercial real estate, have led forecasters to project that we're going to see continued job losses in the state of California through the end of 1993. This weak projected economic performance threatens California with yet another state budget shortfall of at least $4 billion through the end of the next fiscal year, which is 1993-94. Reflecting this ongoing weakness, lending continued to decline in October at large District banks. Commercial, consumer, and real estate loan volumes are down from their year-earlier levels. Turning to the national economy, our outlook is similar to that of the Greenbook if we assume no change in monetary policy through the end of that period. The modest 2-1/4 percent growth that we anticipate, again assuming no further easing, is down 1/2 percent from what we expected at the time of the October meeting. That's mainly a result of the higher value of the dollar and prospects for slower economic growth abroad. Consistent with sluggish growth in output, we expect to see only small declines in the unemployment rate over the next year or so and thus continued downward pressure on underlying inflation. Our view is that the CPI will come in at around 2-3/4 percent in '93 and a bit lower than that in '94. Thank you.",504
-fomc-corpus,1992,President Black.,3
-fomc-corpus,1992,"Mr. Chairman, we come out very close to the staff projections on the real side of the economy, and they in turn are generally in line with what most private forecasters are saying in that they call for a gradual recovery. Our guess is that the risk has now shifted to the [up side]. For the first time I think we see some signs that the economy may really be beginning to move a bit. For example, a substantial portion of the latest data, both nonfinancial as well as financial, has been at least somewhat stronger than expected. Prospects for consumer spending in particular look much better than I thought they would look; they strike us as really rather bright when coupled with the apparent upswing in consumer confidence as reported in the Michigan Survey for early November. And the apparent acceleration in commercial lending at banks is another favorable financial sign. Also, the anecdotal information that we've been picking up around our District has been considerably more upbeat lately than it had been for a couple of months. Our directors' comments in particular have been better for two successive months than they were before that. And their comments for the last couple of years have been pretty darn good leading indicators. Somehow or other this group we have now has been better able to call the movements in the economy than almost any group of directors we've had in the past. And this is what they're telling us. Now, we're all aware, of course, that these developments can prove to be pretty transitory. We have had a lot of fits and starts in this frustrating recovery period that we've been through. Nevertheless, I believe [the improvement] may be real this time. Let me make just one final comment about the inflation projections that the staff has made. Over the last several years, I've often been accused of being much too optimistic about inflation. A lot of that stems from my deep faith in the wisdom of this Committee to do what needs to be done. I think our policy has been excellent for many years now. Now I think we're seeing some evidence that my optimism about inflation is beginning to be realized. We've made tremendous progress. If you look at the staff projection of 2 percent inflation in the CPI for '94, for example, I think we've gotten very close to what really amounts to zero inflation, taking into account the errors of measurement in that measure. And I express one parting hope: That the Committee will continue to behave as it has in the past. If you do, my fellow pensioners and I will forever be grateful to you for your fine work!",511
-fomc-corpus,1992,President Stern.,3
-fomc-corpus,1992,"Thank you, Mr. Chairman. In the District, things seem to have taken a distinct turn for the better. I say ""seem to"" because that comment is based mostly on anecdotal reports I've picked up in the last month or two. Those really have had a very positive tone. I mention that, of course, against a background in which [economic activity in] the District probably has been advancing modestly throughout this period. Objectively, if you look at employment, which has continued to grow, and unemployment rates, which are almost uniformly low in the District, I think the numbers suggest a reasonably decent economic performance. The anecdotes are also for the most part on the positive side, although I should acknowledge a couple that are not. It looks as if has serious financial problems; how much longer it's going to stay out of Chapter 11 remains to be seen. As for nonresidential construction, major projects in the Twin Cities at least are about to come to a halt, I think. But aside from that, the reports we get with regard to much of the agriculture in the District, housing starts and sales, retail sales so far, and tourism activity--which apparently is spilling over into Montana at least with an inrush of Hollywood types and even some Easterners--have been pretty healthy. I must say that on Saturday afternoon I heard something I didn't expect to hear and haven't heard before--I'm sure you're all on the edge of your seats--about the latest progress of the Mall of America, our so-called mega mall: On the radio on Saturday they were basically telling people to stay away because the crowds were so big!",330
-fomc-corpus,1992,Were they buying anything?,5
-fomc-corpus,1992,"Well, I don't know that the mall's developers are making any money--that's a different matter--but [sales] apparently are running well ahead of expectations. Of course, the developers had to offer such attractive deals to get the stores in that I suspect they aren't seeing much of this. But the numbers apparently are very good, and it's not particularly at the expense of the other major shopping centers in the Twin Cities, if you believe what you hear. The people at the mall have done a very good job of promoting it; they're bringing groups in from all over, domestic as well as international, and that's apparently translating into real spending. Help wanted signs are popping up everywhere; a lot of that is seasonal, of course, but it's not confined just to retailers and fast food operations where one would expect to see it. And it is consistent with reports of tight labor market conditions in the Twin Cities and in other metropolitan areas in the District. So at least at the moment, based on the latest anecdotal reports, things seem to be moving along. With regard to the national outlook, I have no real disagreement at all with the Greenbook forecast. I don't have the sense at this juncture that the expansion is all that fragile, but I must say I don't have any particular sense that it's about to take off on the high side either. Coupled with the headwinds discussions that we've had in the past and a close look at demographics and related factors, it may just be that this is going to be a prolonged period of slow growth relative to what we have experienced in most of the postwar period and perhaps relative to what we had earlier expected. On the margin, I'm not sure there's a lot to be done about it.",348
-fomc-corpus,1992,President McTeer.,5
-fomc-corpus,1992,"Eleventh District business conditions and prospects appear to be stronger this time than at the time of our last meeting. I base that on discussions with our directors and other business people in the community, our Beigebook respondents, my own visits to local malls, and my inability to get a parking place at the airport yesterday. [Laughter]",68
-fomc-corpus,1992,Everybody's leaving!,4
-fomc-corpus,1992,"We had a flat second quarter and the third quarter seems much improved. Most of the indicators show that; the leading indicators are even stronger than the coincident indicators. We have a Texas leading index. It was flat in the second quarter and much stronger in the third quarter. Texas and New Mexico seem to be doing better in terms of employment than Louisiana despite some recent improvement in the natural gas industry. Natural gas prices are about 30 percent higher than they were this time last year. I probably should mention something on Eleventh District banking since it has been in the news recently. As you all know, First City expired a couple of weeks ago. That organization had 20 banks; they were closed in what was referred to locally as a ""Hollywood ambush."" That raised the District's bank failures year-to-date from 9 to 29. The First City organization had shrunk down to about $8.8 billion. It's probably the first major bank and perhaps the first bank of any size to require a second assisted resolution; the FDIC assisted it in 1988. It never fully recovered and the person who took it over made some new errors, so it has been crippled since then. It's the largest bank, I believe, to involve a significant haircut to non-insured depositors. Among the twenty banks, the four largest took a 20 percent haircut on their uninsured deposits. Those were in Houston, Dallas, San Antonio, and Austin. The feeling in the community over this development is one of sadness because First City was making a valiant effort to deal with the problems on its own. And there's a great deal of resentment toward the regulators first for the timing, which was the weekend before the election in the President's home town, and for the feeling that bank management was misled into thinking they had the support of the regulators in the bank's efforts to deal with the problem and effect a resolution without help. Incidentally, none of the First City banks was borrowing at the discount window and they all expired with positive reserve balances. I guess the economic implications of this are that it takes a long time to recover from a banking collapse. As you know, we've lost local control of 9 of the 10 largest banks in Texas. But as someone said yesterday, the pig is now through the python. That was the last major problem bank left in the Eleventh District. Measures of banking health are now good in Texas and in the Eleventh District. Banks still are not making net new loans; there remain too many incentives against lending as opposed to investing in Treasury securities. On the national economy, I read the same newspapers and Greenbook as the rest of you and I don't really have any new insights to add. I have noticed that the press seems less eager to put a negative spin on the good news than before. So, one gets the impression from listening to the news that the economy and the prospects for the economy are now better than they've been in quite a while and considerably more positive than at the time of our last meeting.",615
-fomc-corpus,1992,"Bob, I noticed that there are reports of improved drilling rig activity. How significant is that and what do you make of it?",26
-fomc-corpus,1992,"Well, they were at all time lows and with hurricane Andrew natural gas prices went up; the price for natural gas is about 30 percent above what it was before. So there has been some renewed activity there. It's helpful, but the long-term prospects are very negative, I think.",58
-fomc-corpus,1992,Do you really sense any carry-through off the rebound of the gas prices?,15
-fomc-corpus,1992,"I don't think so, although the feeling is that oil prices also will rise in the coming few months, especially if we have a cold winter.",29
-fomc-corpus,1992,"And especially if we don't, we are not going to get it.",14
-fomc-corpus,1992,"Mr. Chairman, I might note that I heard an oil company economist last week cite figures that ran something like this: About a year ago, there was a mix of oil rigs in the mid-400s and gas rigs in the mid-300s; now that has flipped. So it's about the same overall level but the mix has shifted toward gas with those firmer prices.",77
-fomc-corpus,1992,President Boehne.,5
-fomc-corpus,1992,"Economic activity in the mid-Atlantic states continues to be slow and uneven. There is modest growth in retail sales and, while retailers are not overly optimistic, there is some hopeful sentiment about the holiday season. Manufacturing appears to have picked up some during the past month after a couple months of downturn. There is some growth in residential construction. The nonresidential side is weak. Loan data, when you cut through them, show some hint of better loan demand but the hard numbers grossly overstate the improvement. Looking at our District loan growth, it shows an increase in C&I loans. That's really because one bank in Delaware decided to book some loans in the District rather than someplace else. If we factor that out, we really see a continuation of declining loan demand. However, anecdotally one does get the feeling that loan officers feel a little better. The real weakness is in the labor market. For example, we've just done a survey of our manufacturers and, while it shows a pickup in activity, it continues to indicate that manufacturers are cutting their payrolls. That seems to be true even in areas where we're seeing some improvement [in activity]. On the national side, I sense a better tone from the same data that other people read. The issue is one of sustainability: Is it for real or is it another false start? Basically, we don't know. I think it's one of those times when we have to watch the data and keep an ear to the ground anecdotally.",301
-fomc-corpus,1992,President Syron.,4
-fomc-corpus,1992,"Well, Mr. Chairman, there have not been great changes in the New England region since the last meeting, contrary to some of the stories around here. There does seem to be some slight feeling of improvement, at least in mood, since the last meeting. However, and this is consistent with what Ed Boehne just said, one thing that I'm rather struck by is that when we call around and talk to manufacturers--for example, which is seeing improvement in some lines--they tell us that they are still planning on continued restructuring in employment. There just is no one talking about anticipating increases in hiring, including those in the health care sector. The manufacturing sector has become slightly more pessimistic because of the export side, with many of our high-tech companies seeing a slowdown in their sales both to Asia and to Europe. Retailers are somewhat more optimistic; it has to do with where they started out, I think. But there is also a lot of discussion about additional sale days before Christmas this year. Consistent with the question that Jerry Corrigan raised on the auto side, autos have seen some general improvement, but in talking to in New England he expressed real concern. He had seen a lull in sales since all this news about GM came out. He said they did have people coming into the show room now expressing concern about where they were going to be able to get car service in the future, that sort of thing. As for the real estate market, on the residential side prices do seem to have bottomed out now; on the commercial side they're still softening but probably are fairly close to a bottom. Banks see very little good loan demand. We still get a lot of complaints about the credit crunch. On the national scene, I don't have any real disagreement with the Greenbook based on its assumptions, and I think it makes assumptions that it has to make in terms of fiscal policy because we have to consider what we're doing ourselves. The only issue I would raise--and I guess we'll hear about this later--is on the export side: That issue is whether there's any reason, given the further strengthening of the dollar and the weakness that we've seen in forecasts for Europe and Japan, to expect some further decline there. My main concern, as in the past, is that we have had somewhat of a serial optimism in our forecasts over time. I'm not quite so sure that's true this time. But even if one looked at this as being a balanced forecast in terms of risks, which is about what I think it is, we have a fair amount of room given the excess capacity in the economy [regarding] which direction we might want to make a mistake. I also think that at this stage we can't be overly influenced by what we think fiscal policy is going to be because there are too many unknowns; we just don't know what it will be or when it is going to come into effect. I think things do look a little better but as always there is a concern about whether this is just another false [start] or something that is going be self-sustaining.",621
-fomc-corpus,1992,President Hoenig.,4
-fomc-corpus,1992,"Mr. Chairman, our District continues to show some modest improvement and considerably more optimism looking forward. Our agricultural sector is really trading off between improvement in our livestock business and some deterioration in our grain business, so that overall we have flat prospects for that sector this year and into next year. The manufacturing sector is a bit mixed. Our aircraft manufacturers are still weak. The auto sector is mixed because production at our GM plant is still very slow whereas Ford is going to be investing significantly in its plant in Kansas City, which I think will bring in some jobs. Other than that, activity in our nondurable goods area is ""decent,"" as they say, looking forward. The rise in natural gas prices has spurred drilling activity in the District; the third quarter was up over 20 percent from the second quarter, although that doesn't bring it back to anywhere near what it was a little more than a year ago. But we are seeing some pretty robust [growth in] activity there right now. Our construction area is still doing pretty well. That is particularly so in the Denver region where economic activity is coming back rather strongly right now. In fact, for the region construction activity is up fairly dramatically over a year ago, well over 10 percent. Our employment levels are up over last year--our estimate is about 0.6 percent--and the anecdotal reports we're getting from our directors are uniformly positive in terms of their reading of the environment and their own attitudes. The banking industry in our region, with a couple of notable exceptions, is really quite strong; earnings are strong across the region, and I think there's a little more of an attitude of making an effort to get into the lending business again, although [bankers] are keeping the lessons of their past experience close [to mind]. Overall, I see some general improvement in our region. As far as the national outlook, as we look over two quarters ahead our view is very similar to the Greenbook on average although our timing is somewhat different, which I don't think is significant. We're looking for inflation to be in the 3 percent range. So, we are fairly comfortable with the Greenbook projections as we look at the national economy. Thank you.",446
-fomc-corpus,1992,Governor Lindsey.,3
-fomc-corpus,1992,"Mr. Chairman, I saw a good advertisement last night; unfortunately it was [unintelligible] and I don't know what company it was for. But I do remember the scene. It was something about predicting the future. In walked two scruffy characters who looked like Attila the Hun and the witch doctor. They dumped a bunch of bones on the table out of their bag and made some appropriate grunts. I must say, having seen the economic indicators go up a little and go down a little, I feel a bit like one of those two gentlemen.",114
-fomc-corpus,1992,Which one? [Laughter],7
-fomc-corpus,1992,"The good-looking one! I share very much the attitudes that have been expressed in that I think the tone of the data looks a little better than last time. But what has really changed are attitudes; attitudes are much better. Here is where I get nervous because of the old saying ""once burned, twice shy;"" this might be the third time we've been burned. The first time was the Saddam Hussein defeat when we had a big boost in attitudes. The second time was after our rate cut last December when there was a big improvement in attitudes. And now we have a new President and a big improvement in attitudes. I don't know whether attitudes are going to translate into real changes. If I have a disagreement with the staff forecast, it has to do with what I expect to occur in the early part of next year, particularly with regard to fiscal policy. I remember the 1981 tax cut from being inside [the Administration]. I think what is being proposed today is not that dissimilar. Essentially, the big proposal earlier was an acceleration of depreciation deductions rather than an increase in the investment tax credit. The present value of the tax incentive, though, is roughly the same. Three events resulted from that [earlier tax cut] that we should keep in mind. The first is that the first relative price change you induce when you impose an ITC is that you lower the price of old capital relative to new capital, i.e. the stock market declines. The second factor to remember is that there is a delay before investment picks up. There was a very substantial delay in 1982; we waited almost 12 months to see an investment pickup after the new depreciation deductions came into play. I think that's very consistent with the econometric evidence. But the expectations in the market are that the investment will happen almost immediately and therefore we will see a rise in near-term and intermediate-term interest rates well before investment picks up. And the third factor to keep in mind is that tax bills never get through quickly even when it looks as if the President has a mandate as he did in 1980 and as he does this time. Everyone promises that things are going to be speedy. It's worth remembering that the 1981 bill almost passed and then got bogged down; it actually got new impetus only after the President was shot and, therefore, a ""second honeymoon"" occurred. I don't expect that to happen this time but, again, it takes a major, major amount of movement to change tax legislation; that shouldn't be underestimated. There are, in fact, two worse situations this time with regard to what is likely to happen. The first is that we do not have safe harbor leasing in the current proposal. The safe harbor leasing allowed loss-making or non tax-paying firms to be able to get tax advantages. That will not be the case this time. Secondly, we have a much tougher minimum tax in place which, in fact, is proposed to be increased under ""putting people first."" Those companies paying the minimum tax are essentially investment intensive firms. Therefore, that's a further complication. Where I think that would play out is not in what will happen after the bill is passed but in delaying the passage of the bill. The Chairman of the House Ways and Means Committee has particular industries he is concerned about; the various power players have particular industries; and right now every Big Eight accounting firm is doing very good business with clients to calculate exactly what the changes in the tax law have to be in order to encourage investment in that firm. I would say: Don't expect anything quickly. So, I'm more pessimistic about the start of the year. I think what we're going to see is a stock market decline, a rise in intermediate-term interest rates, and no fiscal stimulus. I think that's going to lead to a sense of disappointment. We're going to see the continuing layoffs that people mentioned. GM is on the line. And, Jerry, I would ask the same question about IBM. I notice [its stock price] is now down to 65; the last time I looked it was at 85. We're going to see continuing weakness abroad. We have the possibility of collapse in Russia this winter. And we always have the Middle East. So, to [abuse] a phrase, maybe what we're seeing is ""deja voodoo,"" in line with Attila the Hun and the witch doctor. We've been here twice before and I would not be overly optimistic since all we're seeing, really, is an improvement in attitudes.",910
-fomc-corpus,1992,President Melzer.,4
-fomc-corpus,1992,"On a District basis I don't have anything new to report. The statistics or anecdotal information we have suggest that the Eighth District is growing modestly more rapidly than the rest of the country, but there are no really dramatic changes. On the national front, I would have two brief comments. One is--and I think Mike Prell allowed for this in commenting on the forecast--that I personally wouldn't be nearly as sanguine about the long-run inflation outlook as the forecast is with an assumption of an unchanged funds rate. I'm talking about looking out a couple of years. I have trouble with that working out that way. Secondly--and this is by no means a criticism of the staff's efforts to forecast because I think the staff is among the best in terms of that job, but it's a very difficult job--the third quarter served as a reminder to me of the questionability, if you will, of short-run fine-tuning monetary policy based on economic forecasts. As good as that process may be, it's a very, very difficult thing to do. We essentially are looking at a rate of growth in GDP that is probably twice what we thought a couple of FOMC meetings ago. If you look back over time, I think that pattern repeats itself. So, I was reminded of that and thought I'd share that.",267
-fomc-corpus,1992,Governor Mullins.,4
-fomc-corpus,1992,"Well, to follow on Tom's line of thought, the smoke has cleared. We have three quarters in the books and the average growth for the first three quarters of 1992 is a shade under 2-1/2 percent. And we've learned that the third quarter may be revised up to 3 percent, which would put us right at 2-1/2 percent.",78
-fomc-corpus,1992,Or more.,3
-fomc-corpus,1992,"Or more. I would submit that this is better than most economists expected at the beginning of the year. It's certainly in line with our Humphrey-Hawkins forecasts and exceeds my Humphrey-Hawkins forecast. It's also certainly better than the recent performance of other G-7 countries that are going through this adjustment period. Indeed, 2-1/2 percent growth is even marginally better than potential. It may be very depressing to the electorate to think about 2-1/2 percent growth, but over the long term perhaps we can raise the potential. But [we can] point out that at least it's at that level. Unemployment is down about 1/2 percentage point, although that has been pretty flaky and, of course, the performance is moribund compared with a traditional recovery. I think it's because the underlying structural dynamics are far different and it's not especially valid to compare it to a traditional cyclical episode and inventory cycle. This is simply a slower balance sheet adjustment process. We've made measurable progress, as we've talked about, on that adjustment process but it's probably not yet completed. As a result, I would agree that the immediate outlook is for slow growth. We've had this lurching pattern between 1-1/2 percent and 3 percent quarterly growth. Several weeks ago I would have thought the next lurching would be down toward the lower end of that range--at about 1-1/2 percent. The data we've talked about here--the wide ranging data from retail sales to confidence numbers to industrial production --all suggest a bit more near-term strength than I would have expected a few weeks ago. There's also this notion of a post-election upturn in confidence. I would agree with Governor Lindsey in that I'm not confident that that's going to have much of an effect. We saw in the UK that even with their post-election euphoria, which did lift the markets, consumers found they couldn't pay down their excess debt with confidence. So, in general, I wouldn't argue with the Greenbook forecast of 2 percent for the fourth quarter, although I think it may be a bit stronger if anything. Despite this ratcheting pattern, I think we are gradually, painstakingly, building a base of higher growth and are slowly emerging from this economic lethargy. The financial data in my view are consistent with this conclusion. The firming of credit demands one can only call marginal, but at least it's there. Consumer installment credit increased for the first time in my recent short memory. And domestic nonfinancial debt, excluding the U.S. government, has accelerated from growth under 2 percent a month on an annual basis to a bit over 3 percent. That's nothing to write home about. Short- and intermediate-term business credit has shown some strength as well. That is in keeping with this slow, gradual pattern. And M2 growth continues its gradual strengthening. In the last three months it has grown at a rate above 4 percent; for the year its growth is only marginally below the low end of the range. If one were to adjust it for the yield curve effect of flows to bond funds, it would be within the range; but then I wouldn't know exactly what that would mean. One could say the velocity increase is better established now and I'm equally confused about what that means. Of course, we have no shortage of liquidity. Ml growth has been 20 percent the past two months and 14 percent for the year. I think both the economy and M2 may take another swoon especially with long rates up 30 to 50 basis points since September, the dollar higher, and the outlook for foreign economies much weaker than it was several months ago. Of course, then there's the uncertainty associated with the fiscal stimulus. This is likely to mean higher interest rates in the near term and maybe a slowing of the adjustment process and then, followed with a considerable lag, the fiscal stimulus. Still, I think the prospects remain favorable for gradual improvement even in this uneven pattern. I thought it might be useful to look at where we are on inflation because I'm a bit concerned that we're likely to hear a lot about the drag on the economy that comes from the shift to a low inflation environment or low inflation regime. I hear a lot of this in international discussions as well. Despite last month's disappointing CPI, we've made very notable progress. Core CPI has decelerated from 5-1/2 percent in the late '90 to early '91 period down to about 3 percent. We've have commensurate reductions in the PPI and ECI; commodity prices are soft. And if there's measurement bias in the CPI, actual inflation could well be in the 2 percent range. So, on actual measured inflation, we seem to be relatively close to closing in on price stability. The prospects for continued progress also look good on all measures, whether you talk about slack or money growth. Unfortunately, the Chairman has defined price stability for us as a condition in which inflation is not an important factor in economic decisions, and I think that's a correct definition. But in economic decisions it's not always actual measured inflation that is important; it's inflationary expectations that feed into investment decisions, into the long rate, into labor negotiations and the like. How have we done on inflationary expectations? Not well. In the Michigan Consumer Survey, consumer inflation expectations for 5- to 10-year horizons have held steady like a rock at roughly 5 percent during this period. Not only has it not come down appreciably but the level is probably double the level of recently measured inflation. The resiliency of inflationary expectations also is apparent from the still relatively high level of long rates, which includes a premium that I think is above recently measured inflation and the outlook for future inflation. I think this is understandable. We've had 4 to 5 percent inflation since 1983; it's deeply imbedded in expectations; it will probably take more than a few good quarters to get it out of there. So, despite the progress in reducing inflation, we haven't made much progress on inflationary expectations yet and that's necessary to achieve the benefits. Moreover, I believe the dissonance between actual inflation and expectations creates difficulties of adjustment which affect the real economy. I was at Tom's board meeting and one of the business people said--he put together a couple of comments--in effect that the employees base wage demands on inflationary expectations and he didn't feel he could pass [the higher wages] through [to prices]. Businesses have to pay higher long-term rates. Consumers, watching their home prices fall and their net worth fall with them, are not enamored of disinflation which they may view as deflation. So, the frictions associated with adjustment to the low inflation regime are in part responsible for the recent increase in criticism of price stability as the appropriate goal of monetary policy. It was very popular in the 1980s when the economy was growing and after [the rapid inflation of] the '70s. Now, we hear a lot of talk that a little inflation is not only not bad but beneficial. I hear this talk around town from noted economists looking for jobs! We've seen recent articles questioning price stability in Business Week and the Economist, and I noticed in today's New York Times an article talking about the evils of deflation. It's also apparent that it's under some threat. Inherent in the gravitational pull of expectations is the risk of reverting to the 4 percent inflation that we've experienced for almost a decade. That would be unfortunate since we've paid much of the price to get inflation down and many of the benefits are ahead of us, secured only with inflationary expectations. In my view we're facing the critical period here with an improving economy, the prospect of fiscal stimulus, and very rapid growth in Ml which could turn into rapid growth in M2 and credit. And I think we're entering a period of tension, a battle between actual inflation and expectations, with pressure to revert to 4 to 5 percent inflation and fulfill those expectations. So, near term I think it's important to be vigilant and guard against another swoon in M2 growth. But we also need to be wary of the risks on the other side. When this does turn around, it could turn around quickly and we could risk losing the hard-won gains we've achieved and we could be back at ground zero very quickly. In particular, in terms of the upside risks, one can posit a scenario with the economy gradually improving to the 3 percent level next year, with the headwinds diminishing, with years of pent-up demand coming into play, and with a large fiscal stimulus that I think this Administration was elected to do. I think the stimulus package will be augmented by pent-up demand in Congress. That's likely to hit in late 1993 on top of an economy at 3 percent growth with credit demands picking up, turning narrow money into broad money and credit growth. And it's not inconceivable to me that in late 1993 into 1994 we could have an unsustainably strong upturn that could pretty quickly eat away our sense of slack. I view that as the medium-term problem, not the near-term problem. I still would acknowledge in the higher long rates, the higher dollar, and the weakened world economy the downside risks in the current environment. But we may soon be moving into the position where the upside risks could become paramount. It does concern me that the new Administration and Congress still view this economy as one that is in recession, as if we had negative GDP growth. It is important for us to keep in mind that we're at a 2-1/2 percent growth level and I think that argues for caution at this juncture.",1970
-fomc-corpus,1992,President Jordan.,3
-fomc-corpus,1992,"From the District perspective, things are continuing to move forward in a general way. We have some pockets of considerable strength. There is an area called the golden triangle down around Cincinnati to Lexington and over into Tom's Melzer's District in Louisville that is very strong, with very low unemployment. They talk about labor shortages and attracting people from other areas. Around Columbus, Ohio, business conditions are very strong. Even in the areas where we still have notable layoffs--300 people, 500 people--we still see some [overall] growth in employment. There are other non-notable increases, the non-headline catching kind of things, that are producing jobs to offset the contractions we are continuing to see at big firms. In talking with small business people around the District, I have noted a general improvement in their tone. Their exports are doing well and they feel their order books are solid. When I ask them about inflation expectations, that group consistently tells me that they see no inflation in their businesses, and that's reflected in their wage packages. They're talking about 2 and 3 percent increases in [total] compensation, matched they hope by productivity because there is no price increase factored in. When I talk to the banking community, though, the talk is consistently about pay increases in the 4 to 5 percent range, reflecting their view that inflation is going to stay in the 4 to 5 percent range. And I think the difference between the inflation rate people are basing their actions on and what we are seeing in the numbers is the critical challenge for the period ahead. We're getting pretty good retail sales numbers not only in the District but from all those major companies headquartered in the District; the latter reported very strong numbers in October as we now see in the national statistics. They also report improving optimism about Christmas. There was a recent slump in retail sales, though. In the first 10 days of November there was a surprisingly strong and uniform drop in retail sales; no one has much confidence in saying whether it was a temporary thing or something more serious. We are continuing to get pretty good housing activity around the District. So, overall, the tone has generally been pretty good. Turning to the national side, I'm not sure I have anything to say about the future because I'm still struggling to understand the past--the last year and a half or so at least--both in terms of what is perceived in the economics profession and especially by the incoming Administration and the new Congress about what the role of fiscal policy has been and what the role of monetary policy has been and, therefore, the conclusions they come to on what policy should be in the future. The discussion about fiscal drag has been interesting, that is, the deficit problem and how it has retarded economic activity through various channels that have affected overall aggregate demand and maybe certain sectors or regions. Now, the idea is that there's going to be some type of fiscal stimulus. Especially if it's viewed as aggregate demand--increasing total spending in the economy rather than affecting a specific region or sector or target industry, which it certainly could do--I'm not sure in my own mind how that will come out and [what its implications are for] monetary policy. The monetary [side] is much more intriguing for us in that since the ending of the Gulf War there seem to have been two major rival conjectures about what the economy otherwise would have done and what the role of monetary policy has been. One of them is that the economy was poised for a cyclical recovery and a normal kind of expansion after the Gulf War and was held back, especially by a monetary policy that was not sufficiently accommodative. That is the [conjecture of] people who had the view that a broad measure of money --M2, M3, or something--retarded total spending. The alternative conjecture is that the economy was subjected to a number of very major depressing forces, including possibly fiscal policy--the unwinding of the defense buildup of the '80s--the winding down of commercial construction employment on the two coasts in particular, and the balance sheet adjustments going on in business and households alike. In that view monetary policy was actually quite expansionary to prevent an even more severe contraction [which would have occurred] had monetary policy not been cushioning these down-draft effects. That suggests either that monetary policy is best summarized simply by how far short-term interest rates have dropped or by how rapid growth in the narrower measures of money growth has been. If this latter view is correct, then the critical thing for us is to ascertain when these depressing forces are starting to attenuate so that we know when is the right time to pull back on this massive amount of monetary stimulus that that hypothesis implies. Whereas if the former [view is correct]--that the broader measures best summarize the thrust of monetary policy actions in regard to the retarded economic activity--then the challenge still is to get within our target range so that we're not a negative force affecting the economy. Some think that those are [ir]reconcilable, but I think our challenge now is to reconcile them and to set our objectives for '93 in some clear fashion, based on which of those views we believe.",1050
-fomc-corpus,1992,Vice Chairman.,3
-fomc-corpus,1992,"I don't have a lot to add to what has been said around the table. I think things do feel a little better, as most have observed. I would side with those who also have observed that it's probably a little premature to declare victory. But certainly both the performance [of the economy] and the outlook are better than many had expected a couple of months ago. There are, as Governor Mullins and others have noted, some scattered signs of pickup in commercial loan demand, which is something we haven't seen for a long, long time. Going back to the Ninth Federal Reserve District, I can confirm that there will be at least one housing start in Montana in November because I caused it. All in all, my observations and sentiments are pretty much in line with what has been said around the table. The point that Dave [Mullins] was making regarding attitudes about inflation and price stability having changed is very interesting. We had our academic panel into the Bank a couple of weeks ago. This is a pretty good group of people and a good cross section in terms of philosophies and ideologies. There was just no sympathy at all from any of those people for doing anything to try to drive the core inflation rate down from a 3 percent level. That didn't surprise me coming from some of the fellows in Mr. Syron's neck of the woods, but there were among this group a couple of real old line, very conservative monetarists--people like Phil Cagan for example--and even he didn't want to hear it. And that is a change in attitude. Now, fortunately, these people aren't the only arbiters in this area, but it is interesting, given where we are today, that the perceptions about the costs of trying to engineer further reductions in the core inflation rate are clearly viewed a little differently today than they were several years ago. The only other thing I wanted to mention, Mr. Chairman--and maybe Ted Truman could help me out here--is that my assessment of the outlook in Germany and Japan over the next three to six quarters is really pretty grim. It's not at all inconceivable to me that performance in both of those countries could be distinctly south of the current IMF or OECD forecasts. That possibility has obvious implications for our economy in terms of the outlook for both exports and imports, but it also seems to me to raise some second-level dangers, including those on the financial side and perhaps especially on the trade side. Ted, I wonder if you would share with me and the others your sense as to whether that admittedly quite pessimistic possibility is something that we should be worried about.",526
-fomc-corpus,1992,"Well, I don't think one can exclude it. Our outlook has been decidedly less optimistic than the IMF's or the OECD's for that matter. Certainly in the case of Japan we see essentially no growth--a bit above zero--through the middle of next year. For Germany we are a little more optimistic than some of the forecasts we now see coming out of Germany itself, though it may be that we have assumed that the Bundesbank might do a bit more in the meantime. But I think [the possibility] is difficult to dismiss; a one standard deviation in the negative direction gives you a quite gloomy outlook in this situation. We obviously don't have a lot of positive information suggesting that a turn is coming, and I think you're absolutely right that the feedback effects of a period of European stagnation on top of what they've just gone through in terms of trade relations and so forth could be quite disruptive not directly to economic activity but to the [economic] environment and, therefore, real activity. Japan, of course, continues to be a question mark. The Nikkei came down below 16,000 though it's back into that range, which makes things a little dicey. They seem not to be making much progress.",244
-fomc-corpus,1992,Governor Kelley.,3
-fomc-corpus,1992,"Mr. Chairman, when David Mullins was speaking just a minute ago he was referring to several noted economists who think that maybe a little inflation wouldn't be such a bad idea after all. It occurred to me when he said that that maybe a definition of a noted economist is one who abhors [monetarism]. I have been thinking a bit like Jerry Jordan, reflecting on the flow of events of the last couple years. Someone wrote that history is a river; it flows out of the past and into the present and on to the future. Last meeting and before then I guess, Mr. Chairman, you said that you saw us as being poised between one of two models of the economy: Either it is in a process of refreshing and rebuilding or else it is going to seize up. I have to say I am becoming more optimistic all the time. It seems to me that if the economy were going to seize up, it certainly has had every chance to do it. The most amazing thing is that it has not seized up, given what is happening; I think it indicates an underlying strength in the economy that is just remarkable. If you'll forgive me for running this litany that you're all familiar with, just consider the things that have happened in the last several years and are still happening. None of these things has gone away; all of the drags [on economic activity] are still in place and are still playing through: the de-leveraging phenomenon [goes] all the way through the different layers of the economy; the restructuring [continues], with the attendant heavy job losses and the heavy burden that has been on confidence [unintelligible]; and absolute depression [persists] in the construction and real estate business--a very big industry--with all the implications there. One of the throw-offs has been consumer confidence, a decline in confidence through the wealth effect on home values. We have been through a banking trauma which in an earlier era would have caused what would have been described as a ""crash,"" I'm sure, and we'd still be deep into it just on that alone. We're going through a defense slowdown, another big industry; that industry is absolutely in decline but even more than that its composition is shifting with various displacements going on which I think in the short term are every bit as much of a drag as the actual decrease in volume. A newer factor, of course, is this world economic slowdown that is going on, weakening our exports which had been helping us in earlier years. Now, that's a lot of stress on an economy. And every one of those factors is still there; they are still dragging on the economy and they've all been at work for a long time except that last one, which may be just coming into its own. So, where are we? What has in fact been happening? Well, in the last nine quarters the first three of them were negative on GDP and the last six have been positive. Two of the last three quarters were +2.9 percent and we have what now may be 3 percent or more GDP growth in the most recent quarter. We're probably going to have 2.3 percent or more growth in GDP for the year, and that's not too shabby. We are now on new high ground; we're not in a recovery anymore, we're nearing an expansion as of the numbers of the third quarter. Our financial structure as a nation is strengthening in both the financial and the nonfinancial sectors as a result of the hesitancy in the banking industry and the de-leveraging. I think one would have to say that our competitiveness and our productivity are going up largely through this restructuring process. The banking system has certainly been battered but it's in place and hopefully wiser; it's certainly more fully regulated, heaven knows! And it is earning record profits right now. Inflation is coming down and it's into the range where we're beginning to talk about having achieved price level stability. On balance most of us here around the table this morning consider the latest news to be upbeat. I'm sure the economy could still seize up; I don't want to suggest that there's no reason for concern. But the longer we have the kind of results we're seeing, the less likely that is and the more it seems that we are indeed in a refreshing [stage of] rebuilding that I think displays an amazing underlying strength in this economy and one we can depend on as we look into the future.",891
-fomc-corpus,1992,Governor LaWare.,4
-fomc-corpus,1992,"Mr. Chairman, it seems to me increasingly evident that the economy continues to be moving in a positive direction, albeit at a very moderate pace, which looks to be consistent with further progress toward price stability. My impression is that the election has probably had a favorable effect on consumer confidence due in part to the intense media attention to expected stimulative actions on the part of the new Administration and an almost magical disappearance of the media's former obsession with unemployment and layoff announcements. Nonetheless, corporate restructuring, and particularly debt reduction and administrative staff reductions, will continue. I believe that spells out the [basis for] longer-range improvement in U.S. competitiveness. Many of the indicators are on a more favorable trend line. Corporate profits, while spotty, are generally better. The banking system is in better shape as measured both by its balance sheet values and by banking profits, which are probably at the best levels in more than two decades. Having said that, we certainly have not yet seen the full impact of the slowdown in California reflected in the banks that have a heavy stake there. The general tone of the financial markets I believe is resilient, and those markets have weathered a lot of the things that Mike Kelley was just talking about. To be sure, higher dollar exchange rates and softer economies among our major trading partners don't indicate a major boom for the export sector. It seems to me that the Greenbook forecast is on the money, if that's not an improper usage [of that expression]--",298
-fomc-corpus,1992,Hardly a venial sin! [Laughter],11
-fomc-corpus,1992,"--and consistent with my own analysis and the anecdotal input that I've been hearing. However, consistent with the suggestion of Don Kohn's recent memo, I will not further telegraph my [policy] views!",43
-fomc-corpus,1992,Governor Angell.,4
-fomc-corpus,1992,"We have had a rather sustained six quarters of doom and gloom and yet the economy has continued to move along at an average rate of 2-1/4 percent over that six quarters. In spite of all the talk about forward and back and double dip or triple dip, we really have not had as much variability in real GDP as normally occurs. So, the economy in some sense is doing pretty well given these conditions. As for the downside risk, I share the view that Jerry Corrigan has mentioned. It does seem to me that the pace of developments--not only monetary policy but other policies and outcomes --in the United States is somewhat out of step compared to developments in Europe and Japan. While commodity prices seem to be very subdued in dollar terms--in fact to some extent one might say they are still on a very slight downward trend, with a decline of maybe 1-1/2 percent at an annual rate over the last four years--nevertheless, wholesale prices in the United States are not responding nearly as well as one would expect under those conditions. That is, the rate of change in our finished goods wholesale prices year-over-year has been stuck in the 1-1/2 to 1-3/4 percent range for some time. In contrast, even though they have much higher wage and price inflexibility, the year-over-year rate of change in wholesale prices in Germany is -1.6 percent and in Japan -1.3 percent. And the Bundesbank is very upset about a 3-1/2 percent inflation rate as measured by their year-over-year CPI. Yet, somehow or other, we are at 3.2 percent and maybe that's [viewed as] okay. I'm wondering with this GATT round--and we all seem to dispute where it [stands]--how much danger we're in with regard to a continuing rollback of trade openness. With this kind of slow growth that the world is experiencing--and I think that's reflected in commodity prices--I'm wondering whether or not we really are on a much more dismal path toward protectionism than we may believe. I'm wondering if Europe and Japan may be closer to zero in their real growth. I'm wondering what that means for world capital markets if the United States is able to achieve 3 or 3-1/2 or possibly 4 percent real GDP growth. It seems to me rather unlikely that we could get up to that level of GDP growth with [the economies of] Europe and Japan as slow as they are. But I think there is considerable risk that the capital markets, and indeed politicians here, may not be willing to accept a rising trade deficit for the United States. If under those circumstances we have a restrained U.S. trade position, and if the GATT round does not get done in the next two or three weeks, we could be in a very, very difficult [situation]. I also wonder about world competitiveness under conditions in which many countries continue to have an industrial policy. And there are those in the United States who I think are somewhat more inclined in that direction. What happens to capital markets and what happens to profit margins when we have these kinds of competitive conditions worldwide? Do we find other industries falling [to] the same world profitability level that we've seen at times in steel and coal and ore? Are our airline profitability rates in significant danger of being repeated [in] automobiles? How long can we go on with Boeing and McConnell Douglas and other aircraft manufacturers being in somewhat of an up stage while we're watching these airlines and the major leasing firms have their difficulties? So, I'm not worried as much about a double dip or triple dip as I am about an expansion in the United States that is in some sense unsustainable given world conditions. It seems to me we might have to ask questions about a true recovery, a true expansion, but one that is not sustainable in a world undergoing severe trade restraint. So, I continue to find things to worry about.",805
-fomc-corpus,1992,Governor Phillips.,3
-fomc-corpus,1992,"Well, perhaps echoing a lot of the comments that have been made around the table, I think we're certainly entering what I call a crucial time to assess a potential shift in direction. We've all been very cheered by some of the recent positive, although tentative, reports. I think many of these positive reports are due to the accommodative monetary stance that we have been in over the last several years. Some of that is beginning to pay off, certainly in the GDP; and we're starting to see life in M2 and even some loan activity, although some of that is anecdotal at this point. Consumer confidence appears to have turned around and certainly the inflationary situation at least [in terms of] current inflation is much improved, although, as David notes, this dichotomy between inflation expectations and current inflation continues to be troubling. In spite of this generally improved atmosphere in tone, there's still considerable room for caution. I continue to be troubled by the labor market situation. Although we've seen some improvement in the unemployment rate, we are still seeing declines in aggregate employment. We are still seeing major restructuring in a number of industries, with permanent job losses which are being reflected to some extent in real disposable personal income. Although we've seen improvement recently in industrial production, it has not improved in the aggregate over the last few months. While the banking situation has improved--maybe somewhere between ""somewhat"" and ""considerably""--there is still some fragility to the banking situation, and we are going to have to watch that very carefully. It's not clear when this restructuring process that we've all talked about is going to wind down. There is still considerable room for restructuring in the defense industry and in some of the major, Blue Chip companies. We mentioned GM around the table today but other major corporations are going through restructuring, and that probably is going to continue to hit the headlines. The export situation is also a source of potential concern. Japan and Germany have been mentioned and the German question could probably be broadened to more of Europe. While our export situation may not have been saved, it has not been as bad as it otherwise would have been because of the improvement in some of the underdeveloped countries. It's not clear how much more some of those underdeveloped countries can continue to expand. In summary, while I'm cheered by the improvement, I think we have to question whether it is a sustainable start or whether we are heading for another potential swoon. I do think we will have a fiscal package; it's only a question of size and shape, but it is coming. If the economy is continuing to improve, I would think the new President is going to want to get out ahead of that and be able to take some credit for it. So, we're likely to see a stronger situation in the medium term. The short term, though, I think still remains at question.",578
-fomc-corpus,1992,"Thank you, Governor. Coffee is available for us.",11
-fomc-corpus,1992,"Unless somebody has an objection, [I assume] it is acceptable to continue on and complete the short-term issues before we go to the ranges for 1993. So, I would conclude that unless I hear an objection.",45
-fomc-corpus,1992,"Mr. Chairman, I think the issues are linked.",11
-fomc-corpus,1992,"They are, but the question is which do you want to do first?",15
-fomc-corpus,1992,Can they be discussed simultaneously?,6
-fomc-corpus,1992,"Do you want to say something, [Don]?",10
-fomc-corpus,1992,I couldn't hear what Governor Lindsey said.,8
-fomc-corpus,1992,It is my view that the issue of the ranges for next year and the short-term decision with regard to fed funds are linked issues. I was wondering if it were possible to discuss them simultaneously.,39
-fomc-corpus,1992,"Well, the answer is yes we can, but if we're going to do that, I think it would be appropriate to stay with the schedule that we have here and basically to deal now with the ranges or at least the [briefing by] Don Kohn. I'm a little concerned about all this since there is a technical problem about trying to merge these into a single discussion. I'm not sure that it will work. I'm willing to try, but I'm not convinced it's a good idea. Why don't we try it your way and go forward. We may find that it will require us at some point--I reserve the right as Chairman--to alter the procedure in mid-course if it will speed up the work.",143
-fomc-corpus,1992,Okay.,2
-fomc-corpus,1992,"We're going to start with the long run, then?",11
-fomc-corpus,1992,"Yes, why don't you start with the long run and raise the issues. Then we'll try to integrate them [and] see if we can conclude the short term and then go to the long term for a final decision.",44
-fomc-corpus,1992,"I actually have two briefings here on this. One possibility, Mr. Chairman--if the Committee has the patience, since it will take about 15, 16, 17 minutes combined--is that I could read them both.",48
-fomc-corpus,1992,I would suggest that that's the ideal procedure.,9
-fomc-corpus,1992,"Okay, hang on. Here we go. [Laughter] Everyone has had coffee, so we may be able to make it through! I'll start with the long-run ranges. [Statements--see Appendix.]",42
-fomc-corpus,1992,"I'll try to cover both aspects myself; I frankly don't tie the short-term decision and the long-run ranges together, but some of you may. In that respect we'll see how things materialize. I must say that my impression with respect to the ranges is [along the lines of] what we suspected we might have to do back in July but we were not sufficiently cognizant of the forces that were driving money at that time, which we are today. If one looks at the old opportunity cost relationships and the sharp divergences that have occurred between velocity and our old opportunity costs, it's fairly obvious from the patterns that have emerged in the most recent period that had we known back in July what we know now we would implicitly have factored in a significant rise in velocity and, accordingly, we would have had a much lower range of M2 consistent with the nominal GDP numbers that in fact have pretty much materialized as expected. So, the question of whether we should revise our ranges down in my judgment is not really a choice between whether we should or shouldn't but by how much and when. I myself am inclined to be a little more cautious than the projected alternative II of 1-1/2 to 5-1/2 percent on M2; I'd much prefer 2 to 6 percent myself, but it's obviously not a big deal one way or the other. I think the more interesting and difficult decision is when. Obviously, if we do it now, we can phrase it for what it is: namely, a technical adjustment we should have made back in July. But as we said then, we felt we needed more information and we said we would respond at a later time. Indeed, we could do that now. The disadvantage of doing it now is that it is [more] difficult to get the message out that this is really a technical adjustment than it is if we do it in Congressional testimony in February under the usual procedures. If I were sure that we could get the message out now in a form that I think is necessary, I frankly would be inclined to do it now. But I'm not sure that that's feasible, and I'd be most curious to get everyone else's view with respect to this question. But I do think it would be difficult not to lower the ranges after the Feinman and Porter study and after what we indicated was the nature of our discussions in July and the considerations that we had. My recollection is that what we stipulated back in July almost requires us to lower the ranges at this stage, granted the type of velocity changes that we were contemplating at the time. But I don't tie what we will do with respect to the ranges in any way to what I think our short-term considerations are today with respect to policy because I don't think it's a monetary policy question. I believe it's strictly a technical question, and I myself would like to handle it in that way if we could. With respect to short-term policy, you may recall that we came out of the last meeting with [a directive that incorporated] hard asymmetry toward ease, with the basic presumption that the Desk would ease in the intermeeting period unless the economy showed significant improvement. I mentioned at the time certain key developments. Specifically, as I recall, the one that had been worrying me the most at the time of the last meeting was initial claims, which had been moving up and suggesting that the economy was in fact beginning to go into a cumulative erosion. If that were occurring, we would have expected claims to move up to the area of 500,000 weekly, adjusted for emergency unemployment claims, and perhaps penetrating above that. In the event and almost immediately, initial claims turned in exactly the opposite direction--and I might say in a rather credible form in the sense that the level came down successively week-by-week and it was matched by levels of insured unemployment that also were exhibiting that same phenomenon. We were also looking in the same context at other elements underneath those data which certainly were indicative of apparent changes in the labor market, as reflected in the income and product accounts and in [other] broad measures of economic activity that we generally watch. It was fairly apparent that the motor vehicle sales numbers were impressive. The retail sales figures--granted they could very readily get revised again and again--were capturing a [more positive] tone. And, unless we are reading into our various District reports the actual biases coming from the national retail sales figures, I must say the reports we heard today from the Districts are quite consistent with the data that we're seeing on the national level; there does not appear to be an inconsistency. And the evidence of shortfalls in inventories in the retail area prior to the Christmas season is giving a general tone of much lower levels of discounts than we saw last year. That is as good a measure as one can get about the tone of the Christmas selling season. The general short-term outlook strikes me as clearly [pointing to] a modest upward momentum. I don't think we have seen any evidence of this economy seizing up, as Governor Kelley indicated. I'm not saying that it is moving forward at an accelerating pace, but it seems to be gathering modest domestic support. I would point out that there are several characteristics of this [situation] that do create risks on the up side. The first is the old, classic inventory lead-time relationship. Remember that lead times on deliveries of materials are very short and that backlogs as a percent of shipments have been coming down; this is increasingly a just-in-time type of economy. If we get any pressure on that system, it means that minor bottlenecks begin to occur. That very easily can happen in the United States where the travel distances are so great as distinct from Japan where just-in-time means people just throw it over the wall because everything is close together. That's not true here. It is not inconceivable that with all the computer technology we could still get modest pressures, which would start to move lead times out. Once lead times start to lengthen, purchasing managers start to order further in advance and that's the old classic inventory cycle which opens up profit margins, engenders increased capital investment, and creates the type of environment which historically always looks after the fact as if it were unforeseeable. In other words, we sit here now and say that nothing is really moving except a little in housing and a little in retail sales, but [the improvement] is offset by weakness in exports. I've been through many of those cycles; in fact a lot of you here whose hair is as grey as mine--and maybe some of you have more of it--have lived through the same phenomenon. It's very difficult to see that phenomenon in advance. It comes on fairly quickly and it is not easily foreseeable. Superimposed on that is the virtual inevitability of an investment tax credit. The Clinton people have committed themselves to it not as a short-term device, but as a permanent long-term vehicle. I forget who mentioned this earlier, but once tax hearings start things begin to get very interesting. I don't think we fully understand the extent to which there are pent-up constituency pressures in the budget process which are really going to be unleashed once the Congress is [in session] and everything is in play. The belief that President Clinton is going to be able to constrain that phenomenon is not well based in history. [Laughter] And the issue of effectively putting President Clinton in a position where he may well end up vetoing everything in sight for a period of time is not a scenario we can just discard because he is going to have to impose himself on that process or it is ""deuces wild"" as we used to say, and things could really begin to move. That clearly is not something we all are looking at with any degree of benevolence. Having said that, there nonetheless are quite significant negatives in the world economy. No disinflation is occurring out there, but we see the makings of a world economy being on the edge of deflation. As Jerry pointed out, the Japanese and German economies are in much less viable shape than is suggested by the conventional wisdom. There are very significant downside risks if for no other reason than that [the existence of those risks] is not the conventional wisdom in those countries and I don't think they are in control of how they would react psychologically if everything began to come up short. There's unquestionably a convergence of the [unintelligible] process in the European Community that is involved, and it is important to recognize that the endeavor to converge the EC [economies] has all the aspects of constraints of one form or another, which can have a major impact over there. The spillover effects into the United States are very difficult to [ascertain], but we are seeing clear evidences, mainly in the last several weeks, that the European/Japanese [unintelligible] system is really weakening. I would only [point to] two specific indicators, which we don't [usually] look at all that much: the commodity price trends, specifically in metals in the last number of weeks, and the price of gold, which we very rarely take into consideration. But when we remember that gold is and probably always will be a true measure of the sense of people's view of paper currencies, then we get gold prices under pressure at the same time that commodity prices are moving. Granted, it is less in non-dollar terms [but] it is suggestive of the fact that there's a psychology that is consistent with an EC convergence. And the restrained attitudes in Japan about expanding are rather graphic. When Ted Truman and I were over there a while back, I was impressed by the extent of the optimism that pervaded in spite of all the awful numbers we were seeing. I must say that made me uncomfortable because there were no countervailing forces out there. It's always dangerous to have optimism if it doesn't work. The issue I find the most difficult to deal with is the one that David raised: namely, the question of short-term non-inflation but longer-term inflationary expectations still embodied [in interest rates]. One would think we could arbitrage this in some way, but it doesn't work. We've seen that in the past. Remember how long it took in 1979 when inflationary pressures were really roaring away and the rates on long-term U.S. Treasuries just kept sitting close to the 6 percent area?",2106
-fomc-corpus,1992,9 percent.,3
-fomc-corpus,1992,"No, I'm talking about earlier on.",8
-fomc-corpus,1992,1979?,3
-fomc-corpus,1992,Yes.,2
-fomc-corpus,1992,I think they were pretty well stuck at 9 percent in '79.,15
-fomc-corpus,1992,"Well, maybe I'm thinking of slightly earlier.",9
-fomc-corpus,1992,In the mid-'70s. For 10 years they had underestimated inflation.,16
-fomc-corpus,1992,"Yes, and then all of a sudden--I think it was from mid-1979 for the next six or eight months--long-term yields went up 400 basis points or something like that.",40
-fomc-corpus,1992,That's right.,3
-fomc-corpus,1992,"What that told us is that these things don't happen slowly; they break. I have a suspicion that what we have here is the reverse: namely, that at some point if short-term inflationary pressures stay down, this is going to break and hopefully it could break in a positive direction. But as a consequence of all of this, we have a very unusual situation where the United States economy does seem to be crippled in the short term; I don't believe we have the characteristics of a double or triple dip; I don't think we're seeing that. While we saw shortfalls in growth before, that was in a context of very severe debt repayment and debt pressures; while they're still going on, I think they're going on to a lesser extent. And the stirrings in the bank loan markets are suggestive of this particular process. Clearly, while we have great qualms about the money supply data indicating very much of anything, they are nonetheless suggesting, if not clearly, that the balance sheet [adjustment] processes are reasonably completed at banks. In summary, as I indicated before, I would look at the ranges independently. I would prefer, although I don't feel strongly about it, going with 2 to 6 percent [for M2] and I would be slightly inclined to wait until February rather than to try to do something now, but I don't feel strongly about that either. Looking at the short-term outlook and listening to the general discussion, I would say that we should hold policy steady. I would be somewhere between asymmetric--not the hard asymmetric that we were on last time--and symmetric, but I think the range here probably isn't very wide. I'd be somewhere in that particular area. President Parry.",345
-fomc-corpus,1992,What precisely do we owe the Banking Committee?,9
-fomc-corpus,1992,We don't owe them. The reason we are discussing this today is that it was part of an agreement reached within this Committee.,25
-fomc-corpus,1992,But didn't you tell them that?,7
-fomc-corpus,1992,"We said ""we might.""",6
-fomc-corpus,1992,Yes.,2
-fomc-corpus,1992,We didn't promise.,4
-fomc-corpus,1992,"The particular wording in the testimony was ""no later than next February.""",14
-fomc-corpus,1992,We suggested that we might review it before but we never made a particular promise. The only promise we made was to ourselves to review.,27
-fomc-corpus,1992,Okay.,2
-fomc-corpus,1992,And Chairman Greenspan sent the Feinman-Porter study to the Committee chairman.,16
-fomc-corpus,1992,Governor Angell.,4
-fomc-corpus,1992,"Mr. Chairman on my preference for the short-run specifications, I agree not only with your analysis but also with your policy, although for me it's a preference for ""B"" symmetric under the conditions that you outlined. As you described the risks, it seems to me that the risks are pretty balanced. So, I think symmetric language really is more apt to describe where we are. In regard to the ranges for 1993, I agree with you that the technical conditions have changed. Unfortunately, we stopped the policy of [making yearly] 1/2 point declines in the ranges that we had been doing a while back. I would prefer that we go all the way to 1-1/2 to 5-1/2 percent. Let me tell you why. It seems to me that, when we have a forecast calling for 2 percent M2 growth for 1993, starting in with a forecast right [near] the bottom of the range doesn't give us much [room] for errors. V2 could be slightly stronger than we expect as well as slightly weaker. Under those circumstances I'd hate for us to run the risk of being below the target range when the economy might be performing in such a manner that we believe we're on target in regard to the economic performance, including price level stability. The second reason I would favor the 1-1/2 to 5-1/2 percent range is that I don't think it's going to be easy for us any time to make downward changes in the ranges. So it seems to me that when we're making a downward change, we might as well make it what we need to make it at the time rather than be faced with having to do it later on. The third reason that I prefer the 1-1/2 to 5-1/2 percent range is that it gives us a midpoint of 3 percent. And if Mike Prell's forecast on inflation is correct, then that 3 percent midpoint might blend in to a long-term stable condition that would be conducive to this alteration of expectations. I agree with you that a break in expectations that would get long-term rates to move down--think about what the 30-year bond at 6-1/2 or 6 or even possibly 5-1/2 percent would do for us in regard to growth--is very, very important. The fourth reason that I favor 1-1/2 to 5-1/2 percent is that what you said about inventories is certainly very applicable. If we get an investment tax credit, if we get inventories moving, and the economy turns out to be a little stronger than it needs to be, and we have V2 where we think V2 will be, then we might find ourselves in the position of needing to tighten. And I don't think that would be a good idea. I would prefer when we need to tighten to have a possibility of [M2 growth] being at least in the upper half of the range. So, the 1-1/2 to 5-1/2 percent range gives us that advantage. As for timing, with a new Administration coming in I think there's a real advantage to them in regard to their planning process to know what we know: On the basis of this study that we now have available, we do not think of this as a monetary policy [issue] as much as we think of it as a technical adjustment to the changing way that M2 works and responds to short-run opportunity costs that we control. So, I think it's very important that we provide the information when we know it and give ample time. I agree that there's a slight disadvantage in not having the testimony immediately. [But] the members of the Banking Committees and their staffs will have good memories and will give you ample opportunity to be heard on this question come February. When I envision your answering their questions at that time, I see it as easier for you to be answering them saying: ""Well, this is what we told you as soon as we had the study in on what we knew and this is what we told you as soon as we knew about the third-quarter GDP and third-quarter V2."" So, to me, it's easier if we do it now.",866
-fomc-corpus,1992,President Jordan.,3
-fomc-corpus,1992,"First, I thought the Feinman-Porter study was very, very good. It serves the Committee very well, giving us good input. Also, in terms of the broader discussion, I am very happy you are making the study public because a lot of the issues [of concern] in the profession will be helped along by having it available, and that's very constructive. I'd like to ask a couple of questions. Have you tried to simulate the Greenbook expectations about longer-term interest rates and what it would imply for monetary growth?",106
-fomc-corpus,1992,"Yes, we have. I think it was indicated in a footnote in the cover memo, although I guess that was for the last Greenbook. Under the current Greenbook assumptions of nominal GDP and short- and long-term interest rates, depending on whether we use the narrow or the broad model, we get about 2-1/4 percent M2 growth for 1993; [it's] 2-3/4 percent M2 growth under all the Greenbook assumptions using the Feinman-Porter model.",105
-fomc-corpus,1992,"So, you get 1/2 or 3/4 of a percentage point--",18
-fomc-corpus,1992,I'd say an average of 1/2 point. But one reason we [projected M2 growth] below that was because that model does not take into account some things coming into play like the FDICIA [provisions] and the RTC and whatnot. So we put in a slightly [larger] velocity increase for 1993.,71
-fomc-corpus,1992,"I'd like to ask Bill McDonough about views in the markets. At the time of the last meeting longer-term rates were well along the way in the direction of moving down as the Greenbook has been suggesting, consistent with the idea that inflation expectations were coming down with observed lower inflation rates. Since then we've had some backing up in rates explained as fiscal fears which somehow feed into bond markets. That's one version of the explanation. I'd be very curious as to what you think the people out there dealing in the markets are thinking. One version is that the fiscal package per se is somehow inflationary so people build that into bond yields. Another is that the fiscal environment causes monetary policy to be more expansionary and more inflationary and that gets built into the bond market. Another version--a few people have been commenting in this vein--is that longer-term prospects for real growth are improved, so with increasing real incomes and real productive capital there will actually be an increase in real rates, in which case we shouldn't expect to see them coming back down. Finally, there is the ""tomato"" theory of the bond market: that the increased supply of the new crop of bonds coming with bigger deficits will depress prices, and because this bigger deficit has to be funded we will have higher interest rates. Would you comment on which among those [explanations] you think dominates?",275
-fomc-corpus,1992,"I think the mass of market opinion is somewhere between your possibilities one and two or a combination of those. The single greatest driver to the backup in rates across the yield curve was initially the view that, whoever won the election, there would be a fiscal package early in 1993. I don't think the markets have the benefit of Governor Lindsey's memory of the fact that it [usually] takes a while. They think it will happen like that. There is, I'd say, a [less prominent] view in the market that the Federal Reserve would go along and monetize this increase in fiscal spending. I do think that's [held by] a rather definite minority; most bond market participants feel that the Fed is dedicated to the notion of working toward greater price stability. I think some of the articles you're reading are meant to throw hand grenades in our path so that the Committee will be tempted to think that continuing the drive toward a reduction in inflation will involve too high a price. That's in a way a compliment; [it supports] the view that the Committee, left to its own devices, will continue its anti-inflationary efforts. These articles are trying to increase the political, psychological--or whatever the right adjective is--[cost of disinflation]. There's very little market [support for] your third possibility and some for the ""tomato"" theory, your fourth one. But mainly the view is that a fiscal package is likely and that the fiscal package will automatically be inflationary.",301
-fomc-corpus,1992,"Given that view, then, the only thing that can help bring those expectations down is first to see the fiscal package and then to see that inflation doesn't pick up, which means we can do very little but wait for it. I imagine if there were immediate action by the Committee on rates right now, it would be a surprise to the market and have a subtle effect of some type.",77
-fomc-corpus,1992,Yes.,2
-fomc-corpus,1992,"On the other hand and separately, if there were a decision by the Committee to lower the target ranges for next year, by itself that might have very little, if any, positive effect and maybe none at all. If the two were coupled, would that tend to have any kind of neutralizing effect? Would the potential negative effect of lowering the target range, with perceptions of more restrictive policy, [be offset by] the ""lump of sugar"" of near-term easing action and make [action to lower the targets] more acceptable in the Street?",111
-fomc-corpus,1992,"I think the near-term easing action would get about 95 percent of the Street's attention. And there could be a rather unkind view of why you coupled the two, i.e. that you were trying to fly the anti-inflationary flag and to couple it with the decrease in order to--going back to the theological discussion early in the meeting--have sin and virtue combined.",79
-fomc-corpus,1992,"Well, I think the range should be lowered to 1-1/2 to 5-1/2 percent for next year but I think the center should be 3-1/2 percent instead of Wayne's 3 percent.",49
-fomc-corpus,1992,"Well, I'm certainly agreeable to that!",8
-fomc-corpus,1992,"But a large part of [my reasoning] is that I think that's where the range should have been this year and that we would have been subjected to at least somewhat less criticism because M2 growth would have fallen within that range on the low end. I would like very, very much to see us within our announced target range next year, so we should choose a range for next year that we think M2 is going to be within. Clearly from what we've heard so far, it's a little more certain that we'd be within a 1-1/2 to 5-1/2 percent range than within a 2 to 6 or 2-1/2 to 6-1/2 percent range. Yet, on the shorter-term policy, I'm still partial to the idea of trying to [achieve] the target for this year to show that we have the resolve to stay within the upper and lower bounds of our ranges. And since we're below the target range for 1992, that justifies immediate action by the Committee coupled with lowering the range for next year.",220
-fomc-corpus,1992,President Parry.,4
-fomc-corpus,1992,"With regard to the long-run target ranges, I thought in July that it would be best to lower the [M2] range and I feel that way this time as well. It seems to me that the additional information we got from the study suggests that a cut in the range would be appropriate. And the staff projection of 2 percent certainly would support that as well. So, to me it would make some sense to cut it, and I don't see any harm in doing it now. I disagree with something a few people have said, particularly what Governor Angell said if I interpreted him correctly, that we could get some additional benefit as far as inflationary expectations are concerned by taking action now. I would say that would only happen if we didn't explain that it was based on technical adjustments. If we did say it was based on technical adjustments and people believed that, then we would not get any impact on inflationary expectations. So, my counsel would be to change it and not say a heck of a lot about it if we really want to get some effect as far as inflationary expectations are concerned.",223
-fomc-corpus,1992,I don't disagree with that.,6
-fomc-corpus,1992,"On the short-term policy, this has been another very interesting meeting. We've seen a dramatic change; there are many more people who now see a pickup or at least somewhat improved prospects in their Districts. Another thing I find very interesting is that very few people said they have changed their nationwide forecast. In fact, many went on to say that things have picked up but that their forecast is very similar to that in the Greenbook, with the notable exception, I think, of the Chairman who seemed to imply that he was a little more optimistic based upon his fiscal assumptions. If the forecast that most people agree upon is that of the Greenbook or close to it, which is not very much different in terms of real growth from what it was the last time and has been characterized in the past as being sluggish, perhaps too sluggish, what has changed? Unless we're going to make policy decisions on the basis of what happened to the economy in the last three or four weeks--if we're going to look instead at the longer term--what has changed? If nothing has changed, it seems to me that the case some of us made for a slight easing at the previous meeting is just as strong today as it was before.",244
-fomc-corpus,1992,President Forrestal.,4
-fomc-corpus,1992,"With respect to the long-term ranges, given the forecast for M2 and velocity that we have, I think there probably is a good case to be made for lowering the ranges. My preference would be not to be so dramatic as to go a full percentage point but rather a half point [on the M2 range]; that would mean a lower bound of 2 percent. The timing issue is of much greater moment to me. I agree with you, Mr. Chairman, that it is a technical matter; in fact, I would add that it's probably as much a political matter as a technical one. And I think it would be very difficult at this time to get the market to understand what the technical issue is. Moreover, in my judgment, it would be sending a signal that the Federal Reserve is going to be tolerant of monetary growth insufficient to support continued momentum in the economy. Now, the offset to that, of course, is that we might attempt to lower inflationary expectations. I really don't find the case very persuasive to deviate from our normal procedure, and [I'd] wait until February. The other advantage of [waiting] is that we wouldn't be sending a signal at this point. We're still in a period of uncertainty with respect to the economy. And even with the Feinman-Porter study, there is the chance that we might learn more about the monetary aggregates over the next two or three months. So, I think we would be better served by waiting and taking action at that time. With respect to short-term policy, I think [economic conditions] have improved. Certainly, I see it in my District; and listening to the comments around the table, there is a much more optimistic view than before. But in my judgment, notwithstanding the fact that I haven't changed my forecast or I don't deviate very much from the Greenbook's forecast, the risks are on the down side. I say that primarily because of the international situation--the risks that you and others have pointed to with respect to the situation in Europe and Japan, which is fraught with some danger for us. For that reason, I would like to suggest that there be no change in policy at this point but that we have an asymmetric directive so that we can move in case that becomes necessary for international reasons or perhaps for domestic reasons as well, because I'm not convinced that what we've seen recently is sufficient to cause us to claim that we're on the road to complete recovery.",494
-fomc-corpus,1992,Governor LaWare.,4
-fomc-corpus,1992,"Mr. Chairman, I'd like to associate myself with all the comments of my colleague, Mr. Angell, with one exception. In other words, I favor ""B"" symmetric and 1-1/2 to 5-1/2 percent on the range for 1993, but if I were in your shoes I would feel more comfortable with the February explication of that move rather than dropping it in here in the middle of an interregnum between one Administration and another.",99
-fomc-corpus,1992,President Black.,3
-fomc-corpus,1992,"Mr. Chairman, I have a strong preference for lowering the ranges by a full percentage point, although I don't think your suggestion of 2 to 6 percent would be all that bad. I don't think this is a purely technical issue, though. I think this [affects] our credibility. Governor Angell and I argued unsuccessfully for such a move back in 1991. In 1992 I did not argue for it because I thought we were clearly in a recession and it would look bad at that point. But I do think we would have done better if we had moved it back at that time. Now, the technical case is very strong. Don and his colleagues, Messrs. Feinman and Porter, have done a great job in showing that 1-1/2 to 5-1/2 percent is technically a very good place for the range to be. But that gives us just a little bit of margin. We would be just above the 1-1/2 percent lower limit if they're right in their assumption that 2 percent growth in M2 is what we would get and that velocity would behave as they suspect. But the 5-1/2 percent on the up side gives us a lot of room for movement in case the economy turns out to be stronger than they have assumed, and I believe that is one of the more likely outcomes. As far as the timing is concerned, it would look unnecessarily provocative if we did this now unless we were also to ease our short-term [policy] just a little and couple the two actions. I would prefer to wait until February to do it. I think we would experience less political flak if we did that. So, I feel pretty strongly that we ought to go with ""B,"" and I would like to see the directive made symmetric. If we do decide, though, to change the federal funds rate today and lower it a little, then I think we ought to go ahead and couple that with a lowered long-term range. I'm not as skeptical as Bill McDonough is about how the markets would accept this. I think there are a lot of people out there who would find that somewhat acceptable. But if we lower the federal funds rate, I think we definitely should lower that longer-run range or else we'll be perceived as having thrown in the towel on inflation. I guess I end up about where Governor LaWare and Governor Angell did on that.",496
-fomc-corpus,1992,Governor Lindsey.,3
-fomc-corpus,1992,"I'd like to start with the interest rate issue. I wasn't going to originally, but I was interested in Bill McDonough's comments and I don't mean to dispute them. The entire yield curve bottomed out on the day of the last FOMC meeting. Since then three-month bill rates are up 30 basis points; one-year rates are up 51 points; three-year rates are up 73 points; five-year rates are up 65 basis points; and ten-year rates are up 56 basis points. The headline in The Wall Street Journal, Section C, on October 7th said: ""Treasury prices fall sharply on failure of Fed to cut rates and worries about new supply."" On October 8th the headline was: ""Treasury prices plunge on continued failure of Fed to ease, hedging of unsold corporates."" Then we got a little rally on the 8th and the headline on the 9th was: ""Bond prices finished higher on stronger dollar and renewed hopes for Fed interest rate cut."" Then October 13th, that fine weekend that we all remember, started with Friday's headline about your talk in Virginia, Mr. Chairman: ""Treasuries climb as Greenspan leaves door open for pre-auction easing."" On the 15th it said: ""Treasuries are mixed amid disappointment over economic reports and lack of Fed move."" Now, as a Republican, I'd love to blame it all on Bill Clinton, but I can't. I have five headlines that tell me the opposite. Now, maybe they don't know what they're talking about but--",321
-fomc-corpus,1992,Media bias.,3
-fomc-corpus,1992,"Media bias in this case, okay. My first thought is about the direction of what the market is expecting. I will give a copy of the articles to those who want them. My mind was on headlines. So, Mr. Chairman, when you were making your proposal, I jotted down a few headlines [that might be used] if we were to cut the ranges and not cut the fed funds rate. I started first thinking about John Berry's piece--I don't know where he got it--about ""The Fed gives Clinton the green light."" Well, since The Washington Post is always right, they would have to change it to ""Fed changes signal from green to red."" For the Daily News, in honor of New York, I had a more provocative headline--I don't think Mort Zuckerman's ownership will change things--""Fed gives Clinton the finger."" Then, in Section C of The Wall Street Journal the headline of these stories would be ""Fed changes range to match policy miss"" and the first sentence would be ""Having failed to achieve its monetary policy targets during a recession year, the Federal Reserve today announced that it would change its targets rather than change its policy."" I could imagine how the rest of the story would go. I am very persuaded that the right thing to do here is to send the right long-term signal and send the right short-term signal as well. The story I would like to see is the green light. We should accommodate what the Administration wants to do and that is to give the economy a kick to get going. But that should be followed with ""but we will not let it get out of hand."" And that is exactly what a cut in the funds rate coupled with a cut in the target range signals. The final issue is whether to do it now or in February. I hear the comments about it being less politically risky to do it in February when Congress is back. Frankly, that doesn't make a lot of sense to me. If we were to announce a cut in the target range in February just after President Clinton has made his speech to Congress or perhaps just after one of the houses of Congress has passed a fiscal stimulus package, I think The Washington Post might even pick up the Daily News headline. I think it would be that provocative. So, if we're going to do anything, I would do it now. What I would do is give the markets the right long-term signal and coat it with a little sugar to give the Administration the right short-term signal.",505
-fomc-corpus,1992,You favor 1-1/2 to 5-1/2 percent? I didn't hear.,21
-fomc-corpus,1992,I'm for a cut in the range.,8
-fomc-corpus,1992,But to 1-1/2 to 5-1/2 percent?,17
-fomc-corpus,1992,I'm willing to be persuaded either way.,8
-fomc-corpus,1992,President Syron.,4
-fomc-corpus,1992,"I half agree with Governor Angell, but I want to tell you which half I agree with: It's not the short run. I listened to Mike Kelley's list and I must say it was an ample and fairly complete list; but there are a whole lot of negatives out there. One reaction I have is that it is a bit like what is going on in New England: It's amazing that anyone is still standing! It shows the resilience the economy has, but it still tells me that there are a lot of factors imposing a drag. We have seen some movement forward in the last month. But coming back to what Bob Parry talked about with respect to the forecast in the Greenbook--I know it does not assume anything on fiscal policy and I think we have to act on that basis because we don't know when it's going to come and we should do what's right for monetary policy instead of trying to game that--I don't consider the Greenbook outcome an adequate one. Particularly, I don't think we're going to see any sustainable, comfortable momentum in the economy going forward until we see some improvement in employment. That's as much because of people's concerns about their employment prospects and the insecurity that casts over many people as it is the data themselves. Beyond that, with this Greenbook [forecast], even the period going out as long as seven quarters is not really satisfactory. A lot of concerns have been raised here about the overseas situation. That is one new piece of information that came up at this meeting. I must say--and this may be where some of these issues come together--that in this particular case given the [unintelligible] I am somewhat attracted to Jerry Jordan's suggestion of making a rate cut now. I prefer it on the basis of the real economy alone. But a cut now also [may help us] get M2 growth within its range; after all, we've said that we're going to try to [have M2 growth] come within that range. To announce a cut now in the ranges without having done something to try to bring growth up into the range this year would look as if we were just making an excuse for why we didn't do that. I think we are going to have to cut the range and I would favor a cut of a full point. Though it's strictly a judgmental issue, my feeling is that it's probably better to do it in February for two reasons. One is that we're going to have more of an opportunity to explain it fully at that time. The other is that if we really believe the general tone of the meeting, which is that the economy is going to be a fair bit better in February than it is right now, it's better to make [the reduction in the range] in that context.",554
-fomc-corpus,1992,President Boehne.,5
-fomc-corpus,1992,"I mostly agree with where Governor Angell comes out on both these issues. Looking back, there was a good case for easing [last] time but I think that time has passed for now. To ease into a better tone of statistics would be counterproductive. I think the risks are more symmetrical than they have been for several months. So, my preference for the short run is ""B"" symmetrical. On the long-term ranges, Wayne's logic was especially persuasive. First of all, I really don't think we have a choice; we need to cut the range. And we ought to be very careful to underscore the fact that this is a technical cut. So, if we are going to do it, I would do a whole point rather than a half point. It would give us some additional margin for error. It's difficult enough to do and it's not going to cost much more to reduce it a whole point rather than a half point. But I think it is important to emphasize the technical part. As to now versus February, I can't believe that a February climate would be better. If you just want to look at it from a political point of view, we will have a new Administration with a new [fiscal] proposal, a new Congress, and lots of energy. I think in that context it would be more difficult to do. We've done a study, we have some good reasons, and we can explain our action in a letter. In the letter I would emphasize the technical aspects; I would say we believe that this is a technical adjustment and that the 1-1/2 to 5-1/2 percent range is consistent with growth without giving up on the inflation [goals]. There is no foolproof way to do this; there are risks in doing it. But I suspect that the political fallout would be less if we did it now rather than wait.",380
-fomc-corpus,1992,President Stern.,3
-fomc-corpus,1992,"With regard to the short run, I favor alternative B with a symmetric directive. I don't see a case for a change in policy immediately or for biasing the directive one way or the other. That still gives us lots of flexibility if the evidence comes in on one side or the other and a decision is made to move. But to me the circumstances we currently confront suggest no immediate change. With regard to the long-run ranges, I have a slightly different take on that. It's really the upper end of the M2 range that concerns me. It concerns me because, given what we think we know about the outlook for nominal GDP and about the velocity of M2 over the next couple of years, that upper end of the range is clearly too high. So, I would favor a new range of something like 2-1/2 to 5-1/2 percent. I don't see any real need to reduce the lower end. In fact, longer-run considerations, with trend growth in the economy of maybe 2 or 3 percent and assuming that M2 velocity ultimately returns to its stable, trendless state and price stability--whether inflation is actually zero or something above that given measurement problems and so forth or given what it takes to get expectations of inflation out of people's decisionmaking thoughts--suggest to me that we don't need to change the lower end of the range. On the other hand, the upper end is too high, especially in an environment where I think we want to consolidate the gains we have made in bringing down the core rate of inflation and perhaps send a signal that that's our intent along the way here. With regard to timing, it's not an overwhelming preference, but I would agree with those who would prefer to do it now. In February, as many have observed, there will be a lot of proposals out there and a lot of things on the agenda and we really could look like we were snubbing, or worse, all sorts of proposals by deciding to lower the range at that point.",405
-fomc-corpus,1992,President Keehn.,4
-fomc-corpus,1992,"Mr. Chairman, with regard to the long-term ranges I would prefer not to take any action at this time. My impression was that our discussion basically related to your commitment to Congress to study this and report back, and it does seem to me that the paper and the discussion deal with that commitment. The paper does add a lot of knowledge to this question. It seems to me that there is enough uncertainty remaining that to make a change implies some degree of precision that I just don't have the confidence is really there. Therefore, I wouldn't to make a change, particularly at this time when there is a signal effect that I find a bit awkward. As a technical point, I assume if we were to make a change in the ranges as provisionally set, that we are not talking about making final changes to the ranges for next year.",167
-fomc-corpus,1992,We still can do that in February.,8
-fomc-corpus,1992,"So, if we make a change now, it is a provisional range and we will leave it as a subject for next February and we would so state that?",32
-fomc-corpus,1992,"Yes, that's correct.",5
-fomc-corpus,1992,"Separately and apart from that, I'd prefer not to make a change. With regard to the short-term policy, I must say that at the time of the last meeting I would have favored a change. I was disappointed that it did not evolve. Therefore, I came to this meeting in favor of either alternative A or alternative B with hard asymmetric language. I must say I'm very surprised by the change in the tone of the reports. It's the most significant shift between two meetings that I can remember. While the data are a bit more positive, I have a feeling that the [anecdotal] reports are a little ahead of that. It may be that good news is slow to reach our part of the Midwest. Nevertheless, at this point I'd be in favor of alternative B with at least some bias or asymmetry toward ease.",167
-fomc-corpus,1992,Governor Kelley.,3
-fomc-corpus,1992,"Mr. Chairman, as far as the short-term policy goes, it seems to me that the outlook is stronger both in terms of the data that we're receiving and also the tone, particularly [as reported] here this morning. We probably would all agree that it's very likely that we're going to get some type of [fiscal policy] program from the new President; he almost has to do that. Taking these two factors together leads me to a strong preference for ""B"" symmetrical. As far as the ranges go, I would certainly concur that they need to come down. I'm open as to exactly where. I suppose that puts me in the alternative II case. As far as the timing goes, if we were to ease today, then I would agree with Governor Lindsey that we should lower the ranges today in order to get those signals straight. I hope that we are not going to do that. And if we're not, then I would prefer to see us wait for a couple of reasons. First of all, it's clearly a technical matter and [unintelligible]. And, obviously, if we did it today, it would be very out of sequence with the usual pattern that people expect from the Federal Reserve. We're in this interregnum period right now and we're in somewhat of a news vacuum where the media is just [looking] for anything they can talk about. There will be an awful lot of punditry if we move now and go public with it. They are almost certain to get it wrong; they'll make too much of it and they'll make the wrong [inferences]. It's very likely that they would opine that we've gone back to reemphasizing M2 well beyond the true posture of this Committee. If they see that we do that based on this study, which is superb, they will think that we are saying ""Eureka! We've found it. This is the answer and we're going to settle down right here on the basis of this new information."" That could cause some out-of-focus speculation in the marketplace and some out-of-focus perceptions of what [is important to] the FOMC. So, I would prefer to stay in sequence and treat [the decision] as business as usual, as a calm and normal considered judgment when the February timeframe arrives.",461
-fomc-corpus,1992,President McTeer.,5
-fomc-corpus,1992,"I agree with Governor Kelley on all those points. On the question of headlines, currently markets are no longer expecting an easing as they were at the time of our last meeting. And rather than mixing sin and virtue or sugar and vinegar, I'd suggest that we avoid either right now. I'd take a ""B"" symmetric directive and wait until later to decide how much to lower the ranges, and I'd wait until February to go public with it.",88
-fomc-corpus,1992,Governor Mullins.,4
-fomc-corpus,1992,"On the ranges, I would prefer a cut [in the M2 range] to 2 to 6 percent, with a 4 percent midpoint. I don't view that as the ending point in this long process. I view it as where we are in the process now. With a midpoint of 4 percent I'm thinking of inflation in the 1-1/2 to 2 percent range and real potential in the 2 to 2-1/2 percent range. A midpoint of 4 percent looks appropriate, given where we are in this process of moving toward price stability. I know we may have a little trouble hitting it, but I think we should manage policy to try to hit the range rather than vice versa and I think we'd be pushing it a little if we went beyond that. I like the orderly process. In terms of when to cut, I think the appropriate time to cut was last July. That was the routine time. The Fed cut [the M2 range] for the following year in the summer of '88 and in the summer of '90; and the summer of '92 was the time to cut it again. We didn't cut it because of uncertainty about M2. It seems to me that [M2] is better understood now; I feel more comfortable with a decision to cut. I don't think we're going to learn anything more. I view it as more than technical. The disinflation trend is much better established now than it was in July in my view, despite the recent CPI; and I think it's time to confirm that disinflation trend, secure it, and lock it in. I do think it would add to our credibility if we were to go through another period of faltering M2 and cut rates if the economy should deteriorate. There are a lot of political judgments with regard to the timing. Some might view it as a bit sneaky to do it after the election with Congress out of town. It might be more orderly to do it in February. If we do it in February, it will come in the face of the new Administration and its proposals on fiscal policy and might be viewed as a signal that we plan to offset those. But my overall view is that this is a long-term range and a long-term strategy and it ought to be done above the fray; I like the strict rationale we used last July that then was the time to cut except for the uncertainty about M2. I view this as cleaning up old business, so I would have some preference for doing it now. As for the near term, the coordinated cut has some appeal, although it's not clear to me that the assessment of the economy I've heard around here gives a consensus for a reduction in the federal funds rate. Still, I would prefer the asymmetric language. The near-term negatives in my view are still quite pronounced and I think we ought to hold steady. When we went to symmetric language in the spring of this year, I don't think we looked very good when second-quarter growth was decelerating from 2.9 to 1.5 percent. I don't like the sense of flip-flopping, and it seems to me the upside risks further down the road have increased. We've been through this increase in long rates and have seen the impact a number of times before and I think the very near-term risks, moving into the first half of next year, suggest that we not flip-flop at this time. So, I'm for 2 to 6 percent and ""B"" asymmetric. There is an argument on the width of the range that Gary Stern raised. My view is that we've had trouble enough with this and that there may be an argument for widening the range.",752
-fomc-corpus,1992,I agree with Gary and could argue for widening the range myself. Governor Phillips.,16
-fomc-corpus,1992,"Let me do the ranges first. I thought that the Feinman-Porter study was immensely helpful and added to our understanding of what was going on. Having said that, I was on the bus that wanted to lower the ranges in July, so it'll come as no surprise that I continue to want to lower the ranges. I don't see it as just a technical matter. I think the study did identify some substantive, real kinds of effects. It also seems to me that lowering the ranges now is consistent with the testimony that was given in July that we were continuing to study it and would be back when we knew something. It's certainly a consistent story, so I'd prefer to lower the ranges now. I will say that with respect to the amount, I could go with either one half or a full percentage point reduction because I think the message of continuing to want to move toward price stability is the important thing. With respect to the short-term directive, I'm also persuaded by the argument for an immediate coupling. I'd prefer to go with an immediate easing because I think there's still considerable room for improvement in this economy. I do think we're going to have some kind of fiscal stimulus package, and I'd prefer to see a more balanced approach to a fiscal package when the time comes for that debate. Having said that, I could live with ""B"" asymmetric toward ease but I'd prefer to ease.",276
-fomc-corpus,1992,President Melzer.,4
-fomc-corpus,1992,"I would favor reducing the ranges now and I think a range of 2 to 6 percent is probably right. I could live with 1-1/2 to 5-1/2 percent. A case can be made for either one. With respect to the timing, I feel the case is there now and we ought to go ahead and get it done. As a lot of people said, we don't know in what climate we would be trying to do this some months down the road. I would go somewhat beyond making the argument just a technical one because I think we're trying in some sense to consolidate the progress we've already made toward price stability. In terms of impacting expectations, that could be a part of it without implying that we're rattling the saber; it would have to be done artfully. The other thing to think about, which you mentioned, is the communications problem. I guess there really isn't an opportunity to arrange some sort of forum. Congress is not going to be in session for the balance of the year, is that right?",212
-fomc-corpus,1992,"That's correct. They will convene January 3, but then they may technically adjourn again.",20
-fomc-corpus,1992,"You might want to consider ways to take the initiative here--in a speech or something--so that you could get the message out with your spin on it rather than responding to, say, Mr. Gonzalez, or somebody in the press teeing off on it. If we were going to do it now, we'd have to think about ways to communicate it to the public on our terms, not in response to somebody else's. With respect to short-term policy, I strongly favor ""B"" symmetric. There's a possibility I might even be leaning toward a nonexistent ""C."" The way I feel about this is that we've had a relatively smooth adjustment in financial markets to a significant change in perceptions about the thrust of monetary policy. I don't believe for one minute that what we've seen in intermediate-term rates is a response to what our economy needs. I think it reflects a lot of other factors with respect to expectations about inflation and the real economy. So, if we were to ease now, I don't think those rates would retrace their runup; I don't know to what extent they'd even come down. I realize every cycle is different, but in general I think this is the time when the Fed typically makes mistakes because we sit here and we're uncertain about the speed of the recovery. We all probably know, or I at least feel, that we're pegging short-term rates at a level that is not sustainable in an economy with any kind of upward momentum. I think we have to be very sensitive to a situation where short-term market rates move up as we peg the funds rate to fixed levels. This is obviously not a new concept; we've talked about it before. But the net result is that to keep that administered rate where it is we have to provide reserves at a very rapid rate, and we're doing that. There are certainly some technical factors one can point to in that regard, but I suspect there may be more to it than that. So, I think we have to be very sensitive to not overstaying [ease]. Finally, I think a symmetrical directive gives us plenty of flexibility to respond in either direction.",423
-fomc-corpus,1992,President Hoenig.,4
-fomc-corpus,1992,"Let me talk about the short-term issues first. The economy is showing strength--more strength than I saw last time--and I think it is real. There is a fair amount of liquidity in the system to accommodate future growth should that continue, so I don't think we would be hurting things by staying where we are. So, I am inclined towards alternative B. As for asymmetry or symmetry, I'm inclined at this stage to go with symmetrical language partly because we meet again fairly soon and partly because I think the economy is fundamentally stronger. Even though I recognize the downside risks from the trade situation and all these other factors that we have talked about, I think we do have a fundamentally better economy. As for the long-term ranges, I think they should be lowered, and my preference is for 2 to 6 percent [for M2]. I believe that's orderly and consistent with what we may see going forward. As to when to announce it, I don't have a strong preference. It's something that takes explanation, though, and if we try to put it in a letter we won't have the opportunity to explain it, which is so important. We need to weigh that against what may be bad timing next February. But we have to do something next February, and that is the normal timing. So, I guess I lean toward doing it later in the [usual] form.",277
-fomc-corpus,1992,Vice Chairman.,3
-fomc-corpus,1992,"With regard to current policy, my preference is for ""B"" symmetric, but I think something has changed. Over the summer months, getting back to my own example, I was fearful that we were looking at a 1-1/2 percent or worse economy and now I feel a good deal more comfortable that we're looking at a 2-1/2 percent economy. But I've always felt in this transition period that that was acceptable. Now, having said that, I prefer ""B"" symmetric; I could live with asymmetric because of my own anxieties about the international side. There is an extra margin of vulnerability there, and for that reason alone I could live with an asymmetric ""B."" The long-run ranges present a much more difficult problem. There's a logical conundrum here: If one took the position that this is totally or largely a technical phenomenon, then I don't think it matters a whole lot whether we cut the ranges now or in February. And if it's technical, it's technical. Some members are essentially arguing that it is technical; others are arguing that it's quasi-technical; and still others are arguing that it's substantive. That is the logical dilemma. I think an awful lot depends, Mr. Chairman, upon how you feel as Chairman you want to play this.",259
-fomc-corpus,1992,I personally feel very strongly that it's best politically and otherwise to [view] it as technical.,19
-fomc-corpus,1992,"Well, I tend to agree with that. And if one agrees with that, then it follows almost as a matter of logical necessity that it's probably better to do it in February. That is in part because of Mike Kelley's argument that if we do it before February, nobody--the markets, the press, or anybody else--is going to get it right. And then we would have lost our moment. In addition, I did find persuasive a number of comments that members made about the way this plays into the setting of a new Administration, a new fiscal program, and all the rest of it. But again, if you fundamentally view it as technical, it seems to me that the weight of that argument is dissipated as well. Finally, apropos Bob Parry's comment, if you fundamentally view it as technical, don't kid yourself, you're not going to buy anything in terms of inflationary expectations or anything else. You can't have it both ways. But because I do view it perhaps not quite exclusively but largely as technical, I would lean toward doing it in February. As far as the amount is concerned, I can't get excited about 1/2 points one way or the other on this. I certainly could live with 2 to 6 percent but I could also live with 1-1/2 to 5-1/2 percent; I'm not sufficiently comfortable with my knowledge to be able to get excited one way or another about that half point [difference]. Again, from a logical point of view, the issue is whether it is technical or substantive. If it's technical, then, I think the February timing falls out [as logical].",336
-fomc-corpus,1992,"It has been a very interesting discussion, and I think Governor Lindsey was right. This coordinated approach [in our discussion] has certainly helped to bring out issues which wouldn't have been brought out otherwise.",39
-fomc-corpus,1992,"Could I just ask a question? It's along the lines of something that Tom Melzer mentioned and it has to do with the timing, though I favor February myself. Are there opportunities between now and then to send the study--the study that was released--up to the Congress with letters to the staff, and beyond that to make statements yourself to begin to educate people to the technical aspects of this so that it doesn't become as much of an event? I think it is very much technical, and it's something that we'd like to do and not have anyone really notice.",113
-fomc-corpus,1992,"Well, that's in fact what my suggestion was essentially going to be. We're going to have to send a detailed letter up to the Hill with the Feinman-Porter study. I would suggest that as part of the letter it would be useful to do precisely as you suggest: To indicate that if anything, as David has said, our nominal GDP has been doing better. And since we have been getting the nominal GDP that we were presuming we'd get with the current ranges, in that sense we have a very strong case to say that we have succeeded. The mistake was not on the GDP side; the mistake was on the indicator, which is the money supply. And I think that can be done. Frankly, I think Mike Kelley made a very important point when he raised the issue of this period being a media vacuum. He probably didn't emphasize that enough. The ridiculous stories that are coming out about the Federal Reserve tilting toward Clinton, not doing this, or doing that, are all absolute fluff. The one thing I'm pleased about is that it essentially has been all soft stuff. There was a story in this morning's Wall Street Journal which has us as a group opposed to Paul Volcker as Secretary of the Treasury! Now, how bizarre can they get? I frankly agree with Mike, but I had not thought about it in those terms until he mentioned it, that there really is a very significant danger [of media invention], which is a reason for proceeding the way Dick Syron suggested and then essentially burying [the decision] in the February testimony with a lot of technical discussion. That will work if the economy is up. If the economy is up, this issue is absolutely irrelevant. The question of M2 as a problem is gone; it becomes [unintelligible] for a few of our friends. If the economy is in the soup, this issue is not going to be our major problem. I must say that I came into this meeting not quite sure where I stood but, having heard all of the discussion, I'm pretty well convinced that the approach we ought to take is the one that Dick was [suggesting]. We have not released this study yet, is that right?",443
-fomc-corpus,1992,"Well, we have, Mr. Chairman, assuming you signed the letters last week.",17
-fomc-corpus,1992,"Oh, yes.",4
-fomc-corpus,1992,The study has gone up to the Hill.,9
-fomc-corpus,1992,We've sent it up to the Hill but we haven't--,11
-fomc-corpus,1992,"It has been released to three reporters, one of whom used it.",14
-fomc-corpus,1992,Is that right?,4
-fomc-corpus,1992,Market News Service used it last week; we had a few requests--,14
-fomc-corpus,1992,"Well, it's so complex that unless we do it--",11
-fomc-corpus,1992,There is another opportunity. We have a letter in the house from Mr. Gonzalez.,17
-fomc-corpus,1992,That's what I was thinking.,6
-fomc-corpus,1992,"And we could use that as a vehicle. He asks why we let M2 growth fall below the range. Assuming we get to 4-1/2 percent GDP growth this year, I think the question--",43
-fomc-corpus,1992,"Yes, I was thinking of that.",8
-fomc-corpus,1992,We could use that as an opportunity.,8
-fomc-corpus,1992,"I also think we probably would be better off with a range of 2 to 6 percent if for no other reason than it's a smaller change, although I think the points that Governor Angell made are certainly [relevant]. My only problem with Governor Angell's [position] is not his insight but his confidence in the forecast of M2, which I don't share.",76
-fomc-corpus,1992,I agree it could very well be off 2 percentage points or 4 percentage points either way!,20
-fomc-corpus,1992,That's exactly the reason why.,6
-fomc-corpus,1992,But I would prefer to have [the projected rate of growth] closer to the middle [of the range].,22
-fomc-corpus,1992,"I don't disagree with that as a general view. Let me go on to say further that, after listening to the [discussion], once we take one of the votes--however we vote--I'd like to go around [the table] again on the other because there are views that could conceivably change.",62
-fomc-corpus,1992,"I don't mean to interrupt, but if we're not going to do anything now--if there's a sense of the meeting not to do anything--do we really have to vote on it?",37
-fomc-corpus,1992,We shouldn't vote it down.,6
-fomc-corpus,1992,If we're just leaving the ranges the same--,9
-fomc-corpus,1992,If you're postponing your decision on that second [vote]--,13
-fomc-corpus,1992,I think the answer is that we would only vote if we came to a conclusion that we were going to do something now.,25
-fomc-corpus,1992,We could vote to consider it.,7
-fomc-corpus,1992,Vote to consider it? What does that mean?,10
-fomc-corpus,1992,We could have an understanding among the Committee members.,10
-fomc-corpus,1992,Yes.,2
-fomc-corpus,1992,[We could agree] that in response to the Gonzalez letter the study would be sent up to the Hill with a very strong suggestion in [our cover] letter to the effect that the ranges for 1993 will be cut in February by some unspecified amount.,52
-fomc-corpus,1992,"I must say I would frankly prefer that. From the point of view of the political sensitivities that we're going through now, that strikes me as the way to [do this] with the least fallout. If it weren't for the media vacuum, I would opt to do it right now and get it out of the way. I'm not sure we have that capability. I'm not sure we can do it, and I think the risks of missing are too large.",92
-fomc-corpus,1992,Saying that we expect to make a cut in February is really a good two-stage approach to that--,21
-fomc-corpus,1992,"Yes, I'm much more comfortable with that.",9
-fomc-corpus,1992,"--because, after all, we're only dealing with a tentative choice now anyway.",16
-fomc-corpus,1992,That's correct.,3
-fomc-corpus,1992,We still have to make the choice in February.,10
-fomc-corpus,1992,Is that something that we could accept? Would everyone be willing to do that?,16
-fomc-corpus,1992,"So, there's a consensus, then.",8
-fomc-corpus,1992,Yes.,2
-fomc-corpus,1992,The minutes would read that there was a consensus?,10
-fomc-corpus,1992,You are going to say that we're going to cut the ranges in February?,15
-fomc-corpus,1992,"We would say that there are technical reasons that are coming out of the Feinman-Porter study which clearly suggest [that the ranges should be cut]. I would even say that we ought to indicate that our hypotheses of last July are in fact being confirmed by later studies. That would be the general thrust of our approach. We would put it in a technical context as a two-stage activity. Then, when [the time comes for] the Humphrey-Hawkins testimony in February, [we will cut the ranges], assuming the economy is doing as we expect. And if the economy does something different, it's even better this way.",127
-fomc-corpus,1992,And the Gonzalez letter is the vehicle for doing it?,11
-fomc-corpus,1992,Yes.,2
-fomc-corpus,1992,"Mr. Chairman, I know you prefer to explain it as a technical move, but do you think it's purely technical?",24
-fomc-corpus,1992,Sure.,2
-fomc-corpus,1992,I don't.,3
-fomc-corpus,1992,It's purely technical. It would be a policy move for us not to make the technical move.,19
-fomc-corpus,1992,That's correct.,3
-fomc-corpus,1992,That's right.,3
-fomc-corpus,1992,"Let me put it to you this way. If you ask whether we are confirming our view to contain the success that we've had to date on inflation, the answer is ""yes."" I think that policy is implicit among the members of this Committee, and the specific instruments that we may be using or not using are really a quite secondary question. As I read it, there is no debate within this Committee to abandon our view that a non-inflationary environment is best for this country over the longer term. Everything else, once we've said that, becomes technical questions. I would say in that context that on the basis of the studies, we have seen that to drive nominal GDP, let's assume at 4-1/2 percent, in our old philosophy we would have said that [requires] a 4-1/2 percent growth in M2. In today's analysis, we would say it's significantly less than that. I'm basically arguing that we are really in a sense using [unintelligible] a nominal GDP goal of which the money supply relationships are technical mechanisms to achieve that. And I don't see any change in our view.",230
-fomc-corpus,1992,"Well, the technical argument is very strong, but I think there are some people who still entertain doubts about how serious we are about achieving price stability, and I think they will take this as a concrete sign that we may be more serious than they thought before.",52
-fomc-corpus,1992,That we're not serious? I'd say at this stage that we have achieved a very substantial amount of credibility.,21
-fomc-corpus,1992,More than we've ever had; I wouldn't argue that.,11
-fomc-corpus,1992,"I sense no evidence that any member of this Committee has indicated second thoughts on that question nor has anyone gone public with second thoughts or indicated any fundamental change in their individual philosophies. Bob, I'm not really concerned about that.",44
-fomc-corpus,1992,"I agree that that's exactly the position of everybody in this room, but I'm not sure that the public is completely convinced at this point. But I don't want to let this--",35
-fomc-corpus,1992,That may be. They will be convinced only after a period of time; and we will know they are convinced when we see the 30-year Treasury at 5-1/2 percent.,39
-fomc-corpus,1992,"That's right. And since that yield sits up there where it does, I think that is some evidence.",21
-fomc-corpus,1992,"When you look at the decomposition of the [30-year] coupon into its short-term cohorts, say, one-year maturities of futures, it's very clear that the substantial part of the inflationary expectations is five years out and forward.",47
-fomc-corpus,1992,That's right.,3
-fomc-corpus,1992,"I don't think that is a monetary policy response. I think that's a fiscal policy, global/American economic policy response and does not reflect on the Federal Reserve.",33
-fomc-corpus,1992,"I don't think it reflects entirely, but some part of it--",13
-fomc-corpus,1992,"Well, it's conceivable that part of that is an accommodation of the markets on our part. But we're going to change that only with time; we're not going to change it through playing around with words or charts or ranges. It's going to come only from what we actually do. Anyway, can I then assume that we will proceed in that direction and hopefully be able to pull it off with a minimum of problems? Listening to the comments on the short term, especially if we [include] the three members of the Committee who are significantly desirous of easing now, it's fairly clear that we have a central tendency toward asymmetry. I would describe it as normal or even slightly soft rather than the hard asymmetry that we used last time. So, even though I am aware that one can't mix this in the way in which I'm trying to mix it without breaking some crockery here, as I read it we would be close the average [view] of this Committee if we voted ""B"" asymmetric toward ease, and I would propose that to the Committee.",211
-fomc-corpus,1992,How do we make it soft asymmetric? I counted six who preferred symmetric and then you said either way.,21
-fomc-corpus,1992,"No, that's not the way I got it.",10
-fomc-corpus,1992,I've got Corrigan--,5
-fomc-corpus,1992,Corrigan is either way.,6
-fomc-corpus,1992,He said symmetric but he could accept.,8
-fomc-corpus,1992,I would accept asymmetric because of my concern about the international side.,13
-fomc-corpus,1992,"Right, you said symmetric but could accept asymmetric.",10
-fomc-corpus,1992,You might take a poll.,6
-fomc-corpus,1992,That's the simple way. Why don't we just poll the members?,13
-fomc-corpus,1992,Go around.,3
-fomc-corpus,1992,Sure.,2
-fomc-corpus,1992,Let me just say what I have. I've got Corrigan either way.,15
-fomc-corpus,1992,"What I specifically said was that my preference was symmetric, but in view of my own concerns about the weight of the international side I would accept asymmetric.",30
-fomc-corpus,1992,Right.,2
-fomc-corpus,1992,"So, I took that as a Corriganesque--",12
-fomc-corpus,1992,You think you have an ally and so does Governor Angell!,13
-fomc-corpus,1992,Angell I have as symmetric; Hoenig as symmetric but could accept asymmetric.,16
-fomc-corpus,1992,Yes.,2
-fomc-corpus,1992,I have: Jordan ease; Kelley symmetric; LaWare symmetric; Lindsey ease; Melzer symmetric; Mullins asymmetric; Phillips prefer ease but could accept asymmetric; and Syron ease.,37
-fomc-corpus,1992,"No, I'm ease, but could accept asymmetric.",10
-fomc-corpus,1992,I would admit that it's 6 to 6. I think the Chairman can decide!,18
-fomc-corpus,1992,"I think the particular choice of words is really far less important than what it is we would do under various conditions. [The wording] almost doesn't matter. Clearly, if the economy continues to show the signs [of improvement] that it has been showing--remembering that our next meeting is only five weeks away--we will probably sit tight. It would require a really important, surprising turnaround in a relatively short period of time to initiate action under this type of directive. The only reason I would argue myself for asymmetric is that I don't like switching back and forth. If the next trend is toward expansion, if we wait until December to go to symmetric or do something else, I don't think that matters much. If, however, we switch prematurely, it will look a little unstable. I must say I am personally somewhat inclined in that direction not because I think it's a major policy issue but because I think it's a--",184
-fomc-corpus,1992,"Well, it really is a moot point; when the fed funds rate is on top of the discount rate it is a moot point.",27
-fomc-corpus,1992,Especially when it's five weeks until the next meeting.,10
-fomc-corpus,1992,"So, I'm not going to vote ""no"" either way--",13
-fomc-corpus,1992,I'm going with you.,5
-fomc-corpus,1992,--because it's not that big a deal.,9
-fomc-corpus,1992,"""In the implementation of policy for the immediate future, the Committee seeks to maintain the existing degree of pressure on reserve positions. In the context of the Committee's long-run objectives for price stability and sustainable economic growth, and giving careful consideration to economic, financial, and monetary developments, slightly greater reserve restraint might or slightly lesser reserve restraint would be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with growth of M2 and M3 over the period from September through December at annual rates of about 3-1/2 and 1 percent, respectively.""",116
-fomc-corpus,1992,Call the roll.,4
-fomc-corpus,1992,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Hoenig Yes President Jordan No Governor Kelley Yes Governor LaWare No Governor Lindsey Yes President Melzer No Governor Mullins Yes Governor Phillips Yes President Syron Yes,46
-fomc-corpus,1992,"Okay, I think we ought to take a short luncheon break and then proceed to our next agenda topic. [Lunch recess]",25
-fomc-corpus,1992,Our meeting went into recess and we are now back in the official meeting for our final topic on which I request Don Kohn to edify us.,30
-fomc-corpus,1992,Edify you? [Statement--see Appendix.],10
-fomc-corpus,1992,Mr. Winn.,4
-fomc-corpus,1992,[Unintelligible] only from Mr. Gonzalez and only from his staff or Mr. Auerbach. We don't know what the new subcommittee chairman's agenda may be. A footnote: Steve Neal is still trying to keep [the chairmanship of] both the financial institutions and the monetary policy [subcommittees]. But whether that will work out or not remains to be seen. I would note that back in 1977--,91
-fomc-corpus,1992,"We have a fundamental problem. The problem essentially is that we are a public institution and that unless we have reasons to withhold, we really are obligated to make available whatever information we have on what we do. So, the question that we have to [consider involves] the efficiency of the discussion and the deliberative process and the elements that contribute to that. There isn't any question, at least in my mind, that if we were to have television cameras parked all over the place and this meeting were ""live,"" we would have a wholly different discussion. I must tell you about experiences that I have had under the Sunshine Act. For example, when I was Chairman of the Social Security Commission, which was subject to the Act, it turns out that the lawyers indicated that we did not have to have public representation at lunch and dinner. And lo and behold, all of the politicians--and these were the senior members of the Senate and the senior members of the House of both parties--negotiated like mad at lunch and dinner and the public sessions were absolutely sterile; nothing happened at them. On the Financial Economic Commission, which was a bipartisan commission also loaded with members of Congress on both sides of the aisle, I understand from a statement publicly made by Bob Strauss, the co-chairman, that in order to come to conclusions they had to go off in the corner and negotiate. The problem essentially is that there is a presumption that somehow we can be a deliberative body in the Sunshine on very sensitive issues. But the Congress, when it gets involved in that kind of situation, knows better; they're trying to repeal human nature and it doesn't seem to work. I think we have to try to remember that we're obligated not to start with the proposition that everything is secret unless we want to let it out. We have to start in the other direction. We're obligated when we seriously believe that the efficiency of our deliberations would be sufficiently undercut by various forms of disclosure to define why and to make that notion available to the Congress either through testimony, or written material, or through responses that we would make to Mr. Gonzalez's questions. But it is important that we define what it is we're doing. The trouble, unfortunately, is that there is a large element of hypocrisy involved, which is very difficult to deal with. In other words, we can't give examples to the people who are telling us to go in the open [showing that] when they are [deliberating] they don't [do it in the open]. Regrettably, that's not the appropriate response to this. And it is very difficult to communicate to people because Mr. Gonzalez has said publicly that he thinks our meetings would become far more productive if conducted in the open. Now, the chances of that are zero. I don't mean 1 percent or 2 percent; I said zero. And I'd use a lower number if they would let me! But we have to be able to define a rational position because we do have the very difficult problem of being a central bank in a democratic society. That's not an easy job. If it weren't for the hypocrisies involved in a lot of this, it would be relatively easy to do. So, what I'm really asking of you in this meeting is: (1) your views as to what you as a group would feel comfortable disclosing and at what particular time; and (2) where you think we have to be very careful. There is a tradeoff here basically between the efficiency of our deliberative process, which is very crucial to the country, and the public's need to know. They do have a need to know and they have a right to know. Vice Chairman Corrigan.",748
-fomc-corpus,1992,Let me start with either the television or the literal verbatim transcript. It does seem to me that--,21
-fomc-corpus,1992,May I just ask: Do we have people who are transcribing this and taking this down?,19
-fomc-corpus,1992,Yes.,2
-fomc-corpus,1992,"This is going to be a meeting from which we will try to obtain the best set of arguments and the best conclusions that will apply, so I want to make sure that we will have a record of what is said.",44
-fomc-corpus,1992,Yes.,2
-fomc-corpus,1992,I'm sorry. Go ahead.,6
-fomc-corpus,1992,"Speaking first to the issue of live television and verbatim transcripts: It seems to me that we can make a very, very compelling case that in the normal course of this Committee's deliberations there are frequent occasions on which matters pertaining to individual companies--say, General Motors or IBM--come up in discussion in a way that, if it were on television, would be very damaging. The result, of course, would be that they wouldn't come up. Much more importantly, there are often discussions about individual financial institutions; but still more importantly, there are often discussions centering around information that is provided to one or more of us by central bank governors and other governmental officials abroad, and those people would be absolutely enraged if that kind of information were part of any public discussion. So, it does seem to me that just on those grounds alone we can make a very powerful, entirely credible argument against live television or verbatim minutes. My guess is that if we could get that off the table, then it might be a little easier for the Committee to wrestle with the question of some kind of [record such as the old memoranda of discussion]. I might add--I don't know if you knew this, Ted--just looking at these memoranda of discussion for 1974, these published minutes include the write-ups of the Basle governors meetings. They include write-ups of visits of individual Board members to other countries and other central banks. People might have agreed to that in 1974, but today, no way.",307
-fomc-corpus,1992,"They included some of those, but in the public versions some parts of those reports were edited down.",20
-fomc-corpus,1992,"There's some pretty lively stuff in here, though, from those BIS meetings.",15
-fomc-corpus,1992,"Well, the Secretary of the FOMC made us hew to a [strict] standard about what we left in and what we left out. But you're right, there was still some lively material.",41
-fomc-corpus,1992,Governor Lindsey.,3
-fomc-corpus,1992,"Mr. Chairman, I think there are two issues here. One is the deliberative process and the other is timeliness. I think the deliberative process has to be preserved at all cost because otherwise there's just no way we're going to come to a candid decision. Looking at other situations, I think the public mood is that people like timeliness of information. For example, the Bundesbank holds a public hearing right after their meeting. Or when a Congressman comes to meet the President in the Oval Office or the Cabinet Room, the press is there at the very start and everyone is sitting around joking. The press leaves; they do their deliberations; and then afterwards they hold a press conference. That way the public has the sense that they have timely information on what was decided but the deliberative process isn't compromised. So, in reaching our decision right now maybe we have a problem in that we're providing no deliberativeness and no timeliness. We are somewhat subject to criticism on timeliness because our decision ""dribbles out"" and creates the appearance that there are unfair advantages. Maybe what we should do is move to the timeliness option.",230
-fomc-corpus,1992,President Jordan.,3
-fomc-corpus,1992,"I don't disagree with what Don Winn said about the role of a dedicated staff person, but I think that at most is a necessary and not a sufficient condition for what we see going on. I think these things need to be cyclically adjusted. The difference between our situation and that of the Bundesbank is that they enjoy very wide general public support as well as political support for their objectives. So there's not the same degree of interest or curiosity in the method by which they achieve them. Whenever the Hill or the media or others are dissatisfied with the results, however much they understand the forces at work, they're going to be more interested in knowing what the inputs were rather than being satisfied with the output. Our focus still needs to be on the results and the objectives and to get their attention off the process. I did not disagree with what Jerry Corrigan was saying about the negatives; I certainly agree with what he said about the way it would change the meeting in ways that, in effect, would destroy the process. But I don't like to play defense. I'm always in the mood whenever possible to play offense because I think that is a good defense; so I'd move in the direction of turning the discussion to the objectives of monetary policy and away from the process by which we get there. Their interest should not be in our discussions but in our decisions. And if we have more complete and timely release of information about our decisions, then I think we can take the focus away from the discussions that went into producing those decisions.",304
-fomc-corpus,1992,President Hoenig.,4
-fomc-corpus,1992,"In terms of what Mr. Gonzalez is asking for--and that is a detailed record of some kind as well as timeliness--as Jerry said, to have cameras in here or to have an immediate release of a detailed transcript or memorandum of discussion would inhibit the process under all these circumstances. Going back to your issue that the public has a right to know at some point, I think we have had in the past, as I've read this material, a position that says, yes, we would be willing to accommodate them with a detailed memorandum of discussion again if we could have some assurances that there wouldn't be premature release of that material to the public through a FOI request. That issue still stands and we can be consistent with protecting the deliberative process and making [a detailed transcript] available if they're willing to protect that over time. And, as we apparently did in the past, we can make some compromise in terms of what others are talking about here--releasing the results in a more timely way than we do now, which is waiting until after the next meeting. That may be of more value in essence to the public than having the TV cameras in here.",234
-fomc-corpus,1992,President Syron.,4
-fomc-corpus,1992,"I'm in general agreement with what the last three people have said on this. I was also going to ask Don Winn a question about how wide the interest was in the memoranda of discussion as compared to early release of the directive. I think the Chairman's point is absolutely right. We have to assume that things are going to be released unless we can make a strong case not to release them. And unless we show that there's damage to the deliberative process, which is Larry's Lindsey's point, I think we would get early release of the entire discussion. Pretty clearly, we all agree to that. But unless we can show that there's that kind of damage, we have a very, very thin reed to lean on. So, I just wonder if we went more in the direction of an earlier release of the directive in a broad form whether we could reduce a lot of the interest there is in this.",182
-fomc-corpus,1992,"Dick, if I go back to this survey that Steve Neal did in 1976. I'm afraid I don't have a very good answer for you because he didn't put the question in those terms. Although there were a number of respondents who in reacting and addressing the issue of verbatim transcripts or memoranda of discussion said such things as ""but I also favor an immediate release of the policy directive,"" that wasn't really the issue on the table. Obviously, immediate release of FOMC decisions is the issue in the Hamilton-Dorgan Bill. Clearly, there are some members of Congress who are interested in that, but we don't know how many. That has not moved along in the Congress, but obviously some members are interested in that.",146
-fomc-corpus,1992,"I'm going to make an unfair request in terms of asking you to make a guess. Think of the members of both Committees, the Senate Committee and the House Committee; if you were to ask them whether they would rather have a complete release of a memorandum of discussion with some significant lag or early release of the directive, what do you think the response would be?",73
-fomc-corpus,1992,"Well, I would guess that the members of Congress are more interested in knowing the results and knowing the results quickly than in having a detailed record that comes out in three to five years. So, if you put it to a vote, it would probably go that way. On these public disclosure issues--the Freedom of Information and Government in the Sunshine Acts--the record of Congress is that whenever those kinds of bills are put before them, it is very hard not to vote for them. So, if you put the issue on the floor of the House this minute ""Is the House of Representatives in favor of immediate disclosure or not?"" there's a political bias toward immediate release of information. On the other hand, the fact that legislation like that hasn't really moved along in the Congress makes one question how much real interest there is in the subject. I don't know if that's responsive to your question, but that's the best I can do.",185
-fomc-corpus,1992,But the fact that legislation might pass very quickly might argue for our doing something ourselves before something else comes along and is a fait accompli.,28
-fomc-corpus,1992,We cannot deal with this long-term disclosure of verbatim minutes ourselves because of the Freedom of Information Act problem. The only thing that we have any control over is release of the policy directive.,38
-fomc-corpus,1992,President Melzer.,4
-fomc-corpus,1992,"One of the things we ought to focus on also is this issue of accountability and the assertion that individually we're not accountable. I don't agree with that. I'm not an expert on the Supreme Court by any means, but there may be a helpful precedent there in terms of the concept of a majority opinion and then minority opinions. I'm not sure, for example, what discussions and negotiations go on in the Supreme Court to get the majority to sign off on a majority opinion. But I suspect that such discussions don't take place in the Sunshine. And I think the same principle probably applies here. An important starting point for this is asserting that we are accountable and--this may sound strange coming from me--that this is a consensus oriented body. When one ultimately signs off on the policy record, one has implicitly bought into the view that is stated [in that document] or if one has dissented, the record states why. Through that vehicle, for starters. I think everybody is accountable. I can appreciate what a benefit a more detailed record might be to historians and others later, but the problem I have is that it comes at considerable administrative cost. Let's say we did the memoranda of discussion; I suspect that participants would come in to the meeting and say ""I have my written statement that I'm going to come in and read."" There would be more of that rather than people reacting to the discussion at hand or a combination of each of us presenting [views] that we had in mind coming into the meeting and reacting to the discussion that goes on. We'd have to get advice from the lawyers on this, but I worry about going down that path. If in effect we say we're willing to do this--to create a memorandum of discussion if Congress gives us this protection--it would be very easy to lose whatever protection we need under FOI, yet we'd be stuck in terms of saying it would acceptable to us to do this. I think the end result would be, first of all, that we'd have a much more cumbersome process and secondly, that we'd very likely end up releasing the memoranda a lot sooner than we'd like to. The final point I would make is this: I've been intrigued with this idea of whether we can cut the legs out from under some of this argument by releasing more promptly something very simple after each meeting regarding the decision that was made. Did the Committee decide to tighten, ease, or maintain the same degree of reserve restraint? But to the extent that we go down that path--a number of people have mentioned this--we really have to think about that very carefully in that it starts to raise questions of whether we include the asymmetry of the [directive] language in [what we release]. Think about what the markets would have done after the last meeting if we had released the directive with asymmetry toward ease and then never acted. And what do we do about decisions in between meetings? Are those disclosed on a real-time basis or are those disclosed at the next meeting? I suspect that we could get trapped into what more and more would become a very complicated web. It's seductive in a way because I think all of us probably believe that the information on our actions is in the market right away; generally speaking, the problem is not that the markets do not know where the Fed is at a point in time. But there's this perception of secrecy. So, it's very seductive to think we can cut the legs out from under that. But if we go down that path, we really have to think through all the ramifications.",710
-fomc-corpus,1992,"I think you raise an important issue regarding the distinction between actions we have taken and are historically ended at that point [and those that are not]. Let us say, for example, that we eased today. We did something; it's a fact. That's differentiated from indicating our intentions of what we might do, which would induce the markets to discount that, in part. And then it would whipsaw the markets.",83
-fomc-corpus,1992,Right.,2
-fomc-corpus,1992,"And we would lose freedom of action because if we get caught in a situation where the markets have assumed we're going to act in a certain way, it's very difficult for us to pull back. It's the disclosure of the potential alternate policy moves of the Committee between meetings that is the sensitive issue because [disclosure of that information] creates market changes which make it more difficult for us to take an intermeeting action that we perceive we need to take. I personally see no problem in announcing decisions after the fact. We cut the discount rate, we announce it; we move the funds rate, we announce it. That frankly doesn't bother me very much. What does bother me is putting on the table and in the public our deliberations about potential future [actions] and our inclinations and the conditions that would drive [such actions]. That would then, by interacting with the market, alter our decisionmaking process and create a significant loss of flexibility in the actions that we might have undertaken.",196
-fomc-corpus,1992,"When I go full circle on this issue, where I come out is that if it's defensible, what we're doing right now is probably about right, subject to thinking about something along the lines that you just described.",43
-fomc-corpus,1992,President Parry.,4
-fomc-corpus,1992,"We really have two requests from Mr. Gonzalez, isn't that correct? The one that came to you mentioned the memoranda of discussion and videotaping. The one that came to the presidents was a bit different. I interpreted the question that came to the presidents, although Mr. Gonzalez used the word ""minutes,"" as referring to the record of policy actions. Is it possible that we presidents could answer that question--and maybe we should even have the presidents provide a group answer--and not even refer to memoranda of discussion or videotaping? What could be given up in terms of the record of policy actions is that conceivably it could be provided sooner than 6 to 8 weeks--maybe a month or whatever time it takes for drafting and reviewing and revising those minutes. Would that buy us anything? Would he find that acceptable?",169
-fomc-corpus,1992,"Frankly, if you want my impression, nothing will buy us anything. We have to decide what we think is the right thing to do, acknowledging that we are a public institution and that we have an obligation to make available anything other than that which inhibits due deliberation on our part. If we try to play offense or defense, as Jerry says, that's fine if they let us carry the ball. But they own the ball, and they're not going to lend it to us. If we do something thinking it will change how they behave, I'm not sure in which direction it would be. We have to make a decision based on what we think is the right thing to do, give our explanation to Congress and the new Administration to an extent, and if some legal authorities decide we have to do it in a different way, that's their responsibility. I don't think we can buy a bushel of corn. That's probably the wrong analogy. Ed Boehne.",193
-fomc-corpus,1992,"I think the distinction between the deliberative process and the timeliness is a useful distinction. What we need to preserve is the deliberative process. If we go to detailed minutes or videotapes or that sort of thing, we will basically destroy or greatly undermine the process that we have. Timeliness, however, is an area on which I think we are on the weakest ground. And there is a carryover affecting this issue of accountability. For example, how many times has the Board of Governors been asked for detailed minutes of discount rate decisions? How many times have you had a request for a videotape of discount rate deliberations? That [doesn't happen] because you basically have a free discussion and you issue a statement and that's the end of it. Those statements don't talk about the future; they simply talk about what decision has been made. My sense is that if we could somehow speed up the process of releasing the information, we would convey a greater sense of openness and accountability; and doing so would enable us to make a stronger case for protecting the deliberative side of it. Where I come out, bottom line, is that we really ought to fight and resist anything that cuts away or undermines the deliberative process. But I for one am willing to talk about how we might improve the timeliness because I'd rather do that ourselves than have it forced upon us and in the process compromise the deliberative process.",285
-fomc-corpus,1992,President Stern.,3
-fomc-corpus,1992,"I agree with what Ed just said, and I might elaborate a little. It seems to me that there may be an organizing principle or continuum here; I don't know how far it gets us. I personally don't see any problem with a memorandum of discussion--after all, these meetings are being held--and we used to do it. But I do think there's a critical issue with regard to the process and how soon the memoranda are released. Putting aside questions about what kind of protection we can get because of the Freedom of Information Act, it seems to me that we ought to be willing to release increasingly greater amounts of information with a longer lag. The reason is, of course, that some things that are very sensitive at the moment may be considerably less sensitive or without consequence two, three, or more years down the road. So, I personally don't see any problem with that. If we go in the other direction, [looking at] the things we could release immediately, I think we do have to be more concerned about what's there. Given that I feel an obligation to be forthcoming when we can be, I guess we should look at other ways--in terms of timeliness, in terms of content, or in terms of completeness --to enhance what we're doing to deal with some of the issues that are coming at us from the Congress.",270
-fomc-corpus,1992,Vice Chairman.,3
-fomc-corpus,1992,"I agree completely with that. What we have to try to do is to protect the deliberative process. Forgetting about which letter has to be responded to, it seems to me that there are four broad alternatives on the table. One is to acquiesce to the television and verbatim minutes. That to me is a non-starter. I think that destroys the deliberative process and on top of that has the other problem that I mentioned before about confidentiality and all the rest. The second alternative is something like the memoranda of discussion with a lag of a year or two or three. My own hunch is that we could probably live with that, but it's a helluva lot of work.",141
-fomc-corpus,1992,Huge. Imagine circulating this document to get an okay from all the people around here!,17
-fomc-corpus,1992,"But in an edited version with a long enough lag, I think it probably isn't fatal to the deliberative process. The third alternative is Mr. Melzer's and that is just to say that what we're doing is the best arrangement, which is where I would actually come out. The fourth alternative is the one several have suggested and that is to try to speed up some part of the release process. I could probably associate myself with the kind of thing that you suggested where in addition to what we now release right away we would make [any action we take] official; Mr. Coyne would put out a statement when Mr. McDonough lowers the federal funds rate confirming that it has been done and maybe even put in a sentence or two explaining why it was done. But from my point of view releasing something like the current policy directive at any stretch in an intermeeting period--whether it's two weeks, four weeks or the day after the meeting--I think is going to compromise the deliberative process irreparably. I'd much rather do this.",211
-fomc-corpus,1992,That is the problem I mentioned.,7
-fomc-corpus,1992,"Yes, that's the killer.",6
-fomc-corpus,1992,Markets would respond and affect how we function.,9
-fomc-corpus,1992,"What would happen because of that is that all these Solomon-like decisions we make about asymmetry, symmetry, and the ability for the Chairman to act in intermeeting intervals would be shot. We would be sitting here until midnight at every meeting trying to figure out how to get a true consensus. So, one way or another, it would damage the process. Either the process would stop working as it now works or we would get market whiplash effects. Either way, it's a loser. I just don't see how we can truly preserve the deliberative process as we know it in a context in which we would release the policy record as we now do it at any point in an intermeeting interval. I'd rather do a memorandum of discussion than that. But I could associate myself with the suggestion that you made. I'm inclined to think--Don Winn would know better than most of us--that that might in fact be seen as a significant gesture on our part.",192
-fomc-corpus,1992,"Jerry, I'm not sure that I heard all you said.",12
-fomc-corpus,1992,"What I'm saying is that to release the policy record as it now exists at any point in an intermeeting interval--it doesn't matter whether it's a day, a week, two weeks, three weeks [after a meeting]--will in my judgment compromise the process.",53
-fomc-corpus,1992,"Right, but what were you proposing? You were asking me--",13
-fomc-corpus,1992,"The Chairman made the proposal. What I think I heard him say was that as things stand now: When the Board cuts the discount rate, it [announces] it; when it changes reserve requirements, it [announces] it. If the Chairman or the Committee made a decision between meetings to lower the funds rate, we would put out a statement that morning saying the Federal Reserve today eased reserve conditions and as a consequence of this the federal funds rate went down.",94
-fomc-corpus,1992,What is the benefit from that?,7
-fomc-corpus,1992,"No, that's the wrong question. The question ought to be: What is the cost?",18
-fomc-corpus,1992,It has no cost.,5
-fomc-corpus,1992,"That's the issue. There's a benefit too, Dave. The benefit is that it takes away this perception that it's the Wall Street insiders who benefit from their Fed watching activities to the exclusion of other segments of society. That's the benefit.",46
-fomc-corpus,1992,"Suppose the Committee decided--it would be a rare, shocking event--to move the funds rate at a meeting. Would we announce it that day or when would that be announced?",37
-fomc-corpus,1992,"I would do the same thing--the next morning, though.",13
-fomc-corpus,1992,"So, all you're doing basically is speeding up the announcement process by two or three hours. Right now it comes out at 11:30 a.m. the next day, and you want to do it at 9:00 a.m.",49
-fomc-corpus,1992,It's not always clear.,5
-fomc-corpus,1992,"It doesn't in fact come out. We let the market assume that we've eased. I think there would be an additional benefit because sometimes it isn't altogether clear how much we've eased and it takes us a day or two of fiddling around with repos and matched-sales in order to convince the market what exactly was done. To the degree that there's a benefit in not confusing markets, I think we would actually get a plus from this approach.",86
-fomc-corpus,1992,And there have been periods when it has been misinterpreted.,13
-fomc-corpus,1992,Yes.,2
-fomc-corpus,1992,I'm not sure we'd want to disclose it so soon.,11
-fomc-corpus,1992,"You go into the market at something like 11:30 a.m., don't you?",18
-fomc-corpus,1992,Yes.,2
-fomc-corpus,1992,"So, it would work something like this: When you go into the market, essentially simultaneously there would be an announcement made by the Fed that the Desk has now eased or tightened reserve conditions and we expect the federal funds rate to trade at a certain level. That's the proposal?",55
-fomc-corpus,1992,"As I understand it, yes.",7
-fomc-corpus,1992,It doesn't have to be at the same time. Governor Angell.,14
-fomc-corpus,1992,"I don't view the idea of protecting individual confidentiality in a discussion as being uniquely different for the Federal Reserve than for other groups. I do believe we have a basis that we can argue is unique to the Federal Reserve, and that is that it's really group confidentiality we're trying to protect, not individual confidentiality. It seems to me that we have to distinguish very carefully between the discount rate, which does have a clear announcement, and open market operations, which under different procedures really are perceived quite differently. That is, it's important for us to preserve the flexibility for open market operations [in cases where] we're not pursuing fed funds targeting. For us to say once and for all that fed funds targeting is the real way to [conduct] open market operations ignores the possibility that at some future date some monetary aggregate or some reserve measure, borrowed or nonborrowed, might behave in such a way that we would follow that; and we would once again be in a period in which market forces would be moving the fed funds rate rather than our doing it deliberately as a part of our policy. So, I believe we ought not to make announcements about fed funds rate movements; to me that would take away the emphasis of the announcement effect of a discount rate [change]. I agree that maybe we ought to move the discount rate more often and thereby make more announcements. We could try to lean more toward doing that and not go the long periods as we sometimes do because of our hesitancy to [move] the discount rate. I also believe there's another important point in the Gonzalez letter to the Reserve Bank Presidents that needs to be addressed. His request that the position of nonvoting presidents be ascertained and recorded is one that we ought to resist with emphasis. The reason we ought to resist it is that recording the position of the nonvoting members then could have us in the confusing position of announcing that the majority of the members voted one way and the majority of the 19 participants voted another way. By doing that we would in effect be overriding the Congressional intent when [the Banking] Act of 1935 [established] a Federal Open Market Committee made up of the seven members of the Board of Governors and five presidents. We ought not to fall into that trap of those [nonmembers] being recorded. Now, I do agree with Ed Boehne and others who think that we ought to ask ourselves whether all the delays are necessary. I wonder whether or not the delay in the release of the [policy record] for the Federal Open Market Committee meeting until three days after the next meeting could be [shortened to] four weeks after the meeting; if there's a tilt on policy and we haven't moved in the direction of the tilt, then it seems to me there's not much revelation after three or four weeks. I don't know how much we really gain by waiting through the last part of the [intermeeting] period. I would not want to take away the flexibility that exists by making an earlier announcement than that.",605
-fomc-corpus,1992,I frankly think that would get us nothing.,9
-fomc-corpus,1992,But the question is not for us to try to buy something; the question is for us to ask if we are doing what we're doing in such a way that we can defend it. I don't know how we can particularly defend waiting quite as long as we wait on the release of those FOMC policy directives.,63
-fomc-corpus,1992,Governor Phillips.,3
-fomc-corpus,1992,May I ask on what basis we close the meetings now?,12
-fomc-corpus,1992,Speculation in the market and things like that.,10
-fomc-corpus,1992,Is there something in the Federal Reserve Act that allows us to close monetary--,15
-fomc-corpus,1992,This Committee is not subject to the Sunshine Act.,10
-fomc-corpus,1992,We're not subject to it at all?,8
-fomc-corpus,1992,Not subject to it at all.,7
-fomc-corpus,1992,Why not?,3
-fomc-corpus,1992,There are exemptions. The FOMC is exempt.,11
-fomc-corpus,1992,It's just exempt completely from the Sunshine Act?,9
-fomc-corpus,1992,Yes.,2
-fomc-corpus,1992,What about the Board of Governors?,7
-fomc-corpus,1992,"The Board of Governors is subject to the Sunshine Act; therefore, we have an obligation to open the meetings to the public unless we find some exemption.",30
-fomc-corpus,1992,But discount rate meetings aren't open.,7
-fomc-corpus,1992,"The discount rate is the responsibility of the Board of Governors and we have to go through the procedures of Government in the Sunshine, but we close the meeting.",31
-fomc-corpus,1992,On what basis?,4
-fomc-corpus,1992,Financial speculation.,3
-fomc-corpus,1992,Financial speculation!,3
-fomc-corpus,1992,I think that our General Counsel ought to write an op-ed piece in which he quotes both sources of information today and then asks the obvious questions!,29
-fomc-corpus,1992,What you really want to ask is how we were able to exclude this before we found out it was a sin!,23
-fomc-corpus,1992,"Right, right! Having found that out, the one thing that does seem unique in the FOMC compared to other regulatory bodies that do come under Government in the Sunshine is that we have a situation where 12 presidents come in from all over the country and the first part of the meeting is truly deliberative; and a lot of views aren't set until we go through that discussion process. I think that's the uniqueness of the Federal Reserve that we need somehow to try to preserve, if that can be separated out.",103
-fomc-corpus,1992,"Would you take the first part of the policy record, which is an evaluation of what is going on, and release that more promptly?",27
-fomc-corpus,1992,"I think they're separable. When you come down to the vote time under normal Government in the Sunshine procedures, that's the kind of thing that you'd have to record.",33
-fomc-corpus,1992,The only thing that we really have to protect is our tilts [in the directive] and our contingencies and anything that relates to actions we have not taken but might take. That's where the real issue arises.,43
-fomc-corpus,1992,"Well, if we go to some kind of fairly quick disclosure, there's not going to be any more asymmetric anything. We're just going to have to go to a straight vote, announce it, and that's it.",42
-fomc-corpus,1992,Why? We have tilts on which we don't act and we have tilts on which we do act.,22
-fomc-corpus,1992,We can just disclose actions taken.,7
-fomc-corpus,1992,That's right.,3
-fomc-corpus,1992,That's the key.,4
-fomc-corpus,1992,After the fact.,4
-fomc-corpus,1992,Right.,2
-fomc-corpus,1992,Yes.,2
-fomc-corpus,1992,"Well, why do you say that we have to do it the way you suggest?",17
-fomc-corpus,1992,"Well, if we announce that a vote has been taken and that it's going to be asymmetric--",19
-fomc-corpus,1992,"Oh, I agree with that.",7
-fomc-corpus,1992,"I think that would be limiting. In my understanding of Government in the Sunshine, though, there are ways to protect deliberative processes. That seems to me something that could be pursued because I think other government agencies do differentiate between staff papers and a deliberative process leading up to a vote. It's the final decision that has to be made public.",69
-fomc-corpus,1992,Did the CFTC deliberate in closed--?,9
-fomc-corpus,1992,"Yes, we had closed meetings. The basis on which we could close them included market-specific information, firm information, the IBM kind of information. There are clear bases on which to close meetings. And generally, unless you're subpoenaed, you can protect the deliberative process.",55
-fomc-corpus,1992,President Forrestal.,4
-fomc-corpus,1992,"I think we've got to preserve the deliberative nature of this body and if Governor Phillips is suggesting that we open the question of [our being subject to the] Government in the Sunshine Act, I would certainly not support that. I would not be opposed to a memorandum of discussion [released] with a lag of three or four years, or something like that. Nor would I be opposed to a more timely release even of the directive and the policy record. But there's a more fundamental issue here that we need to be careful about. We're having this discussion, it seems to me, because of one Congressman. Mr. Gonzalez has precipitated this in a letter to the presidents and a letter to the Chairman about videotaping. Now, I realize that we have Messrs. Hamilton and Dorgan and people like that [also interested in these issues] but I think we have to be very careful that we don't change the institutional nature of this body simply to accommodate a Congressman. He represents San Antonio; he doesn't represent [all the] people of the United States. I don't think whatever we do [in response to] Mr. Gonzalez is going to satisfy him, whether we say we're going to give him a memorandum of discussion or an earlier release of the policy record. He wants to politicize the Federal Reserve. And I'm glad we're not on videotape at this moment when I'm saying that! So, I think we really ought to resist responding to him. Now, I realize he's the chairman of the committee and if it looks as if he's gaining support, then of course we have to try to be more offensive--in both senses of that term!--and try to fashion any legislation that we think might come along. But if he doesn't have support.... We don't know what is going to happen in the new Congress. Is he going to have this kind of support? Also, I happen to think that we are accountable. We probably disclose more than other central banks, and I think we can defend what we're doing right now. I don't think we ought to be in a position at this moment of taking some kind of preemptive strike just to get something from Mr. Gonzalez. If the Congress wants to pass legislation, that's fine; but I don't think we ought to change on the basis of one Congressman. And I might just add that I think it goes beyond this issue; it goes to other issues as well.",484
-fomc-corpus,1992,"Bob, I agree with you on this point, but we can't afford to bury our heads in the sand either.",23
-fomc-corpus,1992,"No, I'm not suggesting that.",7
-fomc-corpus,1992,"There are sensible things that have been talked about that could be done here that would really be an improvement. We talked about announcing what we're doing so there isn't this confusion of ""did they or didn't they?"" in the market. And people seem to think that's an advantage. If there are things we can do that improve communications and we're not doing them strictly to respond to this but [also because] they have the ancillary benefit to which we are responding as well, I think we ought to do those things. I don't think we ought to stand up and, for lack of a better word, try to be overly ""macho"" or independent and just say because [Mr. Gonzalez has] raised it we're not going to do it. I am afraid this is a perilous year for us, and we could get into a situation of this escalating further and further.",173
-fomc-corpus,1992,President Keehn.,4
-fomc-corpus,1992,"Bob Forrestal already made the point that I was going to make. I certainly agree with those who have said that any further specific detail or attribution of individual comments would be very destructive of the [deliberative] process. But this is a question, frankly, that I don't think Mr. Gonzalez wrote; some curious staffer way down the line wrote it. And for us to respond by making a change at this point would be a very big mistake. I think we ought to go back and say that we thought about it carefully and that the process we're currently using seems appropriate to us. We're always open to thinking about it further, but we don't see any reason to make a change at this time. I think they're just fishing and if we give them something now, that's just going to encourage them to try to get more.",167
-fomc-corpus,1992,President Black.,3
-fomc-corpus,1992,"Mr. Chairman, I agree with Bob Forrestal. I think that Mr. Gonzalez's purpose really is to politicize the Federal Reserve, and he hopes to do that by exposing our deliberations. So, I think he's not really asking for [earlier release of] our actions. He knows those fairly soon, although one could argue that we could make them available a little sooner. What he wants to know is the deliberations. I was around here when we gave up the memoranda of discussion; I hated to see it [discontinued], although I understood the reason why the Committee did it. I chatted with Chairman Burns about it at the time and he said he too hated to see them go because they do have valuable information for scholars--admittedly only a few [of them are interested]--but the memoranda do have some valid information for those inside and outside the System. I think we would be wise to resume preparing them. I doubt that would inhibit our discussions and deliberations at all if they were released, say, three years or even two years later. And we would be responding to a point you made which I think is very real: That maybe we do have a responsibility for making available to the public something more than we are now doing. And I don't think that would inhibit our discussions. For example, would you mind tomorrow if someone told people what you had said two years ago at an FOMC meeting? My view is ""no.""",297
-fomc-corpus,1992,"The problem, unfortunately, is that under the Freedom of Information Act, we need a statute to protect us. In other words, if we were to start to make [detailed] minutes right now, they would be subject to a Freedom of Information suit.",52
-fomc-corpus,1992,That's what they would try.,6
-fomc-corpus,1992,I thought we were exempt.,6
-fomc-corpus,1992,"From Sunshine, [not FOIA].",8
-fomc-corpus,1992,That's why we gave it up in 1976.,11
-fomc-corpus,1992,"Well, you mean they would get out sooner than the lag we would set?",16
-fomc-corpus,1992,Yes.,2
-fomc-corpus,1992,"Well, it takes a while to write them! It's one heck of a job. Norm will tell you that. And I may have lost a friend!",31
-fomc-corpus,1992,"But I presume we have some exposure in regard to the tapes; it's just that we think we reduce the time scale of danger, isn't it? Aren't the tapes subject to a FOIA request?",40
-fomc-corpus,1992,"I don't know. General Counsel, what is the--",11
-fomc-corpus,1992,I think the tape of this meeting is destroyed as soon as the--,14
-fomc-corpus,1992,"That's right. The Committee has had a policy since the early '70s that once the policy record is released to the public, the tape is erased.",31
-fomc-corpus,1992,"Legally if someone asked for the tape before it's destroyed, we'd have to go through the tape and we could delete the recommendations and opinions. We'd have to turn over the segregable facts.",38
-fomc-corpus,1992,"Yes, but I'm saying we do have a period of vulnerability in regard to the tape.",18
-fomc-corpus,1992,No question.,3
-fomc-corpus,1992,I think we have to keep that in mind.,10
-fomc-corpus,1992,Governor Mullins.,4
-fomc-corpus,1992,"Well, I'm pretty much opposed to everything! In my opinion, it ain't broke, so I agree with Tom and Si and Bob. I think the memorandum of discussion would be a good idea, but I don't see how we could keep it from FOIA or keep it from Congress if Congress requested it. We somehow can't resist giving [bank] exam data or anything else. So, even if they said it was going to be [released with a lag of] five years, I wouldn't believe them. I do think it's an attempt to politicize the process--to identify and hold responsible those who have ""politically incorrect"" views. There is this notion of openness and the public's right to know. There is this bias and voyeurism, which is becoming a constant in popular culture by a self-serving media as well as Congress. But the notion of protecting the deliberative process is in the Sunshine Act; it's in FOIA. When I was at Treasury, deliberative papers were exempt from the process. When the President meets with his advisors on foreign policy or on economic policy, those deliberations are done in private. And as you pointed out, Congress [conducts] its caucuses and negotiations [in private]. I think one can see the difference in open versus closed Board meetings. The quality of discussion and decisionmaking, because of the sensitivity of issues and market sensitivity, is far different when we have an open meeting versus a closed meeting. So, I think this is entirely defensible under existing concepts, again against their bias. On the issue of early release, first, I'm also very skeptical of the notion that this would blunt political criticism. We have a new Congress and a new Administration, and I don't like sending the signal that we're in the mood for change and that we're malleable. I think we're in a pretty strong position starting out with those people. It's a particularly poor idea to do something unilaterally--to volunteer to turn ourselves in or to plead guilty. At least we ought to make them work for it a bit! And it's too early in the season for gift-giving. [Laughter] Releasing the policy record early I think would rob us of the asymmetric option. There may be an argument that we've overused the asymmetric option, but that ought to be confronted directly. I also don't like the idea of announcing a federal funds rate change. I don't like making announcements. We're not good at making announcements. First we have to be good at making the right decision and then we have to be good at PR. The last time we really tried this was with the discount rate cut last December. We said that it was going to be the last cut and that it was enough to sustain the recovery. Since then we've cut the federal funds rate 100 basis points and the discount rate 50 basis points, and I don't think that added to our credibility. The Bank of Japan always does this and they're ridiculed for it. We have moved the federal funds rate a lot more than we've moved the discount rate. I think one of the reasons is because we make an announcement with the discount rate. When we move the fed funds rate, it ends up on the financial pages; when we move the discount rate, it ends up on the front pages. I agree with Governor Angell that we ought to keep our options open. I would like to see more flexibility in the federal funds rate. I don't know exactly why it is that making an announcement would reduce the frequency [of such actions], but I feel the evidence is pretty clear that it would. So, my sense is that the process works pretty well. We have a pretty good record of accountability, and I think that's why we receive so little criticism and why this has not been coming up as a big issue. And it's not really just one Congressman. To a large extent it is one staffer resurrected from that era in which this was an issue. So, I think the right approach to take is to try to figure out what is best and not try to respond to pressure. My view is that the current process works well.",833
-fomc-corpus,1992,Governor Kelley.,3
-fomc-corpus,1992,"Mr. Chairman, the day is getting on here and it's just about all been said, I'm sure, but let me try to make one thing explicit that I think has been implicit in much of what has run through [the discussion]. What is in the public interest? That's what we're talking about. I think there are two components of that. We have two public interest objectives here, but they're not of equal weight. One public interest objective is the best possible public policy. That's essential and that can't be compromised. The other public policy interest is that there be timely disclosure; that's one of the basics of the political process of the country. That's desirable. The one is essential; the other is desirable when it does not compromise that which is essential. The essential part--the best public policy part--I think is most closely associated with the issue of the deliberative process. In my view, that's what we have to protect at virtually any cost. The desirable public interest part is more closely associated with the timeliness issue. So, it seems to me that we might be able to take a look and do some careful thinking about meeting that desirable public policy objective of disclosure a little more fully than we have today. But I would not want to do anything that would impinge upon the essential part of this, which is the creation of public policy in a deliberative manner. So, what we might do, Mr. Chairman, on another occasion with a little more time and maybe a staff paper to go into it, is to take a look at the alternatives that would speak to timeliness but be prepared to take a very hard line on anything that impinged upon deliberativeness.",338
-fomc-corpus,1992,President Melzer.,4
-fomc-corpus,1992,"Just a very quick comment on earlier release of the policy record. A couple of people said they weren't sure that we could defend what we're doing now. I would just say that it would be normal in a body like this in effect to review the minutes of the [previous] meeting when the body gets together again, because there's always the possibility that somebody who reads that last revision has a problem with it and we're all together and can resolve that and close out that issue. Whereas if we're reviewing the minutes in effect through a series of independent calls, we would never have that opportunity. And I think we could defend it on that basis.",127
-fomc-corpus,1992,President Boehne.,5
-fomc-corpus,1992,I just wanted to make the point that I don't see this as an issue between federal funds rate targeting or aggregate targeting. It seems to me we could have more timely release of both; I don't see that it's a tradeoff or that it in any way compromises the future decision that we might want to go to some aggregate [target].,67
-fomc-corpus,1992,"Any further comments anyone wants to make? This has been a useful discussion, and I think we've pretty much gotten everybody's point of view. Let me suggest the following: I'd like to sit down with a summary of these comments, think about it, discuss it with some of you perhaps, have a telephone conference within 10 days or two weeks or so and report to you what I've concluded from this and possibly make recommendations--one recommendation being to do nothing--and suggest how we ought to proceed from there. In the interim, I will write a letter to Mr. Gonzalez indicating that this meeting took place, that we had a considerable discussion, and that we will be proceeding on it shortly.",139
-fomc-corpus,1992,May I ask that we follow up on Jerry's suggestion about trying to get at least a little blurb on what other central banks do?,28
-fomc-corpus,1992,"It just so happens that we actually have two documents--a summary and a background document--that we did several years ago. With one exception, I think it's mostly current. It may not answer all your questions but it will give you quite a lot of background on what other central banks do; I'll distribute that after the meeting is over.",68
-fomc-corpus,1992,Are you sending copies to everybody? We have them.,11
-fomc-corpus,1992,I would have given them to you but I didn't want to disrupt the meeting.,16
-fomc-corpus,1992,Implicit in your comment is that we're going to have one Committee reply to Mr. Gonzalez?,18
-fomc-corpus,1992,"I should think so. Our position is very clear. There is important agreement in this group on the principles of what it is we're doing. The crucial issue is the deliberative process and how to protect that process. That's the [unintelligible] of these issues. Okay, I think that concludes the meeting. May I just add quickly before you go, first of all, that needless to say this [discussion] is confidential in all respects as are all meetings but especially this one. And secondly, we are scheduled to meet on December the 21st; that's a Monday. The question before the group is: Should we meet in the morning or would you rather meet in the afternoon?",140
-fomc-corpus,1992,Morning.,2
-fomc-corpus,1992,Afternoon.,3
-fomc-corpus,1992,It doesn't matter.,4
-fomc-corpus,1992,Is morning acceptable to everybody?,6
-fomc-corpus,1992,The presidents are coming in for dinner Sunday night.,10
-fomc-corpus,1992,You are coming in Sunday night?,7
-fomc-corpus,1992,"Yes, we are.",5
-fomc-corpus,1992,"Then Monday morning it is.     Okay, thank you very much, everybody.",16
-fomc-corpus,1992,"Good morning, everyone. I think you all know we have a luncheon for Bob Black that I hope everyone will be able to attend. I'd like to welcome Al Broaddus to his first meeting at this table. We look forward to his joining us on a regular basis starting with the next meeting as the newly installed President of the Richmond Federal Reserve Bank. There is nothing unusual about the agenda this morning so I'd like to get started right from the top. Would somebody like to move approval of the minutes of the November 17th meeting?",108
-fomc-corpus,1992,I'll move it.,4
-fomc-corpus,1992,Second.,2
-fomc-corpus,1992,"Without objection. Bill McDonough, you're on for the Foreign Desk.",15
-fomc-corpus,1992,[Statement--see Appendix.],6
-fomc-corpus,1992,I didn't have a chance to pick up the cause of the runup in the dollar against the DM from 1.57 to 1.58 this morning. What explains that?,37
-fomc-corpus,1992,"A very, very thin market. There was a remark by [Bundesbank President] Schlesinger, which seemed to give a more bland approach to his view of inflation in Germany, that helped the dollar; and then Bloomberg came in with a story interpreting what Schlesinger had said in not such a positive view, so the dollar came off a little. But we have these very, very thin pre-holiday markets; so if somebody sneezes, the exchange rate moves a half pfennig.",102
-fomc-corpus,1992,"Let's be very careful about sneezing in this room! Any other questions? If not, we shall move on to the Domestic Desk, and Joan Lovett will bring us up to date.",38
-fomc-corpus,1992,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1992,Questions for Joan?,4
-fomc-corpus,1992,"I've been following this sort of seesaw market psychology and monitoring the Call during this last intermeeting period, including how we responded to and interacted with that shifting market psychology. Through the summer and into the beginning of October, the dominant view seemed to be that the economy was weaker than had been expected. Confirmation of that weakness in the various statistics that came out would lead the bond market to tend to strengthen. We tended to go with that strengthening. Then from October 1st until, say, on or about the first Tuesday of November, there was a significant backing up in market rates. As I understand that, the psychology was that it was increasingly likely that Clinton was going to be elected and that we were going to get a fiscal package that would be too expansionary and, therefore, it was adverse to the market. Then something started to shift at that point. I don't know whether it was before or after our last meeting. Now we've been in a period where even strong economic news does not cause the market to sell off as it was doing before. Previously, any signs of strong numbers on industrial production or anything that would come out would tend to get an adverse reaction in the market. Don Kohn referred to this one morning on the Call as the ""new Clinton effect."" The idea now is that strong economic news means we're not going to get a big fiscal stimulus package. Therefore, it's a reason to rally whereas before it would have been a reason to sell off. If that's a good characterization of what has been going on, how much more potential is there for that kind of effect if we continue to get strong economic news going into the new year? Do you think the market is poised for a further relief effect [based on the view] that we're not going to be getting a massive dose of fiscal stimulus or maybe something worse like a deficit-neutral package?",374
-fomc-corpus,1992,"We think the view that Clinton is not likely to have a bigger stimulus package than the $25 to $30 billion that Joan mentioned is probably fully in the market. But what we're hearing now, especially in our morning dealer meetings, is the view that the yield curve from fed funds out to about 2 years is too steep. And we are beginning to get views, although not yet reflected in trading positions because of the tight year-end period, that bonds in the short end of the curve are very good buys. So, if you listen to what the dealers are saying, the market structure would say that we're going to have a very strong economic recovery and that the Fed will tighten about 25 basis points per quarter for the coming year. But when we talk to market participants and ask what they think is really going to happen, they have a view that is very close to the staff forecast. I'd say just in the last 10 days we have begun to hear people say that if this is what we believe the economy will do and the yield curve is saying that there's much more economic growth and much more Fed tightening than seems to make sense, there ought to be a bond market rally. We are just beginning to hear that.",246
-fomc-corpus,1992,"The steepening that did occur in that period from October 1st into early November was in the 2- to 3-year range. Most of that has not come back out, whereas at the longer end we've had some flattening.",49
-fomc-corpus,1992,Exactly. And that's why people who are beginning to talk themselves into thinking that there is a great buying opportunity are focusing on exactly that part of the curve.,31
-fomc-corpus,1992,"I think there's another force that is beginning to work here that we can see when we unbundle the whole coupon yield into the 1-year futures. As you are all aware, there has been a very significant decline in [rates in] the 10- to 30-year area; indeed, one is sensing that there is a really fundamental shift in the outlook as reflected in the various positions along the yield curve. What we may finally be seeing is a downward revision of long-term inflation expectations. There may be a hope--and I underline the word ""hope""--that the budget deficit may be addressed in this particular period because the only time that it can be [cut] is during the so-called ""honeymoon period."" I think there's a market expectation that something fundamental may happen and that is being addressed in the longer end of the market; and even though we're getting this upward surge in the short end, it's more than offset on the long end and the total effective yield in the 30-year coupon has been coming down. I think there is an intermediate cycle of the type that Jerry Jordan is talking about which has been superimposed on that process. If that is true, then there may still be further downside rate possibilities in the long end of the market. Indeed, what this is saying essentially is that the yield curve is going to flatten and possibly flatten quite significantly. If, however, the honeymoon comes and goes and we get the usual no action, then I think we're likely to see that go right back where it was, or maybe worse.",313
-fomc-corpus,1992,"Mr. Chairman, there's also some play in the market now because of the view that the new Treasury team may reduce issuance in the 30-year area. So, there is some attractiveness to the 30-year bond among those betting that that will happen, and some of the higher yield or back-up in the 2-year note is the opposite effect --that there will be more supply at the short end of the market and less in the long end of the market. But I agree with your view of the more basic thing that is happening.",109
-fomc-corpus,1992,It's worth noting that Jerry Powell told everyone yesterday that as an outgoing Treasury official for debt management he would advise the transition team not to make that change.,30
-fomc-corpus,1992,"Any further questions for Joan? If not, would somebody like to move to ratify the transactions since the last meeting?",24
-fomc-corpus,1992,I move it.,4
-fomc-corpus,1992,Second.,2
-fomc-corpus,1992,Without objection. Let's now move on to Messrs. Prell and Truman. MESSRS. PRELL and TRUMAN. [Statements--see Appendix.],33
-fomc-corpus,1992,Did I hear you correctly when you said that the gold exports in October appear to have come from the coffers of the Federal Reserve Bank of New York? Has anyone looked lately?,36
-fomc-corpus,1992,"Well, I didn't want to tell too many secrets in this temple!",14
-fomc-corpus,1992,"Obviously, we knew what happened to the gold, but I don't think we knew what it did to exports.",22
-fomc-corpus,1992,"What happens in the Census data is that the Federal Reserve Bank of New York is treated as a foreign country. [Laughter] And when a real foreign country takes some of the gold out of New York and ships it abroad, it counts first as imports and then as exports. However, the import side is not picked up in the Census data. So there you get the export side of it.",80
-fomc-corpus,1992,Great accounting!,3
-fomc-corpus,1992,Great confidence building!,4
-fomc-corpus,1992,That's because you haven't been filling out your import documents!,11
-fomc-corpus,1992,"Let me run this by again. You mean a country owns gold and has it stored in the Federal Reserve Bank of New York and if they ship it out, that's an export?",36
-fomc-corpus,1992,"And in the balance of payments accounts it also counts as an import, so it washes out.",19
-fomc-corpus,1992,"The Federal Reserve Bank's basement is a foreign country. When they move it out of the basement into the United States, it's an import. Then, when they ship it out again, it's an export.",41
-fomc-corpus,1992,That makes sense!,4
-fomc-corpus,1992,"And sometimes when they sell the gold, it might be sold into the United States, so it should count as an import. It doesn't necessarily always show up as an export.",35
-fomc-corpus,1992,That really clarifies it!,6
-fomc-corpus,1992,Does it have to get out of your vault at all in order to be considered an import and an export?,22
-fomc-corpus,1992,"Well, I'm not even going to try to answer that. In this particular case I know what happened, so I think the description you have is correct.",31
-fomc-corpus,1992,President Syron.,4
-fomc-corpus,1992,"Ted, I thought the Hooper-Johnson memo was extremely interesting in a number of dimensions. That shows that [growth abroad] has more of an impact, obviously, in a polar-case situation on U.S. growth than I would have thought intuitively. It is a polar-case situation, but it shows the importance of exports. I wanted to ask you to give a horseback kind of guess: If you didn't have something as extreme as their situation is--which may be based on a probability of less than 5 percent--but you could get to something that had a probability of, say, 30 percent, where would that leave us? Is it halfway between what we have in the Greenbook and what they had in their note? What would the impact of that be on growth in the United States? I didn't know how to interpret this; I don't know whether it is a linear interpretation.",182
-fomc-corpus,1992,"Essentially, it's linear. If you want to say the cutback in growth is approximately half of what we built into that worst case scenario, the impact on U.S. growth would be roughly half. I do think that memo in a way indicates that the worst case scenario is more probable in 1993 than in 1994 just because, with the passage of time, we are going to get more in the way of positive policy responses than one would expect, although it becomes increasingly possible to have two bad years as it is to have one. I was surprised at that, too, but the basic reason why we get a bigger impact than one might intuitively have thought stems from two factors. One is the dollar appreciation; that is quite substantial and it has a big impact, which one doesn't normally associate with this kind of scenario on a sustained basis. Secondly, with income elasticity, generally when you get above 1 you get a multiplication effect; things begin to add up.",198
-fomc-corpus,1992,Governor Lindsey.,3
-fomc-corpus,1992,"Mike, I'm a little concerned about the signals we're going to be getting next year if we have a particular fiscal twist. If I listen to Little Rock right, what we should be doing is moving social spending off the government's books and onto the books of businesses. Let's suppose we did that; say there is $50 billion less fiscal spending but mandated benefits of the same amount. I think of that as something like a lump sum labor tax. In my mind the markets would interpret that as fiscal contraction and rates would drop, but at the same time we would be seeing costs rise and perhaps we'd be getting higher inflation numbers as a result. Is that a reasonable interpretation of what we'd be seeing?",138
-fomc-corpus,1992,"I don't want to venture a political judgment, but--",11
-fomc-corpus,1992,"No, it's a ""what if"" question.",10
-fomc-corpus,1992,"I can't argue with the direction of what you're saying. It would look like reduced budget deficits. That might be favorable for the financial markets but they would also perceive the cost-push and worry about it translating, unless monetary policy were very restrictive, into ongoing higher inflation. So, it's hard to say how that would net out as a bond market shock.",71
-fomc-corpus,1992,Would that cause a net increase in measured inflation rates?,11
-fomc-corpus,1992,"I think so. I'm not sure what kinds of changes you're assuming, but if they are mandated health care, mandated expenditures on training--though I gather there may be some signs of a backing away from that--they would enter the cost structure one way or another and tend to be passed through.",59
-fomc-corpus,1992,There's also another way of looking at it. How that shifting of the net borrowing ex ante from government to the private sector works its way out in the financial markets is also related to this.,38
-fomc-corpus,1992,"In an ideal world, shouldn't it be a wash?",11
-fomc-corpus,1992,"Not if the elasticity of the demand and supply of funds is different between the two sectors, as it surely is.",23
-fomc-corpus,1992,It depends on its ultimate incidence: How much is borne by the workers in lower real wages and how much by the shareholders--it could hit the stock market harder than the bond market--versus how much is passed on to the consumers as prices. But we don't know enough to answer that.,59
-fomc-corpus,1992,[Some of those effects] obviously are occurring today.,11
-fomc-corpus,1992,"Bill, I don't see that [issue raised] at all in the newspapers. It is rather strange. I see references to a chance of fiscal contraction or $25 billion in extra spending, but I don't see that mentioned at all as a possibility.",50
-fomc-corpus,1992,"No, and we don't hear it discussed in the market at all. The assumption is that that which is virtuous on the fiscal side will not be turned into anything negative in the private sector.",39
-fomc-corpus,1992,"There is another possible way of looking at this. If the federal borrowing requirement is lowered and a cost is imposed on the economy or on business, there's also the perception that economic activity will slow in the process. And that would not fully offset the downward pressure on long-term rates that would occur as a consequence of the reduction in the budget deficit.",69
-fomc-corpus,1992,But that again depends upon the elasticity of demand for the products.,13
-fomc-corpus,1992,It depends on the elasticity of demand for financial instruments and the incidence of the costs and the incoming productivity trends. The net effect of that has to be to lower GNP. It's a tax and its effect really depends on what is done.,48
-fomc-corpus,1992,But it seems to me it's quite different if it occurs in a period of sustained monetary restraint than if it occurs in a period in which that monetary restraint is not in place.,35
-fomc-corpus,1992,Yes. Any other questions?,6
-fomc-corpus,1992,"A couple of questions. First for Ted, regarding your comments about the effects on [the United States] of [what is happening in] Europe and elsewhere around the world: Isn't it somewhat of a recursive process? I saw a press report about OECD raising its forecast for the United States. By the time that group gets together for the next Working Party Meetings in Paris they will hold up the prospects of a stronger '93, incorporate that in their numbers, and raise their numbers.",96
-fomc-corpus,1992,"Yes, our forecast is somewhat weaker than the recent OECD forecast and the IMF forecast released today that I heard on National Public Radio. That is partly because we forecast more often and have a faster turnaround in this process.",43
-fomc-corpus,1992,"But in their summer and fall estimates, wasn't it the case that as the prospects of [growth in] the United States came down these other countries were revising down their forecasts?",36
-fomc-corpus,1992,"Yes, though I think on balance for all of them including the staff [unintelligible] the U.S. story--although it fluctuated up and down within a relatively narrow range over the last 12 months--has been their most accurate forecast, whatever consensus one wants to take. The one that has been the most [unintelligible] has been Canada. Whereas the Canadians, if you go back 12 months, for obvious reasons were looking for a faster pickup in the first half of this year than they actually had, that was one of the factors that weighed on their marking things down [unintelligible].",128
-fomc-corpus,1992,"Let me turn to some questions for Mike about the U.S. economy. I was looking back over the last year--I haven't gone back further--trying to understand the dynamics of the forecasts as they are put together and the subsequent revisions. A year ago at this time the prospects were for the first quarter to be very, very weak. It came in considerably stronger than expected. The change there, of course, between what had been expected and what occurred was the most dramatic--much more so than even for the third quarter--and tended to have the auto-regressive effect of raising the prospects out into the future. The second quarter then came in considerably stronger than expected. At that time you revised down very sharply the third-quarter numbers; I think we were all feeling in that August-September period that things were very, very much weaker than expected. Now we see that the third quarter came in considerably stronger than those numbers, raising not only the reported number for the third quarter--what we have so far--but the forecasts for the fourth quarter and the first quarter of 1993, which also have been revised up. That worries me a bit. If you look back at the third quarter in particular and the reasons for having revised [your forecast] down sharply, with the advantage of hindsight, were there things that would have told you that it was still going to be quite a strong quarter despite the news [indicating strength] in the second quarter? Could that forecasting error have been avoided if we had looked at the right things?",309
-fomc-corpus,1992,"Incidentally, the [revised] third-quarter GDP number is 3.4 percent. Maybe there was something; I don't know. If there was, we missed it, obviously. Another possibility is that all those quarterly numbers will be revised in ways that will alter our perception of where we went wrong. To be sure, we are trying to forecast numbers that are consistent with the current scheme of estimation, but there is an erratic quality in this. One wonders whether the fourth quarter of last year was as low and then the first quarter as high, and so on, or whether there are some flaws in the numbers. We pointed out that at this point through the first three quarters of the year--at least before today's revision--there was a somewhat puzzling, growing discrepancy between the income and expenditure sides of the accounts. All of these things I think you need to recognize as the [unintelligible] pattern of errors. But I don't know what magic forecasting tool we missed. I will remind folks that in May or June you were presented with an analysis of how we had disregarded the information from M2. It suggested that our forecast should have been revised down to 1-1/2 percent for the third quarter and for the fourth quarter. So, M2 at that point wasn't the missing forecasting tool, at least applied the way that particular model presented it. I just don't know what it was.",287
-fomc-corpus,1992,"Let me shift this in a slightly different direction. I'm still trying to understand the interaction between what we do and how that works in your thinking about the economy in the Greenbook exercise. In the beginning of the Greenbook, the first page, second paragraph gives two alternatives. The first one says the upside surprise in the second half is confirmation that cuts in short-term rates can still be a potent stimulative force even in the face of various financial strains and so on. As I understand it, that's kind of a linkage in your model. At an earlier point nominal interest rates rose, representing a restrictive policy. And with a very long lag inflation is coming down. In the meantime nominal interest rates also were declining, giving some positive effect on the economy. But at some point [in your forecast] nominal interest rates stop declining, but [for a while] inflation continues to come down so real interest rates start rising. So, the reason you have 1994 real [GDP growth] slowing with the same nominal interest rates or even slightly higher nominal interest rates is mainly because inflation continues to decline and real interest rates go up.",226
-fomc-corpus,1992,"Well, let me say two things. One is that after having lowered the real short-term rate, even stability means that the time profile of growth rates of GDP will show a bulge and then will come back down as the level effect peters out. The growth rate effect disappears and becomes negative. But we've added on to that a rise in nominal short-term rates in 1994 plus the further modest deceleration of prices, which enhances the increase in real rates. And, yes, the rise in real interest rates in 1994 is a factor in this forecast.",115
-fomc-corpus,1992,"But if I read it right, isn't that the primary factor slowing real GDP growth in 1994?",21
-fomc-corpus,1992,"The other factor--I hesitate to mention it--is the appreciation of the dollar, which is partly a function of what is going on with U.S. real rates and partly what we assume is going on with foreign real rates. That's the major factor in the attenuation of growth on the external side, the net exports side, in 1994. The appreciation building over a two-year period begins to have effects. It's like a tightening in monetary policy, [resulting in] weaker growth in the short run. The stronger dollar affects '94 predominantly.",111
-fomc-corpus,1992,"Just to be clear on why we've done what we've done: Obviously, we need to make some decision about what assumption to base the forecast on. In this case we're making some judgment about where the Committee desires the economy to head. Starting with one rather simple observation, which is that real short-term rates now are very low and lower than we think would be consistent with some steady state, and secondly that the other financial restraints in the system will presumably diminish over time as capital positions of financial intermediaries improve and so on, it seemed to us that at some point the short-term rate should go up. We could have postponed that until beyond 1994, but in our assessment of the trends in the economy that ran the risk of overshooting going out into 1995--hitting full employment and tending to head through it and thus reversing the disinflation process. We could fine-tune this, but that is the basic sense of what is behind the interest rate outlook.",196
-fomc-corpus,1992,Just to be clear: You have been saying that the modest increase in nominal interest rates you built in or the increase in real interest rates resulting from lower inflation has its dominant effect in '94.,39
-fomc-corpus,1992,"Well, the reduction in inflation was less than the nominal interest rate change. We notionally put in about 3/4 of a percentage point increase in the nominal federal funds rate. The disinflation at that point is progressing at several tenths per year. So, it's a small element in this rise in real rates.",66
-fomc-corpus,1992,"The reason I ask the question--and I don't know how to incorporate the international effects that Ted referred to--is that there seems to be a crosscurrent in our discussions between the concept that the economy tends to expand in the absence of various depressing forces that are retarding economic activity, and somehow policy may work against those adjustment constraints, versus the view that the economy tends to stagnate in the absence of stimulus to make it go forward. I'm trying to get at how, at least in the Greenbook projections, what we are doing with respect to policy comes to bear on the forecast.",118
-fomc-corpus,1992,"Our notion is that, yes, there are natural equilibration processes in the system. With adequate monetary expansion, there are corrective mechanisms through the price system that ultimately push the system back toward [equilibrium]. But those take time; and it's rather hard for us to define this in terms of some monetary path, given the uncertainties.",66
-fomc-corpus,1992,"But those could be short-circuited, too. I'll give an example in a European context--maybe it's a far-fetched example: One could argue that in Germany, given what they've set in motion, if they don't ease short-term interest rates, it essentially would be using policy against the natural lubricating forces in the economy. So, if policy is too tight for any extended period of time, ultimately maybe the economy could adjust to sustained high levels of short-term interest rates of 8 percent or 9 percent, but you'd have to tell a very complicated story about how you got to that--",122
-fomc-corpus,1992,"Further questions? If not, who would like to start our Committee discussion?",15
-fomc-corpus,1992,"I'm happy to say, Mr. Chairman, that the latest information on conditions in our District is quite favorable and actually more optimistic than some of the information underlying our report for the Beigebook. It seems clear that economic activity in our region is advancing at a faster pace than we had thought to be the case earlier. There are a number of indications of this. One indicator that we are looking at now with respect to the District's overall performance is the states' withholding tax collections. They have been running ahead of projections in several different states now through the month of October. We don't have full data for November, but in Virginia at least that's continuing through November. Sector-by-sector we're getting very strong reports on Christmas sales in every District state. There also are signs of greater strength in housing and manufacturing. And perhaps of more than passing interest, we are beginning to hear at least a few slightly good things about commercial real estate markets in our area. Specifically, we're told that markets for both retail space and office space are beginning to stabilize. We have some evidence that office vacancy rates have actually declined in a few areas in our District and rents appear to be bottoming out, all of which strikes us as hopeful and broadly consistent with the Greenbook projection of some improvement in nonresidential investment in the quarters ahead. As far as the national economy is concerned, we think the Greenbook forecast is certainly plausible. While the growth of GDP shown in the projections for '93 and '94 is pretty subdued and the unemployment rate remains quite high at the end of the projection period, there is a further decline in inflation. So, all in all, the Greenbook projection strikes us as a reasonably favorable near-term outcome if we can get it. We could definitely do a lot better, but we could also do a lot worse. We think there are risks on both sides of the projection. We think the biggest downside risk is the possibility that both the Japanese and European economies could turn out to be weaker than projected. But there also are upside risks as we see it, both externally and on the domestic side. As Ted Truman mentioned, fiscal stimulus is already in the process of being put in place in Japan. There is certainly a possibility that the Bank of Japan will ease monetary policy further in the near term. There is a widespread expectation that if conditions in Germany remain weak, we also will see some easing by the Bundesbank at some point. So, it seems to us that there is at least a possibility that the external picture may be somewhat brighter than the Greenbook projections as we move into the second half of next year and the first part of 1994. On the domestic side, we in Richmond sense a much more solid and more permanent increase in aggregate demand and in both household and business confidence now than in the other several episodes of accelerated growth so far in this recovery. Netting it all out, we think the overall risk in the outlook has shifted rather decidedly toward the up side in the last several weeks, and we think it would be appropriate for the Committee to take account of this in reaching its policy decision this morning.",627
-fomc-corpus,1992,President Keehn.,4
-fomc-corpus,1992,"Mr. Chairman, in terms of the District, the level of economic activity continues to increase. Coming into the last meeting, conditions were starting to show signs of improvement and, if anything, the rate of improvement has accelerated a bit as we came into this meeting. And I do think this improvement is fairly broad-based. Auto sales have been a little better. The first-quarter production schedules have been set about 15 percent over last year, so that's a good increase. The auto manufacturers are anticipating an improvement in the sales level next year that is still below what they describe as the baseline but it is higher than this year. The heavy truck business has been particularly strong. Sales of Class 8 units are up 15 percent this year and are forecast to be up another 16 percent next year. The backlog now is some 12 to 16 weeks for these units; it's pretty broad-based and is viewed as quite strong. Steel production continues at a good level, operating at about 80 percent [of capacity]. Steel producers also are reasonably optimistic about next year. And certainly the international trade cases that are currently going on ought to be beneficial to the industry. Between the subsidy constraints and the dumping constraints--and I think the latter will be announced later in January--they are expecting that imports next year will be reduced by 4 to 5 million tons. That should also have the effect of improving the operating levels of the industry by some 5 percent, and they would expect that to occur by the end of the first quarter. This ought to provide a better environment for pricing, which continues to be very, very rugged. Retail sales in the District continue at a good pace, but I must say some of the strength that we saw early in the Christmas season has eased a bit in the last few days. This is a very tough period to judge because the selling season is longer, but I must say many of the people that I've talked to who earlier were expecting, say, an 8 percent increase this Christmas season now are talking more in the area of 4 to 5 percent. We have particularly strong [sales] in communications equipment. Orders for communications equipment bottomed out in mid-1991 and have been increasing rapidly at annual rates of 20 to 25 percent. The expectation for next year is that growth will be a little lower but still some 15 to 16 percent ahead of 1992. Even in the agricultural equipment business, there is a little better tone, or at least it's not worse. One major manufacturer is expecting a 5 percent increase in unit sales next year, but that is after a 12 percent decline in '92 and a 9 percent decline in '91. So, it's an improvement from a pretty low level. I will say, though, that inherent to the better outlook for '93 is the expectation that an ITC tax will be enacted, which will be beneficial to agricultural equipment. The inflation news continues to be very good. To hold down their cost of purchases, large companies are exerting tremendous pressure on their suppliers with very good results. More than a few, in fact, have achieved reductions in the average cost of their purchases this year and they are expecting equally good results next year. Competitive conditions in the marketplace make it awfully tough to increase prices. Labor contracts continue to be negotiated on favorable terms, and certainly this continuing drumbeat of layoffs and plant closings has an effect on labor expectations. The fact that of GM's 28 planned plant closings 12 so far have been in Michigan certainly is unsettling to employment conditions in that state. Turning to the national economy, while I do think the outlook has improved--certainly we have no reason to question the staff's forecast--I must say that I continue to have at least lingering questions as to the underlying strength and sustainability of the recovery. The employment numbers that will be coming out over the next few months I think will give us pretty good indications as to how things will work out next year.",810
-fomc-corpus,1992,President Parry.,4
-fomc-corpus,1992,"Mr. Chairman, economic conditions in most states of the Twelfth District are improving, but deterioration continues in California. In District states outside of California, employment grew at an annual rate of 3-1/2 percent in October, and employment in these states is now roughly 0.9 of a percent higher than it was a year ago. Employment growth is consistent with anecdotal reports of strong retail sales and renewed consumer confidence in much of the West. However, contacts in the state of Washington report widespread concern about the area's future due largely to Boeing's announcements of cancellations and delays of aircraft orders and resulting layoffs. Despite these concerns, many contacts report that current business conditions in the state of Washington are actually quite good, and employment in Washington actually picked up smartly in both September and October. In contrast, there is no sign of improvement in California, a point that I'm sure you've read about in several articles so far this week. Employment continued to decline in November, bringing the decline to 155,000 jobs or 1-1/4 percent, compared with a small rise in the national economy. Defense cutbacks and commercial real estate problems will continue to be a drag on southern California's economy for some time, and budget problems will lead to cutbacks in levels of state and local government spending throughout the state. Turning to the national economy, recent economic data actually have been encouraging. It's possible that a moderate expansion may finally have taken hold. Although we are not quite as optimistic as the Greenbook concerning economic growth next year, we have raised our forecast moderately to about 2-1/2 percent in 1993, assuming no change in policy. Most of the pickup is likely to come from interest-sensitive sectors: consumer durables, housing, and business equipment. Consistent with this moderate growth, the unemployment rate is likely to decline only moderately over the next couple of years and we would expect the CPI inflation to come in somewhat lower than that forecast by the Greenbook. Thank you.",403
-fomc-corpus,1992,President Forrestal.,4
-fomc-corpus,1992,"Mr. Chairman, I'm happy to say that the outlook for the Sixth District looks much more positive than it has for some time, and the improvement that we're seeing seems to be pretty much across the board. The Christmas surge in retail sales looks quite promising; it looks to us as if the South may very well lead the nation in this area. Spending is the highest in four years and is broadly based. Home furnishings and durables in particular are generally quite strong. Retail sales are beginning to spill over into manufacturing. Inventories were quite light at the beginning of the season and now manufacturers and transporters are reporting unusually heavy activity for this late in the season. Both home furnishings and white sales have a disproportionate representation in regional manufacturing and employment [growth] as a result. The pickup in housing nationally is seen as well in the District; the building associated with Hurricane Andrew is helping the Sixth District. Our survey of manufacturing plants was also more positive this time. That survey suggests that capital goods orders are likely to increase over the next six months. Moreover, more than 40 percent of the respondents expect to add workers over the next six months as compared to about one-third last month. The anecdotal information that we're getting from a variety of sources suggests that consumer and business confidence has shifted noticeably since our last meeting. We've pretty much stopped hearing negative remarks even from our small business advisory council members, and we are now confronted by what seem to be overly optimistic expectations--most frequently reported by retailers. So, I think the pendulum has swung from perhaps overly negative to perhaps overly optimistic. The inflation news continues to be relatively good in the District. To be sure, there are some negatives to report, although I don't think they are likely to tip the balance the other way. In particular, on the employment side, just when we thought we had seen the end of the consolidation and cost cutting, we are now hearing of new layoffs and cutbacks, particularly by Delta Airlines, which obviously is a major employer in our District. Many of our state governments are doing better than they had been, but Louisiana and Florida still face financial pressures. Finally, the energy sector is still in very poor shape, and that affects the Gulf areas particularly. But clearly, as I said at the outset, the situation looks much better than it did even at the last meeting, and the outlook seems encouraging. Looking at the national economy, over the entire forecast horizon our forecast is very similar to the Greenbook although we have growth [turning up] a little sooner. Both consumer and business spending on durables is higher in the Greenbook forecast than in ours. And the Greenbook sees relatively more of these durables consisting of imports than we do; as a result we have a less negative outlook for net exports even though the export growth rates are fairly close. We have a lower unemployment rate throughout the forecast. A difference that I've been reporting for some time is in the inflation numbers, where our forecast for inflation remains somewhat higher and is probably closer to the Blue Chip forecast. When I put all of this together, it does seem to me that the expansion has greater possibilities for being sustained this time around, and I think the risks to the economy are more symmetrical than they have been for some time.",657
-fomc-corpus,1992,President Boehne.,5
-fomc-corpus,1992,The District is generally better both in tone and activity but still is lagging the nation. There's something about that Mason-Dixon line which seems to make things go faster below it and more slowly above it!,41
-fomc-corpus,1992,Excluding California.,4
-fomc-corpus,1992,"Right. The shift in tone is more pronounced than in activity. I agree with someone else's remark at the table that people are more optimistic relative to activity than they were before when in my view they were too pessimistic given the level of activity. In terms of the sectors, manufacturing is up and retail sales are up--I don't think as much as in the Atlanta District, but our retailers are generally happy about the Christmas season. We hear more comments about improvement in residential activity. And bankers keep talking about improvement in loan demand--if not in loans booked at least those in the pipeline. But having said that, there still are some clear areas of weakness. Job growth is generally quite soft in the District. The reports from heavy industry, notably steel, are quite weak. I haven't really done this in any scientific way, but it seems to me that if we have a group of small and medium-sized business people and a group of big business people, the big business people don't share the same kind of better feelings that the smaller business people have. The commercial real estate market is still quite flat. I had a group of people from that industry in and I suggested it might take three years, perhaps five years, to get the District turned around, and I was told that that was considerably too optimistic. They were talking well out into the decade. On the national scene, I think the key issue--and it has been underscored already--is whether we now have a self-feeding moderate recovery going. I feel better that we do have one going at this point. I would put the risks at about even on the up side and the down side. The key continues to be employment growth. If we get some moderate employment growth in the months ahead, then I think [the recovery] will be self-feeding. If we do not--and I think that is potentially the weakest link--then we could still have some difficulty. Also, the downward pressures on inflation rates continue. It is difficult to make price increases stick. The layoffs that are reported in the newspapers help keep wage increases down. And I suspect we may do better on the inflation front than the Greenbook suggests.",439
-fomc-corpus,1992,President Melzer.,4
-fomc-corpus,1992,"I'd like to make three comments on the national economy. First, just as a lesson for the future, I'd like to remind us all that as recently as two meetings ago we couldn't see the strength that was unfolding in the second half. That isn't a criticism of the Greenbook forecast. It wasn't in our forecast; it wasn't in other forecasts; and it wasn't in the anecdotal reports. We were standing right on top of it and we couldn't see it. That's just an important lesson to remember going forward. It's not a question in my mind of whether we made mistakes in the forecast. It just points out how difficult it is to do that and really use it as a basis for making policy decisions. Secondly, I realize that Mike has to make an assumption with respect to what policy is going to be, but it's just inconceivable to me that we'll get through 1993 without an increase in the funds rate. The real issue may be that we are probably lucky to be getting out of 1992 without making one; I think it's something we're going to have to be thinking about a lot sooner than [the staff's] assumptions might imply. The final point I'd like to make, and it relates to the second one, is that it troubles me greatly when I read pieces in the paper--I don't hear it around this table--about how we need to have more economic stimulus, whether it's fiscal stimulus or monetary stimulus, to increase the rate of employment growth. In my mind, the reason that we're seeing sluggish employment growth is that we're getting good productivity gains, and that's what one would expect at this stage of the cycle. Those gains are going to provide the basis for increased output and income and eventually employment down the road. To jeopardize this basic setting we have of declining inflation or to jeopardize the progress that we're making toward price stability in order to try to increase employment gains would be a mistake. The final observation I'd make on that particular issue is that just because of demographics and slower labor force growth, we won't be seeing the kind of employment gains that we've seen in other recoveries. That's an important factor in that. With respect to the District, my comment would be that in employment basically we're seeing a pickup in momentum. For a good deal of the months during the middle part of this year, I wouldn't say we were lagging but the pace had slowed to that in the rest of the country. I'm seeing increased momentum in the most recent three-month period in relation to the last year and significantly higher gains both in the last three months and over the last year than for the nation as a whole. So, we have another one of those situations where there are very significant regional differences that are somewhat masked in the overall numbers.",552
-fomc-corpus,1992,President Hoenig.,4
-fomc-corpus,1992,"Mr. Chairman, our District continues to improve modestly, although we would note that the anecdotal evidence is much stronger than the statistics are showing. Our energy activity continues to improve, especially in gas drilling. Our agricultural area is sound, with improving livestock prices offsetting some of the negatives from the lower grain prices. But overall, our agricultural income is still solid. Construction activity generally is improving a little more modestly, but the single-family housing area is very strong, particularly in the western part of our region. In manufacturing, although we continue to hear about expansion plans by Ford Motor Company in our area, that expansion has not taken place yet. Our manufacturing job growth is flat for the time being. We hear a lot of optimism from our small business groups. They are still saying that they would like to expand even more but are having some difficulty getting credit from banks; that's on their minds still. On the national front, we anticipate growth as we look out to 1994 similar to that of the Greenbook, although our path is a bit different and a little more modest inintially. Still, we end up about in the same place. We are a little less optimistic on consumer demand, though. We also see improvements in inflation. We've revised that somewhat; it's not quite as favorable as we thought earlier. Overall, though, we think the economy is expanding at a persistent pace going forward into 1993.",288
-fomc-corpus,1992,President Stern.,3
-fomc-corpus,1992,"I have reported for some time that the District economy was expanding, and it is certainly continuing to do so. The tone of the anecdotal evidence suggests that there has been some further distinct strengthening. In fact, in some ways the anecdotes sound like what one would expect early in a recovery, which of course is not [the case for] this expansion chronologically. In some of the sectors, though certainly not all, people are turning ebullient; I'm talking about housing, autos, and retail sales more generally. Whether this is just a spike or something that is sustainable remains to be seen. But clearly, in the District at the moment things are going better in terms of expansion and there is still virtually a total lack of inflationary pressures, at least according to the business contacts we have. So, in most circumstances, things look quite positive. With regard to the national economy, I don't have any problems taking the Greenbook forecast as a base. If I were looking for downside risks, I would point to the foreign situation. Business contacts in the Twin Cities that do any amount of business in Europe or Japan have reported exceedingly negative results recently. They suggest to me that those economies are far worse than I at least had understood them to be. Whether that is a precursor of things to come is much more difficult to say. But clearly, they report very bad conditions and, at least as far as their own businesses are concerned, they are not optimistic [about the outlook for exports]. On the other hand, though, putting that one risk aside, I would not be at all surprised to see the national economy grow somewhat more rapidly than the Greenbook suggests. My reading of history in the postwar period at least is that once the economy develops some momentum on the up side--and I think that may be in the process of occurring--we tend to be surprised both at its duration and, for a time, at its magnitude. While the Greenbook forecast for the most part has a rather nice, steady 2-1/2 to 3 percent growth quarter-by-quarter, if momentum is really building here, I think for a time we will see more rapid growth than that.",440
-fomc-corpus,1992,President Syron.,4
-fomc-corpus,1992,"Thanks, Mr. Chairman. Tom Melzer referred to the regional differences. In listening to what has been said here, I am somewhat struck by the fact that we do have quite pronounced differences--I don't know exactly where the line is--in the north of California and in some other parts of the country. In terms of activity, I would say that in the New England region nothing is very different than at the time of the last meeting, but there is a palpable improvement in mood and attitude. I don't think there is anyone who is ebullient in New England at this point, but retailers are considerably more optimistic about Christmas. They have seen better activity so far and, interestingly, in the nondurables area. There are the usual complaints about margins, with price competition being very severe. Where the final retailing figures will come out in our part of the country is not completely clear because retailers did lose two days with the storm last weekend. They think they will get most but not all of it back, but that will offset a lot of the extra two days in the shopping season. The employment markets remain relatively soft with hiring being impacted by continued layoffs. In our District that includes IBM and of course the defense sector, which is going to [lay off workers] for some time. One sector where we do see some improvement is in housing, consistent with what other people have said. Housing prices have stabilized and in fact some isolated markets actually show increases. We also think it's going to take a long time for the commercial real estate sector to work out its problems. Our banks say that they are seeing some improvement in loan demand, with some growth in loans; but that is being offset in terms of the gross figures by paydowns from other sectors. Like other people, our manufacturers have expressed a great deal of concern about the exports side. We have a lot of people who sell things [abroad], including non-price-sensitive high-tech kinds of things, who are seeing a quite pronounced slowdown in Europe. Perhaps like Richmond, our tax receipts are showing some improvement; but interestingly they are more on the sales side than on the income-related withholding side, where we really haven't seen improvement. For the nation, I think there has been a definite improvement; one can't help but be impressed by the breadth of the sectors reflecting this improvement. I still have concerns about sustainability, though I have to say that is something only time will tell, given--to use Don Kohn's phrase--the litany of structural drags that we have. I have a real concern about exports, which is particularly reflected in this work done by Johnson, et. al. Overall, we're somewhat more optimistic on the price side and somewhat more pessimistic on the growth side on a marginal basis than the Greenbook. I think at this point the risks are pretty symmetrical. Things are improving but the sustainability is not guaranteed at this stage.",587
-fomc-corpus,1992,President McTeer.,5
-fomc-corpus,1992,"The sharp improvement in tone since the last meeting that Bob Forrestal reported for the Southeast occurred one meeting earlier in the Southwest. The District economy has remained very positive during the past few weeks, but it hasn't continued to improve. We continue to do a little better in the Southwest than the country as a whole. During the past year our employment has grown a little over a percent and a half. At the last meeting, I reported that one of the sources of strength in our District has been Mexican shoppers along the border area. I should mention this time that the Mexican authorities have imposed a $50 limit on what may be brought back duty free in cars and on foot across the bridges.",137
-fomc-corpus,1992,Didn't that cause something of a riot?,8
-fomc-corpus,1992,"There was a riot in Nuevo Laredo over that. It's good to see people rioting because of limits on their imports rather than consumer exports! This has happened before at Christmas time when the outflow of cash has been extreme, but it is causing some very sharp cutbacks in a lot of our border towns. Some of the Kmart and Wal-Mart stores are showing a drop in sales of up to 30 percent over these past few weeks because of that. It seems that things are going well nationally with the 3.4 percent growth in the third quarter and prospects for about the same in the fourth quarter. The risks do seem to have balanced out on the up and down sides. I think policy is in a good position, and the only thing I'm still a little concerned about is the very slow growth in M2. It would have been nice if we could have ended this year at least touching the lower bounds [of the ranges] for M2 and M3. That gives me some concern for the future, but for right now I think we're in good shape.",218
-fomc-corpus,1992,"Do you have a question, Bob?",8
-fomc-corpus,1992,"Yes, I just want to comment on something Tom Melzer mentioned about regional disparities. I mentioned in my report on California the decline of about 155,000 [jobs] in the last six months. If we back out California from the statistics, we get almost a completely different picture of what is happening: We see an employment picture in terms of nonfarm employment where the rest of the country is up 300,000 in the last six months. That's not robust but it is increasing. If we back out California from the civilian employment numbers, we get an unemployment rate of 6.8 percent, and we would have started from the same point.",132
-fomc-corpus,1992,Are you about to suggest something? [Laughter],11
-fomc-corpus,1992,"We are not seceding...yet! What I'm suggesting is that a majority of people in the country are experiencing something very significantly different from what a group of people in one state, or maybe even half a state, are.",46
-fomc-corpus,1992,That has been going on for a long time.,10
-fomc-corpus,1992,What is the difference at this stage as you see it between northern and southern California?,17
-fomc-corpus,1992,"There's a significant difference: 80 percent of the loss of employment is in southern California. They have about 60 percent of the jobs. Parts of northern California--for example, the Silicon Valley--show some strength. Intel has added 1600 jobs in the last year. We now talk about the United States as being the leader in d-ram chips at this point. Biotech is doing quite well. So, there are signs of relatively robust activity in the north, although I don't think they approach what we are seeing in the Dallas District or the Atlanta District. It's very concentrated. Although it's dangerous to take an area out and set it aside, as I said, the national figures in some respects don't give a good indication of what is happening to the overwhelming majority of people.",158
-fomc-corpus,1992,Governor Angell.,4
-fomc-corpus,1992,"It seems apparent that the economy is stronger than we had anticipated. I think the question we should be asking ourselves is why. Now, it may be that this is a normal cyclical surprise, but I doubt it because normally we get a monetary aggregate like M2 growing at a fairly rapid rate in a recovery period and normally we get some upward movement in commodity prices as recoveries begin. This recovery doesn't have those features and yet we have surprising growth in the midst of a period in which pessimism was the predominant view. If we ask why, I think we may ask ourselves whether we have underestimated the short-run growth stimulus of getting the rate of inflation down. We have decreased the tax rate on capital goods by lowering the rate of inflation, and that may have been in place long enough now to be giving us some real lift. We're also seeing a labor productivity rebound which has been as strong as it has been in a normal cyclical [stage] in which employment and output both were growing. So, this is something that we ought to keep in mind. The one awesome worry out there is the external situation. Will slow growth abroad and will the penchant for protectionism through either tariffs or subsidies or whatever cause the world's economy to be derailed? That's still a worry even though the U.S. economy does seem to be well on its way to sustained expansion. Now, it seems to me that the price level in the United States is still rising but at a decreasing rate. And it seems to me that the price of gold may be falling at a decreasing rate. Somewhere in here, if the rise in prices levels out at 3 percent, we may be missing a wonderful opportunity. If short-run growth does respond as well as we might believe to lower inflation expectations, it would be unfortunate if we lost sight of the goal of monetary policy at the very time in which the field is most fertile for achievement of our long-term goal.",389
-fomc-corpus,1992,Governor LaWare.,4
-fomc-corpus,1992,"Mr. Chairman, I have a Christmas present for the Committee! I'm going to spare the Committee my usual comprehensive and picturesque discussion of the economy sector by sector. I simply want to make the point that I remain more optimistic than the staff does about where we're going and the pace at which we're going. The thing that puzzles me about the Greenbook projection is that the relatively slow rate of growth in 1993 and continuing into 1994 and the major slack reflected in the unemployment numbers would indicate a more rapid rate of progress on the inflation front than is contained in the Greenbook projection. My own feeling is that the growth rate of GDP in 1993 will probably be up to 50 basis points higher [than the Greenbook forecast] and I think that rate of growth may be consistent with somewhat lower unemployment numbers and with the Greenbook projection on inflation. In summary, I feel more optimistic about the rate of growth in the economy and the rate of decline in the unemployment rate than the Greenbook. I think the risks in the projection are about symmetric with a slightly greater tilt toward the upside risk.",222
-fomc-corpus,1992,President Jordan.,3
-fomc-corpus,1992,"Well, the situation in my part of the country brightened considerably on two occasions since the last meeting when the sun came out very briefly. It hadn't happened since September. It did improve the mood of the place.",43
-fomc-corpus,1992,"Sensitive about this are you, Jerry?",8
-fomc-corpus,1992,"Like some others have commented around the table, the shift in mood is striking. People were reporting their own situations as not so bad but we were getting this disparity between what they saw nationally and how gloomy they were versus their strong order books, their backlogs, their goods production, and so on. So, at the time of our October meeting when the downbeat mood was so pervasive--including here--I was hearing the same thing from all the business groups and directors and others. That has totally vanished. Nothing has changed in what they say about what is going on in their own situations. Housing is still good; retailing is good. As Si Keehn reported, [sales of] heavy trucks are very strong--about the best in five years. We assemble a lot of light vehicles--small trucks and vans that people use as cars--in our District and they are also very strong. The gloominess comes from the large international corporations that have foreign operations. The negative commentary is very, very strong about Canada and Europe. I don't know whether to give more weight--",216
-fomc-corpus,1992,They are including Canada in that?,7
-fomc-corpus,1992,"Yes, they are including Canada because of labor costs and the political situation; they're still very worried about the cost of benefits. One major manufacturer who has a very large operation up there says that by far his most productive, efficient plant in the technical sense is in Canada, but he cannot get contracts in the United States because people do not trust having to depend on a Canadian supplier. Turning to the national scene, I don't know whether to give more credence to what is now an upbeat note in the outlook than I would have to a downbeat note three months ago. My bias is to think that the economy does tend to expand. As Gary Stern was saying, the history would say that once the economy starts in an upward direction, revisions tend to feed on themselves, as we've seen this year so far. The numbers come in stronger than anticipated and the revisions generally tend to be in an upward direction. I think that has sustainability. I don't think it's symmetrical; there's a natural bias in an upward direction. So my own national outlook would probably be stronger than what the Greenbook says.",218
-fomc-corpus,1992,Vice Chairman.,3
-fomc-corpus,1992,"Well, as far as the outlook is concerned, our forecast is essentially the same as Mike's, so I think that's a reasonable point of departure. The export sector probably is the area that I would worry about most in terms of a conventional assessment of the forecast. On the anecdotal side, there are a couple of things I want to mention briefly. First, in the case of very large multinational corporations--and I'm not limiting this at all to IBM--it's quite clear to me from the comments I get from CEOs that this restructuring process has not run its course. That still has a ways to go. IBM may be symptomatic of that, but I'm getting that from CEOs of other very, very big companies as well. Second, from the anecdotal area, there is some life in loan demand out there. It's not pervasive and it's not robust, but it is there. And consistent with a number of comments others have made about retail sales and so on, some very large credit card issuers, bank and nonbank alike, are telling me that credit card usage really is up. Interestingly enough, even though usage is up, paydowns continue and payments against usage are coming much faster than they have in the past so that among other things the levels of card usage debt are probably not capturing fully the rate of card usage in the past four to six weeks. In the commercial real estate area, I want to echo something Ed Boehne said earlier. We still are getting anecdotal reports that suggest that price declines probably have bottomed out and that rental rates and concessions are probably bottoming out. However, I have just heard for the first time over the past couple of weeks that some people are adding on to the length of the work-out process. The reason is because they are becoming more aware of rather large pockets of space currently under lease that have been essentially vacated as employment levels have been reduced, in the financial sector in particular. That means that these various statistics of vacancy rates aren't telling the whole story. As a result of that there is a bit, not major, of adding on--quarters as opposed to years--in terms of the work-out process. Another thing about this burst of confidence, if that's what it is, is that I think the election phenomenon has something to do with it.",464
-fomc-corpus,1992,That could be the ending of the campaign!,9
-fomc-corpus,1992,"I think that's part of it, but what has fed on that a little is that a lot of people, including red blooded Republican businessmen and women, are very impressed by what they seem to [observe]. The problem is that if what you get is not what you see, that process of feeling good can reverse itself very quickly. So, I think one has to be a bit cautious about that. My own sense of the risks [to the economic outlook] is a little hard to describe because I don't think of the risks in quite conventional terms. I think there is something greater than a zero possibility that all of this could turn out to be another flash in the pan. But I don't view those risks as high, which is another way of saying that I think there is a little more to this, barring a big disappointment on the fiscal budgetary side, than we've seen in the past. But consistent with what Gary Stern and several others have said, it's not hard for me to visualize circumstances in which growth over, say, the next four or five quarters could be stronger than projected in the Greenbook. I wouldn't bet my life on that, but it isn't hard for me to see circumstances in which that could in fact materialize, especially if this burst of confidence is bolstered by what turns out to be sound national policies, including budgetary policies. So, I have a little trouble trying to balance the risks because in one sense I don't think they lend themselves to any kind of statistical probability basis; but I certainly would not rule out the possibility that the economy could actually turn out to be a bit stronger even though, as I say, I do not consider the risk to be zero that it could fall on its face again.",350
-fomc-corpus,1992,Governor Lindsey.,3
-fomc-corpus,1992,"Mr. Chairman, 1992 has been a great year and it's too bad we didn't enjoy it until December! But now that we have a President that the Washington Post credited with the upward revision of the October retail sales data and who has an expansion named after him that started in the third quarter of the year before he took office, I think we all should just hang it up and go on vacation! I wasn't going to say anything, but I'm going to anyway. As a way of introduction, Don Kohn talked at the Christmas tree lighting ceremony about a tax-free, regulation-free enterprise zone at the North Pole and then introduced me as the Fed's only certified supply-sider and, therefore, the person who should talk about it. So, I'm going to take that tack. I have to agree with a lot of the comments here that (a) quarter-to-quarter projections are hard to make and that (b) if anything, we should be biased at the moment toward a slightly faster expansion in the quarters ahead. But I'd like to look down the road just a little at what I think are some of the problems headed this way. First, I'll pull out my supply-sider's list of longer-term problems this economy was facing in May 1990; it is a list that I was asked to create in my last job before the current recession began. The three that were on that list were: the expansion of OSHA that occurred in the Bush Administration; the Clean Air Act; and wetlands. Just to show how important these can be in terms of our hitting a brick wall, I'll relate a story from who comes from Wisconsin. As a biased Easterner, I always think of Wisconsin as a place where housing inflation should never occur. But he tells of tremendous housing inflation in Wisconsin because of a shortage of nonwet land to build on. They've had something like 12 to 15 percent house price inflation up there, which means that what they are hitting really is supply constraints. That as well as clean air are going to be examples of our hitting supply constraints earlier than we otherwise would. The second area of supply shock I see comes from labor market changes. I think labor market legislation is made all the easier during a period of expansion, so I think we're going to see striker replacement legislation, an increase in the minimum wage, and even more aggressive Civil Rights legislation, all of which are going to put upward pressure quickly on costs in the labor market. Finally, I think the chances of a supply shock on the international side are high. I agree with the forecast that the dollar is going to rise and that our trade deficit is going to increase, and the supply-side result of that is increased protectionism--probably starting as a game, but one never knows when it will get out of hand. All of these factors suggest that, if anything, what we're going to see is an increase in measured inflation sooner than we otherwise would expect. But what is different about it, and what I hope we keep in mind in 1993, is that inflation induced from these factors is not a monetary phenomenon. It is a one-time increase in costs that will ultimately be played out in the form of lower GDP. So, my wish for 1993 is that the staff forecast is right; but my fear for 1993 is that, if anything, we're going to see more inflation sooner than we'd like, and I'm afraid we're not going to react properly to it.",697
-fomc-corpus,1992,Governor Kelley.,3
-fomc-corpus,1992,"That's the first sour note of the morning, really. The main thrust of what we've been hearing this morning from the Districts is highly encouraging, though certainly not totally ebullient and appropriately so. I would suggest that perhaps the character of the progress the economy is making here is not really changing that much; we may be seeing basically more of the stop/start kind of pattern that we have seen in the past, hopefully at a somewhat higher level but of the same general character. That would imply that there will be downside news along with the upside news. It would certainly appear that we're building upside momentum here, and that's great. But it continues to struggle against these drags that we've had for a long time and that certainly haven't gone away: the downsizing in defense, the real estate situation, the deleveraging, and the restructuring. We know that litany. It seems to me that we may be seeing the upside momentum struggling against these drags and slowly gaining the upper hand, but perhaps that episode isn't over yet. Where does all of this net out? Well, one senses that the risks appear to be tilting in the upside direction, but it's probably too soon to be very sure of that; maybe they should be characterized as symmetric. I took very much to mind Tom Melzer's remarks earlier of where we were two meetings ago and what happened immediately thereafter. I think we'd all agree that gives us all plenty of reason to be humble when it comes to making projections. I'm struck by the fact that so many people this morning have said that the tone of things is leading the statistics. That's probably to be expected; on the other hand, it's not to be trusted either. So, we undoubtedly have challenging times ahead and difficult choices out there. Maybe they will come sooner than we think. They're probably going to be on the up side, but it's too soon to be totally confident of that.",384
-fomc-corpus,1992,Governor Mullins.,4
-fomc-corpus,1992,"Well, I don't have much to add. I agree with Larry that we've had a great year; we didn't know it.",25
-fomc-corpus,1992,We didn't appreciate it.,5
-fomc-corpus,1992,"We didn't appreciate it. We only learned about it in the last week or two, but we should take the next week off and celebrate. I agree with Governor Angell that we should think about why we had such a good year. It's certainly not money growth; the economy has been growing on velocity increases, whatever that is. And it's certainly not employment growth either; the economy has been growing on productivity increases. So, as best I can figure out, the economy has been running on fumes so far in '92. I don't think the numbers have changed much from what we expected earlier in the year even with the ups and downs. So far growth for the year is only 2.6 percent, which is pretty good; and we probably will do a little better than that. I suppose one of the motivating factors could be the election psychology. One would hope that it would turn out better here than it did in the United Kingdom and other places where they've had that phenomenon. I suppose there is the upside risk that Jerry mentioned of sound budgetary policies at the federal level. I guess I have a lot of confidence that that's not too great a risk. [Laughter] We do seem to be lifting ourselves gradually out of the mire. I see nothing robust even in these latest numbers and no real signs yet that we may be approaching an overly robust upturn. The risk is that, despite the slack the staff talks about, we don't have nearly so much slack as after the last recession when unemployment was 10 percent and capacity utilization was probably 70 percent. In terms of sustainability, I'll feel a lot more comfortable when we do get employment growth; also, some money and credit growth would be nice. We probably have had some marginal tightening from the dollar and from the increase in short- and intermediate-rates as near-term inflationary expectations have fallen. I also think the reduction in long rates could well be reversed very quickly once we see the character of Congress's pent-up demand for spending as this process gets started. To me one of the interesting things we're going to have to face is the coming collapse of M2 growth again. In February, the next time we meet, we could well have had two months of zero M2 growth and once again be back in that debate over what sort of policy we're following at the time we decide on next year's ranges. I would just conclude by saying that we should take the rest of the week off and celebrate a job well accomplished!",499
-fomc-corpus,1992,Governor Phillips.,3
-fomc-corpus,1992,"The reports that we've heard today and the reports in the last week or so are certainly the strongest evidence since I've been on the Board that the economy appears to be breaking out of this pattern of fits and starts that have characterized this recovery. Still, the persistence of regional differences remains a concern. I think the signs that are perhaps the most encouraging coming out of this plethora of news include the steady improvement on the employment front and in consumer confidence. Maybe it's the fact that we've now had six quarters of positive GDP that is finally dawning on people. Or maybe, as some have suggested, it's the post-election phenomenon. Or maybe people are just plain tired of being down in the dumps and generally depressed. We're making good progress on housing; industrial production seems to be on track after a bit of a swoon in the early part of the third quarter. We're seeing some small improvement, some strengthening, on the credit side. It seems very tenuous considering the situation that we've seen on business bank borrowing in December but still there's some improvement there. We have stronger corporate profits. The stock market has been holding up. The Dow hasn't moved a lot over the year; other indexes have improved. But overall, given the rather high PE ratios that we're still seeing, the fact that the stock market has held in there as long as it has is a good sign. The flattening of the yield curve is a generally good sign. I hope that is sustained and that it continues to flatten on the long end. Generally, the financial sector seems to be in better shape now to support a recovery than we've seen. I'm glad to see that some of our discussion here today has centered on inflation. There are differing views as to whether or not we're starting to see a buildup of concerns with respect to inflation. And I was glad to see the extensive analysis in the Greenbook on inflation. Concentrating on a variety of indicators--looking at the PPI components, commodity prices, and the wage indexes as opposed to just the CPI--I thought was helpful. Like others, I have some gnawing concerns as we go into 1993. The trade balance has been mentioned. I wonder if it's not just the concern about what Europe and Japan as trading partners may portend for the United States; if they get into bigger problems than might now be anticipated, I wonder if there will be some spillover effects that might come to our economy. On the employment side we still have a ways to go on operating restructuring and defense restructuring, so employment still seems to be a key to sustainability. I think the financial deleveraging has lessened, as [have] the Chairman's headwinds, but I'm not sure that we know how much further we have to go yet with respect to financial deleveraging. As a final note, I must say that I am concerned about the monetary aggregates. We're going to have to look very carefully at the M2 deceleration that we're seeing currently in December and that is projected for the next couple of months. I think the monetary aggregates bear careful watching.",616
-fomc-corpus,1992,"We have coffee out there or will have momentarily, if it's not there already.",17
-fomc-corpus,1992,We have just learned that the NBER has ruled that the current recovery began in March 1991.,21
-fomc-corpus,1992,It's not a really timely call.,7
-fomc-corpus,1992,"If you think you can match that, Mr. Kohn, you're welcome to try!",18
-fomc-corpus,1992,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1992,Questions for Don?,4
-fomc-corpus,1992,"This question of when the time is going to come to change the [funds] rate--especially in an upward direction--and the criteria for doing so has been on my mind a lot, and I'm sure it has been in everybody's thinking. This is my seventh meeting, and I thought it was time to go back and review the last year and to look at what actually has happened in terms of all kinds of economic indicators--monetary as well as economic indicators, nominal and real indicators--and Committee actions to see if I could deduce an implicit model. I read the newsletters, as I'm sure everybody does; and [unintelligible] and I don't see it in the numbers, it's certainly not inflation. It's not the various money measures: Ml, M2, the base, or bank reserves. I don't even think it's real GDP. I put together a table--a big matrix of every forecast for as many quarters out as the Greenbook does it--for every meeting for the last year. What struck me was that it looked as if we were on a de facto nominal GNP target. When nominal GNP is at or above expectations, the funds rate is held stable; but when nominal GNP comes in below what has been expected, we cut the funds rate. Do you want to comment?",268
-fomc-corpus,1992,"You can interpret some of what the Committee does to a certain extent that way. I think it's a difficult question. The Committee does not have a nominal GDP target that it announces. It's difficult partly for political reasons: The Committee has no authority to announce a nominal GDP target; and to the extent that it would imply something about real output and unemployment rates, that could get you into some hot water [depending on] how people interpret it. A nominal GDP target has a lot of attractive aspects, I think. You have to think about how to react to unexpected developments or shocks. It implies equal reaction to shortfalls in inflation and output, and you might not want to do that; it might be very dependent on where you are in the business cycle. But there are a number of caveats, if you think about it. And even a nominal GDP target is implicitly still a forecasting exercise. It really involves trying to figure out where the economy is going to be any number of quarters ahead of time. So, I don't think that gets around the problems you and President Melzer raised earlier about having to rely inevitably to a certain extent on your forecast of the economy. I don't think there's any way around that.",243
-fomc-corpus,1992,"Well, I've read the things that academicians have had to say about nominal income targeting. Despite some sort of theoretical appeal to some people, in this context I would be concerned that what could cause nominal GNP to grow significantly faster than currently expected in 1993 would be real output. There's very little likelihood that it's going to come from the price side. So, to have a de facto nominal GNP target would put the Committee in the position of being characterized as anti-growth, if it's perceived that we're tightening because of faster real growth.",109
-fomc-corpus,1992,"Well, I think that's the same thing I was trying to say before about how the Committee reacts. If you do tighten because real growth is much higher next year, I think it would be because your projection was that this was moving the economy closer to potential and there would be a danger of short-circuiting the downward trend of inflation or even accelerating inflation the following year. So, it wouldn't be explainable necessarily just on the nominal GDP terms; it would be looking forward regarding what that implies about inflation.",102
-fomc-corpus,1992,But then you have to have a theory or model about what causes inflation that's coherent or else you're going to run into some trouble.,26
-fomc-corpus,1992,"I'd like to establish that in the past the Federal Reserve has shied away from enunciating a view about potential GDP growth, remaining agnostic and being prepared presumably to accommodate any positive surprise. If the positive surprise on nominal GDP could be discerned to be a favorable supply shock, then accommodating it would be a more natural thing to do than if you felt it was a demand shock which tightened up markets and had inflationary consequences down the road. But viewing nominal GDP targeting as your basic approach takes some things as given, as being relatively stable. You may view this [approach] as a way of having an automatic stabilizer over time so that it would be natural to react if you're overshooting, with the thought that you would end up with some price pressures later [if you don't react].",161
-fomc-corpus,1992,Governor Lindsey.,3
-fomc-corpus,1992,"If I could pursue what Don said, and maybe the General Counsel would like to comment: Are we precluded from announcing a nominal GDP target?",29
-fomc-corpus,1992,"Well, I don't see anything in the Humphrey-Hawkins Act that would preclude us from announcing whatever target we wanted to as long as we still have money and credit targets.",37
-fomc-corpus,1992,Right.,2
-fomc-corpus,1992,"Oh, I see. Your view is that we're not mandated by law as opposed to not allowed by the law.",23
-fomc-corpus,1992,Sure.,2
-fomc-corpus,1992,Okay.,2
-fomc-corpus,1992,President Parry.,4
-fomc-corpus,1992,"Jerry, in the discussion about nominal income targeting it's clear to me that there are some problems associated with it. But what is perhaps more relevant is whether the problems associated with nominal income targeting are greater or lesser than those associated with interest rate targeting. I'm afraid a lot of the academic literature would suggest that we probably would reduce the chance of making the kinds of mistakes that we make with interest rate targeting if we followed a nominal income target.",87
-fomc-corpus,1992,"We could actually [target] nominal GDP, but we'd come out awfully [unintelligible] on the policy side. The problem I have with that [and a reason we're] not doing it is the forecast, which doesn't readily address itself to this automatically. Look, the whole purpose of money targeting is that it is a proxy for nominal GDP. If we can do it directly, do we need the proxy?",85
-fomc-corpus,1992,Right.,2
-fomc-corpus,1992,Governor Angell.,4
-fomc-corpus,1992,"Well, nominal GDP targeting is really not as bad as it might seem in that it does have a heavy price level direction to it. That is, the advantage of using nominal GDP as a target versus using real GDP is that we are saying to other policymakers that if they in some sense gear up activities that tend to cause wage rate pressures or other price pressures to take place, then they are voting for lower real GDP. So, nominal GDP targeting is not that far away from what I think is price level targeting. I think price level targeting is better, but we'll see.",115
-fomc-corpus,1992,He views it as real and you view it as price.,12
-fomc-corpus,1992,"But in the case of a supply shock, a lot of people have advocated nominal GDP targeting. We discussed this actually in August of 1990 in the face of supply shocks. It is supportive, as Governor Angell said, because it has some of these automatic stabilizer-type properties that Mike was talking about; you can't overshoot too badly on one side or another and you bring about corrective actions, particularly when you're unsure with prices going one way and quantities going the other way.",97
-fomc-corpus,1992,Take the supply-side shock we had in 1973. That supply-side shock with nominal GDP targeting would have produced about the same kind of monetary restraint we would have had if we'd pursued a price level target. A very severe monetary restraint would have been induced by that kind of supply-side shock.,59
-fomc-corpus,1992,"It depends on how flexible our policy rule is, I suspect. It doesn't have to be [inflexible]. We can take into account special effects. There are supply-side shocks that we may want to accommodate and some that we don't.",48
-fomc-corpus,1992,"Yes, but the problem is that the FOMC in the 1970s did too much of that.",23
-fomc-corpus,1992,"The advantage of nominal GDP targeting, especially if we allow a range, is that we're not driven to guessing whether this is a positive supply shock or a negative one. Jerry, I'm a little surprised by your negative comments on nominal GDP targeting.",48
-fomc-corpus,1992,"Compared to what? That is the problem. It's not that I would prefer interest rate targeting. I'm mainly concerned in this environment that the thing that would cause this Committee to raise the funds rate would be real GNP growing faster, being reflected in faster nominal GNP in the current environment.",58
-fomc-corpus,1992,"Let's say, for instance, that we had nominal GDP growth over 6-1/2 percent. What would be your policy prescription for such a result?",32
-fomc-corpus,1992,Mine wouldn't be anything. I'd want to look at what the money supply was doing.,17
-fomc-corpus,1992,Which money supply?,4
-fomc-corpus,1992,"The monetary base. But I would be concerned about the Committee reacting to that factor--nominal GDP caused by faster real growth--as though we needed to maintain slack in the economy to bring downward pressure on prices. I still would prefer ultimately a price level check, but we can't control the prices directly by anything that we do.",66
-fomc-corpus,1992,"If you had chosen the monetary base, your voting record would have been more conservative than Tom Melzer's!",22
-fomc-corpus,1992,I think I can reconcile--,6
-fomc-corpus,1992,"Any other questions? Let me start off by first identifying what I consider to be a more buoyant outlook [among the participants] in this meeting than I frankly had expected. It's clearly more buoyant than the Beigebook, which is the closest thing we have to a region-by-region look. And especially, as Bob Parry points out, if we expunge southern California, things are really moving at a surprising pace. I do think, however, that we have to be a little careful about these volatile moves, and that applies in both directions. Tom Melzer noted that we were unduly pessimistic last October. I would point out, however, that policy didn't change as a consequence of that--that the [policy] mechanism does not capture these swings and I hope it will not. As a consequence, I don't think we are about to jump on board the most recent swings until we understand what the process is. One of the more interesting aspects of what is going on at the moment--it's something that a number have alluded to--is that we basically have a productivity-driven recovery, or more exactly arithmetically the gross domestic product increase is largely attributable to the rise in productivity and to a marginal extent to the rise in average hours worked. The outlook for that particular variable is really quite critical to a number of the issues that have been raised around this table. There is an interesting question as to whether, in fact, we can have continued strong growth without employment growth. Obviously, theoretically we can. The question really gets to the issue of whether or not this productivity surge we've been looking at is abnormal or not. It is quite unprecedented in the context of how little economic growth we have had since March 1991. There are essentially two hypotheses about what those increases are attributable to, both of which could turn out to be right. The first is that the level of output per work hour at the bottom of the recession was quite low relative to the inputs of both physical capital and human capital. In a sense that's saying that the economy was not operating at an efficient level relative to its inputs. In that case, by just tightening up one can very readily reduce labor input and create within a certain range a rise in output per work hour. One presumes that that can continue to increase until we run up to the upper edge of that range, meaning that the existing capital, both physical and human, is being employed at its most efficient levels. The second possibility here is that the norm of long-term productivity growth, which is implicit in this concept of a range, has tilted upward. In that case, we're not looking at 1 percent or slightly more than 1 percent [as the norm], but conceivably all of a sudden something has occurred which has changed the longer-term productivity growth [trend]. Some anecdotal evidence suggests that there is at least something to that. Jerry [Corrigan], I don't know if you remember that breakfast where we had a very interesting representation of manufacturing corporations who were raising the point that this restructuring that is going on had only really begun, which is the same issue that you were getting from the New York [business leaders]. It strikes me that what may be happening--and I say ""may""--is that we have looked for years and years for the significant impact of productivity growth coming off the major computer input in telecommunications and high-tech capital assets and, as you may recall, we got very little of it. I think the reason is that we did not have the software. Essentially we could not really employ that degree of computational power without a major upswing in the analytic capabilities in using the equipment. In the last five or six years, or maybe a little longer, there has been a very dramatic increase in applicable software. One need only look at the stock market price of Microsoft to see the market valuation of this particular asset coming on stream. The people Jerry and I were talking to at the breakfast were talking about [unintelligible] systems manufacturing. I remember one of the people there was an old friend of mine from a company called which used to put DC motors into the rolling mills of a lot of the steel operations; that was their market. So, I raised the question: Is the big steel business now basically heavily DC motors? And he said ""We don't even think that way anymore. What we think of is complete computer operating systems of manufacturing."" If you go around and speak to people, what you find is that in the last two or three years there has been a major change in the way manufactured goods are created. And if you look at the data in the nonmanufacturing area, we are finally beginning to see some definite quickening in output per work hour in that area as well. So, what we may well be looking at, and what the restructuring is essentially all about, is the stripping out of big segments of employment. Companies are literally taking divisions and just wiping them out. A lot of that is directly applicable to the information systems that are created by the telecommunications-computer matrix. That is, a very large part of overhead has been communications overhead, meaning in the extreme form [a situation] where everyone just writes memoranda to each other. But the communications managerial systems have improved very dramatically to the point where people have been washed out of the system at a very rapid rate. If this is the beginning of something of quite important significance, the question is whether it is in fact saying that our potential GDP is being underestimated. Something may be going on here. The trouble is that we will not be able to know that for a while. It is quite conceivable that part of the problem that we're looking at is that the marginal cost of adding new people is so great at this stage that it may be creating somewhat of an illusion about the relationship between capital and labor; it may be creating an attitude on the part of a number of managers that they just will not hire new people except under duress because the obvious medical costs, employment training, and all the other costs are very large. And the big upswing in the temporary employment rolls is really quite impressive and clearly out of line with what the previous history of temporary employment has been. So, we may have a technical problem here which is obscuring what is going on and may be making it appear to be a much bigger issue than it is. But what is certainly the case, if the Greenbook GDP figures are right or if those figures are any stronger than that, is that we are going to get one of two scenarios. One is that we will get a very marked increase in actual employment growth, because it's difficult to imagine the average workweek going very much higher than it is. And if we are at the upper ranges of productivity growth, then the arithmetic of the system basically says that it all falls out to increased employment. The alternate scenario is that we are badly missing a major secular change in the productivity trend, in which case this is going to work out somewhat differently. It's not clear to me how it will play out in the sense that we do know that without a significant increase in employment, we will run into problems with how to get consumption continuing to [increase], especially when the saving rate is as low as it is. And this is a low saving rate despite the fact that we still have significant debt repayment going on. The debt pressures are clearly still there. I suspect the outlook, therefore, is a bit uncertain because of secular changes that are occurring, and I'm a little hesitant at this point to argue that we have a clear view as to how it will come out. I'm not saying, incidentally, that there are negative elements in this. There is, however, as pointed out by a number of you and in the excellent memo that the International Division put out, a very clear indication that the rest of the world is in really sad shape. We don't need the published data from foreign statistical agencies to tell us what is going on. As a number of you have mentioned, in terms of the general view of the multinational corporations, sometime a couple of months ago the order series for the foreign affiliates of U.S. corporate manufacturers all of a sudden just went ""bang."" There was a hole and Germany apparently just fell off the cliff. That's true in a lot of discussions. I was a little surprised at the Canadian [situation], but presumably that's not all that much different. But there is a potentially fairly significant drag coming from the international side, which affects this [outlook] as well. On the positive side, however, there are two elements that suggest there is considerable support remaining in this buoyancy that we're seeing. The first, which hasn't really been mentioned except by Mike in the Greenbook, is that inventory/sales ratios are really quite low. And if the economy starts to move faster than is generally expected, then lead times on production, orders, and deliveries will start to move out and the desired levels of inventories in the system will begin to move up. We could see even with all the computer-based controls and everything else like that, a bigger inventory accumulation than is forecast in the Greenbook. There's nothing like inventory accumulation to feed through to profit margins, which feeds through to capital investment, and it would be very easy to turn the Greenbook forecast into a lower estimate. The problem I have with that is the low saving rate. Mike wrote somewhere that we have a low saving rate pending the next revision of the national income accounts on what the history is all about. That may be a very prescient insight. We do know that as existing home sales begin to move up, as indeed they have, we are creating realized capital gains on the sales of homes which in turn are substantially financed by net increases in mortgage debt on existing homes. [The result is] cash to the sellers of homes which is unencumbered cash and is not all that distinguishable from disposable income. That means, in effect, that there is more income and more household savings--or at least it's perceived as savings--on the part of the household community. They basically look not only at the existing stock of wealth and how it's changing but also, as is obvious from the data, how it is markedly affected by the actual capital gains cash flow which occurs as the turnover of houses increases. All in all, the evidence we're looking at clearly has taken on a better tone and potentially a very significantly better tone for the longer run if productivity and potentially [favorable factors] that may be emerging are real and not just going to boomerang. On the other hand, I do think we have to be careful about being overly buoyant because it's very difficult with the extraordinary globalization of the world's economies to believe that the United States can move in any vibrant manner independently of what is going on in the rest of the world. So, we have concerns, mainly with regard to the rest of the world. We don't have any real insights into what could happen in the event there is a major political turnaround in Russia or the Ukraine or elsewhere. These are orders of magnitude, if they occur, that would have extraordinary impacts for one on our defense budget. Think of what would happen to defense appropriations if all of a sudden there were a totalitarian swing in Russia. The turnaround [in defense spending] could be quite remarkable and, needless to say, would have a very important effect on economic activity. In closing, I merely want to say, listening to the discussion around this table, that we clearly have moved away from asymmetry toward ease and have moved somewhat in the other direction. How far we go or what is the longer-term future for policy will unfold over time. But I must say that I am encouraged by what I have heard around this table so far.",2378
-fomc-corpus,1992,"Mr. Chairman, in terms of policy direction, I prefer ""B"" symmetrical, and let me mention why. While we study [the economy] an awful lot, I don't think that excludes us from a natural human tendency to have expectations and sentiments that swing too far in one direction or the other. I don't think we're exempt from that general tendency. I'm encouraged that the [economic outlook] is better, but I think it's far from certain for a number of the reasons you have mentioned. I'm inclined to think the potential is greater than we have assumed. But the timing of changes in potential as these released workers, if you want to call them that, become more fungible and can be absorbed in a different capacity back into the work force is very, very uncertain and hard to judge. I just don't see in the global situation that we will have price pressures in the immediate future. I'm not saying that won't happen before long--obviously we have to be diligent about [monitoring] that--but I don't think there is a strong concern about that at this time. Also we have this very difficult situation of the very slow rate of growth of M2, with M2 being what we do report to the Congress regardless of my skepticism about it, and the fact that you are going to have to go up [to Congress and testify]. So, coming from where we've been in an asymmetric stand toward ease, I think it would be premature at this time not to have at least a way station for some time in terms of symmetry.",309
-fomc-corpus,1992,President Parry.,4
-fomc-corpus,1992,"Mr. Chairman, recent developments suggest that a moderate expansion is underway, and we are seeing numbers in the inflation area that certainly are encouraging. That would lead me to recommend alternative B. Also, since the economy is picking up, I believe we probably should give somewhat less weight to the risk of stagnant real economic activity and more weight to the possibility that it may accelerate more sharply, and that would lead me to a symmetric directive at this point. So, I would favor ""B"" symmetric.",99
-fomc-corpus,1992,President Jordan.,3
-fomc-corpus,1992,"A couple of comments and thoughts about the first part of your remarks: I think these fundamental structural technological things are very, very major. I am concerned about whether the national income accounts conceptually are appropriate for capturing [what is occurring]. Even the definition of what is output is going to have to be rethought at some point as is how we measure and assess productivity. One of the fastest growing employers in my District is in Lexington, Kentucky. They've doubled their work force --it's not a big number--from 30 people to 60 people in a year; it is moving along pretty well. The Lexington area has 4 percent unemployment. The problem is finding people who have the skills they want, so they [attract] them in from southern California or somewhere. I don't think that sort of thing shows up very well in the way we put these numbers together. During the Little Rock Summit, Governor Clinton raised the question of whether it would be desirable policy to have as a goal trying to move manufacturing employment from where it currently is at 16-17 percent [of the workforce] up to 20 percent because our major trade [partners] often have 30 percent. I think an issue that is going to have to be addressed at some point is what is manufacturing employment. These companies don't want to hire people to get their hands dirty. They want to buy the software from somebody else. So, a lot of economists think public policy is going to have to address those kinds of issues. Turning to monetary policy, I want to comment on this issue of money and economic activity and my view of it. Both Governors Angell and Mullins in their remarks said that the growth [in GDP] is not a result of--Wayne said M2 and Dave said money--and I'm not sure that that's at all true. I can interpret what has happened this year as the lagged effects of the very slow growth we have had in M2 for some time, which has brought down inflation. Wayne talked about the stimulative effect of lower inflation, but what caused low inflation? I think it's the lagged effects of the much slower growth of M2. And at the same time we have had very rapid growth in the narrow aggregates. M2 has never been a good indicator of turning points in economic activity; it has never been a predictor of real output or even that good a predictor of nominal GNP. It is an indicator over a three-to-five year horizon of basic inflationary pressures. I still think there's validity in the P* model. My emphasis on M2 has been two-fold: One is the idea that the long-term objective for the monetary policy part of total financial economic policy is to move to price stability, and that means we emphasize M2; the second is that M2 is what this Committee has been going to the Hill and announcing as our target, worrying about the credibility of the Committee if we announce the target and then don't take action to try to hit it. But in terms of shorter-term effects on real output or especially on total spending, nominal GDP, I have always thought the narrow measures, M1 or the monetary base, are a better gauge of the thrust of our actions. I tend to accept the view that monetary policy as reflected in the narrow measures of money has been countering more of the headwinds or process of down drafting or it would have been much worse. Monetary policy in fact has been very stimulative, and the critical thing would be to back off from that kind of short-run stimulus in the narrow measures before we do see the future inflation. I think we can reconcile what has happened to our narrow and broad measures just as the Germans have with the opposite situation. They have had extraordinarily slow growth of Ml, until very recently, and very rapid growth of M2 with high inflation. For them, M3 goes along with high inflation. The slow growth of Ml and the inverted yield curve and all of that go along with no output growth. So, I think these disparities can be put back together. Currently--being this close to the end of the year and not knowing how we're going to rebase the targets for 1993--I wouldn't have a basis for dissenting on the grounds of trying to hit an M2 target. There's nothing that we could do now that would have any effect on that. So, in the current situation I would simply support alternative B symmetric really by default--not knowing what else to do.",903
-fomc-corpus,1992,"Let me respond, incidentally, to Dick Syron's body language, which may have occurred because I've been holding back so far from making a recommendation. Basically I think you are inferring that I would go beyond symmetric. The answer is: That is not my view at all.",57
-fomc-corpus,1992,"No, I didn't think you would.",8
-fomc-corpus,1992,Vice Chairman.,3
-fomc-corpus,1992,"""B"" symmetric.",4
-fomc-corpus,1992,President Boehne.,5
-fomc-corpus,1992,"""B"" symmetric.",4
-fomc-corpus,1992,President Forrestal.,4
-fomc-corpus,1992,"I think ""B"" symmetric is the appropriate policy for the moment. But as we sit in the middle of that directive, I think we have to be very careful to look at both sides of the equation as it were and not give in to the euphoria that I sense is out there among people. On the other hand, we also need to be very vigilant about the price situation and be prepared to move in the other direction if that becomes necessary. That, it seems to me, is the challenge that faces us at the moment. But ""B"" symmetric is fine with me.",118
-fomc-corpus,1992,The challenge is not now; it's ahead in the meetings in the future.,15
-fomc-corpus,1992,That's right.,3
-fomc-corpus,1992,Governor Angell.,4
-fomc-corpus,1992,"Mr. Chairman, I strongly support ""B"" symmetric. I have no appetite for asymmetry toward tightness at this point, first, because I think there still are some weak spots out there. But more importantly, I see no signs that in this intermeeting period we are likely to need a tightening immediately. I just don't see that need right now. Also, I have the feeling that if we do need to tighten, 25 basis points is probably not going to be enough; that is, when we hit the point where we need to tighten, we may need to go 200 basis points in one nice move. [Laughter] That would help the markets get out of this habit that they get into every time we have this kind of circumstance and we move 25 basis points and then 50 basis points and the markets say: Well, this is the first of a series and the bond market really takes a big hit. It seems to me that we can't be so lucky that a 3 percent fed funds rate is just exactly right, but I see nothing now that would cause me to believe that a move is imminent.",229
-fomc-corpus,1992,President Hoenig.,4
-fomc-corpus,1992,"Mr. Chairman, I agree with ""B"" symmetric. I feel that the economy is in a continued modest expansion [phase]. But there are some underlying [concerns] that you and others have identified, including where we are in the employment picture, the deficit picture, and the spending picture. So, I think we would be well advised to stick with ""B"" symmetric at this point.",80
-fomc-corpus,1992,President Keehn.,4
-fomc-corpus,1992,"Mr. Chairman, I'd be in favor of ""B"" symmetric. It does seem to me that there has been a shift both in fundamentals and attitudes. But I have a lingering question about the sustainability of that shift, so I think ""B"" symmetric is appropriate at this point.",57
-fomc-corpus,1992,President Stern.,3
-fomc-corpus,1992,"""B"" symmetric.",4
-fomc-corpus,1992,President Melzer.,4
-fomc-corpus,1992,"I'm wondering how I can outdo Wayne here! I would favor ""B"" biased toward tightening, but I could accept ""B"" symmetric. And just for the video cameras, I once dissented in favor of an easier policy in 1989! Alan, just to pick up on what you were saying, if you're right about this productivity phenomenon--and I know you weren't asserting this but just laid it out as an explanation--and we in effect have greater potential than we realize but temporarily we also have associated debt and more unemployment, this goes back to what I was saying before: I really don't think it's the job of monetary policy to hurry the adjustment [process] along, and I don't think you were suggesting that. The economy is going to have to absorb that, and we've got to focus on price stability. As I think Don said at the end of his statement, we can't use a pickup in inflation as our signal that we need to begin to tighten policy. I've heard that suggested, but if we wait until then I think all of us know that we're going to be way too late--probably by not just a matter of months but by years. The other thing I would say is that [when we were easing policy] we said that we would very likely overshoot in terms of trying to stimulate the economy and get the funds rate too low, but that once things turned around--and I know this turnaround has been long in coming and there is still uncertainty about it--we would have to be prepared to pull that rope back fairly quickly. I think we're approaching that point. That's what I have to say.",327
-fomc-corpus,1992,Governor Kelley.,3
-fomc-corpus,1992,"""B"" symmetric.",4
-fomc-corpus,1992,Governor LaWare.,4
-fomc-corpus,1992,"""B"" symmetric.",4
-fomc-corpus,1992,"President McTeer. MR.MCTEER. ""B"" symmetric.",16
-fomc-corpus,1992,President-elect Broaddus.,6
-fomc-corpus,1992,"We favor ""B,"" and we have a strong preference for a symmetric directive, Mr. Chairman. We think it would be a mistake not to move to symmetry now because that might send a message to those who look at these things that we're not going to be vigilant going forward if we run into unexpected strength in the economy. So, we would strongly support symmetric language.",74
-fomc-corpus,1992,Governor Lindsey.,3
-fomc-corpus,1992,"Mr. Chairman, if my colleague wants to change 200 basis points to get us out of the habit of being at 3 percent, I'm afraid the Dow is going to get out of the habit of being at 3000, too. But ""B"" symmetric is clearly the right move.",60
-fomc-corpus,1992,Governor Phillips.,3
-fomc-corpus,1992,"""B"" symmetric.",4
-fomc-corpus,1992,Governor Mullins.,4
-fomc-corpus,1992,"I support ""B"" symmetric and look forward to the Humphrey-Hawkins testimony when this becomes public at a time when we have had two months of zero M2 growth and are lowering our ranges! But I think, clearly, it's ""B"" symmetric. We seem to be ascending toward an orderly growth path. It's not at all inconceivable to me that the current rate environment is unsustainable. If we do have a period of disinflation, bringing inflation expectations down and real rates up, I think it's more likely that we will need adjustments. And obviously, if European rates come down, the dollar is likely to go up. The ultimate target here is a [sustainable] rate environment. In my view we ought to think about getting ahead of that with some modest adjustment if we see signs of trouble rather than risk waiting, in which case I think we really might need what my colleague, Mr. Angell, has suggested. So, ""B"" symmetric.",198
-fomc-corpus,1992,"Wayne, I must admit that you got everybody's attention! I think we have a fairly uniform position in this institution and I would ask the Secretary to read a ""B"" symmetric directive.",39
-fomc-corpus,1992,"""In the implementation of policy for the immediate future, the Committee seeks to maintain the existing degree of pressure on reserve positions. In the context of the Committee's long-run objectives for price stability and sustainable economic growth, and giving careful consideration to economic, financial, and monetary developments, slightly greater reserve restraint or slightly lesser reserve restraint would be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with M2 growing at a rate of around 1-1/2 percent and M3 about unchanged in the period from November through March.""",111
-fomc-corpus,1992,Call the roll.,4
-fomc-corpus,1992,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Hoenig Yes President Jordan Yes Governor Kelley Yes Governor LaWare Yes Governor Lindsey Yes President Melzer Yes Governor Mullins Yes Governor Phillips Yes President Syron Yes,46
-fomc-corpus,1992,"Our next meeting is scheduled for Tuesday-Wednesday, February 2-3.",16
-fomc-corpus,1993,"Even though I have no legal authority at the moment, I call the meeting to order. Governor Mullins has no legal authority but he'll be Chairman pro tem.",32
-fomc-corpus,1993,It's my honor to nominate Chairman Greenspan as Chairman of the FOMC for the coming year.,20
-fomc-corpus,1993,I second the nomination.,5
-fomc-corpus,1993,"Are there other nominations? Without objection. I also have the great honor of nominating President Corrigan as Vice Chairman of the FOMC for as long as he may be with us and his successor thereafter for the year ending December '93. Without objection, you're now legal.",56
-fomc-corpus,1993,You mean an unnamed successor? What does that do to Jerry's confidence?,15
-fomc-corpus,1993,I'm not worried.,4
-fomc-corpus,1993,"Well, you're legal.",5
-fomc-corpus,1993,"I'm legal. We now have the issue of the staff officers, and I'll request that Norm read the list.",22
-fomc-corpus,1993,"Secretary and Economist, Donald L. Kohn; Deputy Secretary, Normand R. V. Bernard; Assistant Secretary, Joseph R. Coyne; Assistant Secretary, Gary P. Gillum; General Counsel, J. Virgil Mattingly; Deputy General Counsel, Ernest T. Patrikis; Economist, Michael J. Prell; Economist, Edwin M. Truman. Associate Economists from the Board of Governors: David E.Lindsey; Larry J. Promisel; Charles J. Siegman; Thomas D. Simpson; and Lawrence Slifman. Associate Economists from the Federal Reserve Banks: Richard G. Davis, proposed by President Corrigan; Richard W. Lang, proposed by President Boehne; Arthur J. Rolnick, proposed by President Stern; Harvey Rosenblum, proposed by President McTeer; and Karl A. Scheld, proposed by President Keehn.",181
-fomc-corpus,1993,"Unless there are objections, I will assume that the Committee accepts this slate of officers. The next item on our organizational agenda is the selection of the New York Bank as the Bank to execute transactions for the System Open Market Account. Unless there are objections from the Committee, I will assume that that also is authorized. The next item on our agenda is the selection of the Manager of the System Open Market Account, the Deputy Manager for Domestic Operations, and the Deputy Manager for Foreign Operations. Our respective incumbents in these jobs, as you well know, are William J. McDonough, Joan E. Lovett, and Margaret L. Greene. Unless I hear objections, I will assume that the Committee authorizes another term for all of them. The next item is a review of the Authorization for Domestic Open Market Operations, which I believe was circulated to the members of the Committee. Unless somebody has any questions relevant to it, I will assume that the authorization is reaffirmed. [Secretary's note: No objections were heard with regard to any of the above items.] Mr. Truman will now take us to our next agenda item, which is a review of several matters relevant to the foreign [side].",240
-fomc-corpus,1993,"Mr. Chairman, there are four items to consider: the Foreign Currency Authorization, the Foreign Currency Directive, the Procedural Instructions, and the related agreement to warehouse foreign currencies for the United States Treasury. There is a technical change proposed for the Foreign Currency Authorization and the Procedural Instructions concerning the change of the structure of the management of the System Open Market Account and the new positions of Manager and Deputy Managers. I will be glad to answer any questions.",90
-fomc-corpus,1993,Would you like to say a few words on the Gonzalez letter relating to the purchases of the Mexican peso?,21
-fomc-corpus,1993,"We thought that the Committee ought to be aware of the fact that Congressman Gonzalez in one of his January 19th letters raised a number of somewhat garbled questions about the swap network, foreign currency operations, and in particular the purchases of the Mexican peso, all of which have been done in connection with swap operations completely covered by foreign operations. He asked us to provide material to him covering the history of these arrangements going back to the beginning of time or pretty close to it--1962. We are in the process of doing that. Almost all of what we're going to provide involves documents that are already in the public record in the form of the Managers' reports and excerpts from the FOMC policy records with regard to the Mexican swap arrangements and how they have evolved since 1967.",158
-fomc-corpus,1993,"Unless there is an objection, the vote that we will now have would amend the Foreign Currency Authorization and the two additional documents indicated by Ted only with respect to the updating of the managers' titles. Would somebody like to move [their approval]?",48
-fomc-corpus,1993,"So moved, Mr. Chairman.",7
-fomc-corpus,1993,Is there a second?,5
-fomc-corpus,1993,Second.,2
-fomc-corpus,1993,"Without objection. The next item is the [report on the] examination of the System Open Market Account, which has been circulated. Unless there is a question or an objection, I will assume that that also is accepted. Having worked our way through the organizational items with seeming tranquility, we now get to the less interesting part of our meeting and I will ask somebody to move approval of the minutes of the December 22nd meeting.",86
-fomc-corpus,1993,Move it.,3
-fomc-corpus,1993,Second.,2
-fomc-corpus,1993,"Without objection. Gretchen, would you present the foreign currency operations [report]?",16
-fomc-corpus,1993,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1993,Questions for Gretchen?,5
-fomc-corpus,1993,"Mr. Chairman, this is perhaps a question more for you. Do we have any idea at this point what the attitude of the Administration is with respect to intervention?",33
-fomc-corpus,1993,"No, but I've been having some preliminary discussions with Larry Summers on precisely that question, and I should think we will get some judgments reasonably quickly as to what set of principles they would like to be supportive of. I've suggested that we develop those principles jointly and, hopefully, that will be initiated sooner rather than later. In fact, I just discussed it with him this morning.",75
-fomc-corpus,1993,"I was monitoring the Call from the November meeting through year-end. As the news unfolded about the [domestic] economy being stronger than before versus Europe and versus the rest of the world, I had no sense on a day-to-day basis that we were positioned [correctly] for the environment we're going into. If you didn't have the inherited position, would you wish to have a larger position in foreign currencies or different currencies or a smaller position? Do you feel you're positioned with the right portfolio for this environment?",103
-fomc-corpus,1993,Are you talking about the portfolio of the Federal Reserve and the Treasury?,14
-fomc-corpus,1993,Yes.,2
-fomc-corpus,1993,"Gretchen has done that remarkable thing, which is to flip the ball upward. Most of our reserves are in marks and yen, and those are certainly the two currencies that I think one would want the reserves to be in. We hold for the two monetary authorities approximately $40 billion in total reserves now, which would impress me as at about the upper end of the reserves that one would consider appropriate. What I'm less certain about is what the lower end of that is because I do subscribe to the view that on the day when we need them we surely don't want to have to pass the hat and go get them. We have a few remnants of reserves from the past in sterling and Swiss francs. I would think, as we move forward in our discussions with the Treasury, that we might wish to concentrate on the reserves of the two most useful currencies [for intervention purposes]. If one starts with the notion that reserves are good to have, which I do, I don't think the present level of our reserves is too high. But I think it is at about the upper limit of what we would need.",221
-fomc-corpus,1993,"I might comment that we don't always position our holdings as if we were maximizing the [return] in our portfolio in a short-run sense. That's not the way the Domestic Desk runs its operations. If you were a private citizen, you might choose something else.",52
-fomc-corpus,1993,If I could follow-up on that comment: I suppose the analysis as to whether we had the right amount or not would be quite different on the domestic portfolio than it would be on the foreign currency portfolio--assets denominated in foreign currencies. You would not make the same after-the-fact judgment about whether we had the right amount or not.,69
-fomc-corpus,1993,"I think you're right in what you're referring to, but I think the ex-post analysis would be equally difficult since we don't really know until we've liquidated [our position].",34
-fomc-corpus,1993,"Any other questions? If not, let's move to the domestic open market operations and Mr. McDonough.",22
-fomc-corpus,1993,[Statement--see Appendix.],6
-fomc-corpus,1993,Do you have any sense as to how market participants are viewing the size of the proposed short-term stimulus package and its impact on intermediate- and long-term rates?,32
-fomc-corpus,1993,"The growing feeling, prior to Secretary Bentsen's using the number $30 billion, had been that the likely size of the package would be in the $15 to $20 billion range. And I think that was very thoroughly discounted and was being explained as about the minimum the new President could get away with given the campaign promises. When [the figure] gets up to about $30 billion--and certainly anything beyond that--I'd say the market has not prepared itself for a fiscal package of that size. Therefore, when it gets beyond, say, $25 billion, I think it could create something of a backup, especially in intermediate rates. However, this will all be done against a background of what degree of credibility there is in longer-term deficit reduction. So, the larger the number in the short term, the more convincing the package for longer-term deficit reduction is going to have to be. But it still will be looked at as a package with a desire--not necessarily on the part of the Street firms but we think, [based on] what they say, of the ultimate investors--to believe that there may be a fiscal breakthrough. There seems to be a desire to believe as [investors] start moving out the yield curve and picking up more duration that they will pick up more yield. It's a rather emotional climate that can be easily dissatisfied. But it's sitting there waiting to be satisfied. That is how I read it now.",291
-fomc-corpus,1993,Other questions for Bill? Tom Melzer.,9
-fomc-corpus,1993,"Bill, do you have any sense of what the market is discounting on the mix of this refunding package? Is there an expectation of a significant reduction in the [size of the] bond [issue]?",42
-fomc-corpus,1993,"Until last Friday when the word came out of Roger Altman's comments on the McLaughlin show, which was aired Sunday, I think there was a feeling that the 30-year bond could be reduced in size to, say, as low as $8 billion. After Altman said what he did, my guess is that the number has crept back up and that people think the reduction, if any, will be more nominal. If I had to pick a number now, I'd say they probably assume it will be $9 billion or a fraction more.",112
-fomc-corpus,1993,"Further questions for Bill? If not, would somebody like to move to ratify the transactions?",19
-fomc-corpus,1993,So moved.,3
-fomc-corpus,1993,Is there a second?,5
-fomc-corpus,1993,Second.,2
-fomc-corpus,1993,"Without objection. Thank you very much. We now move on to Messrs. Prell, Slifman, and Truman and the Chart Show.",30
-fomc-corpus,1993,"Thank you, Mr. Chairman. I'll give you a second to locate the chart package that was put in front of you. MESSRS. PRELL, TRUMAN, and SLIFMAN. [Statements--see Appendix.]",47
-fomc-corpus,1993,Questions for our colleagues?,5
-fomc-corpus,1993,"Mike, you touched on this. What are you inclined to think--I guess not terribly much--about these arguments on the composition of inventories? I've seen things about work-in-process inventories having declined more than inventories at the wholesale and retail levels.",49
-fomc-corpus,1993,"Well, there are longer-term movements one can observe. I think manufacturers have made particular progress over time in reducing materials and work-in-process. But basically our assessment is that inventories are probably at comfortable to lean levels at this point. Retailers reported stronger-than-expected sales coming out of the Christmas season, which suggests their inventories probably are in good shape. And manufacturers' inventories would seem quite likely to be rather lean in light of the volume of shipments reported in December.",94
-fomc-corpus,1993,The increase you have in inventories is not focused in any one sector particularly?,15
-fomc-corpus,1993,"Not really. As I've said, we don't have a large increase. We just perceive that with sales seemingly on a clearly upward path, [business firms] are going to want to stay closer to that trend in their [inventory] stocking. Even so, as we indicated, we still allowed for some downward tilt in the inventory/sales ratio. While the arithmetic of the current quarter is such that it looks like inventories are a significant story, looking at the broader picture we don't really see that as a key driver in the forecast.",106
-fomc-corpus,1993,Governor Angell.,4
-fomc-corpus,1993,"Ted, what assumptions have you made in regard to the international trade process including GATT and the likelihood of dumping and possibly increased protectionism that might be forthcoming?",32
-fomc-corpus,1993,"Well, as far as NAFTA is concerned, we are assuming that it will be passed and put into force; if it isn't, that would be a negative factor on our forecast coming through Mexico. As far as the Uruguay rounds are concerned, we have made no assumptions because we convinced ourselves that in the 1993-94 period it is irrelevant, if I can put it that way, in terms of its trade expansion impact. That's not to say, though, that the failure of the Uruguay rounds in some form, or rather the wrong kind of failure, couldn't be a disaster looking out a little further. As far as other trade measures are concerned, we have not taken explicit account of those--maybe we should have--partly because of our feeling that developments like this steel dumping and so forth and so on, although they are politically sensitive in both the domestic and international dimensions, are not sufficiently important quantitatively to have a major macro-economic influence on the forecast. The other reason is that, while there is considerable scope for those kinds of actions, they have long time tables on them. And most other forms of action are precluded by international agreement, so there are some constraints. So, we could have further dumping cases; but if they were all filed tomorrow, we wouldn't get them implemented until late in the year, so that would have a relatively small--",275
-fomc-corpus,1993,But in the steel cases do we not [impose] the necessity of posting bond so that already in the February--,24
-fomc-corpus,1993,But the total amount of trade imports that are affected by that is $3 billion.,17
-fomc-corpus,1993,I understand. But do you think any modification of pricing behavior would be likely in this kind of environment?,21
-fomc-corpus,1993,"There is considerable dispute on that point. I've noticed articles in the newspapers and some commentary from President Keehn, based on his contacts in the market, that the producers are looking forward to this $3 billion, which is a non-trivial increase in sales, and the opportunity to raise prices behind those dumping markets. On the other hand, the economists' argument is that there are a lot of other producers in this world and quite a lot of competition around the margin from other U.S. industries. That would suggest that the [prospects] of steel prices going up by the 15 or 20 percent average margins being plotted here are pretty unlikely. In any case, in thinking about all this there are enough uncertainties that we decided not to take explicit account of it.",155
-fomc-corpus,1993,Thank you.,3
-fomc-corpus,1993,"I can comment on that, Wayne. The people I talk with say that the dumping suits ought to result in about a 4 million ton change in shipments this year. The production level in the steel industry currently is about 80 percent of capacity. Based on this one change it could go up to, say, 85 percent. And shipments this year as a result could go up to 88 to 89 million tons. In terms of price, there is a proposed price increase for cold roll, hot roll, and coated products [scheduled] for early April, and they expect that increase to stick. This affects about 50 percent of overall steel production and, therefore, the anticipated overall increase in the price of steel is 2 percent for this year.",153
-fomc-corpus,1993,Thank you. That's very helpful. It's about what I would have expected.,15
-fomc-corpus,1993,It actually sounds much larger than I would have expected. You said 4 million tons?,18
-fomc-corpus,1993,"Yes, as a consequence of this change and the change that took place late last year, imports will be down by 4 million [unintelligible] 5 to 6 million tons.",40
-fomc-corpus,1993,"When I see it, I'll believe! President Stern.",11
-fomc-corpus,1993,One of my questions was along the lines of Wayne's on protectionism. My second question relates to this issue of the liquifying of home equity. Do we have evidence that that has an independent effect--independent of the normal wealth effect we might get as home equity rises? Is there something additional there?,62
-fomc-corpus,1993,"Well, I think the main [effect] would be on those households that might feel their liquidity is constrained. That is to say, the wealth is there but the [increased] ability of such households to liquify that wealth could boost consumption. The other point is that in the case of turnover of the [housing] stock, some would argue that when capital gains are realized we do see evidence that some of those realized capital gains are not plowed back into the housing industry. One can see that from the mortgage debt data. So we have a feeling that some of [the capital gains] are being used to support consumption. We also note from the refinancing data that a fair amount of cash is being taken out there, too. There is no direct econometric evidence, but other kinds of ancillary information seem to suggest that this is going on.",171
-fomc-corpus,1993,President Boehne.,5
-fomc-corpus,1993,How sensitive do you believe job growth is to GDP growth? Suppose we ended up with GDP growth closer to 4 percent than 3 percent. How do you think that would translate into job growth?,40
-fomc-corpus,1993,"Well, at this stage we'd probably see a large share of that showing up in employment growth. One is hard pressed at this time to pin down what the productivity trends are. But I think at this stage, given the shedding of labor that has occurred, we'd expect to see a larger proportion show up in actual employment increases. I'm not sure whether you're talking employment hours versus numbers of workers.",78
-fomc-corpus,1993,Numbers.,2
-fomc-corpus,1993,"Again, we'd expect it to show up to a greater extent in numbers of workers rather than a lengthening of the workweek.",26
-fomc-corpus,1993,"That's my question. We see these structural adjustments by the larger firms. However, in talking to people in smaller businesses one gets the impression that there really is a reluctance to add people, for obvious reasons, but that if their volume picked up they more or less would be forced into it.",59
-fomc-corpus,1993,"That's the thrust of my remarks. I'm sure there is still some elasticity in many cases and they could [increase production] without adding more workers. But I think we are getting closer to that margin here and, on the presumption that additional growth is demand driven rather than an increase of potential supply, we'd look for additional hiring.",66
-fomc-corpus,1993,President Parry.,4
-fomc-corpus,1993,"Mike, you indicated that the difference between the Blue Chip forecast and the staff forecast of real growth and what has happened to the unemployment rate probably is not a sufficient explanation of the difference in the forecasts with regard to prices. That difference is rather large. Is there any way to know, for example, if they are making different assumptions about food and energy prices that would explain the difference or if they have a different Phillips curve?",85
-fomc-corpus,1993,"Well, we're making some inferences here. We don't have any information about [their assumptions for] food or energy prices. But it seems unlikely, given the general tenor of [developments] in those markets, that that would be a major factor. We've been seeing this pattern for some time. At this time in 1992 I think one would have perceived a difference in outlooks. And we feel somewhat vindicated by events, which showed in fact that we could have some decent growth with the disinflation trend continuing. Some of my colleagues have suggested that this pattern is one that could be perceived in private forecasts over a number of years. That is, at this point in a cycle, during the early expansion phase of a recovery, forecasters have tended to expect an acceleration [in inflation]. Our interpretation of history, some of which is visible in the chart, is that that is not an empirical regularity; indeed, with significant slack the tendency is for inflation to slow. It is something of a mystery why we're at odds with so many of these forecasters.",217
-fomc-corpus,1993,"Did you say that their forecasts involve a fairly significant increase in nominal interest rates at the short end, in which case they're probably assuming the same real short-term interest rates as in your forecast?",38
-fomc-corpus,1993,"Well, to a first approximation that may work here. The Treasury bill rate in the fourth quarter of 1994 in the Blue Chip average is 4-1/2 percent, which is more than a point higher than our forecast. And there is a similar picture in the inflation [outlook]. So, yes, I think that may come out fairly close.",74
-fomc-corpus,1993,[They are] much more pessimistic.,9
-fomc-corpus,1993,Governor Kelley.,3
-fomc-corpus,1993,"Mike, on productivity growth we had a very gratifying 3 percent in 1992 but, although the expansion continues at more or less the same pace, you are projecting that productivity growth is going to come off rather badly over the forecast period to 1.8 percent and then 1.3 percent. Why?",64
-fomc-corpus,1993,"Well, let me emphasize that in a broad historical perspective those numbers don't constitute bad productivity performance. Those numbers are stronger than the trends in recent years and would be above what we would regard as the likely underlying trend at this time. Basically, the typical pattern is that in early phases of recovery we get very large productivity increases as some stretching of the available work force occurs. This time we had a lot of labor shedding and we haven't had even the normal employment gains. And we think this process will only go so far before, harking back to President Boehne's question, [firms] begin to have to add some workers as they expand production. As I noted, there's probably some distance to go in this labor shedding process--not so much for typical cyclical reasons but because there are some large firms who probably have the capital to hang in there for a long time and not make the adjustments they should have made a long time ago in the size of their operations. I think firms like Sears or IBM are going to be shedding workers for a while. That is an ingredient in the process that gives us what we believe to be above-trend productivity increases.",234
-fomc-corpus,1993,President Broaddus.,5
-fomc-corpus,1993,"Mike, let me piggyback on Ed Boehne's question. If we get a significant upside miss on real GDP, say, to [a growth rate of] 4 percent, what does that do to your inflation projections? Would it make a significant difference?",55
-fomc-corpus,1993,"Well, that becomes a difficult question. One, we would expect the unemployment rate, as a first approximation, probably to be 1/2 percentage point lower at the end of a year--",39
-fomc-corpus,1993,But doesn't that also depend on what the assumption is on productivity?,13
-fomc-corpus,1993,"Indeed, as I noted before, I'm taking this [greater strength] as a surprise that comes more from the demand side. And one does need to specify that to be clear. If it were entirely from productivity performance and we were accommodating, then it would not have any inflationary consequences.",58
-fomc-corpus,1993,I'm not thinking about the miss--,7
-fomc-corpus,1993,"A 1/2 percentage point lower unemployment rate would give us a shade more inflationary pressure, but it wouldn't show up very much in 1993 given the normal lags in the process. The other risk, though, is what I alluded to before. Growth of 4 percent begins to be a noticeably faster pace of expansion, where perhaps one needs to worry a bit more about so-called speed effects. And that might intensify the inflationary pressures relative to what I just said. So it could quite possibly be a situation in which there is little, if any, further progress in disinflation in 1993, especially if that growth came early on and we were getting a rapid drop in unemployment.",145
-fomc-corpus,1993,Governor Phillips.,3
-fomc-corpus,1993,I was just wondering in the revised green sheets why the nominal GDP for the fourth quarter went down so much?,22
-fomc-corpus,1993,"Well, in an accounting sense the implicit deflator came in much lower than we expected. Relative to the fixed weight price index, that was largely a consequence of the behavior of service import prices. This is an artifact of the way they deflate the insurance payments. In fact, we have some information that suggests that all of those price measures may be off by a few tenths due to an error that [BEA] made in their import price measures. But that still would leave a considerably lower number than we were anticipating.",106
-fomc-corpus,1993,"So, you think we might hear more on this yet?",12
-fomc-corpus,1993,"Well, not on this divergence necessarily, but it's hard to say. If there are vastly different inventory movements or credit movements than they've anticipated, it could alter these numbers significantly.",35
-fomc-corpus,1993,President Melzer.,4
-fomc-corpus,1993,Al Broaddus asked my question.,8
-fomc-corpus,1993,Any further questions?,4
-fomc-corpus,1993,"Just one question on savings. Given some of the demographics you showed here, I'm curious as to why you are expecting the saving rate to stay as low or lower than we might otherwise have thought.",39
-fomc-corpus,1993,"Well, it's true, as my other chart shows, that we have this shifting of the baby boomers into peak life cycle saving years and that demographic factor [tends to raise] the saving rate. But, as I suggested, working the other way are economic factors, primarily the fact that net worth positions are a bit stronger and that household perceptions of income and job prospects seem to be improving substantially. Both of those would tend to give you a lower saving rate. Finally, though, there is the statistical question of who knows what the real level [of savings] is anyway!",117
-fomc-corpus,1993,Then this could be more of a temporary--,9
-fomc-corpus,1993,"Yes. It is true that in some longer-run sense, all other things equal, we would expect the demographics to work toward a higher saving rate.",30
-fomc-corpus,1993,Any further questions?,4
-fomc-corpus,1993,"Yes, I just want to follow-up. If there's an error in [their estimate of] the deflator, would that be an error in the nominal or in the real?",36
-fomc-corpus,1993,"Well, the error has to do with the pricing of capital goods imports. They put two large price increases in the fourth quarter through an error. That would feed through to give you a lower increase in the prices of imports, which contracts GDP and gives a slightly higher overall deflator everything else equal.",60
-fomc-corpus,1993,So then real GDP will go down?,8
-fomc-corpus,1993,"If we presume that their assumptions about the nominal value of capital goods imports are unchanged, it would increase the real value of capital goods imports and would subtract one or two billion dollars from real GDP in the fourth quarter.",43
-fomc-corpus,1993,Are there any reasons to believe otherwise?,8
-fomc-corpus,1993,"No, but one has to understand that there's a big error band around what they assume. It could be wiped out completely by other changes. That's all I'm trying to say.",35
-fomc-corpus,1993,"For one, we don't have the December trade data yet, so anything in this area is open to substantial change. We've received a number of pieces of data since BEA published the fourth quarter, including the durable goods figures and the construction figures. Doing a sort of full accounting, adding up all of these things, we come out very close at this point to our Greenbook estimate of 3.6 percent. So, it isn't a material difference from what BEA has at this point; we'll just have to wait and see what the additional data show.",112
-fomc-corpus,1993,"Further questions? If not, who would like to start the tour de table? President Broaddus.",21
-fomc-corpus,1993,"Mr. Chairman, with respect to our District, things are still looking pretty good both currently and prospectively. Economic activity in the region appears to be accelerating moderately. The improvement in residential construction nationally is helping our region quite a bit. Industries like lumber, textiles, furniture, and appliance manufacturers, all of which are [important] industries in the Fifth District and are driven by housing activity, are all doing better. The most striking development in the District, though, is what I would call a markedly greater optimism, pretty much across the board, about the near-term outlook. We see it in our directors' comments and we see it in our various surveys of real estate people, retailers, and manufacturers. Actually, this improvement in optimism has been going on for several months but it strikes us as more pervasive, less tentative, and--as one of our directors put it--deeper than it was before. One specific sectoral comment may be of interest. We are seeing what we think are pretty clear signs of a turn in the market for office space in some of our local areas, specifically in Washington, Richmond, and Charlotte. Absorption rates are rising; vacancy rates are declining. In particular, large blocks of space--in excess, say, of 30,000 square feet--are becoming increasingly harder to find, especially in the suburban office malls. Our forecast is very similar to that in the Greenbook. In fact, it is almost identical for both real GDP and inflation. In that regard, I would point out that we do our forecast differently than does the Board staff. Specifically, we use a small VAR model as the basis for our forecast, judgmentally adjusted, which is quite different from a structural model. The fact that our forecast is close to the Board staff's, given the fact that we do it differently, gives me a little bit of comfort. I would make the point that our VAR model in recent months has done a particularly good job in forecasting the decline in the inflation rate. I think what that means is that our policy of maintaining sufficient monetary restraint has generated improvement on the inflation front. It has been in place long enough to be captured by the data we use in the model. So, our longer-run strategy is working and we are making some progress.",460
-fomc-corpus,1993,"With regard to the national outlook, our forecast has somewhat lower growth than the Greenbook. We don't have any major differences, but our numbers are a little lower across the spectrum of components. For example, our number for personal consumption, is lower. We also have lower business fixed investment, exports, and housing starts. There are more differences in consumer nondurables and services than in durables. In terms of the District, I think there has been a decided improvement in attitudes about the underlying rate of expansion since the last meeting. The positive retail outlook coming out of what was a strong Christmas held up surprisingly well in January. The Christmas season seemed very strong, particularly in places like Michigan where the Retailers Association reported that over 70 percent of their members experienced sales increases and that attitudes were ""generally euphoric."" An appliance manufacturer located in Michigan reported a fantastic fourth quarter, the best since 1978. They expect a good sales increase this year--not as strong as last year, but still a good increase. In the auto industry, while the most recent sales data have been a little on the soft side, first-quarter production schedules have been set about 20 percent over last year. And with inventories currently at what seem like quite reasonable levels, the first-quarter production risk doesn't seem that high. I will say, though, that the industry is forecasting--or at least those we talk to--a somewhat higher sales number for the year than we are. The heavy truck business continues to be strong. The industry's incoming order rate is running at an annual level of 165,000 to 175,000 units. That's higher than current production rates, so the order backlog is beginning to lengthen to a delivery [schedule] that the industry is not comfortable with. And if this order rate is sustained, they are likely to add to their production levels. Attitudes in the steel business understandably have improved considerably since the dumping suits were announced. I've already commented on the price impact that that is likely to have, but they do think that the announced price increases on the products that I mentioned are likely to stick this time. I would point out, however, that the price increases that will result from that are from very, very low levels. Their pricing has been awfully soft for an extended period. With regard to inflation, the pricing environment continues to be favorable. Very heavy market pressures are holding down price increases. But I will say that this time at least one or two companies did comment about some modest increases in their expectations regarding the cost of their raw materials purchases. The steel price increase is certainly a part of this, but there are some other parts as well. These are not significant shifts in terms of the amount; nonetheless, it's the first time I've heard this in quite a while. Offsetting what I think are pretty good economic reports, almost every company executive that I talk to expects to continue to reduce their employment. Everybody says that they are simply going to produce more this year with fewer people; this has come to be the macho thing to do. And, therefore, while the immediate outlook has improved, the question of sustainability continues to be the key issue. Either employment and disposable income are going to increase to support this higher level of consumption or we're going to see consumption come down a bit. So, while the outlook seems much more balanced than it has been, I do think the risks, given this disposable income issue, continue to be a little on the down side. Thank you.",706
-fomc-corpus,1993,President Parry.,4
-fomc-corpus,1993,"Mr. Chairman, the Twelfth District economy remains mixed, but unfortunately there are new signs of weakness in several states. California's employment fell about 1.8 percent in 1992 and the pace of decline has not slackened in recent months. Moreover, the California recession is no longer just a southern California phenomenon. Early last year we saw about 80 percent of the job losses coming from southern California, which is far in excess of that area's relative contribution to employment. More recently, about 60 percent of the job losses are coming from southern California. Other areas such as the Bay Area, the Central Valley, and other parts of California are also reporting losses that are not all that different from that of southern California in percentage terms. Concern also is rising in Washington state where Boeing cutbacks are threatening to choke off that state's recovery. I would point out that actual employment has been rising rather robustly in recent months in the state of Washington, but Boeing as I'm sure you've all seen--it was actually commented on in the Greenbook--has announced significant cutbacks in planned production beginning in the second half of this year. The specific layoff figures are not yet available but analysts in the region clearly are concerned and are talking about the multiplier effects of any further job cuts. Hawaii's economy may be facing a recession this year. Weak tourism from the mainland, particularly California, is a concern and has been a problem. But a new and larger concern is that rising job insecurity in Japan, which is a very big source of money for Hawaii, could eventually cut into the Japanese visitor count. Lending activity remains very weak in the District, with loans outstanding at large banks in December falling 8.1 percent below the year-ago level. There are some bright spots in the region, however; we've found one or two! The drought conditions eased dramatically in California and the Pacific northwest. At the present time, water officials are reluctant to declare an end to the drought, but estimates of available supplies have increased sharply. Christmas sales were not too bad. As a matter of fact, even in southern California Christmas sales were stronger than had been anticipated. A very large retailer in our District indicated that sales continued to be good in January and that January may turn out to be the best month they've had for the past year. Utah and Idaho continue to report strong economic conditions, while Alaska, Arizona, and Oregon are reporting moderate growth. Turning to the national economy, the data released since the last meeting have been encouraging; they certainly suggest that the economy is in a sustained moderate expansion. Our forecasts, if you assume no change in monetary or fiscal policy, are very similar to those in the Greenbook. We project somewhat stronger growth in investment and less consumption than the Greenbook. With real GDP growing below potential we expect the downward trend in inflation to continue; our forecast for the CPI, for example, is that it will average around 2-1/2 percent this year. Thank you.",600
-fomc-corpus,1993,President Forrestal.,4
-fomc-corpus,1993,"Mr. Chairman, with respect to the District, the news continues to be quite good. In fact, I think I can now change the adjective that I've been using to describe growth in the Sixth District from modest to moderate. I think the District is going to outperform the nation; that's partly reflected in the unemployment rates that we had at the end of 1992, which were below the national average for every state except Louisiana. Christmas sales were quite good. People were very pleased with the performance in that area. And consumer spending in January appears to be holding up quite well, although not quite at the rate we had in December. Tourism continues to be a positive factor in the District and that's represented not only by domestic tourism but by foreign visitors as well. Manufacturers are reporting moderate gains in activity right through mid-January and business lending is holding up fairly well in contrast to what's happening in the rest of the country. Housing continues to be positive, and the housing-related industries like carpets, furniture, appliances, and so on are also quite good. We [see evidence of] more interest in investment on the part of business, particularly for equipment and most notably computers. As some others have commented this afternoon, I too think that attitudes are much, much better than they have been over the past several months. And I think that's accounted for in part by more realistic expectations on the part of business. As we came out of the recession most businesses were anticipating a much stronger recovery. Now they're beginning to understand that we're not going to get growth like we did in past recoveries. There also is a sense of optimism that the deficit reduction program will [materialize]. And perhaps more importantly, there is a feeling among business people I talk to that the fiscal stimulus package will not be excessive, and I believe that's helping attitudes as well. We do, of course, have negatives in our regional economy. Nonresidential construction continues to be one of them. We're having significant declines in employment in major companies, particularly the airline industry. The health services industry, which had been accelerating quite rapidly in terms of employment, is now beginning to decelerate a bit. The energy sector is still weak. The rig count was 92 versus 88 one year earlier, so there's not much change there. And oil and gas production is not up to the levels that we had prior to Hurricane Andrew. On the fiscal side, about half the states in the District are likely to raise taxes or they are going to face pressures on spending. I don't hear anybody talking about price increases at all in the District, so I think inflation is not a concern. Putting together those negatives and positives, I think the positives clearly outweigh the negatives. As I said, the economic situation is good in the Atlanta District. With respect to the national economy, our forecast is very little changed from the last time. We have GDP expanding a bit faster than the Greenbook, the CPI marginally higher, and unemployment down by a little less. We don't have as much gain in productivity, and our net export situation does not deteriorate as rapidly as in the Greenbook forecast. But these differences are very small. So, we think that '93 will wind up pretty much the way the Greenbook forecasts it. In general, Mr. Chairman, I think we have reason to be confident about the outcome this year. And I continue to be confident that this is a sustainable recovery, although I think the euphoria that some people are demonstrating is being a bit overdone as was the pessimism earlier on. I'm a little concerned about the sustainability of consumer expenditures. And the biggest concern that I have in terms of the impact on policy, obviously, is the situation with respect to employment. These layoffs are getting more attention than they perhaps deserve and people are getting increasingly ""spooked,"" if I may use that term, by the media attention to the layoffs that are occurring. But in general I think the situation is pretty good.",799
-fomc-corpus,1993,President Hoenig.,4
-fomc-corpus,1993,"Mr. Chairman, our region of the country continues to grow slowly, steadily however, with strong agriculture and construction sectors and less robust manufacturing and energy sectors. First of all, I would say that our employment picture is mixed, with fairly decent employment growth in the Kansas City area and in Colorado and New Mexico, and fairly poor employment growth in other parts of our region, particularly in Oklahoma. Although that is the case, the optimism is uniformly good even in Oklahoma where there's less job growth. A lot of efforts are going forward to encourage employment growth where [possible]. In the agricultural area, as you well know, increased livestock prices last year kept farm incomes higher than originally expected. However, I'm pleased that as far as the land prices go, there's a little speck of renewed optimism in that they have stayed fairly flat. Construction activity is very strong, obviously helped along by residential construction. And though there has been some modest slowdown since November, our construction levels are still a good 25 to 30 percent higher than they were a year ago. Manufacturing is generally sluggish. There is a stable environment in the auto industry, particularly at GM where there's a lot of uncertainty in our area. And [activity at] our Ford manufacturing plants is very good. We, too, are affected by the announcements of [cutbacks at] Boeing, which will affect our Wichita area. Generally that will be handled gradually, but it will be a drag because it's a very important part of that economy. Nevertheless, overall there should still be some good job growth in Kansas, particularly in the Kansas City area. In the energy area, natural gas drilling has fallen off since the end of the year because of tax changes. Nevertheless, the number of rigs operating is still 50 percent over what it was a year ago and that is at least a positive event in our part of the country. So, overall, we [anticipate] steady growth for the region going forward. As far as the national economy goes, our projection, allowing perhaps for some differences in fiscal policy, is very similar to the Greenbook forecast. We have a little slower growth in the first part of the year but that picks up. For the year as a whole our projection is very similar to that of the Greenbook both for GDP and for the inflation picture.",465
-fomc-corpus,1993,Thank you. President Melzer.,7
-fomc-corpus,1993,"In terms of our projection overall, we're at the high end of the central tendencies except, of course, for unemployment where we're at the low end. I'd make several observations about these projections. One point I've made before is that because of the [wide] confidence intervals I think it's a very difficult basis on which to make policy. And that's particularly true with respect to timeframes and inflation. Our inflation forecast for '93, even though it is at the high end of the central tendency, is still what I would call a very benign forecast. But in a sense it's irrelevant because of the impact of policy on prices and much longer time lags in that area. Just as an aside, Mr. Chairman, as you're thinking about the Humphrey-Hawkins testimony, given particularly what I read on the questioning at some of the [previous] hearings, that might not be a bad point to make about current price performance. I'm not making it the way you would in testimony, but I'd suggest a little education about [the fact that] future price behavior is not necessarily governed by what is happening right now with respect to prices. I have the general sense that the pieces seem to be in place for a fairly strong cumulative upturn. So, in terms of the risk in the forecast, I would say that there's a significant upside risk. I'm not as confident that we'll see continuing declines in inflation over the next couple of years as in the Board staff's forecast. District-wide we're seeing an acceleration of economic activity. It's pretty consistent with what Bob Forrestal was saying. I guess a change from ""modest"" to ""moderate"" is probably reasonable, Bob. In the most recent three-month period we are seeing 2 percent employment growth and before we were seeing growth in maybe tenths of a percent. Still, we have more or less the same pattern--flat--in manufacturing employment; the growth in the District is coming from the nonmanufacturing sectors. The other comment I would make is that even in that 2 percent growth number we're absorbing fairly significant head winds in a couple of areas, specifically electrical equipment and construction. In that three-month period both declined 3 or 4 times as much as they did nationally and [yet] we're still showing that kind of overall growth for the District. As far as real estate is concerned, the residential side is a strong point, as has been mentioned for some other areas. We are seeing in the most recent period some weakness in the commercial area, but on an annual basis we still have significant growth in both residential and nonresidential construction. As for anecdotal comments, what I've experienced is very much similar to what Al Broaddus described. The tone of the comments I'm picking up--and I guess the sample where I have the most consistent experience would be our St. Louis directors--has changed very dramatically in the last two times we've talked about monetary policy in that the comments are much more positive. What I sense is a lot of caution, though, with respect to getting too optimistic. In other words, I don't sense the ebullience that I have read into some of the comments here; there is still a good deal of caution. And I think we may be affected by [the fact that] this whole recovery and expansion process has taken so long that it's difficult to make oneself get too constructive about it. But the tone of the comments definitely has changed.",689
-fomc-corpus,1993,Thank you. President Boehne.,8
-fomc-corpus,1993,"My sense is that the District continues to move forward, but I don't think I've graduated up to the term ""moderate;"" I'd keep it at ""modest."" I think we're still lagging the nation. Manufacturing has been a relatively bright spot. The retailers, including the auto dealers, have been pleasantly surprised by how well sales have been going. I'm increasingly impressed, however, by how deep the hole is in commercial real estate construction. The more I talk to people in that area, the more I think we may have a problem for much of the rest of the decade in terms of getting caught up there. With regard to attitudes, it's not so much that there is an improvement in attitudes but a lack of complaining about what's bad. So, underneath, I think there is--",157
-fomc-corpus,1993,That's called improvement.,4
-fomc-corpus,1993,"That's improvement. It's not an overt statement of improvement, but I do take heart in that. In fact, as one talks to groups of people, they want to talk about things other than the economy and monetary policy. They would rather complain about unemployment compensation, medical costs, and those sort of things. I take that as a rather positive change in attitudes. I am impressed, though, by the variation in economic activity around a relatively a small District; 75 miles in several directions can make quite a difference. New Jersey, for example, continues to operate at low levels, and the expectations there are not high at all. Pennsylvania seems to mirror the nation more and Delaware continues to do better. I do sense that people have made the adjustment toward the notion that we're in for a number of years of slower growth and that the decade of the '80s is not likely to repeat itself. I don't sense any price pressures coming. Someone made the comment that it's almost a macho thing [for firms] to say they are going to hold employment down; I think that attitude is very strong. Lending, outside the consumer area, [particularly] business lending, continues to be fairly weak. I still hear comments that there's some action in the pipeline but it's turning out to be a very long pipeline. It's not coming out the end of the pipeline to the point where we actually see the loans on the books. Despite that somewhat less optimistic view at the District level, my sense is that we will do better in terms of growth at the national level. [My view stems] not so much from pointing at this sector or that sector. I just have a sense from talking to people with national businesses and looking at the national indicators that this national recovery may be taking better hold. So my sense is that if we err on GDP growth, it's going to be 3 percent plus rather than 3 percent minus. I also have the feeling that if we are wrong on the inflation side, its performance may be better. I think we have some disinflation momentum going here that we may be missing. What lies beyond in '94 and '95 could be a different story, but I suspect that inflation in '93 will turn out to be better than the numbers in the Greenbook. Having said all that, if I were a professional forecaster, I probably wouldn't be all that far from the Board staff's forecast. But I'm not a professional forecaster; I can wing it a little, not that the staff wings it.",506
-fomc-corpus,1993,President Stern.,3
-fomc-corpus,1993,"Thank you, Mr. Chairman. Well, the favorable trends that have been under way in the District for quite some time are continuing and, if anything, probably strengthening a bit. But rather than run down all the sectors, the one exception that stands out is probably commercial construction, which is quite mixed depending on [the area]. Attitudes, I'd say, are generally good, although I continue to come across comments, as soon as GM or Sears or somebody makes a major restructuring announcement, such as: ""How can you consider this a recovery when that kind of thing is going on?"" I think that does reflect some of the concerns that are still lingering. As has also been the case for some time, there really is not much, if any, sign of inflationary pressures. Business people are increasingly resigned to price stability, I might say, and are willing to live with it! That may have to do in a way with what we're seeing in productivity; if so, it would certainly augur well for at least the longer-term outlook. We're not a District that's particularly intensive in manufacturing, but I might mention that the manufacturers I have spoken with have generally been positive. One report was a bit of a surprise and I'll just pass it on: A businessman with operations in the Twin Cities as well as in the Seventh and Twelfth Districts said his business was improving in all three locations. But in the Twin Cities he has difficulty hiring and retaining entry-level workers at $6.00 an hour. There's an automatic bump in that to [a wage] in excess of $7.00 an hour after a year.",326
-fomc-corpus,1993,That's the first time I've heard that phrase in years.,11
-fomc-corpus,1993,"Well, I thought it was interesting. I don't know that it can be generalized, although certainly the help wanted signs--at least in the Twin Cities--are popping up with greater frequency.",38
-fomc-corpus,1993,"It's not as good as Boehne's ""winging it,"" though.",16
-fomc-corpus,1993,"I'm going to get to the winging it part, the part derived from our model! With regard to the national outlook, unlike Richmond, we run a big complicated VAR model. For better or for worse, it also produces something quite comparable to the Greenbook forecast in terms of real growth in 1993 and is even more optimistic about inflation in 1993. My own views are perhaps a little more optimistic, at least as far as real growth is concerned. My views are based in part on the tenor of the anecdotes I've been picking up and in part just on the notion that I didn't see any great aberrations in the second half of last year and, of course, the economy grew at about a 3-1/2 percent annual rate. I have a hunch that it can do something like that again in 1993.",171
-fomc-corpus,1993,President Syron.,4
-fomc-corpus,1993,"Thank you, Mr. Chairman. As I listen to this, it really is striking how much variance there is, not only around the country but within areas. I would say the tone in New England is very similar in many ways to that in San Francisco. The economy remains mixed although improved from the first quarter of last year. Retailers had a much improved Christmas and their inventories are quite lean now. There are the usual complaints about margins; people expect to be able to increase margins, and there haven't been the post-Christmas sales we often have seen in the past. One strong sector has been the nonbank financial services sector, particularly in greater Boston. That has had an impact not only on the housing market, which has stabilized and actually turned up a little, but also on the commercial real estate market, which also has stabilized. However, [commercial rentals] have stabilized at around $22 a square foot, I'd say, for top Class A space, which translates to the space being worth somewhere around $120 to $150 a square foot; it was built at $250 to $400 in a lot of cases. So, there is an adjustment clearly going on.",236
-fomc-corpus,1993,They doubled [in] New England dollars!,9
-fomc-corpus,1993,"That's right. We used to be a manufacturing intensive District but the manufacturing that we still have is really soft now, I'd have to say. There's a little strength in some specialties--instrumentation and that sort of thing--but manufacturing is not doing well at all. A lot of that [reflects] unique structural problems. There are a lot of complaints, though, about softening in Europe because trade is very important for us. We see a lot of this restructuring that people mentioned is also going on elsewhere. Pratt and Whitney, which produces aircraft engines, is in the process of laying off 10,000 workers, and that is having a very strong impact; that's nondefense related, but there are other defense cuts in that area. The cumulative impact of all these things is that in New England anyway employment is still declining at about a 2 percent annual rate. In the states that we have data for we tried to understand the difference, similar to [the way we look at] the national data, between the household series and the payroll series to see if new firms [help to provide an explanation]. A little digging shows no increase in such things as telephone or electric company hookups, which one might expect to be associated with new firms starting up. As far as the national economy goes, I have little difference of opinion with the Greenbook. I continue to be concerned about the export situation. I think none of us understands the full dynamics of this restructuring process and its impact on prices and employment. Now, we think in a simple two-sector model a lot of this stuff was produced in the defense sector and it wasn't entering the measurements for consumer prices anyway. There's a lot of labor flowing from the defense sector into the other sectors of the economy, which is consistent with the decline in real wages we've seen and makes me more optimistic, actually, on the price front. Really, I'm quite optimistic on the outlook for prices for some time to come. Consistent with that, if I had any question, it would be whether we would see the roughly 130,000 per month increase in employment shown in the Greenbook. That's the one concern I have. As a final point, I would say that while I'm very optimistic on prices, we have paid a big price for this; and that in my mind emphasizes the value of keeping the gains that we've had. We don't want that to be in vain.",485
-fomc-corpus,1993,President McTeer.,5
-fomc-corpus,1993,There's nothing really new or remarkable to report in the Eleventh District this time except that we have America's team and their win assures the country of a rise in stock market prices!,35
-fomc-corpus,1993,"Who are they, the Arkansas Razorbacks?",9
-fomc-corpus,1993,Arkansas is in the St. Louis District!,10
-fomc-corpus,1993,"It seems to me that the fourth-quarter GDP report was about as good as it could get. The 3.8 percent real growth rate got the attention but final sales were much better, at 4.5 percent. And the [individual] categories were good. Not only did we have strong consumption but investment was even stronger and government was weaker. About the only way it could have been improved would have been for exports to have improved a little. And the couple of numbers that have come out since the fourth-quarter GDP release have been very, very positive--the durable goods orders and the purchasing managers report. So, we've got a lot of good momentum going right now and it's very encouraging. But we don't make policy looking back at real variables; we've been making policy looking ahead at nominal variables and the monetary aggregates. Last year we benefited from strong growth in M2 velocity that more than made up for the shortfall in M2 below the midpoint of the target range; growth in velocity was in excess of that difference and we were very fortunate. But while we benefited from velocity growth looking back, I'm a little nervous about counting on that to continue over the next year. It's one thing to benefit in the past but it's another to count on it happening again. And I think we're probably on the verge of acquiescing in a near-term decline in M2 rather than just a slow growth. We've had negative M2 growth in the past two months in the context of a slowing M1 growth. So far, the economy feels okay. But as Governor Mullins put it last time, we've been running on fumes for a while now, with velocity growth instead of money growth and with productivity growth instead of jobs growth. And given the rapid productivity growth that we've been getting, perhaps we've been too cautious about the potential growth of the economy. Maybe that potential is at least temporarily higher and we ought to be a bit more ambitious in the way we're planning to stimulate [aggregate demand]. It's tempting to call for further ease in this context, but I'm not sure what ease would look like. Short-term interest rates appear low enough. I look at those and see no need to have them any lower, and there's nothing we can do to push long-term rates down except to be cautious at the other end. I really believe that if we eased, we could cause M2 and M3 as currently measured to shrink even faster than they have been. But if we do believe that, and I think I do, we need to do a better job of explaining it and selling it to the public. I think it's dangerous for our future to have the political spectrum from Milton Friedman on the one hand to Paul Samuelson on the other bashing us for tight money based entirely on M2 when we could make the case that slow M2 growth reflects easy money rather than tight money. We need to figure out what slow M2 growth means and then either change it or defend it a little. And as far as our public posture goes, I also feel we're in a bad situation, seeming to acquiesce in the lack of job growth. I'm afraid we're going to come across as being satisfied enough to have productivity-led growth in the absence of job growth. I just worry about what our silence on that question might do to us. In sum, I worry about how we are perceived right now. But as for the economy itself lately, it has been going strong and our expectation is that in 1993 it will be stronger than in the Greenbook forecast. But that's winging it!",718
-fomc-corpus,1993,Governor LaWare.,4
-fomc-corpus,1993,"Thank you, Mr. Chairman. I must say that for the last year or so I've been arguing that the dynamics of the economy were in large part based on the confidence factors that were present or not present in the economy. And now we seem to be entering or at least approaching a new era of good feeling, based on what I've heard around the table in general terms. This may sound a little too empirical, but I think a large part of that was based on campaign promises that began to emerge in the third quarter and that raised a general expectation that things were surely going to be better. As a result, economic activity began to pick up in the third quarter and continued to do so in the fourth quarter, and it was rather a dramatic change. But the negative factors in the economy are still there. We have export markets that are a lot tougher than they have been for a while. We have the defense cutbacks continuing and in all probability they're going to get steeper. We continue to have this commercial real estate slack, which is not going to resolve itself quickly. And we still have the overhang of the remaining resolutions in the Resolution Trust Corporation. We have this phenomenon of corporate restructuring, which I believe is a phenomenon of the '90s that isn't going to go away in just another couple of years. I think it's going to continue for some time. And that means layoffs, plant closings, and CEO executions. Now, on top of all of the continuing uncertainties, we see a reneging--or a back-pedalling at least--on some of the [campaign] promises that were made. We see wobbling on deficit reduction; we see the job stimulus programs [and other] fiscal programs being cut back in terms of what everybody was expecting; we see middle-class tax reductions being talked out of the picture; we even see gays in the military not going to happen. So, some expectations in almost every sector of the society have been disappointed or are about to be disappointed. Coupled with that we have the new and unexpected threats from the architects of national sacrifice. We have a discussion going on right now about the possibility of reduced Social Security COLAs. Now, that sounds like a minor event, but the grey panthers of this country are a very powerful force and they are a very important part of the consuming public. We have the possibility of higher taxes on Social Security income, a move from taxes on 50 percent of it to taxes on 85 percent of it. We may have higher middle-class taxes instead of reductions in middle-class taxes; we have the possibility of energy taxes, which really touch every American where his love is [greatest]--his automobile--and also his oil bills. The cumulative effect, it seems to me, could be to reverse the confidence in recovery that has been so important to this recent economic performance, and it could choke off all this consumption-driven growth that we're experiencing. The problem, as I see it, is that there's probably not a darn thing that monetary policy can do about it. I agree with the observations that there is not a lot of moving room for monetary policy as far as further stimulation to the economy is concerned. So, even though I feel some of that era of good feeling, I'm nervous about these other effects out there that could begin to choke it off a bit.",676
-fomc-corpus,1993,The original era of good feeling lasted a while!,10
-fomc-corpus,1993,"Yes, and hopefully it will happen again!",9
-fomc-corpus,1993,Governor Angell.,4
-fomc-corpus,1993,"It seems to me that we're the only game in town in regard to economic policy, and the only explanation for the significant rate of recovery that has been under way has been monetary policy. And that has been occurring in an environment in which the head wind seems to be decreasing because monetary policy has worked to strengthen the net interest margin of the banking system, and that does mean that a great deal of impediments to lending are moving away. When I look at my forecast for 1992--I know the performance came in at 3.0 percent Q4 over Q4, which was higher than I anticipated -- I ask myself why I underestimated the performance in 1992. And I think it centers on the fact that I anticipated that the saving rate would rise more than it did and consumer spending as a result turned out to be much higher. Indeed, if we look at gross domestic purchases in the second half of 1990, they were declining at a 3.7 percent rate; and in the second half of 1992 gross domestic purchases were increasing at a 4 percent rate. That's a rather significant turnaround. If we look at real GDP in the second half of 1990, it was falling at a 2.8 percent rate and in each half-year period since that time it proceeded to move up from negative 2.8 to negative .7 to positive .9 to positive 2.2 to positive 3.6. And I ask myself if monetary policy was successful in generating this accelerating recovery--though it was very modest at first--what in the world is going to stop it at this stage? Will it be our interest rates? The staff is forecasting lower interest rates in what I think are the most relevant portions of the yield curve, so that wouldn't seem to be a factor. I must admit that I'm not quite as optimistic on long-term and intermediate-term interest rates as the staff is in its forecast. When I look at commodity prices I ask myself, Mike: How, after so many FOMC Humphrey-Hawkins [meetings] of having the Federal Reserve's experimental commodity chart in [your Chart Show] did you happen to take it out just at the time that the commodity prices are beginning to show something? The ex-food, ex-energy experimental commodity price index shows a rather significant change upward, which for the first time really goes with the kind of economic recoveries that we had in 1983 and 1987. This rise in commodity prices may not be sustained. How could commodity price moves ex-food, ex-energy be as strong as they are with M2 growth very slow and [recently] declining? Well, I just don't know how to judge M2 growth, but I do know that when commodity prices start moving upward it is an indication of what's happening on monetary policy showing through. So, the bottom line is that I end up with a forecast that I guess is the highest of the lot, or at least at the top of the range. I end up being slightly less optimistic than the staff on inflation for the first time since I've been a member of the Board of Governors. I've been equal to the staff's expectation of the CPI but I've never been higher in any previous discussion. I do think FASB 106 is still going to be somewhat of a drag on productivity. But I think there's a modification here in that the companies that had the high post-retirement medical benefit programs are the ones that are contracting and the small to medium-size firms that do not have the generous post-retirement programs are where the expansion is. So, I end up with a somewhat lower unemployment rate at the end of the period. All of this makes me a bit puzzled to be positioned as I am in relation to the staff, but I'm going to be honest with you about it and not try to cover it up!",783
-fomc-corpus,1993,To differentiate with other times! [Laughter],10
-fomc-corpus,1993,"I don't know. I must admit that I really felt that 4 percent [GDP growth] was quite likely but modesty and restraint in regard to a drag from net exports caused me to bring that back down. I do think we need to recognize that the personal bankruptcy safety net means that this adjustment period for consumers is not as severe as it was in other long major cycle adjustments. And it seems to me that that's consistent with the consumer spending that we have. I, like Bob McTeer and others, worry a little about what we are targeting. I don't have any appetite for targeting M2. But the lack of appetite for targeting M2 does not make me feel comfortable targeting interest rates as a means of running economic policy.",148
-fomc-corpus,1993,Vice Chairman.,3
-fomc-corpus,1993,"Well, Bob McTeer made a reference to America's team. Being at least in the resident state of the other side, I have a little different view of that. But there is something about the Super Bowl that crossed my mind too, Bob, which is that I think we're at a point here where we have to be a little careful. At the end of the game it didn't matter that a defensive lineman was cruising down the field with the ball hanging out there and somebody came along and swiped it out of his hand. Well, I don't think we can afford to have that happen here, Mr. Chairman.",125
-fomc-corpus,1993,If monetary policy fumbles...!,7
-fomc-corpus,1993,"For me [the picture] is a little more complicated than I think it is for some others. Clearly, on the anecdotal side, the tone is better across the board. Big business, small business, the man on the street, the woman on the street--and as a matter of fact coming back to Bob Forrestal's point of reference, even the CEOs that are still on the job in the big companies--seem to have graduated from flat to modest, if that puts things in a little perspective. I forget who made the point--it might have been Bob Parry--that he had gotten some anecdotal reports about surprisingly strong retail sales in January coming on top of what were very strong retail sales in the Christmas season. We, too, have heard that. On the other hand, and several people have made this point, we still are getting the same message from small and big businesses that this restructuring has by no means run its course. And some of the multinational companies are conveying a sense of their experience in Europe that I translate [as indicating weaker economies there] than the standard forecast, whether it's our own or the IMF's or the OECD's. Now, those are obviously not sophisticated forecasting comments, but I interpret the attitudes of big companies that have [operations] in Europe as worse than most of these standard forecasts would imply. If we took our own forecast--and I don't know precisely what that forecast method is, whether it's a Stern version or whatever--when I put my own body English on it I end up with a forecast that you could just about put a postage stamp over it relative to the Greenbook. They're virtually identical. But I myself don't have any real conviction at this point as to where the risks lie. On the one hand, I am worried that in part because of the restructuring and all the rest that even modest employment gains may not be as readily forthcoming as would seem to be the case. And if that is not the case, then I think the consumer sector is not a ""gimme putt,"" even though I appreciate some of the arguments that the saving rate may have a little more give in it than it might seem just by looking at the raw numbers. Similarly, the net exports sector, as I've said before, is a real risk in part because of this impression I have about Europe but also because I think there is a rapidly building financial constraint on our export performance to the developing world, especially Latin America. So, it wouldn't take a whole lot for some downside risks [to materialize] that are not inconsequential. On the other hand, I think we do have a situation where we see some signs cumulating on the up side. Indeed, if I let my mind wander a little, I could easily see a 3-1/2 percent growth rate or maybe more. And that worries me because, while I'm a firm believer in inflation being fundamentally related in a technical sense to slack in the economy, we could start to see some deterioration in the inflation outlook sooner rather than later, even with slack, because I think the speed factor is still a reality. I don't think the business community and the economy at large have yet bought zero inflation by a long shot. Now, putting that together, one could say that's the way it should be. A forecast should say there is this risk and that risk and they all tend to wash out. But that's not how I look at it. As a matter of fact, I feel fairly certain that 1993 will not look like the forecast. But I can't quite decide on which side is the greater risk. And I might add that either side has problems. So, it looks like a nice easy walk in the sun for the next couple of quarters or so, but I'm not so sure of that.",768
-fomc-corpus,1993,President Jordan.,3
-fomc-corpus,1993,"John LaWare's comments reflected the kind of things that I've been hearing over the last couple of months in conversations with directors and others around the District. In the fall, during the latter months of the campaign, there was this attitude--reflected in the media, of course--that we were not getting all the government we were paying for, that something was wrong and nobody was fixing it. And now there's a very sharp increase in concern that we may in fact get all the government we're paying for and it's not good. The numbers look not so bad to me. The attitudes, if anything, have deteriorated. I'm not sure yet. I have not been in Cleveland a full year and in traveling around the District I don't know whether I have to seasonally adjust them; maybe it's simply impossible to [be optimistic] at this time of year in that region of the country! We have had very good employment numbers recently. When I point that out, people say: ""But it's not the right kind of jobs. It's minimum wage jobs; we're losing high-wage jobs for low-wage jobs."" We had very good sales numbers in December; everyone was very pleased by that; they expected sales to fall off in January and they did not fall off. Again, there's no comfort in that, but concern that the pickup still is not sustainable. I look at initial claims numbers. In January we were 32 percent below a year ago, indicating a better job market; but none of the business leaders among my directors or the labor leader on my board point to any of these things with any encouragement. The headlines are still dominated by stories of layoffs all over the District. Maybe it's a part of being an old manufacturing District that is still restructuring, so the news about whatever's going on in motor vehicles continues to pervade everybody's attitude. Even the small businesses do not indicate a willingness to talk in terms of employment increases. They talk about their productivity gains and they talk about improving profitability without price increases, but they do not talk about adding workers. When I discuss the issue of inflation, and I tend to be on the more optimistic side [expecting] lower inflation, I'm met with total skepticism. As for the idea of price stability being where inflation does not enter into the decisions of people, it is certainly entering into the decisions of these people. They believe that inflation is going to pick up. And I certainly haven't had any success in persuading them that anything can and will be done about it. There's an inconsistency, especially among small manufacturers and [a] few of the large manufacturers outside the motor vehicles industry where they say they see no prospect of increasing prices in their businesses. They are not worried about their cost side, especially from labor. However, they believe national inflation is going to go up. In banking, consumer lending was very good in the last couple of months. C&I continues to be flat; there's nothing there. In fact, some banks are still indicating declines in C&I volumes. Mortgage lending fell off after the boost in the fall. When I look at the national forecast in the Greenbook, my main problems with it are on the [underlying] assumptions. I tend to think the inflation outlook is going to be better than the Greenbook. We probably put a little more weight on the P* kind of relationship than what's built into this. But I have trouble with the velocity assumptions. When I look at the conditions of a year ago versus today, we were coming off two quarters of very little growth in the second half of '91. If I look at the yield curve, the components of the various aggregates, the M1s and M2s, or the level of interest rates, I don't see any of the conditions that I think contributed to the rise in velocity that we had in 1992, so I'm simply not comfortable with that set of assumptions. That is, if we were to get the kind of outlook shown in the Greenbook, especially in terms of nominal spending growth, I think it's going to be associated with faster growth in money. If we have the kind of broad money growth that's suggested by the Greenbook, I am skeptical that we're going to get the nominal GDP growth.",855
-fomc-corpus,1993,Governor Mullins.,4
-fomc-corpus,1993,"I would agree that recent data remain quite encouraging. Many observers have pointed out that the fourth quarter was very good--about as good as it could get, as someone said--but many observers view that as unsustainable. They viewed the third quarter as unsustainable. There's a preliminary indication that we may have yet another quarter of unsustainably high growth and could have a string of unsustainably high quarters for as long as the eye can see. We really don't have any data yet on this quarter, although the purchasing managers report was surprisingly strong as were the orders data for December. The job growth is not evident. I can't help but believe that with a string of quarters around 3 percent we will break through into some real job growth. The saving rate continues to be a concern. The observation that the Chairman made and Gary Stern raised again about realized capital gains on residential housing I suspect has something to do with it. Coming from Boston, I don't speak with recent personal experience of large capital gains. With the lower long rates, I see the housing market continuing as a little mini-engine here. Businesses, I think, have gone a long way toward cleaning up their balance sheets. We still have pretty low rates and high stock prices and I think they will turn now to capital spending. And we should see some of the effects of pent-up demands both from businesses and consumers, the deferred spending. I would also agree with the Greenbook that inventories appear to be able to play a supporting role. There are a lot of uncertainties, and I get some sense of what President Corrigan talked about in terms of discontinuities. A lot of the uncertainties focus on fiscal policy. There are questions, such as how much fiscal stimulus does an economy growing at 3 percent need. There are questions about the deficit implications of the Administration's proposal. Also, there are the microeconomic proposals of the Administration, which we haven't talked about, which might somehow be worked in through the years. Here again there seems to be some reason to be encouraged. All indications are that the new Administration might propose only a modest stimulus program. But just in the last few days the talk has gone from $15 billion to the $31 billion presented in Mitchell's office last night, according to the reports. The Administration also seems very serious about deficit reduction over the medium term. And it is true that long rates have come down a lot just in the last few weeks. When you look at the implied 1-year forward rates and the yield curve, I think virtually all the reductions have been concentrated in the short- and intermediate-range, suggesting that it is fiscal restraint which is primarily responsible for the reduction in rates and not the speculation about the change in the issuance of long-term Treasuries. Here, too, there's plenty of room for skepticism. First, one would hope that this deficit reduction package, to pull it along, would be legislatively linked to the stimulus package. But we still occasionally hear that [the Administration] would like a quicker stimulus package. I'm sure they have plenty of people, such as Mr. Rubin, who understand the importance of that, because I wonder how well the deficit package will fare if it is a separate stand-alone piece. More generally, it has to be very encouraging that a Democratic Administration appears to be willing to take on deficit reduction, but the jury is still very much out as to this Administration's ability to get a credible deficit reduction package through Congress. Given how the markets have set this up, it could be very disappointing to the markets and, as Governor LaWare mentioned, to the confidence that seems to be building. But it could be especially disappointing to the markets, it seems to me. Of course, even if we had this credible deficit reduction package and long rates fell, it's not clear that we should respond by lowering short rates because we could have a stimulus program in the short-term, the stimulative impact of a fall in long rates. But the actual fiscal drag from the deficit reduction would be in the distant future, so that could total up to a fairly stimulative outlook. I think our best course continues to be to keep our eyes on the important indicators of our monetary stance, money and credit growth, and to respond should those misbehave in either direction for whatever reason. I will admit that this argument would be more compelling if those indicators were not misbehaving as I speak or if we had more compelling [evidence] on what the important monetary indicators are, because I share some of the concerns that Bob McTeer and Wayne Angell raised about targeting and trying to explain M2 and also about depending on an increase in velocity when by all accounts the head winds have diminished this year. So, we must make policy amid these uncertainties. I, like the staff, took a look at the Blue Chip forecast this time, and I think Mike Prell has pretty well worked it over. I looked at it for another reason. At a recent NBER conference, Bob Hall and Greg Mankiew presented a study suggesting that the Fed should take these consensus forecasts pretty seriously looking out a year or two because these [forecasters] have a strong economic self-interest to incorporate all information in the forecast. And if that forecast is way out of line with what we expect, we should have reason to pause. They tried to show evidence suggesting that these consensus forecasts are very good indicators of the future path of nominal income and that adding M1 and the federal funds rate add virtually nothing to them because they already incorporate these variables. It's a fairly naive approach, I would admit. But the idea is that they do it for a living, they've heard and evaluated our public statements, including all the arguments about velocity, they've observed slow M2 growth, slow credit growth, fast M1 growth, fast base growth, and they use econometric models and judgments and come up with a forecast. Mike has presented that forecast; it's very similar to the Greenbook except primarily that inflation, instead of trending down as the Greenbook has it, turns up again and is 1-1/4 points above our forecast by the fourth quarter. This is not explained by the speed factor. Their GDP growth is about the same. Their unemployment is a bit lower, but that can't explain it. Short-term interest rates are much higher than we're projecting and real rates are about flat; that answers Bob Parry. The only thing I would add to this is that the Blue Chip consensus is indeed a consensus. For 1993 only three of the 50 forecasters see inflation as low as or lower than in the Greenbook forecast. But it is true that for 1993 10 of the 50 forecasters do at least see inflation below 3 percent. By 1994 only 2 forecasters out of 38 have inflation as low as the Greenbook. Only 4 of 38, about 10 percent, project inflation below 3 percent, while 6 project inflation above 4 percent; two-thirds of the forecasters see inflation as greater than 3-1/2 percent by 1994. So, it's not close. The overwhelming majority of Blue Chip forecasters essentially see about the same growth, about the same unemployment, higher short rates, and higher inflation. There are many hypotheses; I won't go through them. Perhaps the best is that they just made different analytical judgments and they're wrong while we are right. We have analytical bases to make these judgments. Some might suggest that they are projecting an upward impact on measured inflation from some of these Administration proposals for business mandates and taxes. I think that's not likely this early. Others might suggest that they are somehow sensitive to the fact that this Administration has signaled that the number one short-term goal is eliminating slack in the labor market. But I think what they're probably doing is just betting the odds, because from an historical perspective 1992 inflation was very good. You have to go back two decades on core CPI to find a better performance and about a couple of decades, it seems to me, on overall CPI with the exception of 1986. In the employment cost index, the wage component was the lowest ever in the 17-year history of the index. And if you take into account the measurement bias in the CPI, actual inflation was probably in the 2 percent range in 1992. So, I think they're saying, given the historical precedent, that this disinflation trend is simply too good to be sustained in a growing economy. I'll admit I have no punch line to this analysis, just as Mike didn't, and I wouldn't overstate the significance of this divergence. It's probably not so significant. We're likely right and they're likely wrong. But I would only note, as we wrestle with the vagaries of velocity and the metaphysical meaning of M2 and M1, that private forecasters who do this for a living are observing this debate and looking at all the indicators and projecting that inflation will be going up.",1816
-fomc-corpus,1993,Governor Lindsey.,3
-fomc-corpus,1993,"Mr. Chairman, I am more optimistic than the staff about 1993 and more pessimistic than the staff about 1994. Two meetings ago I made a comment regarding the difference between the expectation of fiscal policy and the reality of fiscal policy. I'm trying to think how an academic would put it delicately, but I think I got the coefficients right and the sign wrong. I had been anticipating that there would be an expectation of stimulus without the reality. Instead, what I think we have is the expectation of deficit reduction without the reality. As a result we got a fall in interest rates, particularly on the long end, buoyant attitudes, and yet no bite from either tax increases or spending cuts. I, as a gambler, would say that the deficit reduction package isn't going to happen. And I get that feeling from everyone I talk to inside the Beltway. I'm not a big believer in conventional wisdom about anything that happens inside the Beltway, and that's what we're talking about here. First of all, I think the Administration is sincere. In Mr. Panetta and Mrs. Rivlin in particular I can't imagine more sincere deficit cutters. Unfortunately, when we go down the list and compare it to whom they're going to have to offend, it gets tough. Someone, a good friend inside the Administration, told me that the February 17th date was picked because they had to get out of this endless circle of not being able to find something to cut and it was a way of imposing a deadline on themselves. Students of political history remember that Ronald Reagan did this very, very effectively. But that's why we're having it inside the Administration. If you look at anyone on the Hill such as the trade associations and the truckers, they have the xeroxes all lined up to go out as soon as February 17th's speech is over about how you can't raise gas taxes without putting it into a trust fund and infrastructure improvement. I'm sure AARP has their February flyers all ready to go. Even the recent experience with gays in the military shows that Congress won; they know it and they're feeling their muscles. So if I may mix some metaphors, I heard here today that the deficit reduction train is moving on fumes and Wall Street is inhaling. My other fear, Mr. Chairman, has to do with the supply side. I have some fears about what is happening in that regard. I think the $10 billion tax number is almost a mind-boggling one--$10 billion more in tax receipts largely because of expectations of what is going to happen. To put that in context, $10 billion is about 2-1/2 percent of all personal tax receipts. But a more meaningful number is that it's close to 15 percent of tax receipts from people making over $200,000. Another way of looking at it is that it is larger than the combined annual gains we would get by putting in both the 36 percent bracket and the millionaire surcharge. So, we're talking about big swings in fiscal policy in the anticipation of what's about to come. Second, Labor Secretary Reisch mentioned a minimum wage. That was the first time I heard that one. I'd heard of it being indexed but the word [he used] was ""increase."" I think that's a sign that adverse supply side policies are in the making. Finally, just before this meeting, I met with Griff Garwood who's in charge of the Consumer and Community Affairs Division [here at the Board]--this would be a seasonally adjusted factor--and he mentioned three agencies that want to talk to us about ideas that we would not consider good ideas. I'll leave it at that. All three of those agencies do not have their political appointees in place. I remember this from when I signed on in the Bush Administration on January 31st. The first thing that confronts you is a pile of absolutely horrible ideas that are percolated up from bureaucracy. My sense is that that pile of ideas is not under control. So my fears are, first of all, that the market is going to be disappointed with what is actually going to happen on deficit reduction. I don't know when that will happen, but when it does I could see a rise in real rates. Second, and this will be a longer-term effect, as supply side effects take effect growth and employment gains will become more difficult. And I'm afraid that's going to lead to increased frustration in the Administration and Congress. And that unfortunately is where monetary policy is going to come into the story.",914
-fomc-corpus,1993,Governor Phillips.,3
-fomc-corpus,1993,"Well, my story is probably going to be a bit like Larry's, but let me start with the economic situation. Certainly we have the strongest or best prospects we've had since I've been at the Fed in terms of growth, production, productivity, and spending. The financial sector, something we haven't discussed much, does seem to be in better shape, not just the banking system but the financial system generally, for a provision of capital. Consumer confidence is dramatically improved, perhaps stronger than the fundamentals would imply, which is exactly the opposite of what we were talking about some six months ago here when we were saying that confidence wasn't as strong and should be stronger based on the fundamentals. The variance among the Districts, from what we've listened to in this discussion, seems to be widening. The report from Bob Parry is that the Twelfth District doesn't seem to be getting any better. So, that's certainly a disturbing wrinkle on the economic scene. As John LaWare said, we still have some of the same continuing drags that we've had in the past. We're making some progress, but we still have [weakness in] non-residential construction, the international slowdown may in fact be worse than even we've been led to understand, the federal deficit is still there, and state budget constraints are still there. So, we have a number of the same kinds of constraints that we've seen before. As for the balance sheet adjustments that we've all talked about, we are clearly making progress but I don't think anybody really knows how much or how much more progress we still have to make. What is the right amount of debt either for corporations or for individuals? There is this whole question of operating restructuring --Si Keehn's macho terminology, or right-sizing, down-sizing, and de-layering. We're seeing a lot of it. The corporate executives who are losing their jobs are certainly affecting all the other corporate executives who are not and who might be feeling the heat from some of their boards of directors. I suspect that is going to keep pressure in the area of remaining tough on layoffs. Certainly there are some real things that are driving this restructuring: the drive for an increasingly competitive international environment, increased productivity, and so on. Nevertheless, we've been saying for a long time that computers were really going to change our lives and now they definitely are changing our lives and changing the way corporations are assessing their needs in terms of their work force. And it goes not only from middle management analyzing these various kinds of statistics to all of us who are now getting more facile at looking at the statistics directly, but also to just-in-time inventory management. We're seeing it even in manufacturing. Somebody, I don't remember who it was, has labeled this the second industrial revolution. The social acceptability of these moves in corporate America seems to be continuing. So, I think we're going to continue to see those pressures. I think the employment situation remains the key to the sustainability [of economic growth]; it's certainly what the market is watching now. People are not watching as much what's happening with the new growth measures but are waiting more now for the employment reports. So, that remains a concern. I'm hopeful that we're going to get that 130,000 a month increase in payroll employment, but that may be a bit optimistic. I'd like to follow up on some of Larry's comments with respect to the new Administration. If you just watch your [computer] screen for a couple of hours, you can see trial balloons going across the screen at an increasing rate. I'm certainly encouraged by the general direction that the new Administration is taking with respect to trying to address the deficit [and to enact] a small fiscal package. Certainly the stated goals are something we'd all like to see happen in terms of jobs, deficit reduction, and even banking reform. We're hearing some discussion about the need to examine the regulatory environment. As a former manager I recognize, as I think we all can, that good ideas are in fact a lot easier to come up with than actually to get done. I certainly hope that we're going to achieve all of these things, but I think we have to recognize that we're still in the trial balloon stage now.",838
-fomc-corpus,1993,Thank you. Cleanup hitter.,6
-fomc-corpus,1993,"Cleanup hitter, yes sir.",6
-fomc-corpus,1993,"My gosh, I wasn't last. I can't believe it!",12
-fomc-corpus,1993,"You caught Norm Bernard's eye too quickly! It becomes a cleanup hitter to be brief and I'll try to do that, Mr. Chairman. I'm comforted, as I think all of us are, by the statistics in the last couple of quarters. And I certainly like what I'm hearing from most if not all of the Districts about the tone of things. While I do feel better, I must say that I can't really get comfortable as long as this restructuring continues and as long as all of these structural imbalances are still being worked away. We cited the literature two or three times here today as we have many times before, and we've got some problems on our hands. I think Governor Phillips hit the nail on the head a minute ago: The tale is going to be told in what happens to employment. If we get an adequate number of jobs in the next few quarters, this [recovery] will probably get going and be self reinforcing. If we do not, then [the economy] could easily slide back. And I think it's a pretty doggone close call as to which way it's liable to go. This leads me to be in the camp of those who view the Greenbook forecast as being the best bet. I guess it was Jerry Corrigan who said a while ago that he thinks it's probably going to be wrong but he doesn't know which way. I think what happens in employment may turn out to be [the key to] which way it swings. I will remain concerned about the downside risk until we begin to see these imbalances and restructuring begin to work their [way] out of the economy, and I don't see that yet. So, I continue to fear that we have some downside potential there, although I'm optimistic that we're going to get over the hump and achieve the Greenbook forecast or better.",366
-fomc-corpus,1993,"The meeting has come to a temporary pause and we will reconvene at 9:00 a.m. tomorrow morning. In fact, I have to read a note that Norm has given me, which says that Bob Parry has scheduled a meeting of the presidents in room 4001 immediately.",59
-fomc-corpus,1993,In five minutes.,4
-fomc-corpus,1993,"Five minutes, okay.",5
-fomc-corpus,1993,"We have some reading material for the Committee that we will pass out. This is what was promised in the last line of the memorandum that Don circulated. It relates to the last item on the agenda [concerning the release of confidential FOMC information and covers announcement practices] and organizational structures of major foreign central banks. If you have insomnia tonight, you can read some of this.",77
-fomc-corpus,1993,"Good morning, everyone. Let's continue on [our agenda]. Don Kohn will brief us on the long-run ranges for the monetary aggregates.",28
-fomc-corpus,1993,"Thank you, Mr. Chairman. I will be referring to the Bluebook in the course of my remarks. [Statement--see Appendix.]",28
-fomc-corpus,1993,Questions for Don?,4
-fomc-corpus,1993,"Don, I respect your judgment in this a good bit and I think you've approached it in a reasonable way, given all the uncertainties. I wonder, however, if you were debating with yourself and making the case that M2 might grow several percentage points higher than you estimate, how would you go about making that case?",64
-fomc-corpus,1993,"Well, first of all I'd like to say that I think our forecast of 2 percent M2 growth in 1993, given the Greenbook forecast, is balanced. I wouldn't want to leave the impression that I think all the risk is that M2 will come in higher and velocity will be lower. I think I'd go about making the case for higher M2 by saying that as the economy gets going, bank lending should pick up some and banks should be a little more aggressive in seeking deposits. The case might also be made by saying that we've had a lot of portfolio adjustments so far. Time deposits have been running off for a while and the sticker shock aspect of seeing new low rates on time deposits should be wearing off, so perhaps an awful lot of that adjustment may be behind us and only a little more ahead of us. Also, banks have been rather prompt to reduce deposit offering rates and maybe those rates won't be coming down quite so much in 1993 as one ordinarily would think since they've done a lot of that ahead of time. But for every argument I just made I could make a counterargument.",225
-fomc-corpus,1993,Right.,2
-fomc-corpus,1993,"One of the counterarguments might be to look at the first quarter. We are getting very, very weak money growth; the economy looks okay. And, if anything, we're going to get our projections of 7 percent plus velocity increases in the first quarter.",52
-fomc-corpus,1993,Thank you.,3
-fomc-corpus,1993,"Could I add a point that Don and I have discussed many times? One thing you want to remember is that our money numbers are conditioned on our forecast. The members' forecasts for nominal GDP are a bit higher than the ones that were built into this, which easily could add a fraction of a percent to what you might want to anticipate for M2 growth.",72
-fomc-corpus,1993,President Parry.,4
-fomc-corpus,1993,"Don, I know that table on page 8 is based upon the new Feinman/Porter model, but there's one thing I would just ask your opinion about: Do you find it rather hard to believe that 1/4 or 1/8 point variations in the funds rate are likely to produce such differences in the levels of real output and prices?",73
-fomc-corpus,1993,"No, I don't find it incredible. I think what happened in putting the simulations together is partly driven by that model. We've speeded up the changes in long-term interest rates. I think I noted here two changes in short-term rates. So, a given change in short-term rates has a bigger effect because it's almost forward-looking. You could argue that perhaps that's not a terrible idea although the model hasn't done too badly with this backward-looking yield curve so far. So, the baseline has the declines in long-term rates that Mike noted and actually extends that out. And then the easier policy has even sharper declines. So, if that would add some bigger changes in the funds rate, that has the same real--",143
-fomc-corpus,1993,Okay.,2
-fomc-corpus,1993,President McTeer.,5
-fomc-corpus,1993,"Don, do you have any estimates of what these money projections would look like if they were adjusted for growth in the stock and bond funds?",28
-fomc-corpus,1993,"We haven't projected the growth in stock and bond funds. I think a memo was circulated to you yesterday about last year, and my rough guess would be that those would taper off a little over time. Part of what's going on here--look at the baseline picking up over the time period--is that the yield curve is flattening and some of the yield curve effects, of which the bond and stock funds are a symptom, are ebbing over time. So, I would say we'd probably add a couple percentage points in '93, maybe a few less in '94, and then see it ebbing over time as the yield curve flattens and as the portfolio adjustments have already been made.",140
-fomc-corpus,1993,Was the chart on velocity that you sent to the Board members that included the bond funds distributed to everybody?,21
-fomc-corpus,1993,"I think so. Was it, Norm?",9
-fomc-corpus,1993,"Yes, it was.",5
-fomc-corpus,1993,How does that chart look for the opportunity cost figures?,11
-fomc-corpus,1993,"Well, when we've been trying to work on this issue of an alternative monetary aggregate--adding back the bond and stock mutual funds--one of the problems is defining the opportunity costs when we have bond and stock funds in there because we've got interest rates all up and down the maturity spectrum. It's really the opportunity cost relative to spending, I guess. It's not clear what the alternative asset is as one makes the monetary asset definition wider and wider. So, one of the problems in working with this is defining a demand function that has prices in it. Obviously, it's related to income and spending or wealth perhaps--",121
-fomc-corpus,1993,That velocity looks so much better than I would have expected.,12
-fomc-corpus,1993,The old opportunity cost isn't operative.,7
-fomc-corpus,1993,"No, I understand that, and that's the reason I raised the question.",15
-fomc-corpus,1993,"In the back of the Porter/Feinman study, you'll remember, there is a section about these alternative monetary aggregates. They found, looking at things like the variability of velocity and whatnot, that the velocities of the [money] stock with the stock and bond funds were slightly more variable than M2 and didn't do as well over time in these Granger causality tests with income. But the world is changing over time--",87
-fomc-corpus,1993,"I think, as Governor Mullins mentioned, the check capability of a lot of these funds is a relatively novel situation, and that may be a relevant consideration.",32
-fomc-corpus,1993,My memory is that that has been developing over time. There was some capability even back in the late '70s but it has spread to more and more--,32
-fomc-corpus,1993,Back then you were allowed two checks or something; that's per generation! Governor Angell.,18
-fomc-corpus,1993,"Don, on page 8, assuming that the fed funds targeting is really designed to produce those M2 changes and nominal GDP changes, I noticed that with a fed funds rate of 3-1/4 percent, V2 is 3.1. And then when the fed funds rate is brought down, eased to 3 percent, V2 moves up to 3.3. When it is brought down to 2-3/4 percent, V2 in a nonlinear fashion moves up to 3.8. What happens to V2 if, for example, [the economy is weaker or stronger]? Jerry Corrigan was saying yesterday that he has this feeling that it might be stronger. On the other hand, it might be weaker. Suppose we ended up with a weaker [situation], so much so that the fed funds rate were taken down to 2-1/2 or 2 percent. What in the world happens to V2 at, say, a 2 percent funds rate? Does it accelerate the way it does here in a nonlinear fashion?",218
-fomc-corpus,1993,"Well, there are a couple of things going on here. One is that there are lags, and it's hard to line things up year-by-year. The other is that velocity is being driven a lot by the long-term rates and the spread. The Porter/Feinman M2 is pretty darn insensitive to short-term interest rates. So, in effect, if you had a weaker economy--I'd have to hear the rest of the story, say, in the Corrigan scenario--and short-term interest rates were lower, I'd expect somewhat more M2, somewhat less nominal GDP. Maybe you'd have two offsetting effects on M2; it's hard for me to sort them out.",138
-fomc-corpus,1993,"Okay, what you're saying is that since you really have intermediate rates trickling off a fed funds rate, I presume that that would be a scenario in which the intermediate rates are moving downward anticipating the fed funds rate to produce that kind of V2.",50
-fomc-corpus,1993,Right.,2
-fomc-corpus,1993,"Now, to put another scenario out: Suppose we were to have a rather aggressive easing of the fed funds rate ahead of anticipations of weakness that might cause intermediate rates to move backwards, as they did after our December '89 fed funds rate cut, instead of moving with it?",56
-fomc-corpus,1993,"You could get a perverse effect on M2, as I think President McTeer was alluding to yesterday.",24
-fomc-corpus,1993,Yes.,2
-fomc-corpus,1993,"In general, I'd expect that the decline in short-term rates would mean we'd have smaller increases in M2 velocity. Now, that's what happened in 1992; if short-term rates hadn't been declining, velocity would have been even larger. So, if we did have this perverse effect--if we had short-term rates declining and long-term rates going up--then the yield curve effect would outweigh the short-term effect and we could get a smaller M2. It's not clear what's being held constant here, but for the same number--",108
-fomc-corpus,1993,"Of course, I think we have to keep in mind that since May of '89 we have had that perverse effect almost 1/4 of the time we've been easing; other times we've been able to do it in a way in which we haven't had that perverse effect. Would this be relevant to the Chairman's Humphrey-Hawkins testimony in some sense regarding those who argue that the Fed made a mistake because we did too little too late? One might look back at the lack of perversity--that the intermediate yield when we were too little too late resulted in better M2 growth than we would have gotten if we'd been more aggressive.",131
-fomc-corpus,1993,"I think the more general point, and one that Chairman Greenspan has made when challenged on this issue, is that in a sense we were working through this period with market expectations, as we discussed yesterday, that had inflation turning around, especially if you think about the [time around the] middle of the oil crisis. The Federal Reserve had to be fairly cautious or had to take account of market expectations when making its policy moves. [It had to consider] consequences I think more serious than just what would happen to M2 growth, but what would happen to long-term rates, market expectations, and the balance sheet/portfolio restructuring process if inflationary expectations had gone the wrong way.",137
-fomc-corpus,1993,"In other words, I'm not misreading the bottom line here that if the economy [developed] further weakness and we delayed our easing but were forthcoming as the market expected, we might get better movement in intermediate rates and consequently more effect on M2.",51
-fomc-corpus,1993,I agree with what you just said.,8
-fomc-corpus,1993,Thank you.,3
-fomc-corpus,1993,Governor Lindsey.,3
-fomc-corpus,1993,"Don, at Monday's staff briefing, you mentioned something that did not come up in your answer earlier to President Boehne. It has to do with what happens to M2 when there are capital losses in stock and bond funds. We had an experience of that in 1986. I was wondering if you thought that might be another reason why M2 growth might in fact be better.",79
-fomc-corpus,1993,"Right. If, contrary to our expectations--contrasting the System's expectations with the market's--long-term rates were to go up, then we might have some people surprised by that. We had some evidence of that in 1992 as far as the [unintelligible]. This is a bit in response to Chairman Greenspan about what the opportunity costs are. Are realized capital gains to be included in the returns and all that sort of thing? It's a little hard to see exactly, but one can make a case I think that those flows slowed down for a little while, particularly when the stock market and bond prices went down on a few occasions. I think if there were a major turnaround in the market, the initial reaction of investors would be, of course, ""I've got capital losses; these things aren't as safe and as liquid in some sense of certainty about return as I thought they were."" Now, the end result would be a steeper yield curve. So, I think the initial reaction might be [a move] out of stock and bond funds, assuming both the stock and bond markets were going down at the same time, for a while and perhaps a little less enthusiasm over time. But I would have a steeper yield curve in the end, so that would be working perhaps over the longer period of time a little against M2. But I agree with your analysis. If we had a major break in stock and bond markets, I think that would make people think twice about where they were putting their time deposits.",310
-fomc-corpus,1993,President Broaddus.,5
-fomc-corpus,1993,"Don, at these Humphrey-Hawkins meetings you usually show some alternative longer-run projections done with a forward-looking model, which took greater explicit account of credibility effects. I notice you didn't do that this time, but it strikes me that that might be especially interesting now. Did you do anything like that?",62
-fomc-corpus,1993,"No, we didn't. I think actually, President Broaddus, in the past we've done what we did this time, which was to use the same model but note in the write-up of the tighter policy scenario that if there were credibility effects things would be better; we'd have lower sacrifice ratios and a faster return to price stability. I don't think we've ever done a simulation. Now, we have done the P* simulation, but given these projections for M2 and the implied shifts in V*, the P* model, which is on the last page of the Financial Indicators tables, shows deflation in 1994. We thought there would be some internal dynamics. For instance, if that's what was happening, M2 growth would be faster if we weren't getting the shifts somewhere showing this.",159
-fomc-corpus,1993,President Jordan.,3
-fomc-corpus,1993,"Reading this and then listening to your opening comments about this table on page 8 of the Bluebook and where the economy is, I was struck by the emphasis on how close we are to potential output or full employment, in part because it reminded me of some of the discussion that we heard in the late 1970s about heavy reliance on the gap of potential and NAIRUs and all that. I also was struck [by the fact that] in this table we get this after just two years of 3-1/2 percent real GDP growth, [which] suddenly drops to 2.2 percent under the alternative III with the idea that [unintelligible] after 2 years or so of that kind of growth. It looks rather modest. In view of all the discussion that we've been having in this group and discussions among members of the profession, over the last year or so anyway, about the restructuring that's going on, the information technologies, the tremendous amount of churning especially in the industrial sector of the economy, how comfortable are you talking about potential output or where the NAIRU is?",226
-fomc-corpus,1993,"Well, Mike may want to comment on this, but I think we take account, as he did yesterday in his Chart Show, of an increased trend in productivity in calculating the potential that's implied here. Also, as noted in the write-up, there's a sense that perhaps the NAIRU right now might be restructuring itself; raising the growth rate of potential might also raise the NAIRU since there are a lot of people between jobs who need to find jobs. The matching of the jobs and the people, which is one of the things determining the NAIRU, might be particularly difficult right now--especially with the downsizing in the defense industry and in other areas as well. We could see more frictions in the job market. We've actually assumed here for the purpose of these simulations that the NAIRU is 6 percent for a couple of years before dropping back to the 5-3/4 percent that we think it was over the last few years.",195
-fomc-corpus,1993,"I think Don has covered the point. We've always been uncertain; the concept itself is not airtight. But even in estimating it, one has to [allow for] some considerable range either with the potential output concept or the NAIRU. But I think the two are working in opposite directions, as Don suggested. For one, we may be getting faster expansion of potential output currently but there are many displaced workers. And experience suggests--from the churning we saw in the first half of the 1980s in the manufacturing sector when the dollar appreciated so much and we had what seemed to be a lot of restructuring in manufacturing--that displaced workers take some considerable length of time to find their way back into jobs. One can see the likelihood of some of this happening again. That may be one of the reasons some private analysts seem to have this worse inflation/output tradeoff in the short run. I wouldn't want to push that far, but I think there is the risk that this structural element in the unemployment situation now might be a little greater and that we have effectively less room to run in terms of reduction in unemployment before we get those labor market pressures. The markets for particular skills that are useful in this automated environment--people who can do the programming and so on--may be relatively tight. We can see some of the dispersion in recent wage numbers.",272
-fomc-corpus,1993,It might take a higher real wage to get them to move from southern California.,16
-fomc-corpus,1993,Tom.,2
-fomc-corpus,1993,"Don, I've read this and listened to what you said. One thing that bothers me as we look at these simulations of alternative strategies is that you've given reasons for and against why velocity can increase, but this is very dependent upon having the velocity at a rate that has only been reached, I think, three times in decades. How confident then can you be on the arguments for why velocity should continue to be very high?",84
-fomc-corpus,1993,"Well, obviously, there's a wide spread around this [forecast]. As I noted, I think the spread is evenly distributed around it. I can think of reasons why [velocity] might be even faster. So, it's not a tight relationship, particularly given that as last year went on, there was [considerable] evidence that the credit flows continued to bypass the banking system. The banks are faced with restraints on growth or at least incentives to keep very high capital ratios or face increasing costs of regulatory deposit insurance. That would cause them not to bid so aggressively for deposits. Businesses and households are both borrowing in long-term markets. They're not seeking bank credit or thrift credit particularly, and that's being accommodated as they leave the banking system and go into the bond and stock markets through the mutual funds. I think this process will continue, and I'm fairly confident that under the Greenbook projections for nominal GDP and relatively flat interest rates, even without necessarily the decline in the long-term rates, that we will have a reasonably substantial increase in velocity this year--whether it'll be 3-1/2 percent or something else. I find it much easier to predict an increase in velocity than flat velocity. There's enough evidence that this readjustment/ restructuring process is continuing.",252
-fomc-corpus,1993,It's called the demise of commercial banking.,8
-fomc-corpus,1993,I'm afraid that's right.,5
-fomc-corpus,1993,And the thrift industry.,5
-fomc-corpus,1993,"Any further questions for Don? If not, let me get started on the round table. As I've said before, I think the evidence continues to mount that as the result of the policies we've put in place--wisely or luckily--we are looking at what seems to be a continued disinflation path. That is bringing the consumer price index and the general inflation indicators to what I suspect is a glide down a path to as close to a noninflationary environment as one can get in the real world. We obviously are beginning to get the signs that individuals are responding in a way that several of you mentioned. It's fairly apparent that as expectations of price inflation in the longer run diminish, we begin to get the restructuring actions that a lot of companies are undertaking. In other words, rather than endeavoring to increase profit margins by moving prices, they are being forced to take it out of the cost side, which is another way of saying that productivity is improving. As Governor Angell mentioned the last time, as I recall, we are beginning to see the effects of price disinflation on output. If one looks at the characteristics of the way one wants the economy to function, one wants businesses to be improving their profit margins by taking it out of the cost side and not moving on the price side. And in that respect I think that we are on an extraordinary path, as I say [unintelligible]. Nonetheless, it seems to be working out that way. That essentially means that if we sit still and do nothing at this stage, we're likely to be very pleased with [developments] both on the economic activity side and on the price side. In fact, they'll be basically related. This raises the very important [question] of what is the policy role of targets. Targets were imposed on us in the Humphrey-Hawkins legislation and we have been employing them ever since, first with M1 and then M2 and M3. We go through the process of forecasting what these targets are pretty much in the manner Don described. And for want of a better term, it's essentially a projection of nominal GDP, and a forecast of the money supplies, whichever ones fall out from an analytical procedure that strives to get velocity. While there are some obvious interactions, it is mainly functioning in that manner. We have looked very closely and have adjusted policy on innumerable occasions when credit behaved abnormally, when the money supply behaved abnormally. But I must say --I don't know about the rest of you--that as far as I'm concerned I almost never cared in those instances if we were making a judgment that something was abnormal about where the money supply was relative to the targets we had put together sometime earlier in the year. And I think what we're viewing at this particular stage is something which is basically related to this. I frankly don't think that whatever targets we agree to today are going to make the slightest difference in the way this Committee functions in the next year because whatever is going on we will respond to it. What we decide today will be an interesting thing to look at, but I would be very surprised if anybody here really is driven by the fact that we are on one edge of this target [range] or the other. I may be exaggerating for some of the people around this table, but I'm not exaggerating for myself! This leads me to conclude that the target issue that we are discussing today is not a policy question. It's a political perception question. Having said that, I then get to the question of what we know about the perceptions that are likely to happen. The first thing I ask myself is how good a forecaster are we of what we now define as M2 with all its components. And I must say that the verdict on our forecasting capabilities is probably not publishable. Take a look at how badly we have done in the last year! We have, with the most sophisticated analytical techniques, veered continuously off the actual short-term path, which is another way of saying that monetary policy per se is not likely to make all that much difference as to where M2 shows up one way or the other. Don suggested that if we were to lower the funds rate by 1/2 point or more as he put it--I heard the ""more"" very loudly--we might edge growth of M2 up 1/2 percent. Well, I submit to you that whatever happens to M2 over the next year, 1/2 percent is going to be in the de minimis area; no one could care less. What is going to drive M2 probably has very little to do with what we do; it will have to do with the outside market forces because the disconnect that has occurred between bank reserves on the one hand, and the monetary base, the funds rate, and M2 is really quite extraordinary. [In response] to talk that says we can significantly influence this--or as the phraseology goes that if we lower rates, we will move M2 up into the range--I say ""garbage."" The chances of that are at the lower end of the probability ranges of what we're talking about. I don't know where M2 is going. My own guess is that Don's forecast is as good a forecast as we can get. But I'd hate to have to figure out what the standard error of that forecast is because it has to be awfully large on the basis of all the other things that we don't know. Having said all of that, I then ask myself: ""What should we be doing?"" Well, we have a statute out there. If we didn't have the statute, I would argue that we ought to forget the whole thing. If it doesn't have any policy purpose, why are we doing it? By law [we have] to make such forecasts. And if we are to do so, I suggest that we do them in a context which does us the least harm, if I may put it that way. And that is the reason why I think we should view what we do today in terms of the perceptions as distinct from policy and think in terms of policy in a somewhat different context, which we will be discussing later. In any event, I conclude from all of this that we probably would be best off by moving the targets down 1/2 point--in other words adopting a 2 to 6 percent range for M2 and probably 1/2 to 4-1/2 percent for M3, leaving the debt range unchanged for the reasons Don mentioned. I would have some sympathy for leaving the upper end of the range for M2 alone. I don't feel strongly one way or the other. My concern about doing that, frankly, is that it would be interpreted, I regret to say, as our caving in to pressures from a number of our friends on Capitol Hill. If it weren't for that, I could see the logic of it, remembering that we are viewing it as a perception question not as a policy question. Having been exposed to at least two [Congressional] hearings and the type of responses that we got on this issue, I would congratulate our [colleague], Governor Kelley, who was very perceptive at our last meeting in suggesting something not dissimilar to what has been going on. As a consequence, I would merely say that I find the arguments overwhelming for us to do something modest, define it as a technical issue, not get involved in the policy questions, and leave it at that. Governor Angell.",1520
-fomc-corpus,1993,"Mr. Chairman, you can count me on board as not having exaggerated my feelings in regard to [the role of] M2. I wholeheartedly agree with your statement. I also agree that it's a political perception question that we're dealing with here and I'd like to ask you a question in that regard. Since it's a political perception question, if we go to a 2 to 6 percent range--which means we've made a move--and if actual growth comes in below 2 percent, are we not putting ourselves into a very difficult political situation?",110
-fomc-corpus,1993,"I would say it depends wholly on what is happening in the economy. If the economy is doing what it's doing now, that issue will just fade into insignificance.",33
-fomc-corpus,1993,Yes.,2
-fomc-corpus,1993,"If the economy is doing poorly, we're in trouble even if the money supply goes up.",18
-fomc-corpus,1993,"Well, for political perception reasons, I would prefer to go to 1 to 5 percent on M2, [lower] M3 to 0 to 4 percent, and leave the debt range alone. My reason is that in my mind we are going to take political heat for the 1/2 point [reduction]. And we're going to take 90 percent of the political heat if we go to 2 to 6 percent that we would take if we went to 1 to 5 percent.",105
-fomc-corpus,1993,I think we've already gotten the political heat at 1/2 point; that's what everyone expects. I think we're taking on more than we need to; I frankly don't see the purpose of doing more.,41
-fomc-corpus,1993,"My view is that there's just too much uncertainty here. Let's suppose we move this range [down by 1/2 percentage point] and the economy is performing just like the staff forecast and it is not adequate to get the kind of job growth that politically is desired. I believe that with our staff forecast and the lack of job growth and a range of 2 to 6 percent, if M2 is at 1.8 percent, we'd be in a pack of trouble.",97
-fomc-corpus,1993,"Let me say this. If we were to go down a full point, all we would evoke is Senator Sarbanes re-quoting Paul McCracken's story about that guy who shot a hole in the [barn door]. All I can tell you, Wayne, having been up there, is that it is not an academic discussion; This is raw politics I must tell you that I would feel far more comfortable going up there with a 1/2 point [reduction] and I wouldn't even mind if we kept going under that; I don't think that's a particular problem. I think we would be provoking more noise than is necessary by going more than 1/2 point, and I must say that I would prefer not to do that.",152
-fomc-corpus,1993,"Okay. By and large in this case, this is your story in the Humphrey-Hawkins setting, even though I don't quite agree about the political risk. That is, I would rather face his continued unhappiness right now when I think we're okay than I would to take it on the chin a year from now. As far as the members of the Committee are concerned, if we were to go to 1 to 5 percent or even 2 to 6 percent and if conditions changed--for example, if the velocity picture changed and other leading indicators were suggesting that M2 ought to be growing [above] the top of the range--I would feel it very strange not to be able to accommodate such growth of M2 under some conditions.",152
-fomc-corpus,1993,"I agree with that. In fact, one issue that I think ought to be on the table here is whether in the Humphrey-Hawkins testimony we should suggest that. How to play it is an interesting question. But as a policy question, I absolutely agree with what you're saying.",58
-fomc-corpus,1993,"Well, I'm not going to vote against a [1/2 point] decrease in these rates, particularly in this situation where it seems to me that what we're doing is backing you up as the Chairman making a presentation. Even though I like 1 to 5 percent a lot better, I think in a sense that it's your call. I feel rather strongly about it, but at the same time I feel very supportive of your position.",88
-fomc-corpus,1993,President Syron.,4
-fomc-corpus,1993,"Mr. Chairman, I support what you suggest. I think you're right that, given the relative variances coming from things we can control and things we can't control, there isn't any policy consequence within the ranges of change that we're talking about here. I would think in that environment that if we had not already committed to doing something--I'm attracted by the notion of doing something modest and the limit of modesty is nothing--I'd probably do nothing at all. But I think we have committed to it; and if we have to pay the price, I think we have to do it.",117
-fomc-corpus,1993,"Yes, doing nothing now would look like we caved in.",13
-fomc-corpus,1993,"Exactly for that reason I think we have to do it. But I have some sympathy for widening the range to 2 to 6-1/2 percent because that is consistent with the notion [of how we view] this number. If we were really being honest about it or if we were unconstrained--I'll put it that way--from a political perspective, we'd say, given what we would like to see happen to the economy, that this number could be anywhere between -1 and +10. That's an exaggeration, but I [wouldn't] go up [to testify] with the same range, even though it is a slightly wider range than it was at some earlier points. Widening the range says something; it's consistent with the notion that this is a very uncertain thing to think about. And if we're going to widen it, I think you're right that we're committed to lowering the bottom band; it would look like we were caving in if we did not. But I would leave the top at 6-1/2 percent.",214
-fomc-corpus,1993,Governor Lindsey.,3
-fomc-corpus,1993,"Mr. Chairman, I think your point is well taken; this is largely a political decision. Politically, I think we can all agree that 5-1/2 percent nominal GDP is good, so it won't cause us any trouble. And I understand your case for lowering the average range 1/2 point. I would suggest a slightly different twist. If I were going to go out there and with a straight face use these M2 ranges as a political signal, the signal that I would send is that the first thing we want to do is to prevent a relapse into recession. And second, I would want to signal a willingness to prevent a resurgence of inflation. That adds up to me that what we want to do is cut the top end to, say, 5-1/2 percent and leave the bottom end at 2-1/2 percent. If we really believe what we're saying about 3-1/2 percent velocity, then 5-1/2 plus 3-1/2 is 9 percent nominal GDP growth. I can't imagine anyone seriously thinking they would support a policy of 9 percent nominal GDP. On the other hand, 2-1/2 plus 3-1/2 gives us 6 percent GDP, which is only 1/2 point higher than where we think we were last year. So, I would say that if we believe the forecast, what we want to do is maintain the bottom end of the range and cut the top end of the range. There's a second possibility and that is that it's not wholly a political issue. I would recommend the NBER Conference Papers, though I was not able to attend the conference. Academic economists--it's almost a shock compared to what we're thinking--not only want us to focus more on M2 and nominal GDP but they actually have quarterly adjustment processes; [they suggest] that we should look at what happened last quarter to determine what we should do with money next quarter. And that is so far from what we're talking about at this table--",417
-fomc-corpus,1993,And reality.,3
-fomc-corpus,1993,"And reality. But given that academic economists can be our most important constituency when times get tough, if we are moving that far out of the academic ranges, we should be a little concerned. I have the numbers in front of me. It was pointed out earlier that in the last 7 years on a quarterly basis there have been only 3 out of 28 quarters where velocity has been more than 3-1/2; there have been only 5 when velocity has been more than 3. I would think that, if anything, the conditions that led to a large velocity shock last year are less in place than they are this year. As President Jordan said yesterday, we've had no big increases in the narrower monetary aggregates. In addition, there's more bank aggressiveness, not less, going on. Restructuring has occurred more, not less, than a year ago. And we've already seen a substantial amount of CD runoff. So, I would say that if we want to avoid what Jerry Corrigan was afraid of, and that is an outcome outside our range of expectations, we'd want to have a range of 2-1/2 to 5-1/2 percent. That's just to throw another option on the table.",251
-fomc-corpus,1993,A narrower band?,4
-fomc-corpus,1993,A narrower band.,4
-fomc-corpus,1993,President Parry.,4
-fomc-corpus,1993,"Mr. Chairman, I would support the recommendation as you have made it. It seems to me it would be desirable to make 3 points in the testimony. The first is the one you emphasized, that this is a technical adjustment designed to accommodate a decline in money demand and, therefore, it wouldn't be expected to produce lower growth in 1993. The other thing that might be worth noting is that the adjustment is really consistent with our prior inflation goals and doesn't represent any attempt on our part to increase the pace of disinflation. And, finally, we all have been talking about the uncertainties associated with this whole exercise, and I think it may be well just to confront very directly the possibility that M2 and M3 could undershoot even this adjusted target; I'd make that point clear.",160
-fomc-corpus,1993,President Melzer.,4
-fomc-corpus,1993,"I had some similar thoughts, but I would favor alternative II, though I could certainly live with what you have suggested. I think some reduction in the M2 range is important. I don't think one can emphasize too much this credibility point that you made and [the need to avoid] any perception whatsoever that we're caving in to political pressures. It's not just a question of the Fed's credibility as an institution. I think it's very important to U.S. economic policy right now in general that we guard that credibility. I have suggestions similar to Bob's with respect to things that could be said. There is the technical issue. I think the way to deal with Bob's point on inflation may simply be to say something along the lines of: ""Just recognize the progress that has been made in bringing inflation down."" That in a sense is a technical argument, too, that ought to be recognized in the ranges as a technical point without any implications with respect to rattling the saber. As to the future, I think Bob's point on controllability is a good one, as is what you said about controllability; it's something I've agreed with for a long time. I think the value of M2 when it was behaving was never as a target but as an indicator of what was going on in nominal GDP and not something that we could influence. I guess that raises another possibility in terms of things you might say, a la Steve Axilrod's suggestion, but it might not be a bad idea to point out at this time that we need to look at a broad range of things: other monetary indicators, the behavior of the economy, etc. It's just a good time to make the point that we're required to set these--you've made this point before--but we look at a broad range of indicators in making policy decisions. When you said ""forget the whole thing,"" I trust what you were talking about was that at this point in time, given the uncertainties, it would be a mistake if we as the central bank backed away in a long-term sense from trying to understand the behavior of money and having money in some sort of--",430
-fomc-corpus,1993,"No, I was referring wholly to the target issue.",11
-fomc-corpus,1993,At this point in time?,6
-fomc-corpus,1993,At this point in time.,6
-fomc-corpus,1993,Okay.,2
-fomc-corpus,1993,Not backing away from money. The financial system is what we respond to. Money is one of the proxies we employ to understand that system. We can't get away from that. It's merely the rigidity of the Humphrey-Hawkins statutory requirements--,49
-fomc-corpus,1993,Right.,2
-fomc-corpus,1993,"I would feel more comfortable dropping them at this stage, but we don't have a choice. President Stern.",21
-fomc-corpus,1993,"Thank you, Mr. Chairman. I have some considerable sympathy for the position you've taken and for the considerations that go into it. I'll only add two observations. One, it seems to me that one consideration to lower the range, and particularly the lower end, is of course that we got 2 percent or so growth in M2 last year. And to the people who want to attribute that to us it would be a rather strange commentary if we say that in some sense we are unwilling to have that kind of growth again this year. So, I think that consideration suggests that the range ought to go down. In listening to your discussion, it seems to me that what you're suggesting, and I certainly agree, is that M2 and the other aggregates are information variables. We have a whole host of those variables that we look at constantly. Having some sort of range, aside from the fact that it's required, is a good idea because we need to evaluate the incoming information against something. If we were to follow that approach rigorously, we would establish a range that would be either centered around the midpoint of Don's forecast and/or would be centered around a growth that we consider consistent with a noninflationary environment in the long run. I think both of those would imply lower ranges than we're talking about today, and I don't think this is the time to move that aggressively. So, I'm comfortable with what you're suggesting.",286
-fomc-corpus,1993,Governor Mullins.,4
-fomc-corpus,1993,"I would support the plain vanilla 1/2 percentage point cut on both ends. I'm not attracted to cutting the lower end to 2 percent and leaving the upper end at 6-1/2 percent, first because I think it appears to be a bit cute. Politically, I think we would hear about drawing the target out just a bit to capture that last shot. And I don't think people are too worried about very rapid M2 growth and our slamming on the brakes right now; they're worried about slower growth. So, I'm for a plain vanilla, 1/2 point cut on both ends. I am growing a bit concerned about this whole targeting process, even though I'm comfortable with policy. I think we're headed for trouble because even if the economy performs well, we're going to show a negative [growth rate for M2 and M3] in the first quarter of 1993. And if real GDP is 3 percent, we're still going to hear the criticism--not just the political criticism but the academic criticism--that we are holding back the pace of this recovery, restraining it. This is what we've heard even though we've had two quarters of 3-1/2 percent GDP growth. I've become a little disenchanted with trying to explain it as velocity changes because I think that's not selling especially well. We're simply not targeting M2 at the current time in the sense that low M2 growth will not lead to a policy change. We are jointly targeting M2 and velocity, which suggests to me that we're implicitly targeting nominal GDP. I feel much more comfortable with a nominal GDP target than I do with an M2 target, but in some sense we're not revealing the nominal GDP target. So, this causes a lot of confusion. As this goes on, I think we're going to have to explore other more structurally satisfying ways to explain this phenomenon. I like the notion of capturing the distortion in the other aggregates and, for example, pointing out that M2 adjusted for the yield curve is growing, M2 plus bond funds are growing, and M2 and bank deposits are growing; it's only the S&Ls that are not. Obviously, I don't think at this stage that we should consider monitoring ranges or anything like that. All these aggregates have problems. But something is going to remain unsatisfying about a process in which we show very, very low M2 growth and then say it's sort of okay, we'll make it up on velocity. Again, for the time being we're on this path and I don't think we can do much about it except that we should continue to think about it because we're going to be forced back to the issue. In the interim, I think you're exactly right: The least disruptive thing to do is to take a plain vanilla 1/2 point cut, which I believe is fully discounted.",577
-fomc-corpus,1993,There is one thing we could do to come to grips with your question and that is to publish a couple more Ms and put targets on them.,29
-fomc-corpus,1993,Or we could have monitoring ranges. I don't know that we'd want to paper the world with Ms just to try to confuse the issue! CHAIRMAN GREENSPAN(?). I think Arthur Burns had 7 Ms.,43
-fomc-corpus,1993,"[Having more Ms] does get more directly, in an understandable manner, to what is happening in that it involves moving out the yield curve. And we could actually show that some broader aggregates would be growing, which might be encouraging. So, I think we should continue to work on these and supplement our velocity argument. I, too, have been surprised, even in the academic setting, at how unsuccessful the arguments on velocity have been even though they're very logical. I think people can't see behind velocity. It might be easier to look at an alternative measure. As you have pointed out in other settings, there is a distressing shortage of scapegoats in the political arena.",136
-fomc-corpus,1993,President Hoenig.,4
-fomc-corpus,1993,"Mr. Chairman, I understand where you're coming from on your proposal and I don't see many options. Like others around here, I am very bothered by it because we are setting a target that we know we will not be making any time in the near future. And that will cause us a lot of grief as those who are pushing us follow up on this and see that we cannot and did not make it. That perhaps emphasizes Governor Mullins' point that we've got to find a way to explain by other means what we're doing or we will be under heavy, heavy, criticism going forward despite the fact that we dropped the range down 1/2 point. But it's a 1/2 point that I think we're not going to make right away and that really bothers me.",156
-fomc-corpus,1993,"I think Governor Mullins has raised a very important issue here. And it might not be a bad idea for us to be thinking about this prior to the next meeting and see how we can confront this. In principle, in a very long-run sense we really have been targeting nominal GDP. The trouble with GDP is that it's a very fuzzy number; it gets revised; and it's always late. We don't know where we are; it's not forward-looking. And we've always used some of these financial aggregates as advance signals or informational indicators of where in fact GDP is going. If the indicators collapse, one goes back to the original source and looks at it directly. But we may well be able to find a number of different proxies that we might want to publish in a supplementary sense. And I will tell you that to do so would diffuse a lot of the politics because [observers] would not know what to think at that point. It's as if we were to drop small time deposits from M2 and republish it. People would have a terrible time [evaluating M2] because the argument as to why it's out of the range--I don't care what we say as to why it's out of the range--almost doesn't matter. They would be looking at a number [that simply could not be interpreted.] It would be very tough to make a judgment as to what really is going on.",280
-fomc-corpus,1993,"You're suggesting that if we dropped small time deposits out we'd have a fairly fast growing M2, which would only add more confusion.",26
-fomc-corpus,1993,That's right.,3
-fomc-corpus,1993,But we already have M1! [Laughter],11
-fomc-corpus,1993,"I will suggest to Don Kohn, however, that he give some thought to this, and perhaps we ought to spend a little time at the next meeting in March and go a little further on this question. I think we'll learn a lot, depending on how the Humphrey-Hawkins testimony ultimately emerges, and we'll know a lot more about first-quarter GDP. At the moment my guess is that the statistical risks of the first-quarter GDP forecast are on the up side, not on the down side. Remember, we're [now] looking at the fourth quarter. It looks as if fourth-quarter growth is going to be under that in the third though, to be sure, the third quarter was revised down. But the first quarter may surprise us, and that will do a lot to the configuration of how we are perceived [and] how we behave. President Broaddus.",176
-fomc-corpus,1993,"Mr. Chairman, I would personally prefer a full point drop in the M2 range to 1-1/2 to 5-1/2 percent. I think Don makes as strong a case as one can make for any forecast. But obviously there is plenty of uncertainty in forecasting money demand and velocity, and your approach of 2 to 6 percent would certainly be acceptable to me. I think the one thing we can't do is nothing. That would be absolutely the wrong signal. The bond market would punish us severely if we tried something like that. In that connection, I agree with Governor Mullins' [comments] yesterday in that I would have some concern about widening the range. I think people would perceive that as trying to have it both ways. And that could do some damage to our credibility. If we adopt 2 to 6 percent, Mr. Chairman, it strikes me that you might want to consider saying something in your testimony to the effect that the Committee will take a particularly close look at the current range when we review it at the July meeting. And you might even go so far as to say that in the current circumstances there's some possibility we would consider lowering the ranges at such time. Historically, if I'm not mistaken, we typically have not made a move on the current range at the July meeting. I know we're vulnerable to the McCracken kind of story, but it strikes me that in the current situation, with all the technical problems we face, that that would not be an unreasonable thing to do.",310
-fomc-corpus,1993,President Jordan.,3
-fomc-corpus,1993,"I have a lot of sympathy for a number of things that have been said here as far as descriptions of the way the Committee functions, [including] some of Larry Lindsey's remarks, Tom Melzer's, Dave Mullins', and your own comments about it. I don't really care at all where the debt or M3 targets are set because, with the tools available, I can't imagine any action by the Federal Reserve being influenced by whatever they do. What a central bank does is to set the discount rate, reserve requirements, and open market operations to peg the funds rate, letting that be endogenous. When I look at what actually is done, even M2 does not seem to have any relevance to what the Committee does or what the [Board of] Governors does. It would seem to me [reasonable] in the circumstances, [given] a sense of efficient markets and trying to improve the quality of information to decisionmakers, to say that we're going to put out an M2 range but it's not a target at all. It's a staff forecast and the FOMC has no intention of doing anything to try to stay within that range. I can imagine a set of circumstances, without putting a probability on it, where the yield curve could flatten dramatically, we could get 1 percent M1 growth and 8 percent M2 growth, and as long as we were getting something close to the central tendency [of our forecasts] or the Board staff projection on nominal and real GDP this Committee wouldn't do anything. It's inconsistent in my view to say ""Here's a target for M2"" and not seek institutional arrangements that help us hit it. It's not a target if we don't try to do something to hit it. So, why not explain that this is not a target and that we don't really have targets. We can set up monitoring ranges for M1 and the base, which might be useful for some purposes [in terms of] where we think they may fall, but they're not targets for the Committee. What is a target is either nominal GDP or various real indicators. And for better or worse, if that's the way the Committee is conducting its affairs, then I think that ought to be explained.",443
-fomc-corpus,1993,President Keehn.,4
-fomc-corpus,1993,"Mr. Chairman, as you went through your opening comments I completely agreed with what you said and how you said it but, honestly, I thought you were coming to a different conclusion. I thought you made a very good case for leaving the ranges where they were and not making a change. In a perfect world, frankly, that's what I'd prefer. But I do understand that we aren't in a perfect world and that there are some political perceptions out there that we need to deal with. But there seem to have been enough changes since the correspondence we received indicating that we might reduce our ranges--and certainly the incoming data for this year suggest that the numbers are moving even further away from our expectations--that one could make a case that developments have taken place that make a change not seem appropriate. The uncertainties are very, very significant and, therefore, I would leave the ranges where they are. I'd prefer to keep them where we tentatively set them last July, but I certainly don't feel strongly enough about it to dissent. Therefore, I would support the case that you made because you seem to feel more comfortable in a political context with what you've said, and I'd support that.",235
-fomc-corpus,1993,Governor Phillips.,3
-fomc-corpus,1993,"Clearly, we have a lot of politics floating around; a lot of the discussion does seem to center on politics. Unfortunately, politics is a lot perception, and at some point perception and reality start to merge. And I worry some about our developing our own platform for criticism. I think we clearly have to do something and I think whatever action is taken shouldn't need lots of explanation. The action should speak for itself, which is one of the reasons I like the idea of lowering the bottom end but not necessarily the top end because I think [a wider range] would convey the increased uncertainty. Having said that, though, [one could] say that the top end is probably the most irrelevant part of the whole range at this point. I wouldn't wait until March or until our next meeting, though, to start discussing in the text that we are looking at some other types of Ms.",177
-fomc-corpus,1993,"I'm sorry, what text are you thinking of?",10
-fomc-corpus,1993,The text of Humphrey-Hawkins.,9
-fomc-corpus,1993,"The report itself, you mean?",7
-fomc-corpus,1993,"The report itself. I might not shower them with all kinds of Ms, but I think an indication that we have been monitoring more than just M2--that is to say, we are looking at M2 plus bond funds, plus stock funds, adjusted for the yield curve, and so on--would be [appropriate].",65
-fomc-corpus,1993,You mean as a means of trying to explain the velocity question without getting to this velocity--?,19
-fomc-corpus,1993,Right.,2
-fomc-corpus,1993,That's an interesting idea.,5
-fomc-corpus,1993,One could think of it even as a sort of surcharge during this period when things are so unusual that it's appropriate to deviate from looking just at M2 or the traditional [measures] and to start looking now at more--,46
-fomc-corpus,1993,What you're suggesting is unbundling the Feinman/Porter analysis in a way that is more readily describable and not econometric.,28
-fomc-corpus,1993,"Right, understandable! So, I guess my preference would be President Syron's approach. I probably would end up supporting the 1/2 point [reduction] but with more explanation or some monitoring ranges [besides] just M2.",50
-fomc-corpus,1993,President Boehne.,5
-fomc-corpus,1993,"I buy into your recommendation on this. Given where we are, I think it's the least harmful way to deal with it. I would stress the technical side. I'd like to comment on the broader issues that have come up having to do with our explanation of the problems of M2. I think the velocity approach is a loser. I don't think it has gotten us anywhere. I view our strength as an institution as a real world strength: that we understand markets, that we have a feel for these, and that we understand institutions. So I would explain this in English rather than econometrics. And I think it has to do with long-term and short-term rates and the diminishing role of banks in the financial flows of the economy. That to me is the way to do it. And I would hope that you can do that in your testimony and maybe even elaborate with an appendix. I would be somewhat wary, however, of dropping M2 anytime soon even if we thought it seriously flawed. A better approach is to continue to have M2 but to get people used to an M2-A or an M2-B and to have several of these that we can look at over time. Then, as time goes on and people get used to these, M2-A and M2-B can become M2; but I think we have to get people used to the change. If we make definitional changes too dramatically without these kinds of parallel alternatives, I think we will run into some real problems. We can make this case better than we have made it and we can make it in a real world sense. We can use something else that the eyes can look at and then down the road we can make the definitional change and the shift [to a new M2 measure]. I believe it can be handled, and I think we ought to get on with it.",375
-fomc-corpus,1993,President Forrestal.,4
-fomc-corpus,1993,"Mr. Chairman, first of all I'd like to say that I appreciate the long-term outlook that has been provided in the Bluebook; I think it was a very useful exercise. I agree entirely with your statement that the setting of these ranges doesn't serve any particular policy purpose. But we're faced with a statute. If we were operating in a nonpolitical context, the logic would suggest that we set the ranges to encompass what we think M2 is going to do. That's the honest thing to do. Unfortunately, we don't operate in a nonpolitical context and in my judgment the political considerations have to be paramount here. Not to do anything would play into the hands of our political opponents in the sense that they would sense a victory that might have adverse consequences in the market. So, I think the compromise, if I can describe it that way, of 2 to 6 percent is the right way to go. I think it would be confusing to everyone to try to fine-tune either the lower end or the upper end of these ranges. I would do it straightforwardly by a 1/2 percentage point reduction. I think Governor Mullins is exactly right: This issue is not going to go away. And I'm not persuaded that the technical issue, or the velocity issue, is a salable argument. Many of the points that have been made are good ones in terms of your testimony. I would be inclined to stress the performance of the economy and the improvements in inflation and GDP, notwithstanding the lower range for M2. I just don't think this is the time for us to waste a lot of political capital on this issue. We're going to continue to get some heat, but I think setting a range of 2 to 6 percent is the best way to [proceed]. Let me say one final thing. You've taken already a lot of heat; you're going to take some more, I'm sure. And I would just hope that the Committee would be completely supportive of you in this because you're going to have a tough time, I suspect; I think we should be behind you all the way.",425
-fomc-corpus,1993,Thank you. Governor LaWare.,7
-fomc-corpus,1993,"I support your recommendation, Mr. Chairman.",9
-fomc-corpus,1993,President McTeer.,5
-fomc-corpus,1993,"Mr. Chairman, I support your recommendation for the reasons that you gave. But I would like to join everybody else in helping you write your testimony! [Laughter] I'd include what you said this morning: That if we weren't required by law, we probably wouldn't be doing this. I would say that very honestly and directly. I would call attention to the unusual behavior of M2 and M2 velocity in the past year or so and refer to it not just as a technical adjustment but explain what has been happening in very common sense language. I'd describe the bypassing of the banking system or disintermediation and point out that it's disintermediation caused by low interest rates rather than high interest rates, unlike what people learned earlier disintermediation was caused by. I'd point out that other measures of money--the base, M1, and so forth--have been growing at very rapid rates; and I'd point out that if we make very logical adjustments, such as adding in stock and bond funds, M2 would have been in the middle of its target range. I have a draft here that adjusts M2 for stock and bond funds minus IRA and Keough accounts, and it shows us right in the middle of the target range. I don't think many people understand that. When Milton Friedman and Paul Samuelson don't seem to understand it, I think there's an economic education problem out there that we have to deal with! If we don't publish a lot of Ms at least we need to talk about a lot of Ms. Maybe we should include an appendix, as someone mentioned, and follow the rule I suggested to you earlier that we shouldn't even show a chart for M2 without having other Ms on the same page so that they can't be separated. You might even refer to an earlier period in the '80s when we had the opposite problem, when the money supply was growing above the target ranges and nobody seemed to be complaining about that. So, I think there's almost a requirement that we do a better job of economic education. I realize that we're not going to convince the critics, but a lot of people watch C-Span and it's very depressing these days. But I support your 2 to 6 percent range for M2.",452
-fomc-corpus,1993,Vice Chairman.,3
-fomc-corpus,1993,"Well, a 2 to 6 percent formulation is a slam-dunk for me. But I have to say that I find some of the discussion around the table troubling on several points. First of all, as someone who has had nothing but distaste if not disdain for M2--even when people thought it was good--I'm not quite ready to accept the point that there is no policy purpose to be served in the context of this discussion, even though I have no confidence in M2. But I also find troubling the amount of emphasis that you put on the point that this is basically a political thing we're talking about here. I don't agree with that. I think in the first instance the choices before the Committee are substantive choices. They are choices that in the current circumstances have to be [viewed] more in a context in which there's a lot of noise in the numbers as well as elsewhere. But I view this as substantive. And in my own kind of bimodal risk analysis I think it becomes very substantive, whether one likes M2 or not, because depending upon how the economy evolves, it could make a tremendously important difference in terms of both the perceptions about policy and policy itself. So, as I said, I'm not altogether enamored by some of the body English that has gone with this discussion. I am also terribly concerned about throwing all these Ms out there. Now, you pointed out, Mr. Chairman, that that's what Arthur Burns did. Chairman Burns may have succeeded in confusing the Congress but he may have confused himself because, looking at the results of policy in that era, I'm not so sure they are something I would want to be associated with. I think there is a grave danger that if we get all of these Ms out there--[up to] M27 or something--everybody's going to be happy with one of those Ms but it's not going to be the same for everybody and we're going to end up with a convoluted policy. So, I've got to help you write your testimony too, but unlike almost everybody else I'd keep it really simple. I think we have a pretty good story to tell in terms of the whole policy process and what has happened in the economy. Go back to 1989 and the fact of the matter is that a soft landing in the economy has been achieved with a degree of success and precision that is almost beyond the human mind's capacity to imagine. I'd rather talk about that than M27.",497
-fomc-corpus,1993,"I want to say something. In fact, we're already on that track with respect to early discussions about the testimony.",23
-fomc-corpus,1993,"As I said, the 2 to 6 percent M2 range is a slam-dunk, but I would try to keep [the explanation] as simple as possible. I would not get into these comments about how we're going to have to take another close look at this in July; it's just another trap. Here it is. Let's go with it.",72
-fomc-corpus,1993,Governor Kelley.,3
-fomc-corpus,1993,"Well, Mr. Chairman, I can also very happily support your suggestion and I will do so. We're dealing with large uncertainties, vitally important unknowables, and we don't use [M2] anyway for running policy. While a logical case can be made for various [ranges] that are a little higher or a little lower--one can be made as logically as another--they are not that much absolutely different anyway. So, it does indeed become a political question. If one is not responsible for conducting policy, it's very easy to stay with the tried and true, or at least with what seems to be the tried and true. That's done on a very sophisticated basis in academia and in a much cruder and more simplistic basis politically and perhaps largely in the media. But we are responsible, and we cannot rely on what has seemed to be tried and true even though it might silence some critics in the short run. We know that it could get us in very bad trouble in the long run; we just can't do that. I'm delighted to hear comments around the table this morning, and certainly would like to add my voice, about the need to explain these facts in much more accessible ways and maybe to use more available and hitherto ignored channels to get out the story of what we're trying to do, why we're doing it, and how we're doing. We need to do that in language that's accessible to the media and the general public and our political critics and our political friends. So, I think the suggestions that Bob McTeer and others have made are right. Perhaps we're being forced into it; we'd prefer not to be there; historically, we may not have had to do it but that's where we are today. But to return where I started, I certainly think that your suggestion is as politically viable a way to project these targets as any other would be.",376
-fomc-corpus,1993,"Thank you. I propose that we vote on the following ranges: M2, 2 to 6 percent; M3, 1/2 to 4-1/2 percent; and debt, 4-1/2 to 8-1/2 percent. Read the--",60
-fomc-corpus,1993,"I'm reading from page 22 in the Bluebook or, if you're using the other form, starting at line 36: ""The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output. In furtherance of these objectives, the Committee at this meeting established ranges for growth of M2 and M3 of 2 to 6 percent and 1/2 to 4-1/2 percent respectively, measured from the fourth quarter of 1992 to the fourth quarter of 1993. The Committee anticipates that developments contributing to unusual velocity increases could persist during the year. The monitoring range for growth of total domestic nonfinancial debt was set at 4-1/2 to 8-1/2 percent for the year. The behavior of the monetary aggregates will continue to be evaluated in the light of progress toward price level stability, movements in their velocities, and developments in the economy and financial markets.""",194
-fomc-corpus,1993,"Given the sentence on what we're expecting in regard to velocity, shouldn't we also make it clear that if those expected velocities come to pass we would expect M2 to be at the lower end of the target range?",42
-fomc-corpus,1993,We do that in the testimony as distinct from here. Call the roll please.,16
-fomc-corpus,1993,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Boehne Yes President Keehn Yes Governor Kelley Yes Governor LaWare Yes Governor Lindsey Yes President McTeer Yes Governor Mullins Yes Governor Phillips Yes President Stern Yes,48
-fomc-corpus,1993,Do we vote for coffee at this stage?,9
-fomc-corpus,1993,"The discussion we have just had led me to think about how successful we have been in keeping our discussions within this group. You recall that up until the last several meetings we had what I thought was a very difficult problem for discussions of this group, and I think it's important to recognize that we have been exceptionally tight[lipped]. In the last several meetings I've seen no evidence whatever of any comments about the content or anything in these meetings getting out. And I would particularly advise that we not become lax, because the ability to be as frank as we have been is very important for policymaking. If we start to loosen up again, I think we're going to lose that capability. Having said that, I will call on Don Kohn to take us to the next stage of our discussions.",157
-fomc-corpus,1993,"Thank you, Mr. Chairman. I don't see a lot of short-term policy issues in front of the Committee today, so I will be brief. I also heard Committee members say that they were militantly ignoring M2. I also note that it's crossed out of the table, but if we could devote about 2 minutes to that--. [Statement--see Appendix.]",75
-fomc-corpus,1993,Questions for Don? Vice Chairman.,7
-fomc-corpus,1993,"My question is not so much for Don but for Mike Prell; this has nothing to do with current policy. Mike, do you have any concrete sense as to what this $30 billion fiscal package is and particularly whether it involves one-time [items] or [programs] that are going to be with us?",64
-fomc-corpus,1993,"I don't have any inside information on this at all; I know only what I've read in the newspapers. My presumption has been, for what it's worth, that if there is an investment tax credit it will probably be a permanent feature. That's more consistent with the longer-run growth strategy that was outlined during the [election] campaign. That has some implication for how big the bang would be in the very short run. And we've assumed that on the infrastructure what they still seem to be talking about probably would also be more than a one-time shot, but in what magnitude I don't know. We've assumed that would be folded in and just overwhelmed in terms of the deficit effects by the other things in due course.",143
-fomc-corpus,1993,I'm sorry for the interruption; it was out of context.,12
-fomc-corpus,1993,"Further questions for Don? If not, why don't I get started. As has been indicated, I don't think there's very much terribly new here. I do think, however, that we are beginning to see some evidence that overall investment is beginning to move. We're seeing it obviously in capital goods; we're seeing it in residential construction. And I suspect inventories may be preparing to move, which is important in the sense that when we're asking where the job growth is coming from and where the income is coming from to sustain consumption expenditures--unless we believe that the low saving rate is a statistical artifact and there is at least some [evidence] that indeed that might well be the case--we really cannot continue to get moderate real growth unless it's investment-led in one form or another. Obviously, defense [spending] is coming down and there's no big element involved on the government side, even with whatever the Administration has in mind. But I think the reason why we are seeing some momentum still coming through here is that we probably are getting a definite investment push, which is spilling over into consumer incomes and probably is a significant support of the levels of activity. I do think, as discussed earlier yesterday, that the turnover in existing homes and the realized capital gains that are being engendered as a consequence, coupled with the refinancing, are making a major contribution. But that can't go on indefinitely; it certainly can't grow. However, the most unusual thing that is beginning to emerge is that as a lot of the negatives begin to fall away--as homebuilding starts to look somewhat more buoyant, as retail markets start to firm up, as the debt-service burdens seem to be declining--there now seems to be increasing evidence that the commercial real estate problem is having a larger macroeconomic effect than I think we fully realized. There is the issue of the value of these assets in the financial intermediaries, not only in the banks but especially in the insurance companies. There is clear and I think increasing evidence that the uncertain values in these markets are having a major impact on commercial banks' lending patterns. As I put it in the testimony I was presenting the other day, the fact that a lending officer or executive of a commercial bank cannot presume that commercial real estate mortgages can be unloaded expeditiously at a price that is reasonably forecastable has been a major factor stunting the growth in lending, despite the obvious very heavy liquidity of the commercial banks. There has to be a reason why lending is as dull as it is. And while we can argue that it's fundamentally demand that's getting less and less credible, if you look at the aggregate amount of lending that's going on outside of the financial intermediaries, there has to be some very extraordinary reasons why voluntarily the commercial banks are moving their book capital ratios up as rapidly as they have been moving them up. One obvious reason is that it's a proxy for uncertainty with respect to the reserves for nonperforming loans. If that is the case, I suspect that as the underbrush is being pushed aside and all the negatives seem to falling by the wayside this hard-core element is sitting there. And, clearly, we're not going to get any rise in real estate values for years. But the question is: Are we going to begin to get a market which is increasingly liquid? There was an article in the New York Times--I think it was Sunday--in which there was an interesting review of all of the RTC operations. It discussed the extent to which a number of commercial banks are successfully unloading some of their dead loans, the non-performers; and there's some evidence that finally the offering prices of property are beginning to hit the bids and that we're getting some increase in transactions. But the [commercial real estate] markets still feel dead; there's nothing out there. Every time we do a survey, the thing is barely moving. And I suspect that we're going to find ourselves dealing with this issue for quite a long while. That's all the more reason why low mortgage rates, especially in the commercial area, probably are one of the most important vehicles for policy that one can look at. I've been trying to push the issue, and with some success I hope, that short-term stimulus to the extent that it moves intermediate rates up may well be counterproductive. But, so far as the general outlook is concerned, this [sector] seems to me to be the one remaining major factor holding the recovery back and I think it's not an insignificant one. It's a very small part, obviously, of the gross domestic product, but it is a very large part of the collateral for the financial intermediary system and a horrendous part of the nonperforming loans which are particularly important because intermediaries are very highly leveraged. And if this doesn't go away for a number of years--I can't see how it will--at least we can expect to find a means by which we can get some liquidity into this market. Even if it happens that the prices are 50 cents on the dollar, I think we might--while we may not get a lot of construction--very well begin finally to get some lending in the small- to medium-size businesses. The employment issue might be taking hold. And hopefully this recovery will lose all of its head wind, if I may use that phrase that I've got myself involved in. But as I said earlier, I think that policy is beginning to look better by the day in retrospect. And I find it hard to think of any reason why we would want to [change the stance of policy] over the next 6-week period. But if somebody has some great new insight, I would be most interested in hearing it. Governor Angell.",1141
-fomc-corpus,1993,"Mr. Chairman, I agree with your prescription. I am very tempted, of course, to believe that we may be falling behind in regard to maintaining price level targeting by targeting the fed funds rate at 3 percent. I think all of us know the difficulty of targeting M2; we've all discussed that. Certainly, there's difficulty in targeting the fed funds rate. We know that's really no way to run monetary policy under changing conditions. Also, targeting nominal GDP poses real political dangers for us because it's just so difficult to go before the Congress and explain why we like 5-1/2 percent nominal GDP better than 6-1/2 percent when there's clearly a relationship between GDP and the unemployment rate. The unemployment rate at 6-1/2 percent GDP would be more desirable than the one at 5-1/2 percent. So, with Humphrey-Hawkins suggestions that we [emphasize] price stability as a second to employment and our knowledge that employment benefits from improvement in the inflation outlook, I'm inclined to believe that we ought to be thinking about tightening at this stage. But I just don't have the stomach for doing it, Mr. Chairman; I lack the courage to be what I think would be seen as somewhat rash. And it was that prediction of lack of courage on my part and your part that caused me some meetings ago to suggest that at some point in time we might find ourselves with the need for a very large-scale move. If you would turn to Chart 6 in the Financial Indicators package that Don has provided as he always does--I was mistaken in thinking the charts were missing from the other document because they're always in this document--you will see on that bottom chart for all commodities ex-food and ex-oil a price move that is somewhat of a preliminary indication of what happened at the end of 1982 and what happened in 1987. I don't have the courage to vote to tighten at this point, Mr. Chairman, because I'm hopeful that this will get reversed. And the price of gold being--",416
-fomc-corpus,1993,How much is lumber in there?,7
-fomc-corpus,1993,"Well, lumber was up 43 percent year-over-year the last time I looked.",17
-fomc-corpus,1993,And it jumped to the limit in the last two trading sessions.,13
-fomc-corpus,1993,"Yes, but of course the beauty of this experimental ex-food and ex-oil commodity index is that it's not a [unintelligible] phenomenon with lumber; it [measures] actual house construction that is moving up and increasing demand; and it provides an indicator not only of price levels but also of real economic activity. Now, if you look at the top chart on all commodities, which is the best predictor of CPI inflation, oil's decline and the behavior of food prices do not worsen the inflation outlook. Well, Mr. Chairman, I would prefer the alternative of asymmetric toward tightness, but I certainly never find myself in the position of dissenting over the question of symmetry. However, I do want to call the Committee's attention to what I think is a possibility of our getting behind the curve by maintaining the fed funds rate at 3 percent for too long. Thank you.",180
-fomc-corpus,1993,President McTeer.,5
-fomc-corpus,1993,"I agree with your recommendation, Mr. Chairman, but I may require some hand-holding over these next few weeks because I never dreamed that my first vote on this Committee would be a vote to shrink M2 and M3. As indicated on the chart following page 19 in the Bluebook, there are three alternatives and all of them are aiming down. And that reminds me of last November when Harvey Rosenblum and I went hunting. It was the first time for both of us. We were novices and our guide was concerned about our safety. The main instruction that I got from our guide was: ""Always keep your gun aimed up; never let your gun be aimed down. If your gun is aimed down, you might shoot a dog."" And I'm afraid we might shoot a dog here by aiming down. All the alternatives are down, so I guess ""B"" is as good as the others.",183
-fomc-corpus,1993,President Forrestal.,4
-fomc-corpus,1993,"Mr. Chairman, I agree with you. I would opt for alternative B and a symmetric directive.",20
-fomc-corpus,1993,President Boehne.,5
-fomc-corpus,1993,"""B"" symmetric.",4
-fomc-corpus,1993,President Parry.,4
-fomc-corpus,1993,"I would agree with ""B"" symmetric.",9
-fomc-corpus,1993,President Stern.,3
-fomc-corpus,1993,"I agree with ""B"" symmetric. I would just like to offer a thought on the earlier discussion about the disaggregation of M2 or looking at alternatives. It's just a note of caution. I think we ought to do that and see what we can learn. But I would be very careful about making too much of anything at this juncture. While we can undoubtedly find one or more adjusted aggregates that we might like the looks of at the moment, my guess is that in two or three years, unless we are very careful, we're not going to like the looks of them. So I would be more than a little cautious about rushing to a proliferation of Ms at this stage.",137
-fomc-corpus,1993,"I think you will find that the enthusiasm we all exhibited got toned down by the Vice Chairman, and I think advisably so. President Broaddus.",31
-fomc-corpus,1993,"""B"" symmetric, Mr. Chairman. But I would just like to say that I have a lot of sympathy for Governor Angell's comments.",29
-fomc-corpus,1993,Governor LaWare.,4
-fomc-corpus,1993,"""B"" symmetric, sir.",6
-fomc-corpus,1993,President Syron.,4
-fomc-corpus,1993,"""B"" symmetric.",4
-fomc-corpus,1993,President Jordan.,3
-fomc-corpus,1993,"In the earlier go-around I was commenting more on what I think is. Now, to be normative, I will comment on what I think should be. And that is that we should take monetary targeting seriously. I don't disregard what Wayne emphasizes about the commodity index, but I also don't disregard what P* and long-run relationships between M2 and the price level are telling us. The latter would suggest to me that we ought to find a way to do something to avoid a contraction of M2.",100
-fomc-corpus,1993,President Keehn.,4
-fomc-corpus,1993,"""B"" symmetric.",4
-fomc-corpus,1993,President Melzer.,4
-fomc-corpus,1993,"I favor ""B"" asymmetric toward tightening, but I could support symmetry. I have sympathy for what Wayne said, and in a sense it was all summed up in the discussion yesterday about our inflation forecast versus the Blue Chip forecast. If our staff forecast is right, 3 percent is probably not a problem; if the Blue Chip forecast is right, it's probably a big problem. And I think we have to be very sensitive to that.",88
-fomc-corpus,1993,That is well said. Tom Hoenig.,9
-fomc-corpus,1993,"""B"" symmetric.",4
-fomc-corpus,1993,Governor Phillips.,3
-fomc-corpus,1993,"""B"" symmetric.",4
-fomc-corpus,1993,Governor Mullins.,4
-fomc-corpus,1993,"I support ""B"" symmetric.",7
-fomc-corpus,1993,Governor Lindsey.,3
-fomc-corpus,1993,"Mr. Chairman, I will vote for ""B"" symmetric. I am thinking about aiming down. It's one thing to shoot a dog, and I love dogs. It's another thing to shoot yourself in the foot, which is a bit lower still. So, that may be a case for ""A"" rather than ""B,"" but they are all down to me.",74
-fomc-corpus,1993,Governor Kelley.,3
-fomc-corpus,1993,"""B"" symmetric.",4
-fomc-corpus,1993,Vice Chairman.,3
-fomc-corpus,1993,"""B"" symmetric.",4
-fomc-corpus,1993,"I think there's a fair consensus on ""B"" symmetric.",12
-fomc-corpus,1993,"Mr. Chairman, what do you want to do about the language?",14
-fomc-corpus,1993,"[Don Kohn has] suggested alternate language for the operational paragraph on page 23 of the Bluebook. Norm, why don't you read it.",30
-fomc-corpus,1993,"The alternate language involves the last sentence but let me begin from the start: ""In the implementation of policy for the immediate future, the Committee seeks to maintain the existing degree of pressure on reserve positions. In the context of the Committee's long-run objectives for price stability and sustainable economic growth, and giving careful consideration to economic, financial, and monetary developments, slightly greater reserve restraint or slightly lesser reserve restraint would be acceptable in the intermeeting period."" The change would come here, though the sentence would start the same: ""The contemplated reserve conditions are expected to be consistent with..."" And substituting for the rest of that sentence would be ""little change in M2 and M3 over the period from January to March.""",143
-fomc-corpus,1993,How little is the change?,6
-fomc-corpus,1993,"In the Bluebook we had a small plus for M2 and a small minus for M3. My guess is that the small plus for M2 has turned into about zero after the revisions today. That is, we had a +.4 percent for M2 over the two months and a -.7 percent for M3. Now, I guess it probably would be about zero for M2 and -.8 percent or something like that for M3.",91
-fomc-corpus,1993,That's little.,3
-fomc-corpus,1993,That's at an annual rate!,6
-fomc-corpus,1993,"Mr. Chairman, in the paragraph that has to do with the trade-weighted value of the dollar, Mr. Truman proposes an updating change given the fact that the dollar is now up something like 3-1/2 percent. When we wrote this we were looking at about 2 percent. The change would be in line 23. Very simply it would just involve dropping the word ""somewhat"" in line 23 so that it comes out to ""rose on balance over the intermeeting period.""",102
-fomc-corpus,1993,You have unanimous consent!,5
-fomc-corpus,1993,"Without objection! Can we vote on ""B"" symmetric?",12
-fomc-corpus,1993,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Boehne Yes President Keehn Yes Governor Kelley Yes Governor LaWare Yes Governor Lindsey Yes President McTeer Yes Governor Mullins Yes Governor Phillips Yes President Stern Yes,48
-fomc-corpus,1993,"Incidentally, before we go on to the next subject I'd like to mention that any revisions in the forecast that you submitted to [Mike Prell] can be made through close of business on Monday.",40
-fomc-corpus,1993,"Could I just ask relative to the testimony the presidents will be giving on the 10th of March: If we are asked specifically how we voted on the long-term ranges, given the visibility this issue has gotten, how do you want us to respond? I guess an issue is whether you are going to cover in your testimony anyway how we decided on that.",72
-fomc-corpus,1993,You mean the range?,5
-fomc-corpus,1993,Yes.,2
-fomc-corpus,1993,Oh yes. In fact we're required to.,9
-fomc-corpus,1993,"I know, but are you going to say how the vote went? What if I'm asked in the testimony: ""How did you vote on the ranges?""",31
-fomc-corpus,1993,"If you're asked, I think you're required to answer.",11
-fomc-corpus,1993,At that point the minutes will not have been released.,11
-fomc-corpus,1993,"On occasion that has been done. In other words, it's not--",14
-fomc-corpus,1993,"I think in the past Mr. Chairman, both you and Chairman Volcker have answered whether there were any dissents without necessarily naming names. In this case it won't matter.",35
-fomc-corpus,1993,"If you cover that, I think that will be a useful way of setting the stage for defense.",20
-fomc-corpus,1993,"I wouldn't volunteer it because we never have, obviously.",11
-fomc-corpus,1993,Right.,2
-fomc-corpus,1993,No.,2
-fomc-corpus,1993,I should be able unless--,6
-fomc-corpus,1993,"Well, if you don't say it, it's likely to come up when we're asked and--",18
-fomc-corpus,1993,"The easy way to deal with it if you're asked, even if the Chairman is not asked, is to say the vote was unanimous. SPEAKER(?) Yes.",32
-fomc-corpus,1993,"If that's all right, I think that's fine. I just want to be sure that's okay.",19
-fomc-corpus,1993,I think that's the way to do it.,9
-fomc-corpus,1993,There's no down side to that that I'm [aware of].,12
-fomc-corpus,1993,That's my view.,4
-fomc-corpus,1993,"I wanted to ask this anyway but I think it fits in very well with Si's question. I thought Governor Angell's suggestion that we change the language in the directive on the ranges was a good one. The way it reads now it says: ""The Committee anticipates that developments contributing to unusual velocity increases could persist."" I think it would support us much better if it says ""The Committee expects that to persist.""",84
-fomc-corpus,1993,I think that's better handled in the testimony where we're actually explaining what we're doing.,16
-fomc-corpus,1993,Do you think there's a down side to having it reflected in the directive as well?,17
-fomc-corpus,1993,"I'm not sure. Don, what's your view on that?",12
-fomc-corpus,1993,"Well, that sort of indirect language is there to give a sense of the uncertainty about it. The fact that it suggests that the Committee expects it but does so in this indirect language I think gives it the sense of maybe yes or maybe no.",49
-fomc-corpus,1993,"If we're really uncertain, I think we made a foolish vote. I think our vote was predicated on our confidence that it is going to happen.",30
-fomc-corpus,1993,"Well, that is a point. Does anybody object to changing it as President McTeer suggested?",20
-fomc-corpus,1993,Where is this?,4
-fomc-corpus,1993,Page 22.,4
-fomc-corpus,1993,"Why don't you just change the ""could"" to ""would.""",13
-fomc-corpus,1993,I thought of the same thing.,7
-fomc-corpus,1993,That's a good idea.,5
-fomc-corpus,1993,That's a good idea. Why don't we just do that; it helps a little. I think you're quite right.,23
-fomc-corpus,1993,"""The Committee anticipates developments contributing to unusual velocity increases would persist during...""",14
-fomc-corpus,1993,"How about ""are likely to""?",7
-fomc-corpus,1993,"If we say that, it certainly will not--",10
-fomc-corpus,1993,"""Probably would.""",4
-fomc-corpus,1993,"""Are likely to.""",5
-fomc-corpus,1993,"""Are likely to,"" yes.",7
-fomc-corpus,1993,I like that.,4
-fomc-corpus,1993,That's better.,3
-fomc-corpus,1993,"It's ""are likely to.""",6
-fomc-corpus,1993,"""Are not unlikely to""?",6
-fomc-corpus,1993,"Now that you have the floor, you're on for [the next agenda item]. You may recall that we have discussed the question of confidentiality of FOMC information. We have a very interesting staff memorandum on this and Governor Mullins will lead our discussion.",51
-fomc-corpus,1993,"Don Kohn has provided for the Committee an outline which summarizes the issues identified by the subcommittee and also gives our tentative conclusions. It is provided as background to the Committee for thinking about these issues and as background for the Chairman in preparation for Humphrey-Hawkins testimony. It's not clear exactly what we would like to do with this today except to inform the Committee where we are. We consider this in some sense an interim report. There's work left to do. You saw some of it in the memo, which Ted handed out yesterday, on the arrangements in other countries. We would also like to do more research and get analogous information on release issues in other parts of the government, independent agencies and the like, to get as much background as possible. We don't yet have that. I won't go through the detail because it's pretty self-explanatory. The way we conceptualized this whole area was to suggest that our number one job should be to make the best monetary policy decisions we could. That is our chief objective. In a democratic society we should do that in a manner which is as open as possible consistent with making the best monetary policy decisions. And to the extent that the process is not public because we feel that a more open process would adversely affect the quality of monetary policy decisionmaking we felt that we would bear the burden for making the case because there is this presumption of openness. Now we will look through the several different proposals. As you see, the results were that we felt virtually all of them had problems in terms of adversely affecting the quality of monetary policy decisionmaking. The one in which there was some possibility for additional discussion, we felt, was the proposal to announce actions on changes in the federal funds rate target immediately. Some felt that would increase the efficiency of monetary policy by making it easier for the Desk to operate. Others were concerned that it would reduce our flexibility in very uncertain times and also have an announcement effect which could deter action. The other thing we gave a little thought to, but not much--and we would invite thought from the Committee--was the possibility of other options for meeting the objective of openness. Some that people mentioned were increased press conferences and things of that nature, which may draw more attention to the policy record. We actually put out quite a bit of information, although it doesn't get much publicity. We compared [our practices with those of] other countries; I think they testify a lot and they probably give more public press conferences. I've noticed that Henry Kaufman recently suggested that the President meet periodically with the FOMC; that was not high on our list. So I think it would be worthwhile, instead of just taking the suggestions that Chairman Gonzalez has provided us, for all of us to give some thought to what else we might do to contribute to the sense of openness. Also, I would invite Tom Melzer, Ed Boehne, Mike Kelley, or Don to make any other comments on our process or results.",598
-fomc-corpus,1993,"Let me make one quick comment if I may. As we consider changing how we do things, I'd say that the discussion that took place here before the break today is a very, very dramatic example that we might consider. That was a very important discussion, a very useful discussion, and one might speculate that it simply would not have happened if we'd been on some other regime such as those that have been suggested as possibilities.",84
-fomc-corpus,1993,"Yes, I think that's a good point.",9
-fomc-corpus,1993,"Are we going to have a discussion of ""E"" at some point? I completely agree with what Mike [Kelley] just said and it seems to me that the only thing we might consider doing is the suggestion labeled ""E."" But how will that be pursued?",54
-fomc-corpus,1993,"I don't know; it's up to the Committee. Don, what did you have in mind on that?",21
-fomc-corpus,1993,"I think the idea was, Governor Mullins, that we would like to know whether the Committee agrees with the conclusions on ""A"" through ""D"" and then whether the Committee thinks that ""E"" should be explored further. And then we would do that extra--",54
-fomc-corpus,1993,We'd schedule a time to do that?,9
-fomc-corpus,1993,"I think this is a good effort and certainly covers some of the drawbacks of these different alternatives. I came pretty much to the same conclusion: That ""E"" seems to be the one with the fewest downside risks. One thing I was thinking about, though, is that it would to me be [ideal] if our actions could be expressed in terms of the effects on reserve pressures first. If we then wanted to be specific about the funds rate, that's fine. But there may be some time in the future when we'll be focusing on something other than the funds rate and that will then enable us to move quickly into substituting any discussion about the funds rate with maybe an aggregate or something like that. We do, of course, in the directive now start out by talking about reserve pressures and I think that communicates something standing by itself and obviously can be supplemented by [comments on the] funds rate or whatever.",183
-fomc-corpus,1993,President Broaddus.,5
-fomc-corpus,1993,"Let me first say that I think the subcommittee has done an excellent job of laying out the options and their pros and cons. And I agree completely with a number of the tentative conclusions. I agree that if we revive the Memorandum of Discussion, it should not be released promptly. I agree that any videotaping or literal transcription of the meeting is a bad idea and I agree that an expanded policy record with individual attribution probably wouldn't buy us very much. But I have at least a few questions about some of the other conclusions. I might just quickly make three points. First, I think that immediate release of the operational paragraph of the directive deserves some further study. It's possible that further study would show that the benefits are equal to or might outweigh the costs. For me the strongest argument against doing this, as the memo makes clear, is that fear of adverse public or market reaction might make the Committee reluctant to take actions that it should take. On the other hand, one could argue that it might be helpful in a lot of situations for the Committee to be able to have a vehicle for [preparing] the public and the market for major changes in short-term policy, especially changes in the basic direction of short-term policy, by being able to move to an asymmetric directive in the direction in which we expect to move and have that move be visible. For example, lately a lot of people expect that we will have to tighten policy at some point in the next couple of years, and it might be nice to be able to give a less disruptive first signal of that with a visible move to an asymmetric directive tilted in that direction before we make the actual move. Let me emphasize that I'm not by any means convinced that this is a good idea; I'm simply saying that I think it deserves some more consideration. It has some strong advantages. If we did that, we would be releasing all of the decision information we have and it would deal with the leak problem pretty categorically. So I think it has a lot to recommend it. The second point I would make is that I hope we can find a way to revive the old Memorandum of Discussion, which I remember from my early days in the System, with a long delay in its release because I think there's a good bit that can be learned about monetary policy and about the monetary policy process from scholarly investigation of a detailed record of FOMC meetings. But as your memorandum points out, obviously the problem is being able to maintain a long delay in the release. And if we can't do that, I think we just can't have the Memorandum. But I would hope that we satisfy ourselves completely that in fact we cannot protect the Memorandum from a forced disclosure before we give up the idea completely.",551
-fomc-corpus,1993,"Al, what would satisfy you and make you feel comfortable that we had adequate protection?",17
-fomc-corpus,1993,"That's the point. I guess if we had very specific legislation I would feel more comfortable, but I may not have thought that through. It may be impossible to do it and I recognize that. All I'm saying is that I would hope we think that through very carefully to make sure there's no way we can protect it definitively. The final point I would make, and this goes to option ""E"" which the subcommittee appears to favor, is that I certainly agree that it's worthy of further study. But I would simply underline what the subcommittee itself recognizes: That there's some risk that this option would tend to lock us in to the current operating procedure, which amounts to fairly rigid funds rate targeting, and might make it difficult to move back to something like a borrowed reserve target or free reserve target or nonborrowed reserve target, in which case the funds rate would be noisier. That worries me. Still, if we go with this option, I hope we would consider that point.",199
-fomc-corpus,1993,Governor LaWare.,4
-fomc-corpus,1993,"Have we heard from the Desk on this? In other words, have they commented on what the effect of--",22
-fomc-corpus,1993,We've been in close consultation on the study through Don. The subcommittee's work certainly had the full benefit of both Joan Lovett's and my views on the subject.,34
-fomc-corpus,1993,Which were positive or negative?,6
-fomc-corpus,1993,"On releasing the fed funds rate [target] we came down in balance that it should not be done, essentially for the two reasons cited in the study: That there can be emergency situations like the fall of 1987 in which our principal concern is liquidity and the last thing in the world we would want to do is to say what the targeted fed funds rate is; and secondly, that it would be very, very difficult, as has just been suggested, if we started publishing the fed funds target to ever get away from funds rate targeting. Those were the two reasons that led us to believe that it should not be done.",126
-fomc-corpus,1993,Governor Lindsey.,3
-fomc-corpus,1993,"I was going to speak in support [of the work done]; I thought the document was very good. My only comment was on your side comment about Mr. Kaufman's idea. I'm a great believer in the providence of the President of the United States. I don't see any reason why we should have any objection to the President of the United States meeting us whenever he deemed it appropriate. I don't think we should invite such a meeting and I would not necessarily counsel the President to meet us frequently, but I don't see any reason why we should not be open to that.",115
-fomc-corpus,1993,I doubt that we'd turn him down.,8
-fomc-corpus,1993,"I doubt it too, yes.",7
-fomc-corpus,1993,Would he come here or we go there?,9
-fomc-corpus,1993,At the Treasury maybe.,5
-fomc-corpus,1993,"David, I wasn't sure whether your comment reflected that.",11
-fomc-corpus,1993,I think it's worthwhile to try to think of other mechanisms we might use to contribute to this goal of openness. And it's not clear to me that meeting with the Administration is consistent with this topic; it may be consistent with other topic areas. Governor Angell.,52
-fomc-corpus,1993,"I was very sympathetic to Al Broaddus' statement and would associate myself with believing that continuing to look at these tradeoffs is somewhat worthwhile. In my letter to Chairman Gonzalez I came down on balance for not having the study, believing that it was better to end up supporting the position of the Committee on this topic. But the problem that I had, Al, in terms of getting there without further study, was whether or not early release of the directive would tend to cause us to be less likely to go to an asymmetric directive. And my conclusion was that early release would cause us to be less likely, but I don't know the [unintelligible] of the information available and that [unintelligible]. So, I would be open to the study.",155
-fomc-corpus,1993,Governor Phillips.,3
-fomc-corpus,1993,"First of all, let me say that this outline helped to identify all of the issues and to focus the discussion. With respect to option ""E,"" I agree that that's an area that we should continue to look at. I'd give some consideration just to making an announcement if there's an actual action and not making an announcement [if there is not]. And I probably wouldn't go with any explanation. At least at this point that's what I'd be thinking in terms of.",92
-fomc-corpus,1993,"What do you mean by an ""actual action"" announcement?",12
-fomc-corpus,1993,"An announcement of an easing move, for example. I'd make an announcement if we were going to change the federal funds rate or make a big change in the [degree of] pressure on reserves.",39
-fomc-corpus,1993,How about intermeeting moves? How would you view those?,12
-fomc-corpus,1993,The same.,3
-fomc-corpus,1993,Okay.,2
-fomc-corpus,1993,I just see that as less confusing to the market--to announce when it's an intentional move as opposed to just being consistent with what was in the previous directive.,32
-fomc-corpus,1993,"Okay. And that's embodied in ""E,"" as you've said, right?",15
-fomc-corpus,1993,Right.,2
-fomc-corpus,1993,"Okay. I misunderstood what you were saying. I thought you were going beyond what was in ""E.""",21
-fomc-corpus,1993,"No, I don't think so. As for the other suggestions that were made, I think doing some kind of summary of the policy directive probably would give us a better chance of getting more coverage because a lot of information does go out and it seems not to get very much attention. It's partly just laziness on the part of the press. If we have a one-pager for them, they'll cover it.",82
-fomc-corpus,1993,And we get our own [spin].,8
-fomc-corpus,1993,"Right. With respect to periodic press conferences, I'd give some consideration to that. I say that but I don't have a strong feeling about how often and so forth. But right now our major public forum is Congress and that's a bully pulpit. So, I think it might just give us a different forum for making a statement.",66
-fomc-corpus,1993,Are you volunteering for the press conferences?,8
-fomc-corpus,1993,"No. I think you'd be great, David!",10
-fomc-corpus,1993,Would this be after decisions or after FOMC meetings or quarterly unrelated to--?,17
-fomc-corpus,1993,"What I'm suggesting is that those are the things [to be considered], like you did with the rest of this outline. I'm just raising it as a possibility; I don't have strong feelings about [whether to do it] regularly or periodically. I would urge a follow-up on the items that were suggested in the appendix: the FOIA coverage, the practices of other agencies and the legislative and judicial [branches]. I think those are all fruitful areas to explore.",92
-fomc-corpus,1993,President Syron.,4
-fomc-corpus,1993,"Three points. One is, as other people have said, that I thought this outline was very useful to crystallize things. I'm in favor of further exploration, but I think we need to be cautious. And this outline process of listing the pros and cons is very useful to be sure that we've covered most things. I have some sympathy for what Al said except that as a practical matter I certainly wouldn't want to revive the Memorandum of Discussion if we didn't have legislation [to delay its release]. And I surely wouldn't want to see legislation just to be able to publish a Memorandum of Discussion. Finally, I think there is something to be said for pursuing option ""E,"" along the lines of what Governor Phillips talked about. I guess my interest in that is somewhat tempered by what Bill [McDonough] said, but I have a question on that. It's not clear to me that, say, in the '87 case--if the Desk were doing something that hopefully was transitory in nature and wasn't a major change in policy and there wasn't a Committee meeting--that we'd have to go out and make an announcement that said in effect that because of the disruption in the markets, etc. we're changing what we're doing. I would presume that in such circumstance we'd always be able to do something like that.",262
-fomc-corpus,1993,"Yes, I'm not sure that we would necessarily have to indicate a federal funds rate [target] if we actually were doing that because it always--MR. SYRON(?). Exactly.",37
-fomc-corpus,1993,"No, we could certainly choose not to. On the other hand if, as is presently the case, we didn't have the policy of saying what the fed funds rate target is then there's no issue and no additional uncertainty in an uncertain situation.",48
-fomc-corpus,1993,It seems to me that we can have uncertain situations in which we don't know what the market is like. One advantage of not having announced something is that the market may blow through something in very uncertain times. So we do have marginally more flexibility not announcing. But I guess your point is that in emergency situations we could--,65
-fomc-corpus,1993,I don't know all the details of this but I wouldn't think in that kind of situation that we'd have a very precise tight notion of where we wanted the funds rate to be.,35
-fomc-corpus,1993,President Forrestal.,4
-fomc-corpus,1993,"Just a couple of points. I think a very good way to handle this whole thing is to study it more. But I have some real reservations about announcing a federal funds rate [target] for the reasons that have already been expressed. I think it would lock us in to that modus operandi. I wouldn't have any objection to resurrecting the Memorandum of Discussion, as I said in my letter to Mr. Gonzalez, provided that we had specific legislation that would protect it [from early release]. I think, though, that we really could go a step further. I really don't find any major risk to releasing the policy record as soon as it can be prepared after a meeting. It comes out six weeks later anyway. An earlier disclosure would not really be all that harmful and might very well gain us a lot of credibility; and it might silence some of this criticism about the fact that we're not open enough. There are some objections; obviously there may be some reservation about moving to an asymmetric directive. But I think the benefits to doing it would outweigh those small risks.",215
-fomc-corpus,1993,President Hoenig.,4
-fomc-corpus,1993,"I think alternative ""E"" should be pursued and looked at more carefully because we are starting with an agreed upon premise that we should be as open as we reasonably can. And I don't think announcing an action, whether it's [in terms of] the fed funds rate or reserve pressure is inconsistent with that; I think it is consistent with being open. And I doubt that it's going to compromise our ability to have discussions and come up with reasonable policy. So, that is one avenue that we ought to pursue pretty vigorously.",104
-fomc-corpus,1993,President Jordan.,3
-fomc-corpus,1993,"I thought the outline was an interesting piece for indicating the pros and cons of some things, but what didn't come out clearly was the ultimate criterion for information that we provide. Even the purpose of the Memorandum of Discussion [published] with a long lag is not to foster PhD dissertations but studies that help improve the execution of policy to achieve ultimate objectives. And that's the criterion that should be used for announcing whatever. In the short run it should be that it helps us achieve our two objectives. I don't see how announcing the federal funds rate would do that. In fact, the way the Committee is operating right now, I don't see what would be useful to achieve the objective of price stability.",139
-fomc-corpus,1993,Other comments? President Stern.,6
-fomc-corpus,1993,"Most of what I would have said has been covered and I won't repeat it. I agree with those who find at least some merit in a variety of these proposals and I think they deserve further consideration as a consequence. But I am particularly attracted to your other possibilities under ""F,"" in part for the openness reasons that we've been discussing. But related to that--and I think Governor Phillips mentioned this--one of the things that has troubled me in recent years is that we seem to be in a position of either reacting to or not commenting on various press reports and interpretations of what we're up to and why. That was a bigger problem when there were leaks than it has been recently. Nevertheless, it strikes me that we can put some of that to rest through vehicles like press conferences, calling attention to things in the policy record, and so forth. And I would give some serious consideration to doing that because I think it would benefit us as an institution.",190
-fomc-corpus,1993,Would you have scheduled press conferences?,7
-fomc-corpus,1993,"No, I would do it on an as-needed basis when we had something that we wanted to communicate.",21
-fomc-corpus,1993,"Yes, but a regular press conference doesn't automatically suggest that there's some important event. If we announce a press conference, it has an announcement effect.",29
-fomc-corpus,1993,An announcement effect of the announcement.,7
-fomc-corpus,1993,"Well, there's always going to be a transition problem whenever a new procedure or a new rule is introduced. Certainly the first couple times we announce a press conference I suppose people will sit up and take notice and cut positions and so forth. But ultimately they will come to learn the circumstances under which we do these things.",63
-fomc-corpus,1993,Then they'll start [unintelligible] further press conferences.,13
-fomc-corpus,1993,"Well, they won't precisely know their content.",9
-fomc-corpus,1993,Vice Chairman Corrigan.,5
-fomc-corpus,1993,"Fundamentally I have sympathy with all of the tentative conclusions. Now, if we could get the protection in Freedom of Information Act terms, I could associate myself with some kind of Memorandum of Discussion type document, but I don't know if we can get that protection. I also agree that the funds rate [announcement] may be the most fruitful avenue to look at further. I don't worry so much about the very short-run problem of a stock market crash; that I think we can deal with. But I do think that the slippery slope here is making a conclusion, as I think Al said, in a context in which that conclusion is dominated by a mind-set that [involves] funds rate targeting. I don't think it's quite as portable to other policy regimes and that's the aspect of it that I think has to be thought about more carefully. The first crisis situation we could always [unintelligible]. Contrary to Gary Stern and Governor Phillips and maybe a couple of others, I'm not at all into this press conference thing. I just don't see how we can turn that into a winner. The closest institution that I know of to the Federal Reserve is the Supreme Court. I have some trouble with the thought of the Chief Justice deciding he's going to have a press conference to explain a couple of recent court decisions. The analogy stinks, but I think you do give up something when you get yourself into that business. I don't know, Dave, about your own experience but in the old days, which predated you, the Treasury never did [press conferences and the like] and then they got into it in spades. But I'm not so sure what the net effect of that has been in terms of [enhancing the] credibility of the President and the way it is perceived. If the Chairman really has something to say, I think he can always find a way to do it. Any time he wants an audience Joe Coyne can get him an audience [with no difficulty]. So I don't think the Chairman lacks instruments to get [a message] out there when he wants to. I think the press conference option is a very slippery slope. And if it ever slid into the perception that the Fed was marketing itself in some sense, I think it would be disastrous. And doing [press conferences] I don't think will cut off the kinds of [problems] Gary was referring to. So I am very dubious about that. But I know that is clearly an area where reasonable men and women can differ.",506
-fomc-corpus,1993,"Okay, that was very useful. The subcommittee will reconvene in the future. I guess I heard about the same type of disagreement [we had in the subcommittee] on the ""E"" issue on federal funds rate announcements. That's something we'll take another look at given the issues that have been raised. A number of issues have been brought up that were not raised by the subcommittee. Also the issue of whether there isn't something else we could do, like press conferences, is worth looking at. The experience of the Treasury and others who have gone to that is that it's tough to get [the genie] back in the bottle. Is there something we could gain in terms of the perception of the reality? I think we should take a look at that with some caution. Again, maybe the early policy record disclosure--the question there is how early could we do it--would make a difference. But that would get us into the problem of [using] the asymmetric directive and things of that nature. We will continue to compile [the information referred to in] the appendix because I think it is worthwhile to have a sense of where we fit within the broader context of other institutions. Another thing we'll look at is the point that Jerry Jordan raised, which is that another way to look at this whole area is [to consider] what we could do that would contribute positively to the quality of monetary policymaking. [We can see] if there is anything else we might find useful--as opposed to the way we looked at it, which was to start with the assumption that openness is a threat to the quality of monetary policymaking, as it clearly is in a number of these areas.",339
-fomc-corpus,1993,Okay. This Committee will stand adjourned until March the 23rd. We can go to lunch.,22
-fomc-corpus,1993,"Good morning, everyone. The usual procedure, as you know, is to approve the minutes first. But prior to doing that I'd like to call on Governor Mullins.",34
-fomc-corpus,1993,"Thank you, Mr. Chairman. The topic is our subcommittee proposal for creating a new document called the ""Minutes of the FOMC."" The genesis of this proposal comes from the recent Senate Banking Committee hearing in which two senators, Senator Mack and Senator Riegle, stated that the Federal Reserve didn't even produce minutes for the FOMC. I think to some of us this episode made it abundantly clear that the public, including important public policy officials, has very little appreciation for the quantity and detail of the material that we already release. So, the subcommittee proposal would be to assemble in a convenient and easily accessible form, appropriately titled as minutes, all the information currently released on an FOMC meeting. As you know, we issue the policy record with a press release. But the Minutes of Actions, the other information currently produced, are simply placed in our FOIA office and are not accompanied by a press release; and they elicit very little public demand. So, the specific proposal is to release a merged document consisting of the Minutes of Actions and the Policy Record along with an Executive Summary under the title ""Minutes of the FOMC."" The hope would be that this approach would underscore the quantity and detailed nature of the information we make available. The subcommittee feels that these materials do constitute and are appropriately described as minutes in the context of the use of that term by other organizations, both public and private. So, there would be no change in the timing of release or in the nature of the contents of the document under our proposal. Our suggestion is to initiate the proposal with the release this week of minutes for the February FOMC meeting. As mentioned in the document, the February meeting minutes will be somewhat longer due to the organizational votes, but we thought it would be appropriate to start with the new annual cycle. So, I would open for discussion the subcommittee's recommendation that we do this in the form described in our memo of March 17.",399
-fomc-corpus,1993,"David and Mr. Chairman, I have a comment and a few questions. The comment is perhaps minor in nature, but it seems to me that someone on the Hill might very well question the use of the term ""Minutes of the FOMC"" because what we're really doing is combining two documents. That may or may not be a problem, but I just throw that out for consideration and discussion. The question I have is whether you talked about the timing of the release in your group and whether you plan to accompany this with a press release or some explanation of what the change is.",117
-fomc-corpus,1993,"I guess the reason we used the word ""minutes"" is because we think these are minutes as they include the Minutes of Actions and the Policy Record. In terms of changes in timing, based upon the discussion the Committee had last time we did not propose any change in the timing. This [new procedure] may focus people's attention more on the timing. Norm, what are we proposing to do with respect to an explanation of what's going on?",88
-fomc-corpus,1993,"It would be just straightforward. There really would be no explanation. If someone inquired, presumably Mr. Coyne would provide the explanation that there's no new material, just a combination of these things. The minutes, including the attendance and the items having to do with approval of operations and so forth, would be published, as I understand it, in the Bulletin. And the policy record part of these minutes, at least, would be published in keeping with current practice in the Board's Annual Report. But the press release we have--it follows Governor Mullins' memo in the package--is simply patterned after the current press release. Instead of referring to the policy record, it refers to minutes.",140
-fomc-corpus,1993,"I might say that what has happened here is that the arcane terminology of the Federal Reserve is being used against us. The normal notion of what is in the minutes of corporations, as you well know, is three paragraphs. When it gets to the fourth paragraph everyone objects because it's getting too specific. And that's usually after a whole day's meeting! The impression I have of this issue is that by any stretch of the imagination these are minutes. What we used to term ""minutes"" is not the usual employment of the term in corporate America. What corporate America terms ""minutes"" is far closer to what Governor Mullins and his committee suggest we put out. We're merely taking an action to alter the language, which is creating a regrettable difficulty for us as I see it.",155
-fomc-corpus,1993,"I agree with that. I just wanted to make sure we focus on the fact that some of our critics might, and I use the word ""might,"" allege that we've tried to get away with something here by just combining two documents and calling them minutes.",52
-fomc-corpus,1993,I have no doubt that there will be such comments.,11
-fomc-corpus,1993,"I would think we'd have everything to gain and very little to lose by doing this. I can't think of what we'd have to lose. We do have to be careful that we don't--and no one has suggested that we do--advertise this as a dramatic, sweeping change.",56
-fomc-corpus,1993,"No, we won't announce anything; we will just do it. And that doesn't have that kind of--",21
-fomc-corpus,1993,"I think the change is a good one. I wonder about the executive summary. The draft that I read seemed good to me. I have no problems with it. But I can envision times when there would be an awful lot of disagreement about what should have priority, etc. Did you discuss whether or not this would be a very difficult process?",69
-fomc-corpus,1993,"If I may just interject: I've been thinking about this overnight. I don't know of any minutes that have an executive summary, and I would question whether that is a desirable move if our basic purpose is merely to put out something that is more inclusive of the available information. The executive summary doesn't address that problem.",63
-fomc-corpus,1993,"Mr. Chairman, you're exactly right. The authority is Robert's Rules of Order, newly revised. Let me read [the description of] minutes: ""The record of the proceedings of a deliberative assembly is usually called the minutes or sometimes, particularly in legislative bodies, the journal. In an ordinary society, unless the minutes are to be published, they should contain mainly a record of what was done at the meeting, not what was said by the members."" So, Robert's Rules of Order clearly suggest that these are minutes and that we are doing them the way they suggest they should be done.",120
-fomc-corpus,1993,Jerry.,2
-fomc-corpus,1993,"Dave, I think it's a good idea to do this. I have the same question about the executive summary. I think that could end up competing with the good and noble purpose.",36
-fomc-corpus,1993,Tom.,2
-fomc-corpus,1993,"I was just going to make a comment. This draft that you're seeing is the first draft that we've seen on the subcommittee too. In concept it sounded like it made some sense. When I looked at it and compared it against the policy record, it seemed to me almost impossible to do it without adding meaning. Now, I think it's a good summary for somebody who's not going to bother to read the policy record. But I think the people who will read these, the press and the Fed watchers, can read more meaning into it. For example--I don't want to beat this to death--where it talks about the Committee's commitment to maximum sustainable economic expansion the word ""noninflationary"" was added here and it wasn't in the policy record. Or where it talks about the uncertainty with respect to velocity, in the policy record that led us in effect to say that we were willing to miss the ranges; in the summary it says that it led us to conclude that we have to evaluate monetary developments in a broader context, which is said later in the policy record. I'm just saying that all the people who read this are going to add meaning that we may not have intended by how we say this, what we say, and what we don't say. So, I have some problems with trying, in effect, to restate the policy record.",272
-fomc-corpus,1993,Mike.,2
-fomc-corpus,1993,"In defense of the summary notion, we're in a sound-bite situation here. People don't have long attention spans. They get impressions very quickly and those impressions are very hard to shake once they get them. I think the summary would provide for a much wider audience than the professional, careful reader, and that's an important audience. It would provide a quick, easy, access to [the essence of] 20 pages of the policy record that people are not going to read in many cases. A few will; fine, they should. But this will give access to the lazy, the overworked, the distracted, or the ignorant.",127
-fomc-corpus,1993,What's left!,3
-fomc-corpus,1993,That I think is valuable. And it can be done in a way that presents the FOMC's story in a light that we approve of as opposed to relying on some reporter who may not understand what he's reading and who plows through the policy record and picks out a phrase here and there that suits his purpose and presents the Committee in an erroneous light.,72
-fomc-corpus,1993,"Given the full policy record, isn't he inclined to do that anyway?",14
-fomc-corpus,1993,"He may be, but if on the front of the release there is an executive summary, I think that will tend to be what gets picked up by a very large percentage of those who give it any attention at all. That's important and I think it's a positive.",53
-fomc-corpus,1993,"I'd like to support Governor Kelley on this. I thought the one-page summary was probably one of the more positive new things coming out of this. A lot of these news services will extract from the summary; and if we give them what we'd like them to extract, I think we have a better chance of there being a fairer reading of the minutes. So, I support Mike's contingent on this. And like it or not, we are in a sound-bite, concise summary kind of environment.",101
-fomc-corpus,1993,"I think you're raising a separate issue, which ought to stand on its own merits, and that is whether we look good or bad. As I understand the proposal that Governor Mullins and his subcommittee are making, it is to consolidate already existing documents and in effect not to create anything new. It's the new that I think we want to avoid in this particular context. And as far as I'm concerned, the issue being raised should be on the table at some point and maybe we ought to discuss it; it really should be in the context of the subcommittee's work. But I personally don't feel comfortable with anything new in here. In fact, the message is precisely to make the point that there is nothing new, not that we're trying to improve this.",152
-fomc-corpus,1993,"Yes, and the Committee has steadfastly opposed newness in most proposals. It is true that this would represent a step forward in trying to communicate, and in its basic form our proposal is not supposed to be that. It's supposed to be a better organization of what we do now and a better labeling to make it more accessible to people. I think that's a useful distinction. Si.",77
-fomc-corpus,1993,"I think this is a constructive move. I can't see any down side. The up side does not seem to be considerable because I don't think it will diffuse the critics. I'd prefer to do it without the executive summary. I understand what Susan and Mike are saying, but I can't think of a time--again to use the private sector context--when I've seen private sector minutes with an executive summary. And I think the more we make it consistent with such minutes, the better off we are. So, I'd do it without the summary.",108
-fomc-corpus,1993,Al.,2
-fomc-corpus,1993,"I would recommend that we make some brief announcement about the change because inevitably there are going to be questions. Of course, we can answer them when we get them, but if we write the answer out to begin with, it might be clearer. I also had a question. Will the subcommittee continue to exist? Will some of the issues we discussed at the last meeting, such as the release date and the possibility of doing something like the Memorandum of Discussion, still be on the table?",99
-fomc-corpus,1993,"It's my understanding that we still will meet and consider issues as they come up. It will be interesting to see what response, if any, there will be to this change. Perhaps it will sharpen the issue of release time. We will continue to test those issues. With respect to the explanation, I think it would be useful if we had Joe Coyne's description available to people so we all sing from the same hymn book on that.",88
-fomc-corpus,1993,"Do I gather from the discussion that apart from the executive summary the recommendation being made by Governor Mullins' subcommittee is acceptable to the Committee? If I hear no objection, I will presume that that is in fact the case. On the issue of the executive summary, I think there's a technical problem at this stage. Tom Melzer raised perhaps only a few of the problems he would have raised if he had had a chance to look at the proposed summary in the normal course of events to make amendments, and I assume there are others here who would have the same problem. The notion of an executive summary has merit and it ought to be discussed, but I would like to recommend that we postpone it for now. In other words, I propose that we release what we already have put together and discussed without the executive summary and if it seems desirable to consider the latter, to do so at the next meeting or the one after. I personally have mixed feelings about it. I'm not saying that I wouldn't necessarily vote for it, but my initial reaction is to be a little cautious. In fact, I haven't given it terribly much thought so I don't want to say one way or the other how I may come out in the end. I'm not sure how mechanically we can effectively implement the executive summary even though we don't desire to do it this time; it just means we have to postpone the whole thing until the next meeting. Does anyone have any comments on that?",292
-fomc-corpus,1993,I think the worst case with the executive summary is that we'd have to have a meeting between the meetings to agree on the language of the summary.,29
-fomc-corpus,1993,"What it reminds me of more than anything is the communique of the G-7, which takes half of the meeting to argue out. If we're going to have an executive summary, it is a statement of policy of the FOMC. Everyone legitimately is going to want to get his views in on exactly how it is phrased, and I suspect that that may take a lot more time than anyone contemplates at this stage. I would recommend that we go ahead and vote on the new version of the ""Minutes of the FOMC,"" excluding the executive summary at this time, and would ask whether there is any objection to that. Hearing none, would somebody like to move what we now will call the ""Minutes of the FOMC Meeting""?",152
-fomc-corpus,1993,So moved.,3
-fomc-corpus,1993,Second.,2
-fomc-corpus,1993,It has been seconded. Without objection it is approved. Let's move on to Bill McDonough on foreign currency operations. Bill.,27
-fomc-corpus,1993,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1993,Questions for Bill?,4
-fomc-corpus,1993,"It wasn't just that the dollar didn't strengthen, the dollar weakened precipitously on the cut in German interest rates. I'm glad I wasn't in the classroom that day to try to explain it to my students. Do you have any other thoughts on why that happened?",51
-fomc-corpus,1993,"Well, the particular market reaction last Thursday when the Germans lowered the discount rate was that the market had gotten itself hooked on the notion that the Germans would lower rates further, at least move lower on both the discount and the Lombard rates. So, the market disappointed itself. But then it corrected. So, we had that funny situation of a fair amount of volatility against a fairly stable 1.65 rate. But in answer to your direct question, I think it's just that the market anticipated more official action than took place.",106
-fomc-corpus,1993,Let's move on to the Domestic Desk.,8
-fomc-corpus,1993,Thank you. [Statement--see Appendix.],9
-fomc-corpus,1993,Questions for Joan?,4
-fomc-corpus,1993,"I have a question about some of the reasons why long-term rates in particular responded so strongly in this period. There are a number of candidates for why that might have occurred. The one that you referred to was that it appears as though the markets buy the idea that there will be future deficit reduction, and I think studies of forward rates would suggest that. There are other possibilities as well. Most of the people who have looked at the Clinton program contend that it's going to produce weakness over the next several years, and that could be a factor. Thirdly, the interest rate developments--maybe not the declines that have occurred already in foreign markets but expectations of further declines there--could be a factor as well. Is there any discussion in the markets on the importance of these or is it just focusing on the one you mentioned, which is the increased chance of future reductions in the deficit?",177
-fomc-corpus,1993,"Well, I think it's what the future reductions in the deficit portend going forward rather than the reductions themselves. But, as you know, the general likelihood of an economy that performs reasonably well with low prices is probably more the key point than, say, overseas rate cuts would be in the markets going forward.",62
-fomc-corpus,1993,Or short-term weakness in the economy.,8
-fomc-corpus,1993,Yes.,2
-fomc-corpus,1993,"How does the market respond to the notion that if a weakness is propelling the decline in long-term rates, why when the economy was a lot weaker than it is now weren't long-term rates lower?",40
-fomc-corpus,1993,"I guess it [depends on] the point from which they're all starting. Some of the people in the market are looking at the near-term weakness as being somewhat mitigated by the drop in interest rates that has occurred already. So, if expectations before all this [centered on] worry that the economy's recovery was going to produce growth rates in the 4 percent plus range early on, which reflected some of the estimates toward the end of last year, those estimates are being scaled down to something that's--",102
-fomc-corpus,1993,"The reason I raised the issue is that when you're looking at a 10-year or 30-year bond you're looking at basically either inflation expectations or real rates. And to the extent that over that time horizon expectations of a weaker economic [performance] would have impacts on those [rates], then you can't really argue that the passage of a year or two can affect that. That means that since a year ago the longer-term outlook was far weaker than it is today, one would expect that long-term rates would be lower than they are today if that were a substantial explanation.",114
-fomc-corpus,1993,If the prospect of short-term weakness were a substantial explanation?,12
-fomc-corpus,1993,"Yes. In other words, to the extent that short- or intermediate-term weakness is driving the long-term rates lower, the question is: Why didn't recent periods in which the economy was perceived to be much weaker not change the rate? I'm not talking about the rate of change in long-term rates; I'm talking about the level, which is what is crucial to this discussion.",75
-fomc-corpus,1993,I do get some sense that there is or has been--and maybe it's taking a long time--some underlying shift in expectations about future price performance than had been the case before. I think that has been ratcheting down.,46
-fomc-corpus,1993,Prices?,2
-fomc-corpus,1993,Yes.,2
-fomc-corpus,1993,"My own explanation is, however one looks at this, that this is a decline in inflation expectations. And I could argue that we had a weak economy, say, a year or so ago without the expectation of significant change in long-term inflation. That's what strikes me as the only credible explanation, whether you attribute it to the budget deficit or policy or any variety of other [factors]. That's what makes sense.",83
-fomc-corpus,1993,"I think 1-year forward rates are a quirk because if you looked at 1-year forward rates 3 years out last year, they were coming down. At the same time the [1-year forward] rates at 10- and 30-year [horizons] were basically flat. So that would be in accord with the idea that it is reflecting more short-term weakness. What has happened in the last several months is that we've seen a reduction in those 1-year forward rates at all the maturities, which would be more consistent with a change in views about inflation.",119
-fomc-corpus,1993,One thing that has been interesting on a day-to-day basis in the market is that there has been [less] day-to-day volatility by a fair amount. And sometimes people are at a loss to explain the movements in prices on any given day to the next. Many of the dealers in the market are not expecting to see this kind of movement take place and are constantly expecting to see it give back its ground. That's why I mentioned the climate being a little skittish. Not everyone was a believer in the full degree of the rally.,109
-fomc-corpus,1993,"I'm going to argue in my presentation, though, that there is a feedback effect from the lower interest rates, particularly in real terms--that the future strength of the economy and the fiscal reductions in the out years did in the markets' mind shift back aggregate demand for constant real rates such that the ensuing real rate declines helped to mitigate those fears, giving investors a sense that the economy could continue growing at more or less a moderate pace. I also think, going back several years, that clearly the decline in inflation expectations has played a role as well.",110
-fomc-corpus,1993,President Broaddus.,5
-fomc-corpus,1993,"Joan, how sensitive is the market? You said the market is skittish; how vulnerable is it to a reversal of this recent rally? In other words, if we get another strong employment report, let's say, and maybe another month of unfavorable inflation data, do you think the market is going to react strongly to that or is there enough in the deficit reduction program to prevent that?",79
-fomc-corpus,1993,"Oddly enough, at this juncture I think the information that the market expects on the real side is favorable inflation on prices. People generally have tended to feel that while the reports for January and February were sobering, they were really not indicative of the trend in prices. They believe that there is slack, particularly on the labor side, that is going to keep inflation reasonably well contained, even if it's not on a downward trend, and that the employment report perhaps overstated things. They think the recovery is here and will continue, but the sense of where it's vulnerable is in [the process of] going through the Congressional passage of the budget. [There are concerns] that some compromises are going to be made to get the package through and that some of these compromises are going to mean the death knell for the intent of the package, if you will, and that we're going to end up with perhaps half a loaf.",186
-fomc-corpus,1993,"Mr. Chairman, if I could add something to that. I think one of the things that would give the market a fair amount of insulation from a really nasty kickback is that the investment banking firms--the Street--have for all practical purposes missed this rally completely. They have been outsmarting themselves consistently by saying: ""Well it can't be true; inflationary expectations cannot be being adjusted downward."" And, therefore, every time they've had a temptation to short the market they've fallen right into the trap. The net result is that they're still not long. They still are pretty much either flat or fooling around with a short position. And, therefore, the securities are being held by safer hands, those less likely just to throw them out if they see a bad number. So, from a technical point of view, the markets are in pretty good shape to get some unpleasant news and absorb it very well, which has been the case for about three weeks now.",194
-fomc-corpus,1993,Are those stronger hands bond funds?,7
-fomc-corpus,1993,"Bond funds, pension funds, and investors in general. That's because one of the things that has been happening as rates have been coming down is that investors are worried about yield; they're pushing their duration out in order to get the yield. That's one of the factors behind the strength as you go out the yield curve. I don't think it explains the strength of the long bond, but it does explain a fair amount of the strength in the 5- to 10-year area; people are moving out the curve to get the yield.",107
-fomc-corpus,1993,"The thing that seems inconsistent with future economic weakness explaining the long bond performance is the stock market and the quality spreads as well. We have seen tightening of quality spreads both within investment grade and also among the below investment grade issues, and that's quite inconsistent with the notion of impending recession and doom.",58
-fomc-corpus,1993,"Any further questions? If not, would somebody like to ratify the actions of the Desk? I assume there have been some!",26
-fomc-corpus,1993,That's how we got the 3.02 percent fed funds rate!,14
-fomc-corpus,1993,Would someone like to move it?,7
-fomc-corpus,1993,Move it.,3
-fomc-corpus,1993,Is there a second?,5
-fomc-corpus,1993,Second.,2
-fomc-corpus,1993,Without objection. Mr. Prell.,8
-fomc-corpus,1993,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1993,Questions?,2
-fomc-corpus,1993,"Mike, people have been talking for a long time, particularly at the retail level and some at the wholesale level, about the fact that they felt very squeezed on margins. That sort of talk has been consistently heard. What do we know? Do we know much at all about what is actually happening to margins?",62
-fomc-corpus,1993,"Well, not in specific detail. But I think we have seen some improvement overall in margins over the past year or so. There are still some sectors, though, where it has been very difficult--in some of the materials areas particularly, where prices have been soft and there has been a lot of discounting. Now, we've seen circumstances where there has been some pressure put on capacity. Firms are looking for price increases and in some instances getting them; steel is a clear example. The steel industry has had extra help from our trade policies, but their bookings have been very strong and have stretched out some months. They've had some price increases already that have stuck and they are looking for more. And there are a few other places. But it does seem to be only here and there that we're really seeing much happening among materials prices. Lumber is another obvious example. Again, there are special supply stories. More broadly, though, there is still considerable slack. And we see some industries, chemicals and so on, that are still pretty hard pressed in terms of widening margins.",215
-fomc-corpus,1993,President Jordan.,3
-fomc-corpus,1993,"A few questions, Mike. For some time now you've had a more optimistic outlook for the bond market than the Blue Chip forecasters or some other private sector analysts, and that was hinged on a better inflation outlook. The idea is that as they come to realize our inflation outlook is right, then the bond market will adjust. The Blue Chip pattern has been that from this point forward interest rates and inflation will rise; that has been [their view] over the last year. And here we are today with bond yields lower than even your optimistic forecast and you have them going down somewhat further. Yet, as recently as the January Greenbook we were looking at a CPI for the first quarter of about 2-1/2 percent; and now it's closer to 4 percent. So, the actual numbers have gone in one direction vis-a-vis your earlier forecast versus the Blue Chip, yet the bond market has gone the other way or even faster than you hoped and ahead of the Blue Chip. How do you reconcile those?",205
-fomc-corpus,1993,"You've asked a complicated question. I might observe that there were times when our interest rate forecast was even lower for this period into 1993 than it was, say, at the time of the last meeting. We got worn down a bit by the fact that the markets weren't responding to all that good news the way we thought they should be, so we tempered our [rate] decline somewhat. I guess our notion involves two things. One is the view that inflation would remain lower than the market was anticipating. And that seems to have been the theme recently. As was noted earlier, the market seems to have sloughed off the recent bad news on the price measures and still sustains this view that inflation, at least for some period of time, will be lower than the market seemed to have been worrying about earlier. The other element in our thinking was that simply holding down short-term rates as we've assumed--it's not a prediction but simply a conditioned assumption in our forecast--would tend to pull down the long-term rates. One explanation of the dynamics of the recent market movements that wasn't given a few minutes ago--well, I think there was some hint of it--is this: People are simply growing impatient with the low yields they're getting; they're reaching for current income, and this gives us an inexorable pull on the long-term rates. It took a bit of a psychological breakthrough, I think, to get us into the current zone. Over recent years something in the low 7 percent area had been a floor to rates. People had not adjusted their thinking to bonds possibly being a good buy at 7 percent or less, but we seem to have broken through that [barrier] recently. And what we're anticipating going forward is that inflation still will be on the low side of expectations, that people will become more hopeful that the economy is not going to bound back up to high inflation rates, and that this persistence of low short-term rates will continue to push [investors] out on the yield curve. We have only a mild further decline in long rates, though. Our models, which I noted before seem to have performed quite well over time, now are again fairly well aligned with where bond rates are and would suggest that we could still get a very large decline as people respond adaptively to the kind of news that we think there is going to be.",476
-fomc-corpus,1993,"I'm left a little uncomfortable with part of your explanation about expectations of short rates as they relate to long rates. Earlier this year, and beginning last year, some academics testifying in Congress argued that the reason intermediate and long rates are as high as they are was the fear that the Fed was going to raise the funds rate. They said all we had to do was take the pledge that we wouldn't raise short rates and bond yields would fall.",88
-fomc-corpus,1993,"Well, there may be some element of truth to that. In fact, one story that we've heard is that the change in the perception about the likelihood of the Fed tightening over the next year has provided the bond markets with some encouragement.",47
-fomc-corpus,1993,That's starkly in contrast to the view that longer-term expectations about debt monetization and inflation--,19
-fomc-corpus,1993,"Indeed. I think the other story about the fear of Fed tightening was consistent with the view that as soon as the cycle begins to show some substantial growth in the economy, we're going to have inflation picking up and the Fed will then respond to that. So, these things do fit together. But there are many strains that aren't entirely consistent.",68
-fomc-corpus,1993,"But if they do fit together, then having 4.8 percent [GDP growth] in the fourth quarter and the CPI numbers we have in the first quarter gives you a problem because it says we're getting that real strong growth and now we're getting the CPI popping up. This worst fear is confirmed and yet the bond market has rallied further.",68
-fomc-corpus,1993,Indeed.,2
-fomc-corpus,1993,"The other question that I still struggle with is how monetary policy, what this Committee does, feeds into the outlook over the next couple of years. The funds rate is currently at 3 percent. You talk about it staying more or less at that level through the forecast horizon. You have nominal GDP [growth] slowing to about a 5 percent rate for most of that period while the Blue Chip forecast apparently has nominal GDP rising in a 6 to 6-1/2 percent range out through as far as they go, about 4 or 5 quarters, and short-term rates rising 70 basis points. So, they have higher short rates, higher real growth, and higher inflation. What do you say about the Greenbook forecast versus the Blue Chip forecast given those policy assumptions?",159
-fomc-corpus,1993,"Well, the difference in forecasted real growth is not a vast one between the two. The rise in nominal short rates in the Blue Chip is offset to a significant degree by the acceleration of prices in assessing what their real short-term rate path is. So, their real short rate path may not be vastly different from what we have in the forecast. The differences may be less than meets the eye in terms of an underlying sense of what the determination of aggregate demand will be in this period--real activity.",101
-fomc-corpus,1993,How confident are you that a 3 percent funds rate for the next 6 to 8 quarters produces 5 percent nominal GDP?,27
-fomc-corpus,1993,"What we've noted before and we've hinted at recently is that we're not at all sure, given the kind of disinflation movement we anticipate, that this level of the funds rate is really sustainable all the way through 1994. This level implies a relatively low real rate, perhaps one that is not sustainable; and we think it's more likely that we'll see the rate higher rather than lower in 1994 and that there may be a need for some tightening as we look out beyond 1994. The other side of this is, of course, that there is going to be a clearer negative fiscal impetus as we move into 1995 and some of the pent-up demands will have been satisfied and so on. It may be a little early to get particularly far out on a limb in predicting where interest rates will have to go, but our notion is that the movement is likely to be upward by 1995 and that perhaps there will be a need to move before then.",196
-fomc-corpus,1993,President Parry.,4
-fomc-corpus,1993,"I assume that the forecast of the rate of inflation is basically from a Phillips curve framework. One question I have is this: To the extent that there's a real output surprise--that is, a growth in real output that exceeds expectations--is there any attempt to incorporate the possibility that this could change expectations about inflation independently of traditional [unintelligible]?",71
-fomc-corpus,1993,"Well, I think you're saying if things turn out stronger than--",13
-fomc-corpus,1993,As they did in the last six months.,9
-fomc-corpus,1993,"Right. I think what we saw for a while in the latter half of last year was stronger growth and very strong productivity and not much sign of any real deterioration in the price trends. But we've gotten a bit of a pop in early 1993. What we see at this point is some evidence that inflation expectations really are currently higher than what we anticipated the outcome would be. In a sense we may have to fight against that to push the inflation rate lower. But if things turn out stronger, I think it will create not only a lower unemployment rate--less slack in that kind of Phillips curve argument for higher inflation--but it may also create a psychological environment in which pricing behavior becomes a bit more aggressive. This is in a sense the speed effect that we've talked about, simply that the rapid growth may create some additional pressure. That may be what we've seen in the deterioration recently. We really did have a pickup and that may have given us a little of that. Unemployment was coming down relatively rapidly.",203
-fomc-corpus,1993,"Further questions for Mike? If not, who would like to start the Committee's discussion? Ed.",20
-fomc-corpus,1993,"Modest growth in the District continues. While there is a lot of caution and we still lag the nation, there are signs of a somewhat better underlying tone. Commercial and industrial loan demand is rising modestly, and I'm hearing more reports from bankers that small and mid-size businesses are using their credit lines more than in recent months. They tend to want to go ahead and get the projects under way whereas several months ago that was not the case. Manufacturing, which had slowed earlier in the [quarter], may have picked up some later, judging from rail shipments and other anecdotal information. Some executives in sheet steel think they should be able to make more price hikes stick given the strength in their order books. And that's the first indication of that sort of thing I've heard in a long time. Hiring is still sluggish, particularly in New Jersey, but one does hear more reports of firms adding workers. They're adding them even if they're adding them cautiously. In real estate, residential sales were up before the snow storm, as was the demand for industrial space. The office market continues to be quite weak and likely will be for a long time. I hear very little talk these days that the expansion will grind to a halt; and that's a different tone than was there several months ago. But there still is a lot of caution about just how fast the expansion will proceed. Turning to the nation, the national profile as laid out in the Greenbook looks about right to me. I continue to think that job growth is the key indicator as far as the durability of the expansion goes. Job growth I think is both an indicator of business confidence and it's a necessary ingredient in building consumer confidence. So while in theory we can have an expansion without job growth, I think in reality it's a critical ingredient. The recent price numbers strike me more as an aberration than as signalling a new round of inflationary pressures. I think the lack of robustness in the U.S. economy plus really quite favorable unit labor costs and weaknesses in a number of other industrial countries argue for a continuation of subdued rather than increasing inflationary pressures.",420
-fomc-corpus,1993,President Forrestal.,4
-fomc-corpus,1993,"Mr. Chairman, the recovery in the Sixth District continues to be moderate and I would say that it's probably maturing. The District is exceeding the national pace of activity. For example, we see employment growth at about 2-1/2 percent in 1993; that's about twice the pace that we had last year, although it's well below the rates of growth we had in the 1980s. Retail sales have been fairly strong in the District so far this year, even after we factor out the impacts of Hurricane Andrew. There is increased consumer spending for a wide [range] of goods, although auto sales have been somewhat mixed in the last two or three months. Single-family housing did well in the opening months of 1993 but again we expect weaker gains compared to 1992. Nonresidential construction is slowly turning around, and I think that's in contrast to other parts of the country. That is due to industrial and retail development primarily. As I've said before in other reports, we have certain advantages in manufacturing and other areas but those are beginning to narrow as the year goes along. We're seeing this, for example, in slower apparel production. It's also showing up in our manufacturing survey for February: The percentage of firms that month seeing increases in activity declined a little, although the percent experiencing decreases also fell. The 6-month outlook, while still positive, is not quite as bright as a month earlier. A major concern in the District now is the effect of military base closings. The region has suffered relatively less than others as a result of declines in defense expenditures, but we have a higher proportion of military employment than the rest of the nation. On the wage and price side, pressures remain generally quiescent throughout the region. Labor supplies are still plentiful. Factory activity is rising but firms are reporting little change in current or future employment levels; there's just no talk about adding additional employees at this point. No significant price pressures for raw materials or finished goods are evident with the exception of construction materials. And the spike in lumber prices has [spurred] production and inventory speculation that don't appear to be sustainable. I continue to hear from bankers that they are looking for good borrowers--the emphasis being on ""good"" or credit-worthy people--and the evidence is that loan demand is up slightly. So, the outlook for the region, Mr. Chairman, is relatively good. Looking at the nation, we have changed our forecast very, very little since the last FOMC meeting. We think also that the profile in the Greenbook is reasonable, although we would have somewhat more growth and somewhat more inflation, but the differences are marginal. Having said that, I think perhaps with the relatively good news we're experiencing that it might be appropriate and prudent at this time to express some concerns for the longer term. One that is on my list at least is the deterioration in the outlook for the industrialized nations. Those forecasts have been constantly pushed down. While there is some expectation, as Mike indicated, that this may turn around in 1993, I think the jury is still out on that with all the political and economic uncertainties overseas, particularly in Japan and western Europe. The lack of progress in the GATT negotiations and in the reconciliation of differences in the NAFTA agreement are also causes for concern, especially because a worsening trade situation will undoubtedly give rise to more protectionist sentiment at home, which could have an effect on our recovery. And last but not least, it seems to me that the turmoil in Russia and some other foreign activities that are going on are also threats to our economy. So, while I think things are good, it would be wise for us to keep our eye on some of these developments, particularly on the external side.",757
-fomc-corpus,1993,President Keehn.,4
-fomc-corpus,1993,"Mr. Chairman, in the District the level of economic activity has shown clear signs of improvement since the last meeting. At the February meeting we talked a bit about the impact of trade restraints on the steel business. And in terms of pricing and production levels, I think that along with the basic increase in domestic demand is having an effect, as Mike has suggested. Bookings during the last two months have been running at an annual rate of 110 million tons; that's clearly an unsustainably high level. Delivery lead times are lengthening to the third quarter for at least one manufacturer, and one large steel purchaser has been put on allocation by two of its main suppliers. The mills are currently operating at a stated rate of capacity of 83 to 85 percent, but there is a view in the industry that the [stated] capacity is too high, and at least in our District we think the mills are really operating at a level of about 90 percent of capacity. Steel prices were raised, as you know, by $20 a ton in January; another $20 a ton increase will go in effect in April, and they have announced another $20 a ton increase to be effective in early July. If all of these stick, it would raise the price about 10 percent from the low point in this most recent cycle. But in a longer-term perspective the industry will only have regained about one-half of the decline from the last peak in prices, which occurred in '88 and '89. And that 1988-89 level was still well under the levels that prevailed in '78 and '79 in nominal terms but, of course, further under in real terms. In other District activities, the second-quarter domestic production schedules in the auto industry have been set at about 12 percent over the second quarter of last year. That production level is somewhat higher than the current dealer order rate. Therefore, if the retail sales don't pick up fairly soon, there is some downward risk in the second-quarter production schedules. The manufacturers I talk with have reduced their '93 sales outlook. Their forecasts are down just a little to 14 million units. But even that level implies very strong third and fourth quarters. The truck business is also improving. I've commented in the past on the heavy truck business, the class 8 units, and at this point both the order and production levels for those trucks are expected to be about 17 percent over last year. But this time there's also what I think is a fairly significant change in the medium truck category, the class 6 and 7 units. The current forecast suggests that these medium truck sales, which are regarded as being quite sensitive to economic changes, will be about 13 percent higher this year. Agricultural equipment is doing better. Sales there are improving at the retail level, and production schedules have been increased by 5 percent for one manufacturer. There is a somewhat larger increase in terms of production for industrial equipment. The only sour note I heard, and it really wasn't all that sour, related to retail sales. The District's sales held up quite well coming into the new year, but we hit something of an air pocket in February. It's unclear whether that reflects uncertainty following the President's State of the Union message or is attributable to bad weather. I must say that I think it's probably more the latter than the former. With regard to employment, we have some mixed developments. Most of the people I talk with, particularly those in heavy industry, continue to say that despite the higher levels of production they are simply going to produce more with fewer people and that the staff reduction programs that they have in place will continue. Yet we do think that the underlying employment data may suggest a somewhat brighter picture. We've been doing considerable work on some of the statistics related to our District employment levels and we think they may be re-benchmarked and that the net effect a re-benchmarking of the state data will raise the employment level as of the end of last year by some 128,000 jobs. And if that develops, it could well be that we've had a greater growth of employment in the District than we had thought. If this is false, though, it may be that this higher level of employment will be consistent with the improvement that we're seeing in terms of economic activity. With regard to the national economy, when we did our forecast for the February meeting we were somewhat under the central tendency of the FOMC members. Given developments since then, if we were redoing our forecast, I think we'd raise it a bit and we'd be very much in line now with the staff forecast. And despite the recent PPI and CPI reports, which we don't think represent a fundamental change in the inflationary picture, our outlook for inflation has not changed; we'd leave our fourth-quarter forecast at 2.8 percent. Thank you.",979
-fomc-corpus,1993,President Parry.,4
-fomc-corpus,1993,"Mr. Chairman, widely varied economic conditions continue in the Twelfth District. Job growth in the District states over the year ending in January ranged from among the strongest in the nation--about 3-1/2 to 4-1/2 percent in states such as Idaho, Utah, and Nevada--to among the weakest, which was a negative 1.4 percent in California, second only to Connecticut. The recent benchmarking of employment data increased our measure of 1992 job growth in Arizona, Idaho, and Washington. However, California data were revised only for 1992, with revisions for prior years expected in June. This creates considerable uncertainty about California economic statistics in recent years. We understand that the data for prior years are likely to be revised down significantly to correct for an overcount that occurred prior to January 1991. The revision likely will reduce our estimate of job losses in California during the recent business cycle. The official figure now, with this break in the series, is about an 800,000 loss since the peak of employment. That will probably be cut to somewhere closer to 500,000. The cutbacks in defense spending and aerospace continue to receive an awful lot of attention in the District. In California proposed military base closings threaten a net loss of 32,000 military jobs. Civilian job losses on those bases probably will be greater than 32,000; in addition there is some multiplier associated with it. Most of these losses as it turns out will be in the San Francisco Bay area and not in southern California. I also heard that the morning papers suggest that [McClellan] Air Force Base, which is a big one, and the Monterey Presidio, which is not so big, both were taken off the list by Defense Secretary Aspin about a week ago. They are now thought to be somewhat more iffy but they could be closed as well. In Washington, Boeing has confirmed that it intends to eliminate 15,000 jobs in the state during 1993 and an additional 4,000 jobs in 1994. This would bring the total reduction of employment to about 25 percent from its 1989 peak, so that is a significant development for that area of the District. Although the company remains bullish regarding long-term demands for aircraft, recent airline weakness and cancellations of orders further threaten the company's short-run outlook. I'm sure you all saw that there was a big cancellation or at least a postponement by United at the same time they decided to continue to take delivery of the Airbus. Turning to the national economy, it seems to us that recent data continue to suggest that the economy is in a sustained, though moderate, expansion. Assuming no change in monetary policy, our forecast of growth over the next two years is almost the same as the Greenbook, with the main impetus to growth coming from the interest-rate-sensitive sectors of the economy. We do project somewhat stronger growth in investment and a little less consumption than the Greenbook. Obviously, the effects of the Clinton economic program are uncertain; however, the program effect to us at least appears to be a slight positive for real GDP growth in '93 and a small negative in '94. In any case, the effects of the program are likely to be less than that of traditional forecast errors. Despite the recent spurt in consumer prices, the outlook for inflation in our view is reasonably favorable with real GDP remaining below potential. And with relatively moderate growth rates, we expect the downward trend in inflation to continue even with the passage of the BTU tax. Specifically, in our forecast inflation in the CPI is expected to drop from 3 percent in 1992 to about 2-1/2 percent by the end of 1994, which isn't all that different from the Greenbook. Thank you.",772
-fomc-corpus,1993,President Broaddus.,5
-fomc-corpus,1993,"Well, economic conditions in our District have continued to improve in recent weeks, continuing the trend we had seen earlier in the year. Most of our contacts are at least reasonably optimistic about the outlook for their respective local economies and industries going forward despite the potential contractionary impact of at least some of the elements of the Clinton economic package. The most recent information we have comes from our various board meetings; both our Charlotte and Baltimore boards met last week. The comments at both of those meetings were generally upbeat, especially those of the Baltimore directors. That was encouraging because that area has been the part of the District that has experienced the weakest recovery to date. The Richmond board met about 10 days ago, at the end of the previous week. The comments at that meeting were less optimistic than either those of the branch directors or their own comments at their previous meeting. In particular they seemed to sense some reduction in both business and consumer confidence over the last several weeks. But generally they're still reasonably optimistic, and I think the picture in our District is quite strong. With regard to the national economy, the Greenbook projection is certainly reasonable. It is close to other projections we've seen and close to many of our projections. But my instinct, and my staff shares this view, is that the risk of error in these forecasts is still generally on the up side and that we'll get at least somewhat greater growth in real GDP if not in the current quarter at least over the balance of the year. Recent increases in unfilled factory orders and lengthening delivery times are one reason for thinking this. I believe we may have a greater rate of inventory accumulation and perhaps [more] growth in employment than the staff is projecting. But from my standpoint the main reason for this view is the broad-based and rising confidence about both the near-term and the longer-term outlook for the national economy on the part of a vast majority of our business contacts. People are concerned about the tax increases in the Clinton program. They are critical of them, to put it gently. But they don't seem to think that the program is going to derail the recovery or even slow it appreciably going forward. This optimism pretty clearly is related to the good performance we've had with respect to long-term interest rates recently, which has enabled many of these businesses to significantly improve their balance sheets, finance some new projects at lower rates, and reduce debt service--not to mention what lower mortgage rates have done to the household sector. With this in mind we certainly think that one of the Committee's principal objectives in the near-term future if not the principal objective ought to be to do all we can to foster a continuation of these favorable longer-term interest rate tendencies. Because of the recent upturn in inflation statistics, the upward revisions in inflation projections in the Greenbook bother me. I recognize that the signs are still pretty [limited] and that the revisions are still pretty slight at this point. But both the reports and the revisions suggest to me that the risk of an uptick in inflation at some point in the projection period is now somewhat higher than it was earlier. I don't think that's inconsistent with your comments, Mike. And I simply hope that the Committee will be ready to take whatever actions are necessary earlier rather than later if we need to take such actions to arrest these developments.",661
-fomc-corpus,1993,President McTeer.,5
-fomc-corpus,1993,"The Eleventh District economy continues to be among the stronger in the country in terms of employment growth. We estimate that total employment was up a little less than 2 percent last year. There was an article on revised employment numbers by city in Friday's local paper; it listed the ten top cities for employment growth in the nation. The Eleventh District had three cities on that list; the Sixth District had four out of the ten. But while the numbers continue to come in reasonably strong, the mood seems to have shifted a bit negatively since the Clinton program came out, from optimism to uncertainty. And that does have real impact in some sectors. For example, in Houston they have a number of things to worry about: the BTU tax, NASA and the space station, and health care. In particular, the Houston Medical Center had been the source of a lot of construction and planned construction; we hear that a lot of it is being put on hold until they determine what is going to happen with health care. There are scattered reports that some businesses are finally beginning to have to hire some people. They have been resisting mightily because our workweek in manufacturing in Texas has been over 43 hours recently, which I believe is over an hour longer than the national average. So, that's beginning to give and we do believe we're going to be getting some employment growth [in manufacturing] now. I haven't talked to a lot of people about it but, given the optimism over NAFTA that has been prevalent in our District for some time now, it seems to me that all this negative press we've been getting--the NAFTA bashing and the signs of disarray in the Administration's trade policy--can only suppress activity. And that's a source of great concern for the nation. I wish there were some way we could weigh in with a little economic education promoting both NAFTA and GATT. Just an observation: I believe that the Fed and the Fed's ability to conduct policy in the near future have benefited from some luck recently. In particular, I think we've been lucky to have had this clear demonstration that the bond markets are responding to expectations. First, we had the rise in the bond market based on the prospects for the lower deficit and/or lower inflation. And then we had a decline in the bond market when the price indexes looked a bit unfavorable. I think the world knew that Fed policy was not involved -- it was steady-as-you-go--and that longer-term interest rates were responding to these things. We've been telling people that, but this was a clearer demonstration of it than people have had in a long time. I think that will serve us well and give us a little more flexibility in the future. Anticipating our policy discussion, I can't resist commenting on Paul Samuelson's statement in the academic report. This is not a direct quote but about what he said was that no change in monetary policy is currently required. Given the source of that, I think we might as well just stop the meeting and move on!",608
-fomc-corpus,1993,President Hoenig.,4
-fomc-corpus,1993,"Mr. Chairman, our District recovery continues on track for the most part. Tourism trade is still good in the region. Oil and gas activity, though, is still subdued after the year-end peak and that does not look to be building up. Construction activity in the District remains strong; there has been some weather-related slowdown, but that [strength] will reemerge. In the agricultural area, there is a degree of greater uncertainty, although aggregate income should remain good for our region. But the facts [about] the grain loan repayment and what the Russians can afford after the more recent crisis have put a real pale on things and I think that has been partly responsible for the lower prices. Secondly, in the cattle industry there have been some very significant weather-related losses in the area. That has driven up prices to their historic highs but on balance it probably has hurt that industry, and that may have some degree of impact. Nevertheless, overall our District will continue to grow at a moderate pace, still better than the nation as a whole. On the national economy, in terms of the GDP growth we see things about in line with the Greenbook. We are a little less optimistic on consumption and a little more optimistic on residential investment. Overall, we don't really differ too much with the Greenbook. On the inflation front, our view is that inflation has come up a little but that doesn't really portend problems going forward, although I think it also says that our gains on inflation may have run out. So we're in this steady state and we'll have to make some decisions along those lines in the near future. Thank you.",326
-fomc-corpus,1993,President Syron.,4
-fomc-corpus,1993,"Thank you, Mr. Chairman. In terms of the District, things aren't very much different overall but there have been changes in the mix. I would note that several people have talked about this change in bench-marking of the state employment figures and that same pattern holds in our District as well; it seems to be true in most parts of the country. I don't know that anyone is going to feel that they were less ill during the recovery, but that's certainly what the data would suggest to some extent. Retail sales in the District continue to show improvement; that began in the Christmas season and there is some continuation more recently. There has been a fair bit of improvement in consumer durables--autos particularly, though, were affected by the weather. They are changing, as you might expect, the composition of auto sales. Four-wheel drive vehicles are very big and little convertibles are very small. Actually, this is exacerbating the trend toward the increasing competitiveness of U.S. vehicles. It's really quite striking when you talk to people who carry Japanese, European, and American cars. They really see the beginning of a dramatic change under way here. In the manufacturing sector, I'm quite struck by a differential pattern depending to some extent on the size of the manufacturer. The larger manufacturers such as United Technology, GE, Raytheon, Polaroid--not all defense businesses--really seem significantly more pessimistic in their outlook and are still planning to continue restructuring as they go forward, whereas the smaller manufacturers of instruments and pollution equipment and a variety of other [products] feel a bit more upbeat. Everyone seems a lot more concerned about the outlook overseas, particularly in Europe. We happen to have a lot of trade with Europe and there is almost no one with any real anticipation of significant employment increases. The real estate sector has shown some improvement. In Boston on the commercial side, rents have stabilized and actually have picked up a little. That's very uneven across the District; parts of Connecticut are still doing quite poorly. There is a substantial amount of homebuilding activity going on, with house prices rising. They're rising very much town-by-town depending on the availability of lots to build on and that kind of thing, consistent with other considerations. Banks are seeing some loan demand now, slightly more than offsetting the runoff. There's a real mind set--a bit too much I'd say--in some banks in terms of their view toward the future and wanting to get going on acquisitions and things like that. The nonbank financial sector--and we talked a fair bit to people in the mutual fund business--continues, as reflected in the data, to see very, very strong inflows. There is a lot of nervousness among the managers in that area because of the inevitable reach for yields and some concerns about credit quality spreads and about the market getting ahead of itself. One last comment on the state and local fiscal side: There will be a lot of pressure on localities because of having overspent their budgets due to weather-related [expenses] from the snow and [ice]. As far as the nation goes, we agree with the Greenbook. It seems to us that economic growth is ebbing and flowing around 3 percent. Right now, for a short time, it may be ebbing a little more than flowing. But it's always difficult to forecast and it seems to me that it's even more difficult in the current situation given all of the structural changes that we have going on. I have been struck in my conversations with people--again many of these people are in the financial sector--by how much more optimistic they are than perhaps a year ago on the inflation front longer term, but not in the short run. And a fair amount of that has to do with a kind of enhanced confidence in the Fed over time. It seems to me that there's not very much we can do in the immediate situation to enhance that confidence. That may be something that happens as the economy strengthens, which is really when people are going to look to see what we do. [Unintelligible] undoubtedly what we say and other things that we can do to diminish the confidence in the short run.",837
-fomc-corpus,1993,President Stern.,3
-fomc-corpus,1993,"Thank you, Mr. Chairman. Well, economic activity in the District continues on the more or less steady upward course it has been on for quite some time. At a recent meeting somebody used the phrase ""silently successful"" to characterize the District and I think that's a pretty good phrase. There doesn't seem to be any change in inflationary pressures so far as I can detect, but there are a couple of areas of spot labor shortages. I referred to this a little the last time; I've picked up a few more indications of it. It doesn't seem to be very pervasive at the moment but the fact that it exists at all has surprised me. There has been almost no discussion of the Clinton program that I've detected, certainly in its broadest terms. What people are mostly concerned about, as you might expect, is what it implies for either the military bases in the District or for the agricultural programs. I get the sense that whether they like the program or not, they're willing to accept it as long as they believe it's affecting the country more or less across the board. What they're worried about are the differential impacts that might affect the region. With regard to the national economic outlook, I have no problems with the Greenbook forecast both for growth and for inflation. What does concern me are some of the same issues that Bob Forrestal alluded to. I don't know, obviously, where the Administration is really going to come out with regard to trade policy or health care or industrial policy as it pertains to the airlines or technology or whatever. But it seems to me that those things all work in the direction of resource misallocation. While I don't know that they are going to be very significant quantitatively, they certainly cut in the wrong direction both in terms of growth and in terms of inflation, assuming that the Administration doesn't just go ahead and support NAFTA or GATT. And I'm worried that there are some things going on there that may not help the economy in the long run. Having said that, there's a question about why interest rates have finally come down. I think, as several people have commented, that it is due to more favorable expectations about future inflation; it's really a consequence of the conduct and prospects for both monetary and fiscal policy, given the way those things have evolved over the last 6 to 12 months. And I do think the credibility of monetary policy has probably improved a bit. I doubt that we could demonstrate that in any convincing way; that's just my sense of things. And I think that has been a principal factor in the decline in rates.",516
-fomc-corpus,1993,President Jordan.,3
-fomc-corpus,1993,"Thank you, Mr. Chairman. As for the District, conditions are very similar by sector and industry to what Si Keehn reported for the Seventh District. I won't repeat those kinds of observations except to add a couple of observations. One is on steel. While the orders are good and the production level is very high, and while there is a comfort level over the recent price increases and hopes for more, there is no confidence after midyear. There is a real concern that they've borrowed on subsequent activity. What they can see and what they can report are coincident or lagging indicators; there's nothing to suggest what [demand] might be out in the future. And that's similar for nonferrous metals; there's a lot of caution. They say the current situation is very good but that they don't know about the future. Motor vehicles are strong in a general way but in a specific way it's the Big Three that are doing quite well in the District, recalling workers and adding new labor. The transplants, the import manufacturers, are not doing well; their inventories are extremely high. The overall inventories look pretty good but that's because they're low for the Big Three. Their sales are good both for trucks and cars, but sales at the transplant firms are much, much softer. As for heavy trucks, they came into the year with a very good backlog but they say the rate of new orders has dropped off sharply recently. They're working off what they carried before. A bicycle manufacturer, a very major manufacturer, says they came through the fourth quarter quite strong; December was excellent and they came into January feeling good, but the orders just collapsed. As far as employment goes, state revisions are going to be different for us. We were reporting a decline in the state of Ohio for the 1991-92 period and that's going to be changed to a plus 1/2 percent. So, we never did have a decline in the recession period. In our meetings with small business groups, the capital goods producers are all reporting quite strong markets, especially those that sell labor-saving equipment. They say their backlog is good, both domestic and foreign. The services firms are in reasonably good shape, especially those in civil engineering and software supply; and the communications-related firms are in quite good shape. Most, though, when they say they have to hire put it in that sense of ""have to."" There is a great reluctance to add workers, especially low skilled. And they say they'll do everything they can to maintain their higher-priced labor and get rid of their low-cost labor. It's the entry level positions they want to automate out of existence. Now, there is a sophistication about what their true total cost is and what government policies are doing to their cost that's partly coming through. A concern frequently noted by the homebuilders recently is lumber prices and what they are doing to costs; the increases are extremely large and there is no reason to expect prices to go back down. On the national scene, there's certainly a mood of caution in the District. One major firm whose business is national--repair, maintenance, and renovation of aircraft, rolling stock, buses, and rail cars and so on--said that they had a very good backlog through the fourth quarter and coming into the year and then in February the phones stopped ringing. They feel it is because of concerns about national economic policy. They're hoping that turns out to be wrong or that it goes away. But they say there's just nothing new going on; they're working on what they have and they're extremely cautious. I subscribe more to the view about the 50 mile an hour head winds, which were holding us back before, rather than the view of at least some academics that it was restrictive monetary policy somehow measured that was holding us back. In my view what we've seen in recent months --through the fall and into the beginning of this year--is the dissipation of those head winds. And we shouldn't misinterpret that as sustained momentum if it is a one-time release from negative forces. I have no confidence that current monetary policy is geared right for that environment--that a 3 percent nominal fed funds rate will promote the kind of environment for growth that's in the Greenbook. And I worry that the head winds that were coming from all the restructuring--all those things that we talked about--are now being replaced by a fiscal head wind that is decidedly negative. I see no way to interpret fiscal policy other than as a negative shock to the economy.",901
-fomc-corpus,1993,Governor Mullins.,4
-fomc-corpus,1993,"In my view the economy is doing fine. The way I view the capital market environment is that the performance of the long bond market suggests that participants are not looking for unsustainable robust growth and accelerating inflation. As I look at the stock market it suggests to me that stock market participants are not expecting recession. Again, the quality spreads would also raise questions there. All this adds up to moderate growth in my view. The reduction in long rates should sustain housing and business fixed investment. We're starting to break through; there's some progress on employment in many parts of the country. There is still plenty of uncertainty with respect to the fiscal policy package and even more uncertainty about the health care package. And, of course, there are nagging concerns about protectionism, Russia, and our trading partners. I see many of these uncertainties posing risks down the road in '94 and '95. In '93 it looks to me as if the benign capital market environment we have should provide enough momentum. We have the lowest interest rates in several decades and the stock averages are within whispering distance of their all-time highs despite the hits taken by drug companies and biotech companies and multinationals. So, I view all of this as pretty consistent with moderate growth. With respect to inflation, we've made quite a bit of progress over the last couple of years and the underlying fundamentals suggest the likelihood of continued progress in gradually reducing inflation. There is ample slack in the economy both on the labor side and in terms of capacity utilization. Competitive conditions still seem tight. We've seen no sign of an unsustainable surge in activity or in supplier delivery times, or other sorts of measures. We have very subdued money and credit growth still. Even M1 has decelerated, so there seems to be little monetary thrust to inflation. So, I think we would all agree that the underlying fundamentals appear to be in place to sustain a continued gradual trend toward disinflation. The only thing that doesn't agree is measured inflation itself, which seems to show signs of rising from the grave, apparently oblivious to the fact that the Greenbook has pronounced it dead! It's not just the two consecutive core CPI numbers we've had. But in three out of the past five months core CPI has been 1/2 percent and over the past six months core CPI has been 4 percent. We've had 4 percent inflation over the past six months versus 3.3 percent in the 12 months ended in December. It's still early but, based upon these data, it's hard to convince oneself that we're safely gliding on the Greenbook path toward continued gradual disinflation. It may be hard to reject the hypothesis that instead we're on the Blue Chip highway of a gradual return to 4 percent inflation. Core PPI in the last two months was 4.1 percent and in the last three months 3.6 percent. The purchasing managers' inflation diffusion index, which had been below 50 for many months, jumped above 50 last month. Expectations survey data remain high. It is true that the implied forward rates have come down on the 10-year bond, but so have foreign rates. And the implied forward rates remain 200 to 300 basis points above those in Germany and Japan, and commodity prices are twitching. The CRB is up; lumber prices are up. Presumably this is due to the housing recovery, the spotted owl, and perhaps the paperwork requirements of FIDCIA! I'll leave more detailed analysis to my colleagues. I think there's some reason to be troubled by these trends. All of this could be an anomalous blip which will soon succumb to the disinflation forces described in the Greenbook. Indeed, we've had a couple of these episodes before, most notably in the early parts of '91 and '92, which were swamped by the trend and soon forgotten. What's different this time? It's already a bit longer-lived, six months at 4 percent. It's not just a first-quarter phenomenon. In the third quarter of '92 core CPI was 3.8 percent, which followed two quarters of 2.5 and 2.8 percent. So, this may be a little more; it has some commodity price increases attending it and a growing economy now. Still, I must admit that the notion of a reemergence of inflationary pressures is not confirmed by many other indicators such as precious metals; gold and other metals appear dead in the water. The ECI appears well behaved and wage increases are unlikely to swamp productivity gains, so that should assure that unit labor costs [will remain] in line. And I can't detect inflation fears in the long bond market. Of course, I don't think the long bond market foresaw the disinflation. So it seems to me, given the relatively high implied forward rates, that the long bond market 5 to 10 years out may have been looking at 4 to 5 percent inflation during this entire period. I do think at some stage that we may have to decide how seriously we want to take this index, the CPI--whether we want to take it very seriously or mechanically in a price level targeting sense. The Greenbook says not to worry: Core CPI after all the hand wringing will come in at 3.1 percent in '93 and 2.7 percent in '94. And the market appears not to take the CPI seriously. We know the index is not perfect; we've seen it made much like sausages and laws, which causes us to lose some respect for it. Still, there is some bottom line credibility to measured inflation. It's difficult to rebut with economic arguments saying it shouldn't be that high but it has been. And there is some risk in putting our faith too long in economic fundamentals. Before the next FOMC meeting we will receive two CPI numbers. If those are poor, we will be facing a 6- to 8-month trend, an embedded trend, of core CPI in the range of 4-1/2 percent to perhaps close to 5 percent. And I think that will raise significant concern that after all the progress of the past two years we may be back to where we started. A more mechanical perspective that we might think about is: If the near-term inflation outlook is really 4 percent or higher, as it has been over the past six months or so, then a 3 percent federal funds rate looks a bit low in terms of real rates. It's hard to reconcile this with the negative M2 growth so far this year, but I think we should think about it. If the Greenbook is right and we're really looking at 3 percent inflation, that's roughly a zero real rate; but if inflation is really 4 percent, as it appears to have been, then perhaps that's a significantly negative real rate. When I add this up I can't find a lot in the way of clear convincing evidence to be concerned about. We have as many well behaved inflation indicators as misbehaving indicators. Still, I'm slowly developing the uneasy feeling that if these trends are sustained for not too much longer, we're going to be forced to confront the difficult issue of whether we're satisfied with a return to 4 percent inflation--it may have arrived by the time we face this--and whether that 4 percent inflation is consistent with our objectives. Perhaps we're not there now but I'm increasingly concerned that the day is rapidly approaching when we will have to confront this issue. There is a risk of getting behind the recognition curve. I must admit that I don't relish confronting this issue in the current political environment. I'd hate to have a national referendum on the issue much less a local referendum on it, but I do have the sense that, obviously, in some fundamental sense this is the job for the central bank. And I'm getting increasingly uneasy that we may have to go to work soon.",1590
-fomc-corpus,1993,President Melzer.,4
-fomc-corpus,1993,"I have several comments to make on the District economy. First of all, on the employment side we're seeing much stronger growth statistically. We look at this on a 3-month moving average basis, so it's more than just the most recent month. One of the two big shifts there is that we're seeing reasonably strong manufacturing employment growth, which we hadn't seen up to this point. That had been slightly weak and we were offsetting that with nonmanufacturing employment. Nonmanufacturing employment is strong as well. So, at least for the most recent period we have a much stronger picture there. On the other hand, in terms of anecdotal information I've picked up the same things some others have mentioned. Since the announcement of the economic program, expectations have been dented a little. The uncertainty associated with that I think has undermined confidence a bit. In terms of credit demand, we are still not seeing a significant pickup at the larger banks but we are at smaller banks. We had a group of bankers in last week and [their reports were] a mixture; it was interesting to watch the bigger bankers listen to the little community oriented bankers who deal with small businesses talking about their increased credit demand. So, I think that's going on. One interesting comment that was made in that regard is that this demand is associated both with capital spending and in one case in particular with some inventory building. The banker associated it with concerns about building price pressures. It may be overstating to call it speculative inventory building, but I haven't heard comments like that for a long time. The final comment I would make about the District economy relates to the issue of price pressures. I have heard a number of comments recently about building price pressures. Just three months ago if you even brought up the idea of inflation, people looked at you as if you'd lost your mind. It's very interesting how quickly this has shifted. Some of it is in the obvious areas. Scrap steel is up in the first two months of the year by close to 20 percent, I think, and we've all heard the stories about lumber costs. Also impacting residential building, at least in the St. Louis area, are finished lot costs. The inventories are being run down; they're not being replaced and there are probably only a handful. I heard one person mention that maybe three developers could get financing to develop lots in this environment. That's not a credit crunch comment totally. I just think the nature of that business has changed. Probably some people have been washed out of that business who maybe shouldn't have been in it for the long haul anyway. In any event, I'm hearing more comments about price pressures, not just in places where one would expect but more broadly--comments by people just hearing about this [from various contacts]. On the national front, I'd associate myself with what Al Broaddus said and what Dave Mullins just said in that I don't think this is the time to take action, but I think we are in a difficult position in a sense. We don't have monetary indicators that we have a lot of confidence in and we're in a very difficult political environment. But I think the day is probably fast approaching when these straws in the wind that we're seeing now may really take hold--and maybe it's more than straws in the wind--and we will have to move. I was struck by what Mike Prell said in his presentation--I think this is what you said, Mike--that it wouldn't take much of an overshoot in nominal GDP to see greater price pressures.",708
-fomc-corpus,1993,Real GDP.,3
-fomc-corpus,1993,"Okay. In any case, we're going to have our work cut out for us in the not too distant future.",23
-fomc-corpus,1993,Vice Chairman.,3
-fomc-corpus,1993,"I have very little to add in terms of anecdotal-type insights. I think the tone at the moment is better. Nowadays when one talks to business leaders and community leaders about a 3 percent economy they no longer look at you as though you're from Mars. But having said that, I don't find many, especially among the big firms--for the reasons that Dick Syron mentioned--talking about even 3 percent being a shoe-in. But at least there is a clear central tendency of popular opinion. It's hard, whether from an anecdotal base or empirical base, to disagree with the kind of outlook that Mike has in the Greenbook, and I would not. But I still have this nagging sense of unease that things are either going to be better or worse than that rather benign forecast, and I can't decide which way it's going to be. I do very much associate myself with the comments that Bob Forrestal and Gary Stern made about some of the intermediate- to longer-term problems or potential problems that are sitting out there. Indeed, some of those things could turn out to be more imminent rather than further down the road than we suspect right now. And I think one has to stay at least sensitive to those. Like Dave Mullins, I cannot bring myself simply to dismiss these latest inflation numbers as nothing more than an aberration. Like Dave and others, if I look at the fundamentals it's very tempting to say it's just an aberration. But it's hard to dismiss. Now, one thing these numbers have done already is to make it a lot harder just to stand there and confidently say to somebody that, looking out over '93 or '94, the inflation rate is going to continue to edge down even as the economy does much better. You get the feeling that maybe your nose is growing as you say that. And that in its own small way is one of the reasons why I find it hard to dismiss those numbers out of hand. Partly for that reason but for some other reasons as well--and notwithstanding all that has been said including by my distinguished colleagues from Liberty Street--I think this long bond rally is vulnerable. I think we could see a turnaround in the long bond market. And I say that partly because of that nagging sense of uneasiness about inflation, but I want to go a bit further on that. It's quite right, of course, to take the indisputable view that the long-bond rate has a real component and an inflation expectations component. That's the Bible. But I don't think it's quite right to argue that the dynamics of the marketplace as reflected in the prices of those bonds in periods of 3 or 4 or 5 or 6 months dissect quite that neatly and easily in terms of what's driving investors, especially when the so-called professional investors have missed the whole thing as Bill McDonough said. When you look at the behavior of the bond market over the last 5 or 6 months, I think you have to allow at least for a phenomenon that isn't quite as neat and precise economically and logically as we'd all wish it to be. For example, you could put this on one of three levels coming out of the period of the election. There's one very, very unsophisticated view of things that simply says people started to feel better; I don't quite know why, but they began to feel better. And there's a slightly more sophisticated version of that, which to me seems consistent with Gary Stern's comment, that says: ""Well, at least fiscal policy is getting into the ball game here."" It has been on the sidelines for 12 years and they don't quite know what it's going to do, but it's going to make things a little better no matter what. And then, of course, there is the more sophisticated view that I think Al Broaddus brought up very early in the meeting and that is the net result of the Clinton package and all the rest leading to the view that there's distinctly less of a threat of forced monetization of debt over time and that is what's working its way back into inflationary expectations and fiscal policy being on the table and so forth. Now, having said that, I don't know where the truth lies. I don't think anybody knows where the truth lies. But if for any reason--and I'll get to the reasons in a minute--the public at large or the marketplace in particular conclude that something on the order of magnitude of the deficit reduction that is thought to be on the table cannot or will not be attained or that the whole program whether you like it or not is up for grabs, I think that bond market could turn around with a vengeance and in a hurry. Unfortunately, my own comfort level with those prospects is not as strong as I'd like it to be. Just as an example, if everything went according to Hoyle in the context of the deficit reduction effort and economic assumptions were perfect and there were no technical mis-estimates, Medicare and Medicaid costs alone behaving over the next three years or four years like they behaved over the past two years could easily offset most or all of the deficit reduction part of the Clinton plan. So, I don't think that [deficit reduction] is a shoe-in by a long shot. Now, I'm not ready to throw in the towel either. I think this is the best chance that we've had in many, many years to get some of this stuff done. But if there is disappointment in how it begins to evolve in practice, there are going to be a lot of people scratching their heads asking: ""Where did that wonderful rally in long bonds go?"" I don't think it's secure by a long shot. So, again, I am essentially as comfortable as I can be with the kind of outlook shown in the Greenbook, but I must say that the multiple sources of my uneasiness about how things may in fact work out are no less today than they were two months ago.",1193
-fomc-corpus,1993,Governor Angell.,4
-fomc-corpus,1993,"I'd like to take a few minutes to review the economy's performance in the monetary environment that has prevailed six months before earlier troughs in economic activity. As you know, we've eased the fed funds rate from 990 down to 300 basis points. What struck me when I reviewed this was that we only had the fed funds rate down from 9.90 to 8 percent six months before the [latest] trough. So a fed funds rate of 8 percent six months before the trough seemed to be conducive to blunt the downward momentum that the economy had at that time. We know that we had some head winds that occurred around the trough and after the trough. And yet monetary policy seemed to be succeeding in overcoming the head winds and getting economic activity up to a somewhat lackluster 1-1/2 percent annual rate of growth in the second half of '91 through the first half of '92. Then, I think it's important to note that we lowered the fed funds rate. In some sense we were trying to buy insurance as you will recall. We kept saying that we must be sure that we don't [falter] because this recovery is pretty tentative and the outlook is pretty precarious. So, we continued to buy insurance. But at the time when the recovery was beginning to take off in the second half of 1992 with a 4.1 percent growth rate, the fed funds rate was 4 percent. Over the first three quarters of the recovery, the average rate of expansion was 1.2 percent; the real growth rate was then 2.2 percent in the first two quarters of 1992 and up to 3.2 percent in all of 1992. And all this was occurring in an environment with a fed funds rate of no lower than 4 percent--that is, unless someone believes that monetary policy works faster than it seems to me that it works. Now, we know why we bought the insurance. And as we were buying the insurance of taking the fed funds rate lower we said that there seemed to be very low downside risks to taking the fed funds rate lower just to be sure. But there was all this talk about when the time comes, of course, we will pull that rate back up. The tough thing always is to know where we are on the monetary ease/monetary restraint path. It seems to me that monetary policy ordinarily needs to be in a slight restraint mode and ought to avoid having to be in a severe restraint mode. That is, we have made a mistake if we have to go to a severe restraint mode. Now, let's look at the indicators of monetary ease. It doesn't surprise you that I would use rising commodity prices. Let me give you some of the numbers. Our ex-food, ex-energy experimental index is up 20 percent year-over-year. It's up at an 87 percent annual rate for the first quarter. I put the numbers in my machine this morning to [include] yesterday's commodity prices so I'd have them almost into the first quarter and it was an 87 percent annual rate. Now, if lumber prices in this quarter are up at a 1000 percent annual rate, let's take lumber prices out and see what we have left. If you take lumber prices out then it's ""only"" a 33 percent annual inflation rate in the index and I would agree that lumber prices alone ought to be discounted as being a monetary phenomenon--",695
-fomc-corpus,1993,"You can take other things out, too.",9
-fomc-corpus,1993,"It's always so easy to take something out so one can say: ""I don't need to be worried about this."" Our total index is up 26 percent at an annual rate in the first quarter, given a very favorable energy price environment with energy weighted at something like 55 percent of the total. Then there are food prices, and I look at food prices because when we see these favorable unit labor cost factors there for us I think we have to know that that's really quite a positive. But we also have to know that when food commodity prices start moving upward as rapidly as they now are. And food commodities in our experimental index are now up in the first quarter at a 50 percent annual rate. Now, gold prices are no longer falling. In fact, gold prices are only 1.7 percent lower than they were one year ago. Gold prices have been on a downward trend for a long period of time as the world adapts to a different monetary policy environment. But gold has had a particular kind of technological evolution that is taking the United States from among the also-rans in gold production to the number two producer in the world with the new technology. That, of course, is unlike an equilibrium price for gold that would have occurred in an earlier period. That is, when we saw the price of gold get to $280 an ounce in the last decade, that was not in this environment with this new low-cost technique of producing gold. So, we're in an environment now in which U.S. gold production [incurs] variable costs somewhere between $220 and $250 an ounce. And naturally in this environment gold prices tend to move downward relative to other commodities. But gold prices have stopped that downward move. Now, I don't know that this 12 percent annual rate of increase in gold prices in the last six weeks is all that meaningful. Frankly, if it had not been for gold prices moving down, [I would have discussed this sooner.] That's kept me quiet on this subject for longer than I otherwise would have been. As for the second indicator of monetary ease: It seems to me that we're at a somewhat tepid foreign exchange value of the dollar in the face of the relative strength of the U.S. economy versus economies abroad. With our economy so much stronger and the other economies so much weaker and interest rates abroad coming down and interest rates in the United States being fixed, I'm asking myself: Why isn't the dollar stronger? That seems to me an indicator that we may have more dollars out there than we realize. The third thing I would suggest--Governor Lindsey already mentioned this prior to the meeting--is that short-term real interest rates are approximately at zero, and that seems to be an indicator of monetary ease. The fourth thing we have is an unprecedented steepness of the yield curve, which indicates that short-term rates have been pegged below the Wicksellian natural rate of interest. I may sound very eclectic today but I guess that's how I am. I suppose another perspective on that would be that a 3 percent pegged fed funds rate when the economy was moving at 1-1/2 percent is different from a 3 percent pegged fed funds rate when the economy is expanding at a faster rate. Even I remember the IS-LM analysis! We have to have disappointing PPI and CPI numbers. It worries me a little to be trying to run monetary policy based upon the CPI and PPI because those are not forward-looking enough, and the dangers that Governor Mullins mentioned are certainly apparent. Now, in this environment I think we have to recognize that the favorable employment cost numbers continue to be extraordinary. Also, commodity prices and steel scrap prices are rising--and by the way, Mr. Chairman, steel scrap prices are up 89 percent at an annual rate in the first quarter, though annual rates, of course, tend to get exaggerated. But I think all of us know that if labor costs are being restrained and if prices are moving forward, indeed isn't that a wonderful opportunity in regard to profit expectations. So, that causes me to believe that the economy may be stronger; and I continue to stand with my forecast, which is 1 percentage point stronger than the Greenbook's. Now, if the Greenbook [forecast] keeps creeping up, at some point in time it may get closer to mine. But I haven't moved mine up any since my Humphrey-Hawkins [submission]. Now, let me also look very briefly at three historical periods of concern. My first concern is: Where are we? I feel that we are in a position that is very similar to where the William McChesney Martin Fed was in 1967. The inflation rate was still in the 1-1/2 to 2 percent range and yet I think they ignored what they needed to look at and instead set the stage for that decision that had to be made to scrap Bretton Woods, in a sense turning the Fed's money printing machine loose as it was in the 1960s. But, clearly, when Arthur Burns became Chairman, we already had launched into an era in which some very severe choices had to be made. I'm talking about over-restraint. Those severe choices, of course, were not made and the U.S. economy suffered gravely from that era at the last of the Martin period and the first of the Burns period. I'd also like to look at a more favorable example from history, the Volcker Fed in 1984. Now, I think that anyone knew [the Fed had] to do what was done in 1981 and 1982, but to do what was done in 1984 was really unprecedented because the Volcker Fed at that point of time--and some of you were here--in a sense began to tighten up before they looked at the CPI and PPI numbers. They didn't wait until they had bad PPI and CPI numbers. I think Paul Volcker was always a closet commodity price watcher! [Laughter] And clearly he took the steps that needed to be taken in a preemptive way. And what that did was to lock in the progress on inflation. It meant that the double-digit inflation came down to 4 percent and they locked it in. It also meant that we introduced a period of rolling recession adjustment sector by sector rather than having the whole economy synchronized, and that prolonged the economic expansion. The last period in history I want to look at is one in which I participated--early 1987. I knew in January and February that I should be voting ""no"" to accepting a status quo monetary policy. I knew we had over-extended ourselves in regard to lowering the fed funds rate in 1986 and we did not correct it. But somehow or other in the mood of the time I went along. Now, I think we're at a very dangerous crossroads. We are pegging the short-term fed funds rate, and pegging the fed funds rate is a very dangerous exercise. We have to recognize that the fed funds rate may not stay in neutral very long, pegged as it is. I agree at least with Jerry [Jordan] that we shouldn't peg the fed funds rate, whether or not we agree on the direction it ought to go. Now, it seems to me that we ought to enter a period here in which we let ourselves in for a little trial and error, [moving] the fed funds rate in response to the outlook for economic activity. At this stage I don't believe that it is necessary to accelerate [our move to] the natural rate for fed funds--that has to be higher than the 3-1/2 to 4-1/2 percent range. I just say that now is the time to say that monetary policy is working and we need to [begin to adjust] it before the time comes to do something drastic because doing something drastic is always very disruptive to the U.S. economy. So, I think we're in a dangerous period. I don't know that inflation is going to rise to 4 percent; I think not. I don't think we have 4 percent inflation on the horizon. What I do think is that our progress to get inflation down low enough so that it [isn't a factor affecting] any business decision is now in jeopardy. And I think we have to bring restraint on board which gives us a chance to realize a continued diminution of the rate of inflation because 3 percent is really a very, very bad inflation rate. The newspapers say inflation is gone; they mean 3 percent. Three percent is terrible, and we have to keep on our course. If we don't keep on the course to get it to 2-1/2 and then to 2 percent, I'm quite certain we'll lose it on the other side.",1784
-fomc-corpus,1993,Governor LaWare.,4
-fomc-corpus,1993,That's a hard act to follow!,7
-fomc-corpus,1993,I measured the decibel level and Wayne is about 3 or 4 percent higher than his normal!,21
-fomc-corpus,1993,"Well, Mr. Chairman, to some extent I share the concerns that Governor Mullins and Governor Angell have expressed that we run the risk of hanging in here too long with this lower rate structure. On the other hand, forecasting in this environment is like trying to solve an equation with 23 unknowns. It seems almost impossible to assess accurately the full impact of President Clinton's economic and health care programs. But on the face of it, higher taxes and simultaneous cutting back in government spending have to be considered to be contractive. And while the full effects of the program won't be felt for some time and the financial markets have reacted favorably in the belief that it represents a credible attack on the deficit, we still have not seen what the full impact on employment will be of defense cutbacks and other spending cutbacks, including something that hasn't been mentioned here today and that's the armed forces personnel reductions, which are clearly going to contribute to unemployment. What worries me is the potential impact of these impending developments on consumer and business confidence. Now, we may be seeing a signal, a first signal of that, in the recent declines in the Michigan survey particularly as to consumers' expectations for the future. If in fact consumer spending contracts sharply and business investment retreats from present announced plans and if we get a dramatic enough slowing in the economy, there is the specter of a retreat from fiscal discipline toward outright stimulus that I think is almost inherent in this government, and a probable inflationary result. The realities of the situation I suppose will become clear later in the year; and certainly in my opinion a policy shift at this moment is not necessary. But I think we ought to stay on red alert.",339
-fomc-corpus,1993,Governor Kelley.,3
-fomc-corpus,1993,"Thank you, Mr. Chairman. First of all I'd like to thank David Mullins for his good balanced commentary on the inflationary outlook a few minutes ago and I certainly share [his views]. I must say that if we are looking at the re-emergence of some inflationary pressures, what scares me most about that is that we could wind up looking at it in a stagflation-type context. How did we get there? Well, I'm very encouraged by the comments that I hear from around the country that the uptrend continues and seems to be gathering strength. That's certainly good news and I share the feeling that I hear around the table that we're in less and less danger of having this economy swoon out on us. On the other hand, I don't see the economy as being very likely to run away on the up side to say the least. If the Clinton program goes through, we're going to be looking at some level of fiscal drag beginning to set in during '94 and [continuing] thereafter. The old constraints that we've been living with for a long time have not been excised yet. The 50 mile per hour head wind may have slowed down some to 25 or 30, but we certainly haven't gone into a calm. We have a lot more defense restructuring to go through. At least on the consumer side, if not on the corporate side, we have more debt restructuring to do in my opinion. The outlook for net exports certainly doesn't begin to improve over the forecast period and may be deteriorating further. The economy was carried by the consumer in '92 and I worry that the consumer doesn't really have that much reserve buying power building up yet. Consumer debt is off a little in terms of the service-to-income ratio, but that's mostly due to lower interest rates not to lower absolute levels of debt. As we know, the latter were at an all-time high recently and I guess they're still [close to] an all-time high even though they're off their peaks. But none of that leads me to believe that we can have much confidence that consumer spending is going to continue to carry us the way it has so far, particularly if, for whatever reason--inflation fears or whatever--interest rates begin to rise again. That could have an effect on the consumer and just about everything else, and we could possibly be a part of causing that to occur. Then, of course, there is [the question of] what the broader monetary aggregates may mean, and I certainly don't know what that may be. Nevertheless, they have been extremely weak and continue to be so; and as we speak they seem to be weaker than ever. Taken all-in-all, I think the Greenbook's path is the best one; I hope we get it; it's the most likely one. But if we are looking at the possibility of a re-emergence of inflation here, and we could be, then I really fear that stagflation may be the context within which it could occur. And that, it seems to me, would [cause us to face] some very, very special and very painful kinds of considerations.",632
-fomc-corpus,1993,Governor Phillips.,3
-fomc-corpus,1993,"Well, with a few uncertainties or exceptions, the economy appears to be showing signs of being in the upswing portion of a more traditional business cycle, although certainly not of the same strength that we saw in the fourth quarter of '92. We are seeing consumer purchasing continue; it's not surging, but it's at least continuing at a reputable pace. Employment is showing some signs of strength. We're seeing pretty strong corporate cash flows. Long-term interest rates, as we've discussed this morning, have finally come down, and the financial sector appears well positioned to continue to provide capital to a budding recovery. Prices are firming in some areas and certainly that has negative connotations, but it's also a sign of a strengthening economy. Now, given those traditional signs of an improving economy, I think there are some forces that are likely to continue to restrain [it and preclude] a more robust recovery; we're certainly seeing that in the monetary aggregates. The corporate and household restructuring is continuing and this is both balance sheet repairing but also on the operating side. I don't think we're seeing any diminution in the operating restructuring that began last year. We still have ahead the defense restructuring and the effects of that on employment. On inflation I had written down some nascent signs of inflation reoccurring, although after listening to Governor Angell maybe I should just say plain old signs, not nascent signs. I would have pointed certainly to some of the anecdotal evidence that has been reported--lumber prices and so on. We could probably find some story for every one of these things, but we can't keep throwing out pieces of the indexes. At some point, it all starts to add up. As for the international situation, [problems] seem to range from a very weak G-7 to a potential crisis in Russia. So, certainly that could have an effect on this economy. On the fiscal side, we really don't yet know what the full impacts of the fiscal package are going to be. And we have the health package yet to come. We all have great hopes that we're going to see the deficit reduced, but I think there's considerable skepticism as to how much deficit reduction in fact is going to occur as we move forward with this package. The taxes and redistribution effects may well be more contractive than some of us would like to see. In sum, I think we really can't be complacent about this recovery. Maybe a year ago we would have been glad to see a 3 percent type of recovery. But any one of these downside risks could certainly upset a very fragile consumer confidence situation and send the bond market into orbit again.",528
-fomc-corpus,1993,Governor Lindsey.,3
-fomc-corpus,1993,"Mr. Chairman, I think the comments to this point really reflect the divisions that we're seeing. It's almost a dissonance. So, I ask myself: What's wrong with this picture? We have a soggy economy and rising CPI numbers. We have a Greenbook that says one thing and Blue Chip forecasts that say another. We have commodity prices pointing toward a boom and a dollar which is weaker than it should be given the current economic situation. On the other hand, we have a bond market rally and [weakness in] M2. What I have to conclude from that is that we're probably looking at the wrong things. What I'm struck by as I go around the country--and this is how I tend to piece it together--are the regional [variations] in the current economic situation. What does that signal to me? It might mean that we could have a version of stagflation, but more likely--well, let me sum it up this way. The statistic called the unemployment rate outside of California--not to pick on a particular state but it's a good state to pick on when it's down--is 6.7 percent. That's a lot closer to NAIRU than our 7 percent sounds. And I suppose if we could pick out other states such as Connecticut, it would help us get the number down closer to NAIRU. In other words, in many markets of the country we are closer to what we call full employment than we seem to be when we look at a 7 percent unemployment rate [for the nation]. That might be why we're starting to see the CPI pick up a little. My mind was changed last week when I was in the Third District, which I never think of as a particularly booming district. But a number of comments were made to me. One was by I've already told this to my colleagues [on the Board]--a man I've never viewed as an inflation hawk. I was sitting next to him at lunch and asked him what his forecast was. And he thought that we easily would have 4 percent inflation this year. He's worried about labor market [pressures] picking up. Then I spoke to the dean of the school; he is a macroeconomist who has to negotiate. His theory goes something like this--again we're looking for what's wrong with this picture: That we have a change in attitude. [Unintelligible] workers have been rehired; the airlines have been told that they're going to receive loan guarantees; we saw what I thought was a humorous spectacle of going to the Administration and urging them not to impose import quotas. In other words, the tough guys are out and the easy guys are in and now's our chance to grab something. I don't know how much [credence] to put in that, but it does signal to me that when there is the capacity for people to ask for a greater wage settlement than they otherwise would or [for firms] to raise prices, the kind of hesitancy that we may have seen in the '80s is no longer there. My objective function is to maximize long-term growth. It seems to me that we might be nearing a point, and it might be today, where if a stitch in time saves 9, maybe 25 stitches today will save us 200 down the road. If that's the case, I would much rather see us signal that we are concerned about these inflation numbers than take another chance and find that maybe in 6 months time we do not have a 3 percent fed funds rate but a 5 or 6 percent rate. That's [unintelligible] from Larry Lindsey anyway!",740
-fomc-corpus,1993,It surely is.,4
-fomc-corpus,1993,I think we have cold coffee!,7
-fomc-corpus,1993,Mr. Dave Lindsey.,5
-fomc-corpus,1993,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1993,"Thank you, Dave. Let me start off by making a few purely self evident observations. One, at a 3 percent funds rate and effectively zero or slightly negative real rates, there is no way that we can stay at this level for any extended period of time without courting the types of problems that emerged in the late 1960s and the late 1970s. For us to fail to be fully cognizant of the mistakes that were made in the past would be extraordinarily unfortunate for the economy, the country, and a lot of its institutions. And when we do move, it's unlikely that everybody will cheer, needless to say; they never do. Indeed, if we waited until the cheering was there, we wouldn't be doing the job that we have to do and are called upon to do. In my judgment this is not the time to be immediately concerned about this problem. I do not disagree that the measured price indexes are showing some firming. I think, as Governor Mullins said, that the CPI is an interesting construct. If we take it apart in very considerable detail and realize how it is put together, our general confidence in its ability to measure prices does not get enhanced. It's like sausage meat. Nonetheless, it's measuring real things. A problem that I have with looking at the data at this stage is the issue that a number of you raised earlier--namely, that the cost structure is not going anywhere. The underlying materials costs are. There is a significant firming trend in a large series of materials prices and I think that's going to continue. I don't think we have seen the full effect of endeavors to increase profit margins from the price side in a number of manufacturing products, including chemicals, paper, and [others]. And I must say that I'd be most surprised if we did not see a firming in the general price level. The increases in steel prices very obviously are being significantly assisted by trade policy, which is as [dangerous] a process as one can get into; fortunately it [does not extend to] too many other places but it is a very dangerous type of policy, which I think we are all deeply aware of. I think everything we can see is exceptionally well behaved in the crucial area of labor costs, which on a consolidated basis obviously comprise the great chunk of our underlying cost structure. There is no ambiguity here; wage rates are clearly under control. And we are not yet seeing, despite our saying that we might, any signs of a significant pickup in contract wage pressures on the union side, which incidentally is now a very small part of the economy--and it's an even smaller part if you take out the government workers that have unions. The major area of wages in our system is basically outside the union area; and compensation, which is far more important these days than the underlying wages, is [not] under very significant pressures. One of the reasons we have seen such a huge increase in temporary versus non-temporary employment over the last several years is that the underlying cost structure is enforcing pressures to restructure, [inducing firms] to go to temporary workers to try to alleviate all sorts of costs. And basically that is succeeding. That is, unit labor costs clearly are under very significant restraint. Productivity is picking up in a fairly substantial way, and I suspect it is basically real. Having said that, however, it is a mistake to try to look at the price indexes or the cost indexes themselves as an indication of anything other than what history has been. I don't know of any really significant inflationary pickup that has been foreseen very far in advance. I might also add that I've never seen deflation foreseen very far in advance either. The forecasting capability in this area, especially through econometric models, is very dubious. The one major factor that gives me great concern about moving too fast in the area of restraint is that we have at this stage a still severely impaired financial system. The ordinary structure of moves that the Fed takes is usually to restrain credit growth. And the purpose of restraining credit growth is because we perceive very extraordinarily expanded credit as feeding the underlying inflationary fires. In fact, while we all talk in one form or another about NAIRUs and slack and the like, as far as monetary policy is concerned we are looking at or should be looking at the financial system because it is our job to restrain the expansion of credit before it becomes an inflationary force in the economic system. At this particular stage, there is absolutely no evidence that we have anything other than an extraordinarily restrained credit and financial system. Leave M2 aside; M2 is a different problem. We are not getting an aggregate level of finance that is anywhere near being consistent with very strong nominal GDP growth. What we find is that we are getting a significant profit margin opening up which is financing a good deal of the activity. [Businesses] are financing essentially from cash flow, not from credit. So, the way I look at this particular system is that I think at some point we are going to have to move; and I think we're going to have to move in a somewhat aggressive manner. It's just that I cannot get myself to believe that this is the particular point. I'm worried that if we galvanize ourselves too soon and the economy slips back or sags or if we should get two straight months of very low inflation, we will dissipate the vigilance that I think is required here. I'm worried that in endeavoring to move too soon or getting ourselves psyched up to move too soon we will find ourselves in the same position, though in exactly the opposite direction, that we were in 6 or 8 months ago. And I remember sitting here and saying in effect that unless the economy picked up in two weeks we would have to move. I knew at that time that if there had been a vote on the table to lower the rate structure, it would have passed. I'm saying to you that we have to be very careful about reacting to short-term numbers. The problem that I have is that I cannot get myself to believe--and I'm more than willing to be convinced--that we can have the type of accelerating inflation problems we've been trying to constrain without first seeing some evidence in the credit markets. If we're going to restrain economic activity without constraining credit growth, I say to myself: Well, we could stop acceleration in inventories but we are not going to do it with 25 basis points; we can try 400 basis points and that may not be enough. We can constrain the growth in capital investment by getting a significant reversal in the bond market, and I agree fully with Jerry Corrigan's concern. Frankly, if I were in the private sector at this stage, I would be having fits on the bonds in my portfolio. This bond rate decline is running faster than I think it probably should, granted the particular evidence. Then there is the stock market, which is high at this particular stage. So, I must say that I've listened to this discussion--and I've been in the forecasting business since the late 1940s--and I will tell you this business cycle is different from anything any of us has seen. It has different dynamics; it has different characteristics; and the one thing I cannot get myself to believe is that we are at the point where inflation has accelerated. I think we're going to get to that point; and if we stay at this funds rate indefinitely, we are inviting a major problem. It's just that I think the time is not this meeting. It may be the next meeting. David Mullins raises an interesting point that there are two CPIs to be released between this meeting and the next one. I must say I almost prefer that we make our next move out of a symmetric directive rather than an asymmetric one because I'm not sure in this context that we're going to be dealing with evidence that's going to become very clear except very close [to the time for a decision]. My feeling is that when we have to move we may have to do so with very little advance notice because this is such a different type of phenomenon. Having said all of that, I would like to put on the table that we do nothing at this stage; that we stay symmetric but recognize that the risks are on the up side from a policy action standpoint. I don't want to put that in the directive because if we were to move at this stage to an asymmetric directive tilted toward tightening, we would set in motion some of the other forces that we don't need. My view is that when we have to move that we should move and not get terribly involved in how we say it or how it is structured in terms of asymmetric directives or the like. So, I would say that my preference at this stage is to stay where we are and be vigilant. But I do acknowledge most of the issues that have been raised by Wayne Angell, David Mullins, and a number of the others here: That there is a potential here of our being caught behind the curve and that if we get caught behind the curve, we are going to have to catch up very quickly. As everyone knows, when you have to catch up you have to go faster and harder than you ordinarily would, and that's what usually causes the next recession. If I believed that's where we were at this stage, I would be jumping up and down [in favor of moving]. But I must tell you that when I talk to people and look at the details of what is out there in the economy and the structure of the financial system, the presumption that we are at the cusp of significant inflationary pressures does not yet strike me as credible. The next meeting I may say to you that I've now seen enough to say that something has fundamentally changed. I cannot in all honesty say that that's what I see out there now. So, that's my impression at this stage.",1994
-fomc-corpus,1993,"I could support that recommendation both for staying with alternative B and for symmetry for the reasons that you suggested, including the fact that we really don't know at this time whether the signs of inflation that we have are of a temporary nature or are more likely to be sustained. I do have a comment and then a question. The comment is that even with symmetry, we certainly have the capability of taking action in the period between now and the next meeting. The asymmetry would be mainly a communicating device which, of course, is communicated the Friday after the next meeting. So, if we have some concerns about what we should be doing [in the period ahead], I'm not so sure that acceptance of symmetry limits our field of action. Therefore, I can very easily--",152
-fomc-corpus,1993,Let me put it this way. It involves an implicit premise that the wonderful security that we've kept here for the last number of months will continue.,29
-fomc-corpus,1993,"Yes, but it seems to me that the symmetry does give flexibility. I have one question, though. For a long time we've talked about the advantages of being ahead of the curve and I think we complimented ourselves on doing that and talked about how that has served us very, very well. As I listen to this I get the impression that we may be rethinking that view and going in the other direction. I just wondered what you thought about that.",92
-fomc-corpus,1993,"No, on the contrary, I think if anything we were very cautious on the down side in trying not to be ahead of the curve. On the up side we have to be. I think that's in the nature of a central bank because if we are too easy coming down, we set into motion a secular upward bias [in inflation]. There should be asymmetry in that respect; we should be ahead of the curve on the up side and behind the curve on the down side.",97
-fomc-corpus,1993,But not too far ahead of the curve.,9
-fomc-corpus,1993,"Well, we can't be too far ahead of the curve because the markets don't give that much advance notice. Governor Lindsey.",24
-fomc-corpus,1993,"A question, if I could. Mr. Chairman, if we got a .5 [increase] for the next CPI or, say, a couple of .4s for the next two CPI numbers released before the next meeting, would you consider that sufficient evidence?",53
-fomc-corpus,1993,"I would say it's certainly significant evidence, but we'd have to make certain that--. Well, let me put it this way: The CPI strictly by itself and only by itself I'm uncomfortable with. If we don't get other evidence on the underlying cost structure of the economy or in the financial system that is confirmation, it's an interesting [question] of what is happening in those indexes. I don't know the answer to that; I don't think I have enough information in just the numbers you gave.",98
-fomc-corpus,1993,"If I could just ask a follow-up to that. I share what you said about the CPI. I wonder what the bond markets' reaction would be to our not responding to, say, a .5 number or .4 or even .3.",50
-fomc-corpus,1993,"Well, that is the consideration I think we'd have to be aware of. In other words, if we get evidence that is significant and of concern [to the markets], I would say that we'd have to move. If we were at a 5 or 6 percent funds rate, I'd say we probably could sit tight. But at this [funds rate] level I think the bias is [to move] since we know we can't stay here. I don't disagree with what Governor Angell had to say on the issue of [reducing inflation] from its current levels. But I'm hesitant at this stage to think in terms of hypothetical considerations. This is such a complex issue that we really want to know what else is going on at all times. But I do agree that if we are in a position where the markets think we should be moving against the CPI and we do not, we're in trouble. President Jordan.",185
-fomc-corpus,1993,"Thank you, Mr. Chairman. I'd intended to ask a question to Dave Lindsey but your analysis and the factors you cited just punctuate what is my concern about the decision that needs to be made and the criteria at this meeting and other meetings back to last fall. Specifically, I want to refer to the table on page 8 of the Bluebook and the associated analysis and to put it into a broader [perspective]. I don't know whether this is a question for the staff to answer or for the whole Committee to address itself to. I remember seeing this kind of table 20 and 25 years ago and it hasn't changed a whole lot. What role it serves is not so clear to me. The various monetary and reserve aggregates that are shown in the little matrix have changed over time. It's still a puzzle to me how this serves to guide the Committee in formulating a directive on a meeting-to-meeting basis. In the discussion before our break and in your own commentary now, I thought it was very interesting, with all of the discussion about inflation concerns and all of the other things cited, that there was virtually no reference at all to M2 or any other monetary dimension to that problem. I take it that the purpose of this table or the commentary in Dave Lindsey's presentation or Don Kohn's presentation when he's in that seat, is to guide the Committee on a tradeoff of selecting higher or lower fed funds rates and what we are to expect associated with that. But nobody is talking about reserve and monetary aggregates. And there was your own response to Senator Sarbanes in the last question of the Humphrey-Hawkins hearings about having your staff work with his staff to move away from M2 in terms of Humphrey-Hawkins or at least to supplement that by looking at other things. And I don't know whether--",370
-fomc-corpus,1993,"It was to supplement, not to move away.",10
-fomc-corpus,1993,"Supplement, right. I don't know what those other things are.",13
-fomc-corpus,1993,Nor do we at this point!,7
-fomc-corpus,1993,"Well, in the meetings during the fall I thought the discussion was clearly over real economic activity, output, nonfarm payroll employment, and jobless claims, with very little reference to where we were compared to money [objectives] as to whether we ought to lower the funds rate or not. And today it's a question of concerns over inflation with little reference to money and reserves as to whether we ought to raise the funds rate. So, does this serve any useful purpose at all or should we recast the input to the Committee that we get from staff in the Bluebook?",116
-fomc-corpus,1993,Is that a question!,5
-fomc-corpus,1993,"For Don Kohn maybe, but he's away.",10
-fomc-corpus,1993,"Oh well, I'll fill in for Don. I do think the alternative sentence that we gave for the directive concedes that the meaning of that table for policy implementation is not what it used to be when M2 relative to the Committee's expectations truly was a factor in decisions to alter the degree of pressure on reserve positions or the federal funds rate. It was not the only consideration but it was an important one in a way that one can't say is still the case today. So in that sense I think your insight is a correct one. The next question you also asked is: Okay, what other intermediate target variable then do we use as a substitute for M2? If I knew of one, I'd supply it. But I'm not sure there is a unique alternative intermediate target that could play that role, at least for a time. Down the road I think there's a chance that M2 or some other, possibly redefined, aggregate might show itself worthy of reasserting that kind of role. But I can't say that I can offer one today for you.",212
-fomc-corpus,1993,"May I ask a follow-up question to that? For some time now I have wondered if we pushed harder on the fed funds rate to reduce it whether that might just accelerate the disintermediation around the banking system and result in smaller values for the Ms rather than higher. But according to this, if we have a 3 percent fed funds rate, we will get a certain set of growth rates for the monetary aggregates; if we lower the fed funds rate 1/2 point we will get a faster rate of growth in the aggregates, and if we raise the fed funds rate by 1/2 point we will get a slower rate of growth in them. I question that, but my question is: Was this taken into account in the Feinman/Porter work, which I interpreted in part to cast doubt on this?",168
-fomc-corpus,1993,"Well, let me take a minute to answer that question because it is complicated. First of all, the answer depends on the lag that you look at. Here we're simply going out four months to midyear. There I think the evidence is pretty clear that we've got the sign right. Around the ends of the two prior years the System eased and we got big increases in money growth in February of the succeeding years. Indeed, it was such a large effect that we're now saying we think X-11 distorted our seasonal factors. So, I think over the short run, given the lags and how quickly deposit rates adjust downward, there clearly is an effect from the narrowing of the opportunity costs and inflows particularly into liquid accounts. So in answer to that part of your question I would say I'm confident of the signs for these near-term effects. It gets tougher as you go out for a year. You'll recall in the February Bluebook that we put together simulations that did show that a decline in the federal funds rate would tend to increase the rate of M2 growth over a year's time. You, I recall, asked Don if he thought that was reasonable and his answer was--I'm paraphrasing it--that it's questionable in the sense that we had to make the intermediate-term rate adjust down faster in response to a funds rate [decline] than is standard in the quarterly model in order to get a result like that. If you allow the intermediate rate to come down with the speed that we did in that simulation then, yes, M2 will increase. We used the Feinman/Porter model for that simulation; that's the result we got. It is interesting, as Governor Angell pointed out at that meeting, that nominal GDP [growth] was more responsive to the decline in the funds rate than was M2. In other words velocity in that simulation tended to rise when we lowered the funds rate. Nevertheless, that simulation was based on the Feinman/Porter model with an extraneous assumption about how long rates react to movements in short rates. Finally, and I'll try to keep this very short, my own view is quite different from the Feinman/Porter model. My own view is that that model attributes too much to interest rate spreads and attributes, therefore, too little effect to reductions in short rates over time; it has a very small interest elasticity because there are certain variables that it doesn't embody at all. And it seems to me that those variables were at work over that period pushing M2 down at the same time our easing moves were tending to support M2. In my view, the model doesn't fully appreciate the support that we were giving to M2 through our easings because it isn't quite rich enough to capture the omitted variables. So, my own personal answer to your question is: Yes, even over a year's time, there is an appreciable interest sensitivity to M2.",585
-fomc-corpus,1993,President Forrestal.,4
-fomc-corpus,1993,"Mr. Chairman, I think it's quite appropriate that several members have raised concerns about inflation in the future. After all, that is our responsibility. We need to be, in your terms, ""vigilant."" But I think we need to be vigilant on both sides of the equation. First of all, it seems to me that the evidence is far from persuasive that we are now in an inflationary cycle or even at the beginning of one. Secondly, it also seems to me that this expansion is really quite young; I don't know whether to describe it as being at a tender age or in its adolescence, but there is still a question as to its sustaining quality, although things are certainly looking better. So, having said that, it does seem to me that it is premature to make any move at this time. I think it would be a serious mistake for the Committee to take action at this time, so my preference is the same as yours--that is, to have alternative B with a symmetric directive. I would add that I would prefer the alternative paragraph for the directive to the one we've been using because of the uncertainties surrounding M2 and M3.",234
-fomc-corpus,1993,President Syron.,4
-fomc-corpus,1993,"Thank you, Mr. Chairman. I agree with Bob Forrestal. I think it's a good thing that people raised the concerns they have because I think maintaining our credibility is very important. I think 3 to 4 percent inflation is too high because it may creep up beyond that; the evidence in the past certainly is supportive of that. I strongly support [the view] that it is the wrong time to change for a variety of reasons, which I'd like to quickly mention. I look at the Bluebook--not just at page 8 and the questions that Jerry Jordan raised--but at table 2, which shows the credit flows over the last 6 months. And I have a hard time thinking that that has been very expansive in virtually any sector because I'm looking at bank credit but also at the debt measures. There just isn't a whole lot there. That, of course, is consistent with the weak Ms that we've seen. Also, we are in the early stages of a recovery and I think it's hard to say it has been overheated so far. There's a lot of uncertainty about these structural issues. None of us has any idea what this Russian business means, though I don't want to put too much weight on that. But beyond that, at least in my own mind, I have to think about how we affect prices and what determines inflation. And I don't think we can avoid [the conclusion] that the effects come through the real sector. There is no magic in this. I think, as Jerry and others have said before, on the way down we got prices down because the economy was quite soft; and I just don't see that we're in a position now--and of course this is what is reflected in labor markets--where there's the kind of impetus that's consistent with a longer-term rise in inflation. Having said that, I'll fully admit that that story is going to be way too old if the price numbers keep going up and we keep saying that it can't happen in the analytical framework we have. But I think it would be premature to move at this stage. I also would prefer the alternative language.",426
-fomc-corpus,1993,President McTeer.,5
-fomc-corpus,1993,"I agree with Bob Forrestal's desire for symmetric vigilance. Maybe another way of putting it is that we now have a policy equivalent of a kinked demand curve. We're not necessarily happy with the price that we have--that is, the fed funds rate--but there are great disadvantages in moving it in either direction. So, we're sort of stuck with it for a while. I was moved by the Mullins-Angell argument. I didn't expect us to be seriously considering tightening because of accelerating inflation, and that argument did make an impression on me. But for the time being I would prefer to follow Governor LaWare's admonition to remain on red alert in that regard. So, I support ""B"" symmetric with the alternative paragraph.",150
-fomc-corpus,1993,President Boehne.,5
-fomc-corpus,1993,"I think we have moderate, not robust, growth. We still have structural drags on the economy in the financial system; we have slack in labor markets and subdued labor costs; and we're facing a restrictive fiscal policy. While we need to be vigilant on inflation and avoid the mistakes of the past, we also need to look at the fundamentals when statistics are mixed. And I think the fundamentals still point toward an outlook of moderate growth and slowly declining unemployment and a still fairly persuasive case that inflationary pressures are likely to be held in check. When I add all these up, I come out with a constant monetary policy at this point, and I have a strong preference for keeping an even hand regarding what our next move might be.",146
-fomc-corpus,1993,Did you indicate a preference on the sentence?,9
-fomc-corpus,1993,The alternative is fine with me.,7
-fomc-corpus,1993,President Hoenig.,4
-fomc-corpus,1993,"Mr. Chairman, I support your proposal. My own view is that we're in a stage where we're looking at a moderate recovery. The issue is whether inflation will stay at the current level or begin to rise. We don't know at this point. And because we don't know, I don't think we should be acting as if we do. So, I would feel comfortable where we are and I strongly support symmetric language. I don't think we should be trying to tip our hand or anticipate at this stage. On the language, I prefer the alternative language at this time.",113
-fomc-corpus,1993,Governor LaWare.,4
-fomc-corpus,1993,"""B"" symmetric, alternative sentence.",7
-fomc-corpus,1993,A man of few words. President Keehn.,10
-fomc-corpus,1993,"Mr. Chairman, I would strongly support alternative B with symmetric language and the current language indicating specific growth expectations with regard to M2 and M3. We have been in an easing mode for quite some while now and a change in policy is going to be a very, very major change. Somehow the asymmetric language does imply a somewhat automatic shift. Well, perhaps not, but there is an implication of a somewhat automatic shift. If we do make a change, and it's entirely possible that we might, I would far prefer to do that from a consensus in the group, perhaps in a telephone call between now and the next meeting. But for now I think maintaining our current stance is absolutely appropriate.",139
-fomc-corpus,1993,Vice Chairman.,3
-fomc-corpus,1993,"I, too, would support alternative B, symmetric. Again, in the face of all these conflicting signals, I think we have to go back and look at the fundamentals. And the fundamentals, as best I can judge them, are still okay even though the risks have changed. Again, in the context of Governor Angell's earlier point, I don't remember '68 or '69, but I do remember '84 and '87. I might add '88; I think '88 was a watershed, too. In all three of those cases I was on the same side of the ledger, whatever that's worth, but in all three of those cases I had some conviction about the economy itself. I might feel differently six weeks from now but at least at this moment I still don't have that conviction about [where] the real economy [is going]. And it's for that reason that I prefer to stay where we are at least for a little while longer.",192
-fomc-corpus,1993,President Stern.,3
-fomc-corpus,1993,"I, too, support alternative B, symmetric language, and the alternative description of the monetary aggregates. Like many others, after the discussion before the break I re-thought the price situation and went back to fundamentals a little, recognizing that we're probably not going to be very good at getting the timing precisely correct. Most of these factors have been mentioned and I won't belabor all of them. But it seems to me that [we are in] an environment where most of the other industrialized economies are either weak or contracting, where labor markets here are relatively soft, and where fiscal policy is probably going to give us at least some dose of restraint; that just doesn't strike me as an environment in which inflation is going to accelerate for any durable time. I think we can certainly wait until at least May before acting.",163
-fomc-corpus,1993,Governor Kelley.,3
-fomc-corpus,1993,"""B"" symmetric, alternative language, Mr. Chairman, for all the reasons that have been mentioned.",20
-fomc-corpus,1993,President Broaddus.,5
-fomc-corpus,1993,"Mr. Chairman, I certainly accept your proposal. Let me just say, though, that I think the next several months are going to be a really critical period for monetary policy as you suggested in your comments. It seems to me that what's happening is that we are now moving from a somewhat tentative recovery into a period of mature expansion; certainly the chances are that that is happening. And this has been the period in the business cycle in the past when inflation pressures often and quietly have begun to build, even though there was some slack in the economy. As Jerry and others have suggested, I think the markets are going to be watching us very closely in this period to see whether we act to resist those pressures, if in fact they do arise. More specifically, they're going to be watching to see how we react to the increased risks of inflation even before we see undeniable evidence of it. And in that context Governor Angell's comments about the way we ran monetary policy back in 1984 and again in the 1987-88 period were right on the money. I don't want to overdramatize, but I don't think it's an exaggeration to suggest that the credibility we have fought so hard to establish--and I think we've done so successfully--over the last 10 years could well be on the line in the next several months. But again, as I said, I could certainly go with ""B"" and symmetric language. I agree with Bob Forrestal and you and others who expressed the need for some caution. But, frankly, if we get another month or two of crummy inflation data, I think we need to think about a change or at least a tilt toward tightening in the directive language.",345
-fomc-corpus,1993,Governor Phillips.,3
-fomc-corpus,1993,"""B"" symmetric. This certainly seems the time to keep our powder dry. I guess I have no objection to the alternative language; I'm not crazy about it.",32
-fomc-corpus,1993,Governor Mullins.,4
-fomc-corpus,1993,"First, with respect to the rate adjustment, there's not only the question of tightening to restrain inflation; there's also the question of aligning the rate with what might be considered the observed rate of inflation, which has been 4 percent for the past 6 months, and 6 percent for the past 4 months. It seems to me that there is some possibility that we've eased in real rate terms as this inflation rate has gone up; so, that's something to think about. In general I am concerned that if we get a couple of bad [inflation] numbers, the market will respond. And the market will also start to wonder whether we're still on the job. I don't feel comfortable putting our faith in a quirky index with no persuasive economic logic as well as indicators on the other side. There is some risk in putting [our faith] in fundamentals in the sense that we may reassemble in May and look back, if we do have a couple of bad numbers, on almost three quarters of an imbedded trend in core CPI at 4-1/2 percent. But at this stage I would support the Chairman's judgment to ride this out a bit longer before responding and therefore hold off. I don't know that there's much advantage in trying to signal with an asymmetric directive; we might as well make a judgment as we go along here. So, I would support ""B"" symmetric and the alternative language.",285
-fomc-corpus,1993,President Melzer.,4
-fomc-corpus,1993,"I could accept your proposal, Alan. As I think about the symmetry issue, we might as well take the heat when we make a move, not through some words. We've been to that movie recently and it's probably not worth it. There are two things that influence my thinking right now. I'd probably be more concerned if we hadn't seen the slowdown in M1, reserves, the base, and so forth over the last couple of months. As you know, I don't think those are an appropriate target for policy, but I do think they have some value as an indicator of the thrust, and they have slowed down. The other thing is that we're looking at higher inflation numbers, although David makes the point very well that we're still probably not looking at enough numbers yet to be sure. It's dangerous to overreact to high frequency data. But I agree with what Al Broaddus said, that if we wait until we're absolutely sure we're looking at inflation and expectations have become imbedded, it's very hard to catch up, as you said too.",209
-fomc-corpus,1993,Then we're several months late.,6
-fomc-corpus,1993,Yes.,2
-fomc-corpus,1993,Governor Angell.,4
-fomc-corpus,1993,"I agree with everyone on the issue of symmetry. You've got that right. I hope I'm wrong on the other score. I hope that I'm worrying about something that doesn't need to be worried about. I guess I'm also engaging in a confessional; I'm sort of apologetic for my past criticisms of the Martin and Burns Fed because [the job] really is tough. It's very easy to sit there and look backward and say: Why did they do that? The signs are very clear when looking backward; they are not so clear when one is looking forward. I certainly recognize how tough this kind of call is. But a few of the things you've said convince me even more of my position. I hear the Committee being satisfied with 3 percent inflation. I hear the Committee targeting 3 percent inflation. I hear the Committee saying if the rate of inflation doesn't go up, we are all right. Now, stop and think about this a minute. What that means is that the Committee is confining the periods of diminishing inflation to periods of economic slowdown and recession, which is just the opposite of what our responsibility is, it seems to me. Our responsibility is to apply the pressure that brings the rate of inflation toward zero continuously and gradually and consistently. That's what our job is. And I hear you saying that if the rate of inflation doesn't go up--and maybe it won't--we're okay. I'm not more pessimistic on the rate of inflation going up than the rest of you. I'm just very pessimistic about inflation staying at 3 percent, and [I'm concerned that] if it stays at 3 percent, somewhere in this expansion it'll go higher. The minute it goes higher than 3 percent, then we're going to put the brakes on and we're back to a stop/go policy. It really is very painful for me to be a part of this kind of operation. So I thereby step aside from so many people I respect. And I am willing to say that I am only the fool who sees it correctly! [Laughter] Choosing a fed funds rate is quite different from changing the fed funds rate by increments. If all of a sudden we dropped into the room and none of us had anything to do with where the fed funds rate is and we looked at the U.S. economy, at the world economy and at interest rates around the world, what rate would we choose for the fed funds rate? I wish, Jerry, that I could rely upon M2. I always wanted to rely upon the Ms. And I only left the Ms when the Ms left me! [Laughter] So, what we're doing here is that we're caught in an incremental creep. You see, in the Martin Fed it was those eighth of a point changes in the fed funds rate that they belabored over; in looking backward with hindsight we see that they were clearly out of the ball park in terms of what they should have been talking about. But we have the benefit of looking at that history and knowing that history. As for the bond markets, what I hear you saying is just setting the bond markets up for a real spill. If we act now, some of the people in the bond markets will say: ""What in the world are the people at the Fed doing?"" But they'll think about it, and I don't think that the bond markets will react by saying: ""Well, my goodness look what's coming."" Incremental creep, of course, gets the bond market participants to believe that the fed funds rate is not a random walk. Consequently, if we get behind and they make the first move, the bond market will say ""Here they come"" and then anticipate all the moves that are there because they will also see those price numbers that are going to cause us to act. I believe the fed funds rate ought to be set at such a rate that we would have just as strong a chance that the next move would be down as that the next move would be up. Otherwise, we're going to do the bond market in. But if we ask what should the fed funds rate be and say we should set it high enough that we would think the next move may be down because we really are in a fiscal mode change here--that I'm certainly very well aware of--it's possible that the fiscal drag in 1994 would be such that lower interest rates may very well be called for. But if we start off into this environment with the fed funds rate at 3 percent when we may need to be easing, I think we'll be lost. Finally, I guess I have only pretended to be thinking the way many of you think because I really don't. I really do believe in price level targeting. I really do believe that our job is somehow or other to mimic that wonderful golden era, the gold standard, in which money is restrained in such a way that people have confidence in money and its purchasing power, and thereby I'd like to see credit growth right out of the roof in an environment in which people know that they can depend upon the Federal Reserve to maintain the purchasing power of the dollar. So, Mr. Chairman, as no surprise to you, I choose alternative C. And I really don't care what you people do with your alternative language.",1055
-fomc-corpus,1993,Governor Lindsey.,3
-fomc-corpus,1993,"I'd say that was ""C"" symmetric!",9
-fomc-corpus,1993,"Mr. Chairman, I listened to what you said, and unlike Governor Angell, I'm not the fool who sees it the way it is; I'm probably the fool who sees it wrong! You stated, and I agree, that we now have an unsustainably low federal funds rate. You also stated that at some point in the future we're going to have to move and move aggressively. You also pointed out that slowing down an overheating economy through monetary policy is expensive. You mentioned inventories; you mentioned that 400 basis points would slow down real investment, and I agree with you--",117
-fomc-corpus,1993,I was saying: What do you do in an environment in which the credit markets are dead and you decide you want to slow down the economy? The question is: Why do you do it? The other question is: How do you do it? And I say that under those conditions you need extraordinarily stringent tightening whereas if you're responding against a credit expansion you can do it by increments.,77
-fomc-corpus,1993,And we are not now talking about a rapid expansion of credit?,13
-fomc-corpus,1993,When was the last time you saw inflation without support from the credit market?,15
-fomc-corpus,1993,The last six months.,5
-fomc-corpus,1993,"I think you're right on all counts, Mr. Chairman, but if we have an unsustainably low [fed funds] rate, wouldn't it be better to have a mild move now? The mechanism by which I see that being translated into the real economy is that, frankly, I think we have overextended financial markets. I think you said so yourself; you said you would be quitting the bond market right now. And you said that the stock market is quite high. There's probably not a lot of real effect from 25 basis points on the fed funds rate. I do think, though, that it is a signal to those markets that perhaps we think they are overextended. And I would rather raise the fed funds rate 25 points now to put a little cold water on them than to be in a situation in a few months where we might have to raise it significantly more. Again, I am saying that with full respect for your judgment, which is far greater than mine. I'm lucky that I am just a governor and not chairman; that perhaps gives me more freedom of movement. When it comes to other [developments that people] mentioned that are holding us back, fiscal policy and the international situation were mentioned. As for fiscal policy, this year the fiscal policy situation is not contractive. In fact, they've decided to postpone the tax increase in order to make it that way. The timing is probably smart from their perspective. With regard to international policy, the transmission mechanism from international weakness should be a strengthening dollar. That is what is going to restrain inflation in this country and it is not happening. And I am very concerned that it is not happening. When industrial production is rising 3 or 4 percent at an annual rate in this country and is falling at a 3 or 4 percent annual rate in every other country in the world, to have the dollar unchanged should be sending out alarm bells. So, I am not persuaded that those two factors, which should normally hold back inflation, are going to hold it back. Finally, the real reason that decided me to jump off the deep end and join my colleague is the point he just made. When I joined the Fed I had to go through the cells in my brain and ruthlessly rip out all those I had learned in college that said inflation is really okay. And I prepared a speech in which I wrote down every reason why I thought price stability was crucial. Unfortunately, I have now given that speech so many times that I actually believe it. [Laughter] The point is that what we are really saying--every one of us around the table said it, perhaps by indirection--is that it's fine as long as inflation does not accelerate, meaning that 3 or 4 percent is fine. Well, that should not be acceptable to anyone here. Three percent inflation is not acceptable. In fact, it's in my speech; I have managed to convince myself that 3 percent inflation is not acceptable. Furthermore, if it goes back up to 4 percent, then we go back to the situation where we ask what was gained by the last 5 years of monetary tightness. And the answer is absolutely nothing. And our friends out there who were my former professors will say: ""You see, we told you so. You can't hold inflation down; you can try for a little while at tremendous cost to the economy; but you can't hold it down permanently."" So again, Mr. Chairman, I have tremendous respect for your point of view and I know I'm voting in a tiny minority but I have managed to convince myself that at this point long-term economic growth without inflation can best be had with a small rise, maybe 1/8 point, in the fed funds rate.",758
-fomc-corpus,1993,You're taking alternative--,4
-fomc-corpus,1993,"""C.""",2
-fomc-corpus,1993,Alternative language?,3
-fomc-corpus,1993,Alternative language?,3
-fomc-corpus,1993,"Oh, I don't care. Yes, it looks fine.",12
-fomc-corpus,1993,"Okay. Let's try ""B"" symmetric with the alternative language.",13
-fomc-corpus,1993,"""In the implementation of policy for the immediate future, the Committee seeks to maintain the existing degree of pressure on reserve positions. In the context of the Committee's long-run objectives for price stability and sustainable economic growth, and giving careful consideration to economic, financial, and monetary developments, slightly greater reserve restraint or slightly lesser reserve restraint would be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with a resumption of moderate growth in the broader monetary aggregates over the second quarter.""",99
-fomc-corpus,1993,Call the roll.,4
-fomc-corpus,1993,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell No President Boehne Yes President Keehn Yes Governor Kelley Yes Governor LaWare Yes Governor Lindsey No President McTeer Yes Governor Mullins Yes Governor Phillips Yes President Stern Yes,48
-fomc-corpus,1993,Okay. The next meeting is--,7
-fomc-corpus,1993,May 18th.,5
-fomc-corpus,1993,May the 18th.,6
-fomc-corpus,1993,"Good morning, everyone. There are going to be thunderstorms this morning, but I trust that we can integrate them in an appropriate [unintelligible] that is in sync. The impression I get is that the authorities up above, knowing that this is Jerry Corrigan's last meeting, have decided to let us know they are aware of that. If anyone can read the drumbeat as to whether it's pro or con Jerry, please let us know. We, of course, are going to be having a farewell lunch in Jerry's honor in Dining Room E after the meeting. Let me say before we start: You may recall that a number of meetings ago I raised some questions about the security of this operation which--to use a kind word--was ""dubious"" for a while. I think our record in recent months, indeed pretty much back to the end of last year, really has been extraordinarily good. I cannot honestly say that I have seen a comment that I would unambiguously read as coming out of an FOMC meeting. I think you are all aware that what will be going on here today has very considerable interest outside. So, all I would suggest is: Let's not lower our guard. Let's be cautious, and I think we can fend off the clever endeavors on the part of a lot of our media friends on the outside who will try to infer how this meeting came out. I don't request anything new; I think what you've been doing is fine. Let's just have an awareness not to let our guard down inadvertently. I will raise some questions [later] in the proceedings when we get into our discussions about exchange rates, concerning which I have a memo from our colleague, Ted Truman. I'd like to read it to you so you will be up-to-date on what the issues are. It relates somewhat to this confidentiality issue but it's not directly in that context, so I'll leave it for later. Shall we start off? I ask for a motion to approve the minutes for the meeting of March 23.",409
-fomc-corpus,1993,So moved.,3
-fomc-corpus,1993,Is there a second?,5
-fomc-corpus,1993,Second.,2
-fomc-corpus,1993,"Without objection. Al Broaddus, I assume, is available at the moment to give us a rundown on the very interesting work with which his group has been involved.",34
-fomc-corpus,1993,"Thank you, Mr. Chairman. I'll be brief and just give a quick background. Members of the Committee will remember that about two years ago at the July 1991 meeting it seemed pretty clear that the economy was beginning to recover. And I think most members of the Committee recognized that somewhere down the road the Committee was going to be faced with the prospect of rising inflation pressures and the possible need to change the direction of policy toward restraint. In the environment as I remember it, Governor Angell asked a very reasonable and straightforward question, and that was: If and when that time arrived, would such a move be facilitated by a change in our operating procedures away from the current procedure of conducting policy by controlling the funds rate very tightly? Would we change perhaps in the direction of a more automatic adjustment of the funds rate in response to emerging inflation developments or other economic developments or perhaps along the lines of the nonborrowed reserve procedure we used between late 1979 and late 1982? In any case, we got a group of System economists together and we produced two volumes as your answer, Governor Angell. It's a lengthy response but I think an interesting one.",234
-fomc-corpus,1993,Is he going to have to take an exam on what's in those volumes?,15
-fomc-corpus,1993,"I think I may have to take an exam on it at some point! Actually, a shorter answer was delivered at the next meeting of the Committee in August of 1991 when Don Kohn summarized a memorandum that Dave Lindsey had prepared. That memo reviewed several alternative procedures that might assist in the next change in the direction of policy. Just very quickly: One set of those alternatives would have deliberately caused somewhat greater movement in the funds rate in the short run in an effort perhaps to camouflage or disguise when an increase in the rate might be taken; this might soften or at least stretch out the market and public reaction to the move. The second set of alternatives would have involved tying the funds rate, or perhaps a borrowed reserve instrument, in some way to deviations of M2 from its target. The memo also noted that in an automatic procedure we might want to substitute total reserves or perhaps the monetary base for the funds rate as the operating instrument. In any case, at that August 1991 meeting the Committee discussed all of these alternatives. And, of course, the memorandum pointed out that there were disadvantages as well as advantages according to the tradeoffs involved. The Committee I think also recognized that the current unpredictable behavior of M2 might cause some difficulties with some of these alternative procedures that would not have existed so much in the past. In any case, all of this was brought out and in this situation the Committee mandated a more broadly scoped study, similar to studies that had been done along these lines in the past. We had one in the early 1980s and another in the early 1970s. This broader project was carried out in the second half of 1991 and the first half of last year. It culminated in a very interesting two-day conference at the St. Louis Fed in which 16 papers on this topic, along with formal discussions, were presented. Economists from the Board staff and all of the Reserve Banks participated in this conference. We also invited two prominent outside monetary economists, Ben McCallum from Carnegie Mellon and John Taylor from Stanford, to participate in the conference--actually to comment on particular papers and in both cases to give an overview. Both wrote papers giving their overview comments on the research and its implications. All the papers prepared for the conference, including the discussion papers and the Taylor and McCallum papers reviewing the overall conference, are included in this two-volume study. You should have received these volumes last week as well as a summary of those proceedings, which I hope you will have an opportunity to read if you haven't done so already. As the summary indicates, the study did not attempt to arrive at specific recommendations as to alternative procedures that the Committee should adopt. I think we recognized rather quickly when we got into this that it would be unrealistic to try to do that in this study. What we tried to do was to lay a solid analytical foundation on which such a discussion and decisions could be based. Frankly, we concluded that we have produced a very solid foundation for that kind of consideration if the Committee wants to take that next step; I think we've covered the subject comprehensively. Many of the papers used state of the art research techniques in reaching their conclusions. In any case, the summary document that you should have describes several of the more formal papers in some detail and it presents five broad conclusions. I'm not going to go through those in any detail but let me just paraphrase them. First, we studied the operating procedures in a number of other major industrial countries. We found that most of them employ procedures that are similar to those that this Committee uses but we also found that some differences of detail exist. And if we take the next step, we might want to consider whether there are any significant advantages to adopting some of these procedures. For example, I have in mind something like the Lombard facility that the Bundesbank has available. Second, in view of the current problems with the monetary aggregates as indicators of policy, in this study we looked at a large number of alternative indicators of the thrust of policy and future economic developments to see whether we might improve the execution of policy by, in some more systematic way, taking account of some of these variables in conducting policy. I have in mind here variables like bond rates, yield curves, commodity prices, and a number of others. Not surprisingly, no single indicator jumps out and says ""I'm the one on which you should focus all of your attention."" But we did learn that certain indicators do seem to do a better job over particular time horizons than others. So, we did a bit of filtering that I think is useful there. The third and perhaps the most important conclusion we reached is that a case can be made that the Committee's current procedure of adjusting the funds rate in response to a variety of indicators can be used successfully over time to achieve the principal objectives of monetary policy. I think a lot of people, like Dave Lindsey, suspected that before the study was done. But the study provides very important and very solid analytical confirmation in support of that conclusion. However, and I can't emphasize this enough, the effectiveness of our current policy regime depends critically on the maintenance of the credibility of the System's longer-term policy objectives. Fourth, some model simulations that were done for the study indicated that a feedback mechanism to guide policy might be of some assistance in improving our results without creating a lot of undue short-term instability. Several papers in particular looked at feedback mechanisms where either a funds rate instrument or a monetary base instrument would be [varied] in some systematic way in response to deviations of nominal income from a target--for example, the Humphrey-Hawkins projections that we put forth twice a year--that might be set. Fifth and finally, research done for the project indicated that greater transitory deviations in the funds rate permit targeting that would characterize some of these alternative procedures but not necessarily be transmitted to greater variability in longer-term interest rates. So, that possibility should not prevent us from looking at some of these alternative procedures if we wished to. In any case, Mr. Chairman, those are the principal conclusions. Again, I think this study positions the Committee to take the next step, and it would be a fairly straightforward step of looking at particular changes we might make. Let me take this opportunity to thank everybody who was involved in the project but express particularly my appreciation to Marvin Goodfriend and to Dave Small of the Board's staff who did a tremendous amount of work in editing these papers.",1304
-fomc-corpus,1993,Thank you.,3
-fomc-corpus,1993,I'd be happy to try to answer any questions anybody has and I'm sure Marvin and Dave could help me with some of the more technical ones.,28
-fomc-corpus,1993,"I must say I didn't have a chance to read the fat books but I did read the summary, and it really is useful in segregating the various types of problems that confront us. I'm not saying that I feel overly encouraged about different means that we could employ other than what we are doing. I guess we all hope that somewhere down the line we're going to be able to deviate from ""funds only,"" if I may put it that way, as a policy. But I think the type of data systems that you set up for an evaluation will enable us to continue until we can fundamentally come to grips with a view that presumably for us [fed funds] continue as our optimum operating policy procedure. Questions for President Broaddus? [Hearing none,] I guess everybody has read the two books and all the questions have been answered!",170
-fomc-corpus,1993,"Thank you very much, Mr. Chairman, for the opportunity to summarize the study.",17
-fomc-corpus,1993,"And thank you very much, indeed. We'll now move on to Gretchen Greene and operations of the Foreign Desk.",23
-fomc-corpus,1993,[Statement--see Appendix.],6
-fomc-corpus,1993,"Thank you very much. Let me just add something about that intervention episode. It resulted from fairly close coordination between the Fed and the Treasury. When we began over here to see the spillover effects on the exchange rate, on the bond market, and on the stock market, the notion of a deterioration in confidence became, I think, somewhat more evident than it had been previously. We had been arguing here that we had a necessary condition to get a response in the market from intervention because the market did not expect intervention, meaning it was net short. And in our discussions with the Treasury we suggested that a two-pronged approach be initiated that day. One was to intervene moderately in the market but visibly. This clearly came as a surprise to the market; just watching the screens one could immediately see a variety of the shorts begin to cover. Concurrently, we knew that there were opportunities for both Messrs. Bentsen and Summers to make remarks that day, considering the fact that in the period immediately preceding, the President--and obviously even earlier Secretary Bentsen and Secretary Brown--had made comments which suggested, as Gretchen pointed out, that there was perhaps some concerted American policy to strengthen the yen. The truth of the matter is that no such policy existed. These were in the nature of ad hoc comments by commentators who were not discussing American policy, but really were observers of the scene who concluded that history tells us that if the exchange rate of the yen rises, the Japanese surplus will fall. In fact, we are not certain what would happen. Indeed, my suspicion is that if we actually tried to create changes in exchange rates by consistent intervention, the secondary consequences in the markets, mainly in the expectations area, would very likely make the correlations which are fairly robust between real exchange rates and current account deficits break down. So, what we were trying to do was to indicate that these comments were nothing more than academic discussions about relationships. I think we were about 20 percent successful, which is about 10 percent more than I would have thought. But it came out pretty well. In fact, I told [my colleagues] that I thought the [outcome] that day was about as good as it gets in this endeavor to intervene in the markets and not to expect that there is an easy process here by which one can readily manipulate exchange rates. To his credit Larry Summers, who is very knowledgeable about all of this, has been very cooperative with us; he has made certain to keep us fully informed about any issues and discussions that they have been involved in, and we have tried to reciprocate. Hopefully, that process will continue. Any questions for Gretchen? Tom.",541
-fomc-corpus,1993,"Gretchen, in the [written] report there was a comment about the [market's] vulnerability to the dismantling of these longer-term investment positions--and you just mentioned it in your remarks--in Europe in particular. Do we have any sense of the magnitude of that, what dynamics might drive a liquidation, what the impact of that could be, and so forth?",76
-fomc-corpus,1993,Are you talking about intra-European investment positions?,9
-fomc-corpus,1993,I'm talking about investment positions in U.S. dollars.,11
-fomc-corpus,1993,"Well, in reading the Greenbook last night I noted that there have been some persistent foreign purchases of U.S. government securities in the first quarter of the year at the same time that there has been a continued very high level of U.S. outward investment. So, in effect, one could see this as financing our capital outflow. The liquidation that I spoke of--the Japanese investments--will probably at least in the first instance not be U.S. dollars. Nevertheless, it had an effect on the dollar exchange rate because they liquidated, let's say, Canadian dollar securities, received Canadian dollars, and converted that to U.S. dollars; the dollar was a means of exchange for getting back into yen. We thought they were relatively easily shaken out of the Canadian dollar market; there was also some Australian dollar intervention by the Japanese. The market has been talking about the Japanese more as a vulnerability than an actuality as far as U.S. bond markets are concerned. My feeling is that, with the somewhat better climate that exists now in the middle of May than existed at the beginning of April, they are more secure now. But that's just a personal impression. Bill may want to say something [on this issue].",244
-fomc-corpus,1993,"Let me just add a footnote. [In the period] before the intervention that Gretchen described and the Chairman commented on there's no question that the Japanese were not resisting rumors in the market reminding the United States that Japanese life insurance companies held a lot of rather long Treasuries and that if they dumped them, the price to the United States would be rather high. As soon as the intervention took place, all of that talk disappeared.",88
-fomc-corpus,1993,"Mr. Chairman, to what extent is it your judgment that the success that day was due to the fact that it was largely not trade or even capital fundamentals but senior administration official statements that were driving the market?",42
-fomc-corpus,1993,Do you mean before or after?,7
-fomc-corpus,1993,"Well, before having driven the dollar down and that, therefore, we were successful with our intervention.",20
-fomc-corpus,1993,"Well, remember, the statements came after the intervention. The intervention was a perceived success, if one puts it in those terms, before the statements were made. But I think the statements reinforced it; that in large part turned around the concerns that existed. It was probably not that it moved the dollar higher, but that it may have forestalled an erosion of some of the gains that had occurred earlier in the day as a consequence of the intervention.",90
-fomc-corpus,1993,I agree.,3
-fomc-corpus,1993,"Any other comments? Let me just take a minute to fill you in on some comments that I heard at the Basle G-10 meeting the weekend before last and early last week. There was quite an extraordinary number of subdued people in Europe; there is an underlying fear that that system is continuously eroding. They are continually revising down their estimates; they are talking as though the upturn is somewhere off in the future, whereas earlier in the year they were talking--in sort of government-speak--about the turn being at hand and the official forecasts were [being revised] up. The mood was really quite a good deal more subdued last week. They're particularly concerned about the shortfalls in revenues impacting on their budget deficits. The French were, I think, particularly traumatized by that. The mood is really very soft--if anything, the worst I've seen this year. The British obviously are feeling somewhat better, but even among the Brits a slightly hollow cheerfulness is evolving. In any event, let me turn for a minute to an adjunct on this exchange rate discussion and read to you three points that Ted Truman is recommending relative to our discussions about exchange rates. It comes basically out of the experience that we've observed first with Secretary Bentsen, then the President, and then Secretary Brown. Item one: Exchange rates are like interest rates, and if a central banker discusses one, the central banker will be understood to be discussing the other. The best comment for the Federal Reserve is ""no comment."" [Item two:] We are going through a delicate period in terms of exchange rates and, any talk, no matter how analytical, is likely to take on exaggerated importance. Even a ""no comment"" from someone who has previously commented is a comment. My answer is that the best way to handle that is to ask the reporter ""May I go on deep background?"" Then, when they shake their heads, I say ""no comment."" Item three: The new Administration, or at least those parts of it with which the Federal Reserve deals regularly, is sensitive to the fact that talk about exchange rates, loose or any other kind, tends to be unconstructive. While it would be foolish to think that the Treasury Department would be able to shut down entirely all other sources of Administration comment on exchange rates, it is somewhat embarrassing if the Federal Reserve becomes part of the problem. Of course, the Treasury from time to time may feel it is necessary to make an official comment on exchange rates, but we hope that those comments are deliberate and well considered. The recent record shows that the Treasury is prepared to work with the Federal Reserve on such occasions. That's the end of Ted's comments and I must say I fully subscribe to them. Let's move on. We have to ratify the actions taken by the Desk with respect to intervention against the yen. I would ask somebody to move it.",580
-fomc-corpus,1993,I move it.,4
-fomc-corpus,1993,Is there a second?,5
-fomc-corpus,1993,Second.,2
-fomc-corpus,1993,Without objection. Let's move to Bill McDonough and the operations of the Domestic Desk.,18
-fomc-corpus,1993,[Statement--see Appendix.],6
-fomc-corpus,1993,Questions?,2
-fomc-corpus,1993,"In the context of what the market views as good news and bad news and how it might move the market, how would the market react to a tightening of Fed policy in the near term?",38
-fomc-corpus,1993,"Assuming it would happen soon enough so that we have the present market conditions--the short end is priced on the 3 percent funds rate--the likelihood is that interest rates out to two or three years would probably go up. I think [a tightening] would probably bring the yield on the 10-year bond down a little because it would be interpreted as the Fed being both active in fighting inflation and very concerned about the economy. I think you would get those two reactions. What it would do to the 30-year bond is really hard to call. If investors became convinced--making that distinction I made earlier--that economic growth is likely to be low and that the Fed is very concerned about inflation, my guess is that the long bond would probably go up in price and down in yield. But at the present time it's really being played essentially by hedge funds and various other speculators, and in their hands it could go either way. It would depend an awful lot in the longer end of the market on whether the investors were back in. If they were, then I think we would get a flattening of the yield curve--short end up and longer end down.",236
-fomc-corpus,1993,"Bill, what is in market expectations now in terms of the deficit? There has obviously been some change in that, but I'm trying to get some view of any likely disappointment or, conversely, a pleasant surprise.",43
-fomc-corpus,1993,"It has improved a little in the very recent past by Mr. Rostenkowski getting the bill through the House Ways and Means Committee in the shape that it did. And I think the market assumption now is that the House will pass the Ways and Means bill. Then it shifts over to the Senate, and the market is somewhat confused about that. There's no doubt that a fair piece of the rally through March [reflected the view] that gridlock was not likely, that there was a serious effort to reduce the deficit, and that the new Administration had the kind of political skills that they showed in winning the election. What has happened is that that view has flipped a lot. The market went from thinking that the Administration could do nothing wrong politically to a view that, well, maybe it can't do anything too well either. So, I think one would [unintelligible]. But the pricing in the market--the fact that we're in the same trading range--in my view would say that the market view is still that the deficit reduction will happen.",213
-fomc-corpus,1993,You indicated that the market reaction to the shortening of the maturity of the debt was muted. Was there much discussion as to the motives for shortening? Has it been received well by the market? I know there wasn't much of a move in rates.,49
-fomc-corpus,1993,The general reaction has been that it was motivated by the desire to reduce the deficit.,17
-fomc-corpus,1993,Short term.,3
-fomc-corpus,1993,"Short term. And since most market experts, or at least so-claimed experts, advised against the move, they talked to their [unintelligible] and said it was a bad idea. It did not go over well.",47
-fomc-corpus,1993,"Any other questions for Bill? If not, would somebody like to move to ratify the actions of the Desk?",23
-fomc-corpus,1993,So moved.,3
-fomc-corpus,1993,Do I hear a second?,6
-fomc-corpus,1993,Second.,2
-fomc-corpus,1993,Without objection. We now move to Mike Prell. Mike.,13
-fomc-corpus,1993,"[Statement--see Appendix.] Thank you, Mr. Chairman. I apologize for the unusual length.",20
-fomc-corpus,1993,"Well, this is a very crucial period for us. And even though Mike Prell went on at some length, I'd like to weigh in and add to his comments. Let me just say in looking at these data that I come out with the same concerns you do, Mike. The problem that we're confronting is one in which we have to be able to understand what is causing the price movements we are seeing here that have deviated from our most likely expectations. I think we can rule out that the usual money and credit phenomenon is pushing inflation. We can barely find the figures even though they've come up a bit; we have a very faint pulse but not much more than that. You raised interesting questions about the labor market slack issue and I do agree that there's something there, especially the size of the defense adjustment that's going on. But there, too, it is rather tough in my view, with the excess capacity especially abroad and the labor market questions that we have here, to argue readily that there is something of significance working. There are some elements that I think do clarify the issue. One is that profit margins very clearly have been rising, and rising quite significantly. In the context of coming off rather weak demand, and a cumulative weak demand, it's pretty apparent that there has been a considerable endeavor to restore margins from subnormal levels and that this process is [being reflected in] very formidable profit figures that continue to emerge not only for the industrial sector but pretty much across the board. We probably haven't run through that process as yet but it's obvious that the higher profit margins get, the less they can be expected to continue to move higher. And correct me if I'm wrong, Mike, but in the Board's model, as margins rise, the pressures on prices fall. The high margins imply that we will begin to get softer prices as the momentum from the rising margins ceases to be able to be carried through. I don't know if we're there yet, but there is something very specifically there. An issue you didn't discuss that I do think is of some importance, but frankly I don't know the order of magnitude, is the protectionism that has been emerging very subtly but in a pronounced manner. There is no way to describe the steel price increases of late other than [as a reflection of] protectionism. This is not an issue of there being available supplies from abroad that are pushing our prices down; but squeezing the amount of imports enables the domestic mills to move their prices significantly higher. Needless to say, they have done so with alacrity. And while [the importance of] steel isn't what it used to be, it's nonetheless enough to have an impact in the durable goods pricing structure that is visible. Remember that almost by definition durable goods means ""made with steel."" And that really tends to spread [the effects] out in a particularly long line. I don't now what the regulatory costs are but as we were discussing in a Board meeting the other day, I'm sure that the Disabilities Act has had some impact on costs. We view that and the Clean Air Act largely in terms of capital costs and equipment. But remember that on a consolidated basis capital costs become labor costs. And in a consolidated sense it doesn't matter whether the pressure on the cost structure is from capital or direct labor because we consolidate out materials; it doesn't matter one way or the other. If in fact this is the type of inflation we are dealing with, it is a stagflation type of inflation except for, of course, the profit margins, which are very difficult to deal with. My [suspicion] is that it's part of all this. I do think the issue that was raised with respect to inflationary expectations may be the most relevant consideration here if what we are dealing with is a continued increase in the general price level. That's because in all of our analyses of inflation we endeavor to find the transmission mechanism by which the actions of workers in the wage bargaining process and of managers in price markups take place. The conventional wisdom in our models is that [the transmission] is largely induced through changes in psychology. That is, labor force and economic slack are supposed to change people's attitudes. But it's only when those attitudes change and indeed we get low [settlements in] wage contracts that the anti-inflation process occurs. If we get the slack but nothing happens, all we're saying is that something broke down in the process. That essentially means that people--despite the fact that they're losing their jobs and despite the fact that unemployment is rising--still view the outlook as inflationary and they want wage increases. Or, alternatively, it means that the business community--despite what we would all view as a very weak economy--perceives that in fact the economy is really strengthening and that they can get price increases. And if their customers believe it, the price increases stick. But we have to look at the actions that people are taking. Clearly, when we get a PPI or a CPI we are looking at the end result of actions taken by people. And the question is: What is driving them? At the end of the day it doesn't matter what is driving them if in fact they are behaving in a manner that is bringing the price level up. This is something that I think we will get into when we get to our policy discussion. I hope it is where our discussion will take place because if anybody seriously believes that we can move interest rates at all in this particular context and [unintelligible] choke off [unintelligible] inflation, I would say that history tells us the chances of doing that are zero short of a 200 or 300 or 400 basis point rise in interest rates. So, the question really gets down to how we view this other structure. Unless we are willing to abandon fully all of our notions of what has historically created inflation--meaning forget the credit aggregates, forget the slack market issues, forget all of the cost pressures that occur as a consequence of regulations--we cannot readily explain what is happening. Unless we're willing to forget all of those elements involved in our ability to forecast--I don't see how we can unless we abandon all intellectual rigor--as far as I can see we cannot explain what is happening other than by this inflationary psychology [process]. And that, in my judgment, may in part reflect political questions as to whether there is stability in the system and what the longer-term outlook is--whether in fact there are really serious problems in the long term. I do think the issue that Mike raised about accelerating demand may be quite relevant. That is, we were going through the second half of last year on an accelerating path and that could very well have altered the basic expectations of everybody. And the actions we are looking at, remember, are historical. The price changes that occurred in April, which are our latest price data, probably were made weeks before as far as planning is concerned. And the only evidence that we have since then is that wage rates in April have softened considerably. That is a somewhat useful cost development. As you may have observed in the Greenbook, the Board's staff is reducing [its projection of] the ECI, the employment cost index, for the second quarter; it is down dramatically from the first quarter. Therefore, the fundamental issue, as I read the Greenbook, is that the essential thrust of this last acceleration is where the inflation expectations are coming from rather than the politics or anything else. If that explanation is true, we should find that out within a reasonably short period of time. But I will tell you that at this stage we are pretty much testing the limits of our theoretical knowledge as to what the actual inflationary process is really doing. There is also the obvious question as to whether the price data themselves are creating problems for us. For example, a not insignificant part of the April CPI is a big increase in owner equivalent rent, which popped up. If one looks at owner equivalent rent as a ratio to the quality adjusted price of homes--a sort of rate of return estimate--that has been rising fairly significantly of late. And that's not what one would expect in the rate of return; one would expect it actually to be going in the other direction. Now, I don't put much weight on either the numerator or the denominator of that because, as you all know, the sample that is taken on owner equivalent rent, which accounts for something just short of 20 percent of the total index, is dubious and highly unstable. So, it is conceivable that the implicit price forecast in the Greenbook is right; and that would mean that all of a sudden the rate of price increase will slow fairly dramatically. But I will say this: The fact that Mike shows a significant amount of humility [is] something that I think is relevant to this type of analysis. All I can suggest is that anyone who in their comments around the table can add anything to what we know about this price process will contribute a great deal to our colleagues' base of information, which as I see it is pretty slender indeed at this particular stage. Who would like to start off?",1841
-fomc-corpus,1993,"Mike, when I look at the forecast of quarterly growth rates for gross domestic product and inflation and compare it to the previous forecast, I see a couple tenths weaker growth rate throughout the entire period and a couple tenths higher inflation. It almost seems that a supply shock of some sort would produce this because typically a model is constructed so that if the economy runs into a slow period [the model] will pull it back--in effect make up for that [slowing] within a relatively short period. But when there is a supply shock, that's not necessarily the case. What, in effect, did you have in mind that caused it?",129
-fomc-corpus,1993,"Well, as I noted, we're trying to understand why things have been going the way they have. Certainly, supply conditions [are] a possible explanation. That was something that was at least in our minds as we were doing this. But basically the bigger driver in this was simply a recognition that the trends had not been developing as we had anticipated and were carrying through higher levels of inflation throughout and moderating somewhat further the tradeoff; in a sense, we were getting less bang for the unemployment [buck] from here on. But it's very much a level adjustment that is involved here.",118
-fomc-corpus,1993,"I can see that [you have made an adjustment], but do you have any particular feeling as to why that tradeoff may have changed?",28
-fomc-corpus,1993,Nothing more than what I suggested. It's not going to [unintelligible] a separate matter from the tradeoff if you feel that in effect the NAIRU has been raised. It is simply that the gap is small--,47
-fomc-corpus,1993,Right.,2
-fomc-corpus,1993,"The tradeoff could be affected if the expectations formation process is different than the backward-looking version that's inherent in a simple Phillips curve model. But again, it's hard to say whether that's a level adjustment we're making or a tradeoff adjustment. We simply tried to recognize the tendencies we've seen and to be a shade less optimistic, going forward, about the tradeoff between unemployment and disinflation. These are rather small adjustments in a sense.",87
-fomc-corpus,1993,"Thinking of a supply shock more broadly, one would include in that an upward revision to inflationary expectations; in a sense that would worsen the possible combination of output and inflation.",35
-fomc-corpus,1993,"One thing that would account for both higher inflation and a weaker real sector would be weather, and we know we have had some bad weather. To what extent have you analyzed that and figured out how many points could be attributed to that?",47
-fomc-corpus,1993,"Well, we think it's probable that weather chipped a bit off of the first-quarter growth. We could see some disruption, some temporary loss at least, of output in industrial production. But I don't see a correlation between those output losses and the price pressures. I see it certainly in vegetable prices. Clearly, agricultural commodities have been affected by the weather and we see it in their prices. But I don't think the steel price increases that were referred to earlier and the medical services price increases recently had any significant weather element. So, while it's a nice simple conceptual analysis to say ""Well, we reduced the supply and the prices went up,"" I really don't think that was what has accounted for the uptick in the inflation trend.",145
-fomc-corpus,1993,"I was under the impression that the food component was a pretty good chunk of it, though.",19
-fomc-corpus,1993,"Well, in the overall CPI it was an element recently. But we're really focusing on the core CPI, recognizing that within a few months we should move back to normal supplies of fruits and vegetables and then the price level of food should return to the basic trend. So, this is not a significant element in our analysis.",64
-fomc-corpus,1993,We would really have to have a convoluted impact on inflationary expectations to get the kind of effects that you have with the weather.,27
-fomc-corpus,1993,"Indeed. Overall inflation undoubtedly is important as well as the core in determining peoples' expectations about the future, or what they perceive to be acceptable increases in wages, and so on. But I don't think weather is the story here.",46
-fomc-corpus,1993,President Stern.,3
-fomc-corpus,1993,"I admit I don't understand the inflation numbers very well but, in thinking about the discussion on profit margins, maybe there is something there telling us about the degree of slack. After all, those price increases seem to have stuck for whatever reason. And maybe part of that has to do with the international situation. Maybe foreign competition isn't as vigorous as it was earlier; certainly something of that [nature] must be what is going on in autos I would think.",91
-fomc-corpus,1993,"But clearly we have had an exchange rate movement and slack in the Japanese economy. Both of those things have tended to boost the prices of Japanese automobiles and have provided an umbrella for domestic manufacturers. They started off the year with relatively generous incentives that held down the seasonally adjusted prices. They've been able to take those off; they raised a few list prices. And I think this is certainly influenced by the developments in the foreign exchange market. As the Chairman noted, in steel there has been a marked reduction in imports and there has been considerable pressure on supply in some parts of the steel market. There is some uncertainty about whether that's going to persist in the coming months. Of course, this will depend in part on decisions that are made about protectionist measures. Basically, the improvement in profits has largely conformed to the typical pattern of profits moving up with an acceleration in activity and a related jump in productivity. I assume we've had a rather typical cyclical pattern in that respect.",195
-fomc-corpus,1993,"What, incidentally, is the accounting addition of import prices on the CPI? In other words, to what extent are import prices affecting the CPI and in what direction?",34
-fomc-corpus,1993,"Well, on net, there probably has not been a very great influence to date. The Japanese automobiles are one story, but exchange rates against other currencies haven't been adverse. So, overall import prices have not been rising very rapidly at all. In fact, for the first quarter, non-oil import prices are estimated to have declined. So I don't think to date that we've seen, overall, a major unfavorable impact from import prices. In particular areas it has been a factor.",96
-fomc-corpus,1993,President Jordan.,3
-fomc-corpus,1993,"In reading the Greenbook for this meeting and listening to your comments and then thinking back over the analysis in the Greenbooks over the last 8 or 9 months and the swings in sentiment and developments as reported in various statistical [measures], it's tempting to have a sense of security that we're in a sort of fail-safe zone: That in the longer term nothing much can really go wrong even though we get surprised in the short run. We entered the fourth quarter with an expectation of a quite weak quarter in nominal GDP and real GDP with a 3 percent funds rate. And the surprise was that it was a much, much stronger quarter than expected. During that quarter as we were looking ahead to '93, the first quarter in particular, there was an expectation of fairly strong nominal GDP growth and real output growth; the surprise was that real output growth [in the first quarter] was much weaker than expected. And by some measures prices have been much higher than expected, yet we still have a 3 percent funds rate. When I look at your forecast through '94 in terms of nominal growth, real growth, and inflation it assumes a continuation of the 3 percent funds rate. It is still the right number in spite of all of these developments. It seems to me--and this is where I'd like you to comment on the way your model works--that when we have a development like the first quarter and real output comes in weak and inflation is reported to be much higher, it's not something to be concerned about because it means that the real interest rate has fallen or the natural rate or something because of the higher inflation and that will take care of the weakness in real growth. But out in the future because of the slack, the gap, the NAIRU or something, inflation will decelerate; that will raise the real interest rate so that no matter what happens it's going to turn out that the 3 percent funds rate is the right rate. I'd be curious as to what it would take to persuade you that it's either too high or too low! [Laughter]",419
-fomc-corpus,1993,"I think we all recognize the dangers of pegging nominal interest rates. It is not an automatic stabilizer. And if the pattern has been relatively stable, it has been because of various offsetting factors. I would say that coming into the first quarter we initially expected growth in the high 2 percent area for the quarter with a lower inflation path. As things have turned out, we may yet approach that real forecast but the price numbers clearly have been unfavorable. Going forward, you are correct that--as we noted in a footnote in the Greenbook--in essence the higher inflation trend and what we would take probably to be somewhat higher short-run inflation expectations than we had been expecting earlier do imply a somewhat lower real short-term interest rate. The question is whether at that level we are providing sufficient stimulus to offset the fiscal drag and other drags in the system now. Or perhaps, on the other side, is this excessive monetary stimulus? As has been noted, we don't see it in terms of rapid money growth on average. We don't see it yet in terms of rapid nominal GDP growth. But in due course it's conceivable that we would see that this [policy] was excessively stimulative. Our sense has certainly been that as we move along there would likely be some tendency for the real short-term interest rate to rise. But we do have to recognize that at least out through 1994, if this fiscal program is adopted, there is going to be a very large tax increase and a very substantial amount of fiscal drag. So the point at which this becomes an unsustainable real short-term rate may not be imminent; it may be some time down the road. At least that's the implication of our analysis.",344
-fomc-corpus,1993,"Can I follow-up, though, because you mentioned the fiscal drag. Isn't the argument that if the fiscal program is adopted, we would get a lower inflation premium and more stimulus coming from private investment and the household sector, even housing, because of lower nominal interest rates than otherwise would be the case? And thus the net effect of the fiscal action could be presumed to be not restrictive at all.",79
-fomc-corpus,1993,"The simple analysis might lead you to expect lower real interest rates. But if you believe that inflation expectations are based on either some primitive notion of how deficits cause inflation or a more sophisticated one about the risks of future [monetization] then, yes, we could get also some narrowing of the inflation premium. In either case we would have had some offset from the beneficial anticipatory effects of the fiscal action. We think those are probably already behind us, but I'm not sure. Back to the question that Bill addressed earlier, what could happen here would be an important, pleasant surprise that would be a big boost for the bond market. At this point, I think people recognize that there's a budget resolution out there with which they have to contend. Most likely [Congress] will do something that at least nominally meets those requirements. No one, I think, is anticipating a vastly larger or vastly smaller deficit reduction than is currently being discussed.",188
-fomc-corpus,1993,"Mike, this morning's Wall Street Journal said that the health care package would involve a 9 percent payroll tax for extending benefits--7 percent on employers and 2 percent on employees. Assuming this were enacted, how would we think that 7 percent tax would be reflected in terms of prices versus lower nominal wages?",63
-fomc-corpus,1993,"Well, as I should remind everyone, our presumption has been that even if this were legislated by sometime in 1994 the phase-in would be long and the effects within our projection period would be almost solely those based on expectations. Our presumption would be that an increase in mandated costs relating to payrolls would be passed on only gradually to the workers in the form of lower wages and that the hit would be primarily on the price side in the short run.",94
-fomc-corpus,1993,Why wouldn't that be perceived as a positive demand shock then? Because it's either higher real compensation if you lump workers and beneficiaries together and what you're saying is that profits would eat it for a while. Why wouldn't that be a positive boost for consumption?,49
-fomc-corpus,1993,"Well, that depends on whether monetary policy accommodates that kind of supply-side shock. Clearly, the monetary policy response to that, as it would be to any other jump in exogenous forces, is critical. But if this provided opportunities for much larger consumption of medical services to people, there presumably would be some offset on the demand side.",67
-fomc-corpus,1993,President Syron.,4
-fomc-corpus,1993,"Mike, I have two questions about inflation. Being as puzzled as everyone else, I'm just wondering if there is any information in the cross-sectoral look at where margins have widened most. I'm just wondering whether that's more suggestive of this regulatory, protectionist argument as compared to an ability to widen margins because of demand. The other question is whether there is any information on the expectations side--looking at the relative deterioration of longer-term as compared to shorter-term inflation expectations.",94
-fomc-corpus,1993,"I don't think I can give you any useful sectoral breakdown. On your question of the long-term versus short-term expectations, could you repeat that one for me?",33
-fomc-corpus,1993,"When you look at the surveys that show a deterioration in expectations and try to get a handle on what is driving the deterioration--and I'm not that familiar with the data--I'm just asking whether the deterioration has [been much greater] in the longer run than in the short run and whether that would be consistent with the general notion of some kind of political deterioration, if I can call it that.",79
-fomc-corpus,1993,You're talking about expectations in general?,7
-fomc-corpus,1993,Yes.,2
-fomc-corpus,1993,"Our indicators of long-run expectations are rather volatile from month to month and my sense is that in general they haven't moved much recently. They came down some earlier in the recovery, but recently I don't think there is a particularly discernible trend. The Michigan Survey has bounced around in the 5 percent neighborhood. A survey that is a successor to the Hoey Survey shows a similar pattern, except that it's more in the 4 percent neighborhood, but I don't discern a big change there. On the short-term side, what is notable is that we have not had any consistent further lowering and there's perhaps a little firming if one wants to read it very finely. But basically it has been a rather stable picture even as we got into the 3 percent CPI increase area for two years. That's the impression I have. Let me go back to Governor Lindsey's question. I suppose in general if people felt that they were more secure because this program offered them particular long-term care and some other safeguards against their wealth being depleted, then we could have in a sense a wealth effect that could be positive for consumption in the short term apart from the fact that the cost of medical services for some part of the population might have been lowered.",245
-fomc-corpus,1993,"Any further questions for Mike? If not, would somebody like to start the roundtable?",18
-fomc-corpus,1993,"Mr. Chairman, I'll start with our District, which continues to show a very moderate pace of growth. In agriculture, winter wheat is in good condition and our cattle feedlot operations have rebounded from some winter problems. Construction has bounced back from the winter-related slowdown; it now has strengthened in all areas. In gas and oil, prices of natural gas have improved from year-ago levels and drilling has leveled off. I would point out that drilling has not picked up and is not expected to accelerate until there is more confidence in the price gains and that those prices will be stable. Absent that, they are very reluctant to push forward on any exploration or drilling. Manufacturing in our area remains sluggish and it is consistently operating below capacity as we hear from area business leaders. Banking has been extremely profitable in our region. Bank earnings are at record levels in the first quarter. In fact, in Oklahoma banks have reported returns on assets of higher than 2 percent. Looking ahead for the District, we think moderate growth is continuing. Despite some expectations that cattle prices will come down and wheat prices may also, we still think income in '93 will be at a level close to that in '92. In construction, there is now a whole pipeline of activity that bodes well for the summer in our region. In energy, although prices have risen we don't expect a lot of activity unless those prices remain stable [or] rise. In manufacturing, the possibility of a turnaround, as I've said before, has been set back by some continued restructuring. As an example, Boeing is laying off about 7,000 people in Wichita. At the national level, we continue to expect moderate growth and moderate inflation as we move through '93. We expect GDP growth of about 2-1/2 percent and inflation of just over 3 percent fourth quarter-over-fourth quarter. I might add that an important reason we scaled back our growth projection is because in talking with business leaders around the District we heard a lot of anecdotal evidence [pointing in that direction]. They are thinking about or have put [plans] on hold because of expectations about taxes--particularly Federal, but even the states are talking about very dramatic increases in taxes. So businesses are focusing now more than ever on cost containment and trying to get their profits up. I think this is one reason businesses are raising prices; they want to see if the higher prices can take hold. This has been complicated in the health care industry because in some sectors, like medical devices, activity has virtually stopped because of the anticipated health care program. Also impeding renewed spending is this continued effort by businesses that we've spoken about for some time to pay down debt and to consolidate their positions in an environment of increasing uncertainty. If I heard it once I heard it a hundred times in the last three weeks: Business people are very, very concerned about the environment of uncertainty, so they are trimming back or are holding back a little more than they would otherwise. Having said all this, there is still a willingness to go forward where opportunities show through in a strong way, as we're seeing in the western part of our District. So we pared back our projections--not quite as much as the Board staff--to the 2-1/2 percent level for growth. Those are my comments, Mr. Chairman.",672
-fomc-corpus,1993,President Broaddus.,5
-fomc-corpus,1993,"The first-quarter data were quite disappointing and we have gotten mixed reports for the month of April so far in our District. But, in some contrast to Tom Hoenig's report, I haven't really noticed any major change in attitudes about the economic outlook either among our directors or most of our other business contacts. By and large, I think they still expect continued moderate growth both regionally and nationally through the forecast horizon. I personally subscribe to that view. I was a little surprised by the size of the downward revision to the real GDP forecast in the Greenbook this time. I'm inclined to put a little less weight on current fiscal developments in assessing economic prospects than the Greenbook. It seems to me that the loss of the $12 billion stimulus in the President's package is not a really big deal in a $6 trillion economy. And while uncertainty about fiscal policy certainly puts a drag on the economy, it seems to me that this effect is very difficult to quantify. I don't have a sense that the uncertainty about fiscal policy is exerting any greater drag now than it was at the time of the March FOMC meeting. So, all in all, I still think that growth of real GDP in 1993 will be somewhere around 3 percent, as forecast in the March Greenbook, rather than the 2.2 percent that is currently projected in this month's Greenbook. And I believe I'm right in saying that most private forecasters are still somewhere around that number, although they may have revised their forecasts down a bit in some cases. For me, clearly the most relevant and most disturbing recent development is the uptick in the reported inflation rate. The core CPI rate, as I calculate it, now has risen at a 4-1/2 percent annual rate over the first months of the year and that really bothers me. I recognize, as everyone else does, that temporary factors may account for part of this; nonetheless, at a minimum the data strongly suggest that inflation is no longer coming down. So we're no longer clearly making progress toward our longer-term goal of restoring price stability and we may have regressed a bit. And as Dave Lindsey and others have pointed out, I think it's fair to say that inflation expectations have probably been revised upward at least a little since the beginning of the year. That's an interesting point because it implies that real short-term interest rates are lower than they were. So, in a sense we've had a de facto easing of policy as a result of this development in recent months, and I would hope that we would take some account of that in our policy discussion later in the meeting.",527
-fomc-corpus,1993,President Parry.,4
-fomc-corpus,1993,"Mr. Chairman, economic conditions continue to vary in the Twelfth District. In California some evidence has accumulated that the economy actually may have hit bottom in recent months. We have seen, for example, that payroll employment is a little higher than it was in December; and taxable sales also appear to have bottomed out with increases experienced in the fourth quarter of 1992 and the first quarter of 1993. Nevertheless, we are faced with significant further defense cuts, state and local fiscal problems, and lingering weakness in commercial real estate that make it unlikely that the California economy is going to grow at any time in the next year. The Seattle area, which until recently was expanding briskly, has stagnated in recent months. I must admit that recent new orders for Boeing aircraft are encouraging. The economies of most other areas of the District continue to flourish. Utah, Nevada, Alaska, and Oregon are ranked in the top ten states in terms of employment growth between December 1992 and March 1993. And even the eastern Washington economy continues to be strong. Throughout the West, and this is similar to what Tom Hoenig picked up, many business leaders have noted to us that uncertainty about federal fiscal policy, particularly tax policy, is delaying investments and other major business decisions. On the issue of inflation, in general report little price pressure, but there was one anecdote that I thought was rather interesting. and he reported that they periodically conduct a price survey of packaged and canned goods. Now, this doesn't get into the problem with fresh fruits and vegetables. At the wholesale level, the latest survey revealed more widespread increases in the prices they pay for these goods than they had ever experienced before. The interesting thing is that he went on to say that he doubts that they will be able to pass those price increases along. It remains to be seen whether they will or not. Turning to the national scene, it appears at least to me that the changes in the Greenbook forecast since the last FOMC meeting are large and, I'd have to say, quite disturbing. Real GDP seems to be on a decidedly lower path and inflation on a discouragingly faster track. Our own forecast is also more pessimistic in the short run, but by 1994 we have stronger growth than we had before and an unchanged rate of inflation. The change to our forecast reflects the defeat of the Clinton stimulus package, general concern about the extent of higher taxes, and slower-than-expected growth in the first quarter as well as the unexpected buildup of inventories. The change to the Greenbook forecast would appear to result from more permanent influences in addition to the factors that I noted. It would seem, if the Greenbook forecast proves to be correct--and that certainly is a possibility--that the policy tradeoffs are likely to be far less attractive than I'd earlier thought.",572
-fomc-corpus,1993,President Keehn.,4
-fomc-corpus,1993,"Mr. Chairman, economic conditions in the Chicago District have been somewhat uneven since the last meeting, but on balance I think there has been an increase in the level of activity. In a modest context the outlook is reasonably positive. Starting with the automotive sector: Based on a pretty good April, the industry's confidence in their forecast for sales in the second quarter and the full year is somewhat stronger than it has been. Despite press reports to the contrary, the inventory levels in their view are currently just about right and, therefore, second-quarter production schedules have been set about 10 percent over last year. And they are pretty confident about those production schedules. I must say the mood in Detroit is much more positive than it has been and that is radiating pretty much throughout the dealer organization. The truck business also continues to improve. Orders for the Class 8 units, the large units, were strong in the first quarter and that has continued into the second quarter. For the full year the industry is forecasting an increase in sales of the big trucks of from 17 to 18 percent. Also, and something of a change, there has been a recent increase in the medium truck category, the Class 5 to 7 units, and for the full year they are now forecasting an increase in sales of some 13 percent for those. Medium truck sales are viewed as something of a lagging indicator and, therefore, this turn, which generally occurs about 6 months after the change in the heavy truck category, is viewed as a good sign. But despite the strength in the underlying auto sales rate, I must say that truck prices really have not been increased. The steel business continues to do well and is benefiting particularly from the improved level [of activity] in the auto industry. The current order rate for one major company, which they expect [to continue] for the full second quarter, is coming in at about 110 percent of capacity. This is down from the first quarter but still pretty strong. Some of the order rate they [feel] is due to the current labor negotiations; nonetheless, the underlying demand is pretty good. And based on this they are now forecasting shipments this year of some 87 million tons, which comparatively is an awfully good year. We've talked about the steel price increases at previous meetings and again earlier today. There is, as you know, another increase scheduled for July. They would expect that to stick. But I do think it's important to remember that these increases do not apply to the major purchasers who are buying the steel on contract. Those prices are still very, very tight, and it's particularly true of the auto industry. But for others who are not buying on contract, when we're all done here this increase is going to amount to about 12 percent. In the agricultural equipment business, sales of tractors and combines have been higher most recently and production schedules, therefore, have been increased. The large manufacturer that I talked to expects their production for the full year to be about 9 percent higher than last year. Also, there has been a recent increase in construction equipment; it has been slow to get off the mark but some of those orders are beginning to pick up. One very major manufacturer is now selling a number of its product lines on back order. Retail sales are uneven and this, I think, is heavily driven by the terrible weather that we had in March and April. As for car [sales], retailers tell me that their sales this year are up about 5 to 6 percent from last year. In the ag sector, as you know, we had a very wet spring and planting, therefore, has been terribly slow. But conditions looked pretty good last week and they got a lot done; that is true I will say with the exception of Iowa, which is still very wet. But they're still well behind and for the major states planting is at about 40 percent of the normal level. Nonetheless, there's enough time left and most people expect that there is a good opportunity to get a good crop. Perhaps one of the most significant changes, at least to me, has been a decided change in the attitude about lending by banks. People tell me, both borrowers and banks alike, that banks have become more aggressive. They are now actively seeking loans and are pretty much out looking for business; they have begun to shave rates, but I am assured that they have not begun to ease their credit standards. In a national context, while the improved level of activity may relieve some of the concerns I've had about the sustainability of this expansion, I still think the big imponderable is on the employment side. Major companies--and I must say everyone I have talked to in the manufacturing sector--say they will continue to reduce their employment and will produce more products with fewer people. At some point it does seem to me that the lines between overtime and an increase in demand will cross, but so far they just are not yielding. And almost surprisingly, some of the unions don't want the companies to hire more people either. But despite this improved tone both in the District as well as in the national economy, it does seem to me that at best we are talking about a pretty modest recovery. If you look at the staff forecast, which is largely in line with ours, the outlook continues to be positive but in a very, very modest context. On the price front, in talking to people I just don't sense the upward pressures that the recent numbers might suggest. Yes, there are some exceptions, such as steel, and for the reasons that we talked about; but there are some offsets. Raw aluminum prices, for example, are at the lowest real level in history. Labor contracts continue to be settled on favorable terms that are, I think, very much noninflationary. For example, the steel contract is a long way from settlement, but so far the thrust of the discussions has been entirely in the work rule area and productivity. Companies want to improve work rules to achieve more productivity and they are willing to give a little in terms of employment security. On the economic side the discussions really are focused on pensions, not on wages. Therefore, the steel industry hopes that they will come out of this [negotiation] without an inflationary settlement. So, although the recent numbers are a little unnerving, I do think it's far too soon to conclude that we are experiencing a basic shift in the outlook for prices. Thank you.",1299
-fomc-corpus,1993,President McTeer.,5
-fomc-corpus,1993,"In case some of you missed it, I'm pleased to report some good news from south of the border. The government of Mexico has submitted a constitutional amendment to give independence to the central bank, the Bank of Mexico, and to make price stability its overriding objective. The way they worded it was that the main mandate of the Bank of Mexico over any other objective will be to preserve the purchasing power of the national currency. In the Eleventh District we've seen some modest weakening in the numbers and some deterioration in the tone of the anecdotal information. It's somewhat more negative, primarily surrounding uncertainty over the future. Projects are being put on hold because people are waiting to see what the tax situation is going to be and [what happens regarding] certain government spending situations and also health care reform. And probably somewhat unique to our area, we also have some slowdown related to the diminished prospects for the passage of NAFTA. On the national economy, I really don't have any helpful insights to offer. I don't understand this recent split in the economy with the real sector seeming to turn down and inflation seeming to pick up at the same time. It's a mystery to me. On the nontraditional source of the inflation, however, and not being able to find the pulse of money and credit growth, it's probably because we're still trying to find that pulse on the balance sheet of banks. When we talk about the money numbers and what's going on, I think it's fairly clear that there is liquidity out there and there is money out there; it's just not where we used to measure it. I think we haven't quite made the adjustment when we're talking about inflation to realize that it's probably there in that context as well. That's all.",341
-fomc-corpus,1993,"President Forrestal. FORRESTAL. Mr. Chairman, things are looking fairly good in the Sixth Federal Reserve District. Economic activity in the area has continued to expand in the early months of this year. And perhaps more significantly, the expansion is now fairly broad-based since it has spread to several industries that previously had been lagging, namely financial services, communications, and manufacturing. As the expansion has become more widespread, a number of long-standing fiscal problems of the states in terms of their financing have begun to ease, and I think that will have implications as the federal fiscal policy emerges. The manufacturing industry has benefited from fairly good activity in single-family housing and the continued surge in activity due to hurricane rebuilding in south Florida. The auto assembly plants in the District, especially the Saturn and the Nissan plants in Tennessee, are operating at very high capacity. And this jump in manufacturing activity in the first quarter has led to considerable job growth in the District. In fact, the Southeast accounted for over half of net manufacturing jobs added to payrolls for the nation in the first quarter. Even the depressed extraction industry in Louisiana has turned around and, as natural gas prices have increased, activity off the Louisiana shore has risen to levels we haven't seen since 1985. The generally good performance around the District is dominated by Georgia and Florida, where sales tax receipts have been very strong; but other states have seen improvements as well. As I've indicated, even Louisiana is beginning to emerge from the doldrums. So, [the improvement] is not only broad-based in terms of economic sectors but geographically as well. Now, this better performance than the nation may not continue very long because the activity due to the hurricane rebuilding will begin to slow. The one serious negative note that I've picked up--and it has been referred to before--is the uncertainty about the fiscal and political situation. Tom Hoenig heard it 100 times; I think I heard it 110 times in the last three or four weeks. It's ambivalent in the sense that the business people in the Southeast, as reflected in my report, are fairly optimistic about their own businesses and what might be emerging in the economy. Or to put it another way, they're not unduly upset about the first-quarter numbers. But this uncertainty about the fiscal situation may very well begin to be reflected in business investment and employment plans for the rest of the year. Business people are telling me constantly that they're not able to begin to do their business planning because of the fiscal situation and the health care problem. In spite of the good economic activity and in spite of the inflation numbers that have been reported, I don't hear anybody talking about price increases at all. They're not seeing them at the wholesale level and to the extent that any of them have tried to pass any prices increases through--the minimal increases that have occurred--they are not able to make them stick. At the same time there are no wage pressures at all that I can tell. The credit situation seems to be improving. Banks are reporting higher loan demand, particularly in the consumer sector, but they also are seeing better demand in the commercial area. Looking at the national situation, our forecast shows a continuation of the moderate rate of expansion that we've had over the last year. Like many others we've revised our forecast down, based on the first quarter primarily, and we're looking at growth in real GDP of about 2-3/4 percent for this year, which is about 1/2 percentage point lower than our previous forecast. Overall, it seems to me that the outlook, despite that reduction, is pretty much the same--with the continued working off of imbalances and the slow employment growth that we've referred to before. We see the economy as somewhat stronger than the Greenbook and this divergence continues after the second half of the year. The difference for the most part is in the area of consumption expenditures, where we see more strength; and we see more inflation notwithstanding slow employment growth. I wouldn't want to over-emphasize these differences, however. I think our general path is fairly consistent with that of the Greenbook. I certainly don't have any insights into the inflation numbers. I'm perplexed, as I guess most other people are. Thank you.",851
-fomc-corpus,1993,President Stern.,3
-fomc-corpus,1993,"The economy of the District continues to improve. There are some signs of life now in nonresidential construction. A lot of it is public construction, but it looks like that sector is poised for a pretty good year in many parts of the District. Consumer spending appears to be continuing to grow and business out at the Mega Mall has held up very well. In agriculture, the livestock business is very healthy and very strong. With regard to crops, there is the concern about moisture but, of course, it's always either too dry or too wet. This year apparently it's too wet but I have a hunch they'll still [be able to plant] most or all of their crop. There are also some renewed signs of life in the energy business. Exploration and leasing activity in western North Dakota and eastern Montana are starting to show some signs of life, and iron mining activity in northern Minnesota is expected to pick up as a consequence of the improvement we're seeing in the domestic steel industry. The one thing I might comment a little further on is what's happening to employment. It's something that, of course, shows up in the data, so I think we're aware of it. But I've heard a couple of comments lately that have put this very directly. Employment is up in the District. And yet if we talk to business people, they say they're clearly trying to do more--or at least the same--with less when it comes to employment. Part of that has to do with fringe benefit costs, such as workers comp and insurance and health care. Part of it, I think, is expectations in that businesses that used to think they were going to make at least some of their higher incomes over time through expansion are revising down their expansion plans. That has to do in part with environmental restrictions and other regulations. I think they're concluding that the way to improve profitability is through very tight cost containment, and they seem to be succeeding. And that has affected employment, certainly in the District, and perhaps nationwide as well. With regard to the outlook for the national economy, my principal concern, as many have commented, is the inflation situation. I am not as sanguine as the Greenbook that inflation is going to decelerate from here. I certainly agree that a lot of the fundamentals we typically look at--slack in the economy, money and credit growth, and so on and so forth--don't seem to suggest an environment where inflation ought to be accelerating. In fact, they suggest an environment where further deceleration is likely. Yet I remember from the 1970s that we're always pretty good at explaining away inflation but those [situations] don't seem to have happy endings. So, I'm very uncomfortable with what we're seeing and I'm not convinced that what is going on now is simply temporary and will self-correct.",564
-fomc-corpus,1993,President Boehne.,5
-fomc-corpus,1993,"Most of the business people I talk to feel deprived in terms of price increases. They feel they are owed price hikes if only they could make them stick. If you look at it from an individual business person's point of view, their sales growth for the most part has been slow, competition has been tough, they have cut costs and lowered their break-even point, and they still feel very squeezed. So it's not surprising that they would jump at whatever opportunity they can to raise prices, whether it's a streak of good orders or a weaker dollar and foreign competition that isn't quite as tough or an attempt to get ahead of the regulatory or tax changes. It's not surprising that that is happening and that that's the way they feel. The question is whether it is broadly sustainable or cumulative, and I don't think any of us really knows. But my hunch is that it's not, given the generally sluggish economy, the underlying competitive situation, plus what is going on in money and credit. Looking at the District economy, growth is very modest, very modest indeed. Retail sales are going up negligibly. Industrial production, while still advancing, seems to be advancing at a decreasing rate. We have sluggish loan demand, or flat loan demand really, and slow job growth. And, as has been mentioned almost by everybody, there is slipping confidence and building anxiety in national leadership and all the uncertainty about taxes. Every day in the paper some other tax that might [be enacted] is mentioned, and that has really pulled the rug out from any kind of increases in spending. There is just a strong desire to hold tight and steady and to put on hold everything that one can. My sense on the national economy is that, yes, we are going to get somewhat more inflation than we thought earlier this year. And I think we're going to get somewhat less growth. But my basic conclusion is that at this point it's more a matter of degree rather than a fundamental shift.",389
-fomc-corpus,1993,President Syron.,4
-fomc-corpus,1993,"Thank you, Mr. Chairman. As far as the District goes, the situation remains mixed. I'd say it's soft, but not collapsing, and to some extent the overall tone is almost improved. In the job market, employment isn't increasing but it's stabilizing; hours are up. Hiring of temporary help is up a good bit, along with all you've heard. We are still having major layoffs, though, in some areas and an overall softness in the employment market. In retailing, like everywhere else, the weather impact was particularly severe. Some bounceback from that occurred but there was some renewed softening more recently in retail sales. The same weather pattern holds for autos, but auto sales have been making up their losses and remain quite strong. Housing activity, particularly at the lower end of the market, is quite strong, with prices actually rising at that lower end for houses selling for less than $150,000. The rest of the market is still fairly soft. The commercial real estate market is flattening with vacancies stabilizing but values are still quite soft. If you want another worry to add to all of this, you can talk to people in the financial services industry, particularly the mutual funds. They continue to have very, very strong inflows into bond funds, junk bond funds, and other [investments]. Everyone takes the money, but at the same time they express continued concern about the sophistication of the investors, particularly that in a lot of cases people are not really aware that they can lose some capital in those bond funds. Also, a lot of concern is being expressed about how clear people are when they buy these funds in banks that the value of these instruments is variable, not just the yield. As far as manufacturing goes, the situation is mixed. Anything tied to autos is doing all right; the same is true of environmental [firms]. But in defense we see more and more of a slide; it's continuously softer. Like everyone else, we hear continuous complaints about uncertainty and what is going to happen. I had some people in the other morning and one fellow said his company was not going to do anything they don't have to do and that every CEO he knows is absolutely frozen until he can see where things are going. Unfortunately, as far as the national economy goes, I'm pretty much in agreement with the tone of the Greenbook that--excuse the colloquialism--it's just a plain lousy situation that we have here. Like everyone else, I'm very disappointed about the price situation. If it was just one month it would be one thing, but it has been longer than that now. I really can't understand what is going on; I find it hard to believe that the fundamentals don't have something to do with this in the longer run. And, if anything, the economy right now seems softer than six weeks ago at the time of the last FOMC meeting, [based on] retail sales control, [initial] claims, and industrial production. But having said all that, I don't have a whole lot of conviction. There is an enormous amount of uncertainty; and to some extent it seems with these concerns about taxes and other things that [people] are almost trying to jawbone the economy down, not in a purposeful sense but in the ""if"" effect it is having. And in that environment, it's hard to have very strong convictions about the intermediate-term [outlook for] either output or prices.",691
-fomc-corpus,1993,Governor Lindsey.,3
-fomc-corpus,1993,"Mr. Chairman, I have one disagreement with the Greenbook. The Greenbook implicitly has a reduction in inflation from a 4.6 percent rate over the first four months to 2.6 percent in the next eight months in order to get to the new higher inflation forecast. Again, I respect the talents of the people involved, but that seems like an awfully steep deceleration of inflation in order to get to the new [forecast of] 3.3 percent for the year. I think the reason that we've had the higher inflation was well argued by you, Mr. Chairman. It is expectations-based. You ran through a better list than I could: mandated benefits, strike replacement, calls for a higher minimum wage, re-hiring of workers; that's for labor. For management, there's protectionism, protectionism, and protectionism along with loan guarantees for our failing industries such as airlines. So, no matter whose side you're on, labor or management, there is Uncle Sam to stand behind you. You asked for another reason why inflation might be there. I'm going to give it to you. I don't mean to say that this is a dominant reason. It's not one that people in this room are familiar with. It goes back to the redistribution of income literature. I doubt many people in this room are readers of ""Nation"" or ""American Prospect."" I would hope not anyway. I read this literature some years ago as part of my research for my doctoral dissertation. You can also look up Ira Magaziner's writings on this. The most unspoken part of the health care plan is its redistribution elements. Right now, effectively, health care is a lump sum tax. It's $4,000 per worker on the payroll, paid over to the health insurance company. What is going to change, and the only question is to what degree, is that it is now going to become what is effectively a proportional tax; it's payroll based. Those are very different because income is distributed [unevenly]. Now, when we are talking about a shift of 14 percent of GDP in the income among various quintiles, that will dwarf whatever Reagan has accomplished by a big factor, and in reverse. There is a good reason to believe--in fact I can argue four reasons--that at least in the intermediate term such a redistribution is likely to be inflationary. The first comes from the higher tax on the wealthy. Now, in the short run at least, we would expect some of that higher tax to come out of savings. That might not be true in the longer run; but certainly in the short run the part from the higher taxed people will come out of savings. On the other hand, for the lower taxed people it's more likely to augment consumption. So on the demand side the redistribution effect of the burden of health care costs is liable to increase demand via increased consumption. On the supply side there are also two reasons to suspect inflation. The first is the ""classic"" supply side argument that when you move from a lump sum tax to a proportional tax what you're going to get is less output. And if you think about both the substitution effects and the income effects, they're both going in the same direction. I'd assume that with, God forbid, another 9 percent payroll tax, the typical worker will be pushing 50 percent as a marginal rate. And people in this room will probably be at around the 65 percent area for the marginal rate. That is a whopping substitution effect. On the income effect side, if you no longer have to work to service a $4,000 bill, you will get less work on the other end as well. The other supply side reason why an intentional redistribution is liable to be inflationary has to do with the Keynesian argument about nominal wages being sticky. Effectively, a low cost worker for whom [a firm is] now paying $4,000 in health care is entitled to a raise. And the unions representing that individual certainly will make that point. So, I think nominal wages will rise at the lower end. Indeed, it will reverse probably two decades of declines in real wages at the lower end. On the other hand, for those who are taxed more--who will cost management more to hire--[firms] actually would have to force a decline in the nominal wage of those people. That would involve, say, middle management on up. In a 7 or 8 percent inflation environment that would be easy. You'd simply hold nominal wage increases down. In a 3 percent inflation environment, you're not going to have nominal wage cuts. So, what you're going to have is a bit of a wage/price spiral, with rising wages for workers and insufficiently falling real wages for management. So, for all four of those reasons--again, one can go back in the literature even from the '20s about redistribution and its effect on inflation--it all adds up. Now, I'm not saying that's what is causing it. But we all know the health care story is on our minds and it might be one reason at least to explain why, [given] the supply shock, the higher [inflation] expectations might actually turn out to be rational.",1057
-fomc-corpus,1993,President Melzer.,4
-fomc-corpus,1993,"First of all in terms of the District, the unemployment numbers I'm going to report are really the best numbers I've seen in a good while. We had payroll employment growth in the most recent three-month period, which would be through March, up 3.8 percent in the District. Another notable change [is that] we've been getting marginal growth in employment. And certainly the St. Louis District in general has done better than the nation through the recession. Another shift has been that we're getting more of the growth through manufacturing. That was actually up 4.8 percent, with particular strength in electrical equipment and transportation equipment; it was up somewhat less in nonmanufacturing, 3-1/2 percent. And there is considerable strength in construction. It's somewhat stronger in residential in terms of contracts and significantly stronger in nonresidential for that most recent three-month period. Notwithstanding that, as I talk to people around the District, I don't get the sense--in terms of the tone of comments--that people think we're in any kind of a boom. And I'm hearing the same concerns others have expressed regarding uncertainty about fiscal policy and other government policies. With respect to the national picture, in thinking back to the second half of last year when real growth came in at around 4 percent, I'm struck by the fact--just thinking about where we are now and where we thought we were then--that the economy is fundamentally in a lot better shape now than it was then. We are getting some job growth now which we weren't getting then. There were considerable uncertainties at that time and, indeed, there are uncertainties now. But in some ways they were even greater at that time. The whole financial restructuring process has proceeded further. I think one has to assume that we're in better shape in that sense. And the anecdotal reports we've heard around the table today in general are better. As Mike Prell acknowledges in the Greenbook, there is a possibility of the first-quarter GDP being revised up. But I think it's a little dangerous to put too much stock in one quarter's GDP numbers. We could actually be surprised in retrospect in terms of how well things are going now. As some others have mentioned, notably Al Broaddus and Gary Stern, my principal concern is on the inflation side. I, too, am skeptical as to whether or not we will resume the disinflationary trend we seemed to be on. And I think the experience of the first four months of this year has definitely had an impact in terms of expectations. In terms of why that could be, it seems to me there is an explanation relating to money and credit, though not one we in this room generally put a lot of stock in. We had M1 growth over the last two years through the first quarter at double-digit rates. I guess I'm not prepared to try to translate that into what it may mean exactly in terms of real growth and prices, but I view that as a very substantial monetary impetus. As that growth slowed very dramatically in the first quarter it gave me some comfort that perhaps the general thrust of policy had shifted somewhat. But what I'm seeing as far as M1 projections looking forward [concerns me]. Again, this is only a month or two, but for May we're talking about a possible 25 percent annual growth rate in M1. It may be that what I perceived as a significant sea change in the thrust of the growth in that aggregate in the first quarter of this year was really only a temporary pause and that we're still on a very strong upward trend in terms of monetary thrust. We're probably not compelled to act now, but if these inflation expectations become embedded and the first-quarter [inflation rate] turns out stronger than people perhaps think it is now and if real growth is stronger, it's just going to be harder to catch up later. So, my principal concern relates to developments we've seen in the wage and price climate.",791
-fomc-corpus,1993,Governor LaWare.,4
-fomc-corpus,1993,"Mr. Chairman, I find the recent indicators of a possible intensification or rekindling of inflation very disturbing in the context of our stated objective of price stability, which I believe is the proper objective for this institution. The question, it seems to me, is whether this is the time to take the punch bowl away before everyone but the host gets drunk and the party gets rowdy. The timing of any tightening of policy is critical. It must be early enough to stop inflation before it gains momentum but it must also be late enough to be based on reality and not just intuition. In the current situation it is hard to make a substantive case, in my opinion, that a real inflationary trend is under way rather than the effect of simultaneous aberrant one-time influences. By contrast, I believe that a case can be made that the apparent slowdown in growth is a result of collapsing confidence on the part of both consumers and businesses in the extremely uncertain environment created by record high proposed tax increases, large proposed [defense] cutbacks, and fundamental change in a health care system that was basically established in our culture more than 30 years ago. Consumers and businesses continue to be more interested in debt reduction than in re-leveraging with long-term commitments. It can't have escaped any reasonably intelligent observer that the economic proposals that are before the Congress right now are essentially contractive. A premature move to tighten policy against that background could be disastrous to economic growth and could run the risk of reigniting enthusiasm for fiscal stimulus rather than deficit reduction and budget discipline. In that scenario the inflation fat would really be in the fire again. It seems to me that this is the time to hold to our present course at least long enough to have a better idea of what Congress will do with the President's proposals and what the effect will be on economic growth.",369
-fomc-corpus,1993,Governor Kelley.,3
-fomc-corpus,1993,"Mr. Chairman, with the emergence of the most recent data, it seems to me that we now have before us about the widest spectrum of fundamentally conflicting possibilities that I can remember. I have attempted to make a bit of an inventory of what those possibilities are and what some of their implications might be, just to help my own thinking along. If we were to make a straight-line projection [based on] the most recent data, we'd wind up with stagflation, which obviously would be a very serious situation. But there are a number of other possibilities and each carries a different set of implications. In the area of real economic activity, I think there may be two basically credible paths we could find ourselves on. The first is that the first-quarter data are signalling an emerging decline--that things are indeed beginning to go back downhill and that we might even be looking at the possibility of a new recession down the way. That's possible but it seems to me highly unlikely. We have a good bit of momentum going; jobs are being formed net of all the restructuring that's going on; new claims are flat; the credit crunch is easing; the consumer is returning; our competitiveness is improving through productivity, which is the good way, and through a somewhat softer dollar in some cases, which may not be so good a way. Nevertheless, competitiveness is [improving]. So, I would doubt that what we're looking at is a fundamentally weaker economy that is going downhill. But if that is what emerges, then we're going to have to reverse a lot of the thinking we've been doing. What seems to me much more likely is that we've been looking at some type of a blip in the rather moderate upturn that we've had for eight quarters now. I noticed that of the eight quarters we've had in succession that have been basically positive, four have been lower than the previous quarter, which is rather interesting. So, it seems likely that we're looking at a blip. And the question is what's going to happen after that blip. The first question, obviously, is: When is the blip going to be over? It may last a little longer; it may still be going on. But is the Greenbook basically correct? Are we looking at an extended period of slow or sluggish growth? Is it going to be somewhat stronger than that, maybe a good deal stronger than that? Each of these [scenarios], it seems to me, takes us in a different direction. But regardless of which one begins to emerge, there doesn't seem to be any compelling impetus in real economic activity that we can see [as cause] for concern right this minute. I think there will be time to have this very murky situation begin to [clarify]. In the area of inflation there may be three possible scenarios working here. The first one--which I think all of us hope is the case and which has a fair probability in my mind--would be that the things we've been seeing the last several months are indeed aberrations and that the disinflationary process that we've had is still more or less in place. I hope that's the case. It seems unlikely to me that we're in an incipient rising new [inflation] trend, that the game is over and [inflation is] on the way back up. Now, we've been talking about that all morning. And a number of possible explanations that would lead one in that direction are out there. That may turn out to be what is happening, but it's very difficult for me to see how that can be, given the fundamentals of the slack in the economy. In my mind the highest probability would be that we're looking at some rough bottoming out process in here, and that may be the toughest of all to deal with. If we are looking at a rough bottoming out process with the kind of economy that we have now, it would really be disappointing to still have 3-1/2 percent or so on the CPI. And what should be done about it? When we think about what should be done about that, if that's the case, we have to have a context or a view of what is happening in the real economy. If we're going to have an economy that will start to accelerate soon and strongly, then it's fairly clear what we'll need to do as soon as that becomes apparent. If the first quarter is the start of a new decline, then we have some very fundamental economic problems that I'm not sure I understand, and maybe nobody understands. What in the world would be going on that would lead us to this kind of configuration? If we have the Greenbook's economy, continuing sluggish growth, that gives us a nice philosophical policy question to answer. Do we try to restrain this kind of economy in order to push inflation lower? If we did, would it work? Or as you suggest, Mr. Chairman, are we perhaps looking at some other kinds of problems that appropriately would require some other answers. It seems to me that this is the type of question that we're going to need to address in the next part of the meeting.",1026
-fomc-corpus,1993,President Jordan.,3
-fomc-corpus,1993,"As things started to thaw out in my part of the country after our last meeting, it seemed like a good time to do a great deal of traveling throughout the District in large and small communities to hear what people had to say. I found it an increasingly depressing experience as the weeks wore on. Had I just stayed at home I could have given you a much better report because the numbers really are not bad. But the mood is totally sour. Our agricultural sector is in good shape. Planting got off to a slow start, but it did dry out and by the beginning of May [farmers] were closing the gap on getting the planting accomplished. As of last week they said they were very close to finishing their seasonal planting. Farm equipment sales--implements of all types--are the strongest in years but that doesn't seem to be driven as much by confidence as by fear [that induces people] to go ahead and get it done. Land prices are up sharply, 10 to 20 percent for agriculture. There is talk of prices up to $1900 an acre, which cannot be sustained by current [crop] prices. Manufacturing is in good shape if one looks at the numbers; new orders and backlogs are quite good. The metals are strong; auto parts suppliers are in good shape and are taking market share away from imports, especially by selling to the transplant firms but also to the domestic producers. Capital goods also are strong both on domestic sales and [exports]; they feel they are able to take market share back from where they dropped before. A telecommunications equipment firm also reports very good sales, with good export sales to Latin America in particular. Coal production is down 13 percent in the first quarter but [our contacts] don't know whether that was weather-related or not. I spent some time touring these coal-producing areas and mostly they're in a shrinking mode; their strategy is a gradual longer-term exit, with a decline in capacity that is planned. Employment wasn't too bad in the District, but there is no sentiment to increase employment. The areas where we had been getting some increases, especially health care, are totally frozen. Staff levels are ""replacement only"" in major communities for health care. One large hospital group said that it had cancelled all openings for doctors and has no plans to fill the openings it previously had listed. Nothing is going on in commercial construction in the District, but in industrial construction there is replacement of capacity. No expansion is planned, but [firms] will build where they need a facility to replace something that is obsolete. The residential sector is pretty strong, both in sales and in construction. When I starting hearing about business loan demand picking up at banks, that seemed to be an element of encouragement. But I was quickly dissuaded from that by bankers who said: ""No, it's people coming in whom we haven't seen in a long time saying that times are going to get tough so they had better get friendly with their banker and [arrange] lines of credit because they are going to need them somewhere along the line."" On prices, the two types of firms that are able to get price increases are those related to capital goods or motor vehicle companies that are experiencing demand. But the others are those that are shrinking [production]; they feel they're ""right sizing"" their operations. So, it's really a shift of supply and a shrinking of their overall capacity. Some of that is defense or aerospace-related and some is in electronics. When I think about the national situation, I still cannot persuade myself that we've entered a period of accelerating inflation [and that] the erosion of the purchasing power of the dollar is worsening. [But] I don't know a single person outside this room who agrees with [me on] that. I've heard over and over again talk about inflation, whether people relate it to the deficit or overall fiscal policy or health care concerns. To me health care can raise costs and redistribute [income], but I try to persuade people that it doesn't mean a sustained erosion in purchasing power and money. And people tend to snicker at me; I have zero credibility. My own daughter was telling me why she was buying a town house at a fixed-rate mortgage in southern California and I was trying to explain some things about southern California's economy. She said I was being totally naive. I explained that I'm a central banker and it's important that I talk about price stability and controlling inflation. She said it was time I had a reality check! [Laughter] She said: ""Why do you think inflation is not going up? You're just wrong."" And I found this same sentiment among bankers and people in small and large businesses. They have persuaded themselves that inflation is going up and there's not anything anybody can do about it. So, even though I felt relieved by the March numbers coming in much better than those for January and February and I thought we were okay--and I still have some reservations about how reliable the April numbers are--I don't think that's the issue. The issue is not whether we really have inflation; I think we have inflation psychology. We have people acting on the belief that future inflation will be higher. That's what we have to address no matter what the statistics show.",1049
-fomc-corpus,1993,Governor Angell.,4
-fomc-corpus,1993,"Jerry, your comments are very much along the lines of my thinking. I learned to fly an airplane very early in my life; I had a father who was my flight instructor who taught himself back in 1931. He spent his life teaching me that the best way to be a general aviation pilot is to find out what mistakes people make. And even though I don't fly very much, I do read very regularly about airplane accidents to find out what mistakes pilots make. And it's interesting to me that the major mistake that amateur pilots make is that they get in bad weather and they don't feel the gauges are right. Somehow or other they think the gauges are wrong. It feels as if the airplane is doing this and the gauges tell them the airplane is doing something else. We're at the place, in the murky weather, where the old monetary aggregates don't give us much help. In this environment, we have to look at the gauges; we have to look at the instruments. And the instruments tell us that inflation is rising. Clearly, inflation is not going to go down to the 2-1/2 to 2 percent level that I thought was doable as recently as one year ago. I think the Chairman is correct when he says that it's not a question of money or credit that explains this phenomenon. Clearly, as others have said, it is an attitude question. Now, in December I made some comments about a 200 basis point increase in the fed funds rate and, Mr. Chairman, you [went further] when you said that 300 or 400 basis points really wouldn't work to change the attitudes. Well, I guess I don't quite agree with that.",337
-fomc-corpus,1993,I didn't say it wouldn't change the attitudes; I said it wouldn't change the--,16
-fomc-corpus,1993,The result.,3
-fomc-corpus,1993,--the result.,4
-fomc-corpus,1993,"Here's what I think would happen. I don't think we should increase interest rates by 300 basis points but, if we did, I'm quite certain the price of gold would immediately begin a [sharp], quick [drop]. It would happen so fast you'd just have to go and watch it on the screen. If we made a 100 basis point increase in the fed funds rate, the price of gold surely would turn back down unless the situation is worse than I anticipate. If we made a 50 basis point increase in the fed funds rate, I don't know what would happen to the price of gold but I'd sure like to find out! [Laughter] Now, I want to remind you that monetary policy cannot do anything about growth except harm it. Monetary policy can't fix growth; monetary policy can only harm growth; monetary policy can only cause growth to be worse. I agree that there are some attitude problems out there and some significantly held belief by the American people and foreigners that the U.S. government budget deficit is out of control. And they believe that because it's out of control the Federal Reserve will not be able to stand firm. They believe that we'll have to give in and that we will have to inflate our way out of this problem. Now, I don't believe that. But the American people do believe that, including, I think, your daughter, Jerry. Maybe she doesn't even understand that; she just knows that inflation is going up. We cannot make growth better in the period immediately ahead. We just can't do that. Now, when I look at the first-quarter numbers in the Greenbook, nominal GDP was 5.2 percent. Mike tells us that if the trade numbers come in [as projected], if real GDP goes up, then nominal GDP may go up also. Now, we only had two quarters of the eight in the current expansion when that 5.2 percent was exceeded; one was 6.2 percent and one was 7.1 percent. Of the eight quarters, the 5.2 percent is [the third highest] and everybody is sitting around wringing their hands about what kind of growth we're [experiencing]. Pardon me, but every time I look at GDP quarterly data I see variations quarter to quarter. I don't know what is going to happen right now, but monetary policy can't fix it. Monetary policy can harm it. Monetary policy is about credibility; inflation is about credibility. Now, if the American people believe that we are not going to act, then this phenomenon of inflation attitudes we have will get worse; if attitudes get worse, that means the tradeoff gets worse. We can fix the attitudes about the Federal Reserve very quickly. And if we fix those attitudes, we will gain stature for our institution and our political system. Our democracy respects proper decisionmaking. If we do what we need to do, [inflation] attitudes will improve. At the last meeting I was very concerned about what commodity prices were doing. And as you know, they got lucky again and told us that the rate of inflation was higher than we thought it was. Now, I know there's nothing to it but they did get lucky. I've had plenty of econometric studies tell me how lucky commodity prices can get. I told you at the time that the reason I had not been upset before the March FOMC meeting was that the price of gold was well behaved. But I said that the price of gold was moving. The price of gold at that time had moved up from 328 to 344, and I don't know what I was so excited about! I guess it was that I thought the price of gold was going on up. Now, if the price of gold goes up, long bond rates will not be involved. People can talk about gold's price being due to what the Chinese are buying; that's the silliest nonsense that ever was. The price of gold is largely determined by what people who do not have trust in fiat money system want to use for an escape out of any currency, and they want to gain security through owning gold. Now, if annual gold production and consumption amount to 2 percent of the world's stock, a change of 10 percent in the amount produced or consumed is not going to change the price very much. But attitudes about inflation will change it. The longer we go with this situation, the more we'll have to increase rates and the higher long-term rates will go. The sooner we move, then the sooner we [will remove] the uncertainty in intermediate and long rates that comes with an increase in short rates. I hope Bill McDonough is correct that a rise in short-term rates will mean that the 10-year rate will fall. Whether that's the case or not to me is a little uncertain, as I think it was to you. That is, I don't know whether people will say: ""Oh my goodness, the Fed is worried about inflation."" If the market's reaction to the first move is that the Fed is worried about inflation, then in that environment I would expect long bond prices to improve. But every 25 basis points we give away on long bond yields--and we've already given 25 away by not acting when we should have acted--is lost. When we act, when we let the American people and the capital markets around the world know that we care about price level stability--that's our mission--then we will be well ahead and we will return to falling intermediate- and long-term interest rates, which will help get growth higher. A monetary policy step at this time is a win/win. I don't know what is going to happen for sure. I hope Mike is correct that the rate of inflation will move back down to 2.6 percent for the remaining 8 months of this calendar year. If we make a move and Mike is correct, we could take credit for having accomplished this and the price of gold will soon be down to the 328 level and we can lower the fed funds rate at that point in time and declare victory. But if what some of us suspect is true--that the Greenbook is a little optimistic on inflation--then it seems to me essential that we take a [firming] step. I don't feel very strongly about it! [Laughter]",1272
-fomc-corpus,1993,Governor Phillips.,3
-fomc-corpus,1993,"Thank you. Clearly, I haven't mastered the timing of when to get my name on the list, having to follow such an impassioned statement. As I listen to the discussion around the table, I'm always struck, but even more so this time, by the vast regional differences and perceptions. These people are trying to bring some anecdotal evidence that gives us some clues on where we're going as opposed to complete reliance on the statistics. So I'm particularly struck this time by the differences regionally. My own read on the national situation is that I think we're more than likely returning to a slower, but I do believe sustainable, growth path. And I don't think that this is necessarily bad. Certainly, there are some areas of strength, and Mike pointed out a number of them. But it does represent a continuation of this operating restructuring that we're going through--the defense restructuring and the balance sheet adjustments. I don't think it's very clear how long this process is going to take. Six months ago or eight months ago we were trying to make projections as to how far along it was. [Now] I think it's pretty clear that we probably can't make those kinds of assessments. People and businesses are trying to adjust to a new order of technology and more complete world integration. In fact, I think the whole inflationary/stable price argument is clearly becoming a central part of day-to-day business decisions. There is the uncertainty that's associated with the Clinton economic program. If you think about it, this Administration has been in office only four months but we've been on an amazing roller coaster with different thrusts. Some of [the ideas] clearly were trial balloons, but some of them were certainly put forward with great fervor as proposed bills. We are still not sure where all of this is going to end up. Nevertheless, all of these arguments do appear to be leading us to more inflationary pressures. So, no matter how it comes out--even though we didn't get the stimulus bill and I think some folks might question whether it was really a stimulus proposal--it is still leading to increased inflationary pressures. I know I have talked about this in the past but I continue to think--and I'll echo some of Si's comments--that the labor markets remain a key to the economic environment. The economy is growing enough to produce some jobs but hardly enough, really, to accommodate even the population growth. I think the unemployment rate does mask some of the adjustments and the turmoil that is occurring in the labor markets on account of the downsizing, the de-layering, and the changes in employment needs on account of new technology. The huge fixed costs that are associated with taking on new permanent employees are clearly deterring many businesses from staffing up. I come back to this whole labor market question continually because I think it's the flip side of what is going to happen with spending and whether or not consumers are going to be able to participate in the stimulation of the economy. So, whether or not this is a setback or a blip, and whether or not this is a long blip or a plateau, I think it's not that unexplainable if we go back to this entire question of restructuring that is occurring. Let me turn to inflation. Like everybody else I'm having a hard time reconciling the recent numbers with the economy. One observation I would make is that we shouldn't necessarily assume or expect a smooth route of progress on inflation any more than we should necessarily expect a smooth route on a recovery. Some bumps and plateaus are likely. We should expect some experimentation in prices as folks attempt to see if they can get price increases to stick. We've seen lumber prices shoot way up but we've also seen them come back down again. In looking at cattle prices, for example, we've seen very strong prices, and they've finally been reflected in some of the meat numbers in the CPI. Tobacco is another example: We saw strong [price] increases--that was what was driving the CPI--but now we hear that we're going to have some cuts. I agree with Jerry's argument on inflation psychology. I think we had inflation for so long that people in demanding wage increases confuse growth with inflation. It used to be that a 6 percent salary increase was nothing. But now that would be fairly large. So, I think it's going to take a long time to work through this entire process. I don't think we should lose sight of some of the countervailing pressures on prices: international competition; weak economies, certainly domestically but also internationally; quality improvements; improved productivity; and weak credit conditions. All of these things may well start to be reflected in prices, so we will see this movement that's a bit up and down. Having said all of that, the most recent CPI and PPI numbers and some of the commodity price increases are clearly disturbing. But we have to recognize that we have considerable difficulty interpreting these numbers, even the ones that are historical, much less trying to address some of the future ones. So, I certainly agree with the Chairman that this is an area that we have to address our attention to. It makes the policy questions that we're going to be facing in the next round even more challenging.",1045
-fomc-corpus,1993,Governor Mullins.,4
-fomc-corpus,1993,"With respect to the real economy, my sense continues to be that we're on a path of moderate growth. I don't really see a change in outlook with the mean between 2-1/2 and 3-1/2 percent, but with individual quarters ranging from perhaps a bit below 2 to a bit above 4 percent. The first quarter is pretty well explained, it seems to me, by the weather and the pullback from the surge in consumption. We had a similar phenomenon last year. As for the employment situation, I know there is a lot of negativism around it; but unemployment has come down from the peak last summer of 7.7 percent to 7 percent. And even California's unemployment rate this last time came down to 8.6 percent; it had been up around 10 percent. When I look at the monthly payroll numbers, I find it difficult to get too depressed. The monthly average payroll growth in the third quarter [of last year] was 25,000; it was 85,000 in the fourth quarter, 147,000 in the first quarter of '93, and it eased off to 119,000 in April. The overtime is at record levels and the employment gains are running at more than double what they were in the second half of last year. So, I think this bodes well for durability and sustainability. Auto sales seem to be holding up; the housing starts numbers were good this morning; there may be an inventory adjustment. Confidence certainly has fallen back from the euphoria of late last year but it has stabilized at levels well above where it was, say, in October. So, I guess people are buying housing and cars. It's hard to become too convinced that we're headed for another serious swoon. On the inflation watch, to paraphrase an old Ronald Reagan TV ad, last time the question was: Is there a bear in the woods? As far as I'm concerned the inflation bear has been sighted--not by our staff I might add! [Laughter] I think they should not be allowed near the woods; I fear for their health. Well, it's a curious phenomenon we've been going through the past [several months]. Perhaps it's a blip; it's a very long blip if it is a blip. Now, I suppose there are many hypotheses. I won't bore you with my own personal list. It's not especially useful to have arguments saying this [upturn in inflation] can't happen with this set of economic fundamentals because that's pretty articulately rebutted by the fact that it has happened and has persisted for a number of months. I feel pretty much the same way about the notion that basically the economy has to slow down for inflation to slow down. It has been slow and we've had rising inflation. I suspect inflation is driven mostly by expectations. That's one of the reasons there's not so much talk about it; it's roughly what people expect. I do think we can affect inflationary expectations, at least in the market. Since I think we have 4 percent inflation, I now see a couple of issues. The first is whether a 3 percent federal funds rate is appropriate in this environment. And, secondly, are we satisfied with 4 percent inflation? To focus on the first question, the more immediate question, I think no one is proposing instituting a restrictive policy to actually try to get on top of inflation in the sense of positive real rates. The only question that I can see is whether one might partially adjust the nominal rate to reflect the reality of higher inflation, leaving real short rates still lower than those prevailing last year. But at some stage we're going to have to think about whether 4 percent inflation is something we want. I thought in the latter part of last year that there was some chance that if inflation continued to decelerate we could hold a 3 percent federal funds rate--that that would be sustainable. The perception was that inflation was 3 percent and falling. Now I have very serious doubts as to whether a 3 percent federal funds rate is sustainable. It seems out of line; it seems to violate some basic tenets of common sense. The last time we had a 3 percent federal funds rate was in 1963. This is not a 1963 inflation environment. When one looks around the world today, the only other 3 percent short rates observed in captivity are found in Japan. And their economic environment in terms of fundamentals is clearly as sluggish as ours, if not more so. But we are not in a Japanese inflation environment. Their inflation is on the order of 2 percentage points below ours. Obviously, we had a lot of opportunity to choose a federal funds rate 1 percent below the inflation rate last year and chose not to do it. I would suggest that the result of the negative real short rates in the 1970s was not pleasant. So, I rather doubt that anyone parachuting into this economic environment would choose a 3 percent federal funds rate. Now, perhaps real short rates don't matter, at least in a weak economy. We certainly instruct the weak economies of eastern Europe and the former Soviet Union that the one thing they have to do is to get that nominal rate at about, or a little above, the inflation rate. We certainly felt that significantly positive real rates made a lot of sense in late 1990 and early 1991 [even] with negative real GDP growth because of concerns about price stability. However, without the aggregates to guide us, I think it's also a pretty visible and simple measure which people may focus on. I wish we had the aggregates to guide us; we don't know what is happening to the hypothetical, shadow M2. I suspect it may be growing pretty rapidly, given the volume of funds going into the stock market. It is true, clearly true, that we don't understand the transmission mechanism well. But I don't believe the lack of thorough understanding should lead us to ignore what seems apparent to me: namely, that 3 percent short rates seem quite a bit out of line. So, I don't have a lot of doubt that we're going to feel that the 3 percent needs changing. The question is one of timing, and my argument is for sooner rather than later. The concern is that as people start to look at the recent inflation performance, it stands in direct contradiction to our publicly stated objectives. It also stands in visible contrast to the FOMC's inflation forecast of 2-1/2 to 3 percent issued only a few short months ago in February. If we stand by while measured inflation shreds our publicly stated convictions and forecasts, the concern I have is that the long rate will continue to rise. As Governor Angell mentioned, we've already lost 25 basis points. As inflation concerns fester, I think long rates will move on up. And in my view perhaps the market needs a signal that we're not going to allow this to get out of hand, that we actually do care about inflation and that this caring goes a bit beyond just the rhetoric. We lagged the market on the way down and I thought that conserved credibility. But in the opposite direction if we wait until we're dragged up by the market, I think that will extinguish credibility. A measured response could limit the damage on the long end of the market. To me this is important not just for long-term concerns but for near-term growth as well. The only component of the current environment that is stimulative or conducive to growth is the capital market environment and in particular the long bond rate. My concern is that, with rising inflation unchallenged by the Fed, the long end could deteriorate quite rapidly. Ultimately, it's not up to us whether we tighten or not. The markets are going to tighten on the long end as people focus on the inflation and start thinking about it. And that's going to have whatever impact on the economy higher long rates will produce. We can't do anything about that. What we can do, and about the only thing we can do, is to try to limit the deterioration in the long end by indicating that we're on the job. I think the long rate would likely move up a bit if we made a measured move. But if credibility matters at all, somehow at the end of the day when all the dust settles the capital market environment and growth prospects should be better compared to a situation with Fed inaction. So, I think a lot is at stake: not only the credibility [of] long-term success but the capital market environment [of] near-term success. The risk of waiting too long is that market participants will start to focus more and more closely on inflation. They will look back not just to the beginning of the year but to the fourth quarter as well. They will look at our forecasts and our statements, and the market will start to price in concerns and hypotheses about Fed inaction. And I believe this could do serious damage not only to credibility but to long rates, [including] mortgage rates, and to the near-term outlook. To summarize, I do see a changed environment. There is no compelling evidence of any change in the outlook for growth; I think we're still sort of in the middle there. We have a very different inflation environment than the one we thought we were in, one in which inflation has been running much higher. And the question is: Does the same federal funds rate of 3 percent make sense with no material change in the outlook for growth, which is the way I see it, and an environment of much higher inflation? It seems to me that if it made sense in the old environment, it doesn't make sense in the new one. And my preference would be to face up to this sooner rather than wait until the market takes it out of our hands.",1984
-fomc-corpus,1993,Vice Chairman.,3
-fomc-corpus,1993,"I'll try to do this in three sentences. First, my instincts about the real economy have not changed much; Governor Mullins was on the mark there. But as I've said at several meetings running, I still do not have any great conviction about the future in terms of the real economy. I still think it could be stronger, but it could be weaker; I just don't have that conviction. I want to second very strongly the comment you made at the outset of the meeting, Mr. Chairman, about the situation in Europe. I was not, as you know, at that last Basle meeting, but the string of visitors who passed through after the Interim Committee meeting, both on the official side and the private side, were gloomy across the board. I mean really gloomy. The third point is that I don't understand this inflation situation any better than anybody else does. I think we cannot dismiss it as simply broccoli prices and other wholly transitory things. On the other hand, I do still think that economic fundamentals matter. And while I probably am not as hopeful as Mike Prell, I don't think I'm quite as gloomy as some others appear to be in terms of where we are going. But I agree that it is a changed situation.",249
-fomc-corpus,1993,"I don't know whether the coffee is cold or not, but it's out there.",16
-fomc-corpus,1993,David.,2
-fomc-corpus,1993,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1993,"Thank you, David. Questions?",7
-fomc-corpus,1993,What's been happening to M2 plus flows to funds?,11
-fomc-corpus,1993,"We have attempted to construct an M2 plus mutual funds. We've tried to define the bond and stock mutual fund component of that aggregate as consistent with M2 by pulling out the IRA/Keogh components of bond and stock funds and also institutional holdings, which unfortunately are reported to us only once a year. We, therefore, have had to interpolate. The most recent data we have for this measure are through March. They show that whereas M2 has fallen since December, M2 plus mutual funds was about flat in January and February before jumping up to a 6.7 percent rate of growth in March. As you may remember, M2 growth for all of last year was 1.8 percent and growth of this broader measure was about 4-1/2 percent or so.",159
-fomc-corpus,1993,Thank you.,3
-fomc-corpus,1993,In alternative C you state that you think the impact of higher rates would cause the prime rate to go up by 1/2 percentage point. How strong are your convictions in light of this historically large spread between the cost of funds and the prime and also the very weak demand for bank credit?,59
-fomc-corpus,1993,"Well, they are not absolute but our guess was that banks would tend more or less as a knee-jerk reaction to maintain the spread, given the opportunity. Presumably, at some point those spreads would come down but I'm not sure it would be tomorrow if the FOMC decides to move up the funds rate.",65
-fomc-corpus,1993,"Any other questions? If not, let me start off. Frankly, I found this a really interesting meeting in the sense that there is a new view about what is going on out there which I found quite intriguing. In fact, I think it explains part of what the big problem is. It's interesting to go around the table, especially hearing the presidents, and to get the sense of this political pessimism which seems to have emerged. It's a relatively recent phenomenon. It's the type of thing that we, of course, have been exposed to inside the Beltway to some considerable extent. The Washington Post has been publishing all this to a large extent. There is some evidence in the political polls, which show a deterioration in the view about where the country is going, etc. What is new is that I haven't heard this in the business community at the level that I've been hearing it around here. What this suggests to me is a possible explanation of what, indeed, is going on in the inflation area. As I indicated earlier, I don't think one can look toward the fundamentals for an explanation. One of those fundamentals is protectionism; but even though it is a key factor, it cannot be contributing a large-size impact on inflation at this stage. I think the effects of regulatory changes are real, but again we're talking a minimal effect of .1 or .2 percent. It strikes me that what we are dealing with here are very strong and in a certain sense accelerating psychological expectations--pessimism or concern about whether this country has the capability of politically solving the problems which the markets have been terribly concerned about. The deficit has been hanging out there for a long while and it is only very recently that [unintelligible] the current services deficit starts to turn up in the long run. In effect we've seen in recent years an extraordinary tilt in the yield curve, which is very suggestive of that. The long-term view is one which is scarcely positive. Now, if you superimpose a deep-seated pessimism on the outlook and if you argue that the transmission mechanisms that we're all used to are fundamentally psychological, then the reason why slack labor markets affect wages is essentially that people react in a certain way; they [assess] their prospects and they bid in the markets accordingly, and those markets work. And it's true, as I indicated before, in the price area as well. So, the major issue in examining inflation is not to start where we usually do in trying to look at slack markets and money and credit and to watch the transmission affect the price level. It's really important for us to recognize in looking at prices--assuming that prices are correctly calibrated, and there are problems, so obviously that is a question--that the price levels and the wage levels tell us what people are doing. And then it's up to us to figure out why they're doing it. That they are doing it is without question. The question that we've really got to confront is: What is the mechanism? I must say, having looked at all of the data and having done all the contemplating that I could, I cannot believe that anything other than inflation expectations is embodied in here. Clearly, actual inflation can run up wholly independently of the real world for a while; ultimately, the real world will cave in. The problem, however, is that before the real world works, the very fact of the price movements themselves has real world effects. So, we're dealing here with a very interesting problem in which the underlying inflationary expectations can have real world effects. We cannot view this type of outlook by stipulating that there are fundamentals and then there is the psychology, because that's not what happens. What happens is that when interactions begin, they basically change the fundamentals. Now, I don't know whether or not this [increase in] inflation is a bubble or a blip as some of you said. I don't know whether it's deep-seated and irreversible. It may well be that the President will get his budget passed very quickly and this whole [issue] will dissipate. That's the expectation on the Hill. I frankly don't know whether it's true or false. I do know that great certainty at this particular stage about what any of these variables is doing is probably ill advised. What we have to deal with here is something that I would suspect we have to watch very closely. I think Governor Mullins is right that a 3 percent funds rate is too low. I think we've known that for quite a long while; the issue has never been that. The issue is: When do we move? I would suggest that while there is a remote possibility that we may not want to move at some point in the future, it has to be pretty remote. My inclination for today--and I'm frankly most curious to get other people's views--would be to go to a tilt toward tightness and to watch the psychology as best we can. By the latter I mean to watch what is happening to the bond market, the exchange markets, and the price of gold, and try to sense whether inflation is accelerating or dissipating. It is perfectly credible, having lived through these types of things many times in the past, that this [upturn in inflation] can suddenly begin to deflate. It has happened innumerable times in the past. I know that both Governors Angell and Mullins have argued that there is a 25 basis point ratchet in the long bond. I respectfully submit that you know, more than anybody, that if you really seriously believe that that is a ratchet, it can go either way. I must say I agree fundamentally with the philosophy that both of you are raising and the only point I would raise is the rachet issue.",1155
-fomc-corpus,1993,"It has gone up 25 basis but not entirely due to this, necessarily.",16
-fomc-corpus,1993,"That's the point I'm trying to get at. In any event, my initial inclination--and frankly this is a very tough issue and one that has all of us sort of swimming around--would be to have a tilted directive and to keep a very close eye on the situation and see day by day what is happening. If this [inflationary expectations sentiment] simmers down in the marketplace, then I think the next sign post is what actually happens to the price indexes because that clearly will have a significant psychological effect. I also think this is one of the rare times when we ought to have more frequent telephone conferences as events evolve. And rather than take any action today, which I don't think would be desirable for a number of reasons, I would very much like as a starting point to go to an asymmetrical directive and then just watch developments and perhaps have one or more telephone conferences until we get a better feel on this. We are in an unstable environment and I think it can go either way. That would be my recommendation. I have one other issue I'd like to throw on the table. I hesitate to do it, but let me tell you some of the issues that are involved here. If we are dealing with psychology, then the thermometers one uses to measure it have an effect. I was raising the question on the side with Governor Mullins of what would happen if the Treasury sold a little gold in this market. There's an interesting question here because if the gold price broke in that context, the thermometer would not be just a measuring tool. It would basically affect the underlying psychology. Now, we don't have the legal right to sell gold but I'm just frankly curious about what people's views are on situations of this nature because something unusual is involved in policy here. We're not just going through the standard policy where the money supply is expanding, the economy is expanding, and the Fed tightens. This is a wholly different thing. Anyway, I'm most curious to get your views in these various respects, so please don't be afraid to throw things out on the table.",415
-fomc-corpus,1993,Just a question.,4
-fomc-corpus,1993,Yes.,2
-fomc-corpus,1993,"Mr. Chairman, last time you argued very eloquently against an asymmetric directive because of the costs involved. I was wondering what has [changed].",29
-fomc-corpus,1993,Costs?,2
-fomc-corpus,1993,"Well, I can't say it as well as you did last time, but the case against an asymmetric directive last time was that there are fixed costs in our putting out [such a] directive. And in fact you persuaded me actually to dissent. So it's relevant.",53
-fomc-corpus,1993,"I'm not sure I referred to ""fixed"" costs.",11
-fomc-corpus,1993,"The argument was that it's better to move from a symmetric directive, that there's nothing to be gained from--",21
-fomc-corpus,1993,"No, what I was arguing then--remember the two-month moving average on inflation then was higher than it is today and either it was going to come down dramatically or not--was that it wasn't going to matter whether we moved from a symmetric directive or from an asymmetric directive. My impression now is that we are truly asymmetric and that we are looking at a process which is different from the one that existed previously. I did not have a view that what we were looking at was essentially a risk driven by inflation expectations. In fact, I don't think I raised that issue; my recollection eludes me. This is different. I think this relates to a large extent to the political-psychological issues. I thought Jerry Jordan [said] it best: When he looks just at the data everything looks fine; when he goes out into the boondocks he sees awful attitudes. I don't know how many of you said it; I didn't write it down, but there were five or six of you who said that. And it's certainly very startling.",210
-fomc-corpus,1993,"I'd like to ask you a question also. When you mentioned where we are, if the dollar were to weaken somewhat on foreign exchange markets do you think it would be appropriate in that circumstance to surprise everyone and not sterilize the intervention?",47
-fomc-corpus,1993,"Well, that's another way of saying just raise rates.",11
-fomc-corpus,1993,"I know, but it seems to me that the timing would be--",14
-fomc-corpus,1993,I think we would confuse the market. I don't know how they would read that. It would take them a long while to figure out what was going on. Supposing we intervened for $200 million and didn't sterilize; I don't know what it would do to the funds rate.,58
-fomc-corpus,1993,I think people would be so busy trying to figure out what we'd done that I doubt the funds rate would move. I think it would just enormously confuse people.,32
-fomc-corpus,1993,"Yes, that's frankly my impression.",7
-fomc-corpus,1993,You think a $200 million change in reserves would cause the fed funds rate to move definitely?,19
-fomc-corpus,1993,Our intervention today was a two-day System repo of $3-1/2 billion.,18
-fomc-corpus,1993,Yes.,2
-fomc-corpus,1993,"The law of supply and demand doesn't get changed at all by $200 million. So it would be only the signalling effect, and the signalling effect would be to confuse.",34
-fomc-corpus,1993,We have to tell them what the fed funds rate is!,12
-fomc-corpus,1993,"The problem is that there are a lot of other things going on. If you held everything else equal and affected borrowing by $200 million, that would have a big effect.",35
-fomc-corpus,1993,"But what I meant was that if we change a path by $200 million, that's quite a few basis points, right?",25
-fomc-corpus,1993,"Oh, my goodness! [Laughter] You're approaching zero or near double-digits, I think, with that kind of change. Maybe that's slightly exaggerated.",32
-fomc-corpus,1993,What other meaning can you give to non-sterilized intervention than a change in the target?,20
-fomc-corpus,1993,"Well, around current levels, [we estimate that a change of] $25 million in the borrowing level will have a 50 basis point effect. So, you're talking almost 10 times that much.",41
-fomc-corpus,1993,You could demonstrate the $25 million of foreign exchange intervention--,12
-fomc-corpus,1993,I think it's an interesting idea but it's too complex. Why create uncertainty when what we're trying to do is to eliminate it?,25
-fomc-corpus,1993,"May I ask a question that relates to that uncertainty and trying to reduce it? If an action that results in a higher funds rate, which would be the first increase in I don't know how many years--",41
-fomc-corpus,1993,This is the longest period we've gone since when without changing the funds rate?,15
-fomc-corpus,1993,"Well, we haven't changed it since September 4th [of last year].",16
-fomc-corpus,1993,We haven't raised it since February of '89.,10
-fomc-corpus,1993,"So, if it's the result of an action by the Committee after a full set of deliberations, I don't know that it would raise many questions in the minds of people as to what happened. [It would be clear] that this Committee looked at a whole lot of things and in its collective wisdom decided to raise the funds rate. But if it's done as a result of an asymmetric directive, which involves discretion, then what it was that triggered the increase is going to be very important.",98
-fomc-corpus,1993,Let me put it this way. I would have no intention of acting on that directive without full consultation of this Committee because it's a very important move.,30
-fomc-corpus,1993,"So, would you have a vote?",8
-fomc-corpus,1993,"That depends. The evidence may be sufficiently startling that a vote may not be required. The answer to the question is that I don't like to take votes on the telephone; I don't think we've had many and I would prefer not to. But this is a very unusual situation, and I'm not sure how I would [do it]. We could have a vote in that event.",75
-fomc-corpus,1993,It seems to me important that the Chairman's powers not be diminished to require a vote. I just don't think we want to do that at all.,30
-fomc-corpus,1993,"The purpose of an asymmetric directive is to give the sense of the Committee to move in that direction. And if we're going to meet frequently, then the notion of tilting it one way or the other seems to me to lose some of its merit.",50
-fomc-corpus,1993,I think that's right.,5
-fomc-corpus,1993,"If it's too important a decision to move without making sure you have the Committee's agreement, then you can decide it then. We don't need to bias it.",32
-fomc-corpus,1993,"That is a very legitimate issue, and I would be fully willing to agree to that because it does raise an interesting question as to what the meaning of asymmetry is if we're effectively going to go back into a meeting. The Desk can move from symmetry as well as asymmetry. But it does raise the interesting question as to what would be the appropriate vehicle. I do not feel strongly on this question and I would yield to whatever the Committee would be interested in doing.",94
-fomc-corpus,1993,"Just to add to Ed's point: If we think the inflation issue is expectations as opposed to real, it seems to me that an asymmetric directive, which no one will be aware of for another six to eight weeks, isn't going to do anything for us. An asymmetric directive that won't be known for eight weeks isn't going to do anything with regard to the expectations issue. If in fact the inflation increases are sustained, then it seems to me we ought to move in a way that will deal with those issues, and that ought to follow a phone call. Therefore, I think the asymmetry confuses the issue and doesn't deal with it. My thought is to leave the directive as is but be very specific that we will have a phone call.",149
-fomc-corpus,1993,"That is a very thoughtful note. That's the other side of this argument, and I think it's important to put that on the table.",27
-fomc-corpus,1993,"Mr. Chairman, what would be the trigger point for the consultation? Are you going to be waiting for the next PPI and CPI?",28
-fomc-corpus,1993,"No, not necessarily. It would be a judgment that something is deteriorating and the Committee must address it. If this simmers down, and I think there's a reasonably good chance it may do exactly that, then we can remain tranquil until, say, the next PPI/CPI comes out. If that is tranquil, then we can afford to stay where we are, as far as I'm concerned.",81
-fomc-corpus,1993,I think the Committee should remember that the reason for having [an asymmetric] directive is that sometimes the deliberation/decisionmaking process is facilitated by having the Chairman be free to make the moves that need to be made based upon what the Committee has said. I guess I thought that's what you were after.,61
-fomc-corpus,1993,"Let me put it to you this way. My preference is to have an asymmetric directive on the grounds that, as I listen to the Committee, that's my inference as to what the [consensus] is. However, it's my inclination on a very serious issue of this nature to consult with the Committee--because it's a very important move if we move--and I think the Committee should be satisfied that everyone has had his or her say in this regard. In that context, I don't think it's going to look that bad whether there is a symmetrical directive or not. The question basically is the choice of the Committee as far as I'm concerned. Vice Chairman Corrigan, you've been around here for a long time. What's your view?",146
-fomc-corpus,1993,"Let me make a factual observation and then a comment--not that we should let facts get in the way of these things. On this inflation issue, the question, aside from the diagnostics of what is causing it, is really: Where are we? It's clear that achieving the further progress toward price stability that everyone is hoping for in 1993 looks a bit remote at this point. But the other side of the question is that while we may not be doing as well as we hoped, are we doing as badly as we think? Of that I'm not so sure, so I think a little perspective here might be useful. Look at the core CPI in the first and second quarters of the years 1990, 1991, 1992, and 1993. In '90 it was 5.3 and 5.5 percent; in '91 it was 6.5 and 3.8 percent; in '92 it was 4.2 and 3.3 percent; in '93 it is 4.1 percent and--if you take the Greenbook [projection for the second quarter], which I'm quite prepared to do--3.3 percent. Now, that's not what we had hoped for. Again, Wayne or David made the point that the number reported in the Humphrey-Hawkins testimony as the central tendency of the Committee was 2-1/2 to 3 percent or something like that. So, in that sense things aren't working out as well as we had hoped. But at least to date I'm not yet quite persuaded that the genie is out of the bottle. If you look at the experience at least so far, while there's no question it's not what we want it to be, I'm not so sure that I'm personally ready to concede the point that all is lost. I don't think it is. Now, on the question of procedure: First of all, under any circumstance I have always believed that no matter what we do we've always got to leave the Chairman with maneuvering room. I don't care whether the directive is asymmetric or symmetric; to me that's irrelevant. There always has to be that powerful, powerful prejudice that leaves the Chairman with flexibility when he needs it. Having said that, and putting aside my own views about policy which will come later, in my mind's eye one argument for an asymmetric directive that I don't think has yet been mentioned--it has nothing to do with process--is that if it turns out that things do start to look a little better, we're going to look a lot better by virtue of having that asymmetric directive on the record.",529
-fomc-corpus,1993,"When you say ""look a little better,"" look a little better in what sense?",17
-fomc-corpus,1993,"If overall performance starts to look better in terms of the economy, inflation, or both, and that asymmetric directive is on the record, I think institutionally that makes us look better. In other words the signal is still there that we weren't insensitive to what was going on.",55
-fomc-corpus,1993,"Yes, we noticed.",5
-fomc-corpus,1993,"Yes, we saw the bear in the woods; he went back to hibernate but we saw the SOB. This seems to me to be a win/win [situation] because if on the other hand it turns out that things aren't so good--that the bear is out in the corn field or the back yard--and we have an asymmetric directive that we've utilized, we're better off as well. So, putting aside all of these complicated questions of process, I think those arguments should be part of the picture. As a matter of fact, I think the substantive arguments are more important in this setting than are the process arguments.",127
-fomc-corpus,1993,"I think the substantive issue here is a crucial one, and how we want to handle it relates to the secondary picture of the question. President Broaddus.",32
-fomc-corpus,1993,I had a question but it was answered earlier. Thank you.,13
-fomc-corpus,1993,"I was going to make the point that President Corrigan made. I think an asymmetric directive captures at the minimum where we should be. And I see no down side from it; we can only look good. If things get better, it says at least that we were concerned about [inflation] and were focused on it. It also says the same thing, as Jerry mentioned, if things get worse. If we don't have [an asymmetric directive], then I think it says that somehow we were not attuned to or did not recognize the situation.",111
-fomc-corpus,1993,"You're raising an interesting point. There's a timing question here. Let me just say for the sake of argument that we move from a symmetrical directive three weeks from now because of certain events that are occurring. If we do that, it gives the impression that we are moving because 24 hours before something happened whereas if we--",64
-fomc-corpus,1993,It's event driven.,4
-fomc-corpus,1993,It means that there is a process--,8
-fomc-corpus,1993,"And I think it's worse if inflation gets better because then, looking back, people will wonder: Shouldn't they at least have been on watch? Again, I just see no down side. Last time perhaps there was a down side in the sense of alerting people. I don't think it affects process at all but instead will communicate, though not for quite a while. But it will communicate the right things.",82
-fomc-corpus,1993,President Syron.,4
-fomc-corpus,1993,"Actually, my view on this just changed 180 degrees based on what you said. My original view was that there was a cost to going asymmetric and if the economy were to weaken and prices were also behaving favorably, given the timing of Humphrey-Hawkins--. But I'm persuaded by the point you just raised that if we have to act, it's much better that it be seen that there was an extensive discussion of this and not that a number came in out of the sky and that we were acting just on that number. So, I changed my mind 180 degrees based on that.",120
-fomc-corpus,1993,President Parry.,4
-fomc-corpus,1993,"I guess I'm persuaded by the arguments for asymmetry. It seems to me that if what we want to do is to deal with inflationary expectations, then the most effective way to do it--in terms of when we change the rate--is to do it by vote to show the full Committee's participation in that decision. I'd say it would be even better at a meeting, either this one or the next one, but certainly by telephone if not that.",92
-fomc-corpus,1993,Governor Lindsey.,3
-fomc-corpus,1993,"I have to agree with what President Parry just said. If what we have is psychology, we want to deal psychology a death blow. I think that is [best] done at a meeting and I would suggest now. I think we have another problem. Governor Angell and I may have more of a problem than anybody else; on Friday our dissents [at the March FOMC meeting] will come out. And it will be obvious that the Committee considered a move and rejected it again at this meeting. So, I would again say that the best thing to do, if in fact what we have is psychology at work, is to [vote for] an increase at this meeting.",140
-fomc-corpus,1993,President Keehn.,4
-fomc-corpus,1993,"May I just ask a technical question in reference to Jerry's point? I haven't had the feeling that the difference between symmetry and asymmetry necessarily constrains your ability to make a move. It seems to me that as the Chairman you ought to have the ability to make a move under [changing] circumstances as you see fit. Asymmetry means to me that we would go into the intermeeting period [ahead] with a very strong bias toward making a change to tighten, and I don't think the lack of asymmetry necessarily ought to inhibit your ability to tighten if in fact the numbers [develop] in a way that makes that seem the appropriate thing to do.",133
-fomc-corpus,1993,"Well, let me just say that I'm not sure that whatever happens in the real world over the next period of time is going to be significantly influencing our decision relative to whether we were symmetrical or asymmetrical. Normally when we talk in those terms we are talking about real economic variables and we are looking at whether or not the economy is [weakening] or strengthening. It happens in a gradual way. Remember that when we were asymmetric toward ease for a long period of time it was because what we were seeing was a gradually sagging economy. And we could anticipate how we'd react. This is really quite different. This is almost a bubble. It is either going to go burst and disappear or it's going to build up. I don't visualize looking at that sort of process in the same manner. I think how we stipulate our directive is probably irrelevant to how we will want to behave. So, as I said before, I don't consider it a big deal one way or the other. And I don't think it will significantly affect what this Committee does or how we do it. I think it's strictly a perception question of how we wish to be recorded in this particular meeting and under what conditions. And there are arguments on both sides of that.",248
-fomc-corpus,1993,"Si, just to emphasize in case I wasn't clear, I agree with you: There's no question that with or without asymmetry the Chairman always has a margin of flexibility. I was trying to suggest that on the issue of whether to prefer symmetric or asymmetric--not that they are the only possibilities but just focusing on those two--the substantive [reason] for having an asymmetric directive is that no matter what happens, if things get worse or if things get better, the Committee is at that point on the record as having been vigilant and alert.",108
-fomc-corpus,1993,"The cost of an asymmetric directive, I think, is not insignificant. If, for example, this turns out to be an inflation bubble--if it turns out not to be a problem and goes away--but the real sector because of all the uncertainty about tax policy and so forth turns out to be a good bit weaker than we [anticipate], we're going to look pretty trigger happy. So I think there is a cost involved. I don't know if it's going to come out that way but we have a very uncertain environment. The situation can go either way both on the inflation front and on the real growth front. I think we need to watch it very closely and we need to show that we have an open mind as to which direction policy is going to go. If circumstances warrant a tighter policy, then let's tighten. I think deeds, not words, speak to expectations. I just don't see that asymmetry buys us very much. There can be a plus to it, but there can be a negative to it. And I don't think we need to take the chance. We're going to meet frequently.",222
-fomc-corpus,1993,"Let me state that we have another tool, which we're not discussing, that can be used here--not as far as policy is concerned because I think we've all concluded that policy will be what it is--because we're talking now about the question of perceptions. We haven't discussed the fact that we do have a policy record--I beg your pardon, minutes. And we have the capability in those minutes, depending on how they are stipulated, to characterize what we are doing. And that should readily capture the particular problems that we are all addressing here. So, in viewing this I think we ought to try first to find a means by which to separate what policy is and then to discuss the issue of how we wish to be perceived. If we can make that distinction--and from what I can judge I think most of us would be willing to do that--they should be handled separately. President Jordan.",180
-fomc-corpus,1993,"I had started off this year hoping that inflation would be less than last year; but much more importantly I believed that inflation this year was going to be less than last year. It has already been mentioned that it would take [an inflation rate of] 2.6 percent or something like that for the rest of the year [to achieve the staff forecast for inflation]. But I had been thinking more that 2-1/2 percent nominally should be a goal that was doable this year for the whole year, which would have been an average of .2 for every month of the year. Now, if it averages .2 for the remaining eight months, that still is going to hold inflation only at last year's level, and I find that unacceptable. So, I think there is already enough information, that nothing else needs to be learned, and that an immediate action is warranted.",178
-fomc-corpus,1993,President Forrestal.,4
-fomc-corpus,1993,"Mr. Chairman, we're obviously operating in a very difficult environment and within parameters that may be quite different. I think I could make an argument for easing on the basis of a decelerating economy just as I could for tightening in the light of the recent inflation numbers. Given the amount of pessimism that is out there, given the employment situation and the high level of unemployment--even though it has come down, 7 percent is not a desirable number--a tightening action could well abort the expansion or certainly cause greater deceleration in the economy. And I think we have to be as attentive to that as to the inflation numbers. Now, it may be that we will have to make a move to counter inflation but before we do that I think we have to be very sure that inflation is really on an upward trend. Inflationary expectations may be out there, but I certainly haven't heard anybody in our area of the country telling me that they're concerned about inflation. Maybe they should be, but there isn't any concern about it. I agree entirely with Governor Angell that monetary policy can harm the economy. If we were to make a premature move, we could harm the economy; and I think we ought not to be doing that. Again, these inflation numbers may be temporary. They may not be but they could be, and I think we have to be very careful before we overreact to the inflation numbers. So, I would not be in favor of any move at this time and I agree with your prescription in that regard. On symmetric versus asymmetric, in light of my views on the economy, I think we ought to have a symmetric directive. The down side of having an asymmetric one is exactly as Ed Boehne described: We could be viewed as overreacting to the inflation numbers if in fact they get better. So, I hope if we have to take action that we do it very, very deliberatively in light of real information about a trend in the inflationary situation.",400
-fomc-corpus,1993,President Hoenig.,4
-fomc-corpus,1993,"Mr. Chairman, my inclination is to say that although there is some pessimism, it is fiscal-related. My own bias is that these inflation numbers are bothersome and that tightening would be the better path if I were convinced that they were permanent. At this point I am willing to wait and see a little longer. So, I would leave [policy] the same. When we do act, though, I think it should be by vote, so I would also say symmetric for now.",99
-fomc-corpus,1993,President Broaddus.,5
-fomc-corpus,1993,"Mr. Chairman, I'd like to support action today. As far as I'm concerned, the issue is credibility. I think Governors Mullins and Angell made that point very eloquently. In matters of credibility there is no substitute for action, so I think a good move today would be to raise the funds rate 1/4 point. Yes, there are risks, but it's possible to exaggerate those risks. The funds rate now in real terms is negative. I think it's easy to overstate the risk to the economy of a small increase [in the funds rate]. The other point I would make is that if we wait until we're absolutely certain and convinced that the inflation trend is upward--we've been down that road before--we may well have waited too long. That would reduce our credibility and it might be quite costly to regain it. So, I would favor action today.",178
-fomc-corpus,1993,Governor Angell.,4
-fomc-corpus,1993,"Maybe I'm haunted too much by late 1986 and early 1987. At that time a lot of regions of our economy really were pretty sick. You could put a football over the map of the United States and put one end on Phoenix, Arizona and the other end on Pittsburgh, Pennsylvania and lay that football out and the economy would really [unintelligible]. Talk about pessimism and talk about depression and talk about the fall in land values from $1700 an acre to $900 an acre and in Iowa from $3100 down to $1400! That pessimism was strong. It was hard to see then, but we knew what was there if we looked at commodity prices and gold. And yet when we got ready to act, we were so incapable of acting because events got in our way. This speech is about events that may get in our road. One event was the Louvre Agreement. When the Louvre Agreement [existed], it didn't seem appropriate for us to make a move because in some sense that was a part of what some of us thought was a deal. And then we got into May of '87 and the dollar got strong; and I remember Paul Volcker saying: ""Well, is this the day we want to increase rates?"" And I felt that the dollar was strong on that day, [so] maybe we didn't want to do it then. We didn't do it; events got in the road and all of a sudden we found ourselves with the wrong fed funds rate in the fall when you came on Board, Mr. Chairman. So, of course, I want to act today. I want to raise the rate today. I'd be satisfied with 25 basis points. That's crazy when I want 50, but I'm a compromising person. [Laughter] I would recommend to you--in a sense I've taken myself out of the decision--that you stay with the Chairman's recommendation on an asymmetric directive. I think it's very important that you do that.",403
-fomc-corpus,1993,President McTeer.,5
-fomc-corpus,1993,"My preference would be for no change today but with an asymmetric directive toward tightening. I think having that on the record in the future is more likely to be in our favor than against us for reasons that Jerry Corrigan and Governor Mullins mentioned. For psychology, I think we ought to get Governor Phillips to dump her bracelet on the gold market at some point!",72
-fomc-corpus,1993,Governor LaWare.,4
-fomc-corpus,1993,"I'm marginally persuaded to go with asymmetric toward tightening. But I must say that I'm rather astonished that Bob Forrestal is the only one around this table who has even discussed the possibility that tightening might have a very, very serious effect on economic growth. That is what worries me. And the political reaction to a dumped economic growth rate could have much more serious inflationary implications and also serious implications for the future of deficit reduction. So, I think we ought to be very, very careful not to move until we're really persuaded that there are overwhelming reasons to do so.",114
-fomc-corpus,1993,President Keehn.,4
-fomc-corpus,1993,"Mr. Chairman, my earlier comments were really observations and questions. Just to be clear as to where I come out on policy at this point: It seems to me, as we went around the table and talked about the economy, that the general thrust was that the economy is okay but there was a theme that some moderation has taken place in terms of growth since the last meeting. I didn't hear anybody talk about a growth rate that to me would be high enough to sustain this inflationary trend that we're worried about. It does seem to me that Ed Boehne makes a very compelling point on this. In light of all that, I'd be for alternative B with symmetric language. But I would be prompt to take an action by telephone if something in the future would warrant that.",156
-fomc-corpus,1993,President Syron.,4
-fomc-corpus,1993,"Mr. Chairman, just on the issue of policy itself, it seems to me that credibility is a two-way street. It's important to maintain credibility but I fully agree, as I think everyone does, that we are--using your words--in an unstable environment. I would argue that psychology is poor not just on the price front; we heard a lot of that. I think we're in a situation where a lot of our institutions look very weak. And the Federal Reserve is one institution that hasn't looked weak so far. So, I'd be pretty cautious about running off and doing anything that looks too much like overreacting in one direction or another. And for that reason I would strongly feel that now is not a time to do something. Also, on the psychology front, [unintelligible] even on prices unfortunately the markets would react with it. I'm not sure Jerry Jordan's daughter would react right away [in terms of] what she wants to pay for the house if we raise the funds rate 25 basis points. For a lot of people we would have to wait until it affects their pocketbooks and they see some impact from that. On the question of symmetry, I think that's not an enormous issue. It depends an awful lot on whether we end up being wrong, which is at least a 50/50 chance. How would we want to present ourselves in that case? Where is the lesser cost of being wrong? I think it probably is to be asymmetric.",298
-fomc-corpus,1993,"Yes, having heard the conversation here, I think that's the real question. It's not what happens if we're right, but how we want to appear if we're wrong. Since we are the central bank, if we're going to be wrong, we should be wrong on the side of preserving the currency. That's where I guess our bias should be, provided we don't allow that to affect how we are going to--",81
-fomc-corpus,1993,"One small last point: On the issue of implementing policy--and several colleagues have said this--this is an important enough point that I hope we would have a telephone conversation. Everything else being the same, I would hope that people could be recorded if this is seen as a critical problem.",58
-fomc-corpus,1993,"Well, I take that as a serious question and I think it's going to depend to a very substantial extent on what happens out there. I hate to go out of a meeting with the degree of uncertainty that we have. But the uncertainty is real; and we're not going to change the level of uncertainty by making believe that it is unreal. Let's face that. We happen to be meeting at this particular date because that is what was on our calendar. If we were meeting on a different date, we'd probably have a greater degree of certainty about what is going on. Governor Kelley.",116
-fomc-corpus,1993,"Mr. Chairman, we've been around this bush a number of times now. I would support no change with an asymmetric directive. The reason I like the asymmetric directive is that I think it reflects the fact that this Committee is on top of the situation and is concerned. That is the case and I think we should have an asymmetric directive for that reason. That does not mean that I necessarily think we're going to use it. If we move to tighten now, it seems to me the reason would be because we have the perception that inflation has indeed already set in on us and has to be countered now, or maybe it should have been countered sooner. The way to counter it is to tighten money; and the reason we tighten money is to restrain something. Well, if we had a strongly accelerating economy, it would be clear that it needs to be restrained. We have something less than that--the Greenbook economy or worse. What is it we want to restrain? There are not any excesses that I can clearly find. It seems to me that if we want to tighten, we've got to be very clear why. To simply say ""to counter inflation"" really isn't enough. If there's something we want to restrain, let's decide we want to restrain it. If it is a matter of restraining expectations, let's be very express about that and be very careful that we take a good look at whatever secondary effects--in the way of hard effects--we might set off in an attempt to counter a psychological or soft effect in the area of expectations. Now, that's not to say that we might not need to tighten at some point; but I think we ought to be quite careful about tightening in the face of a perception of an expectation-driven inflation without some other harder evidence to go along with it.",366
-fomc-corpus,1993,President Stern.,3
-fomc-corpus,1993,"In these circumstances I think we need at a minimum an asymmetric directive toward tightening. A lot of the reasons for that have been covered and I won't belabor them. But I would note that we have been shooting for further disinflation and indeed, ultimately, for price stability. That is the long-run target that we have committed to, appropriately, and we seem to be drifting away from it. I don't think it's fatal if the drift goes on a little longer; and I admit that I don't know what the short run--the next month or two of data--may bring. But it seems to me that we have to be very careful at this point because we're not getting the result we anticipated nor are we moving in the direction of our long-run objective. So, at a minimum I think we need the asymmetric directive toward tightening.",168
-fomc-corpus,1993,Governor Mullins.,4
-fomc-corpus,1993,"I agree with what Gary Stern said. I guess I'm less concerned than Ed Boehne is about the notion that we might be viewed as trigger happy. We haven't been close to a trigger in months. This may be temporary, but seven months is a pretty long temporary time as far as I'm concerned. It is true that we wouldn't be restraining anything or countering anything if we moved because I doubt that we would get ahead of inflation since it has already moved. But at least we might be catching up in the sense of reflecting the higher inflation in nominal rates. When we talk about moving a small amount, we ought to be realistic about what sort of potential impact it could have on the economy. I don't think there's anything sacred about 3 percent rates. The yield curve has been upward sloping for quite a long time now, since people have been expecting higher rates. And the real short rate would still be negative and lower than it was last year. So, I wouldn't be opposed to moving now. At least we should be asymmetric. We ought to be clear on the risk of waiting too long here, and that risk is that we will have to make precipitous moves down the road. And if you want to think about the consequences for the economy and the flak we're going to receive if we wait a bit long, I think it's useful both for signalling and also for execution that we be asymmetric now.",285
-fomc-corpus,1993,Governor Phillips.,3
-fomc-corpus,1993,"I would prefer symmetric. I still have concerns about the weakness of the economy, so I think one can make arguments in either direction. I will say that, having listened to this discussion, I am persuaded that perhaps the perceptions of our being [watchful]--or maybe getting out the signal that we really are addressing inflation--might be helpful. So, I could live with asymmetric toward tightening.",80
-fomc-corpus,1993,President Melzer.,4
-fomc-corpus,1993,"I didn't put my hand up, but I have to speak anyway! I was very much influenced by this meeting. I came in sitting on the fence, frankly. And based on hearing the discussion my preference would be--if I had to do one or the other--probably to move rates up a little right now. But it's clear to me that there's not a consensus to do that. This is a very important move and I think there has to be a stronger consensus than exists right now. Therefore, I could accept deferring action. I think there's a risk in deferral and David put his finger on it. There's a risk that we might have to do more later if things break the wrong way. In a sense, even if they break the right way and we follow [developments] in this intermeeting period, we may decide we really don't have to act. We can discuss it again at the next meeting and maybe decide that we don't have to act then either, but it won't remove the fact that the funds rate probably is not pegged at a sustainable level. The question is: What is that [delay] building in, in terms of lagged effects that ultimately are going to come home to roost later? And then there's the credibility question that Al Broaddus raised in terms of where we all expected inflation to come in this year and where it is likely to come in and what that means if we take that sitting down. It's a tough issue, but that's where I come out.",304
-fomc-corpus,1993,Vice Chairman.,3
-fomc-corpus,1993,"I'm quite comfortable with ""B"" asymmetric. I might say, if I could just add a word on process which I know you want to deal with separately, that if it turns out that the Committee does come to a consensus that a tightening move is needed in the foreseeable future, of course, I won't be a part of that decision. But leaving that aside, if a tightening move is needed any time between now and the next meeting, that will be one of the relative handful of watershed policy decisions that come along. This is not a ""gimme putt."" Indeed, it's probably [a watershed decision] not just because it would be a turning point but because of the environment in which it is going to happen, if it happens. So, I think there's a great deal of wisdom in the suggestion that several people have made that if you do that, you better do it right with a meeting of the Committee by telephone or otherwise and by a vote.",193
-fomc-corpus,1993,"I'm inclined to agree strongly with that in the sense that we haven't moved interest rates up since 1989. We haven't moved at all in over six months. This Committee is going to be highly visible. And no matter what it is we do over the next 3 to 6 or 9 to 12 months, it's going to be quite important for us to be as close as we can to each other. In other words, it's important since there's no doubt from our various conversations that the underlying philosophy of every member of this Committee falls within a relatively narrow range in terms of what should be the economic and monetary policy of this country. I think it would be very tragic if a group of this extraordinary capability--as Bob Black used to say, this is the best Committee he has seen in all the years he had been on the FOMC--were perceived to be in disarray. It's very important that we act as a Committee and try to avoid, where we can, any evidences that this Committee is in disarray or something of that sort. If it ever gets to the point where this Committee is either in disarray or perceived to be in disarray, there is no other institution in this government that can substitute for us. And if my [assessment of] what in fact is causing the problems we are confronting is correct--that it's a deep-seated psychological deterioration that continues--it is crucially important that we stand tall as a group and try to find the means by which we can merge our differences in a way in which the vast majority of the Committee can support. There have been occasions in the past when I've raised the issue of ""Let's try to vote together because it's a crucial issue"" but they were very few. I think I raised it a couple of years ago; I may have raised it two or three times in the last several years. I don't think it's something that ought to be raised often because one of the great strengths of this Committee is the capability, which I think we exhibited today: namely, that we have interaction where a lot of minds are changed. I know my views changed several times as this meeting evolved because of the evidence and the strength of the arguments that came up. That's an extraordinarily valuable facet of this Committee. If we at any time endeavored to sort of force ourselves into a mold, we would lose that. So, there are two sides to this question. All I want to say is that Jerry Corrigan won't forgive us if we don't get this right! In any event, as I read this Committee as to where we stand at this point, there is a significant majority who are willing to support an asymmetric directive, using alternative B. I think we are in a position where before any action is taken--or indeed if any evidence emerges that would even raise the question of whether we should or should not act--we would want a telephone conference. My best hope is that this whole psychological thing will dissipate, which it could conceivably, that the next set of price data we end up with are benevolent, and that we won't speak to each other for the next six weeks! The chances of that are less than 50/50. But leaving that aside, are there any other issues that people would like to surface at this time before I call for a vote?",673
-fomc-corpus,1993,I think I hear that any change would be preceded by a phone call.,15
-fomc-corpus,1993,Correct.,2
-fomc-corpus,1993,But that would be more restriction on you than you normally have when we have [an asymmetric directive].,20
-fomc-corpus,1993,"No, I don't consider that a restriction on me. This is something that I want to do. I think it is important that I get the views of this Committee before making this particular decision. Frankly, I don't consider it a diminution of the Chairman's power; I want to emphasize that.",60
-fomc-corpus,1993,"I also assume that if something really ugly happens that has nothing to do with the things we're talking about here, you will always have--",27
-fomc-corpus,1993,"Well, let me put it this way. I've been around this Committee for a number of years and I think I can say that I pretty much know how every single member of this Committee would come out under [any given hypothetical] event. In other words, I could take the vote myself if I had to and I bet I'd get it on the nose three times out of four! The reason for that is that I know where you're all coming from. We get updated periodically on what our basic views are. So, I don't consider that a major concern. Obviously, I'm not arguing that we are setting any precedents; this is not a precedent. This is something quite extraordinary. I hope that we don't have to talk again shortly; but if we do, we shall. And with that I would like to get a vote on an asymmetric directive and have the Secretary read it.",177
-fomc-corpus,1993,"""In the implementation of policy for the immediate future, the Committee seeks to maintain the existing degree of pressure on reserve positions. In the context of the Committee's long-run objectives for price stability and sustainable economic growth, and giving careful consideration to economic, financial, and monetary developments, slightly greater reserve restraint would or slightly lesser reserve restraint might be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with appreciable growth in the broader monetary aggregates over the second quarter.""",97
-fomc-corpus,1993,Call the roll. MR.BERNARD. Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell No President Boehne No President Keehn Yes Governor Kelley Yes Governor LaWare Yes Governor Lindsey Yes President McTeer Yes Governor Mullins Yes Governor Phillips Yes President Stern Yes,56
-fomc-corpus,1993,Officially our next meeting is when?,8
-fomc-corpus,1993,July 6-7.,6
-fomc-corpus,1993,July 6-7.   I assume that all of you are joining us for lunch to give our best wishes to Jerry.,26
-fomc-corpus,1993,"The staff has circulated a memorandum [on a monetary aggregate that includes bond and stock mutual funds] and I assume you've all read it. Nonetheless, it would be useful for us to have a broad overview from Ms. Danker.",46
-fomc-corpus,1993,[Statement--see Appendix.],6
-fomc-corpus,1993,Questions for Ms. Danker?,7
-fomc-corpus,1993,What are the data gathering costs involved with having something like M2+ [unintelligible].,20
-fomc-corpus,1993,"Well, most of the data gathering costs are incurred by the investment companies that provide us with the mutual funds data. We have access to these data entirely through the ICI at this point. If we want to enhance the quality of those data considerably, that entails at the first level dealing with ICI and convincing them that that would be a good idea or convincing them to let us deal with the funds one-on-one in terms of editing the data. There are, of course, alternatives--vendors that sell these data. But the ICI seems to have the best series on an aggregate basis.",119
-fomc-corpus,1993,"We, of course, have no legal authority to force the mutual funds to report to us. It's not like the deposit data used to calculate reserve requirements. We have worked with the ICI in setting up their weekly data series--they consulted with us last summer about that--and on the money market funds data. They are torn; they would like to have data; they want to be cooperative. On the other hand, they don't want to put burdens on their membership. It is entirely voluntary and they hear a lot of complaining from their members if they call them excessively to clear up data anomalies. So, there's quite a bit of tension on this score with Board staff and ICI staff even on the money market funds data.",146
-fomc-corpus,1993,"Are they going to an end-of-week collection anyway, independent of our prodding? Don't they now have end-of-month data?",26
-fomc-corpus,1993,"Well, they had an experimental process under way to collect a weekly series on the bond and stock mutual funds.",22
-fomc-corpus,1993,But that's not a daily average?,7
-fomc-corpus,1993,"No, it's not; it's still a one-day number.",12
-fomc-corpus,1993,"And they plan to do it now, so that would be some improvement.",15
-fomc-corpus,1993,"Yes, absolutely. Still, there's the issue of checking the data, looking for anomalies, calling the funds back and so forth, and there's not a lot of appetite for that. Now, maybe one thing we could do is to help subsidize them if that were a problem. But I think the problem is more the tension; they don't [want to] involve their members too much.",78
-fomc-corpus,1993,"I happened to talk to about five people in the funds industry recently; I was doing it coincidentally. I raised the question of how they feel about this; this was after we got the memo. Two points: One is--these were economists from the funds--that they thought the idea was crazy in the first place. But beyond that, even if they were in favor of it, they expected they would have a lot of internal difficulty with their data processing people [at a time] when they are trying to cut costs; they thought it would be quite difficult. Then, they raised several technical questions about things we'd have to do. There's a lot of concern about this, including not having any theoretical foundation. Also, what is set as the boundary for what to include and not include that's spendable? But beyond that this would be a new venture for us, using data that we don't really control in some sense.",186
-fomc-corpus,1993,We do have the money market funds data already in M2 but it's a very small piece.,19
-fomc-corpus,1993,"But even on a practical level, independent of what one thinks is the value of this--which I personally think is questionable--it would be quite difficult.",31
-fomc-corpus,1993,Are you getting an impression from them that they would be quite concerned about their numbers becoming part of policymaking and then having the Congress require them to do something?,32
-fomc-corpus,1993,Exactly.,2
-fomc-corpus,1993,"Well, are we getting an objective appraisal of their view of the difficulty of getting the data?",19
-fomc-corpus,1993,"No, probably not. There has been all this discussion as to whether they should be included in the CRA legislation and that sort of thing, so they have become very, very nervous about any step they see that makes their liabilities closer to being money assets. I wouldn't be surprised, say, in the case of that it would become quite difficult because the fellow who runs it--John LaWare can tell you--can be a feisty guy. They might just refuse to do it because they're very, very worried about being seen as a [depository] institution.",113
-fomc-corpus,1993,"Well, in addition to that, we don't exactly have the strongest case that could be made for a need for it! As the study indicated, [M2+] really does have some significant limitations.",40
-fomc-corpus,1993,"I think the only plausible possibility is to publish it for a limited period of time on an experimental basis. But if that's not possible or is too difficult or has the as you would say, there isn't much [promise] there. I thought Debbie Danker was more forthcoming toward this in her oral comments than in earlier versions [of the memo that] I read. This is very difficult to pick up without asbestos gloves!",84
-fomc-corpus,1993,"It's hard for me to think that this measure would ever be very useful operationally given the changing asset values that will affect it. That's just a fundamental conceptual problem for me. I'd like to ask Debbie: Have you all thought about doing anything like shift adjusting this, using inflow data--the way we dealt with M1 for a period back in the early 1980s--as opposed to using the stock concept? You would still have data problems and some other difficulties, but at least you'd get rid of that major conceptual issue.",108
-fomc-corpus,1993,I think the data on the inflows--rather than formally shift adjusting the aggregate--are very helpful in looking at the developments in M2 and in figuring out how it's [behaving] vis-a-vis its path. The Feinman/Porter work last year looked at using an aggregate that just cumulated the inflows. But that's not very satisfying when viewing it in terms of an aggregate and one thinks of the capital gains that occurred 10 years ago not counting as money today. But on a shorter-term basis thinking about inflows as some kind of shift adjustment I think can be helpful.,120
-fomc-corpus,1993,"The problem is that if we just do that, the outflows could exceed the inflows because of that capital gain that people are taking out and we could have a very funny looking [number]. But we could use the inflow data to help analyze M2 rather than trying to build an artificial aggregate that doesn't have capital gains.",66
-fomc-corpus,1993,You can't really. What were the gross flows we used in M1 early on? I guess I'm not quite clear what you're saying.,27
-fomc-corpus,1993,"Well, we did a formal shift adjustment of the M1 aggregate to take out--",17
-fomc-corpus,1993,A one-shot thing?,5
-fomc-corpus,1993,Yes.,2
-fomc-corpus,1993,That was when the NOW accounts were authorized.,9
-fomc-corpus,1993,Right. That's what I was thinking about.,9
-fomc-corpus,1993,We did surveys of consumers and did micro analyses of banks to see what was happening between NOW accounts and other accounts.,23
-fomc-corpus,1993,"Yes, but that's a one-shot sort of thing.",11
-fomc-corpus,1993,Right.,2
-fomc-corpus,1993,Using growth figures with stock data can get very difficult. I don't see how one can do it.,20
-fomc-corpus,1993,"Conceptually, why does that differ? People couldn't write a check against the capital gains of 10 years ago, to use your phrase. They can now. Isn't it really the innovation, the nature of the consumer product, that has made us more suspicious that this is M2-related? So [why] wouldn't a stock-adjustment-type [process] or looking just at flows be appropriate?",79
-fomc-corpus,1993,"Well, if you think of it as a stock adjustment process, it's going to be over after some period of time and this isn't a brave new world or something like that. So, maybe we'd just want to shift adjust it for a while. There has been an explosion in bank offerings of mutual funds that might make that appropriate. I don't know that we get a sense of there having been a discrete step so much as a somewhat more gradual broadening of assets.",93
-fomc-corpus,1993,"But, again, to use the analogy of the capital gains that happened 10 years ago, [then] I may have been in that fund for reasons other than liquidity reasons whereas today I might put money in that fund for more liquidity oriented motives. That in my mind would be a reason for counting the flows in today or stock adjusting at some point. I agree with you that it is not a step function, but clearly the product is different today than it was 10 years ago, and some kind of adjustment might be [appropriate].",108
-fomc-corpus,1993,"I don't think it's clear that the product is that much different from the perception of the investor; it's how he is really using it. Transactions, turnover kinds of measures, are not particularly high. Indeed, they are for many people a substitute for a time deposit or a very dormant kind of savings account as opposed to a transaction vehicle. Transactions are clumsy out of the mutual funds that have capital gains and losses because of the complicated tax accounting one has to do if nothing else. I don't think there is strong evidence that these are liquidity so much as investment holdings.",113
-fomc-corpus,1993,President Jordan.,3
-fomc-corpus,1993,"I have a couple of conceptual problems that relate to what Larry and Mike were just discussing. One has to be very careful about the distinction between the value of a dollar and the value of assets denominated in dollars. Even if we have no net inflows, if we have an environment where we're stabilizing the purchasing power of the dollar and the inflation premium and interest rates are coming down, we can have a capital gains that would indicate policy is expansionary when in fact it is anti-inflationary and the reverse. If we got into a period where people expected the value of the dollar to decline and interest rates to rise, the value of these funds would fall, indicating policy is restrictive. The comment about it being an accurate picture of the thrust of policy comes from relating it to nominal GDP. But if the Committee is accepting stabilizing the purchasing power of the dollar as its objective, we measure policy as a central bank from that objective--not targeting GDP but stabilizing the purchasing power of the dollar and not assets denominated in dollars.",210
-fomc-corpus,1993,"I think that over time the two wouldn't be that much different. I would assert that the capital gains and losses would make it a not very good predictor of nominal GDP. It's partly fortuitous events--the changing way people react to the yield curve and the accessibility--that have made this velocity relatively constant over the last few years, and we can't really count on that.",75
-fomc-corpus,1993,"I agree. But even if it were, I'd have a problem with it.",16
-fomc-corpus,1993,Do we have any evidence that suggests there is a partial inverse relationship between stock prices and M2?,20
-fomc-corpus,1993,"We do have the bond yields in the sense that we've put yield curve variables in our M2 equations. And when bond yields go up and the yield curve steepens, then we tend to get flows--",41
-fomc-corpus,1993,I'm asking whether in fact capital gains in stock funds or funds generally are substitutable for depository funds?,21
-fomc-corpus,1993,My guess is we just don't have enough experience with that. That's basically what this aggregate--,18
-fomc-corpus,1993,"Well, I'm raising a broader question. We have the wealth effect occurring on savings, and a more general question is whether M2 is inversely affected by the level of stock prices.",37
-fomc-corpus,1993,I'm not sure. We had a huge runup in stock prices in '86 and '87 and we didn't notice much of a shortfall in M2 growth. When stock prices came down--the crash of '87--we had a little surge into M2.,54
-fomc-corpus,1993,"What happened in 1987 would be extreme evidence of it. If you couldn't find a lot there, you're not going to find a little any other time.",32
-fomc-corpus,1993,"The stock market is an alternative repository for savings. And peoples' expectations about future returns in the stock market will affect their assessment of what they're going to get out of a time deposit versus [the stock market]. So, there's going to be some relationship. But I would doubt that it's very strong.",60
-fomc-corpus,1993,"Your question implies a reversal of the signs because traditionally we would have said that wealth enters the demand function positively, but you're suggesting that this is a substitution effect.",32
-fomc-corpus,1993,"Well, that's implicit in this discussion.",8
-fomc-corpus,1993,Right.,2
-fomc-corpus,1993,It's curious that there's not the right evidence that would confirm that.,13
-fomc-corpus,1993,It certainly goes against our theoretical framework.,8
-fomc-corpus,1993,"Any other questions or comments? Let me ask a more general question. Does anybody think we should do other than Option 1--that is, nothing? Option 1 is just to leave it alone for the moment and look at it. Does anyone have a proactive view as to our even publishing it, not to mention going to targeting it?",69
-fomc-corpus,1993,"I wouldn't say my view is to be proactive, but I'd at least not be comatose exactly. Obviously, there is strong evidence that these [accounts] are substitutes for time deposits and CDs since one can observe people carting large sums of money from time deposits and CDs into these instruments. And it is true that it's available to spend in the same sense as a time deposit, which is the logic of CDs. The basic advantage of not simply ignoring all this is that it provides some empirical content to the velocity story, which [per se] sounds a bit like a tautology or a bit artificial. Now, we haven't received a lot of flak lately so maybe we've been successful with that story and that's why I don't think [a new measure] is so important. I do think it's instructive to show these flows to people. I don't think we should anoint M2+ even as an experimental new monetary aggregate. I suspect were we to do so it would promptly blow up on us. But it is nice to point to something that is growing! [Laughter] And it illustrates what is going on; it's the story that we're giving behind the increase in velocity. I personally don't like calling it M2+; in my view that goes a little toward saying we're thinking about [using] this. But regularly making these flows public in some way would be helpful, although it seems to me that six months ago we had a much more contentious situation with respect to M2 growth, and the evidence from '92 clearly supported the distortion in the relationship between M2 and GDP growth. So maybe it's less of an issue--",329
-fomc-corpus,1993,You mean there's evidence in '93 as well.,10
-fomc-corpus,1993,"Yes, in '93 as well. But it seems to me the steam came out of the argument, really, with the fourth-quarter 1992 numbers. We were getting pounded regularly on this M2 growth topic and after that period--when all the data were in for 1992--it seems to me that it hasn't been an especially big issue. So, maybe it would be okay simply to do nothing, and I wouldn't bother the mutual funds. I do think it would be useful to provide the data at least for some period of time.",112
-fomc-corpus,1993,We can publish part of it.,7
-fomc-corpus,1993,Yes.,2
-fomc-corpus,1993,We can just add it to one of the monthly releases.,12
-fomc-corpus,1993,There are two ways we could do it.,9
-fomc-corpus,1993,The Board might want to publish it in the Bulletin rather than as a release. If we put it in the release it does start to look as if we're thinking about it for the money supply.,39
-fomc-corpus,1993,"There are a number of alternatives that the Board could contemplate in terms of publishing this, including just making it available on an informal basis to researchers [and others] who call. We did include a chart of the flows in the Humphrey-Hawkins report last time--in the back where only the aficionados look--and we can certainly continue to do that.",72
-fomc-corpus,1993,One could call it M2 plus the flows to stocks and bonds and mutual funds.,17
-fomc-corpus,1993,Right.,2
-fomc-corpus,1993,I don't like the idea of having a new label. Another option is to have M2 and just publish the flows to the funds and then people could do the calculation.,34
-fomc-corpus,1993,You're taking about flows rather than stocks?,8
-fomc-corpus,1993,Yes.,2
-fomc-corpus,1993,Could I ask a question? Are any of the CDs that are included in M2 indexed in any way?,22
-fomc-corpus,1993,I think there are a few.,7
-fomc-corpus,1993,Any with equity?,4
-fomc-corpus,1993,"Institutions have offered them from time to time. I think it's a very, very small amount.",20
-fomc-corpus,1993,With equity?,3
-fomc-corpus,1993,Citicorp.,3
-fomc-corpus,1993,The only thing we subtract out of those are foreign currency denominated [assets].,16
-fomc-corpus,1993,So we already have a piece in the CDs?,10
-fomc-corpus,1993,But it's minuscule.,6
-fomc-corpus,1993,Don't those tend to have some sort of guaranteed component so we don't necessarily get big changes in net asset values?,22
-fomc-corpus,1993,No.,2
-fomc-corpus,1993,President Melzer.,4
-fomc-corpus,1993,I was just going to raise a general question. Is there a case to be made for doing some more generalized work in terms of household portfolio behavior?,30
-fomc-corpus,1993,I think we're going to be doing that anyway.,10
-fomc-corpus,1993,"One of the things that's not particularly satisfying about this is that we're only capturing a piece of that total picture. If we're willing to commit resources to do more work, I'd be in favor of committing them more broadly and looking at that basic question of household portfolio behavior.",53
-fomc-corpus,1993,"Let me ask this: Can I just get a general show of hands of those who would prefer that we publish nothing official, other than to include something in the Humphrey-Hawkins report periodically? The next question would be: Do we want to elevate it and put something special in the Federal Reserve Bulletin beyond that? So, who would prefer to do nothing more than we've been doing at this particular stage? [Secretary's note: Nearly all hands were raised.] Offhand it looks as if a majority prefer to do nothing. Why don't we just keep an eye on it. I think what happened is that Debbie's memo soured a lot of views on the usefulness of some of this. I think the worst thing that can happen, if we start to focus on this, is that it may fall off the cliff, as Governor Mullins suggested. But we can keep the issue open and if at a future Committee meeting we want to change--",190
-fomc-corpus,1993,"One addendum, Mr. Chairman. To the extent that members of the Committee are aware of people at their own Banks or also people outside who are doing research on this issue, we'd be glad to share our data.",44
-fomc-corpus,1993,"Oh, yes. That's what we're doing now unofficially.",12
-fomc-corpus,1993,Where are the data available currently?,7
-fomc-corpus,1993,"Well, we've sort of put together a series. We're almost a troubleshooter! [Laughter] That wasn't fair. The ICI publishes monthly data. We've been trying to adjust them to take out the IRA/Keough accounts, to separate the [holdings of] institutions from [those of] non-institutions, and generally to put them more on an M2-type basis in terms of trying to put together a data series that is a little more comparable with the concepts--",98
-fomc-corpus,1993,How much difference is there between our internal version and the ICI version?,15
-fomc-corpus,1993,In dollar terms?,4
-fomc-corpus,1993,Does it give a really different picture?,8
-fomc-corpus,1993,"I doubt it but I'm not 100 percent certain since I think those things move pretty slowly. On some of these we only have once-a-year data, the level on December 31st. So, we just smooth between two December 31sts.",51
-fomc-corpus,1993,"For example, the aggregate value of these things is about a trillion dollars, but only about half of that will show up in M2+ because of the institutional and IRA/Keough accounts.",39
-fomc-corpus,1993,"Okay, shall we move on? The Foreign Desk is next on the agenda. Mr. McDonough.",22
-fomc-corpus,1993,[Statement--see Appendix.],6
-fomc-corpus,1993,"First, are there questions?",6
-fomc-corpus,1993,"In these joint discussions with the Treasury, which side do you think had more enthusiasm for the intervention?",20
-fomc-corpus,1993,"If you were to ask which side had less enthusiasm, the answer would clearly be ours. I don't think had enormous enthusiasm either. Rather, there was the notion that with the cacophony of official statements, it had just become so confusing as to what the policy was that some clarification once again was in order.",63
-fomc-corpus,1993,And was there some attempt within the Administration to try to reduce all those voices out there talking about the yen?,22
-fomc-corpus,1993,"Yes, I think so. We were promised that there would be an effort. And I think if you look at what has not been happening, including in the first 24 hours or so of the Summit in Tokyo, the silence is remarkable.",49
-fomc-corpus,1993,"President Boehne, I think there are two points to be made on this. One is that, clearly, the Administration has not gotten itself into the position of saying they don't want the yen to appreciate further. That's going too far in terms of all the irons they have in the fire. So, they are somewhat exposed inevitably. But, for example, when they lifted one of the veils--I guess that's the right way to put it--around the proposals for this framework discussion, they had already who were involved that [unintelligible]. I was told one story about [someone] who got up to answer a question at the press conference; the question was not on the yen but he gave the yen answer as part of this discussion. So, I think at least to try to keep it out [unintelligible]. Obviously, the central players--",176
-fomc-corpus,1993,They got their stories straight.,6
-fomc-corpus,1993,What are your bets on what the market will do after the Japanese elections on the 18th?,20
-fomc-corpus,1993,"If you assume that the likely outcome is a very uneasy coalition, I think there's a fairly decent chance that the dollar would strengthen a little. But the single most important aspect is that the fundamentals, with that tremendous current account and even bigger trade account surplus, point toward a gradually strengthening yen and a weakening dollar. And we don't have the conviction, as I mentioned, about a stronger dollar against the European currencies. From what we can see of the more speculative players, they find the yen situation sufficiently confusing that they'd rather go and play somewhere else where they can figure out the odds better.",117
-fomc-corpus,1993,"So, a weak government is pretty much built into the market right now?",15
-fomc-corpus,1993,Yes. The market assumes the weak coalition.,9
-fomc-corpus,1993,"If that happens, it means the market could remain unchanged or go in the other direction.",18
-fomc-corpus,1993,Yes.,2
-fomc-corpus,1993,"Any further questions? If not, would somebody like to move to ratify the transactions undertaken since the last meeting?",23
-fomc-corpus,1993,So moved.,3
-fomc-corpus,1993,Is there a second?,5
-fomc-corpus,1993,Second.,2
-fomc-corpus,1993,Without objection. Let's move now to the Domestic Desk and Joan Lovett.,15
-fomc-corpus,1993,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1993,Messrs. Prell and Truman.,8
-fomc-corpus,1993,"Thank you, Mr. Chairman. We've distributed to all of you a package of charts labeled ""Staff Presentation to the FOMC."" [Statements--see Appendix.]",33
-fomc-corpus,1993,"Thank you. May I just ask for a clarification on Chart 9, showing automotive products as a share of domestic absorption? That includes parts and that's the reason why the numbers are--",37
-fomc-corpus,1993,That includes the measure for parts excluding tires. We figured that was what people counted too much!,19
-fomc-corpus,1993,I'm glad you asked!,5
-fomc-corpus,1993,"[You said] ""workers' comp."" That's workmen's compensation?",15
-fomc-corpus,1993,"For political correctness reasons, it's now called ""workers'"" compensation. I knew it would cause confusion. I was tempted to say ""workmen's"" compensation, but I didn't!",36
-fomc-corpus,1993,What is happening to all the statutes! Questions? President Boehne.,15
-fomc-corpus,1993,"With regard to this analysis that you did on inflation and what you had at least in the written report of the briefing to the Board last Friday: The speed effects as I interpret them really say we have to look not just at static comparisons of unemployment versus inflation but also the kinds of changes that are being made. If you look back over the post-World War II period, there has been a tendency over those years for inflation, when it escalates, to escalate from cycle to cycle. We've also had examples in the 1950s and again in the 1980s of disinflation from cycle to cycle so that on the upside of these cycles we end up with peaks in the later cycle being higher than the previous cycle. The same [is true] for the floors; when inflation de-escalates, we make progress from cycle to cycle. One question is whether that is just a variation of the so-called speed effect. If there is something to this speed effect or the cycle-to-cycle kind of phenomenon, should it be so strange that as cycles mature there ought to be times during those cycles when we make more progress against inflation where things flatten out? If you look at it from cycle to cycle, what we want to do is to keep inflation from escalating so that in a subsequent cycle we can keep bringing the rate of inflation down. My question is: How much have you looked at this cycle-to-cycle phenomenon? It does strike me that it is part of this dynamic or speed approach to looking at inflation.",307
-fomc-corpus,1993,"I guess in the abstract I don't view this speed effect as relating to the kind of phenomenon I think you're talking about. The effect should in essence wash out over the course of the cycle as you get back to the same unemployment rate level. You've gotten the bad part on one side and the good part on the other side of that cyclical movement. But I suspect what has been more at work over the postwar period has been a gradual, and at some points maybe not so gradual, escalation of inflation expectations, which have gotten rather deeply embedded and have not been reversed from cycle to cycle. And as we attempted to move the economy back to higher levels of employment through macro policy, taken as a sort of base is this higher level of inflation expectations. We don't seem to be headed into this pattern this time where over a long period of time now there has been a lower inflation. I think we've made some progress in lowering inflation expectations from what prevailed a decade or a decade and a half ago. I think such expectations are the more critical element probably in this movement to higher inflation levels from cycle to cycle. But I don't think we've really investigated things in that particular cyclical context.",237
-fomc-corpus,1993,Governor Kelley.,3
-fomc-corpus,1993,"Mike, on Chart 12, referring to the household sector, down in the lower right corner you have the cash flow burden and the fixed-rate mortgage is shown. But I wonder if you have it for all consumer debt?",45
-fomc-corpus,1993,"Obviously, the nomenclature here has misled you. This is the cash flow burden of owning a home: How much the monthly payment on a home is relative to disposable income. What we plotted here is a new home, constant quality price measure, and a current fixed-rate mortgage. So, this is what it would cost to buy a home today, setting aside issues of the down payment. And the down payment, as I noted, seems to be a big hurdle for a large segment of the population, particularly the younger group; relative wages have not worked to their advantage in recent years. If you're looking at debt service burdens in general--",129
-fomc-corpus,1993,Yes.,2
-fomc-corpus,1993,"We've seen a significant decline in those burdens over the course of the last few years; debt has grown less rapidly, interest rates have come down, and refinancing opportunities have opened up. We're not expecting quite that rate of improvement but there may be some room for that in our forecast largely through the rollover of debt into lower rate loans. Debt growth in this forecast is certainly keeping pace with income in the household sector.",82
-fomc-corpus,1993,"How far is that overall debt service level still above what one might call the ""norm"" back a few years ago, maybe in the '70s?",31
-fomc-corpus,1993,"Well, it's certainly back down a considerable way relative to the mid-1980s. To go back much further than that we can look at the table in the Greenbook, page 11-2.",42
-fomc-corpus,1993,I'm sorry I missed it. Okay.,8
-fomc-corpus,1993,"As you can see, we're still above, by at least a small margin, the levels that we had through the '60s and '70s.",31
-fomc-corpus,1993,"That's what I was looking for, thank you.",10
-fomc-corpus,1993,President Syron.,4
-fomc-corpus,1993,"A theoretical question on sacrifice ratio, which supports the question about speed effects: Would that necessarily wash out over the cycle, depending upon how quickly the economy accelerated and decelerated, or is it [not] neutral in a sense? One can conceive of patterns in which it wouldn't be neutral.",59
-fomc-corpus,1993,"My colleagues can correct me, but I think mechanically as one conceives of this model it will wash out as we move back to the initial level of unemployment. Now, there could be problems that arise as inflation expectations build so that a dynamic process is created here that works against us. But in terms of just isolating this conceptually, it should be no net effect.",75
-fomc-corpus,1993,"What are your thoughts on the sacrifice ratio now, given what we're seeing on inflation expectations?",18
-fomc-corpus,1993,"That is very hard to judge and even difficult to characterize in our forecast because the sacrifice ratio is a sort of net effect observed ex post. Ex ante one can think about what the slack effect in the model should be and then one can parcel all these things out. Our past experience is, as we noted, that in the first stage of this disinflation we seemed to be getting unusually good tradeoffs. It was well below the traditional two-to-one rule of thumb. In the recent period, we've been getting either nothing or very little, depending on how one dates this. On average, it hasn't been much of a departure from our rough rule of thumb. But, indeed, this may be a reflection of the speed effects, which worked favorably through at least a good part of 1992 as unemployment was rising. It has been working against us more recently.",175
-fomc-corpus,1993,It could be a very long distributive kind of function on people's expectations. And as we get down toward [price stability] it could be that the portion of people in the labor force who remember the '50s level of inflation as compared to those who think that 3 percent is favorable has diminished. [That would have] unfavorable implications in terms of the sacrifice ratio. Maybe people think inflation can get only so low.,85
-fomc-corpus,1993,"Well, that is probably one of the elements of the stickiness of inflation expectations that we've seen. I think we're clearly a long way from breaking through that barrier.",33
-fomc-corpus,1993,"On the speed effect, if you were using the ""seasonally adjusted"" seasonally adjusted CPI, would that have any effect on the slope of this chart or the correlation coefficients in it?",38
-fomc-corpus,1993,"Well, I seriously doubt it, given that we're looking at some annual numbers over a long period of time. I don't think that would have a great [effect].",33
-fomc-corpus,1993,"I'm sorry, these are annual numbers?",8
-fomc-corpus,1993,"You're looking at the middle panel, the scatter diagram?",11
-fomc-corpus,1993,Those are annual numbers?,5
-fomc-corpus,1993,Yes.,2
-fomc-corpus,1993,"Oh, I'm sorry.",5
-fomc-corpus,1993,I'm sorry. That really is poorly labeled. It is 30-odd years of data; it goes from 1960 to 1992.,30
-fomc-corpus,1993,Governor Lindsey.,3
-fomc-corpus,1993,"Mike, Chart 13, the capital-labor cost ratio, is an exciting chart, if I'm reading it correctly. I don't know if I am or not.",33
-fomc-corpus,1993,I hope we calculated it correctly! [Laughter],11
-fomc-corpus,1993,"If I interpret this correctly, between '88 and '94, say, the relative price of capital, the user cost of capital, has fallen 40 percent relative to the wage rate, roughly. Am I reading it correctly?",46
-fomc-corpus,1993,Yes.,2
-fomc-corpus,1993,Do you have an historic series on this?,9
-fomc-corpus,1993,"Yes, we can provide you with a longer time series.",12
-fomc-corpus,1993,Is this an unusual amount of change?,8
-fomc-corpus,1993,The computer prices have been falling fast for so long that if we stretched this back--at least going back to the '70s--I think we'd probably still have a pretty steep drop.,38
-fomc-corpus,1993,But the rates have changed.,6
-fomc-corpus,1993,"Yes, it may be more in recent years.",10
-fomc-corpus,1993,"If you're talking about computer prices, okay. But when you use cost of capital, there are some tax effects and interest rates and weighted cost of equity and debt and things like that in there. And the compensation rate is something like an hourly wage rate?",51
-fomc-corpus,1993,"Yes, we've used the ECI here.",9
-fomc-corpus,1993,And this has been falling like that since the '70s?,13
-fomc-corpus,1993,"Well, undoubtedly, you [have to] go back to a period when interest rates were moving sharply enough to have significantly moved this.",27
-fomc-corpus,1993,The computer prices are falling now at rates that are very large; and when you consider the size of the computer industry itself there is [unintelligible] effect [unintelligible] earlier period.,42
-fomc-corpus,1993,"Certainly, this would be the case going back several years before this, but I don't have data going back much earlier.",24
-fomc-corpus,1993,This would forecast a real investment boom over a long period of time.,14
-fomc-corpus,1993,"Well, it also forecasts problems in the labor market.",11
-fomc-corpus,1993,That's what part of it is.,7
-fomc-corpus,1993,"That's a part of it, but what's the good rule of thumb for cross elasticity substitution?",18
-fomc-corpus,1993,I can't answer that.,5
-fomc-corpus,1993,Fudge!,3
-fomc-corpus,1993,Even a tiny number there when you've got a 40 percent decline is going to knock a heck of a lot off employment.,25
-fomc-corpus,1993,It explains a good deal; the plant and equipment numbers are low.,14
-fomc-corpus,1993,"They are, yes. My heavens! Thank you.",11
-fomc-corpus,1993,I have a chart on the growth rate of the cost of capital and it clearly has been falling on average since the beginning of the 1980s expansion. There were a few periods when there was some increase but we have seen a significant decline over time. It is faster in this period than it was earlier by a significant margin.,67
-fomc-corpus,1993,"When the crush is off, you can send me a copy. I would appreciate it.",18
-fomc-corpus,1993,One of the interesting inferences from these data is that depreciation charges currently coming on are coming off equipment from 5 and 6 years ago when the prices were much higher.,35
-fomc-corpus,1993,Yes.,2
-fomc-corpus,1993,"So, the cash flow is very large relative to--",11
-fomc-corpus,1993,To the investment.,4
-fomc-corpus,1993,So incentives--. It's a fascinating process in many different ways that we're looking at. And that's why the capital goods markets are--,26
-fomc-corpus,1993,And lo and behold the credit demands are not robust!,11
-fomc-corpus,1993,Exactly.,2
-fomc-corpus,1993,Because the internal flows--,5
-fomc-corpus,1993,"The cash flows are very large, no question. President Parry.",14
-fomc-corpus,1993,"Mike, I have two questions. The first is on the measurement problems issue. I wonder if you could talk about that just a little. I know there's a discussion in Part II of the Greenbook and I'm not sure exactly how this problem originates. Is each of the series seasonally adjusted except those series where there apparently is not a statistically significant seasonal adjustment factor? And then is it added and the combined unadjusted apparently has a seasonal factor?",90
-fomc-corpus,1993,"That's right. As I understand it, BLS does not like to use seasonally adjusted sub-components unless at a more detailed level there are indications of seasonality in them. If they can't find it at the very detailed level, they won't do it for that major sub-component of the CPI. And most of this residual seasonality appears to be in the not seasonally adjusted components of the index.",80
-fomc-corpus,1993,"So, at the end is there a seasonal adjustment of the entire series?",15
-fomc-corpus,1993,"No, it's an aggregation of seasonally adjusted components.",11
-fomc-corpus,1993,"Okay. So, it's almost like a deflator that they see when they publish that. There is a number which is called the index [unintelligible] implicit. MESSRS. KOHN and PRELL. The weighted average.",50
-fomc-corpus,1993,"The weighted average, okay.",6
-fomc-corpus,1993,"One of the things BLS has pointed out and which gave us pause--we thought about this some months ago in terms of whether we should expect something--is that it is hard to find at a detailed level a consistent pattern in recent years. Certain commodity groups were behaving in a way that suggested there was a seasonal problem. One year it was one thing and another year it was another, and that gave us pause. But the accumulation of evidence now certainly shows, at least at a statistical level, that there's something going on there. As I said, it doesn't explain everything. The best you can get out of this is that the pattern this year looks much like the pattern last year.",138
-fomc-corpus,1993,Yes.,2
-fomc-corpus,1993,"The question is: Why [isn't] the pattern this year better than the pattern last year, given the ongoing slack in the economy?",28
-fomc-corpus,1993,"My other question is: In Part I of the Greenbook, and you also referred to it here, you have a table on the relationship between tax increases and expenditure cuts, and for 1994 it's rather interesting. Will it be possible at some time in the future to get that out through the entire program? It would be rather interesting--",69
-fomc-corpus,1993,"Certainly. When they pass [some legislation], then we can do something similar. Let me just say--",21
-fomc-corpus,1993,It's very interesting because now we see in the newspapers that Boskin has the ratio at 9 to 1 and somebody else in the Administration is saying it's 1 to 1.,37
-fomc-corpus,1993,Part of the problem here--I touched upon this in my comments a few minutes ago and unfortunately we didn't emphasize this in the write-up in the Greenbook--is that this is not all of the deficit reduction that is occurring in essence.,48
-fomc-corpus,1993,"Oh, I know that.",6
-fomc-corpus,1993,This is more or less the mandatory spending and the tax changes that are in the package.,18
-fomc-corpus,1993,Right.,2
-fomc-corpus,1993,"The ceilings on discretionary spending would have required significant cuts. That is where, for example, the defense cuts are coming in.",25
-fomc-corpus,1993,I think in assessing the program you have the right data.,12
-fomc-corpus,1993,"Well, we hope it's relevant and not throwing people off.",12
-fomc-corpus,1993,"Incidentally, on the seasonal adjustment issue, has anyone looked to see what the bias in the CPI does to the deflator for the fourth and first quarters and, therefore, the GDP estimates for those quarters?",42
-fomc-corpus,1993,"We've looked at that. And our finding, tentative though it may be, is that it probably doesn't have significant implications for the deflator. There are different indexes used for some things and different seasonal adjustments. It's not clear that this feeds through in an obvious way to the GDP number.",57
-fomc-corpus,1993,Does Commerce seasonally adjust the price indexes separately? [Unintelligible] I think they may be doing something of that nature which would pick this stuff up.,33
-fomc-corpus,1993,"Well, we've talked many times, at least to the staff, about differences in the seasonal pattern for food, for example, where they have used seasonal factors that were sufficient to alter the picture of the PCE deflator from what one would think [looking at] the CPI. There are also different weights, too, in some of these things. So, it really is hard to translate.",79
-fomc-corpus,1993,"Even within consumption, [for] their PCE, there are some places where Commerce does not use the CPI. For example, I think for air fares, which as you know has been a player in this seasonality problem, they use independent information rather than CPI information.",55
-fomc-corpus,1993,President Keehn.,4
-fomc-corpus,1993,"Mike, a question on capacity utilization, the lower chart on the lower panel on Chart 14: In the past it seems to me that when we got the capacity utilization to a sustained 85 percent we had price increases. But with so many industries now becoming global, the question is whether this is really a meaningful indicator at this point. Isn't it entirely possible that we will see domestic capacity moving up to the higher levels but at the same time we'll continue to see prices coming down?",97
-fomc-corpus,1993,"Discerning flash points is difficult. Certainly, a level of 85 percent is a very high level, and any time we've been in that area I think we've been in a period of significant inflation. People have declared lower levels of capacity utilization to be flash points. We're not sure that's a particularly robust result. In our forecast I don't think we get into the zone where, unless we're getting some speed effects as well, this is particularly worrisome. You're right, though: The more open the economy is, the more [important] the cost of transportation or the lower relative value of the products and so on, [and] we're going to have more of a potential role from foreign supplies in the market. The question is on what terms. And exchange rate developments, obviously, would affect what the price pressures--or the depressing price pressures--would be from foreign capacity. But, indeed, currently in our forecast there is ample capacity abroad. We think the exchange rate movement will be favorable in this regard, so it removes still further the concerns that industrial capacity limits are going to be a major source of inflationary pressure.",226
-fomc-corpus,1993,Thank you.,3
-fomc-corpus,1993,President Jordan.,3
-fomc-corpus,1993,"A couple of things. First, a comment on your exchange with Larry Lindsey on the cost of capital. The major computers buy millions of instructions per second generally. And if you compare the price of a million instructions per second on a 1980 computer with the 1982 computer when [unintelligible] chips came out it's a factor of one-one thousandth in the cost. But the problem is worse than that because we don't include software in capital stock generally; it's a perishable factor input. And a lot of software we're using today didn't even exist in 1980, so we can't even make that comparison. And businesses' real costs of that kind of capital, at least versus labor costs, has fallen far more dramatically than 40 percent.",153
-fomc-corpus,1993,"But what surprises me--I understand with computers--but in the cost of capital equation [1 minus] ITC minus tau z over 1 minus [tau], the only things that have changed would be either a rise in the real term or a fall in the true depreciation of plant and equipment. The tax variables haven't changed since 1988. I suppose--I made a quick calculation--that if you took a seven-year piece of equipment, the [unintelligible] has gone up 19 percent in real terms, but that's going to work through to maybe a 6 or 7 percent change in user cost over that time out of 40 percent. So, Jerry, I think all the computer effect would have to be in the [unintelligible]. You're saying that computers have caused the real return of capital to rise.",171
-fomc-corpus,1993,You can say it that way. I think a part of the problem is that you're not measuring output the same anymore. You're focusing just on the input part.,32
-fomc-corpus,1993,"Right, right.",4
-fomc-corpus,1993,"But you also have a problem on the output part. The other comment is really a question to Mike. I want to go back to the questions that Ed Boehne and Dick Syron asked earlier about secular and cyclical inflation and your response to them. If I look at your numbers, the implications of the central tendency of the bond yield, essentially you're saying to us that compared to '92 or a couple of years in here we may have a cyclical increase in inflation but that we are still on a secular downward trend. Whereas it would appear from household behavior and other things like forward rates that businesses and households are assuming that we have seen a secular low in 1992--holding aside whatever cyclical peaks and troughs from this point forward--and we have not only a cyclical increase [ahead] but probably a secular increase. Households and businesses also seem to be assuming that we have seen a secular low in tax rates beginning with the '90 tax rate, whatever is going to happen after. So, if you make the assumption that businesses and households alike are acting in the belief that from this point forward we will have a generally higher drift of both inflation and tax rates, how do you factor that into your split between your kind of growth and inflation?",256
-fomc-corpus,1993,"It's a complicated question; I'm not sure I can give a good answer. I'm not sure that the perception is that we've reached a secular low in inflation, though I find it hard to argue with that. I certainly think there was a notion that with a growing economy we probably had reached a cyclical low in inflation. Now, it may be that many people thought we'd never go below 3 percent; I don't have a basis for judging that, but maybe that's true.",95
-fomc-corpus,1993,"Wouldn't you say that mortgage refinancings and corporate debt issuance, quite aside from the surveys, are at least consistent with the view that the household and business sectors are assuming we've seen the secular lows?",41
-fomc-corpus,1993,"Everybody is operating in an environment of uncertainty, and people get to a point where they are satisfied if they can make a gain that's worth the transaction cost. A household may indeed feel that if they knew or really were convinced that interest rates were going to go down another point in the next three months, they'd hold off. But not knowing for sure and having seen rates come down a good deal, they see they can make a saving. They also see that some have refinanced a couple or even three times, so they haven't foreclosed that possibility. Corporations may be in the same boat; a corporate finance officer knows he can lock in a reduction in the coupon on his long-term debt and doesn't want to be criticized for having missed that opportunity if rates back up. He'd have to be very certain at some point that the rates were going to go down still further not to go ahead and jump. If you look at bond issuance over the years, it seems to be motivated as much by the movement in rates as by the level. And that, I think, would correspond to this kind of logic, at least to an extent.",228
-fomc-corpus,1993,And the same holds for taxes.,7
-fomc-corpus,1993,"On taxes, I guess it's plausible to assert that people feel that the bottom in the marginal tax rates may have been reached a few years ago. How that is affecting the various decisions at this point isn't entirely clear. It presumably affects decisions about capital structure and so on. There is a wide range of things that could be affecting [decisions]. As I suggested, it's probably the notion that taxes are headed up, including possible taxes relating to medical care. This whole situation is probably making many people feel poorer than they did a year ago. So, there are a lot of things going on here which may relate to the kinds of perceptions that you're talking about.",132
-fomc-corpus,1993,"Even if you cannot do it formally in your model, wouldn't you say that at least theoretically that should be factored into a forecast of the growth in output and the composition of that growth?",38
-fomc-corpus,1993,"Sure, in various ways. And as I said, one of the things that has disinclined us to follow the models to significantly lower inflation rates over the next year or so, which would seem to be implied by an unemployment rate near 7 percent, is the notion that it may be difficult to get those inflation expectations to move down to the 3 percent rate of inflation that we've observed over the past few years. We seem to be a long ways from that point. Now, if there was something that suddenly brought a collapse in expectations, then I think we could have a much better result: more growth or less inflation, or both.",130
-fomc-corpus,1993,Vice Chairman.,3
-fomc-corpus,1993,"On your seasonal adjustment--you partially got into this--how about the other GDP measures, such as the ECI, the average hourly earnings, and all the other ones that have tended to accelerate over the past few months?",45
-fomc-corpus,1993,We did some investigation of the ECI. I don't remember the numbers but it smoothed things out some but still left some acceleration on the double seasonal adjustment.,32
-fomc-corpus,1993,I assume as soon as we discover this it starts to work against us! [Laughter] How much should we add to the next core CPI number to adjust for the seasonal bias? Four-tenths?,42
-fomc-corpus,1993,A tenth or so per month. It's not a great deal at this point.,16
-fomc-corpus,1993,Okay.,2
-fomc-corpus,1993,"This is a quarter in which we are getting the advantage of this, but I don't think month by month there's a big effect.",26
-fomc-corpus,1993,Okay.,2
-fomc-corpus,1993,"Well, June is one of the big months; it's .1.",14
-fomc-corpus,1993,"It was .1 in May, too, wasn't it?",12
-fomc-corpus,1993,It was less than .1 in May.,9
-fomc-corpus,1993,"I won't hold you up but we might just look at that as we start to smooth it out. I just had one question on [Jerry's] comment. How do we interpret the rather large increase in the number of 50-year maturity, noncallable debt offerings? Do we see that as indicative of the secular bottom of rates or a very long cycle?",73
-fomc-corpus,1993,It's longer than a Kondratieff; it's the Mullins' cycle!,16
-fomc-corpus,1993,I don't have anything to contribute to the debate!,10
-fomc-corpus,1993,President Broaddus.,5
-fomc-corpus,1993,"Mike, I just want to make sure I'm reading correctly the upper left panel of Chart 14, which deals with the seasonal factors. As I'm reading that now, the increase in the measured core CPI through May was at an annual rate of about 4 percent. And if you assume there is a seasonal in the seasonally adjusted data and this accurately measures it, what you do then is to take about five-tenths out of that so the corrected measure would be 3-1/2 percent.",102
-fomc-corpus,1993,That's right.,3
-fomc-corpus,1993,That is still an uptick from the 3.1 percent last year; that's the way that has been structured?,24
-fomc-corpus,1993,Right.,2
-fomc-corpus,1993,Any further questions?,4
-fomc-corpus,1993,"Just a comment. In Texas what they call seasonally adjusted, seasonally adjusted data is refried beans! [Laughter]",26
-fomc-corpus,1993,Would somebody like to start the Committee's discussion?,10
-fomc-corpus,1993,"Thank you, Mr. Chairman. I think what we've just heard in the Chart Show is very similar to what is going on in the Atlanta District. Growth in the District has been decelerating. We led the nation in growth for much of 1992 but now the gap is narrowing. And I think the weaker activity we've been observing is pretty evident in our survey of manufacturing plants in the District. Even though the margin of favorable responses remains positive in several of the categories, it has been eroding. Also, the early data for June suggest a further weakening in expectations of activity and spending six months from now, and that includes about 80 of the 120 or 130 respondents. So, the trend in manufacturing continues to be down. Consumer spending had been quite strong but it appears to be losing momentum. At the same time, demand in the interest sensitive sectors, including single-family homes, is boosting purchases of housing and related items. And the demand for new automobiles and trucks also looks reasonably good. Business loans apparently have been growing at the national level and banks appear to be making more effort to book loans. That's true to some extent in the District but I'm still hearing a lot of complaints about the famous credit crunch and the difficulty people have getting credit, particularly small business people. I was in Orlando about two weeks ago and I got an earful from about eight or ten small business owners who have had long relationships with banks and are now finding it very difficult to get credit. Housing developers also are reporting that credit is hard to get even in cases where market conditions are favorable. Inventories of unsold homes are small. Nonresidential construction appears to be bottoming out. There are some new projects under way in some parts of the District, particularly build-to-suit kinds of projects. Again, as I have reported many times over the past several months, price pressures are virtually nonexistent. Business people are reporting very highly competitive market conditions. The main problem is the same one that I and many others reported last time, and that is the uncertainty about fiscal policy and the health insurance situation. Everyone seems to be expecting negative impacts, and I think that's having an effect on business planning and on business fixed investment at the moment. So, that's the situation in the District. Our regional economy is still relatively strong compared to the nation but it is weakening, and the momentum seems to be fading to some extent. Now, with respect to the national outlook, our forecast is somewhat stronger than the Greenbook throughout the [projection] period. To a large extent our forecast assumes that the economy will return to a stronger path of economic recovery when this uncertainty lifts, whenever that might be. Even with the revisions to capacity utilization, there is still enough slack to support growth that is somewhat above potential, for a while at least. The only area where we have a more pronounced weakness than the Greenbook is in net exports. And consistent with our higher GDP, we have a lower unemployment level and a less optimistic price forecast than the Greenbook. In the case of prices, we are less certain that pressures from the interim tax can be confined in the economy. In addition, we're looking at the seasonal adjustment problems and we believe that 1993 doesn't show any improvement in inflation over last year. Even with that stronger forecast, Mr. Chairman, I myself feel that the risks to the economy are asymmetric in the sense that I think the risks are on the down side. It's very difficult, of course, to estimate the risks and the cost of uncertainty and what that is doing to the economy. But I do think the uncertainties we have in the economy at the moment may very well threaten this expansion, especially if resolution of our fiscal policy and the new health care program is delayed any further. And while the employment numbers have been fairly good up until recently, the continued public announcements of layoffs, particularly by large corporations, are clearly in my judgment eating away at confidence. Finally, I continue to be concerned about the continued deterioration of the economies of our trading partners and the severity of their recessions and what that means for our economy. So, I think we're in a very difficult period, Mr. Chairman. Again, I would repeat my judgment that the risk is on the down side.",858
-fomc-corpus,1993,President Jordan.,3
-fomc-corpus,1993,"Mr. Chairman, may I just interrupt to answer a question? Our guess is that the core CPI is depressed by half a tenth in June.",29
-fomc-corpus,1993,"Yes, but that is [unintelligible]. President Jordan.",14
-fomc-corpus,1993,"Thank you. I've continued to tour the District, visiting not only with bankers but with a lot of their customers, mainly small businesses, and staying away from the big guys because they all continue to shrink anyway. What has stood out in all of this is the extraordinary increase in the utilization of technology [in areas] that I would never have imagined. It's one thing to see a very high level of software development and computer usage in something like titanium hip replacement parts and to see how strong their market is on a global basis, how much their volume is increasing, how much their prices are falling, how proud they are of having reduced their work force, and how determined they are to do more of the same. But we've also visited turkey processing plants, agricultural feed products, and an egg-laying operation producing 350 million eggs a year with 70 workers and a bunch of 486 PCs. Again, the emphasis of all these people is on the reduction in their work force--how many fewer people they're able to get by with than they were five years ago. When people talk about a perceived shortage of something, they talk about people with the right software to [fix it]; they say they know they could automate if somebody could just get the time and learn how to do it with the software. What stands out in this somewhat casual impression that everybody's emphasis is on substituting [technology] for labor is that if this period is in time generally viewed as something comparable to, say, a third industrial revolution, as some writers have already started to argue, then trying to measure the economy in terms of jobs and the number of people employed is going to lead us far astray of what's really going on out there. At the beginning of this century the largest employer in North America was the U.S. ice trust. Had we had the emphasis on preserving jobs at that time we would have made a terrific mistake for the national economy. It might have precluded air conditioned houses and offices, which might have helped out on the side of the government but otherwise probably would have held the economy back very considerably. So, I think we have to be very, very careful in interpreting all of the output numbers because we're having more difficulty in just conceptualizing using the 19th century framework, which is based on tons and numbers of things when we look at output. We have to be careful about productivity. The whole retail trade sector is shown to have had negative factor productivity for more than a decade mainly because its output goes to the benefit of the consumers, these optical scanners and so on. And I think it defies all reason to think that the retail trade sector has negative productivity gains given what they're doing; [the same goes for] the banking industry and so on. Turning to just a few sectoral comments about the District, our agricultural sector is very strong. Our farmers are delighted with the floods and problems in the Mississippi valley area. They're looking forward to higher prices; they have their crops in and they look for good volumes. The disturbing aspect is that some bankers--and this is not farmers themselves talking so I don't know how much reliability to attach to it--are talking in terms of the price of an acre being up as much as 25 percent from a year ago. Some of the prices they quote--what they say they're getting on loan requests--look unrealistic to me related to the values of the crops associated with [the land]. Our contacts point out that these prices remain well below the peak of the agricultural bubble back a decade or so ago, but they are still very, very sharp increases in land prices. Confidence of the smaller businesses I would say is still very, very negative; [it stems] from their perceptions of Washington. In our discussion in May there was a question as to whether this was just political bias--usually these small businessmen are Republicans--but my sense of that now is quite the contrary. John LaWare was with us at our joint board meeting in June and he heard one of the comments made by one of the directors who comes from a district where the Democratic registration is 8 to 1, and they are the most upset. [The mood is beginning] to take on a jilted lover effect; those who had high hopes and aspirations and expected the most from this Administration are the ones who are most angry. So, I don't think it's politics when they tell us how upset they are about things. Other conditions in the District generally have not changed. It's still probably the strongest region in the country. The retail sector is very good; exporting is very good; auto sales in our area are very good. There's really nothing there of a negative tone. I do want to comment and ask a question, too, about the Greenbook and these FOMC central tendency projections on Chart 16. Maybe I misunderstood what they are. When I look at the Wall Street Journal's summary of everybody's forecast or any of these other [forecasts], it's one thing that [unintelligible] is going to happen. I don't think in terms of [a forecast] by the central bank when it comes to putting down numbers for inflation; rather I think of these as our objectives because it's our policies that are going to produce these [outcomes]. And [it bothers me] to see the Committee raise the central tendency for this year and also to have the central tendency for next year the same as it is this year and above where inflation came in in 1992. Am I to understand that the consensus of the Committee is that inflation is not going to go down anymore because we're not going to try and produce lower inflation? Is this an objective or is this a prediction?",1148
-fomc-corpus,1993,"This is a prediction and I've made a very special point to avoid any implication that any of these [data] are goals. [We do this] because we are required by statute to present this sort of [stuff]. If we ever put down actual goals, then we really will have problems. So we fudge it for the Committee as best we can.",71
-fomc-corpus,1993,"How do you handle that then when it says that the Committee's policies are related to inflation? Our objective is to go to price stability, but we're predicting that the rate of inflation is going to be sticking in the 3 to 3 plus percent area.",52
-fomc-corpus,1993,"Well, the implication of this is that it's not clear whether it's pre-policy or post-policy.",19
-fomc-corpus,1993,Don't you announce them at the same time you announce our policies?,13
-fomc-corpus,1993,"I purposely never ask anybody around this table what policy assumptions they are making when they make these forecasts. So, I feel free to make the statement I just made!",33
-fomc-corpus,1993,The problem you'd clearly have when you get into it on other side is that someone would note that some people have raised their estimates on unemployment and would ask if that is our objective on real growth of employment. It seems to me pretty perilous if you are going to have to talk before the Congress and say our objective is this on prices with this employment figure. You are in just an intolerable position.,81
-fomc-corpus,1993,"Yes, it's an intolerable position. The whole process is. We would be far better off just dispensing with this, but we can't. It puts us in an impossible situation.",36
-fomc-corpus,1993,"Well, there are a couple of things [I'd say] about that. One, the numbers that we provided are not a prediction of what is going to happen. When we put down a number [for inflation], such as the number [we gave] in February, the way I interpret it is that it's the intent of policy to try and achieve a downward trend. And I think it's different than unemployment or real GDP or anything else like that because those are not part of the ultimate objectives of our policy. Our ultimate objective is to stabilize the purchasing power of the currency.",115
-fomc-corpus,1993,Wait a minute. I thought our policies ultimately were to maximize real growth and that what we did on prices was a way of doing that.,28
-fomc-corpus,1993,"I agree, but in a one-year ahead [framework] like this--",15
-fomc-corpus,1993,"Well, you could say the same thing about prices if you really want to get into that and talk about lags. After all, there's uncertainty as to how quickly things react to whatever policy moves we might make.",43
-fomc-corpus,1993,"If you all get too detailed into this issue, I will not be able to plead ignorance for the Committee!",22
-fomc-corpus,1993,"Well, one final question: Are the ranges [showing the central tendency of our forecasts] for 1993 and 1994 to be taken as acceptable to the Committee?",36
-fomc-corpus,1993,The answer is no. President Parry.,9
-fomc-corpus,1993,"Thank you, Mr. Chairman. New data paint a weaker picture in the 12th District than I reported at the May meeting. Employment revisions and subsequent monthly releases show a continued deterioration in employment in California. Rather than flattening in early 1993, the new payroll data show a continuous rate of decline. Preliminary numbers for June show employment down 1.6 percent from a year ago and falling at a 2 percent annualized rate between May and June. Only services have actually shown gains in employment in the last year. The household survey, which had shown a stronger employment picture, reported a decline of 187,000 jobs in California between May and June, bringing the level of employment in that survey slightly below that of a year earlier and raising the unemployment rate to 9.1 percent. Now, economic conditions elsewhere in the District are somewhat better. But even there conditions appear a little less positive than they did at the time of our last meeting. Outside of California employment is up 1.7 percent from a year ago, with employment growth exceeding 3 percent in three of our states: Idaho, Nevada, and Utah. However, all states except Hawaii and Utah reported month-to-month declines in employment between April and May. Also, our Beigebook respondents have become increasingly cautious and pessimistic about the national outlook. Moreover, our contacts in the District report that investments in business expansion are being slowed by uncertainty attributed to tax, health care, and trade policies. The state and local governments are facing rather substantial fiscal problems in the coastal states. California just put in place a few days ago a budget that closed a $9.3 billion shortfall. The agreement, however, created significant problems for local governments by shifting $2.6 billion of property taxes away from them. They obviously are going to have to make adjustments in their budgets, which will have a significant negative impact at least for the current year in many counties and local areas. Oregon is facing the possibility of a 20 percent cut in state expenditures because of lost property taxes or tax revenues due to Measure 5. And Washington, which closed a $1.8 billion shortfall earlier this year through a broadening of the sales tax base and cutting expenditures, is facing a ballot measure in November that would reverse the tax increase. In summary, for the District the news is not particularly pleasant. If I can turn to the national scene, our forecast is very similar to that of the Greenbook. We do have a second-quarter growth rate of around 2 percent. Clearly, the more recent statistics with regard to inflation are more optimistic, but I would say that the inflation outlook is still very uncertain. We really only have had one month's data that suggest improvement. And I must admit that the measures of the degree of slack in the economy are clearly uncertain; some of that was referred to in the discussion by Mike Prell. All of this would suggest to me that we have to continue to focus on the inflation numbers over the next several months because it's really too early to see what the trend is likely to be.",623
-fomc-corpus,1993,President Broaddus.,5
-fomc-corpus,1993,"Thank you, Mr. Chairman. Our District economy continued to grow in May and June although at a very moderate rate. We do a couple of surveys prior to the Beigebook, and the latest one shows that retail sales edged a bit higher in this two-month period. Manufacturing activity in our District seems to be steady. I think the manufacturing situation in our region is probably a little stronger than nationally because of the composition of our manufacturing base. Textiles is a big industry in our District and that industry has been doing reasonably well recently. I think most business people in our area expect both the regional and the national economies to continue to grow slowly in the months ahead, but at least some of the anecdotal commentary I'm hearing has been less positive over the last several weeks. Concerns about tax increases and uncertainty regarding the prospective additional tax increases accompanying health care are part of the problem, but I think the prospective military base closings in our District are the central current worry. If the Federal Commission's recommendations are accepted, and I guess most people think they will be, that's going to hurt the Fifth District particularly hard, especially the states of South Carolina and Virginia. The Charleston, South Carolina area has estimated they would lose about 14,000 jobs. One local newspaper referred to that as another Hurricane Hugo coming through prospectively. In Virginia, combined potential losses in Norfolk and northern Virginia would amount to about 18,000 to 20,000 jobs and those estimates don't include the multiplier effects of these direct losses on local job markets. So, that's a cloud hanging over at least two states in our region. Regarding the national picture, our basic forecast is not terribly different from the Greenbook. Our real GDP projections are a little higher for both '93 and '94 but close to most of the private forecasts I've seen. On the other hand, our inflation projections are similar to the Greenbook's, which generally are more optimistic than most private forecasts out there. Still, on balance, we're a little more optimistic than most people which gives me a bit of a pause. But this optimism is relative optimism. It's justified because we base it--and I don't want to get too detailed here--fundamentally on the assumption that this Committee will do whatever it has to do to help increase the credibility of our longer-term strategy. And if we do that, I think that will allow for both continued moderate growth and continued disinflation. Obviously, some of the latest data are pretty discouraging, especially the June employment report; but it strikes me that the overall picture is not all that bleak. As the Greenbook indicates, aggregate hours worked in the second quarter were up quite substantially, so I think the bounceback in real GDP growth in the second quarter, as the Greenbook is forecasting, is certainly plausible; and it could even come in a little stronger than that. Beyond this, we in Richmond think it's reasonable to expect at least a moderate further acceleration in the quarters ahead. In particular, it strikes us that economic conditions are improving in a number of our major export markets; some of the data that Ted recited reinforced that view. It's possible, therefore, that exports can be a somewhat greater source of strength for us going forward than is generally anticipated. That's not to say there are no downside risks. Obviously, the potential substantial tax increases are especially big negatives. But my own feeling is that the moderate projections in the Greenbook and the slightly higher projections that we have are both plausible outcomes despite the fiscal drag. With respect to inflation, the rate of increase in the core CPI in the first five months of the year, even if it's a little less than the published data, is troubling. My own view is that the increasingly widespread perception in the financial markets and to a certain extent in the broader economy is that we at the Fed are prepared to act to hold any potential increase in inflation in check. I think that's already beginning to have a measurable effect in holding inflationary expectations down. I think we see that in the bond markets recently. If we can maintain this posture and communicate it, I think it's reasonable to expect at least the modest further improvement in inflation [projected] in the Greenbook.",846
-fomc-corpus,1993,President Keehn.,4
-fomc-corpus,1993,"Mr. Chairman, with regard to the national economy, our forecast really is quite close to the staff's forecast. But it is interesting that when we first made a forecast for 1993 this time last year, we started off lower than the staff forecast. We were at the time somewhat pessimistic but as we've gone through the year [unintelligible] and at this point the differences aren't that large. Our outlook for inventory levels and residential construction is somewhat stronger than the staff numbers. This is perhaps reflective of conditions in the District. In the District, the level of economic activity continues to expand but the pace of the increase is beginning to show signs of moderating. The auto industry continues to be our bright light. Retail sales are continuing at good levels and inventories are in good balance. The third-quarter production schedules, which have been set about 18 percent over last year, seem reasonably firm at this point. The heavy truck business continues to be solid; retail sales of heavy trucks are forecast at about 129,000 units this year; that's a good year for them. But some of the strength is being driven by pending changes in regulations rather than normal market forces, and there are some preliminary indications that the heavy truck order rate is falling; indeed, there are a few signs of order cancellations. In the steel business, while the order and production rates continue at good levels, the significant development has been the preliminary settlement of the contract the USW has been negotiating with the first company. It seems to be coming out on a non-inflationary basis. The contract preliminarily agreed to calls for a $500 signing bonus, a $500 lump sum payment in the second year and a $.50 per hour wage increase in the third year; there are no wage increases in the first and second years. There's also a $1,000 lump sum payment in 1996 if the company earns over a specified level in 1995. Given the substantial changes in work rules and the substantial give-back on health care, the company feels that it can easily cover the higher cost through productivity increases. That deal is far better than what they had hoped for at the outset of the negotiations. Retail sales in the District have been reasonable thus far, running about 3 to 4 percent over last year. There is some strength in appliances and home improvement items. In the agricultural sector, we have something [akin to the reverse] of what Jerry Jordan referred to. His good news, of course, is our bad news. I will say, though, that the ag equipment business has been very good up until now. Therefore, based on these higher sales levels, at least one manufacturer has increased its production schedules for the second half of the year by some 13 percent. But the miserable weather that we've been having and continue to have is a real downer. The corn crop planting is in one sense complete, but as of late last week it looked as if in Iowa alone some 6 percent of the corn crop would have to be replanted. The soybean crop has been badly delayed and I think it's not going to get completed. It's clear that we're going to have an acreage shortage in soybeans once things get straightened out. It's going to take quite a while to assess just how much damage is going to result from all of this rain but, clearly, that has not been a plus for the District. On the inflation front, despite the discouraging numbers that we've talked about for the early part of the year, I really don't sense any significant upward pressures on prices on a broad basis. Competitive conditions remain very, very intense in the market. Certainly, this is true in the retail sector where it takes significant sales and discounts to move products. One manufacturing company that I talked with follows the cost of their purchase materials very closely; it's a large manufacturer. They had been forecasting a decrease of 1/2 percent in the cost of their purchase materials this year. They re-forecasted just last week and they now expect the cost of their purchase materials to decline by 0.9 percent; they really have a very constructive look on the price of their purchases. As for wage costs, with the steel contract seemingly settled on a non-inflationary basis, the bargaining focus will shift to the auto negotiations which just started. It's far too early to tell just how that's going to work out, but that certainly will be a key item on the wage front. Net, while the economy continues to expand, it just doesn't seem to have that much strength, and I think we could be facing a pretty mediocre outlook. Thank you.",934
-fomc-corpus,1993,Did you say something on whether you sensed that the capital goods markets are being affected by the tax uncertainties?,21
-fomc-corpus,1993,There's no question about it. People are very uncertain; the level of uncertainty caused by the discussions [in Washington] has led people to hold back.,30
-fomc-corpus,1993,You know of projects on hold as a consequence?,10
-fomc-corpus,1993,"I don't think I could be specific about major projects on hold, but I know that capital purchases are clearly being affected by this.",26
-fomc-corpus,1993,President McTeer.,5
-fomc-corpus,1993,"Bob Forrestal's discussion of the Southeast economy pretty much describes the Southwest economy. During the recovery and expansion we have pretty much led the nation, but as we moved into 1993 that gap was narrowing. And possibly in April and May, based on employment numbers, we may have fallen behind the nation's pace of growth. So, things are weakening relative to the rest of the country even though they're still moving forward. One of the changes has been that Mexico, which had been a major source of strength both to our manufacturing industries and to retail sales along the border, may be turning into a weakening factor as they've had slower economic growth and as they've continued the collection of duties at the border that they imposed at Christmas. Bob mentioned that the credit crunch was still alive and well. I think that's true in the Eleventh District as well. Although we get more and more indications of banks going out and aggressively marketing loans now, I don't have a lot of indications that many more loans are being made; but at least on the surface that seems to be improving. In addition to the uncertainty surrounding the tax and spending plans of the Federal government, we have some added uncertainty in our part of the country over the prospects for NAFTA. There is some anxiety about that, which is probably slowing things down just a little. Also, the energy tax probably did more to slow things down in our area of the country than it did in the rest of the country, but that has faded somewhat given the way they're changing that.",303
-fomc-corpus,1993,President Boehne.,5
-fomc-corpus,1993,"The District economy continues to be mixed. I'm not sure that overall it is deteriorating sharply, but its growth has been slower than the nation's all along. And while the gap may be narrowing some, that's not so much because we're picking up but because the rest of the nation's economy seems to be coming to meet us. We have seen the same quite noticeable deterioration in the manufacturing sector that Bob Forrestal pointed to and it is continuing into this month. That's affecting employment plans and has cut significantly into the capital spending plans of the manufacturers in our region. While manufacturing has been showing this noticeable weakening, the retailers seem to have been doing better--certainly the second quarter was better than the first quarter--although in recent weeks that seems to have flattened out some. Nonetheless, I think the tone in retailing is better. The residential construction people are feeling better. Not only are sales of new homes moving but there also is new residential construction. The nonresidential area continues to be a big drag and will be, I think, for a number of years. One of the areas that has been a mainstay of strength in the Third District, particularly the greater Philadelphia area, has been the health care industry. And that is changing. Where that has been a plus in employment gains, I think we are going to see that turn negative. The hospitals, which had been adding people, have made a number of cutbacks; and some of our hospitals are laying off people. In terms of defense, I think the best way to describe it is that the District economy expected to be hit by a cannon ball and it's just a shotgun blast and not a cannon ball, so it feels better because at least it's not as bad as expected. Overall, employment has increased but not a great deal. The financial institutions are out there trying to drum up business. They report some uptick in lending activity, but it's still rather flat on the whole. As for inflation, there just do not seem to be upward price pressures. Wage rate increases, however, do continue higher than one might expect in this kind of market, at around 4 percent or so, I'd say, rather than decelerating. As far as the nation goes, our forecast is somewhat higher than the Greenbook's in this slow-to-moderate growth range that I think we all see. Nonetheless, I think the uncertainties that are out there do put the risks on the down side. There are these macro risks that we all talk about, the budget package. In some ways I think the business community is more concerned about health care reform than the immediate tax increases. But for the individual, at the more micro level, the uncertainty instead of abating, if anything, is increasing. I think people are as much if not more concerned about their own jobs, their own companies, their own futures; and they sense that the margin for error is not very great. We are in one of those situations where the unexpected shock--all shocks by definition are unexpected because we don't know what they will be--[would be troublesome]. I don't think we can take a very big one at this point. On the inflation side, I think we can continue to make some progress but we are at the point in the cycle where the gains on inflation are just not going to come as easily as they did earlier. My own sense is that we have a way to go in terms of secular gains, and I think we could continue to get inflation down on a secular basis. But we ought not to deceive ourselves: The gains are going to be very tough as this cycle wears on.",728
-fomc-corpus,1993,President Hoenig.,4
-fomc-corpus,1993,"Thank you, Mr. Chairman. Activity in our District continues not unlike what it was the last time I reported. Farm income remains good within our District, helped by continued strong cattle and livestock prices; and our wheat harvest should be reasonably good. Construction activity is being led importantly by residential construction in the Denver and Omaha areas; nonresidential building remains brisk through the second quarter. Oil and gas drilling has picked up ever so slightly; thus that industry is remaining stable after some period of pretty significant decline. Manufacturing for us, as you've heard from others, remains sluggish. Some companies are hesitating; in a couple of conversations I've had, particularly with those in food processing and the nondurable goods areas, my contacts said they had just put off some additional expansion. And one company's chairman said that they do not hire without his permission. These are companies with several hundred employees. So, the uncertainty is having an effect, I think, on some of these activities in the manufacturing sector. Looking ahead for the District, I think farm income should continue strong, with good harvests and continued good prices in the cattle area. In construction the flow of new contracts is good, so we think activity there will remain good for our District. With some weakening in the prices in the oil and gas area, it appears that this slight improvement that we've seen may not be long-lasting; we just don't know at this time. Manufacturing, until we get some of the uncertainty out, I think is going to remain a little more sluggish than it might otherwise be. I have talked with individuals about credit and credit access in our region. That has improved although we do still get some feedback that it's hard to get loans; that is much less the case than it was a few months ago. And the evidence, in terms of increases in credit outstanding, would suggest that that area is improving. At the national level we, like others, continue to see modest growth. Our forecast is also somewhat stronger than the Greenbook, led not by consumption but by somewhat stronger projections in residential activity, business fixed investment, and not quite as negative a change on the government spending side. What that suggests to us, though, is that in this world of uncertainty--and especially as it relates to inflation--without some change in policy over the forecast period we could see inflation at a somewhat higher level than is projected in the Greenbook. Thank you.",483
-fomc-corpus,1993,President Stern.,3
-fomc-corpus,1993,"Thank you, Mr. Chairman. First, with regard to the outlook for the national economy, just like about everybody else who has already spoken, I think the very modest recovery that we've had is likely to continue. So I have no real disagreements with the central tendency [of the members' forecasts] or the Greenbook forecast. That, in my judgment at least, is how things seem likely to play out. I don't see a lot of vulnerability to [such a forecast] at the moment. As far as inflation is concerned, I also agree with those who said that it doesn't look as if there's going to be a lot of further progress in bringing down the rate of inflation at least over this forecast horizon. And that is my greatest concern. I don't have a sense that expectations are working for us. My sense is that expectations are that if inflation hasn't hit its low for this cycle, it's close to it. So, that's not a favorable factor. I have a sense that the general thrust of government policy is, if anything, going to add to inflation. That just says that our job is not going to be made any easier by a variety of other things that I can contemplate over the next 18 months or so. That's my greatest concern about the outlook at the national level. I think progress on the inflation side will be tough. With regard to the District, again, there's not a lot of news to report. The regional economy has been in good shape for an extended period. That largely continues. There have been more broad-based and frequent reports of banks becoming somewhat more aggressive in trying to meet their loan targets and finding some frustration in their inability to do so. Of course we, too, have been affected by the floods. And although that's [concentrated] in a rather narrow band, it has affected or probably will affect corn and soybean output in the District and will have some spillover effects for tourism as well. Finally, there is ongoing concern about the fate of Northwest Airlines and their potential Chapter 11 filing. I was told that they did reach agreement with the pilots today, but I haven't been able to confirm that. The pilots are undoubtedly the key, but they're not the only union involved. So that situation remains iffy at the moment.",457
-fomc-corpus,1993,President Melzer.,4
-fomc-corpus,1993,"Looking at our economic projections, we're at the high end of the central tendency for 1993 and we are clearly an outlier on the high end with respect to 1994. I wouldn't make policy based on these projections, but basically how we look at it is that we've had a very stimulative thrust of policy for a couple of years running here and that's showing through to the real side a little in 1993 and more of that would show through in prices in 1994. If that were to happen, though it's quite possible it's just an inflationary bubble, the question would be this expectations issue that we've been talking about. Even if we thought our policies were on a course that would gradually bring that back down, how do we deal with expectations in the meantime? So, I see that as a potentially tough issue for us to deal with. The other issue I see is one that Ed Boehne, Gary Stern, and others have touched on, which is this longer-term question as to how we approach some concept of price stability and over what time frame. With respect to the District, we're still showing strong numbers. I've heard a number of people say that they see less gap between their Districts and some of the stronger Districts. I guess we see that too, but I would be more inclined to view it as [an indication] that the rest of the nation may be catching up as opposed to our losing steam. We're still, in the latest three-month period for which we have figures, getting strong growth in both manufacturing and non-manufacturing employment, basically in the area of 2-1/2 percent at an annual rate. In the manufacturing area that's across most sectors except chemicals and transportation. Interestingly enough, despite this strong pattern on the real side, we're not seeing much growth in bank credit demand. For large reporting banks we'll see the numbers up one week and down the next week; and C&I loans on an annual basis are still down about a percent from the prior year. Recently, we had a group of homebuilders in and they said they are looking ahead to a very strong third quarter--that's already built in --and they expect to see significant follow-through in consumer durables. On the other hand, some people in the commercial area--and this is just anecdotal information from a group we talked to--see capacity basically being disassembled. They see the entrepreneurial developer really not being able to get financing and that is beginning to spill back to the contractors and general contractors. Some of those contractors can hang on for a while, but even the stronger ones --looking ahead a year or two--are wondering how they're going to keep going. In that conversation I heard the comment--[mentioned] before by Gary, I believe--about the impacts of certain government policies and the concern about that. When I asked about inflation, these people mentioned the price of cement, which has gone up about 50 percent in St. Louis. That has to do with the plants that produce it just being unwilling or unable to spend the money to put on the environmental controls. So, it's a short-term supply problem. I think the people at that luncheon and generally the people I talk to view things like that as aberrational. They don't seem to be generally concerned about a build-up of broad inflationary pressures; I think they are more concerned about real growth. That about wraps it up.",689
-fomc-corpus,1993,First Vice President Oltman.,7
-fomc-corpus,1993,"Our projections are pretty close to the Greenbook projections, a little higher on GDP for 1993 but well within the [Committee members' central] tendency. I must say I have to repeat the theme of uncertainty. Among those we've talked to within the District, that theme is repeated often. It seems sometimes only to be a [matter of] what is in fashion to cite as the focus of the uncertainty: the health care reform or the fiscal package or the state of overseas economies affecting exports. Overall economic activity in the District seems to be slowing somewhat but still growing at a modest rate. There's almost a reluctance to concede this on the part of some of the people we talk to; they seem to want to make sure that we don't misunderstand that, yes, things are a little better but they're not as much better as they ought to be [so] don't get the wrong idea. As far as inflation is concerned, Gary Stern's observation holds for much of what we've been hearing as well. There does not seem to be too much concern about inflation but there is some suggestion that [this view] results from the feeling that [the current level of inflation] is probably about as well as we can do and it's so much better than it has been, so let us not worry too much about that. Some of our manufacturing contacts, for example, have experienced some mild increase in activity but without expectations that price increases are going to occur over the next year, or the next six months at any rate. Credit demand, to hear the bankers, is not there; to hear the small businessmen the demand is at least a lot stronger than the bankers would have you believe. When you begin to dig a little into that, you hear the familiar story of demand for higher collateral and a lot more paperwork, all of which is read by the potential borrowers as efforts to discourage them. The bankers on the other hand insist, as some others here have said, that they are going out and beating the bushes and mounting serious campaigns to bring in borrowers. How to square that is difficult to say; there probably is some truth on both sides. To the extent that the borrowers are prepared to put up more collateral--in the case of small borrowers, for example--very often it is personal collateral, mortgages on personal residences and things of that kind. That means an uncertain atmosphere generally for economic activity and a little more than a lot of uncertainty for the small business borrowers. So I would say the overall mood is reluctantly positive.",504
-fomc-corpus,1993,Governor Kelley.,3
-fomc-corpus,1993,"Mr. Chairman, the theme all afternoon here has been about expectations and perceptions, and I'd like to make a few comments in a couple of areas along that same line. First, it seems to me that fiscal policy may be coming back into our dialogue a bit more strongly, assuming the dominant role that it may have had in earlier eras. Recently I think the economy has been working on its own dynamics, and monetary policy has been key while fiscal policy has had its effect largely by its absence. I think it's coming back. Like monetary policy and the course of inflation, I think fiscal policy has two facets to it. One relates to how the numbers actually flow and the other is this matter of expectations and perceptions. And right now expectations and perceptions in the form of uncertainty are very, very dominant. No doubt the numbers are going to begin to have an effect as time goes on and, as the Greenbook says, [that will happen] as tax policy gets settled and some of these other issues such as health care begin to have their own numerical impact, which undoubtedly is going to be contractive. But I have an idea that over time sentiment may just start to flow the other way because I think this uncertainty has a life of its own. So to some extent, maybe a large extent, when clarity begins to emerge--almost regardless of what that clarity tells us--it's going to help. We may get more help from the clarity side than a contractive impact from the actual effect of the numbers. I have some fear in saying that because the reality could be so negative! [Laughter] Secondly, on the outlook for growth, we all look for an engine for growth in the various components of GDP and we can't find one. It's just not there. But there may be another, if you will, off-balance sheet engine that's at work and has been at work all along. And that is just the basic restless, nervous energy of the American people and the inherent optimism we undoubtedly have. I ask myself how, in the face of all the very severe shocks we've had in the last several years in this economy, we've been able to experience a mild recession followed by eight straight quarters--this will be the ninth--of recovery from the recession. And all of this has occurred in the face of these famous head winds we've been talking about for a long time. I think the answer may lie in this very positive underlying attitude toward progress, this restless energy to improve things that is still in my opinion very much the dominant ethic of the American people and the American economy. Our nation's basic orientation in that direction may prove to be the engine that isn't there in any specific quantitative component of GDP. Right this minute I think that's being repressed by these uncertainties, just to kind of close the circle. But as these uncertainties begin to clarify and take on identifiable characteristics, we quite likely will get a breakout on the up side from that inherent dynamism.",592
-fomc-corpus,1993,Vice Chairman.,3
-fomc-corpus,1993,"With respect to the real economy, I don't know that I have a lot to add. I still see moderate growth--others might call it slow growth--at a rate of perhaps 2-1/2 to 3 percent. On consumer spending, I as yet see no compelling evidence that we're falling off the path of sustained moderate growth. Auto sales continue to be quite strong. Nothing else continues to be very strong, but at least auto sales seem to be holding up. The way I read consumer confidence is that the Michigan current index is near its recent high; the most recent month at least is only a bit below March and April, the recent peaks, and is above every other month before that. The expected index has fallen off--there is this uncertainty about the outlook that Mike was talking about--but it's still above where it was in October. I also remain hopeful that the housing recovery, despite some fits and starts, will pick up steam. We have the lowest mortgage rates in 21 years. And I do believe, when I hear it around the table and wherever I go, that we may be beginning to see evidence that this could affect business spending. Now business spending has been quite strong. The uncertainty affects business spending and it could decelerate a bit due to concern about the tax proposals. I find that hard to see convincingly in the data yet; even in the survey data on capital spending, which have come down marginally, we haven't seen a big drop-off. Presumably, there is concern about taxes in the budget proposal. I agree with Ed Boehne in that the bigger concern I keep hearing about is the health care proposal. That is unfortunate because the tax uncertainty presumably will be resolved soon, though it may be a close vote; but the health care uncertainty is not likely to be resolved soon, even if the proposals are presented in late summer or early fall.",383
-fomc-corpus,1993,September.,2
-fomc-corpus,1993,"Yes, September. The Administration has shown that it is willing to alter firmly held beliefs as things move through Congress. This could mean next year. Now, capital spending is not a huge part of the economy [but] it has been the most reliable component of the recovery; it's that little engine we've had going. And the Greenbook has it decelerating only a bit. Loan demand seems to be picking up nonetheless, so I think even here it's a mixed picture. The positive thing I see is that employment has shown steady growth despite the weak June numbers. We've seen more jobs created in the first half of 1993 than in all of 1992, roughly a million jobs in each case. Despite the talk about the reduced propensity to hire, monthly job growth in the second quarter is 161,000 jobs a month on average, virtually the same as in the first quarter. The hours and overtime still suggest that continued slow growth is likely to spill over into more moderate growth in employment. The pattern of job growth in the last several quarters, the gradual improvement, I think will contribute to the durability and sustainability of the recovery as a self-reinforcing process, and in my view that reduces the downside risks. So, when I total it up I still see 2-1/2 to 3 percent real GDP growth where perhaps before I saw 3 to 3-1/2 percent. With a normal quarterly variation around that mean--and the variation has been, if anything, smaller than normal in this period--it's inevitable that we will see quarters below 1 percent and up near 5 percent. I look forward to seeing the latter soon. Now, it is true this is thought of, at least in immediate terms, as a weak or fragile economy. And, of course, I remember a weak economy. My first three quarters on the Board were all negative quarters. As Mike mentioned, we've had nine consecutive quarters of growth and, I suspect, six quarters or 1-1/2 years with growth averaging between 2-1/2 and 3 percent. We can continue to hold our breath with each quarterly draw from the distribution. Instead, I think it's useful to try to detect significant changes, deterioration in the underlying forces which have been gradually and steadily pushing the economy forward for a year and a half now; and I don't see the hard evidence of that deterioration yet, though I must admit the anecdotal pessimism is a bit high. But, again, I think some of the uncertainty will be resolved. On the inflation front, it's nice to get some good news for a change even if it's only one month's number, as Bob Parry mentioned. I think the positive way of viewing it is that in two out of the past three months we've had favorable inflation data. Unfortunately, in my view, it will take a while to extinguish the trend. The negative way to view it is that for eight months now, since the end of the third quarter, core CPI has averaged roughly 4 percent versus about 2-1/2 percent for the previous six months. That's the most negative way one can carve it. The seasonal adjustment problems may have exaggerated the trend, but it bothers me that the CPI hasn't been the only troublesome index. Both the implicit price deflator and the fixed weight index have accelerated over the last couple of quarters--the former from 1.8 percent to 3.5 percent. The fixed weight index, which is perhaps the more traditional measure of inflation, bottomed in the third quarter of last year at 2.2 percent and the recently revised first-quarter number is 4.3 percent. The employment cost index for total compensation bottomed in the second quarter of last year at 2.9 percent and accelerated to 4.2 percent in the first quarter. The Purchasing Managers' diffusion index has registered five consecutive quarters of increases after a few months of negatives before that. The trend, if one projects these numbers, is not encouraging, of course. So in my view it has been a long blip and one reflected in a number of broadly based inflation measures. And it's one that has persisted for six to eight months in an environment of slack and slow growth. However, the immediacy of the inflation concern, the forcing nature of the argument, has to do with the developing path of future inflation and not really the past six or eight months and importantly the extent to which inflation concerns infect the market. In my view so far this year we've had two episodes where inflation fears have affected the bond market. The long bond rate has backed up by 25 basis points, not all due to the inflation concerns but at least its coincidence with the release of inflation numbers would suggest to me that it was a major contributor. The first was in March and early April when the long rate advanced to 7 percent following the poor January and February and fourth-quarter inflation numbers. That was doused by the favorable March numbers. And then following the poor April numbers the long bond again flirted with 7 percent; the good inflation numbers for May revived the prospect that the upturn in inflation might give way under the weight of economic fundamentals and the market returned to a wait-and-see attitude; the long rates retrenched to new record lows aided by the success of the President's program in Congress. While the inflation fears in the bond market have receded, obviously some commodity prices continue to be a bit troublesome. On balance, when I look at the data I think the recent evidence weakens the case for an immediate action on the federal funds rate. Nonetheless, the concern about inflation, at least my concern, was not created by poor performance in a single month's data nor is it likely to be extinguished by a single month's better performance. Importantly, in the upcoming intermeeting period we shall be receiving a significant quantity of new information on inflation, not only the CPI and the PPI but also the two GDP quarterly measures and the ECI measure as well. And I think that should provide some important input into the developing trend going forward. I might add that the average hourly earnings for the second quarter, which we got the other day, had decelerated to essentially the bottom reached last year, and that's a hopeful sign. Still, we are particularly vulnerable to negative surprises in the bulk of the data coming out. One thing that is already apparent from the numbers in Chart 16 is that the FOMC has changed its view of '93 inflation and so has the staff. The central tendency is up by about a half percentage point; the staff's estimate is up by 0.7 percent. It's also true that we've marked down our real growth perceptions as well. But even though our view of '93 inflation has changed significantly, the federal funds rate has not changed. As to why all this is happening, I found the staff's presentation very interesting. The speed effect--and I have no really fresh insights--does suggest that we can affect inflation over this period. It's not a very pleasant prospect to suggest that growth of 2-1/2 percent is a lot more favorable than 3-1/2 percent; one hates to punish growth as a way to achieve it. When I review the past six months or so and look across the different measures, I tend to attach more weight to the simple expectations hypothesis, although it is also related to Mike's speed argument. I think we recognized last year that even though actual inflation fell, long-term expectations didn't seem to change very much. And some of us even talked about a period of testing to resolve the dissonance between expectations and inflation fundamentals. I suggest that that's exactly what we've been experiencing over the past few quarters. Businesses restrained price increases during the couple of very weak years we had. In the second half of 1992 the economy grew a little over 4 percent and I think they returned to the norm of trying to pass through 4 percent inflation. In an environment of slack and slow growth of money and credit, this should not be sustainable. But it has persisted for a couple of quarters and I would not underestimate the staying power of firmly held expectations because many economists and business people simply do not see inflation as a problem at 3-1/2 or 4 percent; they see it as the norm. I might also add that we had an interesting experience last week in the Board room when we had in the American Bankers Association panel of bank economists. Their view is very similar to the Blue Chip forecast, which we've talked about before, and also I think to the [view cited in the] Wall Street Journal this morning. None of them sees a problem with inflation. It's going to continue to rise gradually up through the 3 percent range even though they're projecting large, ample slack continuing. There just seems to be enormous gravitational pull to expectations, and I suspect we're in the midst of an extended battle between expectations and fundamentals. This battle is at the core of any attempt to achieve lasting reductions in inflation, which is going to require reduced inflationary expectations. And I feel our stance and our actions, including how we respond to higher-than-expected inflation, are also quite important to the ultimate outcome of that battle.",1871
-fomc-corpus,1993,President Syron.,4
-fomc-corpus,1993,"Thank you, Mr. Chairman. Just a couple of points because it's late and we've gone over a lot of things. As far as the region goes, there is not much change. What there is has involved some deterioration and a slightly softening mood. There has been a deterioration in the business mood from uncertainty to somewhere between resignation and fear. I would tell the same story that everyone tells; it's virtually universal among almost everyone I talk to. We're not two sentences into the conversation when they raise health care, taxes, and all of these other subjects. I think Mike Kelley is right that some clarity would help, but I'm not sure we are going to get it in a hurry. Very quickly, retailers have seen some softening most recently. Manufacturing is more mixed but the really strong spot we've seen in manufacturing in our District has been related to autos. Everything else seems to have softened a bit, including aerospace, as one might expect. Loan demand shows some slight improvement but is still soft. Ed Boehne talked about an unexpected shock [unintelligible] would get here. Actually, we try to keep in touch with financial people and it's interesting that they have expressed some concern about all this money flowing into mutual funds and about what will happen when we get a little market correction and people find these funds are not really CD-like in a nominal term sense. I would say the mood of these people and the fund managers is perhaps understandable; it's fairly sensitive. They're really quite concerned about this and think we might be in a fragile situation. Talking to the same general group of people about prices demonstrates the rather tough position we're in [because] it's a little like what David Mullins said. They say inflation is not really a problem. We ask what they have factored into their forecast or their budget when they buy things and they answer 3 to 3-1/2 percent inflation or something like that. They say they don't really see inflation going anywhere. One of our directors did a survey and found very low expectations about solving the inflation problem. But when we talk to people about what they think about monetary policy, what comes out is that they see this as not a monetary policy driven inflation, though they're not saying it can't be influenced [by monetary policy]. But in terms of their expectations, they have a deeply held conviction that the American economy has some inflationary bias built in of around 3 percent whether it comes from steel protection, workers comp, or other kinds of things. Essentially, a lot of people I've talked to think that it's so expensive to get inflation below what they see as an asymptote of 2-1/2 to 3 percent that it's not likely to happen. As far as the real economy goes, I have little disagreement with what the Greenbook says. Our own forecast is slightly stronger. I think the Greenbook is probably more correct, to tell the truth. [Laughter] One place that I do have some concern is Europe; the news I hear from talking to people just seems to keep getting worse, whether it's American manufacturers with facilities there or people selling into that market or European bankers coming here. Now, maybe we're coming to a trough on all that as well. The long and the short is that I think the risks to the economy are probably centered, but they could easily go on the down side as well as the up side; I [can] see this going [either] way. And I think the probability of another decline is certainly greater than zero. In terms of what we do about all this with policy, it's hard to think about much change but I would be heavily influenced by how the Chairman wants to convey things in his Humphrey-Hawkins testimony. When we get to the very fine minutia of how we word things, that would be a significant factor in deciding.",775
-fomc-corpus,1993,Governor LaWare.,4
-fomc-corpus,1993,"Thank you, Mr. Chairman. I'd like to identify myself very closely with Bob Forrestal's analysis expressed earlier. I, too, feel that the primary risks are on the down side at the moment. People are anxious about jobs, and they don't see any developments either in terms of government action or in private sector actions that will generate new job opportunities. And that makes for a very cautious attitude on the part of consumers, which then gets reflected in the willingness of manufacturers to make long-term commitments. I think auto sales are an aberration caused by the advanced age of the auto inventory in the hands of consumers. [The age of the auto stock] is at about the highest point it has been in some time and there's a lot of replacement buying that is seen by consumers as necessary. It's not that they get overwhelmed with the desire for a new car; it's a necessity kind of move. Underlying all of that, I'm worried that we're beginning to see a disillusion on the part of the public with the political process in this country. With that disillusion is a lack of any confidence that either the Administration or the Congress is going to find an acceptable way out of this problem. I don't know what the technical definition of stagflation is, but if we continue to make revisions in our forecast that go along the lines that we have recently done here for 1993 looking into 1994, it tends to look more and more like stagflation. And stagflation is a nightmare for monetary policy because the very solutions that solve the inflation problems are likely to tank the economy in terms of growth. That's a condition that we don't want to get into, but I don't see what we can do about it at the moment. So, I'm somewhat dejected at the moment.",359
-fomc-corpus,1993,I sort of picked that up. Governor Angell.,11
-fomc-corpus,1993,"Well, I don't think I've heard such pessimism in a long, long time. I'm not sure what has changed. I don't know what it is that's getting worse. I don't know what business profits are declining. I do not know that nominal GDP is really going to come in for the entire year as the staff suggests at 4.8 percent when in that lousy first quarter nominal GDP was 4.4 percent. But maybe I'm seeing things somewhat differently. I would like to focus just a minute on the lag in monetary policy. Even though we don't have an M2 that works the way we want and we don't think M2+ would suffice either, there is a concept of a kind of pure M out there. That is, there are transaction balances that we've created over the last 10 to 12 years. Investment money has been mixed up with our [measure of] deposit money, so we don't know what that pure M has been doing. If we did know what it was doing, we would have some sense of being forward-looking. Since we don't know what it's doing, it's almost as if we're faced with looking at last month's CPI or last quarter's CPI. And, frankly, it's very, very scary to me to think about our trying to run monetary policy based upon last quarter's GDP or last quarter's rate of change in the CPI. Certainly no one, I presume, expects that there's much we can do about the CPI rate of change in 1993. Can monetary policy now alter what happens in 1993? It seems to me we're working on monetary policy with regard to the rate of inflation for 1994 and, indeed, even into 1995. I don't have the ability to see 1995 clearly enough to do monetary policy based upon that fact. And since there's no M2 or other monetary aggregate out there to guide us, I think we have to look at some other matters. Now, a bit contrary to Ed Boehne's view that we're at the place in the cycle where we're not going to get much more inflation improvement, it seems to me that we have several factors working in our favor in terms of [moving to] a lower inflation rate. We have not had any minimum wage increase in 1993; that's not in the numbers. We haven't had any major supply shocks throughout the world, no oil shocks, no [unintelligible]. We haven't had in the United States any significant impact of employment cost conditions that would in a sense be a driving force for inflation. We've existed in a world in 1993 in which use of resources is way down. This ought to be a very desirable time to be getting inflation rates down. We're in a period where we have some real productivity gains, as has been noted; and those productivity gains ought to be helping us to get more than cyclical improvement in inflation numbers. Now, inflation in my view is not a micro-economic deal; it is a monetary policy deal. The rest of the world, the other six countries in the G-7, are running a rate of inflation a full percentage point below what they were running even though only Japan has more flexibility in wages and prices than we do. We're the most favored country in the world to get the inflation rate down and yet the outlook is that it's not there. It seems to me that the conclusion one can draw from this is that monetary policy in 1992 was really not as stringent as we thought it was. A year ago I was in the camp that thought 2-1/2 percent [inflation] was possible and by February I'd given up and had gone back above the 3 percent level. But my inflation forecast isn't an outlier at all. It's just exactly the same as the staff forecast of 3.3 percent. But I consider this 3.3 percent in a period of such favorable opportunity to mean that monetary policy has really missed its restraining force, and I don't know what's going to happen to cause that to change. It seems to me that monetary policy is indeed getting easier and easier as inflation expectations rise. I don't get letters too often, but here's a letter: ""My wife and I have been married 51 years. We worked very hard for every penny we earned and have been extremely frugal, saved for old age. I can't tell you how much I hate inflation for what it does to those savings. Our circumstances dictate that they be invested conservatively and all of the interest we've been getting from our investments is lower than the rate of inflation. It is taxed as income, which is not taxation but confiscation of capital."" Now, they go ahead and give me a little bit of praise regarding my position on inflation, but they finish it off and say ""Although I'm not optimistic that you will be successful, I can't thank you enough for your efforts."" Well, I guess that's about it! [Laughter] You know, there's a lot of loose talk around. Everybody has an opinion about gold prices. There's a lot of gold going into India and it flows into India because clearly people there want to hold gold rather than rupees, a paper currency that goes down in value. And clearly gold is going into Indonesia and into China as people there choose to hold a more reliable safeguard against these crazy paper currencies that have terrible inflation rates. But the price of gold isn't being affected by a little increase in the number of Chinese who are buying gold. The price of gold is pretty well determined by us. For many things, like land prices, long-term interest rates can have a significant impact. But the major impact upon the price of gold is the opportunity cost of holding the U.S. dollar. No other currency has a reserve base that causes someone to be able to say: ""Well, I don't like holding my own currency."" If you don't like holding your own currency, you always have the option of holding dollars instead. But we set the stage. We have a low interest rate that causes this saver out here to say he and his wife have been had. And I understand how they've been had. We're in a period in which we're going to increase some income taxes; but I'm not one who believes that people who are making more than $250,000 a year are going to cut back their consumption because their income tax rates go up. I think their saving rate is going to come down. We're in a period of being impacted by inflation expectations, and it shows up in the price of gold. We've had a 20 percent increase in the price of gold since last February's Humphrey-Hawkins meeting. Now, [yearly] world production of gold only runs 2.3 percent of world stocks. I thought it rather dramatic--I had not thought about that with the price of gold at $390 an ounce--that the value of the world's stock of gold is a measly $1.4 trillion. Now, a lot of that is held by central banks. But we were at one time in a restraining mode, making it unprofitable for central banks to hold gold. But I think this year those who have held gold have said they've got the best deal going as the [value of the] world's gold stock has appreciated $234 billion since our February meeting. We can hold the price of gold very easily; all we have to do is to cause the opportunity cost in terms of interest rates and U.S. Treasury bills to make it unprofitable to own gold. I don't know how much change in the fed funds rate and the Treasury bill rate it takes to do that, but I'd sure like to find out. I'd like to have some education here. I certainly understand the feeling [of those] on the Committee who would say: Is this a time to increase rates? I would tell you that I don't think this is a very good time to increase interest rates. But, unfortunately, our interest rates are way too low, and there won't be a good time to increase interest rates. If we drive every household that saves conservatively to buy stocks they don't feel they are knowledgeable enough to buy or to buy junk bonds or whatever else--they ought not to be trying to do radical things but if we drive them, and it's up to us--then it seems to me that if we then ever have to catch up on interest rates, those investments in common stocks and junk bonds could really fall off the table. Talk about a mess you don't want to be in! I don't want to be in that mess. If we had been very, very lucky and the rate of inflation had gone down to 2 percent, we might have gotten by with a 3 percent fed funds rate. But we didn't get that lucky and, consequently, we now have a fed funds rate that is just clearly out of sight in regard to world reasonableness. And it seems to me that there ought to be some real thought on our part as to whether our job is to decide which way to change rates or where rates should be to provide stability for people like this man who have their savings all there together. I better stop.",1848
-fomc-corpus,1993,Governor Phillips.,3
-fomc-corpus,1993,"Let me say first of all that it's clear that this first-quarter slowdown we've had seems to be a return to a pattern of slower growth--you could call it moderate growth if you like--[near the] 2-1/2 percent rate that we've averaged over the last 18 months. I don't have the same sense that I might have had a year ago that we're going to lapse back into negative real growth. There has been considerable job creation; we have had enough job creation to lower the unemployment rate over the last year, but we're just barely keeping up with the demographics, so the unemployment rate hasn't gone down. There are some real areas of strength or potential strength: autos, housing, durables, capital equipment. But, again, I'm really quite struck, as I listen to everybody talk, by the big differences from region to region. And the uncertainties that remain are really quite considerable: the continued layoffs; the deficits of federal, state, and local governments; the whole restructuring process; and the international weaknesses. The uncertainty is casting a pall over spending and the expansion of investment. We are getting investment for capital equipment, but the focus is on productivity and efficiency; it's not as much on expansion [of capacity]. I think it's quite appropriate that we've spent as much time as we have this afternoon on inflation--the increased emphasis in the Greenbook and the increased emphasis and analysis in the Chart Show presentation on inflation. It is feasible that we could have some additional progress but I think it's quite right--and I've forgotten who said it--that any additional gains in inflation are going to be extremely hard to come by. As the recovery continues, manufacturers and distributors are going to continue to try to make those price increases stick. It's going to be incumbent upon us to try to discern whether or not some of these short-term supply distortions that we have seen are short term, as Tom described in the case of cement or lumber, or whether [the suppliers] are going to be able to increase prices and make them stick generally. I don't think we know the bottom line yet of how the weather situation is going to affect our inflationary situation. The deceleration in labor costs appears to be leveling and we've not seen much break in this inflation psychology that has been discussed as we look forward and move away from trying to look back at where we've been on inflation. We've seen a ratcheting up in inflationary expectations in the consumer confidence indexes and also in the steepness of the yield curve. David described a couple of bouts that we've had recently on inflation expectations. I find this very anomalous. If people really expected inflation to start rampaging, we would start to see consistent shifting into real assets. We're not seeing that so much in this country. We've not seen it in housing. We've seen it some in durables, but one could probably explain that as the replacement of old cars or on the business side as firms trying to deal with improved productivity. We have a ways to go in terms of dealing with inflation, and we need to keep working on the analysis of inflation because I don't think we have a full handle on it. I also hope that we will continue to work on the monetary aggregates. I agree with Governor Angell: There is a concept of money that should be our guidepost. Our problem is that we don't have it well measured. We don't really know how to measure it, in part because of this [admixture] of capital and money accounts. So, I continue to hope that we will focus on that; maybe M2+ isn't the right measure, but I do think we need to keep working on that.",736
-fomc-corpus,1993,Governor Lindsey will round it up.,7
-fomc-corpus,1993,"See, you weren't last!",6
-fomc-corpus,1993,I wasn't last!,4
-fomc-corpus,1993,"I thought the Chart Show was very, very interesting, particularly on why inflation has picked up. It reminded me a bit of the story of a tenth here or a tenth there and that pretty much explains it. Interestingly, Charlie Schultz when he was explaining what happened in the Carter Administration described something very similar. He said suppose we raise the minimum wage, what's that going to cost us? He estimated about a tenth. And the next idea to come down the track will cost about a tenth. So a tenth here and a tenth there sounds pretty much like what happened in 1978. It adds up, though. The staff has raised its forecast for 1993 inflation by seven-tenths. On average at this table we've raised ours five-tenths. And the Michigan survey is up six-tenths. This is all from the beginning of the year. I think we also should look a little bit at other prices. Jerry Jordan mentioned that farm land prices are going up. I also sense that--",203
-fomc-corpus,1993,I must say that the Chicago Bank's survey did not show that.,14
-fomc-corpus,1993,That's right. Jerry Jordan is saying they've gone up in his District; they have not gone up to that extent in our District.,26
-fomc-corpus,1993,"Yes, but you are all under water!",9
-fomc-corpus,1993,It's highly liquid!,4
-fomc-corpus,1993,I worked to register wetlands. The definition of a wetland is something that has pooled water on it for 14 days out of the year or is spongy for 21. And that's the entire state of Iowa at this point.,48
-fomc-corpus,1993,Switch to rice!,4
-fomc-corpus,1993,"Yes, switch to rice. Well, enough of that. On the inflation side, [our central tendency] is 3.1 percent. I think we're going to be lucky to hit that. To get 3.1 percent for a year we can have 30 tenths over the 12 months. We've had 17 of those tenths in the first five months, which means we've got to go from an average of 3.4 percent to an average of 1.8 percent, or cut our inflation in half for the next seven months, to hit our forecast. So, if you ask where the risks are, I think they're on [the side of] higher inflation. Let me also say that I agree with John LaWare and others that the risks are on the down side for the economy. Why? Well, the staff has estimated that the budget will be a $37 billion drag on the economy in '94. Is that fiscal 1994?",198
-fomc-corpus,1993,"Yes, but that's not total budget, that's--",10
-fomc-corpus,1993,That's an incremental fiscal drag.,6
-fomc-corpus,1993,"Right, those programs--",5
-fomc-corpus,1993,"Yes, it's an incremental fiscal drag of six-tenths of a percent of GDP. Roughly the first year multiplier on fiscal drag is close to one; it probably goes up a little after that. So, that means we're going to knock off six-tenths of a percent from whatever [rate the economy] would have grown--I don't know what that rate would have been but we're talking about a number between 2-1/2 and 3 percent--just from normal old fiscal drag. If I knock six-tenths off, I don't get our median forecast; I get something below that. So, again, I think the risks are on the down side. Nor do I think that this is your run-of-the-mill fiscal drag. I think this is putting the economy in chains; in fact everyone around the table mentioned it. This is not a normal tax increase; it's a tax increase on small business in addition to which we're shutting down the defense sector and the health care sector. When you have a targeted fiscal drag, the capacity for individuals who lose their jobs to find jobs in other sectors quickly is reduced relative to an across the board fiscal drag where, say, it takes $100 out of everyone's pocket. So, I think the downside risks for next year are substantially more than what we are talking about here. At the same time, the risks of inflation are also more than what we have here. That adds up to John LaWare's forecast of stagflation. I would [agree with] his prediction that the deficit will not go down by as much as is being predicted by the Administration and I'm willing to take bets with anyone around the table on that one.",343
-fomc-corpus,1993,You're not going to get any takers.,9
-fomc-corpus,1993,"I'm not going to get any takers! What do we do if we have stagflation? Well, how did we get out of the problem the last time we had stagflation? The first point is that the basic solution is not monetary policy; it is fiscal policy. It is not to do the things that everyone around the table mentioned are going to be the problems. The 19 of us don't have any votes on that, so we may as well forget that. What else does monetary policy do? I would again commend the way we got out of the last stagflation. While we do the right thing on fiscal policy we also hold the line on prices because if we don't, then the easy path out is more obvious. So, I don't like the situation we're in any better than anyone else. It is only going to be worse next year; it is not going to get any better. And on that cheery note, I will commend exactly what President Syron said, Mr. Chairman: Given that we don't have any easy way out and you're the one who has to go up there and wheedle your way through the [Congressional] Committee, I will defer to your sense of logic on what will appeal to them to get you through it. But I do think that we should also have to face the fact that for us to make the tough call it is only going to become more difficult as time goes on.",292
-fomc-corpus,1993,Thank you all. I trust you all remember that we have a 7:30 engagement at the British Embassy and it is now 6:16 p.m. I will properly adjourn and we will continue the meeting tomorrow morning at 9:00 a.m.,54
-fomc-corpus,1993,"[I want to wait until] lunch to discuss the question of how we handle the issue of leaks. Since it has very little, if anything, to do with Bill [Wiles's] luncheon agenda, it strikes me that we probably could get more done by having a general open discussion on how we want to handle this sort of thing. So if you wouldn't mind, I think we will just will stay in [session] through lunch rather than [adjourn]. I'd like to call on Don Kohn to start our discussion on the longer-run ranges.",111
-fomc-corpus,1993,"Thank you, Mr. Chairman. After my recent experience I'm tempted to say that the hour exam will cover both the lecture material and the texts, Bluebook and Greenbook!",35
-fomc-corpus,1993,Do you grade on a curve?,7
-fomc-corpus,1993,"Actually a few aides will be grading this, Henry Gonzalez and Don Riegle.",17
-fomc-corpus,1993,One thing that's sure about it is that it's not a normal curve!,14
-fomc-corpus,1993,"The first lesson will be on IS-LM and Phillips curves, starting on page 8 of the Bluebook. [Statement--see Appendix.]",29
-fomc-corpus,1993,Thank you. Questions for Don?,7
-fomc-corpus,1993,"Don, suppose we ended up adopting alternative II or alternative III for 1993 and 1994 and there was a surprisingly strong resumption of disinflation and the CPI numbers moved down more like they are projected in the tighter scenario II on page 8 of the Bluebook. In that circumstance if the Committee decided to [move] against too rapid a pace of disinflation and lowered the fed funds rate, is it likely that we would have a problem of getting monetary growth above those ranges in alternative II or alternative III?",107
-fomc-corpus,1993,I doubt it. The question here is if short-term rates went down whether long-term rates also would be going down because of disinflation.,29
-fomc-corpus,1993,"Yes, I would think long-term rates would come down even more.",14
-fomc-corpus,1993,"Right. That could give a pretty good push to money. I agree with the thrust of what you're saying. It's hard to determine; we don't have much experience with yield curve-type variables. On the one hand, we could see the decline in long-term rates; there would be [unintelligible] capital gains and that might damp M2 for a while. But I think a flatter yield curve would help. Now, depending on how much short-term rates went down at the same time, I think such a [structure] would tend to push up M2; whether it would violate a 3 or 4 percent upper limit [I don't know]. You might have trouble on the 4 percent upper end of alternative III. It's possible it could be pushed up there, but it would take a lot more interest [rate] response than we've seen from M2 recently. But your general presumption that having long-term rates go down and short-term rates go down would push in that direction I think is correct. It's just a question of how fast and how hard it would push.",219
-fomc-corpus,1993,So what interest rate or what possible shape of the yield curve might likely result in getting outside the range on the top side on alternative III?,28
-fomc-corpus,1993,"I guess it would have to be a sharp decline in both long- and short-term rates. It would depend on the size of that [decline], with the yield curve effect pushing money out of M2 but the short-term interest rate effect pulling money in. I'm sorry, but partly because I don't have much confidence in our projections of these elasticities I don't have a good notion of how far interest rates would have to drop to do that. My guess is that both long- and short-term rates would have to drop quite a distance to push M2 growth beyond 4 percent.",118
-fomc-corpus,1993,Thank you.,3
-fomc-corpus,1993,Governor Lindsey.,3
-fomc-corpus,1993,"I'd like to go a little further out in time if I could. This would be in a world where the transitional effects of new financial products have disappeared and we have a stable interest rate environment and we have discovered a new M2, which may turn out to be the same M2 or M2+ or M2- or the square root of M2 or something like that! What is your sense of the relationship that that money aggregate would have with respect to nominal GNP?",97
-fomc-corpus,1993,"Our presumption, Governor Lindsey, was that as we got out into the years '96, '97, '98, that is ""after a while""--",32
-fomc-corpus,1993,"""After a while.""",5
-fomc-corpus,1993,"-- that some of these shifts would be over, that people would have adjusted and that something like an M2 aggregate would reemerge with the old relationship to nominal GDP. That is, it would react somewhat the same way with respect to interest rates and income. Obviously, we can't know in advance what that would be like. The other point I'd like to make is that I think we sometimes risk idealizing the way M2 used to be. This Committee violated deliberately or ran very high in its M2 ranges frequently in the '80s and ran low sometimes as it moved interest rates against the thrust of changes in spending. It did a pretty good job moving M2 around and stabilizing nominal GDP. So M2 velocities from year to year always were highly variable; one could make an argument that stabilizing nominal GDP, given shifts in spending, forced the Committee to have variable M2s and variable velocities. The notion of M2 we came to toward the end of the '80s was that even if there were questions raised about it year to year, the Committee should at least examine what it was doing if M2 seemed to deviate a lot up or a lot down, cumulated over long periods of time--the old P* notion. And the innovations of the last two years have called even long-term stability into question. I think it's quite possible that over time long-term stability will reemerge to a certain extent, but I don't think we'll ever have a short-run relationship such that the Committee could count on setting a tight M2 target for a given year and assume it would get a particular nominal GDP for that year. M2 is just one of a number of indicators of what is going on in the financial system.",351
-fomc-corpus,1993,"Right. Given that we're talking about the period after 1994, would you bet any money one way or the other on whether the velocity trend would be positive or negative or zero?",37
-fomc-corpus,1993,"Well, the logic of what I was saying is that it'll return to something around zero.",18
-fomc-corpus,1993,"Right, okay.",4
-fomc-corpus,1993,"I think the chances are, though, that there will be continuing innovations. A lot depends on what happens to depository institutions [and whether] they continue to shrink as a proportion of total intermediation. It depends on whether you think we're in a sort of stock adjustment period in terms of depository credit or in a continuing decline. I lean toward the former rather than the latter, but I certainly don't rule out the latter. That is, I think there will be a nub of credit [extensions] that depositories are well suited to making and will continue to make. Now, if they start securitizing small business loans and that sort of thing, depository institutions may just continue to fade as important intermediaries, in which case the upward trend in M2 velocity would continue for quite some time.",163
-fomc-corpus,1993,President Syron.,4
-fomc-corpus,1993,"Don, I have a question which is a bit pedagogic in nature; it has to do with how we communicate. The place I start is that regardless of which of these alternatives we choose, I don't think it's going to have much effect, at least in the shorter term or in what one might call the intermediate term through '94 and '95 and maybe '96, just given where we are on all of these things. Therefore, I think the question is how in this terribly difficult period we convey to Congress and the markets and the public as a whole what we are trying to do here. The question I had is: Given the increased difficulty we've had, because of unstable velocity, in setting a range for any aggregate, has that in your mind been associated with an increase in the expected variance of velocities? What I'm coming to is whether there is an intellectual case here for a wider range.",180
-fomc-corpus,1993,"I think there is an intellectual case in the following sense: In my response to Governor Lindsey I said there are questions about the underlying trends in the economy and the depository sector; we're not tied down to something like a V* that we thought was constant. On the other hand, as I noted in my remarks, we haven't been that far off in our predictions of velocity and M2. Our annual predictions have been remarkably close though some of that is offsetting errors, which I'd be the first to admit. But even the velocity predictions since the middle of last year, when we sort of caught on to what was going on, have been off by maybe a percentage point or less on a half-yearly basis. So, my guess is that it is no more and may be even less than we had in the '80s when we thought we had a stable range over the long term. So, in theory, you're right. If you don't know where things are going to go, where the equilibrium is, you're more uncertain about where you are in every year. On the other hand, we do understand something about these processes; we think we do anyhow. And I'm not sure we're much more uncertain about the second half of 1993 than we were about the second half of 1986 or 1985.",266
-fomc-corpus,1993,My concern isn't from a policy perspective or what you've done here; it's a concern I have from a communications perspective.,23
-fomc-corpus,1993,"Well, I think the Chairman has done a very good job communicating.",14
-fomc-corpus,1993,"I agree with that. But I think the difficulty we have is that if we keep changing the ranges and we don't think we can hit [them] where we [want to] change them and we change them part of the way, what does it get us in an absolute sense?",57
-fomc-corpus,1993,"Right. Well, in some sense, that's what drove me to put in those very low ranges, 0 to 4 percent or whatever.",29
-fomc-corpus,1993,"I must say I think this issue is significantly diffused from where it was six months ago. I think our big fight was six months ago and, frankly, the behavior of velocity at this stage has so undercut those who are arguing that M2 is a meaningful notion that it's very hard for the pressure to be anywhere near what it was. One can make the case that if velocity were what it used to be and the relationships were what they used to be, real GDP would have been going straight down for a long period of time. So, [given] the lower number we [set in February] on technical grounds, I think we can basically do that [again] this time. I must say I happen to agree with Don that we might as well lower it so that they can use that joke about the dart being thrown--",168
-fomc-corpus,1993,Draw the circle after it's thrown!,7
-fomc-corpus,1993,"Draw the circle after you've thrown the dart. I don't think this is a big issue. We may get attacked on it for other reasons, but it's a very easy reed to knock down because [our critics were] just so obviously wrong. If we stay where we are, we then have the problem of a slight element of hypocrisy. But frankly it's not a big deal either way and I don't think we'll have trouble defending whatever we do.",88
-fomc-corpus,1993,Are you arguing for alternative III rather than II?,10
-fomc-corpus,1993,"No, I'm arguing for II.",7
-fomc-corpus,1993,Do you have any concern if we go to II and then still undershoot?,16
-fomc-corpus,1993,"Sure, and then we go to III.",9
-fomc-corpus,1993,Okay.,2
-fomc-corpus,1993,Are you talking about 1993 or 1994?,12
-fomc-corpus,1993,I was talking about both.,6
-fomc-corpus,1993,But you think it's still desirable to maintain the current width of the range?,15
-fomc-corpus,1993,Sure.,2
-fomc-corpus,1993,"Yes, because we cannot simultaneously argue that the M2 data clearly are deficient for the moment and for the interim period. Once we start to get sophisticated about that and try to make it better than it is, presuming there's more there than we're trying to say--",53
-fomc-corpus,1993,But any change presumes that we know something.,10
-fomc-corpus,1993,"Yes, we know something, namely that the technical reasons for the deviations in velocity have, if anything, been somewhat stronger than we would have expected. And that clearly would require this type of adjustment. I would also argue, and I think it's probably desirable [to do so] in testimony, that when the balance sheet strain is removed and we're getting more normal funding of GDP from credit markets as distinct from cash flow, one would presume we'll get a more normal relationship at that point. I think we have to be very sensitive to [when we expect] that. It surely isn't '93 or '94. And the one thing we can't do is to say that M2 is basically worthless, that we don't think there's any other new track that we can [unintelligible]. That gets us into unnecessary discussions. We can talk about M2, or M2+, or the square root of M2, which I like--that has some real pizzazz to it. But I think we've just got to stay with the technical problem at present and battle it through, because I think it's going to be easier this time. President Broaddus.",231
-fomc-corpus,1993,"Don, I'd like to go back to page 8 of the Bluebook. In developing the tighter scenario did you take any account of credibility effects? And if not, would it be fair to say that the outcomes for real GDP and the unemployment rate, especially in the early years, were on the more pessimistic side of the range of possible outcomes?",71
-fomc-corpus,1993,"No, President Broaddus, we did not take account of credibility effects, as I think we put in a footnote on the next page. The tighter and easier scenarios were keyed off of the baseline. And since the baseline is like the Greenbook forecast, as you discussed yesterday it is a little more pessimistic on inflation relative to output. That carried through in a sense to the tighter and easier alternatives. You're right that if we had some credibility effects we could get inflation down faster for the same output or we could get higher output for the same inflation gain. I think the evidence on that in the past has been mixed. We may be on the verge of getting some [credibility effects] beyond what we've gotten so far. But we did not assume changes in credibility [in the tighter scenario] nor did we assume that losses in credibility on the easier side would adversely affect the numbers.",180
-fomc-corpus,1993,"It's hard to look at the recent period, which has been concerning all of us, and [say that] if strong credibility had been established--if there were absolute credibility that we would bring things back quickly into line--people would have discounted the recent signs of inflationary pressure. So, despite a long period now, the evidence of our having gained a lot [of credibility] in affecting this tradeoff is pretty limited.",85
-fomc-corpus,1993,"We'll have to take another step, I guess.",10
-fomc-corpus,1993,President Parry.,4
-fomc-corpus,1993,You stated that you'd be emphasizing the technical nature of the adjustments if we adopted alternative II. Would there also be an attempt to talk a little about the longer term and the fact that these ranges could well be consistent with longer-term expectations or do you think that would be premature?,55
-fomc-corpus,1993,"I think it's premature because once we start to do that, we're conveying a level of insight which I don't think we have. We're not even sure that the definition of M2 will hold into 1995. So, I think we ought to fudge on that; the reason is that I see very little advantage in doing that because it's not credible. We can't on the one hand say that M2 is a highly deficient indicator and then put any substance on the potential meaning of the ranges.",98
-fomc-corpus,1993,"Except that if one talks about the long term, that certainly wouldn't indicate that one thinks there is a short-term applicability. And if we are, in effect, unwilling to talk about the long term and we think this is a problem that is going to persist forever, why are we doing what we're doing?",61
-fomc-corpus,1993,"That's the reason why I think we have to suggest that, in our judgment, when the balance sheet adjustments come to an end there's every expectation--presuming that the depository institutions are not in a severe downward contraction--M2 or something close to it will again be restored to the more normal velocity relationship with the economy and that at that point we will have far more confidence in the usefulness of this proxy for monetary policy.",85
-fomc-corpus,1993,"It may be constructive then to say: By the way, this range is probably pretty much consistent with that and reasonable price stability as well.",28
-fomc-corpus,1993,That presupposes where the M2 is going to come out.,14
-fomc-corpus,1993,"Mr. Chairman, I think the tighter M2 path, which as I was discussing with Governor Lindsey had underlying it the notion that things would come back to more normal alignment, suggests the difficulty of doing that. We have 4 and 4-3/4 percent M2 growth partly because the yield curve is flattening. I think that's the other factor, as you mentioned before. If the yield curve is flattening from its highly unusual alignment right now, then that process--it's sort of what Governor Angell has been saying--will push up the M2 growth at least for a time. So, it's hard to know what's consistent with price stability.",133
-fomc-corpus,1993,"Would you be uncomfortable going into the testimony simply saying that we continue to move through this period of extreme uncertainty. We will obviously continue to follow the aggregates very, very closely, but in an interim period to make a change to reduce the ranges implies some level of certainty that we just simply don't have. And then leave it as it is now. I guess my questions are: (a) Would you be uncomfortable in taking that kind of position; and (b) What are the risks?",98
-fomc-corpus,1993,"First of all, I don't think it's necessary to do it. I would feel uncomfortable because we are trying to forecast M2. We're basically forecasting it by ad hoc adjustments to velocity, but we are forecasting it. If the Congress insists on our focusing on this issue and we have been committed statutorily to actually making these projections, I would feel uncomfortable basically saying that all this stuff is nonsense and why are we doing it. That's because the next argument, if we leave the ranges unchanged and are saying they're not worth anything, [relates to] why are we publishing them. Are we not deluding the public? But what we're doing is that we're trying to forecast M2. What we are saying is that the old relationship of M2 to the economy has broken down but we're still forecasting M2 and it's better to try to forecast it and improve the chances to get actual growth in the range than basically to say we're not even trying. I think the crucial question is not this at all. The crucial question is the relationship between M2 and the economy. And if we argue wholly on technical grounds that we are forecasting M2 as required and our best estimate is 1 or 2 percent [growth] and the range we're setting is 1 to 5 percent, for example, then at least we're forecasting the M2. We're not saying it means all that much and we've argued that it doesn't mean very much, but at least we're not saying it means nothing. It's not a big deal but if you ask me if I would feel more comfortable going up there with 1 to 5 percent than no change and saying the thing doesn't matter, I must say I'd feel a little more comfortable with the 1 to 5 percent range. If it's the Committee's view that we should do nothing, then I wouldn't find that I'm unable to make that case; it's just that I've got to think it's a weaker case. Governor Lindsey.",391
-fomc-corpus,1993,"Mr. Chairman, it's my opinion that many out there view the M2 target as similar to or actually in lieu of a nominal GNP target because we are not asked for the nominal GNP target. And this would be across the spectrum, say, from Milton Friedman to Paul Sarbanes.",60
-fomc-corpus,1993,You've just disturbed your colleague to your left!,9
-fomc-corpus,1993,"In that case, and I do think that's a widespread view--",13
-fomc-corpus,1993,"I'm sorry, what is a widespread view?",9
-fomc-corpus,1993,"That our announced M2 target range is a proxy for our nominal GNP target range because there is a continuing perception, based on history, that over the long run the trend velocity is zero.",39
-fomc-corpus,1993,That would be true if we didn't say otherwise.,10
-fomc-corpus,1993,"Also, when the trend reasserts itself--while no one is betting any money for sure--our best guess of the trend in the long-term future is zero. Lowering the target range now, therefore, invites one or possibly two charges. The first is that we have lowered our nominal GNP target now to a midpoint of 3 percent and not a midpoint of 4 percent. And I think 3 percent is probably a low target for nominal GNP. Or, even if we can get around that problem--and I'm sure you can in the testimony--when we finally get to the long run, it will be necessary for this Committee, I think, to raise the M2 target in order to hit the nominal GNP target. I don't know in what year that will come, but I'm very much worried that it would send the signal that we are backing off on inflation. So I would prefer to keep the 2 to 6 percent range--though I understand what you're saying --to avoid the short-run charge that we're cutting our nominal GNP target and to avoid a long-term risk of re-raising the target range and, therefore, looking weak on inflation.",239
-fomc-corpus,1993,I'm not sure I agree with that. I think we're talking about 1995; that's the period. At that point we will either be credible on the inflation issue or we will have failed. And I'm not sure that what we're doing on this range will make all that much difference.,57
-fomc-corpus,1993,"Credibility on inflation? Let's take the baseline CPI projection in the Bluebook. Assuming that comes true, we will have had 3.3, 3.1, and 2.9 percent. What are we credible on?",48
-fomc-corpus,1993,"Look, you're raising an issue of what we will be doing with respect to the ranges two years from now. I don't even know whether or not the M2 we'll be using is the right [measure]. I would not want to say, because I'm not sure we really know, that the best estimate of velocity change is zero. I would say it's a guess. I wouldn't even dignify it with the concept of a forecast at this point. It's a very loose sequence of events. And the [point] is to preserve a position of the type that we want to preserve. I don't disagree with the obvious logic you're raising, but it presupposes a number of possibilities which I think [involve] very wide ranges of error. If you took the present value of being in that position two years from now, I'm not sure that I'd give it very much value. I think it [has to be viewed as] a very highly discounted position. If you're asking me if the events turn out the way you suggest would the proposition you're making now be the wise one, the answer is yes. I would agree with that. The trouble I have is that it's much too dubious a forecast to rest on. President Hoenig.",246
-fomc-corpus,1993,"Mr. Chairman, I understand where you're coming from with regard to moving these targets now. I have some concern because we have spent a lot of time talking about the uncertainty of these M numbers and where they're going and trying to discount them in a sense as targets. If we now go in and lower the targets, I think we are risking a great deal in the sense that if we change the targets, [the implication is that] we must know something; that will be the presumption if we bring it down. If we aren't sure at this point, aren't we better to say we aren't sure and that, therefore, we're leaving the range unchanged until we know more, rather than raising suspicions?",141
-fomc-corpus,1993,"I would basically say that the staff's best estimate is that the rise in velocity will continue. If that is in fact the case, our best shot at this point is to lower [the range]. That is not [intended] to create a view that this is all that important. All we're doing is forecasting M2. So long as we maintain the position that the relationship between M2 and everything else is unattached, then this argument is an academic argument that doesn't have legs.",98
-fomc-corpus,1993,But what we are then doing is changing the concept from one of targeting to one of forecasting where M2 might be given [emerging] circumstances--some of which are out of our control--in terms of its velocity.,45
-fomc-corpus,1993,"I think we have to emphasize up front what we have done. And, indeed, the staff's velocity forecasts have not been bad. Basically, what we have to do is to argue that this association has occurred and it would be more [prudent] policy to [base] our judgments on this. But we continue monitoring the money supply; indeed, we should. And in our judgment, or basically the staff's judgment since we want to make it a technical issue, we would be more likely to be right with a somewhat lower cone.",109
-fomc-corpus,1993,President Melzer.,4
-fomc-corpus,1993,"I have a lot of sympathy for what Larry Lindsey said. I could live with what you're proposing, Alan, and I think it can be explained that way. I think the other way can be explained as well. I have trouble with the concept that all this is useful; in a sense M2 ranges for the next 12 or 18 months were really never all that helpful in that velocity over those periods of time could be quite volatile. Probably where it was useful, in my mind, was in a very long-term perspective with zero trend velocity over those periods of time and [an expectation that] gradually we'd get down to some range that was consistent with price stability. In that context, then, as Larry explained, we open ourselves up to the arguments about what sort of nominal GDP we are in effect projecting. And possibly we get into this problem of eventually having this bounce around. Then what does that mean? Up until recently my own view has always been to work the range down gradually to where we think we ought to be in a longer-term context and then leave it there; and if we're going to miss, we explain the misses. So, my preference would be to leave it and explain that we're going to miss. I can live with what you're proposing but it raises a question as to how we convey our longer-term intentions to the public and what they can look at as some sort of indicator. Right now, of course, there isn't any. If they want to know, there isn't any.",303
-fomc-corpus,1993,"Well, Tom, as I said, that is a valid argument. It's not one that can be readily undercut. It's a judgment as to what particular strategy we wish to work our way toward.",40
-fomc-corpus,1993,Right.,2
-fomc-corpus,1993,"Ultimately, if money gets back [on track] and becomes viable again, we're going to have to make a judgment as to what particular level we want to maintain for the long term. We can basically say that. And if the question comes up, I will not argue that this is a long-term projection. I'd say, indeed, that when we have a much better fix on M2 or whatever the money supply variable will be, we then have to view the question of what the appropriate ranges are. I don't see what else we can do.",110
-fomc-corpus,1993,"Given that this is essentially a forecast for this horizon--if I heard you correctly, you sort of detach it from the policy debate by saying it's purely technical and it's a forecast--then even if we miss this lower range, that doesn't imply any policy response.",52
-fomc-corpus,1993,"In fact, if you argue--as I would intend to if the Committee wishes me to--that this is a wholly technical question and is disassociated from the economy, I would be continuously emphasizing the fact that policy has to be based on looking at a broader set of underlying financial and economic conditions and that we are bereft of this proxy at this particular stage. We hope it will come back; in fact, one form of it or another almost surely will come back after the [ongoing] balance sheet adjustments are completed. But it's premature to make a judgment as to when that might be. President Broaddus.",125
-fomc-corpus,1993,"Well, I just want to support Larry's and Tom's position. They really made the points I want to make. From my standpoint, the real purpose of this longer-term range is to signal our continuing commitment to our longer-term objective and, at least as importantly, the steadiness with which we [plan to] pursue it. With that in mind, if we lower the range in the middle of the year to chase an unexpected shortfall in M2, I think we risk muddying the waters and muddling that message.",107
-fomc-corpus,1993,How would you argue on keeping it [the same for] this year and lowering it next year?,20
-fomc-corpus,1993,I would support that. I'd like to see us keep it [the same] this year and lower it perhaps a half point further next year. That would seem to me to be consistent with the steady approach we have taken and tried to sell.,49
-fomc-corpus,1993,President Boehne.,5
-fomc-corpus,1993,"In general I support the notion of putting this in the realm of a technical adjustment. But I would like to pursue a couple of aspects of that. As I understand it, what you're going to say is--and these are my words, not yours--that the relationship between M2 and the economy has broken down. We know that it has broken down in the direction of higher velocity; that is, we know something, but we don't know a lot. Point one is that it seems to me one has to know more to make a change than to keep something the same, so it's a matter of judgment as to whether we know enough to make that change. The second point is that you say that we're forecasting M2 but we're not targeting M2. So, how do you then answer the question: You know enough to lower [the range for] it and you know enough to forecast it, but it is a monetary aggregate and, as a central bank, can't you influence it at all? And if you can influence it at all, why don't you try? So why doesn't this forecast have some element of target to it? I think what you're really saying is that we're just forecasting it; we're not trying to target it. But it seems to me we're in a grey area here where we know enough to do what we're doing but we don't know enough to influence it.",277
-fomc-corpus,1993,"Well, that's the other side of the argument; that is a legitimate argument. And the question basically is whether we want to be wholly agnostic on the potential pattern of M2 or whether we want to make some judgments about it. As I said, I would lean to saying something about it if we want to and indicating that we haven't completely abandoned any view of monetary targeting. But it's a close argument.",82
-fomc-corpus,1993,"Well, it seems to me you're going to have to do more explaining and answer more questions--there's nothing wrong with that--if we make a change, especially for this year, than if we don't. I agree it's a close call and you're the one who has to [testify]. And it's a close enough call--",66
-fomc-corpus,1993,"Well, let me ask Don: What are the pros and cons of staying where we are this year and lowering it tentatively for next year?",29
-fomc-corpus,1993,"I'm fairly confident, which isn't very confident I agree, that we are going to come in under the range this year. You could always say that. When we wrote our Humphrey-Hawkins report last year, the experience of writing it was that it was difficult to say we've got this range but we're ignoring it. Well, why do you have the range? You changed it in February; you thought you knew enough in February to change it. It conveys something about our longer-run intentions, but it doesn't convey anything about what we want to do this year or what we think will happen this year. We can write that; we can do that, but it's a little more awkward than saying: Well, given the velocity developments in the first part of the year, we think this is going to happen. I think there's an additional vulnerability this time--and I don't know which way it cuts--which is that M2 growth is 1 percentage point below the range and you have revised down your nominal GDP forecast. So, Senator Sarbanes can get religion again and say: See, you missed that and you missed nominal GDP at the same time. I'm not sure which way that cuts. I think if we don't lower the range and we miss it, then we are vulnerable. If we do lower the range, we're vulnerable to the question that Governor Lindsey talked about: That is, does the lowering mean you've lowered your nominal GDP? Well, we have a little. But even if we don't lower the range--",305
-fomc-corpus,1993,Not now.,3
-fomc-corpus,1993,"--and start falling short, we're vulnerable to the continuing flow of letters over this half of the year. So, it really is somewhat of a tossup.",32
-fomc-corpus,1993,"I must say that I don't feel strongly about this issue because, frankly, I think we had our fiercest battle six months ago and I think we came out on the right side of that. I don't think the pressure is there. Either way it's a club to beat on us and they like to beat on us. The question is where do we want our head to be when they take a swing at us! [Laughter]",87
-fomc-corpus,1993,"Well, it's your head, so where do you want it?",13
-fomc-corpus,1993,"Well, just picking up on Ed's point, rather than [talking about] our ability to forecast lower growth a better defense may be that we're not at all convinced at this point in time that in the long run trend velocity won't return to zero. I'm not saying it will. We don't know that it will, but we don't know that it won't either. And on that basis that's why we continue to set a range.",86
-fomc-corpus,1993,"But, Tom, it may very well be that when velocity goes back to zero, it will go back to zero at a different level. That is, when the rate of change of velocity goes to zero does it go back to zero at that higher level or does the level go back? It seems to me that one might make a very good case here that it will go to zero at that higher level, and I think that's what Don is suggesting. I guess I don't understand why those who want to pursue a gradual reduction of inflation that gets these numbers down--1 to 5 percent certainly encompasses that picture--[object to a lower range]. There is not a money projection out here that gets above 5 percent with that kind of projection.",150
-fomc-corpus,1993,I think where we end up may be for the wrong reason.,13
-fomc-corpus,1993,"Now, if this Committee doesn't want to proceed toward getting inflation down to zero, I think we ought to shut our mouths and quit talking about price stability. I just don't understand how we can talk about price stability as being desirable and then not want to take the money range down [to where] with, velocity returning to zero, it is consistent with price stability. And it seems to me that 1 to 5 percent does that. Doesn't 1 to 5 percent permit us a midpoint of 3--or even of 2 percent and then a velocity of 3--and a nominal GDP of 5 percent? It seems to me that the velocity we're predicting is almost like targeting nominal GDP at 5 percent.",146
-fomc-corpus,1993,President Forrestal.,4
-fomc-corpus,1993,"Well, most of what I wanted to say has already been said. I think you're quite right that the arguments are very finely balanced here. Let me say first of all that it seems to me we've been talking for a long time about the difficulties with M2 and the uncertainties surrounding it and that if we were to change the range in midyear we would be drawing more attention to M2 than I think it deserves. It really reflects more precision than we agree we have. I think it would be desirable to lower the ranges for 1994, but I think it would be better to let this year run and not change the ranges for 1993. We'll be accused of chasing M2. And more importantly, in my mind that would just draw more attention to the aggregate than it really deserves. Now, 1994 is a different question; and I think we ought to announce that in February and not now.",185
-fomc-corpus,1993,"Don, let me ask you a question of probability. What is the probability, in your judgment, that M2 could all of a sudden accelerate from here in the context, say, of the economy continuing to move up modestly? In other words, basically, what is the probability that velocity will fall?",62
-fomc-corpus,1993,"My judgment is that the probability would be small, given the current shape of the yield curve.",19
-fomc-corpus,1993,How small?,3
-fomc-corpus,1993,A major acceleration in M2 growth?,8
-fomc-corpus,1993,"Well, there's another issue that nobody here has raised that is implicit in what Governor Lindsey was talking about. Suppose we were to lower the range and all of a sudden we get a surge in M2; that would put us in a position where velocity is going in the wrong direction and it was an awful forecast. M2 would still be disassociated, but that's a different type of disassociation.",80
-fomc-corpus,1993,"I guess I don't see those forces [that are affecting M2] abating. As I've said, I think the risks on our forecast are balanced. I think there's some possibility that M2 could come out around 2 percent, but to have a big surge would be highly unlikely given what we know is happening with mutual funds, sales in bank offices, and--",74
-fomc-corpus,1993,"Yes, I understand that. And then if the stock market--",13
-fomc-corpus,1993,If the trend of the stock market--,8
-fomc-corpus,1993,If there were a stock market correction--,8
-fomc-corpus,1993,Then everybody would rush out of mutual funds.,9
-fomc-corpus,1993,"That's possible. And that would be a good example of an M2 surge which you'd certainly want to accommodate. If the stock market were dropping, you'd have trouble explaining why you weren't reacting.",38
-fomc-corpus,1993,"Well, that's one of the reasons one would want 2 to 6 percent instead of 1 to 5 percent. President Stern.",28
-fomc-corpus,1993,"Well, I have some considerable sympathy for the position you described initially, especially for 1994, for the reasons that have been discussed. In addition, if the staff is right and we're going to get M2 growth this year of about 1 percent, it seems to me that next year's range at least ought to embody that or we're making a rather strange commentary on the way things are turning out this year. For 1993, I don't have a strong view about what to do with the ranges. We've done it both ways in history; that is, we've either undershot or overshot kind of knowingly and haven't reacted--haven't changed the ranges. But I wouldn't be troubled in this case if we did. There probably is a pretty good case for changing the range. Beyond those two years, 1993 and 1994, I must say at the moment that I'm not very confident about making any presumptions about M2 or its velocity. In thinking about some of the work that was done with regard to M2+, if you believe that the stock and bond mutual funds really are good substitutes for some of those components in M2--and I guess I do--and we came to the conclusion that we didn't want to construct an aggregate at least at the moment that included those [funds], the logic of that is that M2 itself perhaps was not a very good aggregate in the first place. It may be that in the long run this all will wash out; that is, all the substitution will have been done and we will get a cleaner, improved, or better M2. But I'm not in a position to reach that conclusion and I have a suspicion that wherever we end up three or four years down the road, it may be with something very different from the concepts we are currently talking about. So, I'm not terribly troubled by the long-run implications of whatever ranges we select at the moment.",387
-fomc-corpus,1993,Vice Chairman.,3
-fomc-corpus,1993,"I doubt that M2 is worth this much time. [Laughter] I think the fundamental problem is a conflict between the concept of mortal M2 and Governor Angell's hypothetical money [which he talked about] yesterday and which we probably ought to call imaginary money and explain as involving the square root of negative 1. But the discussion of where we should be long term and of nominal GDP targets and the like all relate to that conceptual, hypothetical money. The people who have shown up in town and argued that that midpoint is a nominal GDP target can be shown to have been demonstrably wrong empirically over last year. We've won that battle and that's why we don't hear that anymore. We could have made a decision early on either to keep the range long term, based upon this hypothetical money case, or to make these technical adjustments. In my view we made the decision in February to go with the technical adjustments; and to the extent that we move back and forth or have double elements in the message, we muddle the message. I think we've been very successful in diffusing this whole argument this way. We have had success in understanding and forecasting velocity shifts. Our forecasts are much better than those of the critics. We started down this path of adjustment and if we adjusted it in February, given these sorts of forecasts, it's not clear why we wouldn't be adjusting it this year unless maybe we're even tighter with these technical adjustments. So, my view is that we ought to be consistent and stick with the battle we've won on this. Again, there's a lot of uncertainty about the future. I don't think we know enough to bind ourselves by the potential constraints out there. I might add that other central banks who do have credibility, like the Bundesbank, will raise the ranges and lower them for technical reasons; they go both ways. But it seems to me that we fought this battle on the technical nature of this and won, and the safest thing to do is to stick with it. So, I'm way back with your initial proposal.",409
-fomc-corpus,1993,President Parry.,4
-fomc-corpus,1993,"If we were to lower the range and if your testimony could refer to the staff's expectation of an increase in velocity and in addition an implied increase in velocity from the economic projections, it seems to me it would go a long way in answering Governor Lindsey's concerns.",53
-fomc-corpus,1993,"I'm sorry, I didn't quite get what you said. Could you repeat that?",16
-fomc-corpus,1993,"If you were to note that the staff is expecting an increase in velocity and at the same time that our projections seem to imply an increase in velocity as well, that would go a long way toward alleviating the concerns that Governor Lindsey has that we in effect have a lower nominal GDP target [when] we don't have a lower GDP target.",68
-fomc-corpus,1993,President Syron.,4
-fomc-corpus,1993,"Mr. Chairman, I think this discussion indicates that we can talk ourselves into or out of anything and, therefore, we could probably talk anyone else into or out of anything. [Laughter] So, we've probably made too much out of it. After hearing all this, I have some substantial sympathy for leaving things alone right now and doing next year whatever is going to be done for the following reasons: If we do make a change now, it's difficult to change it as far as we need to and have a great deal of confidence that growth would come in within the range this year. If we change to a range of 1 to 5 percent, the center of that being 3 percent, the GDP forecast--and I agree the forecast looks pretty good in this difficult world--the point forecast sets us up for the criticism that while we know this is only a technical matter, we can neither control nor forecast it. Maybe we could explain it given all those things we've talked about. So, in my mind if we were going to change the range, that would [lead] us to Governor Angell's suggestion of going to where we center-weighted it to alternative III. But then I think we would have a problem: What do we do next year from that? So, that in my mind argues for leaving things where they are right now and--",274
-fomc-corpus,1993,What do you do for '94?,8
-fomc-corpus,1993,For '94 I would probably go to 1 to 5 percent.,15
-fomc-corpus,1993,How do you explain the fact that the forecast is out of your range for 1993?,19
-fomc-corpus,1993,"This, I admit, is a Hobson's choice; there is no good answer here. I would say that there are uncertainties which continue to evolve and that in our communications with the American people and the Congress we don't want to come forward with a technical forecast. We don't want to imply a degree of expertise in forecasting this from a basis [akin to shifting] sands that is not accurate.",79
-fomc-corpus,1993,Our best guess is outside the range!,8
-fomc-corpus,1993,Our best guess is but we don't have sufficient confidence in that best guess to imply that it could be interpreted [as the basis for] controlling policy.,30
-fomc-corpus,1993,Governor Angell.,4
-fomc-corpus,1993,"I would prefer to go with your original proposal, which was to change the 1994 range to alternative II. I could live with alternative III, but alternative II is certainly a compromise I'm willing to make. If we're changing the tentative 1994 range in July of this year to 1 to 5 percent, it seems to me quite reasonable to change this year's range to 1 to 5 percent because we know there's just zero chance that it is going to be exceeded on the top side for the rest of this year. It seems to me there will be less of an impact to do '93 just like we're going to do '94.",131
-fomc-corpus,1993,Governor Kelley.,3
-fomc-corpus,1993,"Mr. Chairman, I perceive very little difference among us on substance. This is a matter of perception, and I think David is right that we've already spent more time on this than we should. I certainly would be comfortable for you to argue in the way you are most comfortable with on this matter of perceptions. However, for my part, if we change in the middle of the year for the succeeding six months only, that would be the riskier course in the sense that I think it runs the risk of changing the nature of the message that we're sending. When we send a message out at the first of the year about the succeeding year, it's the best forecast we can make. It sets a benchmark similar to budgeting for the year; it gives a benchmark against which to evaluate and analyze performance, analyze events, and make comparisons. But when we change in the middle of the year for the remaining six months based on six months' experience, I think that changes the range into becoming a target. Ed made that point a while ago. And that sets up a whole different set of dynamics. We're indicating that we're determined to hit that target and that we think we know how to do it. That puts pressure on us to do it. And particularly given the dynamics of velocity that we've discussed here, that is not something that I think we want to allow ourselves to get into. Once again, I think it's a matter of which argument you are most comfortable making, and I'll certainly support you either way. But if I were the one who was going to go up and present this testimony, I'd be more comfortable supporting no change for this year and then changing over to alternative II for 1994.",340
-fomc-corpus,1993,President Jordan.,3
-fomc-corpus,1993,"You raised a question a few minutes ago about what the chances were of a sharp velocity decline. I had looked at the Bluebook table on page 8 and noted that the numbers imply significant velocity declines in 1998. I was trying to think my way through what set of circumstances could produce that result even out then, let alone this year and next year. We may not know much about what should or shouldn't be in M2 or what's going on with its velocity, but we do know that debits still equal credits--the two sides of the balance sheet are still equal--and that will help guide us a little. In order to have negative velocity, given that there is little further potential for running off non-deposit liabilities of the banking system and there is substantial potential for running off security portfolios in order to accommodate loan demand, we somehow have to imagine that total intermediation through the commercial banking system--the total assets of the banking system corresponding to those liabilities--have to rise relative to total spending in the economy the way we measure things. I'm having a terrible time imagining that circumstance coming about no matter what the yield curve is doing. So, I think that we could put aside the idea of a velocity decline even out in 1998. I [unintelligible] something to fill that case. As for the ranges for this year and next year, very early in this discussion Al Broaddus asked a question about credibility and Mike and Don referred to that footnote on page 9. A part of what we are trying to do is establish some credibility of a regime in which people believe that any increases in inflation and interest rates are temporary and they'll go back down so that the central bank [unintelligible] them to do that. I don't see how it helps us to start building on that credibility if we are below our target range and are not trying--or claiming that we're trying--to do anything to be within the range. So, whether we call this a target or a forecast of what money is going to do, it's just arithmetic at this point for 1993. We have to lower the range and be willing to make these [unintelligible] as they may be, just as a step to get our own credibility up. When the focus is on this ratio of GDP to M we call velocity, a lot of the discussion is about the denominator; in earlier remarks, especially Larry Lindsey's remarks, it was that we were using the denominator as a handle to try to hit the numerator. Well, I don't think that we should be targeting nominal GDP, [unintelligible] total spending. I have enough trouble with what's in the numerator in measuring economic activity in today's world to think that we should fiddle with the denominator to hit the numerator. A lot of this discussion about velocity gets us off track. Instead we ought to get out [the message] more clearly that [our goal] is price level stability--that we're going to stabilize the price level at some point in the future. Whether we're fiddling with the fed funds rate or fiddling with various reserve or money measures, [the message should be] that we haven't lost our focus on stabilizing the price level. And all of these other discussions about where we are on the Ms or their velocities are sort of distractions.",673
-fomc-corpus,1993,President Boehne.,5
-fomc-corpus,1993,"Well, this is much ado about little. I came to the meeting with a slight preference for keeping the ranges unchanged on the grounds that we have to know more to change something than to leave it alone. But it's only a slight preference and I can easily go with II or I. However, if we're going to change one, it would be better to change both. If we're going to draw attention to it and explain it on technical grounds, presumably we know more about the next six months than we know about next year, particularly since we think we're going to have more M2 growth next year than this year. So, I would prefer either to stay the same or make the change for both years.",141
-fomc-corpus,1993,That's a good point.,5
-fomc-corpus,1993,President McTeer.,5
-fomc-corpus,1993,"Mr. Chairman, for some reason this discussion reminds me of the Aggie who failed to show up at home one night. He came in the next morning and his wife asked him where he'd been. He said: Well, honey, I did actually come in last night but you were already asleep and I didn't want to disturb you. So I slept in the hammock on the back porch so I wouldn't wake you up, but I was here all night. She said: You know, I sold that hammock two weeks ago. And he said: Well, that's my story and I'm sticking to it. [Laughter]",124
-fomc-corpus,1993,I'm waiting for the policy implication!,7
-fomc-corpus,1993,"My story in the past year has been that M2 has been sluggish because money has been spilling out of the banking system, primarily into stock and bond funds. I think that's a story we ought to keep alive because it's the only story we have. I think we were a little hasty yesterday in dismissing this. It may be that M2+ doesn't make an ideal substitute for M2 for the future, but even though it's not satisfying econometrically, as Yogi Berra would say: ""You can observe a lot just by looking."" Just looking at what is happening [tells us that] the banking system is shrinking; it's becoming less important as an intermediary. When we talk about this to the general public they understand it; they're all out there seeking higher yields than they're getting at their banks. I called home last night and learned that my wife had just bought her first lottery ticket. That's how far it's going right now! So, I think we ought to keep that [story]--",203
-fomc-corpus,1993,Do we put that in M2?,8
-fomc-corpus,1993,That's M2++!,5
-fomc-corpus,1993,"We should put the kitchen sink in there if it would stabilize velocity. So, my suggestion would be this: We have an opportunity now to lower the M2 target range to 1 to 5 percent, let's say, for technical or arithmetic reasons. We can explain it; we're going to miss any range that's higher than that anyway. Then, having lowered it for 1993, we go ahead and lower it for 1994 at the same time and we'll have it where we want it for the future. So, we have an opportunity to lower it for technical reasons and have it there for more fundamental policy reasons later. So, I would suggest 1 to 5 percent for 1993 and 1994.",147
-fomc-corpus,1993,President Keehn.,4
-fomc-corpus,1993,"Like others, I think, I certainly don't feel strongly about this either. If I hear you correctly, you would be reasonably comfortable either way on this; you don't feel very strongly about it. I must say I have a preference not to change the range either for this year or next year. If we did reduce the range this year and made a technical adjustment, in the cool light of hindsight, frankly, it seems to me that will be viewed as a mistake. I think we simply ought to leave the range where it is, make the case in the testimony that there's an awful lot of uncertainty, we're doing a lot of work, and we will report back to the Congress as we develop more information to shed some light on this issue.",149
-fomc-corpus,1993,"The only difference I would take on that, Si, is that I feel a little uncomfortable about complete know-nothingness on the issue. It's one thing to make a forecast which we don't think has significant policy significance. It's another thing to say we're absolutely at sea. If you listen to this discussion, there's literally zero policy question here. It's all a perception of how people are going to react to what we say. We're not talking about real stuff. What we're talking about basically is whether we wish to position ourselves into a know-nothing position. I personally feel uncomfortable with that. If you told me I had to argue [the case], I could argue it. I would not feel as though it's a policy issue. But it's strictly a style question. And knowing who we're dealing with up on the Hill, I think it's a little better argument, frankly, to--",175
-fomc-corpus,1993,You get the political reaction by not making a change. We'll be worse off than--,17
-fomc-corpus,1993,"I don't think so. I sensed when I went up there in February to make the technical argument that we had them at a major disadvantage. The reason is that it's a really different dialectic when somebody says this isn't working and somebody else is trying to say it is. If somebody says to me that M2 is really important and I'm trying to say they're [wrong], from a dialectic position [my argument] is much more plausible.",88
-fomc-corpus,1993,Thank you.,3
-fomc-corpus,1993,Governor LaWare.,4
-fomc-corpus,1993,"Well, I can certainly support the 1 to 5 percent range for both the balance of this year and next year. I would have a slight personal preference, if I were the one doing it, for leaving the 1993 range where it is and then in my testimony going to some length to discuss [our broad policy objectives] and simply say we're trying to foreshadow the projected change for 1994 and if we confirm this trend in velocity, then it would be appropriate to reduce the range for 1994.",107
-fomc-corpus,1993,"You know, that is one technical way of coming at it; it's a good [point]. First Vice President Oltman.",26
-fomc-corpus,1993,I would go to 1 to 5 percent both for 1993 and 1994. That was not my first instinct here. I started with a feeling that changing the range at this point would imply that we know more about the process than we do. But I've been convinced by the argument that this offers an opportunity to emphasize the technical nature of this and to further the divestiture of the policy component.,84
-fomc-corpus,1993,Governor Phillips.,3
-fomc-corpus,1993,"I'd go ahead and lower the range to 1 to 5 percent for both 1993 and 1994. We have a half a year of information for 1993 and it seems to me that we'd look pretty foolish if we didn't recognize that. And I'd vote for that [lower range] for 1994 because I think it may in fact put us where we'd like to be for [substantive] reasons. I would urge, along the lines of President McTeer's comments, that we have some discussion in the written testimony somewhere on M2+ because I do think that helps in terms of the explanation.",127
-fomc-corpus,1993,"I agree. I think that's absolutely right. In discussing what it is we know about M2, it's not zero; we do know that something is there.",32
-fomc-corpus,1993,"We know something, yes.",6
-fomc-corpus,1993,"We're going to make an argument that eventually it's more than likely to be restored but one has to be able to understand the process involved. I think it's very important for us to be very analytically sharp on what we think is happening concurrent with our judgment that the relationship to the economy has veered off for a protracted period. Look, we're the central bank. If no one in the central bank understands what is happening to money, we are in really serious trouble. What we have to say, basically, is that we understand what's going on. Our presumption is that a structural relationship shift has occurred for reasons x,y, and z. Therefore, to target M2 as a monetary policy vehicle is temporarily inappropriate.",144
-fomc-corpus,1993,And from all of this analysis that we have done this last year we have learned a lot more.,20
-fomc-corpus,1993,Exactly. And I think we've basically improved our status in that respect.,14
-fomc-corpus,1993,Can we call one of them real M2 and the other one nominal M2? [Laughter],21
-fomc-corpus,1993,How about unreal M2!,6
-fomc-corpus,1993,"I like Governor Mullins' view of M2-i because they are imaginary numbers. I'm sorry, Gary Stern, I didn't get down what your preference was.",32
-fomc-corpus,1993,My preference was your initial suggestion.,7
-fomc-corpus,1993,"I realize that we can play this in a number of different ways. I would argue two things. One is that the argument for going to 1 to 5 percent is persuasive, but I think the argument to do it for both years is very persuasive. In other words, whatever we do, we ought to do for two years. And while we are technically voting separately on each, I would urge us to consider the implications of making this a highly technical issue. And in my judgment we do it best by staying where we are [next year]. Can we vote, separate votes?",118
-fomc-corpus,1993,"Mr. Chairman, why don't we vote on 1994 and then after you announce that vote on 1993.",24
-fomc-corpus,1993,That's a very good point. I would propose 1 to 5 percent for M2 and the equivalent for M3 and debt for 1994.,31
-fomc-corpus,1993,"I guess we'd be using the wording in Option A, which refers to retaining the '93 ranges as revised at this meeting. The first sentence of the paragraph would remain the same: ""The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output."" And then [we'd use the language under] Option B starting at the bottom of page 24 in the Bluebook: ""For 1994 the Committee agreed on tentative ranges for monetary growth measured from the fourth quarter of 1993 to the fourth quarter of 1994 of 1 to 5 percent for M2 and 0 to 4 percent for M3. The Committee provisionally set the monitoring range for growth of total domestic nonfinancial debt at 4 to 8 percent for 1994. The behavior of the monetary aggregates will continue to be evaluated in the light of progress toward price level stability, movements in their velocities, and developments in the economy and financial markets.""",199
-fomc-corpus,1993,"Mr. Chairman, as I understand it, we're voting on 1994 now, aren't we--just the bottom of page 24 as Norm read it?",32
-fomc-corpus,1993,That is correct. Call the roll.,8
-fomc-corpus,1993,Chairman Greenspan Yes Acting Vice Chairman Mullins Yes Governor Angell Yes President Boehne Yes President Keehn Yes Governor Kelley Yes Governor LaWare Yes Governor Lindsey Yes President McTeer Yes First Vice President Oltman Yes Governor Phillips Yes President Stern Yes,52
-fomc-corpus,1993,And I'd like to propose the same for 1993. Would somebody move--,16
-fomc-corpus,1993,"What do you mean ""the same""?",8
-fomc-corpus,1993,The same 1 to 5 percent on M2.,12
-fomc-corpus,1993,The 1 to 5 percent. BERNARD. Do you want me to read [the language] or just call the roll?,28
-fomc-corpus,1993,Why don't you read it again.,7
-fomc-corpus,1993,"Again from page 24 at the top, entitled Option 2--Reduce Ranges: ""In furtherance of these objectives the Committee at this meeting lowered the ranges it had established in February for growth of M2 and M3 to 1 to 5 percent and 0 to 4 percent respectively, measured from the fourth quarter of 1992 to the fourth quarter of 1993. The Committee anticipated that developments contributing to unusual velocity increases would persist over the balance of the year and that money growth within these lower ranges would be consistent with its broad policy objectives. The monitoring range for growth of total domestic nonfinancial debt also was lowered to 4 to 8 percent for the year.""",140
-fomc-corpus,1993,Call the roll.,4
-fomc-corpus,1993,"For 1993 then, Chairman Greenspan Yes Acting Vice Chairman Mullins Yes Governor Angell Yes President Boehne Yes President Keehn Yes Governor Kelley Yes Governor LaWare Yes Governor Lindsey Yes President McTeer Yes First Vice President Oltman Yes Governor Phillips Yes President Stern Yes",57
-fomc-corpus,1993,Okay. [Don.],5
-fomc-corpus,1993,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1993,"Questions for Don? If not, let me just raise a few issues that I think are relevant to this outlook. It strikes me that we clearly have been quite successful in diagnosing the underlying causes of the problems that have been associated with this economy. I think we picked up the question of strain on balance sheets very early on. We've tracked the forces that have engendered mild disinflation and economic growth on a path somewhat above 2 to 2-1/2 percent. The general view which has been implicit in our actions--essentially the stability of policy over this very long, I guess almost historically long, period--is a view of the way the economic system is functioning. That view presupposes that it is still going to take a while for the strain on balance sheets to work its way out and that eventually the economy should be on a new and stronger upward path. For us to take the position at this point that there is cumulative weakness in the economy of a nature which might require our next move to be down rather than up would require that we essentially alter our view. Now, obviously, if events occur that make that required, we will have no alternative. But there is little or no evidence to suggest that the underlying basis as to what is causing the system to function requires a change in policy at this point. I think we had a significant indication yesterday with those auto and light truck sales figures. If this economy were undergoing a process of contraction, it's very difficult to imagine where those numbers were coming from. Nonetheless, we do have a very odd combination of effects here in that the fiscal package is creating a lot of uncertainties so far as the forecast is concerned. If we look at the extent of that fiscal restraint in the context that the Greenbook did, by any measure it is a relatively modest degree of restraint and one cannot readily argue that there's much in the way of ex post receipts and expenditures that is significantly altering the economic environment. What is quite interesting, and I think apparent, as one looks at this process as it develops is that the psychological or anticipatory aspects involved in this fiscal package really are of an order of magnitude that seems to be almost larger than the actual impact. I'm not saying that's true; I'm not saying that is an incredible perception. I don't know how much of the long-term interest rate reduction is attributable to the expectation that there will be a credible reduction in the deficit somewhere out there. I suspect most of it is, rightly or wrongly. [Lower interest rates] have unquestionably been a major factor in the improvement of balance sheets and increasing consumer incomes as a consequence of the reduction in the fairly substantial debt service burdens. It's rather obvious at this point, however, that the offsetting impact on the negative side--on the contraction in the real variables--is on the tax side and, at least based on the anecdotal discussions around this table yesterday, on the capital goods markets with respect to a number of projects being put on hold. It's very tough to see that in the data as yet. The only place it actually materializes is in the nondefense durable goods numbers. Surely, it doesn't get picked up in any of the broader measures or in any of the actual measures of capital expenditures concurrently. So, if there's anything out there, we'll learn about it in two or three months; but at the moment it's hard to find any hard statistics which demonstrate that. I think we're getting something of a slowdown in the rate of growth in medical employment, which I suspect may be a reflection of the expectation that something is happening on the fiscal side relating to medical care and the like. So, what we are looking at is an economy which arguably is being affected both positively and negatively by the deficit issue well in advance of any actual changes in either receipts or expenditures. And I don't think we have very much in the way of history to know how to play this. If this economy is going to start to weaken far more than we expect, it's not credible that it will occur as a consequence of the actual hard numbers that are out there in the budget proposal, all of which are out sufficiently in [the future]. One can't really say that in econometric terms we've had any real response. But to the extent that anticipations [are having an effect]--for example, to the extent that the [proposed] individual income tax rates are having an impact on the behavior of small business and subchapter S corporations, which almost surely is happening--it is a negative effect. So, it's hard to measure how this is moving. I would conclude, unless and until we have some very hard evidence that the psychological impact of the budget package is of such an order of magnitude to upset the balance of this economy, that we almost surely are best positioned to maintain [conditions consistent with] our general view [of the outlook], which is largely reflected in the Greenbook. It's reflected in the views of pretty much everyone around the table. The outside economists hold about the same [view]; their number for growth is 3 percent, plus or minus. The range [of forecasts] is incredibly narrow in the private sector, which proves absolutely nothing except that they all feel warm from being close to each other. It doesn't have anything to do with the accuracy of their forecasts. So, I do think that we're all looking at the same process. And unless and until we see clear evidence that things are not materializing in that way, I can't see any basic purpose for us to change [our policy stance]. In looking at the data, I suppose one can argue in principle for symmetry or for just staying where we were the last time. My own preference is to stay with asymmetry but with [the understanding that] a Committee discussion would be indicated in the event that anything emerges that requires a change. We have maintained this particular monetary stance for so long, and I think very successfully, that I don't think we should move until the Committee has a chance to evaluate and discuss the incoming data that could make a move necessary. As I look at the data [scheduled] to come out before the next meeting, we will have two sets of price data and two [months] of retail sales. And I think we're going to get a fairly clean view, hopefully, of the way this system is emerging. And while I would like to stay asymmetric, I don't think it's appropriate in this type of environment to move at the discretion of the Desk without fairly extensive further discussions on the part of the Committee. So, my inclination at this stage is to stay pretty much where we were and leave it at that, although I can't say that I can argue strenuously against symmetry because obviously in this context that is also a credible position. So, that's what I've got to say. And President Syron is [next] on the ticket.",1379
-fomc-corpus,1993,"Mr. Chairman, I would strongly support what you want to do. I had questions the last time as to whether we should have gone to asymmetry, given that we weren't there. I think actually it worked out pretty well.",46
-fomc-corpus,1993,I think in retrospect it was the right move.,10
-fomc-corpus,1993,"In retrospect it was. But now that we're there, I think we want to continue to give the signal that we'd react relatively quickly--I'm trying to recall Norm's exact phrasing--were we to get [clear signs of an emergence of higher inflation]. And I have some concern about the market reaction we might get were we to switch back [to symmetry]. I also have some concern about what a switch back might signal in terms of people saying: Well, does the Fed really see the economy being much softer than they saw it earlier? Also, I think your suggestion was particularly appropriate that, given how long it has been since we have made a change, there should be some Committee discussion. That would be in my view the optimal approach to take.",151
-fomc-corpus,1993,President Broaddus.,5
-fomc-corpus,1993,"I strongly support your position also, Mr. Chairman. We all deplore the leak at the time of the last meeting, but the fact of the matter is that I think the markets and the public reacted very favorably to the news that we had moved to asymmetry last time. I think Dick is right; if now or later on they learned that at this meeting we switched back to symmetric language in the face of only one month's disappointing data--not all of which incidentally is disappointing, as you pointed out--I think that would do us some damage. So, I support your position.",120
-fomc-corpus,1993,President Forrestal.,4
-fomc-corpus,1993,"Well, Mr. Chairman, when I read those forecasts in the Wall Street Journal yesterday I became very concerned because everybody seemed to be warm and cuddly together! [Laughter]",36
-fomc-corpus,1993,"You know, they really were remarkably close.",9
-fomc-corpus,1993,"They are clustered. Well, I would certainly support your prescription with respect to no change in policy. I think everything that's going on in the real economy, the uncertainty, and the fact that we've lowered our GDP forecasts a little, all argue very strongly for a stable monetary policy, particularly in view of the fact that the inflation numbers have improved somewhat. So, I think no change in policy is clearly the right prescription. I have a preference for symmetry, if only on a theoretical basis, in the sense that it seems probable to me that we will not move in either direction, and that in my mind calls for a symmetric directive. However, having just had an asymmetric directive, I can understand that there may be some problems in moving to symmetry. So, I would certainly not object to asymmetry, particularly in view of your statement that it wouldn't presuppose any policy action.",177
-fomc-corpus,1993,President Parry.,4
-fomc-corpus,1993,"Mr. Chairman, I would support your recommendation. I think a case could be made for symmetry but, given where we are today and also given my own utility function with regard to inflation, I would just as soon [retain] the asymmetry.",50
-fomc-corpus,1993,President Boehne.,5
-fomc-corpus,1993,"I think the case for a steady policy is a strong one, and you've laid it out. On the issue of symmetry or asymmetry, if one looked just to the decision today without regard to what happened in the current [intermeeting] period, I think one could make an intellectual case for symmetry. But having moved to asymmetry, I think the balance of the evidence says we ought to stay where we are with the asymmetry.",88
-fomc-corpus,1993,President Keehn.,4
-fomc-corpus,1993,"While I might have had a slight preference for symmetry, I very much support your recommendation primarily for the reason Al Broaddus mentioned. If there were another leak reflecting a change from asymmetry to symmetry this time, it would be very awkward in the marketplace. And, therefore, I think what you recommend is appropriate.",64
-fomc-corpus,1993,Governor LaWare.,4
-fomc-corpus,1993,I support your proposal.,5
-fomc-corpus,1993,Governor Phillips.,3
-fomc-corpus,1993,"I also support it. I was swayed last time by the argument that we needed to be on record as being concerned about inflation. It seems to me that we have less reason to ease or tighten now. I do think that at some point we're going to have to address negative real rates. But it doesn't appear to me that at this time they are causing particular harm to the economy. And it seems to me that we're best staying the course and best staying with an asymmetric toward tightening directive. I think a change would signal a lack of concern about inflation, and that would not be a good thing to do.",123
-fomc-corpus,1993,President Hoenig.,4
-fomc-corpus,1993,"I would support no change at this time. I would have a slight preference for symmetry; but having heard the arguments for having already made one change, changing back may be awkward now. But on the merits of it, I think symmetry would be appropriate.",51
-fomc-corpus,1993,President McTeer.,5
-fomc-corpus,1993,"I support your recommendation including the asymmetry for the reasons that everybody else has given. However, I do think there are some serious downside risks that we have to be alert to. I was struck by Bob Parry's recounting yesterday of the state budget problems that are leading to conservative fiscal actions and pushing those problems down to the local governments. At the national level we're about to have a huge tax increase. State and local governments all over the country are [also raising taxes] and are cutting back spending. Businesses are able to shrink their way to prosperity, but I think the country may be engaged in a fallacy of composition--and Keynes must be spinning in his grave right now--because we're all trying to save and tax our way to prosperity. So, that is a concern. I support your recommendation.",163
-fomc-corpus,1993,Governor Lindsey.,3
-fomc-corpus,1993,"Mr. Chairman, I fully support your recommendation. I think the interesting debate that we're going to have is how to respond to a supply shock; we're not going to have that debate today. But if, unfortunately, the supply shock continues, the fair question would be: Can you cure an adverse supply shock with easy money? And I look forward to the intellectual discourse that solving that problem will produce.",80
-fomc-corpus,1993,President Stern.,3
-fomc-corpus,1993,"I support your recommendation, Mr. Chairman.",9
-fomc-corpus,1993,President Melzer.,4
-fomc-corpus,1993,"Alan, I support what you say. I think I heard implicitly in [your comments] that we really need to be watching things pretty carefully here and that we need to be prepared to move promptly. I suspect that market participants and probably a lot of people in this room breathed a big sigh of relief when we got the PPI and CPI numbers; and in my view that's probably not justified. As I see things, we've had a very stimulative policy in train for some period of time--when you look at the narrower aggregates or when you look at the level of short-term rates--and we're going to have to get that rope back in at some point in time. And it's not going to be any easier down the road, as I view it. In fact, it will probably get tougher. Your analysis of the budget may well be exactly right. The facts may be worse than the expectations but politically my guess is--",186
-fomc-corpus,1993,The other way around.,5
-fomc-corpus,1993,"Yes, that would be the other way around--once they enacted something. In terms of market expectations, once it becomes absolutely clear that we must move and we're looking at a structure of rates that anticipates the Fed is going to move x basis points within the next month or two months or whatever, it just becomes harder and harder to catch up. In other words, we've been fortunate in a way that we've had a few signals here, a few warning shots, and we haven't been compelled to move. But eventually the time will come when it's no longer a warning shot and we will be trying to chase a train that already left the station. Other people have said that over time at these meetings. I think what you've suggested for this meeting is quite appropriate. But I just hope we will be attentive in the direction that I'm expressing here as we move forward.",172
-fomc-corpus,1993,Governor Kelley.,3
-fomc-corpus,1993,"Mr. Chairman, we're talking about a very narrow range of differences here and, regardless of whether one's personal preference is asymmetry or symmetry, the overriding point right now with this narrow range of differences is that we not change. And as a consequence, I will support your recommendation.",56
-fomc-corpus,1993,First Vice President Oltman.,7
-fomc-corpus,1993,"I support your recommendation, Mr. Chairman. Perhaps if we were starting from scratch, I would have some preference for symmetry but I don't think we ought to change [from asymmetry].",37
-fomc-corpus,1993,Vice Chairman.,3
-fomc-corpus,1993,"I support your proposal, Mr. Chairman, and I also agree with Tom Melzer's arguments as well.",22
-fomc-corpus,1993,Governor Angell.,4
-fomc-corpus,1993,"Well, I'm clearly not in tune with the other members of the FOMC. I don't see any need to wait for any information. The markets provide indications every day as to whether or not we've provided more liquidity than is called for. And when we lowered the fed funds rate from 4 percent to 3 percent, my guess is that made very, very little difference in the rate of real GDP growth. The destabilizing factors that have led people to hold, shift, or use their balances as much as they have was, I think, a drag against the stimulus that was already in place. A 4 percent fed funds rate already was providing a lot of stimulus. We already had pegged the fed funds rate well below the natural rate of interest. We now have evidence, and we see it in our own staff's forecast, that the expected rate of inflation has moved up 0.6 or 0.7 percent just [since the May FOMC] meeting. Now, in that environment, policy is not stable. We do not have the same policy that we had at the last meeting because the real rate of interest by our best estimate has fallen to even more sharply negative territory. We clearly see in the price of gold that people are making bets out there. And we continue to lock in to a fed funds rate that will only aggravate that kind of speculation and it only detracts from the role of the U.S. currency as the stable currency for the world. The cost to the world of the United States pursuing inflationary policies in the late 1960s and the 1970s is unbelievable. We're still paying the cost because many other central banks with no confidence in us think they have to be Rambo-like in beating their chests because in some sense they've got a track for the inflation-induced environment that the Federal Reserve as the world's reserve currency provides. This is the time for us to move real interest rates back at least to zero. I would be satisfied to do a measly 1/4 percentage point, which would not get us back to zero, but there would be intervention value in that. There wouldn't be any harm in it. Is there anyone who really believes the U.S. economy, regardless of what is done on the fiscal [side], is going to suffer because the funds rate goes up from 3 to 3-1/4 percent? Now, I read Henry Kauffman, as many of you must have, and it's just absurd. Well, I must be the one that's absurd! Thank you.",520
-fomc-corpus,1993,President Jordan.,3
-fomc-corpus,1993,"I also am not happy about the fact that inflation this year is not going to come in where we talked about last February, and the judgment has to be that our policies are not at the moment moving us in the direction of our long-term objective. We ought to correct that.",56
-fomc-corpus,1993,"The general consensus appears to be ""B,"" asymmetric.",11
-fomc-corpus,1993,"[The directive would read:] ""In the implementation of policy for the immediate future, the Committee seeks to maintain the existing degree of pressure on reserve positions. In the context of the Committee's long-run objectives for price stability and sustainable economic growth, and giving careful consideration to economic, financial, and monetary developments, slightly greater reserve restraint would or slightly lesser reserve restraint might be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with modest growth in the broader monetary aggregates over the third quarter.""",103
-fomc-corpus,1993,Call the roll.,4
-fomc-corpus,1993,Chairman Greenspan Yes Acting Vice Chairman Mullins Yes Governor Angell No President Boehne Yes President Keehn Yes Governor Kelley Yes Governor LaWare Yes Governor Lindsey Yes President McTeer Yes First Vice President Oltman Yes Governor Phillips Yes President Stern Yes,52
-fomc-corpus,1993,"Norm wants me to remind you that any changes in your forecasts should be submitted to Mike by midday Friday, July 9. Also, of course, the next meeting is August 17th. Now, why don't we just take a short recess and then come back.",54
-fomc-corpus,1993,Let's just press on.,5
-fomc-corpus,1993,"Okay. Well, unfortunately, we're going to finish before lunch! [Laughter]",17
-fomc-corpus,1993,Someone is going to get Don Winn.,8
-fomc-corpus,1993,"The subject matter, as you know, is how this Committee wants to handle the problem of stories or leaks and the like. I've asked Don Winn to join us. We got an extended letter from Henry B. Gonzalez on this leak question; I got it late yesterday. I think it would be useful to read it. I was planning to raise these questions, as I indicated yesterday, before we got this letter; and clearly we have problems we're dealing with up [on the Hill], so it's useful to read this.",104
-fomc-corpus,1993,Are we into triple digits in counting his letters this year?,12
-fomc-corpus,1993,"It's close! I think the productivity of Mr. Auerbach is extraordinary. He must have been Fed trained! Don, would you circulate those letters. Why don't we all just take a minute or two to read this and then we can have a substantive discussion. This actually is the most thoughtful letter I've ever received from Mr. Gonzalez. It is a very credible letter and strikes me as very much to the point. He's not pounding on the table; he's making a very serious point. The basic notion is that leaks and public statements about FOMC meetings are a very serious matter that calls into question the credibility of the Federal Reserve to manage its own operations. That's an argument that is very difficult to get at. The issue about leaks is really part of a much broader problem, and I think we've got to give it some thought. Clearly, with the demise of fiscal policy there has been an extraordinary point of focus on the fact that this organization is a powerful element within the government and, indeed, considering some of the other aspects of the way policy is implemented, I don't think there is any question about that. Secondly, in large part as a result of the extraordinary elevation of the press as a consequence of the Watergate episode, we've created a very large increase in investigative reporting capacity. There is a much larger number of very competent, economically educated press people working in the world of finance than at any time in my memory. When I was at the CEA--that was only 1975-76--there was nothing like the technical capability that a lot of these reporters have. You could just feed them pabulum and they pretty much accepted it. That clearly has changed quite dramatically. Now, I thought about it yesterday when I was sitting here listening to the economic discussion, and listening to each one of you talk about the way the economy is functioning through economic activity, inflation, the outlook, and all in words that most of you will use in public. And I sat there and wrote down what the monetary policy [stance of] each individual in this group was. Let me tell you: If I can do it, so can they. The presumption that you can go out there and talk about the economy without conveying something [about your own policy views] strikes me as really off the mark. I personally do not think that the Wall Street Journal leak came out of this room. [David Wessel] almost invariably will say that this information came from Fed officials, senior Fed officials, Administration officials, or government officials. I don't know if you remember his article but he said ""people familiar with how the Federal Reserve functions,"" which to me is a code word for about half the people out there and was probably meant to mean somebody who used to work here and knows how the System works, of which there are legion. Had he direct information, I suspect he would have said so. But the point is that he didn't need direct information. One can infer quite reasonably what the policy outcome of the last meeting was if one just sits by the telerate screen and reads what each one of us is saying. Now, I'm not saying that's either good or bad. Indeed, part of our job is to communicate to our various constituents. But it would be naive in the extreme to believe that we can do that the way we do it without communicating very significantly to the outside as to what this organization is essentially all about. We all have to remember that the press is interested in us because we all have access to FOMC deliberations. The general presumption of any intelligent reporter is that whatever we say will reflect that. The probability that we are not conditioned by what is going on here is zero. In fact, even if it is not zero, that is the general presumption. We have an extraordinary amount of information in this group; we talk to each other. There is a sense in which there is an information system which exists in the Federal Open Market Committee; there is a combined knowledge of what everybody thinks and what, therefore, policy is going to be. There is a property right that the Committee has, and those of us who work off the data system and talk in great generalities about what is going on are on the edge of infringing that property right. It is a right which essentially belongs to all of us collectively. I think we all ought to remember that if we were private citizens, the phone would not be ringing off the hook. We are called to talk to the press because we are members of this organization. We get invitations to speak all over the place because we are members of this organization. And it's terribly important for us to remember that we cannot talk with impunity. Indeed, what constitutes the leaks that occur on occasion, in my judgment, are not the result of purposeful actions on the part of any member in this room. I think what happens is that in conversations with people on the outside, we forget that there's an IQ on the other side of that phone. And I will tell you that if I were a reporter and got into a long conversation with any member of this organization and if that person was at all open or honest in any way, I would bet with a high degree of probability that I could forecast not only your position but also a lot about what other people in this room thought because one tends to [convey] that. It's not something people are aware of sometimes, but I've observed it time and time again, and I've been around this town for a very long period of time. It's really an issue that this Committee has to confront [and decide] what it is we want to do. We can acquiesce in this type of request, which essentially means we issue something [like a statement]; as Don Kohn has indicated to me, he doesn't seriously believe that will alter the configuration very much. Rather than my repeating Don's words why don't I just turn the floor over to him so he can tell you what he has told me about this question and get it on the table.",1219
-fomc-corpus,1993,"Before you do, may I ask a question? I think that your analysis of the Wall Street Journal article is conceivable and believable. But when I read on the screen and when CNBC says that we had a unanimous vote and then an hour and a half later it says no it was not unanimous but 10 to 2, I'd say they need to have more than IQ to get that.",78
-fomc-corpus,1993,"The CNBC thing was a pure, unadulterated leak. It was not inferable except with a probability outside the significant limits that anyone of us would use in our statistical analyses. That was as pure a leak as you can get. The reason I say that is that they had the correct vote. The probability of that happening by chance approaches zero.",71
-fomc-corpus,1993,Right.,2
-fomc-corpus,1993,"And they got it shortly after they had [announced something that was] an error; clearly, someone called them or they talked to someone in that interim period.",33
-fomc-corpus,1993,"That is correct. I must say to you that I have a suspicion that I know how that all occurred; that is not a great secret to me. All I'm saying is that the initial issue that emerges here is the Wessel article, and my best guess is that Wessel picked up the asymmetry without a leak.",65
-fomc-corpus,1993,"Can I pursue this? Your guess is that he wrote the article based on [his analysis of various comments]. You're right, I think, that if you look at what people have said in testimonies and a number of situations, [a reporter] can put it together. But did he then in your scenario, if I can call it that, call around to people to get what he thought was confirmation of it?",84
-fomc-corpus,1993,"Yes, and I think he failed to get it.",11
-fomc-corpus,1993,"So, you think he wrote the article before the meeting and he could have written a similar article before this meeting, unconfirmed by information post-meeting in time?",33
-fomc-corpus,1993,"Now, let me tell you that my sole evidence rests with my knowledge of how the Wall Street Journal reporters write about their sources, which is not accidental. It comes as official policy. He would never have used the choice of words he used had he either Federal Reserve or Administration sources.",57
-fomc-corpus,1993,"I don't remember the exact words, but I thought he effectively eliminated Federal Reserve sources but did not eliminate Administration sources.",23
-fomc-corpus,1993,"No, he said sources familiar with the way the Federal Reserve works.",14
-fomc-corpus,1993,It's on page 2 of Mr. Gonzalez's letter.,12
-fomc-corpus,1993,"""Familiar with the Fed's deliberations,"" that's different.",13
-fomc-corpus,1993,"That is a phraseology that he does not use if he has actual sources. As I read in the paper, some Wall Street wag--I've forgotten what firm he's with--said: ""Well, this could easily be me. I'm familiar with the deliberations of the Fed.""",56
-fomc-corpus,1993,Are you saying that you believe somebody like David Wessel can write that article and not talk to anybody in this room after the FOMC meeting or a week before?,34
-fomc-corpus,1993,"I think he talked to a lot of people who formerly worked here: former governors, former staff people, and the like. Look, I'm telling you, my sole evidence is my knowledge of how they designate their sources.",44
-fomc-corpus,1993,I have a feeling that if everybody in this room followed the basic rule of not talking to a reporter one week before or after an FOMC meeting--or in the case of the Humphrey-Hawkins meetings until after the testimony--we'd make it pretty tough on people like David Wessel to write a story like that. And I know we wouldn't have a CNBC problem.,77
-fomc-corpus,1993,And if you expanded that to what I thought our rule was--that we not only don't talk to anyone but that we give no speeches--. I thought we were to say we weren't available for any comments X days before or X days after; I thought it was 10 days before or 10 days after.,63
-fomc-corpus,1993,"In fact, we do have a listing of the types of things which over the years have provided guidance. Let me read it to you; I'd be curious to get reactions on it. This is titled ""Guidelines for Public Speeches and Talks with Journalists and Others about Monetary Policy and the Economy."" Under the ""Do Not Discuss"" section are: (1) Future movements in interest and exchange rates. (2) Recent decisions or discussions at FOMC meetings; the minutes speak for themselves. The prohibition includes comments on what positions people took at the meeting. (3) Anything about the economy or policy one week before or one week after an FOMC meeting. The blackout period in February and July extends to the day of the Humphrey-Hawkins testimony. (4) The detailed outlook for the economy, which can be construed as [having] implications for near-term policy. (5) The performance of other government officials. Under ""Issues Available for Discussion"" are: (1) Broad trends in the economy, provided the discussion is sufficiently vague and balanced to make drawing implications for future policy impossible. (2) Broad policy objectives and the mechanism and techniques of implementing policy. (3) Any matters on the public record, such as recent testimony. (4) Economic conditions in your region. (5) Background economic research already publicly released. Needless to say, in the areas of bank regulation, community development, and a whole variety of other things which are in the Federal Reserve's bailiwick, discussions are perfectly appropriate and desirable and in that respect there's an awful lot to talk about. Does anyone have any basic objections to this set of guidelines?",336
-fomc-corpus,1993,I think it should be distributed.,7
-fomc-corpus,1993,The only problem I have distributing it is that it may leak!,13
-fomc-corpus,1993,You don't think they are a good set?,9
-fomc-corpus,1993,"Well, I guess I had only one question on the next to the last one. Would you read that again about the outlook?",26
-fomc-corpus,1993,The detailed outlook for the economy?,7
-fomc-corpus,1993,"The detailed outlook for the economy, which can be construed as [having] implications for near-term policy. Let me just say that it is a very tricky issue; I think we all are aware of where the line is. It may well be that the safest thing we can do at this particular stage is for none of us even to answer a press request or go off the record until after the Humphrey-Hawkins testimony because we're opening ourselves up to trouble. And what do we need it for? In other words, why do we have to do it?",113
-fomc-corpus,1993,"I strongly believe that in a democracy public officials have a responsibility. And one responsibility we don't have is to engage in chicanery with the press and to give any background or off-the-record information. If everyone who talked to [a reporter] said ""I only talked to you because you're using my name,"" then that embarrassment will discipline each person. I do not believe that anyone from this organization should ever talk to any reporter on background or off the record. That's what constitutes the problem. In a democracy public officials do have a responsibility to communicate. There is an educational program. The Federal Reserve if it is to be successful in regard to accomplishing our primary objectives must be able to say clearly what our objectives are. And [education] becomes a very, very important part of that. And for us to react by saying no speeches, I'd say no. I agree with the no speeches 7 days before and 7 days after [an FOMC meeting].",193
-fomc-corpus,1993,That's the important period.,5
-fomc-corpus,1993,"That's the important period. But if anyone talks to any reporter, I think we should keep a log of who we talk to and make that log available to each other. That is, any time we talk we ought to make a log. We'd say I talked to so-and-so on this day and put it down. And we ought to share it with each other. Now, I don't understand this CNBC thing. It seems to me you're dismissing that a little too lightly, if someone from this organization absolutely told someone what they had no business telling them in regard to that vote. No one had the right to correct the mistaken vote that CNBC reported. No one had the right to do that. No one has the right ever to say what they think my view is; I am the only one who has the right to say what my view is. I don't have the right to say what David Mullins' view is or what anybody else's view is. I don't have the right to say what the Board might do; I don't have the right to say what the FOMC might do. I want a different distinction than is being made. I think the obligation in a democracy is very, very strong. And I [don't] think the best thing for us to do is not to talk and never to give our views.",267
-fomc-corpus,1993,I don't think that's what this says.,8
-fomc-corpus,1993,"The only reason we have to have this elaborate list of do's and don'ts is because we insist on preserving this six weeks of secrecy with regard to what goes on in this room. If we made a prompt announcement of what went on in this room, we wouldn't have to concern ourselves with this; and we might throw a few undeserving reporters out of work. I'm surprised that you feel that this is a thoughtful letter [from Chairman Gonzalez]. This is part of the same attack on this institution that has been coming from Henry B. Gonzalez for some time. Just listen to the way this reads: ""I believe that most objective observers would agree that the above examples indicate the Federal Reserve on occasion disseminates information""--that sounds like deliberate disseminations--""through leaks and random public statements by Federal Reserve officials."" He seems to regard this as an accepted practice of this institution!",175
-fomc-corpus,1993,"Well, I accept your amendment. I didn't mean to imply that the letter was without--",18
-fomc-corpus,1993,But unfortunately there are some instances in which that is the case.,13
-fomc-corpus,1993,"I was going to ask Don for a few remarks relative to this question because I think we have to make a statement. Do we want to issue something? I think, substantively, it's bound to inhibit somewhat this organization's function. Don.",48
-fomc-corpus,1993,"Mr. Chairman, I perhaps just ought to remind the Committee very briefly that on several occasions over the last six or eight months it did consider this question of whether it should release information immediately. We had a Mullins' subcommittee on this and a full and open discussion on the issue. While a few members of the Committee tended to favor immediate release, they were, I think, a minority; certainly, no one moved to change the situation. The concerns of the Committee at the time were the questions of flexibility in policymaking, whether an immediate announcement of a directive, say, like the asymmetric directive in May, would constrain the Committee from going to asymmetry because they wouldn't want the announcement effect. In fact, the effect was that it did have markets raising interest rates; if they weren't sure, they were going to raise rates. By constraining [the ability of] the Committee to take actions to go to an asymmetric directive or off asymmetry to symmetry, it would in some sense remove by very small amounts some of the flexibility of the Committee. That was the concern the Committee had. The other issue that you need to think about if you're considering going to an immediate release is what to release. If in May, for example, right after its meeting the Committee had released the fact that it had gone to an asymmetric directive would that have significantly called off the reporters? One has to wonder. At least I would have to wonder whether the reporters wouldn't be all over the Committee members wondering why you had done it and under what circumstances a change would be made. [But] it would help [to release such information] and in most meetings it would stop right there, I think, once the Committee announced its decision. But then you do have the question of what you release along with that and how far to go. So, there are a couple of issues that were raised when the Committee last discussed this.",384
-fomc-corpus,1993,"I didn't intend to make a brief for immediate release. In any case, even if I believed that was the right way to go--and I'm not sure I do--I wouldn't do it in light of this because this Congressman would declare victory and say ""Now I've got them."" I wouldn't sit still for that.",63
-fomc-corpus,1993,"I must humbly retract my statement with respect to the quality of the letter because I'm more inclined in your direction than not. To be exact, there are a few sentences in it that I think are reasonable.",42
-fomc-corpus,1993,"I think what you said, Mr. Chairman, was that the letter is the best you have seen of those he has sent to us. [Laughter]",32
-fomc-corpus,1993,I think Governor LaWare more appropriately characterized it.,10
-fomc-corpus,1993,"I have two questions. This prohibition of 7 days before and 7 days after a meeting is something that Joe Coyne has repeated quite often in the 7 years I've been here. But there are a number of people who obviously disregard this completely. Very often when I get back the next day I'll see three or four people have given a speech the day after [the FOMC meeting]. I assume they think for some reason that that [prohibition] is a mistake. If that's the case, I'd like to hear what their objections are. It may be legitimate that we shouldn't have it. I frankly think it has been a wise thing, but there obviously are some people who feel as though we should not have such a prohibition because they violate it all the time. So, if they violate it all the time, I assume they would not be unhappy talking about why.",177
-fomc-corpus,1993,"Bob, I'm not as concerned about the people who violate it with their names as I am about those who violate it without their names.",27
-fomc-corpus,1993,"I'm not talking about talking to the press. I'm saying that speeches are scheduled; they get on the wires, etc. Yet, I thought there was a consensus that we would not give speeches dealing with the economy 7 days before and 7 days after [an FOMC meeting]. Obviously, some people don't know that or, knowing it, don't think it should be respected. It would be interesting to know what it is.",87
-fomc-corpus,1993,Does anybody have a speech scheduled between now and Humphrey-Hawkins?,15
-fomc-corpus,1993,"Well, I can go back and look at--",10
-fomc-corpus,1993,"No, I'm not denying the truth in this case. You're talking historically; I'm talking from here on.",21
-fomc-corpus,1993,Okay.,2
-fomc-corpus,1993,"I will say this: If none of us answers a press call, then the only way anything can leak is if we tell somebody else who then tells the press.",33
-fomc-corpus,1993,"Well, telling someone else is every bit as bad, if not worse than telling the press.",19
-fomc-corpus,1993,Of course.,3
-fomc-corpus,1993,Sure.,2
-fomc-corpus,1993,Telling somebody else is even more suspicious.,9
-fomc-corpus,1993,"I had a second question. I'm not sure I fully understand the point made about talking about the economy in such a way that has policy implications. If one has concerns about inflation, for example, are you saying that that view should never be articulated in public?",52
-fomc-corpus,1993,"No, I'm saying, for example, if you get out in public and say that inflation is a very serious problem and we have to do something quickly, that is a statement of where our position is on monetary policy. If you say it's the role of a central bank to maintain stable prices, that's a philosophical judgment with respect to the nature of our institution, which hopefully we all subscribe to. The broad principles are something we should enunciate whenever we can.",93
-fomc-corpus,1993,"You're [able to] read [people's views on policy] better than I. I hear people saying that inflation is a problem and I don't know how they're going to vote after I've seen them make a statement about inflation being a problem. There have been four or five people who have made statements about inflation being a problem and, frankly, I don't know how they're going to vote based upon what they say. I don't understand how you think the reporters know how they're going to vote.",97
-fomc-corpus,1993,"We don't make that mistake about you, though!",10
-fomc-corpus,1993,Consistency.,2
-fomc-corpus,1993,"Remember what the problem is; we are all on the record six weeks after the fact. So, it's a question, really, of how one characterizes things. My main concern, frankly, is less about what we each are saying about our own views but what we are inadvertently conveying about the nature of the position of the Committee overall. There are times, and I can cite innumerable instances, where sentences of members who are sitting around this table have slipped out in Q&As and the like--[sentences that] have characterized [the view of] this organization as a whole. And I think that is something we have to be very careful about.",133
-fomc-corpus,1993,This business about talking to other people raises a question in my mind that I've had for quite a long time. The question is whether or not the Administration might be leaking some of this information. Is there any kind of arrangement we have in which we talk to the Administration?,54
-fomc-corpus,1993,"Let me put it this way. Up until about two years ago, I would say, it was the conventional thing for the Chairman of the Fed to convey to the chairman of the CEA what our policy was; it was part of the discussion. But it became apparent to me that that was a hole as large as one can imagine. I have not talked to either the Bush Administration or the Clinton Administration on any policy matters initiated in this Committee room. And I must say that one does not see Administration officials--",103
-fomc-corpus,1993,As much as one used to.,7
-fomc-corpus,1993,That's right.,3
-fomc-corpus,1993,"That has been beneficial in one sense, but it makes the problem even more acute because we have two issues here. One is: Are these leaks deliberate? The CNBC report certainly pointed to a deliberate leak. First, to go back to John LaWare's remark about the letter, I agree that it's an attack; but that doesn't in any way diminish the seriousness of what he is pointing to. I think the credibility of this institution is really on the line with deliberate leaks. And if we know that there are deliberate leaks, I think we have an obligation to track them down and do something about them. The inadvertent leaks through talking to reporters I think can be corrected to a very large extent by following those guidelines. And I think we all have to follow them very religiously and keep them in mind. The third point I'd make is that if David Wessel did get this information from sources outside the Fed, there's really nothing we can do about that, it seems to me.",197
-fomc-corpus,1993,"Frankly, I didn't particularly mind the David Wessel piece if in fact what he was picking up was a guess or a judgment of how this organization might function.",33
-fomc-corpus,1993,"Yes, he's guessing and talking to other people.",10
-fomc-corpus,1993,"And the reason it appears [that way] is that he didn't do something which is usually done, namely, quote a lot of people. It is conceivable that I am not characterizing this situation correctly. As I said before, my sole piece of evidence is my historic knowledge of the policy of the Wall Street Journal with respect to designating sources.",70
-fomc-corpus,1993,"Yes, I think that's a logical conclusion.",9
-fomc-corpus,1993,"And if that is true, then I'd say--Well, before Wessel we had a long period where we were quite secure.",26
-fomc-corpus,1993,"But the difficulty is that it comes back to what John LaWare said about disclosure. This Committee did have a discussion about that. But at the time of that discussion I think we had a somewhat better recent history on leaks. Regardless of how one interprets the Wessel situation, the CNBC matter was clearly a leak of some sort or another. On the face of it, unless we can demonstrate in a relatively short period of time that this leak problem can be eliminated, over the course of time we will have no choice but to go to disclosure. It's that simple. We have not demonstrated as an organization a capacity to [prevent leaks] and [as a result] we're destroying the credibility of this organization and all the things that we're trying to do in terms of our objectives. So, unless we can really get to that point very, very quickly, then we better start thinking very seriously about what we want to release.",185
-fomc-corpus,1993,I couldn't agree with you more.,7
-fomc-corpus,1993,I think that's correct.,5
-fomc-corpus,1993,"I think that's exactly right, but I just question whether we have the time to make it happen.",20
-fomc-corpus,1993,"Well, we have two possibilities coming from right here. We can decide now that we want to change our disclosure [practices]; we could ask the Mullins subcommittee to review the previous [material on this] and come back with a recommendation. Or we can say that we don't wish to change; we think that the procedures we're using are most appropriate for the effective workings of this organization. Then, in the event there is a leak, we will request the General Counsel to ask for sworn statements voluntarily of all individuals in this room that they did not communicate with a particular press person. It gets down to the point where we would ask for voluntary sworn statements. If that doesn't work, then I'd say we have no choice but to--",149
-fomc-corpus,1993,"Because of the time constraints, I'd prefer you do the latter, too.",15
-fomc-corpus,1993,Why would the statements be voluntary?,7
-fomc-corpus,1993,Because there is no legal means by which one can enforce a sworn statement of members of the Board of Governors.,22
-fomc-corpus,1993,"Well, I think you ought to find a way of getting [rid of] anybody not willing to give a statement.",24
-fomc-corpus,1993,How would you suggest doing it?,7
-fomc-corpus,1993,"I think if the Chairman of the Board puts the freeze on anybody at this table, he's gone.",20
-fomc-corpus,1993,Wait a minute. What are you talking about?,10
-fomc-corpus,1993,"If the Chairman puts the freeze on somebody, they are in effect gone.",15
-fomc-corpus,1993,Members of the Board of Governors are not appointed by the Chairman. Did you have the impression that we were?,22
-fomc-corpus,1993,I understand that.,4
-fomc-corpus,1993,"Now, there's no question that we have a pact that we should enter into, one with another. As the Chairman says, there is information that doesn't belong to each of us [as individuals.] But I certainly can't understand your comment, Si. It just blows my mind that one of seven--",59
-fomc-corpus,1993,"Well, why don't you just chalk it up to understandable frustration.",13
-fomc-corpus,1993,"Part of what I was thinking Bob Forrestal already referred to. When I read the Wessel piece I thought of the Administration. I think you're being generous to Wessel's IQ. If he had said people familiar with the way the Fed deliberates, I would have come to the conclusion you did. But he said ""familiar with the Fed's deliberations"" in both of these articles. I interpret that to mean somebody who claimed to be in a position of knowing what happened at that meeting [unintelligible]--",107
-fomc-corpus,1993,"He's done it so often before and never used that phrase. It's much more credible to say: ""A Fed official said that...""",26
-fomc-corpus,1993,"Yes, but if it's not a Fed official--if it's an Administration official--",16
-fomc-corpus,1993,"Let me put it to you this way. I have been extraordinarily scrupulous in not indicating to the Secretary of the Treasury, the Chairman of the Council of Economic Advisors, or anybody, what it is we did in that meeting. I never even acknowledged after the leaks were out that they were true.",61
-fomc-corpus,1993,"Well, whether it was a Fed official or not, I associate myself with Wayne's point about ""for the record for background."" Having worked in this town in '81 and '82, I took the position then that one just does not do off-the-record statements. You either do it on the record or you don't say it. But the trouble with this town is that not many people agree with me. And people in the Washington press know that, and people who work--",96
-fomc-corpus,1993,"I must say I don't agree with that. I think the issue is not whether it's on the record or off the record or what it is you say because there are occasions when you want to convey [some] information without your name being known but [unintelligible] of this organization and to disabuse certain people of certain views without ending up with a confrontation or quarrel. So, I don't agree with that. Wayne knows that I disagree with him on that.",96
-fomc-corpus,1993,Sure.,2
-fomc-corpus,1993,But where I don't disagree with him is on the content of what it is he's saying.,18
-fomc-corpus,1993,"As a practical matter, isn't the main argument against immediate release of the directive the problem of asymmetric directives?",21
-fomc-corpus,1993,That's the crucial thing.,5
-fomc-corpus,1993,Why don't we just go ahead and stop having asymmetric directives and start releasing the directive before we leave the room with the understanding that we can have telephone conferences at a moment's notice for intermeeting decisions?,40
-fomc-corpus,1993,Because that is a much less efficient means of working than the way we're working.,16
-fomc-corpus,1993,It would eliminate all the problems about speech-making and times before and after the meeting and all that.,20
-fomc-corpus,1993,I doubt that.,4
-fomc-corpus,1993,"Well, at least after.",6
-fomc-corpus,1993,"No. David, you had a committee that concluded after looking at the possibilities--",16
-fomc-corpus,1993,"Yes. And basically I'm one of the people who believe that not releasing asymmetric directives measurably increases our flexibility and efficiency in monetary policymaking. I think it has served us well. That argument falls if it's released. I think one can't rebut the argument that we should accelerate the release. So, we may have no choice but to formalize the process and accelerate the release. Looking back on it, we've had a number of these episodes interspersed with relatively long periods of success. I personally would be a bit hesitant about making the move to early release of the directive in the heat of one of these episodes because I do view that move as irreversible; and it will forever alter the opportunities available for the Committee. Again, I think [delayed release] has served us relatively well but we may have no choice. And I would agree that if we have another episode, it will be hard to rebut the argument. But my preference is to redouble our efforts at maintaining confidentiality with full knowledge that we're on the brink of losing this flexibility. Our subcommittee, when we talked about it, thought there was quite a bit of flexibility in the asymmetric directive. And there is inefficiency of essentially having the Committee in meeting continuously, which is pretty close to what we'd have if we required everyone to get together. We thought it was worth it but I don't know how much it's worth. It's certainly not worth losing our credibility over; and as a practical matter our credibility degenerates with the leaks. But our subcommittee, and I guess the Committee in its discussion as well, generally supported that notion although there were some people who disagreed. We have blackout periods of plus or minus one week, but then on the directive we have a longer period. Actually, it's that longer period in which I think we may have had some problems as well. So, another argument is to line up the blackout with the release of the directive.",387
-fomc-corpus,1993,"If we did release the directive immediately, it would possibly ease the pressure on us to reveal or release the conversations that take place.",26
-fomc-corpus,1993,"I think people would want to know why, though, wouldn't they?",14
-fomc-corpus,1993,"Yes, they will always want to know why. I think we'd heighten the interest in that. Does anyone else want to [comment]?",28
-fomc-corpus,1993,"Well, I worked with David on that subcommittee and I was not in favor of immediate release either; but I must say subsequent developments put it in a different light, and I wouldn't be against taking another look.",43
-fomc-corpus,1993,"Let me suggest the following: That we make this effectively our last stand and that if we fail, the first thing is that I will request the General Counsel to ask for sworn statements so that we will at least have that on the record. For those who choose not to make such a statement, that's their prerogative. But Governor Angell is right. Members of the Board of Governors are appointed by the President of the United States with the consent of the Senate and are independent agents for good or bad. Some of that is both! [Laughter]",112
-fomc-corpus,1993,"Not to split a hair on that, but I thought at one point we had an opinion that this was confidential information and to release it was in fact breaking the law.",34
-fomc-corpus,1993,It's not a statute that I'm aware of; it's the rules of the Committee.,16
-fomc-corpus,1993,It's part of the FOMC's Regulations.,10
-fomc-corpus,1993,And that's not a law?,6
-fomc-corpus,1993,It's not a felony.,5
-fomc-corpus,1993,"Some of the information the FOMC has do violate those statues, but the directive does not; it violates the FOMC's rules.",29
-fomc-corpus,1993,"Okay. But if you violate a law, it seems to me that's a different set of circumstances.",20
-fomc-corpus,1993,We are not a legislative body that can promulgate laws.,12
-fomc-corpus,1993,"Well, I like Governor Angell's objection. [I'd have it] cover the presidents, not just limit it to the governors.",27
-fomc-corpus,1993,"Well, [unintelligible] the statute is somewhat different. I don't think we want to have a huge difference in practice, but the statute is quite different in that the dismissal of a member of the Board of Governors falls under an impeachment clause. It's very specified. But the presidents serve at the pleasure of the Board of Governors. In practice, we certainly wouldn't want it to be that way; we'd look pretty silly if we ever--",89
-fomc-corpus,1993,It's a legal distinction which we cannot--,8
-fomc-corpus,1993,What are those five-year terms anyway? I think you're right; that's a separate issue.,18
-fomc-corpus,1993,"I understand that's what the statute says. But as a practical matter we couldn't function as a Committee with a different status for different members of the Committee because it won't work. The most important thing I'd say at this particular stage is that when you get a press call, irrespective of from whom, until the end of the Humphrey-Hawkins hearings--on the 22nd of July I believe--you have laryngitis or something. If you think you can pick up the phone and tell somebody nothing, don't believe it. Believe me, it's a mirage; and all you have to do is miss once. I think we just can't afford it. Jerry Corrigan, as you may recall, said at the luncheon that we gave him on his farewell immediately following the last meeting of the FOMC that the one thing that could do this institution in is the leak question and the whole issue of the credibility of our operations. And I must tell you that Jerry is almost surely right on this. We have an organization that in my judgment has been extraordinarily effective through a very difficult period. The wisdom of this group has really been quite extraordinary. My impression, looking back at the history of our deliberations in the last two or three years, is that we look extraordinarily perceptive and effective. But that can all be undercut by a perception that we can't function in an effective manner with respect to this issue. So, let me just say in closing: Please be very careful. And if we can maintain confidentiality and carry through, I think we will effectively be able to secure the position of our deliberations and the status of the organization.",330
-fomc-corpus,1993,What are you going to say to Henry?,9
-fomc-corpus,1993,"I haven't decided yet. Well, that's a different question.",12
-fomc-corpus,1993,Okay.,2
-fomc-corpus,1993,"We are not going to tell him we're doing something. That's about as much as I can say. Unless anybody has anything further to add to this very difficult problem, I would suggest we adjourn for lunch.",42
-fomc-corpus,1993,"Alan, the guidelines you read--are we following those?",12
-fomc-corpus,1993,"My understanding is that we have not been following the guidelines with respect to blackouts a week before, a week after and up to the Humphrey-Hawkins testimony; we have not been doing that.",41
-fomc-corpus,1993,Are we agreeing that we are going to do that?,11
-fomc-corpus,1993,That's what I'm asking.,5
-fomc-corpus,1993,Should we do it?,5
-fomc-corpus,1993,"I assume that the answer is yes. Unless I hear an objection from the Committee, that's the rule of this Committee.",24
-fomc-corpus,1993,Does that apply to any speeches? Or are we talking about the press?,15
-fomc-corpus,1993,"Yes. In other words, if you want to talk about the history of the American economy or the history of the old West--. [Laughter] But if you're going to talk about anything with respect to the immediate future, I would say to you that's [not appropriate].",56
-fomc-corpus,1993,"It's important because we can't even talk about our region. Or we shouldn't even talk about our regions because if we do, it gets into--",28
-fomc-corpus,1993,Let me say this: One of the things that we ought to talk about is our regions outside of the blackout area.,24
-fomc-corpus,1993,"Oh, yes, absolutely.",6
-fomc-corpus,1993,"I think it's important that each of the presidents be viewed as the representative of an area and the chief government spokesman on the economy in his region. One way to do that is to get out there and talk about the characteristics of the region, what it's all about, what it's doing, what makes it different from the rest of the country, and why it's better. But if you start talking about the short-term outlook for the region, you can't get around the issue of talking about the overall economy.",100
-fomc-corpus,1993,Exactly.,2
-fomc-corpus,1993,"Mr. Chairman, I'm under the impression that the fact that we have this one-week blackout on either side of FOMC meetings is in the public realm now, that it is well known.",39
-fomc-corpus,1993,It is?,3
-fomc-corpus,1993,Yes.,2
-fomc-corpus,1993,"It's obviously not accepted by the press, but they are aware of the fact that that policy does exist in the FOMC.",26
-fomc-corpus,1993,"Joe Coyne, is that a fact?",9
-fomc-corpus,1993,That's right; they are aware. They call it [unintelligible].,16
-fomc-corpus,1993,"That being the case, there is no reason why we should not simply decline openly to accept a question and answer time wherein mistakes can so very easily be made. Just say no.",36
-fomc-corpus,1993,Just say no to questions on the--,8
-fomc-corpus,1993,"One mechanical problem here just occurred to me, and that is that a reporter can print something that he's gotten from you much earlier and--",27
-fomc-corpus,1993,"They do that with me, too.",8
-fomc-corpus,1993,"John Berry interviewed me about two weeks ago and he hasn't printed anything yet, so he may--",19
-fomc-corpus,1993,John Berry is one of the more responsible [reporters].,12
-fomc-corpus,1993,But that is a problem.,6
-fomc-corpus,1993,"It seems to me that we need to discipline ourselves with a little more reporting. That is, if anyone does have a speech scheduled, we ought to notify the Chairman's office or some office. We ought to go through a process of saying I have scheduled [a speech]. The Committee ought to be notified when we're going to speak in the blackout period.",71
-fomc-corpus,1993,"In the blackout period, okay, but not for any speech to be given outside the blackout period.",20
-fomc-corpus,1993,"Just remember that there was an organization called the Plumbers, and the last thing we need in the Federal Reserve is a 1993 version of same. Look, we can carry this thing too far. The basic purpose is solely to preserve the integrity of these deliberations, not to inhibit people in any way from talking. The [point] is that [talk] has been too loose. Anyone who has been observing this phenomenon can tell. Okay, shall we adjourn for lunch?",98
-fomc-corpus,1993,"Good morning, everyone. The first item, which is not on the agenda, is to welcome our old/new colleague, the new President of the Federal Reserve Bank of New York. I gather from Norm Bernard--who is the world's greatest expert on all such issues--that Bill McDonough is not the first Manager to move up to the presidency of the New York Bank; Allen Sproul who was Manager in 1938 to 1941 did the same. But you can't be first in everything, Bill! We welcome you and are delighted to see you move up to this side of the table where I can hear you better.",127
-fomc-corpus,1993,"Thank you, Mr. Chairman. I will continue to try to speak loudly and clearly.",18
-fomc-corpus,1993,That would be novel! [Laughter] The first item on the agenda is approval of the minutes. I would ask somebody to make such a motion.,31
-fomc-corpus,1993,"I'll move it, Mr. Chairman.",8
-fomc-corpus,1993,Is there a second?,5
-fomc-corpus,1993,Second.,2
-fomc-corpus,1993,"Without objection. I'd like to call on Governor Mullins to move the election of the Vice Chairman, who will hold office through the end of this year and until the next election at the first meeting after December 31.",44
-fomc-corpus,1993,"Mr. Chairman, I would nominate for the position of Vice Chairman a person amply qualified to fulfill the recent Irish tradition, even if he speaks clearly, Bill McDonough.",36
-fomc-corpus,1993,Is there a second?,5
-fomc-corpus,1993,Second.,2
-fomc-corpus,1993,"Any other nominations? If not, we have one individual [nominated] and I will ask for yeas and nays. All in favor say ""aye."" SEVERAL. Aye.",40
-fomc-corpus,1993,"Thank you. I assume that there was somebody out there with a ""no"" vote, but you didn't want to know about it! Anyway welcome, Bill.",32
-fomc-corpus,1993,Thank you.,3
-fomc-corpus,1993,"I'm looking forward to your working with the rest of us in this new position; the work is not all that much different from your previous activity, but it clearly has a very different spin to it and we wish you well.",45
-fomc-corpus,1993,"Thank you. It's an honor and a privilege. Having sat at the other end of the table for a year and a half, I can appreciate the very real importance of what we do here. It also gave me the opportunity to think about whether any sane person would wish to move from that end of the table to this end. And I came to the conclusion one should. Thank you.",78
-fomc-corpus,1993,That was not an answer to your question! For the first item of general business I'd like to call on Gretchen Greene to report on the operations of the Foreign Currency Desk.,35
-fomc-corpus,1993,"Well, Mr. McDonough has set a very high standard for me. He says he'll talk loudly and clearly. If I don't talk loudly and clearly, please let me know; I'll try to speak either slower or louder.",46
-fomc-corpus,1993,The first thing is to make sure your microphone isn't covered up by anything!,15
-fomc-corpus,1993,I will try. [Statement--Ms. Greene's statement cannot be found in the Committee's files.],21
-fomc-corpus,1993,I don't recall any evidence that the French or any of the others actually have covered their borrowed positions in any [significant] amounts against the deutschemark since the debacle. Is that correct?,39
-fomc-corpus,1993,"It is correct that we do not have that evidence. What we don't know is whether they are succeeding in picking up some reserves and waiting to tell us of their operations when they are more successful. But you are right; we do not have any clear evidence that they have been successful. And until today the French franc had looked a little heavy. So, the opportunities really were not obvious for them to acquire marks.",83
-fomc-corpus,1993,"Well, with the approximately $70 billion--even with, say, a 3 or 4 percent decline in exchange rates or ultimately more--if they're going to have to cover at some point, this will be a very large hit on the budgets of those countries. I noticed that there was Is that true of the other countries as well?",69
-fomc-corpus,1993,"The accounting on reserves varies [greatly] from country to country, and the sharing of the loss in a case like this--where the French, for example, borrowed marks in an EMS arrangement--is also unclear to us. In other words, whether or not there's some kind of loss-sharing arrangement within the EMS that has been agreed to is something we are not fully confident we understand. But if it were true that the country that is doing the borrowing has to cover at market rates, you are right, the consequences in terms of the profits of the central banks on their foreign exchange transactions and how that is reflected in a fiscal deficit could be a significant number.",133
-fomc-corpus,1993,Other questions?,3
-fomc-corpus,1993,Do you have any sense as to where the demand for the yen is coming from?,17
-fomc-corpus,1993,"Certainly one important element is that the capital outflow, which had been a counterweight to Japan's current account surplus, has been far smaller than is typically the case. Now, obviously, there's a capital [outflow] to balance the surplus in an accounting sense. But the [ex ante] demand to send funds abroad by Japanese investors has pretty much dried up. They did invest a fair amount and they were very active investors in the second quarter in the European markets, taking advantage of the sharp drop in interest rates, particularly in countries of the EMS other than Germany. And, of course, they got burned by what has happened with the European monetary system. And we believe that one of the reasons why the yen advanced so much more rapidly than the dollar in July was that these investors were hedging their exposures in French francs and other [currencies]. We do not think they liquidated their investments because they thought that the breakup of the EMS would prompt a larger cut in interest rates than has taken place and they wanted to be there to get the capital gains. But apart from that burst of [what might be called] an outward investment into Europe immediately after the French elections, the outflow has been small by comparison to previous years. So that is probably the single biggest fact: The reluctance of the Japanese investment companies and insurance companies and investment trusts to make meaningful outward investment in other countries.",281
-fomc-corpus,1993,So they're demanding more yen?,6
-fomc-corpus,1993,They are demanding fewer dollars.,6
-fomc-corpus,1993,So it's just sort of a relative thing.,9
-fomc-corpus,1993,"Yes. As this has built up, of course, we have seen the Japanese companies responding differently, as I mentioned. Previously they had believed that the dollar would recover and therefore they would be able to sell dollars at a higher rate, so they were willing to hold their dollar exposures. As that belief has faded, people are saying: ""I have to cut my losses; I just have to get out of these currencies regardless of what the exchange rate is."" And that's when we observed the Japanese exporters constantly reducing the dollar price at which they were willing to sell; in the past couple of weeks that has been an important additional factor.",127
-fomc-corpus,1993,"Gretchen, do you think the French are really serious about this imposition of exchange controls or is it just a public relations ploy to try to frighten the speculators? If they were to do this, it would seem to me to be another blow toward--",55
-fomc-corpus,1993,"[Unintelligible] just a few minutes ago indicated that that was not his plan. That's not an answer to your question, I understand; but that's at least what he said in Tokyo.",40
-fomc-corpus,1993,"I think there is growing concern about the type of market participants; these participants are difficult for the authorities to have contact with. In the past the large players have been banks which the central banks know and understand; now we have a class of market participants--call them hedge funds or investment trusts or whatever you want to call them--who exert enormous market power and for whom there is not the same kind of relationship with the monetary authorities. The authorities don't know who they are; they don't know why they do these things. And, of course, these funds have built up huge investment positions in all countries. And when they get scared, the hedging of those portfolios--just because of the way the hedging is done--is enough to have a very sudden and substantial impact on the exchange rate, which comes at the most awkward time from the point of view of the central banks. So, I think there is a growing level of frustration, and I guess the question is: Where does that frustration ultimately lead?",203
-fomc-corpus,1993,"Any other questions? If not, let's move to the Domestic Desk and Joan Lovett.",18
-fomc-corpus,1993,"Thank you, Mr. Chairman. I hope you can hear me down at that end also. [Statement--see Appendix.]",25
-fomc-corpus,1993,Questions for Ms. Lovett? I guess you covered [everything]. Would somebody like to move to ratify the actions of the Desk since the last meeting?,32
-fomc-corpus,1993,So move.,3
-fomc-corpus,1993,Is there a second?,5
-fomc-corpus,1993,Second.,2
-fomc-corpus,1993,Without objection. Let's now move on to our economic discussions with Messrs. Prell and Siegman.,21
-fomc-corpus,1993,"I always thought being audible got me into more trouble! I thought the example set by Mr. Volcker and Mr. Corrigan might be the one I should follow, but I'll try to follow my colleagues' example this morning. Having asked the Committee to endure a very long presentation last month I shall be quite brief this morning. [Statement--see Appendix.]",72
-fomc-corpus,1993,[Statement--see Appendix.],6
-fomc-corpus,1993,Questions for either gentleman?,5
-fomc-corpus,1993,"Mike, in looking at autos and at the pattern that we see before us, I was wondering if we had any feel on the leasing side on whether there is--and how much--an incentive factor that might come along like earlier incentives that we saw on prices. Specifically, I'm thinking about the leasing terms which seem to be in some ways similar to the direct price sales promotional devices we saw earlier. How much do they really shade the residuals very, very closely? Are they even going negative on the residuals as an incentive kind of thing? In terms of having some view of what is going to happen to sales going forward, I wonder whether this is likely to reverse at some point.",139
-fomc-corpus,1993,"Well, I think we had some discussion of this in the Greenbook. Pinning down the amount of the leasing transactions with consumers is a little difficult. There is some survey evidence that we're aware of that suggests that perhaps a quarter of the consumer car sales have leases. And that does seem to have been the way that the major manufacturers have gone as a substitute to some degree for the kind of price shaving they previously had done--rebates and other techniques. Clearly, they've been trying to firm up their margins. One step was to diminish the flow of cars going through the rental companies that come back as nearly new and are perceived as fairly close substitutes for the new cars. That was partly a response to a general rise in retail demand, which meant they didn't have to sell the cars on concessionary terms [nor did] the rental car companies. If demand remains on the uptrend we think we're seeing, and with the Japanese car prices likely to be under even more pressure than we might have anticipated in light of the further appreciation of the yen, there may be some further tightening up of that market, with some firming of prices either through less aggressive residual valuations on the leases or through other devices. But I don't think we have that good an insight into what trick they're going to use.",259
-fomc-corpus,1993,"We have a feeling that this is the same sort of timing that happened before. We think that these [kinds of incentives] are going to be offered for a discrete number of weeks in some cases, never mind months, and that they will be removed at some point.",55
-fomc-corpus,1993,"Well, they seem to have maintained incentives. They've broadened them recently. We don't think they are as deep or quite so broad as we've seen at the end of some other model year clearance periods because the stocks are pretty [low]. So, we might enter the new year with less overhang of prior year models. The ""end of year"" has gotten a bit vaguer. We see new models coming out at different times of the year; and in the case of Chrysler, one of the reasons they're pushing so hard now is that they're going to be bringing out new models at the end of this year, sort of a '94-1/2 [model]. So, there's a lot going on here. Our sense is that there is a more moderate level of promotional activity going on than there was [at the same time] a year or two ago. And that trend will probably persist for some period.",184
-fomc-corpus,1993,President Parry.,4
-fomc-corpus,1993,"Thank you. Mike, there was an appendix in Part II of the Greenbook on the Budget Reconciliation Act that I think was very informative and interesting. It would seem as though the one-for-one in terms of tax increases and spending cuts looks fairly legitimate there. I also got the impression that perhaps it was not quite as backloaded in terms of expenditure cuts as originally had been the case. Are there any defining issues in terms of spending cuts that are making it less than the pure number? Are they of any significance, because I know that was a major criticism earlier in the process? And I wonder if you could just comment on how this has all changed because I know the last Greenbook had a ratio of 8 to 1 for 1994 in terms of tax increases versus expenditure cuts. And, of course, Boskin had that article in the Wall Street Journal that had a 9 to 1 ratio for the entire period. It seems as though there have been some very dramatic changes.",202
-fomc-corpus,1993,"Well, to be honest I can't give you a neat accounting on this. We didn't perceive that the outcome was drastically different from what we've been assuming previously. The major change was the smaller energy tax than we'd been anticipating. We thought they'd come out somewhere between the House and the Senate [bills] and [in fact] there wasn't any concession [to the lower Senate version]. [Unintelligible] reduction number they moved them to full retro-activity for 1993. Other changes were quite minor. And as we noted last time, the baseline from which we were measuring that tax deficit reduction last time isn't the same as the accounting that was going on here. We perceived [the reduction] to be rather heavily on the revenue side. A good bit of the indicated expenditure cut is attributable to the cumulative effects of the lower deficit on interest costs. I suppose it's legitimate--it's an expenditure--but whether it's a high powered expenditure or not is another matter. But we perceived that it's enough on the tax side and there's enough of a case to be made that the GDP aggregate demand effects of tax increases may be somewhat less than expenditure cuts to suggest that the damping effect on economic activity would be less than if they had gone as far as some had advocated on the expenditure side. But we still see it as a substantial fiscal contraction, depending on how one looks at this--liabilities or cash basis and so on. It's either a tremendous restraint in 1994 or a substantial restraint in '93 and again in '94. So, we're looking at the consumption behavior and so on, and we would allocate some of that restraint to 1993.",332
-fomc-corpus,1993,In some past times there have been fee increases that were counted as expenditure cuts; is there much of that?,22
-fomc-corpus,1993,"I don't think there is a lot of that in this. There is obviously still talk of doing some things in terms of grazing fees and mining and so on; those aren't big dollars. But, no, I don't think there is much of that in here.",52
-fomc-corpus,1993,"Any other questions? If not, who would like to start our tour de table?",17
-fomc-corpus,1993,"Let me start off, Mr. Chairman. Other than the flood, which certainly has been a serious event for those who are directly involved, I would not have to comment on any significant changes in the District economy since the last meeting. Broadly, things seem very much the same. The auto business continues to be strong. As we get closer to the end of 1993, the industry is raising its sales forecasts for the year. Third-quarter production schedules are running about 20 percent over last year and the expectation is that the fourth-quarter schedules will be higher than last year but that the margin will be much smaller. I will say, though, that there is something of a growing concern in Detroit that the auto business has run ahead of the national economy. And unless the employment and disposable income gains catch up, the sales levels could be at some jeopardy. Order flows for heavy trucks have slowed a bit but the industry doesn't, at least so far, view this as significant. They are coming off a very strong period and I think the current softness may well be a reflection of the summer doldrums. In the steel business, the outcome of the trade cases, while certainly disappointing from their perspective, is anticipated to reduce annual domestic shipments by about 2 million tons. Also, this is going to have a limiting effect on price increases. They had announced an increase of 2-1/2 percent for October that is clearly not going to stick. And they now think that the next increase will not be earlier than next January. Despite this, though, the underlying business continues to be good and they are forecasting shipments this year at about 86 to 87 million tons. Contrary to the national numbers, retail sales in the District in July were comparatively good. Some of the larger chains that had been having a difficult time experienced some pretty strong gains. In the ag sector it is still, of course, premature to judge the full economic impact of the flood. But in a broader perspective, I don't think the effect will be nearly as large as one might guess by watching the television coverage on it. Growing conditions in many areas that are not directly affected have really been very good. And with higher crop prices, farm income this year is expected to be pretty good. But I will say that because the growing cycle is behind by several weeks this year--we got a late start you may remember and all the wetness has delayed the growing cycle--an early frost this year would be a much more significant problem than would normally be the case. In the ag equipment business, the level of activity continues to be pretty high. Retail sales from one manufacturer that I talked to are running some 20 percent ahead of last year and because their inventories are reasonably low their production in the current quarter is running some 25 percent over last year. One manufacturer of construction equipment notes that business is up because equipment is being used in the cleanup after the flood. With regard to inflation, I continue to be impressed by how restrained the price pressures seem to be. Many manufacturers say the cost of their outside purchases this year will increase by only 1 percent or even a little less. One large manufacturer that I talked 'to says that in fact they are going to have a reduction in their outside purchase prices and costs this year of about 1 percent. Virtually everybody we talk to--it's true for retailers and manufacturers--says that marketplace pressures are very, very tough and that there just aren't any signs of widespread price increases. On a somewhat continuing somber note, I think the line on this restraint on hiring that we keep hearing about is getting harder and harder with the passage of time. [Firms] just will not take on additional full-time employees, and they are continuing to rely on overtime and out-sourcing to deal with their increased production requirements. While out-sourcing does increase employment, at least in an indirect sense, it's not the same kind of employment increase that we've had in past cycles. And I must say this employment restraint has become something of an absolute mindset among a growing number of CEOs. Turning to the national economy, the outlook is almost surprisingly unchanged, very much in line with the forecast that we developed at the time of the last meeting of the FOMC. I think that at this point the risks are about evenly balanced. But I must say it does seem like a pretty unexciting outlook. Thank you.",891
-fomc-corpus,1993,"Si, the late start on planting: Is that pretty universal throughout your District all the way from Iowa to Michigan?",23
-fomc-corpus,1993,"It's certainly true in Iowa, Wisconsin, and Michigan, not quite so much in Indiana. Indiana is going to have a good year, much better than they've had in the past.",36
-fomc-corpus,1993,And Indiana had ample moisture?,6
-fomc-corpus,1993,Yes. Production in Indiana looks good and they are delighted with the high prices.,16
-fomc-corpus,1993,"And Illinois, I presume, is like [the others]?",12
-fomc-corpus,1993,Not as good as Indiana. It's between Iowa and [Laughter]--it should be obvious it's between Iowa and Indiana!,25
-fomc-corpus,1993,I'm delighted to hear Illinois hasn't moved! President Parry.,12
-fomc-corpus,1993,"Thank you, Mr. Chairman. Economic activity in much of the Twelfth District clearly remains weaker than that for the nation as a whole. District employment fell at a 2 percent annual rate in June, marking the fourth consecutive monthly decline. The fall in employment was due largely to job losses in California and Washington. California has now completed three years of recession; between July 1990 and July 1993 the state lost 560,000 jobs, with 180,000 of those jobs lost during the last year. However, the July employment report was somewhat more encouraging. We did see an increase in California of 34,000 as far as payroll employment is concerned. But half of this increase was due to a rise in state and local government employment that is linked to unusual seasonal factors. Civilian employment also increased during July. However, there was a very large surge in the labor force and it caused the unemployment rate to rise from 9.1 to 9.8 percent. Despite the July report, already announced layoffs and reports from contacts suggest continued weakness in several sectors of the California economy. We believe that the state will bump along the bottom and remain a drag on District growth for the foreseeable future. Conditions in the state of Washington are also of concern, particularly in the Puget Sound area. Recent employment reports for the state have been disappointing; for June employment in the state actually fell at an annualized rate of 5.7 percent. Significant losses were seen in manufacturing, construction, and trade. In aerospace, employment has fallen 7.4 percent over the past year, largely as a result of cutbacks by Boeing. In addition, recent reports suggest that Boeing may cut its production more than called for by currently published plans. Conditions in the rest of the District are mixed, with robust conditions in the inter-mountain states and flat or sluggish conditions elsewhere. A depressed visitor industry has stalled the Hawaiian economy. In contrast, the Nevada boom continues. Three major hotel projects will add 10,000 rooms in Las Vegas this coming winter to the existing stock of 76,000 rooms. Construction jobs in Nevada are up 20 percent over the past year. Turning to the national economy, although one could certainly quibble with specific numbers in the Greenbook forecast, I think the basic message of moderate growth is certainly the most likely outcome over the next year and a half. I'd have to admit, though, that I'm a bit more optimistic about inflation than is the Greenbook. We have had three consecutive months of very low inflation, which is consistent with the view that a good part of the inflation scare that we had earlier this year was an aberration. And given the current slack in labor markets and also the prospects for continued moderate economic growth, it seems to me that inflation could come in a bit lower than is shown in the Greenbook. Thank you, Mr. Chairman.",584
-fomc-corpus,1993,President Forrestal.,4
-fomc-corpus,1993,"Well, I think my report will be a little happier than Bob Parry's, Mr. Chairman.",21
-fomc-corpus,1993,That shouldn't be hard!,5
-fomc-corpus,1993,"Except for Nevada! Having said that, though, growth in the Sixth District is continuing to decelerate. Our expansion is still leading the nation but we anticipate that the margin will narrow, with the possible exception of Georgia. We're estimating that at the end of July the unemployment rate for the District was just under 6 percent; but at the same time our survey of manufacturing plants in the District suggests that little or no growth in employment is likely to occur over the next six months. In fact, the survey actually shows a decline, but we think there are some seasonal factors in there. But the clear message is that manufacturers just are not looking to add employees at all. The survey also suggests that production was weak in July even after taking account of what likely were seasonal declines in activity. The areas of strength that we're continuing to see in the Sixth District have been in retail sales, particularly in durables, and in new orders for exports, although exports are not a major part of our District output mix. The strength in durables comes basically from good activity in single-family housing. While the pace of sales flattened in some areas in July, it was well ahead of healthy year-ago levels. The inventories of unsold new homes have been shrinking so new building has been quite brisk. The inventory situation has caused resales to do better and contract prices have started to rise in several places around the District. The multifamily sector is still stalled, but there has been some improvement in absorption. Just to tick off a couple of particular areas of activity in the District, the Atlanta metro area is now beginning to see the first effects of the upcoming Olympics. The contracts for a couple of venues have now been let and some of the construction will begin soon. Also, office space absorption in the first half of this year was twice as high as [observers] had expected. Facilities and infra-structure building are continuing to add to employment. On the negative side, base closings in Florida, which is our most populous state, continue to exert a negative pull on that state's economy. The pressures on state budgets are moderating, but this is largely due to special factors, particularly gambling [activity]. Gambling is adding significantly to the coffers in Mississippi. And as you may have read, Georgia has just started a lottery and the lottery ticket sales have been running well ahead of expectations. I'm not sure that's the most desirable kind of economic activity to have, but there it is. Higher natural gas prices have increased the rig count in Louisiana and they're helping that state considerably. Unlike the Midwest we've been experiencing drought; and in many areas in the Southeast that's hurting agriculture, although again that's a relatively small factor in our output mix. So, on balance, conditions are reasonably good as they have been for some time. Concerns that I hear basically relate more to the national and international areas than to the District. Some of the uncertainty surrounding the budget process has been removed with the passage of the legislation. But there still is a good deal of concern about the health [care] program and the costs that may be coming along in conjunction with that. There's also, interestingly, a great deal of concern about the NAFTA legislation--there's a good deal of support for NAFTA in the District--and that there may be some difficulty with passage in the Congress. Looking at the national picture, our outlook for 1993 is the same as the Greenbook's. But we do see stronger real GDP and employment growth in 1994. We're estimating that business will start to add labor in the months ahead as some of these public policy uncertainties unwind and current staffing levels become too tight. I think that's got to be a gambling type of forecast because we certainly don't hear very much about employment gains. But the view of our staff is that there's going to come a point when business will simply not be able to continue with present levels of temporary employees and overtime. We have pretty much the same outlook for inflation on average, though upward pressures begin to emerge near the end of the forecast horizon. It seems clear to me that many of the fundamentals are in place for a continuation of the expansion. And that will take up some of the slack in the economy and perhaps move the expansion above potential at least for a while. I think, though, that there are uncertainties surrounding the outlook. On the positive side, I certainly feel a little more comfortable about the European situation. I think their recovery will occur a little sooner than we had expected. Also, the recent declines in long-term interest rates will certainly be beneficial. On the negative side, we have the continuing uncertainties surrounding consumer and business attitudes growing out of the health care program and perhaps continuing contentious debate about the budget. But the major concern that I hear relating to uncertainty is that federal spending may not be cut as much as had been hoped and that the initiatives will end up being funded by indirect taxes on business payrolls. It's difficult to assess the net impact of all these factors, but I am a little concerned--or maybe more than a little concerned--that the forecast for real GDP this year has fallen by almost a full percentage point since our March meeting. And the Board staff estimate for 1994 has now been reduced by an additional 1/2 percentage point since then. So, in conclusion, I'm concerned that the risks to the forecast are that growth will remain sluggish for longer than we anticipate and that unemployment will continue to be at unacceptably high levels. Thank you.",1107
-fomc-corpus,1993,"Mr. Chairman, might I just add something? An earlier comment--the comment about the medical expenses--raises an interesting point. One of the major savings on the mandatory spending side is the cuts in Medicare and Medicaid costs. Economically one would anticipate a lot of cost shifting here, which might call into question exactly how one wants to view the quality of this expenditure reduction. There are also some user fees, things like the FCC auction expectations and so on; but I think that medical cost issue is a very big one, looking back.",108
-fomc-corpus,1993,President Boehne.,5
-fomc-corpus,1993,"The District economy continues to muddle along. I could almost ditto my comments of a month or so ago. The pattern is essentially the same: sluggish manufacturing, soft retail sales, some improvement in residential construction, nonresidential in a deep hole, and slow employment growth. This attitude of not adding workers if we don't have to is very strong. Wage increases are probably in the 4 to 4-1/2 percent range; that is what one hears from most companies in the area. On the national level, I think the moderate growth theme is the right one; 2-1/2 percent is the number if one wants to pinpoint it. It's hard to see major risks that would cause a significant break-out on the up side. Likewise, it's hard to see a break-out on the down side that would cause a cumulative downturn. Nonetheless, we have had this pattern, as Bob Forrestal just pointed out, of starting out the year more optimistically and then scaling down our growth forecasts. I think there is a business attitude that if you have a good quarter, you take it but you don't think it's going to continue at that pace; and if you have a bad quarter, you say well, maybe we ought to scale down the forecast. While we're not talking about major risks on either side, I suspect that if we're wrong we may have somewhat more sluggish economic growth. On inflation I think the numbers that we are seeing now do understate the underlying rate of inflation just as the numbers earlier in the year overstated it. My sense is that we're not likely to see an acceleration of inflation from the underlying fundamentals just as I doubt that we'll see much of a deceleration. I think we just are kind of stuck where we are with inflation. So, it's pretty much a no change, unexciting, and not particularly satisfying outlook.",375
-fomc-corpus,1993,President Broaddus.,5
-fomc-corpus,1993,"Thank you, Mr. Chairman. Regarding our District, there really hasn't been much change in our region either, like many other regions in the reports so far. Growth seems to be continuing at a relatively moderate pace overall. We are experiencing the same strengthening in housing activity that, at least from the Beigebook reports, I take it may be occurring in some other parts of the country, although I guess it doesn't conform very well with the figure you reported earlier, Mike. Also, tourist activity in our region has been very, very strong especially along the coast in recent weeks. Despite this auto episode, Mr. Chairman, the mood of most of our business contacts is less optimistic now than it was even as recently as the July meeting. I think people are worried about the tax increase that now definitely will be coming. If anything, they may even be more worried about what the health care reform package, when we get it, will do to them. And I think these concerns are clearly having a negative impact on economic activity, especially on employment in our region; that has been happening for some time. But it strikes me that, if anything, that negative may have intensified most recently. As far as the national economy is concerned, I wouldn't argue with the Greenbook's real GDP projections at this point. Initially when I saw the 2.3 percent annual rate of growth in real GDP that you're projecting for the second half of the year, Mike, it struck me as a little on the low side in light of the strong final demand in the second quarter, the evidence of at least some strength in housing, and the nice sharp decline in long-term interest rates. But the negative attitudes that the budget package has fostered, as I said a minute ago, are very real; and I don't think there's any doubt that it could put a significant drag on the economy in the months ahead. So, 2.3 percent growth strikes me as reasonable at this point. If I had to guess, I would say the risks may be just slightly on the up side but not very much. Now, having said all of this about real economic activity, let me just say that I think the most important development since our last meeting has been on the inflation and interest rate fronts. It may well be that the recent price data are overstating the progress we're making, but I'm at least somewhat encouraged by what I've seen. Core CPI has risen at an annual rate of about 2-1/2 percent over the last five months, which is a pretty good hunk of time. And with the July figure, the annualized rate of increase in the core CPI so far in 1993 for the first time has dropped a little below the 1992 rate. Again, it may overstate the progress we're making but, as I think Bob Parry suggested, it strikes me that while we can't be sure yet we may finally be making some progress toward bringing the longer-term trend inflation rate down. The other positive, and I think clearly related, development is the nice decline we've had recently in long-term interest rates. As I recall the projections that were made back at the beginning of the year, the consensus forecast for the 30-year bond rate was about 7-1/2 percent; and I don't believe anybody was looking for anything as low as 6-1/2 percent, where we are now. Clearly, the budget package has played a role in this either because of its prospective deficit reduction or maybe because people think it's going to knock the heck out of the economy. But whatever contribution the fiscal side has made in bringing long-term rates down, I think there's a good chance that our recent monetary policy actions and statements have also played at least an equal role, or perhaps even a greater role. The news of a tilt toward tightness at the May meeting, and the overall tone or emphasis of your comments at the Humphrey-Hawkins meeting, Mr. Chairman, I think have sent strong signals to the markets and to the public that, whatever may have happened in the past, this time around we are quite serious about keeping inflation under control as the recovery proceeds. So, in short, I think we've bought some additional credibility recently, and I think that has contributed significantly to the rally in the bond market. I would hope that with policy we won't do anything to reverse that progress because it strikes me that the improved financial conditions are probably the main thing the economy has going for it right now. Thank you.",910
-fomc-corpus,1993,President Syron.,4
-fomc-corpus,1993,"Thank you, Mr. Chairman. Well, similar to many other places, I'd say that the region's economy continues to muddle along; it's not accelerating but it's not slowing either. The only thing that is really strong--and this is a comment some other people have made--is the lottery industry and the gambling industry. In fact, you have to be an Indian tribe to have an operating permit. This has started a new cottage industry among bankruptcy lawyers who, fortunately, now are finding lots of work in trying to determine how many people are required to declare a separate tribe so you can get a franchise to build a casino--I'm not kidding--because it really is an extraordinary license. Our pattern is very similar to the country as a whole in the sense that the retail sector is mixed. It's not collapsing; inventories seem pretty good and there's very little price pressure. We talk to retailers and they're poised to try to increase margins but then complain that they can't. They say they have to increase margins at some point, but they haven't been able to do so. The manufacturing sector depends very much on the product line. I had a little concern from a regional perspective regarding the sectors that have been strong for us because we have a fair number of companies that supply the auto industry. They've done quite well, but obviously the outlook for auto sales influences that. Also, our computer companies, while not doing as well as those in some other parts of the country, are starting to see improvement. With regard to this funny situation between measuring output and [unintelligible] inputs, I was just looking at the data that we produce for regional production measures. And we see the computer [measure] is coming up; their employment is going down sharply and their revenues do not look terribly good, but there are more and more ""mips"" being produced out there. At some point one starts to wonder about how homogenous mips are, whether they are a good deflator for this whole [industry], and how much more output there is in fact. I just wonder how much of the dramatic increase we saw in producers' durable equipment, in computers particularly, is very heavily influenced by this measurement question on what is being produced. People in high-tech industries--instruments, medical equipment and the like--are expressing continued concerns about foreign sales, including some new signs of softness in the U.K., which a couple of companies talked about. Housing, as other people have commented, has improved; actually, it has improved a fair bit in New England. We see at least some firming of prices even in the second home industry. In the financial sector, banks are starting to see some slight improvement--an upward trend in business lending and some improvement on the consumer side. The mutual fund industry continues to see very, very strong inflows and there is continued nervousness about where they're going to put the money. Harkening back to a comment Gretchen made about hedges in the foreign exchange market, in the institutional funds a lot of people are talking about having found inefficiencies in spreads in the overseas markets compared to the U.S. market--for example, looking at dollar-denominated versus pound-denominated GMAC paper--and are going heavily into those investments. They are doing the same thing in some of the other markets and then hedging heavily. Now, of course, we'll see how effective these hedges are, but people are talking about just enormous flows in that area. Consistent with what other people also have said, we've had a very, very good year for tourism, the best probably in four or five years. Some of this is weather-related. An explanation is that tourists prefer to drive when there is uncertainty.",749
-fomc-corpus,1993,You even got the President of the United States in your District!,13
-fomc-corpus,1993,"That's right. He has not been welcomed with open arms by many of the people in Martha's Vineyard, but it's a unique place! But the way that most people are looking at it is that at least it's an island, so they spin off from the rest of the region. The interesting thing is that President Bush's area of Kennebunkport, Maine draws more heavily now than when he was President in terms of a President-related tourism aspect. People--this is very, very micro--are less frightened about going there because they think it won't be as big a hassle. That area is actually busier now, selling T-shirts and all that stuff, than before. As far as the U.S. economy goes, I think the Greenbook has it pretty much right. I would think that the risks are pretty balanced the way the Greenbook has it. I'm not sure that I'd put exactly the same weight on the consequences if we are right on one side or the other. But in terms of the likelihood of what is going to happen, I think it's about right. In terms of going forward now, no matter which side, an awful lot comes down to this question of what happens to employment and to incomes. That's because there is a question of how much longer we can continue seeing good consumption without the growth rate in incomes. This is the sort of tension that goes along, and history will see how it resolves itself.",287
-fomc-corpus,1993,President Hoenig.,4
-fomc-corpus,1993,"Thank you, Mr. Chairman. In the Tenth District the economy, as I say every time, continues to grow modestly. Retail sales seem to be holding up. Construction activity has so far been strong; this strength is primarily focused, though, on the residential area. Oil and gas drilling has picked up in the past and that's primarily due to the gas portion of that industry. Coal output in Wyoming has slowed, though, primarily because of the transportation problems in getting that coal to the Midwest and South. There has been some interruption there but it should be very temporary since inventories are down. Manufacturing activity remains quite sluggish. We've seen some continuing drop-off in jobs in that sector just as we've seen nationally. The effect of the flooding is likely to reduce crop output in our area in Nebraska, Missouri, and a little in Kansas particularly in corn and soybeans; but there's not much effect on the wheat crop as we see it right now. On the whole, prospects in agriculture should remain healthy despite this reduction in crops because of price effects. Construction activity should remain good, focused on housing. We have one matter [of concern] in the Denver area. That airport has about 13,000 infrastructure jobs; the work is to be finished [soon] and they have to out-place that. And of course the vacancy rate in Denver, while improved, is still rather substantial, so I think they'll have a bit of a transition issue in that area. We also think that our natural gas drilling activity should remain fairly good. But as far as manufacturing goes, we see no real signs of strength except perhaps with the auto plants that should be at full capacity. Generally, manufacturing is very weak in our area. At the national level, as I've heard many others say here, we are revising our estimates down; we are a little more optimistic than the Greenbook but not enough to matter. And we see inflation in check, but we are not of the mind that it's improving very significantly; we're still looking at around the 3 percent range. Slack in the economy, though, should keep inflation at least not worsening. And the outlook for growth in 1994 continues to look very modest to us. In one sense the uncertainty has changed from what the fiscal package will be to what the effects of the fiscal package will be and then we add on health care [uncertainty] to that. So we see a very uncertain future and pretty modest growth going on into 1994.",501
-fomc-corpus,1993,President Stern.,3
-fomc-corpus,1993,"Thank you, Mr. Chairman. As far as the regional economy is concerned, it remains reasonably healthy, which is the report I have been providing for quite some time now. In general, construction is quite strong; retail sales are pretty good; manufacturing is mixed; tourism, at least in the western part of the District, has been strong. We did run a special survey of about 100 bankers in the areas of the District affected by the floods. I guess it's reassuring to report that they didn't have anything very startling to say in the sense that while crop losses in some cases are substantial, they are not expecting major spillover effects on economic activity.",131
-fomc-corpus,1993,Spillover!,4
-fomc-corpus,1993,"Yes, spillover. I'm glad you picked up on that; I was waiting for somebody to do that. They were not expecting major spillover effects in many other areas of economic activity. And, of course, we may get a little subsequent stimulus down the road from rebuilding and so forth. With regard to the national economy, we have been debating whether this sort of ""slow motion"" recovery was going to accelerate and turn into more rapid growth; that debate is continuing at least internally. But for the moment I have concluded, as I have in the past, that the Greenbook has it about right. That is, I don't see the seeds of an acceleration in place. So I think this very modest expansion at the national level is likely to continue and, therefore, I find myself in agreement with what I guess is the consensus. As far as inflation is concerned, maybe in part because of the publicity surrounding the asymmetric directive and your testimony or whatever, a lot of people have gone out of their way recently to tell me that they aren't seeing any inflationary pressures in their businesses at all. And some people have gone beyond that to report that they've tried to raise prices and haven't been able to make those increases stick. That suggests to me that people are still learning. They are willing to go out there and send letters to their customers that as of a certain date prices on certain lines are going up, and I guess what they tend to hear in response is that their customers will not accept these price increases and that they don't care what the underlying rationale may be. So, I conclude that people are still learning about the state of the markets and their inability to make price increases last, and that probably [augurs] well for the longer run.",351
-fomc-corpus,1993,President McTeer.,5
-fomc-corpus,1993,"Last month I said that the Eleventh District economy had weakened a little relative to the national economy, but that appears to have been temporary. Recent statistics in the District appear to be somewhat stronger, particularly employment growth, and the anecdotal information is somewhat more positive. We seem to be benefiting in some cases from weaknesses elsewhere in the country. For example, the Austin area seems to be gaining a good bit of employment from firms either expanding out of or moving out of California. We hear a lot about mortgage refinancing; just about everybody in Texas who didn't buy a house in the mid '80s and is therefore still under water seems to be refinancing their mortgages, including myself. I was doing that several weeks ago but I had to drop out of the market following your Humphrey-Hawkins testimony; it brought my rate up a little bit.",169
-fomc-corpus,1993,Sorry about that!,4
-fomc-corpus,1993,"So if you'll hold off until next Monday I'll be grateful! [Laughter] Since I haven't taken much time, I thought you might like to hear about a couple of comments from our Beigebook respondents. California seems to be on the mind of a number of them. One told our research people that a company wanting to plant a tree in Los Angeles County has to get permission from 8 different agencies; to chop it down requires 47 permits. And in Dallas County you can do either one of those things without a permit. A local banker told one of our people that a client of his in north Los Angeles was so frustrated with water quality standards at his plant that he submitted plain tap water to be tested, and the water quality agency judged that the water was not fit to be dumped into the sewer system. Finally, we would appreciate your support of NAFTA--all of you; it's going to be close.",185
-fomc-corpus,1993,President Melzer.,4
-fomc-corpus,1993,"As far as the District goes, we generally have been outperforming the nation during this expansion although in the latest three-month period employment growth has been a little worse than sluggish; we've had slight declines. I don't think there's much flood effect in that, however. What I might do is just make a few comments on the flood; St. Louis has really been the center of that. And as Si said, for those who are directly affected it's very devastating. But what is striking is the small percentage of the population that is actually affected; it's about 1 to 2 percent. In the Bank we have 800 employees and 6 or 8 families that are affected in some way, and I'd say that's quite representative. I think the assessment that the broad economic impact is going to be relatively narrow is on target. Clearly, there have been some crop losses and some disruption of jobs, but really very little. One of the main ongoing effects is going to be the impact on transportation. We've had roads washed out and it will be a long time before the barge traffic can move on the river. Basically what I hear from our directors and others is that [transportation problems] are adding to costs somewhat and it's a bit of a nuisance, but goods are basically getting moved. I think that will be with us for a while. Like Gary Stern, we did a survey of banks. We basically picked the counties on either side of the river--the Mississippi, Missouri, and Illinois rivers--and talked to about 200 banks. They constitute about 10 percent of District banking assets; and 80 percent of those banks are less than $100 million, so they are principally small banking operations. What struck me through the whole thing--and Gary touched on this--was how little disruption to operations occurred. We picked this up on the survey although it would not have been obvious from our own activities. Thirty-one banks had some disruption in operations--either carriers having difficulty getting in or out or actually having to make other arrangements, such as having their deliveries made to other processing centers or otherwise moving their processing. And 19 facilities, either head offices or branches, were evacuated because of flooding. We hear concerns about liquidity --no pun intended--but there has been only one discount window loan, an adjustment credit loan, that was at all associated with flood-related problems that I'm aware of up to this point in time. The big uncertainty looking down the road really is on credit quality. But, again, I don't think that's going to be a significant factor even from a District perspective. I would say most of the banks are looking for less than a 10 percent impact in terms of their loan portfolios. And of the 200 we talked to there are roughly 25 that think the impact will be greater than 10 percent. There will be a few banks--and these would be basically ag banks in small towns where both the agricultural loans and the business loans in the community would be affected--that could have problems. But they are relatively small. In fact, all of those 25 banking organizations have $50 million in total assets or less. We will stay in touch with this. In a sense, while the crisis has passed, I think we're dealing with the worst part of it right now in terms of the cleanup and rebuilding. And that will take some time. On the national front, just a couple of comments: Similar to what Al said, I've been very pleased with how expectations with respect to policy have shifted without really trashing the markets. It wasn't too long ago when the expectation was that we were on a one-way street for lower rates [and we've moved] to a period now, I guess, where expectations are fairly balanced. But the Chairman made it pretty clear in his testimony that there is the possibility that they will be moving up, and that has been very well received, I would say. Done differently, one could imagine a good deal of short-term turmoil in the markets, which we really haven't had with that shift in expectations. Who knows how to sort it out, but there may be some beneficial impact, as Al observed, in the longer end of the market. The other thing that is extraordinary, particularly given the perception the last time around, is that the pressures on monetary policy emanating from a deficit reduction package have really been muted and well contained. And I think that's quite an accomplishment from the politicians and the press. One of the things I have a little concern about is the fact that to some extent we are a bit at sea internally in terms of what we ought to be looking at. We've had problems with M2; we went through the Feinman/Porter [study]; we talked about an M2+; the Chairman mentioned real interest rates. And I think one of the things that we need to be careful not to do is to convey a lot of confusion in the central bank about what we ought to be doing. This is, and always has been, basically a judgmental matter; and I think the judgments have been very good during this period. To the extent that we roll out too many different possibilities in rapid succession, in terms of what we ought to be looking at, it's possible we could convey a sense of confusion about what we ought to be doing when in fact I think there's a lot of credibility associated with the Fed's actions. In particular--and I suspect to some extent, Alan, what you said was misinterpreted in this regard--the real interest rate [issue] caught a lot of attention. There was a sense that people would question if we can't really control it in the long run and all we can really observe is a proxy and we can't really observe real interest rates and we don't know what at any point in time the right natural rate is, it's very hard to view that as a target. I don't think that is what you were suggesting. I think you were suggesting that there is information there and that we ought to use it, and I agree with that. But as we go through this period of thinking about what we ought to be looking at, we ought not get too far from the basics. We ought to focus on the tools of policy and what it is we affect--reserves, the base, and all the aggregates related to that. I won't say any more about it today, but I'm struck by that chart in the weekly Board briefings that relates the opportunity costs of M1 to its velocity and how that has tracked--how certain periods stand out, at least to the eye, where there have been inflection points in policy. There may be more information in M1 than we're willing to give it credit for.",1351
-fomc-corpus,1993,President Jordan.,3
-fomc-corpus,1993,"Reports from businesses, large and small, and from banks in the Cleveland District continue to be good--better than they previously expected--[but they are] associated with a pessimistic outlook. There is this continuing tendency to feel that whatever good sales volumes, good backlogs, or earnings are being experienced are not going to be sustained. Maybe it's that people are unaccustomed in the Fourth District to performing what they perceive as better than other places in the country. Certainly what they read about other parts of the country is more negative than what they're feeling in our District. Agriculture is good; both corn and bean crops are good; what's important is better prices and good farm incomes for the third year in a row. So the banks in the ag regions are feeling that farm credit is in very good shape. Land prices are firm to rising; agricultural equipment sales are very strong both within the District and nationally; Si Keehn commented about that. The auto supply companies are doing quite well, though they are nervous about the outlook. They've had a much better year than they thought they were going to have but continue to worry about the future. Our small communities are quite strong. A lot of the smaller cities around the District would describe their conditions as bordering on a temporary boom for them; there's construction of single-family housing, shopping centers, and some government buildings. But also there is a belief that this is temporary [and they should] enjoy it while it lasts because [business conditions] are going to weaken in the future. I formed a new Small Bank Advisory Council that had its first meeting last Friday. After they had a very extensive briefing on economic developments, including a variety of measures of inflation, various measures of money, narrow and broad, nominal and real interest rates, credit flows and so on, I asked them to characterize monetary policy as they currently see it in view of the fiscal package and local conditions and what they're seeing in their banks. [Views] were about evenly split between those who said that they consider policy about right or too easy. Not a single banker was willing to characterize it as too tight. They consistently think inflation has already hit its low and is going to move up. We do feel we've had some success with both small banks and small businesses around the District in talking them into lowering their expectations about how much inflation is going to rise, especially as that feeds into their plans with regard to labor--their own salary budgets and their projections of what kind of increases they will be granting into 1994. But they still [see inflation] in an upward direction from where it has been. As far as the national outlook, I don't know whether the Greenbook forecast for inflation is a good forecast or not, but I do think it's unacceptable.",553
-fomc-corpus,1993,Governor Lindsey.,3
-fomc-corpus,1993,"Mr. Chairman, I've either been an academic all my life or else a government employee, so I've never had the opportunity to pay the kind of taxes that some people are going to pay. But--I have an example that's going around the table--I get my kicks either by buying lottery tickets when the pot gets really, really big or else figuring taxes for people who are very well endowed. What I'd like to do is to talk through briefly what the first quarter is going to look like for a self-employed business person who makes $1 million. There are roughly 50,000 of these individuals in the country. If we reduce that to a half million dollars, we are talking about perhaps another 180,000 people, all of whom are in roughly this type of situation. The earnings for the first quarter for one making $1 million a year are $250,000. What is going to be due next April 15th are their first-quarter estimated taxes, which under the new bill will be $92,000, and only one-third of the retroactive tax increase. The latter is a bit less than $25,000; the total retroactive tax increase is on the order of $74,000. And first-quarter FICA is about $14,000. So, the total due on April 15th under the new tax bill will be $131,000 out of the $250,000 they will have earned in the first quarter. Now the thing I would point out--",303
-fomc-corpus,1993,What about Medicare?,4
-fomc-corpus,1993,That's a part of the FICA.,8
-fomc-corpus,1993,I wanted to make sure you had included that.,10
-fomc-corpus,1993,"In the process of the tax bill, they got this interest-free loan provision in it so that on April 15, 1994 they would only owe one-third of their tax increase. Had that not been the case, these individuals would have owed roughly another $50,000 on April 15th or another 20 percent of their first-quarter's income, meaning that they would have been working three-fourths of the first quarter of the year to pay their April 15th federal tax bill. There are no state income taxes in these calculations. Maybe the rich really are different, but anyone who has any kind of cash flow constraints at all and has to send 75 percent of his income to Uncle Sam I think would probably have been in an interesting situation April 15th. I think a lot of the pressure has backed off because of that one-third provision; it's a tiny little provision in the tax law, but it probably is going to help the economy quite a bit in the first and second quarters next year. I did another calculation. Most people who go to accountants, of course, want to keep money in their own checking accounts and not give Uncle Sam an interest-free loan. You just have to pay 90 percent of your tax on an estimated basis. If that's true and you are rigorous about it, you will owe on April 15th $151,000 instead of $131,000 and that's 60 percent of your first-quarter earnings. I think these are somewhat interesting numbers; I don't know how they're going to affect the small business sector. There is a lot of debate about it. Again, there's no behavior here or anything else; it's simply a cash flow issue. My own personal anecdotal survey is that most people who are affected by the tax bill have underestimated how much they're going to pay. This millionaire, for example, will see federal taxes go up by 33 percent next year. Most people I've talked to figure their taxes are going to go up by 10 to 15 percent. I think a surprise of that magnitude next April 15th is something that may affect the economy. Other than that, Mr. Chairman, I think the Greenbook has it about right.",446
-fomc-corpus,1993,Governor Mullins.,4
-fomc-corpus,1993,"Thank you, Mr. Chairman. I appreciate that tax instruction from Governor Lindsey, since I guess the date just passed for extensions!",26
-fomc-corpus,1993,I have a blind trust and I'm delighted!,9
-fomc-corpus,1993,"The thing I've noticed on the tax return is that box at the top where it says if you check this box $1 will go to the presidential election campaign fund and it will not increase your taxes. I'd like them to take the rest of my taxes from wherever they get that! And the other provision I think we should have is that every Congressman should be required to fill out his or her own return to get the flavor for it. I think the economy has been pretty well discussed, no pun intended. The '93 GDP has been revised down because the first half was weak. We had a weak second quarter, a weak first half. With growth in the first half at a rate of only a little over 1 percent, it's difficult to be too enthusiastic about this kind of performance. It looks a little better, maybe, if we average the fourth quarter with the first quarter and think of that as one. And it might look even better, although not so much on the Greenbook forecast, if we take the second quarter and the third quarter together, but I will withhold judgment on that. Certainly, when we look at the second quarter more closely, it is a more positive picture. Spending did hold up quite well. Despite all the talk about consumer pessimism, consumer spending advanced at almost a 4 percent annual pace; the personal saving rate dropped again. And we continue to hear the talk about business pessimism concerning spending and hiring. Business fixed investment advanced at a 13 percent annual rate in the second quarter amid this pessimism. And payroll employment, which I continue to hear is very weak, is running at a 2 million job pace for the year, double the number of jobs added last year, which in my view has to provide some measure of downside protection. Even if the jobs aren't great, the unemployment rate is almost a percentage point lower than it was last year at this time. It's 6.8 percent or 6.85 percent; and ex-California it's 6.4 percent but I guess that's unfair. The recent evidence on housing is a bit mixed, but on balance it suggests some acceleration in the housing expansion. The Mortgage Bankers Association survey of purchase mortgage applications is very positive as are homebuilders' assessments of current sales. Even though starts were down a bit this morning, permits were up a bit; and it seems to me that for the first half of the year starts were up about 10 percent over last year. So, I think the hard evidence is still consistent with moderate growth, and we've had six quarters [averaging] 2-1/2 percent. Nonetheless, there are perhaps a few clouds on the horizon or at least hints of haze that have appeared on the scene. The first is this auto story. We have had a little easing in the auto sales. And I think this is the first sign in hard spending data of perhaps something going on. Now, there is a special story--the inventory shortage. It's also true, as I think the staff has pointed out, that non-auto sales seem to have picked up if we look at the control category. I must admit that this is an extreme form of product substitution: If you can't find the car you're looking for, you buy a sofa.",659
-fomc-corpus,1993,As long as it's a convertible couch! [Laughter],12
-fomc-corpus,1993,"I don't have to answer that! Still, I think the auto easing may be the first sign of something going on. The other warning sign continues--",30
-fomc-corpus,1993,"There is a question about the seasonalities in all these. If you look at patterns, it's clear.",21
-fomc-corpus,1993,"Yes. We've now had four or five consecutive reporting periods where auto sales have backed down a bit. I think there's enough noise going on and enough parts of the country under water and the like to take that too seriously. But before auto sales were a positive [factor]. People were buying cars and it was something that refuted concern. And this, it seems to me, is the one thing that has backed off a bit. The other thing is that both consumer and business confidence continue to recede on surveys. What is new in the Michigan survey is that the decline is concentrated in consumers' assessments of current conditions, not vague fears about expected conditions which had propelled the earlier declines. Now, the current conditions index is still about 10 points above October of last year, but it had held up pretty firmly until very recently. When I total it up I still see self-sustaining momentum of moderate growth. And if the last six quarters were 2-1/2 percent, it seems to me it ought to average a bit stronger than that. The fall in long rates should reinforce this momentum and should cushion, if not entirely offset, the fiscal drag. Another thing we haven't talked much about is that the deleveraging head winds continue to diminish even to the extent that some have started to note--and we picked this up in a number of different settings--signs of the beginning of speculative excess in stock prices, especially the weak stocks. [We've seen] very low IPO volumes, the lowest in 15 years, low quality spreads on bonds, and very low spreads on junk bonds. And all of this has occurred without the realistic prospect of robust growth, which usually accompanies these sorts of developments. Some people also suggest, and it may be less likely in my view, that financial institutions' attitudes toward lending may have been easing up a bit. We can see things like land prices starting to get a little better. We talked about this yesterday at the briefing. The Chairman pointed out that so far at least there is not a lot of evidence of net credit flows to fuel these speculative concerns. But I would point out that these factors do provide coincident indicators of easier conditions in the financial system. With respect to inflation, I think there are two useful perspectives: the path of contemporaneous inflation and the medium-to longer-term outlook. With respect to contemporaneous inflation, what a difference a meeting makes! The last time I said the good news was that inflation had been low two out of the past three months; now it's four out of the past five months. As Al mentioned, the core CPI was 2.4 percent over the past five months compared with 4.6 percent over the previous five months. Inflation in that 10-month period since the end of the third quarter of last year is now 3-1/2 percent. This pattern of acceleration and deceleration over that period of a couple of quarters is also generally reflected in most of the broad-based inflation measures and even reflected in commodity prices, albeit over a different timeframe as you'd expect. And I think this is consistent with speed effects interacting with expectation effects. Indeed, I wonder whether speed effects are inherently ""expectative;"" it may not be two separate things going on there. If this is the good news, I think the bad news is that inflation apparently has settled down in the 3 to 3-1/2 percent range. That is somewhat higher, perhaps 1/2 percent or so higher, than we would have expected earlier this year; and that keeps alive this medium-term issue of the alignment of rates. The Chairman said nothing about targeting real interest rates, and I would agree that they're not simply amenable to targeting. I think looking at real rates provides a rough conceptual framework which provides insight on some things, one could say, at the edges of it. When you look at that issue today you still see that rates look pretty low. The Board's staff has these simple models suggesting that short-term real rates are 2 to 3-1/2 percent below a neutral stance, where a neutral stance is defined as their estimate of the equilibrium real rate. One shouldn't ask about the standard errors!",847
-fomc-corpus,1993,Could you repeat that?,5
-fomc-corpus,1993,"Yes, they estimate real rates currently 2 to 3-1/2 percent--",18
-fomc-corpus,1993,Percent?,2
-fomc-corpus,1993,Percentage points.,3
-fomc-corpus,1993,"Yes, percentage points.",5
-fomc-corpus,1993,"--below their estimate of the equilibrium real short-term rate, which is currently zero.",17
-fomc-corpus,1993,Right.,2
-fomc-corpus,1993,And they estimate the real short rate equilibrium may be 2 to 3-1/2 percent--with a standard error of 5 percentage points! [Laughter],35
-fomc-corpus,1993,"There's a concept which is credible for long-term real rates, which are stable. There is not one for short-term rates. In other words there's a cyclical characteristic--",34
-fomc-corpus,1993,"Which has shifted it around. I would not suggest that there's any precision here. I think it does suggest that by historical standards rates continue to look pretty low. With the possibility of some net fiscal drag from the budget deal, even net of the lower long rates, a stance on the accommodative side of neutral seems not inappropriate. The question is how accommodative and to what extent we might be asking for trouble down the road. Certainly, since inflation has receded there's no evidence of harm currently--no compelling evidence of damage yet, of building pressures of credit flows gathering momentum even though we might have some of these speculative excesses in financial asset pricing. Still, the absence of currently observable pressures doesn't give me too much comfort [given] the policy lags. We saw how quickly slack can disappear in the second half of last year. And once the pressures are truly observable and supported by fundamentals, it's pretty late in the game, requiring more precipitous adjustments and risks and economic adjustments as well. So, looking to the medium term, I still think it's in everyone's interest to achieve a sustainable stance, one which supports economic growth but does not seem destined to require substantial adjustment timed with flawless precision to avoid instability. I think we're good, but I wonder how good we are in timing that. We may be very, very fortunate and back into such a decision if inflation continues to collapse. I think more likely than not we have a bit of work ahead of us. Now, overall, I do think this episode has been useful and quite successful. I don't know that I would go so far as to suggest that the upturn in inflation has yielded to the stinging lash of an asymmetric directive. That may be a little extreme. However, I do think we've educated the markets here; one need only read the assessments of economists and market participants and perhaps look at the record low 30-year implied forward rates to demonstrate that we've educated the market. It may strain credibility to suggest we've educated the political system; I wouldn't suggest that. We may have made some inroads there as well, though; at least the message has been delivered. All involved seem to have a better understanding of the Fed's attitude toward inflation, our commitment to price stability; they understand that we do not find 3-1/2 to 4 percent inflation acceptable. Even though no shots were actually fired, I think we laid down some useful groundwork in this episode. I'd just close by saying that it may be a bit more tricky in the months ahead. The upturn in inflation and our response, as Tom mentioned, likely preempted talk and expectations of Fed ease to offset the budget deal. With inflation now ""under control"" at 3-1/2 percent, a very weak first half, and a budget deal enacted in law, I feel that sort of talk is likely to emerge. I've already heard some talk about monetary gridlock: The Fed on hold for a year while the economy inches along. While Congress and the Administration have done their part, some may look to us now. So with the backdrop of an already very accommodative stance in my view, looking medium term the risk is that that may entail [difficulties] down the road. And with a new cloud or two drifting onto the economic horizon, I safely predict an interesting period ahead.",673
-fomc-corpus,1993,Governor LaWare.,4
-fomc-corpus,1993,"I don't often find myself counterpoised against Governor Mullins and I run the risk, I think, of sounding like a broken record here, but I continue to hear the term fiscal drag around the table. My inclination would be to change that a bit to either fiscal anchor or maybe fiscal torpedo. It seems to me that tax increases of the magnitude we're talking about, which are not confined to the wealthy--and Larry has indicated here what the effects can be on, let's say, a subchapter S individual who has a healthy income--and spending cuts of the magnitude we're talking about, if realized, will displace a lot of workers for long periods of time and some perhaps permanently. Corporate restructuring continues and I think it may be even at an accelerated pace now and in the near future. The consumer confidence indexes, as we've all noted, continue their downward trend. And logic says that that set of conditions may inhibit consumer spending, although we have not seen startling evidence of that yet. But after all, the budget compromise is only a couple of weeks old. And certainly there are indications that it is at least causing the postponement of some business investment; and certainly business hiring is being diverted into temporary types of help instead of permanent employment. I continue to believe that those conditions will develop further as the full implications of the budget agreement are realized on a broader scale. At the same time, the health care discussions thus far seem to telegraph further costs both to businesses and to employees. And there seems to be a growing concern over the full implications for employment and investment inherent in the North American Free Trade Agreement. In that [environment], I still think the risks to the economy are shifting toward the down side as uncertainties [abound]. We all accept, I think, that uncertainty inevitably inhibits growth. In that context a more symmetrical approach to monetary policy would seem to be logical but I'm not suggesting or recommending that simply because I think a shift in our policy at this time could create a very negative signal and one that might send things going in the wrong direction. But I am convinced that we are at a juncture here where the full implications of all of these major programs could be inhibiting [economic growth] to a much greater extent than is currently indicated by the data that we're looking at.",461
-fomc-corpus,1993,Governor Kelley.,3
-fomc-corpus,1993,"Well, Mr. Chairman, it seems to me that I'm in the consensus that I'm hearing around the table this morning. We've been for a long time taking two steps forward and one step back and that seems to continue. Some of the head winds we've been sailing into are diminishing: Real estate is beginning to stabilize; banks are strong again and seem to want to lend; deleveraging is slowing down. Some of the head winds continue: The foreign economies continue weak; defense spending continues to go down. There are favorable and unfavorable new factors. We've had a lowering of long-term interest rates for some time, but one could call it a new factor that it has gone into this very dynamic phase in the last several months. I think an important favorable factor is that the budget fight is simply over. Never mind how it came out; it's settled. I think that's going to help a lot. On the negative side, of course, is the fact that that budget deal contains some very serious taxes, as we've heard here in the last few minutes. We've had some very good news and some disappointing news. The very good news is that more and more it seems that last winter's inflation surge was temporary. I've now learned that the new danger I didn't know about before is called ""speed"" effect. And there has been some disappointing news in the sense that, at least in my case, I expected real economic activity to improve more quickly and strongly than it has. So, the realities don't seem to me to have changed much. However slowly and torturously, the economy does continue to improve. Inflation now seems to be trendless, albeit at much too high a level. So, for the moment at least, I guess I would summarize by saying: Have a nice vacation. We're going to have work to do very soon, I'm sure.",370
-fomc-corpus,1993,Vice Chairman.,3
-fomc-corpus,1993,"Mr. Chairman, the economy of the Second District has weakened slightly in recent weeks and probably can best be described as bumping along a trough. The passage of the budget deficit bill following the military base closings in June is likely to add further downward pressure in coming months. The labor markets have been weak. Employment in the state of New York declined by 14,000 jobs in June, and 51,000 jobs were shed in New Jersey. In New York there were declines in manufacturing employment but in New Jersey they were spread throughout the whole economy. Retail sales have been very mixed. Some firms at the lower end of the market in prices have been doing rather well and the firms selling higher ticket items have been doing rather poorly. The budget bill is going to affect the Second District fairly negatively. A lot of our neighbors, especially those in lower Manhattan, make a great deal of money and would fit into Governor Lindsey's explanation. In addition, the cuts on top of the base closings in the bill especially affect New York, New Jersey, and Connecticut. So, the rather negative tone in the area is made somewhat worse by recent developments. At the national level, we believe that the Greenbook forecast is essentially right on. The only area in which we in fact agree with the analysis but [where] I am somewhat concerned is that the strength for the export markets seen in Japan and in Europe may be slightly overstated. I think the political leadership in Japan is going to concentrate almost exclusively on electoral reform and do very little about the economy. And it's very difficult to exaggerate the degree of political dismay in Europe. Although I think the forecast for those economies in the Greenbook is the best bet, if there's any risk to it, I think the risk is that [the forecast] is overstated; and that could mean that our net exports would be even a bit weaker. The offset is that there would be some reduction in price pressures. In market developments, I think it's fascinating that the 2- to 30-year spread as of the close yesterday was 235 basis points whereas for a very long time the spread was about 3 full percentage points. If this spread reflects inflationary expectations, we must ask what has reduced them. It's very difficult for me to see that the deficit reduction bill in and of itself reduced them significantly in the recent past. There certainly was at least in some quarters a breath of relief that the perils of Pauline had ended and the lady had been rescued from the railroad track and that the bill had passed. But the economic effects of the bill had been largely discounted. I believe quite firmly that the reduction in the spread has come from two factors: One, the general expectation that economic growth will be moderate; but perhaps more importantly the move to an asymmetric directive on the part of this Committee and the recent Humphrey-Hawkins testimony. Even though we had a hiccup in rates after both events hit the news, once the market absorbed the significance of the actions of this Committee I think there has been a positive effect on the level of interest rates and on the yield curve and that we have had a very useful educational effect on inflationary expectations. Such expectations are essentially psychological and the fact that an asymmetric directive and the Humphrey-Hawkins testimony are also largely psychological has in my view been a very important and constructive offsetting effect. We've done some work at the New York Bank on the comparison between real interest rates at the present time and at a similar point in history, which was August of 1977. At that [earlier] time the real fed funds rate was zero or, if one wants to be exact, -0.2 percent. But other real interest rates were considerably lower. Although the core inflation rate at the time was 6.2 percent, the average prime rate for the month was 6.8 percent. Now, we have a core inflation rate of, let's say, 3.3 percent with the prime rate at 6 percent. And as you go out further on the yield curve, the real interest rates at the present time are considerably higher than they were then. That, I think, has two effects. One, it contributes to an explanation on top of the feel of both households and corporations that they should restructure their balance sheets. They have to note that the effect of taking on debt is quite expensive in real terms, and that would be another factor in the relatively slow growth. On the other hand, it still indicates that inflationary expectations are a great deal higher than I believe this Committee should find acceptable or satisfactory. So if there is some educational effort that we've been engaged in--and rather successfully in recent months--it would indicate that there are some educational efforts still lying ahead of us.",965
-fomc-corpus,1993,Governor Phillips.,3
-fomc-corpus,1993,"Well, I think I'm about in the middle here; we certainly are seeing slow or moderate growth no matter how we slice it. The labor market is seeing some improvement, but really only slightly more than handling the demographics. And the quality of much of that job growth has not been that good. Restructuring is clearly continuing. Consumer confidence, I think, is taking its toll. We're seeing hesitant consumers and the confidence problems spreading to the business sector with hesitance in some investment patterns. As for potential home owners, we've not seen as much growth in the housing sector as I think the fundamentals would suggest. Weak international trading partners, the defense downsizing, the deficits--federal and state--are going to continue to be a drag. We haven't talked as much around the table today about the state deficit problems, but we may be hearing more about that in the upcoming quarter. Then, of course, there's the realization of the budget package now that it has been passed. As Larry has demonstrated, people are now really going to be understanding what that tax package meant. And, of course, we still have to work through the flood problems and we still have health care on the horizon. So, a lot of these factors are contributing to the outlook for slow growth. Now, having said that, we shouldn't forget or miss that there are some strengths in the economy that could bode well for the long run. The financial markets are really reasonably strong: The equity market is strong; the bond market is strong. Banks are in better shape and individual balance sheets are in better shape. There is at least a focus on trying to solve the deficit problem. I can't say that I'm all that confident that the current package is the thing that's going to solve it, but at least there seems to be a focus on the fact that something needs to be done about it. We do have a number of anomalies that I think we're going to have to address over the coming months. There is this question of productivity. I haven't heard it mentioned today, but the fall-off in productivity in the first half of this year seems anomalous to me, given all of the downsizing and the focus on efficiency. I don't know if this is a bad harbinger or if it's going to go away. The persistence of low real interest rates, at least short-term real interest rates, doesn't seem like something that can continue forever. That can't be a stable situation. The weakness of the dollar is another anomalous situation. Certainly M2 remains another anomaly. I, like Tom, am a bit uncomfortable that we don't have a clear focus for monetary policy. So, I hope that we will continue to work our way toward trying to define what is happening to M2 and how long these temporary factors are going to be temporary. Maybe inflation fits into the category of an anomaly. I've certainly been more encouraged by the recent news--the fact that in this most recent inflation report the last 12-month core inflation number is lower than the previous 12-month number. So, there is still a possibility of making some progress, but we shouldn't think that the progress is going to be anywhere near as good as it has been in the last year or so. I don't see the possibility of a big outbreak of inflation. The usual indicia are simply not present: We don't see an overheated economy; cost-push pressures aren't significant, if you look at the slack in labor markets; we're not importing inflation; people aren't rushing to convert to real assets. So, I'm a little more encouraged on inflation. But, again, if we in fact are settling into this 3 to 3-1/2 percent range, we can't be satisfied with that. So, we may still have some work ahead of us.",761
-fomc-corpus,1993,Governor Angell.,4
-fomc-corpus,1993,"In the global economy, prices and interest rates do adjust depending upon conditions that exist throughout the entire world market. The one price that doesn't really move based upon global economic conditions is the fed funds rate because we at the Federal Reserve decide exactly what it will be. And the question can be whether or not the rate that's chosen is in equilibrium with other rates throughout the global market system. Six months ago it did appear quite likely that the rate of inflation for [1993] would be just exactly where it appears it is today. I think those of us that made [forecasts] around that median for the group of about 3.2 percent inflation [thought] that didn't look too bad then [and it] doesn't look too bad now. I never believed at the worst of the conditions in March that the rate of inflation for [1993] was going to accelerate. It just seemed to me that we were in a circumstance in which global forces were somewhat favorable in regard to a decelerating inflation rate in the United States and that the United States in [1993] should have been poised for a continued disinflation. I thought that we should have ended up in [1993], conditions being ideal, with an inflation rate around 2-1/2 percent December-over-December. That has not happened and we now find ourselves in a position where, unlike March and May and maybe even July, it just would not make any sense for us to make an immediate change in the fed funds rate given the market conditions as they are today. Certainly, I would agree with Al Broaddus and Bill McDonough and others who expressed the view that our posturing, particularly summarized by the Chairman's Humphrey-Hawkins testimony, has indeed worked very well for those of us who have a pragmatic inclination. That is, look at the bond market and see what has happened. It has really been an ideal arrangement, one which I think all of us have been concerned about as we brought rates down during the recession and slow recovery period. The reason we wanted to be slow in bringing rates down is because we understood that bringing rates down as fast as the market wanted would give us adverse effects on long-term and intermediate interest rates, and recovery would be slower rather than faster. So, I think it is always good news when things work out better than one might have expected. I think that posturing was beneficial and I share Bill McDonough's view that if it's not broke, maybe we ought not try to fix it. But I do believe that there are some out-of-equilibrium risks that exist for us and that we ought to be conscious of them as we go forward. First of all, most of our studies of commodity prices show very clearly that the true pass-through effects in regard to the CPI and the PPI were clearly driven by oil; that is, using U.S. consumption weights to determine the right weighting on commodity prices gives us something like a 55 percent weight on oil prices on our commodity experimental index. Not all is due to monetary policy; we're in a favorable period in regard to oil prices and that provides a wonderful window for possible further disinflation. That window may not be open forever; just as oil prices sometimes get down toward the $16 or $15 range, we've noticed they tend to shift back up. So the prospects of somewhat higher oil prices could be somewhat upsetting in regard to future inflation, but I don't think that exists for the remainder of [1993]. Another probably more immediate worrisome out-of-equilibrium condition would be seen particularly in the dramatic change in the exchange value of the yen versus the dollar over the last year. Think about a 20 percent appreciation of the yen. It's sort of like when [a team] gets down to the final four: It doesn't make much difference how well it performed against the also-rans; it doesn't make much difference how it performed in December when it was playing those state colleges that almost paid money to come and play at your university. We are in competition, of course, with the Japanese yen as a reserve currency. We certainly lead the way in that regard. But if we take the G-3 countries plus Switzerland and look at their PPIs year-over-year, all of these countries but the United States have negative PPIs year-over-year. That is, Germany's PPI is lower than it was 12 months ago; Japan's PPI is lower than it was 12 months ago; Switzerland's PPI is about exactly where it was 12 months ago; and our PPI--I didn't look recently but I assume--is around 1.3 percentage points higher than a year ago. So there are some questions. And it seems to me that if there's any kind of edge of a cliff, it's the edge of a cliff in regard to the prospect for the soundness of the dollar versus the yen whereby the world not only doesn't know what the price of yen in terms of dollars might be next month but many might say, if asked what it would be 5 or 10 years in the future, that there is a general expectation that the rate might favor being in yen assets versus being in dollar assets. Clearly our short-term interest rates do not provide reasonable compensation for that expectation and that kind of change. Productivity has been a real puzzle for me. Clearly, if your forecast gets really thrown awry you say it's a puzzle; and part of my real economic forecast for [1993] has certainly missed the mark. I really just don't understand productivity. I don't understand how we can have a decline in productivity for the business sector of 1-1/2 and 2-1/2 percent two quarters in a row when productivity in manufacturing has been rising at 4-1/2 to 5 percent! Somebody really is doing very, very poorly; and if anyone knows who it is--who is really snuffing on the job--they haven't been spotted yet. So, that is indeed a real puzzle. Over time, the battle against inflation is sometimes a battle of technology; whether technology will keep up is a question in the very, very expanding world. I [don't] want to sound too Malthusian because Malthus I think forgot or did not really understand how equilibrium price adjustments can take place to forestall what he would call such dismal outcomes. But when we noticed that the world's oceans finally produced less fish last year than they did the previous year, we knew something was going on. We have a lot of technology in regard to harvesting fish and that technology has been used by a lot of people. And it has interested me to note that fish prices of some of the good fish catches--I mean cod, salmon, and so forth--are relatively high at the grocery store. And yet I thought it was interesting to note that the value of all the fish harvested in the world was less than the cost of production, which is a rather interesting phenomenon. This doesn't tell us that we're going to run out of fish because we do know that aquaculture and other techniques will enable us to provide the demand that's there. But we will not do it at the same price that is occurring when we're doing some harvesting. I noticed that with all the attention paid to the floods in the Mississippi Valley and the entire region, there has been a lot of talk about corn production and soybean production, which I think is probably a pretty minor event, but very little talk about all that soil that went down the river. Now, over the years as China enters [the global economy] and continues double-digit economic growth with a billion people and as the world makes more and more demands upon resources, we will have an adverse inflationary environment to look at in the long haul. And we have pegged the fed funds rate at a level that can't be changed right now, but it does need to be changed. Since we missed the March and May opportunities to get that rate up, I think we do want to be fully conscious of the opportunity whenever forces are such that we can get the rate closer to what I think the Chairman indicated would be more of an equilibrium rate; we ought to be ready to do that.",1663
-fomc-corpus,1993,Thank you. We now adjourn for coffee.,10
-fomc-corpus,1993,"I thought I would start my briefing with some thoughts on this topic using it to lead into the discussion of current policy options. Those of you attending the Jackson Hole conference will note some similarity between the first two pages today and what you will hear on Friday. It's called ""Economies of Scope."" [Statement--see Appendix.]",65
-fomc-corpus,1993,Questions for Don?,4
-fomc-corpus,1993,"Don, I have a question that has to do with timing. Even if one thought the probability was greater that the next move would be up rather than down, what is the longest that we've had an asymmetric directive in one direction and not acted on it?",51
-fomc-corpus,1993,I don't know the answer.,6
-fomc-corpus,1993,Have we ever had one for five or six months?,11
-fomc-corpus,1993,"We've had very few periods of five or six months where we haven't [moved] the federal funds rate. We had a period from September through December of last year in which we had asymmetry toward ease and didn't move. Our last move was right after Labor Day last year. We continued to be asymmetrical toward ease and didn't move over the ensuing months. Then we were neutral for several months and didn't ease. And, obviously, we've been asymmetrical toward tightening for two months and didn't tighten. We looked some time ago--I guess it was before the Chairman's Humphrey-Hawkins testimony--at periods of unchanged federal funds rates. We found a few of five or six months, but not too many. And I don't remember what the directives were in those times. My guess is that they were probably not biased rather than asymmetrical, but I don't know that for a fact.",179
-fomc-corpus,1993,"Can I just follow up? I haven't looked at the data, which is what one needs to do, but how unusual would it be to have a period in which we went asymmetric in one direction or the other, then reversed and went back to symmetry, and then went back to that asymmetry?",60
-fomc-corpus,1993,"It has happened from time to time, but it is unusual. We did look at that. We actually looked before the last FOMC meeting for one-month switches and I think we found one or two.",42
-fomc-corpus,1993,We did it last year.,6
-fomc-corpus,1993,They were sometimes associated with things like stock markets [or other] external events.,16
-fomc-corpus,1993,"We did it in '92, maybe in May; we went symmetric for a time after being asymmetric.",21
-fomc-corpus,1993,That was the one.,5
-fomc-corpus,1993,"Yes, and then once the second-quarter [data] came in and unemployment went to 7.8 percent we went symmetric.",26
-fomc-corpus,1993,"So, there are a few examples like that; they are rare but it does happen.",18
-fomc-corpus,1993,Governor Mullins.,4
-fomc-corpus,1993,"Just a technical point. In your discussion of real long rates, you were not talking about the nominal rate minus the observed inflation rate, correct?",29
-fomc-corpus,1993,"In theory, obviously, it's the nominal rate minus the expected inflation rate over the period.",18
-fomc-corpus,1993,Over that 30-year period!,7
-fomc-corpus,1993,The full maturity.,4
-fomc-corpus,1993,"Presumably, in theory you'd want something that has the same duration.",14
-fomc-corpus,1993,"Yes, it has to be the same duration. So, what we're talking about is something that is completely and entirely unobservable?",26
-fomc-corpus,1993,"Yes, we have these surveys but--",8
-fomc-corpus,1993,It's tough to go out 30 years in a survey! There is a routine just to take the long rates and subtract off the current inflation rate.,30
-fomc-corpus,1993,That is the constant dollar value of the coupon.,10
-fomc-corpus,1993,Yes.,2
-fomc-corpus,1993,Which is a different concept.,6
-fomc-corpus,1993,"Yes, it means something. Some people use that as the real rate and it is important to keep that straight. So, given that recent inflation has been about 3 to 3-1/2 percent and certainly the average over the past 10 years has been 4-1/2 percent or so and the average over 20 years is worse than that, probably embedded in the 30-year rate is an expectation higher than the current inflation.",92
-fomc-corpus,1993,"I would think so, yes. Now, the Philadelphia Fed does surveys and I think they have about 3-7/8ths in the most recent one; that's several months old. The Michigan surveys are closer to 5 percent.",48
-fomc-corpus,1993,"Yes, they're 5-year maturities.",9
-fomc-corpus,1993,I don't know what they ask for--about 5 to 10 years.,16
-fomc-corpus,1993,And the guy who is now at Dreyfus--,11
-fomc-corpus,1993,Hoey.,3
-fomc-corpus,1993,He doesn't do [a survey] anymore?,9
-fomc-corpus,1993,"A fellow named Hotchkis, his former colleague, does it. It's a little below 4 percent.",22
-fomc-corpus,1993,That's 10 years?,5
-fomc-corpus,1993,"Well, there's a 5-year and a 10-year rate; they are both in the same ball park.",23
-fomc-corpus,1993,"We have no CPI link, bond, or instrument that we could [use to] back out the implied--",22
-fomc-corpus,1993,Not that I'm aware of.,6
-fomc-corpus,1993,Okay.,2
-fomc-corpus,1993,Thank you.,3
-fomc-corpus,1993,"Don, I guess I always thought an asymmetric directive could [mean] two things. One is an indication that the Committee in the intermeeting period wants the Chairman to be alert to a possible move in one direction only. But I presume there's also another aspect of it and that is that with an asymmetric directive the Chairman wouldn't feel very comfortable, unless there was a very unusual circumstance, moving rates the other way without a conference call; that would not seem to be appropriate. I didn't hear anyone today talk about the need to lower rates during this intermeeting period. What I'm wondering is, if we went to a symmetric directive, whether there is any likelihood that rates would really be lower without a telephone conference call.",142
-fomc-corpus,1993,If we went to symmetric you say?,8
-fomc-corpus,1993,Yes.,2
-fomc-corpus,1993,Remember that this is a relatively short intermeeting period.,11
-fomc-corpus,1993,Right.,2
-fomc-corpus,1993,My suspicion is that something that would require us to move rates in this period would be such a startling event that I think we'd want to speak--,29
-fomc-corpus,1993,Okay.,2
-fomc-corpus,1993,--just to [consult] each other on what is going on.,14
-fomc-corpus,1993,"Mr. Chairman, I think there is a question about what asymmetry means. May I just ask Bill or the market people: What is the market perception of what asymmetry means?",37
-fomc-corpus,1993,"I think historically--Joan, correct me if I'm wrong--it has been that there would be, if not a likelihood, a distinct possibility of an actual move in the intermeeting period.",39
-fomc-corpus,1993,In the intermeeting period.,6
-fomc-corpus,1993,"Rather than a signal of [unintelligible]. Is that right, Joan?",17
-fomc-corpus,1993,A predisposition.,4
-fomc-corpus,1993,But I think it shows that you're more ready to go in one direction or another.,17
-fomc-corpus,1993,In the intermeeting period. Thank you.,9
-fomc-corpus,1993,President Forrestal.,4
-fomc-corpus,1993,"I was going to say this later but perhaps now is the point to interject [my comment], given what has been touched on here. What is the purpose of the directive? In its narrowest sense we just heard that it is viewed by the market, and I think by some of us, as the [pre]disposition of the Committee to move within the intermeeting period. If there's no likelihood that we're planning to move one way or the other, the logic would suggest to me that the directive should be symmetric. If there is a different message to be conveyed by the directive--that in the longer term, beyond the intermeeting period, we're suggesting to the markets that the next move will probably be a move one way or the other--then an asymmetric directive I think is appropriate. If there's still a further longer-term message to be conveyed by the directive--that is, that the central bank is committed to price stability--then we should always have an asymmetric directive in favor of tightening.",201
-fomc-corpus,1993,That's a good idea! [Laughter],9
-fomc-corpus,1993,"Before we decide on whether we're going to have a symmetric or an asymmetric directive, it might be interesting to focus on what really is the purpose of [the reference to symmetry or asymmetry in] the directive. Again, in that narrow sense, which is how the market interprets it, it conveys what it is likely that we will do between now and September 21st. If that's the real interpretation, then it should be symmetric it seems to me.",92
-fomc-corpus,1993,"Well, may I suggest that these are questions to Don Kohn?",14
-fomc-corpus,1993,"May I ask Don this question? [Laughter] If we leave it asymmetric for a long period of time and do nothing, do we not give away credibility with that kind of directive?",38
-fomc-corpus,1993,"Well, if people think you're using it to posture rather than to take action, I think there's a little danger of that. But it seems to me the Committee needs to think about what its posture really is here. Is it more ready to move one way or another? Whether you move or not, that's what you're signalling with this. These are instructions to the Desk and the Chairman about how you would like to react to completely unexpected developments in the intermeeting period.",93
-fomc-corpus,1993,Coming back to Bob's question--,7
-fomc-corpus,1993,You're getting into policy discussion and that's out of order at this moment.,14
-fomc-corpus,1993,Okay.,2
-fomc-corpus,1993,"Technical questions to clarify the position of Don Kohn? Any further questions of fact or interpretation of what was perfectly clear on the part of Don Kohn? If not, let me start off because I'm going to be getting into exactly that question; let's do it a little more formally. Let me just say that I don't have terribly much to say about the economy as such. I think it's moving along moderately. I think our diagnosis of the forces driving the economy has been reasonably on the mark. Some numbers have not been exactly right, but they never are, and that's not really the relevant question. Qualitatively, I think we've understood that basically what we are dealing with is an economy confronted with balance sheet problems, problems of excess debt from an earlier period as asset values declined. And we basically were confronted with a situation in which we very consciously brought the federal funds rate down to levels below those we could expect to be maintained indefinitely into the future. We brought the rate down to 3 percent a year ago on the expectation that the economy would evolve essentially in the way that it has evolved. As a consequence of that, we have chosen not to change policy. In other words, the presumption is that we got it right a year ago and we've chosen to stay pretty much where we are. The concern that we were running into, which one could very readily capture in discussions of this Committee, is that we would fall behind the curve when we had to tighten policy; there was a latent concern that we would lock ourselves in and not move. The presumption that at some point we'd have to move the funds rate up as the economy continued to expand I think was fairly pervasive around this table. The only question that we kept asking ourselves was when. Above all, I'd say the general philosophy of this Committee has been that, whatever we do, allowing something of the nature of what occurred in the 1970s and the early 1980s [to happen again] would be a real tragedy. [We felt] it was essential that we focus on being ahead of the curve [in anticipating inflation] just as we all considered that it wasn't all that terribly important to be ahead of the curve on the down side. In other words, this issue of price stability sometimes requires a different type of intermediate-term asymmetry, where we try to be lagging somewhat on the down side but ahead on the up side to offset the bias in our economic system. That bias is very clearly in an inflationary direction. With our asymmetric directives early this year and with the Humphrey-Hawkins testimony, I think we ought to be reasonably pleased that we have altered the view of the markets such that the presumption that we will do too little too late on the up side has changed. One doesn't have to go back very far to read as a fairly general view that we would be behind the curve and that that would allow inflationary pressures to reemerge. Whatever one may say about the last several weeks, that issue has not come up. It's dead. We have changed the perception of the way the markets are functioning and we have essentially prepped them for an eventual rise in interest rates. I was interested as to the way the market would react to this posture that we took. It is very hard to argue that if the central bank takes a position that we are going to be vigilant on inflation that [such a position] would make long-term rates go up. Now, the answer is that it does happen, and for a very interesting reason. Clearly, inflation expectations cannot be perceived as going up, or else we've literally missed the mark. But what clearly has happened--and we've observed this recently on several different occasions with our asymmetric directive, with my testimony, and the like--is that we saw what the Vice Chairman called a hiccup. It is interesting to ask what that is because I think it's important for us to understand what the markets are doing. If we eliminate the notion that what we have is [rising] inflation expectations, we are therefore led to conclude that what is going up is real long-term interest rates. And the question is why. Obviously, nothing fundamental has changed in the economy, so it has to be something of an expectational variable. And the reason I'm certain is that what we are looking at is something we've all perceived all of our lives: namely, that whenever there is a major element of uncertainty, or more exactly a diminution in the state of knowledge, the position of a human being is to withdraw. As a consequence, whenever one is dealing with any type of asset in which there was a net long position, the creation of uncertainty--meaning the reduction in the state of knowledge of what is going on in the world--leads to a pulling back, a disengaging, which means ""sell."" That has nothing to do with the type of asset or what it's long-term future is. It is not a change in the state of knowledge; it is not an effort to move toward improved liquidity or toward safety. Those are rational concepts which are made on the basis of knowledge. I'm talking about the proposition in which knowledge is diminished and uncertainty in the true sense of the word occurs. If that is in fact the case, what we would expect to occur under those conditions is effectively the type of hiccup that we're talking about: namely, it has to be a temporary affair because it cannot last very long. So, however one reads these events, they are clearly consistent with that phenomenon. But it's important for us to recognize that the presumption that we can go out and basically argue that we are going to suppress inflation and that, therefore, long-term real rates will go down or long-term nominal rates will go down, I think is a misperception and clearly one which is not supported by the data. But that is not to say that there's something unexplainable here. If long-term rates went up and stayed there, then we would be looking at a different phenomenon. But I don't think that's what this particular proposition was. In any event, this whole period, as a number of you have noted, very clearly indicates that we should be quite pleased at the way everything has come out. That is, we are essentially in a policy position that we haven't changed for a year. That is another way of saying to ourselves, rightly or wrongly, that we think we got it right. And I believe the markets think we got it right. The fact that the stock market has moved the way it has, the fact that yield spreads have come down, as Governor Mullins indicated, the fact that long-term rates have moved appreciably lower suggest that all the [properties] that are related to monetary policy are behaving in a positive manner. One thing that is not is the rate of real growth, which is essentially [a result] of balance sheet restraint and repair, a process we have been observing for quite a long period of time. I conclude from all of this--and this gets to the question of what we mean by asymmetry--that we can afford at this stage to move back to symmetry provided two things. One is that we are doing it on the basis that we are encouraged by the inflationary data we have seen and that, therefore, the [prospect] of having to respond to adverse inflationary information has lessened. But more important is that we reemphasize our longer-term views that this is not a change in our policy, that indeed we still expect that at some point short-term real rates will have to move higher. As a consequence of that, I'd say that we have moved tactically, not strategically. Frankly, the reason I feel somewhat more comfortable with symmetric--although obviously I could readily be convinced that asymmetric is not a bad position to be in for a lot of reasons, especially those that Don Kohn raised--is my suspicion that we may have to sit where we are now for a number of months. And I'm concerned about the credibility of the Federal Open Market Committee sitting with an asymmetric directive time and time again when the purpose of that is essentially to signal an intermediate trend--a philosophy and a strategy, not a set of tactics. And while there was no way for us to convey what we have conveyed in a manner other than the way we have done it, I think having done it--and in my judgment having succeeded--we effectively can move forward and go to a symmetric directive. The argument for going to symmetric now is that if we don't do it now and the economy continues doing what it's been doing, we run into the tar baby effect. When then do we do it? In the same sense that I was concerned that we would get ourselves locked in at a 3 percent federal funds rate when the [inflation] pressures require us to move higher, I'm also concerned that we'd get locked into an asymmetric directive, which we would have great difficulty changing. We can change it now because the data are very encouraging and we can lock in. If we don't change it now, the rationale of going back to symmetric at a later time will have to be because we perceive the economy to be weakening, and that would involve a wholly different type of reaction on our part. If that were to happen, that would mean a different set of policies; that might even change the sense of where we are strategically because that is not implicit in the basic path on which we're going. So, let me just say that I think the issues that are being raised here about the meaning of the directive are very crucial. And very importantly, while I don't sense the slightest indication of a desire on the part of anybody here that we should move and literally change the funds rate in the period immediately ahead, I think how we convey our posture at this particular stage will determine whether we in a sense harvest in an effective manner what is a very significant amount of central bank credibility or whether we create difficult problems for ourselves by sending confusing signals. So, as you can well imagine, while I'm inclined to go to symmetry, I recognize that there are arguments to maintain asymmetry. That is not, as I said, an uncredible position. But I'd like to hear arguments against the symmetry position if that's the position that the Committee itself thinks is a more viable one. Governor Mullins.",2083
-fomc-corpus,1993,"Well, first on the rate response, I think it's not all that clear that the market is responding negatively to the information, even short term. Our staff did an analysis of nine information releases, and I think they proved that when evidence is released in the market that the Fed is likely to raise the federal funds rate, short-term rates go up. This astounding result was [unintelligible] and it has proved conclusive. It's less clear what happens to long rates with these nine events, especially if we look at the forward rates. So I think we might take a look at that and not read the summary of it because the way I see it 10-year forward rates 7 days after were off 10 basis points. And the 1-year forward rate was up 12 basis points. Now, I know they're declining rates. It's also biased by one or two events. But I think that question is a bit up in the air.",192
-fomc-corpus,1993,"Well, they did do a study in the other direction, when rates were going up. They looked at the extent to which the long end of the market came down when we raised the discount rate.",40
-fomc-corpus,1993,Yes.,2
-fomc-corpus,1993,"And I think we saw similar sorts of ambiguities then. In theory, if we move in a restrictive direction we would expect long-term rates to fall, or more exactly the forward rates to fall.",40
-fomc-corpus,1993,"Well, it's not clear to me that you'd expect that because you are reducing long-term inflation expectations but you might be increasing the long-term real rates.",30
-fomc-corpus,1993,How would you be increasing them other than the risk [unintelligible] issue that I was raising?,22
-fomc-corpus,1993,"Don, how do we do that? [Laughter]",12
-fomc-corpus,1993,"It depends on whether you're talking about the forward rates 10 years out or the 30-year rate, which is heavily weighted by intermediate rates. If the markets perceive us as running a tighter policy for a time, that can raise real rates--",49
-fomc-corpus,1993,For 10 years?,5
-fomc-corpus,1993,"Well, it's going to tend to raise the forward rates out a few years, I think. And then the question is: What are the weights of those in the 10-year security or the 30-year security?",44
-fomc-corpus,1993,But I think that's what is happening here.,9
-fomc-corpus,1993,Yes.,2
-fomc-corpus,1993,"You're right, but it should come down. It is not apparent to me that one would necessarily see that in the instantaneous response of traders, with all due respect to traders. It may depend more on their inventory positions. This is worthy of study. The best information comes out early [unintelligible] releases. Once you get expectations and people leaning, all you're talking about is differences in what happens versus what people anticipated would happen.",88
-fomc-corpus,1993,"Just on that point about the behavior of traders: It seems to me that if they actually see the Fed moving, they could conclude from prior experience that the Fed may be late and that it implies the potential of higher actual inflation and maybe an economy that's stronger than they perceived and, therefore, higher real rates than they thought the market was discounting.",70
-fomc-corpus,1993,"You also get the other sort of signalling effect, that this suggests that the economy is stronger.",19
-fomc-corpus,1993,Right.,2
-fomc-corpus,1993,"Particularly in the Humphrey-Hawkins testimony, some people concluded that this was the first time policymakers in Washington had admitted that we were not on the edge of an abyss, holding our breath that at any time this growth could fall away. Anyway, that's an interesting topic. We had the same thing on the other side: If we are that concerned [and] cutting rates, doesn't that mean things are really weak?",85
-fomc-corpus,1993,Yes.,2
-fomc-corpus,1993,"The bottom line is that I, too, prefer returning to symmetric at this time. In my view there's no question, though, that the probability we will tighten in the intermeeting period is greater than the probability we will ease in that period. It comes out to two epsilons versus one epsilon! Unfortunately, neither probability rises to the absolute threshold that warrants an asymmetric directive in my view. If we went asymmetric it would be purely cosmetic. For me the last two asymmetric directives have not been cosmetic, the last one in particular. With two months of CPI and PPI and the ECI and the other quarterly data to be published during that intermeeting period, if the bulk of that data had come in very disappointing, it would have been a compelling case in my view for a move. I don't feel the same way this time. As a rule, I don't like cosmetic directives and in general do not favor trying to jawbone markets. I think directives should reflect an accurate portrayal of our assessment of the situation and of the probability we are going to find it necessary to move in the intermeeting period. So, I agree that we should declare victory, at least temporarily. I do see two problems. The first is this feeling that we are asymmetric medium term. But that's not what the [operational paragraph of the] directive is about. The second problem is that this could be viewed as a negative signal, as Governor LaWare noted. Indeed with a weak first half, the budget deal, and no inflation problem--officially now--some will choose to portray the move to symmetry as renewed concern about deterioration in the economy. I'll also make a wild prediction that before long there will be talk of the need to ease, to do our part as part of this process. I think it's a bit tricky. I agree that how we portray this is important; [it should be portrayed] as a response to a deceleration of inflation which has reduced the possibility that we're going to have to move in the intermeeting period. I would say that it's important [to do that] without backing away from the groundwork we've laid concerning the importance of continued disinflation. So, while I still have this viewpoint over the longer term, I do agree that the appropriate stance today is to return to symmetric.",462
-fomc-corpus,1993,President McTeer.,5
-fomc-corpus,1993,"Mr. Chairman, I think you're right that the shelf life of an asymmetric directive has been reached. It's clear that the previous bias has been beneficial to our credibility. The red alert served us well. We may have stared down inflation with that bias. But we've now had three consecutive months of favorable inflation news, and the information for two of those months has come in since our last meeting. It's time to restore a symmetrical stance. We have a large retroactive tax increase that has a lot of people scrambling. The thing that I disagree with Governor Lindsey on his arithmetic is his view that people are going to wait until April 15th to act. I think they're out there doing it right now and it's going to weaken the economy, and it's going to do it before next April 15th. If we wait and keep our asymmetric directive, we're going to get more political pressure. And we won't want to appear to be caving in to it. We're better off to move back to a symmetric directive in this window of opportunity when, as you say, we come down on the basis of [unintelligible] as well as the tax hikes. That bites the economy hard.",238
-fomc-corpus,1993,Governor LaWare.,4
-fomc-corpus,1993,"Well, I preferred a symmetric directive even last time. As I said in my comments earlier, I think under ordinary circumstances conditions would dictate a symmetric directive at this point. I still am concerned that if we give the impression that we have abandoned our determination to seek stable prices, we either signal a weakening in the economy that is more than is perceived elsewhere or we set off inflationary expectations again because they think we're backing away from our position of pursuing [price stability]. On the other hand, the arguments that have been presented here for, as Bob McTeer calls it, the ""shelf life"" of the asymmetric directive I think are persuasive, so I'm prepared to back ""B"" symmetric.",140
-fomc-corpus,1993,President Syron.,4
-fomc-corpus,1993,"Mr. Chairman, the substance of this issue of what we're likely to do has been talked about. I think we've been very, very successful on this. But there's a real danger in any organization if we try to calibrate the cosmetics too closely. This is not a simple decision, but at the end of the day the thing that strikes me is that we spend a lot of time at this table talking about the role of the central bank and how we communicate to the public and to markets as a whole and about the importance of being honest in the way we communicate. And if the perception of the markets is that our directive does not refer to our longer-term strategy but to what we're doing in the relatively short term, I think it's plain that it's intentionally disingenuous and damaging to the institution to be out there saying that we're leaning toward doing something that we're not likely to do in the next four, six, or eight weeks.",187
-fomc-corpus,1993,So where do you come out? [Laughter],11
-fomc-corpus,1993,President Broaddus.,5
-fomc-corpus,1993,"Well, I may have a minority view here, Mr. Chairman. I agreed with everything you said until you got to the last part. I would favor pretty strongly sticking with an asymmetric directive. The latest inflation data are encouraging--no doubt about it--but I think it's possible to overstate the progress. We always play a bit of the numbers game here with respect to [the base for] the calculation. But if I've calculated it right, the core CPI rate on an annualized basis over the first seven or eight months of this year is 3.3 percent compared to 3.4 percent last year. So, the progress has not been excessive, it seems to me, with respect to last year. Also, as you pointed out in your Humphrey-Hawkins testimony, there is at least some evidence from survey data that inflation expectations in some quarters may actually have worsened. So, while I think we've made some gains on credibility, we still have some distance to go before we really convince the markets and the public generally that we are going to go all the way this time to price stability. Also, I would make this point: I think precisely because we have not moved the funds rate at all for a long period of time, the directive language is now a very big signal. If we shift back to symmetry at this stage of the game, it's going to get a lot of attention and involve some risk. So, from my own standpoint I'd rather stay with the asymmetric directive.",303
-fomc-corpus,1993,Governor Lindsey.,3
-fomc-corpus,1993,"Mr. Chairman, back in 1965 George Aiken, the Senator from Vermont, recommended that we declare victory and get out of Vietnam. I always thought that was a wise judgment. It applies today. First of all, I think the reason we should get out of the asymmetric directive is to reload because we are going to have to fight another day. That goes without saying. But I think the other part of what Aiken recommended--that we declare victory--is also very important. I am somewhat concerned about what Governor Mullins indicated: that some will take our move as a signal on the budget vote. But actually what we're doing is that we had a very, very well planned--it's almost miraculous how well it worked--shift in the nuance of policy, which I thought conveyed very well to the markets what we believed. It led businessmen, instead of talking about inflation, to come back saying: ""We tried to raise prices and we couldn't."" I think it really has changed expectations out there. We should let the world know that we've done it right and that's why we're doing it. And by the way, declaring victory is part of making it easier for us to reload the next time when we have to. So, I'll go with what George Aiken said 20 or more years ago and vote to go symmetric.",268
-fomc-corpus,1993,Vice Chairman.,3
-fomc-corpus,1993,"Mr. Chairman, it seems to me that the most important thing is that our policy should promote price stability. So I think it's terribly important, whatever the conclusion, that the minutes of this meeting reflect that ongoing view and that public statements, especially by the Chairman but also by the rest of us when we make them, make quite clear our commitment to price stability. Between now and the next meeting I think it's highly unlikely that we will change the fed funds rate. So, then we come down to the purpose of the [symmetry in the] directive. And at the present time I think the market is quite well prepared to believe that we have not changed the directive from a tactical tool to a policy statement, and we are much better off to leave the market with that perception. Perhaps at an appropriate time in one of your speeches or in testimony you might include that remark. Since I think it's highly unlikely that we would in fact change the fed funds rate before the next meeting, I believe we should avoid shifting the signalling device of the directive to a policy statement. And since I don't think we should do that, to stay asymmetric would put us in the position of doing some empty posturing, which is always extremely injurious to the credibility of any institution and especially to one whose credibility is so important. Therefore, I agree with your recommendation that we go to ""B"" symmetric.",278
-fomc-corpus,1993,President Forrestal.,4
-fomc-corpus,1993,"Mr. Chairman, I agree with your formulation for policy, particularly the symmetric part, because I believe as do others that this is something that should be viewed as what likely will happen during the intermeeting period. So, I'm for alternative ""B"" symmetric.",52
-fomc-corpus,1993,President Boehne.,5
-fomc-corpus,1993,"I support ""B"" symmetric.",7
-fomc-corpus,1993,Governor Phillips.,3
-fomc-corpus,1993,"I also support ""B"" symmetric. I think the economy has been weaker than we previously thought. Inflation is better and we could declare victory. Staying with asymmetry toward tightening may in fact signal more fears about inflation than might be necessary. Doing it now would get us ahead of the curve so that we're not seen as switching under pressure. I would like to see messages either in your testimony or in the minutes continuing to point toward our emphasis on price stability.",92
-fomc-corpus,1993,President Parry.,4
-fomc-corpus,1993,"Mr. Chairman, I think the risks to the forecast in the intermeeting period are clearly balanced so, therefore, I would prefer a move toward symmetry. I do think it is important that that not be misinterpreted, and I would assume that we certainly can make that point clear in the minutes.",61
-fomc-corpus,1993,President Keehn.,4
-fomc-corpus,1993,"Mr. Chairman, I completely agree with the position you've developed. The opening line of the operational paragraph does say ""In the implementation of policy for the immediate future"" and it does seem to me that in the immediate future the chances that we would we change our policy at all are very remote. Therefore, I think symmetric language is appropriate.",68
-fomc-corpus,1993,Governor Angell.,4
-fomc-corpus,1993,"I'm concerned that the Committee is becoming a little over-attentive to symmetry versus asymmetry. Certainly, in May, as you know, the fact that we went to an asymmetric directive didn't convince me that [it was an appropriate alternative to] increased rates. And if we continue to battle over symmetry and asymmetry, then we're back in the day and age in which the Committee groaned and moaned over an eighth of a point change in the fed funds rate, a change that really didn't amount to much. So, the issue of symmetry and asymmetry is not very great, given the Chairman's statement that he does expect us to be in an asymmetric mode in the long run. That is certainly more appropriate than acting as if we're going to tighten immediately. I recognize that the price of gold has come down from $400 to $371 and that really is a factor that parallels the move that took place in the bond market; and that has worked very, very well. And even if the fed funds rate is wrong, it would not be appropriate at this time to increase the fed funds rate. I'm very disappointed that we went past that window of opportunity and did not get it done, and I am very concerned that, with the Japanese yen/dollar exchange rate being where it is, we put ourselves in a position in which the rate of inflation actually is going to be higher than it would be if we had the fed funds rate at the level called for by alternative C. That is, if magically we could go to ""C"" right now --we can't get there but if we could get a 3-1/2 percent instead of a 3 percent fed funds rate--the exchange value of the dollar versus the yen would not be so precarious and we would not have the window that is going to be there for price action by the automobile companies. [They will raise] wholesale prices but that will show through [to consumer prices and], we're going to have a higher inflation rate at a 3 percent funds rate than we would have if we had 3-1/2 percent. I also am concerned that a 3 percent rate provides lots of liquidity in the financial markets and it provides an opportunity for certain bubble events because money is scurrying here and there. At a 3 percent rate, we're chasing people out of M2 accounts to elsewhere. And all of that chasing may not be in the interest of long-run stability. So, I'm very uneasy with the fed funds rate where it is. I recognize, Mr. Chairman, that this is not the time to increase it. But more important than going back to asymmetric toward tightness would be for us to look for windows to get the fed funds rate up whenever we can.",555
-fomc-corpus,1993,President Stern.,3
-fomc-corpus,1993,"I think as a tactical matter this probably is the time to return to symmetry. It strikes me that it would take some very surprising events to lead toward a change in the funds rate in the five weeks before the next meeting. Having said that, I do have a couple of reservations about a return to symmetry, one of which already has been expressed. And that is that when it becomes public, it may be subject to over-interpretation--not necessarily misinterpretation but a ""Now what are they up to or what do they see?"" kind of thing. But also I'm a little troubled by the fact that we seem to be responding again to the latest price statistics. Now, it's certainly true that they are better, but I have not heard anybody express a much more positive view about longer-run inflation. The forecast for the balance of this year and for 1994 is pretty much what it has been for an extended period of time. It seems to me that we really ought to be looking and thinking about that as we do this. So, I would be careful about putting a lot of emphasis on the fact that the latest price data look better and that, therefore, we don't need the asymmetric directive.",243
-fomc-corpus,1993,President Hoenig.,4
-fomc-corpus,1993,"Mr. Chairman, I think a symmetric directive is appropriate and I don't think that changes our long-run strategy toward price stability, which is what we should have. This is an operating paragraph and it should communicate what the Committee is thinking. I don't see any inclination to change in the intermeeting period. Therefore, I think we build credibility making that change now as far as our future actions go. So, I'm for symmetry.",85
-fomc-corpus,1993,President Jordan.,3
-fomc-corpus,1993,"I have a general aversion to the idea behind asymmetric, discretionary directives. And after listening to Don Kohn's explanation of the meaning of switching back to symmetric, I felt it left me with no choice but to prefer asymmetric if that's what it means to move to symmetric. But when I think about leaving the funds rate at 3 percent in view of the Greenbook projection on inflation, it implies that the Committee says either that projection is wrong or it's acceptable. I didn't hear any comments about whether it was either wrong or acceptable to the Committee, which leaves me puzzled about the comments about declaring victory. Those comments are suggestions that the Greenbook projections on inflation are in fact wrong rather than acceptable, I think. So, I'm not sure where I come out.",153
-fomc-corpus,1993,Governor Kelley.,3
-fomc-corpus,1993,"I very happily support a symmetric directive. I would like to underscore what has been implicit in many of the comments--Tom Hoenig just now was quite explicit about it--that what we're doing here is making a directive. It is a directive to the Open Market Desk and its purpose first and foremost is to instruct the Desk about what we expect over the intermeeting period. There is a secondary effect and a secondary purpose in the area of signalling. There is a large inevitability about that and it has to be considered; it probably occasionally has to be dominant, but I would say only very occasionally. The order of importance of these two is distinctly in the area of first and foremost to provide direction to the Desk. And that direction to the Desk at this time certainly is that there's unlikely to be a change over the next five weeks.",167
-fomc-corpus,1993,President Melzer.,4
-fomc-corpus,1993,"Alan, I agree with your analysis in terms of going back. I think the directive ought to be symmetric. And I think, as Wayne Angell said, that we ought not kid ourselves that debating the language is really making policy. I don't think we used it inappropriately. Because things didn't unfold to give us the opportunity to move in that direction, it's appropriate to go back. But we probably ought not overuse the tool because to some extent we see the down side right now in terms of possible misinterpretation in markets. And I agree with Bill McDonough that a statement could be helpful at some point to clarify exactly what we mean by it because I do think the press and others put much more weight on it than we may intend.",152
-fomc-corpus,1993,"Since I assume we're going to vote in that direction I just want to raise the caution here to everyone to be very careful about the press because that could be quite damaging to how we wish to proceed on this--whether or not we let the minutes handle it or make an official statement or something of that sort. The one thing we certainly want to be very careful about is that an inadvertent remark by somebody in the System about policy strategy and a variety of related issues can create some real difficulties for us in this period. In any event, I do read that a majority is supportive of symmetry and I'll ask Norm to read the appropriate paragraph.",128
-fomc-corpus,1993,"It's on page 13 of the Bluebook: ""In the implementation of policy for the immediate future, the Committee seeks to maintain the existing degree of pressure on reserve positions. In the context of the Committee's long-run objectives of price stability and sustainable economic growth, and giving careful consideration to economic, financial, and monetary developments, slightly greater reserve restraint or slightly lesser reserve restraint might be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with modest growth in M2 and little net change in M3 over the balance of the third quarter.""",114
-fomc-corpus,1993,"Okay, would you call the roll. MR. BERNARD Chairman Greenspan Yes Vice Chairman McDonough Yes Governor Angell Yes President Boehne Yes President Keehn Yes Governor Kelley Yes Governor LaWare Yes Governor Lindsey Yes President McTeer Yes Governor Mullins Yes Governor Phillips Yes President Stern Yes",61
-fomc-corpus,1993,"Okay, the Committee is adjourned for lunch and our next meeting is September 21st.",20
-fomc-corpus,1993,"Good morning, everyone. We welcome our two new colleagues [at the end of the table] from the Federal Reserve Bank of New York. I'll ask as a starter: Would somebody like to move the minutes of the August 17th meeting?",49
-fomc-corpus,1993,So move.,3
-fomc-corpus,1993,Without objection. I call upon our Vice Chairman for nominations for slots now open for Manager for Foreign Operations and Manager for Domestic Operations.,26
-fomc-corpus,1993,"Thank you, Mr. Chairman. As is evident by the fact that we have two nominations, our recommendation is that we revert to the method which has served the Committee very well during most of its life, and that is to have separate managers for the domestic and foreign operations. You'll recall that we have had two managers except for a very brief period in the 1970s and then for an even briefer period when I had the joint responsibility. A bit of background: We are doing some recasting of our research area at the Federal Reserve Bank of New York, and we needed a very capable senior economist with a strong international background to move in under Dick Davis and take care of [international] economic studies. And the perfect candidate for that was Gretchen Greene. So, Mr. Chairman, I would like to recommend and nominate Joan Lovett as Manager for Domestic Operations. Joan is a graduate of Albertus Magnus College and the New School for Social Research from which she has an MA. After two years at the U.S. Treasury she has been with the Federal Reserve Bank of New York since 1968; she has spent most of that time in the Open Market function although she did also have experience in the foreign exchange area as well, which I think is attractive. She has been the Deputy Manager for Domestic Operations. Further, I would like to recommend and nominate Peter Fisher as Manager for Foreign Operations. Peter is a graduate of Harvard College and Harvard Law School. He's made his entire career at the New York Fed, originally in the Legal Division where he spent five years. He spent two years in Basle, Switzerland and was the principal scribe of the Lamfalussy Report. Then he returned to join the Foreign Exchange Department and has been responsible for day-to-day operations for about the last 20 months.",365
-fomc-corpus,1993,"I just want to note that Joan Lovett was not able to join us today because her mother died late last week and we have Betsy White here as her temporary replacement. Nominations have been made. Are there any further nominations for either of those posts? If not, I will ask for a motion. May I have one from you?",69
-fomc-corpus,1993,"So move, Mr. Chairman.",7
-fomc-corpus,1993,Is there a second?,5
-fomc-corpus,1993,Second.,2
-fomc-corpus,1993,"All in favor say ""Aye."" SEVERAL. ""Aye.""",16
-fomc-corpus,1993,"Opposed? The ""ayes"" have it unanimously. We congratulate you, Peter; and I trust that similar congratulations will be extended to Joan at the appropriate time. Why don't we start off with Peter with his inaugural analysis of the foreign currency operations.",50
-fomc-corpus,1993,[Statement--see Appendix.],6
-fomc-corpus,1993,Thank you. Questions for Peter? If not--,10
-fomc-corpus,1993,We need to approve the System's $82.5 million participation in the intervention operation of August 19th.,23
-fomc-corpus,1993,So moved.,3
-fomc-corpus,1993,Is there a second?,5
-fomc-corpus,1993,Second.,2
-fomc-corpus,1993,"Without objection. Now, I call on Betsy White. Although she has been at several FOMC meetings, she too is making her inaugural presentation.",31
-fomc-corpus,1993,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1993,"Thank you. Questions? If not, would somebody like to move to ratify the actions of the Desk since the [last] meeting?",28
-fomc-corpus,1993,So move.,3
-fomc-corpus,1993,Is there a second?,5
-fomc-corpus,1993,Second.,2
-fomc-corpus,1993,Without objection. Let's now move on to the staff report on the economic situation. I call on Messrs. Prell and Truman.,27
-fomc-corpus,1993,"Thank you, Mr. Chairman. [Statement--see Appendix.",13
-fomc-corpus,1993,[Statement--see Appendix.] That concludes our presentations.,11
-fomc-corpus,1993,"I'd just like to raise a question with Mike or Ted. We discussed very briefly last night this interesting path of long-term rates relative to the simplistic model. There's an interesting question that's implicit in this; namely, that if, in fact, this is a primitive model, one could postulate that we could drive the funds rate down to zero, hold it there for a very long period of time--which we have the physical capacity to do--and therefore look forward to a significant further decline in long-term rates. Now, obviously, I don't think anybody here believes that that process would happen. That raises an interesting question as to whether the relationships that are being picked up in the model are basically the result of the fact that short-term rates are generally perceived not to be significantly out of line with productivity and that the events that surround the short-term market will eventually begin to affect the long-term market. And so long as the Federal Reserve does not endeavor to force the short-term rate away from where it otherwise should be, that model is merely reflecting the fact that the same forces affecting the short-term rate will ultimately affect the long-term rate. But I seriously question whether we can infer from that sort of relationship any significant policy issue because I have this suspicion that were we to try to drive that relationship by monetary policy, we would automatically find out as of that day that it doesn't work any more. I was just curious to get your response to that [issue which I raised in] our conversation last night.",301
-fomc-corpus,1993,"Well, I think you hypothesized a situation in which the consequences are obviously explosive. If you held short-term rates too low for too long, initially through this term structure mechanism lowering the cost of capital below the equilibrium rate in the intermediate- and long-term end, you would generate excess demand and inflationary pressures. Those inflationary pressures would mount over time. Something would have to give; presumably at some point monetary policy would have to adjust in the proper direction. But one of the reasons I have reservations about the model is that in a sense it doesn't include a place for people to recognize where things are headed and to have a more forward-looking response. The latter could introduce an inflation premium earlier on and tend to override what this model's formulation would suggest. And perhaps because we didn't move into those patterns of behavior the model didn't have those kinds of experiences from which to estimate. So, I grant that this likely has limitations. If I didn't feel that, we presumably would have a significantly different kind of forecast. But the one thing that gives me pause, as I suggested, is that this model has worked remarkably well in the past, even the past decade. I noted that it was fitted over 1958 to 1983, and even during the 1980s when there has been an acute sensitivity to inflation risks and what had happened in the past, the model has tracked quite well. Other versions of the model, with the same sort of formulation, [have also tracked quite well]. So it has gone through some difficult times and I think it does capture one element of human behavior, its adaptive expectations formation as people become accustomed to given rate levels. But I would agree with you that in the extreme it's likely to break down.",350
-fomc-corpus,1993,Any further questions for either gentleman? President Jordan.,10
-fomc-corpus,1993,"The funds rate has been unchanged for a little over a year now. So, it seems to me useful to look back over the period to see what else has been unchanged or what has changed and in which direction and to try to make some sense out of it. In reviewing the successive Greenbooks in the period since a year ago, one of the things that struck me was how little your forecast of nominal GDP for the second half of 1994 has changed. A year ago at this time you [extended the forecast] another year, so I am curious as to what your 1995 projections will look like once we get those, but that's not my main question now. The funds rate has stayed at 3 percent and [your forecast for] nominal GDP growth still is on the order of 4-1/2 percent or a little more for the second half of 1994; that hasn't changed much even though a lot of other things have changed in the meantime in successive Greenbooks. Then, I see that your estimates of potential real output have been revised up, partly because of the new benchmark numbers. Actual output has been somewhat below where we anticipated and it continues to be projected on the low side in '94, so you've got a bigger gap. There are two essential elements to your framework. One is that the gap says something about future inflation and that nominal and/or real interest rates say something about real output growth. Bond yields are lower than you had anticipated earlier; I don't know about real rates, but at least nominal rates are lower. Short rates are the same and inflation [is higher], suggesting lower real rates. So, ex ante, one would look at this set of things and say: Well, your forecast should have implied that the split of nominal GDP would be less inflation and more output. Instead, we get the opposite. We have a bigger gap yet we have lower output growth by almost a percentage point in 1994, and with that bigger gap we have higher inflation. I'd be curious [to learn] what other things must have changed, because other things equal we would have gotten the opposite. We would have expected more output, less inflation. So, what were the things that changed in your framework to produce this combination of higher inflation and lower output for the same GDP?",466
-fomc-corpus,1993,"Well, President Jordan, that's the kind of very complicated question that I'd have to have in writing a week in advance, I think, to be able to do justice in answering it. I don't think I've absorbed all of the threads. We do have, obviously, in our forecast for 1993 a substantially less favorable mix of output increase and inflation. We've gotten much lower growth than we anticipated and inflation has been running somewhat higher. Now, curiously, the unemployment rate has not been higher than we anticipated; it has been lower, and that needs to be taken into account as well. Furthermore, looking at the revised national income account data and at both the actual growth and our estimate of the potential growth, the output gap we've estimated tentatively at this point is somewhat smaller than we thought, not larger. The actual growth has been revised up more than our estimate of potential growth. So, in a sense the gap here that is exerting disinflationary pressure isn't larger than you thought; it's probably smaller. Furthermore, we had earlier in the year what we view to have been some response to the surge in activity. We think that is unwinding now, but on net thus far this year I don't think it has been helpful. I would really have to review a lot of detail here to be able to give a better answer to your question, but I don't think our basic model, in the sense of how this works, has changed. We've had a few surprises. What I've suggested in regard to the current forecast is that we see some underlying confirmation here of the scheme that we've been applying in our forecasting. And that has led us to be a little more confident that we can extend the disinflationary trend going forward. And we think that if growth for '95 remained moderate and unemployment remained close to where we have it, there would be an ongoing disinflation. But we have not seen quite the favorable tradeoff that we anticipated, and the slack has been a shade less on average thus far.",407
-fomc-corpus,1993,Can I follow up? I expected you to put a little more stress on the fiscal package.,19
-fomc-corpus,1993,"Well, we don't think that has affected the tradeoffs here but, as you know, at the beginning of the year we didn't introduce a fiscal package because of the uncertainties. Then we introduced one that included fiscal stimulus because we wanted to follow the President's lead on this. Ultimately, there was no near-term fiscal stimulus in the package; in fact, it probably moved the restraint forward in time beyond what anyone would have anticipated earlier. And we now have a substantial amount of fiscal restraint in the forecast damping aggregate demand but not affecting the unemployment/inflation tradeoff. Well, there are some elements here, [such as] gasoline taxes; an excise tax impact in a sense gives you a short-run deterioration in the tradeoff. And there are other things that have been going on and that could still happen that will tend to raise the price level in the short run relative to what everyone--",180
-fomc-corpus,1993,"It raises some interesting implications for the Committee's policy because on the second page of the Greenbook summary you say ""Achievement of this middling expansion path may require maintenance of relatively low real short-term rates--to counter the contractionary effects of fiscal restraint, uncertainty about government policies, and, at least in the near term, slow growth of foreign industrial economies."" That's a stronger statement--I would call it advocacy--of monetary policy than we typically see in the Greenbook. The Greenbook is typically a little more neutral in terms of an assumption of monetary policy. And if it's the case that the real output projection is being influenced by fiscal actions, and if it's the position of the Committee generally that monetary policy cannot be used to correct mistakes of other parts of the government sector, and if you advocate a monetary policy in the future that is different than it would have been in absence of the fiscal package, then that is saying that monetary policy is being adjusted because of the fiscal regime.",197
-fomc-corpus,1993,"Well, there are two things one could say. One is that monetary policy can't be adjusted to offset shocks such as a change in fiscal policy. I don't think there's an economic basis for that statement. There may be difficulty in doing that because we can't anticipate with precision what will be occurring without a shift in monetary policy and there are uncertainties also about what the effects of a monetary policy change will be. So, all those uncertainties may lead you to think it might not be desirable to attempt to engage in fine-tuning. Certainly the Committee over the recent decade or so has in one way or another repeatedly made the statement that it realizes it would be impossible to be fully effective in fine-tuning and that there would be some risks in attempting to do that. In terms of advocacy, I would view that statement more as a positive statement than a normative statement. It simply says that if you wanted to achieve this growth path, it might require low real short-term interest rates for a longer span. We didn't advocate that particular outcome. That's clearly the Committee's decision to make. [It's up to the Committee] to weigh the risks that might attend the policy movement or no policy movement here in terms of whether you might end up with less output or more inflation or whatever than you desire. We're attempting to be as neutral as possible here by taking as our essential assumption that the nominal funds rate remains fixed. We aren't advocating that necessarily; we were just taking that as a baseline and giving you something you can adjust from based on whether you feel the risks are different or that the fundamentals are going to push things in the stronger or easier direction.",326
-fomc-corpus,1993,President Broaddus.,5
-fomc-corpus,1993,"Mike, your projection for real personal consumption expenditures for the third quarter, given the high July level, implies a decline on average in August and September, if I calculated it right. Is that right?",40
-fomc-corpus,1993,"We have a very marginal increase in September for PCE. We see a pretty healthy gain in the third quarter because of the data already in hand. Real consumer goods expenditures other than motor vehicles seem to be well above the level of the third quarter, and service expenditures were running very strong early in the summer. So, we think we have the likelihood of a strong advance there. We see a flattening out, and arithmetically that works in the direction of a more moderate increase in the fourth quarter. But we are basing that on income trends and attitudes and all the other factors that one might look to in explaining the prospects for consumption expenditures.",132
-fomc-corpus,1993,Governor Angell.,4
-fomc-corpus,1993,"Ted, did you have a NAFTA [assumption]?",12
-fomc-corpus,1993,"We have continued with the same NAFTA assumption we've had in the past, which has been that the legislation will pass. We noted in the Greenbook that in light of recent noise, if I may put it that way, that may be somewhat less of a ""gimme"" putt than we regarded it earlier. And we thought a bit about what the implications of that might be, which largely--at least in the short term--revolve around the impact on Mexico, not the secondary impact on the United States. We have seen this year that Mexican growth has slowed substantially. That appears to us to be a combination of tighter policies in Mexico in the face of what had been a rising current account deficit and some uncertainties associated with NAFTA and the level of capital inflows. Therefore, for next year, on the assumption that NAFTA would pass, we had moved up Mexican growth somewhat by about a percentage point. In the absence of [NAFTA], we regard that increase in growth as problematic--I think that's the way we put it in the Greenbook. Moreover, we think there would be some downward pressure on the peso and, therefore, there would be some drag on exports for the United States as a result of the failure of NAFTA. That's about as far as we've gone.",261
-fomc-corpus,1993,"I have two questions for Mike. Mike, when I look at those interest rate forecasts that you have in place and then look at the ECI numbers on page I-14 of the Greenbook, I'm wondering what happens to the pension contributions. For any period in which interest rates behave as you have them forecast, assuming that before the end of 1994 there might be some upward pressure on short-term rates, would that make much difference in regard to the impact on the ECI if pension plan fundings come under pressure--that is, given some of the assumptions on rates of return that are built in?",123
-fomc-corpus,1993,"Well, we've alluded to this problem in the last couple of Greenbooks and there has been a great deal more discussion about this in recent weeks in the press, some of it by investment banking firms such as Salomon Brothers who have been calling attention to this issue. It appears that a large number of corporations are in serious risk of having major underfunding in their defined benefit pension plans with these kinds of investment returns. They've been very optimistic in maintaining high expected returns, [i.e.] in the assumptions they've used for determining their contributions. They're going to be under significant pressure to make those more realistic. And we would expect that there will be upward pressure on that component of employment costs. That is not likely to be a gigantic effect. We don't really have a good enough handle on it to size this, but we feel there's probably something there that is of significance in buoying increases in benefit costs. While other items may be coming down, the overall deceleration seems likely to be limited by this factor.",203
-fomc-corpus,1993,"At the same time, for persons who are retired or approaching retirement and are counting on short-term funded investments, is there likely to be current and continued downward pressure on consumer spending from this segment due to the fact that there is a perceived reduction in investment income?",52
-fomc-corpus,1993,"I think it's possible. It's also possible--I don't think we have much evidence, though I've asked a few businessmen whether they can perceive this--that people may not opt for early retirement to the degree that they have in recent years because they may have lowered their expectations about what their assets will earn in the way of income over their retirement years. I don't think we can see anything yet in labor force participation data to support this notion, but things may work in that direction. We may see some tendencies toward a little less of that 55 to 64 year old male retirement that we've seen recent years.",121
-fomc-corpus,1993,The last question has to do with your statement in regard to substantial fiscal restraint. Substantial wasn't exactly the word you used but you had some--,29
-fomc-corpus,1993,I might have.,4
-fomc-corpus,1993,"--adjective regarding fiscal restraint. Yet when one looks at the Congressional Budget Office forecast and I think even our own, the budget deficit doesn't change very much over this forecast period. I recognize that a deficit staying around $250 billion would [constitute] a declining percentage of GDP, but I'd like to have you explain why you call it ""substantial"" fiscal restraint.",75
-fomc-corpus,1993,"Well, the numbers in terms of the unified budget are distorted by the year-to-year movements in deposit insurance, so that the drop, for example, from fiscal '93 to fiscal '94 excluding deposit insurance programs is on the order of $40 billion. If we look at the NIPA budget deficit numbers, we're going to get something like an $80 to $90 billion reduction in that deficit over a two-year span with roughly constant levels of resource utilization. If we look at the structural budget deficits, while the CBO numbers and the OMB numbers show a flattening out as we go out several years, in the near term there are a couple of years of fairly substantial reductions in the structural deficit. Our own measure of fiscal impetus, looking at discretionary components, indicates a significant movement in the direction of restraint. I think the direction is pretty clear, but gauging the economic significance is always problematic. We interpret things as suggesting that in this period going out through '94 and maybe well into '95 the direction of fiscal policy is one of significant restraint.",213
-fomc-corpus,1993,Vice Chairman.,3
-fomc-corpus,1993,"Could I ask you to refer back to the interest rate model that you discussed in your presentation as to whether there is a policy implication regarding relatively small changes in the fed funds rate? If one were to say there would be some merit in easing, it would appear that the model would say that there is still considerable bang to the 3 percent fed funds rate buck and that this will be transmitted over time, as the model suggests, to lower medium- and long-term interest rates. On the other hand, if we were to increase the fed funds rate by, say, 25 basis points, does the model suggest that the change in expectations could have a rather significant effect on the real economy by restraining investment because of the effect on medium- and longer-term rates?",154
-fomc-corpus,1993,"No. As I said, this is a very simple model; and a small upward movement is just going to begin a process of altering the moving average, which in our model reaches back several years. So, it's not going to have a major effect. I think you have to ask whether this model is something you want to rely on in reaching a judgment, though. The other questions are how low the rates have to go in order to get the outcome you want and how fast do you want to get there? Do you want to be patient? If you believe that rates might [move] as the model is suggesting, is that quick enough for you? Would you rather accelerate the process by cutting rates further, knowing that ultimately you probably are going to have to reverse course more dramatically down the road in order to move real rate levels to something that is more appropriate in terms of the longer-run equilibrium? But a small adjustment, in terms of this model, is going to be essentially meaningless.",199
-fomc-corpus,1993,Thank you.,3
-fomc-corpus,1993,President Parry.,4
-fomc-corpus,1993,There is a rather slow decline in the unemployment rate in the Greenbook forecast and there's no decline from where we are now.,25
-fomc-corpus,1993,Right.,2
-fomc-corpus,1993,"And you had included an upward revision of the growth in trend productivity and higher potential output as well. If one looks at the growth rates, the real growth rates appear to be roughly equal to or in some cases below the growth rate of potential. Why is there such small progress made in the inflation area? I think you mentioned health care, gasoline taxes, etc., but it seems to me as though it's surprisingly small progress.",85
-fomc-corpus,1993,"Okay, let me address a couple of things very briefly. One is that, as we are gauging it now, we believe that a reasonable estimate of potential output growth at this time is perhaps a shade below 2-1/2 percent. So, it's very close to the growth rate of output that we are projecting. If that is so, then all other things equal, one would expect the unemployment rate to be reasonably stable. There are short-run uncertainties about labor force participation. If it remained on the weak side, then one might anticipate a lower unemployment rate. If it rejuvenated suddenly, the unemployment rate could easily go higher. I'd say, looking at various models, that there is a very slight upside risk on unemployment. As for the inflation forecast, basically we've had about 3-1/4 percent over the past year for the core CPI. We see it edging down to just under 3 percent over the next year or so. This is not out of line with various models we look at. Some of them would give more deceleration and some less. It is a bit less favorable than we had been hoping a year ago, say, or at least at the beginning of this year. We remain concerned that there is a certain momentum here that is supplied by expectations, which still have not adjusted downward among households, that appear to be in the 3 percent area. We think part of the disinflation process will be a gradual adaptation of expectations to that kind of inflation; but in the near term it tends to keep wage increases a little higher than they would otherwise be. We think we're in a reasonable middle ground, given the uncertainties that we feel. Based on the experience of the past year or so, we think it would be a little aggressive at this point to lower that forecast further.",366
-fomc-corpus,1993,Thank you.,3
-fomc-corpus,1993,Governor Mullins.,4
-fomc-corpus,1993,"We've probably talked enough about the model, but I thought I'd kick it a few times as well. What bothers me is not just that it's sort of transparently nonsensical and violates enormous evidence which has been accumulated on the way markets work, [including] market efficiency. I don't think one needs too extreme circumstances to realize that the model may capture what is happening over some period. But it can't be what is happening [now]. I take it that if we continue to run this model, with the backward-looking nature of the model, as you say, the long rate pierces 5 percent. And I've noticed Michigan mean inflation expectations have often been around 5 percent, so basically it is a real possibility in this model that it will drive long real rates negative.",155
-fomc-corpus,1993,"I would anticipate that if the inflation outcome is also similar to what we're forecasting, those inflation expectations would come down. But you are correct--",28
-fomc-corpus,1993,But the expectations in the market are a little different than ours.,13
-fomc-corpus,1993,What I'm saying is that as inflation has remained low expectations have been adjusting and they will continue to do so.,22
-fomc-corpus,1993,"What I was going ask is this: Short rates roughly track inflation, so suppose you included with the model some measure of inflation and the formation of inflation expectations. Would that take all the predictive power away from the model? Essentially what we've gone through is a period of gradually falling inflation expectations, with a little turn up, but associated with an upward movement in short-term rates and then a reduction and again a gradual [unintelligible]. If you had some model of inflation expectations to see whether this interest rate model has anything other than that driving it, what would you get?",116
-fomc-corpus,1993,"Well, I can't speak to all of the experimentations done over the years on this. In the current model, there is only a minimal role for inflation expectations in the term structure determination. And it's in [the model in] an arcane fashion. It is possible that such a model as you hypothesize might be serviceable, but I suspect that we have experimented enough that this formulation has proven more robust. I think saying that this model is nonsensical and totally at odds with reality runs up against the point that it does contain some very basic notions that people have talked about theoretically for a long time, and it has worked. But I don't want to push that too far.",138
-fomc-corpus,1993,The reason I say it's nonsensical is because it doesn't make logical sense. You know you can take the short rate to zero and it's not going to work. You get ridiculous answers out of the model.,42
-fomc-corpus,1993,Indeed.,2
-fomc-corpus,1993,"Plus there appears to be a lack of evidence on the way markets incorporate the data that are available, which makes one think that what it is picking up is some other process. When one hears what people talk about when they set long rates, they talk a lot about inflation over long periods of time. So perhaps it is somehow capturing that process. It may be a good model which implicitly is capturing this inflation expectations process. It seems to me a little questionable when we start to reach these levels; when you project that going forward for a couple more years, you run the danger of getting pretty interesting [results].",122
-fomc-corpus,1993,"Let me say a couple of things. One is that a 5 percent long-term rate, with inflation moving below 3 percent and a short-term rate around 3 percent, still looks like a high long-term rate if you go back to the early 1960s. Now, if that's what people were thinking, perhaps about 3 to 4 percent inflation for the next X years--they were probably thinking 1 or 2 percent [in real terms] which is not inconceivable--",102
-fomc-corpus,1993,"Of course, it's not inconceivable if we get inflation down to the level that we had in the early '60s, which was 1 percent on the measured CPI.",36
-fomc-corpus,1993,But in that case you'd be looking maybe for a 4 percent long rate.,16
-fomc-corpus,1993,"Yes, then you can move that rate on down. I would just say that it's not clear that is what is driving--",25
-fomc-corpus,1993,"Well, to take minor issue with that, I think that perhaps is embodied even in some of your recent comments about what has been happening with the way investors have been moving into the stock and bond funds. I think it's very much compatible.",48
-fomc-corpus,1993,"Well, why is it that all the survey data show the opposite?",14
-fomc-corpus,1993,"Those people are not necessarily thinking in any precise way about what inflation will be doing over the next 10 years. They're saying ""I just can't stay with these 3 percent rates forever."" They are saying here that maybe [rates] aren't going to go back up, and they shift out [of CDs and the like]. The model doesn't precisely specify the psychology, but it's compatible.",77
-fomc-corpus,1993,But that's another theory that I don't know if we want to get into as well.,17
-fomc-corpus,1993,We don't.,3
-fomc-corpus,1993,"I knew you were going to say that! The only other thing I would say is that if you look at the '70s, a period in which perhaps short rates weren't appropriately set to track inflation, you might separate what was going on to see whether it was a formation of inflation expectations or this backward-looking model.",64
-fomc-corpus,1993,President Syron.,4
-fomc-corpus,1993,"Short data question: Coming back to what Bob Parry asked about inflation, these mandated programs come and go and are going to affect inflation--or inflict inflation, however one wants to say it. Do you have a meaningful number, if I can put it that way, in your forecast for that stuff now? Or is it just below the [unintelligible] in terms of being--",80
-fomc-corpus,1993,"Well, cumulatively, it's conceivable that it's non-negligible. A number of things have happened over recent years where we've had various mandates that have added to the cost of production in one way or another or circumscribed supply. But whether those things have been increasing in size on a trajectory that means faster inflation in recent years is very hard to say.",72
-fomc-corpus,1993,I meant prospectively.,5
-fomc-corpus,1993,"Prospectively the same thing would hold. The big issue hanging out there clearly is health insurance. And we have not made an assumption on that in this forecast, in part because we've not yet ventured beyond 1994. I grant that we need to before very long because of the necessities of monetary policy strategizing. But I don't expect that a program will be in place before the end of 1994. And it is likely to be phased in over several years in terms of the various costs. So, whether it will show up as a sudden large boost to costs isn't clear. I'm reminded of another thing we had in our earlier forecast, based on some trial balloons or whatever, and we've taken it out, which is a minimum wage increase. The kind of minimum wage increase that is being discussed is only going to have a very small effect if implemented in 1994, maybe one-tenth of a percent.",185
-fomc-corpus,1993,And the environmental stuff is all [measureable]?,10
-fomc-corpus,1993,"It's partly that [such costs] aren't readily measurable in terms of their aggregate price effects. A bunch of little things have come along, all of which may tend to increase costs and in some cases are perhaps affecting the willingness of employers to take on full-time workers and so on. So, there are broad effects. And one of the reasons we have this rather subdued view of aggregate demand going forward is the thought that there will be a continuing burden of worry in the business community and among households about what government mandates may do to them over the years.",110
-fomc-corpus,1993,"Any further questions for either gentleman? If not, who would like to start the Committee discussion? President Forrestal.",23
-fomc-corpus,1993,"Thank you, Mr. Chairman. Well, for the last several meetings I have been reporting that economic activity in the Sixth District has been outperforming the rest of the country. That is no longer the case because we are now seeing some deceleration in economic activity, and there now is a convergence of the District and national economies. As I've said earlier, our performance during this expansion has been based mainly on housing-related activity; and as the housing cycle matures, the stimulus is tapering off. Retail sales have also been quite disappointing in the District, and that's across the board, even though we've had a continuation of rebuilding from the hurricane and that's still positive. But retailers now are reporting poor sales at the end of the summer, and they're very cautious in their orders for the holiday season. On the other hand, auto sales have been quite good; the only constraint really to auto sales has been the lack of supply. Inventories have been low due to the fact that the 1994 models have been late in arriving and most of the dealers are sold out of 1993 cars. So, auto sales would have been better if the supply had been greater. Tourism and business travel in the District remain quite strong, and Atlanta is doing especially well. Our hotel bookings and air travel are at their highest level in three or four years. Florida, obviously, is very concerned about the tourism industry due to the tragic events that have occurred not only during the past couple of weeks with respect to foreign tourists but throughout the year. And since this is a $60 billion industry in the state, I think that concern is quite well placed. It goes beyond tourism actually, because there is concern in light of the adverse press reports that this will affect relocations both of businesses and retirees. Factory activity was mixed as the summer drew to a close. There has been some seasonal increase but nondurables and consumer paper products are quite soft. And manufacturers indicate that consumer demand has been quite sluggish. Real estate activity also is mixed. The residential side has been quite healthy. In the single-family sector we're seeing more building of spec houses than we had earlier. The multifamily sector remains in the doldrums and commercial construction is still soft, although we do notice in many of the cities of the Southeast, particularly Atlanta, that there is some absorption of space. But at the same time the lease rates are pretty low and that's not encouraging any speculative building. The employers that we talk to around the District report no upward pressure on wages, although there is concern about benefits and, of course, about the health care program. Prices of raw materials and finished products are steady, although lumber prices have started to rise again. In the energy sector, we've had some increase in the rig count, which is good for the economy of Louisiana. On the agricultural side, the drought has been quite severe in the Southeast although not quite as bad in our District, I think, as in the Fifth District. There has been an estimated loss of about $230 million; that's basically affecting the corn, tobacco, and peanut crops. We had a meeting of our Small Business and Agriculture Advisory Council last week and the small business people continue to complain, rather bitterly I might say, about the lack of credit availability. They now say they are not even talking to their banks anymore but are trying to use nonbank sources of funds, including their own internal fund development. The farmers, on the other hand, say the banks are quite aggressive in trying to get agricultural loans, so they're not having any trouble at all in finding credit. Finally, with respect to the District, I've been quite interested and surprised that NAFTA seems to be a greater source of conversation among people that I've talked to than the health program. And, unfortunately, while there seems to be support in many quarters, the sentiment at the moment is that NAFTA is not going to pass, for what that's worth. Turning to the national economy, our forecast in the near term is very close to that of the Greenbook. We do see greater growth in the middle to the latter part of 1994 and our inflation forecast is a little higher. That increased growth in our forecast is predicated almost entirely on our assumption that hours worked and overtime can't continue at this level and that at some point employers are going to have to take on additional workers. While that's in the forecast, I think employers are still at this point very reluctant to take on additional people; and where they are adding workers at all, they are temporary workers for the most part. If we get the Greenbook forecast, which is a bit lower than ours in 1994, I think that would not be a bad result. I think at this point we're in the fortunate position of perhaps being able to sit back and wait to see what data come in a little later. Thank you.",980
-fomc-corpus,1993,President Keehn.,4
-fomc-corpus,1993,"Mr. Chairman, turning to the District, the level of economic activity seems very much unchanged since the last meeting. Still, the underlying tone of the reports seems a bit stronger, at least in terms of volumes. The automotive business continues at a surprisingly good pace. The fourth-quarter production schedules have been set some 11 percent over last year. In a comparative sense, the fourth quarter of last year was really quite a strong one so this year's fourth quarter bodes to be a pretty good one. And with retail inventories still at good levels, as long as the sales hold up the industry thinks the downside risk on production is reasonably limited. The automotive industry, therefore, expects that their activity will be a plus in terms of fourth-quarter GDP. The steel business continues at a strong pace given the good first half that they had; it was the best first half since 1981. As [for] the current level of operations, they're at running about 87 percent of capacity. They expect shipments this year to come in at 87 to 88 million tons. So, in terms of production it's a good year. They just aren't making any money. The October price increase that was announced earlier is not going to stick; but despite that they're really pumping out a lot of metal. Despite the floods and other adversities in the agricultural sector--and as an aside I would say that the weather over the next few weeks is certainly going to be critical to that sector--the farm equipment business continues to be very strong. The company I talked to has a scheduled fourth-quarter production level some 30 percent over last year, but last year was really a very, very poor comparative quarter. In the truck business, the 1994 outlook for medium trucks is good. They're expecting a 10 percent increase next year. Heavy trucks will be down a bit, 5 to 6 percent, but this is a result of a regulatory issue; there's a change taking place at the beginning of next year and, therefore, there was some advance buying this year to get the trucks in before that change. I continue to be impressed, really even surprised, by the intensive competitive conditions of the marketplace and the very restraining effect that is having on pricing. Many companies are achieving outright reductions in the cost of their outside purchases. And for those companies experiencing increases, the increases tend to be pretty small and in the production process they are able to overcome those through productivity improvements. So, it really is a very, very intense pricing environment. But I do find the employment aspects of the environment increasingly worrying. Companies are continuing to contract their work forces, and CEOs are taking a very, very hard line on this and are exerting an awful lot of employment discipline on their organizations. As an example, in one company in Chicago, which 15 years ago had sales of about $1 billion and 53,000 employees, their sales level currently is up to $4 billion and their employment level is down to 25,000. And despite the increased production levels, which in some cases really are quite significant, I think it's a fair statement to say that no one I have talked to plans to add permanent employees to their payroll. One change in the outlook that I find a little interesting and almost surprising is in the commercial real estate business. I talk to a company from time to time that is in the upper end of the commercial business, and over the last three years they have had nothing to report other than just absolutely dismal conditions. This time, though, there was a slight change in the tone. They think conditions are beginning to improve. As yields on alternative investments have come down, people are looking at real estate as a possible investment for a higher yield. This is probably an improvement for the wrong reason; nonetheless, it appears to be beginning to result in something of a stronger tone in rental conditions, terms, and other things like that. They expect, if this continues and there is an improvement, that as we get into the second half of the 1990s the underlying fundamentals can begin to show some improvement. With regard to the national economy, I think the 2-1/2 percent or so growth rate that we've been talking about continues to be very realistic, very achievable, and that at this point the risks are about evenly balanced. Thank you.",876
-fomc-corpus,1993,Thank you. President Parry.,7
-fomc-corpus,1993,"Mr. Chairman, economic activity in the Twelfth District is still weak, and it's not a surprise to indicate that that is due largely to poor conditions in California. We saw employment down in August; since the peak of employment in July of 1990 there have been 588,000 jobs lost in the state. It's also interesting to note that if one were to back the state out of the national figures we'd probably have an unemployment rate of about 6.3 or 6.4 percent as opposed to the 6.7 percent. Residential construction activity shows no signs of picking up in the state and this, of course, is despite the low interest rates and also reduced home prices. The number of housing permits is down 13 percent from a year ago and stands at about a third of the level that was reached in 1989. On the commercial side, the only thing I could say that would be of a positive nature is that property values have fallen so low that we seem to see some serious buyers in the markets. Actually, there are some transactions taking place. If you looked at the situation a year ago there was virtually no activity. Reflecting California's economic troubles, net migration to other states rose to 150,000 in fiscal 1993. In contrast, the number of legal foreign immigrants to California rose 23 percent in 1992 to a record 237,500. Now, the official estimate is that illegal immigrants are 100,000; I think that's really low. So, in spite of the moves to other states, the state's population is growing very rapidly. Conditions are much better in other parts of the [District]. In fact, we have two states that are among the top five in the nation in terms of growth rates, Utah and Nevada. Homebuilding activity is very strong. The number of housing permits during the three-month period that ended in July was up 22 percent in Idaho and 35 percent in Utah. Home prices are rising dramatically. From 1990 they're up 27 percent in Boise, up 18 percent in Salt Lake City, up 16 percent in Las Vegas, and up 13 percent in Reno. Manufacturing growth is also strong and outpacing the national average in many of these states. We've seen 4.3 percent growth in manufacturing in Idaho, 3.4 percent in Nevada, and 1.7 percent in Utah. If I can turn for a moment to the national economy: While I agree with the Greenbook pattern of modestly accelerating growth and decelerating inflation, I'd have to say I'm a bit more optimistic about the magnitudes in 1994. We're expecting that real growth will be up a bit more--not quite half a percent--with somewhat less inflation. On the price side, while some factors--certainly one-time factors--are going to have the effect of tending to raise the CPI a bit in 1994, our estimates are that we're going to see some greater improvement in the CPI than is indicated in the Greenbook.",616
-fomc-corpus,1993,President Broaddus.,5
-fomc-corpus,1993,"Thank you, Mr. Chairman. Well, there hasn't been much change in our District over the period since the last meeting. The information we're receiving from our business contacts, directors, and others indicates that the District's economy is growing at a moderate pace. But, as Bob Forrestal said, we've been hit hard in agriculture by the drought; we're coming out of that now but outside of agriculture things are pretty much unchanged. As elsewhere, people are frustrated by the slow pace of overall recovery; they are especially frustrated by the sluggishness in job growth. But I don't think very many people in our region think the economy is about to turn back down. One sector where we do seem to be seeing pretty consistent signs of somewhat greater strength is housing. Home sales, construction, and both new and existing home prices seem to be rising in most local areas in our region. As far as the national economy is concerned, the Greenbook's projection is certainly reasonable and plausible; and objectively speaking the risk of error is probably pretty evenly balanced on both the up side and the down side, given what we know now. I've been more optimistic about the outlook in recent months than most people and I guess most people have been more optimistic than the actual outcome. But I think I have been more optimistic than most people coming into this meeting, so I need to be a little humble in making any conjecture about future growth at this point. Nevertheless, I would humbly submit that we may get somewhat stronger growth going forward than the staff expects. I would make three points in this regard. First, both the Greenbook and the Beigebook seem to suggest that the greater strength in housing, which as I said a minute ago we see in our District, is pretty general across the country. As the Greenbook points out, the latest reports of builders, lenders, home buyers, and others in the market all seem to indicate that the housing outlook generally is better than some of the latest data seem to suggest. That might to some extent be substantiated by the increase in housing in August that you announced a minute ago, Mike. In light of these reports, and given the substantial further decline in mortgage rates, the pickup in housing that seems to be going on currently may turn out to be more robust and sharper than many people think. Second, I think consumer spending is looking increasingly solid. We had a good rate of increase in real personal consumption expenditures in the second quarter and, given a high level in July--if I calculated this correctly--the third-quarter rate conceivably could be close to 4 percent even if there are relatively small increases in the months of August and September. And finally, as many people have pointed out, job market conditions are generally stronger than the weak August payroll figure would seem to suggest. The lengthening workweek, the strength in the household survey data, the continued fairly healthy rise in help wanted advertising, all suggest to me that the labor market is at least holding steady and perhaps even improving a bit. So all in all, it seems to me that at least one can say that private domestic final demand is firming up noticeably. Well, ""noticeably"" is too strong; I guess one has to exert a little effort to notice it, but I think it's there. Activity undoubtedly will continue to be restrained going forward by the forthcoming tax increases, employer concern about the cost implications of health care reform, and the economic weakness in many of our major export markets. But I still think on balance that there's a better than even chance that we will get a little more growth than the 2.3 percent rate projected by the Greenbook for the second half of the year. One final point, if I may: In my view the most significant development by far since the last meeting is the further decline in long-term rates. One of our major objectives in policy in recent years, as you all know, has been to help bring long-term interest rates down further by raising the credibility of our efforts to achieve price stability over time. I think the much greater than expected declines in long rates recently are evidence that that strategy is working over time. That may be evidence of other things as well, but there's no doubt that our actions recently have aided the further decline in long rates. And I hope we will do whatever we need to do going forward to maintain and extend that progress. Thank you.",885
-fomc-corpus,1993,Thank you. President Hoenig.,7
-fomc-corpus,1993,"Thank you, Mr. Chairman. Our District continues to grow modestly, as I've said time and time again. Construction remains reasonably good in our area mostly due to housing, primarily in the western portion of our region in Denver. Energy has posted gains and that's tied to the natural gas industry, which is still fairly active in our area. Banks' earnings are doing extremely well; in the second quarter, as for the nation, they were very strong. In fact, in Oklahoma, which I think was once the worst in the nation, banks earned in the second quarter something on the order of 1-1/2 percent on their assets. I was in Oklahoma last week and there were a couple of banks actually talking about making loans! That's the first time they've said that in almost a decade. They said they wanted to wait two more quarters, though. [Laughter] I'm only half kidding! The service industry is generally solid, although not as good as the nation. Where tourism is very important, it's a little disappointing. Manufacturing is really weak; durable goods employment actually has declined over the last year in our region, about 2-1/2 percent we estimate, and that has to do in part with the aircraft industry. Prospectively in our region, we expect more of the same in terms of slow growth. Low mortgage rates should keep housing starts strong in our region, especially in the mountain area where there is a bit of in-migration from California going on. Agriculture will report solid income, we think, due importantly to livestock prices; and crop losses will not be sufficient to offset that, including [those associated with] the effects of the flood and of the drought, and also some freeze that we had in portions of our region. In manufacturing, though, we see nothing that would show any strong improvement in our region, so we think it will continue to be rather slow as we go forward. For the nation, we expect moderate growth, as everyone else does, although we are somewhat stronger than the Greenbook. We also expect modest inflation, about the same as the Greenbook. Some of that comes from a little stronger growth in business fixed investment and a little more accumulation of inventories, but basically we see very modest growth going forward. Because of our stronger growth projections, we see employment being a little better than what the Greenbook shows but, again, not enough to change how we view the economy into 1994.",494
-fomc-corpus,1993,Thank you. President Boehne.,8
-fomc-corpus,1993,"The Philadelphia region has improved a little but it continues to grow modestly and still, I think, lags the nation. Employment growth is sluggish and attitudes remain cautious, neither optimistic nor pessimistic. Where there has been some improvement is in the manufacturing sector, which has been a major drag on the economy. It's not that it's going up so much; it's that it has tended to stabilize after several months of decline. Also, New Jersey, which has been one of the hardest hit states in the country, appears to be improving. The weakest sector there was construction, and both residential and nonresidential are showing some signs of growth although from very low levels. Also, New Jersey had a good tourism summer and that has been a positive. More generally, I'm picking up the same kinds of vibrations that Si is in the commercial real estate market: That investment in real estate is beginning to look relatively attractive because other alternatives aren't so good. It has been a long time since I've heard the term REIT in our board room but I'm now hearing it again, which isn't all good news. We went through the REIT problems of 20 years or so ago. But this noise we hear about some improvement in commercial real estate is not for this year or next year so much as later in the decade. District bankers report weak commercial loan demand. However, when we pursue that a little more, they are beginning to wonder how they will finance a pickup in loan demand when it comes. And that's a new kind of attitude. They're worried about the runoff they've seen in deposits and whether they can get enough deposits back to fund what they think someday will be an upturn in loan demand. On the national economy, I think the fundamentals are about the same and will likely continue to be the same: moderate growth, subdued inflationary pressures, employment growth insufficient to cause a significant drop in unemployment, and cautious attitudes. I don't believe there's very much that monetary policy can do to alter that outlook even if we wanted to. But I think the respite from criticism that we've had in recent months is likely to come to an end. Impatience is going to be our greatest foe in the next few months. And I suspect that we will increasingly have to defend a no change policy as the restlessness over this rather disappointing employment growth continues to build.",468
-fomc-corpus,1993,President Jordan.,3
-fomc-corpus,1993,"Even though it has been a fairly short period since the last meeting of the Committee, I would not characterize the situation in the District as better than the nation anymore. The mood coming back after Labor Day for large and small businesses was less positive for the District than I thought it was before. Objectively, the numbers look still pretty good. Unemployment has been declining in our District, even if it hasn't nationally. The auto sector is doing quite well, mainly because of a larger domestic share, the transplants and all of that. One of the things that I hadn't considered before about the transplant companies raises an interesting problem for them. This came up with the recent Honda actions. They cannot effectively sell essentially the same car that's produced in Ohio and produced in Japan at different prices. So, the exchange rate is forcing them to make choices between pricing that's appropriate for an import or pricing that's appropriate for a domestic car, with considerably different implications for volumes depending on which way they go. It's quite different for a company like Honda that has a very substantial domestic production relative to their total versus some of the other foreign manufacturers. Retailing was disappointing. The major retail companies headquartered in the District that operate nationally said that the back-to-school selling season was less than they had hoped, but they remain hopeful about the holiday selling season. In a joint board meeting last week, large and small businesses made reference to the idea of expecting leaner times--that '94 would be weaker than '93. And they talked about the general pattern of what they call ""making small downward adjustments"" in spending habits and expectations in order for it to get soft in the region. One director in doing a roundup for me of minority businesses in the major metropolitan areas said that there's a general sense that minority owned businesses are being more negatively influenced by government actions than non-minority businesses because of the way the tax laws and the health care proposals affect them. Turning to the nation and the Greenbook, a number of comments are being raised on some issues that concern me. First, this discussion about long-term rates and the backward-looking model and the forecast part of that seemed to me like a debate a long, long time ago, involving the views of Ptolemy and Copernicus. The Ptolemaic model did work well apparently, but that didn't make it valid. What we do know is that in the very long run there is a relationship between the quantity equation and the Fisher equation. [That's] because the real return on productive assets and the real return on financial assets are going to approximate over time the real growth the economy is able to produce, and one would expect that inflationary expectations in a sustained steady state world are going to approximate inflation. In the 1953 to 1963 period nominal GDP growth averaged about 5 percent, what the Greenbook projects out toward the end of '94. And, of course, in that period long-term rates were substantially lower than they are today. But at that time I think we had a regime where people believed that increased inflation and interest rates were temporary and bound to go back down, whereas today we still have the opposite. And what we're trying to do is change that regime. It's not an inflation objective in terms of numbers, but rather a mind set about what the natural order of things is. And that brings me to some [points] about fiscal policy and the way it was raised both in the projection and discussed in the Greenbook. Mike said in his response to me that it's not advocacy to say ""achievement of this middling expansion path...."" But that to me implies that real output is an objective of monetary policy, assuming we know how to measure the thrust of monetary policy actions on nominal or real magnitudes. I'd say a couple of things. This month is the 25th anniversary of a study completed on various ways of measuring fiscal policy at the St. Louis Fed; that's a long time ago and I don't think we've learned a heck of lot since then about how to gauge these things. The notion of characterizing current fiscal policy as restraint is about like the Lyndon Johnson surtax of 1968. I would worry about that being allowed to influence monetary actions as it did at that time. If we maintain that the objective of monetary policy is price stability, somehow measured or viewed, and if we accept the Greenbook projection that inflation is now higher than we previously thought it was going to be with the current stance of policy and if that policy is [deemed] acceptable, then that says that we have either changed our objective or the time horizon for achieving that objective or that we think the Greenbook is wrong on its inflation forecast or our policies are wrong and they need to be adjusted.",955
-fomc-corpus,1993,President McTeer.,5
-fomc-corpus,1993,"Most indicators in the Eleventh Federal Reserve District remain positive. Our District economy seems to be accelerating a bit from a level that was already above the national average. NAFTA dominates the conversation in Texas when we talk to directors, Beigebook respondents, members of the Small Business Advisory Council, which met last week, and banking groups, although the small business people are very afraid of mandated health benefits coming out of the health reform effort. Commercial real estate still hasn't done much but home and apartment construction are beginning to be very strong in a lot of our markets, particularly Austin and San Antonio, and even in Dallas to some extent; within a five mile radius of where I live there are, I believe, 8,000 to 10,000 apartments under construction. Austin has more under construction than Los Angeles, Chicago, or New York, and Dallas is third behind Chicago and Atlanta. New construction appears to be putting downward pressure on existing home prices. I refinanced about three weeks ago. And while I got some rate relief, my appraisal came in considerably below what I paid for the house, which is somewhat discouraging because I thought I moved to Texas at the bottom of the real estate cycle and it turns out I didn't. We don't hear a lot about upward pressure on prices in the District but we do hear about it in building materials. Retail sales in the District seem to be holding up rather well, but who has interests in real estate, specialty real estate stores across the nation, and showed us a chart indicating that in the three weeks following the passage of the new tax law, retail sales in those stores just collapsed after having been growing rather nicely.",333
-fomc-corpus,1993,Is this a high-price type operation?,8
-fomc-corpus,1993,"Not necessarily, it involves things like high-volume office supplies, [unintelligible], that kind of thing. Some of them are specialty and higher priced. I guess that's all I want to say.",41
-fomc-corpus,1993,President Syron.,4
-fomc-corpus,1993,"Thank you, Mr. Chairman. In New England the economy is mixed but there are signs of growth. To put this in context, in a sense one really has to look at this period, given the enormous overheating we had in the '70s and '80s in New England, as a long-term healing period. I think that's pretty important, and some [healing] is still going on. We see some wage rate adjustment [and other] things happening. And there are improvements in some areas. We've seen very substantial improvement in the banking sector. Now, the returns are still not numbers that are comparable to national figures; return on assets is about 1 percent currently. There is an improvement in bank willingness to lend, and I think an appropriate degree of caution with it, but there is more lending now even in small commercial real estate ventures. On the small business side, I think there is a willingness to lend, and I think we actually have a new equilibrium being approached with small business loans being made on terms that may be [reasonable] over the very long run. Small business just hasn't adjusted to that, and those who can't just have to get a deal someplace else and change long-term relationships. But I don't think there's an awful lot more to be hoped for in that change in willingness to lend. Like everyone else, we're seeing an improvement on the residential side. And even in manufacturing all of this restructuring that has been going on--we had a lot of transitional problems--is still going on, but we can see the end of the tunnel, hopefully. Going back to this issue of price pressures, it's interesting that in the health care industry, among the producers of health care equipment--U.S. Surgical and these kinds of [companies]--we really do see a change in the way people are approaching things. They think this is a permanent shift in their business in a lot of ways with very, very substantial price pressures, and they are adjusting prices downward in some areas. One fellow from a quite large health care equipment company said: ""If the country does the right thing, my business is going to be lousy for five years and there's just no way to avoid that."" We've mentioned that in the mutual fund business we still see very strong flows [and] increasingly nervous fund managers. The comfort I take out of this is in their nervousness; it's the non-nervous fund managers who worry me. But I think we are making some progress there in terms of people being more and more aware of where we are in this situation. I'd just mention that tourism in New England runs inversely to air fares. We had a great year, probably the best year since the mid-1980s in tourism. As far as the United States goes, I'm very much in agreement with the overall contour of the Greenbook forecast. I'm a little more optimistic on prices but I have to admit that's based on a usual kind of capacity and to some extent labor market view of things, and I'm a little more concerned on the export side. I would think that the risks are probably center-weighted. One thing I can't quite figure out is these consumption numbers, [given] what we're seeing in the income numbers. [The inconsistency] has been going on long enough now that I'm starting to wonder whether some of the other figures are right. Particularly in New England, of course, there has been a revision in some of the data captured in the national revisions. As bad as things got, the mood never really got as bad as the data were. And I think that's consistent with what we're seeing now, so it makes me wonder about them. Over the long term, I think we just have no choice but to slide through this period; I have some sympathy for what Ed Boehne said about what monetary policy can and can't do. I do think, though, that we can't avoid, not immediately anyway, the fact that there are tradeoffs in all of these things. And I personally think that at least in the intermediate term monetary policy affects real magnitudes. Over the long term it may be a different matter. And I always thought the reason we want price stability--and I think it's absolutely important we get it--is to maximize real output. So I think that is what we're all about; and unfortunately in some intermediate periods that can involve some tradeoffs.",883
-fomc-corpus,1993,President Stern.,3
-fomc-corpus,1993,"In terms of economic conditions in the District, the trends and patterns remain generally positive as they have for quite some time. There are some concerns with regard to agriculture because of the weather, of course. There's the concern that all the shoes haven't dropped yet with regard to military bases and possible closures. And there are some strikes under way in some of the taconite mines in northern Minnesota and the upper peninsula in Michigan. But with those caveats, conditions really are pretty good. Employment is up in all District states and we are getting renewed reports of pretty tight labor market conditions in some of the major markets in the District. That does not seem yet to have translated into demonstrable wage pressures, but we are hearing reports of difficulty in hiring--and these are above-minimum-wage type positions --and retaining workers. With regard to the national economy, I don't see much that's going to break us out of this pattern of moderate growth and moderate inflation that we've been in for quite some time. I've been surprised--Ed Boehne raised this point--that there has been as much patience, or maybe less impatience than I would have expected, with regard to the performance of the economy over the past couple of years. Maybe that's about to change, but so far it seems to me that there certainly has been less impatience than I expected. And I guess the Committee at least implicitly seems to be patient or satisfied with both the pattern of growth and inflation that we've been getting.",297
-fomc-corpus,1993,President Melzer.,4
-fomc-corpus,1993,"In our District the situation is pretty much like the one Al described. I don't detect any major changes in activity. We're still seeing modest growth. I would say that retail sales are reasonably strong. That's not getting fully reflected in employment, though, where we've been pretty sluggish. We're relatively stronger than the rest of the country in manufacturing and quite weak in services right now. Some of that may be flood-related because of the impact on construction in particular, which has been a weak sector employment-wise. We do hear reports from our directors and others about modest expansion in manufacturing areas--firms adding several hundred jobs here and there. So, generally, I'd say that's picking up. Housing has been quite strong over the last year. What we heard earlier was that the wet weather in the spring was going to push activity later into the summer and I think we're seeing that now in terms of a pickup in activity. With respect to the flood and its effects in general, there wasn't that much disruption of employment activity and many of those who were disrupted are back to work now. Cleanup efforts are under way. There will probably be some positive impact on construction activity in due course, although I don't think it will be that noticeable on a national basis. Barge traffic is moving on the river and so forth, so in many senses the crisis of the flood is behind us. In terms of banking, it was interesting to note an increase in loan activity across the board in the second quarter; actually loan growth was relatively healthy in Eighth District banks, up not quite 6 percent. Consumer, real estate, and business categories were all growing. My final point--maybe this is somewhat related to the flood, but [it's difficult] nationally to sort out the flood, drought, and other effects--is that the crop estimates aren't dramatically down that much. But it's interesting that in Missouri the corn crop is estimated to be down about 40 percent, which is a fairly dramatic hit, but in Illinois [the effects are] very little, maybe about 15 percent in terms of the corn crop. Nationally, I keep asking myself why I don't feel better about the relatively sanguine outlook that we have. This ought to be ideal from a central banker's point of view. I know we're paid to worry, but real growth around potential and reasonably well behaved prices is something I guess we ought to feel good about. But there are two things that bother me somewhat. One has to do with the fact that I just don't think we can gauge the current thrust of monetary policy very well, and I'm very uneasy about the fact that we may well be in a very stimulative posture and those chickens will come home to roost. The other thing--and I think it has been appropriate to show some flexibility on this front--ultimately would be the question in my mind of moving the inflation rate down closer to what would be some representation of price stability. Others have commented on this at other meetings. I think to some extent we've taken comfort in the fact that prices haven't been moving up. But at some point we may have to think about trying to move inflation a little lower.",633
-fomc-corpus,1993,Governor Lindsey.,3
-fomc-corpus,1993,"Mr. Chairman, given what I've done in the last month, I think my contribution would be to talk about a district we don't have represented here. It's what Congressman Clay called America's internal third world nation. Having been to hearings all around the country, I thought I'd just report on economic conditions that I've heard about. There seems to be a growing gap between expectations, which are rising, and realities, which are falling. The rising expectations stem largely from political changes and promises of change and reform. I'd point out that there are extremely high expectations about what potential changes in the Community Reinvestment Act could do. I doubt very much that anything we do could fulfill those expectations. So I think it's going to lead to disappointment. With regard to realities, in the 1980s real black family income rose about 70 percent faster than real white family income. Black small business creation as well as Hispanic small business creation was quite quick. Both of those trends have stopped, which seems rather puzzling until one thinks about the usual process that's going on. The usual pattern for all ethnic groups moving up has first of all been the civil service. And limits on civil service employment at the state and local level and now in federal civil service are impacting minority communities particularly. Even more dramatic, particularly for young people, are cutbacks in military hiring which has long been a way out. We've seen an historic and continuing trend of decline in pay in manual jobs; that's no surprise. But during the '80s there was robust growth in office jobs, which led to rapid gains in female incomes relative to male incomes. In minority communities female incomes are a more important component than they are in the white community, so that was a net plus. That has stopped and it is one of the problems being faced. And finally on the horizon is the fact that the health care industry, which has also been a major employer of blacks and Hispanics, now appears to be facing cuts. As a result there does not seem to be the job growth going on and, therefore, the realities are somewhat grimmer. There is good news. Minority test scores, SATs and what have you, continue to rise; they've been rising now for 12 years. It's interesting that white test scores are unchanged, but for all other groups test scores have been continually rising. The reason they're static for the country as a whole is that the composition of the population is changing. But, still, progress is being made. Graduation rates are up and, according to survey data, drug use is down. In fact, it was lower in the last survey for the minority community than for the white community. The other big piece of good news is the [increased] affordability of housing--and that's largely due to lower interest rates--which is a real plus. But I'll tell you, I heard quite a bit about the effects of regulation. Jerry Jordan mentioned that with regard to small business and minority small business in particular. There are three that I think we should take a close look at. The first is the appraisal mess, which is without any question devastating for the minority community. Appraisers, even licensed and certified ones, have no idea how to do appraisals in the inner city and as a result are literally destroying what equity might exist there. Second is the tightening of down payment restrictions; the monthly payments are more affordable but it's a lot harder to come up with 20 percent down than with 10 percent or 5 percent down. And tightening of bank regulation has adversely affected the minority community in that way. Finally, and I heard this everywhere I went, is something we don't think about; it's a classic unintended consequence. For historically underserved communities, cash is not only a medium of exchange, it's a store of wealth. If you don't have a bank account you keep your money literally in cash. Well, in the name of anti money-laundering laws, we have made the use of that cash and its entry into the banking system virtually impossible. I had a lady in Denver confront me. She was trying to buy a house and had $5,000 in cash; obviously she was not allowed to use it by the bank, as you might imagine, under our laws. And she said: ""You're treating everyone in the community as if they were a drug dealer."" And I had no answer for her. I thought it was a very good observation.",889
-fomc-corpus,1993,Very interesting.,3
-fomc-corpus,1993,"It's something we should definitely think about. I don't think the Congressmen who are leading the fight on the Hill are aware of exactly what that's doing. So, I saw a tremendous amount of bitterness. I had never seen anything like what I saw at the hearings in Los Angeles. I think the country would see a great cloud lift if we could somehow cut southern California off from the rest of the country! The bitterness there was not only directed against the establishment but against other minority groups to an extent that I just found unbelievable in a public hearing setting.",110
-fomc-corpus,1993,The Koreans and--,5
-fomc-corpus,1993,"Yes, and backwards in time. We had testimony from the Chinese banking community, which was a good lesson in history. As late as 1946, it was illegal for Chinese to own land in California. 1946! So, needless to say, this community felt that it has been historically disadvantaged and yet has solved its own problems. We had a witness testify who said, in effect: We solved our own problems; don't expect us to solve anyone else's problems. And the witness said it that bluntly. Also, I think the amount of tension that exists in Los Angeles between the Mexican American community and the black community is something one never sees on the news, but it came through loud and clear in the hearings. So, that was a matter of some concern.",156
-fomc-corpus,1993,Is that going in both directions?,7
-fomc-corpus,1993,You bet.,3
-fomc-corpus,1993,Yes.,2
-fomc-corpus,1993,It certainly does in Philadelphia.,6
-fomc-corpus,1993,"Yes. It's competition for everything. It's competition for civil service jobs; it's competition for contracts; it's competition for housing. I don't know what implication it has for the Greenbook, but it is a matter of great concern that we have a situation of rising expectations and falling realities. And in the long run we've got to reverse those two curves.",69
-fomc-corpus,1993,"Right, I would agree with you. I think the CRA issue has created a political [fallout] that has gotten out of hand with respect to expectations, and it will be very tough to fulfill a lot of what people are hoping to see.",50
-fomc-corpus,1993,"Larry, I think those observations are especially insightful. I wonder if you wouldn't mind just dictating some of those and passing them out.",27
-fomc-corpus,1993,Thank you. I see the recorder is on.,10
-fomc-corpus,1993,"Well, maybe it could come from that. Also, some of that ought to be in your public remarks at the appropriate time. I think those are things that need to be said.",37
-fomc-corpus,1993,"Well, I think it could be appropriately embodied in the minutes of this meeting.",16
-fomc-corpus,1993,Good idea.,3
-fomc-corpus,1993,Vice Chairman.,3
-fomc-corpus,1993,"The Second District economy remains extraordinarily flat. The level of employment in the state of New York is almost exactly what it was 12 months ago. And the level of employment in our portion of the state of New Jersey is actually down. So, throughout the area--I've been travelling around upstate New York and parts of New Jersey--the level of optimism is very low. It's not quite into pessimism but feelings are sort of flat [and people are] very concerned about what's going on. In the national economy, Dick Davis tells me that there has never been such identity of forecasts between that of the New York Reserve Bank and the Greenbook, which probably means the chances of the forecast being wrong are geometrically increased! But we do feel that [outlook] is by far the best bet. However, probably because of our proximity to Wall Street I do have stomach rumblings that I think I should share with the Committee. There is growing concern in the financial markets about the level of the DOW and of the equity markets in general--and some concern about the debt markets but considerably less--as to the sustainability of these levels of equity prices. The question is the effect that anything other than a very modest correction could have on the holders of mutual funds who signed the prospectus that said they understood that what goes up can go down and that the [value of the] investment could turn out to be less than what they invested. But I don't think there are very many who actually understood what that prospectus said. And there is very serious cause for concern on our part and growing concern within the financial community--I suspect in Boston as well, from what Dick Syron said--about what the effect of a sharp correction would be and what the reaction of the smaller investors will be who by and large were not there in the '87 crash. Do they think they can get quick cash and that the cash they will get is at least approximately what they invested? Some of the more astute mutual fund managers are keeping higher levels of cash than they normally would, so that they would be able to handle a greater than usual level of redemption requests. But it does not appear that those levels of cash are anywhere near high enough to handle a really sharp correction in the market if there should be a psychological reaction on the part of the small investor who says: ""I want to get out."" With the tremendous interconnection of financial markets, perhaps that concern from our neighbors in Wall Street makes me even more concerned about certain things that one sees internationally. We are absolutely in agreement with Ted Truman's forecast on what will happen in the major economies in Japan, Europe, and Latin America. And yet I think one has to worry For our economy I think it's not just the question of what effect those developments in Europe and Japan could have on net exports, it's the effect that they could have on the financial markets as well, which could exacerbate any of these concerns that we might have about what would happen in the case of a correction in the DOW and the effect on mutual fund holders. Domestically, we think, assuming that there is no contamination from abroad, that the economic forecast is quite sound. One would think, with the level of consumer confidence not being very high and the level of business confidence not being very high, that one would have to be more concerned about the forecast being accurate. But it seems to me that the projections on consumer spending are quite defensible and likely to be accurate. In the business investment area, we've been doing some interesting work in New York on where we are in the restructuring of the corporate sector. And it would appear that it is really a bit further along than we had thought, pretty close to the point where most businesses could say that the restructuring in the balance sheet is about where one would wish it to be. However, it would not appear that they're very likely to increase production with consumer spending not being more robust. Then, I think one has to ask the question: Is the forecast of rather strong business investment spending likely to be right? We think it is because so much of it is in the investment in increased power of the magic machine; however, that is not geared toward increased production but rather increased productivity and would appear even within the bounds of the economic forecast to be something that one could expect to be very likely to take place. Another rumbling that we get around Wall Street is that the attitude toward official Washington has improved considerably over the last couple of months. It went, if you will recall, from euphoria in December/January--a kind of view that if Richard Nixon could go to then-Peking, that a Democratic president could do certain things that no Republican could do. Then, [attitudes] went into an enormous funk in the spring months and are now--I think largely because of the budget reconciliation bill--somewhat more sensible, I'd say, in the view that it's going to be very tough to get NAFTA through and it's going to be very tough to get a sound health bill through. But there does seem to be a view that Washington is working, if not perfectly, at least better. So, I don't think that weight on the financial markets, which I believe was quite serious a few months ago, is quite what it was then.",1069
-fomc-corpus,1993,Governor Angell.,4
-fomc-corpus,1993,"Looking back over the last 18 months, the data seem almost unbelievable. In fact, no one talks about it because it's really hard to believe. The fact that we got to a 3.9 percent increase in real GDP--which no one talks about and I would admit wasn't 4 percent--and then had that cut literally in half...! In some ways it doesn't seem that way. That is, during 1992 no one really felt that good about things and in some ways during 1993 no one feels that bad about things. [But] that's really quite a significant step down to be operating at that level and then to fall back. What makes it more disconcerting is the fact that in 1992 December over December the CPI was up 3.1 percent and we've still got the CPI running at 3.1 percent. Now, we're forecasting 1994, Q4 over Q4, of 2-1/2 percent, and I don't think anyone knows how to change that number. No one seems to have any real good suggestions or real good alternate numbers that they've been advocating. To make it even worse, the revisions seem to show productivity trends higher than we thought they were. We've got productivity trends very, very high; we've got the ECI very well behaved and yet we're not getting the kind of combination of output and price level response that certainly seems desirable. I wish I could say just why it is that the economy has faltered so badly, and yet I can only guess. I think corporate rationalization certainly has been a factor. Certainly, the FASB rules in regard to post-retirement health care benefits undoubtedly gave some impetus to downsizing employment. Certainly, the pension plan underfunding that seems to be there probably already is impacting large corporate employment plans. And I think all of us are very well aware of how disconcerting that is. Apparently, many people who have jobs in this environment are much more aware of the fact that jobs are not necessarily permanent. So you'd think maybe we'd be getting a higher savings response or somewhat more conscious spending response and yet the numbers don't show that at all. We don't see any budge upward in the saving rate. So, all in all, from the domestic scene it seems a very strange combination. When we look abroad, certainly [we see] the impact of the economies in Europe and Japan; I guess the Federal Reserve staff and members of this Committee have all agreed that those economies are going to be weaker than they were generally thought to be by the governments and the central banks of those countries. When we look at the stock market, I guess we would think that if all this downsizing and rationalization efficiencies are going on, the profit numbers ought to sustain the kind of equity prices that we see. And yet ironically we don't seem to be having any inflow from abroad to U.S. equity markets. Indeed, in terms of diversification, mutual fund investors in the United States seem to be the only ones that are buying equities in Japan. So, all of this gets to be pretty confusing and maybe I better stop before I get in worse trouble.",638
-fomc-corpus,1993,Governor Kelley.,3
-fomc-corpus,1993,"I'm pretty close to where Governor Angell was at the end [of his comments]. It seems to me that on the economy we have a rather tight consensus with a couple of important exceptions today. There was consensus around the Greenbook type of view, and that certainly includes me. Very frankly that worries me a lot! I mistrust it; my contrarian antennae are twitching. I was interested yesterday in the Wall Street Journal that Keynes reminded us that the inevitable never happens.",97
-fomc-corpus,1993,Except for death and taxes!,6
-fomc-corpus,1993,"Good point. I don't mean to be facetious when I say that the thing that concerns me the most right now is that I don't know what I should be most concerned about. Where's the balance of risks? If you look at the things that we're able to analyze and make some responsible comments on, the risks seem to be quite balanced. And it seems to me that the things we can see are unlikely to take us very far away from our consensus view. It seems to me that if the consensus were to break, it could most likely be because of some unanticipated or unexpected event. And it seems to me that the world may have more than the usual potential for that right now; it always has potential for it. But there are some things out there that I think could change things radically. It's easier to see the bad things than the good ones. The failure of NAFTA, which could impact on GATT, could cause a rather severe dislocation of international trade at least for a while. Many friends of mine in the Southwest are terrified that oil may collapse below $10 a barrel, which could have some pretty severe impacts. There are a couple of major economies that we all know are in a very shaky state. The former Soviet Union has various civil wars going on; optimism in the Near East runs very high and it better be brought to pass or [the repercussions] could be more severe on the down side than ever, and so forth. I think there are up side [possibilities] too. It would not be out of the bounds of the imagination to see job growth start to pick up; the potential for that has been alluded to a couple of times this morning. If that were to happen, it could have a dramatic impact in terms of a resurgence of confidence. I think Americans like to be confident, and we haven't been for a long time. We could see a pretty strong bounceback in confidence, which could cause a real surge in the economy. All in all, Mr. Chairman, in August I said that I thought we should all enjoy our vacations because we'd have work to do soon enough. But it doesn't seem to me that the time is here yet. And I honestly don't seem to be able to generate any very clear notion about what it may be when it comes, either as to timing or circumstances or extent or even direction. Thank you.",480
-fomc-corpus,1993,Governor LaWare.,4
-fomc-corpus,1993,"Mr. Chairman, all of the Cassandra-like insights into what is going on that I had in mind have already been stated by Presidents Melzer and McDonough and Governors Angell and Kelley. So, I'll just be marked present. Thank you.",50
-fomc-corpus,1993,Governor Phillips.,3
-fomc-corpus,1993,"Well, I should follow right along with that. First of all let me say that I, like a lot of people, have been disappointed by the [slowdown] in 1993. I also was disappointed to see the downward revision by the staff for the third quarter; but I can't really argue with it. I do hope that the fourth-quarter bounceback that is projected in fact really happens. If that's the case, then that would make 1993 all in all reasonably respectable. I again am struck by the stark differences in outlook in various regions and also by Larry's comments about differences among groups. Sometimes when we focus on the Greenbook or the national economy, we tend to gloss over some of these drastic differences. One unifying factor in all of these comments, though, has been continued concern about the employment situation. The employment gains we've seen so far in '93 have been encouraging; we have seen jobs added. I think, though, that job quality is still a problem. Employees are still trying to learn to adjust to the restructuring via temporary part-time employment. This notion of downward mobility is still a concern. I hope that Dick Syron is right and that there is light at the end of the tunnel. I wonder whether this is more a function of learning to live with the adjustment as opposed to light at the end of the tunnel. All of this, I think, is continuing to weigh on consumer confidence. That's likely to be exacerbated over the coming months because of the uncertainties regarding what is happening to health care reform and taxes and also the NAFTA rhetoric and the defense cuts. Some of the other risks to the economy have already been discussed. As for productivity, we've seen a marked improvement so far in the '90s, but the question remains as to whether that's going to continue or whether the downturn that we've seen for the first two quarters of this year is going to be more the shape of the future. The fiscal drag that is likely to be setting in is a bit more worrisome because there's less room for error in projections. If we're at a 1.2 percent projected growth rate for the third quarter, that doesn't leave as much room for error in potential effects of the fiscal drag. And we have yet to see the health insurance and other spending cuts that are supposed to be put into place play out yet. State and local government shortfalls also are going to have more of a negative effect; that's going to mean either more cuts in spending or more state taxes, neither of which is very healthy for the overall economy. If the first announcement of the third-quarter GDP is really around 1 percent, I wonder what kind of effect that's going to have. It may well be that we're going to start getting more sentiment for a stimulus package. It may well be--and both Gary Stern and Ed Boehne talked about this--that the light may be focused on monetary policy a little more brightly. The other big down side that I'd mention, which has already been outlined by Bill McDonough and others, is the uncertainty in Europe, Japan, and the former Soviet Union. I agree that the risks are not just on the export side but that other kinds of effects might be engendered if there are problems in those financial markets. Now, having said that--and a number of people have stated that they believe the risks are balanced around the Greenbook projection--I don't think we should forget some of the strengths that we do have in the economy. The broader monetary aggregates and even credit are showing some signs of strength. The banking system is stronger; the financial markets are stronger. I must admit when I look at the stock market that I do see it as more problematic than the bond market, although I'm not one who has visions of tulips when I look at the stock market. But it is at a higher level. Perhaps the last good news or better news story to mention is on the inflation front: commodity prices have retreated; the PPI has been showing a disinflationary trend. And I agree that it's going to be possible to make some continued progress on core inflation.",834
-fomc-corpus,1993,Governor Mullins.,4
-fomc-corpus,1993,"Well, Larry Lindsey talked about neighborhoods and Bill McDonough talked about the world; I guess that leaves relatively little in between, although there are a lot of things in common. Bill McDonough suggested that some of the problems have to do with the and I have no doubt that that's the case; but That's probably not all of it. I think it has a lot to do with the nature of this environment in which it's just a very difficult political job, and no one has been very successful because of the adjustments we're going through and the economic sluggishness. And we've had it far better than most countries. Patience with political systems has already run out, and numerous incumbent governments have fallen. Just to extend Ed Boehne's intuition, I would be a little concerned if the patience were to start to run out with central bankers around the world. Central bankers have done a pretty good job during this period. We have had a pretty impressive turnover in leadership in the world's central banks, with a lot of the seasoned, very credible personalities moving on. Turning to the domestic side, I see very little new information to alter the views that I've stated a number of times. The revisions in the GDP data reinforce my view that the forces of moderate expansion seem well entrenched. One can certainly see this for the last six quarters--the last year and a half--which have averaged 3 percent real growth. The last four quarters have averaged 3 percent. It is true that 1993 is weaker; we'll wait nine months to see what it really is, just as we had to do with 1992 as Governor Angell pointed out. I think the patternthis year is in part due to the unsustainably robust fourth-quarter 1992 growth of 5.7 percent. It was natural to have a pullback in the first quarter. If you take those two quarters together, there was still 3.3 or 3.4 percent growth; they are still on this moderate path. But [the swing] created an inventory adjustment problem, which affected the second quarter and meant that was only about 2 percent; but still PCE in the second quarter and final sales grew more than 3 percent. The forces seem to be there. And I see no shocks to knock us off this--even the fiscal package--given the offset on interest rates and given the rather modest structural reduction in deficits. The third-quarter Greenbook projection is again for meager growth, 1.2 percent. I think that is about what it was last year at this time--maybe precisely what it was --for the third quarter of 1992. In fact, in the September 1992 Greenbook the projections for both the third and fourth quarters were between 1 and 2 percent as we headed into a 4-1/2 percent half. I'm not suggesting that's going to happen. I would suggest that even in the Greenbook's forecast the underlying forces of expansion seem to me to be well in place. Consumption is projected to grow more than 3 percent; business fixed investment is continuing to grow at a reduced but still healthy pace. Housing growth is expected to pick up and I think accelerate in the future. Even with slow exports and government spending, final sales are projected to continue to grow at roughly a 3 percent pace. The low growth in the third quarter projected in the Greenbook is due solely to adjustments: inventory adjustments, crop losses, and the auto inventory adjustment. So, it's an odd picture. We could have the first three quarters of 1993 come in at 1.3 percent. Yet, when I look at it underneath--the bottom line numbers--the underlying growth in demand seems consistent with moderate growth in the future roughly of the same order of magnitude that we've had in the past. It seems to me that sentiment as measured by the Michigan survey has plateaued at a level well above that prevailing in October of last year. In October we were just headed into a 5.7 percent quarter, you'll recall. And the current conditions are also above that entire fourth quarter of last year. It is a little troubling that the longer-term outlook continues to sour in the Michigan survey. August payroll [employment] was weak; the overall employment data still seem to reflect steady though gradual improvement. Initial claims continue to ease; the strong hours suggest pent-up labor demand. I continue to hear that payroll jobs are weak; they've grown by 1.7 million in the last 12 months and 1.2 million in the last 8 months. And the household survey, once you make the adjustment, seems to give the same sort of picture even though it uses an entirely different methodology. So, I think this is all consistent with steady momentum. Diminishing deleveraging head winds have been replaced in part by fiscal drag but countered by substantial easing in the capital market environment, and the dollar has eased some as well. It's interesting that the long bond yield has come down 50 basis points in the last month. Real long-term rates when you use the Michigan long-term inflation expectations or the Philadelphia one are starting to get to quite low levels. On inflation, I think Governor Phillips is right; the PPI has performed remarkably well; it's up only .7 percent over the entire 12 months. Of course, ex tobacco it's up 2 percent! So, smokers are approaching price stability! [Laughter] I think the health care plan may well take care of that. It is down a bit ex tobacco and maybe that's not quite fair. But I think it is clear that even with that adjustment we have made some progress. The higher-than-expected CPI we had recently for August did remind us that the bond markets still notice these things; they backed up a bit. Core CPI for the year to date is up at a rate of 3.3 percent, the same as for the 12-month period and the same as it was at the end of last year. It's an interesting 12-month period, though, because it consists of the most recent 6 months with core CPI at 2.5 percent and the previous 6 months at 4 percent. I think this pattern of a run-up in inflation that we saw is easier to understand with the revised GDP numbers when we realize just how explosive growth was in the latter part of 1992 and why people might have tried to return to passing through 4 percent price increases. And once it was clear that growth was going to moderate, the increases didn't stick. It's not at all clear to me where we go on inflation now. Commodity prices are again subdued only if we include oil prices. They still show a bit of an upward pattern without oil prices. Now, the Administration has inflation flattening and turning up gradually despite ample projected slack. It stabilizes once the slack has disappeared, but while there's plenty of slack in the economy inflation continues up.",1405
-fomc-corpus,1993,They need that for revenues!,6
-fomc-corpus,1993,"Well, it's interesting that they appear to suggest that our current interest rate environment is unsustainable because they do show interest rates increasing to levels above the inflation rate pretty quickly next year. Next year they show a Treasury bill rate above the inflation rate and then moving on up. Again, with the slack, I don't see why we shouldn't expect the disinflation trend to be re-established. I think that should be our objective and I hope we will get there. Of course, rates are still quite low now, both short and long rates. I think the financial system has eased and that monetary policy is doing what it can do to support growth. We're still pumping out the liquidity. M1 growth is 12 percent and is projected at 11 percent for the year. M2 plus bond and stock funds has accelerated to 6 percent growth in the second quarter and 7 percent in the third quarter. Governor Phillips mentioned that nonfinancial, non-government debt has gradually increased; it's growing at a rather moderate level. So, I think we're still sort of pushing it. I see no convincing evidence that we've gone too far. By the time we see such evidence, we'll probably be a bit late. So, I feel there's very little new to add. The economy still seems to be on track and I think we still will likely face some challenges on monetary policy, and we should try to stay focused and conscious during this period.",286
-fomc-corpus,1993,Do we have some coffee and some doughnuts?,10
-fomc-corpus,1993,Yes.,2
-fomc-corpus,1993,We'll adjourn for coffee and come back with Don Kohn.,13
-fomc-corpus,1993,Mr. Kohn.,5
-fomc-corpus,1993,[Statement--see Appendix.],6
-fomc-corpus,1993,Thank you. Questions for Mr. Kohn?,10
-fomc-corpus,1993,"Don, on the chart package--I guess everybody got this yesterday--the last two pages have M1 velocity and opportunity costs and M2 velocity and opportunity costs. The Committee has had some discussions in the past about what is going on with the relation between M2 and alternative variables. I don't recall any discussion about M1, its velocity, and opportunity costs. Looking at this, it struck me first how close the relationship still appears to be visually. And I started thinking about some other things that I once was more familiar with than I am today, the empirical models of money demand on the monetary base and M1 that use intermediate- and longer-term interest rates. Over the last year we've had double-digit growth of M1 and the base, on the order of 10 to 12 percent, about twice the rate of growth of nominal GDP. And the decline that we tended to get in long rates is consistent with the elasticities in those earlier studies. I don't know what you have in your opportunity costs, but using either version of that, I can think of four possibilities for the future. It would be interesting to get you to assign probabilities to the possible outcomes. One, of course, is that the relationship simply breaks down. One would be that nominal GDP accelerates to double-digit rates. At least the Greenbook doesn't have that! That would at least establish the relationship of velocity. A third would be that M1 and monetary base growth are essentially cut in half in the next year, down to about 5 percent or so, consistent with nominal GDP growth. And the fourth is that we continue to get a plunge in opportunity costs. Since I don't know what yours are, I don't know what those implications are; but for long-term government bonds that means a yield of approximately 4-1/2 percent a year from now. Comments?",374
-fomc-corpus,1993,"It's true that our models also have been tracking M1 pretty well, as you can see from this chart. We use short-term interest rates--the [3]-month Treasury bill rate--relative to rates on NOW accounts basically as the opportunity cost for [the NOW account component of] M1, and the short-term interest rate itself relative to the zero on the currency and demand deposits [components]. We find that our models underpredicted M1 a little over the last few years and we think that's primarily because of the currency flows overseas and maybe a little because of the mortgage repayments which are mostly in demand deposits. So, I guess we don't see a major disconnect that needs to be changed here. We have slightly slower M1 growth projected for next year based on our expectations that in fact interest rates will be flat and that there will be some further decline in NOW account rates. It continues to be [unintelligible] at the end of this year and the beginning of next year by mortgage refinancing. So, I'm not sure we see anything major that needs to be explained. M1 has always been very interest-sensitive, and I think that was the reason the Committee stopped targeting it in the early '80s. It's just that in order to make any sense of the connection between M1 and nominal income one had to be very clear about the connection between interest rates and nominal income. When NOW accounts were invented, the swing between [small] time deposits and NOW accounts as interest rates moved became very dominant in the M1 demand [function], and it became extremely interest-sensitive. So the initial response of the Committee was a widening of the bands for M1, then they re-based it midway through the year, and finally they just threw up their hands. If you couldn't get a fix on interest rates, you couldn't really get a fix on the M1/GNP relationship. I agree with your original observation: that, unlike for M2, we don't see major unexplained misses in M1 relative to interest rates and income. It's just that the relationship [between M1 and nominal GDP] is not very tight. The velocity of M1 swings over very, very wide ranges. So, therefore, it hasn't been all that useful to the Committee in guiding policy.",458
-fomc-corpus,1993,"Further questions for Don? If not, let me get started. But first let me raise an issue which has been disturbing me more than the economy in recent weeks, and that is the initiatives up on the Hill with respect to the structure of the Federal Reserve System. As Don Winn will be discussing, there are hearings forthcoming in the next few weeks on the Gonzalez bill, and Senator Sarbanes will be there as well. Secondarily there is the issue of the consolidation of regulatory agencies under a central independent agency. When I looked at both of those initiatives, I concluded that they didn't necessarily have very much behind them. That probably is still a correct presumption, but I'm no longer sure that that is the case. We here at the Board, I hope in conjunction with those of you at Reserve Banks, will be increasingly sensitive to the fact that this issue is surfacing and we're going to have to respond to it. We are going to have to appear as a sort of partial Committee at the request of Mr. Gonzalez. I'm going to have to go up there. [Given] the people who are being asked to testify before the House Banking Committee, it clearly suggests that we are leaning up against a stacked deck. It really is a wholly unbalanced operation. But instead of shrugging it off, I'm inclined to increase quite significantly our general positioning to make certain that we don't allow something to sneak up from behind and result in some major changes in this institution purely because we were too complacent. In any event, Don Winn will be discussing with us the current initiatives at lunch.",318
-fomc-corpus,1993,"When you say ""a stacked deck,"" do you mean in terms of the people who will be testifying in front of them or is there something else?",31
-fomc-corpus,1993,The witnesses are all there to say that the Gonzalez and the Sarbanes bills are perfect.,19
-fomc-corpus,1993,The non-Fed witnesses?,6
-fomc-corpus,1993,We hope so! [Laughter],8
-fomc-corpus,1993,Who other than the voting members [of the FOMC] is likely to appear there?,19
-fomc-corpus,1993,"Well, ask that of Don Winn; it's not clear what is going to happen. In that regard let me just say that we have been successful in keeping the issue of the minutes reasonably under cover. I think we have to be especially circumspect in the next couple of months and keep our heads down as best we can. Let me just tell you that the last thing we need during this sensitive period is any indication that there is a loose cannon in this organization. Maybe I'm being overly sensitive about what the risk to our institution is, but I much prefer to be overly sensitive and too cautious and find out after the fact that it was all unnecessary than to be on the other side of that issue. I just want to emphasize that this seems to be bulging in a way that makes me a little more nervous than I'd like to be. We'll review that summons a little more with respect to the legislative initiative at lunch, but I didn't want to discuss a number of things at lunch other than just what the legislative agenda is. So, I just want to put that on the table. I think the policy questions are less difficult, less a matter of concern. The more I look at the data the more I'm inclined to believe, as some of you have hinted, that there is something wrong with the numbers we are looking at. It's just not credible to me that we can have a significant rise in employment and in hours both from the payroll series and the household series--two measures that are about as independent as one can get of an economic phenomenon--and say that the GDP indicates productivity declined in the first half of this year. Now, I don't know what is going on in the statistical system, but I'm almost certain that out in the real world in an economy that is growing, the thought that we are having declining productivity just doesn't square with my understanding of the real world. Historically we have had alternate measures of output--for example, gross domestic income. Granted, the income side of the national income accounts is a little more flaky measure--with the proprietor incomes categories and even some of the profitability numbers--than the output side, which is the reason obviously that the output side is used. But if you look at it, you get something that frankly looks a lot more credible. You get a much lower rate of increase in gross real incomes in the second half of last year, or more exactly in the growth of gross domestic income in constant dollars; that grew a lot more slowly than the GDP and it was moderately faster in the first half of this year. I haven't looked to see what happened to the productivity numbers but my suspicion is they were still going down a little. I'm inclined to believe that when we look back at this period with the better annualized data, which may be a year or two years from now, it's going to look better because we can't have the unemployment rate declining, the initial claims falling and, as Governor Mullins said, a tight labor market with average hours of work moving up, and have declining productivity. It just doesn't make sense. Something is wrong with the data system, and I suspect--or I hope--that eventually that will get resolved. If you look at the industrial production index and its counterparts in other elements of GDP, it does look as though it was extraordinary even before the revisions; but with the revision we're still getting some evidence that the real part--the goods part--of the GDP may be running somewhat under what we're picking up in the industrial production index. It's a close issue and, frankly, I haven't had a chance to have somebody look at it in the detail that I would look at it. But the numbers just don't square. If that is in fact the case, we may be not all that far from potential here. I'd say the economy is moving [up at a rate] that has to be over 2 percent at this point, maybe 2-1/2 percent. I realize that this may seem to be making the figure look the way I think policy ought to run, but since I don't sense that anybody out there is talking in terms of any radical changes, I won't press this issue. The one thing I heard around this table, which I did find rather encouraging, was some semblance of a pickup in transactions in commercial real estate--not in prices. But the first stage of a bottoming out of the commercial real estate operation has to be that the number of transactions has picked up, because we [previously] had a terrific decline in the bids for the properties. The offering rates came down somewhat, but there was no meeting [of supply and demand] and nobody was doing anything. And it's only when the offering rates come down to the bid prices that the thing changes. And it's about time because if you look back at when the whole thing began to change, we have experienced a very significant number of periods where leases have been renewed. In other words, we've actually had most of the leasing adjustment and the [market clearing] valuations are beginning to emerge and apparently the ice is cracking. If we have been dealing with a significant balance sheet stringency problem in both the household and especially in the business area where commercial property collateral has been a critical factor in the whole system of restraint and if this [restraint] is beginning to ease, it may be that we're seeing the first stage [of a turnaround] in commercial banking itself; it may be starting to nudge back. And this little modest quickening of M2 may be something; then again it may not be. But I don't think the outlook has deteriorated at all; I don't think it has been great on the other side. I suspect that eventually we'll come out of this, but I don't think it's going to be soon. We still have a way to go. [It's clear] looking at the various relationships in the balance sheets that those relationships are not anywhere near back to where they were in 1987. And it should be fairly obvious, having gone through what we've gone through, that if anything the desired equity/debt ratios have probably gone up, not down, since 1987. So, we probably are still working our way through that; but as we've discussed many times in the past, the economy can accelerate its growth before the so-called head winds go to zero. As far as I can see, leaving aside the quality of the figures, the process that we're going through seems to me exactly what we perceived it to be over the last year. As I recall, we got to a 3 percent funds rate a year ago. I like to interpret that as: We finally got it right and decided to sit with it. In retrospect it may not be the wrong interpretation that we happened to hit the right level of policy. Despite the issues that Jerry Jordan is raising about a lot of things going on underneath, which is unquestionably true, we probably have not been badly fixed for the last year. And unless the data that come out a year or two years from now suggest that the economy actually is growing far faster than we think and we should have been tightening, my expectation is that we'll look back at this period and say that for once we got it right for a longer period of time than has ever been the case in the history of this institution. In any event, listening to what I have heard around the table I don't see any inclination, at least on the part of anyone who has spoken up, to move off where we are, which at the moment is a symmetric and no change directive. And I personally don't see any particular reason why we should veer from that prior to the next meeting, which is in mid-November.",1551
-fomc-corpus,1993,"Well, Mr. Chairman, when we used to be asked ""Are interest rates going up or down?"" we always dodged the question by saying ""Yes."" We can't say that anymore; we have to say ""Maybe."" [Laughter] But I think your analysis is quite right.",58
-fomc-corpus,1993,"""B"" symmetric, I completely agree.",8
-fomc-corpus,1993,"""B"" symmetric.",4
-fomc-corpus,1993,President Forrestal.,4
-fomc-corpus,1993,"""B"" symmetric.",4
-fomc-corpus,1993,Governor Kelley.,3
-fomc-corpus,1993,"""B"" symmetric.",4
-fomc-corpus,1993,Governor LaWare.,4
-fomc-corpus,1993,"""B"" symmetric.",4
-fomc-corpus,1993,"""B"" symmetric.",4
-fomc-corpus,1993,President Hoenig.,4
-fomc-corpus,1993,"""B"" symmetric.",4
-fomc-corpus,1993,Vice Chairman.,3
-fomc-corpus,1993,"""B"" symmetric.",4
-fomc-corpus,1993,"""B"" symmetric.",4
-fomc-corpus,1993,Governor Phillips.,3
-fomc-corpus,1993,"""B"" symmetric.",4
-fomc-corpus,1993,President Stern.,3
-fomc-corpus,1993,"Far be it for me to break the pattern: ""B"" symmetric.",15
-fomc-corpus,1993,Governor Mullins.,4
-fomc-corpus,1993,"I agree, ""B"" symmetric.",8
-fomc-corpus,1993,"President Parry,",4
-fomc-corpus,1993,Agree.,2
-fomc-corpus,1993,President Melzer.,4
-fomc-corpus,1993,Count me in!,4
-fomc-corpus,1993,Governor Angell.,4
-fomc-corpus,1993,"I can go along with ""B"" symmetric. I would simply note that if you're looking at real output, the recognition lag may be longer than we would wish it to be. So I agree with you that we need to remain alert.",48
-fomc-corpus,1993,President McTeer.,5
-fomc-corpus,1993,"""B"" symmetric.",4
-fomc-corpus,1993,"Anybody else? If not, we'll put that out for an official vote. Would you read--",19
-fomc-corpus,1993,"This language is on page 13 of the Bluebook: ""In the implementation of policy for the immediate future, the Committee seeks to maintain the existing degree of pressure on reserve positions. In the context of the Committee's long-run objectives for price stability and sustainable economic growth, and giving careful consideration to economic, financial, and monetary developments, slightly greater reserve restraint or slightly lesser reserve restraint might be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with modest growth in M2 and M3 over the balance of the year.""",111
-fomc-corpus,1993,[Call the roll].,5
-fomc-corpus,1993,Chairman Greenspan Yes Vice Chairman McDonough Yes Governor Angell Yes President Boehne Yes President Keehn Yes Governor Kelley Yes Governor LaWare Yes Governor Lindsey Yes President McTeer Yes Governor Mullins Yes Governor Phillips Yes President Stern Yes,49
-fomc-corpus,1993,"We will adjourn, and our next meeting is on November 16, 1993.",19
-fomc-corpus,1993,"Good morning, everyone. As you know, the first item on the agenda is a review of FOMC practices with regard to recording and transcribing FOMC meeting discussions and the desirability of preparing more detailed meeting records for eventual public disclosure. There are basically two issues to be covered. The first is the question of the release of certain FOMC records to the public, specifically the meeting transcript or some alternative detailed document going back [in time] and the discussion record going forward, including of course the question of whether or not to continue to record the discussions. The second is the Committee's response to Chairman Gonzalez's most recent request for all tapes and transcripts going back to 1976. I would presume that the decision made with respect to item one will in turn provide the basis for the response to Chairman Gonzalez. To start us off, I believe you have documents sent to you from both Virgil Mattingly, who will brief us on the legal issues, and from Don Kohn, who will discuss considerations related to various options before the Committee. Which of you gentlemen wishes to start? Virgil.",225
-fomc-corpus,1993,"I will, Mr. Chairman. Mr. Chairman and members of the Committee, there are two federal statutes that bear on the issues before the Committee this morning of public access to the existing transcripts of FOMC meetings and to tapes, transcripts, or other types of records of future FOMC meetings, should those detailed records be prepared in the future. These are the Freedom of Information Act (FOIA) and the Federal Records Act (FRA). FOIA governs what information the FOMC must release to the public and when. The FRA governs what records the FOMC must maintain. As explained in the memo, I believe that under FOIA the Committee is entitled, but not required, to withhold from public disclosure most of the material in each of the existing transcripts as well as in memoranda of discussion (MOD) type documents, should they be prepared for future meetings. There are two relevant provisions in FOIA. Exemption (4) would protect confidential information from [foreign] central banks and from individual businesses. I don't think there's any question about that. Exemption (5) would protect the Committee's deliberations. By that I mean the discussion and debate among the Committee members before they reach a decision on the directive or other monetary policy matters. This would cover the recommendations by staff as well as views and recommendations of individual members leading up to the time of decision. Factual portions of the transcripts would have to be released, however, where they could be reasonably segregated from the deliberative materials. These types of factual materials would include the vote, the attendance, and material that was already public or non-confidential. The view that public disclosure of the transcript is not required by FOIA is supported by the 1976 decision in the Merrill case against the FOMC. There the lower court, the district court, held that the FOMC was required by FOIA to disclose only the reasonably separable factual portions of the two memoranda of discussion at issue in that case. The great bulk of the material--running as high as 85 to 90 percent of those documents--was in fact withheld under the deliberative exemption. I should note at this point that FOIA does not protect the transcripts or any information of the FOMC from Congress. I'm only talking at this point about release to the public. While FOIA literally protects most of the transcripts, the Committee needs to consider the new FOIA policy recently announced by the President and the Attorney General. That policy is designed to promote maximum disclosure of information within the Federal government. Under the new policy the Justice Department has stated it will not defend an agency's decision to withhold information unless the agency reasonably foresees harm to important governmental or private interests protected by the exemption that is claimed by the agency. In accordance with the Committee's instructions, Ernie Patrikis and I discussed the impact of this new policy on the transcripts with the Justice Department official responsible for administering the new policy. We described to him the Committee's deliberative process and the Committee's view regarding the need to protect from premature release confidential information as well as information regarding its deliberations in order to maintain the high quality of monetary policy decisionmaking. The Justice Department official's response was quite positive. He stated that the new policy was intended to end automatic invocation of FOIA exemptions and instead require a careful, case-by-case consideration of the harm that might result from discretionary disclosure. Based upon our description, the Department official stated that it appeared that the Committee could satisfy this new policy. He also agreed that exemption (4) would cover the central bank information and that exemption (5) appeared to be relevant to cover the deliberative materials. I judged from what he said that the Department would defend the nondisclosure by the Committee of transcripts or other records of its meetings, certainly meetings for the more recent years. As the memo points out, there is an issue that at some point in time the sensitivity of deliberations in older transcripts might diminish to the point where the harm to the deliberative process of the Committee is outweighed by the benefits to scholars and other members of the public from access to these documents. If the Committee decides to prepare and release, with a time lag, MODs or edited transcripts for past or future meetings, the issue arises as to whether a tape or transcript used to prepare the final document must also be retained. The Federal Records Act governs this issue. The FRA states that an agency record may be discarded only with the approval of the Archivist of the United States. To obtain that approval the agency must prepare and submit to the Archivist a schedule which the Archives is required to publish for public comment. The staff has had several discussions with the Archivist's office--the last as late as yesterday--regarding whether transcripts or tapes need to be retained under the Federal Records Act if an edited transcript or MOD type document were prepared and retained. Our discussions indicate that there is a different treatment for the past transcripts than for those that may be prepared for future meetings. Based upon our discussions, it is likely that for future meetings, after an MOD type document is prepared and approved by the Committee on a fairly contemporaneous basis, the Archivist would find that the tapes and transcripts used to prepare the MOD were merely temporary working materials and could be dispensed with once a schedule was approved by the Archivist. This advice was based on our description of the MOD as a near transcript-like document reflecting all of the substance of the deliberations of the Committee. With respect to the existing transcripts for the past 17 years, the Archivist's staff felt that they were the best historical record of the deliberations of those meetings. The staff was not at all receptive to substituting for those raw transcripts an MOD type document because such documents would not have been contemporaneously prepared and then reviewed by the meeting participants. Without contemporaneous review and approval, the Archivist's staff said that the accuracy of any edits could not be verified and that there could be no assurance that the MODs were truly reflective of the Committee's deliberations. The Archivist's staff was also concerned about the temptation of participants or others reviewing transcripts well after the fact to rewrite history with the benefit of hindsight. Based on these comments, our staff feels it is unlikely that the Archivist would approve the schedule allowing for the raw transcripts of the past 17 years to be discarded in favor of MODs. The Archives staff suggested that rather than editing the raw transcripts the Committee could produce an annotated version in which the Secretariat would note potential or likely inaccuracies in the raw transcripts. They did leave the door open to approval of a schedule to substitute a lightly edited transcript for the raw transcript, as long as nothing substantive was deleted. And they would have to review that [lightly edited transcript] and compare the two documents to make sure that in fact nothing substantive was deleted. I should note that these are the preliminary views of the Archives' staff and a final decision could be made only after a proposal was submitted and published for comment.",1419
-fomc-corpus,1993,"The questions of what to do about the existing transcripts and about release of information regarding deliberations at future meetings involve subtle and complex considerations. As background for your discussion of these matters, the staff supplied you with a series of options. Obviously, we didn't exhaust the possibilities, but we thought the ones we listed would highlight the main issues you confront. The options were presented in two groups--one for disposition of existing transcripts and the other for release of information about this and future meetings. Nonetheless, decisions with respect to one may interact with the other. The critical consideration is the effect of the options chosen on the deliberative process going forward. Therefore, a decision concerning the disposition of past transcripts doesn't necessarily mandate your actions going forward. For example, you could decide to release the transcripts, edited or not, going back in time, without necessarily committing to do so in the future. Virgil has outlined some of the legal considerations bearing on these decisions, and the Committee has in the past debated extensively the effects of various options for the monetary policy process and its interaction with markets. By now, many of these arguments are well known to the Committee and I won't repeat them in detail as I review the options. However, there is an important third class of considerations that has been highlighted by the hearings and their aftermath--that is, the public's perception of the FOMC information release process, and the implications of that perception in the political sphere. The Fed was already viewed as insufficiently open--and our reasons for current practices somewhat inscrutable--by many in the press, Congress, and the markets. The existence of the transcripts has no logical bearing in terms of the effects on markets and monetary policy of what we do going forward, but it has heightened public and Congressional awareness of current practices and seems to have placed additional pressures on us either to change practices or come up with more convincing explanations. Against this general background, I will review some of the issues raised by each alternative on the outline you received. With regard to the existing transcripts from 1976 through September, one alternative was for no release in any form until the transcripts were transferred to the National Archives in thirty years. This would provide maximum protection for participants who had no idea their words were being saved for later public release, many of whom have no way of reviewing the transcripts for accuracy. Any release of the transcripts--edited or unedited--will be unfair to some degree to these past participants. However, this option would seem to have legal and public perception problems. Legally, it may be difficult to convince the Justice Department to defend against a FOIA request for very old transcripts on the grounds that it would harm the deliberative process. This defense could be more difficult if the Committee were to decide not to tape meetings in the future, since in those circumstances one might argue that release of past transcripts could not affect future deliberations. The second alternative was for release of the raw transcripts after a considerable period--perhaps from 5 to 10 years--deleting only the most sensitive information about international developments or individual domestic firms. The longer the lag, the greater the protection for unwitting participants. Release of raw transcripts avoids our trying to divine what people really intended to say, since we would not correct the material. This course would seem to be defensible under FOIA, though some of our critics would question the lag. In the past, the Committee has deemed a 5-year lag, albeit for an MOD, sufficient to protect the deliberative process. An important additional problem would involve obvious errors in the transcripts--the ""not"" where it doesn't belong and was never intended. Such miscues result in misrepresentation of what people were saying at the meeting. Reasonable users of the transcripts would undoubtedly interpret each sentence or thought in its context--in effect, doing the type of editing we would do for a lightly edited transcript or MOD. But we may not be able to count on such reasonableness. This option avoids the problem of placing an FOMC imprimatur on the document. The Committee could state that this transcript has not been reviewed or approved by the FOMC and is therefore not an official publication. One way to address the problem of transcription errors would be through the annotation process mentioned by Virgil. Another would be lightly edited transcripts--the third alternative, which would correct such obvious errors of transcription as well as smooth through some of the more severe syntax problems and remove some clearly extraneous material. But no change of substance could be made. Only under these circumstances would the Archivist consider a schedule allowing for the raw transcripts to be discarded as the edited versions were completed. They stressed their need to carefully compare the lightly edited transcripts against the raw transcripts before they could approve the procedure. The question that arises with edited transcripts is whether it is fair or appropriate to represent such a transcript, which would involve some deletions as well as attempted corrections of remaining errors in transcription, as the language of the speaker--as would be implied by the transcript form--especially when the speaker has not had the opportunity to review what is being released. The fourth option--an MOD--was suggested to deal with this concern. The MOD would involve a more complete editing to remove further problems and get at the underlying intent of the speaker, but would put the results in third-person format. The difficulty with the MOD for meetings in the past is that the Archivist is not likely to approve a schedule allowing us to discard the raw transcripts once the MOD was completed. We could make available an MOD and a raw transcript at the same time; the MOD would represent the Federal Reserve staff's attempt to make the transcript more comprehensible and useful. The cost of an MOD is greater than for a lightly edited transcript--more than twice as high according to the cover note from Mr. Bernard. The outline also raises issues associated with review of a transcript or MOD. An awkward situation may arise if parts of a transcript are edited because some participants are still able to do so, while other parts are not. Perhaps the cleanest approach would be to have the staff do the editing of transcripts for past meetings without review by any participants. Each transcript, edited or not, would carry a statement noting that these were not official records of the FOMC, had not been reviewed by participants, and likely contained errors of transcription. Since they would not be official records, the FOMC could consider not publishing them officially, but rather making them available to interested parties. Options for meetings going forward are presented in Roman II on page two. The first option would have the Committee continue to release only what it does now and turn off the recorder. Any tapes and transcripts prepared could not be discarded under the National Records Act, and would be subject to subsequent FOIA or other requests for release. Premature release or threat of release of a transcript could have adverse effects on the deliberative process. As an alternative to taping and transcribing, the Secretariat would need to take notes to use in preparation of the Minutes; it is possible that these notes would be subject to the Records Act. The quality of the Minutes might suffer to some extent--depending on the extent and accuracy of notes--and today's mostly reliable source for determining exactly what occurred at FOMC meetings would be lost, for those rare occasions when such questions arise. Finally, if this option were chosen, the Committee would need to consider its repercussions on the public's view of the Federal Reserve and on Congressional attitudes about the need to strengthen our accountability. The extent and seriousness of these repercussions is subject to differing judgments, and might depend in part on whether we were able to tell our story more convincingly and, in addition, how forthcoming we were with the existing transcripts. Alternative two--enhanced minutes--might help ameliorate some of the reaction, although this issue would still need careful consideration. The exact nature of the enhancements could take several forms. The one suggested in the outline would be more attribution of individual policy views to encompass those in the majority as well as those in the minority who now file dissents. This would be consistent with Board practice in which individual Governor's views are often covered in the minutes of the meetings. In addition, the Board occasionally publishes concurring views with its decisions, when those voting with the majority wish to emphasize different rationales or concerns. Adopting these practices would go a considerable distance toward satisfying requests for greater accountability. It would, however, detract to an extent from the idea of collective responsibility for Committee decisions. The public would be getting more information than it currently does. In particular it would get a better sense of the nuances among the views of the policymakers and probably a more complete idea of all the arguments brought to bear on the final decision. The tape also would be turned off for this alternative, with the implications discussed above. Moreover, the enhanced minutes would still not reveal to scholars the full detail of the reasoning that went into policy decisions. Alternatives three or four--the MOD or lightly edited transcripts--would give that detail. As between the two, the greater expense of the MOD would need to be weighed against the additional constraining effect the members might feel a transcript would have on the free flow of Committee deliberations. If the MOD or edited transcript contained all the substance at the meeting and was subject to review by participants shortly after the meeting, we are reasonably sure the Archivist would treat the raw transcripts as working documents that were no longer needed once the final record had been completed. In both cases, confidential information would be redacted from the publicly released document. A number of members have supported the production and release of MODs in their letters and public statements, with appropriate lags and redaction. The Federal Reserve itself produced such documents and later had no major objections to laws that would require them. Most of those favoring the MOD, however, expressed considerable concern about protecting it from public release for a substantial period. No law can guarantee against a Congressional request, including a subpoena. However, as Virgil noted, it now appears that the chances are quite high that we could protect MODs against premature release to the public under existing FOIA, assuming an appropriate lag for release to the public. Obviously though, there can be no guarantee against a judge with a different interpretation or a Justice Department with more extreme views on this matter in the future. One aspect of FOMC information release that we did not treat in the outline, which may have some bearing on public perceptions, was the publication of the directive or the Committee's policy stance. Our current policy of delay, while soundly based in my view with respect to the potential effects of other alternatives on the flexibility of decisionmaking, certainly contributes to the perception of the FOMC as a secretive organization. The Committee may not want to rule out considering once again the costs and benefits of the current practice, especially if it decides not to produce edited transcripts or MODs going forward, but still wants to improve its reputation for openness.",2213
-fomc-corpus,1993,"I am most concerned, as I suspect the rest of you are, that the openness and free exchange of views so essential to monetary policy will be unduly compromised if we are forced into a premature, detailed disclosure of our deliberations. We will only succeed in stifling originality, new ideas, and speculative notions, which so often open us up to new insights for the Committee as a whole. We are authorized by statute to fashion and implement the monetary policy of this country. We are also required by both statute and tradition to maintain the maximum amount of disclosure consistent with our ability to deliberate effectively. The Congress has given us the authority to decide within limits the scope of disclosure. As you all know, we have been struggling with this issue for quite a long while, trying to find the right disclosure [practices] to maintain records for scholars and others interested in our deliberative process. As part of our decision we have to address the policy change at the Justice Department, which we discussed via telephone conference last month, and issues raised more recently by the National Archives. We must recognize that whatever course of disclosure we choose, we will have to divert key policymaking personnel to the endeavor and accordingly incur significant costs in the process. From previous discussions of this matter it's clear that there are many views within this Committee on the appropriate way to approach this issue. I'd like to start off with my general view of how to approach this and then open up the floor to questions for the three of us, followed by individual positions annunciated by the individual members of the Committee. As a result of the preliminary discussions that Virgil outlined with respect to both the Justice Department and the Archivist, I personally believe that we meet our responsibilities under FOIA and the Federal Records Act, as well as the requirements of the deliberative process, if we go to an MOD for future meetings, releasing deliberations with a lag of three or more years. Thus the meetings of 1994, for example, would be published at the end of 1997 or later. Tapes and transcripts employed in developing such MODs could, upon completion of the MODs, be dispensed with. If we adopt such a recommendation or something similar and find in the months ahead that we are unable to protect the deliberative process in these meetings, we will have to consider altering our rules and returning to a much earlier procedure of detailed note taking. I recognize that if we move in that direction, the Congress may choose to legislate a different procedural change in our disclosure policies. That is, of course, their prerogative. Should that occur, I assume it would be the judgment of this Committee that the quality of monetary policymaking would be impaired. Should hearings be held leading up to such potential legislation, I and others will surely endeavor to make that case. With regard to the transcripts that have accumulated since 1976, I would recommend that we release lightly edited versions with a five-year lag. I think, for example, if three years is appropriate going forward, a longer delay is required for the [historical] transcripts since the individuals, as has been pointed out, were unaware that what they said would be disclosed. For reasons I raised in my letter to Steve Neal, which I presume has been circulated to all of you, I'm uncomfortable with releasing these transcripts. But the Archivist informs us that the documents must be maintained and that these documents at some point would be subject to public disclosure under FOIA. As I indicated at the beginning, the answer we communicate to Chairman Gonzalez after this meeting with respect to the transcripts will depend, of course, on what decisions we make here this morning. I would now like to open the floor for questions to either Virgil, Don, or myself. President Boehne.",762
-fomc-corpus,1993,"I'm not sure who will answer this. I understand that if we move to a lightly edited transcript, going back, then the unedited transcript and the electronic recordings could be dispensed with under the Archivist's preliminary judgment. Is that correct?",49
-fomc-corpus,1993,If the lightly edited transcript faithfully includes all the substance of what happened at the meeting and didn't change or even guess at what people's intent was in what they said.,32
-fomc-corpus,1993,Going forward would that same policy then hold for a memorandum of discussion?,14
-fomc-corpus,1993,Yes.,2
-fomc-corpus,1993,And what is the logic of the distinction between going forward and going back?,15
-fomc-corpus,1993,Going forward we would have the participants immediately review what was said for accuracy.,15
-fomc-corpus,1993,I see.,3
-fomc-corpus,1993,And we'd have the tape.,6
-fomc-corpus,1993,I see. Thank you.,6
-fomc-corpus,1993,President Parry.,4
-fomc-corpus,1993,"In terms of the past meetings, it seemed to me that what you were [expressing] as something of a preference is alternative three. Is that correct?",32
-fomc-corpus,1993,Yes.,2
-fomc-corpus,1993,Okay. And would you explain why you prefer that over alternative one?,14
-fomc-corpus,1993,One being that there's no release?,7
-fomc-corpus,1993,No release.,3
-fomc-corpus,1993,"Well, I think the question here really relates to whether in fact we can avoid eventually releasing the transcripts. Basically we can't dispose of them under the Archivist's regulations; and under FOIA, eventually, as they age they will clearly be made available by some judge or other. And I think we do have an obligation to try to make as much [information] available as possible. While, as I indicated, I'm uncomfortable with a lot of this largely because of all the technical problems involved in releasing transcripts for which there is no means of evaluation, I nonetheless have concluded that our choices are extraordinarily limited; and I would much prefer that the decision as to what we do be ours and not the court's or the Congress's.",146
-fomc-corpus,1993,May I ask a second question? I assume in terms of the future meetings that whatever alternative we come up with would apply equally to the conference calls?,30
-fomc-corpus,1993,I would guess so.,5
-fomc-corpus,1993,"I see no way to avoid that. In other words, a conference call by its nature, unless it's strictly a conference call that is not relevant to deliberations of the [FOMC] is part of the record and would have to be included.",51
-fomc-corpus,1993,"But it seems to me that there wouldn't be much problem leaning over to the side of greater exposure of [the contents of] these conference calls. I don't see any [resulting] damage; even if we were getting updates on issues, it probably would be something that would be in the spirit of greater openness. And I can't see any damage that would result from that.",75
-fomc-corpus,1993,"The only reason I would argue, frankly, is that it is costly to transcribe all of this. And under certain circumstances--for example, if we have a telephone conference in which the sole purpose is the staff reading a report of some form--it may be far cheaper merely to transcribe part of it, such as the Q&As, and have the physical report sent on. So my concerns are not on the issue of openness but on the issue of costs.",95
-fomc-corpus,1993,Thank you.,3
-fomc-corpus,1993,President Melzer.,4
-fomc-corpus,1993,"Virgil, you and Don both mentioned Congressional subpoena. Could you describe that process in more detail and how it might relate to tapes and transcripts that are prepared in connection with doing a Memorandum of Discussion even if we had a procedure whereby once that MOD was approved the tapes and transcripts could then be disposed of pursuant to authority from the Archivist? Further, if there were legislation that specifically protected us under FOIA with respect to public release with some appropriate lag, would that have any bearing on Congressional subpoena power?",102
-fomc-corpus,1993,"Well, I'll try to answer your question. The way the subpoena power works in the House is that the House has delegated to its committees the authority to issue subpoenas. And in the House Banking Committee they haven't delegated it further. Therefore, the Committee would need a majority vote to authorize a subpoena. Once the subpoena was issued, in the House there's no procedure in the law to challenge that subpoena. As I indicated, the exemptions under FOIA do not protect information from the Congress at all. If a statute were passed that protected MODs or MOD information from public disclosure during the three- or five-year lag period, that would, of course, help immeasurably with the FOIA problem. But it would not help technically with the Congress although, as I think Don Kohn pointed out, the enactment of such a statute would indicate Congressional agreement that this process was too important to be unnecessarily disrupted and the FOMC would get some at least moral support in your arguments to fend off a subpoena.",203
-fomc-corpus,1993,"So, in theory, it would be possible, say, in extreme circumstances, or under any circumstances, [for Congress] to subpoena tapes and transcripts on a real time basis?",36
-fomc-corpus,1993,Oh sure.,3
-fomc-corpus,1993,Okay.,2
-fomc-corpus,1993,Governor Angell.,4
-fomc-corpus,1993,"Don, when you outlined your alternatives you mentioned releasing the raw transcripts with, I presume, a warning label on them as well as a warning label on the [MOD]. Then you [discussed] separately the release of lightly edited transcripts. You then gave us some advantages and disadvantages. Did you consider an alternative of releasing both a lightly edited and the raw transcript?",74
-fomc-corpus,1993,"No, I did for the MOD, but it would be the same thing. I think that's possible. As I mentioned for the MOD, we could do the raw transcript [and] the MOD, with the MOD then representing Norm Bernard's attempt to make sense of the raw transcript. Then scholars could use it or not and compare it or not. I think the same arguments would go for the lightly edited transcripts. Certainly we could do both. The reason I raised it with the raw transcript and the MOD is that the Archivist would absolutely force us to do that. If we did an MOD, we'd have to do the raw transcript; with the lightly edited transcript we wouldn't have to do both but, sure, we could.",146
-fomc-corpus,1993,"But one of the disadvantages of the lightly edited transcript is that someone might say that it really wasn't [accurate], that it was really a rewriting of history.",32
-fomc-corpus,1993,Right.,2
-fomc-corpus,1993,"And one of the disadvantages of the raw transcript is that someone says ""Here's what happened"" and isn't very careful--",23
-fomc-corpus,1993,"There can be a miscue or someone [mispeaks] or is quoted out of context and that sort of thing. So the light editing would be an attempt to smooth through that and avoid some of that [problem], although we're never--well, an unscrupulous scholar or other person would always be able to take sentences and pieces out of context. The light editing we thought would help a little.",82
-fomc-corpus,1993,"But you didn't visit with the Archivist or get impressions as to which [he would prefer], if he had both a lightly edited and the raw transcript. I would think that most people would find it much easier to read the lightly edited one.",49
-fomc-corpus,1993,"I think that's right. It's easier, actually, to read the Memorandum of Discussion in that respect also.",22
-fomc-corpus,1993,"I know, but it would be somewhat more expensive, I think, to do that back [in time].",22
-fomc-corpus,1993,"Oh, no question. Governor LaWare.",9
-fomc-corpus,1993,"What authority is represented by the current request from Chairman Gonzalez? In other words, this is not a subpoena but I thought I heard you indicate that our ability to deny a request of Congress for information is limited. In other words, how do we respond to the immediate situation?",55
-fomc-corpus,1993,My view of the most recent correspondence from Chairman Gonzalez is that he is asking this Committee to turn those documents over on a voluntary basis.,27
-fomc-corpus,1993,"Well, he didn't use that kind of language.",10
-fomc-corpus,1993,"I know, but that is the substance of what he's asking. He may take issue with what I've said, but there are only two ways to get material: He either asks for it [to be given] voluntarily or he uses the legal process, which is the subpoena.",55
-fomc-corpus,1993,"All right. If he should be dissatisfied with whatever answer we give him on the basis of the current request and he reverts to a subpoena, do we have the right to deny the confidential information and so forth in responding to that subpoena?",48
-fomc-corpus,1993,"No. I would point out [as an example] the B&L case where the Chairman refused to turn over the examination reports, which were replete with confidential information. Chairman Gonzalez then obtained subpoena authority from [his] Committee and we were forced to turn over the examination reports.",57
-fomc-corpus,1993,"Third question, if I may: What constraint is his Committee under in terms of subsequently releasing that confidential information--making it public or leaking it or some other publication of it?",35
-fomc-corpus,1993,I don't know.,4
-fomc-corpus,1993,"I would judge then that the best we can do retrospectively with regard to these transcripts is to try to satisfy his request by offering something other than the raw, unedited transcripts that we have on hand in order to try to protect that confidential information. Is that where we are? We're in a--",60
-fomc-corpus,1993,I think [unintelligible] satisfy the Committee's request. The subpoena--,17
-fomc-corpus,1993,"All right, it's the Committee's request but it's coming from--",13
-fomc-corpus,1993,"It's a Committee document, a Committee subpoena.",9
-fomc-corpus,1993,"Well, we haven't been subpoenaed yet.",9
-fomc-corpus,1993,"No, I'm really referring to [the fact] that the subpoena is of the [House] Committee--",21
-fomc-corpus,1993,I understand.,3
-fomc-corpus,1993,--not the Chairman.,5
-fomc-corpus,1993,"I understand, but the current request is from the Chairman.",12
-fomc-corpus,1993,"I'm trying to say that, as Virgil indicated, the authority has not been delegated to the Chairman as I understand it. Is that correct?",29
-fomc-corpus,1993,That's correct.,3
-fomc-corpus,1993,"All right, thank you.",6
-fomc-corpus,1993,"May I make sure I understand the answer? Virgil, did you just say that if there is a subpoena that requires us to turn this information over and we do so, then there is nothing to protect that information from release by the [Congressional] Committee?",53
-fomc-corpus,1993,"Well, that's correct. But Chairman Gonzalez in the past has exercised care when he thought the materials were of a confidential nature. He has not released, for example, examination reports.",36
-fomc-corpus,1993,But that would be at his discretion?,8
-fomc-corpus,1993,"It would be his judgment, yes.",8
-fomc-corpus,1993,But he has read top secret documents on the floor of the Congress.,14
-fomc-corpus,1993,He certainly has.,4
-fomc-corpus,1993,Into the Congressional record.,5
-fomc-corpus,1993,President Forrestal.,4
-fomc-corpus,1993,"Well, most of my questions have been answered because I wanted to ask about this Congressional situation. But let me just follow up with one other. Is it the judgment of the staff that a subpoena would issue from the Committee in this situation? In other words, do you think Mr. Gonzalez will be successful in persuading the other members to issue a subpoena?",72
-fomc-corpus,1993,"Bob, I don't think there's any way I can give a clear answer to that question. I think to some extent it depends on the decision the FOMC makes with respect to the release of the transcripts or how we may make those transcripts available. But I would say that Chairman Gonzalez does make a distinction--at least he has in his letters so far--that while he is interested in the public release of these documents in some orderly way and it appears that there would be some time lag, he is asking at the same time that the raw transcripts be turned over to his Committee. So, even if we decide on a program for the public, he is still interested in our turning over all the transcripts and tapes to his Committee. And he may pursue that. To some extent how the whole Committee would feel about a demand for the raw transcripts may depend on what we decide to do in terms of their release to the public.",186
-fomc-corpus,1993,President Syron.,4
-fomc-corpus,1993,"A technical point, Mr. Chairman, or a reasonably technical point: The issue of our ability to obtain voluntarily [from contacts in our Districts] proper and confidential information has to weigh an awful lot in this. I will tell you that anyone listening to this would have a hard time concluding that we're going to have the same kind of information presented to us by people in our Districts or anywhere else that we had some time ago. So, we're in a damage control situation here. On the question Bob Parry raised of whether going forward we would keep records of conference calls, I would differentiate that. If there's a decision or a vote, as you were suggesting, there's a need to do that. But in the cases in which there is pure discussion, very many of those situations have been where you or others have been bringing people up-to-date on [matters that involve] confidential information. So, for purely economic information or your telling us when you come back from an international meeting what happened there, I would think we'd want to treat that substantially differently.",213
-fomc-corpus,1993,I think that is an open question and I grant that you have a point there. I frankly don't have a position; I could be persuaded in either direction. I would argue that it is not automatic that of necessity we would tape and transcribe every single meeting. We haven't done that in the past; it has not been the practice of this Committee to do it in the past and it's a judgmental question as to what is proper and what is not.,92
-fomc-corpus,1993,"The technical question I have [relates to] what you talked about as an approach before. I'd be interested in why you feel that we want a five-year window, if I can call it that, going back as compared to a three-year window going forward? It seems to me that there are two considerations. One is that it's hard to say if those past discussions can put a chilling effect on this because they've already happened. But on the other hand, there are rights to preserve.",98
-fomc-corpus,1993,It's the rights--,4
-fomc-corpus,1993,"It's the rights issue, okay.",7
-fomc-corpus,1993,"It's the rights issue. As I described in my letter to Steve Neal, these [raw] transcripts are essentially hearsay in the sense that they are transcriptions by individuals of what they heard on the tape. And as we all know, in such situations [words] get garbled and put in different positions. And the person who [made] the remarks does not have any capability of editing them or making certain that the tape was heard [correctly] and checked against the transcript. So there is a privacy issue here which I find disturbing. I've indicated that before this Committee many times and I've indicated that both in public and in letters to Steve Neal.",132
-fomc-corpus,1993,Thank you.,3
-fomc-corpus,1993,Governor Phillips.,3
-fomc-corpus,1993,"Most of my questions have been asked but let me ask one follow-up question. In these two proposals, one for the MODs going forward and then the lightly edited transcripts going back, you're talking about release to the public, not to the [Congressional] Committee?",54
-fomc-corpus,1993,That is correct. These are decisions that in my judgment have to made by this Committee as a result of the responsibilities that we have under the law. Vice Chairman.,33
-fomc-corpus,1993,"In the [briefings] by Virgil and Don, I believe Virgil mentioned that when he was speaking with the Archivist a suggestion made from that quarter was that we use an annotated version of the [raw] transcript. Could one of you explain why you feel that a lightly edited version is preferable to an annotated version? I must admit when you described it that I found myself rather attracted to the annotated version.",84
-fomc-corpus,1993,"Well, the annotated copy has the benefit of preserving the historical record, but in a marginal note the staff can indicate that this comment may [reflect a transcription] error or something because it's obviously not consistent with the rest of the discussion. A note can be made like that. In a lightly edited transcript, I'm not sure that the Archivist would allow us to change what was actually said [or what the transcriber thought was said] unless it was very obvious from the existing transcript that a mistake had been made.",103
-fomc-corpus,1993,That's exactly why I found the annotated version to have a more attractive aspect.,15
-fomc-corpus,1993,We could go through it--,6
-fomc-corpus,1993,"It says somebody said something 29 years ago that really doesn't appear, in the context, to make much sense. And we'd say that. Whereas if we lightly edit we cannot--",36
-fomc-corpus,1993,"Well, I presume we can do a combination of lightly edited with annotation. But I think an advantage of a lightly edited transcript is that we can take out some extraneous material, jokes and the like, and clean up the syntax a little to make it flow better so that the underlying meaning becomes a little clearer.",63
-fomc-corpus,1993,It's desirable that we appear more intelligent than we are?,11
-fomc-corpus,1993,"It's more articulate, Governor Angell.",8
-fomc-corpus,1993,"If the jokes are any good, I don't see any reason why--",14
-fomc-corpus,1993,They're old jokes.,4
-fomc-corpus,1993,They're old jokes.,4
-fomc-corpus,1993,All jokes are old jokes.,6
-fomc-corpus,1993,"I'm sorry, did you finish?",7
-fomc-corpus,1993,Yes.,2
-fomc-corpus,1993,President Hoenig.,4
-fomc-corpus,1993,"To follow up a bit on Governor Phillip's question, we really have two issues before us: How we respond to Mr. Gonzalez and the issue on releasing this to the public. If I understand it, one of your options is to release lightly edited historical transcripts to the public. Is it an option to generate the equivalent of a memo of discussion and hold the raw [transcript] 30 years? Or is that--",85
-fomc-corpus,1993,Going back you mean?,5
-fomc-corpus,1993,"Yes, in order not to be releasing even lightly edited transcripts to the public that could be misinterpreted just six years back, could we say we'll prepare memos of discussion going back and we'll hold the raw [transcript] for 30 years. Is that an option?",56
-fomc-corpus,1993,"Well, my understanding from Virgil is that once we release the memoranda of discussion, which have all the deliberative material in there, we would not be able to fight a FOIA request for the raw transcripts.",44
-fomc-corpus,1993,"Okay, for the raw transcripts. So that's what gets--",12
-fomc-corpus,1993,That would be the issue.,6
-fomc-corpus,1993,I see.,3
-fomc-corpus,1993,"That's the reason why a memorandum of discussion, which a number of us discussed as a plausible alternative, going back doesn't seem--",25
-fomc-corpus,1993,"That's because once we've done that, we'd have to release the [transcripts], the way it looks under FOIA.",24
-fomc-corpus,1993,"It would be likely that you would have waived your deliberative privilege and you'd have to turn over the raw transcripts. That's an argument, of course.",30
-fomc-corpus,1993,"Okay, and that's not the case with a lightly edited version? The Archivist is saying that if we release a lightly edited transcript, then we do not retain the raw [transcript]?",38
-fomc-corpus,1993,Right.,2
-fomc-corpus,1993,Okay.,2
-fomc-corpus,1993,President McTeer.,5
-fomc-corpus,1993,"Just a follow-up for Virgil along the lines of Governor LaWare's question. Does a subpoena imply wrongdoing and, if so, what wrongdoing are we being accused of?",35
-fomc-corpus,1993,"No, I think they could delegate authority to issue a subpoena and it would [imply the need for an] investigation as to whether additional legislation is appropriate. It doesn't imply that there has been wrongdoing.",41
-fomc-corpus,1993,Why would they investigate us?,6
-fomc-corpus,1993,"Well, again, I don't know that. Conceivably one basis would be to determine whether the minutes that the Committee has released since 1976 accurately reflect what actions transpired during the meeting.",40
-fomc-corpus,1993,President Keehn.,4
-fomc-corpus,1993,"In talking about a delay of, say, three to five years, somehow we seem to have gotten to a very short fuse right off the bat. Is there an argument, if we're going to do this, to use a longer time period before release at least at the outset? I think three to five years gets to be very, very short right at the beginning.",74
-fomc-corpus,1993,"Going back? Three to five years? Well, I think three years is too short; I was recommending five.",23
-fomc-corpus,1993,Why not ten as a start?,7
-fomc-corpus,1993,Basically it's a judgment call. I think it's a question essentially of what types of FOIA requests we may get and what the Justice Department would be willing to support us on. My guess is that five years is an easy one and would be more appropriate than ten. It's strictly a question of [deciding] what the statute enables us to do.,70
-fomc-corpus,1993,"Secondly, if I could, looking ahead: What's our sense of the real interest within the Banking Committee in terms of making a fundamental change here? I must say that out in the Districts this is an absolute non-issue. I haven't heard--",50
-fomc-corpus,1993,You're talking about the disclosure question?,7
-fomc-corpus,1993,Yes.,2
-fomc-corpus,1993,"It's Chairman Gonzalez who feels very strongly about it. I assume that there are others in the Committee, but at the hearings where I have been testifying I have not heard anything resembling a groundswell of support. But I really don't know that. In other words the issues have not materialized except at these most recent hearings. And there weren't enough people who commented on this for me to derive any reasonable judgment as to where the House Banking Committee stood as a group.",93
-fomc-corpus,1993,"Does that say, therefore, that if we change our operating procedures a bit in [the way] we develop the current minutes, it's entirely possible that we might not have to make a fundamental change in the way we record our proceedings?",47
-fomc-corpus,1993,"Sure, if we change our operating--",8
-fomc-corpus,1993,"To wit: If we don't have a recording, if we don't have transcripts going forward, we need not necessarily change what we do and the way we do it.",33
-fomc-corpus,1993,"As I indicated in my opening remarks, I think we can, as a consequence of the discussions that Virgil has had with the Archivist and the Department of Justice, successfully maintain our deliberative processes with an MOD three or more years forward and five years or more or, say, just five years going back. If that does not work, if in fact we find that under a regime such as that or something comparable we cannot maintain an effective deliberative process, in my judgment we would not be carrying out our statutory requirements to fashion and implement monetary policy. In that case, I think it would be incumbent upon this Committee to find a means by which we are within the law and which enables us to maintain effective deliberations. The Congress obviously always has the choice, if it wishes, to construct its own set of rules as to how we deliberate. We do have the issue of accountability, which I think is important for us to meet; but the ultimate choice in that respect would be Congress's. I think it is we who have the best capability of making a judgment about what the appropriate tradeoff is between efficacy of our deliberative process and the making of monetary policy on the one hand and the requirements for accountability in a democratic society on the other. I say that basically because we have the most experience in dealing with this. We know how the system works; we know where, if we are constrained, the usefulness of our discussions breaks down. At the extreme the issues that we confront are sufficiently complex that we have over the years been seeking each other's views. It's not an easy process. I don't think people outside of this Committee understand the nature of the subtleties of the process anywhere near as much as we do, and as a consequence they cannot be expected to make an appropriate decision on the level at which I think it is really incumbent upon us to make. The Congress has given us the authority to [make that decision] within limits and I think we have the responsiblity to do that. If we take a position in this regard which is perceived to be outside the realm of what the Congress has conveyed to us as our limit of authority, we probably would confront some form of legislation which will override the position that we take. And I must say that's the reason why I made the suggestion that I did. In the context of the discussions that Virgil has had with the Archivist and the Justice Department, I do think that we should be able to implement successfully what we have to do. I may be wrong on that. If I am, I would be very much open to see what changes we would have to make, because our fundamental statutory imperative is the making of monetary policy. If we can't do that, the issue of accountability is irrelevant. We have to keep that in mind so that our first order of business is to make sure that our deliberative processes are protected. The recommendation that I made [reflects] my judgment, having been here for more than six years, that we could do it. But, as I said, I may be wrong. And when I say that, I mean that if we adopt something of this nature and find two or three meetings down the road that it is not working, I think we are required to change it.",660
-fomc-corpus,1993,"Mr. Chairman, just a point of clarification: My understanding of your recommendation is that, going back or going forward, confidential central bank information and confidential business information would be redacted from the copy made available to the public.",45
-fomc-corpus,1993,Of course. I'm sorry; I did not make that point explicitly in my opening remarks but clearly that was my intention. Governor Mullins.,28
-fomc-corpus,1993,And I assume the Archivist agrees that that would be appropriate?,13
-fomc-corpus,1993,Absolutely.,2
-fomc-corpus,1993,"I have several questions. With respect to the subpoena you mentioned, what does the process in the House require--a simple majority of a quorum?",29
-fomc-corpus,1993,Yes.,2
-fomc-corpus,1993,"Okay, so what is a quorum?",8
-fomc-corpus,1993,A majority; [it] would be 26 of the 51.,15
-fomc-corpus,1993,"So it's 50 percent, so it takes a little over--",13
-fomc-corpus,1993,Fourteen members could--,5
-fomc-corpus,1993,It takes a little over a quarter of the Committee. You mentioned that in the House this subpoena authority has been delegated to all committees. In no case has it been delegated to an individual chairman?,39
-fomc-corpus,1993,"I think there are instances, at least in the past, where committees have delegated to the chairman.",20
-fomc-corpus,1993,Okay.,2
-fomc-corpus,1993,That is not the current set of rules in the House Banking Committee.,14
-fomc-corpus,1993,"But in theory, a committee could delegate it to the chairman?",13
-fomc-corpus,1993,"Sure, they could delegate to anybody. MULLINS. And what is the procedure in the Senate? Is it the same?",26
-fomc-corpus,1993,I'm not clear on that.,6
-fomc-corpus,1993,Okay. Just as a technical point: Have we received any correspondence or request for this material from any other member of Congress or other government officials?,29
-fomc-corpus,1993,"We have about half a dozen FOIA requests, but--",12
-fomc-corpus,1993,Mostly scholars?,3
-fomc-corpus,1993,Scholars who work for American Banker and The Wall Street Journal and--,15
-fomc-corpus,1993,They're interested mostly in '76 and '77? MR. KOHN(?). Yes.,19
-fomc-corpus,1993,"Okay. In talking with the Archivist, what is the process in other parts of government where sensitive information and transcripts are kept routinely, as they are kept presumably by the National Security Council or the like?",41
-fomc-corpus,1993,They are required to turn those transcripts over to the public unless they can claim--,16
-fomc-corpus,1993,When?,2
-fomc-corpus,1993,[In] 30 years.,7
-fomc-corpus,1993,Upon request.,3
-fomc-corpus,1993,"Thirty years. He's asking about the redaction of material that would be confidential--that relating to foreign governments or proprietary information. And that would be redacted for 30 years, is that true?",40
-fomc-corpus,1993,"Well, there is a schedule whereby material is turned over to the Archives. It has to be turned over in 30 years.",26
-fomc-corpus,1993,It has to be turned over in 30 years?,11
-fomc-corpus,1993,"Yes, but--",4
-fomc-corpus,1993,No later than 30 years?,7
-fomc-corpus,1993,Correct.,2
-fomc-corpus,1993,Do we know what the State Department does or what the White House does? What is the process in White House meetings with senior staff discussing sensitive foreign policy or economic matters?,34
-fomc-corpus,1993,"Well, once it's turned over to the Archives, you can still retain the confidential nature of the information if you can support that.",26
-fomc-corpus,1993,"Okay. Finally, I'd like to explore your thinking, Mr. Chairman, of going forward with an MOD versus some sort of edited transcript. Of course, we do have a long history of MODs and we would link into that. But I wonder if an edited transcript does not have the sense that it's less sanitized, more dangerous to release, easier to defend. I suspect that in the National Security Council's deliberations and the like transcripts exist; that seems more like the sort of thing other sensitive parts of government would have whereas an MOD to me sounds a bit more sanitized, safer to release. It sounds a bit like minutes--not that I think this is a big difference--and might be marginally harder to defend when they come after us, as they will. Was there any special reason for recommending an MOD as opposed to something like an edited transcript going forward if in fact, as I take it, the substance of it would be exactly the same?",193
-fomc-corpus,1993,"Frankly, I had thought, but merely from hearsay, that the MOD was a significantly contracted version of an edited transcript. I found out from the examples that have been proposed here that that is factually false. The difference is really very negligible; for all practical purposes an MOD has all the information that is on the transcript. It's frankly easier to read and in many respects, if the purpose is scholarly, probably is more useful to the public. But if you're asking me do I have any strong opinions, that's--",105
-fomc-corpus,1993,So that's not based upon any strong opinion?,9
-fomc-corpus,1993,No.,2
-fomc-corpus,1993,"With the edited transcript we might provide some sense that we're being more forthcoming even though it conveys the same information as the MOD. Okay, thank you.",30
-fomc-corpus,1993,President Melzer.,4
-fomc-corpus,1993,"I wanted to come back to the MOD and its relationship to FOIA. I guess this would be a question for Virgil. Even if the Justice Department agreed with the procedures we intended to pursue and therefore presumably would defend us in the future against a denied FOIA request, assuming policy or personnel didn't change, isn't it likely that we would in fact have a lawsuit? In other words, if we decided to do an MOD going forward, it seems to me that at some point--sooner or later, and probably sooner--someone would test that in the courts, whether the lag with respect to its release was three years or five years. We'd have the litigation and ultimately be subjected to some judgment in the courts. That's part of the question. The other part of my question is: As the FOMC has considered this in the past, is the only way that we could really be sure we would be adequately protected is if we had specific legislation on that?",194
-fomc-corpus,1993,I think that's right. I can't give you any assurance that some judge--or not a judge so much as the Justice Department--might decide that a five-year lag would be too long under some circumstances. The only sure protection is legislation.,48
-fomc-corpus,1993,"One other question, Virgil: If we adopted the MOD procedure going forward, do you think the likelihood of litigation is fairly high?",27
-fomc-corpus,1993,"I can't make a comment on that. The possibility certainly is higher than it is now. But as I indicated in my comments, I think we have a very strong legal argument that this material is exempted. And the FOIA statute doesn't have a time limit in it. It says that if [the information] is deliberative, it's protected forever.",71
-fomc-corpus,1993,Thirty years.,3
-fomc-corpus,1993,Thirty years because of the statute.,7
-fomc-corpus,1993,Governor LaWare.,4
-fomc-corpus,1993,"It seems to me that we have two separate issues here. One is how we respond to this [House Banking] Committee request through Chairman Gonzalez. And then if we're going to make the material available to that Committee, do we also release that material to the public on some sort of a schedule retrospectively? Is that what is contemplated here?",68
-fomc-corpus,1993,"Yes, our--",4
-fomc-corpus,1993,"That's certainly something to be considered, is it not?",11
-fomc-corpus,1993,"Our thought was that whatever the Committee decided about releasing to the public, the Chairman would write a letter to Chairman Gonzalez saying that the Committee met, decided this about releasing to the public, and we assume this takes care of your problem. Obviously, this is the Committee's choice, but the thought was that we wouldn't give something to Chairman Gonzalez that we weren't releasing to the public at the same time, at least as an opening shot here.",88
-fomc-corpus,1993,"Well, let me understand that. Is what is being proposed that we suggest something that we're going to release to the public in the hopes that he will then change his request from unedited transcripts and tapes to accept whatever we have proposed?",47
-fomc-corpus,1993,"Our hopes in that regard weren't very high but we thought that if the Committee had something that could be sold and looked reasonable that his odds on getting the rest of his Committee to go along with the subpoena, if he then decided to request it, would be much lower. In effect our letter back to Chairman Gonzalez is really a letter to the other 50 members of the Committee saying what our decision was and defending it as reasonable in the circumstances.",89
-fomc-corpus,1993,"Yes. And if there is some prurient interest in these unedited transcripts and tapes retrospectively is that going to prompt them to ask us to share with the [House] Committee unedited tapes and transcripts prospectively as part of their oversight of monetary policy? I understand the rationale in the sometimes opaque language in these letters; it's all under that oversight umbrella. So if they needed all of this to overlook the historic performance, will they not insist on having it prospectively?",96
-fomc-corpus,1993,Chairman Gonzalez's letter says he wants to work out an agreement on that with this Committee.,19
-fomc-corpus,1993,"So it seems to me that that's another issue we have to address: Not just what we're going to release to the public, possibly in the form of a Memorandum of Discussion, but whether in fact there's going to be a demand that we continue to release tapes and transcripts as they are generated in the process of doing the Memorandum of Discussion, regardless of what the Archivist says. [I say that] because, as I understand you, Congress can ask for anything it wants.",97
-fomc-corpus,1993,Governor Kelley.,3
-fomc-corpus,1993,"Virgil, I wonder how much more comfort we might have if it were possible to get something in the way of a firm official position from the Justice Department relative to FOIA and the Archivist relative to the [Federal] Records Act. You have very interesting but very preliminary expressions of opinion from them. To what degree do you think we can be comfortable that that's where they would come out if they were to opine formally. Would they formally opine at all?",94
-fomc-corpus,1993,"I think they would not until a lawsuit was filed. That was what he said. But I thought the Department of Justice official we spoke to--Ernie [Patrikis] can speak up--was very positive that they would defend this Committee on these materials, certainly the recent ones. When I say ""recent"" I mean five years, or maybe even longer. But he was very positive on that. Now, that was based on our description of--",92
-fomc-corpus,1993,Right.,2
-fomc-corpus,1993,So I think our description is accurate.,8
-fomc-corpus,1993,And you feel that's as much as we can get prospectively?,13
-fomc-corpus,1993,But that is more than I expected to get.,10
-fomc-corpus,1993,Yes.,2
-fomc-corpus,1993,As for the Archivist--Dave Lindsey can speak up--he was more forthcoming than I thought he was going to be about our ability to substitute an MOD for these raw transcripts going forward. He was very positive on that and he was very positive on maintaining an historical record.,55
-fomc-corpus,1993,"Let me just state this: Clearly, if we run into the type of concerns that Governor LaWare was raising, I think it would be appropriate that the [Federal Open Market] Committee request a hearing before the [Banking] Committee and try to explain in some detail what it is that we do and why we do it and why it is so important for us to [protect] this deliberative process. I don't sense an inability on our part to carry our case before the Congress, and I think we should not be in any way restrained in our endeavor to do so. So, rather than fail to make our case, I think we should seek Congressional hearings and other public forums because this is a very crucial issue for this country. It would be a mistake for us not to be as supportive as we can of our basic underlying procedures, which have carried this Committee as far as they have. I must say, as I have said before, that I have been very impressed with the way this Committee functions; I think it's an extraordinarily efficient Committee. I have sat on an awful lot of private boards and public boards, and there is nothing as effective in the deliberative process as this Committee has been in the past six plus years. And I think that is a case we have to make to the House Banking Committee, to the Congress as a whole, and to the public at large because we, more than anyone else, know the implications of a deterioration in that deliberative process. We are the central bank and we have to speak for ourselves. There is no one else out there who is sufficiently involved, except at the periphery, with what we do and we must be very forthcoming in addressing this particular subject. President Boehne.",350
-fomc-corpus,1993,"No, I don't have any comment.",8
-fomc-corpus,1993,Any other questions? The floor is now open for individuals to express their views. Vice Chairman.,19
-fomc-corpus,1993,"Well, I'm glad that the opportunity to speak came immediately after the Chairman's declaration of our need to go public and fight for our cause. It seems to me that what is really at issue here is the ability of the Federal Reserve to make monetary policy and execute it properly. And that ability to carry out our most basic responsibility has to be protected. We cannot continue to fight a battle in which we get letters of evermore pejorative tone released to the press and then we reply as gentle persons. I think the right place to take our arguments is to the public, and asking the House Banking Committee for a hearing is the right place to start. Beyond that it may be necessary for the Chairman and others of us to seek opportunities to speak out on this subject. It really seems to me that our ability to carry out our most basic mission is what is seriously in question. As to the specifics of the Chairman's recommendation regarding [what we should do] going forward and going back, I think there could be a modest benefit to going in the direction of an edited transcript instead of a Memorandum of Discussion simply because it does give the impression of being, and in fact is, marginally more forthcoming and therefore beneficial to us. Going back, I think that the five-year period is appropriate largely because of the rights of individuals who did not know that their remarks would be made public. Therefore, we should insist as much as we can on the five-year period. And I think the lightly edited transcript is the appropriate form.",306
-fomc-corpus,1993,And three years going forward?,6
-fomc-corpus,1993,Three years going forward.,5
-fomc-corpus,1993,Governor Angell.,4
-fomc-corpus,1993,"It seems to me that we do need to be somewhat forthcoming to Mr. Gonzalez in addition to the three- and five-year proposal. As we go to the hearing it seems to me important that we come forward laying some [proposal] on the table [to the effect] that we would expect him and his staff to maintain the privacy [of FOMC materials provided]. I think we should make a deal before the hearing so it doesn't appear that we're fighting everything and then explain why it is that we're asking the Committee to keep [the materials] private. In regard to the future, the Memorandum of Discussion is acceptable to me with a three-year [lag]. I think there's some advantage of having the organizational improvement [of an MOD] as compared to the lightly edited transcript. I think a Memorandum of Discussion is unacceptable going backward because we don't have all the members [available] to concur. I would prefer for the past that we have both the lightly edited and raw transcripts. Now, when I say raw, I mean raw redacted according to the General Counsel's privileges. And I would presume, Virgil--tell me if I'm incorrect--that references to individuals by name that in a sense weren't necessary could be left out. Even in the raw transcript could names be left out?",260
-fomc-corpus,1993,"They could if they invade personal privacy, things like that.",12
-fomc-corpus,1993,Thank you.,3
-fomc-corpus,1993,President Syron.,4
-fomc-corpus,1993,"Well, this proposal is basically fine. The greatest concern we all have in this is [the possibility of] a misunderstanding with the public and the Congress. This is one of these issues. That's the reason I don't have that much concern with somewhat greater release, done properly. When people see what is actually done it will work to a substantial degree to our benefit. Having said that, going backwards I initially had a preference for three years but I am quite convinced by your statement. What we've done in going back is that we've changed the rules on people. When you change the rules on people, that makes a big difference because the real question is whether you should do it at all. That certainly argues for a five-year period. I would go with a lightly edited transcript. I like Governor Angell's suggestion of accompanying that with the raw transcripts so that people see what has been done. And going forward I think there's a lot to be said for an edited transcript over an MOD because it has as much information. Unfortunately, what is generating this whole thing is an attitude of misplaced suspicion and mistrust, which would make it difficult to provide an MOD rather than a transcript.",235
-fomc-corpus,1993,"In other words, you'd do a transcript both forward and backwards?",13
-fomc-corpus,1993,Right.,2
-fomc-corpus,1993,President Melzer.,4
-fomc-corpus,1993,"I have three general points I'd like to make and then I'll cover my thoughts on what we ought to do. The first point is that past practice can and should be separated from what we do in the future. Don made that point and I agree with it. First of all, I think the existence of transcripts which have not been used in general for any purposes of the FOMC beyond preparation of the policy record or minutes, depending on what we called them at a point in time, should not require that we continue to tape and transcribe. Secondly, I think the President's new policy with respect to FOIA should cause us to review our future practices. In other words, that is a significant change; and regardless of what may be going on in terms of a general legislative debate about FOMC disclosure, that should cause us to review what we're doing. It's unclear to me what the outcome of litigation would be with respect to an MOD. Even if we were taping and transcribing, there is the possibility of a FOIA request for tapes and transcripts, which would in effect freeze that process. Now, I appreciate what Virgil said about the position we have, but we just really don't know where litigation is going to come out. And we would have that overhanging our deliberative process for some considerable time as we fought it out through the courts. So, really, the only way to protect tapes, transcripts, and so forth going forward is through legislation. That's the only way we can be sure that the deliberative process is protected. My second general point is that I think we need to resolve today what we want to do with respect to the release of information about past meetings. We just have to do that. Because of the importance of decisions with respect to future meetings we may want to consider what we do further and decide later, albeit promptly--in my mind certainly no later than the December meeting. My third point is that as a general matter I think it would be desirable from a public information point of view to consider doing something in the future which provides greater disclosure without adversely affecting the deliberative process. I'll get to that briefly at the end. With respect to past meetings, Alan, I favor what you recommended: lightly edited transcripts with a five-year lag. And I would be inclined to release those for 1988 as early in 1994 as we could and then establish some schedule for release of the earlier ones, which would really be determined by the availability of staff to prepare them. And I'd just make those available according to some predetermined schedule. As people have said, I think they would be more open than an MOD looking back would be and I think the cost is considerably more reasonable. I'd favor review by the Secretariat staff only in the interest of getting this information out on a timely basis. And one final point with respect to releasing them with a five-year lag: The precedent of what we did with the old MODs is what we ought to look to in terms of setting that timeframe; five years would be consistent [with our past practice]. With respect to future meetings, I would favor our current approach to keeping minutes. Don, I don't know which alternative this is of yours; I guess it would be your alternative one, the current minutes with no taping or transcript and with any notes of the Secretariat staff made in connection with preparing the minutes disposed of on approval of those minutes. That would be, in my view, normal practice for that sort of function. My general view is that the FOMC ought to be held accountable for its decisions, not the details of its deliberations. And in my view the minutes are more than adequate in that regard and include details of how individuals voted. Secondly, our procedure of taping and transcribing is not required in any way. In effect, it has only been for the convenience of the Secretariat staff. And that raises questions that have been touched on before with respect to retention of these records--tapes and transcripts--under the Federal Records Act. Third, I think tapes and transcripts, as I've said before, would be subject to FOIA litigation and [would result in] considerable uncertainty overhanging the Committee for some period of time. Finally, as has been pointed out, tapes and transcripts would be subject to immediate Congressional subpoena, which would be a form of oversight that goes well beyond the semiannual Humphrey-Hawkins testimony and could raise questions in financial markets of the Fed's independence. Another point on this approach, which I think has considerable advantages, is that no legislation would be required in order to make sure that our deliberative process was protected going forward. My final point would be, and I touched on this at the beginning, that I do think in a public information sense we need to take steps to be more open and should consider such things as either enhanced minutes or prompt release of the directive in connection with the approach that I laid out.",998
-fomc-corpus,1993,President Broaddus.,5
-fomc-corpus,1993,"Mr. Chairman, I certainly agree with the general thrust of your recommendations. Going forward I agree with you that an MOD is the best way to go with a three- to five-year lag. I know there's not a huge difference between an MOD and an edited transcript but, frankly, I have a fairly strong preference for an MOD. It would eliminate a lot of extraneous commentary and I think it would make the atmosphere here better. And it would in that way minimize the negative impact on the deliberative process that an edited transcript might entail. Going backward, for the past, I also agree with your recommendation. I have the same very strong feeling you do about the privacy issue. I think of my predecessor and his 20 years here. But trying to avoid the release of these transcripts is going to make it look as if we're trying to hide something. The fact is that we don't have anything to hide, or at least nothing to hide that is of lasting significance in my view. The great advantage of releasing transcripts is that it makes that point very clearly and emphatically and puts us in a better position to deal with what I think is the real threat here, and that is the opportunity that this situation presents to people who want to paint us as secretive and manipulative and interested in issues of concern to the few rather than the many. We need to act decisively to keep that kind of sentiment in check because I think that's the central threat and problem here. As far as the particulars are concerned, again I would release the transcripts. Along the lines of Governor Angell's recommendation, I would release both the lightly edited version to make them intelligible and also the unedited version to make it clear that we're not using the editorial process to hide anything. As far as the length of the lag time is concerned, I came to the meeting thinking that probably three years was the right amount of time. Your argument for five years makes some sense to me but, frankly, I'm not sure we would buy that much additional privacy by going to five years and three years is a bit more forthcoming. And finally, so far as the review process is concerned--I think you discussed that briefly in the memo, Don--it would be nice if we take this route to give the people who participated in these meetings an opportunity to make comments and review them. But I think speed is of the essence; if we're going to be forthcoming, we need to move quickly. And I don't think we can do that unless we restrict the review to the FOMC Secretariat, so I would go with that approach.",522
-fomc-corpus,1993,President Jordan.,3
-fomc-corpus,1993,"Thank you. I like your idea of explaining the position of the Committee before the Congress and I hope you will pursue that as a way to explain all the dimensions of this. As for the past, frankly, I think it's wrong ever to release transcripts of meetings that people didn't know were being made at the time, but that doesn't seem to be an option. So my first choice would be along the lines suggested by Tom Hoenig's question that we prepare Memoranda of Discussion for the past and release the raw transcripts to the Archives after 30 years. If that doesn't give us protection--if the judgment is that that's not going to do it--then your proposal on lightly edited transcripts is sort of a third best if that's what we're stuck with. Going forward my first choice would be enhanced minutes with no tape and no transcripts, Don's number 2, but frankly I think the chance of getting away with stopping the taping and transcribing now after we've been doing it for 17 years or more is not likely to be successful. So the question then of Memoranda of Discussion versus lightly edited transcripts released after a lag I think has to be decided along the lines that Dave Mullins suggested, as to which one is most likely to withstand protection without legislation. And if that comes down to the side of lightly edited I would favor that; otherwise I would favor Memoranda of Discussion. Certainly if we had legislation, I would prefer Memoranda of Discussion.",292
-fomc-corpus,1993,President Forrestal.,4
-fomc-corpus,1993,"Mr. Chairman, I think it's very important as we have this discussion to keep in mind what you've already indicated and that is that the thrust of what we're talking about today is the ability of this Committee to formulate and implement monetary policy. That is an activity under the law that has been delegated to us by the Congress and if we were to fail in any way to keep the deliberative process and, therefore, impede our ability to make monetary policy we would be failing very, very severely in our responsibilities under the law and to the public. Congress did not delegate this authority to an individual member of Congress. And, if I might say, in my experience in the Federal Reserve System, I think one of the mistakes that we have made has been being far too forthcoming and far too amenable on the whole to satisfying the particular requests of individual Congressmen. I certainly understand the political necessity to do that at times, but when essential issues are involved I think our responsibility is to the Congress and to the duly delegated committees of the Congress and not to individual members. But having said that, if whatever the decision turns out to be is not satisfactory to [members of] the public, I think we ought to endure the defense, if we can, of a FOIA suit and take that on. And we ought also to take our case to the Committee and to the Congress generally and to the public. In other words, whatever we decide, we ought to draw a line in the sand and not go beyond that if we possibly can. On the particulars of the proposal, I think the lightly edited version of the transcripts going back with a five-year lag is quite appropriate and I would support that. I don't think it's necessary to have an MOD. And going forward, I have favored an MOD in the past and I so indicated that to Chairman Gonzalez in at least one letter. I think they do have value. And while there are some difficulties in terms of resources in preparing those MODs, I think it would be appropriate to do that. I'm not sure that a three-year lag is really long enough; my preference would be for a five-year lag. And, if I'm not mistaken, I believe that was the lag with the previous MODs, so I think we do have some precedent to rely on.",462
-fomc-corpus,1993,"Actually, I might say that the last version of the lag under the 1984 bill, which as you know never got through the Congress, was three years, was it not?",37
-fomc-corpus,1993,Five.,2
-fomc-corpus,1993,"Mr. Chairman, the '84 bill would have released transcripts that were between four and five years old.",21
-fomc-corpus,1993,Transcripts or MODs?,6
-fomc-corpus,1993,"I'm sorry, MODs between four and five years old. The '79 bill was--",18
-fomc-corpus,1993,"Oh, it was the '79 bill which was--",11
-fomc-corpus,1993,The '79 bill would have released them between three and four years.,14
-fomc-corpus,1993,President Stern.,3
-fomc-corpus,1993,"Well, as several other people have commented, I start from the position that we really have nothing to hide. So in terms of what we release, I don't see a lot of danger, at least going back, aside from privacy considerations. Going forward, of course, we get into the issues of the deliberative process and I'll comment on that, but in general I have favored Memoranda of Discussion. In listening to the conversation this morning, I think what we're talking about in looking at the distinction between MODs versus lightly edited transcripts is really a question of quality. I think the quality of the Memoranda of Discussion is going to be higher and, therefore, the documents are in some sense more useful. [It's higher quality] versus the openness, or at least the appearance of [greater] openness, if we confine ourselves to lightly edited transcripts. And I must say the more I look at that, the less the issue seems to be very clear to me. So I can live with either alternative going back. And I'd have no problem if we wanted also to provide the raw transcripts, again with the appropriate lags. People who wanted to do that kind of comparison could then see what [editing] work was done. Going forward, I think--",253
-fomc-corpus,1993,And on the timing going back?,7
-fomc-corpus,1993,"Well, five years or more as far as I'm concerned. I think that's sort of a tactical question. Going forward, again I started with a presumption in favor of Memoranda of Discussion, but I must say I don't feel the distinction between those and the lightly edited transcripts is all that great. I have a mild preference for the Memorandum just because I think the quality of the document is higher. I don't think this is the right time, frankly, to change our procedures with regard to taping and transcripts. In a way I think that would be self-defeating in the sense that while we're trying essentially to be more open, that would give the appearance at least that we were becoming less open. [The elimination of taping and transcripts] may be worthy of consideration down the road, but at the moment I don't think that's the way to go. And I do think, though we ought not try to resolve this today, that we should consider the question once again of when we release the directive or the policy decision because, as I consider that issue, I don't think our current practices are necessarily optimal.",225
-fomc-corpus,1993,And going forward [you favor a lag of] three years?,13
-fomc-corpus,1993,Or more.,3
-fomc-corpus,1993,Okay. Governor LaWare.,6
-fomc-corpus,1993,"Mr. Chairman, I fully subscribe to the proposition of making available to the [Banking] Committee edited transcripts, eliminating the confidential information that we would find sensitive. I'm less concerned about the time lag. It seems to me three years on the retrospective part is adequate. And though we haven't addressed this specifically, I don't think it's practical to go back and try to get every living person who ever participated to review something that they may have said 15 years ago. So I would let the staff do the editing. And I don't think I could possibly justify in my own mind trying to do a Memorandum of Discussion of all of those ancient meetings because the person attempting to do so simply wouldn't have the proper environment in which to interpret what was being said. On the [going forward] side I strongly favor the Memorandum of Discussion simply for accuracy. You can read, as we did in the example that was circulated, the kind of gibberish that one of those transcripts contains. It's almost impossible to tell what individuals were really trying to say in any given speech. And that leads me not to be in favor of releasing both an edited and a raw transcript because it seems to me that then somebody can raise the question of whether we interpreted that bit of gibberish correctly. So, I think the edited transcripts retrospectively are right; and prospectively in order to eliminate inaccuracies the Memorandum of Discussion should be used, which would be subject to the review of the participants. And as I understand current Archival practice, we would be allowed to discard the tapes and the transcripts from which that was prepared. And until that is challenged and found inoperative as far as a court was concerned, I would think we would be adequately protected in using that procedure on a prospective basis. And I hope that kind of procedure would satisfy the [Banking] Committee and not encourage them to try to seek our working materials, our working papers if you will, on a prospective basis.",395
-fomc-corpus,1993,I missed it; your going forward time [lag] is what?,14
-fomc-corpus,1993,Three.,2
-fomc-corpus,1993,Three years for the past?,6
-fomc-corpus,1993,One would be satisfactory to me but I sense that I'm way out of line with everybody else on that.,21
-fomc-corpus,1993,So you have three and three. Is that right?,11
-fomc-corpus,1993,Yes.,2
-fomc-corpus,1993,President Boehne.,5
-fomc-corpus,1993,"I have just a couple of general points. We've talked a lot about the deliberative process this morning and how important it is for the quality of the decisionmaking process. I think it's important to underscore that this deliberative process evolved over a long period of time; it was not made in a day or a meeting or one generation of Open Market Committee people. And one can undermine that and weaken that process much more quickly than it took us to get it to the point where it is. So, we all have to look not just at our short-run issues but also at this longer-run view of our effectiveness. The second general point is that the deliberative process is not unique to the Federal Reserve. The Executive Branch and other independent agencies have to have an effective deliberative process for every major public policy decision. I make this general statement, and I'm sure others are more factually aware of it, but I suspect that the kinds of things we are talking about today if they were applied to the rest of the public policy decisionmaking units in this city throughout the Executive Branch would give them a great deal of trouble also in carrying out the kinds of quality decisions that they have to make. I think one can make the case that central banking is different, but we don't want to be different on the side that we have less of an environment to be deliberative than [others making] public policy. And I think it would be helpful to us if we compared the practices elsewhere in Washington to our own; we may not be as much of an outlier as we think we are. And the way that we are moving may in fact result in our short-changing our ability to deliberate compared to other agencies. Having said that, we have to deal with the [issues at] hand. In general what you proposed, Mr. Chairman, makes sense to me. I think going back five years with a lightly edited transcript is the way to go. I would not go back and ask everybody who has been a part of this to sign off. That would be a time-consuming and probably not very effective process. The document ought to say that the staff did it and used their best judgment; there may be errors in it, but here it is. And we ought to move on releasing these as quickly as we can, given the resources. Going forward, again I think your general proposition makes sense. Nevertheless, when I went back for the first time in a long time and actually reread parts of a Memorandum of Discussion and then compared it to the lightly edited transcript, there was not a great deal of difference. My recollection of the Memoranda of Discussion was that they were somewhat shorter and somewhat more summarized, but after just going back and reading one it seems to me there isn't a lot of difference. And while I can support the Memoranda of Discussion going forward, since a lot of our problem is one of perception--and we almost surely will have to defend this in a FOIA suit at some time in the future--I wonder if we ought to err marginally on the side of more openness. So I could easily accept, and in fact have a marginal preference for, going with an edited transcript instead of the Memorandum of Discussion going forward. But I don't feel that strongly about it and I can certainly accept your proposition if that's the majority view of the Committee. One other point: This is not the time to consider it, but going forward I think this Committee ought to keep a very open mind about the kinds of minutes that we now put out--whether they ought to be enhanced and how they could be enhanced. I also think we ought to keep an open mind about the schedule on which we formally release our decisions.",749
-fomc-corpus,1993,President Hoenig.,4
-fomc-corpus,1993,"Mr. Chairman, I would start by perhaps echoing a little of what President Boehne said. Whatever proposal we come forward with, if it is not accepted we should take the opportunity to present our case again in a hearing before the full Committee. I think it needs to be reiterated that we are indeed the most open central bank in the world and that we do release very detailed minutes now. I don't think that is appreciated as much as it perhaps should be.",94
-fomc-corpus,1993,I tried to make that point at the hearings.,10
-fomc-corpus,1993,"I understand that. And I'd say that if what we propose gets no acceptance whatever, we should take the opportunity to present our case again before the whole Committee and reiterate those points. We just absolutely have to. It's very important to show how open we are and how detailed our minutes are. What is happening, and we can see it now, is the very beginnings of disrupting the process. What one may say in an open discussion, what may be a speculative gesture for discussion purposes, is likely to be taken out of context if this information is released quickly after a meeting. So, I think that's very important. As for your proposals then, given the answers to the questions that have been asked, I see that we probably must go back and release lightly edited transcripts as you are suggesting with the proper redactions and so forth. I favor five years minimum going back because there are [issues] of privacy here. And there is the fact that very detailed minutes have been released in the past. Going forward, appearance is an issue; and if there is not a big difference between Memoranda of Discussion and lightly edited transcripts, perhaps lightly edited is a better way. However, the Memorandum of Discussion is fine with me. I feel very strongly that [the lag] should be five years, not three years, because the longer the time period the less disruptive it will be to the process, which is so important. That's why I would go for the five years.",295
-fomc-corpus,1993,President Parry.,4
-fomc-corpus,1993,"Thank you, Mr. Chairman. Somewhat along the lines of Jerry Jordan's comments, I believe that we have a rather significant obligation to current and past members of the Committee. And that leads me in terms of the past meetings to Memoranda of Discussion and a five-year lag. However, I certainly wouldn't be against lightly edited transcripts; I just have a preference for the Memoranda knowing full well that they would be quite expensive to provide. But I think we do have a special obligation to people who didn't realize that this would ever see the light of day even in a lightly edited fashion. In terms of how that would be constructed, I think it's only practical that the Secretariat staff have an overwhelming share of the responsibility but I would hope that in some instances where there might be a need they could consult with participants who are currently in the Federal Reserve System if there is a real question as to what was meant by a particular comment. With regard to future meetings, I must admit that I found the enhanced minutes to be quite interesting. One of the things it clearly does is give accountability, and I thought accountability was the major issue. The other thing I like about it is that it seems to me a pretty low-cost way to deal with this accountability issue. This is [an option] I hadn't thought about much until I got Don's memo; I had a short discussion with him [after] that and I find it attractive. If that were rejected, my second alternative is the Memorandum of Discussion and my preference would be for a five-year lag if that were the case.",317
-fomc-corpus,1993,"It's pretty clear that we are going to be moving on through lunch and into the afternoon before we get through, so why don't we take our regular 11:00 a.m. break at this point.",41
-fomc-corpus,1993,"Mr. Chairman, proceeding along as we have, I certainly concur with what I've been hearing from virtually everyone that it's time to be pro-active. I think the regime that we are under now and have been under has been the best way to make public policy. But I'm afraid that I have come to the conclusion that that's not viable any more, given the evolution of FOIA and the understandings as to what FOIA means. So looking at what might be done, first of all for the past meetings I concur with your proposal and I don't think there's anything further that I can add to what has already been said about that. As for going forward, I prefer alternative number 4, which provides for the lightly edited transcript. Substantively I don't see a great deal of difference between a lightly edited transcript and a Memorandum of Discussion. I see some moderate advantages and disadvantages to each but nothing compelling either way. But in my judgment I am afraid that a Memorandum of Discussion type document is just not as acceptable as it was in the past. It should be perfectly acceptable but I'm not sure that it is. We live in a somewhat different age than we did in the '70s. I regret it. We live in an era of suspicion of government. Appearance has become enormously important even to the detriment of substance in many cases, which I think is enormously regrettable and not warranted but nevertheless is the case. And I am afraid that today's reader will wonder in the case of the Memorandum of Discussion if he's not getting a little spin and he will be uncertain that he is receiving [an account of] the proceedings with full accuracy. Now, I'm perfectly comfortable myself that they would be [accurate]. I don't have the slightest doubt about that. But if we are going to be forthcoming, and I think we must be, we would be more satisfactorily forthcoming to go the route of the lightly edited transcripts. Consequently I would prefer that for that reason. I would have a strong preference for a lag of five years over three for reasons that President Hoenig and others have expressed. But if we have to go to three, I don't think that would necessarily be a deal-breaker.",442
-fomc-corpus,1993,President Keehn.,4
-fomc-corpus,1993,"Mr. Chairman, I'm certainly more concerned about what we do going forward than what we do about the records of previous meetings, and I certainly hope that nothing we do with regard to the existing transcripts is going to affect our [deliberative] process adversely. I must say, as kind of an aside, that I have a group of people--some ten people or so--that I talk to before I come down to the FOMC meetings. I sent each of them a copy of my [October 19] testimony after I got back just so they'd be aware of what was going on. And in my calls this time, getting ready for this meeting, I must say that one of the conversations turned out to be very different. It was with a man who runs a very large manufacturing company in our District. Normally we have a 15 to 20 minute conversation; this time it was about 5 to 6 minutes. And as I went through that process I just had a feeling that maybe he had talked to a lawyer and came forward with quite a different message. So, I think there is a risk in this that the information we get and the way we use it is going to have an impact on the way that we develop policy. With regard to the existing transcripts, I would favor the lightly edited transcripts. Clearly I would state here, and it doesn't have to be repeated, that all the confidential information should certainly be deleted from them. I'd prefer to have the staff do it as opposed to going to the principals; I think it's just easier to have the staff go through them and clean them up. I raised the question about timing earlier. If we start off with a short time, it's not going to get longer; they're always going to chop it down. I'd prefer starting at longer than five years, but if we got to five years on the existing transcripts I think that would be okay. Going forward, I would far prefer the current procedure. I must say that I think the current minutes are a very detailed, excellent record of what has taken place, what has been said, and what information we are looking at. They are certainly more detailed than the minutes of most other meetings that all of us are familiar with. And it seems to me that if we move away from that, it's going to have an effect on the way that we develop policy. So I would prefer Don's alternative number one. I would cease the recording and I would cease the transcripts. I would rely on greater secretarial support to produce the minutes. It's probably going to mean that we're all going to have to work a little harder in cleaning them up, but that's the way it is. A couple of people have mentioned that the timing of a decision to cease our recording and transcripts now would be awkward; I don't think it would be at all. After all, we are having a meeting in which we are discussing the process. In the years I have been here we have never had this kind of full discussion. It seems to me only reasonable that as a result of it, it's very likely that we would make a change. And this is the change that I think would be appropriate.",642
-fomc-corpus,1993,You're staying with the existing minutes and--,8
-fomc-corpus,1993,"I'm staying with the existing minutes, no recording, no transcript.",13
-fomc-corpus,1993,President McTeer.,5
-fomc-corpus,1993,"Looking backward, I could live with your suggestion for lightly edited transcripts. But I think it's important for us to be as forthcoming as possible and I believe providing raw transcripts with some notation on the side that there are some obvious difficulties here and there and so forth might be perceived as a bit more forthcoming.",60
-fomc-corpus,1993,That's as distinct from lightly edited with annotation?,9
-fomc-corpus,1993,Yes. Let people see the garbled stuff; let them see how incomplete the raw transcripts are.,20
-fomc-corpus,1993,Both or one?,4
-fomc-corpus,1993,One.,2
-fomc-corpus,1993,"So you want a raw, annotated transcript?",9
-fomc-corpus,1993,"Raw, annotated would be my preference. Primarily because Chairman Gonzalez asked for it, I'd be inclined to go back only three years for protection rather than five, although I would personally prefer five. I think we've got to be as forthcoming as we can be. And looking forward, I rather agree with what Governor Kelley said. I don't think there's a lot of substantive difference between a Memorandum of Discussion and an edited transcript, but I think the edited transcript would be perceived as an improvement over past practices and as more forthcoming. And I think it could be advertised as more forthcoming than pre-1976 [practices]. And in order to diffuse the other issue, I still believe that it would be helpful to combine whatever we do with an early announcement of the decision of the outcome of the meetings. These are shadings of preference; I'd be willing to go along with your recommendation in the spirit of consensus.",184
-fomc-corpus,1993,Governor Phillips.,3
-fomc-corpus,1993,"Well, with respect to the past transcripts, I must say that I have considerable discomfort with changing the rules of the game for all of those people who sat around this table. So my preference is no release, but I take it that that's not sustainable. Assuming that it's not sustainable, I'd go with the lightly edited option, and as a second choice raw transcripts, annotated. I'd have the Secretariat review it and state that it might contain errors. I'd go with a five-year delay because of privacy [concerns]. Going forward, I would prefer the minutes the way that we are doing them and could see some enhancement of them. But I could live with an MOD, which I have a slight preference for over the light editing. I'd go for a three-year delay. I also think that we're into this tit-for-tat, going back and forth with these letters, and that it would be good to seek hearings so that the only form of discussion is not letters back and forth.",197
-fomc-corpus,1993,Governor Lindsey.,3
-fomc-corpus,1993,"Mr. Chairman, I must say that I've become quite cynical about the process. I think we've been negotiating with ourselves; there's no one on the other side of the table where people on the other side of the table refuse to [bind] themselves. The court's decisions can be overturned by a decision by the President and the Attorney General. So my basic suggestion would be to do whatever you think is best. I think it's entirely a tactical call. I think it's tragic that the rules can be changed and people's rights can be reversed ex post facto; that's my most important concern. In that regard I would prefer that the tapes never be released. Failing that, I would prefer 30 years; failing that, I'd prefer 29 years. My 26th choice would be 5 years. How does one function in a world where there are no property rights and laws can be changed willy-nilly? I would note that in Chairman Gonzalez's letter he did not necessarily stress the process; he wanted the results of the meetings out earlier. I really think that is what is key [for him]. There's a good reason why we value the process of how we got there, and I think that's important for us to protect. They value the results. I think if they had the results they wouldn't give a fig how we arrived at them and no one would bother to read through 150 pages of unedited transcripts. I would suggest, therefore, giving them the raw transcripts with a five-year delay. I think the key to getting out of this mess is that we really have to change when we release our decision.",325
-fomc-corpus,1993,Going forward?,3
-fomc-corpus,1993,Five years.,3
-fomc-corpus,1993,"I'm sorry, I thought that was the past; I missed it.",14
-fomc-corpus,1993,Five for both.,4
-fomc-corpus,1993,Five for both?,4
-fomc-corpus,1993,And what's the form going forward?,7
-fomc-corpus,1993,Raw transcripts. If you want to have this annotation and what was the term--recision--to take out?,23
-fomc-corpus,1993,Redaction.,3
-fomc-corpus,1993,"Redaction. Yes, so redact and annotate. But if anyone can go past a hundred and so pages of that raw transcript, more power to them.",31
-fomc-corpus,1993,Governor Mullins.,4
-fomc-corpus,1993,"Most everything has been said, but I think the key objective is to try to create a situation going forward which does not compromise the deliberative process. I don't think the options are very attractive, but I thought I'd put it through one last reality check just so we're aware of the consequences of what we're doing. As I see it, going forward, it's unrealistic to believe that either an MOD or edited transcripts with attribution of views can be protected. Even with legislation--and we've talked about that--it can't be protected from Congress. Especially when we start to raise rates Congressional critics can subpoena it. We've seen it even with the legislative protection on examination reports. There are criminal penalties if examiners release information; Congress can get it. And by the way when [the subpoena] happens, I think the objective will be to identify the agitators. And then I think it's not unrealistic to expect that members of Congress might write letters to individual Committee members who expressed strong views and perhaps call them to testify; they will basically zero in and apply pressure. Obviously, I think this would do very substantial harm to the deliberative process. Even at the Board we have open and closed meetings now and the quality of the process is quite different just as it would be here, I suspect. The quality here would change, even if it didn't change immediately. It would just take one of these episodes. The future is a long time and I think this is quite certain to happen. I feel safe in saying it's quite certain to happen because the future is a long time and I can't be disproved! If you think about it, first of all the character of some of these [Congressional] committees is changing through time, and changing in a way which I think makes it more likely or easier to get a subpoena. And if one thinks about the rate scenario we might be facing in the near-term future, much less what the Fed went through in the late '70s and early '80s, as soon as we start doing MODs or edited transcripts for release going forward basically the deliberative process is put at risk. And the die is cast when that happens. It's very difficult to try to put a stop to it once it gets going; and sooner or later it will be compromised, although I suppose we can try to fight. Is there any way to avoid this? Ideally I would like a process in which we're not harboring secrets because I think the harboring of secrets in our files--documents which are kept secret for years--is an irresistible attraction to political opportunism. It gives us the bad image of having things to hide. And there may be no politically feasible way to avoid this. My first preference, clearly, is to have a process of extensive minutes--enhanced minutes which capture the full discussion, including all the issues and all the arguments but without attribution. And I'd release it immediately, six weeks after the meeting, or whatever time it takes to produce it. I think this could be managed under the Federal Records Act. Basically we would have no taping but we would have note-takers. The note-takers also would have to avoid giving attribution. Now, in the political process when you compare that--basically the full discussion [in the form of enhanced minutes without attribution] produced very quickly--with an MOD and the promise of a full discussion with attribution later, it seems to me the only [significant] difference is the attribution. And the only reason why one would prefer the attribution is to bust open the process and find out who's doing what early on. And that certainly may be the objective of some of our harshest critics. But it's not clear to me that the bulk of Congress would favor that, especially because I've seen very little interest in this issue. Now, maybe it's unfeasible to try to do that given where we are today, but at least we ought to consider the stakes. Given the stakes, it seems to me it might be worth a try. Essentially we have to believe what we're doing now is sufficient or else we wouldn't have been doing it all this time. So one consideration is: Shouldn't we try to enhance that to have a shot at least at a sustainable process going forward instead of going with an option which I think forever puts the deliberative process at risk? I am willing to accept that this may not be feasible. I must say it's unfortunate that we seem to be willing to do this in response not to a broad-based Congressional criticism or public outcry on these issues but in response essentially to the harangues of very few critics. That's not a healthy precedent. Nonetheless, I am willing to accept reluctantly the summary judgment that we have no chance of protecting the process. But we ought to go into it with our eyes open because once we start this process, it seems to me highly likely that sooner or later it will be busted open. And then I think the process will be damaged. I also would support consideration of a change in the timing of the release of the directive. I think [the delayed release] does us much greater public and political harm in terms of perceptions than possibly its value. I think it's time to reweigh those pluses and minuses. Now, if the enhanced minutes idea is simply not feasible, I would prefer for the past just edited transcripts with [a lag of] at least five years. For the future I generally agree with what a number of people, including Tom Hoenig, Ed Boehne, Mike Kelley, and Bob McTeer have said. I don't see a lot of difference between an MOD and an edited transcript. It's an issue of quality versus the ability to defend the thing. In terms of quality, maybe I don't have enough experience with an MOD to recognize its superior quality. I wouldn't feel strongly, but I don't see why we would want to differentiate ourselves from these other agencies by having an MOD. And I do think at the margin that an edited transcript would be easier to defend. I would prefer to try to defend it for five years rather than three. Again, I don't see why we can't make this--",1235
-fomc-corpus,1993,"I'm sorry, are you talking past or forward?",10
-fomc-corpus,1993,"Forward and past [I'd favor] five years. I think we ought to link it to the same sorts of considerations that must be weighed in similar discussions with respect to foreign policy issues and other issues. If it's a transcript of a meeting, it seems to me that we ought to be able to defend something like five years. I could live with three, but I think we have to be realistic about it: It will be three until the going gets tough and then it will be immediate. And then I think we have a real problem especially when one looks around at how other central banks operate. It's an unfortunate situation we're in. I would be willing to go along with, and would have a marginal preference for, the edited transcripts going forward.",149
-fomc-corpus,1993,Could I ask a question?,6
-fomc-corpus,1993,Sure.,2
-fomc-corpus,1993,In terms of your preference for the enhanced minutes you stressed non-attribution.,15
-fomc-corpus,1993,Yes.,2
-fomc-corpus,1993,"What about the wrinkle that Don put on it that at the end, I presume, there would be some accountability in terms of the decision that is made so that--",33
-fomc-corpus,1993,"Well, my view on attribution is that if you want attribution, you dissent. But--",18
-fomc-corpus,1993,"Well, I guess you had some discussions with people and Congressmen--",14
-fomc-corpus,1993,"No, the attribution idea was not from the discussion with Congressmen; the attribution idea really came from the Board's current minutes. And also the notion of accountability--",33
-fomc-corpus,1993,Do we have current minutes?,6
-fomc-corpus,1993,Yes.,2
-fomc-corpus,1993,With attribution?,3
-fomc-corpus,1993,"Yes. Now, for the discount rate, for example, I think those minutes are released with a longer lag than the--",25
-fomc-corpus,1993,"Oh, from the Board's current minutes. I see.",12
-fomc-corpus,1993,"The Board's current minutes, I'm sorry. And there are concurring statements in those minutes when people vote in favor but differ on the reasoning. It doesn't happen very often.",35
-fomc-corpus,1993,"Yes, any time anyone wants attribution themselves it seems to me they can dissent, have a concurring statement, etc., etc.",26
-fomc-corpus,1993,We've never had concurring statements.,7
-fomc-corpus,1993,We've never had concurring statements at the FOMC.,12
-fomc-corpus,1993,"Yes, I know, we haven't; but we have at Board meetings.",15
-fomc-corpus,1993,"Mr Chairman, can I ask an information question?",10
-fomc-corpus,1993,Sure.,2
-fomc-corpus,1993,"I must say, I'm sort of intrigued by something that David said here and it's an information question. It's a judgment question for you, I guess. Suppose in the relatively near future, [and by that I mean] very near, we were to say that we are going to do two things or a package of things. One would be that we would do something on this notion of enhanced minutes. I might call them something different than enhanced minutes; I'm trying to come up with a new term of art. And if we were to combine that with immediate disclosure any time the Committee acted on the directive--[I stress] ""acted,"" not just going asymmetric--if we were to do this pretty quickly with the kind of lags that David talked about, I must say I hadn't thought about this at all, do you think there's a chance that that would significantly change things? [Would it be viewed as] an offering where we would seem to be coming forth with quite a lot and would it give us the ability to do away with keeping things which inappropriately could be subpoenaed and--",220
-fomc-corpus,1993,"One issue is whether it would satisfy a particular critic, and my guess is it would not. But a broader question is would it essentially satisfy FOIA--",31
-fomc-corpus,1993,That's the question I'm asking.,6
-fomc-corpus,1993,"Well, I must say, I'm not as pessimistic about this as Governor Mullins. We are confronted with an immediate problem, which is essentially the transcripts, that has to be resolved. I think we've got to come to grips with how we handle ourselves in the future, and I am not of the opinion that if we do something now and it's not working the way we want, that we can't change it. Remember, nobody here is talking about [releasing] tapes or transcripts immediately. If it turns out that we are unable to hold onto our deliberative process, I think it is essential that we change [our procedures]. And that would be a unilateral change. It is something that does not require legislation. My own view is that legislation is not going to turn out to be necessary. Frankly, the reason that I have argued the way I have is that I happen to think it's the appropriate policy. I had that view before the transcript issue came up. So, I personally am not responding to any of our recent problems with the House Banking Committee. I just think it's good policy to do something about the way we [make information available]. Frankly, I hadn't focused at all on the past transcripts because I thought they were FOIA-protected as staff operations and it never entered my mind. But moving forward to do something which is more forthcoming is something I myself have been supportive of for quite a long time. I have problems with the immediate release of minutes because I do think that's real stuff and their immediate release would in my view fundamentally alter the way we do business. But I must tell you I can't get overly excited about the question of [whether to release] transcripts three, four, or five years out. That's because basically the business cycle lasts three or four years and it's hardly likely that anything we're saying [currently] is going to get compromised by positions we took in an earlier period. But let me just say that the most important issue here is that I'm not sure how Congress is going to behave one way or the other. David may be right; it may be getting worse. I'm not sure that is necessarily the case. But the point that I would raise [relates to] the presumption that whatever we do--aside from what we do with the historic transcripts--once we do it we're locked in concrete. I don't think we ought to view whatever it is we do going forward as locked in concrete because these laws are evolving. The Archivist is evolving, the Justice Department is evolving. It may turn out that presumptions relevant to this are inappropriate. And I would have no hesitancy myself to argue for change even if it's six months from now or three months from now. So I don't see that we have to be judging [anything] at this point other than the necessity under all conditions of protecting the deliberative process, which I hope is the unanimous view of the people around this table. Aside from that, which is our number one unquestioned priority, how we do it is variable. And in my judgment the recommendation I made solves it for my purposes. Would I like enhanced minutes? I would say that in the event we cannot hold our confidentiality with tapes and transcripts, I would very readily go to enhanced minutes with no tape, because I think that would be necessary. I don't think we'd have any choice but to move in that direction. But I don't see that as a highly likely outcome at this point. Governor Angell.",699
-fomc-corpus,1993,"I agree with the thrust of your arguments. This Committee has a lot of capability to maintain a deliberative process even if it doesn't seem exactly ideal. I can't imagine, whatever happens, that we're going to let ourselves change that much.",47
-fomc-corpus,1993,"My impression basically, knowing the people around this table, is that they may start to become hesitant but they're going to be unable to maintain it. [Laughter]",33
-fomc-corpus,1993,"But we can go in more directions than one and [the differences in] one alternative versus the other alternatives are not that significant. And I agree with you that changes can be made if they need to be made. But I do believe that we need to decide today what we're going to do. The longer we go without deciding, the more it's going to appear that somebody else is pulling our chain.",80
-fomc-corpus,1993,Absolutely. SEVERAL. We all agree on that.,12
-fomc-corpus,1993,"Let me [move toward a decision]. Even though I've taken extensive notes here--. [Laughter] It would be tough to write a transcript, but they would actually be usable. We have a number of different issues on the table. And the question basically is [how to proceed]. If they were all fundamentally independent, then as good mathematicians we could vote on them one at a time. But, for example, on the issue of [what we do] going back, in anybody's mind is the choice of raw transcripts or edited transcripts a function of the timeframe or the judgment on the length of time before we would make them [available]?",131
-fomc-corpus,1993,No. SEVERAL. No.,8
-fomc-corpus,1993,"I thought not. So what I can do is ask for preferences. Well, it's a little more complex going forward, so let me start with the historical setup. I'll ask first that we literally go around the table and have individuals respond to a first choice and ""could accept"" type question. We're talking now about the raw transcript with annotation, a lightly edited transcript with or without annotation--",78
-fomc-corpus,1993,And both.,3
-fomc-corpus,1993,"--releasing both, and Memoranda of Discussion. So how many is that?",17
-fomc-corpus,1993,That's four.,3
-fomc-corpus,1993,That's four [choices].,5
-fomc-corpus,1993,Are you talking retrospectively?,6
-fomc-corpus,1993,Retrospectively.,5
-fomc-corpus,1993,"No one mentioned MODs going backward, did they?",11
-fomc-corpus,1993,"Yes, it has been mentioned.",7
-fomc-corpus,1993,Going back?,3
-fomc-corpus,1993,"Well, by only two people I believe.",9
-fomc-corpus,1993,"Yes, by some.",5
-fomc-corpus,1993,"Is that acceptable? Okay. It's easier to go down [my list]. Vice Chairman, can I ask for a quick sentence?",26
-fomc-corpus,1993,My first choice would be light editing without annotation and my second choice would be the raw transcript with annotation.,21
-fomc-corpus,1993,Governor Angell.,4
-fomc-corpus,1993,My first choice is releasing both [lightly edited and raw transcripts] with redactions.,18
-fomc-corpus,1993,"Well, redacting is for all of them. That goes without [saying].",17
-fomc-corpus,1993,Right. So my first choice is both; my second choice is the raw transcripts.,17
-fomc-corpus,1993,President Boehne.,5
-fomc-corpus,1993,My first choice is light editing without annotation but with a note on the [cover] page that says this was done by the staff and it may or may not be accurate. My second choice would be a raw transcript with some annotation.,47
-fomc-corpus,1993,President Keehn.,4
-fomc-corpus,1993,My first choice would be lightly edited transcripts without annotation; my second choice is raw transcripts with annotation.,20
-fomc-corpus,1993,Governor Kelley.,3
-fomc-corpus,1993,My first choice is lightly edited transcripts; my second choice would be [releasing] both raw and lightly edited transcripts.,24
-fomc-corpus,1993,Governor LaWare.,4
-fomc-corpus,1993,My first choice would be lightly edited transcripts; my second choice would be lightly edited transcripts with annotation.,20
-fomc-corpus,1993,Governor Lindsey.,3
-fomc-corpus,1993,My first choice is raw transcripts with annotation; and lightly edited is fine.,15
-fomc-corpus,1993,President McTeer.,5
-fomc-corpus,1993,First choice is annotated raw transcripts; second choice is lightly edited.,13
-fomc-corpus,1993,Governor Mullins.,4
-fomc-corpus,1993,My first choice would be [releasing] both; and I could accept either raw or lightly edited.,21
-fomc-corpus,1993,Governor Phillips.,3
-fomc-corpus,1993,First choice would be lightly edited; second choice would be [releasing] both.,17
-fomc-corpus,1993,President Stern.,3
-fomc-corpus,1993,First choice would be lightly edited and second choice would be raw transcripts with annotation.,16
-fomc-corpus,1993,President Broaddus.,5
-fomc-corpus,1993,My first choice would be [releasing] both; my second choice would be raw transcripts with annotation.,21
-fomc-corpus,1993,President Forrestal.,4
-fomc-corpus,1993,My first choice is lightly edited transcripts without annotation and my second choice is raw transcripts with annotation.,19
-fomc-corpus,1993,President Hoenig.,4
-fomc-corpus,1993,My first choice is lightly edited without annotation; my second is raw with annotation.,16
-fomc-corpus,1993,President Jordan.,3
-fomc-corpus,1993,"My first choice would be lightly edited without, and my second raw with, annotation.",17
-fomc-corpus,1993,President Melzer.,4
-fomc-corpus,1993,Lightly edited is my first choice; my second choice is raw with annotation.,16
-fomc-corpus,1993,President Parry.,4
-fomc-corpus,1993,I guess my first is the Memorandum of Discussion and my second is lightly edited.,17
-fomc-corpus,1993,President Syron.,4
-fomc-corpus,1993,"My first choice would be both and my second choice would be raw, annotated.",16
-fomc-corpus,1993,The consensus is lightly edited. It's unclear as [to the issue of annotation]. Let me put it to you this way: I assume that the question of annotation is a secondary issue relative to the other. So it is lightly edited and what I'd like to do is get a show of hands on annotated or--,62
-fomc-corpus,1993,"Well, I guess in terms of the count we have a multiple choice here and we ought to boil it down to the two highest and have a vote-off on the two highest.",36
-fomc-corpus,1993,"Well, when you start to do that it bothers me--",12
-fomc-corpus,1993,"Mr. Chairman, are you going to be negotiating with Chairman Gonzalez on this?",16
-fomc-corpus,1993,"Well, why?",4
-fomc-corpus,1993,We're just going to make a decision and then--,10
-fomc-corpus,1993,That's what we should do.,6
-fomc-corpus,1993,I mean multiple choice voting--. You really need to find out among the two highest choices--,19
-fomc-corpus,1993,We have a majority for one choice though.,9
-fomc-corpus,1993,"Listen, Robert's Rules of Order provides for always determining a majority; you can't do anything without a majority.",22
-fomc-corpus,1993,"Well, if you have a majority--",8
-fomc-corpus,1993,But you don't have a majority first choice for light editing.,12
-fomc-corpus,1993,"Yes, we do.",5
-fomc-corpus,1993,"Yes, we do.",5
-fomc-corpus,1993,Yes.,2
-fomc-corpus,1993,"Well, what was the count?",7
-fomc-corpus,1993,"Amongst the members it's one, two--",9
-fomc-corpus,1993,First choice?,3
-fomc-corpus,1993,"--three, four, five, six, seven, eight.",13
-fomc-corpus,1993,"Well, that's it. Let's go to the next issue.",12
-fomc-corpus,1993,"Well, I sure didn't--. I heard a lot of raws and I heard a lot of boths as first choice. How many raws were there for first choice? Were there three?",38
-fomc-corpus,1993,Two among the Committee members and for both there were two.,12
-fomc-corpus,1993,"Okay, so it's the voting members. I see. All right.",14
-fomc-corpus,1993,"The nonvoting members are also roughly the same; there's not a big distinction between them [and the voting members]. If there were, I think we'd want to think about it. Unless somebody questions my accounting, I got a majority.",48
-fomc-corpus,1993,"Well, that's fine if there's a majority.",9
-fomc-corpus,1993,"There is a majority. All I'm asking, since some of you didn't say whether or not it was with or without annotation, is for a show of hands, first without annotation.",36
-fomc-corpus,1993,Could I ask what you mean by annotation?,9
-fomc-corpus,1993,"Annotation is basically comments in--. Well, rather than give my view, why doesn't the person who would annotate it [tell us].",27
-fomc-corpus,1993,"As I understand it from Virgil, if we saw a ""not"" where clearly it didn't belong, the Archivist would hesitate to allow us to take it out but he would allow us to put a footnote there and say: ""Editor's note: Read in context this word doesn't seem to belong.""",61
-fomc-corpus,1993,"You couldn't take the ""not"" out with the light editing if it is clearly indicated--",18
-fomc-corpus,1993,"If it was very obvious from the transcript that the ""not"" was an incorrect transcription you could take it out, yes. In other words, if the transcriber typed ""adversary"" and the word really was ""emissary"" and it was clear that the speaker meant ""emissary,"" you could change it.",67
-fomc-corpus,1993,You have to annotate unless you put the original out.,11
-fomc-corpus,1993,This is a very knotty question.,8
-fomc-corpus,1993,"It's an interesting question. It also depends to a large extent on who is doing the annotating. Remember what annotation means. Annotation means that somebody has gone over this and decided whether it is right or wrong. Now, the problem unfortunately is that whoever is annotating is not going to capture all the wrongs but they will be certifying that they are right.",73
-fomc-corpus,1993,I hate to tell you this but the reason you want to do both is because if you have both of them there; that solves that problem.,29
-fomc-corpus,1993,It just complicates it.,6
-fomc-corpus,1993,"No, because somebody is free to interpret as they wish and say ""Look, here's the way the experts thought it should be.""",26
-fomc-corpus,1993,But the errors get preserved.,6
-fomc-corpus,1993,"Well, it's an impossible situation. We don't have real-time evaluations of whatever it is we're doing and we're trying to make guesses [about] the past. Frankly, while I was originally attracted to annotation, my concern is that if we have annotated, the presumption is that if it's not annotated it is accurate.",64
-fomc-corpus,1993,Correct.,2
-fomc-corpus,1993,And I'm not sure that that's factually correct.,10
-fomc-corpus,1993,Isn't that also true of editing?,8
-fomc-corpus,1993,"Once you've edited, you've doctored it.",9
-fomc-corpus,1993,"Yes, definitely.",4
-fomc-corpus,1993,"Well, this is where the Archivist is relevant. If he decides that the editing does not do violence to the raw transcript, the raw transcript can be dispensed with. If not--",38
-fomc-corpus,1993,"But the edited transcripts still might be misleading. And what I thought [about] was that it could be interpreted, since you've edited it, that you've somehow ""certified"" it, if I can use that phrase. And editing may or may not fix things.",53
-fomc-corpus,1993,"And [for] some member of the Committee who is no longer living, I just think it's better to have some doubt in regard to whether the [editor] fixed it or not.",37
-fomc-corpus,1993,"Let me put it this way: There is no good answer to all of this. We did take the vote. Where we are at the moment is a decision on annotated or not. So, all those who prefer unannotated? [Secretary's note: In a show of hands a majority indicated a preference for no annotation.] I think we solved that problem. The next question is the time [lag] involved. There appears to be a heavy [leaning toward] five years but I'm not sure and I'd like to go over that again. Let's do the first and second choice, okay? Vice Chairman.",123
-fomc-corpus,1993,"Five years; second choice, three years.",9
-fomc-corpus,1993,Is this for the past?,6
-fomc-corpus,1993,I don't understand the first and second choice. How do you count the first and second choice? Are you counting both choices?,25
-fomc-corpus,1993,No.,2
-fomc-corpus,1993,You're just counting the first choice?,7
-fomc-corpus,1993,"The [issue] wholly is that if the first choice doesn't get a majority, we can move to second choices as to whether--. I don't think this is a [big] issue or anything, but go ahead. Governor Angell.",48
-fomc-corpus,1993,This is on the future? SEVERAL. The past.,13
-fomc-corpus,1993,The number of years. The past.,8
-fomc-corpus,1993,The past. All right. Five is first choice; three is second choice.,16
-fomc-corpus,1993,President Boehne.,5
-fomc-corpus,1993,"Five, first choice; three, second.",9
-fomc-corpus,1993,President Keehn.,4
-fomc-corpus,1993,"Ten, first choice; five, second choice.",10
-fomc-corpus,1993,Governor Kelley.,3
-fomc-corpus,1993,Five and three.,4
-fomc-corpus,1993,Governor LaWare.,4
-fomc-corpus,1993,Three and five.,4
-fomc-corpus,1993,Poor four! Governor Lindsey.,6
-fomc-corpus,1993,Infinite and five.,4
-fomc-corpus,1993,President McTeer.,5
-fomc-corpus,1993,Three and five.,4
-fomc-corpus,1993,Governor Mullins.,4
-fomc-corpus,1993,I would say ten and five.,7
-fomc-corpus,1993,Governor Phillips.,3
-fomc-corpus,1993,Five and three.,4
-fomc-corpus,1993,President Stern.,3
-fomc-corpus,1993,Five and three.,4
-fomc-corpus,1993,President Broaddus.,5
-fomc-corpus,1993,Three and five.,4
-fomc-corpus,1993,President Forrestal.,4
-fomc-corpus,1993,Five and three.,4
-fomc-corpus,1993,President Hoenig.,4
-fomc-corpus,1993,Ten and five.,4
-fomc-corpus,1993,President Jordan.,3
-fomc-corpus,1993,Thirty and five.,4
-fomc-corpus,1993,President Melzer.,4
-fomc-corpus,1993,Five and ten.,4
-fomc-corpus,1993,President Parry.,4
-fomc-corpus,1993,Ten and five.,4
-fomc-corpus,1993,President Syron.,4
-fomc-corpus,1993,[Five and] three.,6
-fomc-corpus,1993,"One interesting aspect of all this is that five shows up in everybody's [answer], just not in the same place. It looks to me as though five is the best--",35
-fomc-corpus,1993,I think the more-than-fives clearly--,9
-fomc-corpus,1993,"President McDonough, you said five?",9
-fomc-corpus,1993,Yes.,2
-fomc-corpus,1993,"The fives have it, as best I can read.",12
-fomc-corpus,1993,May I make a comment or raise a question before you call for that?,15
-fomc-corpus,1993,Sure.,2
-fomc-corpus,1993,"Earlier someone said that the Memorandum of Discussion looking back hadn't been mentioned, but you do recall that that's one of the proposals in Mr. Gonzalez's letter. It seems as though we might be passing up something that's more beneficial to us than what we're really going for.",54
-fomc-corpus,1993,We can't protect the raw transcript from FOIA.,10
-fomc-corpus,1993,"Other than our own concerns, I'm not sure that we ought to be adjusting to anything other than what we think [is appropriate].",26
-fomc-corpus,1993,"I guess I was assuming that we really would prefer a Memorandum of Discussion but are voting otherwise because we think it's not acceptable. SEVERAL. No, no.",34
-fomc-corpus,1993,I didn't get that sense. That's certainly not my point of view.,14
-fomc-corpus,1993,Okay.,2
-fomc-corpus,1993,"Let's go to the hard part. It's called ""from here on."" Oh, I'm sorry, there's another question out there, the question of who does the editing. I sensed for those who raised the question that [it would be] the Secretariat, not [the FOMC members]. In other words, we would not as a Committee oversee any of this process. Basically these are unofficial records of the Committee and would be handled as such. And as a consequence they could be delegated to the staff for these purposes.",104
-fomc-corpus,1993,And so noted on the cover.,7
-fomc-corpus,1993,Yes.,2
-fomc-corpus,1993,But the emphasis is upon light and we must define what light means.,14
-fomc-corpus,1993,Light means the type of editing which in the view of the Archivist is such that [the option of] dispensing with the raw transcript is available. That's what that means.,35
-fomc-corpus,1993,Does that mean non-sentences become sentences?,10
-fomc-corpus,1993,"That's a good question. I think the standard would be, to a greater or lesser extent, something closer to but not quite to the [type of] editing that goes on for Congressional hearings. You can't change the substance.",45
-fomc-corpus,1993,You can't change the substance and I presume every sentence that's there has to be left there.,18
-fomc-corpus,1993,"Unless it's gibberish. I know when I go over my Congressional testimony--I haven't done it since I've been here--but when I was in the private sector there were sentences which were utter gibberish. Even I didn't know--MR, ANGELL. But even though we voted not to do annotated, if there's a sentence that's not [included] would there be an annotation saying ""sentence unintelligible""?",84
-fomc-corpus,1993,I think the criterion has to be--,8
-fomc-corpus,1993,Just solve it by the Archivist standards?,9
-fomc-corpus,1993,That's the only objective standard I could conceive of. Is it agreed then that the Secretariat does it?,20
-fomc-corpus,1993,Right.,2
-fomc-corpus,1993,"Okay, next. Now, again--here I'm going forward--is anybody's view of the vehicle a function of the timeframe in which it takes place? So let's start off in the same manner, first and second choice, going forward. Vice Chairman.",51
-fomc-corpus,1993,Edited transcript first choice; MOD second choice.,9
-fomc-corpus,1993,Governor Angell.,4
-fomc-corpus,1993,MOD first choice; lightly edited second.,8
-fomc-corpus,1993,I take it in all cases that we're talking about lightly edited. Let's stipulate that. President Boehne.,23
-fomc-corpus,1993,Edited transcript first choice; MOD second choice.,9
-fomc-corpus,1993,President Keehn.,4
-fomc-corpus,1993,Current minutes first choice; enhanced minutes second choice.,10
-fomc-corpus,1993,What are enhanced minutes? I thought the current minutes were enhanced minutes.,14
-fomc-corpus,1993,"Well, [more than when] they were last enhanced--",12
-fomc-corpus,1993,Put a little more pep in them.,8
-fomc-corpus,1993,Governor Kelley.,3
-fomc-corpus,1993,Lightly edited transcript first; MOD second.,9
-fomc-corpus,1993,Governor LaWare.,4
-fomc-corpus,1993,MOD first; and lightly edited transcript fourth or fifth.,11
-fomc-corpus,1993,Governor Lindsey.,3
-fomc-corpus,1993,I'm going to go with Sy Keehn.,9
-fomc-corpus,1993,President McTeer.,5
-fomc-corpus,1993,Lightly edited transcript first; MOD second.,9
-fomc-corpus,1993,Governor Mullins.,4
-fomc-corpus,1993,Enhanced minutes first; edited transcript second.,8
-fomc-corpus,1993,Governor Phillips.,3
-fomc-corpus,1993,Enhanced minutes first; edited transcript second.,8
-fomc-corpus,1993,President Stern.,3
-fomc-corpus,1993,MOD first; edited transcript second.,7
-fomc-corpus,1993,President Broaddus.,5
-fomc-corpus,1993,MOD first; edited second.,6
-fomc-corpus,1993,President Forrestal.,4
-fomc-corpus,1993,MOD first; edited transcript second.,7
-fomc-corpus,1993,President Hoenig.,4
-fomc-corpus,1993,Edited first; MOD second.,6
-fomc-corpus,1993,President Jordan.,3
-fomc-corpus,1993,Enhanced and MOD.,4
-fomc-corpus,1993,President Melzer.,4
-fomc-corpus,1993,Enhanced minutes first; current minutes second.,8
-fomc-corpus,1993,President Parry.,4
-fomc-corpus,1993,Enhanced minutes first and MOD second.,7
-fomc-corpus,1993,President Syron.,4
-fomc-corpus,1993,I didn't understand that enhanced minutes was one [of the options]. Is this enhanced minutes with a five-year lag?,23
-fomc-corpus,1993,We're voting on it independently of the timeframe.,9
-fomc-corpus,1993,It's prompt release like [the current minutes].,9
-fomc-corpus,1993,It's enhanced minutes quickly.,5
-fomc-corpus,1993,I don't think enhanced minutes has any timeframe [unintelligible].,14
-fomc-corpus,1993,It's the same as what we do now.,9
-fomc-corpus,1993,Is that David Mullin's proposal?,8
-fomc-corpus,1993,"Yes, the same as what we have now except that we probably go further--",16
-fomc-corpus,1993,"Okay, I see. Enhanced minutes; edited transcript.",11
-fomc-corpus,1993,What was the count on the MOD?,8
-fomc-corpus,1993,MOD as first choice? I haven't voted yet; I need to decide--,15
-fomc-corpus,1993,I thought that was your proposal--the MOD.,10
-fomc-corpus,1993,"Oh no, the [unintelligible] influence my vote! [Laughter]",18
-fomc-corpus,1993,The deliberative process at work here!,8
-fomc-corpus,1993,"Well, how did you vote?",7
-fomc-corpus,1993,I'm trying to get the voting members first.,9
-fomc-corpus,1993,I got three MODs first.,7
-fomc-corpus,1993,Three. And four--,5
-fomc-corpus,1993,Four edited transcripts first.,5
-fomc-corpus,1993,We ought to have lunch.,6
-fomc-corpus,1993,What time are we eating dinner tonight?,8
-fomc-corpus,1993,Can we vote for lunch?,6
-fomc-corpus,1993,Is that one of the choices?,7
-fomc-corpus,1993,"As I interpret it--this is not an easy type of vote and if anybody objects please speak up--looking at the first and second choices, basically, it is between an MOD and an edited transcript. It's not clear-cut; we're all over the place on a lot of different things.",58
-fomc-corpus,1993,Does either one of them have seven votes?,9
-fomc-corpus,1993,No.,2
-fomc-corpus,1993,Then I think we really have to go around a second time.,13
-fomc-corpus,1993,How did enhanced come out?,6
-fomc-corpus,1993,How do enhanced and current minutes taken together come out?,11
-fomc-corpus,1993,"Well, that's four Committee members.",7
-fomc-corpus,1993,Two voting members are for enhanced minutes.,8
-fomc-corpus,1993,And current?,3
-fomc-corpus,1993,It's two and two.,5
-fomc-corpus,1993,So it's four.,4
-fomc-corpus,1993,Two current and two enhanced?,6
-fomc-corpus,1993,It's four for everything.,5
-fomc-corpus,1993,"To enhance enhanced, I'd switch from current to enhanced.",11
-fomc-corpus,1993,"Yes, I would too.",6
-fomc-corpus,1993,It's still got four votes; there are four enhances.,11
-fomc-corpus,1993,"Well, rather unfortunately, if I stay with an MOD, for the voting members it's four, four, and four.",24
-fomc-corpus,1993,Any swing vote?,4
-fomc-corpus,1993,"Well, then it seems to me that someone needs to move some motion and see if it passes or gets amended or something.",25
-fomc-corpus,1993,May I ask a question for clarity?,8
-fomc-corpus,1993,Sure.,2
-fomc-corpus,1993,The enhanced minutes has a very different timeframe than either the MOD or the--,15
-fomc-corpus,1993,"That's right. Let's take a minute because this is what I was expecting might happen. Let's define what we really mean by enhanced minutes. What concerns me is that the MOD is unambiguous and the edited transcript is unambiguous, but I'm not certain that the view of this Committee of what we mean by enhanced minutes is unambiguous.",69
-fomc-corpus,1993,Does enhanced minutes have attribution in it?,8
-fomc-corpus,1993,No.,2
-fomc-corpus,1993,No. My view of it is that it wouldn't but it would capture every issue and argument--,19
-fomc-corpus,1993,But we do that now.,6
-fomc-corpus,1993,"Yes, we do that now.",7
-fomc-corpus,1993,"Is your enhanced minutes the MOD without attribution, essentially?",11
-fomc-corpus,1993,It should have all the substance in it that an MOD or edited transcript has but without attribution.,19
-fomc-corpus,1993,So it's the MOD without attribution?,7
-fomc-corpus,1993,I think we could vote on whether you'd like that sort of [document] or an MOD or an edited transcript and that would dispose of it.,29
-fomc-corpus,1993,"No, wait a second. My own problem is that to have a fully detailed MOD without the names on it--",23
-fomc-corpus,1993,That doesn't make [sense].,6
-fomc-corpus,1993,"Well, [the current minutes] are pretty close to enhanced.",13
-fomc-corpus,1993,"Well, the point is this: I've thought that what we do now is about as complete [coverage of] what we talked about as one can imagine. The only meaningful concept of enhancement, as far as I can judge, is adding names.",49
-fomc-corpus,1993,On the vote.,4
-fomc-corpus,1993,We have names on the vote.,7
-fomc-corpus,1993,"We don't have views on the vote, though.",10
-fomc-corpus,1993,"Mr. Chairman, maybe that's what we need to decide. Some of us want to have attribution and some don't. Maybe we need to decide that first. That's either a yes or no.",38
-fomc-corpus,1993,But wait a second.,5
-fomc-corpus,1993,"Well, you could have the opportunity to--",9
-fomc-corpus,1993,There are several who have been in favor of enhanced minutes. I think we ought to go around quickly and get a one sentence description of what that means to each of you.,35
-fomc-corpus,1993,"I would suggest that we take the current minutes in which we have gone a pretty long way [in covering the meeting discussion] and go as far as we can in the same way--in other words, just talking about the issues and arguments and not doing a detailed MOD. Basically the argument would be that we've been going in the right direction; we believe that this is sufficient or else we would have been doing something else.",85
-fomc-corpus,1993,Does that mean shutting off the tape?,8
-fomc-corpus,1993,"That would shut off the tape in the sense that we'll simply take notes. The notes will be without attribution so the staff can produce the minutes. The minutes are released. There is some sense maybe of an improvement over the current practice in terms of the amount of information in there, but essentially it is in line with the current practice. And I think it has not harmed the process at all to release those ideas.",83
-fomc-corpus,1993,"Rather than discussing this, Mr. Chairman, I would move that we have attribution first of all. And then we'll decide what form the attribution will take afterwards. I think that's the disagreement here.",39
-fomc-corpus,1993,"There's another disagreement here. We may be talking apples and oranges. I said I was in favor of enhanced minutes. But being in favor of enhanced, which I still am, in my view is part and parcel in a broader sense expecting that we won't have to have verbatim recordings in the future. Also I must say in terms of the public appearance issue--though I'd vote for it separately--that I would favor combining the enhanced minutes with immediate disclosure when we did something.",95
-fomc-corpus,1993,Does yours have attribution in it?,7
-fomc-corpus,1993,"No, my preference was without attribution.",8
-fomc-corpus,1993,"Well, couldn't we vote on that sort of process, which is essentially an expansion of the current process, or vote on an MOD?",27
-fomc-corpus,1993,Can I suggest that there is a more important question? The really crucial question is whether the tape is turned off or not.,25
-fomc-corpus,1993,That's right.,3
-fomc-corpus,1993,"All the other issues are really irrelevant because, if you turn off the tape, you automatically go to enhanced minutes. If you leave the tape on, then doing enhanced minutes doesn't get you anything.",39
-fomc-corpus,1993,Correct.,2
-fomc-corpus,1993,"I will just tell you that my own view is that this is the wrong time to turn off the tape. There may occur a later time when that is the desirable thing to do. I think it's premature. It's an action at this stage that I don't think is warranted. It's unnecessary. It may become necessary. But the question has nothing to do with enhanced minutes because if we do enhanced minutes and leave the tape on, I don't know what the purpose of that would be.",96
-fomc-corpus,1993,"Right. To see this in the totality and how it would affect FOMC deliberations, I think one has to look at this meeting; it has obviously been impacted [by the prospect of releasing a transcript]. It may be less impacted if it shows that we can't--myself particularly--be quiet as time goes on. So in two days [the inhibiting effect] may have all worn off. But in terms of the totality of the impact on the deliberative process, I would favor a package--I hate to call it a package--of immediate disclosure when we take actions, combined with enhanced minutes and not taping. I would consider any of those things individually but in the totality--and it's a political judgment to some extent as to what can be done--I think that's a far better solution going forward in terms of meeting our responsibilities.",175
-fomc-corpus,1993,"So, no secret materials basically?",7
-fomc-corpus,1993,No secret materials.,4
-fomc-corpus,1993,Release everything.,3
-fomc-corpus,1993,Except you've said [you would redact material] that's secret. MR. MELZER(?). No legislation would be necessary.,24
-fomc-corpus,1993,"Go ahead, Tom.",5
-fomc-corpus,1993,"Thanks, Alan. Well, I would just make two points. One is to reiterate what I said earlier: This is very important with respect to the future functioning of the Committee. I think the most important decision we need to make today is the one with respect to going back. I think it would be helpful to make one going forward but if we can't do it with the sense that there is total comfort in the decision, maybe we shouldn't. Maybe we should think about it more and decide--",100
-fomc-corpus,1993,"Well, I have no intention of moving forward with a vote that is very close.",17
-fomc-corpus,1993,"The other point I wanted to make--and reasonable people can differ on this--is that I don't feel we have as much flexibility to change going forward as you do. [If we were to decide] to go to an MOD now, we would be announcing that publicly. I think the perception would be that we've moved toward further disclosure because we think it's appropriate; some in Congress certainly feel it's appropriate. Then, if within a short period of time--months or even years--we decided that we didn't think that was appropriate any more, I doubt that [a change] would be accepted very well. [The perception would be that] we made a move toward further openness and then all of a sudden, presumably as soon as the heat was turned up and we got a Congressional subpoena for tapes and transcripts, we immediately changed our procedures. I think changing our procedures at that time would be even more difficult than changing them now.",186
-fomc-corpus,1993,"Let me make the following suggestion. As I suspected, this is a very close vote. There is no way, I can tell you, to squeeze a significant consensus out of this easily. Because it is difficult, I think a suggestion that Don Kohn made earlier is probably the appropriate one. My own recommendation at this stage, having heard this, would be to enlist Don in his recommendation.",79
-fomc-corpus,1993,"My recommendation, Mr. Chairman, after hearing the initial discussion, was for the Committee to vote on the past and get those transcripts behind us so we've got a clear--",34
-fomc-corpus,1993,I thought we did that.,6
-fomc-corpus,1993,We did that.,4
-fomc-corpus,1993,Essentially we did that already.,7
-fomc-corpus,1993,"Not essentially, we did it.",7
-fomc-corpus,1993,We did it. Now what?,7
-fomc-corpus,1993,The next part of the suggestion was to tell Chairman Gonzalez that the FOMC is looking at different means to enhance our openness and disclosure [practices]. We would not tell him exactly what we're planning to do because it didn't seem that we had a consensus; but we would make a commitment that after the December FOMC meeting we would tell him what we're going to do. Part of [the reasoning behind] that was to reconvene the Mullins' Subcommittee so it could make recommendations to the FOMC at its next meeting. That was my recommendation.,115
-fomc-corpus,1993,"With the momentum that he will gain by our acquiescence to [releasing the transcripts], he will then say: Well, this is what I want you to decide to do.",37
-fomc-corpus,1993,Absolutely.,2
-fomc-corpus,1993,He's going to back us right into a corner.,10
-fomc-corpus,1993,It is essential that we go forward. I don't know what the majority is on this attribution/non-attribution issue. I don't know what the majority is on keeping the tape recorder on. But let's find out. Let's vote.,45
-fomc-corpus,1993,"Okay, I'm willing to--",6
-fomc-corpus,1993,[We might first] have a vote between this question of something like minutes that we release quickly or an MOD or edited transcript--those two options--which is essentially your attribution versus non-attribution question.,41
-fomc-corpus,1993,I might suggest that the first one is really: Do we keep the tape on or turn it off?,21
-fomc-corpus,1993,"That's fine. Mr. Chairman, I would move that we leave the tape recorder on. All right?",21
-fomc-corpus,1993,Second.,2
-fomc-corpus,1993,You'd leave the tape recorder on?,8
-fomc-corpus,1993,Yes. That's what we're moving. Vote it down if you don't want it.,16
-fomc-corpus,1993,"I think they're bundled. That's Larry's word and I think he's correct. I think if we go one route, turning the tape recorder off is a much more sensible way to go. If we go with either alternative number 3 or number 4, then I think we leave the tapes on and get permission to erase them from the Archivist.",70
-fomc-corpus,1993,"But, Mike, one person thinks one way and one thinks the other. A motion has been made and seconded. Now, if you want to make a substitute motion and reverse the order, that's your privilege.",43
-fomc-corpus,1993,What motion has been made and seconded?,9
-fomc-corpus,1993,That we leave the tape recorder on.,8
-fomc-corpus,1993,Putting it that way may--,6
-fomc-corpus,1993,"Oh Wayne, this is not a legislative body.",10
-fomc-corpus,1993,That's right.,3
-fomc-corpus,1993,We're here trying to discuss as a Committee the best way to deal with this issue.,17
-fomc-corpus,1993,"But when the discussion doesn't lead to determination as to where the majority is, a motion is a very handy way to find out where the majority is.",30
-fomc-corpus,1993,"I don't disagree with that. But the issue here is that what I call the ""Mullins proposal"" for lack of a better term--",29
-fomc-corpus,1993,"Let me say this: I don't want an official vote. I request that you withdraw the motion on the grounds that we're not necessarily trying to find [a consensus on] a series of events but a series of choices--or I should say on a specific fixed issue. Look, turning on the tape or not turning on the tape is not a decision on what we're going to do. It is a vehicle to determine where people want to be. I think it's helpful but it can't be a binding vote. It has to be a preference because people can--",111
-fomc-corpus,1993,Of course. All votes are--,7
-fomc-corpus,1993,"Well, I'd just as soon not have [a vote] in an official sense, if you don't mind. I think it's going to create--",29
-fomc-corpus,1993,Confusion.,3
-fomc-corpus,1993,--more problems in trying to come out [with a decision] on this.,16
-fomc-corpus,1993,"Well, Mr. Chairman, I don't care which we vote on first. I'm open to voting on--",21
-fomc-corpus,1993,Can I tell you what the best vote at this stage is?,13
-fomc-corpus,1993,Okay.,2
-fomc-corpus,1993,"Whether we delay until the December meeting or whether we do something at the present one. SEVERAL. Yes, that's right.",26
-fomc-corpus,1993,At the December meeting or the Humphrey-Hawkins meeting so we can explain it? [Laughter],22
-fomc-corpus,1993,"Let me get an unofficial show of hands as to whether we should delay until the December meeting or act now. First, to delay until the December meeting.",31
-fomc-corpus,1993,This is prospective?,4
-fomc-corpus,1993,"Oh yes, obviously. One, two, three, four, five, six.... And we have twelve. That does it.",26
-fomc-corpus,1993,"No, not unless--. Are we doing this as voting members or are we doing it with everybody?",21
-fomc-corpus,1993,I thought the voting members had it. Let's do voting members very specifically. Voting members only.,19
-fomc-corpus,1993,Delay?,2
-fomc-corpus,1993,"Delay. One, two, three, four, five, six, seven.",16
-fomc-corpus,1993,Six or seven?,4
-fomc-corpus,1993,Seven.,2
-fomc-corpus,1993,Okay.,2
-fomc-corpus,1993,"That solves the problem. Let me tell you: Of all the issues that I have been involved in, this is the closest vote that we have had. I would submit to you that if we tried to work our way through today to find a reasonable consensus we would be here until 5 o'clock this evening. This is a very complex issue and I think the ability to focus on this [unintelligible]. Having had this very broad discussion, returning it to the subcommittee for [filtering], if I may put it that way, is the least worst of the choices we're confronting. I don't know any way at this point to get a general consensus where everyone would feel comfortable. I'm appreciative of the fact that we have solved [the issue for] the past. And in certain respects I think developments over the next several weeks may change some of the things that are going on. Vice Chairman.",182
-fomc-corpus,1993,"I'd like to make a comment because I was not one of the seven. The reason I was not--and I have to be very direct despite my normally very high opinion of Mr. Kohn--is that he expressed his recommendation in such a way that I think it is very dangerous. It is far, far too defensive.",66
-fomc-corpus,1993,"Well, I don't disagree with that. The only thing we voted on was delay, not--",19
-fomc-corpus,1993,Correct.,2
-fomc-corpus,1993,I certainly regret anything I said! [Laughter],11
-fomc-corpus,1993,"My positive sense is to go back to the [statement] that you made earlier, which I rather belligerently endorsed. It was that we have to go on the offensive now. It's tough to go on the offensive when we say: ""Well, we're thinking about what we're going to do next."" It's not impossible, but I think--",69
-fomc-corpus,1993,I would agree.,4
-fomc-corpus,1993,It's a lot more difficult if you don't have a consensus.,12
-fomc-corpus,1993,"I agree. I just want us to understand that if we're going to ask for a hearing and we're going to start defending ourselves, which I really think we have to do, deciding to wait--and I think you're right that deciding we need to wait in order to form a consensus has great wisdom, but it creates a difficulty for you or anybody else--",71
-fomc-corpus,1993,No question.,3
-fomc-corpus,1993,I just hope we understand that.,7
-fomc-corpus,1993,"There's no question that if we could get a consensus in this Committee on going forward that would be far superior to not [reaching a decision]; I don't deny that. Just remember that the issue of hearings is essentially not to be terribly much involved in precisely how we go forward. The really crucial point is to try to emphasize how crucial the deliberative process is and [to urge] its protection. That's only partially related, if at all, to the decisions we will be making with respect to what we go forward with.",105
-fomc-corpus,1993,"Mr. Chairman, we've been here for 3-1/2 hours discussing this one issue and have only decided maybe a third of it. I wonder if there's any merit, rather than cluttering up the next Open Market Committee meeting when we're supposed to be making monetary policy, in having a separate meeting on this subject and resolving it no matter how long it takes.",74
-fomc-corpus,1993,A thoughtful thought.,4
-fomc-corpus,1993,"Somewhat to back up Bill McDonough, if we do decide to delay, it wouldn't surprise me a bit if we all got a letter by the day after tomorrow asking for our independent--and undiscussed with anyone else--opinion of what we would like to see done going forward.",60
-fomc-corpus,1993,I think it would be appropriate in that case for the Chairman to say that this is an issue that the Committee has to focus on and the Committee will respond through the Chairman when it has completed its deliberations.,42
-fomc-corpus,1993,Absolutely.,2
-fomc-corpus,1993,"There is something to John's suggestion, though. We wouldn't have to wait until--",16
-fomc-corpus,1993,I think that's a very good [idea].,9
-fomc-corpus,1993,"If we do that, it would be a good idea to have your subcommittee [report] so that we have [options to consider] and we're not arguing about definitions of what ""enhanced"" means and so forth.",45
-fomc-corpus,1993,That's actually an advantage of the delay.,8
-fomc-corpus,1993,Absolutely. Does anyone strongly object? Another problem we may have is scheduling.,15
-fomc-corpus,1993,Thanksgiving Day. We're all free. [Laughter],12
-fomc-corpus,1993,"Mr. Chairman, my confusion here is this: We had a discussion, which seemed to be much more in one direction than I anticipated it would be. Then all of a sudden we had a discussion about, well, we can do it this way or that way, or we can make it work. Many of us--I can go several different ways--can be satisfied with more than one [approach]. I don't feel strongly about which way we come out. But I do feel very strongly that this Committee is going to be disadvantaged if, after you've written your letter and you say you can't answer his letter about these tapes until the [next] FOMC meeting--",136
-fomc-corpus,1993,"No, he didn't ask [unintelligible].",11
-fomc-corpus,1993,Is that all he requested?,6
-fomc-corpus,1993,The only thing he requested was the historical--,9
-fomc-corpus,1993,So we're responding to that.,6
-fomc-corpus,1993,"That's what we're responding to. We're responding to the request in his letter. We've taken care of that. If I may, Mr. Chairman, I'd just like to say that while there is some advantage, obviously, to moving forward, it seems to me that it would be very dangerous to do so, given the differences of understanding as to what we're talking about and the differences of opinion. I think we would be even more disadvantaged if we moved forward with a vote in that kind of environment. We're talking about the future meetings of the FOMC; we need to be very, very clear about what we're talking about. And it's in that connection that I'd like to support what Governor Phillips said. Whether we have a special meeting or not, we need to have some kind of staff document that clarifies exactly--",163
-fomc-corpus,1993,"I absolutely agree with you, Bob. I think we will find at the end of the day that through proportional voting or representation or what have you, we will come out with a consensus of this Committee. The combinations here are too complex to simply put forward [proposals] and start working through the confusion. And I don't think we should pressure this process; it's too important. I think John LaWare's recommendation is very sensible. I would ask the Secretariat to survey all of the members to see where we could possibly squeeze in [a meeting], even if it comes out to be an evening or, if absolutely necessary, a weekend. But what we need first is a document, then a date; and then we will just stay until we get the issue resolved. Governor Phillips.",157
-fomc-corpus,1993,I agree with that. I just wanted to ask if we have in fact taken care of what Gonzalez has requested via the votes. Have we responded?,30
-fomc-corpus,1993,We have.,3
-fomc-corpus,1993,To every part of his letter?,7
-fomc-corpus,1993,"Well, he has made suggestions about what you should do before. He suggests you release an MOD after 60 days and raw transcripts after--",28
-fomc-corpus,1993,I think we have to respond to him precisely [in terms of] the content of this meeting.,20
-fomc-corpus,1993,That's right.,3
-fomc-corpus,1993,He asked for the transcripts and--,7
-fomc-corpus,1993,His demand is for the past [transcripts].,10
-fomc-corpus,1993,"I assume that if he requested that we voluntarily offer the transcripts, the answer of this Committee is ""no."" Is there any dissent to that? That's the impression that I've gotten from all the members. It is our basic view that we've done it appropriately in the manner we suggested; that is an issue that we have made a decision on. If the Congress chooses to override us, that's their prerogative.",82
-fomc-corpus,1993,I don't think I understand what you're saying. What decision have we made?,15
-fomc-corpus,1993,We've made the decision to release the lightly edited transcripts after five years.,14
-fomc-corpus,1993,Yes. But what decision have we made in regard to his request to give [the raw transcripts] to him? I thought that was a separate question.,31
-fomc-corpus,1993,I think the [unintelligible].,9
-fomc-corpus,1993,"Virgil, is that a separate question?",9
-fomc-corpus,1993,"As the Chairman said, yes.",7
-fomc-corpus,1993,So what is our decision on that?,8
-fomc-corpus,1993,"As I understood the context of this discussion, the answer to that question is ""no.""",18
-fomc-corpus,1993,"Oh, I just didn't think that had been discussed and deliberated and voted on.",17
-fomc-corpus,1993,That's what I was voting on.,7
-fomc-corpus,1993,I thought we were voting on what we were releasing to the public and we decided to do [lightly edited transcripts] with a five-year delay.,30
-fomc-corpus,1993,We did. If you wish to go around and--,11
-fomc-corpus,1993,It's the same.,4
-fomc-corpus,1993,"Well, what I'm wondering is whether or not there would be a possibility of your going to him and asking him if we could make them available to him as a Committee Chairman and keep them private and still have our five years. Do you think that's an option? I thought, Virgil, we had to deal with the fact that he's the Chairman of the Committee and--. Are we saying ""no"" to him? Is that what we've [agreed]? Okay.",94
-fomc-corpus,1993,"This is very similar, Governor Angell, to what Chairman Burns replied to Chairman Patman in 1975--",23
-fomc-corpus,1993,I see.,3
-fomc-corpus,1993,--who asked for the last five years of unpublished MODs and Chairman Burns said no.,18
-fomc-corpus,1993,"Well, I do want to dissent from that decision.",11
-fomc-corpus,1993,"Okay, let me ask: Are there any other dissents in the Committee or amongst the nonvoting presidents?",23
-fomc-corpus,1993,"I think that's the right course of action, but it seems to me that inevitably that is going to trigger a subpoena and he will [get] the unedited tapes and--",35
-fomc-corpus,1993,"If a subpoena is issued, we will have to deal with it. One possibility is that we could go up and discuss these other alternatives with them.",30
-fomc-corpus,1993,"Could I ask you this question? Do you think there's any chance that he would be open, after you've told him we're releasing these lightly edited transcripts with a five-year delay and that means we're going to get out the--. Are we following the suggestion that we start with 1988 first? Is that the order?",64
-fomc-corpus,1993,Yes.,2
-fomc-corpus,1993,And work back.,4
-fomc-corpus,1993,I got the general impression that we would do the early ones as quickly as we can feasibly turn them out.,23
-fomc-corpus,1993,And tell that to the Committee.,7
-fomc-corpus,1993,"Yes. Now, after telling him that--that we've been forthcoming and the Committee has voted--do you think there's any chance that in negotiation with him he would be open to proceeding in the direction of having them himself with one staff person to review them and not go the subpoena route?",57
-fomc-corpus,1993,And do what with them?,6
-fomc-corpus,1993,"I, frankly, do not know the answer to that.",12
-fomc-corpus,1993,"Well, I just would prefer we not get caught in a subpoena if we can negotiate our way out of a subpoena.",24
-fomc-corpus,1993,I don't see the means by which we basically can negotiate our way out.,15
-fomc-corpus,1993,Shouldn't our agreement to release these lightly edited transcripts with a five-year delay buy us some votes in the Committee anyway?,24
-fomc-corpus,1993,"Yes, if the argument--",6
-fomc-corpus,1993,I would think that that would be significant and that the chances of Chairman Gonzalez getting his way with his own Committee would not seem that high.,28
-fomc-corpus,1993,"Well, my fear is that we will have kicked and screamed all the way, and he will end up getting all of this [despite] our kicking and screaming and it will really put us in a very bad light with the public. I at least wanted a discussion of the alternatives to going that route.",62
-fomc-corpus,1993,What would you do? What would your approach be then?,12
-fomc-corpus,1993,"My approach would be to authorize the Chairman to release to [Mr. Gonzalez] whatever FOMC materials he wants to see, if he will agree that only he and one staff person will look at them and that they will return them to you within a reasonable period of time--",56
-fomc-corpus,1993,I can't--,3
-fomc-corpus,1993,That's a dangerous precedent.,5
-fomc-corpus,1993,A dangerous precedent.,4
-fomc-corpus,1993,So that's impossible?,4
-fomc-corpus,1993,That's impossible.,3
-fomc-corpus,1993,"Given the choices, I would prefer to stay here for the next two or three days and work out what we're going to do going forward rather than do that.",32
-fomc-corpus,1993,So would I.,4
-fomc-corpus,1993,"Can I suggest this? Unless I hear something to the contrary, the answer to Chairman Gonzalez is ""no."" We will release the transcripts in lightly edited form. We will do that starting with five years back and do the remainder as quickly as is feasible. If that is the case, and unless I hear something to the contrary, we will now move to the next item on the agenda.",78
-fomc-corpus,1993,Wonderful. SEVERAL. Is it lunch?,10
-fomc-corpus,1993,A working lunch?,4
-fomc-corpus,1993,That's a good question.,5
-fomc-corpus,1993,"I move that we work through lunch, Mr. Chairman.",12
-fomc-corpus,1993,Let's do that. Why don't we just get our food and come back here. [Lunch recess],20
-fomc-corpus,1993,Would somebody like to move [the minutes]?,9
-fomc-corpus,1993,Move it.,3
-fomc-corpus,1993,Is there a second?,5
-fomc-corpus,1993,Second.,2
-fomc-corpus,1993,"Without objection. Peter Fisher and after you, Ted Truman.",12
-fomc-corpus,1993,"[Statement--see Appendix.] Mr. Chairman, I'd be happy to answer questions on my report or to move on to Agenda item 4.C. as the Committee wishes.",35
-fomc-corpus,1993,"Why don't we first see if there are any questions. Questions for Peter? If not, you may move on.",23
-fomc-corpus,1993,"The System's reciprocal currency arrangements come up for renewal at this time of year, including the existing $700 million swap with the Bank of Mexico, which is relied upon as part of the package being prepared. I have no changes to suggest in the terms and conditions of the existing swap arrangements and I request that the Committee approve their renewal without change. I'd be happy to answer questions on the renewal of the existing swap arrangements. Ted has something to say about the Mexican package being worked out now. [We can proceed with] Ted or questions, either way.",111
-fomc-corpus,1993,Why don't we have Ted go first.,8
-fomc-corpus,1993,"Just briefly the state of play is as follows: As you know, last week we put in place, in the sense of being ready to go, a bilateral package between the U.S. monetary authorities and the Bank of Mexico, and because of the favorable behavior of the financial markets it wasn't necessary to use that. Meanwhile, we have been working with the Bank for International Settlements and their backing central banks to put in place as a contingency a package in which the [United State's] participation would be the same $6 billion. The Federal Reserve's [part would be] $3 billion: the existing swap line of $700 million that Peter just referred to and the special swap arrangement of $2.3 billion. Our aim is to put all this in place on a contingency basis by tomorrow--to have it ready to go sometime after 8:00 p.m. Eastern standard time if things should turn out poorly, but not to do anything unless things should go poorly and the Mexicans decide to activate the arrangement. In that connection I would request that you maintain contact with Norm Bernard, telling him where you are. In particular, I think we need to know where you might be between 8 and 12 tomorrow night; or if that's too inconvenient, you might give Norm your proxy. Our hope and the Mexicans' hope too, obviously, is that none of this will be necessary and it will all go away by early Thursday morning.",292
-fomc-corpus,1993,Questions for either gentleman?,5
-fomc-corpus,1993,"The last time we had discussions about reciprocal currency arrangements either late last year or early this year--I don't recall--the response to a question about these swap lines was this: That we had a new Administration that had been either just elected or just inaugurated and until they had been there for a while and we could get acquainted and find out what their attitudes and moods were, we couldn't really address this, so for the time being we would go ahead and just continue what we were doing before. We've never had that report. It's a report I still look forward to getting as to what is the attitude and what is the [purpose] of even having these kinds of arrangements with all these different banks. If we could, I'd really like to have that discussion.",151
-fomc-corpus,1993,"Well, your memory is probably better than mine, President Jordan. I don't think there was a commitment to review whether we needed to do away with the swap network. The commitment was that we needed to work on the question of balances, and that work is continuing. We have had some problems getting the Treasury to focus on that, but I understand that is a continuing effort. But if the Committee would like us to prepare a report on whether the swap network should be continued as it is, we can do that. I feel that it is probably one of those things that is easier to retain than to do away with.",124
-fomc-corpus,1993,The Vice Chairman might recall that [as] the then Manager [with oversight] for foreign operations in response to a question about under what circumstances he could foresee implementing a swap with certain minor central banks said that he couldn't imagine any. He also said that he thought it was an appropriate topic to address once the new Administration was in place and conversations had taken place. [Unintelligible] to hearing the report.,83
-fomc-corpus,1993,"I do recall making such a statement. The likelihood of our having to use the swap line with Mexico obviously says that it is possible that these things can be used and, therefore, I suppose puts some merit in discussing their [continuing] existence. I'd probably come out essentially where Ted Truman just suggested and that is that they are alliances that have been in place since the 1960s and it becomes an immense dog that didn't bark in the night if we decide to deconstruct what was put together at the time. And we would have to have a whole new view of what we wanted to do on international currency arrangements and what we would put in place of these reciprocal relationships which we've had for so long. Personally I wouldn't put an immensely high priority on what we'd get out of such an exercise; if other members of the Committee thought it would be a good idea, I wouldn't oppose it. But again, I'm not sure just how much we'd achieve by doing it.",194
-fomc-corpus,1993,"I'd like to add that I think the question of whether we would use them, given the current high level of balances, is a very different one than whether we would want to have them available for other central banks to use. It's essentially a question of cooperation and whether having them in place isn't a good idea as a sign of central bank cooperation.",69
-fomc-corpus,1993,I think that is the question.,7
-fomc-corpus,1993,"The other part of it as far as I'm concerned and the reason I reacted the way I did--and I obviously misunderstood or misremembered, President Jordan--is that I don't see this as a matter for the Treasury Department at all. It is true that since it's the FOMC that maintains the swap network, the FOMC can do away with it. I think it is probably fair to say that if we were to move in that direction, we might want to have some consultation because over time we have used that cooperative [approach]. But essentially what we do with those things is not a Treasury decision. The balances side is a bit more [of an] ongoing [issue]. I would note that both last year, in September, and this summer there were approaches from some of the European central banks about possible use of the swap network. It is also fair to say, as this current episode with Mexico illustrates, that if one really wanted to help the Danish National Bank--I can't remember the size of our swap network with them but Peter can tell you because it's right there in his table--it's hard to imagine that it would cover more than half a day's worth of the Danish National Bank's intervention. Is it $100 million--?",252
-fomc-corpus,1993,$250 million.,4
-fomc-corpus,1993,"But it also [should be noted] that these mechanisms are there and they are a form of central bank cooperation; they are the basis on which we receive and provide information to other central banks. And if the need [arises] they provide a framework where we can easily augment [balances] either for our own use or for their use under appropriate [conditions]. But, as I said, if the Committee would like us to take another look at this question, we will be glad to do so.",101
-fomc-corpus,1993,"If that's the case, why are we voting suddenly to authorize it now?",15
-fomc-corpus,1993,They're renewed annually. They are one-year swaps which are renewed each year. And at this time the Committee authorizes the manager to renew them for the coming year.,33
-fomc-corpus,1993,"Oh, I see. So it just happens that the last time we did this was 12 months ago?",22
-fomc-corpus,1993,Yes. It's fortuitous.,7
-fomc-corpus,1993,"Well, I agree with the Vice Chairman of the Committee that there are not likely to be issues here [in terms of] the Committee wishing to make this kind of change. It seems to me that we've already expressed sentiment in regard to careful and judicious use of these instruments. But I would tend to favor their being retained as a part of the arsenal under the arrangements in which we're very careful as to how they're used. So I don't really see that much benefit, Jerry, of the Committee engaging in that study.",104
-fomc-corpus,1993,"I'm not sure that a study of the swaps per se is necessary; but since I've been attending these meetings, over 2-1/2 years, we really haven't had a discussion of our views on intervention versus nonintervention. I don't know what the FOMC's opinion is on that subject and I do think it would be worthwhile at some point when the crises are over to review the whole subject.",83
-fomc-corpus,1993,"That's a very useful notion. I didn't realize it was that long; but if it is, it's longer than it should be.",26
-fomc-corpus,1993,"Yes, it was about 1989 or 1990 when we had our last--",18
-fomc-corpus,1993,It was 1990.,6
-fomc-corpus,1993,"Ted, could you see that that gets on the agenda?",12
-fomc-corpus,1993,"I noticed that President McTeer qualified it, saying once we get beyond other more pressing matters--",20
-fomc-corpus,1993,"Yes, that's a big qualification.",7
-fomc-corpus,1993,--but I hear the directive.,7
-fomc-corpus,1993,"Yes, I don't think it's the top item on the agenda.",13
-fomc-corpus,1993,"No, but I think it's a useful one. Anybody else want to come forth in this discussion? If not, would somebody like to move the renewals?",32
-fomc-corpus,1993,So move.,3
-fomc-corpus,1993,Second.,2
-fomc-corpus,1993,"All in favor say ""aye."" SEVERAL. Aye.",14
-fomc-corpus,1993,"Opposed? The ""ayes"" have it. Joan.",12
-fomc-corpus,1993,"Thank you, Mr. Chairman. In the interest of time I'm going to dispense with some incredibly interesting statistics on the Treasury's fund-raising operations in the market over the intermeeting period and the reception of the refunding and composition of the debt unless someone has questions about it. [Secretary's note: Statement in its entirety is shown in the Appendix.] I'd just conclude, Mr. Chairman, with a request for a temporary increase in the intermeeting leeway from $8 billion to $11 billion. As I noted earlier, upcoming reserve needs at this juncture are expected to be sufficiently large and persistent as to warrant a cushion beyond the normal limit.",131
-fomc-corpus,1993,"Questions for Joan? If not, we need two motions. One is to ratify the actions of the Desk of the past month. Would somebody like to move that?",34
-fomc-corpus,1993,So move.,3
-fomc-corpus,1993,Without objection. And secondly the leeway request.,10
-fomc-corpus,1993,So move.,3
-fomc-corpus,1993,Second.,2
-fomc-corpus,1993,"Without objection. Thank you very much. Moving on, Mike Prell.",15
-fomc-corpus,1993,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1993,Any questions for Mr. Prell?,8
-fomc-corpus,1993,"Mike, if I read the Greenbook correctly, you're anticipating a tightening of policy later in 1994. I was a little confused or baffled by that in light of the deceleration of GDP, a relatively high unemployment rate, and a deceleration of inflation. Could you comment on that?",60
-fomc-corpus,1993,"Well, we have not assumed anything significant happening within 1994. We have the notion that things might start in that direction and then continue on gradually through 1995. I don't think the precise pattern is critical here. Basically we've stretched our forecast horizon out through 1995. We would anticipate that as we move through 1995 into 1996, not knowing what will happen on important things like medical care and so on, there will be alleviation of some of the negative elements in the economic picture [at a time when] fiscal policy will no longer be exerting quite the drag it will through 1994 and perhaps into 1995. We expect that we will have worked our way further through the overhang of unoccupied commercial space and multifamily residences and so on and that by then there would be some assurance that foreign industrial activity will have picked up. In general we think there may be an emerging stronger thrust to activity and that some tightening of policy may be called for in order to hold aggregate demand at a level that would be consistent with maintenance of some marginal slack in the system and thus the conditions that will promote some gradual further movement toward price stability. This is in essence a matter of design, trying to capture at least in a rough way the objectives of the Committee over the intermediate term.",265
-fomc-corpus,1993,President Parry.,4
-fomc-corpus,1993,"Mike, one characteristic of some of the recent Greenbook forecasts has been a relatively lean inventory picture, particularly business inventories; and I think there were even discussions about just-in-time inventories, etc. It seems as though things have changed dramatically in this current forecast in that there is anywhere from $10 to $20 billion a quarter more in nonfarm inventories. I wondered what has changed your thoughts?",79
-fomc-corpus,1993,"I don't think there is a change in any fundamental way. There are two things that we had in mind in this forecast. One was we had to live for all practical purposes with the set of third-quarter data that existed. Our suspicion was that that level of inventory investment in the third quarter was overstated by BEA. They didn't have data for September, and that's why I focused some attention on that a couple of minutes ago. As things turned out, it does appear to us, as best we can do the arithmetic--and this isn't easy--that there will likely be some downward revision to nonfarm inventory investment in the third quarter. And we noted in a little subtle footnote in the Greenbook that using our best change approach, which addresses what the growth contribution of inventory investment would be, the numbers written on the green sheets are artificially high relative to our belief of what would be happening. Basically we think that inventories are at reasonable levels now. There are some sectors where they may be a bit lean, particularly at the manufacturing level. We don't see large shortages; we don't see any real impulse coming here in the way of longer lead times and expectations of rising prices that would lead companies to want to stock up rapidly. Essentially, with this adjustment we have inventory/sales ratios in the aggregate probably declining slightly over the forecast period. And I think that's a continuation of the just-in-time modifications of inventory practices and so forth.",288
-fomc-corpus,1993,But the '94 number is probably about twice what it was before?,14
-fomc-corpus,1993,"Well, we're always constrained in terms of those level numbers but we don't think we have an exceptionally high rate of inventory accumulation here. If some of those upside surprises that I suggested came about, those might be circumstances in which we might also get besides the extra final demands some greater inventory investment. But we just don't see inventories as a tremendously dynamic element in the forecast; it contributes only a small fraction of a percentage point to GDP growth over the coming year.",91
-fomc-corpus,1993,Thank you.,3
-fomc-corpus,1993,President Jordan.,3
-fomc-corpus,1993,"At meetings I attended in 1992, there was a public or outside perception that the Committee implemented its policy actions in the short run based on what the monthly nonfarm payroll employment numbers were doing. And I thought that that was undesirable and had implications that could be troubling down the road. We've gotten away from that and I think it's very healthy and very desirable that we've gotten away from that. But when I looked at this Greenbook and the one before--it's emphasized more in this one--I was concerned about this input to our deliberations. And Mike's response to Bob Forrestal enhances my concern. On page 1-13, with the first look at 1995, you say: ""We have assumed an increase in short-term interest rates that we believe sufficient to hold real GDP growth to 2-1/2 percent."" I've never thought that the role of monetary policy is to put an upper limit on real growth. It was troubling to me in past times when the idea was that the role of monetary policy was to foster or stimulate certain kinds of real GDP growth. And it's just as troubling to suggest that the purpose is to put an upper limit on it. The next sentence says ""With continued slack in labor and product markets, core inflation...."" Again, the idea that we're directing monetary policy with the intent of maintaining slack is very troubling. However we come out on our discussions about deliberations in the future, as I understand it the Greenbook is released to the public with a five-year lag. And this exposition about the criteria for implementing monetary policy I find very troubling.",322
-fomc-corpus,1993,President Syron.,4
-fomc-corpus,1993,"Mike, just a pure information question: Is the BLS changing the definition of unemployment somehow? I heard something about a one-time change which is going to bump the measured unemployment rate by a significant number of tenths next year.",46
-fomc-corpus,1993,"Yes, the BLS had a press conference this morning. There are a number of changes that will be taking effect with the January household survey. Some of these have to do in essence with concepts and the way various questions are asked and how the responses might be interpreted. Others have to do simply with the mechanical procedure of the survey--the use of computers which will permit them to check out what the person in that household who has been in the survey in prior months had been saying; they have found that that sometimes alters the responses. They've run this experiment now for the last year and they indicated this morning that the result of that experiment was that the unemployment rate they were getting for this overlap sample was 7.6 percent versus 7.1 percent on average for the regular series. Whether this is a unique period of some sort that might make this 1/2 point differential unrepresentative, one can't know for sure. And there will be, I gather, a number of analyses of the difference issued over the coming year. But it does appear that the methods they will be using will raise the measured rate of unemployment. The question for us will be: Is there any reason to assume anything other than that in essence the natural rate has risen 1/2 point and we just need to adjust our thinking, with due recognition of President Jordan's remarks, about what inflationary pressures might be implied by a given level of the unemployment rate.",291
-fomc-corpus,1993,"So, after the first of the year, will they be reporting the number both ways for some period of time?",23
-fomc-corpus,1993,"I don't believe so, and there's not going to be any endeavor to do historical revisions.",18
-fomc-corpus,1993,So conceivably people are going to see something that says the unemployment rate is a half point higher?,21
-fomc-corpus,1993,"Yes, and I'm sure [BEA] will be engaged in an educational effort. But I suspect we'll have one confronting us, too, in February when we present the Humphrey-Hawkins report. Now the public will be trying to educate us as to what we've missed all along.",58
-fomc-corpus,1993,"Well, it is going to be [unintelligible] because in the whole forecast period if we don't change what we assume, we would have an unemployment rate, [with the revised] measures, of more than 7 percent.",48
-fomc-corpus,1993,"Presumably, if we were to adjust our forecast today, we would just tack 1/2 percentage point on there for lack of any alternative rationale.",31
-fomc-corpus,1993,Ouch!,3
-fomc-corpus,1993,Further questions for Mike? I guess we don't like the answers! [Laughter],17
-fomc-corpus,1993,Let me remind you that the change in the survey has not changed anything in the realities of the world. It's a matter of how we understand them and perceive them.,33
-fomc-corpus,1993,"Well, it's a political reality.",7
-fomc-corpus,1993,Yes it is.,4
-fomc-corpus,1993,Who would like to start our Committee [discussion]? President Hoenig.,14
-fomc-corpus,1993,"Mr. Chairman, our District's economy continues to grow at a moderate pace as it has for several months. There are really no major changes. Construction remains strong with most of the growth in housing. Nonresidential construction will slow a little because of some major infrastructure projects coming to completion, but I don't think that will have a significant effect on our region. The energy sector has slowed slightly because of lower prices. Our services and retail areas remain solid. The manufacturing area remains sluggish but there are some signs of improvement, especially in the non-durable goods portion of it. As we look ahead we think that [the regional economy] is going to continue as it has in recent months with moderate growth. We expect to see housing starts continue to do well. Energy activity should remain steady although we don't see any real boost there. Agricultural incomes should be good both from crops and in the livestock area. Manufacturing should remain steady with perhaps some signs of improvement. So overall it is going to continue as it has in the past. On the national level we are expecting [activity] to be somewhat stronger than the Greenbook shows going into next year and throughout the year. And for us that means GDP growth of around 3 percent or a little more. We also see because of that perhaps a little more pressure on inflation. So that will be a major concern of ours as we go forward in terms of our projections and what that means for policy. For now our fourth quarter looks about like the Greenbook. That's all I have.",306
-fomc-corpus,1993,President Keehn.,4
-fomc-corpus,1993,"Mr. Chairman, in the interest of time let me simply say that in the District there really hasn't been a great deal of change since the last meeting. But I do think, to a modest [extent] at least, that the underlying level of activity has increased. The steel business is going to finish the year on a pretty strong note and [our contacts in that industry] are preliminarily looking for an increase in shipments of 3 to 4 percent next year, so they're feeling pretty good. The auto industry currently is having perhaps the best quarter in a sales sense that they've had since the first quarter of 1990. The production schedules for the first quarter of next year have been preliminarily set some 7 percent ahead of [those for the first quarter of] this year, and this is invariably a pretty good quarter. So, they're looking currently and ahead at a continuation of good business. I must say that the retail side has been a very pleasant surprise. I talked to one retailer--they have nationwide activity--who said their sales in October had been simply fantastic. Total sales were up 20 percent and on a [same] store basis they were up 12 percent, so he has an underlying feeling that the level of confidence of retailers and consumers is building. I mentioned the last time that in terms of commercial real estate some tentative signs of stability are emerging. I think that trend is continuing. I'm told that there really is an awful lot of capital that is moving into that [area]--again for the wrong reason. The fundamentals aren't better but the investment alternatives are such that real estate in a yield sense is looking better. And it's now beginning to have an effect on rent conditions, which are slowly beginning to improve at least on the margin. We're a long, long way from new construction, but we have to go through this phase before we get to new construction. The only negative that I'd report certainly is in the ag sector, for reasons that are well known to the Committee. Particularly in our District, we have been very hard hit by growing conditions this summer. The [harvest] is about completed on soybeans and seventy-five percent complete on corn, and we really have had a significant reduction in the production of both corn and soybeans. While that's bad enough this year, it really does mean that the pressure on next year is going to be very, very heavy. If we had two bad years in a row, it would be certainly very tough. Turning to the nation, I think our [District] outlook is consistent with what we see in the national economy, namely a modestly building growth consistent with the staff forecast. It may be even a touch stronger than that. But I must say the marketplace pressures are continuing to restrain price increases so that our outlook for inflation is very consistent with the staff forecast.",574
-fomc-corpus,1993,President Parry.,4
-fomc-corpus,1993,"Thank you, Mr. Chairman. States in the Twelfth District are moving along two distinct and divergent paths. The California economy continues to weaken according to most statistics that we see. Employment has fallen 5.1 percent or by 642,000 in the state since July of 1990. In the last 12 months it has fallen 1.3 percent. In fact, if we look at California's employment losses and what they do to the national totals, actually instead of the 1.6 percent increase, employment in the nation outside of California has really risen 2 percent, which is a fairly significant difference. California's unemployment rate is 9.8 percent in October. The volume of loans at large banks in California continues to decline although at a somewhat diminishing rate. And loan growth in the rest of the Twelfth District is positive. [Hawaii is reporting] weakness as a result of the problems in California and Japan. The rest of the District's states are reporting relatively strong economic conditions. Utah remains the fastest growing state in the nation and Nevada is reporting robust growth. Three major projects will have added 10,000 new hotel rooms by year-end in Las Vegas, and contacts report that the major hotels are 100 percent booked for weekends through April of 1994. Arizona and Oregon are reporting solid year-over-year employment gains in September of 1.6 and 1.9 percent, respectively. And anecdotal reports suggest even more strength since September. Contacts report a shortage of construction workers in Phoenix while Tucson is experiencing a building boom with rapidly appreciating home prices. I should note that there are some companies moving into the Tucson area like Hughes Aircraft. Similarly, a contact in Portland reports that three major new office buildings are being planned and it seems very likely that at least two of those will be constructed. Finally, while western Washington's economy has slowed because of all the cutbacks at Boeing, which you've heard an awful lot about, the eastern part of the state is reporting a boom. If I can turn just for a moment to the national economy, we basically agree with the Greenbook's outlook for moderate growth in real GDP over the next two years as tighter fiscal policy is counterbalanced by relatively low real interest rates. However, I am a bit surprised that the Greenbook shows such a small decline in inflation next year and the year after. Given the expectation that output will grow only modestly over the next two years and that the unemployment rate is likely to remain at roughly the present level, based upon past relationships it wouldn't be surprising in my view to see labor market slack of this size reduce the CPI inflation to a lower number than that included in the Greenbook.",544
-fomc-corpus,1993,President Forrestal.,4
-fomc-corpus,1993,"Well, Mr. Chairman, economic activity in our District is picking up again. I've been reporting for the last couple of meetings that we were doing a little better than the rest of the nation but that the differential was declining. That seems to have turned around again. Momentum is picking up. What's interesting to me is that the sentiment among business people is much more positive than it has been. It had been cautiously optimistic for some time but almost universally the business people that I talk to are fairly positive about the outlook. While they complain bitterly about competition and not being able to get prices increases, their own businesses seem to be doing pretty well. And I think that sentiment is supported by the economic data. Consumer spending, for example, has been quite good. The apparel people have been increasing their sales, and production has gone up. Automobile sales fell off a bit in the summer but they're still well above the pace that we saw at this time last year. And retailers generally, not just the automobile people, are expecting a fairly positive Christmas season. The number that I hear most commonly is sales [increases of] between 3 and 5 percent over last year. We continue to benefit from the strength in housing. Residential construction is quite strong in the District and all the industries associated with housing are continuing to do well because of housing. Commercial truck production is also up in the District, responding to order backlogs. Producers of medical equipment and supplies are also reporting increased shipments. Vacancy rates have been declining all year but I think there is now a concern on the part of realtors that consolidation is going to reverse that course and that absorptions will not continue at the rate they had been running. We're also seeing on the negative side some cutback in paper producers' production and weak demand from foreign markets both in that industry as well as in the chemical industry, particularly in Louisiana. Our employment growth is continuing to outpace that of the nation, and we have no signs of price increases at all or of wage pressures. Prices of raw materials are pretty much what they were, although we have had reports recently about increases in lumber prices which we thought were going to be temporary but that temporary period seems to be stretching out a little. Loan demand is still fairly weak in the District but it is picking up a little, particularly in the consumer area. So in general the momentum in our economy in the Sixth District is picking up and the signs are quite favorable for 1994. With respect to the national economy, we haven't revised our forecast significantly since the last time. However, we do see GDP somewhat stronger than the Greenbook. We think GDP growth is going to be a bit over 3 percent on a fourth quarter-over-fourth quarter basis. For that reason we see the unemployment rate drifting down just a little more and inflation somewhat higher. In fact our inflation number is about 3-1/2 percent for 1994. One of the interesting things here to look at--and the Greenbook does allude to this--is what's going to happen to consumer spending. With the workweek and hours worked moving up, it's a question as to how long employers are going to be able to maintain this level of employment. So I think there is a possibility that employment will increase and, therefore, income and consumer spending. The other thing that's interesting to me is the question of whether or not income growth is being underestimated due to the number of self-employed people and small business formations that are occurring. If these people are not being captured [in the surveys] and if income growth is actually stronger than the numbers reveal, then consumer spending could be fairly ebullient. On the other hand, if one charted [unintelligible], the jury is out on that score, so there is a possibility that consumer spending might not be as strong as our forecast has it. Another risk to the economy and to the forecast, it seems to me, is the external sector. We all know that the projected recovery of the European economies has been repeatedly put off until later in 1994 and that represents a risk to the economy. But generally speaking I think things are relatively on track.",842
-fomc-corpus,1993,President Stern.,3
-fomc-corpus,1993,"First with regard to the District, I've reported for a long that the District economy has been fundamentally sound, and that continues to be the case. The one exception is the exception that has also been the case for some time now and that's the areas of agriculture that were affected by the flooding. We did have a meeting in the Bank about a week or so ago with a group of business leaders from the Twin Cities representing a wide range of businesses. I will comment on that briefly because they did hold some views with great conviction; they were very adamant about it. Three themes emerged and I will just report to the Committee on those. One was that they were pretty much of one mind that there is no inflationary pressure around whatsoever. And they were quite vociferous about that. Secondly, they were very concerned about the health care proposals, particularly from the point of view of what they meant for prospective employment and costs of employment. I would say that they were almost universally negative about that. Thirdly, while they agreed that in many respects the latest statistics on the aggregate economy and what they were seeing in at least some of their own businesses were more favorable--and maybe a good deal more favorable--than what we were seeing earlier in the year, they continue to think that the expansion is very fragile and could easily be disrupted. The one exception to that was people in the real estate business, especially in residential but even to some extent in commercial. Clearly, residential has had a very good year in the District, and commercial activity has started to show at least some signs of improvement. But outside of those areas, I think it's fair to say that there was still a view that the expansion is quite fragile. With regard to the national economy and the economic outlook in the Greenbook, clearly this expansion has moved in fits and starts and it looks as if another start is under way. But starts have been followed by periodic fits, and that's what the Greenbook seems to be envisioning again. I don't know that I would take very strong exception to that but I do have some sense that maybe at this point the economy really is starting to build a little momentum. And that, coupled with the anecdotes that we've been getting for quite some time about the lack of inflationary pressures, leads me to speculate at least that while we may get the same kind of path for nominal GDP in 1994 as envisioned in the Greenbook, we might have a somewhat more favorable split between real growth and inflation than is envisioned there. I can't say that with any great conviction at this point but I do have a sense that it wouldn't take a lot for things to turn out that way. But other than that, I don't have any sharp departures from the outlook as depicted in the Greenbook.",557
-fomc-corpus,1993,President Broaddus.,5
-fomc-corpus,1993,"Well, it seems clear in our District that economic activity is picking up, as seems to be the case in a number of other parts of the country. We have a substantial amount of manufacturing activity in the Fifth District, especially textiles and furniture but a lot of other things as well. And for the first time since the beginning of the year we're seeing and getting information about increased orders and increased shipments. A lot of this, especially again with furniture and textiles, is being driven by the apparent increase in housing activity--sales and construction--not only in our District but around the country. And we are definitely seeing some significant strengthening in the housing sector in our region with a few local exceptions in places like Charleston, South Carolina and Norfolk, Virginia where the defense build-down is a problem. I would just summarize [my comments] on the District by saying that over the years I've found that the general tone of comments at our directors meetings is a pretty good coincident or maybe slightly lagging indicator of overall conditions, and those comments have been decidedly more optimistic for the last couple of meetings. I'd like to take this opportunity to congratulate Bob Forrestal and the Sixth District for getting a Mercedes plant even if it was at our expense. We're comforted somewhat, though, by news that Mickey Mouse is going to build a historic theme park about 30 miles down the road which may [deflect] some tourists from Orlando to northern Virginia. We need a little more congestion! With respect to the national picture, the upward revision in the Greenbook projection for the current quarter certainly seems reasonable, given the broad evidence now that aggregate demand may be heating up a bit. Frankly, I wouldn't be terribly surprised to see something even in excess of 4 percent for one quarter. I also continue to believe that the risk of error in the Greenbook projection for '94 is at least somewhat on the up side. I recognize, as Mike and the Greenbook rightly point out, that the recent tendency for consumer spending to outrun income growth is not sustainable over the long haul. But in the context of the permanent income model of consumer behavior, I think one can interpret the recent behavior as perhaps indicating that households have revised upward their thinking about future income prospects. If that's a correct interpretation, then it's quite possible that the increase in demand will be sustained well into 1994. And I wouldn't be surprised to see real GDP growth next year at 3 percent or perhaps even a bit higher, compared to the 2-1/2 percent projection in the Greenbook. In that regard, the recent backup in long-term interest rates is, for my money at least, the most discouraging development recently. I think it's primarily due to a concern in the markets that the recent strengthening in economic activity is going to be allowed at some point to put upward pressure on inflation. And my sense is that that perception is increasingly widespread. As we all know, nothing could hurt this recovery more completely and quickly than a big jump in long-term interest rates. So I think we need to remain vigilant.",616
-fomc-corpus,1993,President Boehne.,5
-fomc-corpus,1993,"Let me be briefer than usual in light of the hour. Although the Philadelphia District continues to lag the nation, the improved trends that I noted at the last meeting continue largely for the same reasons that we're seeing nationally. Manufacturing is stronger; the orders there are better. Residential construction is stronger. And the retailers, who usually are never happy, seem less unhappy; and I think that's a positive sign for the District. Attitudes are still cautious largely because of the employment situation--employment growth is flat to very modest--although I do sense that people seem to be more receptive to good news than they did a few months ago. On the national scene, we have a sawtooth pattern that has prevailed in this recovery now for several years. When we see a blip upward, as we're seeing now--4 percent growth seems likely in the current quarter--there's a tendency to expect that that may continue, just as when things soften it tends to go down. My sense is that we are still largely locked into a 2-1/2 to 3 percent growth pattern overall with this sawtooth trend line that we see, largely I think because of the slow employment growth. And my sense is that what will keep the economy from growing much faster than that is that the [strength in] consumption, which has [supplied] a big upward push, is not sustainable [without] faster income growth, and I doubt that we'll see the faster income growth that would be necessary. So, I think we do have a stronger second half but I don't expect that trend to continue; next year I think we'll be back into the 2-1/2 to 3 percent [growth] area. On inflation I might just echo what has been said. There just is no sense out there that there's an inflationary problem or that prices are rising; it's quite to the contrary. I might also say that the subject of interest rates is a non-topic.",395
-fomc-corpus,1993,President Syron.,4
-fomc-corpus,1993,"Well, I'll just continue the chorus here. Over the period of the last couple of meetings there has been a definite improvement in our economy. And we see this across the economy. Actually, in some ways the manufacturing sector has improved somewhat but a tension exists there. Output in the electronics sector is starting to do somewhat better. Semiconductors and testing equipment are a fair bit stronger and the software business is strong. Everyone says they are [producing] components; the computer box business is dead essentially. But that growth is working against the downward tension of defense, where the feeling is that defense procurement reductions are coming along a little faster, at least in these [electronic] industries, than people had expected. We have a lot of auto-related small suppliers; they are doing quite well. But a number of them report continued year-to-year price reduction pressures in talking about the Lopez era at General Motors. And they report an expectation, when they contract at the end of whatever period it is, of 2 to 3 to 4 percent reductions in unit prices year-to-year. Real estate and the housing sector have strengthened; and even in the non-residential area, though there is not [much] activity, vacancy rates have declined a fair bit in greater Boston. That leads one to the question of ""Why?"" since we're not seeing it in other figures. And yet a significant number of start-up companies do seem to be coming along. It's purely anecdotal information, but we have a large patent attorney office as a tenant in our building and they say they've never been busier. And there are some more broad-based data that are consistent with that. The retail area is doing relatively well, with some improvement in appliances in white goods consistent with a strengthening in the housing market. In the context of all this, though, everyone we talk to in the production sector is focusing continuously on productivity improvements and on what they can do. Everyone, [when] they see stronger demands for their products, talks about: ""How can I [meet them] without making commitments for employment?"" I would say that the mood swing--this is not consistent with what Ed said--has been a pretty strong one to the favorable side by lots of people. Actually it outstrips the data by a fair bit; whether it outstrips reality is less clear. As far as the national economy goes, I would agree quite a lot with the Greenbook. I would think that the forecast there is probably center-weighted in terms of risks. I believe this notion of thinking about the economy on a sawtooth basis has something to it. We've been waxing and waning, [moving in] fits and starts, or whatever you want to call it. And until we get evidence that our employment numbers are somehow suspect and there are other reasons to expect income generation that would be consistent with a rising level of sales, we could see some slowdown in the consumption sector. And beyond that, I'm just sort of struck by how much moods have changed in New England. Six months ago everyone thought we were going into a triple dip; now people are talking about boomlets. While I'm not quite sure that reality changes as fast as moods--and I was just looking at the quarterly standard deviation in GDP--I'm wondering how much of this is a long-term shift and how much a short-term variation; that is something we've got to see.",687
-fomc-corpus,1993,President Jordan.,3
-fomc-corpus,1993,"There are still some areas of the District that are reported to be flat but they're what I would call fairly isolated. Most of the District reports growth. There is no new information of a negative nature, of things being weaker than before or weaker than expected. There are a number of aspects that are positive and strong --stronger than before, stronger than expected--especially real estate, commercial lending, and manufacturing generally, particularly capital goods industries. And of note is that while at one time the machine tool industry in the Great Lakes region was thought to be headed to oblivion, they're feeling pretty good; there's quite a bit of optimism starting to build in machine tools. Turning to the national [economy] and the Greenbook, when I look at the nominal and the real GDP [forecast], based on the experience of the fourth quarter of last year I think the Greenbook is wrong. I just have no idea in which direction or how big. And when I look at the inflation [forecast] it's unacceptable in that progress on inflation has been pushed out over 48 months. The current number for the end of '95 is above the number for a year ago as of this time. So to go out to the end of '95 and still have inflation above where it was projected a year ago to be at the end of '93 I think has to be viewed as unacceptable.",277
-fomc-corpus,1993,President Melzer.,4
-fomc-corpus,1993,"The Eighth District economy has been buffeted by floods, strikes, defense cutbacks, and corporate restructuring over the last year. Cutbacks in defense spending and auto production have adversely affected the Missouri economy. These cutbacks were especially noticeable in the St. Louis area. Flooding along the Mississippi and Missouri Rivers and persistent rainfall reduced the District's production of both corn and soybeans while foreign demand for District agricultural products remains soft. District employment gains have been offset somewhat in southern Illinois and Indiana by a coal strike that is now more than six months old. This strike has reduced U.S. coal exports by 25 percent and depressed barge traffic along the Ohio and Mississippi Rivers. Lacking domestic supply some utilities in coastal areas are now reported to have stepped up their coal imports from South America and Asia. Despite these factors, Eighth District economic activity improved this year and the prospects for next year are encouraging. This has been confirmed by the tone of comments I have been hearing for the last couple of months. Payroll employment is above year-ago levels and while highly variable it should grow on average by approximately 2 percent in 1994, near its long-term average growth. The Kentucky, Tennessee, and Mississippi economies all continue to expand and diversify with numerous reports of new industries, robust loan demand, and higher bank earnings. In September unemployment rates in the District's four principal states, Arkansas, Kentucky, Missouri and Tennessee, were at or below the national average. Some areas report shortages of qualified workers. Small businesses throughout the District report generally strengthening demand. Sales of existing homes and residential construction remain strong, and bank lending continues to grow. The District is the country's largest rice-producing area. Strong Japanese demand for California rice has caused rice prices generally to double in the last month and may bolster the District's rice production next year. With respect to the national economy, our outlook is similar to that for the Eighth District. Nationally the unemployment rate has fallen by more than a full percentage point from its cyclical peak and all indications are that it will continue its downward trend. Despite growing at a rate significantly below potential during the first half of the year, output grew at 2.8 percent in the third quarter and 2.7 percent during the past two years. Moreover, in my view the prospects for a strong fourth quarter are excellent and we anticipate that much of this strength will carry over into 1994. Indeed, the economy now appears poised for a significant period of average growth at or above potential.",506
-fomc-corpus,1993,Vice Chairman.,3
-fomc-corpus,1993,"The economy in the Second District remains very flat as it has been most of this year, with our part of New Jersey going a little south and New York State staying at about even. The financial services industry and such people as lawyers who work for them are doing very well, so the yuppie restaurants are crowded and that tends to give a feeling of affluence and prosperity about the city that Mr. Giuliani is about to take over. But we now read that the level of the homeless has been underestimated. And New York City, I think, is very much getting to be a Disraeli two-nation phenomenon that is going to be tougher and tougher to govern and could be a good-sized challenge for a mayor who I think will respond to his election by getting tougher on the criminal classes, or those who are alleged to be by the people who voted for him. It could be an interesting situation. At the national level, we're right with the Greenbook on the fourth quarter of this year and a bit higher, at about 2.9 percent, for 1994. The difference is spread pretty much throughout the forecast; our forecast is just a little more robust in general. Our forecast for the CPI is exactly that of the Greenbook at 3.1 percent. But if anything that's eyeball adjusted up a bit; if we applied purely the analysis we'd probably have it at 3.0 or conceivably even 2.9 percent. I suppose the concern that we have in general, and I in particular, is with the robust fourth quarter and that if for some reason the first quarter of next year should start out with a more positive feeling I wonder if businessmen will try to take advantage of the situation to experiment with getting some price increases to stick. My guess is that the possibility of that could be quite high; that would mean that even though normally one would expect that a 2.9 percent growth forecast and inflation--without the eyeball correction --coming down would not demand a monetary policy response, I think it could well shape up that fairly early next year we will be challenged by some price actions which we would have to respond to.",439
-fomc-corpus,1993,President McTeer.,5
-fomc-corpus,1993,"In the Eleventh District the mood has been more upbeat and the numbers seem to be following it up. Within the District, New Mexico is somewhat stronger and our part of Louisiana somewhat weaker than Texas. New Mexico is benefitting from an influx of a good many new industries. Louisiana has been hurt by weak chemical demand from Europe and Japan and weakness in the energy extraction business recently. The state has lost 6,600 energy extraction jobs since January of '92. Louisiana is still about 20,000 jobs shy of regaining its peak levels of employment way back in 1981. A bright spot there is river boat gambling, primarily in the Shreveport area. Within Texas most major metropolitan areas are strengthening and are fairly strong. Houston is the major exception. At least temporarily energy seems to be a plus rather than a minus. The rig count, after reaching a 50-year low last spring, is up about 25 percent from that. The main employment strength we have is in the area of construction--single-family homes and apartments. In some areas in the state that's up 50 percent compared to a year ago. In our board meeting last Friday, Amarillo was referred to as [wild] and Victoria as having a mini boom. So things are really getting lively in the construction area. Several bankers noted an improvement in loan demand, but all admitted that too many banks were aggressively seeking to fill that demand. There is not much talk of a credit crunch anymore. Clouds on the horizon include the depressing effect of health care reform, weakness in the Mexican economy, the prospects that NAFTA may not pass, and at least from a local point of view, the fear that Iraqi oil production will resume.",344
-fomc-corpus,1993,That will create some interesting consequences. Governor Mullins.,11
-fomc-corpus,1993,"In my view we have moderate growth, as we've had for 2-1/2 years now. The last seven quarters have averaged 3 percent and the last four quarters have averaged almost 3 percent. So I conclude we have 3 percent growth even though we may have fits and starts. It's pretty clear looking back that the initial force of monetary ease clearly went to financial repair and it's increasingly evident that we're turning the corner or have turned the corner from repair to renewed spending. We now see a very traditional pattern of interest-sensitive spending emerging: business investment spending and consumer spending on durables and housing. I think recent data and the market response to them do raise the question of whether there is evidence of a significant acceleration of growth. Based upon currently available data I see no convincing evidence of a significant shift in the underlying mean, although there may be some increase. My underlying mean is a bit higher than the Greenbook's, more like 3 percent. It is true that strong consumer spending has outstripped income growth and that's unsustainable and has been for many quarters now. That raises the question Bob Forrestal raised, and which we talked about at the Board a while back, which is the question of measurement. And Al raised this question of whether people may be feeling a bit more secure about their job prospects or their job security and their sense of permanent income, and then there are the wealth gains in the markets. But I don't think we have the potential for explosive consumer growth as we did in the early '80s. There is one real change in my view and that is that mortgage refinancing has given way to housing investment. That is something that's new. It's long overdue and I doubt that it alone is enough to take us off the track here. There remains the ample supply of contractionary influences, the usual suspects. But more generally, one interesting thing to assess is this economic climate. Up until now despite the recovery, my sense is that consumers, businesses, and financial institutions have remained chastened and cautious. And there is some evidence, such as what Bob McTeer just reported on, that that's starting to change now. I do think we'll probably register a very strong fourth quarter. We did last year. But so far at least I'm not ready to shift up my mean fundamentally although it's clear that mean is already a bit above potential. Why this sharp bond market response in recent weeks? Very little has happened. We had third-quarter growth of 2.8 percent and the bond market changed. It is true that we anticipate a strong fourth quarter. We've had three or four strong quarters in the past two years, but we've never had an anticipated strong quarter; fourth-quarter growth was 5.7 percent last year but no one expected it so we couldn't enjoy it. This is the first quarter that I can think of where--",574
-fomc-corpus,1993,A rally.,3
-fomc-corpus,1993,"Right. And we're still not so sure but there is some of that anticipation. Of course, just a few weeks ago we had abject pessimism on the economy and euphoria in the bond markets. One obvious factor is just the bond market dynamics of [people saying] we've had a long good run in the long bond, let's capture those gains before the end of the year and not be a pig. I think the other factor is this truncation, perhaps temporarily, of a pessimistic tail of assessments. Despite 2-1/2 years of growth this is a Rodney Dangerfield recovery: It's never gotten any respect; it has been denied, criticized, or bad-mouthed through the full 2-1/2 years, and this has been fed recently by the weak first half of 1993. I think the recent data make it increasingly difficult to sustain an outlook of economic deterioration. The recent evidence confirms that the expansion, though it is moderate, does appear durable and sustainable. It may be slow but it appears at least to people in the markets less fragile, less likely to be punctured by tax increases or fears about health care. And rather than creating a realistic expectation of very robust growth, this confirmation tended to extinguish the pessimistic tail of distributions, and the market responded to that. There is also talk of Fed tightening in the markets as there were fantasies of Fed ease just a few weeks ago when everything was terrible. Should this market reaction be a concern to us? Al mentioned it. I don't think sustained moderate economic growth should be a cause for concern. I agree with Jerry that we shouldn't be opposed to growth. Rapid money and credit growth could portend trouble; we don't have that in my view, not yet at least, although M1 is still strong. Economic growth crashing against resource constraints would certainly concern the staff, but we still have our measure of slack. And the investment boom and productivity growth suggest the prospect for growth without those concerns. And again, growth so fast that businesses and workers feel free to seek price and wage increases, the possibility that Bill McDonough mentioned, would be a cause for concern. I think evidence [of that is not apparent]; for example, if you look closely at the purchasing managers' reports, the price diffusion index is still below 50 percent. My sense is that competitive conditions remain tight although there's a possibility of this sort of speed effect if we have two good quarters. Inflation still seems to be on a marginally downward path. The fundamentals, including a disinflationary world economic environment, support the prospect for some additional progress. And those fundamentals at least would suggest some more progress than the Greenbook is projecting, as Bob Parry mentioned, given the outstanding slack. Having said all of that, I still believe we maintain an accommodative stance. Because of the long lags associated with inflation it is necessarily our job to look into the future. If we wait until the inflationary pressures are established and evident, it's pretty late in the game. Mike Prell gave the upside scenario; with capacity utilization already at 82 percent, we might not have much room left especially because I think growth next year could easily be 3 or 3-1/2 percent. Moreover, though, I think our objective ought to be to continue to make progress on reducing inflation--core inflation has run 3 percent over the past 12 months--in order to secure a sustainable low interest rate environment and the associated benefits. In my view our objective should not be simply to avoid a re-acceleration or an upturn in inflation. I think there's a real payoff not just from stabilizing inflation in the 3 to 4 percent range but in moving lower. Finally, I do think we should take these markets seriously. The long bond rate has moved up 40 basis points. There's a legitimate question as to how long we should wait if the long bond rate continues to move up--how long we should artificially constrain the short end. If the bond rate does move up, we're going to have to consider whether a move on the short end might be necessary and beneficial to confirm that we're on the job and to limit the damage of inflationary expectations on the long end. After all, this is still an investment-driven expansion, dependent on the long rate for its thrust. So I think we ought to be sensitive to the risks associated with maintaining an accommodative stance too long, including the lost opportunity to secure lower inflation. But it does seem to me that it's relatively early in the game. The long bond rate is up 40 basis points but it seems to have stabilized and it's still 30 basis points below its level last summer after the budget deal passed. So it went way beyond the budget deal period. And, of course, we've had very little increase in the implied forward rates in the long end of the curve; much of it is intermediate. Nonetheless, when considering when to switch from accommodative to neutral I would note that the current favorable outlook for stronger growth does provide a credible environment in which to consider such a move at a time when I think many people would suggest the risks are on the up side. I will also simply say that it's worth noting that the Administration forecast is, of course, for short rates to go up above inflation next year. Thank you.",1079
-fomc-corpus,1993,Governor Kelley.,3
-fomc-corpus,1993,"Well, Mr. Chairman, I'm about where I've been for some months now. I see very little evidence of an important change. My definition of that in my lexicon would be a moderate growth expectation, fits and starts, a surge perhaps here in the fourth quarter but not sustainable, with a slow acceleration--in fits and starts--over time. I think there are enough positives in the forecast to sustain that growth, not the least of which would be a continued reduction in your famous head winds. In all probability all of the positives will sustain that moderate growth path. I think we have to recognize that there exist considerable restraints in that forecast that should prevent an upside breakout, [including] fiscal restraint, the further impact of new taxes, and a saving rate that is already at the bottom of its historical range. Also, restructuring continues and defense [outlays] will continue to decrease; net exports will not be helpful and may decrease or get worse as well; and intermediate and long rates have shown some spontaneous rises. I emphasize that I come out on the positive side of this, but I do think we have to recognize that there are some pretty powerful restraints out there. I'll relate one anecdote that I would share with those who weren't there. The Federal Advisory Committee was in here a week or so ago and they were asked what their forecast for the economy was. They had a very, very strong consensus at between 2-1/2 and 3 percent centering on about 2.8 percent. Just to see what it might elicit, we said: Okay if that's the consensus, think contrarian a little bit and tell us where you would see the risks to that forecast. Interestingly enough, the way I heard it--others who were there may have heard it differently--they were almost unanimous in seeing the risks on the down side, not the up side, for whatever that's worth. On inflation, I just don't see any pickup visible. Inflation is still falling on a year-over-year basis by almost every measure. We still have slack in the economy, although capacity utilization may have to come off of that list with this latest report. But certainly [we have slack] in labor markets and world activity generally and sentiment continues to be weak. So, I see no reason to look to a short-term move in that regard. In short: Steady as she goes.",480
-fomc-corpus,1993,Governor LaWare.,4
-fomc-corpus,1993,"Well, for the first time in a long time I don't find myself in congruence with the Greenbook in terms of all of the elements of [the growth forecast]. I am much closer to the Greenbook's version of inflation but for an entirely different set of reasons. A growth rate in the economy overall of closer to 3 percent or slightly better for next year is more in line with what I see developing. I think that housing markets are likely be a little stronger. I think we've been overly pessimistic on the exports side. I just can't see that dip and deterioration there in spite of the common current outlooks for some of our major trading partners. The other part of the trade balance that bothers me a little is the expected and continued high growth of imports. I think at least the consumer side of the import market is going to be rather weaker than we perhaps expect. Now, given the fact that the unemployment figures might go down somewhat under that kind of scenario, then I think the 3.1 percent projection for inflation may not be an unreasonable one. Having said all that, I think there is an opportunity here for us to blow an aneurism in this economy through its most fragile part, and that's the financial markets. The full impact of higher taxes at least for some major segment of the investor market, a perception of higher costs for a lot of things because of excise taxes, and the possibility of paying higher premiums for health care and so forth and so on, may in fact cause a lot of nervousness that will lead people to retreat from the more speculative parts of the market. And I just believe that the values there are high enough and the market nervous enough that it looks for chances or opportunities or excuses or rationales to trade. And if the trading ball gets rolling down the hill, I think we could have a serious contraction in both the equity market and the bond market, which could affect all these other differences that I have had. So I really don't want to be right--I want the Greenbook to be right--because of something like that. But at the same time that's a part of the economic puzzle that remains very worrisome to me.",441
-fomc-corpus,1993,Governor Angell.,4
-fomc-corpus,1993,"For the first two-thirds of what John was saying I was almost exactly in agreement and thought maybe I didn't need to talk very much, but then it turned out that--",34
-fomc-corpus,1993,Mark your calendars! This is the first time we've been in agreement in about four years or something like that.,22
-fomc-corpus,1993,"It seems to me that the sentiment expressed around this table is surprisingly strong. That is, there were those of you who were somewhat concerned on the down side who now seem to lack that same concern. And certainly some of you who had a more placid outlook now seem to be reporting more vigor in regard to the rate of economic activity. I think some of us--particularly I do, having had such a bullish view a year ago--have to ask ourselves: Well, what about this year? Will there be another downturn? First of all, this recovery statistically does not have more variability than any previous recovery. There aren't any fits and starts in this recovery; there are fits and starts in people's perception of it. But the quarter-to-quarter variability is really just about right on. Industrial production, which is a somewhat independent measure, indeed seems to me to be on a pretty steady upward progression. But economies don't get into difficulty because it gets to be January. This January we do have this significant tax phenomenon, but I've decided that maybe the impact of that tax phenomenon is mis-measured. It's true that some people underwithheld in [1993] and they have to make it up in their actual 1993 tax payments and will have a significant increase in their estimated tax or withholding in 1994. But it seems to me that the people for whom that occurs are people with high incomes and they are well educated, and I just can't imagine that there's any surprise of fact. Indeed, I think the political rhetoric--that is, the American people's dissatisfaction with government--continues to cause in some sense an over-assessment of the tax impact so people even in high income tax brackets probably are over-reacting and have already taken those tax effects [into account] in regard to their own permanent lifetime income notions and wealth present values. Many Americans are not going to have tax increases. The political rhetoric has been that they will; consequently, maybe we'll have a little surprise. People will find out that [the new tax] isn't as bad as they thought it would be, and only a surprise, it seems to me, is apt to alter the activity level. And it seems unlikely to me that we're going to end up with the same inventory condition in that we do not have the year-end boom this time, which subtracts out of the first quarter because of [efforts] to get [expenditures] in one tax period as compared to another. So I think we ought not take it for granted that the economy will do a little dip next year. I'm not disagreeing with Mike Prell's forecast in regard to GDP; it's a very reasonable forecast. But it seems very unlikely to me that the economy will be softer than what Mike has outlined. I think there's a considerable chance that the economy will be somewhat stronger, or maybe surprisingly stronger, than that forecast. But none of us has a crystal ball to be able to see that and to know for sure that that's going to happen. The Federal Reserve has a great deal of credibility at this time. We have quite a bit of esteem. There are people who believe we're the only game in town because those who have such a disdain for their government tend to look to us as being somehow or other the people who get it right. So we're in a rather preferred position and yet our responsibility is to continue to pursue a monetary policy that continues this disinflation. If we [lose] that--that is, if bad news or an unanticipated shock effect cause the rate of inflation to zoom upward without any action on our part--there will be some penalties. As for the inflation forecast--and here again I'm not quibbling with that because it does seem somewhat reasonable--I would point out that it [shows] very, very meager [progress]. And it's very meager [compared with other countries] in the world. I was looking at the G-10 group and I believe we are only slightly ahead of the United Kingdom and probably a percentage point and a half ahead of Italy. Other than that, all other G-10 countries have a better forecast, according to our staff, than we do. This to me produces some vulnerability because as long as there are expectations of continued disinflation then I would expect good bond market behavior. The bond market does have more potential for stronger bond prices and lower interest rates at the intermediate and long levels. But that's not guaranteed; that's very difficult at this stage of the cycle. And we have to be very conscious of the fact that if we are perceived as moving before people thought we should move--indeed if there were some notion of ""What in the world is the Fed doing?"" in such a move--we would probably get a very good long bond response and thereby not damage the growth prospects. On the other hand, if there were a pickup in activity and if world growth were to pick up somewhat and world commodity prices were thereby adversely impacted and we were seen as moving in a laggard fashion, then I think we could have a very significant upward movement in interest rates in the intermediate and long areas. And that could [induce] some vulnerability in the markets. I am somewhat bullish in regard to the equity markets. I think the equity markets probably haven't had that last boom and bubble that often accompanies such moves. The opportunity cost of being in the equity market is very, very small. So if the economy is a little stronger and inflation about as we expect, the equity markets may have a somewhat supportive upside potential. World growth has to be a very significant factor for an economy with our trade balance and its impact on us. I'm not optimistic about Japan. I'm not optimistic about Europe, but I'm not that pessimistic either; it seems to me that they may very well have reached bottom and we may have seen the worst of the impact on our exports in that market. Mexico does provide some downward risk due to the monetary tightening that is inevitably accompanying the difficulties there, and that will have some adverse effect. But China and other Asian countries and parts of Latin America may offset that to a great extent. That about summarizes my view. It is that the economy has the potential to be much stronger, but I think hardly any chance of being weaker than we've forecast.",1267
-fomc-corpus,1993,Governor Phillips.,3
-fomc-corpus,1993,"Well, smoothing through the quarterly or maybe the half-year ups and downs, it does appear that we've returned to a path of slow or moderate growth. The good news about this growth is that it does appear to be generally self-sustaining, which we haven't been able to say with a great deal of confidence. But after all, this growth has continued and in fact strengthened in the second half of this year despite floods, drought, tax increases, defense downsizing, restructuring, a weak international economy, and the health insurance uncertainty. The economy has a lot of good things going for it. We have low interest rates; we're seeing pretty good business investment, which is giving us the spending, obviously, but also a productivity kick. Consumers are spending; maybe it's mostly on cars and houses but they are spending. Corporate profits are reasonably strong. The financial sector is strong and able to assist in financing so we're not having bottlenecks of credit unavailability either in the direct financing markets or through the banking system. I think it's a little ironic that we're now seeing much more acceptance of a growth rate of about 2-1/2 percent. Maybe even a year or so ago we would have said that was not an acceptable growth rate for this economy compared to what we've seen in previous cycles. Now, going forward, maybe this is not as acceptable as many folks would like, but I'm having a hard time seeing that we're going to move much off of that growth path. And that's indeed what the Greenbook is suggesting. Job growth is not strong enough to lower unemployment. We're still having this question of job quality, which seems to be affecting confidence. There is this question of whether or not the income growth we're seeing will be less than the increases in spending and thus whether that [spending] can be sustained. We're seeing a lower saving rate. And we still have the continuation of all of the [factors] we've talked about in the past that tend to slow growth: the restructuring, the fiscal drag, and so on. So I'm having a hard time seeing what is going to move us much above this 2-1/2 or maybe 3 percent growth rate. But at least it's a slow to moderate growth path. On the inflation front, we've seen continued progress on reducing inflation, albeit the rate of improvement has slowed down. Labor costs don't appear to be causing pressure. We've even seen some decline in unit labor costs because of the productivity increases. We clearly have a ways to go on inflation, and it seems to me that the proper approach is to keep our eye on the ball here because there are pressures. We're seeing some pressures, perhaps somewhat late, in the commodity prices and taxes. But it seems reasonable and appropriate to me to focus on keeping the slope of the movement of inflation going downward. I've been really quite heartened recently to see articles in the popular press talking about how [a firm] can survive when it can't increase prices. And there has been a lot of discussion around the table about not being able to increase prices. So I'd hope that we would continue to focus on keeping the [inflation] slope going downward.",635
-fomc-corpus,1993,Governor Lindsey.,3
-fomc-corpus,1993,"Mr. Chairman, just about everything has been said. I'd just add, first of all, that adding a child has taught me something. I did the checkbook last weekend and calculated that a significant fraction of the decline in the national saving rate was caused by the Lindsey household in October! [Laughter] So, I imagine that's going to be a temporary phenomenon. My other comment is that I was asked a question at breakfast about CRA and I have a document here for anyone who wants it. And that's all I have to say.",108
-fomc-corpus,1993,Thank you. Mr. Kohn.,8
-fomc-corpus,1993,"Mr. Chairman, you'll be relieved to know that I'll be considerably briefer this time than in the previous briefing. [Statement--see Appendix.]",29
-fomc-corpus,1993,"Questions for Mr. Kohn? If not, let me get started. It strikes me that in part the fits and starts were not something that was going on in the economy but something that was going on in the data. One way of looking at that is to ask whether other measures are giving the type of volatility that the GDP data have given. It's clear, for example, that gross domestic income--granted a somewhat inferior measure--in exactly the same context has been a good deal smoother than the GDP. It's also hardly credible, with two independent estimates of increasing work hours during the first half--both the payroll and the household surveys--that productivity measured against GDP, not the nonfarm business product, could have gone down. It's just not a credible economic phenomenon. That leads one to conclude that this recovery has been smoother than the data show and it raises some interesting questions about whether it is self-sustaining, which a number of people have commented on, and whether there is any significant breakout here that we seem to be observing. It is certainly the case that industrial production has shown some definite strength of late. And the November data, just looking at the weekly numbers on motor vehicles and a number of other related weekly industrial components, indicate that [the] November [index] is already up significantly. The obvious question that we have to ask ourselves is: What is it that's going to induce an acceleration much beyond the Greenbook [forecast]? And I think the argument has to be that the missing link in all of this is the inventory patterns. We have seen a very significant contraction in inventories in terms of days' supply, largely reflecting just-in-time [inventory management and the resultant] increasingly evident compression. And the compression is being driven to a large extent by quality control requirements which relate in turn to the issue of the competitive pressures. One of the interesting insights that I learned from your Vice Chairman when I was out there was this notion that when inventories are very low, the just-in-time pattern [allows] fairly rapid movement from one segment of a production process to another or from one establishment to another. The finding of a fault in a particular product or a particular element in the fabrication process means that it can get fixed relatively quickly. In other words, you don't have two months' worth of widgets which are slightly off. If it's just-in-time, you have three days' [supply]; so you don't lose the quality and you don't lose the production. And that pattern is apparently driving a very substantial part of this inventory issue. Historically, we never would perceive of any inventory acceleration in a business cycle sense until we began to see the process of lead times on the deliveries of products begin to stretch out. The normal cyclical process that we used to observe fairly consistently from cycle to cycle was that we would begin to get some slight pressure on capacity, which would cause delivery lead times to stretch out. The purchasing managers, being concerned about the now longer lead times, would then start to order more and build up their so-called safety stock. That in turn would overload the system even more and create a still greater increase in lead times and still more ordering, and you'd get the standard inventory process which was characteristic of much of the business cycle before this one. There is no evidence at this stage that any of that process has begun. The lead times as we measure them off the purchasing managers' reports or their equivalent delays in deliveries are remarkably quiescent. That doesn't mean they're going to stay that way. It does mean that if we are apt to see some semblance of acceleration, one of the signs may well be some lead times beginning to move, some industrial commodity prices beginning to move, as for example steel scrap has been doing of late, which is an interesting but at the moment the sole indicator coming from the commodity markets. We also, I suspect, have to see some credit expansion. No matter how we look at these numbers, they are not the credit numbers of a boom. So, I would find it hard to believe that we're going to see anything resembling a significant pickup unless we spot it in the lead times or in the credit numbers. And it's more likely to be in the credit numbers because they move somewhat faster; it's not that they are a better advance indicator but they're more current. And I think we may find--excuse the expression --that M2 might turn out to have certain elements of information in it just as we have buried it. But I think the more important question is the [domestic] nonfinancial [sector] credit, which has been quite quiescent even though it has shown some modest improvements. The foreign markets look awful and I think the Japanese economy is scary. The German economy doesn't seem to be going anywhere and I think the Japanese economy is demonstrating basically that the cycle of balance sheet strains, which the UK went through, is very evident in Japan. And since the depth of it is so much greater than ours, the presumption that they're going to pick up I just find noncredible. So I think that we're not going to get very much of anything from the export markets. Finally, with a five-week intermeeting period, it seems to me that there's very little that could happen to alter significantly anything that we are working on so far as policy is concerned. I'd conclude that a symmetrical, no change directive until the next meeting is a ""gimme putt."" Ed Boehne.",1097
-fomc-corpus,1993,"""B"" symmetric.",4
-fomc-corpus,1993,President Keehn.,4
-fomc-corpus,1993,"""B"" symmetric.",4
-fomc-corpus,1993,Governor Mullins.,4
-fomc-corpus,1993,"""B"" symmetric.",4
-fomc-corpus,1993,Governor Kelley.,3
-fomc-corpus,1993,"""B"" symmetric.",4
-fomc-corpus,1993,Governor LaWare.,4
-fomc-corpus,1993,Concede the putt.,6
-fomc-corpus,1993,It's about time!,4
-fomc-corpus,1993,This would be an easy one to write up with attribution.,12
-fomc-corpus,1993,Governor Lindsey.,3
-fomc-corpus,1993,"""B"" symmetric.",4
-fomc-corpus,1993,Governor Phillips.,3
-fomc-corpus,1993,"""B"" symmetric.",4
-fomc-corpus,1993,President Melzer.,4
-fomc-corpus,1993,"Alan, I'm going to spend a little longer on this. I favor alternative ""B"" with a bias toward a greater degree of reserve restraint. The economy is gaining momentum, which is reflected in faster GDP growth and faster albeit still sluggish growth in the broad monetary aggregates. Nominal interest rates have also risen. If this rise in interest rates is sustained--along the lines of what David was saying before--monetary policy will automatically shift toward a more inflationary stance under a federal funds rate operating regime. Accordingly, the funds rate must at a minimum be allowed to move up with market interest rates over time. Moreover, the thrust of monetary policy as measured by the growth in M1 and reserves has been quite stimulative throughout the current expansion. M1 has grown at an 11.8 percent annual rate from the second quarter of 1991 to the second quarter of 1993 and reserves have grown at an 11.6 percent annual rate. Even after allowing for technical factors, which have temporarily increased the demand for M1 and reserves at times, the growth rates have been very high. The effects of this stimulative policy on inflation will be felt only with considerable lags, probably not for another 6 to 12 months or more. Accordingly, one can not take much comfort in current rates of inflation though they appear reasonably stable. In addition, the 3 percent annual increase in the CPI, which many forecasters believe is the lowest rate we will achieve in this cycle, can hardly be viewed as representing price stability.",310
-fomc-corpus,1993,President Broaddus.,5
-fomc-corpus,1993,"I have a lot of sympathy for what Tom just said but for now ""B"" symmetric.",19
-fomc-corpus,1993,Bob Forrestal.,4
-fomc-corpus,1993,"""B"" symmetric.",4
-fomc-corpus,1993,President Syron.,4
-fomc-corpus,1993,"""B"" symmetric.",4
-fomc-corpus,1993,Governor Angell.,4
-fomc-corpus,1993,"My preference in this situation, in which the fed funds rate is at 3 percent and it really ought to be at 4 percent, is to be at a permanent symmetric position. I would agree that this isn't exactly [the time]--I'd like to have a little better opportunity for timing than doing it today--but that's my preference. A 4 percent fed funds rate just seems to be much more likely to be associated with stability in commodity prices, the price of gold, and a more neutral monetary [policy] position away from the accommodative [policy position] that we're in. And I just doubt very much that we have an adequate ability to call the turn at the time. So, I'd just feel a lot more confident with 4 percent but, Mr. Chairman, I don't know how to get there.",166
-fomc-corpus,1993,President Jordan.,3
-fomc-corpus,1993,"Even if I wanted to choose alternative A or alternative C, I could not do so based on the criteria set forth in the Bluebook because it says the choice of alternative A is based on unacceptably slow real growth and alternative C on unacceptably high real growth. And I think those criteria are relevant for making the decision between ""A"" and ""C,"" so I'm stuck with ""B.""",81
-fomc-corpus,1993,President Stern.,3
-fomc-corpus,1993,"I favor ""B"" symmetric. I have some sympathy for the issue of how we are going to know when the right time to deviate from this path is. But we can't avoid that responsibility, and my best judgment is that this is not the time.",52
-fomc-corpus,1993,President Parry.,4
-fomc-corpus,1993,"""B"" symmetric.",4
-fomc-corpus,1993,President McTeer.,5
-fomc-corpus,1993,"""B"" symmetric.",4
-fomc-corpus,1993,President Hoenig.,4
-fomc-corpus,1993,"""B"" symmetric.",4
-fomc-corpus,1993,"Let's try ""B"" symmetric.",7
-fomc-corpus,1993,"""In the implementation of policy for the immediate future, the Committee seeks to maintain the existing degree of pressure on reserve positions. In the context of the Committee's long-run objectives for price stability and sustainable economic growth, and giving careful consideration to economic, financial, and monetary developments, slightly greater reserve restraint or slightly lesser reserve restraint might be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with modest growth in M2 and M3 over coming months."" Chairman Greenspan Yes Vice Chairman McDonough Yes Governor Angell Yes President Boehne Yes President Keehn Yes Governor Kelley Yes Governor LaWare Yes Governor Lindsey Yes President McTeer Yes Governor Mullins Yes Governor Phillips Yes President Stern Yes",143
-fomc-corpus,1993,[Unintelligible] if we ever find an appropriate time. The next meeting for monetary policy is December 21. We'll be in touch very shortly.,32
-fomc-corpus,1993,"Governor, since you're standing, will you move the minutes of the last meeting?",16
-fomc-corpus,1993,"Yes, I so move.",6
-fomc-corpus,1993,Without objection. I think you're all familiar with the memorandum dated December 17th that relates to the delegation of responsibility for Decisions on Appeals under the Freedom of Information Act of denials of access to Committee records. Is there any discussion on this issue? Any questions? Would somebody like to move the delegation of this responsibility?,64
-fomc-corpus,1993,So move.,3
-fomc-corpus,1993,Second.,2
-fomc-corpus,1993,"Without objection. Thank you. The next item on the agenda is an interesting analysis by Dave Stockton and Jack Beebe on the relationship of price stability and economic performance, which I believe was initiated at a System-wide conference a while back. And I turn [the floor] over to you gentlemen.",59
-fomc-corpus,1993,[Statement--see Appendix.],6
-fomc-corpus,1993,[Statement--see Appendix.],6
-fomc-corpus,1993,"I know that we've done very considerable work in the United States to weed out the statistical effects, which I'm sure exist in other countries, of the normal noise in the variables that creates an inverse correlation between price change and real GDP when we look at the implicit price deflator on the one hand and the gross domestic product in constant dollars on the other. In other words, if you have an independently estimated nominal GDP and an independently estimated set of prices and you consider that there is noise in those variables, you're going to end up picking up some negative correlation. But for the United States I think we've done enough in this area to demonstrate that even adjusting for that by [using] industrial production versus price, which is not subject to this problem, still creates a very robust relationship. The causation question is where the big debate is. So I was just curious: Have we run Granger-causation tests on U.S. data? I've forgotten what came out of that.",195
-fomc-corpus,1993,"On the work carried out here at the Board we've done some of those types of statistical causality tests and there does appear to be some indication that inflation causes productivity growth. But the lion's share of the negative correlation between inflation and productivity growth occurs contemporaneously. So the evidence, one would have to say, is that it is possible that there's some causal relationship but it certainly doesn't show through strongly in the data. Most of the correlation appears to be contemporaneous, raising questions about that [relationship].",100
-fomc-corpus,1993,"Well, it doesn't necessarily follow that the causation must be in one direction or the other. It can be both. And so the concurrent relationship could be consistent with unit labor costs being pulled down and hence the price level. But do you recall whether or not in a strictly statistical sense the Granger-causation results were significant?",67
-fomc-corpus,1993,"I think the answer to that is yes, they were significant running from inflation to productivity. But the magnitude of that relationship looked relatively weak in terms of the lagged part. You're absolutely right in terms of the contemporaneous relationship; it could in fact reflect causation running from inflation to productivity growth. But a skeptic could look at that evidence and say: But that doesn't prove, of course, that it isn't going in just the opposite direction as well. There appears to be a tantalizing correlation in both these cross-country studies and in the time series data. The difficulty is that in presenting that to a skeptical audience, I think whatever regression or result you put on the table you couldn't feel confident that somebody else wouldn't come along with another and demonstrate that that particular regression wasn't fragile to a variety of different minor modifications as best--",165
-fomc-corpus,1993,"I assume that the contemporaneous increase in productivity is not of an order of magnitude that is so large that it is far more than the price inflation decline which, therefore, couldn't explain it. In other words, I assume that what we're looking at is something in which an argument that productivity increases cause low inflation is not refuted at that level.",69
-fomc-corpus,1993,"It's not refuted at that level, that's correct.",11
-fomc-corpus,1993,Other questions?,3
-fomc-corpus,1993,"The question I have is that it seems to me that in terms of the price distortion effects of inflation, there are pretty strong results. The effect of that on productivity, etc., doesn't show up too strongly. Is that correct?",46
-fomc-corpus,1993,That's correct.,3
-fomc-corpus,1993,"But aren't there strong theoretical and analytical reasons to think that there would be a negative effect? The fact that the quantitative results are not always very strong to me focuses too much on the data, which can be affected by so many things. I would say that if you can establish something theoretically or analytically--and I think that's been done--it's very, very [probable]. So I would say that in some respects your results are much stronger than you've portrayed.",93
-fomc-corpus,1993,"It's certainly the case that in our review of the literature that examines the effects of inflation on the pricing system and relative prices, the overwhelming majority of the studies come to the conclusion that in fact inflation does introduce distortions of price [signaling]. And I think that is strong evidence that inflation has detrimental effects.",62
-fomc-corpus,1993,And analytically from that conclusion [inflation leads to] a lot of problems in terms of productivity and probably also growth.,25
-fomc-corpus,1993,Yes. I think there is fairly widespread acceptance that inflation rates over 10 percent are clearly disruptive; and probably a very large majority [believe that] from 5 percent upward. The crucial question is what happens to the academic evaluation about inflation of 5 percent [or less]; there [views] start to spread all over the place.,69
-fomc-corpus,1993,But I think their work indicated that at moderate rates of inflation the price distortions are statistically significant.,20
-fomc-corpus,1993,Can I ask: Have we or has anybody ever tried to isolate the impacts by trying to subtract out of the GDP the costs of fighting inflation?,29
-fomc-corpus,1993,"No, that hasn't been done; and that was an issue raised at our conference as a flaw, in some sense, of the studies we've done to date relating inflation to growth in output. That would be something on our research--",46
-fomc-corpus,1993,"You can basically raise the GDP by finding something in the reservoir of water, because I will tell you the GDP of the District of Columbia went up when the water pollution question came up because of all the retail activity and everything else that went on. And one questions what the measured GDP actually means, especially in this particular context.",65
-fomc-corpus,1993,"Mr. Chairman, I think one could also note that because of the interpretation we made of what the System conference wanted in the way of an emphasis here we sort of set aside all the questions of what damage might be done in terms of the welfare lost from unanticipated inflation because people were not saving enough for their retirement. There's a whole array of welfare costs that might go with high and unpredicted inflation. So there's a whole other area to explore if one wanted to look for reasons one should be concerned about non-zero inflation.",106
-fomc-corpus,1993,"But I think Bob is right that if you can set up an analytical model, cause and effect, and can demonstrate at the crucial points that there is micro evidence, such as the relationship between inflation and the price dispersion [effects] of uncertainty and the relationship between uncertainty and the cost of capital and growth, then you can build the argument, even if the data at a macro level are insufficient largely because those data have a very considerable amount of noise in them. If indeed a very forceful and very tight inverse relationship exists, it is quite possible that if there's enough statistical noise in your data system you can bring 100 percent R square down to .2.",132
-fomc-corpus,1993,"Well, we recognize that it's been very hard to establish, as it is on any macro issue, anything definitive out of this research. But there were some analytical points that argue that low inflation could conceivably be better than no inflation. We tried to experiment, but we also thought the mission was to try to put some empirical flesh on these analytical [bones]. Some progress was made but we have to concede that the lack of certainty--",88
-fomc-corpus,1993,"Well, I thought the memorandum was really quite useful. I think the results that were obtained showed a fairly extensive advance in the state of knowledge in this area.",32
-fomc-corpus,1993,I might add that the survey data even at moderate rates of inflation--U.S.-type rates--do indicate that the standard errors and the uncertainty of the forecasters rise with the level of inflation. So even at reasonable rates of inflation there is some evidence now that the level of inflation and inflation uncertainty are related. And that gets back to the distribution issue that Mike alluded to.,77
-fomc-corpus,1993,"Other questions? If not, before we go on to the substance of our meeting, the conventional [agenda], Sandra Pianalto is here for the first time and we'd like to welcome her. Where is she? There she is. Welcome, Sandy. And as I think we're all aware, this is the last official meeting for Governor Angell. We will at our next meeting have a going away bash for him. I just want to say today that you may leave here but your philosophy will remain in this organization largely because, perhaps subliminally, you have implanted ideas amongst your colleagues that they now think are their own. And as a result they will cherish them immensely. But for those of us who have observed you over the years--and I've had the privilege of doing this--you are going to be sorely missed for a lot of reasons. Most important to me is the extraordinary integrity that you have exhibited in this group and the absolute adherence to the issue of principle and what is appropriate and important public policy for a central bank. We're going to have somebody else sitting in your seat but he or she will not have replaced you. We will all officially wish you well at a later time, but I want to say that personally and professionally I will miss you. But that doesn't mean I'm going to give you a couple of extra strokes the next time we play tennis! Shall we go on to our normal procedures? We'll start with Peter Fisher and the Foreign Desk.",294
-fomc-corpus,1993,I will be referring briefly to two pages of color charts which Carol was kind enough to put on the table in front of you this morning. [Statement--see Appendix.],34
-fomc-corpus,1993,"Questions for Peter? If not, is there any objection to the request that the Desk made with respect to [the disposition of] currencies? If not, I will assume that you have authorization to move as required. Let's go to the Domestic Desk and Joan Lovett.",54
-fomc-corpus,1993,[Statement--see Appendix.],6
-fomc-corpus,1993,"Thank you. Questions for Joan? If not, I would entertain a motion to ratify the actions over the [intermeeting] period.",28
-fomc-corpus,1993,So move.,3
-fomc-corpus,1993,"Since there's a second, without objection. Let's now move on to Messrs. Prell and Truman on the economic report.",25
-fomc-corpus,1993,[Statement--see Appendix.],6
-fomc-corpus,1993,[Statement--see Appendix.],6
-fomc-corpus,1993,Thank you. Questions for either gentleman?,8
-fomc-corpus,1993,"I have a couple of questions for Mike. When I look back at the Greenbook projections for '93 starting from a year ago, on balance they are very encouraging. Even though the intra-year pattern on growth as currently reported is different, we all know that's going to be revised away anyway, so let's not pay too much attention to that. But the cumulative effect over the year is that real growth this year, even if we get 5 percent in the fourth quarter, is going to be about what was projected a year ago. And inflation is probably going to come in slightly less, as measured by the consumer price index, which looks pretty good. But then when I look at your current projection for 1994 versus a year ago, output growth is now projected to be slightly less than you thought a year ago for next year but inflation quite a bit more--1/2 to 3/4 percentage point more on consumer prices. I've read what you have written and I've listened to what you have said and it's still not clear to me why you think that inflation in 1994 and into 1995 is going to be at a higher level than you thought a year ago.",239
-fomc-corpus,1993,"Well, the price performance this year relative to our expectation a year ago depends on which series you look at. The GDP fixed weight price measure is now expected to be 3/10ths of a point higher than we expected for '93 a year ago. So there are some crosscurrents in the price data. There has been a modest--though we think significant in terms of whether it is consistent with out expectations of deceleration--slowing in core inflation over this past year. We now are at a somewhat lower level of unemployment and a higher level, I think, of capacity utilization than we expected to be at this point. We see in the compensation data, which we consider another important measure of some underlying costs trends, no really clear evidence of ongoing deceleration even over the course of the period when unemployment was higher than it is now. So we are not perhaps as sanguine as we might have been before about the prospects for ongoing substantial deceleration as we move on out through 1994. We're re-calibrating some things as we move along here. And we are looking at some different initial conditions than we expected to see as we enter [1994]. Now, one could certainly argue from a variety of econometric models built on the Phillips curve--one you're not particularly fond of--that there could be more significant deceleration. If you have a view, as some do in using this model, that NAIRU is 5-1/2 percent, we have a significant output gap; and normal rules of thumb would produce more deceleration in prices than we have. On the other hand, I think there are many people who would say that the prospects aren't quite as rosy as we're forecasting them to be. But our basic notion is that we think the most likely direction of the trend on inflation through 1994 will be downward.",375
-fomc-corpus,1993,"Let me follow up on that because everything I've seen, including Ted's report, is that outside the United States virtually everything has been, if anything, much, much weaker in '93 than was expected as of a year ago. So in the global marketplace in your model, your framework, you should have more slack, more excess capacity than you thought a year ago that you would have at this time. And so in a global economy you would say there is less price pressure than a year ago you would have thought at this time.",107
-fomc-corpus,1993,"Well, there is going to be some significant competitive pressure from imports in a number of sectors of the economy, [though] not all sectors. All sectors are not as susceptible to that influence in the same degree. But as I noted, the import price prospect is one of the things that makes us hopeful that we can continue a downward [inflation] trend. We have not had import price pressure over the last year. This isn't an element that in our forecast is going to move in a [significantly] more favorable direction over 1994; if anything, the prospects might infer a less favorable contribution from the import price side. But we're splitting hairs. I think the picture is essentially the same and it doesn't really make a very big difference as we go forward in terms of the rate of deceleration.",164
-fomc-corpus,1993,"Okay, one more point, which may just be a technical question. Historically the gap between the GNP deflator and the CPI has been about 1/2 percentage point, and I noticed that you [widen] it to about a percentage point in '94 and carry it out through '95 at almost a full percentage point. What's giving rise to that?",74
-fomc-corpus,1993,"I think the major story here is the ongoing increase in the relative importance of computers, whose prices are decreasing at a very rapid rate.",27
-fomc-corpus,1993,Translate that for me as to which one is wrong.,11
-fomc-corpus,1993,"Well, they are different measures. I think the deflator is not an optimal measure of prices but even broader measures of consumer prices are going to be affected by this computer pricing.",36
-fomc-corpus,1993,"As a technical matter the computers have a much smaller weight in the CPI than in the deflator for gross domestic product. So the weight of this one item, this fall in price, is small in the CPI and it's relatively large in the deflator.",51
-fomc-corpus,1993,President Parry.,4
-fomc-corpus,1993,"Mike, in the 1992 GDP revisions some of the discrepancy that we thought we saw initially between hours worked and output was removed and, of course, GDP was increased very substantially. In the first half of 1993 there were some of the same phenomena in the numbers but [that could change in] the revision as well. If one had sort of a pro forma revision, making it similar to what occurred in 1992, what are the implications for the amount of slack that we would have at this point? Or how would you [view that]? Toward the end of your presentation you mentioned a few concerns and cautionary measures [unintelligible]--",136
-fomc-corpus,1993,"Well, I don't have a strong conviction about the likely magnitude or direction of revisions in GDP, the personal saving rate, or some of the other key variables and how we would look at the gap between potential and actual real output. In the first half of this year, to be sure, there was some evidence from the income side of somewhat more rapid growth than was registered in the GDP numbers. But it isn't a night and day difference. I don't think I would make a great deal of that at this point. We are at least as leery about defining precisely the GDP gap as we are in looking at the unemployment gap. It's a difficult number to construct. So I don't think looking at anticipated revisions here would loom large in our thinking about the inflation risks. There has been some discussion, I might just note, of possible revisions in the industrial production measures and capacity utilization. We may have stirred things up by indicating in our release--I guess it was a month ago--that in February we hope to be publishing annual revisions. Some in the markets took this as an indication that we anticipated major changes. At this time we don't really have a good fix on this and don't have a real predilection toward reducing or raising capacity utilization based on the evidence we've been able to process to this point. So we're agnostic on this for now; we'll be looking at this in a couple of months.",281
-fomc-corpus,1993,"Could I ask a question about the fiscal model on this last green page in the first Greenbook section? I assume the default, which would be a no law change model, in the first, third, and fourth quarters is essentially a 5 percent increase in receipts. I'm reading across the top line. So we have, say, a $15 billion increase Q1 '94 over Ql '93 and in Q3 it's a $17 billion increase, etc. And that carries through. What I'm puzzled about is the timing, where what we have is a $49 billion increase Q2 '94 over Q2 '93. And I'm even slightly more puzzled about the Q2 '95 over Q2 '94 where the percentage increase is more than in the other quarters. Could you briefly explain the way the timing is scored on government receipts?",170
-fomc-corpus,1993,You're talking about the actual unified--,7
-fomc-corpus,1993,Unified budget receipts.,4
-fomc-corpus,1993,"Yes, the receipts.",5
-fomc-corpus,1993,"Now, if these come from OMB, okay. But I didn't think they did.",18
-fomc-corpus,1993,"No, in this case they don't. I'm not sure I can give you a good answer off the cuff here. We have put into this our forecast of the effects over '93. We have some modest differences with the OMB and CBO estimates. We've been a little more conservative in the sense of allowing for a bit greater behavioral response, diminishing the income tax receipts that will accrue. But in April we're expecting to see a substantially higher level of non-withheld income tax payments than we had in the 1993 second quarter. And that's the key feature of the year-to-year movements in revenues apart from what is being generated simply by the ongoing increases in economic activity which are boosting both corporate and personal income. For 1995 I'd have to look into that more closely. I see a lesser gain from the second quarter to the second quarter in '95 than in '94, which seems reasonable to me. But I can't be very specific at this point.",193
-fomc-corpus,1993,"Well, this is a technical question. Why don't you just have somebody do it.",17
-fomc-corpus,1993,Sure.,2
-fomc-corpus,1993,"That would be great, thanks. At any rate, that kind of bump I assume is unlikely to affect consumption patterns because it is pretty much anticipated.",30
-fomc-corpus,1993,"Well, that isn't precisely how we're viewing it. As things have progressed, we've moved a bit in the direction of thinking that there could be a larger effect in the first half of 1994 than we had initially allowed for. We've made some shift in that direction. Yes, it's true that a lot of people knew that tax increases were coming; they began to adjust their behavior at least in the timing of their income receipts in late 1992, which showed all those bonuses coming in then. But looking at the behavior of consumption this year, one is hard pressed to discern any anticipatory effect. And it's not entirely clear that everyone behaves totally rationally in terms of gauging their lifetime income stream and adjusting their expenditures quickly. There probably will be a number of households that are going to be somewhat liquidity constrained at tax time. And we're anticipating that there will be a disproportionate effect in the first half of 1994 as people really calculate and confront their tax bills.",196
-fomc-corpus,1993,Thank you.,3
-fomc-corpus,1993,"Any further questions? If not, who would like to start the Committee discussion? President Broaddus.",21
-fomc-corpus,1993,"I moved over to this table about a year ago and over most of the time since then I've been in general agreement with the Greenbook projections. I've often thought the risk of error was a bit on the up side, but the staff projections have usually struck me as being generally reasonable and sort of within my own confidence interval. But I can't really say that as strongly this time, at least when we get out beyond the current quarter. A number of things make me think that the Greenbook forecast this time may be significantly underestimating the growth of the economy and economic activity as we get out into 1994. First, I think there's a good chance the projected sharp deceleration in consumer spending won't happen, especially for durable goods. We may get some deceleration but I don't think it's going to be as sharp as the Greenbook is projecting. Among other things the Greenbook expects fiscal restraint to exert a fairly considerable drag on consumer outlays next year. And maybe it will, but it seems to me that the upper income people who are most likely to be affected by the tax increases could reasonably have seen these things coming as long as a year ago, certainly by the middle of last year. So it seems quite likely to me that these taxes have already worked their effect and have already had whatever impact they're going to have on the path of spending going forward. More broadly, nothing in the recent data suggests to me that the economy generally is about to pull back because of fiscal drag and fiscal restraint. It seems to me that the current acceleration in activity, which is quite strong, is basically being driven by the interest-sensitive sectors of the economy: housing, consumer spending on durable goods, and producer spending on durable equipment. That suggests to me that the decline in real interest rates that has been going on now for some time is perhaps finally showing through in a rather fundamental way to the economy generally. And unless there's a very sharp backup in interest rates, especially long-term rates, I would expect these sectors to continue to bolster economic activity in the period ahead. Also I'm less pessimistic than the Greenbook about the prospects for net exports, although I get from Ted's comments that maybe I read the Greenbook in this particular framework as more pessimistic than it actually is. We have had significant reductions in interest rates in a number of other industrial countries and it seems to me that they could give us a somewhat stronger recovery in the G-6 countries than the Greenbook appears to expect. But from my standpoint the most compelling reason I would have for questioning the staff forecast this time is the anecdotal comments we're hearing in our own District, none of which suggests any real diminution in activity going forward. On the contrary, the sense we're getting virtually from all of our directors and all of our business contacts is that the economy is gaining momentum pretty much across the board. Just to give you a couple of examples: Our Baltimore directors, a pretty good cross section of people, have been pessimistic until their last meeting. In their last meeting they were positive about the outlook for the first time really since the recession in '90-'91. The same thing [is true] in Richmond and Charlotte; they've been somewhat more optimistic for several months, but at their last meeting they were much more positive about the current situation and the outlook than they had been for some time. And we're getting much stronger comments from our business contacts. We have a lot of manufacturing activity in our District and we're in contact with those people. Many of them are telling us for the first time in a long time that they plan to bring on new workers within the next six months. We haven't heard that to a significant and broad degree until recently. Also declining vacancy rates for commercial property in a number of areas in the District have increased optimism among commercial builders and real estate developers. A year ago these guys were all saying it would never get better. I should add that the acceleration in general economic activity has begun to raise some concerns about inflation among at least some of our contacts, though it's not terribly widespread yet. I think you mentioned something, Mike, about pricing power. Several of our business contacts have told us that while they did not believe until recently that they could make price increases stick, they're beginning to think they can do that within the next six months. So, overall, I can't remember a time over the years that I've been here--maybe with one exception, in early 1983--when I've seen such a broad accumulation of positive information about the economy both nationally and in our District. And I think that has important implications for our policy decision today. I think--I hope--we've known all along that if the economy really began to gain some strength, we were going to have to let real short-term interest rates move up above zero. For my money I believe we're there now. And, frankly, if we defer action on the funds rate any longer, I think we could jeopardize the credibility of our commitment to price stability and all the good things that credibility does for the economy and long-term interest rates.",1022
-fomc-corpus,1993,President Keehn.,4
-fomc-corpus,1993,"Mr. Chairman, in our District also the underlying level of economic activity has clearly gained some momentum since the last meeting. Virtually all the important sectors of our area have shown further improvement, driven largely but certainly not exclusively by the auto sector. The auto production schedules, of course, have been strong this quarter; and for the first quarter of next year they have been set some 13 percent over the first quarter of this year. The first quarter of this year was a pretty good comparative period. And the industry estimates that their contribution to first-quarter GDP will be just a little stronger than the number that's in the Greenbook. Given this, it's not surprising that the steel industry continues to operate at high levels. Shipments this year will come in at about 88 million tons. The forecast for next year is that they will ship over 90 million tons, a 3 to 4 percent increase. One company that I talked with said that the outlook for the steel industry in the next two or three years is the best that they have seen in some fifteen years. Other parts of our economy also are doing well. The farm equipment business has been strong. The heavy truck business is expecting an even higher level of sales next year than this year. So the improved level that we have experienced this year, as it turns out, has not just been due to the environmental standards that will become effective January 1st. Machine tool orders, as an example, though down in the third quarter, for the year through October are up by almost 30 percent. And retail sales--and I do think this is a fairly strong and recent development--really have increased quite substantially over the past month or so. It's uneven; it's much stronger on the durable goods side than apparel. Nonetheless, overall retail conditions are described as the best that have prevailed in some three to four years. And I think I'd give high odds that the Christmas season is going to come in a little better than some of the forecasts that we're hearing about. The employment situation also has strengthened. Consistent with what Al has just said, for the first time that I can remember a heavy manufacturer has indicated that they will add employees at one of their facilities. So far they have been able to meet the increased demand by increasing the line speed. They now plan to add another shift, which will require additional employees. They are completely out of capacity and the major constraint is a shortage of qualified drivers; there just aren't enough people available to drive the trucks. And who has been very cautious--really rather bearish for some time --describes employment conditions as the best he has seen in quite some while. With regard to the national economy, clearly the fourth quarter will come in on the strong side. I think the question, as Mike has outlined, is whether or not we will experience the same kind of drop in the first quarter of next year as we did this year or whether [the quarter] will be more in line with the staff forecast. And I must say at this point I think there is enough underlying momentum in place in the economy that the decline is quite likely to be very much in line with the staff forecast. But there are some uncertainties out there, which are now well familiar. Certainly, at this point at least, [the forecast] is not free from doubt. With regard to pricing we are experiencing this interesting dichotomy: very strong growth in economic activity yet pricing conditions that continue to be very, very competitive. Despite the higher demand for their products, manufacturers just don't have the latitude to raise prices with confidence that [the increases] will stick. They are continuing to put tremendous pressure on their suppliers to maintain or even reduce their prices, and many of them are achieving some considerable success. Whether this very fundamental change will last or whether we're setting the stage for somewhat higher prices on a broader basis remains to be seen. I have a hunch that this will be the basis of our discussion when we get into the policy deliberations.",804
-fomc-corpus,1993,"Mr. Chairman, could I clarify something in my earlier response to President Jordan? Not only was the GDP fixed weight price index up more than we expected, the CPI and the core CPI both have risen more over this past year than we anticipated last December while the unemployment rate has been about 1/4 percentage point lower as we got more decline in unemployment for the output growth than we anticipated. So I'd assert more strongly than I did before a broad consistency with the fundamental principle that applied in our forecast and continues to apply. Thank you.",108
-fomc-corpus,1993,President Parry.,4
-fomc-corpus,1993,"Thank you, Mr. Chairman. My report from the Twelfth District economy is more optimistic, although the changes for California are small and mixed. In October employment in the District states outside of California showed considerable strength, with employment increasing 40,000. Annualized economic employment growth rates for the month ranged from 2-1/2 to 4 percent for most of the states; and Idaho and Nevada, which have been incredibly strong, actually recorded double-digit rates of expansion. One thing that was a bit of a surprise in the last month or two is what's happening in the state of Washington. Washington's employment growth outpaced that in most other District states, expanding at 8 percent in October following the 6 percent growth in September. And while eastern Washington continues to reflect what I think can be correctly characterized as boom conditions associated with those in the inter-mountain states, contacts also report that business activity in western Washington is stronger. However, cutbacks in aerospace, of course, remain a drag on that region's performance. California's economy remains weak although current conditions are more mixed than they have been in recent months. November payroll employment was little changed from the recession low reached in October. Moreover, job losses have continued in such areas as construction and manufacturing. On a more positive note, reports from contacts in California are no longer uniformly negative. Retail sales are improving some, and there certainly are good conditions in some sectors such as motion pictures, entertainment, and also agriculture. Within the state, economic conditions are clearly weakest in southern California, especially the Los Angeles area. Layoffs continue in aerospace and defense, and construction remains quite depressed. Real estate values appear to be continuing to slide in that area. Conditions are relatively stronger in the huge agricultural area of the Central Valley and also in northern California, despite falling employment in the Bay area. Turning to the national economy, at this point we think that the most likely outlook for growth is roughly that which is incorporated in the Greenbook. It seems to us that following what is going to be clearly a very strong fourth quarter we will see a reduction in growth rates along the line of what is indicated in the Greenbook. I would say that based upon [the Board staff's] forecast and ours it wouldn't be surprising to see labor market slack and a reduced core rate of inflation below that incorporated in the Greenbook. However, at the same time I think there is a reasonable chance that growth in inflation will turn out to be stronger than projected, along the line Al was talking about. New orders and production have picked up in areas besides autos, and we think GDP for 1993 may be revised up to some extent, providing more momentum for growth next year. As a result, it's possible that the gap between potential and actual GDP may be diminishing at a faster rate than is anticipated in both forecasts. Thank you.",577
-fomc-corpus,1993,President Hoenig.,4
-fomc-corpus,1993,"Mr. Chairman, our District is continuing to grow; actually it's showing some indications of faster growth through the last half of this year and we think going into 1994. Construction activity is still strong and should continue to be so. We note that Intel is building about a $1-1/2 billion plant in New Mexico, adding about 1,000 jobs, and there are some other activities throughout the District. Services seem to be good and improving, although perhaps not quite as strongly as some of the information we're getting on the national level. Manufacturing in our District is either stabilizing or actually improving, with smaller job losses in durables and some real job growth in the nondurables sectors. We still have some declines--McDonnell Douglas and American Airlines in their maintenance operations are laying off [workers]--but that's being offset with other job gains in manufacturing. The farm economy is stable despite the flood. Stronger grain prices are offsetting some weaker cattle prices and we may see some earnings pressure there in '94. The energy sector actually is holding its own despite the fact that the oil part of that is dead in our region. Gas activity, though, is positive; and while there are some obvious relationships between the two, the gas prices are still holding and we have some drilling activity going on there. Within that context I'd like to provide you some anecdotal data; they are not data as such and they are not systematic but they are, I think, worth noting. In the area of prices, for example, land prices are sensitive in our region. In Wyoming we've had some sales and, in one recent sale, a fairly large ranch sold for perhaps 10 to 15 percent above what they expected; and this was to local neighboring ranchers, not outside investors coming in. In north central Kansas, while the general trends are still for price increases around the level of inflation, we've seen sales recently that are maybe 5 to 10 percent above what the trend line would suggest. In areas like Denver and Albuquerque we're hearing more and more comments about boom-like conditions. We're seeing more speculation in residential real estate; and loan growth is fairly strong, especially in areas such as Denver, parts of Omaha, and Lincoln. So we're seeing some activity there. In the energy sector, as I've said, while oil prices are down gas prices are at least holding their own. But in the sale of land or lease arrangements for exploration some of the large independents have told us that those leases are selling at levels significantly above what they expected. So there are these signs out there of strong activity and some price pressures. It's not systematic yet, but we're hearing this more often. As for the nation, we expect solid growth next year. In the first quarter we see a bit more of a drop-off than the Greenbook but following that, for the year as a whole, we don't see the drop-off that the Greenbook has projected. We expect some continued growth that will not allow the inflation back-off that the Greenbook [projects]. Now, whether that will turn out to be the case, we are not certain. But from what we're seeing in our District and what we're analyzing nationwide we think there is going to be some fairly good growth, around 3 percent throughout the year, and that inflation will stay at least that high throughout the year.",677
-fomc-corpus,1993,President Forrestal.,4
-fomc-corpus,1993,"Mr. Chairman, economic activity in our District is continuing to move along at a moderate pace and once again we think that we're outperforming the nation. Retail sales in the fall were somewhat disappointing but holiday activity has been quite good through mid-December, and it has certainly been a lot better than most retailers had expected. The news from our relatively important tourism sector continues to be mixed; as the busy season in Florida approaches there's still substantial concern about the impacts of the unfavorable publicity related to the crime activity a few months ago. At the same time in Mississippi money is pouring into the state as a result of all of the gambling activity along the coast and in the Indian reservations, and it's giving rise to employment. I'm not certain this is the way to produce economic activity, but that's another issue. Business convention bookings are quite healthy in Atlanta. In the manufacturing sector the pace of activity was steady in November after posting quite impressive gains in October. And the outlook in this area is becoming steadily more positive in terms of orders, production, and employment. I think that's particularly evident in the outlook for capital goods, which has brightened as orders have picked up recently and producers have become more positive that the current period of expansion will be extended. Now, on the more negative side, continued cutbacks in defense and aerospace as well as the decline in the important apparel sector are muting the enthusiasm a little. Single-family homes continue to sell quite well all around the District. Even though inventories are being reduced, we don't have reports of [housing] price increases to any great extent, although some people are trying to pass along some of the recent increases in lumber prices. But generally speaking, single-family home prices have not moved up very much at all. In the nonresidential and the commercial areas there are signs that a slow but steady improvement has begun to take hold and I think in those areas there's a pretty general feeling that the bottom has been reached and the outlook is more positive. In the energy sector the rig count in Louisiana has fallen for the last two months although it's well above the level it had been a year ago. There is concern among producers of natural gas that lower oil prices will cause some substitution effects. And spot gas prices have been marginally, just marginally, above the $2 level that's needed to make new drilling feasible. On balance we continue to see most of the gains in employment in the District in the service area, although as I've indicated there are some positive signs in manufacturing as well. We see very little evidence of price pressures. The anecdotal information supports that idea that price increases are very difficult to obtain even in this more positive atmosphere. And the anecdotal information also confirms all of the positive things that I've talked about. There is generally a feeling that things are much better. Most business contacts I've had, including our directors, indicate that they feel a momentum is in place in the economy. Now, when I go to these meetings I'm often asked about policy and I'm also given requests. The most frequent request I get now is: ""Please leave things the way they are; don't do anything."" With respect to the national economy, we have not changed our forecast since the last meeting. We're in general agreement, as I said last time, with the Greenbook for the near-term outlook. But when we get into the latter part of 1994 and 1995 we think that growth is going to be somewhat stronger, the inflation rate higher, and the unemployment rate somewhat lower. Basically our difference is in the consumer area where we think that employment and increases in wages and salaries are going to help sustain consumption [growth] probably on the order of about 3 percent in that period. Now, having said that our forecast is for somewhat higher growth and higher inflation, there are some continued vulnerabilities and risks to that forecast. I would cite particularly the international outlook, although as indicated today the situation does appear to be a little better. But we may run the risk of seeing some deceleration in the first quarter, and even in the first half of 1994, although I don't think it's going to be as extreme as it was last year.",837
-fomc-corpus,1993,President Jordan.,3
-fomc-corpus,1993,"Generally economic activity through our District by sector and the various industries wouldn't be much different than what Si Keehn reported for the Seventh District, so I'm not going to go through them in different detail. It's basically quite positive. Some parts of the District would describe themselves as being in boom conditions, especially down into central Kentucky around the Lexington area. A lot of it is driven by motor vehicle-related things because both the domestic companies and the transplant companies are doing quite well, and trucks as well. Also, there's an increasing tendency for banks to report to us that business loan demand is picking up. Earlier this year that was rather selective; it comes almost without exception that the banks say they are getting business loan demand. Residential construction has been strong, [as has] commercial construction, heavy infrastructure kinds of construction all over the District. And the ag sector had a better year than they thought they were going to have--the best they've had since [unintelligible]. We also see rising farmland prices and more reports of a pickup in interest there. Through all of this, though, we've only had what we would call marginal employment growth. Anecdotally, most manufacturing-type businesses report very substantial increases in productivity. They talk about their increased volumes, increased output without adding to the work force, and I point out that that's contrary to national policy! The passage of NAFTA was interesting in that it was, of course, very controversial. There was a lot of organized labor activity in the District, very intensive activity. But once it was passed it almost disappeared as an issue. [The feeling seems to be] okay, it's basically positive for the area; and labor organizations just simply have not been a factor. I cannot It looks like mortgage refinancing activity has slowed dramatically. The strength on the consumer side is auto-related. On the national scene, I can't differ with the forecast put out in the Greenbook. But if the assumptions about policy in the Greenbook were to produce the kind of inflation projected, especially out into '95, I would find that very unacceptable. So either the forecast has to be wrong or the policy is wrong.",429
-fomc-corpus,1993,President Syron.,4
-fomc-corpus,1993,"Thank you. Well, the First District isn't outperforming the nation but we are seeing continued improvement. And now I'd have to say that we have legitimately moderate growth. [In our] area there is not a boom but a substantial amount of what I would call boom momentum, where people certainly are feeling a lot better about this. The exception would be where defense is very important, in Connecticut and parts of Rhode Island. We have a fairly extensive sample of manufacturers now and I would say that they are on balance substantially more optimistic than has been true in three or four years, maybe even five years. Again, there is some significant variance, but people are generally pretty optimistic with the exception, as you might expect, of some areas that produce health equipment that are actually seeing some anticipatory turndown as well as the defense group. On the price side everyone is very, very anxious to do anything they can to increase margins but at this stage they don't seem to feel they have the ability to do so. A lot of them are complaining about that. An interesting situation was reported to us in the steel scrap area. For a lot of producers the increase in steel scrap prices has resulted in a net reduction in their costs. And you say: How can that be? It's actually that the increase in scrap prices has been more important to them [because] a lot of producers sell a lot of steel scrap back into the market. And it has been more of a benefit to them than the increase in the finished product with the change in the mix between integrated mills and electric mills and how that's produced. So it's just a question of having to look fairly carefully at some of the price data.",338
-fomc-corpus,1993,You're not making your point clear.,7
-fomc-corpus,1993,Okay.,2
-fomc-corpus,1993,Are you saying that the electric price cost structure goes up but there has been a shift to nonelectric furnaces--?,24
-fomc-corpus,1993,"What has happened is that scrap prices, as you know, are up substantially.",16
-fomc-corpus,1993,Yes.,2
-fomc-corpus,1993,"But many of the users of these final products of steel generate a lot of scrap themselves. And the increase in scrap prices has been of such a magnitude that it has more than washed over for them the increase in the output price of the finished steel that they're buying. And you say: Well, how can that happen? As it turns out, margins in electric powered furnaces have gone down.",79
-fomc-corpus,1993,I see.,3
-fomc-corpus,1993,"And what happens is that now the marginal cost of steel is being [unintelligible], as I understand it, at the integrated mills, and as that has happened there has been a reduction in the margin that the electric mills have had.",49
-fomc-corpus,1993,"Well, the non-mini-mill electric furnace operators are the big [unintelligible].",19
-fomc-corpus,1993,As I understand it--and Si would know much more about this than I do--the mix has changed between the integrated mills and the electric mills.,30
-fomc-corpus,1993,Right.,2
-fomc-corpus,1993,Significantly.,4
-fomc-corpus,1993,"Okay, I'm just curious.",6
-fomc-corpus,1993,"At any rate as far as the national situation goes, we very much agree with the Greenbook forecast in general. We are more optimistic on the price outlook. I have to confess that's on the basis of what one might call gross macro relationships; I guess you can read that to be Phillips curves.",60
-fomc-corpus,1993,I hope so.,4
-fomc-corpus,1993,"As for where we go from here, I think we're clearly into the most difficult time in terms of deciding what to do with policy. The key question is how much slack there is in the economy because on this issue of how strong growth is going to be in the first half of the year or even for the year as a whole, we simply don't know what's going to happen with respect to an issue such as the tax increase and how much people have adjusted their consumption patterns for that. So I think Al is correct that we need to be very, very sensitive to this whole thing. But it does, as you say, depend importantly on what has happened to the real economy. And some of this we just are not going to know.",148
-fomc-corpus,1993,President Boehne.,5
-fomc-corpus,1993,"Well, the same upward momentum is apparent in the Middle Atlantic states as well. We've been a region that has lagged the nation; I think that is still true, although clearly attitudes and aggregate demand are stronger. We're seeing it in many parts of the District and we're seeing it across industries, most notably in manufacturing. The same is true in retailing and in residential construction, although we still have problems in the nonresidential side. Having said that, there is still a tentativeness that is present not only in the way business people are looking ahead --in some respects they are having trouble believing things are improving because it has been a tough period--but also in their actions. We are not seeing the kinds of increases in employment that appear to be the case in other Districts. And while I think this improved attitude has more substance than what we saw a year ago, it is still going to need some more nourishing for it to take hold and produce this cumulative forward momentum that we need for a really strong economy. In terms of pricing, I keep hearing over and over how difficult it is to raise prices and that the only way to protect margins is still on the cost side. There's a lot of pressure on suppliers, and it's very difficult to make price increases stick. As for the implications for the national economy, I don't think we know the answer to the bottom line question: How similar is this to a year ago and how much of a takeoff are we really seeing in the economy? I think one can make a fairly good case on either side of that. My sense is that we will not see the kind of weakness that we saw a year ago. I think there is more to this [improvement] going forward. But it's just too early to tell, and we ought not be goaded into a tightening that some of our hawkish friends might urge on us. Nor should we be timid; we need to be willing to tighten when the time comes. I think this is not the time. There's still enough uncertainty. I would call this a period of watchful waiting; I'd be prepared to do what we need to do but not be precipitous about it.",440
-fomc-corpus,1993,President McTeer.,5
-fomc-corpus,1993,"Growth in economic activity in the Eleventh District has slowed a little since the last FOMC meeting. There was an actual decline in employment in October but that was primarily due to some special circumstances, including an early retirement program for the state which eliminated 6,000 government jobs and some earlier than usual hiring of seasonal employees which meant that October registered as a decline seasonally adjusted. Construction activity is strong and it's expected to remain on an upward trend. Single-family building was a major source of strength throughout 1993. Next year we expect that to slow a bit but multifamily and nonresidential activity should pick up the slack. Apartment occupancy rates are very high. And since June nonresidential contract values have risen at an annual rate of almost 100 percent, driven by the start of a couple of $2 billion refinery projects and a large increase in shopping center construction. Manufacturing employment has been growing at a 2 percent rate. And with weekly hours having gone back up to their high of 43, which I think is about the highest in the nation, manufacturing jobs should continue to gain. Most of the strength is in durables, electrical and non-electrical machinery, instruments, and construction-related products. Energy markets have taken on a gloomy tone in the District recently for obvious reasons. In real terms oil prices are almost as low as they were in 1973. There's widespread fear that the recent drop in oil prices could be sustained for some time. This would hurt our District; our people estimate that we would have job losses of about 50,000 over the next two years if oil prices remain at or below $15. The impact would be much less than it was in 1982 and 1986 since oil and gas extraction has declined to about 7 percent of the District's economy from about 23 percent back in 1981. However, what's bad for the Southwest would be good for the country: Our people estimate that if $15 oil prices lasted for two years, it would take about 1/2 percentage point off the inflation rate and add about 3/4 of a percentage point to the real GDP rate nationally.",436
-fomc-corpus,1993,President Melzer.,4
-fomc-corpus,1993,"Thank you, Alan. The economic outlook for the Eighth District economy continues to be favorable. Retail and auto sales are very strong and most of the other firms we surveyed report increases in sales, orders, and employment. Loan demand continues to strengthen in some parts of the commercial and retail markets for District banks. On the other hand, there are some sectors of weakness such as nonresidential construction and agriculture. Only Missouri experienced gains in nonresidential construction contracts during the last half of the year. Moreover, preliminary estimates suggest that net farm income will likely decline in most District states this year. The recent firming of crop prices does not appear to be large enough to offset the reduction in farm output due to bad weather and flooding. Generally speaking, however, the Eighth District expansion appears to be broad-based and sustainable. With respect to the national economy, I would say the outlook appears to be converging with that of the Eighth District. Both retail and final sales have been strong, especially relative to inventory levels. Trends in employment, industrial production, investment in durable equipment, and the index of leading economic indicators point to a continuation and strengthening of cyclical expansion. Indeed, the improvement in the economy now appears to have spilled over into consumer confidence. All indications are that output growth would be at or above potential next year. With respect to prices, I'd say it's a testimony to past policy that the CPI increased at only a 2-1/2 percent rate during the first nine months of this year. Encouraging as this is, first of all, our goal of price stability has not been achieved. Secondly, some of the reported improvement in the CPI is due to the volatile food and energy components. When these are dropped the CPI increased at a 3 percent rate during the first nine months of the year and at a more troubling 3.6 percent rate during the past two months. Third, the CRB futures index has risen sharply since September and is up about 10 percent from this time last year despite the sharp reduction in oil prices. Finally, such numbers tell us nothing about the inflationary thrust of current policy, which is quite stimulative when measured by the behavior of things that we directly influence like the growth of reserves and M1. If we wait until the effects of recent policy show through to inflation before we act, we will have waited too long.",479
-fomc-corpus,1993,President Stern.,3
-fomc-corpus,1993,"Thank you, Mr. Chairman. With regard to the economy of the Ninth District, there has been further improvement; that's a trend that has been under way for quite some time. The stronger sectors appear to be consumer spending and residential construction. And some people have even used the language that the District economy is ""strong."" And that's about as ebullient as they get in the cautious conservative area of the Upper Midwest. With regard to the national economy, I think the Greenbook forecast is reasonable. Our internal forecast is not very different from that, although I recall that we did not forecast the significant slowing we saw in the first half of '93; and that gives me a little pause as we go into 1994. Having said that, and assuming that the general tenor of the Greenbook forecast or our forecast turns out to be accurate, I don't think it matters very much whether real growth turns out to be a little more rapid or a little slower than is indicated in the Greenbook. It seems to me the critical factor, as several people have commented, is what happens to inflation. Neither the Greenbook forecast nor our internal forecast has any further deceleration of inflation in it and that certainly is a cause for concern. On the other hand, if you listen to the anecdotal evidence--at least out our way--it appears to be very, very difficult to raise prices, and people are not seeing much in the way of incoming price pressures either. And the international situation and the slack available in foreign economies might also tend to make one a little more optimistic about the situation. One other thought--and this is perhaps heretical, but nevertheless--many of us have accepted as kind of a working definition of price stability [that inflation is not a factor] in economic decisionmaking, and perhaps we're a little closer to that than we realize. At least talking to some of the business people out our way, I certainly have to think that they are adjusting to the idea that price increases are simply going to be few and far between.",411
-fomc-corpus,1993,Governor Angell.,4
-fomc-corpus,1993,"Thank you, Mr. Chairman. When we look at this process, it does involve a lot of attention on the real economy; that is, each of the twelve Presidents naturally has a responsibility to speak about economic conditions in his District. It wasn't too long ago that various groups were unified--well, unified or crossed--in their analysis by the role of M2. When V2 was stable, those who wanted to use the output gap approach to inflation found the stable velocity of money to be very helpful in regard to achieving a policy conducive to the level of output that would provide the kind of gap approach that would either restrain inflation or produce gradual disinflation. Robert Black and Frank Morris certainly had different perspectives; both of them crossed in the sense of recognizing that M2 was information of importance. In the [1970s] I suppose we talked about disappearing money. With the V2 one-time step we were confronted with, in a sense, disappearing money in regard to its role in policy formation. Many who looked at money did not look at it on the basis of predicting the output gap. But the steady growth of money is to be seen as a prelude directly to price level stability. So that the Irving Fisher, Milton Friedman, Anna Schwartz background said: If you do the right thing with money, you end up getting stable prices and you don't need to worry about the real economy. The market-system economy is so efficient that if you provide stable money, then output growth and employment will be allocated very efficiently and we'll have very good end results. But when V2 becomes totally unreliable--really it became unreliable in 1982-1983 and was unreliable many other times--then those who want to follow the output gap approach are left without a forward handle in regard to creating the output gap that's critical for monetary policy. That's because monetary policy, as we know, works with a very significant and variable time lag. So this concentration upon the output gap I think is somewhat exaggerated by the very good work that Mike Prell and Ted Truman and their staff do in the Greenbook because the Greenbook is an attempt to say: ""Well, what's out there?"" And I think all of us know that the very best forecast is not really all that good in regard to knowing what is out there; the forecast has to be not only with regard to the growth rate but the forecast has to have the correct level of productivity to know where we are. Now, in this atmosphere it seems to me that it's very, very important that there be around the table those who continue to follow very closely the output gap because the statistics are clearly supportive of that view. That is, the best predictor of the rate of inflation is that output gap. And yet it seems to me that following that approach, even if it's economically advantageous, has a very strong political disadvantage. That is, the very notion that we might take away the punch bowl when growth gets going is a position, it seems to me, that the central bank ought not to be in. Since so many follow the other approach, I prefer an approach that tries to target the price level directly but I also don't have any help from M2 in regard to doing that. And if we don't have help from M2, then I think we have to ask ourselves: What is the current condition of monetary policy? Is monetary policy at the present neutral or is it accommodating or is it restraining? If M2 doesn't tell us by itself, then I think we have to ask if we're providing too much liquidity and what signs we will see as to that extra liquidity. Now, I suppose the oldest approach would be the approach of Knut Wicksell, which says that there is a natural rate of interest. And I think those who want to follow that--whether you want to concentrate on real or nominal rates--can look at the five-year Treasury and say that's what the market is saying the natural rate of interest is. And if you pull the rate of interest too far away from its natural rate, you are going to be engaged in constraint or ease [depending on] which direction you go. But you can't tell by moving interest rates up or down or leaving them the same as to whether policy is consistent. Now, I've done a lot of work--and many of the people here have been very helpful--in regard to commodity prices, because if money is rather plentiful then it should show up in commodity prices. And that's a mixed bag. There is no panacea here. When you look at commodity prices today, you see a mixed picture. You see a picture in which the price of oil has been declining and the Federal Reserve's experimental index of 21 commodity prices has about a 21 percent weight on oil in terms of its passthrough effects. So when the price of oil has been coming down, as it is now, we know that we are in a very favorable immediate CPI arena. Now, how well the CPI performs compared with being in this favorable arena may be another question. But if you look at the best evidence of commodity prices now, it seems to me that they are not quite as robust as the price of gold. But there is some picture there that we do have ample money on the table. And if that ample money is on the table and we leave it on the table long enough until the CPI responds, then in some sense it's too late. And it's too late in terms of stable money because sound money doesn't simply aim at price level stability; sound money is stable money and aims not to have any monetary-policy-induced cycles. It seems to me that most of the cycles that we've experienced have been monetary-policy-induced. And that's why we have to be somewhat in the forefront by not asking ourselves what's going to take place in the second quarter of 1994 but what the price level effects of what we do today are in 1995 and indeed in 1996. So, under these circumstances, I tend to be about where Al Broaddus is and to believe that [maintaining] the fed funds rate at the current level at some point in time will catch up with us. And when it does catch up with us, we won't know how much of a move it will take in the fed funds rate to correct the situation. That is, at 3 percent we've had a kind of head winds phenomena but we've particularly had a household sector that has been very duration mismatched. Now that duration mismatch is much less than the duration mismatchwas three years ago as money was flowing out of 6-month CDs into longer-term bond mutual funds and into equity mutual funds. So for that reason alone monetary policy is more accommodative at the current level of rates than it was 17 months ago. I checked, and it was 17 months ago, not in September, that the Treasury bill rate reached its low level because the market anticipated that level; so the Treasury bill has been really in this current range for about 17 months now. And over this 17 months, monetary policy has become increasingly accommodative. Now, I do not know when this accommodation will have gone on too long. The U.S. economy and the world economy have had a very significant real asset deflation, which has altered the behavior of the commercial banking industry in regard to making loans and has altered the behavior of people in regard to wanting to make loans. So we're on new ground and we really don't know how soon such a change might take place. So I would prefer to say the price of gold at $389 an ounce is too high. And last spring I think many of us thought that the price of gold would never go above $400. But if you leave policy alone the opportunity cost of [holding] gold will be conducive to the price of gold going above $400. And the longer you let it go and the higher it goes, the greater will be the tradeoff cost of bringing inflation back to where it ought to be. So in my narrow view, I can't see any choice but to say: Let's try to move closer to neutral. I don't think any of us knows where neutral is but I would certainly think it is closer to 4 percent than to 3 percent [on the fed funds rate]. If we can do this before the bond markets tag us with a reluctance to move, I think we will get more output and more growth than we will if we, in a sense, get in a lagging market. I'm very envious of the Swiss's 4 percent 10-year rate and the tremendous increase in output and growth that can occur. If I thought that pursuing price level stability directly gave us more output and more growth and more employment, I don't know how anyone who cares about the quality of our labor force could ever foster and favor policies that lead to people being unemployed or people being bankrupt. So I think it's a commitment to stable money; stable money gives us more output because we don't have to have those recessions. Thank you.",1820
-fomc-corpus,1993,President McDonough.,5
-fomc-corpus,1993,"The Second District is still relatively flat except for the financial services firms; both commercial banks and investment banks are doing very well. The industrial and service firms in the District, especially the larger ones, are still concentrating on reducing staff and improving productivity. They are not looking at price increases as a way to improve their margins. How long that discipline will continue, with growing market talk around New York that any increase in growth automatically translates into price increases, leaves some doubt. But at least as of now the price discipline in the larger firms in the District seems to be in good control. On the national picture, we part company with the Greenbook for the first time in quite some while. From fourth quarter '93 to fourth quarter '94 we're forecasting GDP growth of 3 percent compared with the Greenbook's 2.7 percent. The unemployment rate we believe will fall to 6.1 percent compared with the Greenbook's 6.4 percent. The components where we show more robust growth are consumer expenditures, business fixed investment, residential construction, and Federal purchases; it's just a little in all cases but enough to result in the larger growth picture overall. Not surprisingly, since we have faster growth we have a bigger drag from net exports. We show the GDP deflator next year at 3 percent as compared to the Greenbook's 2-1/2 percent. And in 1995 we are even more apart because we have the deflator going up to 3.3 percent. Now, those differences are enough that we believe the assumption of the fed funds rate remaining at or about 3 percent throughout the year is almost certainly not going to be the case. The question is: When does one have the certainty of one's forecast to say that if a policy move is evident, it should be taken? We are not yet sufficiently certain of that forecast to think that it should lead to a policy move. The possibility of a slowdown in the first quarter is sufficiently great that we would be well advised in our view to wait for some additional data to come in. We're particularly [waiting for] two [statistics]: One is the first look at fourth-quarter GDP, which comes out in late January; and the other is the employment data for the month of January, scheduled to come out on the first Friday of February, which will be the second day of our next meeting. Even though our forecast as of today--if we had absolute certainty--would lead one to say that the time to take policy action is imminent, our view is that we would prefer to wait for those additional data before reaching that conclusion.",526
-fomc-corpus,1993,Governor Kelley.,3
-fomc-corpus,1993,"Thank you, Mr. Chairman. First let me say that I think your remarks early in the meeting concerning Governor Angell's departure were very well taken. He may leave us physically but his influence is certainly going to remain. His statement of a minute or two ago was a beautiful cameo that he's leaving [with] us for that point of view. And I want to tell you that I appreciate it. I think most of us feel that appropriate policy is largely in the hands of how strongly one feels about growth. The main question, of course, is the pace that [the expansion is] liable to sustain through next year. Are we looking in this strong fourth quarter at a sustainable, very strong rate or will it ease back somewhat from there? I have a long list of factors and I'm sure everybody else does, and Mike expressed it very eloquently earlier so I won't go back through all of that. But to me there is somewhat harder evidence for the ""ease back"" hypothesis than for sustained, very strong growth. I was a little surprised just a moment ago to find myself with the same factors that Bill had, only with a reverse interpretation. I suspect the consumer will ease back, largely because consumer saving is at an all-time low and very strong consumer expenditures will drive that lower. They could [remain strong] but consumer debt is right at a record in terms of its relationship to disposable personal income. And that very, very high ratio will have to be sustained in order for strong consumer expenditures to continue. It seems to me that housing is very likely to ease. I can't imagine that something like this 1.43 [million rate of housing starts] that we just saw will hold. The tax increase will kick in; what its effect will be remains to be seen. I understand it will only hit higher incomes, of course, but it will nevertheless be there. Defense cuts will occur. I hope it's true that the deficit number will continue to get lower, providing a drag. Foreign economies may well start to look better than we have been thinking recently, but that's not going to happen overnight. And [their sluggishness] may well continue to stretch out as has seemed likely for some months now. The sustained strength case is very strong; Al started the meeting with a very strong and credible statement about that. And it just makes this [policy decision] a terribly close call; I guess, as Ed Boehne said, we just don't know. I think the first quarter is liable to start strong, just as an echo if nothing else. But is that sustainable? I remember this time last year--obviously we don't have exactly the same situation as last year but we had that huge fourth quarter last year--that it took the subsequent three quarters to get any meaningful momentum going again. Not even the third quarter, just past, was all that impressive. Are we going to get some of that? We might well, even though probably not as severely. So, on a very close call it seems to me that the factors calling for some pull back from what we apparently have in the fourth quarter is the strongest case. If the Greenbook forecast or something close to it is correct, then the possibility or the likelihood of running into inflationary problems is some quarters out yet; it's hard to tell how far. It will depend on exactly how that goes and how fast the gap in the GDP gets closed. If [the economy] is somewhat stronger than the Greenbook, that's the toughest call of all for me, and I don't know what to say about that. If we believe that it's considerably stronger and that [the strength] is sustainable, then we should move immediately. But I'm not quite there. I'm cautious about January, particularly, because of the likely echo. And only if things continued to accelerate right on through January, would I start to get impressed by that because I think January is probably going to have some strength to it any way one looks at it. So all in all, that puts me into the wait-and-see camp.",815
-fomc-corpus,1993,Governor LaWare.,4
-fomc-corpus,1993,"Thank you, Mr. Chairman. I must say that I have a tendency to agree with the concerns about the continued contraction of military spending, the full impact of higher taxes, and the persisting sense of job insecurity, which I think will continue to be driven for some time by corporate re-engineering. I don't see any real end to that trend. And as the financing of this health care program emerges, all of these factors are going to continue to tend to dampen but not dump economic growth. In that context I see no really compelling case for policy change at this time in spite of the current spurt of economic growth. On the contrary, I think a premature move could choke off a satisfactory growth rate. The timing of any change in policy in the current circumstances is exquisite and we will be more comfortable when we meet next and have some indication of the first-quarter outlook at least. At that point some adjustment in the directive might be appropriate--sort of a loading of the gun by perhaps tilting the directive--if it looks as though the staff projection of more modest growth in the first quarter is not going to materialize. [Secretary's note: Chairman Greenspan left the room briefly to take an important call, and the Vice Chairman conducted the meeting during the Chairman's absence.]",259
-fomc-corpus,1993,Governor Mullins.,4
-fomc-corpus,1993,"Thank you. I think the developing pattern of incoming data continues to confirm what we all recognize. Head winds continue to diminish. We haven't heard a lot about head winds lately. And a traditional pattern of interest-sensitive spending seems to be well entrenched and is fueling sustainable moderate growth led by business investment, consumer spending on durables, and especially housing. I don't see significant risk of an overly robust growth rate because of the remaining much discussed drags on the economy, the usual suspects that Mike and John have mentioned. I think these concerns are getting a little long in the tooth. Is there anyone who doesn't know that taxes have gone up? We don't have much longer to flog that one. But I do think those [drags] limit the up side somewhat. However, I don't see any significant chance of economic deterioration absent a shock. This thing has momentum; the economy has grown at a rate of 3 percent for 8 quarters now. Growth has averaged 3 percent for 2 years. So it is true that consumer spending has been sustained at unsustainable levels now for many, many quarters; and if it continues to be sustained at unsustainable levels, we might get a hint that we're not measuring it correctly and that the people who suggest that there are a lot of self-employed people and small businesses who are not being captured [may be right]. The notion that during the uncertain job climate of 1992 and 1993 people would just feel confident about spending a lot more than they're making when we see that they don't feel confident enough to buy houses and the like despite record affordability just seems inconsistent. It seems much more likely to me that the income is there. Regardless, [though] one can talk through the so-called slowdown in the first part of this year and the pickup, if we have a mean of 3 percent growth and we have average variability quarter-to quarter around that rate--we've had less than average variability--we will see quarters below 1 percent and above 5 percent. I think the mean is 3 percent. The Greenbook thinks it's 2-1/2 percent. But we'll never know with this sort of variability, fortunately. So I don't think it's possible to predict quarter-to-quarter variability. We had retail sales growing in the fourth quarter of '92 at 12 percent. That was unsustainable; even I would admit that. So in the first quarter it pulled back. You take the two quarters together and growth was 3.3 percent. The second quarter had an inventory adjustment [but] we had consumer spending continuing to grow. This quarter has an inventory adjustment in the opposite direction. It's pretty clear in my view that the data have confirmed the durability and sustainability of the economic growth process and I'm getting a bit tired of holding my breath after two years. Since I believe much has been clarified by the last several months in the sense that we've had another one of these normal sorts of variations, I think it is time to take stock and see where we are. It has been about 17 months, almost six quarters, since we lowered the federal funds rate to 3 percent; we actually [lowered it] 75 basis points during the summer of '92. I think it's worth reviewing the basic rationale for moving to a 3 percent federal funds rate, the lowest funds rate in almost 30 years. I was a junior in Fayetteville High School the last time we had this federal funds rate. We've had real short-term interest rates of approximately zero, if not marginally negative, during much of this time. As I recall, the basic rationale was to take out insurance against the down side--to weigh against the risks in the summer of '92 of deterioration of the fledgling recovery. It worked. The downside insurance paid off. Comparing then to now: Then we'd had six quarters prior to the third quarter of '92 where real GDP growth had averaged only 1 percent; the last six quarters have averaged above 3 percent. Mike mentioned overall capacity utilization: At the end of the second quarter of '92 it was 79-1/2; now it's 83. As Mike mentioned, the peak in the last cycle in the late '80s was 84.8, and it's 83 now. Unemployment in the summer of '92 was 7.7 percent; it's down to 6.4 percent now--better say that quickly--",894
-fomc-corpus,1993,It's 6.5 percent.,7
-fomc-corpus,1993,"Yes, it's 6.5 percent using concurrent seasonals. But it's down well over a percentage point in the last year and a half. We might ask where it might be a year and a half from now. I know it has come down in the last year and a half by over a point and we might think about that. I know there's going to be a measurement change, which will kick it up, and I don't think we should be misled by that. The factory workweek and factory overtime both stand at post-World War II highs. All of this with the near-term growth outlook portends continued growth in employment, so I see the possibility of lower unemployment. So I guess a lot has changed in a year and a half. We've gone from an uncertain recovery to what is now an expansion which, if not mature, is at least an adolescent. And all signs suggest it is on secure footing. I think the market risks and perceptions have changed as well. Last summer when the stock market was at record levels and we had a weak first-half GDP performance there was concern that the market was getting ahead of economic fundamentals. Now, six months later, the market has gone essentially sideways for half a year. The economic outlook has caught up with the market. Against the current backdrop of a 5 percent fourth quarter and improved confidence in economic growth next year, I no longer hear the scare stories about market fragility, which probably means it's now that we should worry. But there is a sense in which the economic outlook has filled in underneath the market. In short, the world has changed; the federal funds rate has not changed. The downside economic risk has diminished substantially if it has not been extinguished entirely. The death of downside risks has, in my view, taken with it the basic rationale for the very accommodative monetary stance in place now for a year and a half. We no longer need the potentially costly insurance against downside risk that we needed in the summer of '92. When you compare the environment --the conditions that motivated us to go to 3 percent--I simply think the performance of the economy, currently and prospectively, no longer justifies this accommodative stance. As the world has changed, the time has come over the next several months to begin the process of moving toward a neutral, sustainable stance, one appropriate for a growing economy with much diminished downside risks. I do not see convincing signs of accelerating inflationary pressures at this time. And I would not favor taking out insurance against the up side by moving to a restrictive policy of high real rates. Of course, we know there are long lags associated with inflation and with policy actions. If we sit with a very accommodative policy until inflationary pressures are clearly visibly embedded, we know it will be very late in the game. It will be too late. And a very restrictive policy will then be required. We can look at the late '80s with a 10 percent funds rate and a recession [that was needed] to turn that one around. So, I think we have to be aware of a false sense of security, of getting into inertia and sitting with an accommodative policy long after the rationale for that policy has disappeared, made obsolete by progress in the economy. Rather than let the inertia produce wider swings in policy and in economic activity and political pressures and result in considerable risk to our objective of sustained progress toward price stability, I think the better path is to start to move policy toward an even keel while there is still time. And I think this would help secure a low inflation environment, low long-term rates, and sustained economic growth. Simply put: This is our job in my view. I would not pretend to suggest that this policy journey will be entirely pleasant; but unfortunately this, too, is our job. Of course, beginning to move from accommodative to neutral would surprise no one. I think it is the consensus forecast of private economists that short rates will move up moderately next year. It is expected by the markets and implicit in forwards and futures prices; and regardless of the rhetoric, it is the Administration's official forecast. I would not favor an immediate change in the thin markets with year-end pressures; this was helpful in December of '91 when rates were coming down. It might not be so helpful in the opposite direction. Nor would I favor a change linked to statistics on economic growth or unemployment. Nor do I see a compelling case for going to asymmetry now since the move is not in my view dependent on, or potentially triggered by, the receipt of data in the intermeeting period. That would be the criterion I use for directive bias--if I'm waiting for a piece of data here. As we move into next year, I think the Committee should debate this issue and make a careful assessment of the progress and prospects for the economy. And if we reach a consensus, as I hope we shall, we should perhaps take the first step at a meeting as a carefully considered marginal realignment of the stance of policy rather than as a response to specific incoming data. In sum, when I look at the economy I see a much changed economic environment from the one we faced in the summer of '92. The only thing that hasn't changed is the federal funds rate. In my view the concerns that led us to establish the 3 percent federal funds rate are no longer present. The rationale for an accommodative stance is no longer valid and the time is fast approaching to begin the realignment of policy from the accommodative stance appropriate for a struggling uncertain recovery a year and a half ago to a more neutral stance appropriate for a sustainable expansion, which we have today. Thank you.",1147
-fomc-corpus,1993,Governor Lindsey.,3
-fomc-corpus,1993,"Thank you, Mr. Chairman. I, too, want to second what Governor Kelley said about Wayne Angell's departure. Mr. Chairman, you used the word ""subliminal"" in his effect. If I may, I would say the phrase should have been ""subliminal but never subtle."" [Laughter]",66
-fomc-corpus,1993,I accept that.,4
-fomc-corpus,1993,"We have two puzzles that everyone has been discussing. One is the unsustainably low personal saving rate and the other is the absence of price pressures in the presence of a rather high capacity utilization rate. I have two thoughts. I've thought about both of them and, since they haven't come up, I thought I'd throw in my two cents worth. The first relates to why the consumer in general is pretty happy. He has just gotten three tax cuts. The first is from OPEC; and that's $120 a family at $4 a barrel. The second is refinancing of a home; with a $100,000 mortgage that could be $700 or $800 a year easily. And thirdly, taxpayers in the 28 percent bracket, which includes me and people with taxable incomes of, say, from $35,000 to $85,000 will on January 1 get a tax cut of between $200 and $300 because of indexing. All of this works well to encourage people that things are going their way. There's still a tax increase coming and I think we're seeing the effects of that. I think it's coming entirely out of savings. One need only do some calculations that I'm sure higher income people are facing and you can see where the money is coming from. If your alternative for paying Uncle Sam is, say, a regular short-term vehicle, your real after-tax return on that short-term vehicle is now about minus 1-1/2 percent. It doesn't make any sense to hold that kind of cash, so you may as well dissave. So, I think the decline in the saving rate we've witnessed is really not among the scared middle and upward middle classes worried about their jobs but it's because the rich are dissaving. Where my key disagreement with the [Green]book would come is that that $49 billion in extra revenue we're expecting to see in the second quarter is not [all] going to materialize; I think about half of it will. As we can see again through the low saving rate, where people are putting that money is in asset redeployment. The first is the reemergence of the $1 million home. Actually it's a $1,250,000 home with 80 percent financing and a $1 million maximum mortgage that [qualifies for] a deduction. I know a few rich people. And the majority of them, who have always paid cash for their homes--gee, what a nice situation that would be--tell me that they in fact are now taking out mortgages for the first time in the $1 million range. It's a nice saving. Furthermore, it's a nice form of long-term cheap funds. The nominal after-tax cost of a mortgage for someone, say, in New York right now is about 3-1/2 percent, that's the nominal after-tax cost. That sounds like borrowing money for free for 30 years, and that's a pretty good deal. What we would expect to see as a result is a bunch of asset re-diversification, a flow of funds into real estate and also into durables which are untaxed. I wonder if the boom [areas of the economy] we're hearing about [are indicative of this]. In Wyoming, for example, I heard [the boom in real estate] was particularly true around Jackson Hole where low and moderate income housing is no longer available and California-type prices are coming in. That's another way, again, of sheltering money. [Another] asset re-diversification is out of dividend paying stocks into OTC stocks; 85 percent of OTC stocks, I'm told, have outperformed the DOW this year. They are nondividend paying, basically speculative. Utilities have been hit in spite of a favorable interest rate environment because they're high dividend paying. Then the classic is the new issues such as Boston Chicken. As a Virginian, I'm outraged. I'd suggest opening a Virginia corned beef and cabbage to fight back. [Laughter] Maybe we can make some money on that. What do you think, Al? The further other types of diversification that would make sense would be: to hold commodities, and we're seeing those prices go up; or to have your firm purchase business equipment, and we've had a record boom in that. And most important, Mr. Chairman, you mentioned to me earlier that we're not going to have inflation without C&I loans going up. You have to be crazy to go into C&I loans. You don't want to bring any more cash on your books; you've got plenty there already. And what you have to do is to dispose of it because you can't pay it to yourself. So you borrow against your house and your portfolio and you use that money for something that's going to give you a deduction up front. And that way if you want to keep cash in the company and not pay it to yourself, you're going to push it this way rather than pulling it this way. And I think that's why we're seeing it. So I think we have a low personal saving rate because the rich are doing what they should do, faced with confiscatory tax rates. The second issue is why there are no price pressures in spite of boom conditions. I think it's because traded goods are traded and non-traded goods are not, and we're going to see $1 million houses and land in Wyoming go up in price. We missed our forecast in the early '80s during the last time we hit negative real interest rates because we ignored the outside world. We thought the budget deficits would do us in; in fact, we borrowed from abroad. The check this time that the rest of the world is having on us is that it's going to restrain price pressures. Well, what does that do for monetary policy? First of all, I think our current monetary policy is exacerbating the effects of the tax cuts by keeping real after-tax rates decidedly negative. Furthermore, if we want to keep that [restraint on] price pressure from abroad, I think ultimately the only way we're going to have to do it is perhaps to see some appreciation in the dollar. The surprises are going to be abroad. We're going to have no government in Germany by the end of the year. The Bundesbank seems to be caught. We have a very gloomy picture in Japan. The Japanese are near a liquidity trap situation. And perhaps one way of helping both of them out of their dilemma is not to look for a relative decline in their currency but a relative increase in the dollar. So I think the foreign situation, if anything, calls for action on our part. Finally, we all agree that the 3 percent [funds] rate is unsustainable. We also know that we always act too late. I was particularly impressed with a presentation we had here yesterday which showed how long monetary policy lags are. And we had better act now if we're worried about inflation in '95. So, I think some modest adjustment along the lines of what Governor Mullins was talking about--away from highly accommodative toward neutral--would help stabilize some destabilized parts of the economy.",1430
-fomc-corpus,1993,"Finally, Governor Phillips.",5
-fomc-corpus,1993,"Clearly, the economy is strong in the fourth quarter and on firm footing going into '94. I think the interesting thing about this is that people right now also are believing that things are better. Confidence is up perhaps because the employment situation is stronger. People are voting with their feet by spending, and they are borrowing to do it. The Administration is saying that 3 percent growth is good and that's their projection for '94. All of this seems to be reinforcing the fact that the economy is doing well, and it's helping people to feel better about it. I won't go through the list of [reasons] why the economy appears to be on a stronger footing. Suffice it to say that it adds up to the assurance that this 2-1/2 year--almost [2 years and] 11 months--recovery is sustainable. And the financial sector is certainly well positioned to support growth. I do find myself in the camp of those who believe there will be a slowdown early next year back to this 2-1/2 to 3 percent track. I think there are still some head winds or drags on the economy that we have to work through: the defense and other government cutbacks, the tax increase, the health care reform. Hearing the comments around the table, they seem to be different in different parts of the country. Most of the discussion about the health care reform has suggested that it's not going to be a net cost to the federal government and in fact it's going to reduce the deficit. But I think there has not been very much attention on the cost to employers, which will serve as another tax. Corporate downsizing, restructuring, and layoffs are likely to continue. The employment quality effects may continue to exert their pressures. The slowdowns in Europe and Japan are continued considerations. With respect to inflation, the most recent numbers are consistent with a continued deceleration of inflation but certainly the improvements are modest. There are some very worrisome signs on the horizon, however, with respect to inflation: the general acceptance of 3 percent as the right number, for example, by the Administration; the price of gold, which has been elevated now for quite a while; and the fact that we're likely to start hitting capacity problems as activity picks up. Indeed, construction and industrial materials prices--scrap steel and lumber--are up. Food prices and projections of further food price increases going into '94 began as a problem related to the floods. But if we have another year of bad crops, [the effect] is going to work its way further into the food chain; we'll see it in oils and meats and so on. I think the recent backup that we've seen in long-term rates is showing the deterioration in inflation expectations. I'd hate to count on energy and import prices as what will hold down inflation.",572
-fomc-corpus,1993,"Thank you very much. I'm certain the coffee is available. While we do need to go on our break, let's make it reasonably short.",28
-fomc-corpus,1993,[Statement--see Appendix.],6
-fomc-corpus,1993,Questions for Don?,4
-fomc-corpus,1993,"Early this year when we were asymmetric for a stretch, how long were we asymmetric?",17
-fomc-corpus,1993,"Two meetings, May and July.",7
-fomc-corpus,1993,What is the pattern over the years of asymmetry in one direction or another? And what's the longest episode where we've been asymmetric in one direction and not done anything?,33
-fomc-corpus,1993,"I don't know. I did have a table put together; it doesn't have it by episodes. But it has the number of asymmetries and moves made after the asymmetries. Of course, we had two this year with no move. In '92 we had six asymmetries and moved three times; in '91 it was five for five; in '90 four for five; in '89 two for five; in '88 four for six; and '87 two for five. So by my calculations about 60 percent of the time we were asymmetrical we [subsequently moved in the direction of the asymmetry]; it was 65 or 66 percent if I took out the last two.",145
-fomc-corpus,1993,"Don, at what meetings in '87 were we asymmetrical? When did we first go [asymmetrical], at the March meeting?",28
-fomc-corpus,1993,"August 18th we were asymmetrical toward firming. Oh, you're right; early in the year we must have been asymmetrical toward tightening--I don't have the complete record here--but we went back to symmetry then back toward firming in August and then back to symmetry. And then toward ease after the crash.",65
-fomc-corpus,1993,Right.,2
-fomc-corpus,1993,"Don, could I just ask the mirror of that question, which is: What is your rough recollection of the portion of the times we've taken action without being asymmetric? In other words, 60 percent of the time we were asymmetric and did something. What percentage of the time did we do something and we were not asymmetric?",66
-fomc-corpus,1993,"Well, if this table is right, which goes from '87 through November of this year, we took seven actions from symmetric directives.",27
-fomc-corpus,1993,As compared to how many altogether?,7
-fomc-corpus,1993,Out of 20 from asymmetric directives.,8
-fomc-corpus,1993,July '92 [unintelligible].,9
-fomc-corpus,1993,"Don, I would imagine there was some kind of relationship between lags--how long it takes us before we start raising [rates]--and how far we have to raise [them]. Do you have any good ideas or rules of thumb on that?",51
-fomc-corpus,1993,"No, I don't have any rules of thumb, Governor Lindsey. The point I was trying to make was that if you do delay and inflation expectations in particular get going, you're going to have to raise rates not only to cover the higher inflation expectations but--",51
-fomc-corpus,1993,But even more.,4
-fomc-corpus,1993,-- if you have a certain inflation target you're going to have to overshoot to get that down again. But I don't have a rule of thumb. It would depend on where you were in the cycle and how far you--,45
-fomc-corpus,1993,The only case I can think of was '66 where the Fed [implemented] just one small increase. Can you remember how much of an increase that was and how long it lasted?,37
-fomc-corpus,1993,"No, I don't.",5
-fomc-corpus,1993,"Any further questions? If not, several people have mentioned that we ought to speed this meeting up so I'm going to [compress] my views since I generally agree with a number of arguments that have been made. First of all, let me just say that it's rather obvious at this point that the acceleration we are seeing is very heavily motor vehicles, though not fully by any means. We also see it in the steel markets and in a number of the commodity markets. It's remarkable how big a factor the motor vehicles industry still is in this economy. The sales levels have moved up to where they are significantly above the scrappage levels that one would calculate from an engineering point of view as the normal structure of scrappage. This does not mean that the sales levels can not go higher, but they can't grow [over time] at the pace they've been growing. And since we're talking about the rate of growth in GDP, even if automobile sales flattened out at these higher levels, by definition gross auto product with no inventory change goes to zero change. So I think we are seeing a combination of both motor vehicles and residential construction, with the latter tending also to be a lead factor on the auto sales themselves. I don't know whether or not I subscribe to Mike Kelley's view that it's hard to believe it can go higher; it can go higher, but it is running up against resistance. If all that we were looking at were autos and construction, I would say this expansion is going to flatten out very fast. The trouble is that the process by which that occurs engenders incomes; and even though the leaders can slow down you all of a sudden find, if you look at business cycle history, that when they begin to fade the secondary industries begin to come in. This would be probably non-computer-related capital goods types of activities because the cash flow that is being engendered in the corporate sector and the business sector generally I think is fairly impressive. We are looking at the likelihood, just in the rate of gain in industrial production, that we probably are getting some inventory effect in here. It can't be large but the presumption that we can get [monthly] industrial production increases of .7 and .9 and that all that is going into consumption, just does not square with history. Nonetheless, we still do not yet see any indications that the lead times of material deliveries are moving. To be sure, the operating rates have moved up; but the extraordinary rise in the import penetration across the board in this country has made domestic operating rates less indicative of the nature of pressures in the system. There's an extent to which we have become extraordinarily well internationalized. One can argue that the saving rates are low and that, therefore, consumption expenditures will slow abruptly. But the trouble with saving rates, as we all know, is that they are notoriously poor estimates. And very often we find out after the fact that they weren't what we thought. In any event, the evident willingness on the part of consumers to start taking on debt is an indication that they are not at this stage being unduly pressed and unwilling to spend because they're running out of income. So I think that the 5 percent [GDP growth rate], or whatever we get in the fourth quarter, is technically unsustainable. In fact, as the Greenbook indicates, if we disaggregate it, gross auto product [accounts for] more than 2 percentage points but .4 is coming from the [unintelligible] statistical adjustment. The issue is whether or not, as Governor Mullins said, this expansion is sustainable, and it looks increasingly sustainable. It doesn't look yet as though we are getting the surge in credit demands in the system that is usually the [tinder] for inflationary acceleration. But I think, as Don pointed out, that the credit numbers are finally beginning to move. We don't see it in the loan data but we're beginning to see net debt in the nonfinancial sector starting to rise. It's still moving at a very slow pace relative to history but it is finally beginning to move. All this leads me to conclude, as a number of you have concluded, that the days of accommodation have got to be [about] over. I think we very correctly moved the rate down because of the balance sheet structural restraints that we were exposed to; it has turned out to be an exceptionally successful policy. The balance sheet adjustments have indeed occurred--not yet fully; there is still clearly some way to go, but the rate of change has slowed dramatically. And while there are further marginal increases and balance sheet adjustments to come, they are no longer absorbing--as I used to put it--the excessive head winds impact that we saw at an earlier time. Therefore, this recovery seems finally to be moving in a manner which, while not requiring a significant tightening by the central bank, surely does indicate that the degree of accommodation must soon be eased. Now, I don't know when that [should occur] but I find it very difficult to believe that we can go very long into 1994 without starting the process. That's because unlike the way we usually think of things--that we will do one thing at a time--it's pretty obvious that if this recovery is taking on the broad general characteristics which historically say that it's got some legs to it, then we will be in the process not of a single upward adjustment but a whole succession of them on the way to restoring [unintelligible] or positioning [our policy stance] closer to neutrality. And I agree, as Wayne Angell said, that it [means a funds rate] closer to 4 percent than to 3 percent. I think that that policy is largely necessary and that if we avoid it, we will be making a bad mistake. The only question in my judgment is: When do we begin? I don't see any material reason to begin today. I can conceive of conditions--in the event that a lot of these things begin to accelerate--where it might be desirable to move before the next meeting. But if that happens, I think it would be worthwhile having a consultation of the Committee rather than putting something in the directive at this time which authorizes the Desk to move [during the intermeeting interval]. This will be a crucial move. It will begin a major policy [adjustment], in my judgment, and I think the point at which we start is something that requires that the full Committee be consulted prior to that action being taken. I, therefore, conclude that at this stage we ought to vote formally on an unchanged policy and a symmetric directive, with the clear understanding that unless this outlook suddenly deteriorates at a far more rapid pace than seems even remotely likely we would consider moving to that path fairly early in the year. I would merely put that out for general discussion. President Jordan.",1376
-fomc-corpus,1993,"Your remark suggested to me something about communicating our actions which I hadn't considered before, and that is if the next action were to be communicated as easing the degree of accommodation, it would be an easing move I think. I'm increasingly troubled by the rhetoric on the outside--by people looking at what we do--and sometimes even within the Committee of the notion that growth per se reduces the purchasing power of money. And it puts us into a way of being perceived, and maybe we perceive ourselves, that says if we're anti-inflation, we're anti-growth. I have a lot of trouble with the slack model, with the Phillips curve kind of tradeoff that calls for a forecast of things like capacity and all sorts of things that I have trouble with. But even for people who operate from that framework I would suggest being careful about saying that we want to maintain a degree of unemployment or idle capacity or sub-potential growth or something because--",187
-fomc-corpus,1993,"Well, let me say that I fully agree with that and I would say the issue is credit.",20
-fomc-corpus,1993,"What I would like to see us be doing is setting some objective out some four or five years. In fact, I hope the Bluebook for the February meeting gives us a longer-term indication of a price level path. My belief is that if we have both an objective of moving to price stability measured somehow in, say, four or five years and conduct our actions in such a way as to achieve that objective, the level of output and the standards of living of people would go up more than if we operate in such a way as to maintain the past rate of inflation. I don't know whether the staff projections would show that or not, but that's my conviction. We talk at times in our speeches and articles as though the reason for moving to price level stability, stabilizing the purchasing power of money, is in order to enhance standards of living and growth. And then we conduct our affairs in a short-term way as though we are trying to restrain growth and that we're worried about [our economy] growing too rapidly. So it's partly a conceptual and theoretical issue and it's partly a communications issue. As far as short-term actions, I agree with your suggestion to be symmetric now. I would not like to see an asymmetric directive because of the critical nature of this move. But also I agree with the comments that Governor Mullins made about not waiting for certain data to trigger [an action]. And there I take some issue with the suggestion that Bill McDonough made about the [January] release of [fourth-quarter] GDP and the February release of nonfarm payroll [employment data for January]. If those numbers are going to come out strong, the last thing that we would want to do is to be perceived as reacting to strong numbers and to knock it down. If we think those numbers are going to be strong, we had better move ahead of those numbers.",375
-fomc-corpus,1993,President Boehne.,5
-fomc-corpus,1993,"I think the days of this degree of accommodation are numbered. It's likely to be sooner rather than later that we'll have to reduce the level of accommodation. I do think, however, that we're in a period of wait-and-see. And when we do move, I believe that this Committee should vote explicitly to make that decision because it's so important. And for that reason I think we ought to have a symmetrical directive and face up to the issue squarely when the time comes and everybody will be on the record as saying: ""This is what we're going to do.""",113
-fomc-corpus,1993,President Parry.,4
-fomc-corpus,1993,"Mr. Chairman, I think it is quite likely that after the current quarter we will see more moderate growth next year and, therefore, I could support alternative B. It's a little hard for me to reach the conclusion that the risks are symmetrical, which leads me into the direction of thinking that there is a case for asymmetry toward restraint. But I could easily buy the symmetry if I also would get what Ed Boehne offered.",87
-fomc-corpus,1993,President Broaddus.,5
-fomc-corpus,1993,"Mr. Chairman, I certainly respect your position but, as I said earlier, I think the accumulation of positive economic news that we're seeing now is really quite extraordinary. And in this situation I think the time has come to let real short-term interest rates rise in order to make this expansion a sustainable one and keep it from getting out of hand on the up side. And I really think we need to move now. I recognize that there are certainly arguments for not moving yet, but the fact is that there are always such arguments. And we know from long experience that we can get into a lot of trouble if we wait too long. If we [wait] this time, we risk a significant deterioration in inflation expectations and we risk a further backup in long-term interest rates. And my view is that the risks of that kind of outcome would harm the economy; [the cost in terms of] growth of jobs and production and the general health of the economy is significantly greater than a moderate tightening of monetary policy. And when I say moderate tightening, I have in mind something like a 1/4 point on interest rates. I know this is a turn in direction and I know that's important. But a 1/4 point increase is not exactly a lethal weapon. In this regard I think the 1/2 point backup in long-term interest rates we've seen recently is a warning. We still have time to heed it. I realize, of course, that this is a difficult time for the Fed; we are under attack on a number of fronts. But in my view that makes it all the more imperative that we signal clearly and promptly that we're not going to be distracted from our principal longer-term objective. So, I would favor a 1/4 point increase in the funds rate now.",361
-fomc-corpus,1993,President Forrestal.,4
-fomc-corpus,1993,"Mr. Chairman, if I thought that our forecast were correct and were to be fulfilled, I would certainly want to move sooner rather than later. I think the probability is that that forecast will turn out to be the right one. But there are enough uncertainties surrounding that forecast for me to want to wait just a little longer to make sure that this recovery and expansion are in fact sustainable. So I would prefer to wait and I agree with your prescription on that score. I also think it's very important, as others have indicated, that at this crucial time--at this turning point, this crossroads--that we take this action at a meeting. So I would also prefer a symmetric directive.",137
-fomc-corpus,1993,Governor Lindsey.,3
-fomc-corpus,1993,The comments I've heard so far suggest an incompatibility. I agree that we want to take action at a meeting; I think that's important. I also think that what Jerry Jordan said was very true. We don't want to be reacting to a high real growth number. That's simply bad policy and it's also bad PR. We have nothing against growth. Because the February meeting coincides with the release of a real GNP number that we know is going to be high--I believe that's correct--yes?,100
-fomc-corpus,1993,I don't know.,4
-fomc-corpus,1993,"Well, we are betting that the number is going to be high. And I think it's [released] that Friday. Isn't that correct?",28
-fomc-corpus,1993,"No, it's the employment report that is--",9
-fomc-corpus,1993,When is the first [release of] the GNP number [for the fourth quarter]?,18
-fomc-corpus,1993,The 20th of January.,7
-fomc-corpus,1993,"So the last statistic out before [that meeting] would be a strong real growth number, and I think we'd be perceived as reacting to that high real growth number. And we'd probably have a strong employment report following that. Therefore, I don't see us acting at the February meeting; I would see us postponing until March before we moved. That brings me back to the logic that the best time to move is right now, with a 1/4 point increase, to show that we are not simply responding to strong real growth.",107
-fomc-corpus,1993,President Syron.,4
-fomc-corpus,1993,"Mr. Chairman, I support your proposal. We're always going to be acting in a situation of uncertainty; that's just the way it is. If it was certain, we wouldn't need to be here. And I think the time has come, if we're going to make a mistake, to err on the side of tightening rather than staying in a non-neutral position. So I think that should be the direction we're prepared to go in. Ordinarily we might think of asymmetry in that situation, but to enhance our credibility and maintain that credibility it's much better that this group act as a whole at the time [the move is made]. I would hope it could be done with some degree of consistent spirit across the group at the time that it's done. So I would strongly favor staying symmetric now.",158
-fomc-corpus,1993,President McTeer.,5
-fomc-corpus,1993,"I came into the meeting, Mr. Chairman, thinking that the time was coming soon to ease off the accelerator a bit but that it probably wasn't here yet. Then I was influenced very much by the statements of Messrs. Broaddus, Angell, Lindsey, and Mullins. I think Mr. Mullins gave a good argument for doing something now, although I don't think that was his conclusion. It's a close call whether to wait or to go ahead and do something now. However, I'm glad, for three reasons, that you did not try to split the difference with no change now but [to adopt] an asymmetric directive. One is that I tend to be against the frequent use of asymmetric directives on principle, primarily because it's the main thing that is inhibiting our moving to a prompter release of our decisions. I think we need to move to that and the use of an asymmetric directive complicates that in general. Number two, I don't want us to appear to be responding to strong growth statistics; and I think the statistics are all going to be strong in the next few weeks and [if we move] it's going to appear that we're anti-growth. And I think the public ought to understand that being against inflation is not the same thing as being against growth. And the third reason is one that someone has mentioned and that is that this is likely to be the beginning of a series of moves and is important enough for us to do at a meeting when we all [participate in the decision]. I would rather tighten slightly now than have no change now with an asymmetric directive, but I'm prepared to follow your suggestion.",330
-fomc-corpus,1993,President Melzer.,4
-fomc-corpus,1993,"I favor increasing the degree of pressure on reserve positions now. I think the economy's momentum has intensified to the point that the capacity to maintain moderate inflation, not to mention declining inflation, appears to have run out. As I mentioned before, the growth of the narrow money and reserve aggregates has been quite stimulative during the nearly seven quarters of this current cyclical expansion. Last year alone the monetary base was allowed to increase by about $35 billion in order to maintain the federal funds rate at the target level. Joan mentioned the mirror image of that was the additions to the portfolio of the same magnitude. At a minimum I think the funds rate ought to be allowed to move up in line with market interest rates. At least this will prevent monetary policy from automatically shifting toward a more inflationary stance as nominal interest rates rise with the expanding economy. In addition, the credibility gained by increasing the degree of pressure in reserve markets now may help us restrain the inflationary expectations that are almost certain to intensify with the improving level of economic activity.",208
-fomc-corpus,1993,President Hoenig.,4
-fomc-corpus,1993,"Mr. Chairman, as I said earlier, I think the information and evidence are mounting that we do have an economy that will sustain itself through next year [with] inflationary pressures. So I am inclined to see the rates moved modestly up to be, in a sense, anticipating that. But I'm certainly willing to see how it goes after the first of the year. And for that reason I also feel very strongly that it should be an agreed-upon action by this Committee. So I would agree with your proposal.",105
-fomc-corpus,1993,Vice Chairman.,3
-fomc-corpus,1993,"Mr. Chairman, I agree with ""B"" symmetric and let me say why. I think that a combination of a great many outside remarks accompanied by the remarks that a number of us--first person plural--have made have led the world to believe that we are anti-growth, and that's a very bad position to be in. It's bad monetary policy, it's bad economics, and it's bad within the public sector in which we live. So I think that we need an educational exercise on the part of the central bank to explain what our goals are, that they involve a combined objective of sustained growth and price stability. Some of that probably [can be said in] the Humphrey-Hawkins testimony or, if it's difficult for the Humphrey-Hawkins testimony to be clear enough for the average intelligent layman to understand, then perhaps a speech should be taken advantage of by you at about that time to lay out what sustained growth and price stability mean [in terms] that the average voting citizen can understand. I really think that we need to do that. As regards the data that will come out in early 1994, my mention of the existence of such data--the first measurement of fourth-quarter GDP and the January employment data--was only [to point out] that, if the forecasts are wrong on the high side and we are having a first-quarter flop again, it could affect our timing. I'm absolutely convinced that we have to bring monetary policy into a neutral stance in the early part of next year. The timing to me is more related to this education effort I find necessary than to the release of any specific data. I would in fact be opposed to doing it in a way that would seem to lead the observer to the conclusion that the data led to the [action]. As far as whether the directive should be symmetric or asymmetric, I believe--maybe more strongly than anything I've stated--that it should be symmetric. Since it is highly, highly likely that if we don't firm policy today, we will not do so before the next meeting, to have an asymmetric directive and then not do anything--on top of two asymmetric directives when correctly we didn't change policy in the summer of 1993--could very easily put us into the posture of substituting asymmetric directives for action, even though we all think that policy has to be firmed, and sooner rather than later. The valiant central banker could appear to be somebody who waves a little flag but as soon as any shots come across, he pulls it back down again. So I think there could be a very unattractive public relations impact of an asymmetric directive, which would be quite counterproductive to what our real purpose is.",541
-fomc-corpus,1993,President Keehn.,4
-fomc-corpus,1993,"Mr. Chairman, I also would be in favor of alternative B with symmetric language. It does seem to me that the environment is one in which the policy stance ought to be heading to asymmetry toward tightening. But I do think it's a question of timing. The key here will be how the first-quarter data begin to come in rather than the fourth-quarter data. I just don't think we're going to have that much available for a while that will tell us how the first quarter is really coming in. And until we have that, I'd prefer to stay just where we are.",115
-fomc-corpus,1993,Governor LaWare.,4
-fomc-corpus,1993,"I'm a little puzzled by the fact that almost everyone who has spoken so far has said that they were convinced that we were going to have to tighten sooner rather than later and yet they have been willing to buy into a stand pat symmetric language directive right now, even though everybody is expressing concern about reacting to strong numbers. That seems to me to be a mixed problem. I'm more of the mind that I find it hard to disagree too much with the Greenbook projection and, therefore, I'm reluctant to take any action prematurely, as I stated in my earlier comments. So you and I have arrived at the same prescription for policy but from slightly different points of view. And I do support the ""B"" symmetric.",142
-fomc-corpus,1993,Governor Angell.,4
-fomc-corpus,1993,"Mr. Chairman, I certainly feel I'm in good company here. There is-",16
-fomc-corpus,1993,Not for long! [Laughter],8
-fomc-corpus,1993,"But, John, if I'm correct, I think the minutes of any conference call we might have would be published February 9th. Is that correct?",31
-fomc-corpus,1993,"If the Committee makes a decision, yes.",9
-fomc-corpus,1993,"In other words, if the Committee made a decision--. So, who knows?",17
-fomc-corpus,1993,Good.,2
-fomc-corpus,1993,"There's so much that has been said that I agree with, but I won't emphasize all that. I think it's correct that it isn't right to go to an asymmetric directive. We need to act at a meeting. I think we all agree to that. And many of you made some very fine statements saying ""Don't react to strong employment and growth numbers."" And the Chairman's statement was really very, very helpful in that regard. I'm going to add one other tough deal, all right? And that is: Don't make a 25 basis point move. And here is the reason. If we are as far away from neutral as I believe we are, it's much better to wait a week or two and get 50 than it is to do 25 because 25 could be [misaligned] by the time the bond market reacts to that. So I strongly believe that when we act--or when you act--that it should be 50 basis points. Remember the 1970s and this jiggling along with moves of 1/8th of a percentage point; it just didn't work. It's so hard when we start moving rates up; in '87, Don, I believe we [initially] raised the funds rate by 25 basis points. Did we move it at a meeting or did we move on an asymmetric directive in March?",273
-fomc-corpus,1993,"I'm not sure, Governor Angell.",8
-fomc-corpus,1993,"But I think that we put the rate up 25 basis points and then the bond market [went up] another 50 basis points and of course that wasn't enough. And it wasn't until Alan Greenspan came in that we really said ""Hey, wait a minute,"" and then we were caught in a very bad timing situation. Now, not only do I think we ought do 50 basis points but I really think we ought to do 50 basis points now. And the reason that we ought to do it now--or whenever the next opportunity is--is because unexpected bad things happen. You go along and you get an employment number, or you get this or you get that, and it just doesn't seem [to be the] right [time] to do it. We were caught with that in May of 1987. I remember Paul Volcker called Manley [Johnson] and me in and said, in effect: ""Look, you guys have been wanting to increase rates; I'm now telling you when you want to do it, just let me know."" Every day we looked at the markets, including the foreign exchange value of the dollar which was strong, and we found an excuse every day not to do it, so we didn't do anything. And that made it more difficult. So, do 50 and do it now.",271
-fomc-corpus,1993,President Stern.,3
-fomc-corpus,1993,"While I find it something of a close call, I don't think the evidence is persuasive that we should move now. So I support your prescription. Having said that, I do think that before too long we ought to try to come to grips with what we mean by effective price stability. I also think we have an obligation to come to grips with some of the evidence in the work that Messrs. Stockton and Beebe presented in terms of what are the empirical benefits of further reducing inflation from modest levels. I don't think we can gloss over that question with theory.",113
-fomc-corpus,1993,Governor Kelley.,3
-fomc-corpus,1993,"Mr. Chairman, this choice gets tougher and tougher. First of all, I subscribe to your prescription. Factors on all sides of this have been exceptionally well articulated this morning. And every one of them has a high level of validity, but we have to make a choice. I certainly support your prescription. Timing seems to be the issue now in all of our minds. The pace of the economy, I guess, is largely going to determine that. I am agnostic on the timing issue at this point. I could easily see it being a while, as Governor LaWare suggests; and it may need to be sooner than later. We'll just have to see. And I appreciate your desire that we all do this together. And that we will do.",151
-fomc-corpus,1993,Governor Phillips.,3
-fomc-corpus,1993,"Well, it does seem to me that tightening is inevitable and appropriate. The issue is when and in what form--with an asymmetric directive first or a direct move. I certainly agree that we need to do it at a meeting. So the question, then, is the timing. If we do it too early, then there is a chance of derailing the recovery. But I think that risk is slight. If we're too late--sort of a perennial Fed problem--we're going to be chasing [market] rates. And even more of a problem is that we'd lose the confidence of the bond markets, which is crucial for growth. My preference would be to go ahead and tighten now, but I'm not sure that there would be terrific damage to waiting. But the time is definitely coming.",159
-fomc-corpus,1993,Governor Mullins.,4
-fomc-corpus,1993,"There's certainly strong logic for moving now in the sense that I don't think we need to wait for confirmation; two years of 3 percent growth is enough. We could wait for a third year but we might miss the entire expansion. [Laughter] In terms of a 1/4 percentage point versus a 1/2 point, I like Governor Angell's concept. It may not be possible to do; it is difficult to make a move when we're moving up, I think. There is also some advantage to [holding steady] for a while--and who knows maybe for a bit more than a while--whereas if we just do a quarter we're on the treadmill and inevitably we will get dragged up by the market. I think it was to our advantage to let the market lead us down and we won't exactly be getting ahead of the market when we get started now but there is something to be said for that 50 basis point [move]. Regardless of whether it's 25 or 50, I think there's plenty of economic case for doing it now. The market case, though, concerns me because even if it's only a quarter--that's a small amount and you couldn't find [the effect of] that in the economy--it is a big signal because it's a turning point. So there's a capitalized value impact on the markets and the markets [are thin] around holiday time. Again, in December '91 it helped us a lot to cut rates in those sorts of markets and set off a rally with no one around--with just two people bidding up prices for three weeks--but that would probably hurt us now. So, I can support your ""B"" symmetric.",340
-fomc-corpus,1993,"We've got everybody. Let's try ""B"" symmetric.",11
-fomc-corpus,1993,"""In the implementation of policy for the immediate future, the Committee seeks to maintain the existing degree of pressure on reserve positions. In the context of the Committee's long-run objectives for price stability and sustainable economic growth, and giving careful consideration to economic, financial, and monetary developments, slightly greater reserve restraint or slightly lesser reserve restraint might be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with moderate growth in M2 and M3 over coming months.""",95
-fomc-corpus,1993,Call the roll.,4
-fomc-corpus,1993,Chairman Greenspan Yes Vice Chairman McDonough Yes Governor Angell A soft no President Boehne Yes President Keehn Yes Governor Kelley Yes Governor LaWare Yes Governor Lindsey Pass President McTeer Yes Governor Mullins Yes Governor Phillips Yes President Stern Yes Governor Lindsey No,54
-fomc-corpus,1993,"We have one additional item on the agenda, which I want to raise with you. But before I do I just want to comment on this notion that Al Broaddus raised about the pressures that are on this institution, which are many and variable and have continued for a long while. I beseech you to separate monetary policy discussions, if you will, from all of that. In other words, we cannot trade off in any way the policy prescriptions that we decide at this table on the grounds that some other event is occurring which might change our view. Monetary policy is our primary responsibility; everything else is secondary. And we should isolate this activity in the central bank from all other issues over which we are going to be on the battlefields. One issue we have to decide today is the question of what we do with the request of Chairman Gonzalez with respect to the October 15th tapes. He has essentially come to the view that he would like to come down here--not he himself, but his aide--and listen to the tapes and look at the transcript. That's a stepping off of an earlier position where he wanted us to ship all tapes and transcripts up to the Hill. As best I can judge, and I say this with some vagueness, he's accusing us of conspiring somehow in that October 15th meeting to hide the transcripts or somehow decide not to tell it like it was. For all of you who remember, that particular meeting was one in which we discussed at considerable length the pros and cons of releasing transcripts and, indeed, we concluded at the end of that meeting that what we wanted to do effectively was to replicate that particular discussion up there [on the Hill]. By any evidence that I can see it's extremely difficult to [determine] where this accusation is coming from. Indeed, in a letter I sent up to the Chairman recently I spelled out my views as to what the evidence was. But the type of environment in which we exist, as I've indicated previously, is one in which there is a deep-seated suspicion of this institution. It's regrettable but I guess it comes with the turf. I think it's important that we put the notions of that particular conspiracy behind us. That is not the same thing as saying that I believe Chairman Gonzalez will cease to pressure us. I think it's important, however, for our position with respect to the remainder of the Congress and the public at large that we are not being perceived of, as he would invariably accuse us, as trying to hide the tapes because there's something there. Accordingly, I'd like to put this whole issue to rest; [I'm talking about] the October 15th issue, because I don't think we're about to put the other [issues] to rest very quickly. And I would recommend to this Committee that we allow Chairman Gonzalez's [staff] attorney to listen to the tape at a meeting with several other people of our choosing. That is, my preliminary view would be to invite the senior aide of Congressman Leach, who is the ranking minority member on the Banking Committee, and the chief aide of subcommittee Chairman Kanjorski whose committee essentially oversees this organization. The obvious reason for doing that is to prevent the inevitable danger that arises with people picking and choosing individual lines and sentences of which there are probably two or three mild ones in that transcript. Frankly, I've read the transcript and the accusations are wholly without merit. There is no evidence in that transcript [to support those accusations]. There are a few sentences which, [taken] out of context, could very readily be employed to raise an issue and that's one of the reasons I want to be sure other people are there who can basically say ""This is nonsense."" I must say, I make this recommendation with some reluctance because of its potential precedential nature. The October 15 meeting, however, was not a deliberative meeting on monetary policy. Were a request made for any of the transcripts or tapes of monetary policy and the deliberative processes that we go through, I think we'd have no choice but to say ""no"" unequivocally. They may choose to find a means to obtain that, but that's the Congress's initiative. As far as we're concerned, I think we have to stand pat on that. I have given this issue considerable thought and [gone over] the various alternatives. I've been around this town, in and out of government-related jobs, since 1968 and I know the politics of this town pretty well. And I will tell you it's my very strongly considered judgment that it is important that we do this and get it behind us. I would, therefore, put it out on the table as a recommendation and would like to respond to questions. Vice Chairman.",954
-fomc-corpus,1993,I don't have any questions. I have a comment when you're prepared for that.,16
-fomc-corpus,1993,"Questions? Well, comments or questions, then.",10
-fomc-corpus,1993,"I know the recommendation you are making to us has to be one you've reached after both pain and a great deal of thought. And I think it is, in fact, what we should do. That particular meeting and the tape and transcript that go with it are different from all other meetings and all tapes and transcripts. The subject was preparing ourselves for testimony on the Hill by a great many people present here. Obviously, there was no conspiracy nor any intention on anyone's part to conspire for anything and certainly not to deprive the Congress of information. However, that is what we are accused of and the accusation is continuing. It has taken on a considerable life of its own and it is being promulgated among members of Congress and among the population in general, both of our own country and others, in a way that is placing in question the very integrity of this Committee and the Federal Reserve. I think we have to respond. You have responded in your letter, but I don't think our defense can be complete without taking the very painful step that you recommend. I can't imagine that any of us will say that we agree with you with great joy. But I agree with you and I recommend to others that they do so as well.",247
-fomc-corpus,1993,Governor Kelley.,3
-fomc-corpus,1993,"Mr. Chairman, in the first part of your statement, did I understand you to say that Chairman Gonzalez has indicated that the approach you're taking would be acceptable?",32
-fomc-corpus,1993,That's what he has requested.,6
-fomc-corpus,1993,He's requesting to have people come here and listen to the tape?,13
-fomc-corpus,1993,"Yes, his people.",5
-fomc-corpus,1993,His people.,3
-fomc-corpus,1993,That's correct.,3
-fomc-corpus,1993,"So, the only difference in your suggestion from what he said would be acceptable is that we'd have some other [Congressional staff present] as well?",30
-fomc-corpus,1993,Correct.,2
-fomc-corpus,1993,"Well, in that case, Mr. Chairman, I fully and happily endorse your approach. I think we definitely should be forthcoming. I had played with the idea of suggesting that we go ahead and fully release it, but if this would be agreeable to Chairman Gonzalez and he would make the suggestion himself that we do this--",64
-fomc-corpus,1993,That is what he has written in a letter.,10
-fomc-corpus,1993,I didn't know that.,5
-fomc-corpus,1993,"He asked if we would make the tape and transcript ""available for review."" Those were the words.",20
-fomc-corpus,1993,Available for review. MR. ANGELL(?). That means send it up there?,17
-fomc-corpus,1993,"No, in fact he indicated via telephone that he wanted one of his people to come down to the Board and listen to the tape. He's made that request.",32
-fomc-corpus,1993,We ought to do it.,6
-fomc-corpus,1993,Governor Lindsey.,3
-fomc-corpus,1993,"Mr. Chairman, I have two questions. The first is I'd like to follow through the--",19
-fomc-corpus,1993,"Mr. Chairman, I have the letter here in front of me. In fact, we have two different letters. We have one dated December 17 that said: ""Please provide the Committee staff with access to the transcript and tape of the October 15th conference call."" The one on December 3 says: ""Please make the transcript and tape of the FOMC conference call available to the Committee staff for review next week."" So it's somewhat ambiguous how they put it. I think we can understand it as they--",105
-fomc-corpus,1993,"My recollection is that they called. They did call to come down to listen to the tape at some point, did they not?",27
-fomc-corpus,1993,"They called obviously to come down and view the table and the recordings, etc. I guess I understood their call to mean they were coming here.",29
-fomc-corpus,1993,"Well, let me put it this way: My recommendation is to do it here.",17
-fomc-corpus,1993,[Unintelligible] take notes.,9
-fomc-corpus,1993,Yes.,2
-fomc-corpus,1993,If that happens--and I understand why you'd want other people here--there is a possibility that the people who come here will go away with different interpretations.,31
-fomc-corpus,1993,A likelihood.,3
-fomc-corpus,1993,"Chairman Gonzalez's representatives might have a more conspiratorial interpretation than other people who might listen to it, in which case what we'd have is a ""Yes you did, no you didn't"" discussion. I think we'd have to think of what our reaction would be to that likely outcome. Unfortunately, I don't believe it would end with just the people involved listening here but would involve ultimately what Governor Kelley intimated might be the unfortunate long-run result, which would be actual release. Could you see a different outcome?",102
-fomc-corpus,1993,"That is possible. But, remember, if the results are ambiguous, that doesn't necessarily mean that we have to get it fully clarified because I'm not sure that we'll ever satisfy certain people.",37
-fomc-corpus,1993,"Well, if we're trying to dispel suspicion--. The conspiratorial types will always believe in conspiracy as long as someone out there is whispering the word conspiracy.",33
-fomc-corpus,1993,"Let me suggest this: It's conceivable that this may not resolve it totally, at which point we will then address the condition that we face. I don't think we ought to make a decision on that at this point because it may not be necessary.",49
-fomc-corpus,1993,"It depends on the likelihood. The second question, if I could, I'd ask our counsel. Has the FOMC ever authorized either taping of meetings or the permanent retention of transcripts?",38
-fomc-corpus,1993,Not that I'm aware of.,6
-fomc-corpus,1993,So there's not--,4
-fomc-corpus,1993,[Not] after 1976.,8
-fomc-corpus,1993,That's correct. So right now we're taping the meeting without authorization of this Committee?,17
-fomc-corpus,1993,"Technically, yes. That's correct.",8
-fomc-corpus,1993,It's not a policy--,5
-fomc-corpus,1993,Governor Phillips.,3
-fomc-corpus,1993,My question is: Do you think that allowing these folks to come and listen to this is going to resolve it?,23
-fomc-corpus,1993,I think it will resolve the October 15th issue. It will not resolve the issue of assaults on this institution from various different areas.,28
-fomc-corpus,1993,"Well, in taking this step I guess we have to think about the next steps and what might be the next things coming down the pike. You raised the question of the precedent and I--",39
-fomc-corpus,1993,"Please remember, these are not monetary policy deliberations.",11
-fomc-corpus,1993,"Yes. I actually was not on this call so I don't really know what was said during that session. I'm just trying to think about what would be the next steps. If statements are taken out of context by different people, I'm wondering if this is likely to stir the pot more and in fact make it worse than standing pat.",66
-fomc-corpus,1993,I would think not.,5
-fomc-corpus,1993,This is a difficult judgment call.,7
-fomc-corpus,1993,"As I think the Vice Chairman said, this is not a particularly delightful activity. President Syron.",20
-fomc-corpus,1993,"Mr. Chairman, what I find should guide our actions on these issues is that we're in no way nearly as bad as we seem to some people. And I was even thinking--I'm not suggesting this--that if people listened to the conversation we had about monetary policy today they would be impressed about the degree of ""technicalness"" that's brought to some of the judgments and the amount of information. And I think we suffer generally--it's just raised to other dimensions here--from a misunderstanding by the public about what we do. Conspiracy theories are abroad in the land, and it's not our business to feed them when we can avoid it. So I favor your suggestion if it's not precedential in other ways. In that regard I am concerned, though I would favor going ahead with this immediate step. I personally don't feel that on some of these issues, such as the ability to talk to each other about what we were going to do in testimony, we necessarily should have been bound by a request by [the Banking] Committee staff [nor do] I feel that I was properly advised on what was the extent of that binding. And I don't think it's reasonable as we go through this in the future, which we inevitably will, to believe that we can't have discussions among ourselves on the nature of how we're going to proceed and that we can't be advised among ourselves by counsel of the Committee about the degree to which we are able to in the best--",290
-fomc-corpus,1993,May I say something? That's a very proper part of the discussion for next month.,17
-fomc-corpus,1993,It's a separate issue.,5
-fomc-corpus,1993,"Next month we're going to be discussing the whole procedure of how we are going to move forward with respect to our means of taking minutes, communication, and the like.",33
-fomc-corpus,1993,"No, I support this. The only reason I mentioned it is that I want in my own mind to be comfortable, which I think I am, that what we're doing in this area will not in any way constrain us on some of the things I think we probably should--",55
-fomc-corpus,1993,"The answer is ""not to my knowledge,"" but we have yet to [unintelligible]. President Broaddus.",25
-fomc-corpus,1993,"I support your suggestion strongly, Mr. Chairman. I think there's some risk. There is some possibility that what is being proposed won't resolve it fully and we will ultimately have to release the entire tape for this one meeting. And that's tough because it was a hard-hitting conversation. But I think you're absolutely right that we've got to get this thing behind us because of the conspiracy [accusations]. So, even if that happens, I would say to go ahead.",94
-fomc-corpus,1993,Governor Angell.,4
-fomc-corpus,1993,"Mr. Chairman, I support your proposal. I wonder whether there's a pre-step that might be taken which would set the context a little better, and I'd like to have Virgil respond. I'm wondering whether previous to that [review by Banking Committee staff] we should state categorically what we think the tape will show.",64
-fomc-corpus,1993,In a letter?,4
-fomc-corpus,1993,In a letter.,4
-fomc-corpus,1993,In fact that's one of the issues that--,9
-fomc-corpus,1993,"Yes, so you state it. And if there's any ambivalence there, I think I would approach the ambivalence before so there's no news value in the actual looking at it.",36
-fomc-corpus,1993,"In fact, when we were discussing it earlier, that's exactly what I suggested that we do. In the letter of response to Chairman Gonzalez we will say: As you will see, the tapes show the following.",42
-fomc-corpus,1993,"Right, because of the vulnerability that [emerged], what many of us thought about as we began [preparing] our own testimony was: What notes did I take and what did I do? And then even for those of us who had knowledge of what seemed to be the Committee's [procedures] and what the Secretariat was doing, when you said what you said it was clear and unequivocal that you had a responsibility as Chairman to reveal that information. So the question that was raised by individual members was: Should I put it in my testimony? Of course, for me, I had independent knowledge and it had to be in my testimony. But there was a discussion, as I recall, of members saying: Well, do I need to put it in my testimony? And I think we need to set [the point] out clearly that the individuals in asking that question never had any doubt that you and the Secretary were going to reveal fully [the existence of] the tapes. So no one, as I recall, had any view of not wanting the tapes to be out there. We knew they had to be.",227
-fomc-corpus,1993,President Keehn.,4
-fomc-corpus,1993,"Mr. Chairman, I agree with your proposal; I certainly support it. The only question I would raise, really, relates to access by other people. If there was no monetary policy discussion, would I gather therefore that this is something that could be discovered through the Freedom of Information Act?",58
-fomc-corpus,1993,"Well, that is a very interesting question. And I think that's the type of thing we ought to discuss in the February meeting relative to how we proceed generally.",32
-fomc-corpus,1993,"Well, I'm really raising the issue: Is the October 15th tape and transcript one that if somebody comes in and asks for it under the Freedom of Information Act we're going to have to deliver. It is, right?",45
-fomc-corpus,1993,Why don't you ask our General Counsel?,8
-fomc-corpus,1993,"No, no we wouldn't have to do that at all. That's all deliberative material.",18
-fomc-corpus,1993,We would not have to do it.,8
-fomc-corpus,1993,"We would not have to disclose it, and I don't think that we waive that right when we make it available to the Oversight Committee.",28
-fomc-corpus,1993,"FOIA isn't aimed at monetary policy; the exemption is aimed at the deliberative process, whatever the outcome is.",23
-fomc-corpus,1993,A lot of that October 15th tape was attorney/client material anyway.,15
-fomc-corpus,1993,"Well, then I agree. I just wondered, if in fact we would end up having to disclose it, whether tactically there might be some advantage to releasing it publicly at the same time we give it to the Committee. But if that's not a risk, then I would not.",57
-fomc-corpus,1993,Governor LaWare.,4
-fomc-corpus,1993,"Along those lines: If the October 15 conference call was a meeting of the Committee and if it is protectable because it was deliberative but we open it to the Oversight Committee, then by precedent do we have to open other deliberative matters on monetary policy to the Oversight Committee?",59
-fomc-corpus,1993,"I don't think so, no.",7
-fomc-corpus,1993,"Boy, that's a delicate differentiation.",7
-fomc-corpus,1993,I've expressed it--,4
-fomc-corpus,1993,"This part of the meeting would be open, for example. This isn't monetary policy, is it?",20
-fomc-corpus,1993,"Well, I think--",5
-fomc-corpus,1993,"Well, but are we deliberating something?",9
-fomc-corpus,1993,"Oh, okay.",4
-fomc-corpus,1993,"Just because you grant him access to [the Secretariat's records of] the October 15 meeting doesn't mean you have to grant him access to other meetings of the FOMC, either the monetary policy part or something else.",45
-fomc-corpus,1993,That's the part that worries me about it.,9
-fomc-corpus,1993,"Well, that's the down side of it.",9
-fomc-corpus,1993,"I think it's a good gamble to try this ploy and hope that the presence of other witnesses who will see the whole thing more objectively and be able to defuse any attempt to take pieces out of context will be advantageous. I think that's a very good strategy to pursue. I would support your recommendation, Mr. Chairman.",65
-fomc-corpus,1993,Thank you. President Hoenig.,7
-fomc-corpus,1993,"Two questions, Mr. Chairman. Number one: Your proposal would have other members of the Committee or their senior aides coming over as a condition for individuals from Chairman Gonzalez's group coming over? In other words, these others have to be included--",49
-fomc-corpus,1993,"Well, obviously, he can not stop us from making those materials available to other people.",18
-fomc-corpus,1993,Right.,2
-fomc-corpus,1993,"If he decides that he will not participate under those conditions, we may choose to go forward without that participation.",22
-fomc-corpus,1993,I want to make sure that something doesn't occur where just they come over and look at it themselves.,20
-fomc-corpus,1993,I would say that would be a mistake.,9
-fomc-corpus,1993,"I agree it would be, so I'd feel much more comfortable with your proposal knowing that there have to be other individuals there. The second question is: Not that my memory is that short, but is there a possibility that we can take a look at those parts of the transcript where we had conversations ourselves so that if we get a call we'll know what it is exactly?",74
-fomc-corpus,1993,"Yes, check with Don and he will--",9
-fomc-corpus,1993,In that case I would support it.,8
-fomc-corpus,1993,President Forrestal.,4
-fomc-corpus,1993,"Mr. Chairman, I suppose there's no question that these other people would be willing to come, is there? I would assume that they will.",29
-fomc-corpus,1993,I don't think there's any problem.,7
-fomc-corpus,1993,"Well, you said it very well earlier. It is very disagreeable and distasteful that we have to go through this--and perhaps this is overstating it--but I think it's almost a necessity that we take this kind of step. Look, we're not going to resolve this issue by doing this. Mr. Gonzalez and his staff are going to keep after us no matter what we do. But if we're being accused of being too secretive, and that's around in the country now--we've seen editorials and so on--I think we've got to dispel that to the extent we can. More importantly, we--I wasn't on the call, but you and others--have been accused of lying and being engaged in a conspiracy, and that has to be challenged. And it seems to me the only real way to do that is to use the best evidence, which is the call itself. All the letters that you write or that anybody else writes are not going to convince anybody unless we get the material out which will prove irrefutably, as I understand it, that this did not occur. But I think you've made a very meaningful distinction between this kind of meeting or telephone call and a monetary policy decision. And I think we can draw the line there. I would say, and I think you've said this before, that we can continue to withhold monetary policy deliberations until the Congress chooses to tell us to do otherwise. And I mean the whole Congress. That's their business and if they want to change the law, so be it. But I wouldn't move beyond this to furnish any monetary policy transcripts unless we're forced to by the whole Congress.",335
-fomc-corpus,1993,President Parry.,4
-fomc-corpus,1993,"Mr. Chairman, I support your recommendation. I do have two questions. If we were to deny access, how likely in your mind is it that Chairman Gonzalez would try to get his Committee to issue a subpoena? And secondly, how likely is it that he'd be successful since this isn't a monetary policy issue and is probably viewed by a lot of people in the House as something where we sort of got together to develop tactics for testifying?",88
-fomc-corpus,1993,"Remember that the accusation will be [that we engaged in] some form of conspiratorial action. And those members of the Banking Committee who might disagree with the Chairman will nonetheless feel obligated [to investigate] in the circumstance where there's an accusation of this nature and we refuse to release the evidence. I would say that it would be quite easy for a majority to be marshalled for such a subpoena because, indeed, it's an accusation of not insignificant dimensions. It's not a minor transgression that he's accusing us of. President Melzer.",106
-fomc-corpus,1993,"First of all, I think we need to go ahead and do this but let me just ask a couple of questions. I understand the logical basis for making a distinction between this conversation and monetary policy deliberations. Is there a legal basis?",48
-fomc-corpus,1993,"Yes, I think so. I think the Committee has the right to maintain the confidentiality of its deliberations and also has the right to make an exception on occasion when it believes that is warranted. And that's what we're doing here. In the face of the allegations that have been levelled at the Committee, suppose you decide that in order to address those things and put them to rest it's best to grant access in these circumstances. That does not mean that you have to grant access to all other conversations.",100
-fomc-corpus,1993,So there is a legal basis.,7
-fomc-corpus,1993,"I believe there is, yes.",7
-fomc-corpus,1993,"Okay. I just would be inclined in whatever letter you send back to spell out the precedent issue very clearly. In other words, say that we don't view this as precedent-setting with respect to providing tapes and transcripts. I think that would be a helpful part of the letter. Another legal question: As I recall that call, Virgil, you started it off by giving us legal advice with respect to the new Freedom of Information Act interpretations. I suppose, in effect, by releasing this we're waiving attorney/client privilege in some sense. Can that be done on a case-by-case basis without setting any precedent with respect to any future legal advice the Committee might get?",133
-fomc-corpus,1993,"Yes, it can. But you're giving up your right to keep all of that confidential when you let Henry Gonzalez look at it. On this particular matter, you're correct.",34
-fomc-corpus,1993,"Okay. Then just one final observation: I personally think we need to do this. I do agree with what Susan was saying before--that this will be the basis for singling out individuals and criticizing them and it won't be the end of it. I think we have to try it but, just following Tom's suggestion, we need to be prepared to defend statements that are going to be taken out of context in connection with this.",87
-fomc-corpus,1993,"I have a follow-up question to Virgil. The Chairman made a distinction, I made a distinction, and others have also between discussions of monetary policy and discussions of other matters. But as a legal precedent all we're saying is that we are giving them access to this particular tape; and that doesn't give them access to any other tapes, whether those other tapes include discussions of monetary policy or other matters.",80
-fomc-corpus,1993,"That's my view, yes.",6
-fomc-corpus,1993,Okay.,2
-fomc-corpus,1993,President Stern.,3
-fomc-corpus,1993,"I can support your recommendation, although it seems to me that the real reason for doing this is that it will provide some comfort to our friends that we've gone ahead and taken this step toward openness. I think your suggestion to have people from Mr. Kanjorski's staff and Mr. Leach's staff is a good one. I'm wondering if it's possible to go even further. In one of your letters you suggested that you did want to meet with Chairman Gonzalez or to testify, and I wonder if there's any way to tie that into this and get that done.",114
-fomc-corpus,1993,I do not get the impression that he wants to give me a forum to rebut [these accusations]. I've requested it on many occasions and have gotten no response. President Boehne.,37
-fomc-corpus,1993,On balance I support your recommendation.,7
-fomc-corpus,1993,President McTeer.,5
-fomc-corpus,1993,A small comment and a couple of questions. I also was wondering if maybe three people to do this might not be too small a number and I'd urge you to consider a way to make it a larger number.,42
-fomc-corpus,1993,"Well, in view of Susan's remarks, she may have pinpointed the fact that there are not enough to get the critical mass of objectivity.",30
-fomc-corpus,1993,Right. And have you given thought to releasing it to the press?,14
-fomc-corpus,1993,"I would be disinclined at this stage to do that. I say ""at this stage"" because it's a lot of material for people to start publishing and because we're considered highly visible people. We may have to go in that direction; I don't deny that. I would just as soon do that as a second step.",65
-fomc-corpus,1993,"Well, that leads me to another question and that is: When this is made available to them, shouldn't we get a copy of the transcript ourselves? We'll be making available to them something that we haven't had made available to us.",46
-fomc-corpus,1993,He's your congressman. Can't you ask him? [Laughter],14
-fomc-corpus,1993,"The answer of course is yes, obviously.",9
-fomc-corpus,1993,"I know that you might want to talk more about this next month than now but what happens if between now and the next scheduled meeting we get a fax from that Committee that asks for something and also asks us not to communicate with each other. That has happened and we were left totally isolated, not knowing who was doing what, afraid to call anybody--",70
-fomc-corpus,1993,"Well, I think that's an abridgment of the first amendment myself.",15
-fomc-corpus,1993,"I wish somebody had called and said that--had said ""Feel free to talk to your colleagues."" I feel there was a breakdown.",27
-fomc-corpus,1993,"Well, let me just say this. I think you're quite right. That type of request is inappropriate, for a long series of reasons, which I think should be self evident mostly.",37
-fomc-corpus,1993,I declined to make notes available and I worried that I was the only person who was going to decline.,21
-fomc-corpus,1993,President Boehne.,5
-fomc-corpus,1993,I've already commented.,4
-fomc-corpus,1993,I'm sorry.,3
-fomc-corpus,1993,Did you change your mind?,6
-fomc-corpus,1993,No. [Unintelligible.],8
-fomc-corpus,1993,Sorry about that. He didn't say very much but it was eloquent.,15
-fomc-corpus,1993,Direct correlation.,3
-fomc-corpus,1993,It made a great impression! [Laughter],10
-fomc-corpus,1993,"Well, if no one else wants to comment, I take the general conversation as an affirmation of our going forward with this, and I will report back to you as soon as feasible on the outcome of this issue.",43
-fomc-corpus,1993,We don't require a vote?,6
-fomc-corpus,1993,I don't think we need it.,7
-fomc-corpus,1993,I don't think it's necessary.,6
-fomc-corpus,1993,It's the sense of the Committee.,7
-fomc-corpus,1993,We don't need a vote.,6
-fomc-corpus,1993,Our next meeting is?,5
-fomc-corpus,1993,February 3rd and 4th.,9
-fomc-corpus,1993,February 3rd and 4th.,9
-fomc-corpus,1993,Is the fact that we're going to take up this other issue at the next meeting going to affect the starting or ending time? How long will it continue?,31
-fomc-corpus,1993,"Yes, it will. I think I'll leave that up to Don and his colleagues to work out.",20
-fomc-corpus,1993,"Well, if we plan to spend the weekend, Don, I'd appreciate knowing!",16
-fomc-corpus,1994,"As you know, this is our organizational meeting and always in such meetings we have the election of the Chairman and Vice Chairman. I turn to our senior Board member to offer nominations.",36
-fomc-corpus,1994,"Mr. Chairman, I have the high honor and distinct privilege to nominate officers to serve until the election of their successors at the first meeting of the Committee after December 31, 1994. For Chairman of the Committee I nominate Alan Greenspan and for Vice Chairman, William J. McDonough.",61
-fomc-corpus,1994,Second.,2
-fomc-corpus,1994,Thank you. I move the nominations cease.,9
-fomc-corpus,1994,Second.,2
-fomc-corpus,1994,You're a little slow but thank you! It's been moved and seconded and the nominations have ceased.,20
-fomc-corpus,1994,The nominations have ceased and what happens now?,9
-fomc-corpus,1994,I guess we vote. All in favor--do I do that?,14
-fomc-corpus,1994,"Yes, please carry on.",6
-fomc-corpus,1994,"All in favor say ""Aye."" SEVERAL. Aye.",15
-fomc-corpus,1994,"Opposed? Mr. Chairman, it unanimously passes. Congratulations on your election to another term as Chairman of the FOMC, and congratulations, Mr. Vice Chairman.",34
-fomc-corpus,1994,"I thank you, Governor. It's always a wonder how the democratic process works in this organization. I think we want to go next to filling the staff officer positions and I call on our distinguished Deputy Secretary.",41
-fomc-corpus,1994,"Secretary and Economist, Donald Kohn; Deputy Secretary, Normand Bernard; Assistant Secretaries, Joseph Coyne and Gary Gillum; General Counsel, J. Virgil Mattingly; Deputy General Counsel, Ernest Patrikis; Economists, Michael Prell and Edwin Truman. Associate Economists from the Board of Governors: David Lindsey; Larry Promisel; Charles Siegman; Thomas Simpson; and David Stockton. Associate Economists from the Federal Reserve Banks: Jack Beebe, proposed by President Parry; John Davis, proposed by President Jordan; Richard Davis, proposed by President McDonough; Marvin Goodfriend, proposed by President Broaddus; and Sheila Tschinkel, proposed by President Forrestal. That's the list, Mr. Chairman.",151
-fomc-corpus,1994,"Thank you. Are there any objections to that listing of officers? If not, I will assume that they have been selected by the Committee. Before we go further, let me just indicate that we have a problem that emerges as a consequence of our meeting on a Thursday and Friday as distinct from the middle of the week. I don't know what we will eventually decide tomorrow, but it's clear that we may decide to take some action with respect to rates. Should that be the case, we are caught in a position where under our normal procedures we would be going into the weekend with a very important decision having been made and without public disclosure thereof. So, what I would intend to do at the end of our session today is to discuss contingency plans in the event that we decide tomorrow actually to move toward tightening. If that policy issue has to be resolved, we clearly have to do it in the morning, which means we would have to reverse our agenda and first discuss the regular short-term policy issues that we usually discuss and leave the long-term target issues as the second policy item on the agenda. In the event that we choose to do nothing, all we'll do is create a minor difference in the order we usually handle things. But I think it's probably a worthwhile precaution in the event that we decide to do something. Until we actually see how it evolves tomorrow we won't know for sure, but I think the point at issue here is that we not be in a position where we are restricted in taking action because of concerns about security. So, later this afternoon I would like to discuss a hypothetical case of what we might do even though it might take a few minutes to do so and it may not prove to be necessary. But it's probably a worthwhile precaution. Let's move on now to item 2, which is the selection of a Federal Reserve Bank to execute transactions for the System Open Market Account; this is traditionally New York and I'd like somebody to make such a motion.",393
-fomc-corpus,1994,So move.,3
-fomc-corpus,1994,Is there a second?,5
-fomc-corpus,1994,Second.,2
-fomc-corpus,1994,"Without objection. Similarly, we need to select the Manager for Domestic Operations and the Manager for Foreign Operations. Our incumbents are of course respectively Joan Lovett and Peter Fisher. I would ask whether there are any objections to their selection with the understanding that the decision made by this Committee is still subject to agreement of the directors of the Federal Reserve Bank of New York. So, would somebody like to move that?",82
-fomc-corpus,1994,So move.,3
-fomc-corpus,1994,Is there a second?,5
-fomc-corpus,1994,Second.,2
-fomc-corpus,1994,"Without objection. Item 4 is the regular review of the Authorization for Domestic Open Market Operations. That authorization has been circulated and if there are no comments, I will ask whether there are any objections. Hearing none, I assume that there are no problems there. Next, we have the review of: (1) the Authorization for Foreign Currency Operations; (2) the Foreign Currency Directive, and (3) the Procedural Instructions with Respect to Foreign Currency Operations, including a review of the ""warehousing"" authority incorporated in the Authorization and in the Directive. Copies of all of these have been sent out to the Committee, and I believe that Mr. Truman dispatched a memorandum on the warehousing issue a few days ago. Are there any questions or comments on those particular issues? Yes?",158
-fomc-corpus,1994,"All those issues including the ""warehousing""?",9
-fomc-corpus,1994,Yes.,2
-fomc-corpus,1994,I have some comments on that.,7
-fomc-corpus,1994,"Sure, please go ahead.",6
-fomc-corpus,1994,"Warehousing is a loan by the central bank to the Treasury. That issue is one that's general not only to this central bank but to central banks around the world. Central banks around the world are moving toward more arms length dealings with Ministries of Finance. Certainly, the ""accord"" between the Federal Reserve and the U.S. Treasury over 40 years ago had that in mind. As I understand it, warehousing was proposed by Secretary Bill Simon in a letter to Chairman Burns about a week or so before the Ford Administration left office, and I can't for the life of me imagine why he did that. I haven't asked him yet, but I am going to ask him what was he thinking when he did that. Subsequently, in 1979, there was legislation providing for temporary lending in effect by the Reserve Banks to the Treasury because of so-called liquidity problems having to do with debt ceiling limitations and all of that. That authority was controversial at the time; it lasted for only two years. It was decided that it was a bad idea and Congress let it lapse. Yet warehousing continues as a practice, or at least the authority is still on the books for us to make a loan to the Treasury Department when it was generally agreed going back 80 years that that should happen only under very, very exceptional circumstances. I would take the latter to involve conditions warranting a full discussion by this Committee. So I think it's not appropriate for us to have a standing authority for a line of credit for the Treasury to get us to lend to them up to $5 billion. And I think we should not authorize this.",324
-fomc-corpus,1994,I call on Ted Truman.,6
-fomc-corpus,1994,"Well, let me deal with the historical issue first. The reason why Secretary Simon proposed this arrangement in 1977 was to establish a mechanism that would allow the United States to participate in the arrangement As I remember, the arrangement was in effect for a period of a year or two. It was a joint operation that had been negotiated by the Treasury and the Federal Reserve. The System was very much involved, but the Treasury was also very much involved and the arrangement was linked to The warehousing agreement was very much in that context. It was very well thought out; it wasn't a casual action. The warehousing facility had existed before that time, but it had been more ad hoc. It had existed in similar circumstances in the late 1960s when there also was a special arrangement The issue of whether warehousing is a loan is obviously a question primarily for the lawyers. This Committee faced that issue in 1990. There was one group who felt that it was a loan and should be regarded as a loan. The lawyers have informed me that it should not be considered a loan. It is a market transaction that's carried off at market rates. Although people can disagree with that interpretation, that has been the interpretation of this Committee to date. That is a matter of public record. That's the majority interpretation of the Committee, and it hasn't been challenged by the majority of Congress or even a substantial minority of Congress.",283
-fomc-corpus,1994,"Any further issues or discussion relative to the three items I mentioned? If not, let's take a single vote on all. Would somebody like to move their approval?",32
-fomc-corpus,1994,So move.,3
-fomc-corpus,1994,Is there a second?,5
-fomc-corpus,1994,Second.,2
-fomc-corpus,1994,"All in favor say ""Aye."" SEVERAL. Aye.",15
-fomc-corpus,1994,Opposed?,3
-fomc-corpus,1994,No.,2
-fomc-corpus,1994,"Okay, the ""Ayes"" have it. The next item on the agenda is updating the Managers' titles in the Committee's Rules of Organization and other documents. A memorandum from Mr. Gillum was distributed a week or so ago. Any questions?",51
-fomc-corpus,1994,Mr. Chairman?,4
-fomc-corpus,1994,Yes.,2
-fomc-corpus,1994,"I'm sorry, there was a resounding silence on the last vote. I think that may reflect the fact--frankly, I didn't understand the issue and that's why I didn't say anything. I think we had two ""Yeses"" and one ""No."" While I agree it passed, could we at least have some kind of document laying out the pros and cons?",75
-fomc-corpus,1994,Was that sent?,4
-fomc-corpus,1994,Not the pros and cons. A document summarizing the history was circulated earlier.,16
-fomc-corpus,1994,"Well, I suppose what I really want to hear is--I'm asking Jerry Jordan--you said we had a letter outlining what Secretary Simon said. At some point, perhaps next year, I'd--",39
-fomc-corpus,1994,"Sure, certainly. Ted, why don't you arrange to distribute some information on this? Actually, we've been over this a number of times over the years, and it's an open dispute; there has not been unanimity in this Committee on this. Jerry Jordan has raised these issues before. Perhaps it would be useful to get a set of documents that would cover this, and Jerry you could possibly add a piece of paper to that package.",87
-fomc-corpus,1994,"Well, we can recirculate the documents. The documentation was circulated to the Committee in 1990; not all of you were here then.",30
-fomc-corpus,1994,I was not here in 1990.,9
-fomc-corpus,1994,"We'd be glad to recirculate that document to the Committee, and we will remind you of it next year when the topic comes up.",29
-fomc-corpus,1994,Thank you.,3
-fomc-corpus,1994,"Okay? On updating the managers' titles, is there any question on that? Is there any objection to it? If not, I will assume it's passed. We now move to our regular pre Humphrey-Hawkins meeting and I will ask somebody to move the approval of the minutes of the Federal Open Market Committee meeting of December 21.",69
-fomc-corpus,1994,So move.,3
-fomc-corpus,1994,Without objection. We'll now move to Peter Fisher on foreign currency operations.,14
-fomc-corpus,1994,[Statement--see Appendix.],6
-fomc-corpus,1994,Do we have to authorize the oral intervention? [Laughter],13
-fomc-corpus,1994,"Questions for Peter? If not, let's move on to Joan Lovett and the Domestic Desk.",19
-fomc-corpus,1994,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1994,Questions? President Forrestal.,6
-fomc-corpus,1994,"Joan, do you have an ""add need"" tomorrow as well?",15
-fomc-corpus,1994,"For the entire period that begins today--which is the first day of the maintenance period--both the New York and Board staffs estimate a need to add something under $1 billion for the full period. The distribution of those reserves in the first couple days of the period is such that today is sort of straddling ""flat"" if you will. Tomorrow is flat to a modest deficiency, although I have to say there's some difference of opinion about the estimates of the Treasury balance, and that difference of opinion is $3 billion between us and the Treasury. If we are right, there will be a modest deficiency tomorrow; and if the Treasury is right, there will be a more considerable surplus.",139
-fomc-corpus,1994,Mr. Syron.,5
-fomc-corpus,1994,"Joan, just on that point. This apparently will be germane to the discussion that appropriately we will be having later about how we announce one way or the other. What does the market think we are going to do tomorrow? Is there any perception of the need to stay flat? What would they think we would do if we were staying neutral?",70
-fomc-corpus,1994,"In the market it will depend on where the federal funds rate is. I guess people will assume that if the funds rate were firm we would signal something through inaction--by not providing reserves. However, I think most of them feel that our preference would be to signal something through an assertive action and therefore a funds rate anywhere in the range of 3 or 3-1/8 percent would evoke a draining action on our part. I think that is how people would see something like that conveyed. We are coming off a period where there has been some uncertainty in the reserve numbers. About a week or two ago, the market might even have viewed this maintenance period that we are going into today as a drain period. But given all the variabilities, they might see this as what I would call a modest add. So, for us to drain reserves within the right federal funds context would get the message across, presuming funds are trading at the appropriate level for us to do that.",200
-fomc-corpus,1994,"Would we conclude correctly, Joan, that as far as you can see today, if the Committee decided that action should be taken tomorrow, the technical condition of the market is such that it would not create a problem for us?",45
-fomc-corpus,1994,"I think that's correct as far as the technical condition of the money market in terms of getting the right constellation of rates. Yes, I think that's correct.",31
-fomc-corpus,1994,"Other questions? If not, would somebody like to move to ratify the actions taken by the Domestic Desk?",22
-fomc-corpus,1994,So move.,3
-fomc-corpus,1994,Is there a second?,5
-fomc-corpus,1994,Second.,2
-fomc-corpus,1994,Without objection. I think we can now move on to the Chart Show and Messrs. Prell and Hooper.,24
-fomc-corpus,1994,"Thank you, Mr. Chairman. Peter and I will be referring to the chart package that's been placed in front of you. [Statement--see Appendix.]",31
-fomc-corpus,1994,[Statement--see Appendix.],6
-fomc-corpus,1994,"I want to note that revisions, if any, on the forecasts that everyone submitted should be sent to Mike Prell by the close of business next Friday, February 11. Questions?",37
-fomc-corpus,1994,"I have two questions. The first has to do with personal income numbers. Do you have a breakdown for personal income, a forecast by source of income?",31
-fomc-corpus,1994,"Yes. I wouldn't want to put too fine a point on any of the numbers, but we do go through a reasonably detailed exercise.",27
-fomc-corpus,1994,Could I get a copy of that breakdown?,9
-fomc-corpus,1994,You're trying to get inside the factory here. I certainly will share with you our major numbers.,19
-fomc-corpus,1994,Horrors! [Laughter],8
-fomc-corpus,1994,This is known as the statistical sausage factory!,9
-fomc-corpus,1994,"I think one has to recognize that, when we get down to these levels of detail, there are potentially a whole lot of offsetting factors and we don't necessarily have strong convictions.",36
-fomc-corpus,1994,"I realize that you need more details to develop forecasts. I'm not going to hold you ex post to the forecast, believe me, but I do want to have some sense particularly about whether the functional distribution of income is going to change from 1993 in your forecast. And that's why I'd appreciate more details.",62
-fomc-corpus,1994,Interest and dividends versus wages and salaries?,8
-fomc-corpus,1994,"Yes, and small business income.",7
-fomc-corpus,1994,"I can share with the entire Committee in broad terms our expectations in this regard. In personal income growth, we have a substantial step-up in regular salary disbursements. Nonfarm proprietors' income is expected to rise somewhat more than in 1993, but it's not a dramatic change. Wage and salary disbursements are muddled by all that income shifted into 1992 out of the first quarter of 1993. I would caution everyone that our expectation is that once again sometime during this year there will be a revision of the fourth-quarter income figures that will show at least some shifting from the first quarter. Otherwise, we have a significant pickup in dividend income. We've already seen some upward movement in that category in recent quarters; in fact, quite rapid in recent quarters. Also, we have an acceleration in personal interest income. Again, we are beginning to see, as the rates have bottomed out, some firming in that category. Otherwise, transfer payments will increase pretty much the same as last year.",208
-fomc-corpus,1994,What you've told me is that everything is going up. I believe that is true. I would just appreciate seeing the data expressed as relative increases at some point. My other question was on housing. I had a consumer group allege that a third of all new single-family housing starts are manufactured homes.,60
-fomc-corpus,1994,Beats me. I just don't know.,9
-fomc-corpus,1994,Are trailers part of that?,6
-fomc-corpus,1994,That's not in manufactured homes.,6
-fomc-corpus,1994,It's not mobile homes; this is housing that is prefabricated at the factory.,17
-fomc-corpus,1994,Prefabricated?,4
-fomc-corpus,1994,"Yes, a lot of that type of construction goes on; I don't know what the number is.",20
-fomc-corpus,1994,"They may be including prefabs plus mobile homes, in which case--",14
-fomc-corpus,1994,"No, I think usually when they talk about manufactured homes they talk about the fact that they build the various structures in a factory and bring them on site for assembly. The trouble with the concept is that it varies in so many different instances as to what degree of prefabrication goes on.",58
-fomc-corpus,1994,This prefabrication total has to be awfully high. You see these structures coming in on the trucks--,22
-fomc-corpus,1994,"If it's a third, it has to be far more--",12
-fomc-corpus,1994,That seems high.,4
-fomc-corpus,1994,"Well, if they were including mobile homes, then that might be a quite plausible number. Mobile homes run a quarter of a million a year, so if you tacked on 100,000 or 200,000 houses as prefabs or whatever, that third would be easily attainable. I just don't know.",63
-fomc-corpus,1994,You are quite right. It is attainable if they include mobile homes.,14
-fomc-corpus,1994,I'll try to get more precise data.,8
-fomc-corpus,1994,"The other question I had was on the homeowner-ship rate. If you take out seniors, the homeownership rate declines more precipitously than it does here. But suppose you also took out two-adult households? You mentioned the role of demographics in here. Knowing the home maintenance that's involved, I couldn't imagine doing it by myself. I wonder if that adjustment would change your conclusions about a rebound in homeownership?",83
-fomc-corpus,1994,"Well, I've never seen figures broken out that way. I've seen it by age groups. Are you suggesting that there is a financial impediment to--",30
-fomc-corpus,1994,It's more a time impediment or a hassle impediment.,12
-fomc-corpus,1994,"No, I don't have any real insight.",9
-fomc-corpus,1994,Do you know if data exist?,7
-fomc-corpus,1994,"I've not seen them, but there are lots of data in this area; perhaps they have them at the Bureau of the Census.",26
-fomc-corpus,1994,"I call the phrase ""two-adult"" households as opposed to ""single-adult"" households--homeownership by two-adult households.",28
-fomc-corpus,1994,There may be information in the housing census on those owning their homes.,14
-fomc-corpus,1994,"In the housing census, okay.",7
-fomc-corpus,1994,"Well, I suspect that somehow there's a cell buried in the data that could address--",17
-fomc-corpus,1994,There is a cell in the sample.,8
-fomc-corpus,1994,Okay.,2
-fomc-corpus,1994,What estimate are you using internally for the January CPI change?,12
-fomc-corpus,1994,I think we have about .3 percent for January.,11
-fomc-corpus,1994,And the core?,4
-fomc-corpus,1994,It's .4 percent for the total CPI.,9
-fomc-corpus,1994,And .3 percent for the core.,8
-fomc-corpus,1994,It's .4 for the total and .3 for the core?,13
-fomc-corpus,1994,"Yes. Again, there's some uncertainty relating to the seasonal adjustment factors. The latest word we received just a day or two ago is rather encouraging on how aggressive they may be in solving this problem.",39
-fomc-corpus,1994,That seemed to be the case about 10 days ago.,12
-fomc-corpus,1994,"Well, we thought they were going to go a long way. They may go even further, so that the seasonal adjustment problem will be largely eradicated.",31
-fomc-corpus,1994,President Parry.,4
-fomc-corpus,1994,"You were talking about the influence of the length of the workweek on the growth in employment. I have a recollection that when I read Part II of the Greenbook, it said that the workweek in manufacturing had reached a post-World-War-II high of 41.7 hours. Is it conceivable that the length of the workweek may actually fall--so that we might get an even stronger rate of employment growth? It seems as though as an extreme point we might just envision that employers, though they have been very reluctant to hire workers, may do so if they believe that economic growth is going to continue, and they may actually try to shorten the workweek.",137
-fomc-corpus,1994,"We thought that a couple of tenths ago! The tendency has been remarkable here. I guess the conventional wisdom might be that at some point workers get tired of putting in that much overtime on a persisting basis. They like it for a while because their paychecks are padded, which makes up for the lean times.",64
-fomc-corpus,1994,It's rather impressive when the length of the workweek is at a postwar peak.,17
-fomc-corpus,1994,"The incentives at this point look very strong for an employer. The additional worker means a batch of fixed-cost fringe benefits plus the perceived costs of hiring and possibly firing, including legal expenses. Then on top of that they fear that some medical insurance costs might be imposed that they don't face now. Our expectation is that the workweek is probably going to remain quite high. But there's certainly a risk that it will shift back some and that we will see more of a slant toward employment growth.",98
-fomc-corpus,1994,President Syron.,4
-fomc-corpus,1994,"Mike, just two technical questions. On this elusive business of potential, there's obviously no clear answer, but do you have any feel for where the likelihood of an error is on the potential? We are getting to really fine points here, but if you were going to guess, is the risk that your point estimate on potential is too pessimistic or too optimistic?",72
-fomc-corpus,1994,"I don't see a very obvious asymmetry in the risks. I might note that the CBO, using different techniques to some degree, arrived at the same numerical conclusion as our point estimate--2.4 percent. I think in the Bluebook there was, as I recall, some reference to possible risks that one could perceive. One possibility on the positive side is that the productivity trend is even stronger than we've anticipated, but offsetting that is the languishing labor force participation. As I noted, whether we're going to get even the modest growth in the labor force that we've anticipated is a question mark. So, I can point to risks on both sides and I think we feel comfortable that this is a workable basis for forecasting over the intermediate term.",150
-fomc-corpus,1994,"I know you said that when one tries to explain price performance, one can do it with the traditional model pretty much without taking the external sector into account in a different way than it has traditionally been done through the import and export channels. So, you don't think there's very much to this issue of whether there is excess capacity overseas? Your view is that capacity utilization numbers broadly can be looked at now in the same way as they could be looked at before?",91
-fomc-corpus,1994,"With a proviso that as the economy has become more open, these normal channels that are put in the model become more important.",26
-fomc-corpus,1994,Right.,2
-fomc-corpus,1994,"Certainly, import prices have a greater effect as the share of imports has grown over time. I think the share has come close to doubling over the last 25 years. But in addition to the effects of import prices on aggregate demand, there's really not much comparative evidence although we've really only begun to look carefully at the statistical evidence there.",67
-fomc-corpus,1994,"President Syron, I want to turn this around slightly and emphasize that we see significant external impacts on the domestic inflation. Our econometric models do incorporate import prices through the aggregate demand channel. Weak economies abroad mean demand for our exports is weak. Other things equal, that tends to damp activity and inflation here. So we think they're very important channels, as Peter was emphasizing. If you look at those two factors, that pretty much captures it as best we can judge.",94
-fomc-corpus,1994,"Well, that's right. You are capturing the external capacity utilization effect through those channels.",17
-fomc-corpus,1994,Right.,2
-fomc-corpus,1994,But I was just wondering whether independent of that--thank you.,13
-fomc-corpus,1994,Governor Kelley.,3
-fomc-corpus,1994,"Mike, on the unemployment rate, the new and the old series, am I correct that our rule of thumb is that the new will run about 1/2 percentage point higher?",37
-fomc-corpus,1994,"Well, two things are going to happen with tomorrow's numbers. One is the introduction of the new survey of households. Looking at the sample that they used and comparing it to the official unemployment rate, the experience of the past year would suggest that it was almost .5 different. On top of that, these adjustments to the census introduce enlargements in the labor force and unemployment that add almost a tenth to the unemployment rate. So, between the two of them the difference is somewhere between .5 and .6. For the purpose of our solicitation of your forecasts, we suggested a number that was rounded to .6. But this is, as I said, a very uncertain matter. When they move to the full-size survey and there's more experience, we may find that the implicit differential may narrow. And we'll never really have a very clear idea of whether we have that nailed down after the fact because they won't be continuing a large parallel survey against the old questions.",193
-fomc-corpus,1994,President Jordan.,3
-fomc-corpus,1994,I want to get some guidance on how to interpret the last table. You made assumptions about policy without any indication of the appropriateness of that policy.,30
-fomc-corpus,1994,"Except that we try to be sensitive to the objectives of the Committee, and so we are swayed. The reason that we put the interest rate increase in, as I noted, was that we thought that at a minimum you folks had expressed a view that the inflation trend should be pointed down; we just have it pointed barely down.",67
-fomc-corpus,1994,"Okay, well that's helpful. For '94 for instance compared to '93--from the very preliminary numbers we have for '93--you have nominal GDP increasing a little faster, actually a lot, but the CPI a little faster. Based on your chart on page 8, I understand your core rate of inflation for '94 would be slightly below this 3.3 percent that you have in here and then for '95 you have a deceleration of nominal GDP, real output, and the CPI--again with the core rate being slightly below. Our objective for each year's inflation is to be below the previous year. Of course, in the last two years ex-food and energy the rate has been above that for the previous year; you've got it slightly above, so we're back to the 3.1 percent. Then when I look at the submissions from the Committee members, I'm puzzled because in the memo we got from Gary Gillum our instructions were that the projections for 1994 and 1995 should be based on the assumption of what in our judgment would be an appropriate monetary policy. Then I see projections of nominal GDP this year with a range up to 7-1/2 percent, a CPI up to 4 percent, and nominal GDP for 1995 with a range up to 6-3/4 and the CPI up to 4-1/2 percent. I have to interpret that as being a submission based on somebody's assumption of what an appropriate monetary policy would produce. Is that your interpretation?",310
-fomc-corpus,1994,"That was the instruction that went out to the Committee members, and I thought I would not try to read the minds of the Committee. But let me just say--",33
-fomc-corpus,1994,But you said you did read the minds--,9
-fomc-corpus,1994,"Well, one possibility I can imagine is that Committee members may feel that there will be developments in food or energy prices that may obscure an underlying trend and that the underlying trend is better than these numbers may suggest. But I don't know, and I didn't interrogate each person to find out exactly what his or her objective function is and what special factors may have played a role in these numbers.",78
-fomc-corpus,1994,"Mr. Chairman and President Jordan, I'll be addressing this issue a little bit in my own briefing when we talk about whether the 1995 forecasts should be submitted to the Congress at this time. I think your point, President Jordan, is well taken in the sense that there would be a temptation to interpret the 1995 results as what the Committee members on average desire to happen. Although the lags of policy are long, one assumes that they're not so long that you couldn't take some actions in early 1994 that would move you a good ways toward where you wanted to be in 1995--given the constraints of where you are starting and the underlying structure of the economy, which give you sort of a policy frontier as to the best you can do.",154
-fomc-corpus,1994,"We didn't look at these numbers before we completed our forecast; in fact, we didn't have many of them before we completed the forecast. When I looked at them a day or so ago, I said our assumption that the Committee might consider a baseline with just a slight down tilt in the inflation rate relevant to their discussion didn't seem to run head on into the forecasts you submitted. So, I felt more comforted than anything else by this in terms of whether we were presenting to you a forecast that was generally in the ballpark you were thinking about.",110
-fomc-corpus,1994,President Boehne.,5
-fomc-corpus,1994,"Normally in an economic expansion, developments in the real sector are mirrored at least to some extent in the financial side. And this report is relatively thin on the financial side. Yet, we tend to explain rising interest rates in an expansion by rising demand for credit, loan demand, and that sort of thing. Is the lack of very much on the financial side simply a continuation of all the dislocations and distortions that we find there, or is this going to be an expansion without very much of an increase in commercial loan demand, or what is the complication?",112
-fomc-corpus,1994,"Well, our expectation is that as the financing gap of the nonfinancial corporate sector widens, as I indicated, there will be an increased need for credit by business firms and a considerable segment of that will be satisfied in the shorter-term markets, including bank loans. We have only a rather moderate increase in bank credit. You have a flow of funds forecast that portrays these flows. In the household sector we're anticipating, as I said, that the growth in borrowing will exceed the growth in income. We are anticipating that consumer credit will continue to grow fairly rapidly in the near term, but that it will trail off a bit as the intensity of demand for durables wanes. Mortgage credit will continue to grow apace, in line with our forecast of residential construction activity. Otherwise, we have the Federal government's borrowing requirements tailing off with the deficit, and State and local governments continue to borrow significant amounts of funds to support the investment that I referred to. So, overall, we have debt growth running pretty much in line with nominal income. We don't see great strains developing over the next two years in this scenario. We do see real interest rates increasing slightly, but at the long end we have nominal rates coming down a little in the near term and then backing up slightly and in general remaining close to their recent levels. This is a rather mild experience compared to prior cycles. Maybe that calls into question whether we've got this right, but we do see fiscal policy in an unusual contractionary mode. That's one factor here, and it will be a while before the external sector is exerting a lot of positive force on the economy. And with the pent-up demands probably relatively limited coming out of a mild recession, we think we'll work our way through those pretty rapidly; we've already gotten to a period of high-level housing activity. We don't think we're going to have to see sizable increases in interest rates in order to keep the economy on a growth path that is consistent with some slight downward pressure on inflation.",400
-fomc-corpus,1994,Governor LaWare.,4
-fomc-corpus,1994,"I answered my own question, so I withdraw.",10
-fomc-corpus,1994,You gave the right answer?,6
-fomc-corpus,1994,Yes! [Laughter],6
-fomc-corpus,1994,At least the one you wanted!,7
-fomc-corpus,1994,President Keehn.,4
-fomc-corpus,1994,With respect to the issue Don Kohn just raised: Is it a given that in the February Humphrey-Hawkins report we give the forecast for the next year and are we required to do that?,41
-fomc-corpus,1994,"No, we are not required to do so and I think that at some point we've got to decide whether in fact we will do that.",28
-fomc-corpus,1994,I move that we do this year only unless we have to do 1995.,17
-fomc-corpus,1994,"Well, this was intended to be a topic for discussion.",12
-fomc-corpus,1994,Maybe do last year! [Laughter],9
-fomc-corpus,1994,"Don, when are we scheduled to discuss that question?",11
-fomc-corpus,1994,With the long-term ranges.,6
-fomc-corpus,1994,So we can decide after we do the long-term ranges.,12
-fomc-corpus,1994,"Well, I was going to include it as part of my briefing and it's up to you after that!",21
-fomc-corpus,1994,"The answer to your question is that we have not been required to do that. But the issue, as Don may have indicated, is largely an endeavor to respond to the Senate Banking Committee's question of whether the M2 targets are ceasing to be useful. If they are, the Banking Committee is looking for a vehicle which would enable them to make judgments about what it is we are doing, which is an appropriate question on their part. One endeavor to respond to that is to go out another year in our forecasts; that's the main reason that's in here for Committee consideration. This has, however, been put together tentatively pending the discussion by the Committee of whether we want to do this. But should the Committee decide to do so, if we didn't have it in the report, then we'd be in trouble.",163
-fomc-corpus,1994,I think simply having the numbers may give some additional context to the discussion.,15
-fomc-corpus,1994,"Any further questions for the gentlemen? If not, would somebody like to start our roundtable? President Keehn.",23
-fomc-corpus,1994,"Mr. Chairman, with regard to the national economy, in terms of growth at least for this year our forecast is really very close to the staff forecast, especially for the main sectors involved, and any difference is really not worth talking about. Our overall CPI forecast is a little lower than the Board staff's; part of that I think is due to seasonal adjustment factors. Offsetting this, our core rate of inflation is just a little higher than the staff forecast, so there is a little difference in our expectations with regard to energy prices. With regard to the District, the level of activity and I think the general tone of things and the underlying strengths are better now than they were at the time of the last meeting. And despite the really miserable weather that we've been having in the Midwest, so far I don't sense any dropoff in the level of underlying activity this year of the magnitude that we had last year. Admittedly, it's early to be coming to this conclusion, but certainly in the Midwest we've not had the same kind of dropoff. The auto business, of course, continues to lead the way. Production schedules for the first quarter--it's hard to believe these numbers--have been set some 15 percent higher than the levels of last year or little more than that, and of course last year was a strong comparative period. So the first-quarter production is going to be very, very heavy. And in fact for some models, manufacturers are now experiencing some capacity constraints. The outlook for the heavy truck business has been improving. Producers are raising their forecasts some 5 to 10 percent above last year's sales and production levels, and again last year was a pretty good year. And related to this, the truck-trailer business is reported by one company to be absolutely on fire. The shortage of truck shipping capacity is now a decided problem. Shippers have become concerned and are pushing the large companies to add to their equipment and also to hire more drivers. Despite the adverse growing conditions last year in the ag sector, farm incomes were good. Certainly farm attitudes coming into the new year are positive, and this is reflected in continued strength in the production and sales of ag equipment. The production schedules for one large manufacturer have been raised some 16 percent above their earlier expectations for this year. Retail sales are surprisingly strong. Christmas, of course, was just terrific. Sales limitations, at least for some stores, resulted from the inability of suppliers to deliver and not from resistance from customers. Again, despite the miserable weather, we really have not seen as adverse an effect on retail sales as we might have expected. And to state the obvious, sales of snow shovels and batteries have been phenomenal! In talks with representatives of various companies, I thought I'd mention three differences from what I noted the last time. First, despite higher sales levels--and I think Mike Prell had a chart that demonstrates this--inventories remain under very, very tight control. One large manufacturer reported that this is the first time in the history of their company that they've had a significant increase in production and sales and yet have not had an increase in inventories. They are obviously managing their inventories very carefully. But they are managing them on an absolute basis and not on a relative basis. Second, while the now almost macho ""I'm not hiring any more employees"" statements continue to prevail, this time there were two heavy manufacturers who said they are adding employees and this is a sharp shift from their earlier ""not ever"" statements. Third, I'm sensing some price pressures out there, and I think it's more now than just steel. Several contacts reported that the prices for their purchased products are edging up just a little. Also, in terms of their prices, though marketplace pressures remain competitive, they said they have been able to raise some prices and those increases are sticking. That is by no means prevalent nor are the increases large, but at the margin a subtle change seems to be occurring. So, I think the outlook here is a little different than it has been.",810
-fomc-corpus,1994,President Parry.,4
-fomc-corpus,1994,"Mr. Chairman, while economic activity is healthy in most of the Twelfth District, weakness in California persists. Payroll employment, usually what we consider to be the most reliable short-term indicator of economic activity for a state, continues to decline. However, there is a growing body of evidence that suggests the California economy is finally bottoming out. Following earlier losses, real retail sales have stabilized during the past year or so and construction employment seems to have bottomed out as well. We're also starting to see some encouraging signs in the housing sector, although it's still too early in our view to tell whether this is the beginning of a true housing recovery. For example, the number of home sales has been rising for the past several months and there was a surge in sales in the month of December. The number of home permits also has risen in the last two months, although it is still very low by historical standards. However, when we looked at what other forecasters are saying about the California economy, no one expects any significant improvement during the near term. Most forecasters expect the California economy to be flat during the first half of this year with only very minimal growth during the second half of the year. Preliminary damage estimates from the earthquake put the property losses at $15 to $30 billion, depending on who is making the estimates. This makes it one of the worst U.S. natural disasters on record. Still, the quake probably will not change significantly the overall pace of economic activity in the Los Angeles area. In the San Francisco area after the Loma Prieta Earthquake, earthquake-related reductions in business activity were largely offset by demolition, construction, and engineering activity associated with rebuilding. President Clinton has asked Congress to authorize $9.5 billion for earthquake relief and the California government ultimately will contribute to the rebuilding efforts as well. It's a little difficult to estimate how much money will be coming from the state, but the experience we had with the 7.1 Loma Prieta earthquake in 1989 suggests that it will cost the state between $1 and $2 billion. If I can now turn to the national economy, the strong growth in the second half of last year certainly, as we all know, has narrowed the gap between actual and potential GDP and has brought unemployment down close to most estimates of the natural rate. We're basically in agreement with the Greenbook forecast for real GDP growth in the neighborhood of 3 percent for 1994 which, of course, would narrow the gap further. I was struck when Mike Prell referred to the stubbornness of wage inflation in Chart 8. Growth in the employment cost index as was indicated by that chart has been stuck at 3-1/2 percent for quite a while. At current interest rates, it seems as though we would not be able to expect any further progress in bringing inflation down in 1994 and clearly not in 1995.",585
-fomc-corpus,1994,President McTeer.,5
-fomc-corpus,1994,"Little has changed in the Eleventh District economy since our last meeting. Growth remains in the range of moderate to strong and employment growth is strongest in the construction and durable manufacturing sectors. For context, job growth has been positive for the last 11 quarters and for 26 of the past 27 quarters. To echo Si a little bit, we do have some reports of labor shortages, particularly in the trucking industries and in some construction trades. There is also some evidence of upward pressure on construction prices, but the low level of interest rates seems to have offset that in keeping housing affordable and fostering robust housing performance in the District. Regarding the national economy, we're very close to the Greenbook projections; we're just a little stronger on real growth, I believe, but less on inflation.",156
-fomc-corpus,1994,President Syron.,4
-fomc-corpus,1994,"Thank you, Mr. Chairman. Well, conditions are legitimately better in our District. The region's economy shows genuine improvement; I think it's cumulating. The only state that's an exception to that is Connecticut. Manufacturing--particularly in durables, products that are tied to autos and capital goods--looks pretty strong. Exports are still soft, however, and medical equipment is one area where you might expect this. Producers of medical equipment indicate that low ticket items are still doing all right, but that MRI machine orders, for example, are off about a third, which may be a good thing in the long run. Retailing is more mixed, but again it follows the national pattern with autos and high-tech goods being better and some retailers in soft goods feeling that things are relatively weak. The residential real estate market is, I would say, very strong. In fact, realtors tell us that in certain price categories in the low end of the market inventories are getting quite thin now. For New England, given the time of year, there's a lot of construction activity going on that hasn't been reflected in prices very much yet. But we will have tight labor conditions in the building trades this spring, particularly since there are so many roofs to be replaced, ceilings to be put back in, and other repairs made necessary as a result of the cold weather. Other than that, there is some improvement in employment. Prices generally are well behaved except for items that Si mentioned--shovels and salt, where prices can be over $1 a pound for salt. As far as the U.S. economy goes, we tend to agree quite a lot with the Greenbook, but I must say we're somewhat more optimistic about this 1994-1995 period. We expect output to be somewhat stronger in 1994, though not enormously so, which is also reflected in some greater attenuation in the unemployment rate. We also are slightly more optimistic on prices, but that is because at least in the short run I think we're more optimistic on potential. Well, that's where we are. Thank you.",419
-fomc-corpus,1994,President Boehne.,5
-fomc-corpus,1994,"The tone in the District is positive, and I would say tentatively optimistic, going out for the balance of the year. Except for commercial real estate, most sectors and areas of the District are growing, and the growth appears to be self-feeding, although the District is still growing more slowly than the nation as a whole. One of the indicators I use is how vociferously business people complain. I was visiting with a group of 20 or 25 business people in central Pennsylvania a couple of weeks ago and didn't hear any complaints. It was hard to keep them focused on talking about the economy. There is a sense that an increase in interest rates is almost a foregone conclusion, all of which I interpret to mean that things are going well and they just don't want to talk about it very much. It's that Pennsylvania Dutch reticence, I think, on their part. There still is a reluctance to hire, but hiring is going on nonetheless in many parts of the District. I, too, have picked up a hint of perhaps a little more in the way of price increases--particularly in prices paid by business firms. It's not a lot, but there wasn't much of a hint a few months ago. As for the nation as a whole, I think the momentum of last year has spilled over. I don't think the type of slowdown we saw a year ago is very likely. The 3 percent growth rate or thereabouts seems about right. My sense is that if there is any asymmetry in terms of the risks to the forecast, it is probably that the economy may grow faster rather than slower than that 3 percent. I have no real quarrel with the rest of the staff's forecast.",346
-fomc-corpus,1994,President Forrestal.,4
-fomc-corpus,1994,"Well, the moderate expansion that we've been experiencing appears to be continuing in our District. Looking at some of the sectors, retail sales have been quite good since Christmas with the exception of apparel and particularly women's apparel that required a lot of heavy discounting over the holidays. Retailers are generally keeping their inventories quite lean; they are waiting for indications of continued consumer interest before they build up their spring inventory lines. If sales don't taper off, many of them are going to find themselves with stocks that are actually too low. Tourism is fairly healthy around the District with the exception of Miami, which is still suffering from bad publicity. In production, our latest survey would indicate that compared to last month things are looking quite good currently as are expectations for six months from now; that's with respect to production, volume of shipments, volume of orders, and the backlog of orders. In the mining sector, the rig count is up to 119; that's up two dozen from a year ago and that's almost exclusively in the natural gas area. In the real estate area, residential construction is quite strong. Reports of possible overbuilding have completely vanished, lumber prices are now adjusted for in many construction contracts, and sub-contractors are still in short supply. Multifamily housing is also improving and occupancy rates are edging somewhat higher. But new development is practically nonexistent at this point. On the commercial side, I think we've probably hit the bottom and vacancy rates are beginning to fall a little. But, again, new development is almost always build-to-suit with no speculative development apparent at all. On the employment side, the Sixth District widened slightly its lead in employment growth over the nation in the fourth quarter with strength in construction, services, trade, and government. Job losses in manufacturing have stopped almost completely and some gains are evident, particularly on the durables side. I might mention port activity; it's apparent at least in New Orleans and perhaps in some of the other ports around the District that NAFTA is beginning to have a positive effect already. On the price side, for the first time in a long time our directors have talked a little about seeing some price increases. This was basically in concrete and lumber, so it's evident at this point only in housing and construction more generally. Where there is import competition, prices seem to be feeling no pressure. But I thought it was interesting that we got those reports for the first time in many, many months. I would say that the sentiment in the District is really quite good and what's interesting to me is that there no longer is this expectation that growth will be very robust. There is now a recognition that growth is going to be more moderate and perhaps more stable over the period. With respect to the national economy, we don't really have any differences with the Greenbook forecast.",559
-fomc-corpus,1994,President Hoenig.,4
-fomc-corpus,1994,"Mr. Chairman, our District continues to grow at a very steady pace on the whole. Within the District, though--as I mentioned I think in November and I'll say it again today--there is a little more of a boom-like atmosphere in the western and the northern portions. There is very strong housing and a shortage of labor in that industry. Manufacturing is doing better, especially in the nondurable goods area. The slow areas are energy, except for natural gas, which of course is a little more on a roll right now. Also, we think we will have modest activity in the agricultural sector because of the floods and the effects from that. At the national level, our view is that inflation may run a little higher than in the Greenbook forecast for a couple of reasons. Our GDP projection is a little stronger than the Greenbook's, especially in the second half of the year. But also we have estimated a little lower unemployment rate and we have a little higher, I guess, natural rate of unemployment in our thinking than the Greenbook and that is generating added price pressures as we see it in our projections. I would add to that on the other side a point that may be of interest in terms of the amount of liquidity that is in the system. In talking with some fund managers, it seems to us that an attitude is developing--almost a bandwagon effect--in terms of the flows of some of these funds into investment opportunities they are seeing. We are hearing a lot of this going on--emerging markets and those sorts of things--from these fund managers, and we take note of that. I think it is having some impact on attitudes in the economy. That, Mr. Chairman, is how it looks.",349
-fomc-corpus,1994,Thank you. Governor Lindsey.,6
-fomc-corpus,1994,"Mr. Chairman, at the last meeting I talked a little about the differences between the rich and the poor, and I focused primarily on how taxes would affect the rich and how that might affect our forecast. I got some compliments, so at the risk of discouraging all praise, I thought I'd try it again and this time focus on the other end of the spectrum--the bottom 99 percent of which I am clearly a part. The thesis here is that demographically different people have different tolerances for borrowing. The two groups that I have separated out were individuals over 65, who are unlikely to incur additional debt for life-cycle reasons, and those in the top 1 percent in terms of income, which is roughly people making over about $225,000. I would imagine that debt may be a convenience for them but it is not subject to their economics. The data that I have come from a number of sources. Generally, they are from the P60 series the Labor Department puts out and also some tax data. The first chart in my handout, which I think was distributed, shows that we have a trend that has developed over time where the share of income going to the old has risen since the end of World War II; it has more than doubled. And the share of income going to these two groups, the old and the rich, has just about doubled.",278
-fomc-corpus,1994,Netted out or what?,6
-fomc-corpus,1994,Netted out--taking out the old rich.,10
-fomc-corpus,1994,"So, it's the old plus the young rich.",10
-fomc-corpus,1994,"It's the old plus the young rich. Actually, the way I did it was the rich plus the poor old. [Laughter] That's because getting the data was a bit easier that way.",39
-fomc-corpus,1994,"Could you call us the ""no longer really young"" instead of the old?",16
-fomc-corpus,1994,"John, you're not in this group!",8
-fomc-corpus,1994,You've got to get politically correct!,7
-fomc-corpus,1994,"That's right. Well, we struggled with that labeling. I started with the ""middle-aged middle class"" and that didn't sound too good. So, we ended up calling it those likely to borrow of the non-rich, non-old. The next chart shows the debt service adjusted for Chart 1 which is the rise in the income share of the old and the rich. The bottom line with the triangles on it shows the regular series that is presented by the staff and the top line shows the adjusted series. The adjustment seems to make some difference, particularly in recent trends. If you apply debt service to those of us who actually have to borrow, it's quite high. The same is true on the debt outstanding share, on the next chart, which again assumes that debt is being borne by those who have to borrow. It's now up to 110 percent of disposable income, whereas the more standard measure puts it around 75 percent. So, I would say that those who actually have to borrow to expand their spending are probably more constrained than the data that we've looked at indicate. I might say that these are not publication-quality analyses, but what I did to see if my thesis worked was to try approaching it from an entirely different angle. So, rather than use P60 data, my next approach was to go to the NIPA data and see if that showed the same effects based on a functional distribution of income. The first thing that's important to realize is that the NIPA data do not mean income earners actually get the money. I convince myself of that every year when I do my taxes, when I also compile for my wife a breakdown of our income and where it was spent. I find that useful because I always tell her we never have any money but we end up managing to spend lots of it and she never believes me. So I present the actual breakdown and she is forced to concede the facts. The interesting point that I want to make here is that not all NIPA income is actually spendable by households, and that's particularly true with regard to interest and dividends. For example, the income that accrued on your 401K plan is counted as interest and dividend income to you, but you really can't get at it. And that actually is a very important phenomenon in the economy. So, I broke down the NIPA income into a number of areas. Cash income--excuse me the chart says ""cash"" but it should say wages--wages are basically all paid in cash. Only about 8 percent is received by the rich and 3 percent by the non-rich elderly. So, 89 percent is received by those of us who are likely to borrow. Of interest income, only about 45 percent actually finds its way to the households where it can be spent. And the way I got this number was to look at the ratio of what is reported on tax returns to what is reported in NIPA. The tax return data probably are fairly reliable at the moment, since paying institutions are now required to put out a statement for everything over $10. So, only about 45 percent of interest in the economy actually is received by households.",636
-fomc-corpus,1994,"Excuse me, the Commerce Department does break that down into imputed interest and dividends--interest imputed at random from the cash flows, so they are using the same data.",36
-fomc-corpus,1994,"They are using the same data, yes. I had to get the income for the elderly too, so I had to go back and look at tax return data where people used an exemption for those over 65; that flagged the returns to be used in the tabulation. It turns out that only about 14 percent of total NIPA interest is actually received by people likely to borrow. The same is essentially true of dividends--16 percent--and of small business income at 27 percent. The income retained by small businesses includes such things as inventory appreciation, capital consumption allowances, what have you, which while income really can't be eaten or used to pay a credit card bill. That's why the distinction is here. The reason I think that's important is that what we're seeing is a big change in the functional distribution of income away from wages, particularly in the last two years. For a comparison period, I took the change in personal income from 1983 to 1988 which was of course the heyday of Reaganomics when we all know workers were being stomped on by the capitalists who were in power! Still, in spite of that, 56 percent of all the increase in personal income was paid in the form of wages. If you turn to the last chart, of the increase in personal income in 1992 and 1993 only 47 percent was paid in wages. During 1993 that fell to 38 percent. And even during the fourth quarter of 1993, when everyone was saying how good the economy was and optimism was rising, only 38.4 percent of the increase in personal income actually was in the form of wages. So, the way I would talk about the last three charts is that the non-rich, non-old live paycheck to paycheck, quite literally. That's where all their income comes from. Remember, virtually none of the capital income or business income goes to them. They have to live on their wages and that wage share is also declining. So, whether you look at the aggregate numbers from NIPA or at the aggregate numbers from the P60 series, the middle-class, middle-aged people who are borrowing are really getting their income squeezed. What that would suggest to me is that unless the trends change and employment picks up, the capacity of households to take on ever more debt is going to have to stop at some point, and perhaps sooner than we think.",486
-fomc-corpus,1994,President Broaddus.,5
-fomc-corpus,1994,"My report is going to be pretty bland after that, but developments since the December meeting have simply reinforced my view that the economy is moving ahead nationally at a good clip. Also, the recent national data show that the economy finished 1993 on a high note, and it seems clearly to have entered the current year with a lot of momentum. In our District our directors and other business contacts report that economic activity is continuing to strengthen and improve pretty much across the board. There may be a little more strength in the southern part of the District--in the Carolinas--where manufacturing is dominant and a little less in the northern part of our region where defense and other government activity is more dominant. But, clearly, the District is in good shape overall. In their comments at all three of our board meetings in January several of our directors described conditions in their respective local areas as booming. Even the Charleston, South Carolina area, for example, which has been hard hit by naval cutbacks is described as doing reasonably well under the circumstances. This is not to say that everybody in our District is happy about the present and optimistic about the future, but I think it's fairly accurate to say that the overall tone of the information we're getting is about as good as it ever gets on average in this business. The outlook and attitudes toward at least the near-term future among most of our business people are pretty optimistic. I don't think they are expecting any significant slowing in activity. The severe winter weather in recent weeks has been disruptive, to put it gently, and it may have suppressed activity a little. But I think much of that loss is expected to be temporary and made up in the months ahead. Also, most people around here don't deal with the sub-zero temperatures very well, so plumbers and body shops have been doing quite well lately along with cab drivers and electric utilities and franchises that deliver pizza! As far as the national situation is concerned, the Greenbook projections for 1994 certainly seem reasonable to us, not that they need our blessing, but they impress us as fully defensible. We are a little stronger on real GDP growth and a little lower on inflation. Our projections have GDP growth at 3.2 percent and a CPI of 2.9 percent. I would say that the risk of error on those numbers--I'm not sure my staff would agree with me on this--is probably tilted to the up side. I don't want to jump the gun on the policy discussion again, but I do need to say just by way of explaining--",510
-fomc-corpus,1994,"Wait a second, what do you mean? [Laughter] MR. KOHN(?). He read the memo!",25
-fomc-corpus,1994,"Yes, I did read the memo. Just by way of explaining our projections and in particular our projection that inflation may be about 1/2 point lower than the Greenbook is expecting: We base that projection on an assumption that the Committee will move quite quickly to do whatever it needs to do to keep actual inflation under control and keep inflationary pressures from rising significantly in the months ahead.",78
-fomc-corpus,1994,That's pretty good! [Laughter],8
-fomc-corpus,1994,"I ought to stop there. But just one final statement: I really think the System's anti-inflationary stance has done a great deal to increase our credibility in recent years, and in terms of the forecast I think it's quite likely that that will give us a better breakdown of nominal GDP between real growth and inflation if we follow through.",69
-fomc-corpus,1994,President Stern.,3
-fomc-corpus,1994,"Thank you, Mr. Chairman. Business conditions in the District remain quite positive and the strength is widespread both by sectors of the economy and geographically. I'm certainly hearing fewer comments of concern about the future or about the fragility of the current expansion; that has diminished. One aspect of the economy that I have commented on before and I'll just reiterate briefly is that we have had steady employment growth and we have low unemployment rates in most of the District states now. That tends not to be remarkable in heavily agricultural states, but we have low unemployment rates in most of the major metropolitan areas as well, which I think is a more significant way of looking at it. And we are hearing a variety of reports of labor shortages now--not at the unskilled end of the labor market, but at levels above that clearly there are growing reports of labor shortages. That does not seem to have translated into discernible wage pressures yet. But that seems to me almost inevitable. At some point along the line here one of the reactions is going to have to be some wage pressures both to attract, but maybe more importantly to retain, some of the workers who are in short supply. With regard to the national economy, in looking at the Greenbook and listening to Mike Prell's comments, I took the staff forecast to be a sort of ""more of the same only less so"" forecast. What I mean by that is that the economy grew over the second half of the year somewhere between 4 and 4-1/2 percent in real terms. If we get away from disturbances because of the weather and auto schedules and so on, I conclude that we're going into 1994 with a good deal of momentum, more momentum probably than the Greenbook forecast seems to incorporate. So I feel pretty good about the state of the economy, but that also implies that at least under current circumstances we're not going to bend inflation down further from here.",388
-fomc-corpus,1994,President Jordan.,3
-fomc-corpus,1994,"In spite of my own doubts about the matter, I consistently run into the expectation throughout our District that eventually it will thaw out! It's an the area of the country where severe winter weather seems to have absolutely no negative effect on people's mood and outlook. We also hear the stories of shortages of certain classes of labor and the difficulty of hiring. Some of our major manufacturing areas are reporting under 4 percent unemployment. I hear the same expressions of reluctance to hire that others apparently still are hearing although Ohio, for instance--whatever the credibility of the data--showed a 3-1/2 percent increase in employment last year. So, they ""reluctantly"" hired a lot of people. The last time I saw both these kinds of numbers and this rather pervasive mood of ""everything's okay and getting better"" was when I lived in southern California during the roaring boom in the latter 1980s before the bust. Si has already mentioned a lot of the region-specific and the sector-specific developments that also relate to our area. I'm not going to go through those in detail. One thing that I could add on the motor vehicles side, after calling around to various plants in the District, is that they are estimating that the weather reduced production by some 60,000 to 70,000 vehicles in the quarter and not all of that will be made up. Industry contacts tell us that some of the plants, by running overtime, can make up lost output by the end of March; others are telling us that their production schedule for the quarter was already such that they are not going to be able to make it up; they view these as permanent losses in production. Some of the plants were shut down totally for as much as four days. All of the lenders in the District are talking about very strong credit demands--commercial, consumer, and residential. I haven't heard any reference to the notion of a credit crunch in some time now. On the national side, my forecast is that the numbers for the last two years will be revised substantially and that once we get that revision three or four years from now and look back on the period, a lot of these intra-year patterns will go away. A smoothing process will indicate that we didn't have a weak first half last year and a boom in the second half, but more or less that the economy in the last couple of years has grown somewhere in the 3 to 4 percent range, and that won't look quite so odd. When I look at year-ago expectations about 1993 and then look at the numbers that we had on balance, abstracting from the intra-year pattern, real output growth was about what was expected a year ago and the CPI came in about as was expected. Yet during the course of the year, the numbers for 1994 generally continued to show an upward revision for inflation. And now the numbers for 1995--we've only had a couple of forecasts that go out to 1995--are already showing higher numbers. In fact, the numbers we now have for 1995 are higher than the numbers we had for 1994 a year ago; 1993 similarly was progressively moved up. So, it's a pattern that implies becoming accustomed to accepting no further progress on inflation, and I find that very disturbing. If those numbers are accurately based on current policy or the assumption about what policy will be, then I think the conclusion would have to be one of two things: Either we have changed our objectives with regard to inflation or we have to change our policies. Otherwise we're going to send the wrong message to people who look at these numbers to gauge the Committee's real intent.",740
-fomc-corpus,1994,President Melzer.,4
-fomc-corpus,1994,"Our outlook for real growth next year is somewhat more optimistic than that of the Greenbook, but in the case of inflation our outlook is considerably more pessimistic. Nearly all of the macroeconomic indicators have become increasingly favorable and point to a strong and sustainable expansion. But the down side of this, of course, is that both capacity utilization and unemployment are approaching levels that raise concerns about how long the economy will stay in the disinflationary mode. In addition, recoveries in the economies of U.S. trading partners as indicated in the Chart Show's alternative scenario might also generate demand pressures that would lead to price increases. Like the national economy, our District economy continues to improve and in some sense has been outperforming the national economy, at least in terms of employment growth. Many firms have reported increases in sales and employment. In fact, in at least two parts of the District that I've heard about recently, northwest Arkansas and northeast Mississippi, labor shortages have curtailed industrial expansion. District retailers report good-to-strong sales of most types of merchandise during the holiday and post-holiday periods. Single-family home building is unseasonably strong in many parts of the District, largely because builders are scrambling to start and finish projects that were delayed in the latter half of 1993 because of wet weather. After several years of stagnation, multifamily housing construction appears to be on the upswing, as apartment occupancy rates and rental rates edge up. And as is the case nationally, sales of new and existing homes have been relatively strong lately and average selling prices continue to rise. In agriculture, soybean stocks nationally are down 49 percent from last year and corn stocks are down 62 percent. The stocks/use ratios for these crops are only 7.6 percent and 10.4 percent respectively, which are the lowest levels we've seen since the mid-1970s. So, clearly, in those areas we are quite vulnerable to any kind of weather shocks. One final comment: Loan demand both nationally and at the District level seems to have increased. At a number of our large District banks, we have reports of a significant increase in all major categories of loans during the last two months of the year relative to the previous two months. Let me just end up with some comments about inflation. We project that the CPI will move up sharply in 1994 and will be even higher in 1995. Indeed, there may be some early warning signs that the economy's disinflationary course has already come to an end. When its volatile food and energy components are removed, the CPI rose at a 3.4 percent rate during the last three months of 1993, up significantly from the 2.4 percent rate of increase during the previous six months. The CRB futures price index is up by nearly 13 percent from its level a year ago despite a very significant decline in energy prices. An even sharper increase is seen in the Board's experimental commodity price index when the food and crude oil components are omitted. In addition, long-term interest rates have risen somewhat from their October 1993 lows. In our view, measured either by the growth rates of M1 and reserves or the ex post real federal funds rate, the stance of monetary policy has been very expansionary for about the last three years, and we weigh this sustained stance of monetary policy heavily in making our forecast of longer-run inflation trends.",688
-fomc-corpus,1994,Governor Kelley.,3
-fomc-corpus,1994,"Mr. Chairman, my sense of the course of events is in flux. As far as the strength of the economy goes, I had been thinking up through the time of the last meeting that we were indeed going to have a strong fourth quarter but that we would be looking at some substantial moderation after that. The fourth quarter now does appear to have come in meaningfully stronger than I had thought and that seems to be accompanied by considerably more momentum than I had anticipated. The new data that we've been receiving recently look quite strong to me. The purchasing managers' report across all of its components looks strong--in new orders, the deliveries stretching out, and the prices paid. We also got very strong housing numbers and very strong new orders data. In short, the new data suggest to me that the economy has more momentum than I would have thought; and in fact it strikes me that it wouldn't take a whole lot for me to begin to use the word that I've heard a couple of times in this go-around--an emerging ""boom."" There are a couple of concerns that worry me. Number one is that consumer debt seems to be accelerating, and this is at a time when the ratio of consumer debt to worth is still at an all-time high. It never came off; it just flattened out. The debt service rate came down with lower interest rates but not the level of absolute debt. And if we get a surge from here, we are going to be setting all kinds of new records for the ratio of debt to income. That is of particular concern as it would relate to the data that Larry Lindsey gave us a while ago. That's pretty worrisome in my mind. Also, we seem to me to be experiencing a rather euphoric stock market; it's up 11 percent in the last four months and 6 percent since our last meeting, for goodness sake! These kinds of developments give me concern that we could possibly be heading for something that might look distressingly like a bust somewhere down the road. On the inflation side, if we look at things with a fairly long-term view, they still look pretty good. But like Tom Melzer--I had written down in my notes a couple of things he just mentioned--I have concerns. Number one is that fourth-quarter CPI of 3.4 percent, which looks a bit ominous. Also, in a world full of capacity, just about all of the commodity price indexes that I've had access to, both domestic and international, seem to have a rather persistent upward drift. I certainly wouldn't try to say that an inflationary surge is upon us or is inevitable. But as John Wayne used to say in his Indian movies, ""There's dust on the horizon!"" [Laughter]",551
-fomc-corpus,1994,Governor LaWare.,4
-fomc-corpus,1994,"Well, it seems to me that the fundamentals of housing, autos, capacity utilization, new orders, inventory levels, and increased loan activity of banks are all pointing toward continued growth, even stronger growth than we previously expected. But the tax shock and the health care uncertainties are still unknown and unmeasured and are probably the governors which will keep the economic engine from running amuck. Perhaps even corporate re-engineering is now ho-hum, at least for those not getting the heave-ho. [Laughter] Inflationary pressures may currently be masked and the resulting euphoria in the financial markets probably has bloated stock and bond prices beyond rational values. That may be built more on profit expectations than on actual profit performance. In short, I think we are now in a period where the expansionary forces in the economy seem to be emerging as the reasons for caution rather than the contractionary forces that I had reasoned were fundamental before. Moderate growth seems to be the consensus forecast, but the possibility of inflationary behavior triggered by inflationary expectations in terms of anticipatory price increases rather than demand-driven price increases creates for me a mood for caution.",230
-fomc-corpus,1994,Governor Phillips.,3
-fomc-corpus,1994,"Thank you. The sustainability of the recovery certainly seems considerably more assured now. Leading the way are housing, autos, durables, clearly reflected in the IP index. People are spending and they're dissaving to do so. Inventories are lean so there probably will be no surprises on the supply side. Productivity improvements can still provide opportunities for competitiveness and growth. I think most encouraging has been consumer and business confidence; even the earthquake and the cold didn't provide much disruption. So there is less chance that we're going to have another fading spell, and I don't think that this recovery now can be considered as fragile as it was a year ago. At the same time, strong financial markets are continuing to provide financing, and banks are better positioned to contribute. We are even making some progress on the debt side. The risks and structural adjustments facing the economy are still there, but I think it's fair to say that no new insurmountable ones are appearing. People may have gotten a bit tired, as John LaWare mentioned, of talking about corporate restructuring and defense restructuring, and the pace of balance sheet restructuring appears to have slackened. On the international front, there's some glimmer that the economies of our major trading partners are beginning to bottom out, so we may see some improvement there. The labor market is still showing some signs of stress due to the layoffs and re-engineering, resulting in part-time and temporary employment and downward mobility. On the fiscal policy side, I think the focus on the deficit may well contain many of the new initiatives; even the health care proposals now appear to be open to negotiations. So, I think there's a bit less to fear there, and there were no great surprises in the form of major new expensive initiatives in the State of the Union message. On the inflation front, the recent numbers certainly look good, particularly the PPI and the deflator, and I think the Committee should be very pleased with that. Progress on the underlying rate of inflation, while it may still be feasible, certainly is going to be at a reduced pace at best. I'm a bit concerned, though, that we are likely to hit a stone wall over the next few months with respect to inflation, given the problem with the seasonals, obviously, and short-term supply distortions. Many of those were mentioned around the table with respect to labor shortages and supply shortages in areas where demand is particularly strong. We may well start to see commodity price increases working their way into the PPI and CPI. I think that we're now seeing some major risks on the inflation front. Certainly, the Greenbook acknowledged the food price increases and the risks with respect to the upcoming harvest, which Tom Melzer mentioned in particular. On the energy front, it's hard for me to see that we should be depending on a cartel to keep the CPI in check. And, of course, precious metals' prices have been elevated. Certainly, the money numbers are difficult to read but I agree with those around the table today who mentioned that credit has picked up, so I think all of these things highlight the risk we now see on the inflation front.",627
-fomc-corpus,1994,Vice Chairman.,3
-fomc-corpus,1994,"Well, after some extended period of a very flat regional economy, economic activity in the Second District has actually been improving at a moderate pace for about the last three or four months. The December establishment survey showed modest job gains in New York State, New York City, and New Jersey. Over the October-December period, personal income tax collections, which as you know are an advance indicator of personal income, were growing at a moderate to strong pace. The cold weather conditions seemed to have delayed some output, but our sources feel that it is not any worse than that. The inability of consumers to get to the sales taking place in January slowed down some of the activity at the retail level, but again our sources feel that retailers can recoup that over the President's Day weekend, assuming the weather is decent then. I think what's particularly good about the District is that, despite the fact that we have the corporate giants like IBM, Citibank, and Kodak downsizing, New York State gained 15,000 jobs from November to December. That's the third consecutive month that we had some job gains in the area. New York City also had some growth in jobs as did our part, the northern part, of New Jersey. With regard to the national forecast, we are rather similar to the Greenbook with some exceptions. We have stronger real growth in the second half of 1994. Some of that comes, as does somewhat stronger growth in 1995, from our view that residential construction will be somewhat higher than the staff forecast has indicated. That's an area in which there are some capacity constraints, so it could be an additional cause of some inflationary pressures. In general, we think the gap between actual and potential GDP is now quite small, and certainly that which remains will be used up in the course of 1994 with our forecast, the Greenbook's, or any of those we've heard around the table. Consequently, with the unemployment rate coming down to what we think is a reasonable estimate of the NAIRU--in the low 6 percent area--we do have to be considerably concerned about inflation. And our inflation forecast is, in fact, somewhat higher than that of the Greenbook.",445
-fomc-corpus,1994,"Thank you. We've completed the general discussion that we usually have on the first day of Humphrey-Hawkins meetings. As I mentioned earlier, we're going to reverse the schedule tomorrow to deal with the short-term monetary policy questions first and then go to the long-term ranges. The question I want to raise this evening before we close is one that has been tugging at me for the last number of weeks. This really gets to the issue that when we move in this particular context, which of course will be the first time we have moved since September 1992, we are going to have to make our action very visible. It's more the equivalent of a discount rate move than the incremental federal funds rate changes that we have been embarking on for quite a long period of time. I am particularly concerned that if we choose to move tomorrow, we make certain that there is no ambiguity about our move. My understanding of the technical conditions in the funds market is that it looks as though the funds rate will probably be edging above 3 percent, and in the circumstances a draining action will be unambiguous to the professionals. But I'm not sure that more widespread recognition will come out very quickly; it will sort of dribble out. Under ordinary circumstances, that is not only fine but desirable. One of the things that we have argued, and I would continue to argue, is that there is a distinction between a discount rate and a federal funds rate action in the sense that we don't want an announcement effect ordinarily on the funds rate. It gives us a much more calibrated instrument. But a federal funds change in this particular instance is a discount rate change, as far as the Federal Reserve System is concerned. I'm very strongly inclined to make it clear that we are doing this but to find a way to do it that does not set a precedent. I understand that that is not at all easy to do, but if we are going to make changes as to how we structure our Minutes and our announcements and responses to various developments, we need a lot of time in this Committee to discuss the pros and cons. There really are lots of pros and cons, of which I think we are all aware. But we are going to have to deal with this issue in conjunction with the question of transcripts and tapes and all of the other disclosure issues. One of the reasons that I thought it was not desirable to discuss it at this meeting is that there is clearly a time problem. There also will be a lot of significant, useful evidence for us in our deliberations when we see how everyone responds to our releasing the last four transcripts of 1988 meetings when they are done. We'll get a much better sense of the reactions. So, I'm caught in this particular situation where I would feel very uncomfortable if when we make a move--whether it's tomorrow or next month--we do not make it very clear that we are moving. The only issue on the table tonight is that if we decide to move tomorrow--and that we will get to when we resume the meeting at 9:00 tomorrow morning--I would very much like to have the permission of the Committee to announce that we're doing it and to state that the announcement is an extraordinary event. The major reason would be that it's a Friday and we rarely meet on Fridays. This is a very unusual circumstance. So I'd like the permission of the Committee to try to formulate a couple of sentences which state (1) that we have moved, assuming we do that, and (2) that this announcement of the move is not precedential. We will try to find a way to say what is special about this particular day and this particular event. So, I open it up for everyone's comments.",746
-fomc-corpus,1994,"Mr. Chairman, I have a lot sympathy with what you suggest, and it strikes me that there's another information-gathering advantage--",27
-fomc-corpus,1994,"Excuse me, could I just make one final comment before you go on? While I myself, as you know, have been strongly opposed in the past--and I have testified against announcing when we are making a move since it does reduce our flexibility--that issue is still on the table and it's a much broader issue. The issue of whether something is precedential or not is under our control. We don't have to announce our policy moves; there's nothing forcing us to do so, and I cannot believe that there will be legislation requiring that. So, the issue is not whether if we do something, we will be forced to do it again. I think we can avoid that. We may decide for reasons other than basic policy to continue, but I see no reason for such an announcement to be a precedent nor do I see any likelihood of legislation requiring that because the thrust of what's been happening on the Hill doesn't strike me as leading in that direction. Anyway, sorry for the interruption. Go ahead, Mr. Syron.",206
-fomc-corpus,1994,"All I was saying is this: Just as you thought, appropriately, that it's worth seeing when we put out the transcripts what the reaction is going to be, we'll also get information if we follow this course from what the reaction is to it. There will be information in terms of market and Congressional reactions, and so forth. If essentially we tell the financial markets what our policy is at 11:23 of the morning after our meeting--if it is really the case that by our market operations we generally do that--I have a lot of sympathy for doing it more explicitly the evening before. My own view is that by doing this once we will get some information on reactions and we may find out what its weight is. My own forecast would be that this would pull the teeth in a longer-term sense, which we are not resolving now, on a lot of these issues about disclosure. I know these issues wouldn't all go away, but the essential information is what the final score of the game is. The rest of it is akin to finding out what play Emmitt Smith was asked to run on third down. So I think there is a lot to be gained from this without locking us into a longer-term arrangement.",244
-fomc-corpus,1994,Si.,2
-fomc-corpus,1994,I'm not quite clear on the precedential side of this. Are you saying this would be an announcement that we have tightened without a discount rate change or with a discount rate change?,36
-fomc-corpus,1994,The answer is no discount rate action.,8
-fomc-corpus,1994,Okay.,2
-fomc-corpus,1994,"But the point here is that when we move the discount rate, we're hitting a ""gong."" What I'm saying is that the first time we move the funds rate after this extended period, we are hitting a ""gong.""",44
-fomc-corpus,1994,That's right.,3
-fomc-corpus,1994,And I think we ought to stand up and hit it.,12
-fomc-corpus,1994,I agree with that.,5
-fomc-corpus,1994,Other comments? Bob.,5
-fomc-corpus,1994,I would very much support issuing a statement. I think it's very important that the statement exactly coincide with our taking action in the market and not be either before or after taking action. I also feel that we ought to have a discussion as quickly as is feasible about the desirability of similar statements in the future because I think some of us believe there is some advantage to doing it on a continued basis. Perhaps we could deal with this issue explicitly in the not-too-distant future along with the other issues that you mentioned.,104
-fomc-corpus,1994,You don't mean in a special meeting but as part of the next meeting.,15
-fomc-corpus,1994,"Yes, but I really think that there is an urgency.",12
-fomc-corpus,1994,Bob Forrestal.,4
-fomc-corpus,1994,"Mr. Chairman, I understand your rationale. I'd just like to express a couple of concerns, and you've hit on them already. One is with respect to the process and the other is substance. It strikes me that this is a very major change in the way we are operating and we haven't had very much time to reflect on this. As Bob Parry just indicated, I think it is essential that we do have that discussion as soon as we can. My more serious concern is whether we can keep this non-precedential. I have a real concern that there's a risk that we're going to be pushed by pressures--not necessarily legislation but other pressures--to make this an ongoing operating procedure. If that's the case, I think we would lose some flexibility. The other thing that occurs to me is that if we are forced by this action to do it on a regular basis, the discount rate is going to lose its effectiveness and along with that the effectiveness of our directors. So, those are concerns that I think we need to reflect on, if indeed our announcement does for some reason become a precedent. However, having said that, if we can draft a statement that clearly indicates this is not a precedent but a one-time event because of the peculiar circumstances, then I would support your recommendation.",259
-fomc-corpus,1994,President Jordan.,3
-fomc-corpus,1994,"I thought your Congressional testimony last Monday was well constructed and made the points that you needed to make in the right way. I was initially quite discouraged with the wire service stories as they came out, which seemed totally to miss the point you were trying to convey. But then the stories that came out in some of the major dailies restored my confidence that maybe we're making a little progress in conveying our views. I thought both the New York Times and the Wall Street Journal--or at least one of the Wall Street Journal pieces--treated it as we would have hoped. Based on what you said there and the way that went, I would trust that you wouldn't be saying that ""the Committee tightened,"" using that kind of jargon but rather that because of the nature of the change being contemplated--and it doesn't matter whether it's tomorrow or at the March or May meeting--the next move is undoubtedly going to be in an upward direction on interest rates. And it's not just that it would be the first change since September 1992; it's the first change upward in some five years. Without repeating all the discussion that we had in December about the importance of a rate increase being clearly understood as being an action of the Committee, the rationale for it as a growth-sustaining move is extremely important. Only by putting out a statement can we get that message out there, or at least make an effort to say that this is not an anti-growth move but one that is designed to enhance the longevity of this expansion.",302
-fomc-corpus,1994,That was actually the closing paragraph in my testimony. Tom Hoenig.,14
-fomc-corpus,1994,"Mr. Chairman, I understand the sensitivity of this. I have a hard time understanding how this would not be precedential. If we say it is desirable to announce this time because it makes sense and we've got this issue of a Friday and so forth, I think it will be difficult from a credibility point of view to argue against announcing in the future should we want to make that argument. Even if we have to start our meeting earlier tomorrow, I'm wondering if we cannot position ourselves to know whether we want to take an action tomorrow, and then do so. Then, as the questions come in, we can validate that we did in fact take an action so that we're not making a statement which sets a precedent. I think we are going to set a precedent.",153
-fomc-corpus,1994,"Well, I certainly agree that there is a risk involved, but I disagree that we can be forced to do it for other than legislative reasons.",29
-fomc-corpus,1994,"Well, we may not be forced but I think the credibility of our position will be compromised.",19
-fomc-corpus,1994,"We're saying there are different types of changes. For example, in 1979 there was a major change. Chairman Volcker and his staff went out and had a big press conference. There are certain individual events where periodically the Federal Reserve has made special statements; I'm merely stipulating that this is one of them. Frankly, with the exception of the stock market crash in October 1987, it's the first one since I've been here. But let's assume, for example, that we decide to move tomorrow and we make an announcement, and then we decide to move again, say, four weeks later. I don't see any reason why a statement would be appropriate at that later time.",138
-fomc-corpus,1994,"I'm uneasy about that, but I understand what you're saying.",12
-fomc-corpus,1994,"Look, I'm not naive enough to believe that it doesn't create precedential issues when we do things that are different. But I think the question is can we control it, and in my judgment we can. Tom Melzer.",45
-fomc-corpus,1994,"On the precedent point, Alan, I would just say that another point to consider here is the Treasury funding next week.",24
-fomc-corpus,1994,Yes.,2
-fomc-corpus,1994,"If we wanted another rationale, namely that there be no confusion in the marketplace, that might be another.",21
-fomc-corpus,1994,"Yes, I think that is one of the possible points for discussion. Joan wants to think about that.",21
-fomc-corpus,1994,"Okay. Well, there is at least one audience out there that wouldn't like to hear that. I think there is a risk of a headline along the lines of ""In an unprecedented move, the Fed announced..., saying it wasn't setting a precedent."" But where I come out is that in the climate we're in and in view of this inflection point after five years, as Jerry Jordan pointed out, these are unique circumstances. And openness, given what we've been through in general during this period, is probably a pretty good course. I think how much is said is important. I personally would favor saying, ""The Fed decided to increase the degree of reserve restraint"" and that would be about it. It would trouble me if we got into expectations about where the funds rate would trade.",156
-fomc-corpus,1994,"Let me read what Don Kohn handed me before. ""The Federal Reserve announced today a slight increase in the degree of pressure on reserve positions.""",29
-fomc-corpus,1994,Yes.,2
-fomc-corpus,1994,"Then he went on and said, ""This action is expected to be associated with a small increase in short-term money market rates.""",26
-fomc-corpus,1994,"I think that's all right. I don't think we should be giving a target range, though.",19
-fomc-corpus,1994,You mean the actual number?,6
-fomc-corpus,1994,Yes.,2
-fomc-corpus,1994,"No, that is not our intent.",8
-fomc-corpus,1994,"That has been advocated at times in other discussions here. Also, if we're announcing a decision--and this would be a legal question--are we obligated to say anything about the vote, for example? I'm not sure. Again, I'd prefer just to say what the action was. It's a decision of the Committee, but if we get into disclosing the vote, that begins to set other types of precedents that could be relevant when we get to the point of deciding this issue on a permanent basis.",101
-fomc-corpus,1994,"Look, the main issue here is that, as far as I'm concerned, I would like us to stand up and be counted. We are the central bank and we are making a major move.",39
-fomc-corpus,1994,"Right, I agree.",5
-fomc-corpus,1994,And to do it in an ambiguous manner I think is unbecoming of this institution.,17
-fomc-corpus,1994,"No, I didn't mean to suggest otherwise. I agree we should do that, but the point I was raising is that there may be a legal question. If we have announced a decision, does it follow that we have to disclose the vote?",49
-fomc-corpus,1994,I don't see why. Is Virgil Mattingly here?,13
-fomc-corpus,1994,"No, there's no legal question. The Chairman before in Humphrey-Hawkins testimony has said something about policy and what the Committee has done without announcing a vote.",33
-fomc-corpus,1994,"That's correct, isn't it? Were we to come out and make a statement that the Committee made a decision, are we obligated to stipulate what the vote is?",33
-fomc-corpus,1994,"If somebody asked, you would have to tell them. In other words, it would be subject to disclosure.",22
-fomc-corpus,1994,Why?,2
-fomc-corpus,1994,The Freedom of Information Act. The legal issue is: Why is it confidential? What's confidential about the vote?,22
-fomc-corpus,1994,It's confidential now.,4
-fomc-corpus,1994,"Yes, but if you disclose the action--",9
-fomc-corpus,1994,Then you'd have to disclose the vote?,8
-fomc-corpus,1994,"You know, there is an interesting difference here. The difference is that if we are asked after the action has been disclosed. That's--",27
-fomc-corpus,1994,Very different.,3
-fomc-corpus,1994,"Well, you may be right; there may be a legal question of disclosure. So long as we don't disclose it and do so only in response to a question--",33
-fomc-corpus,1994,"Of course, we might not get asked.",9
-fomc-corpus,1994,"Oh, believe me, you will get asked! [Laughter]",14
-fomc-corpus,1994,"Alan, the reason I'm bringing it up--and this is more relevant to the discussion we're going to have down the road--is that if we go this way, the effect of that is to place the minority rather than the majority in the limelight in terms of who the press might be interested in talking to, which might not be optimal. Just one other point: I agree with Bob Parry. I agreed with deferring the discussion of our recordkeeping issues and so forth, but I think we should get to that promptly. From my point of view, if we could get to that at the next meeting, that would be highly desirable.",130
-fomc-corpus,1994,I don't see any reason why we shouldn't be able to get to it. We should have enough reaction at the next meeting from the 1988 transcripts that we should know.,35
-fomc-corpus,1994,The mini-series will be out!,7
-fomc-corpus,1994,"Committees could do mortal damage to press releases, but I really wonder if we want to use the term ""small increase"" rather than just ""increase.""",31
-fomc-corpus,1994,I would stay with small.,6
-fomc-corpus,1994,We're not writing a press release.,7
-fomc-corpus,1994,"We're not writing a press release and if we don't say ""small,"" people will think we've made the announcement because it's a 1/2 point or 3/4 point increase or something like that.",41
-fomc-corpus,1994,It sounds like we've made a policy decision already!,10
-fomc-corpus,1994,I think that's a little premature.,7
-fomc-corpus,1994,"Can I make the following request? I'm not asking the Committee to make a statement. I'm asking the Committee to give me the authority to make the statement so that in effect it's one step removed. As announcements go, it's very short.",47
-fomc-corpus,1994,I was going to take a word out!,9
-fomc-corpus,1994,President Boehne.,5
-fomc-corpus,1994,"I'm supportive of what you want to do. I think this is one of those special times, and I think we have to be careful that we don't become captive to our own procedures when we are called upon to do something. There is a precedent for our making these kinds of announcements for special occasions. They don't happen very often, but I believe this is one of those times. While clearly the precedent is there, and we'd all be naive to think that this doesn't tilt the scales in that direction, there is also a risk in not disclosing tomorrow. If there were a premature leak or any confusion or misunderstanding about any action taken tomorrow, it seems to me that that would be far more costly than whatever the precedential risk is in going forward with this as you suggest. I agree with you that it ought to be your statement as the Chairman rather than an announcement of the Committee. I sympathize with your desire to make it short. However, I think it is good to get the right focus on this, and I liked the way you ended your testimony on Monday about putting this in the context of being pro sustainable growth rather than fostering this notion that we are against growth. I would urge you in the statement to hark back to your testimony on Monday; I have forgotten the precise wording in the last sentence or two in the last paragraph but I thought that captured the essence of what we're doing very well. At the risk of this statement being a little longer than you may want, I'd just put in that last paragraph--or the last couple of sentences--from your testimony.",316
-fomc-corpus,1994,Susan.,2
-fomc-corpus,1994,I actually had two questions. When are the 1988 transcripts to be released?,17
-fomc-corpus,1994,Donald Kohn.,4
-fomc-corpus,1994,"We've done a few of them; Norm, where are we? Let's toss the ball back down there.",21
-fomc-corpus,1994,I feel like I'm in a tennis match here!,10
-fomc-corpus,1994,We have about three of them just about done.,10
-fomc-corpus,1994,Really?,2
-fomc-corpus,1994,Yes.,2
-fomc-corpus,1994,The last three of 1988?,8
-fomc-corpus,1994,No.,2
-fomc-corpus,1994,The first two and the last one. Work on November has been started.,15
-fomc-corpus,1994,When do you guess 1988 will be completed?,11
-fomc-corpus,1994,The third week of February.,6
-fomc-corpus,1994,Then they have to go through an international and legal redaction process. But I think it's reasonable to--,21
-fomc-corpus,1994,Our next meeting is March when?,7
-fomc-corpus,1994,The 22nd.,5
-fomc-corpus,1994,"Yes, I think we need two to three weeks of response time.",14
-fomc-corpus,1994,Right. What if we put out part of the year?,12
-fomc-corpus,1994,The first six months?,5
-fomc-corpus,1994,"You know we could put out--you see, the problem is that in the middle of 1988 there are garbled transcripts; The taping system broke down.",34
-fomc-corpus,1994,Why is it that life can never be simple?,10
-fomc-corpus,1994,There are 18 minutes of tape missing!,9
-fomc-corpus,1994,So it's not next week that these are coming out?,11
-fomc-corpus,1994,No.,2
-fomc-corpus,1994,It's probably going to be at least a month or so?,12
-fomc-corpus,1994,"Maybe; probably about a month. If it's more than a month, I think we may want to reconsider getting out whatever we've completed because we can certainly do the last three meetings in 1988. That's the most recent. In fact, in a sense that's where our obligation is; the most recent is really the most important in that respect as we move back. I think there will be a lot of interest in the stock market crash discussion.",89
-fomc-corpus,1994,That would be the end of 1987.,10
-fomc-corpus,1994,Yes.,2
-fomc-corpus,1994,A point of clarification related to what Ed Boehne said: It seems to me that it would be beneficial if your statement were made on behalf of the FOMC. Is that what you were thinking? It didn't sound that way to me.,50
-fomc-corpus,1994,I would not do that. I don't think that's a good idea.,14
-fomc-corpus,1994,You don't?,3
-fomc-corpus,1994,"""Chairman Greenspan said today.""",8
-fomc-corpus,1994,"Yes, that's exactly right.",6
-fomc-corpus,1994,"Now, if we decide to do it on a permanent basis, then it's a Committee issue. But marginally it's of a less precedential nature if I do it.",34
-fomc-corpus,1994,"If it doesn't work, the Committee could fire the Chairman!",12
-fomc-corpus,1994,That's right.,3
-fomc-corpus,1994,"Well, maybe we ought to bring that issue up before that vote! [Laughter]",18
-fomc-corpus,1994,"I wanted to ask Joan, or Bill from your former capacity, what do you think the market reaction would be?",23
-fomc-corpus,1994,"Well, it certainly would remove any ambiguity about the move. [Laughter] People don't have to guess about the size of the move and that kind of thing; I guess if there's a pro, that's the positive outcome. In terms of setting a precedent, I think it very much depends on the wording that's used.",64
-fomc-corpus,1994,"Is this going to be helpful, do you think, or not helpful in terms of the market absorbing what is occurring?",24
-fomc-corpus,1994,I think that it can't be harmful.,8
-fomc-corpus,1994,"Another word for ""minimal.""",6
-fomc-corpus,1994,"No, it tells everybody what's happening and it leaves no room for ambiguity, and if it's phrased the way you are suggesting, it's not setting a stage for people to have expectations of an announcement every time there is a policy change going forward.",49
-fomc-corpus,1994,"Mr. Chairman, I agree with you completely. I think that it's right for you to make the statement because you have the authority. The Committee is not establishing a precedent; we always can fire you. And you are making the judgment that this is an instance where you want to speak. In fact, I would go so far as to suggest, although you know what we want--we've already said it--that we not dictate to you what you're going to say because it should be only your statement. That way there is absolutely no precedent; you are simply acting as Chairman of this Committee.",120
-fomc-corpus,1994,Vice Chairman.,3
-fomc-corpus,1994,"I very much support what Governor Lindsey just said. I think this is something that we absolutely must do because of the importance of this. As Jerry Jordan said, this would be the first time that we've increased--if we do so--interest rates since 1989. And, therefore, it is something that we should step forth and state. I believe as Larry said that you should be doing it in your words. We might have to think rather carefully about the precise timing of the Desk's action in relationship to any announcement that may be made tomorrow. I'd be very worried if the Desk's action were first. Then we would be giving some essential market insiders an opportunity to move on it before the general public was informed. So, if you can't do it simultaneously, I would favor any statement by you coming out marginally ahead of that time, but definitely not behind it.",176
-fomc-corpus,1994,"I think simultaneous is risky, frankly.",8
-fomc-corpus,1994,I agree with that.,5
-fomc-corpus,1994,That's right.,3
-fomc-corpus,1994,Why don't you put it out at 11:00 a.m. or something like that? Is 11:30 a.m. when you conduct your operations?,33
-fomc-corpus,1994,Yes.,2
-fomc-corpus,1994,If you did it by 11 a.m.--,10
-fomc-corpus,1994,It's very risky sometimes to try to time things down to the wire and hope that people pick up the press releases.,23
-fomc-corpus,1994,I think it just takes a couple of minutes for the wires to get it on.,17
-fomc-corpus,1994,Gary.,2
-fomc-corpus,1994,"I'm comfortable with what you are proposing. I happen to agree with those who think this will turn out to be precedential and from my perspective that's fine because I think we've been in an awkward situation where we have kind of acknowledged that people in the markets get the news and the signal immediately, but for those who are not close to the markets the news kind of dribbles out depending on how quickly they read the financial press or consult other sources of information. But I mention that now only to reemphasize the point that Bob Parry and Tom Melzer made, which is that we really do need to come to grips with this whole host of issues about what records we keep and what we disclose and when we disclose it, and so on and so forth.",154
-fomc-corpus,1994,You mean they are all related issues in other words.,11
-fomc-corpus,1994,Yes.,2
-fomc-corpus,1994,It's all one package.,5
-fomc-corpus,1994,And I think we better get on with that discussion.,11
-fomc-corpus,1994,"Mr. Chairman, the former Mullins Subcommittee, whatever it is now, is to meet on this issue tomorrow after the FOMC meeting, so I don't think there's any reason why the Subcommittee can't put the finishing touches on whatever recommendations it is going to make in the very near term and get them out to the members.",67
-fomc-corpus,1994,President Broaddus.,5
-fomc-corpus,1994,"Mr. Chairman, Ed Boehne really made my point. There are certainly risks of doing this and they have been well stated here. But there are risks of not doing this. If there were any confusion tomorrow going into the weekend or this thing gets played out in the New York Times on Saturday and Sunday or on CNN, I think we would have a real mess. I certainly also agree that this should be your statement and you ought to say whatever you're comfortable with. My feeling is it ought to be as brief as possible. I don't think you need to say a lot; if we do it, this is not going to be an unexpected move. If there is an effort to defend it or explain it in any detail, then I think it would exacerbate the problem of precedent before we try to figure out what we're going to do in the longer run. I also support Gary Stern and Tom Melzer and Bob Parry on the need to decide as quickly as possible.",197
-fomc-corpus,1994,"The purpose of accepting the Joint Economic Committee's invitation to testify before this meeting was precisely to move ahead of the curve on potential explanations in the event they were required of us. In a sense that statement was, as far as I can judge, the basis of what we've been doing.",57
-fomc-corpus,1994,You can reference your JEC statement.,8
-fomc-corpus,1994,"Yes, I possibly could. President McTeer.",11
-fomc-corpus,1994,"Just for the record, Mr. Chairman, I agree with your suggestion and all of its details. I personally wouldn't mind seeing it become a precedent. I've argued before that quick release of the decision is much more desirable than verbatim minutes or transcripts, and I think that quick release of the decision might take off some pressure for early release in these other areas. I know that's something to be discussed later and I agree with your recommendation.",87
-fomc-corpus,1994,Governor Kelley.,3
-fomc-corpus,1994,"Mr. Chairman, I think this is a very important question. It's had a very good airing, and I don't have anything to add to what has been said. I fully support your request and recommendation.",41
-fomc-corpus,1994,"Does anybody else want to raise an issue or question? Well, why don't we adjourn this evening.",21
-fomc-corpus,1994,Mr. Chairman?,4
-fomc-corpus,1994,"Yes, Don.",4
-fomc-corpus,1994,"You asked me to remind you to remind the Committee of the highly confidential nature of the subjects being discussed, and the fact that you would take drastic measures if something were leaked.",35
-fomc-corpus,1994,Nobody would want that!,5
-fomc-corpus,1994,"Let me just reiterate basically what Don said. If we end up tomorrow morning with anything in the newspapers, one way or the other, or any public indication of what it is we've discussed today in any respect, I think it will do very grave damage to this institution. And the Wall Street Journal the Post, and the Times all, of course, know that we are meeting; they know it's a crucial meeting. There will be all sorts of endeavors to get some information, directly, indirectly, or otherwise. I just beseech you to be as careful as you possibly can and not even tell your doorman where you've been!",127
-fomc-corpus,1994,Maybe you could just have some jam and hamburgers sent in; we could spend the night here.,20
-fomc-corpus,1994,Jam and hamburgers? Hopefully not!,8
-fomc-corpus,1994,Mike Prell has some information for us on the employment statistics.,13
-fomc-corpus,1994,"Earlier this morning I had a brief discussion with a senior official at the Bureau of Labor Statistics. The civilian unemployment rate for January was reported at 6.7 percent under the new survey. They have two econometric models that they are using to try to give people some guidance about how the month-to-month movements in the unemployment rate might have looked if the new survey had been in place in December or if the old survey had remained in effect in January. On the basis of their model of what the old survey would have done, they estimate that the unemployment rate would have dropped 0.1 percent in January. Their model of what the new survey would have done is that it would have dropped 0.3 percent. There is a considerable range; the household series is clearly subject to a lot of uncertainty. There was a huge increase, 1.3 million, in the household employment total. As I indicated, there are both the change in the new monthly survey plus an adjustment for a Census update involved here. A rough guess is that, if you took out those two special effects, the month-to-month change might have been in the area of 150,000 or maybe a little higher, but that is a very crude guess at this point. The labor force participation rate was 66.7; it had been 66.3 in December. One might have expected an upward movement from the change in the survey of 1/2 percent or more. And so on that basis it looks as if the labor force participation rate might have dropped and contributed to that decline in the unemployment rate, all other things equal. Again, this is very difficult to read. The nonfarm payroll increase was 62,000--72,000 for private industry--well below market expectations and below what we had been expecting for the near term. Manufacturing was up 26,000 but construction was down 3,000 and private service-producing industries had an increase of 51,000. There were no large revisions to the prior couple of months. The Labor Department believes that weather had a serious effect on the payroll increases, particularly in construction. They noted that in parts of the country that we wouldn't expect to be much affected by weather at this time of the year, construction was up, whereas in parts of the north central and eastern regions, where the weather ordinarily is very cold, they found that construction was down. They also pointed to weakness in a number of other industry groups that they think might have been affected by weather, such as recreational amusement, and they mentioned that some colleges evidently had to cancel athletic events. In their minds all these things evidently contributed to the low increase in payroll employment. Now, this may also have affected the mix of full-time and part-time employment for the month. The average workweek is estimated to have risen to 34.8 hours, a relatively very high workweek, from the 34.5 hours figure in December; that was revised down from 34.6 hours. This does look fluky; we've seen ticks up to this level sometimes revised away a bit and in other cases just reversed. So this rise may prove ephemeral. The index for the overall increase in production hours went from 125.2 to 126.3 reflecting that workweek increase. Actually, the way the arithmetic goes, they report the hours, then derive the average workweek. But that's the better part of a percentage point. That's a much stronger start on the quarter than we had anticipated. Overall, taking all of these things into account, my reading of this would be that there are signs that perhaps the outlook is a bit stronger than we had anticipated in the Greenbook and would probably imply our leaning more toward raising our first-quarter GDP forecast rather than lowering it. Given the very strong car sales that were reported yesterday, that gives some greater credibility to the production schedules for February and March. That output will be needed to keep inventories from being utterly depleted even if sales don't maintain their January pace. That, too, argues for some upside risk to the 4 percent GDP forecast we made. One final note on average hourly earnings: They were up .7 in January. Again, this may have been affected seriously by the shift in the industry mix and more importantly in all likelihood the shift in terms of part-time/full-time employment and so on. So, I don't think one would want to read that number too closely either, but it certainly does look as if it's on the firm side of our expectations for the start of the quarter.",917
-fomc-corpus,1994,How are financial markets interpreting that?,7
-fomc-corpus,1994,"Initially, the market moved up by almost a point at the long end--at the 30-year mark--as the headline news on the nonfarm number came across the wire. There has been some backing away from that. The market is still up; it was up about 3/8 to 1/2 when we came in here. It may be that market participants are trying to read through some of the underlying data in terms of hours and so forth. So, it's lost some of its initial gain, but it is still up",109
-fomc-corpus,1994,Let me just go get the latest report. [Secretary's note: Chairman Greenspan left the meeting very briefly at this point.],26
-fomc-corpus,1994,"The other interesting aspect was that bill rates went down 3 or 4 basis points and the funds rate, which had opened at 3-1/8 to 3-3/16, went down to 3 to 3-1/16 and remained there. So in some sense at least the certainty of firming today was taken out by the employment numbers. Now, maybe as the bond market and everyone else reassesses them, the adjustment will be reversed.",96
-fomc-corpus,1994,The long end is now down 3/32.,11
-fomc-corpus,1994,They got to the last page of the release!,10
-fomc-corpus,1994,"I was just handed Commissioner Abrahams's statement and she indicates here that ""weather appears to have played a major role in the relatively small rise in payroll employment between December and January. The reference week for the survey was the week before the California earthquake and the East coast snow and ice storms; the extreme cold over much of the nation during the reference week held down employment. Indeed, the weakness in the payroll survey was quite concentrated in weather-sensitive industries in January, while other industries continued the pattern of moderate growth that has prevailed for some time."" And then she goes on to provide detail for some of these industries. I guess the person I talked to at BLS was reading from this or had written this! One other point I might make is that, looking at the manufacturing data, the workweek remained at its recent high level. The workweek employment increase was in motor vehicles; outside of motor vehicles there wasn't any gain. But overall this looks consistent with a moderate increase in industrial production. That's even allowing for what we think would have been some loss during the month from the freeze and the earthquake. I think the industrial production picture for January is at least as strong as we anticipated when we prepared the Greenbook forecast.",245
-fomc-corpus,1994,I didn't quite catch what you said about the old survey; is that down 0.1 for the month of January?,25
-fomc-corpus,1994,"The econometric model that they have used would have predicted that. If I'm looking at the right place in the press release, it says: ""Another tool that we are providing analysts is our model of what the January 1994 unemployment rate would have been under the old methods based on the historical relationships between employment, the unemployment rate, and other economic indicators: that rate is 6.3 percent.""",81
-fomc-corpus,1994,Any further questions for Mike? Yes.,8
-fomc-corpus,1994,"I notice that the hours were way up, from 125.2 to 126.3. Is that the basis of your higher GDP forecast?",30
-fomc-corpus,1994,"Well, that's the key element in my judgment that would probably raise the forecast. But these numbers are all being affected by weather; evidently, we're going to have to sort through the data to get a more refined assessment.",44
-fomc-corpus,1994,"If you take those hours that were given and you assume that the average workweek didn't change, payroll employment goes up about 700,000.",29
-fomc-corpus,1994,"I just got a market update. The long end is now off 5/32, which puts it about 2/32 below what I had written down at 8:29 and 59 seconds a.m. [Laughter] But the funds rate is still at 3-1/16; bill rates are still down 4 basis points. We took a reading on the fed funds futures market at 8:55 a.m. and that suggested, at least at that time, a substantial lessening of expectations about Federal Reserve action. For example, the one month ahead futures rate went from 3.26 at the close last night to 3.19 at 8:55 a.m. this morning.",147
-fomc-corpus,1994,What about the dollar?,5
-fomc-corpus,1994,"It came off. Yesterday, it moved up against the mark and was 173ish to 174ish; it lost all of that first thing today and it's creeping back up to 173.63 on the latest reading that I have.",48
-fomc-corpus,1994,"Okay, any further questions for Mike? If not, let me call on Don Kohn.",19
-fomc-corpus,1994,This is the short-run policy part of the meeting. [Statement--see Appendix.],17
-fomc-corpus,1994,"Questions for Don? If not, let me get started. Much of what I would usually say I stated in my testimony on Monday before the Joint Economic Committee, and I won't belabor any of that. The one issue that I didn't raise, except in a very minor way, is what I consider to be potentially dangerous upside problems in the inventory area. In looking at inventory/sales ratios, we tend to combine wholesale, retail, and manufacturing at book value levels and put them in constant dollars. The interesting question that this procedure raises is, does this appropriately capture what is going on? And my answer to that is ""no."" The reason the answer is no is that what basically determines the relationship of orders, production, consumption, and the like are units of inventory. So, if you were to take the wholesale and retail inventory data, whose inventory/sales ratios are trending upward much more than in manufacturing, strip out the markups to put them back to factory level values and adjust the manufacturing data to factory level values, which is essentially a markup, what you effectively do is very significantly re-weight those three major components. But since manufacturing has been going down, it all of a sudden has a big impact on the total. Even when you strip out work-in-process, what you get in terms of gross days' supply is a decline that is much more abrupt than the official numbers. Now, the one thing we know about forecasting is that when inventories go to zero, the rate of change cannot remain negative! There are models, incidentally, that don't necessarily have that constraint! But the reason I raise this question is that we're seeing a very tranquil inventory situation. The use of just-in-time inventory management is becoming increasingly evident. The lead times on the deliveries of materials ordered are flat and low. There has been some minor increase in the delays of deliveries, which is usually a sign of some tightening. But we have a very interesting problem here: How far down can inventory/sales ratios continue to go? The forecast that we saw yesterday in the Chart Show showed a gradual flattening out. The truth of the matter is that I don't know how they did it, but I know what they don't know. And what they don't know is what's going to happen to that particular ratio. If we begin to get any evidence of either a pickup in materials costs--and an anticipatory element is involved--or any evidence of a tightening of lead times on deliveries, which occurs when the operating rates begin to move up, purchasing managers will start to increase their inventory requirements. It is apocryphal that everyone's inventories now, in today's computer regimes, are only in transit and that nobody has anything. That may be partly true, but it can't be wholly true because there's still a huge amount of inventories sitting in various places. Everyone may say that emergency stocks in the system right now are probably at the lowest level in history and the reason is the computer technology. But what I'm trying to get at here is that if there's one element of tranquility in our forecast, which was gradually lulling us into considerable complacency, it's on the inventory side. That's basically what concerns me and what very readily could end up as the problem if suddenly we find that instead of slipping back to 3 percent GPD growth, or 2-1/2 percent or something like that, the numbers stay up there. And the reason they would stay up there is the same reason they've always stayed up in a business cycle expansion--that inventory accumulation turns inventory/sales ratios higher, and that's ultimately a source of business cycle instability. That is a fact which has a great deal of history associated with it. I am still puzzled by the fact that the balance sheets do not seem to be restraining activity by as much as I thought they would, considering the fact that they have not yet fully adjusted, if I may put it that way. Clearly, balance sheet relationships are not back to those typical of the mid-1980s and I always presumed that the desired relationships would be more conservative, considering what we went through. That hypothesis is hard to hold in the context of what's going on in purchasing and new orders, and I must say especially the January motor vehicles sales figure that came out yesterday, which was quite a surprise. The chain store retail sales figures were weak, weaker than expected. However, the correlation that exists between those data and total retail sales is very low, and I'm not even sure the sign is right. So really, those data don't tell us anything. The motor vehicle sales are inputs into the GDP; they are real; they involve full coverage; and they do not present any statistical problems of great moment. So, I concluded, as far as policy is concerned, that we are at the point where we finally have to start moving toward a somewhat less accommodative path. I think we have had an extraordinarily successful run in restoring balance to a disturbed economic system. We haven't raised interest rates in five years, which is in itself almost unimaginable, especially in the context of strong economic conditions and historically low inflation. I must also say that the presumption that inflation is quiescent is getting to be a slightly shabby notion. We are seeing things like the purchasing managers' reports in January, which showed not a big spike in prices, but some spike. Listening to our roundtable discussion yesterday, I was impressed by the fact that labor shortages still were mentioned--not as a big deal but in a number of different areas--and that several of you cited some evidence that price increases are holding. So, while we may not find it in the broader price indexes, there was at least an inkling that the presumption that inflationary indicators are all quiescent is, as I said, sort of fraying at the seams. I don't know what to make of this 0.7 increase in average hourly earnings. I took a look at the details; it's basically in the services area; manufacturing is up 0.3 on straight-time earnings and 0.1 on average. That is consistent with part-timers going out of the system, given that their average rate is considerably below that of full-time workers. There may not be much there but, as Mike said, the presumption that inflation is staying down is very hard to maintain. That doesn't necessarily mean anything; I suspect productivity is probably doing better than we would expect and hence unit labor costs are not going up all that much. In any event, I would put on the table my preference that at this meeting we move up 25 basis points. But if that's not the view of the Committee, I would urge that we at least go asymmetric. Vice Chairman.",1351
-fomc-corpus,1994,"Thank you, Mr. Chairman. I believe very strongly that we should firm policy and that we should do so today and announce it today in the manner described in our late afternoon conversation yesterday. Let me give some of the reasons that drive me to this conclusion. We are very near potential GDP and all of our forecasts, whether they are fine-tunings of the Greenbook or right on it, say that we will reach full potential this year. That would mean that labor market pressures should show up relatively soon on a more generalized basis, and as the Chairman just described, they already are showing up in some areas of skilled labor. I agree that an inventory cycle could well be at hand, especially in certain areas where there are resource constraints already--those involving residential construction, automobiles and light trucks, and home durable goods. Therefore, it seems to me that the question is not so much whether we should tighten but by how much. And rather than comment on the alternatives of an asymmetric directive and a move of 25 basis points, let me evaluate my own view of whether the move should be 25 or 50 basis points. Why would one think that a firming of 50 basis points might be appropriate? Well, it might be deemed to be closer to a true adjustment away from what by our forecast is now excessive accommodation. However, I think there are two downside aspects to a 50 basis point firming. First of all, it could be interpreted--and in my own view would be interpreted by a fair number of market participants--as a one-time fix, a one-time adjustment which would be followed by a ""Fed-on-hold"" period. Secondly, I think it could be deemed, especially in light of some of the discussion in this town and others, a macho response, and I've always thought macho responses confused brains and bravado. A 25 basis point move, on the other hand, I believe would send the right signal in the sense that the Federal Reserve, the central bank, is being watchful, as it should be. And we would be moving earlier in the economic cycle than the Fed has done historically and, therefore, we are doing our job even better than in the past. I think it would be interpreted as the first of a series of moves and thus would be deemed, in my view, to be a stronger signal than a 50 basis point increase--if the 50 basis point increase were seen, as I believe it would be, as a one-time adjustment to be followed by the ""Fed on hold."" So, I support the recommendation of the Chairman that we tighten. My own preference is for a 25 basis point firming today.",543
-fomc-corpus,1994,President Melzer.,4
-fomc-corpus,1994,"Well, as I stated yesterday, Alan, the stance of monetary policy has in my view been very expansionary for the last two or three years. Accordingly, as I've also mentioned, the St. Louis Bank expects that the CPI will move up sharply in 1994 and will move even higher in 1995. Indeed, as you mentioned, there may be some early warning signs that the economy's disinflationary course has already come to an end. It is my view that we should act now to reduce the growth rate of reserves and M1 and signal this change with a 50 basis point increase in the federal funds rate target. I favor 50 basis points rather than a more modest amount at this juncture for the following reasons: (1) I think the stage has been well set for a change in policy; (2) in my view we are late in acting; (3) too small a policy shift may not convince markets of our resolve to keep inflation low; and (4) I suspect that each successive action could become more difficult to take. That's my view on policy. Let me make just one other suggestion with respect to the language in the directive where we describe economic and financial conditions. I would suggest that we include in that some mention of the behavior of M1, the adjusted monetary base and/or reserves over the last year. I think that that may mitigate against some incorrect interpretation of relatively weak M2 and M3 growth and what some might think that implies with respect to the thrust of monetary policy. That's all I have, Alan.",317
-fomc-corpus,1994,President Jordan.,3
-fomc-corpus,1994,"For some time, just viewing things from my District, I have started to get the feeling that it's not a case of worrying about head winds but rather of building tail winds. And after listening to the discussion yesterday, it sounds to me as if that's true to some extent around most of the country now. For any of you who have ever tried either to pilot a light aircraft or sail a sailboat, you know that trying to steer with a tail wind is much more difficult and much more dangerous than with a head wind. And if we let tail winds build up, where we wind up on the course is more problematic. So, I think an adjustment now is appropriate. I would come down on the side of 50 basis points even though Bill McDonough's argument about that being viewed as a one-time adjustment followed by the ""Fed on hold"" is interesting. The other side of that would be that 25 basis points would be viewed clearly as the first of a series of moves. And if the market quickly built in pricing and expectations of the next 25 basis point move, then the equilibrium rate would move at least as much as our move, implying de facto that we eased conditions relative to where the market is if it's ahead of us. I don't know what the timing might be as to market expectations, but if it's a fairly short horizon--maybe no further out than the next FOMC meeting--we may find that 25 was not enough to restrain reserve growth and that we would have been better going 50, or will need to give them the other 25 fairly quickly. I would also support Tom Melzer's suggestion about references to reserves and narrow money measures as contributing to why we think a move is appropriate at this time.",354
-fomc-corpus,1994,"Let me raise a question. I thought about 50 basis points, or I thought about it in the sense of trying to move the rate to where we want to put it and then sticking with it. But I think it may be very helpful to have anticipations in the market now that we are going to move rates higher because it will subdue speculation in the stock market; at this particular stage having expectations hanging in the market that we may move again, and move reasonably soon, could have a very useful effect. If it is in any way contemplated that we have moved and are going to stop, that could create the type of erosion in the economy that I've watched over the past decades, which is precisely what we don't want. If we have the capability of having a Sword of Damocles over the market we can prevent it from running away. If somebody suggested 50 basis points and then another 50 and then another 50, that's an argument I understand and it's not inconsistent with my position. What I'm a little concerned about is that a number people might expect that that's in fact what we are trying to do. If we're going to move, I would not mind moving again at the next meeting or the meeting after that, for example. That depends on the evolution of events, frankly. In order to simmer down this process, I think we should just very gradually tighten into it if the evidence suggests that that is where we should be going. On the question of whether it will become more difficult to tighten, I presume that that means there are non-monetary-policy reasons for that, and I think this Committee has indicated no inclination to be affected by that. I have no reason to believe we will be.",346
-fomc-corpus,1994,Would your preference be for 25 basis points and symmetric language or 25 coupled with asymmetric?,19
-fomc-corpus,1994,"That's a good question. At this stage I would tend to stay with symmetric if for no other reason than whatever it is we do the first time out, I think we send a very important message. If the economy continues to run ahead of our expectations, I would for the next move go asymmetric.",60
-fomc-corpus,1994,"Well, just to follow up: My own preference is always going to be for symmetry, and what I would like to see done would be to do 25 now but with an understanding that there may be a conference call if conditions seem to warrant another 25 even before the March meeting.",58
-fomc-corpus,1994,"Well, I don't think we have to have an understanding. That's an ongoing issue and I wouldn't want to imply that that's not always the case because I think it is. President Boehne.",39
-fomc-corpus,1994,"As far as the economy goes, this is as good as it gets in terms of convincing evidence to move. There always are uncertainties; there always are reasons why we shouldn't make a change. But what I see is a self-feeding expansion and I think capacity and price pressures are not all that far away. So, as far as the economy goes, I think we need to move. On the credibility side, there's a time to talk, a time for speculation, and a time to act. We've talked, we've had speculation, and I think now is the time to act. I came into this meeting somewhat undecided between a 1/2 and a 1/4 point rate increase. I think there are some good reasons for a 1/2 point move. It is more difficult to tighten than to ease, at least it has been historically. So there is an advantage to getting the job done with fewer moves rather than more. Historically, there is also the tendency to get behind the curve rather than stay ahead of it. And I think a larger move does compensate for that risk. On the other hand, I do think that a 1/2 point move may be just too strong at this point. There is a risk that we could appear too eager. I've seen this Committee operate in the 1970s; I've seen it operate in the 1980s and the 1990s; frankly, my confidence in our willingness and ability to move promptly, to move as needed, is high enough that I think that a 1/4 point move makes sense. I also buy the notion that it is important for the market to anticipate further moves. I think we need to be forthcoming when that is called for. So, while history and the risks do weigh heavily on my mind, on balance I come out in favor of a 1/4 point move and I support the symmetrical directive. I think we really need full Committee support on this action; and to reiterate my point of yesterday, I think we ought to make this announcement sometime before Joan Lovett would normally go into the market today.",430
-fomc-corpus,1994,President Broaddus.,5
-fomc-corpus,1994,"Mr. Chairman, I certainly think that the time has come to move and that we need to take action today. If we don't move, we would put our credibility seriously at risk because there's no question really that we need to move. If we don't, I think we will fall way behind the curve. In terms of the amount, my preference would be for a 1/2 point move. At this stage of the game, given the signs of strength in the economy and the evidence of some nascent upward price pressures in at least some places like the purchasing managers data, I worry that if we just do a 1/4 point at this juncture it's going to be seen as a rather timid move. I think there's some risk that even after making that move, pretty shortly we will still be behind the curve. A 1/2 point move, in contrast, would be a decisive move. It would help us get out in front of this thing as it develops and would strengthen our position. And I guess I have a little difficulty understanding the argument that that's going to create an expectation that we are not going to move again for some time. I believe those expectations would be determined by unfolding events. Also, it's worth noting that if we were to move the funds rate to 3-1/2 percent on a nominal basis, the real funds rate would still be quite low and one could still make an argument that policy even then would be quite accommodative. So, I think the case for a 1/2 point increase is not a weak one, and that would be my preference, although I could accept the 1/4 point increase.",336
-fomc-corpus,1994,President Forrestal.,4
-fomc-corpus,1994,"Mr. Chairman, this decision is not altogether clear-cut in my mind. As a matter of fact, I view it as a difficult decision. I would just like to interject the argument for waiting a little, and that argument would revolve around the uncertainty in the economy. We certainly had a demand surge in the fourth quarter and it would appear that that is going to continue to some extent. However, there is always the question before us as to whether that level of activity is going to continue. And I think the uncertainty is engendered by the income/debt ratios that we see, the uncertainties surrounding the economies of our trading partners, the question of whether capacity utilization rates given global competition are as meaningful as they were, and the possible effects of fiscal policy--including the uncertainty surrounding the health plan which could be announced, I suppose, before our next meeting. So, I think all of those things do present the case for staying where we are for the moment and waiting. I just want to make sure that we don't lose sight of those arguments. But I did indicate that it's a close call in my own mind, and on balance I think the arguments are more persuasive on the other side by some marginal degree. So I would support moving at this meeting. The credibility of the central bank is a very, very important element at this time, and I think we will gain credibility by moving now even though there might be some marginal risk that we might have to reverse course. Clearly, there are signs that inflation is heating up a little, and we have to be vigilant about that. So, I would support your recommendation. I would go for 25 basis points because I think the gradual approach is better at this point, and I would support a symmetric directive. On the question of inflation, I would just put something on the table, not for discussion now but as something that perhaps we ought to think about. And that is that I, for one, am not really clear what our objective is with respect to inflation. We talk about price stability and lower inflation and inflation being quiescent and so on, but I don't know what our level of tolerance is, what we find acceptable as a Committee for inflation. Now, I know we don't want to designate a point reference of 2.6 percent or something like that, but I wonder if perhaps we ought not at some point think about and have some discussion about where we really want to be in terms of inflation. Is it zero or is it somewhere between 2 and 3 percent or exactly what are we aiming for?",520
-fomc-corpus,1994,"And which price index are we using, that sort of thing.",13
-fomc-corpus,1994,Yes.,2
-fomc-corpus,1994,And over what time period.,6
-fomc-corpus,1994,I throw that out as a suggestion for the Committee to think about.,14
-fomc-corpus,1994,Governor Lindsey.,3
-fomc-corpus,1994,"I agree it's certainly the time to move. I have three thoughts on why I would prefer a move of 1/2 point over 1/4 point. First, the staff in yesterday's presentation said that to maintain not price stability but constant inflation we have to raise interest rates 150 basis points by mid-1995. We have to make a choice as to whether we want to move six times in the next year and a half or three times. My answer is that I have a strong preference for three times.",106
-fomc-corpus,1994,Suppose they are wrong?,6
-fomc-corpus,1994,"Well, if anything, I think the risks are that we are going to have do more than 150 basis points to lower the level of inflation. I think the bias of the Committee is that if possible we want to bring inflation down a little more. Furthermore, the staff noted today that GDP momentum seems stronger than they thought when they came up with the 150 basis point estimate. So, based on what we've learned since they did their forecast, it seems that the risks are on the up side, and that would suggest even more actions to tighten. I appreciated very much Bill McDonough's analysis of the ""Fed on hold"" versus the first in a series of moves. If I think about it this way, though, what we are out to do is to minimize the effect on long-term growth, for a given amount of disinflation. If we go a 1/4 point, we are telling the markets that this is the first in a series and we're going to be raising rates over a long period of time. That would seem to me to be a signal that over an extended period of time the average short-term rate is going to be higher than it would be if we did it quickly. And since what affects long-term growth is equity prices and long-term bond prices, a slow gradual move--because it means on average higher long-term rates for a longer period--would be more damaging to growth. So that would be another reason, I think, to move suddenly. Finally, I don't have any personal memories of it although I was alive at the time, the most successful Fed move against inflation, as I recall from what I read of history, was back in 1966. At first the data showed a recession then, but that recession was revised away. The Fed was able to overcome an inflationary condition by a short, sudden rise in interest rates. The downturn was actually not a downturn but simply a slowing in the rate of growth that lasted at most six months and it brought the country another two years of high rates of economic expansion. I think the 1966 model is really what we want to emulate today.",433
-fomc-corpus,1994,Let me just interject.,6
-fomc-corpus,1994,You want to correct my sense of history?,9
-fomc-corpus,1994,"The history was that the Fed took the 10 percent surcharge as fiscal deflation and didn't act. The Fed was wrong and had to act more rapidly in order to offset that, so I think that was not a period when the Fed excelled in policymaking.",53
-fomc-corpus,1994,But the 10 percent surcharge wasn't enacted until 1968 and didn't take full effect until 1969.,22
-fomc-corpus,1994,"Yes, but there was the expectation that there would be fiscal drag, and I think the Fed responded to that. That's not a major issue; I don't want to prolong the discussion but I happened to be reading about that episode recently.",47
-fomc-corpus,1994,"Okay. In any case, if we have to do 150 basis points or more, I think the greatest ""bang for the buck,"" with minimum harm to long-term growth, would be to move 50 basis points today.",46
-fomc-corpus,1994,President Hoenig.,4
-fomc-corpus,1994,"Mr. Chairman, I think yesterday's discussion and this morning's indicate that we really need to take action now. As for the amount, there is an economic case for doing 50 basis points now and I think it would in the longer term give us a more stable environment. Bill McDonough's arguments are valid to some extent in terms of what kinds of reaction we would get, but I think those would take care of themselves and we would really be better off with 50 basis points.",100
-fomc-corpus,1994,President Stern.,3
-fomc-corpus,1994,"I agree with all the comments that have been made about it being the appropriate time to move, and I won't go through the rationale for that. On the question of magnitude, I have a mild preference for a 50 basis point move basically on the grounds that I believe short-term interest rates have to move pro-cyclically. A 1/4 point increase at this point just doesn't seem to me to be an action of much magnitude at all. My guess is not that it would get lost in the markets--that certainly won't happen--but that it's not going to turn out to be significant relative to the job ahead of us. And if I'm right that short-term rates have to move pro-cyclically, it seems to me that we ought to get started. Therefore, as I said, I would have a mild preference for a 50 basis point move.",175
-fomc-corpus,1994,President Parry.,4
-fomc-corpus,1994,"Mr. Chairman, I too would favor tightening at this point for the reasons that have been mentioned. I might note that I found your discussion of inventories quite interesting. Yesterday, I characterized our forecast as being very similar to that of the Greenbook. One difference is that we have somewhat greater strength in the early part of the period largely as a result of much higher nonfarm inventories than assumed in the Greenbook forecast. With regard to the amount of our move, I do favor 50 basis points. I think it's the appropriate move for some of the reasons that have been mentioned. I'm not in favor of 25 basis points. But if one wanted 25 basis points, communicating as best we can that other increases are coming, I think that would drive one to asymmetry. It seems to me that 25 basis points and symmetry just doesn't represent what most of us think.",177
-fomc-corpus,1994,President Syron.,4
-fomc-corpus,1994,"To start out, I guess I disagree with Bob Parry. I came into this meeting thinking that we should do something. As I read expectations and where things are, I would have thought that 25 basis points would not be seen by the market as something that was lacking in courage or testosterone on our part. I want to make some other observations, but could I ask a question of Joan just as we are in this comment process?",88
-fomc-corpus,1994,Sure.,2
-fomc-corpus,1994,"And the question is, Joan: What do you think the expectations in the market will be if we are to do something? What do you think the market reaction would be to 25 basis points as compared to 50 if either were announced about an hour from now?",54
-fomc-corpus,1994,"When the market was anticipating the move, I think most of the expectations were for 25 basis points. Some of that got built into the rate structure yesterday; I think by the time the day was over about 80 percent reflected that a 1/4 point move might occur today. This morning's numbers on the January employment situation may have moved some of that pricing back out of the market. So, certainly a move of 50 basis points would have to be reflected in the market. Since 25 basis points is not fully in there now, the next 25 basis points would clearly result in some rate back up; rates would have to adjust much more than they have.",137
-fomc-corpus,1994,"Well, let me just continue. I think policy has been stimulative but I don't think it has been inappropriately stimulative. I don't want to argue about a month or five or six weeks one way or the other, but we went through a period in which we needed to do something. What we all want to do very clearly is to maximize long-term growth in the economy, controlling real growth. As Larry Lindsey said, controlling prices is a mechanism for doing that. But the reason we're concerned about prices is that we care about long-term real growth, not for some abstract reason. While there's no long-term tradeoff, in the short term the way things work--at least in my model--is that we can't avoid some lost output at the edges; and what we're trying to do is minimize that interval of lost output over time. I'd be cautious about doing 50 basis points because I'm not sure that we have to raise rates 150 basis points. And at this point I wouldn't want to start down a path with fairly fixed notions of where I'm going at the end of it in terms of rates or in terms of monetary policy. I have a notion of where I want to get in terms of the economy, but not necessarily on what we need to do to get there. I think policy over time has been pretty effective. We're already what I might call orally asymmetric in a sense, given what the Chairman did rather effectively in his testimony. I would strongly suggest doing 25 basis points now with this accompanying change in process. And don't forget this will have a big announcement effect both in the way it is done and the fact that we haven't done anything in 17 months and we haven't tightened in 60 months. I would also suggest that it's not terribly long until the Humphrey-Hawkins hearing and there's going to be plenty of opportunity to be orally asymmetric, if I may use that phrase again, or to indicate how we see things. So, I think going 50 basis points would be depreciating a little too much the opportunity we're going to have to put this in context and may not be fully taking into consideration the announcement effect of doing 25 basis points and announcing it after this long a period of policy inaction.",451
-fomc-corpus,1994,"Well, I've been around a long time watching markets behave and I will tell you that if we do 50 basis points today, we have a very high probability of cracking these markets. I think that would be a very unwise procedure. It is far easier for us to start the process with a smaller move. And, as Dick Syron says, there's a very large announcement effect. Having stuck with an unchanged policy for so long, it is going to be far easier for us to get on an accelerated path if we need to at a later time. To go more than 25 at this point I think would be a bad mistake. It could generate surprising counterproductive responses in this market. Strangely, it is far easier to do 50 basis points in the second move, not in the first move.",165
-fomc-corpus,1994,That's right.,3
-fomc-corpus,1994,"This is a very big move, not because of the magnitude but because of the announcement effect, as Dick Syron points out. I would feel very uncomfortable if we tried to do more at this stage. I think it's the wrong pattern and I must say it would make me really uncomfortable.",58
-fomc-corpus,1994,Could I make a comment?,6
-fomc-corpus,1994,Certainly.,2
-fomc-corpus,1994,I very much share the view that the effect of a 50 basis point move today in the marketplace is highly unpredictable. It's sufficiently likely to be damaging in cracking the markets that I think it's a step we should not take.,45
-fomc-corpus,1994,"Look, the stock market is at an elevated level at this stage by any measure we know of. We could set off a sequence of events here that I think could make the policy path that we have been developing here a difficult one. Governor Phillips.",50
-fomc-corpus,1994,"Well, I do have a preference to tighten 1/2 point immediately. It's probably too strong to say that a 1/4 point move is following the market but a good deal of that is already built into the market. I do think that because of the cyclical influences a 1/4 point move won't have as much effect. I don't see anything on the horizon that would warrant an asymmetric directive. Now, having said that, I will say that I can live with a 1/4 point on the ""Fed on hold"" theory and the expectation of more to come.",120
-fomc-corpus,1994,Governor Kelley.,3
-fomc-corpus,1994,"Mr. Chairman, I'm in the camp that prefers 25 basis points. I am not sure whether we are early or just right or late; I don't know how history is going to judge that. But I am reasonably confident that we're not seriously late and that conditions are not in the process of running away from us on the up side. I just don't see the economy as overheated now. I see it as in the process of approaching full employment but still with some meaningful soft spots. President Parry among others mentioned some important places where that's still evident in the economy. I just don't think we need a strong shock. What we need is a new policy momentum. We have been in a momentum of rest for a long time; I think we need to change that and now is the time to do it. But I believe the 25 basis points would establish that; it would put a new framework in the marketplace and a new orientation to policy. In my view that's what is needed at this point rather than a more serious move than that.",210
-fomc-corpus,1994,Governor LaWare.,4
-fomc-corpus,1994,"I certainly buy the fact that this is the time to make a change in policy toward more constraint. But I really favor the 50 basis point move at this point, and I respectfully disagree with the assessment that such a move would crack the markets. I think the markets have already discounted a 25 basis point move and are still burning away at a great rate. I would like to see a stronger move than 25 basis points simply to damp down without a crash the stock market particularly. I think it is getting increasingly dangerous because of the way it has been running. I believe a 50 basis point move will send an unmistakable message that will damp this enthusiasm in the stock market without causing it to crash. If it successfully scotches the inflationary expectations that may be part of the structure of long-term rates, that may have a very salubrious effect in bringing down long-term rates, and I don't think 25 basis points will do that.",194
-fomc-corpus,1994,President Keehn.,4
-fomc-corpus,1994,"Mr. Chairman, I certainly favor moving and, like others, I have debated in my own mind the difference between a move of 25 and 50 basis points. I was impressed with the tone of the comments yesterday. It does seem to me that there has been a very significant shift toward strength in the reports that we heard yesterday as contrasted with December. But despite all that, I must say that some uncertainties still remain. Things are looking awfully good but there are some questions that we've all talked about that still need to be answered. So, I come down favoring 25 basis points. It does seem to me that 25 basis points with this announcement--which may turn out to be precedential but at least this morning would be unprecedented--will have a very strong signal effect. Therefore, I think in effect we will get more than 25 basis points out of the action that we contemplate. With regard to symmetry versus asymmetry--and this is a different thought--I've come to the conclusion that we ought to get rid of the asymmetric language forever. It seems to me to cause far more complications than it's worth. If we are going to move, particularly over the foreseeable future, I think we ought to do it as a result of a conference call where we are all participating as opposed to getting all wrapped up in asymmetric language. So, I would strongly favor symmetry now on a continuous basis.",284
-fomc-corpus,1994,President McTeer.,5
-fomc-corpus,1994,"To me the question remains: If you're going to cut off the cat's tail, what is the optimum number of snips? Normally the answer to that is one. In a policy context, I think that translates to the 50 basis points, but I could certainly live with your recommendation of 25 basis points plus the announcement effect.",68
-fomc-corpus,1994,"You know, I rarely feel strongly about an issue, and I very rarely sort of press this Committee. But let me tell you something about what's gnawing at me here. I am very sympathetic with the view that we've got to move and that we're going to have an extended period of moves, assuming the changes that are going on now continue in the direction of strength. It is very unlikely that the recent rate of economic growth will not simmer down largely because some developments involved in this particular period are clearly one-shot factors--namely, the very dramatic increase in residential construction and the big increase in motor vehicle sales. Essentially the two of those have added one-shot elements to growth. In the context of a saving rate that is not high, the probability is in the direction of this expansion slowing from its recent pace, which at the moment is well over 4 percent and, adjusting for weather effects, may be running over 5 percent. This is not sustainable growth, and it has nothing to do with monetary policy. In other words, it will come down. And the way a 3 percent growth feels, if I may put it that way, is a lot different from the way the expansion feels now. I would be very concerned if this Committee went 50 basis points now because I don't think the markets expect it. You want to hit a market when it needs to be hit; there is no significant evidence at this stage of imbalances that require the type of action that a number of us have discussed. Were we to go the 50 basis points with the announcement effect and the shock effect, I am telling you that these markets will not hold still. I've been in the economic forecasting business since 1948, and I've been on Wall Street since 1948, and I am telling you I have a pain in the pit of my stomach, which in the past I've been very successful in alluding to. I am telling you--and I've seen these markets--this is not the time to do this. I think there will be a time; and if the staff's forecast is right, we can get to 150 basis points pretty easily. We can do it with a couple of 1/2 point jumps later when the markets are in the position to know what we're doing and there's continuity. I really request that we not do this. I do request that we be willing to move again fairly soon, and maybe in larger increments; that depends on how things are evolving. I also would be concerned if this Committee were not in concert because at this stage we as a Committee are going to have to do things which the rest of the world is not going to like. We have to do them because that's our job. If we are perceived to be split on an issue as significant as this, I think we're risking some very serious problems for this organization. I don't think there is a philosophical difference anywhere around this room. If somebody asked me if I think there is an economic case for 50 basis points, my answer is ""most certainly there is a case."" Do I think there is a case in the full context of where the financial markets are at this stage and what the expectations in the markets are at this stage? I would say emphatically ""no."" It's far too risky. We don't need to take those risks. If I could see a very significant benefit from doing 50 basis points, I would say let's do it; I just don't see it. Bob.",703
-fomc-corpus,1994,"Mr. Chairman, you certainly made your points very strongly and they are points that one wants to take into account. I think the concern of some who are favoring 50 basis points may be related to the long time between now and the next meeting. Is it possible, as something of a compromise, that we could have an agreement to have a telephone meeting at some intermediate point between the two meetings to see if things have changed to any extent? We certainly would have the benefit of seeing the market reaction to this 25 basis point move. In addition to that, we'd have some more information on the economy, particularly the inventory side, and maybe we could discuss these developments again.",137
-fomc-corpus,1994,That's perfectly fine with me.,6
-fomc-corpus,1994,"Mr. Chairman, if we could make it specific, I would recommend that we do 25 basis points today and have a conference call within two days after your Humphrey-Hawkins testimony.",39
-fomc-corpus,1994,Upon what evidence?,4
-fomc-corpus,1994,"May I ask a procedural question? I favor Bob's suggestion. I would be a little concerned about setting a precise date just because we're in this process of change. The announcement, for example, is a change and these are all things that we will openly discuss later on. I think we have to be careful that what we're announcing today is--",69
-fomc-corpus,1994,"Let me put it this way. I've been Chairman of this Committee now for over six years. I hope I have enough credibility to know when a telephone call is appropriate. I'm watching the same developments that you are. I'd just as soon not set a date. It may turn out that way, Larry, but I don't--",65
-fomc-corpus,1994,But there will be a phone call?,8
-fomc-corpus,1994,Yes.,2
-fomc-corpus,1994,I wouldn't put a fixed date.,7
-fomc-corpus,1994,"I would very strongly prefer that we not set a precedent that the Chairman, particularly this Chairman, has to agree in advance on the need for a phone call. His record is that he's going to call us if there's something to talk about or if a few of us call him and say we think there's something to talk about and request a telephone conference. I think it's demeaning to the process, to the nature of this Committee, to say to the Chairman, ""I'll vote for what you want but we've got to have a phone call."" I really think that's a terrible precedent to set.",118
-fomc-corpus,1994,I agree with that.,5
-fomc-corpus,1994,"I agree with that and I also agree with that from another perspective. In being fully open and honest, which we should be, in what we discuss when we release the minutes for this meeting, we don't want half a picture conveyed. We don't want to say that there has been a dramatic change in process and that we went along with this policy but it was with a contingency--that it was really a nod and a wink. It's fine if there's a call, but it has to be on your volition without essentially a nod and a wink agreement that, yes, we'll do this but with a strong presumption that we'll do another 25 basis points in a call. I think that would be wrong. I think it still has to be an open issue.",153
-fomc-corpus,1994,"Yes, I think Bob is saying precisely the same thing.",12
-fomc-corpus,1994,"I'm willing to defer to your judgment on the market reaction, but the logic of that position is that if 50 basis points really would be the correct move except for constraints of the market, then once we've done the 25 basis points and overcome any concerns about market reaction we would come in with the second installment fairly promptly.",65
-fomc-corpus,1994,"I'm of the belief that if this economy behaves as strongly as it has been behaving recently, it means that our forecast is wrong and that more is required rather than less. I think it's too soon to make that judgment. But if this economy continues to move, especially if the inventory issue which I raised begins to show its head, I would be strongly supportive of much more rapid and, frankly, larger moves. Let me make the suggestion then that we move 25 basis points with symmetry, that we watch this process very closely, and that if evidence suggests that this situation is not simmering down, that we have a telephone conference at the appropriate time. At that point we can decide to do nothing, move further, or suggest another telephone conference; we can do a number of things. But it would effectively be a continuation of this meeting. So, I would request that. I don't request often that we try to stay together. That's not what is required here. I think we're all very much on the same focus. It's not as though some of us think we shouldn't do anything, some think we should ease, and some think we should tighten. We've had those occasions in the past and that's a legitimate difference reflected in the nature of the Committee itself. As I listened these last two days, I didn't sense any significant difference within the Committee on the purpose and the goals of what we're doing. I would request that, if we can, we act unanimously. It is a very potent message out in the various communities with which we deal if we stand together. If we are going to get a split in the vote, I think it will create a problem for us, and I don't know how it will play out. I rarely ask this, as you know. This is one of the times when we really are together and I'd hate to have our vote somehow imply something other than the agreement for a tightening move that in fact exists in this Committee. With that I would ask--I'm sorry, Governor Lindsey, did you want to say something?",410
-fomc-corpus,1994,You answered my question.,5
-fomc-corpus,1994,With that I would request that you read a symmetrical directive with a somewhat tighter--,16
-fomc-corpus,1994,"I'll be reading from the Bluebook on page 24: ""In the implementation of policy for the immediate future, the Committee seeks to increase somewhat...""",30
-fomc-corpus,1994,"I would say ""slightly,"" Norm.",9
-fomc-corpus,1994,"""...to increase slightly the existing degree of pressure on reserve positions. In the context of the Committee's long-run objectives for price stability and sustainable economic growth, and giving careful consideration to economic, financial, and monetary developments, slightly greater reserve restraint or slightly lesser reserve restraint might be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with moderate growth in M2 and M3 over the first half of 1994.""",89
-fomc-corpus,1994,"Okay, call the roll.",6
-fomc-corpus,1994,Chairman Greenspan Yes Vice Chairman McDonough Yes President Broaddus Yes President Forrestal Yes President Jordan Yes Governor Kelley Yes Governor LaWare Yes Governor Lindsey Yes President Parry Yes Governor Phillips Yes,40
-fomc-corpus,1994,I thank you for that. I think it's the right move. I think in retrospect when we're looking back at what we're doing over the next year we'll find that it was the right decision.,38
-fomc-corpus,1994,What is your intention now for implementation?,8
-fomc-corpus,1994,I think we're going to make a short announcement.,10
-fomc-corpus,1994,"Alan, what is your judgment on adding--I'm talking about the part of our directive where we're just reciting historically what has occurred--some reference to the behavior of narrow aggregates and taking the edge off of the relatively weak growth in the broader ones?",50
-fomc-corpus,1994,I would be inclined to change as few things as possible. We are making a very large announcement at this point. Let's put that on the table.,30
-fomc-corpus,1994,That's fine. I just think it may help in terms of people understanding that the aggregates aren't presenting a clear picture of the stance of monetary policy.,29
-fomc-corpus,1994,"Well, you know it might be best to handle that in the Humphrey-Hawkins testimony.",20
-fomc-corpus,1994,"Yes, whatever you decide on that is okay with me. I put that forward as a suggestion that might be helpful in terms of defending our position. Thanks.",32
-fomc-corpus,1994,"Okay. Here's the statement I plan to release. ""Chairman Greenspan announced today that the Federal Open Market Committee decided to increase slightly the degree of pressure on reserve positions. This action is expected to be associated with a small increase in short-term money market interest rates. The decision was taken to move toward a less accommodative stance in monetary policy in order to sustain and enhance the economic expansion. Chairman Greenspan decided to announce this action immediately so as to avoid any misunderstanding of the Committee's purposes given the fact that this is the first firming of reserve market conditions by the Committee since early 1989.""",122
-fomc-corpus,1994,Perfect.,2
-fomc-corpus,1994,Good.,2
-fomc-corpus,1994,Perfect.,2
-fomc-corpus,1994,Fine.,2
-fomc-corpus,1994,"Why don't we break at this stage for coffee, assuming it's there.",14
-fomc-corpus,1994,You will release that now?,6
-fomc-corpus,1994,"Yes, well, we have to release it ahead of ""Fed"" time. We are going to release it before 11:00 a.m.",30
-fomc-corpus,1994,So we are are adjourned or recessed or whatever.,12
-fomc-corpus,1994,I will be referring to page 8 in the Bluebook in the course of my report. [Statement--see Appendix.],25
-fomc-corpus,1994,"As I understand it, we have basically two ways of looking at the monetary aggregates. Either we're going to look at them and make them usable and useful in policy determination or we are not. If they come back into vogue and they are working, what we want is a range that is consistent with price stability. As I understand it, that's 1 to 5 percent for M2, if it's working.",82
-fomc-corpus,1994,"Right, assuming a flat velocity.",7
-fomc-corpus,1994,Yes.,2
-fomc-corpus,1994,"The monetary aggregates could come back in a sense of predictable velocities. In fact, we haven't done that poor a job of predicting them in recent years, but we believe it's not a stable situation. But you're right; if the M2 velocity comes back to its flat path, the 1 to 5 percent range would be approximately the right range.",70
-fomc-corpus,1994,"If that's the right one, then the question is what do we do in the interim? We have a choice of making them lower, in which case we're basically saying that M2 doesn't matter. As Paul Sarbanes said, we've shot the bullet and then drawn the circle around the bullet hole. If M2 starts coming back and we have a 0 to 4 percent range, do we want then to raise the range to a price stability range? It raises an interesting game theory question here. I'm almost inclined to say we ought to leave it where it is, and if it's not working it's irrelevant, and if it starts to work we are where we want to be.",137
-fomc-corpus,1994,Why lower it and have to raise it?,9
-fomc-corpus,1994,"I think raising it gives the wrong signal. We've been trying to get the M2 range to price stability, and we finally got it here. It may be true that M2 isn't working, but the range is working! [Laughter] And if M2 comes back, we actually will not be pressured to move on it. Anyway, that was supposed to be a question!",77
-fomc-corpus,1994,"Mr. Chairman, a possible answer may be that when we made some of those recent adjustments, we did emphasize their technical nature in response to some recent developments in the behavior of the aggregates, so there might be some feedback.",45
-fomc-corpus,1994,"Yes, but I have this technical problem where if it's technical we're not using it, and if it works we want it to be right. And to make it right by raising it, I find difficult. Governor Lindsey.",44
-fomc-corpus,1994,"Mr. Chairman, I agree with you completely on a 1 to 5 percent range for exactly the reason you gave. My question is on debt, however. If you look at Chart 4, the world was lovely until about 1981 or 1982, then it fell out of bed. And unlike M3 and the rest of them, it didn't even change course. It looks as if during the 1980s we moved to a new secular plateau. We know what happened during that period: There was corporate restructuring in favor of debt for lots of reasons; there were lots of learned papers to explain that development. Similarly, households moved toward debt. Not only have those trends stopped in the corporate sector, but they are now reversing themselves. Equity is now being issued to replace debt. Wouldn't it be reasonable to expect that, if anything, the velocity of debt would accelerate in the years ahead largely as a result of responses in the corporate sector?",195
-fomc-corpus,1994,"I think it's a balancing of a couple of things here--the federal government versus the private sector. The private-sector debt growth as you know was very low and total debt growth actually was close to GDP, as you can see by the flatness of that line, largely because the federal government was such a heavy borrower. Now, federal government borrowing is being cut back but we believe the private debt growth will be picking up a bit; in fact, it did over the second half of last year. The projection for 1994 is basically that the pattern of the second half in terms of household and business borrowing--there are tradeoffs between the two but taken together the total--will be about the same as it was in the second half of last year. We're not predicting an acceleration of that.",160
-fomc-corpus,1994,You are basically predicting an elasticity of one with respect to nominal GDP and debt spending.,17
-fomc-corpus,1994,"Although I think that's what works out of a complicated underpinning in which we say, as Mike pointed out yesterday, there will be more corporate use of external funds over the coming year or two because their cash flow is slowing relative to their spending. Household borrowing growth, on the other hand, is expected to slow a little.",65
-fomc-corpus,1994,"But there has been a secular change in the relative costs of debt and equity in the corporate sector. They are voting with their feet now and issuing new equity, particularly IPOs and what have you.",40
-fomc-corpus,1994,"You could greatly overstate these trends. We are talking about $20 to $25 billion a year of net equity issuance, which is a very small part of the overall external financing activity in the economy. So that isn't a major element of the financial flows at this point.",55
-fomc-corpus,1994,"In the takeover of Paramount, what I find striking about the composition of that offer is how heavily equity oriented it is compared to offers five and six and seven years ago.",34
-fomc-corpus,1994,"But it's less so than a lot of the other transactions. In fact, that one includes some cash, whereas most of the major transactions have just been stock or stock swaps. So, indeed in our forecast we're assuming we're going to see some trickle of cash buyout transactions over the coming years because our sense is that the firms probably have gone a long way in adjusting their balance sheets and trying to get the mix that they will be comfortable with. Our tax system, with an increase in corporate income tax rates, tilts even more in the direction of favoring debt than it did a year ago.",121
-fomc-corpus,1994,"Well, I don't know if I would make that conclusion for the aggregate effect of the taxes. I might argue the other way.",26
-fomc-corpus,1994,"Well, okay, I was just looking at the marginal taxes.",13
-fomc-corpus,1994,"But while I agree with the alternative I M2 and M3 target ranges, I prefer alternative II on debt.",23
-fomc-corpus,1994,Governor LaWare.,4
-fomc-corpus,1994,I have a question. I'm probably the next to the oldest person in this room and I remember Ml. The precipitous decline in M1 growth shown on page 13 puzzles me. What's the rationale or the reasoning behind that?,46
-fomc-corpus,1994,"Going from 1993 to 1994, we have two special factors. One is the mortgage-backed securities situation, which added a couple percentage points to M1 in 1993 and will subtract a little in 1994. We are assuming that the refinancings of mortgages will settle down or actually decline, and they have, and that subtracts from demand deposits. Number two is which shifted a bunch of deposits, about $7 billion or so--we're not quite sure how much yet but in that order of magnitude--from NOW accounts to MMDAs. It doesn't affect M2, but we think that subtracted about 3/4 of a percentage point from M1 growth. For M1 growth, when you go from 1994 to 1995 the principal effect is interest rates. We've assumed that the short-term interest rates consistent with the Greenbook forecast start on an upward trend in the second half of 1994 and continue that way through 1995. One thing we have found about M1 is that it is a very interest-sensitive aggregate. There's the issue of compensating balances and the earnings effects, but even more so, I think, there's the issue of NOW accounts. When time deposit rates or maybe even savings deposit rates start to rise with market interest rates, some of the funds that had been shifted into NOW accounts--because rates on NOW accounts and small time deposits were about the same or not much different--may well be shifted back to time deposits. So, we think the NOW accounts in particular have become extremely interest sensitive. And that's why you see the velocity of M1--on Chart 5--has become highly variable, especially after 1980. It's because of the interest rate effects. Primarily what's happening, going from 1994 to 1995 in particular, is the effects of the rising interest rates.",379
-fomc-corpus,1994,"So, the major effect is in the demand deposits segment of Ml?",14
-fomc-corpus,1994,"Demand deposits but the NOW accounts as well. We think that rising interest rates will pull funds out of the NOW accounts into small time deposits which would have, obviously, no effect per se on M2 but would have a major effect on M1.",50
-fomc-corpus,1994,What is the underlying assumption about the spread between a NOW account rate and a CD rate?,18
-fomc-corpus,1994,"We would assume that that spread would widen. Our experience is that the NOW account rates adjust very slowly and sluggishly whereas the small time deposit rates in recent years have come to adjust fairly rapidly. We would think that the retail CD rate would rise with a lag but fairly promptly as the fed funds rate rose and other market interest rates adjusted higher, but that the NOW account rate would be quite sluggish.",80
-fomc-corpus,1994,Thank you.,3
-fomc-corpus,1994,President Jordan.,3
-fomc-corpus,1994,"A couple of questions, Don, about your table on page 8. I realize the risk of making too much out of these projections, but the first question relates to the Chairman's remarks about the ranges. As I understand your M2 projection in the outer years, under all three of these alternatives M2 is in the upper, upper half of all of them, even the 1 to 5 percent. That would assume that if we went to your alternative II, 0 to 4 percent for M2, we would at some point have to raise the range if the idea was to have the range center around what we would wind up with in equilibrium.",134
-fomc-corpus,1994,"Yes, although I think the baseline is a little toward the upper end, but we are assuming that these special trends in velocity do come to an end. We do have some declines in short-term rates in 1996 and 1997 in the tighter and easier alternatives, which push up money growth a little. We have long-term rates coming down so we have the yield curve flattening. So, there are a few special factors, which are pushing up money growth out there. But the underlying assumption is consistent with what the Chairman said, that is, aside from those special factors having to do with the shape of the yield curve, in the out years we assumed--without any evidence yet that it's happening--that the big shifts in money demand did cease.",153
-fomc-corpus,1994,"When I look at your nominal GDP projections and the M2 out at the end of your projection, I notice your velocities are zero for all three. It's the constraints that you impose; you've assumed that by that point--",44
-fomc-corpus,1994,"Yes. When the interest rate effects die down in 1998 and 1999, we have assumed that velocity growth will be zero as you said, that the special shifts will--",37
-fomc-corpus,1994,"Okay. It struck me, when I looked at the top and the bottom of the federal funds rate projections for the out years and the top CPI projections, that you have under all three alternatives either 4 or 4-1/2 on the funds rate. That means the funds rate--I don't like the words tighter and easier so I won't use them--on the less inflationary path is above the inflation rate.",85
-fomc-corpus,1994,Yes.,2
-fomc-corpus,1994,"And even substantially above the nominal GNP. In Street jargon, policy is becoming relatively more restrictive going forward in that the inflation rate and inflation expectations are coming down more than the nominal yield and you're leaving the funds rate above nominal GDP six years out.",50
-fomc-corpus,1994,"It's two things. One is that we recognized when we talked about whether we should fine-tune this strategy, in particular when we got out there, that in fact real interest rates are rising in this tighter strategy. We have the unemployment rate still at 7 percent. I think that in fact if the Committee were to engage in the tighter strategy--that is, raise rates higher now--it would end up reducing the funds rate in the out years. It just seemed like a degree of fine-tuning that perhaps wasn't needed. But we recognized the problem you're raising, which is that the real rate is rising out there, and the Committee would have to bring it down. I think it is important to emphasize that to get the kind of disinflation embodied in this scenario and without credibility effects--as we pointed out we're just working off short-run and long-run Phillips curves--you do need to keep the real interest rate a bit above its equilibrium level in this tighter policy to keep slack in the economy, to keep the inflation rate pointed down. So, it's not surprising that the real rate in the tighter strategy is above the real rate in the baseline or the real rate in the easier strategy; that corresponds to the various unemployment rates in the model which you need to get the inflation rate--",259
-fomc-corpus,1994,"Well, there's no doubt the lack of credibility has effects on this. But the last time we were running for a sustained period at 2 percent or less on the CPI--as in the period from 1997 through 1999--we had a lot lower short-term rates than you are suggesting here.",62
-fomc-corpus,1994,President Boehne.,5
-fomc-corpus,1994,I don't have any questions on this.,8
-fomc-corpus,1994,"Okay. Any further questions? If not, would somebody like to start the roundtable on what you want to do?",24
-fomc-corpus,1994,"I agree with what I think was implicitly the Chairman's suggestion, which is that I would leave these ranges alone. I understand the point that Larry raised on debt, and I could go either way with that. But my own personal view is that it risks putting a little too fine a point on this. That's a tactical issue; it's not a substantive issue. I think the comment was correct, but given our level of knowledge on these things and the disruptions that we are and have been subject to, I'd be very wary of making a relatively small change in one of these ranges because I think it could imply an ability to forecast and to understand these things that is greater than we have. I don't know if you want my view now on presenting a forecast for 1995, but I would have fairly serious reservations about going ahead with that. As has been said, that is far enough out that it certainly incorporates as much an objective as it does a pure forecast. And I think that suggests we need to think very carefully about whether we want to do that or not. Thank you.",217
-fomc-corpus,1994,President Broaddus.,5
-fomc-corpus,1994,"Well, I don't think we should change the targets for the reasons that Dick Syron just went through. I agree with him. Given the kinds of uncertainties we're facing with M2, especially now, I do think that that raises a problem. Not having a nominal anchor in some explicit way raises a problem for monetary policy, but I don't think that putting out the 1995 forecasts would solve that problem. It would raise more questions than it would answer about preferences and tradeoffs and a lot of other things. So, I think that would be a bad idea. To me the way to deal with that problem basically is just to continue publicly to communicate our firm commitment to price stability over the longer haul, no matter how tired people get of listening to us say that and how tired we get of listening to ourselves say it. But that I think is our best option in that sense.",178
-fomc-corpus,1994,President Forrestal.,4
-fomc-corpus,1994,"Well, Mr. Chairman, I think there are so many uncertainties at this point with respect to M2 that we shouldn't change the range. And those uncertainties are magnified by the fact that if we do have an increase in rates, M2 could grow much more quickly, with defections from asset funds; this effect could in fact be heightened if there is concern about the safety of these uninsured assets. If we're confident about our current estimates, I think there's enough scope in the current ranges to adjust policy the way we want to. With respect to a tighter alternative, I would find it very difficult to assume a policy path that shows a rise in unemployment from the current level that is basically sustained over a five-year period. So, I would favor retaining the provisional ranges that we have.",158
-fomc-corpus,1994,How do you stand on the 1995 publication?,11
-fomc-corpus,1994,I don't think we ought to do that; I would just have 1994.,17
-fomc-corpus,1994,"Having seen the results, in terms of the forecasts submitted, I am a little dubious for the reason that Jerry Jordan pointed out yesterday. President Hoenig.",31
-fomc-corpus,1994,"I think we should stay with the current targets as we have them, no changes. And in my view we should not be projecting 1995.",30
-fomc-corpus,1994,President Parry.,4
-fomc-corpus,1994,"Mr. Chairman, I think our current ranges are consistent with our longer-term objectives and I would not be for changing them. In addition, I would not favor using the 1995 projections.",39
-fomc-corpus,1994,President Melzer.,4
-fomc-corpus,1994,"I'd adopt the provisional ranges shown in alternative I. And I agree with your logic, Alan. I've always felt that we ought to get those ranges where they ought to be in terms of some concept of long-term price stability and then not move them around, even though they're not useful right now. I wouldn't provide the 1995 projections. My reason has to do with the fact that they incorporate different underlying assumptions. They really are not comparable. People have made different assumptions about monetary policy in particular. If we were going to do anything along those lines, although I wouldn't suggest that we are ready to, we'd be better off to set a nominal GDP target which, of course, implies an inflation target. That's something we might want to explore in connection with setting provisional ranges for 1995, but we're certainly not ready to talk about it seriously right now.",172
-fomc-corpus,1994,Governor LaWare.,4
-fomc-corpus,1994,I would prefer to stay with the provisional ranges and I would be strongly opposed to releasing the 1995 projections.,23
-fomc-corpus,1994,President Keehn.,4
-fomc-corpus,1994,"Mr. Chairman, I would not change the provisional ranges and, like Governor LaWare, I feel very strongly about not releasing the 1995 forecasts.",31
-fomc-corpus,1994,President Jordan.,3
-fomc-corpus,1994,"I prefer the 1 to 5 percent range on M2. I don't have a clue about the debt number; I never did. While in principle I prefer publishing not only the 1995 numbers but beyond that, I certainly wouldn't want to publish these numbers! [Laughter] I'd like us to publish CPI objectives out through 1999, but I sure don't like the numbers that are companions to them. So, I'm stuck with saying: Don't publish 1995 unless we come up with some better numbers!",105
-fomc-corpus,1994,President Stern.,3
-fomc-corpus,1994,I agree with what has been said. I would keep the ranges as they are. I don't see any point in calling any more attention to the aggregates at this time. And I would not publish the 1995 forecasts.,45
-fomc-corpus,1994,Governor Phillips.,3
-fomc-corpus,1994,I would keep the ranges where they are and not publish the 1995 forecasts.,17
-fomc-corpus,1994,Governor Kelley.,3
-fomc-corpus,1994,The same: no change in the ranges and no release of 1995 forecasts.,17
-fomc-corpus,1994,President McTeer.,5
-fomc-corpus,1994,I agree with everybody on everything. [Laughter],11
-fomc-corpus,1994,All the time!,4
-fomc-corpus,1994,Vice Chairman.,3
-fomc-corpus,1994,I agree with maintaining the provisional ranges and believe we should not release a forecast for 1995. There's no question in my mind that it would become a forecast with which we would be expected to live and there's no consensus in the Committee on what such a forecast should be.,55
-fomc-corpus,1994,President Boehne.,5
-fomc-corpus,1994,"I'd declare victory on the M2 and M3 ranges, and I don't have any feelings about debt at this point. And we're not ready for an extended forecast beyond the next year.",37
-fomc-corpus,1994,I think we're as close to unanimous as we can get on these sorts of things. Why don't we vote on the same ranges and no publication of 1995 forecasts.,34
-fomc-corpus,1994,"I'm reading from page 23 now in the Bluebook. The first sentence is unchanged, and continuing: ""In furtherance of these objectives, the Committee at this meeting established ranges for growth of M2 and M3 of 1 to 5 percent and 0 to 4 percent respectively, measured from the fourth quarter of 1993 to the fourth quarter of 1994. The Committee anticipated that developments contributing to unusual velocity increases could persist during the year and that money growth within these ranges would be consistent with its broad policy objectives. The monitoring range for growth in total domestic nonfinancial debt was set at 4 to 8 percent for the year."" Then at the bottom of the page, ""The behavior of the monetary aggregates will continue to be evaluated in the light of progress toward price level stability, movements in their velocities, and developments in the economy and financial markets.",177
-fomc-corpus,1994,Call the roll.,4
-fomc-corpus,1994,Chairman Greenspan Yes Vice Chairman McDonough Yes President Broaddus Yes President Forrestal Yes President Jordan Yes Governor Kelley Yes Governor LaWare Yes Governor Lindsey Yes President Parry Yes Governor Phillips Yes,40
-fomc-corpus,1994,"I'd like to take a moment before we adjourn to note the impending retirement of one of the System's most distinguished economists, Dick Davis. During his 33 years at the New York Bank he's provided important service not only to that institution but to the System as a whole. Repeatedly when there was a major issue regarding monetary policy--for example, the role of the monetary aggregates or what our operating procedures should be--we all looked to Dick for leadership in our research efforts. Dick has always exhibited an extraordinary ability to blend sophisticated, technical analysis with common sense and an understanding of institutional realities. In addition, he has been a model for all economists in the System. We thank you very much and wish you well in your future endeavors. [Applause]",154
-fomc-corpus,1994,"Dick, if you want to make a speech you're welcome.",12
-fomc-corpus,1994,I appreciate your remarks very much; thank you.,10
-fomc-corpus,1994,Good speech!,3
-fomc-corpus,1994,"Well, let's adjourn to lunch.",8
-fomc-corpus,1994,Good morning everyone. We welcome Cathy Minehan.,10
-fomc-corpus,1994,"Thank you, Mr. Chairman.",7
-fomc-corpus,1994,"I trust you won't dominate the meeting but if you do, so be it!",16
-fomc-corpus,1994,I trust I won't either!,6
-fomc-corpus,1994,Would somebody like to move the minutes of the February meeting?,12
-fomc-corpus,1994,So move.,3
-fomc-corpus,1994,Without objection. Peter Fisher.,6
-fomc-corpus,1994,[Statement--see Appendix.],6
-fomc-corpus,1994,Questions for Peter? I assume that the econometric model that gave you that forecast has a number of linear equations in it. [Laughter],29
-fomc-corpus,1994,"Yes, undoubtedly.",4
-fomc-corpus,1994,Would somebody like to move approval of the Desk's foreign exchange transactions since the last meeting?,18
-fomc-corpus,1994,So move.,3
-fomc-corpus,1994,Is there a second?,5
-fomc-corpus,1994,Second.,2
-fomc-corpus,1994,Without objection.,3
-fomc-corpus,1994,"Mr. Chairman, may I just ask one question?",11
-fomc-corpus,1994,Sure.,2
-fomc-corpus,1994,I'm sorry I didn't do it in a timely fashion. There was some talk in Europe that was critical of the hedge funds of banks for contributing to the instability. Do you think that worsened the situation or had no effect?,45
-fomc-corpus,1994,"There were some days on which the criticism of hedge funds or leveraged funds or derivatives worsened the impact. That impact wasn't very long-lived, but there were a few days when comments by officials, especially the ones by unnamed officials allegedly getting tough on hedge funds or derivatives, were counterproductive. I wouldn't put that as a dominant effect but at the margin it was a factor.",75
-fomc-corpus,1994,"Okay, I'd like to call on Joan Lovett next.",12
-fomc-corpus,1994,[Statement--see Appendix.],6
-fomc-corpus,1994,"Questions? If not, would somebody like to move to ratify the actions of the Desk over the intermeeting period?",24
-fomc-corpus,1994,And to increase the leeway.,7
-fomc-corpus,1994,And to increase the temporary leeway.,8
-fomc-corpus,1994,So move.,3
-fomc-corpus,1994,Second.,2
-fomc-corpus,1994,"Without objection, both are approved. Mr. Truman.",11
-fomc-corpus,1994,"The subject is the permanent enlargement of the Mexican swap line. I hope the background material that was circulated to you was reasonably comprehensive and comprehensible and that, therefore, I can be brief. As was explained, there are two themes to this discussion. One is the Mexicans' desire for a substantial and permanent enlargement of their current swap lines with the Federal Reserve System and the United States Treasury; those lines are $700 million and $300 million respectively. The second is the United States Treasury's desire not only to be responsive to the Mexican request but also to set up a consultative mechanism on macro policy issues among the three NAFTA countries, which makes a certain amount of sense. Specifically, what is proposed to be put in place, which is now thought would occur sometime in the second half of April, would be a consultative mechanism among the three NAFTA central banks and finance ministries and an announced increase in the swap lines. What is being thought about is for the United States Treasury and the System to increase our combined lines to either $5 billion or $6 billion, though I think there is a preference for $6 billion. The new swap lines would be divided half and half between the System and the Treasury. Activation of those lines, of course, would require consent as is the case at the moment. And normally that consent would have to be linked to our satisfaction with the economic policies and reasonable agreements on repayment. Indeed, it's contemplated that all or most of any drawings would be collateralized. It is contemplated that there would be a parallel, though somewhat smaller, increase in the Bank of Canada's swap line with the Bank of Mexico, though the size has not been decided. The thought is that there would be some staff meetings with the Mexicans and the Canadians over the next month that would refine this proposal and then we would come back to the FOMC for action, probably by telegram. No action is needed today, but it was felt that a discussion would be helpful. As you know, Mexico has been the principal user of our swap network over the past decade or so. The size of the actual swap drawings has often been augmented by special arrangements. A change in the swap line at this point would clearly be linked to NAFTA and to the shift in Mexico, as of the first of April, to an autonomous central bank. It is not, I should emphasize, linked in any way to the recent pressures on the peso. I would be glad to answer any questions.",500
-fomc-corpus,1994,"I have two questions, Ted. First, is this proposal contingent in any way on Canada's moving? Second, are these conditions, for example the collateral and consultative apparatus, unique to this arrangement or do the other swap agreements have those as well?",50
-fomc-corpus,1994,"On the question about Canada, I think it's required that the Canadians come in at some point. They actually do have a swap line now. Whether they will agree on the amount that the Treasury is thinking about, which is C$1 billion to C$2 billion or the size that the Mexicans are thinking of, which I was told is C$3 billion, I think is another matter. As far as the conditions are concerned, all swap lines have at least implicitly a condition in terms of the Committee being satisfied that any drawing would be supported by the economic policies of the drawing country. So, in that sense it's the same, and I'll come back to that in a minute. As for the collateral, normally we don't have any language to that effect in the actual swap line agreement. The reason for that in this case is that the Treasury has had in the past quite elaborate conditions in its own swap line with Mexico and in its other arrangements relating to outstanding swap lines. My suggestion, or my inclination anyhow, would be essentially to leave our swap line the way it is, except to say that the amount X would be raised to Y. We would rely on provisions of the Treasury's agreement for these conditions. I think that's a cleaner way to do these things. So, in principle there could be, as there has been in the past, activation of one line without activation of the other. But when an activation took place, then one could decide what conditions were warranted. We have over the years--both with Mexico and with other countries in the more distant past--always wanted to make sure that if a country was going to draw, we had some assurance that they would be able to repay us from one source or another. But the details of the conditions specified in advance have varied depending on the circumstances.",364
-fomc-corpus,1994,But I take it these conditions are satisfactory to the Mexican authorities?,13
-fomc-corpus,1994,"I assume so. We haven't had a full set of discussions, so I can't say that with certainty.",21
-fomc-corpus,1994,President Jordan.,3
-fomc-corpus,1994,"First, just a small item of clarification. In your memorandum you say Canada's line would be increased to between C$1 billion and C$2 billion, but it is already C$2 billion so I assume--",43
-fomc-corpus,1994,"No, Canada's line with Mexico would be increased from its current C$250 million to between C$1 billion to C$2 billion.",28
-fomc-corpus,1994,Okay.,2
-fomc-corpus,1994,It hasn't been proposed yet to increase our swap line with Canada.,13
-fomc-corpus,1994,Our own with Canada?,5
-fomc-corpus,1994,Right.,2
-fomc-corpus,1994,"With regard to Mexico, I have very mixed feelings. On the one hand, I have trouble with all the swap lines, their utilization, and the conditions. I'm still not satisfied in my own mind as to what is or is not an appropriate use of swap lines per se. And in that respect there is no reason to treat Mexico as a second class partner versus other countries; they are a very major trading partner of ours and I assume in the spirit of NAFTA there is a sense of bringing them into the big leagues. Now, whether they really ought to be on the same level with the Germans and the Japanese I'm not so sure. On the other hand, when I look at the utilization of our swap lines with Mexico in the past, it's a very troubling pattern. It tends to occur at six-year intervals, including 1976, 1982, and 1988--very questionable utilizations. And now it's 1994 and I would predict that if we do this, the line is going to get used and we are going to have trouble saying no. It might get used with a supplement even if we don't approve a permanent increase and there are going to be some very serious questions about the appropriate use of this facility in that kind of political environment.",256
-fomc-corpus,1994,President Broaddus.,5
-fomc-corpus,1994,"I didn't have a question, but a comment if that's appropriate now. I have a lot of sympathy with what Jerry just said. I think Ted has presented a number of plausible reasons for enlarging this swap. I think the memo that he distributed was very helpful and it showed that this facility has been used constructively on a number of occasions in the past. The drawings generally have been paid back promptly and U.S. taxpayers have not lost anything. So, from that kind of perspective I think we can make a case for increasing the line. But it seems to me that there are a number of broader issues here that Jerry has alluded to that urgently need attention. The 1951 Treasury/Federal Reserve Accord established the principle that the Fed needs to be meaningfully independent within the government in order to conduct our monetary policy effectively. I think we all know that that independence is indispensable if we are going to be able to discharge our fundamental responsibilities successfully. We also know that this independence is granted only grudgingly and it's under constant scrutiny in the Congress and elsewhere. Consequently, I think we ought to be very reluctant to take any action that might have even the appearance of abusing this independence lest we lose some or all of it. Now, with all of this in mind, enlarging the swap line with Mexico worries me a great deal. As I understand it, the line was initially established back in 1967 to help deal with balance of payments issues and specifically to help support the then-fixed exchange rate between the peso and the dollar. That rationale no longer exists; in fact, the materials that Ted distributed make it explicit that this facility would not be used for this purpose. So, it seems clear to me that any loan to Mexico in the current circumstances in essence would be a fiscal action of the U.S. government. And fiscal actions--expenditures of the government--are supposed to be authorized by Congress and Congress is supposed to appropriate the funds. So, whatever the general merits may be of making loans to Mexico, I don't think we should be involved without explicit Congressional authorization, Mr. Chairman. So, I would oppose an increase in the swap line.",436
-fomc-corpus,1994,Vice Chairman.,3
-fomc-corpus,1994,"I'd also like to make a comment. I think that one of the functions of the Federal Reserve is to seek monetary stability in a broader framework than just the American economy itself because of the obvious interlinkages of world markets, as we have heard this morning in Peter's and Joan's presentations. I think that has a great deal to do with why we created swap lines with the major trading partners of the United States and countries that in the past have been a very important part of the world's interlinked financial system. Mexico, because of a very much better performance over the last twelve years, has now reached a stage where its economic performance seems to me to justify being included as a major partner of the United States and the other participants in the world economy. It also is a country, being on our border, in which serious financial instability would have a very definite possibility of spreading across the border and creating problems in our own markets. So to me it is appropriate to have the swap line used in times of market instability, which may or may not be related to years in which there is a presidential election, as long as we are careful that it is not used to prop up the value of the Mexican peso when all the fundamentals say that that would be inappropriate. I think it's very consistent with our general responsibilities. So, I don't share the view that it is something that is inconsistent with the role of the central bank and therefore would demand approved funding from the Congress. I think it's just as much a part of the responsibilities of the Federal Reserve as the swap line with Germany is.",316
-fomc-corpus,1994,President Parry.,4
-fomc-corpus,1994,"Well, I must admit that I can support the recommendation. What concerns me most, however, is its potential use, a concern related to Jerry's. I recall the paragraph in the Maroni memo referring to the fact that in 1988 the swap line was used for window-dressing operations to enhance the announcement of the country's reserves scheduled to be made by the Director General of the Bank of Mexico on August 4 and the President of Mexico on September 1. I think of swap lines as being used to deal with disorderly markets. I think someone who wants to could make a case that perhaps they were being used for political purposes. The kindest light one could put on it is that they were used to prevent the occurrence of disorderly markets, a view with which I'm uncomfortable as well. It's not so much the authority that bothers me; it's the potential in my view for misuse of the Mexican swap.",184
-fomc-corpus,1994,Their argument at the time obviously was that announcing a drop in their reserves would cause problems on the financial markets and that was the reason we went along with their request.,33
-fomc-corpus,1994,Hasn't there been a tradition to use swaps to deal with disorderly markets or do we also use them to prevent disorderly markets?,27
-fomc-corpus,1994,"I think they have been used for both purposes. At times when we have been involved, there have been so-called window-dressing operations. There were some in the 1980s. During the 1982 period they were driven by a slightly different set of considerations that had to do with domestic currency cover concerns. I think it is right to question--and I would put it the other way around--whether central banks I think it's fair to say, however, that all central banks do this these days though they tend to use other mechanisms to window-dress the reserves rather than central bank swap lines. You could argue that the use of central bank swap lines, which ultimately becomes public, seems much more forthcoming than what has done to manage their reserves over essentially the past 20 years when they have",161
-fomc-corpus,1994,"But these Mexican swap lines were used in 1976, 1982, and 1988 as well. The political aspect seems apparent.",29
-fomc-corpus,1994,"Well, there have been occasions on which they have been drawn other than in Mexican presidential election years. But it is true that those last three have been election years.",33
-fomc-corpus,1994,President Hoenig.,4
-fomc-corpus,1994,"Mr. Chairman, I have to admit some ambivalence toward this. I think that to use the swaps, as the memos themselves imply, to influence exchange rate levels is risky business. I do agree with Bill McDonough that they can be used to stabilize markets. My question is about the size of the proposed increase. From the material the rationale for the number that we are shooting toward now, the $6 billion total, wasn't clear to me other than perhaps that the economies are larger. This is a larger number but it's not necessarily the right number for any particular reason. Is that a fair interpretation?",123
-fomc-corpus,1994,"That's a fair interpretation. The $5 billion number was a number that in fact the Mexicans put forward a year ago when they approached us and they had done a rough back-of-the-envelope calculation of the increase in swap lines since the swap network was first established. One can come up with these numbers for various countries in a lot of different ways but it's fair to say that the largest increase in our trade since 1967 has been with Mexico, both globally and bilaterally. That's where the $5 billion number came from; the $6 billion number came from the fact that that was the number we contemplated providing last November in the context of NAFTA. So that's the source of those two figures. Neither is based on fine scientific analysis.",150
-fomc-corpus,1994,First Vice President Minehan.,6
-fomc-corpus,1994,"I have a question and a comment. Ted, is it accurate to say that Mexico has been the only country since the early '80s to actually draw on the swap lines?",36
-fomc-corpus,1994,Yes.,2
-fomc-corpus,1994,So the conditions that we impose on Mexico in some sense do not involve treating them like a second-class citizen; those are the only conditions that are really operative at present in terms of our swap lines.,40
-fomc-corpus,1994,"Well, we went the same way in the past. The most recent other drawing was in the early '80s by Sweden. And we asked ourselves the same questions at that time, about how long the drawing was going to be outstanding, what the conditions were, and how they would contemplate repaying it. So in that sense we asked the same questions as in the Mexican case.",77
-fomc-corpus,1994,"I would generally agree with President McDonough that this is a legitimate function of central banks in general. But I would be concerned, to whatever extent we enter into this swap agreement with Mexico, that we do so on a businesslike basis for us. In that regard I'd be a little nervous about relying on the Treasury's collateral. I'm also bothered, as other people have been, by the history of the drawings and the amount of money that seems to go from one source of funds to another source of funds to pay each of them back. And I would be concerned if we didn't take measures on our own in terms of this very substantial expansion of the line with Mexico so that if it were to be drawn upon we would have independent means of securing our own exposure.",154
-fomc-corpus,1994,"Well, maybe I have not been clear on this. What I was suggesting, just as a matter of convenience, was not that we would rely on the Treasury but that the Treasury could put the conditions in their swap arrangement because they have done that in the past. We have not put such conditions in our agreements in the past, whether it's the $6 billion line we have with the Bundesbank or any of the other lines. And when it came time for a drawing, then we would draw on those conditions rather than have the lawyers specify all those things in advance and have to rescramble them when the time came for a drawing. I was speaking just in terms of convenience from our side.",140
-fomc-corpus,1994,So you would contemplate that if they ever needed--,10
-fomc-corpus,1994,"They would have to come and ask to draw on the swap line and we would have to approve it. And at that time we would say, ""Well, yes, we will approve it as long as we make these collateral arrangements."" That's what I would contemplate rather than pre-specifying those conditions. But we'll do it either way.",67
-fomc-corpus,1994,President McTeer.,5
-fomc-corpus,1994,"I would support the proposal. I think I heard Al Broaddus saying that since the line wouldn't be used to peg the exchange rate then it is likely to be used for some other purpose that would be less legitimate and outside of our scope. However, a crawling peg is a peg when you reach the limit of the crawling peg. And at that point it does become an exchange rate stabilization tool. Also, I would like to associate myself with Jerry Jordan's introductory comments where he pointed out that if we have problems with swaps, we ought to deal with that as a generic matter and not deal just with the case of Mexico.",126
-fomc-corpus,1994,President Boehne.,5
-fomc-corpus,1994,What are the consequences of not approving this request?,10
-fomc-corpus,1994,"I don't know for certain; that's why we are having this discussion, if I may put it that way. If the weight of opinion in the Committee was against going ahead with this request, I think we would inform the Mexicans and the Treasury in advance so that they didn't embarrass us and themselves--particularly themselves--by announcing something they couldn't deliver on. I think the consequences would be that the Treasury would go ahead and enlarge its own arrangement, presumably substantially. Whether they would go all the way to $6 billion and leave us at $700 million, I don't know. But something like that might happen. And that would affect to some extent, I think, our relations both with Mexico and with the United States Treasury at this point. But it wouldn't be the end of the world.",159
-fomc-corpus,1994,"Well, there are these two issues. One is the wisdom of swaps in general and how well they've been used. Then there is the question of whether Mexico ought to be treated differently. The $6 billion is in line with trade flows and various other economic ways of measuring these things. So really it's the second issue of whether Mexico should be treated differently; I think we are not really talking about the wisdom of the overall swap arrangements today. So then my specific question is--and I don't think you really answered the question, Ted--what are the consequences of treating Mexico differently? What are the consequences of nonapproval? I'm not clear in my own mind what those consequences are. I don't come to these discussions on intervention and foreign exchange markets and swaps with any ideological baggage. I just want to know what the practical implications are of our actions or lack of action.",173
-fomc-corpus,1994,"I'm sorry I didn't answer your question. I'm not sure what you mean when you say ""treat Mexico differently."" If you mean by turning down their request, there have been a number of countries over the years whose requests, either to join the swap network or to enlarge existing swap lines have been turned down. So nonapproval of their request would not be unprecedented from that standpoint, though in most cases the countries that were turned down were discouraged before they had gone very far into the process. But it would obviously have adverse implications at least in the short term for our relations with the Bank of Mexico--and I think it is not irrelevant in that regard that the Bank is now entering into a new status--and also would have some adverse implications for our participation with the Treasury and the Canadian authorities on the macroeconomic policy coordination process. I can't speak for the Treasury, but my guess is that they would be less inclined to pursue the arrangements they are now contemplating if we were to back down. We do have a long-standing relationship with Mexico and they have called upon us in the past for assistance. There have been some debates about whether it has been appropriate, but it's fair to say that the Federal Reserve has taken the lead in many cases in helping Mexico over the past 20 years. So, nonapproval would really have some implications for our relations with that country and that central bank.",277
-fomc-corpus,1994,What are the consequences of something less than $6 billion?,12
-fomc-corpus,1994,"It's doable but I'm not sure it's worth arguing about, if I may put it that way.",19
-fomc-corpus,1994,All right.,3
-fomc-corpus,1994,"Let me just add a point here. When Treasury approached us, we toned them down a good deal; we set up a lot of road blocks in periods when they wanted to move. And we have that capability of restraining actions which I think this Committee, myself included, feels uncomfortable with. If we decide that we want to disengage, we will lose whatever power in that area we have to influence the system, and that has pluses and minuses to it. Obviously, we can't acquiescence in a system that is inappropriate. But there is an interesting tradeoff here, which I think we have to be aware of, when one asks what the consequences are. I think one of the consequences if we pull away from this is that there will be a set of policies in this area that we would find less agreeable. It would be worse for the country. It might be better for the Federal Reserve; that's a possibility. But I think we have to keep that in mind. I'm not saying that anytime somebody comes up with one of these proposals we should dive in. I feel increasingly uncomfortable because my inclinations, frankly, are similar to much of what I just heard. But there is a lot riding on how this whole thing comes out. If we say no, there will be both pluses and minuses I might add.",270
-fomc-corpus,1994,So this is really the price of admission to a bigger show?,13
-fomc-corpus,1994,"It's a partial price, I would say. We have never been in a position with this Treasury of essentially thwarting something about which they feel strongly. Basically Secretary Bentsen, I think, feels very strongly about this; he was an ardent supporter of NAFTA. It is his belief that American interests in the international financial arena rest to a large extent on our extending those interests throughout Latin America and enhancing America's international trade position through a NAFTA-type agreement in that part of the world. This is part and parcel of that operation. And in many ways if we pull away, I think we lose a good deal of influence in trying to determine how that all comes out. There is a limit. I'm not saying we should merely do what the Treasury says because in fact if we had done what the Treasury probably had in mind before we put our hands up, I think we would have been acquiescing in a very loose policy. One second, Bob Parry is first.",197
-fomc-corpus,1994,"I certainly would not favor disengagement and I don't have problems with the numbers that are being proposed. Is it feasible to have an agreement among the Treasury, Mexico, and us--and for that matter others with whom we have swap arrangements--that the swaps would be used to deal with disorderly markets? I would feel much more comfortable.",68
-fomc-corpus,1994,"Well, let me make two points. This Treasury certainly agrees that we do not want to get engaged in using the swap line to peg the exchange rate. That's point number one. Therefore, in the circumstances, we are dealing essentially with pressures on the exchange rate, which as President McTeer explained, can exist even with a crawling peg or a floating exchange rate. We ourselves drew on swap lines in the late 1970s when we were operating with floating exchange rates because we were intervening. Presumably the discussions, including the ongoing discussions associated with the consultative mechanism, are designed not to surprise ourselves, so to speak, when these things come up. On the question of window-dressing itself, I think it is fair to say that it's a little difficult--particularly for me speaking as an outsider--to bind all future members of the FOMC. But I think it would be perfectly appropriate, based upon this discussion, to convey to the Mexicans in the staff level talks that we are going to have in the next few weeks that there is extreme reluctance to use the swap line for window-dressing purposes. And, therefore, since they have to come and ask our permission to begin with, they should know in advance that that's an even harder sell, if I may put it that way, than dealing with more garden variety disorderly markets.",275
-fomc-corpus,1994,That's helpful to me.,5
-fomc-corpus,1994,Governor LaWare.,4
-fomc-corpus,1994,"I guess I'm somewhat confused because the comments around the table seem to address different parts of this issue. Are we discussing the merits of swaps, period? Are we discussing the merits of any swap line with Mexico? Are we discussing just a request for an increase in the swap line with Mexico? Or are we discussing the use of the swap with Mexico? Or all of the above? It sounds like all of the above to me. But it seems to me that this discussion may be long overdue if we have a whole array of these arrangements in place with various countries, so perhaps we should be trying to delineate or define better what our standards are for engaging in swaps. That's point number one. And point number two is then insuring that any swap arrangement meets those criteria. I certainly have great trouble with the use of the swap either for pegging exchange rates or for window-dressing purposes. I think that's inappropriate. On the other hand, it seems to me that Mexico has, within certain limits, handled the previous drawings quite responsibly even though there may be some question about the purpose of one or two of them. They handled them responsibly in terms of their meeting the conditions of the swap, if I have the right impression. So, if we are going to focus on the use of the swap line, accepting that swaps are appropriate in certain cases, then maybe what we need to do is to define what we regard as an acceptable use of the swap. We have heard all the things we don't think are acceptable. What is an acceptable use of the swap other than to address disorderly markets? That is not a question, I guess, but rather a general statement of my confusion.",338
-fomc-corpus,1994,Vice Chairman.,3
-fomc-corpus,1994,"To continue Governor LaWare's train of thought, it would appear that at some stage we may need a greater and deeper philosophical discussion of swaps. But that isn't really what we should be talking about today, it seems to me. We do have swap facilities. Also, we are not discussing whether we should have a swap facility with Mexico; we have one. So the only question before us is to give the Board's staff advice on how to proceed in the discussions. As Ted pointed out in his opening remarks, he's not asking for a vote; all he's asking for is some guidance. I am very much in sympathy with what the Chairman said about the role of the Federal Reserve among the American monetary authorities--the Treasury and ourselves--that it is important for us to continue to have the very positive influence that we have had. And having participated in that responsibility myself, I think we have used it very wisely and constructively both at the level of the Chairman and the governors and Ted and the New York Bank when it has been involved. I think it would be very unfortunate if the Federal Reserve were not involved at this particular time given what is soon to be an important event in Mexican history. And that is that in a country in which the power of the government is almost unmatched anywhere in the world, they have decided to have a truly independent central bank. That's a major structural reform which it seems to me that we as the central bank of the United States should be supporting by responding to a request which in any case appears to be reasonable. As for what purpose swaps should be used, again I'd suggest that we look at the record of the American monetary authorities, which is very tough-minded and very good. Ted has been a kind of permanent feature for many years and anybody who thinks he has been a pussycat in these matters would be very confused. Our experience with the present Treasury so far is that they seem to have a rather serious, sensible attitude toward international cooperation on monetary matters. The difficulty with saying swaps can be used for X, Y, and Z is that nobody can define a disorderly market. You know one when you see one, but they take on various forms. I think our conversation has been very good in reminding Ted of the views of the Committee, which he probably already knew and shared anyway. It reminds us all that the view of the Committee, in my phraseology, is that the swap facilities should be used wisely and well. But figuring out exactly what that means is best done at the moment that a request comes in, which also in my view supports the Federal Reserve's traditional position that instead of putting a lot of conditionality into the agreement we should establish the conditionality and the whole financial arrangements in light of what's going on at the time of the request. Then we can be very tough-minded; we can be very specific and demand what's appropriate at that time, which is very, very difficult to anticipate in advance.",592
-fomc-corpus,1994,"President Parry, quick question?",7
-fomc-corpus,1994,"Yes, point of clarification. You are quite correct that it's sometimes difficult to define what is a disorderly market, and everybody would agree that we should give the authorities the judgment on that issue. But the issue is whether the authorities should attempt to prevent what might turn out to be a disorderly market versus dealing with a disorderly market.",68
-fomc-corpus,1994,"Sure. Just a very brief response: I think where honest people could differ is if we were moving toward what we were very certain was going to become a disorderly market very quickly--for example, if we and the other central bank involved knew that the reserves were really moving out. Then we'd have to decide whether use of the swap line was appropriate. We wouldn't want to fight the market and defend an artificial exchange rate. But we might be inclined at least to entertain a request for a drawing on the swap facility. I'm not sure the answer ought to be ""yes."" It may very well be that the answer is ""no.""",127
-fomc-corpus,1994,I hope so.,4
-fomc-corpus,1994,"But since disorderly markets are so hard to define, to have the combination of, say, Summers and Truman raise their hands and say this is a disorderly market and then we debate whether they are right or not is not something I think we want to get into.",54
-fomc-corpus,1994,"You know, this is a much more profound issue about the nature of the Federal Reserve System than I think we realize. It really gets to the issue the Vice Chairman was raising earlier as to what type of institution we want to be. And I sensed this whole philosophical debate in the discussion we have been in the process of going through dealing with the issue of supervision and regulation and a consolidated bank regulatory system. I think one can make a very strong argument for the central bank as a narrow institution that basically maintains strictly central banking operations. In that narrow sense, it's not obvious to me that we would be involved in swaps and it's not obvious to me that we would be involved in currency intervention. We would restrict ourselves strictly to domestic monetary policy--and this gets to this other issue--with an add-on of other functions like supervision and regulation and the like. What this question is really all about is the stance of the central bank in a broader context, in other words a role in which we do get involved in issues which are in many aspects at the Treasury's lead. If we want to influence those or want to affect them, it's obvious if we try to do that, as we indeed have been doing, that we run into certain types of questions about the nature of central banking per se. I think the issues that are being raised here are quite legitimate. They are not issues that relate directly to this narrow question, however. They really are fundamental to the nature of what type of central bank we wish to be. And there are strong arguments on both sides. I have seen the influence of this institution in this Administration and in previous ones and I would hate to give it up. I think we are a force for good. And if we decided to pull in our horns, I think we would be doing a disservice to the nation. I fully recognize the concerns that have been expressed today, and I'm as uncomfortable as any of you. And unlike Ed Boehne, I do carry intellectual baggage into this discussion. I'm afraid my views are more like those of Presidents Jordan and Broaddus than anything else, but I do recognize that there are other issues involved. Anyway, President Broaddus.",442
-fomc-corpus,1994,"Well, I was simply going to say that going forward we need to keep in mind that there is a tradeoff between the good we can do with a somewhat broader function and our independence. I think we always need to have that in front of us. But the other point is that as a Committee we need to take a fundamental look at some of these basic philosophical issues. The problem I have with the current proposal is that it's difficult to disentangle the proposal from the broader issues. If we do this now, then it's going to be somewhat more difficult subsequently, at an early date, to look at the broader issues because the current proposal takes us down a particular path. That bothers me.",139
-fomc-corpus,1994,President Jordan.,3
-fomc-corpus,1994,"The questions I had in mind have been largely answered by your remarks just now and by Bill's remarks before, putting this matter into a broader context. I think your remarks are extremely important. The reason is that the way we conduct ourselves this year with regard to this issue and how that's viewed when it gets scrutinized by others could tell us a lot about whether this is or is not a desirable thing to do. We need to know if it is accepted on Capitol Hill, at the Treasury, and by others subsequently. One other comment is that I'd be very careful about going too far with the linkage of the timing of this with other developments. I think NAFTA was a wonderful development, as I'm sure everybody else does, and what the Mexicans are going to do on April 1st I think is terrific. But I wouldn't want to link this too closely to that because I don't know whether Costa Rica or Chile or who will be next in line or when. But to say that joining the free trade agreement and broadening participation in this sort of thing means that as soon as they make the central bank independent they can join the swap club is not a message we want out there.",238
-fomc-corpus,1994,Governor Lindsey.,3
-fomc-corpus,1994,"Mr. Chairman, I am in general very supportive of your comments, and I have the exact concerns that you and my colleagues have. But two points came up in this discussion that troubled me. The first is the use of the phrase ""this Treasury.""",51
-fomc-corpus,1994,"Well, if I read this morning's paper correctly,",11
-fomc-corpus,1994,What did you see in the paper this morning?,10
-fomc-corpus,1994,"Apparently there was some talk in the Washington wire or one of those columns that he's going to be out but that Mr. Altman will not be the successor, Mr. Rubin will be. That's just part of it. Is that malicious gossip?",49
-fomc-corpus,1994,That's U.S. news.,6
-fomc-corpus,1994,"That's U.S. news. It has nothing to do with the point except that I want to make certain that we are clear in our own minds that we are not making a deal with ""this Treasury,"" ""this Secretary of the Treasury,"" ""this Deputy Secretary of the Treasury,"" or ""this anything."" So we should not cloud our judgment because we will be in bed with other Treasuries and other Secretaries of the Treasury as well. Parallel to that is the phrase that was unmentioned and that is ""this Mexican government,"" which is very much like ""this Treasury"" except that it is much more volatile than ""this Treasury."" ""This Mexican government"" may very well be replaced and we don't know who the replacement is going to be. So before we jump on board with our very warm and legitimate feelings toward ""this Treasury"" and ""this Mexican government"" we ought to realize that's not who we are really signing on with. The other question I had--this is actually a question rather than a statement or speech or whatever--is how do we say ""no""? What I've felt very reassured about is double bullet two on page 3 of the memo and that is that drawings on the Federal Reserve swap line would continue to require the agreement of the FOMC. I assume, therefore, that when these unstable market conditions occur the Chairman would call a conference call and we would discuss it and vote on it as needed. Is that correct?",292
-fomc-corpus,1994,"Yes, although it depends on the circumstances; but yes in principle. In the past that's how things have happened and I would expect no matter who is the Chairman that's how things would be done.",39
-fomc-corpus,1994,"Well, this Chairman will be with us a long time.",12
-fomc-corpus,1994,"We are not always perfect at this, but in the past efforts have been made by the staff, particularly in the case of Mexico because the Mexican swap line has been more actively used than the others, to keep the Committee informed about developments and to try to anticipate possible requests. There have been discussions and consultations with the Committee when there have been approaches to us. Maybe I shouldn't mention it, but the recently released transcripts included a conference call in October of 1988 about a special swap arrangement which in the end never was implemented, but that was discussed extensively by the Committee at that time. And I would presume that that's the way things would happen in the future.",133
-fomc-corpus,1994,"Well, I think the real question to ask is how hard do you think it would be under real live circumstances for us to say ""no""? Say, for example, we are coming up on two weeks before the Mexican election and there is a legitimate run on the peso--a disorderly market because it looks as if someone else is going to win or whatever. That is a real live case. It's hard to separate out the politics from the economics. And if we have a disorderly market, could this FOMC easily say ""no""?",110
-fomc-corpus,1994,"Well, I think it would be difficult to say ""no"" if they came to us, as they have in the past, and asked for a special arrangement, too. Obviously, you would confront a slightly different situation if they have a $6 billion--in our case $3 billion--swap line with us; it may be slightly more difficult to say ""no"" to an actual drawing than it would be to set up some special arrangement. But we can say ""no."" In 1982, for example, we said ""no"" repeatedly. We were dealing with a set of circumstances which were quite different from what one would hope to see today or in the near future. But we repeatedly said ""no."" We did allow them to have a few window-dressing operations, but that was part of a strategy that set out to get them in the position so they would go to the International Monetary Fund and they would change their policies. So I think the Committee and the Chairman of the Committee would have to make those decisions as they came to them. In some sense, you'd have to make those decisions anyhow. We can't disengage from Mexico; I think that's the point that President McTeer made basically. Mexico is there, and we are going to have to deal with its central bank and all its problems regardless, because we are neighbors and have to share largely the same space.",280
-fomc-corpus,1994,President McTeer. And I hope you have the last word because we are running up against time.,21
-fomc-corpus,1994,"I have just a fairly narrow question. This says we are considering a substantial enlargement of the Federal Reserve and Treasury swap lines with Mexico. We are the central bank, the Treasury is the finance ministry, and Mexico is a country. I see in the footnote, though, that the swap line is with the Bank of Mexico and with the Mexicans. Is it central bank to central bank--",79
-fomc-corpus,1994,"In our case it is central bank to central bank and will remain that way. In the Treasury's case, currently it is the Treasury using the Federal Reserve Bank of New York as its agent with both their treasury and the central bank of Mexico. I assume they will continue that practice, but that's a question the Treasury has to address. But as far as we are concerned, the only issue that would come back to the Committee would be whether to enlarge our swap line with the Bank of Mexico from $700 million to X.",105
-fomc-corpus,1994,"Along the lines Larry was getting at, I think it's reassuring that we are dealing with the central bank rather than the government or the treasury.",28
-fomc-corpus,1994,Does anyone else want to have the ultimate last word? Let's then move on to our economic discussion and Messrs. Prell and Truman.,28
-fomc-corpus,1994,Ted will begin.,4
-fomc-corpus,1994,This is out of order!,6
-fomc-corpus,1994,We switched.,3
-fomc-corpus,1994,[Statement--see Appendix.],6
-fomc-corpus,1994,[Statement--see Appendix.],6
-fomc-corpus,1994,Questions for either gentleman?,5
-fomc-corpus,1994,"I attended my first meeting of this Committee two years ago at the March meeting. Over those two years I've been tracking the migration of the staff forecasts on nominal and real GDP, prices, and so on meeting to meeting. And at my first meeting in March of 1992, the projections for 1993 that the staff had at that time were for lower inflation than is now forecast for 1995. We started getting forecasts of inflation for 1994 in August of 1993 and through March of 1994 the forecasts for 1994 were below the current forecasts for 1995. And now I look at the forecast that we have for 1995 and this trend of inflation in the out years revising upward worries me. If it's causal, then maybe I ought to leave the Committee and these forecasts will go back down again! In trying to understand this and how you make assumptions about policy that go into putting together the forecasts, Mike, you've said in the past that you try to read what the Committee is saying and thinking with regard to its objective, in order to try and ascertain a policy consistent with achieving that objective. So I went back through last year's Greenbooks to review the comments with regard to inflation, and what caused me to do this was something that was missing from this Greenbook. Beginning in March of 1993 the Greenbook's statements with regard to inflation were as follows: ""we expect it to slow over the forecast period;"" in May of 1993, ""resumption of disinflationary progress;"" in June, ""lead to some further disinflation;"" in August, ""tempering inflation expectations and downward pressure on wages and price inflation;"" in September, ""disinflation trends reemerged;"" in November, ""further progress reducing core inflation;"" in December, ""progress toward price stability;"" and in January of 1994, ""movement over time toward price stability."" None of that type of phrase appeared in this one. In fact this one, very pointedly I thought, shifted instead to ""holding on a track consistent with containment of inflationary pressures."" Is that a deliberate, very significant shift, or maybe a new reading of what this Committee has as its objectives?",451
-fomc-corpus,1994,"Well, as I noted, I think we have provided a baseline against which you can apply your own objectives. As I said, if you accepted the structure of our forecast but didn't accept the implied result for inflation, it would logically lead you to say that the monetary policy assumption made wasn't sufficiently stringent. As to the strategy we applied, I think we could plausibly have read the forecasts that have been made and the statements that have been enunciated by members of this Committee as suggesting that we would have given you something useful if we had put in, in terms of our analysis, a tighter monetary policy and therefore a somewhat slower growth and lower inflation result over the next two years. In the present circumstance, I think we have put in a tightening of monetary policy that does not seem grossly at odds with the kinds of signals we pick up from statements that have been made and the degree of aggressiveness with which you've moved at this point. We have given you an alternative that is perhaps more comparable to what many outside forecasts that you might look at embody at this point in terms of the increment to short rates. That's a hard call to make. It's hard to say what people are thinking just today. As to the changes in our forecasts over time, I think what happened basically is that we made some mistakes. Sometimes we made mistakes, in a sense, in our policy assumptions; the Committee didn't do what we anticipated. I would have to admit, too, that we have had some upside growth surprises over time. But perhaps even more important, at certain junctures we didn't anticipate how much unemployment would decline for a given amount of growth. And what we find ourselves with today is what we think is less slack than we might have anticipated in those earlier forecasts and less downward pressure on the inflation rate. So we are not anticipating, without very sharp constraint on aggregate demand, that we'll get to the low 2 percent inflation range within the next year or so. That was perhaps a complicated answer, but you've raised a whole bunch of questions.",410
-fomc-corpus,1994,President Parry.,4
-fomc-corpus,1994,"I'd like to ask a question about unemployment that I don't think is related to that excellent memo that deals with some of the problems with the new series. It may be a bit related to your answer to Jerry. Looking at the unemployment rate and the amount of slack implied in labor markets, it looks as though you have either a new Okun's Law relationship relative to your previous forecasts or some kind of an intercept change that resulted from observing where the first quarter's unemployment rate is. Real growth, if you compare the two forecasts, is less than it was in the prior forecast and the unemployment rate is also a fair amount less. Is that just an intercept change or some conclusion that Okun's Law is operating in a different way?",147
-fomc-corpus,1994,"I think you've put your finger on what is a significant question and, if we had wrestled with it for a while longer, perhaps we might have come to a different conclusion. You've highlighted the key point, and that is that we have taken seriously our view of what has happened recently--I mean the drop in unemployment--not seeing clear evidence that it is just a fluke. And we essentially used this as a jumping off point in this Okun's Law assessment. If one used a different jumping off point for that kind of simulation, it is arguable that perhaps the unemployment rate path could be a couple of tenths higher than what we have. But this is always difficult. It goes back to the very problem that I mentioned in responding to President Jordan's question. It has proven very difficult in recent years to get a fix on that Okun's Law relationship and where we are in terms of cyclical or trend behavior of labor force participation in particular. So I think there is a significant area of uncertainty in this whole relationship.",209
-fomc-corpus,1994,"And when you do that, does that raise any questions or issues about one's view of NAIRU?",21
-fomc-corpus,1994,"No, I think this is separable. But again, going into this deeply, one gets into questions of labor market structure and behavior. It's not entirely separable from those features of the economic system that relate to how much pressure we get on wages and prices at given measured levels of unemployment.",59
-fomc-corpus,1994,"Well, to the extent that the NAIRU doesn't change, it clearly has significant implications.",19
-fomc-corpus,1994,"Well, all things equal, if we held to our assumption of the NAIRU of 6-1/2 percent or a shade less and we had unemployment at 6.8 percent, and looked at those numbers very, very finely, that would be enough slack, presumably, to give us some modest edging off in the inflation rate over the coming year or two.",76
-fomc-corpus,1994,Thank you.,3
-fomc-corpus,1994,Governor Lindsey.,3
-fomc-corpus,1994,"Mike, I note that in the forecast there is a roll-back at the long end of about 1/2 percentage point, but suppose that doesn't happen. How would that change your forecast?",39
-fomc-corpus,1994,"My life is flashing before me in the transcripts of the meetings that were released recently where we got into extended discussions of these sorts of hypothetical cases. It's a fair question; it was back then, too. [Laughter] I think we made some significant mistakes in our assessments of what the term structure would do a few years ago. It depends, obviously, on what circumstance gave rise to that. If it were in essence a decidedly greater degree of risk aversion on the part of investors who have been burned recently and are demanding a much larger term premium, all other things equal, it would make capital more costly to firms who wanted to buy equipment and so on. And I think it would tend to damp aggregate economic activity relative to our current projection. If it were a reflection of underlying stronger demands for capital based on higher expected returns, then I think in a sense it could be the bond market vigilantes keeping things under some control. Whether on net we would have a higher GDP outcome or not, I don't know. But it would be a different situation.",213
-fomc-corpus,1994,Let's assume the first; could you quantify it at all? How sensitive is the forecast--,18
-fomc-corpus,1994,"I think 1/2 percentage point at the long end, even perhaps modifying the rather strong interest-sensitivities in our model, is non-negligible in terms of economic impact. So I think we are talking about potentially a few tenths on GDP over the next year.",58
-fomc-corpus,1994,"Any further questions? If not, who would like to start the tour de table?",17
-fomc-corpus,1994,"I'll jump in first, Mr. Chairman. In the Atlanta District, economic activity continues to look quite positive. Retail sales, for example, have shown very good gains in both February as well as in early March. Businesses are reporting increased traffic and the expectation is that the rest of March will be equally good. In fact, they are reporting their expectation that the rest of the year will continue to be good. Home furnishings and durable goods sales continue to be strong year over year, although they are not quite as strong as they were at the end of last year. But even with these good sales, businesses are continuing to keep their inventories quite lean. Tourism has picked up in the region with central Florida being the beneficiary of most of it, although I would note that we have had record crowds at Mardi Gras this year in New Orleans and that convention activity has been at record levels. That's boosting hotel occupancy rates as well as the retail sector. And as I've been reporting for several months now, District casino activity continues to grow and the states are the beneficiaries of that as their Treasuries are continuing to grow. Looking at the production area, our manufacturers' survey for February reported increases in production and shipments, but the expectations for six months out were not quite as optimistic as they had been. It's only marginally lower. Pent-up demand for new cars is stimulating production for automobile suppliers, although I have to report that the Saturn factory near Nashville announced some production cutbacks. But I think that's probably more related to that particular line of car than a reflection of cutbacks generally in the automobile sector because, as I've said, the demand for new cars is certainly stimulating production. Building products producers say that they are beginning to reach capacity constraints because of strong residential building. In real estate, single-family sales remain quite strong and inventories are very, very tight in many areas. Building costs continue to climb, as both building materials prices and wages of subcontractors have increased, although most builders have been able to pass along most of these cost increases. In the Gulf of Mexico, the rig count jumped to 132 in February; that's compared to 95 a year ago and 119 at the time of the last FOMC meeting. That's actually the highest level in almost two years and it's almost entirely associated with gas production. Commercial real estate is also improving but gradually. Absorption and occupancy rates are slowly rising. And we find that concessions for office space are almost nonexistent now in the District. New construction is fairly limited to retail and build-to-suit as well as public works activities. In the financial area, commercial loan demand is showing some signs of picking up, and residential mortgage demand continues to fuel the real estate lending. And it's not just refinancing, it's actual originations. Employment in the District continues to outpace the national average. Wage pressures continue to be evident only in construction, although we are hearing some reports of pressures beginning outside of the construction area. Manufacturers are reporting some more price pressures for raw materials, although they are not expecting those price pressures to continue over the next six months. The producers of building products and furniture continue to report increasing raw materials and finished goods prices. And lumber prices remain quite volatile, with cost-of-lumber adjustments now a common feature of new residential building contracts. Retailers didn't report any price pressures from their suppliers and none of the contacts that we talked to plan to raise prices in the near future. In conversations with business people over the last four or five weeks together with reports from our directors, I would say that the attitude is quite positive and very bullish throughout the entire District. And those who are doing business nationally and internationally are equally bullish about prospects not only for demand but for inflation as well. As we look at the national situation, our forecast for real GDP growth is stronger than the Greenbook's, although as we get further out in the forecast horizon in 1995, it begins to come down closer to the Greenbook forecast. The reason for the difference is that we think the momentum that was generated in the fourth quarter, and perhaps a little in this quarter, will take a little longer to play out than the Greenbook assumes. Our forecast for inflation is, in spite of that higher growth, a little lower but the CPI in our forecast picks up later in the forecast horizon. I think the risks to our forecast are, frankly, on the down side and I tend to look at the Greenbook forecast as representing sort of a lower bound of where we ought to be. So both in terms of the District and the nation, I think we are in reasonably in good shape.",928
-fomc-corpus,1994,President Boehne.,5
-fomc-corpus,1994,"The tenor of the Third District's economy has changed during the last several months. Economic growth now resembles the type of growth typical of an expansion rather than the lackluster performance that we have been experiencing in the mid-Atlantic region. Manufacturing is clearly strong in the District, with much of the strength of the fourth quarter carrying over into the first quarter, and expectations seem very positive for the remainder of the year. New orders are up; steel and auto production schedules are strong. One major railroader told me that his company is running flat out and adding locomotives and crews as fast as possible. And for the first time I heard from a sheet steel maker that they plan a significant increase in their inventories because they are concerned about the reliability of deliveries. Residential real estate sales remain strong and industrial properties are selling well. Although commercial real estate remains soft in Philadelphia, it has become very strong in the suburbs, with a noticeable improvement in south Jersey. I would say that strength is coming on sooner than most of us had thought. One of the major real estate firms told me that they are hiring additional commercial real estate agents and not all that long ago they were laying them off and didn't expect to be hiring them back for some time. And there is sufficient demand to warrant new commercial construction in the suburbs starting, I would say, within the next year or two. As for retail sales, autos and other big ticket items are selling well. Where there is still a note of caution is with smaller retailers and smaller items. They clearly have been hurt by weather. Their feeling is that their sales will pick up, but there is a natural worry because their expenses have been continuing and they haven't been selling. They feel pretty good, but they'll feel better when the customers start coming back in when the snow melts. Labor markets clearly have strengthened in the District. I see more help wanted signs in retail stores than I've seen for a while. But there are few, if any, signs of wage pressures developing. On the price side, I have not seen any general price pressures although most business people tell me that the demand is strengthening to the point now that they think there may be some opportunities for price increases in the next few months. They always talk about how long it has been since they've had a price increase and their optimism for getting one to stick, I think, has increased. One can sort of see it in their eyes! As far as the national economy goes, there are always uncertainties in these kinds of forecasts. There have been very few meetings where somebody has said, here it is, the economy is either going to go down or up and there isn't any doubt about it. There are always risks. I think our job is to assess those risks. My sense is that the greater risk to sustainable growth is too much strength rather than too little demand. I feel that way for several reasons. The most important thing in any economic expansion is not pinpointing this item or that item, it's the cumulative momentum that carries us from one quarter to the next. And I think that momentum is very well entrenched. We also have a highly stimulative monetary policy. Most of the drags to demand that we have been trying to get over in recent years are largely behind us. And there seems to be an attitudinal change now which looks at sales and other data as a sign that things are going to get better rather than worse. I think that psychology is an important part of this momentum.",701
-fomc-corpus,1994,President Keehn.,4
-fomc-corpus,1994,"Mr. Chairman, in terms of the District, there is no question that the underlying level of economic activity has been and remains strong. And despite the miserable weather that we have had in the Midwest most sectors, with the obvious exception of housing construction, have come through very, very well. There is little that I can add to what you already know about the automotive sector. The second-quarter production schedules have been set preliminarily at 9 percent over last year. This increase would be even greater except that some of the manufacturers are dealing with capacity constraints with some of their better selling models. Still, the production increase in the second quarter will be less than in the first quarter, as Mike has pointed out. Therefore, the automotive industry's contribution to the second-quarter GDP will be lower than was the case in the first quarter. The capacity issue in the automotive industry, though, is an interesting shift from an industry that for years has been experiencing plant shutdowns and layoffs. Now in some cases, they are struggling to keep up with consumer demand, which of course is particularly the case for light trucks. To address their problem Chrysler, for example, has announced a $1.8 billion capital investment program. And we are told that it's very likely that this program will be larger as they get further into it. Given what Chrysler has been through over the last 10 or 15 years, it seems almost incredible that they are now the industry's star profit performer. I must say that for the auto industry, all the way through from the manufacturers to the suppliers to the dealers, attitudes at this point are really very positive. The heavy truck business has only gotten better, and Class 8 sales estimates for 1994 have been increased to 185,000 units. The current order flow is the highest that they've had in 15 years and it's potentially a record year for some of the major manufacturers. The steel industry is running essentially flat out even though the current capacity utilization number is 93 percent. That number is somewhat misleading; several companies are really producing at what they feel is their capacity limit. Some of the major customers of the steel industry, and the auto companies are a specific example, have become concerned about the ability of the industry to meet their demand. Ironically, steel imports this year will increase and likely significantly, but a large part of the increase will come from the domestic companies that will be purchasing foreign semi-finished products to meet domestic demand. There is another increase in steel prices coming this summer. Some while ago, U.S. Steel announced a 2 percent increase that was scheduled for midyear. It kind of hung out there for a while and others didn't join it; but now it looks as if the others will support that price increase. Retail sales have remained on the strong side. To the amazement of one retailer I've talked to, their comparable store sales in February were 17 percent higher than last year, with good demand for higher-priced items. They also worry about the ability of their suppliers to deliver, and in several instances the suppliers for this particular company are adding to their capacity. Despite this very strong level of economic activity I just don't sense that the price pressures are quite as heavy as I might have expected. Major companies, particularly those that buy under contract, are continuing to push their suppliers very hard and they are continuing to get results from this. Labor contracts continue to be very restrained, and wage increases are easily dealt with by productivity improvements, which continue to be very impressive. Having said that, there clearly are signs that in many cases prices have at least stabilized and that some are showing slight upticks. That's particularly true, of course, for steel-related products. But while prices in the manufacturing sector may be firming, these increases have been offset by moderations in the service sector. So I think, net, our outlook for inflation continues to be a constructive one. With regard to the national economy, our forecast is very much in line with the staff forecast. And I think at this point the risks, if any, are as Ed Boehne has just suggested--namely that perhaps the numbers will come in higher than our current expectation.",841
-fomc-corpus,1994,President Broaddus.,5
-fomc-corpus,1994,"In our District, we certainly have not seen any significant weakening in business conditions recently, aside from some temporary setbacks which seem clearly to be related to the weather. Business is basically good across all sectors and I think it's fair to say that most of the people we have contact with, our directors and others, are reasonably optimistic about their prospects for the remainder of the year. So the overall picture generally is pretty good and I won't belabor that. In contrast to some of the other comments we have heard, I think the major, most striking development in our region has been the increasing number of reports of rising prices and increased concern about inflation generally. We see that in our directors' meetings; we hear that from some of our other contacts. as some of you know, and consequently he has contact with a number of industries that he rents to, in addition to his direct contacts with the construction industry. He's a well informed and I think generally perceptive observer of short-run economic developments. a couple of weeks ago, he emphasized the fact that suppliers that he has contact with across a broad range of industries are indicating that they are seeing price increases in a range of 3 to 5 percent for a number of industrial supplies and materials, and moreover that these price increases are now, for the first time in this cycle, really sticking. Some other directors and some of our other business contacts are telling us that they are seeing increased prices for steel, plastics, and corrugated paper, and for the first time in a long time, some of our directors are telling us that they are raising their own prices in a broad range of industries from textiles to trucking. So we see a little less favorable news on the inflation front in our region than some others have noted. With respect to the national picture, let me make just a couple of comments about the staff projections and analysis. I have mainly two points. First, I have some trouble with the downward revision in projected real GDP. Projected real GDP growth for the first half has been reduced in this Greenbook from an annual rate of 3.5 percent to 2.8 percent, and for the year as a whole from 3 percent to 2.7 percent. These are significant reductions. I recognize that these reductions are predicated to some extent on a now more rapid tightening in policy than was assumed in some of the earlier projections. But my feeling is that we are still more likely to get something like 3 percent growth for the year as a whole. I was especially struck, Mike, by the projections for consumer spending, for which I think you have a projected growth rate for the first quarter of 2-1/2 percent and something like 2-1/4 percent for the year as a whole. We just don't see that happening. If I calculated correctly, even if we don't get any change in real consumer spending in February and March, we would still have a rate of growth in the first quarter of 3.6 percent at an annual rate. Second, and probably more fundamentally, we have some concerns about the Greenbook's discussion of the recent behavior of long-term interest rates and the interpretation of that movement. Over the last five months, the 30-year bond rate has risen about 120 basis points, with corresponding increases in other long rates. That's one of the largest movements in long rates in such a brief period since the end of the 1981-82 recession. In my view it strongly suggests that inflation expectations have risen by more than a marginal amount. And I think that interpretation is widely shared by financial market participants, as evidenced by their comments reported in the press and in market newsletters. The Greenbook, in some contrast, at least in some of the sections of Part I seems to dismiss or at least de-emphasize this inflation expectations interpretation of the recent backup in long rates. It seems to offer two alternative scenarios. The first is that the rise in rates may reflect, at least in part, higher actual and expected real short-term rates down the road because of the stronger economy and the reaction to our action back in early February. But over at least the last six weeks or so since we took that policy action, some long- and intermediate-term rates have risen significantly more than short rates. I guess that would imply on this explanation that expected real short rates way down the road have increased, and I just think it's unlikely that the economic news and policy developments have increased expected real short rates 20 or 30 years out in the future. So I don't think that explanation can account for a great deal of the significant backup in the longest maturity rates. The second explanation, if I understand it correctly, is that the rise in bond rates may have little to do with economic fundamentals such as inflation expectations and may have resulted primarily instead from what, for lack of a better term, I'd have to refer to as irrational market behavior--some kind of bandwagon effect with overshooting to use the term I think you used. That may well be true; I wouldn't deny that. But it's a hard argument to get your arms around because it's really more a psychological argument than an economic argument. So it seems risky to me, to put it mildly, to dismiss or de-emphasize at least the possibility that the reason for one of the biggest backups in long rates in a long time has to do with inflation expectations or some worsening in those expectations. In any event, I think this question of how to interpret this move in bond rates is one we need to give some weight to when we get to our policy discussion later in the meeting.",1132
-fomc-corpus,1994,"Chairman Greenspan, could I inject a couple of points of clarification here?",16
-fomc-corpus,1994,Sure.,2
-fomc-corpus,1994,"One, for what it's worth, the level of GDP is about the same in this forecast as in the last. As currently estimated, we got more growth in the fourth quarter than we anticipated and, in essence, the lower growth rates simply offset that surprise. The second point is one of arithmetic on consumption in the first quarter. We don't know what will happen in March; we don't even know for sure what happened in January and February at this point. But in your calculation I think you were probably using the currently published estimates of real PCE for January.",112
-fomc-corpus,1994,Right.,2
-fomc-corpus,1994,"The retail sales revisions for January were dramatic, and they would substantially lower the number one gets doing the same February/March arithmetic. So that's the key explanation for why we have as seemingly low a number as we have. On the interest rate story, I think you did touch upon the various elements in our thinking, but you went a step further in describing what has happened, covering things we didn't say explicitly in the Greenbook. You referred to the 120 basis point rise in long rates since October. I guess basically we find it hard to believe that circumstances have changed in such a way as to raise intermediate- or long-term inflation expectations by anything approaching 120 basis points. We don't find evidence in the surveys of that kind of movement; we don't see evidence in other asset prices and so on that really suggests that big a move. But we don't rule out at all--I suggested this I think in my comments--the distinct likelihood that an elevation of inflation concerns did play a role in the recent backup of rates, particularly since early February. Basically what we said is that, given our expectations about what kind of news will be coming forth over the next several months, there will be some allaying of those concerns, and thus a part of the backing down in rates is due to some reduction in those inflation expectations.",265
-fomc-corpus,1994,"Well, that's fair. The point I was addressing particularly in the Greenbook as distinct from what you said this morning--I think the emphasis was a little different--is that you had a statement saying ""we are inclined to think that the emergence of a large inflation premium per se can explain relatively little of the recent surprise in bond yields."" That's what struck me when I read the Greenbook and that's really what I was addressing.",86
-fomc-corpus,1994,President Parry.,4
-fomc-corpus,1994,"Mr. Chairman, information we received about the Twelfth District's economy since the last meeting suggests that the economy has strengthened, although I would point out that California's economy continues to lag. The District outside of California is experiencing very strong growth. District employment growth outside of California was 4.1 percent between January 1993 and January 1994. Nevada, Utah, Idaho, and Arizona all ranked in the top five states in employment growth during the last year, and strength in these states is widespread and is absent only from the mining industry. Construction is very strong outside of California, with double-digit construction employment growth in most states. Moreover, strong permits and nonresidential awards suggest that activity will continue in the months ahead. California continues to show mixed signals. Payroll employment declined again in February. Employment is off about 1.2 percent in the past year and since July of 1990 it is down 644,000. But it appears that real estate conditions are improving somewhat. Residential sales in California were up 20 percent in January from the level of a year ago, which could have something to do with weather. Contacts also report more multiple offers for housing in many parts of the state. And the commercial real estate picture is improving, with stabilizing rents and slight declines in vacancy rates reported. There are a few prominent forecasters that people follow for California. One is UCLA and the other one is Salomon Brothers. Both of them recently have revised upward their forecasts for the state, predicting that economic recovery will begin in the second half of the year primarily as a result of the improved picture with regard to real estate and also the infusion of earthquake relief funds. Turning to the national economy, I agree with the Greenbook forecast as far as GDP is concerned, with it averaging approximately 2-1/2 percent over this year and next. It's worth emphasizing, of course, that this forecast assumes a rise in short-term rates from current levels. The strong growth that we saw in the last half of the year has all but eliminated the gap between actual and potential GDP, as mentioned by Mike Prell, and has brought unemployment close to most estimates of the natural rate. The further growth projected for this year would seem very likely to eliminate any gap that might remain. It seems, as Ed Boehne and others said, that there are few downside risks to this forecast and conceivably there could be some upside risks. The Greenbook and the financial markets presume a significant increase in short-term interest rates this year but, even if these come about, I wouldn't expect to see any further progress in bringing inflation down. Therefore, my expectation for CPI inflation over the forecast period is very similar to the Greenbook average of approximately 3 percent.",556
-fomc-corpus,1994,First Vice President Minehan.,6
-fomc-corpus,1994,"Well, I have a somewhat less bullish report than the rest of you. But it's also a little less bearish than has been the usual case for the First District. Sizable data revisions and recent data trends suggest that the New England economy is doing better than most observers, including ourselves, recently thought. Upward revisions to the payroll employment numbers were substantial and now show that the region began a gradual recovery in the summer of 1992 or about a year earlier than the originally published data had shown. Services are the most notable source of employment growth. Service jobs in the region now exceed their pre-recession peak by about 6-1/2 percent. Other indicators--unemployment rates, help wanted advertising, housing permits--are consistent with a gradual economic recovery in the region. After a very severe recession, New England's recovery finally seems to be tracking the nation's. Now despite the net increase in overall employment, large employers in a number of industries continue to announce layoffs, and manufacturing employment continues to decline. The shrinkage in defense spending is hurting the region. The computer companies are still struggling. Interestingly, however, the region is benefiting somewhat from the strong performance of the U.S. auto makers despite having no assembly plants. Companies making various rubber, metal, and textile products have seen increased demand from the auto industry. Most manufacturers have ambitious capital spending plans, but few if any have plans to resume hiring. Although a few First District manufacturers report scattered increases in input prices, selling prices are not going up. Competition is intense in almost every industry, so there is no automatic passthrough of higher costs. In addition, companies appear to be using technology more intensively to improve productivity. And the products they sell also may be more durable and last for longer periods before replacement is needed than before. One major dealer of heavy trucks reported that it is common now for truck trade-ins to occur after 600,000 to 700,000 miles owing to improvements in technology and durability versus trade-ins at about 250,000 to 300,000 miles less than a decade ago. Severe weather has depressed retail sales and construction in New England but manufacturers and manufacturing hours were generally unaffected. On the national side, we see a deceleration from the pace in the latter part of 1993 similar to the Greenbook. At issue here is how much slack does the economy have before it reaches a point where inflationary pressures increase considerably and how fast will it move to that point. As the staff noted in one of their briefing papers, reasonable people can differ on the amount of labor market slack, and at the margin we do. Our view is that the NAIRU is perhaps 25 basis points lower than the Board staff estimate or at the low end of the range. We also see the growth rate of potential GDP as slightly higher, so we come out with an estimate of a higher capacity for growth than the Greenbook. On the issue of how fast the economy will close the gap, we have been impressed by the amount of longer-end interest rate movement that has occurred since February and the constraining effect that has. On the other hand, our estimates of the future drags from the external sector are less than those of the Greenbook and we see somewhat stronger consumer durable goods expenditures and state and local spending and perhaps higher inventory investment. These forecasts of slightly greater speed are marginal, however, and we are in complete agreement with the Greenbook assessment that there is no near-term threat of rising inflation.",704
-fomc-corpus,1994,President Stern.,3
-fomc-corpus,1994,"Our reports on the Ninth District have been positive for a long period of time now and nothing has really changed. In fact, it appears that there has been a further step-up in activity pretty much across the board both by region and by sector. Attitudes are positive; employment has continued to increase; expectations about 1994 for the most part are positive, and this is a continuation of what has been going on for quite some time. If we are looking for negatives, one thing that has become more pronounced in recent months is that the phenomenon of Canadian shoppers coming across the border to spend their money has diminished, in part because of changes in the exchange rate and in part because of changes in Canadian policies that have made that more difficult and more expensive. One other factor that is of some interest relates to housing activity. We have had brisk sales for quite some time now and we are getting reports from realtors both in the major cities and in some of the smaller cities as well that the problem they face is a lack of supply of unsold homes. That ought to augur well for construction going forward. So the news in the District certainly remains positive and if anything has improved even further. With regard to the national economy, our model, although its structure is quite a bit different from the one that underpins the Greenbook forecast, produces a forecast that's really quite similar. My own view is at least a little more optimistic about the pace of real growth, which is to say that I think we might do a little better than those two forecasts. But I think the more salient features of the outlook have to do with the lack of disinflation, the lack of further progress in bringing the rate of inflation down both in our forecast and in the Greenbook forecast, given the monetary policy assumption. On this question of slack, we have done some analysis of the past several years that confirms my impression that the labor force at least for a time in the 1980s grew more rapidly than might have been expected. Participation rates rose; the rate of increase in participation rates appeared to be above trend at least for some time. That's not a situation that is, of course, sustainable forever, so it does not particularly surprise me that we are getting slower growth in participation rates now. And if all of that holds together, I think it does tell us something about how much slack or how much capacity we can expect from the economy going forward. If one wanted to be a little more optimistic about all of that, one would factor in the international situation because it does appear that there is a good deal more slack elsewhere in the world, certainly in the other industrial economies, than there appears to be here at the moment. Despite all this and despite the strength in the regional economy, while there may be a minor increase in reports of greater wage or price pressures, there is nothing very broadly based or very significant there yet, at least as far as the anecdotal information that we are picking up is concerned. There may be a smattering of it but there is nothing that leads me to believe we have seen any significant change in that arena at this stage.",632
-fomc-corpus,1994,President Jordan.,3
-fomc-corpus,1994,"Before commenting on the District, I want to report on the presentation I heard yesterday on small businesses. I think most of you know the National Federation of Small Businesses has over 600,000 members. I normally don't pay too much attention to their surveys, which they do once a month, but I was struck by the extraordinary upward movement in a number of indicators recently. Most of the indicators started to turn either in July or by October and they have moved quite sharply. As an indication of the thinking of these small businesses the levels are quite impressive: Planned capital outlays are the highest since 1989 and 1990; job openings are the highest since 1989; plans to hire are the highest since 1990; and plans to raise prices are the highest since 1991. With regard to the general outlook for business conditions, the response chosen was that now is as good a time as any since early 1990. I have no idea about the statistical reliability of that survey, but I thought it was so upbeat across the board that it was notable. Turning to the District, everything there also tends to be uniformly positive; in fact, it would be hard to find something that stands out in our District that is of a negative nature. What is interesting to me is what is not there. A year ago, I was still hearing, and I think many of you were hearing, a lot of talk about anemic recovery, sluggish pace, use of the term ""recovery"" more than ""expansion,"" and worry about its sustainability. That's completely absent in the commentary I'm hearing now. The talk is more about how much more up side there is. There was another question in the small business survey about various concerns the firms had: taxes, regulations, and so on. A couple of years ago one of the highest concerns was demand for their products, and that has pretty much dropped out of what is being reported now. And that's consistent with what I'm hearing in the District. In the Greenbook, it was said that motor vehicles production would add 1-1/2 percentage points to growth in the first quarter, but that that stepped-up production is transitory and would be fully reversed in the second quarter. That's not what we are hearing in our District. The auto companies in Ohio and our part of Kentucky are not indicating in their reports to us that a drop-off is imminent. Maybe that has something to do with seasonality; I don't know. On the national level, I have the same kinds of concerns that Al Broaddus expressed about the use of higher real interest rates both in the Greenbook and in Mike's presentation. To say that we are counting on higher real interest rates to damp aggregate demand and then try to talk about what we mean by these higher real interest rates just doesn't square with past experience. Normally, we wouldn't expect in partial analysis a steeper yield curve to be associated with a less expansionary monetary policy. In fact, the contrary. We normally would expect that as an expansion matures, the yield curve would naturally flatten and very often invert before we get to the end of the expansion. To say that we have moved to a much steeper yield curve recently and, therefore, policy is more restrictive, I think needs more explanation. If we say that the run-up in interest rates is too big to be explained by an upward revision of inflation expectations over 10 years to 30 years, we have a similar problem of saying that the expected real return to real productive capital over the next two to three decades has been revised up by 80 to 100 basis points. So what we wind up with is that we are using the term real rate to include things other than real rates of return to real productive capital, mainly risk. And we really ought to make three separate distinctions there: the inflation premium, what really is a real rate in one sense, and what is simply a risk premium that may be fostered by people's concerns about policies, political developments, and whatever else. And that's a different way of looking at things than you were telling us.",828
-fomc-corpus,1994,Vice Chairman.,3
-fomc-corpus,1994,"The Second District is mirroring what Cathy Minehan said about the First District. It has begun to participate in the economic recovery, led by very strong exports, especially to Canada, and what you are all very familiar with, the strong performance of the financial sector. So wages are beginning to move up. General economic performance is doing rather well and the feel of the District is considerably better. Regarding the national scene, our forecast has somewhat higher growth and somewhat, but not very much, higher inflation than the Greenbook. My main concern, to borrow a notion from Ed Boehne, is whether there is anything around that could break the momentum of this recovery, and therefore have even the Greenbook forecast wind up being a bit optimistic. I think there are two possibilities. I certainly would not label them as probabilities but I think we need to be attentive to them. There has been considerable concern about what would happen if all the people who have moved from bank deposits into mutual funds of various types were to become sufficiently nervous that they started pulling their money out of the funds. What would that do to markets? I think perhaps a more likely event would be not that they would pull their money out of markets but that as they got their reports on what really happened to them in February and so far in March, which by and large they haven't received yet, they would become aware that they are not as well off as they thought they were and therefore they would become less likely to spend. We could have a diminution in consumption as a result. The other possibility, and I certainly do not wish to be alarmist, is a major problem in the financial markets. I think we were quite fortunate in that the financial markets, which were very, very rocky in the first days of March, settled down rather quickly. But we were working the phones at least as actively with the money center banks in New York and with the central banks of Europe--specifically including the Bank of England, the Banque de France, and the Bundesbank--as we ever have in earlier better known episodes of financial problems. An indication of what was going on is that rumors began to spread very rapidly in London on the Wednesday of that week, the 1st of March, about possible very large losses at two money center banks, J P Morgan and Bankers Trust. As a result, on the New York Stock Exchange that morning neither stock could be opened. Eventually Morgan could be opened. In the case of Bankers Trust, the chairman had to make a public statement that his corporation was profitable for the year to date. I remind you that this is a bank that has a AA rating and had a 26 percent return on equity in 1993. It may be that the good news is that the rumors were about two banks that are perhaps most skilled at funding themselves and therefore can handle adversity with unusual ability. But these kinds of rumors were there. And let's remind ourselves that in our ongoing concern about derivatives and the lack of transparency that goes with them, the thing we have been most concerned about is exactly that--that we could have a rumor, well founded or ill founded, about a major market participant and that it would spiral into a liquidity problem. That danger was there. It was resolved and resolved with almost no publicity, which is the best of all worlds. But certainly if we have more market turbulence and this kind of thing is repeated and is not resolved quite so quickly or quite so quietly, it could be enough to shake people's confidence to the point that spending would be less, capital investment would be less, and we would have a lower track for the economy. My own conclusion is that even though one always operates with some degree of concern about where the economy really is going, I personally have much greater uncertainty about whether the economy will perform about in line with the Greenbook forecast; yes, it could be a bit stronger but it is not at all impossible that it could be somewhat weaker. And, therefore, in my own notions of what that tells me about policy, it is that a certain amount of caution should emanate from the uncertainty. Thank you.",832
-fomc-corpus,1994,President Melzer.,4
-fomc-corpus,1994,"The national economy, as we all know, has been expanding rapidly and that's a phenomenon we would expect to see continue on a path above that shown in the Greenbook. For example, industrial production over the last three months ending in February grew at an 8.4 percent annual rate; payroll employment grew at a 1.6 percent rate from November to February which was in line with the growth over the previous nine months; and the unemployment rate, adjusted for changes in measurement, seems to have declined in an amount about equal to 1 percentage point over the last year. In the Eighth District, we would expect economic performance in the first quarter to be affected somewhat adversely by unusual winter storms, especially in the southern and eastern parts of the District. But, nonetheless, District activity and employment have grown faster than in the nation as a whole over the past year and especially in the most recent three-month period for which we have data--ending in January. So, obviously, the full effects of those storms wouldn't be reflected in that data yet. Employment reports recently have been dominated by expansion in industries as diverse as appliances, finance, poultry processing, trucking, bicycles, and autos. Particularly noteworthy are double-digit annual rates of growth in employment during the most recent three months; this would be in the electrical and transportation equipment industries and in construction. Recent announcements that Chrysler will reopen an old plant in the St. Louis area and that Ford will expand its production line also in St. Louis, along with the previously announced 1995 plant reopening by GM, indicate a dramatic resurgence in investment and employment in the transportation sector over the next few years. The continuing strong performance of the District and of the national economy as well reinforce my concerns about the inflation outlook. Over the past five months both consumer and producer prices have accelerated from their pace over the previous five months. Producer prices for finished goods, for example, increased at a 1.6 percent annual rate since September 1993 following a 2.7 percent rate of decrease over the previous five months. Consumer prices accelerated from a 1.8 percent to a 2.7 percent rate over the same period. In addition, and that's why I mentioned industrial production and employment trends earlier, I think the potential for bottlenecks and price pressures is growing. Capacity utilization has reached the level recorded at the previous cyclical peak in July 1990, and labor market conditions adjusted for recent changes in survey methods are rapidly approaching the degree of tightness that existed at that time as well. Not surprisingly, I think inflationary expectations have also increased, as reflected in the 25 basis point upward shift in the yield curve following our last meeting. This was on top of a 50 basis point steepening that had already occurred between October, when long rates touched their lows, and our February meeting. One final note on this score would be the question: Is a significant increase in inflationary expectations plausible when price levels were declining as recently as last year? And my answer would be, ""you bet."" If you look at the postwar period, there essentially have been nine periods of declining inflation. And in the four quarters following those nine periods, the average increase in inflation rates over those four-quarter periods was 2.2 percentage points. So it's not at all implausible, given what's going on now, that there are significantly higher expectations with respect to inflation.",688
-fomc-corpus,1994,President McTeer.,5
-fomc-corpus,1994,"Eleventh District employment growth has been greater than the national average for some time, but so far this year it has been below the national average. I suspect that that's because much of the country is recovering from recession while the Eleventh District is just recovering from sluggish growth. On the other hand, hours worked in manufacturing in the District continue to be at record levels; the weekly figure is 43.2 right now. In addition to a weaker rubber band effect in the Eleventh District, low energy prices and the absence of a major automobile manufacturing sector probably have something to do with our relative weakness. We apparently don't benefit from manufacturing of automobiles and we don't have a parts industry like the Boston District does. The actual pickup in major economic activity from NAFTA still seems to be in the future, although there is a lot of activity going on with companies positioning themselves to do more trade and new entrepreneurial start-ups trying to figure out how to trade. There is some confusion on just how to do it and some lag in the ability of public authorities to teach people about the proper paperwork and so forth. All indications are that NAFTA trade is going to be a very big deal soon. You probably heard that Dallas was chosen as the Labor Secretariat location for NAFTA, a good right-to-work state getting that honor. Construction of homes has been fairly strong in the District, creating some shortages of building materials, particularly bricks but also glass and other materials, and some shortages of skilled construction workers; we have reports of some upward pressure on building materials prices and on blue collar wages relative to white collar wages. As for news from board meetings, I guess the most significant news I'll admit is that the Houston Board, which perennially is our most negative board in terms of its assessment of local economic activity, reportedly had a very upbeat board meeting last week. They are talking about a lot of new strengths in the Houston economy, which has been the weakest major metropolitan area in the District. Loan demand has picked up considerably and the larger banks are reportedly seeking loans very aggressively. A couple of weeks ago we had a meeting of our Advisory Council on Small Business and Agriculture and --used to report that when he tried to get a loan from a bank it was not ""no,"" it was ""hell no."" He now reports that it's not ""yes,"" it's ""hell yes."" [Laughter] If you're looking for potential weaknesses in the economy, I would just offer the possibility that a lot of people refinanced their house in 1992 and 1993 and when income tax time comes there may be some negative surprises for them in the next month. With respect to the national economy, I have no comment on the Greenbook except that it contains more ""blue"" than usual.",554
-fomc-corpus,1994,President Hoenig.,4
-fomc-corpus,1994,"Thank you, Mr. Chairman. To begin with our District, I will tell you that it's growing at a strong pace now. Recent employment numbers show a growth rate for the District as a whole above 3 percent. This is showing up in manufacturing not only of nondurables, which I've reported on before, but of durables as well, reflecting our auto industry and our aircraft industry, which for our region has shown some expansion. Construction in the region generally is very strong. I spoke with in the Kansas City region just last week, and he indicated that the activity prospectively for the next 90 days is as high as he's ever seen it, higher than the 1985-1986 period. As a result of that, they are seeing some strains in terms of getting access to labor, but not necessarily in wages yet, and also in materials. Agriculture is stable; there is a tradeoff between some increases in price in the grain side which is in effect hurting the cattle side to some degree. Energy in our District is still modest, with oil being a negative but natural gas being a positive, and there has been some drilling activity as a result of that. Banks financially are strong and are also seeing an increase in demand for loans. And their attitude toward making loans I would say is very positive. Just to talk a little bit about prices in the region, we are not seeing systematic increases yet in the data. Land prices are increasing but at a rate only slightly above the inflation rate in the last survey that we did, and the same is true in some of the labor markets. However, on the anecdotal side, I'm getting increasing information that some price pressures are beginning to emerge. The same that I talked to said that they are seeing materials prices move up sharply. He quoted a figure as high as 15 percent in some of the materials that they were bidding for. In land prices, I've reported at other meetings that in the rural areas of Nebraska, Kansas, and Wyoming we have seen land prices move up. In some cases, we have seen them rise sharply and the impetus is not from outside buyers but from neighboring operations trying to expand. So we are beginning to see that. On the national level, we continue to view the outlook as we did at the last meeting in that we see inflationary pressures that are increasing more rapidly than shown in the Greenbook--not by a lot but I think by enough to matter. We see that widening as we go out into 1995. There are three reasons for that in our judgment. Number one, generally we expect growth in GDP to be above that in the Greenbook. Secondly, we see the unemployment rate coming down more than the Greenbook; the difference is small but combined with faster GDP growth it's important. And finally, as you know, we view the natural rate of unemployment as being somewhat higher than the Greenbook. So the combination of all those factors, in our minds, adds up prospectively to the emergence of significant inflationary pressures. Thank you.",613
-fomc-corpus,1994,Governor Kelley.,3
-fomc-corpus,1994,"Thank you, Mr. Chairman. As was said early on, our job here, of course, is to assess risks. And I think most of what we have heard today has been centered around the risks that we see in the upside direction. I certainly can't disagree that that is probably the most likely scenario, but I would like to inject a couple more notes of caution into that if I may. I don't disagree that these risks are probably the most compelling argument. But I do think there are good reasons not to assume overly confidently that that's the only scenario. I think there is a probability that's considerably above zero that we may be a good deal further away from this full utilization flash point than we think we are. First of all, the Greenbook forecast points to a considerable slowing in the real economy. It describes the consumer as neutral going forward from here. I'm not sure what that means, but I agree with it. [Laughter] I have spoken before about the very heavy debt load that consumers have; as of now it's all still there. And as Bill McDonough mentioned a few minutes ago, we may have some nasty shocks in the wealth effect area that people are about to find out about. Indeed, going forward from here, I think almost all of the major sectors are projected to slow. After this quarter, unemployment ceases to go down in the Greenbook projection and capacity utilization stops going up. I find it hard to ascribe very much of that in 1994 to the effects of a slowly rising federal funds rate, though there may be some effect at the margin. Now, more slowing is projected for 1995, and I can associate that a bit more with a rising funds rate. In short, that projection just doesn't look anything like a runaway boom to me. The foreign economies, particularly the G-7 countries, have a very slow recovery under way, if indeed it is under way. And the projection is that their under-utilization gap never does close at all over the forecast period, and their inflation stays low and indeed gets lower as time goes on. This tells me that our net exports are going to be a continued heavy drag; there is going to be continued heavy pressure for other economies to export to the United States at very attractive prices, and I think that implies a rather strong pricing discipline on our own domestic producers. I'm not sure the International Finance staff here would agree with that; I think they believe that effect is more limited, and historically I'm sure that they are correct. But in the foreseeable future, I think foreign competition will continue to have a strong disciplinary effect on prices in the United States. In the area of productivity and unit labor costs, we have recently been seeing a rate of growth in unit labor costs that has been substantially below the inflation rate. In 1993 it was .9 percent. The Greenbook projects that to jump a lot next year to 2.9 percent, which would be very adverse if it happened. But even if it does happen to that extent, I still don't see 2.9 percent as being an inflationary flash point. But is it going to happen? The reason given for that very adverse development is that productivity has been running much better than trend, and it's got to get weaker in order to come back to trend. That just might be a tad academic. It may be that the folks out there in the real world who are fighting to make a living may not realize that they've been performing way above trend; they may feel they have to keep it up in order to survive. [Laughter] My impression is that they are doing that. So it's possible that we will continue to see a substantial improvement in productivity that may be more secular than cyclical, as the case may be. Interest rates cut both ways. On the one hand, I would certainly agree that real rates are low and stimulative, and that's a very important point. But on the other hand, this 70 to 100, maybe 120 basis point increase in long rates that we have seen, however you want to measure it, is a powerful restraint. We can talk all day about whether they are real increases or not real increases and to what extent one way or the other. But the fact of the matter is that it's a large increase and it points to very substantial restraint right now. The Greenbook projects that long rates are going to come back down in association with a rise in the short rates; that's happened before and conditions may exist today where it will happen again. But it's hardly a cinch bet. That could be an important constraint. Finally, there is the matter of inflation trends themselves; they are still improving. Three years into an expansion, the 12-month change in the core CPI last month, the latest figure, was the best we have had in a long time. I realize, of course, that when we talk about trends we're looking backward and we need to look forward. One reason that these trends have been looking so good in the face of an expansion has been the fact that we have had a weak recovery, but then one reason the recovery has been weak is because there was a weak recession before it; we started out at pretty good levels. Trends change slowly most of the time. The first thing they've got to do is to stop moving in the direction they are already moving, and in this case they haven't yet. Then later they may reverse. Certainly, there is evidence that that's going to begin to happen. The last time we met I used the phrase ""there is dust on the horizon."" Certainly, some prices are rising; there is no doubt about it. Maybe this trend will reverse faster than trends usually do, but I don't think it is completely insignificant that so far that is just not happening. The trends are still in the direction of slowly declining inflation. Over the previous 12 months, the PPI change was almost flat. The core CPI last month, as I mentioned, was the lowest it has been in a long time, at 2.8 percent and on a downward trend so far. Is there danger that we are going to get behind the curve or alternatively, if we do move now, that we could conceivably choke off the expansion? I seriously doubt both of those. But I do think it's possible that we have a situation here where the economy, at least for a while, is behaving in some new ways. It could be that if we are not being pushed hard right now to move--if we are not in danger of getting behind the curve--that it might be worth keeping our powder dry for a little while to see how some of this plays out. Thank you.",1354
-fomc-corpus,1994,Governor LaWare.,4
-fomc-corpus,1994,"That's a nice sequence and I'd like to associate myself with a lot of what Governor Kelley just said. I want to add to that my perplexity about the projected relationships between four elements of the forecast. The first is the presumed direction of policy and the trajectory of interest rates associated with that policy. The second element is GDP in the context of that policy and in the context of what we presume to be potential for the economy. In its effort to tie all of that into the projection for the CPI, the staff has come up with a projection for the balance of 1994 and well into 1995 that has the CPI running at a higher rate than it did in 1993 and 1992 and the GDP running at a lower growth rate than in 1993 and 1992--in fact tracking very close to what we presume to be the potential for the economy. Those things don't make much sense to me. Either the staff has underestimated GDP and it is going to come out higher than projected and therefore the CPI numbers are more reasonable, or it has underprojected the CPI. If it is the former, then the question that I would raise is whether we have the right monetary policy. If in fact we are projecting a monetary policy involving rates that are rising gradually to a certain level with the result that the economy is growing at a relatively sluggish rate and there is no projected progress against inflation, then clearly, given the stated objective of stable prices, do we have the right policy? I don't have the answer to that at the moment, but in the context of some of the things that Governor Kelley was saying, I just don't feel comfortable with the conclusions that one seems to be forced to draw from those projections.",347
-fomc-corpus,1994,Governor Phillips.,3
-fomc-corpus,1994,"Thank you. There has been a lot of discussion about where we are right now with respect to the real economy. It does appear, no matter how we measure things and how January and February actually come in, that the economic strength is broad-based. And as part of that strength, we are seeing strong productivity improvement, which really bodes very well for strength in housing and in household spending. Certainly, the labor markets are a bit difficult to read right now given the changes in the survey method. But even with that difficulty, it does appear that there is some improvement in the labor markets. We are even getting some improvement with respect to the deficit. There hasn't been much discussion of the deficit recently; in fact, I don't think anybody has even mentioned it today but that's something one should chalk up in the positive column. Moreover, the capability for financing growth seems to be continuing to strengthen. Certainly, there is uncertainty in the secondary markets, both the bond and the stock markets, but the overall cost of capital remains relatively low. Banks are in a strong position to finance further expansion. In terms of the outlook, I certainly can't disagree with the notion that whether we characterize this as an expansion or a recovery, it is sustainable and it may well be at or above potential. Perhaps somewhat like Mike Kelley, I've been asking myself whether or not this is a picture that's too good to be true. I do think that there are some checks on potential runaway growth. Maybe this is the proverbial soft landing that Mike Prell referred to. Re-engineering is definitely entrenched in corporate culture. The focus is on cost savings and improved productivity. There is a flip side, of course, with respect to job quality. Even though we are seeing job growth, the question remains as to what kind of quality there is. So in a sense that is a check on growth. We have a low saving rate; Larry Lindsey has spoken about that recently. I have a hard time believing that current household consumption levels can remain at the same rate given the income growth rates that we have seen recently. There is a continued international drag; with our trading partners being weaker, we are certainly the ones that are leading this growth. With respect to inflation, certainly the recent history is excellent, but again we have to focus on the future. It's hard to know when there is a problem with respect to when are we shifting from disinflation to either a flattening or an increasing trend. Certainly we can look to some of the underlying price series, including commodity prices. While commodity price run-ups are not sufficient to cause CPI increases, they would be necessary. So, while the increases we are seeing may not work their way into the CPI eventually, I certainly think it's a signal that should put us on alert. There are some vulnerabilities with respect to future price movements. Low crop carryovers this spring make food prices quite vulnerable to whatever is experienced with respect to the 1994 harvest. Oil prices have been obviously benign. They have been the very thing that has kept our recent inflation performance very good. I guess I have a healthy skepticism. Maybe I stood in some of those oil lines too long to be comfortable with declining oil prices. We are still not sure how the health care reform movement is going to shake out. The economy has been running ahead of potential, and if it continues at that same pace, eventually at some point we are going to see price pressures. We already are hearing some anecdotal discussions of bottlenecks and supply shortages. So I think there are some vulnerabilities even though price increases haven't yet shown up in the inflation statistics. In terms of assessing the risks to the economy, I guess I come to the conclusion--and maybe it's because I've spent a lot of my life in the markets--that perhaps the markets themselves may be one of the sources of vulnerability. I think they are undergoing a great deal of sorting out right now. Market adjustments are not instantaneous, though if everybody heads for the door at the same time, we could get a massive movement. But given the very complicated sets of portfolios now in markets--and I don't mean just hedge funds or pension funds or financial institutions, but portfolios throughout even the manufacturing sector--I think the price movements that one can get as interest rates change may be somewhat exacerbated when it occurs. The steepness of the yield curve in fact may be exacerbating the problem. We were going through a shift in expectations with long rates coming down; maybe the decline overshot last fall; I don't know that we are ever going to know that fully. But the process was under way last fall and long rates were shifting down. When the Fed tightened, to use a bad analogy, that threw a monkey wrench into the gears of the market system and participants are having figure it out and work out a new direction. Part of the problem is that it is not clear what unwinding of portfolios and adjustments are being made. Sometimes we get mixed signals because portfolio positions are very, very complicated. The markets themselves I think are certainly a reflection of this changing, shifting portfolio adjustment process that is occurring. This whole process is compounded by other kinds of uncertainties, domestic/political uncertainties, Korea, potential trade wars with Japan and China, and trading partner weaknesses. For me the bottom line is that the markets don't need any more uncertainty with which to deal. So whatever we do, we shouldn't let the markets get in the way of economic recovery or expansion, however we characterize it.",1103
-fomc-corpus,1994,Governor Lindsey.,3
-fomc-corpus,1994,"Mr. Chairman, I think we have heard today a very optimistic view outside of New York and Washington and a very pessimistic view from those of us in New York and Washington. I hope it's natural for people in Washington to be pessimistic; you just have to live here and watch it. [Laughter] But I've decided that everyone is right. I think the reason comes down to the fact that the real after tax return to riskless saving is negative. And that is our problem. The natural response to that situation is that people first of all go into durables and housing, as they have been doing. Indeed, I think the last time that the rush into real assets was as great was probably 1979 when the real after tax return to riskless savings was also probably as negative or more negative than it is now. The other things people do are to take on more risks, avoid the tax man, and go abroad for new opportunities. I just want to throw out a few fun facts. In 1993 the rise in the dollar value of the Hong Kong stock exchange was almost half the rise in the dollar value of the New York stock exchange. Hong Kong is an emerging market and they have lots of reasons to be optimistic about China, but the fact that it grows half as much in dollar terms I think suggests that people are running overseas in search of higher returns. I'm a little more concerned when I see that the rise in the value of the Bangkok stock exchange was $51 billion compared to $432 billion in the NYSE and that the Ankara stock exchange--I wonder what percentage of the American people could identify Ankara on a map of the world--was $42 billion, almost a tenth of the increase in the value of New York stock exchange stocks. Home equity loans and mortgages in general because of their tax favored status have reached levels that clearly suggest that the funds are being used for consumption purposes and not simply for buying new homes. They may also be used to fund tax sheltered investments, which have also reached new record shares of total saving. In addition, at the end of the year margin debt hit a level as a ratio to disposable personal income not seen since the month after the Chairman joined the Board of Governors, and we know what happened shortly after that! Margin debt fell precipitously, we know that. Again, people are reaching for risk; it is also a tax favored method of borrowing because up to a limit it is tax deductible. I think, therefore, that we can have a booming economy and at the same time have the very high risk situation that Bill McDonough talked about and that my colleagues on the Board just discussed. Both are true. The answer, I think, is to raise the real after tax return to riskless saving. My preference for how to do that would be largely in the fiscal policy area, but I'm not going to hold my breath. So, although I'm leaping to the next agenda topic, I would go for what we can do.",605
-fomc-corpus,1994,Let's keep this coffee break a little shorter than usual.,11
-fomc-corpus,1994,[Statement--see Appendix.],6
-fomc-corpus,1994,Questions for Don?,4
-fomc-corpus,1994,"Don, in the early part of your remarks, you made reference to the credibility of the Committee's commitment to, you used the word, ""contain"" inflation, and later in your remarks you said, ""to contain inflationary pressures or to reduce them further, if that is your objective."" So, again, you were using the words that Mike used earlier in his remarks about containing inflation, and I don't know what happened to the rhetoric about the objective of reducing inflation, a route moving toward price stability. If it's the staff's interpretation that this Committee has changed its long-term objective based on what we submitted in the February meeting, then I think maybe in our May meeting we ought to schedule a discussion as to what are the long-term objectives of this Committee to give you guidance as to what kind of policy input we need.",166
-fomc-corpus,1994,"I'm not sure I can add very much to what Mike said in response to your previous question except to say that my words in regard to alternative C were meant to suggest that strong action--50 basis points now and likely considerably more down the road--would probably be more consistent with getting inflation down than the more gradual, though not very gradual, path in the staff forecast. I think it's the same issue. In effect, the staff forecast has inflation leveling out at 3 percent. In the judgment of the staff, given our assessment of spending and inflation pressures, stronger action may be needed to bring inflation down. And that's what I tried to convey--",130
-fomc-corpus,1994,"Did I read too much into your expression ""or to reduce further, if that is the Committee's objective""? It sounds to me as if you are doubting that that is our objective.",38
-fomc-corpus,1994,I was just suggesting that that's the alternative you ought to consider if you really want to bring inflation down and make measurable progress. That would be one reason for looking at alternative C.,36
-fomc-corpus,1994,President McTeer.,5
-fomc-corpus,1994,"Recently, growth rates of the narrow measures of money have slowed and the broad measures, if you adjust them for stock and bond flows, have slowed. The only measure that has accelerated has been the monetary base and that's entirely in currency. Where is the currency going?",53
-fomc-corpus,1994,"We don't have current data on that. We do have a sense that the flows overseas are large. I don't think we have a good fix on where they are going, especially since where they might go initially--suppose they went to Switzerland or something like that--doesn't indicate what the final destinations might be.",63
-fomc-corpus,1994,"In the last couple of months, interest rates have risen a good bit and all the monetary aggregates that count in this country have slowed. Would you say we have had a significant tightening already?",38
-fomc-corpus,1994,"I tried to suggest that some of the slowing might be in response to the rise in interest rates, though ordinarily we would think that it would take longer. On M3 in particular, we have these institution-only money funds that are very sensitive to small changes in interest rates, and we think that accounts for a substantial part of the minus 7-3/4 percent M3 in February. On M2 and on M1, I think we have a somewhat different phenomenon. A lot of that is in the mortgage prepayments and, in fact, they have come off, as you know, as mortgage rates have risen since last October. That has a temporarily depressing effect on M1 deposits, which we expect to come back. So if anything, I would think that M1 has dipped below its longer-term trend or what we might expect over the longer run and might come back a little. But with higher interest rates, we would certainly expect M1 in particular to slow substantially from the 10 percent plus pace of the last few years. That would be our analysis. M2 is more questionable. We think that M2 does respond at least for a while to higher interest rates, but then we have questions about the effects of higher interest rates on the flows to the stock and the bond funds. So the effect of higher interest rates, particularly if accompanied by rising bond yields and capital losses, on people's preferences for M2 versus bond and stock funds may muddy those waters. But we would expect higher rates to damp M2 growth a little, at least for a time.",317
-fomc-corpus,1994,It sounds as if you're saying the signals are jammed.,12
-fomc-corpus,1994,Right.,2
-fomc-corpus,1994,"If nobody else has questions, why don't I get started. I'd like to take a minute to put the current period in some historical perspective. We have had extraordinary financial turmoil, and it's worthwhile to go back in time and see where it came from and where it's likely to go. My impression is that we are looking at the aftermath of the 1987 stock market crash, which is the first and perhaps the only major stock market crash in history that actually was beneficial to the economy. In other words, it appeared to me in retrospect that the crash stripped out a high degree of overheating and sort of got right to the edge of where the overheating got into the muscle of the economy and stopped. We came out of it with a very shaken environment but one which recovered relatively quickly. As a consequence of that, from the 1987 stock market crash on, all the key risk spreads started to narrow. We saw it in, say, the rates on six-month commercial paper versus the Treasury bill rate; we saw it in BAA corporates versus Treasuries. The only abnormality is the junk bond trend which was affected by the emergence of that market. But there has been a general decline in those risk premiums, which has led increasingly to the view implicit in the market that there is a risk-free environment and one that incoporates, as we have noted previously, extraordinary rates of return on stocks and bonds. Those returns not only have been significantly higher than average but remarkably stable. There has been very little volatility in the stock market until recently. And as a consequence of that, we saw the emergence of a huge mutual funds industry, which was able to promise above average yields and stable yields. I don't know the size of the industry now--$2 trillion or something like that--but it has become the major player in the marketplace. Everything we know about markets is that abnormal rates of return, especially those built on capital gains, cannot persist. Indeed, the closest example of this in recent times was the pre-September 1992 hedging, or I should say investments, in a number of European currencies. You will recall that the Swedish kronor was yielding significantly more than most money market instruments and the deutschemark. So everyone figured that the kronor was locked into the deutschemark, and investors took positions in the Swedish kronor at high interest rates, hedged it in the deutschemark/dollar market, and got blown apart. This sort of led to the beginnings of the ERM falling apart. I think we are looking at something not terribly significantly different in this current situation. Prior to our move on February 4th, the market had drifted into a state of somnambulance at low risk premiums, and there were steady upward price pressures. While we all recognized at the time that the stock market was a little dicey and we were worried about the mutual funds, I don't think we were aware of the apparent underlying speculative elements involved in the markets on a worldwide basis that I think our February move unearthed. I think it was a wakeup call which basically got everyone to look up and say: How long can this go on? And if our wakeup call had not occurred on February 4th, there would have been another wakeup call coming some other time within days, weeks, or months. I believe we in effect dislodged a brick from an edifice when it was vulnerable to being hit by something. What actually eventually hit it was the Philadelphia Federal Reserve's February publication. That morning the CPI came out at zero and the bond market took off; it rose to 6.39 percent on the 30-year bond, which was 10 basis points above its level before we moved, and by the end of the day the Philadelphia Fed index for February came out, it closed at 6.54 percent. Now, it wasn't the Philadelphia Federal Reserve index itself that moved the market; that was a catalyst. The way we knew that is that when the March index came out and the index turned around, the bond market tried to rally and it rallied for about 10 minutes and got its head cut off. So really, these are secondary catalysts to a far more fundamental restructuring that's going on. Views of the market structure are undergoing a major review at this stage and portfolios are undergoing dramatic changes. We have seen some increase in yield spreads but they are still quite low by any historic standard, which suggests to me that the adjustment process in the capital markets, in the portfolios of pension funds, mutual funds, and individual households, still has a long way to go. I'm not saying that means that interest rates have to adjust; I mean that portfolios are out of kilter and are still being adjusted. When we moved on February 4th, I think our expectation was that we would prick the bubble in the equity markets. What in fact occurred is that, as evidence of the dramatic shift in the economic outlook began to emerge after we moved and long-term rates began to move up and hence the discount factor on stocks began to move up, we were also clearly getting a major upward increase in expectations of corporate earnings. While the stock market went down after our actions on February 4th, it has gone down really quite marginally on net over this period. So what has occurred is that while this capital gains bubble in all financial assets had to come down, instead of the decline being concentrated in the stock area, it shifted over into the bond area. But the effects are the same. These are major capital losses, which have required very dramatic changes in actions and activities on the part of individuals and institutions. I believe there was a view that the capital gains in the bond markets were largely permanent because the economy was perceived as coming off a relatively high fourth quarter but would begin to ease at a somewhat faster pace, and it didn't do that. And this development created a very significant shift as to where the capital losses occurred, although it may not have significantly altered what the actual possible losses overall would have been, combining the stock and the bond markets. With the improved economic outlook, risk premiums have remained quite low. And the reason they are continuing quite low is that the risk to the economy is not perceived to be a crucial one. So even though we had some pickup--for example the risk spreads of the six-month commercial paper vis-a-vis the bill rate have gone up moderately--it's the first rise in a long time and the spread is still basically low. There is a very strong view, which is reflected around this table, of a very solid economic outlook. Indeed, I'm hard pressed to remember when the outlook itself looked as unequivocally expansionary as it does today. We are always able to find reasons why it's going to cave, and there are lots of different figures we can adduce. The only real danger to this economic outlook, as I see it right now, is the financial structure. And that, as I think the Vice Chairman said, has a low probability of inducing a downturn. But if the financial system were to be ruptured, it would not be terribly difficult to bring the economy down very quickly. If you want precedents for that, I suggest that you merely go back and read the business annals that go back 50 or 100 years. They show economic conditions looking absolutely terrific three weeks before the roof caves in. So the outlook is one thing; history I think has to temper it. Nonetheless, there is no doubt about the very strong underlying forces in the economy. The one area, as I think I said at the February meeting, that has potential upside risks is the inventory situation, which continues to be fairly tight. I think the lead times are probably just now beginning to move out. Somebody here mentioned steel mill inventories picking up; I've heard some of that myself. We are beginning to get the first signs that the inventory numbers may be moving up, and if that's the case, that would maintain a higher level of economic growth than I think we otherwise would have gotten. There is no question that we have cut the tail of the probability distribution for the economic outlook, even though in a modal sense the outlook itself is not all that much higher than it was six months ago so far as 1994 is concerned. There was a good deal of concern six months ago that the economy might fade very fast. The truth of the matter is that it has not. And in the event, even though the modal expectation hasn't changed, the probability distribution has changed, and I think that's a major factor that has moved into the bond market and the whole constellation of interest rates. I thought the most interesting aspect of the discussion around this table today was some element of surprise--and I don't know how to phrase it but it involves almost everyone with the exception of Al Broaddus. Everyone is concerned about a pickup in inflation, tightness and stringency picking up, and the fact that commodity prices are moving, but there is no apparent acceleration in wages or final goods prices. This raises a very interesting issue that we ought to think about. I don't know where it leads us, but a year or so ago I raised a question about the absence of financial tinder--meaning credit, debt, and money supply--in the economy, even as the economy was picking up and we were beginning to see some shrinkage in excess capacity. But a year or so ago, we had soft inflation and excess capacity. Looking strictly at what the data show to date, the inflation rate, if anything, is somewhat less than we had expected. We have very detailed data for January and February, or more exactly probably half-way through February. We have very detailed data on daily spot prices of a lot of things. And we have some data from purchasing managers' reports which have never been terribly useful with respect to inflation. We have very clearly seen some pickup in underlying commodity prices; we have seen very little evidence of accelerating inflation in any of the data on final prices. Even the February CPI, in which the core rate was up .3 percent, is not a clear indicator. I'm not inclined to pick pieces of it and isolate them, but there was a .6 percent increase in owners' equivalent rent, which was way above average. If you bring that down to average, that takes off another tenth of a percentage point. The reason I raise this question is that we have an economy which doesn't look like anything that we have experienced in the last 30 years. In the last 30 years, when we saw a tightening of slack in the system, we also saw a pickup in credit demands and we had inflation. That, however, has not been the universal experience in this country. If we go back to the 1920s, there were several periods of significant tightness in markets but no significant credit expansion and no inflation; that was also the experience even in the 1950s. I raise this issue because we are pretty far along in this business cycle. So why is inflation not showing its head a little more? Now, the next set of numbers may come out and I'll be sorry I said this, but the earlier experience raises the question: Is it automatically the case that when the economy is tightening up that inflation takes hold? I would submit that looking at the simple short-run Phillips curve, which is what we are doing, without a credit variable in it, may be misspecifying the process in question. As we all know, the shrinkage of credit has basically reflected balance sheet strain in the latter part of the 1980s and has at the same time been associated with extraordinary weakness in all of the aggregates. To be sure, there has been a pickup in credit--in loans and debt, but from very low levels and the numbers do not support, at least historically, any significant inflation pickup. I must say that I find this whole process very puzzling, because it does not seem likely to me that it can continue in this way. I'm sort of waiting for the credit numbers to really begin to move, for the patterns to begin to look like those I have found so familiar, being a business forecaster for a number of decades. There is something different going on. I don't know yet what it means, but there are two facts that coincide with one another that at least should raise our awareness. One is that we are not yet getting final demand price increases, and it may very well be that we are getting extraordinary productivity increases that are keeping unit labor costs down and the competitive pressures there. That is why, of course, commodity prices, which are clearly going up, are not working their way through the system in a direct manner. This is the type of situation where we are looking at a credit picture and a lack of inflation that is more reminiscent of the '20s than of the last 30 years. And that is something we ought to keep in mind, because if we are basically going to presume that there is an automatic relationship, I think there is at least a question as to whether that is true. I'm not sure that really affects what policy should be because I don't think there is any question that at some point and in some manner, if we have accommodative monetary policy at the central bank, credit has to become excessive and it has to become inflationary or all of our concepts about how the monetary system works will have to go into a radical revision, which I can't at this stage even remotely contemplate. Where this leaves me, putting the inflation issue aside for the moment, is that I think we have to restore policy to neutrality as fast as we can. What I really have in mind here is to eliminate the excess degree of accommodation, which I assume is basically feasible. If we were dealing strictly with the economic outlook as it stands now, there is no doubt in my mind that this economy could absorb a very large increase in interest rates without a problem. The difficulty I have is that I don't think the financial system can take a very large increase without a break in its tensile strength--which we strained significantly the last time but did not break. It's a risk, frankly, that I think we should be quite concerned about. So, we have the issue of, one, moving as fast as we can and two, doing it in a manner that doesn't break the markets. But as I see our objectives here, there is another characteristic as well. One of the elements that I think we have all been observing with respect to the markets--and one of the reasons why there has been such a level of instability in the markets--is that when we were perceived as moving on the basis of economic data, the markets had a certain sense of what it was we were doing. Now, Jerry Jordan doesn't like that approach to policy and I have considerable sympathy for his point of view, but it did give the marketplace a semblance of knowing what we were doing. Now they are worried that they don't know when we are going to move, so we have this Sword of Damocles hanging over the market. They don't know whether we are going to move in 2 days, 5 days, or 12 days; they have no basis to judge and they are understandably nervous. So the question is, having very consciously and purposely tried to break the bubble and upset the markets in order to sort of break the cocoon of capital gains speculation, we are now in a position--having done that and in a sense succeeded perhaps more than we had intended--to try to restore some degree of confidence in the System. And that means we have to find a way, if at all possible, to move toward a policy stance from which we will not be perceived as about to move again in any short period of time. That essentially leaves us, as far as I can see, with two options: moving the funds rate up 25 basis points or 50 basis points. I don't think we have an option, incidentally, of doing nothing. There is no case that I feel comfortable with for doing nothing, so I would frankly reject ""B."" But leaving that option aside, I do think we have an interesting choice. A 50 basis point increase would move the funds rate to 3-3/4 percent. In my judgment that would not be perceived of as neutrality or where we ultimately have to be. My own view is that eventually we have to be at 4 to 4-1/2 percent. The question is not whether, but when. If we were to move 50 basis points, I think we would create far more instability than we realize, largely because a half point is not enough to remove the question of where we ultimately are going. I think there is a certain advantage in doing 25 basis points because the markets, having seen two moves in a row of 25 basis points at a meeting, will tend almost surely to expect that the next move will be at the next meeting--or at least I think the probability of that occurring is probably higher than 50/50. If that is the case and the markets perceive that--and they perceive we are going to 4 percent by midyear, moving only at meetings--then we have effectively removed the Damocles Sword because our action becomes predictable with respect to timing as well as with respect to dimension. My own impression, if we decide to move in that direction, is that the last move we might want to make--say, for example, the funds rate was at 3-3/4 percent and we decided 4-1/4 percent might be neutrality--is that perhaps we should add 50 basis points at that point. That would ring the gong as the end and we could in effect withdraw from the race, provided that during this period rising inflationary pressures did not actually start to become real as distinct from prospective. So, I must say at this point, having struggled with this issue for quite a long time and having given considerable thought to trying to convince myself that 50 basis points might be the best move, I come out thinking that while 50 basis points has a very good logical argument for it, it's too soon. It doesn't quite get us there and I'm not sure that it gains the advantages that we would want. My own inclination at this stage--I may sound a lot surer about what I think ought to be done than I am because we know the markets are very tricky--is to do 25 basis points today, but go asymmetric because the chances of our lowering rates in the intermeeting period ought to be zero. There is the possibility that the numbers may turn out to be a lot stronger than we are projecting--remember that the Greenbook has industrial production effectively slowing in March. In fact, the weekly data results for March point to a decline, not a rise, so there is also the possibility that this expansion could slow and ratify the Greenbook projection. If that in fact turns out to be the case and we get a removal of any significant pressures, then we have the opportunity of maintaining a slow pace in moving up into a neutral policy area because that has been our program all along; this had nothing to do with inflationary pressures. If, however, wholly independently of our process of going to neutrality, we begin to see that this economy is not slowing--or more specifically, if we see that inventories are really beginning to move up, because that's where I think the vulnerability is--then we will have a second set of decisions to make. We would still have the path to neutrality to implement, which as far as I'm concerned we have to get to, but we would have an added factor on top of that--an additional tightening superimposed on our move to neutrality because, in effect, we would be seeing an economy that is actually beginning to heat up. My own guess is we are not going to see the economy heat up until the funds rate gets to 4 percent, meaning that I think we have enough time to move meeting by meeting, which gets us to a 4 percent federal funds rate at midyear. Then I think we will be in a far better position. That's the way I came out. I took a lot longer to discuss this than usual because I've been thinking about it longer--productively or otherwise, I'm not sure. But I lay it out as it seems to me and frankly am very interested in any counter-arguments or issues that people would like to raise, not only with respect to the policy but with respect to all the pieces. Where I come out really depends on this evaluation of the outlook because what concerns me at the moment is not the economy; the economy looks terrific to me. I'm worried that we could break the back of this financial system and find out in retrospect not only that this situation has the negative characteristics of some of the data of the 1920s, but we could also find out that the experience of the 1987 stock market crash, which was benevolent, is not something that is likely to be replicated. Ed.",4258
-fomc-corpus,1994,"Well, I think the case for a less accommodative policy today is quite persuasive. We did press hard on the monetary accelerator to get the economy moving, and now as the economy approaches cruising speed we have to ease off the accelerator to avoid having to slam on the brakes down the road. The real issue--the major issue as you point out, Mr. Chairman--is how much to move. I prefer a 1/2 percentage point increase in the federal funds rate compared to 1/4 because I think we have some distance to go to get to a neutral policy, and it's better to cover that distance earlier rather than later. Also, I think a 1/4 point increase is so small, given where the economy is, that it will set off almost immediate speculation about the next move. So we will just repeat what we have gone through in recent weeks. I think a more decisive 1/2 point increase can reduce uncertainty, especially if accompanied by an appropriate announcement. Now, there are always risks to decisive action. One risk is that we might be overestimating the strength of the economy, and a less accommodative monetary policy might damp its growth too much. Given the underlying strength that we see, that appears to me to be a small risk, and the best protection against that kind of risk is a willingness on our part to reverse course if need be. I think the greater risk is that we may have gone too slowly in raising rates for this stage of the economic recovery. Historically, waiting too long to adjust rates has been a greater risk, and I think it's the one that we need to be especially sensitive to in this current environment. I am sensitive to the financial risks that you point out, but I must say that in one form or another that has been the argument around the table for not moving in the past when we should have moved. It also may be that this point is significantly different from other points historically, but my guess is that if we push on this economy, we will get inflation and we will end the growth. So one can come up with lots of arguments, some subtle, some not. I think the important thing is to stick to the basics and go to the heart of the matter. We have an economy that is telling us that we need a less accommodative monetary policy, and in my view we ought to move in that direction decisively. It's surprising , but when people do things decisively, they end up getting better results than if they try to outsmart themselves and consider all the angles in the curve. So, I think we ought to go to the heart of the matter.",534
-fomc-corpus,1994,President Parry.,4
-fomc-corpus,1994,"Mr. Chairman, I think that robust growth in real GDP in recent quarters has sharply diminished the slack in both labor and product markets. And if growth does not slow as much as anticipated, we could be facing significant upward pressures on inflation. Despite the action taken at the last meeting, the real federal funds rate still appears to be, in my view, unsustainably low. I think those who favor moving toward a neutral policy stance should therefore support a significant increase in the federal funds rate. Even if a neutral stance were to require a real funds rate of only 1 percent, we would still need a large increase in the nominal rate to reach that level. Those who favor such things as nominal income targeting rules should also support a significant increase in the federal funds rate. We have looked at various nominal income rules, and they suggest that we fell behind the curve at the last meeting and that we now need a large increase to catch up. And finally, financial markets appear in my view to be expecting significant increases in interest rates over the next six months. Thus, I feel that a 50 basis point increase is needed. An increase of 25 basis points would probably not be sufficient to prevent an increase in inflation and certainly would not be sufficient to make further progress in reducing inflation. Therefore, my first preference would be Bluebook alternative C. However, since I believe that whether we do things today or a couple of weeks later doesn't make all that much difference in terms of impact on the economy, I certainly could accept 25 basis points today if we had asymmetric language to the up side and at least the possibility that a move could come prior to the next meeting.",335
-fomc-corpus,1994,President Broaddus.,5
-fomc-corpus,1994,"Let me just say that I agree 100 percent with Ed Boehne. He said it very well; he really reflected my position completely. I have just a couple of comments. Again, as I suggested earlier, despite the good news on current inflation at this juncture, we can see clear signs that an inflationary psychology is building, and I think that's reflected most clearly in bond rates. You mentioned historical perspective. From an historical perspective, I would like to suggest that the hallmark of our monetary policy strategy in the 1980s was that when these kinds of episodes occurred and we got into this type of situation, we reacted. My own view is that maybe not all, but a significant part, of the substantial progress we made in that decade in bringing inflation rates down from close to 14 percent to close to 3 percent currently, reflects that strategy, and I would be reluctant to abandon it. Moreover, if one looks at that period in some detail, when we were willing to move more aggressively--and I would say that included the spring and summer of '83 and the spring and summer of '84--we got pretty good results and rather quick results with respect to inflationary psychology and bond rates. In contrast, when we have moved more slowly, such as in the early months of 1987, the results have not been as favorable. So, against that background, I think we need to move aggressively now to deal with this growing inflationary psychology. I have a very strong preference for alternative C. Are there risks in doing that? Yes, there are. But my own feeling is the same as Ed Boehne's--that the risks are at least as great in not taking this action; I think there is a good chance that we would be seen as too cautious and too tentative.",367
-fomc-corpus,1994,Governor Lindsey.,3
-fomc-corpus,1994,"Mr. Chairman, I think I'm with you with a modification. We definitely want to send a signal to the market, and I think that there are two ways of doing that. One, which is not an option before us, is to go to a number that is a credible--a round number that people would say is the natural rate. One might contemplate a 75 basis point increase to 4 percent. I'm not recommending that, but one could suggest that. It would be clear to market participants that we had stopped. Going to 3.75 percent in my mind doesn't indicate anything. It doesn't suggest that we are going to stop at 4 percent; it doesn't suggest we are going to stop at 4-1/4 percent; it doesn't suggest that we are going to stop at 4-1/2 percent. It does suggest that we have another increase coming down the road. Since I don't think a 75 basis point move is credible and I don't think 50 basis points sends the signal of certainty, I found your suggestion of 25 basis points probably preferable. But where I disagree is on the asymmetric directive because the great benefit of a move at this meeting with the intent that we are probably going to move at the next meeting and at the meeting after that is precisely to remove this uncertainty that we are going to move on some odd Thursday in April, which is one of the things that was spooking the market last month. So, while I have no disagreement at all that we want to get there as quickly as possible, in my mind a move of 25 basis points now, 25 in May and 25 on July 5th seems to be a pattern that will get us there in splendid time. No one can accuse us of upsetting the markets, and we will establish more certainty in the market that we are headed to a fixed point that is higher than I think we would achieve with 50 basis points. So I would vote for 25, symmetric.",403
-fomc-corpus,1994,"Let me just respond to that because I have great sympathy for the point you are making. Ideally, we should be symmetric for exactly the reasons that you state. The problem that I have with it is that I'm thinking of two separate potential monetary policy paths, which may be additive. In other words, if the situation is evolving in a relatively stable manner, then the symmetric language reinforces the fact that we are moving only at particular times. The probability of our easing is very small, and I think we can probably handle the problem that you raise in the way the minutes are written. In other words, the minutes could reflect our thinking that the asymmetry is not a break from this pattern but a wholly different option in the event that our evaluation is inappropriate. That's the way I would look at it.",160
-fomc-corpus,1994,But the minutes won't be seen until after the next meeting.,12
-fomc-corpus,1994,"That's true, but nobody will know the directive was asymmetric until they see the minutes.",17
-fomc-corpus,1994,"I know, so what we are talking about is how we are going to look in the future?",20
-fomc-corpus,1994,"Let me put it this way. As far as I'm concerned, the asymmetry is there only in the event that the economy or inflation begin to look much stronger than we at the moment anticipate. Now, if that occurs, one other possibility is that we can leave the directive symmetric and decide to go with a conference call. That's another possibility.",69
-fomc-corpus,1994,I would prefer that. It's more internally consistent.,10
-fomc-corpus,1994,"That's the equivalent, as far as I'm concerned. In fact, we are in such an important period of the expansion that I think the more we talk with each other, the better off we are. I find consultation frankly quite useful. President Jordan.",50
-fomc-corpus,1994,"Thank you. With regard to the early part of your remarks, I agree very much that we need to think differently about what influences the purchasing power of money. It has never made sense to me to think that growth per se reduces the purchasing power of money. That's really a phenomenon of the last few decades, when we got into this notion of demand management, which I have increasing trouble with as the way to think about how monetary policy or fiscal policy influence the purchasing power of money. Of course, I have a lot of problems with Phillips curves and gap or slack type models. When we think about individual sectors of the economy, agriculture being the most notable, if we have a spontaneous increase in output--what we would call bumper crops or economists would call an exogenous increase--that reduces prices of agricultural products. That's true, really, with most sectors of the economy. Otherwise we call it a productivity increase--something we can't explain is called a productivity increase. That's the nature of a capitalist system; that's what you would expect to happen in the market economy. That is, the inherent resiliency to expand, removing the depressing forces, does not mean per se that the purchasing power of money should erode at a faster rate. That view says to me that we don't want asymmetry if there is a possibility that asymmetry would trigger an action related to growth because it would characterize this Committee as basically not liking growth. We see the economy growing fast, and therefore we are going to react against that; I have a lot of problem with that. I thought Mike Kelley's remark about caution in interpreting where we are was very useful; it's very worthwhile to think about that. Mistakes are made in conducting monetary policy. Occasionally, somebody has to say ""Oops."" We know that's going to happen; policy mistakes will be made. So it comes down to a question of which mistakes we find most easy to correct or least damaging to the economy once we realize that we have made a mistake. That's similar to the comments that Ed Boehne was making about where the risks are. If we assume that the economy is on a satisfactory path now, a gliding path toward some notion of its capacity and inflation is not accelerating and later we find out we were wrong, that is a very costly thing to correct. Whereas if we assume that we have stayed too easy too long and we need to move very quickly to get to this ideal neutral policy stance, and we find out we were wrong, that's a relatively easier thing for us to correct, politically and in other ways. In a world where we do not have monetary aggregates to guide us as to the thrust of monetary policy actions, we are kind of groping around just trying to characterize where the stance is. I don't know where neutral is. But if I were out in the northern part of Gary Stern's District, I wouldn't know where the border between Canada and the United States is. For that matter if I were in a sailboat in the middle of Lake Erie, I wouldn't know where the border is located. But that doesn't mean that it's not a very useful idea to think that there is a border there. And it's a useful idea to think that there is such a thing as a neutral policy stance. I feel very strongly that we are nowhere near a neutral stance and that we ought to be aggressive in moving toward it. The only way I would be comfortable with 25 basis points is if I were assured that it was going to be accompanied by an action of the Board on the discount rate. Absent that, I think it would be a mistake to go 25 basis points at this time. And I think it would be a mistake to go to asymmetric in any case.",752
-fomc-corpus,1994,First Vice President Minehan.,6
-fomc-corpus,1994,"Well, maybe you stand where you sit on these issues. Being in the First District and not being surrounded by signs that are as optimistic as those that give rise to the optimism in the other Districts, we at the Boston Bank have had a lot of arguments in getting ready for this Committee meeting. But they tended to be more about moving up 25 basis points versus doing nothing. I think we could buy into 25 basis points. We think that would be more smoothing to the markets and would be expected as opposed to a stronger move that might not be expected. We also believe that with higher rates there is the possibility of a weaker economy than the Greenbook projects, and we would not like that to occur. So by and large we would be in favor of the 25 basis point increase. We would also be in favor of a symmetric directive or a conference call if we want to make a change.",183
-fomc-corpus,1994,President Hoenig.,4
-fomc-corpus,1994,"Mr. Chairman, from our point of view, in terms of the evidence we have seen, there is a very good economic case for a move of 50 basis points now. I think we need to get to the higher level sooner rather than later. Based on listening to your remarks on the markets, however, I'm inclined to go with Governor Lindsey's proposal. If we are trying to bring some certainty to the markets, I think an asymmetric directive would be wrong because when it is read after the May meeting, it would reintroduce uncertainty in the period between that meeting and the July meeting. Such a directive means that we might do something between meetings and I think it would confuse people. So, I would favor a symmetric directive to go with the 25 basis points. And if the the numbers on the economy differ from our expectations, we can have a conference call and make the decision at that time.",183
-fomc-corpus,1994,President Forrestal.,4
-fomc-corpus,1994,"Mr. Chairman, as we try to make a policy decision, I suppose all of us to some extent are guided by the forecasts. As I look at the Atlanta forecast, I see very rapid growth for 1994, much stronger than the Greenbook, and inflation at the end of 1995 at clearly unacceptable levels. But as I said in my opening remarks, I don't think that's the likely outcome. I think growth is probably going to come out somewhere between the Greenbook and the Atlanta forecasts. But there is some reasonable probability that the Greenbook forecast could materialize. And, therefore, some caution is needed in that regard. I think gradualism has served us very well on the down side. I would also add that I don't view a 1/4 point increase as very insignificant at this level of interest rates; it really means something in the market. In my judgment, a gradual approach will create greater stability than otherwise. I also am very persuaded by your remarks about the financial markets. I remember very well at the last meeting, when there was an expression of interest on the part of some to move 50 basis points, that your language was in effect: ""If we do that, we are going to crack the markets."" We did 25 basis points and I think we came very close to cracking the markets. Now, I'm not saying that would happen again at 50 basis points, but I think we run that risk and I don't think that's a risk we should take. Therefore, I think the 25 basis points is clearly appropriate in this particular environment. The market is expecting something greater over the course of the next several months, so I don't think it's necessary to meet those expectations at this particular point. When I came into the meeting, I was more in favor of a symmetric directive and I still would lean in that direction, but I can certainly support asymmetry. In sum, I think 25 basis points is the way we should go.",399
-fomc-corpus,1994,Governor Kelley.,3
-fomc-corpus,1994,"Mr. Chairman, I too believe that rates are too stimulative and I think we ought to seek a neutral policy stance, wherever that turns out to be. I also believe that the robust expansion hypothesis is probably the most likely, however robust may be defined. And certainly both of those points suggest that the funds rate should be moved up. On the subject of timing, I do not believe that the real economy requires a tightening move at this point but I think the markets probably do; so I can go with 25 basis points. I do find the 25 basis points argument compelling and I'd have real trouble with a move of 50 basis points. As far as asymmetry goes, I don't think for the traditional reasons that that is the best idea on its merits, but I also agree with Larry Lindsey's suggestion that it would be confusing. However, I will not dissent over that.",179
-fomc-corpus,1994,But you would prefer symmetry?,6
-fomc-corpus,1994,I would prefer symmetry.,5
-fomc-corpus,1994,Okay. President Keehn.,6
-fomc-corpus,1994,"Well, it is a tough call. I can't remember a time that the call has been tougher than it is right now. I can come up with good arguments, at least in my own mind, for and against either 25 or 50 basis points. But on reflecting, I do come down agreeing that at this time the 25 basis point move is the appropriate thing to do. I would not be in favor of asymmetric language. I would be in favor of symmetric language, not because I disagree with the direction of policy--I think we will be moving again--but because I'd rather not make it such a regular thing that the moves are going to be dependent on the timing of meetings of the Federal Open Market Committee. I would be opposed to establishing that kind of pattern. Moreover, I'm just in general opposed to asymmetric language. We had a very bad experience with asymmetric language last spring and, therefore, I'd prefer to leave the language symmetric. I do think that the economy is going through a very dynamic phase and that we should keep in pretty current contact as we go through this period. Therefore, I'd be in favor of 25 basis points now with symmetric language but an understanding that probably we would have a phone call before the next meeting and might make a change at that point.",259
-fomc-corpus,1994,President Stern.,3
-fomc-corpus,1994,"As most people have already stated, it certainly seems appropriate to act now. How far we ought to go and how fast we ought to try to get there, are the difficult questions. My best judgment is that we'll be at this for some time; it may well be that the funds rate has to go to 4 percent or more by the time we are done. But I don't have a strong conviction about how far we will need to go. As to the timing issue, it seems to me that we are probably going to be at this until we are either more confident than we are today that we have established an environment for renewed disinflation or until we actually see renewed disinflation. It may surprise us and occur earlier or something else may happen that changes our view about appropriate policy. But having said all that, I think we should bear in mind, and I'm certainly willing to be humble about all this, that the confidence interval around any forecast is very wide. And I think that argues for caution. So, I'm comfortable with your 1/4 point recommendation now. I think that is the appropriate magnitude. And I would prefer a symmetric directive with the understanding that if we need a conference call, we can have one.",249
-fomc-corpus,1994,President Melzer.,4
-fomc-corpus,1994,"As I've expressed before, my view is that monetary policy has been in a very stimulative posture over the last three years and, like Al Broaddus, I think the quicker we get to neutrality, the better off everyone is going to be. I think the cumulative effects of that policy stance are being reflected already in rising prices and certainly in rising inflationary expectations. My own judgment is that we reacted too cautiously to these developments at our last meeting, and that contributed to uncertainty in financial markets and has resulted in higher long-term interest rates than we otherwise might have seen. I'm not saying that they would have gone down, but I'm not so sure they would have gone up as much, and I think 25 basis points at this stage runs the risk of the same sort of reaction. Accordingly, I favor moving more aggressively at this meeting to an increased degree of reserve restraint through a 50 basis point increase in the funds rate. And were it up to me, I might even be inclined to underscore that with a 50 basis point increase in the discount rate and basically underline our resolve to contain inflationary pressures and eventually resume progress toward price stability.",231
-fomc-corpus,1994,President McTeer.,5
-fomc-corpus,1994,"I favor 25 basis points, prefer symmetric, and would urge you to consider announcing our decision.",20
-fomc-corpus,1994,Governor Phillips.,3
-fomc-corpus,1994,"I certainly think it's appropriate to tighten. For me the question is how to get there as fast as possible but without causing disruption in the markets. It seems important to me that the Fed not add to the uncertainty. So for that reason, I can certainly go along with 1/4 point increases. But I'd underline your suggestion of emphasizing in some very constructive way when we are finished the tightening process. We do not want to get into a precedent-setting mode because I think when we were easing it was important to be able to do it at the right time. So I would prefer not to establish a precedent of just taking action at meetings. I'm not sure what asymmetric language adds. To me it may well increase the uncertainty. So, I'd be more inclined not to have asymmetric language.",158
-fomc-corpus,1994,Governor LaWare.,4
-fomc-corpus,1994,"Mr. Chairman, not to be facetious, but the 25 basis point approach sounds to me a bit like taking down that Sword of Damocles and inflicting the death of a thousand cuts on the economy. It dies slowly in anticipation of the next strike. Instinctively, I would prefer in the best of all worlds a 50 basis point move for the simple reason that if we are wrong and the economy is moving faster than we thought, we would be seen as having been a little ahead of the curve, and we could still move further. That to me is preferable to making a move in between meetings in reaction to something that's published in the press. If we are wrong on the other side and if the economy is significantly weaker, then we can stop at 50 basis points; we won't need additional moves perhaps. Or we don't have to stop at the 50 points; we can add another 25 if necessary. On the other hand, I have great respect for your analysis of the market risks involved in a 50 basis point move, and I will reluctantly agree to the 25 basis points with symmetric language. That's all.",232
-fomc-corpus,1994,Vice Chairman.,3
-fomc-corpus,1994,"Mr. Chairman, I must admit that I have been absolutely certain about the need for a move of both 50 basis points and 25 basis points at least as frequently as daily in the last several weeks. But I've come to the conclusion that your recommendation on the change is the safer course of action for us and sufficiently bold to maintain our credentials. If the Greenbook forecast is accurate and if it should materialize quickly as projected, I think it would be good for us to give ourselves the opportunity to see how the economy is evolving, which also leads me to the 25 basis point increase. Even though every bit of my stomach lining says we are heading toward a funds rate of 4 percent or higher, I don't have any concern about waiting past this meeting. So I very much prefer the 25 basis points just for economic reasons. The reaction to our 25 basis point increase at the last meeting, as Peter and Joan pointed out, was added to enormously by the various other developments that they mentioned. There is a tendency for financial analysts and maybe ourselves to think that we caused it all, but we certainly were the first to get things moving. So I think we got a good deal more market effect and a good deal more tightening out of 25 basis points than we had in mind when we met on the 4th of February. As regards the market effect, I don't think we normally should be deciding monetary policy based on trying to fine-tune the markets unless one is convinced, as I am now, that the downside weakness to the economy could come from a crack in the market. As I said earlier and as you quoted me, I think that's not very probable, but I think the risk is significant enough that it's worth taking seriously. Therefore, since I cannot anticipate exactly what the reaction of the market would be to 50 basis points and since we had such an overreaction the last time, I think we are better off to avoid a risk where the risk/reward ratio is very difficult to calculate. As regards symmetry or asymmetry, your reasoning for the asymmetric directive in a way introduces a new use of the asymmetric directive, or at least it's new to me. I think it could be explained with Don Kohn's usual verbal skills in the minutes, so it is something that I could live with. Left to my own devices, I would prefer symmetric; but if you prefer asymmetric, I would support you on it.",492
-fomc-corpus,1994,"Let me just say that I've been back and forth on this symmetric/asymmetric issue and, as far as I'm concerned, a conference call serves exactly the same purpose. Indeed, it might actually be preferable because we do gain benefits from having the symmetric language in the minutes. So I will support symmetric as well and would propose 25 basis points and symmetric language. Would you read the directive.",78
-fomc-corpus,1994,"""In the implementation of policy for the immediate future, the Committee seeks to increase slightly the existing degree of pressure on reserve positions. In the context of the Committee's long-run objectives for price stability and sustainable economic growth, and giving careful consideration to economic, financial, and monetary developments, slightly greater reserve restraint or slightly lesser reserve restraint might be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with moderate growth in M2 and M3 over the first half of 1994.""",101
-fomc-corpus,1994,"Mr. Chairman, I know we are somewhat bound by tradition, but there is a sentence that we really don't need about slightly more or slightly less reserve restraint during the intermeeting period. Why don't we just drop it? That'll take care of your observation that in fact it's slightly less probable that an easing is going to happen. It's the same as being symmetric.",73
-fomc-corpus,1994,That probably will cause problems in the markets.,9
-fomc-corpus,1994,Okay.,2
-fomc-corpus,1994,"The only problem is if we change the directive, is that we don't know the consequences of doing that. So let's not.",25
-fomc-corpus,1994,All right.,3
-fomc-corpus,1994,But it's an interesting question. Let's review that in the intermeeting period. Do you want to read the--,22
-fomc-corpus,1994,"Yes, Mr. Chairman in the sentence that was circulated on the trade deficit, there was a slight mathematical error made where instead of saying somewhat larger than the average of the fourth quarter, it's supposed to say slightly smaller. [Laughter] Speaker(?). A slight error!",55
-fomc-corpus,1994,The trade deficit on goods and services was slightly smaller in January--I made the mistake.,18
-fomc-corpus,1994,Chairman Greenspan Yes Vice Chairman McDonough Yes President Broaddus No President Forrestal Yes President Jordan No Governor Kelley Yes Governor LaWare Yes Governor Lindsey Yes President Parry Yes Governor Phillips Yes,40
-fomc-corpus,1994,"We still have the question of the announcement, and I call on Don Kohn to discuss that.",20
-fomc-corpus,1994,"I'll try to be brief, Mr. Chairman. Drawing on the work of the subcommittee, Messrs. Boehne, Kelley, and Melzer considered a couple of options for announcing the decisions of the Federal Open Market Committee. What they hit on finally was that the best bet was to announce changes in our instrument settings much as we did last time but just say what we did. That is, in this case we could say, using the wording proposed by Joe Coyne: ""The Federal Reserve decided today to increase slightly the degree of pressure on reserve positions. This action by the Federal Open Market Committee is expected to be associated with a small increase in short-term money market interest rates."" The thought was that this sort of announcement could be coupled with additional explanations if the Committee thought that was necessary in unusual situations, but the important thing was to get out the fact that we acted. One option that the subcommittee thought about was releasing the whole directive, but that has some disadvantages. That would involve releasing the symmetries and asymmetries right away and whatever is left of that symmetry/asymmetry flexibility would certainly go away because knowledge of that decision does move markets. So the Committee might be less likely to adopt asymmetries. On balance, the subcommittee thought it was a good idea just to release the decision. The reception from the public was good last time. The Fed looked and was more open. We in effect ran an experiment that worked pretty well from that perspective. I think there is one minor note of hesitancy. The Committee looked at this about a year ago, or maybe a little over a year ago, and rejected this announcement option. The Committee was concerned at that time that it would lose some flexibility. There were two instruments: the discount rate, which rang the gong; and open market operations, which didn't. The February 4th experience, although there were a lot of special things involved, does suggest the possibility that there might be stronger reactions to announced moves both in the markets and in the public which could complicate the implementation of open market operations from time to time. So there is concern about loss of flexibility. But in thinking about this, the balance of the costs and benefits in the view of the subcommittee had shifted toward the notion of announcing changes in instrument settings when the FOMC decided on those changes. There are also a couple of technical issues. One is when to announce. The thought was that the best approach would be to set a more or less fixed time on the afternoon of the day the Committee met; that would be this afternoon. It should be early enough to allow trading on the news in the markets but late enough so that the markets wouldn't sit around wondering how long the Committee had met. That is, we would have a reasonable prospect of being finished our work before the usual announcement time. We wouldn't want the usual announcement time to go by and have the Committee still thinking about its decision, but people assuming that the decision was for policy to remain unchanged. So the time should be late enough so that you would finish the meeting but early enough to be traded in the market, somewhere around 2:15 p.m. to 2:30 p.m. seems about right to Bill McDonough and to me. What to announce I think I've already covered. The subcommittee did not think a decision for no change had to be announced; only changes would be announced. And as I noted, the subcommittee thought that an explanation such as we had last time would be the exception rather than the rule. That would help maintain a bit of a difference between a discount rate action and open market operations. I invite any of the subcommittee members to comment.",749
-fomc-corpus,1994,Governor Lindsey.,3
-fomc-corpus,1994,"Mr. Chairman, I have no problem at all with anything Don said as far as the statement and when to announce it are concerned. But this Committee is going to be considering other issues regarding our openness in the months ahead. And I don't see any advantage to the Committee in separating this issue, which is a pro-openness stand from other issues that may incline us toward less openness if we are in fact going to be producing a package down the road. So, I would suggest that the Committee not act on Don's proposal today. But it is certainly in the power of the Chairman to make any announcement he wishes. My personal advice to him would be to go ahead and make the announcement. But I think an announcement by the Committee would be committing ourselves to a pro-openness move that would be a card we would permanently lose in the future for issues on which we might not be as open.",180
-fomc-corpus,1994,You're just suggesting that it would be in the form of a provisional statement similar to the last time.,20
-fomc-corpus,1994,Or that you make the statement.,7
-fomc-corpus,1994,Meaning in other words that it's not an irrevocable decision of the Committee but of the Chairman?,19
-fomc-corpus,1994,That is correct. Yes.,6
-fomc-corpus,1994,President Melzer.,4
-fomc-corpus,1994,"Alan, I wanted to make a couple of comments. First of all, I favor announcing our actions promptly whether they are taken at meetings or between meetings. My preference would be to make this change when we act on the other disclosure issues that Larry Lindsey talked about, although I can accept separating them. I do think that there is the possibility that announcing our actions promptly can have some adverse impact on the deliberative process. But in the current climate I think the benefit of providing more information to the public outweighs whatever that cost is. Obviously, that's a difficult measurement issue. With respect.to what should be released, and maybe I misunderstood a little what we discussed in the subcommittee, I personally would favor releasing only a statement with respect to an increased or decreased degree of pressure on reserve positions. I think any statement with respect to the impact on short-term market rates, in effect, is something that will be decoded. In other words, we will be using different adjectives to describe what we think the effect on money market interest rates is going to be and then we'll be de facto announcing our targets. ""Small"" will mean 25 basis points; ""moderate"" will mean 50 basis points. I don't know what more than 50 would mean; that doesn't seem very likely!",258
-fomc-corpus,1994,"The same thing could happen with the term ""reserve restraint."" In saying a slight change, the ""slight"" may equivocate--",27
-fomc-corpus,1994,Yes.,2
-fomc-corpus,1994,"Tom, let me just say that that's an interesting issue, but that's a very major question and I would hate to have that decision made at today's meeting. I almost prefer to stay with Governor Lindsey's suggestion and then when we get to the final decisions make that judgment.",54
-fomc-corpus,1994,"Okay. I'm just expressing some views at this point. The other point I would make is that I'm not sure I agree with what Larry Lindsey was saying. We are doing something here that, if it's done well and announced properly, will have a very positive public effect. Our practice is going to lock us into that because my sense is we won't get back to these other disclosure issues for some months, and there may be other actions to announce in the meantime. So, our provisional behavior is in effect going to set the precedent and lock us into a policy, and it will be anti-climatic when we announce it. Personally, I think we can get much more mileage out of announcing the fact that this decision has been made and just get it done. In effect, we are trading it away anyway, so why not announce it and try to get some public relations benefit out of it. The other thing I would say in such an announcement is that we continue to have our disclosure practices under review, because I think there are some other disclosure issues that in due course need to be reviewed.",219
-fomc-corpus,1994,President Forrestal.,4
-fomc-corpus,1994,"Mr. Chairman, I'm not against disclosure but I would repeat what I said last time, which is that we have not really had an opportunity in this Committee to discuss this fully. There are a number of issues surrounding this disclosure matter. Tom has just brought up one of them; there are others. So from a procedural standpoint alone, I think we need an opportunity to discuss this further. If we announce it today, I think we're going to be locked into doing it. We said the announcement last time wasn't going to be precedential. If we do it twice, I think we are going to be locked in. On more substantive grounds, we haven't really taken into account the effect of this disclosure on the discount rate, the effect on our directors. There is a whole host of things that I think we really need to take into account in a more systematic way. So I would be strongly opposed to doing anything today. I think we ought to revert to our normal practice of not disclosing our decision and let the markets pick this up and then deal as soon as we can with this issue together with the other disclosure issues, as Governor Lindsey has indicated.",232
-fomc-corpus,1994,Governor LaWare.,4
-fomc-corpus,1994,I would have said substantially what Bob Forrestal said.,11
-fomc-corpus,1994,Vice Chairman.,3
-fomc-corpus,1994,"I have a very strong preference to make an announcement in some form. On this particular afternoon, whether it's the Chairman or whether it's the Committee making the announcement has mainly the significance that if the Chairman does it, it doesn't lock the Committee into having made a decision to do it. So I think that actually has some merit. I have long had what Ernie Patrikis after consultation with Virgil Mattingly assures me is not a legal concern but an ethical concern; and that is, if we go into the market the way we have done it for years and we ""announce"" a very significant policy move by our operations in the open market, the pros with whom we deal know it before anybody else does. It may be a minute or two before, but that gives them a market advantage, which I don't like. To me it's an ethical matter, which I take quite seriously. That doesn't mean--unlike in the case of the chairman of a well known committee--that my ethics are necessarily the law of nature. But that's where I come down on the issue. I would prefer that we announce our decision and I think it's probably better on this occasion if the Chairman does it rather than the Committee.",243
-fomc-corpus,1994,President Jordan.,3
-fomc-corpus,1994,"I support the subcommittee's recommendation. And I think the latter part of Tom Melzer's remarks are right on. We could say that this is twice in a row, that it's not permanent and it's just not a precedent, and that we have still have a card to play and we might not do this in the future. Nobody would believe it.",71
-fomc-corpus,1994,"No, I don't think Larry is saying anyone will believe it. I think what he has in mind is that it's useful when we intend to have a whole package to put it all together. That's what I think his--",44
-fomc-corpus,1994,"Are we going to have that package by May? Otherwise, we are going to be faced with maybe three meetings in a row of saying that this is a temporary procedure and it's not--",37
-fomc-corpus,1994,"Well, that's a good point. And the answer is possibly.",13
-fomc-corpus,1994,It's eight weeks until the next FOMC meeting. It's the longest period we experience between meetings.,20
-fomc-corpus,1994,"I would say we have a good shot at it by May. In fact, precisely for that reason it would be useful. President McTeer.",30
-fomc-corpus,1994,"One of the benefits of an immediate announcement is that it eliminates any perception of leaks, so I would suggest that we always do it at the end of the meeting rather than have a hiatus.",38
-fomc-corpus,1994,President Broaddus.,5
-fomc-corpus,1994,I would favor announcing it now.,7
-fomc-corpus,1994,President Keehn.,4
-fomc-corpus,1994,"I'm very much in favor of announcing it. Whether it's an announcement from the Chairman or the Committee I think is immaterial. If we do it today, which I think we should, we will have established a precedent and we will have to continue. But I think it's a constructive change.",58
-fomc-corpus,1994,Governor Kelley.,3
-fomc-corpus,1994,"Mr. Chairman, I think we should announce it on the merits of the case. The time is here to do that. As far as today is concerned, I would be uncomfortable holding this decision overnight and letting it be announced in the traditional way of Desk action tomorrow. I think that would be a mistake. I am in favor of letting it be your announcement rather than the Committee's for the reasons that Governor Lindsey and President McDonough discussed.",90
-fomc-corpus,1994,President Stern.,3
-fomc-corpus,1994,I agree with what Governor Kelley just said.,9
-fomc-corpus,1994,President Hoenig.,4
-fomc-corpus,1994,"I support the subcommittee's recommendation. I think we have in a sense committed ourselves to this and I think Bill McDonough's point is well taken. We should get decisions out to the market and the public as soon as we are making them, so I support announcing.",56
-fomc-corpus,1994,President Parry.,4
-fomc-corpus,1994,I would favor the announcement.,6
-fomc-corpus,1994,President Boehne.,5
-fomc-corpus,1994,"Well, this was a very wise subcommittee and I want to concur with its recommendations. [Laughter]",22
-fomc-corpus,1994,Who is the chairman of that subcommittee?,9
-fomc-corpus,1994,The chairman departed the scene!,6
-fomc-corpus,1994,"Is that everybody? Jerry, you said yes to announcing. Is that right?",16
-fomc-corpus,1994,Yes.,2
-fomc-corpus,1994,Governor Phillips.,3
-fomc-corpus,1994,Can I ask: Is there an auction today? Are we talking about announcing today?,17
-fomc-corpus,1994,There was; it's over.,6
-fomc-corpus,1994,It's over.,3
-fomc-corpus,1994,"The auction is over. Okay, I'd announce.",10
-fomc-corpus,1994,That's part of the timing issue--to get it out after the auctions are over.,17
-fomc-corpus,1994,Ms. Minehan.,5
-fomc-corpus,1994,I must say I am impressed by President Forrestal's comments. I would like to see the disclosure decisions as a package and I would not like to see us committed to announcing every time. But in general I think announcement is not a bad thing.,50
-fomc-corpus,1994,"Well, let me make the following request. I don't deny that it will appear precedential. In fact, I think it's naive to believe that if we announce today that it's not going to come out that way. We do have a marginal value in my doing it and then making it official at the time we do everything else. It's not that it's a big deal, but it's a bigger package to announce and it probably is wise to do that. Unless there is strong objection, that's what I think I'd like to do.",105
-fomc-corpus,1994,"I don't have a strong objection, Alan. How would Joe Coyne respond to inquiries of ""What does this mean?"" There are bound to be some requests; what's the answer?",36
-fomc-corpus,1994,He would basically say the Committee itself has not come to a final conclusion.,15
-fomc-corpus,1994,It is still considering disclosure issues?,7
-fomc-corpus,1994,This will be part of a broader package. Okay our next meeting is--,15
-fomc-corpus,1994,May 17th.,5
-fomc-corpus,1994,May the 17th; this really is a long intermeeting period.,15
-fomc-corpus,1994,Would somebody like to open the meeting by making a motion to approve the minutes?,16
-fomc-corpus,1994,So move.,3
-fomc-corpus,1994,Is there a second?,5
-fomc-corpus,1994,Second.,2
-fomc-corpus,1994,Without objection. I'll call on Peter Fisher for a report on foreign currency operations. Peter.,18
-fomc-corpus,1994,Thank you. [Statement--see Appendix],9
-fomc-corpus,1994,Questions for Peter?,4
-fomc-corpus,1994,"Peter, you mentioned communication. Most of the research I've seen suggests that intervention like this, if it has an effect, it's mainly by way of communicating future likely policy actions. With that in mind, what do you think the prospects for the dollar would be if we did not follow through at this point with pretty strong policy actions?",66
-fomc-corpus,1994,The dollar would trade off.,6
-fomc-corpus,1994,Significant downside risk or--,6
-fomc-corpus,1994,"It's very hard to put a number on that. Let me start by saying that if the Committee does something in the range of what the market is expecting, I'm not sure the dollar will move up very abruptly. I think it will tend to pip up and pip down a little bit as has happened with previous actions of the Committee. I think inaction by the Committee could have a downside risk to the dollar. The market is fairly neutral at this point. In the interbank sense, its position is such that inaction could result in significant dollar sales.",111
-fomc-corpus,1994,"This is really a follow-up question. A coordinated intervention like the one in which we participated on May 4 carries with it the message that there was communication taking place about fundamentals. Everybody knows there was intervention with coordination. Can you share with us what the nature of that communication was among the central banks and ministries of finance, and whether the market correctly perceived what that communication was about?",77
-fomc-corpus,1994,"I think that the morning of May 4 began with President Tietmeyer's release of his statement that they did not have an interest in seeing the mark overvalued against the dollar. One consultation in which I was engaged was a discussion of the nature of the dollar's reaction to the mark and that it seemed to move awfully quickly and without regard to where people thought interest rates were going in each of the countries. The nature of the disturbance in the exchange market was the focus of my discussions with most of the other countries that I consulted with--I consulted with my counterparts in the G-7 central banks and a few others. When I say ""disturbed"" market conditions, I'm referring to April 29 when very seasoned professionals were unable to get business done, unable to get phones picked up, and where the exchange market was not responding to fundamentals in the sense of the direction of interest rates being pretty well laid out for them and they seemed to get caught in other backwashes in the market.",203
-fomc-corpus,1994,"President Jordan, just to amplify on what Peter said, since you referred to the finance ministries, the principal consultations initially were between us and the Treasury Department, and between the Chairman and President Tietmeyer on the day before his statement. These consultations were followed up by some discussions about whether the Bundesbank felt it was appropriate to join in a coordinated operation. It was only on the morning of May 4 that there were any additional consultations with the Japanese along with the other central banks.",98
-fomc-corpus,1994,"I assume that market participants don't know the magnitude of the intervention. I don't know how well they can guess at those things, but when I saw the amount that the Germans did and a statement by Mr. Issing, I read that as a lack of enthusiasm for the business.",56
-fomc-corpus,1994,"Well, I guess that's right, but I can tell you that the Bundesbank Directorate did discuss this operation. Whether Mr. Issing was present at that discussion I do not know. But both Mr. Tietmeyer's statement--the excerpts from his speech, which were deliberately released early--and the size of the Bundesbank operation were discussed by the Bundesbank Directorate.",75
-fomc-corpus,1994,Let me just add that I've had a number of conversations with Mr. Tietmeyer.,19
-fomc-corpus,1994,There was a press commentary after the May 4 action--I don't remember its precise contents--but people in the Treasury and in the Administration more generally supposedly viewed the action as an alternative to domestic monetary policy actions.,43
-fomc-corpus,1994,"The issue never came up, at least not in my conversations. Governor Lindsey.",16
-fomc-corpus,1994,"Peter, given what the Chairman just said, which I agree with, and given what you said--that even if our policy moves along the lines of market expectations, there's not going to be upward movement in the dollar--that opens the question as to what is next and means that we may have another run on the dollar. How long do you expect the latest intervention to hold? I suppose the intervention last August bought us 9 or 10 months. I assume the second intervention will buy something less than 9 or 10 months. Do we have any ammunition left?",115
-fomc-corpus,1994,"With regard to the risk for the dollar going forward, I would again focus on the dollar/yen exchange rate. I think the operation and the action of the Bundesbank last week and whatever the Committee does in the realm of the expected, if I can put it that way, will tend to stabilize the dollar/mark rate. I don't see any big downward potential in the dollar/mark rate on its own terms. The yen, though, will be the locus of attention particularly in the run-up to the G-7 Summit this summer. That puts us back in the political context, and whether the Administration maintains its current formulation or reverses I think is a bigger risk for the dollar. However, if the dollar can get through the G-7 Summit roughly at its current level against the yen, then I may be sticking my head way out but I would see slightly greater odds for dollar strength thereafter than dollar weakness.",185
-fomc-corpus,1994,"Does the potential reversion, which hopefully we won't have, that you mentioned involve foreign policy issues or does that include monetary policy statements?",27
-fomc-corpus,1994,I'm not quite reading you. The monetary policy by the Administration or--,14
-fomc-corpus,1994,"Yes, in other words dollar bashing being foreign exchange statements, how about Fed bashing being monetary policy statements. If there were a recurrence of the former, would that be harmful?",37
-fomc-corpus,1994,"That will tend to disturb the foreign exchange market. I think one of the very helpful official statements on May 4 was that by Mr. Altman to the effect that he had no argument with the Fed over interest rates. That really came on the heels of the Tietmeyer comment; that was a very useful setting for the operation. So obviously, yes, if some of that Administration enthusiasm for the current Fed policy were lost, that would tend to be destabilizing to the dollar.",99
-fomc-corpus,1994,How about Congressional statements?,5
-fomc-corpus,1994,I think they are more expected by the foreign exchange market than Administration statements; they may be in the same vein but I don't think they have the same effect.,32
-fomc-corpus,1994,President Forrestal.,4
-fomc-corpus,1994,"Peter, I have a variation on Al Broaddus's question. As you know, the Europeans have been somewhat concerned about the effect of our actions on their long-term rates. Does the market anticipate or do you yourself think that if we were to take an action today that it would have an upward effect on European rates or have their actions sufficiently decoupled their rates from ours?",77
-fomc-corpus,1994,"Well, if the history of the last three or four months is my guide, I'd have to say I would expect an impact on their long end. It's hard to imagine there won't be some such impact. I think, though, that we have seen more decoupling in this period--between the last meeting and now--than we saw in previous periods. So, in that sense I can be modestly hopeful that there would not be a negative impact on their long end. I think the Bundesbank's actions last week are probably going to be the most helpful in that regard. After the moves in mid-April had tended to squeeze out expectations of rate reductions, they have been put back in with last week's action and that may help decouple European rates.",153
-fomc-corpus,1994,"Okay, any further questions? If not, would somebody like to move to ratify the actions of the Foreign Desk since the last meeting?",28
-fomc-corpus,1994,So move.,3
-fomc-corpus,1994,Second.,2
-fomc-corpus,1994,Without objection. Joan Lovett.,7
-fomc-corpus,1994,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1994,Questions for Joan? Jerry.,6
-fomc-corpus,1994,"Before February when we started to announce our actions, it was standard practice in the daily program to protest a federal funds rate move away from the intended rate, maybe sometimes going against what you saw as the reserve needs of the current maintenance period. Since February we've announced our decisions three times, but in monitoring the Call over the eight weeks since the March meeting there were at least a couple of occasions where it appeared that you still needed to protest a rate to indicate that policy had not changed even in the absence of an announcement. It sounded like the Street still thinks that there is a possibility that we could change the funds target without announcing the change and therefore your daily program still has to account for that. Is that right? And what would help to clarify the situation for you?",154
-fomc-corpus,1994,"Well, I think that what really is at stake is that while we have announced the changes that we have made, the market still sees itself as always looking for when we're going to make a change in the future. On occasions when they think we will or we should, they move the funds rate up immediately in the morning well before any kind of an announcement by the Committee would be likely. And the rate sits there until we demonstrate something to the contrary. And so on a couple of occasions where the market thought the data were such that perhaps there was going to be an action in coming days, they moved the funds rate up to reflect that possibility. Part of the theory that seems to be at work there is that if people really believe that the Fed will move, for some it means buying cheap funds relative to what they will be later. Moving the funds rate also is a way of testing the Fed to see what its stance is. And so even though we recently have announced our policy actions, what we respond to is the market moving ahead of our announcement of Fed policy actions. I think that's always going to happen.",224
-fomc-corpus,1994,Are there still people out there who think we might change the intervention level on the funds rate without an announcement?,22
-fomc-corpus,1994,"Yes, there are some people who still think that's a possibility; it hasn't been ruled out because we have mentioned that these announcements have not necessarily been for all time. I think the market tends to set up for itself a series of time points. It looks for announcements on the discount rate now within a certain period of time in the morning, policy announcements any time after that, but always the possibility of something being signaled ahead of the announcement. Even if that is not forthcoming, there are circumstances when they move the funds rate ahead of the Fed. For example, on the day of the employment data release on Friday, May 6, most people didn't think that the Fed would take action that day, but they still moved the funds rate up on the theory that perhaps the Federal Reserve would do something on the following Monday. And thus the constellation of where the funds rate would be over the balance of the period suggested that it was worth pushing the rate up.",192
-fomc-corpus,1994,"If they've come to believe that all increases in the funds rate will be accompanied by an announcement, then the absence of an announcement would seem to lessen the need to protest. A protest action would occur if you saw a need to drain reserves but you felt you had to add reserves because the funds rate was too high. Shouldn't the absence of an announcement, which would indicate that the funds rate target has not changed, have the same effect as your protest move? When you do your protest move you're going to have to wind up taking more back out than you otherwise would.",114
-fomc-corpus,1994,"Well, I guess it's really their anticipatory moves that we're talking about; it's not the actual Fed moves; it's the market anticipating the Fed moves before they occur.",33
-fomc-corpus,1994,"Well, what's the difference between our failure to issue a press release and a protest action by the Desk?",21
-fomc-corpus,1994,"Perhaps with the passage of time, as people become accustomed to our new disclosure practices, those anticipatory moves will not require our protest actions. But we're always going to have anticipatory moves; I think that's a given. How the market would view our absence from protesting I think would require more experience with our new disclosure practices. I don't think there's enough experience with them now for the market to be confident that, had we stayed out when they pushed the funds rate a point higher, we were not paving the way for the Committee. We're not in the position to pave the way for the Committee.",119
-fomc-corpus,1994,The day before the March FOMC meeting nobody expected us to change policy that day or to announce a change that day but funds were still high.,30
-fomc-corpus,1994,Right.,2
-fomc-corpus,1994,"And if we had not gone in, that would have looked as if the decision somehow had been made ahead of the meeting.",25
-fomc-corpus,1994,Or that we were trying to get the market ready for it--to pave the way for a decision. I think that there just has not been enough experience with the announcements for people to feel comfortable in terms of what the timing of those announcements is and so forth.,53
-fomc-corpus,1994,I would hope that over time one of the benefits of announcing would be the leeway to allow the funds rate to move on a daily basis over a little wider range without worrying about an incorrect perception of current policy.,43
-fomc-corpus,1994,That's one of the advantages of announcing.,8
-fomc-corpus,1994,Yes.,2
-fomc-corpus,1994,"Joan, just a quick question. What is your estimate of the Treasury balance shortfall?",19
-fomc-corpus,1994,"Well, relative to our expectations on the April tax collection themselves, we fell short by $12 billion. And if we take April and May combined there was a big catchup in early May.",39
-fomc-corpus,1994,Yes.,2
-fomc-corpus,1994,"They only fell short by about $9 billion. We had forecast an increase in the April tax take of something in the neighborhood of 25 percent over the level a year ago and it appears to be coming in between 5 and 10 percent above. Everyone seems to have had those same kinds of overestimates, so people are still trying to find out if there will be some offsets in June or whether in fact all these adjustments were made last year and people really did get ahead of the change in their tax liabilities.",105
-fomc-corpus,1994,"If there are no further questions, would somebody like to move to ratify the actions of the Desk since the last meeting?",25
-fomc-corpus,1994,So move.,3
-fomc-corpus,1994,Without objection. Let's now move on to Messrs. Truman and Prell.,16
-fomc-corpus,1994,[Statement--see Appendix.],6
-fomc-corpus,1994,[Statement--see Appendix.],6
-fomc-corpus,1994,Questions for either gentleman?,5
-fomc-corpus,1994,"Mike, I have a question about the inflation numbers: Last year at this time we had an unpleasant inflation surprise. This year it seems, if you look at the year-over-year comparisons at least, that the consumer inflation numbers are coming in somewhat below the forecast. Part of that is probably due to recent changes in the seasonal factors for the CPI, but that probably is not a complete explanation; I don't think it is. Is there some perspective as far as that development is concerned that ought to be brought into this discussion? I know you cited the 6-month inflation rates and they don't look quite as favorable.",123
-fomc-corpus,1994,"Well, clearly, I was trying to suggest that for someone who wanted to look for evidence that things were not going so well. We do still regard these longer trends in the indexes as quite relevant to gauging the behavior or the direction of inflation. Last year, to be sure, the spurt that we saw was, it appears now, considerably a matter of seasonal adjustment problems. Looking back now, things don't appear quite so bad. Our recent experience has been a shade better than we anticipated a few months ago. The very latest data aren't any better than anticipated. If there has been some good news recently, it's been on the labor cost side. The employment cost index in the first quarter was considerably lower than we had anticipated, and in our view that sets the world right in a sense. As you know, we had wondered a bit about why ECI increases had leveled out last year in the face of unemployment rates considerably higher than they are now, the substantial reduction in the current inflation, and to some degree in shorter-run inflation expectations. So, we give some credence to those numbers and it has led us to trim a little off our wage forecast or our total compensation forecast on the benefits side going forward. And so we are reasonably comfortable that, if the economy follows the path we're talking about, the inflation trend will remain stable to perhaps a shade lower. But I did want to highlight some risks and certainly to underscore our view that the room to maneuver here in terms of faster growth than we're projecting seems to us rather limited, if one really is concerned about inflation.",318
-fomc-corpus,1994,Did you say that the very latest data are in accord with expectations?,14
-fomc-corpus,1994,Current CPI.,3
-fomc-corpus,1994,"Well, the thing I'm thinking about is that the 2.4 percent change in the total CPI over the past 12 months and the 2.7 or 2.8 percent change in the core rate over the same period are a little better than expectations.",54
-fomc-corpus,1994,"Yes, for the total over recent months, we're doing somewhat better.",14
-fomc-corpus,1994,Okay.,2
-fomc-corpus,1994,Governor LaWare.,4
-fomc-corpus,1994,"Mike, you indicated that you thought there might be some significant revision in the first-quarter GDP number when we get the revision. Will that be at the end of this month?",35
-fomc-corpus,1994,Yes.,2
-fomc-corpus,1994,Would you share that with us?,7
-fomc-corpus,1994,"Well, I can address this on two levels. One is simply the arithmetic of plugging in the actual data that are now available in place of the assumptions that the BEA had made. And this is primarily data that have changed on inventories, retail sales, and construction. On net, those numbers would seem to chop a good percentage point off of the 2.6 percent GDP growth rate that was estimated initially. Now, we're anticipating that some of the incoming data, particularly on trade, perhaps will come in better than BEA had assumed. And ultimately, perhaps on the next round of revisions when there are some further changes, for example, in construction, we may get closer to the 2.6 percent. So, notionally, in framing this forecast we've been thinking that GDP in the first quarter was probably a little less than the 2.6 percent, probably 2 percent plus rather than what the incoming data just mechanically would suggest. And then we made an estimate of, in essence, the best change for the second quarter, and that's what gives us an estimate of something over 3 percent for the first half.",228
-fomc-corpus,1994,Thank you.,3
-fomc-corpus,1994,President Boehne.,5
-fomc-corpus,1994,"There has been a fair amount of discussion about capacity--how much of it we have left before we have inflationary pressures--and about the growth potential of the economy. Most of these estimates, particularly the growth potential, can change with seemingly small changes in assumptions, like labor force participation rates, productivity increases, and that sort of thing. I presume that you are thinking of a capacity growth rate of maybe 2-1/2 percent or maybe 2-1/2 to 3 percent. Do you have a view as to whether we're likely to be on the high end of a range like that or on the low end, given the recent trends in labor participation and what appears to be fairly strong capital spending, especially equipment spending?",149
-fomc-corpus,1994,"Our working assumption is that, in the near term, potential output growth is about 2-1/2 percent. I think one might take a more optimistic view of the underlying productivity trend--assign more of the increase we've seen over the past few years to perhaps sustainable underlying trend growth, as opposed to the normal cyclical component. But we think that's going out on a limb a bit at this point. We've already assumed a considerable pickup in trend productivity growth from what we were experiencing prior to the 1990s. On the labor force side, we haven't seen much lift yet in labor force participation and the population trends are very hard to read. It's conceivable that the trend in labor force growth isn't even quite so strong as we've anticipated, which is not robust by historical standards. We feel that the 2-1/2 percent potential is a reasonable working assumption. We don't advocate that the Committee take that number as gospel and make its policies on that assumption and close its eyes to the incoming evidence. But we think that's a reasonable estimate for now. I must say that, for example, in a recent Business Week article there was much talk about how the world was changing in terms of productivity growth, and I think high-tech investment is one of the elements in that story. In quantitative terms, the net investment from that kind of equipment isn't very large because it's rather short-lived; it turns over relatively rapidly. So the capital stock in that sense isn't growing very rapidly. But if you believe that it is affording firms the opportunity to reorganize in major ways the way they do things and is really creating disproportionate efficiences in a sense, then I think you can make a case for stronger growth. The other thing I found puzzling in that article was that it said because of all of this, one needn't worry so much about inflation. And the key argument it made was that if there were pressures, firms would just ship production abroad. Well, that's a rather puzzling argument. It says basically that you can avoid inflation by sucking in imports, but that doesn't really enhance domestic economic growth in the GDP sense. So, I think there's some loose thinking behind some of the more optimistic stories.",444
-fomc-corpus,1994,President Jordan.,3
-fomc-corpus,1994,"First, to follow-up on Bob Parry's question about the inflation statistics, the first four months of 1993 were initially reported as averaging 4.3 percent. We use a thing that we call the median CPI as an alternative to the CPI less food and energy to try to monitor what these numbers are telling us as the year unfolds. We were getting 3.6 percent for those first four months versus the official 4.3 percent. Now that they've revised the seasonals, they're reporting the first four months of last year at 3.4 percent; that brought it back close to where we were. For the first four months of this year, we're getting 2.9 versus the 2.3 percent. So as an exercise as to what the seasonals did, I had the staff apply last year's seasonal factors to the first four months of this year, and that would have produced a 3.1 percent rate for those months, the same range as where the median is. That tells me that .8 would have to be redistributed over the subsequent eight months of the year if we were still operating with the last year's seasonals. Now, I don't know whether the new seasonals are truth or not, but I do know that other things the same in the raw component, the final eight months of the year will have a higher inflation rate, and I don't know which months the seasonals stole from. But it biases me toward saying that it's more likely for higher inflation numbers to get reported rather than lower from this point.",314
-fomc-corpus,1994,"Well, President Jordan, let me just say that we have no reason to think that this hasn't been a distinct improvement in the seasonal adjustment.",28
-fomc-corpus,1994,"Right, I don't disagree; it's closer to the median, though.",14
-fomc-corpus,1994,"Well, actually, the median generally has been running very close to the regular core inflation number over the past year. They are almost identical on a 12-month basis. But the key here is that I don't see on technical grounds a reason to be very concerned at this point that, in essence, the recent data have been overstating the degree of deceleration and that we're going to get a vast surprise later on simply because the adjustment in the seasonal factors has been overdone. The methods seem to us to be reasonable: We consulted with them during the process of their revisions, and don't believe that they really are missing significant residual seasonalities.",129
-fomc-corpus,1994,"Well, I think that the median and the so-called ""core"" track very well, within a couple of tenths, most of the time and furthermore over longer periods of time the median and the actual CPI come out to be virtually identical, but the median for these four months currently is running 2.9, and I have more confidence in that than I do in the 2.3 that was reported for the first four months because the core is 2.7 for those months.",100
-fomc-corpus,1994,"Yes, but that's splitting hairs in terms of the measurement accuracy.",13
-fomc-corpus,1994,"Well, not quite because remember last year we got the dip in the latter months of year as initially reported; those got revised, too. If the median is telling the truth and we have had four months of 2.3 and it's really going to average out 2.9 over the year, then it's going to have to be running a few months up in the range of 3.3 to 3.4. We just have to expect that that's the way the numbers will work out. This is not saying what's right or wrong but that this is the way the statistics were kept. The other question is about the Greenbook. I try hard to assess what I think about the economy versus what the Greenbook says and use the latter as a starting point to understand the logic of how policy plays into the numbers that you provide us with. And I have gotten sort of comfortable with the familiar reversion pattern that whatever happens--the surprises in the fourth-quarter of 1993 and the fourth-quarter of 1992 were on the up side but we had a weak first half of last year--there's a tendency for real output to revert over some period or horizon to some idea of potential capacity. And that goes in both directions; it's symmetrical. The CPI projections tend to revert to something under 3 percent out there someplace, so that gives us nominal. As I read this Greenbook the logic of the policy linkages seemed to be clear, but I want your response on two things. One, am I getting it right? Second, where is the vulnerability? That is, increases in short-term interest rates hold down, you say, bond and equity prices which in turn influence real output, namely investment spending including residential and nonresidential investment spending. And as people see the effects of that long rate on output, that influences inflation expectations as the economy converges on potential, and that finally influences what actual CPI inflation turns out to be. So is that a correct characterization of the linkages and, if so, where is it vulnerable?",414
-fomc-corpus,1994,"Well, I think it's pretty close with the minor exception that I would suggest that, in terms of the inflation forecast, the behavior that we're predicting is not simply a function of expectations but also of our judgment that the output path producing the unemployment rate and capacity utilization rates leaves a modest amount of slack in the system. So that force is tending to tamp down wage and price increases. In terms of the risks in this outlook, they are so numerous and disparate that it's hard to know where to begin. That isn't particularly different from any other forecast. This may be one of the reasons why the markets seem so unsettled and volatile; and like many other forecasters we have a hard time, in light of the dramatic reversal of the bond market, judging where the equilibrium may be. The market movements have been very fast and very large, and judging what the impact will be as we move forward several months or quarters is a very tricky business. As I suggested, there are considerable differences of opinion among private forecasters and we think they mirror some of these uncertainties. On the one hand, there is a view that we are in the midst of what will be a dramatic and very well sustained capital spending boom that will interact in some sense on the trade side where we will be very competitive. In that view, as these foreign economies pick up, we will see tremendous increases in exports, and this kind of lift will provide the income to support a healthy rate of consumer spending right on through 1995. On the other side, there are those who are beginning to find some hints of weakness here and there; they think the higher rates that we have, assuming they are sustained, will have an even more serious damping effect on the housing sector and that consumer demand will be damped not only by that but also by the effects of the tax increases beyond what we had anticipated. They see that saving is already at a low level, that we've already seen increases in debt and probably will have more ahead, so consumers may feel more constrained down the road. And certainly even with the recent better news there are those who are skeptical about how quickly the foreign economies will come on and thus what kind of impetus we'll be getting in the next few quarters from a diminished drag on the trade side. So that's sort of a range of some of the thinking that I see, and there certainly are elements of risks in those directions in our view.",484
-fomc-corpus,1994,President Hoenig.,4
-fomc-corpus,1994,"Thank you, Mr. Chairman. My question has been answered.",13
-fomc-corpus,1994,President Broaddus.,5
-fomc-corpus,1994,"Mike, in the same vein as Jerry's question, it seems to me that much of the overall profile of the projection depends on the idea that the recent run-up in long rates is going to restrain the economy in the future. In that context--I know you think that most of the recent increase has been real--I would be interested in knowing particularly with regard to the 30-year Treasury bond rate, which is currently about 7-1/2 percent, roughly how much of that you think is real.",105
-fomc-corpus,1994,"Well, if I take the base as last October's low when the rate was about 5.8 percent, that's an increase of some 170 basis points, if I've done my arithmetic correctly. I would judge that more than half of that is real. That's a seat of the pants judgment and I can't point to any clear-cut analytical support for it. I certainly see nothing in changes in inflation forecasts going out the short distance for which most professional forecasters' results are available; and nothing in the household surveys indicates that the longer-range inflation expectations have risen dramatically. Looking at stock market behavior and trying to intuit something about what may have happened to the real returns that are built in there, I see a significant element that must have been real as opposed to inflation.",154
-fomc-corpus,1994,I'm just trying to pin it down a little more.,11
-fomc-corpus,1994,"In looking at the behavior in the housing market, as limited as the evidence is at this point, people have not on the evidence dismissed these higher rates as being simply a reflection of higher inflation in terms of what they might expect for their wages or for house prices going forward. We wouldn't have seen as much effect as we have perhaps if there really had been that kind of inflammation of inflation expectations.",79
-fomc-corpus,1994,"But would you say that currently, taking the 30-year bond rate, that maybe 4 percentage points of it is real? Am I doing my arithmetic right?",33
-fomc-corpus,1994,"Well, looking out over a 5- to 10-year span, I guess I would be more comfortable asserting that market expectations would be on the order of 4 percent inflation. They could be a little lower, but that would leave the real rate a little lower than it has been.",59
-fomc-corpus,1994,The backward-looking survey indicators contained in the financial indicators package put real rates at 3 to 4 percent.,22
-fomc-corpus,1994,Wouldn't 4 percent be on the high side historically for the longest real rate? That's really what I'm trying to get at.,26
-fomc-corpus,1994,"Yes, except for the 1980s; the rate is about where it was for much of the 1950s and 1960s.",31
-fomc-corpus,1994,"But by longer-term standards, it would be quite high I think. I tried to figure that out in the current--",24
-fomc-corpus,1994,"Indeed, that's one of the reasons, given our assumption that there will be at least mild fiscal restraint and that inflation expectations will be going down, I think there is a discernible downside risk to our bond yield forecast; we have it really not getting much below 7 percent by the latter half of 1995.",64
-fomc-corpus,1994,"Further questions for the gentlemen? If not, would somebody like to start the Committee discussion?",18
-fomc-corpus,1994,"Thank you, Mr. Chairman. Our District continues to be healthy. Housing has remained very strong, although many now expect that perhaps some slowing will come with higher interest rates. Manufacturing continues to improve. Our auto plants are still producing at very high levels. The energy area remains mixed but natural gas activity is still good. Farm income may be hurt a little by some fall in cattle prices, but grain prices should be good, and therefore income should be reasonably good overall. An executive with one of the larger rail lines in our region that goes to the West told me that activity has never been this high. Not just whole shipments to fill backlogs but intermodal transportation volumes are at record highs, and shippers are increasing their prices and the increases are sticking. The banking industry has not been this strong in our District in three decades. Our classified asset levels are as low as they've been since the data have been collected. We had the lowest number of banks losing money since the '70s, and earnings are above 1.3 percent on assets. Loan-to-asset ratios have risen from a low of about 48 to over 50 percent. Loan demand, judging from what bankers tell us, is picking up. There is this issue that was mentioned earlier with some interest rate rises--the FASB rule and what it might do to the banks and their level of activity. That has not been a major concern to date. Capital ratios at our banks are averaging over 8-1/2 percent. So things are generally good in the region. As far as the national outlook, we have differences with the Greenbook in some individual areas, but overall we are fundamentally in line with the Greenbook growth projections. We do have a little higher inflation projected than does the Greenbook, partly because of basic natural rate of unemployment issues and those sorts of things. Other than that we're in line with the Greenbook. That concludes my comments.",391
-fomc-corpus,1994,President Keehn.,4
-fomc-corpus,1994,"In terms of the District, the underlying level of activity, which of course has been strong, just continues to gain momentum. The auto industry, for example, which directly and indirectly so dominates our area, continues to exceed our earlier expectations. Second-quarter production schedules were set at 12 percent over last year, and since retail inventories are at relatively low levels, even if there is a fall-off in sales this ought not to affect the production schedules. The third quarter at this point seems a long way off; nonetheless, the early expectations are that the production levels will be up very substantially over last year. And, of course, the third quarter is normally a very slow quarter. While the April auto sales were down a bit from the first-quarter level, some of that reduction results from the shortage of the better selling models. Production capacity constraints really are getting to be an increasing problem. In this environment, the steel business continues to be excellent; the raw production side of the industry is operating essentially flat out. And it's more than just autos. The appliance business is also very strong, as is the demand for other housing-related steel products. There is, though, a little capacity available in the finishing end of the steel business, and the majors will be increasing their purchases of semi-finished steel products from foreign sources to fill out that available capacity. An activity that I haven't mentioned in years because it's been so absolutely moribund is the rail car manufacturing business. There also has been a decided pickup in demand as the fleet has gotten a lot older. While people in the industry do not expect that deliveries will be quite as high as some of the published reports that you've seen, nonetheless, we are told that shipments of 35,000 to 40,000 cars annually over the next few years seem reasonable. Not surprisingly, prices of rail cars are being increased this year, and there is a more substantial price increase scheduled for next year. The heavy-duty truck business has been even stronger since the last meeting. The Class 8 sales forecast has been raised again, this time to 195,000 units, and the sales level will be constrained by capacity limitations as will the sales of medium-size trucks. GM, for example, would like to add a third shift to one of their medium truck production facilities, but they just can't get the qualified workers. Offsetting this somewhat, retail sales so far in May are reported to be a little slower than earlier in the year, but I think this is a comparative issue, not one of weakness in market conditions. Sales of some items, such as home appliances, continue at a very fast pace. A very large retailer told me the other day that their sales of appliances, for example, in April were 25 percent over the sales level of last year. In the ag sector, so far the planting has been going well. Corn and soybean acreage is expected to be up this year, and both the corn and soybean plantings, as of last week at least, were well ahead of the normal schedules. It is, of course, a long, long way to harvest. Nonetheless, we are off to a good start with what are regarded as generally good moisture conditions. Sales of ag equipment are well ahead of last year, with sales of large tractors some 18 percent higher than last year; and last year was, in a comparative sense, quite strong. All of this strength certainly gives a very positive tone to the District, but I do think there are some worrisome signs on the pricing front. In the steel business, I've mentioned at a past meeting or two that there is a $10 a ton price increase scheduled for July 1, and at this point virtually everybody expects that to stick. In addition, the majors are adjusting discounts and pricing for extras, which will have the effect of raising steel prices by about another 2 percent. Aluminum manufacturers are reducing their production to firm up the prices. Admittedly the latter are at low levels, but the reduced production levels nonetheless have resulted in higher prices, and I am told that the Russians are cooperating with this effort. One very large user of aluminum told me the other day that they are forecasting about a 17 percent increase in the price they will pay for aluminum next year. Many other manufacturers report an upward shift in the cost of their raw material and component purchases. By no means is this a dramatic shift, but it indicates just a different attitude and a different tone out there than has been the case in the past. Some, of course, are finding ways to pass these increases through in the form of higher prices for their products. For example, although their heavy truck prices won't be increased this year, one very large manufacturer is planning a pretty significant price increase next year. Of course, retail auto prices are being increased as we go along here. Despite all this, so far there does not seem to be any upward pressure on the wage front. Though everybody we talk to says there is a shortage of qualified labor, so far at least it has not resulted in higher wage rates; but I just wonder how long that can continue to hold. With regard to the national economy, our numbers are essentially in line with those of the Board staff. I do think that at this point the risks, both in terms of growth and inflation, are on the up side.",1078
-fomc-corpus,1994,President Parry.,4
-fomc-corpus,1994,"Thank you, Mr. Chairman. Part of the Twelfth District continues to show very strong growth. Outside of California, the growth of employment between March 1993 and March 1994 was 3.3 percent. And over that period three states--Nevada, Idaho, and Utah--ranked first, second, and third in the nation in terms of job growth, and Arizona ranked seventh. In the Pacific Northwest, we see economic growth that is best characterized as being pretty solid, but at a less spectacular pace than in the other states that I mentioned. I might note that I had an opportunity to meet with the head of a major construction company based in Oregon; he's been in the business for 30 years and he said this is the strongest period that he has ever seen. His biggest client is Intel, and they have a huge project going on in Albuquerque, another one likely to start soon in Arizona, and another one in Oregon itself. One of the interesting things is that these projects are not all for the Pentium chip. As a matter of fact, they're building plants for the next generation--which are still in the design phase. But in any case, these are major projects. Hawaii's economy remains weak and the job losses continue in that state. On a mildly positive note, though, the visitor count seems to be up from what it was a year ago. California appears to have hit the bottom of its long down cycle, but the current pace of activity seems to be improving very slowly. If you look at the California employment data--and they seem to be revised very frequently--they show a trough in December but job growth between December and April is up only 1/2 percent at an annual rate. Other broad-based measures such as state tax revenues, retail sales, and personal income show basically no trend. I'd say the only area in California where there are convincing signs of significant improvement is real estate and other construction. Existing home sales, housing permits, and nonresidential construction awards all improved very significantly during the last two quarters compared with the same levels in early 1993. Turning to the national economy, our policy assumptions are very similar to those in the Greenbook, and we come to similar conclusions about what is likely to happen in the economy. However, we do seem to have a somewhat different view on the responsiveness of the economy to interest rates. In our model, that responsiveness appears to be a little larger. Consequently we have a little weaker economy in the second half of this year, and next year we have a little stronger growth because we have long-term rates coming down a bit more than in the Greenbook. With regard to inflation, with the small amount of unused capacity in the economy, we do not see the prospect for improvement in inflation from this point on, and we certainly don't rule out the possibility that the inflation numbers could begin to look even worse in 1995. Thank you.",593
-fomc-corpus,1994,President Broaddus.,5
-fomc-corpus,1994,"I've been reporting for several meetings that the tone in our District is pretty positive and nothing has changed. I've been in this business for about 20 years now, and I would have to say that I can't remember a time when the anecdotal information we hear in our District was any stronger than it is now. There are very few weak spots--that we hear about anyway. I think it's fair to say that most people that we talk to are broadly optimistic about prospects for the near term, at least for growth of jobs. A lot of noteworthy things have happened but I guess the single most noteworthy development in our region recently has been the enormous improvement in commercial real estate activity. Activity in this sector appears to be increasing sharply. I don't think there has been a great deal of actual new construction yet, but vacancy rates are declining, prices are rising, rents are rising, and markets seem to be tightening in a number of our communities. Just a couple of examples: The Raleigh-Durham market in North Carolina was described at our last board meeting as being as tight as it has been in about a decade, and it has been a pretty good market through this whole period. We also are hearing a number of reports that things are improving in this sector here around Washington. We get reports that the northern Virginia, D.C., and the Baltimore/Washington corridor markets are tightening, rents are up, prices are rising at least to some extent, and that of course was one of the worst situations in the country. More broadly, we're told that there is substantial domestic and international investment demand for commercial real estate properties in our region despite the recent backup in long-term rates. So the news on the real estate front is bullish in our area, and that's refreshing because it wasn't very long ago that people were talking about a 15-year real estate depression in this part of the country. Elsewhere, we are still hearing, as I reported earlier, a lot of anecdotal comments suggesting increased concern about the outlook for prices and inflation. I think it's fair to say that these concerns are not restricted to bankers and financial people. When our small business and agriculture advisory committee met a few weeks back, we polled them on their inflation expectations and the vast majority expect some worsening in that situation. They see the economy strengthening; they see labor markets tightening; they didn't use the term shortages of skilled labor but they said there were shortages of ""good"" labor. And they talked about tightening in a number of other markets. So a clear majority of these people are expecting inflation pressures to rise, and I think that's the general attitude not just in that group but across my region broadly. So that's the District situation. As far as the national outlook is concerned, as I understand it, the staff is now assuming that the funds rate is going to rise to about the 4-1/2 percent level sometime around fall, and that an increase of that magnitude will be sufficient to hold the growth of real GDP to about 2-1/2 percent at an annual rate in the second half of this year and through 1995 and also keep the core rate of inflation at about 3 percent over that period. Now, moderate GDP growth like this might not be a great outlook in all circumstances, but my feeling is that it wouldn't be a bad outcome right now, given where we are and what is happening. After all, it would follow a year of solid growth in which we have moved much closer to full employment. I think it would lay a nice foundation for sustained growth out beyond the projection period. We don't talk about this too much at non-Humphrey-Hawkins meetings, but there may even be a little further progress toward our longer-term price stability goal. But I have to say that I'm concerned about what I see as the generally accommodative policy we've followed up to this point. I still think that may give us more thrust in both real GDP growth and nominal GDP growth, at least through the end of 1994, than the Greenbook envisions. And I don't think it's by any means assured that a 4-1/2 percent funds rate is going to get us the relatively moderate inflation and real growth that the Greenbook is projecting for next year. In short, it seems to me that there are substantial upside risks in these projections on both the real side and the inflation side, and we need to give the upside risks some careful weight when we discuss policy later in the meeting.",903
-fomc-corpus,1994,President Forrestal.,4
-fomc-corpus,1994,"Thank you, Mr. Chairman. Conditions in the Sixth District are also very, very good and the expansion is pretty broadly based and relatively balanced. Let me just tick off some of the sectors of the economy. In the retail sector, sales did taper off a little in April although the activity in recent months has exceeded retailers' expectations by a sizable margin. Many of them are planning to add to their inventories. Auto sales are still quite strong in most parts of the District. The interesting thing to me is that the dealers are expecting continuing growth, although at a somewhat more moderate rate, in this area through the rest of this year and into next year. Tourism, as I've reported before, is a source of considerable strength in the region. There has been a fall-off in European travelers but that's being taken up by domestic travelers and also by people from the Caribbean and Latin America. I won't say anything about the casino gambling again because we all know about that. I'm going to bet that it will continue! On the production side, our survey in April for industrial production suggests that there has been some leveling off in output. But the expectations for future activity are above those seen at this time last year. There was some effect on production from the Teamsters strike, so that cut down activity a little, and suppliers to the automobile sector are running at near capacity in the District. Textiles, particularly in the household area and apparel fabrics, also are sources of strength. The only weakness on the production side is in defense and aerospace. On the real estate side, sales of single-family homes remain quite strong throughout the District. Many realtors are reporting that the recent increases in mortgage rates have actually spurred buying on the part of people who were sitting on the fence, as it were. Inventories of homes remain quite tight in many areas, and realtors are reporting increases in prices as well. Builders are reporting strong increases in the number of homes under construction, although speculative activity is practically nonexistent. Traffic through the subdivisions is quite heavy, and that's in contrast to the assertion in a letter that I read this morning that you received, Mr. Chairman. On the multifamily side, markets continue to improve, too. Building permits were up 50 percent over a year ago in the first quarter. Nonresidential real estate is also doing better. Commercial real estate agents are more positive now about future activity than they have been in a long time. On the financial side in the states, budgetary pressures that were in existence a while ago have practically disappeared due to the new growth. On the price side, in contrast to some of the comments I've heard today, we're finding that price pressures are practically nonexistent, with the exception of construction and perhaps a little bit now in textiles. Lumber prices have stabilized in the last few months, but the costs of other building materials have increased and we are also seeing some wage pressures for skilled labor in the construction industry. Wage pressures are basically fairly quiet in other sectors. Retailers are telling us that intense competition is keeping a lid on prices. In the banking sector, I would echo what Tom Hoenig said, in that banking in our District is quite strong; loan demand is up, particularly in the consumer sector. So, Mr. Chairman, I think that is probably as positive a report as I've been able to make in quite a long time. It's hard to find any weaknesses in our area. With respect to the national economy, I must say that I've been impressed by the strength of the data we've gotten since we last met, notwithstanding the lower-than-expected first quarter. I had at the last meeting tended to downplay the rather bullish expectations for growth in our forecast, but I've become a little more convinced that the upsurge in the fourth quarter may continue to play out for a little while longer. So, our forecast for GDP is somewhat stronger for 1994, fourth quarter over fourth quarter, although we do show a deceleration in 1995. Also, we don't see inflation reaching a peak until 1995. I won't go into the various differences in the forecast and I wouldn't want to make too much of the differences because while our forecast does differ from the Greenbook in the near term, the forecasts converge in 1995. What I think comes out of both of those forecasts as far as I'm concerned is that some additional move in policy as contemplated in the Greenbook probably is needed and in time will cause inflation to moderate. Thank you.",903
-fomc-corpus,1994,First Vice President Minehan.,6
-fomc-corpus,1994,"Thank you, Mr. Chairman. Things are clearly in recovery mode in New England. Payroll employment has grown for the region as a whole in each of the last three months and jobs overall are about 2 percent above a year ago. This improvement is broad-based. With the sole exception of durable goods manufacturing, all major industry categories had more jobs than a year ago. On a geographic basis, only Connecticut continues to show job losses. The New England unemployment rate declined for the third straight month to 5.6 percent, well below the rate for the nation as a whole. Other indicators are also positive; average weekly hours in manufacturing reached a new post-recession high, help wanted advertising rose in March, and per capita income growth of 3.7 percent exceeded the national pace slightly. All this good news should not obscure the fact that the region as a whole has gained back only about a quarter to a third of the ground lost during the recession, no matter what data are used to measure progress, although one could question whether we want to go back to the late 1980s in terms of how heated up things were in New England. Companies continue to report that competition is very keen and that their own quality and efficiency improvements are the primary determinants of survival, not rising overall demand. There's no rising tide to carry them all to prosperity. On the other hand, there doesn't seem to be any remaining undertow either. Several contacts, including some on our board, complained that the Fed is raising interest rates just as the economy finally shows some signs of life. In response to our questions, however, a number indicated that they were seeing attempts by suppliers to increase prices, but these attempts were being resisted. Retailers saw strong growth in March but a fall-off more recently. Cautious optimism may be the best way to express the New England viewpoint almost across the board. On the national scene, we too believe that growth will be somewhat stronger than projected by the Greenbook. We've been impressed by the degree of tightening in labor markets recently, but on the other hand our projections of the NAIRU are at the low end of the range that seems to be used by Board staff, and we are a little more optimistic about potential GDP growth. While our sense of the components of the picture varies from those in the Greenbook, we do agree with projections of low inflation, at least in the near term.",486
-fomc-corpus,1994,Thank you. President McTeer.,8
-fomc-corpus,1994,"The economy in the Eleventh District continues to grow moderately, about in line with the national growth rate, possibly a little weaker. Our expansion is broadly based, with the exception of energy and defense-related sectors. Construction in particular is very strong; it moves from strong to booming in some areas that are benefiting from relocations from other parts of the country. Median prices of existing houses are up 6 to 10 percent depending on what market one is talking about. Construction is going on all around me, and my house is the only one that I know of that has not gone up in estimated value. I just got that in the mail.",129
-fomc-corpus,1994,Maybe it's because of the residents!,7
-fomc-corpus,1994,"It's a big mystery. The gains in nonresidential construction are also significant, matching those in housing. Retail, warehouse, and industrial buildings are strong throughout the District. Even commercial property is beginning to rise in price, although there is still a lot of excess commercial property in the major metropolitan areas, including an old Reserve Bank building in Dallas that is still on the market. As I've indicated, we are benefiting a good bit from relocations. We are benefiting from being in what we refer to as the low-wage, low-cost center of the North American free trade area now. We've been asking our directors and Beigebook contacts questions about pressures on prices and wages for some time. We are getting some indications that price pressures are beginning to appear, and some wage pressures have been mentioned. This is the first time since 1985 that people in our area are mentioning upward pressure on wages. I don't really have anything of value to add about the national economy except that it seems a lot stronger than the first-quarter GDP numbers would indicate, especially the real final sales number. Then the April retail sales number brings to mind a Richard Pryor comment, ""Who are you going to believe, me or your own lying eyes?"" There seems to be a conflict between those numbers and the feel of the economy out there. When I talk to people about policy, there seems to be a difference of opinion on whether we're ahead of the curve, too far ahead of the curve, or behind the curve. There's more uniformity of opinion, though, that we need to do what we're going to do quickly and get it behind us. I often hear that we're creating uncertainty with small steps, and they urge us to do what we need to do. As a matter of fact, last week we had a vote in our board meeting on a discount rate recommendation. dissented from the vote, but even he said whatever you do don't do it piecemeal. Thank you.",395
-fomc-corpus,1994,President Boehne.,5
-fomc-corpus,1994,"The District continues clearly to be a part of the Northeast--its growth trend is positive but somewhat slower than the nation. Manufacturing continues to grow, but the pace of growth has flattened out some. The bookings for the future also have gone up rather substantially but that too seems to be flattening out. I suspect it may have to do with some capacity constraints. A major railroader in our District reports what others have said in the railroad business: they're operating flat out. They can't get cars fast enough to ship the goods. Residential construction has made a good-sized rebound, although I think some of that is clearly seasonal. Once that part is out, I think we will have moderate growth. Nonresidential construction is mixed. Some areas are still dead and likely to be that way for some time. Other areas are beginning to show some signs that there will be additional construction, probably more so next year than this year. Retail sales clearly have picked up. The automobile business is strong, and it's clearly a seller's market at this point except for a few lines. Bankers, who heretofore have not seen a whole lot of growth in commercial lending, are now reporting modestly rising demand. Business loans, both to finance inventory accumulation as well as capital equipment, and consumer and real estate lending continue to pick up. In our labor markets the rate of unemployment for the District as a whole is about the same as for the nation, although it varies quite widely around a relatively small District. However, the growth in new jobs has been on the sluggish side despite the improvement in the economy. Consequently, wage pressures are well contained. On the price side, there clearly is a desire and a wish to raise some prices, but I'm still hearing mostly that it's very difficult to make those increases stick. As far as the national economy goes, I don't have a lot to add. I think at this point in an expansion the risks tend to be for faster growth rather than slower growth. Perhaps it's just my own District and the influence that that has, but my sense is that the odds pretty strongly favor moderate growth and that there is not a lot more upside risk to the economy than downside risk. On monetary policy, because the District is improving but not as fast as the nation, the increasing interest rates and our actions have been more justifiable on a national basis than a District basis. I am running into what has just been echoed across the table: Do what you have to do and get it out of the way so that we can get this uncertainty behind us.",515
-fomc-corpus,1994,President Stern.,3
-fomc-corpus,1994,"Thank you, Mr. Chairman. The District economy continues to be very healthy. The only exception to that is the energy sector, which of course is not very large in the District; otherwise, things continue to do very well. I think people are becoming increasingly optimistic, and that's starting from, at this point, a fairly optimistic base. A few anecdotes, some of which I've reported before, which I think are interesting and relevant: I've heard a number of reports over the last several months about lean inventories, with the clear implication that people expect some attempt to step up production and build inventories over the next several months. I would expect that to occur. Continued reports about labor shortages, particularly of skilled labor in many markets, do not seem to have translated into a broad-based increase in wage pressures, although in the Twin Cities market it does appear that wage increases--this is from the panel that we work with in trying to plan our own compensation--turned out to be larger in 1993 than those that had been planned. Exactly what was going on there I don't know, although we face a pretty tight labor market. On the banking side, there are reports of increases in loan demand and some preliminary indications that banks are starting to bid a little more aggressively for funds through small time deposits--something we haven't seen for quite some time. As far as pricing and price pressures go, it's very hard to find any broad-based indications of acceleration of inflation, but what I am hearing is that discounts are diminishing and the frequency of sales is diminishing. It's very hard to quantify, but that does seem to be occurring. With regard to the national economy, I must say the logic of the Greenbook forecast does appeal to me. It seems to me that the increase in interest rates, particularly in long rates, may work as that forecast envisions, that is, growth in real GDP will slow once again--whether it occurs in the third quarter or somewhat later remains to be seen. That may succeed in stabilizing the rate of inflation about where it has been. Although I must observe that in the last couple of expansions--coming out of the 1980-82 recession and the 1973-75 recession--once the economy built up momentum, those expansions seemed to go on longer and to be stronger than we, certainly, had anticipated. Now, some of that may be the fact that, of course, the momentum is not independent of the policies we pursued; and maybe we just reacted too late. But at least a naive reading of those expansions suggests to me that once the economy starts to develop some momentum, that tends to go on for a while. Some numbers that I was looking at raise questions in my mind about what we might be able to say about the inflation outlook. These numbers suggest, though I guess it's a little too early to even call this analysis, that the relationship between labor market conditions and the performance of wages or compensation seems to have deteriorated in the early 1980s--around 1983 and 1984--and hasn't been reestablished. This suggests that we can't conclude very much from labor market conditions and what that might imply for wage pressures. Similarly, there seems to be deterioration in the relationship between utilization rates and consumer prices that occurred about the same time. I don't take much comfort from that; it raises uncertainty in my mind, if nothing else, about the price outlook, and it forces me to rely a little more on my intuition. My instincts at this point are that the risks of inflation certainly are on the up side, particularly because we're not indifferent to errors in that direction. In other words, we're not terribly concerned if we undershoot inflation. We might be a lot more concerned if we overshoot.",755
-fomc-corpus,1994,President Jordan.,3
-fomc-corpus,1994,"Thank you, Mr. Chairman. Our District is performing in a fashion much more similar to the Seventh District than the Third District. It's a pattern of fairly uniform strengths that are getting stronger. The ag sector is looking forward to a third very good year overall. It's early to tell whether they will meet that expectation, but they've had two good years and there certainly is a lot of optimism in the ag sector and the ag banks. In processed foods especially, capacity is up a lot. One county on the western side of Ohio reports an increase of 7 million ""layers"" in the past year--turkey processing plants. That means a lot of new capacity. Motor vehicle plants are going flat out, and a lot of them are running above what would be sustainable long-run capacity. But a lot of new capital spending is occurring, a very significant amount by the major manufacturers. That is adding a lot of optimism to people's assessment of the current situation. Capital goods overall are booming; and the return of the machine tool industry, notably the higher value, high-tech end, is especially encouraging to people in such major communities as Lexington, Cincinnati, and Pittsburgh; all are reporting that the high-tech firms are doing quite well. The one sector that I would note where there is consistent weakness and talk about layoffs or cutting back is health care. We have some very large health care operations in the District, and they continue to be pessimistic. I might note a couple of anecdotal things that need to be paid attention to going forward. One is the continued strike at Allegheny Ludlum Steel; they've been on strike since before Easter. This is a governance kind of issue: Management is saying that they are going to see this through and tends to talk in terms of months rather than days or weeks before it is settled. It's important nationally because they provide the stainless components for the exhaust systems for General Motors. There is no alternative domestically at this time. General Motors has indicated that they are now preparing to go to Japanese stainless steel by month end if they can get it. The other alternative would be to go to carbon steel components and promise buyers that they will subsequently recall the vehicles and put in the stainless components. GM says that they are not going to shut down production based on this labor stoppage. The other thing that stainless steel is critical for is transformers and electric power operations. There are no alternative sources. So, Allegheny Ludlum has--",493
-fomc-corpus,1994,"There used to be a big stainless high alloy industry in this country, but it has evaporated.",20
-fomc-corpus,1994,"Yes, and it's a tough one for us, and it's adding a degree of pessimism to the Pittsburgh area especially. The other more or less anecdotal report relates to residential housing. What we are hearing in the District is that the problem is not the cost or availability of funds but the cost and availability of building materials. The Ohio Trade Council Union has become a developer of medium- and low-income housing and complains about escalating costs of production and that is what he sees as the source of inflation, not the cost of funds. Turning to the national economy, my reading is certainly influenced by conditions in the District. It's not a question of encountering any kind of head winds; rather, it's the buildup of tail winds that I think is of increasing concern. I no longer feel that it's a case of simply backing further off the accelerator but that we may have to start contemplating tapping on the brakes fairly soon. I don't know where neutral is, but I think that we are well shy of a neutral policy and getting there may not be enough. The Greenbook projections depend critically in my assessment on the deceleration of nominal GDP growth. It's the nominal spending where I have my concerns rather than the decomposition of that into its real and price components. In 1992 we had growth of over 6-1/2 percent for the full four-quarter period and that was more than had been expected. There was some deceleration in 1993, even with the robust fourth quarter, thanks to the weakness in the first half of the year, but growth for the year still was 5-1/2 percent. Growth this year is looking like another 5 to 5-1/2 percent. But for the forecast to work, it is important for nominal GDP to decelerate to under 4-1/2 percent in the next 18 months. I don't see what will make that happen. I have no confidence that the kind of policy assumptions in the Greenbook or the linkage of working through long-term bond yields are going to produce that deceleration of nominal GDP. The way I now tend to think about where we are is not that we are entering the fourth year of the expansion, but rather that we are someplace in the first year of a classic expansion. As it looks to me, the period of about 2 or 2-1/2 years after the end of the Gulf War was one of economic restructuring in a lot of sectors and a lot of regions. The talk about it being an anemic recovery was because it wasn't a recovery, in a sense, but rather a period of restructuring. Some time during the course of last year we entered into what would be more of a classical recovery from recession. If that interpretation is right, then we should be thinking in terms of a year to six quarters of 5 to 6 percent real GDP growth. Yet, most of us are saying that we don't see that the economy has the capacity to handle that many quarters with 5 or 6 percent real GDP growth without way overshooting. If that's an accurate assessment of where we are, then monetary policy is well behind the curve.",635
-fomc-corpus,1994,President Melzer.,4
-fomc-corpus,1994,"Thanks, Alan. The national economy continues to expand rapidly and its momentum appears, at least to me, to be building. Industrial production, for example, grew at a 5.4 percent annual rate for the four months ending in April, faster than the 4.6 percent rise in 1993. Payroll employment rose at a 2.7 percent rate in the four months ending in April, following a 1.9 percent rate of increase in 1993. The unemployment rate fell about a full percentage point over the past year when comparable methods are used to measure it. Despite efforts by businesses to build inventory in the first quarter of this year, the inventory-to-sales ratio fell sharply as sales boomed. In the Eighth District, economic activity has also expanded rapidly in recent months. Many firms report expansions, additions to payrolls, and increases in sales. The District continues to grow faster than the nation as a whole, as best we can determine. For example, during the past quarter nonagricultural employment increased in all District states by a significantly larger percentage than the national average, namely by 7-1/2 percent at an annual rate versus 2.1 percent nationally. Increases in employment are occurring in nearly every major manufacturing and nonmanufacturing sector. District reports reveal that the Eighth District's expansion is spreading to parts of the District such as southern Illinois that had until recently been sluggish. Particularly noteworthy developments are occurring in the transportation sector. Increases in auto production, which Tom Hoenig and Si Keehn have mentioned, are expected to boost auto employment in St. Louis to the highest level since 1989. Commercial aircraft orders also are rising considerably. The District's real estate sector remains strong as evidenced by double-digit increases in building permits and continuing anecdotal reports that homes available for sale are in short supply. Relatively strong loan demand, especially by businesses, is also indicative of the strength of the Eighth District's economy. The momentum of the economic expansion, as I mentioned before, seems to me to be building. I am not comfortable with the Greenbook outlook that nominal and real GDP are poised to slow down in the second half of this year. Such a slowing appears to be based on a cutback in interest-sensitive sectors, especially housing. Housing affordability, even with today's mortgage rates, in my view is very favorable. And reports at last week's Business Roundtable meeting expressed strong doubts that interest rate increases are retarding spending to any degree at all or are likely to do so in the near future. The continuing strong performance of the District and national economies reinforces my concerns about the inflation outlook. In the Eighth District the prospects for increased cost and price pressures have been boosted by low-levels of farm inventories and new houses for sale, and more broadly by substantial job growth and relatively low unemployment rates. Nationally, both consumer and producer price increases have accelerated over the past seven months from their pace over the previous five months. In addition, inflationary expectations have increased as well, which is reflected in declines in both bond prices and the foreign exchange value of the dollar since our last meeting.",634
-fomc-corpus,1994,Governor Kelley.,3
-fomc-corpus,1994,"Thank you, Mr. Chairman. I'm essentially the same place I was in March, so I'll try to be a little brief today. We have moved policy considerably, three times now, which I think has been entirely appropriate. The reason that I feel particularly comfortable with that comes largely from the fact that I think interest rates were too accommodative for present conditions and needed to be changed. And probably we haven't completely eliminated that yet and we do have a little more to go. Consequently, I would expect to support a policy move action in the second half of this meeting. My comfort doesn't primarily arise from an especially high level of concern that we are near full capacity and on the cusp of some type of an inflationary flashpoint. I certainly do recognize that there's considerable strength out there and we get confirmation of that from the consistent reports--and I'm sure they're correct--from around the Districts that there is a good deal of momentum. Consequently, there surely is the possibility that the economy could overheat. But I think there's reason for at least a bit of skepticism that that is going to happen. A brief recitation, if I may; I did this the last time we were here and most of these things have been referred to in one form or other already this morning. I won't talk further about interest rates; we know how much they've gone up. Their restrictive impact is just beginning to be felt. Mike Prell made reference to housing in particular. Second, one factor that I think is important that we haven't talked about much is the impact of unit labor costs. We've done very well in that regard recently. In fact, it has been getting meaningfully lower now for some four straight years. Staff tells me that in the case of the unit labor cost index, which has been decreasing substantially and consistently, that that impacts the economy with a six-quarter lag. This means that we've got a lot more favorable impact to come from the restraint that is already in place. On the productivity side, we've recently been looking at a 2 percent increase. Staff has raised its estimate of trend to 1-1/2 percent, but if I understand correctly, they are only expecting 1 percent over the remaining part of the forecast period. All the private sector conversations I've had suggest that we might continue to do quite well in that regard rather than fall back. If that turns out to be the case, it does two things for us, obviously. First of all, it holds down cost pressures; and secondly, it extends the amount of capacity that the economy has available before it gets itself into difficulty. In the area of consumer spending, we've talked before about the very high level of debt that was built up through the 1980s; that plateaued for a while but did not come down, and now it has begun to rise again. This leaves me with a considerable question in my mind as to how long the legs under consumer expenditures may be. Indeed, if they're very long, I would worry about that a lot because we're in a new territory now in terms of consumer debt. Not unrelated to that is the fact that autos have been a part of the push so far and that probably has approximately peaked. We've talked about foreign economies; I won't go into that any more but their weakness impacts on us here. And then, of course, fiscal policy continues to be mildly contractionary, at least over the rest of the forecast period. All in all, I have considerable confidence that there's a lot of underlying strength in the economy, a lot of good solid momentum, and that things look very favorable. I believe that the economy can keep growing despite whatever constraints are out there and that our recent policy actions as well as those restraints give us good prospects for keeping inflation well in check. Thank you.",763
-fomc-corpus,1994,Vice Chairman.,3
-fomc-corpus,1994,"Thank you, Mr. Chairman. The Second District's economy appears to be advancing at a rather nice pace this spring. Preliminary March reports indicate that establishment job growth was strong in most sectors of the economy. Tax receipts suggest that personal income grew at a reasonable pace. Retail sales surpassed the optimistic expectations of the merchants, with actually some problems in April because inventory levels are lower than the merchants would like them to be. The commercial real estate market is showing considerable signs of revival except in the lower part of Manhattan Island. The anecdotal information for April and the first part of May suggest that this growth is continuing. And consumer price inflation is quite subdued in the District. There is something of a malaise around the financial services industry because of the difficult markets in the first four months of the year and because of some concerns about individual firms and problems related to them--for example, the case of Kidder Peabody and the death of Lazard and then the New York Times article on Sunday regarding what would appear to be some questionable relationships among firms in the municipal finance area. On the national level, we differ somewhat from the Greenbook in having a little slower growth in the second quarter and a little higher growth in the second half of the year, but the net result is that we are just 0.1 percent above for the Q4 to Q4 period. We also have a slowdown in 1995 to 2.4 percent growth in GDP, which is just about where the Greenbook is. However, we're not quite as optimistic about the CPI. We've got it up 3.1 percent whereas the Greenbook has it up 2.8 percent. I would not be very satisfied with an upturn in inflation as something that we would anticipate. So that raises the question of what really is going on in the economy and what if anything the Federal Reserve can do about it. We think that growth has to be slowed down because we think that, certainly by the end of the year, potential GDP will be fully used up. We will be at or very close to the NAIRU and at the use of manufacturing capacity that has historically given rise to cost and therefore price pressures. One of the things that those who don't want to find inflation, especially among journalists, are looking to is the possibility that the capacity availability outside the United States will help us avoid inflation. We looked at that quite carefully and find very little solace there. In the area of interest rates, one of the things that's most difficult to forecast--and it has been discussed by Mike Prell both in the Greenbook and in his oral presentation and then by various members of the Committee this morning--is to try to figure out just how much the policy that we have put in place so far and its effect on medium-and longer-term interest rates will slow the economy down. In the very sensitive areas of, say, the 7- to 10-year maturities, it's difficult to figure out exactly what has caused that increase in interest rates, but we've done a rather large amount of work on the relationship between the Treasury market and therefore interest rates in general and mortgage-backed securities; Joan Lovett referred to that rather briefly in her presentation. But quite clearly, as interest rates go up and the duration of any mortgage portfolio increases, the hedging requirement moves out the yield curve. And we think that has a fair amount to do with the considerable increases in interest rates in the 7- to 10-year area, especially in the 10-year note itself. If that is so, it means that we've got a closer linkage than we have had historically between short-term interest rates that the Fed directly can control and the medium- and longer-term rates that have a rather direct effect on the interest-sensitive sectors. I think all of us would have to agree that we are not quite sure exactly how that will play out in the future. Another area that we find has to be looked at very closely is the attitudes and therefore the likely spending habits of the consumer. The consumer is a good deal more confident than he or she was a couple of months ago. But it's very difficult to find out exactly what they are so confident about except that the increase in employment would seem to have lowered the anxiety level about losing jobs. Still, one hears enough about layoffs especially in the white collar sector to wonder how consumer confidence that is a large part of all of our economic forecasts, and which Governor Kelley discussed very well I thought, is going to affect the future. So we're in a situation I think where we have policy actions that need to be taken, but it seems to me that at this particular time the question marks are rather larger than usual--although as Mike Prell pointed out, all economic forecasts have question marks--and therefore make decisions on policy that much more difficult.",973
-fomc-corpus,1994,Thank you. Governor LaWare.,7
-fomc-corpus,1994,"I've grown considerably less comfortable since the last meeting with the consensus view that we have a solid economic expansion under way. Not only was the announced GDP growth rate in the first quarter way below staff expectations, but staff now expects a further downward revision of the 2.6 percent number that was announced. That, combined with recent statistics on auto sales and production, industrial production, retail sales, and a modest reversal of consumer expectations, has convinced me that the psychological tone of the economy is very fragile. I attribute that fragility to job security anxiety, fueled by continued corporate re-engineering with the accompanying layoffs combined with worries about household cash flow, debt levels, and impending changes in the health care system and its costs. Nonetheless, the reduction in slack in the economy certainly feeds my concern that there remains some prospect for growth well in excess of potential, and I expect that further absorption of slack will come from the export sector. As U.S. products become more competitive because of dollar rates, technical improvements, higher quality, and the recovery of European and Canadian economies as well as a higher level of growth in Mexico, the growth in exports will exceed staff expectations and stimulate a higher growth rate than in the Greenbook forecast. All in all, I believe that events already in train will tend to heal the fragile psychology of the economy, all of which suggests that additional restraint may be in order.",278
-fomc-corpus,1994,Governor Phillips.,3
-fomc-corpus,1994,"Thank you. It appears that the strength of the expansion is deeper and wider than we have seen previously, based on some of the comments made here today. This is partially due I suspect to job creation and acceptance by employees of moves to different jobs--thus more churning in the labor market. Confidence continues to be reasonably strong both on the business side and on the consumer side even in the face of a slowdown in the first-quarter GDP. Credit demand has increased and the U.S. economy appears to be adapting better to changes than our competitors--such changes as technology, labor conditions, balance sheet adjustments, and so on. I find myself with an analysis very similar to Mike Kelley's and John LaWare's in that I see this strength as sustainable and don't see a runaway growth outlook. We still have an environment of re-engineering and emphasis on cost savings and productivity. This question of job quality I think is continuing to put pressure on income levels generally. We're also not through the downsizing of the defense industry. The deficit is going to continue to limit fiscal policy initiatives. The low saving rate that we have seen I think is going to limit long-term investment opportunities. The capital market volatility and stock and bond price declines do increase the cost of capital. The volatility itself raises the cost of capital, and the wealth effects that are felt by individuals may start to be seen in reduced consumption and investment. On the inflation front, as we've heard in some discussion around the table, the recent history is quite good. I do think that there are vulnerabilities, for example in commodity prices including oil. And although farmers are optimistic at planting time, that's when they're the most optimistic. That seems to be a universal truth in the ag community. But we do have low carryovers, so this is a fragile time going into this planting season. One thing that hasn't been mentioned as much was the faster increases in the producer price index in the first quarter of this year. Although the April report was better, the index is still up about 9 percent on an annual basis for 1994. We still have health costs as an uncertainty, and the strength of the economy generally I think is increasing the chances that inflation could start to heat up. I think both the appearance and the actuality of the stronger economy coupled with the realization that there are checks on this growth are feeding some of the uncertainty that is reflected in the wide range of forecasts for GDP, inflation, capacity constraints, and interest rates. We see a little more diversity of opinion than we ordinarily do on the forecast front, and this is feeding into the capital markets. They remain volatile and fragile. I think we're still facing a continuation of the sorting out process that was begun in February. At that time many people were on the same side of the market and positioned for more of the same--slow growth, with long-term interest rates expected to come down, and inflation expected to be under control. So when the jolts hit the market we saw more of an effect than might have been anticipated. Those jolts, of course, were precipitated by the initial Fed tightening but also were supported by reports of stronger growth more generally. People were having to fully assess whether or not real rates should be higher. Then, of course, we have domestic political uncertainties, Japanese trade pressures, China, Korea, one can go on. Traders also have very short time horizons and they tend to think in terms of up or down, and neutral was really throwing them a curve. That, I think, enhanced the uncertainty in the markets. This portfolio unwinding that we've been going through is not an instantaneous process because the portfolios are complex. We also are faced with internal firm risk management constraints. The markets are efficient but they're not complete. As Bill McDonough mentioned, there has to be a searching for hedge opportunities as people seek to unwind. We have seen some market liquidity constraints as near substitutes have been sought and traders are trying to reduce exposures. In sum, I don't think the turmoil is over. And in terms of the risks generally, while some people seem to think that they are more on the up side, I see some countervailing forces to those upside risks that are feeding the fragility and the uncertainty.",854
-fomc-corpus,1994,Thank you. Governor Lindsey.,6
-fomc-corpus,1994,"Mr. Chairman, what struck me most at the table today was the talk of inflation. I've heard more on that than I've heard in all the meetings I've attended in 2-1/2 years. That was a surprise to me. I don't think that the concern we have in the analysis is really on the demand side. I think the staff is right on target. We have moderately expanding demand. We have what would otherwise be robust demand being checked this year by fiscal policy contraction, by a rising yield curve, and by a deteriorating international situation. That's moderate. What we don't know, really, is what is happening on the aggregate supply side. Governor Kelley mentioned a very, very positive scenario, one in which productivity is improving as a result of substitution of capital for labor over the past few years. If he's right, then we have room for a very extended expansion. And, Mike, you have a surprising ally in my former colleague, Jim Medoff--I don't think we've ever agreed in the past--who sent me from the Center of National Policy an analysis of the normalized help wanted index against the unemployment rate. He concludes that the NAIRU is more like 5-1/2 percent because of the changes you've mentioned. I think that assumes that it is positive technical change that has driven the substitution of capital for labor. If, on the other hand, what has caused this substitution is a rise in the relative cost of labor to capital because labor is more expensive, perhaps because of government mandates or what have you, then really what we've had is a supply shock. And that may explain why I hear so much talk about inflation here in spite of the fact that the help wanted index is at the same level as it was at the depths of the 1982 recession. That surprised me; no one is demanding labor, yet we're hearing about inflation all the time. We're going to have to see, and fortunately this is not the meeting where we are going to find out whether we have to go to something more restrictive. I think that President Jordan was right on target. The thing that we have forgotten is that during an expansion the mix in nominal GDP between inflation and real growth tends to worsen. In the Greenbook forecast, it's not worsening; it's staying at about 50/50. That probably isn't going to happen. If Governor Kelley is right, maybe it can last for a while longer; but history says otherwise and my bet is that in three months or six months we're not going to be talking about neutrality. But fortunately we can wait for three to six months for that to change.",526
-fomc-corpus,1994,"Thank you, Governor, and that brings us to our coffee break. Let's take five, seven minutes.",21
-fomc-corpus,1994,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1994,Questions for Don?,4
-fomc-corpus,1994,"Don, I just wanted to ask about the April tax payments and whether you think there is any peculiar behavior occurring that may be depressing M1 in the short run. A year ago we had a similar experience but you didn't mention that in terms of--",50
-fomc-corpus,1994,"It's hard to parse this, President Melzer. In fact, April tax payments were up considerably from last year while last year they were low relative to the year before. It is true that this year's payments were less than we and everyone else had expected. So it's a little difficult to know exactly what seasonals were built in. Before we got this surge in early May, it looked as if the shortfall was bigger, and the low level of tax payments in April was one of the factors we were citing as a reason why M1 might have been slow in April because people hadn't built up their balances in order to pay taxes. That explanation didn't seem to have as much weight after the extra billions came in in early May and the tax receipts over the April-May period looked as if they were about 10 percent higher than last year. There might still be something in there since M1 growth this year is still low relative to its growth before the last year. It's very difficult to know what seasonals are implicitly calling for.",206
-fomc-corpus,1994,President Jordan.,3
-fomc-corpus,1994,"Don, I read the Bluebook as saying a 4-1/2 percent funds rate is neutral and here's an attempt to produce that kind of policy stance. All of your commentary was in terms of the ""C"" versus ""D"" alternatives, a 1/4 point versus a 1/2 point increase. You didn't discuss the pros and cons of going immediately to 4-1/2 percent, assuming that that is a neutral policy stance, nor did you discuss the possibility that 4-1/2 percent is too low rather than too high. A lot of your remarks were in terms of: ""Well, we're not sure it's 4-1/2 percent; it might be 4-1/4 percent and there's even a possibility it might be 5, 5-1/2 or 6 percent."" Even if we went to 4-1/2 percent immediately, or in the next six months, and if there were no movement at all in bond yields, no effect at all, you'd still have 300 basis points between the funds rate and long rates. What historical experience would lead you to believe that a 300 basis points upward slope in the yield curve is a neutral monetary policy?",252
-fomc-corpus,1994,"Well, a couple of points. First, as between the 4 and 4-1/4 percent, I had assumed that those were the two options on the table. To be sure, moving eventually by more can't be ruled out--75 basis points or even more. I tried, but perhaps it didn't come through in my remarks, to raise the issue that 4-1/4 percent certainly might not be enough; and I expressed some concern that we not get stuck calling this neutral and therefore find it hard to rise beyond that. I agree that the Committee certainly needs to keep its options open--that 4, 4-1/4, even 4-1/2 percent may not be sufficient. As to the slope of the yield curve, I think that's been a sometime thing in predicting economic activity. The yield curve was extraordinarily steeply sloped for several years in this current expansion before the expansion seemed finally to have gotten under way in a self-sustaining sense. It's certainly true that the markets have built into this spread more tightening than the staff forecast. I think it's a question of judgment as to where the implied economic strength is. Moreover, in judging the yield curve one has to take account of uncertainties and liquidity premiums. With all the uncertainty and higher volatility, some of the level of long-term rates is reflecting liquidity premiums, not necessarily expected movements in funds rates. But I don't disagree with the the overall thrust of your comment, which is that 4 or 4-1/4 or even 4-1/2 percent may not be high enough. I think Mike came to the same conclusion.",332
-fomc-corpus,1994,"If there are no further questions, why don't I begin? One of the interesting aspects of this whole period has been the extraordinarily parallel pattern of movement between dollar-denominated long-term rates and the deutschemark and the whole series of other currencies, despite the fact that there are no very persuasive reasons why all of these rates should be fundamentally coupled. You have to ask yourself under what conditions you get a coupling of rates for noneconomic reasons, or for reasons other than the basic type we usually see. The answer essentially lies in the notion, at least in my hypothesis, that if there is a risk premium out there which is generic, its impact will tend to be relatively the same depending not on what currency is involved but whether there is uncertainty about long-term commitments in financial markets and price stability in the markets. If we hypothesize that there has been a very significant increase in international portfolio holdings of many currencies, then if you get a major element of uncertainty--for example, if I'm a portfolio manager and I have long commitments in U.S. Treasuries on the expectation that prices are going to go up, and the markets go against me--what has happened is that my whole sense that ""I know what it's doing"" has collapsed. And the tendency, whenever uncertainty of that nature arises, is for human beings to disengage from whatever they're doing, to pull back. And pulling back in the U.S. Treasury market means going from 10-, 15-, and 30-year issues into the short end of the market, tilting the yield curve back up. But it also presupposes that any element of speculative uncertainty which exists in the holdings of long-term deutschemark relative to short-term deutschemark also induces an adjustment by sales of longer-term securities and purchases of shorter-term. This adjustment obviously can spill over into all sorts of portfolio holdings, provided there's a large amount of communication. It is just very difficult to know why it is that U.S. dollar-denominated issues have so dominated the markets, and indeed why we at the central bank, by tightening, have obviously dislodged a lot of positions while creating a concept which is analogous to a generic risk premium that explains not the intercurrency movements but the movements from speculative positions--that is, from longer-end price-sensitive positions back to the shorter end. It also explains in part the nature of the financial bubble that we obviously have run into. This is a very interesting phenomenon because what we see is a very large increase in implied volatility in the long end of the market coming off the options, but only a very modest increase in the yield spreads of a number of the different types of instruments we use to measure credit risk. We've gotten a very small rise in the rate on six-month commercial paper over six-month Treasury bills; BAA corporate yield increases have been very small relative to U.S. Treasuries during all of this period. Junk bond yield spreads are not moving up, which is another way of saying that the concerns about the economy as such are not being undermined by all of this financial instability. What we come up against here is that there is a great deal of uncertainty and a lot of nervousness. And indeed some of it is purposeful on our part because if we are going to pierce the bubble, the only way we're going to pierce it is essentially to create a degree of uncertainty. The issue of uncertainty as being helpful or unhelpful is really not clear-cut. We experienced periods of relative certainty in the latter part of 1993 which everybody just looked at as though the markets had no downside price risks; everyone was committed. The yield spreads were very marginal, and indeed they had all been coming down dramatically from the 1987 peaks after the stock market crash, and there was an element of euphoria that really gripped the markets. You could see that in huge increases in mutual funds, both stock and bond funds. In fact, what we were dealing with largely was a situation in which there was very little uncertainty. That clearly was a very unhappy state of affairs; the mere fact that uncertainty did not exist was not a good; it clearly was a bad. And our endeavor to break that pattern, which we had to do even though it turned out to be a much bigger problem than we suspected, was a very purposeful endeavor to create a degree of uncertainty and readjust holdings from weak hands into firmer hands as far as speculative securities are concerned. As a consequence we have taken a very significant amount of air out of the bubble. We had discussions in this Committee not on the desirability of raising rates and tightening the markets because the economy needed it--I think that was a universal view--but there have been differences here about how much the financial system could take before its tensile strength broke. And I think what we have reached in conclusion at this particular point is the defusion of a good part of the bubble. I think there's still a lot of bubble around; we have not completely eliminated it. Nonetheless, we have the capability I would say at this stage to move more strongly than we usually do without the risk of cracking the system. I think the economy is probably stronger than we suspect, partly for reasons that I raised back in February; the inventory situation just strikes me as too tranquil, and before this is all over I think we've got to get something moving on the inventory side. Look at the lead times on deliveries of materials; they've just moved up modestly. Slowdowns in promised deliveries have clearly moved up and that's far more than an issue of the weather in the month of February. So there are the makings here of stronger inventory changes than I think we recognize. The most interesting aspect of the economic outlook as I see it is that this far into the recovery--and it's almost immaterial whether or not you take Jerry's view that in effect we're only in the first year of the recovery--the actual inflation rates, wage rates, and the like are lower than one would ordinarily expect. This raises the question, which I've raised in earlier meetings, as to whether the lack of financial tinder is a relevant consideration here in holding inflation back. The truth of the matter is that it almost doesn't matter, because as Gary Stern said--and I think quite legitimately--we may not know what the future looks like but we do know at this particular stage, with the relative lack of imbalances that exist in the economy, that the chances of overdoing a tightening of monetary policy and creating a cascading down in economic activity are really not very large. If we overdo it, what we will do is push economic activity farther out. The chances of our breaking the back of the economy at this point--with inventory levels as low as they are, capital goods markets still with significant momentum, and the orders as strong as they are--have to be pretty low. The obvious problem is that errors on allowing inflation to take hold, even if the data raise questions as to whether it will, involve another type of risk altogether. As a central bank we obviously can't take that kind of risk. The sentiment of the Board of Governors, as you probably know, is to move the discount rate, as nearly all the Reserve Banks have requested, by 50 basis points today. And the implicit view of the Governors is to request of the Committee that we allow all of the increase to pass through. There is a balance of concerns as to how we should state that, but if we are going to act, I do think we should indicate that we are taking out a substantial part of the degree of accommodation that existed through the 1993 period. But I'd leave open the issue of any further moves; while we may pause for markets to interpret that, we ought to make adequate leeway to move should events require that we do so. My own impression is that we probably will not have to move before the next meeting if we do 50 basis points now. I find it unlikely that we are near the end of this pattern, but I do think we are now becoming more data dependent. There really are two credible economic scenarios that we have to keep in mind. One is something quite similar to the Greenbook forecast and, if that scenario evolves, the inflationary pressures on the system will come down. If it doesn't evolve, if we still have momentum in the system, I think the pressures are going to pick up on us to move--not immediately, but sooner rather than later. The crucial issue as far as I'm concerned, however, even though it's not a critical matter in the forecast, is to watch what's happening to the financial system--what's happening to bank loans, to credit extensions, to the degree of financial tinder that is either not moving or moving. We need to be very careful about this very large risk premium that exists in the financial markets, which basically says that this bubble is a bigger one than we had anticipated. We've caused a good part of it to dissipate, maybe even most of it, but it's very obvious from the implied volatility numbers we're getting out of the options that these markets are not about to simmer down very quickly. So, I merely have put the issue out on the table. I have a particular view, were we to move 50 basis points, on whether we should go symmetric or asymmetric. My preference is symmetric, but frankly I don't think it means very much because if the economy accelerates we'll be holding special Committee discussions, with or without symmetry in the directive language. My own inclination would be to go symmetric at this stage, but I don't feel very strongly about it. With that I open this issue up.",1943
-fomc-corpus,1994,"Mr. Chairman, as you know, I've been a proponent of gradualism, but I believe we're at the point where we need to take more aggressive actions. I think the gradualistic approach may have created some uncertainty in the market. I've heard some of the same comments as were reported earlier. People have suggested that if we are going to do something, we ought to take strong action. So, I'm really supportive of that action. I think there is considerable momentum in the economy. Our forecast, as I indicated earlier, is for stronger growth than the Greenbook forecast, and even building in 50 basis points we see the inflation numbers in 1995 as unacceptable. So, I think that there ought to be a 50 basis point pass-through to the market, and I would prefer a symmetric directive as well.",166
-fomc-corpus,1994,President Parry.,4
-fomc-corpus,1994,"I, too, would support a 50 basis point move and I prefer a symmetric directive. I must admit I'm not convinced at this point that our gradual approach was the wrong one, and it still may serve us well in the future. But I do think 50 basis points is appropriate at this time. The other point I'd like to make is that I hope any public statement we make doesn't convey either the impression that we are likely to do anything in the near term or that we are likely to rest on our oars for a while. I think that--",113
-fomc-corpus,1994,"Excuse me, I'll just read you a very preliminary draft.",13
-fomc-corpus,1994,Which you just happen to have!,7
-fomc-corpus,1994,"I just happen to have it here! This implies that we move on both the discount rate and the funds rate. ""These actions, combined with the three adjustments initiated earlier this year by the FOMC, substantially remove the degree of monetary accommodation which prevailed throughout 1993. As always, the Federal Reserve will continue to monitor developments in the economy and financial markets to judge the appropriate stance of monetary policy."" I think that captures where we want to be.",92
-fomc-corpus,1994,Good.,2
-fomc-corpus,1994,President Melzer.,4
-fomc-corpus,1994,"Alan, I would endorse what you recommended. I'd like to briefly state my reasons. First of all, as you know I've viewed the stance of monetary policy as having been very accommodative for some time, which I think will lay the basis for an acceleration in inflation. Over the last three years, for example, our net open market purchases of government securities have totaled over $100 billion, which is a staggering number. This expansion in base money has fostered a tremendous increase in liquidity, with the narrow money stock, M1, increasing by one third over this period. Secondly, I don't think we've gained credibility in financial and foreign exchange markets with respect to our resolve to contain inflationary pressures, let alone achieving or moving further toward price stability. With respect to the risk of overdoing it, I would agree with what you said. One of the things I looked at in that connection is the prevailing forward rate structure, which is cited in the Greenbook; it anticipates about 150 basis points of increase in short-term rates before the end of the year. So, as I say, I don't think this move is overdoing it. In fact, if we don't keep up with sustained increases in market interest rates, I think we run the risk of a policy that continues to be accommodative and will simply increase the inflationary pressures down the road. With respect to the statement that you read, I would be concerned about anything that was interpreted as our having reached neutrality, because I don't think we really know. I'm a little concerned that maybe those words--I don't have an alternative suggestion--too strongly suggest that we've reached a neutral stance. I just don't know what that is.",339
-fomc-corpus,1994,Neither do we. President Broaddus.,9
-fomc-corpus,1994,"Needless to say, I support your proposal enthusiastically, but I share Tom Melzer's feelings. When I heard the statement I had the same kind of feelings that you had, Tom--that it may tend to suggest that we've reached a plateau or reached neutrality. Maybe we can work on it a little bit. Also, along those lines, I don't have really strong feelings about the language of the directive, but I think a symmetric directive would tend to create the impression that we have reached a plateau. So, while I would accept a symmetric directive, I have a preference for an asymmetric directive.",121
-fomc-corpus,1994,President Boehne.,5
-fomc-corpus,1994,"I support a 1/2 point increase, the symmetric directive, and I like the draft statement the way it is.",25
-fomc-corpus,1994,First Vice President Minehan.,6
-fomc-corpus,1994,"I agree with President Boehne. We support the 50 basis points; we support the symmetric directive, and the wording of the statement.",29
-fomc-corpus,1994,President Stern.,3
-fomc-corpus,1994,"I support the proposal in its entirety. I am a little concerned--somebody mentioned this earlier--about the comments we get from time to time that we ought to take whatever actions we're going to take and then pause. I don't think the statement gives the impression that we're necessarily locking ourselves into that for any extended period of time. I guess what I'm concerned about is a view in the markets now, and I don't know why it should arise now, that we are more clairvoyant than we are--that we somehow know where we're going and when we're going to stop. And I think we ought to be careful and try not to convey that impression.",131
-fomc-corpus,1994,President Hoenig.,4
-fomc-corpus,1994,"I endorse the proposed moves, both of them. The economic case continues to exist for this move and I think we do have a window of opportunity for making it. I support symmetric language. I am a little concerned about the statement giving the impression that we are satisfied or that this pause may run a while, although I can't think of a better way of saying it. That's the only concern I have, Mr. Chairman.",85
-fomc-corpus,1994,President Keehn.,4
-fomc-corpus,1994,"Well, Mr. Chairman, I certainly support the proposal. The only question I have is a technical one. Is this a single announcement today and is it going to be announced by you or announced by the Committee or--",44
-fomc-corpus,1994,"It's going to be announced as a part of the discount rate announcement. In other words, there's no need to make two separate announcements.",27
-fomc-corpus,1994,Okay.,2
-fomc-corpus,1994,It's not by me; it will be by Joe Coyne. Governor LaWare.,17
-fomc-corpus,1994,"Mr. Chairman, I'm very pleased to support your recommendation, and I think the elegance of the language permits the interpretation that was intended--that we may still be probing, that we are not sure that we are at neutrality, that we have taken a significant step forward, but we're not at all committed to standing pat. I just think the language is beautifully composed.",73
-fomc-corpus,1994,"One suggestion, I'm sorry to butt in, but maybe the phrase ""significantly reduces"" rather than ""substantially removes."" I don't know whether that--",33
-fomc-corpus,1994,We played with that. I think it's a tricky issue and I'm trying to avoid--if we ever tried to write a communique around this table we would be here for a good six months! President McTeer.,44
-fomc-corpus,1994,I support your recommendation.,5
-fomc-corpus,1994,Governor Phillips.,3
-fomc-corpus,1994,"I also support your recommendation. It seems to me that it is appropriate to go ahead and make our statement in the market, and I think this proposal would do so. When we started this series of moves of 25 basis points, we talked about the notion that when we think the series of moves should come to an end we should so signal. I don't think--",74
-fomc-corpus,1994,It was at the point when we thought that the structure of the financial markets could take more.,19
-fomc-corpus,1994,"Right, right.",4
-fomc-corpus,1994,At the very beginning we were concerned that we would be hitting the markets too hard.,17
-fomc-corpus,1994,"I don't know whether we're at neutrality or not. There is an argument that we may well be at neutrality because we may be getting more of a kick from our tightening actions as a result of the increase in long-term rates. So, in any case, I support your recommendation.",56
-fomc-corpus,1994,President Jordan.,3
-fomc-corpus,1994,"Your initial remarks I think are very important. We can learn a fair amount if we think more about what's going on with relative yields. Normally when we think about a relative move it's either by quality spreads, by currency denomination, or by maturity. At one time I studied the behavior of interest rates in periods of crisis atmosphere relating to an international event: Suez, the Bay of Pigs Cuban missile crisis, the Yom Kippur War, Iraq in 1990, and so on. The yield curve always steepens very sharply as portfolio managers shorten their horizons. As the uncertainty dissipates the yield curve flattens. That's quite different from the cyclical behavior of the yield curve as an expansion matures. I think that we're closer to conditions of 1978 than we are to some other historical episodes. In April 1978 President Carter said that there was no danger that excess demand would spill over and raise prices just when the latter were about to explode. And through 1974, 1975, and 1976, as you recall, the economy was fairly tranquil; wages were fairly well behaved. Some of this started to change a little in 1977, but nobody saw it coming. At least I certainly didn't. The Administration had misread the situation in 1978 because they looked at things like wages; they looked at a lot of things and said there was no problem with inflation, and they were wrong. They never saw it coming. And I'm concerned that we may be wrong again. It struck me in the go-around earlier that at least some of you looking at the world from inside the beltway--Governors Kelley, LaWare, and Phillips --have a different feel of the economy than what I sense from the other twelve of us. Certainly I thought this was a marked difference, and I'm not sure quite what to make of that. I'm not troubled with the idea of saying we're at neutral and we're on hold. If a very powerful move had to be made, we would act anyway. None of us is going to know in advance whether any 25 basis point difference is significant or not, whether it's to 4-1/4 or 4-1/2 or 4-3/4 percent. But to me it's quite different to say we're at 4-1/2 percent and we think that it's just as likely the next move is down as up sometime out in the future. Being neutral implies an equal probability that the next move will be down as up; we never know this. If this group walks out of here today saying we're at 4-1/4 percent and most people's commentary is, as it has been after the last couple of meetings, that we've got more to go, I would find that troubling. I would much rather if everybody walked out and said we're at 4-1/4 percent and we don't know whether the next move will be down or up. To me that's a lot different than the majority of people responding in the weeks ahead, as we get queries about this, saying: ""Well, we're not quite at neutral; we've got more to go."" That adds uncertainty to the bond market that I don't view as constructive. I would rather have a stronger statement that we don't know when we're going to move again and if we do, it might be down or up. If people are not comfortable with that 4-1/4 percent, let's go to 4-1/2 percent and do a full point on the discount rate. I'd rather do more than less.",723
-fomc-corpus,1994,Vice Chairman.,3
-fomc-corpus,1994,"I support the 50 basis point increase in the funds rate and the symmetric directive. I think it is going to be seen as a very powerful action by the marketplace both inside the United States and out. I do think that we have to make a statement. There will be people whose only view of the world is based on their own trading positions who will be disappointed by our not saying the word of God is that this is it for some extended period of time. We can't say that and shouldn't say that, but I think we should be aware that it is not a sure thing that this action plus the statement, which I think makes a great deal of sense, will necessarily stabilize the financial markets. I hope it does, and it probably will after a couple of days, but it need not happen in the hour or two or even a day or so after the meeting. I believe it will be very well received outside the United States where attitudes are to a substantial degree affected or influenced by our fellow central bankers. The Chairman was at the last BIS meeting and, if I may say so, did an unusually good job of explaining the U.S. position, and I don't think anybody who attended that meeting will have any doubt that this is a very firm, decisive action. And I think we will be very much applauded by our fellow central bankers in many of the countries around the world.",279
-fomc-corpus,1994,Governor Kelley.,3
-fomc-corpus,1994,"Mr. Chairman, I support the recommendation and I would particularly like to associate myself with Governor LaWare's comments about the elegance and appropriateness of the statement that you proposed.",35
-fomc-corpus,1994,Governor Lindsey.,3
-fomc-corpus,1994,"I support the statement, Mr. Chairman. I think we will be coming back. I thought President Jordan made a very good point, and probably nine days ago I was about where he is. But I think this is the right move for right now and I don't know if I can pick any number where I could go out and say that the probabilities of moving up or down are equal. There's a level of uncertainty about the economy and about the financial markets that causes me to express some uncertainty about my interest rate objective. I think the statement is very well written, and I support it.",118
-fomc-corpus,1994,"I'll be reading from page 15 of the Bluebook. ""In the implementation of policy for the immediate future, the Committee seeks to increase somewhat the existing degree of pressure on reserve positions, taking account of a possible increase in the discount rate. In the context of the Committee's long-run objectives for price stability and sustainable economic growth, and giving careful consideration of economic, financial, and monetary developments, slightly greater reserve restraint or slightly lesser reserve restraint might be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with modest growth in M2 and M3 over coming months.""",120
-fomc-corpus,1994,Call the roll.,4
-fomc-corpus,1994,Chairman Greenspan Yes Vice Chairman McDonough Yes President Broaddus Yes President Forrestal Yes President Jordan Yes Governor Kelley Yes Governor LaWare Yes Governor Lindsey Yes President Parry Yes Governor Phillips Yes,40
-fomc-corpus,1994,"The next meeting is on July 5 and 6, the Humphrey-Hawkins meeting. This meeting is adjourned.",27
-fomc-corpus,1994,"Before we get started on our formal proceedings, I have several announcements. First, we'd like to welcome the new Vice Chairman of the Federal Reserve Board to his first Federal Open Market Committee meeting.",38
-fomc-corpus,1994,Thank you very much.,5
-fomc-corpus,1994,"And my next news--the unwelcome news--is that Si Keehn is leaving and this is his final meeting. It says here that his first meeting was on July 6, 1981. Si, of course, will return for the retirement luncheon following the August 16 meeting. This is also First Vice President Bill Conrad's first meeting. Bill is an observer at this meeting, but he will represent the Chicago Bank at future meetings until a new president is selected. Finally, Karl Scheld will be attending his last meeting. He has been attending FOMC meetings regularly for nearly 25 years. I'd like to say a few remarks about Karl at the luncheon tomorrow. Getting on to formal business, would somebody like to move approval of the minutes of the May 17 meeting?",159
-fomc-corpus,1994,So move.,3
-fomc-corpus,1994,Is there a second?,5
-fomc-corpus,1994,Second.,2
-fomc-corpus,1994,Without objection. I'd now like to turn to Peter Fisher for the report on foreign currency operations. Peter.,21
-fomc-corpus,1994,Thank you. [Statement--see Appendix.],9
-fomc-corpus,1994,Questions for Peter? Ed.,6
-fomc-corpus,1994,How much discretion did you have here working with the Treasury in terms of the timing of the intervention?,20
-fomc-corpus,1994,"Well, the events of the morning gave me precious little time. The final decision to intervene was not made until sometime between 9:15 and 9:30 a.m. There had been an uptick in the dollar shortly after 9:00 a.m. I must tell you I fear that was the result of some leakage out of European central banks. I was very nervous about trying to enter the market as the dollar was coming down and thus I was in rather a hurry to try to get into the market before it came off that brief high. So, when I did get approval from the Treasury to operate in that market, I jumped right in.",133
-fomc-corpus,1994,And the immediate response of market participants was to sell dollars?,12
-fomc-corpus,1994,"No, I don't think that was the immediate response. The morning operation had a more beneficial effect. The dollar moved up--I don't remember the exact figures right now. It moved up appreciably over the course of an hour or so. It then began to come off when we pulled out of the market and in the afternoon when we tried to reinforce the dollar we really met a wall of dollar/marks.",82
-fomc-corpus,1994,"President Boehne, just one comment on your first question from an historical perspective, which I think is the perspective you are coming from: The decision to intervene on that day was a joint decision, so in that sense Peter had no discretion. That is no different than it has been. But once the decision was taken, it was then largely in the Desk's hands as to how they would handle the intervention. That was in contrast to some instances of micro-management over the course of recent years. I think Peter had been given quite a large amount of resources for his potential use, and although he consulted about his change of tactics, the tactics were decided by the Desk rather than by the Treasury.",140
-fomc-corpus,1994,Thank you.,3
-fomc-corpus,1994,Governor Lindsey.,3
-fomc-corpus,1994,"Reading the transcript from the last meeting--unfortunately these transcripts will come back to haunt us all--but I am going to haunt you for a moment, if I may. [Laughter] The reason given for the previous intervention in late April and early May was that it was to underline a change in policy. Was there any change in policy that this intervention underlined?",75
-fomc-corpus,1994,"No, and I think that may have been one of its problems. I think when I spoke previously we were referring to both Treasury and Federal Reserve policy.",31
-fomc-corpus,1994,Right.,2
-fomc-corpus,1994,"Looking back at last week, I think there was a change in Treasury policy. The clarity with which it was expressed evolved over the course of the week in which we operated and only became clear, I would say, toward the end of the day and subsequently. There was a change in the statements Treasury officials were making. They were now looking for the dollar to go higher rather than lower.",78
-fomc-corpus,1994,"The market's reaction to that increased clarity, as I recall, was to send the dollar down.",20
-fomc-corpus,1994,"I don't think the increased clarity was sending the dollar down. I really don't view it that way. Late Friday afternoon an unnamed Treasury official finally said they would rather have the dollar go up than down, not in so many words but that was the gist of it. I don't think that caused the dollar to go down rather than up. We did have a very regrettable series of headlines as a result of the President's interview on the radio. I think the overall remarks the President made were something any rational person could agree with. They map rather well with remarks I have made here to the effect that there are fundamental reasons for the mark and yen to be strong but that their appreciation is getting a little overdone, and we think it is prudent to intervene. This came out in a series of headlines. The first said ""Clinton thinks exchange rates are puzzling."" And subsequent headlines were ""Clinton sees reasons for mark to rise versus dollar; Clinton sees reasons for yen to rise versus dollar."" Our afternoon operations had to face these headlines literally head-on. That, I think, was an important cause of the dollar's weakening that afternoon.",229
-fomc-corpus,1994,Did the Treasury know about the President's forthcoming statements?,11
-fomc-corpus,1994,I was not aware of the President's interview prior to seeing it come across the wire.,18
-fomc-corpus,1994,Was the President aware that we were going to intervene?,11
-fomc-corpus,1994,"I don't know that for a fact. I think he had been briefed on the Treasury's views on Thursday. But as I said, the final decision to intervene was made by Secretary Bentsen between 9:15 and 9:30 a.m. on Friday morning for their part.",60
-fomc-corpus,1994,"I have a follow-up question. The transcript for the last meeting reads that I was asking you ""How long do you expect the latest intervention to hold? I suppose the intervention last August bought us 9 or 10 months. I assume the second intervention""--which we had just had in late April and early May--""will buy us something less than 9 or 10 months."" It bought us four weeks. ""Do we have any ammunition left?"" You said at the May meeting ""I think the operation and the action of the Bundesbank last week and whatever the Committee does in the realm of the expected, if I can put it that way, will tend to stabilize the dollar/mark rate."" Well, we didn't stabilize it. How much time has this intervention bought us? With the last, we went from nine to ten months down to four weeks. Will this intervention buy us four hours or four minutes? It bought us about twenty minutes, I think.",195
-fomc-corpus,1994,"I think it has bought us more than twenty minutes. I wouldn't tell you it would buy us any great amount of time in terms of weeks or months. As I said, I do think the relative stability of dollar/yen in a trading level below 100 is very different from what all of us were expecting. The risk of a drop through the floor at that point, I think, was very real; dollar/yen sentiment was extraordinarily negative and there was very little indication that there would be buyers there. Although there is a risk of a big drop now, I can't, of course, prove that to you scientifically. But I don't think it buys us more than a few weeks--I'll be honest with you, I don't like to admit to that--unless there is some other change in market dynamics. I think the market views itself as being a little oversold now. The reaction of the dollar/mark last week was frequently to tick up as nervous people covered shorts. That was not the case--we had not gotten that far--after the April-May operation.",215
-fomc-corpus,1994,"Given the interest rate differential--this is the last question, I promise--what is your expectation of the yen or DM exchange rate or both a year from now?",33
-fomc-corpus,1994,You're trying to make me enjoy the transcripts even less! [Laughter] I don't have any forecast that far out myself.,25
-fomc-corpus,1994,"Higher or lower, how does that sound?",9
-fomc-corpus,1994,I haven't a clue.,5
-fomc-corpus,1994,"Governor Lindsey, just on your first question, it is correct to say that one of the purposes of the May 4 operation was to send a message. That doesn't necessarily mean that the purpose of every intervention should be to correct a policy misperception.",51
-fomc-corpus,1994,"Well, Ted, I don't want to dig it out of the transcript, but I can swear that Chairman Greenspan, who I guess is authoritative in these matters, said that if one were to list the reasons for intervening, underlining policy was about the only reason. I will find the quote for you. It may be in one of our Board meeting minutes, but if I am substantively wrong, Mr. Chairman, please correct me.",90
-fomc-corpus,1994,I am not quite certain what you've accused me of. [Laughter],15
-fomc-corpus,1994,"I was accusing you of being quite correct actually in making the very wise statement that, if one looks to reasons for intervening, the most legitimate reason one can think of is to underline a change in policy.",42
-fomc-corpus,1994,"There actually is another that is important, and I think we have intervened for that reason on occasion. It is to break a psychology that is building up irrationally in the market. And if the intervention can accomplish that, maybe it can have a constructive effect. That's the only meaningful use of intervention in the context of unstable markets because the question essentially is whether the intervention will accomplish something. The only way it can do something is to catch the market short and break the back of a cumulative psychological downtrend. We have accomplished that on occasion when we tried it and sometimes it has failed.",118
-fomc-corpus,1994,And would you view our last attempt as success or failure?,12
-fomc-corpus,1994,"I would say that for the last attempt we did not have the benefit of a net short position in the market. We knew that at the time, but we were at a point where there were no easy solutions.",43
-fomc-corpus,1994,"So, the intervention last time didn't meet your second criterion?",12
-fomc-corpus,1994,"I would think not, but I was one of those who supported it, so I can tell you that I had my fingers crossed; I was hoping.",31
-fomc-corpus,1994,Okay.,2
-fomc-corpus,1994,Governor LaWare.,4
-fomc-corpus,1994,"You implied in your comments that you thought there was a significant risk that if we had not intervened, the bottom would have dropped out of the dollar/yen relationship. Was there anything going on in the market that morning that indicated a disorderly market?",51
-fomc-corpus,1994,"Well, disorderly is different in one context from the risk of dropping through a trap door.",19
-fomc-corpus,1994,I understand that. But an estimate of risk is absent or is just speculation in a disorderly market or at the beginning of a disorderly market.,30
-fomc-corpus,1994,"Well, on Thursday afternoon and Friday morning of that week I was looking at an options position, which I included in my written material but did not include in the charts circulated today. I am referring to risk reversals which are two equally ""out of the money"" options--one dollar put and one dollar call. The pricing is expressed as the difference between the implied volatility of the two positions. Now, when the put is over the call in ""vols."" we express it as a minus number; when the call is bid over the put, we express it as a plus number. From my entire observation of this pricing, we have always talked about a range between -1 and +1. Thursday afternoon and then Friday morning, the dollar put was offered at 2 ""vols."" over the call. People who had never discussed options prices with me were calling me up on the phone to make sure I was aware of this pricing development that suggested that the market was about to step back and would not want to touch dollar/yen as the rate dropped down. So, that's as precise an indicator as I had; it is not the only one that I rely on in assessing market sentiment, which obviously was extraordinarily bearish.",246
-fomc-corpus,1994,President Broaddus.,5
-fomc-corpus,1994,"I had a comment rather than a question if that is in order, Mr. Chairman. I just have to say that this intervention, particularly its outcome or lack of outcome, really bothered me a lot. I think just about everybody saw it as a generally unsuccessful operation--maybe not everybody but most people. It got a lot of attention even in the Richmond papers. The headline on the front page the next day was about the failure of this operation. What concerns me is that our involvement in such a conspicuously unsuccessful operation is bound to raise questions in the public's mind about our general effectiveness as an institution, about our ability to do what we set out to do. In that sense, it could tend over time to undermine or at least weaken the credibility of our longer-term monetary policy objectives. As I see it--I think most people would agree on this--the basic problem with sterilized intervention operations like this one is that the short-term objectives of a particular operation may be perceived as inconsistent with, or at least not fully consistent with, the broader objectives of monetary policy at a point in time. I think this shows pretty conclusively that sterilized intervention operations only have lasting effects if the markets believe they are going to be backed up strongly by basic monetary policy actions. Clearly, on June 24 that expectation or that conviction was not there. Given this experience and others like it in the past, Mr. Chairman, I would respectfully recommend that to the best of our ability we avoid getting involved in these operations unless there is pretty general agreement within this Committee in a particular instance that we will back up the intervention with whatever monetary policy actions are necessary. To get that kind of agreement in any particular case would imply that at that time we would be giving short-term exchange rate objectives a dominant role or at least a lot of weight in monetary policy. With that in mind I think that we probably would not want to undertake these kinds of operations very often, which would be a good thing from my standpoint. I think the longer-term cost of operations like the one on June 24 is significant.",420
-fomc-corpus,1994,"You know, it depends really on whether we expect markets to be wholly efficient and not run periodically into some significant abnormalities that an intervention could rebalance. This is the key question. You are telling me that we should not respond to this market at all; it's the Treasury which has to be convinced of that, which they were not. If we are put in a position where we opt out of coordinating with the Treasury, I think that would do the financial system more damage. In all of these actions it has been we who have fended off recommended interventions which we thought were superfluous and potentially counterproductive. We have only gone forward when we thought there was at least a reasonable shot. Our choice is not, in my judgment, to withdraw from these discussions because the damage it could do to the financial system if we are perceived to be at loggerheads with the Treasury in this sort of arrangement, I think, would be very substantial. If you are asking me whether I personally disagree with the underlying philosophy that you were outlining, the answer is, no, I do not; I do agree. The question is what do we do about it. What we are trying to do is to make the financial system, in the context of the structure in which we have to operate, as sensible as we can make it or less nonsensible, if I can put it in double negatives.",278
-fomc-corpus,1994,"Well, I certainly respect your view, Mr. Chairman. I just hope that what I perceive as a significant cost of an outcome like this one gets factored into the equation.",36
-fomc-corpus,1994,Governor Blinder.,4
-fomc-corpus,1994,"Could I just go back to the discussion we were having a few moments ago about the more generic exchange rate policy? This may be a rookie question, but I am highly uninformed. I thought the generic policy was that we did not intervene very much but that we did intervene to correct ""disorderly markets."" This might be translated as saying we sometimes try to prick speculative bubbles; different people would translate it different ways. That is to say, it is not that we intervene only when there is a change in policy to be signaled. This basically has been the policy of the United States Treasury for a long time, and I would have thought we viewed the last operation as a continuation of that long-term policy. There was a change in rhetoric, I would admit--",155
-fomc-corpus,1994,"As the Chairman said, there were no shorts in the market; we weren't pricking anything speculative.",20
-fomc-corpus,1994,"You could argue that implicit in what you just said is an argument that the operation was doomed to fail. I don't think that was quite so obvious before the fact. But it seems to me the effort was predicated on the belief that there was a downward speculative bubble and that it was at least possible to prick it or to prevent it from getting worse. Peter suggested, contrary to the evaluation that it was a failure, which I tend to share myself, that you could look at it as a success in that the floor has not dropped out of the yen. But the main point I wanted to make was not about the specifics of the tactics but that I didn't really see that the long-term generic exchange rate policy of the United States government was as you described it.",153
-fomc-corpus,1994,Vice Chairman.,3
-fomc-corpus,1994,"I'd like to make some comments in two areas: One is on the operation itself because, like the Chairman, I was involved in the decision to do it. The previous Friday at about midday, as Peter mentioned in his prepared statement, there had been a very significant weakening of the dollar on no volume. We had what is technically the worst of all worlds: a price correction with no position correction. So we had all the people who didn't feel good about the dollar sitting there with exactly or essentially the same positions that they had at the start of the day. On the particular Friday morning when we intervened, the market had very much the same feel about it. The question, which always plagues one after an intervention as it should whether it is successful or not, is what would have happened if we had not intervened. The answer is we don't know. But the likelihood of the dollar having been considerably weaker is significant in my view. I would agree with Peter's comment that the ability of the dollar to stay in the 98ish area against the yen since that time had a relationship, perhaps the main beneficial one, with the intervention itself. Secondly, I think we should realize that the dollar's weakness is essentially against the yen. The dollar/deutschemark is about in the middle of a range within which it has been floating for some considerable number of months. So, having made the policy statement to accompany the intervention, I think people are now correctly thinking that the main thing going on in the exchange market is that we have a very strong Japanese yen and that's a very big problem for the macro economy in Japan. On the policy issue, I very strongly support the Chairman's view that it would be unwise, I think in the extreme, for the Federal Reserve to distance itself from active involvement in the decisionmaking in this area. First, as a purely technical matter, the world does not know until the next quarterly publication of our exchange market activity by Peter as the Manager for Foreign Operations whether the intervention by the U.S. monetary authorities has involved both the Treasury and the Fed or just one or just the other. So, in order to establish that we were not involved in the operation, since the Federal Reserve Bank of New York carries out intervention operations as the fiscal agent of the Treasury, we would have to make a public statement that we did not sympathize with an action by our own government. That is something which I do not think any of us would wish to do, at least I certainly would not. The ability of those of us involved in these discussions to have a very positive influence on the Treasury is considerable. They pay attention to us. I think they believe that both our knowledge of economics and of markets is considerable; we hope that belief is well-founded but the important thing is that that is what they appear to think. Therefore, we do have a considerable amount of influence on what happens. The Chairman and I have both stated that we supported the operation on that day. It does not appear to have been a success, but again we do not have a clue as to what would have happened had we not intervened.",632
-fomc-corpus,1994,President Jordan.,3
-fomc-corpus,1994,"I can agree with everything the Vice Chairman and the Chairman just said and still feel uncomfortable with this particular operation. Let me first ask Peter a follow-up question to the response he gave to Governor Lindsey about the 100 level on the yen and a floor and so on. Now, the rate is something under 99 and the market is still functioning. Is there another number that's magic?",77
-fomc-corpus,1994,"I don't think there is one that has anything approaching the magic quality or aura of the 100 level. I think that the market looks to 95.50--actually 95--as a sort of floor; this is the view of the chartists of the world. That level would represent the bottom of the dollar/yen rate going back to the early 1960s, taking the troughs over that period; people with their rulers can draw a line to there. That level has some significance for the market, but nothing approaching the significance of 100.",114
-fomc-corpus,1994,"Part of the reason I asked the question was that one of the things that troubles me is taking action because of a psychological barrier. The market participants now say, well okay, that level is not going to come back again, so as far as magic numbers--",52
-fomc-corpus,1994,"Jerry, could I just say--I think the Treasury was acutely aware that what they did not want to do was to protect the 100 level. In fact, they have often made statements to the effect that if we could close our eyes and all of a sudden readjust the number to under 100 they would feel a lot more comfortable than trying to defend that number.",76
-fomc-corpus,1994,But Peter argued it wasn't our view or even the Treasury's. Rather this was in the minds of the participants in the market.,26
-fomc-corpus,1994,That's right.,3
-fomc-corpus,1994,"That was creating this situation that forced our hand. And if it was, we might call it irrational.",21
-fomc-corpus,1994,"Well, the dollar had traded below 100 earlier in the week and that was indeed one of the reasons why we didn't operate then and why we felt somewhat more comfortable--though I think it's fair to say not greatly so--about operating at that point, having approached the 100 level for the third or fourth time. First, the rate went through that level and then it came back. And so some of the psychological aspects of operating close to 100, but above it, were removed. That does not remove the point that Peter made about possible consequences of a large adjustment below that in the absence of any actions by the monetary authorities.",128
-fomc-corpus,1994,"The dollar had traded briefly below 100 in rather discrete increments and we had all seen 99 on the screen several times; it did not stay there very long. So, it was a sort of episodic venturing below 100.",48
-fomc-corpus,1994,"Focusing on your reference to market participants, the magic number, and psychological aspects, I want to follow-up on something that Al Broaddus was referring to--the perception of success or failure. In a technical sense, it doesn't matter to me whether you sell $800 million of assets denominated in yen and deutschemarks and Joan Lovett rather mechanically buys assets denominated in U.S. dollars of the same amount in order to maintain the funds rate. So, what happens is that the Fed is just going to make the portfolio substitution. But people don't see Joan's actions; they see your actions. Suppose the perception is that our objective was to influence the rate--that we had a price objective and were trying to prevent the dollar from falling further or to cause it to rise, not trying to do something as Governor Blinder mentioned about disorderly markets. But the dollar now is not consistent with the objective. If we have a repetition of those, it makes the Federal Reserve look impotent because markets see what Peter does but they do not see what Joan does. And if we have several of those over a period, our image of being able to influence markets will be tarnished.",239
-fomc-corpus,1994,President Melzer.,4
-fomc-corpus,1994,"This is a question for either Peter or Ted. The question is whether you are concerned about the extent to which our current account deficit has been financed recently through central bank intervention and, as a practical matter, how closely we can monitor that.",48
-fomc-corpus,1994,"Well, I have some words in the Chart Show on this point. The extent to which our deficit has been financed recently by official sources is exaggerated because basically all that counts is the intervention by the major industrial countries. More than half of the financing last year, say, was by nonindustrial countries whose motives are the same as those of any other private sector investor; they don't have an exchange rate motive though they may be speculating on the exchange rate. It is not easy to track this accurately because, this is the second leading point, we don't really know why what gets recorded as official inflows are official inflows. For example, if a country moves its dollar holdings from the Euro-market to the New York market, it would show up as official financing of our current account deficit even though in some sense in a portfolio preference way and a currency dimension way, it would not be any change. So, it is very difficult to interpret all those numbers. We have lots of countries around the world that have different motivations for where they hold their assets and why they hold them there. That's about all I have to offer.",225
-fomc-corpus,1994,"If one argues that the exchange rate is affected by the proportion of the current account deficit that is financed on official account, the implication is that sterilized intervention affects the exchange rate. I would argue strongly about that because a goodly part of our official support is coming from the Japanese; they are in the market every day, just picking up $100 million, $200 million, $500 million, and I think the evidence that they are affecting the exchange rate is very dubious. It's showing up in our accounts because, to the extent that they are picking up Treasury bills and the like directly, the issue that Ted is raising is not a problem. But to the extent that they are picking up dollars in the Euro-dollar market--I don't think there is much evidence that there are a lot of Euro-dollar holdings in Japanese reserve accounts--then it appears basically in the private account, not in the government account. So, my main concern about that argument is that it gives credence to sterilized intervention as an important tool in stabilizing the exchange rate. I don't think the evidence is there. Governor Lindsey has another question.",225
-fomc-corpus,1994,"This is really for Don Kohn, but it is related to the foreign exchange operations and I wanted to pick up on a point that Bill McDonough mentioned. Suppose we had a change in price without any change in position. Let us just imagine something catastrophic--and for the recording of this meeting this is just hypothetical--suppose we had a drop to 85 in the yen, to pick a nice low round number, what would be the reaction?",92
-fomc-corpus,1994,"Joan can comment on this as well, but I think the experience of the last month or so is that the bond markets would tend to react negatively. That is, they would be concerned about one of two things: One, that the decline in the dollar/yen relationship was itself indicative of inflation expectations, and that might end up affecting the bond markets. Or, two, that in fact a very rapidly sinking dollar, given where the economy is and the strength of aggregate demand, would have inflationary implications via direct price and indirect aggregate demand channels. So, I think at least over the recent period, the decline in the dollar has had an adverse effect on bond markets. We have had periods in which the dollar has fallen and there has been no effect on bond markets, but that has occurred in the context of much more slack in the economy.",171
-fomc-corpus,1994,"There is also the implication that the dollar will continue to decline. If we get a sharp reduction and everyone thinks it is overdone, the bond market will rally.",33
-fomc-corpus,1994,"That would be my reaction, and that shows why I am not on Wall Street, Mr. Chairman.",21
-fomc-corpus,1994,I think that has happened.,6
-fomc-corpus,1994,I would think we'd have a big rally in the bond market if the dollar/yen rate suddenly went to 85.,24
-fomc-corpus,1994,How the bond market is going to respond will depend on the circumstances that caused such an abrupt change and what that does to the expectations and how long it persists.,32
-fomc-corpus,1994,"I think you would have to have a sense of how confident the market was that it would stay at 85 or whether the next stop was 75. Now, if you were confident that it was stopping there, I would agree with your hypothesis for a rally in the bond market; that would be a plausible reaction. But if the market did not have confidence it was going to stop at 85, I don't think we would get much of a rally in the bond market.",96
-fomc-corpus,1994,But that's a problem in itself.,7
-fomc-corpus,1994,"But if we have any confidence that markets can be stabilizing factors--I picked 85 because I was trying to take a worst case scenario of the dollar/yen fall and I thought 85 was so low that the rate would not get there--wouldn't we view a fall to such a level as the foundation for a rally in the bond market? I would think the answer is yes. So, I would say that if the markets want to overstep themselves and they are going to overstep themselves irrationally, why not let them?",109
-fomc-corpus,1994,"I haven't said anything about irrationality. I'd like the meeting tape to be very clear on that because I don't think people betting millions and billions of dollars are doing anything irrational. They are trying to serve their interests as they see them in the short run. That's very important to me. That's the question, though. I look at asset prices and I see that as prices go up, demand goes up in the short run and as prices go down, demand goes down in the short run. And whether the markets are stabilizing or not depends on where the short run ends and the long run begins.",120
-fomc-corpus,1994,Thank you.,3
-fomc-corpus,1994,Would somebody like to move to ratify the transactions in the foreign exchange markets?,16
-fomc-corpus,1994,Thank you!,3
-fomc-corpus,1994,So move.,3
-fomc-corpus,1994,Is there a second?,5
-fomc-corpus,1994,Second.,2
-fomc-corpus,1994,"All in favor say ""aye."" SEVERAL. Aye.",14
-fomc-corpus,1994,Opposed?,3
-fomc-corpus,1994,No.,2
-fomc-corpus,1994,"One opposed. [Secretary's note: Mr. Jordan also voted ""no"" and so informed the Chairman immediately after the end of the afternoon session. His voice vote was not heard by the Chairman or members of the Secretariat.]",45
-fomc-corpus,1994,"Shall we now move to Joan Lovett who, I hope, will be treated with slightly more upbeat questions! [Laughter]",27
-fomc-corpus,1994,"I feel I am starting on an uneventful note here, and I am. I was going to comment that reserve management was relatively uneventful over the intermeeting period. [Laughter] And I was going to go on to say that that occurred notwithstanding the huge flows in reserve markets. [Statement--see Appendix.]",66
-fomc-corpus,1994,"Questions for Joan? If not, would somebody--Governor Blinder.",14
-fomc-corpus,1994,"Since there weren't any questions about the immediate strategy, could I ask a longer-run question about the maturity structure strategy?",23
-fomc-corpus,1994,Of the System's portfolio?,6
-fomc-corpus,1994,"Yes. As I look at the report, since the last meeting I see that the System added about $5 billion in bills. And when I look at the notes and bonds, it's a sort of swap. That's the outcome for the whole six-week period as was described in the table in your report. Should I read anything into that? Or could you just talk for my benefit, as a newcomer, about the maturity structure of the System's portfolio and the Committee's policy regarding it?",98
-fomc-corpus,1994,"Let me start out by saying that when we make additions to the portfolio on a permanent basis, we usually do so when we see a protracted need to supply reserves. If we really don't see that, if it looks as if there are going to be short-term swings, we will address most of that reserve need with repurchase agreements and the like. I don't know what page of the report you have in front of you, but during the intermeeting--",92
-fomc-corpus,1994,I was looking at Roman numeral IV of your report.,11
-fomc-corpus,1994,The New York Desk report?,6
-fomc-corpus,1994,Yes.,2
-fomc-corpus,1994,"Okay. On an outright basis, the portfolio went up by $4-1/4 billion during the period. That increase reflected $3-3/4 billion of bill purchases in the market and securities purchased directly from foreign accounts that were essentially all bills. The data you see in the middle of that table partly reflect the exchange that took place at the end of last week when the refunding settled, so it's a wash; it doesn't count as an increase. It's just an exchange of notes and bonds that matured in May, not new purchases. Most of the increase in the portfolio over the intermeeting period came in Treasury bills, virtually all of it. For the year to date our holdings are up $16 billion and that has been, in some sense, almost evenly distributed between coupons and bills. We have been looking to keep the average maturity of the portfolio pretty close to the level where it was last year. We are not aiming to shorten it or to lengthen it very much. There was a view in earlier years that the portfolio should be somewhat shorter, but we reached a conclusion about a year or so ago that the amount of liquidity in the portfolio is probably appropriate for current circumstances. Basically, we try to keep it pretty much at about the 38-month average reached last year. The reason for doing the acquisitions in the bill market during this particular six-week intermeeting period was that we already had made some additions on the coupon side earlier.",292
-fomc-corpus,1994,Would somebody like to move to ratify the transactions of the Domestic Desk?,15
-fomc-corpus,1994,So move.,3
-fomc-corpus,1994,Second.,2
-fomc-corpus,1994,Without objection. Let us now move on to the Chart Show with Messrs. Prell and Truman.,21
-fomc-corpus,1994,"Thank you, Mr. Chairman. I'll give you all a second to locate the Chart package that was distributed to you. [Statement--see Appendix.]",30
-fomc-corpus,1994,[Statement--see Appendix.],6
-fomc-corpus,1994,"Revisions of individual member forecasts may be submitted to you, Mike, through when?",17
-fomc-corpus,1994,"We have tentatively indicated that next Monday, July 11, might give us ample time for completing the report and reassessing the members' forecasts.",30
-fomc-corpus,1994,Questions for Messrs. Prell or Truman?,10
-fomc-corpus,1994,"I have one. I'm not sure this is quite the right place. In the Greenbook, there was a discussion or intimation that we are starting to see more inflows into bond funds and stock funds. Could you comment a little more on that? Maybe that should be addressed to you, Don, I don't know.",65
-fomc-corpus,1994,"We had outflows from bond funds mostly in March. That situation stabilized and subsequently we had some small net inflows. Inflows to the stock mutual funds actually were quite strong. However, the data received as the Bluebook was going to press or perhaps shortly thereafter showed that in the most recent week both stock and bond funds were weaker. There were outflows in all of those accounts. But our assessment is that the initial shock of the upward movement in long-term rates and the downward movement of the stock market had their major effects--driving people out of those funds who were surprised--in the ensuing four to six weeks. Looking forward, we would expect continued flows to those funds, but at much lower levels than in 1992 and 1993 on the presumption that people have learned their lesson; they now are recognizing those are riskier assets than perhaps they thought before.",178
-fomc-corpus,1994,What about money market mutual funds?,7
-fomc-corpus,1994,"Initially, they had very large inflows in the period in which the bond funds had the outflows. But since then, they have cooled down quite substantially; their pluses match bond fund minuses reasonably well.",43
-fomc-corpus,1994,Thank you.,3
-fomc-corpus,1994,President Parry.,4
-fomc-corpus,1994,"A question for Mike and one for Ted: Mike, regarding the growth of potential output, when you look at labor force growth, is there no longer a decline in hours worked?",36
-fomc-corpus,1994,Do you mean in the longer-term trend in the workweek?,13
-fomc-corpus,1994,Yes.,2
-fomc-corpus,1994,"It's not apparently obvious in the very recent data, but our presumption is that eventually we will see that occur. In the forecast, we have the workweek shortening in the near term from its very high recent level and not changing a great deal thereafter through the forecast period. Our assumption is that perhaps there has been some interruption of the prior trend as companies may tend, particularly with fringe benefit costs being as considerable as they are and with the possibility of incurring costs to fire someone and so on, to keep the workweek a bit longer than we certainly were anticipating at the beginning of this year.",120
-fomc-corpus,1994,"So, it's not a major factor in the calculation of potential output growth?",15
-fomc-corpus,1994,It's a small factor. There are a number of small factors we have taken account of in getting from the nonfarm business sector to GDP.,28
-fomc-corpus,1994,"Ted, this isn't directly affecting the United States all that much, but I refer to your table on Chart 7 with regard to China. One of the issues, of course, for those who follow China is whether or not they are going to be successful in dealing with their economic overheating problem. I am trying to figure out from your forecast whether they in fact will succeed in controlling it. It looks to me as though they have not had great success thus far.",93
-fomc-corpus,1994,I think that's right. It's not clear how much they need to do in order to have great success. They have taken some of the bloom off but not a lot. Their expansion is running close to double-digit rates.,44
-fomc-corpus,1994,"It would be interesting, maybe not so much for this Committee, to look at the implications.",19
-fomc-corpus,1994,"I think that's one of the factors--a good point. If China were more successful, or if the cost of that success were 5 percent growth rather than 10 percent growth, the implications for Japan and the other Asian countries might not be entirely negative. There would be a risk. Definitely the Japanese will tell you, as I think I have commented in other briefings, that they consider slower growth in China to be one of the uncertainties and risks in their forecasts. So bad news for China is good news for Japan.",106
-fomc-corpus,1994,Right. Thank you.,5
-fomc-corpus,1994,President Jordan.,3
-fomc-corpus,1994,"I have a couple of questions for Mike. In your initial oral presentation, you remarked on the role of long-term interest rates at current levels in maintaining growth of real economic activity in line with the economy's potential. You might recall that we had a discussion at the May meeting about the linkages in the model of short rates to long rates to residential and nonresidential investment, measures of aggregate demand, inflation and inflation expectations. In this month's Greenbook, on page I-2 of part I relating to key assumptions, that same idea is back again. I want to see if I understand what this says. The sentence I want to focus on says that ""maintenance of adequate overall financial restraint,"" and I take that to mean long-term interest rates, ""thus seems likely to require at least some further tightening of money market conditions."" That says that the fed funds rate is the target and long-term bond yields are the indicator of the thrust of policy actions. Am I correct in interpreting this to mean that if we were to maintain the current funds rate, long-term bond yields would fall, possibly significantly?",221
-fomc-corpus,1994,"The reference to financial restraint was intended to have a broader meaning, encompassing all interest rates and also the nonrate terms of lending. As I noted in my presentation, we think that one ingredient in the current situation is a pretty substantial shift in credit availability from banks and, to some extent, other intermediaries. That, in effect, has provided perhaps over the past year some significant incremental stimulus. I wouldn't want to try to quantify it, but it has been in an expansive direction. To your specific point, there are several things one needs to consider in thinking about the long-term path. One that I referred to specifically in my remarks was the notion that there is a considerable liquidity premium, probably larger recently than it was earlier, in the term structure and that, under calmer conditions in the markets, one might expect that to diminish somewhat. It's that in particular that I was referring to as a rationale for thinking that some rise in short-term rates would be necessary. Now, getting to the broader cyclical dynamics of this, if the Fed did not tighten as assumed here under the conditions that we have perceived to be prevailing in the economy, at least two things I can think of might happen. One is that so-called credibility might be diminished if there is a broadening perception that we are behind the curve at some point and that we are not exerting anti-inflationary restraint. The inflation premium in rates might rise. The other possibility is that it comes about more automatically in that we are too stimulative, aggregate demand is stronger, pressures arise ultimately in the economy which tend to push up rates, and if we didn't tighten at that phase, then we would be getting this inflation premium generated in the rates. It's a complex issue.",349
-fomc-corpus,1994,"Well, I guess I am more puzzled than before!",11
-fomc-corpus,1994,That might qualify me for elevation to a higher level position! [Laughter],16
-fomc-corpus,1994,"But a liquidity premium can come out from either end of the yield curve, and you're trying to stay away from saying that if we don't raise the funds rate, long-term rates will fall or that the yield curve flattened from the long end because of the short rate. But at the May meeting, there was a lot of discussion about a 4-1/4 versus 4-1/2 percent funds rate, policy neutrality and all of this, and some uncertainty about that. Now, we have a much stronger statement in both the Greenbook and Bluebook that policy neutrality is 5-1/4 percent. What changed between May and now that it went from some uncertainty as to whether it is 4-1/4 or 4-1/2, and now it is 5-1/4 percent?",168
-fomc-corpus,1994,"Well, there is no greater certainty attached to the relationships in this forecast as we perceive them than there was in the prior forecast. The major changes were a result, I think, of changes primarily in so-called exogenous factors. We have a higher oil price; we have a lower dollar, with the likelihood of there being some greater pressure coming through import price channels and so on. We also have a somewhat lower unemployment rate with all the adjustments we care to make that suggest that the economy is at a somewhat higher level of resource utilization and has more of a tendency to pass these kinds of shocks through to the general inflation rate. We also had a stronger sense about this liquidity premium effect after we saw what happened when we announced our policy decision in May and the bond market rallied. We took that as confirming what we had thought was going on. All of these things led us to raise the short-term rate assumption, I'd say moderately, certainly relative to what seems to be built in in terms of market expectations, at least after 1994. We have rates peaking out at the end of this year, leveling out, whereas the market seems to anticipate further tightening. Our judgment is that this will be enough to bring about the moderation in aggregate demand that we forecast.",254
-fomc-corpus,1994,"Cathy Minehan, weren't you appointed acting president recently?",12
-fomc-corpus,1994,No.,2
-fomc-corpus,1994,When did I dream that?,6
-fomc-corpus,1994,"I think that was a reading by some newspapers of the wording in the Federal Reserve Act--in the absence of the president, the first vice president is the acting chief executive officer.",36
-fomc-corpus,1994,I call on First Vice President Minehan.,9
-fomc-corpus,1994,"My question is very much the same, and I know there's a risk in comparing a range of forecasts arrived at in very different ways with a particular or specific forecast. But just comparing the central tendency to the staff's projections next year, the staff seems to be on the low side vis-a-vis real GDP and on the high side vis-a-vis unemployment. That leads me to the question of what happened and what do we get by not tightening the full 100 basis points that you talk about in your Greenbook. Does that simply work on the inflation side or does it work elsewhere?",117
-fomc-corpus,1994,"There are two questions that you've raised. You're certainly correct that there's a symmetry here. We have a slower growth rate in 1995 than the central tendency, and we have a higher unemployment rate. I might note that we're sort of at the low end of the overall range for growth, and at the high end of the overall range for unemployment. So there's certainly a consistency here. We come out with an inflation rate well within the range. I didn't think there was a great deal here fundamentally to make a point about--",105
-fomc-corpus,1994,It's sort of a lead-in to what do we get if we don't tighten?,16
-fomc-corpus,1994,"If you don't tighten, the effects are likely to be very modest on inflation even through 1995. A difference of 100 basis points would have a fractional effect on the level of real GDP over that forecast period and a very small, almost imperceptible, effect on inflation unless we get out of this some distinctly different kind of path for long rates than we have talked about. That could throw in some additional variation in the outcome. But basically, the 100 basis point increase in the funds rate would have a rather moderate effect on inflation.",110
-fomc-corpus,1994,"I think it depends, as I indicated in my comments, on what you assume about the dollar, the reaction of other rates, and what else is going on at the same time. If the 100 basis points were to cause a several percent lower dollar, then because of the direct price effects you would get the price effects much sooner. And, of course, you'd have much stronger economic activity. On the other hand, the dollar could--for lack of a better word--""levitate.""",100
-fomc-corpus,1994,"I think the prospect would be an only slightly perceptible upward tilt to the inflation rate rather than this flat path that we have, if you simply isolated in the standard way that 100 basis point difference in the funds rate. But we also have been sensitive to these expectational considerations.",57
-fomc-corpus,1994,"The other point I would make, President Minehan, is that the Bluebook had tighter alternatives, a no change alternative, and no easier alternative.",30
-fomc-corpus,1994,Right.,2
-fomc-corpus,1994,"We ran simulations with the funds rate flat, and as Mike said, we didn't get much effect on inflation by the end of 1995, but the unemployment rate was significantly lower. Given our assumption about where the NAIRU was, we started getting an uptick in inflation by 1995 and more noticeably in 1996 and 1997. We assumed that the Committee had a strong presumption against that increase in inflation occurring, so we didn't include this alternative. Obviously, aggregate demand is also a consideration; if aggregate demand is weaker than in the staff forecast, the funds rate can stay the same. Actually, that simulation indicates lower inflation. But given the staff's aggregate demand projection and its assessment of potential, we had some significant effects in 1996 and 1997.",160
-fomc-corpus,1994,Governor Blinder.,4
-fomc-corpus,1994,"I have two questions. I had one when I put my hand up, and now I have two. The first was for Ted about the forecast for central Europe. As you well know, there was a notable feature of the OECD forecast that went out yesterday--the question of to what extent was Germany especially, and Europe generally, relying on selling to the United States to get the growth that the OECD forecast. I can't remember if yours is higher or lower because one is Q4-to-Q4 and the other is year-over-year, but this forecast has a weaker U.S. economy than the OECD forecast and it also has a lower dollar. Could you say something about to what extent the growth in Germany and central Europe is export-led in the staff's forecast?",153
-fomc-corpus,1994,"Well, two points: The answer is that it is export-led in the sense that our assumption about Germany is that net exports will be a positive factor in their growth. I think we have a little less growth overall, and a little less growth in net exports for Germany than the OECD. I know that we do for the OECD countries other than Germany. So that's the answer for the second half of that question. We are a little less optimistic than they are in that regard. They are all in the same ballpark, but they show a little more growth this year and a little more next year. And that's somewhat consistent with the fact that we have somewhat lower U.S. growth so there is less impetus coming from outside than in their forecast.",150
-fomc-corpus,1994,"Secondly, I'd just like to pick up on the question that Cathy Minehan was addressing to Mike Prell. Quantifying the difference between 100 basis points on the funds rate between now and December, and say 0 or 25 or 50 basis points or something--say 0--would I be wrong to think that the effect on the 1995 fourth-to-fourth quarter growth rate would be in the range of 1/2 percentage point?",93
-fomc-corpus,1994,"I think our model, which is reasonably interest sensitive, and with the normal rather sluggish adjustment of long rates, which would be questionable, would show less than that over the course of 1995. But your order of magnitude would not be far off.",51
-fomc-corpus,1994,Thank you.,3
-fomc-corpus,1994,Governor Lindsey.,3
-fomc-corpus,1994,"Mike, I may have misunderstood you, but when Jerry Jordan asked you why there was this 100 basis point shift in your assumption, you said that exogenous factors had changed including, for example, the price of oil. Now, this could just be another experiment. If a Mideast war broke out tomorrow and the price of oil went up $20 a barrel, would you recommend that we raise interest rates?",84
-fomc-corpus,1994,"It would depend on your objectives, short run and longer run. I think there would be a significant inflation jolt in the short run. Your policy dilemma would be to prevent that from tending to flow through into an ongoing inflation process where it had its initial price level impact but then perhaps got built into wage increases and broader inflationary expectations. You would need to raise the unemployment rate substantially above the prior level that you thought acceptable in order to get you back on what you thought was an appropriate inflation path. I think we would lay out the options in that way. I think we'd have a hard time deciding exactly what forecast design to present to you. We would probably work toward a compromise scenario that you could then assess to decide whether you wanted to be tighter or easier.",154
-fomc-corpus,1994,"Nominal GDP is unchanged in the forecast--essentially unchanged. In order to get that result--to have virtually the same nominal GDP as we had before--you are telling us we have to raise interest rates 100 basis points, and that's because of exogenous factors?",55
-fomc-corpus,1994,The nominal GDP forecast is .3 of a percent higher in 1994 and .2 percent higher in 1995.,25
-fomc-corpus,1994,I was looking at Chart 16 in the Chart Show.,12
-fomc-corpus,1994,"So, you are going back to the January forecast?",11
-fomc-corpus,1994,I see; the previous estimate is the January forecast?,11
-fomc-corpus,1994,"Yes, I am sorry; we tried to make this comparable.",13
-fomc-corpus,1994,But going back to these exogenous factors--,9
-fomc-corpus,1994,"Right. The change in our assumption from the last Greenbook is 3/4 percentage point. I regard all of this almost on the order of hair splitting given the uncertainties, but certainly we wrestled with it and it gives some meaningful indication of where we think things need to go.",58
-fomc-corpus,1994,"But it would be your view or the model's view that an exogenous shock, such as leaving monetary conditions unchanged, would raise nominal GDP?",29
-fomc-corpus,1994,Yes.,2
-fomc-corpus,1994,"If the price of oil went up, you'd have a higher nominal GDP level?",16
-fomc-corpus,1994,"If policy accommodated it. Certainly, if you held the funds rate, which is in an extremely accommodative posture in the face of that kind of shock, you would have astronomical GDP growth. But let me note, for example, that there was a footnote in the Greenbook reporting on a partial simulation of an exchange rate shock. I think it was about three times what we have in terms of the forecast change, but that's a reference point for you. I think you would see it is in general terms consistent with the kind of adjustment that we have incorporated in this forecast.",116
-fomc-corpus,1994,Thank you.,3
-fomc-corpus,1994,"I would also note that in the last Greenbook, and in my presentation, we emphasized that we thought the risks were that it was going to take higher rates than our assumption rather than lower rates. So in a sense, mentally, the adjustment isn't even quite the 3/4 percent that we made.",62
-fomc-corpus,1994,"To come back to Governor Blinder's question about the forecast for Germany, I just now recall that our outlook for year-over-year growth in Germany is almost exactly the same for 1995 as the OECD's, though in general we tend to be a smidgen weaker. However, OECD put their outlook together before they had the first-quarter numbers. My guess is they would probably have a stronger outlook, everything else being equal, just the way one averages. Now, that may be made up from the fact that they do have a bit stronger growth next year, so they average out. But it's about the same for Germany.",127
-fomc-corpus,1994,President Hoenig.,4
-fomc-corpus,1994,"I need to ask Don and Mike for a clarification. When you were answering questions earlier about the fact that you assumed a higher short-term rate, Don, you said that in terms of aggregate demand you had different alternatives including maintaining the same rate or changing the rate. What were some of the factors that went into the picture? As you have it here, the staff forecast must presume a fairly strong growth rate without this increase in short-term rates. What were the factors in terms of your aggregate demand forecast that you considered in making this assumption of a higher rate?",112
-fomc-corpus,1994,Are you talking about the alternative simulation in the Bluebook or simply why we raised the assumption in the Greenbook forecast?,24
-fomc-corpus,1994,Why you raised the assumption.,6
-fomc-corpus,1994,"Well, as I said, I think the major consideration was how we could in essence cap the inflation rate close to where it has been in the face of these shocks. Implicitly, also, I think we probably have incorporated a sense of a little stronger underlying aggregate demand. We're not talking about a vast difference, but the real GDP path in this forecast is little changed from that in the last forecast.",82
-fomc-corpus,1994,And that's taking into account in your model the effects of the moves to this point?,17
-fomc-corpus,1994,That's right.,3
-fomc-corpus,1994,And so you still see continued stronger growth?,9
-fomc-corpus,1994,"Basically what we have here with the dollar depreciation and the stronger growth abroad is more impetus coming through the external sector, which we have essentially offset through higher interest rate effects on domestic demand. That's the simple version of the story here.",46
-fomc-corpus,1994,Thank you.,3
-fomc-corpus,1994,Vice Chairman.,3
-fomc-corpus,1994,"I have a question for Mike as well. In preparing for this meeting, we had the research staff at New York play the game of what would be the result of various tightenings. In the model that we used, which is partially in our heads, we got about the same result from a 50 basis point tightening that you get from the 100 basis point tightening, and a fair bit more, i.e., a much weaker economy from 100 basis points. Do I assume correctly that the policy point is not so much that policy will have to be firmed by 100 basis points, but that policy will definitely have to be, to pick an adverb, substantially firmed in order to avoid the inflationary result that you are convinced the Committee would not wish to see?",158
-fomc-corpus,1994,"You've served up such a softball here, I hate to reject it at all, but I am not sure whether in the greater cyclical scheme of things, I'd call 50 basis points or even a 100 basis points substantial. Now, we're not talking about throwing the economy into recession, but looking back over time, I think, we have seen that it has frequently taken very large movements in short-term rates to achieve a major change in the direction of aggregate demand. The other point I'd make is that, yes, the signal we hoped to convey was some degree of conviction. I wouldn't say definitely we're going to need to tighten, but we have some conviction that a significant movement in that direction was probably going to be needed to achieve the kind of outcome that we're talking about. I must say I am a little surprised and quite interested in the results that you described from your staff's work because the numbers that we have been citing come from a model that tends to be one of the most highly interest-sensitive that we can find. And so to get the result that you characterize is a bit surprising to me. There may be a lot of other add factors and so on that are going on in this exercise.",242
-fomc-corpus,1994,Who would like to start our Committee discussion? President Keehn.,13
-fomc-corpus,1994,"Thank you, Mr. Chairman. Our 1994 forecast is so close to that of the staff that it's hardly worth mentioning the difference here. In some respects, we get there in a different way. Nonetheless, the 1994 results are the same. For 1995, though, there is a greater discrepancy. Our outlook is somewhat stronger for GDP and just a bit lower for inflation. Therefore, we have not built into our forecast the policy tightening that we have just been talking about. I think fundamentally these differences perhaps reflect our view that potential growth is a little higher than the Board staff's. With regard to the District, overall conditions are largely unchanged from the past meeting or two. The Midwest economy is continuing to operate at what I think is a comparatively strong pace. The auto business continues to be good, and I think the recent reductions in sales in April and May had more to do with capacity constraints than any significant change in consumer attitudes. The auto industry sales expectations for the third quarter are comparatively strong, with domestic production schedules set at some 18 percent over last year. Since retail inventories are very low, I think at this point the downside risk in this production schedule is very limited. Of course, all the industries that are serving the auto sector such as steel continue to experience very strong operations. What's true for the auto sector, I think, is true for manufacturing in general; there are not many soft spots in our District in that sector. The forecasts of sales for heavy trucks have not increased since the last meeting. At this point, the manufacturers are dealing with capacity constraints, and lead times for delivery of the large, heavy trucks have been stretched out. The delivery times for heavy trucks in general have stretched out even more out--to July 1995. In the home appliance business in April shipments were at record levels; and sales of agricultural equipment, another part of our economy that's important, are likewise at high levels. Despite the strong results in the manufacturing sector, I think there are some signs of moderation and slower growth in other parts of the District economy. who runs the trucking company reports that there has been a downward shift in the rate of increase in shipments. But this downward shift is from the very, very high levels the trucking industry has been experiencing. He says it is particularly apparent in shipments to retailers in general and for paper products. Also, the retailers I talked to are seeing signs of moderation. In looking back over the last few months, there seems to have been some kind of a shift. People I talk to are not sure whether it is because of the higher interest rates or the result of high income tax payments. Nonetheless, I think there clearly has been some moderation in the retail sector from the high levels earlier in the year. On the price front, I do sense some pressures, though nothing dramatic. But after a protracted period when manufacturers were able to push their suppliers to reduce prices, they are, as one company put it, approaching payback time, and we hear of more price increases. There are also some upward pressures on wages. The trucker that I just mentioned has reported an extreme shortage of truck drivers. To deal with that, has granted an 8 percent increase in wages. Another manufacturer I talked to who has a multiplicity of contracts they are renewing says the terms are a little higher, at least, than in the past. With tight labor conditions, we have to worry that at some point these are going to be translate into higher labor costs. So our outlook for inflation, while still positive--indeed it is a little lower than the staff forecast--suggests that there are some worrisome signs out there that we need to keep our eye on. Finally, in the ag sector, growing conditions for the grain crops continue to be favorable. Planted acreage in the District this year is 3 percent higher than last year. As of the end of June, the corn crop was described as excellent. That obviously is a very significant improvement over what we were experiencing last year. There is, of course, a long, long time from now to harvest, and we're at a critical point in the growing cycle. But with a reasonable break in the weather the crop production should be pretty good. And grain prices, which certainly have been terribly weak over the last several weeks, are likely to be restrained and ought not to be a significant cause of inflation.",890
-fomc-corpus,1994,President Parry.,4
-fomc-corpus,1994,"Mr. Chairman, the economy in the Twelfth District is continuing the trends noted in the last few meetings with weakness persisting in California and Hawaii and strength elsewhere. The situation in California has changed very little. Employment growth has been weak through May, rising at an average annual rate of about 0.4 percent since employment hit its trough in December. Most forecasters expect this very weak recovery to continue, with service employment gains slightly outpacing losses in the manufacturing area through the remainder of 1994. Turning to the rest of the District, conditions range from good to very good. Washington and Alaska have reported employment gains of 1.6 and 2.4 percent respectively over the last year. Moreover, Boeing's announced layoffs are nearing completion, which will help the Seattle economy since a major negative for a long period will no longer be present. However, Alaska is facing an uncertain future largely because of a long-term decline in oil production. The rest of the District is very strong. Nevada, Utah, and Idaho are the three fastest growing states in the nation in terms of employment. Arizona and Oregon also report rapid employment growth. Construction remains at a high level in these states, although activity has leveled off a bit in both Idaho and Nevada. Turning to the national economy, my outlook differs somewhat from that of the Greenbook in a couple of respects. First, I would not be surprised to see the economy slow somewhat more in the latter half of this year than shown in the Greenbook forecast as a result of the tightening moves that have been made so far. I would then expect a little more strength than the Greenbook implies for 1995, although the outcome clearly depends on future policy actions. Second, I have been impressed pleasantly by recent inflation results and certainly impressed by recent data on employee compensation costs. Even after considering the lower dollar and higher oil prices, I think it's possible that CPI inflation will come in at or even a little below 3 percent for the next year and a half. I do, however, think that most if not all of the slack in the economy probably has been used up and that the longer-term inflation outlook is a significant concern. Thank you, Mr. Chairman.",447
-fomc-corpus,1994,President Boehne.,5
-fomc-corpus,1994,"The Philadelphia District economy is growing at a moderate pace, although still less than the nation as a whole. The expansion is generally broad-based, geographically and across sectors. Some slowing, however, is occurring in the pace of growth. Consumer spending is still leading the way, particularly in areas of home furnishings and autos. Retailers remain guardedly optimistic about the outlook, but a number have trimmed their projections for the rest of the year. Much the same can be said for manufacturing. Orders and shipments are positive, but a number of manufacturers see less growth during the second half. Realtors generally report that home sales remain good, especially for low- and mid-priced homes. Some builders, however, report slowing in the pace of new construction. Concern about rising mortgage rates has damped their enthusiasm somewhat. Commercial real estate markets remain soft; the prospects are better in suburban areas for next year and beyond. In Philadelphia, there is still a markdown of some less than top-grade space. Sentiment in the District overall is positive, but a little less so than when we met six weeks ago. Most business people believe the pace of growth will be positive, but slower during the months ahead. It's the ""but slower"" part that makes them a bit uneasy. How much slower and the impact on the bottom line make them just a touch nervous. Consumer sentiment is positive as the job market improves. With few exceptions, however, wage pressures are well contained in the District. High visibility layoffs still cast a cautioning note on people's feelings, though, about the job market. Price pressures appear to be contained. There is more talk of rising input prices, but most people still feel it's quite difficult to pass on those increases, although I am certain businesses would if they could. Turning to the national economy, there is clear evidence from the consumer sector, labor markets, and the industrial sector that points toward a slowing from the rapid pace earlier in the year. The Greenbook forecasts are reasonable estimates in my judgment of how things will turn out. Nonetheless, we should be naturally skeptical of any forecast. We are in a transition from a higher growth rate to a lower growth rate. And we have to monitor incoming data closely as a reality check on the magnitude of this adjustment. We could easily underestimate or overestimate the extent and smoothness of the adjustment for a whole range of reasons. Likewise, we are in an especially sensitive period on the inflation front. We have come too far in the disinflationary process to reverse course at this point. At the same time, we do need a lengthy period of sustainable growth. These objectives are compatible, but the margin of error for policy is sufficiently narrow as to require a close reality check on incoming information about capacity constraints and demand pressures.",553
-fomc-corpus,1994,President Forrestal.,4
-fomc-corpus,1994,"Mr. Chairman, growth in the Atlanta District continues to be quite positive, although we are seeing some moderation, and I think our growth rate is now moving closer to that in the nation as a whole. The exception to this is the State of Georgia where strong in-migration and the beginning of preparations for the Olympics are having a very noticeable spurring effect on the expansion. We are seeing some price pressures, but they are concentrated primarily in the construction area, although manufacturers are also experiencing pressures in the cost of commodity inputs and they expect these to continue. But they tell us at the same time that they are not able to pass these price pressures through to the final consumer. We are seeing some wage pressures also in the construction area, and that pressure comes from the shortage of skilled workers in that industry. Retailers in the District were disappointed by their performance in May, and they experienced some undesirable buildup in inventories. Activity apparently picked up in June, but they are indicating downward revisions to expectations of sales in the future. Trucking firms are also reporting that shipments to retailers have slowed by more than they had expected. Automobile sales are a little difficult to interpret. They have remained fairly slow during the second quarter, but low inventories of popular models seem to be cited as the reason for this slowness. But unlike the expectations of retailers generally, car and truck dealers expect 1994 to be better than 1993. Tourism and business travel are mixed around the District. We don't yet have the results of our manufacturing survey for June. We did see a pickup in production in May, and the share of firms expecting increases over the next six months also rose. In the area of capital spending, I think it's interesting to note that a number of industries in the District have recently announced plans to expand or to upgrade their facilities. In the energy area, the rig count in Louisiana declined a bit in May, but it's still well above the level that we saw a year ago. Spot and futures prices for natural gas remain above the level needed to encourage additional activity. In the housing sector, rising mortgage rates are having an impact on the residential market. Demand for new homes is described as strong, but here again the pace is moderating and permits have tapered off from the very high levels that we had earlier in the year. Multifamily building, as Mike reported for the nation and it's also reported in the Greenbook, is strong in many areas of the District and this is expected to continue. Commercial real estate markets are beginning to improve; slow and steady gains are expected in the future in this area as well. Financing is not particularly easy to obtain in this area, but it is more available than it has been in the last few years. With respect to overall loan demand, it's about flat in the District. Of course, as in most parts of the country, residential mortgage refinancings have pretty much dried up. The general sentiment, I think, among people in the District is very positive in the context of the good growth that we are experiencing. There is very little apprehension about inflation, notwithstanding the price pressures in construction and the wage pressures. But interestingly, I have had no complaints from business people about our policy actions over the last four months. Looking at the national economy, our forecast follows a pattern that's similar to the one in the Greenbook. On balance, I think we see somewhat stronger growth, although we have a smaller rise in the federal funds rate than is assumed in the Greenbook. Our outlook for inflation is a little less sanguine than the Greenbook's. We see some deterioration in inflation toward the end of the forecast horizon, but it gets a little better as we look further out into 1996. The principal uncertainty that I have is the outlook for consumer spending. Are we going to see it sustained? It seems to me that the consumer is building up a good deal of debt, and there is a question of how long people can continue to spend, given this deterioration in their balance sheets. I think we have an interesting period ahead of us, Mr. Chairman, and I see the risks as evenly balanced between the up side and the down side, although I think the inflation outlook is not terribly good as I look further out over the forecast horizon.",862
-fomc-corpus,1994,President Hoenig.,4
-fomc-corpus,1994,"Thank you, Mr. Chairman. The Tenth District continues to grow at a very good pace. Some early signs of price pressures have emerged and we have reports of high prices and short supplies of some construction materials and scattered reports of labor shortages in the District. Also, we continue to hear of some increases in land prices; right now our land prices seem to be rising year-over-year at about twice the CPI rate of inflation. At least to date, we do not see any upward pressure on consumer prices in the region. Construction activity and especially residential construction are vigorous. Manufacturing continues to rebound and we see growth shifting from nondurables to durables manufacturing with emphasis on autos and airplanes. Higher oil prices have boosted drilling activity only a little in the District. District crops are generally in good shape. Of course, we have seen a sharp drop in cattle prices, and that has triggered some significant losses to some of our producers in the cattle industry. Looking ahead, we think the District economy should remain strong on the whole. A rise in construction activity is anticipated, although residential construction is expected to level off during the remainder of the year. We also think a strong national economy should maintain a rebound in manufacturing. The outlook for firmer oil prices still points to only modest gains for the energy industry in the District. As one of our directors pointed out, that industry is affected by so many different factors that they are very cautious in terms of going ahead with energy exploration. Losses in the cattle industry, we think, will drag down our farm incomes this year despite the good outlook for crops. On the national outlook, incorporating the latest first-quarter revisions, we expect that real GDP will be just slightly over 3 percent for 1994, assuming an unchanged monetary policy. Economic growth is projected to slow in the second half of the year as past increases in interest rates begin to affect, or continue to affect, interest-sensitive spending. Nevertheless, we think growth should remain slightly above potential in the second half, and as a result we expect overall CPI inflation to rise to around 3 percent on the year for 1994 and to continue at that rate in 1995. Thank you.",439
-fomc-corpus,1994,"Mr. Chairman, may I just follow-up on something I said to Governor Lindsey earlier, which may not have been the perfectly good answer, as President Hoenig's remark about oil prices and production reminds me. Obviously, with the higher oil price, we could get some stimulus to domestic production that could be positive. The other side is that to the extent that we are importing all of this oil, we have the so-called tax plus the shift in income, even to domestic owners of oil, from consumers which leaves a damping effect. How we come out on nominal GDP, I think, is a very tricky empirical issue here. But our simulations would still suggest that, if you wanted to avoid the blip in inflation, you would have to add restraint even beyond what you would get just automatically from this oil tax as it were, in order to have enough slack to even out all of that impulse on the price side.",185
-fomc-corpus,1994,The inflation blip but not the nominal GDP blip?,12
-fomc-corpus,1994,"On nominal GDP, it could be a wash and certainly we have simulations that could produce that result.",20
-fomc-corpus,1994,First Vice President Minehan.,6
-fomc-corpus,1994,"Mr. Chairman, New England continues to recover, with employment about 1/3 the way back to pre-recession levels. Nonfarm payroll jobs have expanded over a year ago in all six New England states, with the regional total growing only slightly below the rate for the nation as a whole. May unemployment rates in all six states were below year-earlier levels, disregarding the measurement change. Jobless rates in four of the six states were below the national rate. Among the six, Massachusetts and New Hampshire were better, and Connecticut is bumping along the bottom in employment growth over the year. Business sentiment is generally positive, according to several local indices as well as anecdotal reports. The region's job growth is concentrated in services. Employment in manufacturing has leveled out in recent months, following almost a decade of shrinkage. Producers of automotive parts, computer components, residential construction materials, industrial machinery, and replacement parts report strong sales. The price picture is reasonably favorable. Manufacturers continue to say they are unable to raise prices except in the area of consumer nondurables. While some of their own costs of materials are rising, businesses have been able to reduce other costs by pruning workforces or introducing other efficiencies. With respect to the national outlook, our current view is generally consistent with the Greenbook's for 1994. We were glad to see the staff's reassessment of the NAIRU, since it brings them much closer to our own assessment. However, we continue to be a little more optimistic about potential GDP. In 1995, we see growth rates a little stronger with the same levels of inflation and slightly lower levels of unemployment. All of this, of course, depends on the definition of the appropriate monetary policy, and ours is slightly less restrictive than the Greenbook's.",363
-fomc-corpus,1994,President Melzer.,4
-fomc-corpus,1994,"With respect to our projections for 1994, we have somewhat higher rates of nominal GDP growth and inflation than the central tendency, but for 1995 we have significant further acceleration in inflation--considerably more than other members' forecasts that I have seen. Basically, I would attribute that to our view of the lagged effects of an increasingly accommodative monetary policy, roughly in the period 1991 to 1993. That degree of accommodation has been manifested in a number of ways. One way I would cite is--I have mentioned this before--that base money over that period was up approximately $100 billion, and that in turn provided the basis for growth in the stock of M1 by more than 1/3 over that period of time. I thought it was quite interesting in Joan's report that she indicated that, even though we perceive that we have tightened, we have purchased $16 billion of securities this year, so in 1994 we are essentially on the same $100 billion per 3-year pace of additions to base money. With respect to national economic conditions, conceptually I think what has been going on is that we have seen the more rapid growth in nominal GDP reflected in strong growth in output and employment rather than rising prices and wages. Even though there has been some slowing in output and employment, in my view the economy is still growing at an unsustainably high rate. In that regard I would cite just two examples. Industrial production, which has slowed down, has still been growing at a 3.9 percent annual rate since February, and payroll employment has been growing at about a 3.4 percent annual rate over the same period. I find that information particularly troubling against the backdrop of capacity utilization at a relatively high level of 83-1/2 percent, which is up 3 percentage points in the last year. The civilian unemployment rate is down 1-1/2 percentage points over the same period to a relatively low 6 percent. I might also note that the level of unfilled orders as indicated in Part II of the Greenbook has risen quite substantially over the last year. So my view would be that our focus should be on the prospect of rising inflation at this juncture, not on growth which is slowing from unsustainably high levels. With respect to the District, economic activity in the Eighth District also has expanded rapidly in recent months. We have had many firms report expansions, additions to payroll, and increases to sales. Major auto producers in the District plan to boost production significantly in the third quarter, in line with announcements for national production increases. Loan demand continues to grow rapidly, and favorable crop conditions are reported. We hear more frequent reports of difficulties in finding labor. Two of the examples that I have heard in the District would be skilled construction workers, which Bob Forrestal also mentioned, and truck drivers, which has been mentioned by someone else. There are also reports of growing delays in deliveries of materials. District civilian employment growth has outpaced that of the nation in recent months. As a result, our measure of the District's unemployment rate, which we base on a proxy of four principal states in our region, has fallen to 4.8 percent in April from an earlier high of 6.9 percent in October 1991. This is the lowest level registered in almost 20 years. The District's real estate sector remains very strong, with robust home sales. The inventory of houses for sale is unusually low in many areas, and this is adding to price pressures. Finally, let me make a couple of comments about inflation. I was certainly more comfortable last year when the broad measures of prices were showing annual rates of increase of 1 to 2 percent. But even then, as I think I expressed at the time, I was worried about the stance of policy and its likely implications for future inflation. In the meantime, most inflation measures, as we all know, have accelerated, including broad inflation measures. Just to cite an example, since September the CPI has risen at a 2.7 percent annual rate, up from the 1.8 percent registered from April to September 1993, and similar patterns obtain for other broad measures of prices. In addition, some narrower price measures are moving up even more sharply. For example, in the latest four months, both the PCE deflator and the capital equipment component of producer prices were up at about 3.8 percent annual rates. This information, taken together with recent data on sensitive industrial materials prices and oil prices, makes me very uneasy about the possible path of future inflation. I think the risks are very clearly in that direction.",946
-fomc-corpus,1994,President McTeer.,5
-fomc-corpus,1994,"I want to add my own two cents worth to the Lindsey question about the spike in oil prices and to what extent it should lead to an increase in the fed funds rate. To me that points out the need for a good reliable monetary aggregate. Then we could say we would not change it; we would stick with it and let the market answer that question. On the national economy, our expectations are very consistent with the staff's forecast both for 1994 and for 1995. In the Dallas District, we have seen some slowing in the pace of economic growth over the past two months compared to the two months before that. Much of the slowing was concentrated in the interest-sensitive sectors such as construction and construction-related manufacturing. Interestingly, many of the same sectors were suffering from capacity constraints, so monetary policy does seem to be exerting some impact where that impact is most needed. Sentiment has shifted slightly from accelerating economic activity to continued moderate growth. In our recent surveys, fewer firms than previously are reporting a pickup in price and wage pressures and an increasing number of firms are reporting that they do not expect prices to increase in the short run. Competition remains pretty fierce, particularly at the retail level. Capacity constraints are limiting output gains in brick, cement, glass, and structural steel in spite of efforts to boost capacity over the past year. Semiconductor and computer equipment manufacturers are building large, new factories in Texas, but they still have growing backlogs. A truck manufacturer outside Dallas reported that he was operating at full capacity and expecting to continue doing so for at least another year given his orders flow. These industries experiencing capacity limitations represent about 23 percent of our District's manufacturing output but only about 4 percent of total output. On the trade with Mexico and NAFTA, the situation is a little confusing. If you visit our border cities, you get the impression that the favorable impact NAFTA previously had on retail sales in those cities is somewhat weaker. But what they can see involving trade between the two countries is much more positive. The anecdotal evidence suggests that the backup in truck traffic is longer going south than it is going north, but that doesn't accord with the figures, which I believe show that imports have gone up 20 percent in the first quarter compared to a year ago, while exports have gone up only about 13 percent.",469
-fomc-corpus,1994,President Broaddus.,5
-fomc-corpus,1994,"Mr. Chairman, for some time I have been talking about strength in our District. Perhaps I am too sensitive to reports I hear of economic strength, but the recent reports we have gotten from our business contacts and the surveys we conduct suggest to me that, overall, the District economy is still strong. A couple of examples: shipments of manufactured goods and new orders at factories are still rising; tourism, especially at the Carolina coastal resorts--places like Myrtle Beach--is exceptionally robust; we have reports of record bookings at a lot of these places. With respect to commercial construction, both retail and office vacancy rates have been declining, and as a result we are seeing for the first time in some time some speculative commercial construction. We also have seen some scattered reports of labor shortages in parts of the District--not a whole lot, but a few. We do see some signs of moderation in our District, as has been reported for other Districts. Car sales seem to be slower and residential construction activity may have moderated a little recently. In explaining that slowing, our contacts cite demand factors and to some extent higher interest rates and higher income taxes. But they also cite supply factors as has been the case in some other reports--low car dealer inventories and shortages of skilled housing subcontractors, something mentioned by a couple of people. Men are working seven days a week in places like Raleigh-Durham, and they are getting a $1,000 bonus if they move to new jobs. With respect to the national economy, our projections are very close to the Greenbook for both 1994 and 1995. Like the staff's, they are predicated on the assumption that this Committee will take additional near-term policy actions necessary to contain inflation. Even with that assumption, our view is that the risks in the projection are on the up side--pretty clearly so from our standpoint for the remainder of 1994. My view would be, and I think my staff's view would be, that policy was pretty accommodative and stimulative at least through the first quarter of this year. We think that will tend to bolster aggregate demand, at least through the end of 1994. It would not surprise me at all if we got a nominal GDP growth rate for the second half of the year that is a good deal higher than the 5 percent annual rate projected in the Greenbook. In any case, what is key in my mind is not so much the exactness of our projections quarter-by-quarter for the next several quarters but rather the accuracy of our assumption that we will take necessary action to keep the inflation rate from trending upward in 1995 and thereafter. The unemployment rate has already fallen to the bottom of the range of current estimates of the natural rate, which is a situation that concerns me. I have a lot of sympathy with Tom Melzer's comments on this. I am certainly concerned about the possibility that inflation pressures will now begin to intensify. We are hearing more comments, more concern about price pressures, especially supply prices in our District. And as far as I am concerned, these pressure showed up pretty dramatically in the latest purchasing managers' report. That report showed the percentage of respondents reporting higher prices as 48 percent, which was about double what it was three months ago.",661
-fomc-corpus,1994,Wasn't it higher because of the oil price increase?,11
-fomc-corpus,1994,"That could be. In any case, it was a significant jump, and I think that's something we need to keep in mind.",26
-fomc-corpus,1994,President Stern.,3
-fomc-corpus,1994,"Thank you, Mr. Chairman. The District economy remains in very good shape, and most of the indicators suggest that that may continue for some time, perhaps for an extended period of time. Employment gains have remained sizable; job availability is good. There are some shortages of labor--in construction trades clearly--as has been mentioned. Despite this healthy economy having been in place for quite some time, there really are no widespread signs of building wage and price pressures. Interestingly enough, the one place one can find wage pressures without looking too hard is in the entry-level jobs. Firms have said they have had to raise starting wages in order to attract and retain people; otherwise, they move on pretty quickly as soon as there is an opening at the next wage level across the street. Much of the agricultural sector of the District is in good shape, although the livestock and dairy industries are having a very difficult year because prices have declined. We recently had a meeting of our Advisory Council on Small Business, Agriculture, and Labor. The members were generally upbeat along the lines I have been describing, although they did suggest that there was a note of caution in the air as a consequence of the increase in interest rates. But it didn't seem to have translated into any changes in plans or intentions or in what they were seeing in their businesses as yet. With regard to the national economy, my own view is that we might get a little more real growth and a little more inflation than is depicted in the Greenbook, but I don't view those differences as significant. If I take a step back, my sense of things is--and maybe I am a little too sanguine or am overly influenced by what has been happening in the District for a long time--that we are on a path that we may well stay on for some period of time, that is, moderate growth and moderate inflation. I personally have been surprised, given the performance of the economy over the last couple of years and given the diminution of unemployed workers and of unused capacity in manufacturing and elsewhere, that we have not seen more wage and price pressures. I have asked myself about that development or lack of that development as it were, and I have tentatively concluded that perhaps the economy is a little less inflation prone than I thought earlier. In any event, my sense is that we may remain on the path we are on for some time.",477
-fomc-corpus,1994,Vice Chairman.,3
-fomc-corpus,1994,"Mr. Chairman, the economy in the New York District continued to advance at a moderate pace in late spring. Unemployment rates fell and payroll employment rose. State tax collections for retail sales, personal income, and corporate franchises have risen moderately so far this year, suggesting growth in the underlying streams of personal income, corporate income, and retail sales. Vacancy rates for commercial office space continue to decline in most metropolitan areas, while permits for residential construction of new, single-family homes have snapped back from the weather-reduced lows of the first quarter. For New York City, however, several recent economic indicators, including establishment employment, city government payrolls, and initial claims for unemployment insurance suggest that an economic pause may be developing. The financial sector, needless to say, is not having quite the happy experience that it had in the first half of 1993. On an overall basis, the District economy maintains a reasonable pace, although we still compare rather poorly with most areas of the country. Our forecast on the national level is that, even given an unchanged monetary policy, real GDP growth will gradually taper off from the roughly 3-1/4 percent rate in the first half of this year to around 3 percent in the second half and about 2-1/2 percent in 1995. We think that slowing growth is likely the lagged result of the run-up in long-term interest rates. The forecast is a bit softer on growth than the one we prepared for the last meeting and it reflects the 50 basis point increase in the funds rate at that time and a slightly higher path of long-term interest rates than we had anticipated. We think this increase in long-term interest rates will particularly affect housing and related elements of consumer spending, such as furniture and appliances. Indeed, available evidence suggests that single-family housing starts may have begun to slow, although how convincing those data are remains to be seen. We think that higher rates should also affect motor vehicle sales and perhaps slow down capital spending. That forecast would put us rather along the lines that Gary Stern suggests. Our problem is that we think the risks to our forecast are asymmetric. There is not much risk of the economy being less strong, but there is a major risk that we are underestimating the upward momentum in both real output and inflation. The housing market could recover later this year when households adjust to higher interest rates, while export demand could pick up strongly with a decline in the dollar and overseas recoveries. Therefore, we think it is very important at the present time to watch very carefully the real economic data coming through to see whether the rather benign path that is possible is in fact taking place or whether the stronger growth, which we think is the likely alternative, would indicate that rather strong policy moves will be required.",559
-fomc-corpus,1994,President Jordan.,3
-fomc-corpus,1994,"I can comment on a number of things in the District that might add to what has been said so far. Generally, people feel that the District economy is stronger than before and better than some people were projecting earlier. I have no conviction at all as to whether this is even a coincident indicator, let alone a leading indicator. A regular recently completed quarterly survey of almost 500 businesses in the District indicated that 42 percent of the companies expect to hire full-time permanent workers this year versus 33 percent when that survey was previously taken; 43 percent now said they are going to increase capital outlays; 37 percent said that earlier. Energy used by the industrial sector is said to be booming by one of our companies, up very sharply in the first half. Some segments like cement are up 35 percent, while nonresidential construction is flat. Overall, residential activity is up in the District, and we continue to hear anecdotal comments about shortages of skilled workers and certain kinds of supplies. My contacts tell me that lumber prices appeared to have stabilized, but copper is so volatile that builders can't get firm bids on electrical work for future projects. Various aspects of communications are quite strong. Firms in the Pittsburgh, Cincinnati, and Lexington areas claim to be operating at capacity levels and increasing employment. One director referred to explosive growth in the high-tech area. Throughout the District, though, medical care is down, and that's a big segment of the Pittsburgh area economy; it's large but relatively not as large in Cincinnati, Columbus, and Cleveland. Our contacts in medical care all say that they are shrinking their payrolls. That was really the only sector that was cited as being weak. Interestingly, contacts in eastern and central Kentucky say that conditions are the best in over a decade, and they're talking about planning to do away with coal dependency and produce other things, especially wood products given the problems in the Northwest, and interestingly poultry. Western Ohio and Indiana have done so well on poultry that Kentucky people have decided to enter into the glut of chickens, eggs, and turkeys. We visited a Toyota plant outside Lexington, in the Georgetown area. They are going to add a new model to their production line. They employ 5,200 workers now and are going to add another 800 by year-end. They say their biggest problem is that the workers have to commute 1-1/2 to 2 hours to the plant because there simply is no housing and no schooling in and around the Lexington area close to where they work. Also in the Lexington area, people say that apparel is booming, that it's easy to raise prices, and that several thousand workers have been recalled. There were a lot of reports of price increases in the District. I don't have any sense that they have anything to do with inflation, but still people talk about prices going up. The coating business people said that their backlog is at an all-time high and getting even longer. They have seven-day, 24-hour operations for the first time ever, and they put through chemical price increases on intermediate products of up to 9 percent on July 1. The strike at Allegheny Ludlum that I reported on before has ended. They settled on a package of four years with a total increase increase in compensation of 11 percent plus profit sharing. The manager said he is running his operations quickly back almost to capacity. Demand for his products, both domestic and foreign, is very strong. He said exports of specialty steel to China, India, and Poland are growing very rapidly. He was looking for price increases of anywhere from 5 to 9 percent for the balance of this year. He complains about the rules that give the government veto power over his business. Plastics also are reported to be the strongest in six to seven years, with record orders especially for equipment for plastic manufacturing. That applies mostly to plastics used for medical supplies and appliances. They also are talking about their ability to raise prices later on. I got contrasting reports from auto parts suppliers. One supplier, representing a huge company that operates worldwide, was berating me because he said that I didn't understand that it was global capacity that was preventing increases in the prices of their products. Another almost as large company said it was very easy to raise prices sharply because of the level of the dollar and the related fact that domestic auto companies and transplants were regaining domestic market share. He was talking about his need to pass through higher input prices--chemicals, metals, etc. He thought he could do it; other contacts thought he couldn't. On the national outlook and the Greenbook, I had a lot of problems with the inflation projection--I guess this spills over into the Bluebook discussion for tomorrow--that the 3 or 3.1 percent inflation rate in the staff forecast continues into the next millennium because it seems to me that the basic model is consistent with a constant rate of inflation. That sort of analysis says that whatever the rate of inflation is at the time the economy hits the NAIRU, that is then the inflation rate we live with forever unless we are willing to cause unemployment by raising interest rates. To me the projected inflation numbers that we are looking at--whether or not they reflect reliable model results--should be unacceptable to this Committee if we are going to maintain the wording in the directive that our objective is to move toward price stability. When I submitted my projections for 1994 and 1995, I took literally the instruction that they should be based on what would be an appropriate monetary policy. It seems to me that an appropriate monetary policy objective should be one that leads to a lower rate of inflation. And so that's what I submitted.",1146
-fomc-corpus,1994,Governor Lindsey.,3
-fomc-corpus,1994,"Mr. Chairman, this economy sounds as good as it gets. But before we all start feeling too good, I thought I would report on something that I have not mentioned for a little over a year--it won't make us feel good--and that's health care. There are four Congressional committees considering the health care bill, and I thought I would share with you some of the economics that are implicit in that legislation. It looks like the direction in which it is moving has some kind of subsidy for moderate income families. If we think about it, that's a very natural path that we should applaud. The catch is that when the subsidy is phased down as family income rises, it is no different than imposing a tax, at least in terms of the side effects. The numbers involved are impressive. The CBO has scored the Clinton plan for a family as worth $7,000. So, say we phase down the $7,000 subsidy over a range of $20,000 or something like that; that is a 35 percent marginal tax rate. The chances are that something that generous will not pass. So, I scaled back the Clinton plan by about 30 percent to a 1994 cost of $4,800. For a family, these numbers are very much in line with what Senator Cooper has proposed and what Senator Moynihan got through his Committee. For a family of three, the health care bill would add 27 percent to the marginal tax rate. So on top of a 15 percent federal income tax, 7.65 percent social security and FICA taxes, state and local income taxes, plus the phaseout of the earned income tax credit, a single mother supporting two kids would be in a 75.7 percent marginal tax rate bracket for income from about $14,000 to about $34,000. I know our staff's model doesn't take marginal tax rates into account directly, even 75 percent ones, but that would seem to have some serious effects, especially to me. For larger families, the phasedown range is wider and the effects are more modest. Assuming the earned income tax credit is already phased out, families of four earning between $20,000 and $50,000 would have marginal tax rates of around 49 percent. So we are now in the situation of having the great bulk of moderate-income America facing marginal tax rates of between 50 and 75 percent. And that's with a moderate health care bill! We speculated earlier about possible supply shocks that might come from the Middle East but the actual shock might come from Capitol Hill. Things are as sweet as they get, but we always manage to shoot ourselves in the foot somehow. Thank you.",545
-fomc-corpus,1994,Governor Laware.,4
-fomc-corpus,1994,"It may be a habit, but as has been usual in recent months, I am going to play the role of Cassandra and I would encourage you to worry with me about the economic environment. I am convinced that the moderation in housing, autos, and retail sales is not as much a function of higher interest rates as it is a function of anxieties endemic in the public. This would seem to be borne out by recent marginal changes in consumer attitudes. When members of Congress cannot make up their minds about health care and how it will be paid for and by whom, the public becomes confused and uncertain. Add to that the continued reengineering of corporate America and it is easy to understand why people worry about the security of their employment. That all adds up to a reluctance on the part of both consumers and the corporate sector to take on long-term commitments. Certainly, the pattern of business investment spending in recent months is for replacement, not expansion, of capacity. While many of the market measures of capacity utilization and unemployment levels are at the threshold of exerting upward pressure on inflation, it seems to me that the tea leaves are still very hard to read. This might be an appropriate time to take a breather until it is clear what the direction and magnitude of economic activity turn out to be. You're welcome. [Laughter]",266
-fomc-corpus,1994,Governor Kelley.,3
-fomc-corpus,1994,"Mr. Chairman, I have been comfortable with all of the policy moves we have made this year. The primary reason is that it certainly has seemed to me that we needed to remove the stimulus from policy that was there for a long time and was no longer appropriate. But I have had questions throughout the spring as to what the real economy might require after we eliminated that stimulus. The questions were primarily in two related areas. It's clear that we are approaching full utilization of resources in the economy, but it has been unclear to me just how close we really are. More important than that, as we move into that zone, what sort of momentum will the economy have that might push us into an overheating-type situation? Related to that, over the time horizons that the FOMC can usually and reliably work with, how likely are we to set off some type of inflationary episode? In support of that line of questioning, I have been reciting a litany of factors and I am not going to repeat those, but it does seem to me that the recent information, on balance, has been stronger than I would have expected. The first quarter of 1994 has proven to be stronger than it first looked to us and the second quarter looks stronger than I expected earlier. We have talked about the decline in the dollar and the foreign economies beginning to strengthen. The hours numbers recently have been remarkably strong, and employment looks as if it might be as well. I am not prepared to say that all my questions have gone away, but it does seem to me that so far events seem to be more on the side of strength in the economy. Momentum is certainly greater so far than I would have anticipated. We have been getting reports today from around the Districts that some slowing is beginning to become evident; we will see how much of that takes hold and how quickly. But from where we apparently have been recently and appear to be today, if that momentum is clearly still in effect very much longer, I am going to have to move in the direction of thinking that we may need to do considerably more in the area of policy changes.",427
-fomc-corpus,1994,Governor Phillips.,3
-fomc-corpus,1994,"Thank you, Mr. Chairman. While the expansion appears to be continuing, the question is at what pace, and we all seem to be struggling with this question as to whether we are below, at, or above capacity. On the supply side, how much slack is left in the labor and product markets? Even if we had good historical measurements of aggregate capacity and slack, I wonder to what extent we could use these to estimate the future. In the area of labor markets, I felt more uncertainty around the table than usual. The staff estimate for the current quarter is 6.3 percent unemployment when the current rate is at 6 percent, and Mike Prell suggested that we were uncomfortably close to being analytically blind at this point. I thought he gave a pretty good description of some of the concerns with the labor market information. A number of folks are re-estimating the NAIRU, and the announced values that they're coming up with vary all over the lot. I think we are experiencing significantly different labor conditions in different parts of the country. At least for me, that's one of the explanations as to why there is so much uncertainty. This raises questions about labor mobility between regions or perhaps labor mobility just with respect to certain professions. We are hearing certainly of spot labor shortages, and a couple areas were mentioned. I do think that this re-engineering that we have talked about over the last several months may be changing the equation and causing a bit more churning. And just because somebody has a job, they may well be looking for a better job. So I think that that is fogging the numbers somewhat. On the price side, the most consistent story, it seems to me, is that while there are pressures in the basic commodities, competition is constraining final goods prices. But even this story may not hold up for too long if capacity utilization continues to be strained. For me, it's very hard to ignore the sustained price increases in 1994 for many of the basic commodities. Certainly, there are ways to deal with price increases in commodities that continue for a short period of time. If these increases are sustained for a longer period of time, that's going to be more of a problem. On the demand side, we have heard and are seeing evidence of some slowing in spending, but the question again is whether we will overshoot, achieve, or undershoot that elusive soft landing. I haven't heard quite as much discussion of the financial markets today; maybe everybody was exhausted after the exchange rate discussion. I think that the markets have survived significant turmoil beginning with the Fed tightening in February. After that tightening, markets have been hit with international uncertainties, foreign exchange crises, and domestic political crises. But overall, the market performance, I think, has been quite good. We have had no major U.S. casualties; money has moved; we do not have gridlock. The market capacity improvements and the safety nets that have been put into place in the last couple of years seem to have worked. Bank internal risk management models appear to have worked. The contraction of exposure has been fairly orderly as we have gone through significant market moves. Bank credit has expanded. I think we have weathered that road quite well. I didn't want a fair amount of this turmoil to go unnoticed just because we are not seeing headlines about problems in financial markets and institutions. The markets seem to be a bit more settled. I question the strength of inflows to mutual funds, but at least we are not seeing massive outflows from some of these markets. The stock market is certainly down for the year but it has moved sideways for the last three months. We may still have some volatility concerns about the bond market, although this is less likely to cause political concerns because the bond markets affect individuals less directly. In sum, this is what Ed Boehne called a transition period and whenever we are at a change in a business cycle, we are likely to get a fair amount of conflicting data and mixed views. And since we seem to have more than the usual amount of conflicting data and opinions, I am going to assume that we have found the turning point. At best, we have the soft landing and maybe this is as good as it gets as Larry Lindsey mentioned. The key at this point is not to make a mistake and end up with too much inflation or in a recession. I do think that the tough part is going to be to hold on to the gains that we have made against inflation and, in fact, to make some progress toward achieving price stability. Unfortunately, I think that the going will get tougher, with more tightening from this point on. We may well be going onto slick pavement as we travel forward.",951
-fomc-corpus,1994,Governor Blinder.,4
-fomc-corpus,1994,"Thank you, Mr. Chairman. As all of you know, I wasn't here when this tightening started, and I was trying to imagine, if I had been here on February 4th, what I would have wished for July. I think I would have wished for almost exactly what we have gotten in terms of the real and nominal economy. I wouldn't have wished the dollar down, obviously, and I think I would have expected and certainly wished that the run-up in long rates was less than it has been. But in terms of the evolution of real spending and the signs of inflation, I think what we have today is very, very close to what I would have wished for back in February--which is to say better than anyone reasonably should have hoped for, because wishes don't usually come true. I judge the risks now to be pretty balanced under current policy, as Bob Forrestal said; and I would add something to that: ""and they are small."" It's very hard for me to put much probability on a scenario that has a very large overshoot capacity. And it's very hard for me to put much weight on a scenario of the economy's growth rate--never mind a recession--going down to growth of 1 percent or 1-1/2 percent in 1995; that seems quite unlikely. So the risks are balanced, I think, and small. It looks to me like a three bears economy: not too hot, not too cold, it's just about right. It seems that the Committee was very, very lucky--[laughter]--skillfully lucky! Let me say for the record that you can do the right thing and be unlucky and come out in terrible shape.",343
-fomc-corpus,1994,You can do the right thing and turn out right.,11
-fomc-corpus,1994,"And you can do the right thing and turn out right, which is the way it looks for now. The staff's forecast looks about correct to me, given the further tightening of monetary policy that's assumed in that forecast. I call attention to something that I felt very much and that Mike Prell pointed to himself, that the 3-1/2 percent growth rate for the quarter just ended was predicated on some good numbers coming in that we haven't seen yet. Mike characterized it as a stretch, and it looks like a stretch to me; we might get it, but it does look like a stretch. The staff's 2.2 percent real growth forecast for 1995 is weaker than the Committee consensus; but I think, given the additional 100 basis point fed funds rate increase presumed in that forecast, it's not unreasonable. I would point out that, given the lags in monetary policy, we should expect that tightening to carry over into 1996, and that would say to me--the forecast horizon ends at the fourth quarter of 1995--that we may see a slower growth rate than 2.2 percent, perhaps a slower growth rate than 2 percent, in 1996 under the assumed policy of another 100 basis point increase in short rates with some sympathetic movement in long rates, not with a zero change in long rates. I want to talk some more about this when we talk about policy tomorrow. To me, 2 percent growth starting in late 1995 and into 1996 looks a bit on the low side, if you believe that we are fairly balanced right now, and I'll come back to that. I wanted to raise one more question. Susan and a number of others talked a lot about capacity. Mike Prell was quite right, I think, to say the light's a little bit out on the extent of pressures on capacity right now. As I listened to the reports from the twelve Districts, which echo more or less the Beigebook, I thought there were fewer reports of tight labor markets than one would expect if we are sitting exactly at the natural rate right now. I think the anecdotes are consistent with the view that we have, not a lot, but a little bit further to go and, of course, we can never know that for sure. In the same vein, on capacity utilization: I think we want to remember that after an investment boom of the length and magnitude that we have had and are still having, it is very likely that there is more industrial capacity out there than we are actually picking up in the measurements. This just reinforces my view that the risks are two-sided. There is a risk of coming up short as well as the risk of going beyond. Thank you, Mr. Chairman.",561
-fomc-corpus,1994,"Thank you. We meet at the British Embassy at 7:30 p.m. for cocktails, and I assume dinner around 8:00 p.m. Transportation for the presidents will be at the Watergate from 7:10 to 7:15 p.m. and here for Board members also at 7:10 to 7:15 p.m.",74
-fomc-corpus,1994,I call on Mr. Kohn.,8
-fomc-corpus,1994,[Statement--See Appendix.],6
-fomc-corpus,1994,"Don, let me sort of interpolate on what you ended up saying with respect to providing 1996 projections to Congress. I think our public policy posture always has to be in favor of either low or declining unemployment rates or low or declining inflation. The truth of the matter is that while monetary policy matters, it obviously can't encompass as much as the committees up on the Hill would like to require us to accomplish. I think we have to indicate that we will accommodate as strong a growth as comes out of a noninflationary environment. Indeed, we would foster such growth but argue strenuously that long-term stability and the sustainability of employment require that inflation be held in check. While we acknowledge the short-term Phillips curve, we can't acknowledge, because I think it doesn't exist, anything beyond the very short-term posture. Once we get into that, I think we are letting ourselves be led down a road of public policy perceptions that we can't meet and shouldn't meet. If Congress wants to impose certain requirements on us, that's their prerogative, but for us to get out there and make a projection, which we all do, we also have to recognize that projections are not goals. I will make a projection that I think the inflation rate will be ""x"" and I think ""x"" is unacceptable. That doesn't mean that I say ""x"" is unacceptable, therefore I will change it. A goal and a projection are two fundamentally different things. We don't make the distinction in our request for your projections. We merely ask what individual members are projecting. Some are thinking of them as goals and some are making them as forecasts. And that's fine; it's fine in the sense that it seems to be working. But once we get out beyond the intermediate period, I think we're in for some serious questions. I might just say on the monetary growth ranges that I am inclined to do nothing on M2. The reason is that I think the 1 to 5 percent range is where we want to be when eventually we get velocity in M2 coming back, and I wouldn't want to touch it. But I am intrigued by the notion of taking the debt aggregate down as a symbol. The question is how relevant it is to the outlook. Indeed, I have a suspicion that it may be more relevant than the M2 numbers. What type of perception do you think that would create, if any, in the marketplace?",485
-fomc-corpus,1994,"There might be a reaction that the Fed is paying a little more attention to debt, that is, you bothered to change the range instead of leaving it. But I think it would depend crucially on the rhetoric that was associated with the change. If it was explained that slower debt growth has been occurring over recent years and should continue to be associated with slower nominal GDP and damped inflation, I don't see us creating a new feeding frenzy around debt, if that's what you are concerned about. I think it is perfectly explainable. It is a very high range, especially compared to the M2 and M3 numbers.",124
-fomc-corpus,1994,Governor Lindsey.,3
-fomc-corpus,1994,"Thank you, Mr. Chairman. Don, I was surprised by Chart 1, particularly in light of what the Chairman just said about our eclectic views of the Phillips curve, which is that one probably exists in the short run but not in the long run. That Chart 1, if I believed it--and I believe everything you tell me, Don--would convert me into being a wild dove because what we could do with easier money is to reduce the rate of unemployment permanently below what it would otherwise be without ever paying any cost for that. Now look at the bottom of the chart. It means, as I understand it, that simply by printing money we can increase the long-run aggregate amount of output in the economy.",146
-fomc-corpus,1994,I think the models embody a vertical long-run Phillips curve; it takes a while for it to come out here.,23
-fomc-corpus,1994,Into the next millennium!,5
-fomc-corpus,1994,Yes. If you had not noticed that the inflation rate is up at 4 percent and the only reason it's not continuing on the upward trajectory is that we bent the unemployment rate up and so you have--,41
-fomc-corpus,1994,But never backwards?,4
-fomc-corpus,1994,No.,2
-fomc-corpus,1994,Only the coefficient is unchanged even though it gets smaller. What Governor Lindsey's saying is arithmetically irrefutable.,25
-fomc-corpus,1994,"In this time period, that's right. But if you stretched out--",14
-fomc-corpus,1994,Then the interesting question--I am sorry.,9
-fomc-corpus,1994,"No, go ahead, please finish.",8
-fomc-corpus,1994,"It strikes me that if we're postulating that there is no evidence of long-term Phillips curve tradeoffs, but that there is one in the short run, it therefore follows that somewhere between the short run and the longer run, it is backward sloping.",51
-fomc-corpus,1994,Right.,2
-fomc-corpus,1994,"If the unemployment rate had not come back up toward the natural rate, inflation would have continued to accelerate on a straight upward line. If you believe that there are some costs to inflation, those are not embodied here; that is, the uncertainties and costs of higher inflation rates are not in here. I think it is very strongly the Committee's view that they are not indifferent to creating a 4 percent inflation rate versus a 3 percent inflation rate.",90
-fomc-corpus,1994,"What does this cost? I assume the civilian unemployment rate is not a bad proxy for real GDP, so we never pay a real output cost. The only time the unemployment rate even starts to go up under this chart is when we eventually raise the fed funds rate.",53
-fomc-corpus,1994,"But if you didn't do that, the inflation rate would continue to accelerate forever.",16
-fomc-corpus,1994,"But if I were going to vote just on this chart or if Mr. Gonzalez or any member of Congress asked me to vote on this chart for a term that exceeds a senator's term, we now can vote to have an interval, which is really what we want to look at on the CPI, that would--let us see it looks like, I am just going to ballpark it and say 3/4 percent for 6 years. So 4 million extra job years can be bought by this Committee by voting for the easier money path at virtually no inflation cost.",116
-fomc-corpus,1994,"You have a percentage point of inflation cost. There is, as you say, an interval if you go from 3 percent inflation forever to 4 percent inflation--without taking account of the feedbacks on economic growth but just in Phillips curve terms--in which you will realize some extra output in the meantime because you can drive the unemployment rate below the natural rate for a short time before bringing it back up to the natural rate. But you will end up with 4 percent inflation, not 3 percent inflation.",103
-fomc-corpus,1994,And when will we ever pay the price?,9
-fomc-corpus,1994,When you tried to bring inflation back from 4 percent if there were a cost associated with 4 percent rather than 3 percent in terms of the efficiency with which the economy operates.,37
-fomc-corpus,1994,But there's no cost in terms of output?,9
-fomc-corpus,1994,Unless there is a feedback from the 4 percent to 3 percent on productivity and on efficiency.,20
-fomc-corpus,1994,Governor Blinder.,4
-fomc-corpus,1994,"I just want to make a comment, but first a technical question. Do these results come out of the MPS econometric model?",27
-fomc-corpus,1994,The baseline is judgmental; the deviations from the baseline come out of the MPS model.,19
-fomc-corpus,1994,"That thing will cycle as you let it run; so that's one part of the answer. I am a little surprised that it actually hasn't crossed zero by 1999, but it's going to cross zero and actually get, I think, to fairly exciting numbers on the other side before it cycles back down again. But the main point is that this really shouldn't be a surprise. Larry, you just described what happened in 1988-89. We had an interval of extra jobs as we overshot the natural rate; the inflation rate rose by almost exactly 1 percentage point. Then this Committee reacted to that, and we had a recession, and that's where you pay the cost. You're looking at a picture of 1988-89 here, basically.",152
-fomc-corpus,1994,"If you extended that to 2006 or 2008 or something like that, you do believe I think that we would actually be starting--",29
-fomc-corpus,1994,"I think this would probably cross in the year 2000, if you just let the MPS model run.",23
-fomc-corpus,1994,"Yes, but the fact that the base case is a judgmental model tells you something about the add factors that we have to deal with in this broad MPS model. If we allow the MPS model to run with no add-factor changes, the results we'd get--I will stipulate without knowing it and Mike can take a shot at me if he wants to--would be garbage. It would be unacceptable. If the un-add-factored model engenders results that do not seem to capture what is going on in the real world, why do we assume that a simulation coming from that model, which is supposed to capture what's going on in the real world, captures the actual scenario? I think we have this problem that is always involved in any of these simulations. I think Don is merely doing what we want in putting something together to get us focused. But what may be wrong with all this is that instead of putting down a literal timeframe, I think we should put down T, T+1, T+2, because I am not sure we know what the timeframe of this whole process is, and I am sure we don't know what the reduced form of this whole system is because it doesn't fit the real world in a way that makes any of us comfortable at this stage. If it did, we wouldn't be using so much judgmental evaluation in working off the MPS model to get a set of relationships, which I think is the right way to forecast. That model forces you to make certain key judgments for consistency. But it doesn't force you when certain elements within the system are very difficult to measure and are really highly important to the end result. We can argue this as much as we want, but the truth of the matter is that we would have to fall back on our own judgments of the impact of this sort of thing because we are pressing the limits of our technical capabilities to get anything more than illustrative types of scenarios, which is what Don has been trying to do.",400
-fomc-corpus,1994,"I was going to suggest not only removing the dates from the horizontal line but also removing the scale from the vertical line. [Laughter] I agree with what you said, Mr. Chairman; it is supposed to illustrate tendencies.",46
-fomc-corpus,1994,"I have no quarrel with anything you said, Mr. Chairman. Indeed, it's a point that I have made many times, and I have convinced myself that I should be very leery about presenting these kinds of simulations. If I don't buy the model in the baseline forecast, why should I buy the differentials literally? Now they are probably the best we can do systematically at this point because it's very hard to juggle all of these variables in a judgmental fashion and come up with a whole array of alternative simulations. And we are trying to improve the model so we can have greater confidence. I think the key question the Committee has to ask is whether it believes the baseline. For example, those who feel that the NAIRU is much lower or that the true unemployment rate is lower relative to the NAIRU would have a different baseline path so that the most stimulative policy wouldn't necessarily yield higher inflation than we forecast. It might be comparable to what we forecast. Still, the point, I think, is that you only get a short-run benefit, and not a long-run benefit, if you feel that over time higher inflation has a negative implication for economic efficiency and productivity in the economy. That, I think, is the key judgment you folks have to make.",257
-fomc-corpus,1994,"I just want to make one response to Governor Blinder. It is true that when the inflation rate went to 4 percent, we responded. But if we believed the MPS model with its linearities and the very long-term implications for tradeoffs, we basically would have said, well, 4 percent is acceptable. That's because I found, looking at the MPS model in 1989 that simulating 4 percent or the type of inflation rates that existed using nominal add factors, the case that could be made for the type of policy we initiated to tighten up was very weak. The model that we were effectively using as a policy instrument did not coincide with this. I think one of the things we are learning is that we are forced to fit linear models to structures that don't stay stable long enough to get a fix. I think intuitively, if I want to use that word, we try to adjust to that. I am sure because we were here, at least I was in 1988-1989. It's not as though we have an irrational sense that 4 percent inflation is sinful or that it is inappropriate for society for a whole series of non-economic points of view. The reason we moved as we did was because we thought inflation was truly undermining the fundamental growth and stability of the economic system. You could not have inferred that then, I would wager, by running projections off the MPS model. In fact, I remember them. I looked at some of the ones in which we tolerated just mildly higher inflation, and I had the same impression as Larry did. You know, why not, if you believe it. The question is do we? I don't want to speak for the Committee, but listening to the way this thing evolved over the years, I would say that there's very great skepticism with respect to this type of linearity. My own guess is that the MPS model isn't simple. It's complex, very sophisticated--the best econometric model I have ever seen. But the world is far more complex than that, and I think we have a tough task in trying to figure our how to play against that world, which always does things we insist it shouldn't be doing.",445
-fomc-corpus,1994,President Stern.,3
-fomc-corpus,1994,"I just want to comment on what we have been discussing. I think one of the problems with an exercise using this approach is that there are no explicit costs associated with inflation. That was implicit in Governor Lindsey's comments. But if we continue to look at it this way, we are always going to say, at least at first glance, why not avoid a tighter policy or why not indeed go to an easier policy. One of the things we have to try to find is a way of considering explicitly the costs of inflation in all this. My impression is that there are some models around that do that. But until we do that, it seems to me that these exercises are really of very limited value, because it always looks as if the best thing to do is either nothing or ease.",158
-fomc-corpus,1994,"That basically is built into any Keynesian structure that does not have a feedback mechanism that overwhelms the Phillips curve and turns it around. None of the models of which I am aware, including the one in which you draw a vertical Phillips curve in the long run, which is correct for the long run, answers the question whether or not the path going there is quite different. I don't think we have adequate data to capture that. That's why we have trouble with this sort of stuff. We have to ask ourselves whether we should forget monetary policy and focus on the budget deficit. I would venture to say, because I had some tests run on this, that if you just allow the budget deficit to expand by 20 percent a year indefinitely, it's remarkable how long it takes for something wrong to happen. President Broaddus.",165
-fomc-corpus,1994,"Mike, along the same lines, as I remember, a couple of years ago you were experimenting with a model that had a forward-looking expectations formulation mechanism in it. As I recall, you actually ran some simulations on that model at one point and included those in the Bluebook or at least a description in the Bluebook that give very different pictures with respect to alternative policy postures. Have you dropped that or are you still doing that?",88
-fomc-corpus,1994,"They weren't used in the Bluebook; they were based on the experimental model. This was done in the International Finance Division. We did it for the special presentation that was made for the FOMC on costs of inflation. But I think the characteristics of those models were not different fundamentally--at least what I took away from those models--from what the Chairman just described in terms of these models. It's a question of what you put in. You do not get a better tradeoff unless you impose on the model, which we did at that time, that you have a credibility gain. Rational expectations models don't give you that unless you build in that view. But that's ex cathedra--not something that you can derive from statistical estimations.",150
-fomc-corpus,1994,"Mr. Chairman, I think it's important to mention that if people anticipated this higher rate of inflation, we might not get this short-run output gain.",30
-fomc-corpus,1994,"To be explicit, under the tighter alternative on Chart 1, I think something like that model would show that the cost --in terms of unemployment--of moving toward price stability in this timeframe would be lower. I am not suggesting that you substitute that kind of model for this model. I am only suggesting that it was helpful for me to have that as another benchmark to establish a range of possible outcomes.",81
-fomc-corpus,1994,"As Mike explained, there are two projects under way this year in which the staff is trying to produce a richer set of models for you to draw on, which will probably confuse matters further. But our objective is to try to improve these models and to be able to capture, if I can put it that way, a richer mix of the expectations process in the presentations we put forward to you. You may end up having so many branches on the tree that you get lost in the forest from it.",100
-fomc-corpus,1994,"Ted, it strikes me that what you are basically saying is that we are missing a few variables in the system, such as a statistic for inflation expectations as a key operative variable. If you want to look at the feedback effect, one would presume that the actual mechanism through which it would work basically would be through something that is measurable, which we can't very well observe at the moment. If you look back through the '60s and the '70s and the '80s, the crucial missing variable in the models was a number for inflation expectations. If one could have forecast that with any degree of accuracy, a lot of what evolved over the period would have been readily captured in the models.",140
-fomc-corpus,1994,At least that expectations might be shaped by something other than the experience of the past several years--,19
-fomc-corpus,1994,"Yes. I am not saying what that is a function of. We know it's a very difficult issue, but that is the key variable. It's important, but just because we can't make a judgment as to what these driving forces are in an econometric sense doesn't mean that it's not real. President Boehne.",63
-fomc-corpus,1994,"I just wanted to make an additional point in this discussion about whether one believes the model or not. If you believe that you can go from 3 percent to 4 percent inflation and permanently buy some increases in output and jobs, when you get to 4 percent you will also find the model will show that you can go from 4 to 5 percent and also buy some more output. The same applies from 5 to 6 percent. So you tend to get on that kind of slope, and it's much easier to draw the line at lower rates of inflation than it is at intermediate or higher rates. I think we have 20 years of experience which indicate the validity of that.",139
-fomc-corpus,1994,Governor Lindsey.,3
-fomc-corpus,1994,"I'd like to take President Boehne's point and just reduce it to a single question. If we ran the model out, do we believe that if we applied some social rate of discount, the losses in output later on would be more than, less than, or equal to the gains in output in the short run?",65
-fomc-corpus,1994,"The model itself doesn't have, I don't believe, losses in output from higher inflation rates.",18
-fomc-corpus,1994,Ever?,2
-fomc-corpus,1994,I don't believe so.,5
-fomc-corpus,1994,"Well, it might, though, in tax terms. The fact is that our tax system isn't fully indexed; the effective corporate tax rate rises as inflation goes up, and that would raise the cost of capital, reduce investment, and lower productivity over the very long run. That, I think, is probably embodied in our current model. And it's one of the things one would point to in estimating the losses over the long run with higher inflation. There are other possibilities in terms of inefficiencies in the price mechanism's operation and so on that are not captured.",112
-fomc-corpus,1994,"But if I heard you right, we never have a net loss in output resulting from a choice to go for inflation?",24
-fomc-corpus,1994,"It does not take, in terms of a normal simple cost of capital calculation, a very big inflation differential to get you a net loss in the present value in the long run.",36
-fomc-corpus,1994,"The argument as to why we get a net loss is ""the Federal Reserve will react--do something."" But the question is, we are the Federal Reserve and why should we react if that's true?",40
-fomc-corpus,1994,"If we don't believe that the present value of output in this economy will be lower by letting inflation alone, then we should let inflation go up. It's as simple as that. Is there anyone around the table who thinks that by printing money, the present value of output of this economy will go up? If there is, I will join them in voting to cut the discount rate to zero.",78
-fomc-corpus,1994,"Oh, no, you don't mean that statement as you said it!",14
-fomc-corpus,1994,Why not?,3
-fomc-corpus,1994,Because the Federal Reserve Act directs us to maintain stable prices. We are created to do that.,19
-fomc-corpus,1994,If we can prove--,5
-fomc-corpus,1994,"What you said was: If anyone around here believes that, I will vote to lower the discount rate.",21
-fomc-corpus,1994,Yes. I was surprised that Alan bought that.,10
-fomc-corpus,1994,If anyone convinces you--,6
-fomc-corpus,1994,That's true. Do we believe that printing money will increase the present value of output?,17
-fomc-corpus,1994,"Yes, I think we would. I believe that printing money will give the economy a temporary high that will not last and therefore in the integral sense that you said, yes, you get a larger integral of output over an historical period, if you never decided to end it--if you never said, when you got to 10 percent inflation, whoops, that wasn't very good, and you went back to lower inflation.",85
-fomc-corpus,1994,"Yes, but why would you conclude that at that point when, because as Ed Boehne says, 11 percent is still better?",28
-fomc-corpus,1994,"If 11 percent is better than 10 percent, if there's no cost to inflation--I am a little bit surprised at the tenor of this conversation around here! [Laughter] There is some academic content that is--",45
-fomc-corpus,1994,"In all seriousness, the question really gets to the models. Why would you believe that there is a cost of increased inflation from the models?",28
-fomc-corpus,1994,"Isn't there a lot of cross-country and cross-time evidence that once you get past very low rates of inflation, there are costs in terms of growth and efficiency at higher levels of inflation? Higher levels of inflation tend to be more variable; you get a lot more uncertainty; people have to interact with the tax system and other things that aren't indexed to inflation rates. So, there are substantial costs. Now if the System had confidence--",87
-fomc-corpus,1994,"I am guilty of this whole operation and the clock is running, and I request your forgiveness for opening this issue up. But sometimes we have to have a little fun, I guess. Bob Parry, do you have a question?",47
-fomc-corpus,1994,"Yes, I have a somewhat different question. I want to ask about an earlier comment that you made that you had a preference for not changing the ranges except for perhaps the debt range in 1995. I think we're all well aware of the problems in terms of the significance of the growth in the aggregates. But as I read the Bluebook, I certainly associated alternative I with the baseline forecast, which I feel is an unacceptable outcome as one goes out to the next millennium. Would you talk very briefly about whether you think, if we were to leave the targets alone, that we would be constraining ourselves to follow the baseline? Or would you say that those targets are sufficiently broad and the uncertainties sufficiently great that we could still be confident that we could follow a path where inflation would get no higher and would begin to come down?",167
-fomc-corpus,1994,"I think with respect to M2 and M3 that the deviations from different versions of P* are such that we have correctly abandoned those aggregates, but hopefully they will come back and be useful. If they come back and are useful, we would assume M2 would go back to a zero trend in velocity, which essentially would suggest that the 1 to 5 percent that we have in here is where we want to be ultimately. It took us a long time to bring the ranges down to what we perceived to be a noninflationary base if there is stable M2 velocity. My view, and I suspect yours and others, has been essentially to leave that alone and just wait for M2 to come back in the range rather than to try to adjust the range continuously to these variations. We can just sit and wait for M2 to come back to us, as distinct from trying to chase it. The question that I am raising, however, is that I am not sure that the debt aggregate is all that irrelevant at this stage. I've raised the issue before. I can't prove it and I don't know if we can prove it after the fact. But I would say that there have been many, many episodes in American history where, if we had had the data then, they would have shown an unemployment rate under the NAIRU and capacity slack very rigidly constrained and yet we had very modest price changes. The reason basically, of course, is that we had a structure in which credit expansion was restrained--institutions did not allow it--and we had the convention of a balanced budget. Under those conditions, one can argue that it was the lack of credit that created the stability of prices. There is the alternative inflation expectations view in terms of the gold standard theoretically, which might be the ultimate explanation. But what I am saying is that it's worthy of at least thinking about one important element here. That is, how much credit is actually made available out there because the credit aggregates may be working. That hypothesis raises all sorts of problems including how derivatives affect all of this. But I am unsure of the credit aggregates question. I don't feel strongly about bringing its range down, but if we were to do something, that's what I think we could do.",456
-fomc-corpus,1994,"Just a follow-up question: It seems to me that in your testimony you could make the point that you just made about M2 and M3, saying that, if velocity returns to normal, those ranges would be consistent with our long-term objectives with regard to inflation. You could then make a similar argument with regard to debt, indicating that the change in the range was being made to make it consistent with our long-term objectives for inflation. I would certainly find that preferable to saying the range is being changed for technical reasons because we expect debt growth to come in lower. I think there is a critical difference in the two interpretations.",126
-fomc-corpus,1994,I agree with that. Tom Hoenig.,9
-fomc-corpus,1994,"Mr. Chairman, thank you. I have two comments. First, on the debt aggregate, I tend to agree with your suggestion for bringing that range down. As Bob Parry was saying, a lower debt range would make it more consistent with the monetary figures. If that could be done, as Don described, without raising other issues or having other things read into it--",75
-fomc-corpus,1994,Do we want to leave the so-called sleeping dog alone?,12
-fomc-corpus,1994,"That is the other option, yes. The second thing I want to comment on, though, is your reference to the 1996 projections. I very much agree with you there. It is, I think, unwise for us to be presenting specific projections into 1996 because they are often looked at as goals and also lead to the presumption that we know more than what we are really able to predict into 1996. If we do it, we would be well served in the long run to do so as Don suggested, by your making general statements about the 1996 outlook and not committing us to specific numbers.",128
-fomc-corpus,1994,Vice Chairman.,3
-fomc-corpus,1994,"I have just two comments. The first is on whether we should change the debt range. I have a very strong feeling that that is a good thing to do but that the likelihood is that it would take on a life far greater than it has any reason to have. You will recall, Mr. Chairman, that when you presented your Humphrey-Hawkins testimony, it included the concept of the real fed funds rate as one of a variety of things we look at. The press reacted to it as if it were the new ""North Star"" for our policy, which you never intended it to be.",122
-fomc-corpus,1994,That's a good point.,5
-fomc-corpus,1994,"I think a change in the debt range would almost certainly have the same fate. Secondly, just briefly on my pet theory on the problems of inflation, we tend to think--and we should because our job is economic policy and the economic results--in terms of the economic effects of inflation. But inflation also has socio-political effects. There is a traditional economic view that an increase in inflation transfers wealth from lenders to borrowers; I think that is probably valid. But there is a whole segment of our society, most of whom live in inner cities, who don't borrow for all practical purposes. I think any increase in inflation makes their lot worse, and since their lot is already very seriously bad, it risks sufficient social imbalance that society would have to react with a very heavy allocation of resources to solve that problem. That can lead to very serious economic difficulties, which we ought to think about when we decide how we feel about the overall effects of inflation. That is very, very hard to put into an economic model. But I think that if some day we come back to a general discussion of how we really feel about inflation, we ought to try to crank that reality, if others agree that it is one, into our considerations.",246
-fomc-corpus,1994,"I must say that the objection you made with respect to the debt range goes to the point, and I think you are probably right. President Jordan.",30
-fomc-corpus,1994,"I was going to ask whether this is the time to talk about the 1995 and 1996 projections, or will you have a separate go-around about that later?",35
-fomc-corpus,1994,"Let us just hold up on that. Unfortunately, our discussion has gone astray, but let us see if we can get questions out of the way, then hopefully go back formally to the agenda. President Keehn.",44
-fomc-corpus,1994,"Mr. Chairman, I agree with your comments with regard to M2 and M3. The point on the debt aggregate that Bill raised made the comment that I was going to make, but I really wonder what the correlation has been over a period of time between the debt aggregate and output, prices, and the like. Has there been a reasonable correlation?",71
-fomc-corpus,1994,"It was very, very good until we started to target it! [Laughter] The nominal GDP/debt ratio fluctuated around a fairly constant level until the early '80s, and then there was the explosion of debt in the '80s. In the last few years, debt has come back much more into line with nominal GDP, and our projection, as Mike showed in a chart yesterday, is that it will remain in line. There is no guarantee, obviously; it's hard to see the natural force that is necessarily keeping debt in line. But it did fluctuate closely with nominal GDP for many, many years, before the leveraging phenomenon of the '80s.",135
-fomc-corpus,1994,"Hearing that, it seems to me that Bill's comment is particularly appropriate. By focusing any attention on this, we are creating something that could be very awkward in the long run.",37
-fomc-corpus,1994,I am becoming convinced. Governor Blinder.,9
-fomc-corpus,1994,"Let me address the two questions that you raised, Mr. Chairman. On moving the range for the debt aggregate, I don't feel very strongly about that. I feel mildly receptive toward the ""let sleeping dogs lie"" philosophy. But it's not something I feel strongly about; one can make a case the other way. I want to raise the possibility of being a bit more forthcoming about the 1996 projections than seems to be the consensus, at least based on what we have heard around the table so far. One of the things the Federal Reserve gets accused of by those who are looking to accuse it of things is being overly mysterious and secretive. Some things have to be secret, of course. But the kinds of numbers we were just speaking about for 1996 projections are very much in line with the consensus; they would put us right where the Administration is, right where the CBO is, right where the central tendency of private-sector forecasters is. I very much agree that we should qualify it, fudge it, make sure that these are viewed as projections, not goals. I couldn't agree with that more. But with broadening them into ranges, with the kind of prose that goes around it, I think our interests might be well served by saying a little more about where we think the economy is going in the slightly longer run. The second reason is, as we know and as we always stress, that monetary policy needs to be focused on a longer horizon than six quarters. I think any one of us around the table would say we couldn't make monetary policy if we closed our eyes to what was going to happen in quarters 7, 8, 9, and 10. All of us have some ideas about what's going to happen in those quarters, which are quite important to what we want to do about monetary policy today--probably a lot more important than what we think is going to happen in the next two quarters in fact. So, both in terms of clarifying our own thoughts for the broader public that is watching us closely and in terms of meeting a little bit--this is a very small step--the request for more openness, I think there is at least something to be said for going public, so to speak, with these projections.",456
-fomc-corpus,1994,"Let me ask you this. These numbers, if we could make sure they are conceived of as forecasts, are benign, but releasing them would set a precedent, which would then have to be continued in the future. There are going to be occasions when I would suspect the judgment of this Committee as economic forecasters, as professionals, would be to forecast a rising unemployment rate or some other unwelcome development, and I wonder how we would handle that at that point. You can argue that it's a forecast, but then the response will be that the Federal Reserve should prevent it from happening.",117
-fomc-corpus,1994,Yes.,2
-fomc-corpus,1994,And we may not have the capability of doing so.,11
-fomc-corpus,1994,"I think that's a perfectly good question. I think it's likely--it wouldn't necessarily always happen--that in the event that we were forecasting a rise in unemployment over the coming two years, we would probably be easing monetary policy; possibly we wouldn't.",49
-fomc-corpus,1994,But maybe not.,4
-fomc-corpus,1994,"Yes, maybe not. I don't disagree with that.",11
-fomc-corpus,1994,President Forrestal.,4
-fomc-corpus,1994,"I'd just like to comment on a couple of these issues that we have been discussing. First of all with respect to the ranges, I agree with you entirely that we ought to leave M2 and M3 alone--I assume you included M3 with M2. I don't think, given the uncertainty surrounding those aggregates, that there's any purpose to be served by lowering the ranges at this point. I don't think there is a perception among the public or even people in Congress any longer that the ranges really reflect our expectations of what policy is going to be. With respect to debt, I don't feel very strongly about this, but if there is a reason to change the debt range, I don't know why we wouldn't do it. I am not persuaded by the argument that we will focus too much attention on it. After all, if we have ranges, presumably we have the flexibility to change them from time to time. If there is good reason to do so, then I don't see why we shouldn't and let the markets make their own determination as to whether we are giving the debt aggregate undue attention. It's quite different with respect to the monetary aggregates because I don't think there is any good reason to change them. If we think it is desirable to change the debt range, then I think we probably should go ahead and do it. With respect to Senator Riegle's request, I must say that I want to identify with the comments that have just been made by Governor Blinder. It does seem to me that there is a lot to be gained by being a little more forthcoming with our information. It clearly runs some risks; there's no question about that. But I think we basically have the same risks with forecasting 1995. We could be in a position, for example, in any given year of forecasting an unemployment rate that is going up. The Congress could focus on that, and that could give us some problems. Clearly, going out to 1996 presents more uncertainty, but I think the benefits of doing it are probably greater than the risks.",412
-fomc-corpus,1994,"Incidentally, President Jordan, I hoped we would get back on the track, but I am afraid we are in the policy discussion; you're on.",30
-fomc-corpus,1994,"In principle, I would be in favor of publishing information on the inflation objectives out to 1998. But if a forecast of higher inflation is what we are going to produce, again, I am in favor of not even publishing 1995. I think it is a mistake for this Committee to put out numbers saying that we expect the inflation rate to go up in the context of what we think is an appropriate monetary policy--one that will result in higher inflation in 1995 than in 1994. The central tendency of our forecasts also has 1995 unemployment above where it is currently. So, we have both rising inflation and rising unemployment in 1995, let alone 1996. I don't think we ought to be putting out those kinds of numbers. I am pleased that our 1994 forecasts are below where the Committee collectively thought they were going to be in February on both inflation and unemployment. But from here on, we see things getting worse in both respects. I don't see why we would want to announce that.",210
-fomc-corpus,1994,President Melzer.,4
-fomc-corpus,1994,"Alan, I am assuming now that you want our views on what we would do with the ranges and these other issues; I am in that mode. I would reaffirm the existing ranges for 1994 and I would set the same ranges for 1995. I would be willing to adjust the debt aggregate. I think we could deal with any uncertainties that that might raise, but I don't feel strongly about it. My basic rationale would be the same one you expressed--the long-run benchmark concept with respect to M2 growth and normal velocity and the consistency of that range with long-term price stability. Now, having said that, and this has come up in other discussions we have had, I don't think our target ranges communicate anything with respect to our long-run intentions. That is really the issue that Senator Riegle is raising. It has to do with the uncertainty about velocity and how we have been treating the aggregates, quite appropriately I think. My own view is that there is a good deal of uncertainty about those intentions and there would be two things I would cite. One was a survey, and I think it might have been discussed in a Board briefing, about long-run inflation expectations with respect to the G-7 countries. I was somewhat dismayed to see the United States ranked among the high inflation G-7 countries, along with Italy and the United Kingdom. The average inflation expectations for the United States in that survey were 3.6 percent over 10 years, with four other countries being considerably lower. So, that would be one piece of evidence in my mind about confusion with respect to what we all say about being committed to long-term price stability and yet having a survey--I don't know how reliable it was--that creates that sort of result. The other uncertainty about our intentions is in a much more current context and relates to developments since our last meeting. I think our actions at the last meeting created quite favorable responses in financial markets, particularly in long-term fixed income markets. Those actions initially had considerable credibility. But if you look at what has been going on broadly since then, again it's quite disconcerting to me in terms of what people think about our intentions. In effect, we have had private-sector forecasters ratcheting up their inflation expectations for 1996. We have had additional anecdotal and other information with respect to rising prices and perhaps labor shortages here and there. Yet, what the FOMC said after its last action was that we had substantially removed the degree of monetary accommodation that had prevailed during 1993. What has emerged in the meantime is a perception that we breathed a big sigh of relief, having moved rates 125 basis points and maybe gotten at best to neutral, and we were going to rest on our oars while all these other developments were going on which would lead to higher inflation expectations and ultimately to higher inflation. In effect, we are viewed as having said, I think, that 3 percent or somewhat higher inflation is good enough as far as we are concerned. Now, I understand that all hasn't been said and done by this Committee and over the longer run we will do the right thing. But there are significant costs, I think, to these sorts of perceptions, particularly in terms of longer-term rates. Recognizing that the aggregate ranges do not communicate anything about our intentions and that there is confusion in the marketplace and perhaps elsewhere with respect to what those intentions are, my own view would be that it's time for us to be much more explicit about what our long-run intentions are with respect to an inflation range and to indicate that as a practical matter it would probably take us a while to achieve that objective. If I did anything at all in response to Senator Riegle's request, it would be some sort of a nominal GDP target from which one could derive an implicit inflation target. I think if we respond at all, that is how we ought to be responding. If we don't make an explicit statement in this FOMC testimony with respect to our long-run expectations on inflation that goes beyond ""we think price stability is good,"" and get more specific in terms of a target range, then at the very least I think we have to make it clear that we consider 3 percent inflation to be unacceptable and we are not willing to accept it. Obviously, we have to back that up with actions, but we are going to talk about that later. I really think there is a cost to how things have unfolded here.",904
-fomc-corpus,1994,President Stern.,3
-fomc-corpus,1994,"With regard to the ranges for the monetary aggregates, I certainly agree with those who suggest just leaving them as they are, including the debt variable. I don't see very much to be gained by fooling around with those right now for the reasons that have been cited. With regard to the question about Senator Riegle's request, I would be inclined to provide the information on the notion that more information is better than less, and also I am not too troubled by the fact that somebody might look at those and think that they are goals. Obviously, we would want to emphasize that they are projections or forecasts and not goals, but some people could interpret them differently. Presumably if we weren't responding to a variable in that set that looked unfavorable to Congress, say, we would have good reason or reasons for why we weren't. We would explain in any event what policy was and why it was what it was. So, I am not too troubled by questions that might come up about whether the forecast was acceptable to us or why we were not responding to it.",212
-fomc-corpus,1994,Governor Kelley.,3
-fomc-corpus,1994,"Mr. Chairman, on the aggregates first, I am right where I seem to hear a lot of other people are. For 1994, I would not change them. I don't believe in changing targets or for that matter budgets in midstream unless there's some very, very compelling reason to do so, and I certainly don't see that here. In the same vein for 1995, I would think to signal a prospective change now would require that we have some very clear reason for doing so and a pretty firm intention that we will want to do so early next year, and I don't see that now. We may well change the ranges when we get there, but we will have six more months of experience and facts at the time and we will be at the start of the period that we are forecasting. I see no reason to call a shot this far ahead. With regard to the release of a 1996 forecast, by a narrow margin I think it would be undesirable. Many of the reasons that have been cited here for doing so--primarily along the line of more openness--are quite significant and important, and I don't feel as negative about it as I did when I came in this morning. But I still think it is going to be very, very difficult to keep people from ascribing a goal to this forecast instead of just simply viewing it as a forecast and a very soft one at that. I am afraid that we would leave an implication that we will try or possibly can cause this forecast to materialize. Obviously, that would be over-promising what monetary policy can deliver. I also fear that the related thought process on the part of interested people would set up a whole new type of speculation for markets to play with, and they have enough already.",356
-fomc-corpus,1994,President Broaddus.,5
-fomc-corpus,1994,"Mr. Chairman, I would agree with your proposal not to change the M2 and M3 ranges. I don't feel strongly on the debt issue, but I guess, on balance, I would favor reducing it on the same sort of grounds that we had for setting the M2 target where it is now. Since debt tracks nominal GDP at least over the very long run, there is probably a case for trying to make that range fit our longer-run monetary growth objectives a little more closely. The current range has a midpoint of 6 percent, which is probably a bit high. So if we lowered it, it would become consistent with the rationale I hear you giving for the M2 range. So far as 1996 is concerned, I have a good bit of sympathy with some of the things that Governor Blinder and Bob Forrestal said, but I am really in Tom Melzer's camp on that. My own preference would be to look at this as an opportunity to make our longer-term goals more explicit with respect to prices and tie ourselves down a bit.",214
-fomc-corpus,1994,Governor Phillips.,3
-fomc-corpus,1994,"I would leave unchanged the ranges for M2 and M3 for 1994 and 1995. Again, I think that any change would imply more than we know and exaggerate their importance. If the aggregates were performing properly, they would already be set appropriately for sustainable growth, so I don't see any case for moving them. With respect to debt, I can go along with a change in the range, although I don't feel strongly about it. Like Bob Forrestal, I think that if we believe there is a good reason for doing it, we ought to go ahead and change it, and 5 percent seems a better center point for the range. With respect to 1996 forecasts, I agree that more disclosure is better. I also think that if we are going to disclose more, we ought to disclose more but better things, and I am not sure that the numbers for 1996 would necessarily provide better information. So, I'd prefer more of a description of direction or even goals. I know for myself that when I sit down to do those projections and I look 2-1/2 years out, I just don't think that the numbers for 1996 represent quality disclosure; it's quantity but not quality. So, I think we would do better with some description.",260
-fomc-corpus,1994,President Boehne.,5
-fomc-corpus,1994,"I would retain the M2 and M3 targets for 1994 and I would keep them the same for 1995. I think we ought to declare a victory on the ranges that we have for M2 and M3. We have them down now to where they are consistent with what we want to do longer term. I don't think we are skillful enough at forecasting to factor in the shifts in demand for either M2 or M3, and so I think we are essentially where we ought to be for those aggregates going forward. On debt, I came into the meeting without strong feelings. I still don't have strong feelings, although I think at the margin there is something to be said for lowering the range for 1995. I'd leave it alone for 1994, but I think a lower debt range would be more consistent with our ranges for M2 and M3 over time. I don't think it's equivalent to your reference to a ""real"" federal funds rate. That took a life of its own because people interpreted that as the justification for tightening. I doubt very much whether this Committee is going to tighten because we lower the debt range from 4-8 percent to 3-7 percent, so I just don't think it will come anywhere near taking on the same life. But I don't feel strongly. If there is a reason, and on balance I think there is some reason for doing it, I would change the range for 1995. As for releasing the projections for 1996, it is awfully hard to recall an instance in this Committee when we had a request for more information and our initial reaction was to do it. We always have a long list of reasons; sometimes they are valid and I think sometimes it's just habit. We have the problem of goals versus projections; we have the bad news problem; we have the quality/quantity issue. If we go out 18 months or if we go out 30 months, I don't think that in substance it's much different. I think we elevate the importance of the 1996 projection more by not giving it than if we give it, so my inclination would be to give 1996. I would couch it in your usual articulate way and say essentially that it doesn't mean very much--you have a way of saying that very nicely. [Laughter]",473
-fomc-corpus,1994,"Thank you, I think. [Laughter]",10
-fomc-corpus,1994,President Parry.,4
-fomc-corpus,1994,"On the aggregates, I would leave the M2 and M3 targets at their current ranges for all the reasons that have been mentioned. I do have a preference for lowering the debt range in 1995, since I think there is a good reason in that we believe it is more consistent with the other ranges we have set. I also don't think it would result in an excessive focus by the markets if it's clearly understood why the change was made. On the Riegle request, I don't have strong views, but on balance I think that releasing our 1996 forecasts probably would not cause problems or create misinformation.",124
-fomc-corpus,1994,Governor LaWare.,4
-fomc-corpus,1994,"Mr. Chairman, I would prefer just to leave all three of these ranges the same rather than change them. I don't see any great advantage in lowering the debt range, and it may indeed create something that we would find awkward to deal with in the future if people attached more importance to it than we do. I don't see a significant probability that debt growth is going to be outside of the existing range for 1995, and so I think the better part of valor might be to leave the range where it is. With regard to the Riegle request, I ask myself: In July 1992, what would I have forecast the economy to look like in July 1994? And I can't believe that there is any real accuracy in a forecast that far out. We run the danger of not being able to forecast accurately and then having to explain later on why we were so far off and why we didn't do anything about it. If, for example, the forecast says one thing and the conventional wisdom is that it ought to be something very different, then why are we not doing something to make the forecast different. The forecast is always going to be interpreted however someone wants to interpret it when they've got us on the carpet. If it was an attractive forecast, then it will be assumed to have been a goal, and if it is an unattractive forecast, it will be assumed to be an admission of failure. I just think we are asking for trouble if we get into something that dicey. I doubt very much that the models that we are playing with here would have accurately forecast in July of 1992 where we are today. So, I just think it's dangerous to get that kind of thing in numerical form in front of the public.",353
-fomc-corpus,1994,President McTeer.,5
-fomc-corpus,1994,"Mr. Chairman, I would leave M2 and M3 alone. I believe I would be inclined to reduce the debt aggregate, and just say the reason is to make it consistent with the other monetary aggregates and recent flows, not make a big deal out of it. I agree with those who say that it's not the same kind of concept as the real fed funds rate, and I doubt that it would be noticed or remarked upon. I would hope that the rhetoric that goes with the aggregates would not write them off as being moribund but help keep them alive for their return in the future because they are very handy to have. It's a lot easier to talk about monetary policy when we are trying to hold on to a previously determined target range than it is when we seem to be raising interest rates. I would hope you would discuss the flows between the depository institutions and the stock and bond funds and remind people why the aggregates have not done so well recently. I would prefer that you keep alive the concept of modifying M2 at least verbally with M2 adjusted for bond funds, stock funds and so forth, and maybe even go so far as to have an anticipated growth range for adjusted M2. I don't know what I think about releasing the projections for 1996. It seems that there are no good options. We do need to be as forthcoming as we can. I basically agree with Jerry Jordan that if we are going to release them, we probably ought to redo them. They are going to be treated as our targets. We are going to be blamed if we are projecting bad things and not doing anything about it. So, at the very least, I think we ought to redo them if we release them.",346
-fomc-corpus,1994,First Vice President Minehan.,6
-fomc-corpus,1994,"One of the problems of being on the end of this list of people being called is that all the other people say the good stuff! I am also in agreement with the discussion on the Ms; I would leave them the way they are. I agree with the comments, whoever made them, that it has taken us a long time to get the ranges down to a reasonable expression of long-run policy and I think they should stay where they are over a period of time. I am attracted to the idea of reducing the debt range marginally as suggested in alternative II. On the issue of releasing our projections for 1996, I have some sympathy for what President Boehne said, being attracted to the idea that we don't know too much about developments 18 months in the future and therefore there may not be a much greater problem with releasing further out data that we don't know much about. But weighing everything in the balance, I think I am more attracted to the argument that if we release very explicit forecasts going out that far, we do set up expectations that may end up tying our hands rather than allowing us flexibility in the future. I would go for the middle alternative myself, not giving specific hard numbers but trying to explain the factors that we weigh in terms of looking at the longer run. I would be much in favor of a balanced discussion of inflation, unemployment--those sorts of things. Maybe it sounds like Mom and apple pie, but I don't know if we all share the same specific targets with regard to long-run rates of inflation and so forth. So I am a little concerned about putting out something that says that that is the goal of the Committee. I would be concerned about not coming out on a reasonably balanced side.",347
-fomc-corpus,1994,Governor Lindsey.,3
-fomc-corpus,1994,"On M2 and M3, don't bother changing them. Changing the debt aggregate range isn't going to make much difference, but I think we should probably lower it because I think it's a proxy for nominal GDP. On forecasting, I think John LaWare had a very good point. I remember what happened to me when I was on the staff at the CEA in 1982. In December 1982, there was a deep recession and we had to make a forecast for five years out. Marty Feldstein, who had sort of a baseline, said let's guess 4 percent a year, starting in the second quarter of 1983. Here is the dart thrown at the dartboard. It turned out that the 1987 real GDP forecast was off in fact in 1987 by a total of $3 billion, which is as close to a bull's eye as I have ever seen anyone make. But in the meantime, first it was criticized as wildly optimistic, and then it was criticized as wildly pessimistic as the economy went above and below the forecast. So anyone has to be crazy to make that kind of forecast even if it turns out to be right! [Laughter] Nobody ever remembers you were right. At the very least, I think Jerry Jordan's point is correct, that this is going to be interpreted somehow as our wish list. For us to put out numbers that have unemployment and inflation rising has to invite an attack. It's worse than forecasting 4 percent growth for five years.",305
-fomc-corpus,1994,President Keehn.,4
-fomc-corpus,1994,"In my earlier comments, I didn't remark on the forecast for 1996. I would be opposed to going forward that far unless we really have to. It seems to be awfully far out on the forecasting horizon, and I far prefer to state our expectations in terms of our long-run objectives.",60
-fomc-corpus,1994,Vice Chairman.,3
-fomc-corpus,1994,"I am in favor of alternative I across the board for both 1994 and 1995. Perhaps, living in the city where financial journalists swarm, I am not at all convinced that, by leaving M2 and M3 alone and changing the debt ratio, we would not have much more discussion of the meaningfulness of that move than anybody in this Committee really thinks is meaningful. As regards 1996, I find myself in the awkward position of being trapped in the middle of Alan Blinder's syllogism. I believe it is the major. I agree that we should be more open to disclosure, but my concern at the present time about forecasting 1996 is not unrelated to the fact that it is a year divisible by four, which may be the interest behind the request. If we ever forecast that far out, it would be better that we do it after considerably more discussion and thinking than is possible now. So as a tactical matter, I prefer that we not release a forecast for 1996. Perhaps as we meet in February or get prepared for February, we may want to think more fully about whether we wish to forecast out for a longer period. I suspect the answer to that would be ""no,"" partly because of what Larry Lindsey just said. But it may very well be that we need to be somewhat more forthcoming about just what we mean by price stability. I don't have a conclusion for that, but I think it's probably a debate that we may wish to have.",301
-fomc-corpus,1994,"Before we go further, Governor Kelley, I failed to put down your position on the debt issue.",20
-fomc-corpus,1994,"I would leave the debt range unchanged for now, Mr. Chairman, but I would like to see us do some work--perhaps the staff could give us a paper--on the implications of changing it to a lower level for consideration at our February meeting. I think that would be very helpful.",59
-fomc-corpus,1994,"I am sorry, President Jordan, I didn't get answers to questions on the ranges and 1996. As I understood you on 1996, it's the goals issue. You prefer not to do that but you do think we ought to think more seriously about it. Have I got that correct?",60
-fomc-corpus,1994,Yes. The numbers are as Don indicated.,9
-fomc-corpus,1994,You would vote no on the specific Riegle request?,12
-fomc-corpus,1994,That is right.,4
-fomc-corpus,1994,And on the ranges?,5
-fomc-corpus,1994,"I wouldn't change them and I don't see what is wrong with letting the journalists write stories about debt. If they want to write the stories about the governors having green peas for lunch on Thursdays and that is the key to monetary policy, I don't see the harm in that. They have to fill up the space anyway. So I don't see a problem.",70
-fomc-corpus,1994,So you would be inclined to lower the debt range.,11
-fomc-corpus,1994,I really don't care about the debt aggregate.,9
-fomc-corpus,1994,Who released that information on the governors' lunches? [Laughter],14
-fomc-corpus,1994,It was a week after the lunch!,8
-fomc-corpus,1994,Or was it the week before!,7
-fomc-corpus,1994,"Before we get to any formal vote, let me just see what it is that we should be voting on. It's pretty clear that there is a consensus to leave the M2 and M3 ranges unchanged. The other two issues are really interesting. There seems to be a marginal inclination to go to a lower debt range--most of the voting members favor that. The Riegle request gets turned down, but there is a general view that as best we can we should be more forthcoming. There is a sense in which Humphrey-Hawkins essentially sets the monetary aggregates as a signal that could be objectively evaluated by the Congress with respect to what it is we are doing. As the meaning of the aggregates falls away, there is an obligation on our part to give the Congress some objective criteria. I happen to think that the one requested by Senator Riegel is potentially mischief-making, and I am not sure that it serves our purpose to do this in the way in which it is requested. What I do think we ought to be saying more about is what our goals are, what we are looking for, and what our outlook is for 1995 and 1996 in a qualitative sense. I mean to draw the distinction between goals and forecasts. I would judge that our forecasts as a group do not clash violently with those of either the Administration or the CBO, as Governor Blinder indicated. Perhaps noting that in the Humphrey-Hawkins text without putting numbers down per se would enable us to associate ourselves with the forecasts and still talk about broader questions such as where we think the goals of the Committee should be without putting the specific numbers down. I hesitate to think what would happen, as Cathy Minehan said, to the interpretation of those forecasts. So, leaving aside the actual formulation of this, the consensus of the Committee seems to be that we leave M2 and M3 alone, that we marginally are in favor of bringing down the debt aggregate range and hopefully we will not get as a consequence a ""real"" interest rates type of discussion. I suspect that there probably is not much risk in bringing down the debt range; I don't think it's a big deal. Look, if credit really starts to move, that might be an important signal for us to respond to. So, I am not sure that it is wrong, in and of itself, but it is what I will put up; we have to have separate votes on 1994 and 1995.",499
-fomc-corpus,1994,"Mr. Chairman, I heard a marginal preference among those talking about debt aggregates for lowering the range for next year but leaving it unchanged for this year. SEVERAL. Yes.",36
-fomc-corpus,1994,"Yes, I didn't hear any discussion about the debt aggregate for 1994.",16
-fomc-corpus,1994,Okay.,2
-fomc-corpus,1994,Let me first formally put on the table for a recorded vote that we leave the ranges for M2 and M3 unchanged. Why don't you read that part of the directive for 1994.,39
-fomc-corpus,1994,"I am reading from page 26 in the Bluebook, or if you are looking at the draft directive version, it is at the bottom of page 2, line 46. The first general sentence, of course, stays the same. ""The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output. In furtherance of these objectives, the Committee reaffirmed at this meeting the ranges it had established in February for growth of M2 and M3 of 1 to 5 percent and 0 to 4 percent respectively, measured from the fourth quarter of 1993 to the fourth quarter of 1994. The Committee anticipated that developments contributing to unusual velocity increases could persist during the year and that money growth within these ranges would be consistent with its broad policy objectives.""",166
-fomc-corpus,1994,That's it.,3
-fomc-corpus,1994,We need the debt sentence.,6
-fomc-corpus,1994,"We haven't got there yet. In other words, we can vote on this and then we can vote on 1995.",25
-fomc-corpus,1994,"Well, he needs to read the debt sentence for 1994.",14
-fomc-corpus,1994,"Yes, the next sentence--",6
-fomc-corpus,1994,Okay. Read that sentence.,6
-fomc-corpus,1994,"""The monitoring range for growth of total domestic nonfinancial debt was maintained at 4 to 8 percent for the year.""",24
-fomc-corpus,1994,Call the roll.,4
-fomc-corpus,1994,Chairman Greenspan Yes Vice Chairman McDonough Yes Governor Blinder Yes President Broaddus Yes President Forrestal Yes President Jordan Yes Governor Kelley Yes Governor LaWare Yes Governor Lindsey Yes President Parry Yes Governor Phillips Yes,44
-fomc-corpus,1994,"Okay, the next vote that we need is for 1995 with the same ranges for M2 and M3 but a lower range for the debt aggregate.",32
-fomc-corpus,1994,"All right. ""For 1995, the Committee agreed on tentative ranges for monetary growth, measured from the fourth quarter of 1994 to the fourth quarter of 1995, of 1 to 5 percent for M2 and 0 to 4 percent for M3. The Committee provisionally set the associated monitoring range for growth of domestic nonfinancial debt at 3 to 7 percent for 1995. The behavior of the monetary aggregates will continue to be evaluated in the light of progress toward price level stability, movements in their velocities, and developments in the economy and financial markets.""",121
-fomc-corpus,1994,Call the roll.,4
-fomc-corpus,1994,Chairman Greenspan Yes Vice Chairman McDonough Yes Governor Blinder Yes President Broaddus Yes President Forrestal Yes President Jordan Yes Governor Kelley Yes Governor LaWare Yes Governor Lindsey Yes President Parry Yes Governor Phillips Yes,44
-fomc-corpus,1994,I don't think--do we need a vote on that Riegle request?,16
-fomc-corpus,1994,I don't think so.,5
-fomc-corpus,1994,"I think I got the consensus for trying to embody many of the notions that Jerry Jordan, Al Broaddus, and Tom Melzer proposed, namely that we provide a general qualitative view of our goals and their distinction from forecasts in reference to policy and try to put it all in a language form that says less than it sounds. [Laughter] This is what we mean by ""Fedspeak."" You know, the trouble with a lot of this is that language does matter, and I think we have to be very explicit in our terminology and clearly distinguish between goals and policy because that is what the critical question really is here. I hope, putting aside these facetious remarks, to be clearer on this issue than we have been in the past.",151
-fomc-corpus,1994,"In fact, could I say one thing? I'll speak for myself, but I think it does reflect the mood of the Committee and the actions we have been taking since February. With regard to 1996, had we not been moving this year so far in the way that we have to establish our current policy stance, by late this year and 1995 inflation would probably be worse and inflation psychology would have been escalating sharply, necessitating a policy response of such a magnitude that it would have depressed output and raised unemployment in 1996.",109
-fomc-corpus,1994,You mean in discussing the forecast for 1996?,11
-fomc-corpus,1994,"Right, and characterizing 1996. The uncertainty about 1996 is the effectiveness of our actions in 1994. If we are successful in what we are doing in 1994, then we are going to have higher output and lower unemployment in 1996. And that is the difficulty in giving them a forecast of what 1996 is going to do.",76
-fomc-corpus,1994,I think we have been saying something not dissimilar to that without mentioning the year. Coffee is available and we will reconvene in 15 minutes.,30
-fomc-corpus,1994,Mike and I were just discussing this morning's Washington Post and how I should adjust my presentation. Have you seen this morning's Washington Post?,28
-fomc-corpus,1994,I haven't read it yet.,6
-fomc-corpus,1994,I'll let Mr. Prell tell you himself.,10
-fomc-corpus,1994,No. [Laughter],6
-fomc-corpus,1994,Don't keep us in the dark.,7
-fomc-corpus,1994,"The Post article carried an excerpt from the 1987 transcripts in which I said something to the effect that, given the lags of policy, we either should tighten or should ease, but I didn't know which. [Laughter]",47
-fomc-corpus,1994,This was cited as evidence of confusion and uncertainty in Federal Reserve thinking!,14
-fomc-corpus,1994,Another interpretation is that we are basically saying that the status quo is unacceptable. [Laughter],19
-fomc-corpus,1994,I have been trying so hard all these years not to get quoted in the press!,17
-fomc-corpus,1994,Mr. Kohn.,5
-fomc-corpus,1994,"Well, I am sure I won't relieve any of the current uncertainty here and probably will add to it. [Statement--See Appendix.]",27
-fomc-corpus,1994,"Questions for Don? If not, why don't I start off. I think it's fairly apparent that if we move today, the general view is going to be that we moved in order to support the dollar. I don't deny that monetary policy has a significant effect on our exchange rate, but I think it's important for us to review just why it does and what it means to alter the exchange rate from what the markets themselves are engendering. Ultimately, when we are dealing with a world currency that is held virtually in all corners of the globe, the world portfolio adjustment process is very difficult to understand at times. But what is fairly apparent is that we are dealing with balance sheet shifts that essentially move toward expected higher risk-adjusted rates of return. In this regard, we are looking not only at interest rates but at stock prices or any type of instrument denominated in dollars that has a rate of return relative to similar types of investments in other currencies. We like to look at the issue of current account imbalances and a variety of other elements in the flow area, but fundamentally, the exchange rate involves a balance sheet adjustment process. When we are dealing with a reserve currency, the propensity to hold it in a balance sheet sense generally tends to override where the exchange rate ultimately comes out. If we think in terms of the aggregate amount of dollars growing not only because of current account deficits and increased claims but more importantly because of a general grossing up in the Euro-currency market, we begin to lose sight of the flow effects. Much is involved in the search for increased rates of return, but basically that is what dominates the system. The reason this is important is that if we get short-term changes in expectations with respect to how the rate of return is going to be altered, we need a very large change in interest rates or rates of return to offset that. For example, an expectation of a 10 basis point capital gain in a week on an instrument translates to an annual rate of 5 percent, or more actually. We have learned in this process that it is very difficult to employ interest rates to forestall changes in expected rates of return on a currency. The result usually has been somewhat disastrous. We have to be careful to recognize that if we employ monetary policy to offset normal market forces, there have to be offsetting adjustments in the rest of the system. If we are looking for a classic case of what type of adjustments occur, remember what happened after World War I when the British endeavored to restore the parity of sterling at its pre-war rate with very extraordinary effects on the structure of their economy. In today's environment, that sort of rigid adjustment is very rarely seen, but I think the principle is fundamentally the same. Any attempt by us to use monetary policy to offset exchange rate effects has very considerable secondary, usually negative, effects on markets. Now, one may argue on the other side of that argument--and I think quite correctly--that to the extent we affect our exchange rate favorably and bring inflation and inflation expectations down as a consequence, there are positive forces basically driving the system. That leads me to conclude that the fundamental exchange rate policy really ought to be that the best support of the dollar is to keep domestic inflation down. Exchange rate volatility creates problems, but they are different from those that exist in stock and bond markets where the net position is long of necessity. If massive uncertainty hits a market in which the net position is net long, then disengagement, which is what uncertainty produces, of necessity creates selling and lower prices. But currency markets are a zero-sum game. If you want to argue that an uncertainty premium induces disengagement of the dollar vis-a-vis the yen, then the question is what about the yen vis-a-vis the dollar. You cannot have massive uncertainty. Remember, uncertainty is not a statement that something is going to happen; it's a statement that one doesn't know what is going to happen and is therefore pulling back. If we consider the case in which two people have gross uncertainty about long-term U.S. Treasury instruments, they both sell and the market goes down. If we have one person massively uncertain about the dollar/yen, and the other massively uncertain about the yen/dollar, and they both sell, what happens? So, there is a limit to the cumulative process within an exchange market that is different from what exists in standard positions where there is a net long position in the system. At this stage, I am inclined to be very careful about making a particular point of our moving in to support the dollar unless it becomes crucially necessary because of increasing financial instability and indeed an end-point game. We are nowhere near that, as best I can judge. The exchange markets were quite weak today; the stock market is up; the last time I looked the 30-year bond was down 10/32. This is not the type of environment in which more than the exchange rate is involved. This is, I should say, an exchange rate problem. It is a different type of animal than a broad inflationary concern about the currency in which bond markets plummet, stock markets plummet, the exchange rate plummets and the situation is unambiguous. At that point, the central bank has no choice but to move in and try to squeeze out the inflationary bias in the system. At that point, I grant you, it is very late in the game and there is a considerable question that the effort would succeed, but I would judge that we are not anywhere near that stage. In sum, I would argue strenuously that we should avoid being perceived as using monetary policy solely for the purpose of addressing the exchange rate. Essentially, we have to look at monetary policy in this context as an anti-inflation issue. This leads to the question of domestic policy and the extent to which we address this. In a somewhat unusual sense, the outlook is really intriguing. It's clear that the rate of economic growth is coming down. The question is, from where? As a convention, we use gross domestic product as our broad measure of the economy, largely because the data there are seemingly more accurate. But gross domestic income is conceptually identical. Yet if we look at the gross domestic income in the fourth quarter of last year and the first quarter of this year, we see that it differed from gross domestic product. For example, as you may recall, GDP growth was at a 7.0 percent rate in the fourth quarter of last year. Gross domestic income growth, which is conceptually equivalent, was 7.8 percent. In the first quarter, GDP was 3.4 percent and GDI was 4.0 percent. It's pretty obvious, looking at the employment and hours data in the second quarter, that the growth in GDI is quite likely again to exceed the growth in GDP when we get final data for the second quarter. This raises interesting questions as to what the economy is doing. Where are we? Our alternative to looking at GDP and accepting the payroll hours data is that productivity is falling in a rising economy. I know of no conceptual framework, other than a bizarre scenario, which would say that that makes any sense. But the question is, do we trust the manhour figures and the work hour figures. What we have is an establishment survey increase of about--was it 200,000, Mike?",1489
-fomc-corpus,1994,Exactly right. [Laughter],7
-fomc-corpus,1994,"On the basis of the overall data that we get from the unemployment insurance system with a significant lag, we essentially are picking up what the BLS calls the ""bias adjustment"" in the small business sector. It's probably fairly accurate going back in history. However, there is this plugged bias adjustment which BLS puts in that is not small; I gather that it has a 125,000 rate of change for the second quarter. That is a monthly number and it's a significant part of the 200,000 to 300,000 figures that were published monthly. If it's wrong by a significant amount, the hours figures that we are using as the denominator for the productivity figures are wrong. So, the first problem I have with all of this is trying to figure out where we are. And the conclusions are, as best I can judge: (1) the economy is still moving ahead at a fairly good pace; (2) whatever that pace, which is important, it's slowing. We are seeing very little cumulative deterioration in the system. We still have inventories in terms of days' supply at very low levels, especially when we strip the markup out of the trade inventories and deal only with factory-value inventories. This makes the inventory/ sales ratio a lot more like the manufacturing series. When we juxtapose that type of series with the evidence that we are beginning to get some delayed deliveries, we are getting at least the early makings of what one would expect to see if inventories were turning around. But, as Governor Blinder indicated yesterday, considering how statistically close we are to all these various capacity levels, why aren't inventories rising more? Why aren't we seeing far more anecdotal evidence of skilled labor shortages? Why are we not seeing more evidence of price movements in final goods? Given this type of environment, if I were an anecdotal chronicler, I would be looking for examples like those. I am not saying there aren't any; there are lots of them. But the fact is, given where we are, the inventory situation and the behavior of prices suggest that there is far more fuzziness out there as to where the capacity constraints are. We are all arguing that we are getting close to them, but the way to measure when we are close is not by the NAIRU statistics or industry operating rates but by the presumed effects of that phenomenon. At this point, we are still looking for the effects. As Don Kohn said yesterday, the employment cost index, which will be out on the 26th of this month is going to be a very interesting statistic to see, because it will be a very important test of the underlying costs structure that is evolving. But having said all that, where we are at this stage is consistent with, as Mike Prell might say, either going back down or going up!",568
-fomc-corpus,1994,Or going sideways!,4
-fomc-corpus,1994,"I don't think we know how far the unwinding of the growth rate will go, leaving aside where we are starting from, which I think may be higher than the GDP figures are indicating. As a consequence, I would be inclined at this stage to stay with ""B,"" largely because, unless we tighten by 300 basis points, I think the effect on the exchange rate would not be all that visible. Doing 25 or 50 basis points, I fear, would be viewed as an endeavor to hit the exchange rate. Once we have done it, the markets would swallow it and say, okay, what more do we get? The more tools we use without success, the greater the danger of getting a destabilized system. I would not have any domestic concerns at this stage about moving the rate up today because I suspect we will want to move at a later time. But I am very uncomfortable about the inevitable analogy to the exchange rate, because the order of magnitude is all wrong if it were against the exchange rate. So I would like to stay at ""B"" unchanged, but I'd like to be asymmetric. The reason for that is twofold. One, I am by no means convinced that this unwinding process will continue all the way down. I think there is a reasonably good expectation, as we have seen in many business cycles, that we will get unwinding pauses and the economy will start back up again. We are going to learn a lot about the most recent past in data to be reported over the next 10 to 15 days. However, I am not sure what if anything in those data would significantly change our minds. The only thing it would do is that it would distance us from the issue of the exchange rate if we were to move, and I think that has very considerable value. I have a suspicion that if we were to do nothing until the August meeting, we might possibly want to do 50 basis points in August if the economy starts to pick up. I am biased toward the up side because of the way I read what is going on, but more importantly because of the so-called ""loss function"" that we have discussed on policy. If we were to move higher in the next few months and we were wrong because our tightening was more than the economy could take, I think we could adjust and move back down. There would be costs, but I think they would be containable and reversible. So if we make a mistake by being too tight, I don't think the cost is all that significant. If we fail to act when we should and inflationary pressures take off, I think the cost of restoring our position would be much higher and conceivably irreversible. Merely dealing with that loss function and knowing nothing about the outlook, I think we have to be biased toward restraint, not only with respect to the probability that whatever actions we take over the next six weeks are more likely to be up than down. But I do think we have to maintain the notion in the marketplace that we stand ready to move if necessary, but not knee jerk to every type or set of pressures that the markets can create for us. I think we have to move in a deliberate way. Whatever one may say about the economy, the model now I think enables us not to have to accelerate our tightening moves, at least as far as I can judge the forces at work here. I don't know what will evolve in the next four to six weeks, but I would feel more comfortable if the minutes that we release six weeks from today--hopefully they won't get released before that inadvertently--will show that we were in fact asymmetric. President McTeer.",739
-fomc-corpus,1994,"Mr. Chairman, I agree with your wait-and-see recommendation. When we do act again, I think we shouldn't consider a 1/4 point change; it ought to be 1/2 point, but I think 1/2 point right now would be premature. We did get a stronger first quarter than we expected, and it looks as if we are going to get a good number for the second quarter, even in GDP terms. But that is in the past. We have seen some signs of deceleration in the last couple of months, and we don't have any idea how far that is going to go. I think seeing some numbers would be helpful here. I agree with you that a tightening now would be interpreted as a move in support of the dollar. I would be against that for two reasons: One is that it gives the impression that we are placing the dollar above domestic considerations, and I don't think we should do that; I also agree with you that because of domestic considerations we wouldn't be able to tighten enough to do the dollar much good. So, I think a show of confidence in the dollar by not acting is probably more helpful. It's even possible that we could get the reverse of the market reaction that we got in February. In February, I believe that when we tightened 1/4 point, a lot of market participants said things must be worse than we thought if the Fed is concerned. I think it's conceivable that doing nothing today would lead to some market confidence that things may be calmer than the market might have suspected. I am not sure of that, but I think a steady-as-you-go policy today might be good for the markets. So, I would agree with ""B."" Normally, I prefer symmetric to asymmetric, but in this case having the minutes reflect asymmetric at this stage would be helpful. And I think I'd be inclined to use this as an opportunity not to make an announcement.",388
-fomc-corpus,1994,"Would you view not making an announcement as consistent with saying ""the meeting is over, we have nothing to say"" or did you want to just let it ride?",33
-fomc-corpus,1994,"For this meeting if we have done nothing, I think I'd just go back to not issuing a press release.",22
-fomc-corpus,1994,"Don, why don't you comment on what the other side of that argument is just to--",18
-fomc-corpus,1994,"Mr. Chairman, I was hoping, as President McTeer was suggesting, that we would be in the position by now of having established a regular announcing time.",33
-fomc-corpus,1994,2:15.,4
-fomc-corpus,1994,"And if an announcement is not made by that time, it would be clear that no action had been taken. I think I'd ask Joan Lovett and maybe Joe Coyne to comment. Both of them have some concerns that not announcing would leave people on edge and guessing that something was going on, with a result that could be a bit disruptive. Joan.",71
-fomc-corpus,1994,"Yes, I think there is something to be said for letting the market know that the meeting has concluded. In terms of what announcements the market is looking for out of this Committee when there is no action, I have to say they haven't got a clue. They know that decisions on how to handle these announcements have not been made and they know the Committee hasn't addressed the issue, so most of them think that the Committee wants to maintain as much flexibility as it can until it has made a decision on that. For now, I think some of them are hoping there will be at least an announcement that the meeting is over, so they can go about their business. If we said that we have nothing to announce, that would be helpful.",147
-fomc-corpus,1994,"Yes, but that is not to prejudge what we are going to do in the future.",19
-fomc-corpus,1994,It's to buy time until the Committee has had a longer discussion on this. That is what they are thinking.,22
-fomc-corpus,1994,"Mr. Chairman, there was a subcommittee that looked at this some months ago. Others on that Committee might want to chime in, but as I recall there was a fairly strong consensus after a number of discussions that we ought to announce only when we change policy. However, I think today is a very awkward day, and whatever we do today, we have to set the stage for a less awkward future. And while I subscribe to the basic notion endorsed by the subcommittee that we ought to announce only changes, it might be well today to indicate what the Committee's policy is and to say the Committee's policy is to announce only policy changes and then to say the meeting is concluded and we will have no announcement. I think that gets us through the situation of today but sets the stage for the future. When the announcement time passes and there is no announcement, it means there is no change. So, we have addressed the awkwardness of today and what we want to prevail as we go down the road.",204
-fomc-corpus,1994,"There is an issue here, and at some point--it will not be this meeting and I'll try to discuss why at lunch--we have to be able to lay out what our new disclosure policy is going to be. At that point we will make it very explicit. This discussion is presupposing the substance of that meeting; I didn't mean to get into that. We may end up deciding to do something. I merely wanted Don to raise the issue largely for those who are commenting on this because I didn't think that question was answered appropriately. Bob, are you through?",115
-fomc-corpus,1994,Yes.,2
-fomc-corpus,1994,Vice Chairman.,3
-fomc-corpus,1994,"Mr. Chairman, I agree that we definitely should not make a policy move today, because I think there is no doubt whatsoever that the move would be associated with an effort to strengthen the dollar. For reasons you have cited, I believe the only way to help a reserve currency is to manage domestic monetary policy appropriately by stabilizing and, in the longer term, bringing down the inflation rate. I believe that any move that would make sense for domestic policy, be it 25 or 50 basis points, would be deemed to be an effort to strengthen the dollar, which would fail. Therefore, it could well put us into the kind of market instability that would require a sharp increase in interest rates, something that would be completely inappropriate for the domestic economy. As I stated yesterday, I believe that the economy could conceivably be moving to a path that will bring us sustainable growth and a decreasing, or at worst for the short-run a stable, inflation rate. However, I think that all the risks to that forecast are on the high side, that is, that the economy will in fact be stronger than that. Since we are quite close to capacity as is indicated by virtually all of the statements yesterday, a stronger economy would almost certainly bring increased inflationary pressures. Therefore, it seems to me that we should have a definite bias toward tightening, which says that we should have an asymmetric directive. I think it's entirely possible, as the incoming data give us a better feel for what's actually happening, that we would in fact wish to make a tightening move before the next meeting. That tightening move could well be as much as 50 basis points. Therefore, I am very much in favor of alternative B with an asymmetric directive.",346
-fomc-corpus,1994,"Let me just say that I forgot to mention that I would very much like to call on the Committee in a conference call if events are such that some significant action is required. I would prefer that, implicit in the asymmetric directive, we left open the possibility of a conference call if numbers or events are moving in a way that is significantly different from what I have interpreted as the Committee's general view. President Jordan.",83
-fomc-corpus,1994,"Thank you. I agree we shouldn't act on the basis of strictly international considerations because ultimately the foreign international market's purchasing power for currencies is going to reflect what we are doing domestically. I don't have a sense that within the marketplace today the problems we are seeing in the international markets are the result of concerns about future domestic purchasing power. If I thought the source of the dollar's weakness was the U.S. inflation problem, then I would feel differently. I would not want international developments to be a constraint if I thought a policy move was the right thing to do for domestic reasons, but right now I don't see that domestic reasons call for a move. And I agree that if we needed to move in support of the dollar, it would have to be a very, very large move. The story that Bill McDonough told last night at the UK embassy dinner about the deflation in Japan is correct, important, and needs to be developed more fully. It's partly the curse of double-entry bookkeeping. They have a huge current account surplus, yet they have a large number of banks and institutional investors trying to repatriate capital. This creates problems that have a price effect. That is not going to go away, and I don't know where it's going to settle down. It's going to keep coming back over and over again. We need to try to get people to understand that the politics of Japan as well as a lot of forces at work in that country are going to result in a turning inward and a need for domestic investment,",307
-fomc-corpus,1994,Can I just ask for a clarification?,8
-fomc-corpus,1994,Yes.,2
-fomc-corpus,1994,"Does that affect the rate of change in the exchange rate or does it bring it to a different level? In other words, if there is net repatriation of say $150 billion a year, is that consistent with a continuous erosion of the dollar vis-a-vis the yen, or does it merely specify a level that it adjusts to and stays at until that leads to portfolio balance?",77
-fomc-corpus,1994,"The portfolio balance model will tell you that if you try to repatriate funds and your currency appreciates, that is the way you reduce the foreign share in your portfolio.",34
-fomc-corpus,1994,But does the currency's appreciation consistently go up instead of--,12
-fomc-corpus,1994,"The theory does not give an answer; it could be either one. It's one person's decision; they all add to one so we ought to treat everybody as one person. They can't as a group reduce their foreign assets because of constraints on flows; they have to leave those assets abroad. They may add to them, but they have to have their assets abroad.",72
-fomc-corpus,1994,"I don't think you can answer in part because you need to know more fully what is happening on the trade side. Japan as we know is one of these economies where the net value added is all labor inputs because they import everything else. So their imports of raw materials, energy, and all of that give you the price effect of a lower dollar. I find that a very difficult story to unwind, but I don't think it's going to end soon. I don't know if the yen will go to 90 or 80, but I think we need to articulate the story that this is not a problem of the United States nor a concern about our inflation and our other economic problems as much as this is about Japan. Regarding our policies, I expect to see some bad CPI numbers during the second half of this year. I have no reason to disagree with the Greenbook on that. We talked about this before: If the staff is right that the CPI less food and energy is going to come out around 3 percent or so this year as the Greenbook specifies, we are going to run into several months with the CPI getting up in the range of 3-1/2 to 4 percent annual rate. And that being the case, there probably will be adverse market reactions to the superficial reporting of those numbers. If we are going to act at some time in the second half of this year, I would much prefer to see our actions coincide with adverse price developments rather than strong real numbers, whether it's employment or output or industrial production or anything else. It would take a couple of months of bad CPI numbers to make a case for saying we need to act to show our resolve to bring the inflation trend back down again. That says to me that before the August meeting, we are unlikely to have conditions that I would think would trigger such a move. So, I would be inclined to stay where we are at the moment. I would not be inclined to go asymmetric. I wouldn't dissent against asymmetric, but I'd prefer to stay symmetric with the expectation that we will reassess the economy in August and see how the price numbers develop. As for the announcement, I think Ed's point is right. Had we previously set forth what our policies were, we might get away with no announcement at all if we had said that that was what we were going to do. But under the circumstances, I think we have no choice but to put something out this afternoon.",493
-fomc-corpus,1994,First Vice President Minehan.,6
-fomc-corpus,1994,"On the matter of policy, I have been impressed that things keep coming in a bit stronger than expected. I realize we are beginning to see indications of some slowing, probably as a result of the actions that were taken earlier this year. Even so, I think the risks for the rest of the year, given the depreciation of the dollar and the improvement on the external side, are more on the up side than on the down side. So the question is when do we purchase insurance, if you will, against inflation. I would be inclined to go with your recommendation of not making a move this time, but I would expect the need to purchase some amount of insurance in terms of increased pressure on fed funds rates in August. You noted the possibility of a telephone conference during the intermeeting period. Just being new to this whole business, if we go with asymmetric, what does that really mean? Does that mean any amount of movement between now and the next meeting? I know symmetric means 25 basis points.",202
-fomc-corpus,1994,No.,2
-fomc-corpus,1994,It doesn't?,3
-fomc-corpus,1994,It doesn't mean that.,5
-fomc-corpus,1994,Okay.,2
-fomc-corpus,1994,We don't have a specific formulation. Asymmetry merely means a general sense of the Committee's disposition or the direction of our bias.,27
-fomc-corpus,1994,How long we should expect you to wait before making a change?,13
-fomc-corpus,1994,"No, I have tried to articulate this and I have been much too specific, so I'll call on Don Kohn. [Laughter]",28
-fomc-corpus,1994,"As I said in my briefing, the use of asymmetry in the past has been an expression of the Committee's disposition about how it would like to react to incoming data. If you think the risks are more on one side than on the other and if for example you would like to react to stronger data before you reacted to weaker data, asymmetry would send a signal to the Chairman that when the data come in a bit to the stronger side, or the data don't suggest a weakening that you would like, he should give serious consideration to a firming move, acting on behalf of the FOMC, or to having a conference call.",129
-fomc-corpus,1994,Fine--,2
-fomc-corpus,1994,It's sort of leaning to one side in reacting to incoming data.,13
-fomc-corpus,1994,"Let me be very specific using Jerry Jordan's CPI as the model. Let us assume our normal expected CPI just for the sake of argument was .3 percent and we were asymmetric toward tightening. If the CPI came in at 0, we probably wouldn't move. If it came in at .6 percent, we would tighten.",65
-fomc-corpus,1994,Regardless of whether we were symmetric or asymmetric.,9
-fomc-corpus,1994,"No, I'm just talking about asymmetric.",8
-fomc-corpus,1994,Does symmetric tie your hands?,6
-fomc-corpus,1994,"Well, let me give another example: Say we expect a CPI of .2 percent, we are symmetric, and the CPI comes in at -.1 percent or alternatively at .5 percent. This is a strained example, but there is a different disposition depending on whether one takes a specific figure as being an aberration or a more fundamental change. In today's environment, if we saw strong data we would, at least in my judgment, be more inclined to take the strong data as representing generally what's going on because everything else looks that way. Whereas if I saw a specific number, let us assume home sales dropped 200,000 or something like that, I would say I don't believe it; that figure is wrong. It's that sort of thing.",150
-fomc-corpus,1994,Is that fully clear to you?,7
-fomc-corpus,1994,"Yes, I am really clear on this. [Laughter] I am leaning toward the side of buying insurance on the up side, but I am a bit concerned about moving strongly one way or the other on any particular number. I think six-week intervals are enough time to look at things and see how they shape up. So, I guess I come out on the symmetric side. On the announcement side, I think we would be well off doing what President Boehne suggested.",97
-fomc-corpus,1994,Governor LaWare.,4
-fomc-corpus,1994,"Mr. Chairman, for all the reasons that you have suggested I support the recommendation for ""B."" Ordinarily, I prefer symmetric language, but in the current circumstances I think it's appropriate to indicate a bias on the up side, so asymmetric language is satisfactory to me. I think we have to make an announcement. I don't think we really have any choice on that. I think the precedent has been set now and it would be very difficult to avoid an announcement at this particular meeting. So I think something has to go out.",106
-fomc-corpus,1994,Governor Lindsey.,3
-fomc-corpus,1994,"Mr. Chairman, I agree with ""B"" for the reasons you indicated. However, I strongly, avidly am against asymmetry. My reasons are twofold. First of all, if we look at our four moves to date this year, the most efficient ones with regard to the move in the long rate relative to the move in the short rate were in May and in March, when we moved at a meeting. In fact, we had bond market rallies when we moved at a meeting. The next least efficient was in February, which was our first move, when we moved at a meeting. The most inefficient, the only one in which we actually had a bond market selloff, was in April on our surprise move--a surprise in the sense that it was not taken at an announced FOMC meeting. I don't think the market likes surprises; I think moving between meetings will buy us nothing; and it will cost us something on the long end of the market. Second, the question comes up on what data we should move. I don't think we want to move on employment reports (a) for the reason Jerry Jordan mentioned and (b) for the reasons you gave. You commented on just how inefficient and unclear the employment report data are; they are lousy in this respect. We don't know how to interpret them and we should not move on their release. With regard to moving on a price number, I have to agree with Jerry Jordan's assessment that, even though I would tend to be very concerned, I would want to wait probably for two bad numbers before I drew any certain conclusions. For example, you stated in the past that the homeownership component could move suddenly and that would bias the number. I cannot imagine a single number that would cause me to want to move between meetings, given the inefficient results we have seen to date on our past four moves. The only reason given for doing it is--your phrase was--to maintain the notion in the marketplace. Well, in fact, the marketplace isn't going to know anything about it until after the next meeting was over. And given that, based on current expectations, we probably are going to move at the August meeting--and I agree with your analysis completely--I see absolutely nothing to be gained and quite a bit to be lost, by an intermeeting move.",470
-fomc-corpus,1994,Can I ask Don Kohn--I don't disagree with your evidence of the four moves--but what is the history of market responses to policy actions taken at or in-between meetings? Would you know offhand?,42
-fomc-corpus,1994,I don't know offhand.,6
-fomc-corpus,1994,My recollection is that the proposition you state generally is not necessarily true.,15
-fomc-corpus,1994,But has it--,4
-fomc-corpus,1994,"It has been true this year, but that is four observations and you are enough of a statistician to know that you need five. [Laughter]",31
-fomc-corpus,1994,"I think in the past, Mr. Chairman, a number of these intermeeting moves have been made after releases of data. The markets often tend to move ahead of us and then barely react when we move--say, when we were in the process of easing. But that evidence is not definitive, I would say.",64
-fomc-corpus,1994,President Broaddus.,5
-fomc-corpus,1994,"This is a confusing period, Mr. Chairman. I thought you laid it out very well in your statement. And I guess I find it helpful in a situation like this to stand back sometimes from what's going on currently and refocus on our longer-term goals and objectives. We are on the record as aiming to gradually reduce the inflation rate and to try to minimize the cost of doing that by strengthening the credibility of that objective. We have made a lot of progress in reducing inflation in recent years, but it's pretty clear that that progress is at least slowing, maybe stalling, and that we are at some risk of losing ground. I would just briefly cite three things here. First, the economy has grown at a much stronger pace over the last three quarters than we had anticipated earlier. As a result the unemployment rate is currently at the bottom of the range of estimates of the NAIRU, as we all know. Now, in that situation I am not at all sure that the actions we have taken to date are sufficient to get the sort of steady inflation picture and gradual deceleration in general economic activity that the Greenbook is projecting. So far we have raised the funds rate 1-1/4 points, and some outside commentators refer to that as a strong cumulative move. But I think the record shows that historically it's still pretty moderate. The second thing that worries me is that I think inflation expectations are stuck at too high a level and they may even be rising. The 30-year bond rate has risen two full percentage points from its low point back in October. Now, I know we don't fully understand what has caused this backup; probably real factors as well as inflationary factors are involved. But it's hard for me to believe that at least some of that is not signalling an increase in inflation expectations. And finally both the Greenbook and I think it's fair to say the great majority of private forecasters are telling us we need to raise short-term interest rates further just to maintain the current inflation picture. In these circumstances, it seems reasonably clear to me that we need to make another fairly strong move toward restraint, and I guess I see no reason to wait. It seems to me sooner is better than later, and I think a good case can be made for increasing the funds rate 1/2 point this morning, quite apart from any particular focus on the dollar. My estimate would be that near-term expected inflation rates are somewhere between 3 and 3-1/2 percent. That would mean if we moved the nominal funds rate to 4-3/4 percent at this meeting, we would have moved the real funds rate from 0 to 1-1/2 percent currently. I don't think that presents an undue hazard to the economy at this juncture. On the contrary, it could save us a lot of grief later on. At a minimum, I think we should raise the rate 1/4 point today with the understanding that we would raise it promptly further if incoming information indicates a need to do that. I don't like 1/4 point increases generally, but I think that in the current situation such an increase would be better than none. I am still not sure I know what an asymmetric directive is, but I think I favor it in these circumstances. As far as the announcement is concerned, I agree that we need to make some sort of announcement this morning. A little more generally, let me just say that on a couple of occasions this year in addition to saying what we have done, we have had some additional language in these announcements. Since those kinds of statements also can affect expectations and perceptions of policy and presumably longer-term interest rates as well, I think it would be good to do it a little more systematically if we are going to do that in the future. Perhaps we could have some alternative announcement language in the Bluebook ahead of meetings along the lines of the current inclusion of alternative directive language. But we can address that later.",802
-fomc-corpus,1994,President Forrestal.,4
-fomc-corpus,1994,"Mr. Chairman, as I look at the domestic economy alone, I have a slightly different view than you do in the sense that, as I said yesterday, I think there is more symmetry there than asymmetry. That is to say, in my mind the risks are probably fairly evenly balanced. It's pretty clear from the evidence and from the discussion we have had around the table in the last day and a half that the expansion is moderating, and I think the big question is whether it is going to continue to moderate to a sustainable level, whether it is going to get down closer to potential. This is not to deny in any sense that there may not be some inflationary pressures that are building. So, I think the best course for monetary policy at the moment is to pause and see what effect our actions totaling 125 basis points have had on the economy. I don't think waiting until August 16 presents any particular problem. To me it's very, very clear, as you have indicated, that any move today would be interpreted by the market as intended to support the dollar, and I think that would be a mistake for reasons that have been articulated by several people. It's also important to remember that the basic problem with the dollar is not widespread but really with the yen and to a lesser extent with the deutschemark. Therefore, the inflationary effects will be minimal, at least in the short term. I think there is one risk or one problem that may emerge from no action in that it may reinforce the impression held in some quarters that the United States really wants a lower dollar and we are following a policy of benign neglect. But I don't think there is a thing in the world we can do about that except perhaps urge the Treasury to keep saying things to the contrary. That leaves me, Mr. Chairman, with a view that we should adopt alternative B. My preference would have been for symmetry because of my view of the economy. However, if we are going to err, I would prefer to err on the up side, and therefore I can support an asymmetric directive. I also think that we need to make an announcement today, but we face a dilemma in that we have not yet dealt with this policy announcement question. It would be very helpful to get that settled soon and inform the market.",462
-fomc-corpus,1994,President Parry.,4
-fomc-corpus,1994,"Mr. Chairman, I would support alternative B because I think the extent and duration of the moderating growth are uncertain at this point. I do think, though, that we may receive information in the next several weeks that will indicate more clearly whether this moderating is going to continue, or if we are going to follow a path that is more closely aligned with that of the Greenbook. From my viewpoint if there ever was a good time for asymmetry, this is it. I also feel that having a conference call perhaps toward the end of the month is a good idea. It would give us an opportunity to review some of the statistics that are coming out, but in addition it would be an opportunity for you to share with us some of your own views about the testimony, which will have been completed as well.",164
-fomc-corpus,1994,"I forgot about that; that is an important point. It might be useful, irrespective of what is going on, just to have a telephone conference after Humphrey-Hawkins.",36
-fomc-corpus,1994,"Right. As far as an announcement is concerned, I think one is probably necessary following this meeting. It seems to me that to announce the fact that the meeting is over is subtle enough that I am sure markets could deal with that! Finally, unless I am missing something, the discussion about waiting until a bad CPI number comes out is one I am very troubled by. It seems to me that we spent the last six months telling people that we can't wait for bad inflation news before we act, that it takes 12 to 18 months for policy to have an impact on inflation. The tactic of waiting until a bad number comes out, for whatever purpose, is just an incorrect approach. In fact, such a number probably would be one I would want to react to least. Thank you.",159
-fomc-corpus,1994,President Melzer.,4
-fomc-corpus,1994,"I have a lot of sympathy for the views Al Broaddus expressed earlier. In terms of reasons to act, the dollar is not a reason to act. I think there is information in the behavior of the dollar. I accept what Jerry and others have said about the dollar/yen, but I think there is a depreciation going on more broadly on a trade-weighted basis. Basically, markets are going to set those levels, and we certainly are not going to set them through intervention nor for that matter in the short run through policy actions. In the long run, as you said earlier, Mr. Chairman, our policy actions matter a lot. Secondly, I agree with what Bob Parry just said: Incoming data are not a reason to act now, particularly real data, but even price data. I think the reason to act is to keep inflation and inflation expectations from rising and ultimately to make further progress toward price stability than we have managed to accomplish so far. What I have been looking at for some time, and I mentioned this before, is that we have a very large monetary stimulus put in train over the last three years that we have to offset. Really, all we have done in our own words is to get back to a neutral policy. I continue to think that markets are sitting there looking at what we have said, looking at what we are doing, and saying that 3 percent or higher inflation is okay with the FOMC. From their point of view, if they think they have figured it out, it's okay with them too; they will just go with the flow. But I don't think in the long run it's okay for the country. So as far as I am concerned the sooner we change that perception the better off we will be. Where I come out is that I would move at least as aggressively as we did last time. I'd move the funds rate up 50 basis points, and I would couple that with an increase in the discount rate of 50, maybe even 75, basis points. I would use the discount rate announcement to make it clear that we are acting because of concerns about domestic inflation and by implication not to defend the dollar. I might just say--now obviously I am interpreting events differently than others, so please take that into account--that from my perspective, not to do something that is fundamentally called for because of a concern about the perceptions about it is not a good reason not to do it. We ought to do what's right and we ought to explain why we did it. To conclude, as I assess things and look at the risk-reward tradeoff, I think there is little risk of somehow derailing this expansion. There is a lot of momentum out there and I don't think 50 basis points is going to derail it. As I said before, the incoming month-to-month data on the real economy are not important to me at this juncture, although obviously they are over longer periods of time. I think if we did move, it might allow us to get ahead of this inflation process. Now, we could well have some development over the next week or two that even in the short run would make our job a great deal tougher than if we act right now, which I think is a risk associated with waiting.",661
-fomc-corpus,1994,President Boehne.,5
-fomc-corpus,1994,"I favor staying where we are today both for international as well as domestic reasons. I agree with your observations that we would have to have a very large bullet to be credible in terms of the dollar, and I don't think we ought to use that today; it's much wiser to keep our powder dry and wait for a more demanding day. Hopefully, that won't come, but I think that is what we ought to do. On the domestic economy, we are moving from a higher growth path to a lower growth path. And I think we need to have a better sense of the magnitude of that adjustment and where we are likely to end up before we make an additional move. On the symmetry/asymmetry issue, the vaguer that concept the more comfortable I am with it. The more we try to define it and get specific the more uncomfortable I become. So, this notion of indicating a kind of disposition in a vague sense is fine. I think, however, that all too frequently in the past asymmetry has allowed us to key monetary policy on a particular statistic. We have had a run on employment numbers, for example, over various periods. The markets would anticipate that first Friday of the month, and they would move because they were trying to guess how we would move. That is not the kind of situation that we want to get ourselves into. I think we should react to a total evaluation of how we see the economy rather than a particular number on a particular day. So, as I hear definitions of symmetry and asymmetry that lead us more toward reacting to specific statistics, the less enthusiastic I am about it. However, if I were voting today, I could vote for either symmetry or asymmetry.",343
-fomc-corpus,1994,President Keehn.,4
-fomc-corpus,1994,"Mr. Chairman, I came to the meeting in favor of alternative B with a bias toward tightening. I think you made a very strong case for that choice, and I certainly support that. Even so, I would slightly favor symmetric language, not because I think an asymmetric policy is an inappropriate stance--I think our next move is likely to be toward tightening--but because I just am not sure what asymmetric language really buys for us. On the other side of that coin, we have had some bad experiences, it seems to me, with asymmetric language. May of last year comes to mind in that context. So, as long as we have a good sense as to what we want to do with policy, I think that is all we really need to operate. Therefore, I prefer symmetric language, but I don't feel that strongly about it. In terms of the announcement, it is a bit of a dilemma, but the choice that Ed Boehne suggests seems to be a good way of dealing with that particular problem.",205
-fomc-corpus,1994,Governor Kelley.,3
-fomc-corpus,1994,"I support your suggestion, Mr. Chairman, with ""B"" asymmetric. As far as an announcement goes, I like Ed Boehne's suggestion also. I would like to add that I don't think it's desirable that we tie ourselves into knots here trying to define asymmetry. It's not necessary for us to achieve precision there. To me, it's just a broad indication of a bias, or a leaning, or a concern, or whatever qualitative word you want to use, and that is quite adequate and quite useful to have available. I am comfortable to leave it at that.",116
-fomc-corpus,1994,President Stern.,3
-fomc-corpus,1994,"For the moment I am pretty comfortable with where we are as well as with the way I see things unfolding. So I would favor alternative B with a symmetric directive, which is my usual preference. Having said that, I do think we need to be careful here, though that is hardly new for monetary policy. There has been a lot of talk--Al Broaddus touched on this--to the effect that we have moved quite a bit and we have moved early and so on and so forth, but my reading of the historical record suggests that this is neither a large move nor a particularly early move. Now, other things are different, of course, that have to do with the economy--the stance of fiscal policy, and other things that we can enumerate. But I think we ought not to believe some of the rhetoric that is out there about the way policy has acted so far. We probably have not behaved as atypically as at least some commentators have suggested, and that suggests to me that over time we may well have considerably more to do.",211
-fomc-corpus,1994,President Hoenig.,4
-fomc-corpus,1994,"Mr. Chairman, I would point out that even our more pessimistic projections suggest that the economy is continuing to build some inflationary pressures and that they will occur through the end of the year. And so I think there is a need to move. It's not a matter of whether but when. I agree with you in the sense that I think doing so now would get things confused as to why we are doing it in terms of the international market. The law of unintended consequences might take over and we could have some further problems from that. With that in mind I would be inclined to take the ""B"" alternative with asymmetry toward tightening, and would look for an opportunity to do more. I have no problem about doing so in the intermeeting period if we have the opportunity. As far as announcing, I'd say we are down that track, and we need to announce. I think the announcement should be very brief and it should say at most that no action was taken.",196
-fomc-corpus,1994,Governor Blinder.,4
-fomc-corpus,1994,"I think that alternative B, which is to do nothing right now, is the prudent course. When you are into the game of fine-tuning, which we are forced into once we get this close to capacity, there is always a danger of oversteering. I think we should be mindful of that. I see the risks, as I think Bob Forrestal and Ed Boehne said, as fairly balanced, and we need to know a little more about how much of a slower gear this economy is going into right now. Since the last FOMC meeting, interest rates are up a tad; money growth rates are down; reserves have now been falling for three months or so; and the economy is giving off a feeling of a slowdown. It's also the case that fiscal policy, which hasn't been mentioned, was moving into its maximum contractionary phase in the first half of 1994, and it too works with a lag, although not quite as long a lag as monetary policy. Even though I think the risks are quite balanced now, I believe it would be useful to go asymmetric in order to cock the gun, so to speak. The asymmetry now says, I think, that we view it as extremely unlikely that we went too far in doing 125 basis points; that it's modestly likely that we have to go further; but combined with not doing anything now, that we are now in a waiting mode to get more information about the economy, because we are not quite sure. It leaves open the possibility that the 125 basis points were enough, but it expresses the view that there is some considerable likelihood that more will be necessary. I don't think--picking up on some of the other threads of conversation--that this decision should be triggered literally on any one number, be it CPI, employment, or anything. The other thing I wanted to say is this: It was mentioned that the markets will not know tomorrow whether we went asymmetric or not, which is true. But we are in this game for a lot more than next week. Roughly 45 days from today the decision will be made public, and I think this asymmetric directive, if we adopt it, will feel right in terms of the broader strategy that was started in February. It will give the impression that the Fed had a general long-run strategy, was pursuing that long-run strategy, and was ready to act if necessary. Now, it might in fact be that we do act in August or at the following meeting, or it might be that we don't. But I think the asymmetric directive is the right message to give 45 days from now rather than now. With regard to the announcement, I certainly strongly join what seems to be the consensus that we really have no choice but to make some kind of announcement. Here I agree, I think, more with Al Broaddus and Tom Melzer that saying something about what we are up to is, generally speaking, a good thing. Now, we probably don't want to try to draft something around the table, so if we want to make an extremely terse announcement now that says we didn't change the pressure on reserves or something like that, I wouldn't oppose that. But thinking a little longer run about operating procedures, I think the release of a few sentences pertaining to the policy decision would not be a bad thing after each FOMC meeting and probably would be a good thing.",687
-fomc-corpus,1994,"Larry, what was your view on the announcement?",10
-fomc-corpus,1994,I think we have to make a terse announcement.,10
-fomc-corpus,1994,Okay. Governor Phillips.,5
-fomc-corpus,1994,"Well, based on what we know now, I think that we will have to tighten more at some point. I really don't see the case now for 1/4 point moves, so when we do move I think it should be 1/2 point. I don't think our moves should be prompted by foreign exchange situations, against the yen specifically. I can go along with a pause for now, which would be the ""B"" alternative. I am becoming increasingly skeptical of asymmetric directives, I guess partially because it seems the definition always changes as to what asymmetry is, depending on the circumstances. So, I worry a bit that we are injecting more uncertainty into the market by leaving open the possibility of moves. Having said that, I do think it's becoming increasingly clear that we will have to move on the tightening side. So, while I prefer symmetry, I probably would not vote against asymmetry. I think that a short announcement at this point would be appropriate. I would like to get to the final decision on what our policy is on announcements because I think it is probably appropriate that we adopt this approach of using a few sentences. But since we have not established a policy at this point, I'd go with a terse announcement just to get us past this period.",255
-fomc-corpus,1994,President Melzer.,4
-fomc-corpus,1994,"Alan, I forgot to comment on the announcement. I agree with announcing something. I guess I am wondering whether, if we just had Joe Coyne, as spokesperson for the Fed, contact the wire services and say that the meeting was concluded and that no actions were taken, that might give us a little more room in terms of setting a precedent. If you actually make an announcement--",77
-fomc-corpus,1994,I think that's basically what we will do.,9
-fomc-corpus,1994,That is what we have been doing.,8
-fomc-corpus,1994,It would be Joe.,5
-fomc-corpus,1994,"Well, no, it actually has been a statement by the Chairman in the earlier--",17
-fomc-corpus,1994,"I think what I have suggested for today, although I have not been explicit, is that Joe would do it.",23
-fomc-corpus,1994,As spokesperson for the Fed or whatever.,8
-fomc-corpus,1994,"In the past when we have had meetings he said the meeting was still going on or the meeting was about to be over, or something like that. He has done that in the past.",38
-fomc-corpus,1994,I just didn't think it would be a good idea to have a statement in your name on this.,20
-fomc-corpus,1994,"Yes, I agree with that. There seems to be general unanimity on the announcement issue; we will work something out. There also was a fairly broad consensus for ""B"" and a modest majority for asymmetry. So, why don't we formulate that in the text.",55
-fomc-corpus,1994,"""In the implementation of policy for the immediate future, the Committee seeks to maintain the existing degree of pressure on reserve positions. In the context of the Committee's long-run objectives for price stability and sustainable economic growth, and giving careful consideration to economic, financial, and monetary developments, slightly greater reserve restraint would or slightly lesser reserve restraint might be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with modest growth in M2 and M3 over coming months.""",96
-fomc-corpus,1994,Call the roll.,4
-fomc-corpus,1994,Chairman Greenspan Yes Vice Chairman McDonough Yes Governor Blinder Yes President Broaddus No President Forrestal Yes President Jordan Yes Governor Kelley Yes Governor LaWare Yes Governor Lindsey No* President Parry Yes Governor Phillips Yes,45
-fomc-corpus,1994,"The next meeting is on August 16 and lunch is now served. *Secretary's note: At the end of this meeting, Mr. Lindsey indicated to Chairman Greenspan that his dissent on the operational paragraph was based on a possible misunderstanding of the implications of the bias in the directive. His dissent was from a directive that he perceived as calling for a more or less automatic tightening of policy during the intermeeting period. On the understanding that any tightening during the intermeeting period would depend on further indications of inflationary developments, Mr. Lindsey requested that his vote be recorded in the minutes as in favor of this policy action. Chairman Greenspan agreed that his request was appropriate.",134
-fomc-corpus,1994,"Before we get under way today, I want to welcome Governor Janet Yellen who is attending her first Committee meeting.",23
-fomc-corpus,1994,Thank you.,3
-fomc-corpus,1994,"She was exposed to her first Board meeting yesterday. You survived that, and I wish you well today.",21
-fomc-corpus,1994,Thank you; it's good to be here.,9
-fomc-corpus,1994,Cathy Minehan is at her first meeting as President of the Boston Bank and we congratulate you.,20
-fomc-corpus,1994,Thank you.,3
-fomc-corpus,1994,"Finally, while Bill Conrad has been here before, this is the first time he is representing the Chicago Bank. So I have many announcements--more than usual for this organization. Let's start by having somebody move to approve the minutes of the July 5-6 meeting.",54
-fomc-corpus,1994,So move.,3
-fomc-corpus,1994,Is there a second?,5
-fomc-corpus,1994,Second.,2
-fomc-corpus,1994,"Without objection. Peter Fisher, would you take us through the foreign operations Desk report?",17
-fomc-corpus,1994,Thank you. [Statement--See Appendix.],9
-fomc-corpus,1994,"On that there are two ongoing thoughts that are supposed to be insights into what happened. First is the notion that the moves on the part of those two central banks were suggestive of the fact that declines in European rates had come to an end. The other is that because the public debt/GDP ratio in both countries is exceptionally high, the rise in interest rates was suggestive of the fact that the deficit might be more of a problem. To which of those two, if any, do you subscribe to explain this phenomenon, which scares every central banker I know?",113
-fomc-corpus,1994,"I think the market's immediate reaction was more the first of the two you mentioned. I think that the extremity of the reaction, if I can distinguish the fact of the reaction from the extent of the move once it got going, was more of a gnawing anxiety about the general fiscal condition of Europe--of all the European countries put together. But untangling those two anxieties in a relatively short time is quite a problem. I would point out, if you'll forgive me, Mr. Chairman, that the very technical aspects of the announcements were not handled as elegantly as they might have been. The Italian announcement came with 60 seconds left in trading on LIFFE futures. There were many people in London with very bloody fingers trying to cut back their positions. That certainly contributed to the very extreme reaction on that day. Clearly, those two countries are the outliers on the fiscal side in Europe. No one in Europe had been anxious about a general backup in short-term rates beyond the fact that everyone expected the UK to begin raising rates sometime soon. As the market digests what happened and distinguishes the stronger countries from the weaker countries, there may be some improvement, but I wouldn't expect that very soon. The markets may have a hard time digesting and untangling whatever it is the Bundesbank does on Thursday. I think that there is likely to be a period of continued gnawing in European bond markets for several days to come.",292
-fomc-corpus,1994,Further questions for Peter?,5
-fomc-corpus,1994,"I have one, Peter; it's sort of in two parts, but they are part of the same question. Markets tend to latch on to things in faddish ways. Something was almost implicit in what you said, and I want to see if you want to make it explicit--it's about the fad that dollar/yen dances to the U.S./Japan trade talks or events, that is, to monthly announcements of the trade figures or to the talks. It was almost implicit in what you said that the market seems to be getting off that fad. Did you mean to say that? And then the second part is related to the looming date, September 30th.",135
-fomc-corpus,1994,"I think the market is faddish; I'll agree with you on that. I think there is an opportunity for the market to be less anxious about the trade talks. I'm of the school in interpreting the market's reaction to trade talk announcements that believes the market is biased in its reactions. When the announcements tend to be explicit, mundane, and mechanical, however strongly articulated, e.g. ""we are imposing a 60-day deadline,"" the foreign exchange market, dollar/yen, can shake that off fairly easily. What is harder to interpret is what happens when the announcements come in a setting or context that the overall Japan/U.S. relationship or the overall economic relationship including exchange rates and trade flows is at stake, and that's what is being argued about here or that's why this announcement is being made. That then tends to undermine the confidence in dollar/yen and the confidence that the Administration would stick to a stronger dollar rhetoric. So I think that there is a nuance that the market is really very quick at picking up on, whether the announcements are couched in this broad overall relationship or whether they are couched in the specifics of the trade announcement at hand. I think that on reflection, the end of July announcement by the U.S. side was seen in the mechanical context. The market reacted negatively actually to the Japanese announcement that they would walk away on September 30th if sanctions were imposed. Now, that announcement fell on what probably is the thinnest foreign exchange market in the world, which is New Zealand when Australia is on holiday in early August. [Laughter] The big reaction we got was clearly related to the fact that no one was trading there. Some people stayed in New York Sunday afternoon to sell into it and see what was there. I think everyone then realized that was 60 days away and 60 days is eternity for the foreign exchange markets, so we will worry about that in the period to September. I will say regarding the period to September, what has made me more anxious than anything is seeing a number of members of Congress write a letter to the Administration saying they hoped the Administration would be tough in the trade talks. I think the foreign exchange market could very easily focus on a date, but that is the sort of thing the exchange market can get riled up about. If there were even a modest shift in a few members of Congress choosing to run on a trade issue rather than a health care issue, that could get the foreign exchange market very engrossed in the run-up to that date. I think that could be difficult.",516
-fomc-corpus,1994,Thank you.,3
-fomc-corpus,1994,"Any further questions for Peter? If not, Joan Lovett will you carry us through domestic operations?",20
-fomc-corpus,1994,"Thank you, Mr. Chairman. [Statement--See Appendix.]",13
-fomc-corpus,1994,"Questions for Joan? If not, would somebody like to move to ratify the actions of the Desk since the last meeting?",25
-fomc-corpus,1994,So move.,3
-fomc-corpus,1994,Second.,2
-fomc-corpus,1994,Without objection. Let us move on to the economic situation and Mike Prell.,16
-fomc-corpus,1994,"Thank you, Mr. Chairman. [Statement--See Appendix.]",13
-fomc-corpus,1994,"In looking at the divergence between the permits and the starts in this morning's release, as you know, it could possibly be that we had a significant increase in non-permit single-family starts. Do we have those data yet?",46
-fomc-corpus,1994,"No, I don't have information on that. It's very clear the ratio of starts to permits for the single-family sector is extended well beyond the norm. Given the better statistical reliability of the permits series, I think that this argues pretty strongly for starts likely to have been less robust than this report suggests. But we had a level of single-family starts for this quarter in the forecast that would still be below any reasonable adjustment, I think, of that single-family starts rate.",94
-fomc-corpus,1994,"Any further questions for Mike or, I might say for that matter, for Ted Truman who has no formal remarks to make? President Parry.",29
-fomc-corpus,1994,"Mike, in the Greenbook forecast inventory investment comes down to more traditional levels. And I think as a result the inventory/sales ratios, if I remember them from Part II of the Greenbook, also come down. Would you comment on the risks to the assumptions about inventory investment because it seems to me possible at least that we could see more inventory building in the forecast period than is incorporated in what may be a conservative forecast.",86
-fomc-corpus,1994,"I think it's a reasonably balanced forecast, given my suspicion that inventory investment in the second quarter may have been overstated. But I wouldn't want to make too big a point of that. The May figures held up very well; they were raised in the revised figures. To date, there hasn't been any evidence there. But we have, in essence, carried through a slightly higher level of the inventory/sales ratio, that having been achieved in the second quarter. We do not have a significant movement; the ratio begins to trail off very slightly in the latter part of 1995. In a sense, at that point we are beginning to get a little improvement in final sales and we begin to see the hint of a restoration of what we think is the secular downward trend in the overall ratio. We have anticipated in this forecast that the adjustment in stock levels relative to sales trends is going to occur in the distribution sector, particularly retailing. We have allowed in effect for a substantial degree of manufacturing inventory accumulation, which is the area where we might have anticipated the upside risk to have existed because of the tightening in supplies and some of the pressures on prices of materials and so on. Certainly, no inventory forecast is without its risks, but I think in this case the balance is not distinctly on one side or the other. We really are not uncomfortable in that respect.",273
-fomc-corpus,1994,Governor LaWare.,4
-fomc-corpus,1994,I'm a little puzzled by the projected levels of consumption expenditures and am trying to reconcile them with the relatively high continued levels of housing starts projected in the Greenbook as well as the further increase in light motor vehicle sales to the highest level since 1988. That just doesn't seem consistent to me.,59
-fomc-corpus,1994,"A compound question here, I think.",8
-fomc-corpus,1994,"A confounded question, I guess.",8
-fomc-corpus,1994,No.,2
-fomc-corpus,1994,I'm confounded at any rate.,7
-fomc-corpus,1994,"Let me try to be helpful with a few, brief comments. I think if we had to do the single-family housing construction forecast again today, we would still have in essence the kind of pattern we have, with some further erosion of single-family housing construction in the near term and then some firming over the course of 1995--the levels in the two years being pretty comparable and quite decent by historical standards. A fairly high level of existing home sales is also likely over that period. We have seen very strong sales of appliances and furniture. Even through July, the retail sales report shows considerable strength there. We would expect to see some ebbing of that strength and some deceleration in non-motor vehicle consumer durables outlays over the coming quarters. At the same time, we think we've reached a rather low level relative to the plausible trend in motor vehicle sales, in good part because of the shortage of some of the more popular models. We see a substantial ramping up of production going on currently and we are anticipating that sales will move up significantly in the next few months, and then we have a slight upcreep during 1995 with the continued moderate growth of income and employment. Our sense is that there probably is still some element of pent-up demand in the motor vehicles sector, just looking at what has happened to the stock of cars relative to the number of households and the aging in the stock and so on. Our forecast for next year, at just a little over 15 million for light vehicle sales, is certainly not high by the standards that we see in private forecasts and certainly not relative to the hopes of the automobile industry. I think they will have the capacity to supply that many cars and this is not an extraordinarily high level of durables expenditure overall relative to income or GDP. In fact, it's rather moderate in that sense. So I think there is a reasonable rationale for this path.",386
-fomc-corpus,1994,President Stern.,3
-fomc-corpus,1994,"I have a couple of questions, Mike. The first one has to do with the price forecast. How much of that is empirical as opposed to judgment? I ask because some preliminary work we've done suggests that if you look at capacity measures versus measures of price or wage inflation, they look pretty good into the early 1980s but then the relationship seems to deteriorate rather significantly. I'm curious what you see going on there.",86
-fomc-corpus,1994,"Well, we have at least 59 varieties of, or is it 57, I don't know, [Laughter]--57 varieties. The number has crept up over the years, of econometric models. So, we probably can encompass a pretty wide range of outcomes, given the conditioning assumptions of the degree of slack in labor and product markets, the acceleration or deceleration in activity, the signs we have seen of materials' cost rising, the implications of exchange rate changes for import prices, and so on. Our models have not done that poorly in capturing the general trend of things. Our analysis is that we are generally in the ball park of the natural rate, I think our forecast looks quite plausible. We have sort of a stabilization of the core inflation rate. One could say that there might be some offsetting influences here of abatement of the speed effects and the pressures on materials prices that we've had recently and some of the shifts in the influence of the exchange rate. I think this is not hard to justify at all in terms of a pretty wide variety of econometric models, but a significant element of judgment has gone into this. As I indicated, we simply do perceive a leveling out of things that have occurred in the last several months, the last few quarters. We foresee a generally stable labor market and level of industrial capacity utilization if the economy slackens as we have forecast. And so the broad macro conditions are sort of stable in this picture.",295
-fomc-corpus,1994,"My second question--as I understand the forecast, you have long-term interest rates coming down next year, is that right? [Mr. Prell: Yes.] How much precedent is there for a decline in long rates like that in circumstances where you have stable short-term rates and a continuing expansion? Obviously, we had some periods in the 1980s when long-term rates came down in the middle of the expansion but short-term rates were declining through at least some of that period as I recall. So I'm trying to look for history and my memory isn't that good about all that.",118
-fomc-corpus,1994,"I think you probably cited one period in which we could find it in the 1980s, but I'd have to reexamine that record. I'm not sure what precedent one would look for: What we are anticipating in this forecast is a moderation of economic expansion that extends this cyclical upswing with inflation not picking up at all. We think that the implied real rates of interest, given the kind of inflation expectations that presumably could prevail in 1995 with the continuation of 3 percent inflation, are fairly ample by historical standards. Even with the nominal rate decline we have, these real rates might be regarded as generous by historical standards. Some might say it poses the possibility of a downside risk. We think that there is probably still an element of extra liquidity premium in the market--some trepidation on the part of investors. People who had been throwing money into bond mutual funds with abandon until a few months ago are perhaps a little more cautious now. I think we can get a combination of some reduction in the inflation premium and some reduction in the liquidity premium that is probably still embedded in the long rates. The yield curve would still have an upward slope of some significance and certainly wouldn't look strange in that regard.",245
-fomc-corpus,1994,"Of course, we did have a period in the second half of 1988 and early 1989 in which short-term rates were moving up smartly and long-term rates were doing nothing.",39
-fomc-corpus,1994,President Jordan.,3
-fomc-corpus,1994,"Mike, I'm interested in your confidence levels for various parts of the forecast. Where are the surprises likely to be? If one starts a year ago, in your assessment in August and September as to the year ahead, at that point one of the things you talked about was a middling expansion and maintenance of the low interest rates necessary to support it. You were more optimistic about long rates coming down than was the marketplace. Your forecast for growth wasn't that much different in real terms than the Blue Chip or others, but you had more confidence on inflation and long rates. What's happened since is that we had a lot more real growth, a lot more employment growth, and a much different structure of interest rates, yet your inflation forecast has come out very close. What happened to inflation in between has been very close to what you were saying a year ago it was going to be even though the other circumstances associated with that inflation didn't obtain. If you now project out a year from now, what in your thinking is the most likely vulnerability of the forecast and where do you think the surprises are going to be--on the real side or the inflation side?",229
-fomc-corpus,1994,"I suppose I should have thought ahead to this kind of question; it comes up frequently. I don't really have any clearcut answer jumping into my mind at this point. I think there are risks that one could identify in every sector and I could identify them as having potential on both the upside and downside. So I don't think there is any key number here. On the inflation--sort of the Phillips curve--side of things given the outlook path, we certainly are somewhat at sea still about what the unemployment rate truly is right now. There is still, because of the change of surveys, an unusual degree of uncertainty about the seasonal [unintelligible] labor force participation would change radically from where it is now. We noted that we tried to come to grips with the news that we've seen recently, but that news involves a lot of interpretation. And so even given an output path, the degree of labor market slack that that implies is uncertain. Looking back at the recent experience and maybe leaning toward a slight degree of pessimism, one could argue that things really began to firm--the end of the deceleration in wages, the lack of evident further deceleration in core CPI--earlier this year, before we got the drop in unemployment that we've seen recently. This might suggest that more pessimistic views of where the NAIRU is, such as those embodied in the famous Kansas City Fed estimates, might be correct and that one could see some pressure emerging fairly promptly that we don't have in our forecast. On the other hand, as I said, the range of estimates we could come up with in this regard certainly embodies NAIRUs that would be below what we perceive the current level of unemployment to be and thus might give us a little more room to run. We've got a sustained strong investment pattern. We think that makes sense, but it is on the strong side perhaps of what some models would suggest. There is uncertainty about inventories, and certainly in the near term, if there were enthusiasm about building stocks because of concerns about supplies and price increases, that could give some impetus. We are continuing to see the evolution of the recoveries abroad, and in that kind of dynamic one could be off the mark in gauging just what impetus we are going to get one way or the other there. Given our own experience in the United States and maybe once things settle down, one could see a sequence of surprises in a positive direction. On housing, as we saw this morning, we've been surprised; and so we could be right or wrong there. I don't feel that this is, on balance, far out of line with the Blue Chip consensus in the sense that they have more growth and more inflation. They have higher nominal short-term interest rates, I think, ultimately perhaps. But again, that is also consistent with more inflation. So there is not a glaring inconsistency of our view with a lot of the private forecasts.",588
-fomc-corpus,1994,Governor Blinder.,4
-fomc-corpus,1994,"Mike, I have just a simple question about the news since the last Greenbook. You mentioned that June and July payroll employment came in stronger than you expected. Do you happen to recall what was built into the previous Greenbook for June and July?",50
-fomc-corpus,1994,"My recollection is that we were anticipating that the increase in the latest month would have been 50,000 or so less.",26
-fomc-corpus,1994,July?,2
-fomc-corpus,1994,Right.,2
-fomc-corpus,1994,"Including the 30,000 rise in the bias adjustment? If I'm not mistaken, the bias adjustment changed from Q2 to Q3.",28
-fomc-corpus,1994,"Without an explicit view about the bias adjustment. I think the bigger surprise was in June where we got a whopping increase in employment, and we were, as I recall, anticipating something again more in the 200,000 area. So I think, we have had a substantial upside surprise for those two months.",62
-fomc-corpus,1994,"Say, more than 150,000 jobs or something?",12
-fomc-corpus,1994,I think that is the order of magnitude.,9
-fomc-corpus,1994,"Okay, thanks.",4
-fomc-corpus,1994,"Any further questions for Mike or Ted? If not, would somebody like to start the round table?",20
-fomc-corpus,1994,"Mr. Chairman, the reports we have been getting on the District suggest that overall economic activity in our region is still growing at a healthy pace. My personal sense is that there may have been some moderation in the rate of expansion in our region from earlier this year, but not much and there may not have been any at all in some areas. Some parts of the District, particularly central and western North Carolina and northwestern South Carolina can only be described as booming in my view. Moreover, some of the recent commentary we are getting suggests that the northern part of the District and the West Virginia economy, which had been lagging behind the Carolinas earlier in the expansion, are now catching up. At our board meeting last week, directors from both Maryland and West Virginia gave particularly bullish reports on conditions in their respective state economies. In this regard, I might say that the adverse effects of cutbacks in defense spending, which of course are concentrated primarily in the northern part of the District, while not negligible by any means, seem to have been somewhat less severe than might have been expected earlier. Residential construction is off somewhat in the District as elsewhere, although there are still areas of very robust growth in housing, again especially in North Carolina. Offsetting at least some of the softening we are seeing in residential activity, there is a real surge in commercial real estate activity. Leasing is strong and in many District markets vacancy rates are down and there are a number of sizable new construction projects under way. Elsewhere, activity in manufacturing, retail, and the services sector continues to expand, according to the reports we have, although again perhaps at a somewhat more moderate pace than a few months ago. On the baseball front, we have bad news and good news in our District. The bad news is that somebody has estimated that the state of Maryland will lose about $3 million in business for every Orioles game that is not played. The good news is that the Richmond Braves are still playing. And if anybody needs tickets, let me know and I'll see what I can do! Nationally, it seems to us that the economy is still quite strong and we don't think either the apparent softening in consumer spending in the second quarter or the recent slowing in residential construction poses a significant threat to the expansion at this point, given what we know now. Deceleration in housing--I guess there is some question now with the data this morning as to how much deceleration is actually going on, but clearly there is some and that is not unusual I would argue for this stage of the business cycle and probably reflects the satisfaction of pent-up demand to some degree as well as the increase in mortgage rates. And the slowing in growth of real consumer spending, after all, follows three consecutive quarters of very robust growth in consumer outlays; and it seems clear now, as Mike Prell said, that at least some of this weakness reflects supply constraints, especially with respect to domestic automobiles. Moreover, the latest reports on consumer sentiment suggest that consumers are not backing off in any big way. As Mike said, the continued strong gains in jobs presumably are going to support growth in income and spending in the period ahead. Against this background, the Greenbook forecast certainly seems reasonable to us. Our guess is that nominal GDP may grow somewhat more rapidly in the second half of this year than the 4.7 percent annual rate of increase that the staff is projecting. Looking ahead to 1995, the key number as far as I'm concerned is the staff forecast of a 3 percent inflation rate next year. As we all know that forecast is predicated on the assumption that the Committee will move short-term interest rates up on an order of magnitude of perhaps a point by early next year. I think the staff is right in assuming that some additional restraint of this order is going to be necessary to contain inflation going forward, and personally I think it's important to begin that process now.",789
-fomc-corpus,1994,President Forrestal.,4
-fomc-corpus,1994,"Thank you, Mr. Chairman. Economic activity in the Sixth District is expanding moderately and we continue to out-perform the nation as a whole. The contacts that we have had since the last meeting indicate that their businesses really are doing quite well and there is very clearly an attitude of optimism both among the business people and the consumers that we have talked to. I think this optimism is borne out and confirmed by the numbers. For example, retail sales rebounded in both June and July and they are expected to remain healthy. Apparel, which had been weak for awhile, has been especially strong and again is expected to remain so. On the other side, sales of durables are beginning to moderate. We have not heard of any unexpected inventory buildup in the retail area. As a matter of fact, some retailers are telling us that they plan to add to their inventory stock. On the manufacturing side, we did have a tapering off over the summer, but this appears to be seasonal in nature. The contacts in our survey have indicated some optimism about orders as well as production six months from now. Inventories here also appear to be in line with the desires of manufacturers, and several contacts plan increases in their stocks of materials over the next several months. In the energy sector we are seeing better activity, particularly in Louisiana. The rig count was up from 127 to 136 in the month of May. We did have some tapering off also in single-family housing, but this has been affected by unusually wet weather. We do think that there will be a continued deceleration in this area. We have had some unexpected strength in multifamily housing in the District. There has been a lot of in-migration to the Southeast, and rental markets have tightened in many areas and rents are rising. On the commercial side, absorption is reducing inventories of space and effective lease costs are moving up. Tourism remains a strong point in the local economy. Since the last meeting, Mr. Chairman, I've spoken to several groups of business people around the District and there are two themes that seem to emerge from those meetings. The first is that most of them are reporting some input price pressures and, for the first time in a long time, I've heard that now to some extent they are able to pass those price increases through. The second theme is that they are experiencing labor shortages, not only for skilled people but for semi-skilled and unskilled. In our District at least, it's across the board and some firms are actually paying signup bonuses even for unskilled people. I thought that only applied to baseball and football players, but in fact clerks are getting them as well! As an aside, their problem with labor is exacerbated by the fact that as many as 50 percent of the applicants fail the drug test that the firms are giving. That is in spite of the fact that the firms have notices up on the premises that they will test for drugs--",591
-fomc-corpus,1994,That suggests that the literacy rate isn't very high!,10
-fomc-corpus,1994,"This may be unique to our District, I don't know; but certainly it's been reported almost universally among the people that I've talked to. It hasn't translated so far into a lot of wage increases, but I'm sure that will come. Just a word on the floods: The damages from the floods in south Georgia and a few parts of Florida and Alabama appear to be on the order of magnitude of about $750 million, that is about $250 million less than was originally thought. The estimate assumes rebuilding and replacing all damaged property and infrastructure but it does not include an allowance for lost business activity. Most of the losses were in the agricultural area. The flooding, of course, was extensive and it created many hardships for the people involved, but the economic impacts were quite limited because of the sparse populations in the areas affected. With respect to the national economy, I think that things are moving along at a fairly reasonable rate. Our forecast hasn't changed very much since the last meeting. We continue to differ with the Greenbook on two counts. Except for the very near term, we have somewhat stronger growth for the forecast horizon than does the Greenbook. And our inflation forecast in line with the GDP forecast is somewhat higher as well. We see inflation creeping up by the end of 1995 to the 3-1/2 percent level. In general, as I just indicated, Mr. Chairman, I'm really quite pleased with the outlook. Of course, our forecast also assumes some tightening of policy as well. If we can emerge from this current expansion with a somewhat lower cyclical peak in the inflation rate and we can successfully avert a recession, I'd be quite satisfied. Thank you.",336
-fomc-corpus,1994,President Parry.,4
-fomc-corpus,1994,"Mr. Chairman, may I simply improve upon my answer to Governor Blinder? In the latest data, there were upward revisions to April and May payrolls from what we were aware of at the time of the June Greenbook, a total of about 100,000. The increment to what we were expecting in June and July is about 150,000. So the total increment we have had is considerably larger than what I suggested. But the June-July increment is about 150,000.",101
-fomc-corpus,1994,Thanks.,2
-fomc-corpus,1994,President Parry.,4
-fomc-corpus,1994,"Mr. Chairman, trends in the Twelfth District economy are little changed since our last meeting. Employment has grown 1 percent during the past year with strong gains in many parts of the region offset by flat conditions in California. Idaho, Nevada, and Utah remain the three fastest growing states in the nation in terms of employment. Moreover, Arizona and the Pacific Northwest states are reporting year-over-year employment gains ranging from 2 to 4 percent. Unfortunately, California's economy still shows few signs of growth. Employment in the state has risen only .1 percent on an annualized basis since December, and July's level was off .5 percent from a year earlier. Moreover, the change from a declining economy in 1993 to a flat economy in 1994 has followed a pattern that does not suggest an imminent rebound. The flattening is due more to a cessation of large employment losses in areas such as construction, wholesale trade, and local government rather than to rising strength in other industries. In fact, there is only one sector, business services, that has shown consistent growth. Meanwhile, defense-related industries, banking, and communications continue to experience substantial job losses. As I'm sure you know, we are at the current time suffering from many fires throughout the District. It's a little early to estimate what the impacts are likely to be. I don't think there will be major impacts in dollar terms, but we are just entering the fire season, so it is something to keep a watch on. Turning to the national economy, our outlook differs somewhat from the Greenbook for the latter half of this year. We actually have a little more of a slowdown than was incorporated in the Greenbook for the second half because of the effects of the tightening moves so far, and also as a result of a decline in the amount of inventory investment. However at present levels of short-term interest rates, we clearly would see a strong bounceback in real GDP growth next year. Even with slower growth in the near term, I have significant concerns about the longer-term inflation outlook. Although estimates of slack are subject, as we all know, to considerable uncertainty, it seems likely that most if not all of the unused capacity in labor and product markets has been used up. That point certainly was emphasized in the Greenbook. Given the present stance of policy, we are running a substantial risk that the future trend of inflation will be in an upward direction. Inflation accelerates in 1995 in the Blue Chip consensus and in both the structural and vector auto-regressive models used by our staff. In our structural model, a significant rise in the funds rate in 1996 is required through the nominal income policy rule that is built into our structural model. Thank you.",549
-fomc-corpus,1994,President Hoenig.,4
-fomc-corpus,1994,"Mr. Chairman, the Tenth District continues to grow at a very healthy pace. Construction activity remains strong, although perhaps somewhat slower than the boom environment we saw just a few months ago. Manufacturing continues to improve, especially in durable goods, and we have seen continued employment growth there. Oil activity appears to be strengthening due to the firming in prices; that is no surprise. The agricultural sector will be okay, as record yields in a couple of the crops will be offsetting the lower prices that are expected. And the cattle market has strengthened as well. From what we see, our economy in the region should continue to be strong going forward. I want to share with you some data and anecdotal information that we have on bank activity in our District. We have seen some increased interest in the use of the discount window in the last several weeks. For all District banks, loan-to-deposit ratios have increased from about 56 percent in March to an estimate of about 65 percent in June. At banks that inquired about borrowing, loan-to-deposit ratios have increased from around 60 percent to almost 75 percent. So we are seeing some liquidity interest there. This reflects loan growth of about 14 percent in our District. The reason given by banks for this growth is very strong loan demand across the board, not just in agriculture. It's interesting that this also is true of our larger banks; some of the smaller banks that have come and asked us about borrowing have indicated that their upstream banks have been less willing to lend to them because of their own liquidity needs associated with outside lending, which is reflected in their increase in loan-to-deposit ratios as well. This is supported to some extent by the fact that deposit growth in our banks, on which they rely heavily, has grown at about half the rate of that for loans. Also, both the larger and smaller banks around the District report that they have eased their credit standards, that the loan demand is there, and that the banks want to make loans. We see some heavy competition throughout the District for loans. So the banking environment has changed, I think rather dramatically, in the last two years. On the national front, we like others, see GDP growth going forward above its potential if we leave policy unchanged and we also see the inflation rate pushing up well above 3 percent next year. So basically, we are in agreement with the staff's forecast and see some increasing pressures in the future.",495
-fomc-corpus,1994,President Minehan.,4
-fomc-corpus,1994,"Mr. Chairman, the New England economy continues to grow. June employment was about 2 percent above the year-earlier level, and the regional unemployment rate is about the same as the national average, with rates in several states well below the national figure. Looking at the region, there are big differences state to state. Massachusetts and New Hampshire are growing above national rates while Connecticut bumps along not growing much at all, at least in terms of employment. Job growth has been concentrated in the services industry, especially business services. Construction and wholesale/retail trade also have been expanding reasonably strongly. Services jobs are commonly characterized in highly pejorative terms, at least in the First District. And this pattern of recovery has left many consumers and businesses skeptical that the recovery is for real. Even more sophisticated observers of the regional economy who recognize the high quality of many services jobs find themselves frustrated at their inability to determine what is driving the expansion of these services industries. In constrast to historical experience, manufacturing employment in New England has fallen during this recovery. In the last few months, however, the job decline seems to have ended and our informal conversations with regional manufacturers have had an increasingly positive tone. Firms are seeing some materials cost pressures and, for the first time in a long while, some companies are passing these price increases along. Retail sales are fairly strong, though the environment is highly promotional and margins are flat. Inventories are said to be lean. Our little contribution to the inventory story here is that one major catalog dealer just ran out of the items that everybody wanted this summer. This really puts them in quite an embarrassing position since they sell themselves largely on their ability to deliver things in a certain short period of time. The one area that is showing signs of slowing is housing. Contacts report that sales agreements have fallen during June and July in response to higher interest rates. Statistics on sales and construction still look quite good, but of course they reflect decisions that were made some months ago. On the subject of the national economy, based on the strength of the employment data over the last several weeks, we think that the economy may well be stronger in the near term than the Greenbook forecast. We would expect to see some overshooting of even our estimate of the NAIRU in the short run as a result of that, and we would expect also to see the GDP numbers for the second quarter at 4 percent or better when they are finally revised. That could mean stronger third-quarter numbers. Over the longer term, we have a little different view than the Greenbook forecast, particularly since the Greenbook incorporates a degree of tightening that we are not quite comfortable with. We are interested, Mike, in whether you ran any numbers on what a somewhat slower rate of tightening might produce next year in the way of inflation and GDP growth. I am looking, for example, at the DRI forecasts, which tend to have less monetary tightening, somewhat similar if not lower GDP growth, and just about the same inflation numbers built into them.",607
-fomc-corpus,1994,I think DRI is perhaps in the lower part of the spectrum right now.,16
-fomc-corpus,1994,Yes.,2
-fomc-corpus,1994,I think they have about a half percentage point increase in the funds rate in the second half of this year and nothing after that.,26
-fomc-corpus,1994,"Yes, they actually have rates backing off, I think.",12
-fomc-corpus,1994,"Right, I think they have some modest easing next year and bond yields come down a bit more than in our forecast, and yet they have somewhat weaker growth over the next six quarters. In terms of what a more gradual rate increase would produce if one used our quarterly model, the distinctions, as I hinted in my remarks, would be modest.",69
-fomc-corpus,1994,Too short of a period of time perhaps?,9
-fomc-corpus,1994,"Well, we are talking about rather small differences. A 1 percentage point change in the funds rate done immediately according to our quarterly model will only take several tenths off GDP growth by the second half of 1995. And it only means a couple of tenths or so on the CPI. So, if you simply select a more gradual rise, the differences are going to be even smaller. I guess what we are suggesting is that, in our judgment, the tilt begins to be most likely in an upward direction in terms of inflation right now, that is, given that we feel we are essentially at full employment.",125
-fomc-corpus,1994,"Yes, and I think we would agree with that.",11
-fomc-corpus,1994,"Faster growth will mean some additional tightening and the probability at least of an upward tilt, but only very gradually; it's a question of degree.",29
-fomc-corpus,1994,"Okay, President Boehne.",7
-fomc-corpus,1994,"Thank you, Mr. Chairman. The Philadelphia District economy continues to grow modestly, although still less than the nation as a whole. Retailing, bank lending, and manufacturing reflect this general assessment. Employment growth in fact has strengthened some in the District. The perception, however, is still one that jobs are hard to get, and high profile layoffs are a major contributor to this perception. There is a fairly widespread feeling that the second half will be slower than the first. There is also some anxiety about how much slower. There is in addition some of the skepticism that Cathy has picked up about the durability of the expansion. Our survey of manufacturing is picking up stronger price pressures, particularly in the metals area. More generally, however, wage and price pressures remain largely contained with most firms still emphasizing cost containment to stay competitive. The national economy, while slowing, in my judgment is still growing solidly. The growth in employment plus strength in equipment spending and a stronger outlook for exports are major pluses. Negatives or question marks are in construction and inventories. On balance, while slower-paced growth is likely, the risks do seem to be more on the up side than the down side. Likewise for future inflation, the risks also seem to be more on the up side than the down side. The capacity utilization relationships, I think, point toward a skewed upside risk for inflation, and also the signs in the pipeline--commodity prices, prices paid, prices received--and the attitude in some industries that one can indeed pass along some cost increases, I think, are blinking caution at this point.",320
-fomc-corpus,1994,President Melzer.,4
-fomc-corpus,1994,"With respect to the national economy, I think the view that GDP might slow to a sustainable pace without further timely Fed action has been resolved in the negative. Employment growth continues to be strong, retail sales held up well in the second quarter, and inventories remain low relative to sales. At the same time, there is increasing evidence of inflation not only in the narrow areas that Ed mentioned, but I think in the broader measures of wages and prices as well. For example, the implicit GDP deflator rose by about 2.8 percent at an annual rate in the first half of 1994 compared to 1.2 percent in the last half of 1993, which is a marked increase indeed. Looking ahead, for what it's worth, the Greenbook expects the CPI to rise at a 4 percent rate in the third quarter and the employment cost index at a 4-1/2 percent rate, albeit there are some special factors affecting the latter index. Such increases, should they materialize, will not go unnoticed in the current environment where there are increasing concerns about price pressures. Accordingly, as I have felt for some time, the risks are clearly on the side of rising inflation. I would also note that the recent increases in bank credit are striking, with business and consumer loans up at annual rates in July of 17 and 23 percent respectively, and that is a trend that has been building for some time. Growth of the broad aggregates has picked up as well, suggesting money and credit conditions that are quite consistent with rising demand and inflation. With respect to the District, activity continues to expand at a solid pace, albeit more slowly than nationally in contrast to earlier in the expansion when we were outpacing the nation. A significant sector evidencing weakness recently has been transportation equipment. However, following their annual two-week shutdowns during July, the District's major auto plants have resumed production at or above June levels. While production is slated to slow again later in the year, this is attributed to model changeovers or plant refurbishings and modernizations. Recent declines in sales, according to industry sources, result from exceedingly low inventories in certain models, not from slowing demand. It seems to me that the pricing behavior of auto companies confirms this view. Housing activity remains at relatively high levels in the District, with many areas reporting shortages of housing for sale and rising prices. Commercial real estate activity continues to improve. In Memphis, for example, the office vacancy rate is at a 6-year low, and industrial construction is headed toward a 10-year peak. Crops are generally in good condition throughout the District, with record or near-record cotton and rice crops in some District states. Thank you.",546
-fomc-corpus,1994,President McTeer.,5
-fomc-corpus,1994,"The Eleventh District economy is essentially unchanged from my last few reports. The tone in our directors' meetings is essentially unchanged. The tone of our Beigebook respondents is slightly stronger this time than it has been recently. Price pressures in the District seem to be concentrated in construction-related materials, paper and packaging products, and very little price pressure is noticeable in retail stores. On important national issues, our economists tell me that we are at full employment, that the inventory buildup is largely voluntary, that the slow growth in the monetary aggregates that we have been having is largely benign, and that the risk in the forecast is on the upside rather than the down side both for real growth and for inflation. On the weakness in retail sales that we have had in the past few months, I might mention that one national retailer based in Dallas reports that in the last few weeks, particularly in the pre-school season, their sales have been excellent; they have been above expectations. They also report that price increases are hard to come by. I give you an early warning, at a couple of our board meetings, our banker directors, who all tend to be representatives of smaller banks in our District--[Laughter]. Well, it's a long story, and hopefully the story is not repeating, but what they are reporting is that competition for loans is getting very aggressive and the large banks are so aggressive on pricing and credit standards, that they wonder if they aren't making some loans that should not be made.",297
-fomc-corpus,1994,Are they just wondering or do they know for sure?,11
-fomc-corpus,1994,Bet on it.,4
-fomc-corpus,1994,We have had the same reports in the First District. It seems odd that bankers should be telling the media that they are making loans that they shouldn't be making.,32
-fomc-corpus,1994,But it's a bank down the street; they are not doing it; it's a bank down the street.,21
-fomc-corpus,1994,"No, they even are saying that they are leaning over backwards because of the competition.",17
-fomc-corpus,1994,"Listen, any banker who doesn't make some loans he should not have made is not doing his job. The only trick is to figure out which of those that he has made are in that category.",39
-fomc-corpus,1994,Present company excepted please!,6
-fomc-corpus,1994,Doubtless.,4
-fomc-corpus,1994,Diversify.,3
-fomc-corpus,1994,President Stern.,3
-fomc-corpus,1994,"The Ninth District economy continues to be robust. The strength remains broadly based whether you look at manufacturing, construction, natural resources, or to get the demand side, consumer spending and so forth. Both the objective measures of activity and the anecdotal evidence, I think, are consistent with the kind of performance we saw in the national economy in the first half and suggest to me that we will see pretty good strength continuing in the second half of this year as well. Jobs are plentiful in many, many areas both geographically and across different industries and skills. I'm struck by--business people are usually anxious to share their problems when they come across a Federal Reserve official, but they haven't had a lot of problems to share apparently. There are two exceptions to this generally positive picture. One is that some of the wheat producing areas have a problem with too much moisture and that may affect things there and may back up into the condition of some of their lenders as well. And home sales have slowed a bit, particularly in the Twin Cities, but that has to be put in the context of having come off two very strong years of home sales in the metropolitan area.",229
-fomc-corpus,1994,Do you expect problems in the spring wheat crop to be serious?,13
-fomc-corpus,1994,"In parts of North Dakota and Minnesota where they have had a fair amount of moisture, yes. It's going to affect both yield and quality.",28
-fomc-corpus,1994,"Does that spill over into Saskatchewan, do you know?",11
-fomc-corpus,1994,"I don't know. With regard to the national economy, the incoming data haven't affected my view of things from the last meeting. I think we do have continued strong growth in demand. In the second half, I see the economy probably growing a bit slower than it did in the first half, but I'm not expecting a lot of slowing based on what I can see going on here. As I hinted earlier, I'm uncertain what this means for inflation because the relationships between capacity and price or wage pressures don't seem to me to be as robust as they were in the early 1980s. In those circumstances, I tend to fall back on a few things that I think I do know having to do with what we might expect for labor force growth and for hours worked per employee. When I go through that kind of arithmetic in my head, I come to the conclusion that we will have to be lucky to avoid a building of inflationary pressures here if I'm right about the strength of demand.",197
-fomc-corpus,1994,Governor Lindsey.,3
-fomc-corpus,1994,"Thank you, Mr. Chairman. I noticed in the Greenbook projection a substantial decline in the rate of growth in domestic final sales relat ve to GDP, and I think that will come true. I have distributed a table that I've based on something I've been playing with for a number years since I didn't know what was happening: It involves distinguishing NIPA personal income from the money that households actually have to spend. It's based on a fairly accurate theory that you can avoid taxes nowadays, but to do so you can't spend the money. [Laughter] To show the adjustment--I'm going down the chart, line by line--wages basically pass through to cash flow. Interest does, if you receive it, but most household interest-bearing assets are actually held in such things as 401Ks and never accrue in a cash form directly to the household. And so the adjustment here is that I take both taxable and tax-exempt interest, which obviously does flow through to the household, as a share of total NIPA interest.",205
-fomc-corpus,1994,What are you doing with imputed interest?,9
-fomc-corpus,1994,With imputed interest? Imputed interest is not cash flow.,13
-fomc-corpus,1994,"No, I understand that, but it's in the NIPA.",13
-fomc-corpus,1994,"But it is in the NIPA, that is correct--in proprietary income. The same thing would be true for dividends. It's a little challenging because a lot of what NIPA considers to be proprietary income actually may take the form of business-type consumption. And so what I do again is to take the share that the taxpayers actually report as the share of total NIPA-based proprietary income. With transfers, I'd like to thank the Research Division here. I learned a lot about medical transfer payments which turn out to be a substantial portion of transfers. I'm taking those out because if Medicare reimburses your doctor or if your insurance company reimburses your doctor, you really don't see the check, so that is taken out of transfers. The same thing is true with other labor income which is paid into pension plans or health plans.",164
-fomc-corpus,1994,There are also directors' fees in that line which should be in the cash flow.,17
-fomc-corpus,1994,It probably would feed through to cash flow and I'm willing to stipulate an adjustment several points to the right of the decimal point for that. 1. A copy of the table discussed by Mr. Lindsey is appended to this transcript.,47
-fomc-corpus,1994,It disappears in the rounding.,6
-fomc-corpus,1994,"Especially for Federal Reserve directors, which may not even show up as an asterisk!",17
-fomc-corpus,1994,Barely.,3
-fomc-corpus,1994,"Rent and farm income--most of this number is actually income on owner-occupied houses. I always reassure Susan that we have a higher income than we thought because we live rent free in the house, and she just laughs at me because we can't spend the money and indeed I believe her when it comes to assessing our household cash flow. The other point on this is farm income. Farmers generally have no income. It's amazing that the industry still exists given how much they report on their tax returns. The government would regularly make money in a budgetary sense by making the farm sector tax exempt. But the easiest thing to do for this purpose, as far as I'm concerned, is just to zero it out. I take out social insurance contributions and personal taxes, and what's left is the difference between disposable personal income, on a NIPA basis, and disposable personal cash flow. You'll note that one is substantially below the other. I then compared that to personal consumption expenditures. And, indeed, looking at NIPA we might take a rather sanguine view of the household position because in fact during the last year, which was a very strong year for household employment, income actually grew faster than expenditures. But if you compare it to cash flow, and here I think it's important to take out the third-party medical payments that pay for part of medical personal consumption expenditures, the number to compare would be 205.2 in spending versus 155.1 in cash flow. And it suggests that in fact the increase in household spending was much more than the increase in the actual cash that they are seeing. Now, households could do this for a long period of time. Where I see this as of concern is that it can't go on forever. The difference between cash flow and income, in fact, I think is consistent with the double-digit rates of growth we have been seeing in installment credit. The question is why are households doing this to themselves. I think the Michigan survey had good reasons for it. We created for other good reasons a great buying opportunity in the last year for houses and cars. The survey asked people why, for example, now is a good time to buy cars. Well, back in July of 1993, 38 percent said it was because prices are low, and that percentage has fallen to 28 percent, meaning prices are not seen as good today as they were a year ago. On the other hand, a year ago 7 percent of respondents said now is the time to beat price increases. That has doubled to 14 percent currently. Another reason to buy now was the expectation that interest rates would go up, and that number has similarly increased. So households a year ago or in the last year thought now is a good time to buy cars because prices were low and were going to go up, and interest rates were low and were going to go up. I don't consider that a good indicator for the future. The same thing was true with houses, but even stronger. The argument that prices are low for houses has fallen from 33 percent to 19 percent in a year. The expectation, on the other hand, that now is a good time to borrow in advance of rising interest rates has risen from 6 percent a year ago to 21 percent currently. For houses as well, consumers have been spending money they don't have because we have had a bargain basement sale for the last year. That is not going to continue no matter what we do today. Similarly, I think businesses have been having a good time in the last year. If you look at the difference between cash flow for businesses and plant and equipment expenditures, it's been running with cash flows substantially above plant and equipment expenditures since about 1992. At the same time, there have been record-setting net increases in nonfinancial equities and bonds outstanding. All that put together suggests that there are a lot of expectations of inflation in the household sector; there is a substantial accumulation of cash, which presumably can feed inflation in the business sector. The question is whether or not it will come to pass. So I think we are in a very bad dilemma. I think nominal GDP is growing too fast; I think the mix is going to worsen; I think the consumer is going to spend less; and we are going to have less real growth. But at the same time, I believe we are going to see accelerating inflation and that means the good times are over and we have to stop celebrating and we have to make a tough decision.",905
-fomc-corpus,1994,First Vice President Conrad.,5
-fomc-corpus,1994,"Thank you. The pace of business expansion in the Seventh District, I think, is a bit more subdued than earlier this year, but we feel that considerable momentum remains when the supply shortage in the auto sector is taken into account. In looking at the auto picture, the July seasonally adjusted annual rate of sales was about 13.7 million units. That was down from May and June, but it was considerably above June 1993--by about 7 percent. That continued to reflect the strength in light truck sales and also, I think, benefited from a boost in imports. We agree with the assessment that the weak sales are largely due to supply shortages and not to a decline in overall demand. When we talk to the auto companies, their build plans will likely only stabilize the supply situation. Third-quarter production, which was planned at 2.7 million units, actually is beginning to seem a little out of reach based on what we see in terms of start-up delays. We think that, reasonably, production could be about 50 to 100 thousand units below that estimate. If sales do approach the 15 million unit annual rate, which analysts are forecasting, inventories will probably remain below the 55 days that exists now and could be more in line with a 40-day supply for some of the more popular models. On the price front as far as autos are concerned, the announced price increases from the Big Three are in the 1-1/2 to 3 percent range; that is about $250 to $500 per vehicle. But if you look at a weighted-average price with respect to the more popular models, 3 percent seems to be at the low end of the range and it may be a 3 to 4 percent range. If you look at that in combination with the reduction in incentives, which have been reduced by as much as 40 percent, price pressures have most assuredly increased in the motor vehicles area. Not all segments appear to be as strong as autos. Reports from District retailers suggest that little has changed from the second quarter when growth slowed somewhat. In talking to our largest retailer, they looked at second-quarter sales as a small setback, but they expect what they saw as a boring, slow, middle-of-the-road upward trend to continue. We don't sense any concern about retail inventories at this point in time, but as has been mentioned by others, intense competition continues to hold down price increases in this sector. On the manufacturing front, steel shipments have slowed a little, and that mostly seems to be coming out of some of the plants in Michigan. In Chicago and northern Indiana production and shipments are holding up well. Shipments of major home appliances, which have been strong, are expected to post only a modest year-over-year gain for the second half, and that would represent a small decline from first-half shipments on a seasonally adjusted basis. Heavy truck production, after operating flat out for the last two years, is expected to decline by a modest amount in the third and fourth quarters. There are some slots or openings for truck production that could be accommodated in that quarter, although overall utilization of the stock continues to be high and rates paid by shippers continue to increase. The housing sector is pretty much as others have reported. We have seen a small uptick in multifamily construction. In the labor markets, unemployment rates around the District continued to trend downward during the second quarter and remain below the national average. A major temporary help firm reported paying higher wages to attract better qualified workers. Another firm suggested the same result, but also indicated that, because of competition, they were unable to pass on higher wages to their customers. On the ag side, District crop estimates for corn and soybeans confirm the prospects for a large harvest this fall. Corn yields are likely to be the second highest ever and soybeans will probably set a new record. This prospect has weighed heavily on corn and soybean prices. As for the national outlook, our GDP forecast is a bit stronger than the Board staff has suggested. Employment remains strong. There appears to be little slack, and we view the risk as tilted to the up side as far as the national economic picture is concerned. Thank you.",849
-fomc-corpus,1994,President Jordan.,3
-fomc-corpus,1994,"We contacted some of the retail operations headquartered or having significant operations in the Fourth District and asked them about inventory situations. Basically, the pattern was that everything is okay. said they had only a very small rise in their national operation inventories and it was all intentional; they felt they entered the third quarter on plan. had a very large increase because they said they were operating too far below desired inventories, and they now feel that they are only slightly below. They entered the second quarter 11 percent below where they wanted to be, and after a very large buildup and good sales, their inventories are only slightly below where they want them to be. said that they wanted to have a big inventory buildup, but they didn't get as much as they wanted because sales growth turned out to be stronger than they had expected--in the double-digit range. had a more modest increase in inventories, about 4 percent, and feel that they are comfortable. So, we got no negative stories from the retail side on inventories. The steel sector is quite strong. They put through a 5 percent price increase at the beginning of July and it has held. They are now looking for a further 3 percent increase in the first quarter. They are operating basically with a 90-day delivery schedule and running at capacity. Nonresidential construction is picking up and that is helping to push up steel demand as well. Companies are saying that those construction managers that are able to compete in the dollar-based foreign market, mainly Latin America and Asia, are getting significant increases in construction contract awards, and that is helping exports also, especially capital goods. Overall, capital goods and machine tools are quite good, both domestically and exports. Residential construction is characterized as having leveled off in most of the District, but at good levels of activity. The bankers talk about big increases in C&I loans--double-digit increases. Some of that is inventory financing; some of it is business expansion; but they also report that consumer and mortgage lending has dropped sharply. Smaller banking companies increasingly talk about being loaned out, and the bigger banks are happy to hear the small banks say that. As Bob Forrestal reported for the Southeast, we had an advisory council meeting a couple weeks ago involving a variety of companies from all over the District and the same kind of stories was coming from all of them about the difficulty of hiring unskilled or semi-skilled workers. Companies that provide temporary workers said they have a lot of available positions that nobody applies for. On the other hand, upper-end positions--one company said that they were looking for a new chief financial officer, and they got 300 applicants. They also were looking for truck drivers and warehouse workers and got virtually no applicants; maybe the financial types ought to drive trucks. High-tech employment continues to be reported up, offset by healthcare employment which continues to decline in the major metropolitan areas. Regarding the Greenbook and the Blue Chip forecast, the Blue Chip is higher for the next year, as it typically is, for nominal GDP, real GDP, inflation, and interest rates. All I can say is that I hope they are wrong on some parts of their forecasts and I hope the Greenbook is wrong. I am still troubled by the idea that increased employment or increased output causes inflation. I think if you went back a year ago and took most of the forecasts, whether it is the Greenbook or the Blue Chip or the Wall Street Journal forecast, and if they had forecast the job growth and output growth that we have had, they would have said we were going to have a lot more inflationary pressure than we have seen. This idea that we need to see a slowdown in the growth of output and jobs in order to avoid price increases--I am very skeptical of that. When we look at the relationship between the narrower monetary aggregates and the opportunity costs--the Board staff occasionally gives us a chart on this using M1 and we can do the same thing with monetary base measures and so on--a year ago we were in a situation where the historical relationship was holding up very well. Looking ahead, we had four possibilities: the historical relationship that simply stopped functioning; a 25 percent drop in intermediate-and long-term interest rates--that didn't happen; the other two possibilities were a sharp acceleration in nominal GDP growth or a sharp drop in narrow money growth. We had actually a combination of those. The historical relation today still holds; there is simply nothing that has broken down. Now we have a very sharp deceleration in reserve growth, the monetary base, and M1, and with the kind of interest rate increases we already have had let alone any further increases, that leaves me with a feeling that we may be closer to our idea of neutral than some of the other comments that I'm hearing would imply. I think that the question of whether we have moved early and substantially isn't as easy to answer as one might think. I happen to think that the National Bureau's timing of July, 1990 as the cyclical peak was simply wrong, and that without the Gulf War, we might not even have had what qualifies in the usual sense as a contraction or recession. Much of the last three years, four years now, has been a period of, first, the Gulf War and then this restructuring phenomenon. Then coming off a level of 3 percent federal funds with the kind of inflation that we are experiencing, a 125 basis point increase is substantial in what in a different way of thinking is an early phase of the cycle.",1110
-fomc-corpus,1994,Governor Phillips.,3
-fomc-corpus,1994,"With respect to the real economy, I may be in a position similar to Jerry Jordan's. It does seem to me that we are moving into cycle maturity. In many ways, the economy's performance is about as good as it gets; the economy seems to be hitting on all fours. The growth in the last four quarters has been above potential. We have had upward revisions for the last two quarters, and this is despite an earthquake, blizzards, and now floods and fire. So we have had plenty of natural disasters. We are at low unemployment, perhaps at the NAIRU if it really exists. If it exists, we are there. With respect to inflation, the recent experience clearly has been good. If growth is close to potential, then it's feasible for us to stay within a 3 percent CPI. I thought I might talk a little about the financial markets; they haven't been mentioned quite as much today. The markets have been buffeted significantly this year. The stock market, I'd have to say at this point, is showing a great deal of resilience. We clearly are off the January highs, but we are not in the state of fragility that we experienced earlier in the year. There has been significant portfolio adjustment, so I think that people are lined up on both sides of the market now. We are not seeing everybody lined up on one side of the market, which I think was the situation at the beginning of the year. The bond market has withstood considerable volatility, and I think one of the significant things there is that we haven't had any major accidents. I think that a number of the players have learned how to operate in some of these changed environments. Currency markets also have withstood significant volatility, although I'm not sure that all the players have learned as much as there might be to learn in the currency area. Banks are aggressively financing the expansion. There are some signs that the expansion could continue for quite a while. In spite of the recent runups in inventories, we are still hearing that businesses went into this last quarter in a planned position, and many are talking about adding to inventories. We are seeing continued strength in business investment. The order books are showing considerable depth. We are finally getting enough confidence in the business sector to see significant additions to payroll. Even on the construction side, although we are seeing some slowdown in housing, nonresidential is taking up some of the slack. Earnings are holding up significantly and that, of course, is helping to keep the stock market fairly resilient. We may even start to see exports contribute a little more to GDP growth. On the household side, I do agree that expenditures are likely to level off somewhat. Even so, we are seeing credit use up, and with employment up, that is likely to keep consumption levels respectable or at least close to potential. It seems to me that the risks at this point are on the up side. We could be understating the strength in the economy. I agree that there are still some downside risks and they certainly exist in some parts of the country, but they appear to be outweighted by the upside risks. The pundits, kibitzers, and Fed watchers seem to suggest that the Fed really doesn't need to worry about inflation because it's mild--3 percent--and it's not increasing, although many of the forecasters are now at least starting to show some increase beyond 1994. But all that means is that the Fed is either at the curve or maybe ahead of the curve. There are, I think, some worrisome signs on the inflation front. We have heard a lot of stories around the table today about businesses now being able to pass on price increases. We have seen strong increases in the producer price index for intermediate materials for the last four quarters. The core CPI for the second quarter actually edged up to 3.1 percent, although the overall CPI has been flat thus far in 1994. So at best, we are stalled out on inflation and we are starting to see oil price increases work their way into the system. I continue to suggest that a 3 percent level of inflation, even if you make the adjustments for the errors in CPI measurement, still does constitute a form of tax and something that we should continue to be concerned about. I think that one of the reasons that we have been able to see inflation stall out at this point is productivity increases. This has been one of the major factors that has kept wage increases from infecting the CPI, but that depends on a continuation of this supposed new trajectory for productivity increases that we have seen in the 1990s. So, if the productivity increases are not continued, that will be another pressure that we will start to see on inflation. In sum, I think that the economy is doing quite well. We have a chance for this to be a continued expansion but it is putting pressure on inflation.",988
-fomc-corpus,1994,Governor Blinder.,4
-fomc-corpus,1994,"I'd like to pick two nits with the Greenbook. One is a small nit, one is big as nits go, I guess. [Laughter] Still, I think it is a nit in the sense that the basic outlook of the Greenbook, subject to a qualification I'll come to, seems about right. The first, which really is a nit, has to do with inventories, especially retail inventories. I think there is a hazard--although I'm somewhat reassured by some of the comments I heard around the table, especially from Cleveland--that the retail part of this inventory buildup is potentially dangerous. Perhaps I overstated; this is a cause for concern not for panic. I don't think it's going to snap back up in any huge way, but let me just read you two phrases that capture what I mean. This one is from the Greenbook, page 4 and it says ""there is no evidence of an inventory overhang at this time."" This one is from the DRI report that came out about two days ago and it says: ""the sharp inventory accumulation of all goods in the second quarter creates an inventory overhang."" It's not so much an illustration that one organization knows a lot more than the other, although I guess if I had to put all my chips on one table, I'd bet with Mike Prell over Roger Brinner. It is meant to illustrate that reasonable people can look at these data and have different views. If you decompose the inventory buildup over the last three months, March to June, 60 percent or so is at the retail level on the Board's adjusted current cost basis, which happens to be the way the handout reached me two days ago; I could have computed this another way as well. The number was $42 billion at an annual rate compared to an average in the three previous quarters of $14 billion, and the $42 billion is the biggest number in a long time. When I see a number that big on quite weak sales growth--negative overall on retail sales over that period and 0.3 percent on average per month if you take out autos, which are a special case--and with the inventory/sales ratios creeping up not down, I'm a little less sanguine than the Greenbook about the amount of forward momentum in the very near term. Now, as I said, it's not a very big deal. I'm not talking about a qualitative change in outlook, only a quantitative change, but it is potentially in the negative direction. My much bigger nit to pick came in the second paragraph of the first page of the Greenbook where it says ""labor and capital resources currently appear to be quite fully employed."" I would have preferred to say ""not quite fully employed, though close,"" I picked the words carefully, ""not quite fully employed, surely close."" We are unfortunately at one of those points in time where even though we know we don't know these things with precision and cannot fine-tune the economy, we have to make a decision on that because we are very close to capacity; there is very little doubt about that. It matters, in this context, whether you are close on the down side or close on the up side, even though it is hard to tell the difference. The view in the Greenbook--""quite fully employed""--colors a lot of what comes next. It is reflected in particular in the NAIRU estimate, which in the Greenbook forecast is implicitly, on the new measure, 6.3 or 6.2 percent, something like that. You could subtract .2 percent for the change in measurement, which is the Board staff's current estimate of this very elusive number and a number that keeps on shrinking. You will remember the BLS thought it would be .6 percent back in January. I think reasonable people couldn't rule out zero at this point, but .2 percent seems a reasonable estimate right now based on what we know. If you take that .2 percent off, to convert to the old basis, which is not only the way I think but the way the econometric evidence speaks, that translates to an old basis NAIRU of 6.1 or 6.0 percent implicit in the Greenbook forecast. To me, that is at the high end of the reasonable range. I don't want to say it is an unreasonable estimate; it is a reasonable estimate but definitely at the high end. My reading of the evidence is that a better estimate of the NAIRU on the old basis would be something closer to 5.6, 5.7, 5.8 percent. I repeat again, these kinds of discrepancies only matter when you are really close to the NAIRU. A year and a half ago, it didn't much matter which of those numbers you thought was more accurate. I'd just like to say I don't think 6.3 percent unemployment should be the FOMC's aspiration level. I have a strong feeling that we ought to be shooting for a lower unemployment rate than that. We had a lower unemployment rate than that for the last three months, not incidentally. As I said, this colors what is in the Greenbook because, commensurately with that, the average growth rate over the next five quarters, that is the last quarter of this year and all of 1995, is between 2.1 and 2.2 percent in the Greenbook forecast--which, again, I would have thought is slower than we would really like to produce. It is not slow if you think we actually have had a small overshoot and we need to nudge the economy back down, because 2.1 or 2.2 percent is a nice small amount lower than, say, 2-1/2 percent which would nudge the economy down a little. My feeling is that that is not quite the appropriate policy given where I think the NAIRU is. However, while in some sense this is a ""fundamental"" difference, I characterized it as a big nit. The Greenbook forecast is not at all unreasonable given the staff assumptions about monetary policy from here to January, that is, another 100 basis points on the funds rate built into the forecast. I looked at what the econometric models, the Board's and others, say about what 100 basis points are good for, given the normal historic reaction of long rates to short rates. Now, as I think Mike mentioned, with the first 125 basis points we had much more than the normal reaction of long rates to short rates. I think all of us hope, and at least most of us believe, that we have a good chance in the next ratcheting up of short rates to get less than the normal reaction. But just taking the normal historical reaction, 100 basis points of further tightening on fed funds would, after about a year, knock .7 percent off of GDP, and after two years about 1-1/3 percent. So on growth rates, something in the range of .6 to .7 per year for the next two years would be taken out by that amount of tightening. If you add that back in to 2.1, you're playing with a number that looks like 2.7 or 2.8 percent on current policy, and that seems quite reasonable. So, I think the staff forecast is consistent with the policy that is built in, which I've already indicated I think produces growth that is too slow. I was going to say too slow for my taste, but I should say too slow for the economy's best interests. I think--and I'm taking this more from the Greenbook of six weeks ago, where if I remember it was quite explicit while it was more implicit in this Greenbook--that this comes from a very literal, for my taste too literal, interpretation of not wanting to let inflation accelerate. We don't want to let inflation accelerate. That doesn't necessarily mean we have to stand against a 10 or 20 basis point increase in inflation, especially given the unwinding of a variety of factors including the speed effect that Mike mentioned. If you look at the core CPI numbers in this Greenbook, it is 3.1 percent in 1993--this is fourth-to-fourth--3.1 percent in 1994, and 3.1 percent in 1995. It is a quite literal holding of the line exactly where we are, and the staff estimate is that it would take about 100 basis points more on the fed funds rate to do that. I don't think we have to interpret this quite as literally as all that, and this is a reason that I think we should be aspiring to a bit higher growth than is in the Greenbook. Thank you, Mr. Chairman.",1783
-fomc-corpus,1994,Governor Kelley.,3
-fomc-corpus,1994,"Thank you, Mr. Chairman. I think this has been a good session in getting most of the factors out on the table, and I'll try to be brief. First of all, I still have some question in my mind as to just how much danger we are in here as to inflation being in sort of a scary take-off zone. I think there are still some important factors that are holding it in check. I would particularly note that the forecast for unit labor costs is still very low. Even out through 1995 it never gets much above 2 percent, which should be a big deterrent. In that regard, even though my bullish forecast on productivity has got a little egg on its face from the most recent numbers, I'm still optimistic that productivity is going to continue to increase at a significant secular rate. Certainly, I think it's fair to say that we haven't seen much in the way of an increased thrust in compensation, construction probably being an exception to that. Secondly, foreign inflation and its influences continue to be low. Inflation is low in the countries that basically have high costs because they still have big production gaps that are apparently going to stay in place for the indefinite future. Those countries that have higher inflation tend to have very low cost structures in the first place, so they ought to be able to keep the pressure off prices. So I'm not sure how much imminent danger we really are in, that there is more than just a troughing or perhaps an upcreep in prospect. But for all of that having been said, it is clear that we are either at or very, very near capacity, however that is defined, and there is a lot of momentum present that shows every prospect of carrying us past that. As a consequence, it seems to me that the risks are clearly on the up side both for activity and inflation. I'm put to mind of an old saying of my mother's who used to like to say to her children, ""a stitch in time saves nine.""",399
-fomc-corpus,1994,Vice Chairman.,3
-fomc-corpus,1994,"Thank you, Mr. Chairman. Let me speak briefly about the economy in the Second District; it continued to expand over the past month, but we are seeing some weak spots, especially in the state of New York. Payroll employment declined at an annual rate of 1 percent in June in New York State and 2 percent in New York City. There were some rather large declines in manufacturing jobs in many areas throughout New York State. Continuing announcements by manufacturers of additional cuts suggest weakness in New York State manufacturing employment for some time to come. The latest announcements, each referring to worldwide staff, were a 10 percent cut at Bausch and Lomb and further paring at IBM and a major pharmaceutical company. Trading losses and dampened bond market activities spurred layoffs in fixed income departments at three major securities firms and additional cuts appear likely. Multiple mergers and acquisitions within the thrift industry also are taking their tolls on the job count. In contrast, New Jersey added another 10,000 jobs in June, and I'm not sure what the split is between Ed Boehne's District and mine, but that is an annualized gain of 2.9 percent. Manufacturing employment has been stable for the past three months, and small job gains accrued in most other sectors of the economy. So we now have an unemployment rate that has fallen to 6.4 percent in New Jersey, just above the national figure, an unemployment rate in New York State of 7.1 percent and in the City 8.8 percent. One of the things that I've been learning as I have been traveling around New York State is that there is a growing malaise in the business community, a belief that New York State is not a particularly good place to run a business. That has led to some of the moves to Connecticut and to New Jersey by the financial industry. What I think is a somewhat greater concern, but I don't know enough about yet, is that in the tier of the State between Albany and Buffalo where there had been a rather successful transition from making carpets and clothing to rather more computerized activities like check clearing both by the Fed and by the major New York banks, one of the major attractions of that part of New York State was the quality of life. If you don't mind a lot of snow, it has kind of an idyllic climate, a beautiful countryside, and a very fine lifestyle. That has changed or is in the process of changing largely as a result of people doing what would appear to be good things, and that is putting correction facilities and prisons in that part of the state. However, the families of the prisoners and the kids in the correction units also move into the community and it has transferred something of an inner city to unlikely places like Rome, Utica, Rochester, and Syracuse. That is switching off the businessmen from thinking that this is a particularly friendly place to situate themselves in order to grow, and they don't have to go particularly far because they are seeing Pennsylvania, which isn't too far away, as having a somewhat friendlier environment. I think if there are two states in the country where you wouldn't wish to have a malaise, they would be California and New York, or at least those would be two of the three candidates with Texas probably. We are going to have to continue to watch what's happening in the State of New York because the trend is not a very happy one. On the national level, our staff forecast is so close to the Greenbook that it is something of a rounding error even to talk about it. Our staff forecast is somewhat more benevolent on inflation in the second half of this year, but that appears to be more than anything else that the Greenbook is somewhat more concerned about increasing energy prices than we are. So, for example, next year we have real GDP growing at 2.1 percent and the Greenbook is exactly in the same place. The main difference is that we don't think it's going to take quite as much official action: We have the same macro results with a funds rate of 5-1/4 percent whereas the Greenbook, as you know, has a funds rate of 5-1/2 percent. We have the CPI at 2.9 percent and the Greenbook has it at 3.0 percent. In looking at these forecasts myself, I'm somewhat more optimistic than either the Greenbook or my own staff, and I think the difference largely is that I am really very strongly convinced that by historical reference this FOMC is well ahead of past experience in taking appropriate monetary policy actions. If we continue to do the right things, perhaps even including today, at some stage that is going to become more apparent to the practitioners in the economy, and I think that we have a pretty good shot at that. If that is true, although the numbers would not be great, the significance I think would be substantial. I think we could get somewhat better economic growth of the kind that Alan Blinder was talking about at a somewhat lower rate of inflation. I recognize that that would be a very happy outcome and one always has to try to abstract one's wishes from one's analysis, but I do think that there is a significant possibility that we could achieve that.",1053
-fomc-corpus,1994,Thank you. Governor LaWare.,7
-fomc-corpus,1994,"Mr. Chairman, the learned comments of our colleagues have been so encompassing that they leave me with little additional wisdom to share with the Committee. My personal view is that the economy may be more robust than the Greenbook forecast would imply. I continue to believe that consumer uncertainties about job security and about what government is up to tend to be a damping influence and a counter to runaway growth. However, I think the current brisk rate of growth argues for some further braking from policy.",95
-fomc-corpus,1994,Governor Yellen.,4
-fomc-corpus,1994,"Two issues are of importance to me in assessing the current economic situation. First, how much momentum is there in the expansion and second how much slack is in the economy, how close is it to potential output? With respect to the issue of momentum, I find myself largely in agreement with the staff analysis presented in the Greenbook. Real growth is slowing, but I do think there remains enough momentum to keep aggregate demand growing at a rate somewhat in excess of the growth rate of potential output long enough to push the economy above potential in the absence of some further monetary restraint. My own estimate of the degree of momentum in demand has increased over the last few months. Most important in my thinking, the decline in the value of the dollar and upward revisions in estimates concerning the strength of foreign economies will be reducing the drag on demand that stems from net exports. In line with the staff forecast, I also expect the declining dollar to feed through to some mild upward pressure on import prices. Now that the economy is close to potential, higher import prices should create a bit more scope for American producers of import substitutes to raise their own prices. I don't want to overemphasize the impact of the dollar decline on aggregate demand and prices, but at the margin, especially in the context of an economy that is nearing potential, this seems like a source of momentum. And I see these international factors as offsetting to some extent the moderating influence of higher interest rates on housing and consumer durables spending. The strength of new orders for durable goods and the strong profit projections suggest continuing strength in investment, and the staff analysis convinces me that there are risks that the slowdown in demand could be insufficient, absent some further tightening to prevent overheating. With respect to the issue of how close the economy is to potential, I confess uncertainty here. Nevertheless, on the basis of both econometric and anecdotal evidence, it seems to me that output has not yet passed potential, although we are approaching it. I don't yet see strong enough indications of tightness in labor markets, or enough signs of increasing wage pressure, or sufficient indication of a pickup in the growth of unit labor costs to conclude that we have ventured beyond potential. Capacity utilization is high by historical standards, but investment also is adding to capacity at a rapid rate. I see only scattered evidence of lengthening lags in filling orders. On balance, I'd say my sense is that the economy could stay where it is in terms of unemployment or even shave a few tenths more off the unemployment rate without risking significantly a pickup in inflation. This inclines me toward the feeling that there should be some tightening of policy to reduce momentum, but somewhat less than the Greenbook assumes. The Greenbook forecasts for real growth in 1995 are somewhat too low in my opinion to end up with an economy in 1995 that is operating near enough to potential.",578
-fomc-corpus,1994,Thank you. I assume coffee is there?,9
-fomc-corpus,1994,Yes.,2
-fomc-corpus,1994,Let's recess for our usual coffee break.,8
-fomc-corpus,1994,[Statement--See Appendix.],6
-fomc-corpus,1994,Questions for Don?,4
-fomc-corpus,1994,"Don, I interpret the recommendations you make vis-a-vis the arguments that go with it as implying disagreement with the Greenbook. The reason I say that is because if you accept the Greenbook projections--the output and the inflation numbers through 1995--the objectives of the Committee and the logic that we are at or close to capacity and the NAIRU and that a 5-1/4 percent funds rate is neutral in the sense of maintaining the inflation rate let alone bringing it down, that would lead you to recommend 100 basis points today, and you don't do that.",118
-fomc-corpus,1994,"First of all, I think the function of the Bluebook is somewhat different from that of the Greenbook, at least I conceive it as such, and that is to take the alternatives that I think the Committee will be seriously considering and say what we think the short- to intermediate-term consequences of choosing those alternatives will be in financial markets and to a lesser extent in the economy and give the Committee pros and cons on each of the alternatives. The latter are then amplified in my briefing to give you some things to think about leading up to your decisions. It is true that one alternative might be to take the funds rate up 100 basis points right now. I didn't see that as a viable alternative. I'm not sure, given the uncertainties, that even the Greenbook would be in favor of something that large right away, surprising the markets by as much as that. But I can see your argument; it's like the argument of last February. If you think you have to go a percentage point and you're reasonably confident in that, the longer you take to do it, the more uncertainty there could be in the market and the less likely you might be to get your outcome. But it just didn't seem to us to be one of the alternatives that the Committee would be considering seriously.",255
-fomc-corpus,1994,"Any other questions for Don? If not, let me get started. Let me just say first that after listening to the roundtable discussion and looking at the usual long sets of figures, what I come away with is that despite the longevity of this recovery, there really are few signs of aging. There are marginal evidences of imbalances, marginal evidences of pressures, but in general it still looks as though this recovery has a considerable set of momentums associated with it. First of all, profit margins are still rising and indeed, they are coming in above expectations. That is an extraordinarily rare characteristic for the latter stages of a business expansion. Inventory/sales ratios are low, especially if one strips out the trade markups to produce constant dollar factory values of inventory/sales ratios. Those ratios have been coming down very dramatically as the ""just-in-time"" processes have accumulated at a fairly substantial pace. I suspect that we finally hit bottom in the spring with ""just-in-time."" That is, the room for further declines in inventory/sales ratios has become very significantly limited and, as a consequence of that, the process of going to zero change means a boom in inventory investment. Unquestionably an important concern here is whether we are looking only at the end of ""just-in-time"" or looking at inventory investment that is substantially unintended and that could back up as the DRI overhang analysis suggests. First of all, we do know that a substantial part of the inventory change, especially in the trade area, is imported goods. Internal estimates by Board staff indicate that imported goods accounted for roughly 1/3 of the inventory change in April and May. This obviously means that to the extent the added inventories came from imports, to the extent that there is any unintended inventory accumulation there, it is the imports and the foreign producers that get backed up, not domestic. Secondly, if there were a significant element of unintended inventory accumulation here, we really would expect to begin to see it in the new orders series. A goodly chunk of the inventory accumulation is clearly very directly intended inventory accumulation, because a lot of it is in capital goods areas where the order patterns have been very strong. But from anecdotal evidence on orders and the actual detailed Commerce Department data on orders, it is very difficult to make the case that there is any significant element of unintended inventory accumulation in these numbers. I think there is some evidence on the basis of inventory numbers that orders for furniture did back up a little, but it is really at the margin and very little evidence suggests that we have a particular problem there. We also are not seeing evidence in the inventory structure of any serious difficulty even on the other side. It's true that there has been slowing down in deliveries, but lead times on new orders have shown very little evidence of rising, especially in the production materials area. And so it is suggestive that we neither have an exceptionally tight inventory situation or a loose one. That seems consistent with a middle stage of the business cycle, one that is neither negative nor particularly positive. I do think we are getting some slowdown in the rate of growth, but the crucial question is from where? We tend to look at the gross domestic product as the measure of what the economy is doing and there is some serious question in the last two or three quarters whether or not that is low-balling the rate of growth. As we discussed previously, looking at gross domestic income, which is conceptually equivalent and leaving aside the issue of very weak data for the second quarter, the growth in gross domestic income was several tenths above the growth in gross domestic product in the fourth quarter and the first quarter. Disaggregating the gross domestic product into the value of industrial production and ""all other"" and substituting the industrial production index for the value of industrial production as a conceptually equivalent measure of aggregate growth, again we get stronger growth than is in the GDP numbers. What this is indicating is that we have to be a little careful about these measurements. For example, I find utterly noncredible the probability that, in the real world, productivity declined in the second quarter. The reason I say this is that if you get an expansion in the economy, leaving aside its nature, and you get rising profit margins, you begin to wonder where the profit margin rise is coming from. It clearly is not through increases in prices. The question basically is how to reconcile this situation in which we get this huge increase in work hours and therefore in compensation of employees against a slowed GDP that suggests, other things equal, that margins are declining, not opening up. I am merely saying that I am a little suspicious of the GDP figures, although I grant that the underlying work hour figures themselves may be exaggerated in the second quarter. But it is very hard to reconcile the anecdotal evidence and the basic data with which we deal to believe those productivity data, and that is one more reason at least to wonder about some of the GDP figures. In the current period, there is very little doubt that we are not getting a significant amount of deterioration. I think it is certainly the case for the interest-sensitive sectors--residential construction and to whatever extent we can say that weakness in motor vehicle sales is other than shortages. I think there was a very persuasive case put forward by Mike Prell's associates at a Board meeting the other day that a very large part of the decline in motor vehicle sales is the result of shortages and not a basic weakness in demand. Nonetheless, I think one must argue that there is a slowing down in that particular area, and it is being offset, probably not fully, by expansions in the capital goods markets, which I suspect may again be underestimated in the GDP sense in constant dollar terms because the communications equipment prices just do not look realistic, as a number of people are beginning to conclude. This suggests that real producers durable equipment is probably rising at a faster pace. It may also imply, I might say parenthetically, that the capacity measures may also be affected on the up side. However, I think we are getting clear evidence of improving world economic growth vis-a-vis our earlier views, which suggests that the export markets are moving and doubtless the exchange rate will have some impact there as well. The drag from nonresidential construction is clearly at an end. The indications that values of commercial real estate are beginning to stabilize and are beginning to move up in certain local areas are consistent with the beginning of a turn in office and other commercial construction. We are running through the backlogs of very major deterioration in the nonresidential building area, and I think that sector will cease to exert weakening pressures. Very currently, we are seeing initial claims for unemployment insurance that are quite low, and that suggests that the labor markets are doing rather well. Growth in employment seems quite significant. Not only are orders strong but there is impressive evidence that unfilled orders are accelerating on the up side both in current and constant dollars. A statistic we don't talk about very often, but it is not irrelevant because it is a leading indicator, is the extraordinary rise in net business formation, which BEA shows as a fairly sharp upswing--again something not consistent with a late stage of the business cycle. So it strikes me that, as Don Kohn puts it, with the reverse head winds coming in the bank credit data, loan data, and the like, it is beginning to get a little nervous-making, I must say. This stuff is really beginning to move. All in all, it is very difficult to get around the general notion that, even though there is some evidence of a slowdown in the rate of growth, it still appears to be coming in at a somewhat higher level than I suspect we are used to looking at, if all we are looking at is the gross domestic product figures themselves. Also, there is an underlying momentum here that suggests there are a couple of big legs left in this business cycle. I think one has to conclude, as far as policy is concerned, that another upward notch in rates is clearly called for at some point. Therefore, the question we have to ask ourselves, which is not inconsistent with what Jerry Jordan was raising, is if we believe that, why not now? I think the question really gets to a notion of what we expect we will ultimately have to do. I frankly don't know whether or not the staff's estimate of a 100 basis point increase is the right number. I do know that there is a not insignificant probability that 50 basis points may be enough if we do it now. I don't know what the probability is but if somebody said, is it .1, I'd say it's a lot higher than that. Is the probability greater than 50 percent? I doubt it. I think it's a third, maybe 40 percent, but who knows. I do think that if we move 50 basis points now, the probability that we will not have to move before the end of the year probably is greater than 50 percent. One of the reasons I say that is that implicit in the 100 basis points that they have in the Greenbook is the fact that long-term rates are coming down and we are getting a new sort of dynamic in the system coming from residential construction. In that context, we need an upward adjustment of short-term rates because the shape of the yield function is beginning to move closer to normality. I'm not sure about where long-term rates are in that particular context. But I do know that as we look at the situation now, unlike where we were in the early stages of our tightening moves, where remember I was terribly concerned--maybe overly concerned but I doubt it--that if we did more than 25 basis points we were risking the stability of the system. With the May move, I think we clearly demonstrated that the bubble for all practical purposes had been defused, and that we needn't worry about larger increases at this stage. With the passage of time, I think the moving of securities from weaker hands to stronger hands has now made it far less likely that a 50 basis point move at this point would shake the markets in any significant way, if at all. I'm a little concerned that 25 basis points would merely raise the issue of when the other shoe is going to drop. I am a little nervous about raising the rate more than 50 basis points because frankly I'm not sure we need it. If we don't need it, there is no point in doing it and it's an element of risk that I don't think we need to take. My own view--I'm being a little more detailed than I usually am so I hope people will excuse me in this respect--is that it's very important if we were to do 50 basis points, that we not give the impression that somehow we anticipate major accelerations and this is just the beginning of a long series of 50 basis point increases. If the markets believe that, then I think we have a very serious potential of creating a major negative market reaction. I think we have to be very careful to avoid giving that impression. The only realistic way we can avoid that is to issue some type of statement with any move that we make that implies that we are in the process of reassessing where we will go--in other words, our intention to hold for a while without tying our hands, which we cannot do. After talking to my colleagues on the Board of Governors, I think there is a sentiment on the part of the Board to raise the discount rate 50 basis points in line with what a number of the Reserve Banks are requesting. I think implicit in that, in the view of the Board, is to request this Committee to allow all of the increase to pass through. Also, I might add, implicit in that general policy view is our adoption of symmetric instructions to the Desk. The more I think about that as a potential sort of policy package, the less I like all of the other alternatives. I started off at either no change and asymmetry or 50 basis points with symmetry on the grounds that 25 basis points struck me as risking the other shoe dropping syndrome. But I must say, the more I listened to this group and your comments on the elements involved and such things as the housing starts figures this morning--incidentally, Mike, the adjusted permits if we add back the nonpermit issuing areas are down only .8, not 1.7.",2503
-fomc-corpus,1994,I just got these numbers at the break and I think the picture in the adjusted permits and the single-family starts is really one of rough stability in the past three months.,34
-fomc-corpus,1994,"In other words, if we had a very weak residential construction area or a weak motor vehicles area, I would say we might want to pause and do nothing. But I think the evidence is increasingly convincing that we probably need to do 50 basis points. I must admit that I was going to start out more even-handed --on the one hand, on the other hand, if you will--but I convinced myself to steer away from that. [Laughter] So with those apologies, I open up the discussion. Bob.",106
-fomc-corpus,1994,"Mr. Chairman, I think your conclusion about this expansion having life in it is exactly right. I certainly agree that all the numbers and the anecdotal information that we have seen and heard this morning would indicate that the momentum is still there. As a matter of fact, in our forecast, we built in a 50 to 75 basis point rate increase and we produced a 1995 GDP of 2.6 percent, which I think is a desirable kind of deceleration in the economy to appropriate levels much nearer to potential. On the other side, if we look at what is happening with inflation, what is likely to happen, we have strong consumer demand, strong loan demand, and the economy is very close to capacity. We have higher oil prices that are likely to remain at current levels unless Iraq gets back into the picture, a weak dollar, and the beginnings of labor shortages. All of these developments, I think, make a very compelling case that we have to move. I think the sooner we move the better. I certainly support the notion of 50 basis points because, like you, I think 25 basis points really is not going to have the desired effect, and it's going to cause uncertainty in the markets. I also am pleased that the Board is considering a discount rate increase because I think the combined policy actions will have very desirable effects. So, I'm completely supportive of what you are suggesting.",285
-fomc-corpus,1994,President Hoenig.,4
-fomc-corpus,1994,"Mr. Chairman, I, too, agree with your policy recommendation. Given my comments earlier, I think that it is the appropriate action to take. I also agree that if we only did 25 basis points, it would create uncertainty rather than what I think we can accomplish with this move. So I agree.",63
-fomc-corpus,1994,Governor Blinder.,4
-fomc-corpus,1994,"I'm also supportive of the package that you outlined. I just want to take two minutes to emphasize that it really is a package. If we are going to make this kind of policy credible, it has to be with a symmetric directive. It has to be with a statement that indicates as clearly as we can state within the limits of Fedspeak that our oars are out of the water. That does not mean that we have thrown the oars overboard; we still have the oars, [Laughter] but we have pulled them out of the water. I think that was implicit in what the Chairman said, and I think it is important. So I wanted to emphasize it. I think, as he did, that the choice comes down to zero or 50 basis points for the reasons that everybody has now indicated. The crucial thing for us, one of the reasons I eliminated 25 basis points, is that that is likely to engender the belief that we are starting up a staircase--not just another shoe to drop, but maybe Imelda Marcos' closet. [Laughter] By the same token if we move 50 basis points, it is crucial--that is why I come back to a statement--not to engender a belief that we are starting up a shorter staircase but one with risers of 50 basis points. Like the Chairman, I think there is at least a fighting chance that 50 basis points would be enough. So with such a strong statement, I not only support but support enthusiastically the suggestion of the Chairman. Without it, I would not.",322
-fomc-corpus,1994,President Jordan.,3
-fomc-corpus,1994,"I came in on the fence between ""B"" and ""D."" I never did like ""C"" for the reasons that you described. I'm not at all convinced that the 100 basis points is ultimately necessary. My staff is more convinced, I guess along with the Board's staff, than I am, and I think going 50 basis points now with the kind of package you are talking about reduces the probability that ultimately we will have to go the full 100 basis points. And so for that reason I support the 50 basis points.",110
-fomc-corpus,1994,President Broaddus.,5
-fomc-corpus,1994,"I enthusiastically support your proposal, Mr. Chairman--all the various elements of it.",18
-fomc-corpus,1994,President Parry.,4
-fomc-corpus,1994,"I also enthusiastically support the complete package. As I indicated in my earlier go-around comments, I think the chances of inflation accelerating significantly next year and beyond are great if we do not move.",39
-fomc-corpus,1994,President Melzer.,4
-fomc-corpus,1994,"Alan, I came in favoring alternative D coupled with at least an increase of 50 basis points in the discount rate. So I, too, support what you have recommended. Just a couple of comments on how aggressively to move, though there seems to be support for your recommendation: I think that both to contain emerging inflationary pressures and to demonstrate our resolve with respect to price stability in the long run, we have to move aggressively now. I share your concerns about the potential of ""the other shoe dropping"" syndrome with respect to doing only 25 basis points. I think, as people have said earlier, temporizing now just makes our job tougher later. With respect to credibility, I think there is evidence in financial markets that we have a ways to go before we really do have credibility with respect to our longer-run inflation intentions. With respect to the statement, the only concern I would raise and hope you take into account in drafting it is to make sure you incorporate what you said about not tying our hands. We really can't know today what could transpire, and we have to have flexibility to evaluate incoming data and move further if necessary. If financial markets really concluded that we basically were ""out to lunch"" for the rest of the year, we could set in motion speculative forces that actually accelerate the need to move again. So it's got to be done carefully; I trust your judgment on how to do that, but it is tricky.",290
-fomc-corpus,1994,President Minehan.,4
-fomc-corpus,1994,"There is not much I can add to what I think has been a shared sense that there is some risk right now, mostly on the up side, and that we need to deal with that risk. We agree further tightening is necessary. We would go with the 50 basis points; we would follow it up with a discount rate increase. We are getting into the area of nuances here. I think our belief on the nuance side is a little closer to Governor Blinder's than perhaps to President Melzer's, that whatever the nuances are in this statement, they ought to be in the form of sort of wait and see if anything more is necessary--",131
-fomc-corpus,1994,"Let me read a suggestion that hopefully captures what is involved here so that nobody is blindsided on this. The potential statement would read: ""The Federal Reserve will continue to monitor economic and financial developments to gauge the appropriate stance of policy. But these actions are expected to be sufficient at least for a time to meet the objective of sustained noninflationary growth."" That is as good a crafting as I think can be done to capture what it is we are trying to do and yet not tie our hands, because tying our hands would be a terrible mistake, and I don't think it's credible in any event.",121
-fomc-corpus,1994,I would fully agree with that and I would be in favor of that wording.,16
-fomc-corpus,1994,Governor LaWare.,4
-fomc-corpus,1994,"I support your recommendation, Mr. Chairman.",9
-fomc-corpus,1994,Governor Phillips.,3
-fomc-corpus,1994,"I also support the package. If we were to delay, I think it would be a roll of the dice, because I don't think there would be any new information that would be coming in over the near term that would make a difference. The economy is moving fast enough that I think we are in ""drive,"" not ""neutral,"" right now. There is a chance that a 50 basis point move could sideline us for a while and it may in fact be enough. I don't think we know. I think that your wording does capture that. There is a possibility of being sidelined, that our next move may be next spring and may even be an easing move. I just don't think we know.",143
-fomc-corpus,1994,Governor Lindsey.,3
-fomc-corpus,1994,"I support your proposal, Mr. Chairman.",9
-fomc-corpus,1994,President Stern.,3
-fomc-corpus,1994,"I certainly support the recommendation and, as several people have already commented, I think the statement and any other discussion that occurs in the next weeks are very important. The facts of the matter are that we don't know what is going to come down the road, and if and when we may have to move next. I think we ought to make that clear to the markets, and I believe the statement does a pretty good job of that--that this is not a permanent position.",95
-fomc-corpus,1994,Governor Kelley.,3
-fomc-corpus,1994,"I support your proposal, Mr. Chairman, for all of the reasons that have been expressed.",19
-fomc-corpus,1994,Vice Chairman.,3
-fomc-corpus,1994,"Mr. Chairman, I support the package very fully. This may well be all we have to do in the adjustment of policy that began the fourth of February. We may have to tighten some more next year, but we have seen that the effect of monetary policy since February 4th, because of the steepness of the yield curve, has been somewhat greater than it was in previous periods. If that continues, we could very well get into next year and decide, as Governor Phillips has just suggested, that the next policy move should be an easing of policy. I think a very forthright statement, like the one that you have read to us, is most important. A nuance that I feel about it is that it is an indication of self confidence on your part and the Committee's that such a statement be made. A self-confident Federal Reserve that is seen as doing its job well gains the kind of credibility that makes people think when the next move is appropriate we will take it, whether that is up or down.",207
-fomc-corpus,1994,President Boehne.,5
-fomc-corpus,1994,I support the package.,5
-fomc-corpus,1994,Governor Yellen.,4
-fomc-corpus,1994,"Mr. Chairman, I support your proposal and believe there is a good chance that a 50 basis point increase in the funds rate now will be sufficient in the absence of significant news. And I like the proposed statement that you read.",47
-fomc-corpus,1994,President McTeer.,5
-fomc-corpus,1994,I support your proposal.,5
-fomc-corpus,1994,First Vice President Conrad.,5
-fomc-corpus,1994,"We would support the recommendation, Mr. Chairman.",10
-fomc-corpus,1994,President Melzer.,4
-fomc-corpus,1994,I just had a comment on the language; I don't know if this is the right time to make it. Have you gotten everybody's view? I shouldn't come back in unless you've gotten everyone.,39
-fomc-corpus,1994,"Yes, I think so.",6
-fomc-corpus,1994,"I think the ""at least for a time"" does it in terms of the flexibility, Alan. If I heard it right, you said ""consistent at least for a time with the Committee's goals of""--what was that--noninflationary?",51
-fomc-corpus,1994,"""Noninflationary growth.""",7
-fomc-corpus,1994,"""Noninflationary growth?""",7
-fomc-corpus,1994,"""Sustained noninflationary growth.""",9
-fomc-corpus,1994,The only question I have is whether it is possible that somebody could then conclude that the roughly 3 percent inflation we are seeing now is consistent in the mind of the Committee with zero inflation?,38
-fomc-corpus,1994,I would think not. Noninflationary to me means noninflationary; 3 percent is not noninflationary.,27
-fomc-corpus,1994,Okay.,2
-fomc-corpus,1994,"We are talking about objectives, we are not talking--",11
-fomc-corpus,1994,I understand.,3
-fomc-corpus,1994,"Okay, read the directive.",6
-fomc-corpus,1994,With the discount rate phrase?,6
-fomc-corpus,1994,Yes.,2
-fomc-corpus,1994,"I'm reading from page 14 in the Bluebook: ""In the implementation of policy for the immediate future, the Committee seeks to increase somewhat the existing degree of pressure on reserve positions, taking account of a possible increase in the discount rate. In the context of the Committee's long-run objectives for price stability and sustainable economic growth, and giving careful consideration to economic, financial, and monetary developments, slightly greater reserve restraint or slightly lesser reserve restraint would be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with modest growth in M2 and M3 over coming months.""",119
-fomc-corpus,1994,Call the roll.,4
-fomc-corpus,1994,Chairman Greenspan Yes Vice Chairman McDonough Yes Governor Blinder Yes President Broaddus Yes President Forrestal Yes President Jordan Yes Governor Kelley Yes Governor LaWare Yes Governor Lindsey Yes President Parry Yes Governor Phillips Yes Governor Yellen Yes,48
-fomc-corpus,1994,Thank you very much and our next meeting is--,10
-fomc-corpus,1994,The 27th.,5
-fomc-corpus,1994,September 27th.,5
-fomc-corpus,1994,"I think, Mr Chairman, we would plan on releasing the statement around 2:15 p.m. as we have been doing.",27
-fomc-corpus,1994,"Yes, but we first need a Board meeting.",10
-fomc-corpus,1994,"Yes, after the Board meeting.",7
-fomc-corpus,1994,May I suggest that the Board members join me in the other room?,14
-fomc-corpus,1994,Who would like to move approval of the minutes for the August meeting?,14
-fomc-corpus,1994,So move.,3
-fomc-corpus,1994,Second.,2
-fomc-corpus,1994,Without objection they are approved. President McDonough.,11
-fomc-corpus,1994,"It is my pleasure, Mr. Chairman, to move the election of Frederic Mishkin as associate economist. Rick, as he is known to his friends, has just joined the Federal Reserve Bank of New York as our head of Research. He is a distinguished tenured professor at the Columbia Business School, and we are very happy to have him join our staff.",73
-fomc-corpus,1994,We need a vote on that motion; would somebody like to second it?,15
-fomc-corpus,1994,Second.,2
-fomc-corpus,1994,"Without objection. We welcome Rick to this organization. Peter Fisher, would you start us off?",19
-fomc-corpus,1994,[Statement--See Appendix.],6
-fomc-corpus,1994,Questions for Peter?,4
-fomc-corpus,1994,"I have just one, Peter. You mentioned the potential responsiveness of dollar/yen to rhetoric as much as to what happens on September 30th; whose rhetoric? Let's take it as axiomatic that it won't be Lloyd Bentsen's.",49
-fomc-corpus,1994,I think it's rhetoric on either side--the United States or Japan. And in this country it's rhetoric from anyone who is perceived to be expressing the inner thinking of the Clinton Administration.,36
-fomc-corpus,1994,Not Congresspersons?,4
-fomc-corpus,1994,"I don't think Congresspersons would be the issue; but anyone who the market could plausibly think is expressing the inner views of key Administration officials, whether in the Treasury or elsewhere, could be a source of pain to the markets.",46
-fomc-corpus,1994,President Broaddus.,5
-fomc-corpus,1994,"Peter, I have a question on the proposal in the memorandum. The suggestion just struck me as unusual. Central banks in these relationships normally deal with one another for strong reasons. I was surprised that the Bundesbank wanted to move in this direction. I guess I'm just wondering if there is anything deeper going on here that you can sense. Are they perhaps signaling or does this imply somewhat less cooperation or a less cooperative spirit on their part with us?",89
-fomc-corpus,1994,"On the contrary, let me make a couple of points. First, most major central banks are much more advanced than we in having some direct dealings in foreign currency government securities markets and in direct activity in those markets through private custodians. I would say that we probably are the only G-10 country that does not have an account with Euro custodians, just as an example. That is a normal activity of most of the other central banks. Indeed, the Bundesbank really has been, if you'll forgive the expression, babysitting us by allowing us to keep rather large amounts of reserves on their balance sheets. We have had quite preferential treatment--So, I really would turn the point around. I think that direct participation in the government securities market is increasingly the norm in terms of the investment of foreign currency reserves.",163
-fomc-corpus,1994,They are operating in our markets?,7
-fomc-corpus,1994,They certainly operate in our markets in that fashion--Joan could perhaps tell you more about that than I could--and certainly in the German market that has developed quite a bit over the last five to eight years. We actually have been receiving quite preferential treatment from the Bundesbank. So I would say in response to your observation that their tolerance for the slow rate at which I have been managing to move off their balance sheets shows rather high levels of friendliness and cooperation.,93
-fomc-corpus,1994,President McDonough.,5
-fomc-corpus,1994,"I have a follow-up on Governor Blinder's question. If there were to be rhetoric of a warlike nature from Japanese government officials, I would assume that the effect on the dollar/yen could also be quite dramatic.",45
-fomc-corpus,1994,"Absolutely, yes. I meant to include that in my initial remarks. It could come from either side.",21
-fomc-corpus,1994,"I think it might be worth reminding the Committee that the present Minister of Trade and Industry has in fact had some very tough comments to make, and he would be the official who could very well be deemed to be the appropriate spokesman from their side.",49
-fomc-corpus,1994,"I would remind the Committee--as I think I mentioned at our last meeting--that when the dollar dropped July 30th, 31st, and August 1st on the announcement of Super 301, my view was that rhetoric coming from the Japanese side had caused that drop, albeit as I mentioned last month in rather thin markets in New Zealand.",72
-fomc-corpus,1994,President Forrestal.,4
-fomc-corpus,1994,"Peter, on the memorandum, what kind of increased risks do we incur by moving to a private party and not working with the central bank?",28
-fomc-corpus,1994,"Well, there are a couple of different layers of risk we have to consider. On the one hand, the Bundesbank as a custodian is really not remotely providing the level of service that private sector custodians are capable of offering in terms of attention to detail and quality. It's a very big business and it's very hard for them to manage. It's not a business they are in, really. So, on one level we reduce risks at a sort of operational level by going to a custodian whose business it is to manage other people's securities and make sure they are all in the right place at the right time. Another risk that gets reduced is simply the importance of having the tri-partite agent manage the collateral value--that is, ensuring that there is always enough margin held for the repurchase agreement. Now, the Bundesbank simply won't even provide that service. We would be doing that ourselves at some remove from German market custody arrangements. Those are two risks I would see going down quite a bit, indeed with some services being made possible only by using private sector custodians. The principal risk that we face is the rather complex and subtle legal one of our confidence in the custody arrangement. That is, do we have the confidence that the legal underpinnings are such that the securities will always be our own, and we won't have to worry about the loss of principal? That is the principal risk and one that the major providers of these custody services know that they are in the business of addressing. But the whole RP process we will be going through is really focused on ensuring that we have confidence in the custody arrangement. The final risk is the delivery-against-payment risk. Most of the private sector solutions offer greater precision and clarity in reducing that risk actually than the Bundesbank currently does, but we take comfort under existing arrangements that it's the Bundesbank that is providing us the service. But actually the Bundesbank does not currently assure us in any legal way that we have true delivery against payment for our purchase of the few existing government securities with low remaining maturities that we hold. I hope that's helpful.",422
-fomc-corpus,1994,President Parry.,4
-fomc-corpus,1994,"With regard to your answer to Al Broaddus, are there more comprehensive changes in processes that would be desirable than are proposed here? If so, what stands in the way of implementing them?",39
-fomc-corpus,1994,"I will mention one thing that I may want to bring back to the Committee in February. The System Foreign Account is currently limited in its investments to maturities not exceeding twelve months. When that limit was put in place, it was a simple and relatively effective means of insuring that we did not take too much price risk. But it also was based on the notion that we would make sure we were always liquid. Now, in my view this has resulted in a slight irony. We have accumulated a fair amount and have the potential of accumulating more of the decayed securities with a remaining life under one year--German government securities--since I can't buy anything longer than 12 months. Now, while that limits the price risk, it subjects me to rather high levels of liquidity risk. This stuff is not highly liquid. In terms of having liquidity and the assurance of being able to get out, I would much rather have some portion of the System Account invested in actively traded five-year issues, for example. What I have been intending to do, and this is part of the process, is to exhaust my existing authority so I could look this Committee in the face and say that to do any more of what I need to do I need to change the maturity ceiling. And so I would very much like to have the authority and the ability to invest in repos. It's a very flexible, liquid instrument. Perhaps after we have begun that process, we would consider changing the maturity ceiling to a duration ceiling where the Committee would specify that the overall portfolio should not have an average duration of longer than X and no subportfolio should have a duration of longer than Y. This would permit having some small portion--10, 15, 20 percent--of the portfolio invested in the actively traded five-year securities. I'm not there yet myself in terms of our management planning, but the repo business is something, if we could get it organized, that would be the principal, and really the only, next step I would see.",403
-fomc-corpus,1994,Could we arrange a facility with the Bundesbank to discount those securities or to take a loan and use the securities as collateral?,25
-fomc-corpus,1994,"The Bundesbank officials are rather firm in not wanting to give us any assurance of that. Now, whether they would if asked is uncertain, but they are very firm in not giving us any advance comfort.",41
-fomc-corpus,1994,The purpose of a central bank is to create liquidity.,11
-fomc-corpus,1994,"They're reluctant to do it even in their own market these days. You may have noticed that they just stopped issuing short-term paper. We didn't know that was going to happen. The proposal would take two steps forward, but at the same time take one step back in terms of the overall goal. Notwithstanding President Broaddus' comment, the goal is to get off the Bundesbank's balance sheet, So, to get off their balance sheet, given that they don't offer any other kinds of facilities like the investments in dollars that we offer, we are left with a limited number of options. There is one other consideration about how fast we should go and how we should do this and that is that the Federal Reserve Bank of New York, of course, also invests the foreign exchange reserves of the Treasury Department. Although we are not tied to following exactly what they do, I think it would be on the whole constructive to bring them along at roughly the same time in this process. So, we think a wholesale change in what we are doing would be more difficult. Peter and I have had extensive discussions with the Treasury about their plans. On the whole, I think they are pretty much on board. They may be just a little behind us in terms of thinking this all the way through.",258
-fomc-corpus,1994,"Go ahead, Tom.",5
-fomc-corpus,1994,"Thanks, Alan. Peter, are there practical constraints in terms of how much we can do? In other words, if we put all of our reserves into the repo market, I think we would probably be in excess of 20 percent of the market. What would represent a practical limit there? Secondly, what are the practices in terms of collateralizing a repo initially and what sort of mark-to-the-market provisions do they have? Is it comparable to our repo market here?",95
-fomc-corpus,1994,"Starting with the last, yes, it is comparable. There is a range of practices that runs from being identical to our market to being somewhat less collateralized at the margin than our market. But the range exists. The repo market in European government securities has really been evolving from infancy in--",58
-fomc-corpus,1994,So you could pretty much specify what you wanted in that regard?,13
-fomc-corpus,1994,"Yes. Certainly we couldn't put all our reserves into the repo market, and I wouldn't want to. I would imagine always trying to have some balance between directly held or under repo government securities in the BIS and perhaps some amount still at the Bundesbank; we'll have to decide how much. Having a diversity of institutional arrangements as well as maturities is part of our goal.",74
-fomc-corpus,1994,"We spent a lot of time talking to people in the repo markets as we proceeded, and we learned some hard lessons in that market here. I think there has been some concern that as these repo markets are developing in Europe market participants have not quite learned from our mistakes. So we have been trying, both at the central bank level and with U.S. dealers who have a presence in these markets overseas, to let them know how important it is to maintain margin and all of the other good practices. As they are evolving, they are taking a look at some of the early history here and learning from it.",122
-fomc-corpus,1994,Thank you.,3
-fomc-corpus,1994,President McTeer.,5
-fomc-corpus,1994,"Peter, you said a good bit more than usual about the Mexican peso this time. Is that just because they had an election in August or is this a reflection of the prospect that we are going to be paying more attention as they increase their role as our trading partner?",54
-fomc-corpus,1994,The length of my remarks this time was really premised on the fact that we had gone to some efforts anticipating the election and I wanted to follow through. I suppose I could have summarized my remarks by saying how smoothly the Mexican markets and the peso went through the election.,54
-fomc-corpus,1994,"As a technical matter, we still have an offer outstanding to the Bank of Mexico through the end of Friday of this week, September 30. So that's another reason to keep the Committee updated on the situation.",42
-fomc-corpus,1994,"I understand that in May Mexico replaced Japan as our second largest export market, but in July Japan took second place back again.",25
-fomc-corpus,1994,"Yes. My own focus on it is not following the trade account as much as the anticipation that New York banks and dealers, who are in the list of 100 firms planning to open offices in Mexico City, will be trading peso instruments more actively. As a footnote to that, I would note that I asked my counterpart at the Bank of Mexico whether he wanted me to include the dollar/peso in our turnover survey of the foreign exchange market. Some banks had suggested it to us, I presented this conundrum to my counterpart and explained that this survey was for next April. He thought about it and said, ""yes.""",127
-fomc-corpus,1994,"Okay, any further questions for Peter? If not, Joan Levitt.",15
-fomc-corpus,1994,"Thank you, Mr. Chairman.",7
-fomc-corpus,1994,"Did I say ""Levitt?"" I meant ""Lovett."" I'm sorry.",16
-fomc-corpus,1994,I answer to either. [Laughter] [Statement--See Appendix.],15
-fomc-corpus,1994,Questions for Joan?,4
-fomc-corpus,1994,In the intermeeting period there has been a lot of discussion of the exact wording of the announcement that we made in August. Do you think that that has had any impact either on Desk operations or in markets in general?,44
-fomc-corpus,1994,"The part of the statement that was released in August that has captured a lot of attention--and some people have likened it to the sort of attention that Talmudic scholars give--is the ""for a time"" phraseology. The rest of the announcement followed the format of earlier announcements. It has not had an impact on our operations; it has not affected us in any way that differs from the earlier announcements. That is to say, people see that the Committee has been announcing its policy moves and that has tended perhaps to give us a little more flexibility in our day-to-day operations. I'd say more than a little flexibility until we come right up to a Committee meeting. What we have noticed is that each time we come up to a Committee meeting, there is still this question about whether we are paving the way for a policy change. That has not dissipated. The ""for a time"" concept immediately after the August meeting was taken by most people in the market to mean until November 15. That was the ""nuance"" that they put on the statement. But as you can see from the data that have come out since the August meeting and the market's reaction to it, I don't think they feel that the Committee is hard-bound by it. It has been a factor in that people perhaps have responded more slowly to the data on the theory that, having said this, the Committee would like a longer period of time to review information as it comes in. So, the response to the numbers, say the PPI number, was muted because (a) it was the first number like this and (b) since it was the first, the Committee presumably would want more evidence. But I don't think the market thinks that the Committee would overlook the data if it were overwhelmingly conclusive.",363
-fomc-corpus,1994,President Jordan.,3
-fomc-corpus,1994,"Joan, for most of this year I have been trying to understand the behavior of the yield curve, in particular the part between the 1-year and 2-year maturities. After our February action, we saw a sharp steepening over the next several weeks between the 1-year and the 2-year rates. After the mid-August tightening action, we saw a complete pass-through initially on the short end--everything shifted up--without the 2-year moving. In fact, we even got a rally from the 2-year maturity on out. So we got a flattening of the yield curve between one year and two years. Now it has widened back out again to the point that last Friday we had a 100 basis point spread between the 1-year bill and the 2-year note. So, the 1-year rate, one year forward, is 7-1/2 percent. I look at that and shrug my shoulders. I don't know what to make of that discontinuity in the yield curve. From 2 years out to 30 years I don't see anything odd about the yield curve; under one year I don't see anything odd. But I can't make sense out of the 1-year to 2-year sector. Can you?",257
-fomc-corpus,1994,"I don't want to use a technical argument here because I don't think technical arguments carry weight for long periods of time, but I will say that an awful lot of money has been kept in the short end of the market because people are very cautious; most people feel that rates are going higher still, and the short end has been a beneficiary of that. The 2-year rate in particular has been the subject of some debate in the market. A lot of people look at the spread of the 2-year note over the funds rate as being too narrow to be sustained, but that abstracts from the fact that there has been a fair amount of interest in staying short. That perhaps is what has kept that segment of the curve relatively low. Bill rates were so low that the segment that you point to between one and two years may have been depressed beyond what fundamentals would call for. People are questioning the spread of the 2-year rate over the federal funds rate at this stage of the cycle, given the prospect of further Fed moves. And I think some people feel it's hovering around the low end because of defensive moves.",223
-fomc-corpus,1994,"Beyond the technical aspect, the issue I believe is what the market is building in for our prospective actions. As new data have come in, market participants have built in a steeper trajectory of Federal Reserve tightening actions not only over the next few months, taking out the effects of ""for a time,"" but for the years beyond that. Certainly, since early this year, we have seen huge moves in these intermediate-term forward rates because of the strength of the economy and changing market estimates of the likely Federal Reserve action needed to counter the inflation pressures.",109
-fomc-corpus,1994,"We see, as I mentioned, that people have ratcheted up somewhat further their views about prospective tightening. We see that in the futures contracts for December and in market commentaries. We see it through early next year. Not everyone, as I mentioned, is completely sure about where prices are going to be. There is still a fairly wide discrepancy in that.",73
-fomc-corpus,1994,Any further questions for Joan?,6
-fomc-corpus,1994,"Joan, the two camps you mentioned at the end of your statement--is that majority 51 percent or 85 percent? Seriously, can you give any sense of what the majority is?",39
-fomc-corpus,1994,"At the time I first wrote this earlier, I would have described it as a narrow majority, but over the past week or so I would say it probably has become a more comfortable majority. I think that's the way things have shifted over the past week. People really got caught up in the numbers released last week. They were a big surprise.",69
-fomc-corpus,1994,Thank you.,3
-fomc-corpus,1994,"Further questions? If not, would somebody like to move to ratify the actions taken since the last meeting?",22
-fomc-corpus,1994,So move.,3
-fomc-corpus,1994,Second.,2
-fomc-corpus,1994,Without objection. Let's move on now to the staff report and Messrs. Prell and Truman.,20
-fomc-corpus,1994,"Thank you, Mr. Chairman. [Statement--See Appendix.]",13
-fomc-corpus,1994,[Statement--See Appendix.],6
-fomc-corpus,1994,Questions for either gentleman?,5
-fomc-corpus,1994,I have a couple.,5
-fomc-corpus,1994,Go ahead.,3
-fomc-corpus,1994,"I have a couple of questions for Mike. I should have asked these yesterday at the Board briefing but I forgot. The first question is not meant to be a joke, but has to do with the employment report that's coming out at the beginning of next month and the baseball strike. What are you expecting the baseball strike to do to that number? What do you project that number to be?",78
-fomc-corpus,1994,"Implicit in the third-quarter payroll forecast is an increase of about 250,000 for September.",19
-fomc-corpus,1994,Working in the strike?,5
-fomc-corpus,1994,"This includes in essence no particular assumption for the strike. We have made some back-of-the-envelope calculations, and it is conceivable that it could have a measurable effect. But many of these people are part-time who might have found something else to do. We had the start of the exhibition season for football; they may have been employed as vendors for football games. There just seem to be too many imponderables here to make it a very big factor in the estimate for September.",96
-fomc-corpus,1994,"Of course, personal income and wages and salaries collapsed! [Laughter]",15
-fomc-corpus,1994,There would be some loss of hours.,8
-fomc-corpus,1994,The average hourly earnings approach is infinity for that group.,11
-fomc-corpus,1994,It's not the players that were--,7
-fomc-corpus,1994,"It could be a few tens of thousands, conceivably.",13
-fomc-corpus,1994,"I raise it because there was a lot of talk in the summer that the World Cup was adding to employment. I said to myself baseball's got to be bigger than the World Cup--in America, anyway.",42
-fomc-corpus,1994,"In retrospect, the numbers through August looked as if there might have been a World Cup effect--if you look at the areas of employment that might have been sensitive to that. There was that falloff in August. So, there might be some upside bias, all other things equal, in our forecast because we didn't make allowance for a big effect from the baseball strike.",74
-fomc-corpus,1994,"Okay. The second question has to do with Okun's Law and the 2-year projection. From the end of 1994 to the end of 1996 you have in the Greenbook forecast roughly a 2 percent real GDP growth. If potential is growing at 2-1/2 percent, that suggests a gap of a percentage point which suggests to me a rise in the unemployment rate conditioned on that forecast of about 1/2 percentage point. You seem only to have about a 1/4 percentage point rise. I was just wondering about that.",116
-fomc-corpus,1994,"We are, I think, well aligned with Okun's Law models if you take where we are as the jumping point.",25
-fomc-corpus,1994,From now.,3
-fomc-corpus,1994,"Right. Clearly, you can get a variety of results depending on what your starting point is, but we looked at this both in terms of the simple rule of thumb of an Okun's Law model working from where we are as well as in terms of models that can reach back a ways and take into account some of the errors that have occurred and so on. This looks as well aligned as our forecasts ever are, gauging this by our miscellaneous Okun's Law models.",96
-fomc-corpus,1994,"Okay, thank you.",5
-fomc-corpus,1994,"I should note, Dave Stockton reminds me, that implicit in this forecast is potential output growth more like 2-1/3 percent than 2-1/2 percent.",36
-fomc-corpus,1994,That's almost enough to square the circle right there.,10
-fomc-corpus,1994,"I'm sorry, I should have noted that.",9
-fomc-corpus,1994,Thanks.,2
-fomc-corpus,1994,President Parry.,4
-fomc-corpus,1994,"I'd like to ask a question about imports. In the forecast for the third and fourth quarters the growth rates of imports are the lowest we've seen since, I think, about 1991. Clearly, the direction of effects from exchange rates is supportive of this, but it seems as though it's a rather unrealistic slowing given the strength of final demand in this country.",72
-fomc-corpus,1994,"I think that's right if you just rely on the microeconomic indicators. There are three factors that I think would produce essentially this result. One is that we had what we think is a bulge in consumer goods imports in the second quarter. We suspect that has to do with either some combination of China or spread of sanctions against China, and/or movements in the seasonals in terms of the timing of imports as they relate to fall purchases.",88
-fomc-corpus,1994,So they showed up in inventories?,7
-fomc-corpus,1994,"Part of that has shown up in the level of inventories coming out of the third quarter. The second factor is that there also was a bulge in oil imports in the second quarter--this certainly is a big difference in terms of 1987 dollars. And again we are getting the effects, in fact we are looking for a decrease, in the third quarter as inventories have gone down a bit. The third factor is that there was also a considerable increase in imports of computers, which in real terms had a big impact. And consistent with that, we are anticipating in the July data at least a drop-off in computer imports. So, some of that has to do with these longer-term factors, but the sharp change relates to our interpretation of these volumes.",152
-fomc-corpus,1994,I see.,3
-fomc-corpus,1994,"Mr. Chairman, I might bring to the Committee's attention a late-breaking piece of news here this morning. The Conference Board released its survey for September. The headline is that consumer confidence registered its third consecutive monthly loss in September, declining 2 points. In June the index had registered 92.5 but it is now at 88.4. The punch line in this release is that ""the current level of consumer confidence has been associated in the almost 30-year history of the survey with a reasonably lively economy."" So it's consistent with the notion that consumer sales have slipped a bit but are not far below the higher levels that we reached earlier this year.",133
-fomc-corpus,1994,President McTeer.,5
-fomc-corpus,1994,"Mike, this is a follow-up to Bob Parry's earlier question to Joan. In Part II of the Greenbook, Section III-1, there is a sentence that says: ""The press release announcing the August policy moves was widely interpreted as indicating that subsequent action was on hold, at least for a few months, and longer-term rates initially fell somewhat."" Is that saying that you think the rates fell because of the ""on hold"" phrase as opposed to the action itself?",97
-fomc-corpus,1994,"Well, this is open to varying interpretations! [Laughter] Certainly, as we perceived it, that announcement has been an element in the sense that it gave traders a period of safety in which they didn't have to worry that every bit of incoming economic data would necessarily carry with it the risk of a tightening action. So, they probably were a little more relaxed about the near-term outlook.",78
-fomc-corpus,1994,"I think there's an interesting answer to that. Most of those adjustments that we `see are the dealer responses as distinct from those of the retail pension funds and the like. If you are a dealer and you believe that the chance of the Federal Reserve lowering rates approaches zero, all of the unexpected shocks have got to be on the up side. So if you're taking a long position in, say, 10- or 30-year securities for a trading play and you know that we are not going to do anything for a while, that is one discontinuity you don't have to be concerned about. But if there's a concern, if there is a Damocles Sword overhanging the system, you are very reluctant to hold inventories net long. And as a consequence of that, it is very likely to be a combination of both of those. In other words, the 50 basis points implies that we will not be active for a while, and then the statement reinforces that. That is just another way of saying to the bond dealers that it's safe to hold inventories, at least so far as potential unexpected Fed policy is concerned.",226
-fomc-corpus,1994,It's sort of interesting that we seem to be in a situation where we could get a positive market reaction either by tightening or announcing we are not going to tighten.,32
-fomc-corpus,1994,"I think both. I think the notion is that we tightened and said we are not going to tighten further. It's an effect of the tightening and the statement that nothing is going to happen thereafter. That was essentially our basic thrust as you remember at the last meeting, and I think the markets responded to that double effect.",64
-fomc-corpus,1994,"You can see in the fed funds futures that we showed on the chart in the Bluebook that futures for the next few months went up because we tightened by more than people expected, but the rate then sort of flattened out and it was revised down for the months farther out. Whether that was the result of the announcement or of the tightening action is a little hard to sort out. I think it was also a bit of a knee-jerk reaction. The last time the Fed announced something like this, in May, intermediate- and longer-term rates went down, and so as soon as markets saw something like that repeated, those rates started to decline. Within three days the decline had been reversed, though the subsequent rise in rates didn't really occur until much later.",153
-fomc-corpus,1994,"I think bond dealers would prefer that (1) the Fed never did anything, (2) that no one released any statistics, and (3) that everything was trading incrementally. Under those conditions they would feel comfortable. Any further questions? Cathy.",51
-fomc-corpus,1994,I'm interested in the change that you mentioned between August and now. You gave several reasons and the material we've been getting gives several reasons. But in your mind can you prioritize what was the main reason why your forecast and the implicit amount of tightening changed as much as they did from August to now? And what do you think most hangs in the balance subsequent to this meeting? What data coming in are you most looking at?,84
-fomc-corpus,1994,"Well, I think I highlighted the numbers that struck us as most important.",15
-fomc-corpus,1994,Is there one out of that?,7
-fomc-corpus,1994,"I think our sense of the momentum in the consumer sector was altered by the combination of the August retail sales and the upward revisions to the prior months. Private economists had become very enthusiastic about the signs that consumers really had moved to a more cautious spending posture. So this certainly suggested that there was still a willingness to spend and also a willingness to borrow; we still have considerable growth in consumer credit, and consumer sentiment is holding up well. So, I think our perception of where the consumer is has been altered. I noted two other factors: One, at least through the current period--this does not necessarily tell you very much about the next few months--there is a considerably greater degree of strength in manufacturing than we had perceived earlier; and, secondly, the housing data just have not shown the erosion of activity that we had anticipated. We still see things as slipping but not at the pace that we had expected earlier. So this certainly suggests that one of the key channels through which we would have thought that interest rates would damp aggregate demand is not working with the force that we had anticipated. This has its corollary, too, in all probability, in the fact that purchases of household furnishings and appliances have remained very strong; that was the notably strong element in the consumer spending report through August. There just has been no sign of tapering off there. So, those were key factors suggesting greater momentum in aggregate demand. At the same time, the employment data and the initial claims suggested that we were still getting a lot of growth in payrolls. In all likelihood, we were getting a little tighter labor market than we might have anticipated. On top of that--",334
-fomc-corpus,1994,You don't have to go through your whole presentation! I was just looking for--,16
-fomc-corpus,1994,"Right, capacity utilization is much higher. So, given the momentum, given the slack, we have felt that somewhat greater tightening is probably needed in order to hold the pressures in the economy down to something like those we had in the forecast by the latter part of 1995.",56
-fomc-corpus,1994,And what would you be looking for in the next data coming in? Would you be looking particularly at the consumer side?,24
-fomc-corpus,1994,"We will be looking at all of these things. We currently are anticipating some bounceback in orders for nondefense capital goods. If we got another very weak report, it might cause us to revise our view of what the trend is in capital spending, which has been giving good impetus to the expansion. Obviously, we'll be looking at those other indicators of response to interest rates, which might be the housing sector and consumer durables. And we'll be looking at what goes on in the financial markets to see how things are proceeding through those channels.",109
-fomc-corpus,1994,"Further questions for either gentleman? If not, who would like to start the round table? President Forrestal.",22
-fomc-corpus,1994,"Thank you, Mr. Chairman. As I have been reporting for several months now, activity in the Atlanta District remains quite healthy and we see that trend continuing in the future. We are benefiting not only from the cyclical gains in activity that have been experienced around the country, but also from continued in-migration from other parts of the country. On the retail side, the back-to-school sales were mixed, but retailers nonetheless are quite optimistic. Many of them are adding to their inventories and they expect strong hcliday sales. As a matter of fact, they are looking at nominal sales gains of 6 to 9 percent. Automobile dealers are confirming that model shortages constrained sales over the summer, but they are confident that the problem is being solved, and they expect sales to accelerate in the fourth quarter. Those constraints, as we know, are basically in the popular models. Tourism has been mixed in the District. We have had quite a lot of rain and that has contributed to weakness in the central and southern Florida areas, which has been a negative. Also, the slowdown in visitors to Florida from Europe has not been completely offset by growth in travel from Latin America and Asia. Manufacturing activity also rebounded in August after a lull in July--that's a seasonal factor. The strength is pretty much across the board--in motor vehicles, chemicals, health care, textiles, carpets, and paper. The weaknesses are in apparel and military contracts. The outlook for capital expenditures is improving; manufacturers in the District actually are adding to capacity and the District continues to attract new facilities from elsewhere. On the other hand, weak natural gas prices incrementally pushed down District rig counts and, with the price of natural gas being below $2, that probably will continue. On the housing side, we did have a deceleration of sales of single-family homes throughout the District, but prices are moving up nonetheless, and that's in the face of inventory shortages. Construction was hampered by the bad weather that I already have mentioned. Multifamily markets continue to improve and the occupancy rate is increasing around the District generally. Commercial real estate is doing somewhat better, although activity remains at somewhat low levels. In financial services, commercial lending demand is stronger than it has been, and it is about offsetting the softness that we are seeing in consumer loans. Growth in District payroll employment has been about half a percent higher than in the nation as a whole. On the price front, we are getting reports of rising prices of raw materials. This is not something very new; we have been hearing this for a while, but the reports of rising raw materials prices and other input prices are increasing. Nevertheless, our contacts are reporting that they are not able to pass these higher costs through to finished goods because of competitive pressures. On the national economy, our forecast continues to be somewhat stronger over the entire forecast horizon than the one shown in the Greenbook, although we too see a deceleration in growth. Part of the difference is the assumption about monetary policy. We did not build in any additional tightening of rates. But I think we also have a difference because of our view of the policy lags in the price determination process. We have inflation edging higher until at least the middle of 1996, and that's partly due to our estimate that the responses to policy changes made so far will take a little longer to feed through. We do see a cyclical peak in the CPI sometime during 1996. Our forecast really incorporates the view that the current pressure on prices is due to aggregate demand growing more quickly than aggregate supply. We believe that our efforts to reduce inflation over time may already have filtered into price- and wage-setting behaviors so that these cyclical pressures are seen as temporary as opposed to a sustained trend toward higher inflation. I think the recent behavior of labor costs, after a long period of falling unemployment, provides some support for this position. If this is the case, perhaps we can tolerate some small rise in inflation as the business expansion matures. It is possible, of course, that wage and price determinations are dominated by institutional features that, as has been discussed, in part involve an inertia to all of these processes. If this view is correct, once inflation starts rising and people build higher inflation into their expectations so that it persists indefinitely in the absence of forceful policy action, we have to act in a way that shows an absolute zero tolerance for higher inflation. It seems to me, Mr. Chairman, that our policy behavior over the last several years, perhaps going back as far as 15 years, has increased our credibility as inflation fighters. From this standpoint, the outlook would strike me as one that we should be pleased with. This is a picture, it seems to me, of an economy entering the mature stages of a business expansion and moving toward a peak in its rate of growth with very few imbalances. It is an economy where the rate of inflation also rises to a peak, but one that is significantly lower than in previous expansions and that, it seems to me, is quite desirable. It is possible that, in this optimistic framework, the structural responses to our past policies may have raised the economy's potential to grow as well. I think both of these scenarios, whether you adopt the inertia or the cyclical peak thesis, are reasonable interpretations of recent data, but at this point it strikes me pretty forcefully that it's simply too early to determine whether we should be worried or not. Thank you.",1102
-fomc-corpus,1994,Thank you. President Parry.,7
-fomc-corpus,1994,"Mr. Chairman, a number of signals suggest that economic conditions in the Twelfth District are improving. The current data indicate that the number of payroll jobs in the District rose 1.2 percent over the 12 months through August, the strongest annual growth that we have seen since 1990. Moreover, payroll employment data for a number of states are expected to be revised up substantially when the 1994 state benchmarks are released next March. We already know that there will be large upward revisions in California, Arizona, and Washington, and several other western states may see substantial revisions as well. I should note that systematic revisions in the state data do not necessarily mean that national payroll series also will be revised up, since the national figures already include bias adjustments that generally are not used in compiling the individual state data. Utah, Nevada, and Idaho had the nation's fastest growth in payroll employment during the past 12 months. In Oregon, Washington, and Arizona, the pace of growth is less robust but appears to be picking up. In California, it now looks as though the economy bottomed out and remained essentially flat roughly from early through mid-1993. At the last couple of FOMC meetings, we pointed to the bottom as being at the end of 1993, but these revisions in payroll data have changed that picture somewhat. However, the subsequent recovery that we have seen has been slow, sporadic, and uneven across sectors. While retail sales jumped 2.4 percent in the first quarter of this year, they fell back .6 percent in the second quarter. The unemployment rate remained stuck around 9 percent, just a little less than the present rate. Aerospace manufacturing continues to shed jobs at a double-digit annual rate. Turning to the national economy, real GDP growth appears to have slowed somewhat from the robust pace in the first half of this year. However, growth is likely to average slightly above its potential rate in this half of the year. Moreover, at present levels of short-term interest rates, I would expect to see a modest increase in the pace of the expansion in 1995, putting growth a bit above the potential rate in that year also. Labor and product markets currently appear to be tight. This impression was reinforced by the sizable increase in capacity utilization rates in the most recent release. While estimates of what constitutes full utilization in product or labor markets are inherently uncertain, it seems safe to say that without a further increase in short-term rates such as that contained in the Greenbook, there is a significant risk that inflation will be on an upward trend in the next few years. Thank you.",527
-fomc-corpus,1994,President Boehne.,5
-fomc-corpus,1994,"The Third District economy continues to grow at a moderate pace, less strongly than the rest of the nation. Total employment is growing, although slowly. Retail sales are expanding with strength notably in durables, particularly in autos. Residential construction on the whole is flat--down a little in some areas, up a little in others. Manufacturing continues to do well; it is growing, but not quite as fast as earlier in the year. Banks are reporting increasing loan volumes including increases in lending to small businesses. There also are reports of a fairly general slippage in underwriting standards--always the bank down the street, not the bank you're talking to. The outlook suggests that the pace of growth in the District will continue to moderate, although I must say I am hearing more concern about what rising interest rates might do to business prospects. We clearly have gotten people's attention; higher rates are on their minds, and they are talking more about it. Wage pressures remain subdued. Except for input prices, inflationary pressures have not changed much in the District. The competitive environment stressed over and over by business people seems to be making it difficult to pass on higher input prices. My reading of the national economy is that the expansion is slowing but that we are likely to get more growth than we expected for the next quarter or two rather than less. The strength in retail sales coupled with that in business equipment and faster growth among our trading partners provide the underpinnings for continued growth in demand and job creation. And with excess capacity dwindling, the inflation risks are clearly in view. The major uncertainty, however, is what lies beyond the next quarter or two when some of the slackening of pent-up demand and lagged effects of previous interest rate hikes will be felt more fully. The skewing toward greater upside risk may well continue beyond this year or there may develop more of a balance between too much or too little demand going into next year. For that reason, it strikes me that this is a time where we ought to have additional monitoring of economic developments as the preferred course.",411
-fomc-corpus,1994,Vice Chairman.,3
-fomc-corpus,1994,"The economy of the Second District actually improved over the last several weeks. Retailers were quite pleased with August sales--reporting year-to-year gains of 3 to 8 percent depending somewhat on the area. Demand in interest-sensitive markets such as housing, cars, and light trucks slowed, however. In the labor markets, the unemployment rate fell a bit in August to 6.9 percent in New York and 6 percent in New Jersey, and payrolls grew in July by 30,000 in New York and 10,000 in New Jersey. People are worried about personal income tax collections going forward; as a proxy for personal income, they grew by 3 percent in New York and 5 percent in New Jersey in the most recently available months. Something that has improved, perhaps at the expense of Florida, is tourism which has rebounded in New York City. A possible explanation is that the press is playing up very strongly the ""law and order"" approach of the new mayor and the new police commissioner. Although the crime statistics have not changed very much, people are feeling safer. The hotel room occupancy rate is up to 77.6 percent, which is a 5-year high. The New York airports are bustling and Broadway attendance is up 15 percent compared to last year. The convention business is coming back. On the negative side, it appears that there is a hole of about $1 billion in New York City's budget for this year, which is now into its third month, and so there will be a further reduction in City employment. The talk is a cutback of about 7,000 jobs. Perhaps more important over the longer run for the financial services industry is that Swiss Banc Corporation has just announced that it is going to be moving a good deal of its activities, including its trading, to a building that is being constructed in Stamford, Connecticut, a place that already has a lot of empty buildings. When their new building is finished in 1997, they will be moving most of their New York-based activities there. As I think all of you know, the conventional wisdom has been that trading activities have to be in places like Manhattan or the City of London, and so for a major bank like Swiss Banc Corporation to be flying in the teeth of that conventional wisdom is really quite important. If it caught on, it could take a lot of very highly rewarded jobs out of New York City where they are very much needed. The national economy appears to have less near-term momentum than we thought earlier, but fundamentally our forecast is about where we were at the last meeting. That is, we expect growth of real GDP to stay in the 2-1/4 to 2-1/2 percent range in the second half of this year and into 1995. So, we have a soft landing occurring but probably not soon enough to avoid a pickup in consumer price inflation from roughly 2-3/4 percent in 1994 to around 3-1/4 percent in 1995. Although we believe the risks in this forecast are fairly well balanced, there is a range of uncertainty about the strength of growth over the rest of 1994. In particular, as the Greenbook would suggest, there is a significant risk of stronger near-term growth than we are projecting. So, an alternative path of short-term interest rates, other than staying where they are, may in fact be necessary to combat the inflationary tendencies that could come up. What we are really concerned about is that the near-term risks to our forecast are symmetric but we think they are quite large, since the strength and sustainability of the rebound in consumer spending are unknown. Given the firming of the price data and the significant risk that a surge of consumption could push growth above 3 percent, we think that there are two alternative feasible paths for policy. One would be to stay about where we are and the other would be to firm policy at an appropriate time by about 50 basis points. As we compared our forecast with that of the Greenbook, what we came down to was that the Greenbook forecast looks like our upside number. That is, if all the risks that we see for stronger economic growth were to materialize, we would be about where the Greenbook is. We don't deny that that is possible, but it is the upside rather than the midpoint of our forecast. So, I think we are as far away from the Greenbook forecast as has been the case since I have been attending these meetings.",914
-fomc-corpus,1994,President Broaddus.,5
-fomc-corpus,1994,"In the latter weeks of summer through late August, there were some indications of a deceleration in overall activity in our District. We saw some slowing in retail sales and some softening in manufacturing and service-sector activity. That was reflected in our Beigebook summary this month. But the more recent reports from business contacts, directors, and others now seem to suggest that this slowing, if it occurred at all, was transitory and that the expansion in our region is back on track. At all three of our September board meetings--in Baltimore, Charlotte, and Richmond--director comments were generally positive across industries and across regions within the District. Consumer spending, including back-to-school sales, seems to be strong. Manufacturing activity appears to have reaccelerated. Tourist activity, Bill, also has been strong in our District. Nonresidential construction activity is continuing to improve. A few days ago, we got reports that a couple of large firms in Charlotte have committed to build 800,000 square feet of additional warehouse space in the next couple of months. On the residential side, we are seeing a measurable increase in apartment construction. We had not seen that for some time. So, again, after a lull it looks to us as though the overall pace of activity in our region has moved back up. The apparently renewed strength in our District economy currently seems, to me at least, to be consistent with the strength of the most recent national data on production and sales. Taken as a whole, this information suggests to me that the deceleration in the national economy that appeared in the summer was temporary and that the expansion overall still has a lot of momentum. In this situation, I think the 3 percent projected growth rate of real GDP for the second half of the year is plausible, but as I think you said, Mike, it could be higher. Of course, the full impact of our earlier policy actions this year probably has not been felt yet. The sense I get from our directors and other business contacts is that the interest rate increases that have accompanied these earlier actions are likely to be associated with, at most, a fairly modest decline in the growth of the national economy in the months ahead. The strong recent growth in investment activity, both fixed and inventory investment, is certainly not suggestive of a business expansion that is about to run out of steam. Mr. Chairman, let me just make a couple of comments with respect to the inflation outlook. I don't disagree with the Greenbook's inflation projection, but it's a bit unsettling to me that the staff is now projecting a consumer price inflation rate of about 3-3/4 percent by the first quarter of next year. I find it even more disturbing that for the first time we are beginning to see, not a lot, but a fair number of private forecasts of inflation rates of 4 percent or higher toward the end of 1995. Moreover, it seems clear that inflation expectations are rising at least in the financial markets. The bond rate is now at its highest level since back in the 1990-1991 recession despite our August move. I recognize that a lot of things can affect bond rates in the short run, but a bond rate that is persistently over 7-3/4 percent, as it has been now for some time, suggests to me that the longer-term inflation expectations of market participants is something closer to 4 percent than the 3 percent rate for the CPI that the staff is projecting for the second half of 1995 and on into 1996. That says to me that we still have a credibility gap. Market participants do not yet seem to be convinced that we are going to take the actions we need to take to achieve our own internal inflation forecast. So, I think it's essential that we find a way to reaffirm our commitment to price stability at an early date. Let me just say very briefly, Mr. Chairman, that one way to deal with the credibility problem might be to consider announcing explicit multi-year inflation rate targets leading to price stability. as has been done in some other countries--say 3 percent for 1995, 2-1/2 percent for 1996, and so forth. Right now, it seems to me, we are between a rock and a hard place, between a lingering credibility problem, on the one hand, and the concerns that a lot of people understandably have about further tightening action on the other. If we announced explicit inflation targets and committed ourselves clearly to achieving those targets, that might buy us a little more flexibility at least with respect to the timing of our short-term policy actions. In the absence of something like this, though, I think we need seriously to consider some sort of policy action later in the meeting.",959
-fomc-corpus,1994,Governor Lindsey.,3
-fomc-corpus,1994,"Thank you, Mr. Chairman. I tend to concur with both the staff and the markets that both nominal and real fed funds will be higher six months from now than they are today. That doesn't mean we should feel any compelling need to move today. And what I would like to do is to take a look at what I think are two important events that will take place between now and our next meeting, and they were touched on by Peter Sternlight earlier on [Laughter]--",97
-fomc-corpus,1994,Do you mean me?,5
-fomc-corpus,1994,"Oh, I'm sorry!",5
-fomc-corpus,1994,It's ghosts.,3
-fomc-corpus,1994,"His ghost is here; he is haunting me. Okay, good, so much for my credibility!",20
-fomc-corpus,1994,Let the transcript be amended!,6
-fomc-corpus,1994,"Yes, if that's possible.",6
-fomc-corpus,1994,"That's okay, Peter was replaced by Joan ""Levitt."" [Laughter]",16
-fomc-corpus,1994,"I would highlight two dates. The first is September 30th and that was mentioned earlier. That's the deadline for the negotiations between the United States and Japan and the issue of rhetoric comes up. I think the situation there has worsened in the last few weeks and that has to do with the changing perception of the bargaining position of the two countries. Beginning with the United States, I think it is clear to the Administration that its confrontational approach to the Japanese has been an unmitigated disaster. The U.S. bargaining position today is substantially weaker than it was 12 or 18 months ago. We used what would normally be a weapon of last resort, dollar devaluation, and we used it inexpertly, and the Japanese economy seems to have survived it. Indeed, the market reaction to this inexpert diplomacy has been so adverse that it has hurt the Administration's claim to have brought long-term interest rates down. The political ramifications have been negative and I think that fact is now widely appreciated within the Administration. So as of a few weeks ago the Administration, from what I was told, was looking for a graceful way of surrendering. In effect, the Japanese were told that they could basically set the terms as long as they made noises about how painful those terms were, the intent being to save face for the United States. On the Japanese side, the choice is a tougher one. It's whether to take that offer and presumably buy peace for the rest of this Administration's term or to try for something more. In general, I think politicians over there seem inclined to favor a deal that would be sufficiently mild to get them through the next Japanese elections, but it would have to be demonstrably mild. I think the current LDP-socialist alliance, which represents the anti-reformist portion of Japanese politics, would find it a particularly sweet irony to score such a victory, given that this Administration failed to cut a deal with two clearly more pro-United States and pro-reform governments earlier in the year. However, some politicians and the bureaucracy see enormous potential for getting even more by holding out, and I think this was what the hawkish comments suggested earlier. The fact that the United States has been defeated by the Japanese is widely appreciated in the Japanese government, and as a result the option is there for a humiliation of the United States that would be made clear by a negotiated defeat, which so far has not entered U.S. political consciousness. The gains for the Japanese by forcing a humiliating set of terms on this Administration or at least avoiding a face-saving exit by the Administration would mean not just two years of peace, but perhaps a period of peace lasting several Administrations. That would mean in effect that future politicians would have been scared from using Japan-bashing as a weapon. Of course, this Administration can't accept humiliating terms five weeks before our elections, so the possibility that neither side may blink is I think pretty high, and the result for the markets could be tumultuous. The second date that we should be paying attention to is October 16th, which is the date of the German federal elections. I am a bit of a political poll junkie and those polls coupled with the Bavarian elections on Sunday suggest to me that Mr. Kohl is unlikely clearly to win a fourth term. Too many things have to go right. The Free Democrats have to make the 5 percent threshold to get into Parliament; I think they probably will, but it's no sure thing. The PDS, which is the Party of Democratic Socialism--my, how names change --probably won't get the 5 percent, but they are probably going to get into Parliament another way, which is to win three seats outright, as they probably will in East Germany by direct vote, and get their full proportional share. So, somehow they have to fail to get those three seats. The far right has to fail to make the 5 percent threshold as well. And assuming all these things go right, the blue/yellows or the Christian Democrat/Free Democrat vote has to be greater than the red/greens, or Social Democrat/ecologist vote. Any one of those events may be likely, but I think the chances of all of them going the right way seem to be quite small. As a result, I think what we are going to see is the Christian Democrats and Social Democrats agreeing to a coalition. The markets know what that means, namely an inexpert, compromising, and vacillating German government for four years with the growth of both right and left on the fringes. That would not be good for Europe; it would not be good for Germany; it would not be good for the bond markets. In sum, if things go wrong on September 30th, we could face some combination of foreign currency bond market problems. If things go wrong on October 16th, I think the result would be a short-term appreciation of the dollar coupled with a general sell-off in worldwide debt markets in the longer term. In either event, the potential need for an adjustment in U.S. rates is possible. I'm going to be quite specific. I made my views on the efficacy of foreign exchange intervention fairly clear several meetings ago, and I won't go into that again, but my suggestion this time is that if intervention is requested, we make explicit that it be accompanied by a change in policy and in particular that it be accompanied by a change in policy of 50 basis points. Frankly, Mr. Chairman, I think that having that be the policy of this Committee would strengthen your negotiating power in resisting what most people in this room find distasteful. But hopefully we will survive both September 30th without a need for foreign exchange intervention and October 16th. And if we do so, no rate increase would be needed and we can come back to the normal considerations of monetary policy in November.",1190
-fomc-corpus,1994,President Minehan.,4
-fomc-corpus,1994,"New England's recovery remains respectable in terms of the data, but the pace and feel of economic growth lead me to conclude that we may still be experiencing the lull that we thought was there nationally during the summer. In July, employment growth was just under 2 percent for the region as a whole over the previous year or nearly a full percentage point below national levels. Earlier in the year, regional growth had tracked national levels a little more closely. As in the past, employment growth in the region varies considerably by state, with Massachusetts and New Hampshire employment growing at just under 3 percent, that in Connecticut nearly flat, and Vermont and Rhode Island employment beginning to flatten as well. Growth in service jobs remains dominant, with two-thirds of the job growth in New England over the last year occurring in services. However, we are beginning to see an upturn in manufacturing, a fact that has engendered some optimism. Consumer confidence rose slightly in August, but here again it is not what it was earlier in the year. In general, New Englanders have expressed less of a sense of growing optimism over the past year than is true nationwide, with local consumer confidence readings moving up less than 10 points versus over double that for the nation as a whole. Perhaps these consumer confidence figures account for the general spending malaise reported by our retail Beigebook contacts. Continuing this tale of moderating growth, construction employment has been essentially flat for three months, new housing activity is slowing, and significant commercial construction has yet to materialize. However, both housing permits and the value of residential construction contracts remain considerably above year-ago levels. Retailers and manufacturing contacts report very little cost pressure in contrast to more widespread reports of raw materials cost increases six weeks before. And where there are price increases, we also see the inability due to competition to pass on those price increases. Finally, while the overall volume of District bank lending is growing at a pace over that of 1993, such lending in the commercial, real estate, and personal loan categories is growing at a quite moderate pace compared to national trends. I don't think that has anything to do with the banks' willingness to lend because we hear the same kinds of things that people hear nationally--that there may be some deterioration in the credit standards at the bank down the street. There has been some news about that locally in the papers, but we don't see a tremendous degree of growth in the actual bank lending data. I should note two bright spots: First, there was a great summer tourist season in the Northeast, similar to New York, with reports from Maine, the Boston area, and Cape Cod quite strong. Second, commercial real estate markets seem to be tightening, at least in specific areas. Vacancy rates in downtown Boston have declined substantially and some experts are predicting new construction as early as a couple of years from now, with serious renovations of older buildings in the meantime. That contrasts very sharply from what people were thinking when I first arrived in Boston three years ago. At that time, people were talking about sort of a 10-year horizon before anybody would risk building something new in Boston. On the national scene, we concur with the Greenbook that the prospects for the third and fourth quarters look stronger than expected. Labor markets are tight; external growth is stronger. Inflation, while perhaps not accelerating as yet, has stabilized and may be showing signs of turning upward. So we are in harmony with the forecast of increased rates over the last half of the year, but the amount and the timing we believe are an issue. Looking at a range of private sector forecasts, none seems to project as much tightening as the Greenbook though they achieve similar rates of GDP growth and a moderation of inflation during 1995. So, we are a little agnostic about the degree of tightening, but we agree that the risks are on the up side.",780
-fomc-corpus,1994,Thank you. President Jordan.,6
-fomc-corpus,1994,"The District economy is quite strong overall. In fact, there really isn't an area or sector of the District that I would call weak. Tourism has been very good; maybe it's a spillover from New York, I don't know, but everybody talks about having had a record year of tourism, especially in northeast and northwest Ohio. Agriculture had its third good year in a row, which means all the ag sector banks have done very well. In fact, all of the banks in the District are reporting that they are in very good shape; this is the strongest year in decades. Residential construction is very good. We have had some reports of increasing house prices, but we hear mostly about increased building activity and not concerns about prices. Nonresidential construction has picked up a fair amount and that relates to capacity issues that I want to come back to in a moment. Motor vehicle production essentially is at capacity, whether it's trucks or autos. All of the suppliers as well as the assemblers are saying that they are at capacity levels and expect to stay there for at least the balance of the year. Retail sales were quite good through Labor Day but then dropped off for the balance of September--not in a way that worries people, but there was a noticeable slowing of activity. Labor markets generally are characterized as tight throughout the District. Even some areas that were complaining before about being sluggish or soft now say that there has been a pickup. In some communities, people associated with retail or fast food operations actually complain about a shortage of teenagers, if you can imagine such a thing! [Laughter]",317
-fomc-corpus,1994,A shortage of teenagers who want to work.,9
-fomc-corpus,1994,"We were especially interested in the question of capacity in the manufacturing sector and put the question directly to a broad array of manufacturers--the whole spectrum whether it's capital goods, machine tools, motor vehicle-related, and so on. Consistently, reports are that they are at capacity and are looking to expand capacity. Then we turned the question to pricing, and we found no pattern at all. In fact, it was the rare exception where somebody said that price increases were going to be a response to capacity limits and backlogs. They really want to increase their ability to meet the demand that they see through output, not price increases. That led me to be very curious about the Wall Street versus the Main Street attitudes. When we look at bond yields, mortgage rates, the price of gold, the exchange rate--all these sorts of things suggest an inflation premium. So, we asked people--directors, small businesses, large manufacturing companies, other nonmanufacturing businesses--whether they were more concerned about inflation, less, or the same compared to two or three months ago. And with only one exception out of dozens of business people we talked to, they said the same or down, with the majority saying down. So from a Main Street standpoint, people are not acting or sounding as though they think that inflation is picking up. In that sense, I don't think we have lost ground in terms of trying to achieve a situation where inflation is not a major factor in decisions of households or businesses. I'm puzzled by the international financial markets. One way of reading them is that we are seeing a hike in inflation concerns and awareness in those markets. Regarding the national economy, I still am not inclined to think of what has happened in the past four quarters as a classic increase in aggregate demand fueled by monetary/fiscal stimulus or something like that. A year ago, we had gone through a significant period, several quarters at least, of a disappointing economy. And we were waiting for the rebound--waiting for economic activity to pick up--and were getting to the point of thinking it was not going to happen. The Greenbook forecast for a year ago had a middling expansion out through 1994. We then got the pickup and we have had four quarters of fairly good growth. But I choose to interpret the majority of that as having been the effect of a transitory increase in the level of economic activity in response to, if you will, the diminishing of the head winds--the depressants being less of a factor --rather than being fueled by aggregate demand kinds of factors as in the past. There may be some element of that. If so, we have to say with the advantage of hindsight that if we think this pickup basically has been demand-driven, then we overstayed our accommodative policies late last year and early this year--that we were fighting against the head winds longer than maybe was necessary and should have backed off the accelerator a little sooner. But I don't think that is the lion's share of the way to interpret this. If I am right about what these last four quarters have told us, then as this transitory increase in economic activity is completed, the rate of change naturally will diminish. Second derivatives have to go negative. I don't see signs that tell me that we have to use the term ""tightened too little"" or necessarily even ""too late."" I would have expected that if moving up to the 4-3/4 percent level from the 3 percent level in the funds rate was behind the curve, then we would have seen symptoms of that in reserves, central bank money, demand deposits, other things suggesting that there was something in the marketplace moving equilibrium interest rates up much faster than we were moving. I don't see that out there. As implied in my question earlier to Joan, the yield curve may play a part in that. Why does the yield curve from three months out to a year look okay? What we have been doing on the funds rate does not look to me like either too low a level or one that came up too slowly. But I have problems with what happens between the 1-year and the 2-year maturities. Why is the 1-year forward rate for the 1-year maturity 7-1/2 percent? It leaves me in a position of thinking that we should not totally neglect the information that is coming from reserves, money, and credit and debt measures that say that right now we are in a good position; give it a little more time.",908
-fomc-corpus,1994,President Hoenig.,4
-fomc-corpus,1994,"Thank you, Mr. Chairman. The Tenth District economy remains strong, but there are some signs of slowing. By that I mean slowing to a pace more in line with the national rate, so the regional economy is still very strong overall. We are seeing some slowdown in residential construction which suggests that some of the earlier policy moves may be having an effect, but the slowing is modest. We also are seeing some slowdown in the ag area and what happens there will depend a lot on prices. Our energy sector remains sluggish. On the other side, we have manufacturing that is very strong, especially the durables side and automobiles. Our services industry is very strong and our retail sector is strong. Commercial construction, in contrast to residential, appears to remain fairly good, and we still are seeing some scattered shortages in the labor market. We also are hearing continued comments about resource price pressures in steel and in paper manufacturing. This has been going on long enough that individuals in these firms feel that something has to give. Their margins are coming under pressure and how much more they can be squeezed is on their minds. So, in contrast perhaps to our other contacts, I think they are thinking about inflation. As we look forward, we do think the District economy will continue generally strong. There may be some further slowing, particularly in the construction area, but we think manufacturing will remain good in the context of strong national demand and as the foreign sector has its effect on our manufacturing. Overall, conditions in our District are generally good and I think they will stay that way for some time. On the national level, we see growth slowing slightly this year, but we think it will stay above the potential rate and remain above 3 percent on the year. We think that's also true for inflation as we end out the year. Looking beyond that, and assuming we hold monetary policy unchanged, we see some slowing of the expansion next year toward the natural rate. But we still see an environment where inflation is rising in a 3 to 3-1/4 percent range. So that is a concern to us as we look to the future for the economy, especially as we see our own District remaining fairly strong. Thank you.",443
-fomc-corpus,1994,President Moskow.,4
-fomc-corpus,1994,"Mr. Chairman, economic activity in the Seventh District remains relatively strong. Most reports indicate an expectation of continued growth in the near term, with the possible exception of residential construction. Manufacturing activity remains robust but has been impacted by capacity constraints as has been mentioned before. Most of these constraints in automobile production should be resolved this fall except for some selected, very popular models where shortages are expected to continue into next year. Auto suppliers in the District report that orders remain very strong and that production is ""maxed out."" The heavy duty truck industry is also at capacity. Our contacts in retailing generally report that sales growth has continued at about the slower pace seen in the second quarter, with several noting some improvement more recently. Retailers generally are optimistic about sales over the rest of this year. For the most part, inventories are in good shape, and many retailers indicate that they plan to increase their stocks in the near future. Competitive forces continue to hold down prices to consumers. Labor markets in our District have continued to firm up. Demand for temporary workers in our region is very strong, with these firms having to pay wages that are 5 to 10 percent higher than last year to attract workers. Recruitment costs may be rising more generally. We have had reports of bonuses being paid to hire engineers and truck drivers, for example. However, we have had few reports of any significant upward pressure on the wages of permanent workers. Some employers reported that they do not expect higher union wage demands in the coming months, and others believe that they can offset higher wages through productivity increases. Purchasing managers throughout the District report that prices have been in an upward trend this year. Increases in prices for container board, chemicals, and aluminum have been particularly pronounced in recent months. Some manufacturers have fixed-price supply contracts that protect them from price increases for the remainder of this year. For example, auto and commercial equipment manufacturers will now be negotiating new steel supply contracts for next year. However, manufacturing contacts at our recent meeting in Milwaukee contirued to express skepticism that inflationary pressures would prove significant or long-lasting, citing the intense and continued competitive pressures that have been mentioned here before. Agricultural conditions in the District remain quite favorable. Estimates which had already pointed to a near record corn crop and a record soybean crop have been raised slightly. These crops are maturing at a faster than normal rate, reducing the possibility of harvest losses. Our overall macroeconomic outlook for the second half of 1994 is largely consistent with the Greenbook. We concur with the Greenbook assessment that little slack remains in the economy. The only difference concerns the quarterly pattern of real growth. We expect slightly weaker real GDP growth in the third quarter followed by slightly stronger growth in the fourth quarter, and this discrepancy primarily reflects differing assessments of the timing of production patterns in the automotive sector. If I could, I just want to comment on the U.S./Japan negotiations and the September 30 deadline.",590
-fomc-corpus,1994,Do you want us to ask what your affiliation is in this regard?,14
-fomc-corpus,1994,"Just an observer from Chicago at this point without having had any contact with any of the participants. These are complex negotiations, as we know, under at least two different statutes. I think that Governor Lindsey's scenario is possible, but I would say the probability is higher that the parties will reach agreement on some of the issues. If that's true, then I would not expect any major negative impact on the currency markets.",83
-fomc-corpus,1994,President Stern.,3
-fomc-corpus,1994,"Thank you, Mr. Chairman. First, with regard to the Ninth District economy, the objective measures of economic activity suggest that the regional economy remains strong. The anecdotal evidence--of course there is always a danger of paying too much attention to that--suggests that activity has even picked up another notch, which is pretty remarkable because the regional economy has been operating at quite an accelerated pace for an extended period of time. Nevertheless, business people seem quite positive about recent developments virtually across the board. Labor markets have tightened further and jobs are certainly readily available. Despite those circumstances, there is still no widespread evidence of building inflationary or wage pressures, but I think it is fair to say that there are more scattered indications of growing inflation and wage pressures. It is by no means widespread, as I suggested, but as we listen to people comment about input prices and about what is happening in specific labor markets and so forth, there certainly is more talk today about inflation than there was a few months ago. Even some of the business people who have been quite skeptical of our concerns about inflation, thinking that we might be worried about a phantom, have started to acknowledge that there may be a little more to it than they at least thought earlier. It's also true that when we talk to bankers--I think this came across in the FAC minutes but it comes across almost everywhere--if anything credit is a good deal more readily available today to small and medium-size businesses than it was a year ago or even less. It does not appear that our moves toward higher interest rates have had any restraining effect in that sector. With regard to the national economy, it may be slowing, but not very much in my view, although I will admit that depending on how the inventory numbers play out, we could get some readings of real GDP that suggest a slowing. My reading of the incoming data at the national level suggests there is a good deal of momentum in the expansion. I guess the only way I can describe it is that it looks strong. I do think this will be accompanied by some acceleration of inflation as the Greenbook suggests. Bob Forrestal raised an interesting point that this may be just a temporary, cyclical spike that we need not get very worried about. But it seems to me that identifying whether it's a temporary spike as opposed to something more durable may turn out to be exceedingly difficult, and certainly history doesn't provide very much comfort on that score.",489
-fomc-corpus,1994,President McTeer.,5
-fomc-corpus,1994,"Eleventh District business conditions remain good and essentially unchanged from my last several reports. There are no significant new straws in the wind except perhaps on the fashion front where I understand that mohair is gaining in popularity. I'm told that the Eleventh District produces 90 percent of the country's mohair. We have a lot of ""mos."" [Laughter]",72
-fomc-corpus,1994,That shows you how much demand there is for more hair! [Laughter],16
-fomc-corpus,1994,"There's a lot of dust being raised by companies getting ready to do business in Mexico under NAFTA, and unfortunately there are some signs of non-tariff restrictions replacing tariffs as a barrier to trade. In August, I reported complaints by some small banks of very aggressive competition in lending from larger banks. We have had people examining that more carefully and their early reports are that that is more a matter of price and spreads than standards. I can't really add to anything that has been provided to us or reported here today on the national economy except my caution that we should keep an eye on the further slowing of all of the monetary aggregates and bank reserves, especially in the context of a fiscal policy that's not as expansive as we used to see it. I understand that that has not been a problem today, but we shouldn't forget about the aggregates; we should see what is going on there and keep them in mind.",181
-fomc-corpus,1994,President Melzer.,4
-fomc-corpus,1994,"Thanks, Alan. Despite hopes to the contrary, the fact is that inflation has turned up. Projected strength in demand, which is a view we would certainly associate ourselves with, may well add further to inflationary strains. In the past three months, both retail sales growth and industrial production have accelerated. Payroll employment growth continues to be strong. Correspondingly, as has been mentioned, capacity utilization has risen well above its 1967 through 1993 average of about 82 percent. A rebound in auto production in August and recent announcements of auto sales and production schedules point to improving growth in industrial output through the end of this year. In the Eighth District, auto production has been booming in the third quarter, and producers recently have boosted production plans for the fourth quarter. Production at Ford and Chrysler plants in St. Louis is planned to rise by about 11 percent from the third quarter and by more than 2 percent from year-ago boom levels. Auto industry officials continue to see sales constrained by supply as producers reduce output in some areas to retool and make capacity improvements. Overall in the Eighth District, there has been some leveling in economic activity but at a very high level inasmuch as we had recovered to near capacity far faster than the nation as a whole. Nonetheless, employment in the District remains robust as the unemployment rate hovers near its lowest level since August 1974. Reports of labor shortages in certain trades and geographic areas are increasing in my judgment. For example, in the construction trades, there are now reports of shortages throughout the District. In certain areas that had been very successful in attracting new business--areas like Bowling Green, Kentucky and Jackson, Tennessee--regional development efforts are being altered to reassure new and expanding businesses about the continuing availability of labor. Jackson, for example, recently has announced a six-month hiatus in recruiting large business prospects. In some areas, there are shortages even of unskilled labor, although these are being offset in certain cases by hiring immigrant laborers from Mexico, for example in northwest Arkansas. Turnover rates are very high. Firms report having to hire two to three apparently qualified workers--and that implies screening a lot more--at this unskilled labor level for every one that pans out. While reports of wage pressures have been isolated so far, broader-based pressures seem incipient given these developments in labor markets. Business executives in the District are also seeing evidence of price pressures from rising costs of steel, paper products, and a variety of raw materials from both foreign and domestic sources. Despite continued competition in product markets that limits their ability to pass on costs, it would not take much, in my judgment, to crystallize price increases in such an environment. In fact, an interesting aside, somewhat contrary to the report of the view of the National Association of Manufacturers, is the view I am getting from manufacturers in our District. They perceive that the marketplace they are operating in is so competitive that to enable them to stay competitive, they would like us to take action to contain what they see as emerging price and wage pressures. One final area I wanted to comment on is inventories. Of course, many economists have been concerned that the second-quarter buildup foreshadows slower demand growth ahead. However, again based on conversations I have had with business executives in the Eighth District, my general sense is that the buildup was intended. Let me give you just one example. Last week we had a meeting outside of St. Louis, and a manufacturer of steel for industrial and commercial buildings with operations not only in our District but the upper Midwest and the West told me that his lead times from suppliers are now two to three times above what he would normally expect and that he in turn has pushed out his delivery schedules for his customers to probably twice what they normally would be. As a result, to prevent further delays in meeting his customers' demands, he has begun to order raw materials in anticipation of orders that really have not materialized. I will say, however, that when I asked him whether he was willing to build speculative inventories based on the prospect of further increases in prices of materials, he said no. By the way, he has seen two steel price increases so far this year totaling 10 to 12 percent and another increase has been announced and seems very likely for the beginning of the year, So far, all that is going on, at least in this sample of one, is the building of additional inventories against expected final orders.",902
-fomc-corpus,1994,This is a manufacturer of what?,7
-fomc-corpus,1994,"Steel products for industrial and commercial buildings--warehouses, light industrial buildings, strip shopping centers, that sort of product. To conclude, I'm very concerned about inflation no matter what measure one looks at. In July and August, consumer prices accelerated to an annual rate of 4.1 percent and producer prices to an annual rate of more than 6 percent. Inflation is certainly headed in the wrong direction if price stability is our goal.",87
-fomc-corpus,1994,Governor LaWare.,4
-fomc-corpus,1994,"Mr. Chairman, I suspect that the death yesterday of the Administration's health care reform scheme may well result in a reversal of some of the recent declines in consumer confidence. On the other hand, the upcoming election will tend to focus attention on voter dissatisfaction with government and support continued uncertainty. My own view is that the export sector may in fact do better than the Greenbook forecast, and consumers may continue recent spending patterns more strongly than the Greenbook projects. The abrupt drop in GDP growth projected by the staff for 1995 seems to me to be inconsistent with the projected levels for autos and housing starts. As a result, I continue to believe growth in 1995 will be somewhat stronger than the staff forecast and may indeed require further restrictive action by the Committee. But I'm not convinced that we have yet seen the full impact of our previous policy moves or that the future direction of policy is clear enough at this time without more hard data. I certainly admire the inflation reduction and containment achieved in some other countries, but I find the social price paid in those countries in terms of prolonged recession and very high unemployment unacceptable for the United States. I would rather pursue a more moderate course designed to ratchet core inflation down over time and not be distractedly concerned by occasional temporary upward blips in the CPI. Consequently, I think we need more information and a very sensitive foot on the brakes.",277
-fomc-corpus,1994,Governor Kelley.,3
-fomc-corpus,1994,"Thank you, Mr. Chairman. First, very briefly a quick summary of where I am: The inflation news since the last FOMC meeting certainly has not been very helpful, but I don't think there is much evidence that inflation is going to take off on us. We may have some inflation creep on our hands as the Greenbook suggests, and I'll speak a little more to that in a second. In real activity, as Mike Prell and many others have observed, there is an impressive and, certainly to me and perhaps others, a surprising amount of momentum still out there and that may be slowing. When we gathered last time, we tightened 50 more basis points and that, of course, is only just now going to start to have an impact. The impact of earlier tightenings is, of course, still in the process of unfolding. So in short, I think we have an interlude here to see what develops. The slowing may spread and stretch out a little. On the other hand, it may turn out to be very brief and we may continue to get very strong data that may call for another move rather soon. If I can take one more minute, Mr. Chairman, let me share with you a concern that I have. If inflation creeps up at all, and it certainly appears that that is likely, many here could regard that as insignificant or temporary and not be terribly concerned about it. But I think we probably need to be prepared for a rather major and stronger bout of inflation jitters in the economy, and we may want to think about how we might be able to handle that. There is a perception that the economy is in a very mature, perhaps even a late, stage in the cyclical expansion. Everyone perceives that we are operating more or less at capacity now. For a long time in this country, people would expect in a period like this to see inflation take hold and be at its most virulent. I think that until we actually go through a full cycle without a substantial inflationary surge, there is going to be a concern that history will repeat itself, and I can understand that. And if inflation starts to show some upward creep, there almost inevitably will be some concern that, okay, the game is on, here we go again. There are at least two risks in that. First of all, it could have a certain self-fulfilling prophecy element to it through the expectations channel and it may make itself stronger than it needs to be or might inherently be. Second, I can see it forcing long rates considerably higher than we are comfortable with or think that they ought to be through an enlarged inflation premium. That could be an overly and unnecessarily negative event. So, I have a concern regarding what we may be looking at in the marketplace in the near future, Mr. Chairman. Even if we are not terribly concerned based on the specific evidence that we see at hand, I think there could be some market concerns that would work their way through the economy in a negative way.",612
-fomc-corpus,1994,Governor Yellen.,4
-fomc-corpus,1994,"I agree with the central message of the Greenbook that most of the new information that has accumulated during the last six weeks points to continued strength in aggregate demand. The incoming data do not yet provide any significant evidence of a sufficient slowdown in real GDP growth. However, this is not based on a great deal of evidence. A lot more data will be coming in over the next month that will clarify whether this impression is correct or not. I personally am concerned that we have put quite a bit of restraint into the pipeline, a good share of it quite recently, and it may yet make its impact felt. Under the Greenbook assumption of an additional 100 basis point rise in the funds rate, I am considerably more pessimistic than the Greenbook about the 1996 forecast for real growth. For example, in the MPS model the impact of such a tightening becomes really discernible only after about four quarters, namely by early 1996. And after eight quarters, such a rise would take about 0.9 percent off real GDP. That leaves me with a sense that a forecast of 2.2 or 2.3 percent real growth in 1996 may be overly optimistic with that added restraint. A key question now concerns the behavior of prices--whether there is evidence at this stage that inflation is accelerating. This in my view is an especially important issue given our concern with inflation as an ultimate policy goal and also the feeling that the economy is operating at close to potential where there is a decided risk that inflation could begin to creep up. But here my analysis differs somewhat from the staff forecast. In particular, I think we are seeing and will continue to see for a time an increase in the relative prices of raw materials and imported goods. These higher prices will feed through into the CPI for a period of time, causing a temporary increase in the rate of inflation but not a permanent increase in the trend inflation rate, or worse yet, an acceleration in inflation. I think the increase in inflation will be temporary even if there is only enough restraint to hold the unemployment rate at its present level, roughly the natural rate given staff estimates. And I think the markets have overreacted to the increase in producer prices in August. Now, the Greenbook is also forecasting that consumer price inflation will be up for the next three quarters and then will return to roughly 3 percent by the end of 1995, and I agree with that forecast. My difference with the Greenbook concerns whether or not a period of unemployment in excess of the natural rate is needed to get inflation back into line. I think not, but the Greenbook thinks that it will require a period of unemployment in excess of the natural rate in the latter half of 1995 and 1996 to subdue inflation, and that's something more than a quibble because it does govern one's view about how much additional restraint it is going to take to hold inflation at its present level. To elaborate just a bit, I think we are witnessing now a perfectly normal cyclical phenomenon, namely, the relative prices of primary commodities and raw materials tend naturally to increase with the level of domestic and more importantly world economic activity. The prices of these materials have been increasing rapidly all year, but from initially depressed levels. I expect these prices to rise further due to faster global growth, but then I expect them to stop rising once economic activity stabilizes. Similarly, we have had a significant depreciation of the dollar, which is causing and will probably continue to cause for a time a rise in the level of import prices. But the staff doesn't expect the dollar depreciation to continue and so we should expect import prices also to rise and then stop rising. My conclusion is that these shocks should feed into faster CPI inflation only for a time, and once the adjustment is complete, inflation should revert toward its previous level. I expect this to occur even if the CPI increase feeds partially through into wages, although the greater this feedback, the longer this temporary burst in inflation will persist. I agree with Governor Kelley that there is a danger that inflationary expectations can overreact. Historically, I think the evidence on the likely pass-through of temporary price shocks into wages is quite inconclusive. The only caveat I want to add in this analysis is that I'm assuming along with the Greenbook that the unemployment rate is not going to be allowed to fall below the natural rate--and that means not very much lower than it currently is--for any significant period of time. With respect to the question of whether or not we are below the natural rate, I think wage behavior provides the best direct evidence. The fact that wages have been so well-behaved, with average hourly earnings rising only 0.2 percent last month, for example, convinces me that we have not overshot the natural rate.",971
-fomc-corpus,1994,Governor Blinder.,4
-fomc-corpus,1994,"I have only a few points to make and since probably half the people around the table are as hungry as I am, I will make them quickly. I wasn't planning to say anything about the trade negotiations; but since it was brought up, and lest silence be construed as assent, let me just say that I disagree 99-1/2 percent with what my colleague, Governor Lindsey, said in his assessment of what's likely--",86
-fomc-corpus,1994,It means you agree with him on 1/2 percent?,13
-fomc-corpus,1994,"I think 1/2 percent is on track, and I'll leave it at tha. On the forecast, largely for reasons having to do with inventories, which I brought up at the last FOMC meeting and certainly with the staff, I would look for the third quarter to be weaker than in the Greenbook. By pure arithmetic, some of that difference is going to show up in a stronger fourth quarter. So, this is not a major disagreement. But, on balance, it leads me to a somewhat weaker second half of 1994 than the Greenbook forecast. Conversely, I'd expect a bit stronger first half of 1995 than the Greenbook. Note that the projected further tightenings of monetary policy built into the Greenbook forecast could not possibly be slowing down the economy in the first half of 1995. So, whatever is in the staff forecast for the first half of next year has to have been built in by the previous tightenings. I don't think we have tightened enough to slow the economy down to 1.8 percent in the first half of next year. Accordingly, I'd expect the first half of 1995 to be a bit stronger than in the Greenbook. But over the next year there may not be much difference between the way I see things evolving and the way the Greenbook sees things evolving in total. Now, for the eight quarters in 1995 and 1996, the average growth rate in the Greenbook is about 2 percent. I don't find that to be a very satisfactory target. If we have not yet overshot capacity, and I don't believe we have although one can't dismiss that hypothesis completely, the economy does not need to grow at 2 percent for two years in order to keep inflation from rising. If we have already overshot, then indeed we do need something like that. Regarding inflationary pressures, I think we should realize, maybe more than we do, how concentrated the industrial pressures are in the United States right now. There are lots of stories coming out of the manufacturing core of the economy about tight markets, very strong capacity utilization, strong order books, good sales, etc. They are all true. But they are very much concentrated in durables manufacturing, which in round numbers is 10 to 12 percent of value added in the U.S. economy. If you look at the demand side rather than the production side and look back at the last year, we have had buoyant growth over the year, which has scared a lot of people. The four quarters ending in the second quarter of 1994 had a growth rate of 4 percent. It's the only time that we have had a four-quarter period with growth as high as 4 percent in this entire business recovery. In previous business recoveries, one four-quarter period of 4 percent would not have scared anybody and, indeed, would have left the FOMC thinking that things weren't looking that great. More important than the 4 percent, I want to call attention to the fact that that growth was highly concentrated. I looked at these numbers last night. I knew the qualitative story, but I was surprised at the quantitative dimension. We all know where it was concentrated--in business fixed investment, consumer durables, and housing. Those three sectors account for roughly 1/4 of GDP on the spending side. I'm not talking about value added weights because a lot of that is imports, which is a point I'm coming to. Those three sectors of the GDP over the last four quarters registered an 11.3 percent rate of growth. This means by the laws of arithmetic that the rest of the economy, the other 75 percent, registered a 1.6 percent growth rate over that period. Those three sectors, of course, leaving aside housing for now, are where the price pressures are--either current or incipient. If you looked at the Greenbook forecast for the next two quarters and took housing out of the fast-growing sector, the result would be even more extreme. We don't expect housing to be part of the fast-growing sector going forward; the staff doesn't; none of us do. But, leaving housing in the fast-growing sector, those three sectors in the Greenbook forecast are projected in the second half of this year to grow at a 6 percent rate and the rest of the economy at a 1.8 percent rate. If I moved housing over the sectoral line, that spread would be exaggerated because we are expecting a slowdown in housing. Regarding the point that I was making about inflationary pressures, many people in popular discussions point to international capacity as a safety valve on U.S. inflation. This is greatly exaggerated because roughly 90 percent of what we consume or use is produced at home. The place where it has the most validity, however, is exactly where the pressures are right now--in business fixed investment, where over 40 percent is imported, and consumer durables where I don't remember the fraction that is imported. Those are precisely the sectors where we are seeing pressure. It is in this very limited part of the economy where the international safety valve is most important. Finally, I want to align myself fully with the comments Jerry Jordan made earlier. I have been worried for some time, and I am becoming increasingly worried, about the disjuncture between the Main Street view of inflation and the Wall Street view of inflation. I just want to point out an implication: None of us is sure this disjuncture is actually a fact; I suspect it is, as Jerry does, but it is hard to know for sure. If it is a fact, the implication is that real interest rates look a lot higher on Main Street than they do on Wall Street, and we should be mindful of that. If that hypothesis is correct, that's likely to mean that there is more punch in what we have already done than we realize. Thank you.",1196
-fomc-corpus,1994,"Finally, Governor Phillips.",5
-fomc-corpus,1994,"I guess I am left to bat clean-up in an era of a baseball strike, and I'm not quite sure where that leaves me! The economy clearly is going into the fourth year of this upturn and the third year with above-potential GDP growth. As Governor Blinder just described, we are seeing a lot of the strength in manufacturing of consumer durables and in business investment, especially equipment spending. The labor markets appear very strong. Job generation has totaled over 3 million jobs this past year. Housing activity clearly has slowed. The question is more on the consumer side. We appear to be seeing some slowdown there. As we have heard around the table, there is some disagreement regarding the extent of the slowdown, where it is and so on. Part of this may be that consumers have worked through the bulge in their pent-up demands following the recession and also have worked through the housing bulge when people buy lots of consumer durables following their housing purchases. I think most people would suspect that we should be seeing some slowdown. I was a little surprised to see the discussions of a potential Christmas spree spending now being reported. The international picture should be strengthening and at least not be a drag on the economy. I certainly recognize that this is not a large part of the U.S. economy because we have such a large domestic economy. Nevertheless, looking at these various pressures, it's a bit hard to escape the conclusion that most of the slack in labor and product markets is used up, and we are starting to see the effects on the price side. I think we are beyond the point of a preemptive strike. Barron's yesterday was even talking about urging people to dig back into their closets and find their ""Win"" buttons. [Laughter]",353
-fomc-corpus,1994,"We each have one, Mr. Chairman! [Laughter]",13
-fomc-corpus,1994,"Then you are well prepared. I think some of the numbers that have already been cited here recognize that we are seeing some show-through of price pressures even in the CPI, particularly in the last couple of months. We have all been citing producer price pressures in the last few months, and there are lots of good statistics to quote with respect to producer prices and also commodity prices. While much of the pressure on commodity prices has not shown through to final consumption prices, it would nevertheless be a danger signal if commodity and other producer prices stayed at elevated levels for a sustained period of time. I think it is interesting that the argument on inflation now appears to have shifted somewhat. There appears to be fairly broad acknowledgement that we are seeing more price increases. The question now appears to be whether the increase is permanent or a short-term cyclical blip. Maybe because Bob Forrestal went first today, he was the first to surface this argument. But I quote Gary Stern's stern warning about the problems of identifying whether it is a blip or whether it is more incipient or creeping price increases, something that's likely to infect the CPI for the long term and in fact move on into the wage sector. Turning to the financial market side, the stock markets, I think, have shown quite amazing resilience in light of the interest rate increases. Stock prices are being sustained, I think, by earnings at this point, so we are getting a healthier relationship between prices and earnings. Bond markets are certainly nervous, and I think this is well demonstrated by Peter Fisher's art work in his charts, but it's not the wild roller coaster that we saw in the first part of this year, at least for the United States. Bank credit markets are showing significant strength. So, when all is said and done and perhaps with a mild caveat for mortgage markets, the capital markets are producing a cost of capital that is clearly supportive of investment and expansion. Now, while all of these signs for the economy appear very strong and the recent revisions have been upward as is certainly well documented in the Greenbook, I think there are some clouds on the horizon--the so-called downside risks. We have already talked about the spending slowdowns. We still have some pressures in the labor markets on account of the whole re-engineering story. We have defense and other sources of fiscal restraint and the continuing need to address whether the deficit is going to be coming back into play, particularly for the out years. Much of the strength that we have seen, I think, is dependent on productivity gains, and it's questionable as to whether or not we are going to continue on the 1990s trajectory for productivity or whether we will revert to the 1980s trajectory. Balance sheet strains could reemerge following the strong credit growth and the merger and acquisition activity that we are seeing. Finally, I'd mention the monetary aggregates. It's hard to believe that the weakness that we are seeing in the monetary aggregates is not going to have some effect. On balance, I think the outlook looks good, but there are downside risks.",616
-fomc-corpus,1994,Thank you. Coffee is available. Let's break for coffee and return.,14
-fomc-corpus,1994,"Don Kohn, would you start us off?",10
-fomc-corpus,1994,[Statement--See Appendix.],6
-fomc-corpus,1994,"Questions for Don? If not, let me start out. I think the evidence is fairly solid that the industrial momentum that we have been seeing in recent months has a head of steam behind it; we can see it in the order books; we can see it in the backlogs; it's fairly widespread. But as Governor Blinder pointed out, the growth in industrial production this year clearly has been concentrated to a significant extent in durable goods and has been especially heavy in areas related to capital goods. But these areas are where inventories are rising most and why they are crucial to measures of industrial pressures and overall pressures. In tracing this phenomenon over the last year or two, we are aware of a very rapidly dropping inventory/sales ratio when calculated to exclude the margins of trade. In other words, factory-valued inventories as a ratio to consumption have been falling at a fairly dramatic rate until very recently. Indeed, the decline has been enough to hold the level of real inventories to a very slow growth path until very recently. As we discussed at previous meetings, all we have to do arithmetically is to take the ""just-in-time"" decline in inventory/sales ratios and flatten them out and inventory investment surges. Indeed, that is what apparently is happening at this stage; it's where the second-quarter run-up in GDP occurred. I'm a little skeptical that the reduction in the rate of inventory investment in the third quarter is going to be all that substantial. The reason rests on the question of whether increasing backlogs suggest that lead times are stretching out, as Tom Melzer pointed out with respect to his one-observation sample. The stretching out is confirmed by the lagged deliveries, but it is not confirmed by the lead times that are reported by purchasing managers. So it's not clear yet exactly what the full state of play is, but it is clear that lagged deliveries tend historically to have been a more potent indicator of what the inventory situation really is. In any event, it's quite inconceivable that the August industrial production increase of 0.7 percent was substantially or all an increase in consumption. There is no evidence of that. The implication is that there was a substantial increase in inventories in August when one factors in reasonable numbers on imports and exports of various industrial materials. That's not the same thing as saying that that is what is going to show up in the deflated book value data. The inventories implied in the industrial production numbers or the real inventory data produced for autos, oil, some steel, and a variety of other actually measured totals don't quite square with the book value data, which tend to be a little flaky. My suspicion is that the deflation process is very tricky as one goes from book value to constant dollars; it's a weak statistic. But I think both sets of data, whether one is deriving them from the industrial data themselves or from the book value data, show that the decline in inventory/sales ratios has come to a halt and may very likely be tilting up ever so slightly at this particular stage. This is what one would expect as the economy begins to approach capacity limits and backlogs begin to stretch out. The normative desired levels of inventories tend to rise because obviously if firms are trying to protect their production schedules, the time it takes to get deliveries of new materials from suppliers will largely dictate what we used to call ""safety stocks"" in evaluating the inventory situation. Safety stocks at this stage are probably rising slightly. There is no evidence of major shifts, but it's very unlikely with the backlogs picking up as they are that these safety stock numbers are not moving at least somewhat higher. This suggests that the second-quarter number, while it may be somewhat hard to interpret, is not in any regard suggesting an overhang of inventories or providing any evidence that those inventory accumulations are unintentional. If they were, we would see it in the orders data. Although it may well be that the data we will see tomorrow for durable goods orders will give us a different signal than we have been getting, to date there's very little in the anecdotal reports or in other data that suggests that orders have simmered down in any material way. The question on which I think we have to focus at this point is whether there is an inventory recession threat at the end of this cycle. Because if there is a significant pickup in inventories that is perceived to be voluntary, past history has always raised the question as to whether that pickup is overdone. It is unlikely, I might say, that monetary policy can restrain inventory accumulation by higher short-term interest rates. The reason basically is that since inventories are there to protect production schedules, the contemplation of inadequate stocks at any particular time weighs very heavily on purchasing policies. There would need to be some extraordinarily high interest rates to impede the accumulation of inventories when they are perceived to be necessary for sustaining production. In any event, it's fairly obvious that we are not dealing with a loan availability problem because with the very high degree of securities holdings by the commercial banking system we can get a very large loan/deposit ratio increase with a big shift from securities into loans and no bank credit expansion. So the factors subduing inventory accumulation have to come from the final sales side. If there is an effect, it's got to be because residential construction and existing home sales are slowing down, with the result that sales of household durables are slowing down. This means the realized capital gain on the sale of existing homes that has a big impact on durable goods spending is also going down. When that sort of thing gets going, inventories will back up very quickly. Consequently, the concern that one might have that the inventory building will be overdone and lead to an inventory recession a year or two out becomes essentially moot. Price pressures are building with the rise in backlogs and delayed deliveries. But I must say I was somewhat impressed--I don't know if my memory is faulty--that while everyone around the table, with few exceptions, was talking about stronger activity, even if you chose different words, I did read your comments on inflation as implying slightly less upward pressure on prices. There was surprisingly little talk of more price pressures around the room. I'm not sure one can make very much of this, but if prices were in the process of accelerating at this stage, I think we would have heard more around the room on that point. But that is scarcely a scientific judgment. One other important issue that I think we probably ought to focus on at this stage is the extent to which profit margins are rising. They are moving up, or at least they had moved up at a very abrupt rate until very early this year, which is another way of saying that unit consolidated costs have been rising much less than prices. Indeed, if one looks at the data, as inadequate as they are in the national income accounts, we are getting a spread of well over a percentage point in the rate of change between unit costs on the one hand and prices on the other. What that suggests is that productivity obviously is moving up and unit labor costs are being contained. The discussion we had previously indicated that the rising costs of raw materials were not moving into final goods prices and that those rising costs are being absorbed by the subdued behavior of unit labor costs. But the presumption that there has been no pass-through at all is belied by the fact that margins are opening up. When margins open up, what we are observing is in effect an ability on the part of a lot of producers to move the price level. Now, we are saying that inflation is 3 percent. Well, 3 percent is not a small number; it is not small over the long run in the consumer area. But granted it is not that good, it is less than that for goods at the final CPI level; it is probably more than that at the PPI level. I was a little concerned, even though in the last published report the CPI was reasonably contained, that the PPI core number was somewhat higher. Moreover, it apparently was being held down by still faulty seasonal adjustments, at least if we take our doubly seasonally adjusted processes to heart. If we doubly seasonally adjust the seasonally adjusted rate of change of core PPI inflation, the last observation was, I think, at least 0.1 percent higher than the published number. So I think what we are observing is the opening up of margins in much of the underlying structure. But unit labor costs apparently have been so well contained by productivity gains at this stage that cost pressures have not flowed into final goods prices. The question that we confront at this stage that has been raised at this table, really for the first time in a broad sense--it started with Bob Forrestal and everyone just sort of picked it up--is the possibility of a short-term blip in the final goods price data. If we look at business cycle patterns, we usually find that there is a cycle in prices. The question that we have to ask ourselves is how much we care. How much are we concerned about it so long as the peak-to-peak inflation rate in the business cycle gets progressively lower and the trough-to-trough level of price inflation gets progressively lower? That implies a long-term downtrend. But as a number of comments around this table have indicated, we can not make the simple presumption that we can get an inflation blip and say ""Well, it's a blip."" The trouble with most blips is that they can be identified as such only in retrospect. There are far more announced blips that turned out to be permanent changes than there are blips in the historical record. So, we have to be very careful about viewing a blip as something that doesn't give us considerable concern. However, it is true, with profit margins up to the highest levels we have seen in well over a decade, that if pressures begin to increase the rate of growth in unit costs, history also suggests that there is a tendency for profit margins to start downward in the later stages of the cycle. So there is a good deal of potential absorption of final prices here that could occur as a consequence of declining margins. Indeed, there is a significant decline in profit margins in the Greenbook, and as a consequence, while the staff forecast has a very modest acceleration of inflation, implicitly the underlying costs obviously are accelerating at a far faster pace. I think that is a reflection of an expectation of a slowdown in productivity gains, which to date have been the major factor in suppressing the pass-through to final prices. As a consequence of all of this, one has to ask why we are this far into the business cycle expansion without the types of price pressures that we have seen on previous occasions. I raised this as an issue before, and I'm beginning to suspect that we are going to find out whether or not the extraordinarily still muted money and credit aggregates really matter. In other words, we are approaching a point where we will get interesting tests as to whether inflation is a Phillips curve phenomenon or a monetary phenomenon. If we look at it from a Phillips curve point of view or its equivalent, slack in the industrial area, then we are on the edge of some severe inflationary pressure if we are getting rising inventory accumulation. If, however, we think that prices are a monetary phenomenon, we are more likely to see the types of changes that occurred prior to the 1930s where we had a noninflationary long-term environment largely locked in by the gold standard, but periods of significant pressure during which inflation never really took hold, because the credit aggregates never really took hold, as they couldn't in that type of environment. So, this particular business cycle may be about to tell us a lot or, I fear, it may be mushy where the end result will be somewhere in between, so we won't learn very much. Reality tends to do that to us more often than not! I do think, as a number of you have mentioned, that the issue of the subnormal growth in monetary and credit aggregates has to mean something. There is something there. We have argued that M2 or M1 are awful as indicators and that the monetary base is terrible, but we are in the business of creating money. We are a central bank. If we think all of that is beside the point, I think we've got to worry about a number of things we are doing. It may turn out that it's beside the point, but I don't think we can make that presumption. My impression of what is going on, pending the outcome of this academic debate, is that we have to assume that the pressures are there; the risks of making alternate assumptions I think are just too dangerous. If that is in fact the case, I would agree with the staff's version that more monetary policy restraint is probably to be expected. The reason is that we have seen stronger GDP growth than we had anticipated and we won't know until 1995 or beyond if what we are looking at is a situation where monetary policy suddenly has turned weaker as a restraining force, maybe because of the inventory situation, or if the policy is as strong as ever but just more delayed. We may find that there is some significant new underlying strength in the economy, which is offsetting what has been a significant impact from monetary policy actions already taken. It is true that there are significant lags in monetary policy, but remember these are distributed lags. It's not that nothing happens for a year or 15 months and then suddenly the effect is felt. There is a gradual progression of effects. We have to presume at this particular stage that we are running under the projected impact. If we assume that our judgment about the basic economy's underlying strength ex monetary policy has not changed significantly, that assumption is rather dubious. But what this suggests is that we do know something about the effects of monetary policy actions to date; we know that their effects are there and moving. What we don't know, and will not fully know until 1995 and later, is how powerful in retrospect the underlying expansionary forces were. My own impression of all of this is that I suspect we are going to need to move further somewhere along the line. I would doubt very much that the degree of restraint that is in the pipeline at this stage, including the significant rise in long-term interest rates over and above what would ordinarily be expected from short-term interest rate changes, is enough to give us the type of more subdued--excuse the expression--""soft landing"" that we would all like to see. I think that the subdued money and credit growth does suggest that we are not particularly behind the curve. It's a difficult judgment to make, and one that I don't think we have strong analytical tools to give us any insight into. We have another issue here that has been raised by a number of people. Because of our statement ""for the time being"" in our last move on August 17--which most people interpreted to mean that we would not move at this meeting and would not move until the November 15th meeting--we have to have strong evidence to move more quickly. My suspicion is that we probably could get through to the November 15th meeting. If we do move then, I think that would probably require us to move another 50 basis points and probably move the discount rate as well. My own inclination at this stage is to go with ""B"" but be asymmetric for the reason that Don Kohn was mentioning, namely, we have a good deal of data coming in around the middle of October that could very readily indicate that our underlying view of the momentum of the economy was too soft and that this expansion is accelerating faster than we had expected. If that occurs--if the data are an undesirable surprise--there will be significant market turmoil. And if we allow it to simmer for the whole month until the next meeting--remember, this is a seven-week interval--I think it could create inflationary expectations that might be more difficult to rein in than if we moved in mid-October. What I'm saying is that at this stage we are getting close to the point where the data do matter because we've been under restraint long enough that we should begin to see some signs of its slowing impact on the expansion. If we don't start to see that pretty soon, that will suggest that this economy is not growing at 3 percent but closer to 4 percent. It's not all that difficult to engender that type of outlook. Now, I think that's a low probability outcome, but I don't think it's one that can be readily dismissed. I have come to the conclusion, and I'd like to lay it out for debate, that we should not move today. We don't have to and I don't think it's appropriate to move today. We should be prepared to move if necessary before our next meeting, but hopefully we will be able to get through to the next meeting. If we are able to do that, I think we will probably have managed policy better than we have any reason to believe we should be able to do. Obviously, if the numbers come out in an adverse way, we will be on a telephone conference as usual for the type of consultation and discussion that we have had in the past. Vice Chairman.",3480
-fomc-corpus,1994,"Mr. Chairman, from what we know and can observe today and based on the discussion around the table, I think the right thing to do today is to retain interest rates at their present level. I think we have removed all the accommodation from monetary policy and are the closest we can get to a neutral position. I believe we removed it at the right time and along the right firming path. It is possible that the risks may be essentially balanced, but they probably are not. Therefore, I think an easing of interest rates before the next meeting is highly unlikely, and a tightening of monetary policy could be called for by incoming data over the intermeeting period. Therefore, I agree with your recommendation that an asymmetric directive tilted toward tightening is appropriate. I do not believe that the statement that we made after the August meeting should keep us from tightening today if we really thought it was the right thing to do. I'm against tightening today because I don't think it is the right thing to do. That statement should not make us feel at all unwilling to change monetary policy between meetings if the data indicate that is the appropriate step to take. I do believe making such statements makes sense; I think the statement we made in August served a useful purpose. But the incoming data in the meantime may lead one to believe that waiting until the November 15th meeting just may not be possible. On the other hand, I am not at all convinced that the credibility argument demands, because there's a greater probability of a tightening move than we might have thought at the last meeting, that we have to tighten today. When the next move takes place, as you already mentioned in your presentation, it would likely be a move of 50 basis points. I agree very strongly that that would be the appropriate move--that it should be either zero or 50. I think a 25 basis point move, if that should present itself as an idea to anybody, could very easily and almost certainly would be inappropriately construed as either indicating a degree of timidity, which would not reflect the view of the Committee, or worse still would indicate a compromise. So then somebody could write a learned article about the hawks and the doves and who did what to whom, and that at the end of the day we did 25 basis points because we couldn't decide which of the other things to do.",474
-fomc-corpus,1994,You mean the hawk and the dove combine as a turkey. [Laughter],17
-fomc-corpus,1994,"So, Mr. Chairman, I firmly agree that ""B"" tilted toward tightening is the appropriate policy decision.",22
-fomc-corpus,1994,President Hoenig.,4
-fomc-corpus,1994,"Mr. Chairman, I would support your recommendation. However, I would note that there are inflationary pressures in train. I think they are fairly evident, and we might be well served if we were to act sooner. Therefore, I would support your asymmetric proposal, and if the data come out at all strong, I would encourage you to move before the November meeting.",74
-fomc-corpus,1994,Governor Blinder.,4
-fomc-corpus,1994,"I'd also like to support your recommendation and just say a few things. I do take seriously the fact that we, so to speak, gave our marker in August, and we should only be willing to take that marker back if the evidence was overwhelming that we couldn't wait. I think the evidence is not close to overwhelming. The first sentence of the second paragraph of the Greenbook said ""the largest effects of the interest rate increases to date may yet lie ahead, but whether they will prove sufficient to prevent a buildup of inflationary pressures is unclear at this juncture."" I think that is exactly right; I agree with that 100 percent. That says to me that ""B"" asymmetric is the right policy. We have to remember that most of this restraint is probably still in train and the price effects will come even later. I want to be clear--the reason that I support the asymmetry is not that I think there is a strong presumption that we are going to have to move between meetings. We might; but as Bill just said, the probability that we're going to reduce interest rates before the next meeting is zero. The probability that we are going to tighten is certainly not zero, and that for me makes it sensible to have an asymmetric directive.",252
-fomc-corpus,1994,President Forrestal.,4
-fomc-corpus,1994,"Mr. Chairman, since I believe that a blip is a blip is a blip, I would support your recommendation. I, too, don't think we're going to need to move in the intermeeting period, but I think it's wise to have the asymmetry as an insurance policy. I agree with your proposal.",65
-fomc-corpus,1994,President Jordan.,3
-fomc-corpus,1994,"I'm comfortable with leaving the funds rate unchanged at 4-3/4 percent. I don't prefer asymmetric directives. I would not dissent from it, but I have two concerns about it. One is that an asymmetric directive toward restraint tends to get the Committee associated with being anti-growth. That's because we have to react to incoming data and the psychology of the market is driven by the perception of those data in a context that tends to cast the Committee as being anti-employment or anti-growth. Since I don't think the purchasing power of money is reduced by more output or more employment, I have trouble with that. My other concern is worrying that the asymmetry is going to wind up being cited prematurely in some publication or wire service as an indication that we have cocked the gun again, and if that happens, I won't be very happy about it.",170
-fomc-corpus,1994,You are against the whole notion of asymmetry in the directive?,13
-fomc-corpus,1994,Yes. I think it gets us into a lot of trouble because of the way it gets interpreted.,20
-fomc-corpus,1994,President Parry.,4
-fomc-corpus,1994,"Mr. Chairman, it seems obvious that since our last meeting, pressures on capacity in product and labor markets have grown as have prospects for higher inflation in the future. Thus, it seems to me that we should raise the funds rate again fairly soon. I don't think we have to do it today, but I certainly would prefer an asymmetric directive tilted toward raising the rate if incoming data imply greater pressures for future inflation. Thus, I would accept your recommendation.",91
-fomc-corpus,1994,Governor Lindsey.,3
-fomc-corpus,1994,"I support what you propose, Mr. Chairman. I normally don't like moving intermeeting, but I think the chances are we probably should this time.",30
-fomc-corpus,1994,Governor LaWare.,4
-fomc-corpus,1994,"I support your recommendation, Mr. Chairman. I hope that in casting my vote I will be resolving in my own mind that the Committee not be inhibited in any way in the timing of a move by the proximity of the election.",46
-fomc-corpus,1994,President Boehne.,5
-fomc-corpus,1994,I agree with your recommendation.,6
-fomc-corpus,1994,President Broaddus.,5
-fomc-corpus,1994,"Mr. Chairman, I continue to think the economy has a lot of momentum. In this situation, it seems to me that inflation expectations are rising. The bond rate is now at its highest point since the 1990-1991 recession. I don't know what the curve looks like--I've never seen it. I'm not sure what its character is, but I think we are still behind it. I think we are going to have to move further, and frankly I just don't see a compelling reason to delay that move. On the contrary, there is at least some risk in not acting at this stage. Aggregate demand is strong and in that kind of situation, especially if it strengthens further, inflation pressures inevitably are going to grow, and inflationary expectations will grow. Against that background, if past experience is any guide at all, that could eventually put us in a situation where all the choices are bad. We have been there before, and it's no fun. So, I would prefer to move. My choice would be alternative D.",208
-fomc-corpus,1994,"""D""?",2
-fomc-corpus,1994,"""D"" as in David!",6
-fomc-corpus,1994,President Stern.,3
-fomc-corpus,1994,"I find myself in substantial agreement with Al Broaddus and for many of the same reasons. It seems to me that the economy has a good deal of momentum. I'm not at all confident that we are moving toward a sustainable path at this point. I think the banking system is in the process of supporting rapid growth, and this may well occur without any significant change in the size of its balance sheet, just a change in composition. I think the evidence suggests that, so far at least, we have not moved particularly early or particularly forcefully relative to historical experience, so I'm not persuaded that we're ahead of the curve. Finally, I hope I'm wrong when I say this, but I'm concerned about our ability to analyze the price data and come up with all these fine reasons why something unusual is going on and the rise in prices won't last. We can tell those kinds of tales, but I must say that that kind of analysis has led to past policy errors, and I'm afraid I'm reminded of one of Yogi Berra's expressions about ""deja vu all over again.""",216
-fomc-corpus,1994,President Minehan.,4
-fomc-corpus,1994,"I find myself very much torn at this stage. I have a great deal of sympathy for what both President Broaddus and President Stern have said. I feel, given that the economy has been operating near full capacity for some months now and that the statistics keep coming in much stronger than we anticipated, that the data over the next couple of weeks are likely to be strong. On the other hand, while I think the risks are on the up side, the timing of further increases is something that has both an economic component to it and a political component to it. I would trust your judgment in this sense that maybe the best timing would be a little later. So, I would be in favor of your recommendation. I think the risks are on the up side. I think it's likely that we'll move during the intermeeting period. So, I would be in favor of the asymmetry as well.",180
-fomc-corpus,1994,President McTeer.,5
-fomc-corpus,1994,"I support your recommendation, Mr. Chairman, and I do trust your judgment on timing, although I would like to associate myself with Jerry Jordan on my general feelings toward asymmetric directives.",36
-fomc-corpus,1994,Governor Phillips.,3
-fomc-corpus,1994,"I think a tightening probably is going to be necessary at some point, but again the question is when. I do give credence to this question of credibility, and it seems to me that the evidence is not persuasive that we need to move now. I prefer to give the tightening that's in the pipeline a chance; again, I'd cite the monetary aggregates. So, I agree with alternative B and being prepared to move. On balance, I'm not enamored with asymmetry, but I think the chances of tightening in the intermeeting period are more likely. So, I'd support that.",117
-fomc-corpus,1994,Governor Kelley.,3
-fomc-corpus,1994,"I support your recommendation, Mr. Chairman.",9
-fomc-corpus,1994,President Moskow.,4
-fomc-corpus,1994,"Mr. Chairman, I support the recommendation. I do not believe we should move today, but we certainly should be prepared to do so between meetings.",30
-fomc-corpus,1994,Governor Yellen.,4
-fomc-corpus,1994,"I support your proposal, Mr. Chairman. I think it's conceivable that sufficient evidence could accumulate over the next month or so to warrant a rate hike before our next meeting, but it would take quite a bit to convince me that further tightening prior to the next meeting is in order.",56
-fomc-corpus,1994,President Melzer.,4
-fomc-corpus,1994,"Alan, I'd favor ""D"" combined with a discount rate increase; I'd do the 50 basis points now. I think it's necessary to contain the emerging inflationary pressures, and I also think it's necessary to make longer-term progress toward price stability. I think, as you and others have observed, that waiting simply makes our job more difficult and raises questions about credibility. I guess I interpret financial market developments much as Al Broaddus did. With the bond rate at the highest level since the recession and more sensitivity in foreign exchange markets, I think credibility is an issue. To the extent we lose it, it makes this process much more expensive for everybody. It's not just a matter of the credibility of the institution; what really matters is how it impacts the real world. I think to the extent we maintain our credibility, longer rates will be lower than they otherwise would be. With respect to the language, I personally think there have been significant developments, and I think there is a danger in that sort of language. One can make the argument that the existence of that language actually has undermined some of our credibility because of concerns about whether in fact we would act on a timely basis. The information in terms of the real economy, prices, and financial markets frankly has been quite strong in this intermeeting period, as far as I'm concerned. Let me make one final comment about the monetary aggregates. I, too, would normally be quite concerned about the very slow growth of the narrower aggregates in 1994--as you know I tend to focus more closely on the narrower aggregates that we can actually influence--but I think their growth has to be viewed in the context of a tremendous monetary impulse in 1991 through 1993. You have heard me say it before, but the base grew $100 billion over that 3-year period. I think in a sense there is a liquidity overhang and that needs to get worked off. I might also observe--",394
-fomc-corpus,1994,Does that include U.S. currency abroad?,9
-fomc-corpus,1994,"Yes, that would be in the base. But in any event, I view that as a very stimulative impulse, the effects of which may still be playing through. In the mid-1980s--actually I think it was mid-1988 to mid-1989--we also had very slow growth in the base and reserves for about a 1-year period. That was on top of two prior years of very sluggish growth in the narrower aggregates. So my feeling would be that, yes, growth of the narrow aggregates has been slow, but in the scheme of things it hasn't been all that slow for that long. I might also observe that there are, as you well know, some very significant technical factors that are impacting Ml, including in particular the mortgage refinancing phenomenon. Our guess is that that took 7 percentage points of growth out of M1 in August, and our best guess would be, abstracting from that, that M1 probably is growing somewhere in the area of 4 to 5 percent. But we'll see. I don't think on a short-run basis these aggregates are particularly helpful to us in any event. I think they have to be looked at over long periods of time.",244
-fomc-corpus,1994,"Okay, I think the modal consensus is on ""B"" asymmetric. Would you read the language?",20
-fomc-corpus,1994,"I'll be reading the wording on page 13 in the Bluebook: ""In the implementation of policy for the immediate future, the Committee seeks to maintain the existing degree of pressure on reserve positions. In the context of the Committee's long-run objectives for price stability and sustainable economic growth, and giving careful consideration to economic, financial and monetary developments, somewhat greater reserve restraint would or slightly lesser reserve restraint might be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with modest growth of M2 and M3 over the balance of the year.""",113
-fomc-corpus,1994,Call the roll.,4
-fomc-corpus,1994,Chairman Greenspan Yes Vice Chairman McDonough Yes Governor Blinder Yes President Broaddus No President Forrestal Yes President Jordan Yes Governor Kelley Yes Governor LaWare Yes Governor Lindsey Yes President Parry Yes Governo- Phillips Yes Governor Yellen Yes,49
-fomc-corpus,1994,"Let me say that under our new procedure for announcing our decisions, Don Kohn thinks that 2:15 p.m. is the appropriate time to announce anything coming out of the meeting, including a statement such as we have made in the past that no action was taken. We violated that last time largely because we finished our meeting early and a lot of staff members came into the Board Room from outside, and security was an issue at that point. So, I request that no one mention anything that occurred within this meeting even to your associates outside until the 2:15 p.m. announcement time when Joe Coyne, I gather, will be making the statement that the meeting is over. Is that correct?",143
-fomc-corpus,1994,"It will be something similar, I think, to what we did in July.",16
-fomc-corpus,1994,"That is, we will say that the meeting is over and we don't have any further announcement, rather than that we didn't take any action.",28
-fomc-corpus,1994,"Yes, no further announcement.",6
-fomc-corpus,1994,"Right. And the other point to remind the Committee, Mr. Chairman, is that the asymmetry remains confidential until seven weeks from Friday.",28
-fomc-corpus,1994,"Okay, and the next meeting is November 15.   Let's adjourn for lunch.",18
-fomc-corpus,1994,"Good morning, everyone. We ought to congratulate Governor Lindsey who has just returned without mishap from Rumania with an addition to his family.",29
-fomc-corpus,1994,Yes!,2
-fomc-corpus,1994,Congratulations. [Applause],7
-fomc-corpus,1994,"What do you have, a girl?",8
-fomc-corpus,1994,A girl?,3
-fomc-corpus,1994,A one-year old girl.,6
-fomc-corpus,1994,How nice.,3
-fomc-corpus,1994,"What I have been trying to tell Larry was that he had better learn Rumanian pretty quickly because when she learns to talk if he does not understand Rumanian, he is in trouble!",39
-fomc-corpus,1994,He's in trouble anyway! [Laughter],9
-fomc-corpus,1994,"For now, it is either feed me or change me; that won't always be so.",18
-fomc-corpus,1994,I think we'll allow you to move approval of the minutes for the September 27th meeting.,19
-fomc-corpus,1994,So move.,3
-fomc-corpus,1994,"Without objection. You all have before you the Report of Examination of the System Open Market Account that was distributed on November 3rd. Are there any questions relating to that? If not, would somebody like to move its acceptance?",46
-fomc-corpus,1994,So move.,3
-fomc-corpus,1994,Second.,2
-fomc-corpus,1994,"Without objection. After we complete our general monetary policy discussion, I am going to raise some broad issues about our recent intervention in the foreign exchange markets. I will also comment about the alleged increase in central bank participation in the G-7 process. So, after Peter discusses his operations, let's hold off discussion of the broader questions with respect to intervention until later in the meeting. We will have more time then for a general discussion. With that in mind, let me call on Peter Fisher to report on foreign currency operations.",104
-fomc-corpus,1994,"[Statement--See Appendix.] Mr. Chairman, I wasn't quite sure how you wanted to proceed. I could take questions on the report, or I could go on and ask for ratification of the operations and renewal of the swap lines. Should I just go on with each of those?",58
-fomc-corpus,1994,Why don't you do that? We will then have general questions on all issues but leave the intervention discussion until later.,23
-fomc-corpus,1994,"I will need the Committee's ratification of our operations on Wednesday, November 2; we sold $400 million equivalent of Japanese yen and $400 million equivalent of German marks for the System's Account. On November 3, we sold $250 million of yen and $250 million of marks for the System's Account. Thus, over the period we sold $650 million equivalent of each of the two currencies for the System Account. Mr. Chairman, the System's reciprocal currency arrangements are up for renewal for another year with the exception of our Mexican and Canadian arrangements. I have no changes to suggest in the terms and conditions of the existing swap arrangements and request that the Committee approve their renewal without change.",141
-fomc-corpus,1994,"Let me just say this. If anyone objects to voting until we have had our discussion on intervention, we can delay the vote. If anybody wants to object, object now and we will just postpone the vote.",42
-fomc-corpus,1994,I would appreciate it if the swap vote could be delayed until later.,14
-fomc-corpus,1994,"That's fine. In fact, there is a certain symmetry in doing that. So why don't we leave that vote until later? I was a little curious myself as to why the dollar was as strong as it was yesterday. You implied that the reason was because the foreign exchange market expected us to move today. But last week and two weeks ago they expected us to move today. What is the explanation?",80
-fomc-corpus,1994,"I admit it is rather hard to fathom. I think it is this combination of foreign demand surprising the dealer community which has for some time now been playing the dollar from the short side. I think the two factors continue to operate together. The surprising election result last Wednesday produced precisely that sequence, that is, the resulting foreign demand for the dollar surprised the U.S. dealer community a bit and the dealers rushed to cover shorts. Monday morning, the same thing seemed to be occurring again. The dealers saw a slightly surprising level of foreign interest in the dollar and the dealer community once again tried to play catch-up with their customers, as best I have been able to understand. There was a rather quick mark-up yesterday. If you look at the charts, it really happened rather quickly. I have not been able to ascertain what in particular was happening at that time.",173
-fomc-corpus,1994,"Peter, you indicated that you inferred from the market that we are behind the curve in three areas and that we are in striking distance of reaching at least one or more of those curves. Is there any view within the foreign exchange market that puts federal funds numbers on that?",54
-fomc-corpus,1994,"The very fact that we are effectively at parity on the funds rate with German rates suggests that any move we make now will give the dollar a cost-of-carry advantage against the mark. One of the things that some people talk about and that I perceive as important is that the foreign exchange market generally is not focusing on that. That is, during the spring, that was the ""be-all-and-end-all"" of the exchange markets. People talked about the point in time when fed funds would be higher than overnight German rates. I think that that is in effect the sleeper that could catch up with the market. If fed funds were to be trading between 50 and 100 basis points above German overnight rates as we went into year-end, that would begin to shift the whole dynamic of leads and lags in corporate deposits and the like. That again would slightly shift the burden of proof to the speculative community. If they start to lose money by running a short dollar position on cost-of-carry, that will begin to work on their calculations.",209
-fomc-corpus,1994,Any other questions?,4
-fomc-corpus,1994,"Peter, your remarks suggested that some traders view intermediate- and long-term U.S. Treasury rates as not being at a high enough level. That differs from a feeling that a policy action by this Committee to increase the funds rate will at least temporarily depress bond prices. Which is it? Are they saying that the level is not yet high enough or are they waiting until that last shoe is dropped so they don't get caught holding an unwanted long position?",89
-fomc-corpus,1994,"Let me answer that in a couple of ways. It obviously varies depending on the institution. The point is that the Fed being perceived as behind each of those curves means it is rather hard to justify and means that foreign demand is around the corner. There are extraordinarily high real returns in foreign bond markets, and that is a cause of major concern to our European counterparts. There are incredibly high yields in France at present and German real yields simply calculated are extraordinarily high. That in itself is the problem. One way of looking at the problem is to ask when investors will be prepared to buy our bonds. For example, if there were to be a sense of stability and the sense that a capital gain was available in the intermediate term, that might overcome the lack of a real bond yield advantage for the dollar. I don't mean to suggest that it is a necessary condition for the Fed to be ahead of each and every one of the curves. Rather, the negative sentiment is premised on the fact that, no matter what the analytic frame of mind, one can look at the exchange market and see that the Fed is behind each and every one of the curves. That's been feeding on the market.",237
-fomc-corpus,1994,"Any further questions? If not, we'll go on to Joan Lovett.",15
-fomc-corpus,1994,Do you want to ratify the foreign operations or do you want to save that for later also?,20
-fomc-corpus,1994,"We will save that for later on. In other words, until we have the discussion, it would be inappropriate to vote on the ratification. Joan.",31
-fomc-corpus,1994,"Thank you, Mr. Chairman. [Statement--See Appendix.]",13
-fomc-corpus,1994,"Joan, was that 4.79 percent the federal funds rate average since the last FOMC meeting?",23
-fomc-corpus,1994,That's right.,3
-fomc-corpus,1994,What is it so far this month? Do you remember?,12
-fomc-corpus,1994,For the month of November?,6
-fomc-corpus,1994,The month of November to date.,7
-fomc-corpus,1994,"I don't know the precise average, but it is on the high side, because after its rise at the end of the quarter the rate never really went back down. The last statement week ended on a firm note and it was a holiday on Friday. With expectations of a rate move at this meeting today, the funds rate has been persistently above that average.",72
-fomc-corpus,1994,So it would be more than 4.79 percent?,12
-fomc-corpus,1994,Yes.,2
-fomc-corpus,1994,"Would it be 4.82, 4.83 percent?",14
-fomc-corpus,1994,"The month-to-date effective rate is 4.81 percent, Mr. Chairman.",17
-fomc-corpus,1994,For November.,3
-fomc-corpus,1994,"For November, okay.",5
-fomc-corpus,1994,That 5.11 percent futures rate implies 5.34 percent for the remainder of the month.,21
-fomc-corpus,1994,"Okay. You did my calculations for me, I thank you. Any further questions for Joan? If not, would somebody like to move to ratify the actions of the domestic Desk since the last meeting?",41
-fomc-corpus,1994,So move.,3
-fomc-corpus,1994,Without objection. Let's now move on to Mike Prell and the staff report on the economic outlook.,20
-fomc-corpus,1994,"Thank you, Mr. Chairman. [Statement--See Appendix.]",13
-fomc-corpus,1994,Questions for Mike?,4
-fomc-corpus,1994,"The profile that you have for growth over the next 15 months or so I find somewhat puzzling. The economy has a fair amount of momentum, and yet you have a rather significant falloff in the rate of growth out into next year with a yield curve that is still sloping upward. I think that you would have to have more flattening of the yield curve to get this dramatic a slowdown. That's one piece that is puzzling. The other part of it, even if you are right, is reminiscent of the late 1980s. If you take growth down to 1 to 1-1/2 percent, if it really does get that weak, you open yourself up to any kind of a shock. I'm puzzled on both sides: one, that we will get this amount of slowing with the kind of increase in rates that you talk about; and on the other side, if we actually do end up with this kind of slowing, then you can argue that we are vulnerable on the down side. So I have two opposite concerns.",213
-fomc-corpus,1994,"President Boehne, I think the first question is more a forecasting question. The second one perhaps is more a policy question, though there are obviously ingredients of both in the two questions. We hinted in the Greenbook that, in essence, we see the probability distribution as skewed a bit in the direction your first question suggested--that, indeed, the momentum could turn out to be better maintained in the near term and that it might take considerably greater monetary policy tightening in order to generate a quick and significant slackening in growth, bringing the economy below potential and beginning to reverse what we regard as an overshooting in resource utilization. So, I take your point, and while I don't think history would suggest that a moderation in growth requires a total flattening of the yield curve, I would say that perhaps we are a bit optimistic, if you want to view it that way, on that relationship. The Greenbook assumes a reduction in the upward slope, but the latter is still significant. If I had to pick an alternative scenario, I might lean in the direction you are talking about. As to slow growth and openness to shocks, the economy is always open to a shock that could move it off the projected path by a given amount. When growth is that low, such a shock obviously could move the economy into negative territory. Maybe the psychology of that is different and downward momentum might develop, but I don't think we have a way of coping with that. In fact, in 1989-1990, we did have a period of slow growth. There were some revisions of data which revealed just what the pattern was, and it wasn't until that shock occurred that the economy really tipped into recession. In the absence of that shock, it is conceivable we might have skated by. A period of slow growth does not necessarily mean that the economy is going to slip into a recession.",379
-fomc-corpus,1994,President Parry.,4
-fomc-corpus,1994,"Mike, in your verbal presentation and also in the Greenbook you twice referred to more lenient lending terms by banks as a factor in the strength of the economy. I want to make sure I understand the point. Are you saying that banks are more lenient than one typically would see at this stage of the cycle, or is this just what we typically see? My own discussions with bankers suggest that they are not doing anything unique for this cycle. As a matter of fact, I think that in some respects they are a little more cautious. Are you seeing something exogenous to what our experience has been in the past at this stage of the cycle? If so, how important is it?",139
-fomc-corpus,1994,"This is hard to pin down, but my sense is that the credit availability cycle has been out of sync with the normal pattern this time around.",29
-fomc-corpus,1994,A little later?,4
-fomc-corpus,1994,"In the sense that, when interest rates were coming down in 1991-1992, we were still seeing the tendency toward tightening of bank credit terms.",32
-fomc-corpus,1994,Right.,2
-fomc-corpus,1994,"And, as we have been tightening money market conditions, our loan officers' survey and the preponderance of the anecdotal evidence have suggested that the banks have become increasingly aggressive in their business lending and obviously have been increasingly willing to extend consumer credit as well. We looked back at the responses to that same senior loan officers' survey some years back through a couple of cycles and found that, as we might have expected, during periods of rising interest rates and a flattening term structure, some of which we have had, we generally had a tightening of credit terms; but recently we had a tendency toward an easing in credit terms. So, I think we may be moving in an unusual direction. Be that as it may, we are pretty much convinced that we have been moving in the direction of easier credit availability and that that has tended to work against the effect of the rising interest rates on demand. From the perspective of businesses, it is certainly clear that the credit crunch is no longer there and credit availability is not a concern to firms that want to expand their fixed investment or inventories.",217
-fomc-corpus,1994,I guess I'm a little surprised that in the past we have seen a tightening of terms in the first year of rising interest rates. I would have thought that it would have come later.,37
-fomc-corpus,1994,"I don't want to put too fine a point on it, but I think the main point is that this seems to have been an offsetting influence over the past year to the rising market interest rates.",40
-fomc-corpus,1994,I don't think there is any doubt about that. I really wonder if that's unique.,17
-fomc-corpus,1994,"It is not. There is a bias in the measure of the degree of ease in the loan officers' survey. What is the size of it? Do you remember, Don?",36
-fomc-corpus,1994,"The Richmond Fed did a study once that showed that, at least back in the 1970s, it looked like the responses were biased toward showing tightness. Now, the psychology of everything has shifted so radically in the current cycle that I wonder whether that same bias is there.",57
-fomc-corpus,1994,"The trouble is that if you cumulated the first differences, you got a progressively greater degree of tightening, which at the end of the day should have strangled the total financial system.",37
-fomc-corpus,1994,Right. That was true back in the 1970s when the bias was found.,18
-fomc-corpus,1994,"In other words, there is no evidence that that has been the case since then?",17
-fomc-corpus,1994,We just don't know.,5
-fomc-corpus,1994,President Jordan.,3
-fomc-corpus,1994,"Mike, I've got two quite different types of questions. The first one has two parts and it is about productivity: What has been going on and what do you foresee going on? In the past four quarters, growth in manufacturing productivity is reported to be something on the order of 6 percent or so, and for the overall economy it is substantially less than that--the rest of the economy only running about 1-1/2 percent. A large part of that is because we define output in such a way that we preclude labor productivity gains, at least for services. Nevertheless, we wind up with some pretty good numbers for these past four quarters. When I look at your forecast for the next year--the first part of the first question is how you read these numbers as to what happened with productivity gains in the manufacturing sector being four times what they have been in the rest of the economy. Is it simply a measurement error in that we don't know how to measure productivity in the rest of the economy and how does that affect judgments about policy? Or do you take those numbers at face value? The second question is, what do you foresee going on in manufacturing and nonmanufacturing productivity to produce the slow growth of under 2 percent in output for four quarters starting next spring?",258
-fomc-corpus,1994,"As a technical matter, the productivity numbers for manufacturing that are published along with those for overall productivity growth are in essence based on a separate system in the current period. The recent period is based on industrial production data rather than industry gross product data. Those numbers will be revised. There isn't any reason, though, to think that they are giving a grossly misleading picture. Our assumption is that, indeed, there has been substantial growth in manufacturing productivity. I'm not sure you want to subtract that number from overall nonfarm business sector productivity growth and get the residual for the rest of the economy.",118
-fomc-corpus,1994,"Actually, Mike, when we separate the GDP into its factory value components, don't we get results that are not all that different from numbers based on industrial production?",32
-fomc-corpus,1994,There's a big gap between the industrial and the nonindustrial sector productivity measures even when we do this exercise.,21
-fomc-corpus,1994,Okay.,2
-fomc-corpus,1994,"Maybe that isn't actually true; maybe there is an inaccuracy in the measurement of output. It would be affecting the GDP numbers. It also would be affecting our estimates of potential output growth. It is in fact neutral in terms of assessing what the output gap might be. All the measures are commensurately affected. As to the pattern we have going forward, we do have a deceleration of productivity growth. This is a normal accompaniment to a significant deceleration in output growth. We believe that we are somewhat above the cyclically-adjusted trend line and that deceleration normally occurs in mid-expansion. As we move to fuller resource utilization, the expansion will be slowing; there will be some tendency to move back toward that trend line. Historically, the economy has moved below it during recessionary periods, but we don't have a recession in our projection period. In essence, we have a somewhat below-trend growth of nonfarm business productivity over the next year or so and then we move back toward that trend. Basically, looking at the growth of productivity in the 1990s, we don't see any real evidence that our assumption for some time now of about 1.4 percent trend growth in nonfarm business productivity is off the mark. The data seem to be conforming to that in terms of the normal cyclical pattern.",269
-fomc-corpus,1994,"Just as a comment on it, I'm not hearing anything that suggests to me that businesses--manufacturing or others --foresee fewer opportunities for productivity improvements in the next year or two than they have had in the last couple of years. What produces this quite dramatic slowing of productivity? I think this is troubling. The second question is more involved--sorry about this. When I pair up what has happened in the last four quarters and your projection out to mid-1995, it looks like a pattern that says, because output has grown faster than projected, say, at this time a year ago and also faster than some ideas about potential, what we have to do is give it back so that, in the end, we wind up at the same level of output and employment as we would have otherwise. Another way of looking at this same situation is to pair up this last year with the prior year. Instead of matching off a year in the future, match off a year in the past. We went through a period in 1992 and much of 1993 of downward revisions in forecasts--staff, Blue Chip, everybody else; the forecasting errors were on the down side in relation to expectations about what the economy was capable of doing. If you do that matching up of 1993 and 1994, the level today comes out about where you would have projected it two years ago. Then, if you don't have to give anything back in the future, the question is what is happening to growth in the future. In your framework, when you talk about inflation, you rely on excess demand. I puzzle over what is producing this idea of excess demand. Nominal GDP growth really has not accelerated that much. In fact, it looks the same for the last four quarters as it looked in 1992. To put it into terms that I feel more comfortable with, I try to reconcile your forecast with what I think is going on with money and the desire to hold money balances. At least conceptually, I can make equivalent an excess-demand-for-output model and an excess-supply-of-money model. How well that can be done depends on what is going on in asset markets. But conceptually, we can make the two the same. A year ago at this time, I said that the opportunity cost model for narrow money, M1, or for the monetary base, was tracking very well; nothing had gone wrong. We had had two years of double-digit growth of M1 and the base. At that point a year ago, we had four options for the year ahead: One was that the relationship would break down; we don't want to make monetary policy on the idea of the relationship breaking down, so put that one aside. That left three possibilities. One was a further sharp decline in interest rates. It would have taken a 20-25 percent decline in interest rates from where we were a year ago to make the opportunity cost model hold up, given the kind of money growth we were getting and the forecast you had. At that time, you thought that there was some possibility of further declines in bond yields and that the funds rate would stay at about 3 percent. I actually would have leaned on the side of thinking that if inflation psychology improved, bond yields could have too. I do remember the Chairman saying he would have been shorting the bond market. Of course, I probably would have been buying! That improvement didn't happen. So that left the other two possibilities: Either nominal GDP growth doubled, shot up to about 10 or 12 percent, or M1 growth and base growth collapsed. What we got was a combination of the two with a small increase of 1 percent in nominal GDP growth and mostly a drop in money growth--M1 and the base. The opportunity cost model still fit. So here we are now and as I look ahead, we've got four options: One is that the relationship breaks down; hold that aside. Second, I can come at it one of two ways. I can look at your Greenbook forecast and the Prell path of policy and ask if this is reasonable for interest rates and money growth if the model still works. That would say to me that if interest rates remained at today's level and your Greenbook forecast was right, M1 growth would decline a little over the next year--1 percentage point or so if the relationship holds. Or, if your fed funds recommendations are correct, that implies that M1 growth has to drop about 6 percentage points in absolute level in the next year for your nominal GDP forecast to be correct. Is that reasonable? What's going on in the demand for money balances for the velocity to have to increase about 10 percent?",952
-fomc-corpus,1994,"I don't think I can work my way through all the history you gave on the forecast. But I think the first statement you made about giving back the extra growth that we had recently is fundamentally correct. That extra growth, as we assess it, resulted in an overshooting of sustainable levels of resource utilization--levels that would be consistent with at least stability in inflation as opposed to accelerating prices. We tried to devise a scenario in which, within a reasonable period of time, we move back to and slightly above the NAIRU to damp the incipient inflationary process. I think that is an apt characterization of how this scenario is designed. I hope Don has some thoughts on the M1 velocity story. It is not something we focused on, frankly, in designing the forecast. We didn't give any attention to M1. M1 is an endogenous byproduct in this forecast just like many other variables. There can't conceivably be any tension in our thinking about the money and income relationship. It is whatever it is, and we don't have an M1 target range that we need to worry about violating, so that doesn't arise as a side constraint, and we think the broader aggregates will remain at growth rates that are compatible with the 1995 ranges and any reasonable extensions.",256
-fomc-corpus,1994,"In fact, you're right, President Jordan, in the sense that the M1 that we have been getting for the last two years or so has been pretty much on the M1 demand curve. But that aggregate, of course, is very interest elastic. We are predicting even slower growth next year than the 2 percent that we have for this year and another hefty increase in velocity. I have to admit that our models suggest that if the same relationships hold, M1 might even drop next year consistent with the Greenbook GDP and interest rates. We have projected essentially no growth. We don't have the drop built in, but I couldn't rule out the possibility that we could get the Greenbook GDP and a decline in M1. It would be right on the model and not a surprise.",158
-fomc-corpus,1994,"If the money demand relation still holds on M1 and you get a 5 or 6 percent drop in the absolute level of M1, what does that do to your M2? Unless you've got non-M1 components of M2 starting to take off suddenly--",54
-fomc-corpus,1994,"We do have opportunity costs narrowing over the latter half of next year, and we do have M2 picking up then. We see those costs rising in the first half of the year when we expect very damped growth in M2. As you can see in your Bluebook, we have built in declines through March. We do have a bit stronger growth built in for next year partly because some of the special factors, like the reduction of demand deposits stemming from the fade out of mortgage refinancings, will not be there. So, we do have a little strengthening next year as things come a little more into line with our models. In fact our models for M2, based on the same interest rates and the same incomes, predict much stronger growth in M2 next year than this year. We trimmed it by a percentage point or two, so we only have 2 percent growth.",179
-fomc-corpus,1994,President Minehan.,4
-fomc-corpus,1994,An opposite question to President Boehne's: I was interested in the reference in the Greenbook to the cessation of speed effects that brings about the moderation of CPI increases in the last part of 1995. I wondered whether you had any estimates of what that CPI figure might be absent speed effect changes? Did you look at it that way?,70
-fomc-corpus,1994,I don't think we can do a precise dissection. One of the things we've pointed out in the Greenbook is that in looking at the acceleration--I don't want to overstate this--what we are talking about in essence in the core CPI number is that we are going to get pretty much .3 increase a month rather than a mixture of .2 and .3 a month.,77
-fomc-corpus,1994,"Yes, right.",4
-fomc-corpus,1994,"Whether we'll be able to perceive this month-by-month isn't entirely clear. But we see this as involving a mix of things that are sort of overlapping. We have had an exchange rate depreciation. We have seen raw materials prices increase. Some of those raw materials are internationally traded and are imported in some instances. We have seen rapid growth of output recently, and econometrically, while it is not always a particularly robust result--you can tinker with your models and get large or small effects--that mere increase in resource utilization can produce in these models some increase in markups, and when things taper off we see some stabilizing and a return to the trend. I really can't parse these things out with any great precision. Some set of these factors we think will give a little bit faster rise in prices in the near term than would be dictated simply by the margin of slack in the economy, which we would see as only adding maybe a couple of tenths to underlying inflation over the coming year, no more than that.",205
-fomc-corpus,1994,So you think it is more the special factors that are pushing the increase in prices to 3.8 and 3.6 percent rather than any uptrend?,33
-fomc-corpus,1994,Right. We have a timing question here. It is hard to say but we think that we might get a little more of the price increase announcements at the beginning of the year.,36
-fomc-corpus,1994,Yes.,2
-fomc-corpus,1994,"So, there is a considerable amount of guesswork involved here. But, yes, I think it is these speed effects or the exchange rate effects on import prices and so on that are giving the bulge. However, if we did not eliminate the excess pressures on resources during 1995, as we have in this forecast, the risk would be that wages would begin to reflect more fully the higher price increases, inflationary expectations would take hold, and we would begin to build that higher track into the trend. That's why we felt it important to try to indicate what kind of interest rate path would lead to this slackening fairly promptly.",128
-fomc-corpus,1994,"Looking at the other side, you have a declining impact from inventories, but certainly a smooth one. Do you care to comment on that?",28
-fomc-corpus,1994,Reality will never be that smooth!,7
-fomc-corpus,1994,That's what we thought too!,6
-fomc-corpus,1994,That's one of the risks we noted in the Greenbook.,12
-fomc-corpus,1994,Right.,2
-fomc-corpus,1994,"An inventory adjustment could come more quickly: If final demand were to taper off and be perceived to have tapered off early next year, perhaps the inventory adjustment would be sharper. That could move us much closer to zero or even conceivably negative GDP growth for a quarter, but inventories might then come back if final demand is still growing moderately. So, they are certainly a potential source of volatility in the numbers and of some greater cyclical variation.",89
-fomc-corpus,1994,"Finally, have you looked at the price effect when the ARMs that were issued this year kick in next year? The teaser rates this year have been very low. Some of these ARMs have new provisions to extend the maturity, but a good portion of them will kick in next year.",58
-fomc-corpus,1994,"It is going to be a factor affecting the cash flow of many households, but it is not a huge effect. It is less huge than one might have expected because what we've observed this year is that a substantial proportion of the ARMs originated this year have fixed rates for 5 or 10 years. This is something of an innovation in this cycle. We are not going to have any adjustment on those and there is a 2 percentage point limit on those shorter-term ARMs. So, this is not going to produce a drastic income shock in 1995.",114
-fomc-corpus,1994,Thank you.,3
-fomc-corpus,1994,Governor Blinder.,4
-fomc-corpus,1994,"Mike, I want to ask you a question about the projection for the automobile market, which in the Greenbook is peaking this quarter at about 15-1/2 million light vehicles--cars and trucks--and then declining very modestly, almost trivially. In the Greenbook, short-term interest rates are up 150 basis points more. In addition, it is been a notable feature of this episode, I think, that auto loan rates have gone up only about half--or less--as much as market rates. The first part of the question has to do with what this implies about the future of auto loan rates and for the responsiveness of purchases to auto loan rates. Furthermore, as I look at the real disposable income forecast, it is also peaking this quarter. Then, in the first three quarters of 1995, while the auto industry is barely showing a dent in sales, real disposable income growth rates are going to 2.2, 0.9, and 1.7 percent. The question is how do you square that circle? What's going on with autos in this forecast?",226
-fomc-corpus,1994,I think we have a forecast that is middle-of-the-road. [Laughter],17
-fomc-corpus,1994,That's the question; why is it in the middle!,11
-fomc-corpus,1994,"A view that is certainly held in the industry is that there is considerable pent-up demand that could buoy sales of automobiles and light trucks but such demand really has not been fully seen yet because of capacity constraints. We think there is some element of truth to that story. On the other hand, it is true that, to date, we have had a very moderate response of auto loan rates to the increase that has occurred in market rates. Prospectively, one would expect that gap to close, and in addition we have assumed some further rise in market rates. I must say that the rise in rates is most pronounced at the very short end of the market, and the sort of intermediate-term rates that we typically compare to auto loan rates would not be going up as much. We get some flattening in the yield curve here. So, in our thinking, there is some further increase in auto loan rates, but maybe not as dramatic as one might think by adding the rise in the funds rate to the gap that seems to exist now between market rates and auto loan rates. Arguably, that sort of normal interest rate response could produce a weaker automobile market than we have. I think we are somewhere in between, but I would grant you that the interest rate picture might constitute a downside risk.",259
-fomc-corpus,1994,"I just want to mention that the scrappage model that was developed by my former colleagues at Townsend-Greenspan is closely consistent with the numbers that we are getting from the income model. I meant to show it to you; I have a copy. As Mike said, there is an implicit scrappage demand element here that seems to be running stronger than the income flows are declining. I understand that the short-term interest rate elasticity of the demand for motor vehicles is something like several hundred thousand units per percentage point in the loan rate.",109
-fomc-corpus,1994,"I think that's fair. One also could argue that we do not have as large an interest rate response here as we could have. Again, as President Boehne suggested in his original question, it is possible that we have not put in enough of an increase in interest rates to get the damping of aggregate demand in the Greenbook forecast.",68
-fomc-corpus,1994,Governor Lindsey.,3
-fomc-corpus,1994,"I had Governor Blinder's question. But I had another one on profits. You have a very sharp deceleration in profit growth in the forecast, and I have a cause and effect question about that. The cause question is whether the deceleration is due to a narrowing of margins. You were mentioning earlier your perception of the PPI and the changes there. Secondly, on the effects side, I am surprised that given a very sharp deceleration in the outlook for profits, you have real business fixed investment holding up as well as it is at very high levels. Could you also give me on the effects side your perception of what this means for equity markets?",132
-fomc-corpus,1994,"Equity markets clearly have been buoyed, in the face of rising bond yields this year, by surprisingly favorable earnings reports. Our anticipation would be that those reports will not be pleasant surprises in 1995. That suggests some vulnerability to the stock market, at least in the early part of the year before the significant bond market rally that we anticipate occurs. This pattern of flattening profits and diminishing profit share is quite consistent with the cyclical pattern of profits moving with the acceleration and deceleration of output--moving with the growth of productivity in a sense. As we go forward, as was noted earlier, we do have a considerable slackening in productivity. We see some pressure coming, as wages accelerate and productivity flattens out, toward certainly weakening profit margins--maybe not a pronounced plunge but some pressure on them.",164
-fomc-corpus,1994,And the effect on investment?,6
-fomc-corpus,1994,"We think that investment has been benefiting to some degree from strong profitability and ample cash flows. As we go forward, cash flow does flatten out. We do get a growing nonfinancial corporate financing gap, and we do see that as an element that will be damping business fixed investment. Recall that you are probably looking at real numbers that are inflated to some degree by the computer deflator. You get rapid growth in real computer purchases with a zero nominal increase. That's basically what we have in our forecast for the next two years. We still think this is a climate in which business investment in computers will be fairly robust. On the nonresidential structure side, we anticipate a pretty solid uptrend. There are lags in this process. Permits have been rising noticeably recently. We think the uptrend at this point is unlikely to be reversed in the near term by the further rise in interest rates. That's giving some underpinnings to this advance, and BFI along with exports are a couple of the sectors against which we are working in reducing the growth of other elements of private domestic demand.",219
-fomc-corpus,1994,"You will also remember that you are looking at outlays, not appropriations. The relationship is closer between cash flow or profit margins and appropriations. You can view outlays as sort of a distributed lag against the appropriations data. It is a quite considerable lag.",54
-fomc-corpus,1994,So that would begin with 1997?,9
-fomc-corpus,1994,Yes. President Stern.,5
-fomc-corpus,1994,"Mike, as I recall when the household survey was changed by the Labor Department, a lot of people anticipated that at some point there would be a significant bump up in the unemployment rate, which has not materialized. Is that simply because it has been swamped by employment gains or what is the explanation for that?",63
-fomc-corpus,1994,"In all likelihood, the parallel survey that was conducted prior to the first of this year misled the Labor Department. It showed that the unemployment rate would be 1/2 percentage point higher with the new survey. The evidence from the survey that was conducted afterwards using the old relationships to other series such as the unemployment insurance data and payroll employment series suggests that somehow or other that parallel survey was misleading--perhaps a fluke statistically--and that the gap between the old and the new series is probably very small, maybe no more than .1 with another upward estimate of .1 for the change in census population controls.",123
-fomc-corpus,1994,Thank you.,3
-fomc-corpus,1994,"Any further questions for Mike? Vice Chairman McDonough, did you have a question?",18
-fomc-corpus,1994,No questions.,3
-fomc-corpus,1994,Okay. Do you want to start our tour de table?,12
-fomc-corpus,1994,Whenever you are ready.,5
-fomc-corpus,1994,Okay. You can start off.,7
-fomc-corpus,1994,"Let me begin, Mr. Chairman, with just a brief remark about the goings on in the Second District. The New York State economy is continuing to grow but at a slightly slower rate than that of the nation. The major source of strength is the consumer. Retail sales have been strong and the sales of existing houses have been quite high. Needless to say, there is great uncertainty about the fiscal future of the state. The new governor inherits a $4 billion hole in a 1995 budget of $34 billion, but he continues to promise to cut taxes. New York City dwellers wonder about how well the city will fare given the dynamics of the recent campaign. So, I think any investment decisions in which the state tax burden is an issue will almost certainly be put on hold. The banks in the District are lending very aggressively, and that seems to reflect a combination of two things. Regional banks both inside and outside the Second District seem to be trying to increase market share. Secondly, the money center banks that in some cases have had a considerable reduction, modest in others, of their trading income seem to be somewhat more aggressive in lending in order to improve their earnings. The spreads are sufficiently low now that it is not clear to me that they are getting an adequate return on capital from such activity. There is no question in my view that their lending standards, as evidenced by the covenants being required of their borrowers, are slipping excessively. Switching to the national economy, the question we have been asking ourselves is: What do we know that we didn't know at the last meeting of this Committee? Well, the first thing we know is that current and recent GDP and employment growth are even stronger than my colleagues at the New York Bank and I thought would be the case at the time of the last meeting. That is the case both as regards the third quarter, which came in stronger, and our view of the current quarter, which we have ratcheted up even more. Second, we believe that even if inventory investment slows enough so that it becomes a modest drag on the economy, real growth will stay above 3 percent through most of 1995. We do not have growth slowing in 1995 and 1996 as much as the Greenbook does. Third, the interest-sensitive areas are in fact major contributors to growth and show very little response to higher interest rates, even though one must state, of course, that the full effect of the tightening to date has not yet been felt. Automobile sales are strong, and if General Motors could straighten out some of its production problems, they would be even stronger. Housing is robust. The fourth thing we think we know now that we didn't know then is that the surge in average hourly earnings in October of 0.7 percent is not traceable to unusual factors. The Bureau of Labor Statistics' announcement of a pending major upward revision in payroll employment means that the help that we thought we would get from productivity is much lower, causing an upward revision in the trend of labor costs. Fifth, even though medical costs were beginning to be better behaved before the health care debate of the last 18 months, we do not think that the improvement in medical costs and therefore the cost of benefits to employers will continue to be a help in controlling inflation. Sixth, the rate of unemployment in our view is below the NAIRU, which we think is 6 percent, give or take 0.1. We could be wrong. Since unemployment is now below 6 percent and the CPI is rather well behaved, the question could be asked, is God kinder and has the NAIRU become lower? We don't think so. History in the late 1970s and in the late 1980s gives us a lesson, we believe. At those times there was hope that the NAIRU would come down. Certainly in the late 1980s it was thought that it would come down somewhere within a range of 5 to 5-1/2 percent. Unfortunately. those hopes turned out to be ill founded. I think that what was overlooked is that monetary policy works with a considerable lag and inflation, when it starts, doesn't leap out of its cave; it starts rather slowly and almost imperceptibly. In the meantime, have the financial markets given us any new information? The first thing that I think we should all pay no attention to is the zigs and zags of the financial markets from one day to the next as they absorb the most recent data and as 35-year old bond dealers make profound remarks to the media. What I think the market is telling us is that inflationary expectations are high and that our tightening to date has not reduced those expectations. One can look at a variety of places on the yield curve to measure inflationary expectations or look at consumer surveys and so on. We find the spread between 3-year and 1-year Treasuries a very helpful indicator in large part because it covers just the period during which monetary policy should have its effect initially on inflationary expectations. That spread has jumped around because of the volatility of markets this year, but on average it has stayed quite steadily around 85 basis points despite the choppiness. It has not improved; it has not narrowed as a result of the tightening since the 4th of February. I suppose I should really stop there, but I think that the Greenbook and Mike's presentation place the stance of monetary policy rather front and center. At the last meeting, we decided that it was appropriate to have an asymmetric directive, which the world will know about this Friday. That meant that we were ready during the intermeeting period, when we didn't know all those new things that we think we now know, to increase the fed funds rate and perhaps the discount rate by 50 basis points. We think that because of all the additional information available since the last meeting, such a move would no longer be adequate. It could in fact increase inflationary expectations not because young bond dealers would raise questions, but because sensible people could question the resoluteness of this Committee. Thank you, Mr. Chairman.",1240
-fomc-corpus,1994,President Minehan.,4
-fomc-corpus,1994,"Mr. Chairman, New England continues to recover gradually. But there is a distinction to be drawn between the incoming labor market data and other indicators, so I'll try to frame my comments about New England along those two lines. Unlike most of the rest of the country, New England has not yet recovered the jobs lost in the last recession and is not expected to do so until late 1998 at best. There is a continued lull in growth that I commented on at the last meeting, and it is hardly as welcome in New England as it might be for the country as a whole. Payroll employment declined in five of the six New England states in September, putting the region's establishment job count slightly below its July level. But it is still nearly 2 percent over a year earlier. Massachusetts and New Hampshire continue to reflect the strongest growth rates among the six states, and Connecticut still bumps along on the bottom. The September job decline for the region was concentrated in manufacturing unfortunately, but all the major industry categories except construction and government recorded declines. Unemployment rose noticeably in the region in October, also in contrast to the national scene. Prices and wages seem to be rising somewhat more slowly in the region than in the nation, and the residential real estate markets are definitely slowing. To round out this rather downbeat picture, trends in defense-related business also show deterioration relative to the national picture. For example, prime defense contract awards to New England companies during the first half of 1994 were lower than at any time since 1980 and 35 percent below their 1989 peak. Defense-related employment continues to decline and in some states the decline is nearly twice the national pace and probably accounts for a healthy share of the manufacturing job losses I noted earlier. Moving from the labor market data to other indicators, however, consumer confidence, help wanted advertising, and retail sales all show continued improvement in New England. Retailers contacted for the Beigebook, especially those selling hard goods, were upbeat about recent activity and the near-term outlook. I must admit that every business group I meet with seems to be much more positive than the incoming labor data would make me believe. More than 50 percent of any group I have talked to in the past month or two are contemplating hiring people over the next 12 months and out into the future; they are seeing escalating input prices and are seriously considering raising prices in response to these escalating prices, probably along the lines of the January price increases that were mentioned in the Greenbook. In sum, New England faces considerable sectoral challenges--defense, the computer industry, health care--which tend to drag down the data. But there are sources of growth and ebullience emerging. On the national scene, we agree with the Greenbook's inference that the economic expansion has overshot. We expect employment costs as measured by the ECI to turn up soon, and we agree that near-term inflation prospects are not optimal. I've covered our concerns about the Greenbook in the questions that I had for Mike, but overall we don't find a lot to complain about. We seem to be slightly further behind the curve than I would have liked at this point and the longer we wait and fail to slow the economy, the greater the chance that rates will need to be significantly higher. If we don't increase rates at this meeting, I see a real chance of causing the boom-bust cycle that we have been trying to avoid. I think the risks are on the up side, and I think we have to move sharply and fast to curb those risks. I'm in agreement with President McDonough that that move should take place at this meeting.",734
-fomc-corpus,1994,President Forrestal.,4
-fomc-corpus,1994,"Mr. Chairman, as I have been reporting for several meetings now, the Southeast economy is sustaining a broad-based expansion, although we have seen a little slowing of growth recently. There really hasn't been very much change in the situation in the Sixth District since the last meeting, so I'm not going to repeat a lot of the detail that I have given at the last couple of meetings. Let me hit just a couple of highlights. Retail sales rebounded in October after a somewhat lower September. Retailers are expecting strong increases, in some cases even record increases, in sales over the holidays. According to our latest manufacturing survey, activity was not quite as robust in October, but an increasing proportion of respondents expect production and shipments to be higher six months out. Single-family home sales slowed in most of the District last month, dropping below strong levels seen a year ago. On the other hand, multifamily real estate markets continue to improve throughout the District, and that has been going on for a while. Commercial real estate markets clearly have hit bottom and are beginning to move up. We are beginning to hear some reports of speculative building in that sector, particularly in Atlanta. Bank loans overall are growing modestly for the first time this year, although I find it interesting that consumer loans are flat in the District. Employment growth picked up a little in the third quarter with services, trade, construction, and durables manufacturing showing the best gains. More reports of wage and price pressures are coming in than before. The wage pressures are concentrated for the most part in a few localities and in a few areas. Respondents in our manufacturing survey are reporting pressures on prices of inputs and finished goods, and they are expecting to be able to pass those through later on. Again, although retailers have held the line so far, prices are expected to increase as new shipments come in after the first of the year. In sum, the situation in the Sixth District is not very different from what it was at the time of the September meeting. There is momentum and the expansion is moving along at a quite good and sustainable level. Now with respect to the national economy, I must say that I was quite surprised at the extent of tightening assumed in the Greenbook and the resultant low level of GDP growth for three or four quarters in the range of 1 to 1.8 percent. As President Boehne indicated, I think this is flirting with recession even in the absence of shocks to the economy. There is very little margin for error. In the short term, our forecast does show the economy starting to decelerate a little sooner than the Greenbook, but in the longer term even though we have some deceleration, we show stronger growth with lower unemployment and a somewhat higher inflation rate. I think that it is going to take less tightening than envisioned in the Greenbook to cause inflation in the current expansion to peak at a level that is well below the one that we had in the last cycle. Our forecast assumes that a rise in inflation can be viewed as a cyclical phenomenon and not necessarily the start of a trend. But that being said, our view is a little more optimistic and it may not be the correct view; it may be unrealistic. The risk, in my judgment, is on the up side, and we need to remain vigilant to inflation. I think that the cost of underestimating price pressures can be very high. Perhaps I've tipped my hand as to what I would want to do, so I won't go any further at this point. Thank you, Mr. Chairman.",717
-fomc-corpus,1994,President McTeer.,5
-fomc-corpus,1994,"The economy in the Dallas District continues to show moderate to strong growth across the board. Virtually every sector seems to be expanding with the exception of livestock production. At our board of directors meeting last Thursday, the reports were uniformly upbeat. Every region within the District reported positive news. The only negative reports were scattered slowdowns in single-family housing construction, but even these reports noted strong gains in other construction activity such as apartment, shopping center, and industrial construction. Our Beigebook contacts and numerous other reports from around the District noted a significant boost in both price and wage pressures over the last several weeks. This represents a sea change from previous reports, and if this is a start of a new trend, it implies serious consequences for monetary policy. More and more industries are reporting reaching or approaching capacity limitations as well as a newfound ability to pass on some of their higher input costs to the next stage of production or consumption. The national economy, as best as we can tell, is showing the same early signs of overheating as the Eleventh District. Various resource constraints rather than demand conditions seem to be the major factor determining the growth of output. Although the statistical measures of price and wage inflation have yet to show an upward trend, we can't help but notice that the Beigebook reports from around the nation indicate a pickup in price and wage pressures that may suggest a red alert for the Federal Reserve. As I look at the national economy, the Greenbook seems to have the current state of affairs about right, but I expect that the staff forecast may have underestimated the strong forward momentum in the economy as we go into 1995. The risks to the forecast both with respect to growth and to inflationary pressures seem to be that we have underestimated the underlying strength of the economy.",355
-fomc-corpus,1994,President Parry.,4
-fomc-corpus,1994,"Mr. Chairman, the economic recovery in California appears to be taking hold while conditions in the rest of the District generally remain strong. Abstracting from month-to-month volatility, the California unemployment rate has fallen about 1 percentage point since the first quarter of the year, although it remains about 2 percentage points above the national rate. In the rest of the District, state employment growth has outpaced the national rate in Arizona, Idaho, Nevada, Oregon, and Utah. Contacts in District states other than California and Hawaii generally indicate that regional wages are accelerating. Labor markets are regarded as especially tight for construction workers, computer programmers, as well as banking and retail sales personnel. Consumer prices have been fairly weak in California in large part because of weak housing prices. More recently, housing sales in the state have picked up noticeably, and many of our contacts expect a pickup in housing cost inflation. Turning to the national economy, real GDP growth has continued to be surprisingly strong, showing no signs so far of falling below the potential rate of growth. As a result, as already has been mentioned, tight labor and product markets have become noticeably tighter since our last meeting. Moreover, at present levels of interest rates, I would expect to see further robust economic growth and declines in the unemployment rate in the remainder of this year and in 1995. Under these circumstances, it has become increasingly clear that inflation would be on an upward trajectory in the years ahead without a substantially tighter stance of policy.",296
-fomc-corpus,1994,President Hoenig.,4
-fomc-corpus,1994,"Mr. Chairman, the Tenth District remains strong, and the strength is spread generally across all our states. Activity is robust in most of our key industries, although there may be some signs of a slowdown in single-family housing; that has yet to be determined. Our farm income has weakened in 1994. The current data show that the number of payroll jobs in the District increased by about 3 percent in September over a year earlier, about the same as the nation. I should note, though, that New Mexico had job growth in the neighborhood of 5 percent and only Kansas and Wyoming added jobs at a rate less than the nation, although not a whole lot less. Manufacturing continues to improve with most of the strength in the durable goods industry. The District's key automobile assembly plants have completed their model changeovers. They have told us that they expect gradually restored production toward capacity levels. In general aviation, aircraft production, another of our key durable goods industries, improved in the third quarter with billings up significantly over the second quarter and over a year ago. Energy activity improved just slightly in October, but farm income is down due to poor livestock prices, and that will be offset just slightly by the record harvest that we expect or are having. As we have been seeing for the past few months, construction remains robust across the District. But as I said, there are some signs of slowdown in the housing permits area. Anecdotal reports point to some shortages in labor, and that includes unskilled labor in our area. Upward pressure on wages appears to be increasing. Loan growth in our District continues to be strong although slightly less than last summer; it was extremely robust last summer. Turning to the national economy, my view is that the economy has considerable momentum. Domestic spending remains strong; export growth is trending upward. With the exception of housing, it is difficult to see any immediate signs of a slowdown. Indeed, activity appears to be picking up in several industries, particularly manufacturing. At current interest rates, I would expect real GDP growth to remain above potential for at least the next three quarters. As a result, with the economy already at more than full employment, an upturn in inflation seems inevitable. We already are seeing inflationary pressures, not just at the early stages of production but at the final stages as well. As Bill McDonough said, inflation starts out very slowly, and that is what we are seeing. On a year-over-year basis, virtually all the price indices as well as the employment cost index and average hourly earnings have either bottomed out or are showing increases in recent months. So, it seems to me that the issue before us now is not whether inflation will be picking up, but how much and over what time horizon.",558
-fomc-corpus,1994,President Boehne.,5
-fomc-corpus,1994,"Anecdotal reports suggest that the Philadelphia District is catching up to some extent with the rest of the nation. Manufacturing in particular is showing strength and the outlook is positive. Steel and auto products are notably brisk. Retailers generally report a pickup in sales, especially in apparel and appliances, and the mood is upbeat about holiday sales. Realtors say home sales are strong in the Philadelphia area but uneven in the rest of the District. The supply of homes is high, however, and selling prices have been steady. Commercial real estate activity varies a great deal around the District from weak in south Jersey to strong in some parts of central Pennsylvania. There is a pickup in the Philadelphia area, especially in the Pennsylvania suburbs. Lending activity is on an upswing around most of the District and lending terms are easing, but I don't think we ought to be surprised at that; that's typical. Bad loans are made in good times, and there is a bandwagon effect that human nature just cannot resist despite changes in legislation, better supervision, and so forth. There are no general signs of price pressures, although I hear more reports about tightness in skilled labor markets and the demand for professional-type jobs. Some manufacturers seem more confident about selected price increases sticking, but most still talk about tough competition holding prices down. All in all, the District economy is less of a laggard and the tone is better, although feelings of insecurity are just below the surface and sometimes on the surface, depending on who is doing the talking. At the national level, we are seeing what we have seen before. Once the economy gets going, we tend to underestimate the strength of its forward momentum and the level of interest rates needed to achieve moderate growth with subdued inflation. Now fortunately, if we have fallen behind the curve, we are not all that far behind. With timely actions going forward, we have a good chance of keeping inflationary pressures in check and the expansion on track.",389
-fomc-corpus,1994,President Broaddus.,5
-fomc-corpus,1994,"Mr. Chairman, my comments will be very similar to many of the others you have heard already. With respect to the District, last week I attended a meeting of leading business people in Virginia who advise the governor on revenue estimates. This group includes the CEOs of most of the state's large corporations--a couple of major railroads, a major aluminum producer with worldwide operations, some banks, a big shipbuilder, and a big trucking company. I was really struck by the uniformly bullish commentary at that meeting, not only about the state economy but about regional and national economic prospects as well. Several of these people said explicitly that they were planning major capital outlays in the near future based on these expectations. A number of them said explicitly that they thought the consensus national economic forecast, which had been summarized for them at this meeting as calling for GDP growth of about 2-1/2 percent next year, might be too low. It was a very bullish meeting. The tone of our board meeting in Richmond last Thursday was similar. All of the directors were optimistic about conditions both in their local areas and in their respective businesses. Consumer spending appears to be especially robust in our region. Retailers are expecting a good Christmas. There is what I would describe as a gradual revival of commercial construction in the District. The main negative factor is still the reduction in defense expenditures. But even places like Norfolk, Virginia, and Charleston, South Carolina, where there had been projections of a big negative impact, are not seeing that--I guess because of the strength of the general economy. In spite of this strong growth, we have seen only scattered reports of actual price increases for final goods and services in recent weeks at least. But a number of our directors at the meeting last week, especially those who have contacts in the manufacturing sector, said they expected a number of their suppliers to put price increases in place, perhaps fairly substantial increases, at the end of the year. Several of them said they would expect to pass at least some of these increases along in their own prices. Nationally, I thought the staff did a very fine job of sizing up the current situation in this month's Greenbook. I guess it is fair to say that Mike and his people are still calling for a fairly soft landing. I think that's appropriate, but I would make three points. First, I think it is worth noting that the landing in this Greenbook seems to me to be less soft than that in the September Greenbook, which if I remember correctly was slightly less soft than that in August. I think there is a lesson for us somewhere in this pattern. As I recall, the Greenbook states explicitly at one point that the risk of error is on the up side toward the situation where we move back into some kind of boom-bust pattern; that's something we have seen so often in earlier postwar cycles. The second point I would make about the Greenbook is that, as you know, the current projection is predicated on a significant further move toward restraint in monetary policy over the next several months. Finally, even with this further tightening, the Greenbook is still calling for a 3 percent inflation rate; we are not really getting any reduction in inflation. So even with this outcome, we are still going to be some distance from full price stability. On the inflation score, I think it is fair to say that many business people with whom I have contact and probably more financial market people now expect a moderate increase in the inflation rate next year to about 3-1/2 percent. I've spoken to a number of people who are expecting something more. I would say that this increase in inflation expectations is clearly at least part of the explanation of what is going on in bond markets and foreign exchange markets. The behavior in these markets suggests to me that we probably have lost some additional credibility over the last several weeks. I agree with Bill and Cathy and others who have said that we are in a position now where we need to make another decisive move in order to shore up our credibility and convince the public that we are still serious about our goals. In this regard, Mr. Chairman, I would like to repeat something I said at the September meeting. I think that inflation expectations currently are especially sensitive to incoming short-run economic data and to indications of monetary and other economic policy changes precisely because we don't really have a clear, step-by-step strategy to meet our longer-run goals. I think we would be well served by explicit multiyear inflation targets that we would announce publicly. If we took this approach, I think it would relieve some of the pressure on us, in a situation like the current one, to make a strong move to reinforce and shore up our credibility. If we were to do something like this, we obviously would need to talk about it a bit. But I think it would increase our operational flexibility in the short run, and it would reduce the risk that at some point we might do some damage to the economic expansion. Thank you.",1008
-fomc-corpus,1994,President Stern.,3
-fomc-corpus,1994,"With regard to the District economy, there is not a lot new to report; it remains strong. Manufacturing is robust. Materials prices are going up. Employment is high throughout the District. In some of the metropolitan areas, the reports we are getting are that everybody who wants to work is working. What seems to be restraining some further job growth in those areas is housing shortages; businesses would attract more labor from the rural areas in the region or maybe from outside the District, but there is no housing in some of these places. Despite that, there are no widespread reports of wage or price pressures, at the retail level at least. What wage pressures there are seem to be concentrated mostly at the lower end of the pay scales. I think that is because of the difficulty of retaining workers there; they have so many easy opportunities to move out and up. Elsewhere in the District, the agricultural situation is mixed. It is a good year for crops, though prices are not entirely favorable. It has been tough in the livestock industry at least outside the dairy sector. Since they are coming off about 7 good years, I'm not sure there are any real problems emerging there. We did hear some reports from our Advisory Council members about interest rates starting to bite in the housing and furniture markets. It is hard to know exactly what to make of that in light of the national statistics that seem better. But however that may be, it is clear that the paper industry has bounced back. With regard to the national economy, I don't have a lot to add to what has already been said. When we go through our translation process that takes the labor market data, in this case for October, and turns them into a GDP estimate for the fourth quarter, we get about 4-1/2 percent growth in real terms at an annual rate. In some sense, that's neither here nor there, of course. It's history, but it does tell us something about the underlying momentum of the economy, which I do think is quite positive and quite strong. There is always the danger of extrapolating the latest reading. On the other hand, as several people have already commented, it seems to me our experience over the years has been that once momentum starts to build in terms of real growth, it tends to go on for quite some time and it probably takes more restraint than we usually anticipate, at least early in the game, to avoid an acceleration of inflation or indeed to make progress in reducing the rate of inflation. Finally, let me comment on the suggestion that Al Broaddus just made. I may come out at a somewhat different place than he did, but I do think that the suggestion to consider the implications of longer-run inflation targets may be a constructive one.",553
-fomc-corpus,1994,That's a legislative issue.,5
-fomc-corpus,1994,"Well, you certainly wouldn't want to do it without considerable political support. I agree with that.",19
-fomc-corpus,1994,President Melzer.,4
-fomc-corpus,1994,"National economic activity is much stronger than earlier forecasts anticipated. Employment grew twice as fast as the labor force from January to October. There was a large rise in hours worked in both September and October, including an extraordinary amount of overtime. Wage pressures are building. Average hourly earnings surged in October; for the past four months, this measure of wages has risen at a 4.4 percent annual rate, up sharply from only 1.3 percent in the first five months of 1994. Such reflections of tight labor market conditions are signs of prospective inflationary pressures. Strong credit demands also reveal the strength of economic activity and nominal spending. Growth in business loans at commercial banks nationwide and in the Eighth District has been rapid throughout this year. Since spring, banks have reduced their holdings of securities and have bid aggressively for time deposits to accommodate loan demand. Nonfinancial firms have also increased issuance of commercial paper since September, corroborating the increased demand for credit by businesses. The large inventory accumulation in the second quarter was followed by a larger accumulation in the third quarter. Those forecasters who had expected a substantial slowing in real growth following a large buildup in inventories in the second quarter seem to have guessed wrong. Nevertheless, inventory-to-sales ratios remain very low by historical comparisons, so low in fact that many firms are concerned about both deteriorating vendor performance and the prospect of continued acceleration in sensitive materials prices. My contacts in the Eighth District indicate that increases in inventories have largely been planned in anticipation of strong sales, including retailers who ended the last Christmas shopping season with largely empty shelves. Overall, employment in the Eighth District remains robust and the District unemployment rate hovers near its lowest levels since August 1974. This September, the District unemployment rate was 4.7 percent compared with the 5.8 percent rate for the nation in October. In recent contacts with business executives and directors in the Eighth District, the consensus was that wage pressures are building, especially for unskilled workers and construction workers. I have been hearing these reports and have mentioned them here for some time, but I'm hearing more and more reports of actual increases in wages. Furthermore, contacts report price pressures from rising costs of raw materials from both domestic and foreign sources. Prices of imported goods, which had been an important factor in holding down inflation until recently, rose at a 6.9 percent annual rate in the past two quarters after falling over the previous two quarters. Finally, looking ahead, I am troubled by the Greenbook forecast, which shows that among G-7 countries only Italy and the United Kingdom have a higher inflation outlook for 1996 than the United States. Thus, it is not surprising that we seem to lack credibility with respect to price stability, and this is indeed costly in current circumstances. Picking up on what Al Broaddus said, I feel that it may be time for us to consider setting a specific inflation target that looks out into the future. I think, and this point was made as well, that it could make our job considerably easier in circumstances like the present--with upward cyclical inflationary pressures--if people were willing to look out to a longer-range target and that added to credibility.",645
-fomc-corpus,1994,President Moskow.,4
-fomc-corpus,1994,"Mr. Chairman, economic activity on balance in the Seventh District appears to be a bit stronger than at the time of our September meeting. Retail sales and manufacturing output have strengthened, and overall housing activity through September held up better than might have been expected given the rise in mortgage interest rates. One cautionary note is that new single-family home sales in the Midwest have been weaker than national trends. Contacts in the manufacturing sector continue to report robust activity, and several are now beginning to report gains from higher levels of exports. Looking ahead to next year, a number of manufacturers anticipate that growth will slow in their domestic markets, but this slowdown could be offset by continuing increases in exports. Similar to the Board staff, we estimate that the auto sector will contribute about 1/2 percentage point to real GDP growth in the current quarter, despite the fact that the auto industry is still struggling to address several model changeover and parts shortage problems. We also expect about the same contribution to real GDP growth in the first quarter of 1995. Indicators of consumer activity in the District are quite robust. Regional income growth has been above the national average. Retail sales have improved, with sales in Michigan and Wisconsin up more than 12 percent in the third quarter, which is well above the 7-1/2 percent national figure. More recent reports from two major retail chains indicate that sales in early November were very good and that it would not be a surprise if holiday sales exceeded earlier expectations. In general, retailers throughout the District are quite optimistic about the holiday season and have been adding to inventories. Consumer confidence remains high and well above the national average, but it has flattened out in recent months due to a decline in the expectations component. In the agricultural sector, harvests of corn and soybeans will set new records in the District and the nation. Cattle and hog supplies are also running at historically high levels. These developments have led to lower prices to date, and prices are expected to remain low throughout 1995 in those areas. The banner corn and soybean harvests have taxed the capacity of the grain storage and transportation facilities, but these bottlenecks, which are common in years of big crops, are already starting to ease. Examples of Seventh District industries operating at or near capacity are numerous, including motor vehicles, steel, appliances, construction, agricultural equipment, office furniture, and railroad car loadings. Steel price increases appear to be in the 6 to 8 percent range, and significant increases are reported for other commodities such as chemicals and paper products. Although manufacturers continue to resist supplier price hikes, conditions seem generally more conducive to such increases. Some manufacturers can offset these increases with productivity improvements; others cannot and will increase prices of their products to consumers. District employment growth has been quite good. In almost all of our states, unemployment rates are below the national average, including a 5.1 percent rate in Michigan after many years of significantly higher unemployment rates in that state. We are increasingly hearing of labor shortages at the low and high ends of the skills' spectrum from retailers having difficulty filling entry-level positions to manufacturers reporting a futile search for engineers and designers. I visited Detroit recently, and it is clear that the help wanted signs are out in Detroit. I learned that one large retailer is trying to attract new employees by putting help wanted advertisings in the monthly bills that they send to their customers. Despite these shortages, few manufacturers or retailers have reported any significant upward pressure on wages of permanent positions. However, as I mentioned at the last meeting, temporary help firms have reported higher wage increases of about 5 percent. On balance, Mr. Chairman, we concur with the Greenbook assessment that the economy is now past the point of full noninflationary utilization of productive resources.",759
-fomc-corpus,1994,Governor Lindsey.,3
-fomc-corpus,1994,"Thank you, Mr. Chairman. With regard to the national picture, I'd like to associate my comments with the very eloquent analysis of President McDonough; he was right on target. With regard to the staff forecast, I would only add the issue of timing. We do not know in what quarter the economy will slow down, but we do know that it will slow down. I think the point about forecasting increasingly hard landings is a good lesson for us. As a side note on hard landings, if anyone really wants to experience a hard landing I recommend Rumanian Air. [Laughter] At the last meeting, I set aside my normal reservations and favored an asymmetric directive because I perceived the possible need for foreign exchange intervention. I specifically recommended that, if we had that intervention, it be accompanied at that time by a 50 basis point increase in rates. Frankly, I think that had we done that at the time, the move would have been both appropriate and, I would add, sufficient. Why did we have the intervention? It wasn't because of volatility or disorderly markets. It wasn't a signal of policy change at the time. The word that was most commonly used was a ""bridge."" A bridge to what? At the time, cynics in the market and a few of the press reports guessed it was a bridge to the election. I hope and trust that that was not the case, and no one knew what the outcome would be anyway. I think the other option was that it was a bridge to what we are about to do today. If so, if we are bridging to a 50 basis point move, which everyone anticipates, then it would be like building a bridge to the middle of the river, which is actually another thing they do in Rumania, [Laughter] but so much for that. The key is that I think markets will probably think we are all wet if we do. [Laughter]",397
-fomc-corpus,1994,Oh heavens!,3
-fomc-corpus,1994,You are in great shape today!,7
-fomc-corpus,1994,"That is what happens when you are awakened at 2:00 and 4:00 in the morning by a one-year old! The other part of my trip, I had both our bureaucracy and the Rumanian bureaucracy prepare a serendipitous schedule. The first part of the week I was in Paris and I was able to go on from there after meetings. I think both in meetings and also in private meetings I had with and with folks at there was a strong sense that U.S. policy is behind the curve. I can only second what Peter mentioned about the perception that we are behind and that therefore a big increase would be coming. Of course, diplomats always talk about it a little circumspectly. My favorite description was by one of the Europeans that monetary policy was behind the curve in non-European OECD economies. [Laughter] I don't think they were talking about the Australians and New Zealanders, but here we are. The bottom line is that while I certainly do not believe in the tail wagging the dog, and I certainly don't think that foreign exchange concerns should drive our long-run policy, I do think that given what the folks around the table have said about the strength of the economy, the issue is not whether to move but when. Frankly, I think our intervention really boxed us in a corner, and I don't think that the 50 basis point option is still there. So, I would join others in recommending that we do something more than that.",301
-fomc-corpus,1994,Governor LaWare.,4
-fomc-corpus,1994,"Mr. Chairman, the Greenbook outlook for dramatically increased short-term rates and a marked slowing in the rate of economic growth accompanied by rising inflation and increased unemployment is not a particularly appealing one. It would be much more attractive if the inflation projection was one that reflected greater progress toward stable prices. An even more unpleasant vision is the one that would emerge if further significant restraint were not put in place. In spite of recent declines in consumer confidence as measured by the Michigan survey, consumer confidence remains at a high level and may be further enhanced by the election results. I suspect that the current momentum in the economy may be significantly stronger than previously expected and may in fact produce a stronger GDP performance in 1995 than that projected in the Greenbook. It is hard for me to accept the idea that we can't get an inflation rate significantly below 3 percent. If the monetary policy inherent in the Greenbook forecast can't produce a better result, then perhaps we should be considering monetary policy alternatives that would make better progress toward stable prices even at the short-term cost of unemployment marginally above the NAIRU. The signal effect of greater restraint may in fact wring out some of the inflation expectations in the markets, which are inherent in current bond prices.",248
-fomc-corpus,1994,Governor Kelley.,3
-fomc-corpus,1994,"Mr. Chairman, it seems to me the situation is unequivocal. At this point in the morning, I have very little to add that's useful. Virtually every bit of information that we have gotten and certainly the reports around the table this morning have indicated that we have an extremely strong expansion. It may be accelerating. I don't expect this, but if somehow nothing were done, I think we probably could get rather quickly into a runaway boom situation. The inflation teakettle isn't whistling yet, but I think the temperature inside of it is rising rather markedly. There is no need to go back over any data; we are all familiar with them. As far as I'm concerned, the only question before the house is in the next part of the meeting. That is, what is the best way to deal with this situation?",166
-fomc-corpus,1994,Governor Phillips.,3
-fomc-corpus,1994,"Thank you. The momentum of the real economy certainly seems to be stronger in all sectors than was anticipated earlier. I think that the revisions we have seen recently in a number of forecasts and, for example, the recent benchmark revision in the employment level, demonstrate that there was more momentum than we earlier thought. This may well carry the economy forward at an even stronger pace than we had anticipated. It is carrying forward into consumer confidence. All of the spending indicators are showing considerable strength, even housing. We would have expected more of a downturn than we have seen in the interest-sensitive parts of the economy. The outlook in industrial production is for continued strength. Autos and light trucks alone probably will sustain us for a while. The real economy is showing more strength than we had predicted a couple of meetings ago; essentially, the second-half slowdown that was anticipated never occurred. Turning to the financial markets, I think that they generally are functioning quite well; the currency markets may be a bit hard to read. We should look to some of the lessons that the financial markets are trying to suggest to us. Even though the lecturing that we are getting is coming from 35-year olds, these 35-year olds still are voting with dollars. I think that there is something to be learned there. The markets are not as volatile as they were earlier in the year. There is more depth. There are more varied expectations on market direction and financing needs. Some people have expressed disappointment in the stock market, but we may well look back on this in coming years as being one of the most orderly corrections that we have seen in quite a while. The cost of capital has increased, both for equity and debt financing. But it does not appear to be inhibiting investment either by households or in the business sector. Banks are now providing capital that earlier was being provided directly by the stock and the bond markets. It seems to me that we have had a relatively smooth transition from credit crunch to the direct issue market and to bank financing. The financial markets generally are functioning quite well. The fact that we haven't had a major accident, I think, is significant. On the inflation side, some people have suggested that we are getting closer to the point where we should see more increases in final consumer prices. But in fact, we have seen increased pressure in the CPI for the third quarter. We are well above a 3 percent rate at current levels, and I would hope that our goals would be better than 3 percent. I'd associate myself with Al Broaddus' comments about starting to look at some kind of monitoring range for inflation, particularly one with a long-term outlook. I think that we are not giving as clear signals as we might with respect to what we think inflation should be. I guess I'm getting a little tired of seeing all these analysts say that inflation is under control when in fact it is above 3 percent. In sum, I think that some of the previous uncertainties that we saw in the economy appear to have been resolved in favor of economic strength. Productivity increases have resumed. The markets have been reasonably steady. The elections are over except for the State of Maryland. We still do have some downside risks. Health insurance still is going to be an uncertainty. I suspect the solutions are likely to change now, but the problem is still there. The new Congress may yet create unimagined new challenges for us. I think we are going to have to start factoring in such things as tax cuts and perhaps increases in defense spending. What is this going to be doing for the Federal deficit? The monetary aggregates remain surprisingly weak, so I count this as one of the remaining uncertainties. I hope that productivity, efficient capacity use or even more capacity will permit higher growth with no inflation, but I think that's fairly wishful thinking. Perhaps the NAIRU is lower than we had thought, but again that may well be wishful thinking. On balance, the risk seems to be for continued economic momentum at least in the near term. I think we'll see inflation pressures increasingly evident.",815
-fomc-corpus,1994,Thank you. President Jordan.,6
-fomc-corpus,1994,"I'll say very little about the District. In my District contacts, I raised two questions that I thought were of some use in the period since the last meeting. One was about labor market conditions and the persistent comment about shortages, tightness, especially for unskilled, semi-skilled workers and so on. I asked what they were doing about it, and the general response was ""hiring bonuses,"" with the exception of the construction industry. That industry is willing to raise offering wages; others industries are not going to let higher wages go into the cost structure. I asked them how they are responding to current retention requirements and again the answer was bonuses--one-time payments to retain workers that they are not willing to build into the cost structure. In response to a question about the outlook for passing through cost increases to higher prices, respondents, especially retailers and various consumer products companies, simply said ""impossible."" I noted in the supplement to the Greenbook that the Michigan survey of consumer sentiment indicated that household appraisals of car and appliance buying conditions deteriorated in early November. I think that bears watching, especially in this post-election period. Small businesses that I asked about their outlook for the next year versus their outlook for 1994 at this time last year were more optimistic last year than they are this year looking a year ahead. That was before the election. I have no idea what the election did to their optimism. Also, the Michigan survey shows the mean and median values of expected inflation declining over the next five years to their lowest levels since 1990. So, we may not be as far behind the inflation psychology curve with real people as financial market indicators would suggest. On the national economy, as shown in the Greenbook, we have had four good quarters averaging 4 percent growth, and I have no reason to disagree with the staff projection that this quarter also will have 4 percent growth. That comes after approximately eight quarters of subpar performance. We had a rebound effect after the Gulf war in the spring and summer of 1991, and the economy then tended to go flat. The staff forecasts overstated the economy's growth after that for about two years. I don't view those two years as having been a result of the inadequacies of aggregate demand, but rather the real shock effects of a variety of depressants in various sectors and industries that were preventing the economy from performing very well. Therefore, I don't view the last four or five quarters of good growth as being the result of pump-priming stimulus to aggregate demand by our monetary policy or fiscal policy or anything else. Rather, I see them as the result of the dissipation of those earlier depressants. In that sense, I view this growth in output and employment as having been a good thing, a make-up for the earlier subpar performance. I don't view that growth as being a precursor to future inflation because I don't view it as having been fostered by excessive money creation. The subject of inflation to me is still the subject of the purchasing power of money. I don't see that the growth of output and employment reduces the purchasing power of money. I do think it would be helpful, as Al Broaddus was suggesting, for us to have credible, multiyear objectives and to seek a legislative mandate for achieving our price objectives. In part, the reason is the problem that we now have with inflation psychology. Here is where our own words cause us a problem. If we talk about the purchasing power of money as having something to do with the NAIRU and potential output or something, then I think that we have no choice but to continue raising the funds rate and create some unemployment and some perceived slack. The last time this Committee went through a tightening period in 1988 and 1989, it was being guided by the opportunity cost relationships of broad money and the P* model, which seemed to be serving the Committee fairly well including the behavior of the stock of money--we got about 5 percent M2 growth in that period. We don't have that now. The Committee lost confidence in staff estimates of the demand for money balances or the supply of things; we just didn't know what to make of that and we all fell into a pattern of thinking that we know a lot more about aggregate supply of goods and services and labor and aggregate demand for labor and output and how to influence demand for labor and output than I think we have reason to know. I don't think that we have reason to have more confidence in our ability to know what is really going on out there in terms of productivity, consumption, and investment patterns than we do about money supply and money demand. There appeared since our last meeting a very good article in Business Week magazine on this problem of the quality of the economic statistics that we use to guide ourselves. There was nothing new in that article for those of us in this business, but I think it was very helpful to have that in the public forum saying that there are a lot of very serious quality problems in those numbers. We better be careful and not rely on them too much in deciding what to do about monetary policy. We have been in a pattern since last spring where every time we come back, we need another 50 basis points to get to neutral. Now the staff is at 6-1/4 percent. I know where it is going to be in December; it will be at 6-3/4 percent and then in February at 7-1/4 percent--just extrapolating the trend. At some point we have to have a different rule that says, enough is enough and let's coast for a while. I'm not soft on inflation. I want to go to price level stability. But I also don't want to make the mistake of continuing to tighten too much, precipitating a downturn because I know what will happen. This means we will go completely the other way and set the stage for more inflation.",1198
-fomc-corpus,1994,Governor Yellen.,4
-fomc-corpus,1994,"Since our last meeting, the evidence has continued to accumulate that there is enough momentum in aggregate demand to carry the economy past potential output. We have yet to see much slowdown in the interest-sensitive sectors, and it may well be that easier lending terms have offset somewhat the impact of higher interest rates. The news on the international side of yet further upward revisions in foreign GDP growth reinforces the view that the economy will overshoot the NAIRU with potentially inflationary consequences. The recent decline in the dollar exacerbates this concern, although fortunately the dollar has risen a bit against both the mark and the yen since the Greenbook was put to bed. The amount of slack in the economy, however it is measured, clearly has diminished. I think that the performance of wages and prices accords quite well with the predictions of a Phillips curve model in which the economy is currently in the vicinity of the natural rate. So there are few surprises there. It is not surprising that we are seeing some early warning signs of rising inflation, including business reports that there will be price increases after the first of the year and anecdotes about rising wages to retain and attract qualified employees. I think the staff's inflation forecast that the CPI will rise to 3-1/2 percent in the first half of 1995 is quite reasonable based on historic experience. It is difficult, though, to construct a scenario in which inflation over the next year would rise by a lot more than the staff forecast. So, I think there is limited upside risk of an inflation rate increase over the next year or so. The key question, of course, is whether and how quickly this modest rise in core inflation may become embedded in inflationary expectations, feeding back into wage and price formation. I think there is risk here unless aggregate demand is restrained. Now, what concerns me most in connection with the Greenbook forecast is that the assumed further tightening of 150 basis points entails considerable downside risk to the economy that will be concentrated in 1996. In light of the current strength in the interest-sensitive sectors, it is tempting to conclude that the monetary tightening we have had so far isn't producing and will not produce the slowdown we desire. But the time honored view among economists is that monetary policy operates with long lags. I consider this view to be supported by considerable empirical evidence. If so, there is a real risk of a hard landing, instead of a soft landing, if we are too impatient and overract. Demand may be strong now because monetary conditions were so easy until last spring. The tightening is really quite recent and its impact most likely has not yet been fully felt. Indeed, as President Jordan noted in his comments, the November Michigan survey suggests a sharp deterioration in household appraisals of buying conditions for houses and significant declines in willingness to use credit and savings. The October survey suggested that some of the current strength in housing may stem from the belief that interest rates are on the rise, so it is better to buy now than later. This view, namely that there remains restraint in the pipeline, seems consistent to me with the Greenbook forecast because, given the lags of monetary policy, the Greenbook's projected slowdown in 1995 must primarily be related to the interest rate increases that already have occurred, along with other factors, and can't be related primarily to the assumed further tightening of 150 basis points. The staff forecast implicitly assumes that we already have enough restraint to slow growth in 1995 by enough to bring unemployment back to the natural rate by the end of 1995. In that case, the argument for an additional 150 basis points of restraint rests on the staff's assumption that without that restraint, demand would rebound strongly in 1996. Now, that view may be correct, but the logic of why there would be this strong rebound in demand in 1996 without the 150 basis points of additional restraint does not seem compelling to me. I think there is a distinct possibility that that much extra restraint would represent overkill and that the overkill would make itself felt in 1996. In addition, I would point out that the Greenbook forecast assumes that the tightening is going to have relatively little additional effect on long-term rates. While I'm not a good forecaster of movements in long-term rates, certainly that assumption has proven incorrect thus far. I conclude that the degree of tightening assumed in the Greenbook poses a serious risk of a hard landing in 1996, although in the absence of some further tightening, I think there would be an unacceptable risk that inflation would accelerate.",918
-fomc-corpus,1994,Governor Blinder.,4
-fomc-corpus,1994,"Until about three minutes ago I thought that, even though I was speaking last, I would have some things to say that had not been said before. But that is less true now than it was a few minutes ago. Let me start at the point where Janet Yellen left off. I thought it was a remarkable feature of the Greenbook projections that we could put in another 150 basis points of tightening at the short end and get almost nothing--10 basis points or something like that--at the long end. Now, that is not impossible; nobody can rule that out. But given the history of 1994, I think it takes a certain amount of guts to project that. I commend the staff for having that much guts; it is more than I have. I'm not as worried about the 35-year old bond traders that Bill is worried about as I am about the 25-year old bond traders who will be on it very quickly. Furthermore, if in fact long rates don't move at all, we won't get a lot of tightening out of this additional 150 basis points. I don't doubt that GDP, sales, etc., are growing briskly and that the level of resource utilization, including labor utilization, is pretty near and maybe right at or even a little beyond capacity. I also don't doubt that growth in the second half of 1994 now looks higher than we thought in August and certainly higher than we thought in July. So I'm persuaded that there is a strong likelihood of a small overshoot--we may indeed already have had a small overshoot--and that probably some more monetary tightening is indicated. Nevertheless, as we whip ourselves up into a frenzy here, I think we should remember a few things. The first is that the staff's 4.1 percent forecast for the current quarter is well above the consensus, as Mike mentioned. Now it is true, as Mike also mentioned, that the early indications for this quarter are quite strong, but let's also remember that, as we sit here now, we know very little about October and nothing at all about November and December. Also, there are, as Jerry Jordan and Janet Yellen mentioned, a few, small contra-indications--no indication that the economy is about to slump, absolutely not--but a few contra-indications. Much more important than the next quarter is the longer-term outlook, and that is what I really want to focus on. I am thinking about, roughly speaking, the broad picture of the economy and monetary policy over a four-year period comprised of the last two years and the next two years. As Janet mentioned a few minutes ago--and as Ed Boehne and Bob Forrestal mentioned earlier--there is a sharp tail-off in the Greenbook forecast between now and the second or third quarters of 1995. The real GDP growth numbers starting with the current quarter are: 4.1, 2.5, 1.4, and 1.0 percent. Given the lags, that does not have anything to do with any subsequent tightenings from here forward. Therefore, it can come from only three places. It could be factors having nothing to do with monetary policy, and that's possible. But I think we have all agreed that there is considerable forward momentum in this economy and, if anything is slowing it down, it is monetary policy. I think that's a very strong consensus around this table; and I share it. The second candidate is, of course, the 175 basis point increase that we have already put into the system and the huge run-up in long-term rates that has come along with that. Thirdly, something that has barely been mentioned up to now, though I guess Janet Yellen touched on it, is the wearing off of the monetary ease that the FOMC put into the system ending in September 1992. It was a very substantial dose of monetary ease. That factor is virtually ignored in all public discussions and in most of the discussions inside the FOMC to date. But everything we know about the effects of monetary policy says that monetary ease put into the system in strong doses in 1991 and 1992 should have its maximum effects on real GDP growth in 1993 and 1994--and now come the important words--and then wither away. You do not permanently raise the level of GDP by putting the economy on a monetary high. We push it up a hill and then it comes down of its own accord. I don't think there is much dispute about that. Now, there is a lot of dispute about the numbers. I had the staff run its econometric model of the economy, the MPS model, to try to quantify that. Nobody has to believe these numbers, but I don't know where else to get numbers other than trying to put this policy through an econometric model. According to our staff model, the impact of all the changes in monetary policy from mid-1990 to date, including the easings from mid-1990 to September 1992, the subsequent period when short-term interest rates were held constant, and then the tightening this year up to now should have done the following to GDP: added about .7 percentage point to the 1992 growth rate; about 1-1/4 percentage points to the 1993 growth rate; almost 1-1/2 percentage points to the 1994 growth rate; about 3/4 percentage point to the 1995 growth rate coming down the hill; and 0--coincidentally it happens to be 0--to the 1996 growth rate. What I want to focus your attention on is the estimate of the swing in the monetary impulse on the growth of demand from 1994 to 1996 of about 1-1/2 percentage points. The same model says that, if we follow the Greenbook's recommended increase in the next few months of another 150 basis points in the funds rate--and by the way, if long rates respond as they historically do and not by next to nothing--then we will chip a tiny bit off the 1995 growth rate--a very, very small amount--and about a percentage point off the 1996 growth rate. If we add those two together, we are talking about a swing from monetary policy from both the end of the expansionary stimulus and the move to contraction of about 2-1/2 percentage points, from about plus 1-1/2 percent in 1994 to about minus 1 percent in 1996. That's a big number. I think that with all the focus on the upside risks, which are certainly greater right now--I don't by any means see imminent risks that this economy is about to head downhill--we should remember that we are in this business for longer than a quarter and longer than a year. And as we go out a couple of years into the future, there is a substantial downside risk. At some point, all these higher interest rates are going to hurt autos more, I think, than is indicated in the staff forecast. They are going to hurt housing; that might be right around the corner. Who knows? I believe they are going to put a damper on business fixed investment, which is growing strongly throughout this Greenbook forecast. One last comment about stopping momentum: There is forward momentum in this economy. It is not going to be stopped by putting a rock in the road. I don't dispute that at all. I just want to close by putting some perspective on what a 325 basis point increase in fed funds within a year means--that's 175 to date and, if we do another 150 by February, that will make 325 basis points in a year. Only once since 1984 has the Federal Reserve tightened by this much within a year. That period, which has been discussed around this table a couple of times, was between March 1988 and February 1989 while the economy was in the midst of quite a large overshoot of capacity. If you look at the previous 30 years, and leave out the very exciting episodes between 1979 and 1982 when 325 basis points in the funds rate was hardly worth talking about--there were many moves of 325 basis points in that period--there are only two other episodes in the previous 30 years from 1954 to 1984. One was in 1969 and the other was in 1972-73, both with inflation rising considerably. As a result, the real federal funds rate rose considerably less than 325 basis points. But here we are talking about the vast majority of the projected 325 basis points being on the real rate. The moral of the story to me is that a 325 basis point swing, which is being contemplated here, is not trivial; it is very strong medicine. It is enough to stop an economy with considerable momentum, although there is also an amount of momentum that even 325 basis points would be insufficient to stop. It is therefore not to be prescribed lightly.",1840
-fomc-corpus,1994,"Thank you. With that, why don't we adjourn for coffee?",14
-fomc-corpus,1994,"Mr. Chairman, as I think Governor Lindsey already remarked, the decision facing the Committee at this meeting would seem to be not whether to raise interest rates but by how much.",35
-fomc-corpus,1994,"Let me tell you this. I thought that the two great remarks made previously were: One, Governor Lindsey's half bridge; and, two, Governor Kelley's teakettle. They have brought the theoretical structure of monetary policy forward immensely. [Laughter]",52
-fomc-corpus,1994,The teakettle is probably a better metaphor than the automobile metaphor we so often use--steering back and forth and tapping on the brakes. (Statement--See Appendix.),34
-fomc-corpus,1994,"Questions for Don? If not, let me get started. I must say the discussion this morning has been one of the best discussions I have heard around this table in quite a long while. I certainly don't have much to add to it. Let me just say, however, that inventories in my view are going to be the crucial area that will determine to a large extent how much momentum this economy has in it. It is not that inventories per se will engender the total gross national product, but as you recall when inventory investment is high, gross domestic product is high, disposable income is high, consumption expenditures are high, and we get a very significant multiplier from that phenomenon. We can't look at inventories independently of final sales nor the reverse because they are clearly interrelated. We don't have data much beyond August and part of September, but there is a good deal of indication that inventory investment has not slowed in any appreciable manner in the fourth quarter. I must say to you, I would not be surprised to find that fourth-quarter inventory investment turns out to be higher than it was in the third quarter. First, we have a very robust rate of increase in commercial loans. Commercial loans, with or without commercial paper and with or without the merger adjustments that we make, have been a reasonably good indicator of book value inventory changes. If one looks at those data through the last week for which information is available, there is no evidence of any slowdown. If we postulate, which I think the data will support, that inventory investment in September was significant when the industrial production index was unchanged from the August level, it seems quite noncredible that the increase in industrial production of .7 percent that we published today for the month of October did not create an acceleration in inventory investment in October. This is consistent with the data on loans and, I must say, it is consistent with the indications that vendor performance continues to deteriorate. This is important because inventory levels, as has been indicated, are still quite low by any objective measure. This is especially the case if we use what I think is more important in business-cycle forecasting analysis, namely, inventories at factory value as distinct from including the trade markups that we get in these data. Inventory factory value as a ratio to consumption, for example, is still low, and indeed it has not shown the level of uptick that we have seen in the data where there has been a disproportionate amount of retail inventory accumulation with a very large trade markup element in it. This says in effect that even though accumulation is quite large at this moment, that is, production levels are quite a bit above consumption levels, we are going to need quite a long period of that type of accumulation before the economy slides off. While it is quite plausible that inventory investment may begin to slow over the next month or two, I find that quite unlikely. It is more likely that this investment will proceed for a while with some momentum. That is one of the reasons why the notion in the Greenbook that the upside risks are larger than the downside risks in the forecast strikes me as plausible. That is not to say, however, that what we are looking at is a runaway boom. The reason is that when inventory investment builds up rapidly, even though the levels of inventories may be low, it is difficult to sustain very large inventory investments that result in significant increases in inventory/sales ratios or inventory/consumption ratios. At some point after we have gone through this inventory surge that I think may be in front of us--it may not all be behind us but it may be in the period immediately ahead--we are going to see that buildup slide off and the economy's growth slow down quite appreciably. That's what the history is. I think that the expectation that we will get very strong final demand rests in large part on how we view this pattern as unfolding. Clearly, producers' durable investment is moving strongly. As Governor Lindsey pointed out, it does depend on what the profit numbers look like. To date, there is no evidence that profits are deteriorating. Indeed, we are still in a mode where Wall Street analysts are underpredicting the profits that are coming out. So, while I do think we are likely to get some slide in profit margins, right now those margins show no signs of declining. History tells us that when we are in this type of inventory environment with profit margins still strong, the decline--I might even say the slowing--is still an appreciable way off. That is, we are still an appreciable distance away from any actual decline in the economy short of one induced by a financial problem, in other words short of a crack in the financial system which I'll get to shortly. History tells us that the economy just continues to move until it wears itself out. As a consequence, the general discussion around here, which is somewhat skeptical of the economy's slowing down very dramatically, strikes a familiar chord with me. I'm not sure, however, that I would dismiss the comments made by Governors Yellen and Blinder with respect to the pattern of monetary impetus because there is no doubt that that is a very relevant consideration. You can very readily, as President Jordan points out, get yourself into a notion where all you have to do is keep jacking rates up and finally you get it right. The trouble is that the process of getting it right historically has led finally to our knocking the economy off its perch. I don't think that policymaking right now is very difficult. I think it is going to become exceptionally difficult when the expansion starts to slow, unit costs no longer get distributed over rapidly rising output, and price pressures begin to emerge as Governor Kelley's teakettle starts to whistle. We will be looking at a situation in which the growth rate of the economy is slowing down, while inflation is picking up. This is in the context, as President Forrestal raised it, of a cyclical rise at the end of a cycle, which is really the quite relevant consideration. We are going to be in a position where we are going to see the economy slowing and the actual inflation data picking up. And we are going to have to be able at that point to recognize that that's the tail end and continuing to ratchet rates up would be a mistake. But we are nowhere near that point as far as I can see at this particular stage. I think that we are behind the curve, and that it would be plausible, as I infer from what is going on around here, to move rates up more than 50 basis points because markets have built in something close to 60. I think that creating a mild surprise would be of significant value; creating a very strong surprise on the up side would be more risky because the stock market, in my judgment, is still a little rich although off its price/earnings ratios of a while back. I would not want to argue that we couldn't break it down very easily. However, what bothers me about doing only 50 basis points is that even though the markets are saying that that is what we probably are going to do, I think we have to distinguish between what they are forecasting we are going to do based on our past behavior and what they think we ought to do. I suspect that while the majority think we are going to do 50, the vast majority will think that that is not enough and they will immediately price an additional 50 or more basis points in the December forward contracts. In my judgment, we would be risking--a low probability risk but a potentially very large outcome if it were to happen--a run on the dollar, a run on the bond market, and a significant decline in stock prices. This would be on top of a $750 billion paper loss as a consequence of the declines in bond and stock prices earlier this year. We would find out what a wealth effect can do to economic activity in a way that would make us really quite uncomfortable. So, I think that we have to be very careful at this stage and be certain that we are ahead of general expectations. I think we can do that with 75 basis points. I don't know what that will imply about what we do in December. I think it puts December somewhere between no change and 50 basis points. I'm not sure I can say at this moment that I fully buy into the Greenbook's projection of where the funds rate should be. That will depend on how the markets behave. I would argue that at this point we should give serious thought to 75 basis points. If we do that, I think we can go to a symmetric directive. If we choose to do 50, I would argue that we should at least retain an asymmetric directive, but I must tell you that 50 makes me a little nervous. No, I take that back: it makes me very nervous and I would be disinclined to go in that direction.",1797
-fomc-corpus,1994,"Mr. Chairman, you haven't mentioned the discount rate.",11
-fomc-corpus,1994,"As I judge the Board's general view, a recommendation to increase the discount rate by 75 basis points would be approved. Implicit in that would be a recommendation that the full 75 basis points gets passed into the funds rate. The Board will be discussing the discount rate after this meeting. President McTeer.",64
-fomc-corpus,1994,"Mr. Chairman, in my opinion strong action is warranted today, but I don't think we should prejudge future actions. I, for one, particularly don't want to commit today to a series of increases that add up to 150 basis points and that will result in a hard landing as depicted in the Greenbook. So, I would support your recommendation for 75 basis points. I also believe that part of the justification for such an increase has to do with the weakness of the dollar in the foreign exchange markets, and I think it would be helpful if that is cited as one of the reasons for the action today. As we go forward from today, I would bear some cautions in mind. One is that we shouldn't forget the lag. When we started tightening in February we were doing it for anticipated inflation reasons, not for current reasons and that still applies today. We can't fight today's inflation with today's policy. Another point to keep in mind is that policy already has tightened considerably more than the 1-3/4 point increase in the fed funds rate, both in terms of long-term interest rates and particularly in terms of the sharp slowdown in all the monetary aggregates so far this year; even the aggregates adjusted for stock fund increases have slowed considerably. I just think we should keep that in mind.",261
-fomc-corpus,1994,Governor Lindsey.,3
-fomc-corpus,1994,"Mr. Chairman, I agree with your analysis and your recommendation. I also agree with the points that Governors Yellen and Blinder made earlier. I hope that we won't go 150 basis points, because I think your analysis was on the money. The question I have to ask myself is how best to avoid that. I think the best way is by going 75 today. Frankly, I think if we go 50 today, we are going to be locked into doing 50 in December. I agree we can't prejudge the next meeting, but I support 75 today in the hope--and I must say the expectation--that December will be 0.",135
-fomc-corpus,1994,President Minehan.,4
-fomc-corpus,1994,"I'm in full agreement with your recommendation, Mr. Chairman. My comments earlier were fairly strong and I'd like to put them in context. First, I agree with the comments that both Governors Yellen and Blinder made that monetary policy lags being what they are, we won't see the full effects of what we have done already and certainly what we may do today until 1995 and early 1996. However, I do believe that the labor markets and other data we have gotten today continue to indicate that we have overshot. I fear, along with Governor Lindsey, that if we move too slowly, underlying growth rates, which we have consistently underestimated all year, will cause significant overshooting. In that case, we might find it necessary to pull even harder on the monetary reins, perhaps in the aggregate moving the full 150 basis points or more, and create a real hard landing. Thus, I believe we should move now, move more strongly than the 50 basis points everyone expects, go to the 75 you have recommended, and I wouldn't care to predict anything about December. I'm hopeful that we will be able to rein in the strong economy and achieve a better and softer landing.",240
-fomc-corpus,1994,President Parry.,4
-fomc-corpus,1994,"Mr. Chairman, since our last meeting, the economy certainly has shown considerable momentum and labor and product markets now appear to be extremely tight. I feel that if we don't act strongly, it seems likely that the economy will substantially overshoot its potential and that inflation will take on a rising trend. It seems clear that interest rates need to be raised considerably above current levels, and therefore I support your recommendation of a 75 basis point increase in the federal funds rate. Moreover, I would not be surprised if a further tightening in policy is necessary in December. Therefore, my preference would be for asymmetric language toward tightening in the directive. I would not want the press release to imply that there would be a pause in further action. While I am at it, since I am making suggestions, I would find any mention of the dollar as a rationale for the change a mistake.",174
-fomc-corpus,1994,I must say I personally agree with both of those recommendations. President Forrestal.,16
-fomc-corpus,1994,"I came into the meeting, Mr. Chairman, with a slight preference for a 50 basis point rise, but having heard the discussion around the table and your analysis, I am strongly in support of the 75 basis points. As I said earlier, I think that the 150 basis point increase suggested in the Greenbook is too much. I hope we can keep an open mind on that issue.",81
-fomc-corpus,1994,President Hoenig.,4
-fomc-corpus,1994,"Mr. Chairman, I agree with your recommendation completely. I am convinced that the sooner we move on this, the less we will have to move later. I am not at all inclined to say that we have to look to a 150 basis point increase at any time. Right now the 75 is before us; I think that it is a wise move. I also think we should make as little comment about this as possible, in line with what Bob Parry is saying in terms of the dollar or whether we should pause. I think it would handicap us needlessly.",116
-fomc-corpus,1994,I think that the preliminary view would be a statement that is pretty bland and promises nothing and doesn't mention the dollar. President Broaddus.,28
-fomc-corpus,1994,"I support your recommendation, Mr. Chairman, and I would associate myself with both of Bob Parry's recommendations and yours.",25
-fomc-corpus,1994,Governor LaWare.,4
-fomc-corpus,1994,I support your recommendation.,5
-fomc-corpus,1994,President Melzer.,4
-fomc-corpus,1994,"I support your recommendation also, Alan, based on what I have heard about emerging inflationary pressures and also the importance of credibility and the fact that if we have credibility, it will reduce the long-term cost of keeping inflation and inflation expectations under control. Just a couple of comments on things that came up after my earlier comments. One is on the slow money growth. That's something that would ordinarily trouble me. I think I mentioned last time or the meeting before that in view of the very large monetary stimulus from 1991 through 1993, I am not as concerned as I would otherwise be. It is very difficult to evaluate when the effects of that stimulus will all be played out. I applaud Alan Blinder for trying to put numbers on it. I think we all know that if it were that easy to put numbers on the effects of monetary policy actions, we probably could be much more precise in setting policy. But it still is helpful in a directional sense to try to understand those things. With respect to stop/go monetary policies and the risk of putting things over the edge here, unfortunately we don't have, in my view, a lot of inflation credibility. The time to correct this stop/go phenomenon and try to look through current developments is when we are in a ""go"" phase. In other words, I think it is much easier to correct by not driving the funds rate too low or stimulating the aggregates too much when trying to foster a recovery. If we try to fix it at this stage, because of presumptions about an inflationary bias of Fed actions, it really becomes very difficult to do that and maintain credibility. I agree with what you said before. At some point, we are going to reach a very difficult juncture, and we will have to make some tough judgments. But I think we are far from that point right now.",372
-fomc-corpus,1994,President Boehne.,5
-fomc-corpus,1994,"Earlier in the year when we knew that we had to begin to tighten, I think there was a case on real sector grounds that we probably should have moved by more than we did. I think you argued rather persuasively, Mr. Chairman, that we had a bubble in financial markets and that we had to deflate that rather slowly. Otherwise we could take a big hit. In hindsight, I think that was wise. We may have a similar bubble now in the nonfinancial sector of the economy. Sentiment and the outlook for the economy have improved. Inventories, as you have noted, are a positive influence on the economy. However, while we talked a lot today about financial markets and the foreign exchange markets, we talked very little about sentiment in the nonfinancial part of the economy. We run a risk with the 75 basis points of making a pretty big hole in that nonfinancial bubble out there. It is going to hit those in the nonfinancial part of the economy with a big bang; they are going to be quite surprised; they are going to think that either we know something that they don't know or that this move is going to bring about a significantly slower 1995. My own preference would be to go 1/2. If we had to go another 1/2 in December, I would go another 1/2. But just as we had to be careful about deflating the financial bubble earlier in the year, we have to be careful about deflating the nonfinancial bubble at this point.",313
-fomc-corpus,1994,Governor Phillips.,3
-fomc-corpus,1994,"I don't know whether or not 150 basis points is ultimately needed. It seems to me that that is fairly large, particularly in view of the monetary aggregates. I wouldn't want to prejudge. I do support 75 basis points, symmetric. It strikes me that 50 is not enough. I think the markets would be immediately looking for the next move, and we would be in that treadmill situation. A move of 100 basis points would be too much of a jolt. I do think we have to be alert to the question that has been raised about how much tightening is left in the pipeline and alert to the potential effects of the tightening in the pipeline. But we also have to be alert to the possibility that if momentum is greater than we thought, that pipeline may be getting flooded out.",161
-fomc-corpus,1994,Monetary policy insights by analogy are getting to be legend!,13
-fomc-corpus,1994,"I resisted analogies in my original comments, but I couldn't this time around!",16
-fomc-corpus,1994,Vice Chairman.,3
-fomc-corpus,1994,"Mr. Chairman, I support your recommendation with considerable enthusiasm. The New York Bank has had a recommendation in since November 3 for a 75 basis point increase in the discount rate. I am very pleased with that piece of it. I think 50 would be too little and 100, for the reasons that Ed Boehne suggested, would be dangerous on the high side. I believe that the symmetry is as important a part of your recommendation as the number. Janet Yellen's eloquent explanation put into economics what had been in the lining of my stomach and therefore was very helpful. But I do think deciding what we do in December at that time rather than prejudging it in any way now is very appropriate.",145
-fomc-corpus,1994,President Jordan.,3
-fomc-corpus,1994,"I can support 75 and symmetry at this meeting. Regarding outside expectations of what we are going to be doing, though, it looks to me like we are in a trap. Former Governor Angell was in Cleveland a couple of weeks ago giving a speech, and he said we will be at 7.75 percent on the funds rate a year from now. We have this world of traders and Fed watchers, whether they are 25 or 35, that seem to be persuaded like many people that growth reduces the purchasing power of money. As long as that is the perception, any output growth above around 2-1/2 percent or unemployment rate below something like the NAIRU is going to have these people calling for another 50, another 100, basis point increase. At some point we have to ignore them.",168
-fomc-corpus,1994,"As I interpret them, I think the comments around this table support that. Governor Kelley.",18
-fomc-corpus,1994,"Mr. Chairman, I have had in mind an intermediate target, if not a final target, of about 100 basis points. The question was when and how to get there. I have been holding out hope that perhaps we would not have to go too much further than that. My preference would have been to do this in stately 50 basis point steps. I think that's the more elegant way to proceed. But I am afraid that that has been taken off the table. Your analysis for the 75 is persuasive, and I would no longer be that comfortable with 50. I also would favor symmetry.",123
-fomc-corpus,1994,Governor Yellen.,4
-fomc-corpus,1994,"As I mentioned, it seems clear to me that some tightening of policy is needed to prevent inflation from accelerating, but I have strong doubts about the need for an additional 150 basis points. My guess is that it will take 75 to get the job done, and I can live with 75 basis points today. But on balance, I guess I would agree with Ed Boehne, and I would favor 50 today. I share his concerns. As Don mentioned, it worries me that in the absence of an announcement of the type we issued in August, 75 can backfire. Instead of simply flattening the yield curve and our seeing very little effect on long-term rates, a rise of this magnitude may raise market expectations both about the risks of inflation--because we are so concerned about it--and market expectations about the ultimate expected tightening that we intend here. I am concerned about the possibility that bond yields could rise more than the Greenbook forecast, which could provoke a stock market reaction. My own preference would be for 50 today, but I can live with 75 as well.",222
-fomc-corpus,1994,President Stern.,3
-fomc-corpus,1994,"I also support your recommendation for 75 basis points on tactical grounds because it seems to me that the markets have been discomfited by our failure to respond recently. I don't think that that has done our credibility any good. I would reiterate, though, a couple of the dangers that other people have mentioned. At some point, there is a danger of overkill. I don't know whether 150 basis points in total is going to turn out to be too much or too little. On fundamentals, I think there might be something to be said for buying a little time to see when the presumably lagged effects of previous tightenings start to bite, or if they do. But because of the state of the markets and market expectations, my view is, as I stated, that 75 is fine for now.",165
-fomc-corpus,1994,President Moskow.,4
-fomc-corpus,1994,"Mr. Chairman, I support the recommendation. Quite frankly, I came into the meeting thinking that a series of 50 basis point increases would be preferable for the reasons that Mike Kelley enunciated. I also felt that, coming from a business background, it is preferable for people in business to see us moving in a progression that gives a certain logic to the direction we are moving. I think this facilitates longer-term planning in business and makes it easier to operate in that type of environment. But I was persuaded by the discussion here today. I thought that Governor Blinder's and Governor Yellen's comments and their cautions were very helpful, and I think we should keep these in mind in the future. I do think that the mild surprise that was mentioned, at least in terms of the financial markets, will be useful now in sending a positive signal.",172
-fomc-corpus,1994,Governor Blinder.,4
-fomc-corpus,1994,"I think all of us have experienced the following: You go into a hotel room and the room is too cold. You turn the thermostat up a notch. You go in the shower. When you come out, it is still a little too cold. You turn the thermostat up another notch. You then go to sleep, but wake up at 2:30 in the morning in a sweat in your bed. The classic mistake of monetary policy--and I am not talking only about the United States and I am not even talking only about the postwar period--is overdoing it. Overdoing it in either direction. The classic reason for this error, though not the only reason, is impatience in waiting for the lagged effects of what already has been done. It is very, very frustrating to wait just as it is difficult to keep our fingers off that thermostat when we are still cold. Furthermore, one thing we know about the hazards of fine-tuning is that we really can't do fine-tuning. That means that when we are close to target we should be very wary of oversteering. I think that with 3 percent inflation and the economy right about at capacity we are in an awfully good position, and so we should be extremely wary about oversteering. I fear that doing 75 today rather than 50 may send us down an oversteering path. I want to be clear--it is not that I think a total of 75 more is going to clobber the economy into the ground. But it provides the setting and the jumping off point for where we go from here. On strict macroeconomics grounds, a difference of 25 basis points today--between doing 50 and 75--is no big deal. You can barely detect it. The issue to me is the signal we send--the signal we send to the markets, the signal we send to people running businesses, who are thinking about their sales and therefore their inventories for the near-term future, and the signal we send to consumers about their expected near-term incomes. And this, as you know Mr. Chairman, is where I differ from your assessment. I think the signal we send out by doing 75 today, although I can see that we are going to do 75 today, is that the Federal Reserve is more scared about inflation than the people out there thought we were yesterday, and that the Federal Reserve signs on to the Wall Street indictment that we are behind the curve. That will be correct because the FOMC does sign on to that view. Thirdly, we will signal that there is much more to come. I do not believe the market expectation after tomorrow will be only 75 more. I don't believe that for a minute. I believe Wayne Angell's 7.75 percent federal funds rate will be raised, not lowered, as a result of what we do today. Finally, I think it sends a signal that I find very unfortunate: that we can be led around by the markets. I don't want to send any of those signals. I'd rather follow the Kelley strategy. A confident, patient--stately did you say, Mike?",640
-fomc-corpus,1994,Elegant.,2
-fomc-corpus,1994,"Elegant, that is, moving with thought and planning in increments of, say, 50 as necessary and as a central bank that is not behind the curve, that is not panicked by an inflation which is likely to tick up 1/4 point or 1/2 point or something like that, but as a central bank that is willing to prescribe moderately strong doses at intervals if the need is there. I think Don described it in his opening statement as taking a reasonably routine step and then waiting to see what happens. I am worried for a number of reasons, as Ed Boehne is, about the signal that 75 sends. Don mentioned--I just want to underscore this--that the Greenspan Fed has never once moved the fed funds rate by 75 basis points in either direction. Not once. When this Fed has erred, it has been on the side of caution. When I was on the outside as a citizen, I always thought that was good idea. I would rather see my Federal Reserve err on the cautious side in either direction, and now that I am on the inside, I still think the same. This Federal Reserve, under our current Chairman's leadership, has only once changed the discount rate by an amount greater than 50 basis points. This will be the first 75. The 75 now will make it--",274
-fomc-corpus,1994,More than 50 basis points in the funds rate?,11
-fomc-corpus,1994,"No, the discount rate. There was a 100 basis point change in the discount rate.",19
-fomc-corpus,1994,"I am sorry, that's right.",7
-fomc-corpus,1994,"A 75 basis point increase now will add up to 175 basis points within a 6-month period, if you go back and add the other 50s. Since 1984, tightening has proceeded that quickly only once--in the period that I mentioned earlier between March 1988 and February 1989. There are several 6-month periods you can find within that period to get that pace of tightening. Fourthly, I think this will be like feeding red meat to the bond market lions. They will chew it up and they will ask for more. A Federal Reserve that did 25, 25, 25, 50, 50, 75 does not look to an outside observer like it is about to stop. I think we will create what are already strong expectations that we are not about to stop. We will create, rather than diminish, expectations of more near-term tightening to come--with the potential that has for markets, especially the stock market. That's at the top of my worries about the surprise that will be created. My personal preference is strongly for 50, for reasons similar to those Ed Boehne mentioned. The difference, of course, is that I have to vote. I thought hard about whether I should dissent on this matter, and I did not decide until last night. I finally decided that I won't, but I want to say why because it leads to a conclusion. I won't dissent because, as I said, the macroeconomic difference of doing another 25 basis points today is really quite small. Secondly, nobody really knows about market psychology. I don't pretend that I know. I said what I believe will happen--that this will be received adversely--but I certainly could be wrong. Finally, I think it is better to show a united Federal Reserve against the criticism that we are surely going to get for this move. But I just want to say right now that unless we receive some really surprising news between now and December 20th, I am not going to be prepared to go further on December 20th.",419
-fomc-corpus,1994,"Okay, I propose that we move 75 with symmetric language.",13
-fomc-corpus,1994,We may need a need a new word to describe 75 basis points in the opening sentence of the operational paragraph.,23
-fomc-corpus,1994,"""A lot""! [Laughter]",7
-fomc-corpus,1994,"""Substantially""?",5
-fomc-corpus,1994,"I think it could be ""increase significantly."" The announcement will make it very clear what the Committee has in mind.",23
-fomc-corpus,1994,"Yes, ""increase significantly"" instead of ""increase somewhat,"" which seems clearly inappropriate.",17
-fomc-corpus,1994,"Just say ""increase?""",5
-fomc-corpus,1994,"""Significantly.""",5
-fomc-corpus,1994,"The proposed directive language is as follows: ""In the implementation of policy for the immediate future, the Committee seeks to increase significantly the existing degree of pressure on reserve positions, taking account of a possible increase in the discount rate. In the context of the Committee's long-run objectives for price stability and sustainable economic growth, and giving careful consideration to economic, financial, and monetary developments, somewhat greater reserve restraint or somewhat lesser reserve restraint would be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with modest growth in M2 and M3 over coming months.""",116
-fomc-corpus,1994,Call the roll.,4
-fomc-corpus,1994,Chairman Greenspan Yes Vice Chairman McDonough Yes Governor Blinder Yes President Broaddus Yes President Forrestal Yes President Jordan Yes Governor Kelley Yes Governor LaWare Yes Governor Lindsey Yes President Parry Yes Governor Phillips Yes Governor Yellen Yes,48
-fomc-corpus,1994,"I'd like to adjourn this meeting for just 5 minutes so the Board of Governors can go next door and take up the discount rate question. Then we can come back and Peter will have the floor to answer questions after I make some brief comments. [Recess] Secretary's note: The Bank presidents were informed that the Board members at their meeting in the Chairman's office had approved an increase of 75 basis points in the discount rate, effective immediately for those Reserve Banks with pending increases of that amount.",102
-fomc-corpus,1994,"I want to raise a couple of issues following up on what Peter Fisher said earlier and just open up the discussion to general comments. First of all, I understand that there were some questions about statements coming out of Madrid to the effect that the central banks would be playing an enhanced role in the G-7 process. What that basically comes down to is nothing more than the central bank deputies being involved with the finance ministry deputies in formulating the agenda for the meetings, and that actually is pretty much what was being done in any event. We central bankers have not in any way materially increased our interface with the G-7. Indeed, as best I can judge, and I may have indicated this before, there seems to be more concurrence in those discussions among the governors on the one hand and the finance ministers on the other rather than there being country positions. So long as that continues, I think that the central banks will have a very effective and important role in the G-7 process. Should it turn out at some point that we get involved in the politics of the finance ministers, then I think we had better give this very significant second thought. There is no evidence of that and certainly nothing of that sort was indicated or implied in the notion of increased central bank activities with the G-7. So, nothing has changed in any material way. On the issue of intervention, we had some fairly interesting discussions earlier and I would like to lay some thoughts on the table that have certain implications for the future. I might add that, interestingly, my view about the way intervention works is something that Hans Tietmeyer and I happen to agree on. I am not necessarily speaking for the Bundesbank, but I am pretty sure that they would not be in severe disagreement on this issue. First of all, I think there is a view in the financial marketplace that intervention is far more effective than it actually can be. The analogy I like to use is that irrespective of what people in the markets believe, we can set the federal funds rate wherever we wish to place it, and market trading, market activities of all sorts have no effect. There are people in the foreign exchange markets who believe that we as central bankers have the capability of doing the same thing to the exchange rate. A number of French financial officials clearly do believe that. A lot of commentators on the periphery believe that we central banks can fix rates where we choose. The truth of the matter that I think all of us have acutely recognized is that that ""ain't the case."" As a consequence, if we were to announce what we are going to do with exchange rates in the way that we announce what we will do in the federal funds market, inevitably the financial community would be disappointed. The reason I say that is their belief that we can do more than we can; and when we do only what we can, they will necessarily be disappointed. We have all concluded that the only way we can have an effect in the exchange markets on a short-term basis--because nobody believes that sterilized intervention can have any long-term effect--is to catch the markets by surprise. If in effect we catch them in a short position, it is very obvious that we can create a run-up in the exchange rate and indeed that has occurred on many occasions. There have been numerous occasions when we failed, when for one reason or another we either misjudged that the market didn't expect us to act or we felt that we had to act even though the market knew we were going to act in order to ""show the flag"" as the Treasury likes to say on occasion. I think the important point, however, is that we succeed some of the time because, if we create a presumption that we might intervene, we establish an atmosphere on the part of a lot of traders, who wish to take short overnight positions against the dollar, that they should be a little cautious. Indeed, it does seem to be the case that when we have, in a sense, a dull but nonetheless a Damocles Sword hanging over the markets, that often will deter individuals from raiding our currency. While I think we all to a greater or lesser extent believe in efficient markets, the truth of the matter is that sometimes they are not. There are periods when we get a confluence of forces driving down the exchange rate. Such a development may at times lead to market conditions that cannot readily be viewed as involving the functioning of truly efficient markets. When we were negotiating with Treasury officials, who were concerned about the exchange rate weakness that Peter was discussing, their initial choice was to do a full blown, multiday intervention, multilaterally. We argued that we started off with one-day shots unilaterally, then one-day shots multilaterally, and now they were proposing multiday shots, multilaterally, and one had to ask where we would go from there. The argument that we put on the table was to mix it up because if the argument is that we cannot effectively do anything unless there is a surprise, we have to create some surprises. So, what we agreed to in this instance was that we would intervene unilaterally but would do so two days in a row. As Peter points out, there were some positive effects there. I don't know whether we stemmed the dollar's decline effectively, but clearly one has to chalk up certainly the first day as a success. The second day was actually, somewhat to my surprise, a mild success. Let me just say that as best I can judge, and obviously I can't read peoples' minds, I don't think that the issue was the upcoming election at that point. It is possible; I obviously can't argue against that, but Larry Summers' recommendations were wholly consistent with his previous positions. In my judgment they had no bearing on whether or not there was an election coming up. That issue did come up in the news media, and I must say that I find no evidence or basis to support the media speculation. Larry Summers, and it is possible the Secretary at this stage, is still concerned about the dollar and thinks that we should be doing something more. I believe they would like to see how the outcome of this meeting gets reflected in the market, but they still would like at least to discuss the issue of doing a multilateral, multiday type of intervention. We said we would be glad to discuss that with them. We have made no specific commitments, but I think it is important for the Committee to know that that issue is on the table and it will be discussed. It is important to know what the Committee, which authorizes the actions on the part of the Fed in this regard, has to say on this question before we go into discussions with the Treasury. But before we go to anything else, I do think we owe Peter a chance to answer some questions after which we are going to have to take several votes for the record. Now, let me open the floor to questions to Peter. [Pause] I do not believe that silence!",1422
-fomc-corpus,1994,I have a question.,5
-fomc-corpus,1994,Why didn't you ask him before!,7
-fomc-corpus,1994,Was the second-day success the result of the sheer brilliance of the operation? Just say yes. [Laughter],23
-fomc-corpus,1994,This is kind of the reverse of a beating-your-wife question!,13
-fomc-corpus,1994,"Just say ""yes;"" that's enough!",8
-fomc-corpus,1994,"Yes! I'll mention one thing, Mr. Chairman, that relates to the commentary earlier by Governor Lindsey. Maybe this will inspire questions from those who are reluctant to dig in. I recognize in your comment the idea that intervention takes place and it seems to box in the Committee; the bridge had better go somewhere. I think both in the way you pose that and in other remarks at previous meetings, one has to say ""compared to what?"" We don't always have the counter-factual of what would have happened had we not intervened. I think the hypothesis I worked with and why I thought it was a good idea to intervene was the risk of an extreme event--that in early November the dollar could have dropped another 3 percent rather quickly. The range could have dropped to the mid-140s on the mark and to 94 to 96 dollar/yen. The market would have interpreted that move as entirely related to the inaction of the Fed. I think the Committee could then have found itself at this meeting in a very different kind of box, one that you would have liked a lot less. It would be a box that is much harder to get out of, one that was similar to the box in which the Committee found itself in July where to do anything plausible or reasonable on interest rates would have looked very bad from an exchange market point of view because it was not going to be adequate. That is, the reasonable change in fed funds for domestic policy purposes would look like a sop to the exchange market. That is not a counter-factual thing one can put one's hands around, but one has to think of what the counter-factual is to devise recommendations --whether the risks are leading one to think it is a good idea to intervene versus not.",355
-fomc-corpus,1994,"There are two counter-factuals: One would be not intervening and having something happen at this meeting; the other would be intervening coupled with a monetary policy change at the time. That's one you did not mention; that's in fact the one I recommended. Had we done that, I think we would have been in a much better position; we would have been at 50 instead of 75. I think we would have signaled a policy change that is at least intellectually consistent with what we all believe.",104
-fomc-corpus,1994,"As I have done in the past, let me argue against the use of monetary policy to achieve exchange market objectives. I am not necessarily referring to this particular instance, but this is something I think we have to be aware of. Often when we have a weak currency, we are looking at significant portfolio adjustments. Often we are looking at correct or incorrect views of differential rates of return between two currencies, not only in interest rates but also real estate, the stock market, all of those things. What history seems to tell us, especially if we look at something that may be an extreme example here--the breakdown of the EMS--is that the types of expected differential rates of return are something like maybe 10 basis points a week. That's 500 basis points or more at an annual rate. I am concerned that if we run into one of those situations and we hit it with 50 basis points and it turns out that we needed 300 basis points, the central bank is caught in the dilemma of whether or not to keep moving the rate. I must say that it is tough to envisage our doing that because then we would basically subvert domestic policy to the exchange rate, which I think none of us, yourself included, wants to get involved with. I am not saying that if we had done 50 basis points, that that might not have an effect if in fact the expected differential rate of return between, say, the deutschemark and the dollar was only a few basis points. Yes, it would have worked, but I'd be terribly worried since we have almost no way of making that judgment. We have to worry basically about getting ourselves into that process and finding it very difficult to extricate ourselves once we are there. So it is a high risk operation.",355
-fomc-corpus,1994,"There is no question that we have no way of making that judgment; that's what markets are for. That's why I think it is inappropriate for us to take on the job of guessing at some point that the market is oversold and now is the time to plunge in. The Sword of Damocles would hang. I agree that markets are not always rational. When those players who behave irrationally are punished by losing money, the people who hold the Damocles Sword and wield it effectively are rewarded by making money. That's how those markets work. We are putting ourselves in that position. So my first choice would be for us not to intervene. But I think we have to think about this from a public choice perspective. Right now, it is absolutely costless for the Treasury to decide to play with what former Vice Chairman Mullins used to call that ""little toy in the closet."" We all wrote papers saying we should never use it, but when we get in the position of having it, we just can't stop ourselves from using it. If we are going to intervene, I think that we gain two advantages by having our general posture be that the intervention be coupled with a monetary policy change: One, it is at least intellectually consistent; the intervention may work, but then again it may not work. But secondly, it creates a price for the Treasury.",273
-fomc-corpus,1994,"Let me just say that I don't deny that there should be a relationship. It is just that if it is tying monetary policy directly to the exchange rate, it locks us in. To have it in parallel paths or somehow related, I think the answer is obviously yes.",54
-fomc-corpus,1994,"Let's not admit it to the world. But when the phone rings in your office, if you have behind you the view of this Committee that a monetary policy change will ultimately accompany an intervention, you will have a weapon supporting you in the view that I think you really hold, and that is that intervention should be used rarely if at all.",68
-fomc-corpus,1994,We don't have to exercise it.,7
-fomc-corpus,1994,"We don't, but I think we should have that as the Chairman's weapon.",16
-fomc-corpus,1994,"Other comments, questions?",5
-fomc-corpus,1994,Are we saying that dollar/yen is an interest rate phenomenon?,13
-fomc-corpus,1994,"Differential rates of return. In other words, if most of the exchange rate moves these days against the dollar are the result of portfolio shifts rather than, say, current account deficits or flows, then the question is why do people change portfolios? And the answer is that the risk-adjusted rate of return is perceived to be better in one currency versus another.",72
-fomc-corpus,1994,"There may be times when what you want to do for monetary policy purposes is consistent with what the Treasury wants to do to affect the exchange rate. I have difficulty relating that to what Governor Lindsey said. It sounds like he wanted a tool for all time for you to put in the closet, and I don't understand that. This Committee will have a view about what is appropriate monetary policy. It may be that today it would be consistent with what the Treasury may want to do, and that's good for today.",101
-fomc-corpus,1994,"In point of fact, we had a view; we stated it in our asymmetric directive. It was quite clear what this Committee wanted to do. It was quite clear that that was consistent with an appropriate action if an intervention occurred. And I will stipulate that the Committee's view may vary from time to time.",63
-fomc-corpus,1994,Right.,2
-fomc-corpus,1994,"My precise recommendation at the last meeting was that because foreign exchange markets were likely to be unstable, that we go asymmetric and have a 50 basis point move as our explicit price for intervention. I think that was quite appropriate. I think that that would be the right kind of message for us to send in the current environment if a multilateral move or any kind of intervention were to come up in the intermeeting period.",84
-fomc-corpus,1994,"So the trip factor would be a request for intervention. When we have asymmetry, what we are assuming is that we or the Chairman will be looking at a set of data that will lead him perhaps to request a rate increase. Are you saying that there is one development we are going to focus on and that is a request from the Treasury to intervene?",71
-fomc-corpus,1994,"There may be other reasons to adjust monetary policy, but it should be clear that there is a price associated with intervention. There is a monetary policy change that accompanies our intervention.",35
-fomc-corpus,1994,"I wonder if I could put another alternative on the table--that we not intervene at all. I realize that there are many people on the Committee who would disagree with that because they think that, at least in a limited way, intervention may be useful from time to time, and I certainly respect those views. But I have to tell you that I personally have very serious reservations about the wisdom of our continuing to intervene. Whether we renew the swap lines is relevant to this discussion, because in many ways the swap lines facilitate these operations and make them more convenient. I'll be brief here, but if I could just go through the way I see this at the risk of some repetition. As you said, Mr. Chairman, it is now widely agreed that sterilized intervention doesn't have any sustained impact on exchange rates unless it sends a signal that we are going to follow it up with a monetary policy action. This implies, for me at least, and this is really the heart of the matter, that it is not really possible for the Fed to maintain a truly independent monetary policy for an extended period of time while following the Treasury's lead on foreign exchange policy. Now, of course, in reality the way I see this is that we have maintained our independence by not making a commitment to follow interventions with monetary policy actions. But that's not a perfect situation either. I think it is a problem because of the possibility that these operations will not be successful. Of course, back in June we had an operation I think most people would agree was not successful. That really bothers me from the standpoint of credibility because when we participate in an operation like this and it is not successful, we get associated with that result. Specifically, we lose credibility. It is adverse for us from the standpoint of public perceptions about the central bank and what we can do. I think that can reduce our effectiveness over time in conducting monetary policy generally. It is an important issue; it is a broad issue. Again, I would respectfully submit that we ought to consider withdrawing from these kinds of operations, maybe not immediately but gradually in some way. This is a side point: If we did that, we would not need swap arrangements. Frankly, I would oppose renewing the swap arrangements this morning. Let me say that I am not opposed to or saying that the U.S. Government should never intervene in foreign exchange markets. I am simply saying that I don't think we should participate except perhaps as the Treasury's agent.",496
-fomc-corpus,1994,"You are raising an interesting question. The dilemma we have is that if we withdraw and act strictly as an agent, we then lose any voice in altering or casting the structure of the policy that they would like to implement. The points you are making, Al, are quite to the point; I don't disagree with that. The question that we have to trade off here is, do we wish to remove ourselves from any influence on how these things are done? In my experience, because we are involved in the discussions, we have headed off a lot of actions that I think would have been detrimental, more so than what we have done. There is unquestionably the problem that we are not the final voice on that; legally they are. Nonetheless, we do have a de facto veto if we wish to use it, and the reason we do is because we participate in those discussions. We have to choose whether we want to lose what is in my judgment a very valuable asset in tempering what the Treasury Department does. It is not a simple tradeoff. If you are asking me, do I disagree with the way you have put it? I personally don't. I think that the question really gets down to, are we as a nation better off with our participating in these deliberations, granted at some cost to the Federal Reserve? I have argued that, yes, looking at it from the national point of view as distinct from the Federal Reserve itself, I think we are better off. That's the way I come out, and it is one of the reasons I have supported this type of operation.",318
-fomc-corpus,1994,"Well, again, I just worry about the credibility effect. I think there is a negative there and I guess I see the tradeoff differently. Obviously, I have no personal experience in this and I respect your views. But is it the case that we would have no influence whatever in these discussions if we were not participating directly?",66
-fomc-corpus,1994,"Yes, ultimately, I would say, if we decided to bow out. In other words, you can't be half in or out. Either we are acting as an order taker, which is strictly as the agent of the Treasury, or we get involved in the discussion. We either have to cut our participation completely and have Peter act as an order taker with no conversation except what he might say as a broker--don't do it now; the market is closed. [Laughter]",98
-fomc-corpus,1994,"If the System is not participating in these operations, that's going to have some effect in itself on the way the Treasury views the operations--",27
-fomc-corpus,1994,"I think that is the point, President Broaddus. Ultimately, we can and have declined to participate. There have been occasions--I am referring to a long period of time--when we have declined to participate. The suggestion that we are not going to participate can be a significant brake on the enthusiasm of the Treasury--of all the Treasuries that I have had anything to do with over the years--partly because the norm for the last decade or so has been that almost all operations are joint and all are on a 50/50 basis since we have roughly the same amount of reserves. If you said, Peter is just their agent, the quality of our advice would probably be unchanged, but the consequences of ignoring it would be substantially reduced compared to current circumstances where ultimately it becomes known via the Manager's reports whether the Federal Reserve was part of the operation.",176
-fomc-corpus,1994,"Al, I would argue that we can't withdraw from it completely because part of our statutory responsibility is the stability of the financial system. I can envision a situation where the foreign currency markets were so disorderly that they were a threat to the financial stability of the country. I think that to take us completely out of that would be a mistake. Now, the problem is how to define a disorderly market; who makes the decision whether it is disorderly; or whether, in fact, for whatever purpose, we are trying to peg or stop a decline in a rate relationship. But I don't think we can get out of it completely. I would like to see us, as a matter of internal policy, limit our participation to those situations where we have a disorderly market and where we define what is a disorderly market.",165
-fomc-corpus,1994,That's practically what we try to do.,8
-fomc-corpus,1994,Yes.,2
-fomc-corpus,1994,"I guess I think if we are out of these operations, there is less chance of disorderly markets. [Laughter]",25
-fomc-corpus,1994,Vice Chairman.,3
-fomc-corpus,1994,"I think we have to talk as a practical matter about how we would go about this disengagement. At the present time, the Federal Reserve Bank of New York operates as the agent for the U.S. monetary authorities, which means the Federal Reserve and the Treasury. The way the conversations take place is that the Desk, Peter and his colleagues, are the technical advisors. Typically, the people at the Treasury talk with Ted; they talk with me; they talk with the Chairman; and sometimes they talk with other members of the Board as well. They get our advice and they pay a great deal of attention to our advice. It is very, very rare that if we really say you should not do it that they do it. The last time we didn't participate in an intervention was in February 1992. The fact that we have that threat can give us some additional leverage with them, although I think it is not something that one would wisely use very often. If the Federal Reserve were to decide to disengage itself from being part of the U.S. monetary authorities for foreign exchange purposes, we would have to announce that to the world. We can't just let it slip out. That would impress me as saying that the Federal Reserve--at the risk of some backslapping to this wonderful institution, it is a part of the U.S. public sector that is universally highly regarded outside of our country, sometimes even more than the Administration of the day--would be seen by the world as retreating into a kind of Fortress America. That, I think, would be a terrible signal to give. It would be a great disservice to the American people and a great disservice to financial stability in the world. Our ability to have these operations done at sensible times and in a sensible way is very great, which obviously brings upon the Federal Reserve in general and the Chairman in particular an additional amount of responsibility. It is a serious burden, but I think one that we really have no choice but to accept and carry forward. There is no question that if we undid the swap lines, it would be mainly a signal to the world. We haven't drawn on the swap lines since the 1970s, if I remember correctly. They are much more symbolic than real. But if we wanted to say to the rest of the world that we are beginning a retreat into Fortress America, it would naturally be through the swap lines. It is the classic case of the dog that didn't bark in the night. When we renew the swap lines, it is such a routine matter that nobody pays any attention. If we didn't renew the swap lines, it would create an international hoopla of very considerable seriousness and, I think, a very negative one.",550
-fomc-corpus,1994,"We haven't used the swap lines. Indeed, all the intervention that has taken place has been profit-taking, because we have been selling off our deutschemark and yen reserves. President Jordan.",37
-fomc-corpus,1994,"Mr. Chairman, this to me is an exceedingly difficult issue and not one that this central bank or any central bank in today's world can solve by itself, whether by any unilateral declaration by us or even all the central banks. Both your initial remarks and your response to Al's comment, I think, highlight what the problem is. Since August 1971, this country has not had a policy toward its currency; it has had a sequence of policies, and sometimes they are consistent internally and sometimes externally. Therein lies the problem. It is not just the traders who don't know that sterilized intervention cannot produce results inconsistent with domestic monetary policy, but sometimes members of executive and legislative branches of the government, ours and other governments around the world, don't know that. The hazard comes from having the power to do these things in the context of outside expectations, that we do not share, that they will work. I remember being told that when President Nixon was confronted by his advisors--some of the outside people--about the issue of wage/price controls, he said: I don't believe in controls; I know they won't work; and you don't believe in controls; you know they won't work; but the people don't know that. And so we got controls. In the late 1970s, we had a policy toward the currency externally that was inconsistent with what at least I would want for domestic monetary policy. Earlier in the 1970s, as we were thrashing around for a policy, the Open Market Committee had a number of debates on the issue. At one point, Arthur Burns made what I thought at the time was a pretty effective argument, that the only way to be certain that you absolutely have to intervene is to declare you are never going to intervene and you will get some asymmetric bets in the foreign exchange markets. If you want to be in a position where you don't have to intervene in this institutional setting, you have to declare that you are willing to intervene massively and often to burn speculation and so on. It reminds me of Charlie Coombs' beartrap arguments. In the early 1980s, the Treasury tried out the idea of declaring unilaterally that we would never intervene. However people viewed that experience, the Treasury Department abruptly changed our currency policy at the beginning of 1985 in association with the Plaza Accord and the Louvre Accord and all of that. It is troubling to me that nothing has changed institutionally. In going forward, we can again find ourselves in a position with an executive or a legislative branch view that we can or should have a policy toward our currency in the international markets that is incompatible with what this Committee thinks is appropriate for domestic markets. We ought to attack that policy issue as something that our government in its totality needs to address.",562
-fomc-corpus,1994,Governor Kelley.,3
-fomc-corpus,1994,"Mr. Chairman, I think that if we were to withdraw in that way, it would create a wound that could very easily be opened at almost any time. It would indicate a continuing disarray in U.S. financial management to any serious observer, official or private. I think it could have very deleterious consequences in an ongoing way and in ways that would be impossible to foresee. There would always be a question about where U.S. policy was and where the Federal Reserve was relative to the Treasury. Furthermore, I think that frankly it would be a display of unseemly arrogance if the central bank were to walk away from its Treasury in that manner, essentially being seen as thumbing its nose at the government or maybe holding its nose. I just don't think that that would sit well with other governments; I don't think it would sit well with the Congress. We see ourselves as wanting to be independent in managing monetary policy for very good reasons, and I don't want to poison the well for the wrong reasons. I am afraid that would do it.",213
-fomc-corpus,1994,"I am very sympathetic to that point of view. I don't think that in practice we could withdraw. On the other hand, I also know that we have a Treasury that likes to intervene more than we would like it to intervene. What I would like to do is give you, Mr. Chairman, an extra weapon to say ""no."" The only extra weapon that I can think of, the only extra bargaining chip that we can give you, given that I don't think we can do what Al wants and given that we are intervening too much, is the implicit threat that we will view the price of exchange rate intervention as being an interest rate change.",131
-fomc-corpus,1994,President Stern.,3
-fomc-corpus,1994,"I used to comfort myself with the observation that since sterilized intervention really didn't affect anything, it probably really wouldn't harm anything either, a sort of a no-harm-no-foul kind of rule. But I have come to the conclusion that sterilized intervention does have some cost. Al just cited the credibility issue. Also, I am observing that this Committee has a lot of discomfort with these operations. I don't know where that goes beyond what we are already doing in the sense that we probably ought to keep these operations to a minimum to the extent we can, unless we believe that for monetary policy reasons we are going to do some unsterilized intervention; that's a different story. Also, I would say that I think this discussion is helpful. More communication about what we are doing and why would be helpful. When we do get involved in intervention, it is very hard from time to time to understand exactly what prompted it on that occasion when it didn't prompt it on other occasions. Sometimes, there doesn't seem to be any particular pattern or rationale. I would certainly feel more comfortable with it all if I knew what it was about the circumstances in question that prompted the action.",235
-fomc-corpus,1994,I want to call on Ted because Ted has been around here in this area longer than all of us put together. I am curious as to how he would respond to this.,35
-fomc-corpus,1994,On the communications question?,5
-fomc-corpus,1994,"No, on this general broad issue--the principles, which you infer, that various Treasuries have employed over the years.",26
-fomc-corpus,1994,"I think President Jordan is absolutely right. In a sense, we are suffering from the fact that various Treasuries have had a sequence of ad hoc or at least temporary policies for our currency. I think that relates both to the international value and the domestic value. Those two things are bound up and are inherent in the discussion that we had earlier this morning about whether the foreign exchange value of the dollar in part should be an overt target for monetary policy. Given the current way things are structured in the U.S. government, it is difficult to predict where a particular Treasury or Administration will be on this matter. Administrations do change and it is, unfortunately I think, an area where personalities, or maybe I should say philosophies, matter to a somewhat surprising degree. The evidence on the effectiveness of intervention is mixed, but I think the academic profession would say today that the pendulum has swung back somewhat on the question of the effectiveness of sterilized intervention, and not just through the signaling channels connected to monetary policy but also the signaling channels connected to other policies. I think it is fair to say that, as on many other issues in economics, experts lie all along the spectrum. [Laughter] I think that's right. I have felt that over the years the Federal Reserve has on balance been a very positive force in trying to modulate the excesses of various Administrations. It has not always been easy and often the Federal Reserve has found itself leaning to one side of the boat because the Administration or particular people in control of the Administration were leaning to the other side of the boat. This has involved a certain amount of moving from one side to the other, though I think the basic objective has been to make sure that if the instrument is used, it is used sensibly, not overused, and one does not exaggerate its effectiveness or ineffectiveness. To comment if I may on Governor Lindsey's price message, that is certainly in one set of circumstances something we do and have done implicitly in one form or another. There is another side to it, if I may go back to the late 1970s. The way I saw the heavy intervention in that period, which was promoted by the Administration at the time, was that that was the device which in the end was needed to convince the Administration that what they saw as bitter medicine had to be taken in October 1979; it was necessary. It took 18 months to convince the various people in the Administration, as well as maybe some people within the Federal Reserve, that that was necessary. It is difficult to come to the question of disorderly markets narrowly defined. I don't want to get into this. I think you might not want to use monetary policy, so that it would be only a club in the closet under the right circumstances. I think the various German and other officials who have been involved with us have used it that way. One further comment: I haven't gone back and checked the record precisely, so I apologize if I go back and find that I am mistaken. I would not characterize this Administration as being particularly trigger-happy in this regard. They have intervened relatively few times. Aside from the Administration in the period of the early 1980s, they are probably the least active. The one difference of strategy that the current Administration has followed, consistent with what the Chairman has said and probably not accidentally, is that when they wanted to operate, they have wanted to operate in significant volume to get the market's attention. Governor Mullins commented at one point that one could view intervention to some extent as a type of circuit breaker in the market. If you hit the market hard enough, it forces the market to stop under some circumstances and it gives the market the opportunity to stop and say: Do they know something we don't know, which could be monetary policy or a variety of other things? In order to do that, you need the right scale of circuit breaker to get their attention. I think this Administration has tended to be much more deliberate in its policy of wanting to operate on a larger scale. But in terms of the number of days of operations, they have tended to be toward the lower end of recent experience. We are less than two years into the Administration and all this could change, but that's something I wanted to point out.",870
-fomc-corpus,1994,"I have a reservation about Larry's suggestion about the linkage of a visible domestic policy action tied with intervention promoted by the Treasury. That's because of the asymmetry that would be involved if we were to get into a world where confidence shifts around and capital flows were starting to put some very substantial upward pressure on the U.S. dollar. If we had a Treasury that decided they wanted to rebuild the cookie jar or the war chest, I certainly would not want to couple cuts in the fed funds rate with their mandates to intervene in the opposition direction.",108
-fomc-corpus,1994,Vice Chairman.,3
-fomc-corpus,1994,"Mr. Chairman, I am sure it is no secret to the Committee that this kind of a debate They know very well that there is not wild-eyed enthusiasm for intervention on this Committee. In fact, that they know that is a very helpful tool for us. We don't need that you are describing; it is already there.",65
-fomc-corpus,1994,"Can I just make one very quick final comment, and I appreciate you letting me make my other comments earlier, Mr. Chairman. Let me just say that I am not a Fortress America guy. I don't want to be arrogant, but for me one of the highest priorities we have is always to protect our independence in the conduct of monetary policy. My only concern here is that intervention activities threaten that at least to a degree, and it is very, very difficult to fine-tune it. That's the key point from my standpoint. I hope that that will be very much in our minds going forward with all these operations.",124
-fomc-corpus,1994,"I have certainly heard all the arguments here and I must say that I have great sympathy. My own view is that I wish Treasury wouldn't do it and I wish we wouldn't do it. I think that would solve a lot of problems because I am not convinced that that's the way to stabilize our nation's currency. I don't deny that there are occasions where intervention actually does stabilize the market. The trouble is I can think of situations where intervention destabilizes it. I am not sure that one can argue that there is a net advantage to intervention. Nonetheless, we do have very practical difficulties, which I think a number of people around this table have indicated. This far along in the process, post-1971, we would create some very extraordinary events if we were to endeavor unilaterally to pull away from this sort of activity. So we are going to be involved in it and as a consequence, we are going to need Committee authority on occasion. I'd like Ted to raise the issues that are involved here in the event, for example, that we get into these discussions with the Treasury and they come up with something that we find not fully unreasonable. That's an odd way of putting it, but that's the way it comes out and I will ask Ted to outline some of the issues.",257
-fomc-corpus,1994,"Maybe I'll just add one footnote to the history before I pick up on your comment. After 1971, of course, we did not intervene for quite an extended period of time--March 1971 to July 1973. It was Arthur Burns and President Hayes who essentially prevailed upon the Treasury to take that small instrument out of the closet. It may have been a big mistake but that was what happened. That's just one example of where, for better or for worse, this Committee at that time found itself quite supportive of intervention because it was a question of caring about our currency, at least that's how it was perceived. As Governor Blinder said earlier in the monetary policy discussion, we are dealing in an area where we can sometimes prejudge perceptions with great confidence. As the Chairman said, the Treasury has talked about a multinational, multiday operation that would be relatively small in scale at least by historical standards, but where we might operate successively for 3 to 5 days. We might imagine the U.S. authorities thinking in terms of a budget, if I may put it that way, of $6 billion of sales, half of which would come from the System and half would come from the Treasury under normal procedures. If we did that, we would as a technical matter have to come to the Committee for clearance to increase the limit on the change in the System's overall open position during the intermeeting period. The limit is now set at $1-1/2 billion. The clearance would be for a larger reduction in our overall open position. The clearance is needed regardless of the direction we are going. We would raise that--up to, say, $3 billion so that we could accommodate this type of operation. I guess the only procedural matter would be that if events over the next few weeks lead the Chairman to think that that is the right thing to do, we would come to you to get your clearance. This is not, as technical matter, a vote; it is a procedure that is partly designed to meet, though maybe imperfectly, the Committee's desire--a desire reiterated by President Stern earlier--to have some degree of communication about what we are doing, maybe not why we are doing it. It may provide opportunities to ask why we are doing it, as has happened in some of our conference calls. It is a mechanism that has been set up both to keep this Committee informed and to review these matters. After it is all over, you can review whether it was a success or failure or why it was a success or failure. Procedurally, it does put everything on the table.",531
-fomc-corpus,1994,"Yes, let me raise one additional issue here. You may recall that in an earlier discussion, you were looking for ways to restrict the size of our operations. You wanted to try to disgorge some of our foreign exchange reserves. When we intervene in support of the dollar, we are moving in that direction. We are squeezing down our capability of acting and squeezing down the whole operation. I am not sure the Treasury thinks this way, but there really is an asymmetry here whereby we should be more resistant about actions in which we are buying foreign currencies to support them because that expands our reserves. Whereas were we to do anything to support the dollar, even if it failed, we would accomplish something--namely we would reduce our foreign exchange reserves.",150
-fomc-corpus,1994,And at a profit.,5
-fomc-corpus,1994,"Yes, at a profit. Governor Lindsey.",9
-fomc-corpus,1994,"It sounds to me that you are saying that we are acting in order to restrain our ability to act, and I am not sure that that makes a lot of sense. Ted referred to opportunities to discuss proposed operations in conference calls. Now, one of the great beauties of the U.S. Constitution, which makes our foreign policy adversaries furious, is the Senate's right to say ""no."" My real question for Ted is: Do we have the right to say ""no""? If we had that right, in other words if actual vote approval of this Committee were required, the sticks in the closets would be quite numerous and that might be quite an appropriate move. If it is just to notify us and have us ask questions, I think that's a different issue.",154
-fomc-corpus,1994,"This is obviously a matter for the Committee to decide. The historical antecedents of the procedural instructions were in fact to provide greater restraint on our interventions than had existed. For example, on the domestic side there is a limit on the intermeeting change in the System's overall holdings of U. S. government and Federal agency securities, but that limit is very substantial and is occasionally raised. On the foreign side, the procedural instructions are written the way they are because it is also judged that in some circumstances--given the international nature of these discussions since they don't just involve the United States Treasury but often at least two or three other central banks--they should provide the Chairman with some degree of flexibility to act on behalf of the Committee as long as it is consistent with the foreign currency authorization and the foreign currency directive. We have subsequent discussions and provide a way for the Committee to be informed--in contrast to the situation that existed before 1976 where there could be very large operations and, unless the Committee members kept score as they went along, they wouldn't know how much had been bought and sold until the next Committee meeting. The existing procedural instructions are designed that way, but you can change them. On balance, I think they work pretty well, but obviously there has been a range of views on all the issues in that respect. I think one of the purposes of having this discussion was in fact, as the Vice Chairman said, in order to give the Chairman some basis to have further discussions of this with the Treasury and other central banks.",308
-fomc-corpus,1994,"Alan, just getting back to what you said earlier, my worst fear about what I just heard was that it may work the first time [Laughter] and give some people confidence that that can be a substitute for getting the fundamentals right. I'd just pick up on something you said earlier. Maybe the secret is to keep some variety in here. I'd hate to see us get into a mode where there was some perception that it would be appropriate just because it worked once. The markets are so much bigger than we and all the other central banks put together are. Once it becomes known as a mode of operation and the surprise element is gone, I don't think it could work on a sustained basis.",139
-fomc-corpus,1994,I think that's absolutely right. Peter Fisher.,9
-fomc-corpus,1994,"I just wanted to add a footnote to your comment, Mr. Chairman, about taking the profits on the long position. One of the things that people in the market do focus on is that the accumulation of reserves since the late 1980s implies asymmetry in the U.S. appetite for intervention. That is, we are more prepared to hold down the value of our currency than we are to defend it. That in itself is a major market negative among the analysts who look at our behavior. That's not a particular reason to intervene on any day or for any kind of operation, but it is a reflection of the negative market sentiment about the U.S. authorities in general.",137
-fomc-corpus,1994,"Any further questions, comments? Yes, Tom.",10
-fomc-corpus,1994,"I don't have a question. In terms of this conversation and where it has drifted, I am not quite sure what we are deciding here, but--",31
-fomc-corpus,1994,Yes.,2
-fomc-corpus,1994,"What I understand, Mr. Chairman, is that we have been operating in a very restricted way in the sense that if there is a disorderly market or some other fundamental development, you and others come together knowing that this Committee is generally reluctant to intervene. But it depends on circumstances and the proposed intervention is thought through pretty carefully. I assume that's how we are talking about going forward from here. If it is, I feel comfortable with that. If we are talking about changing to large, multiday operations for different reasons than this limited context, then I would have trouble with that.",117
-fomc-corpus,1994,"No, I think that's right. I agree with that. My own personal belief, I think, is probably fairly representative of this Committee. If anything, I might be more, if I may put it this way, on the hawkish side in this question. But I recognize that we have very important responsibilities. I think it is crucially important for the Federal Reserve as an institution to be a player here. I think basically that is what Governor LaWare and Governor Kelley were saying.",98
-fomc-corpus,1994,"Let me come back to where you started the discussion with one question that has been kicking around for weeks--whether we should do something not routinely larger but nonroutinely larger in the interest of varying the tactics. I see some heads going this way around the table but, of course, that's one risk. I think the other view of this matter has emphasized that one risk we see is if we do it once, it might become a bad habit. But depending on how the market reacts to developments over the next several days or weeks, a possibility is that we might have an operation that is a little larger in scale and a little bit more sustained as a way of varying the pattern of behavior but not necessarily something that would become a new pattern. I just wanted to make it clear that--",159
-fomc-corpus,1994,"Let me put it this way. If it is done, it would be a one-shot thing because if we ever try to do it a second time, it would fail. That is what would happen.",41
-fomc-corpus,1994,Nothing is more sure than that.,7
-fomc-corpus,1994,"It would be in the face of disorderly markets, right, Ted?",15
-fomc-corpus,1994,I think I have been around too long to be able to give you a precise definition of what is a disorderly market.,25
-fomc-corpus,1994,"I know you can't, but we wouldn't just do it to prove we could do it.",18
-fomc-corpus,1994,"Let me try to do what I just said I can't do. Disorder to some extent is in the eyes of the beholder. Sometimes we have a situation where the dollar is weaker than the fundamentals would justify. Sometimes the weakness has to do with market conditions. Both situations have been used. Although I know there are preferences for being more precise, there also are preferences for being less precise.",78
-fomc-corpus,1994,I think there is a distinction to be drawn. I thought the November 2nd and 3rd interventions were helpful because of the perception of disorderliness in terms of the Administration's back-and-forth approach to the dollar. I think it was helpful in terms of the country's credibility that we did intervene and that the intervention was successful.,68
-fomc-corpus,1994,"Certainly, it was successful! [Laughter]",10
-fomc-corpus,1994,"That's true. The reason may be, as you said, that it came at a surprise moment and that contributed to the success. I would worry if in the absence of a surprise--well, I don't know how one can know this except after the fact.",52
-fomc-corpus,1994,"Not to put words in your mouth, we could be capricious or appear to be capricious about why we are operating. We ought to have some sense of what we are trying to accomplish and why we were trying to do it even though it is not always very well articulated.",58
-fomc-corpus,1994,We will all starve if we don't stop this discussion!,12
-fomc-corpus,1994,We need two votes.,5
-fomc-corpus,1994,"Whatever you have to say, say it in half the time. I think President Jordan has the floor.",21
-fomc-corpus,1994,"On this issue of how the intervention is perceived, the Federal Reserve does not issue statements at the time foreign currency actions are undertaken. My feeling about intervention would be significantly influenced by what is said, and I hope that your contribution is significant not only in terms of what is done, when, and how much, but also what is said about it. I don't have any problem with taking the capital gains from our previous efforts to short the dollar against foreign currencies. I am not very happy about the capital gains we are going to take because the only way a central bank can avoid taking a loss on foreign currency assets is if its domestic policies have not produced stability and its currency has depreciated. We have accumulated big capital gains, and I am willing to cover our shorts, take our gains, and limit our options to do that again in the future, I hope!",173
-fomc-corpus,1994,"Peter, you have a comment?",7
-fomc-corpus,1994,"It was really my two votes that I was after, Mr. Chairman.",15
-fomc-corpus,1994,We need a vote right now on the issue of ratifying the actions of the Desk. Let me emphasize that the issue of ratification is strictly the question of whether the Manager had the legal authority to undertake the transactions. We are not discussing the philosophy here. I would like to raise that question and would somebody move for approval.,66
-fomc-corpus,1994,Move approval.,3
-fomc-corpus,1994,Second.,2
-fomc-corpus,1994,"Are there any objections? If not, consider it passed. Now we have another question on the swaps, which is a one-year extension. Just repeat quickly what the issue is.",36
-fomc-corpus,1994,Reread your recommendations.,6
-fomc-corpus,1994,We have most of our reciprocal currency swap agreements up for renewal; those with Mexico and Canada come up at a different time now.,26
-fomc-corpus,1994,They will come up a year from now.,9
-fomc-corpus,1994,"Yes, a year from now.",7
-fomc-corpus,1994,I suggest that we take a formal vote on that.,11
-fomc-corpus,1994,"What we have now is no change in the terms and conditions of the existing swaps with Austria, the United Kingdom, Japan, Norway, Sweden, Switzerland, the Bank for International Settlements, the Belgian National Bank, the Danish National Bank, the Bank of France, the Bundesbank, the Bank of Italy, and the Netherlands Bank. These are all swap lines that have been in place for many years. I have no changes to recommend. I seek the Committee's approval for their renewal without change. MR. BOEHNE(?). Move approval.",110
-fomc-corpus,1994,Second.,2
-fomc-corpus,1994,Would you read the roll. MR. BERNARD: Chairman Greenspan Approve Vice Chairman McDonough Approve Governor Blinder Approve President Broaddus No President Forrestal Approve President Jordan Approve Governor Kelley Approve Governor LaWare Approve Governor Lindsey Approve President Parry Approve Governor Phillips Approve Governor Yellen Approve,70
-fomc-corpus,1994,Would somebody like to move that we go to lunch? [Laughter],15
-fomc-corpus,1994,No objection.,3
-fomc-corpus,1994,Would somebody like to move approval of the minutes for the meeting on November 15?,17
-fomc-corpus,1994,So move.,3
-fomc-corpus,1994,Without objection. I recognize President Jordan for a motion.,11
-fomc-corpus,1994,"Thank you, Mr. Chairman. I'd like to nominate Mark Sniderman to be an associate economist of the FOMC.",25
-fomc-corpus,1994,Would somebody like to second the motion?,8
-fomc-corpus,1994,Second.,2
-fomc-corpus,1994,"Unless I hear an objection, it's approved. Peter Fisher has a number of interesting things to discuss this morning. Peter.",24
-fomc-corpus,1994,Thank you. [Statement--See Appendix.],9
-fomc-corpus,1994,"Questions for Peter? If not, shall we go on to Joan Lovett?",16
-fomc-corpus,1994,"Thank you, Mr. Chairman. [Statement--See Appendix.]",13
-fomc-corpus,1994,Questions for Joan? Governor Phillips.,7
-fomc-corpus,1994,You mentioned that the markets were thinner at the year-end than they usually are. Would you expand on that?,22
-fomc-corpus,1994,"It has been a disappointing year for a lot of people in the financial markets. We have had some sense since Thanksgiving that many people are just hanging on in the hope of getting through December 31. If they have done well or have managed to do all right, they want to finish the year in that position. If they haven't done well, they don't want to add to their losses. As a result, there has been a general tendency for people to try to take cover. This gives us a hint as to why we have had abrupt moves when securities have come into the market in clumps, because people don't feel they necessarily have the wherewithal to take them on. If they do buy them, they have to re-route them right away or hedge them with something equivalent.",157
-fomc-corpus,1994,Is this causing more discounting of the Orange County paper than you might ordinarily expect if they had been selling that paper at another time of year?,29
-fomc-corpus,1994,"I think that in the Orange County case there probably are several influences at work. It was helpful that people eventually were able to get a handle on just what the county has. In the first day or so, people couldn't get any information from Orange County on almost anything, and I think that is what caused the biggest market backup. Since that time, the markets have come back in many cases to where they were prior to the break of the news or maybe just 5 or 10 basis points past that, even with some of the securities being liquidated. So I think the initial move occurred because of the lack of knowledge of exactly what was going on and what was going to happen. By the same token, markets are in an atmosphere where there is an FOMC meeting and people view interest rates as being on an upward trend. If you could have picked a time for Orange County to sell, maybe this would not have been the time you would have picked.",194
-fomc-corpus,1994,Thank you.,3
-fomc-corpus,1994,Would somebody like to move to ratify the domestic transactions of the Desk since the last meeting?,19
-fomc-corpus,1994,So move.,3
-fomc-corpus,1994,Without objection. Let's now move on to Messrs. Prell and Truman.,16
-fomc-corpus,1994,[Statement--See Appendix.],6
-fomc-corpus,1994,[Statement--See Appendix.],6
-fomc-corpus,1994,Questions for either gentleman?,5
-fomc-corpus,1994,"Mike, you talked about the inflation forecast and indicated that you made, in effect, an intercept adjustment in the forecast to carry forward the favorable experience that we seem to have had in 1994. Would you talk further about why we have had that favorable experience and why it might continue? We may be seeing actual growth in excess of potential. As we get closer to capacity isn't there a risk that we will have seen a delay in the typical Phillips curve relationship? If it were to reassert itself in 1995, might inflation turn out to be a fair amount higher than you indicated in the forecast?",122
-fomc-corpus,1994,"That is a risk I hinted at in my remarks about the late 1980s experience. I think the key here is to look back at why we projected the inflation that we did for 1994. In essence, we were concerned at the beginning of the year that the pattern of expectations we were seeing, the very buoyant attitudes and so on, and the rapid growth at the end of last year were going to give us a stronger price increase this year than would have been dictated by our analysis of where levels of resource utilization were. Looking back now, we see a pattern that seems reasonably consistent with our fundamental view of the Phillips curve picture. We did not get down to our point estimate of the NAIRU until this summer. Under the circumstances, some further deceleration was not implausible. We also think that perhaps we underestimated the cost effects in the medical care area. We have had tremendous deceleration of the cost of medical benefits, and this has helped to tamp down the rate of increase in compensation. I think that has been a surprise that was not built into our forecast and now appears possibly to have been a broad element that was helping to bring down the inflation rate this year. We don't see that contributing as much going forward. We think there will still be some deceleration, but it will probably taper off to some degree.",272
-fomc-corpus,1994,President Jordan.,3
-fomc-corpus,1994,"Mike, there have been a couple of threads in the discussion about 1994: the Greenbooks in the past, this one, and your remarks now. On one side, we have had a lot more growth in output and employment this year than we--or anybody--had been anticipating and much larger increases in short-term interest rates than had been expected. In your remarks, you made reference to questions about the demand damping effects of higher rates. The other side is the greater underlying strength of the real economy. Which has been the larger contributing factor: that there is something else going on that has created more strength on the real side than we had anticipated or, as has been conjectured in the press, that monetary policy is less potent? To which of these would you subscribe?",157
-fomc-corpus,1994,"I don't think one can rule out the possibility that the interest sensitivity of the economy in the short run may be less than it was. Certainly, we have felt all along that, without the disintermediation effects of Reg Q ceilings that we got decades ago, there wasn't going to be quite the abrupt swing toward restraint that previously accompanied increases in short-term market interest rates. But we are still learning. Financial markets continue to evolve. It is conceivable that the lag structure is different. I just don't think we have enough evidence to make a strong statement in that regard. Part of what has happened this year has been a surprise in the growth of European economies, in particular, that has helped to buttress export demand. On the domestic side, while we cited a risk repeatedly through the year that inventory investment could be stronger than we were anticipating because businesses might become concerned about the availability of supplies, as things turned out, that seemed to be a much more dynamic feature in the economy than we had anticipated. There is a cyclical dynamic to this. As inventory investment and exports proved strong, that raised aggregate demand and that in turn reinforced the desire for inventories. As we got more production and more income, that raised consumption. So this is a process that feeds on itself up to a point. Going forward, it is critical, as I noted, that these levels of inventory investment are unsustainable. If the economy is going to get back to a growth rate of no more than the long-run potential rate, there has to be a drop-off at some point. The question is when that drop-off in inventory investment will occur. We are also banking on there being a significant lagged effect of the interest rate increases that have occurred. It is still early, as has been discussed repeatedly here. As estimated even in our current models, the lags are long enough so that we would only begin to get significant effects now and in the early part of next year. We are also building in further rate increases, which will have their effect more in the latter part of 1995 and into 1996, but we think these rate increases may reinforce the effects in the shorter run, too, through increases in adjustable rate mortgages and even adjustments in the stock market. If short rates rise as much as we have assumed, it will be more and more difficult for households to get enthusiastic about taking on what appear to be some risks in the stock and bond markets when they can get sizable real returns without risk in the short run.",505
-fomc-corpus,1994,"There are a couple of things that follow from your remarks in looking into the year ahead and contrasting it with 1994. When I started looking at your Greenbook forecasts for 1995 and 1996, on one side I welcomed the continued discipline that comes from the concern about inflation and the overriding desire to contain it to achieve our longer objectives. On the other side, though, I was reminded of the feeling that I have had in conversing with employees in Cleveland in the last couple of months; they keep telling me that the unusually warm weather that we have had in October, November, and December is not good because it means we are going to have an unusually cold January, February, and March. There is this vindictive weather god out there that catches up with us. What is it about the process you go through in putting together the forecast that says that favorable surprises in output and employment in one period must be matched with unfavorable developments in a subsequent period such that the level of output and employment always comes out approximately the same in any given forecast horizon?",214
-fomc-corpus,1994,"In fact, we didn't quite get back to the unemployment level in our prior forecast. We took the kinder, gentler approach to some limited degree here so that by the end of the period, we are in essence back at our point estimate of the NAIRU as it currently stands rather than somewhat above that. This means in essence that we don't see any disinflationary pressure through 1996. We merely stabilize things. That is the design principle here. What we have attempted to do is give you a baseline forecast that holds activity to a path that at least doesn't let inflation get out of control and tries to tell you whether that is achievable and how. That exercise involves a great deal of uncertainty, but that is why the good news in terms of output and low unemployment that we have recently experienced gets offset by bad news of slow growth and increasing unemployment later in the forecast.",178
-fomc-corpus,1994,"Okay. I expected that answer. Let me follow up on it because it raises a big concern about our February meeting. Some time between now and that meeting, we have to submit projections to you whose so-called central tendencies are to be published in the Humphrey-Hawkins report. What I suspected to be the case and confirmed when I looked it up is that the numbers in the central tendency in February are almost the same, with only slight differences, as the prior December Greenbook projections. The central tendencies, which of course exclude the outliers, tend to be a little more optimistic than the Greenbook on output, a little lower on unemployment--0.1 percent or so--and a little better on inflation. But there is not much difference; essentially, the central tendencies are the numbers in the prior December's Greenbook. If that turns out to be what happens this time, I am concerned about what we are going to be announcing publicly. The Chairman has to go before Congressional committees two or three weeks after the February meeting and go public with these numbers. The markets expect this Committee to take some action in February to raise the funds rate again. Then the Chairman is going to be in the position of saying that what we expect to happen--actually I have never understood whether it is what we want to happen or what we predict is going to happen--is that output growth is going to drop under 2 percent, unemployment is going to rise, inflation is going to rise, and therefore we will jack up the funds rate.",309
-fomc-corpus,1994,"I don't know if there is anything I can say! It certainly occurred to me that taking these numbers just as they are might provide a somewhat unappealing forecast in the Humphrey-Hawkins report. But this forecast is not so far from the consensus view among economists that a little degree of optimism, as you suggested, wouldn't put it in the ballpark. I don't want to prescribe what people should say here. What we have forecast clearly is a slight uptick in unemployment between now and the end of next year, a slight uptick in inflation, and growth that is only modestly below most people's assessment of the long-term trend. We are a little bit lower, I think, than the consensus forecast at this point for GDP growth. We are lower on the inflation rate than the consensus forecast. I admit that these are differences, but we think they are consistent.",176
-fomc-corpus,1994,"If I could add just two points: One is--I'm not sure this is helpful--my impression that the Administration is going through much the same problem. If they think that the NAIRU is about what we have estimated it to be, they no longer are in a position to say growth will slow down to potential of 2-1/2 percent because in that case they will have built in a permanently higher inflation and lower unemployment rate. I'm not sure how they will square that circle. In terms of comparing the Committee's forecast with the Administration's forecast, there may be some leeway on that score. My second point comes back to your initial question on the effectiveness of monetary policy and whether it may be reduced. In today's world, of course, we tend to assume that one of the channels of monetary policy is through the exchange rate. That is why we have model results that suggest the overall effect may be the same as it was 15 or 20 years ago, but the channels have changed with the relaxation of Regulation Q. I don't know whether you want to call it an exogenous event, or a favorable event, or an unfavorable event, or something unrelated where there has been a breakdown in monetary policy. But, of course, with the dollar having gone down this year rather than going up, which would have been your ex ante assumption, you do have a difference that could either be attributed to a stronger than expected ""economy"" in some sense or a short circuiting of that channel in this particular instance.",309
-fomc-corpus,1994,Further questions?,3
-fomc-corpus,1994,"I'd like to ask a question of Mike that keys off of where he finished with Jerry Jordan. Yesterday in the briefing, Governor Yellen asked Mike a question about the difference in the forecasts attributable to the tightenings that are embedded in the Greenbook forecast but not yet acted upon by the FOMC. She cited some numbers generated by the staff model. Mike, you indicated that you didn't really accept those numbers. I'd like to know--it is germane to the question that was just asked--what would be the forecast at a constant funds rate or the difference in the forecast between a constant funds rate path and the funds rate path embedded in the staff forecast?",133
-fomc-corpus,1994,The model simulation we have done using a constant funds rate has only slightly more growth in 1995 and then appreciably greater growth in 1996.,31
-fomc-corpus,1994,Right.,2
-fomc-corpus,1994,"By the model's assessment, that would add several tenths to the inflation rate in 1996. So in that sense, the difference here is one of stable inflation at slightly over 3 percent versus an accelerating price picture with the inflation rate moving up into the mid-3 percent range by 1996. I don't have a basis for seriously questioning this outlook. I do think there is a risk in the near term that, if the economy behaves anything like what we are anticipating and if the fed funds rate were to remain at 5-1/2 percent, inflation expectations could mount in ways that wouldn't be anticipated in the structure of our model. It is manifest that the market is expecting as much tightening as we have built in, if not more. The recent response of the markets to the tightening action shows that they are rather sensitive to indications that we are going to resist inflationary tendencies. The common forecast is for inflation to move up. I'd say the consensus is about 3-1/2 percent, looking at the Blue Chip forecasts for 1995. I think there would be considerable worry--unless there are clear indications the economy has weakened in the next couple of months--if the Fed were not to move the rate up significantly.",252
-fomc-corpus,1994,"I wasn't pushing a constant-funds-rate policy; I was just asking what the effects of that policy were, particularly on the real growth rate and on the inflation rate. On a fourth-to-fourth quarter basis, your forecast has real GDP growth decelerating from 4.1 percent in 1994, to 1.9 percent in 1995, and then to 1.8 percent in 1996. If you accepted what was in the the staff model and you backed out the effects of the coming tightening, that 1.9 percent and 1.8 percent would change to 2.1 percent and 2.5 percent. Now, to my way of thinking about the marginal effect of new policy with respect to timing, wouldn't you expect the inflation effects to be zilch in 1995, pretty mild in 1996, and in fact mostly having an impact in 1997? I am talking about additional policy changes, not about the tightenings we have banked already.",207
-fomc-corpus,1994,"I think inflation mounts because, in this alternative, we are running with an unemployment rate that remains below the NAIRU out through 1996 and presumably into 1997, so we are getting an accelerating picture.",44
-fomc-corpus,1994,Sure. I'm only talking about the derivative.,9
-fomc-corpus,1994,"But I think that in the near term, taking into account exchange rate and import price effects and so on, the model begins to get additional inflation creeping in within 1995 and building a bit. It is very gradual and probably undiscernibly different. That again goes back to the comment I made earlier. It could creep up on you, and sustaining the low unemployment rate, as happened in the late 1980s, eventually does build up to a significant pickup in inflation. That is what our forecast has been designed to avoid.",109
-fomc-corpus,1994,"I was not questioning any of that; you misinterpreted the question; it is only about the marginal effects of policy. If we have passed through the NAIRU, which seems reasonably likely, exactly what you said ought to be happening. But the marginal effect on inflation of policy tightening from today forward, to my way of thinking, ought not to be on this Greenbook page. That is really the question. Or do you agree with that?",91
-fomc-corpus,1994,"I think it would show up certainly in the tenths column, but we are talking about a matter of a couple of tenths over the next year or year and a half.",36
-fomc-corpus,1994,Okay.,2
-fomc-corpus,1994,"It is not dramatic. I would caution that in thinking about the slowdown in the economy, one does not want to think of that as purely a straight interest rate effect. Some of it is the inevitable reversal of that cyclical dynamic in the inventory investment area that I talked about. Our inventory equations, just as other forecasting tools, don't work all that well, so it is not something I'd want to bank on the model to capture. This is a very important element in the timing of the deceleration as we see it.",105
-fomc-corpus,1994,"This reminds me of a discussion I remember having at the CEA in 1973 when everyone was talking about the small inflationary effects that were on the horizon--0.2 or 0.3 percent. Our models are really gross simplifications of the real world. As I've indicated before, simulations on reduced-form structures, which without appropriate add-ons give us silly forecasts, should not be employed with a great degree of confidence at this stage. I think our capability of doing the type of simulation that you are discussing here is really marginal. We have to be careful about reading terribly much into it. Just remember, it is the same econometric structure in the model that engendered a significant slowing in the second half of 1994, which didn't occur. The difference is the add-ons and the underlying structure that we don't capture. I'm not saying it is not useful to discuss what the potential impacts and lags are; it is just that I hope that everyone retains a large dose of skepticism in applying these types of structures. President McTeer.",213
-fomc-corpus,1994,"Mike, how much additional fed funds increase is built into your forecast?",14
-fomc-corpus,1994,We have the funds rate moving up into the 6-1/2 or 7 percent area by early next spring.,25
-fomc-corpus,1994,"Any further questions? Let's move on to the Committee discussion. Let me just say, incidentally, that I've noticed at the last couple of meetings that our discussions of economic conditions have spilled over into an awful lot of policy at this point. I request, if you can possibly do it, that you stay with an analysis of what you see and leave the policy prescription for the next segment, or we will be contaminating our agenda here in an inappropriate way.",92
-fomc-corpus,1994,"Mr. Chairman, it seems though that that would be easier to do if the Greenbook based its projections on where policy is currently. What we have here is a Greenbook that assumes a further tightening, the amount of which is unspecified. So that makes it very difficult for us to--",58
-fomc-corpus,1994,I think it was specified in the Bluebook.,10
-fomc-corpus,1994,It is specified and you should have heard through your research director what the specific numbers were. I apologize if there was a slip in communications.,28
-fomc-corpus,1994,"I must have missed it when I read the Greenbook, but just now you said a 6-1/2 to 7 percent funds rate. Surely, it was one or the other or 6-3/4. It seems sort of vague.",53
-fomc-corpus,1994,"My point is that we think the tightening needs to be significant. I think a problem with specific numbers is that they imply a false sense of precision about what it will take. Yes, to enter something into an econometric model, we would write down 6-3/4 percent.",58
-fomc-corpus,1994,"I acknowledge your issue but still request that, if you possibly can, you stay on this side of the fence. President Minehan.",27
-fomc-corpus,1994,"Let me just kick off the regional overview. The First District continues to expand at a moderate pace. We have had a rate of job growth for the region as a whole that is behind the nation. Our unemployment numbers are about the same, and as usual there are all sorts of variations by state, with Massachusetts still leading the pack and Connecticut still bumping along. Consumer and business confidence in the region has risen sharply according to both recent data and an increasing amount of anecdotal information. On the other hand, while District bank lending has grown through the third quarter, the pace of its growth is well behind that of the nation as a whole. And if you compare the districts, the First District is lagging in all kinds of bank lending. Job growth continues to be concentrated in services, especially business and health excluding hospitals. Manufacturing employment continues to lag, but the anecdotal reports from First District manufacturers are generally positive. Strength is fairly broad-based. However, there continues to be weakness in the defense area. Most of our manufacturing and retail contacts report increases in input prices, though their comments often revolve around the same inputs, largely paper and wood products in our area. They are also starting to report increases or planned increases in selling prices. Larger organizations, both retail and manufacturing, seem to indicate that the downsizing is over. About half of our contacts report that they are going to be hiring in the new year. If they have price increases in mind, they probably will be putting them through about the beginning of the year. There are reports of wage increases in the range of 3 to 5 percent. I think, however, that the high side of this range probably reflects some desire in companies that have been through downsizing to reward those people who are remaining. I don't think that is necessarily reflective of a trend of continuing 5 percent wage increases. Now trying to stay on the right side of this fence, with regard to the Greenbook, we were more optimistic generally speaking when the year began. We thought there was likely to be a lower full employment level, a little more potential for growth, and certainly no inflationary risk of any size. We saw balanced risks at that time. As the year has gone by, we along with everybody else have been impressed by the degree to which the data are always stronger than we expect. I see that Boston is widely thought of as a dove on these matters, but even the most dovish of the people at the Boston Fed now believe that the risks are more on the up side. Our own forecasts are now a bit more pessimistic than the Greenbook. We think 1995 will have more overshooting on the employment side and a greater risk of inflation than is embodied in the Greenbook. If this doesn't stray too far over the fence, we think that the tightening in the Greenbook is about the minimum that is needed. [Laughter]",584
-fomc-corpus,1994,That is like Babe Ruth bunting a home run. [Laughter],15
-fomc-corpus,1994,You handed me a challenge.,6
-fomc-corpus,1994,Peter Fisher has an announcement that I thought we ought to interpose.,14
-fomc-corpus,1994,"He's not here, but maybe I can make it. He can clarify the facts later, but let me just state that at about 9:30, the Mexicans did announce that they had moved their intervention band by 15 percent and will continue to crawl that band by four new centavos a day. So, they basically have moved the band by 15 percent. We don't have any market quotes--",82
-fomc-corpus,1994,"[Re-entering the meeting] Actually, we do. The peso has traded at 3.83 to 3.86, down about 11 percent from yesterday; it has not approached the outer band at all. Screens in New York are not quoting the Mexican stock market, but talking to people in Mexico, the decision seems to have been taken well in Mexican markets. Even though the ADRs--Mexican stocks traded in New York--were down, reports indicate that Mexican stocks are trading up in Mexico. So, the market seems to be taking it well in Mexico so far, and the peso hasn't traded out to its limit.",129
-fomc-corpus,1994,"If you are going to do 15 percent, you really want the market to do 10 to 12 percent on its own.",27
-fomc-corpus,1994,Sounds just about perfect.,5
-fomc-corpus,1994,Let's hope it doesn't happen again.,7
-fomc-corpus,1994,The first 35 minutes.,6
-fomc-corpus,1994,Right. It's not over until it's over.,9
-fomc-corpus,1994,"I take the longer view, an hour or so!",11
-fomc-corpus,1994,You'd never be a good foreign exchange trader!,10
-fomc-corpus,1994,No!,2
-fomc-corpus,1994,"As Peter mentioned in his earlier report, one problem with their monetary policy is that they have an auction today of their tesobonos and another auction tomorrow of their peso-denominated debt. Financial market reactions will depend on how they choose to play those auction results.",52
-fomc-corpus,1994,To get good results on that or at least not disastrous results would be very helpful. President Hoenig.,21
-fomc-corpus,1994,"Thank you, Mr. Chairman. The Tenth District economy continues to grow at a healthy pace and gains remain spread across all states and all industries. Our bank directors are almost uniformly positive about current conditions and the near-term outlook for our region. One key example comes from the transportation industry, where reports show strained capacity resulting from very strong demand for shipments of coal, autos, building materials, and a variety of other products. In almost every part of the District, we continue to hear reports of shortages of labor, spanning both skilled and unskilled. Consistent with these reports, current data show nonfarm jobs in the District up almost 3 percent in October from a year earlier, about equal to the nation. Most states added jobs at rates close to the District average, but a couple--New Mexico for example--were substantially over the average. Manufacturing continues to improve, with most of the strength in the durable goods industries. Our contacts in the District's key automobile assembly plants tell us that they are operating at capacity levels following the changeover to new models. Major expansions are under way in the District for plants producing computer chips and other computer equipment. Construction activity remains robust across the District. Most of the recent strength has been in public projects with some modest slowing in home building. The energy sector is at least stable over the past few weeks, but farm incomes are probably on the weaker side for us, especially in cattle and hog production. Bank credit continues to increase at most District banks, with strong loan growth offsetting some modest decline in securities. At the national level, we are looking for growth in the last quarter to be as much as 5 percent. I look for that momentum to carry forward into next year. I also share the view that the economy is currently operating beyond long-term potential levels. Such measures as the unemployment rate and capacity utilization certainly suggest that and perhaps even an overheating economy. At the current policy stage and looking forward to next year, I think we do have continued inflationary pressures that confront us as we enter 1995. With that, to avoid going over the fence, I'll shut up.",428
-fomc-corpus,1994,President Moskow.,4
-fomc-corpus,1994,"Mr. Chairman, economic activity on balance in the Seventh District appears to be even stronger than at the time of our November meeting. Like the Greenbook, we have raised our estimate for real GDP growth for the fourth quarter, and I expect it to be in the 5 percent range. It also seems likely that rapid growth will persist into the first quarter of 1995, with some likelihood of growth in excess of 3 percent. With real GDP already slightly above potential output, this robust pace of real activity threatens to generate a noticeable increase in CPI inflation later in 1995, moving inflation above the Greenbook forecast. Indicators of consumer activity in the Seventh District remain quite robust. For most of the District, the holiday sales season is running very strong, particularly for such durables as personal computers, electronics, appliances, and big screen televisions. Only sales of soft goods such as apparel have lagged. The District's manufacturing sector continues strong after the summer supply disruptions in the automobile industry. Auto and light truck sales are running at about a 15-1/2 million unit annual rate in the fourth quarter. Although availability continues to constrain sales for some models, many of the problems should be resolved over the next six months, allowing domestic producers to continue to gain market share. Over the next six months, the Big Three automakers plan to boost light truck capacity at existing plants by about 800,000 units through a number of changes to production processes. Production schedules for the first half of 1995 are quite aggressive, up 4 percent in the first quarter from strong year-ago levels and up 5 to 6 percent in the second quarter. While this is a very upbeat assessment, some extremely tentative signs of moderation in automobile sales were reported to us just recently. Specifically, reports yesterday from two major automobile manufacturers revealed some softness in demand at the dealer level. Although retail sales remain strong, some dealers have pared back their orders from manufacturers, possibly as a result of declines in showroom traffic, unexpected increases in stocks, or higher interest rates. In response, one manufacturer has taken the unusual step of trimming its production plans and reducing overtime levels at several plants. Although it is too early to attach much weight to these reports, they may represent early tangible effects of this year's increases in short-term rates. Heavy-duty truck sales were strong again in October, and it now looks as if sales for all of 1994 will set a new record high. Orders also remain brisk, with the backlog extending into next year's fourth quarter. The backlog is due at least in part to producers allowing customers to lock in current prices and avoid expected price increases next year if they are willing to accept later delivery. Significant strength is also evident in our District's steel, machine tool, and office furniture industries. In the agricultural sector, the situation is more mixed. It appears that some slowing has occurred in sales of farm equipment, especially for large tractors and combines. Still, domestic manufacturing schedules are up strongly in November and apparently in December as well. Prices in livestock markets have been depressed by large meat supplies, particularly for hogs. On the other hand, crop markets have been supported recently by improving export prospects and by the heavy use of government price support programs, especially among farmers in District states. Upward price pressures are reported for food packaging costs, including very steep 25 to 30 percent increases in corrugated cardboard prices, with another increase expected in January, as well as increases in prices of tinplate and bottles used as beverage containers. In addition, the explosion of a major fertilizer plant in Iowa has added temporary pressures to tight supplies and sizable price increases already evident for fertilizer. On the employment front, labor markets continue to firm. Auto-related employment is at its highest level since 1979, and overall manufacturing employment in the District is back to its 1989 level. In Michigan, the unemployment rate in November was the lowest since the end of 1969, and in Illinois, the rate was the lowest since the late 1970s. Moreover, surveys of employer hiring plans in the Midwest are the highest in at least 18 years. The tightening in District labor markets has been accompanied by more frequent reports of upward pressure on wages due to labor shortages. Overall, Seventh District economic activity is consistent with the national economy. It has continued to grow at a rate that, if maintained, would lead to increasing inflationary pressures.",891
-fomc-corpus,1994,President Parry.,4
-fomc-corpus,1994,"Mr. Chairman, the Twelfth District's economy is growing solidly. Outside of California, the pace of growth is moderating in some of the intermountain states, although Oregon's economy seems to be accelerating. Economic indicators for California show continued improvement, aside from the financial problems in Orange County. The current estimate of the Orange County investment pool's losses is $2 billion, but the ultimate loss probably is going to be slightly higher. That $2 billion is equivalent to around 2-1/2 percent of Orange County's $75 billion personal income or around .3 percent of total state income. However, the comparison with a single year's personal income overstates the economic impact of the financial losses, since a large proportion of the funds was earmarked for capital expenditures that are spread over several years. Since more than 97 percent of the funds in the pool were invested by government entities within Orange County, most of the economic effect will be felt in Orange County itself, which accounts for roughly 10 percent of California's economy. The county and other participating governments appear to have been largely successful so far in finding ways to meet immediate cash needs. There is still a great deal of uncertainty about how the effects will be distributed among the affected jurisdictions. However, it is clear that these local government entities will cut spending substantially. Orange County already has postponed some large capital projects and put a freeze on hiring and all nonessential spending. A number of other jurisdictions are making similar moves. One of the immediate effects has been to raise the cost of borrowing for Orange County governments and for the State of California. As was discussed earlier, credit spreads rose on municipal securities all over the country after Orange County filed for bankruptcy. These spreads generally have fallen back to the levels that prevailed before the problems in Orange County became public. The exception seems to be the State of California. Credit spreads on state issues rose more than on most other tax-free bonds. Subsequently, spreads have come down only a little from their post-bankruptcy peaks, and they remain higher than they were before the bankruptcy. This might reflect market speculation that the state government, which already is financially weak, eventually will be asked to bear some of the cost. In this regard, I should point out that in contrast to California State bonds, the credit spreads for actively traded city and county issues within California look about like those for municipals in the rest of the country. Exposure of Twelfth District banks to Orange County has been and continues to be minimal. Loans and direct holdings of Orange County debt by banks are small, and the same goes for exposures under letters of credit. However, a few banks face some indirect exposure through sponsorship of mutual funds with Orange County holdings. Sponsors of some affected mutual funds, notably the money market funds, bought the funds' holdings of Orange County debt to prevent their funds from realizing the full losses. In other words, they wanted to make sure they didn't ""break the buck"" on the money funds. In general, the market seems to have differentiated among various mutual funds according to the extent of their Orange County exposure. We also learned that one of the banks that has a tax-exempt money market fund, instead of buying the Orange County paper at par as was done by a few other banks, issued a letter of credit for the Orange County debt, which of course increased its price and reduced the problem. I'd like to turn to the national economy now and hopefully I will remain on the right side of the fence as well, but I certainly don't want to be on top of the fence. [Laughter] The national economy continues to exhibit surprisingly strong growth in employment, output, and spending. Indeed, the evidence suggests that the current pace of real economic activity has not been diminished very much by the tighter stance of monetary policy this year, or at least that any policy effects have been more than offset by other factors. Simulations of our own structural model, which has a monetary policy response similar to models such as DRI's and Ray Fair's, suggest that the tightening so far this year has reduced the growth rate of GDP by about 1/2 percentage point in 1994. The tightening also is projected to reduce GDP growth by a full percentage point in 1995, and another 1/2 percentage point in 1996. Long bonds have moved up more quickly than they often do in response to a policy tightening; there were charts in Part II of the Greenbook that illustrated this. This early increase has probably accelerated the effects of policy, so a greater proportion of the effects of the monetary restraint than suggested above may already have been achieved. I might note parenthetically that this has a rather interesting implication for the MPS model where one-half of the effect is in the third year. That is very different from any other model. The more conventional models are showing a faster effect. Even assuming that monetary policy tightens further, as in the Greenbook, our structural model sees a substantial risk that inflation in 1995 and 1996 will be somewhat above its current pace.",1020
-fomc-corpus,1994,President Forrestal.,4
-fomc-corpus,1994,"Thank you, Mr. Chairman. The economy in the Sixth District continues to expand, although the pace of the expansion has decelerated somewhat from the growth rates we saw earlier in the year. Consumer spending is holding up quite well. We had a rebound in retail sales right after the Thanksgiving holiday that has continued this month, and most retailers are now expecting that they will exceed last year's strong levels by as much as 6 to 8 percent. However, they are also reporting that their sales are dependent to a large extent on special promotions and discounts, and that obviously is cutting into their profit margins. Big ticket items are selling particularly well. Sales of apparel, which had been weak for some time, are also seeing strong gains. We have had reports starting in November that automobile sales were slowing, and that has continued through the first half of December. Tourism remains a very bright spot in the District economy. Manufacturing activity was relatively flat in the Sixth District last month, although most plants expect to see gains over the next six months. Producers of lumber and building materials are operating at or near capacity, but several of them have noted that shipments have begun to decelerate. The same pattern is showing up in home furnishings and equipment. In contrast, activity at producers of paper, pulp, and chemicals rose substantially, and demand for auto parts is also strong. Again, the outlook for capital spending was a little less favorable than a month ago. Home sales in the District fell below strong year-ago levels in most areas, although realtors are reporting that they expect a rebound in sales in the spring. Multifamily real estate markets continue to improve and rental rates are rising. Commercial real estate is also doing relatively well throughout the region, although I find it interesting that some architects report that demand for their services is in decline; that could imply some softening of construction next year. With respect to loan demand, bankers say that it's mixed, with increased commercial real estate lending and declining mortgage lending. Automobile lending also declined along with sales. Labor markets haven't changed very much in the District since last month. We continue to see labor shortages reported in certain areas. It's most pronounced in Tennessee and in Atlanta. In Atlanta, it's related partly to the Olympics and partly to retailers who are finding it very difficult to get people for the holiday sales period. Skilled construction workers are in strong demand everywhere, and wages in that industry are rising sharply. As for prices, about 50 percent of manufacturers indicate that they are still being pressured by the rising costs of raw materials. They are noting difficulty again in passing these costs on to final goods. I would just add with respect to Orange County that we haven't seen any fallout in our District from that episode. Now your fence looms rather large in front of me as I turn to the national economy, but let me go at it this way if I may. We, too, were surprised by the rapid rate of growth in 1994 and by the relatively low inflationary response to that growth. As opposed to the last couple of meetings, we did not run forecasts with an assumption of tightening. We did it with constant federal funds this time. It's interesting that our GDP forecast through the fourth quarter of 1996 brings the rate of growth in real GDP down to about the 2.5, 2.6 percent level throughout that period without any tightening at all. The CPI through that period is higher, as you would expect, than the Board's forecast, but it remains at about a 3.2, 3.3 percent level throughout 1995 and 1996, with the unemployment rate somewhat below the Greenbook forecast. That raises the question in my mind--and I think I raised this last time--whether or not there is something different going on in the economy this time around that would suggest that potential growth is higher and the NAIRU is lower. But I think the basic question is whether or not there can be greater growth in the economy with less inflation, thereby implying somewhat less tightening than is forecast in the Greenbook.",821
-fomc-corpus,1994,President Broaddus.,5
-fomc-corpus,1994,"Our directors and other business contacts continue to report generally robust activity in our region with just a couple of exceptions that I'll mention in a minute. I guess the most striking anecdotal information we have gotten lately has to do with labor market conditions, which as a number of other people have noted for their Districts appear to be tightening very noticeably throughout our region. At our last board meeting about 10 days ago, we had several reports of shortages in both retail help and construction workers. The shortage of construction labor is said to be pushing construction costs up in North Carolina. Also in November, West Virginia posted the biggest monthly increase in jobs ever in that state, and it was quite broadly based across the West Virginia economy. Elsewhere, most of the information we have on holiday sales has been positive. Also on the positive side of the ledger, we see increasingly clear signs of a firming of conditions in commercial real estate markets in a number of local areas. Actual construction has not accelerated markedly yet, but commercial vacancy rates are declining, rents are beginning to increase in at least a few metropolitan areas, and there is talk about increases in other areas not too far down the road. Prime space has become increasingly hard to come by, especially large blocks of it. Lest you think the only news we ever listen to in our Bank is good news, let me mention a couple of signs of possible moderation in activity in some sectors in our region. We do a monthly survey of manufacturing activity in the Fifth District, as a number of other Reserve Banks do in their respective Districts. Our November survey suggested fairly significant slowing in activity in that sector, which is very important in our District. This slowing is in some contrast to the published national data. Also, we see continuing signs of a flattening in residential real estate activity across the District. At their meeting a few days ago, our Charlotte directors said that buyer traffic for single-family homes had hit a wall in the month of November. We never know how much weight to give to that kind of anecdotal information, but it does seem a little at variance with some other things we have heard. Finally, with respect to prices in the District, our latest monthly survey suggests that both manufacturers and retailers are now expecting somewhat sharper price increases over the next six months than they were just a few weeks ago. Nationally, of course, the broad contour of the Greenbook forecast hasn't changed a great deal. The thing that struck me is that--there has been some comment about it already--in spite of the strong projected growth near term, the bulge in the CPI predicted for the first quarter of next year is noticeably less pronounced than it was in the November Greenbook. Inflation remains relatively steady over the whole two-year forecast horizon. I think Mike's comments suggested fairly that projections key off of the recent favorable actual inflation data rather than the apparent strength in real economic activity and the strong job growth and low unemployment rate. Let me just say that I don't envy the staff's task in developing this forecast. I think developing any kind of reasonable and credible forecast in this situation is exceedingly difficult and the forecast we have is certainly plausible. Still, I think we have to recognize that this projection can be described as relatively optimistic under the circumstances. There are considerable risks in the forecast at this point, greater perhaps than we have seen earlier. I think these risks are probably somewhat more balanced than they have been up to now, but there still are substantial upside risks. As we all know, the economy is clearly very strong; it's really roaring I think; but there are quite a few signs of weakness here and there. There is a lot of talk about passing intermediate-level price increases through to final prices at the beginning of the year. So I think there is certainly a possibility, more than marginal, that we could begin to see the economy overheat as we move into next year and see an inflation rate significantly higher than the rate the Greenbook is projecting. At the same time, I think the downside risk on the real side as we get out into late 1995 and early 1996 is greater now than it has been, especially given the further tightening of policy that may be needed to contain inflation going forward. Because of this--and I'm going to step on your fence if I may here just briefly, Mr. Chairman--while I think some additional restraint will almost certainly be required before this thing is over, I believe we need to be somewhat more cautious in applying it than was necessary earlier this year when we were further away from a cyclical peak and when we had a serious credibility problem. Speaking of credibility, I think the recent behavior of the bond rate suggests, to me at least, that we have acquired some of late. In my view, that is the most encouraging development we have seen in some time. The trick is going to be to maintain it going forward as we move into a situation where the risks are at least a little more balanced than they have been. I might just note once again if I may that precisely in this kind of situation, something like an inflation target might be helpful.",1031
-fomc-corpus,1994,President Stern.,3
-fomc-corpus,1994,"Thank you. For the most part, the Ninth District economy remains very strong; much of it is operating at full employment or maybe even beyond. Two interesting pieces of information have become available since the last meeting. On the anecdotal side, I think there is some accumulating evidence that housing is slowing down, both sales and construction activity--that there has been some response to higher interest rates. I wouldn't say that the supporting information is overwhelming, but I think there has been enough of it to indicate some effect in our area. Secondly, we did have a meeting with a large number of Twin City business leaders several weeks ago, and I would say the general tenor of that meeting was that whatever we have here, we don't have equilibrium. What I mean is that most of their talk was about labor shortages across the board, from the skilled to the entry level jobs. That market hasn't cleared. It has not resulted yet in a lot of wage pressures, although people talk frequently about raising wages in one part of the pay scale or another. But it sounded to me as if there is more to come, that we clearly have some disequilibrium. The same thing was true when they discussed what they were seeing in terms of crude and intermediate materials prices and availability. There obviously are pressures there. It sounded to me as if there is more to come and that ultimately that will put pressure on final goods prices. Now whether this results in simply a blip in inflation at the consumer level or something more sustained remains to be seen. But clearly there is a lot of pressure. If these people are representative, there is a lot of pressure coming. With regard to the national outlook, I guess what I found the most surprising part of the Greenbook forecast, something that people have already commented on, was the inflation outlook. If I used the Greenbook type of framework, which as I understand it relies a lot on capacity pressures to drive inflation, and look at how the economy has performed and where we are in terms of the unemployment rate and capacity utilization and so forth, I think I would come out with a lot more inflation over the next several quarters than is there. My concern is that we could get an acceleration of inflation--the 1/4 point or so that the Greenbook seems to envision is just noise. That could happen or not happen depending on a lucky or unlucky break or two. My judgment would be that if we get an acceleration of inflation, we will not need a magnifying glass to discern it.",505
-fomc-corpus,1994,"That is the point I was trying to make before, Gary. This business of a 1/2 percentage point increase in inflation at an annual rate as though that means anything--",36
-fomc-corpus,1994,You can go from 0.2 to 0.3 of a point--,17
-fomc-corpus,1994,You can round the numbers to the nearest 5 percent!,12
-fomc-corpus,1994,"You can go from 0.2 to 0.3 percent per month and that gives you a percentage point right there. On a monthly basis, it doesn't look like very much.",38
-fomc-corpus,1994,President McTeer.,5
-fomc-corpus,1994,"The economy in the Eleventh District continues to show the same healthy rate of growth that has been in place throughout 1994. We have been looking intensively for signs of slowing activity in response to tighter monetary policy. So far the only perceptible slowdown has been in single-family construction, which peaked in April, but this decline has been more than offset by strong activity in multifamily and nonresidential construction. There has been no slowing in the rate of expansion of the most interest-rate-sensitive sectors of our manufacturing industries--rubber, plastics, lumber, nonelectrical and electrical machinery, primary and fabricated metals, furniture, paper, stone, clay, glass, all of those. Defense-related and energy-related manufacturing are the only areas other than single-family construction that show signs of weakness. I continue to hear scattered reports of price and wage pressures, but the number of these reports seems to have dissipated since the last FOMC meeting. Nonetheless, capacity constraints are strong and possibly intensifying for electronics, petrochemicals, and paper products. Wage pressures are reported in the electronics, telecommunications, fabricated metals, and trucking industries. Firms in the temporary help industry expect even greater difficulty recruiting skilled workers next year, which could put even more pressure on wages and prices. In spite of growing pressures on wages in several industries and rising materials prices in a number of others, we have seen little evidence of price rises on final goods and services, especially at the retail level. In fact, our Beigebook contacts in the retailing sector tell us that intensified competition in recent months has brought the average of their selling prices below those of a year ago. As the Greenbook points out, we have all consistently underestimated the strength of the economy throughout this year. All the risks seem to be on the up side at this stage with respect to real growth as well as inflationary pressures. The improvement of job prospects, consumer confidence, and credit availability are propelling strong growth in the consumer sector. The need to add to capacity is putting upward pressure on investment spending. Stronger economies in Europe and Latin America will be increasing our export demand. There is nothing in the new fiscal policy proposals that would stifle these demand pressures. Quite the contrary, the anticipation of tax cuts will likely add to demand pressures, capacity constraints, and price and wage pressures in the coming months. Mr. Chairman, I'll defer the next sentence!",484
-fomc-corpus,1994,I don't know how successful this is. [Laughter] Vice Chairman.,15
-fomc-corpus,1994,"Thank you, Mr. Chairman. The Second District continued recent trends of a robust economy in New Jersey and a slowing expanding economy in New York State. Data for the most recently available month indicate that employment grew 2.7 percent in New Jersey and stagnated in New York. Consumer sales throughout the District in November grew quite moderately, but the data and the anecdotal evidence indicate a strong Christmas season in all parts of our District. On the national level, I feel that there is great uncertainty about where the economy is going, or at least I am very uncertain. I do not believe that growth in the very strong fourth quarter, which could well be 4-1/2 to 5 percent or even more, is the real world but a happenstance of all possible positive elements coming together. If it is not too good to be true, at least it would seem too good to continue, and growth next year should slow down to a sustainable pace. Our Q4/Q4 GDP growth forecast for 1995 under current policy assumptions is 2.4 percent with the CPI at 3.3 percent and going up. We think that the cost pressures that have been discussed by many people probably are already baked in the cake. The greatest uncertainty is to figure out where current monetary policy is and its effect on the economy. Is it tight and, if tight, in relation to what? We did some work on comparing the present policy stance at full employment, and we tried to find some previous periods when one could say the economy was more or less in the same macro performance position. We came up with April 1972, May 1978, and November 1987 as periods to be compared. Then we looked at various indicators of whether monetary policy is tight or not. If you look at the real fed funds rate, which we compared with the latest 12-month CPI, it's now 2.6 percent, which is considerably tighter than in the 1970s and somewhat tighter than in 1987. The monetary aggregates, M1 and M2, are very much tighter than in all the previous comparison periods. The Treasury yield curve is flatter, which would indicate that the market feels that policy is better positioned than it was in those previous periods. Even the crude PPI, which has been rather troublesome lately, if you look over the 12-month trend it too indicates that price performance is better, and therefore one would think that monetary policy may well be tighter. I'm not sure that that tells us that current monetary policy is perfect. It doesn't tell me whether it's a little too tight or a little too loose or very much, except that it tells me that if I were to leap over what tiny bit of fence remains, that waiting might have something going for it. Thank you, Mr. Chairman.",570
-fomc-corpus,1994,Sounds like a leap to me. President Jordan.,10
-fomc-corpus,1994,"Thank you. With regard to Orange County-type developments, before that drove everything else off the newspapers, we were getting a number of similar reports in our area. Cuyahoga County lost $150 million, which they say is equivalent to a new football stadium, so we have a team for sale. And it appears now that the state held $900 million of stripped bonds that are deeply under water. So, we are going to see significant reductions in waste, fraud, abuse, and underemployed people on county and state payrolls! These people will be going to work, fortunately, because they are going to find a very good labor market. I focused this time mostly on manufacturing. Manufacturing employment in our District is almost 50 percent above the national average; it's really the main part of the Fourth District economy. With only one exception, manufacturers said that the NAM president does not speak for them. Sometime people volunteered this to me; sometime I sought out their views. If there is a NAIRU in the Fourth Federal Reserve District, I would say it's a lot lower than it is assumed to be for the nation because our unemployment rates are 4 percent or less in most of our metropolitan areas. And yet I still don't sense any change in people's attitudes about what will happen to inflation in the future. People talk about very tight labor markets. I continue to hear the same stories about shortages of skilled and unskilled workers, yet it doesn't seem to be getting built into people's plans. They may be looking to that reservoir of previously discouraged workers that was supposed to have existed, or the disguised unemployed that we are supposed to have inherited from earlier periods, or the otherwise underemployed people out there. But if they exist, they live in other Districts and we are having to import them; we have reversed the population flows and are getting some in-migration. Our manufacturers talk about paying hiring bonuses and performance bonuses based on having had a very good year, but they are not building pay increases into their wage bases in order to attract or to retain workers. One of the states, Kentucky, recently suspended its program to attract businesses to the region because they simply view their labor market as so tight that going out and trying to steal companies from other regions of the country was not a very profitable thing to be engaged in. The person who told me this was very disappointed because he heads up that program and he was not sure what he was going to be doing. I talked to the CEO of one of the giant companies that mainly supplies the motor vehicles industry, especially heavy trucks, and also produces other equipment. With regard to his capital expenditure plans for the longer run, whether for increasing capacity or making productivity-enhancing investments, I asked him what assumptions he made about future price increases. He said zero. He was very adamant in saying that it would be irresponsible for any industrial leader in America today to assume that they can plan on any price increases for their output. Instead, capital expenditure proposals are evaluated on the basis of their ability to achieve the productivity increases to match any cost increases in labor or other resources. I thought this was at least one bit of evidence that what we are trying to achieve--stability in the purchasing power of money--is beginning to take hold in the minds of our business people. Another industrial leader from a very large company that supplies paints and other chemical products approached me saying that we must have an immediate and very substantial increase in the federal funds rate. And, of course, I was curious and asked him why he felt that way. Was he concerned about inflation? He said absolutely not, because he could not increase his prices. In fact, he said that he was trying to hold the line and resist pressure to reduce his prices because of increased competition. But his costs were killing him and the Fed needed to raise the funds rate in order to reduce those costs. Small and large manufacturers in the District are doing very well in the export markets, especially exports to Mexico and Canada. District exports have posted strong increases in the last two or three years, and companies that had never engaged at all or significantly in these markets are now finding them very attractive and are doing quite well. I hear a lot of reports of plans to increase capacity in the next year or two as well as continuing emphasis on labor-saving investments. Turning to the national economy, I can understand why people who believe that the growth that we have had in 1994 is the result of prior demand stimulus would feel that we ought to take that stimulus out before it spills over into excess demand and therefore rising prices. It is a legitimate point of view. It is not clear to me why we didn't recognize that excess demand earlier and therefore make a better forecast for 1994 if we knew that that was what was going on. Maybe hindsight provides the answer. But I still think that we ought to consider an alternative interpretation of what we have been experiencing this year and that is that it is the dividend for prior restraint. We should have expected that policy actions to reduce inflation and to build our credibility on the inflation rate would produce the type of output increases that we have had. Therefore, what has been going on this year is not the sort of thing that necessarily spills over into rising prices and higher inflation in the future.",1068
-fomc-corpus,1994,President Melzer.,4
-fomc-corpus,1994,"In the third quarter, nominal GDP was up 6.7 percent from a year earlier, the largest year-over-year rise in five years. More recently, nominal retail sales rose at a 15.1 percent annual rate from July to November, the fastest four-month pace since the spring of 1987. There are few signs yet that our monetary policy actions have slowed the pace of spending. Since March, for example, business loan growth has accelerated to an 11.1 percent rate, after falling in 1993. Nevertheless, in my view monetary policy has shifted toward restraint. All monetary aggregates have shown relatively weak growth since spring. Inventory investment has been very strong this year. In my view rapid inventory accumulation has been desired and is likely to continue for a time. Despite rapid inventory accumulation so far this year, the inventory-to-sales ratio has remained near the lowest level since the early 1950s. According to a recent survey by our staff, attempts in the Eighth District to build inventory, especially of finished goods, have been unsuccessful simply because of continuing strong sales growth. One major motor vehicle manufacturer in the Eighth District reported that it held larger stocks than its two domestic competitors simply because, in contrast to its rivals, it had the capacity to keep production closer to the pace of sales. Even so, this firm has had difficulty in keeping its strongest selling models in stock. Such observations matched the concern with respect to the nation as a whole expressed in the National Association of Purchasing Managers surveys in October and November. In November, employment gains exceeded the robust average monthly increases from January to October and were more than twice as large as the average monthly rise in the civilian labor force. Eighth District unemployment fell to 4.7 percent in October, its lowest level since August 1974. That's a level at which we have been hovering for some time. On a comparably measured basis, the nation's unemployment rate has fallen to its March 1989 level, which in turn was the lowest since December 1973. Notwithstanding this evidence of strength on the real side, the positive reaction of the bond and other financial markets in recent weeks is heartening. I hope this means that the markets now believe that the long-term inflation rate will not accelerate from its current level. Whether the nearly universal expectation that inflation over the near term, or the long term for that matter, will be 3 percent or more is acceptable is another question, as is whether we act today in terms of any short-term actions. I am not at all averse to strong cyclical real growth if the thrust of our policy is consistent with long-run price stability and we have credibility.",539
-fomc-corpus,1994,"Unfortunately, President Boehne had to leave because of an emergency he had to attend to. I'd like to ask Rick Lang whether he could give us a brief survey of what is going on in the Third District.",43
-fomc-corpus,1994,"Thank you, Mr. Chairman. The Third District economy continues to expand but at a more moderate pace than in the nation as a whole. Employment levels in several areas of the District still have not reached their pre-recession levels. Manufacturing activity continues to be one of the strong points; its levels continue to be high, although not as high as in earlier months. Retailers are telling us that they are experiencing good holiday sales, especially sales of durable goods. Housing activity around the District remains mixed, with only a few areas in the District showing signs of strength. There are some signs of increases in nonresidential building activity, although this is not translating into substantial gains in construction employment at this point. Bank lending around the region is up but also not as strongly as in the nation as a whole. That is particularly true of business lending. Price pressures continue to be evident in the manufacturing sector, but they do not appear to be widespread around the region. Also, although we do not have evidence of strong pressures on wages in the region, we do hear of more cases of signing bonuses being given to workers in some sectors of the District economy. Thank you, Mr. Chairman.",237
-fomc-corpus,1994,Thanks very much. Governor Lindsey.,7
-fomc-corpus,1994,"Thank you, Mr. Chairman. I'll try and stay entirely on the right side of the fence by talking about fiscal policy! [Laughter] I have three observations to make: First, we are now getting the first indications of the effects of the 1993 tax law changes. I have presented scoring stories to this group before. I want to stress that what we have are very preliminary indications, but they are from both the macro aggregate level and from detailed micro data that were published in Statistics of Income. According to our staff estimates, if you look at a liability model estimate of what taxpayers owed, in 1992 it was $498 billion and in 1993 it was $522 billion. We had a net gain of $24 billion in liabilities.",153
-fomc-corpus,1994,That is for individuals?,5
-fomc-corpus,1994,"Yes, I'm looking at the individuals' side here. Personal income rose 4.3 percent between 1992 and 1993.",28
-fomc-corpus,1994,What was it without transfer payments?,7
-fomc-corpus,1994,"Slightly below that--4.1 percent. But there are offsetting factors. I could go on for too long, but you don't want me to.",33
-fomc-corpus,1994,I don't!,3
-fomc-corpus,1994,"The general approach to estimating, given the adjustments the Chairman is talking about, would be to take per-tax-return personal income. The elasticity of receipts with respect to per-return personal income based on the index used for inflation is 1.0. The elasticity for real increases is about 1.5. The inflation index for 1993 was 2.8 percent. So we would expect, if nothing had changed in the law, about a 5 percent overall increase in nominal receipts or $25 billion. We got $24 billion, which doesn't leave any room for revenue from the tax increase. Looked at from an alternative point of view, the estimated revenue from the tax rate increase was $15 billion. So, that would leave $9 billion left over, or an increase of about 1.8 percent attributable to economic growth. So, we would have to assume that receipts grew at only about 40 percent of the rate of increase in nominal income, which is also implausible. The micro data tell a very similar story. These are early tax return estimates and every year the Statistics of Income publishes an early compilation. I would stress that the data are early. What I want to contrast is, for the same type of sample, the top 763,000 taxpayers which in 1992 were those making over $200,000. Overall AGI for those taxpayers rose .4 percent versus 2-1/2 percent for other taxpayers. But when you break down the composition of income you get a pattern that I think strikingly suggests an enormous behavioral response. For example, looking at Schedule C income, which is notoriously susceptible to changes in tax rates, people making under $200,000 did not have a bad year; they gained about 3 percent, but the rich people did terribly. They had a decline of 43 percent in their reported business income. And while corporate profits for C Corporations did great in 1993, and partnership and S Corp profits for people making under $200,000 rose 28 percent, those sorts of profits fell 25 percent for people who were affected by the tax rate increase. The third parameter that is probably most susceptible to tax rate behavioral responses is charitable giving. Where overall charitable giving rose about 3 percent, charitable giving by those making over $200,000 rose 41 percent. If we add up the dollar changes here, a $5.5 billion decline in business income, a $14 billion decline in partnership income, and $2.9 billion in extra charitable deductions, just looking at those three factors we get a shortfall from 1992 levels of $22.3 billion that would have been taxed at an average rate of 38 percent. That would give us a shortfall of $8.5 billion. In other words, more than half of the tax increase was offset by behavioral responses. I found it striking because both the micro and macro data point in the same direction. I think that that type of evidence plus evidence that has accumulated over the last 15 years is going to lead to some modest changes, and I want to emphasize the word ""modest,"" in the scoring process that Congress will use. But I do want to disagree--and I rarely do--with Bob McTeer's observation. I think that we should keep in mind a number of effects with regard to what is going to happen to fiscal policy. In my mind the short-term effects of fiscal policy will probably be contractionary. To explain why, first, I think the dynamic will be to produce a near-term balanced change in the overall scoring. There are two philosophical reasons why the new leadership in the House should do that. First, Newt is a political philosopher, and his basic strategy is to reverse the observation that all politics is local, which is Tip O'Neill's approach, where you buy off the taxpayers in your District by putting up a project and they don't care about the national effect, meaning the tax implications. The election was run on a reversal of that strategy. And so I think if you're placing yourself in Newt's shoes as a political strategist, you want both to pay off your constituents and punish the opposition. That requires both tax cuts and spending increases. In addition, I think the lesson of the iron triangle is not lost, and there will be intentional efforts to try and weaken the long-term effects of the relationship between the bureaucracy, Hill staff, and the press by defunding it. So I think we will see that the timing of spending reductions will be much quicker than anyone anticipates. And they will be heavily oriented toward what in Washington we call ""reductions in force"" and the rest of the country calls ""firings."" They actually are not firings; they are buyouts. So, here is why I'd like to elaborate on why we should keep in mind that probably the net effect of what we are going to see is a fiscal contraction. With a buyout you give the departing employee a lump sum payment. That expands the government deficit. But the newly laid off employee does not run out and spend his buyout immediately; in fact, he's a little traumatized and will actually cut back on spending. So there would be one example of where you'd get an increase in the budget deficit which would not feed back into higher aggregate demand. Second, of those prospective tax increases, I think two in particular will happen. One is a child credit which actually will be dribbled out over the course of the entire fiscal year and may not even start until midyear. So you get $10 a week in your paycheck. The timing of the median-dollar fiscal impetus will be much later than the timing of the offsetting dollar of spending cuts. The other tax cut, which is capital gains, I think has clear timing issues. More important, I think there are issues for the effect on the marginal propensity to consume that dollar, which I think is probably quite low. So, I believe the net fiscal impetus that is going to come from the budget changes on a timing basis is going to be quite negative for 1995 and 1996. Second, I think if we look at the marginal propensity to consume issues again, the effect on demand of any fiscal change is going to be rather small. We always taught that the balanced budget multiplier was around 1 in a very simplified model or more precisely that the effect of a spending cut is more dramatic than the effect of a tax change. There is a third reason why that's going to affect the economy in a negative way, and that is that we are going to see I think an intensely regional distribution of the spending changes, mainly focused in the northern portions of the Fifth District! If you want any indication of that, go for a tour of some of the nicer sections of Upper Northwest section of Washington, and you will see ""For Sale"" signs just about everywhere, although I think there were local elections which may have affected that outcome as well as the national elections. As in the case of defense spending cutbacks, I think we are going to see a highly regionalized effect. The third observation I'd have on the net impact is on the regulatory side. I think that compared to the fiscal actions the regulatory actions of the new Congress will be extremely dramatic. Here I think the right model to think about is what happens to GDP when you stop building a pyramid. I don't mean to imply that all of our regulations are pyramids, but some have cost-benefit relations which are not much better. When you stop building a pyramid, you lay off workers and you have a negative effect on GDP. Those workers will eventually find employment. Their real output will be higher, but those real output gains will not be seen for two or three years. I think we are going to see a major change in the regulatory apparatus, and particularly in the mandating of the private sector and state and local governments to spend money for federal regulatory purposes. The net result, I think, will also be contractionary on the economy, at least over the forecast horizon. Thank you.",1634
-fomc-corpus,1994,Sounds like a 30-year bond rate of 5 percent! Governor Kelley.,16
-fomc-corpus,1994,"Mr. Chairman, in the spirit of ""contain yourself to what you see,"" what I see is what I've heard all morning--a very strong economy where the risks are rather heavily skewed to the up side. Let me take just a minute to mention two other matters. The first, which has been alluded to a couple of times this morning, is that there may be more substance than many of us think to this whole notion that we have some kind of a new economy with a lower propensity toward inflation. I am referring to this whole mix of arguments that we may have a lower NAIRU, a new level of competition, world markets with lots of capacity, much higher productivity, and probably less significant wage pressures than one might expect with this level of employment. I have had a lot of sympathy with that argument for a long time and spoke to it several times at our meetings during the spring. I don't much doubt that that has been present and is present in the mix of the economy right now. I think it probably is a significant reason why we have done as well as we have so far relative to the amount of growth and the amount of inflation that we have experienced. But I rather doubt that we can depend on that mix of considerations to carry us very much higher in the level of capacity utilization than we already are experiencing without having that mix of considerations exhaust themselves with higher inflationary pressures showing up. The other thing I'd like to mention is that I am worried about and puzzled by the formation of consumer debt. I think there has to be a serious downside risk there, either short term or long term. Consumer debt is off the charts on the up side in relation to consumer income or net worth, and its growth should slow. There are precious few signs that it is slowing so far, but there is a short-term possibility that what we are seeing now is that the consumer is indeed shopping until he or she drops and that maybe the wallet will close after Christmas. Inventories could start to build up quickly. That is something to watch immediately after Christmas. If we don't get some slowing in the near future, then I would worry that that is going to imply some other types of problems further on down the line that could perhaps be even more serious. Thank you.",457
-fomc-corpus,1994,Governor Phillips.,3
-fomc-corpus,1994,"Thank you. Our discussion has demonstrated the depth and the breadth and the resilience of the economy. These are terms that we usually use for market conditions, but we could certainly apply them to this expansion period. We are closing in now on four years of economic expansion. Growth in three of those years is now indicated to have been above potential in most parts of the country. It almost seems that Orange County is the only place that does not appear to be participating. A key question is similar to the one that Governor Kelley just posed; that is, when are we going to see stronger signs of a slowdown? So far we are hearing and seeing significant signs of momentum going into 1995. I do think that the monetary stimulus that extended from 1989 through the first part of 1994 is causing a good deal of the momentum, and I don't think we need to put too fine a point on it. Within that period we had 15 months of a 3 percent federal funds rate that certainly has had an influence. I do think that the so-called head winds died down sometime in 1993. People became more comfortable with their balance sheets, and the monetary policy ease started to show through significantly into the economic system. As other people have said, these restructuring head winds are now becoming tail winds. We are now reaping the benefits of the earlier balance sheet restructuring which is providing a lot of cash for both businesses and households to spend. Whereas we did have a credit crunch in the banking sector, now we are seeing significant willingness by banks to lend to both households and businesses. Both business investment and construction spending, which had been a drag on the economy, are now starting to contribute significantly to the expansion. Well, at some point it must stop. I think that forecasters have plenty of room to be humble as we end 1994. It is at least feasible that consumers could slam on the brakes early next year--when they balance their checkbooks when they really start to assess how much debt they have taken on. Maybe it will happen when they get the latest repricing of their ARMs or when the wealth effects start to hit as they get their year-end mutual fund statements. I think people are beginning to realize that the paycheck increases are not as great as they have seen in the past. We may not have the strong year-end bonuses in some areas that we have seen in past years. In short, I think that the party for consumers is going to be over, but it is not clear how far the current momentum is going to carry us forward from here. On the business side, I think that the tail winds actually may be a bit stronger because of the productivity kick that we are getting from re-engineering and technology investment. Eventually, monetary policy will start to bite harder as this pipeline effect works its way through the economy. We have been given breathing space with respect to final consumer price increases. We may have been saved by the bumper grain crop that we have seen this year. Energy prices backed off. We have had a mild autumn. Ironically, the labor market is giving us some mixed signals. There has been a lot of discussion around the table today about labor shortages, but also discussion of the fact that we are not seeing big pressures in wage markets. Jerry Jordan talked about some of the temporary measures that are being taken to try to deal with these labor shortages that do not affect the permanent wage structure. I think that despite the fact that we have a 5.6 percent unemployment rate, there is still some considerable unrest in the labor markets. People have jobs, but they don't necessarily have the jobs that they want or that they like. Except in some skilled areas there may be more flexibility in the labor market than we had thought. I believe there is a willingness now to move and change careers, and this willingness will be helpful in containing wage pressures as we move forward. And certainly on the benefits side, the health cost containment efforts have been helpful. In sum, as we move into 1995 I, too, think we are going to get a slowdown, but the question is when and how much. On the fiscal side, I'm not as confident as Larry Lindsey in making predictions. It seems to me that everything is on the table in the Congress. In this contest of wills that we are about to see, I hope that the loser is not deficit reduction. On the market side, the financial markets really have performed quite well given all of the shocks that we have experienced in 1994, but I think there is more yet to come. We have seen quite an orderly correction this year, but there may yet be some fallout. Joan Lovett and, of course, Bob Parry talked at length about Orange County. I don't think we have seen all of that play out. I don't think we have yet seen all of the implications of the Bankers Trust situation play out. When people get their year-end mark-to-market statements on their mutual funds, there may well be some surprises. I think many of the counties may still be trying to figure out exactly where they stand. So there may well be some shocks coming in 1995. The point of that, of course, is that there is considerable uncertainty as we go into 1995.",1067
-fomc-corpus,1994,Governor LaWare.,4
-fomc-corpus,1994,"Mr. Chairman, if the staff projection for the fourth quarter is correct, we clearly have a more vibrant economy than most of us had expected and the surprise is the lack of inflation flares in the current figures. I am somewhat puzzled by the Greenbook projection for the first quarter of 1995. The abrupt GDP slowdown seems to me to be counterintuitive. With the very high level of capacity utilization and reduced slack in the labor markets, pressures are building for price increases and higher wage demands when contract negotiations begin next year. What I find puzzling is the widespread existence of sales at significant discounts on every kind of merchandise. Brooks Brothers has recently offered 40 percent off on top-of-the-line goods, and the newspapers and catalogs are bursting with ads for sales. Coming during the top selling season of the year, these sales would seem to support the idea that price increases are very difficult to make stick. To be sure, steel--operating at or about 95 percent of capacity--has negotiated contracts for 1995 deliveries at higher prices. And that pattern will probably spread in the near future to other industries that also are operating at high levels of capacity. The momentum certainly seems to be there for accelerating growth in the economy even though it is already burning along at a rate well above potential. And as the night follows the day, inflation is certain to be lurking. The height of the Greenspan Wall prevents me from completing my prepared remarks at this time. I will wait for the gate to open. [Laughter]",308
-fomc-corpus,1994,The flood gate was it?,6
-fomc-corpus,1994,I've learned my lesson!,5
-fomc-corpus,1994,A less-than-successful building project.,8
-fomc-corpus,1994,"Yes, that is right!",6
-fomc-corpus,1994,That is really true.,5
-fomc-corpus,1994,Governor Blinder.,4
-fomc-corpus,1994,"I think the wall was extremely successful. I'm not going to breach it. I'm also going to be very brief since, coming almost at the end, almost everything that I might have said--and its opposite--has already been said! [Laughter] Let me take a few minutes to defend the conventionality of the Greenbook forecast against some of the objections that were raised. Although, as a small footnote, in thinking ahead about my Humphrey-Hawkins forecast in February, my inclination would have been to be a little higher on near-term growth--1995 growth--and maybe a little higher on inflation. But these are small differences. I want to defend the Greenbook both in the particulars, the kind of outlook that it is pushing--a rapid deceleration of growth and a small increase in inflation--and also on the basic methodology of being conventional. I think there is a lot to be said for, and very little on the other side, the staff of the central bank to be extremely conventional in its methodology and not buy on to hypotheses that have very little empirical support, although 10 years later that might look like a good idea. Usually it doesn't, but it might. Speaking as a citizen and as a central banker, I'm glad to see the staff sticking to the tried and at least not falsified methods! [Laughter] I agree with the Greenbook outlook that we probably have pushed a bit past the NAIRU. There is a probability distribution around this, of course, but the best guess is that the economy probably has pushed a little past the NAIRU, or noninflationary capacity. I also agree that it is quite reasonable to expect a very considerable deceleration of growth in 1995 under current policy and then a tiny bit more in 1996 if there is no further tightening. One of the reasons--Susan Phillips and several people have mentioned it--is something that is too easy to forget: the lagged effects of the stimulative monetary policy that only ended in February 1994, and only very slightly at that. It is even easier to forget the stimulative effect of the bond market rally that peaked in price, troughed in yield, only in October 1993. Everything we know about lags in interest rates says that those two things--the previous Fed stance and the bond market rally attributable to whatever you want to attribute it to--should be powering the economy in 1994. I think the main reason behind the standard forecasts' underestimates of 1994 was an unwillingness to believe in interest rate effects. It is the same kind of thing that is happening now; everyone is looking around and asking where it is, not believing, and then all of a sudden it is there. This has happened many, many times in the past, and I have no doubt that it will happen in the future. And it probably is happening right now. This is a second reason to expect a considerable deceleration. We first of all have the petering out of the previous expansionary effects of interest rates and, second, just the beginning of the early stages of the kicking in of the contractionary phase of monetary policy. As I think Mike indicated in answer to some question, you should just now be beginning to see the effects of the Fed's tightening in 1994. It is very hard at this point to see it in the tea leaves, but history suggests that it is right around the corner. So those are two fundamentals leading me to think we should have a sharp deceleration in 1995--the wearing off of the previous expansion and the kicking in of the tightening. Finally, there is the inventory swing. I think the staff outlook--I was about to say it is exactly right, but nobody can get it exactly right. Nobody knows the timing of this, but it is an awfully good bet that between the fourth quarter of 1994 and the fourth quarter of 1995, the inventory swing alone will take something between 1/2 and a full percentage point off the growth rate. It would be quite surprising if that didn't happen. So all that points to a considerable slowdown in the economy even if there is no more tightening of monetary policy, and somewhat more if there is. That is as close to the fence as I'm going to come right now. Let me just take two minutes on inflation. Many people are surprised, and several people have remarked around this table, about the modest rate of inflation given the rapid economic growth. I want to say two things about that. First, this is not quite as surprising as people seem to think. If we have overshot capacity, as Mike said, we have overshot very, very recently and by very, very modest amounts. And there are long lags. It would be surprising indeed if we already saw a sharp increase in inflation from that. Simple evidence, which says the same thing in a different way, is that the conventional Phillips curves are fitting this episode extraordinarily well. They have very small residuals. So, if there is a new economy due to greater openness, a traumatized labor force, or whatever--all these things are possible--the evidence for that is really not in the data. And so I think the staff is wise to stay clear of it. That is, it would be imprudent for us as central bankers to presume we are in a new, substantially less inflationary world. On the other hand, the recent news is good: To the extent that the errors are coming in not quite zero, they are coming in favorably. And while we would be imprudent to jump hastily to a conclusion that we are in a new world, we would be foolish to ignore the evidence as it comes in. And the Greenbook doesn't ignore it. They have written down the inflation forecast a bit in reaction to the recent data. I think that is about the right way to deal with it. Finally, a last remark about inflation and in defense of the staff: Standard econometric estimates would say that a 1 percent overshoot--1 percent as measured by the unemployment rate for an entire year--would add about 1/2 percent to the inflation rate. Now, it is correct that nobody should take these numbers as equivalent to the gravitational constant in physics--never mind Einsteinian amendments to that. We don't know these numbers nearly that well. On the other hand, there is no particular reason to think that it is too low rather than too high. It is the best guess, and even if you want to view that 0.5 percent effect as saying 0.5 plus or minus 2 percentage points, which I think would be very much an exaggeration of the errors, 0.5 is still as good a guess as you can make--except that, if anything, the incoming evidence seems to be pointing to a little less of an inflationary impact, not a little more, as I said a minute ago. So, the evidence is not overwhelming. But, if anything, it would shade you toward less of an inflationary acceleration, not more. So, there, I have defended you!",1453
-fomc-corpus,1994,Governor Yellen.,4
-fomc-corpus,1994,"My opinion concerning the strength and likely future direction of the economy has changed just marginally since our last meeting. Certainly, the evidence has continued to accumulate that we have an economy with a very good head of steam. We see that in the employment report, a significant rise in the help wanted index, growing order backlogs, and frankly to my surprise in the Michigan indexes of car, appliance, and house buying intentions which all turned up after having fallen, in some cases substantially, in November. So I must admit I'm surprised to see so little evidence of a slowdown, although I continue to feel--as I stated last time--that we are seeing in part the lagged effects of a prolonged period of low interest rates, as Governor Blinder also noted. There is certainly some risk that real growth will slow less in 1995 than the Greenbook forecast now assumes and that we could overshoot potential output in 1995 by more. Nevertheless, I'll just continue to emphasize, as others and I have in the past, that our previous actions have added a great deal of restraint to the pipeline. Since our last meeting real interest rates have risen considerably, and as Bill McDonough emphasized, real interest rates by various measures are not low by historical standards. We have seen, finally, a decline in the stock market, which will bring wealth effects on consumer spending into play, and for once the dollar has been appreciating--which re-enforces direct interest rate effects and plays some moderating influence on the inflation forecast. In addition, of course, as Mike has emphasized, inventory accumulation is bound to slow and it seems possible to me that accelerator mechanisms can then kick in to slow the economy significantly. So, I see a number of changes in the pipeline that I expect to work to cool off demand but with a very substantial lag. And frankly at this stage I remain uncertain as to just where the economy would be in 1996 with the 100 to 150 basis points increase that is assumed in the Greenbook. I share the concern of a number of private forecasters and of some of you that this degree of tightening in the near term could slow demand growth and that we could end up producing a boom/bust scenario. To avoid such an outcome, it seems to me that the funds rate would have to fall rather quickly, by more than the Greenbook assumes, once growth slows to trend, even with the economy below the NAIRU.",493
-fomc-corpus,1994,Thank you. Is coffee available?,7
-fomc-corpus,1994,Yes.,2
-fomc-corpus,1994,Let's take our usual break.,6
-fomc-corpus,1994,[Statement--See Appendix.],6
-fomc-corpus,1994,"Questions for Don? If not, why don't I start as usual? I'm impressed with the extent to which it is very difficult to find any negative factors in the current outlook. You can not find it in the order patterns, which are strong across the board. There are very few firms outside the defense-related area or long-term turkeys that are not doing exceptionally well. [Laughter] The Christmas selling season is, as always, difficult to read. The trouble with the Christmas selling season is that the constant dollar volume is really predetermined because retailers will sell what they have and the only thing that is indeterminate is the price. But that is quite relevant to how the system works when you get into the first quarter. Looking strictly at the data as they stand at this stage, it is very difficult to tell whether in this quarter the GDP growth rate is 3 percent or 7 percent. We are making forecasts about how the system is going to evolve. My own impression is that since it is extraordinarily unlikely that all of these positive events will continue without change for terribly long, one has to assume that this expansion will start to ease off at some point. The only thing that I think we have to be careful about is that the easing may be more delayed than we suspect. And until we begin to see the process of erosion in its early stages, we really have no basis for saying that the expansion is slowing down. We are looking at history; we are looking at relationships; but there are no significant demonstrable imbalances in the system that basically say things have to change. We are projecting that there will be a change, but that again is a projection. As of the moment in the labor markets, initial claims continue at quite low levels. The fairly strong pattern of C&I loans suggests that inventory accumulation is still moving at a reasonably strong pace and that is bolstered by the orders pattern, which suggests that producers' durable goods are doing well. Remember, a goodly part of inventories is supported by the capital goods and construction markets even though we don't keep the data that way. As best I can judge, profit margins are still on the firm side and even though profit forecasts are beginning to look more symmetrical rather than just continuously underestimated, the evidence on the profits side is still quite positive. Prices, as a lot of you have noted, are firming in the commercial real estate markets, although my suspicion is that the nationwide figures may still be eroding albeit at a much slower pace. I won't add much on homebuilding; it is a puzzle but I think that if it doesn't start to move down, then all of our historical relationships, all of our basic data, are lacking in predictive value. I don't believe what is going on in homebuilding, but we will find out eventually. I think the interesting question is why wages are not responding to what is a very rapidly tightening labor market. After speaking to some labor leaders and others who talk to their members and have a sense of this, I get the impression that long-term job insecurities are quite pervasive especially with respect to the portability of health insurance and pensions that make workers more cautious about changing jobs. The layoff rates are very low; the turnover rates are really quite low by American standards; and there is a tendency among workers just to stick with what they have. The effect of this, I suspect, is a major factor in holding wage increases to a very sluggish pace considering all the evidence we have been getting in recent months of labor market tightness. This is crucial because so long as that is the case and productivity is positive, unit costs are very well contained. Any endeavor to move final prices up in that environment induces competitors to come in and try to steal a firm's market share, which erodes the firm's pricing capability. So long as we have some evident flexibility in the system, then prices can not readily move. This doesn't necessarily mean that business firms have to run out of capacity; obviously, it just starts to get a little more costly or a little tight and we begin to get pressures. But it is not clear from the anecdotal data and the macro data that we have that these pressures are severe. I thought that the exercise that was done for the Greenbook Part II, which separated where the growth rates have been in manufacturing depending on which industries were at high operating rates, is tending to suggest that there is more flexibility in this system than our old conventional wisdom of capacity use would indicate. There obviously has to be a limit somewhere, and when we look back on this we may well find that we have a system that is a lot more flexible than we presupposed. This is also true, I think, with respect to monetary policy. While it is certainly the case that we have what historically would have been a not insubstantial amount of a policy impact by this time, the simulations that the staff has done, including the fact that long-term interest rates moved up faster than the normal process would imply, suggest that we are probably some 25 percent into the cumulative effects of our policy tightening at this stage. That is not a small number, and we are now seeing very little effect as a consequence. On the contrary, what we are seeing is an easing of credit terms in the banking sector and the old notion that we used to have 30-40 years ago--that the central bank would tighten, short-term interest rates would rise, bank credit would suddenly be crunched by Regulation Q or some other factor, financing would be undercut, and the economy would swoon--clearly is an historic relic and the disintermediation that we used to see is just not there. On the contrary, we are having difficulty getting banks to notice that interest rates are up. The interest rates on automobile installment paper are really lagging. Everybody is trying to protect market share, and this whole thing just doesn't seem to be coming together. But it will. It always does. And the question is essentially pretty much when. I think it is really worth recognizing that there is something quite different about the timing of this recovery. Ordinarily, a recovery has a much higher rate of growth in the early stages and slows in the later stages. Probably what is happening here is that we really didn't have the classic movement to a cyclical recovery until well into the cycle, and we are probably now at effectively the earlier stages in a geriatric sense as distinct from the calendar. What this suggests is that we probably still have quite significant momentum in the system, and it is not clear just when it will ease off. I wonder to what extent we can attribute all of this to monetary policy and monetary policy lags. Surely, we can attribute some of it; there is no question that that is the case. But there is an internal dynamic in the economy that is wholly independent of the business cycle. I do think the issue that Jerry Jordan raised is an interesting one, and even though it is very difficult to prove statistically, it may well be that the fact that inflation is relatively low may--despite all the discussions we have had about the inadequacy of the evidence--be contributing to improved productivity. If that is the case, we will get some greater growth in potential. I hope that one of these days I will be able to use one of these statistics after the fact, and finally say I told you so [Laughter]) without struggling. I must say I'm a little concerned about the continued ease in bank lending terms which I suspect is greater than the numbers show. I seriously wonder what our monetary actions from here on will do to 1995 as well as to 1996. I think it is true, as a number of you have pointed out, that if we really look at the distributed lags--the average performance historically of monetary policy--it is very difficult to make the case that what we may do in the early months of 1995 will have significant effects in calendar 1995 in real terms. I would only caution that if we get an unexpected breakout on the up side in inflationary expectations, the distributed lag of monetary policy will bunch up very quickly. We have to be careful about that. I do think the argument that most of the impact is delayed is clearly a correct view, but I think we have to be careful about the probability--even though it is low--of significant aberrations that could have important negative effects. All in all, if we decided that we needed to move the funds rate up at this meeting, which I don't support I must say, I doubt very much that that would have a negative effect on economic activity. I think the economy's momentum is still quite strong. I do worry, however, with or without the Orange County turmoil and the usual end-of-year problems, whether we would be taking undue risks in endeavoring to tighten in this environment. I think that the odds that we are going to have to move shortly after the first of the year, no later than our next meeting, are quite high. However, it is conceivable that this expansion could fizzle out fairly quickly. I frankly don't expect that, but I think we can't disregard that possibility. Where I would come out at this stage is that I hope we will be comfortable staying where we are for a while. I believe, as Don Kohn pointed out, that we have time to make further adjustments if need be, but because of the possibility that we might find it necessary to move after the first of the year but before January 31, I think it would be preferable to have an asymmetric directive. Vice Chairman.",1938
-fomc-corpus,1994,"Mr. Chairman, I support your conclusion that alternative B with an asymmetric directive is appropriate. As I remarked earlier, the degree of uncertainty about the effect of existing monetary policy suggests waiting. Also, the markets are very thin as Joan described earlier, and as Susan Phillips suggested we could have some remaining effect of governmental actions on Bankers Trust, which would create some uncertainty in markets. Therefore, I think that to make a move that is not absolutely necessary right at this time involves some degree of risk. It is difficult to quantify and would be better if we avoided it. Why asymmetric? We get enough data in the first half of the month--nonfarm payroll employment on the 6th of January, retail sales on the 13th, and industrial production on the 17th--",158
-fomc-corpus,1994,Industrial production we get much earlier.,7
-fomc-corpus,1994,We do?,3
-fomc-corpus,1994,"Yes, it is a Federal Reserve number!",9
-fomc-corpus,1994,"The world gets it later. In any case, I think what is important is not so much what we know but what is known outside. It might very well be the case that by the middle of the month, roughly, our strong views on price stability could be questioned. And, therefore, we should have the capability of moving. We can move in fact without an asymmetric directive, but I think that we are better off with the asymmetric directive toward tightening. Therefore, I believe that the combination of doing nothing today with an asymmetric directive toward tightening is the appropriate mix.",114
-fomc-corpus,1994,Governor LaWare.,4
-fomc-corpus,1994,"Mr. Chairman, one argument against policy moves at this time is this skittishness of the markets on the heels of the Orange County mess. On the contrary, I think the markets have reacted to the ""Lemon"" County and the Bankers Trust situations with great poise and restraint. In my opinion, the markets may be more dismayed by a lack of further tightening now, particularly as they sense the increased level of economic activity, the shrinking labor market slack, high levels of capacity utilization, and consumer attitudes that don't foretell much slowing of consumption. In the past, there has been market speculation that we were behind the curve. The November action countered that impression, and I worry that ignoring the continued strength of economic activity even temporarily may reignite concerns about our determination. At the risk of dubbing the Fed as the Grinch who stole Christmas, it seems to me we need to snub the brakes again without delay, and therefore I would prefer alternative C symmetric.",200
-fomc-corpus,1994,President Melzer.,4
-fomc-corpus,1994,"Thanks, Alan. I favor ""B"" asymmetric toward tightening. As I mentioned before, the response of the financial markets to our last move together with the slow growth of the aggregates convinces me that we can afford to do nothing now and observe the effects of our prior actions for a time. I must say, though, that I'm not at all convinced that we have fully met the current challenge especially if our goal, as I think it should be, is price stability. Therefore, I think it is important that we give serious consideration at the February meeting as to how we might convey our long-term intentions in this regard. The question that we had from Senator Riegle last July was indicative, I think, of the fact that perhaps on the outside there was some confusion as to exactly what we intended.",162
-fomc-corpus,1994,There has been some discussion that the new Congress would establish such a legislative goal.,16
-fomc-corpus,1994,"Yes. With regard to that issue, perhaps one thing we ought to think about would be to provide some longer-run inflation forecasts, say beyond 1995 or 1996, because, as an initial step in considering legislation, I think one could say that monetary policy is going to have its principal long-term impact on inflation. Eventually, I would be inclined to establish long-run inflation or price level objectives as some other central banks have done. Now clearly this is going to require a lot of further work, and I'm encouraged by the fact that the staff is looking into that issue. I would hope that we might have something, at least to start on, that we could talk about at the February meeting.",142
-fomc-corpus,1994,Governor Blinder.,4
-fomc-corpus,1994,"Thank you, Mr. Chairman. I agree that this is a good time for waiting. It was only 35 days ago that we raised the fed funds rate by what was essentially a record amount. The August interest rate increase was only three months before that, and by all historical standards ought not to be showing in the data as yet. That is to say, 125 of the 250 basis points of tightening that we have done up to now could not possibly be in the data at this point. I think if we were to move now it would imply some sense of alarm on our part, some sense of urgency that things were going badly wrong. And like you, I don't think things are going badly wrong. Things are looking pretty good. Even the next FOMC meeting comes just 11 weeks after the November 15 action, that is, less than a quarter. What is magic about a quarter? It is, of course, the magic number for a macro economist who tends to look at the economy every quarter. It is a shame there wasn't more spacing in there, but that is the way the FOMC calendar falls. So, I think you are almost surely right that it is wise to wait until the next FOMC meeting unless something fairly startling happens. In that regard, I would prefer a symmetric directive. I don't feel strongly enough about this to make a big deal of it, but I have a predisposition to wait until the next FOMC meeting for a number of reasons. I wasn't persuaded by Bill's argument that if these data that he mentioned come in strongly that we might not wish to wait what basically amounts to only two more weeks. If the Greenbook forecast without the additional tightening is, say, 2.1 percent real growth in 1995, which we were discussing before, it is not so obvious that we ought to take action to push it down lower than that. As I said before, I suspect that the projection might be a little on the low side; that without more tightening growth in 1995 might be higher than that; and indeed that more tightening might be necessary. I for one have an open mind about future increases in short rates. Finally, I won't repeat my thermostat speech of the last time, but I always keep in mind that the classic mistake of central banks in almost all times and almost all countries is to overstay either their tightening or their easing.",490
-fomc-corpus,1994,President Broaddus.,5
-fomc-corpus,1994,"As we all know, the Greenbook is assuming that the funds rate has to be pushed up another percentage point or perhaps even more to keep inflation from breaking out. Obviously, we can't know for sure at this stage whether that much tightening is going to be needed, and indeed as you suggested, Mr. Chairman, things may work out so that nothing more is needed. Still--",76
-fomc-corpus,1994,That is a very low probability.,7
-fomc-corpus,1994,"I would think so, and I think it is certainly a very high probability that we are going to have to do something more. The question before us this morning is whether or not we need to do some of that tightening today or whether we can put it off a little longer. I think it is a very close call. My own preference at this meeting would be to move the funds rate up 1/4 percentage point to 5-3/4 percent. I realize the 1/4 point funds rate moves earlier in the year had adverse reactions, and at that time some argued that those moves were made under sensitive circumstances. However, the situation is very different now. We only recently made a very strong move, so I don't think that kind of reaction would be a problem at this stage of the game. I think the main argument for a relatively modest further move today is that it would reinforce and lock in the quite considerable credibility gains that the November tightening appears to have produced, as I believe John LaWare suggested. I think some reinforcement at this stage would be desirable given the very strong recent data on both employment and spending. At the same time, a 1/4 point move would be significantly more restrained than any of our last three moves, and it would indicate that we recognize the need for caution as we move closer to the cyclical peak. So, my preference would be for a 1/4 percent increase. I also would like to second Tom Melzer's comments about the need to consider some sort of inflation target, something to nail down our longer-term goals and objectives at the February meeting.",327
-fomc-corpus,1994,President Hoenig.,4
-fomc-corpus,1994,"Mr. Chairman, I would agree with those who say that we need to take some action at some point. I think that that should be now, not later. The best environment is to do it now while sensitive to market concerns. I happen to think Governor LaWare is correct. By delaying we would risk having to do more later and having more adverse effects, so I would prefer doing something now.",81
-fomc-corpus,1994,President Jordan.,3
-fomc-corpus,1994,"I think the main part of our problem right now is inflation psychology. It certainly reflects the lack of a nominal anchor. It suggests that it would be helpful to have a politically supported mandate to attain and maintain a stable value of the dollar. If somehow we could achieve the conditions of a true gold standard--without gold but the steady purchasing power of money in the minds of people--over time it would make some of these short-term things that we go through a lot easier to deal with. I also support Tom Melzer's suggestion about having a discussion but also having a long-term focus. That may sound like a minor change but one that may be important in a communications sense because our long-term forecasts are often taken as long-term inflation objectives. I still feel that the numbers we put together for the Humphrey-Hawkins process should not be people's predictions of what is going to happen with regard to inflation, but rather a reflection of what we intend to try and achieve by our monetary policy actions. There is some good news about what seems to be a consensus around the table that the rates of change of output and employment this year are unsustainable. And as somebody said, unsustainable things have a habit of ending. The question is whether it will end as a result of a natural process in which whatever dynamics produced it in the first place start to diminish so we get a deceleration in the rate of change toward something that's more consistent with trend. Or is it something that we have to take conscious policy actions to force if it is not occurring naturally? I would resist the latter. To the extent that the anticipated slowing in the growth of activity is supposed to occur because of reductions in capital expenditures for productivity-enhancing or capacity-increasing purposes, it is not to be welcomed. It is implausible to me that investing less in capacity and productivity lessens the chance of inflation. In fact, quite the contrary; we should welcome having more people invest in capital expenditure programs for capacity or productivity. So if you're going to contemplate an action before the next meeting, with or without an asymmetric directive, with or without a telephone call, I hope that the numbers will be reviewed very carefully to determine whether what we are seeing is a result of still diminished head winds and the economy has a ways to go in a natural spontaneous process versus something that is read in the marketplace as a spillover of excess demand. And that is going to happen if it isn't carefully done. I wouldn't dissent against an asymmetric directive, but I would be very concerned if any action taken was interpreted in the marketplace as anti-growth for the sake of it.",525
-fomc-corpus,1994,"Jerry, just to clarify, I favor your objective as well, but recognizing the practicalities of getting from where we are to that in a relatively short period of time and the possibility of a legislative mandate, I was suggesting that a long-term forecast may be an intermediate step we could take on our own right away. But I agree with you.",69
-fomc-corpus,1994,We inevitably are going to have to be discussing that because we are required to do projections of the monetary aggregates.,22
-fomc-corpus,1994,Just for 1996.,6
-fomc-corpus,1994,"Yes, I'm looking even further out as a possibility.",11
-fomc-corpus,1994,"1995, excuse me.",6
-fomc-corpus,1994,Governor Lindsey.,3
-fomc-corpus,1994,"I want to associate myself fully with Governor Blinder's views. My reasoning is similar. The first observation is that I think the November move was extremely successful. Our decision to go 75 basis points took off the market pressure in both the foreign exchange market and the bond market. I think had we moved 50 basis points, we would be moving another 50 basis points today. So in that sense we should be patting ourselves on the back for our last move. And as a result I don't think we should move right now. I have four reasons for not preferring an asymmetric directive. The first has to do with data. Reporters often ask whether we are waiting for information from the Christmas season to decide what we are going to do. The right answer is that there is absolutely nothing that we are going to do at this meeting that could conceivably affect the Christmas season or vice versa. In fact, as our discussion about lags has indicated, what we are talking about is not even the first quarter; what we are talking about is late 1995 and early 1996 with regard to the effect of our actions. So, rather than looking at current activity we have to use our crystal balls, which admittedly are cloudy, and stare down the road. So, I'm not sure what information is going to come out in January to cause us to change our minds. On the other hand, I do think that over the longer period we are going to have information that will be useful. We will have more information on where fiscal policy is headed and sooner than we usually do. In addition, we are going to have information on the consumer. I think the anecdotal evidence on the consumer situation, as Governor Kelley suggested, is that they appear to be tapped out. In fact, when you talk to bankers, they are now issuing credit cards to C and D class credits, and they are doing so profitably. I'm saving this for the next meeting,'but when I look at the cash flow situation of households, the only private sector support for this spending in my mind is a buildup of consumer credit. I think the credit data bear that out. So, I would rather delay for information reasons--certainly not move in January, and I may even want to delay at our next meeting on January 31-February 1. The other issues have to do with our tactics in the market. We have learned this year that moving at meetings gives us a much more efficient tradeoff measured by the short-term move compared to the long-term move. Generally, we have had flat or rallying markets on moves at meetings. We have been unsuccessful when we moved intermeeting, and I think that is another reason not to go asymmetric and not to move intermeeting. Finally, and I think this reinforces President Melzer's point, we will have to consider our long-term intentions at our next meeting and we will be making not only a tactical move but a strategic move. And I think we should at the very least want to hold whatever tactical moves we have until we know where we are going to go strategically. So for those reasons I concur with Mr. Blinder and urge symmetric ""B.""",645
-fomc-corpus,1994,President Parry.,4
-fomc-corpus,1994,"Mr. Chairman, in my view the economy has picked up more momentum since our last meeting, and the degree of tightness in labor and product markets has risen even further. Our analysis agrees with the Greenbook that further tightening is needed in order to prevent an increase in the inflation trend. Therefore, I would prefer a 50 basis point increase in the funds rate. Frankly, I don't see the problems of Orange County as a reason to hesitate in doing what is best at this point for the national economy. Financial futures markets expect a 50 basis point increase in the funds rate by early January. Thus, I doubt that a policy move at this time would cause much disruption. However, I can support your recommendation since I interpret your comments as indicating that a change in policy is quite likely by roughly the middle of January. If the tone of the economic data does not change, I am concerned that further delay beyond that point would lead to a deterioration of inflationary expectations.",196
-fomc-corpus,1994,President Moskow.,4
-fomc-corpus,1994,"Mr. Chairman, we believe that further tightening is almost inevitable because of the unexpectedly rapid pace of the expansion and the prospect of unsustainably robust growth continuing in the future. However, in light of the unusually large action at the November meeting, we recommend leaving the rate unchanged for the time being, with the expectation that economic developments in the coming weeks will confirm the need for an increase in the funds rate at the January meeting, if not before. So, I would agree with you on the asymmetric directive.",102
-fomc-corpus,1994,President Forrestal.,4
-fomc-corpus,1994,"Mr. Chairman, I think that the case for not moving today is quite persuasive. We did move aggressively just a few weeks ago and I think we have moved aggressively throughout the year. The cumulative moves are really quite significant. We need to remember the lags in monetary policy and give some time for that to work through the pipeline. In fact, I am not convinced that any great further degree of tightening is necessary, but I have an open mind on that score. Also, as I tried to indicate before, I think there is now greater flexibility in the economy. At the risk of belaboring that point, I think there is a plausible argument that would suggest that the economy can support a greater degree of growth at the present time without incurring inflationary pressures. Obviously, this is more theory and argument than anything else, and as has been pointed out this morning there is really not very much empirical evidence. Some of the things that you cited with respect to the labor market I think are appropriate and relevant here, so the burden of proof obviously is on those who would suggest that this is a plausible theory, and I think there is a risk in using it in terms of policy deliberation. However, I do think it is important to keep this in mind as we go forward because if this is in fact the case we run a risk on the other side of seriously overdoing monetary policy actions. For the moment, I would support your recommendation. I would prefer a symmetric directive, but I could support the asymmetric option as well.",309
-fomc-corpus,1994,Governor Kelley.,3
-fomc-corpus,1994,"Mr. Chairman, in appreciation for Governor Blinder not giving his thermostat speech I'll forego giving my inflationary teakettle speech! [Laughter] But I do think that given the momentum that we observe that it is overwhelmingly likely that we are going to need to go up at least some more; and it does seem to me that once one becomes convinced of that, then it is desirable to do it quite soon in the expectation that that is the best way to head off having to do too much. That said, I think it certainly would be a good idea to hold off until after the year-end pressures. At that point, we ought to take another very hard look at it. For today, I certainly support your ""B"" asymmetric approach.",151
-fomc-corpus,1994,Governor Phillips.,3
-fomc-corpus,1994,"I also would support ""B"" asymmetric. I think that we have more tightening to go, but I'm willing to wait until early next year. As a general matter, I agree with Governor Kelley--if you are going to do it, earlier is better. But I think we have been given some breathing room with the favorable CPI numbers. It would be useful to let us get past the end of the year and the year-end marking-to-market. That allows the markets a chance to settle out. Ultimately, I think that more tightening is going to be necessary. With all of the market and monetary restructuring that has taken place, it is probably going to take larger swings in interest rates to achieve monetary goals. It is very difficult to generalize from past experience when the pipeline is going to kick in fully. I would like to see us give serious consideration to the longer-term inflation targeting approach that a number of people have spoken about; Tom Melzer started off the discussion of it today. But for today, I think ""B"" asymmetric will serve us well.",213
-fomc-corpus,1994,Governor Yellen.,4
-fomc-corpus,1994,"Mr. Chairman, I favor alternative B to hold the funds rate at 5-1/2 percent at this meeting, and I favor it for the reasons suggested in the Bluebook. I also concur with the sentiments expressed by Governors Blinder and Lindsey and President Forrestal. I think a wait-and-see strategy is reasonable, given the magnitude of previous tightening and particularly given our uncertainty about whether and how much the economy is likely to slow on its own and my own uncertainty about how much additional tightening is going to be needed. I would prefer a symmetric directive with a strong presumption that we would wait until the next meeting in order to act.",130
-fomc-corpus,1994,President McTeer.,5
-fomc-corpus,1994,I agree with your proposal.,6
-fomc-corpus,1994,President Stern.,3
-fomc-corpus,1994,"I'd favor ""B"" with a symmetric directive. I favor ""B"" because I do think we have applied some restraint and, given the lags, I think we ought to be patient and take some time to see what effects, if any, they have. I favor a symmetric directive for several reasons. Part of it is my normal antipathy to, or discomfort with, asymmetric directives. But more fundamentally on this occasion, I have trouble imagining what evidence we will get in the next several weeks that is really going to help us address what I consider to be one of the key questions: What is the economy going to be like and what is the appropriate stance or policy actions that will influence things later in 1995 and into 1996? It just doesn't seem likely to me that we are going to learn anything in the next several weeks that is going to help us very much in addressing those questions. I may be wrong, but we can have a conference call if significant new information does materialize. Beyond that, the suggestion has been made, and I certainly agree with it, that there are a number of fundamental longer-run policy issues that the Committee should discuss and perhaps try to reach consensus on. I noted a number of them in my recent communication. [Secretary's note: A copy of Mr. Stern's letter to Chairman Greenspan, dated November 29, 1994, is appended.] And I think the one that is on the table already about longer-run inflation objectives is a good place to start.",307
-fomc-corpus,1994,Just to clarify: One of the events that is not irrelevant is how the markets respond to what's happening.,21
-fomc-corpus,1994,Yes.,2
-fomc-corpus,1994,"And I think that that is probably the most crucial ""statistic"" in a sense and really the only one that could make a material difference in this period. I agree it is very hard to find data with anything crucial. But I think that there is a very important issue here, namely that we not allow our an erosion in our credibility that we have built up and which has kept the cap on long-term interest rates. I must tell you, it is too subtle an issue for any of us to predict. Let's get to President Minehan and then I have a few things I'd like to say about this issue.",124
-fomc-corpus,1994,"I have been concerned for some time about the thermostat issue that Governor Blinder raised. We did quite a little work prior to this meeting to assure ourselves that at least as far as we could project, however deficient that projection might be, that the amount of tightening that is already in the pipeline is not sufficient. We came out pretty strongly, all of us in Boston, with the conclusion that it is not sufficient. So for us, it is not a question of ""whether;"" it is a question of ""when."" I would align myself with the people who think that if it is not a question of whether but a question of when, that sooner is better than later. In that area I would align myself with Governor LaWare's remarks. Don Kohn talked about the markets being fairly confident, but I think it is important to remember that what the market giveth the market can take away, too. And along the lines of what you said, Mr. Chairman, I too would be concerned that we might lose the credibility that has been hard won. I view the 75 basis points we did at the last meeting in two ways: as a 50 basis point make-up for actions that I think we should have taken earlier, and as 25 basis points into what we needed to do at that meeting. So, I don't really regard that move as being as strong as some other people do. All of that said, I'm very cognizant of the probability that people who are closer to the markets than we are in Boston have a view of the thin trading and whatever that is perhaps better taken than ours. So I'd be willing to go ""B,"" but I'd feel fairly strongly that asymmetric should be the tone because I am concerned that we might see market movements, given the strength of the underlying economic data.",365
-fomc-corpus,1994,"This is an interesting result we are getting. It is very clear that there is a heavy consensus for ""B."" However, there is a very sharp split on symmetric versus asymmetric unless we take the two members who have argued for an increase as being on the asymmetric side--but we don't usually do it that way. What I would like to do, though, is more pro forma and that is to suggest the following as probably an appropriate way to come at this. We are, as I think a number of us have discussed, in a crucial area as to how we should behave. Given the discussion that we have had around this table, I don't think it would be wise to move before the next meeting without a conference call to be certain that everyone has a say with respect to how they view what we are dealing with. I frankly don't know whether or not such a call will be appropriate; it may well be very clear during the period that it is not. But I don't think we ought to move in the intermeeting period without having had a Committee discussion. I would like to stay with the asymmetric directive with ""B"" because it captures, marginally as I read it, the view of the Committee. But it is pro forma and I would suggest that the difference frankly between symmetric and asymmetric, as far as action is concerned, probably is minuscule. So, I would like to put ""B"" asymmetric on the table for a vote.",292
-fomc-corpus,1994,"I am reading from page 14 of the Bluebook: ""In the implementation of policy for the immediate future, the Committee seeks to maintain the existing degree of pressure on reserve positions. In the context of the Committee's long-run objectives for price stability and sustainable economic growth, and giving careful consideration to economic, financial, and monetary developments, somewhat greater reserve restraint would or slightly lesser reserve restraint might be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with modest growth in M2 and M3 over coming months.""",109
-fomc-corpus,1994,Somewhat and slightly? You said somewhat more and slightly less?,13
-fomc-corpus,1994,"I used somewhat with the ""greater"" restraint and slightly with the ""lesser.""",17
-fomc-corpus,1994,Call the roll.,4
-fomc-corpus,1994,Chairman Greenspan Yes Vice Chairman McDonough Yes Governor Blinder Yes President Broaddus Yes President Forrestal Yes President Jordan Yes Governor Kelley Yes Governor LaWare No Governor Lindsey Yes President Parry Yes Governor Phillips Yes Governor Yellen Yes,48
-fomc-corpus,1994,"The next meeting is January 31st and February 1st, and luncheon is served.",19
-fomc-corpus,1995,"Good afternoon, everyone. The first item on the agenda is the election of officers and I turn the chair over to Governor Blinder.",27
-fomc-corpus,1995,"For parliamentary reasons known not to me but to some people, I have the distinct honor and high privilege of opening the floor to nominations. I understand that I am not allowed to nominate anybody.",38
-fomc-corpus,1995,You are the Chairman.,5
-fomc-corpus,1995,The floor is open for nominations for Chairman of the Federal Open Market Committee for 1995. Do we have any nominations? [Laughter],29
-fomc-corpus,1995,This silence reminds me of last year!,8
-fomc-corpus,1995,Nobody nominated!,3
-fomc-corpus,1995,I nominate Alan Greenspan as chair.,8
-fomc-corpus,1995,Do we have a second?,6
-fomc-corpus,1995,Second.,2
-fomc-corpus,1995,All in favor? SEVERAL. Aye.,11
-fomc-corpus,1995,Opposed? [Laughter] I now have the honor to open the floor to nominations for Vice Chairman of the Federal Open Market Committee for 1995.,32
-fomc-corpus,1995,I nominate President McDonough.,7
-fomc-corpus,1995,Is there a second?,5
-fomc-corpus,1995,Second.,2
-fomc-corpus,1995,All in favor. SEVERAL. Aye.,11
-fomc-corpus,1995,Opposed? It is done. I believe my duties are completed now.,15
-fomc-corpus,1995,You did that with exemplary efficiency. I call upon our esteemed colleague to read the list of officers tentatively put before you for nomination and action.,29
-fomc-corpus,1995,"The list is as follows: Secretary and Economist, Donald Kohn; Deputy Secretary, Normand Bernard; Assistant Secretaries, Joseph Coyne and Gary Gillum; General Counsel, Virgil Mattingly; Deputy General Counsel, Ernest Patrikis; Economists, Michael Prell and Edwin Truman; Associate Economists from the Board: David Lindsey, Larry Promisel, Charles Siegman, Lawrence Slifman, and David Stockton; Associate Economists from the Federal Reserve Banks: Lynn Browne, proposed by President Minehan; Thomas Davis, proposed by President Hoenig; William Dewald, proposed by President Melzer; Frederic Mishkin, proposed by President McDonough; and Carl Vander Wilt, proposed by President Moskow.",148
-fomc-corpus,1995,Would somebody like to move the slate?,8
-fomc-corpus,1995,So move.,3
-fomc-corpus,1995,Is there a second?,5
-fomc-corpus,1995,Second.,2
-fomc-corpus,1995,Without objection. We now move on to the selection of a Federal Reserve Bank to execute transactions for the System Open Market Account. Is there a nomination?,30
-fomc-corpus,1995,I will nominate the Federal Reserve Bank of New York.,11
-fomc-corpus,1995,Second? [Pause],5
-fomc-corpus,1995,Second.,2
-fomc-corpus,1995,Without objection. This is getting trickier and trickier.,12
-fomc-corpus,1995,"You almost lost that one, Bill!",8
-fomc-corpus,1995,I was worried about that pause.,7
-fomc-corpus,1995,This should have been staged better!,7
-fomc-corpus,1995,"Are there any objections to the selection of Peter Fisher as Manager of the System Open Market Account? If not, I will assume he is appropriately appointed. The next item is our traditional approval of the minutes, which I knew we would get to, of the December 20 meeting. Would somebody like to move their approval?",64
-fomc-corpus,1995,So move.,3
-fomc-corpus,1995,"Without objection. The consideration of FOMC disclosure policy is now on the table, and I call upon the chairman of our subcommittee to handle that, Governor Blinder.",35
-fomc-corpus,1995,"Thank you, Mr. Chairman. The staff has circulated, or actually recirculated, to each of you a memo from the subcommittee that was prepared in August; it was accompanied by a lengthy and more recent memo from Virgil Mattingly on certain legal aspects. I am not going to summarize those memos; I just want to say a few words. What is before you today are proposals from the subcommittee calling essentially for the ratification, with some exceptions--I am going to come to the exceptions--of what has become the de facto status quo but has never actually been adopted as a policy of this Committee. The de facto status quo has evolved since the existence of the taping system was revealed in the fall of 1993 and the prompt announcements of policy actions were started in February 1994. It is true, however, that when we go from a de facto policy to a formally adopted policy, and we formalize and enunciate things, that is a time for clarifying and tying up the loose ends and in some sense committing to staying with such a policy--not forever but for some period of time. In that sense, our policy merits some discussion. There is only one thing that I think is an important new wrinkle in this document. That is the matter of concurring statements to the minutes, which I will say a few words about in due course. The overall philosophy of this proposal is that the central bank's independence carries with it a corollary of accountability. Perhaps--I will put in the ""perhaps"" to make sure everybody agrees--the Federal Reserve has not quite acquitted itself of this responsibility of accountability, at least not as well as it might. In particular, the public has a right to know more about what the Federal Reserve is doing and why it is doing it. There are three principal things in the proposal. The first has to do with announcements. This issue must be relatively noncontroversial because we have been doing it since February 1994. As. far as I know, everybody seems to be relatively happy with the practice of announcing our decisions promptly. Furthermore, it is hard to imagine how we could avoid doing so as long as interest rates are the target. That seems to lead ineluctably to the conclusion that we should continue making prompt announcements of policy changes. There is an issue here that has to do with the statements that we make about the policy being adopted rather than just saying what the policy is. I think there are two questions: How often will we make statements explaining ourselves, and how detailed will these statements be? Very briefly on the ""how often:"" The subcommittee reached a majority opinion on the recommendation that we ought to make a statement when we change policy--in this case that means changes in short-term interest rates--and not make a statement when we do not change policy. I must confess that I was more favorably inclined to making statements, period, but the majority of the subcommittee, three out of four of us, clearly favored statements only on interest rate changes. That is the committee's recommendation--the subcommittee's, excuse me. I may occasionally lapse into calling the subcommittee a committee. A slightly more interesting question, perhaps, that merits some short discussion here but that cannot literally be resolved is how detailed these statements ought to be. The statement that accompanied our May action, and included a change in the discount rate, had what I would call one substantive sentence. I am not counting the usual boilerplate--the Federal Reserve Board acted on recommendations of such and such Reserve Banks and the explanation of what a discount rate is. There was one sentence of substance that said something about the reasons for the actions. In the August announcement, there were three sentences of substance. If I remember --I hope Don will correct me if I am wrong--the November statement had none. It announced the decision; it had only the boilerplate. I am pretty sure that is right. Those are the last three announcements we made without enunciating any formal policy on announcements. The subcommittee discussed this issue to some extent. Not surprisingly, we could not reach a consensus for many reasons, including the fact that it is hard to define what a consensus is. I think the only useful thing would probably be for the Chairman, who will be the drafter of such statements, to hear the views of the members--to what extent do we want to say something and to what extent do we not want to say anything. I don't believe it will be possible to enunciate a clear and crisply defined policy on this issue. The second issue has to do with tapes and transcripts. While I think many people believe that, in the abstract, it would be better if the taping system did not exist, it was the unanimous view of the subcommittee that we have the taping system now and we ought not to be turning it off. The issue here is whether there should be an ""off the tape"" portion of FOMC meetings. This would afford the opportunity to discuss nonmonetary policy matters with the tape turned off. There was a feeling that there probably was a case for that. A slight nuance mentioned in the report is whether we want to construe this as ""the tape is almost always on and occasionally turned off"" or ""the tape is off except when monetary policy is being discussed."" There is, of course, a third alternative and that is not to turn the tape off at all, which is in fact the status quo under which we are operating right now. On transcripts, the subcommittee again recommended ratifying the status quo, which is to release them after five years, edited more or less exactly as they are now--no change from current policy. The one new wrinkle that bears mentioning is dealt with in some detail in the Mattingly/Baer memo that is in front of you. It has to do with the potential danger of a premature, let me call it, release of the tapes or the transcripts in response to a subpoena from a certain number of members of the Government Operations Committees in the House and the Senate. At the time the memo was written, the number was seven members in the House and five in the Senate; but it may be different now. The issue is that it is a finite number, not necessarily the majority, of the members of those committees. The conclusion of Virgil's memo was that in fact there was such a danger. The conclusion of the subcommittee was that that did not change our decision that we should maintain the taping system essentially as it is now, much as we would regret a successful subpoena that would actually get hold of these tapes prematurely. The third issue is the minutes. We basically recommend continuing the minutes essentially as they are now. The operational content of that recommended action is that they would continue to be written without attribution of particular thoughts to particular people. We would add the option of concurring statements by individual members. I want to stress that it is an option; nobody is going to be asked to put in a concurring statement just to make the minutes longer or because it seems like a nice thing to do. So, our recommendation is to leave concurring statements as an option for those members of the Committee who wish to avail themselves of it on an ad hoc, meeting-by-meeting, person-by-person basis. The virtues of this seem to me, and indeed to the subcommittee, to be three. The first is an increase in Federal Reserve accountability as it relates to the quantum of information about the Federal Reserve's policies that is received by the public. The second advantage is that these statements can potentially serve as a halfway house between agreement and dissent. That is, there may be times when a member of the Committee is basically willing to go along with the decision, but that member may not be entirely happy, for example, with the presumably very brief statement that the FOMC issues at the time--if indeed there is a statement--and may wish to put some sort of nuance on the assenting vote. A concurring statement makes it possible for a member to say something without dissenting, if that member wishes to. The third advantage, I think, is an operational advantage. Having these assenting statements will, I believe, make it much easier in practice to leave the drafting pencil for the Committee's official statement in the hands of the Chairman without having to worry about 19 people around the table deciding whether the verbs and adjectives suit them. The proposal is to let the Chairman write that statement exactly as he sees fit, and a person or persons who want to put a somewhat different light on their decision would have that as their option. Those are the three things in the proposal. I should add one more that is not in the document. I have discussed this with the Chairman, though not recently. So this will come as a bit of a surprise; I thought of this again last night. It is the issue of the blackout period. We now have a symmetric blackout period of one week before and one week after a meeting. This made a certain amount of sense under the old policies. Most people think it makes very little sense under a policy of announcing the interest rate change immediately. The suggestion is for an asymmetric blackout period, including a more limited or no blackout period after a meeting; but we may not want to go that far. Certainly an asymmetric blackout period of some sort seems in order. Mr. Chairman, I think you suggested a one- or two-day blackout after each meeting when we talked about this.",1939
-fomc-corpus,1995,No. Actually I am agnostic on the whole issue because I really have not given it enough attention. I would be very curious to hear what the members have to say.,35
-fomc-corpus,1995,"So, I would also like to put that on the table. There is no proposal from the subcommittee on that issue. I think I have now put everything out on the table.",37
-fomc-corpus,1995,Do you want to go piece by piece and see whether we have a consensus?,16
-fomc-corpus,1995,Okay.,2
-fomc-corpus,1995,"It will be useful, I think, if we just have individuals raise specific questions relevant to each of the issues that you outlined. Then, at the end of the discussion, we can see whether there are significant qualifications or dissents from the subcommittee majority.",52
-fomc-corpus,1995,Do you want to go issue by issue or around the table person by person?,16
-fomc-corpus,1995,I think issue by issue.,6
-fomc-corpus,1995,"Okay. Why don't we take the question of announcements first. I reported our proposals in the inverse order of how much discussion I thought the Committee would want to give them. The first is the issue of announcements, where the proposal is to make prompt announcements of each interest rate change and not to make an announcement when the change in interest rates is zero. Then, as a subquestion, it would be helpful to get some guidance or some feeling from the Committee regarding how detailed these announcements ought to be. This piece of paper says that Bob Parry is first.",112
-fomc-corpus,1995,"With regard to announcements, I think it is clear that we ought to continue the present procedure. What I would be a little concerned about would be too much detail in the explanation. I think we have been pretty well served by the practice of explaining the reasoning but keeping it quite short. I don't see much advantage in providing a detailed statement. There would be the issue of whether we would get a consensus on it as well.",85
-fomc-corpus,1995,President Broaddus.,5
-fomc-corpus,1995,"On the announcements, I certainly agree that we should continue to announce policy actions immediately. With respect to the statements that accompany these announcements, I have mixed feelings about the subcommittee's recommendations. Frankly, I have some reservations--not about announcing our actions--but about making accompanying statements because it is so easy for people to misinterpret them no matter how carefully we write them. As Tom Melzer points out in his letter that we all received, the rationale supporting an action is going to be released in a fairly short period of time anyway. If we do decide to continue to make such statements, I think we ought to think a little about how they get prepared. We know from experience with discount rate announcements that the statements or explanations that accompany these actions have a material effect on market reactions, mainly because they clarify what the action may signal with respect to what we are going to do in the future, whether it is the first of several actions or the last action of a series or whatever. The record on this is pretty clear. We have done a good bit of research on discount rate announcements at our Bank, and some other research has been done elsewhere. So, I think that point is well documented. Consequently, and I certainly mean no disrespect to the Chairman, but given this market impact, I think the full Committee should be involved in preparing these statements. I am well aware of the problem of having 12 or 19 people around this table trying to write these statements in detail, but we might be able to cut through this by asking the staff, perhaps in the Bluebook, to include in its discussion of alternative policy actions perhaps a couple of alternative statements that might go along with each alternative that involves a policy change. The format that might be followed is that the alternative statements could give some sense of what the Committee's stance is going to be after the action is taken, whether it is symmetrical or tilted in one direction or another. In any case, I think we ought to give that some consideration.",404
-fomc-corpus,1995,President Melzer.,4
-fomc-corpus,1995,"First of all, I favor making statements only when there is a change in policy, not when there is no change. Secondly, I am comfortable leaving it up to the Chairman's discretion. I could imagine, for example, a change in policy where the Chairman decides not to say much at all, and I can imagine other changes where more would be appropriate. But I think ultimately it has to be at his discretion. From time to time he may want to consult with the Committee, but I would not make the consultation obligatory. The one concern I have about statements relates to the possibility that they may take some flexibility away from the Committee in the future. We have to be very careful about that. Otherwise, the language becomes subject to negotiation because it is predisposing what we may or may not be able to do in the future. The statements have to be very carefully drafted in my view so as not to take that flexibility away. I do not think that the opportunity for assenting statements really offsets that because once that public statement is made, an expectation has been set in motion in the marketplace. Assenting statements coming out six weeks later are not going to make any difference in altering those expectations or really give any solace to an FOMC member who feels that the Committee's flexibility has been compromised by the statement.",264
-fomc-corpus,1995,"Tom, may I just ask you a quick question?",11
-fomc-corpus,1995,Yes.,2
-fomc-corpus,1995,"You are raising a tricky problem. Al Broaddus is saying that their research, and I suspect most other research, indicates that there is content with respect to future actions embodied in the statements. If you want to leave full flexibility for the Committee for the future, then by definition the announcement cannot have that content. The question essentially gets to the issue of whether you want the statement to have forward-projecting content. If you have that, then Al's point about the Committee having a voice in its drafting clearly is a matter of material importance. If it has no content or it leaves full discretion to the Committee, which I would guess is what you are suggesting and what a normal statement is supposed to do, it really should be backward-looking; it should not be forward-looking unless there is a specific policy that the Committee wants to convey. If there is no forward content to the statement, then it is a matter of indifference whether I write it or not. But I do think that this decision really comes down to the question of what the Committee wants in that statement, not who does it. Do we want any forward-looking content or do we want a retrospective statement that effectively captures the reasons that led up to the particular decision?",247
-fomc-corpus,1995,"What I would want would be the latter, what you just described--a description of our rationale for taking the action.",24
-fomc-corpus,1995,"If we are successful, the correlations in Al's studies should go to zero--theoretically.",20
-fomc-corpus,1995,"I doubt that we could do that. It would be hard. These things are read and parsed very carefully, and whatever we say to explain what we did by reference to the past, even if we don't mean it to, will be interpreted as having some implications for the future. If we now make an interest rate move and say not a single word, a thousand people around the world will start saying what that means for the future just from the size of the move, how it was related to previous moves, and a whole variety of other things. I think the reference to the future is always implicit. To what extent we make it explicit is a kind of art form.",135
-fomc-corpus,1995,"It has been our usual practice to read the draft statement to the Committee. The purpose of that statement is to capture the essence of the Committee's reasoning. I think it is crucial to avoid the optional differences in phraseology that we all have, which I think is impossible to do with 19 people or 12 people. Unless somebody objects, I think the current practice seems to be working reasonably well. What I try to do when I write the statement is to anticipate who is going to object when I read it to all of you. In general, I have been forecasting reasonably well. What does have to happen, however, is that the statement that is made has to be vetted to the Committee before it becomes public so that if there are objections, it is important for them to be on the table and get addressed. But I would strongly recommend that the Committee as a whole not try to write the statement because the meeting will go on and on. It is like writing a communique at an international meeting where the communique can take four-fifths of the time of the meeting.",219
-fomc-corpus,1995,I think what you just said is exactly what the subcommittee had in mind.,16
-fomc-corpus,1995,Would anybody object to this as a procedure?,9
-fomc-corpus,1995,"It would be helpful if we had a chance to look at the statement in draft form and make whatever comment we deem important. Just very briefly, in the research on the discount rate announcements--it is not exactly analogous--some researchers have tried to distinguish between alignment announcements, which really do not have any policy content and talk about moving the discount rate back into alignment with the funds rate, and announcements that are clearly a policy signal. The latter announcements almost always have, because of the way they are worded--and people have studied this very carefully--some impact on policy. As I believe you said, Governor Blinder, it is hard to avoid some kind of impact. By putting the draft out on the table, somebody here might spot some problem that might escape the drafter.",157
-fomc-corpus,1995,I have three more people on the list. Vice Chairman McDonough.,15
-fomc-corpus,1995,"I am very strongly persuaded that we should announce policy decisions. As I have mentioned before, our previous practice would make it possible in today's very sophisticated financial markets, had we continued that procedure, to give an advantage for only 10 seconds or half a minute to the more sophisticated market participants. We do, in fact, say when there is no policy action that the Committee has met and there is no further announcement. That is an announcement of sorts. Therefore, I think whether we do that or whether we say the Committee has met and there was no change in policy is--",115
-fomc-corpus,1995,There is a big difference.,6
-fomc-corpus,1995,It is the symmetric directive issue.,7
-fomc-corpus,1995,"No. Somebody has argued--I have forgotten who it was; it may have been Don Kohn--that there is an important difference. Suppose we purposely delayed an interest rate change for 48 hours pending somebody's speech or some statistical release, and we said there was no change, and then 48 hours later we made a change; it would look awkward.",73
-fomc-corpus,1995,That is right; I had not heard that argument.,11
-fomc-corpus,1995,"If we say the Committee has made no decision or something like that, we still have full flexibility to make a change later.",25
-fomc-corpus,1995,The point I want to emphasize is that we should continue to have Joe Coyne announce that the Committee meeting is over and that there is no further announcement.,31
-fomc-corpus,1995,"Yes, I think that works.",7
-fomc-corpus,1995,"I think the content of what we have had to say in our announcements of policy changes has been quite good. Personally, looking back to August 16, I wish that we had not said that these actions are expected to be sufficient at least for a time to meet the objective of sustained noninflationary growth. Since I was very supportive of the decision, I understand why we did it. I think, henceforth, we might want to be even more careful about making such a statement.",99
-fomc-corpus,1995,"Mr. Chairman, I would like to put another point on the table. That is, the Committee made several policy changes last spring that involved only open market operations and not discount rates. In those cases, except for that first change, you simply announced the fact that the rate had changed without a full explanation at that time. Explanations came later when the Committee's actions were taken in conjunction with changes in the discount rate. This is really a question for the Committee. Does the Committee wish to put out discount rate type announcements when discount rates are not changed or would it prefer to try to maintain this tiny distinction between what Governor LaWare used to call ""ringing the gong"" with the discount rate and a less open policy change involving only the federal funds rate?",154
-fomc-corpus,1995,The subcommittee's proposal was the former. A statement with an interest rate change was the subcommittee's recommendation. The full Committee can reject it if there is no discount rate change.,37
-fomc-corpus,1995,So there would be no announcement unless the discount rate is changed?,13
-fomc-corpus,1995,No. Either.,4
-fomc-corpus,1995,Either.,2
-fomc-corpus,1995,Either or.,3
-fomc-corpus,1995,"An announcement would accompany an interest rate change, whichever kind of interest rate it was.",17
-fomc-corpus,1995,"A statement would say more than just ""we changed the interest rate"" but would give at least some boilerplate explanation as to why we changed.",29
-fomc-corpus,1995,A very brief explanation.,5
-fomc-corpus,1995,President Hoenig.,4
-fomc-corpus,1995,"First of all, I agree on immediate announcements, and I like the way we have done it. That is, when we take no action, we say there is no announcement. Regarding the statement, I think it should give no reason or be extremely brief. We started making announcements to make sure there is no advantage to anyone. Our procedure takes care of a lot of that and is one of the reasons I am pleased with it. Now, if we take it a step further--especially when we have a change only in the fed funds rate, and start explaining--we open ourselves up even more to misinterpretation, I think. Every word is taken a different way, and that causes more confusion than it settles. Except in very rare instances, and there are always instances one can think of, we should minimize any comments.",167
-fomc-corpus,1995,President Minehan.,4
-fomc-corpus,1995,"I also am in agreement with the announcement policy, but I would like to argue for a bit of flexibility on whether we do or do not announce ""no change."" There are instances where no change is not a change in policy. There are instances where the reverse is true. For example, if we decided not to do anything at this meeting, I think that would suggest something different in the way we now see things than is indicated in the minutes of previous meetings. I would think that where we have a situation where no change is in fact a change in policy, something ought to be said, but we should not hold our feet to the fire every time we have a meeting and do not make a change. We should keep our options open, but where there is something to be communicated, we should communicate it. CHAIRMAN.GREENSPAN. I think that is a good thought.",177
-fomc-corpus,1995,"I would leave the statement wording to you, Mr. Chairman, because I don't think there is any way we can draft it as a Committee. I would like to hear the statement before it is released, but I would give you the flexibility. I also feel that President Broaddus' suggestion of having a staff draft to work from has some interest, but I would really hope that the statement would be very short and crafted to reflect the discussion that went on in the meeting, which can't always be anticipated before the meeting. I would go with the subcommittee on the suggestion that you draft the statement, Mr. Chairman, and if you want to tell us about it, fine.",137
-fomc-corpus,1995,"The point at issue is that if it is more than boilerplate, Governor Blinder is absolutely right. There is no way to make any value-neutral statement in the English language. There is always some value element involved. We have always had time to have a statement written in advance, and I would suggest that short of an extraordinary situation or a surprising situation, that really ought to be part of the process. What that statement says, leaving the particular language aside, does have content that affects the market, and the Committee as a whole should have control over at least the basic substance. I can conceive that in an emergency we might have to bypass that, but I would say it would not be wise policy under normal circumstances.",145
-fomc-corpus,1995,Are we talking about the directive or the actual statement itself?,12
-fomc-corpus,1995,Just the statement.,4
-fomc-corpus,1995,"We have not been writing the statement in advance, have we?",13
-fomc-corpus,1995,"Yes. When we were doing the discount rate announcements, we always had a draft if there was a possibility of a change in the rate. We would have a tentative statement to be read in the event that the votes were there.",46
-fomc-corpus,1995,Two-handed intervention!,4
-fomc-corpus,1995,"I would like to raise a minor, or maybe not so minor, objection to that. Don Kohn, I believe, has been the drafter of the statement, but the fact that he has had it in pectore rather than on the table means that the debate is not inhibited by people looking at the statement and seeing what the party line may be.",73
-fomc-corpus,1995,"No, the statement has always been discussed after the vote.",12
-fomc-corpus,1995,I thought you were suggesting that you were going to have it available for people while they were voting.,20
-fomc-corpus,1995,"No, we vote and then decide what it is--",11
-fomc-corpus,1995,What we voted on!,5
-fomc-corpus,1995,What we have been doing recently is to vote and then discuss what type of statement would be issued should the Board approve a discount rate change that would be part of the decision. That was never done to my recollection until after the FOMC had voted.,52
-fomc-corpus,1995,"I understand how it has worked. I, at least, got confused by what you said just now.",21
-fomc-corpus,1995,Yes.,2
-fomc-corpus,1995,"I am sorry. I would say that if we are going through a process involving an FOMC vote, and it is going to be either preceded or followed by a discount rate change, the statement that is to be used in the discount rate announcement should be indicated to the FOMC, at least in approximate form, after the FOMC vote. If there is a challenge as to whether or not the statement captures the substance of what the Committee decided, we have a chance to change it.",101
-fomc-corpus,1995,President Boehne.,5
-fomc-corpus,1995,"Just a couple of comments: I might state somewhat differently than did the Vice Chairman the rationale for why we are doing what we are doing. We are trying to make the best possible monetary policy decisions and that depends very crucially on the quality of the deliberative process. At the same time, we also want to be as open as possible. That balance of having a quality deliberative process and a degree of openness, I think, ought to be reexamined from time to time. What was the right balance in one period may be different in another period. I agree with the immediate change. I think that there are some rather strong reasons for only announcing changes and not getting into the habit of announcing ""no change"" decisions, even though I can conceive of situations where that might be best. In addition to the examples you gave, Mr. Chairman, where there may be a reason to delay the implementation for a couple of days and it therefore would be very awkward to issue a no-change statement, there is also the complication that we sometimes have conference calls between meetings. In my view we would not want to get into the habit of stating that policy was not changed at a meeting even though we might have considered the possibility of a change at an unscheduled meeting during the intermeeting period. Another complication is the delegation that the Committee makes to the Chairman. The Chairman has the flexibility to change policy between meetings. While it may be splitting hairs, conceivably the Chairman could think about making a change and decide against it. If we have a stated policy that we are going to announce both change and no change, it could get more complicated. It is much cleaner to do it the way that we have been doing it. On the issuance of a statement, I think we ought to have a statement when we do make a change. It ought to be short. To me, the main reason is that somebody is going to explain our action, and I would rather our words be the basis for that explanation than somebody else's interpretation. So, I think it is worth a sentence or two, but I feel rather strongly that it has to be up to the Chairman. The Chairman can get all the advice he wants from the Committee, but it is his responsibility, and I think we ought to make that clear.",463
-fomc-corpus,1995,President Jordan.,3
-fomc-corpus,1995,"I agree with announcing as we have done over the past year, including the indication as appropriate that the meeting has adjourned and there is no further announcement. As far as the substance is concerned, though, I think your characterization, Mr. Chairman, of the message about the future is the important criterion. That depends critically on the regime that we are in. If we were in an era when people had absolutely no doubt about the ultimate objectives of the Committee--if we already had a totally credible commitment to future price level stability, or had announced something along the lines suggested in the Dave Lindsey memo regarding future objectives--and the only message was a matter of tactics in order to achieve those objectives, that is one thing. In that case, I would be willing to be more forthcoming about how our action is intended to achieve the objectives. However, the regime that we are in, as I perceive it, is one where there is some uncertainty about our objectives. The message could get confused in the minds of the public as to what it is we are trying to achieve versus how we are trying to achieve it. In that case, I would prefer the briefest possible statement to minimize that misinterpretation.",242
-fomc-corpus,1995,Governor Phillips.,3
-fomc-corpus,1995,"I agree that it is appropriate to make announcements of policy changes, and when there are no changes to continue to indicate that meetings have ended. With respect to the statements, I think that, as a general matter, making them as short as possible is probably the best rule of thumb. We always have to leave open the ability to communicate what needs to be communicated, and I think that should be left to the Chairman's discretion. If he has a draft statement that he feels matches the gist of the discussion, I think it would be useful for that to be read. But I would hate to see that built in as a requirement because I do think that the Chairman needs to have some discretion in terms of wording the final statement.",146
-fomc-corpus,1995,"That is the end of the list. I would just like to add my own views. I would like to align myself very strongly with Cathy Minehan's views on the ""no change."" We would not want to be committed to making a statement every time we did nothing.",55
-fomc-corpus,1995,Right.,2
-fomc-corpus,1995,"Many of those times we have nothing to say. There have been times in history when not changing the interest rate was the news or changing the interest rate was the non-news. I would certainly like to see us have the flexibility to make an announcement and explain why we decided not to change interest rates, where that seems sensible. My personal preference would be for a policy that calls for a statement at every interest rate change and the option of a statement on a no-change, but by no means a requirement of a statement on a no-change. I would also like to go out on a limb--I am not hesitant to go out on limbs as you know--against what is obviously the tide toward briefer and terser. I believe, for the reasons Ed Boehne and others mentioned, that we now have a situation where the people that speak the least about the Fed's decisions are those at the Fed, and we are interpreted voluminously. There is nothing wrong with that. We will still be interpreted voluminously even if we say things. But our statement is a chance for us to say what we are up to and why. I don't have a specific number in mind, but a number of central banks around the world say a lot more about their policy than we do. We could expand from our current empirical norm of zero to three sentences. Going up from that would still leave us with a fairly short statement. I am not talking about writing a book. On the issue of the pen in the Chairman's hand, it seems to me that we have coalesced around a policy where the Chairman has a draft, he reads it, he listens to what people say, and then he has unilateral authority to do with that as he wishes. It sounds like almost everybody is there on that one. President Moskow wants to speak also.",372
-fomc-corpus,1995,"I generally agree with the thrust of what has been said. Let me just preface it by saying, as a newcomer, that I think the announcement policy of the past year has been working quite well. Essentially, what we are doing is ratifying the current practice. Certainly, we should continue announcing our policy changes after each meeting. The announcements should be brief. I think the Chairman's suggestion that they continue to be read to the Committee for any comments is good and useful. Maybe this is just a nuance on the Minehan/Blinder suggestion, but I would phrase it a little differently though I think I am in complete agreement with what you are saying. As I understand the current practice, after the meeting Joe Coyne announces that the meeting is over and that there is no announcement. That is the announcement; there is essentially no announcement. Now it seems to me that we as a Committee can make an announcement at any time if we want to without changing interest rates. We always have the option of making a statement if we want to. We could do it after the meeting if we so desired. I just would not put it in the context of a ""we are going to announce no-change."" I think I would say that if we have an announcement to make when there is no change, we will make an announcement.",267
-fomc-corpus,1995,"One way to resolve this issue of whether to make an announcement when there is no change in policy is to view it as a policy question that should be part of our debate. In other words, if we are in a situation where part of the response that we expect to get stems from our doing nothing, that is a major policy issue, not a disclosure question; so that is part of our discussion. On rare occasions--I think probably quite rare--it might be that what we want to do is to put aside our standard procedure, which we always have the option of doing anyway, and as part of a policy decision we could say that policy has not changed and make a statement. Or we could just say that we did not change our policy and make no statement. Both of those are policy-oriented matters. I gather the thrust or consensus here is that we should leave our announcement policy as it is. That is, if policy is not changed, Joe Coyne will say that we have ceased functioning, which may have more implications than--[Laughter]",213
-fomc-corpus,1995,He won't say that!,5
-fomc-corpus,1995,"There would be no announcement unless there is something positive to be gained as a result of making one, in which case that would be part of what we would discuss and we would instruct Joe accordingly. I would guess that that may happen once a year, maybe less. I do think that leaving the issue open in the abstract and maybe as a practical matter does have some merit.",75
-fomc-corpus,1995,"That is exactly what I had in mind, Mr. Chairman.",13
-fomc-corpus,1995,I think we may have reached a consensus. It sounds like one.,14
-fomc-corpus,1995,Why don't you try to define it?,8
-fomc-corpus,1995,"I have been assigned to define the consensus. The consensus is that on interest rate changes, be they federal funds rate changes only or discount rate changes only or both, there will normally be a statement. I think there was a strong consensus that those statements should be terse. A draft of them should normally be read to the Committee by the Chairman who will ask for comments and then will have the authority to do with those comments as he wishes. In cases of no change in policy, there is an option of making a statement, if we see something to be gained. But there is no presumption that there will be a statement.",126
-fomc-corpus,1995,Tom.,2
-fomc-corpus,1995,"If I may, it seems to me that the last part of that should be stated the other way. There is a presumption that if there is no policy change, the meeting would end with no announcement. An exception would be made if there is a policy consideration to be served, which we would discuss at the meeting. Is that what I heard?",71
-fomc-corpus,1995,"Yes, I think so.",6
-fomc-corpus,1995,That is what it is.,6
-fomc-corpus,1995,Yes. An announcement when there is no policy change is an exception and must be agreed to during the discussion in the FOMC meeting.,28
-fomc-corpus,1995,Thank you.,3
-fomc-corpus,1995,"Any objection to that summary, which I thought was scholarly?",12
-fomc-corpus,1995,A much higher grade than I would have given it. Thank you.,14
-fomc-corpus,1995,I am emotionally involved with CRA! [Laughter],11
-fomc-corpus,1995,"The second issue relates to the tapes and transcripts. The subcommittee is basically recommending the status quo except for the issue of an occasional off-the-tape discussion that is not about monetary policy. It may be, for example, about some confidential personnel matter. Other people may have other examples, but monetary policy would not be included. I guess the floor is open. Governor Lindsey.",76
-fomc-corpus,1995,"Unfortunately I am going to be dissenting on this. I realize I am in the minority. The discussion in your memo says there is a strong consensus that we would all be better off if the practice of taping FOMC meetings had never begun. That is true. It is also true that this Committee never authorized the maintenance of tapes. As the memo points out later on, most of us were taken by surprise when we found out that the transcripts were maintained. So. I think that there is an issue of justice here and that we are ratifying an injustice by approving the recommendation, practical though it may be. The second concern I have is a hypothetical one. At the moment we live in a very benign political environment in which the chances that the tapes will be used against the Committee are very slim. That is not necessarily the environment we should presume in considering whether or not it is wise to tape these proceedings. In fact, an abundance of caution would suggest that we should imagine a very non-benign situation. One might think of it as a witch hunt in which we are turning over to the prosecutors evidence that is really none of their business. It is possible for us to prevent taping under those circumstances by turning off the tape now. It will not be possible in that less benign political environment for us to turn off the tape when we feel we need to. So, I think we should show at least a little caution about the vagaries of the political process and protect not ourselves but some future Committee that may be in a more hostile political time than that in which we find ourselves and I'd turn off the tape now while we can do it.",333
-fomc-corpus,1995,President Melzer.,4
-fomc-corpus,1995,"A couple of comments: First, on this issue of turning the tape off for certain periods of time, I have had a concern that in doing that, even though it might be desirable in some respects, we could incur a fairly heavy political cost with respect to how the Federal Reserve is perceived. Apparently, the public perception is that the Fed is not as forthcoming as it ought to be, and turning off the tape for parts of our meetings would be perceived as a step in the direction of becoming more secretive. So, as I mentioned in the letter that I sent to Alan Blinder earlier, while it might be desirable in some sense, I think if I were going to incur that cost, I would be inclined to shut the tape off entirely. Second, in thinking about these issues, I come at it the same way that Ed Boehne described before. We really have to think in terms of this tradeoff between the deliberative process and providing disclosure to the public. Our primary responsibility ought to be to make sure that we have an effective deliberative process and then provide as much information to the public as possible. In thinking about the issue of continuing to run the tapes, I feel much the same way as Governor Lindsey has stated here. In my view it is just a matter of time, given the various avenues through which we could be served a Congressional subpoena, that those tapes will be listened to on virtually a real time basis and could be used as a means of isolating members and basically killing the deliberative process. The only way to preserve that process at that point in time would be to say, now that the damage is apparent, we are going to turn the tape off. But that would be in the very sort of climate that that action would be considered as a major affront. Frankly, I have seen us back away from much less threatening situations because of the concern about the potential for legislation. In this particular issue with respect to the tapes, we have had a couple of opportunities along the way, in my opinion anyway, where we might have had an opening to correct this. The first instance occurred when the Justice Department announced its new policies with respect to defending agencies on FOIA requests. We may have had another opportunity more recently this fall. In any event, I think that we could be leaving a future FOMC in a very difficult position. In effect, in approving what is recommended here, we have to be saying to ourselves, I am approving this recognizing that an important condition would be that, in the event of that sort of request, we would be prepared to take the action and turn the tape off to try to preserve the deliberative process and fight whatever battle needs to be fought at that time. But again, that is going to be one difficult battle. The real question is whether there will be a better opportunity in some other environment to straighten out our record-keeping practices. I think all of this is better stated in my letter that you all have than I have just stated it.",609
-fomc-corpus,1995,"As a point of clarification, what did the subcommittee conclude with regard to this point?",18
-fomc-corpus,1995,"When the subcommittee met and drafted its report, we viewed the subpoena option as considerably less likely than we did subsequently--after Virgil's memo pointed to the route through the Government Operations Committee. But a subpoena was already a possibility. I believe our view was that we should resist a subpoena if and when it came.",64
-fomc-corpus,1995,There is a reference to that in our report at the bottom of page 2 and the top of page 3. It is an explicit statement of the conditions under which we would approve turning off the tape.,42
-fomc-corpus,1995,Where?,2
-fomc-corpus,1995,It is the very last sentence on page 2 carrying over to page 3 in the subcommittee's report. President Forrestal.,27
-fomc-corpus,1995,"I must say that when it was revealed that we were taping these sessions, I wished that we had never started this practice. But having thought about this over the past year or so, I have begun to think that having the tape may not really be all that bad. It does provide evidence of the accountability of the Federal Reserve. I don't think that it has in any way interfered with the deliberative process. I did sense at the very beginning that some interference might have happened, but I now feel that the deliberative process has been preserved. We agreed to a five-year period before release of the transcripts, and I think that in itself helps to safeguard the deliberative process. I see the danger of a subpoena as fairly minimal. I don't believe it is going to happen, although it could, and if it does I think we have ways of resisting it. In the interests of accountability and openness about what happens in the central bank, keeping the tape on is the way to go, even leaving aside the political difficulty of turning it off at this point. It is a good idea to have the tape on as a matter of principle. Having said that, I would agree that a very good argument can be made for turning the tape off on those occasions when we have to discuss very sensitive personnel matters or perhaps matters dealing with other central banks--the situation we are in at the moment--or issues involving foreign governments. I think we can draw an analogy from the Freedom of Information Act. It is a statute that calls for accountability and openness in government, but there are exceptions and exemptions that are brought to bear. Those include personnel matters, deliberations pertaining to foreign central banks, and so on. Such exemptions can give us the justification for turning off the tape. I believe the way our policy should be stated is that the tape is on as a general rule but that it is turned off in those exceptional cases. To conclude, we would be in a very difficult position if we were to turn the tape off completely, and as I said, I don't think it is costing us very much to keep it going anyway.",426
-fomc-corpus,1995,President Minehan.,4
-fomc-corpus,1995,"I would like to align myself with most of what President Forrestal had to say. I do see the need for such a record for reasons of accountability, but I have a question. We have tapes and we have lightly edited transcripts. Do we have to keep both of these? Are both the full record, or do we get rid of the tapes upon the development of the lightly edited transcripts? Would a potential subpoena, assuming it did not cover a recently completed meeting for which we have a tape but not yet a lightly edited transcript, cover only the lightly edited transcript? Or do we have to keep the tapes, too?",125
-fomc-corpus,1995,"No. Once the edited transcript is approved by the participants, the tape can be dispensed with.",20
-fomc-corpus,1995,"And so can the draft, lightly edited, that is sent to the members for review.",18
-fomc-corpus,1995,Okay.,2
-fomc-corpus,1995,The approved record would be the edited transcripts.,9
-fomc-corpus,1995,So the lightly edited transcript is what we are talking about in terms of what might be subpoenaed. In this connection I would like to note that there has been some delay in terms of our getting the word-for-word transcript. I have not seen one in a little while; maybe I am just behind in my work. To the extent that that is pretty much up to speed--,76
-fomc-corpus,1995,The transcript for the December 20 meeting came out several days ago.,14
-fomc-corpus,1995,The lightly edited version?,5
-fomc-corpus,1995,That transcript was sent out about the 12th of January.,13
-fomc-corpus,1995,Really?,2
-fomc-corpus,1995,The draft version for you to correct.,8
-fomc-corpus,1995,I saw the minutes for the December meeting. I have not seen that transcript. I don't know why.,21
-fomc-corpus,1995,"One point of clarification, President Minehan: For earlier meetings before the Committee started to review the transcripts--that is, those before January of last year--we are not permitted to throw away the raw transcripts.",42
-fomc-corpus,1995,Right.,2
-fomc-corpus,1995,"But for all the transcripts that the participants in the meeting have reviewed and made corrections to their statements where necessary, we can throw away both the tapes and the draft transcripts. That would cover everything from the start of 1994 on.",47
-fomc-corpus,1995,"So, have you thrown away the tapes but still have the draft transcripts, or have you kept both?",21
-fomc-corpus,1995,"So far, pending this discussion, we have kept everything.",12
-fomc-corpus,1995,"Going forward then, we would--",7
-fomc-corpus,1995,"Going forward, once the lightly edited transcript is finished, we would throw away the other transcript and the tape.",22
-fomc-corpus,1995,"So within the ambit of the next meeting, you would have a lightly edited transcript and no draft transcript or tape?",23
-fomc-corpus,1995,"I don't know what the timeframe will be. It might take a couple of months before we get all the corrections and are able to incorporate them into the lightly edited transcript. By the time we send the draft transcripts to you, you send them directly back to us, and we incorporate corrections, there may be a meeting that goes by.",67
-fomc-corpus,1995,Okay. I think it is important that most of what anybody would get with a subpoena would be the transcripts that we have reviewed for accuracy--the lightly edited transcripts with the confidential information redacted.,39
-fomc-corpus,1995,Yes.,2
-fomc-corpus,1995,"Then I think that normally keeping the tape on is the right way to go. The tape is normally on, and it is explicitly turned off only for certain discussions of confidential matters other than monetary policy. I am convinced that we have less risk with this policy, given what Don has said about the lightly edited transcript.",63
-fomc-corpus,1995,"The Chairman has just requested that we speed up this conversation. With that, I call on President Parry.",22
-fomc-corpus,1995,"I basically agree with what President Forrestal said. I would stress, though, that if we do have the tapes subpoenaed we fully intend to stop taping at that point.",36
-fomc-corpus,1995,President Jordan.,3
-fomc-corpus,1995,"Thank you. If we did not already have the tapes, I am not sure that I would support initiating such a procedure, but I don't see the possibility of terminating it at this time. We have transcripts for 1994. They will be released five years from now, or sooner if somebody makes us. That leaves us basically with two choices if we were even to contemplate turning the recorder off. Either we announce now that we are stopping, take the storm now, or wait until the year 2000 and then say that we turned the recorder off five years ago. Neither alternative is realistic. That to me is just not something we can consider. I would oppose turning the tape off even for non-monetary-policy parts of our meetings. The principle that we have established of taping entire meetings, as we have done in the past year, is really the one we have to support. One of the defenses we have against earlier release, whether we end up with four years or three years or one year or whatever, is that we do discuss sensitive matters. We do discuss foreign governments and foreign central banks and individuals. And leaving that sort of information on the tape is the reason that we can give as to why we have to have a five-year delay.",254
-fomc-corpus,1995,That is a very good point.,7
-fomc-corpus,1995,President Hoenig.,4
-fomc-corpus,1995,"I would say the current situation is such that as much as I would like to turn the tape off, I don't think we can. Having said that, I must tell you that I think Governor Lindsey is right. First of all, I believe the tape has had some chilling effect on our discussions. I see a lot more people reading their statements. I think it is harder to be as candid as some of us might otherwise be. But more importantly, I think if we do start seeing the threat of a subpoena or inquiries, that will have a clear chilling effect, and it could happen at the most critical of times for monetary policymaking. We are in a sense confined to this outcome of leaving the tape on for now. I hate to see this enunciated as a formal policy. I would like to see our options preserved for the time when we can seize the opportunity to turn the tape off.",182
-fomc-corpus,1995,Governor LaWare.,4
-fomc-corpus,1995,"I must say that I have never seen any reason why we should not keep the tape on. I agree with some of the representations made here that might serve us well in protecting the tape. The lightly edited transcript, I think, is very useful from a historic point of view. If we can delete or remove or edit the confidential material, I don't see the problem. What puzzles me here is why we feel it necessary to enunciate this policy change. Why do we have to tell anybody what we are doing? Do we have to make it public? This does not involve any change in monetary policy. I was baffled when I came across the issue of how we should enunciate this on our agenda. Is somebody out there waiting for us to enunciate a policy?",158
-fomc-corpus,1995,Yes.,2
-fomc-corpus,1995,Let them wait then. [Laughter] They will forget about it after a while. I just don't see the need to do that. It will just reopen the whole issue and stoke the fire under it.,43
-fomc-corpus,1995,"Let me respond to that because it is a quite legitimate question. It is my impression that House Banking Committee Chairman Leach has been holding off on any legislative initiatives in this area on the grounds that we are going to do it ourselves. The impression I have--I don't know how firmly based it is--is that if we don't set our own policy, there will be real interest in that committee in trying to do something. Whether or not the issue would go to the full House is a question, but my suspicion is that there is more support for FOMC openness, on both sides of the aisle, than I think we have realized up to now. Larry Lindsey is obviously correct. The degree of Congressional friendliness is much more evident when, say, Jim Leach is in the chair instead of Henry Gonzalez. But I don't think that their views on the issue of the openness of the Fed, on disclosure and that sort of thing, are significantly different. Let me just ask Don Winn to make sure that I am not misreading. Do you have an impression, Don, as to the answer to that?",223
-fomc-corpus,1995,"I agree with your impression, Mr. Chairman. My understanding from talking with the committee staff is that there was interest on the part of the new chairman of the committee on including something on this subject in legislation. Indeed, the bill that was introduced on the first day of the session concerning the Reserve Bank presidents probably would have included a provision dealing with transcript-type issues--maintenance of the transcript, release of the transcript, and the time period for the release. Such a provision was left out because there was an understanding on their part that we would be addressing this issue. So, the interest in the transcripts subject cannot be thought of as simply a matter that the other side of the aisle was focused on and interested in. It is a subject that continues to be of interest in the Congress. It is also a subject in which the new chairman of the committee through his staff has expressed an interest to us. The expectation on their part is that we would make some kind of policy decision.",196
-fomc-corpus,1995,"Chairman Leach effectively is leaving it to us to make the judgment, but he has made it very clear that he wants us to make a judgment.",31
-fomc-corpus,1995,Okay.,2
-fomc-corpus,1995,"Are you finished, Mr. Chairman? Did you want to say more?",15
-fomc-corpus,1995,I don't want to say more.,7
-fomc-corpus,1995,President Moskow.,4
-fomc-corpus,1995,"I am very concerned about making a long-term decision on this today that is going to bind future Open Market Committees for many years to come. Since I am very new to this, I am begging indulgence if I ask some very basic questions. First of all, you mentioned that Virgil Mattingly's memo came out after the subcommittee had written its report. Did the subcommittee consider that legal memo in later deliberations and still agree to go forward with its recommendation?",97
-fomc-corpus,1995,Yes. Subsequent to that memo we had a conference call devoted-almost exclusively to the memo and we left the recommendation intact.,26
-fomc-corpus,1995,"I divide this into two questions. One is, would we want to have these tapes today if we were voting today to set up a system of taping and follow the procedure we are going to have? Would we do that today? My sense just from reading this report and from the comments here is that we would not initiate this.",67
-fomc-corpus,1995,You could stipulate that. [Laughter],10
-fomc-corpus,1995,"Okay. If that is the case, then the second question I have is whether we have explored both within the Committee and with those in the Congress who are so interested in this area other ways that we could be more open. I agree that we should have a policy of openness unless it is going to interfere with our deliberative process. Have we explored other options?",73
-fomc-corpus,1995,"Let me address that. I think the answer to that is definitely yes. We have explored it on the Hill and tried to get a sense of where everyone was. We obviously can't do this in any detail, but I am not sure that any of the options we tried to surface had any support. The only real option that exists for us now is to turn off the tapes. That is an option for which I believe there was some strong support within this Committee a year or so ago, mainly on the grounds that we thought the taping inhibited the deliberative process, not that we were concerned about the subpoena issue, which is a somewhat different question. I think the conclusion, with perhaps a qualification from Tom Hoenig, is that there is very little evidence that the quality of our discussions has been reduced. Indeed, some of our most fervent discussions have occurred in the period since we all knew the tape was on. On that issue, I think the question has pretty much become moot. What is an issue, and I think it is a real one, is the subpoena question. It is an issue that could freeze our discussions at some point. If we really wanted to get paranoid on this whole thing, we basically could say that, if we had no transcripts, we would all get subpoenaed to testify in some open forum. My own judgment is that the chance of getting subpoenaed clearly is very negligible in the short run, certainly the next two years. If we get into an environment in which the subpoena issue becomes a big question, my guess is that it will not be our most important problem.",323
-fomc-corpus,1995,"Mike, were you finished?",6
-fomc-corpus,1995,Yes.,2
-fomc-corpus,1995,President Broaddus.,5
-fomc-corpus,1995,"I want to support Jerry Jordan's point--if we are going to leave the tape on most of the time, I think he made a compelling argument for leaving it on all of the time.",39
-fomc-corpus,1995,"Then the lightly edited transcript would be released after five years in redacted form. We have redaction capabilities. So, it is really a redaction issue.",32
-fomc-corpus,1995,"Yes, it would not preclude that. I think we would still have the lightly edited transcript as the principal written record, but I also think that there might be something to be gained by keeping the draft transcripts somewhere in our archives so that any questions that might come up about the integrity of the editing process could be answered. I do not think we would lose anything by that.",76
-fomc-corpus,1995,"Isn't there a legal question on the redacting? That is, within 30 years don't we have to send the unredacted transcript to the National Archives? We can't redact the transcript and throw the unredacted version away.",47
-fomc-corpus,1995,"I am confused. Could you clarify? I thought we had to keep an unredacted transcript for archival purposes, but I also thought I heard you say before that we do not have to do that and that we can just destroy that transcript once we have done the redactions.",56
-fomc-corpus,1995,What we would destroy is the draft transcript that does not incorporate your edits. We would then have a complete lightly edited transcript--,25
-fomc-corpus,1995,Including the materials that would later be redacted before publication.,12
-fomc-corpus,1995,"Yes, before release to the public. The unredacted transcript would be turned over to the National Archives after 30 years.",26
-fomc-corpus,1995,Okay. Governor Lindsey.,5
-fomc-corpus,1995,"I have a point of information that I think gets to the heart of President Boehne's comment and our willingness to redact certain materials. Mr. Chairman, is it your intention to turn off the tape during the discussion of Mexico we are about to have later this afternoon?",55
-fomc-corpus,1995,"It is one of the questions that I was going to raise with the Committee after we discussed the grounds for redacting central bank issues. However, I must say my own inclination would be to forget this issue of turning off the tape from time to time on a discretionary basis because that leaves open the question of how to do that. It may be more of a problem than it is worth.",78
-fomc-corpus,1995,No quarrel from me; I think it makes the point that we were making earlier.,18
-fomc-corpus,1995,"On the last point that you made, Mr. Chairman, about when to turn off the tape, there is a way to accomplish that and that is by doing it in a negative way instead of in an affirmative way. In other words, what is at issue here, I believe, is an appropriate record, whatever that may be, of monetary policy discussions. I would argue that it would be unfortunate if this Committee left itself in a position where it was unable to talk freely about whatever it might want to talk about other than monetary policy. I do not know what those issues may turn out to be, but I certainly would like to have available to us the opportunity to discuss off the tape anything that we might want to discuss. Our monetary policy discussions, properly defined, do have to be appropriately recorded for posterity. Beyond that, if we want to go the route of maintaining the ability to discuss whatever--Mexico, personnel matters, you name it--off the tape, all we have to do is to adopt a policy that says we will tape monetary policy discussions, period.",216
-fomc-corpus,1995,"I forgot this issue. Some of the things that I had in mind for turning off the tape were organizational discussions and issues relating to how we as a Committee comport ourselves. The reason I would raise that issue, and I retract what I just said about leaving the tape on all the time, goes back to what I thought was a frankly outrageous request for the tape of our discussion in October a year ago. It covered a discussion of how we would comport ourselves at a House Banking Committee hearing. That is the sort of discussion that we should leave ourselves flexibility to have with the tape off.",117
-fomc-corpus,1995,Precisely.,3
-fomc-corpus,1995,I would not turn the tape off on central bank discussions on the grounds that they may involve important issues. But I would think that personnel matters and discussions about how we relate to the world at large and how we organize ourselves as a Committee could be done without the tape running.,55
-fomc-corpus,1995,"For example, this conversation we are having now would not be taped?",14
-fomc-corpus,1995,Exactly.,2
-fomc-corpus,1995,"This conversation, yes.",5
-fomc-corpus,1995,"I take it your point is, of course, that what is taped ought to be broadened to include perhaps central bank considerations as opposed to somewhat more tightly defined monetary policy considerations?",36
-fomc-corpus,1995,Yes.,2
-fomc-corpus,1995,"Let me tell you what I think I heard as a consensus, though I am not sure. Correct me if you think I am wrong. It seems to me that we need a vote to determine this. I think I heard a consensus, though not unanimity, that we should continue taping and that we should enunciate a policy on this issue. It is possible not to say anything. Is that correct? I think so. I am leaving aside the issue of when the tape should be off where I did not hear any consensus--maybe someone else heard a consensus. Maybe we should just have a vote on whether there should be an ""off the tape"" portion. Do you agree?",140
-fomc-corpus,1995,"I agree. It is not clear where the Committee is on that. I think we ought to take a vote of all 19 of us because this is a policy in which we will all be involved, not just the current members of the FOMC.",52
-fomc-corpus,1995,"I have some questions. First, what is the definition of ""enunciate?"" Could enunciate be a private communication to the chairman of the House Banking Committee?",34
-fomc-corpus,1995,"Do you want to answer that, Mr. Chairman?",11
-fomc-corpus,1995,Is it the same thing as an announcement to the public or could it be different?,17
-fomc-corpus,1995,I used the phrase enunciate a policy and the question is does that mean--,17
-fomc-corpus,1995,"When the tape would be turned off, is that what you mean?",14
-fomc-corpus,1995,"No, the question is do we enunciate a policy on taping, and I do not really know what enunciate means in this context.",31
-fomc-corpus,1995,You mean make public do you not?,8
-fomc-corpus,1995,"Oh, yes.",4
-fomc-corpus,1995,That is what I meant.,6
-fomc-corpus,1995,Make a public announcement.,5
-fomc-corpus,1995,"The answer is ""yes."" We would make a public announcement and mention our decision in the minutes. But the announcement would not go into details. It would just list the various items; it would be a very short statement.",45
-fomc-corpus,1995,You could not just have it in the minutes and then convey that to the chairman of the House Banking Committee?,22
-fomc-corpus,1995,"If it is in the minutes, it is public.",11
-fomc-corpus,1995,The minutes will be published in about six weeks.,10
-fomc-corpus,1995,"Oh, you mean those minutes?",7
-fomc-corpus,1995,Yes.,2
-fomc-corpus,1995,Okay.,2
-fomc-corpus,1995,I think we have a few more people who want to speak.,13
-fomc-corpus,1995,"I just have a question and this has to do with whether we allow the tapes to go off for certain subjects. It is a question to Virgil: What could we argue reasonably convincingly about redaction? For example, if we keep the tape on all the time, what is it that we could hold back for 30 years? What would be a legitimate kind of argument? Would the example the Chairman uses about how we comport ourselves with the rest of the world be a legitimate redaction?",100
-fomc-corpus,1995,"That is legitimate. We could keep from the public information that we get from another central bank or foreign government on the grounds that if we disclosed it after five years, we would no longer be able to get that information. That source of information would dry up and that is legitimate grounds to redact the material.",61
-fomc-corpus,1995,What about how we organize ourselves for the rest of the world?,13
-fomc-corpus,1995,"We would have to make that discussion public. Our organization rules are public. Now, if the Committee is talking about the appointment of a person to a particular position, the debate about that could be redacted. There would be a possible invasion of personal privacy.",52
-fomc-corpus,1995,"I would note with respect to dealings with foreign central banks that Congress, back in the late 1970s and the early 1980s when they were considering legislation dealing with the maintenance of transcripts, did contemplate an exemption dealing with foreign central banks that would have allowed us to withhold that information for 30 years.",65
-fomc-corpus,1995,"Returning to your example, Mr. Chairman, I would agree that it was outrageous to request the tape for that telephone meeting we had in October 1993. In hindsight, however, it probably served us well that we had that tape because it was very useful in showing that there was no conspiracy, that there was no evil activity going on. I think it cleared the air rather nicely even though we thought that it really was not a legitimate request.",90
-fomc-corpus,1995,"I think it did clear the air, but the issue is that if we had known our discussion was going to be transcribed and made public, would we have been inhibited in that discussion--as indeed I think we were in other discussions later. There is a very special type of discussion that any committee, independently of the individuals who happen to be members of it, should be able to hold in private. That is the committee's internal organization. An example is the content of that particular meeting--who would say what to whom, and how we would decide who followed whom, and who would be responsible for indicating such and such. As it turned out, as soon as we brought all those Congressional committee staff members here to listen to the tape, the issue was gone. No one uttered a new word. But the fact that the tape for that discussion was available to be scrutinized is what I found inappropriate. We will be accused of all sorts of conspiracies whether we have tapes, whether we do not have tapes, or whether we publish them at any time because there is always the question: what are we not telling them? It is an unanswerable question. Maybe I was overly sensitive to that particular episode, but I thought that it was a real violation of the Committee's rights. For example, there are certain types of conversations we can't have with each other about how we are going to organize if we are subject to making those publicly available. There can't be any informal discussions.",299
-fomc-corpus,1995,That's exactly right.,4
-fomc-corpus,1995,"Mr. Chairman, when we are dealing with monetary policy, it is a lot easier to defend preserving the confidentiality of a document. I think there really is a lot of respect for the independence of the Fed in the Congress. When anyone is trying to get information and we can say it relates to monetary policy, we are going to be more successful in defending documents of that nature. Where it is not monetary policy--and that was the kind of tape we were dealing with--it is very hard to raise our best arguments in protecting our information. I guess that argues for limiting what is taped to monetary-policy types of information. It is hard to defend non-monetary-policy types of information from a Congressional request or demand.",145
-fomc-corpus,1995,"Tom, did you want say something again?",9
-fomc-corpus,1995,"Not on substance. I was just going to suggest that it might be helpful for the Chairman to take a straw vote--a show of hands--on that issue first, just to get a sense of where people are without a formal vote.",48
-fomc-corpus,1995,I am not going to record these votes because we do not have to. There is no legal requirement. But we do have to find out where everyone stands.,32
-fomc-corpus,1995,"Before we do that, may I ask a question? A lot of times we have briefings where one of us or a member of the staff presents information and we ask questions. Is this the kind of thing that you would contemplate not taping?",50
-fomc-corpus,1995,"No, the tape would be on for that.",10
-fomc-corpus,1995,"I was thinking about legislative matters such as what is happening on the Hill, those kinds of discussions?",20
-fomc-corpus,1995,That is not done during the meeting.,8
-fomc-corpus,1995,It is done when the meeting is over.,9
-fomc-corpus,1995,We usually do that at lunch because it is not part of the FOMC deliberations.,19
-fomc-corpus,1995,And the tape is not on.,7
-fomc-corpus,1995,Okay.,2
-fomc-corpus,1995,"I think, Mr. Chairman, we could distinguish between organizational matters that would not be taped and monetary and central banking matters that would be taped.",29
-fomc-corpus,1995,Yes.,2
-fomc-corpus,1995,"I would have suggested something like ""confidential matters not pertaining to monetary policy"" as the rubric for not taping. That is just a suggestion.",30
-fomc-corpus,1995,"You know what the problem with that is? It is the word ""confidential.""",17
-fomc-corpus,1995,"Strike ""confidential."" Just say ""matters.""",11
-fomc-corpus,1995,"""Confidential"" is precisely what we do not want. It has to be based on the nature or the substance of the discussion. I thought that the Vice Chairman's formulation seemed reasonable. What I want to do is ask for that and also ask whether or not it should be the choice of the chair to make the decision on when the tape goes off.",72
-fomc-corpus,1995,Could you repeat what Bill McDonough just said?,11
-fomc-corpus,1995,"Bill, why don't you repeat it.",8
-fomc-corpus,1995,"I suggested that organizational matters, which we discussed as examples, would not be taped. Other matters would be taped and those would be monetary policy and central banking matters. I do not know of anything else we talk about.",44
-fomc-corpus,1995,"Let me give you a case in point--today's meeting. We would not have taped the very beginning of the meeting where we discussed the Committee's organization. We would publish, obviously, the list of everyone who got elected; that is part of the normal record. I suspect we would not be taping this particular discussion.",66
-fomc-corpus,1995,That's right.,3
-fomc-corpus,1995,This is an organizational discussion.,6
-fomc-corpus,1995,What about Mexico?,4
-fomc-corpus,1995,Mexico I think we tape because that is a central bank matter.,13
-fomc-corpus,1995,And redact?,3
-fomc-corpus,1995,Yes.,2
-fomc-corpus,1995,"This is one of the reasons that I have a somewhat negative reaction to the phrase ""central bank matters."" It is not obvious that what we just discussed is not a ""central bank matter.""",38
-fomc-corpus,1995,"You could leave it as monetary policy because to me, monetary policy is a very broad, broad church.",21
-fomc-corpus,1995,Yes.,2
-fomc-corpus,1995,It certainly would include a discussion of anything we may do vis-a-vis Mexico.,16
-fomc-corpus,1995,I think most people would say this is not about monetary policy.,13
-fomc-corpus,1995,"Can we just say that organizational issues will not be taped, all others will be?",17
-fomc-corpus,1995,That is the formulation I would favor for keeping the tape on.,13
-fomc-corpus,1995,Can we add that?,5
-fomc-corpus,1995,Yes.,2
-fomc-corpus,1995,"Okay, the proposal is that all organizational matters will not be taped but, as relevant, the substance will be included in the minutes. All other issues will be taped. A lightly edited transcript will be made available, redacted as may be necessary. The unredacted versions go to the National Archives after 30 years. Okay? All those in favor of that particular proposition, please raise your hand. All those opposed. The ""Ayes"" have it. Shall we do the next item?",100
-fomc-corpus,1995,"Yes, since this one was so easy, let's go to the novel aspect of the subcommittee proposal, which is to allow individual members at their option to add concurring statements to the minutes. I would like to say in starting this off that there was a Mullins subcommittee before this subcommittee, as a lot of you will remember. I inherited this proposal from the Mullins subcommittee and heartily endorse it, although it wasn't my idea by any means. I wanted to mention that. The floor is now open.",106
-fomc-corpus,1995,"I think there is a lot to be said for concurring statements and, Alan, you articulated the arguments very well. I would just like to throw in one reservation. If we have the possibility of concurring statements, we are going to invite more than we might like. If we start with one concurring or two concurring statements, we are going to have five or six in the next set of minutes. If that were to happen, the quality of the minutes would diminish because the concurring statements would detract from the essential elements of the minutes. Over the years, and maybe Virgil could confirm this, I have read many Supreme Court and Court of Appeals decisions that have concurring statements. My judgment has always been that if there are more than a few concurring statements, it really takes away from the essence of the decision of the court. That is what I have in mind when I raise this possibility. I think this will be an invitation for people to get their names in the record. I'm saying that as delicately as I can. [Laughter] Perhaps this discussion today is an example of that--",226
-fomc-corpus,1995,"Bob, you were not very successful!",8
-fomc-corpus,1995,"There are advantages, but I think we need to take that potential drawback into account. If we do agree that we are going to allow concurring statements, I would urge the members of the Committee to be very judicious in the use of those statements.",51
-fomc-corpus,1995,Let me ask a question relevant to that because I think Bob Forrestal is raising a very crucial question. Did the subcommittee consider any sort of halfway alternative where there would be a significant--,38
-fomc-corpus,1995,Could I interrupt you for one minute?,8
-fomc-corpus,1995,Yes.,2
-fomc-corpus,1995,Governor Lindsey suggested that we just decided to--,9
-fomc-corpus,1995,To turn off the tape; let's turn it off.,11
-fomc-corpus,1995,I am neither endorsing nor opposing this. Governor Lindsey suggested we just agreed on a procedure for turning the tape off.,24
-fomc-corpus,1995,I think that is a valid request but we are almost through with this. [Laughter],19
-fomc-corpus,1995,Pardon me!,4
-fomc-corpus,1995,You would make a good terrorist! [Laughter],11
-fomc-corpus,1995,What do you think they do on weekends?,9
-fomc-corpus,1995,That is on the tape!,6
-fomc-corpus,1995,Some may view him as a terrorist already.,9
-fomc-corpus,1995,"Did the subcommittee discuss anything similar to what Bob Forrestal just said, namely, that only under extraordinary circumstances would it be appropriate to have assenting statements rather than as a general rule? Did you discuss that question at all?",46
-fomc-corpus,1995,I do not believe we did. We discussed restrictions. The whole subcommittee is here. I don't remember discussing that.,24
-fomc-corpus,1995,"I think, Alan, the general feeling of the subcommittee was that the concurring statements ought to be an available option, but there was a general feeling that such statements would not be used often. Now, there is no real way to enforce that. We count on the good judgment of every individual member of the Committee, but we count on the good judgment of every member of the Committee for a whole lot of things.",85
-fomc-corpus,1995,"I do not think we ever discussed this issue, but I would guess, like Ed Boehne, that this option would not in fact be heavily used.",32
-fomc-corpus,1995,"Can we make the issue basically that what is on the table is ""assenting statements, to be used only with great judiciousness"" or something like that?",33
-fomc-corpus,1995,This is a different human nature than I am familiar with. I think I am closer to Bob Forrestal's view of it as a privilege rather than a right.,33
-fomc-corpus,1995,President Hoenig--I am going down the list.,11
-fomc-corpus,1995,"As the Chairman has defined the proposal now, I could live with it. But as a concept, let me just say, number one, I think that we are a consensus-building body and our success has been very much built around that. I also think that nuances and differences are reported and defined in the minutes so that the outside world can see them. I believe it would be a mistake to begin having concurring statements unless they are extremely limited. I would define that as almost never if not never. Otherwise, we invite into the process, as Bob Forrestal said, a feeling of obligation to state a view because one's view is not quite the same as the view expressed by another member or a member wants to get his or her name on the record. But more importantly, if there are differences, I think concurring statements invite a proliferation of statements. That then opens up even more the issue of releasing the minutes sooner. This could take us down a very rocky road.",196
-fomc-corpus,1995,"I must say I have considerable sympathy for that analysis and the view that there is a problem here. Do you mind if I ask Don Winn a question? Don, I know that there has been very little discussion of this issue on the Hill. Have you heard of any? Do you have any sense of where the committees might be on this?",69
-fomc-corpus,1995,I really do not have the sense that this is a point of great significance to the Hill people. I don't think we need to base our determination in terms of input that we have gotten on that. I just cannot report anything significant on either side of the aisle.,53
-fomc-corpus,1995,"We originally brought this notion forward, as I recall, when we were looking for ways to be more open. I am wondering whether in fact we have overreached.",34
-fomc-corpus,1995,"I think you recall correctly, Mr. Chairman, that we came up with it as an alternative to some of the proposals that we were getting from the Hill. It is not a Hill proposal.",39
-fomc-corpus,1995,"Just to say my piece, I had been in favor of this proposal, but I have been having second thoughts recently. I am willing to go along with whatever the majority wants, but I must say that my enthusiasm for this is fading. The type of argument that Tom Hoenig and others have made is really difficult to get around.",67
-fomc-corpus,1995,"I think this came up originally when we were thinking of ways to expand the minutes. But subsequent to that, I believe, we discovered that the meetings were being recorded and we decided to release the transcripts. Also, we made the decision to release our actions promptly to the public.",56
-fomc-corpus,1995,You mean it may be moot at this point?,10
-fomc-corpus,1995,Yes.,2
-fomc-corpus,1995,"Yes, it may be moot at this point. This had a life that preceded our making those decisions. I think the arguments that have just been made are very good, particularly in light of the fact that we really are being rather forthcoming. When it was still the Mullins subcommittee, I think I was in favor of this. But enough has changed since then that it seems to me it is not really a terribly important issue anymore.",88
-fomc-corpus,1995,"As a member of the subcommittee, I want to associate myself with what Ed just said.",19
-fomc-corpus,1995,"I would like to disassociate myself. I felt strongly that this was a way to provide more information to the public. I feel even more strongly about it now, given the decision that we just made to keep our press statements extremely terse, which is the majority view. This is in some sense a substitute for that. But having said that, I won't belabor it. President Jordan.",78
-fomc-corpus,1995,"I'm opposed to concurring statements because it seems to me the only way they can be used is to express reservations or reluctance to go along with the majority. I think that is inappropriate for people to do. If they feel strongly enough about a decision, they should dissent. Otherwise, they should go along and keep quiet about it. It is very divisive to publicize, even with a 45-day lag or so, degrees to which people are or are not on board with the majority. I think it plays into the hands of people on the Hill and elsewhere in a very negative way. In principle I just think that concurring statements are wrong.",132
-fomc-corpus,1995,Vice Chairman.,3
-fomc-corpus,1995,"I think it is an unfortunate bit of history that people who dissent make a statement explaining the dissent. It is fine to dissent if one thinks he or she ought to, but I think the dissenting vote is enough. So, it is very easy to understand why I think that consenting opinions are truly a terrible idea. I believe the function of this Committee is to make decisions on monetary policy. That is best done when the Committee reaches its decisions after an open and frank debate. The notion that, well, I supported the majority but here is why I think my view is a little different from what is stated in the minutes opens us up to factionalism. I think Bob Forrestal is right. First there would be one statement, and then there would be two, and then there would be heaven knows how many. The press and the Street would have a field day deciding who is in one camp and who is in the other camp. I think it would be a terrible disservice to the great reputation and the enormous responsibility of this Committee.",210
-fomc-corpus,1995,President Parry.,4
-fomc-corpus,1995,"I used to be very supportive of such statements, but in light of all the changes that we have made that are clearly in the direction of openness, I do not see a necessity for it any longer.",41
-fomc-corpus,1995,Governor LaWare.,4
-fomc-corpus,1995,"I don't think the opportunity to make a concurring statement is urgently needed by anybody around this table. Secondly, I think a policy decision is significantly weakened if, within that consensus, we have a half dozen nuances of opinion. I would be strongly opposed to it.",53
-fomc-corpus,1995,President Minehan.,4
-fomc-corpus,1995,"Initially, I came at this wondering whether it was really possible for us to prevent anyone from writing a concurring statement if that member absolutely wanted to do so in the context of our having dissenting statements. I am not sure what the answer is to that question, but I am much more in the camp of those who think that such statements are not a good idea and are divisive in terms of the minutes of the meeting and the statement of the consensus as a whole. Can the Committee administratively preclude someone from writing a concurring statement?",110
-fomc-corpus,1995,A person can write a concurring statement.,9
-fomc-corpus,1995,But we just would not include it?,8
-fomc-corpus,1995,It is not included in the official record of the FOMC.,14
-fomc-corpus,1995,Okay. [Laughter] There is no inalienable right or anything like that?,18
-fomc-corpus,1995,No.,2
-fomc-corpus,1995,Okay.,2
-fomc-corpus,1995,That is in fact the status quo--dissenting opinions and no assenting opinions.,18
-fomc-corpus,1995,"Right, but I didn't know if that was by rule.",12
-fomc-corpus,1995,"The question is, is it by rule?",9
-fomc-corpus,1995,Dissenting statements?,5
-fomc-corpus,1995,"No, assenting statements. Is there a rule?",11
-fomc-corpus,1995,"My position would be that the Committee can establish its own rules. If the Committee votes not to allow a concurring statement, it would seem to be within the Committee's right.",36
-fomc-corpus,1995,President Melzer.,4
-fomc-corpus,1995,"At the risk of jeopardizing the direction in which this conversation is headed, which I favor, I will point out that I was the minority view on the subcommittee against assenting statements. [Laughter]",42
-fomc-corpus,1995,That is a dangerous position to take.,8
-fomc-corpus,1995,I think you have moved into the majority! There is a strong consensus on this. We do not require a vote.,24
-fomc-corpus,1995,"I don't think so. Well, let me just be sure. Does anybody object to not moving toward assenting statements but leaving the minutes essentially as they are, with only dissenting statements allowed?",39
-fomc-corpus,1995,Just a point of information--I always thought dissenting statements were required. They are not?,19
-fomc-corpus,1995,Required by whom?,4
-fomc-corpus,1995,"I have always been asked for one whenever I have dissented. I didn't want to bother writing one. [Laughter] If you are going to tell me that in the future that I have less work to do when I dissent, I will be delighted. [Laughter] So, I take it that there is no requirement to issue a dissenting statement?",73
-fomc-corpus,1995,There is no requirement.,5
-fomc-corpus,1995,Thank you for the point of information.,8
-fomc-corpus,1995,You have saved a few hours a year!,9
-fomc-corpus,1995,"Yes, I hope not to dissent very much, but--[Laughter]",16
-fomc-corpus,1995,"The last issue is the currently symmetric blackout period--moving from a symmetric blackout period around the meeting date to an asymmetric period. There actually is no proposal on the table. Would you like to make a proposal, Mr. Chairman?",46
-fomc-corpus,1995,"No, I have been agnostic on this. I do not have any strong views.",18
-fomc-corpus,1995,I do not have firm views on this either. I was thinking of a blackout period covering a week before and a day or two after a meeting.,30
-fomc-corpus,1995,Would you explain what the blackout period is?,9
-fomc-corpus,1995,We now have a blackout period in which none of us is supposed to talk publicly about monetary policy a week before the FOMC meeting and a week after.,32
-fomc-corpus,1995,Monetary policy?,5
-fomc-corpus,1995,"Monetary policy. I think that is right, but correct me if I am wrong.",19
-fomc-corpus,1995,"It is rather unfortunate that it has become such an elastic concept that I am not certain what that means. People around here comment on data when they come out, and that is very clearly related to one's position on monetary policy. I think it would be useful if we had a definition of what this is all about.",63
-fomc-corpus,1995,President Melzer.,4
-fomc-corpus,1995,"I do not see any reason to change any of our rules with respect to how we communicate with the public. I think the blackout period is appropriate. It is consistent with the discussion we just had. Our monetary policy decision should come across as a decision of the group. To the extent there is a statement issued, that is the statement explaining our action. Frankly, I have taken the view that I am not going to talk about any monetary policy decision until the minutes of that meeting are out, and even then I might not talk about it. The record of the meeting is then public but I have not, for example, taken the view that after one week I am at liberty to talk about what the Committee decided and why. I think that is a very important rule.",156
-fomc-corpus,1995,"As I remember what this issue was about, there was a view in the old days that we should not discuss anything related to monetary policy, which in fact includes virtually everything that everyone around this table talks about when they speak to the press. This so-called blackout is very difficult to define. I am not sure what it is and I was wondering if Joe Coyne would just take a second to give us a history of this.",86
-fomc-corpus,1995,"This goes back, I would say, 15 years when there was a lot of discussion in the press stemming from comments made by various members of the Committee both before and after an FOMC meeting. Some of the papers liked to do a summary story immediately before the meeting. They would do a round-robin, calling all 19 people. They would compare answers and try to figure out what was going to happen. We were asked to put together some informal guidelines. These are not ""rules"" of the Committee. They are simply guidelines that I have propagated to the Committee. The purpose was to help the Committee deal with the press in sensitive periods. One of the things we came up with, that the then-Chairman agreed with, was this blackout period. People were not to talk to the press a week before and a week after a Committee meeting. The purpose was to try to prevent all the speculation in the press and subsequently in the market about what the Committee would do. Now, we still get that speculation, but we get it from commentators. We do not get it from members of the Committee anymore. It has worked to an extent. It has not worked 100 percent. But a lot of members of the Committee use the blackout period to avoid talking to the press during these sensitive periods.",264
-fomc-corpus,1995,Yes.,2
-fomc-corpus,1995,"Joe, are you suggesting that it actually has been useful?",12
-fomc-corpus,1995,"It has been very useful in my view. If you are going to make the blackout period asymmetrical, I would say make it asymmetrical to the Friday following the meeting rather than for just two days. If it is only two days, then everybody will jump on it after 48 hours, and we are still going to get a lot of different comments. One of the problems is, if someone comments one way, as Mr. Forrestal just said, somebody else is going to try to jump the other way. Then we are going to get more and more people commenting.",116
-fomc-corpus,1995,"So, in a sense, the thrust of the announced decision of the Committee then gets diluted in the same way that consenting statements would do that.",29
-fomc-corpus,1995,That is right.,4
-fomc-corpus,1995,May I just raise a question? Is there any compelling reason to change the blackout period?,18
-fomc-corpus,1995,Someone asked whether it just covered monetary policy. It was supposed to cover monetary policy and the economy--things that the Committee discusses when it is formulating monetary policy.,33
-fomc-corpus,1995,"My impression is that if a reasonably good reporter gets one of us to sit and discuss what is going on in the economy, it is a farce for us to say, ""I won't discuss monetary policy but let me tell you what is going on in the economy."" It is a farce because, while it may be that in the old days reporters were not very knowledgeable, many of the current breed have MAs and PhDs in economics.",90
-fomc-corpus,1995,"I was taught the blackout policy by Joe Coyne when I arrived here, and it was that one does not talk about the economy the week before and the week after.",34
-fomc-corpus,1995,"Me, too.",4
-fomc-corpus,1995,Exactly.,2
-fomc-corpus,1995,I think the answer to Bob Forrestal's question is that a change is not compelling if the Committee does not think it is compelling. The current blackout is a leftover from a time when we did not announce the decision when we made it. There was still some secrecy and there was a lot of speculation as to what the FOMC had done. Now there isn't and the post meeting blackout now seems like an anachronism. But there certainly is no urgency if nobody wants--,97
-fomc-corpus,1995,I would like to follow up my question by expressing my belief that the blackout period as it now is constructed serves a very useful purpose. I think the change to an immediate announcement does not really affect that. I think we ought to keep it the way it is.,53
-fomc-corpus,1995,For the same reason that the assenting statements are not desirable?,13
-fomc-corpus,1995,"Yes, exactly.",4
-fomc-corpus,1995,"There is another reason and that is that these FOMC meetings are now hyped-up more by the press--before and after--and I don't think we ought to contribute to that hype. Even though our practice is not perfect and it is only a guideline, I personally have found it to be very useful just to say, look, there are two weeks that I am not going to talk to you people. If you want to talk about some banking condition or something like that, that is a different story. But as a general proposition, I just do not talk to the press for the two weeks around the Committee meeting. As I said, I have found it to be personally very useful, and I think it collectively keeps us from this hyping up of Committee meetings.",156
-fomc-corpus,1995,Any objections to what Ed is proposing?,8
-fomc-corpus,1995,"I think, first of all, that the blackout was defined so that we never, never, never talk about what goes on at an FOMC meeting, period--whether that is one week before, two weeks before, eight weeks before, or seventeen weeks after. It is not an issue of talking about the FOMC because we never should. I have no right to tell someone what any of you said; that is your business.",89
-fomc-corpus,1995,"To my knowledge, as long as I have been here there has never been a breach of that confidence.",21
-fomc-corpus,1995,"That is correct and I think that is important. We should separate out the FOMC from the blackout issue. I think not talking to the press about economics or monetary policy is very useful the week before because of the issue of how we are going to vote. If we do, reporters are going to write it all up in the Sunday supplements. It probably was useful to have the blackout after the meeting while there was some ambiguity about how we voted, but in practice I think that, given the obligations we have to the public to explain our views, allowing us to talk about the economy and give economic speeches the week after is not unreasonable. Otherwise, we are in a situation where we are in blackout literally one-third of the time. I can respect the people who like that situation, but it is very, very difficult. If we are going to have the kind of strict blackout that Joe discussed where we do not talk about monetary policy or the economy, then I suggest we limit it to one week per meeting.",204
-fomc-corpus,1995,President Melzer is on the list.,8
-fomc-corpus,1995,"I just wanted to clarify what you were saying, Alan. I think you are right in terms of individuals never being identified. We did have that very difficult period where the leaks to The Wall Street Journal and others covered Committee deliberations and positions. To make sure I understand it correctly, what I want to confirm is that we really should never be talking about what went on in an FOMC meeting in terms of who said what.",87
-fomc-corpus,1995,Ever.,2
-fomc-corpus,1995,I had forgotten about that incident.,7
-fomc-corpus,1995,Okay.,2
-fomc-corpus,1995,That is not what this proposal is about.,9
-fomc-corpus,1995,It is a good defense mechanism.,7
-fomc-corpus,1995,This proposal is only about talking to the press about things that under normal circumstances we can talk to the press about. That excludes the FOMC discussion.,31
-fomc-corpus,1995,Isn't there another element to the blackout in February and July?,13
-fomc-corpus,1995,Because of Humphrey-Hawkins.,8
-fomc-corpus,1995,"Yes, the blackout covers the period between the meeting and the Humphrey-Hawkins testimony.",19
-fomc-corpus,1995,"Yes, okay. Mike.",6
-fomc-corpus,1995,"First of all, I think any of us can set a blackout period if we want to. We can just say, my policy is not to speak to the press for a week before, a week after, or whatever the time period is, and the press will respect that if we set it. Any of us has that ability. I can see a blackout the week before. I think it makes good sense that we not talk about the economy or monetary policy before the meeting. After the meeting, I view us as having made a consensus decision; we are going to go out and try to explain it to people. I think that helps in the education of people and the better understanding of monetary policy. I could see some limited blackout time after a meeting--perhaps 48 hours or as Joe suggests through Friday. I would go with a more limited period after meetings than one week. I wouldn't tie everyone's hands for a full week afterward because I think it can be a great benefit to the Committee and to what we are trying to explain.",208
-fomc-corpus,1995,"I have always looked at Joe's very good guidelines as a reminder to all of us to be prudent. That can be between the meeting and the Humphrey-Hawkins testimony because we do not want to preempt what the Chairman is likely to say. That is easy because usually we do not know! [Laughter] But now that we announce the decision, we could all look rather foolish if somebody were to say, ""Well, you raised interest rates on such-and-such a date, didn't you?"" We don't want to say, ""Sorry, I can't say anything about that."" So I think the blackout is a reminder to be prudent. I think it is very, very important for us to be quiet during the week before the meeting so that we do not provide the entertainment in the Sunday supplement. After the meeting, it would seem to me that one has to be careful not to reveal positions for just the reasons that we do not want concurring opinions.",195
-fomc-corpus,1995,"Maybe Joe's suggestion is a good compromise on this. In other words, a blackout through the end of the week rather than a full week probably captures most of what everyone would be concerned about. Does anybody object to that as a solution to this dilemma? If not, Joe, why don't we just change it to be through--are we always meeting on a Tuesday?",74
-fomc-corpus,1995,"No, tomorrow is a Wednesday.",7
-fomc-corpus,1995,This year we have one Wednesday meeting in November because of the BIS conflict.,15
-fomc-corpus,1995,We can say the balance of the week of the meeting.,12
-fomc-corpus,1995,Why don't we just leave it at the balance of the week? Okay?,15
-fomc-corpus,1995,Fine.,2
-fomc-corpus,1995,We have exhausted this issue.,6
-fomc-corpus,1995,We certainly have.,4
-fomc-corpus,1995,This issue and ourselves!,5
-fomc-corpus,1995,"Now, let us get to the easy issue of inflation targeting! It has been suggested, and I think it's a good idea, that we have pro and con statements on inflation targeting. I have asked President Broaddus and Governor Yellen to take the pro and the con. Al, why don't you get started?",64
-fomc-corpus,1995,"Thank you, Mr. Chairman. I appreciate the opportunity to make a few comments about inflation targeting. Actually, I am going to use the term ""inflation objectives,"" if I may, because I think that describes and reflects more accurately what I have in mind. To my mind, this is an idea whose time has definitely come. Let me cover just three things. I will try to do this as briefly and compactly as I can and still get the main points across. First, I will summarize as clearly as I can the analytical case for some kind of explicit inflation objective. Then, I want to comment on just one of the most frequently heard objections. Finally, I would like to say a little about what specific kinds of objectives we might want to introduce and how we might proceed if the Committee decides, and I hope it will, that this is a good idea and wants to move in this direction. In doing this, I will build on Dave Lindsey's memorandum that I think did a very nice job of laying out the main issues and considerations in a balanced way. Very briefly, the basic argument, as I see it, for implementing an operationally meaningful explicit inflation objective is that it would allow us over time to foster a better economic performance. This would occur, in brief, because we would be moving away from the almost purely discretionary approach to policy we have followed historically, with its focus on reacting to emerging short-term economic developments, toward an approach where the central focus would be on precommitment to a permanent low inflation objective that would be clear and feasible. Of course, on the face of it, the assertion I just made that changing our approach to policy in this way is going to improve economic performance is just that; it is an assertion. But I think it is fair to say that it is supported by much, if not most, of the important research done in monetary economics over the course of the last twenty years. Dave Lindsey alludes to this when he refers to such issues as how the public and the market form expectations about future inflation and how these expectations and the way they are formed relate to monetary policy and its effect upon the economy--the so-called time-inconsistency problem and all of that. Beyond these theoretical considerations, however, experience over the years under our current approach to policy, with accelerations and then decelerations and then re-accelerations of inflation, suggests that periodic inflation scares in the financial markets and the damage inflation has done to the economy naturally make a lot of people think there has got to be a better way. Against that broad background, let me quickly list some of the most important advantages that I see for a credible inflation objective. Many of these are also noted by Dave in his memorandum. First, by signalling the disinflation in advance, a credible inflation objective very likely would reduce the real cost of transitioning to a permanently lower inflation rate. Moreover, related to this, the credible objective would allow the Committee to pursue a more activist policy more freely in the short run without worrying about losing credibility. The situation we face today is a good example of this. Since we probably have not yet seen the full effect on the economy of our tightening actions last year, and we are already beginning to see at least a few signs of moderation in aggregate demand, one could make a case for caution in approaching any further tightening in policy today. However, under our current approach to policy, there obviously is a big risk. If we exercise such caution, it could be misunderstood, reduce our credibility, conceivably produce an inflation scare in financial markets, and destabilize the economy. That is one point. Next, an explicit inflation objective would be an efficient way to break out of our current Humphrey-Hawkins reporting conundrum. The problems with targeting monetary aggregates are well known to everybody including Congressmen. Consequently, in the Humphrey-Hawkins process, I would argue that if we continue to focus a sizable amount of our attention on the aggregates, we will look a little silly. On the other hand, if we don't provide some substitute, we risk having our agenda set for us with the focus on whatever short-term problems seem to be most pressing at the time as distinct from a coherent, consistent longer-term strategy that befits a central bank of our standing and stature. Finally, it is worth noting that a number of other industrial countries, as I am sure all of you are aware, have established explicit longer-term inflation objectives in one form or another. Most of these have been put into place over the course of the last three or four years. I think the motive in most cases has been to try to lock in currently low inflation rates. Obviously, we have only limited experience with these new procedures, but if they are reasonably successful over time, and I think they very likely will be, I am not sure we want to be one of the few industrial countries not moving in this direction. It is true, as Dave mentioned in his memorandum, that the Bundesbank does not have explicit inflation objectives, but it does have a strong legal mandate for price stability, and of course, it has very broad public support rooted in long and bitter historical experience. These are the main positive arguments for an explicit inflation objective as I see them. Just quickly on the main objection to such an approach: As Dave points out, the main objection is that a short-term trade-off is said to exist between real activity and inflation. Critics of inflation objectives consequently argue that we can maximize our contribution to public welfare and to economic welfare by exploiting that trade-off. Hence, they argue that anything that prevents us from doing that, like tying our hands with an explicit inflation target of some sort, would be undesirable. As Dave indicates, this argument would seem to be most compelling in the case of supply shocks, like the oil shocks back in the 1970s. But as I see it, this argument really does not have a whole lot of punch except in the limiting case of a very rigid, inflexible numerical inflation objective. In general, as I see it at least, there is nothing incompatible between a credible long-term inflation objective on the one hand and having the flexibility to cushion the economy against supply shocks as long as the public understands and is confident that the longer-term commitment remains in place while we are dealing with the short-term problem. Indeed, far from reducing our flexibility, it seems to me that a credible long-term objective arguably would increase our flexibility in dealing with such shocks because we would not be worried about losing credibility in that situation. Let me move to the final issue I want to address: that is, exactly how we should go about establishing a credible commitment--exactly what kind of objective should we set and what should we tell the Congress? I want to recommend that we need something more concrete to back it up. An important point here is that the inflation objective should not be used in the way that we used the old money supply targets, that is, as a mechanism for guiding short-term, tactical monetary policy actions. I apologize for the repetition: The purpose of an inflation objective is to commit ourselves credibly to maintaining the purchasing power of our currency, like the Bundesbank's legal mandate does in Germany. I have to confess I had to think about this a lot, and my staff had to get me in a room and pursuade me of this. With these things in mind, I would argue that we should not adopt a numerical target even in the form of a range because I think that would set us up for failure. Instead, I would recommend that the Committee commit itself firmly and publicly to the objectives contained in the Neal amendment with respect both to the language of the amendment in the way that it defines price stability and also importantly with respect to the 5-year time horizon. As for communicating this, the Chairman could state in his upcoming Humphrey-Hawkins testimony that the Committee is considering taking this step, perhaps in the summer, given the increasingly obvious problems with focusing on the money supply targets in the Humphrey-Hawkins process. The Chairman could also urge the Congress to pass the Neal amendment. I recognize that the amendment has not gotten significant support to date, but the election has clearly changed the makeup of Congress a good bit, and again the technical problems with using the money supply as a nominal anchor are increasingly apparent to all. I think we can explain it against that backdrop. Finally, as I see it, there are some very strong advantages to proceeding in the way that I just suggested. For one thing, we are already on record in favor of the Neal amendment. Doing this would not be a radical departure from the position the Committee has taken earlier. Also--this is very important--doing what I have suggested would not prevent the Fed from taking the kinds of policy actions that we take today to stabilize employment and output. What it would do, and this probably is the most important thing I am saying today, is to discipline us to justify our short-term actions designed to stabilize output and employment against our commitment to protect the purchasing power of our currency. In this respect, and this is also an important part of what I would propose, I would recommend that we begin publishing some sort of inflation report, perhaps semi-annually, in conjunction with the Humphrey-Hawkins process along the lines of the report that is currently put out by the Bank of England. That would help guide us in making our short-term policy decisions, and it would also publicly underscore our longer-term commitment. My view is that if we agree to do this, the report should be prepared by the Committee's staff, drawing on any System resources the staff wants to draw on. If we do this, it seems reasonable to me to presume that progress toward achieving our inflation objective would naturally supplant the money supply targets, especially the short-run money supply targets, as a principal focus of the Bluebook and other staff presentations. For example, the short-term policy alternatives that we always have in the Bluebook could be discussed at least in part from the perspective of their consistency with our long-term inflation objectives, the rate of progress toward that objective, and any risk that a particular alternative would present with regard to missing the objective and related matters. Let me end by saying that I realize that an explicit inflation objective is not a magic wand: it is not going to solve all our problems; it is not going to solve all the world's problems; it is not going to grow any hair on my head. But I do think the kind of objective that I suggested is a practical one and I believe it is a feasible one. Over time, I am convinced that it could help improve and increase our contribution to the nation's economic welfare. I rest my case.",2170
-fomc-corpus,1995,"I am strongly opposed to the adoption of formal multi-year inflation targets. I thought I would begin by outlining the case against them. This proposal has two distinct features. The first has to do with the number of goals we should be pursuing, a single goal or multiple goals. I am taking this proposal to be essentially the strong one that Dave Lindsey suggested in his memo, namely, that the inflation rate should be the sole objective of policy for current and future years with no weight being placed on achieving competing, ultimate goals for real variables. I am going to speak against that proposal, and I note that it is a somewhat stronger proposal than I heard Al just support. The second aspect of the proposal has to do with numerical as opposed to qualitative targets. Since I am particulary opposed to the single goal, that is what most of my remarks are going to focus on rather than the numerical character of it. I began by asking myself the question, what is it that the public cares about? The answer seems straightforward to me. It is not just high and variable inflation; that is not the only aspect of economic performance people care about. The public also cares about real outcomes. Households and businesses very much dislike fluctuations in output and employment, for good reasons. Quite naturally, they prefer higher average output and lower average unemployment. I consider these goals eminently sensible, not foolish nor irrational. Then I ask myself, what is it that the Fed can accomplish? I conclude that the actions of this Committee affect not just the level and variability of inflation but also at a minimum the variablity of output and employment. I know that some people would argue against our trying to reduce the variability of output on the grounds that economic forecasting is so uncertain and that there are long and variable lags in monetary policy, so maybe all we would do is to destabilize the economy rather than stabilize it. But when I look at the record, I just do not agree. It seems to me the record shows that within limits, tuning works even if it is not ""fine."" The proof of the pudding is in the eating. I would give the Greenspan Fed a grade of close to A for its performance. I see this Committee as having been leaning against the wind and, by so doing, significantly mitigating fluctuations in output and raising social welfare in the process. The moral I draw is simply that the Fed should pursue multiple goals. It follows almost automatically that when the American people have sensible multiple goals and the Federal Reserve affects multiple dimensions of economic performance, that the Federal Reserve Act should enshrine all of those goals and we should do our best to honor them. I simply can't see how we could support legislation that in the extreme case, not quite what Al just supported, would in essence direct us to abrogate our responsibility for stabilization policy. I think it would be dangerous at a time when fiscal policy has been disabled for use in stabilization. I understand that the mandate of the Federal Reserve Act to pursue multiple goals is pretty vague. There really is no guidance in the Act as to how to call the tough trade-offs. But I see the objectives as fundamentally sound, and I think this Fed, in pursuing those goals, has enhanced social welfare. Fortunately, the goals of price stability and output stability are often in harmony, but when the goals conflict and it comes to calling for tough trade-offs, to me, a wise and humane policy is occasionally to let inflation rise even when inflation is running above target. Supply shocks, of course, like those in the '70s are the most obvious case. To have avoided any uptick in inflation would have required such a dramatic tightening of monetary policy that there would have been a downturn of even more major proportions. With the benefit of hindsight, it seems to me that maybe the Fed should have accepted more unemployment and less inflation. There has been a valuable lesson there for all of us. But the extreme proposal--that we need to counter shocks with a pure inflation target--is to me draconian. More recently in 1990-91, this Committee was sensibly loosening monetary policy before price stability was achieved and, to my mind, producing better economic results as a consequence. I do not want to belabor this point; we could discuss it in great detail. However, I want at least to mention that if this Committee were to decide that it really wanted a quantitative monetary policy rule incorporating a numerical inflation target--for example, because it was thought to be important to have a nominal anchor for monetary policy--we should not go with the type of rule embodied in the Neal amendment, which is a pure inflation targeting scheme. Why? Because there clearly are better rules. We could talk about those at length but a simple approach, not necessarily the best, that dominates inflation targeting would be a hybrid rule that would adjust monetary policy--and this could be a mechanical rule if it were so desired--on the basis of two gaps, not one. These would be the gap between actual and target inflation and also the gap between actual and potential output. The next question is, what do central banks really do? When I look at the behavior of the FOMC and other central banks, I simply can't find a lot of cases in which monetary policy has ever been driven by an exclusive focus on inflation performance. Consider, for example, the policy of the Bundesbank--whose price stability commitment, it seems to me, is not seriously in question. How do they behave? They deliberately tightened monetary policy in 1991, but by how much? Not by enough to keep inflation from rising even though they knew inflation would rise. They deliberately chose to tighten by less than what was called for to keep that from occurring. Now, if you take the case of the FOMC, it seems to me that a reaction function in which the real funds rate changes by roughly equal amounts in response to deviations of inflation from a target of 2 percent and to deviations of actual from potential output describes tolerably well what this Committee has done since 1986. This policy, which fits the behavior of this Committee, is an example of the type of hybrid rule that would be preferable in my view, if we wanted a rule. I think the Greenspan Fed has done very well by following such a rule, and I think that is what sensible central banks do. Let me turn to the issue of credibility. A key argument in favor of inflation targeting--Al made this point--is that it would raise the FOMC's credibility and result in a lower sacrifice ratio. Clearly, if we could achieve this, it would be a very worthwhile benefit. The problem in my view is that it is not achievable. First, when I look at the experience of countries that have adopted and carried through inflation targeting programs, I consider the results discouraging. Then, I think about the Bundesbank and ask myself why it is, if credibility really lowers the sacrifice ratio, that the Bundesbank bore such high costs, or rather Germany bore such high costs, first in 1980-83 and then from 1992 through the present in its efforts to reduce inflation. Then, I look at empirical estimates that suggest that the German sacrifice ratio actually exceeds ours, whereas I think there is little doubt that their credibility probably exceeds ours. The second point concerning credibility is that I do not think inflation targets would raise credibility for the simple reason that they would not be credible. Who would be prepared to believe that the FOMC is single-mindedly going to pursue an inflation target regardless of real economic performance, if not even the Bundesbank is prepared to go that far? So, that means that the targets are going to be perceived as a hoax. They are not going to be any more believable than I would be if I told my child that I was going to cut off his hand if he put it in the candy drawer. To me, an inflation targeting strategy could easily undermine the Fed's credibility and reputation because the policy itself just is not credible. Let me conclude. We could talk a little about dynamic inconsistency, but for the sake of time I think I will pass that up unless someone wants to come back to it. Let me just make a final point. My final concern in connection with FOMC support of inflation targeting legislation like the Neal amendment, or some new version of that, relates to what we will do if we go to Congress to testify for it. My concern here is that we will most likely end up understating the cost. My guess is that we will argue that price stability is a goal of overriding importance, that it is so important and so beneficial that it should be pursued at all costs. In truth, I think we have excellent evidence that the one-time cost of lowering inflation is high. Each percentage point reduction in inflation costs on the order of 4.4 percent of gross domestic product, which is about $300 billion, and entails about 2.2 percentage-point-years of unemployment in excess of the natural rate. If we testify, it seems to me that we should point out that the benefits of price stability are elusive and that the costs of additional output instability with such a plan could easily outweigh the benefits of greater inflation stability. Why? Because uncertainty about sales impedes business planning and could harm capital formation just as much as uncertainty about inflation can create uncertainty about relative prices and harm business planning. I noticed that the Neal resolution contained a preamble, and it read in part, ""whereas zero inflation promotes the highest possible sustainable level of employment, the maximum sustainable rate of economic growth, and the highest possible rate of savings and investment..."" I found it interesting to contrast this with the conclusion of the Federal Reserve System's price stability and economic performance project in 1989 that read, ""We have investigated both direct and indirect evidence surrounding the hypothesis that inflation adversely affects the performance of the real economy. The bottom line of these efforts probably will not be surprising. It remains exceptionally difficult to uncover clear-cut evidence that moderate rates of inflation reduce perceptibly the growth or level of measured GDP."" My final point is that, from a political standpoint, if we support an inflation targeting amendment, and we do so without appropriately emphasizing its costs in order to obtain a mandate to achieve price stability at all costs, I believe there will be consequences for us. We will end up being blamed when the realities falsify the belief that this is close to a free lunch. On this point, I would like to conclude by quoting a remark made by former FOMC Vice Chairman Corrigan, which I gleaned from the transcripts of the December 1989 FOMC meeting where this was discussed. He said the FOMC should be ""excruciatingly careful about what we claim."" He said, ""I do worry a bit that in our collective zeal, we've got to be careful not to oversell what can be done and at what cost. Because if we do leave the impression of a cost and it turns out to be a lowball estimate, we are going to get fried. There is just no question about that whatsoever.""",2246
-fomc-corpus,1995,You would never have known who was speaking!,9
-fomc-corpus,1995,"I think Al laid out very well the arguments as to why setting inflation objectives would be desirable and helpful for the Committee to do in accomplishing our mandate. I took Janet Yellen's response as being a combination of implementation problems versus desirability issues, and those I think we need to discuss separately. If we had Al's magic wand, what would we want to do? What we would want to do is wave it and have businesses and households in the country make their decisions in the expectation that any increases in inflation--and in associated nominal interest rates--are temporary and will be reversed. I would argue that we want to return to a period like the one we had in the 1950s and early 1960s when people looked at the shocks that happened along the way as transitory. That is because they were confident that the central bank would conduct its affairs in such a way that inflation rates would move in the direction of zero and associated nominal interest rates to low levels. I believe that the Bundesbank is in that position today. Janet is right when she says that the public does not care just about high and variable inflation; what they care about is standards of living. She is raising a different type of issue--whether or not that mindset on the part of the American public would in fact achieve the kind of rising standards that they want. They want to be as rich as possible over time. If we believe that stabilizing the purchasing power of money achieves that condition of making people the richest possible over time, then that is what we want to do. When I address the question of the appropriateness of monetary policy such as at this meeting today and tomorrow, I cannot do it thinking only about what is going to happen to the CPI or any other measure of the purchasing power of money in 1995. We all know about long and variable lags. I also cannot do it based on anybody's forecast or unfolding events as they occur with regard to output and employment. I can only do it with regard to what is going to happen to the future rate of inflation, at the soonest in the second year and much more likely in the third and fourth years. Ultimately, I come to a conclusion about what monetary policy is appropriate by asking myself what is going to happen to inflation in 1996 and 1997. If it is going back down, and if people have confidence that that is what we are going to produce and they make their decisions based on that, then I think that monetary policy is appropriate. If not, then I say monetary policy is not appropriate. I would think that the American public would want to have confidence in assessing our monetary policy objectives, as distinct from monetary policy actions, by asking whether we are going to produce a lower inflation rate sometime out in the future. That is what an inflation objective does.",572
-fomc-corpus,1995,"I think there are two issues here and they tend to get mixed up. One is whether or not we should be explicit about our objectives over a reasonably long period of time. The second is whether or not we should focus solely on price stability or inflation measures as a target of monetary policy. Looking at the latter issue first, I would be very much in agreement with Governor Yellen that monetary policy should not focus on only one target. We need to recognize the short-term trade-offs between inflation and economic growth, and we should not beholden ourselves to a single measure in judging our effectiveness as a central bank. Getting away from focusing on a single target for monetary policy, is there a case for being more explicit about what we are doing over a longer time period? In thinking about that, I ask myself what problem are we dealing with here? I do not think the problem is that we have not demonstrated a commitment to inflation fighting. We have committed ourselves to inflation fighting. We went through a period of high inflation and high interest rates in the early 1980s--when I tried to get a mortgage and the terms were 19-3/4 percent and 5 points--and we weathered that period, but we paid a big price for it. I think we have been fighting inflation very effectively since then while recognizing the short-term tradeoffs with economic growth. The problem we really have here is that we have a communications vehicle that we are required by law to use. It involves the monetary aggregates, and there are not many people who believe that they are an effective communications vehicle anymore. We need to think about communications vehicles that are appropriate in terms of explaining to Congress what we are doing over a period of time. I do not think that Congress harbors any suspicion that we are not fighting inflation. I think they have the suspicion that we are too willing to fight it, that we are too willing to sacrifice economic growth and employment in pursuit of inflation targets. In my view, we should either leave well enough alone or we should adopt a series of multi-faceted targets that might be better communications vehicles to Congress than the monetary aggregates. Janet described using two ranges or two kinds of gaps. We also could use nominal GDP, if we wanted, as a target or range or something like that. So that is how I come out on this. Frankly, I don't know if we can really decide this issue. This is a big issue. We received a good paper, and I would be in favor of trying to refine our thinking, however we come out, and get something explicit on the table before we take a vote on this.",532
-fomc-corpus,1995,"Let me just say what I think the purpose of this discussion is. To go to inflation targeting without a Congressional statute is probably unwise. We do not have a Neal bill, but there clearly is going to be a Connie Mack bill that will be very close to the Neal bill, and we are going to be asked to comment on it. The basic purpose of this discussion is to get our first cut as to where this Committee stands for purposes of testifying on that legislation. My own judgment is that if we do not announce any specific inflation targets, our policy can actually be similar to what Al Broaddus was suggesting. If we do announce explicit inflation targets, they become in effect a statutory obligation for this Committee to adhere to; and I am not sure by any reading of the Humphrey-Hawkins statute that inflation targeting is consistent with it. But as I said, there is a real legislative issue coming up on which we are going to have a very significant effect, depending on how we testify. I think it is a real issue. It is very important for those of us who are going to testify on that bill to know where the Committee members are since we will be speaking for them. President Melzer.",246
-fomc-corpus,1995,"Alan, in general, I would associate myself with what Presidents Broaddus and Jordan had to say. I have my own two questions, a la Cathy. My first is whether we agree that the primary focus of monetary policy should be on achieving price stability. Secondly, do we agree that we are more likely to achieve price stability and be credible if we set specific targets for inflation? With respect to the first question, I take a very simple-minded approach. My view is that monetary policy only affects prices in the long run. I have a hard time justifying setting objectives with respect to things that we can't influence in the long run. So, I would very much like to set objectives that are consistent and that we can influence in the long run. I might add--this is something to which Al has already alluded--that I don't think we have the expertise to fine-tune the economy on the real side in any timeframe because of the vagaries of forecasting and because of the uncertain effects of the policy actions that we take. Frankly, even though the record of the FOMC has been pretty good over the last ten or fifteen years, my view is that one could conclude that perhaps our actions to stabilize actually have been destabilizing from time to time. We made some progress in bringing inflation down, but we are still a long distance away from what I would consider to be price stability even though we give lip service to that concept. The point that Al touched on, which I think is very important, is that in the regime that we are in right now, trying to serve two masters, we are incurring transition costs all the time in both directions. As perceptions change concerning what we have in mind as an acceptable rate of inflation, there are necessary adjustments on the real side. One can talk about the transition costs to zero inflation, but at least they are incurred only once and once we have zero inflation, that is it. We are in a mode right now where the economy is incurring transition costs all the time in both directions, and I do not find that very satisfactory. With respect to the second question--whether we agree that we are more likely to achieve credible price stability if we set specific targets for inflation--I think Al's answer to that is right. I do not want to get bogged down in technical details. I have thought about the issue of targets, and I would be inclined to set them. I think that if we do set quantitative targets--and we could do this with respect to a trend rate of inflation so we would not be making a point estimate for a given year or a relatively short period of time but would be looking at a moving average over time--we could set targets that we would be able to achieve over a reasonable timeframe.",561
-fomc-corpus,1995,"Excuse me, are you talking about inflation as distinct from the price level?",16
-fomc-corpus,1995,"I think that is another issue. There are pros and cons for both of them. I don't think it is productive to get into that today, but if we could continue this discussion later, that is clearly one of the issues we ought to have the staff look at and we should discuss further. With respect to this point, clearly just announcing that we have set targets would not do much for our credibility. What really determines credibility in the long run is how we perform. I guess I am saying that making ourselves accountable for something that is quantifiable is much more likely to get us to price stability than the regime we have been in. We have been talking about price stability for years, but we are still a long distance away as far as I am concerned even though I think the record of the FOMC has been quite good. The third point I would make relates to something you said a minute ago, Mr. Chairman. That is, there will be legislative proposals on this and hearings will be held. I think it is incumbent on us to get ourselves in a position where we can state a meaningful view as a Committee and try to influence the outcome. It is quite possible that, regardless of what we think about inflation targeting, we will get legislation. If we are confused about what we want, we could well get legislation that we do not like. The other thing I would say is that it is not clear to me, and this again is not the time to discuss it, that the present legislation under which we operate would absolutely preclude some sort of inflation targeting regime. I think there would be some advantage to go along the course that Al described where as soon as we can reach some sort of consensus, assuming that there is some consensus in this direction, we could move ahead to take some actions on our own. We could have the staff look at various issues and announce that we are considering this matter. We might indicate that we would consider this issue and report on it in connection with the Humphrey-Hawkins testimony at midyear and that we would be thinking in terms of setting some sort of provisional targets down the road. Obviously, various questions would have to be evaluated before those would be finalized. My point is that if we acted in a sense independently of the legislative process, the failure to get legislation would not necessarily preclude us from proceeding with something that I think makes sense in any case and possibly could be reconcilable with some of the other objectives in the existing legislation. That is all I have.",507
-fomc-corpus,1995,May I suggest that we take a break now for a short while. We have coffee out there and we will continue on with President Boehne. [Recess],34
-fomc-corpus,1995,"President Boehne. MR.BOEHNE. I come out somewhere between President Broaddus and Governor Yellen. Over time, the primary goal for a central bank ought to be price stability, but we do not get there in a straight line. Whether we like it or not, in the real world we have to deal with short-term issues like liquidity problems, weakness in demand, recession, that sort of thing. The important thing is that when we deal with these short-run issues, we try to do it as best we can in the context of pursuing our longer-term objectives. The second point is that--while I appreciate the theoretical arguments that if we make a commitment, the sacrifice ratio is less--in the real world what matters is not what people say, it is what they do. We got off track in the late '60s and '70s not with what we said but with what we did. We got back on track in the '80s and early '90s. We did this, I think, not so much by worrying about whether inflation went up a tenth or two over the business cycle; we did it in a secular context. From cycle to cycle inflation rose in the '60s and '70s, and from cycle to cycle inflation went down in the '80s and '90s. I do not think there is enough political support for the pursuit of a single inflation goal without regard to short-run considerations. If we got 50 people in the Congress to vote for that, I would be surprised. In the real world, we have to deal with short-run issues. My own view is that we ought to continue largely as we have for the last fifteen or so years. I think you best expressed that view, Mr. Chairman, in one of your very recent testimonies, but I don't remember the quote exactly. It went something like this: That we ought to aim to extend and hopefully improve upon the low inflation record. I think we have to do it in the context of knowing that when we have short-run issues, we can't ignore them. We are going to have to deal with them. Just as we have worked inflation down from double digit rates, I think we can get closer to price stability over time.",459
-fomc-corpus,1995,President Parry.,4
-fomc-corpus,1995,"Mr. Chairman, I think that the recommendations outlined by Al would be very useful. It would be useful, I think, for us to communicate to the public as a goal some idea of a predictable average level of inflation. I also believe we could deal with short-run cyclical issues even within the context that Al suggested. I would also say that as one looks at what is in the Greenbook and the Bluebook, it is clear that we have a rather difficult period ahead of us, and that suggests to me that it would be nice to have some consensus about these issues within the Committee, regardless of whether we go to the public. Quite frankly, I am not sure how we would approach these issues that are covered in the Greenbook and the Bluebook over the longer term without some operating consensus.",162
-fomc-corpus,1995,President Hoenig.,4
-fomc-corpus,1995,"Mr. Chairman, as all issues go, I think both arguments have merit. I believe a couple of things: one, for us to change our emphasis, there needs to be some kind of legislation, and that is partly what this is about. Among the alternative approaches that have been discussed, I am inclined toward something like the Neal amendment because I think that price stability is a necessary condition for long-term growth. At the same time, I would not be strongly inclined toward a numerical target, because I think there is a measurement problem with that. So, I prefer the language in the Neal amendment regarding the objective of price stability. I think that having that would not negate our need to maintain balance, but it would give us an emphasis toward price stability that is necessary for long-term growth. It also would give us the important discretion to handle shocks or to allow for events to take place which monetary policy can address within a clear mandate toward price stability in the long term that in turn will give us a better opportunity for long-term growth. That is how I would approach it.",216
-fomc-corpus,1995,President Stern.,3
-fomc-corpus,1995,"My instinct is similar to that of many others in that I feel it would be a step in the right direction for us to adopt some sort of inflation objective. As others have already observed, inflation is something that the profession and the Committee believe we can be held responsible for in the long run. It is related to monetary policy, and controlling it may be the most important contribution we can make to economic performance in the long run. Having said that, I would be very careful about overselling this at this point on a number of grounds. One that already has been referred to is that, without Congressional support, I don't know that our unilaterally doing this would buy us very much credibility. Secondly, I come down on the side that ultimately we would need some sort of numerical objectives. Otherwise, it is not clear to me how the proposal differs very much from what we already are doing. Many of us already have spoken over the years in favor of some kind of price stability objective, recognizing that in the short run we may pursue other objectives. Thirdly, I don't think this is an objective that we can adopt or pursue independently of fiscal policy. Do we really believe that if fiscal policy were in some sense exploding, we simply would try to pursue price stability? I have real reservations about that. Another issue is, do we need a penalty? If we fail to gain credibility, if we fail to achieve the objective, does there have to be some sort of penalty, as in New Zealand? I am not suggesting that particular penalty! [Laughter] Without that, what do we gain? I would say the real sleeper issue--I touched on this earlier and Janet raised it implicitly--is that when push comes to shove, I'm not sure that we have very good evidence that going in this direction really makes a lot of sense from the point of view of economic welfare as opposed to, for example, stabilizing inflation at the current rate, if that is a feasible alternative. We talk as if we do and we hope that we do, but the analysis that I see on that subject does not lead me to be very confident. I think we have to hold ourselves to the highest standard on that issue because if the question is put to us in Congressional testimony concerning what benefits we can expect in terms of economic performance from taking inflation down from 3 to 2-1/2 percent or whatever over the next x years, we have to be prepared to address that question in a serious way. It is a tough question.",509
-fomc-corpus,1995,Governor Kelley.,3
-fomc-corpus,1995,"Mr. Chairman, it seems to me there are two potential ways to go here: one is primarily quantitative and the other primarily qualitative. I guess there are some hybrids. I would be very leery about a predominantly or entirely quantitative approach because I think it might very well imply performance that we would not be able to deliver or might not even want to deliver under some circumstances. Either of those developments would be intensely counterproductive over time. In the case of qualitative-type goals, it is hard for me to see how the Fed is going to do itself much good or to cause much good by unilaterally stating such a goal. I just do not see that as being very helpful to our credibility. For one thing, every one of us has repeatedly put forward publicly our commitment to price level stability. There should not be any question in anybody's mind as to where every person at this table stands on that issue. If we did announce quantitative goals and there subsequently was a shortfall, it would be extremely counterproductive even if the shortfall was for a very good reason. It would impair our credibility tremendously. Now, if we are going to have to testify on a specific proposal in the Congress--it used to be a Neal proposal and now perhaps it will be a Mack proposal--I think we are going to have to look at it quite specifically. If it is too soft, it will be somewhere between useless and worse. If it is too rigid, that would probably be a mistake also because there has to be some allowance over time for shocks, external events of all different sorts. Gary just mentioned the relationship between fiscal policy and monetary policy. We all agree that it is terribly difficult to fine-tune, perhaps impossible. I think we would have to look at the specific proposal to see if there is adequate flexibility in it, appropriate timeframes, appropriate social welfare goals, and so forth and then delve into the details. We are just going to have to see what is proposed rather than try to make a broad general statement today or sometime in the future.",414
-fomc-corpus,1995,President Forrestal.,4
-fomc-corpus,1995,"Mr. Chairman, I think the Yellen-Broaddus debate was very useful in setting up the merits of both sides of this issue. I think inflation targeting has a lot of appeal. The main way that it appeals to me is that it would help us to focus our policy over the long term and give us a longer-term focus than I believe we have had until now. Our focus has been far too shortsighted, and inflation targeting would help us in that respect. On the other hand, I don't think that we have a mandate for inflation targeting. Now, it was not clear to me when I read the materials whether we were talking about an inflation target that would be set unilaterally by the Committee or through legislation. I would have very, very serious questions about our ability legally to set an inflation target given the Humphrey-Hawkins mandate. On the other hand, if we are talking about proposed legislation and whether to support it, I still would raise the question about whether there is a social mandate in the country. Any inflation target to be credible has to be accompanied by widespread agreement that it is indeed our mandate. Gary Stern hit on another aspect of this--the question of mild inflation. I think everyone in the country agrees that if we had inflation of 10, 12, 14 percent, something would need to be done about it. But is 3 percent inflation so harmful to the economy that it needs to be reduced? Just announcing or adopting an inflation target does not do anything for our credibility. We had the same experience with the aggregates when they were working. Most of the time, we were lowering those aggregates, and I don't think that necessarily bought us a lot of credibility. The Bundesbank has been mentioned a couple of times. It seems to me that the situation in Germany is quite different because there is a very clear mandate on the part of the German people to have low inflation. As Janet Yellen mentioned, an inflation target can backfire if we do not use it judiciously. The bottom line for me is that I do not believe that the only goal for a central bank is price stability or low inflation. I believe that it is the primary objective of a central bank but that we have other goals as well. As Governor Kelley indicated, much depends on the structure of the legislation that might come through; we would have to have escape clauses and all the rest. But if we are talking about an explicit target, I would be very, very leery of that. If I were asked today to decide this issue, I would say I would be against an inflation target and I would associate myself entirely with the views of Governor Yellen, But I do think that it is an issue that needs to be explored further. We need to give additional thought to this, particularly in light of the legislative language that might develop.",579
-fomc-corpus,1995,Governor Blinder.,4
-fomc-corpus,1995,"As usual, let me defend the status quo. We have a dual objective in the Federal Reserve Act now. I think it works very well. I think the case that it is broken and needs fixing is extremely thin. Some of you may remember that I defended the Federal Reserve Act at Jackson Hole, thereby provoking a great deal of controversy. I have not changed my views on that one iota. Many of the reasons were enunciated by Janet Yellen. But the fact of the matter is: there is a short-run trade-off, and it does matter to people. There is no existing evidence--and I can't say this too strongly--that having such targets leads to a superior trade-off. None at all. It is not one of those cases in which the evidence is equivocal. There is nothing that can be cited. We know that the employment costs of inflation reduction are very substantial. There is even a reasonable consensus about how to measure them. The benefits of moving, as Gary Stern said, from 3 to 2-1/2 percent or lower inflation are very hard to measure. We would be hard pressed to come up with anything convincing that led to a large number. The case for inflation-only targeting comes from the view that the central bank needs more discipline. This view, by the way, comes out of academia with a lot of baggage, some of which I think is pretty silly, having been in that world a very long time. The view is that you have to control these central bankers because they do not know what they are doing, and you can't trust them to be true to the mandate to fight inflation! I do not see the behavior of the Federal Reserve over time as fitting that charge. Next--this is very important to me, but it is not something I ever thought about before I was on this Committee--is the issue of honesty. Many central banks claim to have only a price stability mandate or objective; none of them acts that way. I would not like the Federal Reserve to be in that position. The Bundesbank was mentioned, but the Bundesbank does not act that way. If it did, you could ask yourself why it lowered interest rates for two years while inflation was still 3 to 4 percent. They were not at price stability; they said they were not happy with the inflation rate at that time; and yet they were lowering interest rates. You do not fight inflation by lowering interest rates--not the last time I checked! Like Janet Yellen, I do not think being fundamentally dishonest in this way breeds credibility. The alternative is to be fundamentally honest and really do what our legislative mandate says. We do not have a Mack proposal, so I think I have to agree with Mike Kelley that we can't be against it until we see it. I read a short colloquy between our Chairman and Senator Mack in the Congressional Record in which the senator clearly says his objective is to take away from the Fed any concern with short-run employment. That is what he wants to do. If we had such a directive from Congress, we could either refuse to do what Congress told us, which I do not think is a very good idea, or we could in fact ignore the employment objective, which I am guessing will be the intent of Senator Mack's proposal, if there is indeed a proposal. That is not a choice I would like to have. If the proposal is going to be anything like what we think it is going to be, I would certainly urge that the Federal Reserve oppose it in testimony.",716
-fomc-corpus,1995,Governor Lindsey.,3
-fomc-corpus,1995,"I think we have just proved the anti-economist adage that, if we lay all the economists in the world end to end, we will not reach a conclusion. I will at least try to touch both ends. At the last meeting I was looking for a bridge to both sides of the river; I will continue that analogy. I thank you for raising the Mack measure because I think it focuses our discussion. The first point I would make is that if it comes down to a choice between Humphrey-Hawkins and a Senator Mack proposal, I think the right way to do the Mack proposal is to see it as a way to change Humphrey-Hawkins. Governor Blinder probably incorrectly characterized Humphrey-Hawkins as giving us a dual objective; it does not. It gives us seventeen, eighteen--heaven knows how many; there is a paragraph of objectives. That is not a good directive for the Federal Reserve. I think I can say that few of us would select Humphrey-Hawkins if we were drafting this kind of legislation. The gain here is that we are opening a door that we should use as a vehicle for change. Second, I view as very well taken Janet Yellen's point that we should not oversell and should not underestimate the costs of a Mack proposal. We need to be honest, and I do not think there is any disagreement on that at this table. The Mack legislation would be costly. Third, I think if we look at the loss function, or the other side of the loss function which is a gain function, we find that politicians are well aware of the gain function. The reason we have fourteen-year terms is the recognition that politicans are well aware of the gain function and want to exploit it. They exploited it as recently as the late 1970s, and we had a very painful disinflation to pay for it. If there was an advantage to changing the law toward focusing on price stability, it would not necessarily be to change our behavior but as a recognition of this political disequilibrium. I think that is a real plus in passing something like that. Fourth, one of the things we all taught in economics was that, if we have one instrument, we can only work with one target. I don't think it necessarily follows that the target should be price inflation. I think it should be nominal GDP, and I believe that is somewhat in line with-what Governor Yellen said. But once we pick nominal GDP as our objective function, it begs a second question that has to be answered. It is that a nominal GDP target probably has to be consistent with some desired level of inflation. So, having this process and having Congress tell us some desired level of inflation, I think is probably good. But our target should not be the desired level of inflation; our target should be nominal GDP. You disagree? Well, not wildly! [Laughter] The final part of whatever Congressional testimony we have on this subject is that the real focus of Congressional action should not be to tell us what the inflation rate should be, although that would be useful. It should be on the policy actions they control that affect the nonaccelerating rate of inflation. I do not think it is given to us by God; I do not think it is etched in stone; I think it is given to us by the Congress. I think that higher real minimum wages raise the NAIRU and lower real minimum wages lower the NAIRU. We can go through a whole list of other things. So the right way to improve the loss function or gain function is not in this room; it is up there on Capitol Hill. Maybe part of our objective should be to remind them of that.",755
-fomc-corpus,1995,Vice Chairman.,3
-fomc-corpus,1995,"Although the Humphrey-Hawkins Act is in fact full of goals I reduce them, as I think Governor Blinder did, to two that I describe as sustained economic growth and price stability. But I find that to be really a single goal, since I am absolutely convinced that the best way to achieve sustained economic growth is through price stability. I prefer to state the objective of price stability in words rather than as a numerical goal. I believe that in achieving our goal of price stability, we should seek a downward secular path in inflation from business cycle to business cycle. That goal means somewhat more disinflation because I do believe that the present level of inflation at, say, 2-1/2 to 3 percent is higher than one wishes to have for either economic or social reasons. I question the whole idea of credibility. Nobody has been able to prove that credibility has bought the Bundesbank or any other central bank the benefit of a lower cost to reduce inflation. In fact, Stanley Fischer presented a very good paper at the 300th anniversary of the Bank of England proving rather the contrary. There is no particular benefit in the so-called credibility, and I think credibility mainly makes central bankers feel better about themselves. It seems to me that the record of this Committee over recent years has been as good, if not better, than any central bank I can think of, including specifically the Bundesbank. I think it would be very unconvincing as a public policy goal for us to position ourselves as driving toward some number for inflation, which presumably if one could figure out how to measure it accurately would be zero, where we know the costs of achieving it would be very high and we are very, very uncertain of the benefits.",350
-fomc-corpus,1995,Governor Phillips.,3
-fomc-corpus,1995,"We all come at this in slightly different ways. I do think it is important for any government entity or quasi-government entity, however we are classified, to communicate its long-term goals--which are not unlike a mission statement that any kind of entity would have. Inflation is probably the area where we have the most control in the long run. I do not think that we have as much control in the area of employment in the long run, given fiscal policy and other effects. It seems important to me for us to state clearly that our long-run goal is to control inflation. Now, I certainly recognize, and I think Ed Boehne stated very clearly, that we operate in the real world and we have to take into account certain short-run issues, be they business cycle issues or liquidity issues, whatever. But it seems to me that if we make monetary policy decisions in the context of a long-term goal that we are then still being true to our mission. If I look back at the period when we were easing, one of the things that I looked at, and I think a lot of people around the table looked at, was the kind of progress we were making on inflation. Even while we were easing, we were still looking at the fundamentals of price movements to see whether or not we would be doing some kind of damage to our ultimate objective of price stability. I come down on the importance of expressing clearly that control of inflation is our major goal. It is clear that we do not have it as a mandate now. So, what do we do in the interim? Even in the existing Humphrey-Hawkins reports, I think we could start to be more explicit about looking at perhaps a range of inflation measures. We could look at it as a monitoring goal somewhat like the way we look at the monetary aggregates. Obviously, the Congress ultimately is going to have something to say about it, but it seems to me that if we take the initiative to start working in this area, we would be more in the driver's seat than simply reacting to a piece of legislation that comes forward. Unless we have a specific proposal before us, it certainly is difficult to say, yes, I would be for this or against that. But as a general matter, I think that it would be important for us to communicate that we want to control inflation, with price stability as our long-term goal.",480
-fomc-corpus,1995,Governor LaWare.,4
-fomc-corpus,1995,"Mr. Chairman, the proposal for a balanced budget amendment implies to me an abject admission of total lack of self discipline on the part of the Congress. I do not think we need to make that kind of admission about our pursuit of the goal of stable prices. If we set a target, we do not get any credit for hitting it from three feet away; we have to hit it from a hundred yards away. It seems to me that not being able to achieve the goal that we set up then makes us subject to an enormous amount of criticism that is quite justified because we said we can do this but then fail to do so. I do not see how we can commit to that kind of objective as long as fiscal policy over which we have no control is out there and can be the loose cannon on the deck or the wild card in the inflation wager. I recognize that Humphrey-Hawkins makes the monetary policy mission of the Federal Reserve a little more difficult because it is a three-legged stool on which it is not very easy to keep the seating. But I do not think it is inconsistent with pursuit of a policy of stable prices. That is demonstrated by the progress that has been made in reducing the level of inflation over time. I am much more in sympathy with Governor Yellen's analysis and conclusions than the rigidity that is implied by what Al has proposed.",275
-fomc-corpus,1995,President Moskow.,4
-fomc-corpus,1995,"Mr. Chairman, I am from the ""if it ain't broke, don't fix it"" school. It is not that the Humphrey-Hawkins bill is the ideal piece of legislation, which it clearly is not, but I think as Governor LaWare said, this FOMC has implemented it extremely well. Our record is good, and I think that opening it up now and trying to make changes in it may raise other problems that we do not want to get into. If we are to have any type of targeting or numbers or even ranges, that should require legislation. The reason I say that is that for targeting to be successful it clearly would require the efforts of the legislative branch, the executive branch, and of course our own efforts. Looking at the experience of other countries that was reported in the staff paper, for those that had targets, I could see that in every case the central bank was doing it jointly with the finance ministry. Therefore, the executive branch was clearly tied into it; it was not the central bank doing it alone. In most of those countries, the central bank is independent. I think it clearly has to be a government-wide effort to do this; it just can't be the central bank alone for reasons that others have mentioned here. On a numerical target, I would be concerned if we announced a numerical target for inflation that we just would not gain that much and also it would limit our flexibility. When thinking about this in talking to our staff, I came to the same conclusion that Larry Lindsey came to, namely, that we should choose nominal GDP as the target to give us more flexibility. But there are some problems with nominal GDP, too. I think we would still have the escape hatch issue, although it may not be as severe as just choosing an inflation target. If we have a nominal GDP target, we still have to have a long-term inflation target within the nominal GDP. Even then, there could be some cases where we probably would go beyond the nominal GDP target and we would have to lay those out in advance. If we lay them out in advance, that affects our credibility. Would people really believe this? Clearly, nominal GDP would be much better than a long-term inflation target alone, if we are going to go that route. I also thought the paper was interesting in noting that in the New Zealand case, when they started to bump up against the inflation target, they suggested redefining measured inflation to exclude some things that affect prices. I guess my conclusion is that we should not make any changes unless they are necessary. If we have to respond to some legislation that is on the table, then I think we should at least seek some alternatives. We should have this fleshed out a little more by the staff, and look at some options and alternative ways to respond specifically to that legislative proposal.",571
-fomc-corpus,1995,President McTeer.,5
-fomc-corpus,1995,"On the narrow question of how to respond or testify on a Connie Mack bill, we need to be in a position to support the idea that price stability is our primary long-term goal. I would hate to see us in a position of having them offering it and us rejecting it. I agree with Ed Boehne that it is highly unlikely that Congress will actually go through with it and give it to us. I do think that we have a pretty good thing going right now. Our story is that price stability is our long-term primary goal but not our only goal. It contributes to the other goal, which is high output and employment. Humphrey-Hawkins is written with multiple goals. There is a paragraph full of them. However, in the public mind and I think in Congress' mind, there really are only two goals: price stability and employment growth. We pretty well have finessed that issue, as we have it right now. Ed mentioned that in the 1970s, inflation ratcheted up with each cycle and that in the 1980s and early 1990s it has ratcheted down in each cycle. It seems to me that we are now just one cycle away from price stability under current arrangements.",252
-fomc-corpus,1995,"Listening to this is really quite interesting. We now understand why this Committee has had difficulty confronting this issue. It is because we are as split down the middle as we could possibly get. I wonder, however, how much of the difference is real and how much is imagined. The reason I put it that way is that I ask myself periodically what range of actions do we have available to us, and how does that compare to an earlier period? What strikes me about where we are is that even though the Federal Reserve is an independent institution in the legal sense, meaning that our decisions are not subject to further evaluation by other authorities, we are in fact very dependent on the culture and the philosophy of the society in which we function. It is a subliminal issue and one needs only to have been exposed to it for a long time to realize what the differences are. When I first got into goverment in 1974, inflation was just beginning to take hold as a big issue. For the first time--I think it may have been at the Rambouillet Summit or the 1977 Summit--it was generally agreed among the G-7 that inflation was the cause of unemployment. Now, this was an extraordinarily unusual thought that was not present in earlier years. One could see the changes that were beginning to emerge. I remember Arthur Burns, with whom I used to visit quite often and whom I had known since graduate school, would speak against inflation like none of us here is used to hearing. If one looks at what the Federal Reserve did in that period, that anti-inflation attitude is scarcely to be seen in the policy or in the numbers or in anything. Then I ask myself, how is that possible? Here was a stalwart inflation hawk and look at the record. The answer is that he had to deal with an environment in which the philosophy was still partially held over from the fifties and the sixties when, for a while, there was a notion held very broadly that a modest amount of inflation was good, not bad. The issue of price stability was never an issue that was presumed to have the importance that it subsequently has acquired in our era. There is no one today among the 535 members of the Congress who would say that inflation is a good thing. Thirty years ago that number would have been a minority, but I would submit to you that it would not have been zero. There has been a fundamental change, and I think it is the result of the extraordinarily negative experience we all had in the late 1970s. That is, the culture changed very dramatically in the 1980s, and what we have now is a basic view that inflation matters. In the debates that we have on the Hill--Humphrey-Hawkins and the like--there is never a question of whether we should accept a little inflation for some decrease in unemployment; that usually was the relevant discussion twenty years ago. The discussion now centers around the assertion that there is no inflation and that monetary policy is too tight. This really raises some very interesting questions as to where we are. My own impression is that even if we now locked into law a fixed inflation rate--say, 2 percent or 1 percent--and the Congress voted for it with a large majority, in the first recession everyone would be arguing to go in a different direction. I am not certain that there is enough knowledge in the Congress about what the true trade-offs are to get useful, informed opinions because we are dealing with people who generally are not economists and have not been involved in some of the monetarist or other policy subtleties with which we deal. I would not even take as a given, if the Congress gave us authority to have an explicit goal, that we really would be able to adhere to it and say the reason that we are raising rates now when the unemployment rate is going up 2 points a month is that we are worried that we won't meet our inflation goals. I will tell you that if we could get 80 percent of the Congress to vote for that goal, 95 percent would take a different position when the world changes. My own view is that a general long-term view of price stability of the Neal form is a very useful conceptual anchor for us to do basically what we have been doing. This is essentially, as Bob McTeer mentioned just a moment ago, that we are sort of one cycle away from being there. But the problem is that we do not go in a straight line, to the extent that we are even focusing on it. You may recall that a couple of years ago, we all basically said we were going to have to move early on the up side or we would not achieve anything resembling price stability. Now, I submit to you that is exactly what we did. We did follow a price stability objective in a cyclical sense, that is, one where the inflation rate is going to be lower at each progressive cyclical peak and lower at each progressive cyclical low. But that objective is not being implemented in a straight line because we have recognized, and I think correctly, that the Congress would not give us a mandate to do that. If we got legislation in the form of, say, something like the Neal bill or a considerably watered down version of the earlier Mack proposal, it probably would be useful for us because it would give us a particular goal. But if we tried to implement it in an explicit form independently of where we were in the business cycle, my suspicion is that we would find that all that support would just evaporate. I would not say the current policy is the best we can do. I hope that this Committee would subscribe, as I believe it does subscribe, to the ultimate goal that low inflation/price stability is where we would like to be, other things equal. What we would not state as a goal is that we would like the unemployment rate to be 5 percent, independent of everything else that is going on. I think we ought to have an inflation goal that is qualitative, as Al Broaddus says, one that is defined in operational terms, not in terms of numerical targets. We would always be moving in the direction of price stability, recognizing that we would not do so in a straight line because I do not think we have the philosophical, cultural, or political support in this society for that. There still is a short-term Phillips curve. People respond to it; they are aware of these trade-offs, and to deny them, I think, is a misunderstanding of how our political system works. If we do have to testify on a Mack bill, which I think we will, we have to support or should support the view that low inflation or price stability is very valuable to have as a long-term goal. Until we see the actual bill circulated among the members and they are polled individually, I am not sure, just recording what everybody said, that we would find a way of breaking what looks to me like a ""on the one hand or on the other hand"" situation; basically, what we have is two-handed FOMC members. That is all I have to say. Does anybody else want to raise any questions? I may have ended up being last. Why don't we wait to see what type of legislation we can get? I think it will be a very important piece of legislation for us. Rather than try to develop a position in advance, I would suggest that we wait and see what the actual legislation is and try to get a consensus for our response if we can find one in this group. The last item for today is a report by Ted Truman on developments in Mexico in the last 48 hours or so.",1560
-fomc-corpus,1995,"Thank you, Mr. Chairman. I am sure you have heard more than you would like about Mexico's situation in the last few days and weeks. Nevertheless, I thought it would be useful to summarize the state of play with regard to the Mexican situation as of this afternoon. I will touch on five topics: first, the now apparently dead legislation in the U.S. Congress; second, the total U.S. plan to deal with the Mexican crisis that would be aided by certain FOMC actions; third, the IMF program; fourth, efforts to mobilize other forms of multilateral support; and finally, the Bank of Mexico's request to make a further drawing on the existing Federal Reserve/ESF swap lines. We need a sense of whether the Committee is inclined to approve the increase in the swap line. First, I can be very brief on the now apparently dead legislation that would have provided up to $40 billion in U.S. government guarantees of Mexican government securities, The prospects for passage of that legislation have gone steadily downhill since it was announced almost three weeks ago. Decisions were made last night and this morning by the President and the bipartisan leadership to stop pushing for the legislation. I think it is fair to say that the future of the legislation is nonexistent, but I won't belabor the point. Turning to where we are now, before I say anything more, I would note that I am acutely aware of the strongly held view on this Committee that the central bank should not be expected to underwrite foreign or other debt issues, in large part because covering such debt obligations would involve the inappropriate use of central bank funds. That being said, the U.S. authorities faced two broad alternatives as it became clear that the legislation would not pass. We could conclude that we had tried and failed in what the Chairman has called the ""least worse"" approach, which was to leave Mexico to fend for itself. Alternatively, we could try to help by using an approach that is feasible but worse.",401
-fomc-corpus,1995,"Ted, I'm sorry, we are having trouble hearing.",11
-fomc-corpus,1995,Please speak up a little.,6
-fomc-corpus,1995,"In the end, the second alternative was chosen. The materials that were distributed to you contain several items. The first page is a statement by the President and the Congressional leadership. Despite the note on top, which is barely legible but says that the new financing package is on hold and has not yet been cleared, the package has now been cleared. Attached to that is a summary of the currently proposed program, and behind that you will find President Clinton's speech this morning to the National Governors Association in which he announced this change of strategy. The last item is the announcement by the Managing Director of the IMF this morning regarding the Mexican situation and the proposed IMF package. The new approach would basically involve the heavy use of ESF lending to Mexico in the form of short-term swaps, medium-term swaps, and possibly loans and guarantees of Mexican government securities. The latter two types of operations apparently are legal for the ESF but apparently also would set a precedent. The total could be up to $20 billion. To provide the ESF with the necessary dollar liquidity to undertake these operations, the Federal Reserve would be asked to agree to warehouse foreign currencies now held in the ESF, at present $19-1/2 billion in holdings of DM and yen. The reason is that the liquid dollar assets on the ESF's balance sheet are only about $5 billion. In addition, the Federal Reserve has been asked to participate directly as well. The form, consistent with precedent and with what I said earlier about the role of a central bank in such circumstances, would be for the Committee to agree to increase its swap line somewhat as part of this operation. However, there would be a ""take-out"" in the form of a commitment from the Treasury that the ESF would take over any System obligation that was outstanding for more than 12 months. We are not going to make a formal recommendation to the Committee for action on a specific proposal today. However, an increase in our Mexican swap line to $6 billion would, in my opinion, be reasonable as long as we get the take-out. I also think the limit on the warehousing of foreign currencies for the ESF should be raised to $20 billion with the understanding that the special increase is linked to the Mexican situation. I should also say that a further understanding could be that we have a situation that could last for as long as ten years. The Committee may want to discuss these suggestions today and vote on them tomorrow. The third topic is the IMF program. Last Thursday, the Mexican authorities announced agreement with IMF management on an economic program in support of Mexico's stabilization efforts. The program is scheduled to be considered by the IMF Executive Board on Wednesday with the first disbursement by Friday, assuming the program is approved. The program as first proposed was unprecedented in its size, both absolutely and relative to Mexico's quota at the IMF. It was three times Mexico's quota, or about $7.7 billion, of which $3.9 billion was to be released on approval of the program. The economic content of the program is tighter than that proposed by the Mexican authorities on January 3rd in terms of its fiscal policy parameters and especially its monetary policy parameters. On the surface the program is designed to achieve the same macroeconomic objectives: In terms of growth, as you will recall, the Mexican program called for growth of 1-1/2 percent year over year; inflation in the Mexican program was set at 19 percent December over December; the exchange rate was to get back to 4.5 pesos per dollar; and the current account balance was to be cut to a deficit of $14 billion this year. However, implicit in the program is the notion that some, and probably all, of these objectives will have to be revised and that the terms or contingency arrangements of the program will need to be further tightened as well. Following the collapse of the U.S. legislative proposal, the Managing Director of the IMF decided this morning to make two changes to his recommendations tomorrow with respect to the program. The first is to increase the size of the program by $10 billion, which he hopes to finance from non-BIS-member central banks. There is some question about that point, and if the funding is not obtained from those central banks and governments, then it would come from the IMF's own resources. Second, he would have the IMF disburse the full amount of the original program immediately. On my fourth topic, other multilateral efforts, the extraordinary size of the IMF's original program can be explained by two factors. The first is a recognition by IMF management of the serious threat to the international financial system posed by the Mexican situation. The second is a recognition of the need, especially as perceived by the United States Congress, for greater international ""burden-sharing,"" as they call it, in efforts to stabilize Mexican financial markets. With respect to burden-sharing, we and the Treasury have been discussing certain proposals with our central bank colleagues. The first is to enlarge from $5 billion to $10 billion the BIS facility in favor of Mexico that was agreed upon in principle on December 30th. The second is to make the financing from the BIS readily available to meet current short-term financing needs. On the first point, the BIS agreed that the increase, in principle, could be announced as part of the package that was unveiled this morning, although you will note that some of the language of the subsequent announcements suggests more agreement than actually exists, as is almost always the case. We are less optimistic about agreement on the second point. The Treasury, with our technical support, also has approached three groups of other countries to ask them to assist Mexico. You probably have heard that a group of Latin American countries--Argentina, Brazil, Chile, and Colombia--generally has responded favorably, although the modalities for the assistance are not yet agreed upon. In addition, the Treasury has approached a group of countries in the Far East and another group of countries in the Middle East for participation. I suspect these efforts will now be rolled into the IMF endeavor to raise an additional $10 billion to finance the Mexican program through the Fund. Last, as you know, the Bank of Mexico so far has drawn $1 billion on the $10 billion Canadian and joint Fed/ESF swap facility. Those drawings have been made available to the Bank of Mexico rather than being locked up at the Federal Reserve Bank of New York. We understand that as of the end of the day, Mexican reserves will be between $2.4 and $2.9 billion including those drawings. There is some uncertainty about how much they lost today, whether it was $1 billion or $650 million. And then Mexico intends to announce the level of its reserves tomorrow. Governor Mancera has made an urgent request that we allow a further drawing to enable him to pad his reserves somewhat. After consultation with the Treasury, the Chairman has suggested that we allow the Bank of Mexico to draw an additional $2 billion, $1 billion on each swap line, with the understanding that this entire amount would be locked up at the Federal Reserve Bank of New York and not immediately available for use by the Bank of Mexico. On that somber note I will stop and would be pleased to answer any questions.",1468
-fomc-corpus,1995,"Ted, what is the status of the collateral arrangements that you discussed on the conference call we had some time ago?",23
-fomc-corpus,1995,"The security arrangements with respect to the existing enlarged swap arrangement are all in place. Under this new proposal, they would remain in place behind the ESF's operations because the ESF would be committed to taking us out first. So this arrangement would be behind ours as well--any money would go to us first. Those are essentially the same arrangments as those that have been widely talked about in connection with the guarantees arrangement. ""Collateral"" is the word that I fight against a lot, Mr. Chairman. I have had too much feuding with the lawyers on this point.",116
-fomc-corpus,1995,What are the security arrangements?,6
-fomc-corpus,1995,"They are an ""assured means of repayment."" The way they work is that the non-Mexican customers receive irrevocable instructions from the Mexican government as of a specified date, a date which would be after a payment was due on the guaranteed bonds or whatever debt instrument we are talking about, to make their oil payments to a bank in the United States, an account of Pemex in the bank in the United States. Those receipts would be immediately paid into the government account and from the government account into a Bank of Mexico account at the Federal Reserve Bank of New York. By prior agreement, though that is not required but useful, the Mexicans would then acknowledge that the Federal Reserve Bank of New York would have the right to set off funds in that account against claims of the United States government that had been assigned by the United States government to the Federal Reserve.",173
-fomc-corpus,1995,"What would that support? In a one-month period of time, what would those receipts be?",19
-fomc-corpus,1995,"I think it is about $6 or $7 billion a year, so it is about $500 million a month. The Chairman has pointed out that this is a mechanism that would allow repayment. It is also fair to say that if there were circumstances where the repayment was difficult, it might be difficult to fully enforce the mechanism. But I think the most likely scenario would be that a subsequent agreement would be made. It may be good in this circumstance that the agreement would be between the Mexican government and our government; we would be the agent, but we would be left out of it. The subsequent agreement in effect would say: Because of other disasters that have happened with Mexico, rather than taking all your oil receipts we would take a more practical amount--not $6 billion a year but $2 billion a year. So, rather than paying off $20 billion over 3+ years, they would pay it off over 10 years.",189
-fomc-corpus,1995,"What ability do the Treasury or the ESF have to take us out of an obligation if funds are not appropriated by Congress? Do they have the ability just to say, we committed to this and we are going to pay the Fed off?",49
-fomc-corpus,1995,"Yes, they could.",5
-fomc-corpus,1995,"But if they can do that, why can't they just advance it themselves?",15
-fomc-corpus,1995,"They could, but I think they feel that it would be useful to their objectives to have a lot of people--",23
-fomc-corpus,1995,Can I just suggest where the funds come from? How about a credit against our payment to the Treasury?,21
-fomc-corpus,1995,"Why do we come before other creditors to the Treasury--I guess that is another way of stating the question--with regard to any funds? In other words, why do we come in front of Social Security recipients?",43
-fomc-corpus,1995,"We would come in front of the Exchange Stabilization Fund, not the Treasury.",16
-fomc-corpus,1995,"It is the Exchange Stabilization Fund. The point, you know, is that this is not an either/or situation. For example, the Treasury can validly pay us off with a note. Treasury obligations are on our balance sheet right now. If they took us out with a special Treasury security, we would put it on our balance sheet.",69
-fomc-corpus,1995,There are two issues about whether we are dealing with the Treasury itself or with the ESF.,19
-fomc-corpus,1995,"Let me put it this way: If the ESF loses its whole balance sheet, we have more problems than we know!",25
-fomc-corpus,1995,But 80 percent of their balance sheet is going to be pesos!,14
-fomc-corpus,1995,"The Treasury is very conscious of the fact that if they make this arrangement--that is the reason for the warehousing of up to $20 billion--they would need to allow for the fact that we had advanced $4, $5, or $6 billion. Therefore, we would have to have a contingent claim on them for that $6 billion--if that's the amount--12 months down the line. They would have to be able to take that claim over, if necessary, either by advancing their own swap or by an arrangement with the Mexicans under this program whereby the Mexicans would use their proceeds to pay us off.",127
-fomc-corpus,1995,"Could I just formally respond to Governor Lindsey? There is a question here of whether or not the amount the United States Treasury gives us has to be appropriated funds, which I think is really where our examination of the issue has to be. In examining the take-out, we ought to make certain that we talk to them with respect to the question of what happens if they do not get the appropriated funds.",82
-fomc-corpus,1995,"Mr. Chairman, the Exchange Stabilization Fund does not have appropriated funds.",16
-fomc-corpus,1995,Are we going to be getting a take-out from the Exchange Stabilization Fund?,16
-fomc-corpus,1995,I think that is what is in the program.,10
-fomc-corpus,1995,Okay.,2
-fomc-corpus,1995,That is not the same as the Treasury.,9
-fomc-corpus,1995,"Even if we didn't, the precedent in the 1960s--I think there was a question then about whether the Treasury could engage in foreign exchange operations outside of the ESF--was the use of Roosa bonds in the 1960s. The Treasury floated Roosa bonds to obtain foreign currencies and used some of those currencies to take us out. That did not involve appropriated funds. That was treated as a debt-management operation. The Roosa bonds were issued under their debt-management portfolio.",101
-fomc-corpus,1995,"Since we have double collateral, if you will excuse the word, the interesting question is: If there is a default, do we go first to the oil proceeds or to the Treasury?",37
-fomc-corpus,1995,"I would suggest, though maybe it's not the right thing to suggest, that we would go first to the Treasury. If the Treasury went to the oil collateral, if I may use that word, that source of repayment would go first to us.",49
-fomc-corpus,1995,"When you say ""go first to the Treasury,"" the Treasury then is providing the backing, not the ESF?",23
-fomc-corpus,1995,"I said the ""Treasury;"" I meant the ESF.",13
-fomc-corpus,1995,Okay.,2
-fomc-corpus,1995,President Boehne.,5
-fomc-corpus,1995,I will forego my question.,7
-fomc-corpus,1995,"If I may, Mr. Chairman, I just want to make sure I have the numbers straight. We now have a $3 billion swap line. SEVERAL. $4-1/2 billion.",42
-fomc-corpus,1995,"Right, $4-1/2 billion. I want to make sure I understand. Is the $20 billion package on top of the $18 billion total package we have now?",37
-fomc-corpus,1995,No.,2
-fomc-corpus,1995,Then it is the same thing?,7
-fomc-corpus,1995,"It subsumes the $9 billion that we have now. The $18 billion is comprised of $9 billion from the United States, $1 billion from the Canadians, $5 billion from the BIS, and $3 billion from the commercial banks.",50
-fomc-corpus,1995,Let me just cut through and ask what our exposure would be including the amount of warehousing we would be contemplating in the total package?,27
-fomc-corpus,1995,"I don't consider warehousing to be exposure, but--.",12
-fomc-corpus,1995,Okay.,2
-fomc-corpus,1995,The figures would be what the Mexicans draw from us and our warehousing with the Treasury.,19
-fomc-corpus,1995,It's $6 billion for the Mexicans with a take-out from the Treasury.,16
-fomc-corpus,1995,"Yes, with a take-out from the Treasury. Essentially it's $26 billion with the Exchange Stabilization Fund.",22
-fomc-corpus,1995,$26 billion?,4
-fomc-corpus,1995,"The $6 billion would be part of the $20 billion, so it would be--",18
-fomc-corpus,1995,"It's twenty minus six, is it not?",9
-fomc-corpus,1995,"Six billion dollars would be dedicated to taking us out. The twenty includes both what we advance in the short run and what the ESF advances. The maximum exposure to Mexico of the ESF and us that is now contemplated, matches, so to speak, the $20 billion of the warehousing.",60
-fomc-corpus,1995,Is the new amount from the IMF in addition to the stand-by arrangement they have already--the $7-3/4 billion?,27
-fomc-corpus,1995,They haven't approved that stand-by arrangement for Mexico yet; they will consider that tomorrow.,17
-fomc-corpus,1995,"If they do, is it in lieu of that $7-3/4 billion or in addition to it?",23
-fomc-corpus,1995,The two are added together. So it will now be $17-3/4 billion rather than $7-3/4 billion.,28
-fomc-corpus,1995,Let me just ask: How big is the ESF right now in terms of its assets?,19
-fomc-corpus,1995,"Roughly $25 billion in liquid assets, of which $5 billion is in dollars and $20 billion is in foreign currencies. It also has about $9 billion of SDRs, but most of that is matched on the liability side of the balance sheet by liabilities to the Federal Reserve.",59
-fomc-corpus,1995,How have the markets reacted to this announcement today?,10
-fomc-corpus,1995,"Ted, how did the markets close?",8
-fomc-corpus,1995,"Quite positively. The last time I looked the peso was about 5.70, having weakened earlier to a new low of 6.55.",30
-fomc-corpus,1995,When I spoke to Governor Mancera he said it got as low as 6.70 to 6.80.,24
-fomc-corpus,1995,It closed today at around 5.70 to 5.80 and their stock market was up about 9 percent. It's very positive after yesterday. I caution that the peso level is only at Friday's close.,44
-fomc-corpus,1995,What happened in Brazil and Argentina?,7
-fomc-corpus,1995,I don't have the closing levels in front of me. The stock market in Brazil was up strongly.,20
-fomc-corpus,1995,What about the U.S. market?,8
-fomc-corpus,1995,In the U.S. the Dow was up about 14 and the dollar was up about 2 pfennigs.,24
-fomc-corpus,1995,The bond market was up 25/32.,10
-fomc-corpus,1995,The long bond closed at 7.69 percent.,11
-fomc-corpus,1995,"Any further questions for Ted? I'm sorry; go ahead, Cathy.",14
-fomc-corpus,1995,"The amount of funding that was initially suggested for commercial banks and investment banks was a small amount of the original $18 billion, $3 billion or so. My understanding of that from banks in our own District was that it was being made contingent on the $40 billion. Now that the $40 billion is gone, is there any part of this package that is coming from any of our investment banking organizations?",81
-fomc-corpus,1995,"I don't think it was ever contingent on the $40 billion because it was put into the market before the $40 billion in guarantees was announced. But it was contingent on the BIS facility that existed. It was to be paid out pari passu with the BIS part of the package. The truth of the matter is, speaking frankly, the banks have not been particularly supportive of this operation.",78
-fomc-corpus,1995,Right.,2
-fomc-corpus,1995,"My guess is that once this situation stabilizes, there will be some effort to suggest that the banks could be a little more supportive. One of the dominant themes on Capitol Hill has been the question of who peddled this paper, and although a lot of it is not on the balance sheets of the banks, they did a lot of peddling.",72
-fomc-corpus,1995,Is the way to add up these numbers 20 plus 15 plus 10 plus 1?,20
-fomc-corpus,1995,Twenty plus--,3
-fomc-corpus,1995,"If the IMF is preparing an expanded support package totaling $15 billion, should that be $17 billion?",21
-fomc-corpus,1995,$17 billion!,4
-fomc-corpus,1995,"Twenty, 17, 10, and 1?",12
-fomc-corpus,1995,"Yes. Well, 2 would be the last number.",12
-fomc-corpus,1995,"Oh yes, I forgot that. Okay, a total of $49 billion.",16
-fomc-corpus,1995,Someone will throw in another billion.,7
-fomc-corpus,1995,"A billion here, a billion there.",8
-fomc-corpus,1995,We usually manage to double count one of these things.,11
-fomc-corpus,1995,Yes.,2
-fomc-corpus,1995,"The amount now contemplated, whether it is $49 billion or $50 billion, is now some $10 billion over the $40 billion that was in the proposed legislation, which seemed like a big number to begin with.",44
-fomc-corpus,1995,"On the other hand, the number before was the $40 billion plus the $7 billion plus the $5 billion. So, the two totals are broadly commensurate.",35
-fomc-corpus,1995,Okay.,2
-fomc-corpus,1995,"Ted, credibility has been a problem all along. I want to ask two questions. First, you said that Governor Mancera wants $2 billion so he can pad his balance sheet before it is released tomorrow. Now, one of the things that would be most useful in the long term would be for the Bank of Mexico to provide an honest description of its balance sheet not only to us, which would be useful, but to the public at large.",90
-fomc-corpus,1995,Absolutely!,2
-fomc-corpus,1995,After we pad his balance sheet tomorrow is this going to stop?,13
-fomc-corpus,1995,"Governor Mancera is very conscious now that he has a commitment to announce his reserves after the end of every month. My understanding from the people I have talked to is that his intention would be to say, as he did the last time the Bank announced its reserves--and this is a small but significant step forward--that his reserves are X and that those include drawings on the North American swap lines of Y.",82
-fomc-corpus,1995,But they are not releasing the Bank of Mexico's balance sheets?,13
-fomc-corpus,1995,"Not yet, but I think that will be part of the Treasury--",14
-fomc-corpus,1995,"I think we will find, after Governor Mancera reported all his money supply and reserve numbers in the Wall Street Journal today, that it is going be difficult for them to say the drawings do not exist.",41
-fomc-corpus,1995,That is right.,4
-fomc-corpus,1995,They existed--and that was the problem!,9
-fomc-corpus,1995,"Could I clarify something? What Governor Mancera said just a couple of hours ago was that, if before the end of the day today he is informed that we the United States are willing to make these $2 billion available, he would envision when he announces his reserve figures to say that they have X, say $2.4 to $2.8 billion, and in addition, because I don't think we can get value to them today, that he had agreement from the Federal Reserve and the Exchange Stabilization Fund for an additional $2 billion, value tomorrow presumably. So he will lay it out accurately, I think.",125
-fomc-corpus,1995,"I think the major concern--and that is only partly addressed by this since we tentatively plan, at the moment anyhow, to lock up funds--is that announcing he has $2.4 billion in reserves, given the kind of problems he is up against, does make him look rather naked.",60
-fomc-corpus,1995,"My second question has to do with our credibility. I don't know what questions to ask, and I hope you will help me out in that regard. I have this document in front of me, which includes a page entitled ""What is the Exchange Stabilization Fund?"" The document came from Treasury International Affairs. I gather it was written by them. I have written enough of these to know what you do, and that is to tell your point of view. Paragraph 3, not to mention the dots indicating an omission in paragraph 2, got me a little nervous. Paragraph 3 says these holdings in the ESF are used to enter into swap arrangements with foreign governments, to finance exchange market intervention, to provide short-term bridge finance, etc., and all these things are great. So, basically paragraph 3 is establishing that this is not unprecedented. My question would be: Do we do all these nice things if it's not in support of the dollar? Is this unprecedented with regard to the fact that we are supporting another currency?",207
-fomc-corpus,1995,The language before the dots is--,7
-fomc-corpus,1995,I am talking about the third paragraph. I will go to the second paragraph in a second. I'm sorry. I am running a little out of order. It is saying the ESF has done all these things.,43
-fomc-corpus,1995,"The legislation governing the objectives of the ESF was changed, I think for the most part in the mid- to late-1970s. The changes included the language that the government of the United States and the International Monetary Fund have the obligation to promote orderly exchange rate arrangements leading to a stable system of exchange rates. That was interpreted to include making loans to Bolivia in helping it maintain a system of stable exchange rates.",84
-fomc-corpus,1995,So that has happened before?,6
-fomc-corpus,1995,Yes. They have made loans to or financial arrangements with at least 37 countries around the world over the last 50 years.,26
-fomc-corpus,1995,"I think we all will be asked questions about this. Can you read this paper and tell me that there is not something missing that I should know about, meaning that this is not only the truth but the whole truth?",44
-fomc-corpus,1995,I can only say that Treasury lawyers have looked into the question of whether these operations are legal under this broad authorization of what they can do and what the purpose is--,33
-fomc-corpus,1995,If I can help out?,6
-fomc-corpus,1995,Yes.,2
-fomc-corpus,1995,"It's pretty clear that these ESF operations are authorized. I don't think there is a legal problem in terms of the authority. The statute is very broadly worded in terms of words like ""credit""--it has covered things like the gold swaps--and it confers broad authority. Counsel at the White House called the Treasury's General Counsel today and asked ""Are you sure?"" And the Treasury's General Counsel said ""I am sure."" Everyone is satisfied that a legal issue is not involved, if that helps.",102
-fomc-corpus,1995,Is there anything missing on this page?,8
-fomc-corpus,1995,"No, there is not. If you look at the last paragraph, for example, that is part of the statute.",24
-fomc-corpus,1995,About notifying Congress in writing in advance?,8
-fomc-corpus,1995,The statute says that with the permission of the President they can make loans.,15
-fomc-corpus,1995,"In the penultimate paragraph, what is the identified source of repayment?",14
-fomc-corpus,1995,"The Mexicans historically have been very sensitive about that. Now the whole world is informed that there are oil payments as an assured method of repayment. The Mexicans, for reasons with which you would be very familiar given Mexican history, have been rather sensitive about that being quite so open as it is now.",61
-fomc-corpus,1995,Does this legislation contemplate taking 100 percent of a country's oil payments for four years to insure repayment?,20
-fomc-corpus,1995,Not the legislation--but operations for three years.,10
-fomc-corpus,1995,But you indicated that in fact that might not be the way it falls out.,16
-fomc-corpus,1995,I was trying to live up to Governor Lindsey's entreaty that I suggest the questions one could ask as well as the answers.,27
-fomc-corpus,1995,You said this might be outstanding to the ESF for what--10 or 20 years?,19
-fomc-corpus,1995,We have used these arrangements five times since 1982.,12
-fomc-corpus,1995,The oil?,3
-fomc-corpus,1995,The provision for payment from oil export proceeds. We never have had to have recourse to them.,20
-fomc-corpus,1995,"I don't mean that. Has the ESF ever been used to provide financing, as I think you said earlier was a possibility, that was outstanding for as long as 10 or 20 years?",40
-fomc-corpus,1995,Ten.,2
-fomc-corpus,1995,Ten years. Is there any precedent for that? The law seems to contemplate short-term bridge financing.,20
-fomc-corpus,1995,"The earlier ESF balances agreement also ran for multiple years. Whether it ran as long as 10 years I can't remember, but it is unusual to go that long. There is a difference between whether it is legal and whether there are precedents for having done it. It is unprecedented in that the loans are expected to be outstanding that long. So they got involved in offering us a repayment guarantee.",80
-fomc-corpus,1995,"May I ask a question about the $40 billion that was in the proposed legislation? I believe that legislation did not contemplate giving the Mexicans any money but was offering loan guarantees that in effect would have substituted the credit of the U.S. government for the credit of the Mexican government. Presumably, they would have had to roll over short-term debt at very, very high interest rates because of the default risk. Was the point of the $40 billion guarantee to eliminate that default risk and to lower their interest rate structure?",105
-fomc-corpus,1995,And to allow them to stretch out the debt--to replace short-term debt at high rates with long-term debt.,23
-fomc-corpus,1995,Okay. Now we have stopped talking about the $40 billion; now we are talking about a certain number of billions but the whole nature of it has changed. Have they said what they are going to use this money for? I think it's different from what they were going to do if we had given them the loan guarantee. Is this just strictly for use to intervene in the foreign exchange markets to drive up the peso?,84
-fomc-corpus,1995,"I think the Treasury's intention is to secure a financial plan from the Mexicans about what they will do with that financing--that is, their whole debt-management strategy. This, of course, would have to be worked out by agreement between the Treasury and the Mexicans and we would participate in terms of our own part in that. As would have been provided for in the legislation, the plan would have to be in place before a substantial amount could be drawn free and clear.",96
-fomc-corpus,1995,"This does not address their credit risk problem, though. Anybody who invests in their paper still has that to overcome.",23
-fomc-corpus,1995,The Mexicans would in effect be substituting credit from the U.S. government or the Exchange Stabilization Fund rather than from the private market as under the previous guarantee program.,35
-fomc-corpus,1995,"So, instead of taking our money and using it in their operations in their financial markets, they will be taking our money and offering it as a promise of repayment. Is that what you are saying? It just seems that the whole nature of the thing has changed, and we have not gotten rid of the credit risk problem.",65
-fomc-corpus,1995,In one case they would have borrowed the money with the full faith and credit of the United States in the private market--in the guarantee mechanism.,29
-fomc-corpus,1995,Right.,2
-fomc-corpus,1995,"In the second case they either do that, which is one possibility, or they would borrow the dollars from the United States Treasury which would borrow in some sense from the ESF. The ESF does not have dollars but it has Treasury bills that it could sell, and the proceeds would be invested in Mexican obligations.",63
-fomc-corpus,1995,But we have moved from loan guarantees to direct lending.,11
-fomc-corpus,1995,"Yes, to direct lending; we are in more of a credit risk position than we were before.",20
-fomc-corpus,1995,"Ted, why is the Federal Reserve involved in this? Is it because of a liquidity problem for the ESF?",23
-fomc-corpus,1995,"We are involved for two reasons. One, the ESF does not have the liquidity, so that involves us in the warehousing. The other relates to our participation--this would be short-term participation--through the existing swap line, the enlarged swap line, and the suggested super enlarged swap line.",60
-fomc-corpus,1995,The latter would have us involved for how long? For the ten years that was mentioned earlier?,19
-fomc-corpus,1995,"No, I think for one year. That is one of the reasons why I did not put a specific proposal to you today. What I had been thinking, but I wanted to do it tomorrow morning when I had a clearer head, is that you might want to set something up so that they could draw up to $6 billion. But once they had drawn $6 billion and the drawing had been outstanding for 12 months it would have to be repaid, and they could not redraw on the enlarged portion of the swap line. The Committee would decide over what period--or maybe it could be for two periods--the Mexicans would be allowed to draw on the enlarged swap line. And after that point they might be allowed to roll the drawing over up to three times and then be required to repay any unpaid balances. As the drawings were repaid, the enlarged swap facility would be extinguished and they could not redraw on it. The swap line would drop back to our normal swap line agreement and any further drawings would require Committee clearance.",209
-fomc-corpus,1995,Okay.,2
-fomc-corpus,1995,"Could I ask a question? Ted, this is a slightly different issue. A couple of days ago there were rumors in the market that the reserves of the Mexican government had dropped from post devaluation levels of about $6 billion to $2 billion. The Bank of Mexico immediately denied that those levels had gone down so much. Now, tomorrow they are going to announce that they have roughly $2 billion in reserves plus an agreement to get $2-1/2 billion from us. That is still considerably below the $6 billion which was already lower than their earlier reserves. What is going to happen?",121
-fomc-corpus,1995,They announced on the 9th of January that their reserves were $5.6 billion.,19
-fomc-corpus,1995,"Yes, but they quickly denied that their reserves had slipped to the $2 billion level.",18
-fomc-corpus,1995,As of yesterday their reserves were above $2 billion.,11
-fomc-corpus,1995,My question is: What is this announcement going to do to the market confidence?,16
-fomc-corpus,1995,"I don't think anyone thought five days ago that their reserves were still at $5 to $6 billion. There is no credibility loss because they are down closer to $3 billion. Yesterday, the market was saying that they were at $2 billion; the Mexicans denied it and said that they were above $3 billion. Now, one can split hairs but they were by all accounts, and in terms of their conversations with us, above $3 billion.",92
-fomc-corpus,1995,They were at $3.4 billion.,9
-fomc-corpus,1995,"Yes, $3.4 billion. We are getting down to small numbers, but no one thinks there will be a credibility loss because they were at $6 billion earlier and tomorrow they will announce $2 billion.",43
-fomc-corpus,1995,"In other words, you don't think that the announcement tomorrow will in any way offset what has been done by the President and our facility?",27
-fomc-corpus,1995,"It's not going to offset it entirely. People will, as people in this room did, sort of take a little breath and say, well, that is a low number. But I think the President's package and all the things that have come out today should mitigate the effects of that to a great extent.",62
-fomc-corpus,1995,What are the implications of the Treasury just dusting out what they have in the ESF to provide liquidity to the ESF?,26
-fomc-corpus,1995,"Do you mean sell those foreign currency assets in the market? In this case, it would be just like any other exchange market intervention, I think.",30
-fomc-corpus,1995,Are they liquid holdings?,5
-fomc-corpus,1995,"Yes, Peter holds them for the ESF. They are reasonably liquid.",15
-fomc-corpus,1995,"Yes, they are reasonably liquid instruments. I think the sum jumped up today. The dollar/mark today was--well, I think dollars had been a little oversold and people were covering back. But some of it was rumors that, in order to do anything, the United States might be selling all the marks and yen immediately. Now, that was mostly a skittish thing going into a rather anxious, jerky market. I don't put too much stock in that.",96
-fomc-corpus,1995,Although that might explain some of the behavior of the dollar today.,13
-fomc-corpus,1995,Yes.,2
-fomc-corpus,1995,"It is fair to say that as a policy measure, one of the reasons why the Treasury chose to go with the loan guarantee originally rather than using the ESF was that by going to the ESF, even with our cooperation, they felt there might be some sense that their ability to defend the dollar with existing foreign exchange balances was being impaired. And, therefore, if forced to sell out to the market, their ability to defend the dollar subsequently would be difficult without foreign exchange reserves, even aside from what one may think about the effectiveness of intervention. The Treasury is not particularly ""gung ho"" on intervention, but they are ""gung ho"" on having some powder in the magazine.",137
-fomc-corpus,1995,Okay. Shall we call it an evening?,9
-fomc-corpus,1995,"We need some sense of the Committee's view on the ""drawing"" or whatever word you want to use.",22
-fomc-corpus,1995,"Yes. As Ted indicated, we think it would be useful in this context to agree to our billion dollar lockup of reserves to Mexico. The reason for the lockup, frankly, is that until we know that everything is in place, I would not feel comfortable exposing ourselves even with the collateral. But if we get a take-out and everything is moving along, then all the risk elements to the Federal Reserve will be gone. I think we'll probably get fairly good confirmation of that soon--by tomorrow, do you think?",105
-fomc-corpus,1995,It may take us a little while to work out the take-out.,14
-fomc-corpus,1995,Is there any objection to our authorizing a $1 billion drawing from the $4-1/2 billion swap line to be locked up for the Bank of Mexico?,34
-fomc-corpus,1995,"As president of the Bank where the money will be kept, I can assure you that we will keep a very close eye on it!",27
-fomc-corpus,1995,Is this a matter that needs Committee approval or are you just consulting?,14
-fomc-corpus,1995,"No, actually it does not need approval, but I would feel uncomfortable if there were a significant negative response even though you have already given me the authority. This situation is changing and has changed sufficiently that I want to make certain that there are no significant changes of views on the overall position.",58
-fomc-corpus,1995,"I am very concerned about the overall proposal and how it would involve the Federal Reserve. To the extent that a further drawing would involve us further in this arrangement, I do have concerns. At the same time I recognize that you have the authority to do it and that you are being prudent in terms of how that money would be secured. It is hard to object to that in isolation. In fact, I don't have the right to, really! But it does concern me in terms of being another step in the direction of a toe in the water, then the foot, the leg--that is what I am concerned about. I know we are going to be discussing other aspects of this issue tomorrow, but I feel that if I did not express that concern now, I would not be totally forthcoming.",160
-fomc-corpus,1995,"We are going to get to the other issues first thing tomorrow morning. Yes, Tom.",18
-fomc-corpus,1995,"I have to ask you, when you say ""lock up""--Are we committing to this now? Is this something that, if we have a change of heart after our discussions later, we can not take back because we are in this now?",49
-fomc-corpus,1995,I don't think so.,5
-fomc-corpus,1995,"As President Melzer said, previously--the action was taken on December 30th--you approved a special increase in the Mexican swap line for a short period of time. Now, in fact the drawings by Mexico are still within the $3 billion swap line that existed before it was expanded with the special arrangement on the 30th of December. So, you are operating under what was previously agreed upon.",82
-fomc-corpus,1995,"I understand and I hear what Tom Melzer said. What the Chairman is saying is that things are changing quickly. Yes, we have approved it, but what are we buying into? That's what I just do not know.",45
-fomc-corpus,1995,"The answer, I suppose, is that participation in this current phase requires action on the warehousing limit for one. Secondly it involves acting on the proposal with respect to raising the $4-1/2 billion swap line to some number, or not raising it, and articulating how long the enlarged amount would be outstanding before it reverted to the $3 billion normal size of the swap line. So, if the Committee does that, I am done.",91
-fomc-corpus,1995,Jerry.,2
-fomc-corpus,1995,"I am not voting this year but if I were, I would oppose the package because of the warehousing. Once this Committee is in on the warehousing, we are in and we are going to be in--",43
-fomc-corpus,1995,The only thing I object to is that that is a subject for tomorrow.,15
-fomc-corpus,1995,Okay.,2
-fomc-corpus,1995,You can be the first one on the floor tomorrow! I am just saying the clock is ticking. Let's get out of here.,26
-fomc-corpus,1995,"Since the Mexican discussion may be open-ended, I thought it would be desirable to put it at the end of the agenda and start this morning's session with Peter Fisher on both foreign currency and domestic open market operations. Peter.",45
-fomc-corpus,1995,"Thank you, Mr. Chairman. I will be referring eventually to the three colored charts on the single sheet of paper distributed this morning. [Statement--see Appendix.]",33
-fomc-corpus,1995,"Peter, we have seen the current account deficit of the United States rise continuously in recent years. Projections now suggest yearly deficits of around $200 billion in the next couple of years, and there is no evidence of any retreat. It has always been the conventional wisdom that, because of the prominence of the dollar in world portfolios, the U.S. dollar was driven largely by portfolio shifts and that the net flow of claims against the United States, which are virtually all in dollars, really was not a major force because of the huge size of the stock. But when we are getting deficits of $200 billion, that strikes me as no longer de minimis, and I am curious to know how you evaluate the presumably depressing effect on the dollar from the cumulating current account deficits. How would you evaluate the general effect of the deficits on both the level and the trend? In other words, are they fully discounted in the market so that there is only a level issue? Or are they not fully discounted, implying that there is further potential erosion stemming from the fact that we are going to borrow, net, $400 billion over the next two years?",230
-fomc-corpus,1995,"There are two aspects I would focus on. One is the trend, as you point out. What is disturbing, or important, to the foreign exchange market is the sense of rising current account deficits; the foreign exchange market sees the trend in the current account as being against the dollar. If there were to be forecasts of stable $200 billion current account deficits for 5 or 10 years, that might be something to which the foreign exchange market eventually would adjust. So, I think a big component is the fact that the deficit seems to be ratcheting up, and people in the market do not see where the process might stop. Obviously, the level is also important; and in the past year, as you have all read and have heard at this table, the combination of the current account deficit and the outflow of U.S. savings in search of portfolio diversification abroad was seen as having a piling-on effect by the foreign exchange market. Market participants did not see where the demand for dollars was going to come from. I certainly err in the direction of being interested in some of the micro mechanics of markets, so you will have to forgive me. But I think it also is important to keep in mind that, increasingly, all sorts of managers of funds and portfolios abroad who are interested in holding dollar assets view the foreign exchange exposure component of that as something that has to be managed completely differently. These foreign holders set aside their dollar assets subject to exchange rate exposure and give them to someone to manage. And so, even if foreign investors view holding U.S. Treasuries as a very good investment, they probably have passed off to some other manager X billions of their dollar exposure to be managed on a perhaps slightly more aggressive basis in the foreign exchange market. And so stable flows--stable for the foreign exchange market--may be a thing of the past for the portfolio manager.",378
-fomc-corpus,1995,Any other questions for Peter?,6
-fomc-corpus,1995,"I have one. It has two parts, the first of which is probably unanswerable, but if you want to give it a shot, go ahead. The question is: What would you imagine the implications are, for the peso and the Canadian dollar, of another 50 basis points on the federal funds rate?",64
-fomc-corpus,1995,"With regard to Canada, I would expect the Canadians to add 50 basis points themselves. The Bank of Canada has leaned very strongly against the wind in the last few weeks and in doing that has impressed their markets. That is, the Bank of Canada raised its rates, and when market rates started to come back down, the Bank kept taking action to make sure the rates stayed up. After that was done two or three times, the yield on 30-year bonds fell 30 basis points. If the Bank of Canada adjusted basis-point-for-basis-point with us, I think the Canadian dollar would be relatively stable against the U.S. dollar. I don't mean to jump too much into the fun the Committee will have this morning, but I think the important question is compared to what?",158
-fomc-corpus,1995,"Yes, compared to zero.",6
-fomc-corpus,1995,"If it is a 50 basis point increase in the federal funds rate compared to zero, I think zero would be quite bad for the Canadian dollar. I also think our own markets would be rather disturbed by zero and that it would be worse for the peso than 50 basis points. If one looks at where the market would like to price Mexican assets, 50 basis points added to the cost-of-carry just is not worth anything. So that is not the issue. The issue is stability of the interest rate environment.",105
-fomc-corpus,1995,"Further questions? Yes, Tom.",7
-fomc-corpus,1995,"I had understood Ted Truman to say yesterday that $1 billion had been drawn down on our swap arrangement, and you just said $1-1/2 billion, Peter.",35
-fomc-corpus,1995,"Combined. The Mexicans drew $1 billion earlier, divided equally between the Federal Reserve and the Treasury. Last night they drew an additional $2 billion, of which $1 billion is from the System.",41
-fomc-corpus,1995,"Yes. I was referring to their total drawings for the month on the Federal Reserve. That is, we did $500 million earlier in the month and last night we accepted their request and locked up an additional $1 billion.",45
-fomc-corpus,1995,So the total outstanding on our portion of that facility is $1-1/2 billion?,19
-fomc-corpus,1995,That is right.,4
-fomc-corpus,1995,I was talking about the combined amount for the United States and Peter was talking about the Federal Reserve portion.,21
-fomc-corpus,1995,Okay.,2
-fomc-corpus,1995,"Further questions? If not, would somebody like to move to ratify the transactions of the domestic open market Desk?",23
-fomc-corpus,1995,So move.,3
-fomc-corpus,1995,Is there a second?,5
-fomc-corpus,1995,Second.,2
-fomc-corpus,1995,Without objection. Let's move on now to the staff report with Messrs. Prell and Hooper.,21
-fomc-corpus,1995,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1995,[Statement--see Appendix.],6
-fomc-corpus,1995,How high is the unemployment estimate that the CEA is currently using?,14
-fomc-corpus,1995,It looks like 6 percent is the fourth-quarter level that they are working with at this point.,20
-fomc-corpus,1995,"They cannot publish that in the CEA report. Going up to the Hill and saying ""our program will raise the unemployment rate by more than 1/2 point"" will hardly get ringing endorsements.",40
-fomc-corpus,1995,"Given that their projected output growth will be pretty much in line with their estimates of the trend of potential output, it will look somewhat anomalous on that basis. But when they were developing these numbers earlier, they were working from a much higher base. It is hard to tell but they could say in the Economic Report that the news is good, the numbers now look better, and so we have adjusted the figures that appeared earlier in the budget.",89
-fomc-corpus,1995,Questions?,2
-fomc-corpus,1995,"Mike, in both the Greenbook and in your oral presentation you remarked that you had reexamined the economic model that you use, the approach that you use, in bringing these forecasts together, and you concluded that your model tracks well enough. It is within the confidence intervals for 1994. And as best you can tell, there is not enough evidence yet to say that the NAIRU is different from 6 percent. Accepting that, I went back a year to see what the forecast was. I am assuming that looking at things ex post is still the best way; the model itself of necessity had to be built judging this ex ante--hindsight does not help here. A year ago the projected unemployment rate for the end of 1994 was 6.8 percent, and for 1995 it was 6.8 percent. We are now at 5.4 percent. I look at your current projection for the unemployment rate for this year and your projection for 1996, which we did not have a year ago, and I also look at the CPI, which came in below the estimate for 1994 but is now projected to be .3 percent higher for 1995 than you had it a year ago. So, if the model is still working, that means the lags are a lot longer than you estimated earlier and the projected outcome is someplace further out in the future, or it would cost 1.7 million jobs to reduce the inflation rate by .3 percent just to make the model consistent with a year ago.",317
-fomc-corpus,1995,"I think we went through this last time, and I won't repeat the four-part harmony answer on the 1994 error. In a sense, we were thrown off by some movements in the numbers in 1993 that caused us to hesitate to follow the model religiously. Looking back over the past year--as you noted and we noted in the Greenbook--the behavior of prices is not out of line with the model forecast over the past couple of years on the assumption of a NAIRU in the 6 percent area. The behavior of compensation, including the latest reading, might on balance be a bit more favorable--too high in 1993 relative to the model and on the low side in 1994--and that perhaps raises some question, but it is still within the confidence interval. At this juncture, as we go forward in this forecast, I think the predictions are well in line with conventional short-run Phillips curve analyses. We run many different models and we get different answers, and I think this is a reasonable ballpark estimate of what the history embodied in these models would suggest is likely to happen in 1995 on the assumption that we get this kind of employment data.",242
-fomc-corpus,1995,"I'm still missing something. If the difference between .8 percent above the NAIRU on last year's projection and .6 percent below it is only .3 percentage point in the CPI, how wide is your confidence interval around the NAIRU?",49
-fomc-corpus,1995,I would say usually 1/2 percentage point.,11
-fomc-corpus,1995,So the NAIRU is 6 percent plus or minus 1/2 percentage point?,19
-fomc-corpus,1995,I think that is a reasonable range. We might narrow it a bit but we would be pressing science pretty hard.,23
-fomc-corpus,1995,Okay.,2
-fomc-corpus,1995,President Parry.,4
-fomc-corpus,1995,"Mike, the estimated equilibrium real interest rate is mentioned in the Bluebook in the section where there is a discussion of the simulations of the FTS model. A very interesting result is that, if the greater fiscal restraint were put into effect, the equilibrium real interest rate would decline by 1-1/2 percentage points. I found that very interesting, and I assume it was a result of some simulations of alternative scenarios. Could you describe the process by which you get this estimate? I would really be interested in what your estimate of the level would be if there were no fiscal restraint.",118
-fomc-corpus,1995,"Basically, we have an estimate of about 1-1/2 percentage points for what the elimination of the structural deficit would do.",27
-fomc-corpus,1995,That is exogenous?,5
-fomc-corpus,1995,No.,2
-fomc-corpus,1995,"It is a 1-1/2 percentage point decline in the equilibrium real rate that came out of the model simulations. I think to get a sense of the level you might look at the chart in the Bluebook that follows page 11. The end point there for the funds rate is 6-1/2 percent without fiscal contraction and 5 percent with the contraction. That is your 1-1/2 percentage point decline in the real rate. The inflation rate is about 3-1/2 percent, so I would say that without fiscal restraint the equilibrium real funds rate--this is cutting things much too fine--is approximately 3 percent.",135
-fomc-corpus,1995,"This is obviously an ""iffy"" proposition and to some extent one might view this as schematic as opposed to very precise.",24
-fomc-corpus,1995,I understand.,3
-fomc-corpus,1995,It is our belief that real rates have been elevated by the structural deficits of the 1980s and elimination of the deficit would yield a lower real rate. One of the things we have to speculate about in this forecasting process is the anticipatory effects that might result. Estimating those effects is very difficult. One has to think beyond the financial markets to other kinds of responses--to expectations about cuts in taxes and federal spending.,87
-fomc-corpus,1995,"Well, as I said, the fairly significant decline in the equilibrium real interest rate is a very interesting result.",22
-fomc-corpus,1995,"Mr. Chairman, I would like to come back for just a moment to try to provide a footnote to Mike's response to President Jordan. One thing to remember is that a year ago when we were dealing with the changeover in the Current Population Survey, we were expecting that revision to add in excess of 1/2 percentage point to the unemployment rate. We now think the addition is more like .2 percent. So, that is part of the explanation for the difference last year, and the revision also is leading us to change the projected unemployment rate in comparison with what we were indicating earlier.",121
-fomc-corpus,1995,President Hoenig.,4
-fomc-corpus,1995,"Just a clarification question to you, Peter. You talked a little about, and the Greenbook also referred to, some backing off in the growth of foreign demand for U.S. exports. But this morning you are still talking about continued robust growth. Am I understanding you correctly? Is there still some backoff in your projection?",66
-fomc-corpus,1995,"The decline in foreign demand is related to the Mexican situation. Excluding Mexico, we do not expect a significant change.",24
-fomc-corpus,1995,You are not looking for a change in Europe or elsewhere?,12
-fomc-corpus,1995,There is a little drop in Canada's rate of expansion because of their monetary policy tightening--,17
-fomc-corpus,1995,But otherwise the outlook is still pretty strong?,9
-fomc-corpus,1995,Yes.,2
-fomc-corpus,1995,"If there are no further questions for the staff, obviously the rest of us have all the answers. Who would like to start? President Parry.",30
-fomc-corpus,1995,"Mr. Chairman, growth in the Twelfth District economy is gathering momentum. Employment growth has picked up and the unemployment rate has continued to fall, in large part due to improvement in California. Within the state, economic conditions have improved in both northern and southern California. Recovery in our District should stay on track, although several recent developments will likely damp overall growth and have more pronounced effects on some regions. In California, for example, floods are affecting some communities quite a bit, but without having much effect on the state economy overall. In Orange County, the losses in the county's investment pool have been marked down to about $1.7 billion. Also, spreads between rates on California State debt and other tax-free debt have narrowed some. The earthquake in Japan also is reverberating in California, holding down shipments between the damaged port of Kobe and major West Coast ports such as Oakland, which counts on Kobe for about 9 percent of its business. High-valued shipments between Oakland and Japan reportedly are going through ports other than Kobe, but the increased transport costs are limiting shipments of lower-valued products such as animal feed. The devaluation of the peso could hit states like Arizona and California harder than most other states. But assuming that the currency situation stabilizes, we do not expect this to prevent further economic growth. Still, some businesses in southern California are greatly concerned about the situation in Mexico. An area of particular concern is San Diego where the unemployment rate has not improved as much as has been the case in Los Angeles and where retail sales recently have weakened as a result of the crisis in Mexico. Turning to the national economy, it is clear that employment, output, and spending all exhibited surprisingly strong growth last year. As a result, the economy now has attained levels of labor and capacity utilization that are inconsistent with steady inflation, to say nothing of progress toward lower inflation. In our outlook, nothing suggests that the monetary tightening of last year will slow the pace of real economic activity sufficiently over the forecast horizon to produce any slack in the economy. This point is also amply demonstrated by the Greenbook forecast. With no further tightening, there likely will be a deterioration in the inflationary environment in 1995 and 1996 as well as beyond the forecast horizon. Thank you, Mr. Chairman.",463
-fomc-corpus,1995,President Minehan.,4
-fomc-corpus,1995,"New England continues to recover from the recession at a moderate pace, with substantial variation in employment growth from state to state. Long-term structural issues continue to plague the region with defense downsizing, uncertainties in health care, and re-engineering downsizing or rightsizing--whatever you want to call it--affecting many of our large employers. On top of all of that, we do not have any snow! Tourism buoyed the District through the summer and the fall; it has been less of a factor this winter as mild temperatures and some rain have dimmed ski area prospects. Beyond employment and the weather, other indicators suggest that economic activity is continuing to expand. Specifically, help-wanted ads, consumer confidence, housing permits, and a lot of anecdotal data show some strength to the continued recovery. Manufacturing contacts are generally positive but retailers are more varied. We continue to hear reports of input price increases, especially paper, but selling prices have not yet ticked up generally. I might also note that while everybody is complaining about paper prices, producers of paper in Maine have a different attitude; they think that paper prices are about where they should be. I noted at our last meeting that the District's bank loan growth trailed the rest of the country substantially, with annual growth rates in all categories about half or less than that of other Districts. We have done a little work with the Senior Officer Loan Survey to try to determine why that is the case. The First District has shown relatively stable loan demand and no relaxation of credit standards. This is quite different from the nation as a whole and undoubtedly reflects concerns by the banks in our District about asset quality after the recession. In addition, First District banks still have relatively larger securities holdings than banks in other areas. They have had sizable realized and unrealized portfolio losses this year, and their stock prices have suffered as a result. All in all, I think their appetite for risk in 1994 was not very great, though continued moderate growth in 1995 in the region and nationally may change that somewhat. Turning to the Greenbook, I applaud the inclusion of a ""no change"" baseline to compare with a likely alternative path. It was very helpful to me in assessing what the various factors are in the Greenbook forecast. I was a little struck, though, by how little difference it seems to make whether or not we do anything. In the baseline forecast, inflation rises by .4 percent this year and only about .1 percent next year--if I have those numbers right--while unemployment stays well below the NAIRU in both years. In the alternative path, we make marginal inroads on inflation in 1996, again without the unemployment rate rising above the natural rate. It may be that things have changed in the labor markets along the lines suggested in the Greenbook, but I do not know that we have any evidence of this; I think that is close to what you were saying, Mike, when you were talking about the Greenbook analysis. As Part II of the Greenbook points out, there is no reason as yet to expect much compensation growth, given that the third-quarter unemployment rate was 6 percent. We have had only one quarter with the unemployment rate below the natural rate. We need to avoid the human tendency to indulge in some wishful thinking. Our own expectations are that inflation will be a bit more of an issue than the Greenbook suggests, especially in the baseline projection. In sum, I think the Greenbook is really well done this time. I liked it a lot. I am putting in a vote for you to do it this way more often, Mike, even though it is more work for you.",746
-fomc-corpus,1995,President Moskow.,4
-fomc-corpus,1995,"Mr. Chairman, on balance the Seventh District economy is still growing at a moderate to vigorous pace, although there has been some easing recently in a few interest-sensitive sectors. As I said to the Committee last time, two U.S. auto manufacturers reported cuts in orders from dealers as early as mid-December but no reduction in consumer sales at that time. More recently, there has been a lot of discussion in the press about a possible slowdown in the auto industry. In addition to dealer orders being down, reports now indicate that for some models inventories have risen, production schedules have been trimmed, and new incentive programs are being offered. In addition, used car prices have been declining in our District. The challenge is sorting through all this information to determine to what extent demand has moderated. Our assessment is that while there has been some moderation in sales growth, most of the recently reported signs of slowing overstate the degree of moderation, in part because 1994 was such a strong year for auto manufacturers, suppliers, and dealers. We expect auto and light truck sales to increase about 2 percent in 1995. This is significantly slower than the 8-1/2 percent increase in 1994, but production would reach a strong level of about 15.4 million units in 1995. One area where the signs of slowdown are becoming clearer is in the single-family housing sector. For example, builders and realtors in the Chicago area started seeing slower traffic and sales in the fourth quarter of last year, particularly in December despite quite favorable weather that month. Reports from District retailers are mixed. Sales gains remain heavily concentrated in hard goods, with apparel sales still slow. Some retailers express concern about high inventory levels, although it is interesting that the Loan Officers Survey indicates that banks are not concerned about loans for inventory financing. Competitive pressures are still reported to be intense, and increased promotional activity is widespread. The District's manufacturing sector ended 1994 on a very high note with many industries, especially in durable goods manufacturing, reporting a record or near-record year. While some industries expect to exceed those levels this year, the widespread expectation is that growth will moderate. Utilization rates are quite high and in many cases above the peaks reached in 1989. As I reported earlier, raw materials price increases are pervasive. Although many firms are unable or unwilling to pass on such price increases to their customers, some firms are now expressing the belief that price advances are becoming more feasible. For example, rapidly rising sales and backlogs have led to two price increases within a month in the heavy paper industry. Obviously, we did not hear this from Cathy's Maine producers. In agriculture, recent developments indicate the District's farm sector is holding up better than we had anticipated. A sharp unexpected decline in exports from China has significantly enhanced U.S. corn export prospects. However, the peso devaluation will undermine some of the near-term agricultural trade benefits that had been expected to accrue from NAFTA. In particular for the Midwest, some of the recent gains in corn exports may be lost. In addition, the earthquake in Kobe may briefly disrupt our trade patterns with Japan, which is the largest foreign market for U.S. agricultural commodities. On the employment front, labor markets remain quite tight. In many metropolitan areas, the reported unemployment rate is below 4 percent, including a rate of 3-1/2 percent in the metropolitan Detroit area. A few reports indicated outright shortages of clerical workers, and concerns were expressed about the inability to find sufficiently well qualified workers. Wages for clerical workers are reported to be up more than 10 percent from a year ago. Overall economic activity in the Seventh District is consistent with a national economy that has moved into a range where a pickup in inflation is considered likely. Turning to the national picture, our outlook for real GDP growth in 1995 is similar to the Greenbook's alternative projection. Growth in real GDP should taper off significantly over 1995. The inflation outlook is one area where we are less optimistic than the Greenbook, even assuming further monetary policy tightening this year. While we tend to agree with the Board staff estimate of the NAIRU, we expect to see consumer prices responding more rapidly to the low rate of unemployment than is forecast in the Greenbook. As a result, we expect CPI inflation to rise perceptibly to ranges in the neighborhood of 3-1/2 percent by the second half of 1995.",900
-fomc-corpus,1995,President Boehne.,5
-fomc-corpus,1995,"The Philadelphia region continues to expand, with some evidence that the pace of expansion is slowing. Wage and price increases generally remain subdued, but with labor markets tightening, there is some concern, more than I have heard before, about building inflationary pressures. Manufacturers report that industrial activity is still on an upward trend, but some slackening from the pace of the fourth quarter is occurring. Gains are more common in metals and equipment, while steady-to-declining activity is more characteristic of nondurables. Retailers in general were reasonably pleased about holiday sales. They did not do as well as they had hoped, but well enough not to be complaining. Sales in January were more subdued with lots of discounting, especially for apparel, which was the weakest area in December. Existing nonresidential structures are still selling at prices below replacement cost in the Philadelphia area, so there is little need for new construction. Residential construction is clearly feeling the impact of higher interest rates. Loan volume is growing moderately, with middle market companies prominent among new borrowers. There are still reports--I would say an increasing number of reports--that underwriting standards are slipping and complaints from bankers that loan pricing does not adequately compensate for risk. With rising loan demand, there is more competition for deposits. Labor markets in the District have tightened noticeably during the last couple of months. Some employers expect upward wage and price pressures down the road. Others believe that there is still much potential for further productivity gains and that such gains plus intense competition will continue to contain wage and price pressures. My reading of the national economy is that we are likely to see moderating growth as the year progresses, largely from less robust personal consumption, less inventory investment, weaker residential construction, and perhaps not as strong export growth as we previously thought. Nonetheless, moderating growth is still a forecast with the usual amount of uncertainty surrounding the degree of moderation and the timing. On the inflation side, the weight of historical evidence points toward some cyclical rise in the inflation rate. It is probably true, however, that the economy is now less inflation prone than it was in the last decade or so. Whether it is a little less prone or a lot less remains to be seen. The answer is probably in between--not as optimistic as some would have us believe but better than our models suggest.",465
-fomc-corpus,1995,President Forrestal.,4
-fomc-corpus,1995,"Mr. Chairman, the Southeast economy continues to expand, although we have seen some deceleration during the fall and early winter. Employment growth in the District outpaced the nation last year but our unemployment rate fell relatively less because of in-migration to the area. We are expecting an unemployment rate of 5.7 percent for December when the final numbers come in. Retail sales growth has been relatively strong, led by durables, although we have seen a noticeable decline in auto sales from very high levels. Dealers view the current pace as sustainable. Tourism is mixed at the moment. In the very large Florida market, the usual strong inflow of Canadian visitors has been restrained by weakness in the Canadian dollar and, to some degree, by the high cost of health care for Canadians when they travel outside Canada. Also, unseasonably warm weather in other parts of the country has hurt Florida resorts and cruise bookings. Manufacturing activity grew moderately in December and early January and the outlook for capital expenditures improved. Production levels remained quite high in industrial chemicals, paper, pulp, and metals. Manufacturers report that the markets for building materials and home furnishings have softened recently. In the important defense contracting area, contractors remain under pressure but foreign military orders are bolstering activity at some plants. A broad range of industries in the region have posted significant gains in exports since the implementation of NAFTA, but there is now considerable concern that the sharp devaluation of the peso will cut into those exports; in fact, we are already beginning to see a little of that. Realtors in most of the District report that sales of single-family homes have slowed due to rising interest rates, but multifamily and commercial construction continues at a pretty good pace. Bank lending activity is mixed in the District. We are getting some anecdotal reports about a lessening of underwriting standards, but consumer default rates are continuing at a quite low level. We still hear reports of difficulty in getting skilled and unskilled workers; that is particularly true in Tennessee. On the inflation side, we are seeing more pressures on prices but that is somewhat sporadic. The deceleration in housing has eased pressures on prices of materials and has alleviated shortages of semi-skilled labor in many areas. Retailers anticipate that vendors are going to raise prices on new merchandise, but they are concerned that they are going to be unable to pass these increases through to the consumer level. Reports of rising prices of raw materials remain very widespread with the pressures most intense for chemicals, paper, and textiles. Looking at the national economy, I too would like to applaud the staff for including an alternative forecast. I think it is very, very helpful. I would hope that this can be done on a more frequent basis. We revised our forecast upward when it became clear toward the end of the year that the deceleration we had anticipated was not going to take place. We do show some moderation in the future. Our baseline forecast is pretty much the same as that in the Greenbook, although we do show somewhat greater strength in real GDP than the Greenbook and somewhat higher inflation. I would like to believe that capacity utilization constraints are not going to be as important as they once were and that the shortage of labor is not going to pass through into wages, but that may be wishful thinking. At the end of 1996, we have a 3.6 percent rate of inflation. Again, I would like to hope and believe that that will be the cyclical peak for inflation and that it will come down from that, but that may be wishful thinking. I think the really important question and the difficult issue that we have to face will be the need to stop adjusting our policies at a time when current data still appear strong. If we believe in policy lags, we need to start asking ourselves how we are going to know and what we will look at that will make us decide that we have done enough. It is the opposite to the question of inflation. When we see inflation, it is too late, and it may be too late for us to stop when we begin to see deceleration. That is a very tricky issue for us to face. Thank you.",841
-fomc-corpus,1995,President Broaddus.,5
-fomc-corpus,1995,"The reports we have received lately indicate that overall conditions in our District are still generally robust. Like a lot of other people, we have seen some signs of deceleration in parts of the District and in some industries, but really nothing of size. There are just too few signs to reach any definitive conclu-sions at this point. At their January meeting, our directors were uniformly bullish. They said their local economies were holding up surprisingly well in the face of recent interest rate increases. They also reported widespread optimism regarding the outlook for their local areas in the year ahead. One director at the meeting did express concern about the weakness in apparel sales over the holiday season, but even she said that in general things look pretty strong. Some directors continue to report rising price pressures at earlier and intermediate stages of production. These people still expect at least some of these increases to be passed through to final prices in the near future. In fact, our monthly service-sector survey did show a pickup in retail prices from November to December. Our latest monthly survey of the manufacturing sector suggested a slight decline in the growth of manufacturing activity in our region, but the various indexes we use remain quite high in terms of levels. The North Carolina economy, as I have reported before, still is extremely robust--lots of manufacturing activity there. There are some signs in the middle part of the state, in areas like the research triangle of Raleigh-Durham and in the Charlotte area, of some labor shortages and at least a few signs of upward pressure on wages in some industries. Another thing from the District that might be worth mentioning: One of my directors who is especially conscientious in gathering useful anecdotal information for us called me late last week. He told me that in the last week three general contractors, whom he normally surveys for each of our meetings, had called him of their own accord and told him that just in recent days they either had to revise or, in one case, actually withdraw a preliminary bid on a major construction project because they were getting bids from their subs that were much higher than anticipated. The main reason for this appears to have been increased pressures on prices of materials, but apparently labor costs also played a role. As for the national economy, I would join Cathy Minehan and Bob Forrestal and others in complimenting the staff on their analysis. I thought it was very well done. I was especially interested in the impact that the changed assumption has on the outlook for major macroeconomic variables over the next couple of years. The assumption of a constant funds rate compared to the December projection does have a noticeable cumulative upward impact on GDP growth and employment by the end of 1996, with only a relatively small increase in the inflation rate--.3 percentage point by the fourth quarter of 1996 to be exact. In any case, it is fair to say that this new projection is calling for what reasonably could be descibed as a classic soft landing. I think a favorable outcome like that is certainly possible; that is basically what we are projecting. As a number of people have pointed out, we already have seen some initial signs that our tightening actions last year have begun to cause growth to moderate at least in some sectors. But again, as everyone knows, we recently have gotten a string of exceptionally strong economic reports that indicate clearly that whatever may be happening going forward, the economy has entered this year with a great deal of momentum. Even housing seems to be holding up pretty well in the face of higher interest rates. Back at the December meeting, I said that I thought the risks in the national outlook were more balanced than they had been earlier in the year. I still think they are more balanced than they were several months ago, but I think they are less ""more balanced"" than I thought back in December. In this regard, it is worth noting that the long bond rate, while it is still well below its high in mid-November, has stopped declining. It stopped declining in early December and has been basically in a holding pattern at around 7-7/8 percent since then. That suggests to me that people still think the expansion at least for now is continuing at an unsustainable pace. I think they are waiting to see what we are going to do about it.",857
-fomc-corpus,1995,President Stern.,3
-fomc-corpus,1995,"The Ninth District economy remains healthy. Unemployment rates are almost uniformly low throughout the District. Employment gains over the past year have been very substantial, and there are labor shortages in many parts of the District right now which over time certainly will slow the pace of expansion. Not unrelated to what has been going on, there are also housing shortages in many parts of the District. Apartment construction in some of those mid-size communities is very substantial, at least by their historical standards. Obviously, that will help to alleviate the housing problem over time, but right now, even if employers in those communities could attract more labor, they would not have any place to house them. Despite these circumstances, there is still no widespread evidence of an acceleration of wages. There are perhaps a few more reports than there were a few months ago of some pickup in wage pressures, but they still are not widespread. That is not what I might have anticipated given the clear evidence of labor shortages. Overall, the District economy continues to do quite well. Natural resource industries had a very good year: We already have talked a little about paper and forest products; mining of iron, copper, and so forth also has done well. The retail sales picture has not been much different than elsewhere in the country. We have had a bifurcated pattern where hard goods have been selling well and soft goods, especially apparel, have not. I don't pretend to have any insight into why that should be the case. The weather has been mild and the lack of snow has affected tourism, which had been running quite strongly for a good number of years. So, it has not been a good winter in many parts of the District as a consequence of the weather. The other thing I might mention about the District economy is that it seems to be widely, though not universally, expected that 1995 will not be as strong a year as 1994. I suppose there is nothing remarkable about that in the sense that 1994 was quite a good year as was 1993, and people just naturally are cautious that this can't go on forever and there may be a sense that we are bouncing off the ceiling. These attitudes have been around for a while; there is nothing that has triggered them. It may be that people simply have been taking another look at consensus forecasts that things will slow, but that does seem to be the prevailing attitude. With regard to the national economy, I must admit I am a bit uncomfortable about the inflation outlook. I am particularly uncomfortable if I adopt the Greenbook framework, which emphasizes capacity pressures and a NAIRU of around 6 percent. It seems to me that, in that environment, we will get an acceleration of inflation. Maybe it will be modest and only cyclical but, of course, the outcome probably is not wholly independent of what we choose to do. In my judgment, that is where the risk is.",584
-fomc-corpus,1995,President Melzer.,4
-fomc-corpus,1995,"Thanks, Alan. The U.S. economy continues to grow more rapidly than forecasters had expected and likely more rapidly than can be sustained, with a four-quarter growth rate through the end of last year of about 4 percent. The unemployment rate fell 1.3 percentage points in 1994 to 5.4 percent in December. In the Eighth District, unemployment is averaging 4.2 percent in the major states and stands at 3.9 percent in the St. Louis area, the lowest level in decades. Nationally, employment gains have been robust, with the economy adding about 307,000 jobs per month from January through December 1994. This trend has been mirrored in the Eighth District over the last year: Arkansas and Kentucky registered payroll employment gains at an annual rate of nearly 6 percent during the fall. Some of our District states have picked up some momentum. During 1994, employment in our District actually was growing more slowly than in the nation as a whole. In fact, contacts throughout the Eighth District report that labor markets are the tightest they have seen in years, with wage pressures in evidence in some markets. District retailers reported holiday sales up 6 to 7 percent over year-earlier levels, and post-holiday sales generally have met expectations, reducing retail inventories. In a recent survey of small businesses in the District, about 3/4 of the repondents said they expected the current boom to continue or gather strength over the next six months. In general, the performance of the economy has made a mockery out of the slowdown scenario widely predicted last summer for the second half of 1994 on the basis of the inventory buildup in the first half of the year. Is it possible that the slowdown scenario now widely predicted for 1995 is also wrong? Our forecast envisions real output growing about 3 percent in 1995 with the CPI inflation rate increasing to about 3-1/2 percent. Unemployment in the fourth quarter is forecast to be about the same as its current level. Other forecasts--both from the private sector and the Greenbook, even in the case where no further tightening is assumed as in the Greenbook--look for a sharper slowdown in 1995 than we do. These forecasts of a weak economy appear to be based in large part on two observations: (1) the economy has a strong tendency to return to trend, and (2) the level of inventory investment has been abnormally high. While it is true that the economy does tend to return to trend, the pace at which such a return occurs is highly variable and still could be many quarters away. Though recent economic performance has been strong, it has not been nearly as strong as in some other expansions and above-trend growth might well be sustained through 1995 as the economy continues to work off the enormous amount of liquidity that was created in 1991 through 1993. A prospective downturn in inventory investment is another negative consideration, but I continue to think that most of the recent inventory accumulation has been planned, which I believe is consistent with what Mike said, as a means to meet expected demand. The inventory/sales ratio is holding at an historically low level. In short, while a slowdown is bound to occur at some point, presently there is little hard evidence of it. In my view, the risk of misjudging the thrust of demand growth on inflation remains significant despite the widespread opinion that substantially slower growth is ahead. In that light, a disturbing feature of the current situation is that most private forecasters expect little improvement on inflation over the next two years or for that matter over even longer periods. That observation reflects poorly on the credibility of the FOMC's commitment to price stability. With respect to CPI inflation, the recent Blue Chip report predicts 3-1/2 percent inflation in the current quarter and little change to the fourth quarter of 1996 where the projection is 3.6 percent. Likewise, the current Administration assumption has inflation rising to 3.4 percent in the outyears of their budget projection horizon and basically staying there indefinitely. Recent long-term government bond yields of somewhat less than 8 percent suggest longer-term inflation expectations substantially above current inflation. We certainly have a way to go to establish the kind of inflation credibility that existed before we lost it in the 1970s.",887
-fomc-corpus,1995,President Hoenig.,4
-fomc-corpus,1995,"Thank you, Mr. Chairman. The Tenth District economy remains strong, bolstered by healthy gains in its key industries across the states. Our directors from all parts of the District report a robust pace of business activity. A director from our utilities industry reports strong growth in electricity sales to important industrial customers including manufacturers of steel, automobiles, and plastics. In the transportion industry, growing demand for shipments of coal, automobiles, and other products continues to strain capacity. A national manufacturer of home improvement products in our District reported exceptionally strong sales over the last year. His company has, for the first time in several years, successfully passed increases in prices to his customers. Director reports about shortages that I commented on previously are not coming in strong. Whether that is because some have stopped reporting because they already have done so several times or because conditions have changed is not certain. Recent employment data confirm anecdotal reports of economic strength. Nonfarm jobs in the District were up nearly 3 percent December over December this past year, nearly matching the national average. Three of our states including New Mexico had job growth twice the national average. District manufacturing activity continues to strengthen, with most of the improvement in the durable goods industries. Our contacts in the automobile industry tell us that the District's assembly plants are operating at very high rates of capacity. Construction activity remains brisk but the industry's mix is shifting. Housing construction is slowing, while commercial and public works construction is strengthening. The energy industry remains weak due to crude oil and natural gas prices. The agricultural sector has strengthened on improvements in livestock prices. Bank credit continues to increase at most of our District banks, with strong loan growth more than offsetting runoffs in holdings of securities. Our bank directors remain very positive about economic conditions. At the national level, I believe there is still considerable momentum in most sectors of the economy. I think this momentum will extend well into the second quarter of this year, at least. We are perhaps beginning to see some moderation, but it is a moderation from a very high growth rate and it leaves overall growth well above potential. I do remain concerned about inflation prospects. I am pleased that we have not yet seen an acceleration of inflation at the consumer level. Anecdotal evidence as well as our experience over the postwar period suggest it is a matter of time. More specifically, I agree with the Board staff's assessment that rates of unemployment and capacity utilization are currently at inflationary levels. Given the lag structures, I still would expect to see a gradual increase in inflation in final goods this year.",513
-fomc-corpus,1995,Vice Chairman.,3
-fomc-corpus,1995,"Thank you, Mr. Chairman. A pause has developed in New York City, which has slowed the economic expansion in the Second District despite sharp recorded drops in the December unemployment rate in both New York and New Jersey. The weakness, fortunately, is largely confined to the New York metropolitan area. In the remaining two-thirds of the District, recovery appears to be intact, led by moderate gains in New Jersey and more modest growth elsewhere in New York State. In December, New York State payroll employment was stagnant following four consecutive months of decline. The comparable New Jersey figures have not been released, but employment growth has averaged 1.6 percent at an annual rate over the past five months. Probably because of reduced earnings and bonuses in the financial industry, personal income tax collections for New York State and City fell 7 percent below a year ago in December and were up just 2 to 3 percent for the year. In contrast, personal income tax collections were up nearly 20 percent in New Jersey in September, the latest reported month, while the year-to-September gain in the state was over 9 percent. Realtors reported that the sales rate of existing homes declined from the third to the fourth quarter and the median price fell between 5 and 10 percent, depending on the location in the District. The aggregate consumer price index for New York and northeastern New Jersey rose at a rate of just 2.1 percent in December and 2.4 percent for the year. In the finance sector, people continue to be very blue. Members of the securities industry reported sharp declines in fourth-quarter earnings, ranging from 50 to 80 percent. Numerous new layoffs were announced among banks and brokerage firms, including the very strongest. Despite all that, there does seem to be something of an improvement in attitude in New York State. Even in the area between Albany and Buffalo, traditionally a strong manufacturing area and where the unemployment rate is not that high--ranging in about the 4 to 5-1/2 percent area--the attitude that I encountered up there six or seven months ago was generally very dismal and now it is improving quite a lot. Fortunately, it is not that people think the new governor is going to wave a magic wand and fix everything. It is rather that with the likelihood of a more pro-business state government, they are getting more of a notion of helping themselves. For example, in Syracuse where I was last week, a manufacturing company could not find enough workers and was planning to leave the area. The Chamber of Commerce managed to find enough skilled workers from among its member businesses to enable the company to stay in the town. That attitude of ""let's do it for ourselves"" is something that I have been encouraging in speeches up there. We do seem to be making some progress in spreading the notion that if the governor can do something good, that is terrific. But if business can help itself, that is even more so. On the national level, we too have a general difference with the Greenbook in that under the current policy assumption, we have real GDP somewhat stronger, almost 1/2 percentage point higher. Unfortunately, we also have the CPI at 3.3 percent Q4-to-Q4. We have a very low unemployment rate at 5.1 or 5.2 percent. We have done some ""what ifs."" Even if the optimists are right and the NAIRU is 5-1/2 percent instead of 6 percent, it would appear that we have a rate of economic growth in the system that is going to create more inflation anyway. It is only if we have very low employment growth and relatively slow additions to the work force that in our forecast we would get up to the 5-1/2 percent unemployment rate. So, we do have considerable concerns about the likelihood of inflation picking up, and in fact our economic forecast under current policy assumptions shows a pickup. I also applaud the new approach in the Greenbook. I think it has, among other things, helped us to talk about the economy and not talk about policy in this part of the meeting.",835
-fomc-corpus,1995,President Jordan.,3
-fomc-corpus,1995,"There is not much I could say about the Fourth District to add to what we put in the Beigebook or especially to what Mike Moskow said about what is going on in the Seventh District. In most respects, developments in our two Districts are very similar. We pay a lot of attention to manufacturing, both because it has been so strong in the Fourth District and because of its absolute share or relative size. Manufacturing employment in Ohio, for instance, is twice the national average and is very heavily concentrated in motor vehicle production and related capital goods. So, we pay a lot of attention to it. Our average workweek last year was about 2 hours longer than for the country as a whole. Our unemployment rate is much lower. The rate in Ohio as a whole is over a full percentage point lower; and in certain metropolitan areas in Kentucky and within Ohio and western Pennsylvania, unemployment rates are much lower than that. Nevertheless, we are not seeing an effect on manufacturing wages, which rose only 1.1 percent last year, less than the national average. We are not hearing stories from people in the industrial sector about wage pressures. We are hearing that they are planning to spend a lot more for a third year on expanding capacity or improving productivity. A lot of them have plans to reduce their current work force through productivity-enhancing investments. We have very recently heard some negative reports out of Cincinnati. The phone company there has announced a very large layoff and Federated moved an operation down to Bob Forrestal's District; so we will experience a loss of about 1,500 jobs in Cincinnati. When I turn to the national economy, I do not know what to say about the Greenbook. I like having the alternative in there. It seems useful to have the staff draw up for us what they think an unchanged fed funds rate would imply and then an alternative. But the baseline for this Committee always ought to be to derive the policy that achieves our objectives. Unless the Committee has changed its objectives, the baseline should be producing a downward trend in inflation in the future, moving us toward price stability; an alternative forecast could be drawn from that. So, I would have flipped around the baseline and the alternative that the Committee would discuss. In trying to assess what I think about the two alternatives as they are presented, I have problems with such things as the assumptions about the fiscal policy. It has always mystified me why shrinking the federal government by having it spend less, borrow less, and maybe even tax less has a negative effect on the economy. I don't know what to make of the fiscal policy assumption. I do not find the inflation outlook satisfactory even under the alternative forecast. Either the model is wrong as to what it would take to get there or the objective should be viewed as unsatisfactory.",565
-fomc-corpus,1995,President McTeer.,5
-fomc-corpus,1995,"The Eleventh District remains strong except for the border areas. The most optimistic word comes from Lubbock where we heard at our last board meeting that the biggest tightwad in west Texas had just bought a new pickup truck. [Laughter] Of course, the mood is just the opposite of that on the border in Brownsville, El Paso, Laredo, and McAllen--places like that. They were already weak because Mexico had been imposing a $50 limit on what people coming across the bridges could buy and take back into Mexico. Mexico has been doing that for more than a year, but this peso devaluation comes on top of it. A lot of merchants in those towns are being devastated right now. Also, one measure of U.S./Mexican trade is the length of the backup on both sides of the bridge in Laredo on 1-35. That backup is not nearly as long as it was before the devaluation. The effect is not just on the border. All of Texas is going to be hit somewhat because Mexico is our number one foreign trading partner, and the share of our trade is much higher than it is for the country as a whole. But abstracting from that, the District economy is, overall, still very strong. On the national economy, the only straw in the wind that I can offer is some anecdotal evidence that retail sales, while weak in December, have picked up in January. J.C. Penney indicates that their national sales in January were far ahead of expectations. Their weakest areas in January were California and Texas--California because of the rains, presumably, and Texas because of the peso. My economists do not want me to say anything about the weak growth in the aggregates because they believe that it is well explained. But after many years of paying attention to them, it is hard not to be a little concerned that they seem so uniformly weak. But I won't bring that up. [Laughter]",397
-fomc-corpus,1995,Especially since they have recently gone up!,8
-fomc-corpus,1995,The main other thought I want to convey is that I agree with Bob Forrestal in that I think the most crucial question for us now is what we should be watching to know when it is time to stop tightening monetary policy. How do we deal with the lag when policy is moving to restrain the growth of the economy?,65
-fomc-corpus,1995,Governor Lindsey.,3
-fomc-corpus,1995,"Thank you, Mr. Chairman. I want to join what sounds like virtually universal praise for the new approach in the Greenbook. I thought it was very, very helpful to have it stated this way. I also want to agree with what Bob Forrestal and Bob McTeer were saying about the tendency to go too far. There are some caution signs out there. Even those rabid inflationists, the Shadow Open Market Committee, have suggested that we might want to consider saying, ""enough is enough."" I am not sure exactly what a soft landing is all about, but I would like to pose a thought as to what it is. We tend to approach policy by looking at a way of restricting flows sufficiently to get the economic expansion down to a sustainable growth path. In practice, most major recessions including the 1991, 1982, 1980, and 1974 recessions involved wealth destruction. That was the main cause of the slowdown in the economy. I am toying with the notion of defining a soft landing as one where the slowdown is accomplished without wealth destruction. I hope we keep that in our minds when we think about how far we are going to go in raising interest rates. The Greenbook is about right in saying that we are going to have a slowdown, but I think it is going to occur a little later than the Greenbook is indicating. I am very concerned about the situation in the consumer sector where I think we are going to be seeing a cut in flows anyway. The consumer is simply overextended. Of the roughly $250 billion increase in personal consumption expenditures from the fourth quarter of 1993 to the fourth quarter of 1994, 44 percent was put on installment credit, meaning credit cards or auto loans. People just can't finance 44 percent of their increased spending through higher debt and do that for very long. Mortgage data are a similar concern. If you look at increased mortgage payments over gross investment in housing in 1993, the ratio was 77 percent. The 80 percent figure is pretty standard for a first-time home buyer. If you figure that existing homeowners also are going to be taking out mortgages, however, that will take appreciation out of existing homes. If that calculation is made, increased mortgages exceeded net investment in housing by $55 billion, meaning aside from our capital gains, people were taking money out of the housing sector as well as financing 44 percent of their increased spending on installment credit. That is just not going to go on for much longer. The question is: When is it going to stop? I think the Greenbook has the fiscal policy slowdown just about right, but the fact is we just do not know, and we are going to have to see. Again, I think the risks as in the consumer sector are probably on the down side and not on the up side. The risks come because our Congress is not a smoothly functioning machine. The biggest cog that I can see, and it is a whopper, is the debt ceiling bill. Assuming Congress can pass a budget resolution in April, which is probable, the debt ceiling traditionally has been something on which every congressman can hang a bauble and try to get it through because the legislation has to pass or else the government shuts down. Since we have that coming up, I think that the risks in fiscal policy are big and their financial ramifications are also large. Similarly, I think the risks in the net export sector are all on the down side. If one thinks about the uncertainties: When is Deng going to die in China, or is he already dead, and what will that mean? Russia seems to be in chaos; the Middle East seems bankrupt; Latin America will speak for itself. All of these problems suggest that we have a lot of downside risks to the economy. There is a major upside risk that has not been mentioned and that I think will tend to delay the timing of the slowdown. That is the cut in FDIC premiums, down to 4 basis points, that was announced yesterday by the FDIC. That cut is in effect going to be pumping $5 billion more into the capital of the banking sector. That $5 billion would have been very, very valuable back in 1991 when bank capital was constrained. At present, given that banks are not capital-constrained but will want to put that capital to use, I look forward to such things as getting two credit card solicitations a day instead of the current one, and similar frivolous uses of bank credit. All of this, I think, is going to postpone the inevitable slowdown. I am in agreement with the Greenbook that we are going to have a slowdown. It will be flow-based. But I think it is going to occur later than in the Greenbook projection. That raises the question of whether we have gone too far, and I think it is a fair question. We also have to balance it with what I think is a very risky international situation. There I come back to being a two-handed economist, and I am not going to bore you with both hands. Instead, I am going to wait to hear what you are going to tell us, Mr. Chairman. [Laughter]",1056
-fomc-corpus,1995,Governor LaWare.,4
-fomc-corpus,1995,"Mr. Chairman, as a dedicated cynic when it comes to evaluating the good intentions of Congress, I am more than moderately skeptical about a balanced budget program. I have grave doubts about the wisdom of a balanced budget amendment. I do not expect the states to ratify the amendment even if it passes the Congress because of the realization that expense cuts at the federal level will undoubtedly shift costs to the states. For those reasons, I am unable to embrace the baseline forecast even though I expect some slowdown as a result of earlier policy moves. Consumer confidence remains high. In spite of the additional debt load that Larry has referred to, credit lines have been increased automatically by many purveyors of revolving credit. That is a great temptation for consumers to continue to run up their debts. Eventually the debt load will catch up, but I think the easier credit standards will build in some more lead time. I am convinced also that we may still underestimate the export sector of the economy, even ex-Mexico. High capacity utilization creates conditions that I think are even more favorable for making price increases stick. I believe that upcoming labor negotiations may well result in a greater focus on basic wages rather than benefits and work rules. The stage now seems to me to be set for further upward pressure on inflation. The rest of my speech I have had to delete because of the prohibition against mentioning policy. [Laughter]",279
-fomc-corpus,1995,We have a real blackout this time! Governor Kelley.,11
-fomc-corpus,1995,"Mr. Chairman, looking at the possible courses for the economy, one end of the spectrum would be that the expansion is slowing now, or it soon will be slowing, and that the slowdown will be adequate. A real doomsayer would say that the economy already is locked into an excessive downturn. At the other end of the spectrum, one could make a case that the expansion is roaring along unimpeded at 4 percent plus and we are soon going to be into a true boom/bust cycle. We very seldom in this life get the extremes one way or the other. There is, of course, a big broad gray area. It might be described as a bit of a slowdown now, or soon, but one that may not be enough to accomplish our policy objectives, and, looking ahead, the expansion is very likely to reaccelerate. Along that broad spectrum, history tells us that inflation will appear under those conditions. When will it occur and how strong will it be when it does? Are we getting that slowdown? Well, my guess is that we probably are to some degree. I won't take the Committee's time to go through all the different components; you all know what they are. We probably will get a little slowing, led maybe by autos and housing, less inventory accumulation, the Canadian and Mexican situations, and of course a good bit of monetary policy tightening earlier that is still going to hit. But that slowdown may not turn out to be very deep, and it may not continue if policy were to remain unchanged. We still have booming consumer confidence. As the Committee knows, I have been very concerned about the consumer for a long time. I thought consumers would get conservative a long time ago. They have not yet, and I am about ready to capitulate in the short run. I do not see that happening any time soon, given where we are with new job formations and so forth. Business investment will continue to be strong. We have a weak dollar and the foreign economies are beginning to come back, other than the two immediately adjacent to us. I have a hard time seeing real interest rates as being what one would call high. It seems to me that they are more on the high side of neutral at this point. All in all, it seems to me that the risks are still tilted to the up side. What we are most liable to get in my view is a little slowing that is not adequate to realize our policy objectives and an expansion that is likely to reaccelerate later. Following Governor LaWare's lead of eschewing any comment on policy, I will stop right there.",528
-fomc-corpus,1995,Governor Phillips.,3
-fomc-corpus,1995,"Thank you. I think that the impressive national growth that we have been talking about around the table today is showing a few tentative signs of abating. I would cite spending that is off its highs. We talked about the inventory buildup in the fourth quarter and a flattened yield curve--inverted or humped at times. But even if growth does abate, I do not think it is likely to do so by much, at least not very soon. Business investment is continuing. Fourth-quarter profits are strong enough to finance continued investment. The returns on investments are still greater than the cost of capital. Business has a continued commitment to improve productivity in a competitive economic environment. Just as we are seeing some slowdown reported in the housing area, commercial construction is now recovering and helping to take up some of that slack from housing. But even housing is stronger than might have been expected. With employment at fairly lofty levels, it is likely we will continue to see consumer spending maintained, albeit possibly at a reduced but still quite respectable pace. The banking system is quite strong and can certainly support expansion. While the financial markets generally have moved sideways in 1994 and thus are not as supportive of direct financing, I think we are past at least some of the uncertainties in financial markets, and that is likely to be less of a risk. The uncertainties I am referring to are Orange County and Bankers Trust. Mexico certainly is still a factor, but so far that appears to be contained or focused on the foreign exchange markets. If Congress actually continues to concentrate on deficit reduction, that too should provide support for the markets. In my view all of these factors provide an environment for the continued momentum that we saw coming out of 1994. It seems to me that there may be a different way of stating whether or not we are at the cyclical turning point. Since the economy is operating at or above capacity, we have to ask ourselves why we are not seeing increases in producer or CPI prices. How long can the economy actually operate above capacity without price increases? There are a lot of explanations for why it seemingly is operating above capacity. Maybe we do not have the correct capacity measures. The 85 percent capacity that everybody cites may no longer be applicable in view of the re-engineering and the improved computer and information systems. In any case, firms are adding to capacity. There has been some discussion today about whether we have the NAIRU right at 6 percent or whether it is plus or minus 1/2 percentage point from that level, and whether or not the unemployment rate at 5.4 percent actually implies that workers are more willing to move. I think that there is some evidence to support the notion that there is more flexibility in the labor market than a 5.4 percent unemployment rate might imply. One can look at the number of involuntary part-time workers and the seemingly higher losses in permanent jobs. The ECI has shown little wage pressure, implying that people are concerned about their jobs. The discontent of the American electorate certainly is being well argued at the other end of Pennsylvania Avenue. Over the longer term, average real wages have fallen. There is continued uncertainty about downsizing. I do not think that any of these explanations is particularly satisfying, and all of us could mount a pretty good argument against any one of them. But we clearly seem to be at a stage of testing the confidence distributions around the estimates of capacity, both the NAIRU and the production capacity level of 85 percent. And while we are in the range of testing these capacity levels, we clearly are in the inflation danger zone.",728
-fomc-corpus,1995,Governor Blinder.,4
-fomc-corpus,1995,"Thank you, Mr. Chairman. If you will pardon the metaphor, I would like to see your praise of the change in the Greenbook and raise it. I thought the change in the nature of this Greenbook raised its usefulness for thinking about policy from next to zero to a quite considerable level, which is more than a small increment. Not only that, but when I read the details, it changed my outlook somewhat and I want to talk about that. I prepared my Humphrey-Hawkins projection, like all of you, before I had the Greenbook and before I had the staff do some further work that flowed from the Greenbook. I will talk about that in a moment. I winged it, just like most of us do; and I wrote down 2-1/2 percent as my growth forecast for 1995, which I now see puts me squarely in the middle of the members' projections. The Greenbook is at 2.2 percent for 1995, which sounds like splitting hairs, but that assumes no further increase in interest rates, which was not my guesstimate of what the FOMC would do. Therefore, I dutifully followed the instructions and embodied further rate increases in the forecast. So, the difference is a bit more than a split of a hair. I must say that when I went over the details in the Greenbook line by line--consumer durables, producer durables, the government sector, the works--I found it difficult to find a piece of the GDP that I thought would grow faster than the Greenbook forecast. I found it extremely difficult to make an argument to convince myself that things look better than the Greenbook indicates on lines 1, 2, 3, 4. That then led me to the question of how I could make these numbers add up to growth of 2-1/2 percent. I think the reason that I was higher has to do with my belief in a forward momentum to the economy, which several people also mentioned, and I am sure that it colored my view. Belief in momentum gets things right most of the time, which is why we believe in it. But it always misses at turns; it always under-estimates turns. All of us fall victim to that, including me. I know that if I were doing my Humphrey-Hawkins projections again today with the benefit of the Greenbook, I would come in lower than I did about a week ago. Choosing between the two scenarios in the Greenbook in terms of preferences I find an easy call--I will come back to that when we talk about policy--in that I would prefer the baseline scenario. Let me say what I mean. If I believed the Greenbook religiously, given the two choices, I would like the baseline outcome a lot better than the alternative, which I would characterize as following the financial markets. But let me leave that for later. The difference between the two scenarios quantitatively, sticking to positive economics, is the staff estimate of the decrement to GDP growth from tighter money: some .3 percent in 1995 and 1.1 percent in 1996. I had various staff members produce seven other estimates of that same parameter--that totals eight. Mike knows all this; this is not behind his back. Those other seven estimates were clustered tightly around the 1995 number, averaging a decrement of .4 instead of .3 percent. For 1996, while the estimates were, of course, more spread out, the average was extremely close to the 1.1 percentage point difference that you see in the Greenbook. These are estimates from vector auto regressions and from other large macroeconometric models. That gave me a lot more confidence about the difference that policy would make than I had 10 minutes after opening the Greenbook. It convinced me that that was about the best estimate we could make of the decrement in GDP growth from tighter money. The best estimate that we can make is quite different from saying that it is the truth, of course. The key question in front of us now--that almost everybody around the table has spoken to in their turn--is how much of a slowdown we can expect without further tightening, or indeed with further tightening. I think there is a strong consensus, which I share, that given our dual objectives we need a slowdown from the 4.0 percent growth rate in 1994 to something no bigger than 2-1/2 percent and quite arguably, but I would say correctly so, less than 2-1/2 percent. The question for me is whether that is in the cards and, if so, where it is coming from. I think it is coming from three places and I want to go over that. First, it is coming from the swing in inventories. I find the Greenbook forecast for inventories very reasonable, leaving aside the timing; nobody has a clue about the timing, including Mike and me. Over the next four quarters, comparing the fourth quarter of 1994 to the projection for the fourth quarter of 1995, the Greenbook forecast has a swing in inventories that by itself will clip 1-1/2 points off the GDP growth rate, that is, comparing 1995 to 1994. Secondly, we have monetary policy, as you might have guessed. I asked the staff to answer the following question for me, and I got eleven different answers. These eleven stem from using different techniques to answer the same question. This is the question: Imagine that, instead of easing monetary policy in 1991 and 1992 and then holding the federal funds rate low in 1993 and tightening policy in the last year, the Open Market Committee had simply locked into a constant real federal funds rate. It simply would not have gone down and then come up. One could call that, although I guess we don't use that term anymore, a ""neutral"" monetary policy. The reason I got eleven different estimates is that neutrality can be defined at different levels; it is not obvious where one puts neutral. Also, there are different estimating techniques having to do with different macro models and vector auto regressions. So I got eleven different estimates. If you compute the effect of that difference in policy on growth in 1994 and growth in 1995, you can then subtract one from the other and get an answer to the following question: What is the difference in the monetary impulse, positive or negative, hitting the economy in 1995 versus 1994? As I said, I have eleven different estimates of this number. It won't surprise you that they differ quite dramatically. The highest number, which comes from the staff's large econometric model, is a subtraction from growth of 2-1/2 percentage points comparing 1995 to 1994. The lowest number came from the Meyer model, which is only 1/2 percentage point lower. These numbers were clustered so that, if I did what was done to produce the Humphrey-Hawkins table and threw out the outliers and looked at the central tendency, the estimates of the decrement to growth coming from monetary policy would be concentrated in the 1 to 1-1/2 percent range. I conclude from that that using a number like a 1 percent subtraction is a quite conservative, though not quite minimalist, estimate of the decrement to growth from all the monetary policy of recent years. The third factor that I add to this list of negatives is Mexico; much in the way that Peter Hooper earlier discussed, that gives us a number in the range of 1/4 point. So, I add them all up: 1-1/2 percentage points from inventories, 1 point from monetary policy at the minimum, 1/4 point from Mexico. And that gives me, say, 2 percent and not 3 percent, because it is not correct to add them all up; there has to be some double-counting in there. So, it gives me a mental number in the ballpark of 2 percent, plus or minus, with plenty of error I want to emphasize, around that. Since we are starting at 4 percent, if we subtract something like 2 percent, that leads me to the conclusion that there is a very good chance that GDP growth in 1995 will come in below 2-1/2 percent and a reasonable chance that it will come in below 2 percent. I want to remind you that that is based on the Greenbook baseline of no further tightening, which was not my personal forecast. You might say that that is a very pessimistic attitude. Now, I come back to where I started. The outlook is tempered somewhat by the realization that the surprises to GDP growth that we have had in the last few quarters have been coming in positive. In my estimation, one ought not to ignore that, so I mentally tend to bump up that more pessimistic outlook. It leads me to the conclusion that the risks are about balanced around a forecast very much like the Greenbook forecast for 1995. They had the number at 2.2 percent. I wrote in my notes here between 2 and 2-1/2 percent for 1995 with quite symmetric risks around that. As I said, if I were redoing my Humphrey-Hawkins projection now, that is what I would put down.",1919
-fomc-corpus,1995,You can still change it.,6
-fomc-corpus,1995,I can?,3
-fomc-corpus,1995,Yes.,2
-fomc-corpus,1995,"Okay, mark me down; thank you. I did not know that. I thought I was bound when I put it down. It actually got typed, so I thought that once it was typed, that was the end.",45
-fomc-corpus,1995,When is the deadline?,5
-fomc-corpus,1995,We were going to propose next Monday.,8
-fomc-corpus,1995,"Okay, mark me down. Thank you, Mr. Chairman. On inflation, if we have overshot the natural rate, as seems likely to me, we should get a slow upcreep in inflation, as in the Greenbook, and continuing out in further years, as in the Bluebook. The analysis in those two documents seemed pretty much on target to me. Apropos of yesterday's discussion, however, this will leave the cyclical peak of these forecasts for inflation well below what it reached in 1990, and I think that is the right measure of progress on inflation. I do not accept the proposition, though I have heard it from a few people around the table today, that the measure of our success is to keep inflation going down every single year without any exception. When I put all of that together, the outlook for growth and the outlook for inflation look pretty satisfactory to me. Thank you.",185
-fomc-corpus,1995,Governor Yellen.,4
-fomc-corpus,1995,"Governor Kelley mentioned that it is possible to spin out two rather different scenarios concerning the economic forecast at this point, and I agree with him. In one scenario, no significant slowdown is in sight and the inflation outlook is pretty worrisome. In the second, we do have a slowdown in progress. We have already seen the first signs of that and it could be larger than the Greenbook anticipates. Frankly, at the moment I am losing about the same amount of sleep worrying about each of these possibilities. I think the baseline Greenbook forecast resolves the various uncertainties in an extremely sensible way to come up with a point forecast. It is giving reasonable weight to the new data that point to a slowdown, but it also is maintaining some skepticism about its magnitude. I want to convey my compliments to the chef on the forecast and I want to add my thanks for having changed the presentation for which I am very grateful; it also helps me think about policy. What I conclude, though, is that the risk in the forecast has increased a lot. My level of uncertainty about where things are headed is higher than at any previous time over the last six months. Now, it seems to me as I read the newspapers that the press is almost uncritically accepting the slowdown scenario, producing new anecdotes in support of that view almost every day. I think there are signs that the economy is slowing down. Governor Blinder has explained why we should be expecting to see a slowdown, based on the idea that we still have restraint in the pipeline, and it should be making a big difference between 1995 and 1994 as he explained. I am not going to review that reasoning, but I want to comment about some of the evidence. We had a surprising and unanticipated slowdown in retail sales in November and December, resulting in consumption expenditures in the fourth quarter that were lower than the Greenbook anticipated and inventory accumulation that was higher. Governor Lindsey has been pointing to the massive buildup in consumer debt, which arguably will soon lead to some significant retrenchment. I think we could end up with a larger inventory cycle than is anticipated in the Greenbook. Reinforcing the possibility of a slowdown, we have a decline in durable goods orders, once defense orders are excluded. It looks to me as though those numbers are somewhat consistent with capital spending growth at least cooling off. All the anecdotal evidence from the reports about home building suggests that we have an industry that is on the verge of decline. We had a Dodge report yesterday pointing to a significant slide in construction spending. We now see automobile companies offering rebates on popular models, lowering production plans, and shutting down assembly lines for some periods. Dealer orders for inventories appear to have declined, maybe because the cost of carrying them is higher now, but maybe also because traffic through showrooms has declined. On the international front, as Governor Blinder pointed out, we have risks of declines in our exports to two of our most important trading partners, Mexico and Canada, with the possibility that if the Mexican crisis harms other emerging markets, our exports can suffer there too. We now have passage of a balanced budget amendment in the House and talk of fiscal restraint, and I certainly do not know where that is headed. I do not disagree in any way with what the Greenbook has done to produce a point forecast, but I see some downside risk there, too. I couple those negative demand side factors with the fact that inflation has been well contained--running lower in the fourth quarter than I think anyone expected, with the ECI numbers suggesting no significant evidence of wage pressures even in very tight labor markets including the Midwest. Now, I agree with the assessment of Phillips curve models. I do not think there is significant reason to change our estimate of the NAIRU at this stage. A couple of numbers seem to be off, but they are within the range of forecast errors, so I am not yet buying into the idea that the NAIRU is lower than 6 percent. But that possibility is alive in my mind; I do not have a closed mind to it, and I don't think any of us should. I consider that a live possibility but not one I am yet ready personally to endorse. Then I come back to the issue that Bob Forrestal mentioned, and I think it is important especially given the lags in policy. I do not want to cross the barrier into policy, but we can ask just how high rates are at this point. Are they high or low by historical standards? I come out with an assessment that they are not low by historical standards. The real fed funds rate is not low even given where we are in the business cycle. A couple of years ago, John Taylor, a Stanford professor who was a member of the Council of Economic Advisers, devised a very simple monetary policy rule that I look at to provide a rough sense of whether or not the funds rate is at a reasonable level. One property of this so-called Taylor rule is that it is quite sensible in the sense that it takes his forward-looking econometric model and looks for rules that perform well. As I mentioned yesterday, the Taylor rule is a hybrid rule; it is a policy rule based on the output gap and on deviations of an inflation target from 2 percent. It performs well, but maybe even more importantly it provides an incredibly close approximation of the Fed's reaction function since 1986 with the sole exception that the Fed eased more in 1992 and 1993 and then tightened more since early February 1994 than the rule would have called for. With the inflation and output gaps at present levels, this rule right now would be forecasting a funds rate of 5.1 percent. Other sensible rules, including nominal GDP targeting rules that we mentioned yesterday, would also be looking for a fed funds rate at this point in the 5 to 5.6 percent range, so we are not so far from target. Having said all of that, it seems to me that one also could discount most of what I just said about the slowdown. We are all looking for evidence of a slowdown, and I am worried that saying we are there, as Cathy said, may be wishful thinking--two retail sales numbers do not make a trend. Consumer debt is up but so is income, and the debt service burdens of households are not rising. Consumer optimism is high. Order backlogs are growing even if durable goods orders have tapered off, and the levels remain high, and that hardly presages a downturn in investment spending. Yes, inventories have risen a bit, but inventory/sales ratios are not high, and the downside risk from this source is somewhat limited. In any case, the Greenbook is anticipating a decline in inventory investment. The inventory downturn would have to be still larger to create significant downside risk. Automobile manufacturers, of course, do not want sales to fall off, but we are counting on some slackening in demand for autos. With respect to housing, it may be strong because employment and personal income have been growing. One could argue that seeing will be believing; we really have not seen anything much happen yet in spite of the anecdotes. If I had to assign probabilities to these two different scenarios at the moment, I would put a .7 on the strong scenario and a .3 on the weak one that I started with, coming out exactly where the Greenbook does on balance. But the conclusion I want to leave you with is that my level of uncertainty has increased enormously, and I think the potential forecast error at this point is extremely high. My policy conclusions follow from the idea that the risk at this point is extremely high.",1546
-fomc-corpus,1995,Thank you. Shall we break for coffee? Is coffee there?,13
-fomc-corpus,1995,Yes.,2
-fomc-corpus,1995,"Anyone who wishes to revise his or her projections for the Humphrey-Hawkins report can contact Mike Prell through Monday. Close of business Monday, is that correct?",34
-fomc-corpus,1995,Sure.,2
-fomc-corpus,1995,Let's move to the longer-run ranges for the aggregates. I call on Don Kohn.,18
-fomc-corpus,1995,"Thank you, Mr. Chairman. First, I want to point out that the Secretariat is distributing or will distribute a memo sent to me from David Small that contains some of the information that Governor Yellen talked about this morning, including Taylor's rule. It is for your information and gives everybody access to what she was looking at; she indicated that a number of people had asked her about this material. Secondly, for the sake of expediting matters a little, I will spare you some of the pearls of wisdom that I was going to talk about in terms of long-run scenarios. They will probably still be good in July; I have saved them on my word processor. [Laughter] I did want to say a few words about the fiscal policy situation--we have one scenario on that--before getting into the long-term ranges. [Statement--see Appendix.]",173
-fomc-corpus,1995,"Questions for Don? If not, let me just say what I think may be the consensus of the group that is implied in Don's recommendation. I think we successfully brought the ranges down to where they are finally consistent with price stability in the context of a restoration of the old relatively stable M2 velocities and somewhat similar M3 velocity relationships. To tamper with that at this stage with no particular purpose would give signals that I do not think we really have any intention of giving. While there is a technical question with respect to the possibility of M3 running above the upper end of the range and hence the possibility of going to alternative I-A, I think Don's suggestion is basically a sensible one. We can certainly make that adjustment in July if such M3 growth appears to be probable for this year. But having perhaps achieved price stability nirvana in terms of our target ranges, we have to have good reasons to change them. Does anyone else want to speak on this issue? Let me just ask in general, is there any dissent to the views that I have just expressed? If not--",219
-fomc-corpus,1995,We all care passionately!,5
-fomc-corpus,1995,"Is there a vote for ""who cares""?",9
-fomc-corpus,1995,Do we need an official vote?,7
-fomc-corpus,1995,Yes.,2
-fomc-corpus,1995,Why don't I just move Alternative I and ask the secretary to call the roll.,16
-fomc-corpus,1995,Chairman Greenspan Yes Vice Chairman McDonough Yes President Hoenig Yes Governor Kelley Yes Governor LaWare Yes Governor Lindsey Yes President Melzer Yes President Minehan Yes President Moskow Yes Governor Phillips Yes Governor Yellen Yes,44
-fomc-corpus,1995,"You skipped me, but I will vote ""yes"" anyway. I lost my vote!",18
-fomc-corpus,1995,"He took your ""who cares"" seriously!",9
-fomc-corpus,1995,That's right. Maybe it is recorded.,8
-fomc-corpus,1995,"I may have been recorded as ""who cares.""",10
-fomc-corpus,1995,Let's now move to the current monetary policy and the directive. I will again call on Don.,19
-fomc-corpus,1995,"I will be even briefer, Mr. Chairman. [Statement --see Appendix.]",17
-fomc-corpus,1995,"Questions for Don? Yes, Jerry.",8
-fomc-corpus,1995,"Don, one of the alternatives you gave us in the top panel of Chart 4 of the Bluebook assumes the NAIRU is 5-1/2 percent. If I understand this, the line labeled ""Tighter"" is not tighter compared to where we are. It seems to me to be based on maintaining the fed funds rate where it is. The bottom two panels tell me what your assumption would imply for the CPI and the rate of unemployment.",93
-fomc-corpus,1995,I agree that that chart is not well labeled. The long-dash line is the tighter alternative from the two previous charts. The short-dash line answers the question: What would the funds rate have to be with a lower NAIRU to get the same inflation outcome as from the tighter alternative? It is not well labeled.,66
-fomc-corpus,1995,"Mike's response to me earlier was that if we knew the ""true"" NAIRU was 6 percent, that really means we can say with reasonable confidence that it is someplace between 5-1/2 and 6-1/2 percent. This tells me that if we knew it truly was 5-1/2 percent, then we are really saying it is someplace between 5 and 6 percent.",86
-fomc-corpus,1995,A reasonable supposition.,5
-fomc-corpus,1995,"I do not have a clue where it is, but I am just trying to understand what these charts say.",22
-fomc-corpus,1995,"Further questions for Don? If not, I will start off as usual on the policy side. Coming out of the fourth quarter, if we had seen no signs of slowing or of kinks in the unbelievable set of one-sided data, I think we would be in serious trouble at this stage. Fortunately, there are now tentative signs, not necessarily persuasive but definitely beginning to appear, of slight cracks along the road. It is crucial that those cracks continue to develop or we will have a serious problem ahead. I would view the economic outlook at this stage as largely a balancing of forces, with capital goods markets, inventories, and the so-called interest sensitive sectors--housing, motor vehicles, and so forth--being the crucial elements in the outlook. In the capital goods markets, the data are uniformly very strong. That is, the backlogs are continuing to rise as Governor Yellen mentioned. We are beginning to see backlogs in the equipment area where, even though actual orders are flattening out, they are still very significantly above the level of shipments and hence the forward commitments continue to stretch out. In the nonresidential building area, starts and permits clearly are turning up quite significantly. They are erratic but, smoothing through these data, it is very obvious that there has been a rather marked pickup in nonresidential building. One sees it also in evidence that prices of commercial real estate finally are coming off their market lows. As far as capital goods in general are concerned, the cost of capital continues to be quite low, and this is consistent with fairly strong forward commitments. The profit figures remain quite extraordinary. Preliminary estimates for the fourth quarter being tabulated by Business Week and others show very strong year-over-year profit figures. And as was noted in Part II of the Greenbook, private analysts' surprises on the up side are twice as large as those on the down side. This is the type of environment for the capital goods markets that essentially says there is a long way to go before this economy tilts down, provided the financial system does not intervene and upend it in the type of context that Governor Lindsey was raising, namely, one where we get significant wealth destruction that immediately causes the whole system to readjust. One can say that while the stock market is not low, it clearly is not anywhere close to being as elevated as it was a year or so ago in relative terms. We have taken a lot of the bubble out of the market. Indeed, I would think one of the successes of our policy to date is that we have taken the degrees of instability that one can envisage in stock prices down to a much reduced level of concern. What that does is to feed back into the longer-term outlook for capital goods, which is very difficult to undermine in any meaningful way. Certainly, business confidence indexes look strong; all of them are on the upper side of the ranges in which they have fluctuated. The quality spreads within the financial markets also attest to the fact that the forward risk premiums implicit in capital investment are quite modest. It is very difficult to find roots of a recession in business cycle annals where the capital goods markets did not join in. So, unless we are ready to argue that something is going to break in those markets, it is very difficult to draw the scenario of a recession coming any time soon. And with profit margins not yet turning down, the lead times that usually are associated with this type of market really remain quite extended into the future before any credible downturn can be presumed. I leave out of this the usual changes that will probably occur in the motor vehicles area. Class 8 trucks, the very heavy duty trucks, in general have been going flat out for so long that there is only one way they can go: One of these days they are going to tilt down and that is going to happen sometime this year I am pretty sure. On the inventory side, we are looking at a very interesting set of data. There is no question, as a number of you have indicated, that the rate of accumulation is essentially unsustainable. The reason basically is that the accumulation is a much larger ratio to the stock of inventories than is typically the case, and one must assume that it will slow down. I leave the inventory/sales ratios out of that for reasons I will get to. The problem, however, in making the case for a very major contraction and an immediate impact on GDP is that a substantial part of the rise in inventories has reflected imported goods. The normal average proportion of inventory change accounted for by imports has been about 17 percent, say 15 to 20 percent. During the last three quarters the share of the total change in inventories coming from imports has been approximately 30 percent. So, if we are forecasting lower inventory demand, roughly a third of that can be presumed to involve imports that do not impact dollar-for-dollar on GDP. I do not think there is any question that inventory accumulation is going to slow, but I do not see any evidence to suggest that the slowdown started in January because C&I loans, which have been a reasonably good estimator of book value changes, if anything look stronger since the end of the year. And there is no anecdotal evidence to suggest that inventories are backing up and that these loans are financing unintended accumulations. So, while there is the presumption that liquidation or slow growth in inventories is about to occur, it is still a forecast and it does not show up in any of the data with which we tend to work. More important is the fact that the level of inventories remains low. One can see this in a number of ways other than the obvious inventory/sales ratios. One way is to take the domestically produced inventories, leaving out the estimated imported inventories, as a ratio to domestic sales. That ratio is quite low and is actually still going down. These are the inventories that have a direct impact on domestic production and employment. Secondly, and this is not an independent observation, the ratio of inventories to output, after trade markups are subtracted, is still very low and does not show any uptilt at all. We have discussed this previously: If you are looking for inventory overhang, the question is not the constant-dollar total value of inventories that is required for estimating the national income, but how many units of inventory are out there. It doesn't matter so far as domestic shoe production is concerned--to whatever extent we still manufacture shoes--whether the shoes in inventory are at the retail level or at the factory shipping point. At the retail level they are a much larger dollar figure in the inventory figures, but that markup does not matter. There is very little evidence at this stage that we have accumulated levels of inventory that have to be readjusted. I think that is going to occur at some point and it may very well be the trigger of the next downturn, but it is not here, at least not yet. What we see, as we would ordinarily expect, is that the lead times on deliveries of materials are still quite long. There is pressure on facilities as a consequence of that, and we are also seeing various types of shortages, all of which underscore the fact that inventories are low and that there is very little unintended inventory accumulation in the pipeline. I might say, however, that it is possible from a statistical point of view to get a very sharp reduction in the rate of inventory accumulation, and hence a significant decline in the rate of GDP growth, that does not get captured fully in the import data because there is too much noise in the data. So we may actually get a much lower GDP increase in one of the next several quarters than we currently expect, and certainly less than is projected in the Greenbook, but it may be more a statistical discrepancy question than any real economic phenomenon. In the interest-sensitive areas, where housing starts are the biggest item, single-family starts are probably being held up by smoke and mirrors. The current level is hard to believe even with all the arguments with respect to income and the like. I think it is almost inevitably going to come down and will be the biggest item, I would say, in an aggregative sense that we will have in holding down the growth rate in final demand. Sales of existing homes also will be falling significantly. That in turn will tend to reduce the capital gains realized on the sale of homes and will contract spending in the retail areas because a substantial amount of the realized capital gains, which are essentially financed by increases in mortgage debt, goes into consumer markets. Part of Larry Lindsey's concern is that the household debt numbers are already quite large and hence a sort of double-whammy effect will probably soften retail sales to some extent. I should say, however, that while it is mixed there is evidence that motor vehicle sales were down in January; I gather that we have to be very careful about the official January figures because there is a new method for reporting when the cutoff for monthly sales occurs. From what we can gather from the Johnson Redbook and the Mitsubishi general merchandise surveys, January soft good sales are actually quite strong. So, it is not by any means clear that the retail sales markets have carried forward their deterioration from the fourth quarter. I do think, however, that we should not expect--in fact we should not hope for--strong retail sales in the next couple of months because if we do get that, then the notion that the expansion is slowing becomes very seriously in doubt. The other data that we have for the January period are all consistent with the view that the economy has not shown very much in the way of a slowdown. There is some evidence. I think motor vehicles and housing starts probably are the major areas where the slowdown will occur. But initial claims are still quite low. Insured unemployment looks to be quite low, really at the bottom of recent ranges. Certainly, when one looks at the credit data, it is very difficult to find any evidence that monetary tightening is constraining debt flows. Consumer credit restraint seemingly is going out of style. If Larry Lindsey is right, there will be more credit cards--did you say two offers per day are now coming in, Larry?",2047
-fomc-corpus,1995,"Moving up toward two per day, yes!",9
-fomc-corpus,1995,"Thanks to Ricki! [Laughter] C&I loans are just extraordinary. Consumer loans extended by commercial banks, especially when securitization is added back in, are also remarkable. And apparently we are still getting some easing in credit terms, which seems to suggest that bankers have not been told about our monetary policy tightening! This is an unusual phenomenon this late in the business cycle. So, the presumption that monetary restraint is taking hold in any material way at this stage is not self-evident in this case. As both Janet Yellen and Cathy Minehan pointed out, when we have a policy of trying to achieve a soft landing, we have to be careful that wishful thinking does not overcome our better statistics, if I may put it that way. There is a possibility that the expansion could slow fairly quickly and if that were to happen, granted the very strong capital goods markets and especially if inventory investment fell quickly to a new adjusted level, the second half of this year could be stronger than the first. That obviously presupposes that the first half turns out to be weaker than expected. What I find very difficult to envisage is a smooth adjustment the way it is in the Greenbook. There is one very important reason. It has never happened that way. The Greenbook of necessity has to provide smooth forecasts. So, something different is going to happen this particular time. So long as capital goods markets hold and are not undercut, we probably will have reasonably solid growth; but because of the inventory situation, as Governor Blinder pointed out, we have a really good potential to bring the rate of growth down to moderate levels which for want of a better term pushes the economy toward a soft landing. Having said all of that, an argument can be made to stay where we are at this particular time. That argument would have considerable force were it not for the fact that the markets expect a 50 basis point rise in the context of an exchange market for the dollar that has not been all that impressive. We know that to the extent we choose to go against market expectations, we create a degree of volatility; indeed, that is the purpose of going against the market. But there are times when doing so is probably unwise. And were we to hold still at this point, we would in my view be taking unnecessary and undue risks. The risk on the exchange rate side is that the dollar would undoubtedly fall. The problem is not so much a decline as how quickly and how far it would decline in the context of the way world markets have been behaving, where countries that are viewed as slightly suspicious find the foreign exchange vigilantes running at them. The United States is just barely investment grade, if I may put it that way. I don't think we have much leeway on the down side to take those risks. So, in my judgment, raising both the funds rate and the discount rate by 50 basis points makes the most sense. I think the risks are relatively small, especially since such tightening is so heavily discounted. But we have to be a little careful. When something is so fully discounted as the 50 basis points that is presumed here, the normal assumption is that markets will not adjust. That is not true. There are a lot of people who play on both sides of this and there will almost invariably be some adjustments. Frankly, it is unclear to me where they are going to come from. I wish the bond market had not been so strong for the last two days because one possibility is that we will get a bond market selloff in line with the principle that you buy on the expectation and sell on the news. This type of rally suggests to me that if we move up 50 basis points it is not self-evident that bond markets are going to be firm because of their pattern over the last two days. What I think is reasonably certain is that if we do not move now, we will have the makings of a little nervousness in these markets, and that is something which in my view doesn't make any sense for us to foster at this point. Let me end there and just note that having said all I said about tightening, granted how I see the economic outlook, I think we will be truly symmetric if we raise the federal funds rate to 6 percent. It is by no means evident that if this cracking that we have seen continues and mushrooms in one form or another, there will be another tightening of policy. I'm not saying that there will not be; but while we could see that we had a way to go when we moved back in November, I think the issue is much more murky at this stage. Accordingly, I would suggest thinking in terms of going to symmetry if we move 50 basis points. I have held forth a little longer than I intended. Who would like to speak next? President Melzer.",983
-fomc-corpus,1995,"Alan, I am in full agreement with what you recommend. The only thing I would add is that I would accompany that increase in the funds rate with an increase in the discount rate.",37
-fomc-corpus,1995,"I'm sorry, I thought I said that.",9
-fomc-corpus,1995,"I'm sorry, I missed it. My reasons are much the same; let me just quickly tick them off. First of all, in my view we must continue to restrain the growth in the monetary aggregates to ensure that incipient inflationary pressures are contained and that progress is made toward price stability. Secondly, though the growth in the narrow aggregates has been very slow over the last year, their behavior must be evaluated in light of the very rapid growth rates in 1991 through 1993. In addition, as the Bluebook notes, two factors are estimated to have depressed M1 growth by about 3 percentage points in 1994. Both of those I think argue for continued restraint. While an argument can always be made to wait for more information, our credibility in fixed income and foreign exchange markets is fragile in my judgment. That would be very consistent with what you said, Alan. An imminent action is widely expected. Failure to move now might result in adverse consequences for the economy, especially if subsequent information supported continued strong demand and rising prices as I think is likely. Finally, I would note that the current account deficit is rising and will approach $200 billion in 1995 based on the Greenbook forecast. This makes it all the more important that we focus on maintaining the value of our currency by keeping inflation low. I don't think it happens very often that I can do this, but that may be a more gentle way of saying exactly what you said about maintaining investment grade, Alan.",302
-fomc-corpus,1995,President Minehan.,4
-fomc-corpus,1995,"I also am in full agreement with your recommendation. I meet with people from a lot of the mutual fund and money management organizations prior to coming to Federal Open Market Committee meetings just to get a sense of where they think the markets are. This time they were very strongly tilted toward an expectation, as you all know, that we would move by something like 50 basis points. There would be a good deal of surprise if we did not. It is not that we necessarily want to have a policy that follows the markets, but I am in total agreement with your view that there is a volatility issue to be considered. President Forrestal hit on a key point and that is the issue of knowing when and how to stop the policy tightening process. I am a bit concerned about that. I think 50 basis points puts us on a trajectory that is roughly halfway between the baseline and the alternative scenario. It is well within what we in Boston were projecting in terms of our Humphrey-Hawkins targets. I agree that the risks would be balanced and I agree with symmetry, but I hope when we see things begin to slow down that we will be as forward-looking on the way down as we have been on the way up and sensitive to know when to stop tightening and perhaps even when to back off.",260
-fomc-corpus,1995,President Broaddus.,5
-fomc-corpus,1995,"I support your proposal fully, Mr. Chairman.",10
-fomc-corpus,1995,"Let me just say that I agree with Cathy Minehan. I think the point she has made probably should be in the front of our minds at every meeting for the next few meetings because we made a big case of being up front on the tightening side. If we seriously believe that there is a long lead time, while we may say our broad approach should be asymmetric in the sense that we are phasing toward price stability, it still implies that we should move ahead of the curve where there is the necessity to do so. President Forrestal.",109
-fomc-corpus,1995,"I agree with your analysis and with your policy conclusion, Mr. Chairman. If one looks at the Greenbook's baseline forecast, and indeed at our Bank's baseline forecast, the result is not bad at all. It is fairly acceptable, although one could argue perhaps that the inflation rate looks a bit high. The problem with that forecast is that we have seriously underestimated the strength of this economy for a long time, and the risk is that we will continue to do so. So, I think it is wise for us to take out an insurance policy, if I can put it that way, to make sure that we do get the deceleration that is required in this economy. I would support your funds rate recommendation and also your recommendation about symmetry.",150
-fomc-corpus,1995,President Parry.,4
-fomc-corpus,1995,"Mr. Chairman, I think there is urgency in the need to tighten policy for many of the reasons that have been mentioned here. Clearly, the analysis in the Greenbook and our analysis in San Francisco support the need to tighten policy. Therefore, I would favor a 50 basis point increase. Quite frankly, the work we do--and I think it is implicit in the Greenbook as well--suggests that additional tightening probably will be needed in the future. Consequently, I would prefer asymmetric language, but I certainly could live with symmetry.",109
-fomc-corpus,1995,Governor Blinder.,4
-fomc-corpus,1995,"Mr. Chairman, you and I have discussed this at some length. As you know, I have become firmly convinced as a result of those discussions that this would be a great time to wait for a few weeks, and I want to explain why. The key question to me is implicit in what we were talking about before. If we stop here, at 5.5 percent on the funds rate, would we--by, say, the end of 1996 plus or minus--be back to a zero inflationary gap? I think we probably have overshot and we need to get back. So that is the crucial question. It depends on three things: how fast we think the economy is likely to grow over the next two years; where we think the NAIRU is; and what we think the potential growth rate is. On the latter, I accept the staff's analysis. On the forecast, I am very close to the staff's analysis, and on the NAIRU I am pretty close also. I would shade the NAIRU a tad to the low side of their estimate, but that is not a major difference. As I weigh all those factors, plus the standard errors around them, which are substantial in many cases, the odds seem to me less than 50/50 that we will in fact eradicate the inflationary gap by the end of 1996--less than 50 percent but better than, say, 20-25 percent. So, you might ask, doesn't that mean I should advocate an increase in rates right now? Three things tell me it would be better to wait. The first is what I would characterize as a glimmer, or a whiff, of an imminent slowdown. I want to emphasize both of those words. I don't think it is more than a whiff. I think there is a very good chance--as you do Mr. Chairman--that this is in fact a false negative; and when we have some more data, we will see if that was the case. But the other word I want to stress is that it is a whiff of an imminent slowdown; it is not a whiff of a slowdown a year from now. If in fact the whiff is accurate, it would be a mistake indeed to be still raising rates at this point. That is a minor part of the problem; I do not think that is the major possibility. The reason I would like to wait, though I can see that that is not going to be the outcome of this meeting, is that in just two weeks we will have another employment report and inflation reports at both the wholesale and consumer levels. Also, and most important to me at this juncture in time for exactly the reasons you said, Mr. Chairman, though not usually that important to me, is that we will have one more month of retail sales data. For me, that will convey a lot of information about whether the data for November and December were an aberration, a fluke in the data for the Christmas season, or an indication of something real going on in the economy of which we are just seeing the beginnings. That is the major factor. Two other factors are international. One has to do with the situation in Mexico, which says to me: Why throw another match into the oil at this point? I felt that way much more firmly Monday than I do now since something has actually happened on the Mexican front. But I think it would be ludicrous to say, and nobody would, that the Mexican situation has now settled down. That is very far from the case. While it is true, as Peter said before, that 50 basis points is nothing between friends if the friends live on opposite sides of the Rio Grande, the direction is clear. It is not going to help. Similarly, if we go north of the border, we have the Canadians struggling to keep up with the Federal Reserve--and not very successfully for a while. My guess, by the way, would be that they will more than match our rate increase; but that increase certainly is going to exacerbate the problems of our northern neighbor. If the domestic factors alone were making an overwhelming case to tighten now--that is, if I believed, for example, as Bob Parry said, that there is an urgent need to tighten now--I would just say, ""I am sorry Canada; I am sorry Mexico; we work for the Americans, and that is just too bad."" But I do not see the case as urgent. I see the case as rather more finely balanced. We have just experienced a good inflation surprise in the fourth quarter. Almost all the inflation surprise of 1994 came in the fourth quarter. That says to me, first of all, that things are more balanced and the inflationary risks are less than I might otherwise think. In an atmosphere like that, these international considerations push me further toward waiting. I want to emphasize that I am not talking about waiting until the next FOMC meeting necessarily. This is a case where in just two weeks, we will have a significant quantum of new data. If those data refute the hypothesis of an imminent slowdown--and I think the probability is better than 50/50 that they will--I would be fully ready to support an increase in interest rates. On the other hand if they do not, I would be pushing very strongly for us to put our pistols in our holsters for a while. The only argument I can see for moving today, and you made it, Mr. Chairman, is that the markets are strongly expecting it. That is true; I do not dispute that. The markets are indeed expecting it. The only place I would differ is that I do not take that as an important consideration governing what we actually do. That would seem to me like being led around by the markets much too much. As you know--we started talking about this, I guess, on Friday--I have been wrestling a great deal over the question of whether this is an important enough difference to merit a dissent. I finally decided it is not. The basic outlook that you just outlined, and the sort of medium-term strategy you have in mind for the FOMC, is not very different from mine. This is a tactical difference. I do feel very strongly that it would be wiser, more prudent indeed, to wait a couple of weeks. But, first of all, you might be right and I could be wrong. Nobody can be sure about that. Furthermore, as I said, I do think the odds are better than 50/50 that the outcome of the wait for two weeks will be just to do two weeks later what you are proposing to do today. So, I am willing to go along. I nonetheless would like to lay down the marker that I think the chances may be one out of three, or something like that, that we are now in the process of setting the thermostat too low out of impatience that the room did not cool down as fast as we wanted it to. It is going to take some considerable evidence to get me to support another interest rate increase again anytime soon. Thank you.",1455
-fomc-corpus,1995,Governor LaWare.,4
-fomc-corpus,1995,I support your proposals.,5
-fomc-corpus,1995,President Moskow.,4
-fomc-corpus,1995,"Mr. Chairman, the preponderance of evidence that we have reviewed confirms that the economy continues to grow faster than its potential. We expect this will contribute to a perceptible increase in inflation despite the unexpectedly low inflation rates observed toward the end of last year. Some moderation of real growth rates does appear likely by midyear as a result of our earlier actions. Nonetheless, the adoption of a somewhat contractionary monetary policy is warranted in order to prevent the anticipated inflationary pressures from generating a permanent increase in the inflation rate. With the real fed funds rate in the 2-1/2 to 3 percent range, consistent with a policy stance that is only mildly contractionary, this suggests that further action is appropriate. These considerations lead me to support your recommendation for a 50 basis point increase in the fed funds rate and also a symmetric directive.",170
-fomc-corpus,1995,Governor Lindsey.,3
-fomc-corpus,1995,"Mr. Chairman, strictly on the basis of domestic considerations, I would associate myself with Governor Blinder for the reasons he stated and for another one. We are going to be finding out not only retail sales; we are going to have both the Administration's budget and Mr. Gingrich's budget unveiled in the next two weeks. I think the reactions to that will answer some of our questions about fiscal policy. I do not know about the quality of the answers, but at least that will light a match in an otherwise completely dark room. I think your observations on the international side are well-taken. The case against waiting--I am going to flip the nuances of the way Governor Blinder said it--is that if we had a compelling reason to go one way or the other domestically, we should do it. If, however, we wait and we have a crack in the dollar in the next two weeks, the amount of tightening we would have to do in order to counteract that crack would be a lot more than 50 basis points. So, given that there is some uncertainty about the domestic scene, I view a 50 basis point increase as probably buying us some insurance that we will not have to tighten further. And so, I can very much support your proposal.",259
-fomc-corpus,1995,President Boehne.,5
-fomc-corpus,1995,"I think this decision really comes down to assessing the risks and one's comfort level in dealing with those risks. Your analysis of the risks, Mr. Chairman, on the domestic economy is about as good an assessment as one can get. The risks still do favor, I think, the continuation of too much strength and, given where we are in the cycle, greater risk on the inflation side. Given that, I think we would be doing the right thing and my comfort level would be increased by following your recommendation of going up 1/2 percentage point. I would like to join others, however, and say that I think the way monetary policy has been conducted over the past year is one of the high points in this Committee's history, at least the part that I have been associated with. It has been that way because we have been forward-looking, but we also have been willing to be decisive when we needed to be. We need to continue to be forward-looking in this part of the cycle. While I am sympathetic to the notion that there are more data coming, that is always going to be the case. More often than not we get into trouble by waiting for one more piece of data. We tend to make the right decision when we take the information that we have in hand, make the best judgment we can, and then go for it.",272
-fomc-corpus,1995,President Hoenig.,4
-fomc-corpus,1995,"Mr. Chairman, I support your recommendations for a 1/2 percentage point increase and a symmetrical directive. I would like to say that whether or not we move now is based on whether we think it is prudent on the basis of the evidence. The preponderance of the evidence I heard today and your arguments suggest to me that moving now is appropriate. I am sensitive, too, to whether we are forward-looking or not, but there is one nuance in terms of what Governor Blinder said that is important as well. That is, if we wait because we have this whiff of a slowdown and if we are reasonably convinced that there is increasing inflation in train, we will come perhaps to the point where we get just another whiff with a little increase in inflation and find ourselves asking what we should do now. It will be harder to make the move then because we will have both rising inflation and this whiff of a slowdown at the same time. So, I think now is the prudent time to move. A move will help staunch inflation going forward. I think buying the insurance now and heading off further inflation and a larger move later, as Governor Lindsey said, is the right thing to do. I support you.",248
-fomc-corpus,1995,President Stern.,3
-fomc-corpus,1995,I support the recommendations.,5
-fomc-corpus,1995,Governor Yellen.,4
-fomc-corpus,1995,"I would like to associate myself fully with Governor Blinder's analysis and also with the conclusions that he drew from it. As I indicated, I think the forecast risk is very high at the moment, and I also agree that more data would be helpful in deciding. On the other hand, if I absolutely had to decide today, I would favor a further 50 basis point increase in the funds rate. If we knew that we needed that increase in the funds rate, I do agree that sooner is better than later. On the other hand, a short delay imposes only a very minimal cost. I do not think we should feel compelled to raise the funds rate today, and I do see definite benefits from waiting a little longer to decide. I fear that if we act today, our move may turn out to be one we will regret. I realize, of course, that if we wait another few weeks as Governor Blinder suggested, we will see further data that I would definitely like to see: an additional retail sales reading, another employment report, and some further CPI and PPI numbers. I would like to see another housing starts number and some auto sales numbers as well. In my mind, this would reduce my uncertainty about which of the scenarios is the right one. That is why I favor waiting, not at all until the next meeting but just for a few weeks, to look at those data. I understand that there is an expectation on the part of the market that we are going to move 50 basis points today, but I don't think that should force us to move today. The market's expectation, which I read as a further 150 basis points increase before we stop tightening policy, does not coincide with my own. On the basis of current information, I am envisioning only this 50 basis point increase. Given what I know about the economy and the uncertainty that I have about the natural rate, it would take a lot of new information for me to contemplate going up 150 basis points. That is part of the reason why I mentioned the Taylor rule, to give us a sense of where we think the funds rate should be. I find that many people I talk to reason as follows: As long as actual growth exceeds growth in potential output--that is, as long as the economy is growing faster than, say, 2.5 percent--the funds rate should be raised. Sometimes I find myself falling into that pattern of thinking, too--that the economy is growing too quickly and that means we should tighten some more. But this is a crazy way of thinking, and it definitely runs the risk of ending up with too much tightening. We can move 25 basis points or 50 or 75 basis points each time, and that is the way we end up with overkill. That is why I think we have to have a sensible notion of the right level toward which we should be heading. And we may have to stop before we see the slowdown under way. The Greenbook has one way of coming at what that level should be--7 percent. I do not disagree with the Greenbook strategy. But the Taylor rule and the other rules that were distributed to you call for a rate in the 5 percent range, which is where we already are. Therefore, I am not imagining another 150 basis points. In spite of having said that my choice would be to wait, I intend to vote for your proposal. The reason is that I think the differences that we have largely concern tactics and not strategy. My guess is that, while I would prefer to wait, the probability is high that in three weeks I would want to go along, that I too would prefer a 50 basis point increase. I also grant that my views on tactics could be wrong and, therefore, I do not intend to dissent.",774
-fomc-corpus,1995,Vice Chairman.,3
-fomc-corpus,1995,"Thank you, Mr. Chairman. I very much agree with your conclusion, but I would like to state just briefly some of the reasons. Every possible conjuncture that we have been able to put together on the economy indicates that we need to increase official rates by 50 basis points--possibly by more than that, but certainly by 50 basis points. Therefore, just on the economics, I think the time to raise those rates is today, and I do not have to justify the increases in my own mind by the fact that financial markets clearly are looking for a 50 basis point increase. I do think that market expectations are a substantiating reason but perhaps from a slightly different perspective. It is reasonably likely in my view that this will be the last interest rate increase. It is important that we do it decisively and that we not gratuitously create a problem in financial markets, especially at a time when I think the dollar is extremely vulnerable and likely to fall. There are going to be two times, possibly this year and maybe even probably this year, when we will disappoint financial markets. The first will be at the meeting at which they expect us to increase interest rates and we do not, especially if we accompany the decision, going back to our discussion at yesterday's meeting, with a statement that we have decided not to increase interest rates. The financial markets won't be ready for that. We will disappoint them even more when we decide that it is appropriate to reduce interest rates at a time when unemployment probably will be below anybody's notion of the NAIRU and when we could be having some uptick in inflation. That forward-looking move, which I think will take at least as much courage as any of the moves that we made last year or contemplate for today, will induce much confusion in financial markets. I would much rather confine the confusion to those two important times and not cause it this time for, I think, no earthly benefit for us.",394
-fomc-corpus,1995,President Jordan.,3
-fomc-corpus,1995,"If we currently enjoyed a situation where there was no uncertainty on the outside about our intent to deliver a lower inflation rate in the years ahead, regardless of what happens in 1995, and to move toward ultimate price stability, then I would not move today. Because we do not have that kind of credibility, because there is uncertainty about our policy objectives, because our staff and private forecasters have inflation going up--the last OECD forecast that I saw had the United States with the highest inflation in the G-7 --and because of the dollar situation, I think that we are forced to err on the side of tightness whether this is to be the last tightening move or not. Without those things, I would not even do this today. But with those things I think we are forced to continue marching in a way that may turn out to be too much tightening.",174
-fomc-corpus,1995,Governor Kelley.,3
-fomc-corpus,1995,"I support your recommendation, Mr. Chairman.",9
-fomc-corpus,1995,Governor Phillips.,3
-fomc-corpus,1995,"I also support the recommendation. I think matters would actually be worse if we delayed in anticipation of a resolution of Mexico's problems. In spite of the recent announcements, that situation is likely to be uncertain for quite a while. It is quite conceivable that this tightening move may be all that is needed. But in view of the strength of the economy, it seems to me that the risk of overshooting is minimal.",83
-fomc-corpus,1995,President McTeer.,5
-fomc-corpus,1995,I support your recommendation.,5
-fomc-corpus,1995,President Broaddus.,5
-fomc-corpus,1995,I have already spoken. I support your recommendation.,10
-fomc-corpus,1995,We have heard from everybody.,6
-fomc-corpus,1995,Shall we vote? Would you read the directive?,11
-fomc-corpus,1995,"I am reading from page 26 in the Bluebook: ""In the implementation of policy for the immediate future, the Committee seeks to increase somewhat the existing degree of pressure on reserve positions, taking account of a possible increase in the discount rate. In the context of the Committee's long-run objectives for price stability and sustainable economic growth, and giving careful consideration to economic, financial, and monetary developments, somewhat greater reserve restraint or somewhat lesser reserve restraint would be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with moderate growth in M2 and M3 over coming months.""",120
-fomc-corpus,1995,Call the roll.,4
-fomc-corpus,1995,Chairman Greenspan Yes Vice Chairman McDonough Yes Governor Blinder Yes President Hoenig Yes Governor Kelley Yes Governor LaWare Yes Governor Lindsey Yes President Melzer Yes President Minehan Yes President Moskow Yes Governor Phillips Yes Governor Yellen Yes,48
-fomc-corpus,1995,May I request a short recess while the members of the Board of Governors go into the other room?,20
-fomc-corpus,1995,"Before we go to lunch, I want to read, in line with our discussion yesterday, the proposed press release on the discount rate increase; the vote was 7 to zip. After the usual listing of the Banks that already have proposed 50 basis point increases, the operative language in this announcement would read as follows: ""Despite tentative signs of some moderation in growth, economic activity has continued to advance at a substantial pace, while resource utilization has risen further. In these circumstances, the Federal Reserve views these actions as necessary to keep inflation contained and thereby foster sustainable economic growth."" Unless there are any objections to that, we will continue the meeting but have lunch and turn the agenda over to Ted Truman to continue our discussion of the Mexican situation.",148
-fomc-corpus,1995,"With regard to our disclosure policies, I believe I said yesterday, but I may not have, that we probably would issue a short press release tommorrow or Friday. Did I say that--does anybody remember?",43
-fomc-corpus,1995,"No, you did not.",6
-fomc-corpus,1995,Does anybody have any objection to doing that? The alternative would be to wait until the minutes are released in about eight weeks.,25
-fomc-corpus,1995,I just object to doing it at all!,9
-fomc-corpus,1995,"Your view is appropriately registered! Ted Truman, whenever you are ready.",14
-fomc-corpus,1995,"Mr. Chairman, I am very conscious of the fact that the members have not had their lunch yet! Obviously, if any of you have further questions about what we discussed yesterday afternoon, I will be glad to try to answer them. Let me preface that by saying that there probably will be some questions for which my answers will have to be less than perfect. But I would like to try to answer any that you have and either stop there, Mr. Chairman, or move on to the two proposals that I mentioned yesterday. I am at your disposal, including whether you want me to cover the proposals individually or together.",125
-fomc-corpus,1995,Governor Lindsey is first.,5
-fomc-corpus,1995,"I have two questions. The first has to do with the responsibility that we might have to monitor the agreement. It is widely believed on Capitol Hill that the reason to vote for this is that the Federal Reserve will be monitoring Mexican monetary policy. In addition, the IMF released a statement yesterday saying that the Federal Reserve along with the IMF will monitor developments closely during the next six months. Would you tell us what our responsibil-ities are to monitor an agreement that has not been reached yet and whose terms we don't know?",104
-fomc-corpus,1995,"I will do the best that I can! On the first part of your question, the legislation that was going to be proposed but which is now dead made reference to the Federal Reserve in several respects. I skipped over that yesterday afternoon because those provisions were no longer relevant, having been overtaken by events. They related basically to Mexico's monetary policy and the widespread view on Capitol Hill that it is the source of Mexico's problem. Some would say it is the exclusive source of Mexico's problem. We were mentioned in the legislation in terms of a requirement that the Bank of Mexico provide us with data and information on their policies. We also were mentioned in connection with the preparation of various quarterly or semi-annual reports regarding the progress of the program that the Secretary of the Treasury, in consultation with us and other relevant government agencies, was to submit to Congress. Since there is no longer any legislation, that in some sense is not relevant, though I would imagine that we will have to provide some reports to Congress, if not by formal mandate at least in connection with oversight hearings. As for the statement in the IMF Managing Director's press release yesterday, I confess that it was somewhat of a surprise to me since Bill McDonough and I had been consulted and we thought it had been removed. When I got back to my office yesterday evening and saw it in the materials that I had handed out to you, it was a surprise to me. I checked on this and apparently the reason it was in there is not unrelated to the first question--",308
-fomc-corpus,1995,Right.,2
-fomc-corpus,1995,"Our good friends at the Treasury apparently felt that the statement was needed for two reasons. Now, I am interpreting their motives or putting forth hypotheses about their motives because I don't know for sure. The first was to add to the credibility, if that's the right word, of this revised proposal on Capitol Hill by continuing to assure certain members of Congress that we would be involved in the process. Secondly, they felt that the process would be somewhat less formal than would have been the case under the legislative approach, and therefore they apparently wanted to signal in the IMF's press release that we--we the United States and we the Federal Reserve in particular--would be involved in the normal monitoring, if I can put it that way, and that the IMF would do the managing.",153
-fomc-corpus,1995,Do we know what other commitments they have made for us?,12
-fomc-corpus,1995,"I'm not sure what level of commitment this is, but I am reasonably confident that there are no big surprises.",22
-fomc-corpus,1995,You are confident there are not a lot of big surprises?,12
-fomc-corpus,1995,One of the reasons why I held forth quite as much as I did yesterday was to try to convey to the Committee in five pages as much information about this process and the substance as I could without going into every eddy and turn that this matter has taken over the last four weeks. I tried to outline the thrust of the policy issues and procedures as I understood them.,74
-fomc-corpus,1995,"There was supposed to be a letter to Senator Dole, I believe today, outlining the conditions that we were going to place on Mexican economic policy. Do you have any idea what those conditions are at this point?",43
-fomc-corpus,1995,"The conditions essentially are: You will have a tight fiscal policy; you will have a tight monetary policy; you will avoid exchange restrictions and those type of ""thou shalt not"" restrictions. There will be nothing quantitative in the conditions, which is one of the frustrations, as the Chairman testified yesterday. There is a desire on the part of some to say, for example, that the objective of this policy is to drive the peso exchange rate back to 3.5 per dollar. There are a number of members of Congress, as you probably are very much aware, who say that that should be the sole objective of the policy. First of all, I don't think that is what the United States Treasury has in mind. Although some people on this Committee may think that, I do not believe that is a majority view more generally. So, the lack of quantitative parameters in these restrictions is one of the reasons why certain members of Congress are concerned.",190
-fomc-corpus,1995,With great difficulty!,4
-fomc-corpus,1995,"Okay. But, believe me, in the minds of the members of Congress we are locked in; we are the ones who are to uphold this agreement even though we have not agreed to it.",39
-fomc-corpus,1995,"I would argue that we are locked in anyhow. Even if we are not formally locked in, we would be in effect because, for a variety of reasons we have been very much involved--especially over the last couple of years and certainly in recent months--in the particulars of monetary policy and the financial market operations of the Bank of Mexico. It is not just the Federal Reserve Board and the Federal Reserve Bank of New York; it is also the Federal Reserve Bank of Dallas, for example, which has developed very detailed policy analyses and pronouncements relating to policy. We are involved and we cannot say that this is ""they"" and this is ""we."" And we do have an agenda. Bill McDonough will tell you that one of the agenda items--if I may put it that way, Bill--is to get the Mexican authorities to relax their restrictions on the functioning of financial markets so they will have a functioning foreign exchange market. A particular element of that, I think partly at Bill McDonough's insistence, was written into the letter of intent, which specifies that they would relax those restrictions. That is something we have an interest in because it is the judgment of the experts that, until they have more normal features in their foreign exchange market and as long as they do not have an absolutely pegged exchange rate, they will have sizable gyrations in their exchange rate. Such gyrations are not good for them and not good for us. If the rate moves 5 percent a day, there is just no way for anybody to hedge or cover themselves. That is one example. We are already involved in that. We are trying to help them, through what might be called technical assistance, execute a floating exchange rate policy.",349
-fomc-corpus,1995,"There is a difference between technical assistance and the word ""monitor.""",13
-fomc-corpus,1995,Right. I can only tell you what I know.,11
-fomc-corpus,1995,As a short follow-up question: Does this letter to Senator Dole or to whomever say anything about tightening?,24
-fomc-corpus,1995,I have not seen the letter.,7
-fomc-corpus,1995,Do we think it says anything about the value of the peso or the Mexican current account?,18
-fomc-corpus,1995,"With regard to the peso, I think at most it says that one of the objectives of the program would be some strengthening of the peso. That was the language that was in the legislation that was set aside yesterday. It would not have tied them down to 3.5 or 4.5 or 5.0 to the dollar. But I have to say that I have not seen the letter.",82
-fomc-corpus,1995,Governor LaWare.,4
-fomc-corpus,1995,"Ted, it may be because it was the end of the day when you explained them, but I am still trying to understand the proposed series of transactions and the counterparties to the transactions. At the present time we have a $4-1/2 billion swap line directly with Mexico?",58
-fomc-corpus,1995,"With the Bank of Mexico, right.",8
-fomc-corpus,1995,And we are being asked to increase that direct participation to $6 billion--that is what it says here. Those transactions will all be directly with the Bank of Mexico. Are they included in the guarantee or the assurance of repayment from the Treasury? It is not actually from the Treasury but from the ESF?,62
-fomc-corpus,1995,"Yes, from the ESF.",7
-fomc-corpus,1995,Okay. Is the ESF backed by the full faith and credit of the U.S. government?,20
-fomc-corpus,1995,"I can't give you a legal opinion. The ESF is an entity of the United States government. If it made a commitment to us that in some sense it could not cover out of its own funds, I do not know whether it would have an automatic draw on other United States government funds. What I can tell you is the following, and this may be helpful: The ESF will have $20 billion in the sense that it is expected we will give it to them when or if we do the warehousing. So that $20 billion program includes $6 billion covering our swaps and $14 billion of their other funds.",126
-fomc-corpus,1995,"You are jumping ahead of me now. I am just trying to understand the series of transactions here and who is behind what. One statement that was made yesterday was that if the ESF did not have the cash or other exchange facilities to take us out of these arrangements, they might give us a note. Would a note of the ESF be a legal investment for the Federal Reserve?",77
-fomc-corpus,1995,I don't think that is what is contemplated.,9
-fomc-corpus,1995,"I'm sure it is not contemplated; nobody contemplates going broke, either.",15
-fomc-corpus,1995,But I don't think that's a realistic possibility because the Treasury knows that it has to have $6 billion set aside to take us out 12 months later.,31
-fomc-corpus,1995,"I am stress testing the system, a good risk management technique! [Laughter] The second part of this transaction is a warehousing arrangement that I think was characterized last evening as technically a swap. We would take marks and yen out of the ESF in return for dollars. The ESF would then use the dollars to provide liquidity to the Mexicans. Is that correct? Does this reassurance of payment include taking us out of whatever warehousing we do for the ESF? And what is the time limit on that?",105
-fomc-corpus,1995,It is a swap with a fixed forward rate so that there is no market risk.,17
-fomc-corpus,1995,"I understand that, but what I am trying to ask is whether this same take-out applies to the warehousing arrangement as it does to our swaps with Mexico?",32
-fomc-corpus,1995,"Warehousing is a mechanism that removes the foreign exchange from the ESF's balance sheet. As the ESF needs the foreign exchange or as they acquire dollars or otherwise have dollars, they would unwind the warehousing in the same manner they unwound the $9 billion of foreign exchange that they warehoused with us in the late '80s and early '90s.",75
-fomc-corpus,1995,"Then, if the length of this agreement could go out 10 years, does that mean that this warehousing arrangement could go 10 years?",29
-fomc-corpus,1995,"In principle, yes.",5
-fomc-corpus,1995,Thank you.,3
-fomc-corpus,1995,President Hoenig.,4
-fomc-corpus,1995,In the material that was given to us last night there are statements about--I don't know if they apply to the $20 billion--the issuance of guarantees. What are they?,36
-fomc-corpus,1995,An operation the ESF may engage in would be one that the proposed legislation had contemplated authorizing. The ESF may issue a guarantee to the Government of Mexico allowing it to float securities backed by the U.S. government in the international capital markets.,50
-fomc-corpus,1995,Would that be constrained by the total of $20 billion?,12
-fomc-corpus,1995,Yes.,2
-fomc-corpus,1995,So the ESF could only advance or guarantee that amount?,12
-fomc-corpus,1995,Or $14 billion as I said in my answer to Governor LaWare. The $20 billion includes $6 billion to take us out; $14 billion is for them to do these other things.,40
-fomc-corpus,1995,"A follow-up to that: Is it anticipated that we would not have to advance the full amount--our $6 billion or the total of $20 billion--but that that amount is the maximum we would make available? In other words, are we announcing this amount so that the markets will feel more comfortable and will come in, and hopefully that will keep us from having to go in with the maximum of $20 billion? Or is it assumed that we are going in for the full $20 billion?",101
-fomc-corpus,1995,"Certainly, it is not assumed that we will go in for the whole $20 billion. My personal judgment is that one also should not assume that we would stop substantially shy of that. I would be misleading the Committee, at least in terms of my own thought processes, if I left the impression that the amount would be only a couple more billion dollars beyond where we and the Treasury are today, collectively.",81
-fomc-corpus,1995,President Melzer.,4
-fomc-corpus,1995,"A couple of questions, Ted. On the first page on the swap arrangement, item number 5 says the Treasury would provide assurance of repayment. That really should read the ESF if I understood you correctly?",42
-fomc-corpus,1995,"Well, Treasury is the ultimate--",7
-fomc-corpus,1995,From a credit point of view it is not. But you mean the ESF?,17
-fomc-corpus,1995,"Yes, but I think in fact what the Committee wants--this has not been written because I didn't want to put it in writing until after we had heard the Committee's discussion--is a commitment from the Secretary of the Treasury to do whatever is necessary in order to repay the Federal Reserve. I don't want to try to prejudge or anticipate the way in which that could be done. The ESF can get funds elsewhere. For example, one way the Treasury paid us off in the 1960s--took us out of exactly this type of arrangement--was that the general fund of the Treasury drew deutschemarks on the International Monetary Fund. It then advanced those deutschemarks to the ESF which the ESF used in turn to pay us off. So, I do not want to preclude the possibility that the Secretary of the Treasury in exercising his responsibilities would include other ways of paying us than just out of the $20 billion. This is notwithstanding my answer to Governor LaWare's question that their current thinking is that their budget of $20 billion includes $6 billion that is needed to take us out.",224
-fomc-corpus,1995,"Who's the chief executive officer, if there is one, of the ESF?",16
-fomc-corpus,1995,"The Secretary of the Treasury--well, really the President of the United States.",16
-fomc-corpus,1995,The President of the United States is the Chief Executive.,11
-fomc-corpus,1995,My reading of the statute is that the funds of the ESF are to be used by the Secretary of the Treasury with the approval of the President. The ESF is under the exclusive control of the Secretary of the Treasury.,45
-fomc-corpus,1995,It is relevant to your question as to where the legal authorities lie.,14
-fomc-corpus,1995,"I endorse what you are saying. We should get as much as we can in terms of assuring our sources of repayment. I would think in a narrow legal sense the credit we are looking at probably is the ESF and not the Treasury. Otherwise, we get into questions, if it is a guaranteed obligation, about our extending credit to the Treasury.",70
-fomc-corpus,1995,"I agree, but either way, whether narrowly or broadly construed, the commitment would come from the Secretary of the Treasury because he has the authority, subject to the approval of the President, to do this.",41
-fomc-corpus,1995,There is no mention in here of the oil payments that you described yesterday.,15
-fomc-corpus,1995,"My way of thinking about this, but that again is something one could debate, is that in some sense our backstop is the Treasury. How they backstop themselves is their business.",37
-fomc-corpus,1995,"So, if this oil payments backup got set up, that is not really an issue for us?",20
-fomc-corpus,1995,"Right. The Treasury has said they will ask for oil to back up their loans to Mexico, which would include the operations that they may take over from us.",32
-fomc-corpus,1995,"But under this arrangement that becomes their business and not ours, and the swap is in effect an unsecured swap with a put to the Treasury or a put to the ESF?",35
-fomc-corpus,1995,"You could do it either way, but I think it is probably cleaner to do it as I explained. If they take over our obligation to the Bank of Mexico, the funds from the oil facility would first come to them.",45
-fomc-corpus,1995,"As fiscal agent it will be my problem to deal with their oil accounts and all that, but that is changing our participation entirely to that of just being the Treasury's agent. The New York Fed will still be used, but it is not the System's exposure.",53
-fomc-corpus,1995,The oil proceeds would flow from that account.,9
-fomc-corpus,1995,"Under that arrangement, what is locked up at the New York Fed now in effect gets released? So, for us that is not an issue?",29
-fomc-corpus,1995,"Let me be clear. Nothing can be locked up in the New York Fed. The only point at which something can be taken from the New York Fed is--. Oh, do you mean locked up in the sense we were discussing last night?",49
-fomc-corpus,1995,Yes.,2
-fomc-corpus,1995,I think Tom meant locked up oil money.,9
-fomc-corpus,1995,Yes.,2
-fomc-corpus,1995,Okay. Let me ask a couple of quick questions about the warehousing.,15
-fomc-corpus,1995,There are a couple of points I did want to make going through this.,15
-fomc-corpus,1995,Are we still on the first item? I'm sorry. I was out of the room when you started.,21
-fomc-corpus,1995,He was on background from last night.,8
-fomc-corpus,1995,"Yes, on general questions and now we are going to go to the specifics. Mr. Chairman, do you want me to say something about the specifics for both or for each separately?",37
-fomc-corpus,1995,Go ahead on both.,5
-fomc-corpus,1995,"I just want to amplify a few points on the swap arrangement first. Basically, the first point on the piece of paper I handed out says that we would have essentially two swap arrangements: One would be the regular $3 billion swap arrangement; the other would be a special swap arrangement. The Bank of Mexico would be able to draw on those arrangements for 12 months as of yesterday. Each drawing could be outstanding for 12 months. The next point says that the absolute outside time limit for final repayment either from the Mexicans or the Treasury would be January 31, 1997. As the Bank of Mexico did repay, however, the size of the special line would be reduced permanently. If after rising above $3 billion the drawings got down below the $3 billion mark, they would go back into the regular swap line, which would require a separate decision to be activated. We talked about the Treasury take-out. There are a number of ways in which that could be done. One thing I did not mention--it's something we would have to work out--is the question of how, going forward, the drawings would be shared between the Federal Reserve and the Treasury. Currently, we are operating under the December 30th framework where everything is done 50/50. I would assume that going forward the sharing would be approximately two to one. Again, however, I think one needs to be realistic. If the ESF were to get involved, for example, in making a $5 billion loan guarantee, which would take some time to set up, there might be some adjustments as we went along. But ultimately as the amount got toward the maximum level we would be moving to that two-to-one proportion. The warehousing proposal is probably somewhat clearer. The proposal is to raise the amount from the existing $5 billion to $20 billion. This is clearly a rather exceptional operation, and the rationale is to facilitate this program. The third point is that this excludes the warehousing of pesos. That, it seems to me, is required in terms of the overall logic of this arrangement. I would argue that that is a matter we probably ought to keep internal rather than put in the minutes at this stage. Finally, although I would say that this arrangement should be subject to annual review, I think in answer to Governor LaWare's question and someone else's is that in principle some of this warehousing might be outstanding, in the limit, for 10 years.",496
-fomc-corpus,1995,What is the size of the ESF?,9
-fomc-corpus,1995,"The usable funds in the ESF today, counting the foreign exchange as usable, amount to roughly $25 billion.",23
-fomc-corpus,1995,Can you say how it is broken down?,9
-fomc-corpus,1995,About $5 billion is invested in Treasury securities and the balance is roughly equally divided between marks and yen. I think they have slightly more yen than marks.,31
-fomc-corpus,1995,Thank you.,3
-fomc-corpus,1995,Is any of it obligated in any way beyond what we are talking about with Mexico?,17
-fomc-corpus,1995,"It is obligated only in the sense that they have one other swap arrangement with the Bundesbank. So, in some sense if they wanted to advance dollars to the Bundesbank they would use some of the dollars for that. But nothing is obligated in a current commitment. One of the Treasury's concerns is that this operation does severely limit what the ESF could do over a fairly extended period of time. It preserves the ability of the ESF to use its foreign exchange holdings for exchange operations, but that is probably about all it does.",107
-fomc-corpus,1995,Vice Chairman.,3
-fomc-corpus,1995,"Ted, I have two questions. One has a preamble. Since we are an independent central bank dealing with the Executive Branch and because we are a bank, the analogy would be that we are a bank dealing with an affiliated company--something that we take very seriously as regards the way it is done by the banks we supervise. Is it safe to assume that we will have very, very clear documentation of both the warehousing facility and the take-out of the swap line?",95
-fomc-corpus,1995,Certainly. We intend to have a letter from the Secretary of the Treasury to the Chairman of the Federal Reserve on that matter.,25
-fomc-corpus,1995,"The second question: If a bank says to a customer, we are making a line of credit available to you but as soon as you repay any of it, it goes away, that discourages the customer from repaying until the last minute. So I am not sure that that particular piece described on the first page, paragraph 4, is really in our interest, and you might want to rethink that.",82
-fomc-corpus,1995,"There are two sides to that. Peter and I discussed it this morning. I decided that between the two choices the Committee would be happier saying that once the drawings got repaid the total would get subtracted and a separate decision would have to be made about putting the funds out again. If I may piggyback a bit on the question Governor Lindsey asked earlier and the fact that these swap drawings roll over every three months, if one found Mexico's reserves growing rapidly we would have the scope to encourage them to repay. We could not require them to repay but we could use moral suasion in the effort to secure early repayment. That might deal partly with your problem.",134
-fomc-corpus,1995,But in fact we have always structured each rollover as subject to mutual consent.,15
-fomc-corpus,1995,We are committing ourselves in advance to provide that consent.,11
-fomc-corpus,1995,"But to whom are we committing? Are we committing to the Treasury or we are committing to the Mexicans? I think the whole thing does hang on the difference there. We can agree with the Treasury and within the Committee as to what the rules are, but vis-a-vis our relations with the Mexicans and how we rewrite the swap agreements, etc.--",71
-fomc-corpus,1995,The rewrite probably would say the maturity is three months with renewal--,13
-fomc-corpus,1995,"Three months and we have to agree to renew. So, that may be the discipline which squares the circle.",22
-fomc-corpus,1995,"However, I doubt that we'd want to get to the situation where we use it. What we would end up doing is using moral suasion at the end of three months rather than whatever the alternative is--",41
-fomc-corpus,1995,"""Immoral"" suasion!",7
-fomc-corpus,1995,--actually calling the loan.,6
-fomc-corpus,1995,May I just ask a question on mechanics? They have the right to draw for a period of up to 12 months. So let's say they draw on January 30th of 1996; that drawing could be outstanding three months and could be rolled over three times. Is the agreement with the Treasury that no matter how new the drawing is we get taken out a year from now or is the agreement with the Treasury that we get taken out of any drawing that is 12 months or older?,100
-fomc-corpus,1995,The latter.,3
-fomc-corpus,1995,"Then in this hypothetical case we would not be repaid until January 31, 1997?",20
-fomc-corpus,1995,"By 1997, yes.",7
-fomc-corpus,1995,Two years from now.,5
-fomc-corpus,1995,"Okay. Second question: On the monitoring side, going back to March of last year--I think it was March when we first expanded the swap line under the NAFTA-related agreement--at that time Mexico had something like $25 billion in reserves and everybody was pretty satisfied that repayment was not an issue. From March to December most of those reserves were lost. What different kinds of things will go on, going forward, to prevent that from happening again?",91
-fomc-corpus,1995,That is the other side of the monitoring question.,10
-fomc-corpus,1995,Yes.,2
-fomc-corpus,1995,Would we have a firmer handle on this than the Treasury or the IMF?,16
-fomc-corpus,1995,"We would have a responsibility, and the Treasury certainly feels it has a responsibility, because the Treasury will have a lot vested in the success of this. That is what I meant when I said in answer to Governor Lindsey's question that I think we have no choice but to be involved in the monitoring--whether our role is put up in neon lights by the International Monetary Fund or not. If I may make a personal statement on this matter, having lived through the devaluations of 1976 and 1982 and now this one, I have a personal stake in insuring that this does not happen this way again. That is all I can say as far as I am concerned; that is a personal remark rather than an institutional remark.",149
-fomc-corpus,1995,And one final question on the $40 billion in guarantees: I think I understood how those would be used--essentially to lower the interest rate on new tesobono securities by replacing the Mexican guarantee with that of the U.S. government.,49
-fomc-corpus,1995,"It would not have been linked. Basically what would have happened under the previous arrangement is that the Bank of Mexico would have gone out with the U.S. government guarantee and raised, for example, $5 billion in the international capital markets. They would have used those funds to meet the pressure on the exchange rate that would be associated with the holders of tesobonos, which are paid off in pesos, not wanting to roll them over but rather wanting to take the pesos and buy dollars.",98
-fomc-corpus,1995,Right. Are these drawings basically going to be used in the same way except that the international capital markets do not get involved? They just use the cash?,31
-fomc-corpus,1995,"As long as they do not use the guarantee with it. What would be necessary for the Treasury, and I would assume we'd be somewhat involved in an advisory role, would be to require the Mexicans, as under the contemplated legislation, to come up with a financial plan. That financial plan presumably would say: These are the sources of funds we are going to have over the coming short period of time; for some longer period of time, this is going to be our strategy, which includes what we do with monetary policy. I don't know what Peter thinks, but I personally thought it was a mistake yesterday for them essentially to cancel the tesobono auction because the rates were so high and they had just been bailed out by President Clinton. I may be wrong about that.",156
-fomc-corpus,1995,"I can add something that at least supports what Ted is saying, and I am being quite candid about some of the problems that Mexico has going forward, which you are both talking about. Mexico has an independent central bank. But, going back to the issue Ted raised about Bill's views and mine on the need to get their markets functioning, they do not have much of a secondary market. The signaling mechanism is through the control of the auction process by the Treasury, and that is the bigger problem. In the long run, the Bank of Mexico is controlling the monetary base. In any one week it is the Hacienda that is controlling the signaling process. And that was what happened in November; that is what happened yesterday; and that is a real problem going forward. That is partly why I feel so strongly that if they are going the route of the float, then they have to take steps to liquify and get better intermediation in their secondary market. It is one of the reasons.",199
-fomc-corpus,1995,"You mentioned the financial plan. I think you tied it into the legislation. Is that going to be tied into this agreement, too?",27
-fomc-corpus,1995,"Yes. The Treasury will insist that in order to implement this program, an agreement or a series of agreements will have to be worked out with the Mexicans about what they are going to do. And I am using the term ""financial plan"" to refer to that. The Ttreasury needs to think about these things before it dribbles $14 billion out the door.",76
-fomc-corpus,1995,Can I ask for a short recess? I have to consult with our utility hitter.,17
-fomc-corpus,1995,On another aspect of this problem!,7
-fomc-corpus,1995,This will take just a couple of minutes.,9
-fomc-corpus,1995,Mr. Truman.,4
-fomc-corpus,1995,"My expectation is that we will get a commitment from the Secretary of the Treasury to do what is required to take this loan off our books after 12 months. Exactly how we are going to specify that, I do not know. It is my personal view that having a 52-page legal document between the Federal Reserve and the Treasury on these types of matters is not in our interest.",77
-fomc-corpus,1995,"I'm not sure how many pages are appropriate. Tom Melzer used the term ""put,"" but is the Treasury committing to a legal obligation to take us out of this? You used the word ""take-out"" and I know what a take-out is. Is this a take-out or is it not a take-out?",64
-fomc-corpus,1995,"Yes, it is a take-out. The issue of precisely how it will be constructed is something which our General Counsel and their General Counsel will work on. The principle of the agreement is that it is a take-out. Basically, the agreement is that the Federal Reserve has zero credit risk and zero market risk; that is the principle. How that is formulated and what documents are exchanged to implement that is up to the lawyers, but it won't be smoke and mirrors. I have no idea what they are going to do, and I suspect that they may in fact run into the same questions that have been raised with Ted about the ESF's legal authority for this, or who owns that, or what happens here. As Tom Melzer says, we can't make a direct loan to the Treasury; it is illegal. All of that will, I assume, be resolved. What I will say to you is that the nature of the handshake, if I can put it that way, is that we have zero credit risk and zero market risk. It is a take-out; that is unambiguous.",220
-fomc-corpus,1995,"I would like to make one other point on this. President Melzer asked a question earlier about the oil mechanism. Even I, with a reputation for exuberance, if that's the right word, would not go so far as to give up the current arrangement that lies behind our $4-1/2 billion swap line before being satisfied that we have appropriate arrangements in place to convert all this into some other form. Even I would not be so imprudent.",92
-fomc-corpus,1995,President Moskow.,4
-fomc-corpus,1995,"Ted, I would like to ask you to sort of step back from this for a second. We have talked a lot about the details, and the Chairman has just said that the principle involved is for the Federal Reserve to have zero credit risk and zero market risk. What are the risks to the Federal Reserve here? What kind of scenario could you envision that could cause significant problems for us?",78
-fomc-corpus,1995,"My answer to that question would be that the problems we are likely to have with this are least likely to be financial. It seems to me that there are essentially two risks. One lies with what might go on in Mexico if the overall program does not work. If the Mexican situation spirals out of control and we are involved--we already are involved with the existing swap line but our involvement could increase--we would get caught up in that situation economically. It seems to me that the other principal risk, which may or may not be related, is that this set of arrangements could come under intense political scrutiny in this country regardless of what goes on in Mexico. And I can well imagine that that kind of scrutiny is something that many people within the Federal Reserve would prefer to do without. I can say from my own experience that there are a number of people on Capitol Hill who are involved in oversight on these arrangements and are reassured by the fact that we are involved in the process.",197
-fomc-corpus,1995,"Ted, can I go a little further than that? The response to your question might be that, as best we can judge, the risks from this new agreement to the Federal Reserve from a financial point of view are reduced because of the take-out issue. The real risks relate to the issue that Larry Lindsey is raising and implicitly what Ted is raising. The problem is the fact that we have managed to build up a high degree of credibility. The difficulty is that the Federal Reserve has now become the honest broker. I have just been invited to speak, for example, before the Democratic Senate Caucus, not on Mexico but more or less on the world at large. The Federal Reserve is presumed to be an honest nonpartisan broker, which therefore means that suddenly everyone wants to drag us into the middle of big problems. This is not the last time this is going to happen. We could very easily eliminate that by following a misguided monetary policy and making us all very controversial! But, as crucial players in the American government, I frankly don't know how to get around accepting this responsibility when we are being asked by the Congress and the Administration to somehow oversee this operation, which is a very fuzzy deal. I was out of the room when Larry was asking his questions, but I could figure out exactly where he was going. When he finished, I probably could have continued asking similar types of questions. This is where we have a problem. We do not have a choice, as I see it, of saying we are not going to be involved in this, but we do have a choice in terms of figuring out how we are going to get involved. At the moment, I have not been approached officially on any of this. The only call I have received was from Mr. Camdessus this morning. I could not return his call yesterday. He wanted to ask me whether his remark in his release published yesterday was acceptable to us. I assumed that it had been cleared. I thought it had been cleared by you, Bill, because he said he did speak to you.",415
-fomc-corpus,1995,That was earlier; yesterday he spoke with Ted.,10
-fomc-corpus,1995,"So I heard what was involved, but I was asked only after the fact--as if it could be pulled back after a public release. That is the sole official request that I have gotten from anybody. I have heard a lot of rumors about all of this. Ted tells me about the different initiatives that are going on and what pieces of paper are being circulated. But nobody has approached us and asked us to get involved in this. It is a very vague thing; it is like asking me to umpire the new game of zipswitch, and I would say, what? [Laughter] I don't know what the rules are. I don't know who the players are. I don't know what is going on, but am I to be the umpire? And they say, sure, why not? [Laughter]",167
-fomc-corpus,1995,"Even though you have not been asked, it has been reported that you have agreed!",17
-fomc-corpus,1995,Agreed to what?,5
-fomc-corpus,1995,To umpire zipswitch. [Laughter],11
-fomc-corpus,1995,"Terrific! In answer to your question, Ted is exactly right. The risk is not a financial risk that we have here, but we do have a risk. The risk is essentially political--not in the sense that we are subjected to political pressures. It is in the fact that people are trying to get us to do things that I suspect cannot possibly be done effectively, efficiently, or otherwise. That is a problem that we are going to have to confront. I am not sure exactly how we are going to come out of this, or how we will handle it. But there is where I think our problem is. Anyone who has some great ideas is welcome to throw them in, especially if he or she can explain to me what the game of zipswitch is all about!",158
-fomc-corpus,1995,If I could just follow up on this for a second. I do not know the game of zipswitch. I think there clearly is a very significant risk. The other risk that Ted mentioned first is that the overall program in Mexico will not work.,51
-fomc-corpus,1995,"If it does not work, that is a major economic problem.",13
-fomc-corpus,1995,Of course.,3
-fomc-corpus,1995,But it does not create more credit risk for us.,11
-fomc-corpus,1995,"No, but it has the potential for drawing us in further down the road.",16
-fomc-corpus,1995,"It could conceivably. That would be related to how we position ourselves with respect to this monitoring issue. The crucial thing that we have to do, no matter how we get involved in this, is to review Mexico's forthcoming plan. We were fully aware when this began that we were dealing with a serious problem. We knew that if we did not get involved, there were going to be some very serious negative responses and I am not sure how this whole thing would ultimately have come out. But we also knew that there is a slippery slope here. The question is, did we realistically have the option of saying, ""this is a slippery-slope issue and we would prefer not to be involved."" The answer is that it would have been 'irresponsible for us not to get involved. The reason I went up to the Hill at one point to speak on this issue to two-thirds of the Senate and about one-third of the House, all in one room, is that if I did not do it, it would not get done. That's because no one there had any knowledge of this except people in Treasury who are not--",228
-fomc-corpus,1995,Have no standing or are from a different political party.,11
-fomc-corpus,1995,"It is not a question of their standing or even being in a different political party; As a consequence of that, what happened was that the Congressional leadership and the Secretary of the Treasury told me I had to go up to the Hill and talk about this. Was I going to say that I had to remain Simon-pure and not be involved with this? That would have been utterly irresponsible because in a certain respect we are the only institution in town that can credibly be involved in this sort of thing. We were not certain where it was all heading, but we knew that once we took the first step, there would be a lot of other steps down the road. How we could orchestrate that was not terribly clear, as indeed it is not clear now. I think we are going to have some very tricky moments before this gets resolved. If the Mexicans work this out, if the crisis gets resolved and everything simmers down, all these conversations are moot. The issue will just go away, the loans will be paid off, the funding facilities will be shut down, and we will go back to square one. But there is a good probability that this financing assistance will not work, which means that at some point it will be cut off. I think the probability that Mexico will go through everyone's money and then default is zero. It is not going to happen that way. The really tricky problems are going to be how to work our way out of this if the program clearly is not working. We can't discuss that because, if we did, then we can be sure that the program would not work and we would have very serious problems. So, we have all of these issues which are quite risky for this central bank. Because of the take-out, the aspect I am least concerned about is the financial risk. We are okay there. That was not the case earlier when, as you all know, I was very much concerned about the amount of collateral that was available from Mexican oil proceeds or--I am sorry, Ted, about the choice of words--the ""assured means of repayment"" that we had. After a certain point, I think the oil guarantee is not a credible, or an assured, means of payment. But now that issue is moot because we have a Treasury take-out. What we now face is a very different set of problems that are going to be fairly difficult to deal with.",485
-fomc-corpus,1995,"Mr. Chairman, I think you have described the situation very accurately. The credit risk to the Federal Reserve, as I view it, has been removed. Certainly, Virgil and our other legal colleagues can draft the documentation to be sure that it is removed and stays removed. I believe very firmly that you had no choice but to get involved. Since you got involved, the Federal Reserve got involved, appropriately in my view, even though it is uncomfortable for you and all the rest of us. Essentially, we are in a situation where our involvement has to be maintained and where we have to do the best we can to ensure that the terms for our involvement are done in the best possible way. This means some very tough conditionality, but as for the two items for which we need approval, I think we may have reached the point where a motion would be appropriate for both of them.",178
-fomc-corpus,1995,"Before we get there, I think Tom Melzer still has a few questions.",16
-fomc-corpus,1995,"Let me just ask a couple of quick questions on the financial side because I think it could be helpful as you work out these arrangements to be sure we all understand. As I understand it, of the $20 billion in the warehouse facility, the most that would be advanced to the Mexicans would be $14 billion. Then $6 billion--",69
-fomc-corpus,1995,That is one way of thinking about it.,9
-fomc-corpus,1995,"And $6 billion would be retained in the ESF. When it is time to take our swap out, we in effect warehouse that remaining $6 billion and pay ourselves off.",36
-fomc-corpus,1995,That would be one scenario.,6
-fomc-corpus,1995,"It seems to me that we have to have some requirement that the ESF retains good collateral of $6 billion so that transaction can get effected and we can get taken out. I am sure you will take care of that. I don't know whether it makes any sense to establish any expectations. I know we have annual reviews by this Committee of the warehousing facility. Does it do any good to establish any expectations up front that we would not expect this warehousing to be outstanding longer than 10 years, for example? And what sort of expectations should we set with respect to the possibility of doing additional warehousing operations, say, unrelated to Mexico? I think you said it before, but from my point of view this pretty much exhausts whatever flexibility the ESF has, or perhaps whatever we perceive we might warehouse for them. Never say never, but the expectation ought to be that there is not another $20 billion behind this one if they want to intervene in exchange markets.",196
-fomc-corpus,1995,That is one of the reasons why we are bringing it up.,13
-fomc-corpus,1995,"Can I just say something quickly? If they want to do that, they have to get authorization for new appropriated funds from the Congress. That has nothing to do with us.",36
-fomc-corpus,1995,I was talking about expectations with respect to our willingness to warehouse anything beyond this $20 billion.,19
-fomc-corpus,1995,You mean in the future?,6
-fomc-corpus,1995,I see what you are saying; the ESF will have used up its assets.,17
-fomc-corpus,1995,"Yes, there would be nothing left.",8
-fomc-corpus,1995,"Well, following up on yesterday's discussion, I want to add two separate thoughts. One, as far as warehousing pesos, we have said no. I think that is important to the consistency of this operation. As a technical matter, the ESF will still have some limited capacity to acquire foreign exchange, more yen or DM, in the market. This is not a problem that I would worry about right now, but conceivably they might do that at some point. They might say we have bought another $5 billion worth of yen and want to warehouse those with the Federal Reserve, too. Whether the ESF can do that would require a separate decision by the Federal Open Market Committee. One of the reasons that I, at least, would favor putting in place the big number, which is matched with other big numbers in terms of the program itself and with their existing holdings of foreign exchange, is that it would make what we are doing much clearer. The slippery slope of doing things a billion here and a billion there is to some extent avoided. On the question of review, I would think it depends on the appetite of the Committee. Peter will be regularly reviewing foreign exchange market developments with the Committee, and Mexico for better or for worse is inevitably going to be part of that for some months and perhaps a couple of years. So, I think there will be a lot of opportunity for the Committee to exercise its oversight of this. To the extent that disbursements mount up quickly, there will be a chance in March to find out what has been going on. The staff will make an effort--as we have tried to do in the past though maybe not always successfully--to keep the Committee as informed as we can about ongoing events and to minimize the number of surprises. There probably won't be any surprises because we have a perfect crystal ball!",373
-fomc-corpus,1995,"One last question and then I have just a couple of comments that I would like to make. This has to with the excess collateral in terms of backing U.S. currency. I recall that when we warehoused a lot of foreign currencies for the ESF before, we got into a problem with fairly narrow excess collateral. If we do this $20 billion, we will then in effect substitute these foreign currency holdings for domestic securities. And when we have to sell domestic securities, we will have less of what is viewed as acceptable collateral to back the currency. If we exceed those limits, we have to announce to Congress that we are backing our Federal reserve notes with other types of assets. What is the likelihood of having to make that sort of announcement?",151
-fomc-corpus,1995,"I do not know what the current situation is. My guess is--and it is a wild guess--that if the warehousing got up to $20 billion, we could be in that situation.",40
-fomc-corpus,1995,I don't think we have an obligation to announce to Congress. We have an obligation in the sense that Governor Partee once said to Congress that we would use our foreign exchange holdings last to collateralize our Federal Reserve notes.,44
-fomc-corpus,1995,"If we get to that point, we can always do an off-market swap with the Japanese or the Germans.",22
-fomc-corpus,1995,I am just trying to understand all the implications of this.,12
-fomc-corpus,1995,"There are balance sheets implications. The last time it happened was five years ago, as I recall.",20
-fomc-corpus,1995,"Yes, it was a seasonal thing, but there was a time of the year when we got very close to exhausting our regular note collateral--I think when we had $9 billion of warehousing on our balance sheet.",44
-fomc-corpus,1995,What we do not know is whether the scale of things has increased enough since then combined with the fact that reserve requirements have come down so that we would have the room.,34
-fomc-corpus,1995,Brian Madigan said he thought the projection of free collateral was $8 to $10 billion over some indefinite period.,23
-fomc-corpus,1995,"In terms of my own feelings about this, Alan, while I respect your point of view on this, I really have not heard anyone make a case that what we are facing here is some sort of financial crisis in the United States that has systemic implications. I think what we are really talking about--when I say we, I am saying that broadly--is providing long-term financing to another country that has mismanaged its financial affairs. If the Treasury wants to do that, that is their prerogative. But it is not appropriate for a central bank to participate directly or indirectly in such arrangements, and I think we are setting a very bad precedent. Now, I know that technically the way this appears on the surface is that the Treasury is doing it and we are facilitating it. But I think the perception is going to be that we are very much a full partner in this. The other thing that concerns me is the use of warehousing arrangements. As we all know, we have been criticized in the past when warehousing arrangements were used to facilitate ""normal"" transactions whose purpose was to stabilize dollar exchange markets. What we are talking about here is a totally different type of facilitation, much larger-sized. This gets back to the second risk that came out in response to Michael Moskow's question. I suspect that may subject us to even more criticism inasmuch as Congress and the American people apparently strongly oppose extending credit to Mexico. In effect, one could argue that we would be participating in an effort to subvert that will of the public, if you will. I do not want to be too dramatic in stating that. This could cause a re-evaluation of the institutional structure of the Fed in a very fundamental and broad way.",350
-fomc-corpus,1995,"I seriously doubt that, Tom. I am really sensitive to the political system in this society. The dangers politically at this stage and for the foreseeable future are not to the Federal Reserve but to the Treasury. The Treasury, for political reasons, is caught up in a lot of different things. Republicans up on the Hill look at the Federal Reserve as the good guy. I think this issue of a majority on the Hill looking at us in another way is missing the problem, which is exactly the opposite of what you are saying. They look on us as the good guy and they are willing to be supportive of the President and the Administration only if we are involved. That is where our problem lies. It is like the 800 pound gorilla who loves you and grabs you. Thanks a lot! [Laughter] I seriously doubt that the problem you are discussing is where our vulnerability lies. I see that Larry Lindsey is shaking his head as I am talking. I must say that I disagree with both of you.",203
-fomc-corpus,1995,I am not surprised to hear you say that because obviously you would not have gotten involved if--,19
-fomc-corpus,1995,"I would not have gotten involved, exactly.",9
-fomc-corpus,1995,I understand that and I think people can disagree on these issues. I just felt it was important to say that.,23
-fomc-corpus,1995,"I was just trying to say that, if I can possibly talk you out of this concern, it is one that I think frankly is really de minimis. If you want something to worry about, I have lots of things that I would like you to worry about. This is not one of them. President Hoenig.",65
-fomc-corpus,1995,"Mr. Chairman, I think my questions have been answered. I have a general understanding of what is proposed here. There are two aspects to this: One is to contain the immediate crisis and the other is to assure that it does not recur in two years or whenever. I am very unclear on the process to assure that it does not recur, as you said that you are.",76
-fomc-corpus,1995,You bet!,3
-fomc-corpus,1995,"In another sense, I think it is unprecedented for us to come into this process with so much uncertainty. I will defer to your judgment. This is important and must go forward. But I have a lot of sympathy for what Tom is saying. I am uneasy about it. If it weren't for the magnitude of this crisis and your involvement, I would have grave reservations about doing this. I defer to your judgment.",83
-fomc-corpus,1995,"I am going to be the last to deny that there are problems here. Let me say this, however. Those who believed that the Mexican situation was containable, short of something of this nature, did not have their fingers on the structure of things as they were falling apart. One can argue quite credibly that the fault is theirs. The problem is, to use another analogy, that they are the house next door. If somebody there smokes, the house catches on fire, and cinders going in our direction threaten to burn our house down, can we say we are not going to help them put out the fire? The answer is that we have no other choice. This crisis is not of our making. I am fully convinced that if we had tried to stay completely out of this and said that we would not get involved in any way, this situation could not have been staunched; I am not sure that it has been. From the point of view of the country as a whole, it would have been irresponsible on our part not to be involved. When your neighbor is lying in the street, screaming, you can just walk over him and keep walking and not get involved, I grant you that. I do not think we have that choice. Governor Blinder.",257
-fomc-corpus,1995,"I would like to endorse almost everything the Chairman said and then ask two questions, one of which I think you can't answer. And when you say you can't answer it, I am going to have a very specific request, because I do agree with the Chairman. First of all, I do not have any problem with what is on these two pieces of paper. I don't think we should have any problem for many of the reasons that were just stated. There is a third piece of paper that is not here that says the Federal Reserve will monitor....and now fill in the rest of the sentence. You can't answer right now what is in that part of the sentence. My request is to get an answer to that as soon as it is humanly possible.",151
-fomc-corpus,1995,We are going to do that.,7
-fomc-corpus,1995,This is not a hostile question. I can imagine your coming back with a list that I would be perfectly happy with and not have the slightest bit of a problem. I can also imagine a list that I would not be happy with.,47
-fomc-corpus,1995,We can have a situation where we are required to oversee and enforce and where there is no way for us to know what it is.,27
-fomc-corpus,1995,"Exactly. I would like to attach some urgency to that request. Several of us were buzzing informally about that around here. The longer it reverberates in the press--that the Federal Reserve will do this or will do that--the worse it gets, if we do not want to do it. If we do want to do it, that is all perfectly fine.",75
-fomc-corpus,1995,Let's find out what this is.,7
-fomc-corpus,1995,Let me give you a two-part answer.,9
-fomc-corpus,1995,"As a sidebar to the question, I would like to know, and hopefully this could be known soon, when it says, ""the Federal Reserve will monitor"" whether that means the Board of Governors of the Federal Reserve, the Chairman of the Board of Governors of the Federal Reserve, the Federal Open Market Committee, or maybe some other choice. I can't imagine any other choice.",75
-fomc-corpus,1995,I think there are a lot of things we are going to have to decide today or very quickly.,20
-fomc-corpus,1995,I really would like to know the answer to that.,11
-fomc-corpus,1995,The first thing I am planning to do after this meeting is to address that question by talking to the Treasury and others involved in the process.,28
-fomc-corpus,1995,"The second question--I guess this really is a question--is just for information since we are at least peripherally involved as an agent. Do we have any understanding of what the putative strategy is? Presumably, when someone goes into a deal like this, there is some notion of a strategy. Of the $20 billion, $6 billion is our share and that is presumably usable by the Bank of Mexico for exchange stabilization, if it so sees fit. Then there is the $14 billion that could take the form of loan guarantees; it also could also be used for exchange stabilization; it could be used for long-term lending. Maybe I left something out, but those are the three things on the Treasury sheet. The legislative plan was $40 billion and that was for loan guarantees.",160
-fomc-corpus,1995,"On the legislative plan, there was still the question of what the Mexicans were going to do with the money. I think this is a question similar to the one that President Minehan was asking earlier: How are they going to use the money, whether the funds are short-term or longer-term funds? That is where it seems to me the financial plan that I referred to earlier comes in. And it is related to the question about our involvement in the monitoring of the economic policy side. Indeed, the major rationale for our being involved in the monitoring of the economic policy side is that without that involvement, we could advance them the money--whether it's for the short term, medium term, or long term, and the money could easily be frittered away. The two interact.",156
-fomc-corpus,1995,"That only bothers us directly if we pledge to monitor something so that something does not happen. But the Treasury is lending money, and for political reasons we are not. We have no responsibility for monitoring; I don't think we have any business with it. I can name eighty-seven things in U.S. trade policies that I think are horrible, but those are political decisions that have nothing to do with the Federal Reserve.",83
-fomc-corpus,1995,"Well, I can name eighty-seven, too.",10
-fomc-corpus,1995,You can name more than eighty-seven!,8
-fomc-corpus,1995,"Still, even if those trade policies go wrong, when they do go wrong, their impact on the Federal Reserve or the financial system is relatively minor. If Mexico has economic and financial policies that go wrong for the next millenium, or more immediately for the next two or three years, I think that will have a major impact on the Federal Reserve, whether it is wearing its bank-supervisory hat or its financial-system-stability hat, or its macroeconomic-policy hat. I think the Federal Reserve has to be concerned about how the Mexican Treasury spends the money, one way or the other. I would prefer that our concern not be put in neon lights, but I think we have to be concerned.",142
-fomc-corpus,1995,"I agree on your first question that I do not have a answer. I will tell you one small element of this, however--or give you my position. With respect to the International Monetary Fund, we are in a somewhat similar position, though on a slightly different scale, as we are relative to the Congress. The International Monetary Fund got itself into this situation essentially in December. They realized that they knew less about what was going on in Mexico than we did. We knew a great deal less than we wished we had known, even though we had devoted a considerable amount of resources to this on a daily basis for at least the last year. What the IMF does know is that Peter Fisher and his colleagues as well as people here at the Board have much better contacts and information about the day-to-day operations in Mexico than the Fund has. That is for two reasons: First of all, the Fund, for better or worse, does not have a culture that is designed to follow day-to-day developments in the individual economies of member nations. Secondly, on the other side, the Mexicans are world champions in terms of obfuscating about economic information while simultaneously providing a lot of other information. Transparency of the way economic policy is conducted in Mexico, including monetary policy, is a very serious problem, and it is one that relates to the comment earlier about the functioning of financial markets as well as comments--what Governor Lindsey was asking about yesterday--concerning the balance sheet of the Bank of Mexico from top to bottom. To extend Chairman Greenspan's analogy a step further--maybe I am taking it a step back--once we have put the house fire out, we want to build a more fire-proof house and we want to try to encourage the resident of the house to stop smoking or at least to stop smoking in bed. I think we have an interest in getting it done, not that we are going to create a mistake-proof economic environment in Mexico any more than we can create a mistake-proof economic environment in the United States. We can hope that with some effort and a considerable expenditure of Federal Reserve resources--I mean human resources and budgetary resources in one sense--to fix things so that at least we will not have these problems coming back. Let me come back to another point on resources. I share, for all the reasons Governor Blinder has stated, the concerns about what we will monitor and how we will monitor because this will have, among other things, resource implications for the Federal Reserve System. I want to know whether I am going to have to budget one man year or forty-two man years to get this job done right. We need to know at the minimum what we are going to be asked to do, and see whether it is feasible to do it both in terms of resources and, as Governor Lindsey and the Chairman have said, in terms of the intellectual feasibility.",579
-fomc-corpus,1995,Governor Lindsey.,3
-fomc-corpus,1995,"Mr. Chairman, I had two points: the big ""P"" political point and the small ""p"" political point. First, I find myself uncomfortable disagreeing with you. Pat Buchanan had a good quote in The Wall Street Journal the other day. He was talking about the collapse of the Mexican bailout bill. He said that this was the first complete rout of the governing elite since the League of Nations went down to defeat. Now, I was for the Mexican bailout. If I had been here in 1919, I probably would have been for the League of Nations. So, I am on the side of the governing elite.",128
-fomc-corpus,1995,"Pat Buchanan is with the governing elite, too. What is he doing?",15
-fomc-corpus,1995,"Well, he is running against us. Our political risk is not going to come from the chairmen and the senior members of the current majority. Our political risk comes because people in the country are damn mad. A bill that they opposed was defeated, and now the governing elite, to use Pat Buchanan's phrase, has said in effect: We are going to win anyway because we are going to go around all the normal processes and pull money out of this little pot people never knew even existed and use that money. Well, maybe everyone will forget about it, but I don't think so. I think that is where--",124
-fomc-corpus,1995,They will if it works and they won't if it does not work.,14
-fomc-corpus,1995,"If it does not work we--and I cannot imagine a greater governing elite group than this institution--and all governing elites are going to be under a microscope. I very much agree with the point made earlier that because we are so obviously an elite, if the elites come under question, then our functions are going to be revised by Congress. Our political risk in this is enormous. The second point I would make is that, frankly, given examples such as the Camdessus memo, we have been treated--to borrow a phrase--a lot like mushrooms. The only thing we can do about that, I think, is to maximize what little bargaining power we have when we have it. We happen to have the maximum bargaining power right now. Once we approve these two documents, which I have no problem with in themselves, we have no bargaining power left. So, I would modify the pace at which Governor Blinder said we should do things and request that we get answers to those questions before we ratify this. Now, we could even make the motion that we approve these subject to getting the ""third page,"" to use your phrase. But once we approve these, we have no more bargaining power, and the people who are committing us without our consent have unlimited capacity to commit us to more things.",262
-fomc-corpus,1995,"I disagree with that. I think our bargaining power has not changed. I think our bargaining power is essentially our ability to say that we will not engage in, we will not accept, the monitoring of x, y, or z. We have a veto on what it is. These documents are basically facilitating the United States Treasury and the United States government. Our doing that in no way either enhances or reduces our bargaining power. I think our bargaining power is based solely on our ability to say no. If we say no or say we will not do such and such, our ultimate leverage against the Treasury is that there is nothing they can do about that, because starting with the original hypothesis, the reason we are involved is because of our credibility. But I really don't think we get any bargaining power from this because, from the point of view of the Treasury, they are giving something to us in this deal, not the other way around. They are removing the modest degree of credit risk that we have under the existing arrangement. The only thing that they have seen in this agreement is that they are acquiescing in removing all financial risk from the central bank for this deal. But if they think by doing that we are going to acquiesce in all the individual items, I would just commit to everyone here that I will say ""no."" And I don't see what they could do about it. I would not hold the approval of these proposals up; I am willing to go along; I agree. These two documents are in our favor, not the other way around. I would be a little concerned about holding these documents up because I do not like the fact that we are sitting out there with a half billion dollar exposure with alleged ""collateral."" Let us get that behind us. President Broaddus.",363
-fomc-corpus,1995,"Mr. Chairman, just very briefly, I certainly respect your point of view, and I think I understand fully the very difficult position that you and the System have been put in. I take that in consideration. But I still just have to make a brief comment in general support of Tom Melzer's position and Larry Lindsey's position. I am just very uncomfortable with this. I am sure that, as a formal matter, what we are proposing to do is legal. But as I see it, this action--the whole package--is by any reasonable definition in substance a fiscal action, not a monetary policy action. It is therefore the province of the Congress. The Congress did not have the will to take what I think we all agree was the appropriate action, so we are being left holding the bag. I guess I just see it as a raid on our independence, and I regret it. I agree with you that the risk to us, while I think it is substantial, is probably remote, although I'm not sure I think it is as remote as you do.",215
-fomc-corpus,1995,I'm not sure I think it is as remote as I think it is either! [Laughter] Governor Phillips.,23
-fomc-corpus,1995,My question is not meant to reflect on these two propositions because I actually agree with them. But what would happen if the Fed did not go along either with the increase to $6 billion or the warehousing? Is the Treasury contemplating covering it and going elsewhere for their warehousing? What would be the mechanics?,62
-fomc-corpus,1995,"As a technical matter, if we declined to do the warehousing or pulled out of the existing swap agreement, leaving aside for the moment just hypothetically that we are already involved for $4.5 billion, the Treasury presumably would do it all alone! Our collateral would be improved by this arrangement, but let's suppose we were starting from square one, and square one probably has us going back to about 1967, and we had never had any dealings with Mexico. They are all going to be done via the State Department and the Treasury Department. Then the Treasury would take $20 billion and do it all directly without having us as a temporary junior partner on the swap side of it. On the warehousing side of it, in principle, the Treasury could find other means to move that $20 billion in foreign exchange off their balance sheet. It would be obvious that they did that and that we had said ""no."" But in principle they could do it. As the Chairman suggested, perhaps they could do it by warehousing with the Bank of Japan and the Bundesbank. I'm not quite sure how they would do that, but in principle they could do it. In principle, they could warehouse it with the BIS, and the BIS could warehouse it with the Street. All those options are, from some standpoint, maybe preferable as far as we are concerned. I would even argue that they illustrate the fact that this is a fairly straightforward set of financial transactions. The very fact that it could be done in the private sector suggests that it is perhaps more normal, or less abnormal, than some people think it is. But in principle if we walk away from both sides of that, the Treasury would go ahead and do it anyhow. That's my thought.",351
-fomc-corpus,1995,"Okay, Jerry Jordan, go ahead.",8
-fomc-corpus,1995,"Last March when we entered into the agreement on the swaps, part of that agreement was that there would be a three-country consultation process quarterly and so on. I certainly do not feel that I have had either the quantity or the quality of information as feedback from whatever consultation was taking place to alert us to the situation. So, as long as this is outstanding, I would hope we get a lot better information. It does not have to come at the Committee table, but whatever is being generated by the New York Bank or the Board staff should be sent to us so that we are better informed. Part of the reason I say that is because I live on the south shore of Lake Erie. Maybe if I had Bob McTeer's southern border, I would think differently about it. But from where I sit, I worry about the political and economic situation to the north of Lake Erie very much. If we are not getting good feedback on developments up there,",191
-fomc-corpus,1995,"I'm sorry you have not had sufficient information. I think this upsets everybody; everybody feels that way. We have made a very serious effort at the staff level to improve the reports. You may not read the weekly reports from the Federal Reserve Bank of New York but since shortly after last April, when this consultation process was formalized, some 60 percent of Peter's words in that report have dealt with his consultations with Canada and Mexico. So we have put in extra resources to provide the Committee with additional information on the current financial situation of both Canada and Mexico. It may not be enough, but we have stepped up our efforts. The point about these consultations is absolutely true and I regret that personally. I called the Treasury and asked about it and recommended that we call a meeting of the North American Financial Group in early September to discuss Mexico's exchange rate policy and their strategy. They said ""no."" The next time, I would try to enlist the Chairman of the Federal Reserve in doing that, which might be my normal inclination anyhow. I just resisted it this time. I think we should have used that mechanism beforehand because that in fact was one of the reasons that we insisted it be set up. Having agreed to go up to a $3 billion swap line from the previous $700 million swap line, that was to be part of the quid pro quo. So if we were going to be more tightly bound because of the financing arrangements, we would have a mechanism that we could be more comfortable about. You are perfectly justified in feeling snookered. We all were snookered. I apologize to the extent that we could have minimized that, but we will try harder.",337
-fomc-corpus,1995,"Okay, may I request the Vice Chairman to make individual motions. We need two votes.",18
-fomc-corpus,1995,"Mr. Chairman, I move that we approve the increase in the Federal Reserve swap arrangement with the Bank of Mexico as detailed in the document that Mr. Truman presented to the Committee.",36
-fomc-corpus,1995,Is there a second?,5
-fomc-corpus,1995,Second.,2
-fomc-corpus,1995,We need a recorded vote.,6
-fomc-corpus,1995,Chairman Greenspan Yes Vice Chairman McDonough Yes Governor Blinder Yes President Hoenig Yes Governor Kelley Yes Governor LaWare May I ask a question?,31
-fomc-corpus,1995,"Why are we voting? Aren't we already committed to this program? This document says that we are committed to this program, and Mr. Camdessus says we are committed to this program and that we are going to do certain things. The vote is a kind of formality, isn't it?",60
-fomc-corpus,1995,"No, it's a legal requirement.",7
-fomc-corpus,1995,"If the Committee decides to keep the swap line at $4-1/2 billion, the Treasury understands that. The Chairman made it very clear in his conversation at the Treasury that we might stay at $4-1/2 billion. If the $4-1/2 billion is where the Committee wants to draw the line, that is where it can draw the line.",76
-fomc-corpus,1995,"Let me just say that when the issue was raised with me, I said that I did not have an FOMC vote and that I did not know how the FOMC was going to come out. I indicated that one possibility was that the FOMC would keep the swap line at $4-1/2 billion. I said I would request an increase, because I thought that was the right thing to do. But I in no way suggested that I knew how the vote was going to come out.",104
-fomc-corpus,1995,"I will vote ""yes,"" but only because we improve our credit position as a result of doing so.",21
-fomc-corpus,1995,That is the reason why I said I would make the recommendation.,13
-fomc-corpus,1995,Governor Lindsey I feel committed; I'm going to vote No. President Melzer No President Minehan Yes President Moskow Yes Governor Phillips Yes Governor Yellen Yes,31
-fomc-corpus,1995,Can we get a second motion?,7
-fomc-corpus,1995,"Mr. Chairman, I further move that the Committee approve the expansion of the warehousing agreement to $20 billion as established and set forth on the second page of Mr. Truman's submission to the Committee.",41
-fomc-corpus,1995,Do we have a second?,6
-fomc-corpus,1995,Second.,2
-fomc-corpus,1995,Chairman Greenspan Yes Vice Chairman McDonough Yes Governor Blinder Yes President Hoenig Yes Governor Kelley Yes Governor LaWare Yes Governor Lindsey No President Melzer No President Minehan Yes President Moskow Yes Governor Phillips Yes Governor Yellen Yes,48
-fomc-corpus,1995,When is our next meeting?,6
-fomc-corpus,1995,March 28.,4
-fomc-corpus,1995,"Since the next meeting is such a long time from now, I think it would be worthwhile to have periodic telephone conferences on Mexico to keep everybody up to date as best we can. See you all next time.",42
-fomc-corpus,1995,Would somebody like to move approval of the minutes?,10
-fomc-corpus,1995,So move.,3
-fomc-corpus,1995,"Without objection. The Committee has received a memorandum on the delegation of responsibility for appeals of staff decisions to deny access to Committee records under the Freedom of Information Act. The need for this delegation stems from the vacancy that was created when David Mullins resigned from the FOMC. The recommendation is to follow past practice and elect the individuals who are involved in the similar function with respect to the Board of Governors--Governor Phillips as the principal and Governor Yellen as the alternate--to serve in that function for the FOMC. Does anybody have any questions with respect to that memorandum? If not, would somebody like to move it?",126
-fomc-corpus,1995,So move.,3
-fomc-corpus,1995,Without objection. I turn to the Vice Chairman for a nomination to elect a Deputy General Counsel from the Federal Reserve Bank of New York.,27
-fomc-corpus,1995,"Thank you, Mr. Chairman. Ernie Patrikis, who has been serving in that position, has been elected with the approval of the Board of Governors to the position of First Vice President of the Federal Reserve Bank of New York, effective June 1. His successor as the General Counsel of the New York Bank and the person we recommend as Deputy General Counsel of the FOMC is Thomas Baxter. Mr. Baxter is 40 years old, even younger than most of us, and a graduate of Georgetown University. His specialty has been litigation. We consider him an outstanding attorney and a very fine person, and we are proud to recommend him to you.",132
-fomc-corpus,1995,Would somebody like to move that nomination?,8
-fomc-corpus,1995,Move it.,3
-fomc-corpus,1995,Would somebody second it?,5
-fomc-corpus,1995,Second.,2
-fomc-corpus,1995,"Without objection. Next we move to the election of an associate economist from the Federal Reserve Bank of Chicago. President Moskow, would you like to address that?",32
-fomc-corpus,1995,"Mr. Chairman, I would like to nominate William Curt Hunter as the associate economist representing Chicago. He is now Senior Vice President and Director of Research.",30
-fomc-corpus,1995,Is there discussion? Would somebody like to move it? SEVERAL. So move.,18
-fomc-corpus,1995,Moved and seconded and approved without objection. The next agenda item is a review of the Committee's Program for Security of FOMC Information. There are a number of items in the memorandum you received. I don't want to go over them necessarily. Does anybody have any questions with respect to them? I thought they were pretty pro forma myself. There is the issue of increasing from 4 to 7 the number of persons with access to Class I FOMC materials within each Reserve Bank; that increase would square the number with that for those who have access to Class II materials. I gather that a number of the members have raised this issue. There are a couple of other items of a similar nature. Does anybody have any questions with respect to this matter?,153
-fomc-corpus,1995,"Mr. Chairman, since it is proposed to increase the access to Class I from 4 to 7, that means the same number of people can have access to Class I and to Class II as you noted. It might be of some value, at least to us, if we could also move up by 3 the access to Class II. I don't know if there would be any problem with that; at least I want to raise it as a possibility.",93
-fomc-corpus,1995,"The reason for the proposal to increase staff access to Class I is basically that Jerry Jordan and I think some others among you have raised questions about the current limit and have suggested moving it up from 4. The Secretariat, I assume in its exuberance, said ""Well, 4 is an exotic number so why not try 7?"" I wonder whether 7 may be too high and whether we ought to back off that to keep a gap between Class I and Class II. Suppose we did raise Class I to 5. Is that a problem?",111
-fomc-corpus,1995,No.,2
-fomc-corpus,1995,"President Jordan's,suggestion was to go from 4 to at least 6.",17
-fomc-corpus,1995,How much higher do you want to go?,9
-fomc-corpus,1995,I am not sure why it is helpful to have access to Class I and Class II differ.,19
-fomc-corpus,1995,"The basic presumption is that there are fewer people designated ""top secret"" than ""secret."" Now, whether that is a valid judgment--[Laughter]",32
-fomc-corpus,1995,I think it would be desirable to allow a few more people to have access to less important information for the experience of reading it and understanding it.,29
-fomc-corpus,1995,"I think the issue here is basically not the Class II; it's the Class I. Since the proposal is to give all those who now have access to Class II access to Class I as well, is there any status to having Class I clearance? I don't know. Mr. Secretary, do you have any suggestions on this? I got away a very long punt! [Laughter]",77
-fomc-corpus,1995,I'm sorry I made my suggestion!,7
-fomc-corpus,1995,"When it comes to returning punts, I am no Brian Mitchell, I can tell you that! I would suggest that you let me poll the rest of the Committee to see whether people really want to move from 7 to 10 on access to the Greenbook. This is a pretty sensitive document; that is what we are talking about. I don't know if Mike has any views on this.",79
-fomc-corpus,1995,We are talking about Part I.,7
-fomc-corpus,1995,"Yes, Part I of the Greenbook.",9