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fomc | 2,005 | I understand what you're saying, Bill. I must admit that I don't think what you're suggesting is possible. I think that is the dilemma that we are confronted with. We have the advantage of having brought forward the release of the minutes. The issue that I raised at the very beginning of my remarks--namely, that the ma... | 119 |
fomc | 2,005 | I've said my piece. | 5 |
fomc | 2,005 | President Hoenig. | 4 |
fomc | 2,005 | Well, I'm fine with where you're going on this. I do agree that we ought to talk about this at a future meeting. I'm more in favor of shortening the statement and just relying on the minutes. Others have different views. But with where we are today, with inertia, I think I'm fine with your proposal. | 64 |
fomc | 2,005 | President Guynn. | 4 |
fomc | 2,005 | Mr. Chairman, I think we have a conundrum--another one--with a capital C on this language issue. We can't seem to get unstuck from it. I've probably already said enough. I agree with what Bill Poole said, but I'm not sure I understood your response. I think it's absolutely critical that the minutes that are going to co... | 255 |
fomc | 2,005 | We have a lot of time to do that. It's called "eight weeks." [Laughter] President Minehan. | 24 |
fomc | 2,005 | I know I'm in the minority here--not of the last several speakers, but overall in the minority. But I'm starting to feel like Alice in Wonderland with this statement--you know, jam tomorrow, jam yesterday, but never jam today. It's never the time to change the statement. And frankly, I do feel that we have a unique opp... | 181 |
fomc | 2,005 | Cathy, that's not my view. I've said we have alternatives. We can change the language before we stop raising rates. We don't have the choice to decide at one point to stop raising rates and with the statement hold open the likelihood that we are going to raise rates at the next meeting. That is not the same thing as sa... | 80 |
fomc | 2,005 | Well, that's what I interpreted you as saying, and obviously I was wrong. | 16 |
fomc | 2,005 | I apologize; that was not my intent. | 9 |
fomc | 2,005 | I apologize as well. In any event, I've probably said enough before on what I'm concerned about. I do think we need to get out of promising to do something about which there is a greater degree of uncertainty at this meeting, and presumably at subsequent meetings, than we felt two or three meetings ago. I don't think t... | 309 |
fomc | 2,005 | President Santomero. | 5 |
fomc | 2,005 | Thank you, Mr. Chairman. I can support your proposal as you laid it out. If my earlier comments had any direction, it was that I think there is some benefit to trying to shorten up a little what is now conveyed in sentences 5 and 6 and to say a bit less. But we've added words rather than subtracting some. I understand ... | 139 |
fomc | 2,005 | President Fisher. | 3 |
fomc | 2,005 | Again, Mr. Chairman, I'm new, and I want to be appropriately humble and respectful. I listened very carefully to what you were saying. The way I interpret the first part of what you said is that we don't want to signal the market that we know something the markets don't anticipate or don't know. Having been a market op... | 282 |
fomc | 2,005 | Governor Ferguson. | 3 |
fomc | 2,005 | Thank you, Mr. Chairman. I've already said I support 25 basis points. I also support your broader perspective that we should try to keep the language pretty much unchanged. Given what has already been said, let me just make three or four comments. First, on the word "measured." I already talked about that, and I agree ... | 732 |
fomc | 2,005 | President Moskow. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. I agree with your recommendation on both counts--the 25 basis points and alternative B. I know we always say that we will know a lot more at the next meeting, but this time we really will. [Laughter] We're going to have two sets of price data and two sets of employment data, so I think we will ... | 353 |
fomc | 2,005 | Let me point out that it isn't how they do but how they communicate what they do. [Laughter] | 22 |
fomc | 2,005 | Touche. | 3 |
fomc | 2,005 | Is that the end of your--[laughter]? | 11 |
fomc | 2,005 | Yes. | 2 |
fomc | 2,005 | President Yellen. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. I support, of course, your proposal to raise the federal funds rate 25 basis points, and I think the strategy that you suggest with respect to the language in alternative B also has merit for today. It seems to me advantageous at this point to make minimal changes in the statement, as alternati... | 579 |
fomc | 2,005 | Governor Olson. | 3 |
fomc | 2,005 | Thank you, Mr. Chairman. First of all, I will support the 1/4 point increase in the funds rate and the language of alternative B. As I read through alternative B, I think it communicates what we want to communicate. It says that the pace of spending growth has slowed and it repeats our concern about inflation. I will h... | 292 |
fomc | 2,005 | Governor Kohn. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. I support your proposal, both the 1/4 point increase in the funds rate and the alternative B language. I think a measured pace of increase in the funds rate is still our best guess of what we'll have to do. I heard one or two people around the table say that we might be closer to a pause than w... | 380 |
fomc | 2,005 | President Lacker. | 4 |
fomc | 2,005 | I support 25 basis points and alternative B. I agree that we should not soften the statement at this meeting. And in fact, when I read alternative B, I interpreted it as tightening somewhat by removing the statement about energy prices not having fed notably through to core consumer prices. If anything, I was leaning t... | 421 |
fomc | 2,005 | President Pianalto. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. I also support your recommendation for a 25 basis point increase in the fed funds rate target, and I will also take your guidance on the language. As I said earlier, though, I had a preference for expressing more uncertainty about not only the outlook on inflation but also the timing and magnit... | 83 |
fomc | 2,005 | Governor Gramlich. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. First, I support your recommendation to move the funds rate up 25 basis points and to use the language of alternative B. In my remarks, I made some noise about combining some elements of alternative A; I'm not going to press that. Based on the discussion, I think I've lost that debate. And the ... | 727 |
fomc | 2,005 | President Stern. | 3 |
fomc | 2,005 | Thank you, Mr. Chairman. I, too, think the 1/4 point increase in the funds rate target is appropriate, and the language in alternative B is fine with me today. I don't think it's essential to make any major changes in the language at the moment, and it's probably not a good idea. I do agree with President Yellen and ot... | 139 |
fomc | 2,005 | Governor Bies. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. I support the recommendation to raise rates 25 basis points, and I'll support alternative B. As the Governors know, I've been frustrated with the whole "assessment of risk" piece of this, but yesterday, after thinking about it, I realized that it isn't so simple to craft the alternatives. One o... | 438 |
fomc | 2,005 | Vice Chair. | 3 |
fomc | 2,005 | I think it makes sense for us to raise the funds rate 25 basis points, and I support alternative B. Fortunately, we don't need to decide today whether this statement is going to make sense in its current structure in June or in August or October. We can make the decision at those times. The only thing we need to decide... | 203 |
fomc | 2,005 | Okay. I think we have a consensus on 25 basis points and the wording in alternative B. Would you read the appropriate language? | 27 |
fomc | 2,005 | I'll be reading from page 28 of the Bluebook the language for alternative B: "The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output. To further its long-run objectives, the Committee in the immediate future seeks conditions in... | 157 |
fomc | 2,005 | Call the roll. | 4 |
fomc | 2,005 | Chairman Greenspan Yes Vice Chairman Geithner Yes Governor Bies Yes Governor Ferguson Yes President Fisher Yes Governor Gramlich Yes Governor Kohn Yes President Moskow Yes Governor Olson Yes President Santomero Yes President Stern Yes | 44 |
fomc | 2,005 | I'd like to call a recess and ask the Board of Governors to convene in my office. | 19 |
fomc | 2,005 | The Board of Governors accepted the requests of all twelve Reserve Banks for an increase in the discount rate. Our next meeting is June 29 and 30. But before we adjourn, Dave Stockton would like to make a few remarks. | 47 |
fomc | 2,005 | Just briefly, the special topic at the June meeting will be the question of recent developments in housing, with a special focus on whether or not we think a housing bubble has developed. The lineup is Josh Gallin and Andreas Lehnert here at the Board. They are going to present our views on the probability and potentia... | 218 |
fomc | 2,005 | Thank you very much. Luncheon is served. | 10 |
fomc | 2,005 | Good afternoon, everyone. I think you all are aware that this is the last meeting Governor Gramlich plans to attend. There will be a luncheon in his honor after the meeting ends tomorrow. It's also the last meeting for Ed Ettin, who will retire at the end of July, and for Marvin Goodfriend from the Richmond Bank, who w... | 155 |
fomc | 2,005 | I've got a few things to say, too. | 10 |
fomc | 2,005 | Ah, but I will have the gavel! The first item on the agenda is the selection of Richard T. Freeman as an Associate Economist of the FOMC to serve until the election of a successor at the first regularly scheduled meeting of the Committee in 2006. Would somebody like to move that nomination? | 63 |
fomc | 2,005 | I'll move that nomination. | 5 |
fomc | 2,005 | Without objection, that is approved. We will be discussing a special topic today at your request, housing valuations and monetary policy. You've obviously received the documents the staff has distributed. Mine are buried in this stack here; I have them. Let's turn now to Dave Stockton. | 54 |
fomc | 2,005 | Thank you, Mr. Chairman. We have five briefings this afternoon and the issues covered in those briefings are so intertwined that we thought it would be best if we just presented all five and then opened the floor for discussion and questions afterward. We recognize that a long presentation, coming right after lunch and... | 108 |
fomc | 2,005 | 3 Thank you. My presentation begins on the third page of the handout you received. It seems that everybody is talking about house prices, and the upper panel of your first exhibit shows why: House prices, adjusted for general inflation, have risen at a rapid pace in recent years and did not even pause during the last r... | 2,125 |
fomc | 2,005 | As Josh noted, everyone's talking about house prices; but they also seem to be talking a great deal about mortgages. The popular consensus appears to be that homebuyers, especially in hot housing markets, now make token down payments and can just scrape into their homes by resorting to interest-only mortgages; in this ... | 2,434 |
fomc | 2,005 | Hardly a day goes by without another anecdote-laden article in the press claiming that the U.S. is experiencing a housing bubble that will soon burst, with disastrous consequences for the economy. Indeed, housing market activity has been quite robust for some time now, with starts and sales of single-family homes reach... | 2,200 |
fomc | 2,005 | I will review some general issues related to monetary policy and asset prices. Let me start--at the top of page 1--by assuming that an asset price can, in theory at least, be separated into a component determined by underlying economic fundamentals and a non-fundamental or bubble component. An asset price may be in lin... | 1,690 |
fomc | 2,005 | I'll be referring to the exhibits beginning on page 26. In my presentation today, I'll lay out a few scenarios that illustrate the potential macroeconomic fallout resulting from a significant decline in house prices, and I will examine policy responses that minimize it. I'll start by describing the possible size of the... | 2,294 |
fomc | 2,005 | We're here to answer your questions and to listen to your discussion. | 13 |
fomc | 2,005 | Well, I believe there is a very critical statistical difference here which, before we get very far down the road, I think requires resolution. You three gentlemen are talking about different sets of reality, and you're using the same basic data system. You all use the American Housing Survey, you use OFHEO, and you use... | 331 |
fomc | 2,005 | An interest-only mortgage can be purchased by a GSE if it's below the conforming loan limit. | 20 |
fomc | 2,005 | And how much of the GSE portfolio includes IO loans? Do we know? | 16 |
fomc | 2,005 | At the moment only Freddie Mac, I believe, has a pilot program to buy these, and it's very small. | 23 |
fomc | 2,005 | That was my understanding. Does Fannie do any? | 11 |
fomc | 2,005 | Not yet. | 3 |
fomc | 2,005 | So, for all practical purposes, since private pools have gotten very large but are still somewhat less than the sum of Fannie and Freddie, the Loanperformance data at best are large exaggerations. There's also an interesting question about the second house issue. You're raising the data out of the American Housing Surv... | 355 |
fomc | 2,005 | Sir, I can address that a bit. Actually, Morris Davis, who is an economist here at the Board, has written a paper on that very subject, and-- | 34 |
fomc | 2,005 | Was that a year or so ago? | 8 |
fomc | 2,005 | Just about a year ago, exactly. | 8 |
fomc | 2,005 | I read it. | 4 |
fomc | 2,005 | Okay. I can tell something from the tone of your voice. [Laughter] In any event, the idea there was to look at house prices and construction costs and to try to back out as a sort of mechanical operation--not an easy one--the value of the land. He shows that land prices have increased very rapidly and that the land sha... | 102 |
fomc | 2,005 | As an example, the Chicago Bank publishes quarterly data--fairly detailed data--on land prices in all the states in its District. Does anybody else? | 31 |
fomc | 2,005 | Agricultural land, yes. | 6 |
fomc | 2,005 | Yes. These are your data? You collect them? | 11 |
fomc | 2,005 | Yes, we collect the data. | 7 |
fomc | 2,005 | So you actually have data on each individual farm. You have a database from which one could actually construct the price changes over time to at least learn what is happening as the urban fringe moves out. So you have at least one dimension, which is this issue that you raise with respect to new homes and existing home... | 125 |
fomc | 2,005 | I agree, Mr. Chairman. Those data are being influenced in part by the expansion of residential areas out into what used to be farms or agricultural land. There are some interesting dynamics taking place because, in the Chicago metropolitan area, a lot of this land is now being used for residential purposes. However the... | 161 |
fomc | 2,005 | It's capitalized into the land price. | 8 |
fomc | 2,005 | Clearly. | 2 |
fomc | 2,005 | But you still have to pay the agricultural subsidy to buy the land to build a house. There's no way to get out from under that. | 28 |
fomc | 2,005 | Mr. Chairman, we have, in fact, looked at farmland values and at the data that are collected by the Reserve Banks, and there has been an appreciable acceleration in farmland prices. It varies a considerable degree by District. For example, in areas like the San Francisco District or the Richmond District, where the int... | 276 |
fomc | 2,005 | We do obviously have BEA [Bureau of Economic Analysis] data on transaction costs and, one would presume, profit margins, so that in a way we have at least one element of the markup over cost. The differences that we're looking at here are so large that it's not a minor question. Indeed, if you take Dick's bubble--or la... | 119 |
fomc | 2,005 | I think Josh and Dick should have an opportunity to talk a little more about their differences of view in this area. | 23 |
fomc | 2,005 | Not that I don't have an opinion. [Laughter] | 12 |
fomc | 2,005 | I thought you'd be the ideal intermediary. [Laughter] | 12 |
fomc | 2,005 | Well, let me make just a couple of observations. | 11 |
fomc | 2,005 | Let me stop you. You've made your point. I think you were responding to the data of your two colleagues. Let them respond, and then you respond to them. | 34 |
fomc | 2,005 | Loosely speaking, what we're trying to do is to get a sense of changes in the price of a typical home--what has been happening to that price over time--adjusting for quality. I guess I'll start with my concerns about the constant-quality figure, and then I'll address Dick's concerns about the transactions price index t... | 239 |
fomc | 2,005 | Have you adjusted that for the modernization per housing unit? | 11 |
fomc | 2,005 | Yes. | 2 |
fomc | 2,005 | How much does that take off? | 7 |
fomc | 2,005 | Well, as Dick pointed out in his briefing, there are data on improvements. So I use those data and divide that by the stock of housing and subtract it off. But on the other side of that argument is the fact that while many homes get additions made to them, all homes are also deteriorating somewhat over time, which will... | 458 |
fomc | 2,005 | I have just three comments. First, I'm not disputing that land prices where houses are being built would be lower than land prices closer to the center of a metropolitan area. The issue is the rate of increase of those land prices. And we don't really know what's happening to the rate of increase of land prices at diff... | 69 |
fomc | 2,005 | It's the weighting effect. As you move out, the price levels are lower, so there's a downward bias, whereas for existing homes that bias can't exist. | 31 |
fomc | 2,005 | That's true. That assumes that there is this nice gradual gradient of price change for land as one moves out from the center of a metropolitan area. I don't know the answer, but my observation is that that is not what occurs. In the New York metropolitan area, for example, I think one could cite many locations where la... | 170 |
fomc | 2,005 | Is there any agreement about what proportion the land is currently--some rough order of magnitude--relative to the total value of homes sold? For example, is land 10 percent of the sales price, on average, or 20 percent or 30 percent? | 52 |
fomc | 2,005 | I think it varies substantially across locations. I think Morris found it to have become quite high; he estimated that the number had moved up above 50 percent. | 32 |
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