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fomc
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President Fisher.
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I just have a quick question, going back to the oil issue. There are some 770,000 outstanding futures contracts on the NYMEX. If you look at the CFTC [Commodity Futures Trading Commission] data, 11 percent of those are noncommercial players--what they call Wall Street and city refiners. To the extent that the staff mea...
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Well, we've certainly been hearing a lot about so-called speculative players in the market. With respect to oil markets, inventories actually have been trending up a bit even as prices are going up. So, there's some kind of speculative activity going on currently, it would appear. But as for parsing out exactly how muc...
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We do, obviously, have the data weekly on the net positions of noncommercial parties. And they are effectively a claim against the inventories, which by definition are held only by commercial parties. My recollection is, however, that the information has not been terribly useful in projecting prices. There doesn't seem...
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I was just curious about whether we know or feel that they can exacerbate trends in a direction.
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Yes, they probably do. But the explanatory part of the price moves owing to that particular set of data is less than significant--or at least we haven't been able to infer any significance.
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Thank you, Mr. Chairman.
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Who would like to start the Committee discussion? President Moskow.
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Thank you, Mr. Chairman. In recent weeks we've heard a wide variety of views about business conditions in the Seventh District. Most sectors have good news as well as some bad news but, overall, conditions are positive and seem consistent with an economy growing near trend. Evidently, accommodative policy is offsetting...
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President Santomero.
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Thank you, Mr. Chairman. Economic conditions in the Third District softened somewhat in late spring, but this appears to be temporary and our business contacts continue to expect gains in line with recent trends. Retail sales fell in May. For many area retailers, this was attributed to cold and rainy weather in the ear...
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President Guynn.
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Thank you, Mr. Chairman. Anecdotal reports from our regional contacts and the most recent data releases suggest that business conditions in the Southeast have remained positive since our last meeting. Florida, as has been the case for some time, has been dominant in terms of both employment growth and the pace of econo...
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Let's take a break for coffee. But owing to what must have been a record question period after the chart show, we're running a little behind schedule, so let's return quickly.
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President Hoenig.
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Thank you, Mr. Chairman. First of all, our view regarding the national economy is basically similar to others I have heard here. We agree with the consensus of GDP growth running about 31/2 percent, slightly over our potential rate. And we see that going forward through the rest of this year and into next year. I also ...
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President Minehan.
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Thank you, Mr. Chairman. New England continues to expand but probably more slowly than the nation. At our last meeting, I spoke of a couple of bumps along the road to a stronger regional economy. Those bumps remain--in particular, rising concerns about slow job growth, rapidly growing input costs, the strength of deman...
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President Fisher.
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First, let me say that I'll eschew any and all sports analogies in my presentation and give it to you more or less straight up. The oddity about our District is that we have almost no banks but we have enormous producers for the economy. For example--and I'm prefacing my remarks this way for a purpose--together with th...
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President Pianalto.
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Thank you, Mr. Chairman. Business activity in the Fourth District has not changed very much during the intermeeting period. Business conditions in the region are okay, but not great. Many of the business contacts I talked to report that their business is better in other parts of the country than in our District. Recent...
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President Stern.
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Thank you, Mr. Chairman. Anecdotes from our directors and others, incoming data on the regional and national economies, and the results from running our forecasting models all appear to me to be consistent with real GDP growth of 3 percent or more. Personally, like many others, I expect growth of around 31/2 percent--t...
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President Yellen.
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Thank you, Mr. Chairman. At our last FOMC meeting, I worried about a slowdown in growth and a pickup in inflation. I hypothesized and hoped that both would prove transitory. On the whole, I consider recent data reassuring that the soft patch in the spring was just that--maybe not even that--and not a precursor of a mor...
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President Poole.
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Thank you, Mr. Chairman. I want to start by saying that I thought the staff presentation was very comprehensive and very sound, including the discussion of risks and standard errors. So I congratulate the staff on a very fine job there. Let me just summarize very quickly key anecdotal information that I have gathered. ...
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President Lacker.
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Thank you, Mr. Chairman. Economic activity in the Fifth District advanced moderately in May and June. The survey results we released earlier this week showed that manufacturing shipments edged higher and that revenues of service firms grew somewhat more quickly this month. New orders in manufacturing seemed to slip thi...
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Vice Chair.
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Thank you. We're somewhat more confident in the strength and sustainability of the expansion than we were in May. Our view is very similar to the staff forecast. We expect real GDP growth to average roughly 31/2 percent over the forecast period. We expect core PCE to follow a somewhat higher path and to end the forecas...
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Governor Ferguson.
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Thank you, Mr. Chairman. The issues before us at this meeting are two. The first is: Are we going to be dissuaded from the announced strategy of another modest tightening in monetary policy? And second: Is there palpable need to adjust market expectations of policy going forward? We might be dissuaded, or feel obliged ...
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Governor Kohn.
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Thank you, Mr. Chairman. I made only small revisions to my forecast from last January. We've seen some notable fluctuations in data and sentiment over the last five months, but basically I think we've ended up pretty close to where we started, with prospects for growth that are close to the growth rate of potential, pe...
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Governor Bies.
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Thank you, Mr. Chairman. I thought I'd focus my remarks today on the topic we discussed yesterday--the housing markets. And then I'd like to talk a little bit about some of the liquidity issues in housing markets and relate that to monetary policy. Let me start by saying that overall I agree that there is not a major r...
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Governor Olson.
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Thank you, Mr. Chairman. As Susan indicated, I, too, looked at the mortgage market in anticipation of the theme of our discussions yesterday. But I also had a concern about the extent to which the mortgage market might be creating froth in the market. I interviewed several of the largest mortgage originators. I talked ...
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Governor Gramlich.
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Thank you, Mr. Chairman. I'll let Tom respond on behalf of the Kansas City Royals. [Laughter] This will be my 62nd and last statement at one of these meetings, and if you'll bear with me I'd like to give a few parting thoughts before I ride off into the sunset. I believe most of us think about monetary policy in terms ...
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Governor, I don't recall when anyone got applause. [Laughter] I think what they were applauding was not necessarily your speech but your character. SEVERAL. Hear, hear.
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Vincent, I hate to put you in a position to follow that. [Laughter]
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8 I'm fairly confident, Mr. Chairman, that this will not end with applause. [Laughter] I will be referring to the materials that were handed out during your break. No one would be surprised if you admitted that you agreed with Yogi Berra's characterization that it "feels like deja vu all over again." Once more, the mar...
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Thank you. Questions for Vincent? If not, let me proceed. This is a quite interesting meeting in the sense that we're obviously approaching the transition. We're not quite there but we're debating all the various elements of it, and I suspect that's the right thing to be doing at this stage. Indeed, I suspect it's the ...
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Mr. Chairman, I support your proposal to raise the fed funds rate another 25 basis points, and I support the language in alternative B, which I believe is accurately represented on this piece of paper. In my view, this statement is as close to neutral as we could get relative to current expectations, and I think that's...
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President Minehan.
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I, too, agree with your recommendation, Mr. Chairman, and with the language of the draft. I particularly concur with your assessment of the loss function in terms of how we should think about policy. While I'd like to make ongoing changes in this statement, now is not the time to do it. So, I'm on board.
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President Fisher.
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I support the 25 basis point increase in the funds rate. My only concern about the statement is the word "elevated" in reference to pressures of inflation. But, like President Minehan, I don't think this is the time to argue.
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Governor Kohn.
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Thank you, Mr. Chairman. I agree with your recommendation, and I agree with the alternative B statement that you proposed. I have two comments: One is that you said markets would be three weeks ahead of us. But one thing that's different is that we're providing them with more guidance now. So I think we need to be very...
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Governor Gramlich.
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I support everything, Mr. Chairman. I would have never guessed that this tautological balance of risk statement would outlast me. [Laughter]
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President Stern.
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I, too, support the recommendation and the language, Mr. Chairman.
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President Guynn.
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I support your recommendation, Mr. Chairman.
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President Hoenig.
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Yes, I'm fine with your proposal.
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President Yellen.
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Mr. Chairman, I support your recommendation. Like President Fisher, I'm concerned about the language describing inflation. I think it will be somewhat of a surprise to the market, which is taking some comfort from recent inflation data, and it may well perturb expectations upward. But I support the recommendation.
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President Moskow.
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Mr. Chairman, I support your recommendation on both the language and the increase in rates. I would just add two points. One, in the go-round there was a clear concern that core inflation forecasts have gone up, and a number of people said that the forecasts were now in a range that was at the upper end of their comfor...
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Governor Ferguson.
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I support both parts of your recommendation.
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Governor Bies.
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Mr. Chairman, I support your recommendation.
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President Santomero.
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Mr. Chairman, I support your recommendation and the wording. I also like the way you expressed the loss function; it corresponds closely to my own view on the matter.
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President Poole.
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I support the recommendation on the policy action and the statement.
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President Lacker.
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I support your recommendation, Mr. Chairman.
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President Pianalto.
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I support your recommendation, Mr. Chairman.
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Governor Olson.
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I support the recommendation.
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Would you read the appropriate resolution?
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I'll be reading the directive from page 30 of the Bluebook and the balance of risk assessment from the draft statement: "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 ...
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Call the roll.
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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
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Let me ask that the Board of Governors repair to my office for the consideration of other subjects. [Recess]
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The Board of Governors has just approved an increase in the discount rate to 41/4 percent, as requested by all 12 of the Reserve Banks. Our next FOMC meeting is scheduled for August 9. We'll now go to lunch and honor our departing colleague.
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Good morning, everyone. Dino, please start us off.
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1 Thank you, Mr. Chairman. I'll be referring to the charts in front of you. During the intermeeting period, market participants confronted the surprise Chinese revaluation, strong domestic data, and high oil prices. On net, the result in the market was higher yields and equity prices. The top panel of the first page gr...
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You raised the issue of the questionable efficacy of the dynamic hedging engaged in by Fannie and Freddie earlier this year or last year--I've forgotten exactly when. I don't recall it being both GSEs, and I wasn't quite clear whether that was just a general rumor or what. Is that now confirmed?
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Well, I actually had a different institution in mind--a very large player in this market who did have some issues in '03. And they have now changed their hedging strategies.
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I understand that. You weren't referring to something new; you were referring back to the original problems.
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Yes.
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Did they ever acknowledge that that was a problem?
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Well, a fact is something that can be observed and verified, and I'm talking--
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No, I realize that. But as far as I know, they have never acknowledged that dynamic hedging did not work for them at that time.
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Well, let's put it this way: Some institutions do it better than others, and there were some institutions that didn't do it very well in '03. Patricia, do you want to add something?
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Yes, I think that's exactly right. The one GSE that had relied historically on a lot more--
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Just because he is running for governor or something like that, you don't have to be that diplomatic. [Laughter]
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The one GSE that traditionally had done a lot of dynamic hedging had already started, even in 2003, to shift over to more options hedging. But a couple of depository institutions did not make such a big switch. For one particularly large firm, the results of poor dynamic hedging showed up in their operating results, an...
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Well, as far as you can judge, in the mortgage market has there been a significant reduction in the proportion of dynamic relative to passive hedging that has occurred subsequent to that episode? And has it stayed down?
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Yes.
2