Source stringclasses 1
value | Date int64 1.98k 2.01k | Text stringlengths 2 27.1k | Token_count int64 1 5.57k |
|---|---|---|---|
fomc | 2,005 | Is there much dynamic hedging going on at all? | 11 |
fomc | 2,005 | There is some. Almost everyone dynamically hedges some portion of their convexity. Certainly, mortgage servicers still do some dynamic hedging, as do the GSEs. And hedge funds and fixed income funds that hold mortgages do some dynamic hedging. So there is some, but it's a substantially lower proportion than it was thre... | 69 |
fomc | 2,005 | Going from passive to dynamic hedging, if you do it right, does enhance the bottom line. And it could be significant, so that the attraction is really quite strong. Well, I think I've squeezed about as much as I'm going to get out of you on that. [Laughter] Second, regarding the pickup in mortgage-backed security holdi... | 186 |
fomc | 2,005 | Right. | 2 |
fomc | 2,005 | Do we know that? | 5 |
fomc | 2,005 | Yes, because all of these securities are on Fedwire. We as custodians are not holding any physicals or other white labels that are not on Fedwire. So these would all be Freddie, Fannie, or Ginnie, but in fact, they are mostly Fannie and Freddie. | 59 |
fomc | 2,005 | They don't hold Ginnies; it doesn't help that much. Do you get the impression that the mortgage-backed securities are in lieu of U.S. Treasuries? Do the central banks tell you anything? | 41 |
fomc | 2,005 | I think in part there's a diversification effect going on because some of these central banks have such large reserves that they have expanded out the risk curve. So they've expanded their holdings from Treasuries to agency securities to MBS to corporate bonds, and some even to equities and ABS [asset-backed securities... | 111 |
fomc | 2,005 | Well, if you have a GSE guarantee of an MBS, for example, why does it sell at as much of a spread above debentures of the GSEs? Is the option to refinance the whole difference? | 46 |
fomc | 2,005 | It's the optionality. It's the unpredictability of when you get your cash back. | 17 |
fomc | 2,005 | So it's no credit risk differential. | 7 |
fomc | 2,005 | I would not see it that way. | 8 |
fomc | 2,005 | All right. I noticed you made a particular point of the solemn statement by the People's Bank of China that the July 21 move was not the first step in a series of changes. Doesn't that strike you as what a Finance Minister would say when asked the question, "Mr. Finance Minister, are you about to revalue?" [Laughter] T... | 114 |
fomc | 2,005 | Well, the market thought that the July 21 move was a first installment, and they were encouraged to believe that by some of the initial statements. And then in the July 26 statement they did an about-face. | 44 |
fomc | 2,005 | But I'm asking: Why does the July 26 statement have any value whatsoever? It's a perfectly obvious thing to say if you're a central banker, even if you're preparing to revalue six months later, or three months later, or any time. | 49 |
fomc | 2,005 | Well, I think the July 26 statement basically sent a signal that there wasn't going to be as much flexibility as the market thought. | 27 |
fomc | 2,005 | All you've got to do is watch the actual transactions. | 11 |
fomc | 2,005 | Right, and very little movement or shift has occurred. So I think the markets are saying that this is either a basket of one [laughter] or it's a basket where the dollar is 95 percent of the basket and that's really what they're targeting. | 51 |
fomc | 2,005 | Or the market could do correlations of the dollar against all other currencies and then presume the basket consists of all those in which the R2 is above 0.9. [Laughter] Governor Bies. | 42 |
fomc | 2,005 | I wanted to follow up on your comments about mortgage hedging. I'm hearing concerns that there is increased hedging activity for servicing rights on the new option ARMS. To the extent that they are servicing rights, the risk is the prepayment risk, and historically banks have found it very hard to come up with any kind... | 122 |
fomc | 2,005 | Trish? | 3 |
fomc | 2,005 | They're trying to model it. I don't know if they have found any good ones; you're absolutely right about that. These products have not been widely used; they've tended to be used by a narrow segment until fairly recently. ARMs do have different prepayment characteristics. I know from what I've read from the folks who s... | 149 |
fomc | 2,005 | Isn't that a costly hedge, given the indeterminacy of the behavior of some new product such as that? The prepayment pattern is virtually unknown. | 31 |
fomc | 2,005 | It is. That's exactly right. They do the best they can with the limited history and information they have from the way the market has behaved in the past. But it has not been a very big market because a lot of these weren't securitized until fairly recently, so they weren't priced very well. Therefore, unless you have ... | 91 |
fomc | 2,005 | The big question is who is buying the securitized versions of these. I can understand that there are originators who get the fee and then sell it on to X. I always wonder: Who is X? | 42 |
fomc | 2,005 | From the little information that we have gathered, it's a fairly wide array of investors--from hedge funds to a very large number of international investors. I don't know if central banks are buying these, but-- | 41 |
fomc | 2,005 | Well, if you package something with a lot of yield, there are buyers out there waiting for that. | 21 |
fomc | 2,005 | Exactly. That's true. | 5 |
fomc | 2,005 | President Minehan. | 4 |
fomc | 2,005 | To move from the mortgage-backed market to Treasuries, there was an interesting article over the weekend regarding a squeeze on the 10-year note. I'm wondering what you have seen on that and what you think about it. | 45 |
fomc | 2,005 | Yes, there have been a couple of articles in the last two days about that situation. In my view, that particular article in the New York Times was somewhat exaggerated and had some facts wrong. That said, the cheapest-to-deliver into the contract in June was very tight. But to conclude that there was a squeeze as a res... | 190 |
fomc | 2,005 | I think that's right. This has been an evolving pattern over the past several futures settlements. There was a pattern in the last few months of pronounced tightness in the particular issue that we're talking about, which is the February 2012 note. And it is the case that currently the cheapest-to-deliver issue into th... | 81 |
fomc | 2,005 | Does that have any implications for where the 10-year rate is on the yield curve? | 18 |
fomc | 2,005 | Yes, potentially. These issues that enjoy a lot of "specialness" in the repo market because they can be financed cheaply tend to trade noticeably below the yield curve, at least at times. | 39 |
fomc | 2,005 | It's a few basis points. It can be five to ten basis points, which at one level is a lot. At another level, it's merely the market forces at work. | 35 |
fomc | 2,005 | So you think it's a supply issue and not comparable to the Salomon Brothers situation where there was some actual desire to keep stock off the market. | 29 |
fomc | 2,005 | Well, at core, I think it's a supply issue. By the same token, that doesn't mean you won't have people trying to take advantage of that. | 31 |
fomc | 2,005 | Right. I notice that the Treasury is looking into it. | 12 |
fomc | 2,005 | But there's no evidence that I'm aware of that there was anything of the kind of situation that Salomon presented a few years ago. | 26 |
fomc | 2,005 | Further questions for Dino? If not, would someone like to move to ratify the transactions? Vice Chair. | 22 |
fomc | 2,005 | So moved. | 3 |
fomc | 2,005 | Without objection, they are approved. We'll turn now to David Wilcox and Karen Johnson. | 18 |
fomc | 2,005 | Thank you, Mr. Chairman. A corollary to Murphy's law is that the biggest forecast errors on an employment report always occur when the report comes between Greenbook publication day and the FOMC meeting. [Laughter] Last year, in an event that undoubtedly is seared more into my memory than yours, the corollary held true... | 2,135 |
fomc | 2,005 | The staff outlook for real GDP growth abroad is little changed this time from that in the June Greenbook. Economic expansion in our foreign trading partners has rebounded from its subdued first-quarter pace, and we expect that it will firm somewhat more later this year and next. Nevertheless, three elements of our base... | 1,515 |
fomc | 2,005 | David, what's the latest weight for the nonmarket component of core PCE? | 16 |
fomc | 2,005 | It's about 20 percent. | 6 |
fomc | 2,005 | I know in the CPI it's of the same category or even larger, so to speak. But is there any question about the weight of that? Is it generally accepted as the right number? It's a very big number. | 44 |
fomc | 2,005 | It is a very big number. These nonmarket elements are, I think, by definition not included in the CPI. | 24 |
fomc | 2,005 | Correct. Most of them are not in the CPI. | 11 |
fomc | 2,005 | I was merely referring to the owners' equivalent rent and that sort of thing, which is the same type of calculation. | 24 |
fomc | 2,005 | Well, owners' equivalent rent for this purpose is defined as a market component even though it, too, was imputed by the BEA. In general, our clear preference is for the weighting scheme embodied in the PCE price index as opposed to the consumer price index. We think that gives a more realistic portrayal of the market b... | 68 |
fomc | 2,005 | The revisions they made are huge. | 7 |
fomc | 2,005 | They are. For better or for worse, the fact is that they mostly have the character of correcting something that involved either an error or a miscommunication. In one case, it was clearly just a coding error in the computer code for medical services. In the other case--which the BEA doesn't quite portray as an error--i... | 157 |
fomc | 2,005 | Are they going to revise it again next year? | 10 |
fomc | 2,005 | I'm absolutely certain that their hope is that any revisions will be for reasons other than error detection. They will bring on board new source data and new information of all sorts. We're not expecting anything again that would involve revisions of this magnitude. | 47 |
fomc | 2,005 | President Fisher. | 3 |
fomc | 2,005 | David, we've been discussing anecdotal evidence in the last few meetings on the lack of pricing power in the corporate sector. And we've anticipated that margins would be squeezed unless there was substantial top-line or revenue expansion. I'm wondering if you're seeing any evidence that that situation has changed. Is ... | 118 |
fomc | 2,005 | I don't think we are seeing any slippage or deterioration in price pressures. Maybe the most direct piece of evidence on that is just that the last couple of readings on the CPI have come in to the good side of our expectation. I think that's the best summary statistic I can cite. From the orders contacts that we have ... | 156 |
fomc | 2,005 | With respect to the trend, over the Greenbook forecast horizon, the dollar is now, on average, depreciating in real terms about 11/2 percent, and in previous Greenbooks the comparable figure would have been about 11/4 percent. So we've deliberately constructed it so that the 11/4 percent embedded the notion that a bloc... | 258 |
fomc | 2,005 | President Santomero. | 5 |
fomc | 2,005 | David, I thought your discussion of the details of the Greenbook forecast was very enlightening. I want to congratulate you for the presentation. The implications for inflation that flowed from that were clearly stated. The question I have is whether the confidence band around your forecast for inflation has changed ve... | 66 |
fomc | 2,005 | I can't think of any reason off the top of my head for the confidence band to have changed. We certainly perceived no asymmetry in the risks. We've gone to enormous effort this time, as always, to present to you a forecast with balanced risks. I don't see any reason why the width of our confidence band should have narr... | 180 |
fomc | 2,005 | Could I add just one other point to that question? The output gap is smaller, essentially shrinking to almost nothing by the end of the year, and there's less slack in the economy. Does that factor into your answer to Tony's question? | 48 |
fomc | 2,005 | No, it doesn't because in our inflation models, the output gap enters linearly. So it has the same effect at the margin, whether it's 0.7, as it was at the end of the projection last time around, or 0.1 as it is this time. We are very uncertain about what the actual magnitude of that output gap is, but the fact that ou... | 157 |
fomc | 2,005 | Yet theory would suggest it has got to exist. | 10 |
fomc | 2,005 | Well, I think the best metaphor for the way we take this measure of the output gap into account is that we view it as a barometer. It's an indicator of pressure. At any given moment in the economy there are going to be sectors and regions that have more pressure than others. So if the output gap is well constructed, wh... | 109 |
fomc | 2,005 | It's the interaction effect between industries. If a couple of them are starting to squeeze, the interaction picks up. And it becomes a geometric, not an arithmetic phenomenon, as everybody moves toward capacity. | 39 |
fomc | 2,005 | There used to be a view--I'm thinking back to the Brookings 1960s view--of an L-shaped supply curve. | 27 |
fomc | 2,005 | Well, how about a J? [Laughter] | 11 |
fomc | 2,005 | I'll give you J. [Laughter] You know, our ability to detect these kinds of things in the aggregate data is not very good, especially against-- | 32 |
fomc | 2,005 | No, I understand that. But there's an interesting question here about policy. I think you're quite obviously correct that it's very difficult to find because it's not a point estimate; it's obviously some sort of function. But at the end of the day, there has to be a fixed absolute ceiling at some point. As you approac... | 96 |
fomc | 2,005 | Just to be clear, we don't see potential as a sort of physical maximum. | 16 |
fomc | 2,005 | It's a barometer. | 5 |
fomc | 2,005 | It's a measure of the sustainable rate of output which can be maintained with all other factors either contributing to inflation or deducting from inflation so that productive capacity isn't itself lending any impetus up or down to inflation. That's not to say that output can't transitorily go above potential. It's not... | 72 |
fomc | 2,005 | President Lacker. | 4 |
fomc | 2,005 | Yes, I have a question and a comment. The question is whether the revision in the nonmarket core PCE price index should cause people to revise the number they carry around in their heads for the documented upward bias in the PCE. | 48 |
fomc | 2,005 | That's a very deep question, and I think the answer-- | 12 |
fomc | 2,005 | As opposed to the others. [Laughter] | 10 |
fomc | 2,005 | If we could engage in a little Orwellian history, I think what we would prefer to do is to go back and revise our old estimate of the bias in inflation. We might maintain our estimate. Or we might say, "Oh, there was something in the data that I didn't understand before so if I thought the upward bias was 0.9 percent, ... | 87 |
fomc | 2,005 | Would you explain to me what "upward bias in a nonmarket component of the PCE" means? | 22 |
fomc | 2,005 | I was asking if this corrects any known sources of bias. If you're looking for sources of bias and document them, and this doesn't affect any of those, then it strikes me that it shouldn't change our notion of the upward bias, right? | 49 |
fomc | 2,005 | Having made this correction, if you thought the bias was X before, not knowing about the mistakes in the-- | 22 |
fomc | 2,005 | We should still think it's X. | 7 |
fomc | 2,005 | Yes, you should still think it's X. | 9 |
fomc | 2,005 | All right. Thanks. My comment has to do with your line of questioning, Mr. Chairman. It doesn't seem to me from the models I'm aware of that reaching that wall, as you put it, has to result in an acceleration of nominal things as opposed to real things, which would accelerate. The late '90s seems to me a good example w... | 108 |
fomc | 2,005 | I wish it were true. It conceivably might be true, but I'm not sure the evidence is fully consonant with that view. Let me put it this way: The concept of capacity 50 years ago for a lot of industries was an engineering concept. There was just so much steel you could get out of an open hearth steel furnace without an o... | 265 |
fomc | 2,005 | Thank you, Mr. Chairman. | 7 |
fomc | 2,005 | President Yellen. | 4 |
fomc | 2,005 | My comment concerned the nonmarket portion of the core PCE and its revisions, and you've covered much of what I wanted to get at in your answer to the Chairman. I don't want to belabor the point, but I will spend just a minute on it. In looking at this very large revision in the nonmarket component, I naturally ask mys... | 371 |
fomc | 2,005 | While I agree with every aspect of what you said, where one is left at the end of the day is with a difficult question as to how to judge truth. In the case of gasoline, we can go out and conduct an independent sample of the price of gasoline at filling stations around the country, and we can assess whether the measure... | 156 |
fomc | 2,005 | I admit that there's something arbitrary about the methodology that is used. But the change we see is not due to a change in the methodology for assessing the truth. One could use a different methodology. The change is akin to new information that, given a fixed methodology, tells us that inflation was really worse in ... | 68 |
fomc | 2,005 | That's exactly correct. Yes. | 6 |
fomc | 2,005 | President Poole. | 4 |
fomc | 2,005 | I'd like to ask about the labor force participation rate. You show a sustained downward trend, and I think that has a lot to do with the elimination of unused resources in the labor market, because your projection is for the labor force participation rate to stay about constant. But you have the trend participation rat... | 127 |
fomc | 2,005 | I can point to two main factors. One is simply the aging of the population. The baby boom cohorts are moving into an age of lower participation rates. | 31 |
fomc | 2,005 | This is participation for everyone over age 18? | 10 |
fomc | 2,005 | No. | 2 |
fomc | 2,005 | So it includes that part of the population that is above age 65? I'm talking about the definition of the rate. | 24 |
fomc | 2,005 | People my age and older are moving into lower participation rate categories. That alone, on our estimates, has been taking about a tenth of a percentage point off the trend participation rate per year since 2002. So that's the predominant factor. The other factor that we think we see is a leveling off in the participat... | 100 |
fomc | 2,005 | But your trend rate is down more than a percentage point from the level that was sustained in the late '90s. | 24 |
Subsets and Splits
No community queries yet
The top public SQL queries from the community will appear here once available.