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fomc | 2,005 | Well, I think these securities were targeted to international investors more. I find it a little puzzling why it works this way, but it was not the case that these were sold into the domestic market and happened to be bought by international folk and, therefore, isn't that a good sign. These were really targeted for fo... | 114 |
fomc | 2,005 | But isn't the only difference that should exist the transaction cost of the conversion of the currency? | 18 |
fomc | 2,005 | Mr. Chairman, there is also conversion risk. That is, a sovereign government at a later date could limit what its currency could be used for. Witness all the capital controls in the '50s and '60s. | 45 |
fomc | 2,005 | Yes. | 2 |
fomc | 2,005 | So, in principle, if you're guaranteed the payments in dollars, you know you'll get dollars rather than reals that perhaps couldn't be used for as many things later on. | 34 |
fomc | 2,005 | You really begin to get a multiple exchange rate type of thing. So that would explain part of it. If that's the case, however, does the investor know which particular exchange rate he will be hit with? It doesn't strike me that that's a great defense. | 52 |
fomc | 2,005 | No. You are basically taking on country risk and exchange rate risk when you buy these issues. | 19 |
fomc | 2,005 | Is the Colombian issue the same? | 7 |
fomc | 2,005 | I'm not as familiar with the Colombian one. I don't remember the details of that. | 17 |
fomc | 2,005 | I'm not sure either. In Colombia's case, given that there is to a certain extent a dollar component of their economy-- | 25 |
fomc | 2,005 | This is not the status of the Mexican peso issue of several years ago, which was just a pure local currency for the first time ever. | 28 |
fomc | 2,005 | Actually, I believe Colombia's was pure local currency, domestic, at a 10-year maturity for the first time in a long time. | 28 |
fomc | 2,005 | On the bottom of page 3, are these brokerage sector CDS? Is this the mix of their individual portfolios or their estimates of the total market? | 30 |
fomc | 2,005 | No, no. This is if you want to buy protection on, say, Lehman Brothers or Bear Stearns. This is the price of protection on these firms. | 34 |
fomc | 2,005 | Oh, this is the actual credit default swap on Lehman Brothers or on-- | 16 |
fomc | 2,005 | Yes, all eight of them. | 7 |
fomc | 2,005 | This tells you a good deal about the individual firms. That's interesting. | 14 |
fomc | 2,005 | There's a moral hazard in there, too, if you look at it. [Laughter] | 19 |
fomc | 2,005 | I'm going back in the private sector. I've got to know who's risky! [Laughter] That was off the record. [Laughter] | 29 |
fomc | 2,005 | This comes from a private-sector firm, so there's no inside information here. | 15 |
fomc | 2,005 | Vice Chair. | 3 |
fomc | 2,005 | Dino, did I hear you correctly? What is the probability of a move in March? | 19 |
fomc | 2,005 | The probability, based on fed funds futures, I think is pretty low right now. My point was more about the way that people in the markets are slowly coming to view the situation. In this cycle, they've been looking two to three meetings ahead. But the next few meetings are a bit different, obviously. I believe traders a... | 144 |
fomc | 2,005 | Mr. Vice Chairman, the expected funds rate in April, which is a fairly clean reading on the March meeting--is about 5 or 6 basis points above 41/2 percent. So that puts a 25 percent probability of action there. | 51 |
fomc | 2,005 | President Lacker. | 4 |
fomc | 2,005 | Yes. I apologize for even asking this. I may have become color-blind this morning, but I can't tell which firms are which at the bottom of page 3. There are two tiers, right? Don't tell me all of them, but which ones are at the bottom? | 57 |
fomc | 2,005 | It's Citigroup and Bank of America. | 8 |
fomc | 2,005 | Thanks. | 2 |
fomc | 2,005 | Obviously, we've created a full array of insights, which has evoked no questions. [Laughter] We're going to run out of time. | 29 |
fomc | 2,005 | I do need a vote. | 6 |
fomc | 2,005 | You do need a vote. Vice Chair. | 9 |
fomc | 2,005 | So moved. | 3 |
fomc | 2,005 | Without objection, the transactions of the Desk are approved. We'll turn now to Mr. Stockton and Ms. Johnson. | 23 |
fomc | 2,005 | Thank you, Mr. Chairman. Most people that I know really seem to dislike how early holiday decorations go up at the shopping malls these days. Not me. I=m a forward-looking kind of guy who likes to plan ahead. You folks are already on my mind, and I know what would make the perfect holiday gift for you this year: The an... | 2,632 |
fomc | 2,005 | The staff forecast for real GDP growth and inflation abroad is little changed this time from the forecast in the September Greenbook. This is the case despite additional hurricanes, volatile energy prices, and a notable rise in long-term interest rates in several foreign industrial countries during the intermeeting per... | 1,523 |
fomc | 2,005 | Are any commentators looking at the movement of the real trade deficit and raising the issue of J-curve possibilities? | 22 |
fomc | 2,005 | Well, that's always present for a time. | 9 |
fomc | 2,005 | I've seen almost none of it. That's all. | 10 |
fomc | 2,005 | But for example, our J-curve effects last for two or three quarters after the exchange rate changes. People look for this in particular when the dollar is coming down, and the dollar decline ended last December, roughly. So I would say there is presently very little J-curve in the pipeline. There may be a little bit fr... | 81 |
fomc | 2,005 | But this downturn is somewhat unusual. | 7 |
fomc | 2,005 | In nominal imports, but it's sort of going the wrong way. You might say it's the effect of six months of slight dollar depreciation; it could be. But oddly, import prices have been higher than anybody was expecting. So pieces just don't fit for the J-curve. And I think the effect of the dollar depreciation that occurre... | 78 |
fomc | 2,005 | It is the import price data which really undercut it. | 12 |
fomc | 2,005 | Yes. | 2 |
fomc | 2,005 | President Lacker. | 4 |
fomc | 2,005 | Dave, I would like to ask a little more about the Greenbook baseline. First, tell me more by way of characterizing the path of inflation expectations. And second, characterize the forces and the relative weights that bring core inflation down in the second half for next year. | 55 |
fomc | 2,005 | Certainly. Basically, embedded in this forecast is some implicit deterioration in inflation expectations or underlying inflation momentum on the order of about 1/2 percentage point from the end of 2003 into 2006. We think we need some of that to explain the pickup in actual core inflation that we've had, which has been... | 289 |
fomc | 2,005 | How much of the acceleration that you describe in inflation expectations occurs from here out? You talked about a certain amount from '03 to now. | 28 |
fomc | 2,005 | A couple of tenths. One of the reasons for raising this issue is that it remains a matter of considerable uncertainty on our part. And I think a good case could be made that we haven't really seen much sign yet of any underlying inflation being built into the labor cost side especially. That's still just a part of our ... | 417 |
fomc | 2,005 | President Moskow. | 4 |
fomc | 2,005 | David, I had a question for you about the forecast that activity is going to slow in the second half of '06 and '07. You talked about the reasons for the slowdown, which were tighter monetary policy, a slowing in house price appreciation, and diminishing fiscal stimulus. In the Monday morning briefing, you threw in the... | 117 |
fomc | 2,005 | It does, indeed. In essence, what is going on with the stock market is that we've had a net stimulus in the economy this year coming from the run-up in the stock market that occurred last year; so there are lagged effects of that earlier increase on spending. Going forward it goes from a net stimulus to more of a neutr... | 152 |
fomc | 2,005 | So when you look at those two factors, which is more important? | 14 |
fomc | 2,005 | This is probably putting far too fine a point on it, but they're both about equal in the forecast in terms of their overall effects--in terms of the underlying thrust or the underlying restraint that is being put on growth going forward. | 46 |
fomc | 2,005 | President Poole. | 4 |
fomc | 2,005 | I'd like to renew a plea that I've made a couple of times over the years. I think everybody in this room believes that a vigorously competitive international sector is good for growth and, therefore, I bristle when you talk about that in terms of a drag on growth and a negative contribution to GDP. You're talking about... | 149 |
fomc | 2,005 | I take your point. | 5 |
fomc | 2,005 | Secondly, and this goes in part to the question President Moskow asked, we have somewhat of a mixed situation in terms of the forecast. When I first came in 1998, there was a staff forecast of the stock market. In fact, I remember that at the time the stock market was forecast to go down, and many aspects of the Greenb... | 340 |
fomc | 2,005 | I'm sure Vincent would be prepared to organize a survey and would respect the Committee's wishes. | 18 |
fomc | 2,005 | I don't know whether I'm the only one who would find that useful. But at any rate, I offer that proposal. | 24 |
fomc | 2,005 | Let me make one point, if I may. We have wrestled with the notion of what constitutes a neutral assumption about the exchange rate, and it is not obvious because we know that the forward rates implied by interest rate differentials are very, very poor forecasters. Everybody knows that. So, taking that as an assumption ... | 169 |
fomc | 2,005 | But I think you could set up whatever standard you believe would be most useful and stick to it consistently over time and then explain how your views may differ from the standard assumption that you use. That's more or less what you do with a number of things. And I emphasize the stock market as a very important examp... | 71 |
fomc | 2,005 | On the house price front, obviously, there aren't market signals. But we've confronted the very same problem of trying to forecast an asset price that we don't have enormous confidence in. So the approach that we have taken is that we presented a few models at the special briefing last July--some models that rely more ... | 213 |
fomc | 2,005 | President Fisher. | 3 |
fomc | 2,005 | Karen, I didn't bristle, but my ears pricked up when you mentioned Mexico. This is not a major point, but well before the hurricanes we noticed a disconnect between the standard presumed correlation of, say, 90 percent--Mexican GDP to U.S. industrial production. Something has weakened in Mexico. We're analyzing it. It ... | 171 |
fomc | 2,005 | Okay. We appreciate that. I recognize that the outcome in Mexico during the first half of this year certainly raises questions, because Mexico has not enjoyed the level of production that would have been consistent with previous relationships to U.S. GDP. So whether or not Mexico will, in fact, strengthen is certainly ... | 66 |
fomc | 2,005 | Governor Kohn. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. I'd like to talk a little bit to the point Bill made, especially if we're going to do a survey of Committee members. I like the way we're getting the forecast now. The staff has a view of forces of aggregate demand, potential supply, and inflation pressures, and they take that view and fold in ... | 302 |
fomc | 2,005 | If I could respond very quickly, something is going to look very strange one way or the other when the views are very different. And what can look strange now is a course of long-term interest rates that is not what's in the market. So something is going to look strange one way or the other. The question is: What is th... | 98 |
fomc | 2,005 | President Lacker. | 4 |
fomc | 2,005 | Yes. On this point, what President Poole is suggesting is well posed. It's a forecast conditioned on replicating sort of an arbitrage-free set of observable financial asset prices going forward. I don't want it, though, because I want a mixture of the information that is conveyed by the market and the staff's judgment.... | 111 |
fomc | 2,005 | David, have you learned anything more in the last 24 hours on the issue of the miss on producers' durable equipment? | 25 |
fomc | 2,005 | We haven't learned any more. We are not inclined to discount that figure. We saw nothing in the details to suggest that that would be appropriate. It looks to us like a translation miss between the BEA's more detailed construction of the figures out of the orders and shipments figures and some deflation issues. I think... | 184 |
fomc | 2,005 | All right. Are there any further questions for our colleagues? If not, would somebody like to start? President Moskow. | 25 |
fomc | 2,005 | Thank you, Mr. Chairman. The Seventh District economy expanded at a somewhat better pace since the last meeting, though it is still lagging the rest of the country. However, for the Chicago economy, particularly the South Side [laughter], it was the best October in 88 years! President Fisher and I had a side wager, but... | 81 |
fomc | 2,005 | I lost. | 3 |
fomc | 2,005 | In our contact calls for this round, energy prices were a pervasive concern. So far they've had a limited effect on consumer spending, but our contacts worry that high heating bills will take a bigger bite out of sales in the coming months. In contrast, we're seeing the impact on costs right now. Nearly every contact r... | 957 |
fomc | 2,005 | President Fisher. | 3 |
fomc | 2,005 | Mr. Chairman, growth in the Eleventh District, if anything, has been accelerating in recent months--picking up steam. We appear to be the beneficiary of the natural disasters that have taken place on the Gulf Coast, and that continued, incidentally, through Wilma. A small example is that the grapefruit growers have def... | 1,537 |
fomc | 2,005 | President Yellen. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. At our last meeting I was optimistic that we would avoid a brush with stagflation despite the higher energy prices and the setback in production from Katrina. Developments during the intermediate period have generally reinforced my optimistic view. Although considerable uncertainty still clouds... | 1,460 |
fomc | 2,005 | President Lacker. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. Recent data confirm that economic activity was growing at a solid pace pre-Katrina, and we appear to have remained on track since then, at least on an ex-hurricane basis. The direct effects of the storms appear to be limited to the disruption of productive capacity along the Gulf Coast. Outside... | 922 |
fomc | 2,005 | President Minehan. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. Economic conditions in New England have bounced around a little bit over the last year or so. Right now they show a few signs of flattening out. Surveys of both consumer and business confidence show some current strength, but opinions about activity six months from now either remain at a low le... | 1,823 |
fomc | 2,005 | President Guynn. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. Let me first share some thoughts on recent economic developments in our Southeast region. As you would expect, we've continued to assess the regional and national implications of Hurricane Katrina, and now Hurricanes Rita and Wilma, which have added to our woes. The recent employment statistics... | 1,581 |
fomc | 2,005 | President Santomero. | 5 |
fomc | 2,005 | Thank you, Mr. Chairman. The Third District's economy continues to expand, with growth moderating toward its potential pace. After accelerating in the second quarter, employment growth in the region decelerated in the third quarter back toward its first-quarter pace. But unemployment rates remained steady for the three... | 901 |
fomc | 2,005 | President Hoenig. | 4 |
fomc | 2,005 | Mr. Chairman, thank you. My views on the national outlook remain pretty much unchanged from the last meeting. I think growth will be somewhat slower in the second half of this year and then stronger next year due to the reconstruction activity. The rise in energy prices will have a dampening effect on growth to some de... | 847 |
fomc | 2,005 | President Pianalto. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. The worst position for a central banker to be in is depicted in the Greenbook's stagflation scenario. I don't think we're headed there, but just knowing that it has a nontrivial probability is somewhat disturbing. And indeed, I've started to get questions from business people in the Fourth Dist... | 999 |
fomc | 2,005 | President Stern. | 3 |
fomc | 2,005 | Thank you, Mr. Chairman. Changes in District economic conditions have been small recently and seemingly largely offset each other. So the economy overall continues on a positive path. Housing activity, especially the pace of sales, has been slowing recently, although to some extent that is seasonal. But I think it's fa... | 654 |
fomc | 2,005 | President Poole. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. Let me say at the outset--to try to put some organizing structure into my anecdotal reports--that the reports on activity are almost uniformly on the strong side. And I think the reports on inflation are almost uniformly on the upside rather than the downside. There is somewhat of an asymmetry ... | 482 |
fomc | 2,005 | Don't underestimate it. [Laughter] | 8 |
fomc | 2,005 | Another example that I thought was quite interesting was that UPS is actually shifting its over-the-road shipments away from the piggyback rail system to long-distance trucks in order to gain shorter transit time. My contact said that the railroads are simply unwilling to put the investment into their track and equipme... | 622 |
fomc | 2,005 | All right. Shall we break for coffee? Let's come back in a reasonable period of time. | 19 |
fomc | 2,005 | Vice Chair. | 3 |
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