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fomc | 2,005 | We view the balance of developments since the last meeting as strengthening the case for further firming of monetary policy. The underlying pace of demand growth seems reasonably strong--a bit stronger than we thought at our last meeting. The inflation outlook to us looks largely the same as it did in September, with t... | 1,281 |
fomc | 2,005 | Governor Kohn. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. Unlike President Geithner, I view the incoming information over the intermeeting period as having mixed implications for what might be required from us to keep inflation in check. On the one hand, demand and output, as he noted, appear to be continuing to grow at a pace that over time is likely... | 1,423 |
fomc | 2,005 | Governor Olson. | 3 |
fomc | 2,005 | Thank you, Mr. Chairman. In preparation for today's meeting, I surveyed the CEOs of three large regional banks in the Southeast, the head of the Bankers' Bank in Texas, and a banker in Biloxi, Mississippi, hoping primarily to get an idea of the rate of recovery, although to a certain extent to get a reading on the amou... | 1,156 |
fomc | 2,005 | Governor Bies. | 4 |
fomc | 2,005 | Thank you, Mr. Chairman. What I'd like to do today is to talk a little bit more about some recent trends in consumer borrowing information, which a few people have already mentioned, and then just make some general comments on the economy and on inflation. As a couple of you have already noted, the data on consumer bor... | 1,272 |
fomc | 2,005 | Governor Ferguson. | 3 |
fomc | 2,005 | Thank you, Mr. Chairman. Like others, I am somewhat, though not fully, reassured by the incoming data. The economy clearly appears to be on an expansionary track, not having been seriously damaged by the seriously damaging hurricanes. Additionally, readings of core inflation have been surprisingly benign, given everyth... | 436 |
fomc | 2,005 | I knew him well. [Laughter] | 9 |
fomc | 2,005 | He famously said, "The fox knows many little things, but the hedgehog knows one big thing." The reason that's important here is that while the various readings we've had on the incoming data are extremely important, in some ways they are in the category of "many little things." And the one big thing--the big thing that... | 836 |
fomc | 2,005 | Please don't. [Laughter] | 7 |
fomc | 2,005 | They will be an arithmetic subtraction from measured GDP in the U.S. economy. I think all of the conditions that have driven that in the past, including foreign exchange rates, relative interest rates, and most importantly the productivity story and an absence of domestic absorption overseas, are likely to result in th... | 614 |
fomc | 2,005 | Thank you. Mr. Reinhart. | 8 |
fomc | 2,005 | 2 Thank you, Mr. Chairman. I'll be referring to the materials that Carol Low is distributing. Over the intermeeting period, market participants marked up their expectations of your coming actions, as seen in the drift upward of Eurodollar futures rates in the top panel of the first exhibit. The rate for contracts endin... | 2,461 |
fomc | 2,005 | Questions for Vincent? | 4 |
fomc | 2,005 | Vincent, I have a question that concerns alternative C in Table 1. Currently, the only part of the FOMC statement that the Committee votes on is the balance of risk section, and that now includes the forward-looking "measured pace" language. My sense is that, to the extent we continue to have forward-looking language i... | 179 |
fomc | 2,005 | I think it's a governance issue for the Committee to decide. I was presuming that you would continue to vote on at least a portion of the statement, the part that contains the forward-looking language. But it is an open issue why you vote only on a part of the statement and not the entire document. | 62 |
fomc | 2,005 | Is there a reason why the vote now does not cover the rationale sentences? | 15 |
fomc | 2,005 | What the Committee voted on has changed over time. Initially, starting February 4, 1994, the statement issued was explicitly the Chairman's statement describing what the Committee did. Somewhere about a year and a half later that characterization was dropped, and it became less clear whether it was the Committee's stat... | 166 |
fomc | 2,005 | Vincent, I had a question on a different part of this. You raised the issue of whether you should use the inflation projection in your calculation of the equilibrium federal funds rate instead of the backward-looking inflation numbers that you use. I was wondering if you could elaborate on that a bit. I certainly would... | 97 |
fomc | 2,005 | The main one, which has been reflected somewhat in the conversation already, is that it's hard to know what inflation expectations are. We don't have a consistent proxy over the entire period. And it's not obvious that if you took the entire sample and estimated your model using measures of inflation expectations that ... | 92 |
fomc | 2,005 | Maybe I misstated my question. I'm not talking about an inflation expectations forecast but the inflation forecast you have. Why not put that in the model? | 30 |
fomc | 2,005 | Among other things, the staff inflation forecast is judgmental and need not be accepted by the Committee. I think computationally you're talking about something, if you wanted to go to the FRB/US model, that would be difficult to do and-- | 50 |
fomc | 2,005 | If you put in an inflation forecast, you've just targeted inflation to a point, not a range. That's what will happen. We'll be locked in to explaining why we didn't move on either side of the forecast. I think it's very tricky. | 48 |
fomc | 2,005 | Let me also say, President Moskow, that the passage of time is helping in terms of providing other measures of the equilibrium real funds rate. We now have indexed debt quotes. We use them to back out an estimate of the equilibrium real funds rate. We don't have a long enough time series to know its properties as, say,... | 116 |
fomc | 2,005 | You probably did. Thank you. | 7 |
fomc | 2,005 | I think we're missing an opportunity as fiscal agent for the federal government to have an audience for this meeting and collect revenues, which could probably balance the budget! [Laughter] President Fisher. | 38 |
fomc | 2,005 | Setting aside the governance issues that Janet raised, it seems to me that the key operative phrase and the change in alternative C is taking out "accommodation can be removed at a pace that is likely to be measured" and replacing it with "likely making further policy firming necessary." I'm of the school that we likel... | 149 |
fomc | 2,005 | In talking about market reaction to potential statement wording, you're getting as far from economic science as what we do here, and that's pretty far. It is hard to say, and maybe I'll ask Dino to help here, too. But our presumption was that using the "firming" word would send a signal that you envision not stopping a... | 112 |
fomc | 2,005 | I think that's right. I believe it would be viewed as very hawkish because you've taken out the accommodative language and you're talking about firming. So I think Vincent is right that it would be taken as a very hawkish statement. | 48 |
fomc | 2,005 | I guess I would like to make a couple points about that. When you think about the language, the characterization of "accommodation" and the "measured pace" are linked. So if you were, for instance, to take out "accommodation" while leaving in something about "measured pace," that would signal that you're going past the... | 274 |
fomc | 2,005 | President Guynn. | 4 |
fomc | 2,005 | Mr. Chairman, since Vincent has raised the question of process, and I get the sense that we're probably not prepared today to deal substantively with changing the statement, I'm wondering out loud if we shouldn't try to go even further than Vincent has suggested between now and the next meeting. Perhaps we should try t... | 224 |
fomc | 2,005 | I think that's precisely the direction in which Vincent is going at this point. | 15 |
fomc | 2,005 | I really didn't want to promise too much in my prepared remarks. | 13 |
fomc | 2,005 | I would push a little bit. | 7 |
fomc | 2,005 | The sequence I envision is first surveying you on general principles. Are you comfortable with putting in forward-looking language? If there's forward-looking language, would you prefer it to be about interest rates or the risks to your objectives? There are differences of opinion on a number of those basic questions. ... | 97 |
fomc | 2,005 | But we need to have that more than a couple of days before the meeting if we're really going to have something that's workable. I guess it sounds like what you have in mind is what I'm hoping we can do. Thank you, Mr. Chairman. | 50 |
fomc | 2,005 | Further questions? To quote somebody from last night, why don't I proceed? [Laughter] Something very unusual is occurring both in the economy and, as a consequence, in monetary policy deliberations. Essentially, this surprisingly long--and I must say in retrospect rather successful--interval of incremental measured cha... | 1,828 |
fomc | 2,005 | No. The one in my briefing material is-- | 10 |
fomc | 2,005 | But I thought there was a semicolon somewhere. | 10 |
fomc | 2,005 | This has the semicolon. [Laughter] The latest version is the one in the last exhibit of the handout that was distributed just prior to my briefing. | 33 |
fomc | 2,005 | My apologies. So everyone has actually seen this. If it is acceptable, this is the statement we will be going with. I would, therefore, put it as a suggestion that we move 25 basis points and use the alternative B statement as is. Governor Kohn. | 55 |
fomc | 2,005 | I agree with your recommendations--moving 25 basis points, sticking with this language, and giving full consideration to new language between now and the next meeting. I'm actually not as worried as some others about the statement being stale. It has been accomplishing our objectives, I think, in an amazingly successfu... | 91 |
fomc | 2,005 | When we try to be original! | 7 |
fomc | 2,005 | I withdraw the word "stale." [Laughter] | 12 |
fomc | 2,005 | No, it has been unchanged for quite a while; I agree with that. But we can defer this discussion. | 23 |
fomc | 2,005 | President Hoenig. | 4 |
fomc | 2,005 | I agree with what you are proposing. | 8 |
fomc | 2,005 | President Pianalto. | 4 |
fomc | 2,005 | I support your recommendations. | 5 |
fomc | 2,005 | President Minehan. | 4 |
fomc | 2,005 | I support your recommendation as well. And I'd like to think that this discussion will get in the minutes so that if the words change in December--let me put some odds on the fact that they will change somehow--it won't come as a big surprise to people. | 53 |
fomc | 2,005 | We want to be reasonably clear in which direction we may change it rather than leave the question open. Just to say we're going to change but we're not going to tell you how, I think will create substantial unnecessary uncertainty. | 44 |
fomc | 2,005 | Well, should we take some of your thoughts in terms of how the minutes are written? My understanding of what you said--and what I think I heard around the table, although not explicitly--was that the statement would have a sense of greater uncertainty about it. It would be moving in the direction of not promising as mu... | 80 |
fomc | 2,005 | That's what I did say. That's what I believe. | 11 |
fomc | 2,005 | Yes. | 2 |
fomc | 2,005 | I can't speak for the rest of the Committee in that respect, but we'll all be vetting the minutes so we can try to do our best in conveying our thoughts. My only concern is not to introduce a new uncertainty in the process since we've done exceptionally well for so long. Being innovative has less value than I think we'... | 67 |
fomc | 2,005 | May I just add to that comment? I think we need to be careful not to telegraph in the minutes any change until we have a little more confidence about how we want the statement to evolve. So I think the minutes can reflect the fact that we're discussing, as the world hopes we're discussing, what evolution might be sensi... | 69 |
fomc | 2,005 | The term is "ongoing discussion." That will clarify it. That's basically saying: Don't take this as some dramatic change. | 25 |
fomc | 2,005 | Then it's not a surprise; if something different comes out, it would be the result of an ongoing discussion. | 22 |
fomc | 2,005 | Yes. President Santomero. | 7 |
fomc | 2,005 | I support your recommendations. Just to continue on this topic, I think we all have to be careful, number one, to read what's in the minutes and, number two, to think about what we're going to say when we're asked about the minutes and what it is the minutes are communicating. We know there's going to be a rash of ques... | 104 |
fomc | 2,005 | But, Mr. Chairman, may I say something? | 11 |
fomc | 2,005 | Yes. | 2 |
fomc | 2,005 | I don't think we normally take it upon ourselves to try to interpret the minutes for the world. We let the minutes speak for themselves, and we convey whatever personal views we have about what we think going forward, but-- | 44 |
fomc | 2,005 | All I'm pointing out is that the press is going to say, "You talked about changing. What do you mean by that?" I think we all just have to be prepared to recognize that that's an inevitable part of mentioning in the minutes ongoing discussions about change. Perhaps it's obvious to all, but it will be a new area of inqu... | 78 |
fomc | 2,005 | We might want to get involved in that as we proceed with the minutes and see where, in fact, everybody is. Perhaps we can give, implicitly at least, some guidance as to what we all ought to be doing when the minutes come out. President Lacker. | 54 |
fomc | 2,005 | I support your recommendations, Mr. Chairman, and I support the statement. I just want to register a thought or two about language. As we approach December, I recognize that the change in language that everyone is anticipating is a change that would be associated with stopping or at some point moderating the pace at wh... | 458 |
fomc | 2,005 | President Fisher. | 3 |
fomc | 2,005 | Well, I accept your suggestion, Mr. Chairman. I was just thinking about the introduction you provided, which is something I've been consumed with because I'm supposed to give a lecture at Harvard on Thursday night on the globalization of monetary policy. I'm worried about the phenomenon that you described--it's one of ... | 228 |
fomc | 2,005 | President Moskow. | 4 |
fomc | 2,005 | Mr. Chairman, I agree with your recommendation on the rates and I support your plan to review the language, as we've all talked about here or, as you put it, to continue our ongoing discussion of the language going forward. Just a comment on the point--I forget who said this but I think it was Tim--that the statement s... | 209 |
fomc | 2,005 | President Stern. | 3 |
fomc | 2,005 | I support all parts of the recommendation--the change in the funds rate, the existing language, and the possibility that we will alter the familiar language at the next meeting. | 34 |
fomc | 2,005 | Governor Olson. | 3 |
fomc | 2,005 | I support the recommendation, Mr. Chairman. With respect to the language, what I think I'm supporting is the process by which we will be looking at what changes would be appropriate. But I certainly agree that the next meeting is the appropriate time to look at it and that in order to do that we need some intermediate ... | 68 |
fomc | 2,005 | President Guynn. | 4 |
fomc | 2,005 | Mr. Chairman, there are words and phrases that I'm not as comfortable with as I'd like to be, particularly the part dealing with inflation risk. The word "potential" has crept into the sentence in terms of inflation pressures; I see those pressures as clearly there and not just potential. But I certainly can support yo... | 87 |
fomc | 2,005 | President Yellen. | 4 |
fomc | 2,005 | Mr. Chairman, I support your recommendation for the policy move and also the statement today. And I look forward to more detailed discussions about revising the statement going forward. | 34 |
fomc | 2,005 | Governor Bies. | 4 |
fomc | 2,005 | Mr. Chairman, I support the 25 basis point increase and the language in alternative B, and I look forward to seeing how Vincent will help get a consensus within this group. One thing I've learned is that whenever we try to tinker with this, we end up with a wide variety of viewpoints around the table. So I wish him goo... | 83 |
fomc | 2,005 | He can find agreement where none exists! [Laughter] Governor Ferguson. | 15 |
fomc | 2,005 | Mr. Chairman, I support your recommendation of 25 basis points. I support the language in alternative B. On the issue of what we should say about the minutes, I would caution all of us to be very careful because the real answer is we don't know. To say much more than "ongoing discussion" perhaps is signaling more than ... | 212 |
fomc | 2,005 | President Poole. | 4 |
fomc | 2,005 | Mr. Chairman, I support your recommendation on the rate and the language for today. I'd like to make just a couple of other points. There has been a lot of discussion in the newspapers and among people I talk to about the influence of the remarks in our speeches regarding our concern about inflation risk. That clearly,... | 481 |
fomc | 2,005 | Vice Chair. | 3 |
fomc | 2,005 | I support your recommendation to raise the fed funds rate 25 basis points and to use the language of alternative B. And I want to clarify just for the record, given what Mike Kelley said last night, that in not rushing immediately to compliment you on the brilliance of your proposal I'm not implying any less confidence... | 70 |
fomc | 2,005 | Let the record show that I had an enigmatic expression. [Laughter] Ms. Danker, would you read the appropriate language? | 27 |
fomc | 2,005 | I'm reading the directive wording 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. To further its long-run objectives, the Committee in the immediate future seeks conditions in reserve mark... | 168 |
fomc | 2,005 | Call the roll, please. | 6 |
fomc | 2,005 | Chairman Greenspan Yes Vice Chairman Geithner Yes Governor Bies Yes Governor Ferguson Yes President Fisher Yes Governor Kohn Yes President Moskow Yes Governor Olson Yes President Santomero Yes President Stern Yes | 40 |
fomc | 2,005 | I have a question. I think you read the assessment of risk without the word "remaining" in it. Maybe I misunderstood what you read. | 29 |
fomc | 2,005 | I read it from this table as unchanged from September. | 11 |
fomc | 2,005 | Which one are we voting on--with remaining or without remaining? SEVERAL. Without remaining. | 20 |
fomc | 2,005 | I just wanted to make sure. I got confused about what we were looking at in that line. That's fine. My vote stands. | 27 |
fomc | 2,005 | Let's have a recess, and the Board of Governors will convene in my office. [Recess] | 21 |
fomc | 2,005 | The Board passed unanimously the requests of all 12 Reserve Banks for an increase in the discount rate to 5 percent. Our next meeting is Tuesday, December 13, 2005. Shall we go to lunch? | 44 |
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