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fomc | 2,006 | Thank you, Mr. Chairman. And I also support fully your recommendation with respect to the 25 basis point move and with respect to the language, and I agree with the Vice Chairman's comments that the discussion about what we should vote on is very important. It has all become an aspect of policy, but there are a lot of ... | 80 |
fomc | 2,006 | Governor Bies. | 4 |
fomc | 2,006 | Thank you, Mr. Chairman. I support both the 25 basis point increase and the wording of "may," and again, I think it would be good to defer the discussion about the implications of the alternatives that Vince has laid out. | 48 |
fomc | 2,006 | President Moskow. | 4 |
fomc | 2,006 | Mr. Chairman, during your tenure the FOMC has been successful in anchoring long-term inflation expectations that are appropriately at low levels, and I think we want to make sure we maintain that legacy going forward. I continue to be concerned about the possibility that inflation will move up and run above 2 percent f... | 205 |
fomc | 2,006 | Thank you. Governor Olson. | 6 |
fomc | 2,006 | Thank you, Mr. Chairman. I support both the 1/4 point increase and the statement. I remind my colleagues that in the last two meetings we will have now removed the terms "accommodative" and "measured," and in combination, that's a very significant move forward. We have left ourselves at the point where I think we want ... | 89 |
fomc | 2,006 | President Lacker. | 4 |
fomc | 2,006 | I support a 1/4 point move today, Mr. Chairman, and I support the language in this statement. I'd be ready to support today moving to voting for the whole statement consistent with the global march of democracy, but it's hard to be against further deliberation, especially within the Federal Reserve System. So I'll defe... | 80 |
fomc | 2,006 | I gather correctly there's been no real interest in reversing the paragraphs. So I think that we can go forward and, as I said before, you may read--[Laughter] | 36 |
fomc | 2,006 | Thank you, Mr. Chairman. In that the decision has been to go ahead with the status quo in the same way as in the past, I will read the wording out of page 31 of the Bluebook--the directive wording first and the risk assessment second, dropping the word "well." "The Federal Open Market Committee seeks monetary and finan... | 212 |
fomc | 2,006 | I request the Federal Reserve Board to engage in addressing the requests for changes in the discount rate. [Recess] | 23 |
fomc | 2,006 | The Federal Reserve Board voted unanimously to accept the discount rate requests of eleven Banks. As to the date of the next meeting, Vincent will send notice. | 30 |
fomc | 2,006 | As soon as we have a new Chairman, which is subject to action by the Senate, signature of the President, and a notation vote by this Committee, I will send a memo around providing the time of the next meeting. As the agenda is not yet set, I am not quite sure what time it will start. | 64 |
fomc | 2,006 | The meeting is adjourned. | 7 |
fomc | 2,006 | Welcome, everyone. It has been about a year since I've been to one of these meetings, so I'm looking forward to rejoining the conversation. I want to thank everybody for all of the support and good wishes during this period of transition. We have some other new members besides myself today--Governor Kevin Warsh to my l... | 87 |
fomc | 2,006 | No, I'm not a newcomer. [Laughter] | 11 |
fomc | 2,006 | Good. As you know, this two-day meeting has some experimental aspects. Today we'll be focusing on the state of the economy and the economic outlook. Tomorrow we'll focus on the policy issues, and then we'll have some opportunities to talk about the meeting itself--the structure and how we want to go forward. But we'll ... | 74 |
fomc | 2,006 | 1 Thank you, Mr. Chairman. Financial markets were characterized by a continuation of the fairly benign trends that we have observed over the past few months, with narrow spreads, low volatilities, strong equity markets, and flat yield curves--all set against a favorable macroeconomic backdrop. The top two panels graph ... | 2,165 |
fomc | 2,006 | Thank you. On the end of quantitative easing, what are the technical barriers to withdrawing the extra reserves that set three months or four months as being the expected time? | 33 |
fomc | 2,006 | They have a series of operations into the future; they own, for example, Treasury bills that may have certain maturities. They may have repurchase operations, which initially they started with short-term repos, and then they extended the maturity of those repos even as far as nine months, I think, at the far end. So th... | 166 |
fomc | 2,006 | What does the market make of this "understanding" that inflation is between 0 and 2 percent in Japan? | 24 |
fomc | 2,006 | I think people are taking the Bank of Japan at its word--that is, the members were polled, and each individual's understanding of price stability was within that range. They've said it repeatedly, and I think people are accepting that it's not an inflation target per se--although whether it's more like an inflation goa... | 84 |
fomc | 2,006 | Finally, how much of the movement in the long-term Japanese government bonds reflected inflation expectations? They have inflation-linked bonds. | 24 |
fomc | 2,006 | They do, and I'm trying to remember what they did. They did widen out somewhat, but very little. But if memory serves me right, I believe that their breakevens were in the area of 50 to 60 basis points in the ten- to twenty-year period. So there isn't a huge premium built in, at least into the breakevens. | 74 |
fomc | 2,006 | Other questions for Dino? Governor Kohn. | 9 |
fomc | 2,006 | Thank you, Mr. Chairman. Two questions, Dino. On the fed funds rate, I notice we have a high of 61/2 percent one day and 53/4 the other. You said there was considerable borrowing. But is the Lombard window still seen as insufficiently available to cap the rate, or is it just that there were hardly any trades up there? | 77 |
fomc | 2,006 | There were some trades. I think what we've observed at the Desk in talking to bank reserve managers is that some banks are taking us at our word and are not afraid to step up and borrow--and are not afraid to arbitrage against those who still feel the stigma. But, clearly, some banks still think that coming to the wind... | 138 |
fomc | 2,006 | I would also point out, Governor Kohn, on the day in which there was trading at 61/2, above the Lombard rate, one large money center bank borrowed from the window and then couldn't place it. Subsequently, the bank wound up holding a portion of the funds itself. | 59 |
fomc | 2,006 | My second question has to do with New Zealand and Iceland. I guess I thought you ascribed this entirely to an unwinding of the carry trade. But I thought there were other things going on. I thought that there were some very weak data for New Zealand, so that despite the decline in the New Zealand dollar, interest rates... | 102 |
fomc | 2,006 | We'd like a full report on the Icelandic-- [Laughter] | 15 |
fomc | 2,006 | I thought that the Committee's patience might be limited. Yes, there was a downgrade by one of the rating agencies of Iceland. There were some concerns about some of the Icelandic banks, and so that seemed to be part of the story. You did have some weak data in New Zealand, and I guess the central bank there is now exp... | 168 |
fomc | 2,006 | President Lacker. | 4 |
fomc | 2,006 | This suggests that the Bank of New York really paid a lot in opportunity costs to hold those reserves early. Is that your sense? And, if so, do you have a sense of why they were interested in paying up to hold the reserves early? | 50 |
fomc | 2,006 | Well, I guess I would look at it slightly differently. They held the reserves early in the period at a lower rate because they were anticipating that-- | 30 |
fomc | 2,006 | Yes. But they could have lent them out later in the day at a lot more, right? | 20 |
fomc | 2,006 | Oh, I see what you mean. Yes. | 10 |
fomc | 2,006 | The opportunity cost at the end of the day was pretty high. | 13 |
fomc | 2,006 | Yes. I can only speculate, but my sense is that they had a plan for how they wanted to manage reserves in the period. They didn't, then, want to game the system as it were, given that they themselves were responsible for some of the issues during this period. So for them then to take advantage of something that they ha... | 84 |
fomc | 2,006 | Okay. | 2 |
fomc | 2,006 | President Fisher. | 3 |
fomc | 2,006 | Well, actually, I'm sorry, but I want to follow up on the zloty. [Laughter] And, by the way, there are 24 million sheep and close to 4 million people in New Zealand. But I'm curious, just thinking about trip wires, one would think, as you said, that as rates rise and with better credits, one would move away from emergi... | 109 |
fomc | 2,006 | Right now, there are no signs of that. Again, the hard data that we have are limited. So some of this information is anecdotal, and some of it we are reading from price relationships and correlations that we see. Right now, I can't tell you that there is any evidence to suggest that the Latin currencies might be next. ... | 150 |
fomc | 2,006 | Mr. Chairman, I'd note that the former president of Harvard is advocating diversifying portfolios in these kinds of currencies. | 23 |
fomc | 2,006 | President Minehan. | 4 |
fomc | 2,006 | This is probably beating a subject to death. But I want to follow up on the Bank of New York situation and the upward tick of the fed funds rate in the period leading up to what the market anticipates will be a change in our rates. If you can remember back to when we didn't provide a lot of guidance, did we have this s... | 78 |
fomc | 2,006 | No. It has been a phenomenon in this sense in this cycle. Governor Kohn will remember better than I do, perhaps. You might have gotten anticipation effects in the day or two before meetings, when there were keen expectations, but you didn't see them on the first day of the reserve maintenance period, which is what we s... | 68 |
fomc | 2,006 | Right. And nothing as dramatic. You've talked about this before, but it is quite graphic here. | 20 |
fomc | 2,006 | If there are no other questions, I need a motion to ratify domestic market operations. SEVERAL. So moved. | 25 |
fomc | 2,006 | Without objection. Mr. Stockton. | 7 |
fomc | 2,006 | Thank you, Mr. Chairman. I thought that I would address three related questions in my remarks this afternoon. First, how much momentum is there in current economic activity? Second, how close is the Committee to having put in place sufficient restraint to prevent output from overshooting its potential, with attendant c... | 3,299 |
fomc | 2,006 | We now have complete fourth-quarter data for U.S. trade and the balance of payments. Several elements of those data seem to me to be worth mentioning at this meeting as they correspond to issues with which we have wrestled in putting together the international portion of your Greenbook forecast. The U.S. current accoun... | 1,413 |
fomc | 2,006 | Are there questions? President Lacker. | 8 |
fomc | 2,006 | Dave, I was struck by the alternative scenario in which productivity growth is slower because, even with the Taylor rule in place, it makes inflation rise rather than nominal compensation growth fall. So I was just wondering, does that result convey a lack of credibility in the estimated Taylor rule, or what do you thi... | 66 |
fomc | 2,006 | I think it just reflects the fact that these cost pressures develop rather quickly in that slowing scenario and that they are passed through one-for-one into prices, and the Taylor rule is responding slowly to that pickup in inflation. But when you say "credibility" of the Taylor rule, the outcome-based version of the ... | 111 |
fomc | 2,006 | President Poole. | 4 |
fomc | 2,006 | I have a comment and a question. Karen, you speak of the capital inflow to the United States as financing the current account deficit. Surely these are simultaneously determined. In addition, I think the shorthand statement is probably better the other way around: The private investors are moving funds not for the purp... | 255 |
fomc | 2,006 | I just cannot resist the temptation to make a brief response to your comment, and then I will answer your question. [Laughter] | 27 |
fomc | 2,006 | Which is fine. | 4 |
fomc | 2,006 | You know, one can approach a general equilibrium process in any number of ways, and finding things that are truly exogenous to that process is very, very difficult. So it is certainly true that the capital flows might be exogenous. However, my guess is they are responding to endogenous economic activity in the United S... | 222 |
fomc | 2,006 | I think we are in perfect agreement on the economics. It is just the way in which we are talking about the situation. | 25 |
fomc | 2,006 | We have very little information on inventories elsewhere. There are data through the International Energy Agency on inventories in countries belonging to the OECD, but they really do not tell us much, and, to be honest, I do not have them with me. The information may be buried here somewhere, but I do not know that I h... | 375 |
fomc | 2,006 | President Yellen. | 4 |
fomc | 2,006 | I have two brief questions, one for David and one for Karen. To David, my question is whether or not you have changed your assessment of the normal gap that we should expect between the core CPI and the core PCE, since those two measures seem to give rather different readings about the strength of inflation pressures. ... | 400 |
fomc | 2,006 | I will start out with the gap. Indeed, we have been surprised by the strength in the nonmarket component of PCE prices, and in this forecast round, we revised up our implicit projection for that component going forward. Over the next two years, we are looking at a gap that is expected to narrow from where it was, and i... | 178 |
fomc | 2,006 | We have noticed a change in the relationship between the core CPI and the chained core CPI, which suggested to us that maybe something is going on relating to substitution bias at the upper level of the index. You focused on the nonmarket component of the PCE, and I wondered if something unusual might be happening with... | 70 |
fomc | 2,006 | That change or, in essence, the weighting bias portion of the CPI, looking at the chain versus the Laspeyres version has that moved around a lot--more so than we had any reason to believe it would when chain weighting was implemented. Again, we have just flowed along with that rather than actually thinking that there h... | 100 |
fomc | 2,006 | I don't have as good an answer for you as I wish. One of my concerns for some time now has been that the forecasts I observed from other reputable folk, and Macroeconomic Advisers is among them, do not contain as much deterioration in the external sector as our forecast because I interpret at least one possible resolut... | 381 |
fomc | 2,006 | President Moskow. | 4 |
fomc | 2,006 | I just want to ask a question related to what Jeff Lacker was asking before. I focused just on the alternative simulations. I focused on the greater cost pressure simulation, which had in the second half of '06 core PCE inflation going up to 2.6 percent and yet the fed funds rate was going up only to 5.1--0.1 over the ... | 198 |
fomc | 2,006 | Certainly one option would be to provide some sense of what an optimal policy response would be. A second option would be to use the kind of Taylor rule that we were using previously, which was just a calibrated Taylor rule. We made a conscious decision in some sense not to do that, to try to harmonize what was shown i... | 228 |
fomc | 2,006 | Let me just make two other points, President Moskow. The rule itself is explained in the table in the Bluebook, and I would add two more properties that Dave has mentioned. One is that its estimation starts in 1988, and the implicit inflation goal in that rule you, I think, would find unacceptable because it includes a... | 187 |
fomc | 2,006 | Well, I know we have not specified an inflation goal, but I certainly think this could be below 2.6 percent because this actually has real rates coming down, as you point out in the alternative simulation. | 43 |
fomc | 2,006 | President Stern. | 3 |
fomc | 2,006 | Dave, my question pertains to the labor market and resource utilization issue. There is a comment in the Greenbook to the effect that the strong labor market will cause labor force participation rates to move up in the short run. While that statement certainly sounds plausible, is there any evidence for that kind of ef... | 61 |
fomc | 2,006 | No. In fact, we have a slight 0.1 bump-up in the near term in the participation rate, but basically in our forecast the participation rate moves sideways. | 35 |
fomc | 2,006 | Yes, I saw that in the table. | 9 |
fomc | 2,006 | And by having the actual participation move sideways to meet our trend that is moving down, we were trying to convey in essence that some implicit tightening is going on there. So, in fact, we felt quite comfortable with what I recognize was a somewhat adventuresome forecast for the trend participation rate, which was ... | 138 |
fomc | 2,006 | Okay. | 2 |
fomc | 2,006 | President Fisher. | 3 |
fomc | 2,006 | I have a question for David and a customer request for Karen. My question to David concerns the elasticity of labor supply within our own borders, and my specific question is the impact of immigration on the NAIRU. I assume that we have had some benefit in lowering the NAIRU based on immigration, and I am wondering, Da... | 311 |
fomc | 2,006 | I can give you one answer and one waffle. [Laughter] The answer is "no," we have not done any calculations to my knowledge of how the pending immigration reform bills would affect the natural rate. I would really want to consult with my labor experts before I even ventured an answer about what the effect of increased i... | 170 |
fomc | 2,006 | Our guys--or at least the researchers we have in Dallas--tell us that a substantial portion of employment growth has been fed by immigration in the United States since 1990. I don't know the specific numbers, but I'm just worried and curious. I have a question about whether cutting off that supply or changing the natur... | 77 |
fomc | 2,006 | I'm just going to waffle right from the very beginning. [Laughter] | 15 |
fomc | 2,006 | I hope my question wasn't too waffley. | 10 |
fomc | 2,006 | I'm not so sure exactly--we will give it thought. There's a fair amount of literature developing about global capacity utilization. Is it defined? We don't talk, for example, about capacity utilization in Oklahoma. We assume that if Oklahoma needs stuff from the rest of the United States, it just gets the stuff, and vi... | 516 |
fomc | 2,006 | President Hoenig. | 4 |
fomc | 2,006 | Dave and Karen, my question is basically to ask you to give me your sense of the risk. In reading the Greenbook, I have a sense that the risk is balanced. I see that interest rates go up and then they come back down. So I understand that overall the risk is balanced in your view. But what do you sense are some of the m... | 150 |
fomc | 2,006 | Well, again, over a longer period, I think we face a real energy issue as a global economy. And I find it very hard to believe that energy prices are, in fact, going to be five or six or seven or eight years from now where that far-dated futures price is putting them right now. But I'm sure they'll go both up and down ... | 454 |
fomc | 2,006 | For my part, the most salient risk that I would note is housing, for a few reasons. One, it's an asset market as well as a natural investment, and I just don't know how to forecast those prices. I think that, in our presentation last June, we made pretty clear just what the uncertainties are there. Beyond that, I'm not... | 329 |
fomc | 2,006 | Any other questions? All right. We come to the first go-round. Let me remind you that we're going to focus in the first round on the economic outlook and will leave, I hope, the policy discussion until tomorrow. As you know, there has been interest in increasing the interaction in this round, so I have a few suggestion... | 196 |
fomc | 2,006 | Thank you. President Guinea Pig right here. [Laughter] The two hands are for comments? | 20 |
fomc | 2,006 | Immediate recognition. | 3 |
fomc | 2,006 | And one hand is just for recognition. | 8 |
fomc | 2,006 | Right. For your turn in the round. | 9 |
fomc | 2,006 | Okay. No clarification questions. [Laughter] | 10 |
fomc | 2,006 | If you would like to be recognized immediately out of turn, raise two hands; otherwise, one hand. | 21 |
fomc | 2,006 | Okay. Well, most of my contacts this time were upbeat about current conditions. Though the Midwest continues to underperform the rest of the nation, the U.S. economy seems to remain on solid footing. So we tried to assess whether the strength in January and February was just a transitory bounceback from the fourth quar... | 997 |
fomc | 2,006 | Do you want to comment on the automobile industry in general and the prospects for production and prices? | 19 |
fomc | 2,006 | Well, I think that, on the production side, the Big Three producers have slowed down somewhat for this quarter and next quarter compared with last year. I think the sales outlook for the industry is really pretty good. You know, it's about 16.5-16.6 million for light vehicles. And the big issue, of course, is the shift... | 180 |
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