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fomc | 2,006 | Thank you, Mr. Chairman. I also liked the format of this meeting--we really focused on the economics, and then we had more time to talk about policy--and I hope that we stay with that format. But I also agree regarding the special topics issue. Talking about these topics does a lot--especially it gives us background. W... | 137 |
fomc | 2,006 | President Yellen. | 4 |
fomc | 2,006 | I would just endorse President Minehan's summary of reactions and the comments that have been made around the table. I think the innovations in this meeting have been excellent. I think the meeting has run very well. Having more time has certainly enriched the discussion of both the economy and the policy situation. I ... | 192 |
fomc | 2,006 | Vice Chairman Geithner. | 6 |
fomc | 2,006 | Thank you, Mr. Chairman. I would be comfortable deciding now that we are going to do two-day meetings as a matter of course going forward, even though we may not want to fill the time, in part because I think it's important to give us time to do special topics as many of you have said. I would generally be in favor of ... | 431 |
fomc | 2,006 | Thank you. President Fisher. | 6 |
fomc | 2,006 | Mr. Chairman, I applaud the way this meeting has been run. It was the most enjoyable I've had in my long one-year tenure. I do want to weigh in with some sympathy for those that come from the western part of the United States and have to go back for board meetings. Maybe we could front-load these at the beginning of th... | 139 |
fomc | 2,006 | Governor Olson. | 3 |
fomc | 2,006 | Thank you, Mr. Chairman. Just to comment on two statements, one by President Hoenig and one by President Guynn--I would think we will learn a lot at the next meeting as to whether or not by starting early we could do it in a single day. As the discussion started yesterday, it seemed to me that we were in the old patter... | 189 |
fomc | 2,006 | Thank you. Governor Kohn. | 7 |
fomc | 2,006 | Thank you, Mr. Chairman. I, like everyone else, thought this was a very successful meeting, and I liked the format very much. The remark I was going to make is the one that Governor Olson just made, which is I think the May meeting will be a nice test as to whether we can meet President Guynn's plea for concision, and ... | 84 |
fomc | 2,006 | That was not what I was trying to say. [Laughter] | 14 |
fomc | 2,006 | I would like to comment on one part that others haven't commented on, and that is the formulation of the statement and the input of the statement. I liked the idea that you and Vincent were able to work overnight to change the statement slightly to reflect the consensus around the table. I think the statement reflects ... | 177 |
fomc | 2,006 | President Stern. | 3 |
fomc | 2,006 | Just a couple of comments. I thought the format for this meeting was excellent, and it all went quite well. I would have a bias going forward toward two-day meetings. Yes, there will be lots of times when the immediate policy decision is straightforward and we won't have to spend a lot of time on it. But I think we wil... | 128 |
fomc | 2,006 | President Minehan. | 4 |
fomc | 2,006 | I would just like to insert a comment. This wouldn't necessarily have to be the way we did special topics, but special topics in the past were announced in January and worked on for four months. We received a ton of paper and stuff before the meeting. I think it would be hard to work in a special topic if the meeting w... | 144 |
fomc | 2,006 | Well, thank you for these comments. Our next meeting is perforce one day. I would move that we start at 8:30. So we will begin at 8:30 the next time. Nevertheless, given today's meeting, people are going to have to be conscious of time and try to be as concise and direct as possible in your comments. I agree with Vice ... | 287 |
fomc | 2,006 | Good morning, everyone. Let me just remind you that we're going to try to fit our slightly modified format into a one-day setting today. We still plan to have two full rounds of discussion, the first round on the economy and the outlook, and I hope we can complete that before the coffee break. Then we will have the sec... | 147 |
fomc | 2,006 | 1 Thank you, Mr. Chairman. We all know that asset prices can be volatile, sometimes too volatile. Well, the last few months have not had that quality. Volatility in all asset classes, with the exception of commodities, continues to be low. And yet, despite that low volatility, over the past six months investors, trader... | 2,116 |
fomc | 2,006 | Thank you. On the rise in inflation breakevens since our last meeting, do you have a sense about the breakdown between carry effects, expectations, and risk premiums? | 34 |
fomc | 2,006 | Well, as somebody said in another setting just the other day, risk premiums are something we don't know a lot about, and they are difficult to disentangle. I haven't done the exercise, but with energy prices rising, I don't know that the carry effects have been huge. | 55 |
fomc | 2,006 | The carry effects are going to matter only for the first part of it. And as we noted in the Bluebook, at the time we had an increase in inflation compensation of about 15 basis points. Most of it was related to energy prices. If you think about the term structure of energy futures, they actually tilt down at the far en... | 132 |
fomc | 2,006 | My other question relates to a regulatory relief bill in the Congress, which is very likely to pass, that would allow us to pay interest on reserves and to have more flexibility in setting required reserves. Would you like to comment on the potential operational implications of that? | 52 |
fomc | 2,006 | We would welcome that. It would make our life a bit easier. | 14 |
fomc | 2,006 | Do you see any operational issues in just getting to the point where we can manage that? | 18 |
fomc | 2,006 | I don't think so. Spence? | 8 |
fomc | 2,006 | No, I think that adapting to that environment would not be a problem for us. It would probably be very easy to do. | 26 |
fomc | 2,006 | Mr. Chairman, I would note that the first place I could find mention of the Federal Reserve's asking about paying interest on reserves was in 1965. But there are some operational implications, including in the STAR (Statistics and Reserves) process, of actually figuring out a way of paying interest on reserves. It came... | 101 |
fomc | 2,006 | But those are transitional, operational hurdles. | 8 |
fomc | 2,006 | In fact, the point of asking for this authority was to make sure that the Desk didn't run into issues in the future of the sort that Dino was outlining. We can put the interest on balances at the Federal Reserve at such a level that banks can arbitrage these balances and we won't have trouble hitting our target. | 63 |
fomc | 2,006 | No, I understand it's a good thing for us. | 11 |
fomc | 2,006 | As for the longer-run implications, once we're assured that there's a stable demand for reserves, we can simplify reserve requirements, which are quite antiquated and kind of embarrassing. | 34 |
fomc | 2,006 | Including simplifying them at zero. [Laughter] | 10 |
fomc | 2,006 | Yes. | 2 |
fomc | 2,006 | What's the probability that this is going to pass? | 10 |
fomc | 2,006 | It appears to be very high. | 7 |
fomc | 2,006 | It's in both the House and the Senate bills, but the House bill is a very different bill. It has controversial things in it. | 27 |
fomc | 2,006 | Haven't we been there before? | 8 |
fomc | 2,006 | No. We haven't gotten quite this far before. | 10 |
fomc | 2,006 | They eliminated a number of controversial items so that this could go through. Other questions? President Lacker. | 21 |
fomc | 2,006 | My sense is that the broad conventional way of thinking about how we would implement interest on reserves is to pay a rate of interest somewhat below the federal funds target rate. My sense is that the conventional view emerged at a time when we were less transparent about our targeting of the funds rate. The Chairman ... | 132 |
fomc | 2,006 | I can speak only for myself. I have worked on the presumption that we would set it, as you started out, below the funds rate, so we would in effect be creating something of a corridor with the primary credit rate on top and a deposit facility at the bottom. Now, whether that would be 1 percent below, 1/2 percent, or so... | 103 |
fomc | 2,006 | We have thought of different ways that the ability to pay interest on reserves could be used, and you're making a distinction between a rate that might be paid on excess and a rate that might be paid on required. Maybe they'd be the same; maybe they would be different. Depending on which you chose, you could have a ver... | 97 |
fomc | 2,006 | Other questions? President Hoenig. | 7 |
fomc | 2,006 | May I just ask about the breakeven rate in TIPS--we looked at it and saw perhaps some seasonality to it. Is that just nonsense, or have you looked at it or thought about it? | 43 |
fomc | 2,006 | I've spoken about that in the past actually. There has been some seasonality. It has happened before--that some seasonal moves upward have occurred in the first part of the year. | 36 |
fomc | 2,006 | Usually this part of the year. | 7 |
fomc | 2,006 | Yes, usually in this part of the year. That relationship has not been stable, but one has noticed that there has been that tendency. | 28 |
fomc | 2,006 | But you haven't actually systematically looked at it? | 9 |
fomc | 2,006 | We looked at it a couple of years ago, and we noted it, but I think it was just too unstable. | 24 |
fomc | 2,006 | Thank you. | 3 |
fomc | 2,006 | President Fisher. | 3 |
fomc | 2,006 | Having nothing to do with the subject we're currently discussing, but going back to your chart of metals prices, is there a way to get a judgment from the staff as to how much of this is speculative and how much of it is real demand and what the volume expansion has been on the different exchanges? We probably already ... | 140 |
fomc | 2,006 | We could look into it. | 6 |
fomc | 2,006 | Including the volume expansions? | 5 |
fomc | 2,006 | Yes. The volume expansions are something we can probably get data on. I'm not sure that doing so will answer the question that you would like answered, which is how much of the price movement is linked to certain classes of participants. | 46 |
fomc | 2,006 | For example, Exxon will tell you that, in terms of futures trading just on oil, West Texas crude was 6 billion in 1999; this year it's running at a 120 billion rate. That tells you something--we just don't know what. But it would be helpful for us to get a breakdown. At least it would be helpful to me. | 73 |
fomc | 2,006 | Hearing no other questions, we need a vote to ratify domestic operations. Do we have a motion? | 22 |
fomc | 2,006 | So moved. | 3 |
fomc | 2,006 | Any objection? Thank you. Yes? Dino. | 10 |
fomc | 2,006 | Very briefly, I circulated a memo that comes around at this time every year asking you to vote to approve renewal of the swap lines to Canada and Mexico. | 31 |
fomc | 2,006 | Do I have a motion? | 6 |
fomc | 2,006 | So moved. | 3 |
fomc | 2,006 | Discussion? President Lacker. | 6 |
fomc | 2,006 | I intend to vote "no" on this motion for the reasons related to those I gave in January for voting against the foreign exchange authorization: a general sense of opposition to our central bank's being involved in foreign exchange operations, much less lending to foreign central banks. | 53 |
fomc | 2,006 | Other comments? I'll ask for a show of hands. All in favor? Opposed? Thank you. We have an issue related to FOIA. A memorandum was distributed proposing to delegate certain FOIA responsibilities as described in the May 1 note to the Committee from Scott Alvarez and Kit Wheatley. Scott is here, I assume? Yes, there he i... | 92 |
fomc | 2,006 | So moved. | 3 |
fomc | 2,006 | So moved. Thank you. Any objection? All right. Thank you very much. Okay. Our next item on the agenda is the economic situation. | 30 |
fomc | 2,006 | Thank you, Mr. Chairman. I am told that counselors are taught to begin by acknowledging the validity of the fears and anxieties of those whom they are counseling. The strategy then is to deconstruct and examine in greater detail the specific sources of heightened anxiety in order to gain better perspective on the probl... | 2,519 |
fomc | 2,006 | On the international side, two major developments during the intermeeting period merit some further discussion this morning: the rapid and sizable run-up in global prices for crude oil and the significant depreciation of the exchange value of the dollar in the second half of the period. Those developments occurred agai... | 1,586 |
fomc | 2,006 | Questions for our colleagues? President Lacker. | 9 |
fomc | 2,006 | David, I noted an alternative scenario in the Greenbook in which inflation expectations are unanchored, and the description of the scenario says that inflation expectations end up 1/2 percentage point higher than in the baseline. I looked around for the baseline time series for inflation expectations, but I couldn't fi... | 66 |
fomc | 2,006 | Well, that's a good question. The reason we don't publish an inflation expectations series is that we're using a lot of different measures of inflation expectations to gauge where underlying inflation is. We're using a lot of different models for that matter, too. Some are purely backward-looking models, in which infla... | 515 |
fomc | 2,006 | I appreciate your answer. Let me tell you what motivated my question. First was the broad concern about inflation. But, second, in looking at the Greenbook and thinking through the outlook, I see that inflation expectations held by market participants are a key conceptual anchor for us. I note that you tell us quantita... | 97 |
fomc | 2,006 | If I could respond to that for just a second--I'd be happy to write a number down on the back of an envelope. [Laughter] If we were to write a number down, I'd caution you not to take it too seriously. I think you ought to be looking at survey measures of inflation expectations. You ought to be looking at market-based ... | 182 |
fomc | 2,006 | I can appreciate that, but it comes up in our deliberations. Last fall, we were talking about the reaction to Katrina, and you were showing us a scenario in which core inflation rose and then fell in the first half of this year. I asked you what happened to inflation expectations along that path, and they rose and then... | 140 |
fomc | 2,006 | President Poole. | 4 |
fomc | 2,006 | Thank you, Mr. Chairman. I have several questions that I will ask quickly here. First of all, I do want to commend the Board staff and the staff of the Reserve Banks on the special survey. I thought the information on nonresidential construction was very useful. Here are my questions. First, is there a way we can recon... | 324 |
fomc | 2,006 | About the issue of reconciling the ECI with the compensation per hour figures, the previous Chairman tortured us [laughter]--and the Bureau of Labor Statistics--for a number of years precisely on this issue on the thought that we ought to be able somehow to resolve the difference in these measures. That came to no avai... | 380 |
fomc | 2,006 | For us, anyway, most of the surprise has been on the nonwithheld side, on the final payments, and that implicates maybe something like capital gains rather than the sort of more directly payroll-tied sources of income. | 46 |
fomc | 2,006 | And small upward surprises on the withheld portion. As David notes, most of it is in the nonwithheld portion. On the economics behind the forecast for the profit margins to revert just a bit toward mean, there is empirical and historical support for that kind of movement, and I think there are some good economic reason... | 306 |
fomc | 2,006 | Thank you. President Moskow. | 7 |
fomc | 2,006 | Thank you, Mr. Chairman. I, too, wanted to ask about the alternative simulation that President Lacker talked about, the greater pass-through with unanchored expectations. It seems to give the impression that inflation is pretty controllable, and I have a bit more concern than that. You said in the scenario at the end t... | 199 |
fomc | 2,006 | Starting with that last point, an increase in inflation expectations leads almost one for one into actual inflation, and in relatively short order. If some significant shift occurred in inflation expectations, you could expect that it would show up as higher inflation immediately. Now, in the model, inflation is a very... | 237 |
fomc | 2,006 | You see exactly that point, President Moskow, in the alternative simulation in the Bluebook in which we asked what it would take over the extended Greenbook period to achieve an inflation target of 11/2 percent--which effectively means to work out 1/2 percentage point worth of inflation. You have to keep the real five-... | 164 |
fomc | 2,006 | I found that Bluebook alternative simulation very helpful. I thought it was tied together with the ones in the Greenbook. I found them together to be very helpful. It's this inertia that concerns me. Earlier in my career I was involved in fighting inflation, and once it gets out of control it is very, very difficult to... | 70 |
fomc | 2,006 | Again, as the property of the model that Dave mentioned, it's a very flat Phillips curve. It takes a lot of unemployment years to work that back. | 31 |
fomc | 2,006 | President Lacker has a two-handed intervention. | 9 |
fomc | 2,006 | Yes. Just very briefly, I wanted to get a bit more of the benefit of your expertise about how inflation expectations evolve. As you noted, they evolved slowly in the historical data. But there are episodes, like the last couple of weeks, when I get the sense that they can move fairly rapidly. | 61 |
fomc | 2,006 | I'm not sure I have that expertise. Perhaps the evolution of inflation expectations is asymmetric, as President Moskow suggested. Perhaps it's also what we look at at a high frequency. Inflation compensation doesn't exactly map into inflation expectations--it includes an inflation risk premium. We think that some of th... | 181 |
fomc | 2,006 | Does the baseline Greenbook forecast treat inflation expectations as evolving relatively sluggishly, or are they capable of jumping? | 22 |
fomc | 2,006 | They're capable of jumping. We could make the underlying assumption that inflation expectations have shifted, and I think we would be looking at the things that I noted earlier in trying to make that determination. In what we're assuming is currently happening and what has happened over the past couple of years, inflat... | 68 |
fomc | 2,006 | President Fisher. | 3 |
fomc | 2,006 | Thank you, Mr. Chairman. I'd like to turn to the international side and first thank Karen for the good work that's in the book and your briefing. More in the book than in the briefing, there is the note that continued expansion is taking place among our significant trading partners and around the globe. I wonder if you... | 258 |
fomc | 2,006 | Well, as to the first question, we have not really done a lot to address this issue, which you have raised with us before, but we are trying to give it some thought. One thing struck me over the weekend, when Governor Kohn and I went to the BIS Governors meeting. Certainly the sense of strong global growth was pervasiv... | 645 |
fomc | 2,006 | May I just interrupt you here to ask a question? In terms of your BIS readings and what you came back feeling: Do you have a sense that global resource utilization is tightening and that there is a greater inflationary impulse deriving from global resource utilization? | 50 |
fomc | 2,006 | Well, it is certainly true that resource utilization in certain industrial countries--Japan, for example--is moving in that direction. Even Europe to some degree is moving in that direction. For the major emerging-market economies of India, China, and so forth, where we have seen the big increase in the global labor fo... | 421 |
fomc | 2,006 | Thank you. I think we are ready now to move on to our economic go-round. Let me remind you of our convention. Raise one hand to be put into the queue to speak, and raise two hands if you would like to make an immediate intervention or ask a question pertaining to one of your colleague's comments. President Yellen. | 68 |
fomc | 2,006 | Thank you, Mr. Chairman. Incoming data on the pace of economic activity surprised me slightly to the upside, although the indications are that housing is continuing to cool. Such an upside surprise is of concern, given that we are probably in the neighborhood of full employment and inflation is already on the high side... | 1,021 |
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