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fomc | 2,006 | Thank you, Mr. Chairman. Well, I'm like everybody else around the table--I have found the decision about which way to go to be a very tough call. I'm coming down on the side of a pause right now, partly because I'm more pessimistic than the staff forecast on the second-order effects of the slowdown in housing. We're he... | 354 |
fomc | 2,006 | Thank you. Governor Warsh. | 7 |
fomc | 2,006 | Thank you, Mr. Chairman. From a capital markets perspective, as I think about this decision, what matters more than the pricing of this issuance--that is, the decision on 25 basis points--is really what the after-market effects are. How is this security going to trade over the next weeks and months? When I think about ... | 476 |
fomc | 2,006 | Thank you. Governor Kroszner. | 9 |
fomc | 2,006 | As I said before, obviously this is an extremely difficult decision, and I agree with many people around the table who have said that very respectable arguments could be made on both sides. So I would say that, on net, there are some advantages to keeping policy unchanged but communicating very, very strongly our warin... | 659 |
fomc | 2,006 | Thank you. Vice Chairman Geithner. | 9 |
fomc | 2,006 | Thank you, Mr. Chairman. We could obviously justify moving today, but we don't need to move today. We don't need to move today principally because we have an economy that has already slowed to what we think is trend and because we have inflation expectations at the long horizon staying relatively stable despite adverse... | 856 |
fomc | 2,006 | Thank you very much. First of all, I'd like to thank everyone for a really helpful and thoughtful discussion. It was very useful. Let me just make a few comments. First, we do need to be careful to think about what the optimal policy looks like. It doesn't take the form that we keep raising rates until we're happy with... | 1,166 |
fomc | 2,006 | The unit labor cost figures suggest leaving productivity gains out of this. That's just my opinion. | 18 |
fomc | 2,006 | Okay. Other comments? President Fisher. | 8 |
fomc | 2,006 | If we were to keep productivity gains in, I would suggest striking the word "ongoing." | 19 |
fomc | 2,006 | Any others? | 3 |
fomc | 2,006 | May I say something on the mention of housing? | 10 |
fomc | 2,006 | Certainly. | 2 |
fomc | 2,006 | I think Bill's reservations about it are right. Of course, they would have applied the last time we used it, too. I guess I would argue for keeping housing in on the grounds that it's happening. It is the principal area in which we see some weakness going on in the economy, and not to make reference to that reality see... | 128 |
fomc | 2,006 | President Poole. | 4 |
fomc | 2,006 | Section 2 can reasonably be interpreted as referring to second-quarter GDP. That's the news that we have, and there has been a slowing in a wide range of sectors. So I think that that's a sensible interpretation. There are continuing concerns about housing going forward. I understand that. But it seems to me that secti... | 141 |
fomc | 2,006 | Governor Kroszner. | 6 |
fomc | 2,006 | I think it would be odd to take out the reference to housing, given that we have mentioned it a number of times in the past. The rationale clearly says that it's "partly reflecting" and then gives a number of factors. It is not saying that those factors are the only ones. Also, I don't interpret this language as being ... | 167 |
fomc | 2,006 | President Moskow. | 4 |
fomc | 2,006 | I agree with Randy on this. It would be very strange to take housing out now because it was in last time and because it is so important to the future of the economy. The productivity question is a close call. On balance, I'd leave it out because it does raise the whole question about unit labor costs. | 63 |
fomc | 2,006 | Any other views? President Plosser. | 9 |
fomc | 2,006 | I'm new to these language nuances about housing. It occurs to me, however, that one question you ought to ask is whether by including housing or continuing to include housing the Committee is putting itself in a position where it can't raise rates until housing comes back. Are we unfairly locking ourselves in, or at le... | 86 |
fomc | 2,006 | President Minehan. | 4 |
fomc | 2,006 | I think that President Plosser has a good point there and President Poole did as well. Section 2 is aimed at explaining what has happened with growth in the past. Everything moderated. To me, the most surprising thing was how slow business fixed investment was. It was not so surprising that housing was slow because we ... | 189 |
fomc | 2,006 | All right. I think we need to come to resolution. Oh, sorry. Governor Bies. | 20 |
fomc | 2,006 | I would prefer to leave housing in because housing resources aren't readily substitutable for other parts of the economy. If we leave resource utilization in, we're sort of acknowledging that, although housing is soft, there are still resource pressures in other parts of the economy. I think the picture is better balan... | 61 |
fomc | 2,006 | Okay. Thank you. Let me just say that I think this language is purely descriptive. I don't think it's conditioning our action on anything having to do with housing. I don't think the market will tie our move to housing. Let's just take a straw vote. How many would like to keep the statement as it is with housing includ... | 184 |
fomc | 2,006 | Yes. The directive would be, "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 markets consistent with maintaining the... | 165 |
fomc | 2,006 | Thank you very much. We have a lunch break now for about half an hour, and then we'll reconvene to discuss communications. [Lunch break] | 30 |
fomc | 2,006 | I know some people have flights and so on, so why don't we continue eating here. If you're still eating, we can just reconvene. Before we get going, I just want to recognize Barbara Driggins over here. Barbara is retiring. [Applause] Thank you, Barbara, for thirty-six years of service, and we hope this display of affec... | 83 |
fomc | 2,006 | I don't think so. [Laughter] | 9 |
fomc | 2,006 | Best of luck. Our afternoon session is on communications. I'd like to turn it over to Governor Kohn. | 22 |
fomc | 2,006 | Thank you, Mr. Chairman. We are in a hurry, and I don't have anything really in the way of introduction. I just want to say that we sent a list of questions, but we didn't expect answers to every question. We hope that the questions helped to spark thinking about some of the broad issues related to communications--what... | 126 |
fomc | 2,006 | Okay. We're just going to have a go-round. Please raise your hand, and Brian will take your name. | 23 |
fomc | 2,006 | If no one wants to start, [laughter] I can start. I actually have just a couple of things to say. We need to keep in mind that communication is not an end in and of itself. It's a means to an end. Where we rank on some professor's table of transparency isn't really what it's about. It's about meeting our legislative ob... | 884 |
fomc | 2,006 | President Minehan. | 4 |
fomc | 2,006 | Oh, dear. So you didn't want answers to all of these questions? This homework assignment was significant. [Laughter] I agree with a lot of what Governor Kohn has said. In my view, anyway, the principal goal behind central banks' communicating what they're doing and why is that they need to be accountable for their acti... | 957 |
fomc | 2,006 | Thank you. President Hoenig. | 7 |
fomc | 2,006 | Thank you, Mr. Chairman. Don, I appreciate the outline that you gave in terms of raising the questions. I'll be straightforward. As far as goals--what we are doing and why is the important part of communication. That's our obligation. That is part of transparency, and it serves us well. Regarding our view of the future... | 283 |
fomc | 2,006 | President Moskow. | 4 |
fomc | 2,006 | Thank you, Mr. Chairman. I'll comment on just three areas, in the spirit of being general here. First, on the goals--I thought the goals that you put into the document you distributed were very good. They were very well stated and had an appropriate balance. I didn't think that they constrain open discussion at the mee... | 627 |
fomc | 2,006 | Thank you. President Stern. | 6 |
fomc | 2,006 | Thank you, Mr. Chairman. Let me make just a few comments. I, too, like the goals. To me, the overarching objective of our communication policy should be to enhance the effectiveness of monetary policy. The goals that have been identified in this latest paper--which I take to mean making sure that, insofar as possible, ... | 476 |
fomc | 2,006 | President Yellen. | 4 |
fomc | 2,006 | Thank you, Mr. Chairman. I think this Committee has made huge strides over the past decade toward greater transparency and more-effective communication, an example being that--it was in 1994, I guess--we actually started issuing post-meeting statements. I think we've seen significant dividends from those innovations. T... | 1,370 |
fomc | 2,006 | Thank you. President Lacker. | 7 |
fomc | 2,006 | Thank you, Mr. Chairman. The first set of questions from the subcommittee had to do with goals and principles. The first principle I'd bring to this is that money is intrinsically worthless and has value only because people expect it to have value in the future. So, to be a little provocative, I'll say that monetary po... | 1,356 |
fomc | 2,006 | Thank you. President Guynn. | 7 |
fomc | 2,006 | Mr. Chairman, since I'm not going to be here in October, I probably should sit quietly; but I can't resist. I think almost everything has been said. I want just to comment quickly on a couple of things. I'm not sure we really talked about a very fundamental question--that is, who it is we are trying to communicate with... | 448 |
fomc | 2,006 | Thank you. President Poole. | 7 |
fomc | 2,006 | Let me concentrate on the forward-looking information on the federal funds path or something associated with it. One of the problems I have with Janet's position is that, every time we put that information in, we need to have an exit strategy of how we're going to get it out. As soon as you stop putting it in, you get ... | 354 |
fomc | 2,006 | Thank you. President Pianalto. | 7 |
fomc | 2,006 | Thank you, Mr. Chairman. I agree that the goals listed in the subcommittee's memo are the right goals. However, in thinking about the next few questions concerning the quantity and the content of the information and the nature of any forward-looking information that we provide, I find it difficult to make judgments wit... | 491 |
fomc | 2,006 | Thank you. President Fisher. | 6 |
fomc | 2,006 | Well, Mr. Chairman, we do have responsibility for a fiat currency, and my straightforward and undiplomatic way of describing what we do for a living is that we are performing a great confidence game. I think that's important to bear in mind. As President Yellen said, this is apple pie and motherhood. The answer is "yes... | 484 |
fomc | 2,006 | Thank you. Governor Bies. | 7 |
fomc | 2,006 | Thank you, Mr. Chairman. I, too, support the broad goals that are laid out here. In thinking about communication, I see that one challenge we will have relates to some of the dialogue we had today. We set some long-term goals. How do we link those to what we do in individual meeting actions and decisions? We already ta... | 441 |
fomc | 2,006 | Thank you. Governor Warsh. | 7 |
fomc | 2,006 | Thank you, Mr. Chairman. Just a few brief comments. First, with respect to the concision of our statement and the minutes, I guess in a perfect world the minutes would come out much sooner after our statement, but I recognize all the work that needs to get done to get consensus and understanding on those. I have a mode... | 714 |
fomc | 2,006 | President Plosser. | 5 |
fomc | 2,006 | Thank you, Mr. Chairman. The goals are pretty clearly stated, and I have no real problems with them. I agree that communication and transparency are really a key part of maintaining and enhancing our own credibility. I also understand, as I listen to people around the table and other conversations, that some of these i... | 993 |
fomc | 2,006 | Thank you. Vice Chairman Geithner. | 9 |
fomc | 2,006 | Thank you. I want to start by saying that I think we're confronted with a set of issues that really aren't principally about communication and transparency. I think they're fundamentally about how we conduct monetary policy and the monetary policy regime we're going to operate under. I want to say a little about what I... | 1,137 |
fomc | 2,006 | Thank you. Governor Kroszner. | 9 |
fomc | 2,006 | I'll be very brief. I think a number of the points that Vice Chairman Geithner made are excellent, in particular his emphasizing that we have to think about this as a package but not as necessarily meaning that we must implement everything at once. We may want to see how the pieces are working before we do that, but we... | 658 |
fomc | 2,006 | Thank you. | 3 |
fomc | 2,006 | What if we don't know what we don't know? [Laughter] | 14 |
fomc | 2,006 | Let me add just a couple of very general comments. I hope that in our discussions about communication we'll be aiming to make policy work better. I think that involves trying to make the markets and the public form expectations that are at least broadly consistent with our goals and our strategy and trying to anchor lo... | 577 |
fomc | 2,006 | Good morning, everybody. ALL. Good morning. | 10 |
fomc | 2,006 | We have two milestones to note today. First, we'd like to welcome new Governor Rick Mishkin. Welcome, Rick. Rick attended FOMC meetings from '94 to '97 when he was on the New York Fed staff, but this is the first time he has gotten to sit at the big table. [Laughter] | 66 |
fomc | 2,006 | I wanted to sit right back there, but they wouldn't let me. [Laughter] | 18 |
fomc | 2,006 | New York's view is that they work for Rick. [Laughter] | 15 |
fomc | 2,006 | On a sadder note, today is President Guynn's last meeting. He has been Bank president and FOMC member for ten years and has served the Atlanta Fed for a mere forty-two years. We congratulate you. We will have a lunch in your honor after the December meeting and will have a lot more to say then. | 67 |
fomc | 2,006 | Thanks. | 2 |
fomc | 2,006 | Thank you for outstanding service for an extended period of time. Let's begin, then, with Mr. Kos. | 22 |
fomc | 2,006 | 1 Thank you, Mr. Chairman. Among market participants, September has a reputation for being difficult on portfolios, for sudden bursts of volatility that lead to risk aversion and wider spreads, and for sometimes spectacular blowups in the speculative community. The ERM crisis in 1992, Long-Term Capital Management in 19... | 1,734 |
fomc | 2,006 | Thank you. Are there any questions for Dino? President Poole. | 14 |
fomc | 2,006 | Does the early-return rate enter into the calculation of the effective rate for the day? | 17 |
fomc | 2,006 | Yes, it does. | 5 |
fomc | 2,006 | It does, and therefore it affects the futures market trading. | 12 |
fomc | 2,006 | Yes, it does affect it. Now, the effect that it has is fairly small--I think it's less than 1 basis point overall. | 29 |
fomc | 2,006 | But should that volume rise, it could become quantitatively significant. | 13 |
fomc | 2,006 | That's correct--it could. Again, despite forecasts by some traders and brokers in the market, so far that has not happened. In part, it's because the GSEs have been using term fed funds more than overnight funds for cost reasons. | 49 |
fomc | 2,006 | President Lacker. | 4 |
fomc | 2,006 | About early returns, obviously what we care about as a Committee is the 24-hour rate. Therefore, in calculating and targeting that effective rate, if that spread became substantial, we'd want to adjust for that, I would take it. The spread between the early return and the regular 24-hour return is so small that the imp... | 88 |
fomc | 2,006 | I haven't made that precise comparison, but in general I would say that where you started out was perhaps the most interesting part, which is that the Committee cares about the 24-hour rate. Now, that's something that I'm not aware has actually ever been articulated before. What has been articulated to the Desk has bee... | 149 |
fomc | 2,006 | From the economic standpoint, clearly we care about the 24-hour rate. But if the intraday rate rose, and so for a given 24-hour rate the effective overnight rate was lower, that would really distort the relationship between the effective rate and the longer-term real intertemporal rate of substitution. | 61 |
fomc | 2,006 | Just to be clear, right now there isn't an intraday rate. This is an overnight rate, and the way that it works out, it really is roughly a 24-hour rate because most of this trading takes place in early morning to midmorning. | 52 |
fomc | 2,006 | Even with the early returns? | 6 |
fomc | 2,006 | Yes, most of the trading occurs between 8:00 and 9:30 in the morning. It's an early morning market for trading, and it's an early morning market for returns. So it actually does end up being roughly a 24-hour market. It's just that the trading takes place at a different part of the day. | 67 |
fomc | 2,006 | I see. But do you think of the difference as a risk premium? | 15 |
fomc | 2,006 | No, I don't think it's a risk premium. It just reflects the 1 or 2 basis point differential for the bank. It just changes their procedures, so it adds to their costs in terms of returning funds earlier and not having additional funds to use for making other payments. Therefore, the bank may hit against its cap earlier ... | 87 |
fomc | 2,006 | When you say "the bank," which side are you talking about? | 14 |
fomc | 2,006 | The bank that's returning the funds. | 7 |
fomc | 2,006 | Okay. So they're giving up something. I have a second question I want to ask about inflation compensation. The chart you have in the front shows that inflation compensation has fallen at the front end. Yet in the Bluebook box on page 4, there's a calculation done from the near-term maturing TIPS security showing that, ... | 109 |
fomc | 2,006 | At the short end, it's going to be affected by energy, right? | 15 |
fomc | 2,006 | Right. That shows up in the Bluebook as from now to October/November '06, and that you would think of as a sort of expected carry effect. | 33 |
fomc | 2,006 | Yes. Energy prices will tend to have a bigger effect during the first two or three years of a TIPS curve. | 24 |
fomc | 2,006 | President Lacker, the thing to point out in the staff forecast for CPI inflation is that they are forecasting declines in the CPI in September and October. That's reflected in the shift in the bars at the left in that box in the Bluebook. So it really is at the very front end. | 59 |
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