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fomc | 2,006 | Vincent. | 3 |
fomc | 2,006 | Who says 18 people can't draft a statement? [Laughter] I have some late breaking news. If you go to the dictionary, the first meaning of "moderate" is "being within reasonable limits," which I believe is what Governor Kohn was referring to. But it also means "of limited or average quality," and in the federal statistic... | 101 |
fomc | 2,006 | That was truly amazing. [Laughter] President Fisher. | 12 |
fomc | 2,006 | Mr. Chairman, I'd like to just go back and endorse Governor Kohn's recommendation. I was worried about the numerator/denominator relationship. If the reference to "moderate" as defined and clarified by Vince keys off the third quarter, then I'm concerned. If, however, we take the phraseology that Governor Kohn suggeste... | 75 |
fomc | 2,006 | Thank you. Well, thank you all very much for a very useful, very informative discussion. My bottom line is that we have not had a great deal of information in the past five weeks on which to base a sharp change either in policy or in this statement. Therefore, I would propose that we make no change in the federal funds... | 469 |
fomc | 2,006 | Is there a comment? Yes, Governor Kroszner. | 13 |
fomc | 2,006 | This is certainly something that I am very supportive of, but as I had mentioned, I was concerned, as Governor Warsh and others were, about the interpretation. Would it make sense to use the word "poised" rather than "likely," or do you think that would be a mistake? | 60 |
fomc | 2,006 | I think "poised" suggests in the future even more than what we already have. Frankly, this may or may not occur, but I think that second sentence, "seems likely to expand at a moderate pace," is actually a fairly hawkish sentiment because it will tell the markets that we are less concerned about a meltdown in housing t... | 314 |
fomc | 2,006 | I'll be reading the directive wording and the risk assessment for alternative B from page 29 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 imm... | 184 |
fomc | 2,006 | Thank you very much. It's 10:30. Why don't we take a fifteen-minute coffee break and return for our discussion? | 26 |
fomc | 2,006 | The meeting can come to order. This portion of the meeting is devoted to a discussion of communications. Governor Kohn, could you lead us off? | 30 |
fomc | 2,006 | Thank you, Mr. Chairman. I'd like to say just a few words by way of introduction about the expectations for today and the process going forward. Today we're approaching the general topic of communications, but also I think everyone agrees that today's discussion, in particular, is about more than communications. It's a... | 773 |
fomc | 2,006 | Thank you, Governor Kohn. Let me just add a couple of comments. I'll talk more substantively at the end of the round, but I just want to say that I'm looking forward to the discussion. I think we're going to learn a lot. Our objective should be to find a package of measures that will improve our communication and our p... | 303 |
fomc | 2,006 | Mr. Chairman, may I ask one clarifying question? Will someone remind us how the minutes are going to characterize the conversation we will have over the next several meetings? Is it going to be a standard section like the one we used the last time, which was pretty much without content? [Laughter] | 62 |
fomc | 2,006 | Since you're not likely to be making any decisions, then there's not much to convey in the minutes other than that you had a full and frank exchange of views [laughter] regarding your attitudes toward articulating a price objective. | 45 |
fomc | 2,006 | Good. So we'll proceed on that understanding. President Lacker. | 13 |
fomc | 2,006 | Thank you, Mr. Chairman. Vince Reinhart did a good job of organizing the issues in his three fundamental questions, but I'd reverse the order. The last of his three questions asks whether adopting a numerical objective would constrain or influence subsequent policymaking. I think we should start by asking the question ... | 1,259 |
fomc | 2,006 | Thank you, President Lacker. President Moskow. | 11 |
fomc | 2,006 | Thank you, Mr. Chairman. It's probably best to state at the outset that I prefer a different approach to quantitative inflation guidelines, and that approach is actually touched on in Vince's second question. The approach I would prefer is extending our economic forecast horizon. I'll address this consideration first a... | 931 |
fomc | 2,006 | Thank you. President Poole. | 7 |
fomc | 2,006 | Thank you. I want to associate myself with comments that President Lacker offered. If we are going to do this, we ought to make it very clean and explicit. I would not favor the approach that President Moskow offered because calling the target a forecast leaves too much room for it to change over time. I think that the... | 745 |
fomc | 2,006 | Thank you. Governor Mishkin. | 7 |
fomc | 2,006 | Some people who know me quite well have been surprised at how brief some of my statements have been. So in this case I hope you'll indulge me a little. [Laughter] | 36 |
fomc | 2,006 | The good times are over? [Laughter] | 10 |
fomc | 2,006 | As many of you know, I have thought quite a lot about this issue and have written quite a lot about it. I've also been thinking a lot about it recently, particularly in the context of different political environments and structures of committees in which to operate. I just finished a report on Sweden. Sweden is not the... | 436 |
fomc | 2,006 | You did before that though. | 6 |
fomc | 2,006 | But we did have a problem before that, and that is exactly my point. In fact, not only might you not get the right person in the future--and that could have happened this time around, but we were lucky in that regard--but even when you have the right person, the transition to a new Chairman has been very complicated. I... | 3,495 |
fomc | 2,006 | Tell us what you really think. [Laughter] | 11 |
fomc | 2,006 | If it were a textbook, and I can tell you I know a lot about this, you wouldn't sell one copy. [Laughter] So it's a problem. We see this in practice in that the markets pay very little attention to the Monetary Policy Report. A feature of inflation-targeting regimes is that they produce something called inflation repor... | 726 |
fomc | 2,006 | Thank you. President Plosser. | 8 |
fomc | 2,006 | It probably comes as no surprise to most of you that I share a lot of the views expressed by Jeff, Bill, and Rick, and so I'll try to reinforce some and maybe fine-tune a couple about which I might have some additional thoughts. I do applaud the changes that the FOMC has made--over the past decade, in particular. It ha... | 2,208 |
fomc | 2,006 | Thank you. President Minehan. | 7 |
fomc | 2,006 | Well, it will probably come as no surprise to anybody around this table that I don't agree with some of the things that have been said, though I have a great deal of respect for the opinions that have been expressed. I want to go through the questions in a somewhat different order: first of all, whether or not explicit... | 2,037 |
fomc | 2,006 | Thank you. President Pianalto. | 7 |
fomc | 2,006 | Thank you, Mr. Chairman. In August, this Committee discussed the goals for our policy communications and generally agreed that one goal is to improve the effectiveness of monetary policy and the performance of the economy by helping agents generate well-informed expectations consistent with the goals and strategy of th... | 1,126 |
fomc | 2,006 | Thank you. Governor Kohn. | 7 |
fomc | 2,006 | Thank you, Mr. Chairman. I'll start at the top of the sheet but then jump around. So the answer to the first question is "yes"--I do think that an explicit numerical specification of price stability would be helpful and that the FOMC should move toward such a specification. I always thought this step was a close call i... | 1,521 |
fomc | 2,006 | Thank you. First Vice President Barron. | 9 |
fomc | 2,006 | Thank you, Mr. Chairman. In light of the hour and the fact that many of my more learned colleagues have yet to speak, I'll try to be brief. My comments come from one who has been with the Federal Reserve System for some thirty-nine years, has been seated on the sidelines of this Committee for fifteen years, and has obs... | 581 |
fomc | 2,006 | Thank you. President Hoenig. | 7 |
fomc | 2,006 | Mr. Chairman, in preparing for today's comments, I found it interesting and somewhat instructive to look back to similar discussions that this Committee has had in the past. This includes not just our more recent ones but an extended debate that took place in July 1996. I can confirm, therefore, that we have a delibera... | 1,225 |
fomc | 2,006 | Thank you. President Stern. | 6 |
fomc | 2,006 | Thank you, Mr. Chairman. The last time we discussed an explicit numerical objective in an organized way I said something to the effect that I thought one reason to have one would be to formalize and institutionalize what I thought the Committee had largely been doing over the past ten or fifteen years. I continue to fe... | 445 |
fomc | 2,006 | Thank you. President Yellen. | 7 |
fomc | 2,006 | Thank you, Mr. Chairman. I'll address the major questions posed in Vincent's memo in the order presented. First, I support the enunciation of a long-run numerical inflation objective. My views on the benefits and costs of enunciating publicly such an objective have changed very little since we discussed this topic in J... | 1,467 |
fomc | 2,006 | Thank you. Governor Bies. | 7 |
fomc | 2,006 | Thank you, Mr. Chairman. As you know, since we've started talking about this issue, I've been undecided--"open-minded" is perhaps another way to say it. Wearing my supervisor's hat, I see that we've been talking to players in the markets about how important transparency is to the effective functioning of financial mark... | 1,173 |
fomc | 2,006 | Thank you. Governor Warsh. | 7 |
fomc | 2,006 | Thank you, Mr. Chairman. Let me frame my remarks around the relevant constituencies, trying not to avoid answering the hard questions. The prism through which I think about this is, What's the political acceptance for what we're trying to do? What's the market acceptance and what's the policy acceptance for what we are... | 1,454 |
fomc | 2,006 | Thank you. President Fisher. | 6 |
fomc | 2,006 | Well, I don't have any written material prepared, Mr. Chairman--just notes I've taken, in part because I confess that before this conversation I was somewhat nonplussed about this issue. That is, I'm a little perplexed about why we're talking about it now, given what many commentators have said about where we are prese... | 828 |
fomc | 2,006 | Speak for yourself. [Laughter] Governor Kroszner. | 14 |
fomc | 2,006 | I don't know why President Fisher pointed to me when he said that. I do not endorse his approach. [Laughter] Certainly, I think it's appropriate--since we're getting very close to or maybe have passed our lunch, when we'll talk about the 100th anniversary of the Fed--that we are thinking about something that is really ... | 873 |
fomc | 2,006 | Thank you. President Lacker had a two-handed intervention. | 12 |
fomc | 2,006 | With your indulgence, Mr. Chairman, I'd like to comment on the role of the dual mandate and sketch out how I'd like to see this discussion evolve. I feel motivated to do this because this consideration has played a greater role in today's discussion than I had anticipated--this is just a byproduct of my own lack of for... | 829 |
fomc | 2,006 | Thank you. Vice Chairman Geithner. | 9 |
fomc | 2,006 | I'm tempted to say that I was hoping we would run out of time. [Laughter] I'll be very brief. Let me just compliment Don and his subcommittee and the Chairman for how you've laid out the issues. This decision is important to think through carefully, even if we quickly find a comfortable center of gravity. It's going to... | 1,262 |
fomc | 2,006 | Thank you. It's been a very long morning. I appreciate everyone's patience in this long but very useful discussion. Let me take just a couple of minutes. I'm not going to try to respond to all the points that were raised. I just want to make just a couple of observations. There was a lot of discussion about how this wo... | 926 |
fomc | 2,006 | Good morning, everybody. Pat Barron is sitting in again today for the Atlanta seat. I just wanted to mention that we're going to have an informal luncheon for Jack Guynn following the meeting. Jack wanted to keep it informal, so we're just going to do it right here. | 56 |
fomc | 2,006 | There will, however, be some comments from the Conference of Presidents. [Laughter] | 18 |
fomc | 2,006 | And some commentary from the Chairman as well. [Laughter] Speaking of retirements, Dino Kos... | 21 |
fomc | 2,006 | I'm not retiring, though. [Laughter] | 10 |
fomc | 2,006 | This is Dino's last FOMC meeting, however. He has attended fifty-eight meetings, forty-seven of which came since he was appointed the Manager of the Desk and the System Open Market Account. We owe you a great debt of gratitude for your professionalism, for your leadership, and for the very insightful market reports you... | 92 |
fomc | 2,006 | Thank you. | 3 |
fomc | 2,006 | This report had better be good. [Laughter] I guess I should add that we'll have to have a notation vote to ratify Dino's successor sometime before the next meeting. Dino, the floor is yours. | 43 |
fomc | 2,006 | 1 Thank you very much, Mr. Chairman. Thank you for those words. The most striking aspect of the intermeeting period was the conviction that markets developed about a benign 2007 outlook both for the economy and for monetary policy. Until Friday's employment report, most of the incoming data were viewed as being weaker ... | 1,748 |
fomc | 2,006 | Thank you. Dino, some work here at the Board suggests that a good portion of the decline in the long-term rates in the intermeeting period was due to a falling term premium as opposed to expectations of inflation. Is that consistent with what you've seen? | 51 |
fomc | 2,006 | Yes, I think that's correct. | 7 |
fomc | 2,006 | And the reason for a lower term premium? | 9 |
fomc | 2,006 | If I could answer that question, I'd be rich by now. [Laughter] It's hard to know. I don't pretend that I can give you a precise answer. Certainly, the markets have been in this benign situation for some time, and we've been struggling with this question for several years--why the term premium has been so low, why spre... | 120 |
fomc | 2,006 | Are there other questions? President Fisher. | 8 |
fomc | 2,006 | Dino, you mentioned last year's rise in the euro--the soft dollar against the euro and other currencies. Is there a December effect, and if there is, what causes it? | 37 |
fomc | 2,006 | That's a great question. It has been asserted, without proof, that some of the major central banks moved into euros very aggressively in December 2004. I don't know whether that's true, but there is some evidence to suggest that it might have been the case and that in somewhat thinner markets it had a pronounced effect... | 123 |
fomc | 2,006 | Thank you. | 3 |
fomc | 2,006 | Governor Bies. | 4 |
fomc | 2,006 | Thank you, Mr. Chairman. Dino, regarding the last graph you showed, leveraged-loan growth, especially in the share held outside banks, has been happening even though, as you show, high-yield bond issuance really has been running in a fairly normal range. What is making these loan deals so much more attractive to invest... | 67 |
fomc | 2,006 | The cynic in me would say that a lot of money has been allocated into the credit space. A lot of money has gone into things like credit-default and credit-derivative products. Investors want exposure to credit to enhance yield. They are getting that exposure more and more through derivatives. You need supply to feed th... | 153 |
fomc | 2,006 | President Lacker. | 4 |
fomc | 2,006 | Would a natural interpretation be that the growth in the credit-derivative market in the past few years has made credit exposures via banks' loan sales to other entities more liquid relative to the liquidity that has always been there in the high-yield area? | 50 |
fomc | 2,006 | I think that's probably another factor, which would not be mutually exclusive with the other explanations. It would just be yet another one. | 26 |
fomc | 2,006 | President Poole. | 4 |
fomc | 2,006 | I move approval of the Manager's report and operations. [Laughter] | 15 |
fomc | 2,006 | Is there any discussion? Are there any other questions for Dino. Can I get a second? | 19 |
fomc | 2,006 | Second. | 2 |
fomc | 2,006 | All in favor? [Chorus of ayes.] Thank you. Again, Dino, thank you for your many contributions. We turn now to the staff report on the economic situation. Dave? | 39 |
fomc | 2,006 | Thank you, Mr. Chairman. As I worked my way through a final reading of the Greenbook this weekend, I was reminded of the old joke about the man who is told by his doctor that he has only six months to live. The doctor recommends that the man marry an economist and move to North Dakota. The man asks whether this will re... | 2,787 |
fomc | 2,006 | A few months ago, when Karen Johnson asked me to fill in for her at the December FOMC meeting, I immediately wrote to Santa Claus and asked, as my present, for some major international event to take place, be it an emerging-market crisis, skyrocketing commodity prices, or a spectacular collapse of the dollar. Such deve... | 1,529 |
fomc | 2,006 | Thank you. Are there questions for our colleagues? President Moskow. | 14 |
fomc | 2,006 | I have a question for Dave on the first paragraph of the Greenbook, where you said that labor markets have been stronger than we were expecting. Of course, just now you also talked about that and about the employment report on Friday. Then you said, "In constructing our forecast of aggregate activity, we've given great... | 114 |
fomc | 2,006 | I guess our basic feeling was that, if just the spending data had been weak, we would have probably had greater pause about downweighting the strength of the labor market segment. But we've also seen a weakness in industrial production, which is in physical product data as well. Then there's considerable noise in labor... | 225 |
fomc | 2,006 | Otherwise, you change the forecast. | 7 |
fomc | 2,006 | It's a legitimate possibility that we've just made the wrong call on GDP growth. Maybe we'll look back through a series of data revisions and maybe a strong fourth quarter or first quarter and will average through this and say, "In this period, growth really didn't slow to the 11/2 percent pace that we thought was ther... | 225 |
fomc | 2,006 | Thank you. President Poole. | 7 |
fomc | 2,006 | Dave, if interest rates had held at the June level more or less, what might have been the effect on housing starts and the economy more generally? I realize in one sense that's an inadmissible question because you have to ask what makes an endogenous variable different from what it otherwise would have been, but suppos... | 76 |
fomc | 2,006 | Roughly speaking, if we had been held back at the June level, we would estimate that housing starts probably would have been about 100,000 units weaker than they currently are. Running that through the model suggests roughly 0.3 percent on the level of GDP. Whether all that would have played out by now is not entirely ... | 199 |
fomc | 2,006 | President Pianalto. | 4 |
fomc | 2,006 | Dave, the two measures of labor compensation that we typically look at--compensation per hour and the employment cost index--over a long period track each other fairly closely, but in the shorter run there's more variance. Even though we've seen the recent downward revisions to compensation per hour, it's still running... | 110 |
fomc | 2,006 | To answer the latter question: If we really threw away the information in the nonfarm business compensation that is taken from the national income accounts and focused solely on the ECI, we'd have a lower inflation forecast. In our overall price inflation projection, we use a variety of models. I talked about this a li... | 351 |
fomc | 2,006 | Thank you. | 3 |
fomc | 2,006 | President Plosser. | 5 |
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