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fomc | 2,007 | Thank you. Vice Chairman. | 6 |
fomc | 2,007 | Do we have any precedent, Vince, for reference to financial conditions described as favorable or otherwise? We've said that it's supported by accommodative policy. | 29 |
fomc | 2,007 | I was going to say that mostly the references would be to the stance of policy, as opposed to financial conditions. | 23 |
fomc | 2,007 | I think there was back in 2001, after we cut rates, but I'm not sure. Overall my concern about cutting things off after "quarters" or "gains in income" is that such a statement would be kind of weak. We say that indicators have been mixed and adjustment in the housing sector is ongoing, but there's an act of faith here... | 140 |
fomc | 2,007 | President Minehan. | 4 |
fomc | 2,007 | You could do something like "still, taken all together, the economy seems likely to expand at a moderate pace." I think that Governor Kroszner was right on. In terms of the shortness of this language, highlighting these three things really does run the risk that they will appear to be things on which we are going to fo... | 97 |
fomc | 2,007 | Let me just ask a question. The intention of this was not to comment on recent market volatility. The intention was to say that interest rates are low, stock prices are pretty strong, and liquidity is good, and that is going to support growth. Would changing it to, say, "aided by supportive financial conditions" or som... | 75 |
fomc | 2,007 | I fully agree with Governor Kroszner's idea that thinking that in this short form we can explain all of that is risky. Given the volatility that we have recently seen and the concern, which many have expressed, that this Committee is out to save people from stock market problems, I just think that we run a risk by high... | 77 |
fomc | 2,007 | Mr. Chairman. | 4 |
fomc | 2,007 | President Fisher. | 3 |
fomc | 2,007 | I feel very strongly about this issue. I'd like to underscore the arguments that have been made--I think we have unanimity around this table. Our job is to get the real economy right. We're opening a door here that entails significant risk. Governor Warsh made a very good comment: What is our exit strategy once we open... | 90 |
fomc | 2,007 | President Poole. | 4 |
fomc | 2,007 | The way I would look at the issue is to suppose that we have another break in the stock market of 5 percent or 8 percent, something like that. If we put "financial conditions" now, we clearly couldn't put it in the next time if we had that condition. Then what would it mean for us to take it out? That's why, among the ... | 90 |
fomc | 2,007 | Okay. I get a general sense of agreement around the table, unless someone wants to speak strongly in favor of financial conditions. President Stern. | 28 |
fomc | 2,007 | No, I don't want to speak strongly in favor of retaining the reference to financial conditions. But I do think, along the lines that Governor Kohn expressed, that we need to provide some basis for our expecting moderate growth to continue. Otherwise that sentence does come across as an act of faith and doesn't seem to ... | 98 |
fomc | 2,007 | That was our objective, and we're trying to find short ways to say it. Anyone else? President Hoenig. | 23 |
fomc | 2,007 | Mr. Chairman, I don't have any problem. I agree with Cathy on the length. At the same time, I don't think focusing on financial conditions is a particular problem because what you've said about having that in there can be said about anything else that you put in. What happens next time if income is lower and so forth? ... | 139 |
fomc | 2,007 | This whole statement is on faith, though. [Laughter] It relies on economic models and forecasts and a ton more detail than we can ever express. We say that recent indicators are mixed. We say that the housing adjustment is ongoing. But if we take it all together, we still think the economy is likely to expand. Aside fr... | 95 |
fomc | 2,007 | President Moskow. | 4 |
fomc | 2,007 | I agree with that. If you look at what we said last time, the only reference to any specifics was to housing. If we stop the statement after the word "quarters," that's exactly what we'll have this time. Now, I would make a minor suggestion. The word "still" could be changed back to "overall" and just continue what we ... | 110 |
fomc | 2,007 | The difference is that the first sentence last time was a positive sentence. The first sentence this time is a negative sentence. | 24 |
fomc | 2,007 | That's why I think the word "overall" would help. | 12 |
fomc | 2,007 | "Overall, however." [Laughter] | 9 |
fomc | 2,007 | I thought about "however," but preferred not to use that language. | 14 |
fomc | 2,007 | All right. Any other two-handed interventions? Governor Mishkin. | 13 |
fomc | 2,007 | Thank you, Mr. Chairman. To get perspective on this, again, I go back to where I think we were in December. We're really not that much different in our forecast from December, except that we have a little more uncertainty. That means that for the assessment of risk I lean toward keeping the same language from the last ... | 417 |
fomc | 2,007 | Thank you. Vice Chairman Geithner. | 9 |
fomc | 2,007 | Thank you, Mr. Chairman. I'm very comfortable with the center of gravity in this discussion. The boundaries have shifted just a bit, and we face a little more uncertainty on the growth front. But I think there's still asymmetry in the balance of risks that we face, and we need to continue to highlight the risk that inf... | 562 |
fomc | 2,007 | President Hoenig. | 4 |
fomc | 2,007 | If I could, I'd like to clarify slightly my earlier comments in the sense that I'm not of the view that the language should stay in terms of a bias toward tightening because I think we need to tighten. My view has been that we are modestly firm and that we should be conveying to the market that we are going to stay mod... | 229 |
fomc | 2,007 | Governor Kroszner. | 6 |
fomc | 2,007 | As I said in my discussion, obviously I'm very concerned about a reference to financial conditions, especially "still-favorable financial conditions." But as I also said, I think that it hangs out there a bit naked without some color around it. I would be fine with keeping personal income gains and the gradually waning... | 122 |
fomc | 2,007 | Governor Kohn has suggested "supported by gains in income and the anticipated gradual waning in the correction of the housing market." | 25 |
fomc | 2,007 | That would be excellent. | 5 |
fomc | 2,007 | Mr. Chairman. | 4 |
fomc | 2,007 | Vice Chairman. | 3 |
fomc | 2,007 | That wording has the virtue of being true in that it is the basis for the central forecast. | 19 |
fomc | 2,007 | An additional advantage. [Laughter] | 8 |
fomc | 2,007 | It is what we think. The problem with it is that, as Don said, the reference to gains in income itself is empty, and putting so much emphasis on housing as part of our forecast for growth being basically fine going forward is a little awkward. My view is the corner solutions are more attractive than the intermediate, a... | 89 |
fomc | 2,007 | President Lacker. | 4 |
fomc | 2,007 | Yes. I'm really sympathetic to Randy's view about financial conditions. I'm sympathetic about "financial conditions" because I think there's real potential for confusion in markets about how the phrase relates to policy and whether we might ease if things got too chaotic or volatile. But I agree with President Stern th... | 126 |
fomc | 2,007 | Thank you. Has everyone spoken? Well. [Laughter] Let me try to find a consensus here. First, I agree with the sentiment around the table. I recommend no action today. We should continue to emphasize inflation risk--I think there's a strong feeling that it remains the greater risk. There is acknowledgement that uncertai... | 844 |
fomc | 2,007 | Could you repeat the sentence? | 6 |
fomc | 2,007 | The last phrase would be "supported by growth in nonhousing components of final demand." | 17 |
fomc | 2,007 | Two hands. | 3 |
fomc | 2,007 | Yes, Governor Mishkin. | 6 |
fomc | 2,007 | I'm a little worried about that because there's been such a big deal made about the housing market and the media have been making a big deal that it's going to collapse. We mention in the first sentence that it has gotten weaker, and if there's no counter to that, which is part of the view that we think there's some st... | 192 |
fomc | 2,007 | President Poole? | 4 |
fomc | 2,007 | I would also point out that, people may read "economy" as being GDP. If you take housing out, the rest of it is GDP. The way you stated it is a bit of a tautology. I think the simplest thing is just to change "still" to "nevertheless." "Nevertheless, the economy seems likely to continue to expand at a moderate pace," a... | 84 |
fomc | 2,007 | Okay. I think that's where we're heading. Vince. | 11 |
fomc | 2,007 | First, I'd like to thank everyone for validating my own career decision. [Laughter] Second, in your description you use the word "fundamentals," which might be a substitute for "financial conditions." You could say "supported by still-favorable fundamentals, including gains in income and the waning of the correction in... | 69 |
fomc | 2,007 | That is similar to what Governor Kohn suggested. I got the sense at the time that it wasn't well received. All right, I think we're not going to come to a conclusion. So I think we need to accept President Minehan's suggestion. Was there other comment? Starting with "nevertheless" might be better: "Nevertheless, the ec... | 91 |
fomc | 2,007 | Just a moment. I think I'm fine with that. I like your suggestion for changing it that way. This speaks volumes about our next topic of discussion of communications and how we convey more about what we think rather than being confined to the structure of this statement. I'd also like to pick up on another comment that ... | 132 |
fomc | 2,007 | Are there others who would like to make that change? SEVERAL. I support that. OTHERS. No, I-- [Laughter] | 31 |
fomc | 2,007 | Vice Chairman. | 3 |
fomc | 2,007 | Considerable uncertainty has surrounded our forecast of inflation for some time. That's how we refer to the fact that there are inflation risks. We have now changed the characterization of the statement to acknowledge the fact that the recent readings have been somewhat elevated. That implicitly acknowledges that there... | 89 |
fomc | 2,007 | Let me ask your indulgence on leaving it the way it is this time and thinking about it more carefully for the next meeting. Are there any other comments? Should I read it? [Laughter] | 41 |
fomc | 2,007 | I'll take a stab at it. | 7 |
fomc | 2,007 | You'll take a stab? All right. | 8 |
fomc | 2,007 | Okay. Let me start with the directive on page 28 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 ma... | 174 |
fomc | 2,007 | Thank you. Michelle, could you work with Debbie to get a printed version of the statement that we'll circulate after the break so everybody can at least familiarize themselves with what we're saying here today? [Laughter] All right. Why don't we take a coffee break for fifteen minutes? Thank you. | 59 |
fomc | 2,007 | Why don't we recommence. Governor Kohn. | 10 |
fomc | 2,007 | I'm reading the statement. [Laughter] But it didn't take long. [Laughter] I think Carol has redistributed the list of questions that came from the memo that Vincent sent around. 4 There have been slight rewrites of questions 5 and 7, but the idea is basically the same. 4 The list of questions to which Mr. Kohn refers i... | 313 |
fomc | 2,007 | Thank you. I'd like to make a couple of prefatory remarks. Some of the issues here are political in nature, so I'd like you to know that I have consulted a bit with the Congress. I did not go to negotiate, I went to inform, and therefore I don't have any commitments to bring to you. But I was generally pretty encourage... | 541 |
fomc | 2,007 | Well, let me just go bing, bing, bing, bing. I think it probably makes sense, Mr. Chairman, to take up these two topics separately, so let me start on the price objective. My answer to question 1 is "yes": I think the objective should be defined numerically. I believe that the core PCE is the right index. Many of us ha... | 320 |
fomc | 2,007 | Thank you. President Fisher. | 6 |
fomc | 2,007 | Well, Mr. Chairman, I've given this a lot of thought. If you remember, in the last round I asked for a compelling argument for adopting a stated specific inflation target. I noted that it was not at all obvious that the countries that have adopted a specific inflation target have done better than we have in terms of ec... | 1,484 |
fomc | 2,007 | Thank you. President Lacker. | 7 |
fomc | 2,007 | Thank you, Mr. Chairman. It won't surprise anyone that I believe the Committee should adopt a numerical objective for inflation for reasons that we have discussed at great length over the past several meetings--namely, to clarify our internal deliberations, to clarify the public's understanding of our objectives, and t... | 1,776 |
fomc | 2,007 | Thank you. Governor Mishkin. | 7 |
fomc | 2,007 | First of all, I really want to congratulate the staff on the documents they produced. When I was thinking about how they might be written, I would have had a hard time figuring out how to make sense out of all of this. It was really extremely well done, and so you really deserve congratulations on this. One thing I fin... | 1,503 |
fomc | 2,007 | No, it won't. [Laughter] | 9 |
fomc | 2,007 | I don't think it's a good idea. It may have much more permanent consequences for food prices. Then, should you necessarily exclude food from the core when, in fact, it's more of a permanent shock? In that case, I think there are issues. Another critical issue relates to the horizon. If you think that the horizon should... | 2,115 |
fomc | 2,007 | Thank you. | 3 |
fomc | 2,007 | Mr. Chairman? | 4 |
fomc | 2,007 | Yes. President Lacker. | 6 |
fomc | 2,007 | I'd like to respectfully just ask a question. | 9 |
fomc | 2,007 | Sure. | 2 |
fomc | 2,007 | To try to clarify your views, Governor Mishkin--if inflation were now 4 percent and we began conducting optimal policy, do you think the inflation rate under that optimal policy from now on--ten or twenty years from now--would be 4 percent? | 52 |
fomc | 2,007 | No, definitely not. Again, you have to take into account the welfare considerations of the steady state, which are extremely important. My view is that any number between 11/2 and 21/2 is reasonable. I tend to be a little more reluctant about 1 because I do worry more about the lower-bound problem. I also worry a bit a... | 256 |
fomc | 2,007 | So your view about the steady-state optimal inflation rate is what? | 13 |
fomc | 2,007 | I'm indifferent between 11/2 and 2. However, that doesn't mean that I have a zone of indifference about choosing a number. I think you have to pick a number. The experts in monetary economics might have a preference. But if after reading the literature you asked them whether they thought there was much difference betwe... | 84 |
fomc | 2,007 | President Hoenig. | 4 |
fomc | 2,007 | Thank you, Mr. Chairman. I, too, want to thank the staff for really a great piece of work and a lot of coordination, which made this possible. First, I want to say at the outset that I do not want to move forward at this point in providing a numerical definition of the Committee's inflation objective. Second, regarding... | 852 |
fomc | 2,007 | Thank you very much. President Plosser. | 10 |
fomc | 2,007 | Thank you, Mr. Chairman. I'd also like to lend my voice to the vote of thanks to the staff on what I thought was an excellent set of memos. I think the staff did an outstanding job in summarizing a lot of the nuances and the details that are involved. Perhaps it comes as no surprise that I'm in favor of defining the Co... | 2,198 |
fomc | 2,007 | Thank you. President Stern. | 6 |
fomc | 2,007 | Thank you, Mr. Chairman. Let me start by way of background simply by saying that, while there may be some good theoretical arguments for adopting a numerical inflation objective, I actually view this consideration as very practical. What we're talking about here are ways to improve external and internal communication a... | 1,023 |
fomc | 2,007 | Thank you. President Pianalto. | 7 |
fomc | 2,007 | Thank you, Mr. Chairman. I also want to thank the staff for the memos that were sent out before the meeting. They were very helpful in preparing for this meeting. I am in favor of defining our price stability objective numerically. As others have noted, being more explicit about our price objective will enhance both ex... | 1,187 |
fomc | 2,007 | Thank you. President Yellen. | 7 |
fomc | 2,007 | Thank you, Mr. Chairman. I, too, want to thank the staff. They've done a terrific job in helping us with this. I'm going to try to address the questions in Vincent's memo with a little variation in order. On the first question, I do believe that the FOMC should have a numerical inflation objective. We've discussed this... | 1,740 |
fomc | 2,007 | Thank you. President Minehan. | 7 |
fomc | 2,007 | Thank you, Mr. Chairman. I suppose it comes as no surprise to anybody who has been at the table here listening to these discussions over the past--it seems like forever but I guess it has been only a couple of years [laughter]--that I'm not in favor of a numerical price objective. However, it's funny--as President Yell... | 2,261 |
fomc | 2,007 | Thank you. President Lockhart. | 7 |
fomc | 2,007 | Having been a president for three weeks, I hope I can still get away with some tentative or preliminary remarks on this subject. There really are two questions. The first question is whether or not to go forward, and the second is, if we do go forward, how to implement it. Regarding the first question, having only toda... | 557 |
fomc | 2,007 | Thank you very much. Governor Kohn. | 9 |
fomc | 2,007 | Thank you, Mr. Chairman. I think that, yes, we ought to define a Committee price objective numerically, but it's a close call and will depend on how the objective is implemented. The benefits will be small; but if we do it right, the costs will be even smaller. The benefits include slightly better anchored inflation ex... | 349 |
fomc | 2,007 | I agree with you on this. You want to talk about the implications of the one for the other. | 21 |
fomc | 2,007 | I would have an inflation objective, not a price-level objective. A price-level objective has a lot of attractiveness in terms of planning and pinning things down, but if we want to proceed, we ought to proceed in baby steps, and I would start with an inflation objective. It wouldn't be an average over time. We would a... | 1,634 |
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