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fomc | 2,007 | Thank you, Mr. Chairman. Since the last meeting, aggregate economic activity in the Sixth District has expanded moderately. Employment momentum in most areas of the District continues to exceed that of the nation overall. Florida is our exception. Most areas of Florida now lag the nation. Similarly, the housing downtur... | 563 |
fomc | 2,007 | Thank you. Vice Chairman Geithner. | 9 |
fomc | 2,007 | Thank you, Mr. Chairman. Our outlook has changed very little. As in March, we see the expansion continuing, with growth moving back up to potential--we see potential around 3 percent--later this year. This view rests on the familiar expectations: Housing stabilizes relatively soon without a major drop in prices; invest... | 1,085 |
fomc | 2,007 | Thank you. It is 10:30. Why don't we take a twenty-minute coffee break and adjourn until about 10:50. Thank you. | 32 |
fomc | 2,007 | Okay. Let's reconvene. President Minehan has a two-hander. | 15 |
fomc | 2,007 | A quick comment was just brought to mind because of Tim's comments. I regularly meet with a group of investment people before FOMC meetings. Compared with the past several months--particularly during the time of the last meeting, when we were just coming off some financial market upset, especially in the equity markets... | 260 |
fomc | 2,007 | Thank you. Governor Kohn. | 7 |
fomc | 2,007 | Thank you, Mr. Chairman. My outlook, like most of the rest of yours, was basically the same as the one in the Greenbook, and it hasn't changed all that much over the past few weeks. Like the rest of you, I see income growing at less than the growth rate of potential for several quarters, the pace held down by housing a... | 1,127 |
fomc | 2,007 | They're always more uncertain than usual. [Laughter] | 11 |
fomc | 2,007 | So here is my reasoning. I thought that the average includes lots of episodes of more or less steady growth in steady state and then other episodes of cyclical adjustments. In my mind, we were in the middle of a kind of mini-cycle, which was an adjustment from greater-than-sustainable growth to growth that we hope is s... | 947 |
fomc | 2,007 | Thank you. Governor Warsh. | 7 |
fomc | 2,007 | Thank you, Mr. Chairman. My own views on the economy haven't changed much since we last met and aren't terribly at odds with the Greenbook. I'd highlight a couple of reasons for concern, a couple of areas in which the misses could be severe. I share the views expressed by many around the table, most recently by Governo... | 2,274 |
fomc | 2,007 | Thank you. Governor Kroszner. | 9 |
fomc | 2,007 | Thank you very much. The last time we met, one theme was the greater uncertainty, and Governor Kohn mentioned that he is feeling greater uncertainty now than he ever had. I am not sure that greater uncertainty has been the tenor of the comments here today, but I think it has been greater uncertainty with downside risk.... | 1,809 |
fomc | 2,007 | Thank you. Governor Mishkin. | 7 |
fomc | 2,007 | Thank you, Mr. Chairman. I would characterize where we are compared with the last meeting as that we have gone through a soft patch, which was more extensive than we expected. But the basic longer-term outlook is really the same as the one that we had the last time around. That is what is really relevant to our policy ... | 770 |
fomc | 2,007 | Thank you. Let me try to summarize the discussion around the table and take any comments on the summary, and then I would like to add just a few thoughts. Broadly speaking, the outlook of most participants has not substantially changed since March. Housing remains weak, and it is the greatest source of downside risk. W... | 2,330 |
fomc | 2,007 | 3 Thank you, Mr. Chairman. I'll be referring to the materials that were passed around during the coffee break. For the past few years, the Committee has taken a "belt and suspenders" approach to providing guidance to financial markets by characterizing both the likely direction of interest rates and the risks to its du... | 1,739 |
fomc | 2,007 | Thank you. Are there questions for Vincent? If not, we can begin the policy go-round. | 20 |
fomc | 2,007 | I guess by default I will start. First of all, I favor alternative B, both the language and the unchanged federal funds target. Let me make a couple of comments about market liquidity. First, liquidity is not reduced at all by deals. Deals simply transfer the funds from the buyers to the sellers, who then have to figur... | 633 |
fomc | 2,007 | Thank you. President Poole's comments remind me that I did have a question, Vincent. It is, What do you think is the effect of the term "on balance" in the inflation paragraph? | 41 |
fomc | 2,007 | We added the term "on balance" in drafting the Bluebook for both the time-series and the cross-sectional perspectives. That is, first, from the time-series perspective you are not looking at just one monthly number. You may be doing as complicated an analysis as President Stern in looking at three-, six-, and twelve-mo... | 103 |
fomc | 2,007 | Well, let's just say core inflation, so it wouldn't be every inflation measure. | 16 |
fomc | 2,007 | Yes, but you are not hanging your hat necessarily on the PCE versus the CPI. The thought is that the insertion of that language means that you're tending to smooth through recent observations, and we took it as something that would be on balance--[laughter] that phrase comes very natural to us, too--a little more hawki... | 69 |
fomc | 2,007 | Sorry? Which was a little more? | 8 |
fomc | 2,007 | To take it out would be a little more hawkish. | 12 |
fomc | 2,007 | It would be a more hawkish signal than a statement with "on balance"? | 16 |
fomc | 2,007 | I agree with that last statement. | 7 |
fomc | 2,007 | Mr. Chairman. In the same vein, may I just ask a question about the likely conclusion that people would draw from the change in the second section? It has the virtue of truth. [Laughter] You could interpret it, relative to March, as a softer characterization of the recent news. It goes in a slightly different direction... | 165 |
fomc | 2,007 | That it was a recognition of the incoming information. I think an important change is also to take out the "to continue to expand" and leave it as just "to expand" because the first quarter did not have moderate economic growth. So that part says that you are acknowledging the most recent numbers. Again, the first clau... | 113 |
fomc | 2,007 | Mr. Chairman, may I ask a question? | 10 |
fomc | 2,007 | Certainly. | 2 |
fomc | 2,007 | Are you advocating that, if we use the text as written in section 3 of alternative B, we would still keep the full wording from section 4 from last time? | 35 |
fomc | 2,007 | The wording of section 4 would be unchanged, yes. | 12 |
fomc | 2,007 | That may mitigate some of those concerns you have. | 10 |
fomc | 2,007 | Yes. | 2 |
fomc | 2,007 | Since we are bringing these suggestions out early, one thing that you could do in section 2, the second sentence, is simply make an assertion about moderate growth. One could say, "Overall, however, recent indicators suggest that the economy seems likely to expand . . .," suggesting that the news recently has been some... | 79 |
fomc | 2,007 | Thank you, Mr. Chairman. Well, earlier in talking about the economy I said that I thought the extended outlook was reasonably favorable in terms of prospects for growth and that I also expected a modest diminution in core inflation, assuming that policy would be sustained approximately where it is. That leads me direct... | 365 |
fomc | 2,007 | Governor Kohn. | 4 |
fomc | 2,007 | President Stern, would you add the same words on the output side? Do you think it's worth emphasizing uncertainty about inflation without also emphasizing the uncertainty about output? Although a lot of people have said it has narrowed relative to last time, a lot of people have also said that the housing situation is ... | 61 |
fomc | 2,007 | I haven't thought about that. But if you want to say that the economy seems likely to expand, we could, I suppose, soften that a bit to emphasize uncertainty there as well, although my sense of things is that people do, in fact, expect moderate growth going forward. | 56 |
fomc | 2,007 | Intervention, President Fisher? | 6 |
fomc | 2,007 | No, sir. I just want to comment. | 10 |
fomc | 2,007 | Why don't you go ahead. | 6 |
fomc | 2,007 | Well, again, I am probably the most bearish in terms of a short-term forecast on GDP growth and have very asymmetric confidence bands, which take into account even slower growth than that. Having listened to the conversation at the table and keying off the word "hawkish" that Vince used, I want to be owlish on growth i... | 249 |
fomc | 2,007 | Noted. Thank you. | 6 |
fomc | 2,007 | Mr. Chairman, may I ask just a clarifying question on this discussion? | 16 |
fomc | 2,007 | Vice Chairman Geithner. | 6 |
fomc | 2,007 | Don raised the obvious question, which is whether we want to introduce the characterization of uncertainty on one piece of our outlook but not the other. But, Gary, did you suggest that uncertainty about the inflation forecast is greater today than it was in March? | 50 |
fomc | 2,007 | Not for me personally. But as I thought more about this and listened to some of the conversation, the uncertainty seemed to be at least as great as it was in March. In fact, the Greenbook marked up core inflation a touch. That doesn't lead directly into greater uncertainty, but it is not the direction in which I would ... | 76 |
fomc | 2,007 | But is your rationale mostly about greater uncertainty, or is it mostly a continued aversion to implicit reference to the output gap as being a significant force? | 30 |
fomc | 2,007 | Both. | 2 |
fomc | 2,007 | I would like to interject. We do have to think about the time-series nature of the statement, and I am concerned, given that our last inflation reading was very good and reduced some of the anxiety that we were feeling in the last meeting, that there will be a lot of attempts to interpret what we meant by uncertainty. ... | 131 |
fomc | 2,007 | I agree with that comment 100 percent, although I do think that is an issue we are going to confront if and when we ever make that change, quite honestly. | 34 |
fomc | 2,007 | May I make an intervention, Mr. Chairman? | 10 |
fomc | 2,007 | Yes. | 2 |
fomc | 2,007 | If you do use that sentence, then you might be able to get rid of the first sentence in section 4 that you used previously. | 28 |
fomc | 2,007 | The core inflation sentence? Which one? | 8 |
fomc | 2,007 | "In these circumstances, the Committee's predominant ... concern . . .." SEVERAL. No. | 20 |
fomc | 2,007 | I am not arguing that you include both but that you could trade one off against the other. | 19 |
fomc | 2,007 | Are there any interventions? If not, President Minehan. | 12 |
fomc | 2,007 | Gosh, as usual the state of play here has gotten confused--for me, anyway. First of all, the thing I am least confused about is the policy recommendation. I do not think we should do anything at this time. I think we should stay the course at 51/4. I am very much in favor of alternative B. Second, I want to comment abo... | 745 |
fomc | 2,007 | Thank you. President Pianalto. | 7 |
fomc | 2,007 | Thank you, Mr. Chairman. I support the recommendation embodied by alternative B. The Committee last time wanted to introduce a little more flexibility into the statement while not sending a message that our resolve about achieving price stability had changed. It took a while for that message to get through, but it did.... | 301 |
fomc | 2,007 | Thank you. Governor Kohn. | 7 |
fomc | 2,007 | Thank you, Mr. Chairman. Like everyone else, I support the policy recommendation of alternative B, keeping the fed funds rate unchanged. I do think that has the best odds of helping the economy meet our dual objectives of maximum employment and stable prices. Financial conditions right now, as several people have remar... | 776 |
fomc | 2,007 | The theory was that you were smoothing through recent data so that, if you got another good reading on core inflation, as you did last month, you wouldn't necessarily weight it as much. | 37 |
fomc | 2,007 | Don, you could take "on balance" as acknowledging last month's data, and if you take "on balance" out, you're not acknowledging last month's data as much. | 34 |
fomc | 2,007 | May I also just ask a question? In President Stern's formulation, you would take the second sentence from alternative C and not make any reference to resource slack? So I would actually take that as markets reading that you have decided to totally discount the current pressures on employment rather than increasing your... | 92 |
fomc | 2,007 | I hadn't thought about that, I confess. That makes me even more uncomfortable. | 16 |
fomc | 2,007 | I would view that as quite a dovish statement. | 11 |
fomc | 2,007 | Well, I viewed it as a neutral statement. [Laughter] | 14 |
fomc | 2,007 | President Poole. | 4 |
fomc | 2,007 | On the other side, we are anticipating a slowdown in employment growth. So then, the markets would look back to this and say, "Aha, the unemployment rate is rising--the Fed is about to ease." The question is whether this is a good time to get that notion out. I don't feel very strongly one way or the other, but I think... | 102 |
fomc | 2,007 | I would note that Bloomberg today had a linguist evaluate previous statements, and he basically concluded that the language was pretty hopeless. [Laughter] | 29 |
fomc | 2,007 | Who was this linguist? | 6 |
fomc | 2,007 | In fact, it was the chief editor of the American Heritage Dictionary. | 14 |
fomc | 2,007 | Can we hire him as a consultant? [Laughter] | 12 |
fomc | 2,007 | A meteorologist and a linguist. | 8 |
fomc | 2,007 | President Hoenig. | 4 |
fomc | 2,007 | Anticipating that a linguist will be reading this afterward, let me say that I strongly support alternative B. Since I'm assuming that the language is what we're talking about, I support the current language even though there have been many suggestions for modifications. I am not inclined to make any suggestions myself... | 417 |
fomc | 2,007 | Thank you. President Plosser. | 8 |
fomc | 2,007 | Thank you, Mr. Chairman. As I listen to the comments around the table, I am of two minds. One, and I have said this before, maybe we ought to be in the business of changing the statement a lot more frequently to get out of some of our traps of time-series language. Two, having said that, though, I think, as I indicated... | 507 |
fomc | 2,007 | Thank you. President Lacker. | 7 |
fomc | 2,007 | Policy should be straightforward today. We're waiting out a lull in growth while inflation is unacceptably high, at least to most of us. When the downside risks have sufficiently diminished, I'm presuming we're going to want to take action to bring inflation down; but in the meantime, we are on the sidelines obviously ... | 642 |
fomc | 2,007 | I think your point about joint causality, joint endogeneity, of utilization and inflation is a good one. I have tried to make that point in testimony when I talk about aggregate demand being strong and having effects both on inflation and on resource utilization. We can think about this. It is a little hard to capture ... | 82 |
fomc | 2,007 | Thank you, Mr. Chairman. I support the Bluebook's alternative B, both the policy and the language as it stands. With respect to the language, I strongly support the view that you, Governor Kohn, and others expressed--that a change today would be a mistake, given the significance that the markets would attach to it. I t... | 394 |
fomc | 2,007 | Thank you. President Moskow. | 7 |
fomc | 2,007 | Thank you, Mr. Chairman. If you step back from the discussion and just think about the policy position, we're in a difficult position because inflation continues to run higher than most of us think is appropriate but economic activity seems to be in a soft patch, as you said in your summary of the comments, Mr. Chairma... | 368 |
fomc | 2,007 | Thank you. | 3 |
fomc | 2,007 | Mr. Chairman? | 4 |
fomc | 2,007 | President Minehan. | 4 |
fomc | 2,007 | I realize that when I finished my comments I was never really clear about language. After sorting through all the comments that people have made and my thoughts about those comments, I am perfectly happy with alternative B as it is written and with the "on balance" language. I do want to say, though, that if we had rep... | 182 |
fomc | 2,007 | President Lockhart. | 4 |
fomc | 2,007 | Well, I, too, support alternative B, and simple logic: We haven't arrived at the optimal picture yet. Output growth is slowing, inflation is still elevated, and there is a fair amount of uncertainty. Some of us focused on uncertainty in the inflation picture, and some on both sides. I think the situation merits a patie... | 218 |
fomc | 2,007 | I don't know that it will help. [Laughter] | 12 |
fomc | 2,007 | Governor Warsh. | 4 |
fomc | 2,007 | Thank you, Mr. Chairman. I favor alternative B and think that there is a very heavy presumption against our changing the language much from our March statement. From all that I've heard today, I don't think we have even convinced ourselves that we have matched that presumption or overcome that burden of persuasion. So ... | 456 |
fomc | 2,007 | I think you mean the brake. [Laughter] Anyway, thank you. Governor Kroszner. | 22 |
fomc | 2,007 | As everyone else has said, there haven't been enough data to lead us to change our view, and the policy should remain where it is. Alternative B is the right way to go, and--I agree with Governor Kohn--it is the best way to meet our dual objectives. The statement from last time bought us some flexibility, although at s... | 622 |
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