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fomc | 2,007 | Yes, and there have been no problems. The response has been positive. | 15 |
fomc | 2,007 | Mr. Chairman. | 4 |
fomc | 2,007 | Yes, Vice Chairman. I'm sorry. | 8 |
fomc | 2,007 | I want to come back to President Poole's question. President Poole, you said a fraction of a standard error. How large a fraction of a standard error would you want to use as a basis? Really, I'm not sure what the standard error is in this context. But just in terms of how you think about this, how large a fraction of ... | 76 |
fomc | 2,007 | Well, I was one of those who put down B--that both the distribution and the skewness were broadly similar to the past twenty years. So I came out that way. I was trying to offer a way to think about this issue and, for those who believe that the probability distribution is way over on one side, a way to think about it:... | 103 |
fomc | 2,007 | Mr. Chairman, maybe we should clarify just this one point. Did you leave the question about--I don't know what this chart is called; it is not going to be in the addendum to the minutes--what those bars show about the balance of risk? Is it about just the probability of the outcome or about the probability of outcome a... | 77 |
fomc | 2,007 | May I ask the staff, do you have institutional memory on this question? | 15 |
fomc | 2,007 | I am not sure what the question is exactly. What is the question? | 15 |
fomc | 2,007 | Is the skew that determines the risks simply the probability of outcomes, or is it the probability weighted by the cost of certain outcomes? | 26 |
fomc | 2,007 | Well, I think it is a matter of how the members interpreted it in responding. [Laughter] The memorandum to the Committee asks whether the risks around your projection for each variable are weighted to the upside, weighted to the downside, or broadly balanced. | 51 |
fomc | 2,007 | I think the balance of risk statement in the announcement has had the utility weight on it; there have been times when the Committee was more concerned about falling to one side or another. But I at least interpreted the forecast as simply whether there were skews to one side or another. If I may have the floor to talk... | 170 |
fomc | 2,007 | The utility cost is relevant in the statement, and you can't take a balance of risks unless you compare them in terms of cost. There is no other metric by which you can compare them. So in that case, it has to be cost-weighted. But I think it is more or less equivalent--the univariate answers you are giving about mode ... | 73 |
fomc | 2,007 | But if we view the projections as being a statement just about the probability distribution of the various outcomes, this might be an important point for you to explain in the speech that you give because the whole thing is labeled projections--I guess we have been calling it a "projections exercise"--and so I have int... | 70 |
fomc | 2,007 | I think we won't go too far wrong by interpreting it as a probability distribution in the shape of the probability distribution for outcomes. | 25 |
fomc | 2,007 | That's the way I have interpreted it. | 8 |
fomc | 2,007 | Okay. President Lacker. | 6 |
fomc | 2,007 | At the risk of introducing further moments of the probability distribution into the discussion, have we been instructed as to whether our projection is a mean or a maximum-likelihood estimate? | 34 |
fomc | 2,007 | I think our standard procedure is that it is a modal. | 12 |
fomc | 2,007 | A maximum-likelihood estimate. | 6 |
fomc | 2,007 | Yes. | 2 |
fomc | 2,007 | The memorandum to the Committee says, "Please provide your projections of the most likely outcomes," et cetera. | 22 |
fomc | 2,007 | I'm sorry, President Plosser, we have kept you waiting. | 14 |
fomc | 2,007 | It's not important. I don't have any comments. I just wanted to say that I think the staff has done a great job and the subcommittee has done a great job. This is a very important step forward for us, and I am strongly supportive of it. I want to thank Governor Kohn, Janet Yellen, and the other members of the subcommit... | 132 |
fomc | 2,007 | Let me also commend Governor Kohn, President Stern, and President Yellen for their excellent work. We really appreciate it. Governor Mishkin. | 29 |
fomc | 2,007 | Thank you. I just want to return to the point that the Chairman, President Poole, and President Fisher raised. In my conversations, people have expressed different views at this juncture about what the optimal long-run inflation rate is. People know that I am a 2 percent kind of guy, and I know good people here who are... | 354 |
fomc | 2,007 | Governor Kroszner. | 6 |
fomc | 2,007 | I just wanted a clarification. In the explanation, will we say that the projections are based on what we have done? For example, today, given that we are having a policy move and I am not sure that everyone around the table had anticipated that move today in their path, will we be articulating that these are not the nu... | 91 |
fomc | 2,007 | Yes, let's do that because it will be more consistent with the statement. So let me ask everyone to rethink their risks conditional on our policy move today. | 31 |
fomc | 2,007 | Thank you. | 3 |
fomc | 2,007 | Vice Chairman. | 3 |
fomc | 2,007 | Sorry, Mr. Chairman, two points. One is a concern to which I have no solution. The chart that is now called chart 1, which has evolved over time, has a slight disadvantage, because it doesn't have fans around it because we all didn't like the fans, of having the sense of a pretty narrow range of likely outcomes for the... | 206 |
fomc | 2,007 | It represents the diversity of views on the Committee about that, with the additional caveat that not everyone may necessarily believe that we will approach their ideal level of price stability even in three years, conceivably. So it is a mixture of elements, and that's what I will talk about. Again, if you would like ... | 70 |
fomc | 2,007 | No. I think that is consistent with how it is described and what is discussed, but it just goes to the point that, Bill, you raise, which is for some of you your optimal horizon is always going to be two years or three years. But you said all that could be said, I think, about that. | 66 |
fomc | 2,007 | Mr. Chairman? | 4 |
fomc | 2,007 | Yes. | 2 |
fomc | 2,007 | I'm sorry, but I need to understand what you just implied. Are we to go back now and redo our projections for this meeting under the assumption that we took the action today? | 36 |
fomc | 2,007 | If you wouldn't mind, yes. | 7 |
fomc | 2,007 | And appropriate policy going forward. | 6 |
fomc | 2,007 | Okay. But it's not what I based my decision on. | 12 |
fomc | 2,007 | Tom, if you took a view about what appropriate policy was last Friday and you have a chance now to assess, in light of what the Committee did, what appropriate policy is going forward, whether that has changed, and what implications that change has for your forecast--isn't that the way to say it? | 62 |
fomc | 2,007 | But the whole point of the process was to prepare us for this meeting, and now I am going to go back and reassess the process I went through in light of what took place in this meeting. If everyone is comfortable with doing that, then I would be happy and able to do it. At least I understand that we are all going in th... | 96 |
fomc | 2,007 | But the Greenbook won't be changed. This confuses me a bit. I wasn't quite clear--I thought I was, but I guess I wasn't. | 31 |
fomc | 2,007 | We can do whatever we want as long as we all agree to do the same thing. [Laughter] | 22 |
fomc | 2,007 | If that's it, then I'll go back and do it. I just want to make sure that's what we all agree we're going to do. If that is, then fine; but I didn't have that understanding before you made that statement. | 47 |
fomc | 2,007 | President Lockhart. | 4 |
fomc | 2,007 | Is there an inconsistency in adjusting a forecast after the meeting when the minutes are the minutes of the meeting and the forecasts informed the judgments that were expressed in the meeting? | 34 |
fomc | 2,007 | No, I don't think so. It is based on the information in the meeting, including the data we received this morning. | 25 |
fomc | 2,007 | I'm not sure I see minutes reflecting subsequent actions or subsequent decisions. | 13 |
fomc | 2,007 | We're releasing this with the minutes? | 7 |
fomc | 2,007 | We're releasing it with the minutes. It's not part of the minutes. | 14 |
fomc | 2,007 | Oh, okay. Good point. | 7 |
fomc | 2,007 | It's like an annual report that has updated information in it. As long as everyone is doing the same thing. | 22 |
fomc | 2,007 | I hope, President Hoenig, that you won't be in this situation too often. [Laughter] | 21 |
fomc | 2,007 | I've got a long record, and I haven't been in this situation too often. But I have been in this situation before. | 25 |
fomc | 2,007 | Any other questions or comments? May I have the sense of the Committee to proceed with the release? Thank you very much. I appreciate it, and I appreciate everyone's hard work and cooperation. I think this is a very important step, and I am very pleased with the outcome. Let me just describe now the sequence of events.... | 137 |
fomc | 2,007 | Good early morning. [Laughter] I would like to start by thanking the Committee for the very useful discussion we had last week, although I must say that videoconference is not the most intimate format. People raised a number of important reservations about the TAF, including the fact that capital, perhaps more than liq... | 274 |
fomc | 2,007 | 9:00 a.m. | 6 |
fomc | 2,007 | Tomorrow morning at 9:00. It will be a joint release of five central banks. The press release will have a common first paragraph, as you see in front of you, and then each central bank will describe its own actions in more detail, followed by web links to the other central banks. In particular, the European Central Ban... | 162 |
fomc | 2,007 | Are they? I think with a reservation price. | 10 |
fomc | 2,007 | With a reservation price is our understanding. | 8 |
fomc | 2,007 | Okay. At our stop-out rate? | 8 |
fomc | 2,007 | The minimum bid will be one-month OIS. | 10 |
fomc | 2,007 | Okay. So they have the same auction plan that we have, essentially. In addition, we are being joined by the British, who are doing two auctions of PS10 billion each before year-end. These are sterling auctions, not dollar auctions, but they are in fact of the same actual size as ours--an indication of the appreciation ... | 448 |
fomc | 2,007 | 1 Thank you, Mr. Chairman. I will be referring to the exhibits that you should have in front of you. Over the past few months, the outlook for residential housing has continued to darken. Rising inventories and tightening credit standards have led to outright declines in home prices in many major housing markets. The d... | 2,373 |
fomc | 2,007 | Thank you. Are there questions for Bill on financial conditions or for Bill or me on the TAF proposal? President Poole. | 26 |
fomc | 2,007 | Thank you, Mr. Chairman. I have an observation, and that is, Bill, that most of your presentation has to do with spreads rather than with the absolute level of rates. Although it is true that spreads remain wide, the absolute level of the high-quality rates in general has come down, I believe. Prime mortgage rates are ... | 209 |
fomc | 2,007 | Yes, I think that is correct. If you look at chart 10, which shows corporate credit spreads, you have a widening of about 50 basis points in investment-grade corporate spreads at a time that long-term--you know, ten-year--Treasury note yields have come down by I think a little larger magnitude. In contrast, in the high... | 115 |
fomc | 2,007 | Governor Kohn. | 4 |
fomc | 2,007 | Thank you, Mr. Chairman. I asked the staff to put together a table--the table III-T-1 that we get in the Greenbook--and compare rates with August 6. It turns out that all the rates are about the same as they were on August 6 for the bond yields, and equity prices are essentially unchanged, maybe down or up--actually up... | 124 |
fomc | 2,007 | I think it is probably worth observing that the spreads probably also are correlated with nonprice terms. So it may not be an exactly neutral change. President Fisher. | 32 |
fomc | 2,007 | Bill, we talked a bit about this on the phone yesterday, but on the four relatively optimistic points that you mentioned, the fourth point, which is what I call the substitutability of capital, we are seeing new sources. One of them is measurable, which is the GIC in Singapore. But do we have any sense of the dimension... | 177 |
fomc | 2,007 | Well, I guess I would say two things. I think you are absolutely right that the sovereign wealth funds are of significant size and are growing rapidly. But I think that you really have to distinguish between the equity side and the debt side of things. The commitments that you are seeing from the sovereign wealth funds... | 204 |
fomc | 2,007 | Nonetheless, they can restore tier 1 capital, as we saw in the case of UBS. I mean, that is how markets work. | 28 |
fomc | 2,007 | Yes. It is a good development that we are actually finally seeing banks raise capital. I don't think you were seeing that until last month. I would say that there was stigma associated with raising capital, and then things got progressively worse, so banks were just forced to raise capital despite the stigma associated... | 62 |
fomc | 2,007 | Well, I wanted to thank you for at least raising four rays of dim sunlight. | 17 |
fomc | 2,007 | We try for balance. | 5 |
fomc | 2,007 | President Lockhart. | 4 |
fomc | 2,007 | Thank you, Mr. Chairman. Bill, the trouble with the mortgage insurers has been a development since our last meeting, and I am curious--Do they have the capability for raising capital? Will raising capital correct or help them get their ratings back to AAA, or is it more complicated than that? I have read some concerns ... | 106 |
fomc | 2,007 | The risk to the municipal market is really through the financial guarantors, not so much the mortgage insurers. The fact that MBIA was able to raise $1 billion of equity capital yesterday for, I think, about one-seventh of their book value--so it is a fairly large capital commitment relative to the size of the company-... | 215 |
fomc | 2,007 | President Plosser. | 5 |
fomc | 2,007 | Just a quick comment. I have talked to one of the large mortgage insurance companies in some detail, and their view is that their pricing power actually is improving--that their own ability to work their way out of this thing is getting better all the time right now. Even though they are taking some very large hits in ... | 89 |
fomc | 2,007 | Other questions for Bill? If not, we need to vote to ratify domestic operations. | 18 |
fomc | 2,007 | So move. | 3 |
fomc | 2,007 | Without objection. Okay. We also need a vote on the Swiss request for a currency swap. | 19 |
fomc | 2,007 | So move. | 3 |
fomc | 2,007 | Any commentary? President Poole? | 7 |
fomc | 2,007 | I vote against the swap for the same reason that I did before, which I would like to amplify, if I may, just for a moment. | 30 |
fomc | 2,007 | Why don't you make your comment, and then we will take a roll call vote. | 17 |
fomc | 2,007 | Okay. As I said in our conference call, foreign central banks have ample amounts of reserves. The swap is, therefore, in my view not necessary. I would like to make one other observation. In the past, the swaps have been most often used in conjunction with operations to intervene in the foreign exchange markets. I worr... | 158 |
fomc | 2,007 | Thank you. We will, of course, announce a swap in the context of our plan to address money market issues. With respect to the issue of their reserves, I think there are two reasons for having the swap. One is that for technical reasons it is easier for them to segregate their foreign exchange reserves from the money th... | 147 |
fomc | 2,007 | "The Federal Open Market Committee directs the Federal Reserve Bank of New York to establish and maintain a reciprocal currency arrangement for the System Open Market Account with the Swiss National Bank in an amount not to exceed $4 billion. The Committee authorizes associated draws on the arrangement up to the full a... | 126 |
fomc | 2,007 | All right. Thank you. Let us turn now to the economic situation and Dave Stockton. | 18 |
fomc | 2,007 | Thank you, Mr. Chairman. We had a great deal to contend with over the intermeeting period, and the forecast has changed in some important ways. Nevertheless, the basic story underlying our projection remains largely unchanged. The fallout from the slump in the housing sector, the ongoing turbulence in financial markets... | 2,460 |
fomc | 2,007 | Our reading of the recent data suggests that economic activity abroad decelerated toward the end of the third quarter and has remained on a decelerating path thereafter. In the euro area, the United Kingdom, and Canada, this softening of activity appears to reflect--at least in part--increasing drag from the ongoing fi... | 1,400 |
fomc | 2,007 | Thank you very much. Are there questions? President Fisher. | 12 |
fomc | 2,007 | Actually, Mr. Chairman, I have a statement disguised as a question. [Laughter] I am glad on the international side that we raised the issue of food price inflation, not because it is on the cover of The Economist but because we discussed it at our last meeting. What is curious to me, David, is that there is only one li... | 272 |
fomc | 2,007 | Food is important. In fact, we devote, I would imagine, a surprising amount of resources to it. We have an agricultural economist whose job is to follow those developments and report on them. It is his view--and based on both the futures prices and some of the modeling that we have done--that we will see a deceleration... | 321 |
fomc | 2,007 | Thank you. | 3 |
fomc | 2,007 | Just to underscore what Dave has said, our forecast is driven largely from the quotes from futures markets. So, really, the question boils down to, Why in the world do the futures markets expect the prices of these foodstuffs to decline? I think a key factor is that there are some important temporary developments that ... | 466 |
fomc | 2,007 | Thank you for your thorough answer. | 7 |
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