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fomc | 2,008 | I wonder if I could entice anybody for a cup of coffee. [Laughter] Why don't we take a fifteen-minute break, and then we'll commence with the go-round. Thank you. | 38 |
fomc | 2,008 | If it is okay with everybody, we can start the economic go-round at this point. President Poole, you are up. | 26 |
fomc | 2,008 | Thank you, Mr. Chairman. I am not sure how I got to be first here, but I guess I was being unusually agreeable when Debbie asked me. [Laughter] The general tenor of comments that I hear from our directors and people around the Eighth Federal Reserve District--these are the community bankers and smaller firms--is that t... | 667 |
fomc | 2,008 | Thank you. President Yellen. | 7 |
fomc | 2,008 | Thank you, Mr. Chairman. I broadly agree with the Greenbook forecast for economic growth this year and with the assessment that the downside risks to that forecast are considerable. The severe and prolonged housing downturn and financial shock have put the economy at, if not beyond, the brink of recession. My forecast ... | 1,660 |
fomc | 2,008 | Thank you. President Lacker. | 7 |
fomc | 2,008 | Excuse me. Could I ask-- | 8 |
fomc | 2,008 | Vice Chairman. | 3 |
fomc | 2,008 | President Yellen, I think you answered this, but could you say a bit more about your monetary policy assumption in your forecast. How did you get to an additional 75? | 36 |
fomc | 2,008 | We assumed 50 at this meeting. | 8 |
fomc | 2,008 | Fifty plus 25. | 6 |
fomc | 2,008 | We assumed an additional 25, which would be held in place through 2009:Q1, and then a gradual rise. | 27 |
fomc | 2,008 | I mean the "why," not the "what." Sorry. | 13 |
fomc | 2,008 | The "why"? | 4 |
fomc | 2,008 | Yes. Why that much rather than-- | 8 |
fomc | 2,008 | A larger amount? I wouldn't attach too much significance to the precise figure--it's somewhat more. | 19 |
fomc | 2,008 | President Lacker. | 4 |
fomc | 2,008 | Thank you, Mr. Chairman. The Fifth District economy has shown additional signs of softness in recent weeks. According to our surveys, manufacturing activity drifted lower in the past few months, although we also heard reports of stronger overseas demand for U.S. goods. Revenue growth in the District's services firms al... | 1,329 |
fomc | 2,008 | Thank you. President Plosser. | 8 |
fomc | 2,008 | Thank you, Mr. Chairman. You know, listening to the staff discussion I have certainly come to understand why everyone continues to believe that economics is a dismal science. [Laughter] It is quite a dismal picture. But more seriously, recent economic data have certainly helped feed that view, and the Third District is... | 2,249 |
fomc | 2,008 | Thank you. President Lockhart. | 7 |
fomc | 2,008 | Thank you, Mr. Chairman. In my view, the decision we took on January 21 reflected a broad consensus that economic fundamentals were weakening at a rapid pace in an environment of continuing, even heightened, concern about financial market stress and fragility. My contacts over this last week in the business and financi... | 886 |
fomc | 2,008 | Thank you. President Hoenig. | 7 |
fomc | 2,008 | Thank you, Mr. Chairman. Let me talk a bit about the region. The Tenth District is generally moving forward at a fairly steady pace, but there are some mixed data. The obvious wide variances are in real estate. Housing is weak--not as weak as some parts of the country but still weak. Also, it is interesting that commer... | 578 |
fomc | 2,008 | Thank you. President Stern. | 6 |
fomc | 2,008 | Thank you, Mr. Chairman. Let me talk about the economic outlook. My initial comments are organized kind of along the lines of Dave Reifschneider's exhibit 1. There are certainly still some positive things going on: growth in exports, and I think that is likely to continue; strength in the agricultural sector and in nat... | 458 |
fomc | 2,008 | Thank you. President Fisher. | 6 |
fomc | 2,008 | First, Mr. Chairman, I want to say a good word about President Poole. I have sat next to him since I got here. I would give him hyperbolic praise if he hadn't handed me the IT Oversight Committee; otherwise, I think he is a wonderful human being. [Laughter] Much of what I was going to say has been said. I think Preside... | 1,178 |
fomc | 2,008 | Thank you. President Evans. | 6 |
fomc | 2,008 | Thank you, Mr. Chairman. My assessment of the national economy is that we are in the midst of a period of very weak growth and that there is a significant chance of a serious downturn. The three-month average of our Chicago Fed National Activity Index in December was minus 0.67. Historically, by my calculation, such a ... | 1,274 |
fomc | 2,008 | Thank you. President Pianalto. | 7 |
fomc | 2,008 | Thank you, Mr. Chairman. In my view, economic conditions have deteriorated significantly since our December meeting. Taken as a whole, the stories that have been relayed to me by my Fourth District business contacts have been downbeat, and several of the contacts are concerned that we may be slipping into a recession. ... | 748 |
fomc | 2,008 | Thank you. President Rosengren. | 8 |
fomc | 2,008 | Thank you, Mr. Chairman. The contours of our forecast are broadly in line with the Greenbook: Growth well below potential for the first half of this year results in additional slack in labor markets with a consequent reduction in the core rate of inflation over time. Our forecast returns to full employment by 2010 only... | 732 |
fomc | 2,008 | Thank you. Vice Chairman. | 6 |
fomc | 2,008 | Thank you, Mr. Chairman. Let me just start by saying it's not all dark. [Laughter] | 22 |
fomc | 2,008 | Don't worry; be happy? | 6 |
fomc | 2,008 | I'm going to end dark, but it's not all dark. The world still seems likely to be a source of strength. You know, we have the implausible kind of Goldilocks view of the world, which is it's going to be a little slower, taking some of the edge off inflation risk, without being so slow that it's going to amplify downside ... | 919 |
fomc | 2,008 | Governor Kohn. | 4 |
fomc | 2,008 | Thank you. Thank you, Vice Chairman Geithner, for a little less gloom here. I didn't expect the bright side from that source. [Laughter] Like everyone else around the table, I have revised down my forecast, which looks very much like the Greenbook: a couple of quarters of very slow growth before a pickup in the second ... | 955 |
fomc | 2,008 | I'll see you and up you. [Laughter] | 11 |
fomc | 2,008 | This is a bad dynamic. | 6 |
fomc | 2,008 | I thought we needed some insurance, and I also assumed some fiscal stimulus as in the Greenbook. I still see, despite these policy responses, risks around my outlook for activity as skewed to the downside, and it's because of the potential further increases in required compensation for risk and tightening standards for... | 417 |
fomc | 2,008 | Thank you. Governor Warsh. | 7 |
fomc | 2,008 | Thank you, Mr. Chairman. I will endeavor to stay out of the growing, creeping pessimism caucus. [Laughter] You can judge for yourselves whether I've been successful doing so. Let me talk briefly about two economies that are in a tug-of-war, and rather than reference the housing and nonhousing economies, let me try to t... | 1,565 |
fomc | 2,008 | Thank you. Governor Kroszner. | 9 |
fomc | 2,008 | Thank you very much. Well, if that's the optimistic scenario, I think we had all better pray. But I think it's a relatively balanced scenario that accurately reflects the risks that are there. The Greenbook has done a very good job of trying to thread the needle, and I think making a close call for contraction but not ... | 1,271 |
fomc | 2,008 | Thank you. Governor Mishkin. | 7 |
fomc | 2,008 | Thank you, Mr. Chairman. I think we're all trying to be cheery here. It reminds me a little of one of my favorite scenes in a movie, which is Monty Python's "Life with Brian." I remember the scene with them there all on the cross, and they start singing "Look on the Bright Side of Life." [Laughter] So let me talk a bit... | 403 |
fomc | 2,008 | It was close. [Laughter] | 8 |
fomc | 2,008 | By the way, if you know my wife, no it wasn't close. The second issue is that the potential for weaker house prices, which really is a significant possibility, not only could lead to lower household wealth but, more important, also could reduce the value of collateral for households and as a result mean that the relaxa... | 852 |
fomc | 2,008 | Thank you, and thank you all for succinct and very insightful comments. [Laughter] I'm going to try as usual to summarize what I've heard; but even more so than usual, no warranty is expressed or implied. Again, trying to bring together some of the comments, we noted that incoming data since the last meeting have been ... | 1,597 |
fomc | 2,008 | I hope so. | 4 |
fomc | 2,008 | However, there appears to be a law of nature that the turnaround in the housing market is always six months from the present date. We simply don't have any evidence whatsoever that the housing market is bottoming out. We have guesses and estimates about how far prices will fall and how far demand and construction will ... | 642 |
fomc | 2,008 | Good morning, everybody. Let's begin our meeting by calling on Dave Stockton to report on the GDP data. | 21 |
fomc | 2,008 | 4 Thank you, Mr. Chairman. My dictionary defines a miracle as an event so improbable that it appears to defy the laws of nature. Along those lines, we distributed a GDP report that compares our forecast with the actual number that was published this morning, and they are exceedingly close. [Laughter] As you can see com... | 434 |
fomc | 2,008 | Thank you. Are there any questions for Dave? If not, Brian, would you like to talk now? | 22 |
fomc | 2,008 | 5 Thank you, Mr. Chairman. I will be referring to the package labeled "Material for FOMC Briefing on Monetary Policy Alternatives." Your policy decision today takes place against an unusually complicated and uncertain backdrop. Over recent months, reverberations from the contraction in the housing sector have spread to... | 2,386 |
fomc | 2,008 | Thank you. Are there questions for Brian? Governor Mishkin. | 13 |
fomc | 2,008 | I would like to ask a question and possibly make a comment about the risk-management strategies. Am I correct in understanding that the treatment of expectations is basically backward-looking? | 33 |
fomc | 2,008 | That is correct, Governor Mishkin. | 8 |
fomc | 2,008 | So even though you know I am a fan of--well, let's put it this way, you said moderation, and I am not a fan of moderation in many dimensions. But there is a potential cost here that is not articulated, which is that if there is a very aggressive easing and it has an effect on inflation expectations, then the more benig... | 231 |
fomc | 2,008 | President Evans. | 3 |
fomc | 2,008 | Thank you, Mr. Chairman. My question is related to what Governor Mishkin just asked about. The risk-management analysis was very helpful; it was a very good addition, and it captures a number of things that we have talked about. One is sort of a quick policy reversal or the potential for that if things go well. My ques... | 267 |
fomc | 2,008 | I think my response is that it is very difficult to say how your communications should or will evolve going forward at this point because of the very substantial uncertainty in the economic outlook, which shows up very clearly in the Committee participants' economic forecasts. Presumably, what you say will depend on ev... | 99 |
fomc | 2,008 | I'm just curious if, in the path of this simulation, the yield curve behaves in that fashion or not. This gets at what the mechanism is for the stimulus. Is it to improve market liquidity, market functioning, long rates, or an expectation of short rates? If they start expecting a tightening, is that going to get in the... | 135 |
fomc | 2,008 | In these simulations, the standard channels of monetary policy are working through things like the yield curve, asset prices, the foreign exchange value of the dollar, household wealth, et cetera. | 37 |
fomc | 2,008 | Thank you. | 3 |
fomc | 2,008 | President Lacker. | 4 |
fomc | 2,008 | Thank you, Mr. Chairman. Brian, I want to compliment you and the staff for presenting these risk-management strategies. I think it is really useful for the Committee to see and think about these in terms of strategies rather than sort of one-off policy choices, and thinking through a sequence of actions like this is ve... | 129 |
fomc | 2,008 | The financial markets are forward-looking in these simulations. | 10 |
fomc | 2,008 | As you know, in applied macroeconomics, there is a range of approaches to handling expectations, and the rest of the range is filled out with more forward-looking approaches. In this instance--in the instance of a recession--you hear and read a lot about recession. In fact, there was a story in the paper today about bu... | 463 |
fomc | 2,008 | I don't think they fit in in a direct way. We still have a lot of work ahead of us, despite the progress that we have made in modeling in recent years, to consider things like the distribution of different economic outcomes and how skewness in those distributions, both with respect to output and with respect to inflati... | 100 |
fomc | 2,008 | One thought I had in that discussion about expected inflation, you noted that the one-to-five-year rise in inflation hadn't been affected much, but the five-to-ten-year rise had. If it is well understood by agents when going through something like a recession, which comes around only every once in a while, maybe it is ... | 105 |
fomc | 2,008 | I see the point you are making, and that sounds plausible. You know, again, our thought was that, if investors were concerned that monetary policy makers were making an inflationary mistake, it would begin to affect inflation in the near term, meaning within several years rather than seven or eight years ahead. | 61 |
fomc | 2,008 | I have just a technical question on inflation expectations. You presented to us at some point a variation of the model in which the policy action itself was fed into the model for inflation expectations. Is that part of the model at this point? | 47 |
fomc | 2,008 | No. It is not part of the baseline model that we are running off of. | 17 |
fomc | 2,008 | That is operating here very much. It is the same mechanism, but it works differently in the two cases, because in the case where the recession actually shows up, whether you take the gradualist approach or you take the risk-management approach, they see the recession, and the easing in monetary policy doesn't surprise ... | 200 |
fomc | 2,008 | So the answer is that the funds rate is affecting inflation expectations in these simulations. | 16 |
fomc | 2,008 | In both cases. But the question is whether it is viewed in the context of what is happening to output and inflation, whether they say, "Yes, that fits with the historical pattern of stabilization," or whether, because the recession didn't emerge, this looks as though it was after the fact an ease in policy that was not... | 87 |
fomc | 2,008 | Okay. So in the case where we are doing the risk-management approach, do they understand that we are more likely to reverse course, or do they just mark down their whole expected path for policy? | 40 |
fomc | 2,008 | No, they don't know that you are more likely to reverse course in that case. So when you think of a communication strategy, which is not in these simulations, it says, "Oh, we're going to do this, but in the event that the recession doesn't occur, we will take it away more quickly than we might have based on historical... | 134 |
fomc | 2,008 | We are trying to model the real world. | 9 |
fomc | 2,008 | Vice Chairman. | 3 |
fomc | 2,008 | There is a "castle in the sand" quality in this discussion. Let me make just three points on what I took from this and see if I got it right. One is, in the staff's judgment, at 3 percent--in that view of the world, which is not way off from where the discussion was yesterday--policy is not providing any degree of insu... | 526 |
fomc | 2,008 | I think that it is hard to generalize. You say there are so few recessions, so the specific communication that is undertaken--for example, in the last episode there was actually communication that leaned against the rapid reversal--you know, "considerable period" and so on. So rather than trying to generalize from two ... | 97 |
fomc | 2,008 | Yes. I just want to make a comment about what President Geithner said and follow up on President Evans's question. One thing that the simulation doesn't get at is the adverse feedback loop. It's just not built into the model. So the benefits of pursuing a risk-management approach are not as clear as they would be if th... | 171 |
fomc | 2,008 | By "this quickly," what do you mean? | 10 |
fomc | 2,008 | What the path of the prompt reversal is. | 9 |
fomc | 2,008 | I think it depends. As the Chairman was saying, there hasn't really been a typical recession. Right? We have had two recessions in the past twenty years, and I think in both cases we stayed down longer because of the circumstances. So in 1992-93, we had a zero real funds rate while the economy was growing for two years... | 293 |
fomc | 2,008 | So let me turn back to President Evans's question because there is an issue about what kind of information might tell us that we took out insurance and then it wasn't needed. I think some pieces of information that the staff has been looking at are relevant. Particularly important in this regard is that there are a lot... | 153 |
fomc | 2,008 | Principal components. | 3 |
fomc | 2,008 | --principal components of these things. | 7 |
fomc | 2,008 | There are a lot of financial variables. | 8 |
fomc | 2,008 | Also an issue that the Chairman raised yesterday was that the housing market is a big component of our downside risk. The market's concerns about future declines in housing prices are causing a very sharp decrease in demand for housing. That could turn around very quickly as well. Even now we should be thinking about t... | 147 |
fomc | 2,008 | President Poole, you had an interjection? | 10 |
fomc | 2,008 | Yes. I am older than Governor Kohn, so I can answer. [Laughter] | 19 |
fomc | 2,008 | It is not age. It is how long you have been in the System. | 16 |
fomc | 2,008 | 1958 was just about like that. | 8 |
fomc | 2,008 | Like what? | 3 |
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