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fomc | 2,008 | Without objection. Thank you. Now to Dave Stockton. | 11 |
fomc | 2,008 | Thank you, Mr. Chairman. As you know, we have made some very large changes to the economic projection in this round--so large, in fact, that we had to adjust the scale on the forecast evolution charts that we put in the back of the Greenbook. Obviously, the most notable change has been our adoption of the view that the... | 2,764 |
fomc | 2,008 | The global economy has likewise seen some extraordinary developments during the intermeeting period. Notably, the spot price of WTI has surged more than 15 percent, briefly reaching $110 per barrel, and many nonfuel commodities prices have moved up by similar magnitudes. The exchange value of the dollar, which had been... | 1,585 |
fomc | 2,008 | Thank you. Questions? President Fisher. | 8 |
fomc | 2,008 | If I put the two comments together, one of the messages I receive is that we are less confident in the linkage between U.S. slowing growth and rest-of-world slowing growth than we or conventional wisdom was before. You mentioned, in the discussion of the international side, the downside and upside on growth. There is a... | 268 |
fomc | 2,008 | Over the intermeeting period we have lived through an experience that manifests the upside risk to our inflation forecast; and I would indicate that, with the 3/4 percentage point markup to headline foreign inflation in 2008 in our forecast, the vast majority of that is a reflection of these red-hot commodity markets, ... | 406 |
fomc | 2,008 | President Fisher, I will just basically reiterate what I said earlier and amplify many of the same things that Nathan just said in terms of the influences on our headline forecast. We revised up 3/4 percentage point as well, and that really is coming from higher energy prices, higher food prices, and higher commodity p... | 151 |
fomc | 2,008 | Thank you very much. Thank you, Mr. Chairman. | 12 |
fomc | 2,008 | President Evans. | 3 |
fomc | 2,008 | Dave, my question is basically about the influence of the financial stress on the outlook. I was talking to an official at the Bank of Canada last week, and she had an intriguing calibration by which she said that, since last August, they thought that financial stress for Canada was worth about 25 basis points of restr... | 200 |
fomc | 2,008 | We have thought about that, and the difficulty at this point is trying to identify the truly exogenous features of the current financial stress that is operating over and beyond the channels that are normally incorporated in our models. Our models, obviously, have asset prices, such as house prices and stock prices, an... | 321 |
fomc | 2,008 | Thank you. | 3 |
fomc | 2,008 | Other questions? If not, we will begin our economic go-round. President Hoenig. | 18 |
fomc | 2,008 | Thank you, Mr. Chairman. I thought I would talk a bit about some events in our region that I think have global implications--that is to say, I will talk a bit about agriculture. You have heard others here this morning talk about some of the price movements, and I think it is worth perhaps spending a few minutes on thei... | 1,356 |
fomc | 2,008 | Thank you. President Rosengren. | 8 |
fomc | 2,008 | Thank you, Mr. Chairman. Since our last meeting, the economic data have continued to indicate a very weak economy and that, in all likelihood, we have entered a recession. Like the Greenbook, my outlook is particularly influenced by indications of significantly weaker labor markets and a housing market that is as yet s... | 751 |
fomc | 2,008 | Thank you. President Yellen. | 7 |
fomc | 2,008 | Thank you, Mr. Chairman. Since we met at the end of January, there has been an utter dearth of good news concerning both the real and the financial sides of the economy. On the real side, I just can't recall any intermeeting period in which nearly every single data point was dismal. On the financial side, there have be... | 1,269 |
fomc | 2,008 | Thank you. President Stern. | 6 |
fomc | 2,008 | Thank you, Mr. Chairman. Well, the baseline forecast in the Greenbook looked to me a lot like the 2001 recession experience--very brief and very mild. If things turn out that way, we will have been very fortunate, frankly. The forecast I submitted at the last meeting was lower than most around the table, and now my bot... | 978 |
fomc | 2,008 | Thank you. President Lockhart. | 7 |
fomc | 2,008 | Thank you, Mr. Chairman. Reports from my directors and business contacts are consistent with what others have said this morning--that overall economic growth has slowed appreciably since the beginning of the year. Pessimism about the near-term outlook has increased. At the same time, many are troubled by the continued ... | 546 |
fomc | 2,008 | Thank you. President Pianalto. | 7 |
fomc | 2,008 | Thank you, Mr. Chairman. Through my conversations with people in the Fourth District financial community, I get the clear impression that some credit channels are closing down. Given the uncertainties in financial markets, some of the large banks in my District are finding it challenging to ascertain potential loss exp... | 756 |
fomc | 2,008 | Thank you. President Evans. | 6 |
fomc | 2,008 | Thank you, Mr. Chairman. Clearly, the incoming data on activity have been weaker than we expected. I think they point to a downturn in GDP in the first half of the year similar to that in the Greenbook. While the February CPI report was welcome news, on balance I think the inflation picture continues to be troubling. I... | 1,018 |
fomc | 2,008 | Thank you. President Lacker. | 7 |
fomc | 2,008 | Thank you, Mr. Chairman. We've seen two striking macroeconomic developments since our last meeting. We now have compelling evidence that a recession is in train. We now have compelling evidence of erosion in our inflation credibility. Information from our District corroborates a recession call. Various survey indicator... | 846 |
fomc | 2,008 | Thank you. First Vice President Sapenaro. | 10 |
fomc | 2,008 | Thank you, Mr. Chairman. Eighth District economic conditions have softened, but with considerable variability across industries and local areas. The outlook for District agriculture is very strong in the context of high commodity prices. This prospect is reflected in prices of agricultural land, which in areas within t... | 1,223 |
fomc | 2,008 | Thank you. President Plosser. | 8 |
fomc | 2,008 | Thank you, Mr. Chairman. As anticipated, Third District business activity showed continued weakness in February and March. Reports from retailers, manufacturers, bankers, and other business contacts remain somewhat downbeat. At the same time, there has been little moderation in price pressures facing our firms and cons... | 1,743 |
fomc | 2,008 | AEIOU. | 4 |
fomc | 2,008 | Don't say IOU. [Laughter] | 9 |
fomc | 2,008 | Well, I've been supportive of those, and I want to compliment the New York Desk and the people who have worked on this because I think they are very innovative. I'm not clear how successful these instruments will be, and they are not without their own set of risks of creating some potentially dangerous expectations reg... | 427 |
fomc | 2,008 | Okay. Thank you. It's 10:35. Why don't we take twenty minutes for coffee. Thank you. | 23 |
fomc | 2,008 | Okay. Why don't we reconvene. Let's start with President Fisher. | 14 |
fomc | 2,008 | Thank you, Mr. Chairman. Mr. Chairman, today is my 59th birthday, and I can't think of a better group of people to spend it with--or a less happy time to do it. | 43 |
fomc | 2,008 | We sure know how to take the punch bowl away from this party. [Laughter] | 18 |
fomc | 2,008 | Well, listen, I know we are suffering because our Deputy Secretary here sitting to your right, Mr. Chairman, just gave me a candle and had me blow it out with no cake attached. [Laughter] I want to use very quickly just four examples of what I think is going on with the economy. The first is that 21 miles of boxcars th... | 1,375 |
fomc | 2,008 | Mr. Chairman, may I ask one clarifying question? | 12 |
fomc | 2,008 | Certainly. | 2 |
fomc | 2,008 | President Fisher, did you just say the efficacy of "any" cut in the fed funds rate? | 20 |
fomc | 2,008 | I believe that the efficacy of the cuts that we have undertaken has been diminished by virtue of the liquidity-solvency crisis. | 25 |
fomc | 2,008 | I completely agree with that. But just to make sure that I didn't misinterpret you, did you say the efficacy of "any" further cut? | 30 |
fomc | 2,008 | I think it is pretty clear that I am not going to vote for further cuts. | 17 |
fomc | 2,008 | No further cuts. | 4 |
fomc | 2,008 | At this juncture. Look, Tim, we cut rates 50 basis points last time. I was in a minority of one, and I respect the group around this table more than I respect myself. Here is the point: Everything that we wanted to go down went up, and everything that we wanted to go up went down. So I just wonder about the efficacy of... | 87 |
fomc | 2,008 | I wasn't debating. It was just a clarifying question. | 12 |
fomc | 2,008 | Okay. Governor Kohn. | 6 |
fomc | 2,008 | Thank you Mr. Chairman. I agree with the others around the table who have said that the prospects for economic activity have taken another sizable leg down over the intermeeting period. I think we have been, for a time, in that adverse feedback loop between financial markets and spending that everybody--Governor Mishki... | 1,454 |
fomc | 2,008 | Thank you. Governor Warsh. | 7 |
fomc | 2,008 | Thank you, Mr. Chairman. To join the growing chorus in the discussion today, I would say that there are very significant policy challenges across five areas on both sides of our mandate. First, the real economy is materially weaker. Second, inflation risks are quite discomforting. Third, we have genuine issues with res... | 1,954 |
fomc | 2,008 | Thank you. Governor Kroszner. | 9 |
fomc | 2,008 | Thanks. I've talked many times before about the slow burn from the financial markets that is spreading out elsewhere. Unfortunately, I think the fire is a bit hotter than I had expected in my earlier discussions, and it comes particularly through capital pressures in the financial institutions. What we're seeing now is... | 1,649 |
fomc | 2,008 | Thank you. Governor Mishkin. | 7 |
fomc | 2,008 | Thank you, Mr. Chairman. Well, I'm quite depressed. That's not my usual personality trait, but the reality is that we've had as bad a set of shocks as I could have imagined, and I want to talk about this set of shocks. We have been hit with things that are making our policy environment as complicated as I possibly coul... | 200 |
fomc | 2,008 | Wouldn't you like to know! I believe that actually the Greenbook forecast of a mild recession is reasonable, but the possibility that we could have a severe recession is uncomfortably high, and I find the prospect pretty scary. The reality is that we are in this adverse feedback loop that I and others talked about. I t... | 1,882 |
fomc | 2,008 | Mr. Chairman, may I answer? | 8 |
fomc | 2,008 | Well, let him finish. Are you done? | 10 |
fomc | 2,008 | I am done, yes. | 6 |
fomc | 2,008 | President Fisher. | 3 |
fomc | 2,008 | Just very quickly, I said that the liquidity situation we're in diminishes the efficacy of fed funds policy; I'm not saying it's not a worthwhile tool. Second, I was fully supportive until we got to 3.5. Then we went from 3.5 to 3 percent. Everything we wanted to go one way then went the opposite way. So I just made th... | 209 |
fomc | 2,008 | Thank you. Vice Chairman. | 6 |
fomc | 2,008 | Mr. Chairman, I'm going to cede all of my time to you, except to acknowledge and to point out that there's much I agree with that has been said around the table, particularly with how people characterize the growth outlook and the risks and what's happening in financial markets and to the outlook. I can't say that stuf... | 697 |
fomc | 2,008 | Thank you very much. Thank you for all of your comments. Let me just briefly summarize and add a few points. To summarize the discussion, incoming data have been weak, and some view the economy as having entered recession. Housing demand and construction have continued to decline sharply, and house-price declines have ... | 1,812 |
fomc | 2,008 | 2 Thanks, Mr. Chairman. I will be referring to the revised version of table 1 distributed earlier today in the package labeled "Material for FOMC Briefing on Monetary Policy Alternatives." The revised table presents the same basic set of alternatives that was discussed in the Bluebook. However, we have proposed some ch... | 1,679 |
fomc | 2,008 | Thank you. Bill. | 5 |
fomc | 2,008 | I just want to update the dealer survey. We got two more responses. Two people moved from 75 to 100. So right now as we speak, it is ten in the 100 camp, eight in the 75 camp, and two in the 50 camp. | 56 |
fomc | 2,008 | Okay. Thank you. Questions? Vice Chairman. | 10 |
fomc | 2,008 | Mr. Chairman, it is kind of awkward to ask this in the midst of a meeting, but I think it is important. I think there was a pretty big change this morning at least in risk perceptions today across a bunch of markets. Can you tell what the fed funds curve has done this morning? | 61 |
fomc | 2,008 | I think that the April fed funds futures contract earlier this morning was priced at 1.99, and it was up by 4 basis points. I don't know if it moved subsequently. | 38 |
fomc | 2,008 | Vice Chairman, it has moved up somewhat further at least as of maybe an hour ago. It looked as though, at least for this meeting, the odds were roughly evenly balanced between 75 and 100, in terms of what was priced in. | 50 |
fomc | 2,008 | Stocks are up about 2 percent. Both Lehman's and Goldman's earnings showed declines, but they were less significant than expected. So share prices for both of them have rallied a lot. Lehman's stock was up 19 percent when I last looked--I don't know where it is today. So a lot of reversals occurred yesterday in terms o... | 74 |
fomc | 2,008 | Financial credit default swaps this morning are much, much narrower. May I raise a conceptual question around this, though? Maybe this is really for you, Mr. Chairman. How should we think about the tradeoff between what we do with the fed funds rate and whatever effect we have on liquidity and credit spreads, which are... | 94 |
fomc | 2,008 | No. | 2 |
fomc | 2,008 | I guess my question is, Don't they have independent effects? I mean, they are separate and somewhat different in terms of how we think about mitigating the risk to the overall economy. | 36 |
fomc | 2,008 | I would think of them as complementary--they are not strong substitutes, obviously--in the sense that, as is often pointed out, the liquidity measures can affect credit and solvency concerns. | 38 |
fomc | 2,008 | So maybe to echo the dialogue that you had with Governor Mishkin, if we were to be successful through taking out some of the liquidity risk of markets more generally and we got those spreads maybe back down to--I don't know--50, in a crude proxy sense, that would be good and powerful but we would still be left with exc... | 89 |
fomc | 2,008 | Yes. I'm not arguing that lowering the federal funds rate narrows these spreads a whole lot. It certainly works in that direction, but there is a big independent movement because of both fear in the markets and some liquidity concerns, which is why I think it is very important for us to have both sets of tools. We have... | 158 |
fomc | 2,008 | Brian. | 2 |
fomc | 2,008 | I just want to make one point to the Vice Chairman's question. The way I think about this is that monetary policy tends to move continuously. Of course, the federal funds rate is essentially continuous, but what we are doing with liquidity measures is designed to combat nonlinearities to the extent that they're discont... | 96 |
fomc | 2,008 | I guess another way to frame the question is, If we are reasonably successful in mitigating this adverse feedback dynamic in markets and the effects that has on financial conditions, would we still need to lower the nominal fed funds rate further to achieve the forecast laid out in the Board staff's Greenbook? | 58 |
fomc | 2,008 | The answer to that would be "yes." When we layered on significant additional negative add-factors for this recession scenario, they really weren't directly tied to our reading of liquidity in financial markets but a reading of the real economy. | 45 |
fomc | 2,008 | Governor Mishkin. | 4 |
fomc | 2,008 | I think the issue here relates to the whole question about nongradualism that we've been talking about. Clearly, if we got lucky and financial markets turned around in a major way, then the stance of monetary policy would need to change, actually very rapidly. This is one of the issues facing us--a communication issue,... | 182 |
fomc | 2,008 | President Fisher. | 3 |
fomc | 2,008 | Mr. Chairman, Vice Chairman Geithner is asking in an elegant way about the issue of efficacy, which I was trying to touch on and did so in a less sophisticated way. I just want to make sure that I understand your answer. If we were to achieve the degree of success that Tim roughly estimated, we would lessen that pressu... | 96 |
fomc | 2,008 | I can't really answer that question. Over this intermeeting period, we were coping with two important developments. One was that we saw some increase in overall measures of financial stress. As you know, we went to a forecast back in September when they first emerged and started marking down the level of GDP to account... | 147 |
fomc | 2,008 | Okay. President Evans. | 5 |
fomc | 2,008 | Well, I just want to clarify this because I didn't get the answer I was expecting. I don't think I understood exactly the question about financial stress because I thought the question was whether we would have to do more with the funds rate to achieve what was in the Greenbook. Did you mark down your outlook from the ... | 72 |
fomc | 2,008 | I guess I was thinking more along the marginal change that we would make should the factors be more successful than we're currently anticipating them to be. That would probably cause us to edge up our path of the fed funds rate to account for that. | 48 |
fomc | 2,008 | Okay. Got it. Thanks. | 7 |
fomc | 2,008 | Any other questions for Brian? With your indulgence, it has been a very volatile period with a lot of changes in views. We're also a little short of time. I think it might be more focused if I gave a proposal and had people react to it. President Plosser made the correct point that we need to think about the level of t... | 469 |
fomc | 2,008 | Mr. Chairman, I think this is a mistake. I want to take just a second. I understand why we've been lowering the rate, trying to keep the problems from spreading over to the real economy. I've been reluctant because our practice has been to go too low and to create a new set of circumstances that we have to deal with al... | 442 |
fomc | 2,008 | Certainly. President Rosengren. | 7 |
fomc | 2,008 | News of the problems at Bear Stearns and the very fragile situation in financial markets complicate our decision today. Federal funds futures indicate that the market is anticipating a reduction of at least 75 basis points and probably more than that. Normally the expectations of financial market participants would not... | 243 |
fomc | 2,008 | President Lacker. | 4 |
fomc | 2,008 | Thank you, Mr. Chairman. We've spoken a lot about inflation expectations here today. Let me at the outset emphasize that what I'm referring to in the measures we have are the expectations of the public. They're not necessarily my expectations or Governor Mishkin's, Vice Chairman Geithner's, or the Committee's, and they... | 659 |
fomc | 2,008 | Thank you. President Yellen. | 7 |
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